International Business Environment: Investment Opportunities for SisCom in India - Research Paper Example

Table of Contents Summary 2 I Introduction 3 II National and Organisational Cultures 3 II.1 National Culture 4 II.1.A PEST Analysis 4 II.2 Organisational Culture 6 II.2.A Human Resource Management Function 6 III UK-India Relations 7 IV Recommendations and Conclusions 8 Bibliography 9 Summary The following is an investigative business report for SisCom, a UK based company that manufactures and distributes computer components and peripherals. The report explores investment opportunities for SisCom in India, where the company intends to establish its regional headquarters for the Asian region. Different aspects of the Indian market are looked into through a PEST analysis, and a study of the national and organisational cultures. Also discussed are the human resource options for SisCom, and the nature of the relationship between India and the UK in terms of politics, trade and international diplomacy. Finally recommendations are made for SisCom based on the investigation, and hopefully, meaningful conclusions are reached. An investigative business report for a UK based computer manufacturing and distributing company intending to establish themselves in the Indian market. I Introduction This report investigates into the opportunities for SisCom, a UK based company specialising in manufacturing and distributing computers and computer peripherals in establishing themselves in India. The company is renowned for quality computer components and competes with other larger computer giants, with low prices for quality being their main area of competitive advantage. SisCom already have two international operations within Europe in addition to their corporate headquarters and manufacturing centre in the UK. Their main objective in entering the Indian market is not only to exploit the vastness of possibilities in this market, but also to use it as a doorway to other Asian countries for export purposes. Like many other major organisations in the UK, SisCom have also outsourced their contact centre operations to service providers in India, in return for cheap(er) labour and a highly competitive and educated workforce. SisCom hopes to extend this collaboration by setting up a manufacturing unit and regional headquarters for Asia. India is a democratic republic with a population of almost a staggering 1.2 billion people, making it the largest democracy in the world, second only to China in terms of total population (CIA). The CIA also identifies India as a fast emerging open market moving away from its more restrictive past on foreign corporations and trade. Also, the current global financial crisis has not had much of an impact on the Indian economy, apart from a small decline in the annual growth rate, mainly made possible by stringent banking policies and structure (CIA). In other words, it can be assumed that whilst the developed western nations have been struggling to find their way out of the crisis and came to a halt, India continued to progress steadily, hence making up for valuable lost time. II National and Organisational Cultures With 28 states and seven union territories, and almost 15 different official languages, India is vast in the cultures it represents (CIA), and SisCom’s first challenge would be to determine what part of the country would be best suited to set up office. The saving grace though, for SisCom, is that English is the official language for business, political, and academic communications, and is widely spoken throughout the country. Although there are many clusters of underdeveloped areas all over the country, most of the urban areas offer good prospects for business ventures. II.1 Nationally, Hindus make up 80.5% of the total population, with Muslims and Christians following with 13.4% and 2.3% respectively. Sikhs make up a further 1.9% whilst 1.8% is unspecified in their beliefs (CIA; Rediff, 2009). This information is important to understand the orientation of different religious groups that are represented. Hinduism especially is renowned to have invented many mathematical numerals, including the number zero and also the decimal system, which have been brought into Europe through Arabs and underwent many modifications in the process. This places a great deal of importance in the area of computing. Whether hardware or software, Indians have often excelled in this field, which is evident from the large numbers of Indian computer professionals around the world (http://home.c2i.net/greaker/comenius/9899/indiannumerals/india.html). This also means that there will always be demand for computers in this country. With a GDP of only US $3100, India has one of the lowest GDP’s in the world, ranked at 165 (CIA), which means the middle class takes up a major part of the population making SisCom’s low price approach workable in the Indian market as well. II.1.A PEST Analysis: It may be helpful to conduct a PEST analysis to study the market environment in India for SisCom to make informed decisions. Politics play a major role in Indian society, and more often than not, political parties exercise the power to influence peoples’ behaviour. Although the current ruling Congress party has been open to foreign investments in the country, it is also important to investigate individual state governments and their orientations. Each state has its own government that determine how business is conducted, and the more right-wing or culturally orientated a political party, the less the chances for a foreign company to invest in that state. For example, the BJP or Bharatiya Janata Party is a right-wing Hindu nationalist party and normally does not like the idea of foreign investments. So it would be advisable to choose a state that is more open in its approach to business practises. Economically, as mentioned earlier, India is one of the fastest developing nations in the world, in spite of the existing poverty and underdevelopment, and also one of the few countries that has not