Bridging the Cultura Charm Winning Strategies for Global Business in India

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UNIVERSITY OF CINCINNATI

Date:___________________

I, _________________________________________________________,

hereby submit this work as part of the requirements for the degree of:

in:

It is entitled:

This work and its defense approved by:

Chair: _______________________________

_______________________________

_______________________________

_______________________________

_______________________________

25th November, 2007

Aarti Vasudevan

Master

Design

Bridging the Cultural Chasm: Winning strategies for Global Businesses in India

Prof. Craig Vogel

Prof. Peter Chamberlain


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Bridging the Cultural Chasm:Winning strategies for Global Businesses in India

Aarti Vasudevan(National Institute of Fashion Technology, India)

2007

Thesis submitted to the faculty of the School of Design in theCollege of Design, Architecture, Art and Planning at the

University of Cincinnati,

In partial fulfillment for the degree

Master of Design

Thesis Committee:Craig Vogel, ChairPeter Chamberlain


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Abstract

Asia has become a hub of activity with many internationalcorporations are increasingly turning to this region for solutionsto effective management and more importantly as a vast yetuntapped market of consumers with growing spending

capabilities, heightened awareness for quality brands and products.

Many foreign companies have already set shop in China andmany more have business plans for India, whose winningdemographic mix and unexpected growth have made it the flavorof the season.Transnational corporations have already learnt in China that theChinese consumer has a unique identity. And early entrants toIndia are learning a similar lesson.

Though large, the Indian market is a tough nut to crack. TheIndian consumer is the end product of his socio-cultural milieu.

His consumption habits have been tempered by tradition andmodernity, consumerism and frugalness, knowledge andignorance. Such a consumer craves for all that a foreign brandname portendsquality, snob value and internationalismbutrelates better to products that are localized, customized andtailored to meet his needs.

Contrary to larger perceptions, based perhaps on Indias rampantpoverty, such a consumer is not always price sensitive. Instead, hecan always loosen his purse-strings, provided the company is ableto convince him that what they have is the very best his moneycan buy. And in order to touch that emotional chord, companieswanting to do business in India have no option but to understandthe Indian market and the Indian consumer inside out.

India is undoubtedly a country ripe for the picking. But a countrywhich readily rewards foreign companies that have made theeffort to understand its cultural ethos, even while summarilyrejecting the offerings of those who have entered the market withshoddy, careless and indifferent preparation.

This research project will look at some popular domestic andforeign brands in India, scrutinize some current market trends andevaluate the reason why some Multinational brands have clickedwhile others have failed. The research will draw lessons from the

experience of failed and successful global brands in India andsuggest a strategy for success. This paper lays down the roadmapfor succeeding in India, citing the experiences of early entrants toIndia.

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Acknowledgements

Many thanks to my committee members,Professors Craig Vogel and Peter Chamberlain, for

their thoughtful, knowledgeable advice andpatient guidance. It was an honor to have you

both on my committee.

A big thank you to all of the professorswith whom I've had the privilege of

taking classes in the process of completingmy graduate education.

I will remember always remember thesepast two years that I have spent living in

Cincinnati very fondly.

Love and heartfelt gratitude to my family

for their unquestioning support, guidanceand feedback. This would not have been

possible without them.

And to my friends for all their help andsense of humor.

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Table of Contents

Introduction: Transposing Western perception to Asian Consumer Psychology 1

Part 1

CHAPTER 1: The Socio-Cultural Crucible 9- What is culture? 9- Differences between countries 10

- Difference in Perceptions: Konrads theory of imprints 11- Maslows Hierarchy of Human needs 12- Hofstedes five dimensional model of national cultural difference 13- The significance of In-groups in Asian Cultures 15- Lessons from India: The Kelloggs failure 17

- Conclusion 20

CHAPTER 2: The Power Play

- Religious Factors 21- McDonalds Gain 23

- KFCs Woes 24- Economic Factors

- On the Macro Economic Level 26- Micro Economic Changes 28

-Political Factors- The Lumbering Elephant Metaphor 31- The Politics of Poverty 32- The Political Risk 33

CHAPTER 3: Riding the Infocom Highway 34- Emergence of India as an IT nation 35- Indias IT Sector 36- Unconventional gains from IT 39- Design Outsourcing to India 40

- Climbing the Animation Outsourcing Ladder 41- Off-Shoring factors 41

CHAPTER 4: The WOW factor 42

- Media Factors- The Power of the Idiot box 42- The reach of the Internet 44

- Price Paradigm: does it really matter?

- Cell phone success 47- The Ketchup Blotch: Heinz 48- The Miscalculation 48

- Lifestyle Factors 49- Keeping up with the Joneses 51

- The Asian brands 53- Youth Power 54

- Advertising Factors- The Celebrity factor 55- Differentiated Localized Advertising 56

- A case of unlikely competition 57- The Idea that changed a brands life 59- Of the Motorola Ad Campaign, Bollywood and Globalization 59

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CHAPTER 5: Thinking Outside the Box 61

- The Indian Design Scenario 61- Designing for Diverse Audiences 63- Product Design and Innovation

- Videocon and Whirlpool: the drubbing in the FMCG market 65

- The HLL story 68- The Ruff n Tuff Case study for innovative product marketing 69- The Nokia vs. Motorola Battle 70

- Product Adaptation and Localization Factors- The initial Coco-Cola misfire 75

PART II:- Profiting from the Bottom of the Pyramid 78- HLL Shakti Case Study 83- ITC e-Choupal Initiative 84

- Motorola and the e-Choupal alliance 86- E-Governance project of the Andhra Pradesh State Govt. 86- The Air Deccan Example 88- Taking the TATA dream further

- Tata Ace 88- The One-Lakh Dream Car 88

CONCLUSION: 90- The Contenders

- China 91- East Asia 94

- India 94- The shift in Paradigms for Asian Brand Leadership 100

- Guidelines for Growth 102

BIBLIOGRAPHY

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Rahul, 22, is the son of a brick kiln worker. He lives in the suburbs of Pune, one of Indias booming second tier cities,brought center-stage by the phenomenal growth of the auto and IT sector.

His mother, Kanta Bai, is a maid, who works in other peoples houses. Most days, she brings back the leftover food given toher by her benevolent employers. But there are days when she returns empty handedforcing the family to forego dinner.

Yet, Rahul considers himself to be lucky. While still at school, a mentor had taken on the liabilities of his education. That hadhelped him graduate from a poly technical college, with specialization in construction and civil works.

The end result: Rahul now has a job as a supervisor, earning Rs 12,000 ($400) a month, roughly three times the averageIndian salary. His first purchase had been a sari for his mother and he now plans a trip to Mauritius by air.

Just 200 kilometers away in nearby Mumbai, Mukesh Ambani, Indias sole trillionaire (in Rupee terms) and the CEO ofReliance Industries Ltd is in the process of building a new home at an estimated cost of $1 billion.

On completion, he would become the proud owner of the worlds most expensive home, displacing the current holder of thistitle, Sheikh Mohammed Bin Rashid Al Maktoum, the crown prince of Dubai, who bought Updown Court, a London-basedhouse at 70 million..

Updown Court has 103 rooms, five swimming pools, 22 bedrooms and 24-carat gold leafing flooring in opulence. TheAmbani 27-storied home will have all of these---and at least six floors of parking space.

Welcome to India, a country of steeped in tradition, poverty, promise, riches and corpulence that often go hand inhand with opportunities.

The opportunities:represented by the Rahuls of India, who are slowly but surely climbing up from the pits of poverty. It isthis group which is today swelling the ranks of Indias burgeoning middle class, estimated at 300 million. And it is theirdemand for packaged foods, clothes, cars, two-wheelers, white goods and consumables of every hue, which is bringing foreigncompanies rushing to India.

