New Business In India: The 21st Century Opportunity

The 21st Century Opportunity

Paul Davies

• Publisher: WSPC
• Year: 2008
• Print ISBN: 9789812790422
• eBook ISBN: 9789814338325
• Topic: Biological Sciences
• Subtopic: Science General
• Index: Biological Sciences

New Business in India is focused on how to enter the Indian domestic market, which is currently growing at nearly 10% per annum. The book is important as it is based on first-hand experience and real insights into the market in India, establishing a company and business, and developing the marketing and sales programme for both business-to-business (B2B) and business-to-consumer (B2C) companies. Serving as a comprehensive introduction to entering the market, this book, in short, is able to take business planners and developers working in both large and small companies through the processes they must address in order to establish a successful business in India at a time when there is a first-mover advantage.

Contents:

• India Now
• Why India?
• Understanding Indians and Indian Business
• The Domestic Market
• Which Products, Services and Sectors — and Why
• Barriers to Entry and How to Overcome Them
• Creating the Business Case and the Business Plan
• How to Enter the Market: Partnership, Distributorship, Joint Venture, DBOT, or Do It Yourself
• Sales and Marketing in India
• Staffing in India and Global Talent Management
• Next Steps: Turning These Insights into Real Business Advantage
• India Tomorrow

Readership: Business professionals: CEOs, CFOs, COOs, CMOs; business development managers; business students; business journalists; business analysts; management consultants.

ONE

INDIA NOW

Whatever else you get from this book, by the end of it I hope you understand the excitement and the opportunity that India offers western business today. Of course India is a challenge and a thoroughly strange and exotic environment and you should just go there and see at firsthand what a dynamic business culture it has. Now is exactly the right moment to go there and make a reasoned decision whether you are going to enter that market and exploit the opportunity it presents or to stay your hand for the moment. The second message from this book is that now may not be the right time for your company to enter that market but there is a real imperative for you to make a soundly based decision and not let the opportunity slip through your fingers. The market is growing so fast, it just should not be ignored.

We are witnessing in India one of the fastest and most complete transformations of an economy that the world has ever seen. What took something like forty or fifty years in the West, is going to happen in not much more than a few months in India or it will at least seem like that.

There are losers in this process, within the Indian economy and within the world economy. In five years the retail shopping environment is going to be transformed, as multinational companies and larger and larger Indian retailers effectively destroy the living of a vast number of small retailers. More and more semi-skilled and highly skilled workers in the West are being marginalised by competition from India. (The really unskilled are not so badly affected as they generally do the jobs like fruit picking that cannot—at least yet—be done three or six thousand miles away.)

In that same revolution, however, there are going to be winners and this book is focused on how to be part of that winning environment.

To take a prosaic example and one that gives a real insight into what is happening in India at a more profound level, look at the rise of road transport. Of course India's roads have been full for years. The spectacularly dilapidated, colourful and grindingly slow trucks that have trundled across India, overloaded, hand painted, home to the driver, and competing for every inch of road space with cockroaches—the three wheeler motorised rickshaws—bicycles, cars, bullock wagons and cows, have been a picturesque and precise image of the infrastructure problems in India. At least 50% of their time is seemed to be spent waiting. Waiting for traffic to clear, waiting for controls to be cleared, waiting to pay octroi, the tax on goods passing between states, waiting for something to happen.

Like the electricity supply in India, trucking certainly existed, more or less as an afterthought. Like the postal service, the truck would get there eventually, and as long as time was not of the essence, it was quite reliable. But it did take an age in doing so.

So the change to road transport in this current decade in India is breathtaking and a symbol of the energy, investment, focus, and the ability to create and then transform a muddle that is India. The Golden Quadrilateral is one of the biggest indicators of change in India. Nearly 6,000 kilometres of dual carriageway, or interstates, linking Delhi, Mumbai, Kolkata—previously known as Calcutta, and Chennai—previously known as Madras, have almost all been built and will form a sort of quadrilateral and change the face of India. Already being widened from four to six lanes, both to meet and to stimulate demand, the project was worth over $12 billion when first conceived in the late 1990s.

What it will actually cost is quite amazing in a country that many people in the West regard as just an emerging economy. The development of something approaching modern road transport is happening in India before our eyes.

