Nooruddin Karsan, CEO of Kenexa Corp., talks at a recent Emory University forum about the challenges of doing business in India.

India is the world’s “No. 1 land of opportunity” that has managed to maintain brisk economic growth despite government corruption and many other problems, Nooruddin Karsan, the head of a publicly traded American software and consulting company, said at an Emory University symposium March 26.

At the same time, Mr. Karsan, CEO of Kenexa Corp., relayed his own company’s experience as a lesson in how difficult it can be for U.S. companies to be successful there, even if they are led by Indian-Americans like himself.

As an example of the challenges of doing business in India, he compared his company’s ventures there and in China.

“In India, we have invested close to $4.5 million so far,” he told participants in the Emerging India Summit 2010. “Our total sales in 2010 will be $350,000, with [profit] margins of negative 400 percent.”

In China, however, Kenexa has been successful. It has invested $2.5 million and expects $5 million in sales this year with a 20-percent profit margin.

Mr. Karsan’s heritage did not help much as he tried to establish operations in India, he said. He is sometimes considered a “pretender CEO” rather than a bona fide American executive, said Mr. Karsan. 

“I’ve been discriminated [against], more times in India than I have in the U.S.,” he said.

The problem is exacerbated by the fact that he no longer speaks some of the languages of India, his family having moved away more than 100 years ago.

“You guys who think you’re Indian going to India. You’re not,” he told the audience, describing perceptions in India to a group that included Emory students of Indian descent. “You are what my daughter calls a coconut. You’re brown on the outside, white on the inside.”

Mr. Karsan said that in China, he is treated no differently than other American executives.

While India has many talented software engineers, it can be difficult for smaller companies like Kenexa to hire them, said Mr. Karsan. “They’d rather be at Google and Microsoft,” he said. 

Smaller companies end up with “the second-place guys in class,” who are good at writing computer code, but aren’t strong innovators who can master new product design, said Mr. Karsan.

Kenexa, which is headquartered in Wayne, Pa., and has a stock value of about $300 million, found that effective operations in India require one expatriate for every 60 Indian employees. “More than that is too expensive,” he said. “Less than that, things go awry.”

Yet, Mr. Karsan still believes India has enormous business potential. It grows even with its long list of impediments. Growth will increase as the government improves, he predicted.

“The people are doing well in spite of the government,” he said. “There are things there that are so phenomenal, it truly is the land of opportunity.”

Another panelist, Ravi Ramamurti, professor of international business at Northeastern University in Boston, holds a similar low opinion of the Indian government. “The state is incompetent,” he said. “As somebody said, ‘China’s success is because of the state and India’s success is despite the state.'”

But that is changing, he said, not because of  the national Indian government, but because state governments are  trying to improve so they can attract more foreign investment.

“Good governance leads to more investment,” said Dr. Ramamurti. “You will see some states get ahead of others and others trying to catch up. I think it is a healthy process.”

Matt McGee, a vice president of United Parcel Service Inc., said the Indian economy has an “unorganized and very fragmented,” market with many smaller competitors.

With low profit margins in India, it can take “some significant tap dancing in front of the management committee at UPS,” to convince the company to invest more money there, Mr. McGee said. “But they understand the value of it,” he added.

UPS partners with Jet Airways Ltd. in India. Mr. McGee suggested that U.S. companies consider joint-venture partners when setting up business in India.

“If you’re going in there, make sure you have a good partner,” he said.

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