AN EXPLORATORY STUDY OF. THE MARKETING ADAPTATIBH 0F U. 8. BUSINESS FIRMS OPERATING IN INDIA I ' Thesis for the Degree of Dr. B A. MICHIGAN STATE UNIVERSITY :MADHAV PRASAD KACKER 1970 ink“- J LIBRARY Michigan State University H-..“- This is to certify that the thesis entitled AN EXPLORATORY STUDY OF THE MARKETING ADAPTATION OF U.S. BUSINESS FIRMS OPERATING IN INDIA presented by Madhav Prasad Kacker has been accepted towards fulfillment of the requirements for DBA degree in Marketing '5’ BINDING mm a 3553' 800K smnm mc - I LIBRARY amosns' gunsrogr, mum; (4.: I Iv ‘ k ‘ intact AI, - "‘ pg anon if Inch; 5 fundan ' ' Md 1:. .. fl:'~o. _ M det {1-512 00.6 scar ‘ - J y. a total m" -t ‘ -. Jr . ‘J‘;'- iQit. 1, mm; ’9' H. p .1 r. It --.r.-. (v. Tigiaa 1;. tin: muf" ‘4‘ .|'-’6-33: prod ABSTRACT AN-EXPLORATORY STUDY OF THE MARKETING ADAPTATION OF U.S. BUSINESS FIRMS OPERATING IN INDIA BY Madhav Prasad Kacker This study explores the nature and patterns of adap- tation or adjustment made by American business firms market- ing manufactured products in India. It also seeks to identify such social, cultural, economic, political and legal factors in the Indian environment which motivate these rfirms to adapt their marketing effort. The concept of "marketing adaptation“ is introduced and examined in the context of an underdeveloped economy. It has been defined as any change, adjustment or compromise that is made by a firm in its marketing effort to serve adequately a foreign market, and to survive and grow within a new environment. It is divided into two main categories: igluntary or self-imposed adaptation, and mandatory or i ggflarnally-imposed adaptation. A marketing effort is con- n1. "PWJ ! r l.‘ IN.” Y A. Q._ C b q u 01 H.) De Madhav Prasad Kacker Information is largely based on primary data obtained through personal interviewing with 26 American firms engaged in the manufacturing of selected consumer, semi-industrial and industrial products in India. The interviews were con- ducted first with the parent company executives in the United States and, later, with the branches or subsidiaries of the same companies in India. A subsidiary is defined as any India-based company with 50 percent or more of its stock in the American firm's hands. A scoring technique is used to determine the level of marketing adaptation of each firm in relation to other firms within the sample. Based on personal observation and answers to various questions in the interview guide, each firm is given a rating on a scale from one to five. The final rating is called the Marketing Adaptation Index UMAI). The computation of this index has helped in the testing of some of the research hypotheses. The main findings of this study are as follows: 1. The U.S. business firms Operating in India adapt their marketing effort to a limited extent, often under great external pressure from either the government or com- petitors from other countries operating in India. The nature of adaptation made by a majority of firms in the areas of product and pricing is essentially mandatory or involuntary. 2. Relatively speaking, firms in the sample demon- strate a greater amount of voluntary adaptation in the areas {pfrpromotion and distribution than in those of product and iging. Most of them are interested in maintaining their ‘4‘"wa P .-p-y—nq- .., .< .p-v ' 0 cs 0 ' 1 o~o<-O ‘r' _ .— M.¢—-v- 4 . o p E e I-.-- ‘00 . “ pv-n ., u. I---‘§ - O“.-- '- s .O. —‘— I . "vo. . . CA. ‘ ‘ ~ . '- ‘ :Nan u...‘_u-~.‘ . .u ..a ., ~n .... ..: Q .- bl. ‘VA . .00.' :‘H 0 V ‘ 5""- ‘ ....u 3"; .— . . o h... .- .U..‘ .V‘ vi . . ‘v- \. -.:~ av ; - e § 1 “I i, o...“ :2 “ ‘k. . . n “a ‘t . \- h we “ 5..:-‘. . ‘e h I ‘e ‘a u“ f‘ ‘ “~‘\::C- \ - “ ~ ‘b. . I \ a “(a ~.. , CNS 3'. ‘t: a; V‘ se~‘ u.‘. |_- ‘:‘s ' we“ . ‘4 ‘v.. .\ Madhav Prasad Kacker international product standards, yielding only to unavoidable mandatory changes in product design and packaging. This re- sults in a marked difference in the quality and price-level of products made in India by the U.S. affiliated and local firms. The national interests often oblige the Indian gov- ernment to keep this difference to a minimum. The firms are persuaded as well as forced to modify their marketing effort in the national interest of the host country in several ways. They are asked to make a greater use of materials and tools which are available locally, adopt simpler labor-intensive technology, sell at government-approved prices and devote greater effort to the promotion of the Indian export trade. 3. The level of marketing adaptation varies from firm to firm and in different facets of marketing strategy. It is not possible to measure it for each firm in absolute terms, though a relative assessment is possible with the help of a scoring technique. Using this technique, it is found that the consumer goods manufacturers (manufacturers of packaged food products, cosmetics and toiletries, soft drinks and home appliances) adapt more than the manufactur- ers of semi-industrial products (pharmaceuticals and chemi- cals, petroleum products and rubber tires) and industrial products (business machines including data processing equip- ment, medical equipment, auto parts, machine tools and heavy industrial equipment). The manufacturers of semi—industrial _ products adapt only slightly more than the manufacturers of . o-v-v- spa“. odo:.' u-uv . :<-.'e'h .9 u A, oo:-b deo§utn - 0 “:‘vw '- .9 " Couv“~_‘. q 5: -.g.. 5V s . i-c‘r tug. u.... u. “V. ‘ Q'.‘ A .- usnu ~ ‘u- P . ‘I' c. “I we e..e S. , O. ., \ ‘u: A‘ ‘ 'vbhdil 5““. .l "\ l . u; .“V(e. "~ a... ““‘ ’u y .‘Nc .etna'. M'.‘ v:‘ F4 V4 e..; n .P - Hut: “‘2' , “ u. fl .“u‘ Madhav Prasad Kacker 4. Most consumer and semi-industrial goods manufac- turers show greater interest in adapting the promotion and distribution facets of strategy, and experience relatively 'less interference from the parent company in doing so. The firms use the conventional promotional media and channels of distribution in India for two main reasons. First, it is hard to alter the existing promotional and distributional infra—structure, at least in the short run and second, the social and cultural gaps need to be taken account of to ensure effective communication with the target market. 5. All major forces in the Indian environment-- social, cultural, economic, political and legal—-influence the marketing policies of American firms Operating in India. .Firms respond to these forces in almost similar fashion, regardless of the products they manufacture. The industrial goods manufacturers, however, are able to survive with Irelatively little adaptation in the areas of promotion and distribution. 6. Firms in consumer and semi-industrial lines try to escape these environmental forces by restricting their Operations to the urban sector and by not moving down the socioeconomic scale to serve the semi-urban and rural sec- tors of the Indian economy. 7. On the basis of empirical evidence collected in this study, it can be said that there exists no discernible relationship between the size of a firm and the level of its H§§rketing adaptation. There seems to be no relationship at 18%“. . ......mJ I' ' _ idi‘i “"v~spvv :. - H-c...‘ u- a o . . I :' :‘Vrn O "‘ ‘--su‘-A . C Madhav Prasad all between the length of time a firm has Operated in and the level of its marketing adaptation. 8. The international marketing policy of the company and the degree of control exercised by it are tant factors affecting the ability of a firm to adapt marketing effort to the Indian environment. Kacker India parent impor— its .to. '(7 L ,AN..BXPLORATORY STUDY or THE MARKETING ADAPTATION or U.S. BUSINESS FIRMS OPERATING IN INDIA BY Madhav Prasad Kacker A THESIS Submitted to Michigan State University ~ta partial fulfillment of the requirements ,2 for the degree of :‘fi ’ rooms or BUSINESS ADMINISTRATION ,w‘flarketing and Transportation Administration 1970 @ Copyright by MAR-11W PRASAD RACER 1971 '5'- v.- .332 cud-n” ' tho was; 1‘?“ in V? .CR'L"! . ILIbwca Dedicated to N, fl' '.2 ‘ ottzt%ut , Alfred L. Seelye " , bustm: 2': for his transferring the principles of .36 Iri' modern business education across the frontiers of several underdeveloPed ... ‘ countries including India. q‘F‘ but. 3‘ if I“ :f 1 ‘ . v ‘A A 32:36. 9 L -9: "n In. h:e s‘ ‘f: s H‘ “'CR‘ 0 us-gr of 1 {DA . “:13 Dew z; ‘u . hks Inte‘ a . Q 55.391 ‘- l 9~ an: 3:". ‘. .“ F “ Kl ~ne l 1"“- “I .I "=5: . “Ar . h u .N . ‘15‘ u‘.. PREFACE This study stems from my interest in understanding the role of foreign firms in the economic development of an underdeveloped country. It seeks to explore the directions in which these firms have moved to adapt their marketing strategy so that they are able to survive and grow in a strange environment. The fact that the study has been related to the U.S. business firms operating in India is attributable primarily to my having been exposed to the business environment of the two countries—~the United States and India-~for a fairly long time. I am sincerely grateful to my dissertation committee composed of Dr. Reed Moyer, Chairman, Dr. Donald A. Taylor, and Dr. Donald S. Henley for their valuable guidance through- Out the study. I am also thankful to Dr. Dole Anderson, Director of the Institute for International Business and E0::onomic Development Studies for his thought provoking ideas and his interest in the project. The timely award of a tI—‘avel grant from this Institute proved to be very helpful 111 the undertaking of field trips involved in this project bOth'in the United States and India. The financial support 're ceived from the office of Dean, Graduate School of Busi- Vnaus Administration, Michigan State University, is also .4 thankful 1y acknowledged. In: 3:25 3‘ ”i: O buobu ' Q Q 0‘ -v a r 4 r into-OE“ and u a... 4., ‘H ‘:' ‘Je by ye: b. ‘ a; ‘ 3.. if. EXCELLe 531:1}: De :- HO. ." I _ -- v~ “" ‘ N - v..; . ._ ..I ..‘...‘“=.. ‘ i.‘_“ \ ".‘A .t. r ' 54...)“ a“ ‘9A, . B‘J::5§ 3: M1: 0“ ‘7'.1~m indebted to my wife, Vijai, for her help at all 5: of this work in addition to her taking care of our qlso due to Mrs. Grace Rutherford and Mrs. Judith Surlin who dia.an excellent job of typing the manuscript. Finally, I express gratitude to Dr. Alfred L. Seelye, .£ermetly Dean of the Graduate School of Business Administra- rtien,.Michigan State.University, who was a great source of inspiration and guidance during a major part of my doctoral program at Michigan.State University. To him, this disser- tation is respectfully dedicated. JV ...: v . .4. n.... A "A I‘~ v. . . .u» uh. V. «C E ‘r a; ~\u wn Vs ~m «M4 no“ flu. . .‘\ a.” a. e. ..v. 2. Ce :u .ru 0» 3,. p.» .e v. ~. .rv4 ~\W PU 9A“ a I a‘b 8‘9 9“. V“ H V R\H M A R (U a U PU M d MI‘ Y f . . ... U. ..n 1U R C Flu P 9 on 7‘. OK so 9 A 1. "Hrjuar. {...-in... .......... 5n r . . up [ I 1 TABLE OF CONTENTS Chapter Page I. INTRODUCTION . . . . . . . . . . . . . . . . . 1 Evolution and Growth of Foreign Private Investment in India . . . . . . . . . . . 2 Earlier Studies . . . . . . . . . . . . . 6 Scope of Present Study . . . . . . . . . . . 15 Statement of the Problem . . . . . . . . . . l7 Hypotheses . . . . . . . 18 Marketing Adaptation in the Context of an Underdeveloped Economy . . . . . . . . 19 Usefulness of Study . . . . . . . . . . . . 22 II. RESEARCH METHODOLOGY . . . . . . . . . . . . . 24 The Universe . . . . . . . . . . . . . . . . 24 Research Instrument . . . . . . . . . . . . 25 Development of Interview Guide . . . . . 26 Scoring Technique . . . . . . . . . . . 29 Sampling Procedure . . . . . . . . . . . . . 30 More About the Sample . . . . . . . . . . . 34 Location Pattern . . . . . . . . . 34 Nature of Parent Affiliate Relationship . . . . . . . . . . . . . 35 Size Patterns . . . . . . . . . . . . 36 Limitations of the Study . . . . . . . . . . 39 Organization of the Study . . . . . . . . . 41 III. PATTERNS OF PRODUCT ADAPTATION . . . . . . . . 42 Types of Product Adaptation . . . . . . 43 Mandatory or Externally-Imposed Adaptation . . . . 46 Voluntary or Self-Imposed Adaptation . . 48 Patterns of Mandatory Adaptation . . . . 51 Patterns of Voluntary Adaptation . . . . 53 U. S. Firms' Involvement in New Product Development Process . . . . 61 R & D Facilities and Product Adaptation . . 63 Is R & D a Limiting Factor to Product Adaptation? . . . . . . . . . . . 65 Conclusion . . . . . . . . . . . . . . . . . 70 vi "'zn’cv tad-rib. . y" d. P ‘ mat-no. n '- I‘. .mo‘ ""6 Chapter IV. VI. PATTERNS OF PROMOTIONAL ADAPTATION . The Promotional Infra-Structure . Types of Promotional Adaptation . Mandatory Adaptation . . . . . Voluntary Adaptation . . . . . Role of Parent Company . . . . . . Conclusion . . . . . . . . . . . PATTERNS OF ADAPTATION IN MARKET DISTRIBUTION . . . . . . . . . . Statistical Presentation . . . . Occupational Distribution of Workers Employment in Wholesale and Retail Trade . . . . . Types of Adaptation in the Area of Distribution . . . . . . . . Mandatory Adaptation . . . . Voluntary Adaptation . . . Patterns of Voluntary Adaptation in Market Distribution . . . . . . Transportation and Warehousing Types and Functions of Market Middlemen . . Conventional Channel Structures United States and India . . Intra-Firm Sales Organization Channel Cooperation and Control Sales Under Private Brands . Cooperative Advertising . . Role of Parent Company . . . . . Conclusion . . . . . . . . . . . AND TERMS OF SALE . . . . . Patterns of Mandatory Adaptation Patterns of Voluntary Adaptation Role of Parent Company . . . . . . Conclusion . . . . . . . . . . . . .CONCLUSION .. . . . . . . . . . . . Product . . . . . . . . . . . Promotion . . . . . . . . . . Distribution . . . . . . . . . Pricing . . . . . . . . . . . Market in PATTERNS OF ADAPTATION IN PRICING POLICY Page 108 109 111 116 116 117 119 120 122 127 135 140 141 142 144 145 148 150 154 166 169 172 173 174 175 175 'O-O 9A an ‘ ”..., I I I .I' '4 l -“~.vvo\uoa Q glue. \‘3 , I n‘l‘!!o‘d. A. 1.5:: \ a '“I'Rm .“ I a. w..‘ toy. Scoring Technique Summary of Conclusions . Areas of Further Research BIBLIOGRAPHY . . APPENDIX A. B. C. LETTER AND QUESTIONNAIRE USED FOR INTER- VIEWING THE PARENT COMPANIES IN THE UNITED STATES LETTER AND QUESTIONNAIRE USED FOR INTER- VIEWING THE U.S. BRANCHES AND SUBSIDIARIES IN INDIA COMPUTATION OF MARKETING ADAPTATION INDEX (MAI) FOR INDIVIDUAL FIRMS WITHIN THE SAMPLE viii o 186 194 197 199 204 220 230 LIST OF TABLES 1 - Table Page ; 5 1. Cumulative growth of new business activity of United States business firms in India, 1961-1968 . . . . . . . . . . . . . . . . . . . 5 2. Response analysis . . . . . . . . . . . . . . . 32 3. Representativeness of sample . . . . . . . . . 33 4. Organizational pattern of United States business firms . . . . . . . . . . . . . . 36 5. Size distribution of United States firms operating in India . . . . . . . . . . . . . . 37 6. Size of Indian operations related to the corresponding size of world operations . . . . 38 7. Company reactions to the lack of R & D in India . . . . . . . . . . . . . . . . . . 64 8. Perceived main target market . . . . . . . . . 68 9. Types of product appeal . . . . . . . . . . . . 69 10. Promotional infra-structure in the United .States and India, 1960-61 and 1967 . . . . . . 76 11. .Market coverage by Indian cinemas . . . . . . . 78 12. Estimated annual billings of international advertising agencies Operating in India . . . . 79 13. Advertising media rank comparison between United States and India . . . . . . . . . . . . 92 Occupational distribution of workers in India and the United States, 1960 (U. S. ), 1961 (India) . . . . . . . . . . . . . . . . . 110 ix O (’\ fl ..1 1.4“ r4.- .‘1;'.I’ ' r (I I F. qr . o \‘D AAQI ' My i e. AC: v.‘e: CC’”n ...? _ Table 15. 16. 17. 18. 19. 20. 21. 22' .Employment in wholesale trade in United .States and India (limited to product lines covered in this study) . . . . . . . . . . Employment in retail trade in United States and India (limited to product lines covered in this study) . . . . . . . . . . . . . Employment in wholesale and retail trade in India, urban-rural stratification . . . . . Transportation facilities in United States and India . . . . . . . . . . . . . . . . . Reasons for the expansion of field sales organization . . . . . . . . . . . . . . . Objectives of pricing policy . . . . . . . A comparative view of terms of payment offered in United States and India . . . . Company Marketing Adaptation Index scores . Page 112 113 115 121 137 155 160 238 'Z\!Y.'.‘:! inn—'44 ., .‘_4 7. .L.. 3......“ V ‘va , " Unnue. 5 t .3 .95 V. HA,” ,. .‘. LV-Are .“ n 5-3.9: 9!. fl. , _ o... an'le.. States In ..., h. hie I: . V Eerie: C3“? 3‘ . “‘u» LIST OF EXHIBITS Page 1. Conventional channel structures in United .States and India for consumer goods . . . . . 128 ‘.;I.‘_Conventional channel structures in United 141‘ L :States and India for semi-industrial goods . . 132 kfiGIIL’ Conventional channel structures in United f‘ , Y.-States and India for industrial goods . . . . .134 I ...L',u;. ‘ 4 1 t?,§¥. The.Indian environment and patterns of ‘ ‘.$¥Kj*‘r ”marketing adaptation of U.S. firnm ." 31" = operating inIndia . . . . . . . . . . . . 179 '1- -. 41.2w > 1'“, 1; ('1'... xi n..b°n .2‘9: t .I.‘ .‘..w Q 9- . “fl. '- ~v ..e I.‘H‘a‘ . . ‘ so... . 'Al" 1 :‘:~'='Luuu ‘ ...... ""‘eaes of L t . ‘ u 1.3 descri“ L. CHAPTER I INTRODUCTION This research focuses on the marketing function of United States business firms and their subsidiaries Operat- ing in an underdeveloped economy--India. It seeks to learn the degree to which these firms adapt their marketing effort to the Indian environment and the nature and pattern of such adaptation. Further, this research seeks to identify those environmental factors--social, cultural, economic, legal and political-dwhich cause these firms to adapt their marketing effort. The value of private direct investment from the United ,States to India was estimated at $281 million at the end of 1968. A substantial part of this, about 50 percent, repre- sented equity investments in the United States controlled branches and subsidiaries operating in India. The balance represented investments in joint ventures in which the U.S. firms held a minorityinterest.l Before the scope and hYPOtheses of this research are spelled out, it may be use- ful to describe briefly the evolution and growth of foreign \——_ 0 1Survey of Current Business, U.S. Department of -°NMBrce, October, 1969, p. 28; and Reserve Bank of India lletin, Reserve Bank of India, August, 1969, p. 1129. .- -..n - .2! 1p 3"" 1 ~.-. ‘ n—vm . ‘ g'vyc.oa Lottie - ~5.|.-b . M' ‘ p- Abue ‘ Sx~.‘."12' E '."‘v ‘ A n. "e vo‘.' ... n1 1 “a. '~‘ I 't~.-2 e..‘: E J n j ' 151L235 in E d 1 I. ‘ _ Van. ' ‘ .~..b"y’ F'I" O V ‘n‘b -.::.13 C1“? _ ...,cm 1'55 hiked by "4:351 fre1 43.312 of a C. 3:: Cf a v 35: in.- "“‘Y on the 1 .6 ask hf e, \ ‘fie.’ ‘-“ O ““85. from. 1.. $813“- ca‘ 8 N.. "“3425”. uuyt‘o‘n‘ a,- ‘1 1:5; .. I . .1~ 1r A ‘16 8A,. private investment in India since it became a free nation in‘l947. Evolution and Growth of Foreign Private Investment in India The aftermath of the World War II was marked by spectacular economic activity in most free nations of the world. The European countries involved directly in war became engaged in various economic recovery programs. Other nations in Europe, Latin America and Asia which were not directly involved in war but which were helping the bellig- erent nations with material and personnel resources geared these resources to the satisfaction of long suppressed pent—up consumption demand. In India, the aftermath of war was marked by two historic events: (1) the attainment of political freedom from the British regime, and the instal- lation of a national government in 1947, and (2) the appoint- ment of a National Planning Commission in 1950 to lead the Country on the path of planned economic growth. The colos- sal task of economic reconstruction and expansion that refiulted from the deliberations of the National Planning commission called upon the nation to exercise restraint on c°nlumption and release a maximum volume of saving for inveStment in the agricultural and industrial sectors of the economy. The magnitude of the industrial development program '33 enVisaged in the Five Year Plans of development was much --:'-er "n— w: .advdl - 5 253.13% C. 1 ..JAVI-n“ c“ ‘)II:.O|=‘ BSaL. nl'.A-u~ " l :~-.1.m55:“: ‘ - ° - . Q a 3921351. 3“ ::.:"e’; ..-, ...-.... U 5V. VF-Q' " " 2" “wt. 5" C ua‘lA. ‘ 60.5‘V“ A r V; ‘er‘ L. e :‘n . . 1‘ .....SLPlOn C" L D :“"‘H A u N ~11 a ‘9 1‘ “Hut: 1 h- I D I N 1 A 6" if PL 4";- [-1 VV ‘n I. ~ .7 h wk hue trig H ‘. ."‘ q 1‘ f V gr “‘8 A.‘ 1.; .- I‘ . higher than what could be financed from the internal resources of the country, through taxation and public debt. External assistance was therefore requested from other economically advanced nations to enable the country to implement all development programs and to achieve self- sustained economic growth. Apart from official assistance on a government—to-government basis, the Government of India welcomed direct private investment from the western as well as eastern blocs. Private foreign investors were offered several types of incentives in the form of tax concessions, facilities for the remittance of earnings and dividends, freedom of repatriation of capital, guarantee against state acquisition or payment of adequate compensation in the event of such acquisition, facility for the import of plant and equipment, etc. Official external assistance from various countries aggregated $15,367 million from August, 1947, the year of Independence, up to the end of March, 1968. Of this about 67 percent was in the form of loans, 27 percent in the form of PL 480/PL 665 and third country currency assistance from the United States, and the balance of 6 percent in the f°rmof grants. The United States accounted for 51 percent °f'the total. Other countries, such as West Germany, United Kin960m, U.S.S.R. and Japan, also made sizable contributions.2 ‘— 2Proceedings of the Seminar on International Invest- fiEEEi India, organized jointly by the Indian National .IOWNittee of International Chamber of Commerce and Indian nvefitment Center, November, 1968, p. 45. Ar I A V. 5“ a .... 5‘ on ...“ ..Q 19! n ;.J'J n15...- «— ...:I A: o ‘ a 't'1e v. .4. g s .-..“ ‘ ..th Fl ”1" o s by ~U' ':v~n FW t.“s 1:: i. h‘ v. I I ‘esvec frh~ 'f “v... ‘. ix) 0 Foreign private investment in India which amounted to $550 million (Rs. 265 crores)3 in June, 1948 reached a total of $1300 million (Rs. 980 crores) by March, 1967. In the initial stage, it was predominantly of British origin, the United States share being as low as about $30 million or 5 percent of total foreign private investment. This share jumped to about $200 million or 15 percent of the total by March, 1967. During the same time, the percentage share of the United Kingdom declined from about 80 percent to 60 per— cent of the total, though it still maintained its leader- ship.4 An idea of the cumulative growth of new business activity (number of newly initiated or acquired firms as well as expansion of existing firms) of United States busi— ness firms in India during the period 1961—1968 can be derived from Table l. The continued growth of this activity can be ascribed mainly to the following factors: 1. Desire to continue to serve overseas markets which were previously supplied through exports from the U.S. This was the only alternative open to U.S. companies when imports into India were restricted tightly in the mid-fifties. 2. A variety of incentives and facilities that came to foreign investors as noted earlier. ‘— 3 . . . . . . ~A crore is equivalent to 10 million in Indian usage. 4Reserve Bank of India Bulletin, April, 1966, 99- 374-376; and August, 1969, p. 1129. 4" (I! (I! . ‘Vq v‘..e: \' 1!: (I) m '1, :1 (I) H (710—4 (D Table 1. Cumulative growth of new business activity of United States business firms in India, 1961-1968 Number of New Number of Establishments Expansions ———————-—————' —————————-—-—- Annual Year Mfg. Non—Mfg. Mfg. Non-Mfg. Total Growth 1961 21 .. 2 .. 23 23 1962 38 .. 5 2 45 22 1963 58 2 8 2 7O 25 1964 77 3 ll 2 93 23 1965 87 6 13 2 108 15 1966 90 6 l3 2 111 3 1967 94 7 13 2 116 5 1968 97 10 14 2 123 7 Source: Ngy Foreign Business Activities of U.S. Firms, No. 14 (Chicago: Booz, Allen & Hamilton, 1968); and "What U.S. Companies Are Doing Abroad, A Statistical Summary," Business Abroad, May, 1969, p. 13. 3. Increasing external assistance from the Eastern bloc countries to underdeveloped regions including India. The table shows that the rate of growth of new busi- ness activity started declining considerably after 1965. The average number of new establishments and expansions has been five annually since 1966 compared to twenty-one during the preceding five years. This setback can be explained by a Variety of factors. First is the insistence by the Indian G°Vernment that the majority voting stock rest with Indian natiOnals. Secondly, the lack of confidence among investors was Caused by such unfortunate events as the Chinese . 1 ~nn~vnqnp 1 buvoe 3 L J30 'e:A -. u 0 o-«HU-P:“5‘ r - '8 Pig‘V‘ n ...1. seen.» 4 ‘ . ' 2'” .". “Pp not ... ,g‘ "“V‘ \w :1....:.:€S i (II incursion into Indian territory in 1962 followed by the Indo-Pakistan military conflict that took place in 1965. The tragic death of two popular prime ministers, one in 1964 and the other in 1966 coinciding with acute drought and food shortages were among other factors that had a demoralizing effect on the foreign investors. This declining trend is also borne out by the statistics published by the United States Department of Commerce according to which the amount of plant and equipment expenditure by foreign affiliates of United States companies in India declined sharply from $91 million in 1966 to $50 million in 1967 and further to $25 million in 1968 . 5 Earlier Studies The international operations of business firms, especially the United States and European manufacturing Companies, have been researched a number of times during the last 15-20 years. Most of these studies, however, devote themselves to an analysis of general management problems encountered by these firms in their respective foreign environments. Very few studies have concentrated on the area of marketing operations. A brief introduction of some (315 these earlier studies may be useful here. \—————— ISurvey of Current Business, op. cit., p. 17. “I ...l'. . . . *’ ~a-—p1.nnr.-- a F“ s 2”: "fl_ .... 4 “ .5110. ‘."“‘§u : a. . Syn‘u ' \ ~~ Me , ‘ . s. ‘ ~3S‘C n K“; ' :0.“ 1" ' a ‘ n ;‘ Nb 640‘ ‘ ie :2: .‘ ‘ A: ‘eaL‘ In a study of United States manufacturing subsid— iaries in Mexico, Barlow concentrates on management problems such as the organization to be used in foreign subsidiaries and in parent companies, methods of supervision, ownership policy, and the problem of staffing the parent as well as subsidiaries. In spite of a heavy management orientation in his study, the following extract from the concluding com- ments indicates the need for adaptation on the part of American firms: . . . The necessity for adaptation was partic— ularly noticeable in the marketing area. The companies studied were following much the same methods of marketing their products in Mexico as in the United States. . . . Despite the basic similarities, a United States marketing program could not be transferred intact from this country to Mexico. . . . A company could expect that the basic marketing methods could be used in Mexico and in other countries throughout the world, but these methods would have to be changed and adapted somewhat to fit local conditions. Dunning's study on American investment in British manufacturing industry is another important work in this area. It seeks to evaluate the extent to which the United States business investment had an impact on the course and efficiency of British industrial deve10pment. Discussing the influence of United States financed firms on the market- ing techniques used by British industries, Dunning makes this observation: GE . R. Barlow, Management of Foreign Manufacturing Subsidiaries (Boston, Massachusetts: Harvard University, c{gilvduate School of Business Administration, 1953) , pp. 193- . u , .an,‘ DAAVU I . 9| 5“. g 1 O ain'- ' ¥~unfi F_ fay-b ” en”.- . ’- R‘Oo V leose. .‘QF I ~‘su . ;' t.. 0 n. I". I. ‘ ove.‘.e: c u s D;7:5.’w 'yb."§n.\: I “A. ,, "" A-.. ‘.~..¥ 5V1. “A's "!- h "v“ N: y Perhaps no other branch of managerial practice has been so obviously influenced by American tech- niques and thought in recent years as that of sales and distribution policy . . . yet, . . . the U.S. methods in question have not always been success- ful. . . . Any wholesale assimilation of American techniques and the failure to appreciate the in- herent psychological, economic and sociological differences in the two countries might lead to much wasteful and inefficient distribution. Another study by Lindeman and Armstrong examines the policies and practices of United States controlled companies operating in Canada. It was undertaken mainly to look into public complaints against the large United States corpora- tions in Canada and to improve the business relationship between the two countries. With this purpose, the study addresses itself to broad issues related to subsidiary behavior such as sale of equity shares, canadization of personnel, publication of financial data, research and con- tribution to charity and education. It does not examine the marketing problems of United States subsidiaries in Canada. In the area of commercial policies, it only covers their export selling and purchasing policies.8 A study by Friedmann and Kalmanoff highlights the specific problems, experiences and prospects of joint 7John H. Dunning, American Investment in British Manufacturing Industry (London: George Allen & Unwin Ltd., 1958). PP. 264-65 and p. 272. 8John Lindeman and Donald Armstrong, Policies and Pragtices of Upited States Subsidiaries in Canada, National Planning Association (U.S.A.) and Private Planning Associa- tion of Canada, January, 1961. Ix... I I, :: ‘35: IQ I... ""n 0"- ”.35. and '4- AV "vhf -:‘ ~05 mot ' 1 .‘c.' H"!, "U'. u...‘ ~ 0 ""‘Q‘s V n .01 Van ”CiL'." .5 “:95 1 business ventures operating in several underdeveloped coun— 1 tries. The specific cases presented in this study help readers understand the different patterns of ownership and distribution of equities, general management and personnel problems in such joint ventures. The marketing Operations 0 of joint ventures are not brought out in these cases prob- ably because the marketing function is taken care of by the host country partner in most of the international business ventures.9 Richard Robinson has also contributed significantly to the existing literature on international business. His writings lay special stress on the need for adapting company policies to the environment facing the firm. Under company policies, he has considered mainly the policies related to ownership, growth, product and process design and investment. He has suggested a blending of business interest (profit) and national interest of the host country (for example, supply of foreign exchange and improvement in the balance of payment situation) in the programs of United States business firms operating overseas. He has identified many environmen- tal factors within a hOSt country that will be reflected in the product design suitable for that country. He describes his general thesis in these words: ‘——_—-———- 9Woligang G. Friedmann and George Kalmanoff (eds.), 90int International Business Ventures (New Ybrk: Columbia University Press, 1961). ..x' N 1"“— v-— vs. In 3 a “In". \ v.“-‘ .es ' v n .“ I Is 8“ .‘e I“ n ..‘ Ink “"evh. .... ' Q " Mus: ‘ ‘es ‘5‘ at "L '1‘ J‘ .L 1.!- l I 4V] P ‘ l is“ {Aw 10 . . . Just as the past behavior has filled a large reservoir of ill—will toward private western enterprise in non-western lands, a reverse flow might be possible in the future. Given greater wisdom, forbearance, farsightedness and understand- ing, western enterprise might conceivably create a favorable political response as it moves through the twilight of the national era into the inter— national age. To do so, however, will take much hardheaded thought. . . . Criteria, policies and organization will have to be re—thought and altered to fit into the radically different socio- political environment one can anticipate in the near future.10 Skinner's study of the American manufacturing firms in developing economies examines problems generally encoun- tered by the United States executives in managing enterprises in developing countries. He concentrates on the production system of an enterprise and treats the marketing environment as one of the "given" in the host country having an impact on the production system. He recommends that American sub- sidiaries should design their total production system abroad to fit the environment instead of either operating in the United States way or leaving the system to relatively in- experienced foreign managers.ll In his analysis of competitive advantages of local and international firms engaged in two Central American industries, paint and detergent, Sorenson has deplored the lack of what he calls the "fundamental product adaptation“ ‘ 10Richard D. Robinson, International Business Policy (new York: Holt, Rinehart and Winston, 1964), p. xiii. 11‘WickhamSkinner, American Industry in Developing Economies (New York: John Wiley & Sons, Inc., 1968). s. Ob ”2' «u u. :1... :*:v~or iii-O 5V. . :' VI:!O than! a . 9 an “€qu ' on..~ O ' A“! o 4 A. " be...“ 3“ a :29 3: . :'(:. ‘ In -~.+"8u\4 C . :v fi...‘~ . Us. “ a . "‘V‘Zes 1 M. A‘ \ 1 p “be“ A~I ‘-5' ‘e ‘ ‘1.:1 H i A la 14‘ l. "s'rh Y a 1 ‘ : LCA:‘ ‘9. H,‘ :1 ~s . 71:.F. . I 1.” NES, ..il ”F . a s 'z. U‘Cd ".h:\ I "'~"<. .qise‘ u 13 '2' v "~'.‘.t " "e ,.|Q‘. 1 11 on the part of international companies in spite of their superior R & D facilities and know-how. Sorenson concludes: . . None of the international companies in the study did a good job of analyzing the special needs of Central American markets and then modi- fying their basic products to meet these needs . . . there is little doubt that most international companies have considerable room for improvement in the area of international product modification.12 Two later studies undertaken by Terpstra and Henley examine the impact of the formation of a common market on marketing policies and strategies of international firms. Terpstra restricts the scope of his enquiry to the American firms operating in member countries of the European Common Market and examines in great detail the marketing adjustment of these firms under the new economic conditions that emerged after the signing of the Rome Treaty.l3 Henley emphasizes the importance of marketing factors and competi- tion in accelerating the process of economic integration in Central America. His discussion of the impact of increased intra-union trade on product, distribution and price poli- \ cies of local and international firms is specially pertinent / to this research. The creation of the Central American Market, he observes, motivated the foreign-affiliated firms l2Ralph Z. Sorenson, "An Analysis of Competition Among Local International Firms in Two Central American Industries" (unpublished Ph. D. dissertation, Harvard Univer- sity, Graduate School of Business Administration, Boston, -Massachusetts, 1966), pp. 456-57. 13 Vern Terpstra, American Marketing in the Common EM. (New York: Frederick A. Praeger, 1967) . In :0 2" ”a! hang-U 55 av v'd r; ‘1) ‘ Pc.‘.:‘.es -: II) (n adapted b “Elite :3 r s. K. .‘ I“ 63 CAF . \‘Ad’ Ire .'A‘ 'r ”at v1.4».s far w is. ‘1‘ c ‘5 :Q 7‘ ~~~5Ly. F ‘8 “'3. CA‘ 12 to start manufacturing their products locally and widen their product line from previously high quality to medium and low quality as well, for serving the lower income groups.14 The studies cited thus far examined either the broad management problems of foreign based United States business firms or the impact of economic integration on their market- ing policies and strategies. A somewhat reverse approach was adopted by two studies undertaken by Rocour and Matsusaki who examine the United States-based subsidiaries of European and Japanese firms, respectively. Rocour illustrates, among other things, the impact of environment on the market behav- ior of European manufacturing subsidiaries operating in the United States.15 He finds that the SOphistication of the United States consumer forced these subsidiaries either to be well equipped in offering comparable service to customers or to confine their operations to dealing in industrial products for which mass appeal and promotion were less necessary. In his study Rocour observes a remarkable change that comes in the parent—subsidiary relationship when a 14Donald S. Henley, "Regional Trade and Market Per- formance: A Study of the Central American Experience" (unpublished Ph.D. dissertation, Harvard University, Graduate School of Business Administration, Boston, Massa- chusetts, 1966). 15Jean-Luc Rocour, "Management of European Corporate Subsidiaries in the United States" (unpublished Ph.D. disser- tation, Cornell University, Ithaca, New YOrk, 1963). -"‘I. ~- 4 o Iva-sue y. D e 5.4.... - _ _‘ ......"e b p '5:- “r~ U h. ....u a ‘I .A I ID. .".“ ' I -|; I.." Al 06-5 M.“ "u. :l: C. V e '5.-. J I.. . u ‘1'. s ... . c ..., .4 . Q l3 subsidiary is set up in a large and highly SOphisticated market like the United States. The United States-based subsidiary enjoys a great deal of autonomy in decision- making and, contrary to normal practice, acquaints the parent company with new technical and marketing ideas. Matsusaki examines in the other study the impact of Japanese business life on the management practices of Japa- nese firms operating in the United States. He identifies the following three characteristics of Japanese business life which influence the needed adaptation for doing busi- ness in America: (1) traditional features, (2) the life time employment system, and (3) the group decision-making system. Like Rocour, he observes that the Japanese firms put a significantly stronger emphasis on competitive pricing and dealer cooperation in their marketing strategy in the United States than in Japan. Advertising and sales promo— tion are also slightly more emphasized in United States.16 None of the studies mentioned so far was devoted to the operation of foreign—affiliated firms in India exclu- sively. There may be several reasons for the lack of academic interest in this area. Foreign investment in India in significant volume dates back to about twenty years or so lGHirofumi Matsusaki, “The Adaptation and Marketing Strategies of the Japanese Manufacturing Firms Operating in the United States" (unpublished Ph.D. dissertation, Michigan .State University, Graduate School of Business Administration, .East Lansing, Michigan, 1966). ...... 