Business Development in Emerging Markets: Market Entry Challenges in India

Business Development in Emerging Markets
Market Entry Challenges in India

Dr. Roger Moser
Director, Asia Connect Center-HSG, University of St.Gallen
Visiting & Adjunct Faculty, IIM Bangalore & IIM Udaipur

Session Objectives: Market Entry Challenges
#1: To know the most relevant market entry steps
#2: To understand the most challenging market entry steps
#3: To discuss potential solutions for the most important market entry issues
#4: To understand the relevance of trust in developing business in emerging markets like
India.
#5: In sum, to get basic understanding of the market entry process into India

Switzerland/India, February, 2012

Mathias Imbach, Roger Moser, Philipp Rehbock, Winfried Ruigrok
India Competence Center
University of St. Gallen
www.fim.unisg.ch
Roger.Moser@unisg.ch
The bumpy road to India
Market entry challenges for Swiss companies:
Lessons learned
Insights from recent research with Swiss-Indian Chamber of
Commerce: Challenges and solutions along 13 market entry steps.
Executive Summary (I/II)
This presentation is based on semi-structured personal interviews and an
online survey with Swiss/ EU and Indian SME executives (N=45) aimed at
identifying key market entry challenges for Swiss SMEs in India and
practical recommendations to successfully address them

13 critical incidents along the market entry phases evaluation, entry planning,
entry implementation, local operations are identified the root causes of many
challenges are related to soft factors (Swiss experience clashes with Indian
reality)

Overall, SME executives rate market evaluation phase as most critical for
overall entry success, challenges in the implementation phase as most
complex to address

Specifically, executives perceive the following challenges as most important for
overall market entry success:
Correct evaluation of market potential
Rigorous financial planning
Developing a strong and trustworthy leadership team in India
Quality management (ongoing)
3
Executive Summary (II/II)
The online survey reveals that addressing the following challenges successfully
seems to be most complex:
Right adaptation of own product portfolio for Indian market
Taking the right entry mode decision (independently vs. with Indian JV partner)
Finding a business process design which works (Swiss vs. Indian way of doing business)
IP/ Technology protection (ongoing)

Swiss/ EU SME executives rate complexity of market entry challenges
solutions significantly higher than Indian peers tendency particularly distinct
for people management related challenges

Analysis suggests that the most complex challenges along the market entry
process to India can be efficiently addressed by following certain guidelines:
Allocate sufficient time to know your market
Invest in personal overlapping networks (Is your red button at least as big as your
partners?)
Calibrate Swiss vs. Indian way of doing business
Align IP/ Technology protection measures with overall business strategy/ value chain

This presentation describes all entry challenges and related recommendations in
detail 4
Objective: Identify most critical incidents along the market
entry process and develop practical recommendations
suitable for resolving related challenges
Market entries in emerging markets
heavily impact firm financial &
operational performance
Even well managed Swiss SMEs have
experienced significant challenges
when entering the Indian market
Underlying issues related to the key
market entry challenges have yet to be
thoroughly researched and understood
Current situation:
Identify the most critical incidents
along the market entry process
Understand underlying challenges/
problems associated with these critical
incidents
Develop practical recommendations
to enable SMEs to respond to identified
market entry challenges
Project objective:
Project objective

5
Approach Project followed a 4-step approach

Step 1:
Identify major market
entry process steps
Step 2:
Identify critical incidents
from a Swiss pers-
pective
Step 3:
Evaluate critical
incidents through Swiss
and Indian experts
Step 4:
Develop recommen-
dations
Phase A: Market Evaluation
Phase B: Entry Planning / Preparation
Phase C: Market Entry Implementation
Phase D: Local Operations
Identification of critical incidents by means of
qualitative interviews with Swiss and Indian executives
with relevant management experience at the interface
of Switzerland and India
Evaluation of critical incidents through
Qualitative personal interviews
Online questionnaire targeted at Swiss/ European
and Indian SME executives
Development of hands-on recommendations enabling
SMEs to address identified challenges in a structured
manner

6
Results are based on interviews & online question-
naire Sample consists of Swiss/EU & Indian exec.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Indian
European
Swiss
150 - X
50-150
10-50
0-10
Other
Business
Development
Manager
Country Head
Chairman,CEO,MD
Note: N=45
Source: India Competence Center interviews; India Competence Center online questionnaire
Nationality Position Companies
Company Size
in USD M
Other
Chemical &
Pharmaceutical
Software &
Technology
Retail & Consumer
Goods
Automotive
Industrial Services
Machine Construction
7
13 critical incidents along four major market entry
phases identified
Market Evaluation
Entry
Planning/
Preparation
Market Entry
Implementa-
tion
Local
Operations
1. CEO
expectations

2. Evaluating
market potential

3. Adapting
product for
Indian market

1. Choosing the
right location

2. Financial
planning

3. Entry mode
choice
1. Business
Process design

2. Managing Indian
partner(s)

3. Developing a
leadership team
in India

4. Land acquisition
1. Managing the workforce

2. Technology protection

3. Quality management
9
Securing
independence
through
forward
looking
contract
negotiations
Results Overview: Challenges & Recommendations

Swiss
experience
vs. Indian
reality
Key challenges along market entry
phases
Major recommendations to address
challenges successfully
I
M
P
O
R
T
A
N
C
E

O
F

C
H
A
L
L
E
N
G
E

HIGH
LOW
Relation-
ships x
Trust =
Market
Insights
Price
Margin
Quality
Trade-off
Finding
YOUR
location
Planning
the
unexpected
Staying
indepen-
dent
Identifying
right level of
adaptation
to the
Indian way
Ethics
Time
Corruption
Trade-off
Attracting
and
preparing
the right
leadership
team
Retaining
your people
efficiently
S
O
L
U
T
I
O
N

