India's investment climate is ripening

Taj MahalWith 1.1 billion people and a culture that is nearly 5,000 years old, India is unlike anywhere else in the world. The country has a unique paradigm that is part emerging economy — with a well-educated, English-speaking middle class — and part medieval society, where living conditions are primitive and a barter economy still exists.

But for the functional-foods and dietary-supplements sectors, the opportunities in India may be unparalleled. India's middle class — 583 million — is expected to go on a spending spree that will reach $1.5 trillion by 2025, four times the present $380 billion. According to the Agriculture and Economic Research service, the current $350 billion food-retailing business is poised for double-digit growth.

The company manages the supply and testing of ingredients from India to its manufacturing facility in Payson, Utah. it also employs a software division that integrates human resources as well as financial and manufacturing data. "The ultimate goal is to get high-quality products on the shelves, and now we have all the steps in place to make that happen," says marketing director Shaheen Majeed.

Conditions are good for the flow of products and ingredients in both directions. There is an increasing awareness of Indian culture in the West and a deep familiarisation with Western culture in India due to many years of British rule. India also has rich traditions in preventive medicine such as Ayurveda, Unani, Siddha and homeopathy, so consumers are familiar with the use of herbal tonics and nutritional supplements.

All this spells opportunity for new consumer brands from the West. In particular, the personal-care sector is poised to grow as burgeoning numbers of young people drive interest in popular culture and a better lifestyle, according to Shaheen Majeed, marketing director for Sabinsa Corporation, an R&D-oriented producer of raw materials with divisional facilities throughout India. Brands such as L'Oreal and Estee Lauder appeal to families and young people who aspire to a better life, he said. Similarily, large multinational companies are adding premium nutraceutical ingredients to products and emphasising their ability to make youth healthier and smarter. The young aren't the only interested market, though. Ageing seniors are well aware of the benefits of supplements such as glucosamine and chondroiton, says Kantha Shelke, president of Corvus Blue, LLC, a Chicago-based consulting firm that specializes in helping Indian companies bring unique raw materials to North America.

Yet India is still relatively new to the global market as a whole. The difference between China and India, notes Mary Mulry, founder of Foodwise, a natural/organic and functional-foods consulting group in Hygiene, Colorado, is that China has been trading beyond its borders for years. "India has big conglomerates, and they became large by producing and selling goods domestically. They didn't really produce much for export until recently." Because India was not privatised, there was little business influence from the West. Now, opportunity and demand are spurring outside investment.

The new middle-class market
India's growing middle class has big purchasing power, according to Ajay Patel, president and CEO of Verdure Sciences, an Ayurvedic-products manufacturer with a facility in northwestern Gujerat. For these people, the lifestyle experience is more important than saving money. "Middle-class Indians are not making more, but they are spending more of what they make. They want to have the kind of lifestyle experiences that people in the West have." Many sectors that are thriving include energy drinks, omega-3 fortified foods and probiotics, according to.

Fact: By 2025, India's consumer market will be the world's fifth largest, according to McKinsey Global Institute.

Fact: Urban India will account for more than two thirds of consumption growth over the next 20 years, and by 2025, India will account for 25 per cent of all food and beverage consumption, globally.

Fact: As much as 60 per cent of the working population is employed in agriculture. The major crops include rice, wheat, tea, oil seeds, sugar cane and potatoes.

Fact: India produces 34 billion tonnes a year of oilseeds and serves as the fifth-ranked global leader, but very little is exported. Primary crops include cottonseed (one third of production), followed by peanut, rapeseed and soybean.

Fact: A $1 donation to Vitamin Angels provides sufficient funding to keep a child from going blind during the first four years of life when they are most vulnerable.

Fact: More than 30 per cent of the developing world's population suffers from micronutrient deficiencies.

Fact: the organisation has set its sights on the issue of childhood blindness, with plans to eliminate the disease by the year 2020 through systematic distribution of vitamin-A supplements to at-risk children.

Fact: In addition, Vitamin Angels sponsors programmes to supply multi-vitamins to at-risk children, and prenatal supplements to expectant mothers.

Companies setting the pace for expansion into the Indian market in the foods and nutraceutical sectors include the multi-level marketers (MLMs), Shelke says. Amway, for example, has a fantastic history with personal-care products, vitamins, minerals and products with packaging systems aligned to Indian consumers. "MLMs work well with Indian culture because the concept of community and extended family is very strong," Shelke says. "There is also a huge and influential female population who is used to buying and selling."

Staying nimble to issues unique to India is essential for success. For instance, Unilever, with a 75-year history in India, is targeting individual brands to specific societal sectors. The company introduced a washing detergent that not only cleans clothing but requires less water, which is valuable in rural communities with a shortage of clean water.

