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The changingmultinationalMNCs have had a very successful run in India. For some, thiscountry will become the nerve centre of their operations. A Team India Now report.

A DIFFERENT FEEL: President A.P.J. Abdul Kalam with Samuel J. Palmisano, chairman and chief executive, IBM, at the Bangalore meet

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When Samuel J. Palmisano,chairman and chief execu-tive of the $91 billion IBM,addressed a mammoth gath-

ering in Bangalore in June, he spoke to thePresident of India A.P.J. Abdul Kalam;10,000 IBM employees who were on thespot; 50 top IBM executives from acrossthe world and 50 Wall Street financial ana-lysts who had been flown down; andanother 340,000 IBM employees via web-cast. In this large gathering there were noCEOs of other multinational companies.That's just as well. They would certainlynot have been saying "Play it again, Sam".

What Palmisano has been talking aboutof late may not be quite acceptable in theMNC community. "Bangalore has becomethe epicentre for some of IBM's mostimportant global projects," he said. "Youget a different feel for the world if you arein Bangalore than if you are in midtownManhattan."

Palmisano has been harping on how it isnecessary for MNCs to develop into virtualcorporations. For IBM this means that itsmeatspace (real world, for those who arenot up to the latest jargon) headquartersmay remain in Armonk (New York). But itsheart will be in India.

That may seem a bit farfetched today.In calendar 2005, India contributed just$1.5 billion (including exports) to IBM's$91 billion revenues. But its growth at 55per cent was ahead of all other geogra-phies, including Russia (29 per cent), China(8 per cent) and Brazil (7 per cent). Wantmore evidence. Take a look at the employ-ee numbers. From just 9,000 in March2004, IBM India leapfrogged to 24,000 inMarch. By June 2006, it had further pole-vaulted to 43,000.

"India is where tomorrow's managers,tomorrow's markets and tomorrow'smoney-making opportunities lie," says anIBM executive, off the record. "We will bethere." He's not saying that, 20 yearsdown the line, the CEO of IBM Inc will beoperating out of India. But he could well bean Indian. That won't raise eyebrows.Several Indians - former McKinsey chiefRajat Gupta or Pepsico President IndraNooyi, for instance - have won their inter-national spurs (see chart -- Top notch). Andwhere they are physically located isn't real-ly important in a networked world.

MNCs have had a very successful trackrecord in India. And they are set for even

better times. In the West and even in coun-tries such as Korea, where the new gener-ation of MNCs are coming from, most mar-kets are saturated. Companies fight forfractions of a percentage point of market-share. Growth in categories such as fast-moving consumer goods (FMCG) does notdepend on market growth. You registerwhat gains you can through price increas-es, better margins and what share you cansteal from the other guy. By contrast, inIndia, it's volumes that are growing. Ratesof 20 per cent plus are par for the course.

Until a couple of years ago, the eyes ofthe world were focussed on the BRIC(Brazil, Russia, India, China) countries,after the Morgan Stanley report picturedthem as the growth engines of tomorrow.Now, Brazil and Russia seem to have fallenoff the radar screen. Only India and Chinaare delivering on the promise.

The argument that India is lagging andChina is better off in terms of, say, foreigndirect investment (FDI) has been repeatedso often that people have begun to believe

in it. Yes, in absolute numbers China isway ahead. But what everybody forgets isthat India has a history of successful MNCsand FDI. In China, these companies havebeen able to enter only post liberalisation in1979.

Who are the people who have beenpouring big money into China? They arecompanies like Unilever and Procter &Gamble (P&G). Unilever - through its sub-sidiary Hindustan Lever - has been in Indiafor 118 years; Sunlight came to India in1888. P&G has been here for 55 years.They are in a position to fund their owngrowth plans. If, after so many decades,they still have to depend on their parentcompanies for financial succour, you could-n't call them successful MNCs. Theywould be failures. All this business aboutwho is getting more FDI has to be seen inthis perspective. Eliminate the companiesthat have successfully set up shop in Indiaand you will find that the figures are farmore comparable.

In hitech areas, where investments arenecessary because of rapidly changingtechnology, or in companies that haven'tbeen here for too long, investments areindeed coming in. Palmisano has commit-ted $6 billion over the next three years.Microsoft last year announced a $1.7 bil-lion plan. Cisco and Intel have chipped inwith $1.15 billion and $1.0 billion apiece.

