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November 01, 2011

Cover Story

India—Kaleidoscope of Cultures

by Marilynn Hood


Click here to order the Direct Selling News issue in which this article appeared.


IDSA

Product categories for direct selling companies in India (as of 2008–2009) included:

  • Health products
  • Cosmetics
  • Household goods
  • Insurance services
  • Food and beverages (a relatively new segment)

India map

When Communicating with India

  • The number of cell phone subscribers in India exceeded 858 million as of July 31, 2011.

  • English is the lingua franca of India, allowing ease of communication with the English-speaking world. Many Indian websites are available in English as well.

  • The time in India is +5:30 Greenwich Mean Time (GMT); the time in Dallas, Texas for example, is -5:00 GMT. That makes Dallas 10.5 hours behind India. So if you live in Dallas, by the time you get to the office in the morning, your Indian counterpart has already headed home for dinner!

The Indian direct selling industry officially began in 1995.

If you only had two words to describe India, they could well be vast and varied.

With elevations ranging from the Himalayas to sea level, India’s land mass forms a huge taper, stretching south toward the Indian Ocean. This triangular shape affords the country several thousand miles of coastline, with the Arabian Sea bordering the country on the west and the Bay of Bengal on the east. Between the snow-capped mountains and the tropical rain forests lie great river valleys and deserts.

Home to some of the oldest civilizations, India is a country rich in culture and heritage. Through the centuries, it has been settled, occupied, invaded and conquered by a myriad of peoples, leaders and countries. Although the country has assimilated the diversity well, this flux of various influences has created a population that is anything but homogenous. The ethnic groups in India are estimated to be in excess of 2,000.

India Quick Facts

Size and Population

India ranks as the seventh-largest country in the world in land area. However, when ranked by population, its 1.21 billion people place India second only to China’s 1.3 billion. Relative to the United States, India has almost four times as many people in an area about one-third the size.

Climate

India’s climate is generally considered tropical, but variations across the country range from alpine to temperate to subtropical monsoon.

Religion

Approximately 81 percent of the people are Hindu. India also has a sizeable Muslim population, as well as Christians, Sikhs, Jains, Buddhists and Parsis.

Languages

About 1,700 dialects are spoken in India, making for a truly multilingual country. The constitution of India names Hindi as the country’s official language, but it also recognizes 22 other languages and authorizes the use of English for official purposes.

On the Map

India comprises 28 states and seven union territories. In recent years, a number of cities and states have undergone name changes. Here are a few of the new city names, with the old names in parentheses: Mumbai (Bombay), Chennai (Madras) and Kolkata (Calcutta).

India’s Economic Growth

Thanks to policy reforms in the 1990s, India has one of the fastest-growing economies in the world. Over the past decade, its gross domestic product (GDP) has grown at an average annual rate of 7 percent, and its per capita income at 5 percent.

Among consumer markets, India ranked 12th in 2007. By 2025, it is expected to climb to the No. 5 position, after the United States, Japan, China and the United Kingdom.

Jaipur, India - December 29, 2005: Traffic on one of the main streets in Jaipur, also known as the Pink City. Jaipur is the largest city and capital of the Indian state of Rajasthan.
Pictured is traffic on one of the main streets in Jaipur, also known as the Pink City. Jaipur is the largest city and capital of the Indian state of Rajasthan.

Approximately 70 percent of India’s population still lives in rural areas, but the trend is increasingly toward urbanization. Contributing to this shift has been the rapid growth of India’s service sector. With a large number of well-educated people skilled in the English language, India has become a major exporter of software services and business process outsourcing. The service sector now accounts for 55 percent of the GDP, with agriculture contributing 26 percent and industry 18 percent.

Due to India’s economic growth, poverty has been reduced by about 10 percent in the decade since 1997. The country’s middle class has grown to include about 50 million people, a number that is expected to grow tenfold by 2025. This increase in earnings has resulted in more disposable income and discretionary spending.

