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Globalization has made many firms to target India because it is one of the emerging market in the world. To enter Indian market is very challenging because of its diverse culture and political system. This dissertation is mainly concentrated on "Problems faced by western firms in Indian Economy". Since there are many problems faced by western firms in Indian market the author`s research will mainly focus on problems like , Indian infrastructure, Indian culture, corruption, Indian legal system and political risk.
India is a country with a population of 1.169 Billion according to May 2009 census .India is located in the southern part of India called South-Asia. It is the country with the largest democracy in the world and the highest diverse and complex culture in the whole world. The main metro cities in India are Mumbai, Kolkata, Delhi, Chennai, Bangalore and Hyderabad. The capital city of India is New Delhi and the financial centre of India is Mumbai. According to Desai,R(1999) India is the seventh largest country in the world. The climate of India is always changing. India receive rain from south west monsoon in the month of June- September.
In India the national language is Hindi and there are also other 18 official languages. English is spoken mostly in commerce, administration and higher education (Desai,R.1999). The main religion in India is Hinduism followed by Islam, Christianity, Sikhism, Buddhism and Jainism and the main Ethnic group of India are Indo-Aryan 72%, Dravidian25%, Mangoloid 2% and others. The Fiscal year of India starts from April 1st to March 31st. There are 28 States and 7 Union Territories in India and it is the second largest population in the world. Indian Government provides free and compulsory education till the age of 14. The main industry is Agriculture which contribute to two-third of the population and most of people are living in rural areas than urban areas in India.
According to (Desai,R.1999) the India is following parliamentary form of govt based on UK Model. The three wings of Indian government are the executive, legislative and the Judiciary. The Executive consist of the President, the vice president and the council of ministers which is controlled by Prime Ministers and the legislature consist of lok Sabha and Rajya Sabha (Desai,R.1999). The Judiciary of the country is Supreme court. The main political parties in India are Bahujan Samaj Party, Indian National Congress, Bharatiya Janata Party, Communist Party of india (Marxist), Janata Dal and Samata Party (Desai,R.1999). According to 2007-2008 estimate India's growth in GDP is 6.7% and it is expected to rise 8-10% in the near future and Per capita income is $4139 according to 2007-2008 estimates. In India agriculture contribute to 17.1% of GDP and industry contribute to 19% of GDP .The major trade partners of India are Russia, USA, Japan, Iraq and European union.
Since. india is a very big market, so there are number of problems faced by western firms in indian market. when foreign companies coming to india to do business the problem faced by their home country will be different from the host country. There are number of factors like business etiquette, corruption, infrastructure, culture, government policies and intellectual property rights etc.
According to 2007-2008 estimate the GDP growth of 6.7% makes India, the fastest growing economies in the world and the second fastest in Asia. Indian economy has the second largest car industry in the world and in terms of Purchasing power it is the fourth largest economy in the world. After NYSE, the largest number of companies listed is Bombay Stock Exchange and that is 6,600 companies. It is one of the country in the world that has its own satellites. According to Tholons Research the main client classification in India are Government, Public, Private and Multi National Companies in India.
Due to higher growth in GDP, industries like Insurance, Banking and Telecom are in a good growth but in order to remain competitive globally the clients should have proper skills, reduce time to market and also need to achieve the levels of process of standardisation. According to Central Statistics Organisation (CSO) the GDP for 2009-2010 estimates is considered to grow at 7.2% with the service and industrial sector growing at 8.2% and 8.7%.
In India consumer markets are divided into urban and rural markets. According to study by (RMAI) Rural Marketing Association of India the rural market is not affected by the global recession so studies shows that there has been increase in rural market by 15% . But Urban area is affected by global recession by 25% according to paper of CII-Technopak. Since Rural market is not affected by global recession many companies like Godrej and Hindustan Unilever are targeting rural markets to increase sales and also increase their marketing efforts to take the advantage of potential rural consumers. It is also targeted by MNC drug companies in order to sell their products in rural markets.
