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.

Why every Indian subsidiary should have a local HR manager

Is your subsidiary in India not achieving the results you expected in terms of turnover, profit or customer reach? Then it's time to take a hard look at your organisation's HR policies in India. "HR is the driving force behind a successful Indian entity," says our expert Deepmala Datta.

A survey we conducted among 100 companies with an entity in India revealed that 42% consider finding and retaining suitable staff the biggest challenge. 61% of these companies indicate that good, local HR policies are the solution to this problem, yet only 20% of them actually have an HR team in India. "A good HR policy is an under-appreciated issue among Indian subsidiaries of European companies," says Deepmala. "I have assisted hundreds of companies in finding suitable staff, but never has the HR team from the head office travelled to India to participate in such an interview process. Many companies see it as a by-product, when in fact it is the driving force behind a successful business in India."

Focus on talent retention

"I have a very controversial view on turnover," Deepmala says. "I like turnover because it gives a company a chance to bring in an employee with better skills than his predecessor. Of course, it depends on which positions have the highest turnover. If they are critical positions, high turnover is very problematic for the results that a company can achieve." It is therefore important, she says, for the local HR department to identify which skills, positions or people the company cannot do without. "Instead of wasting all your energy and a lot of money on keeping 90% of your employees on board, it is smarter to focus on the most important talents, about 20% of the organisation. Despite the fact that a good salary is essential to retain an employee, Indian employees, like their European counterparts, are no longer satisfied with just a pay rise, but want to develop professionally and personally. Therefore, make sure you have appropriate HR policies in place that offer growth opportunities to these talents."

Lack of structure

Is your Indian entity stagnating in growth, but you are not questioning your business strategies? Then, according to Deepmala, it is good to check whether everyone in the company is in the right place. "When a company comes to IndiaConnected with such a problem, we start with a corporate restructuring process. We take assessments of the employees in key positions within the company and conduct interviews with all employees. This is the only way we can find out what the underlying problem is that is causing the growth to stagnate. One problem I often encounter is a lack of structure. There is a big cultural difference between India and Europe that needs to be kept in mind: hierarchy. In India, we have a strong need for a clear leader. If there isn't one, employees tend to build their own power structure, which doesn't always work in favour of the company."

How an imbalance in the company structure resulted in a hostage director 

"I have been involved in an extreme example myself," Deepmala says. "I was sent to a factory in Mumbai where the staff had been on strike for three days. The head office in Europe had no idea why and could not get in touch with the managing director. Once I arrived, I found a man standing guard at the door of the managing director's office. I had to bargain with him to get access to the office and once inside I understood why. The workers of the factory had been holding the managing director hostage for three days. After many talks with the strikers, I came to the conclusion that the problem was actually very simple and that there was absolutely no need to go on strike to solve it. But it had gotten so out of hand, because the manager was not a good match for the position. He had been chosen for his impressive CV, but had no experience of managing such a large group of workers, let alone factory workers. If the HR team had checked for these skills when recruiting the manager, this misery could easily have been avoided."

HR as a sparring partner of management

HR should not be treated as an administrative department. "We have touched on it several times, but the success of a company depends on its people. My advice for any company with an Indian entity is to be smart about costs and hire only one senior HR manager. This HR manager should have a strong position in the company, where he or she can not only intervene and handle abuses in the right way, but also give guidance to the management. In addition, this HR manager must be a sparring partner of the executive. After all, future objectives can only be realised with the right people in the right places. The HR manager can not only ensure that the right people are retrained and moved on, but can also recruit new suitable staff with these future objectives in mind."

Common mistake

"Many companies choose to start with one agent or manager and then also make them responsible for building a team once the entity starts to grow," Deepmala explains. "That doesn't work well in many cases. What we often see is that European companies choose their first agent or manager based on his past success, but don't take into account how he was able to achieve those successes. Is that all to his credit or did he have a support team?" 

In almost all cases, it is the latter, according to Deepmala. "Such a manager or agent therefore embarks on a very tough trajectory in a start-up company, in which he is completely on his own and not performing at his full capacity. This is often already visible in the results, but is attributed to the fact that the entity is in the start-up phase. As soon as this manager can start hiring people, he will immediately choose former colleagues with whom he could work well in his previous work environment. They are the right choices for him, but not necessarily for the positions they will fill within the company. In addition, these employees are taken away from their current employer, which means a substantial increase in salary in their new job. I have seen situations where this practice led to the company selling more, but never making a profit." According to Deepmala, this situation can be avoided very simply. "Don't think lightly about HR, but dare to invest in it from the very beginning."

An expat or an Indian as the director of your Indian office: what is the wisdom?

You want a private limited company in India, but who will you appoint as director there? Do you send a Dutch manager there or is it smart to look for the right local candidate? The European market leader in fibre optic modems, Genexis opted for an Indian director with European experience for their subsidiary, but aircraft component manufacturer Fokker Elmo decided to put a Dutchman in charge of their Indian factory. What is wise for your organisation?

In India, you need a director who understands the Indian market and customer

There are few situations where it is really necessary to put a European manager or director in charge of the Indian branch. In fact, in many cases, an Indian executive will be more successful at home. Let us take the setting up of a sales office as an example. In India, having a good network of contacts, understanding the market you operate in and the service the customer expects is very important. 

For the world's largest provider of poultry processing services, Meyn, having an aftersales team headed by an Indian director is crucial for this reason. "Our aim is for all our aftersales offices worldwide to run as autonomously as possible and therefore they need to become profitable. That is only possible if you have someone in charge who understands how and what services to provide in India. We got to know our director at the time as an employee of the Agriculture Council of the Dutch Embassy in Delhi. He knew our company, the industry, most of our customers and had experience with the Dutch culture, so it was a perfect match."

An expatriate CEO as a bridge builder to Europe

In India, a foreign CEO, General Manager or Director is looked up to, which can have a positive effect if you want to introduce a European company culture in your Indian branch. KPN therefore sent sourcing manager and transformation coach Jasper Fortuin to Pune to introduce the Dutch company structure, without management, in the Indian branch. "I want to work with everyone as equals, but here I am both customer and white, so I am automatically at the top of the ladder. That means that everyone listens to what I say and agrees with it, whereas I am looking for their insights. By being patient and showing time and again that criticism can be voiced safely, we have now made the switch." 

Other important reasons for choosing an expat director include:

• The Director has very specific skills and knowledge gained in Europe that should be transferred to the organisation;

• The foreign company is making a large investment in India and must be able to protect the intellectual property and the investment;

• Someone on the ground is needed who is not only fluent in English but also in the native language of the head office and can therefore serve as a bridge;

• Or if there has been a major disruption in the operations of the Indian subsidiary and it is time for a drastic restructuring.

An experienced director for your Dutch office in India

A local or an expatriate director, which is the best choice? There is no single answer, as it depends on the goals you have, the type of business you want to set up and the skills needed to make the business successful in India. We regularly recruit experienced Indian CEOs, CFOs and CCOs for Dutch companies. They can quickly get your Indian office up and running or keep it that way because of their knowledge of the product and the Indian market ('double cultural fit') and have international experience which enables them to bridge cultures and ensure mutual clarity and understanding.

Want to know more? Feel free to contact us.