As the percentage of people living in poverty continues to decline in India — from 44 percent in the 1980s to under 30 percent in 2000, there are more and more people with money to spend. This has created a huge incentive for foreign companies to get in to India, set up shop and start selling their goods. While it has been easy in some sectors, others have proven difficult for the giants trying to conquer the local market.
“You know India you thought of being a country of elephants, slow growth, illiterate population, not large enough market,” said Lalita Gupte, head of global business for ICICI Ltd., one of Indian’s largest banks. “And all that has proven to be so untrue.”
Proof comes in the form of a middle class with a population of 300 million strong — many of whom are young, well-educated professionals eager to buy foreign products.
It’s all a direct result of an Indian economy that is expected to grow close to seven percent this year. That comes after several years of growth rates of four to five percent.
So it comes as no surprise that young people who once went abroad for work are now choosing to stay close to home.
“I live by myself, completely independent and have been for about six years now,” said 27-year-old Tanya Fontes. “I don’t think that would have been possible a couple of decades ago.”
And with roughly half of the billion-plus population under the age of 25, India is a marketers dream.
World's fastest-growing telecom market
The numbers are staggering. Those working in the information technology or software sector with disposable incomes are helping to fuel the world’s fastest-growing telecom market, with an estimated one million new mobile phone subscriptions sold every month. And to help these workers get around, some 10,000 motorcycles are sold every day.
In most consumer markets you’ll easily find Nike, Adidas, Louis Vuitton, Maybelline and Philips Electronics’ stereos and television sets. Toshiba, Xerox and Hewlett Packard products also sell well.
Foreign corporations doing business in India run the gamut. But one thing all these companies have in common is they were quick to realize India’s potential. And businesses that are not here yet are late.
An important lesson learned by the companies that did get in early is that “products that work in the U.S. and Europe are not automatically applicable in India,” according to Shirish Sankhe at McKinsey & Co.
The main reason is fairly obvious. GDP per capita and income levels in India are a fraction of those in the U.S. and most European countries. Even though young Indian professionals are now earning four to five times the average per capita, some goods are still too expensive.
Price over brand
“Brands don’t mean a lot here,” said GE Capital CEO Scott Bayman. “The Indian consumer will trade off price for brand.”
General Electric for instance, hasn’t sold appliances the way they initially anticipated. Instead, the company is focused on building the brand through their investment services. (MSNBC is a joint venture of Microsoft and NBC, which is a GE company. Additionally, GE is CNBC’s parent company.)
“You need to be prepared to be very competitive on cost and quality,” said Bayman.
But despite the frugality of the average Indian consumer, there is clearly a sustained appetite for Western goods.
The people that work for us, they go out and buy Levi’s jeans, drink Pepsi-Cola, they go out and they go to the coffee bars and night clubs,” said Vivek.
Foreign companies are also tapping into a new sector in the marketplace.
“You have a lot more women in the work force,” said Dharani Kanda, an engineer who chose to stay in the thriving city of Hyderabad rather than work abroad. “So it gives a kind of economic independence, which leads to a kind of emancipation, you end up making your own decisions.”
Some American giants have, however, run into serious problems operating so far from home. Take Coca-Cola. It was recently forced to deal with allegations that a pesticide was making its way into its products. Soon volume plunged by double digits in India. The company says the allegations are false and that its products meet rigorous standards. But the damage was done.
Even so, Citigroup, one of the biggest American operators in India sees an even bigger opportunity arising in the near future.
“Expect that by 2020 the market could be as big as 500 million educated consumers,” said Sarvsh Sarup, head of consumer banking for Citigroup India.
“There’s a lot happening, there’s lots of choice, growth brings its own prosperity,” said Gupte. “And I think if you look all around here, things are happening. [I] think its one of the few growth stories worldwide.
Hefty fiscal reforms in 1991 deregulated several sectors including the automotive industry. But the Indian government often makes it difficult for foreign goods to make it into the marketplace by placing high tariffs on some goods which pushes the price out of the Indian consumer’s range.