The Growing India

Date: April 5, 2013

The Growing India

Back in 2009, the movie “Slumdog Millionaire” swept the Oscars and wowed audiences of millions worldwide. Even though slums can still be found in India, the economy of the world’s second largest nation has been rocketing, and a large number of multinational corporations, finding their current market too niche to move forward, have been seeking success in this giant country for some time. Some of them have been successful and continue to grow. But many of them have already jumped ship. So how did the successful ones make it?

One Size Doesn’t Fit All

This sub-heading probably best describes the reason for market-entry failure. With a long and renowned history of development, India takes great pride in its culture, language, ethic and geographic diversity. Something made purely for the West is usually not welcomed by the Indians, and thus tapping into this market with an estimated annual GDP growth rate of at least 6% will require inside-out localization.

Global food-provider Nestlé demonstrated their market savvy and determination to enter the Indian market by setting up a research and development center there to study the eating habits and culinary practices of Indians. By sending staff to interview over 1,500 Indian families to further understand local tastes, Nestlé formulated tailored products, including instant noodles in malasa and curry flavors in the early 1980s, and these became big hits in India. In the course of their research, Nestlé discovered the fondness Indians have for dairy products, so they raised the quality of their own milk products by educating cattle farmers and improving the refrigeration chains.

Nestlé reaped the rewards of their hard work – the Nestlé instant-noodle brand Maggi has already become the generic term for instant noodles – with an 88% market share, bringing in 27% of Nestlé’s revenue for India, far outclassing the performance of all their competitors in this segment.

Eating habits are perhaps the most important facet of any culture, so food providers and caterers need to pay extra attention and work hard to capture the hearts and taste buds of their Indian customers. Six years before opening its first outlet in India in 1996, McDonald’s started working with local suppliers on something unique among all the outlets in this fast-food kingdom – a vegetarian menu to cater to the vast amount of vegetarians in the market. By ‘vegetarian’ McDonald’s means everything, from ingredients and food processing to staffing and serving. Suppliers were selected carefully to ensure that they respect and follow instructions laid down by McDonald’s. No egg (also considered non-vegetarian food) is used throughout the entire production process and only vegetable oil is used for cooking. Separate equipment and utensils were reserved for vegetarian-menu preparation and, in some cases, a dedicated workforce was in place. The physical separation of vegetarian and non-vegetarian menus allowed McDonald’s to gain a foothold in India, which expanded from one outlet to some 235 branches across 45 cities within 16 years.

Other aspects of daily life are to be treated in a similar way. Finnish mobile manufacturer Nokia gave beautiful twists to its mobile devices after an in-depth study of the needs of its target customers in India. The company launched the Nokia 1100, a very subtle model compared with  mobile devices in other markets, as a total response to its findings: user-friendly interface and functional simplicity, affordable pricing with basic functions such as alarm clock and text messaging, durability against India’s heat, humidity and dust, and a long-lasting battery to cope  with an unstable electricity supply throughout the country. The Nokia 1100 ended up being the most popular mobile device in the world, not just in India! Before it was discontinued, the Nokia 1100 racked up sales of 200 million units worldwide.

Nokia sustained its success by incorporating more local elements into its devices, including adding Indian patriotic and Bollywood ring tones, user interfaces in local languages, and text messaging in Hindi.

Other players also did the same for the India market: there were cricket-based games in some models by LG and AM radio capabilities by Sony Ericsson, for example.

In adapting to domestic needs in this market, Tupperware India changed its product portfolio and design, and its signature spice box is a perfect example illustrating such modifications. As opposed to the traditional round metal spice container, Tupperware wowed its Indian customers with a neat, space-saving design and the use of plastic with custom-made serving spoons. The product was so well received by the market that Tupperware extended its collection to lunch containers, dinner sets, and so on.

Going Micro

Considering that Indian territory covers some three million square kilometers and comprises 28 states plus seven union territories, simply becoming ‘Indianized’ is not enough. To gain nationwide acceptance, micro-tuning is required to suit the huge variety of tastes and needs.

