1 Introduction: The business context
Pawan S. Budhwar and Arup Varma
Since the liberalization of its economy in 1991, India has emerged as a major player on the global economic front. Indeed, the World Bank and other bodies have projected that over the next decade India is likely to sustain its economic growth, and is likely to be among the top two or three leading economies of the world. Not surprisingly, such developments have led to a renewed interest in the Indian market, and foreign investors have been making a beeline to enter the lucrative Indian market. However, the pace of these developments has been rather rapid, and the relevant support systems to guide investors have not kept pace, and many are still evolving.
In a related development, the number of academic and other publications related to India has been on the increase over the last decade or so. These cover topics like the rapid economic developments in India (see Ghoshal et al., 2001; Tharoor, 2007; Dossani, 2008; Nath, 2008; Kumar et al., 2009); comparing India and China (Sheth, 2008; Gupta and Wang, 2009; Parayil and DâCosta, 2009), management in India (see Budhwar and Bhatnagar, 2009), areas of further development (see Murthy, 2009; Business Standard, 2010), and how to do business in India (see Budhwar, 2001; Cavusgil et al., 2002; Kumar and Sethi, 2005; Millar, 2009).
Nevertheless, given the dynamic nature of the Indian business environment, which is changing rapidly on most fronts, there is a paucity of research-based evidence regarding available and emerging opportunities for foreign investors, and the key challenges/bottlenecks they might face in doing business in India. Indeed, potential investors would be well served by publications directed towards addressing the issues they might face, as well as suggestions on how to successfully navigate these. As the Indian economy grows at a rapid pace, businesses are facing numerous critical issues such as growing competition, increasing pressures to attract and retain talent, pressure for further reforms in different sectors, developments and deficiencies in infrastructure, divestments in public sector, corruption, and bureaucratic delays in the approval of proposals of foreign direct investments, etc. In addition, foreign investors would likely have to deal with issues such as corruption, bureaucratic red tape, limited infrastructure (power, transport), and union policies and practices that are sometimes counter to progressive business. Further, the nation has sometimes been slow to pursue the next generation of economic reforms, and suffers from poor implementation of dated legislation. In addition, while nationally millions graduate from high school and college each year, many of these graduates lack employable skills, and need further training.
Finally, Indiaâs geography offers both advantages and disadvantages. With thousands of miles of coast, and a diverse topography, India is indeed a land of opportunities for potential investors. However, it is also a nation bordered by unstable neighbouring countries, and suffers from poor border controls â resulting in regular insurgencies and a continuous in-flow of illegal immigrants (see Budhwar and Singh, 2007). Thus, potential investors would need to devise project plans and strategies that incorporate more than simple âbusiness-orientedâ steps. A more detailed presentation on the complex, uncertain and challenging aspects of the Indian business environment and ways of dealing with them is the focus of this volume.
Table 1.1 presents ranking of India by the International Finance Corporation (World Bank) on various parameters on the âease of doing businessâ in comparison to 181 economies. The figures in the table are telling, and indeed, discouraging; however, given the opportunities India offers to foreign operators, the potential is immense, and those that make the effort are likely to be rewarded handsomely in terms of their bottom line. The key to success in India, however, lies not only in their own competencies, but also more importantly on how best they understand the Indian business context and efficiently function in it.
Table 1.1 Indiaâs ranking (against 181 economies) on doing business, 2009
The importance of understanding a given âcontext,â and developing appropriate management systems as a pre-requisite for success, is now well acknowledged in the literature (e.g., Locke and Thelen, 1995; Jackson and Schuler, 1995; Budhwar and Debrah, 2001; Schuler et al., 2002). If foreign operators, while developing strategies for their Indian operations, do not carefully understand the Indian business context, the potential for missteps and eventual failure can be very high. This volume is specifically designed to provide information, which should prove extremely useful for MNCs and their decision-makers, as they formulate their India strategies.
We started by noting some of the shortcomings of the Indian business environment, and the potential pitfalls that foreign investors might face. We now address some of the tremendous strengths and related opportunities that are available in the Indian business environment. These include cheap resources, reasonably skilled talent, a massive national market (population 1.16 billion), a rapidly growing middle class (over 350 million) with increasingly stronger purchasing power, and one of the youngest populations in the world. In addition, India boasts one of the most diverse populations in the world, with a democratic political set-up, a free press, and a reasonably reliable judicial system, which though slow, is known to be robust. Further, Indians are known for their entrepreneurial abilities, and the willingness to learn, adapt and integrate into the global business systems. In addition, time and again India has shown the capacity to absorb global economic/financial crisis related ripples.