been overly affected by the current financial crisis. Another issue to consider within the economic aspect is the exchange rates between the British Pound and the Indian Rupee. The pound is of greater value in terms if rupees, as the most recent exchange rate has been about 75 rupees for a pound. The lowest point of depreciation for the British pound in the last year was about 67 rupees, which was in January 2009. This implies that investors may more often than not get more for their pounds in India. One way to reduce risks related to fluctuating currencies would be to invest heavily whilst the value of the pound is at a high against the rupee. This can be done through regular monitoring of the currencies and making the most of opportunities that arise. (See http://www.oanda.com/currency/converter; and http://www.tititudorancea.com/z/gbp_to_inr_exchange_rates_british_pound_indian_rupee.htm) Sociologically, India’s cultural structure is hierarchical, where there is almost always a male head of family, making it a male dominant society. Elders are generally respected as they are believed to be the driving force behind a group or community. Hence respecting elders and getting their blessings is an important cultural aspect. This information is vital for SisCom as Indians, as technologically savvy and forward thinking they may be, will not normally give up their traditions and cultural traits for any new prospect, as they believe that these traditions and culture is what hold their families and society together. Unlike in Britain, where there is more emphasis on individualism and excessive freedom, Indians, no matter how much freedom they are given, choose to be bound by their cultural restrictions, and also give more importance to collective effort rather than individual recognition. This puts India into Hofstede’s list of collectivist nations, with a strong culture that may not be flexible to change. But Hofstede’s study is limited to a generic assessment and does not consider many other factors that may be of a significant nature (Hofstede, 1997; Dowling et al, 2008). Technology has been advancing rapidly in India thus increasing the demand for technologically proficient people along with new innovations in technology. This has also prompted the recognition for the need for new educational programmes by regional governments to educate people from the most remote areas of the country about computers and in using the internet. The government(s) have increased the annual expenditure on computer education to meet with demands of the high population, where it would be easier for people to do simple tasks like paying their bills via the internet rather than having to queue up outside pay points. This may also mean investment opportunities with local governments in their efforts to educate remote people. India has the fourth largest number of internet users in the world trailing behind China, USA and Japan; and boasts of having the second largest number of mobile phone users, trailing only behind China (CIA). This could also mean scope for expansion for SisCom for services other than just computers and their components (see Drummond et al, 2001 and Kotler, 2003; http://www.explore2india.com). II.2 Organisational Culture: “One’s own culture provides the ‘lens’ through which we view the world; the ‘logic’ by which we order it; and the ‘grammar’ by which it makes sense” (Avruch and Black, 1991) The above statement makes it clear that one’s national culture is bound to influence the way in which one operates on a daily basis. This may apply to an individual or a group, and in the case of this section, an organisation. Organisational culture is largely representative of the national culture where the organisation operates with traits learned within familial or social structure (Tulder & Zwart, 2006). Understanding people requires understanding their background, as their background has provided them with their culture and would help one predict their present and future behaviour (Hofstede, 1991 cited in Tulder & Zwart, 2006; Scullion and Linehan, 2005). This calls for an understanding of historical origins of culture in terms of religious beliefs, values and norms (Hofstede and Bond, 1988). As we have already discussed national culture, it is safe to assume that India’s generic organisational structure may be authoritative with a centre of authority at the top and further divisions accordingly (Mullins, 1999), parallel to the national culture, with a male head given prime authority, and positions designated downwards to elders, who in turn are respected by lower members (Hofstede, 1997). Not much autonomy may be given to lower levels in terms of decision and policy making. It is therefore important for SisCom to responsibly note these factors in their endeavours. II.2.A The Human Resource Management (HRM) function: As SisCom ready themselves to invest in India, as an effective multinational organisation, it is imperative for the company to determine what HRM practises to use for effective operation. It would be a worthy effort to invest in expatriation, by sending British professionals to India to effectively communicate the company’s vision and corporate objectives to the local workforce, hence giving the workforce a commonality of purpose (Scullion and Linehan, 2005). But Evans et al (1989) suggest that managerial styles designed in one culture may not easily translate to another because of the differences in traditions and values of the management and workforce. This calls for international managers to be prepared for the challenges they may face as they venture into unknown cultures. One way to reduce the risk of such cross-cultural tensions, as proposed by Keeley (2003), is to invest in host country nationals (HCN’s) as a major function of international managers, as HCN’s know their culture and would be more effective in communicating with local workforce. This would be an important step to achieve competitive advantage in the global economy. There is no shortage of workforce in