Summary
- India is a major global economy – and its growing competitiveness in an increasingly broad range of sectors position it as an attractive supply base
- However, an India-inclusive global procurement strategy must be undertaken with an appreciation of the nuances in the market – there are many challenges and pitfalls that must be overcome
- On-the-ground support with an experiential understanding of the market is critical in effective supplier selection – and for successful navigation of the many cultural complexities
- An appreciation of the range and depth of diversity in India is important during supplier engagement. Showing genuine intention and being prepared for uncertainties are key ingredients of the process
- Supplier performance and procurement process management in India requires agility. From ensuring the successful execution of a supply contract to the intricacies of quality management, expediting and logistics coordination
India – an economy on the move
India is a major supply market. To understand this, we must appreciate the broader economic context. India is currently the world’s fifth largest economy, with a GDP of USD 2.87tn in 2019, and is poised to become the third largest by 2024. India was a closed economy until 1991, when trade liberalisation was introduced. Some sectors are fully open to foreign participation i.e., 100% foreign direct investment (FDI), while some sectors have partial FDI limits. A few sectors such as real estate construction and tobacco are still fully restricted. As a market that is home to 1.35 billion people and with continued momentum towards growth, it is clear why many are optimistic about the future in India. However, on-the-ground realities are highly nuanced and failures among many foreign entrants is a stark reminder that there are real challenges to navigate.
An increasingly attractive and comprehensive supply base
India is not just an attractive market to sell to; it is also a supplier to the world. Historically, India was known for spices, precious stones and jewellery, and cotton among other commodities and has been an integral part of various historic sea and land trade routes. In recent years, India has become synonymous with IT software exports, back-office support, and generic pharmaceuticals. But India is also a major source for a variety of other sub-categories of goods including textiles, gifts and handicrafts, decorative items, leather goods, sports goods, petroleum products, machinery and equipment, tea, coffee, tobacco, seafoods and meat as well as chemicals, iron and steel. The list goes on. However, tapping into Indian supply can be challenging.
Challenging, but possible
Global sourcing is an evolving subject with standard methodologies and recommended best practices. Axis Group applies robust, tried and tested methodologies to its global sourcing interventions and is trusted by clients globally, including some of the world’s largest companies with complex procurement needs. Our experience suggests that while the standard methodologies and recommended best practices form a sound foundation, the uniqueness of India demands an in-depth understanding of the local context. In this article, we frame a number of ‘top-tips’ that could support successful and effective global procurement and supply from India. We categorised these tips under the three phases of a typical global sourcing life cycle. (See Axis Group Standard Procurement & Supply Methodology below).
Global Procurement & Supply – Simplified Standard Methodology
Source: Axis Group International
Phase 1: Supplier Analysis
- Select the right supplier – easier said than done!
- Thorough supplier identification, evaluation and selection is a core requirement for success. Finding the right supplier is perhaps the first of many hurdles towards successful sourcing from India. In many sectors, sources of up-to-date information are scarce or non-existent. Consolidated, current and reliable supplier lists simply do not exist. Many suppliers, including the larger ones, may not have a decent, functional website. Often contact details are out of date and reaching the right person can be hard. Hence it is far more challenging in India to assess basic but vital information from suppliers such as their scale of operations, production capacity, overall capabilities, market reputation, reliability, background, customer base and so on. Accessing this information at speed across industries, regions and categories without on-the-ground resources and knowledge is often impossible. A physical supplier visit helps – but distances and underdeveloped infrastructure could mean this becomes a 3 to 4-day affair, which may not be feasible. That again translates into the need for a locally present partner with a pre-qualified supplier base and resources to quickly navigate (identify, evaluate, and select) new unlisted suppliers. This can greatly reduce time, effort, cost and risk.
- Assess true export readiness – also willingness, experience and international capability of the suppliers
- India has huge domestic demand and the process of exporting from India is not as smooth as in developed countries. Hence, many Indian suppliers are not enthusiastic about exporting, especially to newer markets that are traditionally not key trading partners. Many smaller suppliers in India are willing to export but may not have sufficient experience and bandwidth to manage a complex export process from India.
- Appreciate social, cultural and demographic positioning of supplier and key management team
- India is a diverse country geographically, demographically, and culturally; India is called a ‘sub-continent’ for valid reasons. This leads to many disparities in the way of life, motivations, business culture and environment based on where you find yourself in India. It is very crucial to understand the country and the local context of suppliers comprehensively, and to adapt strategy and make decisions accordingly. Some suppliers, one may find, are ostentatious, outspoken and confident and some are very humble, modest and reserved. The result is that statements as simple as ‘yes’ or ‘probably’ or ‘maybe’ can take on very different meanings across these groups. Additionally, Indians often avoid the singular ‘I’ and a direct ‘No’. Interpreting the subtexts and unique indirect modes of communication require experiential understanding. Another consideration is around time. In large metro cities, commuting to the office takes a longer and as such, offices generally start later than their international counterparts. Knowing this and planning around these kinds of small but important differences will bridge expectations and reduce frustrations.
