Archives for posts with tag: Honda

The Schumpeter column in the recent Economist, “Mammon’s new monarchs” describes the emerging world consumer as king. It seems that Western companies are interested in knowing how to appeal to emerging world consumerism and compete with home-grown domestic rivals. Consultants from Boston Consulting Group (BCG) advise companies to jump in early. I agree that going in early can be useful, but according to my observations, this is not essential nor a panacea.

honda-city

Consider the automobiles industry – Honda started early in India, in 1998. Toyota started shortly afterwards in 2000. Their early start has certainly helped. Honda’s City and Toyota’s Innova enjoy stable market leadership in their respective segments. Though many thought Renault-Nissan to be a late entrant to India (over a decade later than Honda), given that automobile ownership is still at the lower tail of the S-curve, it still has potential to emerge a winner. Renault is already doing well with its Duster shining in the market this year.  The same applies with Volkswagen, which really kicked off with the Polo in 2010. So, coming in later, even a decade later can be okay. On the other hand, in the absence of quality offerings, coming in early is not a cure-all as Fiat has failed to learn in repeat attempts at conquering the market.

Similarly, in the appliances arena, Hitachi that started early in the upper end high quality air conditioner segment, continues to enjoy aspiration status. Panasonic that is just starting its big bang could yet do well. LG may have made early inroads, but eventually quality shall become the priority of the consumer. Already, at the “non-frugal” end LG finds it difficult to attract the well-to-do. Experience with air conditioners also demonstrates that starting early is fine, but quality is perhaps more important.

LG

My own feeling is that when deciding market entry into emerging Asian economies, companies shall do well to concentrate on two things. Firstly, they need to get the price point right and match local tastes, while matching the quality expectations. This is where Hyundai succeeded with Santro. The second point is to focus on a core competency. So, for example, Daimler Benz did well to first start with its Mercedes E-class, a core competency yet economically right for India. It’s A-class is only now being contemplated, over a decade later (the price point is no doubt more suitable, but not what Daimler is more commonly associated with).

Many people try to bring out a single point solution, such as “start early”. This pithy advice can result in disasters as the Fiat experience in India demonstrates. Instead, international business strategy needs to concentrate on what sells (the buyer’s desires), and what can be sold (the seller’s competency), which are perhaps more important to conquer the Asian consumer.

It was interesting to read recently that Honda is planning to review its product strategies for the Indian market. Though third-placed in the Japanese car market, as a global player it is actually second to Toyota in the Japanese manufacturers rankings. However, in India Honda as a brand has been at a distant seventh, despite being here for nearly 17 years.

Even as of now, Honda is considering only a revamp of its product line-up, which does not seem enough as a survival/winning strategy in the Indian context. A recent McKinsey Quarterly reports that to succeed in the complete Indian market and not merely its niches, international companies will have to learn to do business the Indian way, rather than simply imposing global business models and practices on the local market. The scorecard suggesting techniques to win in India, gives out seven pointers that need to be taken care of. Alas, Honda as a brand has failed to live up to the scorecard.

In international business, Brand India is associated with affordable products and good global managers. According to the newspaper report, Honda is just now delving into affordable products in the form of the smaller diesel options, but what they really need to address is the “scaled down in terms of function but even more aggressively lower priced” cars. Honda requires an understanding of the needs of Indian consumers and should customize itself accordingly.

Many multinational companies have hired Indians visibly into their executive board, not only to gain goodwill among the Indian market but also have understanding of natives and the exact market pulse. They are the people who have grown up in India and have better experience about the market. In the auto industry, market leader Suzuki of Japan has Indian R C Bhargava as its Chairman. Japanese giant Toyota has hired veteran Sandeep Singh and others on their board. Deputy Managing Director Sandeep has been with Toyota for years leaving briefly for stints with Mahindra and later JCB. He has helped the company get a better insight of the market and has helped Toyota place them better in the market. Newer vehicles will have only a limited impact on Honda’s business here, until the company manages to get a grip on the consumer pulse.

My own limited experience about Honda leads me to believe they are arrogant. There are two types of foreign companies that try and win in India. The Honda-type believe that they can conquer using their global strategies and global experience by “teaching the natives”, while the others are companies that try and learn from the natives and address the needs of the natives. They get the idea that Brand India (or any market different from the highly developed countries) has to be dealt in a separate way than the global market. Again contrast with Toyota: While Honda is severing relations with the local partners it entered the market with, Toyota have retained Vikram Kirloskar as Vice Chairman even though Kirloskar group has now only about one per cent share in Toyota Kirloskar Motor. While Honda is keen to remove vestiges of its local flavor, Toyota chooses to accentuate its belonging to society. What a contrast!

