Problems Faced By Western Firms In Indian Market

Problems Faced by Western Firms in Indian Market

Msc Management Dissertation

Problems Faced by Western Firms in Indian Market Submitted By Ratanchand R. Gaikwad

Student no- M00158921

Word count- Approx; 15000 excluding Figures and tables

Supervisor- Prof; Terence Jackson

Date Submitted12-01-2009

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Problems Faced by Western Firms in Indian Market

Executive Summary

The purpose of this dissertation is to study the Indian business environment and find out the “problems faced by western firms in Indian market.

India is on mind of everyone all over the world. Tremendous growth of few Asian economies has the business world standing up and taking notice, and India is a most promising prospects, doing business in India is top priority for many individuals and organisations and if you are going to successful in India, you have to survive in the Complex Indian environment which is frustrating and challenging at the same time. No matter where you come from and where you have been, nothing is exactly like India, that is why understanding Indian market is essential for western organisations.

According to world Investment forum (2008) India is the second most popular place for the global business investment, as it’s a biggest consumer market having many graduate than the population of the France and also have the cost effectiveness and language advantage as the world of business speaks English in India that is why India is becoming centre of attraction to the western investors. Hence to find out what problems are there for the western investment was essential to make aware western firms heading towards this attractive place.

To find out the problems and achieve the author’s objective, primary and secondary research was conducted. Primary data was collected using research questionnaires, which have been e-mailed to the western firm’s employees or owners operating businesses in India. On the other hand secondary research relied on the textbooks, online magazines, newspapers, search engine, and relevant websites.

The findings produced by the data gathered, were sufficient to make assumption and form the answers to research questions. In additions, survey results were ample in order to test the set hypothesis.

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Problems Faced by Western Firms in Indian Market

Acknowledgements First of all I would like to thank God and also I thank all people who gave up their precious time in order to fill-in an e-mailed questionnaire and all those who gave me wonderful co-operation during interviews, which gave me an opportunity to complete this investigation on time.

Also I would like to thank my dissertation supervisor Prof. Terrence Jackson for all the precious advice that he gave me and for the time and patience that he has spent on me, which is much appreciated.

Special thanks to my Mum and Dad who have supported me all the way through this dissertation, who have given me courage to undertake challenging research and who has filled me with faith when I was down.

I also would like to thank Prof. R.R. Yelikar, and librarian Mr. C. Gaikwad who helped me to get access to the Solapur university, library and Hirachand nemchand collage library.

Finally, I want to thank my friends whose love and contribution, has gone a long way to complete my dissertation.

Ratanchand

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Problems Faced by Western Firms in Indian Market

Declaration of Originality

I Mr. Ratanchand. R Gaikwad declares that the dissertation titled “Problem faced by western firms in Indian market” is entirely my own work and that any additional sources of information have been duly cited.

I hereby declare that any internet sources published and unpublished works from which I have quoted or drawn reference fully in the text and in contents list. I understand that failure to do this will result in a failure of this project due to plagiarism.

I understand I may be called for viva and if so must attend. I acknowledge that is my responsibility to check whether I am required to attend and that I will be available during viva period Signed

…………………………………….

Date

……………12-01-09……………………….

Name of the supervisor

Prof. Terrence Jackson

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Problems Faced by Western Firms in Indian Market

CONTENTS Title

1

Executive summary

2

Acknowledgement

3

Declaration of originality

4

Contents

5

Chapter I

Introduction

1.1 Overview of the Research

10

1.1.1 Background

11

1.2 Rationale for the Research

12

1.3 Research Objective

13

1.4 Hypothesis

14

1.5 Methodology

14

Chapter II

Literature Review

2. Introduction to Literature review

16

2.1 Understanding India

16

2.2 Doing Business in India

17

2.2.1 Meetings

17

2.2.2 Building relations

18

2.2.3 Negotiation

18

2.3 Indian Infrastructure for Business

19

2.4 Effect of culture on doing business in India

21

2.5 How government policies affect business procedures?

29

2.5.1 Indian Legal system

30

2.5.1.1 Foreign exchange management Act, 1999

32

2.5.1.2 A companies Act, 1956

33

2.5.1.3 Intellectual property Rights (IPR).

34

2.6 Corruption in India

36

2.7 Effect of High Tariff/duty

38

2.8 Conclusion

39

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Problems Faced by Western Firms in Indian Market

Chapter III

Methodology

3. Introduction to Methodology

41

3.1 Secondary Research

41

3.2 Primary Research

42

3.2.1 Types of Research

42

3.2.2 Data Gathering Method

43

3.2.2.1 Case Studies

43

3.2.2.2 Interviews

43

3.2.2.3 Observation

44

3.2.2.4 Survey

45

3.2.2.5 Questionnaire

45

3.2.3 Sampling

47

3.2.3.1 Population

48

3.2.3.2 Sample

49

Chapter IV:

Findings

4. Introduction to Findings

51

4.1 Presentation of Findings

51

4.1.1 The Questionnaire

51

4.2 Analysis of Findings

61

4.2.1 Analysis of Questionnaire Results

61

4.3 Hypothesis Testing

66

Chapter V:

Bibliography

Conclusion

73

75

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Problems Faced by Western Firms in Indian Market

CONTENTS (Continued) Appendices

89

Appendix A: Sample Questionnaire Appendix B: Analysis of Questionnaire Results Appendix C: letter from President Export council, Washington DC.20230 to Indian authority, Appendix D: Hofstede’s Cultural dimension summary Appendix E: A political map of Republic of India

List of Tables: Table 1: Indian infrastructure investment need, 2006-07 Table 2: Comparison of Asian vs Western culture Table 3: Cultural solution to Universal problem Table 4: Comparison of procedures require to carry out business between India and Other foreign investment destination Table 5: Corruption Index and ranking of the services in India Table 6: Type of Industry Table 7: Problems in Indian market Table 8: rating to the Indian infrastructure by western firms Table 9: western cultures influence to Indian culture

List of the Figures:

Figure 1: 5D model of professor Greet Hofstede’s Comparison India vs. UK Figure 2: 5D model of Professor Greet Hofstede’s Worlds Average Figure 3: Major hurdles for the western firms in Indian Market Figure 4: Western firms department affected by culture Figure 5: Rating to Indian government by western firms Figure 6: major parts of Indian government affecting western firms in India Figure 7: Preferred location for business expansion of western firms in India

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Problems Faced by Western Firms in Indian Market

CONTENTS (Continued) Figure 8: intellectual property rights in India (According to western firms) Figure 9: level of satisfaction of western firms about Indian market.

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Problems Faced by Western Firms in Indian Market

Chapter I Introduction

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Problems Faced by Western Firms in Indian Market

CHAPTER I: INTRODUCTION

1. Overview of the research India is a land of 1.2 billion people (The essential marketer’s handbook, business world, 2003-04) containing almost all the religions of the earth, which makes the country culturally more diverse and largest democracy in the world. India has taken up the path of modernisation and industrialisation, and it is currently in the process of becoming an industrialized and high-tech economy where prevalence of high income is becoming more common (Mitra, 2003). Current reforms have improved the efficiency of Indian economy and raised its standard of living, the poverty rate fells by 26% in the year 2000 compared to 36% in 1993 (Mukerjee, 2002). Overall the reforms liberalized the exchange rate mechanism opened economy for foreign direct investment.

Today, being a second most attractive place for doing business, India is attracting many western investors towards it. This dissertation perhaps will focus on the “Problems faced by Western Firms when they enter in to Indian Market”. Though there are many problems existed in to the Indian market for the western companies but authors research will focus on the major problems like different cultures, corruption, Politics, major trade hurdles, infrastructure, Intellectual property rights and legal framework.

There are so many other problems such as inconsistent industrial policies and rules, labour regulations and protections, regulation on foreign investment, foreign exchange control, regulation on transferring royalties, research and development cess and so on. But according to Jha (2003) there are six major constraints working in India against FDI. 1) Image and attitude, 2) Domestic policy, 3) Procedure- there is difficulty in getting approval or permission from the central, state and local government. 4) Quality of infrastructure, 5) State government level obstacles: differences in state policies and practices especially in providing facilities. 6) Delays in legal processes.

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Problems Faced by Western Firms in Indian Market Shaking hands with ladies or offering a glass of wine are no longer considered offensive in the new India. Besides most business people travelling there are already aware of such customs and traditions. But getting past the initial greetings and exchanges and getting down to business in India is still challenging because various other problems. (http://venkateshthyagarajan.wordpress.com/2008/01/04/going-beyond-namaste-thecultural-barriers/)

To find out the strongest problems while doing business in today’s Indian business environment is the primary aim of the author.

1.1.1 Background

According to world investment report (2008) India has and will retain its position as the world second most preferred global destination for foreign investment until 2010 lagging only behind China. For last three years Indian economy has been swelling at well over 8 per cent annually and has now topped a trillion dollars. It is already the worlds seventh largest economy and is likely to become one of the top three over the next twenty years and it may soon become the worlds largest consumer market, with rising middleclass over half a million strong.

As the Indian economy continues to boom and open up, more and more westerns are finding themselves travelling to India on businesses. In some ways western people find it easy to do business in India because most of the people can speak fluent English. Although there are more than 20 spoken languages in India the world of business speaks English. Apart from language advantage they are getting good talent at cheaper cost as there are many graduates than population of France. This results in to increasing foreign direct investment in India. But just looking attractive enough to the western investors is not important to be successful in Indian market.

After independence from Britain 50 year ago, India developed a highly protected, semi-socialist autarkic economy. Structural and bureaucratic impediments were vigorously fostered, along with the distrust of foreign businesses. Even as today the

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Problems Faced by Western Firms in Indian Market climate in India has seen a sea change, smashing barriers and actively seeking foreign investment, many companies still see it as a difficult market. India is rightfully quoted to be an incompatible country and is both frustrating and challenging at the same time. Foreign investors should be prepared to take India as it is with all of its difficulties, contradictions and challenges.

Success in India will depend on correct understanding of the countries potential. Ignoring to its complex system or over estimating of its possibilities can lead to failure. While understanding the Indian market the due consideration should be given to the factor of inherent difficulties and uncertainties of functioning in Indian system. Entering Indian market requires well designed plans baked by serious thought and careful research which will help to overcome the complexities. (Ministry of Finance- http://finmin.nic.in/foreign_investment/fii/index.html)

1.2 Rationale for the Study

India is the fourth largest economy in the world (measured in terms of purchasing power parity) with increasing foreign direct investment (FDI) A.T.Kearney has second on its list of most attractive countries for foreign investment (Maker, 2007). India is 100th of the Fortune 500 with R & D facilities in India; it has the second largest group of software developers after the United States.

It has got 6,600

companies on the Bombay Stock Exchange; only with the New York Stock Exchange having more. According to predictions India going to be the next superpower and every multinational from all over the world would have an operation in Indian market. But, if you see the current ranking for best place to do business, India has been ranked 64th in a global list of best countries, dropping from 51st place last year. This shows India has dropped 13 places. (Indiatimes 28, June). According to Forbes report, India fell in this year’s ranking as political instability demonstrated resistance to increasing personal freedoms. Higher inflation from food and other commodity costs, as well as increased burdens on entrepreneurs also held the world’s most populous nations back as business destinations.