EMC, though on a smaller scale, hasdoubled its proposed investment. InFebruary 2005, it had announced a warch-est of $250 million. In June this year, JoeTucci, chairman, president, and CEO of the$9.66 billion EMC Corporation, said on a

INVESTORS' FAVOURITESThe A.T. Kearney FDI Confidence Index 2005

China 2.197

India 1.951

US 1.420

UK 1.398

Poland 1.363

Russia 1.341

Brazil 1.336

Australia 1.276

Germany 1.267

Hong Kong 1.208Calculated on a 0-3 scale. Source: A.T. Kearney.

STRATEGIC MARKET: EMC chairman Joe Tucci is doubling investment

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visit to Delhi that the storage major wouldpump in another $250 million. "India hasrapidly become one of the most strategicmarkets for EMC's expanding global busi-ness," said Tucci. "We see a great futurefor EMC here."

India has climbed one place in the latestA.T. Kearney FDI Confidence Index. It isnow No 2, having pushed the UnitedStates to third spot. Leading the pack isChina (see chart — Investors' favourites)."India has joined China at the centre of theFDI radar screen," says A.T. Kearney. Theglobal strategic management consultancyfirm adds that "India appears to be on thecusp of a takeoff".

If you dig deeper into the track recordsof MNCs in India, you will find a huge num-ber of successes. The India Brand EquityFoundation (IBEF) has documented manyof these (see following case studies). Sowhy is this fact not universally recognised?

Former chairman of Pepsico India P.M.Sinha, who worked for several years withHindustan Lever, has an explanation."Many people regard Hindustan Lever asan Indian company and not the largestMNC in India," he says. This is true of sev-eral others too. Take ITC. Some people doremember there's a BAT in the back-ground. But the man on the street, whosmokes the company's ubiquitous Scissorsand Wills, doesn't.

The best-performing MNCs have beenactively localising. A McKinsey study saysthat successful multinationals in India havethree key characteristics.● They have invested for the long term

and made a strong organisational com-mitment by assigning senior managersto work with established local teams.

● The successful companies have adapt-

ed their businesses to local conditionsrather than forcing foreign models onIndia.

● Multinationals that succeed in India helpto create and shape the market.It is not as though each and every MNC

has succeeded. But there is a lesson to belearnt from those that have stumbled too.India is not a clone of the West and neverwill be. If you try to replicate marketingand advertising campaigns designed for,say, the US, they may not work here.

Pepsi realised this. When it came toIndia first, it launched its soft drinks with aHinglish (Hindi-English) campaign: "Yahihai right choice baby, aha." (This is theright choice, baby.) There are others, how-ever, particularly in the foods arena, whohave come in with products that are aliento the Indian palate.

"The smart MNCs realise that - in mar-keting terms - India is not one unit," saysAvinash Oza, a faculty member of theIndore-based Daly College BusinessSchool. "You have to treat the country as20 different markets, each with its ownoddities and tastes. If you try to force oneproduct across the length and breadth ofthe country, you will fail." This is the rea-son why the attempts by some MNCs towhittle down their portfolio of brands andconcentrate of a few "Power brands" havenot worked.

There has also been a tendency to mis-interpret data. According to the latestMerrill Lynch-Capgemini World WealthReport, the number of dollar millionaires inIndia has soared 19.3 per cent in 2005 toreach 83,000. In the past, on the basis ofsimilar data, particularly with regard to themiddle-class population and their spendingpower, assumptions have been made that

they are just waiting to lap up what thewell-heeled in the West buys. Companieshave tripped because they have not under-stood the psychology of the averageIndian; he is by nature conservative. Thatis changing. But MNCs in a hurry willinevitably fall flat on their faces.

The large mass of MNCs hasn't. And itis also true that companies that fail at firstpick themselves up, redesign their productsand (more importantly) the pricing, and hitpay dirt in their second coming.

"Today MNCs are saying that they can-not afford not to be in China," says NewYork-based Om Prakash, president of gar-ment exporter Tuff Ones. "Tomorrow, theywill be saying that they cannot afford to bein India. Actually, many have already start-ed saying that."

The IBEF study mentioned earlier listsseveral advantages that India offers.Among them:● A democratic system of governance.● Progressive reforms.● A strong economic environment.● A bustling stockmarket, one of the old-

est in the world.● A large and growing domestic market.● Abundant natural resources.● Low labour cost.● A good tertiary education infrastructure.● A highly-skilled and productive work-

force.● An independent and active judiciary.● Widespread familiarity with English.

There is a message for all MNCs in that.If you have missed the earlier bus, hey,what are you waiting for? Catch the nextAir India flight. As you will discover in oursubsequent pages, the 787 Dreamliner isall set to take off.

