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[M. Somasekhar] Can S. Korea emerge a bigger trade partner for India post COVID-19?

Sleek cars, versatile mobiles and now COVID-19 testing kits. The image and recall of South Korea to the average Indian has been slowly increasing over the decades.

Daewoo’s small car Matiz wooed the bulging, neo-rich middle class during the mid-1990’s as India opened up its economy through the landmark reforms under then Prime Minister P.V. Narasimha Rao. Then came Santro from Hyundai, a runaway success at the turn of the century.

With the consumer push, the Korean chaebol -- led by Samsung and LG groups -- stormed the white goods market with their wide range of products from home appliances and TVs to mobiles in the late 1990’s. In short, most urban Indians could definitely have a Korean brand at home in present day India.

However, a couple of recent developments threaten to impact the near term fortunes of India-Korea business collaborations. Coincidentally, all happened in the southern state of Andhra Pradesh.

The first development, in the positive direction, relates to the import of COVID-19 rapid test kits manufactured by Korean firm SD Biosensor and presented to Chief Minister Y.S. Jagan Mohan Reddy. It improved the image of Korea as a front-runner in managing the coronavirus outbreak and boosted the state leader’s profile.

Gains, setbacks and challenges

However, the second involved LG, which was one of the first big Korean conglomerates to come to India in the mid 1990’s. The early morning leak of styrene gas from its chemical plant in Visakhapatnam on May 7, killing 11 and hospitalizing hundreds raised the specter of the infamous Bhopal Gas tragedy of 1984, involving the American firm Union Carbide -- with around 3,800 casualties and 575,000 injured victims.

Meanwhile, Kia Motors, the latest auto major to enter India, set up a production plant in the state and tasted runaway success with its new launches.

It’s also true that the company faced some hiccups with the regime change in the state, but the political risk, which is not uncommon in most countries, has been ironed out, says Suresh Chukkapalli, a leading businessman and honorary counsel of South Korea based in Hyderabad.

The COVID-19 test kits raised hopes for a push from the Korean small and medium-sized enterprises, which have turned the adversity of the virus into an opportunity by producing kits, masks and other safety items for the global market within no time. It’s quite well known that SMEs make significant contributions to the Korean economy.

The immediate response in India too was: will the post-COVID-19 era see an increased presence and bigger role for the South Asian nation in the manufacturing sector in India?

South Korea’s Deputy Consul General in Chennai Lee Hong-yup was quoted in media as saying, “We have requests from two iron and steel companies, some startups and one from the hospitality sector which want to come to India from China.”

Lee further added that the government of India had shown interest in setting up Posco and Hyundai Steel factories in Andhra Pradesh, while also informing that the two companies agreed to set up units in the state if they made some investments.

South Korean companies have shown interest in the proposed 3 million tons per annum, integrated steel plant in Kadapa city, that’s been activated by the present government, say state officials. The needed investments are up to 150 billion rupees ($2 billion) and negotiations with Hyundai Steel at an advanced stage.

So far, the progress and outlook for South Korean businesses in India has been quite good. But, the LG Polymers mishap has the potential to slow down momentum. That it has happened during COVID-19 crisis caused double trouble for India, but on the positive side, it gives enough time for the South Korean company to make amends and win back confidence

The factory is operated by LG Polymers. Its Managing Director Jeong Sun-key said, “There is now no SM (Styrene Monomer) left at the LG Polymers plant in Vizag. Additionally, in collaboration with related institutions, we are devoting our resources to analyze the cause of the accident, prevent reoccurrence, and most importantly provide assistance to the families of the deceased and injured. Our immediate focus is to provide assistance to the people in the local area to help them continue with their normal lives as soon as possible.”

Lessons from India market

One of the prominent developments in India in the past two decades has been the gradual urbanization, growth and spread of its cities. This change in itself opens up huge business opportunities to foreign companies. It’s already reflected in the consumer segments.

However, a key factor that foreign companies should realize is that India is a vibrant democracy. Several states are larger than countries. The political dispensations in states too are different in some situations. Therefore, “One size does not fit all,” is an important aspect to be recognized in business dealings with state governments.

The rapid penetration of the mobile phones, the huge population of youth force and the diversity of languages and cultures too offer both attractions and challenges to potential investors.

While workforce is present in numbers, there is a definite need for training, which the companies have to recognize. Similarly, while labor laws and regulatory demands pose challenges, the temptation to be a bit lax or not be globally competitive given the shortcomings, especially in trained professionals in pollution control boards or drug regulators, is not welcome.

The widespread engagement of people on social media, the large presence of Indian diaspora in most developed nations and the consequent exposure to quality products and services mean a more demanding generation of population. Therefore, slip-ups, like the gas leak from the LG Polymer plant, will be tough to contain and to reemerge with a clean image will call for an extraordinary effort.

To have more successful business in the Indian market, there is a need to understand the local ethos, culture and employment. Also, localization of components, parts or through tie ups will greatly aid in the successful engagement and long-term growth.

So far, South Korean companies have been focused on automobiles, telecom, consumer goods and steel. However, the booming construction industry and large infrastructure projects with the gamut of interiors and building materials and technology, health care, especially biotechnology and emerging technologies offer big scope in the near future.

There is a competitive environment in attracting FDI, especially in Indian states. Most are gearing up to an expected migration of industry from China.

While the Narendra Modi government has its umbrella initiative called Make in India, states too have their own versions. Hence, investors have a task on their hand to read through the offers of incentives, risks and make their choices.

M. Somasekhar
M. Somasekhar is a freelance senior Indian journalist, former associate editor of BusinessLine and science writer. -- Ed.