By Ravi Venkatesan
FORTUNE -- Multinational pharmaceutical companies agree on one thing -- that India is one of the hardest places in the world for Big Pharma to compete thanks to price controls, compulsory licensing of drugs, poor intellectual property protection, and a host of capable generic competitors.
The recent decision by India's Supreme Court to deny patent protection to Novartis (NVS) for a reformulated version of an anticancer drug has just added more fuel to the fire, provoking drug companies and the U.S. Chamber of Commerce to unleash angry warnings that it would cut off investment to the world's most populous democracy and ultimately limit access to lifesaving medications. The judgment adds to a growing list of trade tensions between India, the U.S., and Europe at a time when India desperately needs more foreign investment to restart its slowing economy.
Novartis is emblematic of many multinationals that rigidly stick to their developed market business models even as they try to conquer emerging markets with fundamentally different economic and social realities. They seek to extend their reach into these developing countries by replicating their developed-country pricing and distribution as well as employing lobbyists to pave their way over regulatory barriers where they exist.
Most multinationals, therefore, find themselves part of a "1% Club" where India accounts for an irrelevant 1% of their global business and their market share is also in the low single digits. They inadvertently allow themselves to be seen as the new imperialists and cede market leadership to more flexible competitors.
MORE: Sany's bold U.S. move
Within the pharmaceutical industry itself, there are several companies that are doing well in India by adapting to the market instead of the other way around. Since 2005 when the Indian government first allowed patents, foreign pharmas have doubled their market share from 15% to 30%.
In the foods sector, Nestle has built a massive instant noodle business by understanding India's changing demographics and appealing to the Indian palate instead of attempting to change the nation's dietary habits as Kellogg (K) did when it entered the market. German retailer Metro has built a fast-growing wholesale business even as Wal-Mart (WMT) struggles to crack India's retail regulatory barriers.
Apple's (AAPL) reluctance to invest in a country with poor distribution where carriers cannot subsidize the price of an expensive handset created opportunity for Samsung and Nokia (NOK) to dominate the cellphone market. In a land of vegetarians where the cow is considered sacred, McDonald's (MCD) has become a fast-food leader by localizing its menu and pricing and now even opening completely vegetarian restaurants.
Microsoft (MSFT) discovered India to be a tough place to run a software business with a piracy rate of 75%, governmental obsession with open source software, poor Internet infrastructure, and low usage of computers. Realizing most Indians think of "copyright" as the "right-to-copy," the company chose to adapt its business model for India instead of vice versa. Launching new lower-priced versions of Windows and Office, creating local language versions, and massively increasing distribution resulted in a 10% decline in piracy.
The lesson is clear. Chaos is a defining feature of emerging markets like India, and to do well in these countries, multinationals need to embrace and conquer chaos, not shun it. By chaos I mean a cocktail of ineffective and corrupt government, bureaucratic red tape, uncertain policies, bad infrastructure, lack of IP protection, and distrust of multinational corporations.
Most emerging markets tend to resemble chaotic India far more than China, and therefore winning in India is a pretty good litmus test or proxy for a multinational firm's ability to succeed in other emerging markets. Paradoxically what this means is that it is precisely because India is so challenging, that global companies must learn to succeed in this market; in the process they develop the mindset, capabilities, and products that greatly help them win in other markets.
Don't get me wrong. By no means should India and other countries be let off the hook for their systemic shortcomings that make them hostile places in which to do business. There are real issues like corruption, harassment by tax authorities, stultifying bureaucracy, policy vacillation, and retroactive amendments to the law which the government must address urgently.
However, is it such a crime for the Indian government to want to ensure that its citizens, 800 million of whom live on less than $2 a day, have adequate access to lifesaving drugs? Is it wrong for India to be cautious about embracing genetically modified food or opening up its sensitive retail sector? If anything, the nation's highest court performed its fiduciary duty by safeguarding its national interest. By refusing to address its real shortcomings, India unfortunately allows other countries to clump all these issues together and put it on the defensive.
Companies that are really successful in emerging markets are contrarian. Their CEOs are not waiting around for or coercing these emerging economies to evolve into what they want them to be and are instead adapting their business strategies to the current reality. Relying more on personal immersion than spreadsheets and boardroom presentations to develop their market understanding, leaders of these companies are able to look past the chaos and see the potential of markets like India.
Their visceral understanding of the market fuels a commitment to winning in what will be one of the world's largest economies. They invest early with a long-term view and make great efforts to quickly localize their operations. That translates into local management with real authority, localized business models, and market-specific products. Their actions are quite contrary to the vast majority of multinationals that prefer to wait until the market explodes and until then opportunistically seek the next new market du jour. When it comes to succeeding in emerging markets, corporate mindset trumps everything else.
