'Swiss SMEs hold key to expanding bilateral relations with India'

INDIA has to communicate better to the SME sector, which is critical to the Swiss economy - and represents the essential area for growth in investment into India, so feels Mr. Sushil K. Premchand, President of the Swiss-Indian Chamber of Commerce (SICC). In an interview with Amitabha Sen he says Trust is hugely effective in reinforcing bilateral relationships and he personally feels that if only one factor is selected, it would be this: India has always kept its word, even though it may have been slow in making the initial commitment. As India’s markets are opened progressively under the WTO rules, trade should increase in both directions, provided India does not resort to non-tariff barriers to protect the domestic Indian markets, he adds.  

AS. This August 14, the Indo-Swiss bilateral relationship completes five decades and a half since the first Indian Prime Minister Jawharlal Nehru inked an agreement with the then Swiss authorities to build up bilateral relationship. What, according to you, could be the most inspiring factor that has kept this relationship not only stable but made it stronger today?

SKP. The Indo-Swiss bilateral relationship was one of the very first established by India post-Independence. In itself, unless backed by effective action, although historically important, such agreements have little value in the long term. Over the years, the Indo-Swiss political relationship has been stable, but the underpinning by major Swiss business and its commitment to India has been remarkable.

Today, many of the major Swiss companies in key sectors have a strong presence in India. Examples that leap to mind include Nestlé, the Basel pharmaceutical industry, parts of the textile industry, ABB, etc. Moreover, with the opening of the insurance sector and the encouragement of foreign institutional investment into India, the Swiss insurance, re-insurance and wealth management businesses, though relative newcomers to the Indian scene, are now present. Ultimately, the attraction of business is not inspiration, but opportunity – the huge opportunities that India offers, in my opinion, represent the real reasons for the strength of this bilateral relationship.

A significant area of opportunity that needs to be addressed in more detail is the need for the Swiss medium-sized business (“SMEs”) to expand its presence in India. Any major Swiss business which has been in India for decades understands far better than the SME entity the scale of the opportunity in India – the major player knows better how to deal with the problems of doing business in India. These larger businesses know that India has always kept its word, never blocked a payment of authorised dividends and always permitted the repatriation of investment funds where the rules have been followed. The SME worries about such issues – and, sadly, may not bother to check the reality! Thus, India has to communicate better to the SME sector, which is critical to the Swiss economy - and represents the essential area for growth in investment into India.

Trust is hugely effective in reinforcing bilateral relationships. If only one factor is selected, it would be this: India has always kept its word, even though it may have been slow in making the initial commitment.

AS. Going by last ten years of Indo-Swiss trade pattern, it appears that India could not step up its trade to have a favourable trade with Switzerland. What are the major reasons, you feel, that come in the way for India to strike a reasonable balance of trade with Switzerland?

SKP. There has always been a mismatch in the balance of trade between India and Switzerland. However, in recent years, the export of services from India to Switzerland, particularly software & IT services, has increased greatly. Today, Switzerland is a major market for some of the Indian IT houses. On trade, Switzerland has exported high-value goods to India, against the relatively low unit value import flow, comprising garments, chemicals, pharmaceuticals and traditional products. This is changing, as component manufacture in India reaches global quality standards, such parts are also exported from India.

In an increasingly open global economy, provided that India continues to strengthen its intellectual property rights legislation, the huge reservoir of human intellect available in India presents a primary opportunity for India to further expand the export of invisibles to Switzerland, through conducting contract research, developing & selling such intellectual property rights to Swiss businesses (especially SMEs) and providing quality offshore human resources to Switzerland. Although the balance of trade may continue in Switzerland’s favour, the impact of invisibles and services should provide a significant counterbalance in India’s favour. As India’s markets are opened progressively under the WTO rules, trade should increase in both directions, provided India does not resort to non-tariff barriers to protect the domestic Indian markets.

AS. What according to you, are the major sectors of Indian industry which offer vast potential of Swiss investment- both in terms of technology and equity? How India is placed as a manufacturing base of Swiss companies? What could be the probable areas offering such manufacturing base?

