Ten Tips from Successful European Companies in India

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).

EU companies are already taking advantage of India

• The EU is one of India’s largest sources of FDI and trade.
• EU companies comprise 50% of all Multi National Corporations (MNCs) in India.
• Many see India as key to their long-term global growth and competitive advantage.

Investments in India are yielding returns

• Companies have begun to capture local market opportunities (especially in niches).
• Many are also sourcing from India (resulting in lower costs and higher productivity).
• Some are even more successful than their global operations.

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

• Success factors fall under three categories:

A. Commitment at the global level; provide global support and technology;
B. Empowered local management; develop local team autonomy and capability;
C. Localized Product/Market Business Models: create customized products and services in response to the
unique environment in India.
• Most companies have implemented the majority of the success factors, and not just one or two.

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.

Successful companies view India as a long-term play, not a short-term turn

• Success in India did not happen overnight.
• Success requires commitment, management drive, and focus on long-term objectives for India in the global
portfolio.

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Ten Tips from Successful European Companies in India

Table of Contents

Setting the context: The India Opportunity 1

Benchmarking Objectives and Methodology 4

Ten Tips for Success in India: A Framework 7

Section A: Commitment at the Global Level 8

Section B: Empowered Local Management 11

Section C: Localized Product/ Market Business Models 16

Appendix: Benchmarked Company Snapshots 21

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Ten Tips from Successful European Companies in India

Setting the context: The India opportunity

India presents a remarkable business opportunity by virtue of its sheer size and growth
• The Indian economy is now ranked 12th in the world in terms of GDP and is the fastest growing after China1.
• India is expected to continue along the same trajectory, with consistent growth rates of between 4-7% as
exhibited over the last 2 decades.
• This will position it as the 8th largest economy in the world over the course of the next 20 years, with a larger
GDP than that of Italy, France or Germany by the year 2025.2
A. The domestic market opportunity
India’s vast population is increasing its purchasing power
• While ~50% of the population was classified in the low-income bracket3 in 1994-5, this proportion is rapidly
declining, and is expected to account for only 17.8% of the population by 2006-7.
• At the same time, there is a rapid shift from the low-middle classes to the burgeoning middle class, and an
even faster increase in the sizes of the high and upper middle class, fuelling growth in the economy.
• Even more pronounced is the growth of a niche ‘super-rich’ class, now estimated to comprise of over
100,000 households with net worth of >$1 mn each.
The growing size of the middle and higher consumer classes with increased income and paying capacity
has spurred an increase in consumerism and brand consciousness
• Companies have been taking advantage of dramatic growth in such consumer markets as automobiles,
motorcycles, computers, durable goods, and cellular communication – all exhibiting compounded annual
growth rates (CAGR) of 6%-29% from 1996 to 2011(estimated).
• The domestic market opportunity will further be boosted by a likely increase in propensity to spend and by
the growing consumption by the young generation in India.4

B. The offshoring opportunity

India accounts for roughly 65% of the global offshoring market and is expected to grow at 50-60% per
annum for the next 5 years
• Offshoring provides a fast growing and increasingly important opportunity for MNCs. It is mainly derived
from India’s largest asset – its people. India is the largest English-speaking nation in the world with the
second largest pool of scientists and engineers (second to the US).
• Companies are able to realize significant cost savings by utilizing the highly qualified labour force at
attractive rates, and translate this into an important competitive advantage. The cost of a highly qualified
engineer/ scientist in India is less than $20 per hour, as compared to over $40 per hour in the US or EU.
The benefits of India’s human capital extend beyond cost
• Many MNCs are seeking India for the superior management and technical talent base that it offers. Over
100 MNCs have set up R&D facilities in India and many have placed Indian talent in key positions in their
organizations both locally and globally.
India is also emerging as the manufacturing and sourcing location of choice for various industries
• India is considered a low cost leader in such areas as steel and metals and a regional base for the high quality
production of some manufactured goods such as automotive components, engineering equipment, power
equipment, and medical systems.

1
Among economies larger than $125Billion
2
Goldman Sachs “Dreaming with BRICS –the path to 2050"
3
Per annum income of less than 450 Euro
4
India’s median population age is below 24 as compared with EU and US population at over 35.

