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Internationalization of India Inc.

For Asia and around the world, India is not simply emerging. India has emerged US President, Barack Obama addressing the Indian parliament on 8th November, 2010. In the aftermath of the global financial crisis, the Western economies are under pressure as their growth has either stalled or drastically slowed down and there is growing awareness that their dominance of the global economy might be under serious threat. They increasingly see their future in the emerging markets. At the same time, major emerging economies, including China and India, are powering ahead and in the process are redefining the global economic landscape. Multinational companies from emerging economies, particularly from Asia, now account for 70 of the Fortune Global 500 list and according to the United Nations Conference on Trade and Development (UNCTAD), today account for over 16% of outward foreign direct investment (FDI). As a result, the Western model of the multinational firm is coming under scrutiny and management scholars are paying increasing attention to the uniqueness of the emerging economy multinationals. Whilst today China occupies the central place in this scrutiny, there are structural barriers in transferring best management ideas and practices from China to the rest of the world due to the peculiarities of its political and economic systems. On the other hand, India shares many common bonds with the Western world - democratic political system, free market economy and judiciary, respect for intellectual copyrights, familiarity with Western economic systems and language. Accordingly, the India model is worth considering in drawing lessons on how to navigate the changing contours of the 21st century global economy.

With its increasing integration with the international economy and the burgeoning middle class, Indian economy offers a fertile ground for international expansion for Western multinationals. As we will see in this paper, Indian firms are fast internationalizing by investing abroad and employing locals. According to a Columbia University study, Indian firms have invested over $75 billion overseas in the past decade. A joint study by the University of Maryland, India-US World Affairs and the Federation of Indian Chambers of Commerce and Industry reported that over the last five years, Indian FDI projects in the US created about 60,000 jobs with investment worth $26.6 billion. Similarly, according to the Confederation for Indian Industry (CII), Indian firms are the second highest foreign employers in Britain, with Tata, the UKs largest foreign investor, employing over 47,000. In 2008-2009, we conducted 88 extensive interviews with the CEOs, business heads, country heads and other senior managers of eight Indian multinationals not only in their Indian headquarters but also in their subsidiaries in both the developed and developing markets. We wanted to track their global footprints in order to ascertain their corporate and international business strategies and how they differed from Western multinationals. We captured not only the corporate strategic intent of these companies but also how it is executed in the world markets they operate. Our study discovered that Indian multinationals adopt a wide range of differentiation strategies underpinned by innovation and a sound corporate philosophy. One of the core strengths of Indian firms is to extract maximum value from even ailing businesses by applying innovative and cost effective methods that they have developed over the years in an extremely resource constrained and uncertain domestic environment. They have a unique approach to their international growth that is grounded in their Indian heritage and culture. We call it compassionate capitalism and it manifests in

several ways, such as a preference for sustainable growth, long-term commitment to their businesses despite economic turbulences, faith in the management team of the acquired overseas companies and commitment to employees in terms of job security and investment in training. This approach however, has not dampened their ambition to reach for the stars with stretched goals. In the following sections, we describe the international odyssey of five Indian multinationals, mostly in the words of their top 25 business leaders. Our analysis is based on two well established conglomerates (Birla and Tata), two well known IT companies (Infosys and Wipro) and an upcoming bio-pharmaceutical company (Biocon). See the sidebar on their brief profile. Internationalization Process We begin with Indias two most well known and established companies, the Aditya Birla Group and the Tata Group. Both of them have a strong Indian heritage and have contributed immensely to the modernization and globalization of India. They are firmly embedded in the psyche of the nation and instead of resting on their past laurels, they have reinvented themselves as modern multinational corporations in a range of sectors, both manufacturing and services. The founder of Birla Corporation, Ghanshyam Das Birla, was a close associate of Mahatma Gandhi and the founder of the Tata Group, Jamshedji Tata was known for his vision for India and established the nation building industries, from steel to chemicals to cement and aviation. While both the companies are still India centric, they have expanded overseas rapidly and successfully. Aditya Birlas internationalization journey began in South East Asia in line with Indias so -called First Wave of internationalization in the 1970s when the Government of India actively encouraged SouthSouth cooperation in foreign investment. At the time, the major Indian industrial houses, including Tata and Birla, opted for Greenfield investments by pursuing joint ventures with firms in the

host countries and leveraged on their capability in reverse engineering by replicating foreign technologies in cost efficient modes, mostly in the manufacturing sector. While 90% of Aditya Birla Groups income comes from the commodity business, over 60% of its revenues are generated outside India. As Sudhakar Ramasubramaniyan, the President and Head of Corporate Strategy, explains: Most of the businesses that we are in are the businesses of the First World in the 50s, 60s and the 70s. Today, the first world economies do not have the ability to do these businesses. I cannot set up an aluminum smelter in America and Europe anymore. Its not worth it. I will service the American customers (but) Mexico is the geography that I enter to service the US market ... even for new age businesses I would hesitate to go and do something there because the markets are very consolidated ... pole positions have been taken by few players ... and labor costs are very high. However, Birla chose the acquisition route to expand downstream aluminum business (Novelis in the USA) and the BPO business (Minnax in Canada) as these acquisitions offered big and sticky clients with marquee names. The current Chairman, Kumarmangalam Birla set the goal in 2003 to join the Fortune 500 league and having achieved that his next goal is to join the Fortune 150 league which meant tripling the businesses. In the process the strategic focus of the Group which was earlier conglomerate-centric based on manufacturing and large scale operations has changed to being flat-footed and focusing on niche opportunities. As a result, the internal management dynamics has also changed. As Santrupt Misra, a member of the Corporate Board and Group HR Director explains, from individual personality dependence, it has moved to systems dependence and process dependence and I believe it will move to more and more self regulating norms dependence... it is a best

