Differences in the way of doing business among Indian states

India is almost as large as the European Union and has more than twice as many inhabitants. No wonder, then, that there are major differences between the various Indian states in terms of language, demographics, politics and economic growth. For a successful start-up in India, it is therefore important to take these differences into account when drawing up a business plan. Because what works in Gujarat does not automatically work in West Bengal.

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The regional differences among Indian states

For a European company to succeed in India, you must be aware of the country's vast regional differences. India is a fragmented market with large, and often underestimated, regional differences in language, culture, infrastructure and wealth, all of which affect the regional business culture.

Indian states are therefore better compared to individual countries than to, say, the Dutch provinces. Indeed, India's most populous state, Uttar Pradesh, has as many inhabitants as Brazil, and the southern state of Tamil Nadu has an economy as large as that of Hungary. 

There are also large demographic differences between Indian states. For example, southern India is older, has more to spend and is more educated than the rest of the country. Northern India, on the other hand, is younger and relatively poor.

North Indians primarily speak Hindi, while South Indians prefer to communicate in English or in their regional state language, such as Kannada or Malayalam. The German wholesaler METRO, better known in the Netherlands as Makro, found out after their start in India that there are big differences between the groceries that customers in a certain region put in their shopping cart and adjusted the assortment accordingly by adding more local products. Logical really, Finns also have different preferences than Spaniards.

"METRO found out that there are big differences between the groceries that customers in different regions in India put in their shopping cart."

- Mark Alexander Friedrich, Head of International Affairs for METRO

Do not make one business plan for all of India

For a successful start in India, thorough market research is a must. Regional differences are not only obstacles, but can also work in your favor depending on your sector and product.

The southwestern states, such as Maharashtra and Karnataka, are a suitable base for technical sectors such as automotive, engineering, as well as outsourcing IT and Research & Development teams.

Northern states such as Punjab and Haryana, among others, have thriving agricultural sectors, creating opportunities for food processing and renewable energy industries.

Starting in the right regions is also essential for selling your product in India. European products almost always fall in the highest market segment in India, so it is smart to start in the regions where people have sufficient income and there is real demand for a more exclusive, expensive product.

"Approaching India as one country by working with only one distributor or partner is one of the most common mistakes European companies make in India," says Klaus Maier, CEO of Maier + Vidorno, IndiaConnected's partner in India.

"In Europe, you wouldn't ask an Italian distributor to set up your network in Norway either. An Indian partner or distributor operating in a specific state has a good network only there and will not succeed in successfully expanding sales to other states. Therefore, those who take India seriously start with about four dedicated, local managers or distributors who understand your product and the regional market well. With them, the market can be mapped and the logistics network set up, one of the biggest challenges for international companies in India. In this way, the Indian market can be conquered step by step, successfully." 

Selling successfully in India with the right strategy

For anyone looking to conquer the Indian market, IndiaConnected has put together a special guide in which we offer you insight into the steps 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, we guide and advise throughout your India journey.

Market entry in India: do you make the best start with a dealer, distributor or agent?

India offers a lot of interesting opportunities for European companies, but doing business in this country also involves specific challenges. For a successful market entry, having a local partner with the necessary market knowledge is a necessity. But how do you know whether to go with a dealer, distributor, agent or partner? We explain the different options for you.

What does an agent do?

An agent is your company's representative in India, but does not take ownership of the goods for the sale of your products. An agent generally receives a commission for the number of products sold or based on the contracts he or she manages to close.

In many cases, the agent does not work exclusively for a foreign client, as this can lead to permanent establishment. If you do not want your agent to also work for other companies, for example because you want to protect your intellectual property, you should set up your own entity in India where the agent will be employed. This way you will not run the risk of permanent establishment and the associated high fines.

One advantage of working with an agent, is that you always retain ownership of your product and sell it directly to the Indian customer rather than to a distributor. In addition, agents often have a good understanding of your industry and in which segment of the market your product will resonate best, as they also work for other companies within the same industry.

