Watch how the East is being won over...

Updated: Mar 30 2006, 05:30am hrs
Recently, at a conference in Delhi, Malvinder Singh, the young CEO of Indian multinational, Ranbaxy Laboratories, was asked to list the one most important factor for creating a successful multinational firm. Malvinders response: Global practices at the backend, local practices at the front end.

This summarises why multinationals succeed. And why they also fail. Many MNCs seeking to enter new markets try the one-size-fits-all formula. With all their marketing expertise and global agency tie-ups, they believe that carpet-bombing of the local consumer will work. The logic: what could work in Illinois or Tokyo or Stuttgart would surely work in India.

Unfortunately, customers are not sheep. A host of American food companies and Japanese electronic companies realised this in India through the 90s. They committed the cardinal folly of treating India as a homogenous entity.

Some learn their lessons early. Hindustan Lever has developed an effective TV spot for its toothpaste, Pepsodent. The campaign flags key concerns of the Indian mother, cutting across the socio-economic spectrum. Customer surveys reveal that the campaign has a significant recall rate amongst the target group because of a simple factor: empathy.

Other MNCs are taking longer to understand India. Take IBM, which is using its global campaign for supply chain alignment to target Indian IT users. The campaign is ostensibly meant for Indian CIOs (chief information officers). Yet, the protagonists are mostly Europeans or Americans and the subtle message is unlikely to create much impact on the SME segment, one of the fastest growing markets for IT firms targeting India. A pity, as all it requires are some Indian faces trying to cope with Indian problems.

For every failed MNC entry, thereve been an equal, if not greater, number of successes. The Koreans entered late, but in less than a decade, three Korean chaebols built billion dollar businesses on the back of strong, customised products.

So, what should be the basis for a strong localisation mantra Three fundamental forces are shaping the extent of localisation here: demographics; R&D; and the power of rural and small- town India. Weve seen the impact of demographics and also the initial impact of R&D. With government programmes like Bharat Nirman and Pura gaining critical momentum in the next few years, we may begin to see the power of small town and rural India sooner, rather than later.

The sheer impact of the first force lends itself to greater scrutiny. Many of us in India, born and brought up in the 50s, 60s and 70s, were conditioned to believe that any proffering from the West was scientific, modern and an object of desire. Those born in the 80s and the 90s have a different mindset. Indias social demographics have changed radically. The urban youth, especially, is impressed by the West, but not overawed. To get into the mind of the teenager, the young housewife or the young urban male professional, giving them the best on their own terms is what matters. And Indians are making it clear: they want the latest technology/products, and customisation that suits local conditions and tastes.

Three fundamental forces are shaping the degree of localisation in India
Weve already seen the impact of demographics and the initial impact of R&D
The power of rural and small town India will bring unparalleled indigenisation
It is the pace of indigenisation that has taken us by surprise. When cell phones first came to India, it was assumed they would be restricted to the crust. So, manufacturers just shipped in European models. But the cell phone has become a mass product now, necessitating a rapid and unprecedented level of localisation.

Nokia learnt its Indian lesson early. In 1998, Nokia created a bond with the Indian consumer with tunes like Sare jahan se achcha. In 2000, its first Hindi user interface gave Nokia access to a several million strong vernacular population. In 2004, it launched India-specific models after intensive research.

There is no doubt indigenisation is being driven by volumes. MNCs have correctly assessed that the faster the growth, the better the opportunity for scale economics. This may explain why the pace of indigenisation has been directly proportional to market growth; faster in cell phones (two to three million new users a month) compared to large- screen TVs (a few thousand a month).

This brings me to local R&D and innovation. True and effective localisation is the result of deep domain understanding. In the past, MNCs R&D centres conducted contract research for corporate laboratories or sister R&D laboratories outside India. Now, there is a growing belief that R&D centres should have their ears to the ground. The mantra is to work closely with manufacturing facilities here. MNCs such as Samsung, Philips and Nokia are refurbishing their research centres to develop and test products for India. AMD and Intel have unveiled research hubs that will roll out low cost computers.

AMD and Intels recent plans for bridging Indias digital divide brings me to the third force: the power of small town and rural India. Every year, 25-30 million rural Indians migrate to urban areas and become part of the economic mainstream. Equally significant are the government initiatives for rural India on education, water, roads and electricity. Their impact would be visible in the next decadein villages and A & B category towns, with a population of less than one million.

In recognition of the expected explosive growth, large Indian groups, including Reliance and ITC, are setting up rural distribution chains and hypermarkets. An unprecedented wave of indigenisation is expected. MNCs will tailor products and processes; new consumer classes will emerge, new price points will develop, and India, along with China, could emerge as the worlds mass product development lab.

Companies that see the future and buy into these trends early are the one that will come up trumps. And herein could be the true mantra of successful indigenisation.

The writer is CEO, India Brand Equity Foundation and deputy director-general, CII. These are his personal views