Due to its uniqueness in many ways, the economic development model pursued by India is considerably different to other emerging markets, which perhaps minimizes the impact of global events such as the late 1990s Asian economic crisis, the present global recessionary conditions, and was also less affected by the âDubai debt crisisâ of late 2009 on its economic growth. Broadly speaking, it characterizes the strengthening and enhanced contribution of the private sector organization, indigenous entrepreneurship, presence of massive local and national markets, increased support to encourage both foreign direct investments (FDI) â inward and outward and entry of multinational companies (MNC) to India, massive contributions from non-resident Indians to Indiaâs foreign reserves in the form of remittances sent from overseas, growth of the Indian multinational company, and increasing global leadership of specific sectors (such as the information technology, software, business process outsourcing, knowledge process outsourcing, pharmaceuticals, research and development, amongst many others).
Most aspects of the Indian economic model are strongly ingrained into the unique socio-cultural, political, legal and economic milieu of India; as a result, the challenges regarding developing a good understanding about the Indian business context and to successfully operate in it can be both complex and demanding for foreign investors. An attempt has been made in this volume to address such issues. It should contribute to better practice development. We believe this information should be useful for a variety of readers including top managers, researchers, consultants, students, and academics. This volume then provides latest research based evidence and consolidates it in a single source of information which helps to address questions pertaining to the âwhatâ, âwhyâ, âhowâ and âwhenâ of doing business in India.
Overview of the volume
All but one of the authors contributing to this volume are Indian natives, and have been conducting research in their respective fields for a number of years. We believe this helps to minimize the âWestern biasâ for this project, and has enabled us to present a more realistic picture of the key issues facing foreign investors in India. The contributors were given a framework to develop their respective chapters â including key developments in the topic, a critical analysis of the existing literature, core opportunities, and key challenges for foreign investors. In addition, we asked them to develop a list of âkey issuesâ, which managers could use while operating in India, and provide a list of useful websites (which are placed before the index in this volume). This volume is divided into three parts â the Indian business context, conducting business in India, and India and the world.
In Chapter 2, Kapur and Pillania start off the volume by addressing the Indian economy and the emerging growth opportunities and challenges. They provide a succinct overview of Indiaâs economic growth and performance since independence in 1947, the important contributions of both domestic and international actors, and the role played by economic reforms in Indiaâs continuing development. They further discuss the underlying structural growth drivers of the Indian economy and discuss how the current growth momentum can be sustained. This chapter also discusses the impact of the global financial crisis on the Indian economy, and the key challenges that pose risks to Indiaâs economic growth.
In Chapter 3, Saini analyses Indian employment law in the context of the broad framework of social and economic justice as enshrined in the Constitution of India. In particular, he focuses his analysis on the working of the legal employment framework (i.e. relating to working conditions, the law of industrial relations, laws relating to wages and monetary benefits, and the law of social security) in light of the changing nature of the Indian economy. He also covers issues relating to the structure and functioning of various branches of Indian employment law, and assesses the hurdles that the Indian labour law framework poses in the smooth conduct of business. Saini summarizes his chapter by highlighting the salient aspects of the Indian employment law framework, weaknesses in its implementation, and how best to work within it.
In Chapter 4, Budhwar, Varma and Sengupta discuss the socio-cultural, political and institutional contexts of India. They analyse the historical developments in India, its political and legal structures, its societal values, along with corporate culture, and management behavior. For each aspect of the Indian business context, the authors highlight the unique features that are critical to understanding the issues involved in doing business in India. Based on their analyses, the authors present a list of key takeaways, which should prove very useful as a ready reference for foreign managers.
Khatri covers the sensitive and challenging topic of corruption and cronyism in India in Chapter 5. Given the common understanding that both corruption and cronyism are seriously ingrained in the Indian business environment, Khatri first examines the major factors that underlie cronyism and corruption in India. He then defines and distinguishes the concepts of corruption and cronyism from each other. The core discussion in the chapter is on the dynamics of corruption and cronyism in India. He ends the chapter with a list of key implications for managers and policy makers.
