With such a large domestic market at their disposal, does it make sense for an Indian company to expand globally?
Armed with global ambitions, innovative products with international quality and remote access to most services around the world, Indian companies could be well poised for global domination. Some of the reason they should consider this leap are revenue diversification, enhanced brand value and access to international investors, among others.
In the last article for Trendspotting, I shared some preliminary data on Overseas Direct Investments (ODI) by Indian companies. From this data, we noticed that, over the last few years, while ODI levels have been robust, there is no trend pointing towards consistent growth. Moreover, as expected, 2020 up until now has seen a significant fall in these international transactions.
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Where international expansion and investments lie in the priority list for India Inc. might be difficult to generalise. I would imagine it to vary significantly by company. This would depend on many factors including but not limited to – ambitions of the leadership, the current stage in the company’s growth, unexplored growth potential in the domestic market and access to capital. e.g. while some companies with scalable products (like SaaS companies) have the flexibility to explore international expansion early in their lifecycle, some others in sectors like physical retail or heavy machinery might not be able to expand their global footprint until much later in their development.
International regulations, bilateral relationships also play a huge role in this decision making. In this article, I want to explore some of the reasons that would inspire/compel an Indian company to explore expansion into the international market.
Most companies, especially the young ones, are born when the founders solve a pressing problem for the consumer (individual or business). Indian companies have a large and complex domestic market at their disposal and thus do not need to expand internationally. However, the Indian customer, be it a business or an individual, can be a tough customer to convince.
Sales cycles tend to be generally longer (compared to other countries) and price negotiations lead to lower margins as well. So, unless you can deliver your product or service en-mass (which is usually the goal, at least for B2C companies), getting to the serious revenue numbers is tough. This, in my opinion, is also a boon for Indian companies with global ambitions. A company that can understand the priorities of the Indian customer is well-positioned taken on other challenges on the global stage.
Furthermore, with most businesses deliverable and scalable using cloud technologies, Indian companies do not even have to spend vast sums of money to develop a local presence in international locations before launching a Minimum Viable Product (MVP) for that market. With the right guidance, if the markets are chosen carefully, you can diversify your revenue sources to countries which – have higher margins and price points compared to India, or, has an economy which is countercyclical (ideally) to your current revenue stream.
Enhanced brand value
This one is simple – a global presence enhances a company’s brand value. The fact that a company has found product-market fit in different markets acts as a concrete proof of the high quality of the product or service it offers. Companies from the USA have done this effectively and consistently over decades. American companies quite often become global brands and leaders in their category. Examples from a long list include companies like Coke, Nike, Amazon and Facebook. This global brand image has not only been helpful for the companies but also for establishing America’s soft power. Perhaps it is also in India’s interest as well to boost international expansion for aspiring companies to increase the country’s soft power around the world.
Global learnings and innovation
When you launch in a new market, you must calibrate your offering to local demands, trends, and distribution systems. This might lead to incremental innovations on your product or service making it nimbler to changing customer needs, even in the domestic market.
Access to international investors
Personally, when I speak to start-ups looking to scale abroad, especially the earlier stage companies, I get asked this question quite frequently – “Will this also give me access to investors in that market?” While no one can guarantee this access, it is fair to say that local track record does make it easier for an investor of that geography to gain conviction in the company. Thus, an international footprint also has the potential to open a new pool of investors.
These are just a few reasons a company would consider before leaping into international markets. Surely, there will be some sector-specific reasons that are in favour of or against the decision to expand internationally. For example, while the start-ups focusing on providing services in vernacular and regional Indian languages will have a large, untapped customer base in India, they will not be able to justify an expansion into other countries.
To conclude, an increasing number of Indian companies are realising that their Total Addressable Market (TAM) is global and not just Indian. Armed with global ambitions, innovative products with international quality and remote access to most services around the world, Indian companies could be well poised for global domination.
Vaibhav Kapoor is a finance and strategy professional with c.12 years of experience.