India's Middle-Class a Gold Mine' for Multinational Subsidiaries

The article “Does Your Company Have an India Strategy?” in the Harvard Business Review threw the spotlight on Indian subsidiary firms being valued higher than their parent companies. The report cited that it was due to better growth prospects, higher profitability, and more efficient asset utilisation. For example, Nestle SA, the world’s largest food and beverage company giant based out of Switzerland, is famous for Maggie and Nescafe coffee; at the end of the financial year 2022, it had a price-to-book (P/B) ratio of six, while its subsidiary in India has a whopping 82. The same goes for the German company Siemens, a heavy industry leader whose P/B ratio was two. Its Indian subsidiary was 10.

The key drivers cited for the higher revenues and profits of the Indian subsidiaries were their ability to tap into India’s rapidly expanding population, robust economic growth and increasing middle-class purchasing power. The World Economic Forum summarises it well, “In terms of sheer numbers, the largest urban transformation of the 21st century is … happening in India,” the article said.

In recent years India has experienced significant economic growth and urban transformation. Goldman Sachs calculated India’s real GDP growth rate during 2010-2019 at 6.9%, the second fastest among all major economies in the world and more than three times as fast as developed countries. It is projected to grow at a high rate and is expected to reach the highest growth rate in 2020-2029, surpassing China, Philippines, Turkey, and Egypt. By 2050, India’s GDP will be three times the EU’s, making it the largest economy globally, said the report.

If multinational corporations want to capitalise on this growth, they must do more than replicate successful approaches in developed countries, the report says. Listing lessons for Multinationals, it says that they must develop strategies tailored to the Indian markets, invest in local resources, understand the cultural nuances, and leverage India’s digital infrastructure to succeed in this promising market. By doing so, they can drive more value for their subsidiaries.