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Difficult operating environment – Mainly brought about by government policy and processes, procedural
bottlenecks, and the legacy of cumbersome labour laws.
• The reforms process adopted by the Indian government in response to these problems is now firmly in place.
Significant progress has been made in liberalizing the external sector- thus allowing freer flow of capital
goods and raw materials – opening up the financial sector, and reducing customs duties. Second phase
reforms that are in the making include lifting restrictions on FDI, simplifying tax and tariff regimes, and
opening up markets for competition.
Socio-economic challenges - Related mainly to poverty, illiteracy, and health concerns. A quarter of the Indian
population still earns less than $1 per day and ~40% of the population is illiterate
• While these are grave concerns and India does measure on them poorly, even in comparison with other
developing countries, an analysis of the trends in the last 10 years shows that India has made significant
improvements. Life expectancy has improved from ~60 years in 1991 to ~65 years in 2001, and population
below the poverty line has moved from 40% to 25%. The rate of improvement recorded by India is
significantly better than most other developing countries. This is attributed to the sustained high economic
growth rates, multiple schemes for the poor launched by both state and central governments, and the
increasing thrust in these areas by other bodies such as NGOs, World Bank, the Corporate Sector, etc.
Weak infrastructure – This is perhaps the most significant challenge that affects MNC’s operations on a day-
to-day basis and includes such factors as poor roads, inadequate airports and port facilities, and inconsistent and
relatively expensive power supply. The government is responding to this challenge with various measures, some
of which are described below, yet much still remains to be achieved
• Roads: The Golden Quadrilateral – a $12Billion, 4-6 lane highway project that will span the length and
breadth of the country, connecting the 4 major metros.
• Power: Deregulation of the power sector and unbundling of State Electricity Boards (SEB) into separate
transmission, generation and distribution units.
• Telecom: Privatisation of government-held companies, introduction of multiple technologies, and policy
focus on creating a competitive playing field.
• Airports and ports: Plans to upgrade, develop and corporatize major facilities.
Despite these challenges, many European MNCs have been successful in India - both in relation to other Indian
companies in the same sector and benchmarked against their average global performance. These companies have
recognized the tremendous potential India has to offer as a sizeable, growing market and a sourcing point for
global competitive advantage, and view India as a business opportunity that they cannot afford to forego. EU
companies already make up ~50% of all MNCs operating in India and a multitude of other EU companies are
actively planning to enter the market.
Benchmarking Objectives and Methodology
The MNC benchmarking exercise presents members of the business community a set of actionable
recommendations that can serve as guideposts when devising an India entry strategy or evaluating current India
operations. The main question we attempted to answer is: What are the critical components that enable MNCs to
become successful in India?
Methodology: Benchmarking included extensive desk research and detailed face-to-face interviews with senior
executives from ~30 European based MNCs operating in India, representing 15 countries from across the EU.
The companies were selected from a variety of industries as diverse as confectionary, industrial goods, power,
and automobiles. Selected companies are those that have demonstrated a firm commitment to Indian operations;
they vary in terms of length of presence in India or degree of success attained. The interviews were conducted
by The Boston Consulting Group (BCG) and Confederation of Indian Industry (CII) working teams, together
with functional and industry experts from BCG.
View of India from What is the general perception of India at global MNC
headquarters Headquarters?
Key challenges What key challenges do MNCs face in India and how do
encountered They go about mitigating these?
Leveraging India for How do MNCs best leverage other advantages offered by
value-add
Indian presence beyond the domestic market opportunity?
opportunities
Leveraging India’s resource base to derive additional value for the corporation:
• These companies have succeeded in adding value to their corporations by engaging in such activities as
R&D, manufacturing, BPO and sourcing from India. For some companies, this has become a key
competitive strength, differentiating them from global competition.