The promise:held out by the likes of Ambani, whose opulent lifestyle speaks volumes for the kind of wealth that can be

made, considering that the Ambani family wealth has been earned within a generation, that too during an era of over-regulation and poor reception to the idea of free enterprise.

Tradition: upheld and unfailing followed by the likes of Kanta Bai, who still wrap themselves in 6 meters of cloth in thename of tradition, even if the material, made primarily by the Ambani factories, is ill-suited for Indias hot climate.

Corpulence:Six floors of parking space in Ambanis proposed 27-floor monstrosity of a home, which will house his mother,wife and their three children.

Poverty:Children still having to go to bed on an empty stomach

This India holds great promise for foreign companies which would like to tap into the countrys growth. Yet, thebiggest challenge lies in being able to comprehend the mindset of the Indian consumer and the factors that driveconsumerism in India, and how they differ from the West.

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Transposing Western perception to Asian Consumer Psychology

The western conception of a person as a bounded, unique, more or less integrated, motivational and cognitive

universe, a dynamic center of awareness, emotions, judgment and action, organized in a distinctive whole is,

however incorrigible it may seem, a rather peculiar idea, within the context of worlds cultures.

- Clifford Geertz

INTRODUCTION:

Asia is home to two-thirds of the worlds population as well as to two-thirds of the worlds poor, who

earn less than a $1 a day.

Not only is the economic disparity amongst countries in the regions severe, but disparities within a

country are equally pronounced. Japan, Asias richest nation, has an average per capita income of

$33,100 per annum, compared to Cambodias average citizen, who makes just $2800 per annum.

Gender disparities are pronounced in the region, boys are more valued as compared to girls and 1.9

billion or 60 percent of all Asians have limited access to food, health, education and infrastructure.

Despite the unprecedented boom of the 90s, East Asia accounts for the largest share of the global

burden of disease according to the World Health Statistics 2007. Half the children in India under the

age of five are malnutritioned even though India grew at an average rate of growth of 6 percent during

the 90s and is currently notching an over 8 percent growth. Further, while Indias infant mortality rate

is lower than that of Bangladesh and Nepal, the countrys child malnutrition level is higher than that in

sub-Saharan Africa.

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However, despite all this, Asia, and India and China are the toast of the season. India received $16

billion in foreign direct investment during 2007-08, while China has been receiving thrice as much

annually during the last 10 years.

The cause for this is the two-stage transition that has been taking place in Asia during the last two

decades. First, foreign companies rushed to AsiaChina, East Asia and India in that order in the 90s in

order to tap into the continents cheap labor base. The turn of the Century has changed things.

Foreign companies continue to gravitate to the countries in the region, but this time around, it is to

tap into Asias widening consumer base.

Asia is already home to one in every three persons in the world, with about 2.3 billion people living in

just two countries, namely India and China. Further, of the two countries, India has certain additional

advantages on account of the demographics. By a United Nations Development Program (UNDP)

estimate, between 1975 and 2025, Chinas population will grow by about half, from approximately

930 million to over 1.4 billion. Indias, on the other hand, will more than double, jumping from

around 620 million to over 1.3 billion.

These people will be largely young as compared to an aging population in the developed West. This

population will be producing and consuming, making Asia the manufacturing and consuming base of

the world. Goldman Sachs estimates that by 2040, China and India would become the world's first and

third largest economies.

Asia as a whole is a region of the world where the disparity between high and low tech is very

dramatic and yet both co-exist very homogeneously. It is also a place where the past is deeply

entrenched within the present while looking towards a dynamic and unpredictable future. This is very

true specifically in the case of India.

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Add to this the other strengths of the two countries such as the availability of a large pool of technical

professionals and graduates, willing to work at reasonable wages, an English-speaking population,

particularly in India, a motivated workforce and growing consumerismand immediately, the two

countries become extremely attractive as the foreign investment destinations.

Understandably, multinationals (MNCs) and small businesses would like to rush to these countries.

However, it would be a mistake to assume that these are markets, there for the taking.

Instead, the underlying principle that must guide all entry strategy for new entrants, as well as for

existing MNCs wanting to reposition themselves is that these are complex markets, which can be won

over, provided they are viewed as independent entities, different from each other, as well as from the

more familiar Western markets.

Customers in emerging markets particularly in India are often well informed about the range of

products and services on offer, the price points, the strengths and weaknesses of each and what the

competitor for each product provides. This is not just true for the upper segment of the market, but

also for the middle class consumer. Gone are the days when middle class consumers chose to buy

merely on the basis of a low price. Instead, their purchases are based on surveys and are driven by

clarity on what appeals to them, the quality and level of sophistication they desire, and the productivity

gains, in the case of capital goods, that they expect from a product.

The two most common strategies that international companies have traditionally followed to create

their global brands are -

1) Expanding successful local brands on international markets:

This methodology also allows companies to build their brand in progressive steps on a global scale.

This also enables them to have some control over risks and expenses. For, if expansion plans for the

brand fail, then financial losses can be limited to some extent.

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Some examples of products that followed this strategy include brands like Evianand Barilla thatwere

initially strong local brands in France and Italy before becoming global brands. Niveafrom Germany

was also at first a successful local brand before becoming the European cosmetic leader. Even Coco-

Colais part of this first group of brands.

2) Creating global brands from the start:

The alternate strategy that many MNCs have followed has consisted of creating global brands from the

start. The brands in this category enjoy a simultaneous semi-worldwide launch. Companies like

Proctor and Gamble have employed this strategy for many of their newer product brands such as

Pringlesand Swiffer. The reasoning behind this approach is that the company wants to rapidly build a

world brand with the same name and positioning in multiple markets, even while capitalizing on the

economies of scale. There is a substantial amount of risk involved in this approach as the company has

to invest massively without any assurances of success of the brand.

Many Multinational companies approaching markets in Asia rely on consumer behavior models to

guide them in the local market. But many fail is due to the fact that their business models were

developed keeping in mind a strictly western consumer and market. The idea of simply transposing a

consumer model blindly without considering the individual market and all its nuances can often be

very misleading. An approach that works brilliantly in one market might fall flat in another. Most

marketers are still adapting marketing techniques and theories to new non-western contexts. Similarly

some products that strike a chord with one market, transforming them from mere objects to everyday

necessities and lifestyle products might not even make a dent in another cultural context.

A growing Asia and India in particular, undoubtedly offer many opportunities. Yet, one mistake that

many Multinational companies approaching these markets repeatedly make is to blindly transpose

time-tested successful Westernconsumer behavior models to a developing Asia. Such transference fails

to take into consideration the fact that what works for one market need not necessarily work for

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another. Also, these models were developed with western consumers/markets strictly in mind and fail

to view the Asian/Indian consumer within his own socio-economic and cultural context, which varies

between markets and within market segments.

Most marketing models view an individual consumer as an independent autonomous being, who is

free to make decisions based solely on personal desires and affiliations. A standard practice is to extend

the well-known and accepted Maslows Hierarchy of Needs not merely to Western consumers but to

all.

The Maslow model has been effective in the West because it summarizes rational Western behavior.

However, concepts such as Self Actualization, which are eulogized in the West, are not necessarily

relevant to Asia, including India.

In Asia, where interpersonal relations take precedence over independence, and standing and status in

society are valued far more than fulfilling even basic needs, allocation of scarce income is not governed

by well-documented economic and rationale principles. Instead, it is based on a value system which is

central to life in Asia.

A stellar example of this irrational and inexplicable behavior is the Indian penchant for wearing gold,

which is acquired irrespective of the affordability of the buyer.

The other is the near-suicidal adherence of Indian parents to tradition, whereby many would deny

themselves the simple pleasures of life in order to collect a dowry(gifts and other valuables), to be given

to their daughter at the time of her marriage. In rare cases, poor parents would not even stop there.

