Despite India’s economic growth, many foreign companies have found it difficult to make money selling there. But a number of companies have found a winning strategy that involves weaving together local and global value chains.

Despite India’s economic growth and potential, developing a successful strategy for the country remains one of the most complex challenges for foreign multinationals. This challenge is rooted in the hard realities of global scale and costs. Most foreign executives have found it difficult to make money in India with their existing product portfolios at the scale of operations dictated by local demand. In addition, India has not provided foreign direct investment incentives anywhere near those of neighboring China. However, U.S. management consulting firm A.T. Kearney estimated in 2014 that India’s share of global trade would be approximately five times greater by 2025 — and at that point would represent 6% of all global trade.1 Given that growth projection, waiting for a target income segment to reach the break-even level or for greater government incentives to materialize is not the right strategy.

Consider the experience of Apple Inc. India’s smartphone market has seen rapid growth, but most of the smartphones being snapped up are priced at less than $150. This makes even the lowest-priced iPhones expensive by comparison. Consequently, Apple’s market share in India is under 5%, in terms of units shipped. In May 2016, Apple CEO Tim Cook went to India for high-level talks that included seeking an exception to the localization requirements imposed on foreign retailers. The company hoped to introduce Apple’s retail face and service with a string of its own flagship stores, but India’s government at the time upheld a local sourcing requirement of 30% imposed on foreign manufacturers.

This setback for Apple2 reflects the Indian government’s commitment to executing on Prime Minister Narendra Modi’s “Make in India” campaign.3 At the center of the campaign stand reforms that improve the ease of doing business for those foreign companies that are serious about manufacturing in India. It is all about carrots for compliant, spillover-generating foreign companies,4 including benefits such as reduced tax hurdles, improved infrastructure, reformed labor laws, boosted workforce skills development, easier land acquisition, and fast-tracked business-license approvals. With China exhibiting slower economic growth and an increasingly challenging intellectual property protection environment,5 many foreign multinationals have increased their focus on India. As Bill Maginas, former vice president, high-growth regions for Honeywell International Inc., explained:

India is the next big thing for Honeywell.

References

1. A.T. Kearney and the Council of Supply Chain Management Professionals, India, “Supply Chain 2025: Trends and Implications for India,” April 2014, www.atkearney.com.

2. Apple began manufacturing a limited number of iPhones in India in 2017. See T. Haselton, “Apple Begins Manufacturing iPhone SE in India,” May 17, 2017, www.cnbc.com.

3. “About Us,” n.d., www.makeinindia.com.

4. M. Blomström and F. Sjöholm, “Technology Transfer and Spillovers: Does Local Participation With Multinationals Matter?” European Economic Review 43, no. 4-6 (April 1999): 915-923.

5. A. Schotter and M. Teagarden, “Protecting Intellectual Property in China,” MIT Sloan Management Review 55, no. 4 (summer 2014): 41-48.

6. A.Y. Lewin, S. Massini, and C. Peeters, “Why Are Companies Offshoring Innovation? The Emerging Global Race for Talent,” Journal of International Business Studies 40, no. 6 (2009): 901-925.

7. M. Goyal, “Foxconn Boost for ‘Make in India’: Why Taiwan Inc.’s Growing Interests in India Deserve Attention,” Economic Times, Aug. 24, 2015.

8. R. Venkatesan, “Conquering the Chaos: Win in India, Win Everywhere” (Boston: Harvard Business Publishing, 2013).

9. J. Bhattacharya and S. Unnikrishnan, “The Great Indian Middle Class: The Promise and the Reality,” March 14, 2016, www.livemint.com.

10. S. Agarwal, “India Is Not Yet on the Priority List of the Luxury Companies: Abheek Singhi,” Nov. 1, 2014, www.livemint.com.

11. KPMG and ASSOCHAM India, “India Luxury Summit 2014,” New Delhi, India, Feb. 7, 2014.

12. V.K. Fung, W.K. Fung, and Y.R. Wind, “Competing in a Flat World: Building Enterprises for a Borderless World” (Upper Saddle River, New Jersey: Wharton School Publishing, 2008).

13. S.L. Hart and C.M. Christensen, “The Great Leap: Driving Innovation From the Base of the Pyramid,” MIT Sloan Management Review 44, no. 1 (fall 2002): 51-56.

14. J. Hagel III and J.S. Brown, “The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization” (Boston: Harvard Business School Publishing, 2005).