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Ten Tips from Successful European Companies in India

C. The Primary Challenges (and how they are being addressed)

While India is positioned for success, there are multiple challenges that must be addressed as an integral part
of MNC strategy; these include:

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.

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Ten Tips from Successful European Companies in India

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.

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Ten Tips from Successful European Companies in India

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.

BENCHMARKING SCOPE SUMMARY

Key Topics/ Questions That Were Discussed During Interviews

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?

What is the role and structure of local management at

Position of local
MNCs? How much autonomy does the India team have in
management
strategic and operational issues?

To what extent are products/ business models localized

Localization
to Indian conditions? How is the decision made?

Leveraging India for

How do MNCs best leverage other advantages offered by
value-add
Indian presence beyond the domestic market opportunity?
opportunities

What vision do MNCs have for their operations in India for

Outlook
the next 5 years and how are they gearing up towards it?

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Ten Tips from Successful European Companies in India

Defining success for EU-based MNCs in India

Success in India may be defined along two dimensions:

Capturing the domestic market opportunity:

• These companies have been able to satisfy growth and profitability objectives in India by capturing the
domestic market opportunity at large. They have positioned themselves as mass-market players in relation
to their industries, often by localizing their operations in India. By virtue of their success, these companies
have become key contributors to the global or regional setup in terms of market share, contribution to
bottom line, or innovation.

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.

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Ten Tips from Successful European Companies in India
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:
SEVERAL MNCs SUCCESSFUL ALONG BOTH DIMENSIONS...
Company example
Industry standing and industry
altering innovations...
• Providing the full range of
banking products in India;
Created special online
offerings for Indian clients
• Cutting edge products and
solutions available in India
• 8 local manufacturing units and
countrywide marketing and
service presence
• The industry leader in the
chocolates and confectionary
market
• Multiple innovations across
products, price and packaging
• Introducing the latest telecom
technologies to India
• Transferred their full product
range enabling end to end
communication solutions
• Ranked as #1 pharma
company in India
• Built a superior sales force and
distribution network – currently
used in joint marketing
agreements
• Introducing superior engine
technology, new 3 and 4
wheeler models, and
innovative customized
solutions to India
• New technology and design
expertise introduced to India
• Developed special products
tailored to Indian market
requirements
• Created and grew segments in
the confectionary market from
the ground up (especially
deposited candy)
6
...strong performance
indicators...
• Achieving 45% sales growth
and 70% growth in consumer
banking
• See India as 4th major ‘home’
market for the group
• 1,200 Cr. in sales in 2002
• Over 20% revenue growth and
over 30% profitability
enhancement in 2003
• Top performing share price
• ~650 Cr. in sales
• Holds a 70% value share of
the chocolate market
• Achieved growth of ~30% in
both revenues and profitability
during the 90’s
• Market share of 40% of
connected subscribers on its
systems
• Supplied 50% of mobile
network systems in India
• Over 1,100Cr. sales and
128Cr. profits in 2002
• Gearing up for significant
growth post 2005
• Turned operation around to
become profitable 1,5 years
after initiating independent
operations in India
• Turnover of ~500Cr.
• Investing over 300Cr. in
expanding capacity to satisfy
expected global demand
• Turnover of 350Cr.; growing
30-40% annually
• India is one of the top
performing units for
organization
...and leveraging India for
global business
• Reached significant cost
savings through BPO
• Expanding to serve the BPO
needs of other financial
institutions
• First IT centre outside EU &US
in India
• Significant export of products,
solutions and services from
India
• Exporting both finished goods
and innovative concepts to
Cadbury around the world
• Project ‘Next Billion’:
Collaborating with Wipro to
develop infrastructure and
services in India for mobile
networks in emerging markets
across the globe
• Plans in place to develop India
as R&D center, statistical &
data management, sourcing for
raw materials, and clinical trials
• Plans to make India global hub
for 3 wheeler mfg, and the
launching pad for global
expansion
• Planning components exports
to the EU
• Have built an export business
for both tractors and
components
• Plan to increase exports 6 fold
to 6000 units in 3 yrs
• Exporting creative talent,
innovation and ideas
• Local advertising is being used
in other markets
Ten Tips from Successful European Companies in India

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.

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Ten Tips from Successful European Companies in India

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.

