In May 2016, Korean automaker Hyundai Motors celebrated its 20th anniversary of entering the Indian market with the launch of the Santro. The Korean automaker giant ranks second in the market in domestic sales and number one in exports amid sluggish sales in other developing markets such as China, Brazil, and Russia.

General Motors (GM), another multinational company dealing in cars, has a different story to tell. GM shut down its manufacturing facility in Halol in April this year after two decades in India. The Detroit giant, which has been struggling in India, will stop selling cars in India and focus only on exports from its factory in Pune.

Despite the poor infrastructure and bureaucratic red-tape, India is one of the most important markets for multinational companies (MNCs), with several firms making successful inroads into the country’s complex business environment. I recently read an article in the Mint, an Indian daily business newspaper, that the number of MNCs in India more than quadrupled between 1991 and 2012, and, in the past 20 years, total MNC revenue grew at a compound annual rate of 18% – faster than the overall economy.

But, there is no ignoring the fact that it is not easy to be successful in the Indian market as is evident from Hyundai and GM’s contrasting experience of doing business here. In a recently-released World Bank’s ease of doing business index for the year 2017, India has been placed at 130th position among 190 countries, even below neighbours like Nepal and Sri Lanka.

Ranking states

The Indian government has been taking steps to improve the business climate. India applies the World Bank's criteria to its own states and ranks them in order to promote inter-state competition. The government also recently raised caps on foreign investment in sectors, including defense, railways, insurance, construction and medical devices. Twenty cities are receiving funding as part of a Smart Cities initiative, which will include infrastructure upgrades.

The Indian economy is also on the threshold of change with vital structural reforms underway, such as a unified Goods and Services Tax (GST) that rolled out on July 1, the demonetisation effort and an Insolvency and Bankruptcy Code that was enacted last year. 

But challenges remain. The Indian market is not only huge, but also complex due to regional diversity, rural-urban divide, dominant unorganised markets and multiple legal and administrative systems.

The Indian governance framework, which is intertwined between the central and state structures, is like a maze for foreign companies. Different states have different laws on labour, land acquisition, commercial taxes, priority sector categorization for incentives, and intrastate movement of goods. MNCs have to comply with both state and central rules and regulations.

They also have to grapple with frequent revision of duties and levies during the annual central and state budgets. Moreover, our regulatory and policy environment is not only complex, but continuously evolving, with our bureaucracy playing a key role in their conceptualisation, change and reform.

Balanced roadmap

Therefore, to build a successful business in India, MNCs require an in-depth understanding of her regional and coalition politics, aggressive markets and socio-cultural fabric. Post liberalisation, only MNCs with a roadmap that balances the company’s growth with local aspirations and local partnerships have done well. HUL, the Indian wing of the multinational consumer goods company Lever International, is another example of an MNC that empowers its local workforce.

But, understanding the Indian market is no mean feat. To make sense of India’s complex political, legal and policy environment and get their messages across to the right bureaucrats, MNCs are increasingly seeking insights on careful policymaking. And, that’s where public affairs experts come into the picture.

The past decade has seen most public relations companies in the country investing in building a separate public affairs practice to work on government relations mandates for Indian and multinational companies. It’s not an easy job because for effective public affairs strategies across a country as vast and diverse as India, focusing on state-level committees is the key as India’s central government devolves more power to the states.

So, a public affairs firm first needs to know their clients well and the regulatory, policy and political environment the latter operates in before leveraging their experience and insights to build relationships with regulators, executive and legislative bodies, business allies and local community leaders.

Shared economy model

Again, there are areas where policies and regulations are still evolving in India. For example, till until a few years back, the shared economy model, which is used by Application Based Cab and Hospitality Aggregators like Ola, Uber and AirBnB, was unknown in India, causing regulatory challenges for these companies.

A lot of work has been done by public affairs firms and the industry to make the government understand the concept and economics of a shared economy, and the need to regulate business operations of app-based aggregators. The Centre recently introduced operational guidelines for taxi aggregators, but with the adage that they will also have to follow any special regulation set by the state.

This is because in India road transport is primarily in the legislative domain of the state administration. In such a situation, the job of PA firms handling shared economy companies becomes even more tricky and nuanced. This is also the reason why clients these days want one team that they can trust to handle all their engagements, including crisis management, with the government.

As the country evolves further into a global business hub, MNCs will need to align their business objectives with public policy, employ innovative, localised, and cost-effective business models to overcome challenges and find success in India. And, PA firms, with their on-the-ground knowledge and experience will play a crucial role in helping brands grow their business and establish a competitive edge.