Segmentation, R&D key in India

02 August 2012

NEW DELHI: Multinational companies hoping to grow in India should prioritise "frugal innovation", precise market segmentation and adopting a premium brand positioning, McKinsey has argued.

The consultancy predicted that the Indian economy will expand by over 6% per year going forward. In many categories, like mobile handsets, the country could also account for more than 20% of global sales growth in the coming decade.

Exploiting this trend requires overseas players to develop affordable goods suiting local needs. This means creating products costing 50–70% less than the norm, but where features are cut by just 30%.

Currently, foreign firms are dedicating around 10% of their Indian R&D budgets to this kind of "frugal innovation", and McKinsey suggested such an approach holds considerable international potential.

"To strike a balance between global brands and local positioning, multinationals can introduce sub-brands or models with features suited to Indian needs. They could also work with local suppliers to reduce costs," its study added.

Achieving a "premium positioning" measured against local rivals must be combined with the process of ensuring products have "sufficient Indian attributes", it added, rather than simply being a "foreign label".

Given the diversity observable across India, the report added, companies will benefit from identifying, for example, four or five client segments to develop goods for, and then setting share targets of 15% and above for these buyers.

More broadly, McKinsey suggested the head of a firm's Indian arm should join its global executive committee, have their own investment budget and possess autonomy for "most day-to-day decisions".

It is similarly important that organisations place the five highest-ranking Indian executives among their main 200 business leaders, and recruit 10% of the top 500 global figures from the Asian nation.

Due to the intense battle for talent, becoming a "preferred employer" is equally vital. Google, Intel and American Express are some of the firms boasting such a status at present, according to a recent study by The Great Place to Work Institute.

Corporations should also, where possible attempt to operate on a stand-alone basis, rather than pursuing joint ventures, as the latter model often emphasises "short term performance over long term goals".

Additional guidance given by the study included ensuring the worldwide CEO visits India between three and four times a year, building strong relationships with regulators and scouting for viable merger and acquisitions opportunities.

Data sourced from McKinsey; additional content by Warc staff