India generates clichés like it generates crowds. Under the British Raj it was the Empire’s “Jewel In The Crown”. After independence it became, in business terms, a “sleeping giant”. Now it’s at “the crossroads”.
The country has the choice to continue with the economic reforms that have opened it up as a consumer market and attracted inward investment, or to close in on itself again.
It attracts less attention than the other “sleeping giant”, China, because it opened up to international capital 12 years later. Investors poured about $26bn (16.5bn) into China last year, compared with India’s 2bn (1.3bn).
However, while India has the private sector infrastructure and the shared commercial and legal practice of Hong Kong and Singapore, it also has the potential for growth of enormous, but less developed, countries such as Indonesia or China.
“It has a middle-class the size of Europe’s,” says Geoff Howard-Spink, whose agency Lowe Howard-Spink has this year moved into India.
“And they are all anxious to start consuming.”
India’s “open door” dates back to July 1991. The Congress Government announced liberalising reforms designed to end the so-called “Licence Raj” form of socialism that dominated Indian economics from independence.
Before 1991, India’s imports were minimal due to tariffs of 300 per cent. Internal investment was kept at a minimum by a 40 per cent limit on the holdings foreigners could have in Indian companies. There was also a strict system of licensing for all foreign commercial activity.
This, combined with a weak currency and limits on repatriation of profits, made it an unfriendly market for multinationals.
The catalyst for change came when the country’s foreign reserves were down to about two weeks’ worth of trade due to oil price rises at the start of the Gulf War. Tariffs came down, the tax system was liberalised and the system of industrial licences was scrapped for all but defence and nuclear equipment and sensitive goods such as alcohol.
India’s foreign reserves now stand at $20bn (12.7bn), inward investment has moved from $150m (95m) in 1991 to an estimated $2bn (1.3bn) (Indian Government statistics) this year. The economy is growing at a steady five per cent a year and industrial growth by about eight per cent.
While much of the inward investment has been through industrial companies interested in infrastructure projects, there has also been a flood of multinational consumer brands. Kellogg, McDonald’s, General Motors, BMW, KFC, Hoover, Sony, Procter & Gamble and Levi-Strauss are just some of the consumer durable and non-durable manufacturers that have entered the market since 1991.
The primary appeal of the Indian market is its size – thought to comprise between 100 and 300 million people, depending on the product sector. Indian Government statistics maintain that consumer spending has grown by an average of 13 per cent a year since the early Eighties.
Multinationals heading for India are also attracted by the fact that while a form of socialism was practised in India for four decades, the country has a large and vibrant private sector. Unlike China or markets from the former Soviet block, there is no starting from scratch.
There is a well-educated management class, and a judiciary modelled on the British system. There is political stability on a par with any nation dependent on coalition governments and there is an established finance system.
Consumers are not starting from scratch either. The Indian middle-class is well acquainted with Western consumer brands through
60 years of Hindustan Lever – 49 per cent-owned by Unilever and the country’s second-largest conglomerate. The licence system stopped most foreign goods being imported but it did not stop the large Indian diaspora returning with Western goods and generating the aspirations that brands need to build on.
Additionally, many Western brands have poor quality Indian imitators which have created the demand and the sectors for Western goods to move into. An example is the Indian disposable nappy brand Snuggy, which is keeping Huggies and Pampers at bay.
Hindustan Lever has already teamed up in an unusual joint venture with Kimberly-Clark to produce Huggies and fight off P&G’s moves into India with Pampers. The market for disposable nappies is estimated to be only about five per cent by volume of all babies born in India, this still adds up to a healthy 125 million nappies a year.
When Coca-Cola returned to India after an absence of 15 years it dominated the soft drinks market, not with its own marketing cunning but by buying into Thumbs Up Cola, possibly India’s biggest brand.
India’s retail distribution network supplies 3,800 towns and cities and half a million villages. It has the required wholesalers and the transport network is just about adequate.
Fortunately for incoming brands there is no need to set up a nationwide distribution as the middle-class is overwhelmingly clustered in six or seven large regional cities. At the same time India’s urban population has grown by 75 per cent since the Eighties and so the potential market continues to expand.
