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Editor's Notes

• #3: Westerners = goodWilling to pay premiumBut not double the price (due to import duties and multi layer supply chain)In stead, make use of low labor costs!
• #4: There are a million things you should know…But lets keep it simple, if you understand what the four P’s of India stand four, you will be able to design your own market entry strategy.
• #5: There are many different entry strategies (export, volume, value, localized, et.c)By understanding the four P’s of India, you will be able to tailor make your own strategy
• #9: Your product does well in various markets?Why? What makes it so unique?Would this be the same in India?Or would you be missing out on unique opportunities in niches or localizations?Or worse, are you selling your products at a premium in the Indian market (due to multi layer supply chains and high import duties) while you could make use of low cost labor by assembly, local production and or local R&D?What would be the impact of these options on niche markets and localization?----- Meeting Notes (21/10/12 16:00) -----Production is abouta) where do i make itb) how do i make it
• #10: Landed Costs: the price your customer (distributor, end user, retaile) buys it forLanded costs consists of the FOB price + Transport + Import Duties + Importer MarginYou landed costs in the above would be roughly TWICE your FOB!Transport 20%Import Duties 30%Importer Margin 20%--------1.2*1.3*1.2=1.87 of FOB
• #11: ExampleIndia is absolutely fantastic in fooling foreigners how much import duties have to be paid. Basic duty is just 33% of total dutiesWill also add randomly 1% on CIF and if you forget to mention your transport costs (in FOB situation) this will attract a 20% “transport costs” addition.On top, they use a horrible exchange rate adding a few more percent to your costsIf you use companies like TNT, DHL and not your own agent, prepare to pay even more (they just don’t care how much you pay!)
• #12: Calculating your import duty is something you should do pro-actively. Allowing the custom officials to do it for you will result in paying to much import duties at a very high exchange rate. It is important to study which HS codes are applicable to your machine (could be multiple) and which one of these allow for the best tariff.For example, machines for recycling, if used to segregate garbage in order for it to be used in a incinerator (garbage-to-waste) could attract a much lower import duty (based on clean tech) than when you would be importing just “another” machine (at least 27%).
• #13: ExampleCIFTransportImport DutiesProductionAssemblyImporterProduction2056.75151540Assembly401013.501540Sales Office6020270040Export1002032.40030.48
• #14: Why is a sales office cheaper? take profit in India, don’t pay so much duty + no need for an importer, you are the importer (less 20%). Transport is the sameAssembly (+ local sourcing): three additional savingsLess transportParts are cheaper in India (lower labor costs)Assembly in India is cheaper than in the NetherlandsManufacturing: one additional saving: making maxim use of local low costs
• #15: If you require Concept Sales and After Sales support, an Importer is not the best option. Why would he invest in your products? Give him standard solutions for a reasonable price and he will flourish, otherwise…Localization/Local R&D could be essential part of your strategy. Even if you are into services, if you rely on HR to service your clients, you should focus on “producing” the service in India, making best use of lower HR costs. Also, being in India makes you receptive for localization options.
• #16: Valuable products/FMCG*price is absolute a reason to set up a sales office*but other reasons are: lack of proper distributors with relevant network (few larger players which dominate the market and set their own terms, a smaller portfolio gets easily lost in the large importer portfolio)
• #17: When price is issue for European companies competing with Japanese, Chinese manufacturers they apply for cost saving strategies like sales office, assembly, production. One of the main reasons they mention is also localization: by being present
• #19: India is large, you will require multi layered supply chainsThere are many permutations possible, all requiring a slightly different supply chain to deliver.In a pure export situation, the importer will take care of this. Remember however that an importer mostly cannot cover India entirelyHence, it will require agents/sub distributors, which will add to the end priceKnowing what the challenge is for the importer will allow you to make a better decision on who the importer should be. They will all say they can supply anywhere. It is for you to check if they have their own offices, warehouses, or if they are working together with distributors, agents themselves.Warning: keeping track of costs is very important, but cutting out the middle man by appointing several importers who just cover a small section might create issues. Cross-selling, dumping, etc. You will also attract the possibility of importing at different prices which may attract unwanted attention on customs authorities.Next we will discuss a few stereotype options for distribution in India.
• #20: Distributors are box movers. They want simple products they understand. They want volumes and drive their existing “milk-route”. They will only invest in stock if the product has a proven track record. With interest rate @10% or higher this makes quite a bit of sense.Once they invest however they become loyal, they have something to loose.Distributors are perfect for FMCG situations for which stock on location is required.
• #21: Agents in India love to “milk” their network. They are not into business development, they just talk to the same decision makers over and over again. Loyalty is a big issue, if they cant achieve a quick win they loose interest. With an economy growing at 5% or higher and many sectors much faster, it makes perfect sense to just go for the low hanging fruit.Agents of course do not keep stock and are best for capital goods, tools, etc.To cover India you will require several agents. Their network will mostly be very limited from a geographical perspective; there will also be specific B2B and Government agents. Last but not least, the ethnicity of your agent will play an important role since intra caste business is much easier to achieve than intra comunicty business
• #22: Stockists are actually service providers. They keep your stock, but only on consignment. They deliver when you have made a sales deal. Perfect for situations where you need to keep stock on location and price is an issue. They will in general take 2-5% margin, a big contrast to distributors who would start at 5% but very often demand 20-25% or more.
