Long before Airtel and Infosys dominated the telecommunication and tech market with their exceptional, and oddly flabbergasting performance and services, they too had to fight off the constantly looming wrath of the dominating MNCs that ventured into India to wipe them out. How did they do this?

Local companies have scoured the economies of several nations, more so in developing countries than developed ones. This is partly because developed nations are where most of the MNC’s have originated from where they have been successful in eradicating the presence of several local firms from the market. However, globalisation hit the face and GDPs of the developing countries much later, allowing local business to rise and build stronger bases and customer links throughout the nation. Surprisingly enough, more than 70% of these companies have been able to survive the threat of foreign MNC invasions even after the wave of globalism. There are two key reasons why they have been able to do so: better knowledge of consumers and external economies of scale. 

1. Better knowledge of consumers

This is arguably one of the greatest advantages local companies have against MNCs. While multinational companies enter foreign markets and try to rattle them with what they think are ‘top notch, hi-tech’ ideas, local firms have grown from the wants of their own native customers, they know the lay of the land, meaning they have a better knowledge of what is missing in the market and hence are able to fill this void more efficiently. For instance, Airtel and Jio equipped those in rural areas to have access to the internet, a problem that marred India for years. MNCs tried to provide better phones and services to the customers but failed to grab the leash of the market. What good is a ‘better’ phone or a phone service centre, if most of the population doesn’t even have access to the internet?  Another example is the Visa Company that entered the fintech market in India to simplify the process of credit transfers but did not perform as well as it expected to.  A large population of India has limited access to banks and financial institutions, making the visa card rather redundant. However, local businesses like BharatPe, Cred and Paytm have been able to solve this problem, by making wire transfers possible without as many complications, chartering the course of this industry, and now growing into huge multinational companies themselves. In this way local firms are able to provide somewhat ‘custom-made’ products for the people of their country, while MNCs are reliant on a ten-year-old business model that most often only works in developed nations.

2.External economies of scale

What exactly do “external economies of scale” mean? Simply put, they refer to business enhancing factors that occur due to the location of a company, allowing firms to reduce their costs of production. For instance, cheap labour, an abundance of oil, well connected transport systems etc. You may think that surely an MNC will have the same resources as the local company if they are in the same location. While you are right, it is crucial to understand that the use of resources between a multinational company and a local firm vary drastically. Most foreign businesses enter developing countries due to the reduced land and labour costs, however they are very particular with the skill and talent of the employees they hire, reducing the possible effect of external economies of scale. Local businesses on the other hand can pick up partly skilled and cheap labour and are able to mould and train them into what the company requires, something MNCs can’t do due to the scale of their operations and the stringent foreign policies of their company headquarters. These ‘custom-made’ workers are the local businesses greatest assets as they know what the people want from the firm, and what the firm wants for the people. Due to their high productivity and low costs, local businesses can bank on reduced costs of production increasing their profit margin, which can be used to invest in developing technology, boosting marketing, or expanding into different states.

Local companies have been able to stand the test of time and MNCs for far longer than expected. They now account for over 40% of India’s GDP, and are making their presence felt worldwide. It is vital we support them, because for every dollar spent on a local business, around $0.8 comes back to the community and nation, helping it grow.

                                                                                            -Ananyaa Sultania