They would borrow to the point of pauperization, in order to perform a grand marriage, driven by

the singular desire to impress their family and friends with pomp and show.

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However, this image of an all-giving-all-suffering Asian parent takes a beating, and is replaced with

one of avarice, when one sees people in India and Asia saving and skimping to the point of starvation

to accumulate material goods such as a television, refrigerator, car or a house.

Such behavior and the conflicting images that Asia creates may be difficult for Westerners to

understand. Yet, to the Asian mind, these are as much in balance in it, as there is in yin and yang.

Asian cultures are built on the bulwark of tradition, hierarchy, respect for elders, filial duties and

commitment to society.

In Asia, Inter-personal relationships and social interaction are more valuable than perhaps self-

actualization needs.

For many people the social need for status, admiration and affiliation surpasses the self-actualization

need held so supreme in the Western context. In a developing country like India, the notions of

autonomy and independence are not as important as the concepts of belonging to groups and social

connectivity.

Experts today agree that companies, which operate in multiple markets, can afford to ignore the

importance of culture on consumption, only at their peril. Yet, this is easier said than done considering

the very nature of culture is multidimensional, dynamic and reactive. The cultural framework of any

society is as much a response to existing thoughts and mores, as it is to change.

These constantly shifting cultural patterns have had significant impact on products, their design and

consumption.

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The experience of many corporations when venturing into many of the Asian countries, including

India and China, has been the discovery that Asian countries, markets, consumer and consumer is a

double-edged sword. The lure of both countries as unexploited expansive markets with its increasing

base of middle class consumers is certainly exists, but so do the challenges, such as the diversity of

culture, the disparity between the rich and the poor, the slowly improving infrastructure conditions,

and the gradually changing consumer mindsets.

These factors make Asia, and India, a demanding but rewarding destination.

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Part I: Chapter 1

The Socio-Cultural Crucible

What is Culture?

Great attention is today being paid to defining and quantifying culture, given the complexities of

converting a term which is wide, subjective, emotive and constantly evolving. Such definitions and

quantification becomes necessary if one wants to build a winning market model, which corporations

can exploit while introducing products in a new and unfamiliar market.

One of the simplest and universally accepted definitions of culture is that it is a body of beliefs, norms,

and values shared by a group of people.

Haris defines it as a behavior patterns associated witha peoples way-of-life (Harris 41, p.16)

The anthropologist Robert Redfield defines culture as shared understandings made manifest in art or

artifact.

Kluckhohn defined culture as the part of human makeup that is learned by people as the result of

belonging to a particular group, and is that part of learned behavior that is shared by others. It is our

social legacy as contrasted to our organic heredity.

Hofstede (1991, 2001) defined culture as the collective programming of the mind and finds distinct

cultural differences among people from different nationalities.

Berger and Luckman, who provided an exhaustive definition in their 1966 book, The Social

Construction of Reality, make the following points:

1. Societies collectively define their own frameworks for creating meaning out of multiple impressions

in which life is embedded.

2. These shared frameworks are dynamic and constantly evolving.

3. Apart from certain human universals, such as tendencies to live in families, pair bonding, care of

children etc, different societies have varying frameworks. Areas of life that may display great variance

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from society to society include interpersonal behavior, eating traditions, the understanding and

response to authority etc.

4. Culture is the aggregate of many individual perceptions, which come together to form what is seen

as the rules of the game.

Central to culture is thus the notion of what others see as the rules, rather than ones own perception

of what these rules should be. This notion also forms the organizing principle which is shared by

people and provides coherence to society. Culture is also evolving and adaptive. And it is this

characteristic which allows the inclusion of new ideas, such as environmental degradation or protection

to child labor into the concept of culture. This ideation component of cultural systems is important. It

often has adaptive consequences such as controlling population, contributing to subsistence,

maintaining the ecosystems etc.

Differences between countries

The traditional and common methodology for identifying a cultural group is the use of National

boundaries. This classification is easy to use in countries like Japan and Portugal, which have a single

homogenous mass of population but is not as effective while dealing with mixed cultures seen in

countries such as Malaysia and the United States. The task becomes even more daunting when one is

addressing areas such as the Indian Sub-Continent, where people in three countries, India, Pakistan

and Bangladesh share a common origin, are divided by national boundaries and religious affiliations,

speak different languages, eat similar food and are governed by similarities in thought on certain issues

but are so divided on others that they indeed represent independent identities.

Even within India, the concept of cultural coherence within geographical boundaries often wears thin

when one tries to find the unifying factor which brings together thousands of subsets of people, who

form the countrys national identity. This is because of the fact that there are neither simple answers

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nor is there a single replicable model which could apply to Indias 1 billion population, 28 states and

seven union territories, 22 officially recognized languages and over 1,000 dialects, broadly unified by a

single religion, but sharply divided by the millions of gods and demi-gods worshipped by the people.

Difference in perceptions: Konrad Lorenzs theory of imprint

The term imprint was first coined by Konrad Lorenz as a combination of experience and its

accompanying emotion. He felt that when a cultural imprint occurs, it strongly conditions the thought

process and shapes the future actions of the person. Hence, each one of us is made up of an

amalgamation of imprints that influence us at an unconscious level. There is a constant struggle

between outside influences and the inherent need for every culture to hold onto and maintain its

intrinsic core values. At the very same time, ones cultural heritage binds us to others with similar

cultural values of the collective and may be intrinsic to our survival.

Exposed to their uniquetraditions, heritages,rituals, and customs

Different learningenvironments andhistories

Variations in moralstandards, beliefs, andbehaviors across cultures

People fromvarious

backgrounds

Whichprovide

them with

Which in turn leadto

An example of the imprint many cultures have can be explained with reference to preference for

coffee or tea. In India, the Northern part of the country traditionally has had a strong preference for

tea whereas the Southern part has a strong bias for coffee and each follows a method of preparation,

which is different from other countries. In this context, people tend to have an emotional connection

to one beverage and a superficial imprint for the other. So each product would have a tough time

competing in a different region within the same market due to a lack of emotional resonance.

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Maslows Hierarchy of Human needs

As discussed in the introduction, many MNCs entering Asia rely on consumer behavior models to

guide them in deciding on their entry strategy. One popular used for this purpose is the Hierarchy of

human needs detailed by Maslow.

This model states that first and foremost, a rationale consumer is driven by the pressing need for food,

shelter and clothing. This is followed by the desire for perceived luxuries (haute cuisine, decoration and

fashion), with consumer choices expanding from the basic to the superfluous, and finally the realization

of Self-Actualization.

Although in theory this model is succinct in charting the behavior patterns of people in general, and

effective when applied to Western consumers, it is not necessarily relevant when applied to Asia,

where the hierarchy of priorities of the people is different. Further, this single blanket model fails even

more when one applied to each of the nations within Asia, which are similar but diverse and distinct

from each other. These differences are not lost on experts and recent years have seen the evolution of

some models, which are a variant of Maslows basic model, and have been adapted to meet the specific

needs of Asia.

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Hofstedes 5-dimensional model of national cultural difference

The Hofstede five-dimensional model of National Cultural Differences addresses the shortcoming of

earlier theories such as Maslows hierarchy of needs. It is built around four terms which characterize

cultural differences and is perhaps better suited for countries like India. These terms include Values,

Rituals, Heroes, and Symbols. Hofstede refers to these terms as as the skin of an onion. The

symbols represent the most superficial layer, while value is the deepest manifestation of culture, with

heroes and rituals lying in between.

Hofstede calls values the core of culture. They are taught in early childhood and are most important

for deciding what is right or wrong. Values can also be seen as priorities, things we like most and

choose before others. Personal values differ amongst the members of one culture but are normally

respected by all of them.

