gigCMO Discussion - Top Tips for Market Expansion to India Transcript
Mark: Welcome to "Things You Should Know To Make Your Business Grow" our gigCMO podcast. I'm Mark Magnacca, the CEO and founder of gigCMO and I'm very pleased to have with us our main guests today Vinayak Hajare, who's the director of InterGest South Asia. And we also have joining us Ulka Athalye who's our fractional CMO and leading our business in India. Welcome to both of you today.
Vinayak: Hello, good morning to you. And it's my pleasure to talk to you about doing business in India. And of course, we'll have a good discussion on the subject.
Ulka: Yes. Hello everyone. It's a pleasure to be here today.
Mark: It's wonderful to have you both here today. And as you know, we're a UK based company in the city of London. And obviously, with the change in the trading relationship between the UK and the European Union, British companies are looking across the world to see which markets they can succeed in, which markets they want to go into. And of course, with the deep fondness British people have for India, and of course, India being the next big economic superpower on the horizon; you have many British firms thinking we need to go in India. But they probably don't understand the market, and most likely they really don't understand how do you succeed and how do you establish yourself in India. So, we're very pleased to have Vinayak here to help us with that. So first off, could you please tell us a little bit about what InterGest does?
Vinayak: Certainly my pleasure to talk to you about it. Dr. Heinz Anterist, a German, a visionary, looked at outsourcing of international business management in the year 1972. The business proposition was to provide services to companies for setting up businesses in foreign countries and handle the administration of such businesses.
Most of the mid-size companies who want to set up a business in a foreign country, don't know how to go about with it. And this is the business space that we operate in. So our services include setting up a company, a branch office, a liaison office, and we get all the registrations and permissions for these companies to operate in the country that they would like to go to. After setting up the entity in a foreign country, there's the requirement that you have to comply with the rules and regulations of the country, and InterGest provides these services.
So our services include; accounting (bookkeeping), handling payroll, filing VAT returns, preparation of annual accounts, doing all the filings for income tax or corporate filings, which a company needs to do in a certain country. All these services are provided by InterGest with its partners who have a local presence in the country, and this partner would have the requisite knowledge, so he knows what needs to be done. He knows what are the rules and regulations. So basically, the companies are then assured that all their filings are compliant with local rules and regulations, and then no violations because you don't want to be in a foreign country and go wrong with the compliances and get pulled up for it.
The other thing is our clients understand their own business. That is their knowledge, so we do not manufacture any of their products, neither do we sell. We provide them these services, which take care of the compliances. So our clients' employees focus on growing and developing the business. And they can then function without having to bother about whether the compliances have been done or there is any problem. We also, with our reach in so many countries, search out for partners to form joint ventures, or if a company would like to acquire an entity in the country, and we provide both the services of acquisitions and partner ventures.
Mark: Wow. So InterGest is a global company then?
Vinayak: Yes, 50 Countries across the world where we can provide these services.
Mark: Your founder was obviously a visionary at the time because in '72, you know, the world was completely different to how it is today. There was a cold war still going on, a war in Europe. And again, another visionary from Europe; saw business opportunity to help companies set up around the world. How did you get involved? Because I mean, this is a great organisation and now you're in charge of InterGest South Asia. Obviously, you have those entrepreneurial instincts as well.
Vinayak: Certainly. Well, going back to how InterGest started. In 1970, InterGest started with the whole objective of helping German companies go to France, just across the border. And then over the years, the clients would always say, "We want to set up a presence in this country. Can you help us?" So, that is how we set up a presence in so many countries, you can say almost 50 countries. And then, there came a time when InterGest had its clients who wanted to set up a business in India, and that was where I came in. A lot of French connections typically worked for Lazard Freres a French Investment Bank & Credit Lyonnais (now Credit Agricole Corporate & Investment Bank). And then, of course, a lot of relationships with many French organisations.
Mark: So were you based in France at the time, or you just had those relationships from working in the world of financial services?
