Managing change indian mn cs

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Managing change indian mn cs

  1. 1. VIKALPA • VOLUME 33 • NO 4 • OCTOBER – DECEMBER 2008 61 Going Global and Taking Charge: The Road Ahead for the Indian Manager Achal Raghavan KEY WORDS Emerging Indian MNC Middle and Senior Management Global Mindset Coping Strategies Cultural Integration I N T E R F A C E S Executive Summary presents articles focusing on managerial applications of management practices, theories, and concepts Till a few years back, the term “MNC” (Multinational Corporation) in India meant an organization with its headquarters located outside of India, and having a pre- sence in India as a part of its global network. In other words, in Indian eyes, “MNC” meant a “foreign” company which has come into India. In recent times, however, the business world has seen the emergence of a new breed of companies which is beginning to be referred to as “Indian MNCs.” The Indian MNC is a company which is Indian in origin, now spreading its wings to set up operations in various markets around the world. Increasingly, Indian MNCs have resorted to mergers and acquisitions (M&As) as a favourite method for jump-start- ing their global expansion. Tata Steel, Hindalco, Suzlon, Bharat Forge, and Sundram Fasteners are typical examples of such Indian companies. As more Indian companies push ahead with their aggressive global growth strate- gies, many middle and senior management personnel in these organizations are faced with significant challenges. They have to “go global and take charge” in a very short time, and learn how to manage complex businesses on a global scale. They need to acquire the managerial skills needed to deal with varied customer needs and diverse competitive forces; learn to work with team members from different cultural backgrounds; and also learn how to manage the companies that have been acquired through the M&A route. In this article, we take a look at these new challenges the Indian manager has to face in this era of globalisation of emerging Indian MNCs, and suggest some strategies to cope with them. We examine the elements of the “global mindset” that is becoming essential for the Indian manager’s success, and explain the key dimensions of three research-based models that will help him understand cultural differences that pre- vail across the globe. We also examine some real-life examples of the strategies that Indian MNCs have begun to adopt, as they pursue their vision of becoming global leaders in their industries.
  2. 2. 62 THE EMERGING “INDIAN MNC” I n recent times, the business world has seen the emer- gence of a new breed of companies which is begin- ning to be referred to as “Indian MNCs.” The In- dian MNC is a company which is Indian in origin, now spreading its wings to set up operations in various mar- kets around the world. Increasingly, Indian MNCs have resorted to mergers and acquisitions (M&As) as a fa- vourite method for jump-starting their global expansion. 2007 was a record year for out-bound M&As from In- dia. A total of 223 deals, worth $33 billion, were trans- acted. This represented an increase of 300 per cent over the previous year. The average deal size increased from $58 million in 2006 to $150 million in 2007. Europe topped the list as far as investment destinations were concerned, accounting for 54 per cent of the total value. The US fol- lowed in second place, accounting for 27 per cent. In terms of sectoral composition of these M&A deals, met- als led the way with 56 per cent of the total value, fol- lowed by engineering (7%), IT (7%), oil and gas (4%), pharma and healthcare (3%). Other sectors contributed the remaining 23 per cent. In terms of size, the five largest deals were the follow- ing: • Tata Steel’s acquisition of Corus, UK for $ 12.1 bil- lion • Hindalco Industries’ acquisition of Novelis, USA for $3.3 billion • Suzlon Energy’s acquisition of REpower Systems, Germany for $1.8 billion • Essar Global’s acquisition of Algoma Steel, Canada for $1.6 billion • United Spirits’ acquisition of Whyte & Mackay, UK for $1.2 billion While the subsequent global credit crisis (in 2008) has impacted the enthusiasm for such mega-deals for the moment, smaller acquisitions of strategic importance continue to be finalized, with an eye on long-term growth. In addition to the M&A route, many compa- nies have also gone ahead and established 100 per cent wholly-owned subsidiaries in overseas markets. A typi- cal example is that of Sundram Fasteners setting up such a subsidiary in China to manufacture fasteners and bear- ing housings for the Chinese and global markets. These trends go to show that the “Indian MNC” is here to stay; and in each of these instances, the companies involved will have to work through the challenges (and the inevitable mistakes) involved in transforming them- selves into truly global organizations. Let us now exam- ine what this means for the operating managers in these organizations. INDIAN COMPANIES “GOING GLOBAL”: IMPLICATIONS FOR THE INDIAN MANAGER The Dominance of the Customer A key feature of today’s global markets is the emerging dominance of the customer over the companies that com- pete for her attention and business. Through informa- tion media like the internet and global television channels, today’s customer has instant access to a wealth of information on any product or service that she may be interested in. Supply chain efficiencies have made it possible for companies to make their products