Klaus Maier | MD & Founding Partner | Maier+Vidorno
First published in August 2015
Entering any new market, especially a foreign market, involves a steep learning curve and there are a lot of articles available to help companies avoid common mistakes when going abroad with your company, not specifically to your India market entry. India market entry, with its price sensitivity, non-transparent market structures and complex culture is amongst the more complicated of the larger markets, and while the Indian Government is putting a lot more focus on helping foreign companies to set up, there is still a long way to go before it becomes an easy process.
After 20 years of working in India – 15 of those, helping foreign companies in doing business in India while entering and growing in the Indian subcontinent – I’ve seen a lot of companies make the same mistakes in the India market entry strategy time and time again. Here are some of the biggest and most common ones:
1. Come with the wrong attitude
Too much self-confidence or arrogance can be a downfall anywhere, and more so in India, which is more complex and sophisticated than many might expect. Here, many business decisions are taken based on trust and intuition while most of the official paperwork still requires labyrinthine knowledge. Most Indians are very proud of their country and achievements, and are also hypersensitive to hearing foreigners pointing out where it could be done differently. A culture that is several millennia old takes badly to outsiders thinking they are better – and it is, after all, only 65 years since Independence from the British. In India and especially during the India market-entry phase one requires an open mind, a flexible approach, an appreciation for high-adrenaline functional chaos, and boundless patience for bureaucracy and ambiguity. A good sense of humor will also be an advantage, as there are many times when tense negotiations can be diffused with a gentle joke or a positive attitude.
2. Your expectations are too high
India as a country is vast – really vast, the population is growing and more of that population is defined as middle class everyday (increasing consumer spending). There is good GDP growth and there is good growth potential in almost all sectors, but the reality is that the market for any foreign good is much smaller than most companies realize. In a population of over 1.4 billion still 400,000 million live in poverty and the definition of middle class is very different from US or Europe. In a recent newspaper poll, almost half the people polled across the country described their family as middle class, while the average annual household income of India’s most affluent 20% inhabitants is Rs 1.5 million ($2,269 US). Though India’s population is young and growing, and is expected to grow dramatically in the next 10 years, it is still a lot less to help you see the real size of your India market, so that you get your targets and investment plans right from the start.
3. You don’t have the right products and prices for India
Many foreign companies come to India and try to sell their normal products in India at their normal ‘Western’ prices. This is a great way to test the market, but it works for very few companies in the long term. There are examples in every high-end Indian shopping malls of foreign products selling at the same – or even higher – than home-market prices; but these examples are all of luxury end-consumer products where high-wealth individuals are paying for the foreign coffee or a pair of jeans with an international brand. Anyone who has sold in India will tell you that the reality in most market segments, and especially in B-to-B businesses, is that India is one of the most price-sensitive markets in the world and many – if not most – Indian customers are willing to sacrifice long-term quality for short-term price gain. This means pricing is an issue for all foreign companies with wealthy home markets. A real alternative is product innovation – finding ways to manufacture your products more economically – preferably, without reducing your quality so much that you damage your brand. Local adaptation is also an issue in China, but as India is even more price sensitive than China in most industries, even more innovation is needed to manufacture an affordable product at cost-effective prices. This can be beneficial for your global strategy because the products, developed to be affordable in the Indian market and capable of surviving the intensity and variety of climates, can be extremely valuable in other emerging markets. India has a superb infrastructure for innovation with more engineering graduates qualified per year than China and US combined (though their qualifications vary from world class to substandard) – and many of the top and middle-tier universities training these students are in catchment areas where products can be tested. This process can be exciting and can open up many more market opportunities – but you need to think ahead about how you will market these different products without diluting your brand in your existing markets and becoming your own competitor.
4. Have your controlling processes in place
You need to check the processes and structures in your foreign companies at an early stage and on a regular basis, and make sure that you are not setting up your infrastructure for failure. India is ever creative and constantly surprising, and simple choices may turn out to be more complex or unmanageable very quickly. Companies may pick the wrong partner as a distributor or for a joint venture, register as the wrong entity or create bonus schemes that actually disincentivize their Sales Teams. All of these scenarios can and do happen and all of them can be rectified – as long as the parent company keeps a keen eye on the proceedings and at the same time gives space to their Indian Sales Managers to sell in their market.
These are not the only things that can go wrong, and many are similar for China or other countries, but doing business in India is complex: it is a sophisticated culture, a chaotic democracy and a developing economy all at the same time. This makes working here exhilarating, and can teach companies many lessons that can ease their entry into other less complex markets. What’s certainly true is that you need to do your research, keep an open mind and be ready to adapt the way you work and what you sell in order to succeed.
Klaus Maier is an expert in developing successful and sustainable India market-entry and market-expansion strategies for American and European companies. He has worked in America, India, Spain and Germany and has been doing business with and in India for the last 20 years.
You can meet him to discuss these ideas in person in Chicago during the event “Doing Business in India – Success strategies on how to enter the Indian market” on September 23rd 2015 in Chicago.