MINI PROJECT

INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Acharaya Bangalore B School

Praveen A Yarandole Dr. L R S Mani

Reg. No.: 14YUCMD113 Professor

 Executive Summary

The Indian market is essential for European Union (EU) companies

Large and growing domestic market; increasing purchasing power and consumerism.
Provides opportunities for competitive advantage (low cost sourcing of products and services;
exceptional quality; intellectual skills; etc).

EU companies are already taking advantage of India

The EU is one of Indias largest sources of FDI and trade.
EU companies comprise 50% of all Multi National Corporations (MNCs) in India.
Many see India as key to their long-term global growth and competitive advantage.

Investments in India are yielding returns

Companies have begun to capture local market opportunities (especially in niches).
Many are also sourcing from India (resulting in lower costs and higher productivity).
Some are even more successful than their global operations.

But the road hasnt been easy, and companies faced several challenges
Bureaucratic hurdles and government processes resulting in a difficult operating environment.
Low average disposable income, a highly dispersed population and distinct tastes from the rest
of the world.
Weak infrastructure in terms of roads, power, telecom, and port facilities.
To guide your company, this report presents 10 factors that companies have used to become
successful in India.
These have been identified based on benchmarking successful EU MNCs operating in India

Success factors fall under three categories:

A. Commitment at the global level; provide global support and technology;
B. Empowered local management; develop local team autonomy and capability;
C. Localized Product/Market Business Models: create customized products and services in
response to the unique environment in India.

Challenges and opportunities by European multinational in

India with respect to IHRM Practices

Foreign Multinationals in India: Adapting to Indias Work

Culture and Management Practices
Introduction

For successful entry and continuous growth in a foreign market, effective communication
with the unfamiliar partner and adaptation to his culture is important. Globalization requires
cross-cultural literacy1 and successful management of diversity. Though not much empirical
evidence is available on the impact of cross-cultural literacy on the cost of doing business in
foreign markets, it is fair to assume that cross-cultural literacy reduces the total costs of operating
in foreign markets. Multinational companies (henceforth MNCs) with world-wide subsidiaries
need to recognize the impact of socio-cultural values on local organizational behavior to be able
to successfully transfer the know-how to various local units. Since early-1990s, a growing
number of MNCs have been attracted to India and many more are planning to enter India. This
research work seeks to analyze the experience of multinational companies in India, with a
particular emphasis on the socio-cultural aspects of human resource management.

The main purpose is to help expatriates in understanding the complex socio-cultural

aspects of Indian work culture and management practices and improving their effectiveness. This
paper, to begin with, analyzes the increasing presence of MNCs in India with the help of data on
foreign direct investment (FDI). This is supplemented by some more facts on sectoral and
country of origin characteristics of FDI inflows to India. The second part of the research is
devoted to analyzing the experience of expatriates from MNCs in India; this is to find out
whether socio-cultural aspects of their integration in the Indian business world were a real hurdle
in the adaptation process. In the third part, an attempt is made to delineate the main cultural
values, norms and traditions that impact upon the business practices in India.

This is coupled with a detailed presentation of certain peculiarities in Indian

organizational behavior and management practices, which need to be understood carefully and
may have a bearing on business success. The paper is summed up with major findings.

It might be useful to delimit the scope of this paper. This paper is surely not a travel guide for
anybody interested in India. It is also not a socio-cultural audit of the Indian business world. It is
aimed at surveying the expatriates experience in India to understand their needs and to highlight
the main peculiarities in Indian organizational behavior and management practices. The
information provided might help expatriates in developing culturally-sensitive management
practices during their assignment in India and to increase their chances of success.

Human Resource Management Practices

The Model of Culture Fit, as proposed by Kanungo and Jaeger (1990) and Mendonca and
Kanungo (1994) asserts that the socio-cultural environment affects the internal work culture,
which in turn influences human resource management (HRM) practices. This section tries to map
the Indian HRM practices against the world-wide pattern and draws primarily on the research
conducted by Sparrow and Budhwar (1997). The core question in analyzing HRM practices is:
Whether the shift in economic policy and subsequent management rhetoric has been reflected in
any concrete changes in labor market dynamics and HRM goals and priorities. Sparrow and
Budhwar (1997) extended a previous research work on comparing the HRM practices in 12
countries (the U.S., Canada, Australia, U.K., France, Germany, Italy, Japan, Korea, Brazil,
Argentina and Mexico) and added India to the original IBM/Towers Perrin survey. The empirical
findings are based on 137 (out of 450 questionnaire sent) responses from Indian organizations,
where 38 HRM practices and concepts were put to test. The respondents were asked to attach a
priority to each of the practice and anticipated priorities for the year 2000.

