Key success factors to setup business in India

This article was published in the ICE (in english Spanish Commercial Information) Economic Bulletin in February 2011.

Author: Mario Gil, Director of INDOLINK Consulting

The present article aims at encouraging executives from small and middle scale European companies to set up business in India. With this objective we present the main variables which make India an attractive business destination, the major obstacles limiting the access to available opportunities and, finally, a few suggestions to avoid those constraints and increase their chances of success in setting operations in this country.

Any internationalization process, regardless of its magnitude or destination, constitutes a major decision in the life of a company, with far reaching implications. Given the difficulties which that decision implies, in the introduction of this paper we present an approach which may break the generic conflict many industrial SMEs face in venturing on their first foreign establishment.

In these links you can find the full article:

• Original (in Spanish)
• English version

CASE STUDY OF A SPANISH SME FROM ELECTRONIC SECTOR IN INDIA

ADD Semiconductor (Advanced Digital Design S.A.)  is a Spanish company set up in 2001 by two professionals from the Zaragoza University with more than 15 years of experience in microelectronic design. ADD develops systems of high efficiency and low cost in one chip (System on Chip) for telecom application and signaling processors. ADD is growing fast and nowadays has 40 employees between Spain, India, China and USA.

In 2009 ADD identified India as a priority market. Along with China and USA, India is one of the biggest markets in this sector. The country has more than 135 millions power meters where the ADD chips are inserted. Compared to the European average of one meter per inhabitant, and making a conservative estimation, in 10 or 12 years India can reach 700 millions of meters.

In addition, India is experiencing a robust development in infrastructures, which is pushing the electronic sector. ADD’s product has several applications such as controlling public lighting,  controlling solar energy panels, home automation, etc.

According to its International Sales Vice-president, Jesús Teijeiro, “we were aware that, for entering the Indian market, our physical presence was required. Speaking the same language and sharing the same culture is basic to do business”.

The basic structure needed by ADD to set up in a country is composed of two people: one Business Development Manager, who must have a good knowledge of the region and the potential customers, and one Application Engineer for giving technical support to their clients.

Instead of choosing the traditional strategy of creating a commercial subsidiary, ADD opted for recruiting these people on a contractual basis through a third party (INDOLINK). Ensuring their full dedication to ADD would guaranty their objective of establishing quickly in the market without the need to create their own legal structure, avoiding several duties and diverse legal, accounting and financial costs.

“At the time of deciding which company was going to support us in our entry strategy we assessed a couple of options. We chose INDOLINK due to its experience with other clients in the industrial sector. We wanted a sound consulting firm that knows how to move fast in the market. The promptness in hiring our technical staff and their Business Centre guaranteed a fast set up at a reasonable cost”.

In September 2009 the recruitment was finalized and the two newly hired professionals joined duty. The experience is being more positive than expected, in less than a year they have got important contacts and brought in the first big sale, “normally it takes between one year and a half to two years to recover the initial investment. In India we hope to recover the investment in our first year working there. We expect our turnover to be around one million Euros in the next financial year. We plan an exponential increase; by 2012 we hope our turnover to reach 5 to 6 million Euros.”

According to ADD, the main causes for their success are, firstly, having a sound and robust technological product very suitable for markets like the Indian. Secondly, recruiting the right people with a deep knowledge of the market, who have effectively conveyed their product value to the client. Finally, the support and orientation provided by INDOLINK to ADD and their local staff.

When compared to other countries, their experience in India shows particularly positive. ”We have been working in China one year prior to India, but it is only now when we are starting to receive the first orders, and they are still much smaller than the Indian orders. We have noticed that the Indian market is more open, more prepared to listen, and there are less idiomatic barriers than in China. ROI is higher in India than in China. We would recommend consolidating first in the Indian market and then trying the Chinese one. In EEUU we are also having good results because it’s a market that is not so price sensitive”.

Currently ADD is recruiting a new engineer and they are planning to continue expanding their staff. In the medium term they will establish a subsidiary company, once their sales confirm their real possibilities in the Indian market.

