understanding the market environment of india

Understanding the Market Environment of India

Raja Ramachandran

I ndia is the second most populated country in the

world, with nearly one billion people. It has a reasonably favorable pro-business environment that aims to attract multinational companies (MNCs). Because of this enormous market size and positive business climate, scores of Ameri- can firms--including General Electric, General Motors, McDonald's, Kellogg's, and Micro- soft--have recently entered the Indian market. As a result, the country

has forged strong commercial interests with the United States, with trade and business relations across many industrial sectors. In fact, the U.S. is India's leading source of technology and her most valuable investor.

However, any company that desires to enter the Indian market must realize the serious challenges of doing business there: segmenting the marketplace properly, understanding the country's economic and political situations, getting through the government bureaucracy, and understanding deep-seated cultural bi- ases and attitudes. It is hoped that a discussion of the Indian marketplace in terms of market potential, culture, consumer behavior, and selling aspects can add to other articles published recently in Business Horizons* and

*Editor's note: See, for example, Limaye (1998), Javalgi and Talluri (1996); and Kumar and Thacker-Kumar (1996).

aid MNC executives in facing those challenges successfully. Sprinkled with numerous success tales and war stories, the discussion offers insights gleaned from a survey of Indian business- people (shown in the Sidebar on the next page)--insights that can help provide a reality check on the Indian market potential.

True Market Potential

A fairly large country, India is nearly 2,000 miles from north to south and some 1,800 miles from east to west. The current population of nearly one billion is growing at about 1.7 percent per annum. Only about a quarter of the population live in an urban environment; the rest reside in rural settings.

When American executives reflect on the size and situation of India's potential customers, they erroneously conclude that the Indian middle class is analogous to the middle class in the United States or Europe. The reality, however, is that the income levels characterizing the Western middle class represent only a tiny upper class in India.

The Indian market can be divided into four levels in terms of purchasing power, as shown in Table 1. The reality for American businesses is that only Level 1 customers are willing to purchase foreign-based firms' goods and services,

Table 1 B r e a k d o w n o f India's Market

Household Willingness Population Income to Purchase

Category (millions) ($US/year) Foreign Products

Level 1 8 Above $20,000 High Level 2 65 $10,000-$20,000 Medium Level 3 130 $5,000-$10,000 Very low Level 4 775 Less than $5,000 None

44 Business Horizons /January-February 2000

with only a marginal hope of selling to Level 2 consumers. Hence, the Indian market potential for American firms is only 73 million consumers, not the almost one billion population of the country. Nevertheless, though only 7.5 percent of the country's population, 73 million is still quite a large market when compared to many other developing nations.

Two particularly attractive segments are urban youth and the rural population. Krishna Rao Gowd, General Marketing Manager for India's Sunku Auto Ltd., stated in the survey that "the new generation is showing an inclination toward impulsive buying." However, he cautions,

Lots of purchase decisions of youngsters are still to be blessed by the elders. For example, buying a TV or a refrigerator is a collective decision, even though it is to be used by a newly married couple living 400 kilometers away from parents.

Another survey respondent added, "Increasingly, India's rural market (and there are some very rich farmers and others in the countryside, believe me) will become important." Similarly, says Mr. Gowd, "Look to rural India, which has vast potential."

M a r k e t D i v e r s i t y

A second reality of the Indian market structure is the fact that India has 17 official languages and an ethnic diversity as wide as that from Britain to the Middle East--not to mention 26 states, dozens of castes, and six major religions. The 5.7 million people in Chennai (formerly Madras) have vastly different tastes than the 8.5 million people from New Delhi, the 11.2 million in Calcutta, and the 12.8 million in Mumbai (formerly Bombay). Such a diverse marketplace has a tremendous impact on product labeling, product variety, and where products can be sold successfully. McDonald's provides a good example of adapting to the diverse Indian marketplace. Though famous for its beef patty entrees, it has introduced vegetable burgers to the large Hindu population and mut- ton patties to Indian Muslims.

Tailoring goods and services to the local preferences is not a trivial undertaking. American firms must realize that much market research is needed to understand the regional consumer demands. And they must be willing to modify offerings at the local level.