The 38 HRM practices were later reduced to 9 underlying factors, which together
accounted for 95.5% of the total variance. Sparrow and Budhwar (1997)80 provided the
definition of these factors and Indias comparative ranking on each of these factors as follows:

The first factor is structural empowerment, in which importance is attached to

introducing cross-functional teams, analyzing individual performance, rewarding
employees for business productivity gains and customer service. This factor is similar to
high performance work system: the Anglo Saxon countries scored the highest on this
dimension and were not favored by HR specialists in France Germany and India.
The second factor is called accelerated resource development, where importance is
attached to the early identification of high potential employees, establishment of multiple
career paths, providing continuous training and development and basic education. This
strategy is pursued by France, Germany and Korea but is not a strong factor in the U.S. or
India.
The third factor is called employee welfare emphasis, in which firms place high
importance on offering personal family assistance, ensuring that employees pursue good
health, encouraging and rewarding external volunteer activities. The U.K., Germany and
Italy scored low on this factor, while the U.S. and India scored highly.
The fourth factor is called efficiency emphasis, in which organizations, while
communicating business directions and plans, require employees to self-monitor and
improve. Japan, France and Korea scored high on this factor, while Germany and India
had a very low score.
The fifth factor is called long-terminism, which stresses the importance of providing full-
time employment, rewarding long-term performance (innovation and creativity and not
productivity). Countries with an emphasis on longterminism included Korea, Japan,
Germany and India. The Anglo Saxon countries provided, not surprisingly, evidence of
short-terminism
REVIEW OF LITERATURE
Experience of Expatriates in India: A survey of Existing Literature

This part of the research work seeks to provide some general characteristics of
expatriates18 living in India and a survey of existing literature on their experience. This should
provide a framework for developing a systematic idea about their needs and for offering a
structured knowledge on the business and management culture in India.

Characteristic Features of Expatriates in India

There is virtually no published data about the total population of expatriates in India. Much
less is known about the total duration of their stay, their country of origin, the kind of
assignments they have in India, and what positions they occupy. However, based on FDI
characteristics and other prima-facie evidence, certain observations can be made about
expatriates living in India:

Other than the staff of foreign embassies and international organization based in India,
most of the expatriates come from the countries, whose MNCs have invested in India.
Thus, based on the country of origin of FDI in India (see section 2), one should expect
that expatriates from US, UK, Japan, South Korea, Germany, Switzerland, France, the
Netherlands, and Italy constitute the majority of expatriates working for their parent
MNCs in India.
Apart from the above, there is a new breed of expatriates, who do not work for any
foreign MNC. They are instead hired by Indian companies. A recent report pointed out
that over 20,000 expatriates were hired by large Indian companies, most of these in
industries such as telecom, media, pharmaceuticals, hotels, retail trading and
 biotechnology. Even traditional industries, mostly in the production process controls, are
hiring expatriates.
If both India and China were to have same volume of FDI inflow and similar MNCs, the
population of expatriates in India would be lower than in China. This observation is based
on the fact that the availability of experienced local managers in India is often considered
as a cheaper and better alternative to sending expatriates. Thus, by comparison with
China, the number of expatriates coming to India will be lower in the near future.20
However, it is expected that FDI inflow to India will increase in the years to come and
hence the absolute number of expatriates is likely to increase further
Most of the expatriates are based in major cities of India. This observation is supported
by the location of the Indian affiliates of MNCs. Most of the FDI until 1980 was in
Bombay (henceforth Mumbai) or Delhi (and its suburb of Faridabad) and accordingly,
most of the expatriates were based in these two cities. The population of expatriates was
slightly larger in Mumbai than in Delhi. However, Delhi had a higher share of expatriates
in the service sector. The FDI surge in the 1990s has not displaced Mumbai and Delhi;
their position has been strengthened. However, several new locations such as Banglore,
Chennai (former Madras) and Gurgaon (a very popular industrial city near Delhi) have
emerged as attractive locations. Based on this observation, it could be surmised that most
of the expatriates interact primarily with the urban Indian population, living in the
metropolitan cities of India. The urban section of the Indian society represents a special
sub-group and is often termed as the Indian middle-class. The values and work culture
of this sub-group will be focused separately.
Expatriates can be on a short-term project work (less than 12 months), on mediumterm
assignments (between 13 months and 36 months) or on long-term positions (over 36
months). Given the complexities of selecting and training expatriates for assignments in a
country like India, it could be assumed that most of the expatriates come to India for
medium- to long-term assignments. On the contrary, some experts believe that, because
of the availability of talented, well-educated and experienced Indian managers, MNCs
send expatriates primarily for short-term projects, such as introducing a new product, a
new technology, or to service a major multinational client from the home market.22There
is yet another kind of expatriates, who do not live physically in India; they have
 responsibility for the Indian unit at the headquarters and frequent between the two
locations.
A majority of expatriates are sent on assignments, which entail management
responsibilities. Thus, expatriates are usually senior level general managers or experts in
a particular functional area and work as superiors for their Indian employees. Given the
fact that India has a large number of well-educated and experienced managers, it is not
unlikely that MNCs hire local managers for top management positions. It is, however,
true that there are fewer expatriates working under Indian superiors than the other way
round. This observation suggests that an expatriate coming to India not only has the
responsibility of adapting himself in the Indian environment but he also has to lead his
Indian employees. His understanding of the Indian work-culture, organizational behavior
and management practices has a two-fold purpose of surviving and leading.

