Home > News & Events > Success of MNCs in India

Success of MNCs in India: Market research, product localization and advertising

Prof. Masanori Kondo, International Christian University

(This is the second part of a series of articles, excerpted from an article contributed by Prof. Kondo, the original Japanese version of which was published in the Weekly Economist of July 15, 2006)

Introduction of products based on comprehensive market surveys

When attempting to enter an emerging market like India, the goal is to gain exclusive market share (or gain a dominant percentage of the market by gaining control of management operations of local companies through M & A. By looking at the examples of investment taking place in India until now, companies that have decided to leave most of the management and operation decisions completely up to the local subsidiary have found it very difficult to gain exclusive market share, while firms that do things such as deal with government negotiations directly and choosing their local staff themselves have a tendency to find much greater success. Observations on failed foreign investment in India lead us to conclude that the vast majority of the problems are located in the joint venture partners.

Another reason for the success of Samsung and LG in India can be attributed to their success in making adaptations to meet the needs of Indian consumers with their latest products, even while in the early stages of entering the market.

Japanese auto giant Toyota was also successful in this way by its focus on minivans (a segment with very little competition) which met the needs of large Indian families. This allowed Toyota to control the top share of automobiles in this area, and from there Toyota began to increase the variety of vehicles offered while carefully reading consumer response in order to gain the top spot in other consumer segments. While on the other hand, the now bankrupt Daewoo Motors used the same plan for investment which was supposed to be used in China, except for slight last minute modifications made for the Indian market. The disastrous result was the introduction of the wrong kinds of vehicles which led to Daewoo's failure.

In our study, a main topic investigated was why Japanese electronic devices and appliances failed to sell as well as their Korean counterparts. The study found that the most common problem was that aspects of Japanese products such as the size of refrigerators and air conditioners, sound quality of televisions and audio devices, and the features of mobile phones failed to meet the needs of Indian consumers. It was often said that, "While Korean products lacked the quality of Japanese products, the lower price of the Korean products allowed them to sell many more units in a developing market with many low income consumers." It seems Japanese companies failed to create a good balance between quality and price to make strong gains in market share.

Large scale advertisement campaigns

Next to creating products that meet the needs of Indian consumers, the second biggest factor for success is the implementation of aggressive and large scale advertisement campaigns. Since India's liberalization of the advertisement industry in 1991, it has ranked along with mass communication/media as one of India's highest level industries. LG and Samsung put forward a great deal of funding to implement an aggressive advertisement campaign that would appeal to Indians. The costs for these campaigns were carried by the corporate headquarters in Seoul, not by increasing the price for products in India. This strategy paid off great dividends for both LG and Samsung.

Recently, many Japanese companies have taken the position that since the movements toward free trade agreements in Asia are advancing, manufacturing in a country like Thailand removes the need to have local production in India. However, according to the interviews done by the Ministry study, many replies stated that it is not very unlikely for Japanese companies to satisfy Indian consumers by merely importing its products from other countries without enough marketing in India.

The relationship between the corporate office and its local subsidiary in India is also crucially important. In the instance of LG and Samsung, there was a great deal of support in various levels from the corporate office in order to aid the new Indian venture. Examples of this are the burden of advertisement campaign funding taken up by the corporate headquarters (as stated above), and the supply of inexpensive components and parts attained by price intervention from the corporate office in the home country. This continued until the local venture was able to evolve to take a greater command of its own operations. Another unique strategy undertaken by Korean firms was to provide the highest level of comfort to its expatriates living in India. Through the creation of "Korean Villages", special services such as Korean speaking maids who can cook Korean food were also dispatched from Korea to make life easier for its Korean expatriate employees. This allowed such employees to adapt easier to living in India and resulting in increased motivation and productivity.

Such support from the corporate headquarters was made possible by the decisive large scale commitment to the Indian market. This support was not limited just to the supply of funds, but a multi-headed strategy to develop the local venture into a profitable investment. Japanese companies are seen as falling behind their Korean rivals, as Samsung and LG have already begun to rotate their top management staff in their Indian operations.

Prof.Kondo, a well known specialist in Indian economics in Japan, is a member of Nihongo Bashi's Academic Advisory Board.