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employee in France. The country manager is a midlevel sales executive who
     reports to the regional sales headquarters, typically Singapore. He or she has to
     refer most decisions—hiring five people, investing $5,000, offering a 5 percent discount—to
     someone outside India and spends an enormous amount of time negotiating decisions
     internally.
    For most global small business units (SBUs), India represents about 1 percent of their
     global revenues, so double-digit growth and the absence of a crisis are celebrated
     as success. Senior executives, including the CEO, make perfunctory annual visits that
     are carefully scripted and usually preclude getting a feel for India. According to
     John Flannery, president of GE India, this approach “has the risk of resulting in
     a low wattage system of low ambition, low commitment, and low energy.” As a result,
     companies end up in the midway trap (see figure 2-1 ).
    FIGURE 2-1
    The midway trap

    Source: McKinsey & Company Asia Center.
    Companies find the going good in the first few years after establishing a presence
     in India. Then they find growth slowing down and face a bigger and bigger challenge
     to grow faster than the industry average. The small premium segment at the top of
     the market gets saturated and intensely competitive as every other global company
     targets the same segment. To continue to grow requires the courage and commitment
     to move down and compete in the larger middle of the market. However, that requires
     market-shaping investments in localization and a different operating model. If a company
     doesn’t increase its commitments at this stage, either organically or through acquisitions,
     it will sink into the midway trap, where growth is determined by the tide of the industry.
     Even well-managed companies like Caterpillar, Volvo, Microsoft, Procter & Gamble,
     Nestlé, Dell, and GE have experienced some version of this trap in India.
    The Midway Trap at Microsoft India
    Microsoft entered India quite early and had built up a reasonable presence by the
     time I joined the company early in 2004. During his first visit to India on my watch,
     Steve Ballmer had the insight that there are really three segments in India with an
     affluent top of the pyramid comprising perhaps 50 million wealthy consumers and 2,500
     midsize and large enterprises. This affluent segment is global, using IT devices and
     software in ways that are similar to customers in developed markets. Microsoft could
     easily serve this market with the same products, pricing, and go-to-market approach,
     and the same internal operating model it uses in developed markets. Ballmer felt that
     Microsoft should first focus on capturing this opportunity, which he called “Australia
     at the top of the pyramid.” Between 2005 and 2009, Microsoft successfully focused
     on the enterprise segment. As a result, Microsoft India’s revenues grew at 30 percent
     to 50 percent annually and rapidly converged with Microsoft Australia at around US$1
     billion. However, once the enterprise segment became saturated, Microsoft found it
     more challenging to grow much faster than the software industry did.
    To sustain leadership, Microsoft India now needs another growth engine. It has to
     figure out how to tap the middle market, which comprises 8 million small and medium-sized
     businesses and 50 million middle-class households, which do not use computers. That’s
     a profoundly different market, where the value of using IT is not yet understood.
     Disposable income is modest, so affordability is a critical issue. The usage of pirated
     software is over 85 percent. It’s a mobile market first, a TV market second, and a
     PC market third, while Microsoft is still a PC-centric company. In India, customers
     are spread across three hundred small cities and towns, not conveniently concentrated
     in the top twenty cities. Broadband connectivity is poor, so penetrating this segment
     needs a