Strategic Management of Multinationals in India
Introduction
A multinational corporation as the name suggests means a business concern that has operations in several countries. Multinational businesses came into being in the beginning of overseas trade and became modernized in the seventeenth and nineteenth centuries. The creation of such companies as the British India Company during colonization contributed greatly to the creation of these multinational corporations and world markets. The common traits in multinational corporations include interaction with state government agencies, national or international labour organizations and the methods used to penetrate the new markets.
The two major ethnic groups in India are Dravidians and Indo-Aryans and also consist of four major religions: Muslims, Christians, Sikhs and the Hindu. Hindu, being the national language, is only spoken by thirty percent of the population while the rest of the population speaks English. This therefore makes it possible for political, public and business communications. The rapid growth of the middle classes in India since nineteen ninety one provided the large market for the multinational corporations.
The middle class consisted educated, urban, English-speaking people who would best serve as managers for the multinational corporations being set up in India. The middle class in India has also dominated such fields as the bureaucracy, media, the professions and the corporate world. The social and the cultural cultures of the Indian middle class have largely contributed to the creation of the multi-national organizations. Geert Hofstede, a Dutch researcher, found out that four dimensions in culture influence the behaviour and attitude of the people in that culture. The dimensions are: individualism is the tendency of people to look after themselves and their immediate family members only; femininity describes the situations in which the dominant values in a society are money, success and other material things; uncertainty avoidance is the extent to which people feel threatened by ambiguous situations and have created believes to help avoid these, and lastly, power distance is an indication of the extent to which the less powerful members of the organizations and institutions accepted that power is evenly distributed. Hofstede surveyed different countries one of them being India and the results were put in a scale of between zero to one hundred. On the issue of uncertainty avoidance, India scored forty. This implied that Indians maintain a reasonably relaxed atmosphere. They therefore are willing to accept the fact that risks arise and are associated with the unknown and despite this life must go on. Seventy seven points were scored on power distance which shows that everyone has a place in a hierarchical form. (Tayeb, 2005)
The hierarchical arrangement does not require any explanation since as long as those who hold power are considered “good fathers” and do not blatantly emphasize their authority. The score for individualism in India was forty eight which suggests that there exists independent and collectivistic character amongst the Indians. On the masculinity dimension, India scored fifty six points. This means that Indians have a slight preference for heroism, achievement and material success. This may also indicate that in India both female and male values are found subsequently to each other in the organization and the society.
History
The existence of multinational corporations in India is approximately three centuries old, about in the sixteenth hundred century where the British established the east India Company during the colonial period. The information on history cannot be found since there is lack of reliable and rich information. Another obstacle in retrieving information is that the data for one source does not match that from another source. To explore the history of multinational corporations it can be divided into the post-independence and pre-independence era. The pre-independence period (1900-1918) marks the first phase that was marked by there being no restrictions on the type and nature of foreign direct investment (FDI) getting into India. These investments were not just since they were not evenly distributed to all the industries but only to the only ones that suited the British such as the extractive industries. During this time all FDI flowing to India was from the United Kingdom’s managing agents despite the allowance of the free flow of FDI. The situation changed from 1919 to 1947 which marks the second phase of the pre-independence in the FDI history. During this period, the FDI originated from India. To protect Indian businesses, import duties were introduced which stimulated the British companies to invest in the manufacturing sector. Despite all this, the United Kingdom remained the leading investor in spite of the Japanese countries investing.
The Indian economy
India has a population of about 1.05 billion with 30% consisting of people below the age of twenty five. This creates a ready market for children and youth products. There are more than one hundred institutes including the private or the NGO sector, the university system and the central or the state government. There are managerially and technically qualified university or diploma holders with talent but the employability is unsatisfactory. The political stability in India has contributed to the foreign investments and economic reforms. The democracy in India has been established for almost half a century. The political institutions work hand in hand with the economic systems by supporting free commercial enterprises and enforcing individual and collective rights.
There is guaranteed security for foreign investors due to a transparent environment and the time tested institutions. This has been achieved through a sophisticated accounting and legal system, a vibrant and free press, a judiciary that works with the government and an intellectual infrastructure that is user friendly. The private sector contributes 75% of India’s gross domestic product hence it is the backbone of economic activity. The technically and managerially skilled personnel in India and a middle class exceeding the United State’s population have greatly influenced the economic competition globally. Laws have been enacted to improve the transport system that is very crucial for various economic activities.
Such laws are the National Highways Act that helps reduce tolls on national bridges, tunnels and motorways, and the Monopoly Restrictive Trade Practices Act that encourages the large industry to venture the road sector. There has been increased private participation due to reduced import duties and a tax exemption of five years for new energy projects. New telecommunication policies are being put in place by the govt to improve the standard and quality of telecommunications systems in the world. These policies will not only encourage the private as well as the foreign participation. There are several factors that have influenced the creation of Multinational companies in India. The products made by these companies first meet the needs of the Indian citizens during the early stages of entering the market. The large scale and aggressive advertisement campaigns for products have led greatly to the success of multinational corporations in India. On the issue of culture, language, religion and caste are issues that ought to be considered in case one wants to put up a business in India and for success in the business. Signs of change and reform are evident though tradition is very much part of the business practices. India has experienced a rapid growth since 1991 when the economic reforms began.
