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.