Q: What challenges do foreign companies face in entering the Indian market?
Some companies, just because of their name, appear alien to Indian consumers. If the company is involved in a category where consumers look for global signs of social status, then that foreignness can be played to advantage. But for categories like packaged food, it often doesn't sit well with consumers. So you see a company like Pillsbury making very clear efforts in their advertising to show that their foods fit into traditional Indian family structures.
The other common challenge comes from offering new types of products. Commodities that we take for granted in the West might not be completely new, but they don't have the same kind of penetration in India. Take shampoo or toothpaste and you will find that the market penetration of these products is actually quite low when compared to Western countries. For example, the penetration of toothpaste in India is only around 50%, while for shampoo it is around 30%.
So companies new to India face competition from alternatives that are very different from what they encounter in the West. For example, in the toothpaste category, Colgate isn't competing only against Procter and Gamble's products and brands. It is also trying to create a market by convincing people to upgrade from tooth powders and natural ways of cleaning their teeth, to toothpaste. The vertical stretch of many product categories is simply different, and it's one of the main challenges for foreign companies in India.
A great deal of that stretch comes from the huge population and the large disparities in income that you find in India compared to a more homogeneous middle class in the U.S. or Europe. Q: Does the country of origin matter for the way multinationals are perceived?
One of the mistakes that some foreign companies have made is to believe too strongly that their country of origin will help make the sale. Indian consumers do care about where products come from and the image of products, but I think in general the importance of country-of-origin tends to be overvalued and overestimated by foreign companies.
Some foreign companies have done extremely well though. Hindustan-Lever, the Indian branch of Unilever, is probably one of the most profitable branch of Unilever worldwide with an operating margin between 15% and 20%. It has been in India for more than 100 years and is thought of by many Indian consumers as simply being an Indian company. Q: You have described tensions that come up around personal identity, national identity, and globalization when consumers are faced with new products or new sources for products. Could you discuss that?
I believe that there is a kind of selective frame that many people in India employ when thinking about their relationship with foreign commodities, foreign companies, and the modernization of the Indian economy in general. That means a product or company can go against the grain in a way that raises resistance to modernization when it is perceived as endangering Indian identity. There is a famous slogan by an Indian nationalist party, which used to say in the 1990s, "We want computer chips, not potato chips." Now Indians are definitely buying potato chips. But what the slogan is pointing out is that there is an ambiguous relationship with the West in India. The relationship has never been pure admiration; rather there is a process of selective modernization at play in India. It is as if products went through a sieve: certain products and practices are adopted, others are modified, and still others are rejected outright.
Valentine's Day is an example of this. Both Indian and foreign companies have been promoting Valentine's Day, and it has been quite successful with young, urban couples. But some extremist political groups have used it as a symbol of modernization and Westernization. Every year Indian newspapers will have pictures of these groups burning Hallmark cards. Last year they actually went into restaurants that were promoting Valentine's Day to cause some trouble. For these groups, it is a political stunt to generate publicity around the issues that they want to promote. But it also reflects larger questions about India's modernization.
An interesting example to juxtapose with Valentine's Day is Akshaya Trithya. It is a Hindu festival which has existed for hundreds of years and is seen as an auspicious time to start a new venture, but, until recently, it was not very commercialized.
Indians have one of the largest private collections of gold in the world. In fact, India generally accounts for 20% of global gold offtake in any one year. But in the early 2000s sales were stagnating, so the World Gold Council decided to put a lot of money into marketing festivals such as Akshaya Trithya, especially in the south where a great deal of the gold is bought.
Instead of being an obscure Hindu festival, Akshaya Trithya became a day where if you are a middle class or upper middle class family in Chennai, you go to your jeweler to buy gold. The existing cultural tradition has been transformed into a highly commercialized occasion.
The campaign was successful enough that the Platinum Guild saw an opportunity. Managers at the Platinum Guild realized that many South Indians who observed Akshaya Trithya in its traditional form would dress in white clothes and eat from white vessels. The Platinum Guild hired astrologers to research the roots of the festival and got them air time on radio and television to talk about the fact that on that day everything needs to be white. The campaign is very subtle in the sense that it doesn't say that it is promoting platinum. But because astrologers are very popular in India, and they talked about how everything had to be white, it created a competitive advantage for platinum. These are foreign organizations explaining to Indians what Indian tradition is all about, which I thought was quite fascinating. It shows that tradition is rarely fixed but always evolving, and that marketing is playing a significant role in this evolution. Q: From an organizational perspective, what do companies go through as they enter the country?
For many companies that are not used to emerging markets, there is often a sort of cultural shock. It is remarkable how difficult it can be for many foreign companies to adapt to the Indian market, not because they don't have the resources in terms of, for example, money for market research, but mostly because the ideas about the world that are the norms inside the company are so different from the reality of the Indian marketplace. In fact there is research that shows that smaller companies actually tend to be more successful in India than larger ones. So it is not so much a matter of resources. Rather, it requires a very different way of understanding the market. But the stretch of product categories I already talked about or the nuances of people's relationship to modernity make it an especially difficult market to understand and succeed in for many foreign companies. For all the talk about the promise of the Indian market, it remains an extremely difficult challenge for companies that are mostly used to Western markets.
[This article has been reproduced with permission from Qn, a publication of the Yale School of Management http://qn.som.yale.edu]