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Problems Faced by Western Firms in Indian Market
Problems Faced by Western Firms in Indian Market
Submitted By
Ratanchand R. Gaikwad
12-01-2009
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Problems Faced by Western Firms in Indian Market
Executive Summary
The purpose of this dissertation is to study the Indian business environment and find
out the “problems faced by western firms in Indian market.
India is on mind of everyone all over the world. Tremendous growth of few Asian
economies has the business world standing up and taking notice, and India is a most
promising prospects, doing business in India is top priority for many individuals and
organisations and if you are going to successful in India, you have to survive in the
Complex Indian environment which is frustrating and challenging at the same time.
No matter where you come from and where you have been, nothing is exactly like
India, that is why understanding Indian market is essential for western organisations.
According to world Investment forum (2008) India is the second most popular place
for the global business investment, as it’s a biggest consumer market having many
graduate than the population of the France and also have the cost effectiveness and
language advantage as the world of business speaks English in India that is why India
is becoming centre of attraction to the western investors. Hence to find out what
problems are there for the western investment was essential to make aware western
firms heading towards this attractive place.
To find out the problems and achieve the author’s objective, primary and secondary
research was conducted. Primary data was collected using research questionnaires,
which have been e-mailed to the western firm’s employees or owners operating
businesses in India. On the other hand secondary research relied on the textbooks,
online magazines, newspapers, search engine, and relevant websites.
The findings produced by the data gathered, were sufficient to make assumption and
form the answers to research questions. In additions, survey results were ample in
order to test the set hypothesis.
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Problems Faced by Western Firms in Indian Market
Acknowledgements
First of all I would like to thank God and also I thank all people who gave up their
precious time in order to fill-in an e-mailed questionnaire and all those who gave me
wonderful co-operation during interviews, which gave me an opportunity to complete
this investigation on time.
Also I would like to thank my dissertation supervisor Prof. Terrence Jackson for all
the precious advice that he gave me and for the time and patience that he has spent on
me, which is much appreciated.
Special thanks to my Mum and Dad who have supported me all the way through this
dissertation, who have given me courage to undertake challenging research and who
has filled me with faith when I was down.
I also would like to thank Prof. R.R. Yelikar, and librarian Mr. C. Gaikwad who
helped me to get access to the Solapur university, library and Hirachand nemchand
collage library.
Finally, I want to thank my friends whose love and contribution, has gone a long way
to complete my dissertation.
Ratanchand
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Problems Faced by Western Firms in Indian Market
Declaration of Originality
I Mr. Ratanchand. R Gaikwad declares that the dissertation titled “Problem faced by
western firms in Indian market” is entirely my own work and that any additional
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
Signed …………………………………….
Date ……………12-01-09……………………….
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Problems Faced by Western Firms in Indian Market
CONTENTS
Title 1
Executive summary 2
Acknowledgement 3
Declaration of originality 4
Contents 5
Chapter I Introduction
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Problems Faced by Western Firms in Indian Market
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
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
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Problems Faced by Western Firms in Indian Market
CONTENTS (Continued)
Appendices 89
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
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Problems Faced by Western Firms in Indian Market
CONTENTS (Continued)
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Problems Faced by Western Firms in Indian Market
Chapter I
Introduction
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Problems Faced by Western Firms in Indian Market
CHAPTER I: INTRODUCTION
India is a land of 1.2 billion people (The essential marketer’s handbook, business
world, 2003-04) containing almost all the religions of the earth, which makes the
country culturally more diverse and largest democracy in the world. India has taken
up the path of modernisation and industrialisation, and it is currently in the process of
becoming an industrialized and high-tech economy where prevalence of high income
is becoming more common (Mitra, 2003). Current reforms have improved the
efficiency of Indian economy and raised its standard of living, the poverty rate fells by
26% in the year 2000 compared to 36% in 1993 (Mukerjee, 2002). Overall the
reforms liberalized the exchange rate mechanism opened economy for foreign direct
investment.
Today, being a second most attractive place for doing business, India is attracting
many western investors towards it. This dissertation perhaps will focus on the
“Problems faced by Western Firms when they enter in to Indian Market”.
Though there are many problems existed in to the Indian market for the western
companies but authors research will focus on the major problems like different
cultures, corruption, Politics, major trade hurdles, infrastructure, Intellectual property
rights and legal framework.
There are so many other problems such as inconsistent industrial policies and rules,
labour regulations and protections, regulation on foreign investment, foreign exchange
control, regulation on transferring royalties, research and development cess and so on.
But according to Jha (2003) there are six major constraints working in India against
FDI. 1) Image and attitude, 2) Domestic policy, 3) Procedure- there is difficulty in
getting approval or permission from the central, state and local government. 4)
Quality of infrastructure, 5) State government level obstacles: differences in state
policies and practices especially in providing facilities. 6) Delays in legal processes.
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Problems Faced by Western Firms in Indian Market
Shaking hands with ladies or offering a glass of wine are no longer considered
offensive in the new India. Besides most business people travelling there are already
aware of such customs and traditions. But getting past the initial greetings and
exchanges and getting down to business in India is still challenging because various
other problems.
(http://venkateshthyagarajan.wordpress.com/2008/01/04/going-beyond-namaste-the-
cultural-barriers/)
To find out the strongest problems while doing business in today’s Indian business
environment is the primary aim of the author.
1.1.1 Background
According to world investment report (2008) India has and will retain its position as
the world second most preferred global destination for foreign investment until 2010
lagging only behind China. For last three years Indian economy has been swelling at
well over 8 per cent annually and has now topped a trillion dollars. It is already the
worlds seventh largest economy and is likely to become one of the top three over the
next twenty years and it may soon become the worlds largest consumer market, with
rising middleclass over half a million strong.
As the Indian economy continues to boom and open up, more and more westerns are
finding themselves travelling to India on businesses. In some ways western people
find it easy to do business in India because most of the people can speak fluent
English. Although there are more than 20 spoken languages in India the world of
business speaks English. Apart from language advantage they are getting good talent
at cheaper cost as there are many graduates than population of France. This results in
to increasing foreign direct investment in India. But just looking attractive enough to
the western investors is not important to be successful in Indian market.
After independence from Britain 50 year ago, India developed a highly protected,
semi-socialist autarkic economy. Structural and bureaucratic impediments were
vigorously fostered, along with the distrust of foreign businesses. Even as today the
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Problems Faced by Western Firms in Indian Market
climate in India has seen a sea change, smashing barriers and actively seeking foreign
investment, many companies still see it as a difficult market. India is rightfully quoted
to be an incompatible country and is both frustrating and challenging at the same time.
Foreign investors should be prepared to take India as it is with all of its difficulties,
contradictions and challenges.
India is the fourth largest economy in the world (measured in terms of purchasing
power parity) with increasing foreign direct investment (FDI) A.T.Kearney has
second on its list of most attractive countries for foreign investment (Maker, 2007).
India is 100th of the Fortune 500 with R & D facilities in India; it has the second
largest group of software developers after the United States. It has got 6,600
companies on the Bombay Stock Exchange; only with the New York Stock Exchange
having more. According to predictions India going to be the next superpower and
every multinational from all over the world would have an operation in Indian market.
But, if you see the current ranking for best place to do business, India has been ranked
64th in a global list of best countries, dropping from 51st place last year. This shows
India has dropped 13 places. (Indiatimes 28, June). According to Forbes report, India
fell in this year’s ranking as political instability demonstrated resistance to increasing
personal freedoms. Higher inflation from food and other commodity costs, as well as
increased burdens on entrepreneurs also held the world’s most populous nations back
as business destinations.