• #23: India is large, import duties are high. Variable costs are good if you do not want to invest. But bad if your end price gets affected.In the last chapter we have seen that taking profit in India (in your sales office) is more cost effective then using the pure export model.In a situation where price is an issue (or control, or market knowledge, or local R&D, etc.) it may at times be better to convert variable costs into (low) fixed costs: a sales manager.This will allow you to skip/drop the distributor and focus on doing sales yourself (at a fraction of the cost it would be in Europe).Agents: expose their network for you. Your sales manager does the deal/concept sales (offering the low hanging fruit to the agents)Stockist: will allow you to keep stock anywhere, while your sales manager does the business development
• #24: NexusNovus has extensive experience importing food from the West. We purchased the goods, imported the goods, paid the import duties, had to wait for at least 60 days for the goods to come in (as long as the credit period).We required multiple distributors, who supplied to the retailers. NN was responsible for returns, which meant in the end that the distributors where not investing themselves (unsold was returned).The prices we could offer were roughly 3 times higher than local products. Of course this had an impact on the performance of this business unit.In 2012 we decided to focus only on locally produced products (either by partner or by ourselves).
• #25: In four years NN learned what works and what doesn’t work. We were actively exporting vanilla beans and had been able to get our supply and quality under control.While divesting our import business, we also decided to flatten our supply chain, no more distributors, but only direct supply to the thousands of retail chains. Better margin for us, better margin for the supermarket.In some territories we had to start using stockists to ease our supply chain efforts and stock keeping.Currently we are selling at 1/3 of the price of our competitor making tripple digit margins!
• #26: Client produces the (high value) tools in the west, exports the products to its sales office in India. Small stock is kept.One sales manager manages entire India and sells directly to various end customers.Import duties are high, but since they are taking their profit (80%) in India and by cutting out the middle man they are quite competitive.The customer has invested over 100,000 euro in exhibitions and were able to break-even in 1.5 years (including our service fee).
• #27: Sabsesastawednesday: the cheapest Wednesday
• #29: Prices are relativeWestern quality attracts a premium and that is well acceptedThis does not mean you can sell for 300% the price (like NN did with their imported range).If there are significant quality aspects for which a higher price is required you get into the domain of concept sales. Remember, that requires most likely a sales manager, since an agent/distributor will not be able/willing to invest in such business development projectsBesides price, payment terms are just as important, interest rates are high, allowing credit will make you sales easier. When selling in India, have your paperwork in order, since tax compliance is painful and hard, your customers will not easily forget when your mistake costs them money.Expect negotiations to the last rupee; who pays for transport, CST, Octroi (see next slide)
• #30: Services and goods are taxed differently. Service tax paid are not considered input credit for VAT, and vice versa. These systems do no communicate: service tax to a manufacturer and goods to a service provider are non deductible!VAT varies from state to state and product to product. The normal VAT rate ranges from 12-14%, Karnataka having one of the highest VAT rangesCST: is like state to state import duties and are at cost (not deductible)Octroi is unconstitutional and is a major hindrance for doing business in Maharashtra. Pune and Mumbai charge 5% at the point of entry into these cities. The central government has tried to remove these taxes, but Maharashtra has proven to be to strong in this matter.MRP: even though tax rates vary from state to state, an importer or manufacturer is expected to set an MRP. This creates a lot of issues, since someone in the middle will get squeezed in states like Karnataka (14% VAT) or Maharashtra. You will very often see different MRP rates mentioned per state.Service tax is applicable to services provided. To reduce non-compliance TDS has been introduced: tax to be paid directly to the government, deducted from the invoice value inclusive of ST. At the end of the year, when filing your returns you will be allowed to offset this against Income tax etc.
• #31: Services and goods are taxed differently. Service tax paid are not considered input credit for VAT and vice versa. These systems do no communicate: service tax to a manufacturer and goods to a service provider are non deductible!VAT varied from state to state and product to product. The normal VAT rate ranges from 12-14%, Karnataka having one of the highest VAT rangesCST: is like state to state import duties and are at cost (not deductible)Octroi is unconstitutional and is a major hindrance for doing business in Maharstra. Pune and Mumbai charge 5% at the point of entry into these cities. The central government has tried to remove these taxes, but Maharstra has proven to be to strong in this matter.MRP: eventhough tax rates vary from state to state, an importer or manufacturer is expected to set an MRP. This creates a lot of issues, since someone in the middle will get squeezed in states like Karnataka (14% VAT) or Maharstra. You will very often see different MRP rates mentiond per state.Service tax is applicable to services provided. To reduce non-compliance TDS has been introduced: tax to be paid directly to the government, deducted from the invoice value inclusive of ST. At the end of the year, when filing your returns you will be allowed to offset this against income tax etc.
