No Overnight Fortunes

Israeli investors have been exploring India as a goldmine of promise.

MUMBAI - India's enormous business potential is apparent from the moment one leaves Mumbai's airport to take the three-hour journey to the area where the hotels are located in the south of the 16-million strong city. When there are no traffic jams, the trip should take only one hour, but on a hot Monday morning last week the city was jammed, and that gave me the opportunity to take a good look around.

On both sides of the road, we could see smelly lakes and sewer ditches. Millions of human beings live in terribly overcrowded low-slung, improvised shacks located right at the edge of the road. Indian women laundered their clothes on the ground in water that animals would probably not be willing to drink from, and among the shacks, an array of barefoot children in rags ran about alongside cows, pigs and donkeys, with chickens also running to and fro.. Bonfires for cooking and to heat water burned on all sides, giving off a foul smell, and there was a water pump next to almost every shack.

The members of the delegation of Israeli business people that visited India earlier this month as representatives of the Israeli Export Institute could come up with only one word to describe what they had seen: "Yuck." And these people, the leaders of high-tech companies, reps from the military industries, marketing experts, entrepreneurs and bankers had come in search of business opportunities.

The shaky local infrastructures are seemingly a goldmine of business opportunity for any developer, but a comparison of the foreign-investment figures in India with those of another wakening giant - China - leaves India in the shadows. The total foreign investment in the Subcontinent came in the past year to only $4 billion, compared to $50 billion in China. In fact, the Israelis have not expressed any particular interest in rebuilding the Indian infrastructures either, both due to the huge sums involved and because the Israelis have come to do a different kind of business.

The two most outstanding areas in the foreign trade between the two countries are the sale of military equipment and diamonds.

In recent years, Israelis have also discovered India's ability to produce at low cost, and some have moved their factories to India or have purchased plants there. A few months ago, the Israeli software company Ness acquired an American software company operating in a number of countries, including India. The purchase made Ness the owner of a software house in the high-tech city of Bangalore in southern India, which employs some 1,300 people. An Indian programmer earns on average about $400-500 a month, about one-tenth of what their Israeli counterparts earn. But programmers earn a great deal more than simple diamond cutters in India, who take home only about $60 a month.

About half a million Indians are employed in high-tech in Bangalore, and they earn far higher wages and have far better work conditions than most in their country. At present, investors are trying to locate the next Bangalore virgin territory in which they can pay even lower wages. Amdocs and Comverse are just two of the many high-tech companies that have recently established plants in the city of Pune.

Uri Ben-Ari, Ness' vice president for international marketing, is a great believer in the Indian market. "Our people in India provide IT services, from the establishment of infrastructures to the development of applications. They are connected online with companies on the West Coast of the United States and work with them in real time, as if they were sitting on the next floor in the same building in Silicon Valley."

India's main advantage in comparison to China, he says, is that Indians speak English, which enables them to work with American, Canadian and British companies.

The non-governmental Israeli company that has done the most business so far in India is Tadiran Communications. The various military industries have done even more business in India, but the trade figures in that area are kept confidential by both sides. It is estimated that the security industries do business to the tune of $2 billion a year, compared to $1.6 billion in civilian trade (mostly diamonds).

Seven-year wait

The example of Tadiran Communications illustrates best of all what cannot be done in India: Those who have dreams of coming, spotting a business opportunity and making a quick buck can forget about it. The company has been active in India since 1992, but only in 1999 did it make its first sale. It happened during the height of the three-week military conflict between India and Pakistan. Many of the foreign business executives left India, but Paniel Fleischman, Tadiran Communications' marketing director for Asia and Australia, remained in Delhi. He met with the deputy chief of staff of the Indian army and offered to supply him with 20 encrypted communications devices, which cost about $20,000 each, in three days. The speedy supply of the devices made a very favorable impression on the Indian army, and since then, the orders have been coming in at a dizzying speed. Tadiran Communications has sold over $450 million in equipment to India since.

During a visit of the Israeli delegation last week, Hezi Hermoni, the CEO of Tadiran Communications, was surprised to receive a business offer from an Indian company that wanted him to sell its products to the Indian army. The company had tried to do so itself and failed, and believed that Tadiran Communications could open up doors. Hermoni is still looking into the offer.

The past 12 years have enabled Fleischman to internalize the essentials of the Indian business culture: "You have to know that if they invite you to a meeting, it won't necessarily take place. There could be a delay of weeks and that is considered quite normal. There are many that lose patience with this kind of culture. My CEO, Hermoni, has gotten angry with me on more than one occasion when I couldn't come through with something I had promised because the Indians didn't keep their word."

The delegation to India included not only industrialists and high-tech people, but also developers of a different sort, who are involved in a wide variety of initiatives. Attorney Anat Bernstein-Reich has been working in India since 1998. She arrived in the wake of her Indian partner, whom she met in Silicon Valley, and together they have been trying their luck in various initiatives. For example, she helps Israeli companies taking their first steps in India and provides them with cultural training - how to open an office, how to choose the right professionals and hire employees. "I help them bridge two years of work alone and within a few months they are in the thick of things. They don't need to follow the entire learning curve of companies that take these steps on their own."

Bernstein-Reich is currently involved in producing an Indian musical that will appear all over the world. The Indian company of Sahara (one of the largest conglomerates in India) is involved in the project along with the Israeli production company of Gashash Deshe (the son of the late Pashanel) and Haim Topol. The entrepreneurs enlisted Israeli stage professionals and a team of Indian actors and singers, who will perform well-known Indian hits worldwide. Some $3.5 million has been invested in the show.

Bernstein-Reich, who is 39 and has three children, visits India seven to eight times a year. So far, she has not made millions from the many ventures she has been involved in, and one might ask if it is worth the trouble.

"This is a long-term investment. I believe in the Indian market, and I am willing to take risks. I could have my pick of top jobs here in Israel, but I don't want to give up India."

She also works with Indian companies that are interested in purchasing Israeli or other foreign companies. In the United States, a great deal of criticism has been leveled at companies that move the mass production of their software to India because it increases unemployment among American citizens. If this trend continues, Israeli software engineers may also have a reason to be concerned.

Minister of Industry, Trade and Communications Ehud Olmert, who headed the business delegation to India, is aware of the potential difficulties: "We have the ability to create new tools and innovative products, but not to produce more cheaply. Each year, we have 800 university graduates in engineering-related subjects, and we will always have an interest in maintaining production close to the areas of research and development. Consequently, our investment in the increase of the number of people studying in the departments of engineering is critical for the continued development of our own high-tech industry."