Recruitment on contractual basis through a third party is a convenient alternative for SME’s that are willing to enter in international markets, but prefers to avoid incorporating a subsidiary company ad hoc.

Advantages of this type of strategy:

SOURCE: INDOLINK

HINE will establish in India with the help of INDOLINK

The Spanish group HINE, founded in 1974 and consisting of seven companies with international presence, has decided to set up in India.

HINE Group, an international leader in designing, manufacturing and integrating hydraulic systems and components, has made the decision based on the size and expectations of rapid growth in wind power sector and other industry sectors in India.

India currently produces wind turbines with a capacity of 4,000 MW per year and all predictions indicate that both the number and power of generators will increase in coming years.

HINE Hydraulics India Pvt. Ltd. will initially supply to the plant Gamesa-Made has recently installed in India. HINE relies on its technological leadership and higher quality standards to rapidly expand its customer base.

INDOLINK is supporting HINE in its venture in India. Currently we are working on the formation of its subsidiary in India which will be located in Chennai.

The HINE Group, whose founder was recently honored for his long and successful business career, has other overseas establishments in China, USA, UK and Brazil.

Source: INDOLINK Consulting

INDOLINK has been chosen by WINDAR (Daniel Alonso Group) to assist them in setting up their subsidiary in India

The company WINDAR located in Avilés (Spain), owned by Daniel Alonso Group (70%) and Gamesa (30%); will set up by 2011 a wind turbine tower factory in northwest India. The factory will be similar to the one which Windar has in Avilés, which eight years ago required an investment of 12 million euros, will occupy an area of 20,000 square meters plus a large field of open space for the storage of materials and finished products.

The Spanish industrial group, Daniel Alonso, with a turnover of  450 million € and more than 2,000 employees, has a proven industrial experience in providing global solutions to the manufacturing sectors of cement, energy, environmental, metalworking, shipbuilding, petrochemical and steel industries that they have been developing since 1958.

The industrial growth experienced by India in recent years and its expected current and future development, make of this country a base of strategic importance. The set up of WINDAR in India is for Daniel Alonso Group, a firm step in their approach to this country.

This is the first plant that WINDAR establishes outside the Spanish territory. Orlando Alonso, CEO of the group explained that the aim is that the Avilés plant will satisfy the entire European market and North Africa. The other two Spanish plants will supply the domestic market. The Indian subsidiary will only cater to the Indian market: “It’s a new market that we will add, never subtract from which we already have,” he said.

India is the sixth largest consumer of energy, with an installed capacity of around 160,000 MW, of which 15,000 are for renewable energy. Nevertheless, the country still has an energy deficit of between 8 and 12%, which together with its industrial development and rising household consumption requires huge investments in power generation in all its possible sources.

The Government of India plans to add 100,000 MW in the coming years, of which 10% will account for renewable energies, where the wind represents 70%.

Given the importance of the project, the magnitude of the investments to be made and the complexity of this kind of process, WINDAR needed advice from a reliable company with proven experience in production plants in India. That is why Windar has selected INDOLINK, to support them in various stages of its set up in this country. INDOLINK has worked in recent years in the successful establishment of GAMESA in India and currently works on setting up some of its major suppliers.

Fuente: INDOLINK Consulting

Gamesa inaugurates their Wind Turbine Factory in India

On 9^th February, a delegation of Gamesa led by the President and Chief Executive of Gamesa, Jorge Calvet and Ramesh Kymal, Managing Director of Gamesa India, officially inaugurated their first factory in India.

The factory is located in Red Hills, a few kilometers from Chennai. Mr. Kymal pointed out that Gamesa will produce all the components of the wind turbines in India, except for the blades.

Gamesa factory in Chennai

 Gamesa presently employs about 100 people and estimates to increase the staff to 200 by the end of this year.

Additionally Gamesa will invest in the creation of Wind parks in India. The Spanish company has started to acquire land in Coimbatore and Theni for the development of the parks. They expect to create a capacity of 50MW and 85 MW respectively.

INDOLINK has assisted Gamesa in their setup process in India. The services rendered include strategic consultancy, location study, recruitment of key personnel and refurbishment of the factory. INDOLINK was present in the event through their delegate in Chennai.

