The growing closeness between China and India is perhaps nowhere more evident than in the mind-boggling speed at which commercial ties between two of the world's fastest growing economies have been developing in recent years.

In 2001, bilateral trade between China and India stood at US$2 billion. In 2007, the figure had crossed US$38.5 billion. Bilateral trade is growing at a stunning 50 percent every year.

This year, China will become India's largest trading partner. The trade figure is expected to reach US$60 billion before the end of this year - a target the two countries had previously set for 2010.

"The speed at which trade has grown is simply breathtaking," says Vishnu Prakash, consul general of India in Shanghai. "In India, there is a consensus across the political spectrum to engage China in a cooperative way, and we see the same resonance here."

Growth has been largely driven by the huge demand for Chinese machinery from India's fast-developing manufacturing sector and China's growing demand for raw materials, chiefly metal ores.

The Indian import of Chinese value-added items has in recent years led to a scenario of trade that was significantly in China's favor. The relationship is now slowly changing with an increasing number of Indian manufacturing and information technology companies making their presence felt in the Chinese market.

Success story

"In the last three to five years, we are seeing a string of investments in IT coming through," Prakash says. "Many of India's biggest IT companies now want to base their largest software development centers outside of India in China."

Indian IT giants Infosys, Tata Consultancy Services and Wipro, and NIIT in software services, have all begun making serious inroads into the Chinese market in the past two years, after a decade of operation on the sidelines. Last year, TCS, India's largest software exporter, bagged a US$100 million contract to provide IT services for the Bank of China - a deal many Indian businesses regard as a watershed for Indian IT in China.

Another IT success story is NIIT, an IT training and software solutions company. NIIT started out with just two training centers in Shanghai in 1997, and initially struggled to expand its presence. Today, NIIT has 172 centers in 65 cities and 25 provinces across China, currently training 50,000 Chinese students in software skills every year.

"As any economy grows, IT has a central role to play, and we are now seeing the effects of that," says Prakash Menon, chief executive officer of NIIT China. "We found that the university system in China was not producing enough computer professionals every year, so we saw an opportunity. By 2011, NIIT will have overtaken all the universities and colleges in China put together in producing IT graduates."

Fundamental truth

NIIT and TCS are however still the exceptions rather than the rule: While Indian companies in the manufacturing sector are enjoying considerable success, in sectors such as IT and services where a deeper understanding of the Chinese market is required, Indian companies are still struggling to make an impact.

Menon suggests that the failure of the majority of Indian businesses to successfully penetrate the Chinese market lies in their inability to grasp a fundamental truth about doing business in China - you have to be here for the long haul. He says: "Too many companies thought there was quick money to be made here, but China isn't a quickie. China is a commitment. Any company has to show commitment to this place to succeed."

Madhav Sharma, who headed the Confederation of Indian Industry, an Indian industry lobby group, in Shanghai for five years until he stepped down from his post in June, agrees. "Indian companies need to start looking at China as a long-term investment," he says. "Many companies still have the perception that a short term investment will reap benefits. But you have to think long term, that you will be here for 10, 15 years."

Sharma believes there is still a "fundamental lack of knowledge" in India about doing business in China. "Indian businesses need to better understand the Chinese business culture. They need to adapt and localize their operations," he explains.

"It is fair to say Indian companies have not fulfilled their potential, and in a sense we are just at the tip of the iceberg."

(Shanghai Daily July 21, 2008)