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How multinationals can win in India
Companies should avoid simply imposing global business models and practices on the local market. Vimal Choudhary, Alok Kshirsagar, and Ananth Narayanan
Over the past 20 years, multinational companies have made considerable inroads into the Indian market. But many have failed to realize their potential: some have succeeded only in niches and not achieved large-scale market leadership, while others haven’t maximized economies of scale or tapped into the country’s breadth of talent. The experience of a leading multinational consumer goods company illustrates the challenge: its revenue in India has grown by 7 percent compounded annually in the past seven years—almost twice the rate of the parent company in the same period. Nevertheless, the company’s growth rate in India is only about half that of the sector. For multinationals, the key to reaching the next level will be learning to do business the Indian way, rather than simply imposing global business models and practices on the local market. It’s a lesson many companies have already learned in China, which more multinationals are treating as a second home market.1 In India, this trend has been slower to pick up steam, although best-practice examples are emerging: • A leading beverage company entered India with a typical global business model—sole ownership of distribution, an approach that raised costs and dampened market penetration. The company’s managers quickly identified two other big challenges: India’s fragmented market demanded multiple-channel handoffs, and labor laws made organized distribution operations very expensive. In response, the company contracted out distribution to entrepreneurs, cutting costs and raising market penetration. • A big global automobile company has become the one of the largest manufacturers in India, growing at a rate of more than 40 percent a year over the last decade, by building a local plant, setting up an R&D facility to help itself better understand what appeals to Indian customers, and hiring a well-known Indian figure as its brand ambassador. To realize India’s potential, multinationals must show a strong and visible commitment to the country, empower their local operations, and invest in local talent. They must pay closer attention to the needs of Indian consumers by offering the customization the local market requires. And multinational executives must think hard about the best way to enter the market. More and more, that will mean moving beyond the joint-venture approach that so many have adopted and learning to go it alone. (For a localization-assessment tool, see sidebar, “Winning in India: An illustrative scorecard.”) It’s essential that multinationals raise their game in India: the country’s economy is expected to grow by upward of 6 percent annually in the next few years, among the highest rates of any big emerging economy. In several product and market categories—mobile handsets, for example—India could account for more than 20 percent of global revenue growth in the next decade. In other words, the future of many multinationals depends on their ability to succeed in India. 1
See Jeff Galvin, Jimmy Hexter, and Martin Hirt, “Building a second home in China,” mckinseyquarterly.com, June 2010.
Web 2012 MNCs in India Exhibit 1 of 1
Winning in India: An illustrative scorecard
1. Ensure topleadership support and commitment through cycles 2. Customize offerings to suit Indian market and customer needs 3. Create innovative and localized business model a. Set bold and explicit aspirations over next 5 years (eg, 3x–5x growth in India) b. Send global CEO and relevant senior executives to India 3–4 times a year; engage in regular dialogue with top Indian clients c. Maintain appropriate local investments even through business cycles a. Gain deep understanding of 4–5 target client segments and the initiatives...
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