Midterm Research Paper – Market Entry Strategy Project
International Business (MGT 357)
By: Twisha Handa
One nation that is currently emerging and becoming powerful in terms of business and economics is India. With a commendable economic growth rate and the importance it places on the English language, India is one of the largest workforce of engineers, doctors, and other key professionals, who work not only in India, but in the U.S., London, Canada, and many other parts of the world. Additionally, visits to numerous nations by current Prime Minister Narendra Modi have highlighted the importance of India building strong international relations with different countries. This paper aims to identify key historical and political factors that may challenge India’s economic growth, as well as underline the nation’s rising economy, which paves a way for potential new markets.
India as a Home Base for Multinational Companies
India is the home base of quite a few large multinational companies, with Tata Motors being a prime example. Tata Motors Limited is a multinational automotive manufacturing company headquartered in Mumbai (Tata Motors Group). It is a member of the Tata Group, a conglomerate holding company in Mumbai which was founded in 1868 and has gained international recognition throughout the years after purchasing numerous global companies. For example, in 1954, Tata Motors rolled out its first diesel truck in partnership with Mercedes Benz, headquartered in Germany, and in 1969 the two companies together produced over 175,000 vehicles, which was nearly half the trucks and buses operating on Indian roads. In 1989, seven of the Tata Hitachi hydraulic excavators were exported from India to Iraq and in 1995, the Tata Sierra, India’s first indigenous passenger car, found acclaim in the United Kingdom and Spain.
Beginning in the early 2000s, Tata Motors began a series of acquisitions which would strengthen the company’s global foothold. In 2004, the company acquired Daewoo Commercial Vehicles in South Korea, which brought strong capabilities in medium to heavy trucks. Tata Motors’ acquisition of British multinational car manufacturer Jaguar Land Rover in 2007 gave Tata Motors a new kind of worldwide recognition – one that expanded the company beyond its market in India and gave it a distinct competitive advantage, since this acquisition was a first of its kind for a multinational company based in India (Jonsson). Hence, India is home base to large multinational companies which have gone ahead and developed their footprints internationally.
Influence of Globalization?
Globalization has led to the rise of many industries in India, two of which are medical tourism and information technology. A Confederation of Indian Industry (CII) report stated that world-class hospitals and skilled medical professionals in India have strengthened the nation’s position as a preferred destination for medical tourism. Medical visas issued by India increased by 45% in 2016 from the prior year, which indicates that the country is quickly becoming a “hub for medical treatment for foreigners”, such as people from the Middle East, Africa, Pakistan, Maldives, and Sri Lanka. The reason behind this growth in medical tourism is mainly because treatment for major surgeries in India costs only a fraction-in some cases as low as 10% of that in developed countries (Sharma).
Technology and ease of communication has also surged in India post globalization (Nair). Technology has simplified how business is done and entrepreneurs and other business professionals can access the market simply through the Internet. It has also developed an easier form of communication through Skype, conference calls, and video conferencing. These platforms give businesses the opportunity to interact with members of their global operations. The rise in technology has also allowed offshore outsourcing in India’s IT sector to be considered as “another globalization success story” (Gereffi). India employs 650,000 professionals in IT services and in the next five years it’s possible that this figure might triple. In one of General Electric’s reports in 2000, the company stated that about one-third of its IT work will be done in India, with about 17,800 GE workers employed in India. This is approximately 5.6% of GE’s global workforce. In total, U.S. firms have created approximately 100,000 IT jobs in India and in order to meet this demand, there are IT service providers, such as Tata Consultancy Services, also part of the Tata Group, Wipro Technologies, and Infosys Technologies.
Although IT outsourcing is considered a globalization success story for India, the nation has issues revolving around income inequality, which has reached historically high levels since the 1980s (Income Inequality Highest in India Since 1980s, Finds New Report). According to a report by the World Inequality Lab, the top 1% of the population in India accounts for as much as 22% of the nation’s total income. The national income share of the bottom 50% was just two-thirds of the share of the top 1%. Another interesting statistic is that as of April 5, 2018, India became the nation of the most unemployed in the world (Anis). The reason behind this is that the gap between the rich and the poor has increased, as demonstrated through the inequality discussion above. Globalization has developed India’s economy, but public capital and resources have been reduced to a select few within the nation due to privatization. As of February 2018, nearly 31 million Indians are jobless while the unemployment rate rose to 6.1%, as opposed to 5% in January 2018 and 3.4% in July 2017. Although 6.1% is significantly lower than a range of 8.5% to nearly 9.7% from January-September 2016, the unemployment rate is currently increasing gradually based on data from the Centre of Monitoring Indian Economy (Unemployment Rate in India: Nearly 31 million Indians are jobless).
