India: The Sleeping Giant (for Software, Anyway)

By Scott Goddin & Nicholas Strychacz, Portland US Export Assistance Center

Why India?
Today more than ever, India is an important market for US software firms. The Indian economy is the tenth largest in the world, and fourth largest in terms of purchasing-power parity. In 2005, US exports to India increased to $8 billion – a 30% increase over 2004 exports; and US/Indian two-way merchandise trade reached an all-time high of over $26 billion. Oregon’s exports to India in 2006 are on track to grow to over $100 million – an increase of over 200 percent from 2005.

While India’s GDP per capita is low, nearly 200 million people increased their purchasing power in 2005, creating a large affluent middle-class population. India’s burgeoning economy, coupled with a consumer class that will demand more high-technology goods from abroad, presents great opportunities for enterprising US firms.

The information technology industry was one of the fastest-growing sectors in India in 2004 and is expected to increase at 15% to 20% over the next several years. Still, although Indian software and information technology firms have gained global recognition for their innovative software and high level of service, the product domain remains underdeveloped. There are an estimated 10 million personal computers in India, which gives substantial scope for both hardware and software growth. State-supported information technology development centers outside of Mumbai and Bangalore will likely increase the number of firms in the sector and will increase the prospects for collaboration and joint venture projects.

Along with this “installed” capacity for packaged software, India is undertaking a massive upgrade of its communications and transportation infrastructure, financial services industries and manufacturing capabilities. These efforts will provide increased scope for a broad range of applications servicing expansion in these developing sectors. Oregon firms providing embedded and related applications should look both to foreign-invested and Indian national firms for sales opportunities for industrial technologies.

Collaborative projects
Depending on your product or service offering and given their technical proficiency and global cost competitiveness, Indian software firms will be aggressive in seeking out opportunities to engage as partners rather than passive consumers in your business relationship. Oregon firms should factor this contingency into a business plan and, at the least, anticipate a conversation on the issue.

Many companies have been successful in working with Indian firms on an initial team or project basis and expanding the relationship as necessary. Integrating Indian expertise into a global team approach to product development can benefit both parties and create a partner with a vested interest in having your product succeed in the Indian market.

There are many difficulties to developing and maintaining these types of global software teams, particularly at an initial stage. Some of the challenges include: less opportunity for real-time communication, a lack of a shared cultural context, and an inability to coordinate work or leverage available expertise due to distance and time constraints. Whether or not these challenges can be overcome usually determines the success of the joint-venture project.

Practices recommended for addressing these issues – used by both US firms and established Indian software firms (including Bangalore-based Infosys) – include[1]:

• Time flexibility: Members of the team must recognize that time differences are not fixed; they must adjust and adapt to changing circumstances.
• Liaison: An effective liaison is someone who is experienced in India’s cultural norms and can work between the two parties effectively to bridge any gaps in cultural understanding and resolve potential issues before they become problems.
• Meetings: Routine, periodic, real-time meetings are essential to maintaining open communication between the parties. Many Indian software firms establish one day per week for having a general team meeting to air out and resolve any issues.
• Real-time informal technologies: Technologies such as instant messaging can be used for communicating in real time across the world. Such informal linkages can be useful in maintaining communication beyond the routine team meetings.

Intellectual property rights considerations
An important factor that US software firms must consider when doing business in India is the protection of intellectual property rights (IPR). While there are many benefits to be gained by engaging in collaborative work with Indian firms, there are also IPR issues concerning software that should be understood and considered by US firms before engaging in collaborative overseas activities.

Specifically, India’s copyright laws are weak, and large-scale piracy of copyrighted (packaged) software is rampant. India is not a signatory of either the 1996 WIPO Copyright Treaty or the WIPO Performances and Phonograms Treaty. More egregious than weak laws, though, is the state of India’s criminal IPR enforcement regime; the prosecution of IPR violators and the Indian judicial system lack transparency. Due to backlogs in the court system and procedural and documentary requirements, very few cases have recently been prosecuted; adjudication of cases is extremely slow.

Other factors that have hampered the criminal enforcement process are the obstruction of raids, leaks of confidential information, and a lack of trained officials. Bureaucratic barriers also constrain foreign firms from effectively protecting their intellectual property rights. For example, trademark licensing can be refused on a variety of grounds, including “not in the public interest,” “will not promote domestic industry,” or for “balance of payments reasons.” The Foreign Exchange Management Act of 1999 requires that foreign firms must invest in India or provide technology in order to be granted a trademark license.