Most companies have implemented the majority of the success factors, and not just one or
two. Successful companies differ from less successful players in their ability to rapidly
adapt their business models for India
Most companies recognize the need for local adaptation.
However, implementation is more difficult than it seems it requires a deep customer
understanding and building scale in India while managing complexity.
Three key areas require adaptation (in additional to several others) a strong product value
proposition, smart localization of manufacturing, and robust supply chains.

Successful companies view India as a long-term play, not a short-term turn

Success in India did not happen overnight.
Success requires commitment, management drive, and focus on long-term objectives for India
in the global
portfolio.

The India opportunity

India presents a remarkable business opportunity by virtue of its sheer size and growth
 The Indian economy is now ranked 12th in the world in terms of GDP and is the fastest
growing after China1.
India is expected to continue along the same trajectory, with consistent growth rates of between
4-7% as exhibited over the last 2 decades.
This will position it as the 8th largest economy in the world over the course of the next 20
years, with a larger
GDP than that of Italy, France or Germany by the year 2025.2
A. The domestic market opportunity

Indias vast population is increasing its purchasing power

While ~50% of the population was classified in the low-income bracket3 in 1994-5, this
proportion is rapidly declining, and is expected to account for only 17.8% of the population by
2006-7.
At the same time, there is a rapid shift from the low-middle classes to the burgeoning middle
class, and an even faster increase in the sizes of the high and upper middle class, fuelling growth
in the economy.
Even more pronounced is the growth of a niche super-rich class, now estimated to comprise of
over 100,000 households with net worth of >$1 mn each.

The growing size of the middle and higher consumer classes with increased income and
paying capacity has spurred an increase in consumerism and brand consciousness
Companies have been taking advantage of dramatic growth in such consumer markets as
automobiles, motorcycles, computers, durable goods, and cellular communication all
exhibiting compounded annual growth rates (CAGR) of 6%-29% from 1996 to 2011(estimated).
The domestic market opportunity will further be boosted by a likely increase in propensity to
spend and by the growing consumption by the young generation in India.4
B. The offshoring opportunity
India accounts for roughly 65% of the global offshoring market and is expected to grow at
50-60% per annum for the next 5 years
 Offshoring provides a fast growing and increasingly important opportunity for MNCs. It is
mainly derived from Indias largest asset its people. India is the largest English-speaking nation
in the world with the second largest pool of scientists and engineers (second to the US).
Companies are able to realize significant cost savings by utilizing the highly qualified labour
force at attractive rates, and translate this into an important competitive advantage. The cost of a
highly qualified engineer/ scientist in India is less than $20 per hour, as compared to over $40
per hour in the US or EU.

