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.

The purchasing power of the Indian consumer

India is one of the fastest growing consumer markets in the world, but what do those figures mean for your business? What percentage of the Indian population actually belongs to your target group? And how big is the customer base for your products or services?

The size of your potential customer base in India and their purchasing power depends entirely on the industry you are in and the type of products you offer, but there are some general assumptions we can make:

• On the one hand, we see that the vast majority of India's nearly 1.4 billion people are young and poor and lack sufficient purchasing power to buy high-end, European products. Genexis, the European market leader in fiber optic modems, found that out too. Their modems were far too developed for the Indian consumer, so they built a special model for the Indian market. 

• On the other hand, India's middle class is expanding at lightning speed, increasing the demand for better products. The Indian middle class often sees foreign products as being of better quality, and this creates opportunities for international companies such as the Dutch clothing brand Scotch & Soda noticed. They opened 8 stores in India in 3 years and are now serving the fast-growing middle class online through their e-commerce platform.

This schematic representation of the Indian market provides a better understanding of what to expect and how best to rate your product or service:

The top end of the Indian market

In some sectors in India, there is no high-end market, but for others, such as fashion and electronics, for example, there is a large market. These consumers are often located in and around the largest cities, such as Delhi, Mumbai and Bangalore, but they cannot all be grouped under the same customer profile.

In India, having a specific, regional strategy is important to sell successfully. That means that within this segment, in principle, you must assume a small, exclusive group of consumers. Many companies think they can get around the regional approach by focusing entirely on e-commerce. A smart move when you consider India's rapid digital development.

However, as an entrepreneur, you must take into account the strict regulations in this area, it is currently still not possible for foreign companies to sell online directly to Indian consumers.

The Indian mid-segment

Many European companies have the idea that they can offer their high-tech, European products in the growing middle segment as well. But once they make their market entry, they find out that the Indian middle class still has much lower purchasing power than elsewhere.

In the first instance, therefore, it is smart to leave this segment out of the calculations for a while and in time, after you have started up in the higher segment, start thinking about how you can adapt your product to better suit the needs and price level of the Indian middle segment. After all, if you start focusing on the middle segment in addition to the high end, you might triple your sales market in a short time.  

Workshop: Market entry in India

Starting to export to India can be challenging for European companies who are not so familiar with the country. IndiaConnected helps over 100 companies every year with their activities in India. We work with local experts in all sectors and can therefore offer you a helping hand in shaping a successful market strategy for your business in our tailor-made workshops:

• We will give you more insight into what is involved in your market entry in India.

• You will receive valuable feedback on your current India strategy from independent experts.

• Expertise in every field: sales, manufacturing, legal, tax, finance, supply chain, recruitment, etc.

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

Dr. Oetker made the classic mistake: "We brought our European success products to India without knowing if there was a market".

In 2007, the German company Dr. Oetker, known for its frozen pizzas and cake mixes, ventured into the Indian market. Although the first test of home baking products seems to be going well, it soon becomes clear that their successful products are not at all popular in India. Dr. Oetker is faced with a difficult dilemma: leave India or reinvent itself.

"The start of Dr. Oetker in India was certainly not smooth," says Oliver Mirza, who has now been CEO of Dr. Oetker in India for more than 12 years. "The idea was to use an importer to bring our best-selling products - frozen pizzas, desserts and baking products - to India. To make sure there was demand for these products, we did a product test, as we do around the world. We gave 250 households two boxes of cake mix, a cheesecake and a traditional, German Schwarzwälder Kirschtorte, asking them to test them at home. During the follow-up, all 250 participants were wildly enthusiastic about our product and we thought we had a success formula on our hands. But we found out later that none of the participants had been able to buy cottage cheese or cream cheese to make the cakes with, as it was not sold in India. Also, only a handful had an oven at home. Whether and how they were able to test the product is still a mystery, but they all gave it a ten."

