China may have grabbed the headlines of the business press in recent years, but India isn't far behind, either in coverage or in the minds of company leaders looking to break into new markets. With its burgeoning middle class, few companies want to pass up the opportunities that India affords. But as Jim Van Leenan, CEO and president of Flash Global Logistics reminds us, India is still an emerging country, with all of the challenges that that label entails.
Almost 30 years old, Flash Global Logistics specializes in stocking, tracking and delivering critical parts and products. Its portfolio includes FLASHTRAC, its proprietary web-based, real-time inventory visibility solution. The company's client base has included Sun Micro Systems and Cisco Systems.
Van Leenan spoke recently with SupplyChainBrain in Boston, and his comments are based on first-hand experience with Indian Customs, tax authorities, and transportation infrastructure.
Q: Many U.S.-based companies find India to be a very attractive market. But it's probably fair to say many of them are somewhat wary about entering it. What do you feel are the reasons for that?
A: Van Leenan: First, compliance and tax regulations in India are indeed very complex, and consultants and preparation are required in order to understand what type of approach is needed for India in order to be successful.
Secondly, the infrastructure in India is such that throughput - for instance, at the ports in Chennai and Mumbai - is stagnated because of the lack of sufficient infrastructure there.
Thirdly, the movement of goods within India [faces] a very complex VAT tax structure within the states.
And fourthly, the requirement of setting up an after-sales service capability can be very challenging in India.
Q: Can you walk us through those points and elaborate on them a bit?
A: Van Leenan: We found that understanding the tax code in India, working with consultants there, is extremely important. Not only to understand how to clear Customs but to understand how to declare the goods in order to get the most advantageous tax brackets that are available. We have customers where we literally have been able to save millions of dollars in taxes based on imports.
Secondly, the infrastructure there is to a large degree underdeveloped, especially when compared to other emerging markets, such as China. For instance, the trucking industry is largely fragmented, mainly regional carriers. We expect here in the United States UPS and FedEx to deliver anywhere in the U.S. within 24 hours. In India there is only one carrier that is a full freight carrier. Every other courier company uses the belly space of the passenger planes. That obviously has priority issues. In reality, in India there are 22 to 25 cities that can be serviced with 24-hour delivery, next business day - bearing in mind that in India next business day means delivery until 5:30 p.m. Outside these 22 to 25 cities, basically the delivery takes place second and third day and is considered multimodal, using a combination of planes into major trade lanes and then trucks in order to get to final destination.
The challenges within India for trucking as well as for couriers are significant. At this stage, it is important for American companies to understand in which part of India they can provide four-hour service, next business day service, in order to set up the right service level agreement structure for their clients.
Q: What about movement of goods in India? You indicate there are significant obstacles there as well.
A: Van Leenan: There are 28 states in India, and each has its own VAT structure. The federal government is working with states in order to move towards one federal GST system, which will make doing business with India considerably more attractive. Yet they have been working on this for two years. Every state has to approve that new system, and the expectations are that it may take a number of years before such a federal GST system will be in place.
Q: And the last point - establishing an after-sales service capability? What's the issue with that?
A: Van Leenan: In most countries there a number of services that are taken for granted. In India it is just not sufficient to have one distribution center and believe that you can provide service to all of your customers in the country. It is more complex than that.
Q: Well, let's start here - how important is it to have after-sales services for companies selling finished goods with a high cost of down time?
A: Van Leenan: I would say that after-sales services are a requirement for any of our customers since they offer after-sales services in every other country they do business in. Secondly, there is a more strategic issue. If you as an exporter in the U.S. do not provide after-sales service capability, most of the time it will be very difficult to close the deal if you can't prove that you can service the product. And last but not least, it is strategic from the perspective that when you do have after-sales service capability and customers are satisfied, it drives brand loyalty and therefore repeat purchases of your finished products. So having an after-sales service capability is absolutely, strategically required for our customers.
Q: Yet you indicate it is not easy establishing that type of service. What are the hurdles?
A: Van Leenan: In most countries, the after-sales service capabilities are existent, often as an end-to-end solution. In India it's very difficult to find an end-to-end solution.
Q: Let's define that term.
A: Van Leenan: An end-to-end solution means not only having the capability to store in a distribution center, to offer second- or third-day delivery, but also to have a network of forward stocking locations, based on which you have the ability to deliver within four hours.
Then there's the reverse side - asset recovery, repair, testing, having the field technicians and the parts under one roof, and the scrapping of the parts. Repair within country obviously is very important, and it's often set up when there's sufficient volume within that country. So setting it up, having one system tying it together, giving you full visibility to your inventory and the quality of the delivery and the recovery and repair of parts within the country is extremely important. And setting it up is a very difficult task in India.
Q: If I'm running a company interested in establishing an after-sales service initiative in India, what do you recommend I do?
A: Van Leenan: First and foremost, prepare. Understand how you want to approach the market. Is it by dealer network or would you prefer to work with a company, a mid-market company, that has the ability to import and do the distribution on your behalf? There are pros and cons for each of these approaches.
Secondly, work with consultants. Understand what the tax codes are, understand how to import and what the requirements are, especially when it comes to critical parts, because you need an importer of record. The service company that you deal with has to have the ability to perform the importer of record services. These are the two requirements up front.
Secondly, find an end-to-end solution like what I've described, with all the service elements, tied together with a system - that's extremely important.
Evaluate the potential service provider that you work with in India based on what they have done in other emerging markets. For instance, have they been very successful in a country like Brazil?
The system capability, obviously, is extremely important. What's the visibility? When you put hundreds of thousands, sometimes millions of dollars of inventory into a country like India, you need to know in real time where your inventory is.
And there's also your customer satisfaction element, of course.
Q: Surely, a large 3PL can provide all of these services, don't you think
A: Van Leenan: There is such a complexity of elements that one would think, 'Well, if I look at a large multinational, then I'm safe. They will have the capabilities.'
First of all, they don't have the end-to-end solution that you need. And if they offer you some parts of it, they often put you in a straitjacket based on the service standards that they use whereas a mid-market company will be able to offer you a flexible solution that is adjusted to the needs of the American exporter.
I believe in an evolving country like India that flexibility is an absolute prerequisite in order to grow your business and not deal with a straitjacket type of service offering that may become an impediment to your business.
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Keywords: Asia Pacific, Third-Party Logistics, Global Logistics, Transportation & Distribution, Reverse Logistics, Logistics, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, After-Sales Service, India Marketplace, Doing Business in India, Indian Customs And Taxation
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