After decades of negative headlines, Indian Railways (IR) are enjoying some positive news. Rail companies from foreign countries are keen to invest in IR projects and see opportunities in the sector for the next 10-20 years. India is poised to be one of the largest markets for companies operating in the railway industry.
A number of government initiatives have come together to heighten the importance of IR industry as a whole and IR components sector in particular. These initiatives present new business opportunities for foreign and domestic manufacturers of rail components. In brief, the scenario can be described as follows:
Objectives of IR – Increasing its revenue by investing in:
(i) Dedicated Freight Corridors that can increase the freight traffic, and
(ii) High-Speed Trains which could help improve passenger revenue.
Demand has led to new investment: In recent years, big project announcements by IR have created significant demand and investment in the sector. The future roadmap of IR and some of the focussed areas are as below:
iii. Faster rakes with vista dome coaches for scenic/narrow gauge routes
iii. Installation of advanced signaling on the whole network by 2024
Demand-Supply mismatch: The above-focussed areas create opportunities for railway component manufacturers from India and abroad. Additionally, a recent analysis by HLS Global in India found that supply bottlenecks exist for about 240 railway components and only a handful of suppliers exist for many key components. Hence, there is no competition and accordingly, the price would not be a matter of concern for potential suppliers. In many cases, the demand clearly outstrips the supply. Therefore, there is an immediate and very strong potential business opportunity available in certain specific areas in the railway component sector.
Ease of procurement rules and regulations: Decades of limited information about business opportunities in Indian railways component manufacturing had created significant gaps in both the capability and capacity of the domestic rail supply chain. Also, a general lack of awareness by foreign railway suppliers about procurement opportunities with IR prompted them to operate on limited information and discouraged them to do business with IR.
Working and coordinating with IR has become relatively easier over the past few years. There has been a visible improvement in terms of transparency in the working of IR. Communication between IR authorities and railway suppliers has increased manifold. A more flexible and open-minded approach has been followed by IR in adopting the international best practices and technologies for the modernization of IR.
The procurement rules have been simplified and relaxed during the stage of selection of potential railway suppliers by Research Design & Standard Organisation (RDSO – a research arm and supplier selection body of IR). A similar approach has been noticed with the procurement team at Zonal Railways, Production Units, and Railway Board too. The suppliers are being approved within the time-bound manner which greatly encourage railway components’ manufacturers to focus on the sales process and get visibility of potential revenue accrual from IR.
Critical Success Factors in Doing Business with Indian Railways:
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At the end of the day, what matters is the customer. And if the governments in India are not on your list of potential customers, you may want to rethink your India sales strategy.
Apart from industry and consumers as potential customers, seizing business opportunities with the government sector in India is crucial to achieving optimum returns on India investment plans of foreign multinational companies.
The central government, 29 state governments, and seven union territories of India are among the largest buyers of goods and services in India. The estimated size of the government procurement market at the central government level alone in India is about $300 billion. Out of this, central ministries of Defense, Railways, and Telecommunication allocate approximately 50% of their respective budget on public procurement.
Government initiatives like Make in India, Digital India, Skill India, Smart Cities, Urban Transformation, FDI reforms, Ease of Doing Business (EoDB) reforms along with sectoral thrust from respective ministries such as Railways, Power, Tourism, Transport, Aviation, Food Processing, Construction, Defense represent a huge market opportunity in India for several large and small companies over the next 15-20 years.
When it comes to doing business with the Governments in India, overseas companies often raise issues related to lack of transparency, lack of standardization, corruption, and red tape leading to delays and frustration.
Currently in India, there has been emphasis on the urgent need for state governments to improve upon the ease of doing business climate as the whole world now wants to partner with India. The concept of competitive federalism is driving the governments in India to implement reforms to make processes easy for doing business in their respective states and expediting the pending project clearances.
The World Bank’s Ease of Doing Business Index has generated a lot of enthusiasm between states in India and each one is hungry for more and more investments for development.
The simplified online access to opportunities and the bidding process and the new, user-friendly procurement system helped with eliminating previous frustrations expressed by small companies. The officials at ministries and government offices have been working more professionally to expedite and execute the business process. As a result, dealing with governments in India has become more transparent and accessible to overseas small and medium-sized enterprises (SMEs) that want to bid on government contracts.
The dynamics of business negotiations in India change significantly when the customer is a public-sector enterprise or government department seeking to purchase items that may involve significant expenditures. Accordingly, overseas companies work with local representatives in India to identify relevant opportunities, discover the right contacts, and understand how the system works, including the procurement process.
HLS India is familiar with the culture and customs of India and can cut through the bureaucracy in government ministries to secure contracts. We can support your business efforts while helping your company avoid common mistakes.
Learn even more about why we are the global accounting and advisory firm you can trust.