C
O
M
P
L
E
X
I
T
Y

HIGH
LOW
Build long-
term
incentive
systems
Apply
Jugaad
where
necessary
Match IP
protection
measures to
overall
business
strategy
A3
A2
C2
Capture and
clarify all
eventuali-
ties in
contract
C4 B3
B2
Know your
market
A3
Apply fact-
based,
individua-
lized
location
analysis
Swiss
quality de-
livered the
Indian way
Keep
control of
your IP
D2
Passion and
personal
presence
A2
Deploy
financial
contingency
planning
from the
outset
Invest in
personal
overlapping
networks
B3
Include,
empower,
control
Do not
compro-
mise on
corporate
policy
C4
C1
B1
D3
D2
10
D1
C1
Ex ante
analysis of
financial,
reputational
and organiza-
tional
consequen-
ces
D3
C2
Patience
and
persistence
A1
B2
C3
Market
Evaluation
Entry
Planning
Entry Imple-
mentation
Local
Operations
Market
Evaluation
Entry
Planning
Entry Imple-
mentation
Local
Operations
B1
C3
A1 D1
2
3
4
5
6
7
A1 A2 A3 B1 B2 B3 C1 C2 C3 C4 D1 D2 D3
Evaluation of market potential and financial planning
perceived most important by SME executives

How important do you perceive the proper handling of this situation for the final market entry
success in India?

A:
Evaluation
B:
Entry Planning
C:
Entry Implementation
D:
Local Operations
Note: N=45
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A1 A2 A3 B1 B2 B3 C1 C2 C3 C4 D1 D2 D3
Overall, addressing key challenges in implementation
phase perceived most complex

According to your experience, how complex is it to address this challenge successfully?

C
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Note: N=45
A:
Evaluation
B:
Entry Planning
C:
Entry Implementation
D:
Local Operations
Executives rate evaluation phase most important for
success implementation phase perceived most
complex
A:
Evaluation
B:
Entry Planning
C: Entry
Implementation
D:
Local Operations
Note: N=45
13
Importance for
market entry
Solution complexity
2
3
4
5
6
7
Overall, only few significant deviations between CH/
EU and Indian executives importance judgement
14

6.0

6.3 6.1 6.3 6.0 6.3 5.8 6.5 6.3 6.2

6.0

6.8 5.6 5.7 5.9 6.3 6.1 5.5 5.2 6.0
0 -0.5 0.5 0.6 0.1 0 -0.3 1.0 1.1 0.2
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Note: Numbers refer to arithmetic average of all respondents for respective critical incident (CI)
*Average answers: CH/ EU SME executives Indian SME executives
N=45
*
> 0.5
CH/ EU executives rate complexity of market entry
solutions significantly higher than Indian peers
15
5.5 5.0 4.9 5.0 5.3 5.8 5.3 5.7 5.6 5.7
2.0 4.0 2.8 3.7 2.8 3.7 3.7 2.9 3.8 3.6
3.5 1.0 2.1 1.3 2.5 2.1 1.6 2.8 1.8 2.1
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Note: Numbers refer to arithmetic average of all respondents for respective critical incident (CI)
*Average answers: CH/ EU SME executives Indian SME executives
N=45
*
> 2.0
2.5
Summary of recommendations along market entry
phases
Market Evaluation
Entry Planning/
Preparation
Market Entry
Implementation
Local
Operations
Allocate
sufficient time to
know your
market

Cultivate local
network:
Ongoing
passion and
personal
presence

Set expectations
right from the
outset: Patience
and persistence
key prerequi-
sites for
success
Invest in
personal
overlapping
networks

Apply fact-
based,
individualized
location
analysis

Deploy financial
contingency
planning from
the outset

Calibrate Swiss
vs. Indian way of
doing business

Local leadership:
Include,
empower, control

Regulator: Do
not compromise
on corporate
policy

Capture and
clarify all/ most
eventualities in
contracts
Match IP protection
measures to overall
business strategy

Quality mgmt.: Apply
Jugaad where
necessary to deliver
Swiss quality the
Indian way

HR: Build long-term
incentive systems

A D C B
16
Indian reality does not reflect typical Swiss experience
Setting expectations right from the outset is key
Market Evaluation: CEO expectations

The CEO is completely excited about the market opportunities in India and is already dreaming of capturing a part of this multi-million
$ market next year.
Sometimes I meet SME managers on the plane who
already feel sick when thinking about soon landing
in India probably not a good prerequisite for doing
business successfully there.
Managing Partner, Services Company 1
Challenge: Swiss attitude may clash
with Indian reality
A1
Recommendation: Think long-term
& show persistence
Drawing up a business plan for at least 510 years is
key for success dont expect to make money in
year 1.
CEO, Machine Construction Company 14
If I have learned one thing while setting up our
business in India it is this: Without relentless
persistence one will never succeed. Growing very
fast is not possible without doing immoral things
CFO, Machine Construction Company 5
17
Many Swiss givens do not apply to India
(e.g. process efficiency, reliability of business
partners, )

Swiss SME decision-makers report that this
can lead to early discouragement and
frustration
Setting expectations right from the outset
is thus key for a successful market entry

Winning in India means thinking long-term,
being willing to invest and showing
relentless persistence
Europeans tend to be more subtle/ careful in their
expression than Indians the latter may take
advantage of this ...
CEO, Software & Technology Company 4
Recommendation: Think long-term &
show persistence
Overall
average
(Com.)
Overall
average
(Imp.)
Importance Complexity
HIGH
LOW
Market Evaluation: CEO expectations