Gamesa factory in Chennai

NETEX opens branch in Pune, India

Company / Institution: NETEX

Year and place: 2008, Pune

Sector: Information Technology

Services provided: Company formation

NETEX was established in 1997 to develop applications and E-learning services for corporations, universities among others. It is a young and dynamic company that after carrying out strategic thinking in 2006 decided to internationalize and become a global company.

Out of its reflection India came as one of the key countries where to be implemented. The advantages offered by India are the availability of qualified personnel at competitive cost, market diversification and a change of mentality towards a multilingual company that develops its work in different languages.

Indolink has made the establishment of NETEX subsidiary in India.

Indolink participates as speaker in the course on business in India, organized by the GV, ICEX, CECO and Casa Asia

Event: Course on Business: India

Venue: Kursaal, San Sebastian

Date: 29^th and 30^th September, 2009

In the course, organized jointly by the Department of Industry, Trade and Tourism of the Basque Government, ICEX, CECO and Casa Asia, different modules will be studied, such as macroeconomics, investment law, business protocol, negotiating strategies and other aspects for taking the appropriate implementation strategies for the Indian market.

Mario Gil, Director of INDOLINK, will participate as speaker of the session “Key Success Factors for a set up in India and industrial set up experiences”.

Taj Mahal Hotel and Gateway of India (Mumbai)

India has undergone a deep economic and business environment transformation  in recent decades and is still in whole process of expansion. Projected GDP growth for the current fiscal year, and until March 2010, is at 6.7% and the government has set a goal to recover as soon as possible the growth of 9% of GDP. Economic forecasts predict that India will be the world’s third largest economy in GDP terms in 2050.

Despite the rosy economic outlooks, India has to face up to challenges such as the situation of infrastructures, the development of a fiscal policy which attracts investment and the  implementation of reforms to achieve a more flexible labor market.

To download the schedule click here: 2009-09 Course India San Sebastian

To register click here

Establishments in India Vs China

When our companies look East they find two colossus that without difficulty are going to play a fundamental role in the economy of the new millennium: China and India.

From the distance we see two Asian giants, with a population of more than a billion inhabitants, high rates of growth, low productive cost, and a market potential of fantastic dimensions,  but away from these similarities we confront two very different countries.

China is way ahead in regards to economic development, level of technology, infrastructure, productive capacity and lifestyle. From the managerial point of view, we find a very attractive market for some sectors and an ideal base for industrial subcontracting. However, by the experience of numerous western companies, it is a complicated destination for foreign direct investment.

To produce in China is cheap for the local companies that often can “evade” part of the tax load and legal, intellectual property and environment requirements.  The foreign companies, however, have to abide strictly with the rules and meet with serious difficulties to compete in price with the countless local suppliers that operate in this market.

India, way behind in economic development, with shortage of infrastructure, limited industrial capacity and excessive bureaucracy, offers, nevertheless, more attractive opportunities of investment.

The number of foreign establishments is especially limited and the majority generate positive performances. We find a country of incalculable possibilities.

Recently, the head of an international insurance company in India summarized this potential from his own experience: “We landed in Mumbai eight years ago and today we employ, between our staff and independent agents, nearly 200,000 people, we are the market leaders and this with an exceptional profitability from the first year of operations”.

Not all projects reach this magnitude, but their experiences illustrate well how this market can be in fact profitable for the pioneers.

The main attractions that India offers are summarized below:

• An internal market of great potential, well developed in areas like construction, infrastructure, energy, telephone and communications, automotive… that is, in general, in a stage in which a new comer can take a sensitive solid strategic position which will generate substantial profits in future.

• The growth in demand of Global Sourcing of western companies, that set India as a priority center for searching of suppliers of competitive prices, the same way as the aggregate demand of various countries of the geographical environment like Western Africa, South East Asia and Middle East.
• Additionally, to consolidate a center of production or of services in India guarantees the access to:

-A base of production where to produce and to subcontract components at low cost, which is important to maintain the competitiveness for a long period.