Vinayak: I would travel there, so obviously, you've met up with a lot of people there. And as a bank, Credit Lyonnais was very well-known, so obviously, the network was there. So better put, InterGest people - when they thought that they should set up a presence in India, they came to me and said, "Would you be willing to partner with us?" And I looked at it as a very interesting opportunity because very few people in this space and with this kind of network. So it was a very logical decision for me to set up InterGest presence in India.
Mark: When did you set up in India then?
Vinayak: We set up in 2007, and since then, we have worked with a lot of European companies for setting up their [...] presence in India. For one of their companies, we have also helped them acquire an entity. So we've given them both a greenfield expansion or an inorganic acquisition.
Mark: Excellent. Obviously, you're familiar with InterGest presence and success in the Indian market, helping foreign firms get established. What is some of the feedback or your understanding of this?
Ulka: Just as Vinayak said, this is an extreme necessity for clients coming in from Europe or other Western markets. And there are very few credible players in India that offer a service such as this. There are several companies who claim to do this but unfortunately, they are not manned with the kinds of experts that InterGest has, starting from Vinayak himself. Therefore, while everything looks good on paper and everything looks good when you do a Google search; what companies must realise is that it's very important for them to have face-to-face interactions and really identify a partner whom they can trust, because India is a very different market; that's number one. And from what I know, so far the market feedback about InterGest has been very good.
The other interesting thing really is, Vinayak mentioned that they do everything for their clients, at the same time; they leave this entire aspect of growing and developing the business to their clients. And that's interesting because a lot of marketing and sales is really about growing and developing businesses, predominantly marketing. And that's another area that firms wanting to enter India should think about long and hard, once again, because India is such a diverse and complex market.
Mark: I think that's very true. And I think just the story of InterGest, I'm kind of fascinated by, because this was before really the establishment of the single market, and your founder was thinking, how do I help German companies set up in France? The world's changed so much, and now all those learnings of setting up companies within Europe, they've now gone abroad to countries like India. InterGest has this strong track record of helping companies succeed in new markets. And everybody, certainly in the UK is interested in new markets today. And India, of course, is at the top of the list. For many, of course, we've talked about the historical awareness of India in the UK, but why is India such an attractive market today for people?
Vinayak: Well, it's predicted that the Indian economy, which is already pretty large, will be growing to about a $5 trillion market by the year 2025. There are many factors which really contribute to making this such a large market. Indian population of 1.3, 5 billion people, out of which you can say about 225 to 250 million people would contribute to the middle and higher-income groups. And if one looks at this, one single country, which will account for almost 50% of the entire European population; European population would be about 450 or 500 million people. So, one single country giving you the size of a market is very attractive. India also has a very large workforce, estimated workforce of about 480 million people. And with the low-cost manufacturing base, this makes it very interesting because on one side you get a lot of people. Employee cost in India is significantly lower than that in Europe, so that is a big cost advantage that is built by having a presence in India. And when you look at it this is already established because India has a 55% market share in offshoring of global services. Which really goes to say that people availability has been good, and yes, there is obviously a cost advantage in doing this.
Mark: I understand there are more English gentlemen in India than there is in the UK anymore.
Vinayak: True. And of course, probably the Indian people speaking English in the traditional way is still quite different as compared to other countries. I'll give you certain wonderful examples. With the 1.35 billion population, India has 1.2 billion telephone connections. So if you really have to look at the size of the market; for even a mobile phone, as you will replace a mobile phone almost every year, you would say; close to about a billion phones would be sold. So, that gives you a clear estimate as to what is the kind of market size. And of course, India has always kept its arms open. You have foreign investment up to a hundred percent ownership permitted in almost all sectors of the economy.
Mark: I think India is more open today than it ever has been because historically, it was very difficult for a number of reasons to penetrate the Indian market. But in the past few years, you've heard of all different firms looking at India, trying to establish their operations and succeed. It doesn't mean it's easy, but it's more open for business today than it ever has been.
