The CMO Survey reported that India will be the focus of the most dramatic increases in U.S. company sales revenues in international markets during the next 12 months. India’s economic boom, growing per-capita income, and increasing liberalization of foreign direct investment (FDI) rules present opportunities for foreign exporters. Four sectors have attracted the most FDI in India over the last 10 years: services (21% of total), technology (17%), construction and real estate (15%), and automobiles (5%).
Firms have entered from every corner of the globe. To name just a few in the above sectors, in insurance services, from the U.K. (Prudential) and Germany (Allianz); in technology, from the U.S. (IBM, Accenture); in construction and real estate, from France (Bouygues), Hong Kong (China Harbor & Bridge Company), and Sweden (Skanska); and in the automotive sector from Korea (Hyundai), Japan (Suzuki Motor Corporation), and the U.S. (Ford Motor Company). Across other sectors, U.S. brands as diverse as cosmetics seller Mary Kay and motorcycle maker Harley-Davidson have expanded to India. American doughnut chain Dunkin’ Donuts and sticky-bun retailer Cinnabon are also bringing their sugary treats to India, aiming to capitalize on fast-changing lifestyles in one of the biggest sweets markets in the world.
Key Success Factors/Stories
Looking at the success stories coming from the U.S., what steps have these companies undertaken?
- Created strategic partnerships. This is a strong theme among winning firms. In the services sector, which is the largest area of direct foreign investment in India, two of the top four players in the insurance market are partnerships between domestic and foreign firms. These are ICICI-Prudential, a joint venture between ICICI Bank (one of India’s foremost financial services companies) and Prudential PLC (a leading international financial services group headquartered in the U.K.) and Bajaj-Allianz, a joint venture between Bajaj Finserv Limited (an insurance arm of India’s Bajaj Auto) and Allianz (a global financial services company headquartered in Germany). These partnerships combine the local company’s in-depth understanding of the market and extensive distribution network with the global experience of the foreign company. In other cases, such as Bristol Myers Squibb, the company invests in research and marketing infrastructure while outsourcing the manufacturing of drugs to a local alliance partner. This approach, referred to as “demand-based manufacturing” reduces costs and avoids the hassle of securing vast areas of land and reliable utilities for a newly-constructed facility.
- Entered the Indian market with an open mind about localizing offerings to suit Indian customers. McDonald’s huge success in India is one example of this approach, but this was a relatively easy road yet it took the company six years to crack the code. Indians were not familiar with a self-service restaurant model in the 1990s. Moreover, given religious & cultural sensitivities, McDonald’s had to customize its menu to suit Indian preferences with 70 percent of McDonald’s menu in India now catering to local tastes. In fact, India is the only country in McDonald’s system that does not serve any beef or pork-based products. Today, McDonald’s is the leader in the QSR (Quick Service Restaurants) industry and is one of the most trusted global brands in India.
- Improved general market awareness to build primary and secondary demand. IBM was one of the very early entrants into the Indian IT market. IBM’s first step was to stimulate the market potential by increasing the general awareness of IT among students. IBM created partnerships with leading educational institutions such as the Indian Institute of Technology (IIT) in Delhi, Kanpur and Chennai along with a number of other renowned IT schools throughout the country. These strategies paved the way for stronger adoption of computer technology including IBM products.
- Included rural and poorer markets in their strategy. Coca-Cola had significant success by developing a rural focus for its marketing strategy. Coke launched a new 200-ml. bottle (compared to the typical 300 ml) that sells for 10 cents and is aimed at rural areas and lower-income urban markets. The attractive pricing was a key to boosting sales by prompting trial.
- Helped India bring innovation to the rest of the world and not the other way around. GE Healthcare uses the term “reverse innovation” to capture the idea of developing low-cost and high-quality products for adoption in emerging markets by utilizing local talent and then exporting the product to the US. In this way the firm developed a $1000 hand-held electrocardiogram in India and launched the product in the US after significant success treating Indian patients. This bold strategy challenges conventional thinking about the directional flow of innovation.
- Accepted that it might be necessary to teach the market about the value of their products. Procter and Gamble now commands a lion’s share in India’s home care (e.g., detergents for categories. fabric care), personal care (e.g., shampoos), and health care (antiseptic liquids and diapers) markets. But the company had to tweak its sales pitch to fit the Indian market. Take the example of disposable diapers. Early research found that many Indian mothers thought that only lazy moms put their babies in disposable diapers that last a full night. In response, P&G launched a door-to-door program that offered baby-care tips and diaper to educate Indian mothers that using a diaper is not about convenience. Instead, the value of disposable diapers is they allow babies to sleep through the night which is important for physical and mental development.
- Located manufacturing operations in India. Ford saw huge success in India recently with the launch of its first made-for-India compact car, the Figo. “Building Where We Sell” is fundamental to connecting Ford’s manufacturing and sales strategies. For Ford, it means putting that country’s citizens to work, including them into the Ford family, and becoming an integral part of the communities in which they do business. Designed and built in Chennai for the Indian consumer, with more than 80,000 proud owners and more than 20 auto industry awards, the Ford Figo has become one of the most demanded cars on the sub-continent. Interestingly, this is very similar to Henry Ford’s original strategy. He paid his workers above-average wages so they could afford to buy Ford cars.