Ranking in Terms of Degree of Globalization
On the 2017 KOF Index of Globalization, India ranks at 107 with an overall Globalization Index of 52.38. When looking at the Economic Globalization ranking, India ranks at 143 with an Economic Globalization of 44.36. Additionally, with a Social Globalization Index of 31.08, India ranks at 147. Finally, the nation ranks much higher at 22 in terms of Political Globalization, with an index of 91.23 (Dreher).
Benefits Offered to Businesses Seeking the Indian Market
For businesses seeking a new market, production base or even outsourcing to India, there are multiple advantages offered by the nation (7 Advantages of Outsourcing to India Your Boss Wants to Know). For one, India has proven to be the most cost-effective nation because its labor costs are much lower than labor costs in the U.S., U.K., Australia, Canada, and Dubai, resulting in a higher return on investment (ROI). Secondly, international communication in India is not a major issue because Indians speak English so well that India is now the world’s second-largest English-speaking country, with the U.S., of course, taking the top spot (Masani). Thirdly, India has some of the highest number of skilled resources in the IT, BPO, and Finance sectors, just to name a few. Doing business within those sectors can be beneficial to companies looking to enter the Indian market.
Another benefit of doing business in India is the nation’s advanced infrastructure, which emphasizes the deployment of the latest of technologies and regularly training the workforce to utilize those technologies. Ecommerce is another area that India has gained dominance in over the years. Amazon, for example, has set up software development centers in Indian cities, like Pune, Bangalore, Hyderabad, and Chennai. Customer service has also outsourced in these cities due to the Indian workforce’s advanced knowledge of technology. Outsourcing businesses is one of the main sources of foreign income for India and this statement is supported with the fact that outsourcing in the nation has grown from $50 billion in 2010 to $118 billion in 2016 (7 Advantages of Outsourcing to India Your Boss Wants to Know). Thus, it is advantageous for businesses to start or advance operations in India.
Ethnicities Residing in India
There are three major ethnic groups in India: Indo-Aryans, who make up 72% of the Indian population, Dravidians, who make up 25%, and Mongoloids and other minority groups, who make up 3% (Sousa). The Indo-Aryans are the most diverse group and consist of Assamese, Bengali, Gujarati, Hindi, Kashmiri, Konkani, Marathi and Punjabi people, with each group having their own language. The five major ethnic groups of Dravidians are Kannadiga, Malayali, Tulu, Tamil, and Telugu. Dravidians mostly speak either Brahui, Kannada, Malayalam, Tamil, or Telugu. The Mongoloids are found in northeastern states, as well as northern areas in the states of Ladakh, parts of West Bengal, and Sikkim. Other minority groups include the Brachycephalics, who live in small areas of southern India in hill tribes, the Austrics, who are rarely found in India now, but their languages are still spoken in Eastern and Central India, and the Western Brachycephals who mostly live in the western part of India, including Kashmir, Gujarat, Tamil Nadu and Maharashtra.
Primary Values, Manners, and Customs
There are certain values that Indian parents try instilling in their children. For one, they emphasize respecting their elders and one way they express that respect is by touching the feet of elders. Most people do it daily after waking up, during festive or religious occasions, before they are beginning an important work or journey, and as they say “good bye” to their elders. Along with respecting elders, Indians also believe in respecting guests. A common saying in India is “Atithi Devo Bhava” which means “The Guest is considered equal to God” (Chamaria). This concept focuses on welcoming a guest at your house or business with the utmost respect and providing them excellent hospitality. Another common gesture for respect is saying “Namaste” while joining your hands, which means “hello”.
