A Look at Modern India

12/16/11

A decade ago, scooters and mopeds made up the bulk of motorized transport in India. Today, motorcycles and cars of all makes are a common sight, from Harley Davidson and French carmaker Renault to Suzukis. India is undergoing important socio-economic shifts that are resulting in the segmentation of existing markets and the opening of previously nonexistent ones.

Even though India seems full of opportunities and market potential for almost any foreign product, it requires a lot of sensitivity and awareness because the complexities arising from its heterogeneity make it a challenge for companies looking to copy-paste business models from abroad. In addition to experiencing growth in the consumer market, India is also the stage for an emerging entrepreneurship sector.

Big retail is a prime example of how the diversification of India’s class structure is creating new market opportunities. As little as five years ago, the viability of giant retail stores operating in India would have been seriously questioned. In her book Winning in the Indian Market, published in 2006, India’s leading market strategist and consumer analyst, Rama Bijapurkar, explains that large discount retail outlets in Indian cities have failed for multiple reasons. The principal one being that supermarkets cannot cater to India’s lower income groups because they live day by day and do not have the discretionary income for volume purchases, even at a discounted price. The model adopted by manufacturers of fast moving consumer goods (FMCG) is small quantity at an even smaller price. An example of such would be hotel-like sachets of shampoo for two rupees (0.04 USD); these small packaged goods accounted for 40 percent of the sales of FMCG. Nonetheless, India’s rapid growth has given rise to a new socio-economic group that is filling the demand void, allowing hypermarkets to set up shop in India.

India’s middle class has grown tremendously over the years, due in part to substantial investment in education, and a booming job market fueled by foreign investment. India is outputting almost half a million engineers a year, amongst others skilled employees. Salaries are on the rise with 11.7 percent hikes in 2010 and a projected growth of 12.9 percent in 2012, according to consulting firm Aon Huwitt. Devinder Mahna, general marketing manager at Mechelonic Engineers, explained that it is no longer infrequent for engineers graduating from top schools to find jobs with salaries closely matching those they would find in the U.S. Even though this is not the norm and many will only earn between 400 and 700 dollars a month, it is still preferable for them to buy their groceries at a one stop-shop location rather than waste time purchasing their goods in the various specialty stores.

Even though many of these young wage earners shop at big retail outlets and drive a Chevrolet, it does not translate into a general infatuation with western goods, for the simple reason that Indian and western consumers have diverging tastes. Satya Bonala, head of Delhi-based market research firm Vox Populi, argues that many multinational companies have often made this mistake. India, having 20 officially recognized languages, with dozens more regional tongues, each with its own culture, is an extremely heterogeneous market requiring products tailored to each segment’s needs. Bonala went on to explain that The Coca Cola Company learned this lesson when it attempted to re-introduce its product in India after almost a 20-year absence, by acquiring the dominant fountain soda at the time, Thums Up, and slowly phasing it out in favor of its iconic beverage. Unfortunately, as tourists in India quickly discover, Indians prefer their soft drinks to be a lot fizzier and sweeter than westerners. Despite its efforts, The Coca Cola Company was unable to dislodge the Thums Up brand as India’s favorite soft drink.

Coke’s inability to replicate the success it experienced elsewhere did not deter multinational corporations, of which there were hundreds, from investing billions in India. James Winterbotham, an investment consultant at India Advisory Partners Limited, argues that for multimillion-dollar development projects there is no shortage of funds and that “raising large amounts of money can be easier than small amounts”. Indeed, building a multimillion-dollar grain elevator and silo appears to be more lucrative than putting a few hundred thousand dollars in a Web startup. The concept of venture capital is still very novel, with India boasting just a few VC and angel firms such as Indian Angel Network and Seedfund; and unlike U.S. syndicates, many of these have not yet taken on a specific field of interest, making investing firms more receptive, especially to products specifically designed around the needs of Indian consumers.

Business plan competitions and incubator programs are also making their debut in India. However, they do not offer sums of money or services even close to rivaling those offered at U.S. universities or competitions, and yet some of these, such as the Indian Angel Network Incubator Program (IANIP), demand equity in exchange for being incubated. Previous participants of various Indian incubator programs expressed their disappointment at the ability of these programs to provide them with effective and pertinent mentorship. However, in a country where badges and certificates are highly regarded, they explained that simply being associated with such programs was a major door opener to investors that would not have taken a second look at them. Due to the shortage of avenues available to reach prospective investors, it is sometimes worthwhile to give up equity in order to increase the chances of securing institutional funds.

India is a land of paradox that is constantly changing and redefining itself, with new opportunities emerging for foreign investors and young entrepreneurs. It is a market that requires a carefully crafted strategy in order to navigate through the multitude of challenges inherent to the region.

Maxime Pinto is co-founder and chief marketing officer at Roof For Two, a Boston-based startup focused on the Indian market. Follow @

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