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Markt Entry Vibrant India Dag


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Presentation by Rutger de Bruijn, Founder and CEO at NexusNovus, at the Vibrant India Day 2012 at Nyenrode.

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Markt Entry Vibrant India Dag

  1. 1. Market EntryEntering the Indian marketrequires a thoroughunderstanding of Product, Place,Promotions and Price in relationto the Indian ground reality 1
  2. 2. 2India has a unique market Price Sensitive Low High labor Import costs Duties Huge
  3. 3. 3Market Entry, simplified:The four P’s of India Product Promo Market Place Entry Price
  4. 4. 4Market Entry Strategies Product Export VolumePromo Market Place Entry Value Localized Price
  5. 5. 5Agenda1. Introduce the Four P’s2. Summary and Lessons Learned3. Market Entry Options4. Open Discussion
  6. 6. 6The Four P’s of India1. Product(ion)2. Place(ment)3. Pric(ing)4. Promotions
  7. 7. 7Product(ion)How do you want to positionyour product in the Indianlandscape?
  8. 8. 8Product(ion) Typical Questions Less Typical Market size, growth  Niche untapped? Competitors  Localization? Clients  Assembly? Sales channels  Local production? Fiscal, legal, license  Local R&D?
  9. 9. 9Landed Costs Importer Margin Import Duties TransportProduction+ Margin
  10. 10. 10Import Duties Goods ServicesDuties Value  No Import DutiesBasic duty 10%  Attracts Service TaxOther duties 20% (10%)Total 30%  To be paid by customer• Calculated over CIF+1%  Compliance: Tax• If shipping at FOB/Ex Deducted from works: FOB/ExW + Source 20%=CIF!
  11. 11. 11Examples From ParticipantsCompany Type HS RateBronneberg Machines Metal 27%Praxas Vracht Tube 28182000 24%Ridder Drive Motoren voor 84369900 12.5%Systems TuinbouwTerlet Proces ketels 84 20-27%Acoustics & Geluidsreduc 39051200 24%Noise tiereductions
  12. 12. 12Landed Costs: Comparison Export CIFSales Office Transport Import Duties Assembly Production AssemblyProduction Importer 0 50 100 150 200
  13. 13. 13Landed Costs: Comparison  Lesstransport costs Export  Lower absolute import dutiesSales Office  No importer Assembly required  Lower HR costsProduction  Lower costs for 0 100 200 parts
  14. 14. 14Comparison on Other AspectsOption Concept After Market Local Localiza Sales Sales Info R&D tionExport ✗ ✗ ✗ ✗ ✗Sales Office ✔ ✔ ✔ ✗ ✗Assembly ✔ ✔ ✔ ✔ ✔Production ✔ ✔ ✔ ✔ ✔
  15. 15. 15Case 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
  16. 16. 16Case Study: Industrial Parts(volume) Japanese and Chinese  Price use export model European companies opt  Localization for subsidiary  Lower cost to R&D  Sales Office  Assembly  Entering niche  Production markets
  17. 17. 17Place(ment)Where does your end customerbuy your product? And how doyou get it there?
  18. 18. 18India is LARGE!Supply Chain VariablesConsiderationsGeographic Urban, Rural, IndustrialType B2C, B2B, GovPurchase CxO, purchase department, designDecisionPayment terms Delivery, Credit PeriodVolumes Large, low, valueStock Fast moving, value, no stock (deliver to order)Addition After sales, installation, returns
  19. 19. 19Distributor  Works on margin Dist 1  Keeps stock  Invests Dist 2  More loyalImporter  Demands Dist 3 exclusivity  Best for: stock Dist 4 requirements/FMC G
  20. 20. 20Agent Agent 1  Works on commission Agent 2  Does not keep stock Agent 3 Importer  Does not invest Agent 4  Less loyal  No exclusivity Agent 5  Best for: no stock, Agent 6 capital goods
  21. 21. 21Stockist  Works on fee Stockist1  Are not sales responsible Stockist2  Keeps stockImporter (consignment) Stockist3  Does not invest  Best for: FMCG, Stockist4 price sensitivity
