By Prema Nakra, Ph.D. email | bio

In this third in a series of articles on India I discuss the challenges international marketers face when investing and marketing in India. The multiple challenges include unemployment and lack of infrastructure, piracy and counterfeiting, tariff and non-tariff barriers, and manufacturing, logistical, retailing and competitive challenges.

Unemployment and Lack of Infrastructure

Arguably the world's most heterogeneous land, India defies generalization with 18 official languages, hundreds of dialects, four major religious traditions, and ancient caste divisions. There are multiple major segments of the population that are untouched by globalization. Rates of rural underemployment and urban unemployment are disproportionately high. India's lack of a well-developed industrial base has hindered employment opportunities for rural and urban populations alike.

Although business processing, information technology, telecoms and manufacturing have boomed in India in recent years, India’s economy remains mostly agricultural. Agriculture still accounts for 18% of Gross Domestic Product (GDP) and employs 60% of its workers. Sixty-five percent of Indians subsist on agriculture, a sector that has stagnated. Rural infrastructure remains very poor making it harder to capture the huge consumer market. While the most recent five-year plan (2007-12) promised major new expenditures on rural roads, electrification and housing, the results have been disappointing, with a recent report finding that the key targets for 2007-09 were missed by between 50% and 83%.

Although India’s extensive transport system network has expanded rapidly since the country’s independence from the British Regime in 1947, the growth has not kept pace with the country’s booming domestic and international trade. Escalating imports and exports have led to congestion at India's docks, with ship turnaround time at the country’s twelve major ports taking several days.

According to the World Bank, 9% of potential industrial output in India is lost to power cuts. Some 600 million Indians have no mains electricity at all. Consultants at McKinsey estimate that the extra 20,000-25,000MW a year needed to meet the industrial demand for power supply would involve a $500 billion investment over the next decade. Several important areas such as water and sewage also remain woefully inadequate.

Piracy and Counterfeiting

India’s criminal justice system does not effectively support the protection of intellectual property. It is true that protection for confidentiality and intellectual property is quite high in India compared to other emerging economies. However, bureaucratic hurdles lead to very little protection. Lawsuits often take years to come to trial and a decade or more to reach a decision. Appeals are frequent and relatively inexpensive.

Case in Point: Large-scale copyright piracy, especially in the software, optical media, and publishing industries, continues to be a major problem in India. It is estimated that foreign businesses lose $500 million per year in India because of piracy. According to industry estimates half of the music, 60% of movies and 74% of software sold in India are counterfeit or pirated. In the pharmaceutical industry, fake or counterfeit drugs account for approximately 10% to 20% of the total market. The World Health Organization estimates that the value ascribed to counterfeit drugs across the world will reach $75 billion by the end of 2010, up by 90% over the 2005 level. Indian industry leaders believe that rampant piracy threatens intellectual property rights and discourages foreign investors from coming to the country.

Tariff and Non-Tariff Barriers

Despite the government of India’s economic reform program initiated in 1991, tariffs remain high in many industry sectors including petrochemicals, automobiles, motorcycles and finished steel products. Additionally, India Customs procedures require extensive documentation, which inhibits the free flow of goods and leads to frequent processing delays. These delays are largely due to India’s complex tariff structure and multiple exemptions, which may vary according to product, user or specific Indian export promotion program. Government procurement practices and procedures are non-transparent. Foreign firms rarely win Indian government contracts due to the preference afforded to state-owned enterprises in the award of government contracts and the prevalence of such enterprises.

Logistical Challenge

The Indian logistics industry suffers from fragmentation, complex tax laws and insufficient technological aids. In India, around 65% of goods are transported by road. In road transportation vehicle ownership is in the hands of individual truck owners, a large majority of whom have fleets of less than five vehicles. Inventory carrying costs account for approximately 24% of logistics costs, and order processing and administrative costs account for an additional 10%. Stock filing and warehouse management is, in many cases, done manually, which increases administrative costs. The supply chain for fresh foods in India, for example, is currently quite rudimentary, investment in refrigeration has been limited, and there are few large scale food processors.

Retailing Challenge

Organized retail distribution systems in India reach less than 2% of the market. Almost 600,000 villages of varying sizes scattered all over the country are home to 790 million Indians. It would be uneconomical for durable goods companies to have distribution outlets in every tiny village. Thus, durable goods companies such as LG Electronics tend to focus on larger communities with populations of up to 50,000 and serve these with a network of district offices, stocking points and local dealers.

Alternately, some packaged consumer goods companies consider even the remotest regions and the tiniest villages as potential targets and aim to maximize penetration the rural economy serves by 3.5 million retail outlets. For example, Eveready, the market leader in batteries and flashlights, operates a fleet of over a thousand company-owned vans and has over 4,000 distributors to directly service 600,000 retail outlets.

A number of large-scale Indian and international retailers are entering India’s retail market. To succeed they are being forced to build their supply chains from scratch and to spur consumer interest in products that are unfamiliar to many Indian shoppers.

Competitive Challenge

International marketers targeting consumer and business-to-business markets face fierce competition from other international marketers as well as the domestic marketers. The quality of domestic goods is consistently improving as Indian manufacturers upgrade their production for export markets. Competition is also strong because of counterfeit products in multiple industry sectors.

Manufacturing Challenges

A key challenge in human resource management in Indian factories is the workers and their tendency to strike. Many multinationals are unable to produce here because the labor laws are highly restrictive. Companies have, however, found ways to work around those laws. Companies seek out villagers with limited opportunities. They build temples in their villages and invite their families for company prayers. They coddle them to an extent perhaps unnecessary in less worker-friendly countries.

Case in Point: At the Victoria's Secret factory in India, 2,600 workers, mostly women, are picked up near their homes by 78 company buses so they do not have to live in dormitories or commute by foot and public transportation. Other perks for the employees include a day care center, a morning energy drink, an air-conditioned factory floor, and meals tasty enough that the factory boss eats them as well.

To sum up, India is a country where cities are unplanned, electricity is spotty, and paved roads are clogged or nonexistent. The logistics system in India is fragmented, laws and governance are arbitrary, counterfeit products compete with branded products, and hundreds of millions of people still live in poverty. Challenges of marketing in this incredible country are enormous. It is important to develop critical success for marketing in India, which I will discuss in my next article.

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