Home >Companies >News >The steady rise of MNCs

That doing business in India remains a challenge for multinational corporations (MNCs) is an evergreen topic in the media. While there is some merit to the argument, what is often lost in the discussion is that MNCs have been quite successful in the Indian market over the past 25 years. A Bain analysis reveals two salient facts: Between 1991 and 2012, the number of MNCs in India more than quadrupled. And over 20 years, total MNC revenue grew at a compound annual rate of 18%—faster than the overall economy.

Bigger, but not the same

In the early 1990s, multinationals catered to the basic demands of the Indian consumer in fast-moving consumer goods (FMCG) and automobiles, and Hindustan Unilever Ltd (HUL) and Maruti Suzuki India Ltd together held around 40% of the MNC share. As India’s economic liberalization played out, the demographics of successful MNCs shifted: new and diverse sectors such as technology and consumer durables became prominent. By 2014, the top two MNCs were Maruti Suzuki and Samsung Electronics Co. Lts, each accounting for just around 5% of total MNC revenue while HUL’s share dropped to roughly 4%. Moreover, firms from many more countries came to the fray, with South Korea establishing a significant presence—as one can ascertain from Samsung’s success—alongside the US and Japan, while the pre-eminence of the UK significantly diminished.

Over the years, the business reasons drawing multinationals to India have evolved, and based on their market focus, MNCs can be grouped into three distinct categories: those that look on India as an end market, treat it as a centre for back-office functions, or as a global business hub (including for exports).

As early as the 20th century, global brands were in India, focusing on local consumers as the end market. The first of these companies included Goodyear Tire and Rubber Co., Citibank and Siemens AG. Many are now well established. Siemens, for example, counts India as the fourth largest contributor to its global revenue. The years after liberalization saw MNCs such as Lafarge SA (now LafargeHolcim), Macquarie Group Ltd and Marks and Spencer Plc. enter India with the same focus.

Then multinationals developed a new business focus: outsourcing. A number of financial services firms, including Genpact Ltd (spun off from GE Capital), Wells Fargo and Co. and Fidelity Investments, leveraged India’s low-cost skilled workforce to provide back-office functions such as information-technology services.

More recently, a number of MNCs have gone to the next level, positioning India both as a business hub serving global clients and as a base for exports. Most such companies are automobile or consumer durables manufacturers. Hyundai Motor Co., for example, is now India’s second largest car maker and looks at India as an export hub for other emerging markets.

Not all MNCs have been successful, of course. In 2005, South Korean steel producer Posco entered India after signing an agreement to build a $12 billion steel plant, billed as the largest foreign direct investment in India at that time. However, delays and hurdles encumbered the project and now Posco is reportedly not proceeding with the project.

India remains an unavoidable draw for MNCs even when their first efforts fail. A number of companies, including Coca-Cola Co., have entered, exited, then re-entered India, ultimately finding success.

Success mantras

There are a few key factors which distinguish MNC winners in India.

First, winning companies make a bold long-term commitment to India. They are financially ambitious about the long term but realistic in assessing the level of investment required to win in a challenging context. A granular understanding of the market opportunity—not just ‘we must be in India’—should feed into the assessment. For, despite recent improvements, India continues to present unique challenges: It still ranks low in the World Bank’s ease of doing business index, even below neighbours like Nepal and Sri Lanka. Successful MNCs acknowledge this and develop strategies to cope with it. ABB Ltd, for example, explicitly made India a top priority and ensured that senior global heads held active positions in the Indian board to facilitate faster decision-making.

Second, companies tailor their offerings to suit the needs of Indian consumers. When Hyundai entered the Indian marketplace, it dedicated an India-specific team to understanding the country’s context. It realized there was a huge market for an alternative to the Maruti 800 and changed the market-entry vehicle from the Accent to the Santro. The Korean car maker introduced local modifications such as higher ground clearance and replaced angular lines with rounded ones in keeping with Indian tastes. It found success quickly.

The third key success factor is the ability to adapt global, repeatable models to support local innovation. MNCs need to leverage their global scale, which gives them the right to play and compete in the Indian market, but need to adapt locally to be able to win.

GlaxoSmithKline Plc. (GSK), for example, has a global scale in cutting-edge research and development, excellent products and typically uses a large, global distribution model. Such a model would have been extremely difficult and costly in India. Hence, it developed a customized rural-based model, aiming to reach tens of thousands of villages. GSK has its salespeople go to rural medical practitioners to spread product and health awareness and take in recommendations from local doctors.

That relates to the importance of building strong local talent. A local workforce allows MNCs to retain autonomy and respond speedily to a rapidly changing marketplace. HUL is a case in point. It places significant emphasis in developing and grooming future leaders. More than 400 CEOs in India and abroad have HUL on their CVs.

Finally, global multinationals need to create a road map to deliver results by balancing corporate discipline with a local entrepreneurship mindset and developing local partnerships. Such a mindset is essential for speed of action: MNCs need to move at India’s pace and cannot be continually going back and forth with global headquarters to take decisions. Most MNCs are up against nimble, founder-led domestic businesses which are extremely agile. They cannot allow global bureaucracy to strangle their potential in India. LG Corp., for example, empowers local management to take key decisions, enabling quicker action.

Equally important are local partnerships, which are crucial to gaining knowledge of and access to the local market. Take Cummins Inc. It built a successful roadmap via joint ventures (JVs) in India—such as those with Tata Motors Ltd and Crompton Greaves Ltd—to become the country’s leading manufacturer of diesel and natural gas engines. In fact, Cummins has JVs around the world; it is its distinctive capability.

Looking forward

In other emerging countries, MNCs have grown manifold and have become a major force. In Brazil, MNC sales as a percentage of top 100 company sales grew from around 25% to 40% within the decade of the 1990s. This compares with around 4% of total corporate revenue in India in 1994 doubling to around 8% in 2014.

Thus, India has seen relatively slower and steadier growth. But as the country evolves further into a global business hub, MNCs are likely to become an increasingly important part of the economy. MNCs should invest and plan for a rate of growth over the next 20-25 years that is higher than that achieved over the last 25 years.

India is set to become increasingly competitive as domestic firms build the resources required for success. By winning the backing of strong local organizations, employing innovative and cost-effective business models, and using a clear road map to deliver results through local partnerships, MNCs can not only overcome business challenges, but also succeed in India.

Nikhil Prasad Ojha is a partner with Bain & Co.and leads Bain’s strategy practice in India. He is the co-editor of the Mint-Bain series on 25 Years of Reforms. Dunigan O’Keeffe is a partner with the firm and leads the firm’s strategy practice in Asia-Pacific. Arunava Saha Dalal is a manager in the firm and a member of the healthcare and industrial goods and services practices.

This is part of a special Mint-Bain series on 25 years of economic liberalization. For more on 25 years of reforms go to

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