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India is a developing country according to WTO standards and is the fastest growing economy. Automobile industry of India is one the largest and fast growing industry in the world. India's commercial vehicles and passenger cars industry is the seventh largest in the world, with an annual production of more than 2.6 million units in 2009(OICA 2009). The automotive industry of India has achieved sustained growth as a result of increased competitiveness and relaxed restrictions after 1991 economic liberalisation. Due to which India robust economic growth in automobile sector. According toÂ New York Times, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies.
An Analysis of the National Business System and cultural conditions in India
Before starting business with India Skylab should analyse key institutional features in National Business System, which will help company to know about the background and the current position of the country.
Whitley, R. (1999) introduced the concept of national business system and found that firms don't act in a social vacuum, but are economic actors affected by numerous influences from the environment. The firms which are operating in various business sectors or in markets have to obey the laws and regulations etc.
Following are the various institutional frame works of India and Germany.
ECONOMIC SYSTEM- According to the market exchange rate India is the 12th largest economy in the world and 4th largest economy by purchase power parity policies. Before 1991 India's economic system was very inward oriented(social democratic based ).After that economy has moved to market based system due to which there was increase in the growth rate in 2000 with healthier economic reforms and policies. Hence in 2008 India became second fastest growing economy. India is a democratic nation with a mixed economy where government plays a vital role. About 29% of GDP comprises of Industrial sector.
The growth in the economy helps to boost the automobile sector, which results into high demand and supply of the vehicles. The production of total vehicles increased from 4.2 million in 1998- 99 to 7.3 million in 2003-04. In 2009, India emerged as the fourth largest exporter of automobiles. As, recession hit badly to the automobile sector of the India. But today the scenario has been changed as of now Indian Automobile Industry Growth Rate Sees Moderation. As the production data from April-sep 2010 shows small growth in overall production. However growth rate till APRIL-AUGUST 2010 WAS 33.88% showing a small positive change.
The federal government of Germany plays a vital role in the German economy, either directly or indirectly by the effects of various different policies their economy. Germany is a leading exporter of machinery, vehicles and benefits from a highly skilled labour force with an industry growth of 27.9%
Therefore all the above aspects of Indian economy and growth in automobile industry, signifies that Skylab don't have to worry about the economic instability.
India's Economic Outlook Projection
Political and Financial system-
To invest in India, it is very important for Skylab to know about the political system of that country. As A. O. Hirschman (1994) concludes that the political system of the country shapes its economic and legal system. Therefore it is important for Skylab to understand the various government interventions, tax changes, new laws, trade barriers, demographic change etc before the investment made in the country. Both the central and state governments have taken various policy measures and incentives to boost investment in this sector. The government have liberalised the norms of foreign investments. Presently the government permits 100%direct foreign investment in this sector. The most important policy known as "Auto policy" was made in 2000, aims to establish a globally competitive automobile industry in India but also attract huge investment in the country. The few objectives of this policies are -:
Ensuring a balanced transition to open trade at a minimal risk
Making India an international hub for manufacturing small and cheap passenger cars
The agency who is responsible for promoting the growth and development is the department of heavy industry, which assist the industry's growth through policy initiatives, providing technological collaboration, upgrading, and R&D facilities to the automobile manufacturers. India also plans an automotive mission plan with a n aim to make India emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with aim of accounting 10% of GDP. Due to which the financial sector of the company also becomes stronger from the past few years, hence due to which Skylab can easily get the financial support from the country for set up manufacturing plant, for buying machinery etc. Hence after viewing all the above prospects and overview of political system of India, it is understood that the government intervention in the automobile sector is not so tuff to follow. But these policies are not static and are changing with the span of the time, which is a big concern for Skylab before investment.
Legal system of a country is of immense importance to international business. After the global crisis, India has attained one of the top five attractive locations for FDI (World Bank report 2009). No FDI caps or local content requirements or export obligations are applicable for automobile industry. FDI in automobile manufacturing is allowed under the automatic approval route. More over Skylab don't need government licences or approvals to set up. In India foreign investment policy is covered in several ways including FEMA. Foreign investor can enter into the business in India as an Indian company in the form of a incorporated entity (joint venture) and wholly owned subsidiary and as an unincorporated entity. For opening for a foreign company, approval of RBI is mandatory. India has established legal property rights and is a member of WIPO, UNESCO and a signatory to Trips, due to which trade mark protection is highly of International standards. Various Labour laws are enacted to carry out business in India and taxation laws in India are also
Thus for Skylab it's a complex decision to decide ,as many time legal policies become cumbersome and confusing,. As there are German companies who have already invested in Indian automobile sector & are experiencing the successful growth by adapting various legal laws favouring the various foreign Investors. Thus Skylab is having the good opportunity to expand their business by using the cheap skill labour with the established legal property rights and big market to invest.
Indian automobile industry is considered to be as a sun rise sector of the economy. it is not only fulfilling the demand but also spreading its wings to international market. India has been restructuring itself and absorbing advance technology and resizes its potential. India is having a several advantages like high skill man power and low labour cost, globally competitive auto industry. All the above advantages can help to decide Skylab to make an investment in the country in order to increase the profit margin and spread their business in already existed market by using low cost of the labour, implementing advanced German technology in the vehicles manufactured and resources.
Culture plays an important role in International business.India is a vast county. Cultural differences are important variables in understanding social and organisational behaviour (Leung and Bond, 1984)
According to the Hofstede's Model in Figure 1, both countries have different cultural conditions. India has a Power Distance (PDI) of 78 points, which shows that Indian people expect and accept that they are not treated properly and equally, where as Germany have 28 points indicates greater equality between social levels. India has a low score of 45 on Individualism (IDV), which indicates that they are more of a collectivism country, where they consider everyone in their surrounding in exchange of loyalty. Contrary Germany has a score of 65 suggest highest dimension of individualism
in the world, where they only look after themselves and their direct family members. India has scored exact 55 in Masculinity (MAS), indicating that they are on the average side considering not only Masculinity but also Femininity. The importance is equal on assertive and competitive pole as well as the caring and modest pole. Whereas US scoring 65 demonstrate higher degree of gender differentiation and male dominate society.
Cultural differences are important variables in understanding social and organisational behaviour (Leung and Bond, 1984). Consumer preferences are often judge by cultural value of a country. Cultural values influence managerial and employee perceptions of their environment, expectations and behaviour. If people, even in the same organisation, have different assumptions, then they will see events and react to them differently (Sims and Gioia, 1986). By being aware of cultural differences, managers and organisations can reduce the probability of failure when operating outside their home culture (Tung, 1987).
It is assumed that no matter how strong is the culture of an organisation, the national culture of the country where it is operating will have at least some impact on the organisation.
Hofstede argued that there was a need to distinguish between nations and societies and that the concept of culture applied more to societies than nations, since some nations are very complex and include diverse societies within national boundaries (Hofstede, 1997)."Culture is based on a dynamic relationship between values" (Schwartz, 1992). Demographic variables such as level of education, type of employment, and urban versus rural environments can describe differences within cultures (Mishra, 1994).
In societies such as Venezuela and China, status is associated with aspects such as age, gender, qualifications, or the importance of the task or project.
The culture of a society includes shared motives, values and beliefs. Culture plays an important role in an organisation and is a very important element to understand to run business in other countries.
Global economy still wobbly: IMF