Major Peculiarities of India - Essay Example

India Introduction India is a South Asian country and is the seventh largest country by area in the world covering approximately 3,166,414km2 (Singh, Dubey and R.N Dubey Foundation 2). The country is also very populous with a population of over 1.2 billion people, making it the second populous country in the world after China. It borders countries such as Pakistan, China, Bhutan, Nepal, Burma, Bangladesh, Maldives, and Sri Lanka. It is also enclosed by the Indian Ocean to its south. The economy of India is among the fasted growing in the world. Currently, India is the third largest economy by purchasing power and ranks tenth in terms of nominal gross domestic product (Panagariya 6). Dimensions of Distance India borders a number of countries, which also happens to be its major trading partners. It borders countries such as China, Pakistan, Bhutan, Nepal, Burma, Bangladesh, Maldives, and Sri Lanka. However, its major trading partners include the US, China, Russia, UAE, and Japan. Of the major trading partners, geographically China is the closest country to India with which it shares the borders. The distance between India and its trading partners has the potential of affecting hugely the global trade and multinational business strategy in several ways (Panagariya 12). Ghemawat notes that distance between countries usually manifests in four major dimensions, which impacts greatly on the global trade and multinational business strategy (3). The four dimensions include cultural, geographic, administrative and economic. The distance between countries influences different businesses differently. Geographical distance between India and its trading partners affects the transportation cost and communication (Panagariya 13). As such, it has to be taken into consideration by companies particularly those dealing with bulky or heavy products. It is for this reason that an Indian-based company would find it more cost effective trading with China as opposed to US or Russia as a cost cutting strategy. Cultural distance also matters greatly as far as global trade and multinational business strategy is concerned (Ghemawat 5). This is because cultural distance affects hugely the consumer’s product preference. India has close cultural distance mainly with countries such as China, which also has many Indians population. Other countries include Pakistan, Sri Lanka, Bhutan, Nepal, Burma, and Bangladesh (Panagariya 16). Cultural distances should particularly be considered by companies dealing with consumer goods, as opposed to those dealing with building materials such as steel and cement, which are not affected by cultural distance. As such, a company that invests in India will enjoy close cultural distance especially with the neighboring countries, which also have a high number of Indian populations. In other words, despite the US being one of India’s major trading partners, the cultural distance is very huge and would not be viable dealing with it especially on consumer goods. Nevertheless, the fact that both countries share English as a common language would be a plus for trade between the two countries. Culturally, India would find it plausible trading with Pakistan, but the conflict between the two countries make it hard for trade to thrive between the two countries according to Ghemawat (5). Administratively, India is in close ties with a number of countries across the region such as China, the US, Russia, UAE, and Japan (Dutt 151). This is because of the trade agreement between India and some of these countries. In addition, it is in close administrative terms with Britain as its former colonizer. The close links between India and these countries promote trade greatly. India as a member of BRICS and G-20 Major economies helps in boosting trade between it and member countries. The other good thing about India is that it is in a political union under UN and the Asian region making it favorable destination for doing business. However, despite the fact that India shares a common border and language with Pakistan, the hostility between the two states implies that no trade can take place between them. Country Institutions Khanna, Palepu, and Sinha note that every country has certain institutional voids that companies must consider before venturing in a given country (66). As such, it is imperative of any company that wishes to venture in a given foreign market to be able to identify all the institutional voids that may affect the successful operation of the company in such a country. Six institutional contexts usually manifest itself in any given country that must be taken into consideration. They include political, social, openness, product market, labor market, and capital market. Political and social systems The political system of every country usually affects its products, capital market and labor, as well. As such, it would be imperative for multinational companies to consider the political system of a country especially the center of power such as media, democracy, and civil society and whether there are checks and balances in place. To be able to adjust well in a given country, it is also imperative for managers of multinational companies to establish the manner a country’s political system is decentralized, such as whether the political class is independent of each other. In addition, multinational companies must be able to determine the level of trust accorded to them by the general population, as opposed to imposed trust. India is one of the countries that