India has always been an attractive arena for foreign retail players. After a deluge of brands from the West, investors all across from the Middle East (UAE, Bahrain, Saudi Arabia, Kuwait and Oman) are nowadays bullish on the Indian market to accomplish i
India`s economic growth is projected to expand at about 7 per cent in 2008 and 2009, before recovering to above 8 per cent in 2010 as world growth picks up, according to the Organisation for Economic Cooperation and Development (OECD). Consumers from the emerging markets have driven the bulk of sales in recent years, averaging around 23 per cent of the total figure from 2003 to 2008; in comparison, developed markets were flat or declining. By 2010, some 40 per cent of total luxury sales could be generated by BRIC market consumers. According to the Department of Foreign Affairs & Trade`s Country Economic Fact Sheet - 2007, UAE stood at second position with a total share of 9.8 per cent, with India sourcing 7.7 per cent share from Saudi Arabia on the export front. UAE is India`s principal export destination. India is Saudi Arabia`s principal import source. UAE is India`s topmost trading partner in the entire WANA region. UAE alone represents 70 per cent of India`s export to GCC countries. Indian exports to UAE account for 6 per cent of India`s global exports, as per the reports by FICCI (Federation of Indian Chambers & Commerce).
Laying the groundwork
Whenever a brand gets ready for an international foray, it goes through detailed research about the specific market, looks at the effective measures to identify the market potential for the company`s products and brands, while evaluating the competition, searching out the right partner to start the business and getting assistance from trade commissions and other government and private organisations made up merely for providing services to the foreign company that intends to set up base in the market with different trade system, government laws and divergent consumer preferences. The company must consider the best entry strategy be it master franchise agreements, licensing deals, joint ventures, marketing/distribution tie-ups or any other strategic alliances. Before importing or exporting the brand to the international market, one must pay due consideration to the target audience and understand the market environment. Moreover, the brand must embrace the local culture and reflect local significance in the services it provides to its customers. It is imperative for an international company to bring its global values to the new market, making sure, at the same time, to execute it in a local flavour.
Companies eyeing India
With regard to the changing global scenario, the liberalisation in economic policies and rising trade between the Middle East and India at this moment has transformed the investment climate in India radically in the last few decades. Investors all the way from the Middle East have zoned in on India as an investment destination. Followed by the changing consumer inclination towards labelled possessions, rising per capita income of the middle class, young population and the increasing English speaking class are few aspects that drive overseas players to come to India. Another major reason for entering the region is the overwhelming growth in the different sectors of the country.
Landmark Group, Hot Brands International, Joyalukkas, Emke Group`s Hypermarket, Abbasi Group, Jawad Group, Jumbo Electronics, Alghanim Industries, Nakheel, Flamingo, the Dubai-headquartered retail chain, Axiom telecom, Ajmal group, UAE`s leading real estate developer Damac Properties, Bahrain-based Devji Jewellers and Emaar Group are the companies that have already made their presence in India.
Talking about their entry in India, Kevin Draper, Head of International Markets, Hot Brands International (HBI) reveals, “HBI entered the Indian market in 2004 with its first franchise and corporate business outlets. Due to the growth in retail and planned development of shopping malls within India, the market was seen as one of the best growth potentials outside of the GCC.” Hot Brands International is currently operating in India as a private entity under Hot Brands Franchise Systems India Ltd.
FranExcel is one the leading franchise marketing, training and consultancy firms in the Middle East. Gareth Parry, Co-founder & MD, FranExcel elucidates, “Through our strategic partnership with Franchise India, we are able to target qualified potential franchisees across India and importantly, we are able to provide a high level of market knowledge, which is vital to the whole process.”
Joyalukkas, being one of the world`s most renowned jewellery chains, has 70 showrooms across the globe. Currently, the company has presence across GCC, India and London. Joy Alukkas, Chairman, Joyalukkas Group emphasises, “Joyalukkas has always placed the needs of customers at the core of its business and has continued to introduce a variety of products coupled with choice, quality and value. Owing to its superior quality services, Joyalukkas has maintained its popularity and preference among its customers both in India and abroad.”
Impact Retail is another Indian company which is setting up a chain of large format retail outlets for consumer electronics (CE) in India, under the brand name `Xcite`. The company has a franchise relationship with Alghanim Industries, one of the largest conglomerates operating in the Middle East. Impact Retail is promoted by Tony Jashanmal, a prominent retailer both in India and the Middle East. Talking about market research, Srikant Gokhale, CEO, Impact Retail reveals, “KSA Technopak is our consultant who carried out extensive research in order to understand the Indian market from the retail perspective about consumers, demographics and each and every city. We tried to understand what kinds of distribution channels there were, who the retailers were, what kind of strength and weaknesses they had and from the consumer perspective, what was lacking.” He further says, “In our own research, we found that there is no top shop that is offering different brands in one place, there is no element of service in these existing stores, design is completely missing -- so all these became our USP.”