available at competitive prices across world markets. This has resulted in a vast shift in power – away from the companies, and towards the customer. The Indian man- ager has to understand and accept this fact, and discard any beliefs to the contrary that he may have acquired over time in the Indian market – where the customer still does not enjoy this dominance in many cases. In any case, with increasing globalisation, competitive forces in the Indian (domestic) market itself are getting more intense by the day, pointing to the rising impor- tance of the “Voice of the Customer” (VOC) in today’s business. The Importance of the Brand As the customer gets used to making choices on a glo- bal basis, the brand of the product has become signifi- cantly more important than the country of origin or manufacture. Many brands have succeeded in shedding their “nationality” – that is, the country from which they originally emerged. Examples are many— MTV, Nike, IBM, and so on. Consequently, the manager in the emerging Indian MNC has to have a game-plan ready for building brands on a global scale, which will enable the company to compete with established global brands. This initiative requires a deep understanding of local customers’ needs in dif- GOING GLOBAL AND TAKING CHARGE: THE ROAD AHEAD FOR THE INDIAN MANAGER
  3. 3. VIKALPA • VOLUME 33 • NO 4 • OCTOBER – DECEMBER 2008 63 ferent markets, and significant investments in brand- building over long periods of time. In scale and com- plexity, this exercise will test the Indian manager’s capabilities like never before. The Need for a Global Mindset Faced with the global customer, and global competition, the Indian manager in the emerging Indian MNC has to work on developing a “global mindset” which is essen- tial for getting a good understanding of today’s busi- ness dynamics, and developing suitable growth stra- tegies. In a speech on “globalisation” delivered by Tarun Sheth, management consultant, at the Ingersoll-Rand (India) Leadership Conference a few years ago, he spoke about the need for today’s manager to develop a “global mind- set.” Some key elements of this global mindset are as follows: • Being open-minded – so that the manager does not act impulsively on first impressions, but takes the time to try and understand something that is alien to his experience till date. • Comfort with diversity – which will enable the man- ager to work cohesively and harmoniously with peo- ple from different cultures and value-systems. • Interest in history, geography, and global phenom- ena – which will give the manager the ability to look for global trends and cause-and-effect patterns in ap- parently unconnected events in business. • Integrity – in both intellectual and ethical matters so that the manager can be trusted by the corporation to do the right thing in various business situations across different cultures and countries. • Abstract thinking – which will assist the manager in conceptualizing and executing strategies which do not have any precedent in her prior experience. • Risk-taking capability – to make quick and effec- tive decisions when the information available is less than complete. • People management – where the members of the team have to be challenged and motivated by the man- ager to achieve group goals. • Cultural sensitivity – to understand the behaviour and attitudes of personnel from different parts of the world, and develop an operating culture for the team which builds “bridges” across the cultural differences that will inevitably surface. While it is unrealistic to expect that every manager en- tering the global arena will exhibit all of the above ele- ments of a global mindset, it is important for the manager to recognize that these requirements do exist, and make efforts to develop and strengthen areas where he is rela- tively weak. Cultural Differences and Integration Global business brings people from different cultures together. They need to overcome cultural differences and collaborate with each other, in order to succeed. The fail- ure of the Daimler-Chrysler “merger of equals” tells us that cultural integration is a key pre-requisite for global managers to be effective and successful. While there could be several exceptions to the rule, most Indian managers – especially those employed in the brick-and-mortar industries – exhibit some common cultural traits. Here are some examples: • He is very comfortable with clear, well-defined or- ganization structures, where reporting relationships are explicit, and there is no ambiguity as to who the manager’s “boss” is. The organization is the classic pyramid. • Compared to simpler organization structures in In- dian firms, large global corporations routinely resort to complex matrix organizations to drive their glo- bal business strategies. The Indian manager is rela- tively less effective in (and less comfortable with) matrix organizations, where vertical and horizontal “relationship” lines cut across functions, businesses, and geographies. The resultant ambiguity is some- thing that he finds difficult to manage. • In spite of the introduction of holistic performance evaluation systems and processes, the average Indian manager is still more comfortable with the traditional concept of “seniority.” Grey hair still matters, in spite of many organizations pushing ahead with merit- based decisions when filling senior positions. This contrasts with the US practice, for example, where age is not allowed to be used even as a criterion in such situations.