leverage approach (as it is) flexible, adaptable, sustainable and scalable. The international character of the Tata Group was evident more than 130 years ago when its founder Jamshedji Tata employed foreign managers in Tata Steel and Tata Electric. The present Chairman, Ratan Tata believes in the same philosophy. He says one of the reasons I have been keen to find a way to really prepare the organization proliferated with other nationals is nothing changes the perspective quicker or deeper than in fact having to have a coexistence of cultures. Whilst like the Birlas, the Tata group is a conglomerate with multiple business lines, here we focus on Tata Motors which has a dominant market share in trucks in India and the neighboring countries, including South Africa. Its product profile has traditionally suited the bottom of the pyramid emerging markets which is now changing with new world class products, such as pick-up trucks and prestige cars, being added. Global auto companies that are coming to India are forging collaborations with Tata Motors. For example, the company has a joint venture with Marco Polo in Brazil for bus body building and distributes Fiat cars in India. It has been in the car market for only 10 years and already boasts an impressive range of cars from Nano, the worlds cheapest car to prestige global brands with the acquisition of Jaguar and Land Rover (JLR). It also recently acquired the truck business from Daewoo. Rajiv Dube, President, Passenger cars, believes that (as a result) we are in the phase of transforming as a corporation and Tata Motors (of the future) will be very different from the one that you see. He says that the international image of the Tata Group rides on the success of its car business, as it is highly visible and emotive to customers, and as such we have great opportunity to be the ambassadors of the group in terms of opening countries for other businesses.

Tata Motors have effectively leveraged their dominant presence in the domestic market to expand overseas. Says Rajiv, All of our group companies are wedded towards nation building activities and we are very proud of the fact that we are an Indian company. For example, despite bitter experience in the Indian state of West Bengal where local agitation on land acquisitions forced the closure of Nano car plant, Tata Group continues to invest there. While compared to the meteoric rise of the biggest Indian company, Reliance, the growth of Tata Group might be considered slow and the philosophy as conservative but as Rajiv says it would prefer core values and quality over aggressive growth. It is not a value judgment on others but reflects the belief that fast growth often leads to temptations to cut corners. In contrast to the growth story of the Birlas and Tatas, our next three companies are the products of modern India and were set up only in the last three decades. Wipro and Infosys are globally renowned IT companies whereas Biocon is a fast growing bio-pharmaceutical company. Shibulal, COO of Infosys, describes his companys internationalization process in terms of three phases: the where phase when people didnt even know where India was in the early 90s, the when phase when they wanted to do business with Indian firms but not sure when and the now phase where they are now ready to strengthen and deepen their engagement. He says yesterday was all about automation, industrialization, productivity through repeatability, capital intensive projects and leveraging on the regulatory regime. Today it is all about people, intellectual property, technology, innovation and capital light projects in a less regulated world. The business model of Infosys is based on four pillars predictability, sustainability, profitability, and de-risking (PSPD). It wants to be the trusted transformation partner for its clients by attracting the best and the brightest, building world class

infrastructure and following best in class practices. Infosys is a federated organization with an inclusive decision making and a highly evolved governance process. The five year corporate strategy planning process is bottom up and collaborative. Sanjay Purohit, VP and Head, Corporate Planning & Business Assurance explains that Infosyss strategic planning process takes place over three time horizons with different focus areas: the annual planning is driven by operational units focusing on optimization, the three year planning is done by the business units and is built around differentiation and the 5 year planning is about sustainability and is spearheaded by the Board. Infosys has grown rapidly at a five year CGR of 42% to reach a turnover of over $5 billion and an employee base of over 100,000. It has expanded its services footprint rapidly by 51% in five years from application development to enterprise solutions, infrastructure management, outsourcing and consulting. Sanjay describes this evolution from keeping the lights on projects to building business solutions and now being trusted transformation partner. The success of its high touch, high relationship model is reflected in the fact that its repeat business is traditionally over 95%. In the process, the employee profile has changed to include 72 different nationalities which Sanjay believes is a fairly good spread but we need to increase the depth. Its international employee base which has already grown from 2 to 10% in the past few years will grow further. One of its successful endeavors in this regard is the global internship program affiliated to over 95 universities creating enormous brand equity and future leadership team from the global talent pool. This is augmented by investment in employee training of over $200 million with the worlds largest corporate education centre in Mysore, near Bangalore. Sanjay believes that the companys commitment to developing employee talent is unparallel. The fact

that 97% of its customers are overseas and are serviced mostly by India based talent is a unique model of leveraging global talent. At the core of Infosyss success is its value system which is summarized as CLIFE (customer delight, leadership by example, integrity, fairness and transparency and pursuit of excellence). These are well ingrained and seeped into the company through multiple means, such as education, leadership behavior and role modeling. To the company, its value system is time invariant and context invariant. In the future, Infosys intends to reduce its dependence on developed markets by expanding into developing markets. While currently the mix of markets for Infosys is 65% USA/25% Europe/10% Rest of the world it wishes to change the mix to 40/40/20. This shift will obviously lead Infosys to become a true multinational in all its dimensions investor, clients, geography and employee base. Wipro is another successful global IT services brand coming out of India. Like IBM, Wipro has transformed itself from a hardware company into a software powerhouse as is well documented in the best-seller Bangalore Tiger. Wipros approach to internationalization is based on the global service delivery model where the immediate value proposition lies in cost competitiveness along with value additions in terms of high quality and high service levels. With regard to internationalization in the developing markets, cost competitiveness is replaced by high competence and expertise along with high quality and service. In addition to seeking market access, the developing markets are also used as a resource pool to tap the local talent base to service both local as well as overseas clients. Girish Paranjpe, Joint CEO, Wipro Technologies says that the bulk of Wipros growth has been organic and is expected to continue that way because the services business is mainly about people and client relationship with little hard assets and as such M&As can only be supplemental to its growth strategy. Wipro follows a string of pearls

