Search the Internet          Tips  Sites: Finance, Investment

'The challenge for India lies in convincing new investors of its potential'

On November 20, A T Kearney, the US-based 'high value management consultants' with operations in 58 cities and 35 countries worldwide, shocked Corporate India and economic circles by announcing in New Delhi the results of its foreign direct investment audit: American business houses are reluctant to invest in India, hitherto said to be one of the most-preferred destinations for international investors.

Months after its publication, the audit continues to rankle India-watchers. Policy-makers and government officials have been at pains to convince foreign business houses that India is a good place for investors.

In an interview with Associate Editor Y Siva Sankar, A T Kearney vice- president and managing director of the firm's Global Business Policy Council that conducted the study, Paul A Laudicina, puts the findings in proper perspective.

Why and on whose behalf was this survey conducted?

The FDI Confidence Audit is an outgrowth of the A T Kearney Global Business Policy Council's Foreign Direct Investment Confidence Index, an annual assessment of CEOs, CFOs and other senior executives of the world's largest companies on their foreign direct investment decisions.

The Global Business Policy Council is a strategic service of A T Kearney that helps chief executives monitor and capitalise on geopolitical, economic, regulatory, technological and social change worldwide. Council membership is limited to a select group of corporate leaders and their companies.

When did you conceive of this idea to do the survey?

The Global Business Policy Council has produced the Foreign Direct Investment Confidence Index since 1998.

The council published the first country-specific audit for South Africa in March 2000.

Drawing upon A T Kearney's experience in analysing FDI trends, the FDI Confidence Audit: India examines corporate investors's perceptions of the strengths and weaknesses of the Indian investment environment with the intention of offering important input to the process of helping to improve India's ability to attract a larger share of global foreign direct investment flows.

How did you go about doing this survey? What was the methodology/sample adopted? How representative are the findings overall? On what basis did you choose the sample?

A T Kearney’s FDI Confidence Audit: India is based on in-depth private interviews with senior executives from a sample of Global 1000 companies, covering all major sectors of investment and accounting for more than 10% of India's actual stock of FDI.

The audit initially targeted CEOs and CFOs who regularly participate in A T Kearney's FDI Confidence Index. Given the importance of India as an investment destination in Asia, many of these executives suggested the names of those officers in their organisations who have direct responsibility for operations in India and/or the Asian region.

Respondents offered a diverse range of comments and opinions regardless of the degree of commitment of their firms to the country. Because of the size of its population and the potential of its market, India does not pass unnoticed on the radars of international investors.

As a result, the sample represents a well-informed group of respondents over three out of four participants had equal or better knowledge of India than of other emerging markets.

The study says factors like government bureaucracy, lack of infrastructure, cultural barriers, corruption and poverty/income-disparity are hurdles to foreign investment in India. Are the people surveyed/questioned for the survey victims of these factors? Did they experience these problems themselves? Or, is this their perception/viewpoint?

Most of the investors surveyed had personal experience with Indian investments. Sixty-seven per cent of the executives surveyed in the Indian Audit were positive about the country as an investment destination and 61 per cent of companies with existing investments in India said they were likely to add to those investments.

But among companies without investments in India, only 14 per cent of the executives surveyed in the FDI Confidence Audit: India characterised their likelihood of investing in India as high.

When the findings were ready, which one came across as the most striking finding to A T Kearney? Why?

Perhaps most notable is that three quarters of all participants indicated that opportunities for investment in their sectors exist in India. Financial services, industrial products, telecom and high-tech firms are the most bullish towards India today.

Another interesting finding is that respondents from all sectors identified China as India's main competitor for FDI today. Ninety per cent volunteered China as a benchmark for India and close to 100 per cent confirmed that they would compare India and China in an investment analysis. As China emerges as India's greatest competitor for FDI flows, India must profit from its competitive advantages vis-à-vis its neighbour.

What do you think are the most important findings of the survey?

While the perceived liabilities holding back investment in India are significant, we have also found that the country has a solid list of assets, domestic market size and potential, a skilled labour force, government-led initiatives to increase FDI, competitive wages and political stability that are attractive to investors and potential investors.

Corporate investors indicate that India possesses the most-sought-after asset in the global marketplace. Market-size and potential give India a definite advantage in attractiveness over most other comparable investment destinations.

A full 96 per cent of the executives surveyed said the Indian labour force has the necessary skills for their investment. By contrast, only four per cent cited labour skills as a factor for global investment decisions in all other countries.

Could you name all the companies that participated in the survey?

All surveys were conducted confidentially, so company names cannot be disclosed. However, participants were CEOs, CFOs and other senior executives from a sample of 'Global 1000' firms. Eleven different countries and 16 specific industries are represented in the survey sample.

Has A T Kearney conducted this kind of survey before? If yes, where? What were the findings of earlier surveys? How does India compare and contrast with other countries in similar surveys?

A T Kearney's Global Business Policy Council first published its annual FDI Confidence Index, comparing the relative likelihood of direct investment in 60 countries, in 1998. In each of these general FDI surveys, India has ranked among the top 11 investment destinations of choice. The 2001 edition of the FDI Confidence Index will be released in mid-February. In addition, the council produced its FDI Confidence Audit: South Africa in March 2000.

The findings of the survey on India have got considerable coverage in the Indian media. What do you think will be the impact of this?

The country has a great deal of potential, and by highlighting the assets and liabilities, this study should help provide useful insight as India seeks to develop further and project its investment assets while working to overcome the liabilities that are hindering FDI.

Have you received any feedback subsequent to the announcement of the study findings?

We are pleased with the interest the Indian media have shown. We have already received a number of inquiries, as well as interesting feedback. The FDI Confidence Audit: India White Paper, to be published shortly, will expand upon the results released in November 2000.

How long did it take A T Kearney to finish the study?

The whole process took about six months.

How much money was spent on this study? Will the study be published in the form of a book or in any other form?

The FDI Confidence Audit: India is a pro bono project of A T Kearney intended to help India understand better the perceptions of its investment environment, and capitalise accordingly on the opportunities presented for increasing FDI flows into the country.

A White Paper summarising the findings of the audit will be published shortly. In addition, the audit will be available online at www.atkearney.com as a part of A T Kearney’s Intellectual Capital offerings.

When would be the next FDI study on India?

India will be covered in the upcoming FDI Confidence Index which will be released in mid-February 2001. Like the FDI Confidence Audit: India, this general survey will be available on A T Kearney's Web site.

What do you have to say about the way the study has run its course, the findings, the subsequent media coverage?

We are very pleased with the results, as well as with the reception the audit has received. The study reveals good news in that investors, especially those already committed to India, perceive a great deal of potential for the country.

The challenge for India lies in changing the investment liabilities and convincing new investors of the country's continuing potential.

FROM THE REDIFF ARCHIVES:

The rise and fall of FDI in India
'India could be an investor's delight only if...'
Why FDI will rise in India in future, not now

EXTERNAL LINKS:

The official Web site of A T Kearney

A T Kearney's FDI Confidence Index

Money

Interviews

Tell us what you think of this interview