Arrogant companies will not succeed in India. Adaptation to the Indian consumer’s demand for innovative, low-cost delivery systems and high value for money products is a “must”. Invading companies learn this over time – some sooner than others. Of course, some just remain unsuccessful and have good basis to complain about corruption and difficulty of doing business in India 🙂

The recent labor unrest at Suzuki’s Indian subsidiary Maruti has made me think about the seeming irrationality of workers in the country’s leading company killing their Human Relations Department boss. Maruti’s Manesar plant has been facing labor problem through most of 2011, so one might be led to think it to be a Suzuki problem with not understanding the Indian labor. Combined with the recent unrest at Honda and auto components manufacturer Allied Nippon, one might be led to think that this as broader Japanese problem. After all the Japanese have had almost no labor unrest in their recent industrial history at home, so perhaps their management is under-skilled in the area of labor relations. However, further Internet research reveals similar recent unrest at Pricol in the South as well as Graziano Transmissioni in the North of India. So, perhaps this is a wider problem of India, and it’s our strict labor laws that prevent easy firing of undisciplined workers.

As I trawled the Internet for wisdom about the cause of this particular strife, I came across an interesting question at the bottom of a newspaper article: “Is this a problem of labor or a problem of management?” Though I did not leave my comment on the website, my gut reaction was that it was a problem of management. Simply going by the fact that labor and their demands were not managed properly, neither preemptively nor when they reached boiling point. With so many contradictory news coming up on the cause, I became less interested in the who said what, and identified what one newspaper article mentioned the broader issue of wages, and especially inflation and wages, use of contract labor and management insensitivity.

When these three issues surface my natural reaction is that this is purely an area of Japanese mismanagement. I am forced to think that 80% of the blame lies with Japanese methods. In this blog I take a look only at the wages and inflation part of the equation.

In the area of wages, Japanese managers tend to ignore the local and are heavily reliant on their own Japanese origin management methods. Alas! What is fair back home might not be fair in the host country. This important facet of international business is sometimes forgotten. Typically, Japanese wages are decided by companies based on what everybody else is doing. So, they look for what is the industrial average wage increase and then based on company performance they add or subtract a bit to be around that average. I suspect that labor at Maruti and Honda does not think of itself as above average; they feel they are part of the leading companies of India. This is where perhaps the first bit of dissonance takes seed.

The other problem is that industrial wage increases are often in close relation to inflation figures. Here, probably the Government of India is also a culprit. Inflation figures that have been reported are based on a wholesale price index, which does not reflect what you and I pay for goods and services. Over the last ten years, the reported inflation will have averaged below 10%. However, the true price increases facing consumers is much more. Even at the upper end of the spectrum, a buffet dinner at a leading restaurant used to be priced at INR 500 at the turn of the century, which has increased over five times. This suggests that our average annual inflation is at about 15%. A even a more humble, basic Subway sandwich that was INR 40 in 2006 is now INR 85. Common Indian family entertainment, such as going to the movies has similarly doubled in cost in the last 5 years. Such anecdotes are illustrative of the price increases being felt by the people and no amount of reporting by government of 7% inflation etc. can change real experience.

A lot of people are treating the Maruti incident as the last straw on the camel’s back, but no one is paying attention to the facts that lead to the crackdown. The iron suitcases laden on the camel’s back require fair and proper addressing to avoid any further mishaps. My recommendation is that honesty in reporting the true changes in cost of living will help corporate management to accurately implement wage increases. A “5 why” analysis seems to suggest that one cause of labor interest is actually a corrupted government reporting on inflation.

India as an economy, on its way to success, has grown into one of the most famous and popular destinations in the whole world for Foreign Direct Investment (FDI). Our liberalizing trade policies and growing technology & telecommunication sectors are bringing India forth to some of the most productive, profitable and secure foreign investments. However, India still needs to fulfil several basic requisites for realizing its potential for FDI.

Array of Taxes

India has been sending mixed signals to investors by changing its tax and tariff policies without notice. The recent decision to arbitrarily impose taxes retrospectively, is also hardly confidence inspiring. The taxes levied in India are exorbitant and are segregated in various parts. Sales taxes are levied by individual states and so these taxes vary from state to state. This complex sales tax structure impedes FDI.  We need one common tax market so that the overall confusion about taxation is reduced to a larger extent. For example, a traveller to Delhi’s neighbouring state of Uttar Pradesh has to pay a state entry tax. This leads to needless queues and time wastage. If the vehicle is a goods carrier then state entry taxes are levied on the goods.  The convoluted tax laws would confuse the most intelligent of businessmen struggling with feasibility studies on market entry. We need to devise a firm and stable tax law for the country to bring in a buoyant FDI.