0.. ...... ...l i V‘s. 4.1 o1-‘E U: ...; ‘-h'. Dub hut. , T’C’.‘ {- “sib' h‘ C 14 since the country became independent and initiated long— range development programs. The British rulers were not much interested in the industrial development of the country. The American investors, moreover, preferred putting their money in Latin America and Europe in preference to the Middle East and Far East as far as possible for reasons of distance and risk. Nevertheless, the area of foreign invest- ment in India did attract some attention from academic researchers. Kidron, for example, wrote an authoritative account of the growth of foreign investment in India which is essentially historical and does not go beyond presenting factual data on foreign private investment in India and its growth since independence.17 Another work by COpen deals eXC1usive1y with India and focuses on comparative management Problems faced by United States manufacturing subsidiaries and the local companies in the Indian pharmaceutical industry. coPen observes that the United States subsidiaries operating in India enjoy many advantages: the financial and technical assistance available to them from their international head— cI‘larters, market reputation of products and aggressive sell- ing techniques. However, their major disadvantage is the "frequent inability to assess the motives of government and labor organizations, inflexibility in adapting to the local environment, often due to a refusal to adapt to Indian \— L 17Michael Kidron, Foreign Investment in India ondon: Oxford University Press, 1965) . 7 "W ).r~')~,'-a~_. L~§l .. R ’3 cvw‘ ".'-..‘U U in. ...“:- vu: b !u\' do « 5511;: 15 patterns, restrictions imposed by the parent companies on the type of decisions local personnel could make . . . and unfamiliarity with the motivational stimuli to which their Indian employees would respond."18 Scope of Present Study This research attempts to add to existing knowledge of the operations of United States business firms in India. Its scope is restricted to a single activity——the marketing adaptation--performed in a cross—section of United States firms in Indian industries. As noted earlier, the primary interest of this research lies in exploring the nature and patterns of adaptation made by American business firms in their marketing efforts designed to serve the Indian market. It also seeks to identify such social, cultural, economic, Political and legal aspects of Indian environment which “‘Ot ivate these firms to modify their marketing strategy. The business firms included in this study are the .1 branches and subsidiaries of American companies incorporated in the United States or India and engaged in manufacturing and selling (or just selling) certain selected consumer and iJIdlistrial goods in India. A United States subsidiary is \— 1‘8MelvinR. Copen, "Management of U.S. Manufacturing Subsidiaries in a Developing Nation: India" (unpublished gu-D. dissertation, Harvard University, Graduate School of siness Administration, Boston, Massachusetts, 1967), PP- 223-224. 16 defined for the purpose of this study as any India-based firm in which an American company holds 50 percent or more of the equity capital. In one or two instances, the study has included firms with a 49 percent equity interest where this step was necessary to enhance the representativeness of the sample. It may be pointed out, however, that a basic assumption of this study is that the United States company becomes actively interested in the marketing programs and policies for the Indian market when its share in the Indian organization is 50 percent or more. The study therefore Will ignore those rather exceptional cases where, under the joint venture agreement, the American partner is given the authority to approve all final decisions pertaining to mar- keting in Spite of its minority interest in the venture or, conversely, where the American partner leaves the marketing aI‘ea entirely to the Indian partner in spite of a majority interest in the joint venture. The term "marketing adaptation" has been used to i-n<:1ude any change, adjustment or compromise that is made by an American firm in its marketing effort to serve ade- quately a foreign market and at the same time to survive and grow within a new environment. A marketing effort has been °°nsidered as a total integrated plan of action which a firm designs to eXploit a market opportunity. It consists of Policies and strategies in four major areas: product, Promotion, distribution, and pricing. --:'~'pt {rt-A t ‘CIVV ha- ed. 1 ...4 17 Statement of the Problem More specifically this research seeks to gain iJisight into the following questions: 1. Have the United States business firms Operating in India adapted their marketing strategy to the Indian environment? If so, how have they modified their product, promotion, distribution and pricing strategies to implement this adaptation? 2. What social, cultural, economic, political and legal ,aspects of the Indian environment motivate these firms to adapt their marketing strategy in India? 32 Do firms producing consumer goods present a differ- ent pattern Of marketing adaptation from those producing semi—industrial and industrial goods? 4. Is there any relationship between the size of a firm and the extent of its marketing adaptation? 5. Is there any relationship between the length of 1 time for which a firm has operated in India and the extent of its marketing adaptation? 6. Is a firm's ability to adapt its marketing effort in India affected by the managerial control exercised over it by its parent company? The fundamental premise Of this research is that a United States business firm making a direct investment in ‘Indie..by initiating manufacturing and/or selling activity, H‘Nng‘h "va..‘es '7 ~ u ‘l adapts its marketing effort to the Indian environment. The 18 nature and extent of this adaptation, however, vary from firm to firm. Some firms do not go beyond making a minimal adaptation which is indispensable for operating in the Indian market whereas others take an active interest in identifying the needs of different market segments and designing their product offering accordingly. Hypotheses The research will attempt to test the following hypotheses: H-l There are identifiable patterns Of adaptation in the marketing strategy of U.S. firms Operating in India. H-l.l There are identifiable patterns of adaptation in the product strategy Of U.S. firms Operating in India. H-1.2 There are identifiable patterns of adaptation in the promotion strategy of U.S. firms operating in India. H-1.3 There are identifiable patterns of adaptation in the market distribution strategy of U.S. firms Operating in India. I H-l.4 There are identifiable patterns of adaptation in the pricing strategy of U.S. firms Operating in India._ There are unique social, cultural, economic, political and legal conditions in the Indian environment that motivate American business firms to adapt their marketing strategy. The patterns of adaptation noted in consumer goods manufacturing firms differ from those in semi-industrial and industrial goods manu— facturing firms. "- “1‘ . I vrciz- 1.1- 'E‘WH i 311 I 4‘ I 5-: , 3i 1 sat,‘:. ‘ A - 111:.1." ‘v o .; fl .. ~..is s E.::e: 1" 2:55 41;: "th s'r. 19 H-4 The larger the size of a U.S. firm, the greater is the extent Of its marketing adaptation to the Indian environment. H-5 The longer the time period for which a firm has operated in India, the greater is the extent of its marketing adaptation to the Indian environment. H-6 The nature of managerial control exercised by the parent company on its Indian branch or subsidiary is a factor in the latter's ability to adapt to the Indian environment. Marketing Adaptation in thgyContext of an Underdeveloped Economy A further elaboration Of the definition of marketing adaptation is considered necessary before the main findings of this survey are discussed in subsequent chapters. An American firm operating in India is placed in the midst of several uncontrollable constraints which characterize an underdeveloped economy. Some of these are: a large rural sector, a heavy dependence Of people on agriculture and an extremely low per capita national product.19 In the context of these environmental constraints, a firm will be consid- ered improving its adaptation performance, as it expands its market share and moves from urban to semi-urban and rural markets. \——— 19According to the 1961 population census, 82.7 per- cent of India's population lives in rural areas. The per capita national product was estimated to be Rs. 481.5 ($64.2) at current prices (1966—67). See India, A Reference Manual, Mlnistry of Information and Broadcasting, Government Of India, 1968. .Ilhsril all? read» 7' .- 1' 3-r- .E be... n P» 1. Iv bu D .v-q 9% ..yn. 5“ II?! .' A “...,“a ' ~ “A .11: .. 'V' ve1v O ~V‘. ' "we: D d . . .5 “z ‘... ...-“‘ d .6. ‘~-€ssa. ‘ss u N e .‘ " “=1 . q ‘ . ~38 ¢ A. ‘né M_.‘ ‘b“.ry a. ,. “:8 ‘A "v t"‘ ‘ a“ n,‘ ‘t a T! C , V. O‘ N ha A..‘ d :-~ u“p 5" as ... \ " \ 1"\ HA. 1 \VH I -:‘8‘ I“~"‘1‘~ ‘» 20 For penetration into semi—urban and rural markets, a firm needs to add low priced and relatively simple products to its product line. This may amount to a major departure from the market unification strategy followed by many multi- national firms, because new simplified products have to be developed specially for the needs Of middle and low income group people. A backward research and development becomes necessary to make the products technologically less sophis- ticated and even physically less durable if this results ultimately in the lowering of product price. The use Of locally available raw materials, parts and components may be necessary for the same reason. The state of surplus human resources, a usual characteristic of an underdeveloped econ- omy, should lead a foreign firm to experiment with labor intensive manufacturing techniques. This also should bring down the cost Of production and selling price. Quite often a foreign firm is forced by the host country government to modify its product and pricing poli- cies to facilitate the realization of goals set by govern- flent for the various development programs underway. The types of product changes described above may be forced on a firm by government as a precondition to the former's Opera- tion in the host country. A foreign firm will be considered Showing greater adaptation if it blends its business goals Such as profit with the national goals as laid down by the host country government. These goals include achieving a Particular rate Of national growth, improving the balance of W‘*" "m g.'__"me-.an-l‘ ' :In ...... bunt...“ ‘ a n- '. fl; 'os. V‘ parts c 56'. .K ‘ ‘:v«5 'C"~ I 7". on.“ a ... . g! :5" ‘ V. A!“ ‘ 'I a, ‘s U N "1 ‘ H “tf: H1: ‘ 'v 14 q ' ,5 ..‘LS A 21 payment situation or attaining self-sufficiency in the supply of food grains. Adaptation of promotion and distribution policies will also be judged in a somewhat different way when a firm is operating in an underdeveloped economy, especially in India where one Observes amazing regional disparities in language, religion, social customs and the philosophical view of life. Multiplicity of languages spoken in different parts of this country and a very low literacy ratio are two serious limiting factors to the audience size of an adver— 20 Taking care of these environmental con- tising medium. straints might require the development Of advertising materials and programs in the host country, especially for consumer goods. The firm may also need to adapt its channel strategy to the mass market coverage. The traditional import-oriented channels may have to be gradually replaced by a market oriented and company managed channel network. In brief, a foreign firm Operating in an underdevel- oped economy has to respond to a different set of environ— nental constraints to serve the market needs of that economy. Partly this response is conditioned by the host country government but, to a significant extent, the firm enjoys 20The 1961 population census enumerated a total of 1.652 mother tongues grouped into 14 major languages spoken in different parts of India. The literacy ratio for males Was 34.5 percent and for females was 13 percent according to this census. See India, A Reference Manual, op. cit. 1’. that 1. OR o- by EXLSZI '0 O. .- ‘ll .1 Li. :RA.’ A’- Ibv..'. EXEIL: :.,,c ‘ee “5‘ N's. E'v-v O h... 22 the freedom of designing its strategy in a way that enables it to adjust fully with the new environment. Usefulness of Study The value of this study lies in the expanding of the existing body of knowledge on the functioning Of foreign- affiliated firms in the environment Of an underdeveloped economy. Most of the earlier studies, as noted above, examined a whole host of management problems encountered by firms in a foreign environment. A few of them covered a group Of countries within their purview. The scope of this research has been narrowed to one functional area--marketing-- and one country--India—-so that the marketing operations of international firms Operating in an underdeveloped economy come into sharp focus. The study recognizes the increasing significance of direct private investment from the United States to India since the early 1950's when India started a planned program of development. Frequently, economic surveys and investiga- tions are undertaken by the government of India to examine issues such as cost of production, prices, employment of expatriates, profits, etc., as far as the international firnm are concerned. But so far no study has been made to exandne the market behavior of these firms. It is hoped that this study will contribute new insights in this area to the Ibenefit of Indian businessmen as well as the government. a; nv-‘DV beg-a. Wm: ..- I) Dun- y 5-5;.) IL I. ‘L 4|: ~"e vi ‘ "Aves 23 The study may provide the Government of India with a new criterion for judging the performance of foreign enter- prises--the degree of marketing adaptation to the Indian environment. It highlights the importance of examining a firm's market adaptability when its request for additional industrial activity might be under consideration by the Indian Government. Finally, the findings of this study should be of interest to American companies which might be planning to make a direct investment in Indian industrial deveIOpment. Thisstudy will provide prospective investors with addi- tional information on Indian markets which could help them in their decision-making. Companies which are already in- volved in manufacturing and/or selling in India, ought to benefit from the portrayal of a total picture of the market behavior of foreign firms of which they are individually a small part. '89 U. :V‘ H «he s .1 HQ I1, .1 'V O ‘ 5-4 “H A: ‘C ‘\ u ”fw- a" CC \ :- A 57 CHAPTER II RESEARCH METHODOLOGY The purpose of this chapter is to outline the methods used for testing the hypotheses set forth earlier. .First, the research instruments used will be introduced. .Sampling procedure will be discussed next. The criteria established for including a firm in the sample will be stated. This will be followed by introductory information on firms selected finally for field interviewing. In con- clusion, the limitations of this study will be mentioned. The Universe The universe for this survey consisted of the branches and subsidiaries of American firms incorporated in the United States or India, and engaged in manufacturing and selling (or just selling) selected consumer and industrial goods in India. A United States subsidiary was defined for the purpose of this study as any India-based firm in which and American company (parent company) held 50 percent or more of equity stock. In exceptional cases, the study has iJnsluded firms with 49 percent equity interest in an Indian 24 ‘V'- 'l ebb-l "T'G'e wblb-n v 07-- . u... ‘nov:b its. ... . lav . 5.Q . t 7' £1 ‘| I '48 l“- H; ‘ 25 firm*when this step‘was necessary to enhance the representa- tiveness of the sample. Details on this will follow later in this chapter. To identify the universe, a list of American firms Operating in India was obtained from the United States Department of Commerce, Bureau of International Commerce. The list contained names and addresses, as of July, 1968, of 246 American firms and their branches, subsidiaries or affiliates in India. It included principal product lines being manufactured and sold in India. From this list, 64 firms were selected using the definition of a United States business firm in Chapter I. The rest were excluded either because of their minority status in India-based firms or because they belonged to a service industry like banking, insurance, transportation, advertising, hotel, motion pic— ture, engineering and construction, technical sales repre— sentation, etc. The sales subsidiaries of American firms engaged in actual selling and offering marketing services were included in view of the nature of this study. Thus, the universe comprised 64 firms, all Of which were engaged in selling in the Indian market. Research Instrument As stated in the previous chapter, the primary Objective of this research was to explore the nature and Pattern of adaptations the American firms made in their marketing efforts designed to serve the Indian consumer. 26 An exploratory study of this nature did not lend itself to experimental research. The survey research was considered to be the apprOpriate research method for the collection of primary data. The small size of universe and the qualita— tive character of data sought were two important consider- ations in favor of the personal interview technique of survey research, though the mail questionnaire method had the advantage of economy of time and money. Personal inter- viewing was adOpted as the main instrument of this investi- gation when a research grant was made available to cover the cost of field trips entailed in the United States and India. Deve10pment of Interview Guide Having considered the interview as the ideal research tool for this study, an interview guide was developed to obtain answers pertinent to the objectives of this research. Care was taken to include questions that were related to the hypotheses and to arrange them in a way that facilitated the process of personal confrontation. The guide sought general information of a classificatory nature and the basic informa- tion dealing with adaptation patterns in four major areas: product, promotion, distribution and pricing. Information was also sought on company reactions to government regula- tion or control of marketing activities in India. Most of the questions were structured to make sure that the inter- view brought forth all information needed to test the hypotheses. But, quite Often, some compromise had to be n,‘ ... my ..v . V l ' C 6.. .1 $51255 "c B‘I‘ "‘5 \u u\ , l ’2‘: ... ' 0" I' ~ . :g- - . i ... I D 'f1 27 made when a respondent preferred an unstructured style or spent relatively more time on a tOpic in which he happened to be interested. The interview guide was pre-tested on four companies in Detroit, Michigan and Akron, Ohio and was thoroughly revised before it was used in other interviews. However, the changes were not so important that the pre-test inter- views needed to be repeated. A second interview guide was designed for the purpose of conducting interviews in India. The main purpose of the second interview guide was to collect all classifica- tory and basic information on India in greater detail. A few open-end questions were added to enable the managing directors or other respondents in Indian companies to express their personal views on matters such as business environment and parent-affiliate relationship.1 It was decided to interview executives from 25-30 selected companies in the United States to be followed by a second round of interviews in India with the same companies (their respective branches or subsidiaries). The first round of interviews was conducted in November, 1969, in the United States. The majority of interviews within the U.S. firms were conducted with senior executives in the international Copies of the two interview guides prepared for the Ikuted States and India, respectively, are enclosed in Appendices A and B. 1.. “.1 .1 ID a“; I) u 1". Iv..- \. u" U .. R D N1 ..E ‘J ‘- a s, 'l.‘ .n :n“\‘ t a ~I 1 . I ‘K x.‘ h, ‘*‘1 0.0 “9 ',-.. A“: ‘5 . "vh ‘u_ i 1 e“‘ 28 division who were associated with Indian Operations. These executives carried a variety of designations such as presi- dent, executive vice—president, vice-president, director, regional director, manager, regional-manager, assistant to ‘president and assistant to chairman. The vice-president was the most frequent respondent, followed by director or regional director who were normally assigned a group of countries including India for administra- tive purpose. The second round of interviews was conducted in India in January, 1970. The most frequent reSpondent in Indian firm.was the managing director who was often joined by the marketing or sales director or sales manager.2 The follow-up interview in India with the same company provided not only a built-in verification mechanism in the survey design but also offered a valuable Opportunity of Observing the differences in internal environment facing the firms in the two countries. A clear view became possible of environ- mental forces such as governmental control, labor problems, market competition, advertising media, wholesaling and retailing practices, etc. Several other sources were also used to obtain information pertinent to this research project. Efforts were made to meet persons in government and semi-government organizations and in trade associations representing the 2For COpies of letters requesting an interview, please refer to Appendices A and B. 29 industries covered in this investigation. Unstructured interviews were conducted with the staff Of the Indian Investment Center, New YOrijMinistry Of Petroleum and Chemicals, New Delhi; Office of Drug Controller, New Delhi; Indo-American Chamber Of Commerce, Bombay; and All-India Manufacturers' Organization, Bombay. Informal discussions were also held with two leading American advertising agen- cies having branches in India. There was hardly any secon- dary data available in either country that could be used in this research. The Annual Financial Statements of companies selected for study were hardly of any use. They made scanty references to Asian or Far Eastern Operations and very few statements referred to Indian Operations. Scoring Technique, A scoring technique was used to determine the level of marketing adaptation of each firm in the sample. Based on the personal Observation of the interviewer and on answers received from firms pertaining to their product, promotion, distribution and pricing policies, each firm was rated on a scale from one to five. The final rating given to a firm is called the Marketing Adaptation Index. The computation of a marketing adaptation index for each firm provided a useful research instrument for testing some Of the hypotheses spelled out in the previous chapter, espe- Cially those which relate the size and the length of Opera- tion of a business firm to the extent Of its marketing AP-.- .../«4- .A— - w“: E C ‘ I id ’- e 1 in ..A- b u u“ 5; A: .. ~m. ‘n “s E is .lt Q‘ 30 adaptation to the Indian environment. The actual basis for rating each firm has been elaborated upon in Appendix C. Sampling Procedure There was a problem of selecting between 25-30 companies in a small universe of 64--a cross—section Of consumer and industrial goods manufacturers in the United .States. Besides the fact that the sample represented all important industries crucial to India's economic develOpment, the considerations of convenience and costs figured also in the final selection. Care had to be taken to ensure that both large-sized and small-sized firms were adequately rep- resented in the sample. Similarly, it was necessary to make sure that the sample was not unbalanced in favor of a partic- ular class of industry--consumer, semi-industrial and indus- trial. Within these constraints, it was not possible to make use of the technique of random sampling. A technique of deliberate selection has to be devised on the basis of the researcher's own judgment and convenience. This tech- nique may be called the "judgment sampling," using statisti- cal terminology.3 3A judgment sample, according to Deming, is one in which an eXpert in the subject matter makes a selection Of "representative" or "typical" counties or other areas or business establishments. For an evaluation of the reliabil- lty Of such a survey, we must rely on the expert's judgment; We can not use the theory of probability. See W..Edwards Déming, Sample Design in Business Research (New YOrk: John Wiley & Sons Inc., 1960), p. 31. Hansen and Hurwitz also Indicated the apprOpriateness of a judgment sample to 31 It was decided to concentrate on companies with their world headquarters in and around New York, Detroit and Chicago as long as important consumer and industrial goods industries were adequately represented. This decision had the main consideration of economy and convenience in field investigation. Keeping this point in view and also provid— ing a margin for possible negative responses, a total of 35 companies was approached for COOperating in this project. The response from these 35 companies is analyzed in Table 2. The number of 25 companies which indicated their willingness to cOOperate in the project was considered ade- quate for going ahead with the study. It was a coincidence that they happened to be conveniently located in the vicin- ity of New York, Detroit, Chicago and Akron. They also represented adequately the main industry groups as will be shown below. One company which did not give any hOpeful response in this country was still included because its Indian subsidiary proved quite COOperative when approached in India. This inclusion also improved the represeantative- ness of the sample. Thus, 26 companies made available the primary data for this research in this country as well as in India. situations where the universe was small and the results Of tfigh precision were not sought. .See Morris H. Hansen and VfiJliam N. Hurwitz, "Dependable Samples foerarket Surveys," JOurnal of Marketing, October, 1949, p. 364. .0 p ‘ d 32 Table 2. ReSponse analysis Number Of Nature of Response Companies 1. NO response 3 2. Inability to cooperate as a policy decision 1 3. Inability to COOperate because the companies considered their involvement in marketing activities Of India-based firm as negligible 3 4. Inability to cOOperate because the persons directly concerned with Indian Operations were not available at the time proposed for interview 3 5. Willingness to COOperate communicated either in writing or by telephone 25 35 The extent to which these 26 companies represented various industry groups is reflected in Table 3. It will be seen from this table that all the seven consumer goods manu- facturers are included in the sample. Coincidentally, the international division Offices of all the seven companies were located in the vicinity of New YOrk, which made the interviewing work run smoothly and expeditiously. The mis- cellaneous class at the bottom of the table consisted Of a heterogeneous group of products like process control instru- ments, aircraft parts, theater sound and projection equipment, Table 3. Representativeness of sample Total NO. No. Of Firms Firms in Included in Main Industry Group Universe Sample Consumer Non-Durables;, -‘ -1 Cosmetics and toiletries 3 3 Flashlight batteries and cases 1 1 Food and kindred products 2 7 2 7 Consumer Durable Home appliances 1J l Semi-Industrial Petroleum products 6 l Pharmaceuticals, industrial chemicals and fertilizers 22 31 7 10 Tire and other rubber products 3 2 Industrial Automotive equipment,‘ - - parts and machine tools 2 2 ,Electrical and electronic equipment and supplies 3 1 Elevators . l 26 l 9 Industrial machinery lO 2 Office machines and equipment 3 3 Miscellaneous 7 O 64 26 (I! “P Vt. 3A- Us“ -~_ In. 14.. av» ‘A '1‘: It.) '1 ”I 'L,’ - § \ 34 agricultural machinery, textiles, industrial refrigeration and laboratory glassware. It was preferred to concentrate on a limited range of products and therefore, the seven companies in this group were ignored in the final selection.4 More About the Sample gocationaPattern It might be useful to add here a brief introductory note on the sample Of 26 companies selected for this study. Eighteen of these companies had their world headquarters located in New YOrk and its vicinity, three in Chicago, two in Detroit, two in Akron and one in Dayton, Ohio. The Indian Operations were controlled from these headquarters through either an autonomous international company or an international division, except in two cases where the vari- ous product divisions in the parent company organization took care Of both domestic and international sales. In most cases, the global Operations were divided into smaller geo- graphical units known as "areas" or "regions." Each such unit is put under the charge of a vice-president or regional director. The Indian Operations usually formed a small part of such geographical unit which varied in size according to the administrative needs of a company. Some companies, for 4In subsequent discussion, the broad industry groups Shown in Table 3--consumer, semi-industrial and industrial-- gfill be considered as representing the product categories Indicated under each in the table. “A iv; o‘.‘ V¢ub . \‘- a... V... tx‘ (I) ‘1 . . ‘~ ‘fl‘ '1 ‘t 3 v s”- 4‘ P 5. \ . n‘_~ . i‘.' In . I 35 example, included the Indian Operations in the Far Eastern region and others in the Eastern region. In the case of only seven companies, however, the Indian Operations were being controlled through area or regional headquarters located outside the United States in cities like Hong Kong (4), Beirut (1), London (1) and.Melbourne (l). The rest of the companies controlled Indian Operations from the United States. In India, Bombay may be considered as New York's counterpart having offices of 17 United States branches or subsidiaries. It was followed by Calcutta with five, New Delhi with three, and.Madras with one. The 26 companies Operated 28 plants in India which were not necessarily located in the same town or vicinity where the Offices were located. Yet, the Bombay area accounted for 16 plants--the biggest concentration of American plants in India. The other 12 plants were scattered all over the country in Calcutta, Madras, Delhi, Lucknow, Ballabhgarh, Poona, Banglore, Madurai and Hyderabad. Nature of Parent-Affiliate Relationship The picture Of the organizational pattern of the United States companies interviewed was slightly complicated. It stood as shown in Table 4. Ii. 36 Table 4. Organizational pattern of United States business firms Number Of Organizational Pattern Companies 1. U.S. incorporated branch Offices without any manufacturing Operations in India (trading and servicing organizations). 2 2. U.S. incorporated regional Offices with manufacturing Operations of their own in India. 3 3. U.S. incorporated branch Offices having equity interest in other Indian ventures 3 4. U.S. subsidiaries incorporated in India--in which the parent company had a 100% equity interest. 6 5. U.S. subsidiaries incorporated in India in which the parent company had 50% or more equity interest 12 26 3One of these subsidiaries was essentially a trading and servicing organization having equity interest in two Indian ventures. .Size Patterns The group of companies selected for this study was fairly balanced from the standpoint Of size, measured either in terms of annual dollar world sales or annual dollar Indian sales. This is borne out by Table 5 which gives the distribution of selected companies in relatively small-. nedium- and large-sized groups. 37 Table 5. Size distribution of United States firms Operating in India Size Groups Size Groups World Sales Indian Sales for 1968 Number of for 1968 Number of (million dollars) Companies (million dollars) Companies Below $500 9 Below $5 9 $500-2,000 10 $5-10 7 Above $2,000 7 Above $10 8 26 24a aSales data for India were not available with respect to two companies. It should be useful to gain an insight into the size of Indian Operations of individual sample firms in relation to the size of their respective world Operations. This has been done in Table 6. It is interesting to note that the size of Indian Operation Of all American companies in the sample is remarkably small compared to the size Of their global Operations. Not only that, the larger the average size of global Operations, the smaller is the percentage share Of Indian Operations. The average Indian sales as a percentage of average world sales tends to decrease as one moves from small-sized to large-sized group. This may be due to the fact that a substantial portion of the total international sales of most American companies is accounted for by the EurOpean and Latin American countries. An 38 mm.o m~.mm mmh.m h ooo.Nw w>0£< Hm.o Hm.m mmo.a OH ooo.NIoomm om.a mo.v mom m comm BOHmm mwamm Awumaaov GOAHHHEV Amumaaoo coflaaflev mchmeOU Annmaaoc GOHHHHEV UHHOZ mmmuo>m moamm amaUGH mmHmm OHHO3 mo Honeoz moma How MO mmmucmonmm mmmHm>¢ msouw mmmum>m adouw moamm vauoz mm moamm cmwocH mmmHm>¢ mmsouw mnflm UHHO3 mo omen mcflccommouuoo on» mcoHumummo ou Owumamu macaumummo cmHOGH mo mNHm_ .m manna Arerican c mas, nat American 0 arable t apport'mit Eves the; teams. 3:23?! Ca :PEIation 39 American company, planning an expansion in its world Opera- tions, naturally gives preference to the EurOpean and Latin American Operations which are relatively nearer to home and amenable to better control. It is only when the investment Opportunities are saturated in EurOpe and Latin America, it gives thought to expanding in the Eastern or Far Eastern regions. In some cases, the Indian Operations Of an American company came into existence as an offspring of its EurOpean Operation and were being controlled from Europe. Limitations of the Study The findings and conclusions Of this study will have several limitations. The study was conducted at a given point of time and it examines the marketing behavior of American firms in India under a given set Of environmental forces existing at that moment. These environmental forces are subject to constant change. For instance, the intensity Of government control felt by firms currently may increase or decrease along with changes in the economic condition of the country. Thus, the conclusions Of this study will have somewhat limited validity. The data on marketing adaptation collected in the course of field interviewing were essentially of a qualita- tive nature and did not lend themselves easily to scaling techniques.or statistical measurement. The research find- ings are therefore mainly exploratory and speculative. The 40 study was handicapped considerably by the absence of any secondary data on its subject matter. In a country like India, it was a difficult exercise to persuade managements to disclose information on the in- ternal Operations of their respective firms, especially in the area of marketing. Though all the firms interviewed were affiliates Of American companies, the fact that a majority of these were being managed by Indian nationals made a significant difference in the extent of COOperation received. The size of the sample had to be limited to the number of companies which agreed to COOperate in this proj- ect. The time and money constraints, moreover, did not permit the inclusion of some companies which were located in the western and central regions of the United States. Thus, the study was essentially an empirical survey based on interviews with 26 companies which may not be a com- pletely representative sample. Moreover, only such indus- tries were represented in the sample which in the judgment of this researcher had a significant role to play in India's economic growth. This study might have also suffered from the limita- tion that is generally attributed to inferential analysis. The conclusions were based on what the respondents stated they were doing which might be different from*what was actually being done. The possibility Of such difference was minimized by introducing a system of double interviewing in 5's; 5k 1 be :. ‘Ivub dunk» L V .AIA >‘ N""‘ms :At 41 the survey design as explained earlier. Still, it cannot be claimed that this study is entirely free from this limitation. Organization of the Study The main findings Of this study are incorporated in the four chapters that follow. Each of these chapters has been devoted to an analysis of adaptation patterns in dif- ferent elements of the marketing mix~-product, promotion, distribution and pricing. Product, being the most critical component of the marketing mix, appears first in Chapter III. The next three chapters examine in a similar way the adap- tation patterns in the remaining three areas. Finally, an attempt is made in Chapter VII to put together the main conclusions of this study. An important purpose of this chapter is to reexamine the problem questions posed in .Chapter I and to determine the extent to which this study has been able to answer them. Suggestions for further research in this direction are also made in the end. V A. :ctal a... arse: to ”"5“e'e .V“ eh ‘ ‘ n '5' “Fn 6:0Ke b ““ d CHAPTER III PATTERNS OF PRODUCT ADAPTATION Marketing adaptation was defined in Chapter I as the total adjustment a firm makes in its marketing strategy in order to survive and grow inside a new environment. It was considered to be a function Of adaptations in four major marketing areas: product, promotion, distribution and pricing. The importance Of product adaptation as an element of marketing adaptation need hardly be emphasized here. Adjustments in other elements of marketing strategy, viz., promotion, distribution and pricing are affected signifi- cantly by the way a firm adapts its product strategy. It is, therefore, necessary that the present study begins with a detailed examination of the patterns Of adaptations in the product strategy of American firms Operating in India. The purpose of this chapter is to describe and analyze important patterns of product adaptation made by American firms in response to unique environmental forces in the Indian market. Adaptation in the areas of promotion, distribution and pricing will be examined in a similar way in subsequent chapters. The word "product" has been used to imply any tangible finished goods a firm Offers its custom- ers for ultimate consumption, resale or industrial use. It 42 ~ v- bu 0!