German wholesaler METRO: 'In India, you are only as successful as the partners you work with'.

German wholesaler METRO, known in the Netherlands for Makro, has set up 27 branches in India in 17 years. In addition, METRO is initiator of a special program that modernizes local neighborhood supermarkets, kiranas, in order to survive competition with the big chains and e-commerce platforms. "Our first steps into the Indian market did not go very smoothly at all," explains Mark Alexander Friedrich, Head of International Affairs for METRO. "We had considerably underestimated the differences with Europe and our concept did not quite fit in with the Indian market."

A modernized Kirana by METRO

Mark Alexander Friedrich - Head of International Affairs for METRO

METRO began its India adventure optimistically, when the company was the first foreign wholesaler to enter the market in 2003. "We saw a huge potential for our concept in India, specifically because the middle class in the country is growing so fast, and decided to take the plunge for that reason. But we hadn't taken into account the large regional differences in the country, the obstacles in the supply chains and the challenges in terms of infrastructure. In addition, the Indian government was concerned that we might pose a threat to the small supermarkets in the country. So we quickly came to the conclusion that we needed to prove that we were going to support the small independent stores, not undermine them, by investing heavily in them. Only by helping our partners grow could we ourselves become successful in India."

Building your own Indian supply chain

One of the first steps METRO took was to adjust the offerings in its various stores. "We focused in our early years on opening stores in different Indian states, says Friedrich. "That involved a carefully curated assortment, as customer demand varies considerably from region to region and people like to buy local. We therefore had to expand our list of suppliers in a short period of time."

Here, too, METRO was faced with a different system than we know in Europe. "Farmers here are used to selling their produce to a middleman, who then resells it to different stores and supermarkets. But that often does not improve the quality. Since we have the hospitality industry and other large companies as customers, we want to make sure we can offer the best of the best, and that means taking matters into your own hands."

The company started special collection centers where farmers themselves could sell their produce to wholesalers. "We now have 5 of these centers in 4 different states and it makes a significant difference in the quality and freshness of the fruits and vegetables that are in our stores," Friedrich explains. "It is also a better deal for the farmers, they earn more from their produce because there is no longer a middleman and they have our payment in the same day."

Still, farmers had to get used to METRO's methods at first. "It took a while for the influx to get going properly. The farmers were used to working with specific middlemen and didn't want to let go of that right away to engage with us. But once one or two farmers joined us and the rest of the community saw for themselves the benefits of working together, they were converted. Indians can adapt at lightning speed."

One of the 27 METRO stores in India, this branch is in Ahmedabad

Strong Indian partners are key to success 

At the same time, METRO had to convince the Indian government that they didn't want to dominate the Indian market and thereby shut out all the local convenience stores, the kiranas. "Besides the hospitality industry, the kiranas are one of the three most important customers for METRO in India," Friedrich says. "We therefore have absolutely no interest in pricing them out of the market. As with our suppliers, we started looking for ways to support them and make their operations more efficient."

Meanwhile, with the "Smart Kirana" program, the company has already modernized some 2,000 kiranas in various ways. "We remodel the stores so that they have a more modern look and feel and consumers can see the products better, but also help with digitalization of accounting, inventory and payments. Thus, these neighborhood grocery stores are better adapted to the rapid digitization of Indian life."

According to Friedrich, these initiatives have allowed METRO to prove to the Indian government that they do what they promise. "Through these initiatives we have been able to build a good relationship with the Indian government over the years. Society and certainly politics in India is very hierarchical, so you don't just suddenly sit down with everyone. The local politicians are very involved in their constituencies and know what's going on, so they heard about our initiatives and how they positively influenced the communities. Of course, as politicians they wanted to be part of that and that opened the door for us."

Without e-commerce branch, you don't compete in India

Meanwhile, the company is an established name in India with over a million customers and focuses on the changing needs of the Indian consumer. "In India, you can't make a long term plan for the next ten years. Developments in this country are so rapid and we have learned to adapt to that as a company," Friedrich says. "Many of our current customers are busy entrepreneurs who want tasks such as sourcing products for their company to take up less time. To meet this desire, we built an e-commerce platform, which has been in successful use for almost a year now."

