India Is Not an Easy Market to Understand and Operate in.
1. “India is not an easy market to understand and operate in. ” Why is the Indian market untenable for Multinational Companies, yet at the same time attractive to global businesses? Discuss. It is true that India is not an easy market to understand and operate in. MNCs have realized this the hard way as their expectations have remained unfulfilled, and many have either suffered reverses or have had to wrap up their operations. Unable to figure out the reason for their failure, they have chosen to blame the market as erratic and fickle in its behavior. But this is not true as there is more to India than meets the eye.
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This country came under the global spotlight only in 1991 when it embraced economic reforms and allowed FDI. Before that the country carried the burden of its historical legacy which had given a socialistic flavor to its economic policies that laid emphasis on self-reliance and local production and, therefore, discouraged the MNCs which were seen as instruments of neo-colonialism. The state, therefore, controlled the market forces and the government was, for all practical purposes, in charge of business. However, all of this changed in 1991 with liberalization.
Taxes and import duties were severely cut and MNCs were encouraged to take notice of this emerging market. But the Indian market is untenable for Multinational Companies, yet, at the same time, attractive to global businesses. It is untenable for MNCs because it defies all conventional logic of markets. They keep waiting for the ‘take-off point’, which they have observed in developed economies, after which consumption shoots up but do not realize that such a ‘take-off point’ will not come in India because that is not the way market economics works in emerging economies, especially in India.
The market growth in the first five years after liberalization was phenomenal but it soon seemed to stagnate due to a below-average monsoon and retarded rural demand. More importantly, the tested and tried global strategies of these MNCs seem to fail when it comes to India. They are unable to understand how this market is different from others and why it is not embracing every product and service like other markets where these MNCs have been successful.
Therefore, Coca-Cola and Pepsi ran up loses and were unable to understand why the Indians have not taken to cola like fish to water as seems to be the case with Americans. They are, however, unable to understand that cola will never replace water which has a pride of place over all other beverages and is viewed as an elixir of life in India, not to mention the fact that the Indians are aware that cola is just carbonated water which rots ones teeth and that there is a move to ban it in the US schools–-information that the Indians have acquired from the satellite TV boom.
Similarly, when Nestle introduced iced tea in India, they were confident of their strategy which rested on the research data which pointed out that this was a country of the highest number of tea drinkers in the world and would embrace iced tea in the natural course of things. What their strategy missed out on and what their research did not inform them was the fact that Indians like their tea hot––even on a hot summer day!
They would reach out for a cold drink if they wanted something cold but it was simply alien to their conditioning and upbringing to be able to relate with the concept of having tea any other way than hot. Hence, the global strategies don’t suit India as the nature of emerging market economies is fundamentally different from the developed world and needs a more personalized and tailor-made approach––something that does not strike all MNCs and makes the Indian market untenable for them.
In addition to this, what further makes India untenable for the MNCs is the fact that while it may have been exposed to modern options only now, there already exists a hybrid market of the traditional and modern as well as the Indianized versions of international options which are available at several price-performance points. For example, the retailing environment which offers street markets of every level of sophistication some of which sell export surplus goods which are outsourced from India and are sold at very low prices which provides competition to foreign brands.
Therefore, while the Indian market was unexplored by foreign brands before liberalization, it was certainly not a virgin market and had a sophisticated distribution network and some well-nurtured brands promoted with the help of very skillful advertising and thorough market research. Another aspect that makes the Indian market untenable for the MNCs is their lack of understanding of the fact that the emerging markets such as India are not what the developed markets were in their infancy which makes the contention, that Indian consumers are today like what American consumers were 20 years ago, wrong.
The Indian market exists in real time, is acted upon by all the forces of today and is a product of its own unique consumer culture and evolutionary history which we discussed earlier. Despite these disappointing realizations of the MNCs, the Indian market continues to be attractive to global businesses because it has over 1 billion people and will comprise 18% of the world’s population by 2030––a fact that global marketers cannot ignore.
In addition to that, the people are young, incomes are increasing steadily, and new consumers are entering consumption each year which is resulting in significant market expansion. India is a politically and socially a stable democracy and while there may be a lot of reform required in the democratic setup, it is true that the political and social set up of the country makes it an attractive choice for global marketers who can be assured that a military regime or an extreme government is not likely to squander the market environment.
What further strengthens this confidence is the presence of strong institutions such as the free press and independent electoral machinery which empowers the consumers and the constant modernization of these institutions along with the rise of civil activism strengthens the institutional framework of the democracy and generates confidence in the marketers.
The demographic profile of the market which is primarily young also includes another significant feature which is the rise of the middle class which has been empowered by the rising income levels and makes them aspire for a better lifestyle which provides a potential set of consumers who are upwardly mobile and aspire for better things in life making the market attractive for potential investors.
In addition to the above factors, a larger realization among the global businesses is that the next big game in Asia after China is certainly India and that within eight years India will certainly be an equally attractive market. This almost guaranteed growth story in the making keeps the eyes of the global businesses on India and makes it an attractive destination which stands more as a compulsion than choice for every marketer that wants to have a pie of this cake.
The need of the hour for the MNCs, therefore, is to stop expecting India to (follow any conventional logic and) embrace their tried and tested global marketing strategies and to begin fashioning their strategies in accordance with the very unique demands of the Indian market because if the strategies of the MNCs are not ‘made for India’ and when they fail, which they most certainly will as experience has shown, the response from the market will simply be, ‘we are like that only’.