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Weekly UpdatesSo much about India seems so familiar. Unlike China, almost everyone in India who interacts with foreigners can speak English. The British introduced Western systems of government, education and judiciary processes, which remain today. And that--combined with a cultural proclivity toward saying yes when, in fact, like in China, the answer may be no--can make India seem deceptively comfortable or easy. It can cause normally wary international business managers to drop the guard they normally carry to unfamiliar terrain. It can also create a feeling that the market is easy to assess, as well as easily conquerable by transplanting business techniques and products that work elsewhere in the world.
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Those assumptions can lead to critical errors for U.S. companies trying to get a foothold in the Indian market. "The biggest mistake is thinking there is a single India," says Mumbai-based Rama Bijapurkar, one of India's leading business-strategy consultants and author of the new book Winning in the Indian Market. "The single biggest thing that confounds people about India is that everything you say about it, the opposite is also true. There are five-star hotels and abject poverty. We had Indira Gandhi as Prime Minister, but we also have [women killed over] dowry debts. It is a democracy with reasonable institutions, but there is not the same kind of culture of debate. These dichotomies are very hard.
"If you transplant your global strategy, you only get the tip of the iceberg," she continues. Companies that see India's economic growth rates of 8.5 percent annually for the last three years and believe that the country is on its way to becoming a developed market with the same characteristics of the West are in for disappointment. "Their biggest lesson is that they come in saying, 'Who can resist progress?' [They believe] that people will buy the same things as they do everywhere else. But people do resist progress," says Bijapurkar.
The first step is breaking down the market. "If you're a business, the first thing you need to ask is which India is your India," she says. "The educated? The young rich? The poor babies? And then you need to think about and engage with India's problems and provide solutions. Do you bring the global best practices here, or do you develop just for the Indian market?"
It's definitely the latter, according to experts who have seen giant brands falter over the years before they figured out how to navigate India's consumers. "I've seen company after company make the same mistake," says Manvinder Singh Banga, who for years ran Hindustan Unilever's operations in India and is now president of Unilever Foods in the U.S. "They overestimate the market."
The failure stories are legendary: Kellogg, because Indians won't eat cold cereal for breakfast; Mercedes, because it introduced an older, cheaper model when in fact Indian consumers wanted the latest cars, just at a lower price; Coca-Cola, because the bottles were too big, prices were too high and the brand was too American; Levi Strauss, whose jeans were seen as exorbitantly priced ($65 in 1995) compared to generic blue jeans, leaving it vulnerable to counterfeiting; and Novartis, which failed to sufficiently navigate regulatory hurdles and patent laws and found its Gleevec cancer drug unprotected from generic copies in the Indian market.
Though all of these companies have since revised their strategies, all of their problems were rooted in the failure to sufficiently understand the market and operating environment, to line up a good partner, and to develop and price products specifically for the Indian consumer. By contrast, companies that have gone in with a clear India-only strategy of segmenting the market have done well.
L'Oreal at first targeted only the high-end segment with premium hair color rather than trying to reach the mass market with its shampoos, conditioners and other mass products. Now, it is spreading its reach, going after the lower-income segments by putting, for example, Garnier shampoo into individual-sized sachets that sell for a few rupees--a replication of the "bottom of the pyramid" strategy pioneered by Hindustan Unilever.
Reebok also started by targeting the premium segment. Since creating apparel at the entry level and widening its appeal to women, it has managed to nearly double sales from $59 million in 2004 to more than $100 million today--and managed to get consumers to climb up the value chain. From a majority of sales coming from products priced in the $20-$45 category then, today the bulk of sales come from products priced at $45-$90--in part based on the company's decision to start appealing to women.
"We could have achieved a lot more if we had beefed up our product line or given a more exclusive focus to this segment," Reebok's India managing director Subhinder Singh Prem wrote in an essay for Rediff.com. "In 2004, we began to treat our women's business initiative as if we were launching a new brand. We started promoting the category by opening women-only stores that would meet the special needs of our women customers." Now Reebok has more than 500 stores in India, with a 51 percent market share. In September it opened Reebok's largest store in the world, in the central Indian city of Hyderabad, home to India's nascent biotech industry.
