India is known to be one of the fastest growing economies in the world today. The all embracing management approach in India usually depends on the business environment there. The objective of this research paper will further explain how the business environment, about the terms of the economic, legal, political, ethical, social and cultural aspect, and the affects of management approach in India. This research paper will further explain the advantages and disadvantages of doing business in India and describe the best management approach.
For a firm to understand the different threats and opportunities they may encounter when doing business in a foreign country, it is important for them to study the business environment in all of their contexts. To start we need to focus on the economic environment of India, which is divided into two; macroeconomic and microeconomic. When considering a management approach we need to focus more on the macro factors as we do not have a specified industry in which we will be entering, but we do need to know large-scale information in the country.
India is the second most populous country in the world with a population of 1.28 billion people as of July 2017; where 66.4% of it is working for age population -15 to 64 years old – and a total population growth rate of 1.17% (Pathum Thani, 2018). It is considered the 7th largest economy in the world with a GDP – the market value of all officially recognized final goods and services produced in a given period of time – of 2.264 trillion USD. Even though there is a high GDP, the minimum monthly wage in the country is about 51.00 USD a month (ILO-International Labor Organization, 2017) which is one of the lowest in the world, just to have an idea, USA minimum monthly wage is 1,257 USD. Internationally, the unemployment rate has been really low in India, in the last decade it has been between 3-4% (World Bank, 2017). The importance of this information relies upon in that this external factors will help you understand how your company might perform when entering a new country such as India.
Other major environments we need to study are the political environment, together with the legal and ethical environment. We believe these three have to be analyzed together for various reasons: India is the largest democracy in the world, and the respect of the Indian population towards it is reflected on their will on every local and national election. While the population having a great impact on political decisions, because of the democratic model, it attracts Foreign Direct Investments (FDI) as it allows the country to have an overall stable political climate. But on the other side, corruption in India is one of the main concerns – which also affects the business environment. Legally, FDI’s can set up a company, branch in India, but has to deal with a big factor such as corruption. So a big initiative created by the government is the Whistle Blowers Protection Act.
“Act in the Parliament of India which provides a mechanism to investigate alleged corruption and misuse of power by public servants and also protect anyone who exposes alleged wrongdoing in government bodies, projects, and offices. The wrongdoing might take the form of fraud, corruption or mismanagement. The Act will also ensure punishment for false or frivolous complaints.” (Pathum Thani, 2018)
Since the creation of this Act until today, India has increased its score from 36 points in 2013 to 40 points in 2017 and have a better rank within the World, now ranked in 81st place compared to 94th in 2013 in relation to the Global Corruption Index. Even though you can already find some improvements towards corruption, many people still chose to stay quiet when being exposed or realizing a corruption act being done by superiors, as they are scared of making this decision could play against them by powerful entities, or people, on top of them. It is important to understand how the political, legal and ethical environment works, as by law you might think that going into a country such as India you will be able to run business with no issue, but then you may encounter issues, such as corruption, that will make your work a lot more difficult.
To understand culture and social behavior in such a varietal country, we need to first understand that in India, the religious beliefs in population are distributed as 79.8% Hindus, 14.23% Muslims, 2.3% Christians, 1.72% are Sikhs, 0.7 Buddhists, 0,4% Jains, and also there are many languages spoken, in which the majority is Hindi with 79% of the population does, but then the other 20% can be divided among Telugu, Marathi, Tamil, Kannada, and others. It is important as you may have a workforce with different beliefs and approaches, and as a manager, you should be able to find a breaking point in which all can be satisfied and could perform at its best in the company. This is important especially in India, as religious-based discrimination is a big issue they have been encountering in the past decade (Axmann and Contreras, 2016).
A great way to analyze the last social and cultural environment in a country is using Hofstede cultural dimensions analysis. This is very important when planning on managing other countries to understand the behavior of people in it. When we talk about power distance, India scores really high with 77 out of 100, which means there is a great inequality in regards to power and wealth. It is important for managers to know as in this type of society, managers count in obedience of their team members and employees regarding their functions.
With the same dimension analysis, we can conclude that India is a collectivistic society, which means there is a high inclination to belong to a group in society. With that being said, part of a team, in a project will be better for the outcome in a company assignment. We can also understand that India is a very masculine country; so their business is still in development, as more male-run businesses but we can start seeing women in high positions within organizations. Gender inequality still an issue, but as in many other developing countries, it is being eliminated little by little.