Hofstedes model

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Hofstede uses his model to make the point that Western societies tend to be individualistic, and exhibit

low power distance. They are more feminine, uncertainty prone and long term in orientation. The

Orient, brought up on Confusion thought, on the contrary, is collectivist, is high power distant, and

more masculine. This group is uncertainty aversion and exhibits characteristics of short term

orientation. Consequently, the value system in the West reveres individual freedom and is less tolerant

of economic disparities in society. Gender-based work divisions are less pronounced and people take

uncertainties in their stride.

The Eastern value system, on the contrary, places greater emphasis on the collective, including family,

friends and society. Loyalty, duty and social acceptance are more valued than individual independence.

People in such societies are risk averse and create rules to reduce the impact of uncertainties. The

work place is male dominated and marked by aggression and competitiveness.

Hofstede also differentiates between societies on the basis of their Long-term and Short-term

orientation, and the importance they place on the future or the present. Since the future is important,

long-term orientation makes people in these societies thrifty and willing to persevere. Western cultures

generally fall into this category, while the Orient, bred on Confusion dynamism, places greater

emphasis on the present. Hence, greater value is placed in these societies on virtue than truth. People

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respect tradition, value the fulfillment of social obligation and attach importance to the notion of

saving face.

Hofstedes Cultural dimensions with regard to India:

India has Power Distance (PDI) of 77, Long Term Orientation (LTO) Dimension rank of 61,

Masculinity score of 56 and an Uncertainty Avoidance (UAI) ranking of 40 as against the global

averages of 56.5, 48, 51 and 65 respectively.

This broadly reflects the fact that India is a nation with a high degree of inequality between the rich

and the poor, a perseverant and parsimonious population, with greater dominance of men in

workplaces and lower level of participation at home. However, India is also a country with greater

appetite for risks. These scores also raise the possibility of a competitive and aggressive women

workforce being created, though these numbers would be lower than those of men. Also, low

Uncertainty Avoidance could mean fewer rules and the generation of a greater number of unstructured

ideas and situations.

The significance of in-groups in Asian Cultures

The concept of individuality within Asian cultures is very different from the Western counterparts

more significance is placed on connections with others, fitting in and living in harmony. There is a

marginal separation of the self from the family unit and the community, while in the West, individuals

generally define themselves through certain individual talents, abilities and personal traits. In the

western society, the individual is the primary locus of consciousness. The belief in many Asian cultures

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rests on the principle of fundamental connectedness or interdependence of individuals within the

context of others in the same in-group.

The differences between western and Asian cultures are obviously not absolute. It would be too

simplistic to label all Asian cultures collectivist and Western cultures individualist. In many Western

countries in-groups that individuals may belong to, include a number of Associations, church groups

and other social engagements. Similarly with the advent of liberalization in many parts of Asia,

individualistic pursuits and breaking away from in-groups has been on the rise. Despite these, as a

general notion the independent and inter-dependent self can be differentiated in the Western and

many non-western countries.

Individualistic but like everybody else

The importance of in-groups does not mean total social conformity though. The importance of luxury

brands in Asia shows consumers trying to differentiate themselves from other members of society

through the purchase of iconic brands such as Chanel, Louis Vuittonand Gucci. A perceived scarcity

of these luxury goods can be attributed to the popularity of luxury goods in this region, which means

that the consumer assigns more value to choices of products and services that have limited availability.

This psychological reluctance theory wherein the more we lose freedom, the more we want to retain

it, has been capitalized by companies for long. They use marketing tactics such as limited number

available or a set deadline by which the scheme would end. These schemes are based on the principle

that people cant stand the thought of losing their freedom and hence would rush to exercise it while

stocks are available. .

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Lessons from India

The Kelloggsfailure

Kelloggs entered India in the 90s as a wholly owned subsidiary of the parent company. It invested in

a Greenfield project and introduced the product, banking on the love of Indians for breakfast and

brand names.

Soon after the launch, it became clear that though there was no dearth of double-income upwardly-

mobile urban middle-class households, Indians were not taken in by the idea of an American breakfast.

Some of the reasons for the massive failure of the Kelloggsbrand in the Indian market were:

a) Miscalculation of price points

b) Inadequate market and cultural awareness

c) Strict palette preference of the consumer

When Kelloggs investigated further, it became clear that Indians were still at a stage when they

preferred fresh foods and daily cooking. Even in homes where the women were working, Indians still

preferred to make fresh home-made breakfast.

Further, Indian tastes tended to be traditional. In the north of India, where wheat was the main food,

Indians preferred to face the day ahead with a liberal helping of hot stuffed paranthas, or the Indian

bread, accompanied by butter, yoghurt and pickles. To the south, the preferred breakfast continued to

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be hot idlisor rice cakes, accompanied by a spicy sambharor curry and chutney. Such luxuries were

possible since labor was cheap and many homes could hire cooks and household help. Besides, even in

those homes where such indulgences were not possible, women cooked elaborate meals every day.

This was because within the social-cultural milieu, women were expected to cook and clean and

manage their homes efficiently, even if they were no longer stay-at-home wives, but professionals who

worked long hours.

Kelloggs tried to reposition itself, by introducing presweetened Chocos and Frosties, targeted at

children. It also tried to woo adults by trying to position itself as health food, focusing on the fact that

it was fortified with iron. These efforts helped it to gradually create a niche following, though the

lessons from India were clear to the company as well others watching Kelloggsfortunes in the Indian

market. Kelloggshad failed because it did not factor in the value of home-cooked meals for Indians or

the importance that was attached to role of women of being wives, mothers and home-makers in the

Indian culture.

Hence a company that had been highly successful in other parts of the world failed to make a dent on

the Indian market, because it failed to understand the Indian value system and the cultural ethos of

seeing food as the focal points of family life.

Unlike Kelloggs saga of struggles in the Indian market, Nestls Maggi brand entered the Indian

market with their instant noodle targeting mothers (a specific target demographic). Using their popular

2-minute Maggislogan, they sold the idea of a convenient snack quickly rustled up by a busy mother

for her children.

The idea worked, as it not only emphasized speed and convenience but also created the imagery of an

attentive mother rustling up a quick snack for her children. Such an image fits excellently with the

Indian ethos, where women are seen as homemakers first and then everything else.

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Further, Maggihad another advantage. Though convenience foods were new to India and Indians

were not very comfortable with the packed foods, which they consider to be loaded with preservatives

and unhealthy, Maggicaught on because Indians were familiar with noodles. It had been popularized

by Nepali and Chinese migrants to India, cooked in a highly spicy style, often referred to as Indian

Chinese.

Maggidid not miss these points. It introduced its product with its signature masalaseasoning. But since

it was targeted at families, the seasoning was not added to the product but supplied in a separate cache.

This allowed mothers to adjust the spiciness, depending whether they were cooking for children or

adults.

Today, a generation of Indians has grown up eating Magginoodles and has an emotional connection

to the brand. In fact, the term Maggihas become synonymous with the instant noodles in India. The

company tried to innovate, but with mixed results. It decided to go in for a change of its signature

masalaflavoring, but was it was panned by even the most ardent Maggienthusiast that the brand had to

revert back to its original flavoring. Overall, however, the company has been fairly successful in India

and the Maggibrand name is a roaring success. So much so that today all of Nestls food offerings

come under the Maggibrand such as their soups, ketchups, variants of the plain instant noodles, such

as whole wheat based variety.

Nestlssuccess lies in its decentralized, bottom up, locally adapted approach, which it adopted early

on. This approach has worked very well across markets and it is today the worlds largest diversified

food company with only 2 percent of its sales turnover made in its home country. For many decades,

Nestl has been adapting the taste and components of its products to the requirements of local

consumers. Around the world, Nestls brand Nescaf tastes different in different countries. The

company even changed the name of Nescaf Gold, as it is marketed in Europe to Tasters Choicein

the United States.

