Eastern prospects: India vs China

With high-level British delegations having visited both China and India recently, GB details why there has never been a better time for UK exporters to explore the potential of these increasingly influential markets.

India and China may be vying for the title of the world’s most dynamic economy, but despite their enviable growth rates and geographical proximity, there are relatively few similarities for UK companies seeking to crack these markets.

For example, English is much more widely spoken in India, although younger Chinese people are increasingly comfortable with the international language of business. China is perceived as being more business friendly and less burdened by the bureaucracy that is part and parcel of everyday Indian life, while its air and road networks are more akin to those found in the West.

Whatever the differences, both markets have been identified by savvy British businesses as offering much more than just cheap labour and low-grade manufacturing.

‘Most of our business is in the generic pharmaceuticals market and India is a key centre for generics manufacturing,’ explains Syntor Fine Chemicals managing director Simon Knowles. ‘We have a joint venture partner that manufactures the product and sells it under licence exclusively to that market, while in China we have a two-thirds share of a joint venture.’

Choosing your partners

Such success doesn’t come overnight. India came on the radar of hairbrush supplier Denman International in the mid-1990s when it was looking for a new export opportunity. Having initially chosen a distribution partner, it then selected two local injection moulding companies to make its products. But despite the fact Denman was supplying the necessary tools, the quality of the end product and general communication were a constant concern, explains marketing and sales director Philip Steele.

‘It takes time to build brand recognition and trust in India, and you can lose this very quickly if your partner is not reputable or does not have the same brand values,’ he says.

Denman’s distribution partner subsequently experienced trading difficulties, which has encouraged the company to evaluate its future strategy. Steele’s advice to budding exporters is to choose a local partner very carefully. Denman also explored the potential of the Chinese market in the mid-1990s but was deterred by the high incidence of counterfeiting.

However, Steele says the company has been working on brand building with a new Chinese partner for the past year. ‘Counterfeiting is still an issue, but it is the job of your distributor to police the market,’ he adds.

Counterfeiting is also high on the agenda of essential and aromatherapy oils supplier Base Formula. The company had to develop a new trading brand because the Chinese characters meaning “base formula” had been registered in China to an individual who could have used his position to close the brand down in that market.

‘If your product is popular it could be instantly copied and you could end up spending your time protecting your brand rather than developing it,’ says marketing manager Jackie McKellar. ‘Our new brand name is registered in China and our distributor has invested in anti-fake labels, with a phone number and a website that consumers can use to contact us if they have concerns about the authenticity of the product.’

Seizing opportunities

Despite the challenges, McKellar reckons there are tremendous opportunities for UK retail brands in China. ‘The appetite for international products is huge, and while the process of setting up a registered trading company in China is protracted and expensive, the government is not unwelcoming.’

Mobile technology provider Picochip has a firm foothold in both China and India, having just confirmed plans to double the size of its development centre in Beijing. ‘China was an obvious market for us because of the companies doing development work there,’ says Rupert Baines, vice president of marketing. ‘India came much later – it is only in the past year we have been active there.’

According to Baines, patience is a vital commodity in both markets. ‘It took some time to set up Picochip (Beijing) Technology Co, although I understand the barriers are higher in India,’ he adds, explaining that earlier this year the company signed a sales, engineering and systems integration support agreement for the company’s products in India.

Welcome to China

Baines reckons partners do not necessarily have to be local companies (‘you need someone who knows the territory and people, and that could be an experienced expat’) but he adds that the greater the commitment on their part, the better the end result. He also describes the Chinese government in particular as being welcoming to UK companies expanding into the country, especially if they are investing in less developed areas.

This has certainly been the experience of Syntor, which is in the process of taking a 30 per cent share in a Chinese company. ‘The land we have purchased as part of the deal was heavily subsidised,’ explains Knowles. ‘We have also received assistance with the design elements of the new plant. I am not aware of similar incentives being available in India.’

This is just one example of an area where Syntor’s managing director feels that China has an edge over its rival to the south-west. ‘Decisions are made much more slowly in India,’ he says. ‘While more people in India speak English, many younger Chinese people understand the language and, importantly, Western business philosophy.’

Paul Jeffrey, managing director of vehicle and pedestrian access control systems provider Avon Barrier Company, is rather more upbeat about the Indian market, even though the work his company has done in that country with consulates and embassies has been funded by overseas governments. ‘The Indian government has been keen to find out more about our technology,’ he says.

High import duties make it difficult for most British companies to supply to India, and when your product costs about £20,000, the difficulty is that much greater. To get around this, Avon Barrier Company has met local manufacturers who can produce a similar product for about one third of the cost, but Jeffrey is very clear about how this relationship will work.

‘You are completely in their hands if they are both making and selling the product,’ he warns. ‘You could sue for patent abuse if the company tried to sell the product in other markets or under its own name, but that would not be easy. Our approach is to deal with companies who only make the product, so the sales and manufacturing operations are completely separate.’

Local talent

Jeffrey suggests that UK companies can save time and money by employing local professionals to man their trade show stands.

‘It is often possible to ascertain someone’s caste by their name and therefore get an understanding of the level at which they can negotiate,’ he continues. ‘There are many qualified people in India who provide this type of service for exhibitors at a much lower cost than sending people over from the UK.’

In terms of future market opportunities, Knowles reckons UK companies targeting China should look beyond the eastern seaboard to the west of the country, while India’s relatively lower investment in infrastructure means that construction is going to be a growth market for some time to come.

See also: Five top tips for UK businesses that want to sell into China

Nick Britton

Nick Britton

Nick was the Managing Editor for growthbusiness.co.uk when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...