Exporting to India: finding the room in the elephant
How to succeed in a market where relationships matter as much as pricing, where it’s difficult to see the bureaucracy for the red tape and 28 different languages are spoken? Go local, explains Matthew Roy
India would seem to have something to offer to almost every New Zealand exporter with its booming markets for foods, materials, infrastructure, research, lifestyle products and education. Exporters not looking to export to India may still have the country on the radar for services and outsourced manufacturing.
Yet while the opportunities are diverse, established exporters to the country say that there are two key factors for succeeding in almost any market in India: first, building long-term relationships; and second, beating a path through a thicket of bureaucracy and regulation. The solution for resolving both these challenges, exporters say, is to enter the market with a local presence, using such familiar structures as joint ventures, equity ownership, distribution arrangements, master franchising or branch offices.
Building relationships
“Indian business people value perseverance and flexibility,” says Cliff Fuller, New Zealand Trade and Enterprise’s New Delhi-based Trade Commissioner, “The best way of providing that is meeting with them frequently and that requires a committed presence in India”.
“Perseverance shows your commitment to having a business relationship with them for the longer term and frequent face-to-face negotiation is required,” says Mr Fuller.
For Bill Gallagher, group CEO and chairman of the Gallagher Group, selecting a local entrepreneur as a partner was the best way to build a long-term presence in India. Hamilton-based Gallagher Group, well known for its success as an exporter of electric fencing equipment, is now a diversified animal management and security systems company.
“Working with a local entrepreneur enables you to build personal long-term relationships, and while that’s true in any market it’s especially true for India”, says Mr Gallagher. “This strategy also enables you to minimise the start-up costs and initial losses that come with opening a subsidiary of your own.”
Gallagher Group invested directly as a minority shareholder in local Bangalore-based company IBEX (now IBEX Gallagher), which in turn manages sales of electrical fences and security systems as well as Gallagher’s local manufacturing contracts. This is the strategy the company has adopted in all other countries where it has a local presence, in markets as different as China and Canada.
Part of the need to build long-term relationships stems from the turnover of Western businesses in India, says Murray Holdaway, CEO of cinema management software company Vista. Mr Holdaway finds international businesses often fail in India because of a lack of commitment to the market or unwillingness to adapt to the local conditions.
“There is a reasonable amount of scepticism about international companies’ stick-ability as Western businesses come and go, so you need to show your face often to demonstrate you are serious,” says Mr Holdaway.
Vista partnered with Indian ticketing solutions company, Bigtree Entertainment, in Mumbai after the founders of the then three-person start-up contacted Vista at its base in Auckland in 2000. India now makes up one-quarter of Vista’s sales by volume and the two companies jointly launched New Zealand’s first cinema ticketing website, bookmyshow.co.nz, based on Bigtree’s Indian product, bookmyshow.co.in.
“New Zealand commercial organisations would find it very difficult to open an office and be competitive without a local partner because of pricing and wage issues, “adds Mr Holdaway. “A really good Indian software developer may charge NZ$500 a month; how can you compete with that if you tackle the market alone?”
Know the local rules and regulations
Local knowledge is also essential for navigating India’s complex bureaucracy and regulations, says Ken Stevens managing director of baggage, cargo and parcel automation company Glidepath. One of the main reasons Glidepath opened a branch office in Mumbai in June 2009 was so that it could employ Indian staff on a permanent basis to manage the burden of India’s regulatory system.
Mr Stevens notes that, in addition to regulations, taxes and excises at the national, regional, municipal and state level, interpretation of the rules varies among officials.
“There is a lot of red tape. National taxes and provincial taxes, especially, create a myriad of traps and you need local people to guide you through,” says Mr Stevens.
“You can get severely burnt if not aware of the rules. At an early stage, we didn’t get our taxes right and had to pay considerably more than we needed to at the time.”
Adapt to the market
An important role played by Manju Enterprises, Indian master franchisee of iconic brand New Zealand Natural ice cream, is to take on the burden of regulatory risks for franchisor Emerald Foods Group of Auckland.
“We had to tailor New Zealand Natural to gain an import licence,” says Mr Maheshwani. “Milk here must not contain oestrogen.Iit’s a non-tariff barrier, so New Zealand Natural cows are milked when oestrogen is not expressed in their milk.”
Another instance is the new ban on trading from premises on some main roads in Dehli. This affected nine store sites and Manju Enterprises had to radically and rapidly adjust its real estate portfolio. An ability to quickly secure new locations meant the New Zealand Natural brand avoided a major set- back and Mr Meshwani says the India franchise is on track to have 20-stores by the end of 2009.
Become a known quantity
Partnering with the subsidiary of an Indian household name has helped spam email cleaner SMX open doors at a time when managed applications like its own are not yet widely used or accepted in India. SMX is represented by Tata Consulting subsidiary CMC Ltd in India, a systems integration business which has New Zealand based clients and now actively sources Kiwi software products.
“Partnering with CMC shows we are serious”, says Darshan Shetty, SMX’s Mumbai-based business development manager. “Businesses have never come across the kind of service we’re offering and CMC provides us with a known name, presence and a client base of some very prominent companies here.”
- by Matthew Roy
Article uploaded July 2009.