Working with an agent does mean that many tasks remain with the European company, such as import management, handling of insurance claims, international logistics, transfer pricing, registrations, etc. This is because the agent is only responsible for warehousing, sales, logistics inside India and billing.

What does a distributor do?

A distributor buys your goods to then sell to wholesalers, retailers or consumers in the region where they operate in India. Distributors almost always work with a portfolio of different companies in various industries.

Distributors can offer both complementary and competitive products and usually provide after-sales service. They make money by adding a margin to product prices.

Distributors often offer broader service than agents, such as after-sales, replacement service and technical support, and have good knowledge of logistics in the country. 

There are three things to keep in mind when you plan to look for a suitable distributor:

1. First, no single distributor can offer you nationwide coverage in India; the country is too large and diverse for that. Therefore, choose your first distributor in the most important location/Indian state for you. Once your business there is up and running, you can start looking at distributors in other key regions of the country to further expand your business.

2. Point two is the distributor's focus on your product. Because distributors work with multiple companies and products, you are not automatically the priority. European products often fall into the high, expensive segment in India, which means fewer of them are sold and lower revenue for the distributor. European companies therefore often run into the problem that the distributor puts very little time and effort into their product and more into products that go out the door en masse.

3. Finally, European companies should keep in mind that marketing is not necessarily a task the Indian distributor can take on. Especially if you offer a high-end or technical product that requires a lot of knowledge of your sector and product. Since distributors often operate in different sectors, it is advisable not to rely entirely on your distributor's knowledge for your marketing, but to work with experts in the field. Read more about Setting up a successful Indian marketing strategy.

What does a dealer do?

A dealer falls in between a distributor and agent. They are someone who buys a product for their company, stocks it and then sells it to the customer. They are often seen as the middleman between the distributor and the customer and act as authorized sellers of specific goods in a particular industry.

A dealer, unlike a distributor, does have the technical knowledge to properly promote and sell your product. A dealer often adds an extra, high margin to the price of your product, which can cause you to price yourself out of the market. We therefore recommend that companies look for a suitable agent or distributor for their first steps on the Indian market. 

Can I do it myself?

Starting your own business without a partner in India is also an option, although the most challenging one. It means that you have to set up your own company, logistics, warehousing and sales in India right from the start. Not to mention all the non-core business elements that you need to arrange such as permits, taxes, regulations regarding staff, etc. It is extremely difficult to do this without local knowledge of the market and doing business in India in general. 

A safe way to start your own business in India is through the business incubator. The only thing you have to do is put together your sales team in India and IndiaConnected does the rest. Your employees will be put on our payroll and the legal liability and responsibility will also rest with us. In addition, we arrange everything from back office to performance reviews and we have five physical locations where we can accommodate your team. 

3 reasons companies should keep an eye on India in 2023

Both the EU and the U.S. are in recession, China is in a serious economic slowdown, and on top of that we also face a very tight labor market in the West, especially when it comes to technical staff. Time for European companies to look across borders for new growth markets and smart solutions to our staffing problems. Here are three reasons why European companies want to keep an eye on India:

1. India is the fifth largest economy in the world

Still described as a "developing market economy," India's economy is in the top five largest and most influential global economies. The country's current GDP, according to World Bank data, is $3.4 trillion and is expected to grow to $5 trillion by 2024. India is one of the only countries that continues to show economic growth. In fact, India's economic growth will accelerate from the 6.1 percent it showed in the January-March quarter to 8.5 percent in the April-June period of the current fiscal year.

India is just too big and too influential to ignore any longer.

