Today, India is experiencing an intensive foreign direct investment (McGuire, O’Donnell, Garavan, Saha, & Murphy, 2002). The rate, at which the Multi-National Corporations (MNCs) are setting up operations here, indicates that the country has favourable characteristics. The unique market features have made the country the emerging market of choice. India’s fast growing economy creates potential business opportunities for the MNCs. A positive growth of the economy is a sign of the healthy business environment, in which companies can grow, develop, and attain profitability. Moreover, India has a considerable labour advantage over the others. In such a manner, the country has many young and educated people, who provide these low-cost labour opportunities. One of the reasons for why the companies offshore is becoming a leader. In many developed home-countries, labour has become expensive and, consequently, reduced the business profitability. Therefore, companies are seeking other destinations that can offer them a qualified and cheap workforce. India offers such kind of labour competitiveness; thus, it is preferred by many. Additionally, India has a large middle class with disposable income; this feature adds to the country’s attractiveness as a perfect investment destination. The nation comprises a large percentage of young people with considerable purchasing power. The economically empowered population is a suitable market for selling products. Despite the attractiveness of the country, there are some challenges posed by the national culture and ethical issues, which the managers must effectively manage. This report identifies the challenges and offers solutions to managers of the companies considering entering the Indian market.
Any multinational company, which wishes to penetrate the Indian market, must understand the dynamics, opportunities, and challenges that it is likely to encounter. Such an understanding can help its managers to develop the most appropriate strategies and approaches in advance to ensure that the operations are successful. In the Indian market, most of the main problems are caused by the culture, ethical issues, and appropriate strategies.
According to Browaeys and Price (2011), every country has a unique culture, which determines the manner, in which people relate and communicate. There are some differences in each nation’s culture, which influence the businesses transactions. When a multinational company enters a foreign market, it must be cognisant of the differences in the culture of its country and the one of the foreign destination. The timely assessment of these peculiarities will help the managers communicate and behave appropriately with both the customers and other stakeholders in the market.
One of the challenges that the MNCs face in India is the failure to identify the influence of the national culture on their strategy and business approaches. There are various companies that have succeeded in other countries but failed in India because of this issue. The traditional approach of many corporate managers in entering the foreign markets is to use their global strategy and apply it in every market. For a variety of reasons, the application of any generic global strategy in India is one of the keys to failure. First, India has several cultural variations, which create the need to address their peculiar needs individually. When an organization uses one strategy to address all the customers in the market despite their varied needs, the customers may feel unappreciated and shun the products and services of such a company. Secondly, the Indian people value their culture (Rodrigues, 2007). The use of a strategy that worked out in the country of origin may be interpreted as cultural imperialism by the Indian customers. They may feel that the managers consider the culture of their country of origin superior to their one. Consequently, they may undermine the company’s efforts by actively resisting its products and services.
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The second challenge predefined by the culture is the behaviour of consumers in the Indian market (McGuire et al., 2002). They value the high-quality products, low prices, and customized products. Such behaviour is peculiar because high-quality products usually mean high prices. The multinational companies, therefore, must address this unique challenge in order to be successful in India.
Thirdly, India has a high level of corruption that can hinder the success of the multinational organizations. When an organization enters a foreign market, it should maintain its ethical standards as required by its country of origin (Czinkota & Ronkainen, 2011). However, the environment in India interferes with the progress of ethical organizations as their operations face bribery. The organizations must decide whether to comply with the national unethical culture or stick to their moral standards and fail. In India, the bureaucratic processes have fuelled corruption because the foreign companies must obtain special permits to operate in the country. Every step of seeking the approval is full of bribery requests, which can significantly facilitate the process.
The solution to the problem of identifying the appropriate strategy to be used in India can be found through studying the national culture (Venail & Brewer, 2013). Hofstede’s cultural dimensions theory can help the managers understand how to adapt their strategies to the Indian market. Each of the theory’s dimensions has certain implications for the appropriate strategy, leadership styles, and motivation approaches that can help the companies succeed.