Vinayak: Certainly, and in the past one year, they have been many incentive schemes which have been given. There is an incentive scheme for typically large electronic manufacturer, large scale electronic manufacturer. So a company such as Foxconn an apple supplier has set up a presence. Google has of course; they're investing about 10 billion in increasing digitalisation in India. There is a large amount of investment which is happening. And last year, despite of COVID, we had $57 billion of investment, and that is 13% higher than the previous year. So COVID has not hit the investments that have been coming into India. The other interesting thing is typically in India, almost 72% or thereabouts of what is manufactured is consumed within the country. So for people who come into India and invest, they don't have to look at pure exports as a market. With this kind of consumption, obviously you can look at a lot of domestic consumption in India and leave certain amount additional for exports. So, it's a good market to have a presence
Mark: Yeah, because of the strong domestic consumption.
Ulka: What has also changed in India; domestic consumption has gone up and the demand in India has been evolving over the last five to 10 years. That's because the middle-class is growing the upper-middle class and the higher-class is also increasing, albeit on a low base. And because of the exposure to the world, there is rising digitalisation, which means that everybody is really connected to what's happening in the aspirational west. So people's aspirations are changing and that is kind of opening up the market for a lot of goods and services. And there's a certain propensity to try Western brands, which also respect the inherent ‘Indianness’ that people are very proud of.
Mark: Yes, India is also unique like China; neither country needs the rest of the world to survive. You're a big domestic market. I'm originally Canadian. Canadians grew up knowing if you don't export, you're not going to survive. You only got 35 million people, big country, but not a lot of people. So for Canadian business to survive, they have to export to survive. Whereas India, as you're mentioning is a big domestic market in itself, obviously very competitive. But what are the sectors that are most attractive to foreign firms? When they're looking at India, why is India at the top of the list for specific sectors?
Vinayak: I would rather say India is a very big opportunity across all sectors. But then of course, rather than generalising it, if I put it in sense, say information technology, where I've already said, India has a 55% market share in outsourcing. So typically when one looks at it, there's a huge investment which happens in information technology and companies such as Daimler, Symantec etc, have set up that technology centre. So it's not just plain vanilla technology. People are carrying out a good amount of RNB and those kind of things in India, because there is a cost advantage. You get really well-qualified people who are able to deliver, so there is a lower cost and there's a big advantage of doing this in India. If one do most from the information technology sector, then engineering sector again, a lot of companies come to India for frugal engineering, and I'll give you a very-
Mark: What is frugal engineering?
Vinayak: A couple of years back helped a German company to set up a presence in India, and they manufacture painting and finishing systems for the automobile industry. But when you look at the top-end cars, what technology is used for painting those kinds of cars is still not used in the lower-end of the budget automobile cars in India. So when they decided that they need to create a presence, they thought we should acquire a company. And we helped them acquire an engineering company in India and upscale it. So we used Indian engineers and we upscaled it; rather than using German costs and then bring down the technology to be used in the Indian market. So typically, we did what we call us frugal engineering, so we could deliver the right requirement at an affordable price.
Mark: So a combination of reverse engineering and then some very smart Indian engineers.
Ulka: Yeah. I think what you've done is really innovative because typically, people wanting to enter India try to reduce features; they try to de-premiumise their product to suit the Indian market. But I think what you've done is just done it over its head. It's something that companies can certainly learn from.
Mark: And just building on what Vinayak said, because what that shows is in that case, of course, you provide this great turnkey solution for businesses to come into the market, but also your skills and expertise. Then give them an opportunity to think how to succeed with their business model. Because that comes back to understanding what's the core proposition, what will succeed in this market? And that's a great insight, frugal engineering - I think there's a book here.
Vinayak: To make things even better; the Government of India gave Production Link Incentives to manufacture large-scale electronic items, manufacture medical devices, pharmaceuticals, food processing industry etc. So companies find it attractive to make large investments and cater to the Indian market. And a very interesting thing which now really comes out is if you were aware of India is one of the largest manufacturer of vaccines in the world.
Mark: Yes. Great partnership with Oxford AstraZeneca, and actually the town you're from, Ulka.
Ulka: Yes. The Serum Institute is here. And there's another vaccine which is 100% Indian, which is being exported as well.
