Jas Binning exported $25,000 worth of softwood lumber to India in 2006 with the hopes the move would compensate for a slowing North American market. “I started with small volume,” said the owner of Abbotsford’s Jazz Forest Products. “Now (we’re) shipping close to a half-million dollars every month.”
With its huge, increasing population and growing economy, India has been identified by both the provincial and federal governments as a priority market for export growth. While many B.C. exporters agree, experts say distance, economic uncertainty and heavy government regulation mean it is still no easy task to break into the market, the world’s tenth largest by GDP.
In 2012, India was ranked as the 11th-highest destination for B.C. origin exports. Nation-wide merchandise exports to the country rose 27.7 per cent — to $2.6 billion — in 2011, according to Statistics Canada.
Commodities, specifically coal and copper, dominate B.C. exports to India. Coal ranks No. 1, with the province shipping $160 million worth of coal products in 2012 — 50 per cent of total exports by value. Copper ranked second ($83 million in 2012).
But Trade and Invest B.C. has highlighted significant opportunities for local exporters in forestry, mining, international education, clean technology, liquefied natural gas and agrifoods.
Binning is still actively pursuing growth in the market, and said he’s already seeing more lumber suppliers from Western markets like the U.S. and New Zealand turn their eyes to India to service the country’s need for wood to replace dwindling tropical hardwood sources. He said most of his product is destined for end use in housing and furniture construction.
HSBC Holdings Plc predicts a slowing in economic growth to four per cent in the 12 months ending March 2014 — the weakest pace India has seen in more than a decade.
But Reserve Bank of India Governor Raghuram Rajan said growth could reach “double digits” once the country finishes tackling the difficult problems of poor infrastructure, inadequate human capital and over-regulation.
The former IMF chief economist cites stronger exports, improved agricultural production and a growth rate he expects to accelerate from last quarter’s cooling as reasons for optimism.
Keith Head, a professor at the University of B.C.’s Sauder School of Business, says the B.C.-India trade relationship has been a good news, bad news story for the province so far.
“India is only one per cent of B.C.’s exports, and less than that for Canada,” Head said. “It’s not one of the big players in our export market at this point. The good news is that a decade ago it was less than half a per cent.”
“So the trend is there, we’re just starting from a very low base.”
According to Head, who holds an HSBC professorship in Asian commerce, India’s large population relative to available resources needed for development makes the two countries “natural trading partners.” He says he expects resources to continue being B.C’s main export to the country.
His research has shown that even in a globalized world, distance between markets is still a large limiting factor for specialty products, and may hinder the success of well-known B.C. exports like wine or fresh fruit.
“In goods it seems that distance matters as much as ever,” Head said. “Distance just doesn’t want to go away.”
For Coast Forest Products Association CEO Rick Jeffery, this factor has been key in targeting India for higher-grade softwood lumber exports as demand for better housing and furniture increases along with the middle class.
“For B.C., India is exactly halfway around the world,” said Jeffery, “so if we’re going to be shipping product into India, that kind of distance, it’s going to have to be products in the higher-value range.”
Although Jeffery said large volumes of lumber haven’t left for India yet, the industry is working closely with the provincial and federal governments to identify market opportunities and how to approach them.
“India today reminds me of China 12 years ago. We knew there was something there, we weren’t quite sure what it was, and so we needed to do the work to find out what that (was),” Jeffery said.
“Twelve years ago we weren’t selling anything to China, today it’s our second biggest market.”
In addition to the difficulty of being half a world away, exporters looking to do business in India also face an onerous regulatory environment. In an effort to ease barriers to trade, an eighth round of negotiations on a comprehensive economic partnership between Canada and India took place over the summer.
“India is not an easy market,” said Karim Kassam, vice-president of business and corporate development for Burnaby-based Ballard Power Systems. “It’s not for the faint of heart, for sure, in terms of the regulatory environment.”
Ballard is currently deploying its fuel-cell technology within Idea Cellular’s India network. The fuel cells run off liquid methanol and are supporting the country’s move to reduce reliance on diesel generators to power telecom base-station towers.
India is a uniquely cost-sensitive market, with pressure to be competitive on price coming from its massive population, according to Kassam.
B.C. is a leader in clean technology, he pointed out. So despite the work required to enter the market — tackling over-regulation, high duties and a foreign investment environment — the province stands to gain from India’s need to address sustainability within its large population.
“If you can crack the market, and if you can be competitive and do a good job, there’s tremendous opportunity,” Kassam told The Vancouver Sun from India. “There is a business need and we have a business solution.” Kassam said having good relationships with local partners is one of the keys to navigating the Indian market. Every new market presents challenges, and India is no exception, according to Head.
“Less developed countries present a whole bunch of extra challenges if you don’t have some kind of insider knowledge,” said the business professor.
One such challenge is corruption. According to data from Transparency International, India ranks 94th out of 176 countries in perceived corruption of the public sector.
“That certainly adds to the difficulty of doing business there,” said Head, explaining that foreigners often miss signals, bargain poorly or are frozen by ethical restraint when encountering corruption.
Although Head cites a high correlation between low per capita income and corruption — more than two-thirds of the country’s 1.2 billion citizens live on less than $2 U.S. a day — he said many nations have escaped this cycle. He expects India to do so gradually as well.
On-the-ground partnerships and employees back in B.C. with connections to India can help.
Canadian businesses, in particular, export more to countries from which it has a greater population of immigrants. A study of national trade data, by Head and Sauder School of Business colleague Dr. John Ries, found that a 10-per-cent increase in immigrants is associated with a one-per-cent in increase in Canadian exports to the immigrant’s home country, alongside a three-per-cent increase in imports.
“As we know, Vancouver and Surrey have high Indian immigrant populations, so my research would seem to suggest that really could create inroads that some other countries might lack,” Head said.
With Bloomberg files
© Copyright (c) The Vancouver Sun