‘ 5v \n1 ‘4. . 3's .It‘ 313- ghe, Sr“ 9‘] 43 includes for the purpose of this study the packaging, that may be given to an individual unit of product to protect its contents or body. However, shipment packaging essential for hauling products from the points of production to those Of distribution has not been considered as part of a product. Also excluded from the domain of this chapter are activities pertaining to product labelling, branding, issuance of guar- antee and warranty, technical servicing, etc., which will be examined later in this study at apprOpriate places. Types of Product.AdaptatiOn Earlier writers have indicated the nature and extent of product adaptation through the use Of expressions such as "minimal or passive," "active," "fundamental," "minor" and "technological." In a study of political risks asso- ciated with American business firms Operating in develOping economies, Root Observed that the act Of complying with the government laws and regulations affecting a business firm can be described as minimal or passive adaptation.1 Accord- ingly, when a business firm has to export a given prOportion Of its annual production under an agreement with the host country government, it is making a minimal adaptation. On the other hand, when it takes the initiative in promoting the export trade of the host country without any external —_ 1Franklin R. Root, "U.S. Business Abroad and the Political Risk," MSU Business Topics, Winter, 1968, p. 76. gressure, envucme. oroc'xt a 5!- d; A , W LS»3‘\ 44 pressure, it is making an active adaptation to the foreign environment. Sorenson used the expression "fundamental product adaptation" to indicate the efforts made by a firm to discover special market needs and modify the basic prod- ucts to meet these needs. He considered ordinary changes in size, package design, color, etc., as the cases Of minor adaptation.2 A study by Baranson presented a case of technolog— ical adaptation of the design of diesel engine to the economic, physical, cultural and legal dimensions of Indian environment. He examined a number of factors having an impact on engine design such as driver habits, fuel economy, physical terrain and atmospheric condition, use of local material and labor intensive techniques, government regula- tions governing minimum speeds, weight and size limits, etc. Similarly Cartaino conducted a study for Rand Corporation to determine the design for an aircraft intended for use in less develOped areas. For this purpose, he gave a careful consideration to the following aSpects of the aviation environment in these areas: 2Sorenson, Op. cit., p. 209. 3Jack Baranson, MgnufacturingProblems in India (Syracuse: Syracuse University Press, 1967), p. 19. 4T..F. Cartaino, Technological Aspects of Contempo- rary and Future Civil Aircraft for the World's Less DevelOped Areas (Santa Monica: The Rand Corporation, 1962), pp. l-12. ‘1‘ (H fin a can '0. I \n '1. in 45 1. Low aircraft utilization rate. 2. Rapid physical wear and tear. 3. Lack of alternative transportation media. 4. A diversity of missions and loads. 5. Operation from short and poorly prepared airfields. 6. Operation at high altitudes and under high temper- ature conditions. 7. Inadequate airway and ground support. Both of these studies considered technological adaptation as a change or series Of changes incorporated in the design of an industrial product tO meet the unique environmental needs Of a market. It was a significant move on the part of an overseas firm to match its product offer- ing with market needs. However, a technological adaptation may not be confined to industrial goods only. Consumer durable goods like a washing machine or refrigerator may also undergo technological adjustments to meet special market needs of a particular country. A review of earlier studies in the field Of inter- national marketing has given the impression that there has not been any serious effort so far to conceptualize the marketing adaptation types. The earlier writers including those quoted above made only casual references to the adap- tation types and the dichotomies such as minimal-active or fundamental-minor were not so neatly defined and character- ized. In a study which is devoted exclusively to marketing 0: ( 0' i. hwy; L‘. '9- 'v C III / .‘r" t I. I. o" I" ‘4 NM “0: _I 46 adaptation such as this, a good starting point will be to create a workable classification of marketing adaptation types. This should not only narrow down the existing gap in the literature but will also be a useful frame of ref- erence throughout this study. Toward this goal, the fOl- lowing classification is presented with special reference tO product adaptation: l. Mandatory or externally-imposed adaptation a. Minor type b. (Major type 2. Voluntary or self-imposed adaptation a. .Minor type b. Major type Mandatory or Externally-Imposed Adaptation Minor Type The marketing behavior of a foreign firm may be partially conditioned by certain external forces in the host country on which it has no control. These forces may orig- inate either from the technical or economic infra-structure in the host country or from the host country government. Thus, changing over the product design to 220 volts, 50 cycles power system or to the metric system Of weights and measures will be examples of mandatory product adaptation imposed by the technical and economic infra-structure in the host country. Meeting the product quality standards laid down in government legislation or formulated by a statutory body set up by federal government such as the Indian Standards .::=d::t a 2:. India, factnrers ‘ prc-a'gcts O. ' u .:e: 911:: 47 Standards Institution also will be considered as a mandatory product adaptation. The Prevention of Food Adulteration Act in India, for example, requires the fruit products manu- facturers to use a minimum of 25 percent of fruit juice in products such as fruit squash or syrup in order to associate them with the name of a particular fruit. In this example, the external force behind the mandatory adaptation origi- nated from the government. In all these examples, the adaptation needs of the host country did not have to be Specially investigated. A firm could easily know these needs from the secondary data published in many countries for the information Of foreign investors. The U.S. Department of Commerce comes out with several publications which seek to acquaint the American businessmen with legal, political and economic facts on other countries. Normally, a firm would not be required to do marketing research or invest funds in research and devel- Opment to recognize such adaptation needs. Where this is true, it will be considered a minor type of mandatory prod- uct adaptation. Major Type In other cases, the adaptation needs may not be as easy to recognize and efforts may have to be made by a firm in the direction of marketing research or R &,D in the host country. The government, for example, may ask a foreign firm.to make use of locally available materials or parts wherever asked to ;:::ess s vated in Laterests firm to d zarket in 48 wherever possible. A manufacturer of major equipment may be asked to use labor-intensive techniques in the production process so that the unemployment problem may not be aggra- vated in the host country. A situation of conflict of interests may arise where the government wants a foreign firm to design products suited to the needs of an eXport market in which the foreign firm might be already Operating through one of its subsidiaries. In any case, a firm may be required to devote a part of its production to export sales as a precondition to its Operation. These examples of mandatory product adaptation differ from the earlier set of examples Of minor type in two important respects. First, the foreign firm may not be able to recognize the exact adaptation needs unless some amount of marketing research and product development activ- ities are undertaken by it. Second, involved in such adap- tation programs, the foreign firm is contributing to the economic growth of the host country. Therefore, these examples represent the major types of mandatory product adaptation. Voluptary or Self-Imposed Adaptation Minor Type A foreign firm may also adapt voluntarily to the host country environment if this promotes its business goals cn'the national economic goals set by the host country RN rnP v: jU’l’ $0.04 AA ered as a sxveys t every 11 711:5, mee' 3f ccnsm TIE firm I 5:28 pack: 345:3: Type A res“, t th .3deth C: with the C L: the he: L1,: H‘ I «.d of If: its: 49 government. The case of voluntary adaptation may be consid- ered as a minor and a major type. The minor type voluntary adaptation may be oriented to individual need fulfillment and, therefore, may call upon a firm to undertake marketing surveys to determine the exact market needs. It may involve a very little or no change in the manufacturing process. Thus, meeting the color, form and package size preferences of consumers may result in a minor type voluntary adaptation. The firm.may decide to sell a consumer product in smaller size packages to make the product within the reach Of a middle or low-income group family. Major Type A major type voluntary adaptation of product will result when a firm makes significant changes in its existing product or develOps an entirely new product or product line with the objective of achieving an exact product-market fit in the host country. It may amount to an adaptation in the product-mix if a firm adds or drOps products in order to make its total product Offering in adjustment with the local market needs. Such adaptation may enable the firm to expand its market coverage from the traditionally served urban parts to semi-urban and rural parts of the host country. A tooth paste manufacturer, for example, may develop a special brand of dentifrice in the host country using certain locally preferred ingredients and flavors which may make the product relatively less expensive and more popular among the masses. 50 A mechanical washing machine manufacturer may come up with an inexpensive manual washing device which may have the tumbling action of a modern automatic machine and save the women from scrubbing their clothes by hand. A new product develOpment of this nature involves not only extensive marketing research but also a substantial R & D effort, sometimes inventing backwards, in order to make the products simple and less expensive.5 A major type voluntary adaptation may also be ori- ented to the economic growth requirements Of a host country when a foreign firm makes a voluntary move to develop and design its product in such a way that the achievement of national goals--re1ated to balance of payment, employment, etc.--is rendered easier. In connection with mandatory product adaptation of major type, some examples were cited to indicate how a firm can contribute to the economic growth of its host country under pressure from the government. The same examples can be cited to illustrate the case Of volun- tary adaptation (major type) provided the action is initiated by the firm without any external pressure. 5Warren J. Keegan, "Five Strategies for Multi- national Marketing," EurOpean Business, January, 1970, p. 35. n“ VD! :Uve..-S EEC! Ty: Q reporte: The 5‘ .. boil. 0 :etr1c m '1 ,4. W H O H I '}v '51 Patterps Of Mandatory Adaptation Minor Type Almost all the firms participating in the survey reported making minor product changes in the Indian market. The simplest of these were: adjusting to the system Of metric weights and measures, 220-230 volts and 50 cycles electrical system and to the Indian currency units. Changes were made in product quality to bring it in conformity with the standards laid down by the Indian Standards Institution, or other statutory organizations established by law to safe- guard the interest Of consumers. Minor changes in body construction or formulation Of products resulted indirectly when a business firm was unable to import a particular mate- rial or part from abroad and substituted in their place locally available or developed materials. Major Type All manufacturing firms performing product develOp- ment activity in India reported that one of the important functions of their research organization was to test and develOp the locally available materials for possible re- placement of imported counterparts. Thus, the import policy revised periodically by the government had a significant impact on their product planning and designing. Another way in which the import restrictions were reflected in the prod- uct policy of American firms was "diversification." Two famous manufact- . - k zansfac... 'rqd-uu» r‘V d» is standard 52 manufacturers Of consumer goods resorted tO local contract manufacturing and diversifying their product line when the traditional product lines which they sold in India could no longer be imported. As most Of the American firms adhered to high product quality and performance, they seldom found their products behind the standards formulated by the Indian Standard Institution. All firms interviewed denied that the present government policy in relation to product stan- dardization had any effect on their product strategy. Most of the pharmaceutical companies interviewed claimed that the standards of product quality and effectiveness maintained by them exceeded the requirements Of Indian PharmaCOpoeia. Similar claims were made by the manufacturers of machine tools, auto parts, business machines, tires, toiletries and cosmetics. There were, Of course, certain exceptions. The manufacturers of electrical components and power generating equipment felt that in certain cases more vigorous standards were being enforced in India than those in the United States. A heating element manufacturer was required to use a thicker wall covering to prevent injury from the leakage of current in Indian homes where the peOple are used to walking bare- footed on brick or cemented floors. The participation by American firms in India's export trade about which they made quite reasonable claims did not come about voluntarily in all cases. (Many companies were required to design products specially suited to export :arkets a few of t‘r had to c:I sane parel I indie wit abligati: IZOia 's . h .0a~ 53 markets as a precondition to their operation in India. A few of them did this rather reluctantly especially when they had to compete with one Of the other subsidiaries in the same parent organization. Others erected their plants in India with full knowledge of and necessary planning for this Obligation. They reported doing very satisfactorily in India's overseas trade. Patterns of Voluntary Adaptation M inor Type Several patterns of voluntary product adaptation were noted in the course Of field investigation. The manu- facturers Of food products, cosmetics, toiletries and phar- maceuticals offered a small range of package sizes with relatively greater prOportion of goods packed in small sizes so that the peOple in the lower middle income group could afford to try these products. The drug and pharmaceutical companies adOpted strip-packaging in aluminum foil to facil- itate retail sale Of pills and tablets in small units. A food products manufacturer adapted its product to the preferences Of vegetarian consumers by eliminating the use of eggs. The need for lower consumer prices for their products left a limited sc0pe for Offering drugs and nutri- tional preparations in different flavors or colors. The climatic factors, on the other hand, obliged them to ensure that the products could stand a minimum shelf life in India. 54 Additional protective coating on paper boxes was necessary in certain cases. The dosage Specifications were adjusted to the health standards of Indian peOple. This also affected indirectly the package size Of drugs-~ethical and proprietary. The pharmaceutical companies also took into account the fact that the Indian physicians prefer giving their patients injections, probably to achieve a fast relief. This led pharmaceutical companies to manufacture a relatively larger prOportion of injectibles among other forms such as tablets, capsules, and syrups. The inexpensive human labor, another phenomenon in the Indian environment, pulled the package size in another direction. A fertilizer company reported that fertilizers were packed in 50 kilogram bags, because these sizes could be easily handled by agricultural laborers employed in farms. This varied markedly from conditions in United States where either a whole truck load may be required by big farms or bags of smaller weight may be preferred during the planting time. A home appliance manufacturer produced the body of its sewing machines predominantly in black color and made them usable by hand to suit the preference of a majority of Indian housewives. A gasoline manufacturer's product range was restricted to low Octane lead free gas to meet local requirements. An elevator manufacturing company adapted its product to strong local preferences for collapsible gate and 55 single automatic push button control for which an attendant was normally required. Major Type -Few major adaptations were reported by American companies in the course of field interviewing. A sincere move in this direction called for freedom of action from both sides--the parent company as well as the Indian govern- ment. Almost all the companies interviewed were part of a larger world wide organization with the result that their parent companies were specially sensitive to any major change in their well established product. The Indian government with its strong leaning toward product simplifi- cation and elimination Of varieties did not readily come forward to provide necessary facilities and support a firm's move toward major product adaptation. Thus, the pace of major product adjustment was rather slow. Still, many interesting adaptation patterns were identified. These will be covered below in two sections: (1) product-line adaptation, and (2) product-mix adaptation. Product-line adaptation.--In order to identify the patterns of product-line adaptation, the companies were asked if the products in India were different in any signif- icant way from their counterparts sold in the United States or other countries. Of 26 companies, only 12 responded in affirmative and the number of such items exceeded hardly 4 or 5 with each individual company. The following 56 «abservations reflect notable product—line adaptation patterns : A fertilizer company with a liquid fertilizer line in U.S. had to switch over to dry complex fertilizer in India because of several environ- mental factors, for example, small average size of Indian farms and farmers' inability to use special equipments needed for the purpose. The fear of unemployment of hospital technicians prevented a hospital equipment manufacturer from automating fully the Operation tables and mobile x-ray units designed and developed specially for India. The diversity of regional languages spoken in India was reflected prominently in the product adaptation of a typewriter manufacturer which gradually increased its keyboard models to 12 regional languages. Two tire manufacturing companies manufactured a special tire line for use in animal drawn vehi- cles. They also manufactured other special products in India such as draft gear pads for use by railroads and compass cord belt for use by the jute industry. An automotive shock absorber manufacturer de— signed its product in 4 basic bore sizes to suit different types Of vehicles, scooters, motorcy- cles, jeeps, passenger cars, trucks, buses and railroad coaches. The shock absorbers were valved differently so that they could have greater resistance on poorly maintained or unpaved roads. Product—mix adaptation.--The product-mix Of U.S. ftrims in India can be characterized by a far fewer number of pr(Dduct items than with the parent company. Both the width and depth of an individual product line were noted to be is Inaller in India than in United States and some of the 1. . . . . . arger subsidiaries in EurOpe and Latin America. Not a s . lngle manufacturing firm in this survey conformed to a 57 reverse situation. The reasons cited for this state Of affairs were: small size of the Indian market in terms of purchasing power of the general public and limited resources of industrial buyers, government regulation of manufacturing activity in India, strong tendency of conglomerate mergers among business firms in the United States, and increasing economic prosperity in the United States. The problem Of discovering adjustments in product— mix was approached by first enquiring from participating companies why they started with a particular product-mix and second, what forces lead them to reshuffle the initial mix through adding new products or discontinuing some Of the existing products. Generally, the product or product-line a firm started manufacturing with was one in which it had gained long selling experience in the past or for which it perceived an assured potential market. Of course, their choice was restricted to those products which the government considered to be of vital importance to the growth of the Indian economy. The firms were required to get an indus- trial license from the government before starting any manufacturing Operations in India. When asked why they began their manufacturing Operations with a given product- mix, the following answers came forth frequently: 1. Past acquaintance with Indian market through exports. 2. World reputation of the product. 58 Use of parent company technology and R & D. Availability of industrial license from government. In the course Of time as the strange environment became better understood and some of the uncertainties removed, the firms expanded the range of products in their existing product line and also introduced new product lines.6 More specifically, a firm turned tO adding new products or product lines when: 1. It had built up a strong base and could afford to shoulder risks inherent in new product introduction. It perceived new market Opportunities origi- nating from the economic growth of the country. It began to realize the limited prOSpects of the current product line and decided to add new lines to spread the risks over a large range of products and ensure the profitabil- ity of total Operations. It could use the parent company technology in a new direction. It was approached by government to add a new product, being imported previously, to save foreign exchange. Its Operation experienced a setback from the government import restriction and it took on a locally manufactured product to hold its sales organization together. It wanted to reduce its dependence on imports. 6Yair Aharoni, The Foreignpgnvestment Decision 2£29§§§ (Boston: Division of Research, Harvard University Graduate School Of Business Administration, 1966), pp. 150- 151. “I’lliillhl 'I’It!’ JL 0 ...- . ~ . - FEEILT 59 Thus, a food product manufacturer reported having added a fruit squash line some years back which the parent company did not produce. A soft drink manufacturer added a new variety of drink to face local competition. A home appliance manufacturer added to its product line ceiling and table electric fans not manufactured by it in the United States. The drug and pharmaceutical companies diversified into veterinary medicine and animal feed supplement lines after they had built up a strong base on antibiotics, vita- mins and other nutritional preparations. With the introduc- tion of motor scooters in India, the manufacturers Of tires diversified into scooter tire line and a manufacturer of shock absorbers introduced new models for use in scooters. A flashlight battery manufacturer took up the manufacturing of cinema arc carbons at government request which were being imported earlier. Three leading sales subsidiaries took on local contract manufacturing of items they could no longer import. This enabled them to continue their marketing Operations in India. An Oil refining company added agro- chemicals and a fertilizer line when it encountered a situation of increasing government intrusion in Oil refining and marketing business. Discontipppnce of products.--In a developing country, new manufacturing Operations tend to be closely regulated by government. The purpose Of regulation is to make sure that 60 the limited resources are allocated among different sectors of industry with due regard for the priorities Of the devel- Opment program. .Moreover, in the early stages of growth, the supply of consumer as well as industrial goods remains considerably short of demand leading to general scarcity conditions. The less intense competition and the reputation Of American products are two other factors which contribute to the extension of life—cycle of existing products. Under these circumstances, the cases of product discontinuation occur very rarely. Where they did occur, the following reasons were cited by firms: 1. There was need to Operate within an import quota. 2. The import Of some ingredients used in the product was disallowed. 3. The import of parts was banned resulting in the discontinuation of assembling Operations. 4. There occurred more improved and efficacious versions Of products, especially in the drug and pharmaceutical line. 5. The U.S. parent company discontinued the product in question. 6. .Diseconomies from small Operation rendered it unprofitable to continue with the product. 7. The overseas manufacturer whom the firm was representing as an importer-distributor started its own manufacturing Operation in India. 8. The firm was not satisfied with the quality of local manufacturing. 61 U.S. Firms' Involvement in New Product Development Process The extent to which an India-based U.S. firm is involved in the process of new product develOpment would set a limit on its ability to adapt to the Indian environment. The 0.8. parent company has usually the final authority for approving all capital expenditure to be incurred by the overseas subsidiary for new product introduction.7 But this does not mean that the latter plays no role in this process. ,The Indian subsidiary, it was found, was invited to make new product proposals and do preliminary testing (laboratory and market testing) of product in India. Of the 26 companies interviewed in India, 18 reported that they sent new product suggestions to the international division or apprOpriate product division of the parent company. This was done either directly or through area/regional headquarters located in Hongkong, Beirut, London or Melbourne.8 The suggestions also flowed from the parent company to its subsidiary in India. Five companies reported that the 7In his study of the management of U.S. manufactur- ing subsidiaries in India, Copen mentioned that the managing directors of these subsidiaries were severely limited in the extent to which they could commit to future course of action. The limit on capital expenditure imposed by the international division was in one case as low as $100. See COpen, Op. cit., pp. 229-30. 8Seven out of 26 companies interviewed had area or regional Offices outside the U.S. which were responsible for Indian Operations. In such cases, the India-based company communicated with the parent company through its area/ regional headquarters. 62 suggestions pertinent to the Indian market originated from India whereas two companies said that these originated from parent company's international division. In the absence of further details, it is rather difficult to judge the acceptability of suggestions of the Indian origin. Normally when a suggestion was referred to United States, it would be thoroughly examined by research, production, finance and marketing peOple. These peOple judged the manufacturing feasibility, market potential and the financial soundness of the idea. In case the market potential in India was considered to be inadequate for the size of investment involved, the suitability Of idea tO other markets would be examined. The marketing executives interviewed observed that it took as long as 12 to 18 months before a product concept originated for India finally got approved or rejected by the parent company. Several in- stances were noted where the commercialization of a new product was not approved by the parent company though the Indian subsidiary was satisfied with the results Of market testing and subsequent dealer enquiries. Thus, the Indian market was sometimes deprived of the products for which the need was felt by U.S. subsidiaries but in the introduction Of which the parent company hardly got interested.9 9In his field study, Dunning came across a number Of U.K. companies which said that any new idea or suggestion in respect of product design, manufacturing techniques, etc., which they might suggeSt was squashed or treated With the 63 R &.D Epcilities and Product Adaptgtion One of the reasons for delay in new product deci- sions by the parent company may be the time consumed in laboratory testing in the company's research organization located in United States or EurOpe. The facilities of research and develOpment established in India can be de— scribed as very limited. Only 1 out Of 26 companies re- ported that it was involved in basic research in a modest way. ,Eighteen companies reported that they were involved in activities pertaining to new product develOpment. How- ever, in a majority of cases, these companies were engaged in applied research to determine the substitutability Of locally available materials in product construction or formulation. The low level of research and develOpment activity of American companies Operating in India was also pointed out by earlier writers. Copen, for example, Ob- served: In no case were any research activities being conducted in India, except when a product required some minor adaptation to meet localclimatic conditions. In every case, the parent firm had to approve any additions to the product lines of the subsidiaries, and they invariably introduced only well established products. greatest suspicion and rarely acted upon. See Dunning, op. cit., p. 108. No company in India made similar comment to this researcher though it was learned from outside sources that some companies do have similar experiences in India. 10COpen, Op. cit., p. 80. 3“; ' L' 64 The companies were asked if and how the absence of any substantial R &.D facilities in India affected the process of new product develOpment in the Indian market. A summary of replies is presented in Table 7. Table 7. Company reactions to the lack of R & D in India Number of Companies Company Reactions ReSponding 1. It made no difference as they made use of these facilities with their parent company or larger subsidiaries of the same organization located in EurOpe or Australia 11 2. The absence of R & D facilities on a substantial scale made the process of new product develOpment somewhat slow but not to the point of a competitive disadvantage 6 3. The absence of R &.D facilities on a substantial scale not only made the process slow but also amounted to slight competitive disadvantage l 4. Both 1 and 2 above 2 5. Both 2 and 3 above 1 6. NO particular views 26 65 Ip R QLD a Limiting Factor to Product Adaptation? It is debatable whether or not the provision of R & D facilities by parent companies in India would improve the potential of product adaptation, and enable the Indian subsidiaries to achieve a better product-market fit. It will be noted that among the executives interviewed, less than half seemed to agree that the absence Of R &'D at the Indian subsidiary made the process of product planning some- what slow. It is significant, however, that in a group of 26, as many as 10 tended to believe so (see Table 7). They further indicated that the new product introduction in India would be much less time-consuming if the Indian subsidiaries did not have to transmit each product prOposal to the inter- national division in United States for necessary laboratory testing. These executives indicated thus the value of R & D to the process Of product adaptation in India. In United States, some corporations had publicly stated that they established overseas laboratory so that products and prO- cesses could be adapted to and develOped for foreign markets.11 In India, a few trade associations and government departments representing the industries covered in this research Offered similar views. The government officials interviewed seemed ' unhappy with the poor response brought by tax incentives the lI’Aharoni, Op. cit., p. 196. 66 Government of India offered to foreign investors for doing research in India. -Some of them felt that the currently serious brain-drain problem might be solved to an extent if the foreign parent companies moved a part of their research organization to India where the supply of technical and scientific personnal was more than sufficient. This move, they added, would not only result in a faster new product develOpment but also bring the foreign investors in high public esteem. .Even in Canada where the American companies controlled about one—half of the manufacturing industry, there was public resentment against the policy of these companies to maintain the research facilities in the United States.12 From the analysis of field interviews and general study of Indian environment, it appeared that the United States companies did not consider adding more to their existing small R & D set-up in India because (1) they did not encounter there a competitive business environment, (2) the size of their Operations in India continued to be as smaLlcompared with the size Of entire overseas Operations, and (3) they did not extend their market coverage from urban to semi-urban and rural sectors Of the Indian economy. It will be useful to elaborate upon these factors. 12John Lindeman and Donald Armstrong, Policies and Practices of United §tates Subsidiaries in Canada (Washing- ton, D.C.: National Planning Association, 1960), pp. 57-64. 67 Compptitive envi;9nment.--The business environment in a country undergoing a program Of planned economic growth experiences more government regulation and intervention than competitive interaction among business firms. The virtue of government control that no company will admit publicly is the protection it Offers against external competition. Many companies including manufacturers of tires, machine tools, auto parts, elevators, etc. said in the course of interviews that they experienced no problem in disposing of whatever amount of finished goods they manufactured during a year. Some of them added they had no competitor in certain product lines manufactured by them. The conditions Of shortage, moreover, make consumers or users less demanding or insistent in matters Of quality or suitability of the product. Under these circumstances, the U.S. firms may not worry about achieving a product-market fit as closely as, say, in west— ern Europe where the business environment is far more competitive. gipe of Operatiop§,--The size of Indian Operations Of most of the companies interviewed was very small compared with the size of total world operations. Measured in terms of annual sales for the year 1968, the size of Indian Opera— tions of all companies ranged from .05 percent to 3.2 per- cent of their respective world Operations (see Table 6, page 38). The smallness Of size may be considered as another factor in the present indifference of American companies 68 towards committing additional resources in research and development facilities in India. Market coverage.