ECONOMIC A N D POLITICAL ENVIRONMENTS FOR D O I N G BUSINESS IN I N D I A

T o better understand the Indian marketplace, it is important to gain some per- spectives on the country's economic and

Full r~'ne & title:

Current place of employment:

Total years of marketing/sales experience: (indude all places worked)

1. Please describe 3-4 signiflcam errors committed by Americans in the Indian marketplace. Specific examples are helpful.

What is the "general" attitude of Indian consumers toward Ameflcan products and services---gavomble, unfavorable, mixed, etc.? Have these attitudes changed much over the past three years?

. Can you give an example of a successful joint venture (Jr) in India between an American firm and an Indian firm? What specific factors allowed for a successful JV?

In your opinion, have #_merican firms come to I ~ with an imperialist attitude--trying to "force" Western-based techniques into the Indian marketplace?.

5. How extensive is brand loyalty to the "general" h-gli~n consumer? Are consumers willing to try other ~ n d s (bland o r more likely to remain loyal?

6. Can you cite 1-2 American failures in products to Indian consumers?

7.

transportability, warranty terms, etc.

8. How receptive are I ~ to ~ such as coupons, rebate progmtm, etc.? Are ~ ~in

.

10. How ~ ks at~-aales service to the ~ a customer be willing to pay more for a greater sense of af ter-sa~ security?

11. ~ the general att itxxte~Indian funds? This ~ ~ ~ ~ (short-term debt) to long-term auto ~ home financing,

political environments. So our discussion will shift to India's political system, recent policies for opening the economy to foreign businesses, agreements with the United States, and strategies for getting through bureaucratic hurdles.

T h e P o l i t i c a l S y s t e m

India is a federal republic of 26 states and seven union territories. The country has a two-house parliamentary legislative system: the indirectly elected Upper House, the Rajya Sabha; and the

Understanding the Market Environment of India 45

directly elected Lower House, the Lok Sabha. The judicial system is an independent branch of government; the legal system is based on English common law. National and state legislatures are elected for five-year terms, although terms may be extended in a state of emergency and elections may be held early if the government loses Parlia- ment's confidence. The Prime Minister is elected from the majority ruling party in Parliament.

As Javalgi and Talluri (1996) point out, "India is the largest democratic nation in the world .... The rule of law prevails...with some exceptions. It has an independent judiciary, an impartial elec- tion commission, and a responsible central bank."

Opening Up to Foreign Firms and the Backlash

Only since 1991 has India's semi-closed economy been opened to foreigners. This overture was sparked by a national financial crisis that forced Prime Minister P.V. Narasimha Rao, of the Con- gress Party, to overhaul India's socialist-inspired economy. In an ambitious move, Rao gave the Finance Minister, Manmohan Singh, the freedom to revive the economy and liberalize trade. Singh

began by eliminating a licensing system that dictated which products companies could produce, where they could set up factories, and how much they could produce. "He liberalized imports, slashed tariffs, rebuilt foreign reserves, and presided over a burst of growth," reported Business Week ("Modern India on Hold" 1996). "This won the admiration of for-

eign investors, who flocked to India as one of the last great frontiers opening up to capitalism."

Because of the policies implemented under Rao's and Singh's leadership, foreign firms can now increase their ownership from 40 percent to a controlling 51 percent in most industries. In some cases, especially in technology-based firms, a foreign company can purchase 100 percent of existing joint ventures. Hoechst, Ciba-Geigy, and GE have taken advantage of the new business environment to gain majority control of joint ventures. However, allowing foreign firms to gain controlling interests in domestic firms has Indians worried. Executives are concerned that foreign partners can run roughshod over them. "There is a big fear that the country is being sold too cheaply," says Mrityunjay Athreya, who runs his own management consulting firm in New Delhi.

There has also been tremendous backlash against the Congress Party and the liberalized policies from the customer base. Hundreds of millions of Indians still live well below the pow erty line, and economic reforms have not improved their standard of living. The masses of people believe that only the elite have really benefited from Rao's and Singh's policies. The Indian middle class also grew tired of the perceived immoral actions of the Congress Party, which has ruled India for most of the years since its 1947 independence from Great Britain.