approach to M&A as a vehicle to fill in niches where Wipro couldnt build business or capability fast enough. Girish defines the organizational culture of Wipro in terms of strong work ethic, customer focus and autonomy to employees. Wipro also strongly believes in offering career opportunities to internal employees to the extent that in filling a position, it prefers an employee who is 70% job ready to an external candidate who is 100% ready. Wipros approach to entering developing markets is based on localization. As Bala, Sr. VP Manufacturing & Healthcare explains, in Western markets one can get straight into business whereas in emerging markets it takes enormous time to cross the barrier of trust before you can start getting to be effective (and that broad basket of trust includes) local networks, forums and contacts (which an expat cannot access). So, he believes that in emerging markets one needs to establish trust before selling content whereas in developed markets content alone is enough to start a dialogue. When Indian MNCs enter developed markets, the immediate intent is to exploit the present (in terms of market share, infrastructure, talent base etc) whereas when they enter developing markets, such as China the intent is to exploit the future potential even though it means taking a hit in the short run. Throughout its evolution, Wipro has never compromised on its core ethics and that has placed in good stead over the years. Wipros ability to drive its cultural DNA throughout its global operations without diluting its values in spite of rapid organic growth and acquisitions has underpinned its success. This has been made possible with huge investment in learning and development opportunities for employees. So far, Wipros growth has been underpinned by its entrepreneurial spirit but today it is in a maturity and consolidation phase and therefore, many of its senior executives feel the recession in the global market has given them the chance to take a breather,

introspect and plan for the future growth. Says Manoj Punja, Chief Sales & Operations Officer Americas: Indian companies that started their internationalization journey in the last decade or so are far more global today in their growth trajectory than any Western MNC. One needs to temper the ambition to have a global footprint too fast because it is not just about economics but integration of people, culture and systems. The last company we cover is Biocon. It started as an industrial enzymes company and focused on it until the mid-90s before venturing into biopharmaceuticals. Considering that India has a huge diabetic population, Biocon started its foray into the insulin business as a substitute to expensive imported insulins by making it affordable by using novel enzyme technologies developed by its own R&D. The company then brought the next insulin analogue, Glargene. In its next phase of evolution, the company focused on immunotherapies and immunological drugs for treatment of cancer and autoimmune diseases. Today its crown jewel is the oral insulin which is in trial stage. Thus, Biocons mission has been to focus on affordable healthcare by developing high end, cutting edge drugs. Kiran Mazumdar, the founder, Chairperson and MD, explains the rationale for this strategy: I have been sort of a big proponent of the fact tha t the world needs affordable health care.. by and large we have seen that biotech drugs have been very expensive and have been the kind of preserve of the Western world and that is why I felt that if we could come up and start developing novel biotech drugs which could provide access to a larger number of patients across the developing world and then finally the developed world gets advantage of that. (In this endeavor).. We have matured as a technology company, as a manufacturing company but as a marketing company I think we have a few more years to go.

Biocons internationalization strategy is based on organic growth through partnerships and not to dramatically increase market share by acquisitions which it believes is a recipe for disaster. It wants to be known as a large, India based, innovation lead, world class biotechnogy company with a world-wide distribution network built on partnership with local players. It wants to continue to focus on both domestic and global markets simultaneously. Accordingly, it has marketing and distribution arrangements in Latin America, Mexico, Middle East, Eastern Europe and South East Asian countries. The world is also coming to India to conduct clinical trials in recognition of the increasing maturity of Clinical Research Organizations (CROs) in India and Biocon is riding the wave of this offshoring to the extent that 80% of its business in this space comes from overseas clients. Arvind, COO of Biocon subsidiary, Clinigene, says the dependability and integrity of (clinical trial data from India) is surely but slowly getting better but still it is a long way to go. With the increasing affluence of Indians, the Indian market is becoming too big for pharma MNCs to ignore. Biocon has always been known as a quality provider and has gained particular appreciation from regulators who visit Biocons plants and rate them as being at par with the best in the world. Biocon is driven by its founder Kirans leadership vision and her leadership style has percolated down to other senior managers. Says Arvind: we are encouraged to be an entrepreneur in the entrepreneurial enterprise .. with lot of freedom. Biocon has succeeded because of quicker decisions that we have taken and like a flee we move quicker, flexible to the client compared to the large monoliths of big MNCs... We have gone through a model of learn, earn, burn rather than burn and then earn.. (Biocon will keep changing) because (we) would like to make a mark as a discovery company rather than a me-too product company.

Innovation-driven Differentiation Strategies At the heart of the success of the above Indian multinationals is the emphasis on innovation which they believe is the only sustainable competitive advantage in the 21st century knowledge intensive global economy. We begin our analysis of differentiation strategies of Indian multinationals with Infosys. To the question, how does the company try to avoid the strategic sameness trap by differentiating itself with its local and international competitors, Sanjay Purohit, VP & Head, Corporate Planning highlights three building blocks: To become a transformation partner, to become a global sourcing expert and execution via non linear growth. See the sidebar on Infosyss Differentiation Mantra. In order to infuse fresh thinking at all levels of the company, Infosys has established a Voice of the Youth program under which each management council of each business unit has to have 15% of its people who are below 30 years of age from diverse backgrounds who participate in the deliberations as equals. This approach places the hierarchy of ideas above the hierarchy of experience. Every quarter, the participants in the Voice of the Youth program have a global video conference with the CEO providing a direct link to air their views directly to the top management without bureaucracy and managerial interference. Another bottom up decision making approach is the strategy internalization contest whereby employees at the bottom three layers of the company articulate the company strategy as to how they live and practice the company vision and mission. This gives them the sense of ownership of corporate goals. Thus, through the philosophy of triangulation, the senior management makes sense of what is happening inside and outside the company. The company recently won the Balanced Scorecard Hall of Fame Award for implementing a metrics driven performance assessment

