-Vijay Govindarajan, Rajendra Srivastava, Anup Srivastava & Aman Rajeev Kulkarni


Harvard Business Review article written by Professors Rajendra Srivastava, Vijay Govindarajan (VG), Anup Srivastava and Aman Rajeev Kulkarni, delves into how Indian subsidiaries of multinationals have notably higher price-to-book ratios than their parent companies. These numbers show that almost on all fronts — that is, market growth, asset utilization, and profitability — the Indian market offers more attractive prospects than the home market for the multinational.

India is undergoing a significant economic transformation characterized by an expanding urban middle class. The country's middle-class population rose from 14% in 2005 to 31% in 2021 and is projected to reach 63% by 2047. This growth is influenced by rapid urbanization, migration from rural to urban areas, and an increase in disposable incomes. By 2030, India's middle-class consumption is expected to rise to $10.7 trillion, surpassing that of the US. Furthermore, Goldman Sachs has highlighted India's impressive GDP growth rate, with predictions suggesting it will have the highest growth rate from 2020-2029. By 2075, India is projected to be one of the top three global economies, alongside China and the USA.

Success in India requires a multifaceted approach, emphasizing significant resource commitments to localized product design, manufacturing, and marketing. An in-depth understanding of the country's diverse cultural landscape, with over 780 languages and a myriad of local laws and customs, necessitates the customization of products and services. The advent of the "India Stack," the world's largest unified software and digital infrastructure platform, has brought over 1.2 billion people into the digital age, enabling presence-less, paperless, and cashless service delivery.

In summary, the high P/B ratios of multinationals' subsidiaries in India demonstrate the value of what will soon be the world’s largest consumer market. Every B2C company must take notice and must have an India strategy. The strategy must entail a suitable plan to enter the market while doing so with high profitability and efficient utilization of capital. Importantly, it means going back to the drawing board, creating products made for Indian markets, producing them in India, using India-sourced raw materials, and distributing them using local channels and digitally enabled infrastructure. A wholesale copying of what worked in a developed country and applying it to India is unlikely to work.