Business opportunities in India: how to seize them?
Klaus Maier: "Only 20% of all companies understand how to do it"
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“If you believe the news, the growth expectations for India are huge. India is the biggest in every market and there will be a lot of profit to be made in the next ten years. But when you go to India as a foreign investor, you will soon find out that those figures do not apply to you. At least, if you do not have the right sales strategy.” Klaus Maier, founder of IndiaConnected’s partner company in India, shares 25 years of knowledge on how to seize business opportunities in India. “If you understand India and the Indian market, a world of business opportunities opens up for you.”
Klaus Maier has been living and working in New Delhi for 25 years. Maier: “I see many international companies fall into the same trap. They are blinded by the big numbers and expect endless business opportunities in the Indian market. They come to this country purely to sell their export products and think they can make a quick profit. From experience I can tell you that 80 percent of these companies will not make it and leave again within a few years.”
Dare to adapt your product to India
According to Klaus Maier, a foreign company almost always enters India in the highest market segment. Simply because most foreign products are of higher quality and therefore also have a higher price. “That high segment often represents only 15 to 20 percent of the entire market. So when you read, for example, that your total market is around 5 billion, but that exclusive, expensive segment is only 5 million. If a company has not researched the market properly, this difference will result in sky-high and, above all, unachievable goals being set.”
Even large, well-known multinationals make this mistake in India. For example, the German company Dr. Oetker, known for its frozen pizzas and cake mix, decided to enter the Indian market in 2007. Despite the fact that an initial test with home baking products seems to work out well, it soon becomes apparent that their successful products are not at all successful in India. Companies that do succeed in India all have one thing in common: a long-term plan for at least the next five years, with goals that are based on realistic expectations. “Foreign companies often discover along the way that there is an enormous middle segment with many more potential customers below the highest segment. However, their products often do not meet the needs of that consumer. If you have a long-term plan, in which you have included the possibility of starting production in India, then in the long term you can adjust your product so that you can serve a much larger part of the market in India. In addition, you reduce the production costs for your high-end product.”
One distributor in India is never enough: compare India with Europe
Maintaining your European or American sales strategy in India does not work, but you can use the lessons from your distribution system in Europe in India. “Starting with just one distributor or sales partner is one of the most common mistakes that foreign companies make in India. In terms of size, structure and diversity, you should compare India with Europe. Language and culture differ per state and you really have to adapt to that. An Italian distributor does not stand a chance in Norway either. So if you only have one distributor in India, he probably only has a good network in one state and sales will therefore be limited to that state. You need at least four distributors in India.”
According to Maier, most companies take about five years to learn these lessons on their own. “Those are five wasted years, in which you break even at most. As a company, you can avoid that with the right long-term strategy.” Anyone who takes India seriously does not start with a distributor, but opts for a dedicated, local manager in India. “Of course, it is important to find the right manager who understands your product and the market. We often see that foreign companies are too easily taken in by the first Indian they meet. Finding the right partner is like dating, you have to make a lot of appointments, meet a lot of people and then you quickly learn who you can use the most.” Together with this manager, the market can be mapped out, the logistics network set up, and after-sales can be started, one of the most important elements of sales in India.
Efficiency and quality are the assets of European players in India
Maier sees great opportunities in the coming years, especially for high-tech companies that develop for example medical equipment or products in the renewable energy sector. “In India, there is not only a need for this type of products, the country itself cannot yet produce it. So there is a gap in the market. But this should not deter other companies that sell products that can be produced in India. There is also enough chance of success for them.”
According to Maier, that success lies in the fact that European products are more efficient than the alternatives that are produced in India. “An example. The tractor industry in India is one of the largest in the world, but despite that, there is still a world to be won. Most tractors that are produced in India have around 40 horsepower and are not that strong. However, the things that are made, on the other hand, require tractors with a much stronger engine. A mismatch, where there is a great opportunity for an international producer. The example proves that if you really know the market figures and what they mean for you as a company, you can succeed in India.”
To sell in India, you have to be found online
The same applies to the flourishing Indian e-commerce sector. The predicted profits are high and the sector gained momentum in the corona crisis. “Five years ago, everything was still paid in cash at the door, but the pandemic has accelerated online banking. The number of people with an internet connection in India continues to increase. Still you have to see those figures in the right perspective, because where is that growth? In the countryside? Then you should not have high expectations, because your luxury, European product will never reach those customers.”
For city dwellers, an e-commerce platform is essential. “Indians like to go to the mall in their free time, but they don’t buy anything in those stores. They mainly want to experience the product there and then buy it online at home on an e-commerce platform, where they can compare the different options. A successful e-commerce platform does not function in India without physical stores and vice versa.”
The Indian government also benefits from more international investors
Finally, Maier expects that a lot will change in terms of legislation in the coming years and that market entry for international companies in India will become easier. “The Indian government still faces a major challenge: creating jobs for the large group of unemployed young people in the country. For this, it needs foreign investors. India has been very protectionist in the past ten years, the government kept the market tightly closed to protect local entrepreneurs from international takeovers.
Due to the corona crisis, we are seeing an increase in the interest of international companies in India. They want to spread their chances and, besides China, India is the smartest move. I therefore expect that the Indian government will eventually review the rules for exporting to India and relax the strict labor laws somewhat. This will bring many new business opportunities not only to us, the international entrepreneurs, but also to India itself.”
