India became the fastest growing large economy in the world last quarter, pushing China down into second spot, according to official data.
The news comes on top of a year of frantic optimism about India’s future, following the election in May of 2014 of a charismatic, pro-business prime minister who is vowing to weed out corruption and inefficiencies and attract greater foreign investment. Investors bid up Indian stocks last year by more than 30 per cent.
In this environment, many Canadian businesses are looking to India as a lucrative market for their goods and services. But experienced players warn that before venturing overseas, companies must do their due diligence.
“This is the most important market in the world right now,” says Nathan Andrew Nelson, Export Development Canada’s chief representative for India.
It doesn’t really matter what products or services a foreign company has to sell, from solar power equipment to frozen food logistics, “India needs just about everything,” he said in a phone interview from Mumbai.
In April, Cameco Corp. signed a $350-million agreement to provide uranium to fuel nuclear reactors in India over a five-year period. The deal came during a three-day visit to Canada by Prime Minister Narendra Modi, which also saw the signing of several memoranda of understanding in the civil aviation, rail, aerospace, education and health sectors.
Three of the most important things a Canadian business should consider before expanding into India are: the location, the partner and the time frame.
First, Indian markets are localized across provinces and its major cities are as large as some countries, which means a foreign business must choose the hub that makes the most sense for its product or service, Mr. Nelson said.
Second, a company should resist the temptation to dive into a relationship. It should first do reference checks and speak to other business partners and suppliers to avoid getting taken advantage of, he said.
Third, Canadian businesses must be patient. Many arrive expecting to do a deal on their first visit, but India is a “relationship market.” That means a company has to come and spend time in the country to show the local players that it’s serious.
It took McCain Foods Ltd., for example, about five years to build sales in India. Today it has almost two-thirds of the market for frozen French fries, Mr. Nelson said.
“This is a hot market and Indian companies have lots of choice. They are not going to answer your e-mails. They are going to want to meet with you three or four times through the year,” he said.
Toronto’s Redknee Solutions Inc. has at least one of its top executives in India more than once a month.
“You need to develop a local presence to be successful,” says Lucas Skoczkowski, chief executive officer of the software provider.
Several hundred of Redknee’s 1,600 employees work in India, where the company has offices in Bangalore and an R&D centre in Pune. It took Redknee almost four years to secure its first contract with an Indian telecom, in June of 2008. This year, the company announced a deal with Vodafone India to provide the country’s No. 2 mobile carrier with software to improve customer care.
Canadian companies have a natural advantage thanks to the Indian diaspora in Canada, but any success in India requires a long-term commitment, Mr. Skoczkowski said.
“Companies have to think in terms of years, not quarters.”
Even with its hyper growth, India remains a “family-oriented” culture. Big or small, companies value relationships and trust to an even greater degree than most North American businesses do, Mr. Nelson says.
Part of his role is to organize EDC financing for Indian companies, usually alongside other banks in a syndicate. In return, those companies will give Canadian businesses a fair chance to win business. For example, the export credit agency has introduced more than 30 Canadian companies to the conglomerate Tata Group.
EDC is providing about $800-million of loans annually now, up from $350-million a few years earlier, he said.
While India’s population of almost 1.3 billion offers a tantalizing opportunity for businesses to expand, turning that growth into profitability can be challenging in an intensely competitive environment.
“The Indian market is predominantly cheap,” warns Igor Chigrin, co-founder of Win Global Partners, an export and import management firm in Richmond Hill, Ont. “Indian companies and consumers don’t necessarily look for the highest quality. Price directs consumers and decision makers.”
It’s essential that any business looking to sell in India has strong negotiating and marketing skills. In addition, it’s wise for companies to purchase credit insurance for at least their first transaction with a new buyer, Mr. Chigrin says.
As some Canadian businesses explore expansion opportunities in India, others are discovering that Indian labour and materials are becoming easier to source from Canada.
Jennifer Kelly and Rebecca Perren have built an international lifestyle products company in just five years by turning to India for their materials and production.
Pehr Designs Inc. sells its designs through more than 1,000 retailers, in addition to offering exclusive prints through Indigo Books & Music Inc. in Canada and Anthropologie in the United States. It is also in the process of expanding sales into South Korea and South America through separate distributors.
“Our business plan always had India at the top of our list because of the high quality of its textiles,” Ms. Kelly said.
The pair began developing their network of Indian suppliers at the annual Heimtextil trade show in Frankfurt, Germany, where they chose their first manufacturers. They then began a lengthy sampling process, sending designs and materials back and forth between Canada and India.
“It is a leap of faith. The first time you are definitely putting a lot of trust in the people you are working with,” she said.
As the business grew, they began to spend more time on the ground in India, developing relationships with more manufacturers and finding a reliable agent.
“It is possible to manage the business from Canada, but by going there we can get done in five days what would take six months to do otherwise,” she said.Report Typo/Error
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