  22. 22. 22Sales Office Variations  Own pan-India sales force  Sales manager + agents  Sales manager + Agent 1 distributors Sales Manager Agent 2 Good option when SO  Into concept sales Agent 3  Dealing with agents (not loyal) Agent 4  Localization is required  Price is an issue
  23. 23. 23Case StudyNexusNovus Importer FMCG One sales manager Multiple distributors Invest in stock Credit terms: 60 days plus Returns of stock Low margins (Disinvested in 2012)
  24. 24. 24Case Study:Viva La Delicia Vanilla Beans  Sales Manager pan India  Vendor listings with all supermarkets  Direct supply/stockist
  25. 25. 25Case 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
  26. 26. 26Price(ing)Indians are price sensitive, butare willing to pay for highquality. Understanding thisparadigm will allow you toprice your product well and stillmake a good margin!
  27. 27. 27IndiansWill fight with an auto rickshaw driver over fiverupees, but will not allow their friends to pick up arestaurant bill for five thousand rupees!
  28. 28. 28Understanding 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!)
  29. 29. 29The Indian Tax SystemType Goods Similar to Services Similar toTax VAT (12-14%) BTW Service BTW CST (2%) Import Duty Tax (ST) Octroi (5%) Import DutyRelated Maximum Retail Price Tax Deducted from (MRP): set by Source (TDS) manufacturer or Importer functions like ICP in EuropeAwaited Goods and Services Tax (GST) to unify all of the above.
  30. 30. 30Implications of theIndian 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
  31. 31. 31Speak 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.
  32. 32. 32PromotionsOnce you have set yourprice, your supply chain, andmade a decision onproduction, you are ready topromote your products in India.
  33. 33. 33Promotions and BusinessDevelopment Options Insights Exhibitions (together  Use English on with your packing, unless you distributors/agents/s sell in rural areas or ales managers!) to lower middle class Extensive  Send a hard copy travel/meeting the folder, rather then an clients email PR/Marketing: is  Call (or ask your sales relatively cost manager to call)! effective
  34. 34. 34ConclusionsHow come it is so hard to find areliable importer? How do Ichoose the right entrystrategy?
  35. 35. 35Market Entry Strategies vs.Market Entry P’s Product Export VolumePromo Market Place Entry Value Localized Price
  36. 36. 36TomTom India case study Product: made for India Price: reasonable Promo: PR launch great but no follow-up
  37. 37. 37TomTom 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
  38. 38. 38Export(utilizing existing capacity)Product • Importer Place • Stock: distributor/stockist • No stock: agent Price • Give permanent discounts • Favorable payment terms Promo • Reimburse promotions
  39. 39. 39Why is Finding a ReliableImporter 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
  40. 40. 40What 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
  41. 41. 41FMCG(price sensitive)Product • Local Production • (or at least S.O.) Place • Distributor/stockist • + Sales Manager Price • Focus on competitive prices • 15% off/ Buy 1 get one Free, etc. Promo • In-store promotions
  42. 42. 42Capital Goods(low volumes)Product • Local Assembly • (or at least S.O.) Place • Agent • + Sales Manager Price • Focus on payment terms/credit periods/finance options Promo • Invest in exhibitions
  43. 43. 43 Step-by-Step Approach Start-up Build Market Assemble/Manufacture•Set price as if •Export to S.O. at below •Find partner for assembly assembled/produced on cost •Or find license holder location •Appoint •Start local production and•Incorp S.O. stockists/distributors start making margin•Hire Sales Manager •Promote product
  44. 44. 44Contact UsNexusNovusRutger de Bruijn, MDrmdebruijn@nexusnovus.comPhone: +31 (0) 6 5345 999