Market Entry

transcript

Market EntryEntering the Indian market requires a thorough understanding of Product, Place, Promotions and Price in relation to the Indian ground reality

India has a unique marketPrice

Sensitive

High Import Duties

Low labor costs

Market Entry, simplified:The four P’s of India

Market Entry

Product

Market Entry Strategies

Export Volume

Value Localized

Market Entry

Product

Agenda1. Introduce the Four P’s2. Summary and Lessons Learned3. Market Entry Options4. Open Discussion

The Four P’s of India1. Product(ion)2. Place(ment)3. Pric(ing)4. Promotions

Product(ion)How do you want to position your product in the Indian landscape?

Product(ion)Typical Questions

Market size, growth

Competitors Clients Sales channels Fiscal, legal,

license

Less Typical Niche untapped? Localization? Assembly? Local production? Local R&D?

Landed Costs

Production + Margin

TransportImport Duties

Importer Margin

Import DutiesGoods

Duties ValueBasic duty 10%Other duties 20%Total 30%

Services No Import Duties Attracts Service

Tax (10%) To be paid by

customer Compliance: Tax

Deducted from Source

• Calculated over CIF+1%• If shipping at FOB/Ex

works: FOB/ExW + 20%=CIF!

Examples From ParticipantsCompany Type HS RateBronneberg Machines Metal 27%Praxas Vracht Tube 28182000 24%Ridder Drive Systems

Motoren voor Tuinbouw

84369900 12.5%

Terlet Proces ketels 84 20-27%

Acoustics & Noise reductions

Geluidsreductie

39051200 24%

Landed Costs: Comparison

Production

Assembly

Sales Office

Export

0 50 100 150 200

CIFTransportImport DutiesProductionAssemblyImporter

Landed Costs: Comparison

Production

Assembly

Sales Office

Export

0 50 100

Less transport costs

Lower absolute import duties

No importer required

Lower HR costs Lower costs for

Comparison on Other AspectsOption Concep

t SalesAfter Sales

Market Info

Local R&D

Localization

Export ✗ ✗ ✗ ✗ ✗Sales Office ✔ ✔ ✔ ✗ ✗Assembly ✔ ✔ ✔ ✔ ✔Production ✔ ✔ ✔ ✔ ✔

Case Study: High End Cosmetics Competitor analysis

All products manufactured abroad (quality, IP)

All but one had its own sales office

Main reasons: circumventing (arrogant)

importers maintaining global

pricing

Case Study: Industrial Parts (volume) Japanese and Chinese

use export model European companies opt

for subsidiary Sales Office Assembly Production

Price Localization Lower cost to R&D Entering niche

markets

Place(ment)Where does your end customer buy your product? And how do you get it there?

India is LARGE!Supply Chain Considerations

Variables

Geographic Urban, Rural, IndustrialType B2C, B2B, GovPurchase Decision

CxO, purchase department, design

Payment terms Delivery, Credit PeriodVolumes Large, low, valueStock Fast moving, value, no stock (deliver to

order)Addition After sales, installation, returns

Distributor

Importer

Dist 1

Dist 2

Dist 3

Dist 4

Works on margin Keeps stock Invests More loyal Demands

exclusivity Best for: stock

requirements/FMCG

Importer

Agent 1

Agent 2

Agent 3

Agent 4

Agent 5

Agent 6

Works on commission

Does not keep stock

Does not invest Less loyal No exclusivity Best for: no stock,

capital goods

Stockist Works on fee Are not sales

responsible Keeps stock

(consignment) Does not invest Best for: FMCG,

price sensitivity

Importer

Stockist1

Stockist2

Stockist3

Stockist4

Sales Office

Agent 1Agent 2Agent 3Agent 4

Sales Manager

Variations Own pan-India sales

force Sales manager + agents Sales manager +

distributors Good option when

Into concept sales Dealing with agents (not

loyal) Localization is required Price is an issue

Case StudyNexusNovus Importer FMCG One sales manager Multiple distributors Invest in stock Credit terms: 60 days

plus Returns of stock Low margins (Disinvested in 2012)

Case Study:Viva La Delicia Vanilla Beans

Sales Manager pan India

Vendor listings with all supermarkets

Direct supply/stockist

Case StudyClient in Machine Tooling One sales manager Major focus on

exhibitions Decision maker:

engineer (during blue printing)

High value stock Direct supply to

customer No agents, no stockist,

no distributor

Price(ing)Indians are price sensitive, but are willing to pay for high quality. Understanding this paradigm will allow you to price your product well and still make a good margin!

