Conquering the Chaos: Win in India, Win Everywhere (2 page)

The military term
VUCA
means operating in an environment characterized by extreme volatility, uncertainty,
complexity, and ambiguity. This term describes well the business environment in India;
it should be spelled VUCCA, though, with the addition of another C for corruption.

Interestingly, while India is a VUCCA market, it also represents most other emerging
markets. Many countries, especially in Africa, Latin America, and Asia, resemble chaotic
India far more than they do centrally directed and efficient China (see
figures 1-2
,
1-3
, and
1-4
).

Take corruption; at number 95, India is in the middle of the pack of emerging markets
(see
figure 1-2
). Doing business in these markets means multinational companies have to figure out
how to succeed despite rampant corruption. In terms of the ease of doing business,
India is a tough place at number 132, but again is highly representative of many other
markets, such as Brazil (number 130) and Indonesia (128), according to the World Bank.
In the World Economic Forum’s
2012 Global Competitiveness Report
, India, at number 59, is just behind Brazil (48) and ahead of Russia (67). Again,
most emerging markets, such as Indonesia (50), raise the same issues and challenges
as India does.

The inescapable conclusion: doing business in most emerging markets is tough. Frankly,
that’s why they are called
emerging
markets. Global companies will have to learn how to succeed in those unfamiliar and
difficult environments if they want to grow. Both in its potential and in its challenges,
therefore, India is an archetype for many emerging markets, especially democratic
ones. Moreover, since India offers a market with huge potential, substantial managerial
capability, a decent talent pool, and important institutions that many smaller markets
lack, it is a good place for multinationals to learn to deal with corruption, volatility,
chaos, poor infrastructure, and the problems they will face in other emerging markets.

Succeeding in India will help multinationals build critical capabilities for tomorrow.
For example, the structure of demand in India is a flattish pyramid with a fat base.
A small affluent segment lies at the top, “the Australia at the top of India,” as
Steve Ballmer of Microsoft calls it. A quickly growing, middle market segment has
the same number of households as Germany and the United Kingdom combined. Tapping
that segment represents a big opportunity. Then, there are the 700 million people
at the bottom of the pyramid who survive on less than $2 a day (see
figure 1-5
).

To succeed, a company has to straddle the pyramid. Smart companies start by selling
global products at global prices to the top but quickly find a way to crack the middle
market. This is not easy, because it requires considerable innovation. Companies have
to develop products in India that are disruptive and offer perhaps 70 percent of the
value of the global product at 30 percent of the price. Think of $100 smartphones,
$2,500 cars, X-ray machines at $400, and so on. To make money at these price points,
companies must localize supply chains and alter business models. They also have to
develop deep distribution that reaches into small-town India and build trusted and
aspirational brands. Once they succeed, they find that the same offerings and capabilities
allow them to win in many other developed and developing countries. Incidentally,
the bottom of the pyramid is not about fortunes, but represents an opportunity to
earn trust and goodwill through corporate social responsibility and shared value initiatives.

Consider a few examples. Take the case of telecom operator Vodafone, which is India’s
largest investor. It has had a tough ride into the market with taxation, regulation,
and brutal competition, but it has learned to make money in the toughest market in
the world, where a phone call costs $0.02 a minute and the average revenue per customer
is $3. This has given Vodafone an advantage in many markets in Africa and Europe.
¹¹

Similarly, for years, tractor manufacturer Deere & Company found it challenging to
compete in emerging markets because its giant tractors and harvesters were too large,
expensive, and complicated for tiny farms. In 2010, Deere finally developed a compact
and affordable thirty-five-horsepower tractor suitable for India. The tractor was
developed in India by a team comprising primarily Indian engineers. It’s now a big
success in India; today Deere exports tractors from its Pune factory to seventy other
countries. By taking on rivals in their home markets, companies like Deere and Vodafone
have also learned to compete with low-cost, nimble, and entrepreneurial Indian and
Chinese challengers.

