5 Compelling Reasons for European SMEs to join India’s Success

There is profound Euro-India trade & investment potential on the horizon. And it is very crucial for European businesses to make the most of this opportunity or face the much dreaded dormant growth or, worse, certain decay.

I have always believed that the biggest risk one have today is getting trapped like a deer in headlights in zero growth markets battling it out for little or no returns. In fact it is already happening as many industries are under pressure and feeling the pinch. If current trends continue this risk is going up dramatically as Western demographic trends turn negative and the baby boom generation spending power runs out of steam.

As an economist, investment and business strategist I have always found that market trends trump individual or company performance by a lot.  As a rising tide lifts all boats, a falling tide on the other hand is lethal in business. The market you are in matters, probably a lot more than you currently think. If you take anything from this article let that be it, market matters.

Now as I feel my spicy-sense tingling let me turn my attention to the biggest market opportunity out there, India. Now before I continue, I do have a confession  to make. I am a lover, researcher and eternal student of enigmatic ancient, i.e. Vedic, India. I have a lot of respect for it and perhaps you should too if you aim to profit from its rise.

India is best to be compared with an elephant, like the most visible icon of this ancient nation – Ganesh. It is friendly, peaceful, very intelligent, strong and something that effortlessly commands respect. Becoming an expert on India is hard due to its vastness, diversity and constant change. It is better to stay humble and adopt a student-researcher mind-set before you enter this promising land. Here are the five reasons, that I can think of, to try and convince you to join India’s success story or lose  out:

1. India has the best demographics of any major country in the world.

While in Europe and USA demographics are turning negative, India’s demographics are excellent and promise loads of consumer, industry and government spending-buying power long into the foreseeable future.

It is a $1.8 trillion economy with a GDP growing at around 7% and half its 1.2 billion population is under 25 years with their best spending years ahead of them. We all like to think we are unique but as groups we tend to follow similar spending behavior patterns. The average consumer starts spending around 21 years old, it peaks around 51 years old and then spending starts to decline. Higher status will shift these numbers to the right, lower status to the left.

McKinsey Global institute has forecast that by the year 2025, 41 percent of Indians will be middle class, making it a whopping population of 581 million individuals. If those kind of numbers don’t make you salivate, they should.

The upper class is another lucrative segment. They buy top-of-line-consumer goods, take vacations internationally, drive fancy cars, have multiple homes and wear designer clothing.

In the lower segment their are large masses of people. If you are able to tap into this market with lower price points and quick distribution you might just very well strike gold AND do a lot of good.

2. India’s still low urbanization rate offers great potential.

If you haven’t heard of urbanization yet, you should. In my experience as an investment consultant, urbanization is the safest money making bet out there period. When people migrate from rural areas to urban areas, their incomes tend to triple, yes triple you might want to write that down. Urbanization and the specialization of labor that comes with it, is a major drivier of rising affluence as GDP per capita rises in linear relationship with urbanization. India’s urbanization rate at 33% is still low and offers great potential for GDP/per capita growth, currently European countries hoover at around 80%.

3. India’s prime minister Narendra Modi is pro-capital formation and pro-business.

Prime Minister Narendra Modi seems to have found the right balance between unleashing India’s potential while preserving its tradition and building on its core strengths.  It’s 5T’s focus talent; through female empowerment, tradition, tourism, trade and technology aims to build up India’s brand and turn it into a global manufacturing hub. His latest move in freeing up the colossal farming markets and reducing burdensome regulations is another bold step forward and demonstrates his willingness to pursue pro-growth policies.

4. India’s plentiful sector opportunities.

Consumer goods: India’s perfect blend of huge consumer market, still low urbanization rates, excellent demographics and pro-growth policies will lead to bankable steady consumer demand for every type of product or service that you can think of. Whether your company sells services, durables or consumables you need to start thinking about selling it in India.

Manufacturing: The Indian government has set a target of increasing the contribution of manufacturing output to GDP to 25% by 2025. That’s massive and it is getting real-time traction when I look at Foreign Direct Investment flows. If you are selling products, equipment or services to manufacturing companies you need to be in India. If you are looking to produce low-cost – high-quality look no further.

Knowledge-based services: Any work performed by using a computer or a telephone can be offshored to India and constitutes a major opportunity. You can leverage India’s attractive labor cost for your business as a strategic and competitive advantage and win silently back home in your home-market. No one needs to know your trade secret. This can be accomplished either through a vendor, JV partner or setting up your own local facility.

Tourism: India’s travel and tourism industry have vast growth potential and is one of the focus points of PM Modi. According to a recent study on India’s travel and tourism industry with the arrival of the E visa scheme, the international traveler’s inflow to India is expected to double.

Defense: India is among the biggest importers in the world in the defense sector and continues to upgrade and buy new equipment ranging from tanks artillery guns, helicopters, unmanned aerial vehicles (UAV) to name just a few. This upgrade and improve trend I see continuing long into the future. Better yet these tenders are open for Western companies and big wins are possible.

Infrastructure: Economic progress goes hand in hand with upgrades in infrastructure. Highways, railways, bridges, seaports, power plants and refineries will need hundreds of billions of dollars of upgrades. If you sell to these companies or if this is your arena you need to be in India.

5. India’s has global potential to win in high-value added sectors.

Unlike some other countries with great demographics India, due to its intellectual capital has real global potential to win in high-value added sectors like software, technology and media. These high-value added sectors historically are real drivers in wealth building of a nation.

Potential obstacles, problems along the way and how to best avoid them:

Religion, family and astrology are powerful forces in doing business in India, maybe they shouldn’t be but they are. Best to hire someone who understand these sensibilities so a bridge can be build for you to profitably enter India.

Be aware that the concept of time is differently perceived in India and much more relaxed than it is in Western countries. Punctuality and making verbal commitments and then delivering on them IS not the norm in India. Best to deal with this through understanding, patience and accountability checkup’s. Business in general is more relationship driven here than pure transactional so patience is a virtue and best to approach things from a spirit of building a relationship or partnership over time.

Indians in general are more socially hierarchical in their thinking, perceived status differences can count more than merit. This is something you want to be culturally aware of.

Also choosing the right state for your business is important, policies regarding employment, land incentives and attitudes toward foreign investment vary from state to state.

I recommended that you stay flexible on your pricing, product, advertising and distribution strategy so you can find out what works best here. It might be very different from what you are used to. Due to the vast diversity of language, culture, and income in India regional differences in consumer tastes and distribution possibilities will occur.

Author

  • Jan De Wever is founder and CEO of JDW Associates, Belgium. He is a trained economist, seasoned investment advisor, astute deal-maker and reliable new market business strategist. As an independent consultant he has been helping European companies identify and foray into new markets by eliminating or lessening the risks with efficient investing with focus on higher ROIs. He is also a Senior Fellow of Vedic Management Center and can be reached at jan@jandewever.com.

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