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Chapter 2

The Power Play

The Raj gave us modern values and institutions, but it did not interfere with our ancient traditions and our

religion. India has therefore preserved its spiritual heritage and the old way of life continues. Many Indians despairover the divisiveness of caste and would prefer to wish it away. However, the hold of the Indian way of life is also abulwark against the onslaught of the global culture.

- Gurcharan Das, India Unbound

In the article Why brands fail? by S. Ramesh Kumar, Professor of Marketing at the Indian Institute

of Management at Bangalore, brand failure is defined as the withdrawal of a brand from a market or a

brand failing to capture a significant portion of the market relative to the market structure in a given

product category. There may be several reasons why brands and products fail (both internal to the

organization and external), The objective of the author is to apply academic reasoning across a variety

of situations taking into consideration the overall market for a product category and competitive

offerings at a given point in time.

Culture is a significant cause for failure of a brand in new markets. But equally important are causes

such as politics, economics and religion. The value attached to each of these factors varies from

country to country, group to group, depending on the internal stimulus and external influences that

condition the thinking of the people. However, each of these factors could easily upset the best laid

plans and force new entrants to either exit a market totally, or force them to rethink their

repositioning strategies.

Religious Factors:

In South Korea, religion holds limited importance to the extent that South Korean parents have

readily accepted their childrens attraction to Christianity, even though they continue to practice

Buddhism and subscribe to Confucian Thought. Consequently, the percentage of Christians has gone

up consistently in the country with 40 percent of the country being Christians and Buddhism/

Confucianism, while the rest of the population is classified as atheists.

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However, in the Middle East, South Asia including India, Pakistan, and Bangladesh, and in Malaysia,

Indonesia and Thailand in East Asia, religion could lead to heated public and private debate, sometimes

culminating in riots in the worst case scenario.

In Thailand, better known at the Land of Smiles on account of the pleasant nature of the people,

Buddhists monks have actually taken to the streets to pressure the Junta government in power to

declare the country a Buddhist state. The interim government has desisted, on fear of antagonizing the

small percentage of Muslims in the country, who have strong ties to Muslims in nearby Malaysia and

Indonesia.

In India, home to 120 million Muslims and about 80 million Christians, Jains, Buddhists and others,

minor religious slights, imagined or real, can set off riots. The demolition of the Babri Masjidand the

Gujarat riots are well-documented events of recent origin, where religious fervor has fanned off

mayhem.

From a corporations point of view, direct implications could include factors which have a direct

impact on the religious sentiments of the people in a new market:

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1. Direct Implications2. Indirect implications

Direct implications are primarily the implications of the religious sentiments of the people of potential

market/country, on the corporation directly. An example in this category could be the Indian state of

Kashmir being off-bounds for foreigners for a long time. Another could be the security advisory issued

by the US, Australia, Canada and other developed nations to their nationals following the Bali

bombing. Under such adverse conditions, the overseas staff of foreign companies may be called back

home, with scant importance being paid to the losses booked.

Alternatively, the implications could be indirect. In this category fall the business decisions made by a

corporation, which could go wrong because they failed to factor in the religious sentiments of the

people of a region. This can be best explained against the backdrop of the varying fortunes of two

Multinational corporations in India, namely McDonaldsand KFC.

McDonalds Gain:

Mutton is Yummy!

What does a hamburger maker do in a country where the bulk of the people dont eat pork?

McDonalds faced this tricky question when it came to India, where both Hindus (800 million) and

Muslims (120 million) dont eat pork on religious grounds. The toss up thus was between chicken and

mutton, which were acceptable to both of these communities. McDonaldssettled for mutton and thus

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then was born the Maharaja Mac, a variant of the hamburger made using mutton rather than the

traditionally used beef.

McDonalds worked carefully, but even then, it seemed it had lost the battle, since Indian customers at

first rated the new offering to be far too bland. However, in the course of time, the company did strike

the right taste cord with customers and achieved something that many other foreign companies could

not achieve.

However, McDonalds did not rest on its laurels. Instead it introduced a range of vegetarian products

such as the McAloo Tikkiand McCurry Pan. Localized products were also added and its value-pack,

the Happy Mealswas customized to reflect local characters and icons.

McDonaldssuccess in India can be gleaned from the fact that the localization of its offerings was later

replicated by other global chains like Pizza Hutand Dominos.

McDonaldscurrently has 108 restaurants in India. It opened outlets in Eastern India for the first time

this year, and plans to open 25 new restaurants by 2007 end, with an investment of $100 million.

According to McDonaldsIndia managing director, Vikram Bakshi, McDelivery, the companys home

delivery service, accounts for five percent of the sales. The company hopes to take these figures up to

25 percent with the introduction of their new all-India call number.

KFCs woes:

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Indians as a people have deeply rooted religious sentiments and practices. An interesting point is also

that being a secular democracy, every individual has the right to choose his or her own religious beliefs

and practices. Given the centuries old religions and traditional cultural beliefs and practices, developing

an understanding of this heterogeneity in religious beliefs and respect to every religious sentiment

without and in-depth knowledge of the market and its constituents would be a challenge for any multi

national company.

That being said there are some very commonly known practices followed by large proportions of the

population. For Example, a majority of Hindus, who form a large chunk of the populace, abhor the

consumption of beef and beef-based products.

KFCviolated this rule of thumb when it introduced its brand in the country. Apart from Chicken

dishes, their menu included a selection of beef products. This led to wide-spread protests. People did

not take too kindly to a company which sold beef-based products, disrespecting their sentiments. Such

protests may sound misplaced in countries, where meat generally means beef, but in a country like

India, public chagrin was very much within the scope of reason. Furthermore, the company faced

strong protests from both anti-Multinational groups in the 90s and the animal rights group, PETA,

over its animal breeding methods.

The company managed to open just two outlets, one each in New Delhi and Bangalore. Of these, the

New Delhi outlet had to be shut down after a few years due to dismal performance. The company had

to shut down at that point and has just managed to re-launch itself much more cautiously, this time

around.

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Economic Factors:

On The Macro Economic Level

We must think big and bold. We must move away from the paradigm of incremental growth to a paradigm of

exponential growth and growth into uncharted territory.- Excerpt from Prime Minister Manmohan Singhs speech in 2005

In the current global scenario India is fast emerging as an economic power both within the Asia-Pacific

region and also in the larger global scenario. Indias GDP grew at 6% per annum on average through

the nineties. In recent years this figure has grown to over 8 % per annum. This has made India the

second fastest growing country in Asia, second only to China.

The gradual growth curve over the past decade or so has led to the increase of Indias share of the

world output, at purchasing-power-parity-adjusted exchange rates, from 4.3 percent in 1990 to 5.9

percent in 2005.

This growth has sustained in spite of the Asian economic melt-down of 1997-98, natural calamities

that disrupted agricultural output and the sharp increase in energy prices. Along with this growth, the

levels of poverty have declined dramatically with some estimates stating a drop from 41 percent in

1992-93 to less than 29 per cent in 2000.

The share of imports and exports pooled together had doubled over the last two decades and reached

35 percent of the GDP in 2005. Capital flows have been on the rise and in 2005 India was one of the

top destinations in Asia for private equity funds. The rise in trade and capital flows is attributed to the

liberalization of the economy, particularly the reduction of trade tariffs and capital controls.

Indias recent rapid development has gone hand in hand with the opening up of its economy since

1991. Since then, many reforms have been adopted. Red-tapism prevalent during the License-Permit

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Raj era has been ameliorated, private industry has been given a free hand to grow and the Indian

government has limited its role to functions such as monetary management. This has ensured that the

cost of raising capital has gone down for Indian companies. This has made them efficient, improved

their global competitiveness, shored up their bottom lines and raised the employment levels in the

system as a whole. Simultaneously, off-shoring has brought jobs back home and reversed the brain

drain. As a result, three major developments have taken place:

1.Higher employment rates have increased the disposable income in the hands of the people, makingthe rich richer and lifting many of the poor into the middle class.