IndiansWill fight with an auto rickshaw driver over five rupees, but will not allow their friends to pick up a restaurant bill for five thousand rupees!

Understanding Indian Prices Local quality is “bad, imported quality is

“good” (premium prices accepted) Interest rates are high, bank loans are

hard to get (customers require credit) Tax compliance is tough (optimize your

supply chain) After sales service/installation is

important (offer it!)

The Indian Tax SystemType Goods Similar to Services Similar

toTax VAT (12-

14%)CST (2%)Octroi (5%)

BTWImport DutyImport Duty

Service Tax (ST)

Related Maximum Retail Price (MRP): set by manufacturer or Importer

Tax Deducted from Source (TDS) functions like ICP in Europe

Awaited

Goods and Services Tax (GST) to unify all of the above.

Implications of the Indian Tax System MRP sets a maximum While VAT varies from state to state Octroi only in Maharashtra (and

unconstitutional!) CST has compounding effect ST to manufacturer has a compounding

effect

Speak the same language! 25% margin retailer: mark-down,

including taxes 20% margin distributor: mark-up,

excluding taxes 30% discount to distributor: 30% discount

on end price, hence a mark-down Negotiations will very often be about

which definition is being used, who pays for VAT, CST, Octroi, Transport, etc.

PromotionsOnce you have set your price, your supply chain, and made a decision on production, you are ready to promote your products in India.

Promotions and Business Development

Options Exhibitions (together

with your distributors/agents/sales managers!)

Extensive travel/meeting the clients

PR/Marketing: is relatively cost effective

Insights Use English on packing,

unless you sell in rural areas or to lower middle class

Send a hard copy folder, rather then an email

Call (or ask your sales manager to call)!

ConclusionsHow come it is so hard to find a reliable importer? How do I choose the right entry strategy?

Market Entry Strategies vs. Market Entry P’s

Export Volume

Value Localized

Market Entry

Product

TomTom India case study Product: made for India Price: reasonable Promo: PR launch great

but no follow-up

TomTom India case study Product: made for India Price: reasonable Promo: PR launch great

but no follow-up Place: not available,

no where to be found

Export (utilizing existing capacity)

• ImporterProduct• Stock: distributor/stockist• No stock: agentPlace• Give permanent discounts• Favorable payment termsPrice• Reimburse promotionsPromo

Why is Finding a Reliable Importer so Hard? He takes all financial risk High interest rates Hard to get a loan Exchange rate is erratic Margins are not great Returns, damages, shrinkage Investments in BD, PR Compliance, taxes

What works: Permanent discounts (to compensate

import duties) Pay for BD, PR (not through discount!) Hire exclusive sales manager Give credit (or pay for cost to L.C.) Invest in getting to know each other

personally Match size and scale

FMCG (price sensitive)

• Local Production• (or at least S.O.)Product• Distributor/stockist• + Sales ManagerPlace• Focus on competitive prices• 15% off/ Buy 1 get one Free, etc.Price• In-store promotionsPromo

Capital Goods(low volumes)

• Local Assembly• (or at least S.O.)Product• Agent• + Sales ManagerPlace• Focus on payment terms/credit

periods/finance optionsPrice• Invest in exhibitionsPromo

Step-by-Step ApproachStart-up

• Set price as if assembled/produced on location

• Incorp S.O.• Hire Sales

Manager

Build Market

• Export to S.O. at below cost

• Appoint stockists/distributors

• Promote product

Assemble/Manufacture

• Find partner for assembly

• Or find license holder

• Start local production and start making margin

Contact UsNexusNovusRutger de Bruijn, MDrmdebruijn@nexusnovus.com

Phone: +31 (0) 6 5345 999 4www.nexusnovus.com

Market Entry

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