As one spends time in India at a point when the economy seems to be falling apart, it is easy to forget the advances this generally slow moving country has made on several fronts over the past few years. Though growth has moved off its high trajectory, having seen average GDP growth of almost 8% between 2002 and 2008, the underlying story of its great potential in the long run remains intact. The country has an immense domestic consumption base which is young and has yet to experience the level of income boom seen by China and other large developing countries; India’s private consumption per capita remains below that of most Southeast Asia countries and is 2.5 times smaller than China’s, 5 times smaller than South Africa’s, and most than 7 times smaller than that of Brazil.

Three simple experiences from my trip to India where I spent substantial time with executives in Mumbai and Delhi, which would have been nearly impossible five years ago, quickly reminded me of the potential that many companies continue to see in India and the changes they are bringing to the way the country is going to develop over the next decade.

1. Rise of E-Commerce – Success of Flipkart: Items purchased = six best-selling novels in paperback, Amount paid = US$67, cost of delivery = US$0, mode of payment = Cash on delivery. It is not hard to understand how Flipkart.com, one of India’s largest e-commerce platforms, has become so successful, so quickly. Launched in 2007 by two ex-Amazon employees, the firm recently raised US$200 million (putting its valuation at roughly US$2.5 billion) to, “ to spruce up Flipkart’s technology capabilities, logistics chain and staff strength as it shifts to a marketplace business model, where retailers use the online platform to sell brands to customers directly,” said Chief Executive Sachin Bansal. Companies such as Flipkart are likely to become more popular in India as E-commerce is on the rise. We are already seeing interesting concepts being launched, such as Easy Fix, a service that provides professional repairmen for household needs in Delhi. According to recent report by McKinsey, India is on the threshold of a digital revolution. Driven by cheaper mobile handsets and the spread of wireless data networks, the number of Internet users in India is expected to nearly triple from 125 million in 2011 to 330 million by 2016- E-Commerce has to become an integral part of everyone company’s strategy.
2. Proliferation of Luxury Brands in India - Starbucks: After its failed attempt to enter India as early as 2007, the global coffee shop chain finally opened-up its first outlet in the country in October 2012, with a focus on the urban mega-centers of Mumbai and Delhi. Operating in a joint-venture format with the Tata Group, Starbucks sees great potential in the rising upper-middle-class of India, which has a large propensity to consume luxury products. The company currently operates about 15 stores but plans on having a total of 50 stores by the end of just this year. This large consumption appetite coupled with the opening of sectors to foreign investments, such as the passing of the single- and multi-brand retails bills, should only lead to more such luxuries being available over the next decade. As of May, 18 single brand retailers have been given approval to invest into India with the total value of investments at US$173 million.
3. Execution of Mega Projects – New Delhi Airport: Finally, sitting at the swanky new airport in Delhi, one is forced to question the general pessimism associated with India’s ability to execute on mega projects, especially those associated with infrastructure development. The Indira Gandhi International Airport (terminal 3), inaugurated in 2010, was built at a record pace of 37 months, compared to 76 months taken for Singapore’s Changi Airport T3 and 60 months taken by both Heathrow’s T5 and Beijing’s T3, highlighting the capability of India’s private sector to manage and execute large scale construction projects (US$2.7 billion) in a sector which is generally known for corruption, bureaucracy, and delays. With the increased focused from the government towards attracting private players and structuring PPP (public-private-partnership) type construction projects, it would not be a surprise to witness a quicker pace of development in the infrastructure space over the next decade.

Same Problem, New Name: India’s growth prospect has been hampered purely by the lack of political will and inability to enforce the market reforms that are necessary to bring the country back on track. The utter sluggishness in policy making has had many different names (impacts) over the past few years; high inflation, policy logjam, high fiscal deficit, high current account deficit, and now, currency devaluation. It would not be a stretch to assume that conditions are likely to remain uncertain and without much improvement until the elections of 2014, but this lull-period by no means foreshadows the longer term growth trajectory of this country. Domestic consumption has always been part of India’s growth story and can be revived easily; the government simply needs to get its act together and work on reviving the much needed investments to get out the current mess.

Following my previous post on optimal management of distributors in ASEAN, I want to discuss several key issues that arise when engaging distributors in the ASEAN region as indicated in the image below:

Address the Lack of Aggressiveness

Understand Where Your Product Fits in the Distributor’s Portfolio

■ Sales representatives of MNCs might not find their distributors to be aggressive enough until they truly understand the role their product is playing in the distributor’s portfolio and his business

■ Training your team about the economics of the distributor’s business will allow your sales representatives to set more realistic targets while creating a more sustainable relationship between both parties

What is happening: In the illustration above, your product provides the highest gross margin (34%) to your distributor’s business, but it has a relatively lower inventory turnover (sells slower) and provides the lowest actual contribution (impact on the bottom line) to their business compared to products 1, 2, and 3

Why is this the case: The distributor has to incur several variable costs in order to sell your product; thus your actual contribution value to their business can differ. The illustration on the right explains some of these costs that to serve your business

Choosing the Right Partner by Learning the Distributor’s “Earns” and “Turns”

■ Right Partner: Detailed knowledge of how your business contributes to the bottom line of the distributor can help you chose the most suitable partner—one whose current product portfolio complements the attributes of your product

■ Right Fit: Distributors who can attain higher “earn” and “turn” are likely to be much more aggressive about pushing your product