Goldman Sachs quite bullish in India from years now started finding it difficult to do business in the world's second fastest growing economy.

BRIC the acronym was coined by Goldman Sachs economist Jim O'Neill in a 2001 paper entitled "Building Better Global Economic BRICs".  Goldman Sachs argues that the economic potential of Brazil, Russia, India and China is such that they could become among the four most dominant economies by the year 2050.

The thesis was proposed by Jim O'Neill, global economist at Goldman Sachs.

While India economy is growing, Goldman sach which was betting big on India is perhaps still confused with the level of its earning and finding profit from deals in India almost elusive.

Most of the western companies just don't realise that Indian market is just different. The concept which applies elsewhere just doesn't work in India.

Western companies just jump into the Indian market without understanding Indian consumer psychology. The results are obvious "Vodafone managing 140 million Indian customers with zero profits", Apple India Iphone 4s launch failure, Check Point launch failure, etc.

Unlike in the west, companies in India are reluctant to pay for advice on mergers. Banks are ready to accept tiny fees as compared to that in the west from state enterprises.

Goldman Sachs has climbed to No. 2 in mergers and acquisitions. It now offers investment banking, broking, offshore asset management, fixed income securities, private equity and  non-banking finance business.

Total investment banking fees in India were about $1 billion last year that is around 20% if compared to $4.9 billion for China.

Goldman Sachs's annual revenue in India from all of its businesses is around $100 million, which is only around quarter of a percent of the firm's $39.2 billion in revenue worldwide last year.

In brief I would say that Mr. Neill report about India has some serious flaws and other eminent consultant and companies would be doing the same mistake unless they understand Indian culture and their psychology, country infrastruture at the first place.

Issued in investors interest by Indian Business and culture Trainer and consultant Subodh Gupta based in London. 

Subodh is the author of the book "Doing Business in India and Understanding Pitfalls", and also "Understanding Indian culture and bridging the comunication gap", available at Amazon, Barnes and Nobles,Apple Ipod, etc.

Once again I will start with the same statement which I have been repeating since years while suggesting western businesses on how to do business in India.  "India is just a different market and the business concept which applies anywhere else just doesn't work in India".

Vodafone is learning in a hard way specially When you look at the Vodafone results it shows virtually absence of operating profits from its huge customer base in India.

Vodafone is seeking growth in emerging markets such as India (just like every other western company) without understanding the Indian consumer psychology.

The results is with 4 years of hard work with revenues more than £2 billion from a customer base of 141.5 million people, Vodafone made virtually zero operating profits from India in  the half year.

I have repeatedly explained about flawed concept of 300 million Indian middle class purchasing power  in India which the eminent retail consultant often mistakely use when describing large buying power in India.

This concept is in detail in my book "Doing Business in India and Understanding pitfalls" published in year 2008
http://www.amazon.co.uk/Doing-Business-India-Understanding-Pitfalls/dp/0955688272/ref=sr_1_3?s=books&ie=UTF8&qid=1323080377&sr=1-3

Slowly western companies started realising that India is a tough place to do business and  the bitter truth of middle class purchasing power.

In addition Vodafone is entangled in seemingly never ending issue of £1.5 billion withholding tax bill the Indian  government wants Vodafone to pay following its 2007 acquisition of Hutchison Essar.

Vodafone has spent around £12 billion in India so far but has yet to generate a meaningful return.

India is just a different market and the business concept which applies anywhere else just doesn't work in India.

Foreign companies just don't understand Indian consumer psychology and year after year they are learning this lesson at a high cost.

Vodafone has learned a lot during the last 2 years, Goldman Sach is still learning in India and latest in this series is Apple. (I have repeatedly explained this concept in detail in my book "Doing Business in India and Understanding pitfalls") http://www.amazon.co.uk/Doing-Business-India-Understanding-Pitfalls/dp/0955688272/ref=sr_1_3?s=books&ie=UTF8&qid=1323080377&sr=1-3

Apple's latest smartphone recently arrived in India to a quiet reception compared to the hype surround its launch, with its entry price in comparison to that in the UK. Stores selling the iphone 4s in Indian cities were found to be near-empty.

The iPhone 4S is priced at Rs 44,500 onwards (even with monthly money back program from Aircel - 50 % of iphone 4S cost) in India.

It is obvious that Apple Indian team just don't understand Indian's psychology and this explains the lacklustre response at the launch in India, compared with the US and the UK where people queue up for long hours ahead of the launch of any iPhone.

Airtel launched the smartphone in the presence of media simultaneously in six cities, while Aircel launched the iPhone iPhone 4S across eight cities. Neither Airtel nor Aircel wanted to share the details on the number of units sold at iphone 4s launch.

A report published by KPMG’s Indian branch painted over optimistic picture and in a way mislead investors about loss making Indian aviation sector. Report suggested in 2008 that the airline sector in India can still be profitable despite the high oil prices and other issues.

Now in 2011, three years down the line all we can witness is disastrous results in the Indian Aviation sector with national carrier Air India, private airline such as Kingfisher, Spice jet all in severe losses.

As of now Kingfisher Airlines Ltd’s loan funds stand at Rs7,543 crore (debt-to-equity ratio of about 3.2), Jet Airways (India) Ltd’s is Rs14,123 crore (debt-to-equity about 4.2) and that of Spicejet Ltd, debt at Rs712 crore (debt-to-equity about 0.7).

