Shashank Verma | Head Supply Chain & Order Management | Maier+Vidorno
Updated in September 2017
India’s markets are insatiable and sales in India are booming. The growing middle class are pushing demand for improved quality and more choice in almost all markets – from infrastructure to electronics, from water quality to air travel. Increased quality demands make foreign products more attractive across most of the market – but there is a catch:
To sell foreign products successfully in India you need to choose the right India market-entry strategy. Your choice depends on your customers, your products and how much time, energy and money you can invest for setting up sales in India.
Make the wrong choice and you won’t be successful – or will have to invest a lot more than you originally planned.
In this article we explain your basic options.
Direct export to India
The easiest way to serve the Indian market is direct export of manufactured products from abroad (direct distribution). However, this assumes that you already know (potential) customers in India; that you have all the import registrations you need; and you can settle commercial invoices in a foreign currency instead of in Indian Rupees.
The advantage of direct distribution is that you have control over pricing, as there is no intermediary. Moreover, distribution costs and expenses (as well as headaches) are minimized because the responsibility for the import usually lies with the customer.
In addition, in India it is very important to have direct contact with customers. Interpersonal relationships and trust play an important role in the buying experience, and Indians are reluctant to involve intermediaries – confidence in service, quality and accessibility are key selling points. Direct contact leads to unadulterated feedback and can help you assess your clients’ needs better. This means that maintaining your company’s and product’s reputations is in your own hand.
Disadvantages of direct distribution from abroad are the lack of observability and your limited range of action. Without your own local presence as an Indian subsidiary or branch office, you can only have a partial assessment of your market opportunities and it is unlikely you are fully reaching your sales potential.
You also cannot sell online to Indian customers as the law requires that any foreign company wanting to sell products directly to Indian consumers will need an Indian partner who is able to import and sell the products locally for them online.
Sales in India through dealers and distributors
The most common way for foreign manufacturers enter the Indian market is through distributors; this enables Indian retail customers to pay in local currency, and this increases customer potential for foreign manufacturers. In addition, distributors allow you instant access to a local and nationwide sales force – often with an existing customer network – without long lead times or large initial investment. Companies like Maier+Vidorno can help you find the right distribution partners for you with a thorough partner search, but you need to keep a direct eye on your investment.
Since it is difficult to assess the work of the partner from abroad, you need to involve your staff in the processing of your Indian business – and trips to India several times a year are a must. If your partner does not already have a complementary range of products and corresponding customer network, it should still have a solid Indian customer base for products of foreign exporters without costly marketing and market research activities.
However, there is the risk that your Indian distributor can use their information advantage to your detriment. You need to make sure they do not set prices in their favour by estimating costs too high – e.g. customs duties, taxes, final prices for labelling; transport and storage.
On top of this dealers are usually trading houses, working for various companies at the same time and keeping multiple products in their portfolio – with their focus on margins and volumes.
Explaining the benefits of imported – and often high-quality – products are not always the top priority for Indian distribution partners, so their sales people may not have the product know-how or be fully able to maximize your market potential. Especially in a price sensitive market like India, however, this is one of the key criteria that determine market success or market failure.
The final problem that we find many clients face is that the scale of India means that most distributors focus on a particular region or state so you may have a great distributor in the North East covering Kolkata and surrounding areas, but you need another distributor for the Hindi speaking North, and still others for the South and the West. Building and maintaining relationships with all these takes time and companies often find they need to have a team in place on the ground to manage everything and ensure that everything is above board. Some companies outsource this role to M+V’s accounting and logistics teams; while others opt to have dedicated sales people hosted in M+V who can oversee the distribution network. This “business incubation” approach is a great way to get a feel for the market and learn, but if you are successful then sooner or later it makes sense to show your customers you have “skin in the game” – your own subsidiary.
Sales in India – have your own organization as an Indian subsidiary
The advantage of your own Indian subsidiary is that you can attract customers with your long-term India commitment. Your own employees are your biggest asset; you can recruit and instruct them to conduct technical sales and maintain sustainable customer relationships – a key driver to succeed in India’s competitive market. The intensive contact you get with your (potential) customers and the long-term personal relationships allow you a better understanding of the needs and willingness of customers in India. Being close to the Indian market means that you will also be better informed about the latest market trends and new opportunities for sales in India, and you can adapt your India market-entry strategy – not least your price policy – quickly to market conditions.
The experiences that you have at the beginning of active market development can then be used to gradually develop your own distribution system. You can often learn a lot from the well-functioning distribution systems of your competition.
However, direct investment and setting up your own distribution network in India also carries risks. Many companies make the mistake of underestimating the time and energy needed to set up your Indian organization – whether you set up from scratch, buy a company or set up a joint venture.
The distribution requirements, the countless compliances and bureaucratic pitfalls and the initial inexperience of managing your own Indian team can leave you too preoccupied to focus on the actual sale of your products. It is not uncommon that companies need around two to three years for their own structures and business processes to begin operating satisfactorily.
When you add the relatively high initial investment in infrastructure, human resources, transport and logistics as well as the ongoing investment in the construction or rationalisation of a nationwide distribution network, it is quite possible that your sales office takes longer to reach profitability than originally planned. Therefore it is important to have a really good view on your expected revenue and do your research to anticipate the financial and organizational effort you will need before you commit. A strong Market Entry Strategy is the only way to enter India with your eyes wide open.
Building your own sales organization is the most effective way to successfully establish yourself and your products in the Indian market, but you need to “take a long breath” to be successful.
Maier+Vidorno can help you to choose the appropriate model for your business in India – and to overcome the bureaucratic hurdles. To succeed in India, you need a clear market entry strategy and there are several key factors that you need to analyse before making your investment. Our Consulting team helps companies with all aspects of entering the market while our operational teams bring years of experience dealing with the everyday issues that international companies face.
Contact our experienced team to help you decide which option is best for you!