and reward system from top to the bottom that helped the company to achieve and measure organizational alignment, communicate organizational priorities, reengineer the performance review process and focus on key areas. The focus on performance metrics is also at the heart of Infosys local rival, Wipro. One way Wipro has tried to manage its global growth is by creating a metrics driven organization that fosters autonomous team based structures because it believes that collaborative teams scale up faster and better. In order to encourage what Wipro calls applied innovation, the company has established an Innovation Council that recognizes and rewards innovative ideas and uses the visibility provided by these events as a springboard of innovation. Manoj Punja, Wipros Chief Sales & Operations Officer Americas, believes that the Indian IT companies global delivery model has been a disrupter of business model as much as Google being a technology disruptor. He believes it is a radical not an incremental innovation. For example, the services business in the BPO market has today evolved from transactional back office to knowledge intensive, value added services, such as research and analytics. However, being a service innovation in the B to B space, it is not as visible as a product innovation. Lee Fields, Sr. VP Global Programs Team, who joined Wipro after the acquisition of his previous company (Infocrossing) says Indian IT companies are highly process, quality and metrics oriented. He is pleasantly surprised by the level of energy that he found in the company, what he calls fire in the belly, the ability to deliver and excellence in customer service. Similar to IT companies, Tata Motors which is hardly 10 years into the global passenger car business, is taking on the world auto majors based on innovation. For example, referring to the effect that evolution of Nano car has had, Ratan Tata says: Nano effect is

much beyond the car industry, it is forcing people to think how you can do things differently to address a market which you thought does not exist or will take some time that those consumers will graduate and come into higher segment after some time. And I am sure inside the company it has had a great amount of impact in the way we started looking at things. So, people are now willing to believe that nothing is impossible to achieve. Biocon is also trying to make a similar difference in the bio-pharma industry. According to its founder and Chairperson, Kiran Mazumdar, Biocons philosophy has always been about differentiation. Considering the increasing scrutiny by health regulators about the side effects of the long term use of drugs, Kiran believes that pharmacovigilance is now proving to be a very important part of any pharmaceutical companys business activities and that is another point of differentiation that she sees for the company in the future. The other area that the company is focusing on is antibody technologies which it wants to again make affordable by developing a pipeline of antibodies in collaboration with Cuban firm. By simultaneously focusing on generic and novel technologies, the company wants to spread its risks by channeling its profits from low risk generic drugs into high risk novel drugs. Unique Characteristics of Indian Management It is widely recognized in the management literature that the country of origin and national culture play an important role in the shaping of multinationals. Many articles have appeared in the HBR highlighting the uniqueness of Indian management style, particularly with respect to innovation (Innovations Holy Grail, HBR, July-August, 2010) and investment in people (Leadership Lessons from India, HBR, March, 2010). Our research unearthed similar features, which are detailed below. Indian Culture

In the minds of the Indian business leaders there is no doubt that Indian culture and mindset are quite different than Western countries with both positive and negative effects on their global growth. These differences show up in unexpected ways. Ratan Tata gives an example on the concept of clarity. The Indian executive has all the clarity he needs but it is not dotted in cross like the Western people want ... they want clarity of direction three months before the person here needs it. They want it in writing whereas the Indian executive is quite happy to just exchange it verbally .. . So, there is a formality that the Western companies have come to accept which we dont have here. The Indian leaders point out that the Indian culture is fairly adaptive. Unlike the Chinese and Japanese, it is very multicultural. Says Manoj Punja from Wipro: The personal life (of Indians) is very traditional but when it comes to business they are highly adaptive. Compared to the multinationals from other emerging economies, India has certain natural advantages: multi-ethnic and multi-religious society, democratic political system that is often chaotic but functional, good education system, young population, familiarity with English and Western management systems and highly successful Indian diaspora. Lee Fields (Wipro) believes that India owes it to itself to do a better job of branding so that they are not seen as a very foreign culture because there are many similarities between India and the United States people dont realize it. The need for national branding was clearly evident in the way India organized the recent Commonwealth Games. In contrast to China which successfully showcased its strengths in holding the Beijing Olympics, Delhi floundered badly in the beginning attracting widespread criticism and even though it eventually went well, the initial bitterness lingered on. The Indian leaders unanimously agree that one of the key challenges for Indian multinationals is the need to develop a global mindset.

For example, they point out that Indians take their work too seriously and emotionally which upsets their work-life balance; they involve too many people in the decision making process which often leads to bureaucratization and concentration of power in the Indian headquarters. Another challenge is the chalta hai, that is complacent attitude, which leads to lack of discipline, compromise on quality and poor customer service. According to Birlas Santrupt Misra, Indian multinationals will have the challenge of meaning in the sense of time, space, forthrightness, transparency, speaking their mind freely, sharing your feeling, learning to say no. A lot of the cultural nuances of these would be challenging for Indian companies as they go global because they are for far too long used these categories in a certain way. Ratan Tata believes that the Indian companies need a mixing of cultures to encourage people to have the ability to speak up because hierarchies, stratification, even sycophancy cause many Indian corporations to live in a fools world and sometimes the boss is isolated. However, as Manoj Punja (Wipro) points out the challenges are not so cultural but more evolutionary issues, more globalization issues, more scalability issues, management issues ... have I learnt fast enough that is the bigger challenge. Compassionate Capitalism Bharat Singh, the Managing Director of Aditya Birla Nuvo, states: the philosophy that rules the (Birla Group) is very, very strong, that is that if we are blessed with an opportunity to deploy the wealth of the society, then we owe it to deploy it in the wisest possible way. .. whichever international market we have pursued, we have never gone as mighty conquerors... we dont want to project the image, ever, of anything else other than good businessmen in the true Gandhian concept. That we are here to contribute to construction and advancement of that society, of building that society rather than doing anything destructive... spirituality is in our psyche.

