Many multinational corporations have struggled to get it right in India. These include big names such as Fiat and Electrolux and a host of Japanese companies including Sony and Panasonic. In contrast, Korean companies have been more successful even though sometimes they entered India as many as ten years later than their rivals from other countries. I often wondered why.

Why Korean companies succeeded

When I researched this question some years ago, I found that Korean companies made a strong commitment to the Indian market even before they entered. They were clear that India is a market where they have to be successful and, hence, they gave it everything they had. They started with an India-specific team that spent an extended period in India understanding the context. This team enjoyed the confidence of the Korean headquarters to take whatever local decisions were necessary to make the business successful. This gave them the flexibility to respond to the fast-changing Indian market.

Korean companies have been sensitive to the market by launching the products most appropriate for India. Remember that Hyundai changed its market entry vehicle from the Accent to the Santro when it realised that there was a huge market looking for an alternative to the Maruti 800. They have made product modifications to suit Indian conditions - they were the first to provide washing machines with the ability to re-start from the same point in the event of a power outage. At the same time, they were careful not to dump old products, thereby, showing respect to the Indian consumer - remember that Ford and Hyundai started in India around the same time, but it took Ford years to recover from the wrong choice of an obsolete Escort model as their first product offering. Korean companies made considerable efforts to build their brands in India. And, they paid a lot of attention to execution, working closely with their Indian teams.

What made it easy

Conquering the Chaos , the new book by Ravi Venkatesan, ex -CEO of Microsoft India, tells you the other side of the story — why American and Japanese multinationals lost out to the Koreans in India. Venkatesan attributes this to their efforts to push high-end products at the Indian market even though only a small proportion of the market can afford them; short CEO tenures which mean that a CEO is ready to leave India before (s)he comes to grip with the Indian market; and verticalised reporting structures that require managers in India to report to global product divisions, which results in the Indian market never getting the attention it deserves.

So, what should multinationals do to make a success of India? According to Venkatesan, they should make India a strategic priority, and give India a special geographical focus outside the product division structure. They should make sure they avoid the “midway trap,” straddle a large part of the market, and not get stuck in the small upper-end of the market. To facilitate this, the CEO for India and corporate headquarters should jointly formulate and own a three to five year plan for India.

The most prominent example of this approach is General Electric, which appointed John Flannery, a senior Vice-President of GE, as India CEO in 2010 with the mandate of growing rapidly in the country. Flannery not only reported to the Vice-Chairman of GE but had a separate budget, cutting across verticals, to do what was necessary to succeed in the Indian market.

Of course, a company’s willingness to make these major changes would depend on its evaluation of its future business prospects in India. Venkatesan acknowledges that India’s performance so far makes it a hard sell, but argues that mastering India not only helps a multinational company position itself for one-sixth of the world’s population but also to succeed in smaller “India-like” markets. Of course, events in the last few months make this an even harder sell than before!

Will this work?

How successful has Venkatesan’s suggested approach been? We don’t really know. Microsoft did well in India under Venkatesan, but it’s not clear that it has made huge headway across the Indian market. At GE, Flannery has moved on after three years of heading India. We don’t have enough evidence regarding GE’s performance in India under the new structure.

Interestingly, Venkatesan’s book suggests that one of the European multinational companies most successful in India is JCB, a manufacturer of earthmoving equipment. But JCB is a privately-held company, headed globally by an Indiophile. Its ability to take a strong position on India would appear to be more like the typical Korean company’s decision to give India everything it had than an approach reproducible in the typical MNC.

Going beyond the strategy piece, Venkatesan makes some interesting recommendations on other issues. He emphasises the need for MNCs building a strong leadership pipeline in India. Here, his prime example is Hindustan Unilever (HUL). While there is no doubt that HUL’s legendary emphasis on leadership development has worked wonders in terms of building CEOs from within and being the single-largest source of marketing managers for a range of consumer-related industries, I really wonder whether most MNCs have the tenacity and patience to build such leadership pipelines. What resonated better with me is his emphasis on developing people by giving them challenging assignments, supported, of course, by a good deal of mentoring from the top. This is consistent with ideas of Warren Bennis, one of the all-time great scholars in the leadership arena, who advocated the crucible as the best way to train leaders.

I also agree with his choice of courage as the number one characteristic you need in an MNC subsidiary CEO for India. The chaos in our country is not for the faint-hearted. Only people with courage will have the perseverance to stay the course, fight to win, and, yet, not compromise on core values.

(Beyond Jugaad is a monthly column. The author is Professor of Corporate Strategy and Policy at IIM-B and author of From Jugaad to Systematic Innovation: The Challenge for India.)

Related Topics