Successful Entry into China and India

The statistics are staggering. China and India are currently the third and fifth largest economies in purchasing power parity, respectively. Some forecasts suggest that by 2020, China and India will pass Japan’s GDP in purchasing power parity and that by 2050 China will be the leading economy of the world followed by the United States and India. Four hundred of the Fortune 500 firms now operate in China, while 220 of the top 500 operate in India. In 2005, China alone attracted about $1 billion per week in foreign direct investment.

In three decades, China has lifted 400 million people out of poverty, a feat no other country has performed. The pent-up demand for consumer goods is making China and India the hottest markets for everything from automobiles and cell phones to fashion goods and entertainment. This remarkable economic resurgence and the future promise of China and India have made entering these markets critical to the survival and success of many firms.

Country Comparison

Economy.  China relies mainly on its manufacturing base while India relies on the software and IT-related service industry. China’s competitive advantage still largely rests on its cheap labor. India’s competitive advantage rests on its English-speaking, educated workforce. China’s growth is fueled by foreign direct investments, while India relies more on domestic savings.

Demographics. China has the largest population in the world while India has a younger population. For decades Chinese families were shackled with a one-child-only policy. This led to a curb on population growth but has resulted in a population distribution that is older than that of India. The distribution of the Indian population is skewed toward youth with most of it below 35 years of age. The bulk of India’s younger population is in the poorer and less educated parts of the country, however.

Investor Friendliness. China scores significantly higher than India on investor friendliness. China can efficiently consolidate and synchronize the implementation of nationwide policies.

Unlike China, India has not had this lock-step approach to attracting foreign capital. The federal government and state governments can often be at loggerheads on any policy issue. For example, foreign investors who have been cleared to enter India at the federal level may find local governments lukewarm or even opposed to their arrival. The nexus between political leaders, bureaucrats, and local business leaders who fear foreign competition is another deterrent to foreign investment. Thus India has been comparatively slow in attracting foreign investment. Consequently, the economic openness and investment friendliness of India is not as impressive as that of China.

Implications for Success

Given these significant differences between China and India, we can draw a number of implications for firms entering and operating in the two countries.

Market Entry.  Given the fact that government at all levels encourages foreign direct investments, entry into the Chinese market is not a difficult task as long as the foreign business obtains government support. The difficulties lie at more tactical entry issues, such as location, timing, scale, and so on. Entry into India requires more careful consideration because federal and local governments may differ on their policies toward foreign investments.

In both countries, entry strategies that involve high control (e.g., wholly owned subsidiaries) are more successful than those that involve low control (e.g., licensing). For example, FedEx, which operates as a wholly owned subsidiary in China, is more successful than UPS, which operates as a joint venture.

Familiarity with a similar economy and culture is useful when entering China. For example, the Southeast Asian agribusiness conglomerate from Thailand, Charoen Pokphand Group, is more successful in China than the ag-based firm of North American, Seagram. Surprisingly, even after several decades of international experience, many western firms tend to impose western consumption habits and production methods in emerging markets.

Market Development. The Chinese market can be easily segmented by geography as its eastern coastal provinces are more economically developed and contain much of its affluent urban consumers. India lends itself to a richer segmentation scheme with income, urbanization, religion, education, lifestyle, and social strata as useful segmentation variables.

Targeting decision in China and India are fairly straightforward. In China, the four major cities Beijing, Shanghai, Guangzhou, and Chengdu are the four regional economic epicenters. Major brands should target these four cities when they first enter China. India’s five major cities, Mumbai, Bangalore, Chennai, Dehli, and Kolkata are the economic hotspots.

Regarding product positioning, western brands can comfortably position themselves as global brands, as Chinese and Indian customers consider these brands aspirational. However, western brands need to make sure the translations of their brand names, logos, and slogans are appropriate, especially in the Chinese language and cultural environment.

Pricing strategies follow from the product strategies. For both China and India, the price and quality association is rather strong, and western brands are perceived to be more expensive as their quality is perceived to be higher. However, Chinese and Indian consumers are very discerning and carefully weigh costs with benefits. Therefore, firms should rethink their business models; they must rely on low-cost business models to be able to price products within the reach of the customer’s buying power. For example, localizing operations quickly rather than relying on expatriate managers can reduce costs.

In summary, both China and India are rising economic powers. Their emergence onto the world stage is profoundly transforming the global economy in almost every aspect. These two countries offer great growth opportunities and earning potential.  

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