The CEO is completely excited about the market opportunities in India and is already dreaming of capturing a part of this multi-million $
market next year.
In relative terms, SME decision-makers believe
setting expectations right is not particularly complex
A1
Rationale & Comments
N=45
It is a fact that many entry failures have allegedly
been caused by 'faults' on the parts of the Indian
partner or issues with the regulator. However, I
believe the actual cause often also lies in wrong
expectations and related mismanagement on the
side of the Swiss company.
Country Head, Machine Construction Company 6
18
Survey results show significant spread
between rated importance vs. perceived
complexity

This can be interpreted as indication that
SME executives may not focus enough on
setting expectations right in relevant
parts of their company
2
3
4
5
6
7
Respondents emphasize importance of personal
interest for India of key for SME decision-makers
Market Evaluation: Evaluating market potential
The CEO reads various articles which mention that India is the future growth market. To explore whether there is an opportunity for his
company too, he attends several fairs and gets connected to interested partners from India. They all confirm that the market
opportunity for his product portfolio would be huge. He decides to team up with the Indian company he thinks is most trustworthy.
Some Indians would not mind signing a MOU when
meeting you accidentally at an airport be careful.
CEO, Service Company 3
A2
"Successful approaches start with neutral and
independent market studies."
CEO, Industrial Services Company 6
Show commitment and visit the country regularly to
get a flavor and to build your local network.
CEO, Machine Construction Company 13.
For a small SME true personal interest for India is a
key success factor you need to get your own ass
over there regularly and enjoy it.
Managing Partner, Services Company 1
19
Challenge: Build local network you can
trust
Recommendation: Passion & personal
presence by top mgmt.
Building a network of trusted sources in
India is the only way to build the market
knowledge you need to make the right
decisions

Lack of access to the right knowledge
leads to information asymmetry (e.g. with
partners) and fosters wrong decision-
making in the early stages of the market
entry process
Therefore, strong personal interest
(passion) and commitment from the very
top and willingness to spend time on the
ground in India are vital
Correct evaluation of market potential rated as most
important challenge in early entry stage
At early stages Swiss companies often make one (or
both) of the following mistakes:
1) No clear statement of purpose (why do I want to go
to India?)
2) Do not invest sufficient resources in finding the
right local partners."
20
A2
Correct ex ante evaluation of market
potential perceived as most important in
the early stage of a market entry in India

These results reflect how crucial it is to find
the right sources of information and
partners to work with in India
2
3
4
5
6
7
N=45
Overall
average
(Com.)
Overall
average
(Imp.)
HIGH
LOW
Trusted local relationships required to generate true
market insights
When collaborating with an Indian
partner always ask yourself : What
will these guys bring to the table
on a sustainable basis over the
next 5-10 years? Think long-
term.
Country Head, Machine
Construction Company 6
Start with informal visits to India
to feel the pulse.
Relationships
=
Trust Market Insights
India =Country of
relationships. However, be
careful to enter a J V out of 'deep
friendship' you might regret it
fast.
CEO, Machine Construction
Company 7
Only a few partners will
represent your interests properly
dont trust too easily.
CEO, Automotive Company 1
Establish contact to key potential
users early on and build trust.
Company 13
Your analysis should include a
wide variety of aspects e.g.
government regulations, market
size, the local image of your key
players,
CEO, Industrial Services
Company 6
India is a huge country with
many sub-cultures and
requirements. With the right help
you can figure it out.
Company 3
Having the right partner you can
trust is key for success in India.
Company 4
21
A2
Indian price consciousness triggers difficult to handle
price margin quality trade-off
Market Evaluation: Adapting product for Indian market
Although the CEO is aware that India is a price conscious country he is very optimistic. His rationale is to reduce the quality
level for ABCs products for the local Indian market and apply proven but not latest technologies to maintain their usual
profit margin.
Challenge: Navigating the price
margin quality trade-off
Recommendation: Dont give in to
short-term thinking
A3
In our case an old technology was good enough to
make profit and gain first market shares in India. We
also benefited from low local sourcing and labor
cost."
BDM, Machine Construction Company 2
It might be wise to enter India with state-of-the-art
technology. Once customers value the higher
quality, the initially low acceptance due to price-
consciousness will disappear."
Creative Director, Apparel Manufacturing Company 1.
We followed the strategy 'Swiss quality knows no
compromise. However, we had a tough time
defending our margin following this credo.
Our customers demand the best quality. Once price
negotiation is on we often hear: A Chinese supplier
is cheaper. Its tough to remove this inconsistency

22
Indian customers are extremely price cons-
cious, often demandingbest available
quality for impossibly low prices

It is a challenge for SME executives to
navigate the resulting price margin
quality trade-off in a sustainable manner
Study responses reveal that there is not one
right answer. Overall, respondents agree
that taking a long-term view is crucial
Overall
average
(Imp.)
Adapting product portfolio for Indian market
perceived most complex challenge in early phase
"Identifying the right customers and adapting the
product accordingly is very difficult."
2
3
4
5
6
7
23
profit margin.
A3
SME executives rate challenge of adapting
their product portfolio to the Indian market
as very important (in relative terms)

On average, respondents perceive it as the
most complex challenge to deal with in
the early market entry stage
N=45
Overall
average
(Com.)
HIGH
LOW
Adequate handling of P-M-Q trade-off varies depend-
ing on overall strategy (distribution vs. local operations)
Price Margin Quality Trade-off
Adapt product portfolio to be in line
with chosen market strategy
Margin
Price
Quality Margin
Price
Quality
24
Short-
Term
Long-
Term
profit margin.
A3
SMEs distributing products in India:

SMEs manufacturing products in India:
I am no friend of entering India with lower quality
products. Better invest in educating local customers
that quality pays-off in the long-run. We found this to
be very tough with OEMs, but easier with mid-sized
customers."
Even if you try hard, you wont manage to
manufacture Swiss quality like products. Adapt to
local sourcing and labor conditions and come up
with solid quality, lower cost products the local
market demands.
Following others to popular locations is tempting but
might not be the right choice for own endeavor
"You have to consider many aspects, e.g. type of
operations, employees, customer base, infrastructure,
education
COO, Machine Construction Company 1
Following others to a popular location without
detailed investigation is not advisable. It might not
be the best location for your needs."
It helped us a lot to answer the following questions in
a structured way:
1) Which location fits best to our operations
requirements?
2) Where do we have access to good people?
3) Are there identifiable customer clusters?
4) General business environment (universities,
infrastructure, )?"
Entry Preparation: Choosing the right location
The CEO ponders about where in India he should start his operations. After discussing this with a few Swiss SME
colleagues the decision seems easy. Almost everybody seems to have launched their operations in India in Maharashtra
(mostly in or around Mumbai). The CEO decides to follow suit.
B1
"Build two or three small plants at different locations
compared to one big one. It will pay-off in the long-
term."
Purchasing Manager, Automotive Company 2
25
Challenge: Prioritize requirements &
bet on most suitable location
Recommendation: Fact-based,
individualized location analysis
Independent, individualized and fact-
based location analysis perceived as best
strategy to find YOUR location
Most respondents agree that following
others to popular locations is tempting but
may be counter-productive for own
endeavors
Used to Swiss standards, no location in India is
perfect. The challenge is to prioritize and find the
location which covers most of your requirements.
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
Importance
Complexity
Executives acknowledge importance of location choi-
ce but do not rate challenge as particularly complex
I do not think that in recent years many Swiss SMEs
took wrong location decisions. While its a critical
step in the market entry process there are other
challenges which are much more complex."
CEO, Services Company 2
2
3
4
5
6
7
26
B1
While choosing the right location is a
critical incident when planning a market
entry in India, compared to other key steps
respondents rate it in relative terms as a
moderately less important and much less
complex challenge
N=45
Business environment, industry clusters and import-
ance of customer proximity key decision criteria
Customer
Proximity
Industry
Cluster
Is customer proximity a
prerequisite for your business
model to work?
How geographically dispersed
are your target customers?
Is your industry geographically
concentrated?
Do you need highly specialized resources?
Human resources (e.g. engineers)
Natural resources (e.g. clay)
Rare, specialized suppliers?
Do you have trusted personal relationships in a
specific geographic area?
Can you benefit from special development
programs in particular states?
General
Business
Environ-
ment
27
Prioritize
B1
Financial contingency planning will help to deal with
high uncertainty in India and provides confidence
Entry Preparation: Financial planning
The CEO`s discussions with the CFO have shown that they can easily finance the basic operations for two years before
getting close to break-even. Even so the CEO is aware that there is only limited certainty on the overall investments, he is
convinced that his estimations are pretty accurate.
B2
"Very likely there will be some important points
missing. Expect the unexpected. Add a contingency
of 50-100% to the original budget."
"You need clear targets. Put them down on paper. Also
include different contingencies because you never
know what comes tomorrow in India.
Financial planning in India? Dont get frustrated
just include different scenarios in your thinking.
29
Challenge: Making the right
assumptions for financial planning
Recommendation: Financial contin-
gency planning from the outset
Uncertainty should not lead to attitude
proclaiming that exact planning is
unnecessary

Force yourself to adapt and include
detailed contingencies in your financial
models
Detailed financial planning is an extremely
difficult task in India uncertainty is
everywhere

In such an environment, making realistic
assumptions for a business plan is a
major challenge and risk
"Feelings should not be the driving force behind a
strategically important decision such as the one to
enter a key market like India.
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
Importance
Complexity
Financial planning perceived most important but not
particularly complex challenge in planning phase
2
3
4
5
6
7
We push hard to meet financial plans, even in an
uncertain environment such as India. I think the
Swiss are good at that.
30
Entry Preparation: Financial planning
The CEO`s discussions with the CFO have shown that they can easily finance the basic operations for two years before
getting close to break-even. Even so the CEO is aware that there is only limited certainty on the overall investments, he is
convinced that his estimations are pretty accurate.
B2
SME executives agree that financial
planning should be a top priority

The complexity of this task, however, is
rated below average. This may reflect
Swiss executives trust in their well-
structured, process oriented and
analytical management style
N=45
Keeping enough independence crucial when partner-
ing up investing in overlapping networks helps
Entry Preparation: Entry mode choice
Over the last five years, ABC Ltd. has successfully exported products to India through a local agent. The CEO is now
considering to relocate parts of his operations to India without partnering up with his agent. His agent said: If you want to
start operations without my involvement I am convinced you will lose your most valuable customers."
B3
"You need to involve the agent in one way or another
that he can "save" at least his face and that you can
benefit from his long-term relationships with the
customers.
"Involve your agent financially or at least as a
member of the Board. He shall depend on you and
you on him to the same extent.
"Create long-term benefits for both parties."
Whenever possible enter India completely
independent. I know from my own experience that
theres so much that can go wrong with (the wrong)
Indian partner. Theyll make sure you depend on
them very fast.
31
Challenge: Staying independent/ in
control when parnering up
Recommendation: Invest in personal
overlapping networks
If possible (big enough?) evaluate whether
entry without local partner might work

Invest time and resources in finding the
right partner and make sure he/ she
depends on you as much as you depend
on him/ her mid- to long-term
For small(er) SMEs it is often impossible to
build local presence without an Indian
partner