KSF#1 View India as a key focus area

Why is this important?

• …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.

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Ten Tips from Successful European Companies in India

SUCCESSFUL MNCS VIEW INDIA AS A KEY FOCUS AREA

DESPITE IT BEING A SMALL CONTRIBUTOR CURRENTLY
1 2
KSF# KSF#
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.
The country is gaining recognition for its increasing pool of
local knowledge and talent. India is increasingly taking charge
of its own future in the Convergence, Digital and Internet
revolutions.” — Philips
Philips sees India as the next big thrust area for Philips Asia.
The Global board and India management team have jointly
set a revenue target of 1Billion Euro for India by 2007, with
250 Million Euro coming from exports

KSF#2 Formulate bold, long-term targets that drive decision-making

Why is this important?
• …to align the organization behind exhibited market potential and help circumvent short term hurdles…
Translating India-related plans to long-term measurable goals adds a visionary lens to all decisions related to
future products, markets and investments. Successful companies that highlighted India’s importance on their
global agenda often followed through by framing these as clear, important aspirations (see above diagram).
Long-term targets and aspirations also help influence how management thinks about the business in the short
to medium term. For example, UK confectioner Cadbury links these targets back into the management process
of targeting and monitoring and uses them to form a baseline for discussions with the regional and global teams.
Piaggio cascaded long-term country level targets into the business, translating them into such objectives as
focusing on increasing the quality of engines, or speeding up the supply chain for components. Other companies
may link long-term targets to more conventional top-line revenue or profitability metrics.
In contrast, companies that adopted short-term globally standardized targets in India, often found themselves
‘justifying’ their inability to meet these due to price pressures, intense local based competition in the market,
or policy and regulation.
KSF#3 Create processes that accelerate the integration as well as the localization of the organization
Why is this important?
• …helps find the right balance of autonomy allotted to the local team and aligns organizational objectives
in India…
One challenge faced by MNCs is that global management’s perspective about the challenges and the opportunities
in India is often quite different from the reality on the ground – leading to differing views on the appropriate business
model for India. Situations may arise where the local team feels that they neither have the autonomy to run the local
business as needed, nor do they have the support from the global management in terms of taking India-relevant
decisions. This can lead to an increasing communication gap as well as lack of mutual faith and credibility.
One way by which benchmarked companies have been able to create a deeper understanding of the Indian
environment and align organizational objectives, is by encouraging frequent and high level interaction between
the global and local teams, at various levels of the organization.

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Ten Tips from Successful European Companies in India

#3
LATERAL FLOWS SPEED INTEGRATION AND
KSF
FACILITATE LOCALIZATION
Constant two way interaction to
build a common thought platform
• Local team understands global
Local team standards and practices Global team
• Global team understands local
challenges and the need for
‘smart’ localization

Possible interaction

Formation of focus Global conferences

Personnel transfers Personal CEO visits
groups and workshops

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.

SUCCESSFUL MNCs FINE-TUNING GLOBAL METRICS

KSF
#4 TO SUIT INDIAN ENVIRONMENT
Company Metrics used Implication for India

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

Adopts standard global product margin Allowed investment in robust

and profitability metrics distribution network
• But Indian team given longer • Currently leveraged for joint
timeframe to reach global marketing agreements; will be a
benchmark key driver for growth post 2005

Defines metrics that highlight operating Allows investment in market

efficiencies as much as topline growth
• Understanding constraints of price
Hindustan Lever
sensitive environment
penetration and reach while driving
efficiencies
• HLL known as most successful in
rural penetration

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Ten Tips from Successful European Companies in India

Section B: Empowered Local Management

Performance in India will ultimately depend on the capabilities and drive of the local team. Companies that we
interviewed had long recognized this and worked towards establishing a highly capable local team that is
empowered to take decisions. As part of this process, organizations have gradually transferred responsibility to
the country management often to the point where they have full autonomy within a budget. In doing so,
companies have leveraged the excellent management and technical talent available in India, and formulated HR
policies that are a mix of global policy (often demonstrating a feeling of belonging to a global organization),
and local processes that cater to the needs of Indian employees. These teams are often taking the lead in shaping
company strategy, and have become a core contributor to the company’s ultimate success.