Hyundai, Suzuki, and Ford have all made India their global hub for small cars. Unilever
is repeating its success with low-cost detergents, sachets, and Pureit water purifiers
in India in many other developing countries. Both Unilever and Novartis have created
new models of distribution to reach less affluent consumers in smaller towns and villages.
These channels account for 10 percent of these companies’ sales, and they are replicating
them in other emerging markets. Unsurprisingly, companies such as Bosch, Dell, Reckitt
Benckiser, L’Oréal, Nestlé, Kraft, Schneider Electric, Honeywell, GE, Cummins, and
Standard Chartered use India as a proving ground for leaders. They send their stars
to India to deliver on tough missions, and Indian stars work overseas, particularly
in Southeast Asia and Africa, which are characterized by high growth and volatility.

A number of leaders are beginning to understand that adversity breeds innovation and
new capabilities; it’s precisely because India is a difficult environment that it
is important to learn to succeed here. They see India as a powerful litmus test of
their ability to succeed in emerging markets. Shane Tedjarati, president of Honeywell’s
New Markets, sums it up: “Our success in China and India has created a model that
allows us to succeed in Brazil, Africa, and elsewhere.” Tim Solso, the former chairman
and CEO of Cummins, stated, while announcing a $500 million investment in 2011 that
includes three new manufacturing plants and a new R&D center in India: “We are looking
at leveraging the capabilities and scale from India to enter Africa.”
¹²
Commenting on the promotion of India President D. Shivakumar as the head of the Middle
East, Africa, and India regions, Stephen Elop, Nokia’s CEO, said: “India is at the
forefront of the company’s transition strategy. All our dual SIM launches are doing
well, and we are witnessing strong sales. India has shown that brand plus team plus
great execution can deliver strong results.”
¹³
Clearly, he expects Shivakumar to replicate Nokia India’s success and bring back
market share in the ninety countries in those two regions that resemble India.

India’s strategic importance is not only because it is a large market; more importantly,
it is a laboratory or petri dish for developing products, business models, talent,
capabilities, and operating models that will help companies succeed in a host of challenging
markets. In the global corporation’s architecture, India, along with China, is one
of the key hubs for supporting those markets. You have to learn to win in India to
be able to win everywhere else.

Obstacles are what you see when you are not focused on the goal.

—OLD INDIAN ADAGE

A
nthony Bamford, chairman of UK-based construction equipment manufacturer J C Bamford
Excavators Ltd., stood in the sweltering heat of India to watch swarms of workers
manually moving tons of earth and stone at a construction site outside Delhi. He was
no stranger to the country; this was perhaps his twentieth visit since he first started
coming to India as a student in the 1960s and especially after 1979 when JCB established
a joint venture (JV) with its Indian partner, Escorts. The JV had done reasonably
well, carving out a decent market share in the tiny Indian construction equipment
market (approximately the thirtieth largest in the world in 2003). However, Bamford
could sense things were changing. The industry was finally beginning to grow at a
decent pace, albeit from a tiny base. This had attracted the attention of global leaders,
including Caterpillar, Komatsu, Volvo Construction Equipment, and Case New Holland,
which had all launched competitive products and were nipping at the heels of the JV.
Would JCB be able to ride the construction boom and retain, if not increase, its market
leadership?

On the flight back to his home in Gloucestershire, Bamford mulled over what he had
seen. Although he had been visiting India for years, he sensed a new dynamism and
energy in the air. New construction was beginning everywhere—malls, commercial complexes,
homes. The government finally was moving on the big national highway projects. Now
a new can-do spirit informed all his meetings, whether with dealers, customers, or
even the construction workers he had spoken to. As a result, he sensed that contractors
were willing to invest in new machines and new projects.

But was this for real? Over the years, he had seen similar moments of optimism and
energy, only to watch India lose steam and disappoint. Confronted with big opportunities
in the United States, China, and Brazil and smaller opportunities in other emerging
markets, was it really time to make a big bet on India? He could see that it was not
simply a matter of bringing more machines into India. The market in India was fundamentally
different. Construction projects were smaller, people had less money to invest, and
in most cases, contractors would be buying their first machine ever, having relied
for decades on manual labor. The JV would need a simple, inexpensive, and versatile
machine instead of sophisticated, costly, and very productive excavators—a Swiss-army
knife rather than a more specialized carving knife. Manufacturing would have to be
completely localized to keep the pricing competitive. Bamford could see that the dealer
network would have to be completely overhauled to provide the kind of customer support
and service across India that JCB was famous for globally. He wondered if Escorts,
its Indian partner, shared this vision and had the same appetite for investment and
growth. The transformation would require strong Indian leadership, a new level of
capability on the ground, and much more collaboration between JCB’s UK headquarters
and India. Most of all, it would require greater engagement and more active sponsorship
from him personally. How should he prioritize India over other product and country
investment opportunities?