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Problems Faced by Western Firms in Indian Market By looking at current progress of India it seems that India has all the potential for being a developed economy but according to Indian finance minister the inescapable thing which stopping India is its democracy (India economy summit, world economic forum 2 to 4 December, 2007). So now the question arises, is this the only problem in Indian market? The answer to this is no, because there are many direct and indirect barriers which are creating hurdles for western companies in Indian market.

Because of few advantages India becomes the attraction for the western companies to invest in to it. As more numbers of western firms heading towards India, It is really essential to find out the problems which are obstructing western firms while entering the Indian market.

1.3 Research Objectives The specific purpose of the research is to find out the actual problems to the western companies when they enter in to Indian market. As discussed above there are many things which attracts the western investors to invest in to India but after entering in to this attractive market they face many difficulties and thus to find out the difficulties to western firms the Indian macro business environment will be focused and taken in to consideration.

1. What are the problems to the western companies operating In Indian market?

This is the major research objective of the author to find out the problems faced by the western firms in Indian market; this question relies on secondary data, where author will discuss the problems for the foreign investment in India.

2. Is Indian culture still a Major problem for western firms in Indian market?

3. Effect of the problems on FDI?

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Problems Faced by Western Firms in Indian Market These questions relay on primary data, where author will find out the answer with the help of respondents opinion.

Also preparing a guide book for the new western entrants remains the essential objectives.

1.4 Hypothesis 1. H: Western firms face problems in Indian market because of a) Indian culture b) Indian infrastructure c) Indian government?

2. H: Problems existed in Indian market is a major cause for less FDI in India than China.

3. H: Manufacturing firms and service firms faces different problems in Indian market.

1.5 Methodology The data is collected by using following two methods of data collection.

1) Primary data collection.-: The most of the data and information is obtained from electronic sources, annual reports, news papers, Articles, case studies, books, and journals.

2) Secondary data collection methods-: the secondary source of data will be collected through questioner and interviews with different people having different cultural background

3) Field study -: This will be general source of data collection in which the data will be represented on the basis of my personal experience in the same field.

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Problems Faced by Western Firms in Indian Market

C h a p t e r II Literature Review

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Problems Faced by Western Firms in Indian Market

CHATER II: LITERATURE REVIEW

Introduction to Literature review A literature review is an important component of any research undertaking. It identifies the current state of the research in the fields of study and provides background information on other studies and their findings and statistics (Jennings, 2001). In order to know the problems faced by western firms in Indian market it is essential to assess the issue in general.

2.1 Understanding India India is known as large and growing consumer market which became one of the major factors of attraction for western companies to enter in to Indian market. Continuously increasing urbanization and tremendous growth and use of electronic media have brought huge and drastic changes in the lifestyles and consumption attitudes of people in urban areas in India, which are known as ‘middle class population’ which has made some essential socio- economic changes – rapidly increasing emphasis on higher and professional education, family system from joint families to nuclear families (Bijapurkar,2007) increasing number of nuclear families with working women, rising disposable income, and exposure to western lifestyles and customs. These factors have created a massive and day by day increasing demand for a variety of quality products and services such as convenience foods e.g. branded clothing, automobiles, toys, home appliances, electronic goods, restaurants, travel, communication and entertainment. Because of which western firm found a good source of opportunity to expand their business.

On the other hand where close to 72 per cent of the country population is lives in rural India which totally differs from urban lifestyle of India. In rural India people live without any social security, they work in most miserable, live unhygienic and in unliveable condition (The Times of India, August 2007) According to Arjun Sen Gupta they have to survive on less than Rs.20 per capita per day, which is less than half United states (US) dollar (India economy summit, world economic forum 2 to 4 December, 2007). So People don’t have that money to spend on branded cloths or on 16

Problems Faced by Western Firms in Indian Market expansive electronic things. Apparently India has two different living styles which are far different from each other.

We hear, read, and watch that India is rapidly growing economy with increasing foreign investment and by the year 2030 India is going to be the next super power. But is it a fact? It is not. (George, 2005) By taking a look at real India we see poverty, unemployment, shortage of electricity, less water supply, poor infrastructure, poor transport system, poor quality of raw material, unstable government and last but not the least corruption. So this is the reason why India is falling down in the index of best place to do business.

2.2 Doing Business in India 2.2.1 Meeting Handshake is a global symbol of meeting. However, in India people prefer to use Namaste. So called Indian way of greeting it is not a superficial gesture and this is for all, young, old and friends and strangers. This is where the palms are brought together at chest level with a slight bow of the head. Using the Namaste is a sign of your understanding of Indian etiquette (Desai, 2002). Names of the people helps to understand the persons background (which part of India the particular person belongs to). For example, a Singh will always be a Sikh. The suffix "-jee" (as in Banerjee) is a sign of a high caste. "Kar" (as in Chandraskar) denotes that person is of Maharashtrian high caste. Arabic sounding names will be used by Muslims (Morrison and conaway, 2006). When addressing an Indian whom you know personally, always good to use formal title and respect giving words whether Professor, Doctor, Mr, Mrs or if you do not know their names then Sir or Madam will suffice (Morrison and conaway, 2006). When doing business in India, business cards should be exchanged at the first meeting. It is a good idea to have it translated on one side into Hindi, more as a sign of respect as opposed to linguistic necessity. Be sure to receive and give with your

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Problems Faced by Western Firms in Indian Market right hand. Make sure the card is kept respectfully and not simply pushed into a trouser pocket. (Desai, 2002) 2.2.2 Building relations

Building relationships is keen part to be considered while doing business in India. Indians prefer to make favourable deal with only those people they know and rely on even at the expense of lucrative deals. It is very essential to build a good working relation with a partner you deal with. This must take place on a business level, i.e. demonstrating strong business acumen, and at a personal level, i.e. relating to your partner and exhibiting the positive traits of trustworthiness and honour (Storti, 2007)

2.2.3 Negotiation Whenever you are arranging meeting in India make sure you have arranged it well in advance. The arranged meeting must be confirmed by writing and by phone. Avoid meetings near or on national holidays such as Diwali (Indian religious festival) or either of the two Eids (Muslim religious festival), Independence Day. Avoid the heat by scheduling between October and March (Desai 2002). Punctuality is expected, although being 10 minutes late will not have disastrous consequences. Flexibility is paramount. Family responsibilities take precedence over business so last minute cancellations are possible when doing business (Desai 2002). When entering a meeting room you must always approach the most senior figure first. Commencing with some conversation is a first step in meeting. Favourable topics of conversation are the latest politics and business news, the fluctuations of the Bombay Stock Exchange (BSE) or cricket. Personal topics must be avoided and, if new to India, do not comments on matters such as the poverty or beggars and the most sensitive cultural factor (C.Storti, 2007). According to Morrison and conaway (2006) Business negotiations in India can be slow as Indians rarely negotiate with strangers. There is very less or almost no authority is given to lower level to take any decision so the decisions are always made

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Problems Faced by Western Firms in Indian Market at the highest level. If the owner or Director of the company is not present, there are chances of these. Indian businesses are not just depends on statistical figures, empirical data and exciting PowerPoint presentations. They also use intuition, feeling and faith to guide them (Desai 2002). Criticisms and disagreements should be always expressed with the most diplomatic and indirect language, answer "no” is considered rude due to the possibility of causing disappointment (Storti, 2007). Listen carefully to Indians' responses to your questions. If terms such as "We'll see", "I will try" or "possibly" are employed that means they are indirectly saying ‘no’ (Morrison and conaway, 2006). Once terms have been agreed Indians expected to be honour by you. And celebrate the relation building process with the dinner (Morrison and conaway, 2006).

2.3 Indian infrastructure for Business The high tech-industry that started India’s boom doesn’t rely on roads and bridges to get its product to market; manufacturing does. Yet good highways, bridges, airports, power, water supplies are something India hasn’t got much of. And what’s there is collapsing under the weight of increased demand- sometimes literally as when a road bridge in eastern India gave way in December 2006 under the weight of traffic and crashed on to a train beneath, killing 34 people. Meanwhile, the electricity supply to the city of Pune, a city of 4.5 million people, is so under stress that the entire supply has to be cut off for one day every week to relieve some of the pressure-leaving businesses to rely on their own back-up generators or face a shut down (Farndon, 2008).

Moving goods around India can be something of right mare. In the monsoon season, water-sensitive goods can be stuck in leaky storage facilities for days while waiting for roads to become passable. Even once they get moving, journeys that would take less than a day in other countries can take many days in India. Average speeds on India’s roads are barely 20 mph, and hold-ups are frequent. It can take 10 days for the Japanese carmakers Suzuki to truck its care just 900 miles from its factory in Gurgaon (one of New Delhi’s satellite towns) at the port Mumbai- not just because of poor,

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Problems Faced by Western Firms in Indian Market crowded road, but also because of long delays at state borders, and ban on large trucks from many of India’s cities during the day, although India has just 3700 miles of motorways as compare to China’s 25000. No wonder, then, that many companies choose to locate in China in preference to India, despite the caveats mentioned earlier. Even more depressingly, 40 per cent of India’s entire food production is lost because transport delays allow it to rot before it reaches consumers. (Farndon, 2008)

Infrastructure in such areas as road, electricity, telecommunication network has not been developed and this is the principal barrier to the enlargement of overseas business in India (Ministry of economy, trade and industry, 2002).

Table no.1 India: estimated annual infrastructure investment need, financing gap and FDI flow, various years (Billion Dollars) World bank estimates fiscal year2001-2010

Govt; of India estimates fiscal years 2002-2007

Govt of India estimates fiscal year 2007-2012

April 2000Feb-2008

Actual FDI inflow

Industry

Investment need

Financing Gap

Investment needs

Energy

26.5

8.7

14.2

Projected investment needs (a) 30

Roads (b)

11.6

2.8

7.0

15.2

0.4

Telecom Port Railways Airports Total

5.4 0.8 3.1 0.5 47.9

1.2 0.6 0.4 0.2 13.9

6.0 0.2 5.8 0.4 43(c)

13.0 3.6 12.6 1.6 98.8 (d)

0.5 0.1 0.1 0.0 1.3

0.2

(Source: world Bank, 2006; and India, Planning commission, 2007) a) In contrast 2006-07 prices. b) Including construction activities c) Including airfreight. d) Total for 10 infrastructure sectors identified.

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Problems Faced by Western Firms in Indian Market According to World Bank report 2006 over 2007-2012 India will need investment averaging $99 billion per annum in 10 mega infrastructure, segment to support planned annual GDP of 9 per cent. The table shows India’s estimated infrastructure investment need, financing gap and FDI flow of various years (India Briefing- http://www.india-briefing.com/category/business/economy-politics)

Infrastructure asset are the physical structure and network used to provide essential services to the society. Indian gross domestic product (GDP) could be 2 per cent more than what it is now, because the poor infrastructure directly affects the out put of the companies which results in low GDP (Chin and Vaeth, 2006).

