Through a special arrangement, presented here for discussion is a summary of a current article from the Third Eyesight blog.
In most conversations we have had with international brands in the last two to three years, India consistently appears on the list of the top-five markets in which to expand. Over the last two decades, some European and North American brands have seen profits while others are wondering what fit of madness brought them to tackle this market.
Typically, when looking at a new market, the very first question anyone would ask is: What is the market potential for the brand? However, you should also be prepared to ask yourself: What need is the brand addressing and what is the value being offered by the brand? Just because a brand is huge somewhere else in the world does not automatically make it desirable to the Indian consumer.
While most brands want to target the Indian middle-class millions, their sourcing structure and strategy places them out of the reach of most of the population. Brands that have succeeded in creating a significant presence, maintaining their brand image and having a sustainable operating model, have almost uniformly had a significant amount of local manufacturing. Notable examples from fashion include Bata, Benetton, Levi Strauss, Reebok, among others. Domino's and McDonald's have also collaborated with and developed their vendors locally to bring down costs and improve serviceability.
Apart from the costs and margins, another important issue is that of the adaptability of the product mix. Brands that are sourcing locally and have a significant product development capability in India are also able to respond to specific needs of the Indian market better, rather than being driven by what is appropriate for European or North American markets. The famous "Aloo-tikki" burger by McDonald's is a great example of a product specifically developed for the Indian consumers. Not just that, India is probably McDonald's only market in which its signature dish, the Big Mac, is not sold.
Of course, flexibility in tweaking the product to suit Indian market can become a concern when it amounts to losing control over the brand direction and mutating away from the core proposition that defines the parent in the international market.
Another key question is: What is the degree of control that a company wants to exercise on the brand, the product, the supply chain and the retail experience of the consumer? The corporate structure itself may be determined by the internal capabilities and strategies of the international brand in their home market or other overseas markets. A brand that has presence through a wholesale business in the home market may not have internal capability or experience in retail and would look for an Indian partner who can fill in the gap.
During our work, we have come across both extremes -- companies that want to manage the minute details of the India business out of their own head offices, as well as companies that are so hands-off that they only want to hear from their franchisee or licensee when things are especially good or particularly bad. While a balanced, middle-of-the-road approach would be the logical one in each case, in reality individual styles of the top management have a huge influence on the approach actually taken.