politically stable and practices high level of democracy with a very bureaucratic form of government (Khanna, Palepu, and Sinha 63). This makes the country favorable for doing business because of political stability. Nevertheless, corruption level is very high in both state and local government. This makes doing business in the country quite complex because one is forced to dish out bribe to get a license for doing business and other requirements. Nonetheless, India has very active civil society that ensures that the actions of politicians are checked. This is done with the help of dynamic media and vigilant NGOs that keep on check politicians and companies according to Khanna, Palepu, and Sinha (66). Openness Many multinational companies prefer operating in economies that are open since they welcome direct investments by global companies. India is one country that is considered a closed economy because the government of the day does not offer warm reception to multinational companies. Nevertheless, the country has been open only to countries from the West. In addition, its people are able travel freely in and out of the country without interference. As such, it is evident that Indian government would not be willing to allow direct investment from multinational companies other than those from the West. Therefore, the best way to approach the Indian market is by operating as a joint venture with companies that have already established base in the country (Khanna, Palepu, and Sinha 66). Labor Market It is reported that most global companies find it hard when it comes to recruitment of its workers due to the difficulty in ascertainment of talent. This is particularly the case in low-income nations, which has few recruitment agencies. India is one such country that is facing the challenge of labor despite its population. This is because of lack of enough skilled workers and managers to work in companies. It is also reported that the trade union in the country is very active but faces the challenge of being compromised by the political class. However, adjusting to India’s labor market will ultimately call for multinational companies to training people for jobs they offer (Khanna, Palepu and Sinha 67). Global industrial Clusters Industrial cluster refers to the geographic concentration of interlinked corporations, service providers, and specialized suppliers and associated institution in a given filed in a given region or country. It is reported that global industrial clusters mainly arise because it increases the company’s competitive advantage over other firms in the same industry. It is for these reasons that many globally competitive companies in the world today prefer developing into clusters so as to increase their competitive advantages. Examples of globally competitive companies that have developed into clusters include the Americas Wall Street, Hollywood, Silicon Valley (ICT), and Detroit (Automotive). Industrial clustering is also formed because it saves cost of doing business to the company in the cluster, as well as strengthening the economy of a country. Cost saving from industry clustering arises from the fact that the clustered companies are able to obtain easily the support services, specialized suppliers, and skilled workers, as well. Cost saving is also realized because most of the public infrastructural investments in most cases are being directed towards the clustered industry. In addition, clustering is also preferred because it enhances transfer of intercompany information and technology thus resulting in cost saving (Karlsson, Borje, and Roger 16). Many globally competitive companies also favor industrial clustering since it allows for better focusing of company resources. In this regard, in the perspective of the domestic economy, clustering is said to permit effective alignment of the company’s resources as per the competitive nature of the market. This, in turn, leads to efficient utilization of company resources resulting in better delivery of services thus increasing production (Kathuria 344). Clustering of companies is also said to facilitate industrial reorganization. It is noted that, with the competitive nature f the global economy, the emergence of production technologies have enabled many companies to transform from mass production to smaller forms with great emphasis on specialization. As such, it is reported that industrial clustering allows for easy attainment of new technologies, and specialization of products, as well. Moreover, the close proximity of the specialized firms under cluster is said to promote the transfer of goods through systems of production, thereby enabling companies to adapt quickly enough to the changes that might be taking place in the market (Karlsson, Borje, and Roger 18). Clustering of industries also promotes networking among companies. The networking of companies in turn enables these companies to exploit new markets, complementariness, integrate activities and gather resources and knowledge. Research indicates that companies that form networks gain a lot through cooperation with the other firms. The intercompany cooperation in turn enhances a company’s competitiveness and profitability (Okada and Siddharthan 46). Clustering is also favored by globally competitive companies since it promotes innovation and commercialization. Research indicates that clustering minimizes barriers to enter a given market, be it new firm or spin-offs. As a result, it is reported that it is easier to start up a business within a business cluster since