-Professionals and skilled workers with whom to develop other sustainable competitive advantages. The human resource team of the subsidiary, once they know the processes and the technology, can carry out R&D activities, marketing, systems development…that will be of benefit to all the companies of the group, to costs surely lower to those that might have in the headquarters.

These elements are framed in a socio – cultural environment that, although at first can seem unintelligible, is closer than we imagine. We can´t forget that western culture is “indoeuropean” and our languages and mental structures have a common base.

If we add the presence of the British for three centuries in India, with a decisive weight in the establishment of English as official language (English is used for university teaching and is the main language for business) and a industrial culture, administrative organization and judicial system of western type, we can find numerous elements of common reference. This represents a big advantage with respect to China, where the difficulty of language makes us lose market transparency.

We finally should take into consideration, the solid bet that the United States have taken, for strategic, geopolitical and economic motives, to develop India, which has been so decisive in the past for the development of other Asian economies, included China.

Mario Gil Medrano

Director

INDOLINK Consulting

INDOLINK visits Sarpi in Honavar

Sarpi stands for Society for the Advancement of the Rural People of India. It´s a non-profit organization established in 1978 by the Teresian association. SARPI´s vision is to promote the development of the rural village communities through empowerment of women and children.

INDOLINK has collaborated with this Indian NGO in their project to give access to the library books to the village people around Honavar.

INDOLINK members, Itziar Martinez de Antoñana, Sergi Sayols and Marcos Rodríguez Godoy visited Sarpi on 25th and 26th April. Sarpi´s representative and ex-member of INDOLINK team in India, Berta Balaguer, acted as a host and our team could observe and take part in a number of activities in the community life.

Honavar (Karnataka. India). Life is simple and relaxed. Nature is unspoiled. No pollution, no plastic waste, we feel in a paradise outside the noise of the Indian cities. Earth is of red color and plants and trees are awesome. Coconut trees, mango trees, cashew trees… surround us and protect us from the rays of sun.

We visit George and his family at his house in a local village. The village is located in an island. The only economy in the island is the manufacturing of ropes from coconuts. The process takes more than a year. The children get up at 4:00 am to help their parents  for few hours before going to school. Work is tough, the people and the atmosphere remain beautiful.

We visited the fish port and saw the fishermen just arriving to sell their products. The fishermen in the picture shared with us some quantity of their catch as a gift.

Holy Cross monks have started a shrimp bed as a local economy development project. They have a simple and beautiful house by the river, which looks like a meditation retreat.

We meet the women working in the Kurta project iniciated by Berta Balaguer. These women of poor background have a job in a nice environment, meet other women and get a fair salary.

We attended the last programme of the library summer camp for children as honor guests. We gave the prices for the painting competition. A lovely new generation bringing lots of hope for a bright future.

Sarpi runs several programs in the local communities around Honavar. One of the projects is a school for special children where mentally handicapped children learn to play and live with human dignity. The public library run by Sarpi has just added a new service of an itinerary library that brings the books to the villages to improve their opportunites of access to culture. Sarpi has recently started the kurta project where rural women manufacture “kurtas” (Indian shirt) for export. Several summer schools are run for children. All the projects are aim at contributing to human development and social transformation of the area.

Special thanks to Berta Balaguer and Anita, Agosh, Elisabeth, Nancy, Santan, Lily, Gregoria from Sarpi team in Honavar.

For more information, see www.sarpi-india.org

INDOLINK attends the 7th Annual Indian Business Forum Conference in the London Business School premises

Location: London Business School (London, United Kingdom)
Date: April 23, 2009

Innovative India: Creating value and opportunities

INDOLINK has attended the 7th Annual India Business Forum at the superb facilities of the London Business School (LBS) located at the doorstep of Regent’s Park in London. The subject in this edition is Innovation in India.

London Business School

Sanjeev Sanyal, well-known Indian economist and advisor to Deutsche Bank, looks at the Indian history and points out that its civilization (like it happened to other civilizations such as Roman, Chinese, etc..) began a long road to decline when one thousand years ago they decided to close its doors to the world and focus only internally, developing infinite self-imposed limitations. According to Sanyal India, after a millennium of continuous decline, has finally opened its doors to the world, not only economically but also culturally, thus increasing their ability to innovate. Through this opening India, if not the guaranty for success, holds a real chance to achieve a globally determinant position.

