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. 

Indian healthcare offers European companies great opportunities, but they can only be seized with the right strategy

British medical device maker Biocomposites made the move to India 12 years ago. It took five years for the company to break even in India. That sounds long, but it is well worth it, says Sumit Basu, managing director of Biocomposites India. "The Indian healthcare sector is one of the largest in the world and offers enormous potential. If you don't invest there, you will miss the mark."

The English company Biocomposites develops implants made of components native to the body, such as calcium, which can be used in cases of bone fractures, spinal surgery and serious injuries. The products the company develops are highly innovative and therefore fall into a higher price category. Nevertheless, Biocomposites decided back in 2010 that it wanted to bring its products to India. 

At the time, Biocomposites saw the huge potential of the Indian healthcare sector, but was also aware of the potential hurdles that needed to be overcome to become successful in the country. Basu: "Biocomposites decided to work with a local employee from the outset who had a good understanding of Indian business culture and knew the ins and outs of the sector. And that employee, was me."

Testing the Indian market with a liaison office

Basu is starting Biocomposites' Indian adventure with a market survey to determine which specific locations the company will target. "I see a lot of European companies coming along that don't realise how big and diverse India is. You simply cannot approach the country as one big market," Basu explains. "At the time, we decided to focus on the major cities of Delhi, Chennai and Mumbai because that was where there were opportunities for our innovative and therefore more expensive products."

To further test the market and set up a sound infrastructure, Biocomposites then opened a liaison office in India. "A liaison office was the best choice for us in that initial phase, because we really wanted to take the time to bring our products to the attention of the public," says Basu. "But interest among surgeons grew incredibly fast and a liaison office naturally has restrictions, as you are not allowed to undertake any sales activities. Our solution was to import and sell the products through distributors and provide as much support as possible from the liaison office, while also expanding our business to new locations."

Long-term strategy

According to Basu, the construction of a liaison office and selling through distributors may seem cumbersome, but it provided Biocomposites with the space to meet the challenges that every European company in India faces in the start-up phase. "In the medical device sector, products obviously have to be inspected before they can be marketed. In India, there are strict rules for this," says Basu. "Our long-term strategy gave us the scope to go through such processes without pressure. In India, it is not difficult for European manufacturers to get their products approved but it does take time, on average a year."

According to Basu, the long-term strategy has also enabled the company to position itself well in the market. "The Indian market is super price-sensitive, so we knew we had to initially market our product at a lower price to ensure that doctors would be introduced to it," explains the managing director. "That turned out to be the right strategy. We really went far below our European prices and closer to Indian prices in the beginning. Over time, as the demand for our product started to grow, we slowly started to raise the price step by step. It took us five years to break even, but we never had to change our product. And because of that, we have really managed to secure a solid position in the market."

The potential of the Indian healthcare sector

Basu has high hopes for what lies ahead for Biocomposites in the coming years. "India's healthcare sector is one of the fastest growing sectors in the country with a CAGR of 22%, which presents interesting opportunities for European companies," says Basu. "The healthcare sector is growing incredibly fast on many fronts. Not only is India's population thinning and ageing, which has increased the demand for care, but the demand for better quality care is also growing. One of the reasons for this is the health insurance options offered by the government. More Indians are now insured and are making use of them, so the market is developing rapidly. You can see, for instance, that hospitals are modernising to meet the higher demand. I see robotisation, the increase in new forms of treatment and also a growing demand for personal medical devices. The opportunities are huge."

Basu therefore advises European companies in the sector to spread their wings to India. "You will not find such a large and fast-growing market anywhere else. You can't get that volume anywhere else. So take your time, determine your strategy and come and take advantage of the opportunities this market has to offer you."

Wondering what opportunities there are for your business in the Indian healthcare sector? You will find an insightful summary of the growth opportunities on our sector page: