Published on 30 Nov 2023 on The Economist via Yahoo Finance
How to succeed—and fail—as a foreign business in India
THE RECENT history of foreign business in India is littered with failures. Even as the country has tried to lure global businesses keen to diversify into a fast-growing emerging market and, amid rising geopolitical tensions, away from China, many multinational companies are throwing in the towel. Notable departures over the past couple of years include Abu Dhabi Commercial Bank; Ford, an American carmaker; Holcim, a Swiss cement giant; and Metro, a German retailer. Disney is negotiating the sale of all or part of its streaming business. On November 24th Berkshire Hathaway, a $780bn American investment Goliath, offloaded its 2.5% stake in Paytm, an Indian payments processor.
These are only the latest companies to call it quits. Inbound foreign direct investment has been flat since 2018. Although nearly 11,000 foreign firms entered India between 2014 and 2021, a government report found that 2,783 had left or closed in that period—a dispiritingly high number for a supposedly fast-charging economy.
Some were probably put off by practical challenges, such as clogged roads, unbreathable air and patchy telecoms networks. Some no doubt balked at the legal obstacles to hiring workers, buying land or paying the right taxes. Some may simply have felt unwelcome; local bureaucrats and business leaders often see foreigners as a direct threat to domestic interests. Crucially, many fared less well than home-grown rivals. According to BCG, a consultancy, their gross operating margins average 12%, against 15% for Indian firms. When confronted by India’s reality, as opposed to its potential, plenty of excited foreign chief executives quickly find themselves “disabused”, sighs a consulting boss.