Setting up METRO's e-commerce platform in India went very smoothly. "We are not affected by strict legislation because we do not sell directly to the end customer," Friedrich explains.

In fact, currently in India it is not allowed to sell online b2c as a foreign company. Nevertheless, Friedrich recommends every sales company in India to have an online presence. "We see that the omnichannel approach is very successful in India. So give your Indian customers the option to already be able to browse the products online and then make the actual purchase in the physical store. So we introduced our new app 'METRO Wholesale', which allows our customers to order anytime, anywhere. They then pick up their groceries at one of our locations. It shows that if you can't be found online in India, you are out of the game."

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The guide to setting up successful sales in India

In this free guide we offer you insight into the steps that you need to take to successfully start and grow your sales in India. From preparing your first export shipment to India to setting up a solid after sales service.

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How to find a reliable distributor in India?

Successfully exporting to India is not done without an agent or distributor. After all, such a partnership provides access to local market knowledge and a sales team with a ready-made network. But how do you find a reliable Indian distributor with whom you can conquer the Indian market? Consultancy firm IndiaConnected offers five tips for European entrepreneurs to find a suitable Indian business partner.

1. Find a good distributor in India through your network

Formal avenues almost never lead to a suitable business partner in India, so it is important to leverage your network to find a reliable distributor. Start by networking in your home country with entrepreneurs already operating in India or through organizations and agencies with experience in India. From that starting position, you can then expand your network with working visits to India.

2. Build a personal relationship

Once you have found a potential distributor in India, it is very important to put time and energy into building a good personal relationship. This does not yield immediate business benefits, but this is vital in India to achieve a successful partnership. For example, invite the Indian distributor or business partner to Europe. If he is willing to invest time and money in a trip to Europe, this is a clear and positive signal: the potential business partner is professional and has serious interest.

3. Find out how influential the Indian business partner is

India is a country of hierarchy and networking. Therefore, the network and social background of your potential distributor is very important for the extent to which the business partner can operate successfully. Try to find out what kind of reputation the company has in India, how influential the distributor and/or family is and whether there are good contacts with the (local) government.

4. Doing business in India with the whole family

It is important to realize that you are not only working with your Indian business partner, but also with its family. Therefore, show interest in the Indian distributor's family and, if possible, try to establish a relationship with them as well so that you know what interests are involved in the background. On no account turn down an invitation to the business partner's home for dinner or to go along to a cousin's wedding. These are important moments when a relationship of trust takes shape. On the other hand, people in India also expect openness in return regarding your private life. This is often one of the best parts of doing business in India.

5. You don't have a deal until money is in your account

In India, a signed contract has much less value than in Europe. Therefore, start small: send a sample or a small trial shipment. If the potential partner is willing to pay for this, that's a strong, positive signal and you can start building on the collaboration.  

Without its Indian joint venture partner, the Swiss global company Ammann would never have become the market leader

The Swiss family-owned company Ammann is the world leader in construction and road building machinery. "In almost all of the 100 countries in which we operate, we have started and become successful entirely on our own," explains Rolf Jenny, Ammann's managing director in India. "Except in India. There we quickly came to the conclusion that without local knowledge and support we would never make it."

Rolf Jenny and Apollo's managing director, Asit Patel, open the joint venture's first factory

"Ammann's first steps in Asia were made in China. At the end of the 1990s, the Chinese government was extremely interested in our technology because they wanted to improve their entire road network in a short space of time. We were therefore given a warm welcome with attractive tax rates and special support programmes," says Jenny. "We didn't have to make many changes to our product in China to be successful, just a small reduction in price. That was easily solved with a local production site and we had the market in no time."

With this smooth experience in his back pocket, Ammann then set off in good spirits for the other big market in Asia: India. "There we were suddenly at a loss for words. The Indians were not interested in our advanced products and certainly not at the price we were offering them," says the managing director. "What worked great in China did not work at all in India. In India, we couldn't get away with just minor adjustments to our products, so we said to each other: 'We're not going to manage this ourselves, we need a partner who understands the Indian way of thinking'."

