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India's Big Opportunities for Little Companies
The Wall Street Journal, United States Wednesday, July 21, 2010

It is expected that the Indian economy will grow four fold in the next twenty years. Now, apart from the bigger firms, some small and medium enterprises have entered India.The bigger consumer market and proximity to middle east africa and other Asian markets which India provides is attractive to these firms. On the other hand , there are certain challenges too, writes Anil Kumar in The Wall Street Journal.

The Indian economy is expected to quadruple over the next two decades, adding more than 500 million people to its middle class, building more than 50,000 miles of highways, and investing more than $2 trillion in building power plants, airports, hospitals, factories and research centers. Large Western companies have long recognized the opportunities this growth presents, and General Electric, Honeywell, IBM, Pepsi and the like are already operating in India in force. But now there are a bunch of new kids on the block, too: Western small- and medium enterprises.

These smaller companies find it increasingly difficult to generate income in their home base as consumer spending decreases, population ages and competition increases. India offers them a population of 1.1 billion people that is young and growing younger; a savings rate that is high and rising; and an economy that is expected to sustain growth rates above 8% per year for a long time. As India grows, its requirements for equipment and services in fields such as energy, environment, health care, infrastructure, transportation, high-tech and defense will exceed tens of billions of dollars.

... ...

For the SMEs, India is an even more attractive proposition than its large size and strong growth would suggest. A major benefit is India's proximity to the Middle East, Africa and other Asian markets. India's knowledge pool and proven ability to engineer products at a low cost will encourage Western SMEs to establish operations not just for the local market but also for export markets nearby. This was the case for Astonfield, a New York-based renewable energy company, which has not only increased its sales in India in the last few years but also used its India operations as a launching pad for projects in East Africa and South East Asia.

While the opportunities are immense, there are several challenges. Selling to a customer base that is value-conscious and diverse in business requirements requires customization of products and innovation in marketing campaigns that is learned through experimentation. Competing with local companies willing to operate on razor-thin margins and a low-cost structure can be daunting. In addition, while the macroeconomic factors point to a need for a company's products and services, that might not necessarily translate into actual demand.


Meanwhile, SMEs moving into India need to be sure they exercise the same due diligence they would when they find partners in any other market. Cultural factors, especially the common use of English among Indian businessmen, are both a blessing and a curse. While this spares Western companies the language difficulties they face in other developing markets, it can also breed a false sense of security precisely because it makes doing business in India seem so much easier.


Despite these caveats, India's economic growth is an opportunity that will be hard to ignore for any Western small and medium enterprise. That's a reminder that development can breed prosperity in many corners of the world, and also that you don't have to be a huge multinational to profit.

This article was published in the The Wall Street Journal on Wednesday, July 21, 2010. Please read the original article here.
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