Since 1991, there has been much debate among Indian policy-makers as to what type of foreign firms should enter the nation. Nationalistic politicians desire only investments from high-tech, value-added firms. They are opposed to the entry of such consumer-oriented companies as Heinz, Kentucky Fried Chicken, and Kellogg's, believing that Indian brands can satisfy the Indian market. Hence, high-tech American firms have been able to sell products successfully in the Indian marketplace, while consumer product firms, facing stiff competition from existing Indian companies, have found it very difficult to obtain market share.

Recent Indications o f India's Open Economic Policies and the Current Government

Despite the obstacles Indian economic and political policies place before foreign firms, there have been recent signs that India is welcoming fair competition and foreign investment. In March 1997, the country agreed to abide by the GATF treaty, which forces companies to compete more fairly and respect global patent agreements. An- other agreement that has given some comfort to American companies is the Investment Incentive Agreement, which Finance Minister P. Chidam- baram and U.S. Secretary of State Madeleine Albright signed in November 1997. The intent of this bilateral agreement is to promote and support U.S. investments in India as well as Indian investments in the United States.

In the most recent elections of February 1998, the United Front Party, led by former Prime Min- ister I.K. Gujral, was defeated by the Bharatiya Janata Party (BJP). The current Indian government is led by BJP's Atal Bihari Vajpayee. BJP is con- sidered to be a Hindu nationalistic party. But Vajpayee and his government have indicated that India will continue the policies of economic liber- alization and helping foreign firms compete in the Indian marketplace.

Government Bureaucracy and Strategies for Cutting through the Red Tape

Even with improved economic policies, foreign firms find that doing business in India can be


exasperating. The bureaucracy wields broad power, compounding inefficiencies left over from decades of socialism. States Manjeet Kripalani (1997), "Political squabbles, bureaucratic delays, infrastructure headaches, and unprofessional business practices create one obstacle after another." Moreover, foreign firms are often viewed with suspicion, which stems from the fact that India has adhered to the principle of self-reliance since winning independence.

Kumar and Thacker-Kumar (1996) provide a detailed description of the types of bureaucratic mazes a firm is likely to encounter in India, as well as some strategies for dealing with these complications. They discuss the three layers of jurisdiction over commercial matters: the national level, the state level, and the concurrent level. At the national level, the central government has complete authority to pass and enforce laws, such as those involving foreign affairs and cus- toms duties. The states have exclusive control over land policies and zoning ordinances. The concurrent level reflects matters that both the central government and the individual state gov- ernments control, such as labor laws and price control. It is important for an American firm to understand which jurisdiction has authority over a particular matter and to target its efforts at the appropriate government layer(s).

It is fairly easy to cut through the federal government bureaucracy. However, Kumar and Thacker-Kumar note, "At the lower levels, there is no sense of urgency. As such, although negoti- ating bureaucracy at the central level may not be difficult, the going can be very arduous at the state level." The bureaucratic hurdles at the state level include obtaining power, getting environ- mental clearances, receiving clear directions on labor laws, and finding approval for land and water use. Hence, a foreign investor has to be willing to work with various agencies, forms, and obstacles at the state level.

Kumar and Thacker-Kumar state that location is an important facet for American businesses to consider. Some Indian states have fewer bureaucratic conditions and are more investor-friendly than other states. In particular, Maharastra and Gujarat have been quite attractive to foreign businesses. There are three key areas an American firm should investigate when deciding on where to locate and minimize bureaucracy:

1. the quality of the infrastructure, particularly power, roads, airports, and telecommunica- t i o n s - t h e higher the quality, the easier the bureaucratic struggles will be;

2. political leadership, with a focus on lead- ers' attitudes toward foreign investment rather than on the political affiliation of the ruling party;

3. incentives, such as the subsidies and tax exemptions offered by compet ing states.

Besides location, partnering with an Indian firm is an effective strategy in minimizing the effects of state-level inefficiencies. When choos- ing an Indian partner, it is important for the American company to determine whether the partner is financially sound and familiar with the operating environment. The U.S.-based telecommunications giant AT&T developed two successful joint ventures with India's Tata Group. AT&T benefits from this partnership because of the instant name recogni- tion of Tata in the Indian marketplace and, of equal importance, Tata's ability to clear bureaucratic hurdles.

