With India being one of the fastest growing markets in the world, playing a prominent role in the world economy, the ‘common sense view’ is that there is ample opportunity to capture in this market. The demand for consumer goods fuelled by such growth should naturally bode well for the Indian manufacturers. Ironically, the rapid market growth in India, while beneficial in the short term, poses a serious threat to the manufacturers in the immediate future. The punch of globalisation could hit, and hit hard.

Today, most Indian industrial output is consumed within the country. As average income and spending increases, Indian manufacturers are happily ramping up to cater to this increasingly swelling home market right at their doorstep.

While doing so, they are being eagerly joined by many foreign manufacturers who see India as the place to be, and with the Indian consumers becoming more and more brand agnostic, these foreign manufacturers are finding success. The Indian market has become a battleground for new products and, consequently, manufacturers are feeling the effect of global open markets first hand. Not only do they have to ramp up capacity, they also need to bridge a dominant technology and performance gap with the foreign products. A crowded market that is looking for more renowned brand choices is putting pressure on product pricing for less valued indigenous products, affecting returns for Indian manufacturers.

Reduced returns impact the ability for Indian manufacturers to further invest in the much-needed product development. Both, world-class product development and building a brand, are weaknesses for Indian manufacturers who wish to compete in overseas markets.

For renowned foreign manufacturers, this is actually quite a different business equation. For them, even if price competition is fierce in the Indian market, every sale of a product still translates in realising incremental profitable growth in a new market. Given their experience in varied markets, they are either entering with scaled down versions of existing products or are quick in modifying their product lines to meet Indian requirements, leveraging already sunk product development costs.

It is on the back of this immense shift of market pressures in India that there is a view emerging that the Indian manufacturers actually are at high risk to lose relevance quickly, not only in India but also on a global scale.

This point is evidenced by the fact that there is only a limited volume of indigenous high-value industrial output exported, underscoring that Indian manufacturers are apparently not well-positioned to compete in an ever-globalising market and, thus, having no other choice than to focus on expanding in India itself. The few exceptions would be companies from the Tata Group, Bharat Forge, Reliance Industries, Mahindra & Mahindra. But the point is that today there is hardly any global brand recognition for an Indian product. This is in stark contrast to the IT industry which has developed strong global brand names.

The automotive industry in India is a good illustration of this argument. This industry is going through a major phase of expansion, offering arguably the broadest portfolio of cars compared to anywhere in the world, from the Tata Nano to the most luxurious brands. The same is true of the two- and three-wheeler segment, as well as the entire commercial vehicle segment. Across all these segments, in less than five years, the automotive market has become incredibly crowded, and while the dominant players are still Indian, their dominance is under threat. The consumers are hungry for choice and are opting more and more for foreign brands.

As the market is hot, the line-up of eager foreign entrants is long… Honda, Toyota, Volkswagen, GM, Ford, BMW, Renault, Daimler, Volvo, Hyundai, Nissan; some more are to join the line to take advantage of India in two ways; first as a market to drive incremental top and bottom line growth and, second, as a potential base for export manufacturing.

All this is happening even as growth rates have flattened, production capacity has increased beyond market needs, prices of raw materials are steadily increasing and consumer liquidity has tightened, foreboding further margin pressures through intense competition.

With India being the main market for all Indian car manufacturers, these dynamics beg the question as to how companies such as Mahindra & Mahindra, Ashok Leyland, Eicher, Maruti Suzuki, Tata Motors, Hero Honda, TVS, Bajaj Auto and others will stay relevant. Each Indian automaker is feeling the pinch of reduced market share and returns, while their global reach and portfolio are no match to what their foreign counterparts can offer.

What is happening in the automotive industry can easily be translated across most industries in India without exception, especially when it relates to consumer goods such as mobile phones, televisions, white goods etc. For each of these products, the fundamental drivers are the same: A hot market and an intrinsic weakness in product development and branding capability, allowing foreign entrants to rapidly take share and overshadow the local Indian manufacturers, depriving them of growth in their home market, reducing their relevance, giving them also no chance to create technological and financial strength to compete on international markets.

Remaining an indigenous manufacturer, purely focused on the Indian market itself, will be a risky strategic direction to take as the Indian market is far too open. Entering overseas markets requires significant investments, product development and/or branding. It is clear that the Indian manufacturers are having to grapple with complicated strategic choices.

To overcome the weakness in product development capability, a number of joint ventures and collaborations with foreign partners were formed over the past years. The common driver for these ventures was to access new technology and in return, give their partners controlled access to the Indian market with modified versions of their products. Yet, truly what did the Indian manufacturers fundamentally gain from these partnerships?

Other than being able to immediately expand their product portfolio in the home market and, thus, buying time in staying relevant, there seems to be little gain from these partnerships in becoming global operations. It is worth highlighting that Tata Motors took a different approach and focussed on acquiring R&D capability outside India, and this was done well before the Jaguar and Land Rover acquisitions. Hence, as part of going global, foreign acquisitions are also a sound strategy. Yet, the funding needs are considerable as the recent acquisitions by Bharat Forge, Tata Motors and Tata Steel have demonstrated, leave alone the risk, as in many cases the (to be) acquired companies are bigger than the acquiring ones.

Obviously ‘selling out’, more or less as Ranbaxy Laboratories did recently is another strategic option, again underscoring the point that being an established company in India, provides no fire power to enter the global market. Viewing all this together, there is a perfect storm in the making in the world of Indian manufacturing.

To weather this, Indian manufacturers must accelerate their globalisation strategies. Otherwise, manufacturing in India will marginalise towards being predominantly under the umbrella of foreign brands leveraging India’s cost base. India deserves better.

In this context, the Indian government too has an important role to play in providing the right infrastructure for the manufacturers to thrive, including a receptive political environment.

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