The Right Passage to India 进入印度的正确途径 by:Kuldeep P Jain.Nigel A S.Marson and Shirish Sankhe source:The McKinsey Quarterly published March 08.2005 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 conined real annual growth of almost 7 percent 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 multinatioeals that have tried to exploit this opportunity has been decidedly mixed.Mary of those notable for their strong performance elsewhere have yet to achieve significant market positions (or even average industry profitabdlity)in India,despite a significant investment of time and capetal in its industries 2 Why?Perhaps because the market entry strategies that hanve worked so well for these companies elsewhere bringir 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 rescarch3 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 opportunaty With less of a focus on the initial entry and with a longer-term view of what a thriving Indian business would look like,the more ocessful companies have invested time and resources to understand local consumers and business condition tailoring product offers to the entire market,from the high-end to the middle and lower-end segments,reeng neering supply chains,and even skipping the joint-venture route.The reward for this efforr?Of the 50-plus multinational companies with a significant presence in India,the 9 market kaders,including British American Tobocco (BAT),Hyundai Motor,Suzuki Motor, and Unilever,have an average retumn on capital employed of around 48 percent Even the next 26 have an average ROCE of 36 pereent (exhibit)
The Right Passage to India 进入印度的正确途径 by: Kuldeep P. Jain, Nigel A. S. Manson and Shirish Sankhe source: The McKinsey Quarterly published : March 08, 2005 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. With less of a focus on the initial entry and with a longer-term view of what a thriving Indian business would look like, the more successful companies have invested time and resources to understand local consumers and business conditions: tailoring product offers to the entire market, from the high-end to the middle and lower-end segments; reengineering supply chains; and even skipping the joint-venture route. The reward for this effort? Of the 50-plus multinational companies with a significant presence in India, the 9 market leaders, including British American Tobacco (BAT), Hyundai Motor, Suzuki Motor, and Unilever, have an average return on capital employed of around 48 percent. Even the next 26 have an average ROCE of 36 percent (exhibit)
Getting local in India India's per capita income is half of China's and one-fourth of Braril's,and as much as 80 percent of Indian demand for any industry's products will be in the middle or lower segments As a result, multinationals must resist the temptation merely to replicate their global product offerings,the products and E3x相1B1T A mixed bag hbt城he of mutinational compane时n inda.b鲜nd 争een城量为hwg钟 ee4esd到3eg Conbisution :蓝5%0d:wnt行wns 。06名6dtn门ep ·0C6d 器C学5为ha 特*u韩d士0e6ew 43 专12%wm4内eap0w 0CE632% 15e平a5wh0时 vutd1美men Contnbution s0]%时P直t鞋a性 Nl stors o北e Moderately prottaoe 物vp Parttenanee Ovtrandne tucorm Moderste sucommt p ice points that are competitive in India are often considerably different from those that work well in other countries.In particular,in India companies must reach into the middle and lower-end segments or they may end up as nsche high-end players.with insignificant revenues and profits Multinationals that understand the Indian consumer's expectations and price sensitrvities can tap into what is often a large and promising market,but they shouln't assume that the lowest price tag will always lead it.Indian comsumers,even in the lower-end segments,will pay a premium if the value of superior features and quslity is seen to far outweigh their cost.LG Electronics.for example
Getting local in India India's per capita income is half of China's and one-fourth of Brazil's, and as much as 80 percent of Indian demand for any industry's products will be in the middle or lower segments. As a result, multinationals must resist the temptation merely to replicate their global product offerings; the products and pr ice points that are competitive in India are often considerably different from those that work well in other countries. In particular, in India companies must reach into the middle and lower-end segments or they may end up as niche high-end players, with insignificant revenues and profits. Multinationals that understand the Indian consumer's expectations and price sensitivities can tap into what is often a large and promising market, but they shouldn't assume that the lowest price tag will always lead it. Indian consumers, even in the lower-end segments, will pay a premium if the value of superior features and quality is seen to far outweigh their cost. LG Electronics, for example
reengineered its TV product specifications in order to develop three offerings specifically for India including a no-frills one to expand the market at the low end and a premium 21-inch flat TV for the middle segment.By keeping the price of the latter offering to within 10 pereent of the price of TVs with comvertional sereens.LGE persuaded many consumers to buy it.These innovations harve led the company to a top-three position in the country's consumer durable-goods and electronics market in a little over three years,with revenues ofnearly a billion dollars in India And Toyota Motor captured nearly a third of the multi-utility-vehicle (MUV)market by offering a significantly superior product at a limited price premium. Very often.however.companies need to develop completely new products to compete at target price points set by local competitors,as Hindustan Lever Limited (HLL),a part of the multinational Unilever,did with its low-priced detergent brand Wheel.Responding to local competition,HLL lowered the active detergent coment of its existing product,decreased the oil-to-water ratio.and then launched the new detergent at a0 peroent discount to the price points of the compary's more traditional detergents.Today,Wheel accounts for 45 percent of HLL's detergent business in India and for 8 percent of total HLL sales In other cases,companies must significantly localize their product offerings to meet Indian comsumer preferences.Hyundai,for example,spent several months customizing its small-car offering. Santro.Because Indian comeumers attach significant importance to lifetime ownership costs,Hyundai reduced the engine output of the Santro to keep its fuel efficiency high,priced its spare parts reasonably. and made more than a doven changes to the product specifications to suit Indian market cooditions.In contrast,other global automakers entered the market with vehicles that had low gas mileage and high repair rates and after-sales service costs Companies can bolster their profitability by reengineering their supply chains Hyundai.for instancein contrast to other global auto manufacturers in India,which source only abou 60 to 70 percent4 of their components locally buys 90 percent of its components from cheaper Indian suppliers rather than importing more expensive parts from its usl suppliers elsewhere.Multinational pharmaceutical companies outsource a large share of their production to third-party manufacturers within India in uncommon practice for major pharma companies elsewhere in the world.And both Hyundai and LGE have built global-scale manufacturing facilities to capture economies,making Indiaa global manufacturing hub that can serve other markets as the local market develops