Age-Old Labour Laws

Antiquated labour laws also come as a big hurdle for FDI. A World Bank report titled “India Country Overview 2008” says that these laws are said to be among the most restrictive and complex in the world. India is ranked very low in the Global Competitive flexibility related to labour. This inflexibility is embedded mainly in the laws and regulation relating to disputes in change of service conditions. One of the biggest impediments to privatization in India is the lack of an exit policy, that is, a policy to govern the dismissal of redundant workers. Law reform is required for attracting foreign investments. Recently, Honda faced a hit in its production as one its key battery suppliers were facing labour issues. The company received a setback in its despatches due to these age-old labour laws. These laws have never been changed in the past 60 years and need immediate addressing in order to bring in better FDI. Foreign government leaders like Singapore’s Goh Chok Tong have been pointing this out year after year at forum after forum.

There is also lack of educated workforce and right-skilled workforce in India. The workforce needs to be educated and trained in their respective skills. The lack of skilled-labour does impose big obstacle in bringing foreign investment. More than anything, to unleash the power of human capital, basic education for all is a must. Measureable progress shall be the fundamental foundation that determines the strength of an economy.

Transparency International (TI) Ranks India 95

The Transparency International (TI) ranking placed India at 95 in its Corruption Perceptions Index (CPI). The CPI published by TI ranks countries as per the perceived levels of corruption, which are determined by expert assessments and opinion surveys. Corruption, as defined by CPI, is the misuse of public power for private benefit. CPI rankings scale from 10 (very clean) to 0 (highly corrupt). Our current ranking gives out a perception of India being a highly corrupt estate.

Before every investment, an investor intends to invest in countries that are free of corruption or at least have lesser amount of it. There should be proper regulations on all business activities to avoid negative implications of the same. Hence, in order to attract clean and stable foreign investment, our aim should be to reach in the measureable goal of top 20 of the TI ranking.

The Ease of Doing Business (2012) survey by the World Bank has ranked India on 132 among the 183 economies that are a part of its survey. The ranking has gone up (7ranks) from 139 in 2011, but it still has a long way to go. As per Wikipedia, these rankings are based on the study of laws and regulations, with the input and verification by more than 9,000 government officials, lawyers, business consultants, accountants and other professionals in 183 economies who routinely advise on or administer legal and regulatory requirements. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

Higher ranking simply boost the morale of an investor about the country and the way of doing business there. So, to bring in healthy and stable foreign investment, India needs to gear up to bring ourselves in the Top 20. Government needs to set up an attainable goal of moving up 10 ranks per year so that a more progressive future becomes visible.

Based on mentioned parameters for CPI and Ease of Doing Business ranking evaluation, India needs to draw the basic sitemap for bringing in better FDI and better growth for the country. These are some of the most important parameters that India has to work on. If these pointers are taken care of, India will be on a faster road to progress and will gain more investments.

In my opinion, should a single barometer be needed, it is perhaps the Ease of Doing Business ranking that is most important to judge how effective India is in attracting FDI.

I came across an article on the website of Times of India, “What’s on the to-do list of expat CEOs in India”, which discussed the Dos and Don’ts of expatriate CEOs in the Indian market. The article made an interesting read and also initiated an argument between my Indian self and my global self on the abilities of Indian managers in the global scenario and the need of an expat CEO, especially considering the recent Adidas/ Reebok fracas. Being a part of the current international business environment, it really intrigued my Indian self to the extent of questioning my Global self on these stances taken by MNCs driving on the road to success in the Indian market.

The conversation begins:

Indian Ashok: Does the Indian market really require an expat head?

Global Ashok: India as a huge market base comes with its own pros and cons. It is a part of the new growing world and a marketing strategy that has worked with others countries, might not work here. Every company/MNC planning to enter the Indian realms has to come up with a marketing strategy and road map exclusive for this country. Hiring an expat CEO or an Indian manager is a part of the same.

Indian Ashok: Is Maruti’s decision as an evolved company, to replace its Indian MD with a senior Japanese professional representative of a newer marketing strategy?

