August 18, 2017
Doing business in India requires not only risk-taking, but also improvisational talent and a lot of patience. About 1,800 German companies have sales offices and production facilities in India, and at the India Day in Cologne, SMEs and corporations shared their India experiences. The event was organized for the seventh time by India's service provider Maier+Vidorno, the law firm Luther and the Koelnmesse.
A friendly welcome looks different. "We had to convince politicians of a city or state that we do not want to undermine the ‘Kiranas’ with modern trade concepts," says Ivonne Julitta Bollow, director of METRO. ‘Kiranas’ are small shops and traders that are run mostly by families in all cities and in the country, and seem to be a little chaotic, but surprisingly stock a huge selection of products. You cannot imagine the Indian retail trade without them. With twelve million of the so-called "mom-and-pop-shops", they cover 94 % of the market so this target group is the most important for METRO. In order to gain their favor the trade giant had to arm itself with clever concepts. "We have responded to our partners and to help them make their product range efficient, optimize their business and market their products”, said the Director of International Affairs in the area of Corporate Communications and Policy. The commitment, foresight and patience have paid off, and the skeptical attitude gradually changed. While expansion started slowly in Bangalore in 2003 - until today 24 markets in 14 cities were opened - the company now grows fast. By 2020, 26 more stores will open and a total of 50 stores will sell in India. METRO plans to invest 230 million Euros according to the Business
Standard. Almost all companies have to face hurdles whether as a newcomer or an old hand, if they successfully want to do business on the subcontinent. And when the supposedly last hurdle is taken, one thing can be certain: it was not the last hurdle after all.
The participants of the well-attended India Day in Cologne, which was organized by the India service provider Maier+Vidorno, the lawyer firm Luther and the Koelnmesse, were all in agreement with this: the continent’s high growth offers great opportunities but is continuously testing foreign entrepreneurs’ patience. Business in India requires risk-taking and improvisational talent. Ideally ‘Chalta Hai’ (the Indian concept akin to laissez-faire) combines itself fruitfully with German thoroughness and quality consciousness.
In return, the world's seventh-largest economy attracts enormous economic potential. India performed more strongly than China in the first quarter of 2017 and experts, such as the analysts of Germany Trade and Invest (GTAI) are expecting a growth rate of 7.2 % for 2017 similar to the previous year. It is expected that India, which will be managed by the economist-friendly and reform-minded Prime Minister Narendra Modi, will overtake China as the most populous country on earth in another five years. Already today, the idea of 1.3 billion consumers is attracting giants like METRO, automakers such as Daimler, VW & Co, consumer goods manufacturers such as Beiersdorf and Nivea - as well as numerous ‘hidden champions’ with their highly specialized products. "With increasing purchasing power, the demands also rise. This creates space for the development of our target groups, restaurants and retailers" emphasizes METRO manager Ms Bollow. At the same time, the demand for a wider selection of choice as well as high-quality and, above all, safe food is increasing. But the size of the country and its incredible diversity also creates huge challenges for foreign companies. This starts with the taste. The fact that an Indian from the North does not appreciate what his South-Indian countryman has brought to the table, has been recognized by the METRO distributors now. "We had to learn to listen to our customers in a better way and adapt our offer to local and regional demand," says Ms Bollow. The lion's share of the almost 25,000 products of a store are local goods. However, these must match high quality and safety standards, which are not easy to meet in a country where manufacturers are dealing with issues where practices around pesticides, hygiene and even cold chain maintenance are significantly more relaxed than in the home country. For this reason, METRO has offered intensive training courses to its suppliers in order to at least fulfill the core criteria defined by the Global Food Safety Initiative. Ms Bollow shared that METRO is the first wholesaler in India to be certified according to the Hazard Analysis and Critical Control Points (HACCP). The system is intended to ensure that health risks are avoided or reduced to an acceptable level.
A clever strategy was to address needs in logistics. As with retailers, the suppliers' market is made up of numerous small companies. Their logistics systems are often obsolete with cooling systems completely lacking. The devastating consequence is that an estimated 40% of fruit and vegetable transported get spoilt on the way to the customer. METRO has therefore set up collection centers for farmers where they can bring their goods. Within eight hours, the food products can then enter METRO’s markets. The farmer is not only profiting from higher sales, but also from better prices, since he supplies directly and no longer through the traditional intermediaries in India. Last but not least, he immediately receives his money, as a credit to a Pay Direct card, which METRO was the first to introduce in India and has now been adopted across the industry. In addition, for a clear simplification of logistics, the uniform sales tax introduced on July 1, 2017 (Goods and Services Tax) should simplify the complex control system so far. According to Maier+Vidorno, GST will diminish control stops at internal borders of the country, and trucks will be able to move more freely throughout the country if they have all the necessary licenses. In the past, inter-state controls often led to considerable delays. "Thanks to GST, we are able to make our range even more strategic and cross-country," Ms Bollow claims, while also hoping that the government's "Invest India" initiative will lead to accelerated processes in a country notorious for its bureaucracy (METRO have to obtain about 30 licenses per store).