The result can be a power game securing
own positions (staying independent) is a
major challenge
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
Importance
Complexity
Executives rate entry mode choice as challenge of
average importance and complexity
2
3
4
5
6
7
"Try to have two or three persons representing the
company in India. It will avoid overdependence on
one.
"Identify a trusted strategic Indian partner who can
co-invest in as well as manage the business. This will
enable you to take advantage of readily available
skilled manpower and systems.
32
Entry Preparation: Entry mode choice
Over the last five years, ABC Ltd. has successfully exported products to India through a local agent. The CEO is now
considering to relocate parts of his operations to India without partnering up with his agent. His agent said: If you want to
start operations without my involvement I am convinced you will lose your most valuable customers."
B3
Study respondents rate decision whether to
enter India with/ without a local partner as
of slightly below average importantance
complexity of challenge perceived average.
Significant deviation between Swiss and
Indian executive views ( = 1.3)
N=45
Swiss/ EU
executives rate
challenge as
more complex
than Indian
peers
FOCUS: Trust and business relationship development in India: Why
do relationships and trust matter so much in India?
Insights from Negotiation Strategies in India: Trust improves the chances to
create win-win
(1) Indian negotiation partners do generally not have a preferred negotiation strategy. Their cultural
background allows for integrative as well as distributive negotiation approaches.
(2) In India, the relationship quality to the negotiation partner is often more important than the
organization he/she represents or the content that is negotiated about.
(3) The higher the perceived relationship quality between the negotiation partners, the more the
Indian negotiation partners tend towards an integrative negotiation approach.
or
The lower the perceived relationship quality between the negotiation partners, the more the
Indian negotiation partners tend towards a distributive negotiation approach.
(4) The development and maintenance of trustful relationships is the most important success
factor for negotiations with Indian business partners.
(5) In negotiations with Indian business partners, the pre-negotiation phase is more important than
the negotiation phase or the follow-up

Trust development is key to success. However, how do we
develop trust and what kind of trust are we actually talking about?
Source: Pesic, Thesis on Negotiations in the Chinese Context, 2007
FOCUS: Trust and business relationship development in India:
Basics: Trust is
Trust

is not the same as confidence

is more than the assumption of competence

requires a non-opportunistic behavior /motivation from the
trustee

is based on the existence of uncertainty resp. contingency

does not include any other safeguards

Source: Eberl, Schmalenbach Business Review, 2004
FOCUS: Trust and business relationship development in India: Trust
exists at different levels in the business environment and it strongly
determines the trust situation

What is the trust context in emerging markets for your
business?
What are your objectives (as individual, as organization)
SYSTEM Trust
INSTITUTIONAL Trust
ORGANIZATIONAL Trust
ORGANIZATIONAL Trust
INTERPERSONAL
Trust
INTERPERSONAL
Trust
INTERPERSONAL
Trust
INTERPERSONAL
Trust
Source: Renouf, Thesis on Trust Development in Emerging Markets, 2012
Managers also make decisions based on the expectations towards
trusted business partners.
Elements of trust resp. trustworthiness

Ability/Competence Good intentions are not enough, skills are required to
justify trust; especially in business context (e.g. Mechanics, Surgeons).
Benevolence Demonstration of concern for the welfare of others. The expectation
of benevolence is the confidence that ones well-being or something one cares about will not
be harmed by the trusted party.
Integrity Refers to the moral aspects of trust. Benevolence needs to be the ethical
(e.g. Mafia Boss).
Reliability Consistency in behavior and signaling of predictability (e.g. Traitors,
Killers).
Openness The extent to which an organization practices open communication and
does not withhold relevant information (e.g. Enron).
What are your expectations towards a trustworthy business
partner?

Source: Eberl, Schmalenbach Business Review, 2004
Basic trust development framework
Trust SITUATION
Objective
Trust CONTEXT
Personal
Organizational
Institutional
System
Trust DECISION
Trust APPROACH
Emotionality
Rationality
Trust
EXPECTATIONS
Competence
Integrity
Openness
Reliability etc.
Trust ACTION
Risky Investment
Initiation
Establishment
Maintenance
Termination
T
r
u
s
t

O
U
T
C
O
M
E

Trust ACTION
Feedback
Avoidance,
Mititgation,
Prevention
Having clarified the situation and decision the
challenge is to manage the implementation
Trust development: The red-button theory cold war reloaded.
Question for
Discussion:
How important are
networks in Western
Europe for business
development?
The red button:
In business development projects
both parties (Western and e.g. Indian
business partner) must have the
power to credibly threat the
counterpart to press the red button
and hurt him/her significantly. This
balance of power ensures that both
parties need to work together to find
solutions when first problems occur .
The mistake of most Western
companies is to neglect to build this
power from the very beginning.
Comparison to
Cold War:
In most emerging
markets conflicts
are normally
solved by the
CEOs directly
because only
they can decide,
like the former
USSR and US
presidents, to
finally press the
red button.
Reputation, Signaling, Emotional Bonding
Invest in Problem Solution
Walk Away --> Dominant for
Indian
Invest in Problem
Solution --> Domnant
for European
I: High risk of financial loss
E: Break-even
I: Medium risk of financial loss
E: High risk of financial loss
Walk Away
I: Very high risk of financial loss
E: Very high risk of financial loss
I: Low risk of financial loss
E: Very high risk of financial loss
Behavior of Indian Business Partner (I)
B
e
h
a
v
i
o
r

o
f

E
u
r
o
p
e
a
n

B
u
s
i
n
e
s
s

P
a
r
t
n
e
r

(
E
)
Financial Capital Perspective
Invest in Problem Solution -->
Domintant for Indian
Walk Away
Invest in Problem
Solution --> Dominant
for European
I: Low risk of reputation loss
E: Low risk of reputation loss
I: Very high risk of reputation loss
E: Very low risk of reputation loss
Walk Away
I: Very low risk of reputation loss
E: Very high risk of reputation loss
I: Low risk of reputation loss
E: Low risk of reputation loss
B
e
h
a
v
i
o
r