--The Operation of most of the consumer and semi-industrial goods manufacturers included in this study were confined to high and middle income urban markets. Very few perceived their target markets to be in the semi-urban and rural parts of India. To most industrial goods manufacturers, the government organizations including public sector undertakings constituted the biggest customer group. The information received from the sample firms on perceived target market is analyzed in Table 8. Table 8. Perceived main target market Number of Firms Perceived Main Target Market Responding Urban high income group 7 Urban middle income group 3 Urban and rural pOpulation 3 Government organization 7 Original equipment manufacturers (OEM) 5 -Educational and research organizations __1 26 69 One of the important reasons why the American firms concentrated on the urban high income group and the govern- ment as their main target market could very well be the financial ability of buyers in these segments to pay for the quality of products manufactured by them. The participating firms were asked to describe the principal product appeals they made in the Indian market. The replies were as shown in Table 9. Table 9. Types of product appeal Number of Firms Types of Product Appeal Responding High quality appeal 19 Brand appeal 15 After-sale service appeal 7 High value appeal 7 Low price appeal 0 Other appeals 2 50a aThe total does not coincide with the acutal number of respondents because of multiple entry. It is significant to note in Table 9 that not a single company checked "low price appeal" provided in the questionnaire as one of the alternative appeals. Thus, the target market of a U.S. company consisted of financially 70 strong individuals or organizations who could afford the quality and brand of its products. To serve this market segment, the company did not need any major product adapta- tion. The preference of high-income urban peOple in India came close to the mass market preferences in advanced countries like the United States. .Efforts in the direction of major adaptation of products would have been necessary if a company had decided to expand its market share from pri- marily urban to semi-urban and rural sectors of the economy. It is in these sectors where the social, cultural and eco- nomic differences predominate. Once the market coverage Of American companies broadens in this direction, they will encounter a real problem of product adaptation and will realize the need for strengthening their R & D facilities. Conclpsion Does this mean that the U.S. companies have demon- strated a low level Of product adaptation to the Indian environment? The answer is yes if the criteria of adapta- tion spelled out in Chapter I are the basis of an evaluation. Most of the companies did not go beyond making minor and minimal types of adaptation. Few consumer goods and phar- maceutical manufacturers engaged in active efforts for identifying market needs peculiar to the Indian environment. From the reasons given by companies for adding or drOpping products subsequent to the start of manufacturing Operations 71 in India, it was gathered that these adjustments rarely aimed at meeting a newly discovered market need. More often than not, they aimed at utilizing the technology and manage— rial capabilities of the parent company, maintaining the profitability Of Indian Operations, and responding to changes in the supply position of materials or parts used in production. Only in two or three cases, did a company attribute its product-mix adjustment to the exploitation of a new market Opportunity. It has been earlier noted that most of the companies did not want to export from India unless they were forced to do so under the formation agree- ment. Thus, their business interests overrode the national interests of the host country. The instances Of major product adaptation cited earlier would appear to be only a little more than minor adaptation. A closer examination revealed that the com- panies involved had to adOpt the changes to ensure their survival in the Indian economy. Only 3 out of 13 consumer goods and drug manufacturers indicated interest in the gradual coverage of semi-urban and rural markets and showed plans of new product introduction in these markets. Accord— ing to one executive, the foreign companies in India spend at a level to maintain their leadership, instead of going 13 out to increase the size of the market. The industrial 13 pp. 44-48. "Vick in India," Sales Management, October 1, 1969, 72 goods manufacturers were found to be more interested in adjusting product designs to the needs of environment, as would be evident from the instances of major adaptation given earlier in this chapter. While there was a lack of initiative among companies especially in the consumer goods line, their efforts were also thwarted by certain uncontrollable factors in the Indian legal environment. The official policies and pro- cedures were such that excessive delays sometimes occurred in Obtaining an industrial license for manufacturing a new product. “Simple matters such as import of samples from abroad involved lengthy procedures, too much paper work and dealing with a number Of Offices. In certain cases, govern— ment approval was required when a company wanted to adjust the size or packaging of products to market needs.14 But, on the whole, it seemed that the U.S. companies were not interested in sacrificing quality for an increase in market share. They wanted to maintain the world-wide standardization Of product lines and the reputation earned by them over years in their global Operations. In this way, they saved the costs involved in product adaptation. The consumer resistance resulting from this policy of product 14For details, refer to Obstacles and Incentives to Private Foreigp:;pve§pmen L 1967-68, Studies in Business Policy NO. 130 (New YOrk: National Industrial Conference Board, 1969), pp. 35-37. This study includes comments from foreign investors on obstacles and Opportunities Of direct investment in India and also the reactions of the Indian government to these comments. 73 extension or market unification was overcome by information 15 This was achieved and persuasion to the extent possible. through promotional efforts which is the subject matter of the next chapter. 15John Fayerweather, International Business Manage- ment (New YOrk: McGraw Hill Book Company, 1969), p. 133. CHAPTER IV PATTERNS OF PROMOTIONAL ADAPTATION It is necessary for all sellers of goods and ser- vices to communicate with their respective target market. The purpose of such communication may be to seek new triers, to inform peOple about changes introduced in existing prod- uct line and to keep the current customers from switching to competing brands. It may be designed either on a face-to- face or personal basis or on an inpersonal basis, depending on the nature of product, extent Of market coverage and the management philosophy of a firm. Face—to-face communication is accomplished through a field sales force which is hired to establish and maintain personal contacts with prospects.’ Impersonal communication may take the form of advertising, sales promotion and general publicity. In marketing liter- ature, the term "promotion" is used to encompass both types of communication described above. A business firm, Operat- ing in the home country or overseas is usually involved in some kind of promotional activity to communicate with its market. The problem of communication becomes rather crit- ical when a firm is operating overseas in a strange envi- ronmental setting. Such a firm might not find abroad the 74 75 necessary promotion facilities or infra-structure which it‘ might be accustomed to in the home country. It might have to adapt its messages to the social, psychological and cultural background Of its potential buyers. The purpose of this chapter is to focus upon adapta- tions in the promotional strategy Of American firms Operating in India. A promotional strategy is defined as a plan Of action designed to communicate with the target market through personal and impersonal media--field selling, advertising, sales promotion and general publicity. A major emphasis of this chapter is on advertising to examine how the advertising media-mix and messages are adapted to the Indian environment. This is because the patterns of adaptation were found to be more identifiable in the sphere of advertising than in other spheres such as personal selling, sales promotion and public- ity, though the latter three are also examined where appli- cable. The promotional aspects Of brands and labels are also examined in this chapter. The prOposed discussion on promotional adaptation will‘be more meaningful if it is preceded by an analysis of the promotional infra-structure existing in the two economies—~the United States and India. The Promotional Infra-Structure Table 10 presents a comparative view of the promo- tional infra-structure in the United States and India, as it existed in l960~61 and 1967. It points out that the efforts of American firms are handicapped severely due to 76 .mmwumlnmcosumuscseeoo Capo: can .Hmscmz moswummmm a .mach “mama .Avoma .Oommzo "meummv sass .m«ch mo unmECuO>oo .mcfiummOmeum pom copumEqucH mo xuumacsz .mmumuw coupe: ecu mo uomuumn< HOOpumHumum .muumEEOU mo ucmEuumde .m.D umwousom .mmuumwnu chlw>sup mcspsaucH «cosms>mam9 .oHpmm 9 .msch mo coHumasmom mo unwound on OD mmmuo>oo Esapme mopa>oudm 6.0 goddess m recesses. m~o.m AucmcmEuwmv ama.v oom.o AamucmEHummxov A m.s goddess hm.» mmo m.H ooo.mmm.o mmm as Aaomse ems goddess mms.ssm 0.0 GOHHHHE mum.m Amcsusouv smm ADCOCmEummV mwm.m one AamucmEHHomeV a m.o COHAHHE H.N oo H.H ooo.oao.v mow Ga Aaomav xmh COHaHME mm.mmv m.s A.umme :Osssss ms flooo ma mm COHHHAE we mam Nva COMHHHE mam mom.m m.0m ooo.aom.ao mvh.a A Ammmav RN.N COHHHHE vHH.mmH o.m COHHHAE OH Answlw>wu©v 00>.v Apmxfiwv oom.NH N.mm COHHHHE 00 how oos sodsass m.mms mmm.v o.Nm vo¢.HHN.mm m©h.a H Ammmav XN.N COMHHME h®.oma madame ooa “we mummm musommmu mcHumwm amuoe mmEmcHU Edam OHQOOQ OOH Hon mum>amomm mum>soomm muouumEmcmuB dmwmwmmflww mamoom OOH you mum>smumm muo>aoomm mumuuflEmCmuB Ospmm mamomm ooa you mmsmoo COAOOHSUHHU hasmp amuoa mummmmm3mc xasmn mmmwmm mommomcwa Home: somsmusaau cofiumasmom Hmumcmu hood Holcoma means homa Helooma mmumuw causes bmma can AOIoomH .mapsa pom moumum coups: or» as musuosuumumumcw amCOHDOEOHQ .oa manna 77 very limited communication media available in India. The television medium is still conspicuous by its absence in that country. The All India Radio is a state-owned under- taking which started commercial broadcasting for the first time in its history in November, 1967 upon repeated repre- sentations from trade and industry. Thus, from the promo- . tion point of view, the ratio Of 1.5 receivers per 100 peOple was not significant until about the end of 1967. Even in 1970, the demand of time for radio commercials is reported to be far in excess Of the supply released by the All India Radio. The average circulation Of daily news- papers stands at the low level of 1.3 COpies per 100 persons in India against 30.9 COpies per 100 persons in the United States. The illiteracy ratio of 76 to 100 is considered to be a major cause Of the extremely low level of newspaper circulation in India. Another limiting factor to newspaper circulation may be the multiplicity of languages used in different parts of the country for oral and written commu- nication. Relative to other media of promotion, India seems to be better off in the supply of movie theatres or cinemas. It had 4,199 permanent and 2,026 touring cinemas in 1967 with an estimated seating capacity Of 3 million peOple. Short length commercials and cinema slides are shown at these cinemas.to overcome the limitation of illiteracy among the masses. Interestingly, the cinemas provided a wider 78 arket coverage because of their dispersion all over the ountry in both urban and semi-urban areas. As indicated n Table 11, 30 percent of total cinemas in India are in owns with a pOpulation Of 10,000 or less. Table 11.. Market coverage by Indian cinemas ercentage of Total Outer Limit of the Population Number of Cinemas Of Towns Where Located 80 100,000 60 50,000 45 25,000 30 10,000 ources: S. Watson Dunn, Internationalgandbook of Adver- tising (New YOrk: McGraw Hill Book Company, 1964); and The Indian Advertiging YearbookLl96g, Our India Directories & Publications Private Ltd., {Madras (India). The relative inadequacyof promotional instruments n India as borne out by Table 10 should not be taken as eflecting the trend of promotional effort which seems to be ncreasing. The information on the total annual billings Of nternational advertising agencies Operating in India as een in Table 12 indicates the rising trend in advertising xpenditure in this country.1 1Unfortunately, no authoritative statistics are avail- ble on the total advertising outlay in India. (Subrata anerjee-in S. Wetson Dunn, Op. cit., estimated it between s. 100 million and Rs. 150 million ($20 million and $30 mil— ion) for the year Of 1961. He speculated that the total dvertising expenditure was rising at the rate Of about Rs. 0 million per year. Accordingly, the total outlay now can 79 Table 12. Estimated annual billings of international adver- tising agencies Operating in India Amount Of Annual Billings Number of Year Agencies Million Dollars Million Rupees 1965 8 14. 70 70 . 56 ...” 1966 10 12.95 97.12a ‘ E 1967 17 25.51 191.32 1968 18 29.02 217.65 1969 14 29.88 224.00 B aIn 1966,,the Indian rupee was devalued and the rupee-dollar exchange rate changed from Rs. 4.80 = $1 to .Rs. 7.50 = $1. Source: Advertiping Age, Chicago, March 28, 1966, p. 72: March 27, 1967, p. 94: March 25, 1968, p. 50: March 31,1969, p. 48; and March 23,1970, p. 42. Table 12 shows that the amount of total billings more than trebled during the period 1965-69. The rising trend of advertising expenses in relation to sales was the subject of a“Other study undertaken by The Economic Times Research 1.3% estimated at Rs. 230 million (about $30 million). This 1?. however, an underestimate in the light of the 1969 f1glare for agency billings given in Table 12. The Indian ..LVertising Yeargpook estimated the national advertising expenditure at' Rs. 350 million for 1960. In view of such conflicting estimates it was preferred to take help from he statistics on annual billings of the international advertising agencies for gaining a feel of the trend. Admittedly, the volume of total national advertising should now far above these figures, possibly in the neighborhood 0’13 Rs. 500 million ($67 million). 80 Bureau.2 The Bureau analyzed the financial data for 65 manufacturing companies--23 consumer goods companies and 42 industrial goods companies for the period 1965-68. It was found that, whereas the sales of consumer goods manu- facturing companies increased by 41 percent, the advertising outlay of these companies increased by 61 percent during this period. The advertising-sales percentage increased from 1.16 to 1.32 during the same period. With respect to 42 industrial goods manufacturing companies, it was found that, whereas the total sales of these companies increased by 40 percent during 1965—68, the advertising outlay in- creased by 69 percent during the same period. The adver- tising—sales percentage increased from 0.31 to 0.38. The lower advertising-sales ratio for industrial goods manu- facturing companies was accounted for by the fact that these companies depended relatively less on advertising and more on personal selling. Thus, the study presented another evidence of the rising trend in advertising expenditure in India, both in consumer goods as well as industrial goods manufacturing companies. Though the present promotional infra-structure in India may be in a state of acute underdevelopment when compared with that in the United States, it is gradually improving. An idea Of this improvement can be had_from 2The Economic Timep, Bombay, India, February 4, 1970. 81 Table 10 which presents comparable information on the infra— structure for the years 1960—61 and 1967. The table bears our the fact that during the period 1961 through 1967, the number of daily newspapers increased from 465 to 588 and the ratio of newspaper copies per 100 people went up from 1.1 to 1.3. Also, the number Of radio receivers increased more than three times from 2.1 million to 7.57 million and the ratio of receivers per 100 peOple went up from 0.5 to 1.5. The number Of cinemas increased from 4,355 to 6,225 and the ratio of cinema seats per 100 people remained steady at 0.6. These improvements were gained in spite of a little less than 20 percent increase in India's population during 1961-67. Having gained an insight into the promotional infra- structure existing in two countries, it is now proposed to enter into the main subject matter of this chapter—-the patterns of promotional adaptation. As done in the previous chapter on product adaptation, the types of promotional adaptation will be discusSed first and following this, a review will be made of major adaptation patterns in the promotional strategy of 26 American companies studied for the purpose of this research. 82 Types of Promotional Adaptation Mppgptory Adaptation A firm's decision to adapt its promotional effort to a foreign environment can either be mandatory or voluntary. The host country government may make it mandatory for the firm to use the national languages in its advertising and sales promotion. It may forbid a firm from using a partic- ular advertising medium or it may impose arbitrary limits on the advertising expenditure a firm may plan to make during a given year. When the sale of advertising space or time is monOpolized by the government, a firm may not be able to buy it to the extent and at the rate it might have planned for. This will amount to an indirect regulation of the firm's advertising expenditure and media-mix. The government may also regulate the sales promotion activities of firms by setting a limit on the distribution of free samples and gifts to customers. It may also prescribe the manner of labeling on food and drug containers or packages for sale within the country and for exports. In practice, the government regulation and control over the promotional activities of business firms are rather minimal in India compared with other marketing activities such as product planning and pricing. The Government Of India does not own any promotional media except the commer— cial broadcasting service. It has not imposed any limita- tion either on the use of a certain language in printed 83 advertisement or radio commercial or on the amount Of total advertising expenditure that could be incurred by a firm. Only in an indirect way, it imposed a limit on a firm's advertising expenditure by fixing a ceiling on its deduct- ibility as an allowable business expense under the Indian Income Tax Act. The Drug and Cosmetic Act, 1940 and The Prevention Of Food.Adu1teration Act, 1954 have specified the information to be printed on the labels Of containers in which food and drug items are sold in retail. The manner of marking has been prescribed for physicianS'samples and for medicines containing alcoholic or poisonous substances. The Drug and Magic Remedies (Objectionable Advertisement) Act, 1963 prohibits the publication of objectionable adver- tisements relating to sexual stimulants, alleged magic cures for venereal diseases peculiar to women. However, such legislations are not peculiar to the Indian environment and, therefore, are not very strange to the American firms Operating in India. All business firms, ‘whether foreign or local, are under an obligation to comply ‘with.rules under these acts. Not a single-American firm in this survey mentioned that it experienced any government restriction or regulation in the field of promotion. Voluntary Adaptation A foreign firm may adapt its promotional effort on .a voluntary basis if this step is conducive to better commu- riication with its target market and an expansion in its 84 market coverage. It may, for example, modify the verbal message or the illustration Of an advertisement to make it more meaningful to readers from a different culture. It may also make significant changes in the promotional strategy to adapt to the infra-structure available in the host country. The promotion-mix, for example, may be adjusted in such a way that personal selling is given greater emphasis than advertising. The availability of human resource at a lower wage level than in the home country may be one reason for such adjustment. Adjustments may also be called for when a particular advertising medium is not available and needs to be replaced by some alternative mediu, the facilities for which exist in the host country. The absence of television and a limited supply of commercial broadcasting time in India, for example, oblige an American company to devote a greater proportion of its advertising budget to the print media or audio-visual publicity in cinema houses through short commercial movies and slides. The more important area of voluntary adaptation is that of advertising appeal or theme that sets forth the key prOposition (the unique selling prOposition or U.S.P. as it is known in advertising literature) and stimulates the buy- ing motive in the reader. A variety Of factors--economic, .social, social-psychological, cultural and anthropological-- have to be taken into account in the selection of an appro- pr iate advertising appeal when an American firm has to sell abroad, especially in an oriental culture such as India. 85 For example, the "do—it-yourself" appeals which are effec- tively used in the selling of parts, accessories or supplies in the United States may not be as effective in a labor- abundant economy. Ready-to-serve food items may be adver- tised with an appeal of time saving to an American housewife but not to an Indian housewife who will probably be more responsive to an appeal of utility and purpOse; for example, the entertaining of unexpected guests. The direction Of voluntary adaptation in the promo- tional strategy of a firm.may be determined with the help of consumer surveys, and at the time of test marketing the product. This chapter is not concerned with these tech- niques. Its main purpose is to identify the patterns of promotional adaptation made by American firms to the Indian environment. This is done in two parts: (1) promotion-mix adaptation, and (2) advertising COpy adaptation. Promot ion-M ix Adapt at ion The degree of promotion-mix adaptation made by «American firms in India varied depending on the nature of products involved, extent of competition in Indian market and the state of promotional infra-structure existing in India. .Consumer goods.--An interesting adaptation pattern was revealed by the promotion—mix of consumer goods manu- facturing companies, four Of which rated sales representa- tives (personal selling) as their number one medium. This 86 contrasted sharply with the promotion-mix in their respec— tive parent organizations which did not make any significant use of personal selling in the marketing of their products. Apart from the fact that the hiring of field salesmen for covering national market would have required a huge invest- ment, the U.S. parent companies were able to dispose of their merchandise in bulk through big wholesalers and large chain organizations Operating in grocery and drug lines. A significant use of a field sales force by their Indian affiliates was an adjustment to the following environmental factors: relatively less expensive availability of college educated young men, inadequacy of print and time media, presence of competition and the need to "push" products through regular contacts with Indian market middlemen (stockists, wholesalers and retailers).3 The "pull" strat- egy through direct action consumer advertising could not be effectively used in an underdeveloped economy characterized by low disposable incomes, a high illiteracy ratio and a very low rate of circulation of daily newspapers as was seen in Table 10, page 76. Among the advertising media it was noted that the consumer goods manufacturing companies rated either movie 3As on December 31, 1967, there were 89,368 un-.. employed graduates registered with Indian employment exchanges. In addition, the number of clerical, sales and related workers without jobs stood at 114,504 on this date. See India, A Rerprence Manual, 1968, op. cit., p. 161. 87 or newspaper advertising as their "number one" medium. The parent organizations, on the other hand, considered tele- vision as their most effective medium in the U.S. market. The absence of television in India forced some of these companies to resort to movie in order to avail themselves of the next best medium available in India to appeal to the mass market.4 Magazines, radio and point-Of—sale displays were among other advertising media used by these companies in the United States and India. Semi-industrial and industrial goods.--The promo- tional-mix adOpted by the pharmaceutical companies in India paralleled very much the mix they adOpted in the United States. In both countries, these companies made use of direct mail and the professional journal advertising, backed by a well trained force of medical representatives. The distribution of free samples to the physicians was the most important promotion used in both the countries. 1With one exception, all the pharmaceutical companies interviewed manufactured mainly an ethical drug line for which contact ‘Mith physicians was Of utmost importance. This factor was aux important reason for their not advertising direct to consumers through newspaper or radio. The exceptional case ‘was presented by one company which specialized in the O.T.C. (over-the-counter) line and was noted for using press media, 4Table 11 indicates that this medium offers a wide Inarket coverage in India, encompassing both urban and semi- urban population . 88 audio-visual advertising through movie and cinema slides and outdoor advertising, besides the conventional media used by the pharmaceutical companies. The adaptation made by this company tO the Indian environment was in the form of making an extensive use of cinema advertising and holding mass consumer contacts on the road to reach the maximum possible number of prospects. To reach the semi-urban and rural markets, mobile vans were used by the company with necessary equipment for audio—visual publicity, samples, etc. An important reason why this company was involved in a strong promotional program.was the presence of greater competition in the prOprietary medicine line than in ethical drug line in India. It was also involved in long range planning for new product development in India and had recently introduced a new product under an Indian brand name. On the other hand, none of the other five pharmaceutical companies used other than the U.S. brands. They confined their selling Operations to the urban high income market and faced a relatively small amount Of market competition. With this blend of market strategy, they managed to transfer to India the promotional techniques used in the United States for the sale of ethical drugs—-detail men, direct mail to physicians and advertising in medical journals. A fertilizer company adapted its promotional-mix by offering a strong educational program to the-Indian farmers. The program consisted of guidance on the fertilization needs 89 of the soil, controlled demonstration Of fertilized crops and recommendation to farmers about suitable crOps that could be grown by them to achieve higher productivity. The company made use of audio-visual publicity in influential farm communities by using a fleet of mobile vans. These promotional means were used in addition to the conventional advertising media such as newspapers, magazines and profes- sional journals. One petroleum company considered the holding of press seminars as peculiar to its Operations in India. The company was losing its-market share in the petroleum line to a state owned corporation and was thus obliged to resort to this public relation activity. The manufacturers of industrial goods such as auto parts, business machines, machine tools and heavy machine equipment depended primarily on personal selling and direct mail. The rubber tire manufacturing companies used news- papers, radio, movie and general sales promotion to the trade in addition to personal selling and direct mail. Their advertising was aimed primarily at truck and taxicab drivers who were considered to be the Opinion leaders in the tire business. In the U.S. market too, the newspaper was the "number one" medium used by tire companies, followed by television, magazines, radio, trade journals and outdoor advertising. 90 For many pharmaceutical and industrial products manufacturing companies, the government, including public sector undertakings, made an important customer with the result that personal selling and technical demonstration received greater emphasis in the designing of their promo- tional-mix. A manufacturer of steam generating equipment, for example, relied primarily on frequent personal contacts with the chiefs of government electricity boards. Similarly, a manufacturer of pesticides considered technical demonstra- tion to government agricultural departments and COOperative farming societies as of vital importance in its promotional program. In brief, most American firms made important adjust- ments in their promotion-mix, guided by the nature of the product—line, the nature of the target market and the type of promotional infra-structure available in India. Firms in all product-groups made relatively greater use of per- sonal selling because it was less expensive to hire college educated young men and women in India than in more develOped nations. The absence of television was overcome by the use of short movie commercials, cinema slides and mass consumer contact. Technical assistance and demonstration received more emphasis in advertising programs directed at unSOphis- ticated classes Of peOple such as farmers. dverti gether 15 of t were av tisin in Unit such ra. questio: The infc the adve tisers E 91 Advertising Media Rank Comparison .An attempt has been made in Table 13 to bring to- gether the ranks assigned to different advertising media by 15 of the companies interviewed from.whom the necessary data were available. The ranks are based on the amount of adver- tising expenditure incurred by a company on a given medium in United States and India during the year 1968. Where no such ranks are indiated, it is implied that the medium in question is either not used at all or used very sparingly. The information on the U.S. market was verified by data on the advertising expenditure of the top 125 national adver- tisers published annually by Advertrging Age. Table 13 presents a comparative picture Of the value attached to various advertising media by American firms Operating in the two countries. Some of the adaptation pat- terns referred to in the earlier discussion are reflected from these rank valuations. The television advertising conspicuous by its absence in India, is rated as the "number one" advertising medium in the U.S. market by 12 of the 15 companies and as the "number two" medium by the remaining 3 companies. In sharp cOntrast, 8 of the 15 companies reported the use of movie commercials and cinema slides for advertising their products in India but none in the United .States. With the exception of one, all companies used radio advertising in United States as against only 7 in India. 92 .muospoum Hmwuumopow How mpcmum mH pom “muOSOoum amwuumspcwIAEmm How museum Hm "muospoum Headmcoo mom mocmum mun .mapoH CH mesommEoo mfimm mnu Mom meMH oumoapsfl mononucmumm as newsman “moma mowusp Eoflpme co>am m co pmuuoooa musuapcomxm :0 comma mum mxsmmm O ... m m Adv m Ame H Ame e ean Ame e ... m a Ame m Ase a «He v HumH Avv 0 Amy w m ANV m m Adv a oauHm Ame 0 2L Amy m m Amv e m A: a mIHm Ase o ... m H a m m muHm Ame Ase lay a H N Ame m Ame m euHm 000 000 000 H AHV N m 000 V'Hm m ... v a Adv m m m NIHm m ... m A Adv v m o HIHm Awe Ame Ame m H N Ame m Ase e eumo Amy m Adv Avv m a O Amy m Ame e mumO Ame m Ame Ame v H Aev m Ase m AHV m sumo m Ase Ame v a m Ame ~ Aug m mumo ... Ame Ame m a v Ase m Ase m «use Ave a ... a a Ame m Ame N Ase m sumo mowmpuum>p¢ mopfiam Oapmm scamfl>oaoe mamcnoon moanmmmz Hommmm3oz .oz mpou HOOpusO mEOCaU descammomoum nxcmmaoo pom OH>oz. pom menus mmwch pom moumum papacb aoo3uwn cowaummaoo xcmn menus mommauum>p< .ma manna 93 The pharmaceutical companies, as already stated, relied mainly on personal selling, direct mail and professional medical journals in India because of their strictly ethical product lines. Only when a company manufactured prOprietary medicines, it employed print and time media to appeal to the final users. The product-mix of the same pharmaceutical companies consisted of a heterogeneous group of product lines in the United States--ethical and prOprietary drugs, chemicals, fertilizers, hospital supplies, etc.--which called for the use of different advertising media to appeal to different market segments. Advertising Copy Adaptation In this section, the word "c0py" has been used in a little broader sense to include both--the verbal message in words and figures (the conventional use Of the word) and the visual elements (such as an illustration)--in an advertise- ment. The message underlying a COpy has to be geared to a number of factors such as the product itself, the place where it is likely to be used, the functions it is supposed to do, the economic, social and psychological dimensions of the buyer behavior, etc. The theme or appeal inherent in an advertising COpy is the crucial element of an advertisement which aims at stimulating the buying motives in prospective readers. Some multi-national companies have held the philosoPhy that the same advertising COpy may be adOpted in all the world markets in which they Operate--the commonly ac: Adz HUd na‘ 94 known extension approach to multi-national advertising. The assumption behind this approach is that of the universality of human needs, reactions and responses. Others have held the philOSOphy that an advertising copy should be adapted to the environment within which a company was Operating because the peOple it seeks to communicate to differ in many ways. They have different needs and value systems, they are brought up in different.economic, social and cultural envi- ronment and are therefore, supposed to respond differently to identical messages contained in an advertisement.5 In this last section, an attempt will be made to examine what changes, if any, were made by American companies in the advertising appeals or themes in order to move their products across the Indian market. Advertising Themes or Appeals The advertising appeals or themes used by American companies in India varied from product to product. The appeals of consumer goods manufacturers were quality and brand-oriented and aimed at urban high and middle income groups. .Five of seven companies advertised and sold inter- national brands in India. The remaining two, had develOped 5Ryans aptly classifies world consumers into three broad groups--international sOphisticate, semi-SOphisticate and provincial. He argues that the "provincial" group was the least receptive to the international approach of adver- tising being used by manyAmerican companies. See John K. Ryans, Jr., "Is It TOO Soon to Put a Tiger in Every Tank?" Columbia Journal of Wprld Business, IV, No. 2 (March-April, _ 1969), 69. some I brands points skin a paste decay" rid of turer a differs the U,g ing pa; on safE PIOdUCt ”55 not did not 95 some Indian brands too in addition to the international brands. A cosmetic manufacturer emphasized similar selling points in both the countries--beautiful look, softness of skin and early morning freshness. An advertiser Of tooth paste used the appeal "stOp bad breath and fight tooth decay" in India, whereas it emphasized the need for getting rid of cavities in the U.S. market. A soft drink manufac- turer emphasized in India the suitability of drink for different occasions of family entertainment, whereas in the U.S. market, it used quite often the theme of "refresh- ing pause." A flashlight battery manufacturer laid stress on safety, protection and value of money in India where this product was used extensively in both the rural and urban parts of the country. The advertising COpy used by most of these companies was not as competitive in India as in the United States. It did not emphasize value or the reasonableness of price with the exception of one manufacturer. One of its main Objec- tives appeared to be to prOpogate American brand names among the urban high and middle income group in India. The mes- sages were stated in a simple straightforward way and were translated in major Indian languages to appeal to different regional markets within India. Most consumer goods com- panies or their advertising agencies hired translators for this purpose. 96 The pharmaceutical companies reported that they emphasized "quality" in their ethical drug advertising. To indicate quality, different eXpreSSionS were used such as dependability, usefulness, efficiency, effectiveness and company reputation backed by original research. .Most Of the companies interviewed were not new to the Indian market. They had built up their reputation among Indian physicians through exports even before they started manufacturing Operations in India. A very little institutional promotion appeared necessary to them. None of the companies reported having introduced any major change in their advertising appeals since the beginning of Indian Operations. Nor did any of them claim that the appeals used in India were any different from those directed at the American physicians. In brief, the pharmaceutical companies did not have to make any significant change in the appeals they used in the United States for the following reasons: 1. Their products were identical in the two countries with very minor change in Specifications forced by the nonavailability of an ingredient. The same brand names were used in both countries. 2. The advertising meSsageS were directed at physicians. not the actual users. 3. Most of the companies were involved in multi- national Operations and had to be careful about maintaining the consistency of claims the world over . 