2.Opening up the economy has broadened the availability of brands, improved consumer choices,enhanced consumer knowledge and fueled consumerism in those groups in India, who were

hitherto not part of the great Indian revival.

3.Foreign companies have shown interest in India just as Indian companies have been lookingoutwards for inorganic growth through mergers and acquisitions.

Though India has been attracting foreign investments since opening up, the complexion of interest has

changed. In the 90s, foreign companies came to India looking for cheap labor. However at the turn of

the century, foreign companies are also coming to India to exploit its growing consumer base.

This consumer base is growing. It is also young, given the fact that more than 60 percent of the Indian

population is under 40 today. During the next 20 years, the bulk of this population is expected to

enter the labor force. According to estimates, about 75 million to 110 million entrants will join the

labor force over the next decade. Consequently, Indias productive as well as consumptive growth is

expected to be sustained, unlike the West, where the population is aging and consumption has already

reached saturation levels. A favorable saving trend predicted on the assumption that working-age

people have the propensity to save, is seen by many as a factor which will further fuel growth.

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Micro Economic Changes

As Indias richest man, Azim Premji of technology company Wipro, figured only 58th on Forbes' rich

listhe has since been displaced by Mukesh Ambani of Reliance Industries Ltdand India has only

61,000 millionaires compared with Russia's 84,000 and China's 236,000. However, some discernable,

under-the-surface changes are already happening, which is beginning to move the average Indian up

the wealth trajectory.

This image is captured by Merrill Lynch'sWorld Wealth report. The report points out at that ever

since the Indian economy grew by over 8 percent, it started making millionaires at a record rate.

According to Merrill Lynch, some 11,000 Indians reached the benchmark in 2003.

Forbesmakes another telling point. It points out that the richest five Indians (worth $24.8 billion) are

wealthier than their counterparts in Britain ($24.2 billion) and richer than citizens of anywhere else in

Asia, bar Japan and Hong Kong.

Such changes are being witnessed not only at the top-end but also across the Indian consumer

demographics.

The average Indian consumer today is a changed animal. Gone are the days when he was perceived as

a poor, price-conscious entity, haggling at every turn and skimping for every penny. Education,

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overseas travel, mass media and the process of liberalization which broadened consumer choices and

consciousness have refined the taste of the average Indian consumers, who today look for a value for

money proposition, combined with class and quality. This makes them both a discerning consumer, as

well as one willing to patronize those brands which can convince them that they have something

unique to offer, irrespective of the price.

This changing profile of the average Indian consumer, combined with the top-end, super rich,

snobbish consumers who shopped at Harrods and patronized only Dior and DKNY, makes Indias

new consumer base.

It has been customary for foreign companies to introduce low-end products in markets like India on

the assumption that beyond a point, consumers are inflexible on price. However, these calculations

could well go wrong in the coming years, since a distinct change has already started happening in

India, which is not only dividing consumers on the basis of urban-semi-urban divide but also on the

basis of price elastic versus price inelastic consumer segments within the metropolitan demographics

itself.

Further, foreign companies hoping to capitalize on this boom would have to also bear in mind that

while on the face of it, the 21stCentury looks like one of great promise for India, the country would

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have to measure up to several challenges ahead if it really does want to convert opportunities into

reality. If it fails, foreign investors who made mega business investments on the basis of positive

projections by global consultants Goldman Sachshas projected that by 2040, India will be the third

richest nation, with only China and the US being ahead of it---could well bite the dust.

With the conscious effort to propel itself on the path of growth and development, India needs to begin

proactively playing a more significant role in the world economy. Even after the reforms and

liberalization, India is still a relatively closed off economy, which needs to change gradually. A

sustained effort at growth and liberalization can have a significant impact on the Asia-pacific region

and also the rest of the world. Projections claim that the countrys exports will double over the next

five years while the imports will triple. If India is able to make its manufacturing and exports more

competitive in the coming years, it would present a challenge to its neighbors in the region and

change the current dynamics of trade. The continued rising working-age population over the next

forty years should give the country an advantage. If many of the projections regarding Indias growth

curve are to be believed, a huge new middle class of several million consumers with a propensity to

spend will be joining the world economy. This would have a major impact on world trade,

consumption of goods and services, prices of commodities and growth something to note for many

Multinationals already establishing their presence in the country or those who are contemplating it. A

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balanced, prosperous and outward-looking India would present even more opportunities for Asia and

the World.

Political Factors:

Although Indian political life is highly turbulent and often violent, somehow the basic democratic institutions,blemishes and all, continue to operate. This observation seems to confound all reasonable expectations. How canwe account for it? Any answer to the Indian conundrum must be tentative.

-Robert A. Dahl, Sterling Professor emeritus of political science, Yale UniversityThe Lumbering Elephant Metaphor

The metaphor of the lumbering elephant was coined by Gurcharan Das, former CEO of Procter &

Gamble. He propounded the theory in the book, India Unbound. The theory, which was highly

pertinent a decade ago, points out that it is pointless and often frustrating to paint stripes on India, as

was unlikely to be a tiger. Instead, it would be more of a massive elephant, lumbering on ahead. This

elephant would never gain speed, but it would always have stamina.

Gurucharan Das added that in Buddhist texts, the elephant was the symbol of wisdom. He then went

on to build the picture of the current-day India and drew the conclusions that while India would not

become a China in terms of speed of transition, it would have a far more stable, peaceful, and

negotiated transition into the future than China. He also argued that India would avoid some of the

harmful side effects of an unprepared capitalist society, which were being experienced by countries like

Russia. Although slower, India was more likely to preserve its way of life and its civilization of

diversity, tolerance, and spirituality against the onslaught of the global culture. If it did, then it would

be perhaps a wise elephant.

A decade later, Indias pace of development has picked up and it is increasingly becoming clear that

Gurucharan Dass predictions may only be partially true.

Indias economic fundamentals are at its strongest, defying all projection. The politics of power

however is another matter.

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The Politics of Poverty

The single major difference that observers point out with relation to China and India are the

approaches of the two countries to foreign investment. Though China is a communist country by

ideology, it has learned to separate its economics from politics when it comes to foreign investors.

Consequently, Chinas opening up has been transparent and to a set timetable, despite the changing

fortunes of political leaders within the politburo.

Interestingly, China is not alone in separating economics from politics for investment purposes. In

neighboring Thailand, the interim Junta backed government announced a new Eco car policy in mid-

2007 even though its hands are tied by the Thai Constitution as well as the expectations of the people,

who expected only people friendly measures from this government.

Under the new policy, Thailand will extend tax concessions to makers of Eco friendly cars in 2009.

The announcement made now, to allow companies, mostly global auto companies, the time to refine

their business plans and create the infrastructure necessary for the 2009 rollout.

Such clarity of thought or announcement in advance of the government policies are inconceivable for

India, mired as it is in coalition politics.

The coalition is today dominated by the Communist parties who represent 6 percent of electorate in

Parliamentand are growing in numbers. The concern of this group is to safeguard the interests of

industrial and agricultural workers in the face of globalization. While this is a desirable goal, Indias

biggest tragedy is the inability of the political leadership to effectively convey the gains of globalization

to the people at large---even though this has been repeatedly captured by statistics.

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(Caption: the Socialite gainer: gains from Indias growth to its rural poor and agriculturalist segment)

The political risk

In 2006, French Ambassador Dominique Girard talked about the concerns of the international

investing community in an interview in New Delhi. Today, yes, it is for Indian polity, Indias

political forces to set the kind of way it (economic reforms) is to be done, he said.

