Channel: Editor's View Point

  • Are British companies succeeding in India: what’s the winning formula?
    By Sanmit Ahuja On April 13, 2010
    Are British companies succeeding in India: What’s the winning formula?

    India is not at all a new destination for British companies. Despite the size of the market and sheer volume of available opportunity, British companies are finding it hard to win business in India. Although India is the 13th largest export market for Britain in terms of trade in goods (24th for services) but it only has a meagre 2% share of the total volume of exports of the top 20 export destinations.  In the reverse direction India is placed 19th in the list of Britain’s top 20 import partners for trade in goods(For services the rank is 12th),with an even smaller share of 1.54% of the total imports from that group.

     

    These figures clearly demonstrate that something is not right but yet many British firms remain more than interested to tap into the opportunity that the country offers.

     

    The lack of significant British presence on the ground is equally perplexing to my acquaintances in Government and industry in India. No, we don’t mean the Standard Chartereds and HSBCs of the world that have had a presence in the country for decades but the vast majority of British SME firms for who India can provide immense wealth creation opportunities as it strives to sustain or better the 8% plus GDP growth rate.

     

    I want to explore this topic further now and over the next few months to truly gauge the complexity of problems and whether there is something systemic about the British industry’s inability to crack the Indian market.

     

    So to start the proceedings I decided to speak with a few and found that most of them had one or more of the following concerns:

     

    • We cannot seem to find the right partner
    • If we enter India we only want to partner with the biggest of the firms (Tata, Reliance etc.)
    • The market is not mature enough to accept our products/services
    • We do not want to set up shop there as our IP will be copied
    • We only sell a premium product and the market will not bear the premium pricing
    • We feel we are compromising on governance related issues when doing business in India
    • There are regulatory barriers that prevent us from entering the market


    Apart from the last point on the regulatory barriers, nothing has come up in my discussion with companies that would suggest that there are substantial barriers to their market entry. To me it seems that the companies are simply stuck with antiquated business models and too inflexible in their thinking when attempting to do business in India or other emerging markets.

     

    My reactions to these comments are as follows:
    > Most business gurus say that 7/8 out of 10 joint ventures are bound to fail. So why do you think that joint ventures in India are likely to succeed more than they would in any other place in the world.

     

    > The biggest companies in India are like big companies anywhere in the world. They will take their own sweet time and will drive a hard bargain.

     

    > The market is ready for most products and services. It may not be mature enough but then this does create an opportunity to take the early mover advantage.

     

    > Yes, IP protection should be of concern, but the European and North American markets aren’t growing at 8% per annum. Growth will come from emerging markets. It is imperative that you understand how you will develop and protect your IP in emerging economies.

     

    > I don’t expect the market to take the same pricing as it does in the UK. You will need to create a local version of your product and service that is fits within the acceptable pricing levels. Others have done it successfully and so can you.

     

    > That is a gross generalisation. A significant number of Fortune 500 companies are already doing business very successfully in India and operating within the same environment that you find challenging.

     

    > Ok, I do take it that there are regulatory barriers in some industries, but that isn’t the case for a number of them.

     

    It is totally acceptable to be afraid and concerned about the aforementioned issues if you haven’t done business in India. The same set of issues will also apply if you try doing business in Brazil for instance.

     

    According to my analysis that the companies that are attempting to do business in India fall in the following five categories:

     

    Firstly, those that will continue sitting on the margins and wait for the right partner to come along.  I have bad news for this group that this is all wishful thinking. The market will not serve itself on a platter to you and if you carry on using the excuses above then do so at the risk of losing the market opportunity. The market will develop local expertise at which point it will be even harder for you to enter. Case and point the mobile telephony industry in India.

     

    The second category is made up of those who are restricted by regulatory constraints and are either completely denied a market entry or those that have no choice but to find a joint-venture partner if there are ceilings put on the amount of equity these companies can own in the India operation. Yes, you are in a difficult position to then find a JV partner and those that will fit the bill are either taken or not good.

     

    The third category represents the companies that are trying to look for cookie-cutter solutions. If a strategy works for them in one country then it may not necessarily work in India. Yes, you will have learnt valuable lessons from doing business in a market outside your home territory but that doesn’t mean you will find success in India. For instance a fair number of companies think that if they are successful in the Middle East then will also be successful in India using the same strategy and team. I’m not so sure about that. The markets may have similar characteristics but the competitive landscape in India is at the other end of spectrum.

     

    The fourth category which is in minority will try to use acquisitions as a strategy but then this mostly applies to larger organisations with deep pockets such as Vodafone that made the highest ever investment into India by any British company. It is highly unlikely that SMEs will use this strategy
    either as a result of capital constraints or lack of choice.

     

    And last but not least the least is the category of companies that will not wait for the right formula or partner to come along. They believe in seizing the moment and the opportunity by finding their own unique strategy and a successful business model.

     

    Some successful models that these companies are using are:

     

    • Consider backing a new but experienced management team as opposed to finding a JV partner. Yes, the company will be a startup but the team is much more likely to operate in sync with your corporate strategy than any another joint venture partner would. Consider lending your balance sheet and operational expenditure to get this company off the ground.

     

    • Use India as a low cost base to develop products and services that serves not only the local market but also global customers.

     

    • If you are facing regulatory and cannot open up shop in India then consider servicing the market from within the region. India is a cost conscious market so consider using hubs such as Dubai, Singapore or Hong Kong.

     

    The global business landscape is changing rapidly and to survive in the next decade companies have to be decisive now and lay foundations in growth markets of Asia, Africa and Latin America. They have got to be thinking of new business models every day.

     

    So what is the winning formula to succeed in India? Well the answer is there isn’t one. Each company will need to formulate and deploy its own entry strategy.

     

    But there remains one challenge – Where will you find and nurture this entrepreneurial talent. Next week we will explore this in greater detail.

     

    I would love to hear about and feature some successful case-studies and business models of British industry winning businesses in India. Please write to me on:   tic.editorial@etidynamics.com.

     

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