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Problems Faced by Western Firms in Indian Market
By looking at current progress of India it seems that India has all the potential for
being a developed economy but according to Indian finance minister the inescapable
thing which stopping India is its democracy (India economy summit, world economic
forum 2 to 4 December, 2007). So now the question arises, is this the only problem in
Indian market? The answer to this is no, because there are many direct and indirect
barriers which are creating hurdles for western companies in Indian market.
Because of few advantages India becomes the attraction for the western companies to
invest in to it. As more numbers of western firms heading towards India, It is really
essential to find out the problems which are obstructing western firms while entering
the Indian market.
The specific purpose of the research is to find out the actual problems to the western
companies when they enter in to Indian market. As discussed above there are many
things which attracts the western investors to invest in to India but after entering in to
this attractive market they face many difficulties and thus to find out the difficulties to
western firms the Indian macro business environment will be focused and taken in to
consideration.
This is the major research objective of the author to find out the problems faced by the
western firms in Indian market; this question relies on secondary data, where author
will discuss the problems for the foreign investment in India.
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Problems Faced by Western Firms in Indian Market
These questions relay on primary data, where author will find out the answer with the
help of respondents opinion.
Also preparing a guide book for the new western entrants remains the essential
objectives.
1.4 Hypothesis
2. H: Problems existed in Indian market is a major cause for less FDI in India than
China.
1.5 Methodology
1) Primary data collection.-: The most of the data and information is obtained from
electronic sources, annual reports, news papers, Articles, case studies, books, and
journals.
3) Field study -: This will be general source of data collection in which the data will
be represented on the basis of my personal experience in the same field.
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Problems Faced by Western Firms in Indian Market
C h a p t e r II
Literature Review
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Problems Faced by Western Firms in Indian Market
On the other hand where close to 72 per cent of the country population is lives in rural
India which totally differs from urban lifestyle of India. In rural India people live
without any social security, they work in most miserable, live unhygienic and in
unliveable condition (The Times of India, August 2007) According to Arjun Sen
Gupta they have to survive on less than Rs.20 per capita per day, which is less than
half United states (US) dollar (India economy summit, world economic forum 2 to 4
December, 2007). So People don’t have that money to spend on branded cloths or on
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Problems Faced by Western Firms in Indian Market
expansive electronic things. Apparently India has two different living styles which are
far different from each other.
We hear, read, and watch that India is rapidly growing economy with increasing
foreign investment and by the year 2030 India is going to be the next super power.
But is it a fact? It is not. (George, 2005) By taking a look at real India we see poverty,
unemployment, shortage of electricity, less water supply, poor infrastructure, poor
transport system, poor quality of raw material, unstable government and last but not
the least corruption. So this is the reason why India is falling down in the index of
best place to do business.
2.2.1 Meeting
Names of the people helps to understand the persons background (which part of India
the particular person belongs to). For example, a Singh will always be a Sikh. The
suffix "-jee" (as in Banerjee) is a sign of a high caste. "Kar" (as in Chandraskar)
denotes that person is of Maharashtrian high caste. Arabic sounding names will be
used by Muslims (Morrison and conaway, 2006).
When addressing an Indian whom you know personally, always good to use formal
title and respect giving words whether Professor, Doctor, Mr, Mrs or if you do not
know their names then Sir or Madam will suffice (Morrison and conaway, 2006).
When doing business in India, business cards should be exchanged at the first
meeting. It is a good idea to have it translated on one side into Hindi, more as a sign
of respect as opposed to linguistic necessity. Be sure to receive and give with your
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Problems Faced by Western Firms in Indian Market
right hand. Make sure the card is kept respectfully and not simply pushed into a
trouser pocket. (Desai, 2002)
2.2.3 Negotiation
Whenever you are arranging meeting in India make sure you have arranged it well in
advance. The arranged meeting must be confirmed by writing and by phone. Avoid
meetings near or on national holidays such as Diwali (Indian religious festival) or
either of the two Eids (Muslim religious festival), Independence Day. Avoid the heat
by scheduling between October and March (Desai 2002).
Punctuality is expected, although being 10 minutes late will not have disastrous
consequences. Flexibility is paramount. Family responsibilities take precedence over
business so last minute cancellations are possible when doing business (Desai 2002).
When entering a meeting room you must always approach the most senior figure first.
Commencing with some conversation is a first step in meeting. Favourable topics of
conversation are the latest politics and business news, the fluctuations of the Bombay
Stock Exchange (BSE) or cricket. Personal topics must be avoided and, if new to
India, do not comments on matters such as the poverty or beggars and the most
sensitive cultural factor (C.Storti, 2007).
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Problems Faced by Western Firms in Indian Market
at the highest level. If the owner or Director of the company is not present, there are
chances of these.
Indian businesses are not just depends on statistical figures, empirical data and
exciting PowerPoint presentations. They also use intuition, feeling and faith to guide
them (Desai 2002). Criticisms and disagreements should be always expressed with the
most diplomatic and indirect language, answer "no” is considered rude due to the
possibility of causing disappointment (Storti, 2007). Listen carefully to Indians'
responses to your questions. If terms such as "We'll see", "I will try" or "possibly" are
employed that means they are indirectly saying ‘no’ (Morrison and conaway, 2006).
Once terms have been agreed Indians expected to be honour by you. And celebrate the
relation building process with the dinner (Morrison and conaway, 2006).
The high tech-industry that started India’s boom doesn’t rely on roads and bridges to
get its product to market; manufacturing does. Yet good highways, bridges, airports,
power, water supplies are something India hasn’t got much of. And what’s there is
collapsing under the weight of increased demand- sometimes literally as when a road
bridge in eastern India gave way in December 2006 under the weight of traffic and
crashed on to a train beneath, killing 34 people. Meanwhile, the electricity supply to
the city of Pune, a city of 4.5 million people, is so under stress that the entire supply
has to be cut off for one day every week to relieve some of the pressure-leaving
businesses to rely on their own back-up generators or face a shut down (Farndon,
2008).
Moving goods around India can be something of right mare. In the monsoon season,
water-sensitive goods can be stuck in leaky storage facilities for days while waiting
for roads to become passable. Even once they get moving, journeys that would take
less than a day in other countries can take many days in India. Average speeds on
India’s roads are barely 20 mph, and hold-ups are frequent. It can take 10 days for the
Japanese carmakers Suzuki to truck its care just 900 miles from its factory in Gurgaon
(one of New Delhi’s satellite towns) at the port Mumbai- not just because of poor,
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Problems Faced by Western Firms in Indian Market
crowded road, but also because of long delays at state borders, and ban on large trucks
from many of India’s cities during the day, although India has just 3700 miles of
motorways as compare to China’s 25000. No wonder, then, that many companies
choose to locate in China in preference to India, despite the caveats mentioned earlier.
Even more depressingly, 40 per cent of India’s entire food production is lost because
transport delays allow it to rot before it reaches consumers. (Farndon, 2008)
Table no.1
India: estimated annual infrastructure investment need, financing gap and FDI flow,
various years
(Billion Dollars)
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Problems Faced by Western Firms in Indian Market
According to World Bank report 2006 over 2007-2012 India will need investment
averaging $99 billion per annum in 10 mega infrastructure, segment to support
planned annual GDP of 9 per cent. The table shows India’s estimated infrastructure
investment need, financing gap and FDI flow of various years
(India Briefing- http://www.india-briefing.com/category/business/economy-politics)
Infrastructure asset are the physical structure and network used to provide essential
services to the society. Indian gross domestic product (GDP) could be 2 per cent more
than what it is now, because the poor infrastructure directly affects the out put of the
companies which results in low GDP (Chin and Vaeth, 2006).