And this is a factor that foreign businesses, either buoyed by their successes in China, or unfamiliarity

with Asia will have to bear in mind while investing in Indiathe economics of politics could well

scuttle the best laid out plans in India.

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Chapter 3Riding the Infocom Highway

Indias unique development model is in many ways the end result of three global developments. These

include the emergence of the concept of core competence, the growing clout of the world Trade

Organization (WTO) as the nodal agency for regulating multi-lateral trade and the changes in

technology.

The rules of trade under the WTO are similar to a zero sum game, where every player is a winner.

This is made possible by every player consciously trading off something in which he may have smaller

advantage, since he is wants to retain his edge in something else.

China is a good example of how this game has worked out at the multilateral level. It consciously

opted for opening access to agriculture in order to protect its competitive advantage in manufacture.

This redistribution in weightage, in favor of manufacturing, created core competencies for China in

manufacturing even while wilting away the limited edge it had in agriculture. The net result is here for

us to see: a towering giant with distinct advantage in manufacturing but hardly a presence in

agriculture.

The concept of competency is based on the principle that self-sufficiency is an untenable goal since

every body cannot make everything. Consequently countriesthe same applies to companies too

that can grow fruits better than anything else will grow fruit, while those who have an edging making

cars will do so.

The growing faith in the concept of core competencies as a winning business model is largely

responsible for bringing the Information Technology business to India. Changing technology led to

office automation. Y2K suddenly pushed up demand for computer professionals. Since India had a

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pool of readily available computer engineers and computer graduates, they were drafted in to work

overseas.

The economic slowdown and the concomitant backlash resulted in the IT workers returning to India.

However, global corporations, who are constantly under pressure to improve their bottom lines,

realized the value of hiring Indians in India, which cost them one-eight the sum they paid Americans

in the US and one-fourth the sum they paid Indian contract workers to do the same job on site.

Thus then was born off-shoring. And it is here to stay, irrespective of the complaints of American

workers, because it delivers value to companies as lower manufacturing costs, which in turn is passed

on to shareholders as profits.

Emergence of India as an IT nation

Unlike China, Indias foray into IT may have been accidental. However, it is today and important

component of the India success story. Experts and competitors today study the Indian IT model. The

Chinese want to replicate the same in China and have already started to work on popularizing English

and investing in IT related areas, including institution building, IT education and research. Malaysia

and Thailand are other countries which would like to succeed at IT. Even the Communists parties,

who are so anti-privatization, are actually in favor of IT.

This raises the question of what is so special about IT. The answers lie in the fact that governments

across Asia, irrespective of their political ideology, battle with the prospect growth leading to

unemployment. IT on the contrary is a unique feature. Because it is human capital intensive, it has the

potential for leading growth with job creation.

It is in this sense that IT is the new mantra for companies and governments alike. And it is this reason

why the global sites are set on India.

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Interestingly, Indias services segment had been growing from the early 90s, long before the advent of

outsourcing and off-shoring. It grew by an average 7.5 per cent a year during the decade, with IT

contributing less than $500 million to the services income.

This trend has of course changed in recent years. IT growth has been around 10 per cent per annum.

And it has outstripped industrial growth.

This has fascinated experts, since a transition from labor intensive agriculture to capital intensive

manufacturing is normal for a developing nation. However, what has fascinated observers is that Indias

shift away from agriculture has happened at a much faster level than the one seen in other developing

nations at similar stages of development.

What is equally fascinating is that growth in the services sector has also been less cyclical than the

growth of industry and especially agriculture. The coefficient of variation (CV) for the annual growth

in services is less than one-tenth the CV for growth in agriculture.

Indias IT sector

It is a long held belief that traditionally rich countries were supposed to specialize in the knowledge

industries of the future and poor countries in low-wage, low-skill industries of yesterday. This notion

has been turned on its head by the technology outsourcing industry in cities like Bangalore,

Hyderabad, Chennai, Gurgaon, and Pune in India. There are 352 software companies in Bangalore.

Most of them have customers in America, who e-mail their needs before they leave their offices.

While they sleep, Indian engineers work on their problems. By the next morning in America, they

have their answers as they log on.

One such company is Infosys,which started out with a $500 capital; in February 2000, it was worth

$15.4 billion and more than a hundred of its managers were each worth over a million dollars. On 22

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February 2000, Azim Premji had become the third-richest man in the world on Forbes rankings based

on the market capitalization of his software company, WIPRO, which crossed $46 billion, or 11.3

percent of Indias GDP.

Outsourcing has been called by different names, depending on the job that is being outsourced.

Outsourcing of business processes is called Business Process Outsourcing, while that of knowledge is

known as Knowledge Process Outsourcing. Other variations include Legal Process Outsourcing and

HR Outsourcing. The BPO has been most popular and much maligned, possibly because the

outsourcing of processes preceded the outsourcing of knowledge.

There were over 400 companies operating within the Indian BPO space, including captive units (of

both MNCs and Indian companies) and third-party services providers. The key enabler for this has

been cheaper bandwidth leading to low telecom costs for leased lines and availability of educated

English speaking workforce in India.

Citibank, American Express, General Electric, IBM, Reebok, Texas Instruments, Hewlett-Packard,

and Compaq Computer are but a few of the many companies that depend on computer software

developed and tailored to their needs in Bangalore and other Indian cities. AT&T'scomputer unit,

NCR, has established a facility in Bangalore that develops software for NCR'sglobal customers. Such

software could, throughAT&T'sproducts and services, eventually benefit subscribers in America and

throughout the world.

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IBMnow has 53,000 people in India, 15 percent of its global workforce, the largest number outside

the US. It recently held its annual investor day in Bangalore, to show Wall Street analysts that 'places

like India do not simply mean cheap labor'.Accenture, which five years ago had nobody in India, now

has 35,000 out of its 145,000 staff there - next year this will rise to 50,000, 35 percent of the global

total.

For India, the gains from IT and IT enabled services have been immense.

IT has created jobs for non engineering graduates

IT has stemmed public criticism of governments

IT has created pockets of wealth, elevating the life of the IT worker and his family IT has paved way for foreign travel by those groups who would never have done so Overseas travel has brought awareness and a global view of life IT has created a whole new industry of its own with a transnational presence IT has given India an identity IT has provided India with a dominant skill and a point of negotiation with trading partners IT has contributed to the exchequer and contributed to raising the awareness threshold of the

nation as a whole.

IT has assisted faster modes of communication

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It has helped farmers trade online, saving them the trouble of traveling to far off mandis orcommodity markets

IT has brought transparency to government business (contracts) and has reduced the corruptioncoefficient of governance.

IT has released the repressed entrepreneurial abilities of Indians, allowing them to explore theirbusiness skills, using minimum capital

IT has given India the opportunity to ride the wave of an information economy, allowing it tomake up for the opportunities lost by failing to participate in the industrial and technology

waves of the yester era.

Unconventional gains from IT

The conventional gains from IT for industry and businesses are fairly well documented. However,

India sports many examples of how IT is being harnessed to improve the quality of life of unexpected

groups. In Kerala, a South Indian state, the National space guides use satellites to track shoals and

changing weather conditions and pass on the information to fishermen using Internet connectivity on

cell phones. At times, fishermen travel on larger ships equipped with satellite transmission. They relay

the information collected to fishermen in smaller boats, by connecting to them via cell phones.

Another unique use of technology can be found at a new hospital at the Amrita Institute of Medical

Science in Kochin, in what is known as tele-medicine. Doctors at the institute examine patients in

remote areas, by viewing images beamed down to them using satellite transmission. The Internet could

be used equally effectively, but since the state has had a satellite program, the space center has found

alternative users for its satellite.