History of Direct Selling

The direct selling industry in India is less than 20 years old, barely a blip on the timeline for a civilization that originated around 2,500 B.C. Up until the reforms of the 1990s, India had essentially followed a closed-door policy. One of the very few known direct selling companies to operate prior to that time was Eureka Forbes. This company introduced vacuum cleaners to India for the first time in the 1980s.
India’s policy reforms set the country on a growth trajectory, which continues today. These changes also made conditions for direct selling much more favorable, and in 1995 the industry officially began.

The Industry Today

Despite a lack of awareness by many people in India of the direct selling concept, the industry has taken root and seems tailor-made for the country. As Bill Pinckney, the Managing Director and CEO of Amway India, explained recently, “Many thought the business model would not work. After a few years, they then said it would not last. The business model does work incredibly well in India, and it has lasted and proven its detractors wrong. Thousands and thousands of Indian entrepreneurs of all ages now earn important income for themselves and their families through the direct selling industry.”

(left to right) Ms. Alka Gurnani, IDSA Manager Communications, and members of the IDSA Executive Committee: Mr. S. Subramanian, Ms. Chavi Hemanth, Mr. Yoginder Singh, Mr. Amarnath Sengupta.
(left to right) Ms. Alka Gurnani, IDSA Manager Communications, and members of the IDSA Executive Committee: Mr. S. Subramanian, Ms. Chavi Hemanth, Mr. Yoginder Singh, Mr. Amarnath Sengupta.

Indeed, the growth experienced by direct selling has been robust, clocking in at 24 percent last year and 17 percent the year before. But the industry is new, and India is a big country. Unlike many developed countries, its markets are far from saturated. According to the latest Socio-Economic Impact Report (SEIR) compiled by the Indian Direct Selling Association (IDSA), the overall share of the direct selling industry in the country’s GDP is less than 1 percent. That leaves a lot of room for growth.

India is a country with the second-largest labor force in the world. At 478 million strong out of its 1.21 billion people, India’s workforce alone is greater than the entire population of the United States. In 2009, its unemployment stood at 10.7 percent, and with its population increasing, generating employment will be key to the continued growth of India’s rising middle class.

Direct selling has the potential to generate self-employment for large numbers of people who previously have had few job opportunities. This would include those living in urban areas where unemployment for young adults is high, particularly for women age 20-24, as well as in smaller areas. With its low cost of entry, no prerequisite educational requirements, and the potentially high returns relative to the amount invested, direct selling is expected to grow at an annual rate of 15–20 percent over the next five years.

Direct selling has had a particularly positive effect on women, helping somewhat to bridge the income gap between men and women. With the income of females averaging around 31 percent of males, India’s income disparity placed it behind Mexico, Russia, Brazil and China as of 2009.

Offering a flexible work schedule, direct selling allows housewives to care for their families while supplementing their household income. The training and experience they receive help them develop business skills and become more knowledgeable in money management. Their increased earning capacity serves to boost the standard of living for the entire family, as well as improve the status and self-esteem of the women themselves.

The growth in the direct selling industry impacts India’s  economy both directly and indirectly. The rise in income levels serves to fuel aspiration levels, which further increases the demand for quality products and services. Customers benefit from the personal service, convenience and access to products that would not otherwise be available to them.

As sales increase, so do the various tax revenues collected. More workers and contractors are hired to help, and ancillary industries, such as packaging and shipping, expand as well. The new technology that’s introduced filters throughout the economy, impacting the various layers, from individual entrepreneurs to manufacturing to the government. And as companies expand, some will use India as their sourcing hub for distribution to other countries because of its strategic location in the Eastern Hemisphere.

Challenges Faced by the Direct Selling Industry

Although direct selling is growing and opportunities abound, the industry still faces numerous challenges.

Fraudulent Companies

Regulations defining what constitutes a direct selling company are unclear, and legitimate companies are often mistaken for pyramid schemes. Certain state and local authorities have taken action against direct selling companies or stalled their operations due to these misunderstandings. In addition, fraudulent and fly-by-night companies sully the reputation of direct selling companies and damage consumer confidence.

