Impact of International Business in India
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Published: Wed, 12 Jul 2017
India has emerged as a potential and a diversified market for the Western firms and other foreign investors. Earlier establishing a business in India was a challenging assignment, but economic reforms, brought in by different Indian governments over a period of time, have smoothen the course of entry for Western multinationals and other business magnets. Still it is considered difficult and a different proposal to do business in or with India, mainly because of its different business and socio- economic culture. Western multinationals/ investors dealing with India so far had to adopt major changes in their business style in order to serve effectively to their customers. This write up examines in detail the prevalent business, socio- economic, and cultural environments that western multinationals have to face in India, as well the implications of their adopted major changes in business practices to succeed in India.
Business, socio- economic and cultural environments of India
- Family Business and non corporate culture
Despite revolutionary changes since independence of India, the basic business style has remained the same as of family controlled businesses. Leading business families, from Birlas and Tatas to Reliance, keep total control on business of companies promoted by them. Major management posts in these business houses are always held by responsible family members. Though joint family system is slowly disappearing, but still there is a common tendency in Indian families to own a business.
Another prominent feature of the Indian economy is that non- corporate sector has the largest share of the total business of the country. They are the largest employment providers. Growth in non- corporate sector is much faster than even in the corporate sector. Non- corporate sector is engaged in wide spread manufacturing and service industries, and these are again mostly family business. Non corporate sector work according to available conditions and develop their business models suiting prevalent conditions and systems. This way India is a high powered distant society. Western businesses will have to accept family authority while negotiating business deals with non- corporate as well as family controlled corporate sector.
- Multi Linguistic and cultural market with political challenges
The business language in urban India is local language mixed with English. It is also mixed with Hindi and state dialects making it difficult for a casual business operator to negotiate. There are wide ranges of languages spoken in diverse India. Accordingly, perfection in one language by a Western business negotiator does not mean that he or she can represent his/ her business deals effectively in all parts of India.
Though middle class rules the roast in India, but this class mostly believes in eastern culture, making it imperative for Western multinationals to adopt eastern tastes in their goods and services being marketed in India. At the same time it is difficult for foreign companies to standardize their products on national basis because of diversity in regional culture; but it may be possible in India on regional basis. Also foreign MNCs need to find out the consumers’ tastes in India before launching their products or services in Indian markets.
One thing is necessary to understand that economic growth in India has brought up its middle class to the fore front; and at the same time rural poor are largely isolated from the achievements of growth.”With a robust and working democratic system, India is a federal republic where bulk of executive power rests with prime minister and his or her cabinets. As a nation state, India presents a vast mosaic of hundreds of different ethnic groups, religious sects, and social castes. About one third of population lives in urban areas; an overwhelming majority of the remainder is engaged in the agricultural sector.”(Michael F. Martin and K.Alan Kronstadt, August 31, 2007) [i] An Indian is so politically informed or connected that it would not be wrong to say that every Indian treats himself/ herself as a politician in one sense or the other. With the result every political event in India has great impact on consumer markets.
Politically there is a relaxed atmosphere at present for foreign direct investments (FDIs). But businesses often get disturbed with unwanted political rallies and events. Very frequently opposite national political parties call for nation- wide strikes (called bandh in Indian dialect) on any hot issue. The entire economic process gets disturbed and with the result corporations and other businesses suffer huge losses. For example “on July 5, India went on strike. The country closed down at several places after opposition parties protested an increase in the price of petrol or gasoline. (In India, the government controls petrol prices). The Associated Chamber of Commerce and Industry estimated that nationwide strike caused a production loss of US $ 2.8 billion” (Human Resources, July 29, 2010) [ii] .
Indian economy is also badly bitten by the inflationary bug. Even necessities of life have become costlier for public at large. Average citizens find it difficult to save something for luxuries. Still luxuries like cars, foreign tours etc are being sold at rates that envy other economies of the world. But this is a fact of urban India only, where black marketing and corruption is rampant. Corrupt politician and business people make ugly display of their wealth.
There is no doubt that Indian economy is growing, but this growth is lopsided. The required growth in infrastructural sector is lagging behind. This has created a real bottleneck for long term growth and economic expansion. This information is necessary for Western MNCs to decide about their target sector as well the type of market available in India for their products and services. India is a free economy and taking advantage of this, many Western MNCs are also raising part of their capital investment from India itself.