Most importantly, a process of developing modern, high speed roads that started in Europe and the US in the 1930s and was only brought to anything like a finished state in the 1980s some fifty years later, is going to be accomplished in less than 10 years.

Being able to drive between the metros—or largest cities—in India is almost mind boggling. In fact it is almost as mind boggling as the idea of venturing today on to Indian roads, no matter how modern, for any westerner.

For those of us who have watched India over the last decade, understanding the scale of investment, not just of money but of political and economic will, is what gives the biggest indicator of the new India and the new business in India. You will often hear people suggest that because India is a democracy and there are so many competing interests, nothing much can be accomplished in India. If you understand that sentiment and are used to the usual Indian approach of making do, waiting, shrugging, and generally concluding, after a considerable gap, that will do for now, the physical advent of the Golden Quadrilateral is what is most staggering. It is little short of a cataclysmic change in approach, understanding and capability.

Of course there are worries about corruption in awarding the contracts. Of course there were delays as the states decided whether or not to work with the Union government. Of course the whole thing looked like a shambles even beyond the point that the roads themselves were pressed into use. And yet the roads are being used.

This development of the Golden Quadrilateral has another message. It was the opportunity to be a supplier to such a gargantuan project that changed a significant number of business attitudes in the developed world and made the question of whether to enter the Indian market very much more pressing and significant.

More important than any of this however is how indicative of the new India this is—and how indicative of the wholesale changes that are going on in the sub continent. Taken on its own the Golden Quadrilateral is symptomatic. Taken as part of a more holistic view it is astonishing.

Twenty years ago there would have been almost no understanding in India of the use that such a road infrastructure might have, let alone any concept of building it. Now it is an essential element in the development of India that will create, support, stimulate, develop and reinforce a completely new consumer and business market in the world. Alongside it is the development of an amazing air passenger industry.

Jet Airways broke the mould in India, providing exceptional customer service and, even more alarming to those of us used to travelling in India on Indian Airlines, punctuality. Now Jet is fighting for every seat against a host of new competitors, including Kingfisher which is providing a most effective competitive threat. We are also seeing the advent of the low cost airlines, picking up the model of South West Air, EasyJet and Ryan Air. In a few years, from a rather comfortable—from the airline's point of view—position of arriving whenever it suited the airline, cancelling flights on what looked like the merest whim, serving the oddest combinations of food, and treating passengers as being privileged enough just to be flying at all, the market has been transformed.

Now that the private Indian airlines have started to go international, the world of Indian aviation has been doubly transformed. At the launch of Jet's new international first class, with its separate cubicle for each passenger and, of course, a proper flat bed, the sight of two Bollywood stars disappearing through the cubicle door together and then closing it behind them caused quite a few ripples, mainly of disapproval. Whatever that might have portended, there is no doubt that Indian travel and transport is changing rapidly, in quality, opportunity and in breadth.

If we stick with road traffic in India for a moment, it is as well to see the roads as very much a metaphor for Indian business and how it operates in the domestic market. It can be both fast and furious and deadly and slow. On the one hand there is the exhilarating speed of Delhi. Like a great deal of Indian domestic business, it rushes at breakneck speed, and is as entrepreneurial as each person grabs a new part of the road space and makes it his or her own. Then there is the gridlock of Mumbai, where competing interests and a lack of incentive to give up an inch of space ensure that traffic moves hardly at all and it is difficult to imagine getting anywhere. If you can keep those two contrary pictures in your head at the same time, you can probably make sense of what it is to do business in India—the good and the bad.

Just when you thought the open road lies ahead, some restriction will be placed in your way. In my own case opening my own company in Chennai was blissfully straightforward. Not one of my professional advisers could think of any issues that might arise. Then I ran into the full spectrum of constraints. I could not have the name I wanted because anything that dealt with onshore and offshore was obviously to do with the oil industry and therefore I had to put up working capital of outrageous sums. From this rather strategic objection, I hit problem after problem, even down to the place where the UK notary public put his seal on my documents. His seal and signature were unexpectedly, apparently, at the bottom of the page. This rendered all the documents null and void. It was not the cost—though that was substantial—but the time and effort that had been expended getting the documents together at all that really rankled.