It is widely known that India’s current infrastructure is fraught with many weaknesses and that is below international standard even when compared with other emerging markets. Indian infrastructure is weak in transport system, ports and airports that do not cope with the demand and, most of all, power cuts (Heymann, Just, Lowik. and Vath. 2007).

Recently Intel Corporation (INTC) chose Vietnam over India as a site for a new chip assembly plant. Although Intel declined to comment, Industry insider says the reason was largely the lack of reliable power and water in India (Business week- Event, 2007).

2.4 Effect of Culture on doing business in India “Taylor defined culture as ‘the complete whole which includes knowledge, belief, art moral’s, laws, custom’s or any other capability or habits acquired by man as a member of society”.

According to Jackson (1995) it is essential to study the culture of the society in which the business is going to be established because according to Taylor culture has an impact on organization’s because cultural norms, values, and roles are embedded in the way that organization develop, organisation structure emerge and informal and formal pattern of behaviour. Such writers as Hofstede (1980) have been warning that

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Problems Faced by Western Firms in Indian Market western management theories and practises may not work well in other cultures, and that we should therefore consider the nature of the host culture and its relationship to management style.

According to Lewis (2007) outsourcing partnership, relationship with regulatory authority, joint venture relationship, motivating local employees and management styles are likely to be affected by the culture of the host country. Where as according to Soderberg and Holden (2002) cross cultural management is often regarded as friction or miscommunication. No internationally operating firm, no manger has not experienced the misperception, misjudgement, and mistakes in handling the complexities of cultural relationship with customers, suppliers and stakeholders. There are many authors who have coated that culture is a barrier for business communications for example; Hall (1995) claims that ‘cultural differences are important to ruin a partnership that otherwise makes a perfect economic sense. Likewise Hoecklin (1995) warns that cultural differences if not properly handled, can lead to management frustration, costly misunderstanding and even a business failure, on the other hand according to Seelye and Seelye-James (1995) there are chances of cultural clash (happens when people from two different culture come together) which can lead to world class fatigue or even a clinical shock or depression.

According to Sackmann et al. (1997) that ‘cultural difference’ can create such havoc in international business. That is why to understanding Indian culture for western business organisation is essential (Soderberg & holden, 2002).

It is not possible to establish a business in India without understanding its religious way of life and practices, which have a large bang on the personal lives of most Indians and sway public life on a daily basis. Indian religions have deep historical roots that are recollected by modern Indian and contemporary Indians (Gesteland, 1999).

In this part of the world loads of religious traditions, both indigenous and foreign, have been established over the years. They have, Sikhism, Buddhism, Sufi tradition as well as Christianity and Islam (Toropov and Buckles, 2004). Many social reformers, spiritual gurus, statesmen, and law-givers have come to direct and sway the life and 22

Problems Faced by Western Firms in Indian Market culture of Indians. The Mahabharata, the Ramayana, the Bhagvat Gita as well as the Quran, the Bible, the Guru Bani, etc., have moulded the thinking pattern and consciousness of Indians, which clearly differentiate Indian and western work culture (Maker, 2007). According to Evans, Hau and Sculli, (1989) the particular culture of a society is a dominant factor in managerial style, and management will retain its own unique cultural identity even as the society develops.

Hofsted (1980) said “People’s core cultural values are much more highly persistent than their secondary belief”. According to Kugler (1998) Indian consumer hold different cultural core values than do their western counterparts (S.Mattila, 1999).

The Indian culture is hierarchical where the cultural norms have changed the way of thinking which affects various management operations, which western firms may find it difficult to understand. There is a huge difference between Indian and western work culture.

One of the very important part of Indian culture, vital for business organizations to succeed, is an understanding of the tradition and ways of communicating with others that form the basis of India’s society (Zaidman, 2001). Because Majority of Indian people are Hindus so Hinduism is the largest religion in India. It is said that in India, religion is a way of life and must be respected in order to save and maintain a successful business relation, despite the elimination of traditional caste system, which was a direct outcome of Hinduism, attitude still remain and both aspect of Indian culture still influence the hierarchical structure of business practices in India today (Gorill, 2007).

Many writers have tried to differentiate Indian and western work culture in many ways. As according to Kumar and Sethi (2005) Indian managers embody both individualistic and collective values. This implies that the Indian manager may behave differently in different situations. As an individualistic, the Indian manager can be very aggressive and goal oriented. As a collective, the Indian manager may be sensitive to the needs and wishes of the people in his/ her group. One of the true implications of this culture is that the western manger may find it difficult to fully comprehend the behaviour of his Indian counter part. 23

Problems Faced by Western Firms in Indian Market Whereas Jackson (1995) said Indian person always looks for the job satisfaction, security, individuality, dignity, prestige and power. This suggests that personal goals plays important part in the value structure of Indian people. Job satisfaction, security, and individuality, prestige, and power seem to represent status goals, on the other hand England, (1974) described Indian leaders/ manager have lower degree of pragmatic orientation, with 34% pragmatically oriented and a much higher 44% being moralistically-oriented.

Where as the following table by England (1995) clearly shows the difference between Indian work culture and western work culture Table.2 India/Asian Culture Have more general, long-term relationship with their employers; their accountability for end result is stressed but not with in the same strict time frame Gives respect to the boss, and many of the employees behave as family members. And the manager is taking a role of a father. ‘Luck’ is belief that much of a company’s fortunes are determined by luck. The management style is less Aggressive and middle management plays such significant role. Decision is reached in a more passive way, with the view of those individuals with greater seniority being given greater weight.

Western culture Sell their time to employer for wages and do not owe any allegiance to company in their own time.

Gives respect to the Job, and the job is an assigned task.

Company’s fortunes are determined by good management. Overtly aggressive management style.

Decision making process is ‘conflict’ situation, where individuals of different level of seniority often argue over a particular topic until a decision is reached.

(Source: Adler, N,J., England, G.W., Hofstede, G., Olie, R., Smith, P. (1995) cross cultural management- edited by Terrence Jackson p.64-65)

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Problems Faced by Western Firms in Indian Market Where as few other authors Adler (1997); Smith (1995); Chen (1995); Xing (1995); Trompenaars (1993); Evans , Hau & Sculli (1989); Kelley, Whatley, Worthley & Lie (1986) highlighted difference between eastern and western culture on various societal issues, the table is as follows:

Table 3 Cultural Solutions to Universal Problems

SOCIETAL

EASTERN ORIENTATION

WESTERN ORIENTATION

ELEMENTS Human Nature Inherently good and evil Activity Being: passive-harmony Nature of Polychronic: diffused-phases

Inherently good and evil Doing: aggressive-conflict Monochronic: linear-segmented

Time Time Traditionalist: past-present

Modernist: present-future

Orientation Law Rule by man: deference to

Rule by law: deference to

paternalism and reliance on

rationality and reliance on legal

trust

contracts

Truth Indirect-Oblique: sometimes

Direct-Honest: always best to tell

best to tell Human Collectivistic: meet group Relationships needs and group obligations

Individualistic: meet individual needs and rights of individual

(Source: Buttery, N and Holt, J (2000)

But to draw the actual difference between Indian work culture and western work culture it is important to apply Hofsted’s cultural dimension theory in between Indian and western culture to see the basic and specific difference between these two cultures. To describe western culture United Kingdom is taken in to consideration, so the difference in between Indian and UK culture is studied with the help of Hofsted’s Theory.

25

Problems Faced by Western Firms in Indian Market According to Hofstede (1980) “Culture is more often a source of conflict than of synergy. Cultural differences are nuisance at best and often a disaster.”



The Chat 1 below clearly shows the difference in between Indian and United Kingdom’s five cultural dimensions which help to understand the actual difference in Indian culture and UK culture (Western culture).



The chart 2 below shows the world’s average scores for Hofsted’s five cultural dimensions.

Figure1

Figure2

(Source page: Greet Hofstede home sited- http://www.geert-hofstede.com/) Power distance (PDI) - India has Power Distance (PDI) as the highest Hofstede Dimension for the culture, with a ranking of 77 compared to a world average of 56.5. This Power Distance score for India indicates a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the population as a cultural norm.

26

Problems Faced by Western Firms in Indian Market Where as United Kingdom comparatively has low power distance with ranking of 35, which Is below worlds average. This score for United Kingdom indicate a low level of inequality of power and wealth within the society. According to Hofstede’s cultural dimension ranking UK rank below world’s average in distribution of power and wealth on the other hand India ranks above the worlds average. Apparently, UK has more equality in power and wealth within society where India doesn’t. Which may became a problem for the UK companies setting up business in India, because the companies might fail to design the organisation structure accordingly or they may face difficulty to manage people as the power distance in UK and India is huge. Individualism vs. collectivism (IDV) India ranks 48 which are slightly above the world’s average 40 which show that India has collective work culture but in some ways it has an individualistic work culture also. This indicates that India tends to be group oriented and the group members are expected to have unquestioning loyalty to their group. At the same time Indian also value his self-expressions also. UK ranks 89 in Individualism which indicates that UK is highly individualistic in the work culture. They value self-expression, see speaking out as a means of resolving problems, and are likely to use confrontational strategies when dealings with the interpersonal problems. The Hofsted’s cultural dimension theory clearly shows that UK is highly individualistic as compare to India, which may become a problem for UK companies going to India, because of improper physiological distance between in-group and outgroup members and the management may not be able to manage human resource properly. Long term vs short-term orientation (LTO) India's Long Term Orientation (LTO) Dimension rank is 61, with the world average at 48. A higher LTO score can be indicative of a culture that is perseverant and parsimonious.

27

Problems Faced by Western Firms in Indian Market UK’s long term orientation dimension ranks 25 which are below world’s average, which indicates that British people are short term oriented. A lower LTO score indicate no parsimonious. According to cultural dimension theory India ranks above the worlds average where as UK ranks below the worlds average, which indicates that Indian people are long term oriented where as British people are short term oriented which may cause problems in organisational decision making which may lead to cultural clash in a globally operating company. Masculinity vs Femininity (MAS) India has Masculinity as the third highest ranking Hofstede Dimension at 56, with the world average just slightly lower at 51. The higher the country ranks in this Dimension, the greater the gap between values of men and women. It may also generate a more competitive and assertive female population, although still less than the male population. UK has masculinity as ranking Hofstede dimension at 66, which indicates the difference between men’s value and women’s value, from the higher ranking its easy to say UK women’s are assertive and competitive but not as men’s. According to Hofstede’s theory both the countries are masculine and both the countries shows gap between men’s value and women’s value. Uncertainty Avoidance (UAI) India's lowest ranking Dimension is Uncertainty Avoidance (UAI) at 40, compared to the world average of 65. On the lower end of this ranking, the culture may be more open to unstructured ideas and situations. The population may have fewer rules and regulations with which to attempt control of every unknown and unexpected event or situation, as is the case in high Uncertainty Avoidance countries. UK ranked 35 on uncertainty avoidance index, which shows that the culture is ready to face unstructured, surprising, situation. It is a uncertainty avoiding culture which try to minimize such a situation by strict laws and rules.

