7 Reasons to Do Business in India
In 2014, India stands at a point where the compass of its destiny is, once again, in its own hands. The needle of this compass could either point south towards the all-too-familiar path of unfunded welfare economics, intensifying the slowdown currently underway; or it could turn 180-degrees and allow entrepreneurship to take off. I believe the government will choose a mix of the two and there lies opportunity for smart entrepreneurs. Seven reasons why:
1. Where else? While the world output is expected to rise by 4% in 2013, the emerging economies are going to lead it, says IMF. Among them, the two fastest-growing will be China (8.1%) and India (5.9%), versus the US (2.5%) and the Euro area (0.8%). Of the two growth leaders, India will be easier for entrepreneurs from democracies to comprehend.
2. Government is back at the wheel: Bogged down by a severe “policy freeze,” the government soured its relationship with business in 2012. Since September, however, lawmakers have begun to show signs of life: Parliament passed the contentious Banking Laws Amendment law, which allows corporations to set up banks, making capital more readily available. The government has taken constructive action by, for example, allowing foreign companies to take ownership stakes in certain Indian retailers.
3. Inflation is beginning to moderate: The biggest cause of India’s inflation--apart from high and rising commodity prices over the past two years--is a supply side squeeze: too few goods in the system. India’s outlier status on high inflation rate throughout last year is now ending. Wholesale inflation is below 8%, and although consumer price inflation stands close to 10%, experts say this should fall to 6.5% by the next general elections in May of 2014. A falling inflation rate combined with a relatively high growth rate is the kind of environment that outside investors and entrepreneurs should relish.
4. The cost of money will come down: Fighting inflation, the Reserve Bank of India has kept interest rates high over the past few years. For most of that time, the RBI’s tight money policy hit investment harder than inflation. But if the inflation cycle has indeed played out, the next six months should see interest rates fall by 100-150 basis points, adding some spark to the economy.
5. Business-friendly laws could be enacted: Four important bills will be debated in Parliament this year. The Goods and Services Tax Bill would increase efficiency in the movement of products across India. The Direct Taxes Code Bill would clean up tax laws. But the most important (and most controversial) law will be the Land Acquisition Bill. If passed, it could provide the governing coalition political force for elections in 2014. The Companies Bill, which updates India corporate law for the 21stcentury, has already been cleared by the lower house and should pass the upper house in the budget session of Parliament that begins next month.
6. Workers are ready: The 500 million Indians under age 25 will continue to follow their aspirations to a better life in 2013. The median age in India is 25.1, compared to the US’s 36.9. In a free-enterprise economy this kind of population distribution has often led to a long-term economic boom, the kind begun Japan in the 1950s (median age 25.5) or China in the 1980s (median age 22.4). Further, the nature of those youthful aspirations has changed. This young population is looking beyond agriculture or daily wages. It wants to learn, which creates opportunity for entrepreneurs willing to invest in training.
7. Markets are waiting to explode: As a share of India’s GDP, consumer spending stands at just 57%, compared to 72% for the US. That suggests that there is some $1.2 trillion worth of opportunity in India’s emerging consumer sector. Current government mismanagement of finances and the resultant slowdown notwithstanding, prosperity in the medium term will increase not merely the base GDP but the share of consumer spending as well. This year and the next may see the first steps towards that trend. If you’re entering India this year, you could be getting in on the ground floor.
‘Increase Focus On Household Penetration’
Are bound in gross domestic product and more money in Indian consumers’ pockets indicates acche din ahead for consumer-product companies after the 2013 annus horribilis.
To capture growth as the economy picks up, many consumer-product companies will rely on the conventional marketing approach of focusing on select groups of consumers by investing heavily to convert them into loyal users who buy larger quantities over time.
But the best way brands can sustainably grow is by increasing the number of buyers through increased household penetration of brands (defined as the percentage of households in a market buying a particular brand in a given year), than through higher repurchase rates or share of wallet.
The finding came from Bain & Company, which analysed buying habits of nearly one lakh shoppers across the globe. From our experience, loyalty across categories doesn’t vary significantly over time, but household penetration does. Penetration is a leaky bucket, and even top brands can experience churn rates of nearly 50 per cent. That’s why winners continually invest in acquiring more new consumers every year than they lose — through increasing household penetration. How can brands do this?
Building penetration depends on building brand consideration. The steady path for earning consideration and penetration requires investment in three key brand assets: memory structures, product portfolios and in-store assets.
Memory structures: This means anchoring a brand in consumers’ memories, using the full range of touchpoints. Winning companies broadcast a brand’s message wide enough to be heard by a large number of consumers. To get into consumers’ heads — and stay there — they articulate distinct and memorable messages. Hair care brand Parachute has been using similar visual cues for decades on hair nourishment, e.g., scalp massage or champi for its core product.Product Portfolios
Too many brands and stock keeping units (SKU) can result in ineffective advertising, confusion among shoppers and other woes that erode penetration. Surprisingly, fewer innovations around products/ SKU variants can result in increased penetration. SKUs fail at a high rate and distract marketing and commercial teams from supporting core SKUs.
Hero SKUs generate higher volumes increasing scale and margins, thereby enabling investment to fuel growth. Winners constantly invest in their hero SKUs, with every new product meeting a high threshold for different consideration sets or consumption occasions, thus contributing to increased penetration. Consider Godrej’s latest addition to its successful Good Knight franchise, Xpress System, which, with its promise of relief from mosquitoes in just nine minutes, offers a strongly differentiated proposition.In-store Assets
Having targeted the key SKUs, it’s critical to adequately invest to activate them at the point-of-sale and ensure they are available at the right place on the shelf. For instance, Hindustan Unilever understood that a large percentage of purchase decisions are made in-store. Therefore, it focused on getting its in-store presence right through its Perfect Stores programme, which has expanded to at least a million stores nationwide.