The IDEAL way to expand into India

Wednesday, August 08, 2012 | Posted by: Fiona Cullinan
Categories: India, Thought leadership | Tags: India, growth, international, expansion, subsidiary, case study, subsidiaries, SEZ, Gurgaon, Ideal Industries, Pune, West Bengal, Gujarat, Nagour

Our final case study on how technology firms are unlocking the potential of high-growth BRIC markets tells the story of how IDEAL INDUSTRIES grew its operations in India.

Who is IDEAL INDUSTRIES?
IDEAL is a 100-year-old family-owned manufacturer of tools and supplies for electrical, data, telecommunications, low voltage and security installations. Over the last decade it has expanded into environmental monitoring through its acquisition of Casella Measurement and into the automotive sector through its acquisition of SK Handtools.

What was the Indian expansion opportunity?
The connection with India began through a joint venture established by another IDEAL company, Trend Communications, acquired in 2004.

In early 2011, the rules on requiring a No Objection Certificate (NOC) from Indian joint venture partners changed and the original joint venture was dissolved.

A new direct Indian subsidiary has been set up, focusing on network installation and management, the professional electrical channel, and the supply of environmental devices and equipment. The new office is based in Gurgaon, one of Delhi’s four satellite cities in the National Capital Region.

The development of infrastructure in India is a critical government goal, and one of IDEAL’s key business opportunities is to address this development through an initial three platforms that it is establishing in the market.

What business help was needed?
The creation of trust is critical in establishing an Indian investment, and IDEAL’s new operations have benefited from professional advice on the most appropriate structure provided by Grant Thornton India LLP and by the appointment of an Indian entry development firm.

Lee Thomas, IDEAL INDUSTRIES’ Group Finance Director EMEA, explains:

“When you set up operations in India, everything is based on trust. If you want to employ quality people, how do you attract someone unless the local trust is there? Our use of an Indian entry development firm has helped increase our local credibility in entering the market.

“It was soon clear how important trust was and that the customer always looks for local support, so you need to have a base within India. Customers want to know that you are a trusted brand and that you’re committed to the market.”

Legislation and compliance in India
To develop IDEAL’s Indian presence, the business has put in place a country manager, and a financial controller to deal with legislation and compliance issues and to establish robust systems.

One of the issues the company has had to consider in developing its pricing and offer model is India’s import duties, which can be as much as 25%. IDEAL plans to use an indirect channel to market and will sell through local dealers and distributors.

Tips on entering India
For UK technology companies planning to invest in India, Lee Thomas recommends using a reliable entry strategist to help engender local trust because trying to go it alone is a long haul. He says:

“Be prepared for a lot of investment of time and money, but principally time. You have to understand the culture. And don’t forget the opportunity cost of the people you may have managing your investment from outside, too.

Managing from Europe is practical because of the time difference crossover, which is five-and-a-half hours. We have found using IP telephony and video conferencing is particularly helpful in working closely together with our colleagues in India.”

Where to locate?
Special Economic zones (SEZ) – India’s states are home to numerous specially allocated areas created specifically to attract investment. As of October 2010 there were 114 operating SEZs in India with the most being in the state of Tamil Nadu (20), followed by Karnataka (18). Approximately 500 more new SEZs have been approved throughout the country with the most in the state of Andhra Pradesh (109).

Vibrant economic areas excluding SEZs are:

• West Bengal – for three decades under a Communist regime, this state saw little growth. Economic reform was introduced in the mid-1990s and the state is now a beacon for ICT investment with tax exemptions for investors.
• Gujarat – arguably India’s most economically proactive and reform-minded state, Gujarat is planning a new city, the Gujarat International Finance Tech-City (GIFT), to attract finance and technology firms to relocate from Mumbai and Bangalore.

There are 37 Indian cities among the world’s 300 fastest-growing urban centres, according to the City Mayors Foundation, a global thinktank on urban affairs.

Cities that have benefited from technology investment include:

• Pune – emerging as a technology hub and home to a number of large software companies such as Wipro, Infosys, Satyam, Tata Technologies and Veritas.
• Nagpur – The US airliner-making Boeing, in partnership with Air India, is building a maintenance, repair and overhaul facility here.

India country profile
For a country profile of India and its tech opportunities, our technology investment report is available for download: Unlocking growth potential in emerging markets.

Nine other countries are profiled in the report.

Taking your first, or next, international step
If you are a UK technology company seeking overseas expansion, please get in contact with Grant Thornton UK’s Head of Technology Wendy Hart at .(JavaScript must be enabled to view this email address) for an initial discussion, or visit our Technology sector page for further information.

We have experts based in more than 100 countries, plus the UK member firm has two dedicated teams working with China and South Asia offices – see our Emerging Markets page for more details.

You might also find these posts useful:

* Ishan Saksena’s five tips for UK-India entrepreneurs
* Meet our experts – interviews with Grant Thornton UK’s emerging markets team
* Read more posts on India and the other BRIC economies