India's rapidly growing middle class wants better quality products and more choice. In almost every sector, from infrastructure to electronics, from water quality to air travel, demand is growing rapidly. Good news for foreign producers, but there's a catch....
To successfully market your foreign product in India, you need to use the right strategy to make your market entry. Which choices are the smartest depends on the consumer you are targeting, the product you are selling and the how much time, energy and money you can invest in setting up your sales in India. Make the wrong choice and you miss out on success. In this article, Shashank Verma, head of Supply Chain & Order Management for Maier+Vidorno, IndiaConnected's partner in India, shares his basic advice that applies to every entrepreneur.
Exporting directly to India: the pros and cons
The easiest way to get started in the Indian market would be to export your foreign-made products directly. This has the advantage that you have control over the price because there is no middleman and it also minimizes distribution costs. Then you must already have potential customers in India, have all import registrations and know how to settle commercial invoices in foreign currencies, such as in Indian Rupees.
Personal relationships play an important role in the buying experience and for most Indians, trust in your service (specifically the after sales), the quality you deliver and your accessibility, are important buying arguments. Having direct contact with the customer is very important in India, but direct distribution from abroad makes your visibility in India limited. Without a local entity of your own, such as an Indian subsidiary or branch office, it is also difficult to assess exactly what your market opportunities are and therefore unlikely to fully reach the sales potential of your product. Since selling online to Indian customers is prohibited by law for foreign companies, this too offers no solace. In fact, any foreign company that wants to enter the Indian e-commerce market must do so through an Indian partner who can import the products and then sell them online.
Selling through a distributor in India
Entering the Indian market through one or more distributors seems to be the most logical method for many European companies. We receive questions on a regular basis about finding suitable distributors. Selling through a distributor allows Indian retail customers to pay in local currency and it increases customer potential because they give you direct access to a local and national sales team, with an existing customer network, without large initial investments.
A disadvantage of working with distributors is that these are often trading houses that work for several national and international companies at the same time and have multiple products in their portfolio. Your European, imported product is often one of the more expensive products in the portfolio and only sellable in the high market segment. Therefore, such products are often not a top priority for Indian distribution partners because it does not make them an awful lot of money. In addition, the sales team associated with the distributor often does not possess the product knowledge needed to fully exploit the market potential, and in a price-sensitive market like India, that is one of the most important criteria for the success or failure of your market entry.
One distributor is not enough in India
Many European companies often want to start with just one distributor, but what they forget is that India is almost one and a half times the size of Europe. Therefore, the most effective distributors in the country focus on a specific region or state and cannot provide nationwide coverage. This means you might have a large distributor in the northeast covering Kolkata and the surrounding areas, but need another distributor for the Hindi-speaking north. And another for the south, and another for the west.
Working with 4 distributors and their sales teams can create quite a workload for the European headquarters. Therefore, companies often conclude that they need to have one person or team on site to manage the various distributors. If you choose to hire an employee to manage your sales and contacts with distributors for you, be aware of the need to set up an entity in India. If you don't, you run the risk that the Indian authorities will designate you as a Permanent Establishment and the consequences of that are not small. If it still feels too early to set up your own entity, but you do need a salesperson, you can get started with your own sales team through IndiaConnected's business incubator. The employees will be on our payroll, which means that your company has no legal liability or responsibilities and you can focus entirely on sales.
Sales in India with its own Indian entity
Once you have made a successful start with the various distributors, it is time to set up your own Indian subsidiary. This will bring you even closer to the customer and allow you to start expanding your customer base significantly. It also gives a better understanding of the Indian market, which in turn leads to faster detection of the latest market trends and new sales opportunities in India.
With your own entity, you no longer have to rely on your distributors' sales teams, but can set up your own team with the right knowledge and skills. Having your own sales team is an important asset to have. The lasting customer relationships they build and maintain are essential to your success in a competitive market like India. Personal service is key to successful sales in India, and with the personal relationships the team builds for you, you can better understand and serve the needs of customers in India.
Many companies make this mistake in India
Often the time and energy required to set up a sales organization in India is underestimated. The distribution requirements, numerous compliance and bureaucratic pitfalls, and managing several distributors can initially distract you from actually selling the products. Therefore, it is not uncommon for companies to take about two to three years to set up their structures and business processes in India and get them running at the right level.
The challenges of doing business in India, such as high initial investments in infrastructure, human resources, transportation and logistics, as well as ongoing investments in building or establishing a nationwide distribution network, can cause your Indian sales office to take longer to become profitable than originally planned. It is therefore very important to start well prepared. A thorough market research will give you insight into a realistic expected turnover and financial and organizational investments you will have to make. Do you have all these things in order and are you prepared to invest a few years in the start-up phase? Then the world's second-largest consumer market lies at your feet!
A customized sales strategy for your business
If you are just starting out in India, it can be very searching in the early stages to find the best sales strategy for your product. IndiaConnected helps more than 100 companies annually with their operations in India. In our special two-hour sales workshop, our local experts, specializing in your industry, bend over your product and goals. They look at elements such as sales, distribution, supply chain, legal, tax, HR, etc.
In the two hours we will explore your issue and will formulate possible answers and strategies. Afterwards you will receive a report of this.