Developing a winning India market entry strategy
For international companies looking to diversify their manufacturing base and tap into a key emerging growth market, India presents an increasingly attractive opportunity.
- Article |
- 09 October, 2019
On 20th September 2019, India announced some of the most important changes for foreign direct investment (FDI) in India since the liberalisation of the early 1990s.
The Government cut the corporate tax rate from close to 35% to just over 25%. At the same time, it reduced taxes on new manufacturing investment in India to 17% - putting it on a par with other south-east Asian countries like Singapore.
This game-changing move has positioned India as an attractive destination for international companies looking to enter Indian market.
By entering Indian market, international companies can diversify their manufacturing base in Asia amid changing geopolitical context - while also tapping into the unique long-term growth potential of the Indian subcontinent.
To seize this increasingly attractive Indian market opportunity and overcome the barriers to enter Indian market developing the right strategy is essential.
From our experience advising international companies we have identified five key steps to a successful India market entry strategy.
- Right-size the India market opportunity
- Understand Indian customers' needs
- Adapt your business model for India
- Align your go-to-market strategy
- Choose your partners successfully
Right-size the India market opportunity
The Indian economy is forecast to be the second-largest in the world by 2050 on a PPP basis, increasing its share of global GDP from around 7% today to 15% in the same period.
Despite the vast size and huge growth potential, international companies need to narrow down on the real opportunity in their market space to make the right investment decisions for India.
Getting this accurate picture can be a challenge due to India's complex market structures, the high share of unorganised players, and the lack of reliable data.
Therefore, as a first step, international companies must build up a granular and robust fact base for their target market including the market size, industry dynamics, and future growth path.
Understand Indian customers' needs
Having understood the Indian market opportunity, International companies need to answer how to market new products in India.
The huge scale and diversity of the Indian market presents both a highly attractive opportunity and a significant barrier to market entry for international companies.
With a population surpassing 1.3 billion India will shortly overtake China as the world's most populous country. However, the diversity in culture, income levels, and business practices is unparalleled. As a result, the needs of B2C and B2C customers are both highly distinctive and highly variable across the country.
Consequently, international companies that fail to understand what makes Indian customers tick and take a one-size-fits-all approach will struggle to compete.
Instead, international companies approaching India should first gain deep and meaningful insights into their target Indian customer and develop custom segmentation models suited to the local market.
Adapt your business model for India
Given the very different customer needs, purchasing power, operating costs, and competitive dynamics in India, international companies looking for long-term success should first look at how they can adapt their business model to meet the Indian market's requirements.
Given the scale of the opportunity, this is an approach that is well worth the investment. Whether its localising manufacturing and procurement, developing India-specific products or reimagining your go-to-market model, it is imperative that international companies take a first-principles approach.
This ensures your India market entry strategy is based on a clear understanding of what it takes to succeed here - rather than what has worked elsewhere.
Align your go-to-market strategy
The route to your customer in India can be very different from that in developed markets - and for that matter other large emerging markets too.
In India, unorganised 'mom and pop' retail still dominates last-mile distribution in most product categories. Further, while the emergence of e-commerce is transforming consumer behaviour, it still counts for less than 5% of retail sales.
Combined with the huge scale of India and the related logistics challenges, brands often have to manage complex channel structures and a larger number of intermediaries.
One UK company in the building materials sector sold exclusively through the home improvement retail channel in its core market. However, the complete absence of an equivalent channel in India meant it had to instead sell through trade distributors and installation partners.
As a result of such differences, international companies need to build their India go-to-market strategy from the ground-up based on the preferred channels of their target customer.
Choose your partners carefully
While India now allows 100% FDI in almost every sector, local partnerships remain a vital ingredient for success for many international companies.
Whether you are tapping into existing local market expertise, customer relationships, or infrastructure, through a joint venture, contract manufacturing, or distribution agreement, it is vital that international companies carefully evaluate their Indian partners before jumping in.
Diverging business priorities, a lack of shared goal clarity, and unrealistic business plans are a frequent cause of a breakdown in business partnerships that can sink an international company's ambitions in India.
To avoid these costly and time-consuming mistakes international companies should take the time to clearly define their partnership criteria, conduct a thorough strategic due diligence, and develop a comprehensive and transparent agreement that incentivises both parties.
India is an unmissable long-term growth opportunity for international companies but it requires a disciplined, focused, and patient approach.
By right-sizing the opportunity, understanding the needs of Indian customers, adapting your business model, aligning your go-to-market strategy, and choosing your partners carefully, international companies can develop a winning market entry strategy that sets you up for long-term success.