Company Examples
Benchmarked companies differed in their degree of success. The most successful companies were able to
capture substantial market share through market-customized strategies, introduce industry altering innovations,
exhibit strong financial performance, and also use India to derive additional value for their organizations. Some
examples of such success stories follow:
• Providing the full range of • Achieving 45% sales growth • Reached significant cost
banking products in India; and 70% growth in consumer savings through BPO
Created special online banking • Expanding to serve the BPO
offerings for Indian clients • See India as 4th major ‘home’ needs of other financial
market for the group institutions
• Cutting edge products and • 1,200 Cr. in sales in 2002 • First IT centre outside EU &US
solutions available in India • Over 20% revenue growth and in India
• 8 local manufacturing units and over 30% profitability • Significant export of products,
countrywide marketing and enhancement in 2003 solutions and services from
service presence • Top performing share price India
• The industry leader in the • ~650 Cr. in sales • Exporting both finished goods
chocolates and confectionary • Holds a 70% value share of and innovative concepts to
market the chocolate market Cadbury around the world
• Multiple innovations across • Achieved growth of ~30% in
products, price and packaging both revenues and profitability
during the 90’s
• Introducing the latest telecom • Market share of 40% of • Project ‘Next Billion’:
technologies to India connected subscribers on its Collaborating with Wipro to
• Transferred their full product systems develop infrastructure and
range enabling end to end • Supplied 50% of mobile services in India for mobile
communication solutions network systems in India networks in emerging markets
across the globe
• Ranked as #1 pharma • Over 1,100Cr. sales and • Plans in place to develop India
company in India 128Cr. profits in 2002 as R&D center, statistical &
• Built a superior sales force and • Gearing up for significant data management, sourcing for
distribution network – currently growth post 2005 raw materials, and clinical trials
used in joint marketing
agreements
• Introducing superior engine • Turned operation around to • Plans to make India global hub
technology, new 3 and 4 become profitable 1,5 years for 3 wheeler mfg, and the
wheeler models, and after initiating independent launching pad for global
innovative customized operations in India expansion
solutions to India • Planning components exports
to the EU
• New technology and design • Turnover of ~500Cr. • Have built an export business
expertise introduced to India • Investing over 300Cr. in for both tractors and
• Developed special products expanding capacity to satisfy components
tailored to Indian market expected global demand • Plan to increase exports 6 fold
requirements to 6000 units in 3 yrs
• Created and grew segments in • Turnover of 350Cr.; growing • Exporting creative talent,
the confectionary market from 30-40% annually innovation and ideas
the ground up (especially • India is one of the top • Local advertising is being used
deposited candy) performing units for in other markets
organization
Ten Tips for Success in India: A Framework
Achieving success in India ultimately pivots on having the right India business models in place. These business
models are not prescribed. They are derived from the mechanisms that enabled them to develop, namely global
management and local management processes. During the MNC benchmarking exercise we identified 10 key
success factors for MNCs in India; these factors fall under the three categories as demonstrated below.
Reaching Category C (Localized product market business models) is the end-game achieved by most successful
companies. Global management processes provide the global support and technology, Local management
processes drive local autonomy and capability and both together work to allow localized business models,
products and services to develop.
Section A: Commitment at the global level
India is a unique market that merits tailored global management processes. The more global management
understood this and facilitated flexibility for the local operation, the higher was the degree of success attained.
Global processes are set by the global centre and form the framework within which the MNC can operate in
India. These processes are instrumental in offering the right backup, support and technology to the country
organization - helping it in conducting business and leveraging the international brand name in India. The
centre’s perception of India and the position that it occupies on management’s agenda were factors found to
influence the degree of success attained.
• …to direct appropriate resources towards India and ensure speedy and favourable decisions…
Successful organizations such as Swiss power & automation leader ABB, Swedish Telecom giant Ericsson,
Spanish confectionary maker Joyco, Siemens from Germany, and others have been explicit about the importance
of India to their global portfolio – drawing attention and resources to the India operation and ensuring high-level
facilitation of major decisions.
