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Indian MNCs Going Global: The Road Ahead for the Indian Manager


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Challenges ahead for the Indian manager, as emerging Indian MNCs go global.

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Indian MNCs Going Global: The Road Ahead for the Indian Manager

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