India, as recent statistics suggest that India produces the second largest number of engineering graduates in the world, trailing only behind China, with 2004 seeing a staggering 450,000 engineering graduates, of which 31 percent were computer engineers (Rediff, 2006). Hence SisCom would benefit by tapping into local talent by recruiting local highly qualified professionals for a considerably lower pay as compared to British professionals, who may not be as qualified. III UK-India Relations The UK and India have a long standing history, as India was once a British colony. After independence in 1947, and the formation of the Indian constitution in 1950, India was extended an open door by Britain, allowing many Indians, primarily from the north, to enter Britain and set up businesses and live and work there. According to a recent report by the BBC, India is the third largest investor in Britain with more than 600 companies operating there. Also more than 1.5million people of Indian origin currently live in the UK, which factually implies good relations between both countries. In addition, the British Asian community is the most influential group amongst minorities when it comes to British politics and many other areas like arts, music etc (see http://news.bbc.co.uk/1/hi/6267387.stm). Ironically, UK is also the third largest investor in India with already over 500 UK based companies operating there. Some examples of UK based companies in India are: Tesco, the third largest retailer in the world, have committed £60millionin FDI’s in partnership with India’s Tata group of companies; Marks and Spencer have committed themselves to invest £30million in India; Vodafone invested about £5.5billion in the acquisition of India based Hutchinson Essar Ltd, one of India’s biggest mobile phone service provider. Reports suggest that so far, the highest FDI’s in India from UK companies have been in power, oil and gas, telecommunications and service industries. This may prove advantageous for SisCom in terms of less British competition in their industry, although American giants like IBM, Intel and Dell have already made their mark in India (http://ukinindia.fco.gov.uk/en/working-with-india/india-uk-relations). Over the past decade, India and Britain have enjoyed a special relationship especially due to both countries’ stand against global terrorism and their aim for global nuclear proliferation. In this context both countries have signed several agreements to boost their relationship even more. It is expected that both countries will form stronger ties in the future through the education sector, with more than 30000 Indian students going to Britain every year for their studies (http://ukinindia.fco.gov.uk/en/working-with-india/india-uk-relations). All of these factors create a favourable picture for SisCom in their bid to invest in India. IV Recommendations and Conclusion From the above investigation, it is clear that India provides many possibilities and unending opportunities for SisCom’s plans to become a reality. Some recommendations based on the investigation are: Foreign Direct investment as opposed to export based investment, as FDI gives more freedom and flexibility of operation; to understand cultural issues in different states and act accordingly; to understand the importance of regional politics in order to make informed decisions; to consider investing in local talent for local operations to ensure competitive advantage. One of the ways this can be done is by identifying talented Indian students in UK universities for recruitment procedures; and to understand organisational culture and generic structures in Indian organisations that would give SisCom some insight into worker behaviour in India; to understand laws pertaining to labour unions and recruitment procedures in India. In conclusion, SisCom has mostly to benefit by investing in India especially if they identify proper geographical locations for their regional operations. Places which are flexible to foreign investments, like Bangalore in southern India, which are already homes to major foreign companies, may be safer options as demand may be less in less recognised areas. But this means having to face competition with global organisations, which SisCom is capable of doing. Bibliography Avruch, Kevin and Peter W. Black. “The Culture Question and Conflict Resolution”. Peace and Change 16 (1991): 22-45 Drummond, G., Ensor, J., and Ashford, R. (2001). Strategic Marketing. Butterworth-Heinemann: Oxford Evans, W.A., Hau, K.C, Salli, D. (1989). A Cross-Cultural Comparison of Managerial Styles. Journal of Management Development, 8 (3), 5-13 Hofstede, G. & Bond, M. (1988). ‘The Confucius Connection: from Cultural Roots to Economic Growth’, Organizational Dynamics, 16(4): 4-21 Hofstede, G. (1991). Cultures and Organisations: Software of the Mind. McGraw Hill, London Hofstede, G. (1997). Cultures and Organisations: Software of the Mind. McGraw Hill, London Keeley, T.D. (2001). International Human Resource Management in Japanese Firms. Palgrave, London Kotler, P. (2003). Marketing Insights. John Wiley & Sons, Inc: New Jersey Scullion, H. And Linehan, M. (2005). International Human Resource Management. Palgrave-Macmillan, New York Tulder, R.V. and Zwart, A.D. (2006). International Business-Society Management: Linking Corporate Responsibility and Globalisation. Routledge, London World Wide Web Resources https://www.cia.gov/library/publications/the-world-factbook/geos/in.html (accessed 12/01/2010) http://www.rediff.com/money/2006/jun/09bspec.htm (accessed 12/01/2010) http://home.c2i.net/greaker/comenius/9899/indiannumerals/india.html (accessed 11/01/2010) http://www.oanda.com/currency/converter (accessed 17/01/2010) http://www.tititudorancea.com/z/gbp_to_inr_exchange_rates_british_pound_indian_rupee.htm (accessed 17/01/2010) http://www.explore2india.com (accessed 11/01/2010) http://news.bbc.co.uk/1/hi/6267387.stm (accessed 18/01/2010) http://ukinindia.fco.gov.uk/en/working-with-india/india-uk-relations (accessed 18/01/2010) Read More