In short, never relax in Indian traffic or in Indian business, never take your eye off the slightest detail—because something will be lurking to grab you and change all your time scales.

More than being symbolic, the massive developments in infrastructure in India are part of the transformation of a significant number of Indian lives. Adding another 250 million consumers to the world economy is impressive enough to grab attention and that is about the number out of the 1.1 billion Indians that already have some access to the world economy. When that 250 million are predominantly under 30, with large, and growing, disposable incomes, a world view formed by television and, more significantly, the Internet, well able to use English, the language of international business, accustomed to free speech, the rule of law, and learning to enjoy freedom from bureaucratic control—the result is going to be amazing.

The markets that I am most comfortable with in India are predominantly business to business, or B2B, rather than the business to consumer, B2C, markets. If I take one small example that is dealt with in more detail later, you will see why this is the first growth area. Car production is increasing very fast in India, but a large proportion of the new cars being produced is exported. Providing car components to the factories producing the cars is clearly an interesting market, as is providing the elements necessary for the production of car components. There are growing B2C markets, but first look at the B2B opportunities.

Nevertheless, the money that these new members of the global consumer society have is the key to the future of the domestic market in India. When I was managing director in India there were suggestions about the difference in salary between me and my Indian staff. The discussion centered on the amount of money going in the two different directions. My six figure salary in pounds sterling was often a matter of wild speculation—and I wish I had earned the amounts that were being suggested—but even unquantified it was thought of as riches beyond the thoughts of avarice. Against that my managers compared their own four and very low five figure salaries.

My approach to dealing with the issue was to talk about purchasing power and standard of living.

It was agreed, of course, that they each had a driver paid for out of their miserably low salaries. They each had at least one maid. (There was usually at this point some shuffling and embarrassment because I did not realise that it was at least two maids. It was, of course, further evidence that I did not understand.) They did have a gardener—well, only if they had a garden, it was pointed out.

I revealed in return that not only did I not have a driver in the UK, but that, despite possessing a garden, I had no gardener. This was frankly a bit far fetched of course. The fact that we did not have even one maid was however so astonishing that it tested their belief in my truthfulness. As this conversation did not just happen once but on reasonably frequent occasions, it was obviously deeply shocking and unbelievable.

My veracity was tested by asking whether I had children? Many. And you didn't have a maid? No. Who changed the diapers or nappies? When I said me, it was like watching the heroine of a Jane Austen novel who, through too much exposure to peasant life, had to lie down all afternoon with the vapours, as they struggled to deal with this impossible fact.

I had to modify my answer by saying that it was my wife if I was not in the house, but this caused almost as much disbelief.

The discussion always progressed to the real point, which was the difference in purchasing power. Out of my salary, in an average year, there was nothing left over after, admittedly, a reasonable standard of living. My senior managers, by contrast, all married with families and the usual household and educational bills, had money left over to spend on non essentials, and that was after paying for all their family retainers.

A few years on, with salary inflation having been quite extreme in parts of Indian business, and looking at a cross section of employees in the offshoring world and even within parts of the domestic Indian economy, it is possible to see that India's domestic market is becoming very attractive to western business. Where else in the world will you find such a growing cohort of globally aware consumers with money to spend?

Purchasing power in India makes it the fourth largest economy. They might still be hyper-sensitive about price—and they are—but they have disposable cash. They also have demands, and their exposure to western goods, whether in books, magazines, television or primarily from the Internet, is more than sufficient to begin to overwhelm domestic supply. They are real, first generation consumers of electronics, entertainment, experience and pleasure.

The contrast with China, for example, is stark because the single child policy has really limited the number of people of working age and the age profile of the population is very different from India. The number of dependents that each wage earner has to support is growing fast in China, but in India it is still shrinking.

The sheer quantity of people in India who have money to spend has grown, their awareness of global brands is increasing daily, and the demand for consumer goods has grown immensely. It is still very difficult to address the end consumer in India but the opportunities for selling into the businesses that supply those consumers become more and more attractive.

In addition there is another fact of Indian life that is going to speed up the transformation that I have been outlining so far.