  4. 4. 64 • In India, public “face” (i.e., the person’s standing and image among colleagues) is crucial at individual level. Feedback of the negative kind – even when couched in the most objective terms – is best given behind closed doors, and not in a group meeting. The West is less cognizant of such sensitivities. • Deadlines and commitments are still reasonably “elastic” – missing a target date for a response by a day or two is not seen as a major issue. In Germany, this would be seen as unprofessional. As stated earlier, these are generalisations about India, and many of these are getting modified under the re- lentless pressure of globalisation; but given that these traits are widely prevalent, the Indian manager now “going global” needs to recognize that managerial be- liefs and behaviour in other cultures – e.g., in Japan, Ger- many or the US – are likely to be very different from what he or she has experienced in India. Once these differences are understood, the Indian man- ager can work out ways and means of integrating him- self into a hybrid “global” culture, where the group goals take precedence over individual differences. Many In- dian organizations have now started giving their man- agers specific training in this vital area of cultural integration, before exposing them to the dynamics of the global business environment. This minimizes the cultural shocks, and pre-disposes the Indian manager to expect and manage cultural differences. UNDERSTANDING AND MANAGING CULTURAL DIFFERENCES: MODELS AND TOOLS When asked to deal with a fuzzy, hard-to-define con- cept called “culture,” it is natural that the practising manager from India would say, “All this is fine. I am prepared to be culturally sensitive, and adapt my ways in the interests of team-work. But how do I start getting a handle on this vague subject? How do I measure the cultural differences?” Fortunately, considerable research has already been con- ducted in this area, resulting in the formulation of mod- els and tools to assist the manager. In this article, we will highlight three approaches which share a large de- gree of commonality in the way they look at cultural differences, organizations, and teamwork. Approach #1: Geert-Hofstede™ Cultural Dimensions Prof. Geert Hofstede (2001) of Maastricht University, based on his research across different countries and or- ganisations (starting with IBM, and extended subse- quently to include other organisations), has postulated four cultural dimensions, with a fifth dimension – long- term orientation – getting added to the model at a later stage: • Power Distance Index (PDI): This dimension deals with the degree to which less powerful members of a society or a group accept, and indeed expect, un- equal distribution of power, e.g., “That’s the way it is.” • Individualism vs. collectivism: Is the individual a lone person, who is expected to look after his inter- ests by his own efforts? Or is he a member of a col- lective group which looks after its members, in return for loyalty shown to the group? • Masculinity vs. feminity: This refers to the distribu- tion of roles between the genders. In “masculine” cultures, there is a significant difference in the val- ues exhibited by men and women, with men being seen as assertive and dominant and the women, modest and caring; in “feminine” cultures, this dif- ference is less stark, with men also showing caring traits. • Uncertainty Avoidance Index (UAI): This pertains to tolerance for uncertainty and ambiguity; the de- gree to which a “culture programs its members to feel either uncomfortable or comfortable in unstruc- tured situations.” • Long-term orientation vs. short-term orientation: This dimension deals with values that people exhibit. Values associated with long-term orientation are thrift and perseverance, whereas those associated with short-term orientation are respect for tradition, fulfilling social obligations, and protecting one’s ‘face.’ Approach #2: Trompenaars and Hampden-Turner’s Cultural Dimensions Fons Trompenaars and Charles Hampden-Turner (1997) identified several dimensions along which cultures vary. GOING GLOBAL AND TAKING CHARGE: THE ROAD AHEAD FOR THE INDIAN MANAGER