This compassionate approach manifests in many ways, for example, preference for sustainable growth (as detailed in previous sections), long term commitment to international expansion and acquisitions, keeping the management team intact after acquisition and commitment to job security and employee growth. As Gautam Das, COO of Biocon subsidiary, Syngene International Limited, says Indian multinationals in general dont start a business with an exit route that in itself shows that they have a better sense of commitment to continue with the business. When Birla acquired Minnax, a BPO business in Canada, the employees at Minnax welcomed the acquisition as they believed that they would not get sacked because they thought that Indian firms with benevolent management style do not easily sack people. So, there the perceived image of Indian firms in taking care of employees helped (the integration process). Similarly, the trade unions at Jaguar Land Rover (JLR) in the UK preferred Tata Motors over other bidders when Ford sold the company bec ause they felt that Tatas had a high degree of integrity in the way they dealt with employees and felt comfortable that they could trust Tata to do the right thing for employees. When Tatas took over JLR, Ratan Tata promised that both the brands will retain their distinct identities and will continue to pursue their own business plans. Despite the ensuing global financial crisis that seriously affected all luxury brands, Tatas stuck to their promise. As Des Thurlby, Head of HR at Jaguar Land Rover (JLR), explains they have been true to their word in terms of leaving the Jaguar Land Rover business to run itself and leaving the brands to develop themselves. The management team was also left intact. Des compares this to Ford and says they were more hands-on. It was directive and my way or high way kind of stuff. In the aftermath of the global financial crisis, JLR had to resort to many cost cutting exercises, such as reducing the workforce, enforcing pay cuts and

shelving expansion plans. However, Tata took a conscious decision to carry on with product development spending and launching of new products and these products have now started to hit the market ... Tata are a long-term holder of businesses so they know that things are cyclical. Dirk Ulrich, CEO of Axicorp which was recently acquired by Biocon narrates a similar experience. While looking for suitable partners, Axicorp found that Biocon fitted the bill not only for business reasons but also in terms of cultural fit. While there was some initial apprehension as to whether the work would move to India as portrayed in some German media, it ended up as the best deal of our life because Axicorp now have better growth, profitability and local employment with a wonderful working relationship with Biocons senior management. He appreciates the fact that even though sales went down significantly immediately after the merger, Biocon kept faith in Axicorp and as a result the current growth rates are better than expected . The senior leadership team at Axicorp has also remained intact as a deliberate strategy. Nehal Vora, Biocons Head of European operations, explains One of the principal reasons why Indian MNCs have succeeded with their foreign acquisitions is because their net sale to the debt ratio is very, very small even when plenty of venture capital was available during the boom time. In that sense opportunities have been well used not misused. Reaching for the Stars with Stretched Goals Indians have been quick learners in internationalization both in scale and speed. With the domestic market fast catching up with the developed market, the learning has had a multiplier effect. With booming local economies, the emerging market multinationals are reaching for the stars. This is in contrast to the saturated economies of the West and decreasing appetite for growth amongst many Western multinationals. Says Sudhakar, Birlas head of corporate strategy, most of the developed world companies are little bit of a

spent force in the current context. They dont have the gumption any more. They are more worried about what the lawyers are going to say and what their investors are going to crib and things like that rather than focusing on the business and what needs to be done for it. The fire in the belly attitude of emerging multinationals is evident in the way they are pushing the top management in the companies that they have acquired abroad to stretch their goals. For example, one of the major changes in Jaguar Land Rover (JLR) after Tatas acquisition is the increase in the speed of decision making and risk taking that has resulted in significant cultural change. As Des Thurlby explains JLRs traditional approach has been to aim for the clouds and if you get to the clouds, youve achieved your objective whereas Tatas approach is to aim for the stars and if you fall short, you will have still done very well. If you aim for the stars, you might get to the moon. You wont have got to all the stars but youll have got further than the clouds. (Thus), there is a bit of natural British conservatism being challenged by the Indian guys and (they would justify it by saying) in India, every day is a crisis, every day is a fight for survival, and therefore were in a constant sort of period of flux. Echoing these views, Ratan Tata found that Tata Motors could add value to JLR by shortening the time taken from design to market from five to three years. It involved some painful discussions. Ratan explains, for Rover the first defense was that we are Jaguar (and therefore) we cannot bring out products earlier. Why should it take them two years to okay a new paint that they buy from a supplier? Those are the issues that we feel we can add value by just mandating that this not be the case. Santrupt Misra (Birla) provides his explanation for the contrast in goal setting between the emerging economies and the West: In the developed world, professionalism is understood in a certain straightjacketed way. For example, in the context of economic setting,

Western countries have got used to one to three per cent growth. In India, we are used to six to nine per cent growth. So what they call a stretched goal is far easier for me. When you can show the people how we have been able to grow at seven, eight per cent and how many years you have done that, that creates a credible story then people start respecting you. So there are these macroeconomic variables that have shaped and influenced our way of thinking about decision making, risk taking, stretch or performance etcetera where there is a gap there. Referring to the aggressive competitive spirit of Asian MNCs compared to Western MNCs, Manoj Punja (Wipro) says, since the leadership comes from a very different mindset the level of strategy is obviously very different. What is the possibility (to developed world) becomes a necessity (to developing world)... While the worlds top 500 companies are still largely the same, you will notice the change in the top 5000 companies. So, it is chipping away at the bottom and it is going to move on. The New India After decades of inward looking government policies and apathy, the India Inc. is finally breaking the shackles to make its mark in the global stage. Despite structural deficiencies that still plague the Indian economy, such as poor infrastructure, corruption and painfully slow process of liberalization, the Indian entrepreneurs are making up for the lost opportunities and have found a way to get around the problems by leveraging their strengths in a global economy that is tilting towards the emerging markets. In comparison to China, the India growth story may not be that compelling but the worlds largest democracy a nd soon to be the most populated country on earth is surely finding its feet. While feeling proud of their Indian heritage, the Indian leaders are acutely aware of the challenges that lay ahead, particularly, the need to develop a global mindset and innovate radically and not just

incrementally. Kiran Mazumdar of Biocon stresses this need by saying that unlike Western counties, failure in India is affordable and therefore, affordable innovation is what India can bring to the global economy. Coming from an environment of scarcity and high cost control, Indian enterprises can show the way to the world in terms of how to leverage economic and political uncertainties in global markets to their advantage and extract value from the bottom of the pyramid developing economies where the growth rates far outpace those in the developed world. India is very good at adding value and innovation in a simplistic way (what is called in India as Jugad) that is when they take a job they will find a way to get it done, not always in a sustainable way or with acceptable confidence but in a way that will definitely add value. As Santrupt Misra from Birla says Indian multinationals bring their ability to be very, very efficient with very little resource and therefore to be often very innovative ... from the usage of resources point of view.

