Conquering the Chaos: Win in India, Win Everywhere (18 page)

My research for this book was almost done when I made a stop at Deere & Company. “Has
competing in India helped Deere succeed in the rest of the world?” I asked global
CFO Rajesh Kalathur and vice president Bharat Vedak. As I discussed earlier, India
represents both a major opportunity and a potent threat for Deere. While India is
the world’s largest tractor market in units, an Indian player, Mahindra & Mahindra,
has leveraged its strengths in India to challenge Deere globally in the market for
small tractors. Deere’s managers realized that unless they learned to compete successfully
in India, they would have a challenge in many other parts of the world, including
the United States. The Indian market thus became the front line of a global battle
for leadership in the small tractor segment.

Kalathur, who came to India in 2005 to establish the John Deere Technology Center
India (TCI) in Pune and became the CEO of John Deere India, led Deere’s charge. “We
had to learn to compete all over again,” he says. Engineers had to understand how
Indian farmers used tractors. They discovered that tractors are smaller, usually less
than 50 HP, often abused, running for three times the number of hours in a year as
in developed markets and at half the price of other markets. Deere realized that starting
with a clean sheet design rather than simply tweaking an existing model would be important
to compete effectively. The series 5000 tractor that it developed went on to become
a major success; Deere has been able to quickly gain market share in India and compete
effectively in the small tractor market worldwide including the USA.

According to Kalathur and Vedak, learning to compete in India has been a pivotal experience.
As Kalathur said: “India is a microcosm … everything in the world is in one place.”
The tough price points meant that marketers and engineers had to question every feature.
Something that added $5 to the cost was not a big deal to an engineer in Waterloo,
Iowa, used to designing a $250,000 machine; however, Rs. 250 was a huge deal to frugal-minded
Indian engineers. This proved to be important as tough Chinese competitors began entering
the US market. Another Deere executive said, “Our experience putting a new dealer
network in place helped us do this more effectively in Africa and other parts of Asia
like Thailand. We had to relearn marketing; for the first time, our deep institutional
knowledge of farmers built over generations was less relevant. We had to fundamentally
understand customer requirements and build market- appropriate offerings. We had to
think differently about pricing. We had to relearn how to convince farmers.” The TCI
has also mushroomed into the single-largest concentration of engineers in the Deere
world and is now integrated into the global product development process. It has developed
world-leading capabilities in areas such as factory simulation, embedded software,
and analysis. “All our product lines and all our functions intersect in Pune,” said
Vedak.

There are also significant flows of talent between India and the rest of the world.
CFO Kalathur’s own story illustrates this. Starting out in the US and Mexican operations
of Deere, Kalathur moved to India in 2005 to build Deere’s business there. His success
won him a promotion as the head of sales and marketing for China, India, South and
East Asia, and Sub-Saharan and South Africa, before he finally became global CFO in
2012. According to Vedak and Kalathur, the connection between India and Africa is
particularly significant. With a large India diaspora in many parts of Africa, many
Indian teachers in Africa, and English as a common language, Africans are predisposed
to working with Indians. The rugged inexpensive and reliable products from India work
well on African farms. This makes India a natural hub for supplying products as well
as for managing functions like marketing and even HR. Concluded Kalathur: “We are
still quite early in the journey, but India’s contribution to our success worldwide
is palpable. Most of all, it has made us more flexible, more open to different approaches
and market-appropriate products and ultimately more competitive.” The fiercely contested
tractor market in India has clearly helped reignite Deere’s competitive spirit.

Deere’s experience is playing out in many companies, which are discovering that globalization
is very much a two-way street. When a company enters India, it carefully shapes the
new subsidiary in its own mold. It faithfully replicates systems, processes, and policies
locally, and transfers products and capabilities. Over time, as the young subsidiary
matures, as it learns to compete in the all-important and difficult middle market,
the company develops innovative new products, capabilities, and talent that are important
in many other markets. Ultimately, these may be as important a reason that India matters
to an MNC as the size of the market.

The benefits occur along five dimensions. First, India can help create a tremendous
cost advantage. Many companies are successfully using India for sourcing components,
products, engineering work, and IT services. What differentiates companies is the
vigor with which they embrace this and the scale at which they operate. Honeywell’s
technology center, for instance, employs nearly thirteen thousand engineers. GE’s
John F. Welch Technology Centre in Bangalore is its largest technology center in the
world. At Dell and IBM, a third of all employees are in India. At Cummins, India is
the global hub for the high horsepower engine and small generator sets. At all these
companies, Indian talent, suppliers, and manufacturing are not at the periphery of
the business but an important hub in the global network because of the low production
costs.

