Minnesotans seek business as India's economy leaps

Bert O'Donoghue has some advice for Gov. Tim Pawlenty and more than 70 other Minnesotans who will arrive in India today.

"Prepare all of your senses. Be prepared for them to be bashed with the sights, the noise, and the smells" of 1.1 billion people, said O'Donoghue, who lives in Bangalore and manages 3M India. "Just the massive humanity there is staggering. ... Still, it's an exciting place and it's a country whose time has come."

That's what Pawlenty is counting on as his trade delegation -- the state's first to India -- begins a nearly weeklong visit to the world's second-fastest-growing economy.

While an estimated 700 million Indians still live in poverty, an additional 300 million to 400 million have climbed into the country's middle class, making that segment of the population about the size of the entire United States.

"India is essentially new territory to Minnesota.... We think the market is largely untapped," Pawlenty said.

The governor would like to duplicate the success of his 2005 trade mission to China, which helped raise the country to second place among Minnesota's trading partners, up from fourth. (Minnesota exported $1.2 billion of goods to China last year.)

India would seem an easier market to crack. English is commonly spoken, the legal system is similar to that of the United States, many Indian firms are familiar with U.S. companies and the country counts itself an ally.

But India's import duties are exorbitant. Laws prohibit foreign chain stores. And, unlike China, India's roads are so decrepit and clogged that businesses regularly threaten to abandon major cities.

"This is not like selling in Indiana. It's India, and it's tough," said Frank Vargo, an economist with the National Association of Manufacturers International. "Nevertheless, this market is growing.... American companies have got to go and sell in India."

Trade with India is growing

Since 2000, Minnesota exports to India have risen 370 percent, to more than $129 million a year, 22nd on the list of the state's top 25 trading partners. But projections call for the state's exports to grow more than 30 percent a year.

Many observers believe that the Indian market could become as important to Minnesota as China's.

Indian businesses -- from software giant Wipro in Bangalore to Mumbai's Tata Group, a conglomerate that makes everything from software to tea to cars -- also are rising into the top ranks of world commerce. Some of them already have invested in Minnesota: Steel firm Essar Global is buying Minnesota Steel Industries, and will invest $1.6 billion to build a taconite-to-steel plant on the Iron Range, while wind turbine maker Suzlon Energy opened a 300-person plant in Pipestone last year. Tata employs 1,000 consultants in Minnesota; Wipro has 450.

"One of the things we have to do better is figure out ways to plug into the world and to figure out ways to prepare educationally, economically and demographically," Pawlenty said.

Gross Domestic Product leaps

India began relaxing its restrictions on foreign businesses in 1991, and the country has been rapidly emerging ever since. Its economy is growing at a 9-percent annual clip, and last year India's Gross Domestic Product (GDP) hit $1 trillion. The incomes of Indian workers nearly doubled between 2000 and 2005, from $12.9 billion to $23 billion, according to the World Bank.

Much of the U.S. attention directed at India has been focused on its role in the outsourcing of American jobs. Indians staff call centers for U.S. companies and perform other services formerly done in this country.

A number of Minnesota firms also boast large Indian payrolls. Minneapolis-based Target Corp. has about 1,000 technology, legal, human-resources and other corporate workers in Bangalore. Maplewood-based 3M Co. has roughly 1,100 Indian workers. In all, Minnesota companies have more than 59,000 workers and about 30 offices and plants in India.

While some view those workers as taking away U.S. wages, Pawlenty is betting that the growing Indian middle class can fuel job growth in Minnesota as demand grows for computer hardware, medical devices and other products designed or made here.

"You can't go to India and not talk about the outsourcing," said Tony Lorusso, director of the Minnesota Trade Office. "But you also have to think about insourcing ... about Indian investment that is coming in this direction."

Pawlenty agrees.

"There will always be some winners, some losers, some gains and some setbacks in trade. But overall, we think that hiding in a global economy is not a great strategy," he said.

Dan Durda, CEO and co-founder of Chaska-based Aeration Industries, joined Pawlenty on his 2005 China mission. The high-level interactions smooth the way for business deals, he said.

"By going with Governor Pawlenty, it opens a lot of doors quickly, so I can cut to the chase," Durda said.

Aeration, which has 50 employees, has secured several contracts for water purification equipment in India. "We have a real good chance to do $1 million our first year," he said.

Because the country is starting to focus on its crumbling infrastructure, companies that specialize in government contracts stand to do well, Durda said.

For Target and Best Buy Co., Indian laws present the biggest obstacle.

Foreign big-box retail chains aren't allowed, so the nation remains one of small, family-run shops that line the busy streets.

Best Buy, which last week opened its largest consumer electronics store in the world in China, is confined in India to circulating compact discs with names such as "Bollywood Beats" and "Best of Indian Sarangi."India is something that we are studying, but there are no immediate plans," Best Buy spokeswoman Sue Busch said.

Target has a headquarters and technology center in Bangalore and a supplier network, but it has no plans yet to directly tap the Indian market.

Economy isn't totally open

3M, Graco and other manufacturers don't face the same issues. That doesn't mean that the Indian market is easy for them.

"The challenge of India is that it is still not a totally open economy," said O'Donoghue, the district manager for 3M India. His unit's sales are expected to grow 30 percent a year, but it is doing all of its manufacturing within the country instead of importing.

"They have taxes, on taxes, on taxes, on taxes on imports. So we end up paying duties in the region of 34 percent," O'Donoghue said.

3M sends raw materials from Minnesota and does "value-added" work in India, O'Donoghue said. For example, 3M ships reflective sheeting from the United States and Japan and enhances it to make millions of motorcycle decals for Indian residents.

Other businesses that cater to automakers say Indian demand is so strong that they can pay stiff import duties and still make a profit.

Minneapolis-based Graco Inc. imports 100 percent of its made-in-Minnesota equipment that it sells in India.

One company product is now doing roughly $10 million a year wholesale in Indian business. "That was up from $500,000 just five years ago," said Chris Koch, Pacific-Asia vice president for Graco, which makes industrial pumps and sprayers.

"India is still new to us," Koch said. "Hopefully, having the governor, with the power and the attraction that he brings ... can help us [see] where we should be investing."

Dee DePass • 612-673-7725

Dee DePass • depass@startribune.com