In a complex business environment, multinationals need to innovate, localise, and come up with a unique business proposition to succeed in the Indian market, says Ravi Venkatesan, former Microsoft India chairman and Unicef Special Representative for Young People.
Speaking at a panel—Succeeding in India—at the India-Swedish business summit in New Delhi, Vekatesan said, “In India, you not only have to localise but also innovate in a very fundamentally different way because to succeed here, companies need to have a very unique value proposition. You need to have products and services which are 70% of the value or performance but less than 30% of the price.” The secret formula, he says, is to offer “Swedish quality at Chinese prices.”
The three-day conclave brought the Swedish King Carl XVI Gustaf and Queen Silvia, and other ministers and investors to the capital for a high-level policy dialogue on innovation, investment and trade between the two counties.
Venkatesan, who has studied about 5,000 global companies like Samsung, Vodafone, Google, and Bosch, and followed their growth trajectories in India, classifies them into three categories, based on their experience in India—bruised/exited, the 1% club, and the stars or success stories.
“There are companies like General Motors and Telenor which have exited. Walmart exited but has now come back in a big way with the acquisition of Flipkart. Then you have a vast majority, they are here but they are not contributing materially to their global revenue. That's what I call the 1% club,” he said. “India is more than likely to remain 1% of their global business.”
Amongst the success stories, he names British construction equipment company JCB, which derives more than half of its global profits from India, and Hyundai which has been in the country for more than 20 years, is a market leader, and even exports from India. He also identifies factors that differentiate the successful companies from those who find it difficult to operate in India due to infrastructure bottlenecks, a different business culture, and unique consumer behaviour.
“They...(operate) in the sectors of the economy where the government is not very active...they don't depend on the government as a customer for creating the first step,” he says.
The second factor that differentiates successful companies is long-term vision, according to Venkatesan.
“When people tell Jeff Bezos look how much money you're losing in India. He says that it doesn't matter. What matters is that are we doing the things today that will position us for leadership in 7-10 years. That’s what really matters. This long-term view is very important,” he says.
The third and most important factor is the speed with which companies localise and become a leader. “They do something very particular which I call straddling the pyramid,” says Venkatesan.
India, a country of about 1.35 billion people with an average per capita income of about $2000, can be equated to a continent in terms of its economic, social, linguistic, and taste differences. Venkatesan explains that economically, Indian consumers fall under three distinct segments—about 25 million affluent people who account for 20% of all consumption; about 300 million people in the middle class, who account for 50% of the consumption; the third and the biggest segment, made of a billion people, those with an average household income of about $1500 a year, who account for 30% of the consumption.
According to Venkatesan, it’s important to understand this segmentation because if a global company is coming to India, it has to straddle all three segments.