Indian labels enter Middle East
With Middle East-based franchisors showing keen interest towards the Indian market, Indian franchisors too are keen to start off their businesses in this region. The reasons for setting up business in the Middle East market are manifold. After establishing their strong foothold in their own country, companies look at the international markets to bring the brand closer to the consumers globally. It is often said that India`s growing middle class has been playing a chief role in the economic development of the UAE over the last 35 years. According to the Embassy of India, Abu Dhabi, UAE, the present strength of the Indian community residing in the UAE is estimated to be around 1.4 million, about a million of which live in Dubai and the Northern Emirates and the remainder of about 4 Lakh in the Emirates of Abu Dhabi. Another aspect is the huge demand for their brands among the Indian Diaspora which is contributing equally in achieving complete value for money.
Jawed Habibs, Group of Tea Companies,, Dabur, VLCC, Blossom Kochhar, Kimaya, Barbeque Nation, Bikanerwala, Welspun Retail, The Great Kabab Factory (TGKF), Encore Hotels, Career Launcher, Monte Carlo, Bharti Teletech, Bharat Hotels Limited, Hidesign, Gitanjali, Dosa Plaza, Voltas, Koochie Play Stations, Ruff Kids, Season`s Furnishings, Bombay Dyeing, M&B Footwear, Gatsby Collection, Gini & Jony, Impact Retail, Lilliput, Arvind brands, Raymond Apparels, Ranbaxy Laboratories Limited, Eureka Forbes (EFL) a part of Shapooji Pallonji Group, Asha`s, Kaya Skin Clinic, Kambala Hospitality Pvt. Ltd, Shahnaz Group of companies, Barista, Revolution, Voltas, Kewal Kiran Clothing Limited, The Professional Courier, Reliance Money, Bengaluru-based Casa Picola, Thomas Cook and Turtle are some of the Indian labels that have gained success in entering the Middle East-based countries.
Talking about the market research for going abroad, Parag Desai, Wagh Bakri Group of Tea Companies explains, “First of all, we had visited the UAE, Oman to meet various prospective distributors and understand the overall market trend of the tea industry. During our visit, we had brought many samples of various brands of competitors from the Middle East and had evaluated the same at our most modern in-house laboratory to match all the technical parameters, i.e., taste, flavour, aroma, appearance, etc.” After launching the brand in the market, the company realised that movement from the shelf was low due to the lack of awareness of the brand; therefore, the company brought in media agencies and started TV ads on leading news channels immediately with high frequency to create awareness.
The escalating entrepreneurial strength within young Indians has been victorious in attracting international franchisors to India. The franchising industry has been witnessing a tremendous response from the world`s best franchisors. Apart from the Middle East, Indian franchisors too are extending their businesses in the country. Middle East-based franchisors that are enthusiastic to do business with Indian franchisors can take assistance from FranExcel which provides advisory services and assistance for both Middle East-based and global franchisors looking to enter the Indian market. Besides consulting firms, trade commissions also play a significant role in providing information about the Indian marketplace. The Indian franchising industry on the other side has also been successful in spreading its presence to newer markets. According to a press release issued by News Distribution Service, India is set to become the fifth largest consumer economy by 2025 and major international players now see the country and its emerging middle class as the best opportunity to build their brands globally. From the last couple of years, Indian companies too have achieved success in penetrating countries like the UAE, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, Lebanon, Jordan and Egypt.
Legal formalities & tackling challenges
Every brand goes through the legal framework for starting business in any new territory. Desai reveals, “We have an export-import licence and are also registered with the Tea Board of India, which is an export promotion council. The legal procedure and labelling requirements of primary/retail packs vary from country to country. We have specifically designed Arabic packs for the Middle East market, keeping all statutory aspects in view.”
Lack of market understanding, insufficient planning, decisions taken at an early stage, finding our right location, connecting with the customers, becoming known and establishing a foothold in the market, are some of the challenges that the company faces after entering the new market. It is important to plan out strategies in advance so as to achieve maximum return on investment. The international company must modify its brand in accordance with consumer preferences of the particular region. Alukkas adds, “Keeping all our valued customers at the centre of all our plans is the basis of our success. All our strategies are customer focused and we regularly gather feedback to understand their expectations.” Whereas Desai informs, “We provide various ATL (above-the-line) and BTL (below-the-line) activities and also participate in overseas exhibitions to create brand awareness.” To overcome challenges, the company must plan novel marketing and promotional strategies to compete with its rivals in the market. To meet the customer`s choice, the companies must endeavour to localise their products and brands and always remember to maintain international standards.
