MNCs going solo in India have a greater chance of success: study

New Delhi, March 22 | Updated: Mar 23 2005, 05:59am hrs
Multinationals, which enter India with a longer-term view and spend resources to understand local customer and business conditions, have a higher chance of making it good rather than those that focus on the initial entry, says a recent McKinsey study.

Interestingly, the study says that MNCs are better off going it alone in the market rather than piggybacking on a local partner, citing examples of Hyundai Motors and LG Electronics. To support its argument, the consulting firm indicates that of 25 major joint ventures established from 1993 to 2003, only three have survived.

After a survey of 50-plus MNCs with revenues of over $100 million and having a significant presence in India, it found that nine market leaders, including British American Tobacco, Hyundai, Suzuki and Unilever, have an average return on capital employed (ROCE) of around 48%, which is higher than their respective industry averages. These nine companies, with an average revenue of $1.3 billion, contribute over 6.5% of their parents revenue and 10.6% of their after-tax profits.

The more successful companies are the ones which have resisted the temptation to merely tailor existing strategy to a local market, the report adds.

According the servay, successful MNCs are those which have tailored product offers catering to the entire market, from the high-end to the lower-end segments to meet the Indian consumers expectations and price sensitivities. Prime examples are Unilever introducing the Wheel; LG Electronics Flat TV, priced only 10% above sets with a conventional screen; and the Toyota Qualis.

Also, companies can bolster their profitability by reengineering their supply chains while at the same time create superior price-to-value offerings, the study reports. Like Hyundai, for instance, which sources around 70% of its components locally. The other factors listed include having a third-party distribution network to penetrate rural.