Six ways to think about India: for western businesses, an Indian expedition means adapting to new realities

For western businesses, an Indian expedition means adapting to new realities

India, it seems, is the new land of opportunity for western businesses–at least if you believe the popular press. Eager to expand into what's been widely portrayed as a rapidly developing market, or lured by an increasingly skilled labour force available at a significant discount to domestic workers, more and more North American companies are becoming intrigued by the possibilities held out by the world's second-most-populous country.

And why not? On the surface, at least, the reasons for the attraction are clear. After all, India is a huge market, with some 1.1 billion people, including a booming middle class. Its economy, while not as hot as China's in recent years, is growing much faster than most in the West. And its allure increases in light of a growing sense of an economic power shift from west to east, one from which India stands to benefit hugely.

Consider just one industry–automobiles. We all know too well the problems facing the big North American automakers. Increasingly, it seems, the industry is nearing a tipping point. North American corporations no longer dominate; automobile design, production and sales are all slipping away from their once exclusive domain. Meanwhile, in India, car sales are estimated to grow to 3.5 million by 2015 from a million in 2004. No wonder car manufacturers are already tying their future profits to India. Meanwhile, the Indian automotive components market is likely to grow by a factor of nearly six–to US$40 billion from just under US$7 billion.

In that industry, as in many others, penetrating the India market is no longer a question but a strategic imperative. Yet how, from their perspective in the West, can executives turn curiosity into a clear view of strategy, especially when it comes to a market as large and complex as India?

It's difficult to know even where to start. Articles in the business magazines and newspapers have given readers comparisons of India and China. But for the most part, these are focused on generalities–the economy, infrastructure, the growing middle class. An Internet search about opportunities in India will turn up thousands of hits, but there's no way to tell whether the information is really valid or relevant.

India requires western business people to dig deeper–a lot deeper. And those who get to know India at that level, by making contacts with people who have an inside perspective, often discover that the more they learn, the more complex they find the whole thing to be. India, they discover, is catching on to western business practices as fast as any place, but it is also like no other place.

Most of us in the West view India as just one of the emerging markets in Asia. We believe–or hope–that our proven experience and time-tested strategies can be transplanted, and will work in India, too. But the number of corporate stumbles and failures in India would suggest otherwise. In order for North American CEOs to decide where to spend resources most effectively–and to avoid making the same blunders–the first step is to clear their minds of some common misconceptions about the country, and to recognize a few basic insights.

1. India is not Asia

And although English is widely spoken, it's not the United States, either. India is more like Europe. It has 14 official languages besides English and Hindi, and every state in India sees itself as being as different from one another as the countries of Europe do. Politics, religion and a history of socialism drive a complex system of federal and state-based rules and regulations.

2. Sophisticated competition already exists

Some economic sectors in India still have huge pent-up demand, while other sectors are quickly being rationalized. There are, for example, 20 to 30 automotive companies, more than 100 domestic and international banks, and more than 50 insurance firms already in India. The hype around the country's growth potential doesn't tell you that market reforms have been underway for more than a decade, and have already brought sophisticated competition from around the world to India.

3. Customer lock-in

Unlike China or other emerging markets, India has developed self-sufficiency in a lot of areas on its own. As a result, domestic Indian firms have been not only thriving, but also maintaining significant customer “lock-in.” Western brands do enjoy some novelty appeal, but they have to fight against the brand equity of Indian companies for a share of the customer's wallet.

4. India doesn't sizzle; it simmers

Here at home, companies think of creating sizzle around their products. But we like to say that India doesn't sizzle; it simmers. The used-car market in India, for instance, is nearing the same sales volume as new cars, and in many ways it is behaving just like the markets in the West. It is almost counterintuitive, but the fact is that even in a fast-growing economy, western companies might find themselves in a position of having to innovate demand.

5. Western business practices need not apply

The language of business may be English, and some glitzy office buildings in the major cities may resemble our own; but India is also highly traditional in other ways, and it maintains some values that trace back thousands of years. While westerners might be shocked at cows sharing the road with cars, Indians, especially Hindus, worship them. And that's only one example. While a typical business strategy might get a western company started there, it must connect more deeply to the culture if it is looking to stay for the long term.

6. Innovation

Indians are moving up the value chain a lot faster than most of us know. They produce US$500 million a year in automotive engineering design services, and they've signed a contract to develop on-board software for Boeing's new jet. This ascent creates both an opportunity and a challenge for westerners. Many North American companies may soon find, if they haven't already, that their business customers are already tapping into India's talent pool for innovation–and they can't afford the difference in production costs if they don't follow.

In short, strategies that have worked well for North American companies at home and elsewhere in the world might not work at all in India. The challenge is that western companies now cannot afford to get India wrong. The markets there are moving too fast, and in a host of sectors are too important, all at the same time. Companies thinking of an India expedition must be open to adopting more changes to their usual ways of operating than they probably expect.

India is a complex place, to say the least. What seems very western on the surface is also very ancient underneath. And that very ancient culture is intertwined with an emerging culture of hundreds of thousands of young people, hungry for opportunity. More than just a pool of outsourced labour, India is creating the seeds of a huge domestic market. But tapping into either the labour markets or the consumer markets effectively requires more than just a casual familiarity. Poverty and poor physical infrastructure may mask the underlying business savvy and infrastructure of relationships that do exist. To be successful there, North American companies need a new framework that incorporates the realities on the ground in India. Those are more than just the usual market assessments or business case studies. Just as importantly, companies can't afford to fall victim to a joint-venture partner that acts on his own behalf more than theirs.

In other words, a North American company can't land on India's shores as just another western opportunist and expect to be welcomed. If they're going to have a chance at succeeding, they will have to connect to Indians in ways that others haven't.