Following last year’s election of Prime Minister, Narendra Modi, India has seen a raft of changes, including tax incentives, plans for privatisation and lower caps on foreign investment. It’s hoped that collectively, these pro-business measures will help to accelerate growth and cement the country’s position as an economic powerhouse. But one year on, how much has the market really changed?
“Modi knows he has no option but to make it interesting for foreign businesses to invest,” explains David Horlock, Managing Director for Asia Pacific at standards and training provider BSI Group. “I don't think there’s any going back now. It’s just going to be a matter of time, of unwinding the bureaucracy and the red tape. There’s a political determination to get that done.”
According to the most recent World Investment Report, India received $34 billion of FDI in 2014, up 22 per cent on the previous year. By comparison, while investment flows into China only rose by four per cent, it still received just under four times as much FDI ($129 billion).
David sees Modi as a one-man army who must quash resistance from bureaucrats, even within his own team, the Bharatiya Janata Party (BJP). The challenge for India’s leader is whether he can embed regulatory changes fast enough to realise the country’s potential and successfully compete against China.
A burgeoning middle class and widening pool of talent suggests it can be done, but speed is another matter. Andy Dunkley, CEO of jeans brand Lee Cooper, says: “While the Government is putting through a lot of aspirational changes and it’s moving in the right direction, that’s not really filtering through into real business yet.”
The brightest sign is India’s economic growth, which is predicted to hit 7.5 per cent this year, yet few would understate the obstacles ahead. Crucially, there is the need for regulatory consistency across India’s 29 states, the lack of which is one reason why India sits so far down the World Bank’s Ease of Doing Business Index. Its latest assessment puts India at 142 out of 189 economies.
Understand your market
Inconsistency between India’s states means it pays to study the various regional characteristics. “Get to know the consumer,” suggests Arbinder Chatwal, Leader of Indian Advisory Services at BDO International. “Selling to Mumbai is very different to selling somewhere in Delhi and vice versa. So do that research up front and understand some of the smaller cultural nuances.”
Arbinder cites a motorbike manufacturer that had success in South but not North India. It didn’t realise the difference in consumer tastes: North Indians prefer a kick-start engine, which they perceive as masculine, but it sold a key-start motorbike. It’s a small detail that had a significant effect.
Going in with assumptions about how business is done can have serious repercussions. Shanthi Flynn, Criticaleye Board Mentor and former SVP for HR at Walmart Asia, explains: “India has lots of potential for businesses if they are willing to invest in the future and build at a steady pace. But companies that attempt to launch their brand in multiple states at the same time run much greater risks. The states have different laws and local politics and can vary in how much they support foreign businesses and certain business types.”
A joint venture (JV) with a domestic company can provide new entrants with the local insight needed to navigate through such issues. According to Lee Cooper Brands’ CEO Andy, whose business in India is worth $100 million − up from $20 million five-years ago, “Going in on the ground yourself is nigh on impossible”.
Yet such partnerships can add another layer of complexity, particularly when executive teams don’t fully understand the terms and conditions or set-out a clear break clause. “It’s easy to rush in and do a deal and then find you’re in bed with the wrong person; how you exit from that is very difficult,” he adds.
Additionally, JVs can leave you open to IP theft as regulation is lacking. Lee Cooper Brands protects its product by recording designs, using holograms and talking to customs officers to determine if their products are being illegally exported.
“When we do see counterfeits, which we do, we make a point of going to the end of the legal process, which can take years but there is a pain barrier in knocking off our product,” says Andy. “If you don’t go through that process, the knock-offs will multiply and you’ll lose control of the brand.”
One of the best ways to protect your business in India is to have the right local staff on the ground. Thankfully, one of India’s selling points is its talent, but sometimes aspiration outstrips experience.
“India has a lot of smart, English speaking talent. You’ll find more people who feel ready to be CEO here than anywhere else in Asia. The challenge is that the number of managers with broad experience are limited, so they’re expensive. Salaries at the leadership level don't always match experience,” Shanthi explains.
Getting the right local talent is essential. “There’s no point flying an expat in to do these bits for you,” says Arbinder. “You need to have your own man on the ground who’s got your interests, wearing your logo; essentially, has got your interests at heart.”
According to Andrew Minton, Executive Director at Criticaleye: “One thing to bear in mind is how Indian employees expect to be led and inspired. India’s successful leaders often have a long-term, internal focus. This means a deep investment in people instead of looking first to the shareholders. Western leaders should bear this in mind when considering how they lead in the subcontinent.”
Indeed, longevity is the best approach. “India is a long-term, strategic play as opposed to a ‘get rich quick’ investment, so set your expectations,” instructs David.
Fast economic growth and increasing FDI suggest that may be starting to change. Executives, entrepreneurs and investors certainly hope so.
By Mary-Anne Baldwin, Editor – Corporate