2. Made in India, the new making country

The manufacturing industry is growing at lightning speed in India. This is not surprising: the Prime Minister of India, Narendra Modi, launched the 'Make in India' program and invested big money to put India on the map as the world's new manufacturing hub. Under the Make in India program, foreign companies in more than 25 sectors benefit from attractive tax breaks. It's convenient for India that labor costs are rising in China and the trade war with the U.S. is heating up: that only strengthens India's cards. Manufacturing companies from around the world have noticed this too. GE, Siemens, Toshiba and Boeing, are just a few of the thousands of foreign companies that have opened production sites in India in recent years. They benefit from the abundance of technical personnel and also have access to a huge market for their products made in the country. Those who manufacture in India can serve the internal market better and more cheaply.

3. Spread risk

The growth engine of the European economy is exports. European exports are under increasing pressure due to the US-China trade war, the war in Ukraine and an overall slowdown in the global economy. ING advises with good reason that companies should open international offices to continue to benefit from economic growth across borders. The question is where to go? The EU, U.S. and China are obvious, but those are also highly competitive markets. For many companies, there is still a world to be gained in India, a market with healthy and steady economic growth. High time, therefore, to start exploring India.

What is your India strategy? These are your options

Your company sees opportunities in India. Not only as a potential market of 1.3 billion consumers, but also because there are options to make your production process cheaper and more efficient. But what all do you need to consider to make a successful start in India?

1. Invest with a long-term vision

India is a subcontinent with many different cultures, languages and therefore customer needs. It is therefore essential to have a long term planning and a lot of patience when entering the Indian market. Most Western companies that have made a successful start in India in recent years, by moving their production or opening a trading office, only really reaped the benefits 3 to 5 years later.

2. Define success

When you enter a new market, and specifically the Indian one, you need to define your goals and (real) financial expectations well and back them up firmly with data. It sounds a bit obvious, but we still see many companies leave the market prematurely because they start with too loose an idea of what success in India means to them. Firmly defining your goals will help you achieve a good starting budget that can handle the biggest surprises.

3. Starting smart with low costs

For many companies, finding a reliable business partner or working with a distribution partner, is the best start. If you are not yet sure if India is the right market for your business and want to test the market, it is wise to start with a business incubator. This gives you the opportunity to explore the market without immediately setting up a business and incurring the associated costs. Whatever you choose, the format should feel like a natural extension of your business and bring in the right local market knowledge. This will help you better understand the complexities of the market and overcome the initial hurdles during the start-up period.

4. Recruit the right sales managers

We all know the importance of having the right people on our team, but that counts even more when you are entering an unknown market. If you want to become a success story in India, you need people who are knowledgeable about your product, can build good relationships with partners and customers, and understand the local market. But where do you find these pearls in a country you don't know? Work with a reliable partner who has experience in this field and can support you in recruiting the right people.

5. Choose the right distribution partners

India has 28 states and is almost as big as the European Union. How will you sell your products there? And more importantly, distribute them quickly and efficiently? You will probably need regional wholesalers to help you distribute your product further to local sales outlets. Finding the right distributors involves a lot of work: background checks, verification, making appointments. Each of these steps is essential. For example, for many foreign companies, it is unclear how many distributors they would need to partner with to cover all of India. A local consultant with a good understanding of your market and experience in shipping your product can be of great help. This is an important step that often results in a successful start in the Indian market.

6. Don't forget the after-sales

The key to success in the Indian market is to offer a customized product or solution and a solid service network. You will always have to compete with low-cost producers from China in India, but that is precisely why you will have to distinguish yourself with excellent service. European products are rated much higher than Chinese products in India.

Workshop: Sales and distribution in India

India is a complex country, but also one full of opportunities for those companies who understand the market and want to invest in it. Get a better understanding of what you need to think about if you want to sell and distribute in India in a workshop tailored specifically for your business:

• Receive valuable feedback on your sales strategy from independent experts

• Expertise in various fields: sales, distribution, supply chain, legal, tax, recruitment, etc.

A workshop usually lasts about 2 hours during which our experts work with you to explore your issue and formulate possible answers and strategies. Afterwards, you will receive a concise report.