Mastering the Make-in-India Challenge

Despite India's economic growth and potential, developing a successful strategy for the country remains one of the most complex challenges for foreign multinationals. This challenge is rooted in the hard realities of global scale and costs. Most foreign executives have found it difficult to make money in India with their existing product portfolios at the scale of operations dictated by local demand. In addition, India has not provided foreign direct investment incentives anywhere near those of neighboring China. However, U.S. management consulting firm A.T. Kearney estimated in 2014 that India's share of global trade would be approximately five times greater by 2025 -- and at that point would represent 6% of all global trade. Given that growth projection, waiting for a target income segment to reach the break-even level or waiting for greater government incentives to materialize is not the right strategy. Indeed, the authors observe, many foreign multinationals have increased their focus on India.

However, they add, many foreign executives are frustrated that they cannot replicate the same strategies in India that led to success in China. One reason is the local high-income segment, which constitutes the initial target market for most foreign companies, is relatively small in India compared with China. This often causes foreign executives to refrain from investing in more extensive value-chain activities in India and delay committing to local manufacturing.

Based on their research, the authors present a framework for foreign multinationals for a successful first-time entry into India or for upgrading an existing operation in India that has not been very effective. This approach involves simultaneously taking advantage of local sourcing, manufacturing, and marketing activities in conjunction with local adaptation of global products to generate mutually reinforcing advantages. Foreign manufacturers in India, the authors argue, can use both globally focused assets

to improve local sales and locally developed capabilities to deliver more cost-effective solutions for global markets. This combination enables companies to reach across all of India's income segments, while at the same time developing a springboard for global exports.