KSF#5 Build for the long-term in India regarding people, HR practices and external stakeholders

Why is this important?

• …more cost effective, enhances continuity, and leverages understanding of local environment…
Benchmarked companies mentioned three main reasons for investing resources in a high-quality local team:

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
lead to a discontinuity in
strategy
• “The engineering and
management talent available
in India is world class and
costs less” - Wartsila
• Internally, local teams are
usually more effective at
managing the local workforce
(either unionized on non
unionized)
• Cadbury, HLL, ABB, GSK,
Piaggio all cited having an
predominantly Indian
management team a key
contributor to success
• Local managers are often
better positioned to design
products and business models
tailored to the Indian market
• “Headquarters provides us
with the required support and
advice, but you need a 100%
local team to execute – they
know the environment best” -
Piaggio

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Ten Tips from Successful European Companies in India

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:

KSF
#5 MNCs ADOPTING SOME KEY HR PROCESSES TO
BUILD A STRONG LOCAL TEAM
Strong recruiting processes
Carefully selected educational institutions E.g.
Indian IIM and IIT schools
• Top management involvement in the
process
• Well defined criteria for evaluation
- HLL recruits at top schools and has a
rigorous interview process which includes
applicant values and integrity assessment
Continuous investment in relevant training
Large investments in entry-level training as well
as management development programs
- Allianz-Bajaj investing in an in-house
management training program for a new
generation of managers
Companies also creating uniformity and a
sense of belonging to the global organization
- Barco*, has created a global innovation
competition designed to enhance
integration

Well-designed performance management Career progression avenues for high

system potential employees

• Systems to ensure that evaluation criteria
is aligned with business imperatives
• High level of involvement from senior
management in defining both ‘hard’ and
‘soft’ performance criteria
*Barco is a Belgian Company known as a world leader in imaging technology
This factor was singled out as a key
differentiator in India
- Indian employees tie social status to career
progression, and are thus highly motivated
to progress.
- May differ from Europe, where employees
may retain a particular position as a career
and lifestyle choice

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

KSF#6 Define a value added role for country management

Why is this important?

• …motivates local team to perform and facilitates transfer of responsibility…
Multiple business-unit organizations operating in India may have a need for an activist country management role,
while this may not be the norm for the organization in other countries of operation. The main reasons behind
this are: lack of scale in individual business units for the India business, similarity in some part of the value
chain which may not exist in other countries (e.g. supply chain, distribution channel), and commonality of important
overall issues (e.g. regulatory affairs) across business units.
Additionally, as companies progress from being ‘executers’ of global strategy in India to assuming a higher
degree of autonomy and decision making power, they have found it important to broaden the role of local

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Ten Tips from Successful European Companies in India

management to oversee multiple areas of responsibility. Some specific areas of responsibility may be identifying
and leveraging cross-divisional synergies, identifying opportunities for new businesses in India, assuming
responsibility for building a country level brand, and building and managing relationships with external
stakeholders. These stimulate frequent working level interaction with the global organization and facilitate the
gradual transfer of control to the country organization.
KSF#7 Establish local team credibility
Why is this important?
• …provides the local team the required business flexibility and smoothens the strategic decision making
process…
Having a credible local team in place is a key requirement for success. A high level of trust is essential for
decision rights to flow through and localization to take place. Beyond the processes that relate to the formation
of the local team, which to a large extent lie with global management, companies voiced their opinion that
establishing credibility was in the hands of the local management team itself. We identified three ways in which
local management created credibility:

CREDIBILITY OF LOCAL TEAM ACHIEVED THROUGH

#7
KSF
THREE KEY FACTORS

“Here in India we insisted

Innovation/ knowledge
Results transfer
...meeting and exceeding ...demonstrating the
financial targets ability to devise sound
innovative business models
that adapt to local
challenges
STMicro moved from
project execution to end-
to-end management by “Bank-Cafe, Kiosk and
surpassing expectations doorstep delivery of
in terms of quality, banking services are all
reliability, and cost concepts that sprung up
• STMicroelectorincs in India and are now
being looked at globally”
• ABN Amro
that we will absolutely not
deviate from global safety
norms or use ‘fast money’.
This has bought us credibility
at HQ and given us a chance
to shape our industry”
• Lafarge cement
Standards
..demonstrating commitment
by staying within the
boundaries of the overall
corporate standards while
adapting to local needs

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.