TOP NOTCHIndians who are or have been CEOs of foreign MNCs

Aman Mehta CEO HSBC

Arun Netravali President Bell Labs

Arun Sarin CEO Vodafone

Dinesh Paliwal President & CEO ABB North America

Indra Nooyi President Pepsico

Manoj Singh MD Deloitte

Rajat Gupta MD McKinsey

Rakesh Gangwal President & CEO US Airways

Rono Dutta President United Airlines

Sanjay Kumar Chairman & CEO Computer Associates

Victor Menezes Chairman & CEO Citibank

You have to treatIndia as 20

different markets.If you try to forceone product acrossthe country, you

will fail.

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IBM India, a subsidiary of InternationalBusiness Machines Corporation (IBM), wasset up in September 1999. IBM entered theIndian market in a joint venture with theTata Group in 1992. Later, it decided toconvert the JV into a wholly-owned sub-sidiary.

IBM is the only company in the worldthat offers end-to-end solutions to cus-tomers from hardware to software, servic-es and consulting. Since its inception inIndia, IBM has expanded its operationsconsiderably.

The company has interests in sales andmarketing of servers, PCs, and softwareproducts and services. IBM's businesses inIndia include the IBM Software Group, IBMGlobal Services, IBM Consulting Services,IBM Global Financing, IBM SolutionPartnership Centre (one among 10 world-wide), Linux Solution Centre (one amongseven worldwide), Software DevelopmentCentres, and a Global E-Business Centre.

IBM India was chosen as one of the Top3 Employers in Indian IT's Best EmployersSurvey conducted by Dataquest-IDC India.The same survey ranked IBM subsidiary —Daksh eServices — as the Best Employer inthe BPO Sector.

IBM Global Services India was awardedthe prestigious Gold certification by CiscoSystems, for the relentless pursuit of cus-tomer satisfaction, training, support and

specialisation requirements set by Cisco.IBM has set the agenda for the industrywith its 'on demand business' - a kind oftransformation where an organisationchanges the way it operates and reducescosts, serving customers better, reducingrisks and improving speed and agility in themarketplace. IBM is already working withcustomers to transform them into 'ondemand' businesses.

IBM Global Services is the world'slargest information technology servicesand consulting provider.

Efficient implementation of channelstrategy is one of the key factors drivingIBM's success. IBM's sales grew consider-ably as a result of the channel infrastruc-ture, programmes and opportunities provid-ed by the company to its partner organisa-tions.

Realising that India was a highlyuntapped and fast-growing market, IBMset up operations in all the sectors of itsbusinesses in the country. IBM reducedprices of specific products making themmore competitive in the market.

IBM expanded the scale of its BPOoperations in India with the acquisition ofDaksh, the third largest BPO outfit inIndia. This enabled IBM to have an inter-national presence in BPO operations withbig-ticket customers and scale up its tele-com, insurance and Internet customers.

IBM has announced that it is going toinvest $6 billion in India over the nextthree years. It plans to set up a new breedof service delivery centres. Also on theanvil is a Systems and Technology inno-vation, development and executive brief-ing centre in Bangalore. A telecommuni-cations research and innovation centre isplanned at its India Research Lab in NewDelhi.IBM India's estimated revenue for 2005stands at $1.5 billion. The contribution ofthe Indian market was around $510 mil-lion. A lot of the other revenue comesfrom global services. In terms of employ-ee numbers, the total has gone up from24,000 in March 2005 to 43,000 in June2006.IBM chief Sam Palmisano has been toIndia four times in the past few years. Oneach occasion he has announced a stepup in the company’s activities here.According to him, the globalisationapproach has given Big Blue the flexibilityto “locate business functions where thenecessary skills reside and redeploy peo-ple and teams wherever market opportu-nities dictate”. India fits the bill.

IBM IndiaNo blues for Big Blue

On the WebIBM India: http://www.ibm.com/in/IBEF case study:http://www.ibef.org/artdis-play.aspx?cat_id=166&art_id=6815

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Founded in 1951, Motor Industries Co(MICO), a member of the Bosch Group ofGermany, is a pioneer and acknowledgedleader in fuel injection equipment and sparkplugs. It is the country's largest manufac-turer of diesel fuel injection equipment andamong the largest in the world. MICOemployed around 10,000 associatesacross all its plants in 2002-03. MICO hasits headoffice in Bangalore and manufac-turing facilities in Bangalore,Naganathapura (near Bangalore), Nashikand Jaipur, apart from a nationwide net-work of dedicated sales and service outlets

MICO manufactures products asdiverse as industrial equipment, auto-elec-tricals, hydraulics for industrial and tractorapplications, electric power tools, packag-ing machines, and Blaupunkt car audio sys-tems. Its products find applications in dif-ferent areas such as pump sets, tractorsand power tillers, diesel locomotives,defence applications, and in most vehicleson Indian roads.