It is widely known that India’s current infrastructure is fraught with many weaknesses
and that is below international standard even when compared with other emerging
markets. Indian infrastructure is weak in transport system, ports and airports that do
not cope with the demand and, most of all, power cuts (Heymann, Just, Lowik. and Vath.
2007).
Recently Intel Corporation (INTC) chose Vietnam over India as a site for a new chip
assembly plant. Although Intel declined to comment, Industry insider says the reason
was largely the lack of reliable power and water in India (Business week- Event,
2007).
“Taylor defined culture as ‘the complete whole which includes knowledge, belief, art
moral’s, laws, custom’s or any other capability or habits acquired by man as a
member of society”.
According to Jackson (1995) it is essential to study the culture of the society in which
the business is going to be established because according to Taylor culture has an
impact on organization’s because cultural norms, values, and roles are embedded in
the way that organization develop, organisation structure emerge and informal and
formal pattern of behaviour. Such writers as Hofstede (1980) have been warning that
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Problems Faced by Western Firms in Indian Market
western management theories and practises may not work well in other cultures, and
that we should therefore consider the nature of the host culture and its relationship to
management style.
According to 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).
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
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Problems Faced by Western Firms in Indian Market
culture of Indians. The Mahabharata, the Ramayana, the Bhagvat Gita as well as the
Quran, the Bible, the Guru Bani, etc., have moulded the thinking pattern and
consciousness of Indians, which clearly differentiate Indian and western work culture
(Maker, 2007). According to Evans, Hau and Sculli, (1989) the particular culture of a
society is a dominant factor in managerial style, and management will retain its own
unique cultural identity even as the society develops.
Hofsted (1980) said “People’s core cultural values are much more highly persistent
than their secondary belief”. According to Kugler (1998) Indian consumer hold
different cultural core values than do their western counterparts (S.Mattila, 1999).
The Indian culture is hierarchical where the cultural norms have changed the way of
thinking which affects various management operations, which western firms may find
it difficult to understand. There is a huge difference between Indian and western work
culture.
One of the very important part of Indian culture, vital for business organizations to
succeed, is an understanding of the tradition and ways of communicating with others
that form the basis of India’s society (Zaidman, 2001). Because Majority of Indian
people are Hindus so Hinduism is the largest religion in India. It is said that in India,
religion is a way of life and must be respected in order to save and maintain a
successful business relation, despite the elimination of traditional caste system, which
was a direct outcome of Hinduism, attitude still remain and both aspect of Indian
culture still influence the hierarchical structure of business practices in India today
(Gorill, 2007).
Many writers have tried to differentiate Indian and western work culture in many
ways. As according to Kumar and Sethi (2005) Indian managers embody both
individualistic and collective values. This implies that the Indian manager may behave
differently in different situations. As an individualistic, the Indian manager can be
very aggressive and goal oriented. As a collective, the Indian manager may be
sensitive to the needs and wishes of the people in his/ her group. One of the true
implications of this culture is that the western manger may find it difficult to fully
comprehend the behaviour of his Indian counter part.
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Problems Faced by Western Firms in Indian Market
Whereas Jackson (1995) said Indian person always looks for the job satisfaction,
security, individuality, dignity, prestige and power. This suggests that personal goals
plays important part in the value structure of Indian people. Job satisfaction, security,
and individuality, prestige, and power seem to represent status goals, on the other
hand England, (1974) described Indian leaders/ manager have lower degree of
pragmatic orientation, with 34% pragmatically oriented and a much higher 44% being
moralistically-oriented.
Where as the following table by England (1995) clearly shows the difference between
Indian work culture and western work culture
Table.2
India/Asian Culture Western culture
Have more general, long-term Sell their time to employer for wages
relationship with their employers; and do not owe any allegiance to
their accountability for end result is company in their own time.
stressed but not with in the same strict
time frame
Gives respect to the boss, and many of Gives respect to the Job, and the job is
the employees behave as family an assigned task.
members. And the manager is taking a
role of a father.
‘Luck’ is belief that much of a Company’s fortunes are determined
company’s fortunes are determined by by good management.
luck.
The management style is less Overtly aggressive management style.
Aggressive and middle management
plays such significant role.
Decision is reached in a more passive Decision making process is ‘conflict’
way, with the view of those situation, where individuals of
individuals with greater seniority different level of seniority often argue
being given greater weight. over a particular topic until a decision
is reached.
(Source: Adler, N,J., England, G.W., Hofstede, G., Olie, R., Smith, P. (1995) cross
cultural management- edited by Terrence Jackson p.64-65)
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Problems Faced by Western Firms in Indian Market
Where as few other authors Adler (1997); Smith (1995); Chen (1995); Xing (1995);
Trompenaars (1993); Evans , Hau & Sculli (1989); Kelley, Whatley, Worthley & Lie
(1986) highlighted difference between eastern and western culture on various societal
issues, the table is as follows:
Table 3
But to draw the actual difference between Indian work culture and western work
culture it is important to apply Hofsted’s cultural dimension theory in between Indian
and western culture to see the basic and specific difference between these two
cultures. To describe western culture United Kingdom is taken in to consideration, so
the difference in between Indian and UK culture is studied with the help of Hofsted’s
Theory.
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Problems Faced by Western Firms in Indian Market
The Chat 1 below clearly shows the difference in between Indian and United
Kingdom’s five cultural dimensions which help to understand the actual
difference in Indian culture and UK culture (Western culture).
The chart 2 below shows the world’s average scores for Hofsted’s five cultural
dimensions.
Figure1 Figure2
Power distance (PDI) - India has Power Distance (PDI) as the highest Hofstede
Dimension for the culture, with a ranking of 77 compared to a world average of 56.5.
This Power Distance score for India indicates a high level of inequality of power and
wealth within the society. This condition is not necessarily subverted upon the
population, but rather accepted by the population as a cultural norm.
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Problems Faced by Western Firms in Indian Market
Where as United Kingdom comparatively has low power distance with ranking of 35,
which Is below worlds average. This score for United Kingdom indicate a low level of
inequality of power and wealth within the society.
India ranks 48 which are slightly above the world’s average 40 which show that India
has collective work culture but in some ways it has an individualistic work culture
also. This indicates that India tends to be group oriented and the group members are
expected to have unquestioning loyalty to their group. At the same time Indian also
value his self-expressions also.
India's Long Term Orientation (LTO) Dimension rank is 61, with the world average at
48. A higher LTO score can be indicative of a culture that is perseverant and
parsimonious.
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Problems Faced by Western Firms in Indian Market
UK’s long term orientation dimension ranks 25 which are below world’s average,
which indicates that British people are short term oriented. A lower LTO score
indicate no parsimonious.
According to cultural dimension theory India ranks above the worlds average where
as UK ranks below the worlds average, which indicates that Indian people are long
term oriented where as British people are short term oriented which may cause
problems in organisational decision making which may lead to cultural clash in a
globally operating company.
India has Masculinity as the third highest ranking Hofstede Dimension at 56, with the
world average just slightly lower at 51. The higher the country ranks in this
Dimension, the greater the gap between values of men and women. It may also
generate a more competitive and assertive female population, although still less than
the male population.