Mark: The world needs all the vaccines it can get.
Vinayak: Very interesting thing, of course, Serum Institute Poona is a well-known manufacturer, but then to get the technology and to have it productivised, or you can say taken onto the market in such a short period of time, has been to choose the amount of ability that India has to deliver these kind of products. It is not only for Indian market; this has been probably exported to more than 50 or 60 countries across the world where these vaccines are being delivered.
Mark: Excellent. And India does not have the baggage associated with some of the other vaccines that's coming out in terms of origin - the American vaccines or the British vaccines or the Chinese vaccines or the Russian vaccines. With India vaccine, what you get is a very good product, but because India has always been very insular, there's no other baggage associated with it. It's just a good product at a very good price.
Ulka: One thing different about India today is, I mean, this is linking back to what Vinayak said about how most sectors offer an opportunity to foreign entrance. The difference today is that while in the past the foreign entrance would have just come and had a monopoly, because there was no competition from Indian players. What's different today is that Indian companies across sectors are themselves very sophisticated. And therefore, any entrant will have to factor in competition and hence the, how are you going to play, and how are you going to compete? And that's where a lot of focus needs to be as well.
Mark: I guess, when those situations arise, they can contact us to help.
Vinayak: I was going to talk about one more sector, which doesn't realise; the entire railway sector and mobility is also a huge opportunity. And I have seen the plans of the railways, and if you look at converting these plans into dollar terms, it gives you an opportunity of almost $200 billion in the next three to five years. So this is a huge investment which is going to be created. And it's not only Indian companies; foreign companies also welcome to participate and create a presence.
Mark: Well, that's my little story. So my surname's Italian and my great-grandfather was in Italy, obviously, late 18 hundreds, and he was a railway worker. And all his families were railway workers, and they came to Canada to work on the railway as well. So when you talk about railways across India, maybe there's a family connection there I have to look at. That's going to be a huge change, and railways everywhere now are coming back. In fact, in France, I think they announced a few days ago, they're banning short haul flights if there's a rail alternative to help deal with climate change, obviously. The Indian market is going to be a very, very competitive market for the railways and carriages and all the associated product services that go with it. With a lot of the UK firms though, there's a lot of scale-ups as you know in the UK, using some sort of technology trying to grow their business quickly, so market expansion for them is a priority. Can you work with smaller firms as well? I mean, we've talked about some very large firms, obviously very successful, and we've got deep roots in that and a strong pedigree for that. Have you worked with some smaller size firms as well?
Vinayak: Yeah, certainly. Well, I'll tell you a very interesting thing. See, the really large companies have the wherewithal to do it themselves. They have the ability and the financial resources to say, we'll dedicate a team of 10, 15 people who will go and study a country work and start doing it themselves. The mid-size companies always look at getting value for the money, and that is where they need people like us because they want to be sure that they're doing everything right. And that is where we come in and work with the mid-size and small-size companies to create a presence.
Mark: Okay. And can you give some sort of indication, and of course, it's dependent on the specific project, but what is the sort of costs that somebody would need to be thinking about? Because I'm sure all our listeners, I think this sounds really interesting, but I probably can't afford them.
Vinayak: Well, our value proposition is to be cost-effective. We certainly are lower than the big consultancy firms or the big accounting firm. We also work on a different concept. And since a new entity coming into India may require time to build up its own team and may not want to have a big cost. We work on it that we work with probably lesser time allocation or the appropriate time allocation. So people are not idle in the sense, if you have a CFO who comes in and joins your company, maybe he may not be fully occupied in the first few years, oo rather than that, we are able to spread our costs across different companies. And so, we give a very economic option. So for someone who wants to set up a company, of course, it depends on where he's coming from, the kind of entity that he wants, but plain vanilla administration may just cost maybe a thousand or 1200 euros a month in the initial stages, which is significantly lower than probably having your own CFO to handle it.
