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