  5. 5. VIKALPA • VOLUME 33 • NO 4 • OCTOBER – DECEMBER 2008 65 These dimensions can be summarized as follows: • Universalism vs. particularism: This dimension deals with how people look at actions of others. Universalism depends on specific rules and regula- tions; particularism, on the other hand, relies more on relationships. • Individualism vs. communitarianism: This deals with the balance between an individual’s interests and the group’s interests. • Achievement vs. ascription: Is status something that we get through achievements? Or is it something that is “given” – through attributes such as seniority and hierarchy? This is the key question in this dimension. • Neutral vs. affective: Neutral cultures avoid open display of emotions, and try to stay focused on the subject at hand whereas affective cultures use ges- tures and animated conversations. • Specific vs. diffuse: People from specific cultures tend to keep business and personal lives separate and dis- tinct. There is very little mixing between the two. Diffuse cultures permit intermingling of the two spheres. • Internal vs. external: Internally focused cultures are likely to have a strong belief in their own actions, and are resistant to changes induced by the environ- ment; in contrast, external focus promotes the belief that the environment is the dominant force, thereby encouraging a more ready acceptance of changes and events. • Time as sequential vs. time as synchronized: Does one see time as something linear (that is, sequential), where discrete elements follow one after the other? Or is it something where many things happen simul- taneously? This will determine whether the culture encourages “one thing at a time,” or will permit par- allel-processing. Approach #3: The Cultural Orientations Model from Walker, Walker and Schmitz Walker, Walker and Schmitz, in their book (2004), Do- ing Business Internationally, have postulated a “Cultural Orientations Model” (COM), which is a framework for understanding cultural differences between people from different countries and cultures. This model consists of ten cultural dimensions along which the beliefs and actions of different people or cul- tures can be mapped. Here is a brief description of each of these ten dimensions: • Environment: This dimension deals with how the person relates to the environment in which he oper- ates. Does the person believe that he has reasonable control over the future, or is it all ‘written’ – decided by a higher force? Is harmony important? Is the en- vironment seen to be full of constraints? And so on. • Time: Is time seen as something fixed, to be meas- ured and tracked? Is “being on time” of paramount importance? Or is time something fluid, something secondary to higher priorities like taking care of your relationships? • Action: Is the emphasis more on action that leads to measurable results? Or is it on building relationships and caring for one another? • Communication: Does the meaning of words depend on the context? Does “yes” mean “yes”? Does silence mean something? Are conflicts dealt with through open communication? Or in an indirect fashion? • Space: Is space (physical and psychological) seen as public or private? Is the office designed on an “open plan,” or is it full of cabins and cubicles? Do people stand close to each other while talking? Or at a dis- tance? • Power: Is power driven by hierarchy, or is it more decentralized and equal? How are decisions made? By consensus, or by the boss? • Individualism: Is a person’s identity determined by individual achievements? Or does the group’s iden- tity over-ride that of the individual? Is loyalty to the group important? • Competitiveness: Is the individual encouraged to take aggressive action on his own? Or is it a co-op- erative working style that is valued? Is the reward structure designed to emphasise individual achieve- ments? • Structure: What is the degree of comfort with change, risk, ambiguity, and uncertainty? Does the culture value predictability and order? Or does it permit some degree of flexibility and chaos? • Thinking: What is perceived to be more important –
  6. 6. 66 The abstract, and the ‘principle’? Or large volumes of hard data? Is the approach holistic, or is it tuned to breaking the issue down to small manageable chunks? BUILDING BRIDGES As mentioned earlier, these three approaches exhibit a fair degree of commonality in the way they look at cul- tural differences. These models show that people from different cultures think and act differently while oper- ating on the same dimension–e.g., on communication, or time, or status. Once these cultural differences are recognised and understood, the global manager has a greater chance of succeeding in getting a set of people from different cultures to work together reasonably har- moniously. Lack of sensitivity to deep-rooted cultural differences is likely to result in misunderstandings and diversion of energy into negative directions. The key to success in global business lies in building bridges across the cultural gaps, and not seeking to achieve “one size fits all” homogeneity in the team. The global manager has to collaborate with the team in es- tablishing “cultural ground rules” for day-to-day work that focus on the common tasks and goals, rather than try to eliminate the individual cultural differences. It is a two-stage process: understanding the differences in culture among team members, and then building bridges across the differences. These bridges can be built on a simple, but