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Managing market entry risk and expansion

Gaining a foothold in India


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As one of the leading emerging markets, India has enormous economic potential for foreign investors who want to capitalise on the ever growing appetite for consumption by the developing Indian middle class. As part of their globalization strategies more and more companies are following their clients to emerging markets to enable local product developments as well shorter supply chains while leveraging the large educated workforce and the cost differentials.

In India, foreign investors can take advantage of vast opportunities in all areas of the economy, such as all kinds of infrastructure, development of manufacturing sites and consumer products to name a few. A key ingredient for success in emerging markets is the establishment of a local presence that covers not only the sales activities but also the product or service development for the specific market as well as investments in the establishment of manufacturing capabilities. From a product and services point of view,
those companies that understand emerging markets and develop products and services that meet the needs of their middle and lower income segments have more potential to be successful.

India is an attractive market basis its large population and high market growth, however foreign investors need to be alert about the potential risks. The three key areas of risks are, namely, related to the selection and management of the local partner in a JV, the local business practices that sometimes do not align with the foreign companies and the human resource related challenges that are often underestimated. Despite these risks, companies can prepare themselves during their due diligence for the market entry and the partner selection as well as install preventive measures to reduce business related risks right from the start.

The Deloitte Risk Survey 2012 finds that successful foreign companies focus on the prescription of clear roles and responsibilities for each JV partners to avoid misunderstandings, the HR management and training to reduce employee turnover while increase the work quality, and lastly they put great emphasis on compliance and finance matters. While approaching and managing these areas proactively, foreign companies can celebrate successes in India. Companies aware about the risks in India can better prepare and will be in a more favorable position to profit from the enormous business opportunities that this country offers.

Why this paper

Deloitte Japan and Deloitte India frequently carry out seminars on the various aspects of Investing in India, and as part of these seminars we heard from potential investors the wish to learn from existing ones, especially on the risks and obstacles while establishing Joint Ventures (JV).

As part of our services and client work, we routinely interact with representatives from JVs, both Indian as well as non-Indian, and over time could build a body of knowledge on the management of these types of organisations. Based on the increasing interest of foreign companies in the Indian market, we felt the need to undertake a study to more systematically uncover the risks as well as lessons learned related to the establishment and operation of JVs. For this purpose, we conducted both face-to-face interviews and an online survey among foreign-Indian JV companies, and the results became the basis for this white paper which we hope you will find of interest for your activities, existing or planned, in India.