Is India poised to fulfill its destiny as 21st century nation?
Doing business in India offers the promise of healthy future economic returns. Along with a population of 1.2 billion people, it has the world’s seventh largest nominal GDP. India’s recent annual GDP growth rate of 7.6 percent makes it the world’s fastest growing major economy ahead of China.
If China is now the world’s shop floor; India is its back office. Many of the world’s largest corporations routinely outsource their administrative tasks to Indian firms. But it is not just call centre activity thanks to a large number of English speakers – the legacy of being the jewel in the crown of the British Empire.
The true driver of such success and unusual for a so-called emerging economy is a vibrant IT sector led by thousands of returning students who have attended overseas universities in Canada and elsewhere. The national breakthrough IT project is the continuing efforts to create a unique, 12-digit paperless personal ID number for each citizen. Hundreds of millions of Indians currently lack a proper birth certificate.
Each year millions of young people enter the work force. This adds to the already huge middle class with its growing appetite for a modern lifestyle. Consequently, India will soon have the largest and youngest workforce the world has ever seen.
In many ways, India is where China was in the mid-90s – a future economic powerhouse poised to fulfill its destiny of becoming a 21st-century nation.
The major obstacle to achieving that grand plan in future is the reality that, in India, everything moves very slowly. It’s the result of the parliamentary and legal system and the symbolic rail network. Says Ken Singh, Mississauga-based president of Atlas International Freight Forwarding Inc., “Recently there have been major campaigns to modernize the rail infrastructure including new IT systems. But all the decisions have to be made democratically through the national parliament. That creates a burden because of various cultural and historic challenges. As a result, such projects move forward at an incredibly slow pace.”
Picking up the theme is Singh’s neighbour and logistics client, Kesh Gelda, president of Gelda Foods, a division of Gelda Scientific. “The challenge for most shippers and others is that to get things moving in India, you have to go through ‘channels’ since the rules and regulations are so tough.
“For example moving a container by rail from New Delhi to Mumbai – a distance of about 1,400 km, can take 10 to 14 days. Freight trains in India travel at about 25 km per hour unlike in Canada where it is closer to 100 km per hour. One simple explanation is that on India’s busy and crowded railway network passenger trains take precedence over freight.”
Plans for dedicated freight corridors (DFCs) are on the drawing boards that will bring together public and private sector investment. India Rail recently issued a timetable for such upgrade plans and the government of recently elected prime mister Narendra Modi is eager to get it passed in parliament quickly.
McCain Foods has become a major Canadian success story in India. Although it began in 1997, it took time for its long-range localization strategy that stressed adapting to the country’s different business practices and culture to kick in. Ultimately, McCain Foods changed the eating habits of millions of Indians while modernizing the nation’s frozen food industry and its retail grocery supply chain network. A key element to its success was to rely on its own corporate strengths and experience gained from becoming a $6-billon-a-year global food giant.
A quick overview of the firm’s successful penetration of the highly competitive Indian consumer market will yield practical tips for other Canadian companies. Although their products and services may differ and their potential customers may be in other regions and sectors of India, the overall challenges and opportunities will be similar to those that McCain faced.
First, the challenges. Potatoes are part of almost every Indian meal. But not French fries and certainly not the frozen variety. But the patience, experience and resources that have made the New Brunswick-based company a multi-billion-dollar global success story kicked in. After arriving in India in 1997, it initially focused on agricultural research to determine the type of potato to grow there, then introduced suitable farming, production and distribution methods.
It established a beachhead there by exporting frozen French fries from Canada to supply major fast-food chains such as McDonalds, KFC etc. Many Indians were familiar with such products from their foreign travels and attending schools abroad. Step two was to process them there as well as develop new products targeting traditional Indian tastes. One of them was a highly spiced French fry dusted with chickpea flour.
Those breakthroughs led to opening its first state-of-the-art plant in Gujarat state, 400 km north of Mumbai, India’s financial and business centre. Besides its strategic location, Gujarat was also known for being open to new ideas and foreign investment. By coincidence, current Prime Minister Narendra Modi was formerly the chief minister of Gujurat state.
India, with 1.2 billion people who live in 29 provinces and seven territories, is a land of different cultures who have a reputation for fighting among themselves and with the central government. According to Ken Singh, finding an accommodating and supportive state government makes life easier.
Another challenge was to make frozen foods more than a novelty. The key to success was offering a range of high quality affordable products readily available to consumers. McCain had to develop a reliable temperature-controlled supply chain and encourage retailers to install modern freezer space. Today, urban dwellers usually have a refrigerator with freezers.
Many of them have studied abroad where they were introduced to Western-style fast food. Equally, with both parents working, they have the money to enjoy the convenience of eating frozen versions of their favorite foods, lacking the time to make them from scratch.
McCain has successfully created frozen versions of many Indian favourites – including aloo tikki, masala fries and chili garlic potato bites. The market for such items continues to grow.
According to London-based Bill Bartlett, vice-president, Global Corporate Communications at McCain Foods, it has started to ship some of these made-in-India treats back to Canada for sale to caterers and retail grocers. Besides appealing to homesick Indians, such projects also target Canadians who were introduced to them during visits to India and others who want to try something different.
In reality, it is not necessary to be a global giant to be successful over there. At the other end of the size spectrum sits Toronto-based Pehr Designs Inc. The online retailer of international home accessories targeted at women between 22 and 55 years old has only a handful of employees.
Says company co-owner and founder Jennifer Kelly, “We knew India could produce exceptional quality textile and were expert weavers. We knew that our consumers would respond well to products made there.”
Following McCain’s localization model, Pehr found a suitable agent through one of the factories making their products. Says Kelly, “It was not a traditional way to find an agent, but it worked out well for us. We started by working with the factories directly and soon realized the benefit of working with an agent.”
In addition, the firm requires all suppliers to be certified and regularly audited. That includes twice-yearly visits and direct relationships with the factory owners.
She says, “Walking through the factories and meeting the workers is critical. We also learn and understand much more about the products by seeing production first-hand.”
All the items are sent directly to Pehr’s U.S. or Canadian warehouses. Almost all the products are exported from India and very little sold there. While conceding that the firm has encountered logistics challenges, Kelly mentions that her biggest concern is working in a completely different time zone. “When production, transportation or logistics issues arise we often wish we were just there to deal with our team there to care of things,” she says.
Pehr also has a team in Canada helping out as well. EDC provides Accounts Receivable insurance to protect its U.S. and international sales against non-payment. Through EDC’s Export Guarantee program it receives working capital for its export activities.
To succeed in India, companies need to follow in the footsteps of pioneering winners.