In the first discussion panel Alastair Newton, Director & Policy Analyst for Nomura International,
says that innovation is and has always been present in India. As an evidence of this he introduces an Indian expression and, like others, quite impossible to translate: jugaad. People are encouraged to use some “jugaad” when faced with a blank wall, or a difficult problem. Jugaad is creative improvisation, a tool to somehow find a solution, ingenuity, a refusal to accept defeat, initiative, quick thinking, cunning, resolve, and all of the above. The Indians have an instinct for jugaad, to find a solution to a problem (extract from the book Being Indian by Pavan K Varma). The necessity and the limited resources require the use of innovation every day. There is a lot of innovation at the micro level but not enough at the macro level.

IBF-Conference Room

Some of the reasons that were exposed for a lack of innovation at the macro level and a low registration of intellectual property are:

• Inappropriate patent legislation
• High bureaucracy
• Corruption
• Poor governance

Referring to the investors  and FDI they mentioned that in the current situation of global crisis, most surely FDI will increasingly come from China and the Middle East.

In the second panel they presented several successful cases of innovation related to India. It is worth mentioning the case of Reuters Market Light whose director is Amit Mehra. Reuters has developed a system of personal information for rural India (which accounts for around 70% of the total population) through SMS to mobile phones. Farmers, who subscribe for about $ 5 per month, receive 3-5 SMS daily with information about prices, weather and markets for products and areas in which they are interested and which they have previously chosen. In their own words, this tool has enabled them to win and/or save large amounts of money and not to feel excluded. The scope of this service is 220,000 subscribers, which in turn report to share information with 5 more farmers, so the impact accounts to a million people.

Ramesh Vangala, Katra is president of a diversified group of companies and is an example of innovative companies in India. The group covers welfare, agribusiness, marine, leisure & lifestyle and technology sectors. Among the created companies is Kerala Ayurveda Limited, the only full spectrum, listed ayurveda company in India.

After an excellent Indian cuisine lunch, LBS professor, Costas Markides awakens the audience with an entertaining presentation on “Strategic Innovation”. The Cypriot teacher conducts a discussion on key aspects that promote an innovative organization, which can be summarized in: Incentives, Culture, Structure and People.

He suggests that the real problem in the organizations to innovate is the lack of action by all. Everyone has ideas, but too often the implementation fails. Innovation must come from each individual, it must be forced pro-actively, without waiting until the environment conditions are optimal. As an example, he cited the Nespresso product which was invented almost two decades ago and almost dismissed for a lack of commercial success. The determination of a director of Nestle, who was convinced of the potential of the product, finally made the product to become the success it is now.

Costas Markides' presentation

The following speech was delivered by Dr. Rakesh Mohan, Deputy of the Reserve Bank of India and member of the G20 Working Group “Enhancing sound regulation and strengthening transparency.” Dr Mohan said the financial sector in India is healthy because they have been conservative in their policies and have no toxic assets as other countries. Also FDI has not declined in India after the global crisis.

Contrary to what some experts suggest, he said that India does not maintain protectionist policies in the financial sector. Their policies encourage equity flows and foreign investment. Their main concern and, therefore, control it’s in the debt flows.

He states that a country like India, where a large percentage of the population still lives below the poverty line, must maintain conservative financial and economic policies for the welfare of hundreds of millions is at stake. Countries must look inwards to its specific characteristics and establish appropriate policies accordingly. It is not prudent to follow the fashion of foreign countries just because everybody does it. It is very possible that those measures are not appropriate for all countries.

The main measures applied by the RBI in its financial policy are:
• Avoid high volatility,
• Controlling leverage
• Active financial regulation
• Maintain safety buffers.

When asked about the future of India after the elections, he noted that he holds no doubt that India will continue to grow and develop. India has gone through all kinds of governments since independence and he has full confidence that the economy will continue growing with the new government, whatever the result.

Naiara Alonso

Consultant at INDOLINK Consulting