Narendra Modi
Indian Prime Minister Narendra Modi lost his majority in the lower house of Parliament and formed a government leading the National Democratic Alliance coalition, after an election last month Wikimedia Commons

Antoine van Agtmael coined the term "emerging markets" four decades ago. At the time, he was working for the International Finance Corporation and needed a term for an investment idea that offered exposure to prominent developing nations. Since then, "emerging markets" has been frequently used to describe diverse economies characterised by dynamism, progress, and opportunity.

China: A Leading Example

In recent years, China has epitomised the concept of an emerging market for many investors and entrepreneurs. As the world's second-largest economy and an upper-middle-income country, China has been a focal point for investment. Despite the setbacks caused by prolonged COVID-19 lockdowns and restrictions, China's economy rebounded from 3% growth in 2022 to 5.2% in 2023, with a projected growth of 4.5% for 2024. This recovery is expected to have positive regional impacts.

China's rapid economic transformation from an agrarian-based society to a more urbanised and industrialised nation began in the late 1970s. This period of rapid growth saw the economy often expanding by more than 10% annually, significantly enlarging the middle class. Currently, China's stock market accounts for over one-quarter of the MSCI Emerging Markets Index.

However, China's economy has recently faced challenges. Eric Freedman, Chief Investment Officer at U.S. Bank Wealth Management, states, "The property market is still upside down. Also, if you look at core demand from a consumer standpoint, it's just not there". China's trade activity has also been under pressure, especially after President Joe Biden announced new tariffs on electric vehicles, advanced batteries, and other technology-related products in May 2024. While these tariffs may impact China's economy, they also affect U.S. consumers due to their inflationary effects.

India: A Viable Alternative

Given China's economic challenges, investors increasingly consider India a compelling alternative. India stands out amidst global economic uncertainties due to its strong macroeconomic fundamentals, fiscal discipline, high saving rates, robust domestic demand, and political stability. The Indian government has consistently prioritised capital spending, particularly on infrastructure, to spur growth and enhance competitiveness.

India's rising middle class and changing spending patterns have bolstered its domestic consumption-led economy. With a nominal GDP of $3.76 trillion in 2023, India is projected to reach $5.57 trillion by 2028, according to the International Monetary Fund (IMF). By 2047, an EY report estimates that India's economy will grow to $26 trillion, with a per capita GDP exceeding $15,000.

India's market, with over a billion potential customers, is desirable to businesses. Mark Matthews, Managing Director at Julius Baer, highlights India's long-term investment potential: "China is not a good market to invest in for the long term, and if you put $100 into India 30 years ago, it would be about $1,800 today. In contrast, $100 in China would be about $150 today, which indicates that China has been a destroyer of capital".

Expanding Your Business to India: Key Considerations

Despite its attractiveness, setting up a business in India presents several challenges. According to an article from Entrepreneur, Artis Rozentals, who recently expanded his business to India, emphasises the importance of thorough research and reliable local representation to navigate the bureaucracy effectively.

Here are five critical considerations for expanding your business to India:

1. Prepare for Bureaucracy

Despite India's modernisation efforts, bureaucracy remains prevalent. The company registration process involves extensive paperwork and lengthy procedures, especially for opening a bank account. This complexity is partly due to measures to combat fraudulent companies registered during the COVID-19 pandemic.

Indian authorities often require physical documents and approvals involving physical stamps, which are rarely used elsewhere. Additionally, the government demands detailed documentation to verify ownership and residency.

2. Find Reliable Local Partners

Indian law mandates that at least one company director be an Indian citizen, necessitating trustworthy local partners. A local representative is essential for handling in-person meetings and documents. Collaborating with local representatives can be advantageous if a significant physical presence in India is not immediately required. Their office can serve as your registered address for a monthly fee. When working with Indian partners, it is crucial to consider cultural differences. Frequent follow-ups may be necessary, and delays during holidays should be anticipated.

3. Leverage the Power of Word of Mouth

Indian customers are known for spreading the word about helpful products and services. If your product resonates with the Indian market, word-of-mouth marketing can generate significant traction. Once you establish a substantial base of Indian users, request case studies and success stories for your marketing materials. Implementing a reseller programme can also harness word-of-mouth power while generating revenue.

4. Gather Insights from Your Resellers

Reseller programmes in India have been crucial for acquiring large clients and driving growth. Actively seeking feedback from resellers provides valuable insights into the Indian market. Artis Rozentals shares several lessons learned from working with Indian resellers:

  • Build Relationships: Strong relationships are highly valued in India. Resellers need confidence in the product before promoting it.
  • Prove Your Worth: Indians are cautious about adopting new products. Demonstrating your product's value is essential.
  • Avoid Clashing with Resellers: If you also sell directly in India, consider pricing, negotiations, and territorial considerations to avoid competition with your resellers.

5. Choose the Right City

Given India's vast size, selecting the right city for operations is as crucial as choosing the right European country. The location is significantly important during the initial setup and registration process. Once established, the physical location becomes less critical.