WorldCity Business Magazine

(2) Book preview [part II] – India: Look before you leap

by William Nobrega

_In preparing for battle I have always found that plans are useless, but planning is indispensable.

Dwight D. Eisenhower_

India is a manic-depressive state of mind.

The typical business man, fund manager, investment banker or entrepreneur leaves from Chicago, Los Angeles, New York, Frankfurt or London with a sense of optimism. After all, you are a pioneer and you are flying to the worlds oldest living civilization and one of the big emerging markets. This is, after all, one of the new economies of the 21st century, the opportunities abound and you have the skill, vision and confidence required to unlock the vast wealth that is percolating just below the surface.

You board the plane and settle in to your comfortable business class seat surrounded by that ever-present optimism that is your competitive advantage. A glass of wine, a good meal and some light conversation with a fellow passenger and, before you know it, you are landing in Bangalore, home to Indias Silicon Valley.

The airport terminal takes your confidence down just a notch. It is dingy and it is difficult to find any hint of the economic boom on the faces of the airport staff who are there to support weary travelers. As you wait for your luggage, you swat at the mosquitoes that you
hope are not malaria-laden and you begin to wonder why they cant do something about simple insects. You meet your driver with a hearty hello, but quickly get the sense that his English is not what you were expecting. The ride to the hotel does little to buoy your optimism and, upon checking into what is clearly an over-priced accommodation, you unpack and turn in for the night.

The next morning you arise from a good nights sleep and, with it, a renewed sense of optimism. You meet that day with a variety of Indias movers and shakers, men with the same sense of optimism that you have and the same shared vision. Their success is what the American dream is about, only it is happening in India.

Often starting with nothing more than a plan, some money borrowed from friends or family and a gritty determination, they have built world-class companies. The conversations are lively and you feel animated. These people have got what it takes to succeed and they have proved it. A land of a billion entrepreneurs. The possibilities are endless and you are feeling a new high.

You get into your car for the drive back to the hotel. It is hard to contain your enthusiasm and it probably shows in the form of a smile on your face. That smile instantly disappears when your car stops at the intersection and you are surrounded by malnourished children clutching malnourished babies. They press their faces against the window and you look straight ahead, not daring to make eye contact.

Your rebounded optimism has been replaced by stark, cold reality and you just want to get the hell out of there quick. When you reach the hotel you head straight for the bar and order a stiff drink. The bartender looks at you not really understanding what you mean. A regular drink costs more than many people make in a day. You go up to your room and call your spouse, trying not to let her (or him) know the anxiety and doubt you are feeling. Right now, the only thing you want is to be home so that you can hold your children tight and tell them that it is going to be okay.

Welcome to India: a rollercoaster ride of emotions and experiences and an extremely complex market that is home to a population that has eighteen official languages, hundreds of different dialects, at least four separate ethnic groups and every religion known to man. It is true that India shares many values common with North America and Europe democratic principals, religious tolerance, free enterprise and the rule of law. But just below that common exterior is a society that often defies explanation and a people that refuse to carry a common label.

For instance, begging in India is in many cases an organized business with a city-wide command-and-control structure. And many of the people you see living in what appears to be squalor like the Potters of Bombay are actually part of a trade group that has proudly inhabited that area of the city for three generations and for them it is home. None of these facts may give you solace, nor should they be justified, but understanding the complexities of the market are critical if you wish to succeed here.

Take the case of Frito Lay, the subsidiary of the American soft drink giant PepsiCo. PepsiCo began operations in India in 1989 several years before concerted economic liberalization of the country had begun. For the first five years the company tried to force an American business model on the exacting tastes of the Indian consumer. Cheetos with cheese was a hit with the American consumer, so why shouldnt it do equally well in this market? For one, Indian consumers were used to local cheeses that had a non-distinct flavor. The taste of the cheddar cheese on the Cheetos was strong and often perceived as being stale or rancid. Indians are also value-conscious. The Indian consumer was aware of global brands, but that wasnt enough reason to buy them and certainly not enough reason to pay a premium.

By 1994 PepsiCo had failed to achieve scale and the Indian operation was almost terminated. By then, however, economic reforms had begun to kick in and the elimination of the License Raj had created a level playing field for all competitors. In 1995 PepsiCo decided to regroup with a new strategy that centered on understanding the local market. They had some solid assets on the ground including a factory that was already in operation in Punjab. PepsiCo focused on its strengths the Frito Lay franchise and the potato chip market. The key was to develop a distribution model that gave them scale, not an easy task in a market dominated boy mom-and-pop stores and completely devoid of big retailers like Wal-Mart.

Lessons Learned

Indians have rich cultural roots and they are proud of local products and traditions. India, like many other emerging markets, also has a very low per-capita GDP and, even though incomes are increasing rapidly, it will be many years before they approach per-capita income levels of mature markets.

For a company that produces products that have a high cost, like cardiovascular medical devices, a decision has to be made. Do you try to force your existing products into a market where only a small fraction of the population could afford them? Or do you design and manufacture a new suite of products locally so that you can gain access to a much larger customer base while maintaining strong margins? But the challenges of emerging markets go much farther than simply creating a better mouse trap.

Emerging markets are complex and India is probably the most complex of all of the big emerging markets. With varying degrees of corruption, ethnic and religious tension and complex social interactions, developing a sound understanding of the market is a fundamental first step if you plan to succeed. Investing in a sound emerging market entry strategy is similar to investing in a life insurance policy. You invest in the policy and you are secured for life. You invest in an entry strategy and you are secured for business. The modern day customer offers no trial-and-error periods. First impressions are often the last impression.

_The author is founder and president of The Conrad Group, a Miami-based consulting firm with offices in Sao Paulo and New Delhi. His text is an excerpt from a forthcoming book entitled Riding the Indian Tiger: Understanding India, the Worlds Fastest Growing Market, scheduled to be
published next month by John Wiley & Sons._