In Chapter 6, Kodwani discusses various aspects of infrastructure in India. He starts with a definition of infrastructure in the Indian policy framework, and accordingly groups the infrastructure services into three broad categories of energy, telecommunications, and transportation. Kodwani highlights the emerging business opportunities and the expected challenges investors might face in the each of these groups. He notes that a meaningful way to improve the infrastructure in India would be to involve the private sector and develop the publicâprivate partnership (PPP) mode. He next discusses the salient features and uses of the PPP in India. Finally, he presents a list of useful tips for both the users and investors in the Indian infrastructure and provides references to useful resources.
In Chapter 7, Kumar and Annushkina discuss the dynamics associated with the entry mode options available to foreign investors. They discuss different entry modes suitable for India, with the help of two case studies â of Italian companies (Lavazza and Fiat) that have each entered India in different ways. They next highlight the inherent complexity in designing entry strategies, and the importance of accounting for industry and institutional factors in such an endeavor. Finally, they discuss the key challenges with each entry mode specific to the Indian context (in the form of key takeaways).
In Chapter 8, Shankar and De analyse the birth of the retail industry in India, and discuss changing consumer patterns. Next, they explore the strategies that might be adopted by foreign investors attempting to penetrate the Indian market. They also provide an introduction of the diverse Indian market, present a demographic profile of Indian consumers and discuss the changing consumption pattern of the Indian consumers, and what makes them unique. They further discuss the changing pattern of the Indian distribution system, which has been strategically evolving in response to the growth of the retail sector. Lastly, they highlight a number of policy issues core to the Indian retail sector and offer key messages for policy makers.
Dey presents information about project management for the Indian context in Chapter 9. He starts by alerting potential investors to the need for an effective project management mechanism in India, and discusses the potential pitfalls, which might include issues related to supply chain integration, relationship management, project planning, economic and political challenges, environmental regulation, and social needs. He next discusses an organization in the Indian oil industry, highlighting its project management experience, and also emphasizes the challenges of managing projects in India, and possible techniques and strategies for overcoming the challenges. Dey concludes the chapter with a list of dos and donâts of managing projects in India.
In Chapter 10, Budhwar and Varma present core issues related to management of human resources (HR) in India. Initially, they explore the evolution of the HR function in the Indian context, followed by a discussion of the key factors determining human resource management (HRM) policies and practices in firms operating in India. They also discuss the nature of HRM systems prevalent in foreign firms operating in India, and provide a list of key suggestions for MNCs on developing HRM policies and practices appropriate for the Indian context.
In Chapter 11, Vakkayil and Kumar cover the important topics of conflict handling and negotiations in the Indian context. They present examples of conflict in the context of Indian businesses, both at the macro and micro levels, and discuss conflict management styles adopted by Indian managers. While doing so, they also explore the relationships between cultural values and conflict handling behaviours. Lastly, they provide guidelines for negotiation that should be of practical use to foreign managers operating in India.
Chapter 12 is devoted to outsourcing. Initially, Patel and Budhwar clarify the meaning of terms such as outsourcing, offshoring, ITO, BPO and KPO. They then provide information about the background and evolution of outsourcing/offshoring industry in India, highlighting why India is the favoured land for offshore outsourcing, and also discuss challenges this sector faces. The authors also explore the steps involved in starting an offshore outsourcing project in India, also addressing the common myths that vendors and clients might have about offshore outsourcing. Finally, they provide key takeaways for policy makers.
In Chapter 13, Bhatnagar and Som present two case studies of Indian organizations that have been successful because of the adoption of HR and OD interventions, resulting in efficient, effective and innovative HR systems. They further discuss how lessons from these companies can be utilized by others in the Indian context. Based on the analysis of the two case studies, the authors highlight the key implications for practicing managers, and discuss potential HR-related challenges for firms operating in the Indian business context.
In the next chapter (14), Varma, Dasgupta and Budhwar present information that should prove highly valuable for foreign managers in connection with adjusting, working and living in India. The authors cover topics such as religion, festivals, housing, shopping, medical care and insurance, as well as deal with etiquette and dos and donâts of living in India. This chapter also presents, apart from key takeaways, an interview with an expatriate about his experiences of working and living in India.
In Chapter 15, Thite and Dasgupta focus on the nature and characteristics of multinational companies emerging from India. They track the global footprints of the Indian MNCs and identify the defining features that explain their internationalization strategies, the rationale behind these strategies and how they compare and contrast with different time periods. This chapter also pinpoints the crucial factors that underpin the succ...