While 3D LED TV might be something common in large Indian cities, this product probably has no appeal for rural Indians who rate price ahead of picture quality and enjoy listening to music on their TVs. As a result, TV manufacturers have been launching TVs with average picture quality but enhanced audio capabilities. Since most rural Indians received little education and have a low-level understanding of English, the TV user interface now comes with Hindi and some other local dialects.

Local market segmentation also occurs with other home appliances. In southern India, Idli molds for making steamed rice dumpling also come bundled with microwave oven kits, while plates for heating kulcha, a traditional flat bread, are offered with the kits in the northern region. Similarly, in areas such as the Punjab, where oil and spices are heavily used, refrigerators often come in darker shades to prevent staining, while pastel colors are chosen more in other areas.

Renowned UK department store Marks & Spencer is selling more knitwear in northern India and more lightweight apparel in the south, due to the large temperature variation over this continent which stretches over more than 25 degrees of latitude. To attract different groups of customers, apparel lines by Marks & Spencer carry both fashionable and basic items. Seeing the rising numbers of the younger population, the store aims to expand into second-tier cities by introducing a larger collection of children’s garments.

Management Differences

To enter the market successfully, choosing the right management model is essential.

Sole ownership of course allows the most management and decision-making rights. But this also implies a great deal of assistance and guidance from the head office to the local offices. One case worth studying concerns a global manufacturer in the electronics field. Targeting the Indian market, the company launched an aggressive marketing campaign subsidized by the parent company so as to avoid price rises in the local market. To ensure smooth operations in the local offices, the parent company helped them with sourcing materials at lower costs before the local offices could stand on their own. Eyeing long-term development and with long-term commitment, the company finally became a top-tier electronics manufacturer.

In many cases, finding a local strategic partner is the option chosen by market entrants. Identifying trusted suppliers for raw materials or distributors helps build business in a beneficial and cost-effective way. The McDonald’s case above demonstrates how important trustworthiness is in the fast-food arena. To achieve deep market penetration over such large continental area requires a huge input of capital and labor. This is especially so as regards groceries and daily necessities – reaching millions of household through one channel alone is just impossible. One leading beverage company started its journey as a wholly owned foreign enterprise, but quickly turned to contracted distributors when it found out that the previous model led to nothing but very high operational costs and a slower growth pace.

Companies can also gain market share by buying out partners and opponents. This offers a relatively straightforward market solution and instantly generates higher market share for players.

Joint ventures with local companies, whether to fulfill Indian law or because of a business decision, should be managed carefully. There are several very successful examples of this business model. For example, Japanese automobile manufacturers Toyota, Honda and Suzuki entered the market in joint ventures with local companies in the early 1980s. These collaborations all recorded higher production volumes than the plants owned by the parent companies in Japan.

Yet, not all join ventures run smoothly and, in fact, some have ended in failure. A fundamental reason rests in the lack of long-term commitment and goals between the foreign investors and the local partners as they are often more interested in short-term profits. Another problem that often arises is the lack of cooperation and control between the two stakeholders. Unless a joint venture is absolutely necessary, multinational corporations with sufficient capital and resources might best avoid this business model.

By the People

To successfully manage a new set-up in a foreign country, it is probably best to have the company run by local talents; and this has been an important lesson for many companies entering the market.

Referring back again to the McDonald’s case, the fast-food chain store is now operated by two local companies in India and this is deemed to be effective and a winning formula. Local owners understand what the market needs and likes, and what needs to be delivered in line with highly regarded customs and values.

In addition to marketing and production decisions, the local company and management should be empowered on all other executive and operational issues. By holding management accountable for profits and long-term development, as well as leveraging local management’s native understanding of the market, business operations can be streamlined and target-oriented, raising cost-effectiveness and boosting company performance.

Empowerment, accomplished with a clear career path and a well-structured organization, also helps to attract and retain talents that further enable the healthy and prosperous growth of the company. Multinational corporations have an advantage in being able to offer global job-rotation programs or more large-scale talent-development schemes which help them attract applications and compete for available talents.

The Next Crock of Gold?

India is clearly no easy game in for every player. Some have learnt harsh lessons in their perspective fields, while some have succeeded in one go. But the key is always to blend the company into Indian culture, values, customs and other cultural facets through the appropriate business operations. India is still growing, and the possibility persists of a crock of gold at the end of the rainbow. 

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