The Indian economy has been on the rise in the recent times and has managed to gain popularity among the multinational companies for investments. According to a study, the country is moving in the paths of development and will average between 7.4% to 7.6% in the upcoming three years. Although being one of the major countries to look forward to investments, India still is a tough market for MNCs to enter. The main factors for these are the high costs and the difficulty of conducting business in the Indian markets. Inconsistent policy-making and its improper implementation along with regular interference of legislation are other obstacles that add to the headaches to the multinational firms.
However, if MNCs are to succeed in the country, they have to conduct a deep study and analysis of the markets state-wise. Indian market is a fragmented and heterogeneous market that offers different hurdles as well as unique opportunities to the organizations. Amidst this, it is very important and interesting to note that Indian states are often compared to small countries, like India’s most populous state, Uttar Pradesh has a population equal to that of Brazil. Moreover, Maharashtra has an economy that roughly matches the economy of Iraq.
Cultural variations, languages and demographic variations are some of the significant factors that decide the potential as well as the capability of the market. They play a crucial and influential role in any MNCs organizational decisions. Also, every Indian state has its policies which affect the federal structure and other factors like labor and infrastructure which consequently results in variations in business landscape across the country.
Apart from studying Indian state’s markets, companies must also create a detailed performance of allocation of resources to different Indian states. Below is a four-step framework that may help organizations prioritizing markets in the country.
The very first step in this difficult task for the companies should be to analyze the market of each state and determine the risk-adjusted opportunities the firm has each and every market. One may include the factors like state’s population, GDP, expected market growth and other relative fields. This allows the companies to get to know the local market and the risks associated with it along with the potential of the market.
The operating conditions vary across every state of the country because of the decentralized policy-making nature of the state governments. Hence, analyzing and measuring the operating environment of each state comes at the second position. One can achieve this by looking at the factors like infrastructure, skilled labor, tax policies of the state etc. Companies need to get to know the operating environments necessarily to get the ease of doing business as well as to lower the cost of conducting business.
After analyzing the risk-adjusted opportunities and operating environments, it is time for evaluation. Companies should focus on the states that would offer them the highest returns on collectively analyzing the results. One may notice that different companies find different states to be more favourable. This is because of the different needs of different organizations. However, ultimately the evaluation has to be done to see which market has the most to offer to the firm.
It is time to build strategies and implement them. But wait; do we need the same strategy for all the states? No! One can broadly prioritize the states and their markets in four categories and implement different strategies for achieving optimum benefits.
The first group of states includes markets which have the maximum opportunities and profits to offer to the company. Many MNCs already have a presence in such states. Some states that are often included in this group are Gujarat, Maharashtra, Karnataka and Tamil Nadu.
The second category of states – those states with moderate opportunities and a good regulatory environment with geographical prominence to category 1 states. The geographic closeness helps the organizations in expanding the business in the nearby markets, thus capitalizing on cultural similarities and similar economy.
The third category consists of states with moderate opportunities but the poor regulatory environment. In such states, the executives examine and explore the potential of the market by detailing the policy reforms implemented by the government to attract investments.
Fourth and the last category include states with small risk-adjusted opportunities and weak operating environment. Such destinations are usually a very weak investment and companies should prefer not to invest in such environments.
As I have already said, India is a country of small countries with different and difficult markets. However, once settled, India is a highly rewarding market. Adopting a state-wise approach is the key to establishing a business in India. This fact is backed up various studies and surveys conducted by various economic forums all across the world.
Compiled By Faber Kishlay Krishna & Faber Mayuri Pandya as per excerpts from H.B.R. For original article click here.