Going Global: A European Excursion Work Hard On Your Company’s Itinerary

Going Global: A European Excursion Work Hard On Your Company’s Itinerary

Rajesh Karki was surprised to hear a German business owner tell him that Indian companies have come a long way. “Twenty-five years ago, my father would say they didn’t do well in product-service, delivery and technology. But, the ones today are improving fast.”

This insight suggests an important breakthrough in mindset and attitude—that the typically conservative European market is open to new faces. “It’ll help Indian firms infiltrate the European market,” explains Karki, who owns and heads a research and advisory firm, and helps mid-sized Indian firms design international entry strategies.

Several Indian mid-sized companies are keenly looking at Europe as an important geography for expansion. There is a unique combination of factors at play. Since the global financial crisis, many European firms, either sick or under debt, have been acquired by Indian names. Think Corus and the likes of it. Certainly, there are good deals available, and with the cost of wages, and capital cost incurred by companies on a steep rise in India, Europe isn’t nearly as expensive as it once was. Also, some European countries are taking advantage of this interest. Austria, for example, altered its direct investment protocol. “Indian enterprises are logically driven to go there,” says Karki.

While many take to sub-contracting, distribution arrangements, technology transfers, overseas acquisitions as possible routes, a European getaway isn’t for the faint hearted. The services sector, led by software development, pharmaceuticals and business processing outsourcing has done well in Europe, but manufacturing and hospitality industries, still find it tough to ease into the continent. Creating a powerful “India-owned” brand is definitely many miles away.

Indofil Industries, a 850 crore agrochemicals manufacturer, used the globalisation zeal of the early 1990s to expand its international operations. Its goal was to become a leading exporter. It established itself in other Asian markets like Indonesia, Malaysia, and also in Africa and the Middle East. In Europe, though, it got caught in a maze of rules. To register its products with the European Union, Indofil needed to submit safety reports on toxicological, ecological, environmental and public safety. “Compliance in Europe is stringent, time taking and costly. We hired European lawyers to walk us through the requirements,” says R.K. Malhotra, chief executive officer and president of Indofil.

Adapting to European standards, especially on health and safety food guidelines, labour, environment and residue laws, needs careful consideration, warns Narendra Rane, vice president of international operations at Indofil. Also, the European Union (EU) might be a harmonious trading block, but each member country has its own interpretation of acts and regulations. “Indian enterprises may also feel a subtle discrimination against foreign companies,” adds Karki. It’s definitely an interesting scenario for those who enjoy a challenge.

Indofil’s woes were further compounded by the nature of their business. Regulators asked them to furnish a study on their generic products. Because generic companies were prohibited from repeating existing studies, Indofil had to generate results by undergoing all non-animal tests, and buying animal data tests by paying original data holders.

“For players like us, these costs were incurred with a complete uncertainty on payback,” explains Malhotra, adding that they finally managed to set up in Europe after “hard negotiations”. Appointing European consultants in technical fields helped, adds Rane. “They established correct systems and procedures. Our quality has improved drastically.”

Others, too, have encountered challenges with their European forays. Many have had to take smart detours to survive.  Matrix Clothing, a Gurgaon-based textile company, supplies zip fasteners to brands such as H&M and Marks & Spencer under their brand name, Texcom. In 2008, it moved its operations to Turkey to be closer to their clients, and benefit from a more mature logistics and supply chain ecosystem. “But, the wages hit us. They are about four times higher than India. Also, rules are mind-boggling. We had to make sure the zippers were lead free, and only natural dye fabrics was used,” says Gautam Nair, Matrix’s managing director.

To help cultural integration, Texcom brought on a local Turkish partner to head European operations. “He understood the people better, and could articulate our demands,” Nair explains, adding their Turkish technicians were also invited to India to help evolve a uniform work culture and standardised ethics and quality codes between the two geographies.

Today, Matrix is an 250-crore company, and Texcom, their zip fastener brand, tripled its business after setting up in Turkey, which has helped them retain the “EU tag”— without getting knotted up in the restrictive rules.

Karki endorses Matrix’s thinking–of taking baby steps into Europe. “EU is fragmented on the basis of economic well-being. North Europe is more economically well off. Typically, companies wanting to enter Germany have had to infiltrate Spain first, and then expand resources to Germany.”

Going through the US is the safest option. An American green signal can be a useful thing to pack as you head to Europe. Almost all Indian software companies (Infosys and Patni Computer Systems) tried their luck in Europe only after establishing themselves as big brands in the United States. 

Like the Tata Group, others have taken over European companies and retained the brand names to gain acceptability. Bharat Forge, a leading manufacturer of machine components, acquired a German company called CDP. Under the CDP Bharat Forge banner, it began supplying automotive components to brands such as Audi and Mercedes. Companies are fine with giving up the opportunity to create an India brand, and sticking to the safe supplier route when in Europe. For example, wind power company Suzlon acquired Denmark-based Vestas, enabling it to establish supply channels and alliances. But, again could not position itself as an “Indian” company.

Despite the challenges, Indofil’s Rane advises companies to stay the course, adding the European economy is altering itself. “Our manufacturing and food production companies can today enjoy great opportunities in Europe.”—Sunaina Sehgal

Destination Planning

Cons: The Red Flag

EU is fragmented in nature; business owners need to negotiate among different countries and rules

Understanding labour laws and Europe’s famed 35-hour week is a challenge

Mindsets are closed in nature; easier to access after US success  

Indian firms haven’t been able to go beyond being suppliers; no ‘India-owned’ brand names

 

Pros: The Green Flag

Huge market; even slim growth can lead to large pies 

Good deals can be spotted, especially in manufacturing and distribution companies 

Good exercise for company to rise up and meet European standards

Outlooks slowly changing

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