powerful principle– which is to place the customer’s needs above individual cultural preferences. STRATEGIES FOR GOING GLOBAL: SOME CURRENT INDIAN EXAMPLES While in-depth research output on specific strategies adopted by Indian MNCs is still not available, there are sufficient examples, at company level, to show that In- dian companies are fully capable of drawing up and executing strategies that are sensitive to customer needs, culture, brand equity, and teamwork. The Tata Group’s approach to its acquisitions—in terms of cultural integration, branding, and customer focus— has been based on very pragmatic considerations. The top management teams at Corus, Jaguar, and Land Rover have been pretty much left intact, with the Tata head- quarters getting involved primarily in long-term direc- tion-setting and large investment decisions. The global brands that have been acquired are getting careful nour- ishment for the long run. There have been no abrupt attempts at implementing drastic changes. Overall, as seen from the outside, the philosophy seems to be one of encouraging continuity and growth, while ensuring adherence to the Tata group’s core values. In the case of Sundram Fasteners, a trend-setter in the auto component industry in India, the approach has been similar. The UK and German companies that have been acquired in recent years have been allowed to retain and strengthen their brands and identities. Fresh investments in equipment have been made where merited, thereby overturning conventional wisdom that such acquisitions are always followed by loss of jobs and “hollowing out” of manufacturing assets. There is continuity in senior management staff. Global customers — whose needs can be met from Sundram Fasteners’ multiple manufactur- ing units in India, Germany, UK, and China — are be- ing managed as single “accounts” globally, through coordinated marketing and sales efforts. Best practices in operational excellence are being transferred from one unit to the other through horizontal deployment, with- out implications of superiority or inferiority between countries, companies, and cultures. Bharat Forge, with its headquarters in Pune, is another aggressive player in the engineering industry, with the goal of becoming one of the top players in the global automotive forging industry. The company has made a series of acquisitions in Germany, USA, Sweden, and Scotland, and has also formed a JV in China. The com- pany follows a strategy of “dual-shoring” where its glo- bal customers’ needs can be met from at least two of its plants worldwide. This allows the company to satisfy its customers’ requirements with fast, possibly “local” responses, while at the same time meeting the constant demand for more competitive prices. IMPACT OF CULTURE AT OPERATIONAL LEVEL While the above instances are examples of clear think- ing, planning, and execution at the strategic level, it is important to recognise that individual managers need to be sensitive to each other’s cultural expectations, when working at the operating level on a daily basis. While this might seem like stating the obvious, real-life experience shows that this is not something that comes naturally to operating managers. Since globalisation has GOING GLOBAL AND TAKING CHARGE: THE ROAD AHEAD FOR THE INDIAN MANAGER
  7. 7. VIKALPA • VOLUME 33 • NO 4 • OCTOBER – DECEMBER 2008 67 been a relatively recent phenomenon in India, most managers have not had the opportunity to get in-depth exposure to different cultures. Correspondingly, the manager from the other culture (say, from Europe or the US or elsewhere) also has had no opportunity to observe and understand how the Indian mind works. This results in a gap, which needs conscious effort from both sides to bridge. The following caselet will make this point clear. A Real-life Caselet: The Meaning of “Time” In this example, a manager from a German company had given a project for the development of a new prod- uct to his counterpart in the Indian company (in the same group of companies) at a significantly lower cost. The German was getting increasingly frustrated with re- peated delays in the delivery date. He took this to mean that the Indian manager was not serious about his com- mitments, and that he was insensitive to the negative impact that was created with the end customer. In real- ity, the product was inherently complex, and repre- sented something of a challenge to the Indian team. If the Indian manager were culturally more aware, he would have said, “Look, this job is more complex than what we have done in the past; but I am reasonably con- fident we can pull it off. Tell your customer this is being attempted in good faith, and that it will take a few itera- tions before we get it right. We will keep you updated on the progress, and let’s target six months for the whole process to get