TRADING PLACES: THE INTERNATIONAL ECONOMY

Anticipating more systematic theories of globalization, the historians contributing to the Times Atlas of World History (Barraclough 1978) decided that, by the middle of the twentieth century, a period of European dominance had ended and the world had entered the age of global civilisation. Interestingly, the editor reasoned that this development was economic rather than political or even cultural. Global civilization was not staked out between the emerging American and Russian superpowers, nor was the world being civilized by common understandings about human rights and the environment, or even decivilized by Big Macs and hip-hop. Rather the central events were the formation of the European Economic Community (now EU), the rise of Japan as an industrial power and an emerging and testy confrontation between rich and poor nations. However, the key features of this world economy, the Atlas argues, had been knitted together between 1870 and 1914. These were threefold

trading places: the international economy 1 (Barraclough 1978: 2567). The first was the development of transportation and communication networks that physically linked together different parts of the planet, especially by rail-ways, shipping and the telegraph. The second was the rapid growth of trade with its accompanying pattern of dependency, especially between the relatively industrialized countries of Western Europe and the rest. The third was a huge flow of capital mainly in the form of direct investment by European firms in non-industrialized areas. These developments, which form the substance of this chapter, achieved full fruition by about the middle of the twentieth century. By that time, some forms of communication (e.g. the telephone and fax) had become instantaneous although still relatively costly; it had become possible, again at some cost, for any individual to move from any inhabited part of the planet to any other within 30 hours or so; trade in goods approached about a quarter of global production, and approached half of GDP in many non-industrialized countries; and foreign direct investment by multi-national corporations dominated non-industrialized economies. However, it is important to stress that these developments began in the second half of the nineteenth century. It is small wonder then that Marx developed an early theory of capitalist internationalization at about this time. Marx writes of the way in which the capitalist seeks to transsect national boundaries extending transportation and communication into the furthest reaches of the planet, restlessly seeking to expand markets throughout the world and to appropriate ever greater tranches of labour power. Capitalism is clearly the vehicle of economic internationalization because its peculiar spectrum of institutions financial markets, commodities, contractualized labour, alienable property are highly mobile and fluid, facilitating economic exchanges over great distances. For this reason, many theories of globalization take their lead from Marx in stressing its economic foundations. For these authors, as capitalism expands across the globe it internationalizes the associated pattern of social

2 trading places: the international economy relations known as class. For some authors (e.g. Frank 1971; Wallerstein 1974, 1980) the international class system consists of struggles between states as the working class in core countries becomes embourgeoised and as a third -world proletariat develops in the periphery. Others (e.g. Sklair 1991: 8) reify a global capitalist class that effectively runs the planet on its own behalf. The following sections outline the various means by which global economic relationships are accomplished: trade, invest-ment, production, financial exchanges, labour migration, international economic co-operation and organizational practices. These will provide the evidence on whether claims about the development of an international class structure can be sustained. INDUSTRIALIZATION AND MODERNIZATION In the introduction to this book we note that Durkheim had argued that the general direction of change in society is one of structural differentiation. In the middle of the twentieth century, structuralfunctionalist sociologists expanded and modified Durkheims argument to encompass the globalizing effects of differentiation. In thematic terms their thesis ran as follows. Industrialization involves a primary social separation between capitalization and collective production on one hand, and domestic production and reproduction on the other. To the extent that a society can make this separation, its material wealth and therefore its political success relative to other societies will increase. Once the option of industrialization is available, political and economic leaders will tend to choose and pursue it. Therefore, indus-trialization spreads from its seed-bed out into societal contexts in which it is not indigenous and the world becomes more industrialized. Industrialization carries with it more general societal ramifications. It introduces the pattern of differentiation to other areas of social life as these areas articulate increasingly with the industrial core: families specialize in biological reproduction and in consumption, schools teach differentiated skills to the

trading places: the international economy 3 labour force, specialized units of government provide economic infrastructure, the mass media sell appropriate symbolizations, churches promulgate supporting values, and so on. These struc-tural changes induce value shifts in the direction of individual-ization, universalism, secularity and rationalization. This general complex of transformations is called modernization. As indus -trialization spreads across the globe, it carries modernization with it, transforming societies in a unitary direction. Imitating societies may even adopt modern institutions, such as universities or airlines, before effectively industrializing.1 Parsons (1964, 1966) takes the lead in arguing that this social change has a specific evolutionary direction and a logic or dynamic which drives it in this direction. The logic or dynamic is adaptation: the capacity of a living system to cope with its environment (1964: 340). Modernization proceeds in the direction of adaptive upgrading: If differentiation is to yield a balanced, more evolved system, each newly differentiated sub-structure . . . must have increased adaptive capacity for performing its primary function, as compared with the performance of that function in the previous, more diffuse structure. Thus economic production is typically more efficient in factories than in households. (1966: 22) The institutional path which adaptive upgrading forces on any society can be traced through a series of evolutionary universals (Parsons 1964), a concept based on the idea of natural selection in organisms. They are defined as: any organizational devel-opment sufficiently important to further evolution that, rather than emerging only once, it is likely to be hit upon by various systems operating under different conditions (1964: 329). Parsons identifies four base universals found in all, even the most undiffer-entiated of societies: technology, kinship, language and religion. Then there are two universals associated with evolution to an intermediate stage exemplified by ancient empires and feudalism.

