Global manufacturers to step up R&D activity in India

Global manufacturers, currently selling their products in India, are expected to significantly increase their research and development activity in the country over the next three years, according to a report to be released by business advisory firm Deloitte Touche Tohmatsu (DTT).

The report on 'Innovation in Emerging Markets: Strategies for achieving commercial success', based on a survey of 418 manufacturing executives from companies spread over 28 countries, will be released at the 2006 Summit on Indian Manufacturing Competitiveness starting here on Wednesday. Almost half of the companies surveyed sell their products in India.

The survey also revealed that of the companies that sell their products in the country, 51 per cent expected their sales revenues to increase substantially over the next three years though many of them do not tailor their products for India.

Only 21 per cent of these companies were selling significantly different products, while 42 per cent of the companies indicated they sell similar products.

Among the companies surveyed, 23 per cent said they currently had R&D operations in India, while another 12 per cent said they were planning to launch such operations.

On the other hand, 33 per cent of the companies indicated to increase their R&D activity significantly.

The executives surveyed cited "better understanding of the local market, faster time to market and lower R&D costs" as the top three reasons for conducting R&D in emerging markets.

According to the report, only 29 per cent of the companies enjoyed higher margins in emerging markets than in developed ones. And, more than half of the companies that were enjoying higher margins provided different product features to the ones offered in their home markets.

Talking to Business Standard on the eve of the 2006 summit, Gary C Coleman, DTT global managing director, manufacturing industries, said the most successful manufacturers allowed local autonomy while utilising the parent company's governance, business processes and management expertise to offer products at dramatically lower prices that match the lower purchasing power of most buyers in the emerging markets.

"Our research, however, reveals that far too many manufacturers simply make minor adjustments to existing products, reduce prices and replicate existing distribution channels. Over the long-term, this strategy just won't work," he said.

Commenting on the broad findings, DTT India director Kumar Kandaswami said that long-term success of global manufacturers required more than simply tinkering with existing products, lowering prices and developing new sales channels.

"Manufacturers must understand the unique needs of each local market and develop new offerings," he added.