BPO business brought in by multinationals in India succeeded because the MNCs exploited the conditions to best of their advantage. The shortage of infrastructure for BPO business was a matter of concern for MNCs. But MNCs found that building infrastructure in India is much cheaper than developing the same in western countries. India is a developing country with huge populations. Naturally the availability of educated labor force at lower prices was a distinct advantage that MNCs exploited to enhance their overall profitability. Indian young population has proved to be more hospitable and courteous than their counterparts in Western countries. Educated young people have a lot of command in English language making it very easy and economical to get the customer convinced about the product being marketed by BPOs. The result is that BPO business in India has become not only a profitable for MNCs, but a bread earner for thousands and lakhs of its staff without pressing government resources.
Changes adopted by international firms to serve customers in India
Adoption with local conditions or changing of business rules provide international business to grow firmly. Western multinationals have taken many rational and objective decisions keeping in view marketing and other conditions prevalent in India. Changes in business style are necessary as the risks in the international business are not the same as in domestic markets. Some of changes adopted by Western MNCs to serve their Indian customers are discussed hereunder.
- Organized Retailing and direct marketing
Barring exceptions like Bata stores and few others, retailing in India so far has been fragmented and not organized. Organized retail stores and trendy chain stores to catch the young customer is be one of the major changes brought in India by Western MNCs to serve and attract their customers. Though the trend is same as in western countries, but organization style has changed. Family owned businesses are being attracted to own retail stores and develop a chain of stores as franchisee or under other arrangements with MNCs. A few successful examples are McDonalds, Levis Strauss and others.
Organized retailing is growing in India. With the results manufacturers are loosing their positions. Even local brands like Pantloons and Shoppers Stop are offering competitions to manufacturers’ owned stores. An organized franchisee style of retailing has ushered. It is also seen that family owned businesses seek franchisees of western MNCs. Many multinationals are entering Indian market though partnerships with local giants in the organized retail sector.
Direct marketing is another change brought in by the MNCs. Earlier joint venture technique of marketing has changed to direct marketing. Products are not being sold on agency basis. Goods are not manufactured but traded by MNCs in chain stores either owned by them or their franchisees. Earlier the trend was to find low cost manufacturing location in India for producing goods in India, and then marketing the goods by entering into joint venture agreements with local giants. No doubt MNCs are still benefitting from low cost production, but the trend has changed to offer the products and services directly to customers.
- Creating products to serve Indian markets
One of the major changes that western MNCs have made is the introduction of products and services that suits Indian style of consumption. “This means not only developing affordable products and services that deliver value to the customer, but also finding right kind of distribution channels and designing credit systems to permit the access of the poor to financial services.” (Michael John Baker and Susan Hurt, 2007) [iii] In fact MNCs are taking full advantage of availably of large number of engineers, technicians, and other experts to introduce products as per Indian tastes of consumptions. Take the case of US Pizza Hut selling pizzas through its outlets in India. “What they have brought to India is not an American style pizza but a way of serving food in a nice, clean, bright place at a price an ordinary family can afford. But the food they serve is what Indians like. In many cities in India, Domino’s offers a 100 percent vegetarian pizza, cooked in a separate kitchen where no meat items are allowed.” (Subash C. Jain, 2003) [iv]
In fact marketing style the product has also changed by Western MNCs. For example creating small packs with simple designs and less volume at affordable prices will not only boost sale but also create brand awareness among a particular section of consumers. Introduction of financing schemes with marketing of products create an urge to buy among those who cannot afford the goods temporarily. This is certainly not unethical if the interest rates are reasonable. This is because reasonability is the basic rule of marketing.
Another marketing idea floated by MNCs is to provide products and services on rental or lease basis instead of making a direct sale. This may take shape of hire- purchase sale or simple renting if the consumer does not want to purchase the product.
Indian market has peculiar characteristics. Owning family business is still the rage in Indian society that is multi linguistic with Hindi or English as link language. Inflation is very high and the conditions in India always remain political charged. Abundant educated labor force is available at reasonably cheaper wages. Corrupted people flaunt the use of money in an ugly way. Under such circumstances different democratically elected Indian governments created liberalized conditions for MNCs and other foreign investors to enter the Indian market. Businesses like BPO units succeeded immensely in India. Foreign investments also established varied businesses for their customers in India. For satisfying customers in India, these MNCs made concessions and changes in their traditional style of operations. Direct marketing and organized retailing are the major changes bought in by MNCs to satisfy their Indian clientele. Products also changed to suite Indian tastes of consumptions. Leasing and hire- purchase selling have become style of MNCs to satisfy their customers in India.
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