India is booming. Now German companies have to ensure that they do not miss their chance to enter the Indian market and that they get their business model right. Merely having a good idea is not enough on its own. To be successful, they have to understand the Indian market and be able to adapt to it.

India is one of the few regions on Earth whose economy is growing despite the worldwide economic crisis. India will offer even greater potential when the crisis is behind us: even now, the Indian economy is the fourth largest in the world. The country has a purchasing power parity of USD 3.3 billion and in 2008/2009 it achieved a growth rate of around seven percent. Admittedly, because of the economic crisis, its estimated growth in 2009 fell to “only” 5.1 percent, but as of 2010, an annual growth rate of eight percent or more is expected. With a current population of 1.1 billion, by the middle of this century India is expected to be not only the most populous country on Earth, but also to have the third highest gross domestic product in the world, trailing China and the USA.

These are good enough reasons on their own for international companies to target the Indian market. But what are the conditions of this market? What rules are there for foreign investors? How do companies find business partners in India? According to an Indian proverb, “The wise man knows and asks, but the ignorant man does not even know what he should ask.” We know that the Indian market is rewarding, but because it is hard to define, it is also difficult. Numerous Western companies have already failed in their attempts. To avoid this, we entered into formal cooperation with the largest Indian management consultancy firm, Tata Strategic Management Group, in 2009. Roland Berger Strategy Consultants, the largest globally active European strategic consultancy firm, and Tata Strategic Management Group together boast extensive expertise on international markets and the emerging Indian market.

Our joint international teams can help companies to enter the Indian market successfully and to implement new business ideas. The same definitely applies in reverse as well: in recent years, India has seen the rise of companies worth billions with tens of thousands of employees and management with international experience. Indian companies, such as Arcelor Mittal or the Wipro IT empire, are evidently ready for global competition. The primary challenge of any business dealing in Germany lies in understanding the consumers' needs and wishes. Good ideas are not enough to be successful in the West: customers and purchasers have to accept an idea for it to work. It does not matter in which direction you are going – to stimulate trade between Germany and India, we need joint projects, joint ventures and a swift exchange of information about the business environment and the market.

India offers opportunities in various sectors. But it is a specially promising market for the automotive sector. Car production has increased by 17 percent on average since 2002. Admittedly, compared to China, India remains a relatively small market – but it has great potential, as only 24 Indians in every 1,000 own a car. At present, the Indian company Ratan Tata is the second biggest car manufacturer in India and one of the three largest lorry manufacturers worldwide, with an annual turnover of USD 14 billion. Tata caused a sensation with its smallest model, the Nano, which costs less than USD 2,000. Yet even this price is almost twice as much as India's annual income per capita, which is only about USD 1,000. Hence, at present, only the relatively small middle class can afford the Tata Nano. But according to research, the Indian middle class will become more than 10 times larger by 2025, growing from around 50 million to 583 million people. Accordingly, per capita income is expected to double every nine years in future. Admittedly, the global economic and financial crisis has also affected the vehicle industry, but it is improving slowly – thanks in part to state assistance. The car industry saw its sales increase in 2009 by around 19 percent compared to the previous year. Small cars sold especially well, thanks to low interest rates and tax relief.

There are also good opportunities – at least in the medium and long term – in the Indian engineering sector, which boasts a production volume of around USD 40 billion. Because of their high quality, German machines are very popular in the subcontinent. But the economic crisis had a severe impact on this sector as well, promptly leading to a reduction in German machine exports. However, the long-term prospects in the Indian engineering market are still good. By mid-2010, the industrial bodies predict additional expenditures on plant/machinery replacements. For instance: food and packaging machines. Because of growing demand for processed food, there is an increasing need for these machines. At present, an average of only 20 percent of Indian food is processed, but the Indian government wants to double that to 40 percent by 2015.

The chemical sector is also very promising: with a production volume of USD 35 billion in 2008, this is one of the most important industries in the country. On account of the financial crisis, experts forecast an increase of “only” 6.1 percent for the current financial year 2009/2010. Though these growth prospects are better than last year's, they do have a long way to go to reach the double-figure growth rates in the years prior to the current crisis. Demand for plastics is also expected to rise from 216,000 tonnes (2006) to 2.5 million tonnes in 2011. Moreover, the polymer sector has hardly penetrated the market so far. Per capita polymer consumption is only about five kg, compared to 30 kg worldwide. Experts reckon that Indian polymer consumption per capita will increase to 12.5 kg by 2011.

A booming economy needs energy: so it is no wonder the demand for technology pertaining to the electricity industry is predicted to increase dramatically. The current five-year plan of the Indian government, which will run until 2012, intends to increase generation capacity by no less than 80 GW, and another 100 GW will come from independent energy producers. Among other things there is a demand for transformers from foreign manufacturers, as Indian manufacturers cannot meet the demand on their own. According to the Indian Electrical & Electronics Manufacturers' Association (IEEMA), turnover in this sector has been increasing by around nine percent every year for the last five years – and in the financial year 2006/07 there was even an increase of 22 percent. The IEEMA expects annual increases of between eight and 10 percent until 2017 – but only if Indian energy providers manage to increase their capacities by 10 percent annually.

India's consumers seem to have recovered from the economic crisis and are willing to buy again. The Nielsen Consumer Confidence Index ranks India first out of 52 countries assessed worldwide, followed by Indonesia and Norway. The Centre for Monitoring Indian Economy (CMIE) expects a 4.7 percent increase in consumer spending in real terms (2008/09: +2.9 percent). According to the CMIE, most suppliers enjoyed rapid sales of consumer goods, and the retail trade, car dealers and consumer goods suppliers saw sales increase from July to September 2009.

Even though some sectors no longer have the double-figure growth rates that they enjoyed in the years before the crisis, the potential is big enough for the foreign investors to continue investing in the booming Indian market. In the financial year 2008/2009, foreign investments increased by 11 percent, amounting to a total of USD 25 billion. If we include reinvested Indian profits, direct foreign investments in this period amounted to no less than USD 30 billion. That equals 6.4 percent of total gross investment, and around three percent of GDP.

Pulitzer Prize-winning author, Pearl S. Buck once said, “The secret of joy in work is contained in one word – excellence. To know how to do something well is to enjoy it.” Excellence, along with entrepreneurship and partnership, is also one of the core values which Roland Berger Strategy Consultants is committed to. International strategic consulting can help Indian companies to enter the German and European markets successfully, and it can also pave the way for Western companies to enter the Indian market. The Indian subcontinent offers enormous opportunities in the coming years and decades – particulary for strategic consultancy. To paraphrase the Indian proverb: the wise man knows where he should ask.

Roland Berger Strategy Consultants GmbH
Mies-van-der-Rohe-Str.
80807 Munich, Germany
Phone: +49 89 / 92 30-0
Fax: +49 89 / 92 30-82 02
Email: contact@de.rolandberger.com
Internet:www.rolandberger.com