Mark: Absolutely. That's very good. It's very similar to our model in terms of providing fractional marketing expertise on demand just for the prompts. So clearly that's great because I know we'll have a lot of people listening today and thinking, "Oh, this is relevant for me." That very insightful and very helpful for our audience. Again, coming back, we've talked a lot about different success stories, but what are some of the different entry strategies and which is most likely to succeed? Is there an easier route or more difficult route?
Vinayak: There are various ways of setting up a presence in India. You can start off with the simplest one which is a liaison office where you can come in with a very low cost. It is not a separate standalone entity. It has to be supported by the parent company. But then, the restrictions are; you cannot sell within India, you cannot earn any income. So the next best option or really the best option is to create your own subsidiary, which gives you the permission to sell in India; have your own manufacturing facility. And the biggest benefit is you first come and set up your subsidiary, you start selling your products into the country. So you basically get people aware of your product, the brand, and get certain volume, which is there, which will justify setting up a manufacturing facility. So, when you set up your manufacturing facility, there is a good amount of utilisation which there. And for other companies who want to be aggressive and really want to create a big presence in a very quick way is to go and acquire a company. So you get everything, you get your revenues; you get your loyal customers, everything. So this is also another way, which is a quick and efficient way of setting up a presence.
Mark: And what about FinTech firms or different techs; health-tech, med-tech etc? If they're looking, they have a solid value proposition, they've got some good traction here already in the UK, their business succeeding, and they're looking at different markets. Is there an opportunity for those types of firms in India at the moment as well?
Vinayak: Yes, it is a very good opportunity because you come in if you have a good value proposition, which has been used in other countries. All that you need to do is have your presence in India with your own entity, hire the right kind of people that is obviously no shortage of availability of people. You select the right kind of people to provide the services and the operations, and everything is up and running. So everyone has an opportunity to create a presence in the manner which he likes to and what budget that he would like to allocate for it.
Mark: The question of localisation always comes up and it's interesting, actually. When I think of India now after our discussion, I kind of like to think it's a bit like the single market, right? The European single market, because India is very diverse as well culturally. Different parts of India have different customs and behaviours, but of course. It's all in one market. So probably the part of this strategy is, when you come into India, you start in one particular area where you're very well-defined your target market and succeed there as your base before you roll out to other parts of India. Is that most likely?
Vinayak: It's certainly. The first thing is if you're looking at manufacturing a product or importing and selling, you should be close to a port. So basically, your products come into the port and then don't have to move internally or from one place to another. So you're better to have a facility manufacturing or trading near a port, so immediately either you come to a port like Mumbai, there are of course, other ports in Chennai, and Calcutta - then depending on what kind of product that you would like to sell or manufacturer.
And I'll tell you a very interesting thing. A lot of companies have come to Pune. They like Pune because the proximity to Mumbai, the port is right there. Pune has a lot of engineers who are coming out to the engineering colleges in Pune. Costs probably slightly lower than in Mumbai. So for someone who sets up a presence; the infrastructure cost goes down. And so, 750 or a thousand German companies are present in Pune.
Ulka: I totally agree. So from the point of view of labour supply, and I'm calling them labour, but we are really talking about intelligent manpower and the whole logistics and infrastructure. Pune is definitely on the top 10 cities that one would want to set up their businesses in. I think that's what you were saying. And coming to the demand side, which is one of the questions that you really had, Mark, how do you really know where you should start? See, it all really depends on what category you're in. Are you B2B, or are you B to C, what your pricing is ultimately going to be? What price can you really afford to sell at is the fundamental question. And that depends, and that's how you find your target audience.
Now, if you are a consumer product and you're slightly premium, you will find your target market and the four Metro cities in India. So that really becomes your starting point and then you scale up. If you're fairly mass market, then you really need to apply your mind and really think about where you want to go. But typically, most companies start with the first five or 10 homogenous markets before they decide to scale up. So the whole consumer research part, identifying homogenous segments, choosing whom to target and choosing your product configuration and pricing, becomes a very critical piece of the intent, in addition to the kind of work that InterGest does. So I think the two go together, they're separate, but they go together at the same time.