Market practices
Some Indian markets are very competitive due to the sale of the same kind of commodities by vendors. What determines the number of commodities is the number of buyers and sellers in the market. There are several types of markets in India which include: currency markets, free markets and stock markets. In currency markets, money flows continuously around the globe. Different banks, investors, governments and consumers from all over the world are involved in selling and buying currency round the clock. Currency markets entail huge velocity of money constantly flowing and changing hands amongst businesses. In free markets, on the contrary, there is no interference by the government in the market processes.
These markets therefore operate in the “laissez faire” conditions. Free markets may be distorted in a situation where a specific seller controls a major part of a commodity or service (monopolistic situation) or, when a buyer has power over most of the demand (monopsonistic situation). In these cases of distortions, business bodies or the government may intervene to ensure that business in the free markets is fair and smooth flowing. Stock markets are characterized by investors selling and buying in many and different companies. This is why they are considered the backbone of many economies around the globe.
Most of the stock markets in India operate on an electronic network with a separate and different location for buyers, which will enable them, interact directly with each other. There are two types of consumer Indian markets: capital goods and industrial markets and commodity markets. Capital goods and industrial markets help companies and businesses sell durable commodities to be used in manufacturing and industrial processes. Bulky goods are transacted at cheap prices to these industries. Commodity markets on the other hand deal with soft commodities and grains (oat, corn, soya, and rice), energy (coal, gas, biodiesel and oil), financial items like bond, and meat.
These markets have gained attention following the increased prices of these commodities in the other markets. Indian markets are safe and well protected by boasts of efficient administrators and legal procedures. The current and future strategies put in place by the government make Indian markets attractive and lucrative. This is the reason these markets have secured the second place in the international arena economically due to its transparent and liberal financial policies. Public Private Partnerships (PPP) is a new market trend that has helped reduce bribes and red tapes.
The market practices in India were in the past influenced by the cultural practices of the Indians. Between 1870 and 1920, the raft of fiscal and business legislation was passed to govern market practices such as succession, taxation, commercial and security transaction and charitable donations. The laws were also meant to regulate free capital circulation, standardize market practices and resolve informal liability obligations into lien that is contractually enforceable. Currently, economic, religious and linguistic differences have created a wide diversity in India.
There is a division between the urban and rural populations with approximately 70% being those people from the rural population who provide the largest rural market in the world. This market has for long been neglected by corporations because of the difficulties that could arise from dealing with such a scattered, large and diversified consumer base. Marketers therefore preferred selling the products to the elite population in the urban areas. Due to excessive population and reduced urban markets, the companies had to turn to the rural population that provided a good alternative.
India, with a population of more than a billion people, provides diverse and lucrative opportunities for exporters over the world with the right services, products and commitment. The high growth of India’s GDP of 6.7% (2008-2009) makes India one of the fastest growing economies in the world and second in Asia. The political system of India is very stable which creates a good atmosphere for trading practices. The liberal government policies encourage foreign investors to invest in the Indian markets. Some other factors that that have encouraged foreign investment in India is its rich agricultural and mineral products, and its geographical position, near the Indian Ocean which is a trade route internationally.
The high productivity, very skilled personnel, low cost of production and the fact that English is widely spoken are leading factors that have encouraged the creation of multinational corporations in India. There are very many highly experienced computer scientists in the world and therefore Indians are highly experienced technologically hence improving foreign investment by use of online networks. The factors that encourage the establishment of MNCs in India can be summarized as: a huge market potential, a high labour competitiveness, FDI attractiveness and macro-economic stability.
Multinational companies have had different impacts to India and the other developing countries. They have improved the economy greatly by improving the technology and increasing India’s capital investment. A variety of new and different products have been introduced in the Indian to cater for the varied tastes of consumers and the always increasing population. Natural resources in India have been utilized to the maximum by the MNCs in the manufacturing processes. The technological gap of India has been reduced greatly because of advancement in technology thanks to the MNCs. Local industries have learnt new production and management techniques that can help them improve quality production of goods and services. The problem of unskilled personnel gas been solved since people acquire skills for working for the multinational corporations. (Budhwar, 2010)
There is increased competition in the industrial sector when the MNCs compete with global giants hence improving their working and this leads to improved foreign capital. These are some of the ways in which MNCs have impacted the economy. Mahayco-Monsanto, a Multinational Company has helped improve Indian agricultural activities. This has been done through the provision of pesticides, fertilizers, modern agricultural equipment, HYV seeds and improved research on best agricultural activities. Multinational companies prefer to establish in those countries that have less strict tax and environmental laws. Most of these countries are those that are still developing whose legal system still wants. They deposit waste products from the manufacturing processes in these countries since they not be sued.
This causes much pollution and wasted land where the waste lies. Most of these countries produce luxurious products that are not very important to the people in the developing countries, who are either poor or belong to the middle class. These people need products such as cheap food or such kinds of products that will help them improve the quality of their lives. These companies interfere with the politics of developing countries despite causing pollution to their environment. They gain economic power and help politicians win elections so that they can manipulate them to make industrial and economic policies that will suite them. If the politicians are influenced and make these laws they will be biased and not conform to the wants of the citizen that they are supposed to serve.
Conclusion
Based on the above effect of multinational companies, the only way to solve these problems is by controlling the way in which they work. The fact that these countries are from developed countries does not mean that they should have their way and do what they wish in the developing countries. Strict environmental and economic laws should be put in place so that these companies cannot exploit in their host countries and to ensure that the rule of law is followed to the latter.