15. A. Kazmin, “Modi Tackles India’s ‘Licence Raj’ With a Thousand Cuts,” Financial Times, Sept. 21, 2014.

16. R.T. Krishnan, “Innovation in the Indian Automotive Industry: Role of Academic and Public Research Institutions” in “A Comparative Study on the Role of University and PRI as External Resources for Firms’ Innovation,” eds. A. Sunami and P. Intarakumnerd, Economic Research Institute for ASEAN and East Asia report 2010-10 (Jakarta, Indonesia: ERIA, 2011), 57-109.

17. P. Mehra and S. Ghosh, “Lost Opportunity: How Apple Got Its Strategy Wrong,” Nov. 12, 2008, www.livemint.com.

18. M. Lorenzen and R. Mudambi, “Clusters, Connectivity, and Catch-Up: Bollywood and Bangalore in the Global Economy,” Journal of Economic Geography 13, no. 3 (May 2013): 501-534.

19. J. McGregor, “China’s Drive for ‘Indigenous Innovation’: A Web of Industrial Policies,” July 10, 2010, www.uschamber.com.

20. T. Sahoo, D.K. Banwet, and K. Momaya, “Strategic Technology Management in the Auto Component Industry in India,” Journal of Advances in Management Research 8, no.1 (2011): 9-29.

21. A. Kumaraswamy, R. Mudambi, H. Saranga, and A. Tripathy, “Catch-Up Strategies in the Indian Auto Components Industry: Domestic Firms’ Responses to Market Liberalization,” Journal of International Business Studies 43, no. 4 (May 2012): 368-395.

22. K. Thakkar, “Iconic Cars Like Volkswagen Beetle and Fiat 500 Unable to Connect Beyond Their Die-Hard Fans, Forcing Makers to Pull Them Out,” Economic Times, Oct. 1, 2013.

23. K. Ramaswamy, “LG Electronics: Global Strategy in Emerging Markets,” Thunderbird School of Global Management case no. A09-070008 (Glendale, Arizona: Thunderbird School of Global Management, 2007).

24. P.R. Sinha, “Premium Marketing to the Masses: An Interview With LG Electronics India’s Managing Director,” 2005, www.mckinsey.com.

25. “LG India Presents the ‘Stars of India,’” news release, Business Standard, April 28, 2009.

26. PTI, “LG Plans to Make India Export Hub,” Economic Times, April 18, 2017, economictimes.indiatimes.com.

27. C. Midler, B. Jullien, and Y. Lung, “Innover à l’envers: Repenser la stratégie et la conception dans un monde frugal” (Malakoff, France: Dunod, 2017), available in English as “Rethinking Innovation and Design for Emerging Markets: Inside the Renault Kwid Project” (Boca Raton, Florida: Auerbach Publications, 2017).

28. “Renault Kwid Compact Hatchback Unveiled; To Take on Alto & Eon in Rs 3-4 Lakh Price Range,” Economic Times, May 20, 2015, economictimes.indiatimes.com.

29. “Renault India Registers 144% Growth in November,” Dec. 1, 2015, auto.ndtv.com.

30. J.R. Immelt, V. Govindarajan, and C. Trimble, “How GE Is Disrupting Itself,” Harvard Business Review 87, no. 10 (October 2009): 56-65.

31. N. Abraham, “GE Healthcare to Make India Hub for Low-Cost Devices; Products Will Be Up to 40% Cheaper,” Economic Times, Nov. 6, 2013.

32. V. Mahanta and S. Dave, “Narendra Modi Has Turned India Into a Magnet: McKinsey CEO Dominic Barton,” Economic Times, Nov. 26, 2014.

4 Comments On: Mastering the Make-in-India Challenge

  • Abhijit Bhattacharya | August 14, 2017

    The strategy suggested for “Mastering the Make-in-India Challenge” appears to be more appropriate for the bygone era and not for today’s economy. As widely discussed in the literature, particularly in MITSMR, for last several years, the global economy is undergoing radical transformation under the impact of disruptive forces of technology & new business models unleashed by the IV Industrial Revolution (or, Second Machine Age). The authors of this article are still looking at the whole economy and all its sectors through a generic prism, more appropriate to an asset-based (rather asset-sharing) economy. For example, it is difficult to agree with the criticism of iPhone’s pricing strategy in India, because the authors are looking at the product as a mere physical mass of hardware without considering its platform value. Extending the logic put forwarded by Erik Brynjolfsson, Andrew McAfee and by some other researchers, for acquiring a leadership position in India, it is critical for Apple to focus on how to attract more and more app developers who can provide solutions for millions of problems to a market of billion individuals. With the smartphone-market growing at a breakneck speed – reaching almost the bottom of the pyramid – Apple needs to focus how it can fulfill the demands of the Indian population, particularly for its lower and lower-middle strata, in all kinds of products and services. These products can range from very basic to most sophisticated, starting from education, healthcare, and run-of-the-mill consumer products for the poorest of the poor to high-value consumer & lifestyle products.
    Even in an asset-heavy sector, like the automobile, the scene is changing very fast. But the article, it seems, is suggesting the industry to drive ahead looking at the rearview mirror.