o
f

E
u
r
o
p
e
a
n

B
u
s
i
n
e
s
s

P
a
r
t
n
e
r

(
E
)
Reputation Captial Perspective
Behavior in Indian Business Partner (I)
Reputation integrating reputational capital into the equation.
FOCUS: Trust and business relationship development in India: Trust
development process summary in the context of emerging markets.
Successful ventures to India manage to adapt to local
conditions without loosing Swissness
Market Entry Implementation: Business Process Design
The CEO is looking for a JV partner to establish their own production in India. During almost any meeting with potential
partners he gets the feeling that his discussion partners are almost over self-confident, strongly emphasizing that European
companies have to adapt to the Indian business terms if they want to survive in the long-term.
Indian customs and the way of doing business are
different, but it is key that the local partner
understands and identifies with your business
philosophy.
Interact with Swiss companies which are already in
the market to understand where you have to adapt
and where you have to stay put.
35
Challenge: Adapt to Indian way without
loosing Swissness
Recommendation: Benefit from others
experiences
Respondents report that interacting with
other Swiss SMEs established in India
helps to find the balance between adapting
to the Indian way and not compromising
Swiss business virtues

Comprise and evaluate the financial,
reputational and organizational
consequences of going forward the Swiss
vs. the Indian way
In Rome, do as the Romans do It is not
as simple as that when venturing to India

Executives report that balancing adaptation
to the Indian way without loosing
Swissness can be a challenge
Swiss SMEs must show a lot of resolution and not
just give in. Else one will loose touch with whats
going on on the ground in India very fast.
C1
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Importance
Complexity
Defining optimal business process on the ground per-
ceived most complex challenge during implementation
Finding the right partner and figuring out how exactly to
work with him will be most difficult and yet most
important.
36
Study results illustrate that identifying the
right business process design for India is
often characterized by major insecurities
and risks challenge perceived most
complex in the entry implementation
phase
As a Swiss company we brought the technical and
commercial know-how to the table. Indians display a
high customer focus and are extremely good at
handling the unexpected this combination works
quite nicely.
N=45
C1
37
Swiss vs. Indian way of doing Business
Character-
istic 1
Extreme A Extreme B
Handling corruption
Government relations
Social engagement
Administrative processes
People management
Financial planning
Quality management

Character-
istic 8
Clear decisions in what dimensions to follow the Swiss/
Indian way provides helpful point of reference
Business
Characteristics
ILLUSTRATIVE
C1
Capturing as many eventualities as possible in
contracts ex ante reduces risk, particularly in disputes
Market Entry Implementation: Managing Indian partner(s)
Due to the success of the company ABC Ltd and the extensive network that the CEO could personally establish he is
considering launching his own fully controlled operations in India. However, when looking at the Joint Venture contract he
realizes that there is no sentence in the agreement on how to exit the JV.
Exiting a J V can be very messy, time consuming
and expensive. It is difficult but key to build a
relationship built on trust from the beginning this
will help when issues arise. At the same time, always
remain cautious
Do not sign the contract before all aspects are
clarified between your partner and you.
Your agreement should always address the exit
situation and dispute resolution. Again, stay as
independent as possible and in control.
"This should be less of an issue now. "Press Note 1
in relation to J V agreements has been withdrawn by
the Govt of India with effect from 1 April 2011."
Pay enough attention to the exit clause while drawing
up your J V agreement.
Controller, Chemical & Pharmaceutical Company 1
38
Challenge: Managing relationships with
Indian partner(s) effectively
Recommendation: Capture & clarify all
eventualities in contracts
SME executives responses are strongly
aligned: The only effective way of avoiding
unwanted surprises is control try to
capture as many eventualities as possible
in contracts
Managing Indian partners effectively remains
challenging, particularly when disputes arise
this still holds true after Press Note 1
C2
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Swiss/ EU vs. Indian executives: Significant discrepancy
regarding perceived challenge complexity
Since India has relaxed the rules (such as earlier Press
Note 1) managing Indian partners has become much
easier.
39
Market Entry Implementation: Managing Indian partner(s)
Due to the success of the company ABC Ltd and the extensive network that the CEO could personally establish he is
considering launching his own fully controlled operations in India. However, when looking at the Joint Venture contract he
realizes that there is no sentence in the agreement on how to exit the JV.
N=45
Other than expected, study results show that
managing Indian partners, in relative terms,
does not seem to be perceived particularly
important or complex recent
abolishments of ancient regulatory obstacles
(e.g. Press Note 1) may have impacted
results.

However, Swiss/ EU executives alone rank
complexity significantly higher ( = 2.5).
Swiss/ EU
executives rate
challenge as
much more
complex
C2
Include and empower a local mgmt. team early on but
remain present to keep up close monitoring
You have to very soon find a trustful local person
who has an existing network and can take over a
leading role. Without such a contact you will
undergo a lot of delays.
BDM, Industrial Services Company 2
You need a local MD who has experiences with
foreign companies. Additionally, you require a Swiss
employee as technical adviser and as trusted
source for the Swiss HQ.
A good idea is to send over a Swiss mgr. to set up the
key processes and then hand over to local mgmt.
after 1.5-2 years.
Market Entry Implementation: Developing a leadership team in India
The CEO wants to send his best employee Thomas Muster to India, however, after 10 months of waiting to move to India
due to different delays in getting local registrations, concessions and permissions done, Thomas becomes more and more
disillusioned. Moreover, the CEO is convinced that he needs to send a Swiss manager as MD for his Indian operations.
40
Challenge: Attract and prepare the right
leadership team
Recommendation: Include, empower,
control local mgmt. team
Respondents agree that building a local
management team is a key success factor