Two, India is a source of innovative new products, business models, and distinctive
innovation capabilities. Authors like Vijay Govindarajan have written extensively
about reverse innovation. The list of success stories is varied and growing rapidly:
IBM and Ericsson’s managed services for telecom operators, Ford’s Figo car, and GE
Healthcare’s MAC range of ultrasound machines are all well-known examples. Increasingly,
companies are developing not just products but innovative distribution and retail
systems as well. Novartis is replicating its highly successful
Arogya Parivar
(Healthy Family) distribution program aimed at the bottom of the pyramid in several
other Asian and African countries, for instance. Schneider Electric found that its
acquisition of Indian company Luminous Power suddenly gave it retailing and business-to-consumer
capabilities that it had nowhere else in the world. Luminous taught Schneider how
Indian companies combine tax optimization, frugal engineering, and distribution reach
(twenty thousand outlets) to create a model that delivers extraordinary profitability.
Schneider is taking this model to fifteen countries, including Brazil.

Similarly, French cosmetics giant L’Oréal is replicating its successful Indian distribution
model overseas. “We are now in different stages of moving from a few distributors
in emerging countries such as the Philippines and Indonesia to several of them, similar
to how we operate in India, where we have over 750 distributors serving millions of
retail outlets,” said a senior L’Oréal executive. The Indian units of consumer goods
firms, such as Unilever, Danone, Kraft, Coca-Cola, and GlaxoSmithKline, are all taking
their learning from working with small Indian grocers to other markets where their
products currently sell only in a relatively few modern retail outlets.

A third source of competitive advantage is talent. Competing in India breeds talented
executives who can do well globally. Smart companies create a strong flow of talent
into and out of India. Consumer products (fast-moving consumer goods) companies like
Unilever, Reckitt Benckiser, and L’Oréal in particular have been very proactive in
using talented managers from India in other markets. India is globally the best-performing
unit for Volvo Bus; as a result, Akash Passey, who built this business, has been promoted
to oversee growth in all emerging markets, including China, Asia, Oceania, the Middle
East, and Africa. As
Time
flatly stated:

India’s Leading Export? CEOs. Competitive and complex, India is the perfect petri
dish in which to grow a 21st century CEO … Multiculturalism? Check. Complex competitive
environment? Check. Resource-constrained developing economy? You got that right. Indian
executives think in English, they’re used to multinationals in their country, they’re
very adaptive, and they’re supremely confident. Unlike, say, a Swede or a German,
an Indian executive is raised in a multiethnic, multifaith, multilingual society,
one nearly as diverse as the modern global marketplace. Unlike Americans, they’re
well versed in negotiating India’s byzantine bureaucracy, a key skill to have in emerging
markets. And unlike the Chinese, they can handle the messiness of a litigious democracy.
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Fourth, competing successfully in emerging markets like India profoundly changes the
corporate mind-set. As hundreds of executives flow back and forth over the years,
companies slowly become open to ideas from elsewhere. Olof Persson of Volvo comments,
“China and India have been real eye openers. The most important lesson is that you
need different products/offers for different market segments and you need to do this
in that market. As a result of our joint ventures with Eicher in India and Lingong
in China, we have developed frugal engineering capability and more expansive thinking
about using multiple brands to address different segments globally.” Oliver Blum of
Schneider Electric adds, “China and India have given us a growth mind-set. We are
faster, more agile, and take more risk. We like to experiment rather than let too
much analysis get in the way.” Most of all, companies develop the confidence and capabilities
to tackle other difficult markets. Tom Linebarger, chairman of Cummins, says, “Learning
to work with partners in India and China made us more innovative at finding ways to
make money. What we have learned is that the more difficult the market is, the more
money we make, because others will struggle more, or not even enter. We are also better
at assessing the real risk of these markets, which can often appear bigger than it
actually is. We make less money in easier markets because everyone knows how to compete
in them.”

Finally, companies that succeed in making India, China, and other emerging markets
into significant engines of their growth are viewed differently from their peers.
As growth slows in the developed world and the economic center of the world moves
inexorably toward the East, companies need to demonstrate that they have their acts
together in China and India. Explained Tim Solso: “For years, even with record profits,
Cummins had a lower P/E due to our cyclicality. It wasn’t until the recession of 2008–2010,
when India, China, and Brazil carried the company, contributing a huge part of our
profits, that we broke the back of our rating as a cyclical company.” Similarly, Unilever’s
strong performance in emerging markets led by its leadership in India has allowed
it to reclaim momentum from traditional rival P&G, which has a more dominant position
in slower-growing developed markets.
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