97 A fertilizer manufacturer addressed its messages to actual users--the farmers or farm COOperatives in this case. It used cost- and benefit—oriented advertising appeals. Having to deal with a less-educated and less-advanced group of people, the company was cautious in using as sophisticated messages in India as used generally in the United States. Two tire manufacturing companies directed their appeals at truck drivers mostly and at taxi-cab drivers in metropolitan areas. They emphasized retreadibility and strength in the truck tire advertising and safety, dependability and extra- mileage in the passenger car tire advertising. Similar appeals were used in the U.S. market too. However, the price appeals were used more frequently in the U.S. market with attractive deals and bargains.not known to the Indian tire buyer as yet because of scarcity conditions. Addi- tionally, other appeals were used in the U.S. market to influence different market segments such as the teen—age market, the snow tire market, etc. The manufacturers of business machines used consumer benefit-oriented and service-oriented appeals in both coun- tries. One of the leading sellers and renters of data processing equipment reported that it was required to invest a larger proportion of its advertising budget in institu- tional appeals in India than in the United States. The abstract conceptual appeals were also used to introduce to prospects new management techniqueslike distribution cost analysis or inventory control. In making conceptual appeals, no ada enpnas smooth Indian stress made a] A major efficie manufac GXCEpt and rep tisemen na‘mteh appeals two fac PrOduct lihes c COuntri trial 9: the PICS Such as engineer 98 no adaptation was called for. An auto parts manufacturer emphasized in its advertisement safety, durability, economy, smoothness Of ride and the adaptation of product to the Indian roads. A steam-generating equipment manufacturer stressed service and reliability. An elevator manufacturer made appeals of leadership, speed and quality of service. A major equipment manufacturer emphasized reputation, efficiency and the suitability of application. On the whole, the appeals of the industrial product manufacturers did not vary much between the two countries, except that the Indian advertisements highlighted leadership and reputation of the company more often. The U.S. adver- tisements emphasized completeness of product line, low maintenance cost and experience--not so commonly emphasized appeals in India. These differences can be attributed to two factors: (1) less intensive competition in industrial product line in the Indian market and (2) narrower product lines carried by American companies in India. In both the countries, the advertising messages related to heavy indus- trial equipment Sought to influence the top management in the prospective buying company as well as the Opinion leaders- such as building architects and designers, technical and engineering consultants, etc. of di and s sidia some: tional the b: duced were, advert foreigz t0 the for cor launche PR Imac this vi ing prc deVelop pany in require in 0rde ronment Pan ies 99 Role of Parent Company The parent company seemed to exercise a small degree of direct control over decisions pertaining to advertising and sales promotion reached by the Indian branches and sub- sidiaries. .Many executives interviewed in the United States commented that they did not want to interfere in this func- tional area as long as the Indian affiliate Operated within the budgetary limits approved by the parent company and pro- duced results as well as or better than anticipated. There were, however, many prOponentS Of centralized management Of advertising in the United States. Advertising in the foreign markets, according to them, cannot be left entirely to the discretion of subsidiaries because there was a need for consistency and coordination of advertising programs launched by a company in different parts of the world. Many pharmaceutical, consumer non-durable and tire companies held this view. In these companies, the marketing and advertis- ing programs for different countries (Operation areas) were develOped in the international division of the parent com- pany in close consultation with the Indian subsidiary. They required their marketing and advertising executives from the international division to visit other countries twice a year in order to gain a first hand knowledge Of the local envi- ronment. Two of the six consumer goods (non-durable) com— panies in the sample indicated the use Of special formats 100 by the Indian subsidiaries to seek approval for a new pro- motion. .Further, information on changes in the original plans for major advertising and promotional campaigns (such as introduction of a new advertising theme) was required from the subsidiaries in periodic management reports. A high degree of parent company involvement was also noted in two tire manufacturing companies which considered advertis- ing decisions on media and theme as major policy decisions and required their Indian subsidiaries to submit a detailed advertising and sales promotion plan for each year for approval by the international division. One subsidiary said that it was required to explain if the campaigns sent by the parent company were considered by it as being unsuitable to the Indian condition. .Even decisions on the appointment of advertising agency in India were taken by the international division in some cases. Most of the companies interviewed stated that they regularly received the promotion materials and campaigns used by parent company and subsidiaries Operating in other countries, though they were under no obligation to use them and could modify them according to local requirements. Out of 26 companies, 19 stated that they develOped different campaigns for India and faced no interference from the parent company. .Six companies said that they could use the U.S. advertising material with.some modification. Only one company, a manufacturer of heavy power generation equipment, repor as it the na pharma and ma betWee; 110nm HOIeOvE in the Cent :3: Copy. freQJEn fOTWarc‘ that tr] ing am ”as tra This 0 t 101 reported that it used the same advertising material in India as its parent company used in the United States. Indian subsidiaries in industrial goods lines reported that the parent company involvement did not go beyond the conventional budgetary control. They received all technical sales and advertising material from the parent company and adapted the same to the needs of the Indian mar- ket wherever necessary. Concrusion The patterns of promotional adaptation varied with the nature of products manufactured and sold--consumer goods, pharmaceuticals and chemicals, auto parts, business machines and major industrial equipment. No relationship was found between the Size of a company and the nature Of its promo- tion—mix or advertising appeals used for the Indian market. .MOreover, the advertising appeals used by American companies in the two markets were basically the same, though signifi- cant differences were noted in the design of advertising copy. It was less SOphisticated, less competitive, less frequently changed and relatively more Simple and straight- forward in India. Special care was taken in India to see that the message did not cause confusion and misunderstand- ing among the readers through frequent changes, and that it was translatable into as many as 9 or 10 different languages. Thus, the findings of this study give support to Ryans' concl conpa: natic: and fa aSpec: The cc abilit for m: in the On thel Were m. tatiVe nature We of I Arelat Promoti CORSUme Cials b l mam ac industr ing P905 Shall deb ities O? \l 102 conclusion that the time was not yet ripefor American companies to adOpt a common advertising approach in multiple national markets.6 None of the companies, with the exception of tire and fertilizer manufacturers, emphasized the economy or cost aspect of the selling proposition in its Indian advertisement. The commonly stressed selling points were: quality, depend- ability and reputation. The existence of a sellerS' market for most of the products covered in this study was reflected in the advertising COpy Which rarely made any price appeal. On the contrary, the cOpieS designed for the U.S. market were more SOphisticated, persuasive and sometimes argumen- tative. The promotion-mix used in India was adapted to the nature of the product, nature of the target market and the type of promotion infra-structure available in that country. A relatively greater use was made of personal selling in the promotion of all categories of products. Mass contacts with consumers were made through cinema Slides and movie commer- cials by most consumer goods and semi-industrial goods manufacturers. The advertising of semi—industrial and industrial products primarily aimed at educating and inform- ing peOple. The parent companies seemed to exercise only a small degree of direct control over the promotional activ— ities of their Indian branches and subsidiaries. A majority 6Ryans, Op. cit., p. 75. 103 of them did not get involved in decision areas such as the selection of media and theme, or hiring of an advertising agency, as long as the Indian affiliates Operated within the budgetary limits set for them each year. Relative to the promotional environment prevailing in India, the American companies were more aggressive in advertising and sales promotion than the local manufacturers. It is hard to judge the extent to which they indulged in overselling in India. A majority of consumer goods and pharmaceutical companies (9 out of 14) reported steady growth in their annual advertising expenditure as a per- centage of sales, Since the beginning Of their Operations in India. Under the present Indian conditions of highly regulated production and a limited supply of finished goods to market, this steady growth of advertising expenditure may give an indication of overselling on the part of companies engaged in the production of consumer goods and pharmaceu- ticals. .Durston and Rocour Observed in their respective studies, that a common error of American marketing in Europe was to oversell a customer.7 If the American firms oversell in India, how far is this overselling in the national inter- est? An answer to this question is not possible within the 7Patricia H..Durston, "Machine Bull vs. The Amer- icans," The Interngtional Executive, Winter, p. 3; and Rocour, Op. cit., p. 178. 104 SCOpe of this study. A few comments may, however, be made. An overemphasis on promotion by these firms may not be in India's economic interest if it leads low and middle income group people to spend relatively more on luxury products and less on products of necessity and comfort. Second, it may not be in India's economic interest if it results in higher retail prices to be paid by the consumer. Since most of the products manufactured by American firms in India met the basic needs of people or industry, the first point is irrelevant to this issue. On the second point, it may be said that the general retail price-level of product manu- factured by these firms in India is higher than comparable products made by local manufacturers. While the quality Of product is claimed to be the main reason for the prevailing price differential, the possibility of aggressive promotion as another reason cannot be ruled out. This was partly evident from an event that occurred recently in India. When the Indian government announced the controlled retail prices of basic drugs in May, 1970, most big pharmaceutical manu-’ facturers were not satisfied with these prices and decided to withdraw all advertising contracts with press and time media under protest.8 It iS believed that such a cut-back in promotional expenditure is in the national interest if it enables the manufacturers to reduce their prices for products as crucial to public health as basic drugs. 8The Statesman, Calcutta, May 14, 1970. under image which concl one o consu: adapt. in 1i: evide: 105 It may be speculated that aggressive promotion is undertaken by the U.S. companies to maintain a strong world image of their products in the Indian market-~the products which are not fully adapted to the needs of a mass market as concluded in the previous chapter. It could well be that one of the goals of their promotion strategy is to overcome consumer resistance attributable to the-lack of product adaptation and to bend the demand, gradually but steadily, in line with the supply. However, there was not enough evidence available to support this vieWpoint. tatio marke been firm 0r us bUtio Compa and e Chann COmpc struc whick shOrt adapt mani; niZat witho desir. CHAPTER V PATTERNS OF ADAPTATION IN MARKET DISTRIBUTION This chapter is devoted to an analysis of the adap- tation patterns displayed by American firms in the area Of market distribution. The term "market distribution" has been used to mean a total distribution system evolved by a firm to deliver goods and services to the ultimate consumer or user. It consists of mainly, (l) the physical distri- bution of goods through various modes of transportation, company-owned and common carriers, and (2) the intra-firm and extra-firm distributive mechanism, commonly known as the channel of distribution in marketing terminology. The first component of the distribution system is a matter of infra- structure and an element in the external environment on which a business firm has little control, especially in the short run. The second component Offers a mixed ground fOr adaptation. The intra-firm organizational arrangements are manipulable. An overseas firm may design its sales orga- nization in a pattern similar to that in its home country, without any adaptation to the local environment if it so desires. The extra-firm institutional arrangement may not 106 107 be as flexible in a foreign country unless a firm decides to establish a direct link with its target market. The primary interest of this chapter is to examine the patterns of adaptation in the distribution policies of American firms Operating in India. Though occasional ref- erences may be made to the physical distribution facilities available to these firms in India, the emphasis is on the extra-firm channel policies which are affected Significantly by the environmental forces. The chapter has been organized as follows: First, extracts from published statistics on distributive infra-structure in the United States and India (facilities of transportation and the composition of whole- sale and retail trade) are presented to gain an insight into the gap that exists between the two countries in this area. Some adaptation patterns in the channel policies of American firms, as will be seen later, may be attributable to this gap. The statistical presentation is followed by an anal- ysis of broad adaptation patterns under major product categories covered in this study--consumer, semi-industrial (pharmaceutical and chemicals, petroleum and tires) and industrial. .Finally, the role of a parent company will be examined in the determination of channel policies for its Indian subsidiary. 108 StatisticqlPresentation A set of four tables is presented below to highlight the importance of the distribution sector in the economies of the United States and India. Before the statistics con- tained in these tables are discussed, it Should be pOinted out that the data may not be exactly comparable for two main reasons: (1) the varying time periods during which the population census or the census Of business are conducted in the two countries, and (2) the classes or groups in which the total population or a sector thereof is divided may not be exactly similar in definition and composition in the two countries. Another problem was created by the fact that the Government of India did not conduct any census Of business comparable to the U.S. Census of Business with the result that information on the number Of Indian wholesale and retail establishments is unavailable. The employment data on different sectors of wholesale and retail trade in India were extracted from the regular population census last con- ducted in 1961. The most comparable United States data on employment in wholesale and retail trade were considered to be those contained in the Census of Business, 1963. In spite of this two years' time lag, it is believed that the statistics would still be useful in reflecting the relative composition of distributive activity and its place in the national economy of the two countries. 109 The absence of a census Of business in India was responsible for the nonavailability of comparable informa- tion on the number and Size of establishments, number Of active proprietors and pay roll employees for different trades, etc., which are usually published in the U.S. Census of Business. Inasmuch as most of the retail establishments located in villages and small towns of India are hole-in- thedwall type Single man Operations, the information on employment in various retail trades in the rural parts‘of India would also be a fair indication of the number of estab- lishments. However, it was not possible to get a dependable estimate of the number of wholesale and retail establish- ments Operating in the urban parts Of India. Occupational Diptrrbution of Workers Table 14 gives the occupational distribution of workers in the United States and India, in absolute number and in percentages. The figures bear out clearly the sectorial disparities between the economies of the two countries and seem to support the Clark-Fisher thesis Which holds that the countries at the early stage of devel- Opment concentrate their resources on the primary industries Such.as agriculture and extraction and as they move forward in their develOpment programs, the emphasis Shifts to 110 .mea .meSH mo momoou pom momma «cOmumaoQOm mo msmcwo .m.D "meadow o.ooa ¢.mma o.ooa www.mm ¢.OH m.ma m.o~ www.ma moom>nmm o.a o.m v.0 woo.¢ Godumowoseaoo pom uHommcmua o.¢ 0.5 m.m~ oo.¢a OOHQEEOO pom opens H.H H.N m.v mmm.N sowuooHumoou «.ms «.mm m.m~ mom.ss Susannah esosmmso: 6cm washouommscma .mcwqwz m.m© o.ama m.m mm¢.m muouasosumm Sm pomoamEo meson Honma Smeaa>flv mmmucmosmm Acoeaassv ammucmouom Acosaassv Houumm wuoxuoz mumxuoz mo Honesz mo HOQESZ meocH moumum causes 36:5 .82 . THE coma .moumum cause: was new msecH as muwxuos mo cosusnsuumse HmcoHummsuuo .es magma 111 processing and tertiary industries including all forms of trade.1 The percentage of workers employed in agriculture in India (69.5%) contrasts Sharply with 9.2 percent in the United States. On the other hand, the tertiary industry comprising of trade, commerce, transport, communication and services, accounted for an employment of 16 percent in India as against 56.7 percent in the United States. The disparity is still more pronounced if the sector of trade and commerce, especially relevant to this study, was taken into account. Only 4 percent of the total number of workers were employed in trade and commerce in India as against 23.5 percent in the United States. Employment ip Wholesale and Retail Trade Tables 15 and 16 reveal these disparities further with reference to wholesale trade and retail trade respec- tively. These tables suggest that for almost all product lines covered in this study, the Size of distributive activ- ity is amazingly small in India when compared with the U.S. Though information on the number Of wholesale and retail establishments in India was not available, it iS quite pos- sible that gaps of the same order exist in this respect too 1ColinClark, The Conditions of Economic Progress (London: .MacMillan &.Company, 1940): and G. B. Fisher, Eppnomicpgrogressapd Socral Security (London: MacMillan & Company, 1945). - m, H @HCGH. 112 .Homs .msecH mo msmcmo new “moma Jopmua mammoaonz mo msmcmo .m.D "moonoom .xcosssss mmvv Hams Hams map sou cosumssmom cmsscH we» can Accesses omsv moms saw» was you sesamssmom .m.p embassumm we» so ommmmm ea hmo.a ¢.o mma mpoom amowuuomam mm was m.oa mma mSOmumum xasn Eooaouumm m mma o.H ON mans» 6cm memes mm 0mm m.m boa mowuumaaou mcwpsaoca muospoum cowaam pom mamoafimno .mmoun mm nv v.ma m AOHOGH mo mmmo up mommuo>onv mxcwup uwom .¢.z hmb.m .<.z Nmm muOSOOHm pmumawu pom moHHooouw mma.a mnm.oa mmv mam.m Hmuou .mpmuu mammmaooz mHUSH .m.D mwch .w.D downtuoopoum MSOHDOHsmom mo Roommoonuv SOAHHAZ mom undemonEm DSQEmOHQEm mo onam Awpoum man» Cw poum>oo mmoaa pospoum 0» possessv asscH 6cm mmumum amuse: as menu» «Hammaosa as ucmssosmsm .mH manna [Ii 1. I i. . I [Ii I . . . I l!-.i|| I. In I ii] I i i i ..l‘i ill/ii «\fiUSJm WHEU «Hun UOHAUKVDU mmnsfifl UUnauUOHnm 0U mUOUAEduv Tianufi “wanna Unwanwuom UQUinhD Con 3m4-HHU firm-humlu 55% U.-J.C\flnddh&~=r~.~ n04 niHfiuaupN. 113 .Hmma .MHOCH NO mflmaU UCM “mmmH .mpmue Hemuom no monomu .m.D "moouoom .mao>wuummmmu .Hmma pom mood mums» Ono How .SOHAHHE mmv pom cobaaae oma .coMumasmom omecH pom .m.D Hmuou co pommmm so eme mm hm Impose mo ommo ow ..ouo .momm .mpoom Hmowuuomaov mmocmaammm paonmmsom mm mmm.m om mmn macaumum OOH>Hmm mosaommw ma omo H.n Hma moauommooom pom moaumuumn .mmeB woe mms.~ mks oov Amsch as mmuoum meaumEmoo pom mmESmumm .mmauuoawou .mamowamno .mocwoapmev monoum memo was . v~m.o em osm.a Amsch «0 ammo as maoo mommum>mnv monoum MHOOOHO .m.z «mm.m .m.z omN.H Amonoum auoaum> pom HmuSMEuummopv mmHODm omflpsmnoumfi Hmnmcmw mmm.ma mom.mm sms.o mmm.m Hmuou .mpmuu Hemumm OHOSH .m.D mwch .m.D OSAAIDOSOOHA mSOADmHsmom mo Apcmmsonuv cobaaaz Hum DomEmOHmEm ucmfimoamem.mo mnam possess ou omusssav asses Aapsum menu as pmum>oo mocha 6cm mmumum.emuscp as mean» spasms an squamoamsm .oa «Heme bee. the” man. wonl and stag the 114 between the two countries. One can, therefore, speculate that a critical marketing problem for American companies manufacturing consumer and semi-industrial goods in India would be to secure the COOperation of available wholesale and retail outlets. This point will be taken up at a later stage in this chapter. In Table 17, an attempt has been made to highlight the urban character of the distributive trades in India. The absolute figures related to employment in wholesale and retail trade were first broken up into urban and rural, and then converted into ratios, measuring each Of them against one million of urban or rural pOpulation as the case may be. The table contains only these ratios. It indicates that both the wholesale and retail trades in product lines cov— ered in this study are concentrated in urban areas to a very great extent. The wholesale trade is almost nonexistent in the rural parts of India. On the whole, this table gives an indication that product items like toilet goods, cosmetics, drugs, petrol, tires and electrical appliances find a very ‘1imited place in the budget of an average village family for whom food, clothing and Shelter are still the main problems of life to worry about. 115 .SOHHaHE own no pOpumaomom Hmuou m pom coflaawe me no ooflumasmom amass am pm: mach .momcoo Homa mnu ou mcwpnoooflm o men a mu mpoom Hmuwuuowam v en 0 NH muospoum Hogans pmsaam pom monsu .mouwa NH Hum v mma muoopoum pmsaam pom Ado magnoe .Houumm Ho van H mm maMOHEmzo pom mocsoapmz moa owe H om mowuosmoo pom mmESMHom .mpoom umaaoa mm vmo e Ava muoumE poumuom moapsaoow mommum>mm mmm.m mhm.¢v new mma.m moms» Hmuoa Hmnom SmnHD Hausa omnHD weanluospoum Godumasmom Godumasmom Hmu5m\cmnub mo codaawz Hem ucmE>onem mo deem menus spasms HmHSMKSmQHD mo codaasz mom usuaonmEm mo onwm momma oamwoaonz mcosumosmsumuum amusulcmnno .mwch as opmuu Hamumu pom mammoaon3 cw ucmahoamsfl .ba manna 116 Types of Adaptation in the Area of Market Distribution Mandatory Adaptation In Chapter III, the term "mandatory adaptation" was introduced with reference to product policy, and was defined as an adaptation imposed upon a business firm through govern- ment action. In order to Operate in a foreign country, it is necessary for a firm to comply with various government rules and regulations. There may be mandatory types of adaptation in the area of market distribution. A firm might be required, for example, to deal with only such distribu- tors or stockists who were licensed or registered with an apprOpriate government department. AS an extreme case, a firm might be forced to use the conventional market middle- men rather than sell the product directly tO the final user on the ground that the latter step could cause unemployment. The ultimate aim of such government action may be to safe- guard the interest of the consumer and the country as a whole. In order to implement a mandatory adaptation, the firm is usually not required to conduct any marketing research. In actual practice, government interference is rather limited and informal in the area of market distribu- tion. The manufacturers act upon the government directions or suggestions with respect to the distribution of essential commodities such as drugs, petroleum, tires and tubes. The tire manufacturers, for example, agreed to sell 20 percent 117 of their production Of cycle tires and 10 percent of their production of scooter tires through the retail outlet of consumer COOperative stores. They also complied with the government directive in regard to the Shipping Of ad hoc supplies to regions or organizations which reported Short- ages Of tires and tubes.2 The expansion programs of petro- leum companies were regulated by government with the result that they experienced some restrictions in the expansion of their retailing activity. Barring these types of mild and informal government interference, the business firms in general enjoyed freedom in the formulation of distribution policy and the selection of market intermediaries. The levy of interstate sales tax in India influ— enced indirectly the warehouse location policy of American firms. To save the incidence Of this tax on consumers, most of the firms located their warehouses in all important states so that the interstate movement of goods from factory to one of the warehouses was not considered as a "sale" liable to be taxed. Voluntary Adaptation A voluntary adaptation was defined in Chapter III as a move taken voluntarily by a firm to adapt its product to 2The Journal of Induatry and Trade, Directorate Of Commercial Publicity,.Ministry of Foreign Trade & Supply, Government of India, New Delhi, XIX, No. 4 (April, 1969), 454. 118 the foreign market needs. It was considered as self-imposed and one that was undertaken after careful market study and efforts in the direction of research and develOpment. Based on these criteria, a firm.will be considered as adapting its market distribution voluntarily when it makes some adjust- ments in its distribution system without any external pres- sure and after a careful study of market needs. The ultimate goal of such voluntary adaptation may be both, to maximize profit as well as serve the interests of the host country consumer. It may result in the use of an entirely different channel in the host country. With respect to certain prod- uct categories, the American firms may not experience any need for adaptation in the area of market distribution due to the nature of product and target market being very similar to that in the host country. .Many types of industrial goods-- heavy mechanical and electric equipments, machine tools, etc.--are sold by manufacturers directly to the industrial users in almost all countries. On the other hand, the distribution policies for consumer and semi-industrial goods may have to be adapted considerably in reSponse to varying environmental factors. This will be more clear in subsequent discussion. 119 Patternaof Voluntary Adaptation in Market Distribution The American firms Operating in India found rela- tively less SCOpe of strategy differentiation in the area of market distribution than in other areas such as product or promotion. The firms built up their image mainly through product and promotional strategy. They exercised relatively less control on market middlemen who constituted the channel of distribution for their products. This was especially true for the manufacturers of consumer and semi-industrial goods who needed an extensive distribution of their products and depended largely on local wholesalers or stockists to bear the brunt of market distribution. They did not find in India the institutions Of large scale retailing characteris- tic of the American economy nor was it possible for them to establish direct contacts with the consumer through mail order or door-to-door selling as done by many consumer goods manufacturers in the United States. Placed under these constraints, the American firms had to rely on market channels very Similar to those used by their local competitors. They had, of course, greater flex- ibility in the designing Of internal sales organization. Most of them had built up a strong sales organization to support the market distribution of their products. The manufacturers of industrial goods, on the other hand, did not have to look for the COOperation of market middlemen for the sale of their products, and relied mainly on their 120 internal sales organization as they did in the United States. This is attributable primarily to the nature of the product involved. Thus, the need for adaptation in market distribu- tion was more pronounced in the case Of consumer and semi- industrial goods than in the case Of industrial goods. TranSportation and Warehousing The railroads are the predominantly used mode Of transportation within India though the use Of trucks is also growing fast. In Spite of being the world's second largest Single railway network, it was not considered to be as flex- ible and efficient by most Of the firms interviewed as they found it in the United States. The three different gauges in Indian railways (broad gauge, meter gauge and narrow gauge) presented problems of transhipments and caused in- ordinate delays in the movement Of merchandise. Table 18 presents data on the transportation facilities existing in the two countries in 1967. It indicates the limitations Of physical distribution which the American firms have to bear while Operating in India. The commercial warehousing facilities available in towns and big cities were far short of demand. During the past few years, the Central and State governments had set up a network of warehousing corporations in India but this was done primarily to improve the storage facilities for food-grains. The manufacturers, therefore, avail themselves 121 .xmmma .mosmmo mcauosum Domecum>oo ".U.n .ooumSAnmmzv moma .mmumum pmuHcD mnu mo uomuumnm amowumflumum .mOHmEEOU mo nomEuumme .m.D pom “moma .mwch mo ucmEoHo>ow .mcsummopmoum pom SOsumEHomoH mo auumflowz..moma .amdomz mucoummmm m .mapoH "wouuoom o m m mm AmmeE pammoonuv mum>au manmmfl>mz mva aha mvo.a moh.m Aamnsu w Hmmaowcde .HmcoHumcv AmmeE pammooouv pmomwusm eam 0mm vmm new Amoaae powwoonuv poomwusmlooz . ommmaflfi pmom mm em mm mom Ammsss scmmsoEue mammass emonssmm ooo.mm~.a ooo.mam.m Ammaae mumsvmv moms pmumfiwumm Ammamsv Ammasev moauwaflomm SOsumuHommCMHB mend mo monfi mo moawz_mnmsvm mmaaz.mumovm ooo.a Hem ooo.a Hon MHOOH moumum ponds: ill i. mecca cam mmumum causes as mmsusssomm cosumuuommamna .ma manna 122 of the warehousing services offered by traditional whole- salers, who often reserve part of their residential accom- modation for storage purpose. The large scale retailing institutions (drug and grocery chains or department stores) which emerged in the United States in the early twenties are still unknown in India. The American firms manufacturing consumer and semi-industrial goods are thus unable to estab- lish direct contacts with retailers as most of them do in the United States. A vast majority of the retail stores in India are small Single man Operations which are accustomed to making hand-to-mouth purchases from local semidwholesalers or stockists. Generally, they lack ambition, initiative and drive. Moreover, the type of Specialized wholesalers, fig- uring prominently in the food, drug and toiletry lines in the United States, do not exist in India. ‘Types and.Fupctrons of Market Middlemen The whorasaregstockist.--These environmental forces exercise a considerable influence on the distribution poli- cies of American firms Operating in India. .A widely used middleman for the distribution of packaged consumer goods, ethical and prOprietary drugs, toiletries, etc., is the wholesale stockist or town stockist as some companies called him. The stockist acts as a consignment agent for the manu- facturer and does not take title to the goods that are invoiced and dispatched to him either from the factory or from an upcountry warehouse. He agrees to maintain a certain 123 minimum level of stocks (generally equivalent to two months' demand) which assures the American firms Of a regular flow of merchandise toward different consuming centers, and protects them against possible delays in the movement Of goods. He is responsible for the grant Of credit to his immediate customers who could be small wholesalers as well aS large and small retail stores. The incidental risk Of bad debts forces him to be careful and choosy in the selec- tion of dealers (wholesalers and retailers) to whom he sells on his own account. Periodically, he remits the sale pro- ceeds leSS expenses and commission to the manufacturer. Thus, the wholesale stockists provide two important services to the manufacturer: 1. The storage service in upcountry large and small towns. These towns often lack private warehousing facilities and are not in some cases conveniently located from the vieWpoint Of transportation. 2. Insurance against bad debts. The manufacturers are relieved of responsibilities such as the ascertain— ing of credit status of upcountry wholesalers and retailers and are saved from assuming risks pertain- ing to bad debts. The wholesale stockists are usually appointed in all large towns throughout the country. In smaller towns having some market potential, the manufacturers appoint sub-stockists who work under the direction of the main town stockist though 124 they are supplied directly by the manufacturer. The number of stockists appointed by a manufacturer of consumer and semi-industrial goods varied from firm to firm, ranging between 225 and 500.3 In large metropolitan towns such as Bombay, Delhi, Calcutta, and Madras, some manufacturers sold direct to the retailers. The wholesaling function, in this case, was performed by the sales department of the manu- facturer. Usually, the factories and warehouses/depots were located in these large metrOpolitan towns so that the supply of goods periodically to retailers and the credit collection did not present any big problem to the sales department of the manufacturer concerned. The field sales representatives Of a manufacturer are usually reSponSible to make sure that the goods move regularly from factory or warehouses to the town stockist and from him to the market middlemen such as semidwholesaler, retailer and hole-in-the wall retailer. They check from time to time the stock position of various items in the stockist's warehouse as well as in the Shelves of retail stores and often supplement the efforts of stockists in accelerating the movement of Slow-moving merchandise to the retail stores. Toward this end, they offer guidance to 3According to the 1961 POpulation Census, there were 248 towns in India each within a population range of 50,000 and above. The number of towns within the 20,000 and 50,000 range was 515. .Thus, it may be guessed that most of the towns covered by these firms were within the range of 35,000- 40,000 and above. 125 retailers in matters such as stock planning, merchandise display and after-sale services to customers. .Sole drstributor.--Another important institution engaged in the marketing of most consumer and semi—industrial rgoods is the "sole distributor." A sole distributor is usually the traditional middleman who used to act as an importer and distributor in the past when the companies represented by him did not have their manufacturing Opera— tions in India. He acts primarily as a sole selling agent taking the responsibility of selling the entire factory pro- duction for an agreed rate of commission. Having entered into such contractual arrangement with a sole distributor, the manufacturer usually saves himself from performing such functions as warehousing, Shipping, dealer selection, pro- motion and credit and collection. Under this arrangement, the sales department of a manufacturer acts mainly as an order taker and supplies goods either to the regional depots/ warehouses maintained by a sole distributor or directly to wholesale stockists as directed by him from time to time. Some companies rely upon more than one sole distributor who is/are assigned to different geographical territories. Thus, a wholesale stockist obtains his supplies from a distributor's warehouse where the manufacturer concerned has such an arrangement. Out of 15 manufacturers of con- Sumer and semi-industrial goods, 10 reported that they used distributors in the sale of their products. However, only two of these ten manufacturers indicated that they relied 126 entirely on one or more sole distributors. The other ‘companies were noted for having a combination of two systems, i.e., they appointed sole distributors in territories in \NhiCh the latter were considered to be fairly strong and effective whereas in other territories they sold directly ‘to the wholesale stockists or retailers. This is an important pattern of adaptation displayed ‘by American firms which are accustomed to supplying directly to large retail chains from the distribution centers estab- lished at strategic points in home country. Though a major— ity of firms reported that the conventional institution of ‘wholesale stockist worked very well in the Indian conditions, they also indicated their plans for bypassing the stockist and supplying direct to the retailers. .Some pharmaceutical companies, for example, reported that they were supplying direct to the chemists in certain states of the country, doing away with the services of sole distributors and stock- ists. .Two pharmaceutical companies which were actively engaged in new product development programs, had taken over the promotion and planning function from their respective distributors about the time this study was being conducted in India. This resulted in considerable net saving to these companies because with the curtailment of these functions, the distributors agreed to work.for a smaller rate of commission. It is believed that the rigorous government control on the prices and distribution of pharmaceutical 127 products was one of the motivating factors that led the pharmaceutical companies to integrate their marketing orga- nization and reduce the distribution costs. The nature of government control on prices will be discussed further in a later chapter. It is now proposed to examine the adaptation patterns more Specifically with reference to main product categories covered in this study. gonventional Channel Structures in United States and India Conaumer good§ (non-durable apdidurable).--All the seven firms manufacturing consumer non-durables and durableS such as processed food products, cosmetics, toiletries, soft drinks, flashlight batteries and household appliances were noted for using indirect channels which often involved the use of wholesale stockists and retailers. The direct chan- nel to the ultimate consumer or user was almost nonexistent except when the government placed bulk orders or invited bids from approved suppliers. A household appliance manu- facturer was noted for Operating a limited number Of its own retail outlets. The difference between the conventional channel structures used by manufacturers in India and United States for Similar product categories is borne out by Exhibit I. It will be noted that the specialized wholesale institutions such as food wholesalers, drug and toiletry.wholesalers and rack jobbers who are active in the United States marketing are not used by manufacturers in India because they have not 128 .mpoom umeomcoo “Om mecH pom moumum pmuscs as mousuoouum Hoccmco HmCOsuco>coo .H uflomcxm ugsmcoo n U “uwasmumm n m “Hobonfiuumflo mHOm .1. am humammOAoés u 3 “umfixOODm n m “Heuonfiuumwn u a “Hmusuomwscmz n z Amumauoo Spams pong homQEOU Smoounuv U .I E U .l mumammn po>oumm< .I 2 U .I 923me po>0udd¢ .I z Amoocmsadmm Hanan Mom: U .I m .I m .I S Segundo Assume poc3o hammeoo £95.33 0 .I z moonwaammfi flaonmmsom HHMHW pom mognomz mann30m Amuoxums SmnHOIHEwm as. mumasmuou HHme £33 uomucoo 000.33 0 .l m .I 2 U .l m .l 3 .l 2 U .I m .... 3 t. O .l 2 0 4| “monoum ucguummmp .w xuoooum .953 93.95 .I S mmwuouumm ucosanmmam U .I mocflcomz 93985 .I 2 0 al m .I Q cl 2 U 3| m .I 2 U .I m .I z O .I Euoooum .mosmucsomw .msupv mcsmnu .... z .33qu snow 0 1 m .l muonnoh. 30mm .I 2 U .I m .l w .I 2 U ..I m .l Hoammmaonz auumawoe pow mama .I 2 U .I m .I 3 .l m .I 2 U .l Axumooum .w usguummmp .953 9326 .l S mm.“ “50.308 new no.“ 09500 o i monoum poom Hemuom .I Amuoxoum 000.5 .I 3 poom .I 2 UtmIIDmalZ UimOHOumUOOh HamuwmIvaOOhsl—z UImImTS viewmnupoomiz us ompo 0mm coo .HH usnsrxm quOmcou n U “smasmuwm n m “Houonfiuumsn anm u Om “Hmammmaonz u 3 “umsxOoOm u m “Hobonsuumso n a “Honouomwosmz HOHOOOmmocM£ OCQEQHOOm amasmsuo OSQECMO>OO\mum:3O ummam U t.Amv Hoamma HOEumm t.ou00m .moou t.