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

Prof. Masanori Kondo, International Christian University

(This is the third 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)

The existence of "Kirikomi Tai"

The next important factor for success in India is the ability to maintain a high level of quality in human resources. Because of the time needed to establish local operations and demand for high level English negotiation skills in India, finding the right personnel for the Indian venture can be much more difficult than in many other countries. For the Indian operations of Samsung and LG, the director of the local office is an executive level director, and the expatriate employees sent from Korea stayed in India twice as long as their Japanese counterparts, on average. As a result, the staff stationed in the local office can make quick decisions and know how to read changes in the Indian market.

For medium and small sized Japanese companies, finding the right personnel for such ventures can be very challenging. However, besides leading global Japanese companies such as Toyota and Honda, there is a group (albeit very few) of Japanese companies that have made successful inroads into the Indian market. These include Toyo Engineering, Kansai Paint, Igarashi Electronics, and Yuken. These companies usually have a small number of Japanese staff whom we call "Kirikomi Tai", which means "the person who has cut into the market."

It is no surprise that these successful Japanese companies made strong human resource commitments to their Indian investments. Okura Trading Company's late Toshio Yamauchi, who spent 25 years guiding the Indian venture, is one such example that comes to mind. These talented individuals guide the venture, slowly giving more and more responsibilities to the local staff while learning how to adjust operations to meet the unique needs of local consumers. Eisai, a successful Japanese pharmaceutical company in India, owes a good deal of its success in India by hiring some skilled Indian staff at the corporate home office who had study abroad experience in Japan. This strategy of personnel commitment can often be more important than strategies involving international brand image or quality control.

When Japanese companies come to India, the expatriate staff members often have a very difficult time adjusting to India's temperature, food, and other living conditions. As a result, training and equipping the Japanese staff to adapt to their new environment becomes very important. When Japanese staffers who have no desire to come to India but are forced to come to work, their naturally-low morale has a negative impact not only on their productivity, but also the productivity of the local Indian staff. This makes the burden on the headquarters back home even greater and creates a vicious cycle of poor performance.

In the case of Samsung, there is voluntary recruitment among new employees to train Indian specialists. These employees participate in activities such as home stays with Indian families, in order to develop employees that will have the enthusiasm as well as cultural know how in order to succeed at the Indian branch. Recently, some Japanese companies have also started similar programs in order to train Indian specialists for the future. This is certainly a positive and welcome trend.

Delegating to the local staff and quick decision making

It is well known that top level Indian managers have strong technical and management skills. Within American and European companies, there has been a strong trend of delegating more and more authority to local Indian managers. For many companies with a staff of over 1000, there is usually only one staff sent from the home country, and sometimes even none. It is often heard in Japan, "Because there are many Non-Resident Indians who work in America and Europe, it is easy for such companies to send those employees over to India." However, according to our study, this is clearly not the case. For instance, at P & G's Indian operation there are currently no employees sent over from the corporate office in the US. Instead, they employ local graduates from elite schools such as the Indian Institute of Technology (IIT) and the Indian Institute of Management (IIM).

For Japanese companies breaking into the Indian market, it is most likely difficult to get hold of such prized elite graduates. However, for the cost of one Japanese manager (which can cost US$300,000 per annum), a company could employ a much higher number of very highly skilled Indian staff. This can also alleviate a great deal of the high costs of the initial investment. By looking at the ratios of locally hired staff to those sent over from the home office, the difference between Japanese and Korean companies can be seen clearly. In the case of LG, there were 20 expatriate employees out of a total staff of 4000. For one of Japan's leading electronics manufacturers, out of 1000 employees 10 were sent from the home office.

This leads to the topic of transferring quick decision making authority to local employees. According to the interviews during our study, the largest difference between Japanese and Korean companies operating in India were often the differences in speed of decision making and willingness to take risks. Slow decision making processes in regards to what products should be introduced into the market took away such companies' ability to keep up with harsh changes, and caused a serious loss of market share. In order to implement short term market studies needed to keep up with a rapidly changing consumer environment, the ability for the local branch to implement quick decisions is indispensable.

Of course, merely transferring greater authority to the branch office is not enough. There needs to be a strong system of support coming from the corporate headquarters. Successful companies in India often have head managers come back to the corporate headquarters for a short period of time, where they can give progress reports to the upper management. This is much more cost effective then sending high level employees to the branch office for an extended period of time.

Concerning labor relations (especially with Indian unions), there is much to be learnt from non-Japanese companies operating in India. Most American and European companies deal with much fewer strikes than their Japanese counterparts. Perhaps the main reason for this is that there is more local decision making and therefore it is easier to attract and employ more elite local staff. The more skilled local management staff a company has, the easier it is deal with overall labor disputes. If one can create a positive image of the company in the local labor market, it alleviates many of the problems and disputes with workers commonly found in India.

India can also become a base for a global human resource strategy, and there are many lessons Japanese companies can learn from other multinational firms operating in India. In many such firms, talented Indian managers and technical experts are being sent to other countries and regions. For instance, Citibank and LG have sent talented employees hired in India to their African operations, and P&G also sends its Indian staff to many different locations, including Kobe, Japan. For Japanese companies who dispatch many unmotivated managers from the corporate office, the trend is exactly the opposite. As seen from the above examples, companies that are truly known and operate as "multinational corporations" are finding much greater success in India.

Toyota trains the majority of its local factory staff through the use of long term training programs that take place inside Japan. Using well developed surveys to determine appropriate subcontractors and strong emphasis on human resource development has also proven to be invaluable. Using Japanese manufacturing techniques and local marketing techniques can been seen to be the best model for Indian operations. In automobile manufacturing, Japanese companies' production rates are still only 70-80% of the average for foreign automotive firms, but Suzuki's commitment to the human resource development of its Indian subcontractors is proving to be very valuable. While Toyota spent one or two full years to select its Indian automotive parts subcontractor, their commitment is starting to pay off as they are in position to once again take advantage of higher quality parts than its competitors.

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