Klaus Maier | Managing Director | Maier+Vidorno
Klaus Maier is the Founder, Chairman and Managing Director of M+V Group. Klaus is a management expert and has spent the last 20 years in developing successful and sustainable Market-Entry and Expansion Strategies for international businesses entering the Indian market. M+V has assisted over 1500 European, Japanese & American businesses in their Indian business endeavors & has been successfully overcome Challenges & developing strategy for India business.
We need to talk about India : Top Reason to be in India, Challenges & Strategy for India Business
Over the years, my meetings with entrepreneurs and business leaders have been exciting. There have been many who have asked me a very fundamental question. The answer to which has motivated many to grab the opportunity: “To be or not to be in India?-
Challenges & Strategy for India”
I have shared my experiences in a lot of forums and business meets. Surprisingly the answer to this question has never been exactly the same.
Ever-changing macro factors like government policies, market conditions, technological disruptions, trade, and demographics play a very important role in defining and changing business orientation and direction over a period. At the same moment, micro factors like personal objectives, the scale of business, and business strategy also affect the decision-making process. Variables aside, there are points I find myself repeating time after time.
I will share with you the reasons why you need to be in India, challenges, and approach to India business. Besides, my aim here is to be honest with any company that has either thought of exploring new markets or is dealing with new challenges posed by the macro and micro factors.
Reasons why you should be here | India Business Strategy
1. India, a market which allows you to learn while you earn
TThe economy of India is still characterized as a “developing market economy”. In-fact, it is the world’s fifth-largest economy by nominal GDP at USD 2.6 trillion and the third-largest by purchasing power parity, accounting for 39% of the world’s average. The current government has targeted USD 5 trillion in GDP by 2024.
Even though today’s market for imported products is relatively moderate, it is too big a market to ignore. Plus, in India, you can learn how 85 % of the world’s population which we do not consider “our market” (i.e. different purchasing patterns due to lower purchase power – and this counts for companies as much as for private individuals) spend their money. What do they buy, how do they buy, what is an important factor and what is less of an important factor for a purchase decision?
2. Supportive Government policies
Indian manufacturing is emerging as one of the high growth sectors. Prime Minister of India, Mr. Narendra ModiPrime Minister of India, Mr. Narendra Modi, had launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. Hence, this makes India a potential market for capital goods manufacturing firms worldwide.
The Indian government has demonstrated its strategic investment support with the ‘Make in India’ campaign that supports manufacturing companies investing in multiple sectors. The government is trying to give a boost to the contribution made by the manufacturing sector and aims to take it up to 25 percent of the GDP from the current 17 percent.
With the impetus on developing smart cities and industrial corridors, the government is aiming for the overall development of the nation. The corridors would further help integrate, monitoring, and develop a conducive environment for industrial development and will promote advance practices in manufacturing.
The manufacturing sector of India has the potential to reach US$1 trillion by 2025 and India is expected to rank amongst the top three growth economies and manufacturing destinations of the world by the year 2020. Implementing the Goods and Services Tax (GST) has made India a common market with a targeted GDP of US$5 trillion along with a population of over 1.3 billion people, which will be a big draw for investors.
India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phones, luxury and automobile brands, among others, have set up their manufacturing bases in the country. Global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in process of setting up manufacturing plants in India, attracted by India’s market of more than a billion consumers and increasing purchasing power.
3. Risk Mitigation
Germany’s economic power lies in its exports. With the trade wars, the protectionist approach, global slowdown and industry cyclical downturn coinciding, has resulted in the contraction in the global demand and reflecting in order intake falling for German manufacturers.
Technological disruptions like E-mobility, artificial intelligence, and 3D printing are some factors that would impact machine manufacturers in the mid to long term. The sluggishness in the automobile sector because of weaker demand in China and far-east has made a dent on the metal, machinery and automobile manufacturers with recent numbers showing a significant drop in industrial production numbers.
With a focus on adopting Industry 4.0, there are many benefits that manufacturing will achieve. One of the important outcomes of this is the improvement in the productivity of manufacturing units, which would release excess production capacities. Markets like the US and China are already cluttered with local and international manufacturers, with intense competition on price and quality.
For these factors, new market explorations are inevitable. It becomes important that the manufacturers explore markets like India, which are showing signs of healthy economic growth and increasing investments and domestic demands. The Indian economy’s growth trajectory is predicted to be nearly 7% YoY.
4. As an alternate manufacturing site
In the wake of ongoing trade wars and the protectionist approach adopted by some countries, India remains a preferred trading partner by most of the countries. In the worst-case scenario, India would command a preferential treatment as everyone wants to participate in the market and hence can be alternate manufacturing and export hub for companies that may face direct or indirect restrictions on entering certain markets in the future.
India has a large, low-cost skilled manpower, making it an attractive destination for manufacturing. Due to this, many German companies have set up their manufacturing plants in India because of the cost and location advantages.
In India, many customers of German companies are increasingly demanding high-quality premium products combined with an excellent service network. The resulting internationalization of the value chain is necessitating many to establish manufacturing units to offer market-specific products, quick turnarounds and a reliable local service network. Moreover, companies also benefiting from lower transportation costs, no import duty, and lower manufacturing costs, thereby, becoming more competitive in pricing as well.
