Entering a foreign market by Foreign companies is always challenging. The high price sensitivity, the rather opaque market and the complex culture make India one of the most difficult foreign markets. In recent years, we have seen companies make the same mistakes over and over again. These are the four largest and most common:
A Biased Or Even Arrogant Attitude
No one appreciates a biased or even arrogant attitude. Not even in India where the sophistication levels are higher. The sophistication levels are much higher than many people think at first glance. In India, many decisions are made on the basis of trust and intuition. The official paperwork is then enormously complex. Most Indians are very proud of their country, their thousands of years old civilization and achievements of Indians – whether it’s the recent successful space mission or the fact that Indian Sundar Pichai is CEO of Google.
Indians are therefore very sensitive to foreigners coming to tell them how things can be done better. Since many Dutch people subconsciously have a hand in this, it is even more challenging for Dutch companies. Foreign companies in India need an open mind, especially during their market entry. Flexibility, a lot of patience (for the bureaucracy and the apparent contradictions) and a good dose of humor are also essential.
India is a huge country, a continent in fact, and its population now stands at 1.4 billion. Moreover, a growing part of the Indian population belongs to the middle class. The Gross National Product has been growing for years and there is plenty of potential in almost all sectors. Yet the market is much smaller than most foreign companies realize. Of those 1.4 billion people, at least 400 million live in absolute poverty.
Moreover, the definition of the middle class in India is very different from that in Europe or the US. Research shows that almost half of the Indian population defines his or her family as middle class. The average annual income of the Indian population is just above 2000 Euro. Of course, India has a young population and there is expectation that the Indian economy would grow very strongly over the next decade. Nevertheless, many companies would do well to study the country more closely in order to draw up a realistic investment plan and growth forecasts.
Wrong Products, Wrong Prices
It’s amazing how many companies come to India with the idea of selling their standard products here at Western prices. It’s a way to test the market, but there are few companies that are successful with it in the long run. In every high-end Indian shopping mall sell the foreign products by Foreign companies at Western prices. But these are only luxury consumer products bought by very wealthy Indians. Anyone selling products in India knows that in the vast majority of market segments – and this is certainly true for B2B products or services – India is one of the most price-sensitive markets in the world. Many Indian customers prefer to choose a product at a lower price in the short term, rather than quality in the longer term.
A real alternative is product innovation, product adaptation or local production. This product with customization is also potentially very interesting to sell in other emerging markets. India has an excellent infrastructure for innovation, given the huge amount of engineers that come here from the university every year. Of course, companies need to figure out in advance how to market these products without weakening their brand name in their home market.
Establish Good Control Mechanisms
It is of great importance that Foreign companies set up their processes and structures equally well and check them very regularly. India is creative and continues to amaze foreigners (and Indians themselves). Simple decisions can become extremely complex and difficult to manage. A wrong partner as a distributor or for your joint venture, registering the wrong legal form, or setting up a bonus structure that doesn’t boost but slows down sales teams. All these examples actually happen and rectification can happen. At least, when the parent company actively oversees operations in India.
Of course, more things can go wrong: India is a complex culture, a chaotic democracy and a rapidly developing democracy. That makes working in India sometimes frustrating, but above all very instructive. Many lessons and experiences of companies in India come in handy when entering other, less complex, foreign markets.