This post is part one of a two-part series on India’s city prioritization framework. These posts have been developed carefully based on FSG’s numerous interactions with clients and experts, and will have significant value for senior executives of western multinational companies operating in India. Next week’s update: The future of India’s clusters.

India, with its large and diverse economic geography, is one of the most challenging places to do business. Indian states are often compared to different countries due to their high wealth disparities and complex operating environments. Building a national or country-level strategy for India will be a herculean task as preferences, purchasing power, culture and demographics all vary enormously. It’s therefore imperative that multinationals identify pockets of opportunity in the country, thereby utilizing resources efficiently.

In order to help with decisions of resource allocation and market prioritization, FSG has built a city prioritization framework. The model uses a cluster-based approach as this allows companies to capture economies of scale and categorizes India’s clusters into super, emerging and frontier clusters.

India’s forty city clusters account for 54 percent of the country’s GDP. Out of these, the seven super clusters (the clusters with GDP greater than US$ 40bn) contribute roughly a quarter of India’s output. These clusters are a core focus for multinationals today and will continue to be central to their India plans in the coming years. Companies’ focus on these clusters will influence their go-to-market strategy in India.

Organizational design

• Super clusters are some of India’s most developed areas, with relatively better infrastructure, skill levels and higher purchasing power than average. As a result, most multinationals are inclined to establish national or regional headquarters in these clusters.
• Multinationals should also consider mapping functional responsibilities into different super clusters based on individual cluster characteristics. For example, consider establishing a logistics center in Chennai due to its strong supplier networks, infrastructure and access to ports, and explore shifting shared services and R&D functions to Hyderabad or Bangalore because of the availability of skill and technological infrastructure.

Talent

• Favorable demographics, better health and living conditions, and a large number of educational institutions in the super clusters are some of the reasons organizations source talent from these cities. Companies should be mindful of cultural and language differences among super clusters and customize their employee value proposition to remain attractive for the young workforce.

Channel strategy

• Multinationals’ channel strategy in India depends on numerous factors including internal strategic objectives, quality of infrastructure, population density, market growth and spending capacity. Explore the costs and benefits associated with going direct in the large super clusters like Mumbai and Delhi that offer immense potential and are likely to remain the leading clusters in the future.

Product and sales strategy

• An insight into differing consumer preferences and a price sensitivity analysis in super clusters is crucial. Multinationals should consider a customer segmentation study in these clusters and tailor product, sales and marketing strategies accordingly.

Multinationals investing in India should consider using India’s super clusters as a base first as they provide maximum opportunity, and then explore expansion into the emerging and frontier clusters of the country.

For an in-depth analysis of this topic, FSG clients can access the full report on the client portal. Not a client? Contact us to learn more.