The cultural power distance dimension measures how a culture accepts the differences in power between the leaders and those being led. A high score means that people have no problem with the leaders possessing a lot of power as compared to the followers. India has a score of 77, which indicates that people easily accept the power concentration at the top of the organizational chart (Venail & Brewer, 2013). The score contrasts sharply with the Western cultures that do not appreciate such an immense disparity. For instance, the United Kingdom (UK) and the United States (US) have scores of 35 and 40 respectively (Herath & Kishore, 2009). Therefore, the organizations from these countries must appreciate the cultural difference and adapt their global strategies to fit the Indian context. The low score for this dimension in the Western cultures indicates that their managers are likely to consult intensively with the subordinates. On the contrary, in India, they must ensure a strong sense of direction and supervision because the employees are going to work according to the clear directions from the organizational leaders.
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A multinational company needs to make the local managers adapt its strategies effectively to the Indian market. The company must strive to incorporate the locals into the management of the organization, instead of bringing to India the managers from its country of origin. They must provide efficient approaches such as different training programs and clearly defined career paths for the local managers (Lane, Maznevski, Dietz, & DiStefano, 2009). Since the locals have an understanding of the employees’ expectations, they are likely to adapt the authoritative approach of leadership more effectively than the foreign managers who are more used to consultative approach. Using a global strategy, in which the home-country managers are sent to India, is a short-term approach that is negative as the Indians value a long-term orientation. In the Indian market, the customers appreciate the companies with the long-term orientations because they are dependable. An organization with the short-term goals may exit the market when the customers have already gotten used to its products. Otherwise, they may become frustrated. The customers may avoid the companies with the short-term orientation in order to evade frustration and disappointment when looking for the alternative products in the future. Additionally, the company may fail to attract the best talents because employees prefer corporations that can ensure the security of tenure and opportunity for the growth. The employee development can only be achieved in the case the company has a long-term strategy. Empowering the local managers has several advantages for the multinational corporations. First, it is a cost-effective step because local managers’ compensation is lower than that of the expatriates. Additionally, the expatriates may take a long time before settling down and learning the local culture, which may significantly delay the operations. Secondly, employing the local managers ensures that there is the management continuity as people with the local knowledge replace the working ones. On the other hand, employing managers from the corporations’ countries of origin may require rigorous replacement processes because every new manager must start learning the new culture and strategies from the very beginning; for sure, this fact contributes to discontinuity. Thirdly, the corporation can leverage the locals’ knowledge and facilitate operations.
Despite the empowerment of the local managers, the corporate leadership of the corporation must ensure that the local managers respond to the needs of the employees. The Indian culture expects the leaders to have concern for their employees and utilize a paternalistic approach to dealing with them. The concern for the workers is embedded in the collective nature of the Indian culture. The individualism vs. collectiveness dimension of Hofstede’s theory shows that India has a score of 48 while the UK and US score 89 and 91 respectively (Herath & Kishore, 2009). The US and UK are individualistic nations. Therefore, the multinationals from either country must understand the collective need of the Indian people and provide it to ensure success, despite the individualistic nature of their countries of origin.
In satisfying the customer expectations of the high-quality, low-priced, and customized products, a company should use a differentiation strategy and mode of collaboration with the suppliers (MacLennan, 2011). There are some cultural and religious differences within India, which influence the products that people consume. As such, in the same market, there are customers with different needs; therefore, the products and services offered may require customization in order to suit their unique needs. On the one hand, such customization may cause an increase in the cost of production, which may decrease the gains of offshoring operations to India. On the other hand, customization increases the corporation’s responsiveness to the clients’ needs and, consequently, the sales volume. In the case customization is required, the managers face the dilemma of whether to respond to customer needs or reduce the cost of production. In India, the ideal approach is to opt for customization because of the customer sensitivity to the costs and the increased competition caused by numerous competitors. Since customization is a critical aspect of gaining the market share, the company must devise the means for offsetting the increased customization costs. One of the means is to collaborate and negotiate with the local suppliers with the aim to lower the cost of the raw materials. Additionally, the negotiations with the suppliers must outline the quality standards of the materials because this issue affects the quality of the finished goods. The reduced material costs are then translated to the clients as the low prices.