Being a privately held company, JCB was able to move swiftly after Bamford made up
his mind to focus on India. The results were impressive. By 2011, revenues had grown
nearly fifteen times, and India was now a powerful growth engine for JCB, its largest
market worldwide, accounting for about a third of global revenues and perhaps half
of its profits. Strategically, JCB had built a dominant market share. The name “JCB”
had become synonymous with the industry and virtually the generic term for any construction
machine. As the Indian construction equipment market is taking off (it is expected
to be one of the top five markets in the world by 2015), JCB is extraordinarily well
positioned to ride the wave, while its competitors, including Caterpillar, Komatsu,
and Volvo, are scrambling to find a way to participate more effectively. How did JCB
do it?

• Strong and visible leadership commitment to India
  . Anthony Bamford, Alan Blake (then head of manufacturing and now the global CEO),
  and the leadership team at JCB invested time on the ground to understand the market
  in a nuanced way. They were therefore able to pick up the early signals that drove
  them to preemptively invest in India and create the market for their machines at a
  time when India was number 30 in the global construction equipment rankings. JCB competitors
  underinvested in India. In contrast to JCB, they prioritized India according to the
  current size of the market rather than the potential size, delegated responsibility
  for India to midlevel managers in their Asian regional headquarters, and invested
  in proportion to the size of their existing business rather than the opportunity.
  More important, leaders at JCB were personally engaged in helping build the business
  in India; they were deeply involved in developing the dealer network, in product development,
  in the manufacturing strategy, and in building capability on the ground. Nor did their
  commitment wax and wane with the ups and downs of the Indian economy; in the middle
  of the financial crisis of 2008, when most competitors froze their investments in
  India, not only did JCB carry through with its $100 million manufacturing investment,
  it also put in a massive equipment-financing program to aid customers and dealers.
  When demand recovered, JCB was able to dramatically consolidate its leadership.
  
• Leveraged global know-how to develop offerings customized for the local market and
  spanning price points
  . Unlike competitors Caterpillar, Volvo, and Komatsu, JCB decided to focus on inexpensive
  and versatile backhoes, rather than more productive excavators, and in 2005 launched
  a new model, the 3DX, which went on to become the best-selling construction machine
  in India. JCB engineers worked hard to adapt the global model for India. While other
  players optimized their machines for maximum speed and productivity, just as they
  did in developed markets, JCB optimized machines for fuel efficiency, understanding
  that this is the biggest driver of operating economics. Over one hundred innovations,
  small and large, went into making a product that was fully adapted to Indian operation
  processes and usage conditions. For instance, it brought down the frictional losses
  in the hydraulic system, modified filtration to handle dusty conditions and the use
  of diesel adulterated with kerosene, used an aluminum rather than copper radiator
  to bring down cost, and a heavier bucket. Discovering that many operators are paid
  by the hour while others are paid by the job, it created two switchable modes of operation,
  economy and power mode, so that operators could choose when to optimize for fuel efficiency
  versus productivity. The 3DX was swiftly followed by an explosion of the product range,
  with a three-ton wheel-loading shovel, a wheel loader, a crane, excavators, and finally
  a five-ton entry-level backhoe loader—the 2DX—meant for lighter applications in rural
  India. With twenty-one different machines, JCB offers the broadest product range of
  any competitor.
  