the business would be in a position to get most of the required resources readily available in the local market (Okada and Siddharthan 4). Clustering in India is said to have been in existence for centuries now. However, the major clusters in India are Chennai, the National Capital Region (NCR), Ludhiana’s Knitwear cluster, and Agra and Kolkata. It is reported that clustering in India is mainly concentrated in regions such as Mumbai-Pune, Chennai-Bangalore, and NCR (Okada and Siddharthan 8). Chennai is the leading auto cluster in India accounting for more than 21% of passenger vehicles, 33% commercial, and 35% of auto components manufactured in India. It is reported that currently there are over 100 companies located in and around Chennai cluster. Among the companies that fall within the cluster, include Tamil Nadu, the leading producer of valves, fuel pumps, thermostats, oil pumps and water pumps among others. Other companies that form Chennai cluster include TVS Group, Ashok Leyland Ltd, and Rane Group just to name but a few (Okada and Siddharthan 36). The National Capital Region (NRC) cluster is also another leading industrial cluster in India. The cluster is made up of Delhi, Haryana, and Maruti Udyog ltd. It is also an auto cluster composed of companies dealing in the manufacture of auto components such as vehicles. Finally, Ludhiana knitwear cluster in the Indian state of Punjab. The major companies that fall within this cluster are mainly those dealing with knitwear products manufactured mainly both for export and domestic market (Okada and Siddharthan 49). Global Diffusion of Technology In order for a company to be successful and competitive in the global market, it has to be productive. Technology is one of the drivers of productivity since it promotes efficiency in the manufacture of goods and services as well as the transportation of products from the factory to the consumers (Keller 752). Research indicates that in most countries globally use technology derived from foreign countries, which accounts for more than 90% of local productivity growth. It is also reported that most technology invention comes from rich nations such as the US, Japan, Germany, Britain and France, just to name but a few. The technologies are then diffused to other countries, and used by companies for increasing productivity according to Keller (753). Scott argues that no company can be able to have a competitive advantage over others is it cannot be able to sustain the processes of technology diffusion since it would not be in a position to adapt the speed and instability resulting from technology change (13). In this regard, they argue that adopting new technology is vital since it is one way by which a company can gain competitive advantage in a globally competitive market. This is because technology helps in saving time by improving efficiency in production (Li 2). Technology also aid business processes resulting in production of goods and services in the most cost effective way. Keller notes that the Indian government is very concerned about the development of technology in the country (756). As such, the government has formulated certain policies and incentives aimed at developing and upgrading indigenous technological capabilities for companies in the country. It has established an environment that allows companies in the country to enhance their competitive advantage through the introduction of sophisticated methods and technologies (Kathuria 346). This has led to growth of industries throughout the country that take advantage of the technology diffusion introduced by the Indian government. Majority of companies reports that they have benefited from technology diffusion in the country by becoming competitive in the market by being able to differentiate themselves from other competitors (Keller 756). In addition, they report technology 6diffusion has enabled the companies acquire new products, which has enabled them sustain the business despite stiff competition. Work Cited Dutt, Sagarika. India in a Globalized World. Manchester: Manchester University Press, 2006 Print. Ghemawat, Pankaj. Distance Still Matters: The Hard Reality of Global Expansion. Harvard Business Review. 1-12. Keller, Wolfgang. International Technology Diffusion: Journal of Economic Literature. Vol. XLII, September 2004, pp. 752-782. Khanna, Tarun, Palepu, Krishna G., & Sinha, Jayant. Strategies that Fit Emerging Markets: Risk and Reward in World Markets. HBR Spotlight. June 2005, p. 63-76. Kathuria, Vinish. “Productivity Spillovers from Technology Transfer to Indian manufacturing Firms,” Journal of International Development. 12: 343-369. Karlsson, Charlie, Borje, Johansson, & Roger, Stough R. Industrial Clusters and Inter-firm Networks. Cheltenharm: Edward Elgar Publishing. 2005 Print. Li, Yao. International Trade, Technology Diffusion, and the Role of Diffusion Barriers. January 2010, Pp. 1-46. Okada, Aya, & Siddharthan, NS. Industrial Clusters in India: Evidence from Automobile Clusters in Chennai and the National capital Region. Institute of Development Economics, JETRO, No. 103, April 2007, pp. 1-98. Panagariya, Arvind. India: The Emerging Giant: The Emerging Giant. New Delhi: Oxford University Press, 2010 Print. Scott, George M. Top priority Management Concern about New Product Development. Academy Management Executive. 1999, 13 (3): 77-84. Singh, Lekh, Dubey, Ram N., & R.N Dubey Foundation. New Frontiers in Indian Geography. Mumbai: Prof. R.N. Dubey Foundation and Geography Dept., Allahabad University, 1996 Print. Read More