MNCs know that global strategies don’t work in India. But they are still not ready to adapt

India’s mega consumption story is the most exciting in the world. Unlike most markets of its size, it is and for a long time will be, driven by lots and lots of small consumers.

Customers in a departmental store in Mumbai | Photo: Dhiraj Singh

It is by now well-documented that MNCs, especially from the Western, developed market world, have not done well in India. When the big global consulting companies set up shop in India in the 1990s, they stridently said that it was only a matter of time before global corporations from the West entered the country, rendered existing Indian business models obsolete and modernized and globalized India’s markets, just as they had done everywhere around the world.

From the mid-1990s until about ten years ago, whenever I said that the Indian market would evolve differently and would never follow the evolutionary paths that Western developed markets took, requiring custom-built strategy to address it, there was scepticism and derision from the global consulting high priests who said that we in India did not understand the nature of globalization and what it would do to consumer markets.

When I ventured to suggest that it might not be a walkover for them, my boss, a partner of the firm newly arrived from Europe, said, ‘People (consumers) don’t know what they don’t know until they see it.’ We would argue, among other things, about his belief that modern super retailers from the West would destroy the local kirana stores by 2000, and when I persisted that the outcome in India may be different because road infrastructure was average, car penetration poor, consumer diversity at odds with retail profitability and the kirana’s relationship with customers very deep, he would ask, ‘Why do you Indians think you are different? Does water flow uphill in India? Do you wear your noses in your ears?’

Since then, a lot of water has indeed flown under the India bridge, and even if it has not flown uphill, it has left debris of lessons in its wake. Cut to fifteen years later. What almost got me sacked then—saying India is different—and got me sent off on a grand tour of immersion in developed markets to broaden my limited Indian exposure to the world, has now become received wisdom.

Today, it is de rigueur for the same consulting temples to put out encyclicals that say, ‘India is different; transplanting global strategies doesn’t work.’ In March 2012, an article by McKinsey titled ‘How multinationals can win in India’, written by three people from the India office, said unequivocally, albeit a bit too politely,

Companies should avoid simply imposing global business models and practices on the local market. Over the past 20 years, multinational companies have made considerable inroads into the Indian market. But many have failed to realise 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.

Nor have they tapped into breadth of market opportunity. Rather gratifyingly for me, that article went on to say, ‘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.’ In early 2011, an article also appeared in Harvard Business Review titled ‘New Business Models in Emerging Markets’ that said,

But if the opportunity is huge so are the obstacles to seizing it . . . we believe they’ve struggled not because they can’ create viable offerings but because they get their business models wrong . . . Many multinationals simply import their domestic models into emerging markets . . . they may tinker around the edges, lowering prices . . . but their fundamental profit formulas and operating model remains unchanged, consigning companies to selling largely in the highest income tier, which in most emerging markets isn’t big enough to generate sufficient returns.

Bain adds to this chorus, saying that to win in India, companies must make ‘bold long-term commitments to India’, ‘tailor their offerings to suit the needs of Indian consumers’, and ‘leverage global scale . . . but adapt locally to win’. We have a saying in India that unless water flows through a conch shell, it is not deemed to be holy water, so now that the high priests of management consulting have spoken, it is official.

This ‘trickle up’ of the idea that India is different has taken a good ten years after Jim O’Neill of Goldman Sachs debuted the BRICS report that said that, in future, the world’s largest economies would not be the world’s richest economies, which is the most fundamental reason why transplanting global business models will not work. Global business models have been created for markets that are large economies of relatively few high-income people, and business economics that work there do not work in large economies comprising lots of modest-income people.

 

But Are Companies Listening?

What has been the progress in thought and action on the other side of the fence—the main actors, not the drama critics?

