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