Consumer Behaviour is always changing and challenging as people in different states have different tastes and preferences. In India most of the people in urban areas are using luxury goods. The Major Development in Indian consumerism is the rise of rural market for different basic goods. The Middle class is given high boost to consumer culture and it is expected to grow in future. Due to increase in number of middle class most of the people are shifting from agriculture to service sector. Another Factor that lead to change in consumer behaviour is the credit culture. Now a days Indians are not worried about paying in card as in the past it was most negligible.
The rise in credit culture is due to rise in purchasing power of customer. Today Indian's are aware of product, price and quality whenever they purchase any products. In the past price plays an important part in purchasing but now Indian consumers consider value for money than price. The reason for increase in purchase power is the rise of number of middle class Indian consumers in Indian market. Factors Affecting consumer behaviour are geographic locations, occupation, purchasing place and environment of the consumer. Cultural factors affecting consumer Behaviour are product (colour, design, shape), social practices and decision making by male person in the family etc.
In india to do business the etiquette of indian business should be followed and it is very important for doing business and there are number of business etiquette to be understood while doing business in india. In India due to diverse culture the factors like caste, regionalism, religion and language should be considered when doing business in India. In india we should understand the importance of culture when doing business because it is given more importance than business matters in india. The infrastructure should be considered when doing business and the main problem with indian infrastructure it will take long time to make decision in india and also it is time consuming in india , so it will a problem for foreign investors. The problem of corruption is another obstacle faced by western firms in indian market . since corruption is affected in all levels of business firm in india means we have to give bribe to each and every person of the government staff to get sanction for starting any business in india. The government policies are very long process so it will take months to get a bill passed from government and there are so many problems that needs to understand by western firms operating in india. The detailed explanation of all business difficulty faced by western firms in indian market are explained in the remaining pages of literature review.
Purpose of the Study
"The purpose of this dissertation is to study about Indian market environment and the problems faced by western firms during their operations in the Indian market".
Objective of the Study
1: How the Indian government policies cause a problem to the western firms operating in indian market.
2: How western firm should deal with Different cultures of Indian states when doing business in the Indian market .
3: Obstacles faced by western firms in indian Infrastructure.
The literature review is the most important part of this project. In order to understand problems faced by western firms in Indian market it is essential to analyse and know about India in a basic manner.
India In General -Introduction
According to Kumar, R and Sethi, A. (2005) India has the biggest number of post offices, the largest railway network in the world, the second highest number of technically trained manpower and the highest number of students completing from universities every year.
The famous diplomat and author Pavan Varma.(2004) describes India as a difficult country to define and characterize ,especially today when they are transition, emerging from shadows of history into the glare of a globalizing world. The task is dealt with obstacles and India is too large and too diverse to allow for convenient cover all labels. In India according to Hindu belief the significant events, functions, meetings and shopping's should be avoided during specific time of each day called " Rahukala". Rahukala is connected with the mythical planet "Rahu" (the seizer) and it is believed that it occurs due to the course of eclipses. In India people who are born in rahukala are not expected to rest in peace, will earn only less money and will not engage much in social well being.
According to a leaders global market research firm "synovate" is said the cricket is the most favourite game to watch on Television that is 93% and also the most watched live video on television that is 74% ,So most western firms who wish to do business in India are using cricket and bollywood actors to promote their products in Indian market. It is said that Indian's are most passionate about three things like food, films and cricket(kumar,,R and Sethi,A.R.2005)
Causes of Difficulty In Doing Business In India For Western Firms
Business etiquette are the rules governing business in different countries and it is different in different countries. For example rules governing in UK is different from India. It refers to standards and values that is suitable to the people and which is socially acceptable.
Rules of Business Etiquette in India
The importance of business etiquette include trust, reliability and courtesy which increases the goodwill of firm, increases opportunities in business and helps in developing new business relationship. In india business etiquette depend on culture as different states have different culture so that what is good in one society will be bad for another society. So inorder to have a good business relationship the understanding of culture is very essential and for this the business etiquette will be different by company rules, regulations, region and business speciality. So understanding of business etiquette is very important while doing business in india.
