India has rapidly emerged as one of the largest economies in the world, but it is also one of the most complex. Now, led by Prime Minister Manmohan Singh's insistence that "good economics is good politics," India has announced a new wave of reforms, seen by many as the most significant step since the ground-breaking "opening of India" in July 1991. The reforms include changes to retail, airlines, broadcast and power sectors.
The changes in retail are significant; Wal-Mart, IKEA, and Tesco can now compete against indigenous retailers in India. Fifty-one percent Foreign Direct Investment (FDI) is permitted in Multi Brand Retail (MBR). State governments have been given a choice to participate. So far, ten of them have chosen to do so. But there are restrictions. For example, retail sales outlets may be set up only in cities with a population of more than 1 million.The terms set a minimum investment threshold at 100 million USD. Furthermore, at least 50% of total FDI must be invested in "backend infrastructure" within three years of the induction of FDI.
So how should businesses approach the new reality?
Cautiously. Already there is political backlash to Prime Minister's proposed reforms. Multinationals will succeed only if they allay the fears of ordinary Indians. Multinationals must use their global resources and capabilities to transform both urban and rural India and improve the lives of not just the rich but also Indians at the middle and bottom of the pyramid. Here are some considerations for businesses contemplating a Go-to-India strategy:
Market Selection
- How will you select the states you want to start your Indian retail initiative?
- What infrastructure needs exist and what will you have to build?
- What are your competitors planning?
- Who are the local partners best suited to help your company?
- How do you build trust and verify the integrity of the market participants?
Inclusivity
- Is your business committed to inclusivity?
- How will your business impact the mom-and-pop kirana stores?
- Are there ways to bring the kirana stores into your distribution channel?
- What about the community?
- What can you learn from other emerging markets (Brazil, Mexico, Kenya, etc.)?
Disrupting the Status Quo
- Who are the players most likely to be impacted by your presence?
- What are the dynamic change management techniques you want to use?
- How do you monitor, understand, and relate to the local political climate?
- How can we improve the businesses of our suppliers and local partners? Our consumers?
Business Model Innovation
- How can multinationals develop innovative business models with "small store" formats to promote convenience, yet give consumers lower prices through economies of scale in purchasing and supply chain efficiencies?
- What do our local customers value?
- How can we give them access to the products and services they need?
- What are responsible ways to sell without being exploitative?
- How can we build trust into our business model?
Brand Integrity and Transparency
- How do we educate the consumer in their best interest?
- What can we do to independently monitor our supply chain?
- How do we comply with FCPA and child labor laws, especially with our partners and suppliers?
Cultural Perception
- How can we avoid colonial stereotypes?
- What impact can we have on working with community leaders?
- How do we respect local traditions while staying within our global values?
The list goes on and on and seems daunting. But do not turn away. The opportunity is big. Companies that learn to compete in India (and China) will be a force to reckon with across the world.
By 2020, the Federation of Indian Chambers of Commerce and Industry (FICCI) projects that India's retail sector will become a $1.3 trillion market. In 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World Rankings. Now perhaps, India's standing can finally be liberated ? as it takes its place at the global table.
Source: http://blogs.hbr.org/cs/2012/09/open_india_considerations_for.html
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