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Ten Tips from Successful European Companies in India

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
local team
role of
global Freedom in local operational decision
making
team • E.g. Independence over advertising
and promotion strategy

Define a
value Freedom to invest in localizing certain
Time

added role aspect of manufacturing

for country • E.g. Sub assembly, procure certain
management components locally, or enter into
supplier agreements

Freedom to innovate on and introduce

Increasing new products
decision • E.g. Setting up manufacturing and
Establish distribution networks
local team rights for
credibility local team
...Complete operational freedom within
approved budget

KSF#8 Leverage India opportunities beyond the product/market

Why is this important?

• …draws attention to the India organization, derives value for global organization, and gains competitive
advantage…
Offshoring opportunities are a key point of focus for MNCs operating in India today. In fact, all the MNCs that
we benchmarked are either actively involved in using India for value added activities outside of the domestic
market opportunity or are in the process of evaluating such opportunities. Their ability to contribute to their
global operations in this regard was highly appreciated by their headquarters and increased the stature of the
India organization.

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 offshoring process.

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Ten Tips from Successful European Companies in India

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

Shared services/ BPO Manufacturing and sourcing

• MNCs are realizing significant efficiencies by
shifting a host of support functions to India
- These include back office operations such as
transaction processing, customer interface
management, and IT support services.
• Successful MNCs are leveraging local
manufacturing towards global advantage
- Including components, sub-assemblies, and full
products that cater to the domestic and export
market
- Leading companies are integrating India into
global platforms, in areas where India has
strongest competitive advantage

KSF
#8 ...AND REALIZING SIGNIFICANT GAINS IN ALL AREAS

R&D Software dev./ Engineering Shared services/ BPO Sourcing/ Manufacturing

Astra Zeneca Philips planning to ABN Amro BPO Grundfos earmark-

conducting cutting expand software, center services ing 70% of
edge R&D as well product dev & entire global production from
as discovery work research from operation and Chennai facility for
in India 1000 to 2500 seats other banks export
by 2007

Glaxo Smithkline
setting up both
clinical trial and
research in India
STMicroelectronics Siemens
planning to expand Allianz Bajaj does IT proposing to make
1000 seat Noida servicing for some India a
software dev Asian countries, manufacturing hub
facility to 1500 looking to expand for medical
systems

Wartsila is ABB supplying

SKF Bearings has leveraging cost Bayer setting up worldwide demand
set up an R&D advantage and India shared for certain power
unit for 2 wheelers project services structure products*
in Bangalore competency to to drive efficiencies exclusively from
service group India

* High voltage circuit breakers above 72,5 KV; medium voltage outdoor circuit breakers, magnetic actuators

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Ten Tips from Successful European Companies in India

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

Why is this important?

• …builds competitive advantage by achieving effective cost structure, maintaining quality standards,
and leveraging the effects of scale…
MNCs in India are faced with stiff competition from local players, often with an entirely localized setup. To
compete effectively, it is important to set up an effective cost and operating structure involving various degrees
of localization in parts of the value chain. Some factors that may affect localization decisions are mentioned
below:
a. Labour/capital trade-off: India’s large labour surplus, which is expected to grow even further in the future,1
results in comparatively low wages. Companies have considered this factor in their localization equation and
transferred labour-intensive processes to India. Lafarge, for example, clearly demonstrated that the standard
global IT system is not economical given the cost of Indian IT experts. Instead, it designed its own IT system
at a reduced cost – with acceptance by the head office.
b. Brand recognition: Some companies have chosen to import critical components and manufacture other
parts locally, in order to leverage high European quality levels and brand recognition. Wartsila, for instance,
imports diesel high capacity engines from European suppliers who have developed their capabilities over a
decade and manufactures less critical parts in India.
c. Cost structure: In the early days of its joint venture, Joyco set up its operation using common European
cost allocations and imported machinery that was more expensive than locally available machinery. Joyco
has since identified and developed capable local suppliers and has indigenized its cost structure, enabling
the company to compete successfully with local players.
d. Global platforms and scale: As companies are becoming more sophisticated in the use of global platforms,
they are increasingly using a mixed localization strategy. AVL, for example, found it most economical to
import most of its electronic components from vendors with which it has global contracts, while manufacturing
mechanical components in India, and assembling the final product locally.
e· Regulation: State government incentives may prompt companies to localize parts of the value chain such
as manufacturing or R&D. Certain states in India are known to provide various incentive schemes which
may include tax holidays, free rent or use of utilities for setting up operations in a particular area – which
have encouraged MNCs to set up operations in the area.