A third strategy for overcoming the bureaucratic maze is to have the right personnel in place. Managers in U.S.-based firms must have a long-term vision and the utmost patience. Perse- verance is a crucial trait. Dedicating one person to handling government paperwork is prudent. This individual can develop the necessary con- tacts and serve as the company 's face in govern- mental circles.

AN OVERVIEW OF INDIAN ATTITUDES IN THE MARKETPLACE

M any American companies erroneously assume that Indians will adapt to and embrace foreign and global products.

But the reality is that India has a rich, 4,000-year- old culture with strong, deep-rooted beliefs and attitudes. American executives should strive to understand this culture and enter the country with the intention of bowing to existing attitudes rather than imposing the imperialistic mindset that the Indian marketplace should follow West- ern culture.

Price A w a r e n e s s and Frugality

The vast majority of the Indian market is excep- tionally price-sensitive. Firms that keep prices as low as possible outperform those trying to sell more expensive premium models. Even today, for instance, twice as many black-and-white television sets are sold as color models. The no-frills Indian-made Maruti car has captured 80 percent of the market share, while the far better-made and twice-as-expensive Ford and GM cars have had disappointing sales. Foreign companies have tried unsuccessfully to overcome this price sensi- tivity by appealing to Indian consumers ' concept of value. However, price, not value, seems fore- most in the Indian psyche.


The Indian "use and reuse" mentality perme- ates the entire culture. Frugality has deep histori- cal roots. States Jordan (1996b), "Mohandas K. Gandhi, who led India's fight for independence from Britain, tapped this value when he urged

countrymen to spin their own cloth for clothing instead of buying British imports." Indians are adept at recycling and believe that no object should be discarded until all practical uses for it have been exhausted. A middle-class smoker would prefer to refill a disposable cigarette

lighter than replace it with a new one. To save costs and promote frugality, many Indians often ignore a manufacturer's instructions and will underdose and underconsume to be economical.

Price consciousness and frugality are further encouraged by the absence of a formal social security system. In general, Indians go through life with financial caution to keep from joining the impoverished lower economic class. This caution is shown in India's high personal savings rate of 24 percent. The Indian bond market is an especially popular form of savings.

Food Habits and Thoughts

Of all the products sold in India, food is perhaps the most problematic for marketers. Many Indians believe that food shapes one's personality, mood, and mind. They are willing to try new foods, but they usually return to traditional products. As the Indian consumer market researcher D. Ahluwalia states, "When it comes to food, drink, and medi- cines, you have to be culturally sensitive."

The Philip Morris Company tried to position its Tang orange drink as a breakfast beverage. In fact, the product was test-marketed successfully in India and was expected to sell well. However, when launched nationally, product sales were quite low. Many in India drink tea with milk in the morning and believe that mixing citrus and milk is bad for the stomach and sours one's mood.

Kellogg's introduced Corn Flakes to the In- dian market in September 1994 with a $65 million investment. The company's marketing research indicated that 250 million Indians would consume cereal. However, the most popular breakfast in India is usually a bowl of hot vegetables and rice cakes. Kellogg's cold cereal became nothing more than a one-time novelty purchase in the Indian market.

Companies should also be aware that appliances that replace traditional methods of cooking are very difficult to peddle. Even though consid-

erable cooking time is saved, microwave ovens do not sell well in India because the preference and tradition are to use kerosene-based stoves.

Nationalism and Brand Loyalty

The Indian consumer does not buy a global brand just because it is global. According to Harish Manwani, vice-president of the Indian conglomerate Hindustan Lever, "International brands have to be relevant in terms of perceived image, performance, and value if they are to succeed." According to one survey respondent, "Except for fashion goods or trendy goods or soft drinks, I don't think any special premium is placed on things American."

U.S. companies should be aware of anti- multinational sentiments that are prevalent in India. Rather than "force" global products on the Indian marketplace, it is far better to "Indianize" products. MTV's ratings in India soared when it switched from a mixture of American and Euro- pean videos to a largely Hindi/Indian mix. The Indian consumers look favorably upon investments in publicity, sponsorship of local sports teams, and contributions to local charities.

