Austrade’s senior trade commissioner in India, Peter Linford, is currently traveling around Australia spruiking the opportunities for local companies to enter the Indian market.
Given the sheer size of the Indian economy, it’s not hard to see the logic in an Indian expansion push. But it’s only since I’ve been on the ground here that I’ve really got a feel for the size of the opportunity – and the challenges – that will face Australian companies willing to try to grab a slice of this market.
There is no doubt the numbers are impressive. India is now Australia’s fourth biggest export market, with merchandise exports jumping 65% in 2008-09 to $15.4 billion. Foreign direct investment is running at just under $30 billion a year, the organised retail sector is worth $US140 billion and the lure of a consumer class with a staggering 350 million members is also strong.
But it is the real-life experience of companies working here that really underlines the opportunity.
Take Dell, for example, which is already number one in the notebook market here. Amit Midha, who leads Dell’s small and medium business division in the Asia Pacific and Japan region, says demand in the last quarter in the Indian SME market increased more than 100%. That’s pretty impressive given Dell’s relatively mature position in this market.
While Dell is a proudly US business (and even more proudly from the Texan city of Austin) Midha says the company’s Asian expansion is changing the face and focus of the company, particularly through the rapidly expanding Indian and Chinese market.
Dell has 23,000 employees in India, second only to the US. Much of the company’s manufacturing is done in India and most of the company’s support services are run out of India.
“If you think about how the work is getting done globally, Asia is the centre,” Midha says.
And there’s plenty of growth left, particularly in the IT space. Just 6% of the population is connected to the internet, which means entire industries will be transformed as broadband demand grows.
Midha, who is now based in Shanghai, has some important hints for Australian companies wanting to break into the Indian market.
Firstly, appreciate the contradictions.
Yes, the consumer class is huge and their hunger for established, premium-end brands is impressive, but poverty is a feature of every street in every suburb.
It’s a highly-connected, mobile society in some ways (despite the high levels of poverty, 50% of the population owns a mobile phone) but is still very much a developing economy in others (energy supply is notoriously poor in vast areas of the country).
“There are some highly sophisticated customers, and some customers that are not so,” he says.
Secondly, appreciate this is a “cluster of markets, not a single market”. Every state and city has its own differences that foreign companies need to appreciate.
Thirdly, understand that Government and the regulatory environment could have a significant impact on your business.
Finally, try to develop a local management team with strong, appropriate oversight.
The management issue is one that companies trying to enter a market like India often struggle with. In many cases management effectively ends up in the hands of local partners, who will typically help steer a foreign company through the early stages of expansion.
Regardless of whether you use partners or set up your own management structure, Midha says it’s important to have patience – but not too much.
“Patience is important, but losing money is not the proxy for patience,” he says.
While it will take time to break into the Indian market, don’t wait too long for a return.
“If the management isn’t making progress, you have to take the tough stance.”
James Thomson’s trip to India was sponsored by Dell.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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