“We’re growing in India. But we’re not making any money.” – Why Your Indian Subsidiary Isn’t Profitable
What’s going wrong if your Indian subsidiary has been generating revenue for years but still isn’t turning a profit?
The“silent earnings crisis” is one of the most common—and longest-ignored—situations facing European subsidiaries in India: The subsidiary’s revenue is growing. Perhaps even significantly. But it hasn’t turned a profit in years. Or it hovers just above the break-even point. Or it earns significantly less than it should.
When we bring up the topic with customers, we usually get one of these responses:
- “India is just a difficult market.”
- “We’re still in the investment phase.” (For eight years now…)
- “As you know, margins in India are structurally lower.”
- “Our local manager says that’s the way things are done there.”
In 90% of cases, these explanations are simply wrong.
Many European companies are investing heavily in their expansion into India. But why do they still achieve unsatisfactory results year after year? The reason rarely lies in a single, obvious mistake. It almost always lies in a combination of hidden, structural sources of loss that accumulate slowly and imperceptibly.
The danger is this: these sources of loss are not dramatic. They do not appear on any line of the income statement as “loss due to conflict of interest” or “loss due to onerous contracts.” They are hidden in margins, in inventory costs, in personnel costs, in overpaid service providers, and in reporting that pacifies the parent company rather than keeping it informed.
Based on more than 20 years of operational experience in India, we have identified and analyzed the 10 most common sources of loss.
Is Your Indian Subsidiary Unprofitable? The 10 Hidden Sources of Losses
In the more than one hundred earnings crises we have analyzed, it is always the same structural causes that prevent a profit:
01 | Incorrect Sales & Pricing Strategy
The pattern: The company focuses on the wrong target customers —often the (personal) network to which local management has easy access, regardless of how profitable that network is. The pricing strategy is also often rigid, too “European”—or, in fact, not too expensive, but too cheap. Sales are commercially oriented, even though the Indian B2B market requires technical expertise and trust-building. Discounts are granted without demanding anything in return.
The result: Revenue is generated in unprofitable segments. Margins are eroded by price discounts. Customers who would actually pay are not reached and are often not even known.
What is often overlooked: In India, decision-makers do not buy from catalogs. They buy based on relationships, trust, proven technical expertise on the ground, and a pricing strategy that signals quality rather than being a low-cost provider.
02 | Unclear Customer Segmentation
The pattern: The company takes a “broad” approach to the Indian market—following the logic that since India is a large country, it should target as many people as possible. At the same time, there is no reliable data on which segments are actually profitable, what purchasing decision-making structures exist, and where the company’s own solution offers a genuine competitive advantage. Instead of smart “account management,” the company engages in mass sales and wastes too much effort on unattractive customers or unfeasible sales opportunities.
The result: Resources are scattered rather than concentrated. Sales teams follow up on leads without prioritizing them. Conversion rates remain low. The market “doesn’t respond,” even though it would certainly respond to the right target customers.
What is often overlooked is that India is not a homogeneous market. Industries, regions, company sizes, and types of decision-makers differ fundamentally.
03 | Oversized & Inefficient Structures
The pattern: Too many levels of hierarchy, too many unproductive functions, an office that’s too large —often the result of historical growth, sometimes deliberately bloated. Decision-making slows down, costs rise, and per-capita productivity declines. At the same time, there’s a lack of awareness that “having many employees” in India is not a sign of quality.
The result: The fixed-cost base is too high relative to the volume of business generated. The administrative overhead exceeds the benefits. The company is inflexible and unable to respond to market changes.
What is often overlooked: In India, there is a pronounced tendency to use team size and hierarchy as status symbols. Local managers build teams that strengthen their own positions rather than the company’s performance. This pattern is rarely questioned by headquarters as long as revenue is on track.
04 | “Internal Consumption” – Hidden Waste of Resources
The pattern: Company resources are used by internal parties—managers, employees, partners— for personal or unauthorized purposes . This rarely happens openly. It takes the form of: personal use of company vehicles and resources, charging personal expenses to the company, using employees for personal services, unauthorized entertainment expenses, non-business-related travel, purchasing goods and services at the company’s expense, and consulting contracts for friends.
The result: a direct financial burden on the company. No single item stands out—the pattern only becomes apparent when viewed as a whole. Without a system of ongoing internal controls, such irregularities generally go undetected.
05 | Lacking Transparency in Purchasing and Sales
The pattern: In procurement, suppliers are selected without disclosing the decision-making process. In sales, discounts are granted that exceed market standards. Undocumented benefits are exchanged: hidden gifts, invitations, kickbacks, and personal favors to suppliers, customers, or third parties.
The result: purchase prices are inflated. Sales margins are eroded by hidden discounts, and antitrust risks arise. Compliance risks arise under the FCPA, the UK Bribery Act, or the German Criminal Code (StGB), and the parent company is also liable.
What is often overlooked: In India, personal networks and reciprocity are deeply rooted in business culture. This is not an excuse, but it explains why this pattern is so common and so subtle.