According to Hofstede’s theory both the countries are masculine and both the
countries shows gap between men’s value and women’s value.
UK ranked 35 on uncertainty avoidance index, which shows that the culture is ready
to face unstructured, surprising, situation. It is a uncertainty avoiding culture which
try to minimize such a situation by strict laws and rules.
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Problems Faced by Western Firms in Indian Market
The comparison of the Indian culture and UK/ western culture apparently shows the
difference in between two cultures which can be trouble for western in Indian market.
To sum up Indian cultural values have a wide variety of implications for western
managers (Kumar, 2007). They affect Indian communication and leadership styles,
motivation patterns, decision making processes, and/or their attitudes towards work.
As such, they have wide ranging implications for a multinationals seeking to do
business in India. Outsourcing partnerships, relationships with regulatory authorities,
joint venture relationships, and motivating local employees are all likely to be affected
by differences in cultural values/norms (Lewis, 2006). A western manager who is not
consciously aware of some of the differences that set him apart from his Indian
colleagues may find it difficult to cope with some of the cultural challenges that he
may be confronted with (Kumar, 2007).
Every day political decisions are being made which can have an effect on all of us.
Governments make the rules and structure in which businesses are able to race against
each other. Politics and laws play a critical role in international business. National
politics affect business environment directly through changes in policies, regulation
and laws (Kotabe and Helsen 2008). Even the best plans can go awry as a result of
unexpected political or legal influences, and the failure to anticipate these factors can
be the undoing of a successful business venture. From time to time the government
will change their rules and frameworks forcing businesses to change the way they
operate. Business is thus keenly affected by government policies and political risk in
country’s business environment (Czinkota, Ronkainen, and Moffett 2007).
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Problems Faced by Western Firms in Indian Market
No organization can afford to ignore the rules and regulations of the country from
which he or she conducts international business transaction. The companies, planning
to enter global markets should know the trade policies, general legal and political
environment of the foreign markets. The success and the growth of the business
depend upon secured and reliable political system (Subba Rao, 2003).
The legal system of a country is part of its social system and reflects the social,
political, economic and cultural characteristics of the society. It is therefore, difficult
to understand the legal system outside the socio cultural area in which it operates. In
the case of India the legal system is still alien to the majority of the companies
operating there, whose legal culture is more indigenous and whose contact with the
formal legal system (the imported British Model) is marginal if not altogether non-
existent (Mittal and Vijayawargiya. 2006).
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Problems Faced by Western Firms in Indian Market
Table.4
From the table above we can see India ranks average with regards to the number of
procedures require to set up a business (As a result of economic reform of past
decade) it fares amongst the worst with regards to the time required and cost involved,
Daniel Vasella (Chief executive of pharmaceutical giant Novartis) said “if you want
to build even a small road in India, it will take ten years of discussion before you get a
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Problems Faced by Western Firms in Indian Market
(Subba Rao, 2003) The major bodies’ of laws affecting foreign investment in India
are (FEMA) Foreign exchange management act, 1999 and the company’s Act, 1956
The Foreign Exchange Management Act (1999) or in short FEMA has been
introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA).
FEMA came in to act on 1st June 2000
The major intention behind the Foreign Exchange Management Act (1999) is to
combine and alter the law relating to foreign exchange with objective of facilitating
external trade and payments and for promoting the arranged development and
maintenance of foreign exchange market in India (Paul, 2003).
Foreign exchange management act (FEMA) is one of the primary laws regulating
foreign investment in India. FEMA broadly regulates the foreign exchanges market
and provide the Indian government the legal authority to restrict the foreign
investment. Because FEMA doesn’t include implementing regulations, Indian foreign
investment policy is primarily established through a series of public notices or “Press
Notes” issued separately for each sector. “Press Notes” are usually approved by
government cabinet and release by the department of industrial policy and promotion
(DIPP) (United states government accountability office, 1996 appendix VIII).
The Press Note set up between other things, whether investment in each individual
sector must receive government approval or whether investment fall under the
“automatic route” which doesn’t require government approval
Any planned investment that need a government approval must be given approval
from the foreign investment promotion board (FIPB- interagency body with authority
to approve investment) before the transaction takes place an investment must receive
approval if 1) the investment in the finance sector or is subject to securities and
exchange board 2) ) the movement requires industrial licence 3) the investment fall
32
Problems Faced by Western Firms in Indian Market
“The company” means a company formed and registered under the act. This act
primarily regulates the formation of companies. The act prescribes regulatory
mechanism regarding all relevant aspect of companies. Regulation of financial
management aspect constitutes the main focus of act (Chakraborty, 2007).
(Ministry of Finance- Government of India) According to the act policies the inspection
of company’s books of accounts is carried out by the officer of the directorate of
inspection and investigation and the registrar of the companies conduct their affairs in
accordance with the provision of the companies act, 1956. Section 235 and 236 of the
companies act, 1956 empowers the central government to order investigation into
affairs of a company. However the power to appoint inspector remains with the
central government.
33
Problems Faced by Western Firms in Indian Market
The term ‘intellectual property’ in the international legal parlance covers patents,
industrial design, copyrights, trademarks, know-how and confidential information.
Intellectual property rights gives encouragement to Innovation and creativity, which
in turn leads to economic prosperity of the nation
(http://newdelhi.usembassy.gov/ipr.html)
The laws relating to intellectual property in India is still in a process of transition and
is being harmonized with the corresponding law in developing countries. With the
objective of containing piracy in India and promoting the use of legal software, import
of software for authorised duplication is allowed at reduced custom duty (Ernst and
Young’s, 2006).
However, this law still appear to contain several TRIPS “inconsistencies”, the report
says in the section on India. “In addition, piracy of copyrighted work remains a
problem, particularly popularly fiction works and certain textbooks and the protection
of foreign trademark remain difficult”,
34
Problems Faced by Western Firms in Indian Market
The current status of intellectual property rights is lacking far behind. There are so
many copies of Bollywood and Hollywood movies which are illegally copied and
distributed. Piracy is running wild in India. In the United States a DVD (digital
versatile disk) can cost upwards of $20. An average person in India makes $500 a
year. The cost of 1 pirated DVD is $1 in Indian domestic market; on the other hand its
$10 if it’s sold in international market.
India needs to stoke an innovative culture. After its success in the IT sector and is
capable of being part of the next revolution underway. In country like India driven
sector the right legal framework is lacking, which discourages continuation and
deepening of international partnerships and expanded research and development in
India (Palit and Bhatacharya, 2008).
1) Intellectual property:
http://ipinternet.blogspot.com/2006/02/presentation-ip-protection-in-india.html
35
Problems Faced by Western Firms in Indian Market
The level of corruption in India is very high from political leaders, ministers, doctors,
social servants, and to teachers all are involved in corruption in very high numbers.
Corruption is there from government maternity hospitals up to gravy yards, through
the walk of ones life. We might have to actually hang boards outside offices saying
‘no corruption’ (Centre for the media studies, Corruption study, 2005).
The table below shows corruption index and ranking of the services in India.
Table 5
36
Problems Faced by Western Firms in Indian Market
From the above table we can study and see the areas like electricity supply, judiciary
(lower court), Police, Land administration comes under most corrupt category and
these are really essential in building up a business, so corruption can be major hurdle
for opening business in India (Gupta, 2001).
Corruption could be one of the reasons for its poor development (The Hindu, 8-03-
03). Corruption has become a major threat to Indian democracy and its future. There
is no high powered, effective and efficient machinery in India to look in to the facts of
political deviations or to deal with them in an exemplary manner (Vittal, 2001).