SKP. Whereas the major Swiss companies are very well represented in India, the driving force of the Swiss economy is the plethora of the Swiss SMEs that have built substantial international businesses because of the quality and the innovative nature of their technologies. Many of these smaller companies are leaders in their respective fields, almost none are “household names”, and all are highly specialised. The SME component in Switzerland’s economy is more significant within the Swiss manufacturing sector, than the major employers. Although these SMEs cover a vast range of specialities, the Swiss authorities have focussed initially on a few areas for building an enhanced SME presence in India, including food processing, environmental technologies and biotechnology. And successful ventures in India by some SMEs will cause others to follow!

AS. Do you think that the current foreign investment and industrial policies are sufficient enough to attract the Swiss investments into India? The question comes up in view of the fact that compared with the FDI approved by the Indian government, actual flow of FDI from Switzerland does not commensurate. This may trigger off a possible question whether Swiss companies are yet to make up their minds to actually execute the approved projects/investments. As SICC President you would be in a much better position to judge the ground realities.

SKP. For these technology-oriented SMEs to invest more in India, India needs to improve its “self-marketing” - and needs to make it even easier for such specialised businesses to enter the Indian market. The issue is less policy, more the implementation of policy! The earlier restrictions on FDI into India are not an issue; the continued adverse impact of the “Babu culture” at lower levels remains a problem.

It is the need to encourage such small but highly focussed SMEs to develop India as a base that still requires a broader recognition by the Indian authorities, especially at the State level. There seems to be an “official” tendency to encourage larger transactions – but Switzerland has much more to offer through the focussed & specialised know-how of its SMEs. They can bring true expertise into India – but, individually, not huge FDI investment amounts. But collectively, SMEs could contribute large FDI volumes.

Over the years, a number of Swiss SMEs have entered the Indian market, as can be detected in the lists of Swiss Companies investing in India. The official Swiss website at www.eda.admin.ch/newdelhi provides a wealth of data in this regard.

The initial euphoria generated within many such SMEs on China has waned – this is the right time for India to market itself effectively to the Swiss SME population.

The gap between approved FDI investments and the actual flow of such investment will always be lagged – but as the SME sector has negligible corporate bureaucracy, the extent of this lag is likely to be less on the smaller SME project than on larger corporate projects! This is difficult to gauge definitively, but if the SME sector can be encouraged to grow its flow of investment into India, it is my personal opinion that many of these approvals would be translated more rapidly into investments. Essentially, SMEs have no time to waste, frequently the CEO is also the owner – and is able to take a rapid decision and to ensure the implementation shortly thereafter.

AS. Besides general guidelines on FDI, do you feel that the Government of India should take country-specific measures depending on the requirements of the concerned countries like Switzerland?

SKP. Country-specific measures can be dangerous, as bigger companies will re-route investment flows to take advantage of such country-specific opportunities. Rather, the Government of India should consider adopting policies that would encourage smaller projects of a technology nature, providing in many cases the “seed” for generating new Indian intellectual property. And SMEs will soon learn to follow profit opportunities!

AS. So far Switzerland is concerned, what are the sectors, you think, Indian industries could explore to set up new business or expand the existing ones?

SKP. Indian industry has always successfully found specific niches in Switzerland. For instance, apart from the well-known impact here of the IT sector servicing the Swiss markets, Switzerland has also become a major destination for Indian film production – the so-called “Bollywood” factor – that has caused the Indian movie-goer to see the beauty of Switzerland in films. Indeed, the Indian tourist arrivals into Switzerland exceeded 200,000 nights in 2002, with even higher expectations for 2003. A further area of interest to Indian industry relates to better recognising the opportunity of Switzerland’s central location and its international recognition as a platform for growing knowledge-based businesses.

AS. What message you as SICC President would like to convey to the Swiss authorities to make Indian investments in Switzerland more attractive?

SKP. Switzerland is an attractive place to do business, but an expensive place to be based. Any Indian investing in a business in Switzerland has to recognise this paradigm. The Swiss authorities do not need to make Switzerland “more attractive”, although many Cantons do have programmes to attract overseas businesses into their areas. As far as I know, none of these has (nor would need to have) India-specific investment promotion programmes. Some Cantons have hired India-based consultants to encourage such Indian investment – but it is difficult to establish the collective cost: effectiveness of such consultants.

