www.BPODigest.com i-Vortal

Investing in India

[Via Emergic] Anand Sridharan, a VC blogger from India, takes on the hype sorrunding the purchasing power of Indians.

1. Stick to basic needs

It will take us a while to get to self-actualization needs. Health spas, blogging and other self-indulgent pastimes will remain pastimes, not businesses. Billion $ businesses are most likely in food, clothes, basic infrastructure (roads, houses, health, education), communication, transport, household goods.

2. Think utility, not fun

Middle-class Indian households are used to an all-encompassing entertainment budget of $1/month/head for unlimited cricket, news, songs and movies. And this even includes the EMI on the TV (in addition to the cable bill and a newspaper subscription). No one is in a hurry to pay $5 a pop for a mobile phone game.

3. Price rules – but think VFM, affordability, TCO

Necessity makes us smart consumers. I worry whenever entrepreneurs talk of convenience and choice, without mentioning price. Classic example – Indians buy 2 million cellphones a month, compared to under 100,000 PCs (only consumer sales). Why? Greater value-for-money (most small businessmen actually make up for its cost through higher revenues). Low entry cost ($10-20 to go mobile). No other costs that add to TCO (PC ownership cost equation gets messed up by expensive home internet costs).

4. Unorganized sector is here to stay

With plentiful & cheap labor, there will always be an unorganized sector that is extremely efficient. Factory-processed foods will compete against local kitchen-help. The latter can typically deliver better taste, freshness and convenience, at a lower cost (remember, no overhead, no taxes). So, its going to be far harder to create the next General Mills or Campbell Soup in India. Similarly, kirana shops will stay long after FDI in retail is opened up.

5. Think hard before substituting capital for labor

Western capital-intensive models are often uncompetitive. Both at home (vacuum cleaners never took off, since maids are inexpensive) and in companies (high-volume flour mills still cannot match local ‘chakki-atta’ costs, in the $15 billion wheat-flour market)

I can't agree any less with Anand. This blog has joined my must read list.