The benefits of Indias human capital extend beyond cost

Many MNCs are seeking India for the superior management and technical talent base that it
offers. Over 100 MNCs have set up R&D facilities in India and many have placed Indian talent
in key positions in their organizations both locally and globally.
India is also emerging as the manufacturing and sourcing location of choice for various
industries
India is considered a low cost leader in such areas as steel and metals and a regional base for
the high quality production of some manufactured goods such as automotive components,
engineering equipment, power equipment, and medical systems.

C. The Primary Challenges (and how they are being addressed)

While India is positioned for success, there are multiple challenges that must be addressed as an
integral part of MNC strategy; these include:

Difficult operating environment Mainly brought about by government policy and processes,
procedural bottlenecks, and the legacy of cumbersome labour laws
The reforms process adopted by the Indian government in response to these problems is now
firmly in place. Significant progress has been made in liberalizing the external sector- thus
allowing freer flow of capital goods and raw materials opening up the financial sector, and
reducing customs duties. Second phase reforms that are in the making include lifting restrictions
on FDI, simplifying tax and tariff regimes, and opening up markets for competition.
Socio-economic challenges - Related mainly to poverty, illiteracy, and health concerns. A
quarter of the Indian population still earns less than $1 per day and ~40% of the population is
illiterate
While these are grave concerns and India does measure on them poorly, even in comparison
with other developing countries, an analysis of the trends in the last 10 years shows that India has
made significant improvements. Life expectancy has improved from ~60 years in 1991 to ~65
years in 2001, and population below the poverty line has moved from 40% to 25%. The rate of
improvement recorded by India is significantly better than most other developing countries. This
is attributed to the sustained high economic growth rates, multiple schemes for the poor launched
by both state and central governments, and the increasing thrust in these areas by other bodies
such as NGOs, World Bank, the Corporate Sector, etc.

Weak infrastructure This is perhaps the most significant challenge that affects MNCs
operations on a day to day basis and includes such factors as poor roads, inadequate airports and
port facilities, and inconsistent and relatively expensive power supply. The government is
responding to this challenge with various measures, some of which are described below, yet
much still remains to be achieved
Roads: The Golden Quadrilateral a $12Billion, 4-6 lane highway project that will span the
length and breadth of the country, connecting the 4 major metros.
Power: Deregulation of the power sector and unbundling of State Electricity Boards (SEB) into
separate transmission, generation and distribution units.
Telecom: Privatisation of government-held companies, introduction of multiple technologies,
and policy focus on creating a competitive playing field.
Airports and ports: Plans to upgrade, develop and corporatize major facilities.

Despite these challenges, many European MNCs have been successful in India - both in relation
to other Indian companies in the same sector and benchmarked against their average global
performance. These companies have recognized the tremendous potential India has to offer as a
sizeable, growing market and a sourcing point for global competitive advantage, and view India
as a business opportunity that they cannot afford to forego. EU companies already make up
~50% of all MNCs operating in India and a multitude of other EU companies are actively
planning to enter the market.

Benchmarking Objectives and Methodology

The MNC benchmarking exercise presents members of the business community a set of
actionable recommendations that can serve as guideposts when devising an India entry strategy
or evaluating current India operations. The main question attempted to answer is: What are the
critical components that enable MNCs to become successful in India?

Methodology: Benchmarking included extensive desk research and detailed face-to-face

interviews with senior executives from ~30 European based MNCs operating in India,
representing 15 countries from across the EU. The companies were selected from a variety of
industries as diverse as confectionary, industrial goods, power, and automobiles. Selected
companies are those that have demonstrated a firm commitment to Indian operations; they vary
in terms of length of presence in India or degree of success attained. The interviews were
conducted by The Boston Consulting Group (BCG) and Confederation of Indian Industry (CII)
working teams, together with functional and industry experts from BCG.

Defining success for EU-based MNCs in India

Success in India may be defined along two dimensions:

Capturing the domestic market opportunity:

 These companies have been able to satisfy growth and profitability objectives in India by
capturing the domestic market opportunity at large. They have positioned themselves as mass-
market players in relation to their industries, often by localizing their operations in India. By
virtue of their success, these companies have become key contributors to the global or regional
setup in terms of market share, contribution to bottom line, or innovation.

