Australia should pursue ‘boots on the ground’ policy to push trade with India
“Australia is under new management and is open for business again,” declared Prime Minister Tony Abbott whose new government took charge recently. Economy is obviously high on his agenda and a number of announcements aimed at pushing up exports and attracting fresh investments can be expected over the coming weeks.
While the slowing down of China, the biggest export market, has been a worry, its neighbor and the 5th biggest export market, India, will need some urgent attention as well. After a long period of consistent growth that made it Australia’s fastest growing market, exports to India have been declining. In fact, they have dropped sharply by over a quarter during the last 2 years.
Over the past 3 years, the Australian government has invested significantly into India to expand and upgrade its ground presence and elevate the bilateral relationship to that of a strategic partner. While Chennai and Mumbai were upgraded to full fledged Consulates, Austrade’s network was nearly doubled, from 6 to 11 offices, to make India it’s largest in the world. Last October, the government launched Oz Fest – a 3 month long cultural festival covering 18 Indian cities. It was aimed at forging closer bilateral links across education, arts, sports, business, culture & research.
With contentious issues like the ban on Uranium sales and ‘attacks’ on Indian students behind, and the Free Trade Agreement to look forward to, more official ‘boots on the ground’ were expected to help accelerate the growth in trade and investments. Julia Gillard, during her visit to New Delhi last year, had announced that the bilateral trade could double within 3 years to reach $40 billion by 2015. But things have gone a bit awry since then as Australia’s goods and services exports have nosedived from $19.4 billion in 2010 to $14 billion in 2012 falling even below the 2008 figures of $16.5bn
An opportunity to re-engage
The new Trade & Investment Minister, Andrew Robb, would be well aware that India too would be heading for elections within the next 6 to 8 months. Though the top item on his agenda would be kick-starting growth soon, he would be keen to discuss and formulate a comprehensive policy focused on a more stable and sustainable growth.
Commodities underpin Australia’s trade engagement with India. While this is Australia’s traditional strength, it would be risky to let just 3 items, coal, gold and copper constitute 80% of the total trade. A trade strategy will not be sustainable if it is predominantly based on opportunistic sales, subjected to the vagaries of global factors. For example, India’s recent policy change restricting gold imports is bound to have a significant impact on Australia’s 2nd biggest export item, worth $3 billion.
Australia should try to expand and diversify its export portfolio while continuing to grow the commodities business. A significant part of the commodity trade anyway happens without much government involvement. Also, Indian businesses are increasingly considering investing into Australian assets in order to try and secure their raw material supplies. A portion of these investments will translate into exports back into India.
Change in mindset necessary
Trade policies are no more about merely shipping goods out of our ports. In the globalized world, they are as much about securing & sustaining export markets through long-term strategies& overseas investments. The government can also play a key role in helping the exporters to enhance their capability, competitiveness and profitability. In many cases, it could mean supporting businesses to establish overseas presence in order to try and leverage on advantages like cheap labor, low manufacturing cost, overcome import barriers, efficient logistics, etc.
The manufacturing sector is a good example where Australia’s competitiveness is fast declining due to high costs and it’s sometimes a choice between closing down the business and shifting some of their operations to a low cost country like India. As we have seen in the case of Mitsubishi, doling out taxpayer’s money is not the solution. It will not stop the eventuality; can delay it, at best.
Businesses exercising the option to shift overseas at least stand a chance to plough profits back into Australia that could create high value jobs in areas such as advanced manufacturing, product design and development, Australia’s competitive strengths. This approach could help businesses extend not just their product life cycle, perhaps the life cycle of the organization itself. Trade and investments are much more closely related today. This will require a bit of change in political as well as industry mindset.
Of course, establishing business overseas is a different ball game altogether and would need an entirely different set of skills, knowledge and resources than those for shipping containers from Australia. The risks involved are bigger while operating in an unfamiliar business environment. But with 3 consulates, 11 Austrade offices and state offices by Western Australia, Queensland, Victoria and New South Wales, help is on hand.
It is also time for the government to recognize that it is critical for the Australian industry to import certain key products and services for sustaining the local industries and jobs. Import is not a dirty word anymore; at least not always.
Australian businesses need better support in India
Australia has a great success story to tell in terms of its export growth to India. But, ironically, the story of individual businesses and brands is not the same. Apart from a few exceptions, there are many cases of failures and pullouts that have instilled a greater fear of India, and scare away new businesses. A number of issues right from business culture, red tape, inconsistent policies, corruption and uncertainty are quoted as the major challenges of doing business in India.
Even the likes of Australia’s iconic brands such as ANZ, Telstra, AMP and Woolworths, despite their vast experience and resources, found the going tough and eventually pulled the plug. ANZ has re-entered India recently, albeit on a much smaller scale.
The Australian businesses receive excellent support from the government agencies on ground in the initial stage with information, advice, strategy, introductions, identifying partners, business opportunities, etc. But, when they progress to the next stage to implement strategies, negotiate deals, establish business, run operations, deal with local partners & authorities, etc. they often find that the ground realities are quite harsh. This is the stage where most businesses fail.
Having a good local business partner can help deal with some of these challenges. But it doesn’t always work as local partners will have their own culture, interests and priorities posing a different set of challenges. It is interesting to note that Woolworths pulled out of India last year despite having the Tatas as their local partners. The reasons aren’t known.
This is an area of market failure and the government needs to consider extending its in-market services into the segment where actual business happens. Of course, governments have limited direct role in the commercial space; but can work innovatively with external experts and professionals to provide the critical support businesses so desperately need.
Australia’s India strategy
A few weeks ago, the previous government launched its India strategy laying strong emphasis on connecting communities, governments and businesses to achieve its goals by 2025. It is a well-intentioned document that reinforces India’s position as Australia’s top 5 priority countries. However, its success will depend a great deal on doing a few things differently.
Firstly, it is critical that Australia is able to get India a bit more excited about the relationship. Though there has been a closer engagement by both sides in recent years, it seems the response from the Indian side doesn’t quite match Australia’s enthusiasm. It could get better as India’s exports to and investments in Australia grow. While India is amongst Australia’s top 5 export markets, and therefore an extremely important country, Australia doesn’t even figure in the top 30 export markets for India. This is perhaps just one of the reasons why Australian affairs in New Delhi are managed by a bureaucrat no senior than an undersecretary and for whom Australia happens to be just one of the 25 countries that he deals with! Perhaps the mismatch in priorities is best explained by the fact that while the Australian Prime Minister has visited India several times in recent years, the last time an Indian Prime Minister set foot on Australia was 27 years ago!
It is, therefore, critical to not just do things in and with India, but from India.
Australia’s success would also depend to a large extent on the ability of its politicians, officials and businesses to connect with India & Indians better and interpret them more accurately. It goes beyond speaking a common language. There’s a real risk they could get distracted and be mislead by the constant churning and chaos on the surface, which often camouflage and conceal the realities and dynamics underneath. It is crucial to know these undercurrents to be able to engage more productively.
Any attempt to judge India based on a few incidents and developments or even by extrapolating a few of those would be risky. It is India’s reluctance to conform to any linear model or template that makes it so unpredictable and exciting. A strong understanding of its people, culture and priorities is critical to manage the relationship. This is the common trend with most global organizations doing business in India successfully.
Australia’s new management is open for business. But if it wants to maximize its trade with India, it needs to have a policy that encourages and supports its businesses to have ‘boots on the ground’. The government has already led the way by positioning enough of its own; it is for the businesses to follow now.
For feedback / comments, please contact him on tareen@aktconsulting.co