The Growing India II

Apr 12, 2013

The Growing India II

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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