reengineered its TV product specifications in order to develop three offerings specifically for India, including a no-frills one to expand the market at the low end and a premium 21-inch flat TV for the middle segment. By keeping the price of the latter offering to within 10 percent of the price of TVs with conventional screens, LGE persuaded many consumers to buy it. These innovations have led the company to a top-three position in the country's consumer durable-goods and electronics market in a little over three years, with revenues of nearly a billion dollars in India. And Toyota Motor captured nearly a third of the multi-utility-vehicle (MUV) market by offering a significantly superior product at a limited price premium. Very often, however, companies need to develop completely new products to compete at target price points set by local competitors, as Hindustan Lever Limited (HLL), a part of the multinational Unilever, did with its low-priced detergent brand, Wheel. Responding to local competition, HLL lowered the active detergent content of its existing product, decreased the oil-to-water ratio, and then launched the new detergent at a 30 percent discount to the price points of the company's more traditional detergents. Today, Wheel accounts for 45 percent of HLL's detergent business in India and for 8 percent of total HLL sales. In other cases, companies must significantly localize their product offerings to meet Indian consumer preferences. Hyundai, for example, spent several months customizing its small-car offering, Santro. Because Indian consumers attach significant importance to lifetime ownership costs, Hyundai reduced the engine output of the Santro to keep its fuel efficiency high, priced its spare parts reasonably, and made more than a dozen changes to the product specifications to suit Indian market conditions. In contrast, other global automakers entered the market with vehicles that had low gas mileage and high repair rates and after-sales service costs. Companies can bolster their profitability by reengineering their supply chains. Hyundai, for instancein contrast to other global auto manufacturers in India, which source only about 60 to 70 percent4 of their components locally buys 90 percent of its components from cheaper Indian suppliers rather than importing more expensive parts from its usual suppliers elsewhere. Multinational pharmaceutical companies outsource a large share of their production to third-party manufacturers within India in uncommon practice for major pharma companies elsewhere in the world. And both Hyundai and LGE have built global-scale manufacturing facilities to capture economies, making India a global manufacturing hub that can serve other markets as the local market develops
Using extensive third-party distribution also helps In India organized retail distribution systems reach less than 2 percent of the market,so there is consderable pressure to find innowative ways of reaching retail consumers.This third-party distribution system is crucial to capturing demand created by the superior price-to-value offerings available in smaller cities and rural areas which make up a large share of the Indian market.In fact,successful multinationals such as Castrol (aoquired by BP in 2000), LG Electronies,and Unilever have built deep third-party distribution networks that serve second-tier cities and villages.Here again,a local straegy is crucial.One multinational company,for instance,used to own its entire worldwide distribution infrastructure,including warehoues and trucks Applying that business system in India,where large companies face high labor and overhead costs,made it impossible to attain natioewide reach.Mowing to a third-party distribution system employing a network of dealers and agents proved very sucessful Finally,in contrast to companies that rotate expatriate managers in and out of the country every two or three years often a recipe for failure,most successful multintionals,such as Citibank. GlaxoSmithKline,and Unilever,have an Indian CEO in their local operations Given the need to tailor products,supply chains,and distnbution systems to local markets,local managers tend to be more effective.If the CEO is an expatriate.combining longer postings with a strong local second in command. as in the case of the South Korean giant Hyundai.seems to be crucial to success.In addition. multinationals such as Castrol have benefited from strong local boards to coursel,challenge,and help Ioed0 perati0色 Skipping the joint venture Multinationals enering new markets have traditionally struck up joint ventures with local pertners for a variety of reasons,including their ahility to influence public policy.to bring into the venture existing products as well as marketing and sales capabilities and to comply with regulatory requirements when foreign participution was restricted to less than 50 percent of a business. While joint vertures are still crucial to gaining access to privileged asets in some industriesetals and mining.for example,and oil and gasur research shows that,where possible,multinationals are better off going it alone.Of the 25 major joint ventures established from 1993 to 2003.only 3 survive. Most foundered because the local partner oouldn't invest enough resources to enlarge the business as quickly as the multinational had hoped As aresult,most of the multinationals that initially entered the market through joint ventures have exited them and pursued independent operations Multinationals