Expansive election system together with collusion between businessman and
politicians, are to great extent responsible for encouraging corruption in the political
sphere. The corrupt social climate and the corrupt political subculture draw inspiration
from each other the opposition in India is too weak to fulfil this role. Consequently,
the party in power often become fearless. A weak opposition therefore is a major
cause of political corruption of India (Gupta 2001).
The problem of corruption is not new or is not uniquely Indian. The root of
corruption lies in the inability of the political and administrative authority to
understand and accept that under the Indian constitution, the citizen are sovereign and
that his or her rights are the basis of governance of the country (Gupta, 2001).
Politician, bureaucrats, businessmen and criminals are the key players involved in
corrupt practices. Corruption arises because of scarcity of services or goods, red tape
measures, lack of transparency in the system and the fact that corrupt people protect
each other.
2) It has been estimated that “if the corruption level in India comes down by 15
percent the GDP growth will improve by 1.3 Per cent and the investment will go up
by 2.9 per cent of the GDP” (UNAFEI- Deepa Mehta).
37
Problems Faced by Western Firms in Indian Market
Trade policies also aim at protecting the domestic industry from the competition of
advanced countries through imposing quotas (Subba Rao, 2003). One of the most
common reasons for the creation of trade barriers is to encourage local production by
making it more difficult for foreign firms to compete here. Trade policies of some
countries aim at building competencies of the domestic companies by providing
subsidies. Thus the countries announce trade policies from time to time. India has
many types of trade hurdles for foreign exporters, such as Import quotas, trade
samples but the most essential barrier among all is Tariff/duty (Rugman and Hotgetts,
2003).
Tariffs refer to the tax imposed on imports (Subba Rao, 2003). Tariffs are of two
types- Specific tariff and Ad valorem tariff. Specific tariff are levied as a fixed charge
for each unit of the product imported for example, a tariff of Rs.1, 000 on each TV
imported (Daniels, Radebaugh, Sullivan, 2003).
The Tariff levied as a proportion of the value of the imported goods is called ‘ad
valorem’ tariff. For example imposition of 30 per cent tax on the value of computer
imported (Subba Rao, 2003).
3) India remains close to tariff among the highest in the world. In 2003, the average
duty rate in India was 29 per cent, down from 32 percent in 2002. While the average
duty again reduced in January 2004.
38
Problems Faced by Western Firms in Indian Market
In the World Trade Organization (WTO), India has bound tariff on 68 percent of its
industrial goods imports. The majority of these binding exceed current Indian applied
rate of duty.
It welcomes the gradual reduction in basic tariff however, the high tariff ratio remain
in a place.
2.8 Conclusion
According to literature review it reveals that India is world’s second biggest populous
country and a large consumer market. As a large consumer market many western are
companies willing to start operation in India. Today it can be seen that there is
continues increment in foreign investment in India. Companies are coming to India
for their expansion as India being a huge consumer market.
Though it is attractive place for western investors, the country itself has got some
hurdles for the western investor which has to be considered carefully by the western
firm’s managers. Some firms are struggling with the government policies and
procedures while some are not happy with the infrastructure of the country and some
fail to understand country’s cultural complexities.
So before starting a business in India one must consider its, macro and micro
environmental factors affecting businesses.
------------------------------------------------------------------------------------------------------
3) Foreign trade barriers-:
http://www.ustr.gov/assets/Document_Library/Reports_Publications/2004/2004_National_Trade_Estimate/2004_
NTE_Report/asset_upload_file973_4773.pdf)
39
Problems Faced by Western Firms in Indian Market
Chapter III
Methodology
40
Problems Faced by Western Firms in Indian Market
Introduction to Methodology
To get the in-depth analysis, the effective primary and secondary research were
carried out. Many of the other methods were also considered to find the most suitable
ones for collecting the specific types of data.
(Clark, Riley, Wilkie and Wood, 2003) Secondary data is the data which is not a new
original data collected but where the research project draws existing sources alone.
The secondary data can be collected from books, journals, government documents,
statistical data, magazines, and other documents.
To collect the secondary source of data, it was important to use variety of different
sources of information. Majority of time was spent in Solapur University library,
India, section D – department of management studies and section- B department of
economic studies, while some time was also spent in Middlesex university’s
shepherds Library- second floor business. Though the other very useful source of
online database search engines like, SAGE journals, Emerald and EBSChost, which
helped to take information from a range of academic sources. Some time was also
spent in Hirachand Nemchand College of Commerce, Solapur, India.
As majority of the medium used for education in Solapur University and in H.N.
College of Commerce is English and the books were also available in English
language so there were no difficulty raised as such, in fitting the collected data in to
the dissertation.
41
Problems Faced by Western Firms in Indian Market
The primary intention behind the study is to find out: the hurdles for the western
companies in Indian market.
Selection of the most suitable and reliable method for the primary data collection is
important. The discussion of why the particular method of data collection had been
selected or declined is also explained.
There are two different types of research: qualitative and quantitative therefore, first
of all it is important to draw difference between these two types of research methods.
Qualitative techniques depends on the skills of the researchers as an interviewer in
gathering data on the other hand quantitative methods place reliance upon the
researcher instruments employed to gather data and analyse it.
Quantitative research generates statistics through the use of large scale survey
research, using method such as questionnaire, or structured interview, if a market
researchers has stopped you on the street, or have filled in a questionnaire which has
arrived through the post this falls under the category of quantitative research. This
42
Problems Faced by Western Firms in Indian Market
type of research reaches many more people, but the contact with those people is much
quicker than it is in qualitative research.
Veal (1992) believes that these two approaches complement each other and even that
qualitative research should be based on initial qualitative work. Webster, Stephen,
Marshall and William (2004) also refer that the contrasting nature of positivism and
phenomenological approaches can be used to complement each other. The feasibility
of this statement can be backed up with the ‘mixed method approach’ discussed by
Jennings (2002), who states that this type of research is often used to gather
information on the tourism phenomenon, which in some extent is migration process.
3.2.2.2 Interviews
Interviews have been likened to conversation- they are merely one of the many ways
in which two people talk to one another (Benny and Hughes, 1970). There are major
advantages to using interviews. Researches can collect more information and more
43
Problems Faced by Western Firms in Indian Market
complex information, response rate is generally very good and can use recording
equipment. Also, interviewer can take a note of body language, gestures or facial
expression of the interviewee (Lewis-Beck, 1996). However interviews can be
difficult to arrange, might be time consuming and quite costly.
There is range of interview types that can be applied while gathering the data.
Unstructured or in-depth interviews are those interviews where there is no formal
schedule. The interviewer has the idea about the issues and might have a list of
relevant topics and these are merely use as a guide (Jennings, 2001). Main
disadvantage about using those types of interviews is that they come up as a bit of
challenge. Interviewer has to be experienced and lead the conversation in order to
gather relevant data. Veal (1992) mentions that in order to conduct a good in-depth
interview research has to have the skills of a ‘good investigative journalist’. For those
who do not posses such a skill, semi structured interview might be another option.
According to Jennings (2001) semi structured interviews can be used by both
qualitative and quantitative methodologies. Those interviews still remain in the way
of conversation type; however the interviewer has a prompt list of issues that focus
the interaction. The main advantage of such interview is that the questions are not
specifically predetermined; therefore the researcher is still able to ask further
clarification on the particular issue (Jennings, 2001). Also the semi-structured
schedule provides a more relaxed interview setting.