Trade between India & Middle East
If we look at the economic side, both the countries continue to expand their bilateral relations. A number of the Middle East nations are doing business with India and some of the Indian companies too have made inroads into the Middle East market. While giving reasons for the growing trade Alukkas says, “I feel there is a place for everyone in the market. Consumers demand choice - as long as we can offer choice, quality and value to our customers, there will be no dearth in demand and growth for us.” While on the other side Parry believes, “The historical ties between India and the Middle East countries have created a basis of trust and trade, which franchising is now seeking to exploit. In recent times, the financial liquidity and thirst for growth has spurred investors from the Middle East to search and secure new franchise brands across the world and this includes India.” He also says, “The huge population of NRIs in the GCC countries is of course a primary factor for Indian franchisors looking to expand into the region and it gives them an automatic client base, especially for retail based concepts.” Talking about their journey to India, Alukkas says, “Setting up both the businesses has been an exciting journey and needless to say, the Indian Government and the governments in the Gulf countries were very supportive and encouraged us at every step. We followed all the regulations for each market to the hilt and were successful in setting up Joyalukkas` presence.”
Impact of slowdown on international trade
Every sector is experiencing the financial crisis due to the downturn in the global economy. It has affected India`s trade with international companies as well. Despite the global economic slowdown, Middle Eastern companies are planning a major expansion into new markets in Asia and the US.
In five years` time India will be the choice of 40 percent of Kuwaiti investors, but virtually all other investment will still be in countries in the Middle East region, according to a survey conducted by KPMG International.
Franchising is one industry that is going to exist and prosper in such crucial times. Less investment and low risk, conducive in creating a brand`s popularity and generating higher profits are some of the reasons behind the instant growth of the industry. It is often said that only serious players can survive during the period of recession. Parry thinks, “As the world emerges from the current situation, we shall find that companies with strong systems, brand-image, lean financials and proven, long-term profitable businesses especially those are not too cyclical or seasonal, will become even stronger.” He further says, “We shall also see a period of consolidation in the industry and the companies with too much leveraged-debt or low capital will suffer and become swallowed up by leaner operators.” Commenting on the impact of slowdown Draper says, “We anticipate that there will not be a significant downturn in the food retail industry, specifically in the quick service sector, as these products are usually seen as a budget offering.” He further feels that there could be a slowdown in the development of new retail locations due to the economic outlook for 2009-2010. While on the other side, Parag feels, “The larger impact of the global economic slowdown is there all over the world and the same will affect the exports from India which are expected to reduce this year.” According to the 2008 Luxury Briefing Conference report, customer service is the key to tackling economic downturn; so, the companies must pay attention to providing quality products and customer services.
With the changing global scenario, brands from the Middle East, such as Etisalat and Al Fajer, are all set to enter the Indian market soon. On the other side, Indian brands like Talwalkars, Nirula`s, Intouch Leather, a Chandigarh-based Alchemist Group, Kidswear chain Catmoss Retail, Koutons, Cotton County Retail, Dolphin Mart, Kairali Group, Cartridge Café and Pulse Foods India Private Limited and RPG Group`s retail brand Music World are also negotiating with Middle East based-countries to extend their brands` popularity in the international market.
Talking about the expansion plans of the company Alukkas reveals, “We will shortly open stores in Saudi Arabia and other landmark malls within the UAE.” Besides this, Hot Brands International operates 78 restaurants across the GCC and India. In India alone, the company has 20 outlets in Mumbai and New Delhi. Draper informs, “We plan to open 12 outlets by 2009 across the country.” Gokhale says, “We are planning to open 30 stores by 2009. The investment required for opening Xcite store will be Rs 5 - 6 crore, whereas, on an average the area required for a large format consumer electronics store will be 20,000 sq.ft.” Hair expert Jawed Habib of the famous Habibs says, “At present, the company has three outlets in Dubai and Doha. In the next three quarters, we are looking at Kuwait, Lebanon and Jordon not just for opening hair salons, but also to start hair education.”
With corporates looking for various ways and means of bringing stability to their operations in the market, the prospect of bringing in unexplored markets under their umbrella still holds much sway. Thus, regardless of the economic slowdown, brands from the Middle East and India continue to show positive signs of strengthening their foothold to capture the maximum share in the competitive marketplace.