Problems Faced by Western Firms in Indian Market 1 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 Submitted- 12-01-2009
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Problems Faced by Western Firms in Indian Market
1
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 Submitted-
12-01-2009
Problems Faced by Western Firms in Indian Market
2
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.
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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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: Conclusion 73
Bibliography 75
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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CONTENTS (Continued)
Figure 8: intellectual property rights in India (According to western firms)
Figure 9: level of satisfaction of western firms about Indian market.
Problems Faced by Western Firms in Indian Market
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C h a p t e r I Introduction
Problems Faced by Western Firms in Indian Market
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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.
Problems Faced by Western Firms in Indian Market
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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
Total 47.9 13.9 43(c) 98.8 (d) 1.3 (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.
Problems Faced by Western Firms in Indian Market
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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
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
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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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.
Problems Faced by Western Firms in Indian Market
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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 Western 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
Sell their time to employer for wages and do not owe any allegiance to company in their own time.
Gives respect to the boss, and many of the employees behave as family members. And the manager is taking a role of a father.
Gives respect to the Job, and the job is an assigned task.
‘Luck’ is belief that much of a company’s fortunes are determined by luck.
Company’s fortunes are determined by good management.
The management style is less Aggressive and middle management plays such significant role.
Overtly aggressive management style.
Decision is reached in a more passive way, with the view of those individuals with greater seniority being given greater weight.
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)
Problems Faced by Western Firms in Indian Market
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Where as few other authors Adler (1997); Smith (1995); Chen (1995); Xing (1995);
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.
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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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
Problems Faced by Western Firms in Indian Market
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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 Hong-
Kong 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.
Problems Faced by Western Firms in Indian Market
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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 macro-
internal and external business environmental factors affecting western businesses in
India.
Problems Faced by Western Firms in Indian Market
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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).
Problems Faced by Western Firms in Indian Market
67
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
Problems Faced by Western Firms in Indian Market
68
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.
Problems Faced by Western Firms in Indian Market
69
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.
Problems Faced by Western Firms in Indian Market
70
Infrastructural problem
0%
10%
20%
30%
40%
50%
60%
Service industry M anufacturing Industry
T yp e o f ind ust ry
Political and cultural problmes
0%
20%
40%
60%
80%
Service indust ry Manuf acturing Indust ry
Ty pe of indust r y
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.
Chart 10 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
Problems Faced by Western Firms in Indian Market
71
assumption that the “Hi tech industry which have started India’s boom doesn’t rely on
its infrastructure”.
Problems Faced by Western Firms in Indian Market
72
Chapter V
Conclusion
Problems Faced by Western Firms in Indian Market
73
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,
Problems Faced by Western Firms in Indian Market
74
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 cross-
cultural 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.
Problems Faced by Western Firms in Indian Market
75
Bibliography
Problems Faced by Western Firms in Indian Market
76
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