Now let see the challenges & strategy for India business.
What are the Challenges
1. Vast geographies & cross-cultural differences
India is not just a country but a subcontinent equivalent to the size of the European Union, with multiple cultures and linguistic variations. Due to this, communication, logistics, market coverage, sales monitoring, and channel management becomes challenging. Therefore, a good understanding of geographies and cultural differences is required to bridge this gap, which can only be fulfilled by a local partner or an employee.
2. Sales & local partner management
Typically, foreign manufacturers enter the Indian market through the appointment of distributors. It gives them access to local market intelligence, countrywide market access, and sales force with an existing network, without exorbitant initial investments or extensive lead times. Developing and maintaining a distributor network poses a lot of challenges.
India has vast geographies, diverse markets and distant business hubs. Hence, deep penetration can only be possible with regional distributors who have an existing network, a deep understanding of their respective territories and excellent command on the dialect. To keep a constant eye on distributor activity from abroad, you also need to have dedicated staff. Besides, you have to plan regular trips to India, which makes it a costly affair. To counter this, I have advised many companies to have dedicated salespeople stationed in India.
3. Quality and price sensitivity
Indian customers want quality at an affordable price. While German engineering is at its best but is facing tough competition from the Chinese manufacturers, whose products are low in features and much cheaper. Therefore, I recommend a scaled-down version of the product to meet the specific customer requirements. Moreover, it helps you reap the benefits of cost reduction, making your product price competitive.
Consucting business can have numerous Challenges & Strategy in India. Now let us look at the strategies to overcome these challenges.
What to do? Business strategy in India
1. Perspective: Long-term
India is a subcontinent and has diverse cultures, languages, and customer needs. Therefore, exploring this size of the market and capitalizing on one’s strengths requires long-term planning and patience. All those who have successfully ventured into the Indian market either for trading or for manufacturing have reaped the benefits only after 3-5 years of entering the market. It is like investing in the stock market for retirement. Meaning, you gain if you invest with a long term view and do not get influenced by every market eruption.
2. Objectives: You only can achieve them if you have them
When entering a new market, and especially India, the objectives, milestones, and realistic financial expectations must be clearly defined as part of the Strategy in India. In addition, planning on these lines would help the budget accordingly and would leave no scope for surprises. I have seen many businesses fail on this important aspect, which resulted in their premature exits from the market.
3. PEO: Start ‘cost’ efficient but still effective
For many firms, finding a business partner–a Joint Venture, Merger or Acquisition–may be the right approach or working with a distribution partner. For many companies, the best approach may be to incorporate their own company in India because a foreign subsidiary company is treated at par with the domestic companies as far as taxation is concerned. Also, the Government of India has taken many steps in the recent past for ease of doing business in India, including simplification of the company’s incorporation process.
Companies that are still finding their market & need to “dip a toe in the water” before forming a company, I recommend business incubators (this works like PEO services in the USA or personnel leasing in Germany or Sweden). Whatever you choose, should work as a natural extension to your organization. Because the intention is to bring in the local market intelligence and network that can assist you with the initial 3-5 years of operations. However, this shall help you immensely in understanding the market intricacies and overcoming the initial barriers to business.
4. Choose carefully: Your Sales Managers
We all understand the importance of having the right people in the team that manages new ventures in unknown markets. Their expertise in the product category, the ability to create long-lasting relationships with the customers, and local market intelligence will write success stories for you. Hence it’s important to ensure that you hire the right team, which in itself is a big challenge. Although the Indian market has ample of skilled manpower, finding the right ones and getting them on board is a humongous task. Hence, find a suitable partner who has immense experience in your domain and can support you with your recruitment needs.
5. Choose carefully: Your distribution partners
How are you going to sell in India and distribute your products–India has 28 States & another 7 “territories” and is almost the size of the European Union! This means that you probably need regional wholesalers who distribute further to many small neighborhood retailers or dealers. The process of appointing distributors starting from finding appropriate partners for the distribution, to conducting background checks, verification and appointment- every step is critical. Many companies are unsure of the number of distributors they require for catering to the Indian market. Soliciting help on this important aspect of your business operations is highly recommended. Therefore, choose your local advisor wisely as their local market knowledge and experience with your kind of products would immensely contribute to your initial success.
6. Strengthening after sales/service
The key to success in the Indian market is to provide customized products and solutions with a robust service network. The growing competition from Chinese manufacturers is unavoidable, but the price is not the only advantage in this market. German brands command higher respect in terms of quality and technology. Likewise, Indian customers are becoming increasingly demanding for after-sales support, opening a huge revenue stream for German manufacturers.
The above-mentioned are the challenges & strategy for India business. In the last 20 years, I have seen numerous companies venture in India. Companies that have been meticulous in their planning and had been a perfectionist in implementation have successfully established themselves in the market. Many have failed, and the primary reasons are those that I have shared with you in this article. With the change in the global economic scenario, I see a lot of companies taking a shot at this highly fertile market and many more success stories to be written.