If you consider the amount of energy that Indian business people have devoted to working their way round, through, under and across a stifling bureaucracy, you will begin to understand how much of an impact Indian business people will have on the world as the controls are loosened. That statement is made in the full knowledge of how successful they have been on a world business stage already. The percentage of the world steel production that is owned by Indians is already significant. The dominance of the world information technology development budget is well known. But we have not really seen the power of India and Indian business.

When the restrictions in the internal market are removed—gradually and painfully slowly at times—the energy Indian businesses will unleash on the world will be astonishing. As one small example, take the telecoms industry. It was one of the first business areas to be liberalised. Now every month some five million extra mobile phones are added to the consumer base in India. That is staggering number even when you say it quickly.

This development helped convince me that once India starts to move in business and throws off bureaucratic constraints, it becomes unstoppable.

The opportunity of selling into such a new, vast market is very difficult to grasp. The inevitable downside is that each unit will be sold for a very low value in the foreseeable future. Yet the upside remains that the volumes that are possible are immense. The important additional factor is that creating a market presence is relatively inexpensive compared with any western market and the very real risks are relatively easy to understand and deal with as they are nearly all within the Indian domestic market itself.

This means that while growth in India will be fuelled by the global economy, its huge domestic economy will provide enough insulation to carry on even if the world economy falters.

If there is no other message from this book, then bear this one point in mind. Many people think that current economic development in China is underpinned by state-directed, inefficient loans producing an unbalanced and bubble-like economy. If this bubble bursts and leads to, if not a collapse, a recession and the re-establishment of the Chinese economy on sounder lines, India may well be affected along with the rest of the world. The difference is that it will not remove the fundamental strengths of the Indian economy, especially as energy sources, whether pipelines from Russia or domestic discoveries of oil and gas, are made more secure. The momentum in the Indian market is not entirely self-sustaining and completely safe from down turns in the global economy, but it is remarkably strongly based and has a banking infrastructure largely determined by market forces.

On the other hand, I do not want to disguise the fact that there are, nevertheless, all sorts of problems in dealing with India. There are extremes of uneven development, an economy with enough imbalances to cause social unrest, and massive variations across the country which is, after all, a subcontinent if not the sub-continent. Even if the fundamentals are simply astonishing, and the opportunity vast, there are many traps for the unwary. As this book develops you will see more of them, but let me bring one or two into focus here to counterpoint the idea that India is in any sense a monolith. I recognise the real differences across the country and the fact that while the opportunities are great viewed across the sub-continent as a whole, in different areas and different parts of the economy there may well be no real opportunities for western companies.

The individual states in India, most of them bigger than the average European Union country, have jealously guarded their freedom and independence. It is true that sales tax at different rates is at last being replaced by VAT imposing some uniformity. Border customs posts between states are becoming far less important but there are still hold ups at the crossing points. Television, another industry being liberalised, is cross border. The Internet is cross border. Businesses are located across the country, but you will still become aware of the roots of each business and understand that a Maharashtran company—typically from Mumbai—will have a different approach from one that originated in Tamil Nadhu.

If I take one key issue, you will see the impact that the regional and state differences have and how, while it is possible to see India as a unified state, at a business level, it is best to be aware of local differences. Female literacy, the silver bullet in social, political and economic development, is probably very close to 100% in Kerala, a state in the south. If the mother is literate, there is a good chance that the children will be—and the focus of the family will be towards education and development. In Bihar, a poor northern state, female literacy is said to be about 40%, and as you ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Contents
• Acknowledgement
• Preface - India—The 21st Century Opportunity and Why You Should be Part of It!
• Chapter 1 - India Now
• Chapter 2 - Why India?
• Chapter 3 - Understanding Indians and Indian Business
• Chapter 4 - The Domestic Market
• Chapter 5 - Which Products, Services and Sectors—And Why
• Chapter 6 - Barriers to Entry and How to Overcome Them
• Chapter 7 - Creating the Business Case and the Business Plan
• Chapter 8 - How to Enter the Market: Partnership, Distributorship, Joint Venture, DBOT, or Do It Yourself
• Chapter 9 - Sales and Marketing in India
• Chapter 10 - Staffing in India and Global Talent Management
• Chapter 11 - Turning these Insights into Real Business Advantage
• Chapter 12 - India Tomorrow
• List of Websites and Resources
• Index