Risks of Doing Business in India

Shaking hands in business

Researching the risks of doing business in India is crucial to a successful business venture in that country. According to The World Bank, India is the second fastest growing market in Asia and is the main economy in South Asia. India has a population of over 1 billion people, which makes it an exceptionally favorable climate for foreign business investment. The United States Commercial Service also reports, for the year 2008 to 2009, India's Gross Domestic Product (GDP) was at 6.7 percent. That same report also suggests that the GDP has the potential for sustained growth of eight to 10 percent for the next few years.

Researching Your Risks

If you are considering international trade with India, you should not only consider the rewards; you should also research and understand the risks.

Unqualified or Underqualified Work Force

On October 28, 2008, the Economic Times of India reported that of the 484 million people in the Indian workforce, over half work in the rural areas within the agriculture and manufacturing industries. An estimated 273 million people work in agriculture, and 61 million people work in manufacturing. The balance, about 150 million workers, work in the service industry. While 40 percent of the workforce is illiterate, another 40 percent is below a twelfth-grade reading level. This clearly limits the areas for overseas business Involvement in the country and proves to be one of the greatest risks of doing business in India.

Corruption in the Government and the Judicial System

Government corruption is not unique to India, however, a foreigner doing business there must be aware that this is one challenge she will most certainly face that may affect business profitability. The fall 2001 issue of Harvard International Review reported that a Transparency International report from 2000 showed that out of 90 countries, India makes the list of corruption in the world at the 69th position. Millions of cases often backlog the Indian courts, and they take decades to resolve. The Harvard International Review also reported that 40 percent of India's economic activity comes from the black market, or corrupt activities. The government often overlooks these black-market activities or accepts them outright.

Lack of Awareness of the Cultural Differences

Each society has its own cultural identity and India is no different. Research the country's culture and business etiquette. One of the tricky parts about doing business in a foreign country is making sure that you do not offend your hosts and fellow business associates by committing cultural faux pas. Be aware of what is and is not acceptable during your business interactions.

Resentment from Your Own Country

The exchange in currency rate is a strong incentive for foreigners to do business in India. However, you run the risk of building animosity from citizens in your own country. For example, Americans who are facing the worst economic times they have seen in decades are extremely angry about all the business outsourced to India and other countries due to the abundance of the cheap labor. You may risk backlash and resentment in your own country for not utilizing domestic sources of labor.

Are You Prepared for the Risks of Doing Business in India?

Starting a business venture in India can be a gamble if you are not properly prepared. Make sure you research each risk as a part of your business plan. Be sure that the risks are things you can tolerate. Making adjustments is difficult once you have invested time, energy and resources.

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Risks of Doing Business in India