By A V Vedpuriswar
With a GDP growth of almost 7 percent1, India is one of the most promising and fastest-growing economies in the world. But despite the huge potential of the country, the performance of Multinational Corporations (MNCs) in India has been decidedly mixed. Many MNCs which have succeeded remarkably elsewhere in the world have yet to make a significant impact in India. The market entry and penetration strategies that have worked so well for these companies in other countries have been for less successful in India. Many MNCs have struggled to understand Indian customers and come up with suitable products and services. At the same time, some MNCs have done pretty well for themselves. Why have some MNCs done so well where others have failed? This article is an attempt to provide an intuitive explanation of what determines success in the Indian market place.
Today, virtually all the big MNCs in the world have operations in India. These include Unilever, BAT, Colgate Palmolive, Procter & Gamble, General Electric, General Motors, Ford, Pepsi, IBM, Intel, Texas Instruments, Microsoft, Oracle and Coca-Cola. India is now considered by many MNCs to be a strategically important market.
Historically, the main reason for the entry of MNCs into India was to jump the tariff wall. High import duties made it difficult if not impossible to export finished goods from the home country to India. On the other hand, once they entered the country and set up operations, the country's high tariffs guaranteed adequate protection. In some cases, the need to customise products necessitated a strong local presence. Unilever set up its Indian subsidiary, Hindustan Lever and gave it full freedom to develop various products to suit local tastes and usage conditions. This would obviously not have been possible if Unilever had only been exporting its products to India. In recent times, other reasons have made India an attractive destination for MNCs. India has emerged as a low cost back office, manufacturing and research base, thanks to its skilled but relatively cheap manpower. In the computer software industry, many MNCs are establishing offshore development centres to tap local manpower. IBM, Accenture, EDS and Computer Associates have all been strengthening their presence in the country. Not only are Indian software workers among the best in the world, when it comes to technical skills but they are also more comfortable with English, compared to their counterparts in countries such as China. Dell and Deloitte have major back office operations in the country. General Electric (GE) is looking at India as an important R&D base which can contribute to their global knowledge pool. GE's local outfit has filed for several patents in the last couple of years. Nokia has set up three R&D centres that work on next-generation packet-switched mobile technologies and communications solutions. Texas Instruments is also doing cutting edge R&D work in the country. Varying degrees of success
While several MNCs have entered India, not all of them are doing well. This is evident when performances are compared across industries. However, even within a given industry, some MNCs seem to be doing better than the others. Consider the automobile industry. Here, Suzuki and Hyundai are way ahead of formidable rivals such as General Motors, Honda and Ford. Similarly in the FMCG sector, even after allowing for its relative late entry, Procter & Gamble (P&G) remains a marginal player compared to Hindustan Lever. In some industries, the MNCs have been left high and dry by the local players. In the paint industry, the local player, Asian Paints has beaten the MNCs by a huge margin. Then, there is also the unique case of an MNC, Indian Aluminium (Indal), actually being taken over by an Indian company, Hindustan Aluminium.
One must be careful while explaining the good performance of some MNCs and the poor performance...