Know well what you have to offer an Indian partner

Ammann starts a big market research in the hope of finding a company they want to buy, but instead comes across the Indian company Apollo. At the time, Apollo was the leading producer of road building materials in India. "And that was exactly why they were interested in our technologies, but immediately said no to the idea of a possible partnership," says Jenny. "They said that they had been operating at the top end of the Indian market for 50 years and so there was no advantage in entering into a joint venture with an inexperienced European company. With this harsh rejection, they wiped out our possibility of a successful start-up in India in one fell swoop."

But the Swiss company was lucky: two years later, Apollo sought contact again and this time the Indian manufacturer was open to a joint venture. "That was the start of tough negotiations, because we didn't immediately agree on the terms of our partnership," says Swiss top executive. "Ammann is normally always a 100 per cent shareholder in the companies we set up abroad, so for us it was unmentionable to own less than 70 per cent of the joint venture. Apollo, on the other hand, wanted the shareholding to be split 50-50. We also wanted the joint venture to focus only on India, while Apollo wanted to start exporting to neighbouring countries. Once again, we were facing quite a challenge in India."

Bridging differences

In order to bridge the differences during negotiations, Jenny initially focused on the similarities between the two parties. "We are both family businesses, which immediately created a bond. We decided to invite Apollo to Switzerland to get to know our company even better and gain more insight into how we could complement each other," explains the managing director. "We are the world leader in high-tech products, Apollo in low-tech, low-cost versions. So together we could deliver a good quality product at a mid-price. By building up trust and proving that we really saw them as an equal partner, we were able to convince them of the benefits that the joint venture with us would bring them. Without compromising on our own terms."

According to Jenny, a successful joint venture rests on a number of basic principles. "You have to be able to trust each other completely and treat each other as equal partners, even in our case where we owned 70 per cent of the company. All decisions within the joint venture were always made by mutual agreement. From the very beginning, we also had it agreed what would happen if one of us wanted to leave the joint venture. A joint venture should always be equally beneficial to both parties. That is why it is so important to think not only about what a happy marriage will look like, but also about a friendly divorce if one of the two wants to go on alone."

Ending the joint venture 

After eight years of running a successful joint venture together, Ammann and Apollo decided to call it a day last year. "We have learned a lot from each other over the years and have always worked well together without any disagreements. But Apollo was ready to stand on her own two feet again," says Jenny. "The 70-30 ratio meant they were more like investors than the entrepreneurs behind the business and something was starting to itch again - they wanted to get back to work." Apollo sold the remaining 30 per cent for almost 27 million to Ammann. "Not only did they get a very good deal with this sale, but they also benefited from the boom that the company has experienced in recent years. Together, we have not only increased the value of the company enormously, but also tripled its turnover. The joint venture has always been a success for both parties, despite the separation. We are therefore parting as friends and will continue to have a good relationship."

Jenny therefore recommends an Indian partner to every European company that wants to start up in India. "You can only be successful in India if you understand the wishes of the customer and if you adapt your product and price to these wishes. To do that, you have to manufacture in India, the product has to breathe India. If you are confident that you can do that on your own, then go for the adventure. In our case, we knew our products didn't fit the market, but we needed the local knowledge to understand how to improve that. If you go it alone, you have to be in it for the long haul and expect it to be a process of trial and error. We wanted a quick market entry without too many setbacks and we couldn't have done it without our great partner. So do your research and strategise accordingly, but be aware that local help makes a lot easier in India."

Opportunities in infrastructure and construction

Ammann is looking forward to the future in India. "Construction and infrastructure are two sectors that will grow significantly in India in the coming years. Indeed, more infrastructure is needed in the country if it is to maintain the same high economic growth rate in the long term," says the Ammann foreman. "But even though these sectors will offer interesting opportunities, it is important that foreign companies realise that India is not a quick fix. I have seen many international companies come and go, hoping to get a slice of the investment in the road network. But if your product doesn't fit India's needs and Indians don't trust you, you have a choice: either invest for the long term or pack up."