Leveraging Indias resource base to derive additional value for the corporation:
These companies have succeeded in adding value to their corporations by engaging in such
activities as R&D, manufacturing, BPO and sourcing from India. For some companies, this has
become a key competitive strength, differentiating them from global competition.

Company Examples
Benchmarked companies differed in their degree of success. The most successful companies
were able to capture substantial market share through market-customized strategies, introduce
industry altering innovations, exhibit strong financial performance, and also use India to derive
additional value for their organizations. Some examples of such success stories follow:

Ten Tips for Success in India: A Framework

Achieving success in India ultimately pivots on having the right India business models in place.
These business models are not prescribed. They are derived from the mechanisms that enabled
them to develop, namely global management and local management processes. During the MNC
benchmarking exercise we identified 10 key success factors for MNCs in India; these factors fall
under the three categories as demonstrated below.
Reaching Category C (Localized product market business models) is the end-game achieved by
most successful companies. Global management processes provide the global support and
technology, Local management processes drive local autonomy and capability and both together
work to allow localized business models, products and services to develop.

Commitment at the global level

India is a unique market that merits tailored global management processes. The more global
management understood this and facilitated flexibility for the local operation, the higher was the
degree of success attained. Global processes are set by the global centre and form the framework
within which the MNC can operate in India. These processes are instrumental in offering the
right backup, support and technology to the country organization - helping it in conducting
business and leveraging the international brand name in India. The centres perception of India
and the position that it occupies on managements agenda were factors found to influence the
degree of success attained.

View India as a key focus area

Why is this important?

To direct appropriate resources towards India and ensure speedy and favourable
decisions
Successful organizations such as Swiss power & automation leader ABB, Swedish
Telecom giant Ericsson, Spanish confectionary maker Joyco, Siemens from Germany, and others
have been explicit about the importance of India to their global portfolio drawing attention and
resources to the India operation and ensuring high-level facilitation of major decisions.
India country champions help bring India to the forefront of the global agenda.
These are senior executives who have a deep understanding of the Indian environment and
actively champion India related decisions. Since Indian operations are often times small
contributors to Group revenues, this requires strong management vision and understanding of the
opportunity at hand. Sponsors could be senior Indian managers who originated in the India
system and progressed through the organization -as in the case of UK pharmaceutical major
GlaxoSmithKline or members of the management team who recognize the promise that India
holds and are dedicated to making it happen.
ABB, for example, has designated its two most senior global division heads to hold active
positions on the India board. In addition to facilitating faster and friendlier decision making,
these senior sponsors act as a credible source of information and expertise on the country and
country operations. If located in country, senior sponsors are also responsible for ensuring that
the right values and corporate culture are inculcated in the Indian arm of the organization. Other
ways by which successful MNCs raised the profile of India on their global agenda are by
arranging high level CEO visits to India to demonstrate their commitment internally and
externally, or publicly recognizing the efforts and achievements of the India operation - as with
German-Indian insurer Allianz-Bajaj, which highlighted the India CEOs accomplishments at the
corporations global forum.
Formulate bold, long-term targets that drive decision-making
Why is this important?

To align the organization behind exhibited market potential and help circumvent short
term hurdle
Translating India-related plans to long-term measurable goals adds a visionary lens to all
decisions related to future products, markets and investments. Successful companies that
highlighted Indias importance on their global agenda often followed through by framing these as
clear, important aspirations (see above diagram). Long-term targets and aspirations also help
influence how management thinks about the business in the short to medium term. For example,
UK confectioner Cadbury links these targets back into the management process of targeting and
monitoring and uses them to form a baseline for discussions with the regional and global teams.
Piaggio cascaded long-term country level targets into the business, translating them into such
objectives as focusing on increasing the quality of engines, or speeding up the supply chain for
components. Other companies may link long-term targets to more conventional top-line revenue
or profitability metrics. In contrast, companies that adopted short-term globally standardized
targets in India, often found themselves justifying their inability to meet these due to price
pressures, intense local based competition in the market, or policy and regulation.
Create processes that accelerate the integration as well as the localization of the
organization

Why is this important?