India ‘country champions’ help bring India to the forefront of the global agenda. These are senior executives
who have a deep understanding of the Indian environment and actively champion India related decisions. Since
Indian operations are often times small contributors to Group revenues, this requires strong management vision
and understanding of the opportunity at hand. Sponsors could be senior Indian managers who originated in the
India system and progressed through the organization -as in the case of UK pharmaceutical major
GlaxoSmithKline - or members of the management team who recognize the promise that India holds and are
dedicated to ‘making it happen’. ABB, for example, has designated its two most senior global division heads to
hold active positions on the India board. In addition to facilitating faster and friendlier decision making, these
senior sponsors act as a credible source of information and expertise on the country and country operations. If
located in country, senior sponsors are also responsible for ensuring that the right values and corporate culture
are inculcated in the Indian arm of the organization.
Other ways by which successful MNCs raised the profile of India on their global agenda are by arranging high-
level CEO visits to India to demonstrate their commitment internally and externally, or publicly recognizing the
efforts and achievements of the India operation - as with German-Indian insurer Allianz-Bajaj, which
highlighted the India CEO’s accomplishments at the corporation’s global forum.
SUCCESSFUL MNCS VIEW INDIA AS A KEY FOCUS AREA
DESPITE IT BEING A SMALL CONTRIBUTOR CURRENTLY
KSF#1 KSF#2
India is seen as an important market... ...supported by top driven aspirations
“We want to partner India into the future. With our strong Siemens aims to consolidate its presence as India’s ideal
and reliable local presence, we are the ideal partners for infrastructure partner - offer complete solutions for different
realizing India’s needs in infrastructure development...we are market segments by combining multiple high-end
committing to make new investments in India to the extent technologies, i.e. building complete hospitals, airports,
of US $ 500 million in the years to come.” — Siemens railways or industrial units.
“We see huge potential in the market since this is where the Piaggio aims to make India a manufacturing and operational
growth is happening..We have overtaken Italy in 3 wheeler pad for expansion into the rest of the world
production” — Piaggio
“India is a fast emerging economy with low product penetration. Philips sees India as the next big thrust area for Philips Asia.
The country is gaining recognition for its increasing pool of The Global board and India management team have jointly
local knowledge and talent. India is increasingly taking charge set a revenue target of 1Billion Euro for India by 2007, with
of its own future in the Convergence, Digital and Internet 250 Million Euro coming from exports
revolutions.” — Philips
Possible interaction
E.g. Wartsila* arranging formal India-Finland personnel transfers at both mid management and engineer level
• Streamlining communications and creating organizational alignment
• Forming working level relationships which facilitate ongoing work
• Creating mutual understanding of the systems, constraints and tradeoffs for each group
*
* Wartsila is the world’s leading ship power supplier, and a leading provider of decentralized power generation solutions
KSF#4 “Change the rules” regarding global metrics and standards to meet market challenges
Why is this important?
• …allows fine-tuning of metrics to fit with Indian market realities and sets the organization to take full
advantage of India opportunity…
Successful MNCs have worked the unique characteristics of the Indian environment into their target-setting
process. For some companies in heavily regulated industries, e.g. Oil and Gas, Pharmaceuticals, and Financial
Services, this has been especially important. Setting unique India targets with a long-term horizon in view has
helped them focus on establishing market presence, gain market share and capture future growth prospects.
