India: How Australian SME's can mitigate risks and access a lucrative market

For innovative Australian SMEs, the world is about to become their oyster.  The digital revolution through broadband and our once-in-a-generation investment in digital infrastructure will act as a catalyst for Australian SME's who want to engage with the world and venture into lucrative foreign partnerships and investments into foreign subsidiaries.
After a decade of reforms, India’s large and diverse economy has become one of the fastest-growing emerging markets in the world.  India is Australia’s fastest-growing major two-way trading partner, reflecting the largely complementary nature of the two economies.

Two-way trade grew 55 per cent to nearly $22 billion in 2008-09.  In 2009, India was our fourth-largest market for goods exports, our fifth-largest market for services and our fourth-largest market for goods and services combined.

This affords Australian SME's  a tremendous opportunity for growth, but to reduce  market entry risk and short cut their route to success into the Indian market,  they need to work with other SME's  who have already been down this route. There  also needs to be a strong understanding of emerging market opportunities combined with a powerful network of local partners who are able to deliver into the Indian market.  

Strong local partners with national  distribution networks,  powerful brand, credibility and track record are powerful.  In many industries the market leaders have already concluded deals with foreign collaborators, so companies  may need to look towards the next tier of available partners. 

Don’t  underestimate the power of local relationships.  Deals can be initiated and concluded within hours on the strength of a handshake or a relationship.  When in India,  Australian SME's should join the local business associations to gain an understanding of how business is conducted in this environment such as the Indo-Australian Chamber of Commerce based in Chennai, the  Confederation of Indian Industry (CII) and National Association of Software and Services Companies (NASSCOM).

Australian SME's should also embrace the local management talent. India is characterized by well-qualified, entrepreneurial and driven management talent who understand the subtle nuances of each market.  This understanding is crucial to business success.  

To be successful in India,  Australian SME's need to  make sure they customise their product and price points for the Indian market. The Indian consumer has come of age and has placed certain expectations on the market with respect to price, functionality, accessibility, performance, aesthetics and so on.  

Local brands such as Reliance, Godrej and Tatas have gained mass loyalty, in turn,  driving astronomical growth.   Beating the local players at this game will pose a challenge and will require serious reconsideration of pricing models.  Gone are the days when India wholeheartedly accepted foreign brands at high price points.  

It’s also vital to protect a company’s intellectual property, so it’s important to apply reasonable measures to safeguard your interests in relation to protection of your know-how, IP and operational insights.  India is now taking a pro-active role  in developing IP protection laws given it is today a leading “developer” of IP rather than a “consumer”.    This shift in thinking is evidenced by recent rulings in the high courts where damages have been awarded to companies whose rights have been breached.  

To make it in India requires a long-term commitment.  There are no quick wins with the journey more akin to a marathon than a 400m sprint.   Australian SME's need to commit for the long-term and be prepared to overcome enormous frustrations and challenges.   

As the Indian economy accelerates to 10 per cent rate of growth per year, there’s no doubt that Australia is presented with a significant opportunity and scope for investment.  This can only be enhanced by the Free Trade Agreement  (FTA) expected to be signed between the two countries next year. India’s market of 1.2 billion people, its youthful population, diversified economy and growth trajectory present significant opportunity for Australian business.

By Rohini Kappadath
Rohini Kappadath is Director Cross-Border Business at business and advisory firm Pitcher Partners.