A sure sign of success when you are doing business with someone in India is being asked to that person’s home for an evening meal.
In the UK, you might meet a contact for a business lunch, and there would be no obligation on either side. But in India, the family meal in the evening is where business relationships get cemented.
This is just one of the cultural differences that can cause problems when doing business in emerging markets such as India, explains Simon Poole, chief executive of Kent-based Pro2, which provides professional drivers.
Another difference is that India is a very deferential country, where people are keen to help, he says. Misunderstandings can arise even though English is widely spoken.
“Indians love to say yes even when they mean no.” This only becomes apparent when they fail to respond to repeated e-mails and phone messages.
Mark Cotgrove, vice-president of emerging markets at Nimbus, a Hampshire-based software company, agrees cultural differences can cause problems in emerging markets. Knowing the people you do business with is often the key to purchasing decisions, he says, unlike in more developed areas where organisations are keen to avoid accusations of nepotism.
It makes sense in countries such as China, where the culture is very different and there may be a history of people feeling they have been cheated by foreigners in the past.
Underestimating the importance of this nearly cost Nimbus its business in China, set up five years ago under a local manager who was not fluent in English.
Many Britons are not good linguists and tend not to realise how crucial it is that your top person speaks both languages fluently, understands both cultures, and is completely loyal to you, says Mr Cotgrove.
“Otherwise, it is like trying to steer a ship completely rudderless – you have no idea what is going on or if what you are being told is reality.” Since appointing a Hong Kong national last year, who is fluent in English and has worked in North America, the business in China has taken off.
Overcoming such hurdles is crucial for UK companies that want to benefit from the world’s fastest-growing markets. Croydon-based SLE, which makes infant ventilators, generates 60 per cent of its annual £12.5m ($20.2m) sales in emerging markets.
India and China are investing heavily in healthcare to establish their international prestige, says Martin Pearcy, sales director. “In Europe, it’s largely a replacement market and there are a lot of competitors, whereas 85 per cent of our sales in India and China are to new customers.”
But the sheer size of the emerging markets is a big challenge for small UK-based ventures. While large quoted companies have deep pockets to fund the learning process, private enterprises may lack the resources to keep going long enough to become established.
SLE recognises that it cannot afford to appoint country and regional managers to cover such a vast area, so it signs up partners, which it trains to provide after-sales support and service. But this is difficult and expensive.
In Russia, for example, there can be lots of paperwork and contracts that seem cumbersome, says Mr Pearcy. “Without correct paperwork in the right order, your goods can be blocked at the border. It’s not for the faint-hearted.”
In China, market information is not shared as it is in the UK, so it is difficult to understand how well you are doing, Mr Pearcy says. “In India this is much easier.”
Coping with the differing regulatory environments also presents challenges to companies such as SLE – medical equipment needs government approvals for import. In Russia, the company supplies its ventilators as components so that they can be assembled locally, creating work and benefiting from the country’s lower labour costs.
For Nimbus, the challenge has been to explain what its business process management software does. There is a huge education task, says Mr Cotgrove, because “most people don’t know it exists”.
This has made it easier for Nimbus to expand in relatively mature markets such as Turkey and South Africa.
Another problem for private companies is the expense of protecting their intellectual property. “You have to decide how much you are prepared to spend policing and defending it,” says Mr Pearcy.
“Lawyers often talk about what you should budget, but they do not always realise that for companies it could be a bottomless pit.”
Even getting paid can present a problem in sectors such as construction, where there may be a number of companies in the supply chain.
Government delegations can be a huge help when venturing into emerging markets, says Peter Bonfield, chief executive of BRE, a Watford-based building consultancy, who has been on various UK trade and investment missions. These have been central to the company’s success in countries such as Brazil and China, he says.
“They have helped us meet local companies, establish credibility and showcase what BRE does. Thanks to trade agreements at the government level, there is now a fast-track route into what can be quite mysterious marketplaces.”
Once UK private companies are established, they can often be more flexible and responsive than those that need to worry about shareholders. Mr Pearcy expects emerging markets to account for 80 per cent of turnover within five years. “By that time, we’ll probably be calling them ‘prime’ markets rather than emerging ones,” he says.
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