20 Sep 2018
The MNC’s guide to understanding India - Part 1
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In India, multi-national companies are finding huge market potential, an entrepreneurial spirit and favourable demographics. So why is this such a tough market to crack?
We interviewed India-based executives from 14 multinational companies across a variety of industries for our white paper ‘The Challenge for Multinationals in India’. We asked them what they see as their biggest challenges and opportunities and to share their leadership strategies for the future in this complex, heterogeneous, high-growth-potential market.
In this first of two extracts, the executives set the scene, including the regulatory and political complexity of the Indian market and the very particular nature of its consumers.
Setting the scene
Economically, India is a powerhouse.
Market liberalisation in the 1990s spurred growth, increased consumer choice and reduced poverty. Prime Minister Modi’s more recent reforms have caused some economic disruption, but the IMF predicts that India will be the world’s fastest-growing large economy again this year.
The consensus among the MNC executives we interviewed is that India represents “large-scale opportunities for the future” and is a “vital cog in the global business value chain.”
So the market is there, but that doesn’t mean that achieving growth on the subcontinent is a foregone conclusion. Political and regulatory shifts have, in particular, proved challenging for MNCs to navigate.
When Modi took office in 2014, expectations for how quickly he could transform and modernize India were high. “A lot of promises were made, however, change has not happened at the expected pace,” noted an aerospace and defence MD.
An executive at a German industrial services company concurred: “While India has moved up in the ‘Ease of Doing Business’ rankings, the pace of reforms has not met expectations.”
In addition, a technology business leader in an insurance firm noted that concerns about corruption remain top of mind.
Regulatory uncertainty has, in the past, kept India-based MNC executives up at night, but now some of that concern is dissipating. “That phase [of regulatory uncertainty] is almost over and our profitability is going up,” an insurance company executive shared.
The slow pace of reform has led some MNCs to become frustrated, but overall the executives we spoke to remain bullish on the Indian opportunity.
Pressures and challenges
Despite India’s vast market potential, economic and logistical challenges do persist. Supply-side constraints, due to factors such as inadequate infrastructure, limited credit and a shortage of skilled labour, are a concern.
The paradox of the Indian market is that it has a high potential for growth but from a very small base.
A regional business leader for a technology and consumer electronics company summed up the situation this way: “India for us has been an example of where the pipeline is huge, but not converting.”
The MD of a US aerospace and defence contractor agreed, noting, “While setting up companies and industries has become simpler in India, operating a business successfully still raises a lot of bureaucratic hurdles and challenges.”
Keys to success
According to the executives we interviewed, adaptability, contingency planning and cultural awareness are the keys to achieving success in this high-potential market.
The MD of a large FMCG company shared, “Geographically dispersed, diverse teams, make it difficult to standardize execution capability in India. Supervision and control are hard to achieve and MNCs should come well prepared for this.”
The executives we spoke to agreed that companies that recognise and adapt to the local business culture have a higher chance of success.
A partner in a UK-based risk consulting firm explained, “MNCs that have managed to ingrain themselves in the cultural fabric of India have been more successful. Nestle and McDonalds are good models of that behaviour.”
Seeing the world differently
How else do cultural differences manifest themselves in the Indian market? For one, the Indian consumer is “extremely price sensitive”.
An industrial services company executive shared: “Indian clients are largely driven by cost and this dominates the discussion instead of a product’s features, quality and value.”
An insurance executive agreed that Indian consumers and corporate entities negotiate hard and demand heavy discounts, which can squeeze margins.
This focus on price point can be challenging for MNCs, especially when they are up against lower cost base local competitors.
An MD of a German industrial services company noted, “Indian clients have high expectations from MNCs in terms of product and service quality, but they are not willing to move for it.”
In the retail market, the MD of a consumer technology company shared, ‘The Indian consumer is more ‘deal seeking’ [than the global consumer] when it comes to products down the value chain. This is accentuated by high volume smartphone-led buying.”
Importantly, the MD of a large FMCG company warned, “Many MNCs underestimate the diversity of India and the fact that consumer preferences vary significantly within the country.”
Clearly, the challenges MNCs face in this complex, heterogeneous, high growth-potential market are myriad—from navigating cultural differences to managing conflicting regulatory regimes to understanding the idiosyncrasies of the Indian consumer.
In the second extract from our white paper, we will focus on the hiring, leadership and workforce challenges that MNCs encounter in this unique market, and how to overcome them.
Read our white paper ‘The Challenge for Multinationals in India':
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