Conquering the Chaos: Win in India, Win Everywhere by Ravi Venkatesan
Authors: Ravi Venkatesan
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middle market, and engage with the bottom of the pyramid through
social enterprises, shared value initiatives, and public-private partnership with
the government. The India opportunity in most industries is not the small global segment
at the top, but the big middle market. This is as true for industrial products as
it is for consumer goods. For instance, in India’s commercial vehicles market, sales
in the premium segment are around one thousand trucks a year, while the market volume
is around three hundred thousand trucks. To make a mark in India, companies can start
at the top, but they must break into the difficult middle market, developing a localized
business model that allows them to be profitable at low price points.
Cracking the middle market takes time. Companies have to experiment, tweaking products,
pricing, and go-to-market approaches to build a low-cost business model. It takes
iteration and debate over what elements of the global model they should modify. Moreover,
India is not one market; it is much more a region like Europe. Companies have to develop
granular strategies covering segments, products, cities, and channels. That takes
time and tenacity. Tata Cummins took six years to achieve a profitable business model
and three more years to pay off all accumulated losses. The joint venture now generates
a healthy chunk of Cummins’s global profits.
Figuring out the approach to the top, middle, and bottom of the pyramid in India conceptually
mirrors McKinsey’s three horizons growth model. 2 Horizon one, the here-and-now priority, entails replicating the global business model
in India, while horizon two involves figuring out a successful model for the middle
market, which will take significant investment and energy. Horizon three contains
ideas for long-term profitable growth; these are usually small experiments, research,
and investments in social enterprises and start-ups. At Hindustan Unilever (HUL),
a horizon-one priority would be to sell more Dove soap or Surf detergent to upper-
middle-class homes. Horizon two might be scaling HUL’s rural distribution system through
women’s self-help groups. The Pureit water filter, a fundamentally new business for
Unilever, is a horizon-three opportunity.
Nitin Paranjpe, head of HUL, articulated a third theme. While HUL is well established
in India, the market is intensely competitive and its leadership is under attack by
lots of hungry competitors. What matters most for HUL is to be at the head of major
market trends and disruptions. “What we need to ensure is that we position ourselves
ahead of trends, so they provide a tailwind and not a headwind,” explains Paranjpe.
Planning at HUL, stemming I suspect from its near-death experience with low-cost detergent
manufacturer Nirma two decades ago, is driven by the identification of the most important
trends. Some recent trends that HUL is concerned with are sustainability, the rise
of organized retail. The strategy process ensures a robust point of view on each trend,
and the country manager must develop a plan to benefit from them. Agility is about
spotting these trends early; it’s not about running after them later on. Having a
dominant market share in the emerging trend is critical. For new entrants, especially
those up against entrenched incumbents, it is critical to embrace new trends ahead
of the incumbent; that’s their only chance of getting into the game.
Another strategic decision is on the use of joint ventures and acquisitions to gain
scale. These are important ways of building critical mass and scale in a new market
like India. Making joint ventures work is challenging, but companies like Cummins,
Volvo, Suzuki, Honda, and GE have been successful in doing so. Acquisitions too have
risks and are often value destructive, but can speed up growth, as Schneider Electric,
DHL, and Abbott Laboratories have done in
social enterprises, shared value initiatives, and public-private partnership with
the government. The India opportunity in most industries is not the small global segment
at the top, but the big middle market. This is as true for industrial products as
it is for consumer goods. For instance, in India’s commercial vehicles market, sales
in the premium segment are around one thousand trucks a year, while the market volume
is around three hundred thousand trucks. To make a mark in India, companies can start
at the top, but they must break into the difficult middle market, developing a localized
business model that allows them to be profitable at low price points.
Cracking the middle market takes time. Companies have to experiment, tweaking products,
pricing, and go-to-market approaches to build a low-cost business model. It takes
iteration and debate over what elements of the global model they should modify. Moreover,
India is not one market; it is much more a region like Europe. Companies have to develop
granular strategies covering segments, products, cities, and channels. That takes
time and tenacity. Tata Cummins took six years to achieve a profitable business model
and three more years to pay off all accumulated losses. The joint venture now generates
a healthy chunk of Cummins’s global profits.
Figuring out the approach to the top, middle, and bottom of the pyramid in India conceptually
mirrors McKinsey’s three horizons growth model. 2 Horizon one, the here-and-now priority, entails replicating the global business model
in India, while horizon two involves figuring out a successful model for the middle
market, which will take significant investment and energy. Horizon three contains
ideas for long-term profitable growth; these are usually small experiments, research,
and investments in social enterprises and start-ups. At Hindustan Unilever (HUL),
a horizon-one priority would be to sell more Dove soap or Surf detergent to upper-
middle-class homes. Horizon two might be scaling HUL’s rural distribution system through
women’s self-help groups. The Pureit water filter, a fundamentally new business for
Unilever, is a horizon-three opportunity.
Nitin Paranjpe, head of HUL, articulated a third theme. While HUL is well established
in India, the market is intensely competitive and its leadership is under attack by
lots of hungry competitors. What matters most for HUL is to be at the head of major
market trends and disruptions. “What we need to ensure is that we position ourselves
ahead of trends, so they provide a tailwind and not a headwind,” explains Paranjpe.
Planning at HUL, stemming I suspect from its near-death experience with low-cost detergent
manufacturer Nirma two decades ago, is driven by the identification of the most important
trends. Some recent trends that HUL is concerned with are sustainability, the rise
of organized retail. The strategy process ensures a robust point of view on each trend,
and the country manager must develop a plan to benefit from them. Agility is about
spotting these trends early; it’s not about running after them later on. Having a
dominant market share in the emerging trend is critical. For new entrants, especially
those up against entrenched incumbents, it is critical to embrace new trends ahead
of the incumbent; that’s their only chance of getting into the game.
Another strategic decision is on the use of joint ventures and acquisitions to gain
scale. These are important ways of building critical mass and scale in a new market
like India. Making joint ventures work is challenging, but companies like Cummins,
Volvo, Suzuki, Honda, and GE have been successful in doing so. Acquisitions too have
risks and are often value destructive, but can speed up growth, as Schneider Electric,
DHL, and Abbott Laboratories have done in
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