4 trading places: the international economy These are status stratification and explicit cultural legitimation (written preservation of tradition). A further four universals are associated with the emergence of modern societies: bureaucratic organization, money and markets, a universalistic legal system, and democratic association (both governmental and private). The key breakthrough from intermediate to modern society is an industrial production system based on individualized employment contracts and occupational specialization. This in turn sets up tensions of coordination and control and of commitment which induce the emergence of markets, bureaucracy and democracy. 2 A much more explicit link between modernization and the intersocietal system is developed by Parsons student, Levy. Levy effectively reduces modernization to industrialization by defining it in the following way: A society will be considered more or les s modernized to the extent that its members use inanimate sources of power and/or use tools to multiply the effects of their efforts (1966: 11). Levys argument, although frequently unrecognized within contemporary sociology, is significant within the concep-tualization of globalization because he is able to show that latecomer modernization is essentially reflexive3 and that this reflexivity establishes a systemic pattern of interrelationships between societies. For Levy the members of every society on the planet are faced with two questions: whether the moderniza-tion of non-modernized societies can be achieved in a stable (i.e. non-violent) fashion; and whether highly modernized societies can maintain their high rate of modernization. Taken together, these issues set up what might be called a globalizing prob-lematic, a common issue that confronts all inhabitants of the planet: If those instabilities exist, they will spread with massive effects for all other individuals on the planet given the levels of interdependence already characteristic of the members of the different societies of the world (1966: 790). For Levy then, modernization is not only a common feature of social structure but a central problem-focus that phenomenologically unites the members of all societies.

trading places: the international economy 5 CONVERGENCE The most influential theory of internationalizing impacts of industrialization comes not from any sociologist but from a group of Californian labour market theorists (Kerr et al. 1973). Kerr, Dunlop, Harbison and Myers propose that industrialization causes societies to become more alike. While they insist that industrial societies in the internationalization phase are not identical or even similar, they do claim that such societies are enmeshed in a process of convergence, moving towards a point where they are identical. They support this claim with two arguments. First, they suggest that industrial societies are more similar to each other than to any non-industrial society. Second, although the industrialization process may be generated in different ways in different societies, industrial societies will over time become increasingly similar to one another. The driving force for this convergence is the logic of industrialism as societies progressively seek the most effective technology of production their social systems will also progressively adapt to that technology. Technological development will more closely determine some social relations than others, particularly the economic arenas of employment and consumption. However, technology will necessarily affect most areas of social life. Kerr et al. outline the key features of this societal convergence. Individual skills become highly specialized so that the labour force becomes highly differentiated into occupations. As science and technology advance, the occupational system will change, inducing high rates of occupational mobility. This process will be underpinned by very high levels of educational provision and credentialization. Equally, industrial technology demands large-scale social organization in order to support mass produc-tion and mass marketing. Industrial societies will therefore be organized spatially into cities; governments will expand to provide a socialized infrastructure for industry. And organizations will generally be large in scale, hierarchical and bureaucratic. Industrial societies will also develop a distinctive value-consensus

6 trading places: the international economy focused on materialism, commitment to work, pluralism, individual achievement, and progress for its own sake. They conclude that: The industrial society is world-wide because The science and technology on which it is based speak in a universal language (1973: 54). However, by the beginning of the third quarter of the twentieth century it was clear that such materialistic or techno-logical arguments could not substantively be supported. There was an increasing recognition that culture could not be reduced to economic or class relationships. Indeed, by this time most occupational activity was not directed to the production of material commodities and did not employ machine technology. However, there was one last attempt to: re-write the last chapter of [Durkhei ms] The Division of Labour with a happy ending, as Archer (1990: 101) puts it. This is Bells (1976) forecast of the emergence of post -industrial society but this time the focus was on service production rather than the production of goods. In caricature, Bell specifies the post-industrial society as a game between people rather than a game between people and things. Its central characteristics are as follows: The number of people engaged in occupations producing services predominates over the number engaged in producing raw materials or manufactured goods; these occupations are predominantly professional and technical in character. The class structure changes in the direction of a system of statuses; the predominant status consists of members of professional and technical occupations and the locus of power shifts from the economic to the political sphere. Theoretical knowledge predominates over practical knowledge and becomes the main source of innovation and policy formulation. Technological development comes within the ambit of human control and planning; technological goals can be set and activities co-ordinated to accomplish them; invention is no longer an individualized activity governed by chance.

trading places: the international economy 7 The most important technology is no longer physical but intellectual, so that human decisions previously based on intuitions and judgements can now be based on rational calculations within formulae. However, the fundamentals of the argument are not too different from the convergence thesis. Kerr et al. argue that technologies for the production of goods create similarities between soci-eties; Bell argues that emerging intellectual technologies for the production of services create that convergence. In Bell the emerging society is governed by a single axial principle (the use of theoretical knowledge to produce services) and it is specified as the only possible principle of future social organization. Therefore, all the societies on the planet march resolutely forward to a singular postindustrial future. Bells only explicit statement on globalization is contained in a short article (1987) that aims to forecast the future of the USA and the world in the years to 2013. Here he foreshadows some of the arguments reviewed in the subsequent chapters of this book. For example he forecasts the elimination of geography as a controlling variable. Markets can increasingly consist of electronically integrated networks and indeed employees will need less to be concentrated in a single place of work. The international economy will therefore be tied together in real time rather than in space. He also forecasts the disappearance of the nation-state. The evidence for this is the increasing internal fragmentation of states along national lines (1987: 1324). They are fragmenting, he argues, because nation-states are inadequate to problems of global economic growth, third-world modernization and environmental degradation, and are equally unresponsive and distant relative to the diversity of local needs and aspirations. However, it needs to be stressed that Bells is not a fully fledged globalization thesis because it offers statements neither on the emergence of a phenomenology or culture of globalism nor on the systemic character of global social structure. Indeed, it is altogether pessimistic about the fragmentation of

