A year ago, Ajay Jindal was looking for consultants to help him develop a growth strategy and quality systems for his company, Jindal Drugs, the world's largest producer of natural menthol and mint oils. The Mumbai-based Jindal wanted to raise farmers' awareness about producing mint in northern India, where his raw material comes from. He approached the India office of global consulting firm Ecovis, which focuses on medium-sized companies.
Jindal Drugs, whose clients include Colgate-Palmolive, Procter & Gamble and chewing gum maker Wrigley, touches the lives of more than a billion consumers daily. With buyers increasingly concerned about environmental and social issues, Jindal Drugs which buys from 100,000 farmers, needed a strategy to streamline the process and improve its suppliers' lives. "We help them across the value chain to integrate the process from farm to factory. Socio-economic impact is one of the parameters for measuring their performance," says Dheeraj Rathi, Principal Partner of Ecovis RKCA Advisors, the Indian partner of global consultant Ecovis.
Why Ecovis, when there are other big accounting firms and global bankers who would have been happy to help Jindal? "We wanted someone who would give persona-lised service with international experience," says Jindal. "We wanted someone who would understand the needs of an SME and could cater to those needs in a costeffective manner."
The risk of losing a client in their home country is the reason why global accounting firms are lining up in India: Nicolas Ribollet
On their part, some mediumsized global consultants are in India because European companies are here. French consultant Mazars opened its India office five years ago, in addition to partnering with some medium-sized Indian audit firms, such as the 85-year-old Kalyaniwalla & Mistry in Mumbai. Nicolas Ribollet, Partner-Corporate Finance at Mazars India, says: "The risk of losing a client in their home country is the reason why international accounting firms are lining up in India."
Ribollet says everyone wants a foothold in the Indian market, so that when clients - especially small and medium enterprises - come to India, they are ready to offer them full-fledged services.
India may not be a big market in terms of revenue - a source in one global consulting firm estimates India to account for less than five per cent of its market share - but if a rival succeeds in acquiring a consultant's clients in India, it increases the chances that it will do so in Europe, too. That is why, when a European auto ancillary followed global car makers to provide support and services in India, Mazars was here to help the auto ancillary decide whether to manufacture in India or set up a joint venture. Summing up Mazars's reasons for being in India, Ribollet says: "Overall, the business environment is tough, but MNCs still pay fees. Secondly, inflows into India are more than outflows from India."
India is seen as a key growth market. The country's strong consumption growth is attracting many global companies, especially medium-sized ones. Harish H.V., Partner at consulting firm Grant Thornton, says: "With growth in their home market being zero to negative, it was natural for companies to find growth markets. After large MNCs, today you are seeing medium-sized MNCs coming into India. It makes sense to get into a market which is growing."
The big four accounting firms - KPMG, Ernst & Young, Deloitte Touche Tohmat su and PricewaterhouseCoopers (PWC) - have seen their market share increase gradually since they entered India in 1995. In the last 20 years, their market share has been 45 to 60 per cent in terms of audit fees in the country. Besides, their presence in investment banking and consulting has also been increasing, and they are eyeing big and small deals.
According to data from Mergermarket, a business development platform, Ernst & Young has topped the charts for the last five years in terms of deal count, with 106 deals. Together, the top four accounted for 40 per cent of the total 567 deals in India in the same period.
The passage to India is not easy, however - foreign firms face entry barriers, and must compete with Indian and international rivals. Regulations prevent foreign accounting firms from auditing the books of Indian companies without a local tie-up. But after the Satyam Computer scandal - PWC failed to raise the alarm after auditing the accounts of the Hyderabad-based technology company - choosing the right partner has become difficult.
For Indian firms, the presence of foreign companies is not a bad thing. Amit Maheshwari, Partner at Ashok Maheshwary & Associates, says: "To build our own capabilities, we have tied-up with Leading Edge Alliance and TPA Global. On most issues related to transfer pricing and international tax that we have faced, our alliance partners have been tremendously helpful." He adds that India is still new to many global consulting firms, who prefer to have an Indian partner to help them build their presence in India. Currently, his firm is helping a foreign university develop an entry strategy for India.
India is still new to many, and global advisors prefer to have an Indian partner to handhold them to build their presence in India: Amit Maheshwari
All this activity by smaller accounting and consulting firms doesn't seem to be bothering the large ones. Harish of Grant Thornton says: "With the pie growing, there is opportunity for everyone." He adds, however, that this does not mean the sailing is smooth. Audit and advisory is still a relationship-driven business, he says. "But if you aren't able to service your client on his requirements, he will shift to someone who can offer him the required and best service," he says. "The shift will continue towards the large firms on the simple assumption that today's small is tomorrow's big. With companies growing, it would not be possible for smaller firms to service the requirements of companies that are growing and diversifying across India and overseas."
Rathi of Ecovis RKCO agrees. "Today, 90 per cent of companies are SMEs, but the 10 per cent large guys account for 60 to 70 per cent of the business," he says. "Therefore, firms like ours have to gear up to fight the biggies."
Big Indian companies are still standing strong on old relationships with clients. While it is not starkly clear that the big accounting and consulting firms are eating into the share of the medium-sized ones, what is clear is that midsize firms are getting more attention. When Ecovis valued Waaree, a solar equipment suppl ier, for VT Telematica, an Italian telecom company that also has interests in power, Waaree was impressed with Ecovis's processes and systems and hired it as its accounting firm.
Perhaps India is a survival strategy for global medium-sized consulting companies. But even if they are yet to capture significant market share, a side-effect of their entry is that they are infusing fresh energy in their Indian counterparts.