Examination of Witnesses (Questions 307-319)
THE INDIA
GROUP
14 MARCH 2006
Q307 Chairman: Gentlemen, welcome to
this evidence session on our inquiry on trade and investment in
relation to India. As I think you know, most of us have just returned
from a visit to India where we have seen some of your companies
in action in the country itself and had an extremely enjoyable,
interesting and stimulating visit; I hope that will make for an
enjoyable, interesting and stimulating evidence session today
as well. Can I ask you to begin by introducing yourselves and
perhaps the companies you represent for the record?
Mr Chatterjee: My name is Sonjoy
Chatterjee, I am managing director and CEO of ICICI Bank (UK)
Ltd. ICICI Bank is India's largest bank in terms of market capitalisation
and second largest in terms of assets. It is listed on the New
York Stock Exchange and we set up our 100% subsidiary in the United
Kingdom in November 2003; we are now, we believe, the largest
Indian bank in the United Kingdom. We have a balance sheet in
excess of £1 billion and we have five branches in the United
Kingdom. Of notable interest is the fact that in the last year
or so we have been advising and funding a majority of the Indian
acquisitions in the UK and Europe and, as per the Reuters data,
we have a 7% market share there. We also run a very strong internet
channel by which we have, I would say, more white Anglo-Saxons
as our customers than people of Indian origin, and we have just
started expanding into Europe with our first branch in Belgium.
I chair The India Group which, as you are aware, is a private
sector alliance of the leading Indian companies in the UK and
Europe.
Q308 Chairman: Thank you very much
indeed. Who wants to go next?
Mr Hasan: My name is Anwar Hasan,
I am the managing director of Tata Limited; a company that has
been in existence from 1907, although actually over the last 100
years we have changed our role. Originally we were in the procurement
business because they had a very strict regime of import licensing
et cetera back in India, but now the role has changed and
I have now taken more a role of group representative in the UK
and Europe, and it is through my company that investments into
the UK are channelled. Basically we give feedback to companies
back in India as to what the lay of the land is over here and
it is that role that has now become predominant. For me to earn
my keep with the group, I do a lot of procurement, we do a lot
of trading and that keeps us a little street-smart as to what
is happening.
Mr Singh: Myself, Sirjiwan Singh,
I am the managing director of Wockhardt UK Limited which is a
subsidiary of Wockhardt India, and Wockhardt is amongst the top
five pharmaceutical companies in India. We are in the business
of healthcare management, starting from API manufacturing to formulation
manufacturing, moving forward to biotechnology. We were one of
the few pharmaceutical companies which, in the very early stages,
moved into biotechnology and started the programme of bio-generics
in India. We also are strongly present in hospitals; we have got
a number of hospitals which are all speciality care hospitals
in India, tied up with Harvard Medical International and having
a recognition and a partnership with Harvard Medical International,
following all the clinical practices of HMI. We do have a lot
of patients from the UK also now going over to India for treatment
in our hospitals. More than that, I would say, my company grew
both organically and inorganically. When we grew inorganically
we went through a process of acquisitions and in 1998 it was the
first cross-border acquisition that we made in the UK when we
bought a company in the UK, the Wallis Laboratory, and after that
in 2003 we bought another company in the UK which is CP Pharmaceuticals;
these two companies together now are subsidiaries of a company
in the UK which is Wockhardt UK. I am pleased to say that we came
with the aim of running manufacturing in the UK and we are running
here a manufacturing facility with 400 people employed by us today
in Wrexham. When we moved westwards everybody was saying how can
you sustain manufacturing in the United Kingdom, but we built
our business model in such a way that we have been sustaining
the business here, carrying out manufacturing, providing products
to much more value-added markets like the US, having a facility
which manufactures products for the US market. Along with that
we are now one of only two providers of animal insulin in the
UK, and with one of the competitors moving out of the market in
a short while, we will be the key and the only supplier of the
animal insulin in the UK market.
Q309 Chairman: Thank you, that paints
a picture of a very varied portfolio as it were among the three
of you, which will stand us in very good stead for this session.
