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TDC: Hong Kong companies should eye India's rising urban 'new mids'

India's rising new middle income earners (new mids) in urban centers will offer Hong Kong companies unprecedented growth opportunities, says a Trade Development Council (TDC) market study on India released today (August 7).

"Unlike European countries where higher-income earners are retiring, the size and purchasing power of the Indian middle-income consumers are on the rise," says TDC's Chief Economist Edward Leung.

There are now 56 million people in households earning US$4,400 to 21,800 per annum in India. The upper middle and high-income urban households are estimated to grow for 2.6 times from 14.6 million in 2000 to 38.2 million in 2007.

The growth of India's new mids and its retail market is fuelled by the country's robust GDP growth (real GDP growth above 7% in 2004 and 2005), influx of FDI (FDI up by 46% in 2005) and massive tariff reductions (from 90% in the early 90s to a current average of 15-20%).

India's retail market is increasingly dominated by its growing young and restless consumers, who are chasing for fashionable and branded items.

India's middle-to high-income consumers are located in four major urban centers including Delhi, Mumbai, Bangalore and Chennai.

The report notes that more Indian consumers are now buying from modern retail outlets such as shopping malls, supermarkets, and specialty stores.

Establishing retail outlets in India is much easier than before. In 2006, the Indian government announced that it would allow foreign companies to own up to 51% of a single-brand retail company in India.

The report points out that potential for exports of Hong Kong consumer electronics, eyewear, furniture, gifts and premiums, timepieces and toys to India is promising.

Among all product categories, consumer electronics have the biggest growth potential in India. The report estimates that the Indian market for consumer electronics will grow by 15.7 % per annum to US$7.6 billion by 2010.

Amidst strong demand for traditional electronics such as cassette players and colour TV sets, home entertainment and wireless products are now being chased after by the country's new mids.

Mobile phones equipped with the latest on-line features and trendy accessories, and branded DVD, MP3 players are becoming hot items in shopping malls. Personal computers are especially popular among young and "technology-savvy" cohorts.

According to India's Ministry of Commerce, the colour TV segment alone has witnessed a 17% growth in Hong Kong imports over 2005.

In line with a maturing brand culture in Indian consumers, the report suggests Hong Kong companies to build and localise their own brands in the market.

To penetrate into the Indian market, Mr. Leung suggests Hong Kong companies to "find the right partner and also a good lawyer".

"For Hong Kong companies planning to access India via a business partnership, a due diligence exercise would be a good start in lowering risks," says Mr. Leung. "Having a clear exit mechanism and reliable legal advice would help to minimize costly surprises when a split occurs."

For Hong Kong companies with international recognition, localising their brands in India via licensing, joint ventures, or using a liaison, project or brand office are advised by the report.

For those with reliable, quality products but less international recognition, arousing interest via various Hong Kong trade exhibitions attended by Indian importers would help.

The report warns Hong Kong companies to stay alert of the risk of India's protectionist measures as the country is still one of the world's most frequent users of anti-dumping measures against imports.

As India is increasingly importing goods from the Chinese mainland, Hong Kong's re-exports to India have been increasing. Hong Kong now captures around 10% of China's exports to India.

In 2005, India-Hong Kong bilateral trade rose by 26% to US$7.4 billion.

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Content provided by Hong Kong Trade Development Council