Due to a nature of the topic, an interview was not chosen as a method of gathering
primary data. In order to complete the research many opinion have to be gathered and
that can not be possibly done using interview method. Also, because the research
country is quite a bit away from the UK, it would be very difficult to match time with
every interviewee and also very costly (Air ticket, accommodation food, etc.)
3.2.2.3 Observation
Observation can be participant or non-participant, in either way researcher is
observing the surrounding around him. In participant observation researcher becomes
a participant in the process that is being studied.
44
Problems Faced by Western Firms in Indian Market
3.2.2.4 Surveys
Surveys are methods of collecting the data, where information is gathered through
oral or written questioning. Survey may also include self completed questionnaires
administered by post, e-mail or in person as well as structured interviews carried out
in person over the telephone.
Surveys completed in person can use interviewer complete questionnaire as the tool to
gather information. Mail or e-mail surveys, use questionnaire to gather data. Pilot
surveys, which are small ‘trial runs’ of a larger surveys, are often carried out the
wording of questions, the understanding of terms used, to test sequencing of question
and to gain preliminary estimate of the likely response rate. “A pilot study is simple
way of testing whether the articulation of the method(s) selected for use in a
research programme is adequate to meeting research objectives” (Clark, Riley,
Wilkie and Wood, 2003).
3.2.2.5 Questionnaires
45
Problems Faced by Western Firms in Indian Market
While using the questionnaires to perform primary data collection it is very important
to remember some major disadvantages of using that method. First of it, is very
difficult to design a perfect questionnaire from a very first time. Bell (1992) suggests
that producing a really good questionnaire is harder than it might be imagined.
Another problem with questionnaire is regarding the actual question itself, which have
to be relatively simple. The advantageous of questionnaires being anonymous can also
bring some disadvantageous of not being able to offer assistance if needed. The major
advantage of using questionnaire is reliability and validity of the data collected
depends upon respondents’ memories and forthrightness (Lewis-Beck, 1996).
Generally questionnaires are used when research is specific on the subject of the
investigation; the research is covering a relatively large number of people gathering
facts or opinions; or when the researcher is trying to establish the extent of something
(Veal, 1997). Special data processing is often needed because of the considerable
amount of missing data or simply to evaluate data received and present it in
graphs/charts (Lewis-Beck, 1996).
46
Problems Faced by Western Firms in Indian Market
language of the questionnaire and therefore it may result in questionnaire being partly
completed or not-completed at all, which would lower the response rate (Jennings,
2001).
3.2.3 Sampling
Sampling is a process that involves the selection of some members of the larger
population (Bell, 1992). In most survey research and some observational research it is
necessary to sample. Usually sampling approach is used where research is concerned
with a wide group of population (Veal, 1997). Samples are frequently studied in order
to learn something about the characteristics of the larger groups of which they are part
(Clark, Riley, Wilkie and Wood, 2003).
Sampling can be random and non-random. The key feature of non-random sampling is
that items for research are chosen not randomly but purposively (Clark, Riley, Wilkie
and Wood, 2003). Random sampling is a sampling technique where a group of subject
for a study is selected by the researcher from a large group (a population). Each
individual is chosen entirely by a chance and each member of the population has a
chance of being included in the sample (Easton and McColl, 1997). In the Non-
random sampling, the members of the population do not have the same chance of
being selected.
Random sampling can be split into three types: random sampling, stratified sampling,
systematic sampling and cluster sampling. Simple random sampling is the selection of
element from population where each element in that population has an equal chance to
actually being selected (Clark, Riley, Wilkie and Wood, 2003). It is usually used for a
47
Problems Faced by Western Firms in Indian Market
smaller number of people, very tedious and time consuming for large samples. A
stratified sample is obtained by taking samples from each sub-group of a population
(Easton and McColl, 1997). According to Clark, Riley, Wilkie and Wood (2003) the
objective of stratified sampling is to ensure that the sample drawn is as representative
as possible of the population under study. Systematic or sometimes so called quasi-
random sampling method is not wholly random. Only the first item selected from
population is random, thereafter subsequent selection are related systematically to the
first.
For this particular research, sampling has been simplified to non-random sample
where an author has chosen only existed Western companies and those western
companies who willing to start their operations in India. Therefore the participants
have been chosen on purpose for that specific reason of the survey.
There are more than thousand foreign companies situated in India, out of which few
were selected as a samples for the survey. On the other hand few companies willing to
start business in India were also considered to be a part of sample.
3.2.3.1 Population-:
48
Problems Faced by Western Firms in Indian Market
Employees and businessmen for foreign companies were considered as population for
this research
3.2.3.2 Sample
Sample is a subset of the people, objects or event selected from the population. That
researcher will actually examine in order to gather information.
(http://score.kings.k12.ca.us/lessons/wwwstats/population.html)
Finally for this research it was decided to go with the questionnaire with the general
questions. In total more than 150 Questionnaires were sent by email to different
western companies and employees working in western companies, the response rate
for which was very poor. Out of 150 questionnaires only 37 questionnaires were
received back. Also seven interviews were conducted the response rate for which was
100%. Therefore the sample size of this study was 28% with 37 questionnaires and 7
interviews of the total population
49
Problems Faced by Western Firms in Indian Market
C h a p t e r IV
Findings
50
Problems Faced by Western Firms in Indian Market
4. Introduction to Findings
51
Problems Faced by Western Firms in Indian Market
Question 1
This question was asked to respondents to specify the type of the industry they own/
work for. The results have shown that majority of the respondent works for
manufacturing industry.
Table no. 6
Type of Industry Service Manufacturing
Industry Industry
Number of Respondents 18 25
Percentage of total number of respondents 41% 57%
(Note-: one respondent failed to answer the question)
Question 2
This question was asked to find out what are the different problems existed in Indian
market for the western firms. The four major problems those are Indian government,
Indian culture, trade barriers and Indian infrastructure were highlighted. From the
analysis of the questionnaire results it is clear that majority of the respondents 41
(93%) believes that they face problems with Indian infrastructure, where as 36 (82%)
believes that government is also a major problem in Indian market, on the other hand
24 (55%) respondent believes culture is hurdle for the western firms in India and
where as 16 (36%) believes that Trade barrier (Tariffs and quotas) are barrier in India.
Table No. 7
Problems Indian Indian Indian Trade
Government culture infrastructure barriers
No of 36 24 41 16
respondents
It was also surprising to know that 17 (39%) of respondents have marked all the
problems. (Appendix)
52
Problems Faced by Western Firms in Indian Market
Question 3
This was the key question as hurdle for foreign investment in India was the focus.
Respondents were asked the strongest hurdles for the foreign investment in India. The
results from the survey reveals that Indian infrastructure is the biggest hurdle for
foreign investment in India as 19 (45%) respondent highlighted to Infrastructure,
followed by politics with 11 (25%) respondent saying it the biggest hurdle for the
foreign investment in India. According to 10 (22%) respondents culture is the biggest
hurdle for the foreign investment in India, where as very few 4 (8%) respondent feel
that competition from the domestic firms is hurdle for the foreign investment in India.
Chart 3
20
No of Respondents
15
10
0
Culture Govt;/politics compitition from Infrstructure
domestic firms
Hurdles in India
53
Problems Faced by Western Firms in Indian Market
Question 4
Chart 4
western firms Department affected by culture
4%
13% 25%
human resource
communication
marketing
public relation
58%
54
Problems Faced by Western Firms in Indian Market
Question 5
This question was asked to the respondent to rate the Indian government. Result
shows that, out of 44 respondents 36 (82%) respondents believes that government can
be the problem in India for western firms (Q.2 Analysis) thus this question was
limited to 36 respondents only. Out of which more than half, that is 20 (56%)
respondent rated Indian government as bad, where as 8 (22%) respondent marked it
fair. 5 (14%) respondents said that Indian government is worst, and only 3 (8%)
respondent marked good to the Indian government.
