India as a substitute market for China?

India as a substitute market for China?

India offers great potential for German SMEs (small and medium-sized enterprises) as a sales market – but also as a production location. Factors that corporate leaders should definitely consider in this context.

India is the world's most populous democracy with English as its business and official language and a sales market that is constantly growing. It is no wonder that the country emerges as a major beneficiary of the turning point. Demographic trends, rising investment in education and infrastructure, and increasing integration into the global economy are particularly favorable for India's GDP growth.

For example, Apple partially relocated its iPhone production from China to India. The aim was to reduce dependencies and at the same time be able to serve the second largest sales market for smartphones locally.

German companies in India

1,800 companies from Germany already have their own branch in India – 600 even produce on site. In this regard, it should be added that many companies maintain multiple locations. Bosch alone, for example, operates 18 production sites and seven development and application centers in India. A popular location is Maharashtra, for example. Around 1,000 German companies are active in this central state with a population of more than 100 million.

It is therefore evident that India is not only attractive as a sales market for German companies, but also increasingly as a production location. Nevertheless, independent market entry and expansion is often time-consuming and costly for many companies. Market-specific barriers and entrepreneurial challenges as well as intercultural backgrounds make rapid, strategic market development difficult.

There are many reasons for setting up a subsidiary in India. German companies working with a local sales partner in India, for example, often find that sales targets are not being met, while competitors are increasingly taking over market share. The reason: Companies with their own local branch operate much more successfully on the market. However, the prerequisite is that they have the right employees.

What you should know about Indian culture

Building an Indian team, in turn, requires knowledge of the specifics of the culture as well as local, market-specific expertise. It can be said that many Chinese and Indian behaviors are similar. An example of this is the avoidance of loss of face or strict hierarchical thinking. So a person's status can often be deduced from

  •  who in the group speaks first and
  •  who ultimately takes a position on the really important issues.

Communication is also more indirect and relationship-based. Therefore, "a little bit of a personal touch" is always very welcome. Anything that can be construed as impolite will be avoided. Since personal or family issues are part of the level of communication and trust, Indian companies very much resemble the management style of family-run companies. And true to the motto "you have to expect the unexpected," Indians handle time management rather flexibly and are usually strong at multitasking.

Market entry through company acquisition

From our transaction experience, the key to success in India is, on the one hand, a good local network. On the other hand, companies should have access to capable employees. In India, many employees have completed technical studies. However, there is no comparable training system for plant, production, foundry, industrial or tool mechanics, for example. At the same time, only a few Indian private schools are trying to meet this demand from local manufacturing companies. As a result, it is extremely difficult and time-consuming to establish new employee structures and production processes on site.

In summary, this means for medium-sized companies that without an existing network, it is difficult to find reliable executives, employees, business partners, dealer networks or suppliers. The problem is, however, that one's own market position and trust in a local company are largely derived from this. A strategic buyer can have all this included in his market presence when taking over an established Indian company. Another advantage is that the exchange of employees within the group of companies could also help to cushion bottlenecks in the supply of skilled workers.

Link to the article (German):