There are number of business etiquette when doing business in India. In business meeting always address the Indian businessmen with titles like Professor, Mr, Mrs or Doctor and if no title is given address them using Sir or Madam. In India when doing business do not offer to have alcohol or smoke as most of the Indians are vegetarians. Indian meeting usually starts with a handshake. Indian mostly use Namaste and by using Namaste in business meeting is a symbol of understanding Indian business etiquette. Business cards should be placed at first meeting when conducting business in India .It should be received and given with right hand and make sure it is given properly otherwise it is shown as disrespect in Indian meetings. It is better that one side of card should be translated in Hindi to show respect to Indian culture in business meetings. When doing business in India, the meetings should be arranged well in advance. The meeting should be well written and should be conformed by phone. Avoid meeting during the month from October to March as it is too hot climate and also during public holidays like Gandhi Jayanti, Deepavali, Idul-ul-fitr Independence Day, republic day etc. (http://www.kwintessential.co.uk/etiquette/doing-business-india.html)
When doing business in India Hierarchy plays an important role in Indian business etiquette whereas in western firms hierarchy is given only less importance. For example in companies the manual work will be done by "peon" and no one in the office will do manual work to move a desk to other place as this shows that hierarchy plays a significant role in Indian business. In India when doing business Indian's always like to keep long term relationship with business partners and Indians conduct business with only those who know them well and trust. So In order to gain trust of Indian business partners western firms needs to build a good relationship with good Indian business partners who know the Indian business conditions and market well in order to succeed in Indian market. (http://www.kwintessential.co.uk/etiquette/doing-business-india.html)
When operating business in India, do not shake hands with female staff out of respect and in western firms it is just opposite. When entering business room in India we should greet the senior most person first and all important decision are taken by senior most person in India. Punctuality is considered even though 10 minutes late will not matter in India when conducting business meetings. Since Family matters take importance over business last minute cancellation is possible when conducting business meetings. (http://www.kwintessential.co.uk/etiquette/doing-business-india.html)
When doing negotiation it usually take long time and also it is very slow and should not be angry and be patient to control it. Don't be aggressive and arrogant when making business negotiation in India. Indian business take decision not only based on PowerPoint presentation, statistical data but also based on emotions, feelings and faith and should avoid high pressure tactics. If Indian business men say "I will try " or " we 'll see" means they are not interested in business terms. When Indian business successful end negotiation they will end with the offer of dinner and don't neglect it as this may show disrespect to Indian business culture.( (http://www.kwintessential.co.uk/etiquette/doing-business-india.html)
Corruption In India
According to Lasserre,2003 corruption can be defined as `the abuse of public office for private gains'. It damages the public properties like infrastructure on which the business growth functions causing inaccurate and expensive services(Doh, et al, 2003).Mrs Indira Gandhi told that Corruption is not Unique to India ,it is a global phenomena in an attempt to reduce corruption in politics during her Government rule. According to Pavan Varma " Corruption has grown endemically because it is not considered wrong, so long as it yields the desired result". In order to run business smoothly in India many industrialists and businessmen are giving money to politicians to run business effectively. India was most corrupted during " licence-permit" regime period and it is substantially reduce during the liberalization of Indian economy in 1991whereas in western firms the corruption is very less. The main reason for corruption is the politicians and business man and lack of fund by government are the factors for the corruption in india.
According to UNDP 1998 corruption have most destructive effects in developing countries as it is main obstacles in economic growth and democracy. The studies shows that in spite of recent measures to reduce corruption and improve service delivery there has been wide difference between perception and actual experience about corruption in public services and states like Assam, Jammu and Kashmir, Bihar, Madhya Pradesh and Uttar Pradesh have high level of corruption while Himachal Pradesh, Uttaranchal, Delhi and Punjab have a medium level of corruption in case of using public service by BPL households( TII-CMS India Corruption Study 2007).
The Table below the rank of 11 public services in BPL House hold in india.
Table 1: Services Ranked In India
School Education ( up to 12thclass)
PDS* Public Distribution System.
NREGS* National Rural employment Guarantee Scheme.
Source-TII-CMS India Corruption Study 2007.
From the above the table we see that school education is least corrupted and most corrupted is police . From this we can see that basic services are less corrupted than need based services. For starting a business in India need based are very important in India ,since need based are more corrupted it will be difficult for foreign investors to start a business in India.
