Friday, March 18, 2005

McKinsey: The right passage to India

March 18th

mckinsey on how to customize products to the indian market. one of the underappreciated things about the indian market is that the return on investment for most MNCs in india is certainly positive. as compared to china where most MNCs, despite all the hoopla, find returns that are below their cost of capital (that is in cases where their local supplier hasn't also stolen all their trade secrets and technology). in other words, most of them are losing money in china, but making money in india.

the need to focus on the low end of the market is along the lines of what c k prahalad has been saying about the purchasing power at the bottom of the pyramid, or how to customize to local conditions. the tata hotel chain (rs. 1000) indiOne is a good example of this. so are the sachets for shampoo and detergent.

excerpts:

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India, for some time now the focal point of the global trend toward strategic offshoring, has simultaneously become appealing as a market in its own right. With GDP growth more than double that of the United States and the United Kingdom during the past decade, and with forecast continued real annual growth of almost 7 percent,1 India is one of the world's most promising and fastest-growing economies, and multinational companies are eagerly investing there.

Yet the performance of the multinationals that have tried to exploit this opportunity has been decidedly mixed. Many of those notable for their strong performance elsewhere have yet to achieve significant market positions (or even average industry profitability) in India, despite a significant investment of time and capital in its industries.2 Why? Perhaps because the market entry strategies that have worked so well for these companies elsewhere—bringing in tried and tested products and business models from other countries, leveraging capabilities and skills from core markets, and forming joint ventures to tap into local expertise and share start-up costs—are less successful in India. Our research3 suggests that the most successful multinationals in India have been those that did not merely tailor their existing strategy to an intriguing local market but instead cut a strategy from whole cloth. In short, they have resisted the instinct to transplant to India the best of what they do elsewhere, even going so far as to treat the country as a bottom-up development opportunity....

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