Competing with China & Winning in International Markets

Nina Lekhi is an accidental entrepreneur, who got in to handbags design to deflect her low feelings, after failing in her first year design course at sophia college. she never imagined that the business will become this big giving employment to over 1000 families as at present.

Background: The Chinese have taken over 60 percent of the Indian Ladies Handbags market, like in many other Consumer Product categories. The Canton Fair is the largest market place for all importers to see the latest range of products at mouth-watering prices. The ecosystem that the Chinese have built in terms of materials; advance processes and scale is unmatched and that explains their dominance in most consumer product categories. The Chinese mis-handling of the COVID-19 pandemic has dented their allure and most countries want to partly diversify their sourcing away from China. Vietnam; Thailand and India stand to benefit from the new sourcing opportunities as the trend to de-risk from concentration of supply chain gathers momentum. We discuss how Indian Brands can benefit from this Mega Trend and establish India as a quality and reliable sourcing destination.

Strategic Imperative: History tells us that Brands that want to do well in international markets need to be strong and profitable in their domestic markets. The profits in the domestic market will be needed to invest in international expansion, where the cash-flow is likely to be negative in the initial years. The Custom duty of 20 percent on imports and the general attitude of ‘Atmanirbhar’ are tailwinds offering benefits to Indian brands to compete and build a profitable business in the domestic market. Also, the fact that there is a favorable annual wage increase differential of five to 10 percent and depreciation of Indian Rupee against Chinese Renminbi, are additional tailwinds supporting domestic brands, if only the domestic brands get their strategy of local manufacturing right rather than relying largely on imports from China as at present.

Need for Sharper Focus on Positioning: The Indian market is large, offering significant business at all price points (mass segment at lower prices; fashion segment at mid- prices and prestige segment at higher prices). To be successful, each Indian Brand has to decide on which consumer segment that they will compete and excel in. Unfortunately, most Brands are undifferentiated from one another and target a broad swathe of consumers, thereby projecting a diffused positioning with unclear brand values on offer. Even their TV commercials and other communications look similar with endorsement from Bollywood celebrities that are undistinguishable from one another. Enough attention has not been paid to understand each Brand’s actual customers and what distinct Brand values do they seek from each Brand.

All attempts to garner more sales are through offer of bigger discounts or other consumer promotions, rather than focusing on communicating the distinct Brand Values that each brand is trying to offer. The category is under-penetrated and there is a large market for all Brands, if only they focus on their uniqueness, instead of competing with one another on price.

The Indian market is large, offering significant business at all price points (mass segment at lower prices; fashion segment at mid- prices and prestige segment at higher prices)

Exports Opportunities: Indian Brands need to compete in a narrow segment, based on their positioning and brand values. They need to invest in studying the local trends and consumer behavior in each market that they wish to enter. Launching in foreign markets is complex and expensive and it may be advisable to go with a local partner with distribution/ retailing capabilities. While Digital marketing has reduced the threshold for marketing investments in new geographies, a minimum amount needs to be set aside for building the Brand in foreign markets. Focusing on countries with large Indian ex-patriates population (like in Gulf countries) is the first step in identifying potential markets. Africa, Latin America, US, Eastern Europe and ASEAN countries are other potentially lucrative markets for Indian brands. Breaking open Western Europe and other developed countries would be difficult in the first five to 10 years of international operations, as understanding the distinct customer desires and being able to deliver on those would be a difficult task in the initial stages.

Support Required: The government can support exports positively by initiating the much-needed reforms. The key areas where reforms are needed are in Labour Laws and providing access to credit at competitive rates. Simplification of the tax laws so as to make it unambiguous will go a long way in making it easier to do business in India and abroad. Gaps in Design; Material and Manufacturing ecosystems are areas where Private sector will get involved once they see the opportunities growing by leaps and bounds.

The Future: China used low-end manufacturing to pull millions out of poverty in the last three decades. India with its demographic dividend, can repeat the miracle growth of over 10 percent CAGR over the next three decades, if only more Indian companies believe that they can effectively compete and win against China in the Indian and overseas markets. Global presence is needed for the required scale of operations and protecting the domestic market share, by taking the fight to global markets. The time has come to see India as the next and better Global Manufacturing capital than China has been so far. Auto components; IT and Chemicals and Pharmaceutical industries have demonstrated such a possibility. Fashion businesses are next in line to put India on the Global Manufacturing and Marketing map.