McKinsey: How Multinationals Can Win in India
1
M A R C H 2 012
s t r a t e g y
p r a c t i c e
How multinationals can win in India
Companies should avoid simply imposing global business models and practices on the local market.
Vimal Choudhary, Alok Kshirsagar, and Ananth Narayanan
2
Over the past 20 years, multinational companies have made considerable inroads into the Indian market. But many have failed to realize their potential: some have succeeded only in niches and not achieved large-scale market leadership, while others haven’t maximized economies of scale or tapped into the country’s breadth of talent. The experience of a leading multinational consumer goods company illustrates the challenge: its revenue in India has grown by 7 percent compounded annually in the past seven years—almost twice the rate of the parent company in the same period. Nevertheless, the company’s growth rate in India is only about half that of the sector. For multinationals, the key to reaching the next level will be learning to do business the Indian way, rather than simply imposing global business models and practices on the local market. It’s a lesson many companies have already learned in China, which more multinationals are treating as a second home market.1 In India, this trend has been slower to pick up steam, although best-practice examples are emerging: • A leading beverage company entered India with a typical global business model—sole ownership of distribution, an approach that raised costs and dampened market penetration. The company’s managers quickly identified two other big challenges: India’s fragmented market demanded multiple-channel handoffs, and labor laws made organized distribution operations very expensive. In response, the company contracted out distribution to entrepreneurs, cutting costs and raising market penetration. • A big global automobile company has become the one of the largest manufacturers in India, growing at a rate of more than 40 percent a year over the last decade,
M A R C H 2 012
s t r a t e g y
p r a c t i c e
How multinationals can win in India
Companies should avoid simply imposing global business models and practices on the local market.
Vimal Choudhary, Alok Kshirsagar, and Ananth Narayanan
2
Over the past 20 years, multinational companies have made considerable inroads into the Indian market. But many have failed to realize their potential: some have succeeded only in niches and not achieved large-scale market leadership, while others haven’t maximized economies of scale or tapped into the country’s breadth of talent. The experience of a leading multinational consumer goods company illustrates the challenge: its revenue in India has grown by 7 percent compounded annually in the past seven years—almost twice the rate of the parent company in the same period. Nevertheless, the company’s growth rate in India is only about half that of the sector. For multinationals, the key to reaching the next level will be learning to do business the Indian way, rather than simply imposing global business models and practices on the local market. It’s a lesson many companies have already learned in China, which more multinationals are treating as a second home market.1 In India, this trend has been slower to pick up steam, although best-practice examples are emerging: • A leading beverage company entered India with a typical global business model—sole ownership of distribution, an approach that raised costs and dampened market penetration. The company’s managers quickly identified two other big challenges: India’s fragmented market demanded multiple-channel handoffs, and labor laws made organized distribution operations very expensive. In response, the company contracted out distribution to entrepreneurs, cutting costs and raising market penetration. • A big global automobile company has become the one of the largest manufacturers in India, growing at a rate of more than 40 percent a year over the last decade,