According to Doh et al some scholars said that corruption in india is both pervasive and arbitrary. The studies shows that one third of Below Poverty Line (BPL) household are giving bribes to avail of more than 11 public services in India (TII-CMS Study India Corruption Study 2007). According to The Council of Europe Criminal Law Convention(1999) proposed to harmonize the national law on corruption and also have the right to criminalize both national and domestic bribery and also various forms of corruption.
The table below shows the estimates of bribes of 11 public services in BPL Household
Table 2 .Estimate of Bribe
Total Bribe paid in the year (Rs. in millions)
School Education (up to 12thclass)
Total for 11 Pubic Service covered in the survey
PDS* Public Distribution System.
NREGS* National Rural employment Guarantee Scheme.
Source- TII-CMS India Corruption Study 2007.
From the above table the we can see that the most important factors for building up a business are police, electricity, land record/registration and Housing which are most corrupted in this table so from this table we can see that it is corruption that will be a major problem for western firms for setting up business in India.
Infrastructure assets are the network and physical structure that is used to provide significant services to a society. It is considered as a tangible assets to set up a business , can be regarded as the backbone of the economy. It is broadly accepted that india's infrastructure is filled with weak transport networks, airports, ports that do not meet up with current demand.
In this competitive global market it is important to understand that good infrastructure can increase competitiveness both internationally and nationally and also for achieving stable development objectives. In order to achieve good economic growth in the long run it is essential to have a good social infrastructure and education system. Without proper power and latest transport facilities it will not possible to develop economic growth in the long term.
According to TII-CMS Study 2005 there is outdated infrastructure in India that means service have improved but infrastructure does not cope up with service growth. For example According to this survey water delivery is most outdated in most Indian states and most of the pipes are always damaged. The infrastructure such as road, telecommunication and electric power ,sanitation are the infrastructural problems faced by western firms when operating in Indian market. India's commerce and industry minister said that without proper infrastructure we can't continue to grow further that we had now. For example Daniel Vasella the chief exective of pharmaceutical giant Novartis (NVS) said that "if you want to build a road in china a small number of people is needed to make a decision but if you want to build a road in india it will take 10 years of discussion before the decision"
Reasons for Poor infrastructure
In India the reason for poor infrastructure is that modern concepts like just in time production will not work because of lack of modern infrastructure facilities like road, rail, water and supply and due to the problems like crossing the border between different states of India which result the western firms to fear in investing in Indian market(Heymann et al (2007). The slow growth in infrastructure gap is the main reason for the slow economic structure in India. In India both urban and rural infrastructure are worse than expected due to lack of infrastructure facilities . According to UN estimates three of ten largest cities are situated in India and all ten cities in the world are expected to grow by 20% by 2015.
According to world bank 2007 no city in India has water 24 hours a day , seven day a week and the metro cities like Bangalore , madras and Hyderabad the quality of water is getting worse. India infrastructure rank on 67th position in the global competitiveness report 2007 in comparison with china 52th , Russia 65th and brazil 75th position.
There are many obstacles for Indian infrastructure and some of them are politics, lack of fund, regulatory framework and so on. In politics the barrier means the political stability of the government that is government interference and breaches of contractual obligations neglect the foreign investors to invest in Indian infrastructure. Lack of fund means the politicians are not using public service and they are using for personal purpose which result the government in shortage of funds to invest in infrastructure facilities. The 12th finance commission recommended that India need an additional grant of INR 150 bn for the four year production from 2006/07 to 2009/2010 in order to build good roads and bridges(Global Insight 2007). In order to increase investment in infrastructure India need a co-operation of public -private partnership in order to improve the infrastructure facilities in India. The foreign investors are not willing to invest in Indian infrastructure due to regulatory framework in India.