- Align expectations, perceptions and deal with non-conformity
- Perceptions of quality, the level of appropriate customer service, concepts of time and timelines can vary both within India and in relation to other countries. To mitigate risk, it is important to broadly define scope with suppliers and leave some flexibility in detail and execution.
Phase 2: Supplier Engagement
- Show seriousness and mutual respect to build a lasting relationship
- Most sectors in India have a large domestic demand and only a handful of sectors are export oriented. This means that while buyers are selecting their suppliers, suppliers are also selecting their customers. Suppliers invest time and effort only on business prospects they perceive to be serious. Hence, it is very important to be well prepared before engaging with potential Indian suppliers. Clarity about requirement and specifications will set the tone of further engagements. A half-baked, incomplete specification is likely to be rejected unless the aim is to develop the product jointly. Show a genuine eagerness to forge a mutually beneficial relationship.
- Adapt your approach and be ready for the paradox: one size does not fit all, neither ‘proven’ strategy or ‘standard’ methodology from other markets will necessarily work
- A willingness to be flexible, an attitude of collaboration and a win-win approach is crucial to forging a long-term relationship with Indian suppliers.
- India is not a homogenous market: Social, cultural, language and demographic diversities are an ever-present reality
- The depth and magnitude of the diversity in the country becomes clear during supplier engagement. There are subtle and stark differences and navigating through these require refined skills. There is quick ‘dummy’s guides’ to the culture, but these are not fully reliable. Many locals themselves have not grasped the scale of diversity, thus a ‘going native’ approach may backfire. Relying on the more natural appreciation of the differences that local experts have is important.
- Be ready to be flexible: nothing is cast in stone
- Uncertainties, be it traffic congestion or an unreliable telecoms network are part of Indian life, so spontaneity is valuable. Many Indian people view the ability to improvise as the hallmark of intelligence. However, this ad-hoc approach may unnerve those who are new to this market as they interpret it as a lack of planning. This is often flagged as a key risk while dealing with Indian suppliers. It is therefore not unwise to afford a supplier a degree of flexibility once they have satisfied key selection criteria.
Phase 3: Supplier Process Management
- Realise post purchase value with a collective and collaborative approach
- Many Indian suppliers are not rigorous during contracting. More emphasis is placed on mutual trust and personal relationships than a formal written contract. For this reason, it is important to continuously engage with the supplier during the production, testing, packaging and shipping phases. Negotiation is preferred over legal means to resolve conflict. The Indian legal system and its ability to enforce rulings are a major challenge, further incentivising a collaborative and collective approach that suits both parties.
- Supplier relationship management – what is so unique about it?
- Many businesses in India still runs on trust and relationships. Commitments must be honoured irrespective of commercial viability. India is also a large country, where you choose your base in India is key. Identify key supplier clusters and set up near them. Managing a supplier relationship in India means understanding hierarchy and power, not just the organogram. Professional relationships are expected to go beyond the office. It is not uncommon for a supplier to invite client for a personal visit to their home.
- Festivals and holidays…plenty of those
- Festivals in India have a broader significance and deep ramifications for business. Deals are not done during certain periods for some religions, communities, or regions. Festivals are not uniform in India; it varies based on region and religion. For example, eastern India might be completely closed for a week during the Durga Puja, while business continues usual in other parts of the country. Being aware of these events is important for planning.
- Patience, patience and more patience
- Finally, the pace of work in India can be blistering or extremely slow as Indian people often prioritise certain things over business. For example, a deal may be delayed due to an Indian supplier looking for an auspicious moment to sign the contract or simply being away on holiday. Although it is not universal, but often occurrences in India are beyond a supplier’s control, such as a sudden strike or roadblock. Therefore, patience is important, sometimes a lot of it, especially while dealing with bureaucratic systems. Agility in responding to both the fast and slow pace of business in India at the same time will not only produce better results but also minimize frustrations.
It is not easy to understand the complexities of a diverse Indian supplier base and to navigate this large supply market successfully. For those who are unfamiliar with the market, this is even harder. Axis Group has been developing an on-the-ground presence and gaining experience in India’s key industrial clusters for many years. With a diverse team, local knowledge and several different language capabilities we can help you realise your Indian sourcing objectives.
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