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In the case negotiations with the suppliers do not yield the expected results, the managers must consider a vertical integration in the backward direction. The vertical integration with the key suppliers can provide multinational corporations with control over the vital resources and reduction of costs (MacLennan, 2011). The demerit of the vertical integration is that it may be difficult in India because of the legislation that may limit a foreign company in owning the vital resources in the country. In addition to customization of the products, the marketing strategies must also reflect the characteristics of the market. India is a large country with both educated and non-educated sub-populations across the vast geographical locations. Some poor regions with the low literacy levels may not respond to the global marketing strategies written in English. As such, each market must be targeted differently with the most effective media. In such areas, customizing the marketing message with the help of the local languages can increase the reach of the message and its effectiveness.
The issue of corruption in India can be solved by various strategies that can be combined in order to foster a corruption-free market. There are numerous strategies that are effective in dealing with corruption. First, through different grants, the multinational corporations that operate in India can fund the non-governmental organizations (NGOs) that fight corruption (Cooper & Menzel, 2013). Today, the NGOs usually lack financial resources to manage the issue effectively. Financial support can help them succeed in fighting corruption.
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Secondly, multinationals can offer technical expertise to the government of India in order to create the means of eradicating corruption (McDougle, 2009). Although some state institutions are involved in corruption, the entire government is not. Some units and individuals are willing to eradicate the phenomenon. The Multinational Corporations can assist the government in developing a toolkit that the organizations in India can use collectively. For instance, Siemens in collaboration with the World Bank Institute has developed a toolkit that provides the companies with the clear guidelines on how to fight corruption. The strength of the toolkit is in its collective nature because when the corporations unite, they can raise a strong voice.
Multinational companies have a strong economic power that they can leverage in order to influence the policy makers in India. Their presence in the country is critical to the national growth because they provide significant revenues in the form of taxes. Secondly, the companies ensure employment of the country’s population, without which the government would face a crisis. The foreign capital that the multinationals provide empowers the country to gain geopolitical mileage in both the region and the world. One of India’s goals is to become a global leader economically and politically. The country is constantly competing with China in terms of weapons and trade. As such, its interests are hinged on its ability to generate revenues to fund the growth strategies. Consequently, the multinational corporations have become a vital part of the country’s economy and developed to the extent that the government cannot ignore their voice any more. The multinational companies can leverage their economic power in order to demand strict government action against those, who are perpetrating corruption (Cooper & Menzel, 2013). Additionally, they can sensitize the country through different workshops and seminars on the importance of maintaining a corruption-free environment. One compelling reason to the people is that the foreign direct investments can only come to the country when there is no corruption.
In addition to fighting corruption in the external environment, it is imperative for the corporations to foster the internal ethical environments (Konrad, Prasad & Pringle, 2006). Each multinational corporation should develop clear ethical guidelines and strategies and implement them. The internal environment is essential because the employees are the members of the respective society that promotes unethical business practices. Influencing them positively can help shape the societal ethics and minimize the negative effects of corruption.
In summary, the challenges that the multinational corporations are likely to face in India include the lack of knowledge on the influence of the national culture on strategies. The culture determines the leadership style and whether to use global or local strategies. The second challenge is to balance the clients’ expectations of the low price, high quality, customization, and the need to lower the cost of operation. The final challenge is the corruption that hinders the business operations.
The managers of the multinational companies hoping to operate in India must use Hofstede’s cultural dimensions theory for understanding the culture of India. Understanding the culture can enlighten them on the need to customize their operational strategies in order to fit the cultural expectations. One of the adaptations that the managers must implement is to empower the local managers as opposed to employing the expatriates. The advantages of using the local managers include leveraging their market knowledge, continuity, and gaining cost effectiveness.
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The managers must also collaborate with the local suppliers in order to reduce the cost of materials and, consequently, the product prices. They should also consider the vertical integration in gaining control over the raw materials in the case the collaboration fails. Additionally, they should customize their products and marketing strategies, to fit the Indian consumers.
The multinational corporations’ leaders can offer technical expertise to the government in order to create toolkits for fighting corruption. Secondly, the managers can leverage their economic power and influence the policy makers to create strict laws against corruption. They can also fund the NGOs that fight corruption and create internal ethical guidelines.