Helps find the right balance of autonomy allotted to the local team and aligns
organizational objectives in Indi
One challenge faced by MNCs is that global managements perspective about the
challenges and the opportunities in India is often quite different from the reality on the ground
leading to differing views on the appropriate business model for India. Situations may arise
where the local team feels that they neither have the autonomy to run the local business as
needed, nor do they have the support from the global management in terms of taking India-
relevant decisions. This can lead to an increasing communication gap as well as lack of mutual
faith and credibility. One way by which benchmarked companies have been able to create a
deeper understanding of the Indian environment and align organizational objectives, is by
encouraging frequent and high level interaction between the global and local teams, at various
levels of the organization.
Change the rules regarding global metrics and standards to meet market challenges
Why is this important?

Allows fine-tuning of metrics to fit with Indian market realities and sets the organization
to take full advantage of India opportunity
Successful MNCs have worked the unique characteristics of the Indian environment into
their target-setting process. For some companies in heavily regulated industries, e.g. Oil and Gas,
Pharmaceuticals, and Financial Services, this has been especially important. Setting unique India
targets with a long-term horizon in view has helped them focus on establishing market presence,
gain market share and capture future growth prospects.

Empowered Local Management

Performance in India will ultimately depend on the capabilities and drive of the local
team. Companies that we interviewed had long recognized this and worked towards establishing
a highly capable local team that is empowered to take decisions. As part of this process,
organizations have gradually transferred responsibility to the country management often to the
point where they have full autonomy within a budget. In doing so, companies have leveraged the
excellent management and technical talent available in India, and formulated HR policies that are
a mix of global policy (often demonstrating a feeling of belonging to a global organization), and
local processes that cater to the needs of Indian employees. These teams are often taking the lead
in shaping company strategy, and have become a core contributor to the companys ultimate
success.

Build for the long-term in India regarding people, HR practices and external stakeholders
Why is this important?
More cost effective, enhances continuity, and leverages understanding of local
environment
Benchmarked companies mentioned three main reasons for investing resources in a high-
quality local team:

In forming local teams, companies have committed significant resources to recruiting and
especially retaining highly capable people. Some processes that have contributed to building
successful teams are mentioned below:
Philips Software Centre and STMicroelectronics have both been recognized as one of the top
employers in India

Philips India is recognised as one of the most respected companies and as one of the best
employers. It plans to generate another 1000 jobs in the next 5 years in knowledge work and at
least as many more indirect jobs in the supply chain. - Philips
Our recognition as a one of the Best Employers vindicates our strong belief in our people and
practices. It is also a sign of ST India maturing as a world-class organization.-
STMicroelectronics
Define a value added role for country management
Why is this important?
Motivates local team to perform and facilitates transfer of responsibility
Multiple business-unit organizations operating in India may have a need for an activist
country management role, while this may not be the norm for the organization in other countries
of operation. The main reasons behind this are: lack of scale in individual business units for the
India business, similarity in some part of the value chain which may not exist in other countries
(e.g. supply chain, distribution channel), and commonality of important overall issues (e.g.
regulatory affairs) across business units. Additionally, as companies progress from being
executers of global strategy in India to assuming a higher degree of autonomy and decision
making power, they have found it important to broaden the role of local management to oversee
multiple areas of responsibility. Some specific areas of responsibility may be identifying and
leveraging cross-divisional synergies, identifying opportunities for new businesses in India,
assuming responsibility for building a country level brand, and building and managing
relationships with external stakeholders. These stimulate frequent working level interaction with
the global organization and facilitate the gradual transfer of control to the country organization.

Establish local team credibility

Why is this important?
Provides the local team the required business flexibility and smoothens the strategic
decision making process
Having a credible local team in place is a key requirement for success. A high level of
trust is essential for decision rights to flow through and localization to take place. Beyond the
processes that relate to the formation of the local team, which to a large extent lie with global
management, companies voiced their opinion that establishing credibility was in the hands of the
local management team itself. We identified three ways in which local management created
credibility:
As witnessed through KSF # 5-7, having a capable and empowered local team in place is
imperative for success.