You know that our concern as a Committee is that Britain, and
for that matter India, are perhaps not fully exploiting the historic
links between our two countries and the Indian economic miracle
which could be to the mutual benefit to our two countries and
trade and investment are not as strong as they should be between
our countries. That is really the focus of this evidence session,
trying to find ways in which we can improve that. My first question
to you is really to ask you as business people what you think
are the main opportunities for UK companies in India?
Mr Chatterjee: I guess we will
take this question jointly, so I will just give you a few thoughts
first and then the other members can join in. To start with it
is important to come to the context of what is India today in
terms of the opportunities it presents in terms of its very young
population, in terms of its GDP growth, in terms of its requirement
of services, in terms of its requirement of, I would say, a variety
of retail and consumer-oriented goods. To put it into context,
that is the first thing that needs to be put on the table, how
do you cite India today in terms of all these economic parameters?
One way is to assume that this is largely understood and broadly,
I would say, the information is well spread out. Although in the
few interactions that I have had in platforms where I have been
jointly engaged with British businesses, for instance, a platform
with the CBI, I have found that businesses here are not so up
to date on what is really happening in India. In the first instance
I would say that this is one big communication that needs to take
place and there are some platforms that have been created like
Doing Business with India of UKTI where these kinds of things
have come up, but people are still not very sure as to what is
really happening if they have some specific elements like the
difficulty in setting up legal practices and that does not really
cover a wide canvas. To get into specifics, I would imagine that
if you look at the UK skill set today, if you look at UK strengths
today, specific areas which call for a lot of partnership, a lot
of engagement, would be in the area of education, would be in
the area of medical science, which would include pharmaceuticals.
These are two avenues where straightaway Britain can walk into
India and set up a lot of partnerships which would effectively
see a surge in terms of how Britain is engaging with India, so
there is a clear gap there. Anwar, do you want to add to this?
Mr Hasan: Invariably India is
compared with China and I think in the last four or five years
it is China that has really got the biggest piece of the pie,
so where India has got four billion FDI in China you will get
40 billion. But there is a certain saturation point that has now
been reached in China and more and more companies are now looking
at India. Previously, looking at India was vague because people
did not get into the nitty-gritty, not actually going there and
setting up shop to actually get the feel, to know what the local
conditions are like. I do not mind saying this, that perhaps there
were a few false dawns originally, things that were supposed to
happen did not happen, so people went and what could have been
a businesslike trip became a junket and you just come back again.
I think this is the last train that is going out to India; if
you do not catch this train, you are going to lose out quite a
lot in what is going to happen. All you have got to do is go to
the Investment Commission—there is a website—and there
it will tell you all that is being done, all the investments that
are required. I have just taken a brief capture of this and I
find it amazing that in the next five to seven years, which is
2012 and beyond, 500 billion is what is required and it is not
all required at once, it is over a period of time. Sirjiwan and
Sonjoy have talked about pharmaceuticals and healthcare, but there
is so much that you can do on real estate, there is so much that
you can do on retail, there is so much that can be done on tourism,
there is so much that can be done in the infrastructure; I mean,
it is limitless. It is a question of where you feel comfortable
and, once you feel comfortable with a certain business, it is
to focus in that area, set up shop there and please, please, you
must take local help because local knowledge is so important—you
might have got a feel of this in your trip. If you can seriously
get down and stay the course, which is what is most important—like
the cricket, in Indian pitches you need patience.
Q310 Chairman: Do not mention cricket
today, please!
Mr Hasan: You need patience, but
if you are patient I can tell you that there are not going to
be many more false dawns, there is going to be the pot of gold
at the end of the rainbow.
Mr Chatterjee: I will just come
in on this to cite our examples. When ICICI decided to move internationally,
Britain was our first overseas office that we set up. Between
the time that we set up our office and started the bank, this
was a period of almost 16 months, and if I look at our first `wetting
our feet situation' in this country, what we saw as the opportunity,
what we went to the Financial Services Authority with in terms
of what we felt our business proposition should be in this country
and what we are doing now, it is completely different. One powerful
point that Anwar is making is that businesses must take the first
shot in terms of going ahead, setting up a small shop—we
now employ 200 people and we have six offices. I sat in one small
room in Cannon Street for one year, until I decided okay, this
is what we really need to do. That approach and mindset is very
important and that is what I think one needs to emphasise.
Q311 Chairman: Mr Singh, would you
like to comment?
Mr Singh: I always talk to Sonjoy
on this matter, what he was really mentioning about coming and
sitting in one room. It is the concept of managerial entrepreneurship,
that is all the organisation's managers are really going to work
in a very entrepreneurial manner and then take these things forward
from there. Taking it on from Anwar, I would definitely identify
healthcare and medical sciences as an area of collaboration in
the future; another area I see is that there is a good amount
of biotechnology research being carried out in the United Kingdom,
in Scottish universities and various other places. What we need
to do is to think of the fusion of future, the fusion of future
is going to be innovation of the UK to be combined with cost-effective
commercialisation of India. Those are the areas and I definitely
see that some of us as companies are doing very well in biotechnology
where there can be sound collaboration between the enterprises/universities
of the United Kingdom and the companies in India. The biotechnology
products are really going to be the products of the future and
we are ourselves moving into the area of bio-generics so that
in the European Union we are able to provide key drugs. We have
already biosynthesised human insulin in India and we are going
through a bio-generic programme so that we will be able to offer
to the NHS, maybe two or three years down the line, a much more
cost-effective human insulin formulation. That is the area where
the innovation of the West and the cost-effectiveness of the East
can be brought together and that is where British enterprises
definitely need to move forward.
Q312 Chairman: Before I bring in
Mr Hoyle I will just pick up two things that you said—not
for full answers again but just to seek your agreement. First
of all, do you agree with the impression I formed on our visit
to India that there is actually a huge hunger among the Indian
business community for a better and closer involvement with UK
businesses?
Mr Hasan: There is, yes.
Mr Singh: Yes.
Q313 Chairman: You talked in your
opening comments, Mr Chatterjee, about perceptions, you talked
about a failure of British business properly to understand what
is happening in India. India is moving very fast and even those
of us who knew India quite well were pleasantly surprised at what
we discovered there last week, so I accept that. Do you think
there is also a perception problem the other way? I was struck
by the number of Indians I spoke to who did not even know we had
a car industry left in the United Kingdom and who were surprised
at the scale of it, so do you think there are also some problems
in the other direction as well?
Mr Chatterjee: From the Indian
perspective, if you see the number of businesses that are trying
to get into Britain, I would say that that fact alone should really
give the answer that Indians are very up to date in terms of what
is happening. There is a situation today where people believe
that manufacturing in the British context is on its way out, but
what is important to note is that the hunger to have a dialogue,
have an engagement, is there today. A lot of them do not know
how to go about doing it, and I will cite another example. Let
us take an institution like UCL, the largest medical school possibly
in Europe.
Q314 Chairman: UCH?
Mr Chatterjee: It is called UCL
but UCH is one part of it—University College London which
has three hospitals under it. It was just a chance lunch meeting
that I had with the vice-provost who looks after international
matters, and he came up with the fact that they have very little
research going on with India and he gave the example of breast
cancer where there has been a lot of research that has been done
here, but in the Asian context they would like to do a lot more.
The desire was that there are Indian companies who we hope will
engage with us in this. There are Indian companies like the Apollo
Group, which is the largest private sector healthcare group in
Asia, like Fortis Healthcare which belongs to the Ranbaxy Group—I
did notice that you spent some time with Ranbaxy—and Wockhardt.
You noticed when Sirjiwan introduced himself that they have a
lot of affiliations with the US and the same applies to the other
two, so when I put this to the chairman of Fortis Healthcare he
said "That is exactly what I want to do but I do not know
how to do it, I have never had a platform on which to engage it."
They have now set up a very effective dialogue by which they are
now planning to really take this whole research forward. Indians,
therefore, at the level at which it matters are very, very conscious
of the opportunity but a lot of them have not really got on to
taking that forward.