• Localized manufacturing and a robust local supply chain to create a localized business
  model that delivers good profitability, even at aggressive price points
  . JCB was very quick to completely localize its manufacturing in India, including
  the engine, transmission, and cab. Competitors that hesitated to make this investment
  ended up with an uncompetitive cost structure and huge exposure to currency fluctuations.
  Blake and his team made multiple visits to India to get a nuanced understanding of
  the manufacturing capabilities in the country. Instead of visiting companies with
  similar low-volume manufacturing processes, they focused on visiting the high-volume
  plants of Honda, Tata, and LG. They found the capability to be “mindboggling” and
  well beyond what they had seen, even in the UK. As a result, in 2006, JCB undertook
  “Project 50” to expand capacity from fifteen backhoes per day to fifty per day, without
  interrupting production. The success of Project 50 and the market acceptance of the
  3DX machine quickly led to Project 100, the creation of the largest backhoe manufacturing
  facility in the world, with a capacity of a hundred machines a day, with an investment
  of $100 million. Astonishingly, for a project of this size, it was executed within
  eight months. The manufacturing innovations were so dramatic that they reduced the
  assembly time from 105 minutes to 52 minutes. JCB has now replicated these process
  improvements in the UK and Brazilian factories. As the India team earned its credibility,
  it attracted further investments. JCB opened a new set of factories outside the city
  of Pune to focus on heavy machines like excavators and wheel loaders.
  
• Invested heavily in building an aspirational brand and a proprietary distribution
  and service network with deep reach and capability
  . Like his father J. C. Bamford, the founder of JCB, Anthony Bamford had a passionate
  conviction that the right products were merely half the recipe for success. The other
  part was customer service provided by the dealer network, which by his standards was
  woeful in both capability and reach in India. JCB India CEO Vipin Sondhi personally
  drove a focused effort to transform JCB’s dealer network, with the support of some
  of the most experienced service engineers worldwide. JCB established fourteen area
  offices across India and four training facilities for dealer personnel in each of
  the four regions. He restructured existing dealerships and added 9 more dealerships
  and 145 new service points, bringing the total number of dealers to 57 and service
  centers to 430. (In comparison, Caterpillar has 2 dealers with 112 service points;
  Komatsu, 25 dealers with 54 service points; and Volvo, 12 dealers with 30 service
  outlets.) JCB now expected dealers to meet stringent requirements in terms of facilities,
  equipment, and investment in service engineers to deliver a world-class customer experience
  anywhere in India. This network runs three hundred customer events and road shows
  a year versus thirty by the closest competitor. Recognizing that operator training
  is a huge issue, JCB invested in a residential school for training operators and then
  showed its dealers how this could be a profitable and loyalty-enhancing new business.
  

  JCB also arranged financing through more than fifty banks and financing companies,
  enabling thousands of first-time entrepreneurs across the country. Today, over 40
  percent of JCB’s machines are bought by first-time entrepreneurs. Moreover, unlike
  most industrial companies, JCB also invested significantly in marketing beyond the
  usual industry events and road shows. Much like a consumer company, it invested to
  have a dominant 50 percent share of voice across media channels and signed up Narain
  Karthikeyan, a young Formula One racing driver, to be its brand ambassador. Across
  India, buying a “JCB” and becoming an entrepreneur are huge aspirations.
  

• Used joint ventures and strategic partnerships to enter the market
  . JCB entered India through a joint venture with the Indian company Escorts because
  regulations required it. The JV was a powerful advantage because it resulted in a
  completely localized business. The disadvantage was that the JV failed to innovate
  and improve, and the value of the partnership diminished over time. When strategic
  objectives began to diverge and regulations allowed, JCB bought out its partner. What
  JCB did right was not to overly integrate the India business after it became a 100
  percent subsidiary; it empowered Escorts to run under a new team.
  
• Localized leadership and empowered the local organization to win
  . JCB created an entrepreneurial leadership team and empowered it to build the business
  in a way that made local sense. India is a geographic profit center in JCB, and the
  India CEO Sondhi reports directly to the global CEO Blake with complete responsibility
  for the business in India. Accountability for results is ensured through the execution
  of a rolling three-year plan around which everyone is aligned. Seventy percent of
  the operating decisions are made locally and the balance, consultatively. Strong local
  accountability for the business and the traditional JCB value of
  jamais contente
  (never satisfied)—a sense of urgency about getting things done—has allowed it to
  be much more agile than competitors that have failed to create local empowerment.
  
• Leveraged India for global products, services, and talent
  . Having built significant capability on the ground, JCB is now using India to win
  globally. Exports of components and machines from India are giving it a global cost
  advantage. JCB is leveraging a large engineering center and success with frugal engineering
  globally. It is using India to develop global leaders and sending high-potential young
  Indians to other parts of the world.