One important facet of the Indian consumer pertains to brand loyalty. American firms must realize that there is no such thing as Indian brand loyalty. Indians will buy most any product once, but brand switching is common. In fact, Indian consumers, on average, will try about six brands of the same package-goods product in one year, compared to two for Americans. Unless the product is unique and cannot be purchased from Indian producers, American companies will often find that the typical Indian consumer will revert back to local brands.

MARKETING AND SET.T.ENG IN INDIA

S everal traditional aspects of marketing and selling goods and services are quite different in the Indian marketplace and need to

be handled with caution by American firms: product pricing and promotion, advertising, distribution and sales channels, direct marketing, and after-sales customer support.

Product Pricing and Promotion

Price is the single most important factor for most Indians in the purchase decision. Indians tend to be price-conscious due to a multitude of reasons: low per capita incomes, a frugal mentality, a high savings rate propensity, and buying mainly on a needs-based consumption. Many American firms have tried to create niche markets for premium products, but these markets usually never materi- alized and the firms ended up with weak sales

48 Business Horizons / January-February 2000

and negligible returns. Kellogg's tried a dollar-to- rupee pricing for breakfast products. But because of the relatively high price and Indian food preferences, the company has never been able to sell profitably in India.

The Indian consumer is aware of quality differences, yet will sacrifice quality for lower price. In Europe and North America, for instance, laser printers are used in most homes and offices rather than dot matrix printers because of the enhanced quality. In India, however, dot matrix printers are the norm simply because of the price advantage over laser technology.

In the United States, it is usually more economical to purchase larger quantities of products because of volume-price discounting. In India, however, this principle does not apply as well. Single-serving packets, or sachets, are quite popular. They allow consumers to experiment with new products and conserve money in the short run. Also, storage space in Indian homes is usually quite limited. Detergents, shampoos, medi- cines, and other consumer goods are generally sold in single-serving packets as well.

Price promotions, such as two-for-one deals and coupons, are not very effective marketing tools. The main problem with price promotions in India centers on not having an effective means of communicating the deals. Rather than attract- ing consumers based on pricing gimmicks, it is far better to price the product as low as possible in the first place. However, one survey respondent stated that promotions with an Indian flavor, such as Diwali (Festival of Lights) themes and jewel incentives, appeal to much of the populace.

The increase in the use of credit card debt has helped reduce the importance of price for some Indian consumers. Naresh Raman, a partner in a small-scale friction materials company in Hyderabad, responded in the survey, "Plastic money is catching up and so is consumer financing for cars, homes, and so on. However, the risk is high since the whole concept of [credit card debt] is new." States Mr. Gowd, "The younger crowd will leverage debt, in general."

Advertising

In the past few years, India has moved from being a seller's market to being a buyer 's market. As a result, advertising has become an important tool in marketing and selling products. American firms have a number of choices of advertising media, including print, television, billboards, and radios. However, the effect of the medium is largely dependent on the sophistication of the targeted audience. Because of the diverse population and hundreds of regional groups in India, each with its own language or dialect, nationwide advertising is difficult. Moreover, because of the

high illiteracy rates----often more than 50 percent in rural markets - -pr in t media can be ineffective.

The Internet holds some promise as an effective means of reaching many young profession- als. As of June 1998, about 500,000 Indians were online. However, there is a shortage of reliable Internet Service Providers, so users experience considerable downtime on the Web.

According to one survey respondent, some American products have gained much popularity in India through advertising. "Coke and Pepsi ad blitzes have ensured that they are seen as 'cool, '" he said. "Disney characters have developed a niche for themselves in the urban kids' mental space, so chocolates and chewing gum can be sold on the back of the world's most famous rodent."

Colgate-Palmolive, the U.S. consumer products giant, has developed a unique yet highly effective advertising mechanism for rural India: video vans. The vans show the villagers an info- mercial that attempts to teach the benefits of toothpaste and the proper method of brushing one's teeth. "If they Saw the toothpaste tube, they wouldn ' t know what to do with it," says Maitri Kumar, the company 's marketing manager in India. So the people must first be educated as to the need for toothpaste and then on how to use the product. Video vans have doubled toothpaste consumption in rural India in a six-year period.