A specific product aimed at the Indian consumer

It wasn't just the cake mixes that hit the spot in India. "We were too early with all our European products. There was no market yet for frozen pizza, even in the big cities like Mumbai, and people didn't yet understand the idea of a mix product," Mirza says. "For example, our vanilla milkshake mix is one of our most popular products in Europe, but in India it didn't sell for anything. I thought that was partly due to the fact that it didn't have real vanilla in it. So we decided to add that. This made the sales of the product go down even further, because people thought there was dust in the mix." Dr. Oetker now had two options: either teach consumers how to use the products and hope that this will increase popularity or jettison the strategy and try something new.  

It became option two. "We started looking for an acquisition in the comfort food sector and in 2008 we ended up with Fun Foods, a small producer of mayonnaise and pizza toppings. With them, we slowly got to know the Indian consumer and really saw that we had to jettison all the lessons we had learned up to that point in Europe. 'They simply don't apply to India, because the market here is so unique,' says Mirza. "Fortunately, Dr. Oetker is a decentralized organization that encourages entrepreneurial freedom in the countries where it operates. This has allowed us to be creative and move into a new sector, sauces, which has allowed us to cater to the preferences and demands of Indian consumers."

Dr. Oetker's India strategy

Before Indian sauce maker Fun Foods became part of Dr. Oetker, the Indian company made sales of about 1.5 million euros. By 2020, twelve years later, sales have almost tripled to about 4 million euros. "To achieve this, we focused on two main things: new products that fill a gap in the market and smartly expanding our distribution," Mirza explains. "Fun Foods, when we bought it, specialized in mayonnaise. That was still a very small market in 2008 with a value of half a million euros. Fun Foods sold two mayos, one with egg and one without. In India, almost 40 percent of the population is vegetarian and, unlike in Europe, that means they don't eat eggs either. But the mayo without egg was not necessarily suitable for vegetarians, because it was made in the same factory as the normal mayo and therefore could contain traces of egg. So we decided to create a special veggie mayonnaise line and it caught on immediately. It proves once again that without knowledge of the Indian consumer, it is difficult to come up with a successful product for this market."

"It is difficult to identify suitable outlets in India."

- Oliver Mirza, CEO Dr. Oetker India

After finding the right product, the next question is: how do you reach the consumer? "In terms of distribution, there are two strategies that are often used," Mirza explains. "You have large companies, like a Britannia or a Nestlé, who bet on mass distribution and have their products in about half of all stores, about five million, in India. Then you have importers who focus on niche distribution and focus on about 5,000 outlets. With Dr. Oetker, we decided to sit in between those and become a mass distributor within our own niche. We are in about 100,000 stores in India and have developed a benchmarking strategy with our sales team to determine which outlets match our products in terms of clientele. Our rule is that if they can sell Nutella, there is a market for our products. Finding these locations is really a challenge in India though, because there is no dataset available on the possible outlets where you can offer your product. So you need a sales team that can build their own database and knows the market well enough to identify new potential outlets."

The opportunities for European luxury products in India

Even before the pandemic, products that make cooking easier and faster and ready-to-eat foods were making inroads, Mirza knows. "But the lockdowns have accelerated this development. This is interesting for Western producers, because our more expensive products are often a good fit for this segment. But it is also challenging to respond quickly to these trends. Dr. Oetker India works closely with major fast food chains like Pizza Hut and Domino's Pizza. This may sound crazy to Europeans, but in India it is normal to put sauce on your pizza, like mayonnaise. By working with other big players, you discover such opportunities for your product and can learn from each other when it comes to trends that are developing." 

In addition, the pandemic also created an e-commerce boom in India. "From groceries to ordering ready-to-eat food, Indian consumers now prefer to have everything delivered to their homes. And that was also an important turning point for Dr. Oetker. "Companies need to be as digital savvy in India as they are in Europe. At Dr. Oetker, for example, we have opened our own online store to be able to serve the customer as well as possible. Especially in the metropolises, you really see a lightning-fast development in this area, so as a European company, don't think you have quiet time to start up the digital branch of your company in India. The customer wants it now, so then we as companies have to follow."