COLUMN-China Inc finds few easy pickings in India

(Wei Gu is a Reuters columnist. The opinions expressed are her own)

By Wei Gu

MUMBAI, May 13 (Reuters) - India shines like a tempting lure for Chinese companies seeking to expand abroad, and on first glance the Indian market looks like a natural fit.

Who better than the Chinese, after all, to provide basic computers and air-conditioners at bargain prices?

But Chinese firms have found profits in India are hard to come by. Tax barriers are everywhere, eroding their cost advantages. Corruption is rampant, adding another layer of difficulty. And Chinese goods have a low-quality image that is very hard to shake.

The challenges are not unique to India. Most are exactly what Western companies encountered when they first arrived in China some 20 years ago. But Chinese companies, whose success so far has been largely built on their home-court advantage and low costs, are much less prepared to tackle those issues.

Chinese companies, for example, lack technological know-how, marketing savvy and managers with international experience. Winning over Indian consumers is much harder than wooing the Americans or Europeans, who treat TVs and DVDs almost as disposable items.

Indians want to make sure that their hard-earned savings go to products that will last. Branding and marketing are the key in India, but that just happens to be Chinese companies' Achilles' heel.

"People here think the Chinese goods are cheap, but of poor quality," said V Balakrishnan, Chief Financial Officer of Infosys (INFY.BO), India's No.2 software exporter. "Some even say they send all the good ones to America...Chinese firms need to spend some time to change the perception."

Unlike Western companies with deep pockets who are more willing to invest for the long haul, many Chinese firms are under pressure to turn a profit quickly. Chinese TV maker TCL 000100.SZ is not willing to splurge on expensive TV marketing, because it hopes to make a profit in India this year after three loss-making years.

Instead, TCL took a group of distributors to its factories in China last year, making a favourable impression on those who went. But TCL has 4,000 partners in India, and winning their allegiance through such tours might be slow and costly.

Cost advantages also evaporate in India. After shipping and taxes, TCL's products are already 30 percent more expensive when they reach India. Moving goods from one state to another can incur taxes of 12.5 percent. On top of that, labour costs are rising at 20 percent in the technology industry in India.

"Frankly, it is much harder to strike it rich out here," said Warren Wang, who is managing director of TCL's India operations after having worked for the company both in Europe and North America.

Still, India is a market that companies including TCL, the world's largest producer of tube TVs, cannot afford to lose.

Sales of tube TVs are falling almost everywhere in the world except in India, and TCL expects India's market for tube TVs to surpass China's to become the world's largest within a year or two.

For Chinese companies whose domestic market is becoming saturated, fast-growing India represents the biggest prize. India is also a test for Chinese firms with multinational ambitions: If they can't make it in India, how can they expect to conquer the developed markets?