Moreover, religious tolerance is a common phenomenon in India because religion is considered to teach valuable lessons of life that people can benefit from (10 Indian Values You Must Instill in Your Child). A lot of Hindus follow the custom of fasting on religious holidays, such as Diwali or Navratri. There is one particular holiday, Karvachauth, where wives fast the whole day for their husband’s long life and they break the fast when the moon shows up at night, after which they eat their first morsel of food from their husband’s hands. Because I am Indian, I have seen my mom perform Karvachauth ever since I can remember, and I asked her if it’s something that husbands do, too. She told me that it’s commonly for women, but there are some men out there who fast the whole day along with their wives.
In terms of social structure, India has historically followed the Hindu caste system, with Brahmins at the top, who are temple priests connecting people and gods. Next in the hierarchy are Kshatriyas, the rulers and warriors responsible for offering gifts and sacrificing to gods via Brahmins to protect Hindus. Third are Vaishyas, the merchants and farmers. Fourth are Shudras, the unskilled labor classes responsible for serving the upper three classes. Second to last are the Dalits, or Untouchables, who are not allowed to mix with the other classes and are excluded from having an education or attending religious temples. At the very bottom of this social structure, or sometimes in line with the Untouchables, are Adivasis, the indigenous people of India.
Ever since India achieved independence in 1947, the nation has been a democracy, which assumes equality of all people. As a result, the caste system has been made illegal and discrimination against the Untouchables and Adivasis has been abolished. However, these two groups are still “over-represented in the lower ends of socioeconomic indicators such as poverty, education, and gender inequality” (The structure of Indian society over time). Overall, since the caste system has played a major role in the past, even though it has officially been illegal for decades now, the Untouchables and Adivasis are still fighting for equality.
Perception of Time and Work
Indian culture perceives time as cyclical and endless. Deadlines are considered targets instead of requirements and instead of worrying about getting work done on time, completing things in the right manner while maintaining harmony is emphasized over meeting a deadline (B. Pant). Personally, I can relate to this ideology because whenever I was invited for my friends’ birthday parties when I was younger, my mom would always tell me to get there about an hour after the mentioned time and most of my relatives follow the same approach. Indians normally follow what is satirically called DST, or “Desi Standard Time”, where people come to events at a time much later than what is set because they believe that being late will not be the end of the world. Hence, they are more passive when it comes to a set time or deadline, as long as they get their desired tasks done.
Take on Cultural Change
Over the years, India has been more open to intra-caste and inter-caste relations. There have also been various social movements and religious upheavals to mold and rebuild the social and cultural life. Sankritization and westernization are two processes underlying social and cultural change in India. Sanskritization allows lower castes to rise to a higher position in the social hierarchy by living life the way that higher castes do. Westernization involves bringing forth Western technology, education, sciences, principles of equality before law, and positive rights. Therefore, India’s culture is relatively open to cultural change for the betterment of society and the nation (Abraham and Loomis 198).
Political, Economic, and Legal Systems
India’s political system is influenced majorly by governmental policies and the ideologies of multiple political parties. The taxation system is highly controlled by the Union Government since it is the one that imposes income, services, and sales taxes. The economy of India has mostly been stable ever since industrial reform policies were introduced in 1991. The legal system went through many changes, including policies around recycling, minimum wage increases, and disability discrimination, with all legal political parties in India supporting economic reform (PESTLE Analysis of India in five Steps).
Government Involvement in the Economy
India’s economy operates under a government-controlled environment. Over the years the government has played a large role in the areas of investment, production, retailing, and regulation of the private and public sectors, including in electricity, petroleum, steel, coal, and engineering goods. The active and dominant government created a “protected, highly-regulated, public sector-dominated” economy in India (Lal and Clement 85).
Effectiveness and Impartiality of Legal System
The effectiveness of the Indian legal system raises a big question mark. Even after adopting modern methods of dispute resolution, there are more than 2.5 million cases pending due to a lack of judges and lengthy legal procedures (An Understanding Of The Indian Legal System). In 2015, there were nearly 400 vacancies for judges’ positions in India’s 24 high courts (Ruff). If these vacancies were filled, many of these cases which have been pending for years and sometimes decades can finally be heard, and a decision can be made about them. However, it currently seems like there are more and more cases coming into the courts and very few cases being solved and closed.
