Insight

India Can Help Obama Reach Export Goal


(Corrects name of aircraft and dollar-value of order in 12th paragraph.)

Earlier this year, President Barack Obama announced the National Export Initiative, his Administration's ambitious plan to double U.S. exports in five years. It's a bold target: The last time U.S. exports doubled in five years was 1981-1986, when Ronald Reagan was President—and Japan, not China, was the economy Americans feared most.

Obama's effort includes expanding export credits from $4 billion to $6 billion, encouraging midsized companies to look overseas, and assailing import barriers and unfair subsidies in other countries. To boost exports from 2009's $1 trillion level, Obama is increasing the budget of the Commerce Dept.'s International Trade Administration (ITA) by 20 percent, to $534 million, and will hire an additional 300 ITA staffers next year to serve as international trade specialists at home and abroad.

Where are U.S. companies to find a further trillion dollars of annual export revenue? Most of the world is trying to increase exports, too. We can't all export our way out of the current funk. And some of the European Union's mature markets don't offer prospects for much incremental growth at this time.

There is still room for U.S. exports to grow, though. My colleagues and I analyzed the numbers and think that almost half the targeted increase in U.S. outbound trade can come from just five countries whose domestic markets are growing fast, or whose proximity, familiarity, and free trade commitment will enable new companies to gain market share. Those countries are China, India, Brazil, Canada, and Mexico. U.S. exports to them totaled $445 billion last year and we expect the number to more than double, to $925 billion, by 2014.

world's fourth-wealthiest economy

Let's face it: Actual exporting has to be accomplished by corporations, not by the government. Hands-on experience in recent years has led me to conclude that U.S. corporate executives generally lag in paying attention to potential exports to India.

Having crossed the trillion-dollar mark in 2007, the Indian economy is the world's fourth-wealthiest—based on purchasing power parity—after the U.S., Japan, and China. Its growth rate has never dipped below 5.8 percent in recent years, even during the worst of the global economic crisis.

India's own statistics, which don't fully account for its vast, undocumented economy, show a growth rate of over 8 percent this year. Many believe that the country will keep growing at close to 10 percent in the next decade, barring unforeseen disasters. Growth in India is driven by domestic factors and is not hostage to exports. The Indian government has helped by lowering duty barriers and overhauling direct and indirect tax codes; moreover, the government recognizes the need for foreign technology, products, and services to keep up the growth rate.

U.S. executives scanning the globe for low-hanging fruit should note India's remarkable untapped potential. When the Washington-based Pew Research Center conducted its most recent Global Attitudes Survey, it asked: "Do you have a favorable or unfavorable view of the U.S.?" Some 76 percent of Indian citizens responded affirmatively. By contrast only 47 percent of Chinese and 44 percent of Russians thought positively of the U.S. A year earlier, the market research firm Ipsos reported similar results.

how to convert good will to revenue?

Americans are better-liked in India than almost anywhere else in the world. Particularly when compared with attitudes in China and Russia, U.S. brands, celebrities, and culture are well appreciated in India. Unlike China, India does not limit American movies and media and India does not censor or limit foreign Web companies such as Google (GOOG).

Yet in my experience there is a gap in the minds of U.S. executives when it comes to converting this surplus of good will into revenue. Let's look at some examples of how India's market is quickly changing.

India has the world's largest military that is dependant on foreign imports. The country is ready to spend upwards of $50 billion to upgrade its aging land, sea, and air defenses, which are largely Soviet in origin. U.S. export controls and corporate inertia have permitted much early business to be won by companies from Israel, France, and other countries. Four years ago, a disheartened U.S. defense industry executive returning from India, told me he believed India was an acronym for "I'll never do it again"

Today, India has become the first international customer for the P-8i Poseidon surveillance aircraft, a deal that will produce $2.1 billion in revenue for Boeing (BA). Meanwhile, Lockheed Martin (LMT) is readying the first Hercules C130J transport aircraft for delivery to India in a billion-dollar deal for six of these giant planes—an order that could soon double in size.

many U.S. companies shun India

Now let's examine consumer products. In the cities of India, U.S. fast food restaurants abound, from McDonalds (MCD) and KFC (YUM) to Subway and Dominos (DPZ). You can even find Ruby Tuesday (RT) and TGI Friday in some cities. On the streets, Indian teenagers are wearing genuine Levi Strauss (LEVI) jeans and Reebok sneakers. Levi's has a brand just for India, called Spykar, sold in Levi's stores in major cities. Procter & Gamble (PG) Chief Executive Officer Bob McDonald visited India for the first time in 2008, when he was chief operating officer, and made an immediate commitment to ramp up P&G's presence there.

Yet dozens of prominent U.S. consumer product companies have not entered the Indian market. If the National Export Initiative galvanizes some on the sidelines to research and study Indian opportunity more carefully, American exports to the rising Indian middle class will skyrocket.

Today the U.S. is the world's breadbasket. In India you will find Washington State apples as well as California almonds and pistachios. India's growing population, shrinking supply of arable land, and rising economy create a potentially lucrative market for U.S. food ingredients, seeds, technology, food processing machinery, and more.

Historically, U.S. companies have shied away from infrastructure projects in India. Indeed, leading foreign participants in the massive public-private partnerships that have modernized airports at Delhi, Mumbai, Bangalore, and Hyderabad include overseas companies from Malaysia, South Africa, and the European Union—not the U.S. Many of the coal-fired power plants coming up are using Chinese equipment. India now hopes for a trillion-dollar upgrade of roads, bridges, power plants, harbors and more. U.S. companies have an unprecedented opportunity to participate in this expansion. India's finance minister, commerce minister, foreign minister and others traveled to the U.S. last spring to highlight such opportunities.

The nuclear door is open

Consider the possibilities in nuclear power. India's 19 plants together produce just 4500 megawatts of electricity. To boost that capacity to 30,000 megawatts and modernize its existing facilities, India has the funds and desire to buy American in the wake of the historic "123 Civilian Nuclear Agreement" signed in 2008 by President George W. Bush and Prime Minister Manmohan Singh. Despite the freeze in new plant construction since the Three Mile Island accident in the late 1970s, the U.S. still produces more energy from nuclear sources than any other country. A wealth of technology, products, and services expertise alone could mean tens of billions of dollars worth of opportunity and hundreds of thousands of jobs for Americans. That requires battling rival suppliers from Russia, France, and Canada and overcoming challenges from Korea, Britain, Kazakhstan, and Japan—all with companies eager for a piece of India's bounty.

Similar opportunities abound in professional services, entertainment, infrastructure improvement, training services, and almost every sector where the U.S. is active.

As the President and his team plan Obama's first-ever trip to New Delhi, scheduled for November, much of the attention is going to be on political and cultural issues. Economic cooperation should really be the centerpiece of his visit—Jimmy Carter was the last President to travel to India within two years of taking office. There is an historic opportunity for corporate and government leaders in both countries to align themselves more closely on business matters.

Gunjan_bagla
Bagla is managing director of Amritt, Inc., a consultancy in Cerritos, California that helps Western companies enter the India market.

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