>umsoom O>sumuomooo xoma udEumh 1.Amv seamen t.o uQEHmm t.m umusuomMOsz OcmEdHoqm amasmsuo 1.: Oceanum>ow\mumc30 ummam 1.2 U t.uoHO:O Hamuom pmumumdo momdeou .l 2 U .I 3: season .Oum .mmnse .mousfi 1.: 1.2 uOBOuU t.2 um30uo_1.uwammo 1.uOD:nHHOst HmCOHumZ\amc0HmOm mOOHOHumom pow mOONHHHqum U 1.x .1.2 U t.mou0um Hemumm poom t.mu0ammoaon3 poom mesmso mmuoOm humsum> Otmtstmtz O1 36$ 5er pooe .Nwso.wmsun NumumsuQOHQ amsoflm>£m\amuammom.t.z Hmuflmmom U .I OmaEOLU .I Z O .I mesmcu 9:0 .I 3 mono Cmaoamxcm\0 .l umaEOfiu .I Q t. 2 . . . Monaco xomm O .I 3255 .u m ... Om 1 s O 1 86pm and ucoecmmoefi .I Jami O 1 $2er .I m .I O t s O .I 235 9:5 mmsuQ mumumsuaoum pom HMOwcum cou .HHH Danssxm HOEOOSOU n U xuoawmuom u m “Houonfluumpo maom n Om uuoammmaonz n 3 “umeOOOm u HonouommscOz OCQEQHOUM Hmcwmauo.1.z HmmeImAIn—olz muumm ous< m II 2 “MOOOQAnumsQ M Q “umuouomwscmz Honouommocmz Oomemfloom Hmcsmwuo_1.z Homaimiaiz mmpuflasub pom OomESHO>OO .mmsuumsocH 1.2 mOHuHHHuD pow uooecuo>ow .mOHMOmOOCH 1.2 mucmamsswm HmsuumOOCH MNmmm OCOESHO>OO\mHOmD Hmsuumoch t.z meow: .l m .I Hmnnoh. 03 uOEOusm .I 2 mummD HmauumspoH 1.umamoa.t.z when: HmauumOOCH t.2 ucmsmfloom COADOSHumdoo cam maooa OaumEOOCA .muOmmmHQEOUIHH< AOOOHHUV mHOmD Hafiuumop H 1.: Amucomm Smsounuv muons ameOmOOGH.1.Z mocsnmmz UMMpcmum ume.t.meoH as moflmmo hommEOU ucoumm_t.z UCgCHO>OO\H0mD HNHHumDUCH t z usuaoasom ooawuo pom mmcanomz umocamsm dHQZH mHmmD AMHuumDmVCH 0| 2 Memo .I 2 OcmEoum>00\ume HmwnumSOSH.t.S poms .I seamen xcmmeoo t. 2 0.1.m.1.z mmBGBm QNBHZD 135 by short channels.5 According to this hypothesis, one would expect a little longer channels with more levels of distri- bution in India than what is evident from these exhibits. It will, however, be Observed that the channel structures presented in these exhibits may not be truly representative of the structures commonly used by Indian manufacturers. The'American firms, on an average, were far larger in Size than an average Indian firm manufacturing comparable products. They Sold highly differentiated prod- ucts in India and had achieved considerable integration of their distributive systems to gain better control over the marketing channel. The length of a marketing channel used typically by a local manufacturer could very well be longer than represented in these exhibits because with smaller scale of Operations and less differentiated products, the local manufacturers rely more heavily on the support of wholesale markets and a variety of market intermediaries.6 Intra-Firm Sales Organization As indicated earlier, the American firms enjoyed relatively greater freedom in designing the sales organization 5Reed.Moyer,.Marketingin Economic Development, Institute for International Business Management Studies, Graduate School of Business Administration, Michigan State University, East Lansing, 1965, pp. 36. Also see George Wadinambiaratchi, "Channels of Distribution in Developing Economies," The Business Quarterly, Winter, 1965, pp. 74-82. 6Harper Boyd and Ralph Westfall, "Marketing in India," Journal of Marketing, October, 1960, p. 12. 136 structure within the firm than what they had in designing the channel structure. The division Of potential market into regions, districts and sales territories was done on the criterion that it Should result in maximum market culti- vation at minimum cost, in other words, a maximum productiv- ity of sales personnel. Though only one-third of the U.S. size in area, India is two-and-a-half times as pOpulated as the United States. The lack Of purchasing power among the masses with their primary involvement in agriculture affects considerably the amount of market Opportunity perceived by a manufacturer of consumer and industrial goods in India. The industrial activity in India iS still concentrated in selected regions though efforts are being made to disperse it in relatively less developed regions. As a result Of these factors, the total number of sales territories in which a consumer or an industrial goods manufacturer divided the country, was much less in India than in the United .States. At the same time, the lack Of quick transportation and communication facilities and the multiplicity of lan- guages and dialects Spoken in different parts of the country were two serious factors setting the upper limit of the Size of a Single territory. With the exception of three companies, all reported an expansion in their reSpective field sales organization with an increase in the number of branches, field staff and sales territories Since the beginning of their Operation in 137 India. Explaining the reasons for such expansion, the companies cited several develOpments currently taking place in India as stated in Table 19. Table 19. Reasons for the expansion of field sales organization Number of Companies Reasons for the Expansion Reporting of Field Sales Organization Out of 23 1. Rise in pOpulation and consequent expansion in market size 18 2. Growing industrialization 17 3. Impact of legislative measures (e.g., Central and State Sales Tax Acts) 9 4. Increasing number of motor vehicle registration 5 5. Change in the political boundaries of the Indian states 5 6. Other reasons 9 63a aThe total does not coincide with the actual number of respondents because of multiple entry. Among other reasons (item 6, Table 19) were in- cluded: growth in company's Operation, increase in literacy, decimalization of Indian currency and an increase in empha- sis given by government On a particular area of industrial activity. 138 Three companies answered in the negative to the question on change in the Size and distribution Of sales territories. One Of them, a packaged food products manu- facturer, reported that its market was confined to urban high income group families which were still very limited in number and scattered over a few metrOpolitan towns. The other two companies which manufactured industrial products reported that the volume of their business had suffered a heavy setback due to the government ban on the imports of equipment and their components and due to greater expansion opportunity being given by the government to local firms. One of these companies was in the process of reorganizing and consolidating its field sales organization which would result in a Smaller number of sales territories than before. A majority of firms (20 out of 26) expressed satis- faction with the performance Of their present system of distribution, though a few admitted that there was room for improvement. At least three companies were apparently not satisfied. A marketing executive from a packaged food manu- facturing company was dissatisfied with the continuance of a system of sole distributorship in his company for selling in certain parts of the country. A petroleum company executive blamed the infra-structure--the inadequacy of railroad and oil pipeline capacity. He also resented the fact that the Indian government was not allowing them to increase the num- ber of retail outlets at the desired rate and had allotted a much-larger Share in the annual expansion of industry to a 139 competing firm in the public sector. An executive from a pharmaceutical company expressed dissatisfaction with the prevailing system of indirect marketing in his company and looked forward to gaining greater control on distribution channel by eliminating distributors and wholesale stockists. Many companies expressed their dissatisfaction with the requirement by railroad that all Shipments be packed in wooden boxes rather than paper cartons to which they were accustomed in the United States. A fertilizer company was especially concerned about the damage caused to fertilizer bags from the use of hooks by railroad porters in the load- ing and unloading process. It could very well be that some other companies too had similar experiences though they did not consider them as important to be mentioned during the course of the interview. In spite of their keen interest in integrating the marketing channel, most companies selling consumer and semi- industrial goods did not go ahead in this direction. Some considered the volume of production in their plant inade- quate to support a program of direct distribution. Others were afraid that if they took over the wholesaling function from the stockists, the latter might take on other competing brands and affect their market adversely for sometime. They seemed to recognize the influential and respectable position which many firms of distributors and wholesale stockists commanded in the Indian market place and did not want to bypass them without strengthening their own position in 140 India. They also considered the heavy capital outlay involved in any attempt to expand the range of marketing activities. It appeared that many companies did not want to increase their financial commitment in India and pre- ferred a policy of "wait and see" in view of certain polit- ical and economic developments that had lately taken place in the country.7 gpannel Cooperation and Control In reply to the question if they experienced a lack of distributorS'/dealers' support for pushing new products in the Indian market, 14 of the 20 companies using indirect distribution reported that they were satisfied with the support of their distributors/dealers. Three companies including 2 cosmetics and l proprietary drug manufacturers indicated that at times they had to use a "pull" strategy to get the dealers interested in new products. A fertilizer manufacturer attributed the lack of dealer COOperation to the system of government controlled prices prevalent in fertilizer trade. The remaining 2 companies did not know the answer to this question. The fact that 3 companies indicated the use Of "pulI" strategy reflected indirectly the dependence of a big anany executives seemed perturbed by the leftist tendencies that were looming large in the political scene of India. The recent nationalization of major commercial banks produced fresh feelings of uncertainty among the American investors. 141 majority on the COOperation of distributors and other types of market middlemen. The lack of promotional infra-structure (literacy levels, media of advertising, etc.) and the concen- tration of discretionary income with a very small section of high income group peOple might be two important reasons for a wider use of "push" strategy in the Indian market. The policy of selective distribution was adOpted by most of the firms which involved a careful selection of "company recog- nized“ dealers, also known as "fair price ShOpS." A few firms indicated that they had designed "key" dealer develOp- ment programs to improve the efficiency and serviceability of their dealers. The very fact that a dealer was selected from among many prospective candidates gave him a feeling of distinctiveness and caused him to extend full COOperation to his manufacturer. Sales Under Private Brands This study revealed a very limited volume of sales under private brands by American companies Operating in India. Only 2 companies (1 in consumer non-durable line and the other in industrial goods line) sold under private brands in India. However, a majority of companies within the sample did not sell under private brands in the United States either. .None of the pharmaceutical companies and only 1 of the 7 consumer goods companies sold under private brands in the U.S. market. Two large tire manufacturers and 1 auto parts manufacturer sold under private brands in the 142 11.5. rnarket but not in India. According to these 3 companies the main incentive to sell under private brands comes when it enables a manufacturer to use the idle capacity Of its plant. The economic conditions in India, on the other hand, are characterized by Shortages, sellers' market and highly regulated eXpanSion of plants. There is thus a little Sc0pe in India for the use of private brands. In the U.S. market, moreover, there are large-scale retail organizations which act as "channel captain" and are strong enough to dictate their terms on a manufacturer. The absence of such large scale market institutions in India iS another reason why private branding is uncommon in that country. COOpprative Advertising Information was also sought on the extent of COOper- ative advertising programs Sponsored jointly by the American firms and their dealers or distributors. A majority of answers were of the "yes, but" type. The companies Shared the advertising expenditure of their dealers or distributors but not on any regular basis and only for selected types Of products. The reasons cited above to explain the lack of private branding in India can also explain the limited use of COOperative advertising in this country. Regulated pro- chxmion, inadequate supplies and a general Shortage of goods mkiservices give little inducement to manufacturers to Share advertising expenses with market middlemen. The market power of most wholesalers and retailers is rather 143 insnflfificant compared to that Of manufacturers due mainly to these economic factors. One Of the main reasons why cooperative advertising is more common in the United States is the strength of large-scale retailers. The disparity between advertising rates charged to local and national advertisers by local media is another important factor encouraging COOperative advertising in the United States which is rather uncommon in India. In the pharmaceutical industry, COOperative adver— tising seemed to have gained ground recently in the prOpri- etary drug line. Six Of the 7 consumer goods manufacturers reported the use of COOperative advertising with 2 of them "casually" or at the time of Special advertising campaigns. Two tire manufacturing companies entered into COOperative advertising agreements with their dealers for the advertis- ing of miscellaneous industrial products and not for their main product line--tires and tubes-awhich, as it was pointed out earlier, were Sold by tire dealers along with other competing brands. Two auto parts manufacturers also re- ported that they Shared advertising eXpenditure with their distributors. On the whole, .it appeared that the American firms made limited use of this selling technique for winning the cooperation of Indian market middlemen. There were in all 15 companies (out Of 20 companies making use Of market middlemen) indicating the use of COOperative advertising plans in India, which is quite Significant. 144 Role of Parent Company The interviews with parent companies in this country indicated that they were least interested in regulating or controlling the decisions pertaining to the physical distri- bution of«goods and selection of market intermediaries in India. The involvement of parent company was relatively more pronounced in the areas of product and promotion which offered a greater scope for the application of American techniques. AS far as the area of market distribution was concerned, it was different in the sense that,an efficient distribution of goods called for not only a suitable infra— structure but also effective media of communication through market institutions. The parent companies had little to offer in either of these two sub-areas. The process Of renovating a distribution system would be an extremely slow process especially in an Old and conservative society like that of India, where trading activity has been in the hands of a distinct class for more than a century and where the consumer is heavily dependent on this class for occasional counselling, credit and service. Only in recent years, some Signs of inter-class movements have been witnessed. This may be an important consideration for a parent company in determining its attitude towards the distribution policies of its Indian subsidiary. With the exception of two, none of the executives interviewed in India reported any direct or indirect 145 interference from the parent company insofar as the distribu- tion policies were concerned. The two executives expressed dissatisfaction with the sole selling agency or distributor- ship arrangements in effect in their respective companies. They held the view that the sales department had little con- trol over the distribution channels used by a sole distrib- utor with the result that the system gave rise to conflicts and hindered the process of long range market planning. The parent companies apparently did not want to disappoint their past Indian importers when the manufacturing activity started in India, and offered them the sole responsibility of internal distribution of goods manufactured within India. Conclusion a majority of American firms inter— To conclude, adapting viewed, made attempts to and were successful in their distribution policies to the needs of the Indian They demonstrated a strong inclination to adapt market. First, it was not in this area due to three main reasons: possible for firms to modify or add to the infra-structure existing in the country of Operation at least in the Short- run. .Second, the conventional market institutions even though they might not be as efficient as one would expect, had created a niche in the economy Of underdeveloped coun- :ries and it was difficult for a firm to bypass them without os ing a part Of the market. The transplanting of a distri- ut ion system abroad was not considered by firms as easy to - . 35‘.» in y if.“ .. i 146 accomplish as a production system. Third, adaptation in nerketrdistribution policies to an individual country environment scarcely affected the worldwide corporate image of the firms which were more sensitive to changes in product Specifications and promotional programs. This was probably an important reason why the Indian subsidiaries enjoyed relatively more autonomy in the formulation Of their distri- bution policies. The Indian environment offered the American firms a limited choice as far as the types Of distribution outlets were concerned. The Specialized food, drug and toiletry wholesalers were uncommon in India. The channels of dis- tribution used by American firms were somewhat longer than those in the United States, particularly in consumer goods and pharmaceutical lines. The institutions of large scale retailing, such as chains and department stores, with which the manufacturers established direct contacts in the United States, had not yet emerged in India. A widely used middle- man in the marketing Of consumer goods and pharmaceuticals was the "stockist" who functioned as a consignment agent and undertook to maintain certain minimum level Of stocks for feeding the distribution pipelines within his limited terri- tory. The traditional importers of products now manufactured in Ikuiia were still being used by some companies either as sole distributor or one of the regional distributors. Their continued Operation, however, was being questioned by 147 marketing executives in some companies. The marketing of industrial goods was relatively more simple in both coun- tries and called for little adaptation on the part of American manufacturers. The distribution policy of firms was generally that cw cOOperation rather than control. The efforts of dis- tributors, wholesalers or stockists were backed by the company field personnel who were assigned to different territories and Offered a variety of services to both whole salers and retailers. Though still limited in scope, a number of firms reported the use of OOOperative advertising with their distributors or dealers. Even those firms which did a substantial business through their own retail outlets in the United States, sold through distributors and dealers in India because the Indian buyers were still not as brand insistent as their American counterparts and were accustomed to making a thorough study of competing brands before final- izing a transaction. CHAPTER VI PATTERNS OF ADAPTATION IN PRICING POLICY AND TERMS OF SALE An American firm which participates in the indus- trial development of an underdeveloped economy through direct investment, Often does so at the cost of losing some freedom in setting its pricing policy. In most underdevel- 0ped nations where essential consumer and industrial prod- ucts are in short supply, the government regulates or controls the price level to ensure an equitable distribution of these products and to keep inflationary trends within reasonable limits. India is one such underdeveloped country. The government has been playing an active role in this coun- try in regulating the prices of essential commodities which are considered vital to its economic growth. To many Amer- ican firms Operating in India, the pricing policy is not as controllable an element of marketing strategy as are other elements such as product, promotion and distribution. Even in the United States, the area of price determination and administration is relatively more sensitive marketing area in large corporations, accounting for many historic legis- lative hearings and laws. 148 149 This chapter is the last of the four chapters which were designed to examine the patterns Of marketing adapta- tion of American firms Operating in India. It brings the area of pricing policy and terms of sale into Sharp focus. Adjustments are needed in this area not only for their own sake but also to implement the adjustments in other areas-- product, promotion and distribution. It is not proposed to discuss here the micro-economic models of price theory which might be relevant to this study because the assumptions behind these models do not hold in an environment of govern- ment regulation and control. This chapter rather concen- trates on current policies and practices in the realm Of price and terms of sale including policies related to credit, discount, warranty and after-sale service. The primary interest of this chapter is to examine how the American firms adapt their pricing policies in an economy which is characterized by excess demand, limited manufactur- ing capacity and government regulation. As in the preceding three chapters, the discussion has been divided into two main parts--(l) patterns. of mandatory adaptation and (2) patterns of voluntary adaptation. It will be seen that the government action has dominated largely the area of price determination, making it mandatory upon most of the firms to follow a government-directed pricing policy. On the other hand, the firms enjoyed considerable freedom in designing policies related to terms of sale. The chapter will be 150 concluded with a brief discussion of the involvement Of a parent company in the formulation Of pricing policies of its subs id iary . Ltterns of Mandatory Adaptation AS indicated earlier, the American firms Operating in India experienced a considerable amount Of government interference in the formulation of their pricing policies. Generally, the private foreign investment was invited in industries which were considered "basic" to the country's economic growth. The products manufactured by most American firms, whether consumer products or industrial products, were in wide demand and occupied a respectable place in the Indian market. The general scarcity conditions made it obligatory on the Government Of India to regulate the prices Of all essential products manufactured by local or foreign firms. The Essential Commodities Act, 1955, gave the gov- ernment necessary power to regulate and control the distri- bution and prices of such commodities which it declared A statutory body known as "essential" from time to time. the Tariff Commission examined usually the cost structure of affected industries and made recommendations of "fair" ex—factory and resale prices. A large majority of firms covered in this study indicated that the area of pricing policy was one in which government interference was most pronounced. The manufac- turers of soap, ethical and non-ethical drugs, tires and Ill-.1“ "' ‘ 151 tubes, oil and fertilizers experienced more direct govern— ment regulation because these products came within the purview of the EssentialACommodities Act, 1955. Other manufacturers, in consumer and industrial product lines, were also affected inasmuch as they were expected to consult with the government in case they prOposed to depart from existing price levels. The nature of mandatory adaptation which the Amer- ican firms were forced to make in the area of pricing policy can be explained better by reviewing briefly the government aregulation of drug prices in India. .Disturbed by soaring drug prices in 1963, the government issued an order under the Essential Commodities Act by which no manufacturer was allowed to increase the prices above the level prevailing on April 1, 1963, except with the permission of the government. This order was relaxed in 1966 when the government offered to consider requests for price revision with respect to individual products if the affected firms furnished neces- sary cost data to support their pleas for price increase. To safeguard the interest of the Indian consumer, the govern- ment also decided to relax its 1963 order in favor of those companies which indicated the generic or pharmacopoeial names of drugs along with their commercial brand names on labels and packages. In May, 1970, the government issued another Drugs Price Control Order under the Essential Commodities Act by which the retail prices of certain essential drugs were 152 fixed and the firms were asked to use a price formula to arrive at the retail price for other drugs. A total mark- up of 75 percent was fixed by the government to be added by each firm to the manufacturing cost of a drug in order to Higher mark-ups up to 150 per- ‘I calculate its retail price. cent were allowed for limited periods for such new products which were evolved as a result of special product develOpment or original research. The order went further to specify the minimum mark-up for retailers and other market intermediaries E. (distributors, stockists, etc.) . This was fixed at 20 per- cent of the retail price (as Obtained from using the recom- mended price formula) for ethical drugs and at 15 percent of retail price for non-ethical drugs. Of these trade mark-ups, the mark-up for the retailer was fixed at not less than 12 percent and 10 percent, respectively. The balance repre- sented the mark-up for wholesale middlemen such as distrib- utors and stockists, engaged in the marketing of drugs and pharmaceuticals. The use of a price formula including these mark-up limits applied to only those drugs, the prices of which were not fixed by the government. 1The price formula recommended by the government was: RP = (MC +4CC + PC)x (1 + mu/lOO) where RP is retail price, MC is material cost, CC is conver- sion or formulation cost, PC is packing cost and mu is the total mark-up. For detail, please refer to The Economic Times, Bombay, .May 1 and May 17, 1970. 153 This description throws light on the magnitude Of government interference which an American firm has to bear while continuing its Operation in a planned economy. The pharmaceutical firms interviewed in India expressed diffi- culty in adapting to a system of price control which, according to them, was incomplete and unrealistic in the absence of a corresponding control on the prices of raw- materials used by the industry. The computation of manu- facturing cost of thousands of individual formulations, according to the government formula, was considered to be an extremely complicated task for a large pharmaceutical firm. In spite of these problems, the American companies manufacturing pharmaceuticals and other essential products were noted for adjusting well to the price restraints imposed upon them by the government. The tire manufacturers' faced similar price control up to December, 1963. The ex- factory prices of tires used to be fixed by them according to a formula recommended by the Tariff Commission. Later fin 1964, the tire industry was set free from adhering to rigid formula pricing, though the industry was still subject to informal price control and continued to seek government approval for any price increase. The manufacturers of Soap, fertilizers, machine tools and petroleum products were also subject to a formal or informal regulation by government in their pricing policy. There was no evidence, however, of 154 any government regulation as far as the general terms of sale were concerned. In this area, all the firms inter- viewed indicated an appreciable degree of voluntary adap- tation to local conditions, as will be Shown in subsequent discussion. Patterns of Voluntary Adaptation Pricing Policy Voluntary adaptation of pricing policy may be con- Sidered as a deliberate move on the part of an American firm to design its pricing policy in a way which enables it to achieve necessary adaptation in other marketing areas such as product, promotion and market distribution. To illus- trate this point, if the marketing strategy of a firm aims at offering a Simplified semi-automatic machine—tool to cost-sensitive small engineering firms, and it decides to use personal selling and demonstration as the main selling tools, it will have to modify its pricing policy also to achieve this aim. The objective of this firm's pricing policy will be twofold: realizing a certain minimum return on investment and contributing to the industrial development of the host country by Offering a low price machine tool tO small engineering firms Operating in that country. Thus, the voluntary adaptation of a firm's marketing effort is reflected in its pricing policy. 155 The political and legal environment in which the American firms Operated in India did not prevent them from offering low priced and Simplified versions of their inter- national product brands. However, they seemed to be less interested in changing their universal product lines-~a point already made in Chapter III. Most of them concen- trated on the production Of technologically sophisticated high priced product lines, leaving the production Of Sim- plified less expensive product lines to the local firms. When asked to Spell out what they considered to be the major objectives of their pricing policy, the firms responded as indicated in Table 20. Table 20. Objectives of pricing policy Number of Firms Objectives of Pricing Policy Responding 1. Meeting competition 14 2. Realizing a target return on investment 11 3. Expanding market share 7 4. Achieving price stability 6 5. Maximizing profits 6 6. Maintaining worlddwide price leader- ship 1 8The total does not coincide with the actual number of respondents because of multiple entry. 156 It can be inferred from the set Of responses pre— sented in Table 20 that a majority of firms interviewed were interested in maintaining their market share at a target return on investment, rather than expanding the Share. They seemed to confine their Operations within narrow market seg- ments which could absorb the high priced quality products. 'Within these narrow segments, they competed with other foreign-affiliated firms as well as large Indian firms in public and private sectors. Few firms considered profit maximization as one of the pricing objectives. Most of them held the view that in the wake of almost ubiquitous price control, the question of profit maximization hardly arose in India. For the same reason, they did not consider price stability as a matter of concern to an individual firm. Terms Of Sale The freedom of action which most American firms miss in India in the area of pricing policy is present in that Of the terms of sale. In designing their policies pertaining to credit, discount, guarantee, etc., the firms rarely experience any government restriction or control in India. Rather, they enjoy relatively greater freedom of Operation since they do not encounter such legislation as the Robinson- Patman Act and the Miller-Tydings Act (fair trade laws) which seek to protect the small independent retail dealer in the United States. How far was such freedom exploitable in India is another question. There would be little room for 157 persuasive selling, liberal credit and discount terms in this country as long as the economy remained afflicted with scarcity Of goods, lack of purchasing power and an acute pOpulation problem. Other conditions in India such as the absence of a large middle class and lack of Specialized institutions offering credit rating service did not encour- age American firms to offer their Indian customers as attractive terms of sale and payment as they did in the United States and many west European countries. Credit.-4When asked if they experienced a lack of credit information in India, 14 of the 26 firms interviewed reSponded affirmatively. Nine firms gave a negative re- sponse and 3 offered no comments. Those firms which denied having any such problem had either a very well organized field sales force which kept track Of the creditworthiness of market stockists or they relied on a system of sole distributorship whereby the entire credit risk was trans- ferred to one or more distributors located at strategic points in the market. Also included in this category were the industrial goods manufacturers who had direct dealings with commercial or industrial firms, which used their products. The information on the availability of credit infor- mation to American firms explained why these firms which were accustomed to granting liberal credit terms in the U.S. market took on local market customs such as C.O.D. (cash on delivery) or shipping documents through a bank. 158 The latter custom came close to SD—BL terms (bill of lading with SightDraft attached) no longer used extensively in the UnitedStates.2 The marketing Of most consumer and semi- industrial products covered in this study required extensive market coverage and involved business dealings with hundreds of small merchants and stOCkistS all over the country. While the field sales personnel and market distributors were in constant touch with these middlemen, most manufacturers preferred to follow the prevailing market custom. The merchants or stockists Operating in towns where the manu- facturers had set up their branch offices or depots were able to obtain two to four weeks' credit because of a common location. Insistence on cash terms by manufacturers had a hidden virtue in the scarcity—ridden economy of India, as one managing director pointed out. It exercised some re— straint on demand stimulation and discouraged merchants from overtrading. The manufacturers of consumer durables and indus- trial goods who sold directly or indirectly to households or industrial firms, adOpted a more liberal credit policy. The home appliance manufacturers offered installment credit arrangements to customers through company-owned retail out- lets and a network of dealerships all over the country. They ran into much lessrisk, thanks to the nature Of their 2Robert H. Cole and Robert S. Hancock, Consumer and Commercia1Credit Management (Homewood, Illinois: Richard D. Irwin, Inc., 1964, p. 337. 159 products which were durable and could be reclaimed if the customer broke the agreement. The industrial buyers, more- over, generally had a stronger financial standing than that of small merchants or stockists with whom the manufacturers of consumer goods and pharmaceuticals had to deal. Further- more, the government was a significant customer Of most of the industrial goods manufacturers, accounting for from 25 percent to 60 percent of the total annual sales of a firm. All sales to the government were on credit, and it often took many months and rather cumbersome Official procedures to collect payments. Still the Opportunity to serve bulk orders and the absence of credit risks were two main attrac- tions to dealing with the government as a customer. The companies Offered annual rate contracts to the government to take advantage of bulk orders. Some manufacturers of heavy industrial and construc- tion equipment, however, required their customers (non- government) to deposit cash advance with the order to cover part of the payment, and the balance on receipt of the Ship- ping document Or installation. Cash discount.--Tab1e 21 summarizes the details Of terms of payment offered by American firms in selected product groups in the United States and India. A glance at the contents of this table will indicate the preponderance of credit terms accompanied by cash discount incentives in the U.S. market and a preponderance of cash terms in the Indian market. Only one out of 26 firms interviewed in the 1150 mOSQEDOOO oasoosrm Ho mcoom m0 OosOOOu o0 mocmsmn one can umpuo rua3 c30p monucmoumd m cussilmsmmn uOmuOcou Adz HHZ HHZ shaman meme me 0» om assouo meme me as om xcmn cmSOHru muddEOOOp .cmmo xu0>ss0p sebum mxmp oo 0O om HOOCHOEOu Orb pom OOOOHQEOO cmr3 momucoouoo m .Hopuo rus3 :3OO monucmoumo m rus3llmsmmn Domuucoo xuOCHrOmE COHOOOSOmCOO pom HmsuumOOCH >>moz AHAOEmV >H0CHrOOE Hmanumsch ucmeossoo amusmuSm .HmOscOz mOHHOmmOOOm pom mused obs< "awesomOOCH l'l'lll:||"‘|'ll'l""'|"'l'|"'"'Il'll"l‘||ll|lll'-l'l|'l'||"|l‘lllI'll'llll'"-|"|'l'|'l'-'l|""ll"lll|l'I':l""" xcmn rmsoucu mucmEDOOU .rwmu umsxOOOm OooOpIcH uOm OHOOHO wxmp om 0» ms umsxOOum Oommpnwouuoo qu xcmn LoSOuru muCOESOOO wasoasnm .nmmu mono» pom wmusB mamosusmOmEumrm "HmHHOOOOCHlsEOm Hsz awz meme me 0» om roan LmSOuru mucmESOOO meadosnm .rmmo .QOOOU muOEOOmsO w>suomamm ob mxmp om .xcmn smacks» mesmESOOO mcsmdsrw .rmmo Om HOS os RN OD x m>mp om Omz .xoda egos so osuusa meme om umz .xOum cues en meme om umz .xoun rues em meme Om umz .xoud mxsp HO 0 O m cums cues an om u om s z .xosm nuosauxmus meme cm Omz meme om sans meme Om umz when cm DOC com Hsz OH has so .O.O.O mhmp h ssz am: no .O.O.O moussesmom psormmsom submasou pom xumEswumm .mOsqumoo measus umom mOOSOOum 000% pwmmemm "umesmcou uses; mesa cuss unsoomso ammo «0 mums ucmfihmm mo mEHoB wavcH based mass ucmsxmd mo mEuOB rus3 bosoomsn Sumo mo mumm mmumum amuse: spasm mass SH OOHO>OO mQSOuO Ooopoum mach pom mmumum rouse: CH pmuowwo Oomfihmm mo mEuou mo 3OH> m>sumummeoo m .HN wanna 161 course of this study reported the Offering of cash discounts to its distributors and dealers. It was a home appliance manufacturer which Offered cash discounts in respect of only one of the several items sold by it in India. Two factors explain the absence of the Offer of cash discount terms by manufacturers in India: (1) credit transactions in most Of the trades were conSpicuouS by their absence and (2) even where some transactions used credit, the enforcement of price control by the government on formal or informal basis deterred the manufacturers from indulging in such trade practices which might be considered violations of a price control Order. Quantity discount.