"Our learnings were clear: 'Ask not what percentage of an existing market your brand can achieve. Ask how large a market your brand can create by putting resources behind creating a category,'" Prem wrote.
That conclusion goes directly to the point of addressing India's problems with market solutions. That's what Nokia did, developing affordable mobile phones with keypads that withstand water and dust conditions and pricing them for the mass market. It reported sales of 60 million mobile phones in the first half of 2007 alone. Nokia has built 70 percent market share, and India has displaced the U.S. as Nokia's second-biggest market, behind China.
Coca-Cola and Pepsi, after seeing sales decline badly in 1999 when they raised prices by just one rupee, realized in 2002 that introducing smaller bottles (200 ml instead of 300 ml) and lowering the price can prompt a large increase in sales. Coca-Cola's cola business is now centered around the smaller, returnable glass bottle, priced at five rupees (13 cents). But what it ultimately realized is that its main competition was not from Pepsi, but from water, tea, coffee and fruit juice. It is now concentrating its growth strategy on developing moderately priced non-carbonated beverages. "They didn't want to accept that maybe Indians want to drink water, not Coke, and how unimportant a symbol of America is in this market," says Bijapurkar, recalling Coca-Cola's huge losses. "Arrogance is a deadly sin."
It's not just consumer products companies. B2B firms have had similar problems navigating in India. Autodesk, for example, started out trying to sell software services in India in 1993. "We were pricing too high for the market," says Carol Bartz, Autodesk's executive chairman and former CEO. At first, Autodesk charged clients similar rates to what it charged in the U.S.--which turned out to be a whole year's rent for one customer who complained about the pricing, giving Bartz the answer as to why sales were so lackluster. So Autodesk repriced the software at about three months' rent, and saw sales improve dramatically. The other problem was insufficient research, in part due to the choice of a business partner based in the south of India; Autodesk was targeting large companies in north India. "Frankly, we had the wrong partner," Bartz says. "The biggest issue is just getting good people."
A good local partner makes the difference between overcoming regulatory hurdles and understanding the Indian consumer mindset. Like Novartis with its drug regulatory hurdles, Yum Brands, which owns KFC, had to pull out of India in 1997 after three years because of regulatory problems and issues with its franchisee--as well as a number of violent attacks on KFC stores by anti-American and anti-globalization protestors. KFC went back to India three years ago after regulations changed to allow Yum company ownership of outlets. Now, with a good local operation run by Indian managers, KFC is experiencing a surge in popularity, according to Graham Allan, the London-based president of Yum Restaurants International. KFC has opened 25 outlets in India and expects to have 200 stores by 2012. (The company does not break out sales.) "We've identified India as one of several high-priority strategic markets for us," says Allan. "India can be one of the biggest markets, if not the biggest market, in international someday."
That kind of importance is clear just by looking at the numbers. By 2025, India's consumer market--currently the 12th-largest in the world--is expected to become 5th, surpassing Germany and Italy, according to research by the McKinsey Global Institute. Household disposable income is forecast to triple, a compound annual growth rate of 5.5 percent compared to 3.6 percent growth over the last 20 years. "The question for companies today is not whether to be in India or not, it's how to be in India," says Nandan Nilekani, co-founder and co-chairman of Infosys Technologies in Bangalore (see interview, p. 51).
The middle class, defined as having an annual income of $4,400 to $21,000--which at 56 million is currently 5 percent of the population of more than 1.1 billion--is forecast by McKinsey to grow to an astounding 583 million, or 41 percent of the population, by 2025. Since 1985, the "deprived"--those who live on less than $1 per day--have fallen from 90 percent of the population to 54 percent as they move into a class called the "aspirers." They want to own a color TV, a gas stove, a mobile phone and either a motorbike or car (see table, above).
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