Using extensive third-party distribution also helps. In India, organized retail distribution systems reach less than 2 percent of the market, so there is considerable pressure to find innovative ways of reaching retail consumers. This third-party distribution system is crucial to capturing demand created by the superior price-to-value offerings available in smaller cities and rural areas, which make up a large share of the Indian market. In fact, successful multinationals such as Castrol (acquired by BP in 2000), LG Electronics, and Unilever have built deep third-party distribution networks that serve second-tier cities and villages. Here again, a local strategy is crucial. One multinational company, for instance, used to own its entire worldwide distribution infrastructure, including warehouses and trucks. Applying that business system in India, where large companies face high labor and overhead costs, made it impossible to attain nationwide reach. Moving to a third-party distribution system employing a network of dealers and agents proved very successful. Finally, in contrast to companies that rotate expatriate managers in and out of the country every two or three years often a recipe for failure, most successful multinationals, such as Citibank, GlaxoSmithKline, and Unilever, have an Indian CEO in their local operations. Given the need to tailor products, supply chains, and distribution systems to local markets, local managers tend to be more effective. If the CEO is an expatriate, combining longer postings with a strong local second in command, as in the case of the South Korean giant Hyundai, seems to be crucial to success. In addition, multinationals such as Castrol have benefited from strong local boards to counsel, challenge, and help local operations. Skipping the joint venture Multinationals entering new markets have traditionally struck up joint ventures with local partners for a variety of reasons, including their ability to influence public policy, to bring into the venture existing products as well as marketing and sales capabilities, and to comply with regulatory requirements when foreign participation was restricted to less than 50 percent of a business. While joint ventures are still crucial to gaining access to privileged assets in some industries 梞etals and mining, for example, and oil and gas 梠 ur research shows that, where possible, multinationals are better off going it alone. Of the 25 major joint ventures established from 1993 to 2003, only 3 survive. Most foundered because the local partner couldn't invest enough resources to enlarge the business as quickly as the multinational had hoped. As a result, most of the multinationals that initially entered the market through joint ventures have exited them and pursued independent operations. Multinationals
such as Hyundai and LGE,that have achieved real sucess in India have bypased joint ventures entirely, and newcomers are increasingly entering the market on their own.Even when a joint venture is unavoidable,successful multinationals ensure from the outset that they retain management control and have a clear path to eventual full ownership Participating in the regulatory process Multinationals in deregulating industries often need to be flexible and patient during the natural process of regulmtory evolution.Regulations governing the mobile-telephony sector.for example,have been amended several times since 1994 as it has grown.it had two licensed operators per region back then and now has as mamy as six.Although most multinationals left the sector when the regulations governing it changed,Hutchison Whampoa continued to invest in India Ten years later,Hutchison Essar is one of the top three teloos in the country (as reckoned by market share).and interviews with industry experts suggest that the company enjoys strong profitability.5 If regulations are a crucial factor for an industry,the CEO needs to spend a lot of time managing them.The most successful multinationals havent relied on third-party legislation managers or joint-venture partners to address regulalory issues,instead they have invested much time and energy to identify and understand the key policy makers,to formulate robust positions for imvestment,and even to suggest regulatory changes In addition,these companies have garnered support from constituencies such as state governments,which compete for imvestments,and industry associations that lobby for similar regulatory changes Clearly.any entry into a new market requires a certain degree of tailoring to its specifie needs and conditions But for some companies,the entry into India has forced a fundamental rethinking of product offers.cost structures.distribution systems,and management teams.Companies that successfully tap into the promising Indian market often ignore conventional wisdom,including the need for joint ventures For related thinking.visit The McKinsey Quarterl
such as Hyundai and LGE, that have achieved real success in India have bypassed joint ventures entirely, and newcomers are increasingly entering the market on their own. Even when a joint venture is unavoidable, successful multinationals ensure from the outset that they retain management control and have a clear path to eventual full ownership. Participating in the regulatory process Multinationals in deregulating industries often need to be flexible and patient during the natural process of regulatory evolution. Regulations governing the mobile-telephony sector, for example, have been amended several times since 1994 as it has grown; it had two licensed operators per region back then and now has as many as six. Although most multinationals left the sector when the regulations governing it changed, Hutchison Whampoa continued to invest in India. Ten years later, Hutchison Essar is one of the top three telcos in the country (as reckoned by market share), and interviews with industry experts suggest that the company enjoys strong profitability.5 If regulations are a crucial factor for an industry, the CEO needs to spend a lot of time managing them. The most successful multinationals haven't relied on third-party legislation managers or joint-venture partners to address regulatory issues; instead they have invested much time and energy to identify and understand the key policy makers, to formulate robust positions for investment, and even to suggest regulatory changes. In addition, these companies have garnered support from constituencies such as state governments, which compete for investments, and industry associations that lobby for similar regulatory changes. Clearly, any entry into a new market requires a certain degree of tailoring to its specific needs and conditions. But for some companies, the entry into India has forced a fundamental rethinking of product offers, cost structures, distribution systems, and management teams. Companies that successfully tap into the promising Indian market often ignore conventional wisdom, including the need for joint ventures. For related thinking, visit The McKinsey Quarterly