Distribution and Sales Channels

India's distribution system "isn't as efficient as it is in the U.S. or other Western countries," states Brian Creray, vice-president of marketing international at Jolt Cola, Rochester, New York. "It's an interesting task to get a product from New Delhi to Calcutta."

Most products sold in India use a three-tier selling and distribution system that has evolved over many decades: distributor, wholesaler, and retailer. However, these established distribution mecha- nisms are now becoming more stream- lined. American firms should strongly consider outsourcing the distribution of products to Indian firms that are well-established and able to reach the customers. The main disadvantage in partnering with an outside firm for distribution is loss of control. Nevertheless, U.S. firms in general currently do not possess the necessary skills to distribute and sell effectively through India's established paths.


Family-run stores comprise the majority of selling outlets, where buying and selling is often a process of bargaining and negotiation. Most cities have large, well-known market districts, such as the General Bazaar in Hyderabad. How- ever, department stores and supermarkets are becoming more popular in large cities. These large stores are based on fixed prices.

Distribution in India can have a considerable impact on product design. One Western producer of frozen desserts was forced to reformulate one of its products because of the inadequate or faulty refrigeration in most retail outlets in India. Refrigerators are not maintained as cold as they are in the United States; moreover, frequent power interruptions and rations lead to inadequate temperature control.

Another aspect of product design to meet the challenges of India's distribution system is packaging. Because of poor roads and infrastructure, products are damaged easily when moved. So firms must ensure that goods are properly pro- tected against transport hurdles.

Direct Marketing

One method American firms should consider when selling products to Indian consumers is direct marketing. Over the past few years, many businesses have begun to move products directly from the manufacturing base to the customer, with no middlemen. This method is particularly effective in India, whose culture promotes more socialization and human contact. Thousands of Indian women are becoming direct sellers for companies as a means to supplement household income. Avon, Tupperware, Amway International, and World Book International are some of the many American firms that use direct marketing and selling in India.

After-Sales Customer Support

The Indian consumer expects good after-sales customer support and favorable product warranty terms. However, American companies should not expect after-sales support to provide a competi- tive advantage and a means for premium pricing. Competition is fairly keen across most sectors of India, and adequate product support is a require- ment, not an advantage, in selling. Calavai Venka- taraman, a retired management consultant from Bangalore, responded to the survey, stating, "Nor- mally, the Indian customer will not appreciate extra pricing for service guarantees and may ac- tually shun the product." According to Gowd, "Once a product is bought, it should work, work, and work forever. The purchase of a washing machine that does not last for 10-15 years is unthinkable."

SUCCESS STORIES, WAR STORIES, AND LESSONS

A merican firms contemplating entry into the Indian marketplace can learn some lessons from other companies that have

already entered the nation. It is instructive to learn both the lessons of successful enterprises and the war stories of unsuccessful ones.

Success Stories

General Electric entered the Indian market in 1991 by partnering with the appliance firm Godrej to make household appliances. Before the joint venture 0V), GE sent a special team from the United States to determine the Indian partner's capability and market intelligence. Then it hired local managers and made them meet U.S. standards. The alliance has benefited both companies. Godrej has obtained technology transfers from GE, and GE has gained Godrej's good repu- tation and distribution system. The JV now claims a 40 percent market share in consumer appliances. According to one survey respondent, GE has succeeded by upholding high ethics, placing high demands on employees, and having sound products. The lessons to learn are twofold: Fully understand the capability of a proposed partner by firsthand information gathering, and collabo- rate with the partner such that both companies can benefit and gain goodwill.

Praxair came to India in the early 1990s to manufacture and distribute industrial gas products, such as oxygen, argon, and air. Its strategy is to purchase Indian-owned gas manufacturing firms with extensive distribution networks and stable customers. In addition to acquiring plants, Praxair is building one in the state Karnataka. The company established new customer accounts prior to building this expensive manufacturing facility. It has also recruited top Indian manage- rial talent from such competing firms as British Oxygen, Ltd. Praxair has a long-term vision in India, seeking to become profitable within five years rather than instantly. It illustrates that long- term planning is necessary in India, and estab- lishing a strong customer base is a prerequisite before heavy capital investment.