In the uncertainty avoidance analysis, we can see that the Indian culture accepts imperfection, which means in the business world, that even though they don’t have facts or a perfect plan; they won’t feel uncomfortable and will stick by the plan of management even thou they don’t see immediate results. (Hofstede’s cultural dimensions, 2017)
As we all know India is the largest democracy in the world. As a growing economy, it is attracting a lot of new businesses and investors from all around the world. There are several advantages when thinking about doing business in India. Such as, the overall cost of setting up business in India is low compared to other countries. Infrastructure such as land, machinery, transportation and all the basic necessities for setting up a business is lower in price compared to other countries. It is pretty affordable and will result in the profitability of the business as other countries. This low-cost production will lead to low pricing of the products and also attract more customers. India is one of the most populated countries in the world. The minimum wage in India is $0.28/hour which is among the lowest in the world. This makes labor very inexpensive. Labor here can be categorized into the educated and uneducated labor force. The educated labor force is highly fluent in English which makes it easier for foreign companies to do business here. Since there is also a high number of the uneducated labor force, the costs for hiring these people are very low which makes the manufacturing costs for companies very low. We could say India is an alternative to China for manufacturing products at a lower rate (Editor T, 2014).
Since India’s economy and the population is growing constantly, this demands a need for more businesses. According to the McKinsey Global Institute, by 2025 66 cities in India will have a population of over one million each. The country is in need for a greater number of businesses to support livelihoods. The country is opening up major opportunities for companies to start new ventures. (Dholakiya P, 2017) The Indian government’s “Make in India” initiative focuses on 25 industrial sectors and also aims at building best in class manufacturing infrastructure. It enables foreign investments, promotes innovation through skill development and focuses on intellectual property protection. These business-friendly laws give companies the opportunity to finalize their plans for entering India. On implementation, these bills will increase the efficiency in the movement of products across India. India’s land acquisition bill also promotes the twin objectives of social justice and industrial development in the country. (Dholakiya P, 2017)
There are also several disadvantages when thinking about doing business in India. Such as, corruption in India which is not a surprise, therefore a foreign company doing business here should be aware of this challenge. A common risk of doing business in this country is the changing rules and regulations. These regulations can be unpredictable sometimes. India is a stable democracy but if there is a change in the ruling party or a leader, the pressure from the public interest groups may lead to a change in business laws. This is very rare but it happens.
India is also a very cultural country like all other countries and each society has its own cultural identity. It is very important to keep in mind that while doing business in a foreign county we do not offend the host. In India business is more about goodwill and relations rather than sums and figures. The culture can be a little hard to adapt to foreign companies. They should be aware of what is and what is not acceptable during business interactions. Indian stock market is the oldest in Asia and has a fairly vigorous regulatory system for equities and debt. The economic risks of doing business in India have more to do with inflation and with lack of fiscal discipline at the government level. Huge transfer payments to the rural poor, subsidies for food and disproportionate raise for employees and retired people have bled the economy from time to time. Foreign companies should watch the exchange rate risks and interest rate risks carefully in India (Common Risks of Doing Business in India, 2017).
About 40% of the workforce in India is illiterate which limits the areas for companies to do business here. India’s literacy rate as of now is 74.04 % which way below the world average literacy rate of 84%. India is also a very big country with each state speaking a different language. People in the north work very different than people in the south. Foreign companies should do their research and be ready to face all these differences before doing business in the country (Naazir S, 2018).
Our management approach and style in India has largely been influenced by the overwhelming hierarchical mentality of Indian society and as such, we have spent a great deal of time making a thorough and detailed analysis of the geopolitical, socio-cultural, economic, and environmental issues as well as a legal and competitive situation in the Indian market. As a result, our management approach in India is to adopt a transnational strategy because we intend to strike the right balance between standardization and local adaptation in order to satisfy specific requirements of Indian legal and cultural demands.
Interestingly, our decision to adopt a transnational strategy is mainly because we want to have wiggle room to be able to address personal expectations of a workforce, varied regional opportunities, cultural differences, and disparate levels of economic development in the country. Besides, this approach will enable management to make grounds in the Indian market by allowing management to carefully plan and analyze a combination of factors such as consumer preferences, sales and distribution channels, marketing practices, and workforce development. This is significantly important because according to a report released by Deloitte, “the ubiquity of digital technology coupled with changing personal expectations of workforce participants are key shifts shaping the future of work globally, and especially so in India”(Deloitte, 2017).
The issue of standardization and local adaptation is challenging and complex since the Indian market has various economic and cultural inclinations and has not been sufficiently investigated yet (Mili?evi?, Sofronijevi? ; Milosavljevi?, 2016). Therefore, a transnational strategy will be more appropriate because it concerned with local adaptations in each market; cultural awareness, their importance and their influence from a business perspective. Besides, this approach will also enable management to identify innovative and creative tools, and techniques while not neglecting Indian organizational culture and country-specific requirements to our business activities.
Finally, because management is nothing new to India as a country, management anticipation is that if we carefully implement and utilize the transnational strategic approach, there is a great potential to fundamentally exploit home-country (U.S.A) innovations by working in concept with host-country (India) to develop layers of competitive advantages by efficiently utilizing flexible learning modules to gain economies of scale.