Chairman: A number of our questions,
including Mr Hoyle's, will actually cover some of these areas
and then when we get to Roger Berry's questions on HE we will
look at some of those issues again. Lindsay Hoyle.
Q315 Mr Hoyle: Thank you, Chairman.
Obviously there is agreement about investment into India, but
what about investment into the UK, and your experience of being
locked up in a room for 12 months on Cannon Street to build up
the decision-making I can understand. Obviously you have already
established businesses and bought businesses out, but are you
satisfied that the UK is fully open for business? Do you see any
barriers that hinder you for trade and investment into the UK?
I just wonder because we have certainly heard evidence from witnesses
saying when they look to India they feel there are barriers, but
do you feel there are any barriers in the UK? Do you think we
are fully open, fully liberated?
Mr Chatterjee: In the first instance
my answer would be yes, we believe that the UK does offer a very
wide, very open platform in terms of doing business with India
here. If one gets into specifics, we have seen a variety of situations—we
saw a situation where a member of our group acquired Typhoo Tea
which, as you know, is a 100 years old British brand, and because
it was a fairly unknown Indian company that was acquiring this
brand, for the first few months he had to go through an enormous
amount of labour issues, and this was really a situation where
everything was settled, put down and formalised but the labour
just wanted to take advantage of the situation that this was a
fairly unknown entity coming into Britain. To begin to get into
specifics—and I keep telling this to the FSA—why should
a bank like HSBC have a capital adequacy ratio of 10% and why
should ICICI Bank UK, because I am a new bank in this country,
have a capital adequacy ratio of 15%? So there are specifics like
this which exist, but the reason why I said yes in the first instance
is that none of these specifics today are a hindrance to the fact
that you can set up a successful business proposition in this
country—and a very profitable business proposition—as
evidenced by what all of us have done already in this country
and by what we have learned. I would say that we as a bank, in
our advisory and funding capacity, must be sitting on at least
five such transactions of Indian companies acquiring UK companies
right now. Just to stray a bit, one corresponding logic that needs
to be attached to it is that in some of these platforms that I
spoke of regarding the issues about doing business with India,
the same spirit should be put into British businesses when they
look at India instead of looking at ABC hindrances.
Mr Singh: I have been here for
three years and my experience, since we first went through the
acquisition process, first company and then second company, in
terms of support from the local government and local agencies—the
Welsh Development Agency—they were excellent in dealing
with us. The WDA when it deals with the companies which are operating
within Wales, including their reach out to India for attracting
businesses into the UK, have been plainly very helpful and I much
appreciate it. There are very small activities in supporting us—sometimes
if we need regional warehousing, how quickly they can react to
that and provide us with that support within their infrastructure
and I would say the same has been very good—and we enjoy
a very close relationship with the WDA, operating in Wrexham.
Other than that I would say that definitely when, as managers,
we move into another country or we go into cross-border movements,
one does initially face some of those apprehensions amongst the
people: if an Indian company is acquiring a United Kingdom company
how are these guys going to handle it, or how will they handle
it in future? Indian managers are fairly well-equipped for leading
from the front, they are very well-equipped in that area and they
will set examples for leading a company. We have established a
very nice infrastructure and we have invested so much in the last
four or five years in terms of capital investment into the manufacturing
facility that we acquired, it was a very old facility and we replaced
everything, which was very welcome. We were therefore building
up a feeling that, yes, here is a company that has come over here
to stay here, to carry on manufacturing here, and it has worked
out very, very well. We did not face any other problems, I would
say, although employee-related issues, whether related to TUPE
or other things, do come in between sometimes when you are doing
a restructuring. All businesses cannot be exactly run as they
were being run in the past, one has to do some degree of restructuring,
but if it is done with empathy and in a nice manner it is well
accepted and we have been successful in doing it.
Q316 Mr Hoyle: That is fine, it is
all about investment, but what about doing trade?
Mr Chatterjee: Sorry?
Q317 Mr Hoyle: Obviously everybody's
experience is about investment here, taking over companies, but
is the UK open to Indian companies for trade?
Mr Hasan: To talk about the experience
that we have had in investment, there has been absolutely no problem.
