Doing Business in IndiaChallenges to Marketers

Prof Ashwin Malshe

Presentation made to

MS MMK Executives

207/04/2023

About Ashwin Malshe

● PhD (Marketing), MMS (Marketing), BE (Electronics)● Seven years of industry experience

Institutional sales

Analytics

● With ESSEC since July 2011● Multiple research interests

Marketing strategy

Marketing-finance interface

Consumer behavior

Social media marketing

● Blogging activitiesMicro-Positioning

Flirting with Finance

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Source of Data

● I use several sources of data to get the numbers reported in the presentation. Specific instances are noted on the slides. Wherever the source is not identified, the data come from the CIA World Factbook

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The Story of IndiaA BBC – PBS Documentary

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India – A Few Statistics

● 7th Largest country by area - 3,287,263 sq km (land and water)28 states and 7 union territoires

● 2nd most populous country in the world – 1.2 billion est.● Secular country

Hindu 80.5%, Muslim 13.4%, Christian 2.3%, Sikh 1.9%, other 1.8%, unspecified 0.1% (2001 census)

● 16 official languages!Hindi 41%, Bengali 8.1%, Telugu 7.2%, Marathi 7%, Tamil 5.9%, Urdu 5%, Gujarati 4.5%, Kannada 3.7%, Malayalam 3.2%, Oriya 3.2%, Punjabi 2.8%, Assamese 1.3%, Maithili 1.2%, other 5.9%

English is the preferred language for most of the commercial and political purposes

● Parliamentary democracyModel borrowed from British. Prime Minister is the head of the government

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Population Composition

0-14 Years 15-64 Years ≥ 65 Years0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

% Population

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Economy

● GDPPPP terms USD 4 trillion – 5th largest in the world

Official exchange rate USD 1.6 trillion

GDP real growth rate 2010 – 8.8% est. (World Bank)

GDP per capita – USD 3,500

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Agriculture Industry Services0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

GDP Contribution and Labor Employed by Sec-tors

% GDP% Labor

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Culture

● Conservative in several aspectsWomen, by law, are at par with men. In reality they are treated less than equal

Meritocracy is partially practised

Caste system is weak in the cities but still manifests strongly in the smaller towns

● Families matter more than individualsCulture is more collectivistic than individualistic

• Common to see people taking into account the impact of their decisions on others in the family or even a larger community

• Many decisions become “family decision.” For example, buying a TV, washing machine, or a car may not be decided by one person alone

• Group vacations are common too!

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Culture

● More tolerance towards nonconforming idealsAs long as you don’t interfere with their way of life, tolerance to your practices is

guaranteed• India is perhaps the only country where Jews were not persecuted• Zorastrians (Parsis), the original inhabitants of Iran, live in India without

facing any pressure to relinquish their culture or religion• E.g., on Japanese culture

● There prevails a general sense of inferiority complex due to British occupation

● Many cultural aspects change from state to state

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Political Economy

● Socialism sympathetic policies• Early influence of Soviet Union• A large vote bank resides in rural areas• Agriculture sector is still the largest employers of the uneducated people

● Caste and religion politics is important• Election results are still determined by non-economic reasons

• Caste (reservations in education and government jobs)• Minority religions may vote en-block• Changes in caste and religious policies don’t need huge expenditure and the

results are visible quickly in the form of higher percentage of votes• Poor people vote in exchange of minor benefits

• High levels of illiteracy and poverty combine to create a voter that can be manipulated easily by the politicians

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Political Economy

● Corruption is growing in sizeA huge wealth transfer has been undergoing from the people of India to the

government officials and leaders• Corruption at multiple levels

– Ordinary people have to pay for the services that the government should provide them free of cost– Government officials may collect the appropriate fees but then won’t deposit it with the government– Ministers grant licenses to businessmen in exchange of partnerships, cash, or both– Bribes are paid to cover up irregularities or even crimes

Most of the ministers in power are hundreds and thousands of times richer than an average person in India

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Political Economy

● Government favors rapid expansion of businesses in theoryIn reality bureaucracy has all but stopped the development in India

Very low investment in infrastructure• McKinsey Global Institute report identifies the challenges faced by India

● Weak regulatory enforcementLack of desire to make sure that the regulations are enforced

Corruption thwarts most attempts to enforce regulation

Government provides inadequate resources to regulators

● Uncertain legal structureIn modern economies legal protection to various contracts enables trade

In India legal system is slow as well as corrupt

Courts are overwhelmed by the pending cases

Contracts are not easily enforceable

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Characteristics of Indian Consumer

● Price conscious● Rational

Usually conducts research before buying

Takes into account opinions of others• My personal experience is that Indian friends on Facebook as more

questions about which computer, phone, tablet, etc. to buy

Try to be discreet with large purchases• Potentially safety concerns but more importantly trying to avoid getting

noticed even by the friends and relatives

● Tends to save moreThere is no social security system in India

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Entering India Market

Doing Business in India

Export LicenseFranchi

se

Contract

Manufacture

Joint Venture

Direct Investm

ent

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Entering India Market

Doing Business in India

Export LicenseFranchi

se

Contract

Manufacture

Joint Venture

Direct Investm

ent

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Opportunities: Examples

● Telecommunications● Infrastructure● Consumer goods

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Telecommunications

China India USA Russia Brazil0

100

200

300

400

500

600

700

800

Million Mobile Phone Users

Mobile Users

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Opportunities in Telecommunications Sector

● Mobile banking and payment• Most rural Indians don’t have access to easy payment modes such as credit cards• However, mobile phones penetration is deep in rural India• Safe mobile payment systems are gaining popularity

• Reserve Bank of India has introduced guidelines for mobile banking• Mobile banking transactions can be up to Rs 50,000 (USD 1,000) per day• Small transactions don’t need encryption

● Mobile gaming and apps• Mobile gaming in India is expected to grow at 75% per year over the next 3 years• Different estimates put the mobile gaming industry close to USD 1 billion by 2014• IT giants such as Wipro and Infosys are entering mobile app business• Outsourcing is now shifting to app development

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Infrastructure

● MGI report covers many aspects● Opportunities are high in the following areas

• Transportation• Subways• Roads and bridges construction• Shipping ports• Airports

• Power generation and distribution• Energy prices are regulated by the government and weak contracts mean

that these investments can be in trouble if prices change dramatically• Special economic zones• Water purification, recycling, and distribution

• Industrial effluents• Domestic sewage

– Standalone systems

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Case Study: HUL Pureit

Doing Business in India