    However, while acknowledging the mind-boggling speed of the game-changing innovations, it is important to recognize the fact that the rate of transition to the innovation economy is different for different products. Therefore, the suggested strategy in the article might still work for some category of goods or sectors for a few more years. Those products or services need to be identified before mastering the challenges before them.
    In the changing environment and connected world, where collaboration on idea development has become the source of sustainable competitive advantage the researchers also need to answer a more fundamental question: does Make-in-India make any sense in this changed world and if yes, then how should it be understood.

  • Chandra Pandey | August 16, 2017

    The analysis of Indian economy has some essentialities that one must factor in for pragmatic approach.
    1. It’s a populous country with demographic dividend & burden of increasing middle class (consumption) for next 2 decades.
    2. It’s a heterogeneous country in all aspects of purchasing power, geography, localized cultures as good as many countries in itself. A less than portfolio approach might not be sustainable for business market share.
    3. The definition of premium/luxury would always be price/quality/value tested as competition for wallet will remain intense. The most profitable & sustainable market share would be affordable luxury brand.

    In a prismatic analysis the followings would be more readily see the progress on ground beyond verbatim, considering the policy making framework & its administrative legacy that exists and at best can be upended but not reinvented.
    1. Piece meal approach by orchestrating & leveraging existing institutions has rarely seen the result for the objective it was started. Thought leadership & integrated from start as a SPV can only provide political dividend in 5 years, else would remain nonstarter.
    2. Integrated Industrial clusters beyond the Cities/metro would will provide the appropriate threshold by combination of cost/value, resource/talent availability/grooming, sustainable development & quality of life with job creation. Historically, the manufacturing capabilities of significant contribution has been achieved only by the PSU’s & few corporates by building a pivot with combinatorial choice of strategy.
    3. With GST in place, a logistic hub per state can itself increase supply chain efficiency by 30%, lift the GDP by 0.50% with million new hands in work place by adopting hub & spoke model. However, this requires lot of unbundling of departments & departure from capital/headquarter mind set for creating institutions, authorities & floating SPV’s & raising funds successfully as listed entities to make it happen.
    The idea of new India is feasible by going beyond incrementalism with Impact & build for purpose initiatives. As far as global Brand names are concerned, they are highly profitable corporates and would be evaluated in public eye & support by what they bring to table for economy beyond market presence. In a democracy if most profitable corporates need incentives to setup a shop then it would be political difficult to reduce subsidies where millions live below poverty line. These global brands most probably would not touch the lives of masses in any meaningful way in next decade to support the cause. We are living in an era of Glocalization (Global Localization) and business strategies which are aligned to that school of thought will take off the ground faster.

    Disclaimer: The views and opinions expressed are personal in nature and does not reflect the official policy or position of any organization.

  • siswanto.gatot549 | August 16, 2017

    India is the second biggest population in the world that has many problems to solve, especially in social relationship. it only be tackled by local wisdom combined with global practice. adaptation is the key

  • jayakumar nair | September 6, 2017

    India is changed country with the developments and the Governmental support for high Growth. It is going through a massive change face. There could be resistance for these sudden changes, but the transformation is to sustain a new India.

    Business scenario is a new one now. I have seen the stability of quality brands which does not affect people. They are willing to pay for the best and looking for a high value status. Brands like Coke, and Mac may have face turbulent waters only because of its self creating storms. People are educated and does not want any disruptive substances that threaten their own life.

    Indian platter offers due to many of the policies such as lower labor cost, better infra, lower taxes etc, though may have some administrative bottlenecks. India is trying hard to remove these bottlenecks. India has an intelligent and skillful work force and willing to contribute. Though China is trying to flood world market with low cost items, but in many cases unacceptable conditions. Remember the toxic toys of China.

    Looking for growth, India has the talent.

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