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FTI Journal | Critical Thinking at the Critical Time

The Unknown Unknowns of Doing Business in India

India’s high-growth market is a pocket of optimism to global investors, but only those who can navigate the many quirks of the country’s business environment will find success. Here's what they need to know.

Economic and demographic strengths have combined to make India the world’s fastest growing major economy for three years running. In 2016-17, the country’s GDP, ranked seventh globally the year before, is projected to grow by 6.6%. India’s charismatic prime minister, Narendra Modi, embodies a “can do” spirit and champions a pro-business environment. Buoyed by this dynamic one-two punch, investors who examine the country’s macro and sector risks (and rewards) inevitably conclude that they cannot afford to neglect India, which continues its march toward becoming integral to the world’s supply and value chains, regardless of the industry.

At the same time, India remains a complex place to do business. Its oft-cited bureaucratic and regulatory hurdles — which are being curtailed — are partly to blame. Even those investors who manage to get beyond these stumbling blocks often encounter headwinds in realizing their investment potential and ROI projections — an issue they ascribe to on-ground difficulties that translate into execution challenges.

Multinational corporations as well as fledgling start-ups have still managed to succeed in winning the hearts (and wallet shares) of consumers across the length and breadth of this complex and diverse country. What are they doing right? The answer of course, is many things, but the key to success is selecting reliable, locally expert and reputable business partners at every step of the way. Yet even knowing that, investors should be aware that conducting financial, commercial, and legal due diligence assessments alone are insufficient for confident and informed decision-making.

What more can be done? To unlock the full value of investments — and to protect your organization’s hard-earned reputational capital — it is critical to deep dive into the antecedents, bona fides, and reputation of potential business partners before any money changes hands.


The quality of local partners can make or break your India strategy. Here’s what to know for establishing winning partnerships in India:

• Understand India’s Way of Doing Business

Global investors used to dealing in mature markets are often unenlightened about the “unknown unknowns” of doing business in India. Transparency standards, corporate governance and controls and penalties continue to be lower in India than in developed markets. Indian businesses are often founder-dominated or personality-driven and critical decisions can flow from high-handedness rather than sound logic. Favoritism, be it nepotism or discrimination along gender or ethnic lines, is a none-too-obvious risk that can drain employee morale and enterprise value.

• Dig Down Deep for the Truth

Vetting a prospective partner with an investigative approach and an eye on the local context is crucial. This exercise should secure insights on the integrity of a company’s financial data and the caliber of its auditors, probing in particular for any masked related parties in the company’s trade and supply chain network. Investors should also be alert to exaggerated claims in the company’s operations and scale. Ensuring independent estimates of on-site realities is vital too, with a special focus on possible lack of disclosures with respect to material issues (recent and historical) such as payroll and union disputes, workplace incidents and socio-ethical concerns, absence of requisite licenses and permits, or non-adherence to applicable laws especially, local and state laws.

Take the case of a global bank that was considering raising its shareholding in a power plant in Eastern India. When the bank discovered late that key individuals had not disclosed critical litigation filed against the plant, it disengaged, but not before being compelled to sell its shares at a deep discount.

• Get to Know the DNA of Your Potential Business Partner

Financial and legal reviews alone do not reveal a complete picture of a potential partner, nor do they provide an assurance of “good faith." You should ask: What is the spirit of the company’s management toward professionalism, compliance, governance, and statutory obligations? Are any key individuals living beyond their known sources of wealth? How independent is the board and what is its record in fulfilling fiduciary duties?

These and other sensitive questions are best addressed through a discreet but systematic inquiry at the most preliminary stage of assessment. Recently departed employees, current and former clients and suppliers, industry trackers, legal experts, regulators, and competitors amongst others should be discreetly solicited to collect opinions to enable a 360-degree understanding of the DNA and soul of the company and the character of the parties under consideration.

• Cast a Critical Eye on Top Management

In today’s fast paced and complex business environment, even the top management of a prospective business partner may be ignorant of certain risks within their own operations. Therefore, an essential feature of building a level of comfort before committing to an investment is gathering intelligence on management dynamics and competence, as well as ensuring that the business model is sustainable and not reliant on landmines such as political association, corrupt business practices, or tax-cheated funds. One leading consumer appliance maker that was exchange listed in the U.S. and maintained manufacturing facilities in southern India learned this the hard way: When a whistleblower exposed significant corruption and fraud among the locally recruited company managers, the appliance maker took a significant hit to its share price as well as its reputational equity.

• Stress-Test Your Gut Instinct

Window dressing and grandstanding by candidate parties can leave investors vulnerable to excessive trust, inadequate verification and a false perception of the candidate partner and its key principals. In today’s so-called “post-truth” environment, media reporting and public perception may paint a misleading picture or not convey the whole story. Even if you have conducted business with an entity and its people for a prolonged period, It's still often an outside perspective and not an "in the trenches" vantage point.


The Indian landscape is replete with multinational companies that have found themselves on the bad end of a deal when due diligence was inadequate. Consider the Asian shipping corporation that invested millions in an Indian logistics firm that had an opaque history, for example. Shortly after the deal, the corporation discovered that a number of supposed trade debtors of the Indian firm were nonexistent, resulting in an enormous overnight write-off, sunk costs, and months of drain on precious management time.

Irrespective of the industry, global investors evaluating investment opportunities and business partners in India should exercise prudence and enlist professional diligence experts with deep experience of the Indian context and its business landscape. With this filter, any concerns or red flags can be identified early and mitigated, valuations and deal terms adjusted as needed, and the value derived from subsequent financial, legal, or commercial diligence can be enhanced substantially through pointed inquiries and analyses. Through such strategic assessment, the risk–reward correlation can be fine-tuned in favor of the investor and emerging markets returns can be realized without shouldering emerging market risk.

As it is said, “buyer beware” . . .

Published February 2017

© Copyright 2017. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.

About The Authors

Vishal Gandhi
Global Risk & Investigations Practice
FTI Consulting (India)

Mukul Sharma
Global Risk & Investigations Practice
FTI Consulting (India)

Anuj Bugga
Senior Managing Director
Global Risk & Investigations, Mumbai
FTI Consulting

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The views expressed in this article(s) are those of the author and not necessarily those of FTI Consulting, Inc., or its professionals.
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