--The custom of allowing a quan- tity discount to market intermediaries or direct users was rather uncommon in India. In western countries, especially in the United States, two important forces Occur which motivate the manufacturers to allow quantity discount: competition and an abundant supply Of goods. .Such forces were nonexistent in India. Only 6 out of 26 firms indicated the use of quantity discount as a marketing tool. Only one firm, a manufacturer of business machines, had a clear-cut schedule of quantity discounts comparable to what its parent company had for the U.S. market. Other firms followed a system of allowing an additional percentage of trade margin to distributors or dealers on the latter's attaining the annual quota. The rate Of such "indirect" quantity discount varied from 1% percent tO 3 percent. There was another form 162 in which a quantity discount was given indirectly. Two firms producing cosmetics and prOprietary drugs based their quotations on a quantity basis and allowed customers to avail themselves of the lower rate if they bought a minimum quantity Specified in the price list. Differentiarppricing policy.--All firms but three indicated that they submitted special rates to the govern- ment on bids for bulk supplies. The Special rates were usually 5 percent less than the normal wholesale rates. It was pointed out earlier that the government was a signifi- cant customer of many firms included in this study. The three firms which did not give a special rate to the gov- ernment manufactured products which were either not pur- chased by the government on regular basis or which were designed primarily for use by government organizations. Special rates, lower than regular wholesale rates, were also offered by pharmaceutical companies to charitable private and mission hospitals. The makers of auto parts, including tires and tubes, had set special rates for the O.E.M. market somewhere between those Offered to the gov- ernment and the replacement market. A manufacturer of Office equipment prepared its price list for three differ- ent categories of customers besides the government. Com- mercial firms including banks and insurance companies paid according to the list prices. .Educational institutions, cooperative societies, teachers Of schools and colleges, 163 registered typewriting institutions, etc., were given a deduction of 12 percent to 15 percent from the list price. A home appliance manufacturer, Similarly, Offered lower rates to social welfare agencies and sewing schools. The differential pricing policy reflected to some extent the adaptation of American firms to the economic and social environment of India. Terms of guarantee/warranty.--The companies within the sample were requested to indicate the terms of guarantee or warranty offered by them in the United States and India. The question was relevant mainly to the manufacturers of con- sumer durables and industrial goods. With few exceptions, the product warranties were designed to suit the local conditions. For example, the period of warranty was shorter in India than in the United States with respect to certain consumer durables, business machines and auto parts. The Shorter length was attributed to two factors: (1) the manner of using the product differed in the two countries. The users in India were not as SOphisticated machine opera- tors as those in the United States. (2) The physical envi- ronment in which the produCtS were used differed in the two countries. The warranty given by a tire manufacturing com- pany did not specify any mileage and excepted road hazards from the terms of warranty for Obvious reasons. The same company guaranteed for the lifetime of original tread design and insured against road hazards in the home country. Some 164 companies offered a uniform international warranty, normally of one year duration, in both the countries. The warranty provided for 90 days Of free maintenance and replacement of defective parts, free of charge, during the period of cover— age. One executive considered the quality control standards enforced in the two countries as a factor affecting the period of warranty. According to him, the frequent labor troubles experienced in their Indian plant did not permit the exercise of a rigorous quality control and prevented their offering better warranty terms. After-sale service.--The manufacturers Of consumer durables and industrial goods, accessories, etc., entered into service contracts with their customers on the expira- tion of the warranty period. The period of these contracts differed in the two countries. A business machine manufac- turer Offered monthly and quarterly service contracts in India whereas it offered one year and three years' service contracts in the United States. The same reasons which explained the difference in the warranty period could also explain why servicing was necessary more frequently in India than in the United States. An elevator company quoted two different sets of prices for installing its elevator in a commercial or residential building. One set of quotations was inclusive of three months of free maintenance, the other higher set was inclusive of twelve months of free mainte- nance. At home, this company Offered a maintenance plan to its customers on a flat monthly charge. When a company 165 leased equipment, it took upon itself the responsibility of maintenance for no extra charge. The manufacturers of heavy sequipment including data processing machines, construction equipment, elevators, etc. offered free installation service and training facility to Operators. The pharmaceutical and consumer non-durable goods manufacturers helped the retail chemists and general mer- chants in inventory planning, retail merchandising and in arranging the point-Of-sale displays. The retail dealers in most underdevelOped countries were found to be deficient in these marketing techniques. The pharmaceutical companies provided use guidance and technical servicing to farmers who bought animal feed supplements and antibiotics. A fertilizer manufacturer emphasized the need of pre-sale services, rather than after-sale services, which included educating the farm- ers in farm management, soil testing and controlled demon- stration of the effect Of fertilizer use on agricultural productivity. Though Similar services were also offered in the United States, their Value in a predominantly agricul- tural country like India was considered to be enormous. The tire companies had set up a unique arrangement for replacing defective tires in India which they did not have in the United States. According to this arrangement, the leading tire manufacturers formed a committee which met Periodically to consider the tire claims and expedite the 166 replacement of defective tires.3 Besides, the service personnel of these companies constantly visited the con- suming centers to check the tire performance, service conditions and to Offer on—the-spot advice to the users for reducing their tire expense. The government and private fleet owners and other major users were Offered this service regularly and profited through prOper tire selection, better maintenance and consequent lower cost. The above description relates to after-sale services which the manufacturers Offered directly to industrial users. Some after-sale services were provided by them to their distributors and dealers as well. The manufacturers of business machines and home appliances reported that they helped train the mechanics or technicians employed by their dealers for extending routine after-sale services to the ultimate user. Role of Parent Company Normally, a parent company having a controlling interest in an overseas subsidiary should be most concerned about the subsidiary's pricing policy because all budgetary estimates of sales and profits are based on a given price structure. Practically all the parent companies interviewed 3The committee, known as Tire Adjustment Committee, has been working successfully Since 1933. It consists of mainly branch managers from all leading tire companies. 167 in the course of this study emphasized the need for their approval of a subsidiary's annual budget which itself waS' evidence of their keen interest in all decisions on price changes taken by a subsidiary. The parent companies expressed their interest in the pricing policy of subsidiaries in different ways. Some Of them would want to know about and approve even the slightest alteration in price, whatever may be the environmental justi- fication of such change in the eyes of a subsidiary manager. They had prepared special forms to be used by subsidiaries for supplying relevant data and justifying a price change. There were others who allowed a latitude from 5 percent to 10 percent within which a suggested minimum price could be altered by a subsidiary with due advice to the parent company. In written communications which the subsidiaries were required to send to parent companies on the subject Of price changes, the former usually included price information on competitors' products and general market trends. The subsidiaries were asked to report on price changes at least once a year with the annual budget and whenever a particular price change was prOposed in the middle of a financial year. Brief comments in this regard were also included in the monthly/quarterly management reports and financial state- ments. A few parent companies in the sample adopted a more liberal attitude. They followed the principle of "manage- ment by exception" allowing their subsidiaries to make Siaflpflwui .4 Pp 168 tactical Short—term pricing adjustments without any formal permission. However, a majority of companies insisted on reviewing all prOposals of price change and required their subsidiaries to obtain consent from the regional Office or the international division headquarters. .Earlier in this chapter, it was noted that the wholesale and retail prices Of many products (e.g., phar- maceuticals, soap, tires and petroleum) manufactured by American firms in India were subject to a direct or indirect regulation by the government. The parent companies, in this situation, had no other recourse but to accept the govern- ment regulated prices as long as the subsidiaries were able to make an expected return on sales and profit. If the government controlled or suggested prices did not leave an expected return, the parent company could exercise its con- trol through other channels. It could, for example, let the subsidiary drOp unprofitable product lines or curtail promo- tion eXpenditure in order to improve the financial picture. AS a last resort, it could close down the overseas plant rather than allow the subsidiary to run unprofitably.4 4This actually happened recently in India. The pharmaceutical companies located in Bombay decided to with- draw all advertising contracts with press and time media, following the announcement by the government of a price formula which according to these companies, left no margin for such expenses. See Statesman, Calcutta, India, May 14, 1970. 169 A majority of subsidiary managers interviewed in India did not consider pricing as an area where the parent company involvement was extraordinary in view of existing government regulations. At the same time, those who were not affected by such regulations, expressed satisfaction with the reporting procedures laid down by parent companies to get a price change approved. They viewed the various requirements of review and consent as useful communication media of great mutual advantage. In one instance, a man- aging director expressed dissatisfaction with the attitude taken by the parent company toward its Indian Operation. The managing director was asked by the parent company to raise all company prices, immediately after the devaluation of Indian rupee in 1966, to the extent that annual dollar sales and profit figures were unaffected. With great diffi- culty, he was able to convince the international divisions about the infeasibility of such an action. Conclusion To conclude, the firms interviewed displayed more voluntary adaptation in the area of terms of sale than in that of pricing policy. The reason for this was fairly Obvious. Adaptation in the area of terms Of sale was nec- essary to ensure the financial integrity of enterprise in a country where credit risks were relatively high and spe- cialized credit rating institutions were few. Most firms 170 insisted on cash terms and did not Offer any quantity dis- count. The terms Of guarantee/Warranty and after-sale service with respect to mainly industrial products were adjusted to a variety of environmental factors including peOple'S indifference to prOper maintenance, general lack of aptitude for mechanical work and unsatisfactory road conditions. The limited adaptation in the area of pricing policy may be considered to be the result of limited adaptation in product strategy as seen in an earlier chapter. Most of the companies with extensive international Operations, were found to be very particular about maintaining worldwide product standards and specifications. Implementation of this policy had its effect on the pricing policy. The prod- ucts Of most American firms were priced much higher than comparable products manufactured by local firms. Empha- sizing quality and service, these firms had no difficulty differentiating their products from competing products and carving a place for themselves in the Indian market. In certain directions, this international product and pricing policy of American firms conflicted with the national goals of the Indian economy, and the government had to interfere and regulate the prices. The industry which eXperienced such interference most was the pharmaceutical industry. The government action taken in 1963 to freeze all drug prices sought to control the widening gap in the general price level of indigenous and foreign-affiliated 171 pharmaceutical firms. Other government measures which followed included a mandatory fixing of retail drug prices and minimum gross margins for retailers and other market intermediaries. Other industries, such as tire, fertilizer and petroleum, also felt the pinch Of government price control. Efforts made by many American firms to apply non- price competitive strategies to Indian conditions were not always in the interest of Indian customers, though in the American economy non-price competition is more Significant to manufacturers.5 Price is still a matter of prime con- sideration to a vast majority of the pOpulation in India which lives below the subsistence level. Though the gov- ernment regulatory measures might have suffered from several flaws, an important achievement Of these measures was that they forced foreign firms to adapt their pricing policy to the needs of the Indian peOple. 5According to one research study, the non-price facets of competitive strategy specially the product facet and sales effort facet, were found to be most important to 485 U.S. manufacturers who participated in the study. .See Jon G. Udell, "The Perceived Importance Of the Element of Strategy," Journal of Marketing, January, 1968, p. 39. CHAPTER VII CONCLUSION It is prOposed to recall here the main findings of this research and see how far these findings answer the problem statements and substantiate the hypotheses set forth in Chapter I. Each problem statement and related hypothesis are restated and examined in the light of results Obtained. A scoring technique is introduced to determine the relative position of individual firms in the matter of marketing adaptation. The technique provides an additional support to the final conclusions Of this study which are essentially based on judgment and Speculation. Areas of further research are also indicated in the end. P—l Have the U.S. business firms Operating in India adapted their marketing strategy to the Indian environment? If SO, how have they modified their product, promotion, distribution and pricing strategies to implement this adaptation? H-l There are identifiable patterns of adaptation in the marketing strategy of U.S. firms Operating in India. AS is evident from the preceding analysis of the survey results, the U.S. business firms operating in India have made efforts to adapt their marketing strategy to the 172 173 Indian environment. The extent Of these efforts, however, varies with different facets Of strategy. It is also affected by the nature Of the industry involved. The re- search helped in the identification Of important patterns Of marketing adaptation as follows. Product In general, the area of product is noted for a minimal degree of adaptation. Most firms seem unwilling to compromise by lowering their international product standards for a wider market coverage, the Opportunities for which exist in India. They do not undertake any substantial re- search and develOpment activity in India. The products are modified to the extent it is essential to maintain an estab- lished market Share. .Minimal changes are made to meet the government requirements regarding quality standards, use of locally available ingredients and eXports. The climatic and economic factors have their impact on the package make and Size. The product design is modified to suit different electrical, monetary and weight and measure systems in India. Very few firms have in their product—mix the items that are Specially designed to serve the needs of the Indian market. Operating within several legal constraints, limit— ing expansion of industrial capacity and product diversifi- cation, most firms prefer to manufacture those product lines which allow a maximum use Of parent company technology and knowhow. When support from the parent company is not avail- able, they are unable to add a new product line or modify an 174 existing line even though such a step is in the interest of the Indian market. Promotion In the area of promotion, the extent of adaptation appears relatively greater. The promotion-mix in most firms is adapted to the available infra-structure, regional lan- guages and literacy standards. The consumer and semi- industrial goods manufacturers make relatively greater use of personal selling in India than in the United States. Greater emphasis is given to audio-visual publicity and mass contacts through outdoor and cinema advertising. The multi- plicity of spoken languages oblige these manufacturers to adOpt a regional COpy approach under which the same message is prepared in different regional languages. Basically, the same appeals are used in consumer goods advertising in both the countries but there is a marked difference in the design of copy. It is less SOphisticated, less competitive, less frequently changed and relatively more simple and straight— forward in India. It is believed that most firms in the sample rely heavily on promotion to get their quality products and ser- vices acceptable to the Indian market. They Operate within a limited market segment consisting of high income and middle income groups. A few firms promote their products actively in semi-urban and rural markets. In promoting the sale of industrial goods, the firms mostly use identical 175 methods in both the countries though there is relatively greater emphasis on technical assistance and demonstration in India. Distribution Most firms in the sample demonstrate good adaptation in the area Of market distribution. Again, the dominating force is the infra-structure—-the facilities of tranSporta- tion and communication and the institutional set—up in the Indian market. The channel <1f distribution used by firms is somewhat longer in India than that in the United States, particularly in the marketing of consumer and semi-industrial goods. In the absence of large scale retailing institutions in India, indirect channels consisting of a variety of market middlemen are common. The old importer-distributor is still being used by some firms though important marketing functions are gradually being taken over by the sales department in many firms. The specialized food and drug wholesalers are absent in India. The American firms use the wholesale stock— ist or town stockist to reach the interior parts of the country. The manufacturers of heavy industrial goods face little adaptation problem in this area because as in the United States, they make direct contact with the government buying units or private industrial users. Pricing In the area of pricing, most American firms along with their local competitors, come under formal or informal 176 government control. As part of its economic policy, the Indian government regulates and controls the prices of many essential commodities including some of those covered in this study. It is, therefore, obligatory on the part of firms to follow the government directions and/or comply with price control orders promulgated from time to time. For products not affected by government control, the firms fix their prices with two frequently stated objectives: meeting competition and realizing a target return on investment. Policies related to terms Of sale are modified in accord with the Indian market customs. Contrary to the policy of liberal credit followed by manufacturers in the United States, strict cash terms are enforced by them in the Indian market. One of the purposes of dealing through a sole distributor or wholesale stockist is to get rid of credit risks inherent in trading directly with thousands of small retail establishments whose credit rating is hard to determine. The U.S. firms rarely allow quantity discounts to their customers in India. The industrial goods manu- facturers offer terms related to warranty and after-sale services though these terms are less liberal in India than in the United States. Thus, the American firms adapt their marketing strategy to the Indian environment, though the extent of adaptation varies with different facets of marketing strat- egy. The research substantiates the hypothesis that there 177 are identifiable patterns of adaptation in the marketing strategy of U.S. firms Operating in India. P-2 What social, cultural, economic, political and legal aspects of the Indian environment motivate these firms to adapt their marketing strategy in India? H—2 There are unique social, cultural, economic, political and legal conditions in the Indian environment that motivate American business firms to adapt their marketing strategy. The research presents sufficient evidence to believe that there are unique Social, cultural, economic, political and legal conditions in the Indian environment which moti- vate the American firms to adapt their marketing strategy. The product strategy of these firms is influenced by the environmental factors such as: diversity of language, level of education, dietetic habits of peOple, low per capita income, health and housing condition, small Size of farms, presence of surplus human resource, economic infra- structure, balance of payment Situation and the government industrial policy. The promotional strategy is influenced by factors such as: diversity of custom and tradition, language and ethnic groups, level of education, low per capita income, presence of surplus human resource, low agricultural and industrial productivity, general shortage of essential goods, government regulation of quality standards and foreign trade and government policy on taxation. 178 The strategy of market distribution is influenced by factors such as: diversity of custom and tradition, language and ethnic group, level of education, presence of surplus human resource, inadequate commercial warehousing, general shortage of essential goods, absence of specialized credit rating institutions, the increasing role of public sector in the Indian economy and government regulation in the area of market distribution. The strategy related to price and terms of sale is influenced by factors such as: level of education, absence of a large middle income group, economic infra-structure, general Shortage of essential goods, absence of Specialized credit rating institutions, the increasing role of the pub- lic sector in the Indian economy and government regulation of retail prices and distributors' profit margins with respect to essential commodities. Exhibit IV lists the various environmental factors which have, directly or indirectly, influenced the marketing strategy of U.S. business firms Operating in India. The specific areas of marketing strategy affected by each factor are also indicated. P-3 Do firms producing consumer goods present a different pattern of marketing adaptation from those producing semi-industrial and industrial goods? H-3 The patterns of adaptation noted in consumer goods manufacturing firms differ from those in semi-industrial and industrial goods manufactur- ing firms. 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The patterns of adaptation noted in the course of this study are not neatly identifiable in terms of product groups. In most instances, similar patterns are witnessed across the board. All firms respond to various social, cultural, economic, political and legal conditions in more or less the same fashion, regardless of industry or product group. Firms in all product groups are interested in main- taining the international brand image of their products and therefore modify them to a minimum possible extent. A few firms which reported making product line or product-mix adjustments represent all major product groups covered in this study. Similarly, firms in all industry groups are obliged to follow the government directives on the use of locally available ingredients or materials, apply labor intensive techniques and design products specially for export markets. The economic factOrs lead the manufacturers of consumer and pharmaceutical products to adapt the package Size to the needs of low income groups. For industrial goods manufacturers, such adaptation is not needed. In the areas of promotion and distribution, there is no remarkable difference in the patterns of adaptation among manufacturers in different product groups. All firms adjust themselves to the promotional infra-structure and market institutions available in India. The industrial goods manu- facturers who depend primarily on personal selling have to 184 adapt to the quality of sales personnel found in India. In view of the fact that most industrial products covered in this study are Sold directly through company sales personnel, the manufacturers in this product line face less problem in adapting their promotion and distribution strategy to the Indian environment. .For example, they are not required to enter into the interior parts of the country as some con- sumer products and pharmaceutical companies are required to, for selling their products in small towns. The industrial goods manufacturers are therefore less worried about changes in the social and cultural scene than other manufacturers. In the area of pricing, all firms are subject to a formal or informal government regulation. Adjustments in the terms of sale are of the same pattern. A11 firms, regardless of the products they manufacture, enforce cash terms (Shipping documents through bank) or allow credit for a limited period to local distributors or stockists. Rarely is a cash or quantity discount allowed. The available research evidence does not, therefore, support the hypothesis that the patterns of adaptation noted in consumer goods manufacturing firms differs from those in semi-industrial and industrial goods manufacturing firms. P-4 .Is there any relationship between the Size of a firm and the extent of its marketing adaptation? H-4 The larger the Size of a firm, the greater is the extent of its marketing adaptation to the Indian environment. 185 This question is a little difficult to answer; in the absence of such research tools which could give a pre- cise measurement of the extent Of marketing adaptation. Marketing adaptation is a complex Of many variables which fall under four major sub-divisions--product adaptation, promotional adaptation, adaptation of market distribution and adaptation of pricing and terms of sale. The research methodology used in this study made it possible to draw information from firms on how and why they made changes in various elements of marketing strategy Since they started business Operations in India. 'The collected evidence does not, however, Show any regularity in the adaptation perfor- mance of firms: i.e., a firm does not move in the same direction with respect to all elements of strategy. This presents problems in designating a firm with one single estimate indicating the overall level of its adaptation. An analysis of data collected in the course of field interviewing reveals that firms in general, do not make an appreciable amount of adaptation in the product area. They are comparatively more active in the areas of promotion and distribution. In the pricing area, most of them are under direct or indirect control of the government. The size appears to be no advantage or barrier in their performance because even in this small sample there are some relatively large Size firms (with annual world sales exceeding $2,000 million) which appear to be not as far ahead in this direc- tion as some small firms (with annual world sales below 186 $500 million) and medium size firms (with annual world sales between $500 and $2,000 million). Among the firms which are found to be actively engaged in new product develOpment, advertising and marketing research, and which have built up a strong sales base and made concrete plans for reaching gradually the semi-urban and rural population, there are all types of firms, regardless of size. It is therefore diffi- cult to relate Size to the extent of marketing adaptation. Scoring Technique A more scientific way of testing this hypothesis will be to identify different stages of adaptation under main action areas, place them in logical order and evaluate them with respect to each firm using a scoring technique. This technique has been elaborated upon in Appendix C. While no perfection is claimed, the technique helps in designating a firm with single index of its overall perfor- mance (called the Marketing Adaptation Index or MAI) and in determining its relative position in the matter of marketing adaptation. Table 22 in Appendix C presents the final scores (MAIS) received by 26 firms within the sample. By arranging these scores in consecutive order, three separate clusters of firms are discovered: Number MAI Range of Firms Between A. Poor adapters .38 and .52 9 B. Medium adapters .56 and .66 10 C. GoOd adapters .72 and .80 .__Z 26 187 It may be now possible to see the relationship between size and extent Of marketing adaptation as indicated by the MAI of individual firms. The distribution of sample firms according to major Size categories and adaptation levels is presented below: Annual World Sales (1968) No. of No. of NO. of (in million Poor Medium Good dollars) Adapters Adapters Adapters Total“ Small Size (below $500) 3 5 1 9 Medium Size ($500-$2,000) 5 3 2 10 Large Size (above $2,000) ..l ._; _4_ ._Z 9 10 7 26 The distribution Of firms in the above order does not indicate a clear relationship between Size and the level of marketing adaptation. Some relationship is indicated by the observation that only 1 out of 9 small size firms is a good adapter and only 1 out Of 7 large Size firms is a poor adapter. The picture gets blurred, however, when it iS observed that as many as.3 out Of 7 large size firms (43%) are not good adapters and as many as 6 out of 9 small Size firms (67%) are not poor adapters. Furthermore, half of the medium Size firms are poor adapters and about the same pro- portion of small Size firms are medium adapters. 188 Thus, no discernible relationship is indicated between the size of a firm and the extent of its marketing adaptation. The related hypothesis is therefore rejected. P-5 IS there any relationship between the length of time for which a firm has Operated in India and the extent of its marketing adaptation? H-5 The longer the time period for which a firm has Operated in India, the greater is the extent of its marketing adaptation to the Indian environment. The testing of this hypothesis presented more or less the same problem of measurement--estimating the overall adaptation of firm to the Indian environment. .It became, therefore, necessary to make use of the Marketing Adaptation Indices calculated for each firm for proving the earlier hypothesis. Data on the time period for which a firm Operated in India were collected in the course of field interviews. The year 1968 was taken to be the final year for this purpose. Firms were distributed in three broad categories: .1. Relatively new firms (Operating for less than a decade) . . . . . . . . . . 9 2. Old firms (Operating for 10 to 19 years) . . . . . . . . . . . . . . . . . 11 3. Very old firms (Operating for 20 years or more) . . . . . . . . . . . . . 6 189 When the MAI figures are viewed in relation to time periods for which American firms had been Operating in India, it becomes obvious that there hardly exists any relationship between these two sets of variables. Some of the firms ‘which had been in India for over two decades are noted for a very low level of adaptation. Others with as Old Operations accounted for a much higher adaptation. The category of "very old firms" thus includes extreme cases of the lowest as well as the highest adaptation scores. The Situation is equally as diversified with respect to "relatively new" and "old'' firms. This is indicated by the classification of sample firms in the following order: Period of Operation evel Of Poor Medium Good Adaptation Adapters Adapters Adapters Total Relatively new (less than 10 yrs.) 3 2 4 9 Old (10-19 yrs.) 4 6 l 11 Very old (20 yrs. and more) _3_ _g_ _g; ._g 9 10 7 26 This research therefore rejects the hypothesis that the longer the time period for which a firm has Operated in India, the greater is the extent of its marketing adaptation to the Indian environment. There was found to be no rela- tionship between these two variables. 190 P-6 Is a firm's ability to adapt its marketing effort in India affected by the managerial control exer- cised over it by its parent company? H-6 The nature of managerial control exercised by the parent company on its Indian branch or subsidiary is a factor in the latter's ability to adapt to the Indian environment. On the basis of empirical evidence, it can be speculated that the ability of American firms to adapt is affected by the managerial control exercised over it by the parent company, though the intensity of this effect may vary in different areas of marketing adaptation. The effect is most pronounced in the area of product. AS observed in Chapter III, decisions on change in product Specification or commercialization of new products are finally approved by the parent company because these nor- mally involve some capital expenditure. This affects the ability of Indian subsidiaries to adjust their product offering with changing needs of the Indian market. A few cases were brought to the notice of this researcher where the Indian subsidiaries could not follow up encouraging test marketing results due to the indifference of the parent com- pany. While no generalization is possible on the basis of few instances, the interviews provide a fairly good indica- tion that the area of product policy is one with which the parent company is most concernede Most of the companies interviewed have worldwide Operations and follow the policy of maintaining the international product standards. This policy often gets in the way of meeting the peculiar needs 191 of an individual country. The absence of research and develOpment facilities in India is also attributable to the control exercised by the parent company. A sizable group of executives in India (10 out of 26) expressed the belief that the absence of R & D at the Indian subsidiary made the process Of product planning and introduction rather Slow. In the area of promotion, most parent companies exercised an indirect budgetary control, leaving policy decisions such aS those pertaining to media-mix, media schedule, agency appointment, etc., to be made by the Indian subsidiary. In a few cases, however, the parent company was noted for exercising tight control in this area. The phar- maceutical companies, for example, are found to be very careful in keeping the consistency Of advertising claims all over the world and therefore watch closely the promo- tional activity of their subsidiaries. New promotional programs have to be approved by the parent company in many instances. While most subsidiaries are under no obligation to use the promotion material received periodically from the United States and other subsidiaries, they are expected to explore fully the possibility of its use and satisfy the parent company with reasons in case they are unable to use it due to different local conditions. The area of market distribution is one where the Indian subsidiary enjoys relatively greater freedom of action due to parent company's inability to visualize and appreciate the environmental differences from such a distance. 192 The Indian subsidiaries make important decisions in such matters as selection Of modes Of tranSportation, location of warehouses, appointment of distributors, wholesale stock- ists and fair price ShOpS, etc. Normally, a parent company would consider the area of pricing and terms of sale as the most critical area from the standpoint of managerial control. Not all parent com— panies, however, are able to exercise control on prices due to the presence of government regulation and control in this area. Most of the semi-industrial and industrial products covered in this study come within the purview of the Essen— tial Commodities Act which empowers the Indian government to set retail prices and dealers' mark-ups in the interest of consumer or industrial user. Manufacturers of products not affected by this Act experience tight control in this area from their parent company. The degree of this control varies from company to company. Some companies would want to approve of the slightest alteration in price whatever may be the environmental justification for it. Others would set a range within which the prices could fluctuate without any formal approval from the parent company. Decisions on terms of sale are guided largely by prevailing market customs and therefore, left to the discretion of the Indian subsidiary. The commonly used control instrument is the annual sales or marketing budget in the preparation of which tOp executives from both the parent and subsidiary companies are involved. The annual budget is usually made in the context 193 of a long range marketing plan. Once approved, the sub- sidiary managing director has very limited freedom to deviate from the budgetary direction. Besides the budget, an elaborate procedure is laid down for the filing in of management reports and financial statements periodically by the Indian subsidiary. Through these reports and the ex- change of visits periodically by executives, the parent company keeps in constant touch with new market develOpments, not anticipated at the time Of budgetary meetings. It also makes sure that the subsidiary efforts in the areas of prod- uct, promotion and distribution are moving along the direc- tion set by the annual budget. Having to Operate under these constraints, the Indian subsidiaries are at times unable to move as quickly in adjusting their marketing effots as they would like to, given greater freedom of action. Relatively speaking, they work under greater control in the areas of product and pric- ing than in those of promotion and distribution. But the control is there and it affects the ability of Indian sub- sidiary to adapt to the Indian environment. The research evidence therefore supports the hypoth- esis that the nature of managerial control exercised by a parent company on its Indian branch or subsidiary is a factor in the latter's ability to adapt to the Indian environment. 