To succeed in India, Coca-Cola could not use its very successful global marketing approach in selling the "Real Thing." Instead, it had to get used to the idea of selling two sugar colas, its staple Coke and the Indian beverage Thums Up. In 1993, Coca-Cola purchased Thums Up, thereby acquiring the country's largest bottling and distribution network. Since then, Coca-Cola has in- vested heavily in training programs for all Indian employees, from delivery drivers to senior executives. Moreover, the company has gained retailer

50 Business Horizons / January-February 2000

support by providing stores with coolers and upgrading refrigeration wiring. "Coke has been able to study the Indian marketplace, psychology, and living habits," says Mr. Raman, "and has identified pockets where it has modified its products/services to fit in an area where the consumer has not been very satisfied with what is available domestically." Based on October 1996 data, Coca- Cola had captured 57 percent of the Indian soft drink market.

War S t o r i e s

It took the Houston-based Enron Corporation two years to obtain approval from the Indian government to become the nation's first private power company. In trying to gain approval for the 2,015-megawatt power plant, Enron backed the local politicians in Maharastra. When these politicians suddenly lost power, Enron lost its approval with the new ruling party. It took 24 court cases and immense expenditures to finally regain approval. Enron's error in India was getting entangled in local politics. Limaye (1998) provides a good discussion of the problems Enron faced in India and the lessons learned.

General Motors and Ford entered India in the early 1990s, only to have disappointing sales. The companies felt they could perform well in India by offering new choices to consumers. What they failed to realize, however, was the price sensitiv- ity of the customers. GM's Astra and Ford's Escort are priced around $20,000, whereas the Indian- made cars average around $6,000. Unwilling to pay extra for a premium product, most car buyers cannot even contemplate purchasing GM or Ford products. The companies failed to research the needs and the price demands of the Indian customers properly. Currently, GM is adjusting to the market by introducing lower-priced basic model cars and packaging premium options separately. It is still too early to determine whether this new approach will be successful.

Citibank did a poor job of researching the Indian marketplace prior to entry. It gave credit cards to a large number of individuals who did not understand the concept of buying on credit. Many cardholders thought they could obtain goods free of cost just by using the card; the idea of paying the credit card company was new and not well understood. Citibank became too inter- ested in maximizing the number of cardholders rather than obtaining good, creditworthy customers. The company also failed to recognize that poor telecommunications would stymie its collection efforts.

For Citibank to succeed in India, it should have partnered with a private banking institution or issued collection responsibilities to Indian personnel rather than attempting to manage with

an American team. However, within the last two years, Citibank has improved its performance by relying on Indians for outstanding debt collection and tightening credit issuance policies.

I f American companies are to prosper in India, they must be flexible and adaptable to a very different business environment and

culture. Trying to impose American marketing approaches and global standards on this newly opened economy with its 4,000-year-old culture has proven ineffective. Indians are very strong- willed and spirited; hence, American firms must tailor product strategies rather than expect Indi- ans to adhere to their established strategies, A good understanding of habits, tastes, and preferences combined with a knowledge of the bureaucracy, infrastructure, and distribution systems are important ingredients for success.

Why even sell products to this market if there are so many obstacles and such a different mode of operations? The fact is, India is an emerging market with an economic system that promotes competition. Many high-tech firms find it an ideal place for R&D because of the highly trained pool of engineers and scientists. In fact, India has some of the world's highest quality learning institutions, especially the Indian Institutes of Technology and the Indian Institutes of Management located throughout the country. There are tremendous opportunities in the areas of infrastructure devel- opment, technology, and select consumer products. The key for U.S. companies is determining the unmet needs and developing effective strategies for uniquely satisfying these needs.

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Raja Ramachandran is an improvement specialist with the Dow Chemical Com- pany in Plaquemine, Louisiana. He would like to thank Dr. Janeen Olsen, associate professor of marketing at Louisiana State University, for sponsoring and guiding him in this independent study.


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