‘Building a consumer brand out of India is expensive'

VINAY KAMATH | Updated on March 09, 2011

Building businesses abroad: Ratan Tata, Chairman, Tata Group & Tata Motors, with the Jaguar at a press conference. — PAUL NORONHA   -  BL

So, the very definition of an MNC is changing, isn't it?Yes, and leadership of MNCs is asking, how to compete

So, the very definition of an MNC is changing, isn't it?

Yes, and leadership of MNCs is asking, how to compete with the emerging MNC competitors that are coming out of India and China. In every major industry, the Chinese government is determined to have a world-beating Chinese MNC. They are investing heavily in this future. We see Chinese firms such as Huawei, Haier, Lenovo, Tsingtao, PetroChina aspiring to global leadership positions.

Look at what is happening in Africa where the Chinese have won the race. There is no shortage of funds for them. Two of the world's largest banks are Chinese and they are funding the Chinese companies in their overseas expansion. This subsidy model is something that Western companies don't know how to deal with as competitors.

Which brands do you see emerging from India that can be world beaters?

Honestly, in consumer goods it's going to take a lot of time. It's easier in business markets because one needs to reach only a small set of knowledgeable and sophisticated global decision-makers in customer firms. In contrast, to build a consumer brand out of India in developed markets is an expensive proposition. It is easier to buy existing Western brands which are now available relatively cheaply because of the financial crisis. You don't buy the top tier but you buy the struggling ones, like Carlton, Land Rover and Jaguar.

This is possible because Indian firms are generating lots of cash in the domestic market and finally they have access to global finance. Indian firms can add value to Western brands that are primarily operating in markets where growth and margins are low, whilst costs are high.

After acquisition, an Indian acquirer can alter the cost structure by locating more of the operations and cost structure in India and other low-cost geographies to help increase the profit margins. And revenue increases come because India is a growth market where the acquiring firms have dominant distribution networks and the acquired firm's products can be absorbed immediately.

As a result, the acquired business is transformed from a low-growth, low-margin one into a high-growth, high-margin operation.

Why isn't marketing getting a place at the high table?

Marketing has always been low key and low status. How many boards have a CMO on the board of directors - the CFO, the CEO is there, increasingly the CTO is also there.

This despite the fact that the brand is at the crux of what companies do?

It's true and the reason is that whilst the brand is a critical asset, companies are profit-oriented. The global sales manager can claim the incoming revenue stream, but the marketing head cannot. Not surprisingly, the global sales head usually gets more meetings with the CEO than the CMO. The fundamental problem of marketing remains that brands are a cost centre and it's hard to link revenues directly to them.

Now there are many Indian CEOs of companies abroad as well as heads of marketing. This has to do with the point you were making about companies looking to have people from Asia in senior leadership positions?

Yes, Indian talent is recognised as world-class. Generally, overseas companies are more comfortable with those Indian managers who have worked abroad for a few years before naming them to global leadership positions. And the reason for that is unless you have worked abroad, you may not understand global best practices and the global way of doing business.

To take a relatively minor example. India has a tough work culture and an Indian manager may not understand why you cannot call up another manager after 6 p.m! In India it is quite normal to call up some one at 9 p.m. If someone has worked in the West, they begin to understand the lack of domestic help means the father will have to help with the washing up, putting the kids to bed; the work-life balance is important while in India work and life is one seamless thing. But, when Indian managers go abroad, they learn these cultural nuances rapidly.

Published on March 09, 2011

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