06 | Detrimental Contracts
The pattern: Contracts—employment contracts, lease agreements, consulting agreements, supplier contracts—are entered into on terms that are detrimental to the company. The causes vary:
- Lack of knowledge: Local management is unaware of alternatives or has not evaluated them
- Conflict of Interest: The terms chosen favor personal connections
- Deliberate Misinformation: The parent company is not being fully informed
- The “practical constraints” narrative: “That’s just how it is in India—there’s no other way”—even though things could very well have been done differently.
The result: The company pays excessive rent and inflated consulting fees, and employs staff whom it can hardly terminate legally. Long-term commitments are created that can only be terminated at great expense or with significant losses.
What is often overlooked: The most dangerous scenario is not deliberate sabotage. It is the combination of ignorance and a lack of feedback to headquarters. What is not reported cannot be corrected. Once signed, contracts are often difficult to rescind in India.
07 | Conflicts of Interest
The pattern: Local managers, service providers, or partners make decisions in which their personal interests take precedence over the company’s interests—without disclosing this. Classic examples:
- Selection of Service Providers: Hiring network contacts, family members, or partners in exchange for services—at prices that are not in line with market rates
- Location Decisions: Choosing a location based on personal reasons (hometown, desired property, personal benefits) rather than on objective criteria
- Hiring Decisions: Hiring people from one’s personal circle or for personal gain (e.g., employees who are particularly subservient to the manager)
- Information filtering: Bad news is not passed on, while good news is overemphasized because the manager’s personal standing depends on maintaining a positive image
The result: Decisions that appear to be in the company’s best interest are not. The parent company makes decisions based on incorrect data. Damage accumulates slowly and only becomes apparent once the manager has left or when the crisis escalates.
What is often overlooked: In India, conflicts of interest are not usually intentionally malicious. They often arise structurally because personal networks, family obligations, and mutual favors are deeply rooted in the social fabric. Of course, that doesn’t make them any less dangerous.
08 | Working Capital Trap
The pattern: High accounts receivable that build up over months or years without a consistent dunning process. Excessive inventory that ties up capital. No active cash management. Payment terms are not enforced—either out of fear of losing the customer or because personal relationships take precedence over business discipline.
The result: Although the company is profitable on paper, it lacks the liquidity to operate effectively. It cannot finance investments. In times of crisis, it has no financial cushion. The parent company has to keep stepping in to cover the shortfall, without understanding the root cause.
09 | Tax and Regulatory Inefficiencies
The Pattern: The GST setup is suboptimal: input tax credits are not fully utilized, and input tax is lost. Transfer pricing between the parent and subsidiary is not properly documented and does not conform to market conditions, leading to back taxes and penalties. Tax planning opportunities remain untapped because the local CPA only does the bare minimum.
The result: an unnecessary tax burden. Risk of back payments and audits by Indian tax authorities. In the worst-case scenario: directors may be held personally liable for the company’s tax violations.
10 | Governance Gap with the Parent Company
The pattern: Local management reports what it wants to report, not what headquarters needs to know. Decisions are made without following approval processes. Headquarters has no independent channel of information. There is no second opinion, no early-warning system, and no independent oversight. Headquarters trusts and is let down.
The result: Problems are identified too late. Damage accumulates over the years. By the time the parent company finally intervenes, the damage is often irreversible—economically, in terms of reputation, and in terms of personnel. [Read more:“What’s Really Going On at the Indian Subsidiary?”].
Conclusion: The sources of loss reinforce one another
These 10 sources of loss rarely occur in isolation. They reinforce one another:
- Conflicts of interest lead to harmful contracts
- Harmful contracts generate excessive costs that disappear into the working capital trap
- Non-transparent purchasing erodes margins, and the wrong sales strategy prevents them from being regained
- The governance gap ensures that the parent company remains unaware of this
The result is a company that operates on paper but is structurally bleeding.
What You Can Expect After 6–18 Months Once Your Indian Subsidiary Is Back on Track
Many of our engagements begin as a traditional turnaround of an Indian subsidiary that has been operating at a loss for years or has somehow failed to achieve success. When the structural causes are systematically addressed, we typically see the following results after approximately 6–18 months:
- A 5–15 percentage point improvement in margins
- A 20–40% reduction in working capital
- A robust reporting structure to the parent company
- A local team that takes responsibility instead of shirking it
Is this topic relevant to you?
If this sounds familiar to you, we should talk:
You are a
- Companies whose Indian subsidiaries have been operating without sustained profitability for three years or longer
- Companies with revenue growth but stagnant or declining margins
- A corporate group in which India is identified as an underperformer in segment reporting
- A family business owner who is no longer willing to accept further losses at his Indian subsidiary and wants to embark on a genuine turnaround
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Dr. Wamser + Batra is the comprehensive India partner that systematically identifies, pinpoints, and eliminates these sources of loss—serving as a strategic architect, independent oversight body, and early-warning system.
No conflict of interest. No sugarcoating. With over 20 years of operational experience.
→ Contact us before hidden losses turn into existential crises.