In India, the cell phone has played an enabling role in changing the lives of the people. According to

C.K. Prahalad, professor, Stephen M. Ross School of Business at the University of Michigan, and

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author of Bottom of the Pyramid, "One element of poverty is the lack of information. The cell phone

gives poor people as much information as the middleman." In cities and urban areas, painters,

carpenters and plumbers who once begged for work door-to-door are able to stay connected and find

work as they are available at the touch of a button.

Design Outsourcing to India

Off-shoring of jobs to India has today spread to include high-end product design work and even

packaging and graphic designs. MNCs like Whirlpool, GE, LG, Philips and Bosch have set up

research and design centers in India. And some others like Reckitt are off-shoring design work to

Indian design houses.

David Kohler, the group president of Kohler, the award winning bath and kitchen appliance maker

has said that India is booming way beyond software and business process outsourcing. He says it's time

for US companies to catch the wave and get into the huge marketplace now.

US companies with development centers in India are increasingly sending in work in Industrial and

Engineering design to Indian designers who work on the outsourced CAD/CAM/CAE work. The

cost of automotive design in Europe ranges as high as $800 per hour while costs are as low as $60 per

hour in India for equivalent quality.

The Indian 3D CAD/CAM//CAE/PLM market is estimated to be worth $30 million, with the CAD

market alone estimated at $12 million. Until now, 2D players dominated the market. But recently

there has been a definitive shift towards 3D. This shift is due to the long-term cost effectiveness, ease-

of-use and powerful modeling capabilities of 3D software. There is tremendous reduction in product

time-to-market cycles using 3D software with some companies reducing their production cycles by

almost 50 per cent.

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Climbing the Animation Outsourcing Ladder

India is fast going up the animation-outsourcing ladder. Though a recent entrant in the global

animation scene, the demand for India'sproduction services is growing at a fast pace. According to the

latest NASSCOM report on animation, the global market is expected to increase to $35 billion by

2009 from $25 billion in 2005. The size of the Indian animation market was estimated at $285 million

in 2005. It is expected to witness a CAGR of 35 per cent from 2005-2009 and increase to $950

million by 2009.

Overseas entertainment giants like Walt Disney, IMAXand Sonyare increasingly outsourcing cartoon

characters and special effects to India. Other companies are outsourcing animation from India for

commercials and computer games. Crest Communications in Bombay is one of only two studios

outside North America with the expertise to make 3D animation films and it has recently won a

contract from one of the Hollywood studios to make an animated feature film.

Off shoring Factors:

While foreign companies are off-shoring to India, the Indian Business Process Outsourcing (BPO)

companies are off shoring to neighboring countries to take advantage of a lower wage bill, lower

attrition (leaving) rate and the knowledge of English, which is fairly common in South Asia. Pakistan,

Sri Lanka, Bangladesh, Nepal et al are forging alliances with Indian industry to get a share of the

outsourcing pie on offer. It is a scenario that is mutually beneficial to both parties, the Indians get to

offshore work to places that might be cheaper in executing it and these countries gain by developing

their own outsourcing industries. According to the Nasscom president Kiran Karnik, "The BPO

sector in these countries is still at a nascent stage. They can gain a lot from our experience. Of course,

it's a two-way relationship. We can help them in training while our companies can tap their human

resources."

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Chapter 4The WOW Factor

The West first needs to understand the gamut of a billion people, rather than catering to the millions. A billionis a hugely different paradigm."

- Shombit Sengupta, international management consultant, Shining Emotional Surplus

The Power of the Idiot Box

Indias billion present a unique challenge to global corporations wanting to do business in India as

well as to the firms that advise them on entry, branding and communications strategy. The

challenge becomes apparent when one visualizes a situation where the dhoti-clad Indian farmers

(the male traditional dress) watch the same advertisement as the silk-clad Mrs. Sood, who sits in her

million-dollar designer homes inJuhua posh residential area in Mumbai, Indias financial capital

surrounded by her antiques, collectibles, pedigree dog and four servants.

The world over, the regional disparities are not as pronounced and even where they exist, the habits of

the rich and the poor vary sufficiently for marketers to be able to divide them into manageable, target

audiences.

However, India is different to the extent that while wealth may divide society into multiple segments,

television is both a leveler and a unifier in the country. Unlike Westerners, Indians do not take up a

hobby, play competitive sports, or consider spending an evening playing pool a pleasurable activity.

And while the young are taking to some of these activities, the strong socio-cultural fabric of the

country frowns on activities such as spending an evening at a bar or jiving on the dance floor till dawn.

Instead, television watching is a universal pastime, racing ahead of even other forms of entertainment

such as cinema. Relative figures from market research firms show that TV, accounts for 65 percent of

the Indian entertainment market as compared to 20 percent for cinema.

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The rich watch as much television as the poor. However, the task becomes even more confounded

when one takes into account the fewer number of channels available as compared to the West, the

larger viewer base, with similar tastes in news and entertainment but dis-similarities in buying habits.

The media companies thus face the daunting task of tailoring content and advertisement for such a

diverse range of viewers who are united by the television but are divided by their wealth, tastes in

products, purchasing power, consumption habits and snob value. Understandably, many channels have

taken the easy option of dumbing-down and spicing up messages to catch a larger audience.

This dichotomy faced by Indian television industry was captured to an extent by a new documentary

titled, Grabbing Eyeballs: What Is Unethical about News Television. The report highlighted the

competition amongst Indias TV news channelsthe fastest growing segment in India, even ahead of

entertainmentto sensationalize news, lowering standards and at times, neglecting ethical norms to

improve ratings.

Media stalwarts concede that this is partially true. Sundar Raman, managing director of MindShare, a

media research group recently told a newspaper, TV news is possibly the biggest form of reality show

to hit India, whether it is a sting operation, or a boy who falls into a well, a snakes revenge or a

domestic quarrel, he said.

Added Shiv Visvanathan, a social scientist at the Dhirubhai Ambani Institute of Information and

Communication Technology, The stories of snakes, ghosts and witches have always existed in India."

But what was folk, private and obscure has now been brought into the open by TV, and it appeals to

the small town. Culture and market are being tied together very cleverly by TV channelsTV news is

creating a new myth of mobility for the small towns.

The educated and discerning Indians are critical of the desensitization of viewer sensibilities, but the

media industry cannot be bothered. A recent report by MPA, a market research firm showed that of

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the 71 million television homes, 61 percent had pay television. Penetration is estimated to rise to

nearly 90 percent of an estimated 185 million television homes in 2015. The DTH satellite market is

set to grow from 2.6 million subscribers in 2006 to 38 million by 2015. Overall economic growth,

higher multi-channel penetration, DTH growth and the emergence of IPTV will boost cable and

satellite advertising revenue from $1.02 billion in 2005 to $1.8 billion by 2010 and $2.4 billion by

2015. According to a statement made by Paul Johnson, Director of the Television Division for Reed

MIDEM, at trade show, MIPCOM 2007, In 2015, revenue from pay television and cable & satellite

channels in India will be the largest in Asia.

The reach of the Internet

For corporations, branding and media professionals who wish to correctly position and sell their

products, the other end of the spectrum is represented by the internet. Online purchases are still not as

popular with Indians as their overseas counterparts.

(Source: JuxtConsult)

However, the Internet is very critical to any discussion on introducing or positioning a product in

India as it is beginning to raise consumer knowledge and refine tastes, not merely in the cities but even

in remote villages of India.

According to India Online 2007, a study by online media consultants, JuxtConsult, the internet users

during the first six months of 2007 had touched 30 million, which is half of the US figures of 60

million households with internet connections. Not all users had a home computer. Instead they

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accessed the internet using computers at home, their workplace, and the Internet cafes. Each of thes

Documents

Bridging the Cultura Charm Winning Strategies for Global Business in India