20 Sep 13 How can multinationals formulate effective India strategies?
“Research is creating new knowledge. In much of society, research means to investigate something you do not know or understand…” – Neil Armstrong
When cereal bigwig, Kellogg’s decided to enter India in 1994, it had global sales revenue of USD 6bn and a presence in over 18 countries. The firm zeroed in on India with the lure of over 250 million middle class consumers. The result was a hard lesson that cost Kellogg’s millions of dollars. Cereal for breakfast was a novelty in a country that was used to eating traditional fare for breakfast. The product had no close competitors. According to one analyst, ‘it seemed an extremely high price to pay for a substitute for rotis’.
Knowledge is power
Surprisingly, Kellogg’s isn’t an isolated case. Many companies have suffered the consequences of inadequate or poorly conducted market research while formulating strategies. Often, foreign entrants tend to have little practical knowledge of how the Indian markets work.
During one of my projects, our client assumed that the biggest customer for their products was the residential sector. Our research then proved that this wasn’t the case; instead it was the government sector which showed the highest potential demand. Subsequently, the entry strategy for the company was formulated.
It’s not all black and white…
Another contributing factor is the cost consciousness of the Indian consumer. The tendency to choose cost over quality has led to a flourishing unorganized market in most industrial and manufacturing sectors. In this case, challenges arise in assessing the exact size of the market and how to price products competitively.
On a project with a France-based electrical components manufacturer, we realized that their strategy had to be altered completely. This was because the entire customer base of the company was scattered and unorganized, with no localized manufacturing. Identifying the top customers by their revenues, service capabilities and geographic reach was the biggest challenge to overcome while creating the strategy.
The problem of diversity
India is diverse in many ways – age, languages, economic strata and political ideologies. Acquiring intelligence and analysis becomes difficult for foreign entrants, because of the heterogeneity of the Indian market.
For example, because of voltage fluctuations in South India, consumers tend to be more brand conscious with their lighting fixtures. This is not the case in the North, which tends to focus on cost, and not the brand. The marketing pitch to consumers has to vary accordingly, for which we carried out a detailed customer needs assessment study.
Forewarned is forearmed
There are key requisites that need to be fulfilled, for an effective India entry strategy. One is thorough market intelligence. This includes the structure, size, the anticipated trends and the potential growth of the industry. Another is the access to industry experts, who are the preliminary source of information for the aforementioned factors. The third important requisite is knowledge and experience of doing research in India. This is important to overcome challenges such as heterogeneity of industry participants and to size the unorganized markets. An effective strategy is critical to succeed in India. It is also one that ensures that the above requisites are met.