India have developed many infrastructure plans to improve infrastructure facilities like National Highway Development Programme(NHDP) and Pradhan Mantri Gram Sadak Yojana (PMGSY) but does not have an overall infrastructural plan which resulted in delays and so many problems. According to Government of india ( 2006) suggest that India will concentrate on three factors in order to improve infrastructure facilities in India. First one is to improve the broadband service via internet. Second one is to modernise telecom equipment production and third one is to develop network to expand telecommunication service in rural India. In order to increase investment in infrastructure the western investors should be motivated.( http://www.scribd.com/doc/927005/450-Bn-Reason-to-Invest-in-Indias-Infrastructure)
In concluding remark it is now India understood the importance of foreign investment and the significance of infrastructural facilities in order to increase the FDI flow in India. While investing in India there are three significant risks that needs to be considered when doing business in India. First one is that the issues like rules of the government and distribution should be analysed when making provision of infrastructure . The second reason is that India is a homogeneous country rather than single sub continent. For example that states like Gujarat, Delhi and Maharashtra will a good place for the infrastructure growth in India. Third one is that in India different infrastructure classes have different characteristics so each class have different risk so it should be analysed properly. In order to have a good infrastructure Government needs to shake off it rule of bureaucracy , political system and should decrease corruption. (http://www.dbresearch.de/PROD/DBR_INTERNET_DE-PROD/PROD0000000000218232.pdf)
The Culture factors when doing business in India.
The scholar and business author describes culture as the " The collective programming of mind" and explains that it lies between human nature on one side and individual personality on the other (Hofstede 1991). According to Harris P. R and Moran R.T (1987) defines culture as " A distinctly human capacity for adapting to circumstances and transmitting this coping skill and knowledge to subsequent generations. Culture is a shared value and is derived from social environment and not from family genetic . Culture is a group development and culture is different in different countries. According to Trompenaars (1993) culture is a collective way in which a group of people interpret and understand the world.
The indian culture is totally different from western culture and the importance of culture is very essential when doing business in india as india is have large number of diverse culture in different states , so it is must for western firms to analyse each state culture to do business in india.
According to Zaidman (2001) he said that in order to succeed in India, is to understand the tradition and way of communicating with others which form the basis of Indian society. It is said that religion is the way of life and should be respected to maintain a good business relationship in India ( Gorill 2007). According to Hoecklin,L (1995) warns that cultural differences if not properly handled can lead to costly misunderstanding, business failure and management frustration.
According to J.B.P.sinha et al (2002) Indian's maintain collectivistic behaviour when they are talking to family members and they behave individualistic manner when are dealing with non family members. Indian's use both individualistic and collectivistic according to different situations. Indian's use individualistic behaviour to gain collectivistic aim and use collectivistic behaviour to gain individualistic aim.(Kumar and Sethi,2005) So it will be difficult for western manager to cope up with Indian manager behaviour in business.
An example of KFC about how culture become a problem when doing business in india. The failure of KFC to cope up with Indian culture. Even though it opened its main stores in metropolitan cities like Delhi and Banglore it faced many obstacles from many competitors and also from small business. The main reason for that they did not direct control with local partners for help and support rather than direct control. Then they advertise using western ideas which is not used by Indian as Indian's are mostly don't accept foreign culture . So in order to succeed in Indian we should analyse the Indian market condition first and also understand the political climate of India market to remain competitive in India.(Marita Von Oldenborgh ,1996).
In Indian Culture hierarchy plays an important role and also considered as the major part of the Indian civilization. According to J.B.P.Sinha ( 2005) " hierarchical orders denote that whole cosmos and everything within it - animate as well as inanimate- are arranged in a hierarchical order of being superior to same and inferior to others." Due to Hierarchical order decision are made by top manager and decision process is very slow . Communication style of Indian's are indirect as most Indian's are unwilling to say `no`.(Kumar,R.,2007).
A Danish manager commented that Indian's will tell one thing ,think other and do third thing, ,which is not what Dane would do" and this comments shows that Indians will behave differently in different situation(M.L.Hughes,2002). Indians behave in a context sensitive manner and there are three aspects for this like desh (place), kal(time ) and patra (person) (Sinha and kanungo,1997). Due to context behaviour there are number implications for this like it will result in unpredictability and it will loose the trust of the partners, it will create hindrance in communication and it will make a good idea less important( Kumar and Sethi 2005).