Sets targets within the context of India Management able to create the right
market challenges product-price proposition
• Understanding that high • Investment in distribution network
penetration will compensate for and product localization
reduced margins
KSF#5 Build for the long-term in India regarding people, HR practices and external stakeholders
KSF#5
CREATING A HIGH QUALITY LOCAL TEAM CONSIDERED
EXTREMELY IMPORTANT BY ALL MNCs
Cost effectiveness and Capability to manage local Suitability for business model
business continuity operations innovation and localization
• Expatriate manager costs are • Externally, local managers are • Local teams have a deeper
significantly higher than locally more effective at managing understanding of the
available talent supplier relationships, environment and the Indian
distributors and other consumers’ tastes and
intermediaries preferences
• High expatriate mobility may • Internally, local teams are • Local managers are often
lead to a discontinuity in usually more effective at better positioned to design
strategy managing the local workforce products and business models
(either unionized on non tailored to the Indian market
unionized)
• “Headquarters provides us
• “The engineering and • Cadbury, HLL, ABB, GSK, with the required support and
management talent available Piaggio all cited having an advice, but you need a 100%
in India is world class and predominantly Indian local team to execute – they
costs less” - Wartsila management team a key know the environment best” -
contributor to success Piaggio
In forming local teams, companies have committed significant resources to recruiting and especially retaining
highly capable people. Some processes that have contributed to building successful teams are mentioned below:
Philips Software Centre and STMicroelectronics have both been recognized as one of the top employers in India
“Philips India is recognised as one of the most respected companies and as one of the best employers. It plans to
generate another 1000 jobs in the next 5 years in knowledge work and at least as many more indirect jobs in the
supply chain.” - Philips
“Our recognition as a one of the Best Employers vindicates our strong belief in our people and practices. It is
also a sign of ST India maturing as a world-class organization.”- STMicroelectronics
As witnessed through KSF # 5-7, having a capable and empowered local team in place is imperative for success.
The diagram below demonstrates the gradual transfer of decision-making rights to the local team.
SUCCESSFUL MNCs GRADUALLY TRANSITIONED DECISION POWER
TO THE COUNTRY OPERATION
Invest in the Limited independence for local team;
formation of Reducing all decisions approved by global
a high day to day management
quality
role of
local team Freedom in local operational decision
global
making
team • E.g. Independence over advertising
and promotion strategy
Define a
value Freedom to invest in localizing certain
Time
Some key hurdles faced by companies included global level concerns related to IP protection, quality and
reliability of domestic suppliers, or political complexity associated with job loss in Europe. To overcome these,
many successful companies took a small step approach, demonstrating the benefits from outsourcing a limited
piece of the value chain and then expanding the scope of outsourcing – for example, starting by handling IT
operations for another country organization, demonstrating the savings and then moving to handle another
country or region. Again, arranging for personal visits by company executives to India to witness first hand the
capabilities of the India organization and the opportunities available in the country were important in facilitating
the off-shoring process.
T
KSF#8
MNCs ARE LEVERAGING FOUR MAIN OPPORTUNITIES
BEYOND THE PRODUCT/ MARKET
Research and Development Software development/ Engineering
• Significant cost savings and product development • Software activities include both embedded
breakthroughs achieved software for the global product range and
• Most benchmarked MNCs operating R&D centers application design
have significant expansion plans • MNCs have added significant value to their
- Transferring greater components of the R&D organizations, both through savings on software
value chain to India development and important contributions to IP
- Expanding scope to worldwide R&D
STMicroelectronics Siemens
Glaxo Smithkline planning to expand Allianz Bajaj does IT proposing to make
setting up both 1000 seat Noida servicing for some India a
clinical trial and software dev Asian countries, manufacturing hub
research in India facility to 1500 looking to expand for medical
systems
* High voltage circuit breakers above 72,5 KV; medium voltage outdoor circuit breakers, magnetic actuators
Section C: Localized product/market business models
Creating the right product/market business models for India is perhaps the most critical, and the most
challenging success enabler. While global and local processes can create the platform from which to launch these
models, the company’s long-term success and sustainability depends on its ability to design its business model in
response to unique challenges and opportunities raised by the market. This makes it imperative to have clear and
directed strategies, through the two remaining success factors.