While there has been some progress in enforcing IPR, the United States has told India that improvements must be made in the following areas: border enforcement against counterfeit and pirated goods, police action against pirates and counterfeiters, judicial processes resulting in convictions for copyright and trademark infringement, and the imposition of deterrent sentences. India is currently engaged in interministerial consultations to develop legislation on expanded police search and seizure authority. The pending legislation would provide for minimum criminal penalties and mandatory minimum jail terms. Further discussions are being held on amending the Code of Civil Procedure to require that civil cases be completed within one year. Such an amendment would expedite the prosecution of civil cases brought by US firms in Indian courts. If implemented, these changes in the judicial system and the civil code would contribute to effectively deterring intellectual property piracy.

Software firms should make the best use of available resources to craft an IP and marketing strategy that allows them to take maximum advantage of these opportunities while aggressively managing their IP risk. Very pragmatically, this will also involve careful partner identification and relationship-building. More specific information on crafting an international IP strategy can be found at www.Stopfakes.gov. The US Department of Commerce website offers basic information on intellectual property along with country-specific toolkits that discuss protecting intellectual property in major emerging markets. Additional resources on India can be found at the US Commercial Service websites at www.buyusa.gov/india.

Meeting the business challenge
India has a reputation as being a difficult place in which to work: it is ranked 134^th in the world – near the bottom of the list – for ease of doing business. In order to maximize your chances of successfully collaborating with an Indian firm, there are some cultural factors and tips to keep in mind when doing business in India.

Although the caste system has been officially abolished in India, its hierarchical nature persists in today’s business culture. Similarly, Hinduism is a hierarchical religion and is an integral part of daily life for many Indians and must always be respected. The hierarchical system in Indian business manifests itself in several ways. The chain of command in a firm is strictly adhered to; as seniority is so highly respected in India, any criticism must be constructive and respectful in order to avoid offending anyone. Discussions will almost always be led by the most senior figure at a business meeting.

An important implication of this is that aggressiveness in business deals – which is often considered a virtue in America – will likely be seen as a sign of blatant rudeness and disrespect. Business negotiations often take longer than in America and should never be rushed. Rather, Indians place more emphasis on interpersonal relations, and such relationships should be carefully cultivated whenever possible. In India, the family is highly regarded; therefore, taking an interest in your business partner’s family is an important and useful way of establishing trust and rapport. Building trust and solid personal relationships is a vital step in the process of completing a collaborative business project.

When setting up a meeting, try to keep a flexible schedule. Indians appreciate punctuality but may not practice it themselves. Meetings often begin with friendly conversation and small talk; use this as an opportunity to cultivate a relationship with your business partner as described above. During the meeting, be respectful at all times. This means that you should use formal titles wherever possible, and you should not refuse food or drink if it is offered, as doing so can be construed as a sign of disrespect. Formal business dress is the norm in India, although during the hot summer months and during the monsoon people may opt for lighter, less formal clothing. If an Indian invites you to a cultural event, wearing traditional Indian attire is entirely appropriate and will be seen as a gesture of respect and goodwill.

The Oregon/India Connection
As trade has expanded, Oregon has increased both formal and informal ties with India on a number of levels. Large-tech firms like Intel and Hewlett-Packard have significant and growing operations in the country and, through staff exchange and development, have also contributed to development of the Indian community locally. Many local tech and non-tech firms have set up call center, customer service and other back-office operations in India with attendant controversy on employment impact and dislocation locally.

Increasingly, Oregon firms are approaching the Indian market to structure a business relationship that will assist them in competing globally and succeeding in markets with India’s growth potential. The interest is not just one way. An Indian delegation of Chamber of Commerce representatives visiting Oregon last March was interested in learning more about the Open Source Development Lab activities in the state. As Oregon software firms continue to succeed in innovation and product development, India will increasingly present itself as a market of keen interest and opportunity.

About the author
This article was co-written by Nicholas Strychacz, a student intern at the Portland USEAC and recent graduate of Lewis and Clark College (where he majored in International Affairs). Nick is planning to attend graduate school next year towards a degree in international economic policy.

Scott Goddin is director of the Portland US Export Assistance Center (www.buyusa.gov/oregon) and has been working in international trade with the US Department of Commerce for more than 20 years. He works with Oregon and Southwest Washington high-technology companies to develop international markets, specifically helping them to design market-entry strategies; find and evaluate distributors, VARs or agents; evaluate product or service delivery methods; and “internationalize” their companies.

Goddin has served as a US trade negotiator working on Asian market access and standards issues for US high-tech and communications companies and intellectual property rights issues in Korea, Taiwan and China. Goddin also has served in temporary assignments as a commercial attaché at American Embassies in Seoul, Taipei and Nairobi and has managed the office in Portland supporting local Oregon firms since 1997. You can learn more about export assistance at www.export.gov or contact Goddin directly at scott.goddin@mail.doc.gov.