Include and empower local mgrs. early on,
but at the same time keep up close
monitoring
Study results reveal two main questions
related to attracting and preparing the right
local leadership team as major challenge:
Which expats are prepared and willing
to take on the challenge in India?
At what stage (if at all) should a local
mgmt. team take over and where do
we find suitable candidates?
Its good to build a strong local management team
from the start. But also guarantee you do not depend
too much on him maintain Swissness.
C3
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Importance
Complexity
Developing a local leadership team rated most important
and very complex challenge in implementation phase
You need a strong expat on the ground from the very
beginning. Many Swiss SMEs do simply not manage
to find the right people to send to India.
41
N=45
Development of leadership team for
operations in India clearly rated as most
important and very complex challenge in
entry implementation phase

On average, Swiss/ EU managers perceive
challenge as much more complex than
Indian peers (5.8 vs. 3.7)
C3
Investing in key management personnel often necessary
to build local leadership team which thinks long-term
Teach them [the employees] to see the big picture (i.e. the steps
before and after their job in the value chain), to think more about
the consequences and requirements of their work . In short, lift
them out of the black boxes they are working in
42
We find that our local Indian management often
struggles to see the big picture and to act
accordingly. The predominant hierarchical
structure leads to a culture where people just
follow orders without challenging supervisors.

Investing in our key people by flying them to
Switzerland and trying to really bring across our
long-term strategy and including them in our
discussions helped.
CEO & Chairman, Machine
Construction Company 11
C3
Decide on your position in Ethics Time Corruption
conflict follow it and be aware of consequences
Market Entry Implementation: Land acquisition
With the help of OSECs Swiss Business Hub the CEO has identified a piece of land where he can build his factory. Very
soon he realizes that it does not seem to be feasible to buy this land without bribing people here and there. The CEO is
alienated.
C4
"Involve a partner you can trust to handle all these
issues. Foreign companies cannot bribe and would be
cheated anyhow."
Bribing is black mailing and will never stop after the
first payment.
CFO, Retail & Consumer Goods Company 3
Without bribing it will take you a long time to get
things done in India. One has to play the system!
BDM, Software & Technology Company 1
43
Challenge: Find position in Ethics
Time Corruption conflict
Recommendation: Do not compromise
on corporate policy
SME executives present different
approaches for dealing with corruption in
India the gist is: Find your own corporate
policy and then do not compromise on it
Respondents agree that corruption is a big
concern when entering India (land
acquisition case in point)

Main challenge is to decide on own
position in Ethics Time Corruption
Trade-off and follow it consistently "Think about your goals and decide how you want to
achieve them. The outcome may mean to change the
goals or not be present in India."
Approach 1:
Bribes are not necessary! The clean way is
cumbersome and requires long breath. However, it is
feasible and we feel good to follow it."
Approach 2:
"Let your Indian partner do the dirty job. Some little
kick backs here and there You wont succeed
without."
Approach 3:
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Importance
Complexity
Existence of corruption is common knowledge issue
importance for entry success rated bellow average
Doing business in India is a daily frenzy corruption
in the region is like a cancer tumor. Everybody
knows whats happening.
Chairman, Machine Construction Company 12
44
N=45
*India ranks 87 behind e.g. Colombia or China in Transparency Internationals Corruption Perception Index 2010
Source: Transparency International; India Competence Center interviews; India Competence Center online questionnaire
alienated.
C4
Existence of corruption issue in India is
common knowledge* respondents rate
both importance and challenge complexity
as around average in relative terms

Where in the Ethics Time Corruption triangle is
your company/ your management positioned?
Bribe
money
Business
Ethics
Practicability
(Speed money)
According to Transparency
International we differentiate types of
corruption by motive:
"Speed Money" is according to rule
corruption.
"Bribe Money" is against the rule
corruption.
"We haven't paid a single bribe since
we set up operations in 1989."
Duncan Watkinson, MD,
Turbocam International
"Leave these issues to your strategic
local partners who understand local
language and culture "
CEO, Automotive Company 3
Bribing in India became even worse in the
past few years.
45
Source: Transparency International; India Competence Center interviews; India Competence Center online questionnaire
alienated.
C4
?
Bribes are mainly used to take
shortcuts and in order to avoid
compliance with rules and laws
Executives experience shows that retaining people
in India is difficult but effective tools exist
Local operations: Managing the Workforce
The Swiss management team in India faces the challenge that the local union representatives want hourly salaries for the
blue-collar workers that are more than 25% above the local average with the argument that a Swiss company can afford it.
D1
"Unions can give you a real headache. Do not argue
with them as a foreigner. Have your local mgmt.
dealing with them."
Due to low employee loyalty, often driven by many
outside opportunities (high growth), employee
fluctuation rate can be as high as 60%. If you do
extremely well you can get it down to 10-15% in the long-
term. "
"You should offer long-term intangible advantages such
as family benefits or further training Loyalty will rise.
46
Challenge: Retaining your people in
India efficiently
Recommendation: Invest in people,
build long-term incentive systems
Respondents recommendations can be
summarized as follows:

1. Let locals deal with unions/ politicians
2. Adapt recruiting strategy to India

3. Invest in people, but secure your interests
through long-term incentive systems
Dealing with Unions/ local politicians and
keeping employee fluctuation as low as
possible is a major challenge in operations
phase
We have learned that when we need 10 people we
have to start the process with ~30, many will drop-out.
When we train Indian workers in Switzerland we hold
back part of the money, we have employees sign
binding contracts and increase wages regularly.
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Importance for success & challenge complexity rated
slightly below average Swiss mgrs. use higher rating
My Indian workers rarely indicate when they do not
understand a task they just dont ask back and then do
the wrong thing. I am glad we have put in place a local
mgmt. structure.
CEO & Chairman, Machine Construction Company 11
47
N=45
Local operations: Managing the Workforce
The Swiss management team in India faces the challenge that the local union representatives want hourly salaries for the
blue-collar workers that are more than 25% above the local average with the argument that a Swiss company can afford it.
D1
Overall, executives perceive importance for
success and challenge complexity of
managing the local workforce comparatively
low (slightly below overall average)