Getting products and protecting them
Despite the opportunities, India is still fraught with challenges. With major cities such as Mumbai and Kolkata, each with a population of more than 13 million, infrastructure has not kept pace with India's growth. Traditionally, product distribution and transportation relied on an inadequate system of country roads, ageing trucks, an overtaxed train system and poor air service.

All of that is changing. Competition between domestic airlines for business travelers is intense. Also, the government is building a national interstate system to link major population centres with four-lane highways. Bangalore, India's third-largest city and a major economic hub, was one of the first cities to invest in economic development. Its success prompted improvements in Mumbai, Delhi and Kolkata.

"India is trying to get the planning measures in place to handle the growth. The government took on improving the infrastructure," says Sendhil Pani, manager of special projects, marketing for Sabinsa Corporation. "Now India is doing business in the global economy. But Indian companies also want to sell their products to the rest of the world."

Protecting intellectual property in India brings up a whole new set of challenges. For innovative, R&D-oriented companies, India offers little government protection for patent infringement. "The minute you get there somebody will knock off your product if they can," says Sabinsa's Majeed. "Our research and intellectual property is the Sabinsa strategy. Patented branded ingredients are what we stand for. So we defend our patents."

It will take some time, he says, before the Indian government understands the importance of patent protections. "When more big companies come in to India, the government will start to realize how patent laws add value and will improve India's credibility." A recent introduction of the Food Safety and Standards Act may streamline this process (see sidebar, below).

Keeping an eye on quality
As this price gap shifts, some may be tempted to improve their margins by cutting corners. Shelke recommends being well versed in how the ingredient works, what can go wrong, and the science used to validate it. "If you are paying for high-quality gluten, then you should know how it will perform," she says. "It definitely takes a very strong level of connectivity with your partners."

Controlling the supply chain is extremely important, adds Patel, who visits the Verdure factory in the state of Gujerat four to five times annually. "I talk to the factory staff because they don't necessarily understand the importance of what they do to their community, and I educate them about where the product is going."

Controlling the supply chain in no easy task. To begin, it involves dealing with bureaucracy and corrupt officials. "Setting up in India is very difficult," Majeed says. "It costs a lot and someone there will inevitably knock off your product."

For Mulry, who works with Organic India, which sources organically grown tulsi and psyllium, controlling the supply chain is essential for quality. "There is such a wide variation in quality and contamination from one area to another, you must control the entire supply chain. And you need to go visit. You can't just work through brokers," she says.

"India is not really different from doing business in Mexico or China — you must know and trust your partners."

The importance of giving back
Even with the emerging middle class, the dichotomy is striking, according to Howard Schiffer, founder and president of Vitamin Angels, a nonprofit, 14-year-old organisation that donates vitamins to medically underserved children in India.

"You have these large multinational companies outsourcing services to the US, and right next door you have poverty that is so acute." Schiffer says the extremes of overpopulation, a developing infrastructure, poverty and a modern government in its infancy are difficult obstacles to ignore.

That means Western companies must learn to deal with differences in Indian culture and business practices. The pace for doing business in Asia is very different, notes Vitamin Angels' Schiffer. "Business is built on relationships but communication is not that straightforward," he says. It is important for Indians to be a good host to visitors, so they will keep asking what they can do and offering more food.

To help his workers cross this cultural chasm, Verdure's Patel conducts an informal exchange programme with staff so workers on both sides can see how business is done. Giving back is engrained in both Verdure's and Sabinsa's corporate culture. "Because of the caste system, our parents always felt a responsibility to take care of the people who work for them." For Verdure, that means helping to build houses and contributing to local schools.

Giving back is also a part of Sabinsa's corporate fabric. In addition to extensive conservation measures, the company works with about 10,000 farmers who own or lease 40,000 acres. The farmers are treated to special "farmers' days," including prizes and entertainment. "If they produce nothing, they still get paid. Once they know they are protected, the farmers produce," Majeed says.

One drought year, Sabinsa kept its supply by bringing in irrigation trucks to water the fields. In addition, it sent an equal number of potable water trucks.

For companies doing business in India, it is creative solutions like this that will bring success, Schiffer says. "Companies must look for long-term solutions to end the poverty."

In its 20 years of operation, Sabinsa has developed a pipeline from India for ingredients such as coleus and curcumin.

Muhammed MajeedLargely due to founder Dr Muhammed Majeed, Sabinsa has an inside track on innovative ingredients sourced from India.

Sabinsa's Sami Labs Division employs 100 scientists in what is comparable to a university research facility.

Parents and children in Varanasi, Uttar Pradesh attend a seminar prior to the distribution of vitamins by Vitamin Angels, a nonprofit organisation dedicated to providing vital nutrition in the form of dietary supplements to developing countries, communities and individuals in need.

curryThe Food Safety and Standards Act

India's regulatory environment for nutraceuticals, dietary supplements and functional foods is in transition. Historically, these sectors were governed under multiple laws, but in 2006, India passed the Food Safety and Standards Act to integrate and streamline the many regulations covering nutraceuticals, foods and dietary supplements. The act calls for the creation of the Food Safety and Standards Authority (FSSA). Once established, the FSSA will be charged with drafting rules and regulations for companies in the food sector to be licensed by local authorities, and a system of checks and balances, including product-recall procedures, enforcement and penalties.

