Key to the successful investment in India

Mumbai buidlings
Lower Parel, Mumbai, Mumbai, Maharashtra, India in 2019.

Entry into India

There are several ways to enter the market/do business with India.

  • Technical Collaboration
  • Joint Venture (The share of investment depends on several factors) A 26% shareholding under the Companies Act, allows the shareholder voting rights, on issues concerning his stake.  
  • M&A (Merger & Acquisition)
  • Setting up a Liaison Office / Branch Office / Project Office
  • Setting-up a 100% owned Subsidiary (local laws dictate the allowance limit of FDI/investment in specific industries, with sectoral caps.  For Example, in Automotive 100% investment is allowed. In digital, print media, or defense only 26% of Investment is allowed.) 
  • Limited Liability Partnership – A foreign entity can invest in a Limited Liability Partnership.  100% foreign investment is allowed under the automatic route without any investment linked performance conditions.  This may be beneficial to those that wish to invest with fewer compliance requirements and a lower tax burden.

Entry Trends

Small to medium-sized companies are inclined to form a technology transfer with a royalty and fee structure via the Joint Venture route, or localize by setting up a sales office or Joint Liaison Office.

M&A is usually expensive and rather cumbersome. All forms of due diligence – Financial, Legal and Managerial are very important and then there is an issue of localization and managing the business in another country.  This can be more challenging and therefore such an approach calls for more clarity before execution.  

Kokuyo, the Japanese stationery manufacturer, acquired Camlin in India, creating Kokuyo Camlin India.  They took the acquisition route, acquiring 51%, because they purchased into the entire supply chain network and distribution network in India.

This is a good decision by KOKUYO. As alternatively, building a broad supply chain and network would be very costly, and time-consuming. Also, building their brand presence in a cost-competitive market by themselves would have been a major challenge. 

Setting up a 100% Subsidiary is a good way under the new Special Economic Zone (SEZ) schemes and with local Japanese and Indian government support schemes (tax benefits, support in land acquisition and with Infrastructural set-up), and many such new Special Economic Zones have been set up catering specifically to Japanese companies.  However, doing business alone in India is not easy.  The labor laws and management philosophy and culture are different, so it is best to start small and take a step-by-step approach to growth. 

Key to the success

When Japanese SMEs enter India, they start with market research and local visits to assess applications of products and services and to study local pricing and consumer preferences. Market research is important to narrow in and to focus on the market.  The most challenging and intangible area is Managerial Due Diligence and effective communication. 

Ready for India

Many companies tend to get attracted to a potential partner due to their technological superiority, their local connections, or their customer list. In the meantime, India is a foreign country for the Japanese and the norms are different from Japan. Little goes smoothly and you may encounter speed bumps along the way. However, when you find a solution to the issue, and things go well, you get a big reward. The first priority is to find the right application in the Indian market.  

The Indian market may have a population of 1.3 billion or more people, yet, the middle class can be divided into several subclasses and the market has to be further segmented to truly understand the need within the market.  Simply looking at the broad term middle-class would be overestimating and overstating the actual market with real purchasing power. 

When selling to an OEM or to a Tier 1 or Tier 2 maker/supplier, a firm understanding of the end-user needs and their costing is important.  Also, the upper class and the rich are well-traveled and they have seen the World, so marketing to the niche rich class can also be compelling given the right product and the right strategy to go to market. 

Don’t do it alone

You can surely do it all on your own. However, it may be wiser and more sensible not to do it all alone. Rely on local people and develop trust over time.  Although it takes some time to develop a good relationship, this will help you and in the long run, it may be more cost-effective for your budgets and allow for fast decision making with clarity on what to focus on.

Understand each other

It is important to understand that when two countries, two companies, and two markets come together, “there is no exact win-win”.  It is about clear communication, cultural understanding, localization, adaptability, flexibility, and sacrifice with a long-term vision towards a common goal. These are indispensable for your success.  You have to be willing to make some changes, be flexible and adapt along the way. 

Differences in Communication Styles

When Japanese show their diligence and modesty, they say things like

“Dekiru to Omoimasu” (We guess we can do it),

“Dato Omoimasu” (We guess so),

“Kakunin Shimasu” (We will check it) to some questions that are regarded as simple, with answers that are expected as standard. The engineering team is back in Japan or back at Headquarters, so everything needs confirmation, even matters relating to actual real case experience. These face-to-face meetings are an opportunity to build credibility  so you should not be afraid to give estimates or examples of other experiences.

For example, a potential Indian client may ask – what is the tool life or the tendency of wear and tear of this material? You can answer this by giving an example of other experiences with this, or even give an estimate based on proper usage factors such as “with proper preventive maintenance”, what may be possible in ideal factory conditions. Some Japanese Companies reply, “well it depends on local factory conditions and usage conditions, so we cannot say”.  It is better to give a case example and give an estimate, and say, “about this much, but let me confirm and we will get back to you on this with more specific detail.  Indians have a tendency to be very academic and they ask a lot of questions.

Many Indian’s complain that Japanese brochures, marketing materials and websites, unlike the brochures of Germans or Swiss precision manufacturers, do not provide enough information and that they are not made well enough to effectively market products to foreign entities.

“Indo no Koto ha Wakarimasen ga Nihon dewa..” (We don’t know about India but in Japan..).

Such responses can be considered and taken as lack of confidence and a weak attitude. Indians communicate a bit more directly.  Better preparation is therefore needed for such meetings.  It may only be an issue of perception, but by global standards, some decision making from Japan Inc has been viewed as slow, conservative and even archaic.  Yet, on the whole, India has great respect and a high regard for Japanese people, technology and manufacturing excellence. Also, Japan and India have no war history or any major political issues, so business can be overcome through better management practices. 

It is also true that many Japanese companies do not have a high degree of credibility on Indian commitment levels, even when the Indian side says it is 100%.  Sometimes, they over-promise and underperform. However, to deal with India and Indians, a change of mentality is also necessary.  Why an average Indian communicates with such overconfidence or overpromise can also be cultural and due to pressure and dynamics to get things done in India.   For the most part, it is not because Indians are not committed, but it is how they tend to communicate in a highly populated and competitive Country where there is a lot of pressure to succeed and to get ahead. It would be sensible to communicate and to actively follow up. To speak to each other and to confirm throughout, to ensure mutual understanding of deliverables and commitment.