Mark: You have to have that, I agree; that protocol economic, social, technological legal framework understanding is absolutely key before you get too far down the road. So a couple of questions on that; intellectual property - is protected in India? I mean, companies always have concerns going to different markets. If I come in, how strong is the IP protection?
Vinayak: IP protection in India is good and is the recognition of IP rights is increasing day by day. So you can really rest assured that your brands and your product rights, everything technology, will be respected and will be protected.
Ulka: I was also going to say that we've now even started having IP for food and we are linking desserts and certain delicacies to the region that they originated in, and there will be IP rights around those as well.
Mark: That's very similar to the European Union.
Ulka: Yeah. India wasn't like this up until a few years ago, but they are getting more and more serious about IP. And that is very linked to the kind of impact that India wants to make on a global stage.
Vinayak: The latest one is the Alphonso mango was also granted geographical index, or what do they call it?
Ulka: They call it something else, but it's... [editor’s note - Geographical Indication tag]
Mark: Those are the favourites mangoes in my household, Alphonso mangoes. [...] I have a mango monster in my house.
Ulka: We just had the first mangoes of the season today.
Mark: Great. Well, hopefully they'll show up here soon. It's been a great conversation. We've learned obviously a lot about India which is great. We've also learned about InterGest and about you and Boca. It provided great insights in the Indian market as well. Sadly, we're all affected by COVID these days. And at the time of our conversation here, India is going through a very troublesome time, which is no different than the rest of the world, but you have a big population. How has COVID... not the short term effects because we know it's terrible for all humanity, but how do you see this affecting the way ahead, and are there opportunities being created with this reshifting of how the world's operating?
Vinayak: Of course, COVID has certainly, as you rightly said, affected us. And that has been of course, a disruption which happened for a short period of time. But long-term, we look at it as a big benefit and I'll put it from two aspects. One is from a continuity of business. People will have already started working on looking at difference sourcing locations. So people will move away from being China centric and sourcing. Sorry, put it as one country. But obviously people have sourced a lot of products over the years from China. People will start looking at other countries to source from, and India will be a big beneficiary over the years. And I'll add to this also in the sense; India as you rightly said, one is the cost of manufacturing is low, so we have big advantage which will come out of that.
We have a lot of people around, capable to manufacture. 480 million people or something is a workforce. So ability to manufacture it low costs, and the other thing is respecting IP rights. When you come to a country like India, all your IP rights are protected. So you've manufactured in India for the Indian market, you manufactured in India cost effectively, take your products to the other markets. And so, you will be able to create an affordable product in a European market or UK. Typically, because being manufactured at a low cost, and in these countries, or anywhere around the world, while you get affected because of COVID, people earning will come down. They may like to buy good products at affordable prices, so probably in the years to come; we will see a big benefit.
Mark: Interesting. And one final question. There's it a lot of question about localisation, which is after you get into the market. As I mentioned earlier, I'm Canadian, so in Canada, you can British English or American English. We just kind of accepted all. In America, you use British English; they forgotten the spellings and have their own way so are quick to point out errors. What about in terms of India, because you are very connected to the American market as well with the outsourcing; is it British English you use or American English, or does anything go?
Vinayak: I think it's more English-English, but as we've learnt it the British way, and so it is more the traditional English. Of course, it changes because a lot of the population is now mobile, so it does get other influences.
Ulka: Yes, I totally agree with you. And what I want to say is that there is an emerging language, which is called Indian English. So the young people are increasingly using that, which means that they have their own way of constructing sentences. They might use certain Hindi words while they speak English. It's getting different; languages dynamic, so it evolves.
Mark: Great. So thank you for your time today. Vinayak - director of InterGest South Asia and for Ulka Athalye who's one of our Fractional CMOs based in India. It's been a very enjoyable conversation. Great to learn more about the Indian market and how InterGest can help firms succeed. We look forward to speaking with you again in the near future.
If you’re interested in entering the Indian market, please visit InterGest’s website. Get in touch for more information and expertise here: https://www.intergest.com/en/worldwide/state/india/?no_cache=1