Mastering the Make-in-India Challenge
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.
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.