Regulations

The entry process for retail businesses can be cumbersome, particularly if the regulation concerning Foreign Direct Investment is deemed to apply to your business. With laws varying depending on the locality, with policies in flux and with no central governing entity in control, the legal maze can be confusing. The IDSA can help companies navigate through the process, although it does not provide legal advice.

Infrastructure and Distribution

Direct selling in smaller towns and rural areas can be more challenging than in the larger cities. Not every part of the country is easily accessible, due to a lack of navigable roads and the limited distribution networks. Many direct selling companies must rely on subcontractors for manufacturing, producing or distributing their products. Often, training is needed in areas such as packaging and quality control.

Additionally, different states have different regulations concerning the movement of goods. Transferring goods from one state to another can be difficult and time-consuming, not to mention costly, with the large number of state-level taxes.

For the direct selling companies who have entered the country, the rewards have been worth the challenges. Direct selling is still new, and the Indian markets are wide open. The growth in the economy has provided consumers with more disposable income for purchasing discretionary items. In smaller cities and areas outside the metros, modern retail stores are not as prevalent, making for less market competition. For these reasons and more, India is a country worthy of consideration for companies seeking to expand.

 

When Doing Business in India

What does it take for a direct selling company to be successful in India? We posed this all-important question to Indian executives we interviewed. The following is a sampling of their collective knowledge:

Take a Long-Term View and Establish Relationships

As Bill Pinckney, Managing Director and CEO of Amway India, points out, “India is a country where personal relationships are incredibly important. Companies and executives who enter India need to invest sufficient time and effort to develop key relationships and partnerships, and not rely entirely on contracts to determine business outcomes.”

Chavi Hemanth, Secretary General of the IDSA, recommends that a company hire Indian people as it establishes itself. She states, “This shows that you’re ready to invest in India.” And she goes on to suggest, “Look at India as a continent, not a country.” The mixture of culture and customs changes almost with every village, and the uniqueness of each area, in effect, creates its own small country within the subcontinent that is India. Hiring locals can help you navigate the country in a way that would be difficult for non-natives to achieve.

Hemanth also stresses that no relationship is more important than a company’s relationship with government entities. Going through the appropriate approval process, following the laws and operating ethically will help a direct selling company establish its legitimacy with both the government and potential customers. The IDSA serves as an important resource for member companies in this area.

Adapt Products to the Indian Market

Personal care, beauty products and cosmetics have been popular offerings, particularly among women. And women, according to the latest SEIR report, account for approximately 70 percent of the direct sales consultants and at least 60 percent of the customers. Clearly, pleasing women is important in any culture, but of course, they don’t all like the same things!

Yoginder Singh, the Senior Vice President of Legal and Corporate Affairs for Amway India and the current Chairman of the IDSA, made this observation: “Given such diversity in customs and culture, companies that seek to operate within India need to localize their products, workforce culture and business processes to meet local requirements.”

Knowing that many people prefer to try a product first before buying larger quantities, Amway offers certain types of its personal care products, like shampoo, in small packages, or sachets (as tiny as 5 milliliters). This also makes the products more affordable and accommodates those who typically buy only enough to meet their daily requirements.

Make Positive Initial Contacts

With so many fraudulent companies around, people can be skeptical of direct selling companies. Making initial contact, in a positive manner, can be difficult. Although using email or the phone may be acceptable later, they may prove ineffective for making initial contact.

The SEIR report found that among the companies surveyed, approximately 94 percent gained their contacts through personal references—friends, relatives, office colleagues and the like. Amway’s Singh notes that the traditional direct selling standbys—door-to-door sales, word-of-mouth and party-plan sales—are fast gaining recognition and acceptance. He states, “Indian customers often want to touch and feel the product before making a purchasing decision.” That’s something that direct selling methods can certainly accommodate.