On January 26, 2015, President Obama will become the first sitting U.S. President to visit India twice. Ahead of Indian Prime Minister Narendra Modi’s visit to Washington last September, the U.S.-India Business Council found that its large company members were prepared to invest $40 billion into India by 2017. This at a time when Brazil’s economy is stuttering, Vladimir Putin’s expansionism has made Russia a pariah, and the rich world is looking for someone other than China to love. In the hyperbole of online media, one headline reads, India is the last BRIC Standing.
The U.S.-India love first peaked in July 2008 when India’s government of the time risked its very survival in support of a nuclear energy deal led by Washington. But both trade and political alignment lumbered slowly forward until the current quarter and many American executives had become flustered with their India initiatives.
Today there appears to a second gold rush to India. Silicon Valley venture capitalist, Douglas Leone of Sequoia Capital, told the Economic Times of India in October, “We could not be more thrilled. We don’t have 25-30 category leaders in the United States; we don’t have [as many] in China right now, but we have it in India.” In the same month SoftBank of Japan committed to investing $10 billion into India over the next several years and CEO Masayoshi Son proved his seriousness by pouring the first billion into an Indian e-commerce company (Snapdeal) and a car-sharing service (Olacabs).
It’s not just frothy internet startups that are doing well in India today. Boeing India’s Dennis Swanson told Business Week that he expects to sign a new strategic partnership with an Indian company in 2015. Boeing is America’s largest exporter and the only American defense contractor to have crossed $2 billion in sales to India. America’s largest insurer, Allstate, announced plans to invest $1 billion in its India operations. Domino’s Pizza declared that they sell more pies in India than any other country other than the United States.
Federal and state government officials have also lined up to promote their respective causes in New Delhi, from Commerce Secretary Penny Pritzker, to South Carolina Governor Nikki Haley. Hundreds of lesser known companies, organizations and officials have joined the scramble. And we expect that President Obama’s visit will spark a further acceleration of business interest in India.
While some companies will do very well in India, we expect many others to be disappointed. But it won’t be “India’s fault,” in our view. In June 2013, Dallas-based Mary Kay exited from India after six years and over $20 million invested. At the same time Amway and L’Oreal thrived in the same market and personal care sales boomed across most of India. Earlier, GE found that it could not make a go in the appliance business in India. Abbott Laboratories of Illinois acquired Piramal Healthcare Ltd.’s branded generic-medicine unit in India for $3.7 billion in 2010, predicting it would grow at 20% a year for a decade. Two years later sales were stagnant in dollar terms.
We believe that American companies have a huge upside in India over the next several years. But they need to be alert to the following four signposts.
Choose the right India country manager: The role of country manager for India can mean many things depending on the scope of operations and the structure of an organization. First of all, headquarters needs to be clear about their vision of their role in India over the next 2-5 years and recruit to match that vision.
Sometimes, we see companies enter India with an executive who is the rough equivalent of a regional sales manager in the United States when their visions of India are much grander; he or she is typically not empowered to seize transformational opportunities in India while at the same time, his or her voice is not heard loudly enough at global headquarters. We’ve also seen the reverse, where a retained search firm convinces an American company with very modest goals for India to hire a leader used to running a thousand-person organization. In India’s class-conscious culture, such a person might struggle at having to personally perform tasks that they routinely delegated two or three layers down. They will definitely find themselves under-challenged. When they quit, the American company’s brand and reputation takes a hit in India.
We cringe at hiring processes that emphasize the ability to “communicate effectively with headquarters” over the skill of dealing with Indian companies and government officials. Of course it would be ideal to hire a manager who is equally adept in Peoria and Pune, but there is a paucity of such talent in a growing emerging market. While India is complex, it is an open society and an expatriate sent to India can learn to be effective in India, provided they have an open mind, a sense of humility, and the tenacity to manage the Indian operation for four years or more. David Mulford, U.S. Ambassador to India from 2004 to 2009, was more successful in part because his long tenure enabled him to gain trust, respect and apply his learning effectively. Many other recent ambassadors have returned to Washington in two years or less.
Prepare to adapt: Muhtar Kent, the Turkish-American CEO of the Coca-Cola Company, lived in India as a boy and now oversees a business where India is a top 10 market in case volume and where his company is investing another $5 billion. “… In India, appearances can be deceiving,” he wrote earlier this year in an essay in Re-Imagining India. “For outsiders there is always a hint of mystery. Even if you live and work there, you can never be entirely sure you understand. It is best to assume that you do not. If you come to India with some grand, pre-determined strategy or master plan, prepare to be distracted, deterred, even demoralized.”
While flexibility is important in any new market, India stretches the assumptions and belief systems of many seasoned international business people. If you and your company are not prepared to be humble and open about dealing with India, it may be best to stay home. We don’t mean to suggest that you compromise your integrity or core values or that you tolerate any corruption, but be ready to do things in India that you may not need to do in other markets. Kent goes on to say that the key to their success in India “has been learning to see the Indian market as it is, not as we wished it to be.”
In our conversations, we hear this yearning to see the Indian markets as American executives “wish it to be” from the trivial to the substantial:
• “Why can’t Indian Standard Time be nine or 10 hours ahead of EST? What is this business about nine and a half hours?”
• “What is a crore of rupees? Why can’t they count in millions and billions like everyone else?”
• “Why are there so many levels of duties, taxes and “cesses” in India?”
• “Reserve Bank permission? I never have to deal with the U.S. Federal Reserve, what is this all about?”
• “I have one distributor for all of Australia. Why do I need five in India?”
Take India as it is and you can learn to thrive. Complaining about why it is different will gain neither friends nor sales.
Value, not price: The common wisdom is that India’s buyers seek the lowest possible price and are prepared to compromise on quality. And rarely is an American product or service the low-price leader in India’s market. Add up Indian taxes and channel costs and the price of American products looks worse compared to a local player.
The reality is that usage assumptions of many imported products are not attuned to the Indian market. For example, interest rates are higher in India than the USA and credit is not easy to come by. So cash flow is king in most Indian businesses and if you can document how your product or service can improve your Indian customer’s cash flow, a high ticket price becomes much less of a factor. In the United States, a machine may be used six hours a day for five days a week. An Indian executive may want to buy the same machine and run it 16 hours a day for six or seven days a week. Low-cost Indian repair and maintenance crews can tune up the equipment at night.
American equipment is often sold bundled with a host of features, accessories and services that may have no relevance to the market in India. Many times, the product can be unbundled thoughtfully and the final configuration offered in India may not be lower cost but can preserve or even improve gross margins.
Don’t ignore governments as a customer: Other than in the defense sector, American companies have generally hesitated to engage with India’s government, fearing corruption, long sales cycles and the pressure of a low-bid tender process. Today, however, there is opportunity in government sales.
India has 29 state governments in addition to the union (central or federal) government. Some of the states and their cities have more nimble and forward-thinking officials who are committed to modernization and rapid growth and they should no longer be ignored by new entrants. These sales are decided in state capitals across the country and most American companies should choose no more than four states as initial targets. Buoyed by economic growth, New Delhi also has a lot of money to invest in infrastructure, in medical services, in technology and more. By March 2015, the Modi government will announce its new budget for fiscal year 2014-2015 and this will affect many policies and procedure followed by the central government. This will be a good time to re-assess whether India’s federal government will be a more promising market for foreign companies.
With Obama’s upcoming visit, we expect the conditions for U.S.-India activity to continue to be favorable. If you’re not rethinking your India goals, now is a good time to do so.
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