Corvus Blue President Kantha Shelke says the act is significant because it attempts to define terms such as functional foods and nutraceuticals; establish science-based standards; and outline processes for handling, manufacturing and distribution. Shelke is cautiously optimistic about the legislation, calling it a step in the right direction. Now, she says, it is the regulatory entities, including the Health Foods and Dietary Supplements Association and the Ministry of Food Processing Industries, that must drive its implementation and build consensus.

Crossing the Culture Gap: Tips for doing effective business in India

Most companies already doing business in India recommend that the most important thing is to find good partners on the ground to help you achieve your objectives. According to Sendhil Pani, manager of special projects, marketing for Sabinsa Corporation, creating a joint venture with a bigger fish already in India is the best route to success. "They will already have a foothold in India and know the score," he said. This can help you navigate the Indian environment, whether it be government or regulatory issues, patents or market challenges.

But once you create these partnerships, there are still challenges in dealing with cultural differences between Indian workers and those from the West. According to Karine Schomer, president of Change Management Consulting and Training LLC, a specialist in cross-cultural training and management, India presents an important case study for cultural differences with respect to mindsets, values and business interactions. She recommends several tips to consider when forging new working relationships in India.

  1. It's the relationship that counts
    You must spend time and energy in developing a good personal relationship with your Indian partners, said Schomer. For many American's this is counter intuitive?they get in, discuss the business and move on. For Indians, you must take time to get to know one another and discuss non business related things such as family and sports. "If you are invited to a wedding, you should go," said Schomer, who suggests that westerners will do best if they show curiosity and ask questions of their Indian counterparts. "You should show interest and admiration for Indian culture and also share things about yourself and your kids."
  2. Share the big picture
    Indians and Americans are quite different in the way they communicate, said Schomer. "Americans are low context communicators and Indians are high context communicators." This means that Americans, in a given business situation, tend to share only the information that is relevant to the business at hand. On the other hand, Indians tend to share and like to understand the big picture and they will expect to get that information from their partners. Schomer notes. "It is important to build that context for your India partners," she says.
  3. The Yes/No Conundrum
    Don't take yes or no literally, said Schomer. Like most Asian cultures, Indians don't like to say no, so it is important to pay attention to indirect communication, like body language, silence or other ways to say no, such as "we'll try," or "that will be difficult." Paying attention to indirect ways of saying no can help avoid problems and misunderstandings later in the relationship.
  4. The Purpose of Meetings
    Most Americans have an expectation that when you set up a meeting, it will be where all the important things are said and decided. For Indians, this may not be the case, said Schomer. Indians view meetings as an opportunity for talking and brainstorming, but the decision maker will not necessarily feel bound to make those decisions or even stick to anything discussed in the meeting. "Don't expect the final decision to made in the meeting, even if it sounds like it has been, Schomer said. After the meeting or during dinner is where the real discussion may occur or where the decision is made. So how do you know when things are final? Schomer suggests being prepared for much back and forth discussion following a meeting. "It is important to stay in touch," she said.
  5. Work pace and scheduling; Go with the flow
    Life and work is different in India than in the United States. The pace is much slower and deadlines are not as important, notes Schomer. "You can save yourself a lot of grief by not scheduling your meetings back-to-back when in India," she added.? Meetings will often start late and go long, plus you need to plan on spending time for that all important relationship building, so a generous schedule is the best way to go. Meetings may ramble and then in the last 10 minutes, things start to get really interesting, so you won't want to be worried about rescheduling your next apointment.
  6. Respect the Chain of Command
    Indians take their corporate structure very seriously. Decisions come from the top rather than by committee, as opposed to in the US, where subordinates are often expected to speak up and take ownership and responsibility. It is important to understand your potential Indian partner's chain of command and make sure they understand yours as well, said Schomer. If you approach the wrong person for a decision, at best, nothing will happen, at worst, you will step on someone's toes. Schomer suggests taking time in initial conversations or meetings to ask direct questions about your partners organizational structure as well as sharing how your own company structure works.

Karine Schomer leads the India Practice for Change Management Consulting and Training LLC. She has been involved with India for more than 25 years including eight years living and working in India. She is fluent in Hindi and has indepth-understanding for Indian culture, values and business and social customs. Schomer has been a University of California at Berkely professor, dean at Golden Gate University and CEO of the California Institute of Integral Studies.? For more information contact her at [email protected] or go to

This content is generously underwritten by Sabinsa, manufacturer of phytonutrients, Ayurvedic herbal extracts and speciality fine chemicals for nutritional, pharmaceutical and food industries.

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