Doing Business in India Acme Manufacturing Company Auburn Hills MI USA.

Doing Business in India

Acme Manufacturing Company • Auburn Hills • MI • USA •

Price and Contract Negotiations

Indian customers compare a minimum three competitive quotes, unless the subject equipment is unique Most customers negotiate based on their approved project budgets and also in relation with competition

In most large companies, there are multi level negotiations, usually ending up with top management. Enough care should be taken while negotiating so that there is something to offer at every level of negotiations

In mid size and small size companies, most negotiations are done with owner representatives. In these cases, process are compared with competitors

Enough care should be taken in documenting/listing project deliverables

Most Indian customers do insist on bank guarantees for advance payments, performance bank guarantee during warranty period, so these costs should be considered during negotiations. Generally, bank guarantees are discussed just before signing the contract, so it is important to know about bank charges earlier.

Going face to face and developing a good relationship is very important


Sales and Distributor Channels

Generally, agents are acceptable for general purpose machine tools. For special machines and process solutions, agents are of very little help as they want a quick score with little effort. For special machinery, the selling cycle is much longer.

Distributors are quite helpful for products like tools and consumables, where they can stock and sell


Agent Commission Structures and Service

Generally, two types of agency – one is to identify the potential customer and convert into order. In this case, 2-5% is applicable

In the second case, apart from sales, the agent also provides installation and commissioning of the equipment. In this case, the commission would typically be higher at 10%

Generally, agents are acceptable for general purpose machine tools. For special machines and process solutions, agents are of very little help as they want something easy to sell.

For special process, customers prefer to communicate directly with the supplier for better understanding and confidence


Selling to Private vs. Government

In private companies, you can identify the team for accountability, whereas in government companies, there are multiple departments, getting involved during the project, design, and implementation. It is necessary to have proper documentation listing all key issues of project

In private companies, it is possible to modify the scope of supply and price, if it is required, whereas in government companies, once the P.O. is released, it is very difficult to modify.

In government companies, final acceptance of machine is quite difficult compared to private firm (because of multiple departments involved in project execution)

Payment terms of government companies are generally stringent

The selling cycle with government companies is very long compared to private companies. After the project team is convinced, they need to get approval for the project. Generally, government provides a budget in the beginning of the year. If any delay in budget sanction, then we may have to wait for a very long period. After budget is sanctioned, the tendering process will start, which is time consuming.

Generally, it is perceived that margins are high in case of government orders. Once the machine is approved, getting repeat orders is easier.


How to Deal With Tender Process

Typically tender is submitted in 2 parts – Technical bid and price bid

Technical bids are opened first. All participants will know the technical scope of each bidder

Customer will study the technical bid of each supplier. If any clarifications are required or there is deviation from customer requested description of goods, then customer will ask that particular bidder to clarify and if necessary re-submit.

Minimum two bidders should satisfy all technical requirements

After that, the price bids are opened. Generally, lowest bidder is selected. However, in some cases, it is possible for the customer to request their preferred bidder to match the lowest bidder (In the event their preferred bidder is not lowest)


Interesting Information:

India has 1.3 billion people, 50 million are middle class or higher. In 20 years that number increases to 300 million.

India has the worlds youngest and second largest working population, approximately 600 million (50%) are under the age of 25

Manufacturing employs the largest number of people in India

There are more billionaires being created in India today than any other country in the world

India graduates more English speaking graduates than China

India’s current steel capacity is 40 million tons, by 2020, it will be 300 million tons

Indian’s do a very poor job on maintenance. Consider selling a maintenance service contract.

Indian’s are highly motivated and very entrepreneurial

Published GDP statistics are very understated

Currently 8 million new cell phone users per month
