The Inside Track on India

The appeal of India remains bittersweet. Sure, it has a burgeoning middle class, an increasingly educated workforce and huge ambitions. But, as with the other leading lights of the global economy, India is a classic example of businesses learning the hard way that being in a fast-growth market does not necessarily mean your new venture will move at the same pace.

Mohan Sodhi, a Criticaleye Thought Leader and Professor at Cass Business School, says: “Building relationships takes longer in India and you have to prove yourself many times over. Essentially, you have to show commitment to get the deal done as, in large part, the burden is on your side, not the Indian side.”

That laboured pace comes as a serious culture shock to businesses expecting to enjoy immediate growth. Arbinder Chatwal, India Advisory Services Leader at professional services firm BDO, says: “India does business in English… but having an awareness of the cultural difference is critical for [success]. Even something as basic as the daily routine… is very different to what we are used to here. The typical working day doesn’t start until 11 o’clock, so they can’t have a meeting first-thing in the morning, while Saturday and Sunday are pretty much working days. That is an example of how you must adapt your mindset.”

Bala Chakravarthy, another Criticaleye Thought Leader and Shell Professor of Sustainable Business Growth at the IMD business school, says: “Don’t expect a quick resolution to your business proposition – it takes time…  Because the relationships matter, you’re going to want to make sure you have the right chemistry and you are engaging with the right partner.  Misunderstanding people issues can create enormous delays for businesses.

Arbinder says: “A key point to reflect on is the recruitment model – historically, UK companies have put ex-pats into roles overseas, but this does not work successfully in India. Local knowledge, presence and cultural awareness are key and finding the right person on the ground rather than bringing in someone from the UK [means] investing the time in recruitment locally, then bringing [new recruits] up to speed with the business.”

Identifying the right people and retaining them isn’t easy. Devyani Vaishampayan, former Global HR Director for petroleum shipping business AET Tankers, says: “Recent growth in private universities has produced an over-abundant supply of undergraduates and the quality of many of these is not up to international standards. There is an ongoing deficit of talent that stems from fast growth, lack of relevant skills and new industries suddenly developing.”

Gary Kildare, Global Vice-President and Chief HR Officer of Global Technology Services at IBM, adds: “There is access to a well-educated and relatively young workforce, and a high interest in career growth. This can be an area for a clash between local culture and corporate life as status or job title tends to be very important; employees may feel promotions should be based on longevity rather than performance…

“As an organisation, it’s important to be clear on setting expectations and applying corporate policies. Indian society is very hierarchical and therefore if an organisation is looking to flatten its organisational structure, this can be very difficult.”

Bumps in the road

Even with good people on the ground, nascent businesses can find ambitions frustrated by poor infrastructure and red tape. Richard Oosterom, European Vice-President of Group Strategy & Business Development at business communications provider, Colt Technology Services, says: “There can be issues around IT and telecoms infrastructure, especially between Europe and India, as well as infrastructure in terms of roads, rail, airports… and power availability… [which] becomes a critical requirement… when searching for the right locations or facilities.”

Another complication many businesses entering India fail to account for is regional diversity. Arbinder says: “Be specific in the area you want to invest and find the local expert there… If you are coming into the UK or Europe you can have one national service provider, but in India the laws and regulations vary from state-to-state. Take opening a bank account – it would vary depending on which state you go into and in some areas it can take you up to 14 months to get up and running.”

Bala says: “If you are distributing industrial and engineering products, you will be operating in the major industrial areas where there is already the infrastructure to bring things in and out. In consumer areas, the opportunities are in small towns and rural places, and distribution becomes a real headache – that’s where you need a local partner.”

Local partnerships present another hurdle, though. Arbinder says: “One of the biggest blockers for CEOs and CFOs considering the Indian market is bribery and corruption, particularly since the introduction of the UK’s Bribery Act, which has personal liability for CEOs and directors.”

He adds: “There needs to be a better awareness among UK businesses of pragmatic solutions for navigating the act and minimising their risk. However, this risk is there when entering any emerging market… and it will be minimised as you increase your profile and understanding.”

India presents a combination of factors that surprises even seasoned prospectors with its hard-to-reach gold. Claudia Zeisberger, also a Criticaleye Thought Leader and Academic Co-Director GPEI at the INSEAD business school, explains: “Before and immediately following the global financial crisis of 2008, interest in Indian private equity was very strong among global investors… [but] private equity investors in the emerging markets almost always express their disappointment with PE returns in India.”

Here, again, it’s a question of having the on-the-ground clout to get things done. “The private equity industry prides itself on the operational value added by PE investors during the ownership period,” says Claudia. “To do so successfully requires not only specific industry expertise, but also solid contacts with promoters, a focused investment strategy and a well-qualified team complemented by a strong bench of outside experts. Indian PE funds appear to be rather light on the operational expertise.”

Successful plans for India operations need to be local, specific and validated by lengthy due diligence. Arbinder explains: “Whichever route you go in you’ll need a local presence… [and] everyone in India wants to offer you a solution while you’re there. But building trust and real relationships takes time and it varies regionally, so you need to be specific and find a local expert in that particular area. There are not that many nationwide players.”

The latest concerns about the robustness of the economy only serve to reinforce the message to move slowly and be cautious if looking to enter the Indian market. Arbinder says: “From a competition perspective, one of the things that we encourage is that if you are going in, dip your toe into the water… It varies from industry to industry, but finding the right approach for you is important.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew
www.twitter.com/criticaleyeuk

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