completed.” Instead, the Indian manager had said “yes” to the project, and had taken on an unrealistic deadline, because he was operating in a culture where people were encour- aged to take on difficult challenges. The hard work be- ing put in was considered important; and the slippage of dates – while seen as not good – was not a matter of life and death. Where are the cultural differences? The Indian was com- fortable with ambiguity (of the outcome); the German was not. The Indian saw “time” as something fluid and continuous; the German saw a finite date, and a discrete period. The Indian was used to dealing with other cus- tomers (Indian), who were, by and large, forgiving of slippages. The German saw his (German) customer walking away. The Indian valued the input, i.e., the ef- forts being put in to develop the product; the German was focussed only on the output, i.e., the date of com- pletion. To the Indian, saying “no” or “may be” meant an admission of lack of capability and a perceived loss of “face”; to the German, receiving a “no” for an answer would have been equally acceptable, and more profes- sional. He would have found another source for the product, and got on with his life. Ultimately, the two sides evolved a working method for future instances, by which they agreed to discuss the risks and assumptions explicitly before the start of any new project so that the ambiguity was sharply reduced, and everyone “was on the same page.” The commitment to be made to the end customer was agreed to be held sacrosanct. Learning from such examples, Indian MNCs can pro- actively implement cultural sensitization programmes at both ends of the ocean, so that such gaps and prob- lems are minimised, if not avoided altogether. Many specialist organisations, which offer expert training in this relatively new and fuzzy area, have come into ex- istence in recent times. Given that the financial logic for many M&A decisions is based heavily on achieving sig- nificant synergies in a short period of time, such train- ing should become a mandatory part of the corporate M&A playbook. CONCLUSION As more and more “Indian MNCs” go global, their man- agers would need to gear up, in a very short time, the knowledge base needed to face the new challenges they would inevitably face in multiple global markets. Indian MNCs are beginning to show that they are second to none in coming up with aggressive growth strategies which involve putting down roots — for the long term — in many countries around the world. But the success of these strategies would depend on the ability of their managers to understand the dominance of the customer and the importance of the brand. Addi- tionally, Indian managers should develop a “global mindset” that would enable them to understand and manage cultural differences, and lead their multinational teams to success. Ultimately, business people from dif- ferent cultures need to work together in an atmosphere of mutual respect and trust. This is where the cultural in- tegration models, and the need for a global mindset, come in as essentials.
  8. 8. 68 GOING GLOBAL AND TAKING CHARGE: THE ROAD AHEAD FOR THE INDIAN MANAGER Achal Raghavan is a strategy and business excellence consult- ant based in Bangalore. Till recently, he was Head–Interna- tional Operations at Sundram Fasteners Limited. A graduate of the Indian Institute of Technology (IIT) Madras and the In- dian Institute of Management (IIM) Ahmedabad, Raghavan brings with him over 33 years of work experience in the auto- motive and engineering industries. During this period, he has REFERENCES AND FURTHER READING Ohmae, Kenichi (2003). The Borderless World, London, UK: Pro- file Books. Walker, Danielle; Walker, Thomas and Schmitz, Joerg (2004). Doing Business Internationally, New Delhi: Tata McGraw- Hill. Hampden-Turner, Charles and Trompenaars, Fons (1997). Riding the Waves of Culture: Understanding Cultural Diver- sity in Global Business, New York: McGraw-Hill. Hofstede, Geert (2001). Culture’s Consequences: Comparing Val- ues, Behaviors, Institutions, and Organizations Across Nations, Thousand Oaks, California: Sage Publications. Sirkin, Harold L; Hemerling, James W and Bhattacharya, Arindam K (2008). Globality: Competing with Everyone from Everywhere for Everything, New York: Headline/Business Plus. held Board-level positions for 10 years in organizations such as Delphi Automotive Systems, India and Ingersoll-Rand (In- dia) Limited. He teaches as guest faculty at IIM Ahmedabad and IIM Bangalore, and also writes for management journals and business newspapers. e-mail: achalraghavan@yahoo.co.in We must ensure that the global market is embedded in broadly shared values and practices that reflect global social needs, and that all the world’s people share the benefits of globalization. — Kofi Annan

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