The diagram below demonstrates the gradual transfer of decision-making rights to the local team.
Leverage India opportunities beyond the product/market
Why is this important?
Draws attention to the India organization, derives value for global organization, and gains
competitive advantage
Off shoring opportunities are a key point of focus for MNCs operating in India today. In
fact, all the MNCs that we benchmarked are either actively involved in using India for value
added activities outside of the domestic market opportunity or are in the process of evaluating
such opportunities. Their ability to contribute to their global operations in this regard was highly
appreciated by their headquarters and increased the stature of the India organization. Some key
hurdles faced by companies included global level concerns related to IP protection, quality and
reliability of domestic suppliers, or political complexity associated with job loss in Europe. To
overcome these, many successful companies took a small step approach, demonstrating the
benefits from outsourcing a limited piece of the value chain and then expanding the scope of
outsourcing for example, starting by handling IT operations for another country organization,
demonstrating the savings and then moving to handle another country or region. Again,
arranging for personal visits by company executives to India to witness first hand the capabilities
of the India organization and the opportunities available in the country were important in
facilitating the off shoring process.
Localized product/market business models

Creating the right product/market business models for India is perhaps the most critical, and the
most challenging success enabler. While global and local processes can create the platform from
which to launch these models, the companys long-term success and sustainability depends on its
ability to design its business model in response to unique challenges and opportunities raised by
the market. This makes it imperative to have clear and directed strategies, through the two
remaining success factors.
Localize parts of the value chain to obtain Indian costs and capability benefits
Why is this important?
Builds competitive advantage by achieving effective cost structure, maintaining quality
standards, and leveraging the effects of scale
MNCs in India are faced with stiff competition from local players, often with an entirely
localized setup. To compete effectively, it is important to set up an effective cost and operating
structure involving various degrees of localization in parts of the value chain. Some factors that
may affect localization decisions are mentioned below:

a. Labour/capital trade-off: Indias large labour surplus, which is expected to grow even
further in the future,1 results in comparatively low wages. Companies have considered
this factor in their localization equation and transferred labour-intensive processes to
India. Lafarge, for example, clearly demonstrated that the standard global IT system is
not economical given the cost of Indian IT experts. Instead, it designed its own IT system
at a reduced cost with acceptance by the head office.

b. Brand recognition: Some companies have chosen to import critical components and
manufacture other parts locally, in order to leverage high European quality levels and
brand recognition. Wartsila, for instance, imports diesel high capacity engines from
European suppliers who have developed their capabilities over a decade and
manufactures less critical parts in India.

c. Cost structure: In the early days of its joint venture, Joyco set up its operation using
common European cost allocations and imported machinery that was more expensive
than locally available machinery. Joyco has since identified and developed capable local
suppliers and has indigenized its cost structure, enabling the company to compete
successfully with local players.

d. Global platforms and scale: As companies are becoming more sophisticated in the use
of global platforms, they are increasingly using a mixed localization strategy. AVL, for
example, found it most economical to import most of its electronic components from
 vendors with which it has global contracts, while manufacturing mechanical components
in India, and assembling the final product locally.

e Regulation: State government incentives may prompt companies to localize parts of

the value chain such as manufacturing or R&D. Certain states in India are known to
provide various incentive schemes which may include tax holidays, free rent or use of
utilities for setting up operations in a particular area which have encouraged MNCs to
set up operations in the area.

Formulate India-specific business model strategies (product, value, pricing)

Why is this important?
Delivers the right product at the right price with right positioning for India

This final key success factor is perhaps the most important. Companies recounted time and again
that it was not enough to merely replicate in India business models that have been successful in
Europe and elsewhere in the world. The following graphic illustrates some of the market
challenges that are unique to India, and some of the principles that successful companies use to
help tackle them.
a. Tailored Product Proposition: As Indian tastes and habits are distinct from the rest of the
world and vary from region to region, many companies have found the need to alter their
international product to suit local tastes and conditions. Successful companies derive ideas for
customisation from a deep understanding of the
needs of the segment being targeted.
b. Appropriate Value/ Price Offering: India is a country of widely dispersed income
distribution, containing both a small but substantial affluent class and a vast population with an
average disposable income that is 1/10th that of OECD countries.
Successful companies have understood that India is not just about cheap products but providing
the right value proposition, and have thus been able to find success across various price points.
Companies catering to the mass market, such as HLL, have employed breakthrough efficiencies
that enable them to break the price barrier and supply high quality goods at affordable prices.
Philips has used this logic to cut the price of its acclaimed Compact Fluorescent Lamps sold in
India from Rs. 600 to Rs. 140. On the niche side of the spectrum, Skoda has recently entered the
high-end motor market in response to market demand, competing with the likes of Mercedes, and
positioning cars in the super luxury category at a price of Euro 50,000.
c. Cost effective reach: Indias geographic size, dispersed population and fragmented retail
channel pose a significant challenge for companies to reach their target customers in a cost
effective way.

