Five ways European car brands can succeed in India

American and European automakers just can’t seem to get a foothold in India. Global market leaders such as GM, Volkswagen and Ford are only small players in India with a market share between one and four percent. In contrast, their Japanese and Korean competitors dominate the market.

This is due to two things, according to Rao. “Asian companies, because of their experience in their home countries, better understand how to adapt their product to the needs of Asian consumers. In addition, Korean and Japanese companies pay more attention to detail, work incredibly long and hard to smooth out the smallest problems, and have a much stronger will, almost a hunger, to succeed,” the top executive said.

“In contrast, among Western car companies there seems to be a chronic doubt as to whether they can succeed in India without a local partner. Therefore, many Western car companies have entered joint ventures in recent years that eventually failed, when they could have done just fine on their own. At least, if they had run their subsidiaries in a way that better suited local conditions.”

1. A joint venture is not always the best way to enter the Indian market

France’s Renault, which Rao led for three years, is one of those European companies that looked for a partner for its Indian market entry. In 2007, the automaker entered the Indian market through a joint venture with Mahindra and together they launched their first car, the mid-size sedan “Logan”. Despite it being a reliable model, the Logan failed to strike the right chord with Indian consumers due to its dated looks . Therefore, the Logan failed to achieve the sales figures Renault was looking for.

“When I joined Renault, the corporate structure in India was terribly complicated. Besides the Mahindra joint venture, they also had their own Renault Nissan Alliance companies and were considering setting up a new joint venture with another partner”, Rao says. “So when they asked me what I thought of their operations in India, I said honestly, ‘You guys are a super smart company with an unnecessary inferiority complex. You have excellent technology and make great cars, why don’t you dare compete in the Indian market without a local partner?’”

2. Don’t just sell, but also manufacture in India

That Renault could indeed stand on its own two feet quickly became apparent. The joint venture was dissolved in 2010 and Renault immediately embarked on a major reorganisation. “Step one was to bring all divisions together in Chennai, including production. Having your own production facility is perhaps rule number one for success in India”, says the top executive.

“It ensures faster turnaround and allows you to respond immediately to changes in the market. All your knowledge is under one roof, so you can manage all those separate parts more efficiently and make adjustments in your engineering, material or design more easily.”

That was exactly the issue Renault needed to address now. After the miss with the Logan, it needed a new model that better suited Indian requirements.

“After much research, we came to the conclusion that the Duster, with the necessary modifications, was the perfect car to re-launch Renault in the Indian market”, he says. One of the key factors for Renault’s success was that the man who led the global development of Logan and Duster, Gerard Detourbet, could come to India. But it took more than just a good product, the Duster could not be a success until we got it sold outside the big cities too. So we then created a new dealer network in a short time that covers the whole of India.”

The Duster became a roaring success and within months of its launch, Renault tripled production of the car. “At a time like that, you see how incredibly important it is to be able to adjust your production immediately to that demand”, explains the former CEO. “You only have that flexibility if you produce here. And there are many other advantages. For producers of large products like cars, it is simply a must, you save at least 10 to 20 per cent in import costs by producing locally. It’s always a win-win situation.”

3. Never try to run your subsidiary from the headquarters

Despite Rao’s success at Renault, he switched to Czech carmaker Skoda in 2012. ‘It was only when I started working that I understood the challenges that awaited me at Skoda India’, Rao reflects. “The first local managing director of Skoda appeared not to have his affairs in order and despite them being unhappy with the results at the Skoda headquarters, they didn’t realise how big the problems really were. When they found out that, among other things, consumer sentiment was badly damaged, they decided they didn’t want to cooperate with anyone in India anymore and shifted all control to the head office.”

This left Rao at the head of a company where the team had been operating without a managing director for four years. “Trying to run a subsidiary from headquarters is a common mistake made by multinationals”, says Rao.

“We sometimes take globalisation a little too literally. You should not be tempted to think that it is possible for executives at headquarters to run a subsidiary effectively through video calls. The business will only succeed if you delegate responsibility to people on the ground. Only they really understand what is going on and have the focus to respond quickly to market developments. The key is to ensure that accountability and responsibility are judged equally among all managers and that control mechanisms, such as periodic audits, are carefully implemented.”

4. Dare to micromanage in the early years

Rao had to make another big sweep. “I was faced with poorly organised dealers, extremely weak customer satisfaction and the need to improve financial performance. We had to work hard to build a cross-functional team and raise employee morale. When I see the progress the company has made in the last decade, it makes me very proud to have been part of the team that built the new version of Skoda”, says the former managing director.

“India’s workforce, thanks to a fast-growing economy, is generally focused on fast tracking their career. It is therefore important for management to mobilise the team around business objectives and explain that sometimes it takes longer to progress or bring in bonuses. In the early years, ensure that the local team really understands the global corporate culture, production and quality standards and implements them day in, day out. In short, be present on the ground and dare to micro-manage. After a year or so, you can switch to a looser management style.”

In addition, the former manager also advises all European headquarters to pay close attention to customer satisfaction in India. “It is such an essential component for success in India. Partly because it forces you to quickly make product and service adjustments that you may have missed in your initial plan. It is therefore essential that each headquarters has direct access to customer feedback, especially in the early years, and that this is regularly reviewed. That way, you can intervene in time and make the necessary adjustments.”

5. Dare to adapt to India in all aspects

“Before going to India, you need to understand how and in which segment of the market your product fits best. Skoda’s market entry coincided almost perfectly with the decline of the Opel brand in India. This allowed us to immediately position Skoda as a high-quality and safe European car brand at a relatively affordable price. ‘Valued luxury’ was the term we later used to describe its positioning between the mass market and the luxury car segment”, Rao explains.

“We were able to grab that niche with four new products at the time. But betting on a niche, means that as a company you have to have realistic expectations of your market share and sales. Because the niche strategy will make your company successful, but not a market leader.” The former Skoda top executive cites Apple as an example. “They know that their product is expensive for India and that they will never have extremely high sales here. And they seem content with that, although they have now started manufacturing in India so that could just change.”

With Skoda, Rao followed the same route. “In the beginning, we were happy with a one or two per cent share, but the new Skoda strategy is more ambitious and builds on some of the lessons the company has learned over its 2 decades of operations in India.”

According to Rao, this is one of the most important lessons European companies should take to heart. “As an international company, you have to dare to adapt to the Indian market in all aspects. If you are not yet sure what that means for you because you have only just taken your first steps into the market, start small. Take time to learn and only then commit to high growth, that is the only way to succeed here.”