Some of our operating companies had a little bit of difficulty
about visas, but that was more time-related, it was not that we
did not get the visas, it just took a little bit of time and in
the kind of businesses that we are in, IT, time is of the essence.
You get so much time to complete a contract, so if your visas
to get people across take longer it can be a difficulty, but that
has been by and large considerably—
Chairman: We did hear some continuing
complaints actually in India about the visa regime, and we will
be addressing that subject. Mick Clapham?
Q318 Mr Clapham: Sirjiwan, you have
just mentioned the help that you got from the Welsh RDA. Do you
feel that there is much more that could be done in terms of the
way in which we connect business inquiries from India, people
wanting to invest here, with the RDAs? If there is more that could
be done, how should we do it?
Mr Chatterjee: The point that
Sirjiwan mentioned in terms of what the Welsh Development Agency
has done, that itself is really an example of what other agencies
like the CBI could do on the reverse side. That is what Indian
agencies—which no doubt you have met like CII and FICCI—have
done in this country in terms of setting up offices and very actively
trying to engage with British businesses, but on the other side
should the CBI not have an office let us say in a place like Mumbai,
which is really the commercial capital? I think the example Sirjiwan
gave of the Welsh Agency, the strides they have taken in their
own way, in their own interest, on a much broader platform show
an agency which is going to drive this forward, which is very
key to this interaction.
Mr Singh: I must share with you
two simple things because irrespective of having any business
or not having any business to do with the WDA, every month I get
a call from them asking do we need any help or do we have any
difficulties anywhere. That is the type of proactive action which
the WDA is normally taking with industries which are investing
into Wales because Wrexham was going through a phase of many companies
closing down and a lot of businesses moving to Thailand and all
that. So they have been taking a very proactive role in that.
Chairman: We will return to some of the
representational issues in some later questions if we may, so
can we move on to Tony Wright?
Q319 Mr Wright: One of the things
that we saw in India clearly was the massive investment that is
going on and obviously the opportunities for a lot of the skilled
and a lot of the university graduates, but one of the things that
has become quite clear is that there could be in the near future
a skills shortage for these Indian companies. Do you consider
this is true and, if so, what do you think this would mean for
the companies? Some of the evidence that we saw in one of the
companies was that there was a board with job opportunities, dozens
of job opportunities because people now are selling their labour,
there has been this increase in wages and obviously the opportunities
are much greater. That could cause a problem in the future, do
you agree?
Mr Chatterjee: No, I do not. I
must confess that in terms of the talent that is there across
the different levels of talent that one would require whether
it be a graduate level talent, whether it be a business school
level talent, whether it be a scientific kind of background related
talent, across all these segments the amount of talent that is
coming out every year, I do not see a situation where talent would
fall short. I would see a situation, looking into the future,
where it might fall short, and that is if global companies decide
that they need to get into India, and you see that in the premier
business schools today. I actually was in Bangalore the day before
yesterday which houses one of the premier management institutes,
the Indian Institute of Management—there are four of these
in Ahmadabad, Bangalore, Kolkata and Lucknow—where now one
third of the batch is being sourced by global investment banks.
I would say the highest salary on campus this year was paid by
Barclays Capital, so as an Indian brand 10 years back you could
walk in and look at the top 10 persons in the batch but today
you are roughly looking at the bottom two-thirds of the batch,
but that is a very specific situation where here there are premier
business schools and here are the global companies who are getting
in and picking up the talent for their New York, London or Singapore
offices. If I leave this specific element out, I do not see a
skills shortage situation today, but if this trend increases across
a wide range of Indian universities and business schools then,
yes, it could then lend credence to this situation where there
could be a skills shortage.
Mr Hasan: When you talk in terms
of numbers I do not think there is a skills shortage, but if you
talk in terms of the quality of the people who were available
10 years ago and the quality that is available now, maybe you
do not have that many A-category students available. Business
has to also adapt to a situation and I do find that most successful
companies have a terrific training department, training programmes,
training institutes where they pick up these people and find out
where they are in terms of certain skills, then they train them
up further to try and hone what is really required by the business.
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