• #32: Incoterms do not really work in India. There are so many variations possible, taxes to be paid, margins to be considered etc. that in general you require to specifically mention all of the above on your sales order and invoice. Make sure your client sends you a P.O. repeating the same.This to make sure you get paid at the end of the day. Any misunderstanding from your side and the client will use it to not pay (partly).
• #33: SachinTedulkar: cricket God and multiple brand ambassador.Cricket and Bollywood are not just about sports and movies, they are MOSTLY about endorsements!
• #34: India is large. But flight tickets are vey cost effective, allowing you, or your sales manager to easily travel across India to meet your clients. In addition, your clients will most likely be clustered in the urban areas and/or industrial zones. This makes it possible to do a few visits a day.As we have seen earlier, the high variable costs are the main hindrance, the relative low fixed costs for sales manager, but also for BD and PR make it possible to move away from the traditional export only model and opt for a hybrid option.Language: There are 500 unofficial languages, 22 official languages. Nooneexpectes you to promote your poducts in the local dialect, or Hindi for that matter. English is the language spoken by the business community. Hindi or other languages are only applicable to local/traditional products or in case you are selling to consumers who do not master any other language but the regional one (farmers or lower middle class families for example).Always remember, India is the country of IT outsourcing, but has not a large penetration if internet and internet usage itself. Many business owners do now have a website or a company email ID. Expect to send out many hard copy brochures as well!
• #36: In summary, we discusedProduct(ion)Place(ing)Price(ing)And PromotionNow we will look at the impact of these four Ps in relation to various market entry strategies.
• #37: Im not claiming to know the strategy of TomTom. However, I do know that one and half year ago they had a nice PR campaign mentioning they were investing millions of euros for entering the Indian market. They were proud to announce to make their product India proof (land mark navigation, etc) and price it reasonably Indian.So far however I have not been able to buy one of these wonderful machines (as a gift for my wife, native to Mumbai, she gets horribly lost in Bangalore and blames me the same). I had my assistant call TomTom to find out locations of sales. However, upon visiting those stores, they were not available.It shows that the Four Indian Ps really need to work in tandem to make your strategy successful. Indianizing your product does not do you any good if your product is nowhere to be bought.
• #38: Im not claiming to know the strategy of TomTom. However, I do know that one and half year ago they had a nice PR campaign mentioning they were investing millions of euros for entering the Indian market. They were proud to announce to make their product India proof (land mark navigation, etc) and price it reasonably Indian.So far however I have not been able to buy one of these wonderful machines (as a gift for my wife, native to Mumbai, she gets horribly lost in Bangalore and blames me the same). I had my assistant call TomTom to find out locations of sales. However, upon visiting those stores, they were not available.It shows that the Four Indian Ps really need to work in tandem to make your strategy successful. Indianizing your product does not do you any good if your product is nowhere to be bought.
• #40: Western firms complain about Indian business partners, paying too late, not trustworthy, always negotiatingDo understand, the feeling is mutual!The importers are so reluctant to purchase, because they are taking all the risks. With Indian growing so fast, why would they take your harsh payment terms if your competitor is offering better terms. Of course you need to guarantee payment and of course there is a minimum margin you need to consider, but there are many other ways of closing a deal, many ways in which you can support your importer and bind him to you (not your competitor).
• #41: Offering discounts on purchase price for marketing investments does not work. The importer will consider this price the new purchase price and will never agree to you increasing it afterwards. Better to agree on a good low price to start with and keep it that way.If you see that investments in BD and PR are required, offer to invest in paying for this NOT through discounts. He will not utilize this for your investments anyway, just increase his margin. Pay the vendors directly.Other important things to do are assisting him with credit, getting to know each other (personally) and match your size and scale to his. Especially the later is important, do not work with an importer much smaller or much larger then your firm, most likely that will not yield the results you were hoping for.
• #42: When price matters and goods are fast moving, the supply chain needs to be designed to handle these constraints:Production: either in India, or abroad but than through your own sales office (taking profit in India, removing the importer)Placement: direct sales (through stockist) or appoint a distributor (higher variable costs!)Price of course needs to be competitive, introduction offers like 15% off, buy 1 get 1 free etcFor FMCG, the most effective promotions are in store promotions. The average cost would be samples and maybe 20 euro a day for salaries.
• #43: Capital goods, like machinery.The biggest savings are to be reached by not transporting heavy parts like plate work and assemble on location. If this is (initially) not possible, focus on incorporating a sales office, saving on import duties and removing the importer layer.Since no stock is required, an agent in combination with a sales manager will be sufficient from a place(ment) perspective.
• #44: Last but not least, if your company does not like investing upfront, it could opt for a more step-by-step approach. Focus on sales first, then incorporate sales office/start assembly/manufacturing. Investing is much easier if you know there will be demand.It all starts however with simulating the end price as IF you already were assembling/producing on location. This will cost you margin initially, but will allow you to build the market cost effectively without any fixed commitments. Once sales pick up, you bring in order your four Ps.