Chart. 5
25
no of respondents
20
15
10
0
Good Fair Bad Worst
Ratings
55
Problems Faced by Western Firms in Indian Market
Question 6
Respondents were asked to highlight the area of Indian government strongly affecting
the corporate world in India. Results have revealed, out of 44 respondents 36 (82%)
respondents believes that Indian government is one of the problems for western firms
in India (Q.2 Analysis) hence, this question was only limited to 36 respondents from
which Majority of the respondent 15 (42%) said that corrupt Indian government affect
a lot to the corporate world in India, where as 9 (25%) respondent said that unstable
politics affect a lot, on the other hand according to 6 (17%) respondents Indian
government policies and government structure affect a corporate world.
Chart. 6
16
No of respondents
14
12
10
8
6
4
2
0
Political instabiltiy Govt; Policies Corruption Govt; Structure
Characterestics of indian govt;
56
Problems Faced by Western Firms in Indian Market
Question 7
Above table clearly indicates that approximately 54% respondents said that Indian
infrastructure for doing business is poor, followed by 34% respondent who said Indian
infrastructure is worst for doing business. It was also interesting that null respondent
said that they are very happy with the Indian infrastructure.
Question 8
Respondents were asked about the new Indian culture which has an influence of
western culture, is it creating favourable environment for the western organisation?
The majority of the respondents agree to the question that the new Indian culture is
making favourable environment for the western organisation.
Table no.9
Answer Yes No
Number of Respondents 30 14
Percentage of total number of respondents 68% 32%
57
Problems Faced by Western Firms in Indian Market
Question 9
This question is aimed to find out how many companies would prefer other location
apart from India for their business expansion. Majority 22 (50%) of the respondents
choose China on the other hand only 15 (34%) respondents prefer to expand their
business in India. 5 (11%) and 2 (5%) respondents prefer Vietnam and Hong-Kong
for their business expansion.
Chart no.7
5%
11%
34%
India
China
Vietnam
Hong-Kong
50%
58
Problems Faced by Western Firms in Indian Market
Question 10
This question asked respondents to specify the intellectual property rights in India.
Result has shown that the majority of respondents participating in to the research said
that Intellectual property rights in India are too weak.
Chart 8
Intellectual property rights in India (According to western
Firms)
Strong
Very Poor 16%
i
34% Strong
Weak
Very Poor
Weak
50%
59
Problems Faced by Western Firms in Indian Market
Question 11
This question was asked to know the level of the satisfaction of the western firms
operating in to the Indian market. According to the survey results it is clear that most
of the firms are dissatisfied with 20 respondents, where as 11 respondents said that
they are extremely dissatisfied, there are 13 respondents who were satisfied with the
Indian market. This was also surprising that null respondents were extremely satisfied
with the Indian market.
Chart 9
0%
25% 30%
extremely satisfy
satisfy
dissatisfy
extremely dissatisfy
45%
60
Problems Faced by Western Firms in Indian Market
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.
Question one was asking respondents to specify the type of the industry they own or
work for, which helped to establish that both industry faces different problems than
each other which then can help to test the hypothesis. Result showed that the majority
25 (57%) of the respondents marked they work for manufacturing industry, where as
only 18 (41%) works for service Industry.
This question helped to draw a conclusion that most of the service Industries faces
problems with the culture and politics in India, where as majority of the
manufacturing industries faces problems with the Infrastructure of the country
(Appendix I).
Question two was asking respondents about the problems existed in Indian market, as
to study the macro business environmental factor affecting businesses in India was a
major objective of the study, four major macro problems in India were highlighted
and respondents have to choose from Indian government, Indian culture, Indian
infrastructure and Trade barriers.
61
Problems Faced by Western Firms in Indian Market
This question was the base for the major questions of the questionnaire, which will
then help to find out the different percentage of firms facing different problems and
from which the final conclusion will be formed.
Question three is the focused and major question of the survey which asks
respondents to highlight the strongest hurdle for the western organisations in Indian
market amongst four major macro business environmental factor affecting
organisation in Indian market, these are, culture, politics, competition from the
domestic firm and infrastructure.
This question helped to achieve the objective as this question highlights the
strongest hurdle for the western organisations in India.
Question four is a sub question of question 2; this question concerns about what part/
department of the organisation faces difficulties with the Indian culture. It is clear
from the result of the question no.2 that out of 44 respondent only 22 (50%)
respondents believes that culture is one of the problems in Indian market. Out of 22
respondents majority of the respondents 58% say that culture is a barrier for the
communication and 25% believes that it’s a hurdle for human resource management.
This means that western firms face problems to communicate with Indian people due
to cultural complexities.
From this question author can study the internal business environmental factors
affecting western businesses in India as author can identify the specific
area/department of the western firms where Indian culture is a hurdle.
Question five is also a sub question of question no. 2, from question 2 it is clear that
out of 44 respondents 36 (82%) respondent believe that Indian government is one of
the problem for the western firms in Indian market limiting to 36 respondents. This
62
Problems Faced by Western Firms in Indian Market
particular question finds out, were the Indian government policies and procedures are
appropriate for the western firms? The results shows that majority of the respondents
(56%) marked ‘bad’ to Indian government where as 14% of the respondents marked
‘worst’ to the Indian government.
This question helps to fulfil one of the objective of the author as it helps to find out, is
the political and legal environment of India is appropriate to western firms or not?
The results help to conclude that Indian political and legal environment is not
appropriate for the western firms.
Question six was trying to find out the specific area of the Indian government
affecting western firms in Indian market. As this is also a sub question of question
no.2 this question is also limited to only 36 (82%) respondents out of 44.
This question also leads towards the specific area of the political and legal
environment affecting western businesses in India. Majority of the respondents
(42%) said that corrupt Indian government is major hurdle for their firms in Indian
market.
The intension of question seven was to know the compatibility of the Indian
infrastructure for the western businesses. To know this, the marking system is used
where respondents were asked to mark the Indian infrastructure from 1-6 (1-worst and
6- Excellent).
This question is also a sub question under question no.2 that is why this question was
limited to 41 (93%) respondents. Results from the question six revels that Indian
infrastructure is not compatible for the western organisations as majority 52% marked
3, 18% marked 2 and 16% respondents marked 1. This clearly shows that western
firms are unhappy with the Indian infrastructure; this question helps fulfil author’s
objective of studying the external business environmental factor affecting western
firms in Indian market.
Question eight was asking respondents about the current Indian culture which is quite
similar to western culture and whether it is creating favourable environment for
63
Problems Faced by Western Firms in Indian Market
western businesses in India or not? Majority (68%) of the respondents answered ‘yes’
where as close to yes, 32% respondents said ‘no’
This question help to know whether the culture still remains challenge for the western
firms in Indian market or not? This question also helps for the hypothesis testing.
Question nine is one of the major questions where respondents were asked to choose
the country for their business expansion in Asia; the respondents had to choose from
India, china, Vietnam, Hong- Kong. Majority 50% of the respondents choose China as
a place for their business expansion. 34% of the respondents said that they will stick
to India where as 11% respondents have chosen Vietnam and only 5% choose 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.
