The Mystery of Inner Cities And Why Foreign Companies Struggle in India
This is indeed a classic Christensen-like setting: The global companies focusing on high margin urban consumers, leaving the lower margin but high growth inner cities to Indian competitors, who, in time, leverage their strengths in inner cities with time to compete on everything, and eventually drive out the global companies. A successful Indian engagement strategy can, should be, ground up, global companies creating an India focused product and get into the inner city market first, may be with a JV partner, may be into several of them at the same time. But this is not how global companies still think: Ikea will still plan to do a flagship store in Mumbai, at great cost, and not in Nagpur. The trouble is, indeed, most people in Mumbai will consider Ikea expensive, and those urban middle class movers and shakers Ikea has in mind may consider Ikea too downmarket. However, Nagpur may still lack a decent furniture chain store (I know, wrong example!) and may soon get one from an Indian chain, which makes profits by achieving scale on the back of growing construction of new houses. In time, this chain competes with Ikea in Mumbai and Delhi, then Djakarta and Manila, and may be eventually in Sweden.
This is important because consumer markets in India are just about opening up to the world. It is not just about investment opportunities in retail and aviation, but gathering of momentum in many other sectors, and also the growing consensus about services. The Indian consumers, pampered for choice (a far cry today than the pre-liberalization age when we got three varieties of soap, and Dove soaps were standard gifts from relatives coming from abroad), now want more - and this opens up a window for global providers wanting to provide choice, convenience and high quality. More than ever, they need to unlock the mystery of the inner cities.