The country already has three major market research companies, including the publicly funded National Council For Applied Economics Research, which conducts surveys of up to 500,000 consumers. The advertising community is mature and multinationals are well-established, with eight out of India’s top ten agencies being part-owned by Western agency networks.
Since the liberalisation of 1991, networks have been rushing to improve their connections with Indian agencies and this year alone LH-S, TBWA/Chiat Day, Bates and Foote Cone & Belding have affiliated with Indian agencies.
“You’re not going into India too late if you go in now,” says Howard-Spink. “A lot of agencies have overflown on their way to the Far East, but it’s a good footfall in Asia as it has a well-developed advertising industry with a culture that British people understand.”
While cynics may say Indian agencies are looking to tie up with networks to get their hands on the incoming international accounts, Mohammed Khan, proprietor of Enterprise, which has tied up with LH-S, maintains that the need for creative excellence is partly driving the link-ups. “Business is booming, but the flip side is that anything is accepted and creative standards have taken a beating.”
Proof that India is being bombarded with new consumer choices is the extent to which the advertising market is booming.
Gross billings grew by 37 per cent in 1994, when they exceeded $1bn (633,000) for the first time, and 36 per cent in 1993 among the 130-odd accredited agencies. However, this growth needs to be treated cautiously, as it is estimated that media inflation is running at about 25 per cent.
Such media inflation can only be due to the growth in commercial audiences. As recently as 1988, only a tenth of Indian homes had television, and press is still the primary medium, taking two-thirds of media spend compared with TV’s 20 per cent.
But TV penetration is rapidly increasing, 40 million – 25 per cent – of households now have access to the medium, the vast majority connected to cable, a medium which didn’t exist five years ago.
Following the launch of Murdoch-owned Star, the first satellite channel in India in 1991, the state broadcaster Doordarshan has relaunched its second channel, as a populist entertainment station aimed at young adults.
Now known as Metro, it carries programmes from MTV, Disney and Columbia Tristar which it pays for in commercial airtime. This year it will be joined by a third state channel, DD3, aimed more upmarket.
The main competition for the state channels at present comes from Star and Zee TV. Both channels’ penetration is being rapidly increased by the explosion of low-cost, unregulated cable operators. Cable operators get the satellite channels free and therefore hold down the cost to subscribers. This has helped the medium to grow rapidly.
There has also been a proliferation of privately owned religious and minority satellite channels and US broadcasters such as Time Warner, ESPN and NBC Superchannel are on the verge of launching in India.
Initiative Media managing director Tony Manwaring, who has been looking at the Indian media scene for his parent group Lintas, says: “It is changing so fast that agencies can’t cope. Competition from other channels is breaking down. The practice of negotiation is feeding into other media, so that press has suddenly become negotiable. Demand is also feeding out from TV so that posters are starting to become more like those in the West.”
The media scene is one of the ways India’s consumer revolution has affected those outside the middle-classes. But it is the masses who will determine whether it will continue.
India faces general elections next year and the main opposition party, the Hindu nationalist Bharatiya Janata Party (BJP), has started campaigning on policies that could be crudely described as isolationist. The party wants inward investment, but not at the expense of Indian independence, summed up in its slogan: “Microchips yes, potato chips, no.”
There have been violent scenes around KFC outlets encouraged by nationalist politicians and chicken farmers. Coke and Pepsi posters have been vandalised. Most worrying, the nationalist Shiv Sena, which controls the state of Maharastra, shook foreign investors’ confidence by cancelling an order for a power plant that was already being built by the Enron Corporation of the US.
India’s multinationals have so far dismissed the BJP’s anti-Western campaigning as electioneering, and the party is ostensibly committed to the liberalisation policy. The consequences of a BJP victory in next year’s election is likely to be more damaging because of the party’s anti-Muslim agitation than because of its economic policies.
However, Western marketers entering India should be aware that it is a fiercely proud nation. It is self- sufficient in food – unlike China and Russia – and it has launched rockets into space and exploded nuclear bombs. A superior, Western, attitude to its consumers would only alienate one of the world’s most promising markets.
“There are many people in India who remain worried about becoming a colony of Western multinationals, 50 years after getting rid of the British,” says Howard-Spink. “But they won’t turn their back on progress.”