Why you should definitely focus on these aspects in your Indian subsidiaries
European companies often overlook the fact that common corporate structures and processes are not (yet) always standard in India. Not only a lack of control mechanisms, but also simply a lack of structures, unclear responsibilities and disorganized teams lead to massive problems and even (criminal) compliance issues. The - often unpopular - internal (forensic) audits provide the explanation for a company's stagnation and loss of sales and give it the opportunity to actually write a sustainable success story in India by creating clarity and transparency.
In our daily practice on the ground, we repeatedly observe similar problems in Indian subsidiaries (or in German-Indian joint ventures), the extent of which the European parent company is often not aware of or not fully aware of. The consequences can be serious.
Why we were commissioned…
The Indian subsidiary of a world-leading manufacturer of industrial machinery and accessories was in a critical phase when its managing director, who was also the sales manager, suddenly resigned. An interim sales manager was needed at short notice because urgent problems had to be solved and the company had to be brought back on the "right track".
The company therefore turned to the Dr. Wamser + Batra Group.
What we discovered through the audit…
Even our first superficial assessment revealed a complex web of financial irregularities and compliance violations in the subsidiary.
The results of the internal audit we conducted confirmed our initial impression, but went far beyond that: one of the "directors" was not only secretly channeling commission payments through intermediaries to personal accounts. In addition, he had simultaneously founded a competing company with a parallel product line. The extensive irregularities and covert "financial maneuvers" of this manager significantly compromised the financial integrity of the company and made it imperative to take immediate corrective action.
What fundamental problems we have identified…
- Sales targets not achievable
The subsidiary's sales policy lacked any professional structure. Sales forecasts were set without taking into account the essential parameters such as market potential, product range, competition mapping, product pricing, customer expectations and dealer potential, as well as the company's own financial situation. The targets forecast in this way were simply utopian.
- Cash flow not in sight
Deliveries to customers/dealers continued without collecting outstanding payments. This lack of visibility into cash flow resulted in outgoing invoices amounting to 3,1% of sales only being paid after more than 45 days. In addition to the collectible accounts receivable, 0,5% of them were uncollectible, e.g. due to litigation, write-offs, reconciliation differences, etc.
- Overlap of sales territories
Sales territories were not divided and overlapped, which meant that sales opportunities could not be realized. In addition, several potential sales territories were simply overlooked. The result was the demoralization of the sales team.
However, clearly defined sales territories are essential for targeted marketing and understanding local customer needs. They improve market penetration by tailoring corporate strategies to regional characteristics and better taking individual customer needs into account.
- Unclear team structures
The disorganized structure of the sales team inevitably led to friction and inefficiency. Employees at the engineering level, for example, reported directly to the managing director. This unfavorable reporting system meant that the managing director was simply overwhelmed by the amount of information that was being presented to him in addition to his actual tasks.
- Contradictory sales policies
The clauses in the sales policy contradicted each other in several places. There were no clear incentive structures for achieving sales targets and if such incentives existed, they were designed inconsistently. This led to great confusion among the workforce and further demoralized them.
- Lack of analysis of market potential and complicated sales structure
A comprehensive assessment of the market potential had not been carried out for years, which meant that the company had no up-to-date, in-depth insight into the market. For example, the export of consumables to Bangladesh was done through an Indian distributor, followed by a sales agent. This multi-tier distribution structure led to higher product prices, which in turn resulted in lost sales as competitors were cheaper. Furthermore, such an approach naturally limited the company's entry into other SAARC markets.
- Arbitrary inventory planning
Like so many things, inventory planning was arbitrary. The inevitable result was shortages and excess inventory. For example, the planning of machine and consumable inventory was irregular, which led to shortages of the required goods and excess inventory of other goods. This problem in turn had an immediate and significant impact on the supply chain and, of course, a negative impact on the company's relationship with its customers.
- Pricing strategy not market-oriented
In addition to the incentive policies, the sales guidelines were also vaguely worded and led to misinterpretation. In addition, the pricing strategy for the sale of machines (one of the vertical product groups) was controversial, especially with regard to the sales commission for dealers.
What measures we recommended…
- Restructuring the team and defining sales territories
Based on the parameters of location, market potential and accessibility, the sales team was restructured and the respective sales areas were redefined.