28

Problems Faced by Western Firms in Indian Market The comparison of the Indian culture and UK/ western culture apparently shows the difference in between two cultures which can be trouble for western in Indian market.

To sum up Indian cultural values have a wide variety of implications for western managers (Kumar, 2007). They affect Indian communication and leadership styles, motivation patterns, decision making processes, and/or their attitudes towards work. As such, they have wide ranging implications for a multinationals seeking to do business in India. Outsourcing partnerships, relationships with regulatory authorities, joint venture relationships, and motivating local employees are all likely to be affected by differences in cultural values/norms (Lewis, 2006). A western manager who is not consciously aware of some of the differences that set him apart from his Indian colleagues may find it difficult to cope with some of the cultural challenges that he may be confronted with (Kumar, 2007).

2.5 How government policies affect business procedures International companies, by definition, operate across national boundaries. This means that these companies interact within different political and regulatory systems and must consider the impact of these political systems on their operation (Subba Rao, 2003).

Every day political decisions are being made which can have an effect on all of us. Governments make the rules and structure in which businesses are able to race against each other. Politics and laws play a critical role in international business. National politics affect business environment directly through changes in policies, regulation and laws (Kotabe and Helsen 2008). Even the best plans can go awry as a result of unexpected political or legal influences, and the failure to anticipate these factors can be the undoing of a successful business venture. From time to time the government will change their rules and frameworks forcing businesses to change the way they operate. Business is thus keenly affected by government policies and political risk in country’s business environment (Czinkota, Ronkainen, and Moffett 2007).

29

Problems Faced by Western Firms in Indian Market Political risk includes a variety of factors ranging from government confiscation of a firm’s assets to government encouragement of negative attitudes towards foreign businesses (Punnett and Ricks, 1997). The influence of political system of a country influences the business from multi-angles, that is, deciding, promoting, fostering, encouraging, sheltering, directing, and controlling the business activities. To encompass this wide range of factors, political risk can be defined as the possibility of unwanted consequences of political activity i.e. political risk occurs because of the uncertainty associated with political activities and events.

Companies face three

major categories of political risk: forced divestment, unwelcome regulation and interference with operations (Subba Rao, 2003).

Before entering in to international business the particular organization must understand political and legal factors on a variety of levels. For example, while it is useful to understand the complexities of the host country’s legal system, such knowledge may not protect against sanctions imposed by the home country, the firm therefore has to be aware of conflicting expectations and demands in international arena, and work together with government to maintain viable international business practices (Czinkota, Ronkainen, and Moffett 2007).

No organization can afford to ignore the rules and regulations of the country from which he or she conducts international business transaction. The companies, planning to enter global markets should know the trade policies, general legal and political environment of the foreign markets. The success and the growth of the business depend upon secured and reliable political system (Subba Rao, 2003).

2.5.1 Indian Legal System

The legal system of a country is part of its social system and reflects the social, political, economic and cultural characteristics of the society. It is therefore, difficult to understand the legal system outside the socio cultural area in which it operates. In the case of India the legal system is still alien to the majority of the companies operating there, whose legal culture is more indigenous and whose contact with the formal legal system (the imported British Model) is marginal if not altogether nonexistent (Mittal and Vijayawargiya. 2006). 30

Problems Faced by Western Firms in Indian Market India is a common law country with a written constitution which guarantees individual and property rights (Harrison, Jones, Lunn, Smith, Taylor and Youngs, 2007). There is a single hierarchy of courts. Indian courts provide adequate safeguards

for the enforcement of property and contractual rights. However, case backlogs often result in procedural delays. Most of the laws are codified. Regulations and policies fill in the details (Maker, 2007). Indian legal system is considered to be somewhat slow, Hong-Kong based political and economic risk consultancy has rated India 8.22 on a scale of zero to 10 the worst possible grade. India is perceived as the most vulnerable country in Asia in term of external threats (India Today, 2008).

The following table showing comparison by procedures require to open business between India and other foreign investment destinations amongst emerging market:

Table.4

Table ‘A’

Number of Procedures

Cost in US dollars ($)

Brazil

15

331

Canada

2

127

China

12

135

India

10

239

Mexico

7

1110

Russia

12

200

South Africa

9

227

(Source-: Doing business in 2004- study undertaken by World Bank) (http://www.globe-net.com/documents/SpecialMarketReport_India.pdf)

From the table above we can see India ranks average with regards to the number of procedures require to set up a business (As a result of economic reform of past decade) it fares amongst the worst with regards to the time required and cost involved, Daniel Vasella (Chief executive of pharmaceutical giant Novartis) said “if you want to build even a small road in India, it will take ten years of discussion before you get a 31

Problems Faced by Western Firms in Indian Market decision (Business week- Event, 2007). Apparently demonstrating the level of obstructive bureaucracy will continues to exist.

(Subba Rao, 2003) The major bodies’ of laws affecting foreign investment in India are (FEMA) Foreign exchange management act, 1999 and the company’s Act, 1956

2.5.1.1 Foreign Exchange management Act, 1999 The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA came in to act on 1st June 2000

The major intention behind the Foreign Exchange Management Act (1999) is to combine and alter the law relating to foreign exchange with objective of facilitating external trade and payments and for promoting the arranged development and maintenance of foreign exchange market in India (Paul, 2003).

Foreign exchange management act (FEMA) is one of the primary laws regulating foreign investment in India. FEMA broadly regulates the foreign exchanges market and provide the Indian government the legal authority to restrict the foreign investment. Because FEMA doesn’t include implementing regulations, Indian foreign investment policy is primarily established through a series of public notices or “Press Notes” issued separately for each sector. “Press Notes” are usually approved by government cabinet and release by the department of industrial policy and promotion (DIPP) (United states government accountability office, 1996 appendix VIII).

The Press Note set up between other things, whether investment in each individual sector must receive government approval or whether investment fall under the “automatic route” which doesn’t require government approval Any planned investment that need a government approval must be given approval from the foreign investment promotion board (FIPB- interagency body with authority to approve investment) before the transaction takes place an investment must receive approval if 1) the investment in the finance sector or is subject to securities and exchange board 2) ) the movement requires industrial licence 3) the investment fall

32

Problems Faced by Western Firms in Indian Market outside of ownership caps or in sector in which foreign investment forbidden 4) the investor has existing joint venture in India in the same field (Campbell, 2007).

2.5.1.2 The Indian companies act, 1956

“The company” means a company formed and registered under the act. This act primarily regulates the formation of companies. The act prescribes regulatory mechanism regarding all relevant aspect of companies. Regulation of financial management aspect constitutes the main focus of act (Chakraborty, 2007).

Objective and policies The act confers a range of powers to central government and a company law board to monitor control and confirm the dealings of the companies. The company act empowers the central government to examine the books of accounts of a company, to direct special audit, to order investigation into the affair of a company and to lunch prosecution for the violation of the company act, 1956 (Organization for economic cooperation and development, 2007).

(Ministry of Finance- Government of India) According to the act policies the inspection of company’s books of accounts is carried out by the officer of the directorate of inspection and investigation and the registrar of the companies conduct their affairs in accordance with the provision of the companies act, 1956. Section 235 and 236 of the companies act, 1956 empowers the central government to order investigation into affairs of a company. However the power to appoint inspector remains with the central government.

33

Problems Faced by Western Firms in Indian Market 2.5.1.3 Intellectual property rights The term ‘intellectual property’ in the international legal parlance covers patents, industrial design, copyrights, trademarks, know-how and confidential information. Intellectual property rights gives encouragement to Innovation and creativity, which in turn leads to economic prosperity of the nation (http://newdelhi.usembassy.gov/ipr.html)

The laws relating to intellectual property in India is still in a process of transition and is being harmonized with the corresponding law in developing countries. With the objective of containing piracy in India and promoting the use of legal software, import of software for authorised duplication is allowed at reduced custom duty (Ernst and Young’s, 2006).

India seems to be far behind in protecting intellectual property. It is indeed unfortunate that the Indian law does not allow second use patents and discourages patent protection (Palit and Bhattacharya, 2008).

Intellectual property protection in India is weak. The bush administration contended that India’s protection of intellectual property continued to be ‘weak’ even if there were “some tenuous first signs” that the situation may be changing as a result of the passage of the patent law amendments in May of last year (The Hindu, 3rd may 2003). In India, copyright laws and the enforcement system are weak. Piracy of copyrighted works, particularly movies, books, software, and cable signals, remains widespread. Improvements in enforcement are most needed in the areas of border protection to prevent the transit of counterfeit and pirated goods, in police action against pirates and counterfeiters, and in legal rulings that result in convictions for copyright and trademark infringement and the imposition of deterrent sentences. (Hudson Institute, 2006 cited in-http://asianforum.jp/topics/2006/pdf/Hudson_III.pdf)

However, this law still appear to contain several TRIPS “inconsistencies”, the report says in the section on India. “In addition, piracy of copyrighted work remains a problem, particularly popularly fiction works and certain textbooks and the protection of foreign trademark remain difficult”,

34

Problems Faced by Western Firms in Indian Market The current status of intellectual property rights is lacking far behind. There are so many copies of Bollywood and Hollywood movies which are illegally copied and distributed. Piracy is running wild in India. In the United States a DVD (digital versatile disk) can cost upwards of $20. An average person in India makes $500 a year. The cost of 1 pirated DVD is $1 in Indian domestic market; on the other hand its $10 if it’s sold in international market.

India needs to stoke an innovative culture. After its success in the IT sector and is capable of being part of the next revolution underway. In country like India driven sector the right legal framework is lacking, which discourages continuation and deepening of international partnerships and expanded research and development in India (Palit and Bhatacharya, 2008).

1) Intellectual property: http://ipinternet.blogspot.com/2006/02/presentation-ip-protection-in-india.html

35

Problems Faced by Western Firms in Indian Market

2.6 Corruption in India

The level of corruption in India is very high from political leaders, ministers, doctors, social servants, and to teachers all are involved in corruption in very high numbers. Corruption is there from government maternity hospitals up to gravy yards, through the walk of ones life. We might have to actually hang boards outside offices saying ‘no corruption’ (Centre for the media studies, Corruption study, 2005).

The table below shows corruption index and ranking of the services in India. Table 5

Nature of interface

Composite index

Rank

Need based RFI* (Farmers)

22

1

Income Tax (individual assesses )

35

2

Municipal Services

47

3

Judiciary (Lower court)

59

4

Land administration

59

5

Police (Crime/Traffic)

77

6

School (Up to 12th)

26

1

Water supply

29

2

PDS (Ration card/suppliers)

37

3

Electricity (consumer)

39

4

Government Hospitals

42

5

Basic

*RFI- Rural financial institution Note: higher score = more corruption Source- TII-CMS study 2005 (http://www.cmsindia.org/cms/events/corruption.pdf)

36

Problems Faced by Western Firms in Indian Market From the above table we can study and see the areas like electricity supply, judiciary (lower court), Police, Land administration comes under most corrupt category and these are really essential in building up a business, so corruption can be major hurdle for opening business in India (Gupta, 2001).