The company has a dominating pres-ence in the OEM segment, in the supply offuel injection equipment and injectors. Ithas nearly 80 per cent marketshare in thissegment. Approximately 70 per cent ofrevenues come from OEM sales, about 15per cent from spares and 15 per cent fromexports.

Several factors have contributed toMICO's success and growth. First is the

strong parental support in terms of technol-ogy transfer coupled with a high degree oflocalisation. MICO has successfully fol-lowed the policy of localising global knowl-edge. The company has a strong focus onR&D, and spends about 2-3 per cent of itsturnover in this area.

In 2002, MICO launched India's firstBosch Car Services Workshop (BCSW) inDelhi. The company plans to open about150-200 BCSWs all over the country, witha capacity to service 1.5-2 million vehiclesannually. MICO has adopted the franchiseroute for BCSW.

Bosch, through MICO, is effectivelyleveraging India's large and growing auto-motive market, as well as the talentedengineering pool, by establishing develop-ment centres and branded service stations,apart from using MICO as a source forexports. MICO Application Centre (MAC)has been established in India for R&D pur-poses. It has emerged as a key global R&Dcompetency centre catering to the entireBosch Group.

MICO also exports components, prima-rily to its parent Bosch. It has been focus-ing on boosting exports through becominga global source for selected Bosch prod-ucts.

Among its future plans, MICO aims toimprove competency levels in India so thatit can get more sourcing work from its par-ent company.

The flagship of the Robert Bosch Group inIndia is MICO. This company recordedsales of $650 million in 2005. Net profitwas $74 million. The Bosch group'sturnover in India was around $850 mil-lion.Bosch is looking at the possibility of man-ufacturing electronic control units andanti-lock braking systems in India in thecoming years. It has just flagged off itsproduction facilities for common rail highpressure pumps. The company is invest-ing close to $120 million for manufactur-ing these common rail diesel systems.This is part of the $400 million invest-ment planned in the country till 2008.Robert Bosch India, a wholly-owned sub-sidiary of Bosch in India, is the company'slargest software development centre out-side Germany. According to the compa-ny, by the end of 2006, it will employaround 3,000 associates working on soft-ware development for intelligent vehiclesystems.

Motor IndustriesRevving up

On the Web

MICO: http://www.boschindia.com/con-tent/language1/html/index.htmIBEF case study: http://www.ibef.org/art-display.aspx?cat_id=188&art_id=6820

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Sony Corporation was founded in1946. Since then, it has grown to becomeone of the most reputed brands in theworld.

Today, Sony Corporation's businessesspan a range of industries such as audiovisual electronics, information technolo-gy, broadcast, telecommunications, enter-tainment, satellite broadcasting, and eveninsurance and finance.

SET Satellite (Singapore) and SET Indiaare involved in the operation and distribu-tion of television channels and advertisingsales in India and abroad.

Sony Entertainment Television (SET) - the first channel - was launched in 1995.

The other channels include SET MAXand SAB. Sony also distributes non-owned channels in India through The OneAlliance, a joint venture with DiscoveryCommunications India.

Sony has been cashing in on its brandimage. Although it covers a wide range ofindustries, there is a clear connection withentertainment.

This helped in the move into television.Sony's strong brand image has been oneof the most influential instruments forentering the Indian market.

Employees are a big part of Sony'ssuccess in India, especially in the enter-tainment business.

SET was able to assemble a strong

team of talented production executiveswho were able not only to adapt formats,but also to relate them to the Indian market.

India, with a population of over a billion people, of which the largest per-centage is below 25 years of age, is anattractive market for any entertainmentchannel.

Increasing disposable income levelsand growing percentages of householdswith TV sets (by the end of 2005, only 47per cent of households had TV sets), pro-vide strategic leverage.

SET has believed in innovative contentand young positioning. It has launchedinnovative, contemporary and ground-breaking shows in India.

Through fiction shows such as EkMahal Ho Sapno Ka, Kkusum and JassiJaisi Koi Nahin and non-fiction showssuch as Indian Idol and Fame Gurukul, ithas achieved loyal viewership and greatsuccess.

India's media industry is expected togrow from $6 billion in 2004 to $12 bil-lion by 2008. SET will create new strate-gies for achieving higher marketshare.

Another target is to become thebiggest channel for overseas Indians.