In terms of impartiality, the Indian legal system is still highly influenced by the caste system even though it has officially been abolished post-Independence. On April 2, 2018, the National Democratic Alliance (NDA) government in India filed a petition to eliminate the Scheduled Castes and the Scheduled Tribes (SC/ST or Prevention of Atrocities) Act, which protected marginalized communities against discrimination and violence. The Supreme Court ruled in favor of the elimination of the SC/ST Act, angering many Dalit organizations. Rakjesh Nimbal, a Dalit Community leader even went on to state that the Dalit community is considered a minority because India “works by the laws of the Hindu religion which is like an illness” (Chowdhury). Consequently, the legal system is promoting discrimination towards members of a lower caste despite the caste system is illegal, shining a light on the bias and partiality involved within the nation.
India as an Emerging Economy and Potential Market
At the beginning of this year, the World Bank stated that India has “enormous growth potential” compared to other emerging economies. India’s economy is expected to grow 7.3% in 2018 and then 7.5% in the next two years (World Bank says India has huge potential, projects 7.3% growth in 2018). There are challenges, however, in the form of poverty and a gender gap, but the nation is seeing improved labor market, education, and health reforms and with one of the largest populations in the world, India has the potential for market growth.
The government-dominated economy in India has paved way for corruption within the nation. Historically, business people have bribed government officials, government officials have made payoffs to politicians to receive premium government positions so that they can seek illegal sources of income and wealth, and consumers have even bribed government officials, politicians, and business people to receive a certain amount of a rare good or a higher quality version of that good. Some people outside the nation have also bribed officials and politicians to smuggle scarce goods to India at a high profit (Lal and Clement 88). Additionally, the most recent Corruption Perception Index (CPI) in 2017 ranked India among the most currpot countries in the world, with a ranking of 81 out of 180 (Desai). Although this ranking is better than an 85 in 2014 and a 94-95 from 2011-2013, India still has a long way to go if it wants to shed its corrupt image (India Corruption Rank).
Gross Domestic Product and Human Development Index
As of the last available data, which was in 2016, India’s GDP is USD 2263.79 billion, GDP per capita is USD 1861.50 billion, and GDP per capita PPP is USD 6092.60 billion (India GDP). India has an HDI rank of 131 with an HDI of 0.624, life expectancy at birth of 68.3 years, 11.7 expected years of schooling, and 6.3 average years of schooling (Table 1: Human Development Index and its components ).
Political Risk Posing Threats to Economic Development
The Congress Party and Bharatiya Janata Party (BJP) are considered the two largest political forces in India that can claim national reach. The BJP became the first non-Congress party in 30 years to win a political election by a large majority of votes in favor of Prime Minister Narendra Modi when he led the BJP during his campaign in 2014 (Overseas Business Risk – India). If a party as strong as the BJP were to endorse any kind of economic change, they can affect India’s economic development through their power and majority, in either a positive or negative way depending on the what side of a specific change or issue they fall under.
India has had a troubled relationship with Pakistan ever since Independence in 1947, as well as China, with whom India shares a long border and has failed to settle its territorial claims with since a short war in 1964 (Overseas Business Risk – India). India does, however, share a strong relationship with the U.S. because both nations have a “congruence of interests”, including liberal democracy, secularism, and tolerance for diversity. The U.S. is the second largest importer of Indian goods and is cooperating with India in the fields of science and technology (Tase). Moreover, PM Modi’s visit to Sweden in mid-April 2018 highlights the importance of India having a strong relationship with the Nordic states (H. V. Pant). This was the first time in 20 years that an Indian Prime Minister has visited Sweden. Sweden, in return, has been a strong supporter of India’s “Make in India” campaign, which was launched in 2014 with the mission of making India a global manufacturing hub “by encouraging both multinational as well as domestic companies to manufacture their products within the country” (Make in India).
All things considered, India has strong relations with countries like the United States and is working to build and improve relations with other Western and European countries. India’s economy is expected to grow an astonishing 7.3% this year and 7.5% in the next two years, indicating the market potential the nation holds. Despite certain factors negatively affecting the nation’s image, such as a high corruption ranking, a legal system that can use improvement, and the existing belief in the caste system despite the fact that it has been abolished for more than half a century, India is considered an emerging economy, especially due to its advancements in technology and science. Today, many companies are merging or acquiring Indian companies or outsourcing to India because of the nation’s increasing and improving business climate. ?
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