The author is the former Chairman of Microsoft India and Cummins India and author of the book Conquering the Chaos: Win in India, Win Everywhere, to be released in June by Harvard Business Review Publishing.
Bollywood pioneer Ronnie Screwvala is Disney's point man in India.
By Kurt Wagner, reporter
FORTUNE -- Ronnie Screwvala believes in India. As a self-made entrepreneur, Screwvala turned his small cable television company, UTV, into a multimedia conglomerate worthy of Disney's (DIS) attention. (Disney fully purchased the company for an undisclosed amount in 2012, and Screwvala is the managing director of the joint entity in India.) The key to Screwvala's success: capitalizing MOREMay 28, 2013 9:54 AM ET
It may not be the price of the iPhone as much as the economics of mobile broadband.
FORTUNE -- Apple (AAPL) made headlines last month on reports that its iPhone shipments to India tripled in the space of six months. Since then it's instituted some aggressive marketing techniques, including an advertising blitz and a buyback scheme, that could propel the company's sales in the country, according to one estimate, to $1 billion MOREPhilip Elmer-DeWitt - May 3, 2013 11:38 AM ET
Has Apple finally found a way to crack the Indian market?
FORTUNE -- Two data points from the subcontinent, where Apple's (AAPL) iPhone sales have been notoriously slow to take off.At Asymconf: California last week, Paul Brody, IBM (IBM) vice president for electronic global business services, told attendees that he had just come back from India where mobile carriers are activating iPhones at the rate of 2,000 per day. The Times of India MORE Philip Elmer-DeWitt - Feb 8, 2013 7:27 AM ET
With models, starlets and disco music, the iPhone 5 makes a splash on the subcontinent
FORTUNE -- "Nowhere in India will you see this kind of queue to buy a smartphone." -- TV reporter, Mumbai, Nov. 2
India may be the fastest-growing mobile phone market in the world, but it's been hostile territory for Apple (AAPL).
In a country of 1.2 billion that buys 15 million cell phones a month, Samsung commanded a MOREPhilip Elmer-DeWitt - Nov 6, 2012 10:34 AM ET
Using data from 140,000 smartphone apps running on devices all over the world, Flurry Analytics has created a fascinating series of graphs showing ...
Which countries have purchased the most Apple (AAPL) iOS and Google (GOOG) Android devices
How many people in each country can afford a smartphone but haven't yet purchased one
Which countries are the most mature (in terms of smartphone penetration)
Finally, the chart above, showing where the future market opportunities MORE
The key to future sales growth is signing up new cellular operators, especially in Asia
In a series of well-researched charts, Morgan Stanley's Katy Huberty has put her finger on the one factor -- all others being equal -- that really drives smartphone sales: The number of cell phone operators that sell the thing.
In a report issued to clients Sunday, Huberty shared the results of an analysis of 760 carriers in MOREPhilip Elmer-DeWitt - Nov 21, 2011 8:12 AM ET
After the U.S (with Verizon) and South Korea, Apple is likely to target China, India and Japan
The iPhone built around the CDMA protocol that Apple (AAPL) launched in February went first to Verizon (VZ).
That made sense, since Verizon Wireless, with 94 million customers, represents the world largest market for CDMA mobile phones.
But as J.P. Morgan's Mark Moskowitz points out in a note to clients issued Tuesday, Verizon's is not the MOREPhilip Elmer-DeWitt - Apr 13, 2011 9:48 AM ET
The key, says Gene Munster, is the iPhone's addressable subscriber base
Apple's (AAPL) shares have dropped $24.52 (6.8%) in the past three trading days for reasons that have nothing to do with the company's underlying business. In a note to clients issued Wednesday, Piper Jaffray's Gene Munster tries to bring the subject back to Apple's fundamentals.
Most investors, he writes, believe Apple's earnings growth will slow to 15%-20% in 2012, and that's MOREPhilip Elmer-DeWitt - Feb 23, 2011 7:18 AM ET
Indian telecom giant Bharti Airtel is aggressively expanding at home and abroad to maintain momentum in an increasingly competitive market.
By Anurag Prasad, contributor
Sunil Bharti Mittal wants to be a big influence in the everyday lives of the nearly 200 million users of his Airtel phones across South Asia and Africa. He wants to play banker, entertainer, teacher, doctor, and countless other roles. If he succeeds, he'll not only change how MOREFeb 10, 2011 12:02 PM ET
|Men's Wearhouse fires the 'I guarantee it' guy|
|Men are disappearing from the workforce|
|U.S. oil boom helps thwart OPEC|
|I will graduate with $100,000 in loans|
|Apple TV adds HBO Go and WatchESPN|