Corruption could be one of the reasons for its poor development (The Hindu, 8-0303). Corruption has become a major threat to Indian democracy and its future. There is no high powered, effective and efficient machinery in India to look in to the facts of political deviations or to deal with them in an exemplary manner (Vittal, 2001). Expansive election system together with collusion between businessman and politicians, are to great extent responsible for encouraging corruption in the political sphere. The corrupt social climate and the corrupt political subculture draw inspiration from each other the opposition in India is too weak to fulfil this role. Consequently, the party in power often become fearless. A weak opposition therefore is a major cause of political corruption of India (Gupta 2001).

The problem of corruption is not new or is not uniquely Indian. The root of corruption lies in the inability of the political and administrative authority to understand and accept that under the Indian constitution, the citizen are sovereign and that his or her rights are the basis of governance of the country (Gupta, 2001).

Politician, bureaucrats, businessmen and criminals are the key players involved in corrupt practices. Corruption arises because of scarcity of services or goods, red tape measures, lack of transparency in the system and the fact that corrupt people protect each other.

2)

It has been estimated that “if the corruption level in India comes down by 15

percent the GDP growth will improve by 1.3 Per cent and the investment will go up by 2.9 per cent of the GDP” (UNAFEI- Deepa Mehta).



Tackling Corruption: An Indian Prospective by Deepa Mehta

2)

http://www.unafei.or.jp/english/pdf/PDF_rms/no66/C_p85-p90.pdf

37

Problems Faced by Western Firms in Indian Market

2.7 Effect of high Tariff/ duty Managing any business strategically needs an understanding of the business policies, But in case of global companies, an understanding of trade policies is more essential. International trade policies deal with the policies of the national governments relating to exports of various goods and services to various countries either on equal terms and conditions or on discriminatory terms and conditions (Deresky, 2006).

Trade policies also aim at protecting the domestic industry from the competition of advanced countries through imposing quotas (Subba Rao, 2003). One of the most common reasons for the creation of trade barriers is to encourage local production by making it more difficult for foreign firms to compete here. Trade policies of some countries aim at building competencies of the domestic companies by providing subsidies. Thus the countries announce trade policies from time to time. India has many types of trade hurdles for foreign exporters, such as Import quotas, trade samples but the most essential barrier among all is Tariff/duty (Rugman and Hotgetts, 2003).

Tariffs refer to the tax imposed on imports (Subba Rao, 2003). Tariffs are of two types- Specific tariff and Ad valorem tariff. Specific tariff are levied as a fixed charge for each unit of the product imported for example, a tariff of Rs.1, 000 on each TV imported (Daniels, Radebaugh, Sullivan, 2003).

The Tariff levied as a proportion of the value of the imported goods is called ‘ad valorem’ tariff. For example imposition of 30 per cent tax on the value of computer imported (Subba Rao, 2003).

3)

India remains close to tariff among the highest in the world. In 2003, the average

duty rate in India was 29 per cent, down from 32 percent in 2002. While the average duty again reduced in January 2004.

38

Problems Faced by Western Firms in Indian Market In the World Trade Organization (WTO), India has bound tariff on 68 percent of its industrial goods imports. The majority of these binding exceed current Indian applied rate of duty.

India’s Tariff consists of, Basic tariff + countervailing tariff + Special additional tariff (SAD)

It welcomes the gradual reduction in basic tariff however, the high tariff ratio remain in a place.

2.8 Conclusion According to literature review it reveals that India is world’s second biggest populous country and a large consumer market. As a large consumer market many western are companies willing to start operation in India. Today it can be seen that there is continues increment in foreign investment in India. Companies are coming to India for their expansion as India being a huge consumer market.

Though it is attractive place for western investors, the country itself has got some hurdles for the western investor which has to be considered carefully by the western firm’s managers. Some firms are struggling with the government policies and procedures while some are not happy with the infrastructure of the country and some fail to understand country’s cultural complexities.

So before starting a business in India one must consider its, macro and micro environmental factors affecting businesses.

-----------------------------------------------------------------------------------------------------3) Foreign trade barriers-: http://www.ustr.gov/assets/Document_Library/Reports_Publications/2004/2004_National_Trade_Estimate/2004_ NTE_Report/asset_upload_file973_4773.pdf)

39

Problems Faced by Western Firms in Indian Market

Chapter III Methodology

40

Problems Faced by Western Firms in Indian Market

CHAPTER III: METHEDOLOGY Introduction to Methodology To get the in-depth analysis, the effective primary and secondary research were carried out. Many of the other methods were also considered to find the most suitable ones for collecting the specific types of data.

3.1 Secondary research

(Clark, Riley, Wilkie and Wood, 2003) Secondary data is the data which is not a new original data collected but where the research project draws existing sources alone. The secondary data can be collected from books, journals, government documents, statistical data, magazines, and other documents.

To collect the secondary source of data, it was important to use variety of different sources of information. Majority of time was spent in Solapur University library, India, section D – department of management studies and section- B department of economic studies, while some time was also spent in Middlesex university’s shepherds Library- second floor business. Though the other very useful source of online database search engines like, SAGE journals, Emerald and EBSChost, which helped to take information from a range of academic sources. Some time was also spent in Hirachand Nemchand College of Commerce, Solapur, India.

As majority of the medium used for education in Solapur University and in H.N. College of Commerce is English and the books were also available in English language so there were no difficulty raised as such, in fitting the collected data in to the dissertation.

41

Problems Faced by Western Firms in Indian Market

3.2 Primary Research

The primary intention behind the study is to find out: the hurdles for the western companies in Indian market.

Selection of the most suitable and reliable method for the primary data collection is important. The discussion of why the particular method of data collection had been selected or declined is also explained.

Primary research is generally refers to research which involves the collection of original data using an accepted research methodology (Clark, Riley, Wilkie and Wood, 2003).

3.2.1 Types of Research There are two different types of research: qualitative and quantitative therefore, first of all it is important to draw difference between these two types of research methods. Qualitative techniques depends on the skills of the researchers as an interviewer in gathering data on the other hand quantitative methods place reliance upon the researcher instruments employed to gather data and analyse it.

Qualitative research explores attitude, behaviour and experiences, through such experience though such methods as interviews or focus groups. It attempt to get in depth opinion from participant. As it is attitude behaviour and experiences which are important, fewer people take part in research but the contact with these people tend to last a lot longer, under the category of qualitative research there are many different methodologies.

Quantitative research generates statistics through the use of large scale survey research, using method such as questionnaire, or structured interview, if a market researchers has stopped you on the street, or have filled in a questionnaire which has arrived through the post this falls under the category of quantitative research. This

42

Problems Faced by Western Firms in Indian Market type of research reaches many more people, but the contact with those people is much quicker than it is in qualitative research.

Quantitative research is grounded in the positivist social sciences paradigm that primarily reflects the scientific method of the natural sciences (Jennings, 2001). The quantitative approach to research usually involves statistical analysis. The data can be derived from questionnaire survey, observations or from secondary source (Ticehurst and Veal, 1999)

The main quantitative methods for gathering data are: 

Questionnaires



Non-participant observations



Surveys

Veal (1992) believes that these two approaches complement each other and even that qualitative research should be based on initial qualitative work. Webster, Stephen, Marshall and William (2004) also refer that the contrasting nature of positivism and phenomenological approaches can be used to complement each other. The feasibility of this statement can be backed up with the ‘mixed method approach’ discussed by Jennings (2002), who states that this type of research is often used to gather information on the tourism phenomenon, which in some extent is migration process.

3.2.2 Data Gathering Methods 3.2.2.1 Case studies Case studies is a complex research activity, which involves thorough analysis of single unite-a person, or a company. However, this method does not allow the researcher to apply theory developed to other similar cases (Preece, 1994)

3.2.2.2 Interviews Interviews have been likened to conversation- they are merely one of the many ways in which two people talk to one another (Benny and Hughes, 1970). There are major advantages to using interviews. Researches can collect more information and more

43

Problems Faced by Western Firms in Indian Market complex information, response rate is generally very good and can use recording equipment. Also, interviewer can take a note of body language, gestures or facial expression of the interviewee (Lewis-Beck, 1996). However interviews can be difficult to arrange, might be time consuming and quite costly.

There is range of interview types that can be applied while gathering the data. Unstructured or in-depth interviews are those interviews where there is no formal schedule. The interviewer has the idea about the issues and might have a list of relevant topics and these are merely use as a guide (Jennings, 2001). Main disadvantage about using those types of interviews is that they come up as a bit of challenge. Interviewer has to be experienced and lead the conversation in order to gather relevant data. Veal (1992) mentions that in order to conduct a good in-depth interview research has to have the skills of a ‘good investigative journalist’. For those who do not posses such a skill, semi structured interview might be another option. According to Jennings (2001) semi structured interviews can be used by both qualitative and quantitative methodologies. Those interviews still remain in the way of conversation type; however the interviewer has a prompt list of issues that focus the interaction. The main advantage of such interview is that the questions are not specifically predetermined; therefore the researcher is still able to ask further clarification on the particular issue (Jennings, 2001). Also the semi-structured schedule provides a more relaxed interview setting.

Due to a nature of the topic, an interview was not chosen as a method of gathering primary data. In order to complete the research many opinion have to be gathered and that can not be possibly done using interview method. Also, because the research country is quite a bit away from the UK, it would be very difficult to match time with every interviewee and also very costly (Air ticket, accommodation food, etc.)

3.2.2.3 Observation Observation can be participant or non-participant, in either way researcher is observing the surrounding around him. In participant observation researcher becomes a participant in the process that is being studied.

44

Problems Faced by Western Firms in Indian Market A participant observation raises a number of problems such as admittance to the particular site of observation and when admitted the way researcher should handle the activity (Veal, 1992). In this case participant observation is not realistic option because of the nature of research topic. Furthermore, non-participant observation is not possible as the subject is not related for example to the length of the queue for breakfast, but requires educated population opinion and attitude.

3.2.2.4 Surveys Surveys are methods of collecting the data, where information is gathered through oral or written questioning. Survey may also include self completed questionnaires administered by post, e-mail or in person as well as structured interviews carried out in person over the telephone.

Surveys completed in person can use interviewer complete questionnaire as the tool to gather information. Mail or e-mail surveys, use questionnaire to gather data. Pilot surveys, which are small ‘trial runs’ of a larger surveys, are often carried out the wording of questions, the understanding of terms used, to test sequencing of question and to gain preliminary estimate of the likely response rate. “A pilot study is simple way of testing whether the articulation of the method(s) selected for use in a research programme is adequate to meeting research objectives” (Clark, Riley, Wilkie and Wood, 2003).

3.2.2.5 Questionnaires

Questionnaires are commonly used data collection method in market research. A questionnaire helps to gather the data which can not be found elsewhere such as books, newspapers, and internet resources. The data which you get from the research questionnaire will be fresh and unique. Questionnaires are mainly used to find out people’s opinion about the focused topic (Walonick, 2004).

45

Problems Faced by Western Firms in Indian Market The main advantages of using questionnaire are:



Very cost effective compared to face to face interview.



Easy to analyse



Familiar to most people



Less intrusive than telephone or face to face surveys.



Can cover a large number of people.