Eminent consultant from prestigious companies who created and published unrealistic report believe that growth will take care of the problems, as India is the fastest growing market in the world.

Now as per latest statistics India’s airlines reported domestic passenger growth of 18% in 1H2011. India is now the ninth largest and fastest growing civil aviation market in the world.

However I have highlighted and predicted long ago in my book published in july 2008 "Doing Business in India and Understanding pitfalls" that India is just a different market. The concept which works globally doesn't necessarily works in India.

Even though India has the fastest-growing number of passengers in the world but still domestic airline industry in India is fighting for its survival.

At a time when many eminent consulting companies such as KPMG had wrongly over estimated the potential and predicted that Indian Aviation sector will be profitable around 2011, the aviation industry in India is still losing money and number of operators are struggling to meet day-to-day expenses.

Issues in investors interest by Subodh Gupta. Subodh is the trainer and consultant on Indian Business and Culture and also the author of the book "Doing Business in India and Understanding Pitfalls" available at Amazon, Barnes and Nobles, Apple Ipod, etc.

Think for a moment how many times you negotiate with somebody in one day or within a month in the UK or in any western country?

I hardly remember needing to negotiate at anytime during the last 6 years of my stay in London, except while dealing with estate agents.

Now guess how many times people would have negotiated in a time span of 6 years in India?

Well I would say at least 2000 times and that is not an exaggeration, because in India people negotiate for everything. The moment people wake up in the morning they go to the local food market and they start their day negotiating with vegetable and fruit vendors.

They negotiate with any service provider, whether it is a plumber, a carpenter or a cleaner, etc.

They go shopping and they negotiate for everything, such as clothes, shoes, TV, fridge, computer, etc.

They negotiate while dealing with ad agency suppliers, their charted accounts, lawyers, etc.

There is an underlying feeling in the mind of Indian consumers that if they do not negotiate while purchasing, that means they have over paid, so they negotiate everything. Shopkeepers and service providers also understand this and therefore put higher price on all their products.

If you are a foreigner in India, there is a very high possibility that a shopkeeper or a service provider would instantly increase their prices the moment they saw you unless it is standardised and prices are already marked.

Issued in the interest of businesses that are planning to do business in India by Subodh Gupta, author trainer and India Business consultant.

 Subodh Gupta is the author of the best selling book “Understanding Indian Culture and Bridging the communication Gap” available at Amazon, Waterstones, Borders, etc. Visit us online at: Indian Business Culture

The author Subodh Gupta has worked for about 12 years as an entrepreneur, an engineer, a guest professor to various MBA schools in India and about 6 years in the UK as a freelance trainer and consultant.

Since last 10 years a lot has been written in the press around the world about the shining India, however, reality is that even now in 2011 Indian IT service market offer very limited opportunity for the western companies.

If latest revenue figures of the top Indian IT companies are to be trusted then the reality is most of the revenue earned by Indian IT companies is not from  within India instead earned mostly from the USA and Europe.

Considering the revenue figure of India' number one IT company INFOSYS, it earns only around 2% of all its revenue from within India and almost 86% of its revenue from US and Europe.

North America contributed 63.7% of revenues and Europe accounted for 22.1% of the same. The company derived around 2% of its revenue from India and remaining around 12% of total revenue was earned from the rest of the world. 




Similarly WIPRO India's number two, IT company earns around 84% of its revenue from the USA and Europe market and 14 % from the rest of the world with a very small share of its revenue from within India.

Now the question is, if the top Indian IT companies are making only 2 to 3 % of their revenue from within Indian market, & salaries for Indian IT professionals is growing at an average annual growth of 15%, is India IT market is really financial profitable for western companies?

India will be facing food shortage in the coming years. It will become extremely difficult for India to sustain around 17% of world population (and still rising) on 2.4% of the world’s land area.

Agricultural in India is not a profitable sector and peasants are either shifting their profession from being a farmer or committing suicide.

The majority of farmers in India unlike in the West have very small areas of land with primitive style of farming activities. The per capita production is also very low and most of the farmers live in very poor conditions.

Farmers are committing suicide in India as they can’t live a self sufficient life and mostly live under a huge debt for years with just enough money to survive.

As per official statistics, 8,263 farmers have committed suicide in just seven states (Maharashtra, Karnataka, Kerala, Andhra Pradesh, Tamil Nadu, Punjab and Gujarat) between 2003 and March 2007”.

In fact over a quarter million Indian farmers have already committed suicide since 1995. The largest of recorded suicides in human history has occurred in India in the past 16 years.

So obviously food price would be keep on rising in the coming years in India and the total yield in the agriculture area will also come down.

In India around 6000 kids die every day (2 millions kids a year) just because of hunger.

India is heading towards serious food shortage and food prices will certainly be rising, considering the fact that yield per hectare is not increasing but population explosion is continuous.

This food shortage and increase in food prices will further add to increasing inflation in India or at least keep the inflation figure high. High inflation figure will eventually bring down the economic growth.

About the author:
Subodh Gupta is the author of the book "Doing Business in India and Understanding Pitfalls", the only book which highlights business challenges in  India.

The author and corporate trainer Subodh Gupta has worked for around 12 years in India as an entrepreneur, an engineer, a guest professor to various MBA schools and around six years in the UK as a freelance trainer and consultant.