Since Indians follow hierarchical order they always depend on superiors for help which is considered a negative for western managers. So Indians believe in nurturant leadership that means Indian employees are more personal than organizational. A good example of this leadership is the case of Tata steel. Russi Mody The former managing director and chairman of the company give the following advice" Given the choice between result oriented, rules oriented or people oriented, choose the last one and rest will fall in line automatically"( Sinha and Mohanty, 2004).The dependent relationship should be studied by the western managers when doing business in India.
.Indians are relatively good in building strategy but they are weak in implementing strategy( Kumar and Sethi 2005). It is essential for the western managers to understand both behaviour and thinking pattern to become successful in doing business in Indian market.
Table showing Difference Between Eastern and Western Culture
Many scholars argue that there is difference between eastern culture and western .The basic difference between two cultures on societal basis are shown in the below table.
TABLE 3: Cultural Solution to Universal Problems
Inherently good and evil
Inherently good and evil
Nature of Time
Rule by man: deference to paternalism and reliance on trust
Rule by law: deference to rationality and reliance on legal contracts
Indirect-Oblique: sometimes best to tell
Direct-Honest: always best to tell
Collectivistic: meet group needs and group obligations
Individualistic: meet individual needs and rights of individual
Sources: Adler (1997); Smith(1995); Chen (1995); Xing(1995); Trompenaars(1993); Evans, Hau & Sculli(1989); Kelley,Whatley, Worthley& Lie(1986).
The table above clearly shows difference between western and eastern orientation on societable basis and this table helps to understand the eastern and western culture clearly. But In order to understand more detail about western and indian cultures hofstede theory should be applied. For that two different cultures should be taken. To do this United states is taken as western culture with help of hofstede theory to understand the difference between United states and indian culture.
According to Hofstede G.H .(1980)" culture is the collective programming of the mind which distinguishes the members of one human group from another". India have high power distance, low to medium uncertainty avoidance, low individualistic and medium masculinity and united states have low to medium power distance, low to medium uncertainty avoidance, high individualism and high masculinity.
The Figure 1 shows the comparison of two cultures like united states and India to show the difference between western and Indian culture.
The Figure 2 shows the world's average for hofstede five dimensions of culture and the average score of all countries rated according to hofstede theory.
Main Source: www.geert-hofstede.com
United states have low power distance of 40 compared to world average 55. Low power distance is a good sign of equality between societal levels including organizations, government and families. Lower Power distance will result in less centralization and managers are more practical and systemic when doing business.(Hofstede.G.1984).
In India the power distance is very high that is 77 compared to world average 56.5 that means there is high inequality of power distance . High power distance cause corruption in the society and also result in downfall of government. In business it will result in higher centralization and managers are not practical and systematic .(Hofstede.G.1984).
According to Hofstede cultural dimension United states and Indian culture have very big difference in power distance it might a problem for western firms to do business in India . So western managers will face difficulties in managing organisation and Indian business people.
Individualism v/s collectivism:
United states have the highest individualist dimension of 91 that is above the average of 43. Due to this united states is more self reliant and individualist attitude. High individualistic managers are creative and always try to be innovate new ideas and importance is given to individual goals and achievement.(Hofstede.G,1984).
In India the individualistic rank is 48 with the world average of 40. It means the most of the Indian people are collectivistic. Due to this managers are not creative and innovate in making ideas and they rely on group decision and importance is given to organisational goals.
Since the greater distance between India and united states culture exists it will be difficult to manage human resource management in India for western firms operating in India.
Masculinity V/s Femininity
According to Hofstede masculine culture are more rigid in manner than feminine culture. The united states have masculinity rate of 62 which is above world average of 50 that means there is great difference between gender roles. It means male controls an important part of the society.
India have masculinity rate of 56 with world average of 51. It means it is almost same as United states. Since both countries have high masculinity than world average it shows that there is no much gap between male and female role in both countries.
In this United states have uncertainty avoidance of 46 compared to world average of 64 that means USA have low Uncertainty avoidance with world average. According to Adler 1986 high job mobility are common in low uncertainty avoidance like USA.
As India have uncertainty Avoidance of 40 compared to world average of 65. Due to this it is more open to unethical ideas and situations. Even though there is only little gap between two countries it might be problem for western firms.
