The aim of this study is to assess the challenges concerning support from the Korean government for businesses entering the Indian market and policy responses, through an analysis of current business operations and accomplishments of Korean businesses in India. As of Dec. 2012, Korean companies doing business in India are estimated to be around 531 in total. All of them were divided into three categories(manufacturing, non-manufacturing and personal services) and surveyed via e-mail, phone and on-site visit. Among them, 109, 76, 33 survey questionnaires were collected in each category, respectively. The survey revealed that 144 businesses(27%) had either gone out of business or unable to be found. 58.4% out of all existing businesses responded to our surveys, with the figure going up to 66.9% not counting businesses that refused to reply. These figures represent the highest response rate among all surveys involving Korean businesses in India up to this point.
The results of the survey revealed that entering and gaining access to India’s domestic market constituted the biggest motivation for Korean manufacturing companies in India. According to the survey result, reasons for why they chose the current location for business include the possibility of linking up with existing companies and the size and potential of local markets. Most of the revenues for Korean manufacturing firms came from sales in the domestic market; the same companies also acquired most of the raw and intermediate materials for production from the local market. In most companies, irregular workers comprised over 20% of their workforce, with the annual turnover rate among regular employees between 10-30%. Wages were lower than those in China, but comparable to Indonesia and slightly higher than in Vietnam. For the most part, companies were satisfied with their growth over the last three years, and were very positive concerning prospects for growth in the next three years.
Sales have increased for the greater majority of companies that invested in India. Also, the direction of operation for most businesses was geared toward increasing investment for the next three years. As for future strategies, the most frequently stated was ‘increase in sales,’ followed by ‘more robust marketing’ and ‘stronger management of production,’ in that order.
Entry into India’s domestic market was also the prime motivating factor in investments by Korean nonmanufacturing firms, in addition to expanding their presence in the subcontinent. Nonmanufacturing and manufacturing firms were not dissimilar in terms of their business location as well as domestic sales, in addition to recent growth and prospects for future growth. Though nonmanufacturing firms relied slightly less on irregular workers as a proportion of their workforce, the turnover rate among regular employees were higher than manufacturing firms. Indian workers in Korean nonmanufacturing firms were paid less than their counterparts in China, but far more than workers in Vietnam and Indonesia.
Among Korean personal services businesses, the number one pull-factor in deciding to come to India was business opportunities offered by rapidly increasing number of Korean companies entering the Indian market. Most personal service businesses preferred cities such as Bangalore and Delhi, in terms of destinations for future movement or expansion, as the number of Korean companies in those cities have swelled recently. Though the job turnover rate also posed worker management problems for businesses in the sector, it was actually lower compared to manufacturing and nonmanufacturing sectors. Despite many businesses expressing positive outlooks on future growth, business operations were geared toward maintaining the status quo.
Korean firms in India generally agreed that the investment environment in India had improved overall over the last three years, not to mention having an optimistic outlook on the investment environment for the next three years. However, labor management, taxes, administrative services, and business location were cited as areas that worsened the most over the previous three years. As for areas likely to deteriorate in the next three years, the companies’ answers included taxes, labor management, government policy, and administrative services.
Forms of assistance from the Korean government most requested by Korean manufacturing firms in India included the following, in order: financial aid, long-term visa issuance, expansion of direct air routes, industrial complexes for Korean firms, an investment assistance center in India, training courses. The answers from nonmanufacturing/personal service businesses were as follows, in order: financial aid, long-term visa issuance, expansion of direct air routes, and an investment assistance center in India. On the other hand, Korean firms requested the following forms of assistance from the Indian government: facilitation of visa issuance, eliminating corruption, expansion of infrastructure, more direct flights, and industrial complexes for Korean firms.
Based on the survey, the following mid-term and long-term policy recommendations may be put forward for supporting Korean firms in India. First, the policies should focus on small and medium-size companies, and be divided into middle and long-term in terms of time. For the immediate future, more has to be done to increase the availability of investment and cultural information on India. In addition, a database of Korean companies in India should be established, with firm and consistent oversight. For these ends, official support for the establishment of a Korean Chamber of Commerce in India will be necessary. Another task for the Korean government would be to initiate negotiations with India on visa and aviation agreements, in order to secure a greater number of direct-flights and long-term visas.
For the middle-to-long-term time frame, a greater effort to upgrade the concessions in the Korea-India CEPA through the bilateral joint committee must be made. A case in point, a more active use of the ‘favorable consideration’ article in the CEPA regarding Korean bank branches should be made, to accelerate the entry of private banks into India. Last but not least, the lack of infrastructure being the most pressing problem and biggest obstacle facing Korean firms in India, the creation of an industrial complex for Korean businesses should be given active consideration.