Business approach of Indian Multi National Companies


Indian Multi National Companies (MNCs) are those which are Indian in origin but now spreading their wings to set up their operations outside the India around the globe. While discussing the approaches used by the companies operating purely for business purposes, two most prominent observed include a focus on the social welfare development and the other one is maximizing share holders' equity. The implicit objective of each and every company is a successful accomplishment of business and sustainability of the company over the longer time spans through expansion, higher volume growth and increased market share in the pertinent industry. Some companies' vision and mission clearly reflects the explicit and implicit motives while only explicit motives are exhibited on the others. A term called 'Corporate Social Responsibility' (CSR) is referred to as a community focused approach mentioned above. Few organizations are very particular about observing it and the rest to some extent. It could be used as a very effective marketing tool if observed in its true sense addressing multipurpose tasks confronting the organizations laying strong foundation stones on which one can build a solid infrastructure of the whole business. It is highly important to understand the essence of both the approaches when to compare them and differentiate from each other. In the following paragraphs we will discuss the community focused approach observed by the Indian Multi National Companies in the light of modern business practices and see its difference from the old approach of maximizing profits and shareholders' wealth.

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In the last two decades there has been an enormous change in the nature of the triangular relationship between companies, state and the society. Firms can no longer continue to act as independent entities regardless of the interest of the general public. The evolution of the relationship between companies and society has been one of slow transformation from a philanthropic coexistence to one where the mutual interest of all the stakeholders is gaining paramount importance. Companies have started realizing the fact that in order to gain strategic initiative and to ensure continued existence, business practices may have to be moulded from the normal practice of solely focusing on profits to winning public goodwill and responsible business etiquettes (Reynard and Forstater, 2002) The examination of the factors which have led to the development of this concept of corporate social responsibility could serve as an ideal ground to develop conceptual frame work of essential corporate business practices. The business environment has changed dynamically due to expansion of the business territories outside the boundaries of the countries subject to current globalization where the phenomenon of open economy allows different economies to interact ensuring efficient and effective trading relations between the countries.

The current trend of globalization has brought a realization among the firms that in order to compete effectively in a competitive environment; they need clearly defined business practices with a sound focus on the public interest in the markets (Gray, 2001). The increased competition among the multinational companies to achieve first mover advantage in various developing countries by establishing goodwill relationships with both the state and the civil society is ample testimony to this transformation. Thus CSR exhorts firms to diverge from their sole aim of maximizing profits and to lay more importance on improving the economic and social standards of the community in their countries of operation. CSR can be thus simply defined as the additional commitment by businesses to improve the social and economic status of various stakeholders involved while complying with all legal and economic requirements. The quality of life of the general public who are the major stakeholders of the organizations and whose wallet share sums up to the ultimate revenues generated by the companies has to be on the prior objectives of the companies and strict observance of the standard practices dictated by the CSR in terms of product and service delivery ensures it. The quality of life of consumers could be improved through product and service quality. The three major elements of CSR are product use which focuses on contribution of industrial products which help in well being and quality of life of the society, business practice which focuses on good corporate governance and gives high impetus for the environmental well being and equity which tries for distribution of profits equitably across different societies especially the host community.

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The developing economies witness the CSR penetration in to their business practices on a small scale. The evaluation of seven Asian economies like India, Indonesia, Thailand, Singapore, Malaysia, the Philippines and South Korea by Chambers, Chapple, Moon and Sullivan (2003) reveal that the CSR penetration vary amongst them with Indian economy showing the largest figure i.e. 72% far greater than the 41%, the mean value for the Asian countries. CSR is considered inbuilt in the business existence of the traditional firms in the emerging markets like India (Mohan, 2001). Many researchers have the view that the CSR in the Asia is in infant stage as clearly reflected from the comparison of the mean value of United Kingdom and the Asia which is 98% and 24 % respectively and it will take a long time to get mature after crossing number of upcoming obstacles. A suitable underlying mechanics driving the practice of CSR is required to be chalked out in all earnest which could facilitate the real spirit of this domain and is not restricted to just charitable outlook which is a usual practice in the Asian frame work. Moon (2002) differentiates between three types of CSR reporting parameters 'community involvement', 'socially responsible production processes' and 'socially responsible employee relations'. In the developing countries mostly the focus is on the first parameter mentioned above.

There has been an observation that consumers consider switching to another company's products and services, speak out against the company to family/friends, refuse to invest in that company's stock, refuse to work at the company and boycott the company's products and services in case of negative corporate citizenship behaviors. Firms across the globe are beginning to grasp the importance of intangible assets, be it brand name or employee morale (Edenkamp, 2002). Only firms that have gained the goodwill of the general public and are ideal corporate citizens will be to develop these intangible assets into strategic advantages. High brand equity is one of the major benefits a company reaps through observance of high quality CSR practices earning the good will of masses and ultimately conversion in to brand popularity enhancing the revenues earned at the end of the day. This is how the social welfare development activities exercised by the firms in terms of charity, health awareness campaigns, literacy programs, entertainment shows, study scholarships so on and so forth are the activities at corporate level to win the trust and good will of general public is linked to the net earnings of the company.

India falling in the category of developing nations is exposed to so many issues revolving around the community and the society of the country. The organizations that are focusing on resolving those issues apart from running their businesses have been able to cash the sympathies of masses of the state with a huge population and also at the expense of government negligence towards handling those community problems.

Companies turning in to brands on the basis of popularity amongst the general public sustains on the screen for a longer and longer time span and finds market share growth and enhanced business volume in a shorter time span as this is one of the most effective and efficient marketing tools of the organizations. At the end of the day these organizations are enabled to give better returns to their share holders in terms of risen share price value and earnings per share (EPS) which is the ultimate objective of every organization compared to those companies who are highly focused on maximizing their share holders wealth and equity. The organizations with profits oriented approach lag behind the ones with community focused because of missing the very important aspects of the modern standard business practices which play a tremendous role in the success and sustainability of the organizations and various studies reflect that how the CSR practices are linked to the revenues, stock value and EPS of the organizations.CSR practices could be utilized as a best marketing tool available in the market serving both the implicit and explicit objectives of the organizations what so ever. We can conclude that these practices provide a competitive advantage and an upper edge to community focused approach over the profit oriented one. The instant apparent cash out flows in the short run multiplies many times in the form of cash inflows in the long run. So this is how the profit oriented approach of the organizations turned in to customer oriented approach with the passage of time in order to keep pace with the changing trends and consumption patterns of modern men. This approach has been equipped after a long journey by the businesses through variety of experiences amid the way.

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