Long term orientation v/s Short term orientation
The United States have the lowest Long Term Orientation dimension that is 29 with world average of 55. The low Long Term Orientation dimension will result in meeting its obligations and shows appreciation for culture traditions.
India have a Long term Orientation dimension of 61 compared with world average that is 48. It means Indians believe in long term goals than short term goals. So this might be problem for western firms operating in India.
The difference between the united states and Indian culture shows the difference between two cultures and also shows what are cultural problems faced by western firms when doing business in India.
To conclude there are large number of cultural values to be considered when doing business in India. In order to achieve business objective in India western firms need to consider the factors like to have a good relations with Indian colleagues, should be able to communicate in a good manner and should reach the right person to complete the task effectively and should co-operate with Indian managers to plan and execute the strategy effectively in India (A.E.Fantini). The factors like leadership styles, decision making process and attitude towards words needs to be considered and also there are cultural norms for joint venture relationship, relationship with government authority and outsourcing partners. So western firms need to understand all these cultural challenges when doing business in India otherwise it will be difficult to western firms to do business in India.(Kumar, R.2007).
Effects of Changing government Policies on Foreign businesses
India is a country with a high degree of nationalism and unstable democracy which causes many problems for western firms in Indian market. The problems are nationalism, bureaucratic in fighting and corruption.(Kumar, R and Sethi,A.R, 1995). When operating business in india the rules governing indian government should be followed ,which is completely different from international law.
One of the best example of nationalism is the case of Pepsi and coke. The non-government organisation claim that pesticide exceed the limit proposed by EU norms. Then the Indian government banned the product but when actual test is taken by central government due to pressure from Pepsi and coke company it shows that the pesticide didn't exceed the level proposed by EU norms. This case shows that how easily nationalism affected in India so it should be analysed properly.(Kumar,R 2007).
According to N. Assaine et al(2003), said that in terms of bureaucracy Canadian businesses told that the length of the time, paper work and uncertainty in business transaction were difficult and once signing the contract there is no guarantee for market access. Change in state Government also lead to cancellation of projects and it took years to know the status of the project .So according to Canadian businesses they considered the government rules as one of the greatest barrier in doing business in India. Another major hurdles for western firm to invest in India is corruption. Due to corruption it increase the cost of doing business in India and also have a negative impact on FDI (J.E . Campos, 1998).
Indian legal System
There are number of business laws and legislation to be followed when doing business in India. Indian legal system follow English common law that accepts international court of justice jurisdiction with reservations and with limited judicial review of legislative act(world fact bank 2003). The Indian constitution was formed in 1950. The constitution of India assures equal rights to all parties and prohibits discrimination on the basis of gender, caste, religion ,race and allows worldwide franchise which makes the India the largest electorate in the world.
The main parts of Indian constitution law are constitution, statutes (legislation) , customary law and case law. Supreme court is the highest body in the whole judicial system. Each state have high courts and there are many subordinate courts under this .The judges of the supreme court are appointed by president of India. Since the govt policies are delayed due to backlogs and postponement of meetings and also due to the lengthy process of Indian legal system most of the companies are solving business disputes through arbitration process. In order to have world wide practice for arbitrary process Indian government have modified and had entered into arbitration service agreement with international organisation like USA and Europe. (Desai,R . 1995).
The features of Indian independent judiciary are the power to punish for the contempt, the modus operandi adopted in appointments and the fixed tenure of the judges. It is said that independent judiciary is the backbone of Indian economy and it is independent and example of Indian economy are imitated by the world. (www.aislsnet.org/meetings/ enriching/singh.pdf)
Table Showing the barrier Of Government policies In India For western firms
Table 4: Indicators of barriers to entrepreneurship in selected regions:
Administrative burden on:
Start up in general:
For sole proprietor firms
Source: OECD 2007
OECD*- Organisation for Economic Co-operation and Development.
According to this table we can see that India have high administrative burden than Latin America, OECD emerging markets, Euro area and USA. This table shows that India have a high burden on administration to start up a business and a corporation and sole proprietor firms for western firms when doing business in India.