It has already started a move toexpand its distribution in Europe in itssearch for South Asian viewers located inthat continent.

SET is the first venture of Sony PicturesEntertainment, the biggest entertainmentpowerhouse of America. It is seen in over40 million households throughout India,Pakistan, Sri Lanka, Bangladesh and WestAsia. Although its ratings have slippedmarginally in a competitive market, thecompany is confident that it will soonrecover its pride of place. Among the pro-posals under consideration is a takeoverof SET Singapore. This will give the Indianarm access to international content andsports coverage. There has also beensome talk of an Initial Public Offering(IPO) in the Indian market.Recently SET agreed to provide contentto Zee Network's DTH (direct to home)television platform. This agreement wasinked between Zee and The One Alliance.The One Alliance is a joint venturebetween SET and Discovery. Set up inApril 2002, the company distributes 15leading channels to over 61 million homesspread over 4,000 cities and townsacross India.

Sony Entertainment TelevisionSet for expansion

On the Web

SET India: http://www.setindia.com/IBEF case study:http://ibef.org/artdisplay.aspx?cat_id=447&art_id=12185

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Hindustan Lever Ltd (HLL) was formedin 1956, out of the merger of threeUnilever subsidiaries in India operatingsince 1931. The first Unilever productintroduced in India was, however, muchearlier. It was Sunlight in 1888. HLL, a51.6 per cent subsidiary of Unilever, is thelargest FMCG company in India. It operatesin two segments:◆ Home and Personal Care (HPC): It

includes soaps, detergents, oral careproducts, hair care products, skin careproducts, cosmetics, deodorants andfragrances.

◆ Food and Beverages: It includes tea,coffee, wheat flour, salt, ice creamsand culinary products.HLL employs over 40,000 people

across the country. An unmatched distribu-tion reach, directly covering over a millionretailers, and a wide, price-competitiveproduct portfolio are the reasons for itsmarket leadership. Sales of HLL haveshown a steady performance over the pastfew years. HLL is the market leader inalmost all the segments it operates in —jams (75 per cent), deodorants (62 percent), personal wash (58 per cent), hairwash (54 per cent), fabric wash (38 percent), packaged tea (31 per cent), andoccupies second position in toothpastes,instant coffee and ketchups. HLL hasdeveloped some of the best brands in thecountry in the FMCG sector.

HLL has won many awards like the BestConsumer Household Products Companyfrom Forbes Global; India's MostRespected Company from Far EasternEconomic Review; and one of India's BestManaged Companies by Asia Money.

HLL has adopted a focused growthstrategy by concentrating on brands whichconstitute most of the business. From mar-keting 110 brands in 2000, HLL nowfocuses on 35 power brands, chosen fortheir scale and potential. Non-core busi-ness has been divested or transferredthrough joint ventures. This has helped HLLachieve product differentiation andimprovement in sales.

HLL has in the past taken over sickenterprises and converted them into viablebusinesses. HLL took over Union HomeProducts in Mangalore, which is now HLLDetergent factory. In the process, HLL hassaved jobs and developed local economies.

As a business process outsourcing(BPO) hub, HLL has made BPO an integralpart of its overall growth strategy. Thecompany has started managing backofficeprocesses for Unilever operations inMalaysia, Australia and New Zealand.

Among its future plans, HLL is planningto enhance its distribution and productcommunication strategy. Meanwhile,Unilever plans to increase outsourcing to $1,000 million over the next three tofour years.

Hindustan Lever, the Indian subsidiary ofUnilever, had a turnover of $2.4 billion in2005. Net profit was around $300 mil-lion.The company has been doing somehousecleaning in recent times. It has soldits 49 per cent holding in QuestInternational India to ICI India. Earlier thisyear, it had transferred its entire share-holding in 100 per cent subsidiary TeaEstates India to Maxwell Golden Tea, aWoodbriar Group company. The 100 percent stake in Doom Dooma Tea Companyhas also been transferred to McLeodRussel India. It has also sold off the Niharhair oil brand to Marico.The company has been setting new man-agement structures in place. The brandportfolio rationalisation and managementrestructuring is to help the company copewith more competitive times.The company’s big thrust now is on put-ting alternative distribution systems inplace for rural areas. The Project Shaktiinitiative has been very successful. (It is acase study in several US b-schools.) It isnow being extended. There are new dis-tribution initiatives for urban areas too.

UnileverLeveraging advantages

On the WebHindustan Lever: http://www.hll.com/IBEF case study:http://www.ibef.org/artdis-play.aspx?cat_id=447&art_id=6833

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