The “Emerging” Mirage !

A peek into any of the corporate board rooms today across continents is more likely to show “Focus on Emerging Markets” as a bullet point in their company’s strategy slides.  The reasons are understandable and more than obvious. Developed countries of yore after years of driving consumption and growth are showing fatigue and companies have no choice but to look beyond G5 to get their “G”rowth.  Depending upon the individual companies reach, the scope of “Emerging” markets may vary but it’s almost certain to have ‘Incredible India‘ in its list. This is not surprising though.

• A population of 1.2 bn., almost 1/6^th of the world population
• 65% of population under 35 years
• GDP growing at 7-8 % annually in the last decade
• Ever growing middle class population which is hungry to lap up products and services with a vengeance

The above numbers on India are mouth-watering for any head honcho hoping to take his/her business to the next orbit.  However very few are familiar with the challenges and uniqueness of doing business in India and hence unable to see thro the ‘Emerging’ mirage!

Having cut my career teeth and got my feet wet in India and also having been exposed to doing business in other countries, I’m of the view that India is one of the most complicated and toughest countries to do business and survive and here are some of the reasons why:

• Though India is one country, it is in fact many countries within a country
  • Every 300 kms. the speaking dialect changes, the food habits and tastes vary and more importantly the taxes govt. charge gets different!
  • As you travel within the country, the cultures are different, different people types emerge
  • There is one New year ( 1^st Jan ) as per English Calendar and you have the several regional / local New years spread throughout the year  so much so that many foreign companies having subsidiaries in India are bewildered that they have to follow different holiday calendars for their different branches! ( Even in China there is only 1 lunar New year )
• The tax structure is never straight forward and is full of complications.  For example for IT peripherals – though the basic customs duty is 0% (India being a signatory of the WTO Trade treaty), the effective duty could be as high as 15 – 20 %!  There are other duties and levies like CVD (Counter veiling duty), SAD (Special Additional duty), CESS on CVD, Higher education CESS on CVD, Customs educational CESS, and Customs higher educational CESS!  The cascading sad story doesn’t end here.
•  On the same product you pay taxes while producing, pay taxes while moving the goods from one state to another and pay taxes while selling!  If you are a salaried employee, your income which is used for buying such products is already taxed mind you!   So much taxing of the brain isn’t it?
• Due to federal structure the above taxation rates and structure can be different from state to state.
• The prevailing legal system in India is supposed to be strong and fair. But everybody in India knows that taking legal recourse is the last resort for settling business disputes.  Considering the time taken to settle disputes in courts companies give up or try to settle them out of court at higher costs.
• In 1991, India got its 2^nd independence i.e. freedom from the license/permit Raj and the country started warming itself to foreign investments.  However reform has become such a bad word today that there has been no re-run of the reforms since then!
• Add to this, one cannot ignore the Govt’s  recent bungle like deciding to retrospectively change the law allowing it to tax indirect transfers of Indian assets through deals struck overseas
• Govt.  Policies can be so very unstable that a successful policy initiative undertaken by one regime could become a monstrous scam in the next regime.  The telecom policy turnarounds are a good example of the same.  While the Uninors and the Videocons wind up their mobile business, there have been 1000’s of hapless youngsters who have lost their jobs in the process.
• Dealing with Govt. agencies to get business done could be a nightmare and I need 100 blog posts to just explain some of the complexities.  The general impression is that the procedures/rules have all been kept deliberately complicated so that they are subject to convenient interpretations.

So any foreign company contemplating to ride into this Emerging market bandwagon may be in for some real shock and awe!

If the environment is so hostile for doing business, how’s that many of the Indian companies manage to do business and also grow and that too for years?

• They have managers in their ranks who have it in them what I call as the “Indian Instincts of Management” which enable them to precisely think in such adverse conditions
• Most of the companies over a period of time have developed a core competency mandatory for doing business in India which was famously called as “Managing the Environment” by Dhirubhai Hirachand Ambani (so we hear)

So if a foreign company wants to emerge successful in India it is not impossible if it can follow some simple rules:

• Population figures, GDP numbers are all fine but the crux is business potential for your product will depend upon whether it is “essential” or it is “desirable” for the Indian consumer in terms of category.
• Pricing strategy and requirements may completely vary depending upon if the product/service is a utility product or a lifestyle product
  • So if you conclude that you can get away with premium pricing of your highly feature rich product because Indians also are lapping up iPhones and iPads you may be in for some surprise.
  • Between value for money and lower price – lower priced products may sell more ( again could be category dependent)
• A typical Indian consumer gives a damn to your worldwide presence.  What matters to him / her is the company’s demonstrated commitment to stay long-term in India, produce/sell quality products, provide decent after sales support and keep reinforcing that commitment
• Between a product of Global quality (“0” defect product) and “Chinese” quality there exists an acceptable Indian quality which is – products functioning properly, not failing so often, and being serviced promptly in case of failures (I would like to believe that this is changing and more and more Indians are beginning to be more demanding. I still reckon that this is just an urban trait as of now)
• Many of the services which involve manpower which are chargeable in other countries are expected to be “Free” in India.
• Because of the inherent weakness in infrastructure in Indian cities, the staff productivity in India will be lower than in other countries. So better not to follow global benchmarks while planning headcount.
• Being flexible is key to survive whether it is in Strategy, Go to Market or in planning
• Have a solid “Indian” team to manage the business in India since for those most of the above issues are not really issues but realities of doing business in India.
• Look at India only if you have the staying power and patience is your virtue.  For some of the reasons mentioned above even for a globally strong brand it may take a while for it to make its presence in India.

The above list may not be exhaustive. The bottom line is “In India – think like an Indian” which is to in short “Expect the Unexpected” and prepare yourself for the Incredible Indian Experience. Welcome to jugaad.in!

Post Script:

For its signature edition (next day of budget) Economic Times commissioned the biggest names in Advertising like Piyush Pandey, R.Balki, Prasoon Joshi, Joshy Paul,..to create ads on how they see India in the midst of a global slowdown.   For the same, Balki created this ad and I liked it the most and would like to share. He commented on the ad thus :

“It’s not in any brief for an ad agency to tell the client to change the product. But modern India is a ‘product’ that could do well with some change. The ad highlights the necessity as well as the opportunity to change India— to make it the real Incredible India”