"If you can believe the news, the growth prospects for India are huge, in every market India is the biggest and there will be a lot of profit to be made in the next ten years. But if you go there as a European company, you will soon find out that those figures do not apply to you. At least, if you don't start with the right sales strategy," says Klaus Maier, founder and managing director of Maier + VidornoIndiaConnected's partner in India. "If you understand India and the Indian market, then a world of opportunities opens up for you."
Klaus has lived and worked in New Delhi for more than 20 years. First as a representative of Europe's largest transport and distribution company, Stinnes AG, but for the past 20 years as founder and director of Maier + Vidorno (M+V), a leading agency that helps European companies on their way in India. Maier: "I see most international companies fall into the same trap, they are blinded by the big numbers and expect endless possibilities from the Indian market. They come to this country purely to sell their export products and think they can make a quick profit. I can tell you from experience that 80 per cent of these companies don't make it and are gone again within a few years."
Dare to adapt your product to India
According to Klaus, a European company almost always enters India in the highest market segment. Simply because our products have a higher quality and therefore a higher price. "That high segment often represents only 15 to 20 percent of the entire market. So, for example, you read that your total market is about 5 billion, but that exclusive, expensive segment is only 5 million. So if a company hasn't researched the market properly, that difference causes it to set sky-high and, above all, unachievable targets."
Even large, well-known multinationals make this mistake in India. For example, the German company Dr. Oetker, known for its frozen pizzas and cake mix, decided to take the plunge into the Indian market in 2007. Despite an initial test of home baking products seeming to turn out well, it soon became apparent that their successful products did not catch on at all in India.
Companies that do succeed all have one thing in common: a long-term plan for at least the next five years, with goals based on realistic expectations. "Companies often discover along the way that below the highest segment there is a huge middle segment with many more potential customers. But the European products do not meet the needs of those consumers. If you then have a long-term planning, which includes the possibility of starting production in India, you can eventually adapt your product so that you can serve a much larger part of the market in India. Moreover, this way you reduce the production costs of your high-end product."
One distributor in India is never enough, compare India with Europe
So, keeping your European sales strategy in India will not work, but the lessons of your distribution system in Europe can be put to good use in India. "Starting with just one distributor or sales partner is one of the most common mistakes European companies make in India. In terms of size, structure and diversity, India is very similar to Europe. Language and culture differ per state and you really have to adapt to that. An Italian distributor doesn't stand a chance in Norway either. So if you have only one distributor in India, he will probably only have a good network in one state and sales will therefore be limited to that state. You need at least four distributors in India."
According to Klaus, most companies take about five years to learn these lessons on their own. "Those are five wasted years, in which you break even at most. You can get around that as a company with the right long-term strategy." Those who take India seriously don't start with a distributor, but opt for a dedicated, local manager in India. "Of course, it is important to find the right manager who understands your product and the market. We often see European companies being taken in too easily by the first Indian they meet. Finding the right partner is like dating, you have to make lots of appointments, meet lots of people and then you learn quickly enough who is best for you." Together with this manager, the market can be mapped out, the logistics network set up, and then, after-sales, one of the most important elements of sales in India, can begin.
Efficiency and quality are the assets of European players in India
In the years to come, Maier sees particularly great opportunities for high-tech companies that develop, for example, medical equipment or products in the renewable energy sector. "Not only is there a need for these kinds of products in India, the country cannot yet produce them itself. A gap in the market, therefore. But this should not scare off other companies that sell products that can be produced in India. There is plenty of opportunity for them to succeed as well."
And that success, according to Klaus, lies in the fact that European products are more efficient than the versions produced in India. "An example. The tractor industry in India is one of the largest in the world, but despite that, there is still a world to be won. Most tractors produced in India have around 40 horsepower and are thus not very powerful. The ploughs that are made, on the other hand, require a much stronger engine. A mismatch, therefore, where a great opportunity lies for an international producer. The example proves that if you really know the numbers of the market and what they mean for you as a company, you can succeed in India."
To sell in India you have to be online
The same is true of India's booming e-commerce sector. Predicted profits are high, and with the corona crisis, the sector seems to be gaining momentum. "Whereas five years ago everything was paid cash at the door, the pandemic has accelerated online banking. Also because the number of people with an Internet connection in India keeps increasing. But you have to put those numbers in perspective, because where is this growth located? In rural areas? Then you shouldn't have high expectations for that, because your luxury, European product is never going to reach those customers."
For city dwellers, on the other hand, an e-commerce platform is essential. "Indians like to go to the mall in their free time, but they don't buy anything in those shops. They mainly want to experience the product and then buy it online at home on an e-commerce platform, where they can compare the different options. A well-run e-commerce platform does not function in India without physical shops and vice versa."
The Indian government also benefits from more international investors
Finally, Maier expects a lot to change in terms of legislation in the coming years that will facilitate sales for international companies in India. "The Indian government still faces a major challenge: creating jobs for the large group of unemployed youth in the country. For this it needs foreign investors. India has been very protectionist over the last decade, with the government keeping the market closed to protect local entrepreneurs from international takeovers.
Because of the corona crisis, we see the interest of international companies in India growing. They want to spread their opportunities and next to China, India is the smartest move. I therefore expect that the Indian government will eventually take a close look at the rules for exporting to India and relax the strict labour laws somewhat. That will bring many new opportunities not only to us, the international entrepreneurs, but also to India itself."