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Problems Faced by Western Firms in Indian Market
As this was the last question the question summarise the total numbers of satisfied and
non satisfied western firms in Indian market, from this question an assumption can
be made that due to existing problems in Indian market respondents are not
satisfied.
65
Problems Faced by Western Firms in Indian Market
a) Culture- To test the hypothesis primary and secondary data was used. From
the secondary data it can be concluded that India being a culturally complex
country containing almost all the religions of the world. Doing business in
India is challenging due to the cultural differences between western and Indian
organisations. Author Greet Hofstede in his most successful cultural
dimension theory, 1980 highlighted the difference between Indian and
UK/western culture in terms of individualism and collectivism, low and high
power distance, uncertainty avoidance. The scores calculated by him clearly
indicate the cultural difference between western and Indian culture affects
management operations while operating in a cross cultural environment.
Where as few other authors have also tried to differentiate Indian and western
culture from different way.
All the literature reviewed indicates that, the background, culture, beliefs, way
of living of a particular person mould his way of thinking which may becomes
a barrier in working across the culture, which can also possibly lead to cultural
clash or misunderstanding which may lead to business failure.
On the other hand primary data from carried out survey indicates that culture
is no more a major problem to western firm operating in India. Primary data
reveals that out of 44 respondent only 24 respondents believe that culture is
one of the problem in Indian market (Question 2, Analysis) where as only 10
respondents believe that culture is the strongest problem in Indian market
(Question 3, analysis) which clearly shows a small group of the respondents
still believes that culture is a strongest problem for western organisation in
India, where as according to 30 (68%) respondents the current Indian culture
which has western influence to it, is making favourable environment for the
western firms in Indian market (Question.8 Analysis).
66
Problems Faced by Western Firms in Indian Market
Where as results from carried out survey reveals that India’s poor
infrastructure is a strongest barrier for the western firms in Indian market
because out of 44 respondents majority 41 (93%) respondents believes that
infrastructure is a one of the major problem in Indian market (Q.2 analysis)
and out of that, majority 19 (45%) respondents believe that infrastructure is the
strongest problem (Question 3, Analysis) proving with the support of question
number 7 where according to 36 (82%) respondents Indian infrastructure is not
suitable for doing business, which clearly shows that western organisations are
not happy with the Indian infrastructure and they see Indian infrastructure as a
strongest hurdle for the western organisations, on the other hand the analysis
of questionnaire results also reveals that the few service organisations believe
67
Problems Faced by Western Firms in Indian Market
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.
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Problems Faced by Western Firms in Indian Market
According to the respondents answer, the reasons for choosing china or any other
country over India are infrastructural or governmental problems, for example shortage
of electricity, weak political system, corruption and their affect on businesses, low
availability of funds. Results from question no.3 clearly shows that infrastructure is
major problem in India for western firms and with the help of question 7 it is clear
that majority of the respondents (55%) are not happy with the Indian Infrastructure for
the business, where as Indian government is the second strongest hurdle for western
organisation in India (Q.2 and 3 analysis) proving with the help of question number 5
where 56% of the respondents marked Indian government poor towards foreign
businesses.
On the basis of the available data lets assume China, Vietnam, and Hong-Kong is
‘x’ and India is ‘y’ so x=29 and y=15 followed by x>y. Surely by using simple
mathematical formula and with the help of Hypothesis H.1 this can be conclude that
due to problems existed in Indian market western firms gives first preference to other
three countries than India. Hence, it is possible to state that the hypothesis number
three is accepted since the number of people prefers to locate in other countries over
India.
69
Problems Faced by Western Firms in Indian Market
H3. Manufacturing firms and service firms faces different problems in Indian
market.
To test the hypothesis, primary research data from the carried out survey was used.
Survey results have revealed out of 18 service industries 13 (72%) respondents
believes that culture and politics is the major hurdle for their businesses in India,
where as only 4 (22%) respondents from the service industry says that infrastructure is
a problems for their firm in India, on the other hand out of 25 manufacturing industry
14 (56%) respondents believes that infrastructure is major problem for their firms in
India, Where as only 8 (32%) respondents stick to the political and cultural problems.
6 0%
80%
50%
60% 4 0%
40% 3 0%
2 0%
20%
10%
0%
0%
Service indust ry Manuf act uring Indust ry
Service industry M anufact uring Industry
T y pe o f i n d ust r y T yp e o f i nd ust ry
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
70
Problems Faced by Western Firms in Indian Market
assumption that the “Hi tech industry which have started India’s boom doesn’t rely on
its infrastructure”.
71
Problems Faced by Western Firms in Indian Market
Chapter V
Conclusion
72
Problems Faced by Western Firms in Indian Market
CHAPTER V: CONCLUSION
The aim of the dissertation was to find out the problems faced by western firms in
Indian market and also to prepare a kind of guide book for the western firms heading
towards India. To find out the strongest hurdle for the western firms in Indian market
was also one of the objectives of author. In order to achieve the aims of the project
research by means of questionnaire, literature review, hypothesis testing were carried
which highlights the problems for doing businesses in India market.
At first the secondary research highlights major problems like, culture, poor
infrastructure, government policies, weak intellectual property rights, corruption, and
trade barriers in Indian business environment.
Secondly, primary research undertaken has made evidence that, problem like poor
infrastructure and corruption in Indian government are the major hurdles for the
western firms operating in Indian market and due to which western firms prefer China
over India as a destination for their business expansion.
Primary research also helped author to find out important and very interesting result
that due to influence of western culture on current Indian culture, “Culture” is no
more a strongest hurdle for the western organisations in Indian market. With the help
of this major finding author conclude that the Greet Hofstede’s cultural dimension
theory (1980) is not applicable for today’s Indian culture, and predict that if the same
study would be conducted in today’s Indian culture, there would be major variances in
scores which surely will show the less difference in between UK/ western culture and
Indian culture, because today’s Indian culture is more similar to the western culture.
Research made it evident that; current boom in Indian economy is not based on the
major problems like poor infrastructure, so the booming economy should not be taken
as factor of attraction by western organisations.
From the study, author concludes that, Indian infrastructure seems to be far below the
standard for western firms operation, intellectual property rights are also not strong,
73
Problems Faced by Western Firms in Indian Market
where as culture is not a major problem in India, particularly for the manufacturing
firms, it is essential for service industries to address the lay of the land in India, the
people, the culture, and the background of the people in the industry that they are
dealing with. Probably the most important step in all this is realization that there is a
cultural difference between the nations and it needs to be addressed.
It is also true that Indian government is corrupt which causing procedurals delays in
business operations. All the existing problems causing dissatisfaction amongst the
western firms in India, that is why Western firms need to understand these facts of
Indian business before they enter into Indian market. There needs to be some quality
time spent upfront before beginning any business.
The biggest success of the research is that author could highlight exactly the same
barriers for the western firms in Indian market, which recently have been highlighted
by the president export council Washington D.C. 20230 and sent a letter to Indian
authority to improve the highlighted area (International trade administration, Dept; of
Commerce, Govt; of United states of America, 2007) (Appendix III). On the other
hand author could highlight only one problem that is “Culture” which can be
specifically applicable to the western firms in India, though rest all the problems are
applicable to western firms operating in India but they can also be applicable for local
businesses as well, so they can be seen as communal problems.
The research has been extremely enlightening and beneficial as it include 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.
74
Problems Faced by Western Firms in Indian Market
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75
Problems Faced by Western Firms in Indian Market
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Problems Faced by Western Firms in Indian Market
Appendices
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90