Sudhir Rao is one of the most successful managing directors in the Indian car industry.
While Western car giants, such as GM and Harley Davidson, had to throw in the towel on their India adventures, Rao played a strong role in making Renault and Skoda among India’s sustainable western car brands. According to Rao, these are the 5 most important factors leading to success in India.
American and European car makers don’t seem to be able to get a foothold in India. Global market leaders such as GM, Volkswagen and Ford were very small players in India with a market share between one and four percent. Their Japanese and Korean competitors, on the other hand, dominate the market. According to Rao, this has to do with two things. “Because of the experience they have with the market expectations in their home countries, Asian companies understand better how to adapt their product to the needs of Indian consumers. In addition, Korean and Japanese work ethics are more detail-oriented, they work incredibly long and hard on solving ground-level challenges across the board; and have a much stronger will and hunger to succeed. Western car companies, on the other hand, often question themselves whether they can succeed in India without a local partner. That’s why in recent years many Western car companies have entered into unsuccessful joint ventures, while they could have done just fine on their own. That is if they had managed their subsidiaries in a manner that is more suited to local conditions”.
A joint venture is not always the best way to enter the Indian market
The European car French company Renault, which Rao led for three years, is one of those European car companies that sought 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 Despite being an incredibly reliable car, with its outdated look, the Logan failed to strike the right chord with aspirational Indian consumers and did not meet the company’s volume expectations. “At the time I joined them, Renault’s structure in India was terribly complicated. In addition to the Mahindra joint venture, they also had their own Renault Nissan Alliance companies and they were considering starting a new joint venture with another partner”, explains Rao. “So when they asked me what I thought about their business operations in India, I honestly said: ‘You are a super smart company with an unnecessary inferiority complex. You have excellent technology and you make great cars, why don’t you dare to compete in the Indian market without a local partner?'”
Do not only sell, but also produce in India
It soon became clear that European car company Renault was indeed able to stand on its own two feet. The joint venture with Mahindra was dissolved in 2010 and the company embarked on a major reorganization. “Step one was to consolidate all functions in Chennai. Having your own production facility is perhaps the number one rule for success in India”, says the former CEO. “It ensures a faster turnaround and allows you to react directly to changes in the market. All your knowledge is under one roof, so you can manage all those individual parts more effectively and make adjustments to your technique, material or design more easily”. That was exactly the aspect Renault had to work on now. After the Logan failure, we needed a new model that was more in line with the Indian wishes.
“After much research, we came to the conclusion that the Duster, with the necessary modifications, was the perfect car to relaunch Renault on the Indian market. One of the major factors for Renault’s success was to place the man who led the global development of Logan and Duster, Gerard Detourbet, in India. He commanded everyone’s respect and truly localised the Duster to perfectly match customer needs and supplier capability,” says Rao. But it took more than just a good product. The Duster could only be a success if we could also sell it outside the major urban markets. So, we started setting up a new dealer network, with the goal of not leaving more than 100 kilometers unserved.” The Duster was a resounding success, requiring a significant increase in production capacity within a few months of launch. “At such a time you can see how important it is to be able to adapt your production directly to that demand,” explains the former CEO. “You only have that flexibility if you produce here. And there are a lot of other advantages. For manufacturers of large products such as cars, it’s simply a must; you save at least 10 to 20% on import costs by producing locally. It’s always a win-win situation”.
Never try to run your subsidiary from the European head office
Despite Rao’s successes with European car company Renault, he made the switch to Czech car manufacturer Skoda in 2012. “It wasn’t until I got to work that I understood the challenges I would encounter in managing Skoda India”, Rao reflects. “Skoda’s first managing director in India 2 decades ago appears not to have paid sufficient attention to ground-level execution. But Skoda’s head office, while unhappy with the performance in the country, unfortunately did not realise the extent of the situation. When they recognised customer trust was badly damaged, they chose not to have a local managing director and instead provided oversight to each of the functions directly from headquarters.”
This put Rao at the head of a company where the team had been without a MD for four years. “Trying to run a subsidiary from headquarters is a common mistake by multinationals”, according to Rao. “We sometimes take globalization a little too literally. You should not be tempted to think that it is possible for HQ based executives to effectively run a subsidiary via videocalls. Your company will only succeed if you delegate the responsibility to the people on the ground. Only they really understand what’s going on and have the focus to be able to quickly react to market conditions. The key is to ensure that accountability is an equal partner to responsibility, and that oversight mechanisms including periodic strong audit procedures are diligently conducted”.
Dare to micromanage in the early years
Rao had to roll up his sleeves again and start reorganizing. “I was confronted with a situation of ensuring integrity in several aspects of dealer operations, extremely weak customer satisfaction and a need to improve financial performance. We had to work hard on building cross-functional teamwork and lifting the morale of employees across the board. When I see the progress the company has made over the past decade, it makes me very proud to have been part of the team that created the new Skoda”, says the former managing director.
“India’s workforce, thanks to a rapidly growing economy, is generally focused on making a fast-paced career. It is therefore important for management to rally the team around company goals and explain that sometimes personal rewards may take longer to materialise. In the early years, it has to be ensured that the local team truly understands the global company culture, manufacturing and quality standards, and executes day in, day out. In short, be a micromanager. After about a year, you can transition to a looser management style.” The former Managing Director would advise all European headquarters to always keep a close eye on customer satisfaction in India. “It plays such a big role in being successful here as it forces you to quickly make the product and service changes that you may have missed in your initial plan. It is therefore essential that every Head Office has direct access to customer feedback, especially in the early years, and that they review this regularly. That way, they can intervene promptly and make necessary adjustments.”
Dare to adapt to India in all areas
“Before you go to India, you have to understand how and where your product fits in into the market. Skoda’s entry almost perfectly coincided with the decline of the Opel brand in India. Because of that, we could establish Skoda as a highly engineered and safe European car at a relatively affordable price. ‘Value luxury’ was the phrase we later used to describe its positioning between the mass market and the luxury car segment”, explains Rao. “We were able to fill that niche with a regular flow of new products. But when choosing to go niche, you must have realistic expectations of what your numbers are going to look like in terms of profits and sales. The niche-strategy can make your brand successful, but will not propel you to be the market leader”.
The former Skoda Director mentions Apple as an example. “They know that their product is expensive for Indian standards and they will always remain low volume, relatively speaking. They appear to be satisfied with that. Although, now they are beginning to develop a manufacturing footprint in the country.” Skoda followed the same route. “In the beginning, we were happy with a share of one or two percent, but the new Skoda strategy is more ambitious and builds on several of the lessons the company has learnt over its 2 decades of operations in India.” According to Rao, this is one of the most important lessons European car companies should take to heart. “As an international company, dare to adapt to the Indian market in all areas – if you are unsure what that actually means due to unfamiliarity with the market, it is prudent to start small, take the time to learn, and then target high growth – this is the only way to succeed here.”