Multinational companies (MNCs) are interested in building a substantial business in a growing India. This was not so some decades ago, because those who had been present in India found it to be a minuscule contributor, and those who had none found the entry too onerous.
Illustratively, in 1967, Hindustan Lever contributed little to the global profits and market capitalisation of parent Unilever. Nowadays, the Indian company now renamed Hindustan Unilever accounts for about 25-30 percent of the group’s global profits, and more importantly, 40-50 percent of its global market capitalisation. India is a key market for many MNCs like PepsiCo, Coca-Cola, Castrol, Suzuki Motor and Nestlé.
MNCs face four dilemmas. First, should the business be geography-supreme (local leadership driven) or product-supreme (global leaders driven)? Second, if the subsidiary has Indian shareholding, how should governance be adapted? Third, how can the parent develop a dependable Indian management cadre that delivers its strategies? Fourth, and very importantly, since the parent company is usually a listed entity with performance pressures from an impatient main board, how can a balance be achieved?
During the 1970s, there was much debate about how international operations should be organised. Will an MNC succeed by rapidly transferring a well-established product across geographies (product-supreme), or is success achieved by an adapted product with a focus on local needs (geographysupreme)? Does India merit a structure different from other countries? The answers vary by domain and company.
Procter & Gamble was a late globaliser that achieved success by a product-supreme approach. Nestlé’s expatriate CEO and global organisation felt challenged by the Maggi noodles crisis until the company was headed by an Indian national. Unilever was an early globaliser and succeeded through a geography-supreme approach.
When I joined Hindustan Lever in 1967, United Africa Company (UAC), running the group’s African market, accounted for as much as a third of Unilever profits. The main Unilever board had three UAC directors who sat separately in UAC House, away from the Unilever House in London’s Blackfriars. Over the last five decades, I have had deep experience with some Indian MNC subsidiaries—Hindustan Unilever, ICI, and Castrol—apart from a powerful Indian MNC, the Tata Group.
In the late 1980s, C K Prahalad and Gary Hamel stormed management thinking with ‘core competence’. They argued every corporation has one and should grow by exploiting and strengthening it. This thought developed into the mantra: stick to the knitting. About the same time, I attended a conference of Unilever leaders in Kingston, UK. One strand of discussion centred around how Unilever should be organised globally: product-supreme or geography-supreme.
I recall arguing that, for India, geography can be a core competence—management depth, distribution systems, low-cost manufacturing competence, innovation and research. Hence, the Indian subsidiary should remain geography-supreme.
MNCs that changed in India from their geography-supreme structure to a global one seemed to have a tepid run. ICI India, later Akzo Nobel India, whittled its presence from a massive multi-technology portfolio to just decorative paints, finally exiting from that too. Pharma companies like Pfizer and Glaxo created clones of an international structure in which the local board became decorative.
I privately wondered whether these were being designed and operated based on a ‘western’ model (organise for efficiency). The truth was that new board structures, following the Cadbury Committee, introduced new pulls and pressures.
Companies that acted in an ‘eastern’ way resisted such ideas (organise for effectiveness, not just efficiency). Indian companies became global focusing on giving autonomy to local companies. Ratan Tata would say that Jaguar Land Rover and Tetley were British companies with Indian ownership.
During my years, Hindustan Lever operated as an Indian company with British ownership. This eastern thinking favours effectiveness and decentralisation, while the western favours efficiency and centralisation. Post-liberalisation western entrants into India appear to have had limited success—Ford, Volkswagen and Renault, for example. In contrast, ‘eastern’ entrants like Maruti, Hyundai, BYD, Toyota, and Honda seem to have had more success.
Growth and decline of companies happen due to multiple reasons, and the structure in its overseas markets is only one factor. I do not intend to oversimplify, so my commentary should not be interpreted too literally. However, it is certain that the structure and the parent’s impatient investors do impact executives.
When I was chairman of Unilever Arabia, I received a message that Timotei shampoo had become such a success in Sweden that Unilever Arabia should roll it out without tinkering with the advertising. I was aghast: in the ad, a Swedish blonde woman was washing her wispy hair in a wooded Scandinavian countryside. How could I run that in Saudi Arabia? Then I learned that ‘timotei’ in Arabic meant ‘you will die’. The product-supreme blokes in London undoubtedly thought of me as a resisting Luddite!
Indian managers are superb at dealing with ambiguity. However, flip- flopping organisation structures and short-term performance orientation can result in confusion among executives in a growth market.
It is fortunate that parent Tata Sons is private. It surely must be helpful to the listed ‘son’ companies.
R Gopalakrishnan | BUILDING BUSINESSES | Author whose latest book, Jamsetji Tata: Powerful Learnings for Corporate Success, is co-authored with Harish Bhat
(Views are personal)
(rgopal@themindworks.me)