e. Innovative supply chains: Infrastructure challenges and a large number of supply chain
intermediaries place pressure on the supply chain both in terms of cost and consistency.
MNCs that have localized their supply chain have often also developed strong links with
their suppliers by investing resources in improving their processes and technology and
thus growing their business. Piaggio, for example, has localized 100% of its 3-wheeler
product in India so that it could compete effectively1. It worked hand-in-hand with
multiple Indian suppliers to raise their quality and reliability levels - by training them and
transferring technology. In order to provide a world-class product, Piaggio prompted
Lombardini, a reputed Italian engine manufacturer, to set up operations close to Piaggios
facility in Pune.
Summary and Conclusions

Since early 1991, India has experienced a significant increase in FDI inflows. This has
contributed to a growing presence of foreign companies in India and created an urgent need for a
better understanding of Indias work culture and management practices. This research paper
sought to fulfill two major goals of (i) analyzing the adaptation experience of expatriates in
India, and (ii) to highlight the peculiarities in Indian organizational behavior and management
culture. The ultimate goal was to help MNCs improve their understanding of Indias business
world and reduce the psychic distance between the investing country and India.

A survey of the literature on expatriates adaptation experience did not provide much
empirical evidence about how difficult is India as an assignment location and what are the most
challenging aspects of the Indian assignment. The research work on the subject, though scanty
and varied in focus, is likely to increase in the years to come. To provide research orientations,
several hypotheses are proposed. One hypothesis is that, when compared with China, India
should be an easier assignment. This argument is grounded in the fact that expatriates enjoy the
English language advantage (lingua franca in the business world) and the adoration-advantage in
India. Another hypothesis is that Management by differentiation is a better strategy in a
pluralistic system, like that of India. A third hypothesis is that culture-specific problems in India
are less significant a problem than the infra-structural deficiencies, bureaucratic delays and
policy confusions. Since most of the foreign MNCs are located in the large metropolitan cities of
India and interact primarily with the urban population, the value system, work culture,
organizational behavior, and management practices of this urban middle class is postulated as
representative of the Indian business world. An understanding of this subset of the Indian societal
culture provides a good link towards MNCs better management of their operations in India.

Towards the second research goal, the paper focused on five aspects of organizational
behavior and management culture. These are management and leadership styles, motivation
strategies, organization communication and control mechanisms, negotiation practices and
human resource management practices. It is pointed out that, living in a collectivist society, with
a high power distance, an Indian tends to appreciate a paternalistic style of leadership. They
respect and adore the skills brought by the superior and demand more attention and
approachability from their leaders. Working in a foreign company appears to be a strong
motivator for the status conscious Indian, who visualizes a market-value advantage in being
trained in new technologies. The Indian organization structure is biased towards relationship
oriented systems, where interpersonal links are focused more than processes and procedures.
Indians expect more clarity on instructions and guidance and that increases the need for top-
downward communication. When it comes to performance evaluation, Indians prefer qualitative
indicators (such as loyalty) to quantitative indicators (such as output). The Indian negotiation
practices reflect the cultural mindset and are guided by the Brahmanical idealism and Individual
anarchism. This often leads to slow negotiations and often demands extra patience on the part of
the outsiders. A mapping of the human resource management practices reveals more similarities
with the Japanese than with the Anglo Saxon world.

The changing face of Indian management does show signs of convergence, though the
sources of influence are no more confined to Anglo Saxon world; the Japanese, the Korean, and
the Scandinavian influences are intermingling with the Indian mindset to create a new blend. To
conclude, this paper provides a broad overview of various aspects of Indias work culture and
management practices. The ideas are drawn primarily from the published material and
supplemented by authors perception of his own culture and workexperience. The issues raised
are expected to help the expatriates prepare their Indian assignment, to MNCs in developing pre-
assignment induction programs, and to trainers in developing intercultural training instruments.