AS. Information Technology is getting focused attention of almost all governments in the world today. How do you find the prospects of Indo-Swiss collaboration in IT? Could you please focus on the areas that need immediate attention and measures to be taken by both the governments in IT sector? How India as one of the world software leaders could get stronger hold in Switzerland and to what extent SICC can help Indian companies in this respect? Is Swiss IT policy is enough to make inroads into Swiss IT market?

SKP. In the IT arena, many of the major Indian players have built successful businesses in Switzerland and have delivered substantial volumes of software to this marketplace. None of this has needed Government intervention – except for addressing the thorny issue of work permits. Following the Swiss bilateral treaties with the EU, the number of work permits available for non-EU nationals has been reduced.

A particular irritant for Indian software experts & consultants working in Switzerland is the difficulty they face in getting visas for EU countries. Since Switzerland is not part of the EU, the visa acquisition process has now become most tiresome for Indian nationals based in Switzerland. Ironically, an Indian national, resident in an EU country, has visa-free access to the EU and to Switzerland! But the EU – it seems – will not reciprocate!

As outsourcing becomes the order of the day all over the world, the substantial English-speaking talent pool in India must represent a major attraction for international companies looking at global outsourcing opportunities. As the communication infrastructure in India improves, and as the cost of bandwidth drops, India will become an increasingly attractive destination for such outsourcing, provided that economies of scale are offered.

The SICC does not have a specific programme to help Indian companies invest in Switzerland, but the Swiss Business Hub in India does have a programme to encourage Indian trade & investment into Switzerland.

Essentially, in Switzerland, industries are not regulated to the extent they would be in India, as the principle of “trusting the taxpayer” prevails effectively – and as the Swiss marketplace is more discerning than in India, which imposes its own “regulation”! In Switzerland, quality counts, as do delivery commitments. Thus, anyone seeking to do business with Switzerland has to arrive with the very best credentials, competitive pricing & quality systems in place – and a clear recognition that this market is unforgiving!

AS. Last but not least, how as SICC President you visualize the Indo-Swiss bilateral trade relations in the next five years to shape up? Has SICC any target set for?

SKP. As a Chamber of Commerce in today’s global, internet age – especially in a small country like Switzerland – no bilateral Chamber of Commerce can aspire to grand goals or financial targets. There are many better sources of information than any small Chamber can provide – the internet will always be more effective than our website!

But the SICC does enjoy an important & crucial role. The SICC is a truly independent and effective facilitator, but it is not a dealmaker. The SICC does not set bilateral trade targets, as it is in no position to influence performance against these targets.

However, the SICC is uniquely positioned to bring together personalities from, and experts on India with business persons with a serious interest in India. Our members include many individuals who know India well and represent important dialogue partners, especially for the smaller Swiss & Indian SMEs. We believe that the SICC provides value for money to its members, through an effective programme of meetings & events - and an array of opportunities for human interaction. The catalytic role of our Chamber is important in building bilateral relations, especially as regards FDI into India, and the modification of governmental policy in both countries. As an apolitical & independent Chamber, both the Swiss & Indian governments recognise the merit of dialogue. Thus, the SICC is an influencer on policy & practice, bilaterally. The Chamber however, does not provide trade support services for non-members, as this is rather expensive to service and as we believe this role should be filled by the respective Government representatives of both countries.

Mr. Sushil K. Premchand , based in Zurich, is the Managing Director of Preroy AG, based in Zug, near Zurich. Preroy represents a consulting bridge into India, focusing on medium-sized “SME” clients. Unlike most consultants, the Premchand family can and does co-invest in India, in suitable "SME" projects.  He is the non-executive Chairman of the (mainly unlisted) Premchand Group. Mr. Premchand is also the non-executive Chairman of the Premchand-family promoted Industrial Investment Trust Ltd. ("IIT"), Mumbai.

August 14, 2003