Companies

GM exit brings to fore challenges faced by MNCs in India

Rashmi Pratap Mumbai | Updated on January 11, 2018 Published on May 21, 2017

gm

Local strategy vital to penetrate the market



The recent exit by General Motors from India highlights the numerous challenges faced by multinational companies in dealing with this market.

While a host of foreign companies had entered the market post liberalisation in the 1990s, many of them have since shut shop. Norway’s Telenor, Sweden’s SCA, the merger of Vodafone with Idea and shutting down of Barclays and RBS banking businesses are among the many on that list.

“Localisation is the key here. For succeeding in India, you need to have a very local flavour in terms of product development, distribution as well as after-sales service. Without this, it is not possible to penetrate the market. General Motors, like many other foreign companies, never had a local strategy and it affected the company adversely,” Abdul Majeed, Partner at PwC India, told BusinessLine.

GM had shut down its manufacturing facility in Halol last month.

“GM never had a great product line-up for India – a market where you need multiple products and consecutive launches and not just once in three to four years,” he added.

G Chokkalingam, Founder, Equinomics Research and Advisory, said the overall global economic growth, including in India, has corrected post-2007. “Till 2007, it was a solid growth story and post that there has been a severe slowdown. That has put a lot of pressure on many businesses. The 7 per cent GDP growth is partly due to base effect (created by upward revision of GDP growth in the fourth quarter of 2015),” he said.

Price sensitivity

India is also a tough market to crack due to its price sensitivity. Here, customers are not loyal to the brand but to pricing. And, that is a big disadvantage for MNCs, as has been seen in the telecom sector.

“As a market, customer acquisition in India in any B2C segment is costly and their retention is even costlier. The customers here are price-sensitive and this characteristic is leveraged by challenger players. It has played out multiple times in the Indian telecom market,” says Jayanth Kolla, founder and partner at tech research firm Convergence Catalyst.

With the exception of Hutchison Whampoa and Singtel (through Bharti Airtel), foreign operators have failed to generate profits.

In the 1990s, call rates were as high as ₹16 per minute, making it tough for operators to scale up and make money. Later, companies like Vodafone, Telenor and Aircel overpaid for gaining India entry and could never recover the money in a market where call rates are among the lowest in the world.

Major foreign banks such as RBS, Deutsche Bank, Bank of America, UBS and ING have partially exited India due to a combination of financial headwinds in their home markets in Europe and North America and sub-scale operations in India.

Swedish hygiene company SCA discontinued in India last December citing profitability issues.

The world’s second largest maker of diapers under the Libero brand had invested ₹110 crore in a manufacturing facility in Pune. While it had planned to invest ₹500 crore over five years in India, the company decided to wind up in the fourth year itself.

Chokkalingam said the share of manufacturing sector in the GDP is also going down.

“In this changed environment, the competitive battle has gone up. In such a scenario, only the most efficient players can survive while others will have to look for alternatives.”

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Published on May 21, 2017
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