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Why MNCs should go desi

Aarati Krishnan | Updated on March 01, 2018

Only a handful of consumer product MNCs in India have made it big and they owe their success to staying local

Two highly visible, multinational food giants operating in India have announced plans to pursue a ‘go local’ strategy to drive their next leg of growth in the country.

“There are many Indias within India and each of them have to be served differently,” the Nestle India CEO declared last week while announcing plans to re-segment the Indian marketplace into 10 to 15 regional clusters, and launch localised variants of its Maggi noodles and sauces to cater to each cluster. This will also be accompanied by decentralised distribution, marketing and advertising strategies. This strategy shift, Nestle India hopes, will ratchet up its volume growth from single to double digits and allow it to attain deeper penetration into the 300-400 top Indian towns.

Coca-Cola India has a similar localisation strategy in mind. After sticking to a standard pan-India version of its big brands — Thums Up, Sprite, Coke, Fanta and Maaza — for years, it now plans to roll out regional sub-brands that cater to widely differing palates across Indian States. It recently uncorked the sweet grape-flavoured Fanta Portello, after discovering that Tamil consumers fancied this flavour more than its conventional orange. Local fruit strains such as Neelam mangos, Nagpur oranges, and litchis will also be procured and infused into Coca-Cola’s new line of fruit drinks and frozen fruit desserts. This is a welcome change in mindset for both the food MNCs who marked their presence in India many decades ago.

For too long, global food MNCs have taken the lazy route by transplanting brands from their home turf and trying to force-fit western food products on Indian consumers, without much thought to local tastes or preferences. This has even led to lost market opportunities. For instance, while global dairy MNCs were experimenting with frozen yoghurt and processed cheese in India, local players such as Hatsun Agro, Heritage Foods and Patanjali  (apart from the redoubtable Amul) scaled up rapidly in branded staples such as liquid milk and ghee.

With Nestle and Coca-Cola leading the way, hopefully many more food MNCs will see reason to revamp their India operations around locally-driven innovations.

Where’s the scale?

While swarms of consumer product MNCs have made a beeline for India in the last 50 years lured by its billion-strong consumers and much-talked about demographic dividend, they have had mixed success with translating that potential into reality.

Many MNCs have demonstrated staying power, but their main problem in India has been the lack of scale and a Hindu rate of growth. Over the last ten years, the 25 listed consumer-facing MNCs in India have clocked a 13 per cent annual growth in their revenues, just about matching nominal GDP growth. But that owes a lot to price inflation, with most players stuck with single-digit volume growth.

With low growth, their India operations have remained minuscule in the global scheme of things. It is sobering that only five of the 25 listed MNCs in the consumer space have clocked annual revenues of ₹10,000 crore or more in their latest fiscal year. That’s far from a breath-taking number for a country which has seen its nominal GDP treble to ₹152 lakh crore in the last decade. There’s also a yawning divide between the winners in each category — Maruti Suzuki (over ₹73,000 crore), ITC (₹58,000 crore), Hindustan Unilever (₹35,000 crore) — and the rest.

Lessons from winners

Delving into the history of the winners, it is clear that it is their commitment to India-specific innovations and willingness to discard the baggage from their global operations that have been key drivers of their success. Take the Japanese-owned Maruti Suzuki which has fended off competition from much larger European and American automobile giants to sit pretty on a near 50 per cent volume share of the passenger car market.

From the time of its India debut in the mid-eighties, Maruti has shown a willingness to pull out all stops to design low-cost, localised and highly fuel-efficient vehicles that meet the high affordability barrier for India’s middle-class car buyers. Nor did Maruti stop innovating after designing and making the popular 800 and Alto lines. It has strengthened its dominance of the car market over the years by constantly refreshing its product range to keep up with shifting consumer preferences as well as macro and regulatory changes. The company’s best-selling compact sedan innovation, for instance, was a response to the UPA government’s decision to extend significant excise concessions to ‘small cars’ with a length of less than 4 metres, and engine capacity of less than 1200cc.

If frugal engineering saved the day for Maruti, it is an understanding of peculiarly Indian consumer constraints that helped Whirlpool of India scale up in the white goods space, amid bruising competition. Even as front-loading fully automatic washing machines are the norm globally, Whirpool has sunk significant sums into designing and scaling up Indian capacities for top-loading, semi-automatic machines that best fit Indian households which often don’t have 24-hour water supply.

Similarly, Hindustan Unilever’s exceptional lead in the Indian FMCG market (it is over three times the size of the next biggest rival) can be traced mainly to Unilever Plc’s largely hands-off attitude, that has allowed the local management a free hand in acquiring and nurturing a vast repertoire of local brands in the home and personal care categories. Hamam, Lakme, Pond’s, Knorr, Kissan, Lipton, Kwality Walls — think of any leading HUL brand today and there’s a good chance it came from an acquisition. Such product breadth strikes a chord with the choice-loving Indian consumer. Taken with HUL’s mega-marketing budget and deep distribution reach, it erects a formidable entry barrier against rivals seeking to enter its turf.

India playbook

In chasing their India dreams, each of these consumer firms has deviated significantly from the standard operating manual of MNCs. They have chased volumes and market share without being obsessive about profit margins. They have drawn sparingly on their global brand portfolios and relied a great deal on locally nurtured brands to expand their franchise. Moving away from the MNC preference for lean portfolios, they have catered to the Indian consumers’ insatiable appetite for choice through a wide menu of products and variants.

Most important of all, they have been willing to let the economic circumstances and tastes of Indian consumers decide their product, branding and distribution strategies, rather than trying to impose the rules top-down from their global marketing playbook. Hopefully, with Nestle India and Coca-Cola making a new start, other MNCs in India will take some leaves out of their desi playbook.

Published on March 01, 2018

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