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In recent times, many international manufacturers of both goods and services have been withdrawing ownership from their Indian bases. Cairn Energy, Hutchison Telecommunications International, Docomo, Lafarge, Carrefour, Daiichi Sankyo, and Henkel are few such product-based firms and in the banking sector too, foreign banks like the Citi Bank, Royal Bank of Scotland, and Barclays have been unsuccessful in extending their reach to the masses and reap profits out of it. According to our Commerce and Industry Minister Piyush Goyal, an aggregate of 2,783 foreign enterprises and their corresponding subsidiary units have concluded their operations in India between 2014 and November of 2021. Many of these exits are sector-specific and assumed to be triggered by macro-economic fluctuations prevalent across the globe, driven by post-pandemic slowdown and the predominant geopolitical tensions.
India, previously known for a rigid foreign trade policy, was advised to ensure appropriate project preparation timelines for quasi-private initiatives and enforcement of feasible contracts. Simplifying the framework became the need of the hour as it gave rise to confusion and thereby proved to be a non-economical pathway for the investors. Excess simplification also led to exploitation of the markets by sub-standard cheap goods as well as tax leakage. Such regulatory issues no more pose a barrier to those who genuinely hunt for business potential in the Indian subcontinent as well as enable them to have an easy exit too. The impositions are now more liberal and trade favoring thereby regulatory issues that affected investments in the past are no more trouble.
Significant developments so far….
The domestic markets on the other side are becoming competition oriented and have developed themselves to be resilient to external intervention. Governmental initiatives like “Make in India” and “Aatma-Nirbhar-Bharat Abhiyan” have greatly influenced the way domestic firms approached markets and have complimented the goal of import substitution by becoming self-reliant. This has in turn become problematic for the MNCs at a time when both the Central and the State governments have been toiling hard to position India as an alternative attractive field for investments for the firms shifting their bases from a pandemic-hit China. Even though incentives such as tax holidays are provided to encourage MNCs set up their base, India falls behind many countries such as Taiwan, Vietnam, and Thailand as a preferred destination for companies exiting China.
Indian consumers' sweet spot
Another side of the story reveals the inability of foreign companies to crack the Indian market and boost sales by studying customer based subjectively. Customers of the Indian market are price sensitive or price elastic, the reason being most of them belong to the low-income group. Thereby they are more loyal to the brand than to the pricing technique. To hit a bull’s eye, they need to strategically design their price, product, and positioning to settle and sustain in the competition. Say if we happen to take an example of an automobile company, it becomes essential for them to ensure that the monetary value of a car is justified by its many features such as being fuel efficient, minimum ownership cost, and having a wide range of service stations and efficient after-sales services. Above everything, the purchase must add value to the buyer’s reputation and image in their society. Those who channel their manufacturing process along these lines are sure to hit a jackpot and gain an appreciable consumer base. Maruti Suzuki and Hyundai motors India and few among the automobile industry who left a mark in the domestic market by constantly re-modeling their products suitable to Indian requirements. Another extreme example is that of General Motors which never adapted to the local flavor and it eventually led to a sharp drop in sales. The same manufacturing and marketing strategy would be applicable for all other industries too as they would be required to launch multiple versions of their products in a short period rather than bringing product innovation into play once in three or four years. Considering how subjective the market research should be, the Indian market would be a tough one to penetrate and if MNCs happen to ignore localization as the mechanism and exit the market, investments would have to absorb the repercussions. Thereby studying a country’s market paradigm before establishing a base becomes vital to avoid large sunk costs in the form of huge investments made to set up manufacturing units.
Key takeaways to sustain in the Indian market
Global business models would be as good as non-functional if the companies fail to sustain themselves in the long run. To tap the market potential, multinational firms must exhibit a strong inclination towards learning to do business “the Indian way “and constructing an extensive local chain to utilize local talent. Domestic labor would better be able to understand the requirements and lean towards offering adequate customization to fulfill the needs of consumers.
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