While using the questionnaires to perform primary data collection it is very important to remember some major disadvantages of using that method. First of it, is very difficult to design a perfect questionnaire from a very first time. Bell (1992) suggests that producing a really good questionnaire is harder than it might be imagined. Another problem with questionnaire is regarding the actual question itself, which have to be relatively simple. The advantageous of questionnaires being anonymous can also bring some disadvantageous of not being able to offer assistance if needed. The major advantage of using questionnaire is reliability and validity of the data collected depends upon respondents’ memories and forthrightness (Lewis-Beck, 1996). Generally questionnaires are used when research is specific on the subject of the investigation; the research is covering a relatively large number of people gathering facts or opinions; or when the researcher is trying to establish the extent of something (Veal, 1997). Special data processing is often needed because of the considerable amount of missing data or simply to evaluate data received and present it in graphs/charts (Lewis-Beck, 1996).

Questionnaire may be self completed or interviewer completed. The interviewer completed questionnaire gives an opportunity for face to face interaction, which can contribute to increased participation; it can also bring it clarification sought by the respondent regarding language problems or term used (Jennings, 2001). However, that sort of activity would involve high travel cost and tend to be rather time-consuming, as well as refuses the possibility of anonymity. Whereas self completed questionnaires bring the respondent peace and quietness with regards to filling in questionnaire at their own time at pace. On the other hand respondent may not able to seek assistance or clarification on the questions if needed. Respondent may not understand the

46

Problems Faced by Western Firms in Indian Market language of the questionnaire and therefore it may result in questionnaire being partly completed or not-completed at all, which would lower the response rate (Jennings, 2001).

For this particular research it was decided to compile a self-completed and interviewee completed questionnaire and self completed questionnaire were e-mailed to several businessmen/ employees working in foreign companies in India. Author has also tried to interview few employees of the western firms in Indian market. For self completed questionnaires the e-mail addresses were gathered from their company’s websites, and for interviews the data were gathered with the help of friends and relatives contacts. The Sample size were 44 Businessmen/ employees

3.2.3 Sampling Sampling is a process that involves the selection of some members of the larger population (Bell, 1992). In most survey research and some observational research it is necessary to sample. Usually sampling approach is used where research is concerned with a wide group of population (Veal, 1997). Samples are frequently studied in order to learn something about the characteristics of the larger groups of which they are part (Clark, Riley, Wilkie and Wood, 2003).

Sampling can be random and non-random. The key feature of non-random sampling is that items for research are chosen not randomly but purposively (Clark, Riley, Wilkie and Wood, 2003). Random sampling is a sampling technique where a group of subject for a study is selected by the researcher from a large group (a population). Each individual is chosen entirely by a chance and each member of the population has a chance of being included in the sample (Easton and McColl, 1997). In the Nonrandom sampling, the members of the population do not have the same chance of being selected.

Random sampling can be split into three types: random sampling, stratified sampling, systematic sampling and cluster sampling. Simple random sampling is the selection of element from population where each element in that population has an equal chance to actually being selected (Clark, Riley, Wilkie and Wood, 2003). It is usually used for a 47

Problems Faced by Western Firms in Indian Market smaller number of people, very tedious and time consuming for large samples. A stratified sample is obtained by taking samples from each sub-group of a population (Easton and McColl, 1997). According to Clark, Riley, Wilkie and Wood (2003) the objective of stratified sampling is to ensure that the sample drawn is as representative as possible of the population under study. Systematic or sometimes so called quasirandom sampling method is not wholly random. Only the first item selected from population is random, thereafter subsequent selection are related systematically to the first.

Cluster sampling or clustering is a technique often used when a large geographical area is at the heart of the sampling requirement (Clark, Riley, Wilkie and Wood, 2003). It is also used when a random sample would produce a list of subjects so widely scattered that surveying them would prove to be far too expensive. This sampling technique may well be more practical and economical than simple random sapling or stratified sampling (Easton and McColl, 1997).

For this particular research, sampling has been simplified to non-random sample where an author has chosen only existed Western companies and those western companies who willing to start their operations in India. Therefore the participants have been chosen on purpose for that specific reason of the survey.

There are more than thousand foreign companies situated in India, out of which few were selected as a samples for the survey. On the other hand few companies willing to start business in India were also considered to be a part of sample.

3.2.3.1 Population-:

Population in sampling refers to a process through which a group of representative individuals is selected from a population for the purpose of statistical analysis, it is essential beforehand to specify the population and the sample for the particular research. (http://www.wisegeek.com/what-is-a-population-sampling.htm)

Population is an entire collection of carefully defined set of people. (Lehman, O’Rourke, Hatcher and Stepanski, 2005) 48

Problems Faced by Western Firms in Indian Market Employees and businessmen for foreign companies were considered as population for this research

3.2.3.2 Sample Sample is a subset of the people, objects or event selected from the population. That researcher will actually examine in order to gather information. (http://score.kings.k12.ca.us/lessons/wwwstats/population.html)

Finally for this research it was decided to go with the questionnaire with the general questions. In total more than 150 Questionnaires were sent by email to different western companies and employees working in western companies, the response rate for which was very poor. Out of 150 questionnaires only 37 questionnaires were received back. Also seven interviews were conducted the response rate for which was 100%. Therefore the sample size of this study was 28% with 37 questionnaires and 7 interviews of the total population

49

Problems Faced by Western Firms in Indian Market

C h a p t e r IV Findings

50

Problems Faced by Western Firms in Indian Market

CHAPTER IV: FINDINGS AND ANALYSIS

4. Introduction to Findings

As mentioned in the methodology chapter there was a survey conducted, which involved self completed as well as interviewer completed questionnaires. For the self completed questionnaires it was decided to distribute the questionnaire vie e-mail to the employees and owners of the westerns firms operating businesses in India and the data for which was collected from the internet, and for interviewer completed questionnaire face to face meetings were arranged where as in some cases the interview is conducted with the help of internet using webcam service and to arrange a meeting personal contacts with the people were used. Research findings were very important part of the investigation, which helps to form final conclusions.

4.1 Presentation of Findings Presentations of findings have been split into findings from the individual questions of the questionnaire, including any relevant graphs and diagrams reflecting on respondents’ answer.

4.1.1 The Questionnaire

Of the 150 e-mailed questionnaires, there were 37 questionnaires completed and returned to an author. Therefore, overall response rate of the survey is 25%. Also 7 top level employees (from Proctor and Gamble, British Telecom, Pelicans manufacturing Ltd., Pizza Hut, City Bank group, HCL Technologies) were interviewed and the response for the interview was 100% hence, in total 44 questionnaires are used in the analysis of the results including the interviewers completed questionnaires. Full results from the questionnaires are summarised in appendix which is enclosed in the appendices chapter after the bibliography.

51

Problems Faced by Western Firms in Indian Market Question 1 This question was asked to respondents to specify the type of the industry they own/ work for. The results have shown that majority of the respondent works for manufacturing industry. Table no. 6 Type of Industry

Service

Manufacturing

Industry

Industry

Number of Respondents

18

25

Percentage of total number of respondents

41%

57%

(Note-: one respondent failed to answer the question)

Question 2 This question was asked to find out what are the different problems existed in Indian market for the western firms. The four major problems those are Indian government, Indian culture, trade barriers and Indian infrastructure were highlighted. From the analysis of the questionnaire results it is clear that majority of the respondents 41 (93%) believes that they face problems with Indian infrastructure, where as 36 (82%) believes that government is also a major problem in Indian market, on the other hand 24 (55%) respondent believes culture is hurdle for the western firms in India and where as 16 (36%) believes that Trade barrier (Tariffs and quotas) are barrier in India.

Table No. 7 Indian Indian Government culture

Indian Trade infrastructure barriers

No of respondents

36

24

41

16

Percentage

82%

55%

93%

36%

Problems

It was also surprising to know that 17 (39%) of respondents have marked all the problems. (Appendix)

52

Problems Faced by Western Firms in Indian Market

Question 3 This was the key question as hurdle for foreign investment in India was the focus. Respondents were asked the strongest hurdles for the foreign investment in India. The results from the survey reveals that Indian infrastructure is the biggest hurdle for foreign investment in India as 19 (45%) respondent highlighted to Infrastructure, followed by politics with 11 (25%) respondent saying it the biggest hurdle for the foreign investment in India. According to 10 (22%) respondents culture is the biggest hurdle for the foreign investment in India, where as very few 4 (8%) respondent feel that competition from the domestic firms is hurdle for the foreign investment in India. Chart 3

No of Respondents

Major hurdles for western firms in India Market 20 15 10 5 0 Culture

Govt;/politics

compitition from domestic firms

Infrstructure

Hurdles in India

53

Problems Faced by Western Firms in Indian Market Question 4 Respondent were asked to answer what part/department of the organisation is mostly affected by Indian business culture. The research shows that 24 (21%) respondent say culture is one of the problem in Indian market and out of the 24 respondents most of the respondents said that Indian culture is barrier for communication, followed by 14 (58%) of the respondent, where as 6 (25%) respondent said that Indian business culture can be barrier for Human resource management. Where as according to 3 (13%) of the respondents said that culture can affect marketing. According to only 1 (4%) of the respondent culture can affect public relation. Majority of the firm have faced cultural problems to manage their Human resource as well while communicating.

Chart 4 western firms Department affected by culture

4%

13%

25% human resource communication marketing public relation 58%

54

Problems Faced by Western Firms in Indian Market Question 5 This question was asked to the respondent to rate the Indian government. Result shows that, out of 44 respondents 36 (82%) respondents believes that government can be the problem in India for western firms (Q.2 Analysis) thus this question was limited to 36 respondents only. Out of which more than half, that is 20 (56%) respondent rated Indian government as bad, where as 8 (22%) respondent marked it fair. 5 (14%) respondents said that Indian government is worst, and only 3 (8%) respondent marked good to the Indian government. Chart. 5 Rating to the Indian governme nt by weste rn firms

no of respondents

25 20 15 10 5 0 Good

Fair

Bad

Worst

Ratings

55

Problems Faced by Western Firms in Indian Market Question 6 Respondents were asked to highlight the area of Indian government strongly affecting the corporate world in India. Results have revealed, out of 44 respondents 36 (82%) respondents believes that Indian government is one of the problems for western firms in India (Q.2 Analysis) hence, this question was only limited to 36 respondents from which Majority of the respondent 15 (42%) said that corrupt Indian government affect a lot to the corporate world in India, where as 9 (25%) respondent said that unstable politics affect a lot, on the other hand according to 6 (17%) respondents Indian government policies and government structure affect a corporate world.

Chart. 6

No of respondents

Major part of indian govt has bad effect on western firms in India 16 14 12 10 8 6 4 2 0 Political instabiltiy

Govt; Policies

Corruption

Govt; Structure

Characterestics of indian govt;

56

Problems Faced by Western Firms in Indian Market Question 7 The respondent were asked to mark Indian infrastructure on scale of 1 to 6, 1 being worst and 6 being Excellent, it was surprising to note that out of 44 respondents 41 (93%) (Question 2 analyses) respondents believe that infrastructure is one of the major problems for western firms in Indian market. Thus this question limits to 41 respondents. Table- 8 Rating by western Firms

1-Worst to 6- Excellent

Numbers of

1

2

3

4

5

6

7

7

22

4

1

-

17%

17%

54%

10%

2%

-

respondents Percentage of total number of respondents Above table clearly indicates that approximately 54% respondents said that Indian infrastructure for doing business is poor, followed by 34% respondent who said Indian infrastructure is worst for doing business. It was also interesting that null respondent said that they are very happy with the Indian infrastructure.