1
A surplus of 47Million people in the working age group is expected in yr. 2020

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Ten Tips from Successful European Companies in India

KSF # 10 Formulate India-specific business model strategies (product, value, pricing)

Why is this important?

• … delivers the right product at the right price with right positioning for India…

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.

Core challenge Explanation Mitigation principle

Distinct tastes and

habits from rest of India has 336 tribes, 18 ...product proposition
world & variations languages, 1600 dialects tailored to the unique
within India target segment

Both a niche super rich class ...an appropriate

Large variation in
and an average income 1/10th of value-price offering
paying capacity
OECD countries for each segment

Dispersed
~650,000 villages; ~70%
population; ...cost effective
population in rural India
fragmented retail reach
~ 6 million retail outlets
channel

~ 50% villages not connected by

Infrastructure ...innovative supply
all weather roads; Large number
challenges chains
of supply chain intermediaries

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Ten Tips from Successful European Companies in India

a. Tailored Product Proposition: As Indian tastes and habits are distinct from the rest of the world and vary
from region to region, many companies have found the need to alter their international product to suit local
tastes and conditions. Successful companies derive ideas for customisation from a deep understanding of the
needs of the segment being targeted.

KSF
#10 SUCCESSFUL MNCs TAILORING PRODUCTS TO SUIT
INDIAN ENVIRONMENT

Cadbury has a successful product Tailored products vary from minor

innovation model in place localization to complete innovation

Degree of
Company example
Consumer Innovation customization
insight cell cell

AVL built emissions detectors that

can operate under extreme heat
Consumer cell Identifies the customer segments
and dusty conditions
and their needs, and tests products designed by
R&D
Grundfos built pumps that can
work under adverse power
- “We discovered that peanuts in India are less
conditions, such as those in
desirable – almonds on the other hand are
certain parts of India
much more attractive to consumers”

Renault-ITL developed smaller

Innovation cell develops the right features given
low-mid HP tractors designed to
market conditions and the customer’s price-value
fit the Indian farmer’s plot size
trade-off

Perfetti entered a completely new

- “A European chocolate would not survive the
product category, building the
conditions, we formulated more resilient
deposited candy segment from
chocolates that do not melt easily”
ground up

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.

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Ten Tips from Successful European Companies in India

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.

KSF
#10 SEVERAL EXAMPLES OF COMPANIES EMPLOYING
INNOVATIVE DISTRIBUTION STRATEGIES

Companies employing innovative distribution ...focusing on cost effectiveness and reach

strategies...
Partnerships often used to drive more scale
Cadbury’s rural/ semi urban horse driven through the channel
kiosks increase reach
• Allianz-Bajaj partnering with banks,
hospitals, travel agents and others to
distribute insurance products
• GSK is leveraging its channel to form joint
distribution agreements with both
pharmaceutical and consumer goods
players
• Swedish SKF bearings is partnering with
auto components company to increase
product visibility in rural areas
• Danfoss, Denmark’s largest industrial
Group, has developed a network of
references and third party consultants to
increase the reach of its energy saving
products

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 effectively1. 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.

***

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Ten Tips from Successful European Companies in India

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.

HOW WELL IS YOUR COMPANY PERFORMING

AGAINST THE 10 KSFs?

10 Key Tips for Success in India

1. View India as a key focus area 9

2. Formulate bold, long term targets that drive decision making

3. Create processes that accelerate the integration as well as localisation of organisation

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

6. Define a value-added role for the country management

7. Establish local team credibility

8. Leverage India opportunities beyond the product market

9. Localise the value chain, based on scale and complexity trade-offs

10. Formulate India-specific business model strategies (product, value, pricing)

1
Piaggio established that its localized product of the same quality could be produced at 30-40% less cost in India as compared to Europe.

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Ten Tips from Successful European Companies in India

Appendix

21