However, Swiss/ EU executives rate
importance ( 1.0) and complexity ( 2.8)
much higer than Indian peers

IP protection is an ongoing challenge for Swiss SMEs
in India measures should be aligned with strategy
"As long as I can earn money with my latest
technology in Europe, I do not want to use it India. It
will be copied."
"Go to a high level court if your partner violates the
contractual obligations (reg. IP). You will win.
48
Local operations: Technology protection
After three years the investment of ABC Ltd. has still not reached break-even. Overall, it has become increasingly
challenging for the Swiss team to monitor what is actually happening on the ground in India. Recently, the CEO has heard
from a supplier that his Indian partner has started another, separate company on his own buying the same inputs.
D2
Challenge: Keeping control of your IP
Recommendation: Match IP protection
measures to strategy
SME executives report to be cautious when
it comes to exporting the latest technology
to India when the market requires it the
following is suggested:

Make sure that R&D activities/ IP related
activities are led by trusted expat
executives
Build strict IP protection clauses in
contracts
Align protection measures with overall
strategy (see following slides)
Study respondents agree that keeping
control of/ protecting IP is an ongoing
challenge when operating in India
Also in this regard J Vs are a headache and should be
avoided if possible [] I would see that all the steps
etc. are well documented and supervised by a law
firm to have sufficient evidence in case of a dispute."
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Importance
Complexity
Technology protection perceived most complex
ongoing challenge when operating in India

Key will be speed, smartness and precise contracts
to prevent partners from going on their own taking
advantage of leaked IP.
49
N=45
D2
Overall, IP protection does not seem to
belong to the hot topics when entering
India (as e.g. compared to China)

However, respondents perceive technology
protection as most complex ongoing
challenge when operating in India (in
relative terms)

IP protection requires diverging measures depending
on overall business strategy
Technology Generation
D
e
g
r
e
e

o
f

l
o
c
a
l

O
p
e
r
a
t
i
o
n
s

Low
Earlier Latest
High Local R&D (if at all)
only led by trusted
Swiss executives

Enforce processes to
keep technolgy
transfer as low/ slow
as possible

Build explicit clauses
in all contracts
Protect technology
(IP) by working with
several Indian sales/
distribution partners

Build credible threat
with your overlapping
networks
If products not
technologically
advanced: Reputation/
sound customer
relationships & access
most important
Often perceived as
valid market entry
strategy

Use of earlier
technology to cater to
local market
characteristics (e.g.
price sensitivity)
50
D2
Which IP protection measures
should be put in place varies and
largely depends on the overall
business strategy.
Company 10
Quality management in India: Finding the best way to
deliver Swiss Quality the Indian way
Local operations: Quality management
After a successful marketing campaign the production volume in India needs to be fast increased leading to more frequent
quality management challenges. The Swiss High Quality branding advantage, profit margins and the business model in
general are at stake.
D3
Indians sometimes demand the best quality for no
money, which is not possible. Therefore, Swiss SMEs
often have to adapt their products also in terms of
quality to make money in India."
"It must be clear from the beginning how close to
Swiss standards the products for the Indian market
have to be."
51
Challenge: Delivering Swiss quality
the Indian way
Recommendation: Dont shy away from
Jugaad for local production
Adapt to local conditions and apply
Jugaad where necessary to produce
solid products the Indian market demands

Put in place structures and processes to
guarantee chosen quality standards
Swiss SME products stand for high quality
and reliability. However, market conditions
in India demand product adaptations which
can also impact quality

Finding the best way to deliver Swiss
quality the Indian way can be
challenging, particularly for smaller SMEs
Appoint a strong Quality Manager who reports to the
MD. Get ISO certificated from the beginning. Introduce
quality audits at vendor site. Critical material can not
leave the vendor place before quality approval is given
by the own employee or agent.
Overall
average
(Imp.)
Overall
average
(Com.)
HIGH
LOW
2
3
4
5
6
7
Executives rate quality management as most
important challenge in operations phase
52
D3
N=45
Study respondents perceive quality
management as most important challenge
to be successful in operations phase

Complexity is rated above average,
particularly by Swiss/ EU executives ( 2.1)

Even if you try hard, you wont manage to manufact-
ure Swiss quality like products in India. Adapt to
local sourcing and labor conditions and come up
with solid quality, lower cost products the local
market demands.
What quality level is perceived as Swiss quality in
India and how can this quality be produced locally?
It will be hard to achieve high quality results when
manufacturing in India.
BDM, Software & Technology Company 2
53
D3
Average
Swiss
Quality
Average
Indian
Quality
Expect-
ed
Swiss
Quality
in India
Swiss
Quality
deliv-
ered the
Indian
way
H
I
G
H

L
O
W

A B
Manufacturing in India will often not allow
for 100% Swiss quality products local
market is highly price sensitive and expects
Swiss quality, but delivered the Indian
way

Swiss SMEs can answer the following two
questions to define quality standard for India:

Which quality level works for my product
portfolio to be sold in India/ other markets?

How can I produce this quality under local
conditions (sourcing, labor skills, )?

A
B
Summary / Lessons Learned: Market Entry Challenges
1
2
3
4
5

Business Development in Emerging Markets: Market Entry Challenges in India

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Market Entry Challenges in India

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