It is one thing to judge and predict consumer behaviour, but quite another to hazard a guess on what it takes to set up industry in India.
One always has an inkling about what works and what doesn’t, and the many success stories one comes across (many heard from the horses’ mouths, when dealing with Indian conglomerates) offer good insight. But there are few pointers that one can really put down as “the 3 or 4 things you should really know when setting up industry in India”.
But the recent report about how the India-born Jyothy Laboratories turned around the Indian operations of Henkel’s FMCG arm offers insights that even I, as an Indian, am happy to discover. While the story of the turnaround, in itself, seems like a simple case of post-event analysis, and the steps taken by Jyothy seem to be the most logical in fixing what was a flawed operation, let us not forget that Henkel’s start was the classic approach an MNC could take in India (and no, Unilever, Reckitt Benckiser and P&G don’t count as such – they have been here too long to adopt MNC strategies in India). And the failure of such strategy is linked to classic truths about India that we cannot ignore. In sum:
1. Treat India as a union of States, rather than as a single trade zone
Think of India as you would think of Europe or the US. Every State has its own natural resources, customs, ways of working and, most importantly, trade tariffs, taxes and duties. While passing through one State to another with raw materials or processed goods can be a nightmare, setting up industry in either can be a dream – almost all State governments will roll out the red-carpet, even if they cannot offer you the resources. Pick and choose the most optimal option. Jyothy, like Unilever and the other big players, understands this only too well – their products are made and packaged simultaneously in different parts of the country. Even India’s largest cigarette brands are made in different centres. The most common example of this heterogeneous-location production-distribution is, of course, bottling plants for soft-drink majors. Henkel made the mistake of wanting to operate from a single manufacturing location, albeit with the good intention of quality control. They lost out on the logistics front, but could they have foreseen an India-entry with many ancillary units? Perhaps not! (Of course, such a strategy might not work for all kinds of industries, but let us not forget that even the Airbus is manufactured in parts, in different European countries, before being assembled in France.)
2. Don’t look for infrastructure; work without it
As Rama Bijapurkar points out in her book We are like that only, India might be a new market, but it has an ancient history when it comes to trade and commerce.
So, banks might not exist, but banking always has! While no MNC would think of giving cash up front to suppliers of raw materials, an Indian operator would. Think about it: The Indian daily-wage worker (out in an open pit mine) is not likely to have a bank account – s/he has to be paid on the day, else s/he will work for the person who can provide the daily cash flow. And again, the operations of the said mine might not even be on an electricity grid – only cash again will pay for the diesel for the generators that run the operations. Even high up on the chain – between the retailer, the distributor and the wholesaler of Henkel’s products – all transactions are likely to be in cash, which is flowing in from the consumer on a daily basis. You might want to introduce banking operations in the process, but few will want to be a part of it; it is just too tedious and the time lapses are not worth slowing down the process.
While on infrastructure, and the question of skilled manpower: Rest assured that you are not likely to find it easily. Most Indian industrial homes have educational institutions to their credit – these were not born so much out of charity, as from a need to find their engineers and even technicians easily. Even now, if you were to set up a project that needed skilled or semi-skilled labour in some Indian hinterland, what would you do? Displace hundreds from distant areas, or train them on the spot? The HPCL-Mittal refinery in Punjab is training their semi-skilled labour on the job, all recruited from the nearby villages. One way in which they amortise their costs is to complete the training process by awarding diplomas, by becoming accredited with the government as an educational institution. They retain the best workers, while the rest have their own reward. That itself attracts labour! The recent move by Volkswagen, to set up a training school for automotive engineers in Pune is one that will have far reaching repercussions. They could well have bemoaned the lack of trained manpower, and let time take its course in bringing up the automotive industry in India up to speed, but by training the manpower they need, right now, is the right way.
3. Never forget, Indians are entrepreneurs by nature
This point is beautifully illustrated by Guy Sorman in his book The Genius of India. He gives the example of how a poor Indian, if in no way employable, will invest in a few utensils and a stove to set up a tea-stall in a busy marketplace; or start any such simple trade that earns him enough to live with.
We might think that Jyothy Laboratories is as entrepreneurial as any Indian company can be, but let us not forget all those who were willing to get entrepreneurial in the process: Not just the trucker who will organise it so his fleet doesn’t have to return empty or resort to tramping, but even the sales-force which is ready to work to incentives, rather than for perks. But the real honours go to the owners of the new manufacturing units who are capable of meeting quality standards at par with the best in the Indian FMCG industry.
Surely, there would be many other factors when it comes to setting up business and industry in India. But these would be the kind common to many other Third World countries. Your inputs and experiences would be welcome!