Can small-medium sized businesses succeed in India?
With India’s outstanding GDP growth, predicted at 7.6% for the 2015 fiscal year, business owners at every level are wondering how they too can get a foothold in this burgeoning market. Many large multinationals have already taken steps to expand their operations in India, including GE, Apple and GM. But what about the small-medium sized enterprises, the SME’s? Should they really be considering doing the same?
Doing business in India is very different from doing business elsewhere in the world. That said the Indian market has immense potential and lots to offer to entrepreneurs in the USA. India is a complex market due to regional diversity, large rural-urban divide, dominant unorganized sectors and multiple legal and administrative systems. India’s complex bureaucracy and lack of proper infrastructure also magnify these challenges.
Atlantric offer insights into the problems you could face taking on such a market and we can help you succeed in overcoming them. We can help identify suitable local partners, help you get to know your chosen market(s) and develop your business in that market.
Being successful in India requires a mix of adaptability, patience and a long-term approach and above all, you need to work with an organization that you can trust.
Stepping out in Mumbai
A firsthand account of arriving in India.
By Richard Biggs, Atlantric CEO
“Nothing will quite prepare you for those first few minutes in India. You step out of the relative peace and quiet of Mumbai International Airport and out into the street. An incredible flood of sounds, smells and unbelievable sights take even a seasoned business traveler a few seconds to comprehend. People are everywhere, absolutely everywhere! They are clambering, pushing, shouting, laughing, singing, arguing and waving. You feel completely overwhelmed and just a tad out of place. That typically familiar taxi journey from airport to client is now transformed into a bewildering, crazy and exciting mission full of strange choices and new experiences. “Mr. Biggs, Mr. Biggs!” I see a friendly set of white teeth smiling at me. I follow my driver towards his taxi, somewhere over there amidst the throngs of brightly clothed local people…still clambering, laughing and singing. I gather my thoughts and my water bottle and start on a 3 hr drive across the city of Mumbai. This was to be my first ever meeting with a barefoot CEO.”
India is growing
India is emerging not only as the strongest of the BRIC countries (Brasil, Russia, India and China) but it is now one of the fastest growing economies in the world. So why are investors and businesses looking closely at India? Here are just a few reasons:
- 1.3 billion citizens with an average age of 27 years
- GDP growth of 7.6%
- English as one of the major business languages
- Growing domestic consumption
- An emphasis on infrastructure improvement
- Location – close to South East Asia, Middle East and Europe.
“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.” says Portia Crowe from Business Insider’
Official data shows that India’s GDP grew at an annual rate of 7.3% , Oct-Dec 2015. This was slightly lower than the previous quarter but well in line with forecasts. In comparison, China grew at 6.9% in 2015. India’s government is forecasting GDP growth of 7.6% for the current financial year which ends March 31, 2016. India’s fiscal year runs from 1 April to 31 March. The IMF and others suggest that India is likely to become one of the largest economies of the world by the year 2025.
A Young Population – “India has the youngest population in the world. That’s why it’s a story of a rapidly growing consumer economy,” said Ed Kerschner, vice chairman at Emerging Global Advisors, a $1 billion asset management firm that specializes in emerging economies. Read more
“Make In India”
“Make in India” is a Government initiative designed to encourage multi-national and domestic organisations to manufacture their goods in India. The initiative was launched by the Prime Minister, Narendra Modi in September 2014. In 2015 India emerged as the top global destination for foreign direct investment, ahead of the US and China. However, there are still significant challenges ahead for this initiative, with some Economists sounding a cautionary note along the lines of “It’ll take a lot more than a flashy new website, a new lion symbol, and catchy phrases to make India a manufacturing powerhouse and create productive jobs for its rapidly rising workforce.” Read more…
India’s manufacturing sector is doing phenomenally well. Last year more than three million cars were sold – a 6.4% increase over 2014, according to Euromonitor*. Sales are expected to grow by 4.7% in 2016 as buyers are encouraged by lower fuel prices and reduced interest rates. Prices are also low, however, compared to the global average. A new car can cost as little as $3,000.