194 Summary of Conclusionp The main conclusions of this study may now be sum- marized as follows: 1. The U.S. business firms Operating in India adapt their marketing effort to a limited extent. More often than not, they adapt under great external pressure from either the government or competitive firms from other countries Operating in India. Using the terminology introduced in Chapter III, the nature Of adaptation made by a majority of the firms in the areas of product and pricing is mainly mandatory or involuntary. 2. Relatively Speaking, the firms make greater voluntary adaptation in the areas of distribution and pro- motion than in those of product and pricing. Most of them are interested in maintaining their international product standards, yielding only to unavoidable mandatory changes in product design and packaging. This results in a marked difference in the quality and price level of products made in India by the U.S. affiliated and local companies. The national interests Often oblige the Indian government to keep this difference to a minimum. The firms are persuaded as well as forced to modify their marketing effort in the national interest of the host country in several ways. They are asked to make greater use of locally available material and tools, adOpt Simpler labor-intensive technology, sell at government-approved prices, and devote greater effort to the promotion of the Indian export trade. 195 3. The level of marketing adaptation varies from firm to firm and in different facets of marketing strategy. It is not possible to measure it for each firm in absolute terms, though a relative assessment is possible with the help of a scoring technique. This technique is explained in Appendix C. Using this technique, it is found that the consumer goods manufacturers (manufacturers of packaged food products, cosmetics and toiletries, soft drinks and home appliances) adapt more than the manufacturers of semi- industrial products (pharmaceuticals and chemicals, petro- leum products and rubber tires) and industrial products (business machines including data processing equipment, medical equipment, auto parts, machine tools and heavy industrial equipment). The manufacturers of semi-industrial products adapt only slightly more than the manufacturers of industrial products. 4. Most consumer and semi-industrial goods manufac- turers Show greater interest in adapting the promotion and distribution facets of strategy, and experience less inter- ference from the parent company in doing so. This is under- standable because it is through promotion and distribution that the firms communicate with the target market. The firms use the conventional promotional media and channels of distribution in India for two main reasons. First, it is hard, at least in the short run, to alter the existing infra- structure outlined in Chapters IV and V, and second, the 196 social and cultural gaps need to be taken into account to ensure effective communicating with the target market. 5. All major forces in the Indian environment—- social, cultural, economic, political and legal-—inf1uence the marketing policies of American firms designed for India. Firms respond to these forces in almost similar fashion regardless of the products they manufacture. The nature of the product-group, however, enables the industrial goods manufacturers to survive with relatively little adaptation in the areas of promotion and distribution. 6. Firms in consumer and semi-industrial lines try to escape these environmental forces by confining their Operations to the urban sector of the economy and by not moving down the socioeconomic scale to cover the semi-urban and rural sectors of the Indian economy. 7. On the basis of empirical evidence collected in this study, it can be said that there exists no discernible relationship between the Size of a firm and the level of its marketing adaptation. Secondly.there seems to be no rela- tionship at all between the length of time a firm has Operated in India and the level of its marketing adaptation. 8. The international marketing policy of the parent company and the degree of control exercised by it are impor- tant factors affecting the ability of a firm to adapt its marketing effort in a new environment. 197 Areas of Further Research In this concluding section, it is prOposed to indi- cate such areas where additional research effort can be devoted to expand the existing knowledge in the field of international marketing. The present study has made a beginning in two direc- tions: (1) it has introduced the concept of marketing adap- tation with special reference to an underdevelOped economy and (2) it has provided a measuring tool to estimate the relative position of a business firm with respect to market- ing adaptation. There is considerable room for additional research effort in both of these directions. A further refinement of the concept of marketing adaptation Should enable a researcher to improve upon the scoring technique elaborated upon in Appendix C. It might be useful if the research design of this study were replicated in other under- developed countries, eSpecially those with a larger number of U.S. subsidiaries than in India. Additional hypotheses may be tested if the same study is repeated in other economies. For example, it may be useful to find out which of the two organization types-- wholly-owned or majority-owned subsidiaries--account for a higher level of marketing adaptation. It may also be an interesting research topic to examine the extent to which the American parent companies influence the marketing policies of their foreign affiliates in which they hold only a minority interest. 198 There is another research area which emerges from a study such as this. It should be useful to examine the role of foreign business firms in promoting the economic growth of underdevelOped countries. There is little doubt that foreign firms have promoted economic develOpment in many underdevelOped regions of the world. A critical esti- mate of this contribution can be the subject-matter of further research. B I BL IOGRAPHY BIBLIOGRAPHY Books .Aharoni, Yair. The Foreign Investment Decision Process. Boston: Harvard University, Graduate School of Business Administration, Division of Research, 1966. Baranson, Jacki Manufacturing Problems in rpdia--The Cummins Diesel Experience. Syracuse: .Syracuse Univer- Sity Press, 1967. Barlow, E. R. Management of Foreign Manufacturing Subsid- iaries. Boston: Harvard University, Graduate School of Business Administration, 1953. Cartaino, T. F. Technological Aspects of Contemporary and Future Civil Aircraft for the World's Less Developed Areas. Santa Monica: The Rand Corporation, 1962. Clark, Colin. The Conditions of Economic Progress. London: MacMillan & Company, 1940. Cole, Robert H., and Hancock, Robert S. Consumer and Commercial Credit Management. Homewood, Illinois: Richard D. Irwin, Inc., 1964. Deming, Edwards. Sample Design in Business Research. New York: John Wiley & Sons, Inc., 1960. Dunn, S. Watson. International Handbook of Advertising. New York: McGraw Hill Book Company, Inc., 1964. Dunning, John H. American Investment in BritishhManufactur- ing Industry. London: George Allen & Unwin Ltd., 1958. Fayerweather, John. International Business Management. New YOrk: McGraw Hill Book Company, 1969. Fisher, G. B. Economic Progress and Social Security. London: MacMillan & Company, 1945. 199 v—nfi'u “- 5- AJ‘ 1]— '200 Friedmann, Wolfgang G., and Kalmanoff, George (ed.). Joint International Business Ventures. New York: Columbia University Press, 1961. Indian Investment Centre. Proceedings of the Seminar on International Investment: India. New Delhi: The Indian National Committee of International Chamber Of Commerce and Indian Investment Centre, November, 1968. Kidron, Michael. Foreign Investment in India. London: Oxford University Press, 1965. r- Lindeman, John, and Armstrong, Donald. Policies and i Practices of United States Subsidiaries in Canada. National Planning Association (U.S.A.) and Private Planning Association of Canada, January, 1961. .Moyer, Reed. .Marketing in Economic Development. East Lansing: Michigan State University, Graduate School of Business Administration, Institute for International Business Management Studies, 1965. Robinson, Richard D. International Business Policy. New York: Holt, Rinehart and Winston, 1964. Skinner, Wickham. American Industry in DevelOping Economies. New York: John Wiley & Sons, Inc.,.l968. Terpstra, Vern. American Marketing in the Common Market. New York: Frederick A. Praeger, 1967. Unpublished Works Copen, Melvin R. "Management of U.S. Manufacturing Subsid- iaries in a Developing Nation: India." Unpublished D.B.A. dissertation, Harvard University, Graduate School of Business Administration, 1967. Henley, Donald S. ”Regional Trade and Market Performance: A Study of the Central American Experience." Unpublished Ph.D. dissertation, Harvard University, Graduate School of Business Administration, 1966. Matsusaki, Hirofumi. "The Adaptation and Marketing Strategies of the Japanese Manufacturing Firms Operating in the United States." Unpublished Ph.D. dissertation, Michigan State University, Graduate School of Business Administra- tion, 1966. 201 lkocour, Jean-Luc. I“Management of EurOpean Corporate Subsidiaries in the United States." Unpublished Ph.D. dissertation, Cornell University, 1963. Sorenson, Ralph Z. "An Analysis of Competition Among Local and International Firms in Two Central American Industries." Unpublished Ph.D. dissertation, Harvard University, Graduate School of Business Administration, 1966. Articles and Periodicals Boyd, Harper, and Westfall, Ralph. “Marketing in India," Journal of Marketing, XXV, No. 2 (October, 1960), ll-l7. Durston, Patricia H. "Machine Bull vs. The Americans," The International Executive, IV, No. 1 (Winter, 1962), 3-4. Hansen, Morris H., and Hurwitz, William N. "Dependable Samples for Market Surveys," Journal of Marketing, XIV, No. 3 (October, 1949), 364-372. Keegan, Warren J. "Five Strategies for Multinational Market- ing," EurOpean Business, January, 1970, p. 35. Ryans, John K., Jr. "Is It Too Soon to Put a Tiger in Every Tank?" Columbia Journal of World Business, IV, No. 2 (March-April, 1969), 69-75. Udell, John G. "The Perceived Importance of the Element of Strategy,” Journal of Marketing, XXXII, No. 1 (January, 1968), 34-40. ”Vick in India," Sales Management, CIII, No. 8 (October 1, 1969), 44-48. "What U.S. Companies Are Doing Abroad, A Statistical Summary," Business Abroad, May, 1969, p. 13. Reports Booz, Allen and Hamilton. New Foreign Business Activities Of U.S. Firms, Report No° 14, 1968, Chicago. Business International, Evaluating Foreign Subsidiary Performance, Management Monograph NO. 14, 1964, New YOrk. 202 . .Solving International Business Problems, June, 1968, New York. . Solving International Pricing Problems, Research Report, 1965, New York. National Industrial Conference Board. Obstacles and Incentives to Private Foreign Investmentygl967-68. Studies in Business Policy No. 130, 1969, New YOrk. Government Documents U.S. Department of Commerce. American Firms, Subsidiaries and Affiliates-~India. Washington, D.C.: Government Printing Office, July, 1968. . ,Selling in India. Overseas Business Report. Washington, D.C.: Government Printing Office, December, 1966. . Market Factors in India. Overseas Business Report. Washington, D.C.: Government Printing Office, October, 1967. . Establishing a Business in India. Overseas Business Report. Washington, D.C.: Government Printing Office, March, 1968. . Statistical Abstract of the United States. Washington, D.C.: Government Printing Office, 1969. . Survey of Current Business. Washington, D.C.: Government Printing Office, September and October, 1969. United Nations Educational, Scientific and Cultural Orga- nization. World Communication--Pressl Radio, Television, Film. Paris, 1964. India, A Reference Manual. Ministry of Information and Broadcasting, Government of India, 1968. The Journal of Industry and Trade. Ministry of Foreign Trade and Supply, Government of India, XIX, No. 4 (April, 1969). Reserve Bank of India Bulletin. Reserve Bank of India, April, 1966 and August, 1969. . M 5.....111niivuflnu n ‘ 203 Other Publications India The Economic Times, Bombay. The Indian Advertising Yearbook, 1962. Our India Directories and Publications Private Limited, Madras. The Statesman, Calcutta. “7......" United States Advertising Age, Chicago, Illinois. ; Moody's Industrial Manual. Moody's Investors Service, Inc., E New York. ‘ Terms of Sale for 94 Manufacturingpand Wholesale Lines. Dunn & Bradstreet Inc., New York. APPENDICES APPENDIX A LETTER AND QUESTIONNAIRE USED FOR INTERVIEWING THE PARENT COMPANIES IN THE UNITED STATES “’5‘. “walnuts! defileg 204 MICHIGAN STATE UNIVERSITY EAST LANSING- MICHIGAN 43825 GRADUATE SCHOOL OF BUSINESS ADMINISTRATION DEPARTMENT OF MARKETING AND TRANSPORTATION ADMINISTRATION ° BPPLEY CENTER October 24, 1969 Dear Mr. I am a doctoral student in marketing at Michigan State University working on my dissertation. Dr. Reed Moyer, Professor of Marketing, is the chairman of my dissertation committee. I am studying the marketing adaptations of U.S. business firms and their affiliates Operating in India. The study will examine four major aSpects of the marketing adaptation of these firms--product adaptation, promotion adaptation, distribution adaptation, and pricing adaptation. An inter- esting Side objective is to identify the political, economic and legal factors that prevent American companies from adapt- ing their market strategies to serve overseas customers. In order to undertake this research, I need to interview executives from selected companies which have been Operating in India for some time. The interview should provide in- sights into various managerial and marketing problems en- countered by an American company in a foreign environment. I would like to have an interview with you to discuss your Indian Operations. I shall be in New York from November 10 to 21. Will you be able to see me sometime during this period? If you have any particular date in mind, please write me at the above address or call me at (517) 355-7998. If not, I can arrange to set up the Specific date and time of meeting on reaching New York. I will look forward to hearing from you. Sincerely yours, Madhav P. Kacker P.S. If you have some printed materials dealing with your international Operations, it might help me to review them before meeting with you. Could you please send all such materials to me? 205 AN EXPLORATORY'STUDY OF THE MARKETING ADAPTATION OF UNITED STATES BUSINESS FIRMS OPERATING IN INDIA Questionnaire/Interview Guide Name of COOperating firm Objectives of This Study: 1. To explore the nature and patterns of adaptations made by American business firms in their marketing efforts designed to serve the Indian market. 2. To identify such social, cultural, economic, legal and political factors in the Indian environment that affect the marketing Operations of American firms in India. PLEASE NOTE: This questionnaire is a part of an academic research project being done at Michigan State University, Department of Marketing and Transportation Administration. Therefore, all data collected will be held strictly confidential and will be published in a general form.without disclosing the name of any COOperating company. Please return the completed questionnaire to: Madhav P. Kacker Department of Marketing Michigan State University Graduate School of Business Eppley Center East Lansing, Michigan 48823 206 Strictly Confidential QUESTIONNAIRE A. INTRODUCTORY 1. 6. How is your company organized for international Operations? Through a separate export division or corpora- tion. Through a separate international division. Through an international company established as a wholly owned subsidiary. Other form (specify) Have you divided your global market into smaller areas/regions? Yes NO . If yes, please list the names of these areas/regions: 1. 5. 2. 6. 3. 7. 4. 8o Where is the area/regional headquarters for your Indian Operations located? Name of city country . Before establishing a branch or subsidiary in India, did you export to India? Yes No . If yes, about when did you start eXporting? Year , Do you have your own manufacturing p1ant(s) in India? Yes No . Ifgyour answer tounestion 6 is No, please go to_guestion 10. 7. 8. When did the manufacturing Operations begin in India? Year , Where is/are your manufacturing p1ant(s) located in India? (1) Name of town State (2) Name of town State 9. 10. 11. 12. 13. 207 What is the nature of parent—affiliate relationship: Wholly owned subsidiary incorporated in India. A majority share joint venture with an Indian firm. A 50-50 joint venture with an Indian firm. A minority share joint venture with an Indian firm. Other (specify) .Where is your sales branch/principal sales office located in India? Name of town State .About when was it established? Year What main product lines are being presently manu- factured in your p1ant(s) or sold through your sales branch in India? Consumer products A Industrial products X B Y C Z Rank below your major customers in India, assigning them numbers 1, 2, 3, and so on, in order of their share in your annual dollar sales in India. Let 1 represent customer group accounting for highest Share, 2 represent customer group accounting for next highest Share, and so on. Product line* Consumer Products A B C a. Farmers, farm labor class, etc. b. Urban-low and middle income groups c. Urban-high income group d. Mass market-rural and urban e. Other Product line* Industrial Products A B C 0 Government departments Industrial users Original equipment mfrs. O.E.M. Farms, other villages industries, etc. e. Other business firms f. Nontrading institutions 9. Others 0 CLOUD) *As indicated in your answer tonuestion 12. slidinsn 14. 15. 208 Approximately, what were your total dollar sales in India for the following years? (million dollars) 1960 1964 1968 Give an estimate of total employment in your Indian operations during 1968. Total Administrative Blue collar PRODUCT STRATEGY 1. Where do you do your product planning and designing for the Indian market? In U.S. In India Both Do you have R & D facilities in India? Yes No If not, does this place you at a disadvantage in competition with local Indian firms? Yes No If no, why not? Have you made any changes in your product-mix in India since the beginning of your manufacturing/sell- ing Operations? Yes No. If yes, indicate below the important changes effected thus far. a. Product lines added--give names and reason for adding b. Product lines deleted--give names and reason for deleting c. Increased or decreased the number of models (varieties of individual product items)--name Of product and reason for doing so: d. Increased or decreased the number Of items in a given product 1ine—-names of product line and reason for doing so e. Altered physical Shape, design, components, ingredients or packaging of individual product items--names of product and reason for doing SO NOTE: 10. 209 Are there certain product lines or product items which you manufacture and/or sell in the U.S. market but not in India? Yes___ No___, If yes, name them and indicate why is this so. .Are there certain product lines or product items which you manufacture and/or sell in India but not in the States? 'Yes 1%) . If yes, name them and indicate why is this so. To answer next three questions (8-10), please consider the product lines you are selling in both of the countries. Does each of these product lines consist of larger number of product items in U.S. than in India? Yes Same/smaller . Why Do individual product items in a given product line have a larger assortment of models/varieties in U.S. than in India? Yes____ Same/Smaller Why How do important technical and nontechnical Specifi- cations of products (size, weight, power, degree of automation, components or ingredients used, color, flavor, etc.) vary in the two countries with respect to three or four of your best selling products? Name of product, Specifications Specifications its brand or for sale in for sale in trade mark the U.S. the Indian market market 1) 2) 3) 4) Why do these specifications vary between the two countries? 11. 12. 13. 210 In what respects is your packaging different in India from that in the U.S.? Packaging material used Shape and Size of package Others Why these differences: DO the warranties or guarantees accompanying your products include the same terms and conditions in India as in the States? Yes____ No___, If not, why not? What principal appeals do your major products have in the Indian market? High quality appeal High value appeal Low price appeal Brand appeal After-sale service appeal Other (Specify) PROMOTION'STRATEGY 1. Roughly, what percentage of your sales is Spent annually on advertising in India and the U.S.? % India ‘% U.S. Has this percentage expenditure gone up or down since the beginning of your manufacturing/selling operations in India? Up____ Down____ About the same____ Why? Roughly, what percentage of your sales is Spent annually on sales promotion (other than advertising) in India and the U.S.? ‘% India %.U.S. Has this percentage expenditure gone up or down since the beginning of your manufacturing/selling Operations in India? Up___. Down___ About the same____ Why? .Roughly, what percentage of your sales is spent annually on personal selling in India and the U.S.? % India ‘%.U.S. Has this percentage expendi- ture gone up or down Since the beginning of your manufacturing/selling Operations in India? Up___ Down____ About the same____ Why? 211 What percentage of your advertising budget is Spent approximately on the following media each year in ' India and the U.S.? Media India % U.S. % Newspapers & magazines Outdoor-—bill boards, etc. Trade journals, house organs, etc. Direct mail, catalogs, etc. Television Radio Other media How will you explain the difference in the relative importance of different media in two countries if at all reflected in the above figures? Has there been any change in the advertising media used by you in India Since the beginning of your manufacturing/selling Operations? Yes____ No___ If yes, please indicate the factors that caused the change. What message or theme do you try to get across in your advertising in India and the U.S.? India U.S. Has there been any change in your advertising message Since you have been in India? Yes No Please indicate below the nature of important altera- tion made in your U.S. advertisements for using them in India. Translated and used as in the U.S. Copy and head rewritten, illustration and theme same . Copy and illustration changed, head and theme same. All changed except theme All changed Other alteration, if any 10. 11. 12. 212 .Do you give the same trade marks or brands to prod- ucts sold in India as in the States? Yes No If not, why not? Do you also sell under dealer or distributor brand? In India: Yes No In U.S.: Yes NO If your answers differ for the two countries, why so? In what respects is the labelling on your products different in India from that in the States? Why is it different? DO you use bi—lingual or multi-lingual advertising, branding and labelling in India? Yes No If yes, please give examples. D. DISTRIBUTION STRATEGY 1. Which one(s) of the following channels of distribu- tion come close to the channel(s) through which your products move to the final consumer/user in India and U.S.? U.S. India 1. Mfr.-Company sales force-Consumer/ Industrial user. 2. Mfr.+Retai1er-Consumer. 3. Mfr.-AgentS/BrokerséRetailer- Consumer. 4» Mfr.-Merchant WholesaleréRetailer- Consumer. 5. Mfr.-AgentS/Brokers-Merchant Whole- saler-Retailer-Consumer 6. Mfr.-Industrial Distributor- Industrial User. 7.,Mfr.-Agents/Brokers-Industrial Distributor-Industrial User. 8. Mfr.-Agents/Brokers~Industrial User. 9. Other (specify) .If you have checked, above, different channels for U.S. and India, how would you account for this difference? 213 Has there been any change in the types of middlemen used by you in India Since you started your manu- facturing/selling Operations there? YeS____ NO___. If yes, why? DO you experience lack of distributors'/dealers' support for pushing newly introduced products through the Indian market? Yes No . a. If yes, has this experience led you to put a heavier emphasis on direct consumer/trade advertising and/or other means of sales pro- motion? Yes___. No___ b. If no, did you ever experience such lack of distributors'/dealers' support in the past and if SO, how did you tackle it? How does your field sales force in India compare with that in the United States? More effective than in the U.S. AS effective as in the U.S. Less effective than in the U.S. If less effective, how do you meet this situation? Has there been any change in the size and distribu— tion of your sales districts/territories in India since the beginning of your mfg/selling operations there? YeS____ No___ If yes, which among the following factors might have caused this change? (Check as many as you wish) Rise in pOpulation and as a result, expansion in market Size. Growing industrialization in the country. Change in the political boundary of Indian states. ' Impact of changes in Indian laws. (For example, the sales tax laws in various Indian states) Others (specify) What are the principal modes of transportation used by you for moving the products towards the consumer/ user? 10. 11. 12. 214 Percentage of Total Volume of Goods Shipped Mode of Transportation India U.S. Railroads Motor vehicles, trucks, and other kinds of road transport Cargo boats Air cargo Parcel post If you use a particular mode of transportation in India which is not used Significantly in the States or vice versa, please indicate your reasons. (Check as many as you wish) ‘ In India, good roads are not available in all parts of the country. In India, railroads are not aS flexible aS in the States. It is difficult to get a railroad siding (connection) near our plant or warehouse. Air transport is very expensive in India rela- tive to the price our customers can afford to pay. Other reason (specify) DO you make use of commercial and state-owned ware- houses in India in addition to those provided by your wholesale distributors? YeS____ NO___, If yes, are you satisfied with the storage facility .provided by them? Yes NO . Have you established any distribution center in India like those many manufacturers have established in the U.S.? Yes No . If not, why? Do some or all of your products require after-sale services to the final consumer/industrial user in India? Yes No a. .If yes, are these services Similar to those given to the U.S. customers? Yes No b. .If not Similar, please indicate what additional or different services are being offered by you to your Indian customers? c. .Why do these additional or different services become necessary there? 13. 215 How do you help your Indian distributor/dealer ful- fill this requirement? Financial assistance Free supply of equipment Supply of Space, building, etc. Others (Specify) E. PRICING STRATEGY 1. Which one of the following will be considered by you as the major objective of your pricing policy in India? Meeting the competition Realizing a target return on investment Expanding the market Share Achieving price stability Maximizing profits Other objective (specify) Is this objective different from one you have laid down for your U.S. pricing policy? Yes NO Which among the following factors influence the determination of the price you charge your customers in India and the U.S.? (Check as many as you wish) H :3 O.- Ho 01 U.S. Cost Structure Competitive action Income level and distribution Economic outlook Government pressure Price-level of the products of your customers' industries Other (specify) lIllll lllll .Do you also rent or lease your products to customers in India? Yes No . In U.S.? Yes No . If you do SO in one country and not in the other, why? For products requiring heavy initial investment in fixed cost and R & D, do you adOpt a policy of set- ting a high introductory price in order to recoup your investments as soon as possible? In India: YeS____ No___. In U.S.: Yes____ No___. If your answers differ with respect to the two countries, would you explain why? 216 .What is the customary form of price quotation you give your customers in India and U.S. (e.g., F.O.B., F.O.R., F.O.R. Destination, C. & F., C.I.F., etc.) In India In U.S. If the form of quotation differs in two countries, why? Was this policy ever different in the past in India? How? .What is your discount policy with respect to main product lines? Rate of quantity discount allowed to customers in India: %; U.S.: 70. Rate of cash discount allowed to customers in India: %: U.S.: 7... Rate of trade discount allowed to customers in India: 0’0; U.S.: 0/00 If there are different rates of discount for the same product line in two countries, why? Did you adOpt a different discount policy in India in the past? If so, how was it different? .Do you sell on credit? In India: Yes___ No___; in U.S.: YeS___ No. If yes, how long is the period within which payments can be made by customers without any interest charge? In India days; in U.S. days. Do you offer installment payment plans to your customers? India: Yes____No___j U.S.: Yes____No___. In case your credit policy differs in two countries, please explain why? Has this policy ever changed in India Since the beginning of your manufacturing/selling Operations there? If so, what was your policy earlier? Is it possible, under your present pricing policy, to charge different prices for similar quantities of a given product to Similar customers in India? Yes____ No___. If it is not possible now, was it ever possible before? If SO, how did it work? 10. 217 .Do you set wholesale and retail prices for your products in India and U.S.? In India: Yes NO . In U.S.: Yes NO . If you do it in one country and not in the other, please explain why? If you do not do it now in India, did you ever do it in the past? Yes No . If yes, how? F. GOVERNMENT EFFECT ON MARKETING 1. Do you experience in India any government restriction or regulation in the following areas? (Check as many as you wish) A. Product plapning Adding new products Making modifications in existing products Deleting existing products If checked above, please indicate the form of government action. B. Promotion Limits on the amount of advertising expenditure: ,Amount Limits on the amount of sales promotion expenditure: Amount Restriction on certain sales promotion activities: sample distribution, contests, etc. Restriction on advertising media used, for example radio or T.V. If checked above, please indicate the form of government action. C. Pricing Setting price for new products Setting wholesale and retail prices or gross margins for distributors Revising prices for existing products If checked above, please indicate the form of government action. 218 D. Distribution Movement of products by rail, trucks or air. If checked, please indicate the form of govern- ment action. Does the present government policy in relation to product standardization and Simplification have any effect on your product strategy? YeS____ NO____ If yes, how? Do the Indian Trade Marks Act and the Indian Patent Act contain certain provisions which have affected your Operations in India? Yes___ No___. If yes, please give examples to Show how? Does the scarcity of certain basic materials, tools and equipment prevent you from adjusting your prod- uct offering to the needs of Indian market? If yes, give examples. GENERAL 1. Do you undertake marketing research in India? Yes NO . If yes, how do you do it? (Check as many as you wish) The Indian affiliate has been provided necessary staff for this purpose. The parent company staff is used in India. The Indian affiliate hires private research agencies or marketing consultants in India for this purpose. Other method (specify) What geographical regions other than India are served by your Indian plant/sales branch? Name of countries If so, what is the approximate dollar value of exports from India? s . How do your Indian sales (dollars) compare with sales in.Eur0pe and Latin America? Please take your sales for the year 1968 to make this comparison. EurOpe . times sales in India. Latin America times sales in India. 219 Can We request your Indian branch/subsidiary for any additional information if necessary? Yes___ No___, Name of the Managing Director of your Indian affiliate Are you interested in receiving a COpy of the main findings of this study? Yes NO . THANK YOU FOR YOUR TIME AND CONSIDERATION IN COMPLETING THIS QUESTIONNAIRE APPENDIX B LETTER AND QUESTIONNAIRE USED FOR INTERVIEWING THE U.S. BRANCHES AND SUBSIDIARIES IN INDIA 220 MICHIGAN STATE UNIVERSITY EAST LANSING - MICHIGAN 48825 GRADUATE SCHOOL OF BUSINESS ADMINISTRATION DEPARTI‘BNT OP MARKETING AND TRANSPORTATION ADMINISTRATION ° BPPLEY CENTER November 6, 1969 Dear Sir: I am making a research study Of the marketing adaptation of U.S. business firms Operating in India, as part of my doctoral work in the department of Marketing at Michigan State Univer— Sity, with financial support from the Institute of Interna- tional Business and Economic DevelOpment Studies. The primary objective of this study is to explore the nature and patterns of marketing adaptation made by American busi- ness firms and their affiliates to the Indian environment. The study will examine four major aspects Of marketing adap- tation--product adaptation, promotion adaptation, distribution adaptation, and pricing adaptation. It is also prOposed to identify various social, cultural, economic, political and legal factors that affect the marketing Operations of these firms in India. In order to undertake this study, I need to interview execu- tives from selected parent companies in the-U.S. and their respective subsidiary/affiliate companies in India. Presently, I am in the process of visiting with the international divi- sions of selected American companies including, of course, your parent company in this country. I am planning a short visit to India in January 1970 to observe personally the marketing Operations of Indian sub- sidiary/affiliate companies and the environmental conditions within which they have to Operate in India. May I have an interview with you and your chief marketing executive in the course of this visit? I can plan to contact you on arrival in Bombay during the earlier half of January. Sincerely yours, Madhav P. Kacker MPK/cs 221 AN EXPLORATORY STUDY OF THE MARKETING ADAPTATION OF U.S. FIRMS OPERATING IN INDIA Questionnaire/Interview Guide Name of COOperating firm (Objectives of This Study: 1. To explore the nature and patterns of adaptations made by American business firms in their marketing efforts designed to serve the Indian market. 2. To identify such social, cultural, economic, legal and political factors in the Indian environment that affect the marketing Operations of American firms in India. PLEASE NOTE: This questionnaire is a part of an academic research project being done at Michigan State University, Department of Marketing and Transportation Administration. Therefore, all data collected will be held strictly confidential and ‘will be published in a general form‘without disclosing the name of any COOperating company. Please return the completed questionnaire to: Madhav P. Kacker Department of Marketing Michigan State University Graduate School of Business -Eppley Center . East Lansing, Michigan 48823 l. 2. 222 When did you start the manufacturing operations in India? Year Your main product lines with leading product items in each, in the initial stage of manufacturing/selling Operations in India? Product lines Product items A. a. B. b. .Why did you start with these product lines and not others that your parent company might be manufacturing at that time? Name of product items that were subsequently added under each of the above product lines. Reasons for adding. Did you add an entirely new product line in the course of your manufacturing/selling Operations? Yes No If yes, name of product line Reasons for adding. .Did you dr0p or discontinue any product line or product items Since you started your manufacturing/selling operations in India? Yes NO . If yes, name Of products: Reasons for doing so. Does your product line in India consist of any item(s) that in your knowledge iS/are not manufactured by your parent company in the U.S.? Yes____No___, If yes, give examples and mention the reasons for this. Do your products differ from similar roducts manu- factured in the U.S. in one or more 0 the following areas? Please check. 10. 11. 12. 13. 223 Name Nature of Areas of Difference of Product Difference Technical specification Ingredients used Quality Of basic materials used Product packaging--Size Shipment packaging Trade marks Product labelling Warranty or guarantee given to customers Others If you have checked above any area of difference, please explain why these differences become necessary? Do you have R &.D facilities in India? ‘Yes No If yes, please indicate below the nature of R & D being done in India: Basic or fundamental research Mainly develOpment. Mainly quality control Who initiates the new product suggestions for the Indian market? ___ you or the parent company R &