The breakneck economic growth in China and India presents tremendous opportunity for Western multinationals—as well as major challenges.
For all the big investments Western companies are making in the two nations, the vast majority of businesses don't have much of a clue regarding how to succeed in China and India, or how to leverage the strengths of these two countries for global advantage.
Some of the most common mistakes companies make include looking at the markets solely through the lens of offshoring and cost reduction, building marketing strategies centered around just the rich cities and the top 5% to 10% of the population, naively choosing local partners, and treating these two countries as peripheral rather than core to the company's global operations.
Given the size and sizzling growth of these economies, a suboptimal strategy for China and India is no longer a matter of merely leaving some money on the table. Many of today's Western giants that don't have solid China and India strategies will face severe threats to their very existence in as little as 10 years' time. If they're not making the most of China and India, rest assured that somebody else is—either a Western competitor or a homegrown firm.
What follows are the central ideas for how companies can get their China and India strategies right.
Emerging Megamarkets
- The Problem: Many companies claim to have successful strategies in China and India—but few really know how to leverage the complementary strengths of these countries' economies.
- The Risk: Companies that don't take a vigorous approach to China and India will face threats to their very existence in coming years.
- The Solution: There are a number of strategies companies should follow to make the most of China and India, including the pursuit of an integrated strategy for these two markets; learning to finely segment these complex markets; and making sure the countries are central, rather than peripheral, to their global agenda.
CHINA AND INDIA TOGETHER
There are three reasons why multinational companies should pursue an integrated China and India strategy rather than waste time debating whether to pursue China or India.
First, for many industries, China and India both present some of the highest growth rates in the world and are emerging as megamarkets. Take cellphones. The number of users in China exceeds 450 million, and the estimated figure for India is 150 million—a number that is growing by six million new subscribers a month.
Second, China and India present different but complementary strengths that companies can use. China is much stronger than India in mass manufacturing and logistics; in contrast, India is much stronger than China in software and information-technology services.
Consider International Business Machines Corp.'s approach. Outside the U.S., IBM relies on China as the primary procurement source for its hardware business and has decided to relocate its global procurement headquarters to Shenzhen. Complementing these moves, IBM has made its Indian operations one of its most important global hubs for the delivery of IT services to clients world-wide. Nearly one-sixth of IBM's global work force is now based in India.
The third benefit of an integrated China and India strategy is intellectual-property protection. Companies can significantly reduce risks of intellectual property leaking out by distributing R&D and production activities across China and India, as well as other countries.
Consider the case of a European manufacturer that sells machinery to construction contractors. Burned by seeing a former Chinese partner producing copycat versions of its equipment, the company is now planning to spread the production of key subsystems across India and China. That way, the new designs can't be easily copied by competitors—or allies—in individual locations.
PURSUE A TWO-TRACK STRATEGY
In each country, a company must think along two strategic tracks: how to make the most of the company's capabilities from other markets for success within China and India, and how to use the strengths of China and India for global advantage.
Of course, it won't always be apparent which track may yield faster results. Thus, it is often better to keep both in mind and let unfolding events dictate which path should get higher priority at any particular time.
In its early forays in China, Microsoft Corp. wasted years in futile efforts to generate meaningful revenue from local sales of its operating systems and applications software. In recent years, however, the company has done an about-face and started to place much greater emphasis on using Chinese universities for leading-edge technology development for its global operations.
The company, for example, has set up research labs at some of China's top universities, created Microsoft Fellowships for China's best computer-science Ph.D. students, and expanded the scope of its research center in Beijing, recently lauded by MIT's Technology Review as one of the hottest computer labs in the world.
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Dr. Gupta is the Ralph J. Tyser Professor of Global Strategy and Entrepreneurship at the Smith School of Business, the University of Maryland at College Park, and the co-author of "The Quest for Global Dominance" and "Smart Globalization." Ms. Wang is managing partner of the China India Institute, a Bethesda, Md., research and consulting organization. They can be reached at
smrfeedback@mit.edu.