Global Ashok: Maruti/MUL replaced its Indian MD, Jagdish Khattar, by Japanese Shinzo Nakanishi. The step, it seems, was initiated to ensure that the company has a better leverage at its Japanese Head Office. Khattar played his role to establish the trust factor in the Indian audiences/customers and replacing him with a Japanese member was required for that cross-border coordination. In a masterstroke, Maruti brought back R C Bhargava as Chairman to retain communication with the Indian interface. Maruti is a perfect example of a company evolving leadership strategy as it matures in the marketplace.

Indian Ashok: In that case, why when there are companies with two or more heads representing the same section – one of them always seems to be an expatriate?

Global Ashok: Depending on the stage of its evolution and based on the strategy to meet business targets, a company might want to hire an expat Manager with more global experience and try to groom their local team to adapt to that corporate DNA. Many Japanese companies in India, from Toyota to Honda to Hitachi, have an expat head because the Indian managers have still not developed that global corporate DNA. However, some Japanese companies like the logistics leader Nittsu decided as a matter of strategy to hire an Indian to lead the company. Senior Japanese were appointed as segundos to ensure that the local flavour remained in harmony with the global.An expat head may well be removed when the MNC gets more comfortable and evolved in the new market.

When business was not moving fast enough due to Head Office resistance, GE brought in a senior person from USA and stationed him in India. The head was entrusted with the agenda of influencing Head Office business units to enter the market.

The above examples demonstrate that bringing an expat is purely dependent on what the company needs to do to grow in the market.

Indian Ashok: Do you really believe there is a trust factor involved in hiring expatriates for any company entering a new market (especially Indian market)?

Global Ashok: Keeping expat heads does also bring in the trust factor. Any company might want to start their work with people they already know and whose abilities they have seen over a period of time. Each company comes with a unique work culture and expat heads seem to be well aware of that. An expat CEO might align the subsidiary company in a better way to its parent.

Indian Ashok: Does keeping an international head bring in the idea of a better watch or supervision for the parent HQ?

Global Ashok: Yes, that’s another good aspect of keeping expat heads – it offers better supervision. An expat head might give out a signal of the subsidiary company to be under close supervision of its parent. There would be regular sharing of reports in a way that the parent would have a better understanding of the overall scenario. Of course this is not necessary, as the Nittsu example reveals.

Indian Ashok: Okay, I understand now that “Leadership is not about nationality but about business targets”. It is more about the company, its strategy and growth plans rather than an individual leader or their nationality. Hiring an expat CEO or an Indian head can only be decided as per the requirements of an organization and their level of evolution. And, now I think I can sleep with a clear mind.

A recent IMF report placed India as the third largest economy, overtaking Japan. When I heard this, I was shocked. It reminded me about what they say: there are lies, damn lies and then there are statistics. When I probed further, I understood that the size was being measured in terms of purchasing power parity (PPP).

Why was I shocked? Well, I recently spent three months in Japan, living in Tokyo. There is no way that anything in Japan, compares with India. During my stay, I had the opportunity to travel to within Japan as well as to Singapore, China and Thailand. As far as infrastructure goes, India is a long way away from Shanghai, Bangkok or Singapore, let alone Tokyo. So, this IMF report should best remain buried, until India reaches the same league as it peers in Asia.

However, there is a caveat. India is in the same league as other Asian countries in terms of its business potential with high requirements for infrastructure. Still lacking in high speed rail connectivity, India can be compared to Japan in the early sixties. That means there is a tremendous amount of investment potential in social infrastructure like roads, ports, power and water, lasting at least another 50 years. At the same time, to avoid the problems that Japan of the sixties and seventies faced and that Shanghai faces now, Clean Technology is the need of the times. European companies like, Siemens from Germany in renewable energy and Veolia from France in water are already leading the way. With 20GW of solar power targeted under the National Solar Mission, the total value of this sector alone is expected to be USD 35 billion. International business would do well to add India to its portfolio.

In anticipation of improved infrastructure, frontline automobile companies from Europe such as Renault, Volkswagen and BMW have followed Asian giants such as Toyota, Honda and Suzuki, starting manufacturing plants here to develop new markets. Companies like Bosch and Valeo, automobile components suppliers in Tier 1 are already active, and Tier 2 should also follow shortly. The auto components industry is expected to grow to over USD 110 billion by 2020, exporting up to USD 30 billion. Then to help these, auxiliary services firms such as those in IT systems developments would follow.

With a weakening market for infrastructure and automobiles at home in Europe, Western businesses would do well to have a tri-pronged Asian business strategy: India, Japan and China.

A half century of business opportunity waits.

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