International Business – A Thought paper with Ideas on Beating the present Economic Turmoil

Date: 22nd March 2009

Sho ul d Ja pa n an d K ore a p ar tn er Indi a t o t ap Af ric a

By : Amit Bhushan

The on going Economic Crisis, Some of the production

unprecedented in near term engines of the world namely China,
Economic History of last 30-50 Japan, Korea and Taiwan are among
years, is having a damning effect the worst “collateral damage” of
on global trade & supply chain. The the crisis. Demand for produce
big consumerist markets such as (manufactured goods) of these
the US & the Western Europe are countries has evaporated almost
clenched-fisted towards new suddenly and they are witnessing
consumption expenditure. This can “economic meltdown” with
be noted by the spurt in savings resultant job losses. To fight this
rate of the population in these meltdown, China has taken the
countries. The savings tendency of lead by kick starting huge
the population is unlikely to come infrastructure development to
down in near future as a result of develop Chinese Infrastructure
loss of confidence that the current beyond its shore cities in Inner
crisis has ushered. In order to ease China to mitigate job losses on
the “blow” on “Jobs”, which is a export front. This is even while
result of this new found corporate China continues to
predisposition towards savings, the aggressively chauffeur its “cheap
governments in these countries wares” to new markets in Eastern
have resorted to expanding Europe, Central Asia, India and
government expenditure (fiscal Africa with support from its
expansion) to save primarily government. The other production
“domestic jobs”. In future though, power houses of Asia are still
this is likely to result in a higher tax pondering at policy choices
rate & thus subdued consumption. available to them. Some may be
Some other governments are weighing to brace for their own
responding to the crisis with brand of “Quantitative easing”.
“Quantitative Easing”, a While it may make their goods a
euphemism for printing more little more competitive, however
currency, to “throw at the the policy of yesteryears (resorted
problem”. While this might support to by most Asian nations in the era
some expenditure programs in the when overall consumption is
near term, & thus ease pressure on consumerist nations was expanding
job losses front, this shall result in at fast pace) may not provide much
inflation and devaluation of help. This is so because, overall
currency in medium to long term consumption in the US and Western
(which shall again retard is no longer expanding and
consumption). Thus it may be “Quantitative easing” by Asia shall
reasonable to conclude that not curb propensity of the West to
restoration of past scale of save. The nations driving
consumption in the consumerist consumption are basically Asian
nations is not a near to medium nations of China, India and Central
term probability. Asia & Eastern Europe to some
extent, who might resort
protectionist measures towards

By: Amit Bhushan Contact: amitbhushan@rediffmail.com

Author works with a major International Bank in India. Views expressed are personal.
International Business – A Thought paper with Ideas on Beating the present Economic Turmoil
Date: 22nd March 2009
such policy as there need for fair
trade to uplift the populations out
of poverty is much more. Thus
there may not be many policy
alternatives available to the Asian
production houses in near to
medium term
However in all this gloom
some traditional giants of Asia,
namely India and Iran might want
to present themselves as
opportunities to help the
Industrialized Asia chug their way
to markets in Africa & Central Asia
respectively. While the case of Iran
might be apparent due to its
geographical proximity to Central
Asia, how India can be a way tap
the Dark Continent needs to be
learned more about. We shall
explore more about opportunities
and challenges provided by both
these traditional Asian Giants as
we go along.
Let us first examine the
crucial case of India being the
“Door” to Africa. This is made
possible by the presence of its vast
“Diaspora” in Africa who have
retained strong links with their
roots back home. Basically, a large
number of Indian were “exported”
as indentured laborers to farm at
the “White owned” farms in Africa
during the British Rule in India.
During the post-colonial period,
these Labourers spread out to
almost entire Africa be it
Anglophone, Francophone,
Spainophone or any African nation
and form an important part of the
communities there. The Indians in
Africa have done well and hold
sway over Banking, Trade &
Commerce, Law & even Politics.
Their linkages back home with
places such as Gujarat have helped
companies in that region of India
By: Amit Bhushan Contact: amitbhushan@rediffmail.com
Author works with a major International Bank in India. Views expressed are personal.
hold a dominating global presence
in business of Diamonds, Bullion &
Elephant Tusks trade, Engine &
Motor parts exports, Utensils &
Chemicals exports and so on. Africa
looks towards India as a place to
help it participate in the “New
Economy” ushered by Information,
Communication & Entertainment
industry, to solve its need for
affordable Telecom & Satellite
Communication, Railways, and
Industrial Machinery etc. India also
happens to be an affordable source
of Education & Training and lately
Medical Facilities for a large
number of English speaking
Africans.
It might be of value for the
Asian Factory nations, to market
there wares using these networks
in the hitherto unchartered waters
of the Dark Continent. Their Indian
counterparts may only be even
more willing to assist to beat the
current slowdown. However, we
also need to examine the
challenges to this daunting task
(since there is not much to write
about). It may be noted that for
much of India, ties with Africa are
Family matter & hence informal
rather than a formal relationship.
Quite often trade is settled on cash
basis rather than through banking
channels and rampant corruption in
both geographies have encouraged
the ties to remain that way.
Similarly, India’s Legal Eagles make
almost no noise about their
professional jaunts & tie-up to/with
Africa as the same is not seen as a
professional acclaim of their work
in India. In banking, Indian banks
remain reluctant players to assume
risk in merchant trade transactions
(i.e. do not assume risk if goods are
not reaching Indian shores). They
have shown the same disdain of
International Business – A Thought paper with Ideas on Beating the present Economic Turmoil
Date: 22nd March 2009

any High Street Western bank in India’s official encouragement to

their relations with their poorer interactions with Africa to become
African cousins rather than some fully alive to this opportunity.
greater understanding of those
markets to help trade with Africa. As far as quest to enter
Similarly, direct logistical linkages Central Asia through Iran is
are yet to be fully developed, concerned, the same is limited by
though sea routes links are growing the limitations of logistics
leaps and bounds by the day. As infrastructure of Rail & Sea
far as conditions within India are Transport, a yet to be reformed
concerned, it has a modern banking in Iran which has little
Banking Industry with Electronic international presence and people
Exchanges for Stock & Commodity to people tie-up. Some internal
trading, a progressive constitution reforms in Iran and an expansion of
based on English Common Law, a logistics which might take 2-3
vibrant Service Industry & a years) might do the trick. The same
growing Industrial base. It may are more a matter of political will
however be noted that the process and reconciliation with
of getting a judicial remedy in India international community for which
is pathetically slow & physical the nation has to make its decision.
infrastructure for manufacture &
trade leaves much to be desired.
The upcoming SEZs and an
enterprising and well trained
workforce makes up well for the
lacunae to trade with India.
Koreans, who already have a
significant presence and with
Japanese, who are steadily ramping
up their act in India, may actually
want to explore these linkages
offered by India. To make good of
these opportunities, the Indian
companies need to bring their
informal relations to formal &
hence legally binding ties and
ensure that the same can be
stretched to accommodate any
upcoming trade opportunity. They
also need to ensure mechanics to
show their greater understanding
of Africa by keeping risk for such
trade at manageable levels and
assuming responsibility of
“collections”. While some NRI
groups in locations such as London
& Singapore have developed
sophisticated models to trade with
Africa, players in India shall also
need greater support of banks and

By: Amit Bhushan Contact: amitbhushan@rediffmail.com

Author works with a major International Bank in India. Views expressed are personal.