All eyes on India


India’s growing domestic market is attracting investments from Europe and Asia.

When you pick up the phone to get in touch with customer support, chances are that your call will be answered in India. The country is a popular destination for European and American companies to outsource work that requires a level of expertise and language skills. 

India has a vast pool of English-speaking, university-educated workers. Each year, about three million graduates from a multitude of academic institutions enter the workforce. And with a population of over one billion, a thriving middle class, one of the world’s fastest-growing economies and increasing domestic purchase power, India has also become a noteworthy market in itself. 

Over the past couple of years, European and Japanese companies including Sodexho, Vodafone, NTT Docomo and Panasonic have been acquiring Indian companies to gain access to the local market. Companies in the telecom sector have been particularly active, but acquisitions have also been made by service organisations, firms making household products, mining companies and pharmaceutical companies. 

Infrastructure – a true cornucopia

But what do relatively small companies from small countries have to gain in a huge market already bustling with serious international players? For one thing, there is room for all kinds of operators. 

Because India has invested heavily in infrastructure development, opportunities are being created for both local and foreign firms. High growth sectors include roads, airports, ports, thermal power, nuclear power, logistics and renewable energy.

Many Indian businesses are now beginning to outsource public service functions. These include telecom, pharmaceuticals, cars, retail, fashion, commercial real estate and financial services.

Ask the locals 

Experts say that entering a vast market like India presents some difficulties. Because personal relationships matter a great deal, it is necessary to have local management or business partners. Buying a local company with existing customers and distribution channels is a recommended approach.

Local expertise is also required in finding the right company to acquire. There are some restrictions regarding foreign ownership in industries such as telecom, media and insurance. And, like everywhere else, there are unwritten rules to doing business that only the locals know.

Mistakes are easy to make – and avoid

Some dos and don’ts to keep in mind when acquiring a business in India.

  • India represents a multitude of customs, languages and cultures. Work with a partner who is familiar with your location of choice.
  • Check the background of your target company meticulously, as there is a risk of contingent or past liabilities falling on the new owner. There is no central business registry, so you will need local help. Evaluate alternative transaction structures in order to minimise risk.
  • Make sure that your acquisition target can offer proof for the expertise, products, customers and sales channels it claims to have.
  • Don’t expect family-owned businesses to have sophisticated systems and controls. Participate actively in managing operations and setting up required systems.
  • Personal relationships play a significant role. Cultivate relationships with Indian promoters and their existing networks.
  • Set up systems that are in compliance with environmental laws, health and safety standards and other official requirements.
  • Enlist the help of reliable local experts to assist you in finding the right acquisition target, seeing the transaction through and sorting out complex local tax systems.

Text by Kaisa Hernberg
Photo by iStockphoto
A version of this article was previously published in Finnair´s Blue Wings magazine (February 2010).

Published August 2, 2011

Category: Local features