For a start, there have been many more visits from global boards and global executive committees of the Fortune 100–500 companies (and I have addressed several, because I am the shoulder from which local management fires the gun of ‘please look at India differently, one “global” size doesn’t fit us’. I have no career to lose and don’t mind the frequency with which I get dismissed or politely listened to and then ignored). The bad news is that, for many, it is an all-too-brief visit comprising a five-star hotel stay in a big metro, maybe a visit to distant suburbs to ‘get a feel of small-town India’ and a lot of PowerPoint in a conference room. All of this leaves no space for exploring shifts in thought, driven by engaging with the contradictions and confusing things they see.

There have been many more MNCs who have deputed groups of mid-level ‘high-potential managers’ or ‘young/future leaders’ to embark on study tours of India, accompanied, in many cases, by an Ivy League business school professor as coach.

Having addressed several such groups as well, I note that they ‘get’ the message that existing global templates may not work in India, but they are not at the level at which they can make a difference to the mindset and practices of the corporation.

On the plus side, the aggressive questioning of the 1990s and early 2000s from global boards and executive committees on why we need India when we have China is a thing of the past. That we need both is the accepted norm. That is indeed a huge win for India, and as global companies feel an increasing need to ‘de-risk’ China, more investments into India are being announced. Not all of the investment is for domestic market development but is typically for the combination of domestic market development and setting up global hubs of manufacturing, global R&D, data centres and back-office data services.

On the minus side, there is still a lot of resistance to three core ideas of what winning in India requires:

(i) Margins need to be reduced and volumes grown so that the total profit can grow. As a global CFO of a very successful global MNC observed, relaxing margin gates and allowing the business to have a low margin–high volume profile increases the overall risk of the business. The idea of different margin metrics for governing different countries has been what we in India would call slaughtering a much-worshipped ‘holy cow’, to be done at your own peril of bad karma.

(ii) New innovation (leveraging capabilities within the global organization) has to be done for the Indian market to unlock its potential, despite an available armory of global offerings; there is no other way to provide consumer-acceptable performance at consumer-affordable prices and a profit for the company.

iii) The number of business lines launched simultaneously in India and price-performance points within each business line need to be large to unlock the India opportunity. As the CEO of one MNC said when this was recommended to him, ‘Why do we need a Rolls-Royce approach to market segmentation and business lines for a market this small?’ Why should Disney or Netflix invest in launching in so many Indian languages when the consumer segments delivering the required margin are so small? Because that is the difficult demand structure of the market, and without the effort, the addressable market will be even smaller.

The plus side is that more MNCs are looking at a ‘one India’ organization in India and departing from matrix structures of business line reporting which makes it hard to bring scale or explore innovations that fall between the cracks of business lines. The Indian managing director of a Dutch multinational conglomerate in the health technology business once said that he wanted to influence the ‘strategy development policy’ for the Indian company. I wondered what this meant, and he said he had to first detach India from the APAC (Asia Pacific) region so that it would become a standalone focus region. Then he could start the negotiation for a made-for-India strategy. PepsiCo, after almost two decades of being in India, elevated India to a ‘region’ status in 2008 with both the food and beverage businesses in it.

An increasing number of MNCs are structuring their presence in India as a composite of three opportunity or benefit streams, with varying weightages—the benefit of the domestic (new) market, the benefit of having a global hub for back-office work to increase efficiency and decrease cost and the many benefits that distributed R&D centres and other centres of excellence bring, as well as the benefit of having access to a high talent pool to export to other parts of the world. It is said that one of India’s most successful exports has been middle-management talent, many of whom head large and prestigious global organizations. However, research talent in global R&D centres in India complains about not being entrusted with higher-quality high-end global work and, at the same time, not having enough freedom to fashion a research agenda that is relevant to India but does not fit global priorities.

The interesting question in today’s day and age of a multipolar world is what the definition of a singular ‘global’ actually is.

This excerpt from Rama Bijapurkar’s ‘Liliput Land: How Small is Driving India’s Mega Comsumption Story’ has been taken with permission from Penguin Business, an imprint of Penguin Random House.