KSF # 9 Localize parts of the value chain to obtain Indian costs and capability benefits
1
A surplus of 47Million people in the working age group is expected in yr. 2020
KSF # 10 Formulate India-specific business model strategies (product, value, pricing)
This final key success factor is perhaps the most important. Companies recounted time and again that it was not
enough to merely replicate in India business models that have been successful in Europe and elsewhere in the
world. The following graphic illustrates some of the market challenges that are unique to India, and some of the
principles that successful companies use to help tackle them.
Dispersed
~650,000 villages; ~70%
population; ...cost effective
population in rural India
fragmented retail reach
~ 6 million retail outlets
channel
b. Appropriate Value/ Price Offering: India is a country of widely dispersed income distribution, containing
both a small but substantial affluent class and a vast population with an average disposable income that is
1/10th that of OECD countries.
Successful companies have understood that India is not just about cheap products but providing the right value
proposition, and have thus been able to find success across various price points. Companies catering to the mass
market, such as HLL, have employed breakthrough efficiencies that enable them to break the price barrier and
supply high quality goods at affordable prices. Philips has used this logic to cut the price of its acclaimed
Compact Fluorescent Lamps sold in India from Rs. 600 to Rs. 140. On the niche side of the spectrum, Skoda has
recently entered the high-end motor market in response to market demand, competing with the likes of
Mercedes, and positioning cars in the super luxury category at a price of Euro 50,000.
c. Cost effective reach: India’s geographic size, dispersed population and fragmented retail channel pose a
significant challenge for companies to reach their target customers in a cost effective way.
d. Innovative supply chains: Infrastructure challenges and a large number of supply chain intermediaries
place pressure on the supply chain both in terms of cost and consistency. MNCs that have localized their
supply chain have often also developed strong links with their suppliers by investing resources in improving
their processes and technology and thus growing their business. Piaggio, for example, has localized 100% of
its 3-wheeler product in India so that it could compete effectively. It worked hand-in-hand with multiple
Indian suppliers to raise their quality and reliability levels - by training them and transferring technology. In
order to provide a world-class product, Piaggio prompted Lombardini, a reputed Italian engine manufacturer,
to set up operations close to Piaggio’s facility in Pune. This resulted in a highly successful relationship and a
win for Lombardini – that was then also able to leverage India for its own worldwide operations.
* **
Companies have followed many different paths to build and follow the key success factors mentioned in this
document. Our benchmarking exercise has revealed that it is important to have the majority of these 10 success
factors in place (and not merely one or two) in order to unlock some of the remarkable potential available in
India, both in the domestic market as well as for other value added activities.
We hope that this document will serve as a useful tool in assessing your own company’s strategy and
performance in India.
The attached Appendix provides a profile of the benchmarked companies together with specific examples of
how they have used global processes, local processes, and customized product/market business models to
succeed in India.
4. “Change the rules” regarding global metrics, standards to meet market challenges
5. Build for the long term in India regarding people, HR practices and relationship with external stakeholders
1
established that its localized product of the same quality could be at 30-40ared to Europe
Executive Summary
The Indian market is essential for European Union (EU) companies
• Large and growing domestic market; increasing purchasing power and consumerism.
• Provides opportunities for competitive advantage (low cost sourcing of products and services; exceptional
quality; intellectual skills; etc).
But the road hasn’t been easy, and companies faced several challenges
• Bureaucratic hurdles and government processes resulting in a difficult operating environment.
• Low average disposable income, a highly dispersed population and distinct tastes from the rest of the world.
• Weak infrastructure in terms of roads, power, telecom, and port facilities.
To guide your company, this report presents 10 factors that companies have used to become successful in India.
These have been identified based on benchmarking successful EU MNCs operating in India
Successful companies differ from less successful players in their ability to rapidly adapt their business
models for India
• Most companies recognize the need for local adaptation.
• However, implementation is more difficult than it seems – it requires a deep customer understanding and
building scale in India while managing complexity.
• Three key areas require adaptation (in additional to several others) – a strong product value proposition,
“smart” localization of manufacturing, and robust supply chains.