10 mistakes to avoid when doing business in India – and how to get it right!
If prime minister David Cameron’s trade mission to India opens the floodgates to British businesses, will you be ready?
With David Cameron in India this week forging ‘trade ties', the nation is once again top of the agenda for businesses with designs on international expansion.
This tour is one in a series by leading politicians to India over the last 12 months, as the UK recognises the dynamic business opportunities between the two countries. According to BDO's Global Ambitions report, a quarter of chief financial officers in the UK are planning to increase their existing investment into India, and one in 10 is planning to enter the Indian market for the first time this year.
But how can you be successful in entering a market where the business, political and social landscape is constantly and rapidly evolving? BDO's Head of India Advisory Services, Arbinder Chatwal, looks at ten common mistakes made by international companies when entering the Indian market.
1. “One size fits all, right?”
Despite the common use of language and initial familiarities, doing business in India is simply not the same as in the UK, USA or any other country. The approach taken to enter and succeed in India needs to be tailored to the realities of the market, considering price, consumer preferences, distribution, local competition, tastes, and local and national culture.
Make note of the differences and ensure they are incorporated into your market entry approach. Foreigners often arrive thinking they know the perfect recipe for success in India, but they often miss a vital ingredient, which limits their returns.
2. “A bit of ‘rush and push' can't hurt”
Executives of foreign firms rightly see significant opportunity in India but make finger-in-the-air calculations about expected future revenues. As the overall numbers are so large, this tends to lead to a false expectation that a small proportion (but still a large number) of that business will come automatically and immediately. This is not the case.
Despite there being huge opportunities, even small breakthroughs can take a long time, so patience with the market is important. Local decision makers do not like to be rushed or pushed, even if their initial interest in your product or service is overwhelmingly positive.
3. “I'll just pop over now and then”
Whichever approach you take to the market, whether via distributors, your own office or a franchise, ensure you have someone on the ground that is independent and looking after your interests.
Sometimes this just needs to be a figurehead or service provider, but if your local activities are constantly overseen at ground level, you are much more likely to make more solid progress and avoid many of the pitfalls.
4. “I had a great meeting and came home”
Take time to actually understand the market by talking to potential users of your products and services on the ground, not just to distributors or partners. This will give you a much better understanding of the market and consumer needs.
Regular visits are fine, but if you don't get beyond your hotel or meeting rooms, you will never really understand the market in which you are seeking to be successful.
5. “We'll just discount the UK price a bit”
Get the pricing of your product right. You may have figured out there is great interest in your product or service and a demand – but at what price?
You may think that just discounting it by X% from your UK or other emerging market pricing will do the trick, but you can save a lot of wasted time and energy by really getting to know what price the market will pay – not what you think it will play.
Once you know these numbers, build a business model around the reality. Many foreign firms make losses for years in India because their margins vs. cost remain out of synch.
6. “He fits our mould – hire him”
Recruit the right staff. This may sound obvious, but often international companies recruit people who they see fitting into their mould. Whilst this is good from an internal perspective at home, it may not be the right fit for the task in hand in India. Sometimes the most polished local candidates don't end up rolling up their sleeves as much as some of the other less familiar profiles will.
7. “Just give them a bit more money to keep them happy”
Consider your local employees' culture. It may be surprising to you that a job title change is more important than a pay rise, but that is often the reality. Workers in India are different culturally, have different expectations and need to be managed accordingly.
If you want to avoid high levels of attrition or overpaying your employees to keep them on board, get support from a local HR expert to keep your team happy.
8. “Right, we're in. Where next?”
When you establish some sort of presence in the market (e.g. via a distributor, partner, incubator model or via establishing your own legal entity) do not assume your personal responsibility and time commitment for the market will reduce; it will not.
Any successful approach to the market will generate more enquiries, more sales leads and plenty of new opportunities – certainly in the initial stages, the follow-up will need to be supported by you. Factor in more time responding to such requests and, probably in the short- to medium-term, more time on the ground in India ensuring your platform is suitably established.
9. “Quick, get a local partner”
Don't jump into a local partnership and don't be scared of going it alone. It can be tempting to assign local distribution to one of the first people you meet, but take your time to assess their capabilities and commitment to your goals. If you can recruit the right staff, with relevant industry experience and local know-how, you don't necessarily need a local partner.
Unless there is very good reason, consider setting up on your own and, as you develop the market and possible valuable partners emerge, you are likely to engage them on better terms once you have trodden some ground yourself.
10. “Well they sound like they know what they're doing”
Use support firms who know what they are talking about and who can provide you support through the various stages of your journey. Many companies, advisors or trade promotion bodies can give you reams of advice on how to successfully establish a business in India or make introductions. Some will give you their own Top 10 list like this.
Probe into which businesses they have actually helped establish in India and what exactly did they do to help? There are thousands of India experts these days, but very few firms who actually take care of the nitty gritty support that is required on the ground and who can successfully stitch together the various aspects of your business.
India is a dynamic and constantly-evolving country, and you and your business need to evolve with it. Regular reviews of your approach and status quo in the market is advisable, take nothing for granted and set yourself a long-term goal of where you want to be in the market and the rest, with a sound approach and good support, will follow.
Each individual challenge needs to be addressed on a case-by-case basis and with the right local support and oversight, establishing and running a business in India should be no harder than anywhere else in the world.
Arbinder Chatwal is a director and head of India Advisory Services at BDO LLP, the UK firm of the largest international accountancy and business advisory organisation for mid-market companies. Its Sannam S4 partnership provides support for companies exploring Indian expansion and investment opportunities. www.sannams4.com