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:

The Belgian company Soudal found a suitable business partner in India.

Soudal is the European market leader in the area of sealants, adhesives and PU foams. For 12 years the company has had a joint venture with the Indian company McCoy, which was initially a customer of Soudal in India. "Meanwhile, we are growing by about 20% every year," says Emmanuel De Smedt, regional director of Soudal.

In 2007 De Smedt travelled to India for the first time, to participate in a small trade fair and to make his first contacts in the country. At that time Soudal was expanding in and outside of Europe. For instance, they were working hard in China. India was not really in Soudal's sights at that time, but De Smedt did manage to win a customer during this first visit. "There I met McCoy, one of the players in India in the field of sealants, adhesives and PU foam", says De Smedt. "They were interested in us and our products, and of course we were interested in them too, because in the long term we wanted to conquer the Indian market too."

Soon McCoy became a Soudal customer and the Belgians started a sales office in India. "In the meantime, we built up an increasingly good relationship with McCoy. On every trip I made to India I met with them and they also came to our headquarters in Belgium. The relationship grew very organically and Soudal is always looking for new opportunities, so we decided to sit down with McCoy and set up a partnership."

"Indians are very gifted negotiators. They don't give up until you give in a little - whether you have a friendly relationship with them or not."

- Emmanuel De Smedt - Regional Director Soudal

In six months, they got out and the two companies set up a 50:50 joint venture. "We both had a good understanding of what our strengths were and what we could therefore contribute to the JV. McCoy had been active in our segment for 10 years and therefore not only had a good local team, but also the local know-how and an existing customer base," De Smedt says. "But they were not yet a strong brand, acting mainly as a distributor for a number of European brands. Our knowledge of sales, marketing, production and R&D complemented that perfectly. A strong story with which we could conquer the Indian market together."

Despite the good relationship between the two companies and the clear role they would play in the joint venture, negotiations were occasionally tough. "Indians, whether you have a friendly relationship with them or not, are very gifted negotiators and don't give up until you give in a little. I was able to improve my own negotiating skills considerably in India," says De Smedt. "It is important to have a good lawyer at your side. The specialist and local knowledge that a lawyer brings is essential in any contract you conclude. Don't automatically choose the biggest or most expensive firm, but really be guided by specific knowledge and experience."

Cooperating successfully

In the joint venture, the roles are also split 50-50. The managing director, for example, is from McCoy and Soudal has the local management. "But it is not the case that there are two captains at the helm. We both know very well where our strengths lie," says De Smedt. "In addition, we have regular board meetings where all partners come together to discuss the ins and outs of the company. We work towards a common goal and the different perspectives of the various partners are an advantage rather than an obstacle."

A good example of this is the lightning-fast construction of a production site near New Delhi. Thanks to McCoy's knowledge and network, a piece of land was purchased within a year of setting up the JV and the right parties were found for the construction. "As Soudal, we were able to bring in our technical know-how and thus set up a factory in which we can produce products that are a good match for the local market in terms of price and quality level and that also meet our requirements," says the Belgian director. "We have had to adapt our products to suit the Indian market and climate. In Europe, for example, people want a kit that can be used for many different jobs, but in India they want a specific product for a specific problem. With our production location, we can respond very quickly to specific wishes of this kind and also scale up quickly if the market starts to grow."

A growth market

The Indian market for McCoy Soudal products is still relatively small. "We are growing more than 20 percent a year and our ambition is high," De Smedt says. "In the urban areas we see more and more that sealants and foams are used, in the rural areas the windows, doors and sanitary facilities are still often finished with cheap white cement. We have therefore started an academy to introduce contractors to our products and to teach them how they can be used. Of course this will not double our customer base in a year, but we are taking it step by step. The Soudal motto is 'Dream, think, dare, do and persevere' and that is exactly what we are doing in India. We dream of great results and persevere to make them a reality."

Entering the Indian market with the right partner

Entering the Indian market with a local partner is advantageous for many international companies, as you do not have to reinvent the wheel and can rely on your partner's contacts and knowledge. A joint venture can therefore be a good option for you, but it is certainly not the only way to get started in India without worries.

IndiaConnected offers you the possibility to quickly, easily and cost-efficiently set up your own office, with staff, in India without having to register your own entity. We call this the business incubator, in which we take a lot of time-consuming processes out of your hands:

• Export to India and sales processes through existing IndiaConnected structures in India.

• Existing administration structure and control mechanisms for your Indian employees.

• Use of our Office Management Services at four locations across India (optional).

• Transparency and monthly reports (tailored to customer requirements).

• Partner in India with over 20 years of experience.

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