The Next Level - Over the past 20 years, multinational companies have made considerable inroads into the Indian market, but many have failed to realize their potential: Some have succeeded only in niches and not achieved large-scale market leadership, while others haven't maximized economies of scale or tapped into the country's breadth of talent. For multinationals, the key to reaching the next level will be learning to do business the Indian way, rather than simply imposing global business models and practices on the local market.

It's a lesson many companies have already learned in China, which more multinationals are treating as a second home market. In India, this trend has been slower to pick up steam. To realize India's potential, multinationals must show a strong and visible commitment to the country, empower their local operations, and invest in local talent. It's essential that multinationals raise their game in India: the country's economy is expected to grow by upward of 6% annually in the next few years, among the highest rates of any big emerging economy. In several product and market categories, India could account for more than 20% of global revenue growth in the next decade. In other words, the future of many multinationals depends on their ability to succeed in India.

Empowering The Indian Organization

Many multinationals in India are stuck in a profitability trap characterized by a lack of commitment to build country-specific operations and management systems. When expatriate company heads are brought in, their efforts often fall victim to short rotation cycles that inhibit the execution of long-term strategy. One important differentiator is the ability to demonstrate a commitment to India through the economy's inevitable cycles and volatility. Policy makers and local entrepreneurs have long memories, and "state visits" by global CEOs and chairmen are not sufficient if a company doesn't follow through on its commitments.

Empowering local management is also critical for attracting and retaining talented staff. Many multinationals are moving toward the creation of a strong Indian business unit and, in the process, moving away from functions or global products as the primary axis of governance. These companies are investing in top talent: The head of the Indian unit is experienced and knowledgeable about the market and has a direct line of communication with the global company's CEO. This direct connection to global management - combined with the ability to make decisions on capital spending, products, and pricing - holds a local leader more accountable and facilitates the sharper development and execution of strategy.

Local empowerment should extend beyond the country head to lower levels of management, which can help drive innovation and entrepreneurialism on the ground and decrease times to market for new products. But structure is not enough. Multinationals need the right people - especially in middle management, a group critical to the successful execution of a growth strategy. Given the vast array of opportunities available in India and its relative shortage of management talent, multinationals have had to revise their models significantly. With the continuing professionalization of Indian companies, the country's stronger managers have less incentive to work for a branch of the multinationals, which must look beyond  short-term tactical measures to attract high-quality people.

Being Progressive

The most progressive global companies are moving in three directions. First, they create more globally visible local roles, which may include representation on executive committees. Such positions emphasize entrepreneurialism and greater authority and offer higher compensation. Second, these companies promote a meritocratic culture: accelerated career tracks, fair and transparent advancement processes, the absence of a "glass ceiling" for locals, a performance-based system that motivates self-starters, and differentiated incentives for high performers. Third, progressive global companies offer mobility and tailored leadership programs. Structured global rotations for strong performers and leadership-development courses (especially with some form of certification) are proving to be effective recruiting and retention tools.

Innovating For India

Multinationals are learning that many different Indias exist within the subcontinent. The big differences - the haves and have-nots, languages, literacy, and geography (including the urban-rural divide)-make it difficult for a global brand to satisfy all of the country's consumers. Multinationals also face the challenge of low-cost local competitors.

Indian consumers demand sophisticated products and services found in the West, but at lower prices.

This aspect of competition in India means that innovation is occurring not only through localized products and services but also in business models and processes. 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, which would allow them to offer cheaper prices to the end consumer. Although many of these ideas are not new, multinationals have been slow to implement them in India. The key is that customization has to be a game-changing strategy rather than an incremental one: multinationals must aim to cut costs by 60 to 80%, with just a 30% reduction in features.

Choosing the Right Entry Strategy

One of the first and most important issues for a multinational considering doing business in India is ownership structure. Multinationals that enter the country on a stand-alone basis generally fare better than those that use Indian partners to create joint ventures. Most global companies that opted for them have exited the Indian market, while some have purchased the stakes of their partners or established majority shareholdings. One global consumer goods company, for example, bought out its Indian

partner because of differences over product marketing and brand positioning. The multinational is now doing well in all the segments where it competes.

Multinationals that choose joint ventures as their entry vehicle into India think that a local partner can better navigate the market's complexities and manage regulatory issues. There is some truth to that idea, but in practice, joint ventures often tend to emphasize short-term performance over long-term goals, long-term commitment, and an alignment between the interests of the global and local partner. Without management control and a clear path to ownership, global companies may have no alternative but to exit the market. Joint ventures can be beneficial in some cases, but they are not essential if a multinational regards India as a priority market and regulations allow the company to have majority or

complete. When joint ventures are necessary, multinationals should ensure that they have real management control and a clear path to ownership should that become necessary.

Strategic Partnerships

Partnerships with Indian companies need not be limited to joint ventures - multinationals should also consider strategic alliances with local players. For example, a global pharmaceutical company established itself as a stand-alone entity but developed strategic alliances with a local manufacturer in licensing and supplies for the generic and off-patent segments. These agreements helped the multinational to enter India's fast-growing market for low-cost, easily accessible branded generics and off-patent medicines.

Winning in India requires an intense and concerted effort. The multinationals need top leaders willing to make a commitment to the Indian operation and to localize and empower it. They must adapt to the Indian consumer's demand for innovative, low-cost delivery systems and high value for money products, as well as identify and implement an appropriate ownership model. Finally, senior executives of these companies should not neglect the management of local stakeholders, such as regulators and activists. The best efforts to localize an Indian business model will come to naught if these influential groups are overlooked.