According OECD study India is twice restrictive as OECD emerging markets average due to high economic regulation and administrative burden. Due to bureaucratic regulation in India the German based industrialist says that it took six months to set up a liaison office in India. Almost all foreign companies complaint of procedural delays, higher taxes and less suitable labour law. Due to strict Indian labour law India rank at 96th position in case of Government rules according to Global Competitiveness report 2007-2008.
Intellectual Property Rights:
It refers to creation of mind that is invention, industrial design for articles, literacy and artistic work, incomes and symbols used in business.
India has well established intellectual property rights in accordance with TRIPS agreement of the WTO. India's intellectual property is established in statutory, administrative and judicial levels. Police officers can take action against infringement of Intellectual property rights. The intellectual property includes patent rights, copyrights, trademarks and design act.
Even though it has a good intellectual property rights but according to foreign investors intellectual property rights is weak . An example of this is the case of Novartis shows that the patent right in international pharmaceutical and chemical firms is weak. The Indian controller of patents and designs rejected the Novartis patent "Glivec" for three reasons like the product is a substitute of a known substance, priority and expectation of earlier use (Sukumar, 2006). But Novartis argued it is accepted in the countries like Russia, china and Taiwan and he told India have violated the of article 14 of Indian constitution.( http://www.eastwestcenter.org/fileadmin/stored/pdfs//econwp096.pdf )
The weak intellectual property in india destroys the livelihood of modern artists and welfare of consumers and workers. India have weak copyright and enforcement system and due to the piracy of copyrighted works like movies, books, software's are easily widespread. In India since intellectual property are weak it will not encourage prosperity and creativity. In order to prevent the companies like BSA -business software alliance and NASSC- national association of software and service company are teaching customers about bad effects of piracy in India and also development in enforcement is need to prevent pirated goods. Since Intellectual property rights is weak it will difficult for western firms to do business in India. (http://asianforum.jp/topics/2006/pdf/Hudson_III.pdf).
International business risks
International risks are the risks that a foreign firm face difficulty in doing business in host country than home country and it is completely different from home country. There are number of factors needs to analysed when doing business in host country . Some of the factors when doing business are explained in the following paragraphs.
The strategic risk is one factor that affect the ability of firm to make a strategic decision and also have strong consequences on the competitiveness of the firm so this should be analysed when doing business internationally.
The political risk like political instability and nationalism factors should be taken when doing business internationally as different countries have different political system. For example the case of Pepsi in india like they were forced to withraw from india due to nationalism like indian government want to protect their own soft drink company.(Lee.K and Carter,S, 2005)
The country risk like culture , government policies ,economic policies and political conditions should be analysed when doing business internationally as this will affect the business adversely.
The legal environment is different in different countries and actually there are three types of law like common law , civil law and Islamic law and this law are developed based ion country's culture, traditions and religion. The countries often restrict foreign companies to enter new country by imposing tax, trade barriers inorder to protect their own products and companies. (Deresky,H, 2008).
The technological factors like outdated technology, lack of security in e- commerce and cost of creating new technology are the problems when doing business in international area and also environment risk like air, water and air pollution which the reputation of the company and economic risks change in exchange rates, foreign investment and monetary policies should be analysed when doing business internationally. In order to avoid risk in international business the firms who are willing to do business in foreign country should conduct risk assessment of each country and need to analyse the risks like corruption, intellectual property rights, ownership barriers etc before entering into a new country.( http://ezinearticles.com/?Risks-in-International-Business&id=1331702).
India is very huge market with a lot of opportunities in it for the foreign companies. Most of the foreign companies are targeting Indian Market because they have understood the potential in it. Entering a market would be easy but sustaining in the market is the toughest part. There a quiet a lot of companies entering Indian market some are successful some are not one of the main reason is because they do not understand the market well. Some of the main factors these companies should consider while entering market are factors like culture, corruption, government policy, infrastructure and intellectual property rights.
Once these foreign companies accept the way India is and should be ready to do business by understanding the problems and the way India is they this business can make the most out of it. Foreign companies should understand Indian culture and the behaviour of the Indian consumers to be success full in India.