That India is not a country for weak nerves is also reported by Frank J. Goebbels. He still remembers the eve of a great exhibition in the South Indian city of Bengaluru. The International Sales Director of JOKARI-Krampe GmbH told us that the halls were dusty, dirty and totally chaotic. It was impossible for him to imagine that by the next morning exhibitors would be able to present their products to the expert audience - but by morning everything was set up. Trade fairs are an important element in the international sales policy for the Münsterländer specialist for stripping technology, whose cables (which are exclusively made in Germany) are the world leader in the cable processing market. The family business was founded in 1949. "If we can show our tools to 500 to 600 electricians in one day, this is significantly more efficient than a business trip," says Mr Goebbels. Like METRO, however, SMEs first of all had to learn the most efficient way to achieve success in India. At first, attempts were made to manage all exports from Germany, but they gradually realized that due to the size and diversity of the country, an on-site staff member was indispensable. Through contacts, one employee met an Indian distributor who had been selling products similar to JOKARI’s for 30 years. In 2015, the distributor started working exclusively for JOKARI and is based in Bengaluru where he is hosted as an employee of Maier+Vidorno. "For us, this model has the advantage of being able to concentrate on our sales, while Maier+Vidorno supports us with all the numerous administrative tasks such as travel planning, expense reporting, sales control, etc.," says Mr Goebbels. Since the tools in India were much less known than in Europe, sales had to be built from the ground up. "This is real hard work and therefore, the employee has to allocate his time very efficiently." In order to facilitate entry into a qualitatively higher-quality segment, about ten percent of the tools were adapted to Indian needs and offered at a lower price. Mr Goebbels believes the Westphalian company is well equipped for the future. "The Indian market places more and more emphasis on quality and safety, so our German-made products can successfully score points against low-cost imports."
Like Frank J. Goebbels, Jan-Hendrik Heinen, has learned how to live with the conditions and to adjust to longer time frames than his company initially planned. The manager of Krefeld Jagenberg AG knows what he is talking about. The company established a joint venture in Baroda, Gujarat back in 1996, shortly after the opening of the country to international investors. Today, the company produces machines for the textile industry and for the coating of foils for food packaging and the pharmaceutical industry. In addition to India, they also supply to international customers with an export share of around 70%. Sales, service and R&D are also based in Baroda. There are not many joint ventures with such a long history as Jagenberg’s. About 50% of all German-Indian joint ventures fail within the first three years, says a survey conducted by experts; and only 5% survive more than ten years. If the joint venture is to be successful, it is important to clarify the responsibilities of the partners right from the start, says Heinen, who is responsible for business development at Jagenberg. In order to make provisions for the worst case or a subsequent takeover of the Indian joint venture share, he recommends to include an exit in the statutes. "Many of the challenges in the Indian market can be solved efficiently and problems can be avoided by selecting the right legal identity from the start, and from managing the operational and organizational structures in a clear manner." In addition, the experience of long-standing companies active in the market should be taken into consideration during the planning stage, in order to avoid expensive own learning curves. Jagenberg was an early partner of the “Make in India Mittelstand (MIIM)” initiative, and uses the program of the Indian Embassy in Berlin to exchange knowledge with other investors. The initiative was launched by Prime Minister Modi at the end of 2015 to promote investments by the German middle class in India (it is part of the global Make in India campaign).
One of the major challenges a manager has to face is the development of high-performance teams. Millions of young Indians are entering the labor market every year and this makes the situation intense. Everyone is very much concerned about their own advantage, and there is not always very much solidarity and readiness for compromises. There is also little respect for lower positions in hierarchies. At the same time, there is a strong sense of authority. He therefore considers it essential to communicate clearly any drawbacks and to make suggestions to ensure its elimination. With regular internal operational audits, including training and coaching, Jagenberg continuously improves the performance of its workforce. Strategically speaking, according to Heinen, India is one of the most important production sites abroad for Jagenberg. "We are planning to double our sales in India and the number of employees to around 300 within the next five years." Success in India can only be achieved when the company enters and remains in the market with sufficient employees, time and financial resources. "And whoever wants to produce for the local market should carefully analyze the requirements of its customers as well as the market prices."