As part of the Sales budget planning for 2023-24, the roles and responsibilities of the reporting managers were also optimized.
A lean sales structure with central control improves flexibility and adaptability in the global industrial machinery market. For this reason, we have reduced sales to 6 teams and placed them under central control.
- Setting a new sales budget
Only professional planning of the sales budget, taking into account the intricacies of international markets, ensures realistic and achievable sales targets. That is why we have taken into account market conditions, potential territories, competition, dealer network, etc. both in planning the sales budget and in setting realistic targets.
- Development of a special “funnel system”
We have developed a sales funnel system tailored to this subsidiary on a monthly rolling basis to track machine requests in order to obtain a correct overview of the expected orders. The implementation of such a system, in which sales opportunities are specifically tracked, is a crucial tool for anticipating and satisfying the demand of the international market accordingly.
- Reorganization of exports
As a further key measure, we have initially streamlined the export structures and separated them from the Indian (intermediary) dealers. In addition, we have created a separate sales structure for East India within the sales team in order to be able to successfully expand into the SAARC countries. Simplifying export structures opens up opportunities for companies to expand their markets, allowing them to open up new markets and take advantage of global opportunities.
- Creation of a new receivables management system
It was also important to implement a tight-knit accounts receivable management system to significantly reduce overdue receivables. Such accounts receivable management ensures a healthy cash flow, which is of course essential for sustainable growth of international business.
- Revision of sales policies
We revised the sales guidelines, both regarding the staff incentive regulations and the sales guidelines for dealers. The aim was to replace the unclear and ambiguous clauses of the previous guidelines with clearly defined regulations. The transparency created in this way creates trust among (international) customers and thus promotes long-term business relationships.
- Introduction of new discount policies and calculation sheets
We defined a uniform discount structure for sales and created a calculation scheme that includes all relevant components of the cost structure. These measures will also contribute to the transparency of transactions in the future, which is essential for international business.
- Inventory planning
In order to be able to meet the dynamic requirements of international markets in the future, we have created efficient inventory planning for machines and consumables based on a management-based approach.
What impact did the implemented solutions have…
- Improving customer relationship management
By creating the position of "Head of Sales Manager" separate from other positions, the company recognized the critical importance of customer-centric sales management. The sales manager could now focus on understanding customer needs, preferences and feedback, which contributed to better customer satisfaction and loyalty. In May 2023, just a few weeks after the start of our intervention, customer complaints fell by 67% compared to the previous year.
- Optimizing financial management
The stringent accounts receivable management not only improved cash flow, but also led to better supplier relationships, cost savings as a result of negotiations and strategic decisions.
- Increasing adaptability and responsiveness
Limiting the role of the managing director to the operational area made a significant contribution to the rationalization of internal processes. The risk of overlap and mismanagement was significantly reduced and responsibility and accountability increased.
All restructuring measures in the operational area increased the agility and thus competitiveness of the subsidiary. These are essential skills, particularly in such dynamic markets in which the company would like to operate in the future.
- Strategic reorganization of responsibilities according to professional competence
Delegating responsibilities based on expertise is always a strategic move that ensures that each team works with a specialized focus. For example, while the Sales Manager concentrates on revenue generation and customer contacts, the Managing Director can devote his attention to operations. This form of resource optimization promotes an environment of specialization and efficiency throughout the company.
- Adjusted growth and realistic future prospects
Compared to the unrealistic growth plan of the previous year, we have set achievable sales expectations. Slight but steady growth corresponds to the targeted sustainable progress in the highly competitive international machinery market.
The success speaks for itself…
A few months after implementing our recommendations, not only had customer satisfaction increased massively, but the growth of the subsidiary was already more than clearly visible: Sales of consumables: +19% in April and +44% in May, sales of machinery: +42% in May, outstanding debts paid off: +98% in April, +4% in May and increase in production of consumer goods: +31% in April, +27% in May.
So it's always worth taking a closer look - how is my local subsidiary doing? Why is it falling short of original expectations? Do we at the parent company even know what's really going on in India?
We will continue to support our customer in sales even after the new management takes office in June 2023, but now limited to a purely “advisory board function”.