Question 8 Respondents were asked about the new Indian culture which has an influence of western culture, is it creating favourable environment for the western organisation? The majority of the respondents agree to the question that the new Indian culture is making favourable environment for the western organisation.

Table no.9 Answer

Yes

No

Number of Respondents

30

14

Percentage of total number of respondents

68%

32%

57

Problems Faced by Western Firms in Indian Market Question 9

This question is aimed to find out how many companies would prefer other location apart from India for their business expansion. Majority 22 (50%) of the respondents choose China on the other hand only 15 (34%) respondents prefer to expand their business in India. 5 (11%) and 2 (5%) respondents prefer Vietnam and Hong-Kong for their business expansion. Chart no.7 Prefered location for the business expansion by western firms in India

11%

5% 34%

India China Vietnam Hong-Kong

50%

58

Problems Faced by Western Firms in Indian Market Question 10 This question asked respondents to specify the intellectual property rights in India. Result has shown that the majority of respondents participating in to the research said that Intellectual property rights in India are too weak.

Chart 8 Intellectual property rights in India (According to western Firms)

i

Very Poor 34%

Strong 16% Strong Weak Very Poor Weak 50%

According to 50% respondents Intellectual property rights in India (TRIPS) is weak, where as 34% of the respondents said its very poor, 16% respondents believe that Intellectual property rights in India is strong.

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Problems Faced by Western Firms in Indian Market

Question 11

This question was asked to know the level of the satisfaction of the western firms operating in to the Indian market. According to the survey results it is clear that most of the firms are dissatisfied with 20 respondents, where as 11 respondents said that they are extremely dissatisfied, there are 13 respondents who were satisfied with the Indian market. This was also surprising that null respondents were extremely satisfied with the Indian market.

Chart 9 western firms Level of satisfaction in Indian market

0%

25%

30%

extremely satisfy satisfy dissatisfy extremely dissatisfy

45%

60

Problems Faced by Western Firms in Indian Market

4.2 Analysis of Findings The primary research aimed at major research question, Problems faced by western firms in Indian market.

“What are the macro (internal and external) businesses environmental factors affecting western organisations in Indian market?”

While there was no direct answer given to that question, there is a possibility to draw the conclusion from answers given to various question throughout the questionnaire.

4.2.1 Analysis of Questionnaire results

Question one was asking respondents to specify the type of the industry they own or work for, which helped to establish that both industry faces different problems than each other which then can help to test the hypothesis. Result showed that the majority 25 (57%) of the respondents marked they work for manufacturing industry, where as only 18 (41%) works for service Industry.

This question helped to draw a conclusion that most of the service Industries faces problems with the culture and politics in India, where as majority of the manufacturing industries faces problems with the Infrastructure of the country (Appendix I).

Question two was asking respondents about the problems existed in Indian market, as to study the macro business environmental factor affecting businesses in India was a major objective of the study, four major macro problems in India were highlighted and respondents have to choose from Indian government, Indian culture, Indian infrastructure and Trade barriers.

61

Problems Faced by Western Firms in Indian Market This question was the base for the major questions of the questionnaire, which will then help to find out the different percentage of firms facing different problems and from which the final conclusion will be formed.

Question three is the focused and major question of the survey which asks respondents to highlight the strongest hurdle for the western organisations in Indian market amongst four major macro business environmental factor affecting organisation in Indian market, these are, culture, politics, competition from the domestic firm and infrastructure.

Majority of the respondents (45%) highlighted Infrastructure as the strongest hurdle, where as 22% respondents said politics/ government is a problem for the western firms in India.

This question helped to achieve the objective as this question highlights the strongest hurdle for the western organisations in India.

Question four is a sub question of question 2; this question concerns about what part/ department of the organisation faces difficulties with the Indian culture. It is clear from the result of the question no.2 that out of 44 respondent only 22 (50%) respondents believes that culture is one of the problems in Indian market. Out of 22 respondents majority of the respondents 58% say that culture is a barrier for the communication and 25% believes that it’s a hurdle for human resource management. This means that western firms face problems to communicate with Indian people due to cultural complexities.

From this question author can study the internal business environmental factors affecting western businesses in India as author can identify the specific area/department of the western firms where Indian culture is a hurdle.

Question five is also a sub question of question no. 2, from question 2 it is clear that out of 44 respondents 36 (82%) respondent believe that Indian government is one of the problem for the western firms in Indian market limiting to 36 respondents. This

62

Problems Faced by Western Firms in Indian Market particular question finds out, were the Indian government policies and procedures are appropriate for the western firms? The results shows that majority of the respondents (56%) marked ‘bad’ to Indian government where as 14% of the respondents marked ‘worst’ to the Indian government.

This question helps to fulfil one of the objective of the author as it helps to find out, is the political and legal environment of India is appropriate to western firms or not? The results help to conclude that Indian political and legal environment is not appropriate for the western firms.

Question six was trying to find out the specific area of the Indian government affecting western firms in Indian market. As this is also a sub question of question no.2 this question is also limited to only 36 (82%) respondents out of 44.

This question also leads towards the specific area of the political and legal environment affecting western businesses in India. Majority of the respondents (42%) said that corrupt Indian government is major hurdle for their firms in Indian market.

The intension of question seven was to know the compatibility of the Indian infrastructure for the western businesses. To know this, the marking system is used where respondents were asked to mark the Indian infrastructure from 1-6 (1-worst and 6- Excellent).

This question is also a sub question under question no.2 that is why this question was limited to 41 (93%) respondents. Results from the question six revels that Indian infrastructure is not compatible for the western organisations as majority 52% marked 3, 18% marked 2 and 16% respondents marked 1. This clearly shows that western firms are unhappy with the Indian infrastructure; this question helps fulfil author’s objective of studying the external business environmental factor affecting western firms in Indian market.

Question eight was asking respondents about the current Indian culture which is quite similar to western culture and whether it is creating favourable environment for 63

Problems Faced by Western Firms in Indian Market western businesses in India or not? Majority (68%) of the respondents answered ‘yes’ where as close to yes, 32% respondents said ‘no’

This question help to know whether the culture still remains challenge for the western firms in Indian market or not? This question also helps for the hypothesis testing.

Question nine is one of the major questions where respondents were asked to choose the country for their business expansion in Asia; the respondents had to choose from India, china, Vietnam, Hong- Kong. Majority 50% of the respondents choose China as a place for their business expansion. 34% of the respondents said that they will stick to India where as 11% respondents have chosen Vietnam and only 5% choose HongKong as a place for their business expansion. Apparently, 66% respondents would not like to expand their business in India.

This question helps to compare two countries business environment which will help the author to find out the weaknesses in India business environment as the question also contains the reason for the choosing particular country.

Question ten was aimed to find out is there proper security act existed in India or not? To know this, respondent were asked about the intellectual property rights in India, the respondent had to choose from strong, weak and very poor.

Results from this question shows that Intellectual property rights in India is weak according to 50% respondents where as (34%) respondents intellectual property rights in India is very poor. From the result of this question it is possible to conclude that India lacks to protect the intellectual property.

This question also helps to highlights lack of security laws in Indian market which is also one of macro problem for western firm in Indian market.

Question eleven help to check the level of satisfaction of the western firms in the Indian market, the survey revels that majority (45%) of the respondents are not satisfied where as 25% respondents are extremely dissatisfied with the Indian market due to the problems existed in Indian market. 64

Problems Faced by Western Firms in Indian Market As this was the last question the question summarise the total numbers of satisfied and non satisfied western firms in Indian market, from this question an assumption can be made that due to existing problems in Indian market respondents are not satisfied.

To sum up the questionnaire supports to the authors objective of studying macrointernal and external business environmental factors affecting western businesses in India.

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Problems Faced by Western Firms in Indian Market

4.3 Hypothesis Testing H.1 Western firms are facing problems in India because a) Culture- To test the hypothesis primary and secondary data was used. From the secondary data it can be concluded that India being a culturally complex country containing almost all the religions of the world. Doing business in India is challenging due to the cultural differences between western and Indian organisations. Author Greet Hofstede in his most successful cultural dimension theory, 1980 highlighted the difference between Indian and UK/western culture in terms of individualism and collectivism, low and high power distance, uncertainty avoidance. The scores calculated by him clearly indicate the cultural difference between western and Indian culture affects management operations while operating in a cross cultural environment.

Where as few other authors have also tried to differentiate Indian and western culture from different way.

All the literature reviewed indicates that, the background, culture, beliefs, way of living of a particular person mould his way of thinking which may becomes a barrier in working across the culture, which can also possibly lead to cultural clash or misunderstanding which may lead to business failure.

On the other hand primary data from carried out survey indicates that culture is no more a major problem to western firm operating in India. Primary data reveals that out of 44 respondent only 24 respondents believe that culture is one of the problem in Indian market (Question 2, Analysis) where as only 10 respondents believe that culture is the strongest problem in Indian market (Question 3, analysis) which clearly shows a small group of the respondents still believes that culture is a strongest problem for western organisation in India, where as according to 30 (68%) respondents the current Indian culture which has western influence to it, is making favourable environment for the western firms in Indian market (Question.8 Analysis).

66

Problems Faced by Western Firms in Indian Market Rapidly developing media communication, Bollywood movies which are mostly copied from the Hollywood movies has made a major impact on the majority of the young generation in India, also increasing number of folks working or taking education from western organisations have changed the way of thinking which ultimately affect their culture. Today’s Indian employee is more individualistic than collective, even the power distance is not as high as before and which is still coming down, rapidly increasing nuclear families and reducing number of joint families are all examples of Indian culture heading towards western culture. Apparently cultural dimension theory, 1980 is not applicable for today’s Indian culture because the theory does not highlight the current difference in Indian culture and western culture. Primary research made it evident that culture is no more a major problem in today’s Indian market because today’s Indian culture has a major influence of western culture, which is making favourable environment for western firms. Hence, Hypothesis number H1 (a) is rejected.

b) Poor Infrastructure- the review of the literature reveals it is not compatible for western firms to operate, due to improper transportation facility and shortage of electricity as far as Indian infrastructure is considered. According to World Bank, 2006 there is need to invest more for infrastructural development to maintain a planned GDP of 9% per annum.

