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.

Image via Harvard Business Review

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.

Warehousing and distribution in India, that's how!

India is one of the fastest growing consumer markets in the world, there are opportunities in every sector. Before you get started, it's a good idea to learn about one of the biggest challenges of selling in India: the distribution of your products.

Store air and sea freight in Free Trade and Warehousing Zones (FTWZ) 

In terms of size, structure and diversity, India is very similar to Europe. Therefore, an efficient, fast and flexible distribution network is needed to make sales in India successful. Good warehouse management is essential for this. How the products are stored upon arrival, where that storage is located and who your logistic partners are, therefore has a huge influence on how easy it is to do business in India. 

As in every country, in India too the imported products, after being cleared by customs, are first stored in warehouses before making their way to the customer. To ensure that this is done according to international standards, international companies in India have had the opportunity since 2005 to make use of the so-called Free Trade and Warehousing Zones (FTWZ). In these zones, foreign entrepreneurs store their products de facto in India, but officially this is international territory.

Logistical advantages of FTWZ

FTWZ are independent and large trading hubs and offer international companies state-of-the-art storage facilities, container freight stations (CFS), a connection to the railway and access to offices, banks and insurance companies on one site. Storing products in these special hubs has therefore proved very attractive to foreign companies in recent years. 

India currently has three of these special trade centres at important logistical crossroads in the country. The largest of the three is in Khurja, a stone's throw from the capital New Delhi. The other two active hubs are located near Mumbai and in Sricity, close to the metropolis of Chennai. The Indian government has approved plans for five new FWTZs in 2019 , which will further improve distribution capabilities in the country in the coming years. The central location of the hubs will facilitate further distribution of the products across India, which could result in a significant price advantage.

Fast customs clearance

The logistical advantages are not the only reason to take a closer look at the possibilities offered by the FTWZs. These hubs offer international companies the option of importing their products without having to pay import duties and the goods can be stored there for up to two years. After these two years, the products can be returned to the country of export free of charge or must be officially imported into India. Of course, import duties will then have to be paid. 

In addition, the special trade zones offer a lot of services that normal storage facilities cannot provide. For example, there is continuous and therefore faster customs clearance, labelling, packing or assembly can be done on the spot without having to pay a Goods and Services Tax. The cost of storing in a FTWZ is higher than in a normal warehouse in India and has to be paid in foreign currency, but for this reason these trading centres also offer much higher quality storage for any type of goods and excellent connections for onward distribution due to their central location. The distribution time is thus significantly reduced.

Special economic zones (SEZ)

Foreign companies seeking to import to India are not the only ones for whom special zones (SEZ) have been set up. Another example than the FWTZ are the special, low-cost Export Processing Zones (EPZ). Companies that want to produce in India or export from India can go there. India has a total of 300 such SEZs. In all these zones, international companies enjoy various tax benefits, which we have listed here .