Neil King, auto analyst at Euromonitor, says “India has the potential to leapfrog Brazil, Germany and even Japan to become the third largest car market by 2030. The country has a growing middle class who have money to spend (the average age in India is 27 years) . This is exceedingly attractive to many worldwide organisations such as Apple who are planning on opening retail stores in India. Meanwhile, through initiatives such as ‘Make in India’, the government has been working to try to make doing business in India easier by reducing bureaucracy for example. There are some laws that could help ease many problems but they are still stuck in parliament.”
*Euromonitor International Ltd is a privately owned, London-based market intelligence firm, providing market research, business intelligence reports, and data to industry.
The ‘World’s Cheapest’ Smartphone.
A firm in India, “Ringing Bells”, is to launch the World’s cheapest smartphone. They said their Freedom 251 phone would be priced under 500 rupees that’s $7.3 or £5. However, Indian media reports said it would cost just 251 rupees ($3.67; £2.56). The phone apparently comes with 8GB storage and cameras in the front and back. India is the world’s second-largest mobile market and has one billion mobile phone subscribers.
Lifting a whole village.
At age 53, Shantha has a concrete house with ‘mod-cons’ unheard of in many rural Indian villages: a television, a fan, a bed, a stove. She also has a son who works as an engineer — one of the most respected careers in traditional Indian society. Read her story from the BBC.
Which sectors have potential in India?
The following sectors hold the best prospects for US exports and investments in India.
- Civil Aviation
- Corrosion Control
- Education Services
- Environment and Water
- Healthcare and Medical Equipment
- Infrastructure/Smart Cities
- Mining & Mineral Processing Equipment
- Power and Renewable Energy
- Supply Chain/Logistics
- Travel and Tourism
Data from the U.S. Commercial Service of the U.S. Department of Commerce
According to the Financial Times, in 2015 India overtook China and the US as the top destination for the Foreign Direct Investment. In first half of the 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively.
American companies invested over $15 billion ever since the Narendra Modi government came to power (May 2014) and are expected to further increase the investments by $27 billion in the next two years, according to US-India Business Council (USIBC). Read more
Who else is investing in India and in what sectors? Foreign direct investment (FDI) inflows into India have been steadily rising in importance since the early 2000’s until the global financial crisis. Read more: By Ramkishen S Rajan & Sasidaran Gopalan, The Financial Express.
Some of the recent significant FDI announcements are as follows:-
- Japan has won the right to construct India’s first bullet train, while offering a loan of US$ 8.11 billion to India for the same.
- Amazon India expanded its logistics footprint three times to more than 2,100 cities and towns in 2015, as Amazon.com invested more than US$ 700 million in its India operations since July 2014.
- Kellogg Co, world’s largest cereal maker, is making large investments in manufacturing and plans to set up its first Research and Development (R&D) facility in India at Taloja, near Mumbai.
- Foxconn has signed a Memorandum of Understanding (MoU) with Maharashtra state government to invest US$ 5 billion over the next three years for setting up a manufacturing unit between Mumbai and Pune.
- Global giants such as Bombardier, Hyundai-ROTEM, TALGO and CAF have queued up to manufacture semi high-speed train sets in India, which will be used for faster inter-city travel.
- Swedish home furnishing brand Ikea has made a long-term plan of opening 25 stores in India by making an investment worth Rs 12,500 crore (US$ 1.9 billion).
- Google plans to invest Rs 1,500 crore (US$ 234.3 million) for a new campus in Hyderabad which will be focused on three key areas — Google Education, Google Fibre broadband services and Street view.
No Treaty Yet – “The absence of a bilateral investment treaty between our two countries is an impediment to growing our trade and investment.” says US Ambassador to India Richard Rahul Verma Read more.
Much more than IT – “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.