Mastering the Make-in-India Challenge

12 July 2017

With Prime Minister Narendra Modi’s “Make in India” campaign and the rapidly-growing consumer population, many foreign multinationals have shifted their focus from China to India. However, many of them are struggling to grow in this market. The key, as discovered by a number of companies, is to combine local and global value chains as part of the business strategy. MIT Sloan researchers warn that traditional strategies that may have worked in China will not work in India. In part this is because the local high-income segment in India is a lot smaller and growing a lot slower than in China, so aiming at this income segment will not generate adequate volume and will involve high competition. Instead, businesses that have been successful in the Indian market advise others to cater to all income segments. There are a number of key factors about each income segment that businesses need to learn and adapt to. The high-income segment consumers value global brands, luxury goods and advanced non-Indian technologies, while the lower-income segment consumers value localised products with country-specific features. Middle-income segment consumers are the most difficult as business competition in this segment is the highest. This segment contains value-conscious and informed consumers who prefer local manufacturing due to lower price.

The best strategy to use when entering or growing in India is the Make-in-India helix. This involves using local sourcing, manufacturing and marketing and adapting global products to local consumers. To be successful in India, foreign businesses need to collaborate horizontally with Indian network orchestrators, as this collaboration can provide low-cost manufacturing facilities and important knowledge about local consumers and market dynamics. Collaborating vertically with local suppliers is another important step as it enables quick responses to changes in market demand and allows for quick adaptation of products while reducing global component costs. To generate scale, foreign multinationals need to link Indian suppliers to global supply chains and simultaneously leverage global and local products. A good strategy is to initially introduce the company’s latest products to the upper-income segment and quickly localise before moving on to other segments. It is vital for products to have both foreign brand reputation and local design and tailored features. This research also offers a list of 12 practices, associated with different market segments, to help foreign business owners to create and implement a successful strategy in India.

Read the full article on the MIT Sloan website.

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