Opportunities in the Indian Industrial Sector & the Make in India push

By Shivam Saklani

India’s economic growth rate, though slow, by our domestic standards, is still one of the fastest growing economies in the South Asia.

Despite India’s potential to grow, India still remains one of the most complex challenges for foreign multinationals when they think of investment. “It is difficult to make money in India”. This phrase has been popular amongst most of the foreign executives as it is a challenge in itself to understand the Indian markets, India also provides far less incentives as compared to its competitors, such as China.

With a relatively slow economy, and an increasingly challenging intellectual property protection environment, many foreign nationals have increased their focus on India. Competing in China is becoming increasingly difficult for foreign multinationals, since the markets in China are shrinking at a very fast pace. This can be explained by the following example:

In 2014, China had 83 cars per1,000 citizens, this caused less number of automobile buyers in 2015 and even less in 2016, but if we consider India, in 2014, there were 18 cars per 1,000 citizens, thus number of buyers in 2015 increased, they increased even more in 2016.

Besides obvious market opportunities over the past decades, India has developed into an advanced engineering and technology hub, with well-trained English speaking workforce and its strategic geographical location i.e. in the Asia-Africa-Middle East Triangle.

These opportunities are being exploited by many foreign multinationals e.g. British construction equipment maker JC Bamford Excavators Ltd. entered India, as early as 1979. Today it dominates construction market with 75% market share; India has progressed considerably in automobiles sector also. Automobiles giants like Volkswagen and Hyundai exports vehicles made in India to more than 35 markets around the world, including Africa, South East Asia, Latin America etc.

Ford exports cars made in India to Europe and plans to export them to US too. Harley Davidson began assembling its iconic bikes in India in 2011 and saw its demand increase in local market by 500% in 5 years. The firm also ships made in India bikes to other Asian nations. Yamaha also exports made in India bikes to its home country.

All the companies which entered Indian markets weren’t able to succeed as much as the aforesaid companies, some of them also made a very early exit.

One of the most important factor of the early exit was , that many of these firms entered the Indian market after thoroughly competing in the Chinese markets , and when they entered the Indian markets, they generalized the Asian markets, thinking that economies with large populations react to the market stimulus in a similar fashion.

Second important factor would be the different income segments which Indian society has. Unlike China, India’s high income segment is extremely small; the issue is that everybody competes for the same small segment at the top, which isn’t expanding! Customers in this section are brand-aware and willing to experiment. While these customers are willing to spend, their interests depends on a brand’s image, its advanced features, customization options and some level of local touch in the products. Some of the multinationals which successfully rule this segment include Louis Vuitton, Harley Davidson, Mercedes Benz, BMW, Audi, Apple etc.

Apart from a few firms which successfully survived the Indian market, while catering only to high income segment, there are many multinationals who failed in the aforesaid attempt.

Chris Clark, an entrepreneur rightly described India when he said, “What most executives don’t understand about India is that it is a bottom to middle income market with relatively small income segments”. This comment appropriately describes Indian market, as 68% of India’s population falls within lower income segment. The middle income segment in India needs to be tapped from the lower income segment approach to achieve critical sales. This segment is also of great importance since it includes nearly 75 million households.

To master these market segments, it is important for the firms to collaborate with Indian conglomerates for a deep market penetration. Although India has come out of its image of “License Raj”,as now most of the license requirements have been relaxed by the government due to Make in India and FDI initiatives taken by the government, but same initiatives requires firms to achieve certain levels of local employment (usually 30%). Collaboration with Indian firms can help foreign multinationals in this regard.

A foreign multinational which entered the Indian market in 1984, displayed exemplary skill of firmly collaborating with Indian firm. The firm which entered Indian market was Honda Motor Company and the firm with which it collaborated was Hero Cycles Ltd.

The joint venture started with Honda setting up production facilities in India to manufacture two-wheelers with both local R&D and technical know-how in the partnership. Hero took care of establishing a broad national distribution and service network. Hero-Honda, thus, went on to become the most popular brand not only in the Indian market but also in other Asian and African markets.

Another example is that of Suzuki Motor Corp. which entered Indian market in 1982, through a joint venture with Maruti Udyog Ltd.a public sector company, but when Suzuki planned to enter Indian market, most of its components suppliers in Japan refused to follow the company into the then small and uncertain Indian market. In order to solve the problem, Suzuki facilitated number of technology and equity partnerships between Japanese suppliers and Indian component makers. Soon the local suppliers were able not only to supply components but also helped it to make its iconic product Maruti Suzuki 800, which suited the local customer need.

A new approach which foreign multinationals use is to introduce their latest products in India and then to release it elsewhere. This, not only provides the firm, time to study its customers, but also establishes its prominent image in the public’s perception. E.g. Walt Disney released the movie “Jungle book” first in India  and then in other different countries. Same policy was followed by Renault-Nissan in their Kwid Project Launch.

Thus India has prominently established itself as a stable and viable market, ready for magnanimous FDI, with the people, government and market simultaneously.This would be an appropriate time to invest in India, but the investing firm must do their homework well, as the Indian market can prove to be a cut-throat competition, where second chances are seldom provided.