For the past five years, India’s annual GDP growth has been consistently over 6% (Global Finance Magazine, 2017) and is set to become the fifth largest economy by 2018 (The Hindu, 2017). This electrifying growth has also been accompanied by large scale modernisation; with the Indian government rolling out the Smart Cities Mission encompassing 109 cities (BW Businessworld, 2017). Singapore is a world leader in Smart City development and therefore, outward looking Singaporean companies that can export our advanced capabilities have a lucrative opportunity to ride on India’s massive growth. To find out more about expanding into India, I had the pleasure of speaking with Dmitry Kharchenko, cofounder of Soda In Mind. Making a bold decision to start first in India, Soda In Mind has grown tremendously and today delivers innovative software solutions across their offices in Mumbai, Ahmedabad and Singapore; employing more than 40 people. As an industry veteran, Soda In Mind also contributes their experience and expertise to help start-ups with product and capability development.
Trends in the region
Technological advancements have created massive new market gaps that have yet to be dominated by behemoth players. Mr Kharchenko who has been actively supporting ecommerce start-ups, has noticed that ecommerce is only recently starting to gain ground in emerging ASEAN economies and as such, no company has been able to carve up a significant portion of the market to make new entry too difficult. However this may not continue to be the case as world leading e-commerce platforms are increasing their presence in Asia. Alibaba for example has bought Lazada and Red Mart as part of their push into the region (TODAYonline, 2017). Amazon is also set to expand into South East Asia, starting from Singapore (TechCrunch, 2017).
Additionally, e-commerce platforms usually focus on urban areas which might be a good move, since Asia is urbanising rapidly. However, even with rapid urbanisation, more than half of the Asian population still lives outside urban areas (ISEAS, 2010) and even by 2050, the rural population will still make up 37% of the Asian population (The Jakarta Post, 2015). This represents a huge untapped market in need of innovative ecommerce solutions since people living in remote areas have a greater need for ecommerce given that they do not have much access to the traditional brick and mortar retail stores available in the cities.
There is also an interesting phenomenon in Asia where the population has comparable and often better access to the internet and mobile phones as compared to basic services like water or proper sanitation. In South East Asia for example, mobile subscriptions stand at 133% of the population (We Are Social Singapore, 2017), while only 80% have access to clean water (The Straits Times, 2016). In India, 77% of the bottom 20% quintile owns a mobile phone while only 18% have access to clean water (Livemint, 2016).
Riding on the trends
The Asian ecommerce market is exceptionally fragmented and every state has different strengths and challenges, as such superior knowledge is essential to fend off the behemoths. In Indonesia for example, native companies, through their deep understanding of the needs and pain points of their customers have been able to offer better products and thus perform well in the C2C and “other” categories. Additionally, they are able to offer a better customer experience. For example many native ecommerce companies offer the option to pay by instalments. As such, more than half of the 20 most popular shopping sites in Indonesia are still run by native companies (ecommerceIQ, 2016). This shows that even as ecommerce giants grow into South East Asia, new start-ups with better flexibility to adapt their models to the market needs will still be able to thrive. The rural population in particular holds much potential and companies will be able to access this massive untapped market if they can find a niche in meeting this market segment’s ecommerce needs while adapting to their infrastructure level.
The digital revolution is shrinking the distance that Singaporean companies need to cross to reach overseas markets and therefore Singaporean companies who are able to deliver their solutions through digital media will be able to tap on the rapid growth of the online population in Asia.
Challenges in expanding overseas
As a co-founder of the company that started in India, Mr Kharchenko is well acquainted with the challenges in expanding into that market. The red tape in India is an exceptional hindrance for companies wanting to expand into the country. Unlike Singapore which only requires submitting an online application on the ACRA website, registering a business in India is a tedious process which varies from city to city. Registering a business in Mumbai for example, involves 12 procedures and takes nearly a month (Doingbusiness, 2018). Foreigners will also face much difficulty in becoming shareholders. As such the whole process of even registering a business can be too costly and tedious for a new start-up if they do not have any local partners.
Indian cities with the best business environments often house behemoths that make staffing difficult for small start-ups. To give an example, Mr Kharchenko noticed that Bangalore has a large talent pool for Information Technology, but small companies are having a hard time hiring and retaining staff due to the presence of companies like Adobe and Microsoft who are able to offer better remuneration and benefits which thus shape the expectations of Indian employees.
In Singapore, finding applicants for a job opening is a challenge but often in the emerging Asian economies, the opposite happens. HR departments are often overwhelmed with a flood of applicants when a job opening is available. To put this into perspective, in 2015 the Uttar Pradesh state government received 2.3 million job applications for just 368 junior posts, which would require 4 years to conduct interviews for all the applicants even if 2,000 were processed every day (Financial Times, 2015).
Implications of economic trends are well documented and easy to study when planning for overseas expansion. However the impact of cultural practices is often unknown to new start-ups venturing into new markets and as such they may be unprepared to run their business successfully. For example in India, Mr Kharchenko observed that fresh graduates do not expect much starting salary, but do expect their salary to double or triple every year regardless of performance. Even the holidays in India are hard to plan for, with every state having different holidays and the existence of “ad hoc holidays” and “restricted holidays”; which allows individuals to pick a limited number of holidays (Sourcingmag, 2007).
Planning for overseas expansion
As seen from the aforementioned challenges, overseas expansion into countries with cumbersome red tape is extremely difficult as a foreigner. Therefore, Singaporean companies should find a local partner to ease the administrative restrictions. However the local partner needs to be reliable given that many registrations will be to their name. Finding such a reliable partner may not be easy for a new comer and thus Singaporean companies can approach International Enterprise (IE) Singapore to get linked up with local partners that IE has vetted.
Singapore’s business environment is one of the most unique in Asia and therefore Singaporean companies cannot simply assume that what has been tried and tested here, will be as successful in penetrating overseas markets. As such, before entering a new market, developing a deep understanding of the local market must be a priority and getting onto the ground to analyse the environment is the best way to develop that understanding.
Additionally, companies need to have a clear idea of the kind of company culture that they want to build and to draw clear lines on what aspects of the local culture is acceptable and what aspects need to be changed when employees enter the office. For example, Mr Kharchenko recounted that the Indian office of Soda In Mind had to constantly promote a culture where employees take the initiative to voice out problems and find solutions instead of blindly waiting for instructions.
Mr Kharchenko also highlighted that the Market Readiness Assistance Grant from IE is particularly useful as it eases the burden of heavy upfront costs when expanding overseas.
Call to Singaporean companies
As with other emerging Asian economies, India is steadily liberalising their market to allow more foreign investment to flow into the country. However the conditions are still vastly different from what we are used to in Singapore which may make running a business difficult. If these differences can be thoroughly understood, Singaporean companies will be able to find their niche and ride on the growth of these exciting markets.
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