Where as results from carried out survey reveals that India’s poor infrastructure is a strongest barrier for the western firms in Indian market because out of 44 respondents majority 41 (93%) respondents believes that infrastructure is a one of the major problem in Indian market (Q.2 analysis) and out of that, majority 19 (45%) respondents believe that infrastructure is the strongest problem (Question 3, Analysis) proving with the support of question number 7 where according to 36 (82%) respondents Indian infrastructure is not suitable for doing business, which clearly shows that western organisations are not happy with the Indian infrastructure and they see Indian infrastructure as a strongest hurdle for the western organisations, on the other hand the analysis of questionnaire results also reveals that the few service organisations believe 67

Problems Faced by Western Firms in Indian Market infrastructure is a major problem for their businesses in India where as mostly manufacturing firms are facing problem with the infrastructure of the country (HYPOTHESIS H.3). Hence, the Hypothesis number H.1 (b) is null.

C)

Government policies & procedures- The review of the literature reveal that Indian government is very slow in case of carrying out business procedures and it also discusses about the corruption and policies of Indian government towards foreign investment. Hong-Kong based organisation rated Indian government a low possible grade.

Where as results from the carried out survey reveals Corruption is a major part of government which affects western organisations in India as out of 44 respondent 36 respondents believes that Indian government is a hurdle for the western organisations (Q.2 Analysis) out of 36 respondents majorities 15 (42%) of the respondent said corruption is major part of Indian government which affect western organisation while operating in India (Q.6 analysis). Hence it is clear from the survey that Indian government is the second biggest barrier for the western organisations while operating in India. On the basis of the questionnaire result author assumes that corruption can be a major reason which is making Indian governmental procedures slow and lengthy, affecting the western investment. Hence, hypothesis no.2 H.1 (c) is accepted.

H2. Problems existed in Indian market is a major cause for less FDI in India than China.

This hypothesis will be tested by using primary, secondary data and hypothesis number H.1. As mentioned in the introduction part India is a second most attractive place for foreign investment only after china (World investment report, 2008) we see that western firms are investing more in china as compare to India. Hypothesis number H.1 made it evident that Indian infrastructure and Indian government are the two biggest problems for the western organisation in Indian market which is cause for less FDI as compared to china.

68

Problems Faced by Western Firms in Indian Market Results from the questionnaire reveals that out of 44 respondents 22 (50%) respondents would prefer to expand their business in China where as 15 (34%) respondents would prefer to stay in India. On the other hand 5 (11%) and 2 (5%) respondents respectively would prefer Vietnam and Hong-Kong for their business expansion (Question no.9 Findings).

According to the respondents answer, the reasons for choosing china or any other country over India are infrastructural or governmental problems, for example shortage of electricity, weak political system, corruption and their affect on businesses, low availability of funds. Results from question no.3 clearly shows that infrastructure is major problem in India for western firms and with the help of question 7 it is clear that majority of the respondents (55%) are not happy with the Indian Infrastructure for the business, where as Indian government is the second strongest hurdle for western organisation in India (Q.2 and 3 analysis) proving with the help of question number 5 where 56% of the respondents marked Indian government poor towards foreign businesses.

On the basis of the available data lets assume China, Vietnam, and Hong-Kong is ‘x’ and India is ‘y’ so x=29 and y=15 followed by x>y. Surely by using simple mathematical formula and with the help of Hypothesis H.1 this can be conclude that due to problems existed in Indian market western firms gives first preference to other three countries than India. Hence, it is possible to state that the hypothesis number three is accepted since the number of people prefers to locate in other countries over India.

69

Problems Faced by Western Firms in Indian Market H3. Manufacturing firms and service firms faces different problems in Indian market. To test the hypothesis, primary research data from the carried out survey was used. Survey results have revealed out of 18 service industries 13 (72%) respondents believes that culture and politics is the major hurdle for their businesses in India, where as only 4 (22%) respondents from the service industry says that infrastructure is a problems for their firm in India, on the other hand out of 25 manufacturing industry 14 (56%) respondents believes that infrastructure is major problem for their firms in India, Where as only 8 (32%) respondents stick to the political and cultural problems.

Infrastructural problem

Political and cultural problmes 6 0%

80% 50%

60%

4 0%

40%

3 0% 2 0%

20%

10%

0% Service indust ry

Manuf act uring Indust ry

0% Service industry

T y pe o f i n d ust r y

Chart 10

M anufact uring Industry

T yp e o f i nd ust ry

Chart 11

Above figures clearly shows that both service and manufacturing industries faces different problems in the Indian market. As per figure no. 10 72% of the respondents from the service industries as compare to 32% from manufacturing industry say political and cultural are the strongest problems for their businesses in Indian market. On the other hand 56% of the manufacturing Industries believe that the infrastructural problems are the major in Indian market, with 22% of the service industries. Hence, on one hand it is possible to state that hypothesis is accepted, since both types of the industries believe in two different problems.

It is clear that manufacturing firms says infrastructure is a problem for the foreign investment in India, on the other hand service industry says culture and politics is a problem for foreign investment in India. This hypothesis supports to the J. Farndons

70

Problems Faced by Western Firms in Indian Market assumption that the “Hi tech industry which have started India’s boom doesn’t rely on its infrastructure”.

71

Problems Faced by Western Firms in Indian Market

Chapter V Conclusion

72

Problems Faced by Western Firms in Indian Market

CHAPTER V: CONCLUSION The aim of the dissertation was to find out the problems faced by western firms in Indian market and also to prepare a kind of guide book for the western firms heading towards India. To find out the strongest hurdle for the western firms in Indian market was also one of the objectives of author. In order to achieve the aims of the project research by means of questionnaire, literature review, hypothesis testing were carried which highlights the problems for doing businesses in India market.

At first the secondary research highlights major problems like, culture, poor infrastructure, government policies, weak intellectual property rights, corruption, and trade barriers in Indian business environment.

Secondly, primary research undertaken has made evidence that, problem like poor infrastructure and corruption in Indian government are the major hurdles for the western firms operating in Indian market and due to which western firms prefer China over India as a destination for their business expansion.

Primary research also helped author to find out important and very interesting result that due to influence of western culture on current Indian culture, “Culture” is no more a strongest hurdle for the western organisations in Indian market. With the help of this major finding author conclude that the Greet Hofstede’s cultural dimension theory (1980) is not applicable for today’s Indian culture, and predict that if the same study would be conducted in today’s Indian culture, there would be major variances in scores which surely will show the less difference in between UK/ western culture and Indian culture, because today’s Indian culture is more similar to the western culture.

Research made it evident that; current boom in Indian economy is not based on the major problems like poor infrastructure, so the booming economy should not be taken as factor of attraction by western organisations.

From the study, author concludes that, Indian infrastructure seems to be far below the standard for western firms operation, intellectual property rights are also not strong,

73

Problems Faced by Western Firms in Indian Market where as culture is not a major problem in India, particularly for the manufacturing firms, it is essential for service industries to address the lay of the land in India, the people, the culture, and the background of the people in the industry that they are dealing with. Probably the most important step in all this is realization that there is a cultural difference between the nations and it needs to be addressed.

It is also true that Indian government is corrupt which causing procedurals delays in business operations. All the existing problems causing dissatisfaction amongst the western firms in India, that is why Western firms need to understand these facts of Indian business before they enter into Indian market. There needs to be some quality time spent upfront before beginning any business.

The biggest success of the research is that author could highlight exactly the same barriers for the western firms in Indian market, which recently have been highlighted by the president export council Washington D.C. 20230 and sent a letter to Indian authority to improve the highlighted area (International trade administration, Dept; of Commerce, Govt; of United states of America, 2007) (Appendix III). On the other hand author could highlight only one problem that is “Culture” which can be specifically applicable to the western firms in India, though rest all the problems are applicable to western firms operating in India but they can also be applicable for local businesses as well, so they can be seen as communal problems.

The research has been extremely enlightening and beneficial as it include crosscultural comparison from business point of view, where as it also highlights the strongest hurdle for the western organisations in India. This study also helps to study the legal environment of the country, however author was limited with his study as author fails to highlight one of the current and ongoing problems in India, “Terrorism” which is one of the major problem in India today, as recently there was terrorist attack on several hotels in Bombay, which had created unpredicted political instability which ultimately affected the corporate world. However the investigation can be developed for future study.

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Problems Faced by Western Firms in Indian Market

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Problems Faced by Western Firms in Indian Market

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Gorill, J., R (2007) CIA world fact book, M.A. Intercultural communication

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Heymann, E., Just, T., Lowik, L., and Vath, M. (2007) 450 bn reasons to invest In to India’s infrastructure, Deutsche Bank Group Investment home page cited https://www.dws-investments.com/EN/docs/market-insight/indiainvest.pdf

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Problems Faced by Western Firms in Indian Market IPR toolkit- Intellectual property rights in India New Delhi usembassy news home page cited- http://newdelhi.usembassy.gov/ipr.html

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Problems Faced by Western Firms in Indian Market Kotabe, M., H and Helsen, K (2008) Global marketing management. Fourth editon. John Willy & Sons, Inc. pp. 149,150

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Problems Faced by Western Firms in Indian Market Michael E. Burke (2006) "The legal systems in India-China: a comparative perspective". Indian Journal of Economics and Business.

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Problems Faced by Western Firms in Indian Market Toropov, B and Buckles, L (2004) Guide to world Religion, Third Edition, Published by Alpha books

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Problems Faced by Western Firms in Indian Market

News Papers & Magazines

The Times of India Date- 11-08-2007, Place- New Delhi

The Hindu- Online edition of Indian national news paper Dates- : Sunday, march18, 2007 Saturday, 8th march 2003 Saturday 3rd may 2003- IPR is weak in India As cited in - http://www.hinduonnet.com/2003/05/03/stories/2003050307581100.htm

Business week- Trouble with India March 19, 2007 http://www.businessweek.com/magazine/content/07_12/b4026001.htm

India today- India Risk: perception and reality Advocate- Jyoti Sagar- Friday 22nd feb 2008

Video Watched India economy summit, world economic forum 2 to 4 December, 2007- New Delhi (http://www.weforum.org/en/events/IndiaEconomicSummit/index.htm)

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Other useful Web references

(http://venkateshthyagarajan.wordpress.com/2008/01/04/going-beyond-namastethe-cultural-barriers/)

http://score.kings.k12.ca.us/lessons/wwwstats/population.html accessed on 18-0808

http://www.iloveindia.com/population-of-india/index.html

http://www.agapeindia.com/india_population.htm

http://www.mapsofindia.com/india/india.html

https://www.cia.gov/library/publications/the-world-factbook/print/in.html

http://www.india.gov.in/knowindia/state_uts.php

http://www.kwintessential.co.uk/etiquette/doing-business-india.html

http://hawaiipacificexportcouncil.org/blog/

http://www.hurights.or.jp/asia-pacific/no_8/no8_indian.htm

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Problems Faced by Western Firms in Indian Market http://www.communicaid.com/cross-cultural-training/culture-for-business-andmanagement/doing-business-in/Indian_business_culture.php

http://www.iveybusinessjournal.com/article.asp?intArticle_ID=691

http://www.indianchild.com/indian_government_and_politics.htm

http://trak.in/tags/business/2007/05/23/indian-political-landscape-and-its-effecton-doing-business-in-india/

http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1516

http://www.wisegeek.com/what-is-a-population-sampling.htm

http://psychology.about.com/od/researchmethods/f/reliabilitydef.htm

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Problems Faced by Western Firms in Indian Market

Appendices

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90