inter-state politics and the disruptive threats of population growth. WORLD CAPITALISM The view that societies proceed along a continuum of moderniza-tion dominated social scientific thought on global development in the 30 or so years after the Second World War. The predomi-nant pardigm, and one that was appropriate for this international economy, was that of development. The idea of development, especially of societies experiencing low levels of industrialization, was the focus in the middle years of the twentieth century, not only for social scientists but for politicians and journalists. An appropriate metaphor for this view is that of countries as a series of mountain climbers clawing their way up Mount Progress.4 The strongest are near the top while others lag behind hampered by smallness of stature, poor equipment or lack of training. They meet blockages on their paths and cannot easily withstand natural calamities visited on them by landslide and climatic inclemency that occasionally throw them further down the mountain. The climbers near the top will often throw down ropes to haul the others up. Frequently the ropes are not strong enough because the good climbers never throw down their best ropes and are always selective about which of those lower down will receive help. However, most of the stragglers believe that by following in the footsteps of the lead climber they will all get to the summit in the end. There are those who select an alternative route and refuse help from the lead climber but they are not doing nearly as well. When everyone gets to the summit they will join hands in mutual congratulation because they are all in the same place. There has always been a problem in describing countries with differing positions in this developmental ascent. In the 1960s there were developed and underdeveloped countries; in the 1970s the first world and the third world, with the second world, the state socialist societies, poised awkwardly between them; in the 1980s we spoke of more developed and less devel-

oped countries (MDCs and LDCs); and today of industrialized and newly industrializing countries (NICs). All of these indicate bipolarity in development terms, but, more seriously, they imply that the origins of lower levels of development reside in the internal structure of a society. More recently, consideration of late industrialization has turned to the view that late and low industrializers are confirmed in that position by the relationships between themselves and the early industrializers. In so far as intersocietal stratification is confirmed by such relationships we can affirm the existence of a single international system. The origin of this argument about inter-societal stratification can be found in the work of the Bolshevik revolutionary, Lenin (1939). In his analysis of imperialism as the last or highest stage of capitalism Lenin argues that an international system of exploitation develops out of the social relations of capitalist production. The path of capitalist development which gives rise to this formation leads in the following direction. The earliest phase of capitalism is highly competitive as emerging capitalists seek to maximize profit at the expense of others. However, as some become more successful, unevenness between the performances of firms in the capitalist market leads to the monopolization of its sectors as companies are forced out or absorbed by their more successful competitors. Monopolization allows price control, which grows capital rapidly and allows it to be stored in a highly fluid and mobile form in banks, rather than being reinvested. A finance-capital oligarchy emerges out of an institutional amalgamation between bank capital and industrial capital. This provides the mechanism for an extension of capitalist exploitation beyond national boundaries by means of capital exports. Inter-national capitalist monopolies form, dividing the world between themselves both economically and, through the agency of the colonial state, territorially. We can now concentrate on two sympathetic refinements of Lenins thesis. If we take the argument to its extreme, capital exports will eventually result in high if uneven levels of development in all parts of the world. However, this widespread

level of development plainly did not occur. Monopoly-capitalist imperialism has indeed survived with considerable stability for about a century, but the reason, argues Frank (1971) (see also Cockroft, Frank and Johnson 1972), is that monopolistic firms only give the appearance of being capital exporters when they are in fact net capital importers. They import profits made in colonies which provide for internal capital accumulation. Capital exports to economic colonies are only seed money investments, principally directed to the exploitation of labour for the production of food and raw materials. Colonial commodities can be imported to the centre at low prices while manufactured goods can be exported at high prices with the difference providing a surplus which returns to the investor and thus makes capital grow. As a consequence, underdevelopment is perpetuated as a pattern of dependency between the colonialist and the colonized. The most influential sociological argument for considering the world as a single economic system comes from Wallerstein (1974, 1980; also Hopkins and Wallerstein 1980, 1982). His primary unit of analysis is the world-system, a unit which has a capacity to develop independently of the social processes and relationships which are internal to its component societies or states. There are three possible types of world-system: World-empires, in which a multiplicity of cultures are unified under the domination of a single government; there have been many instances of world-empires, e.g. ancient Egypt, ancient Rome, ancient China, Moghul India, feudal Russia, Ottoman Turkey. World-economies, in which a multiplicity of political states, each typically focusing on a single culture (nation-states), are integrated by a common economic system; there has been only one stable instance of a world-economy, the modern worldsystem, integrated by a single capitalist economy (which includes state-socialist societies). World-socialism, in which both the nation-state and capitalism disappear in favour of a single, unified political-economic

system which integrates a multiplicity of cultures; there is no instance of world-socialism and it remains a utopian construct. It is the second of these, the modern world-system, that corre-sponds with the notion of an inter-nationalized economy. Wallerstein concentrates on the emergence and evolution of the modern European world-system which he traces from its late medieval origins to the present day. He describes the emergent phenomenon in the following way: In the late fifteenth and early sixteenth century, there came into existence what we may call a European world-economy. It was not an empire yet but it was as spacious as an empire and shared some features with it. . . . It is a world system, not because it encompasses the whole world, but because it is larger than any juridically-defined political unit. And it is a world -economy because the basic linkage between the parts of the system is economic, although this was reinforced to some extent by cultural links and eventually . . . by political arrangements and even confederal structures.

A critical feature of Wallersteins argument that differentiates it from the dependency theory of Frank and Amin is that the focal point of pressure in the world-economy is the state structure. The state helps to stabilize capitalism by absorbing its costs and managing the social problems which it creates. The modern world-system is stratified into three types of state, depending on the interaction between them as the primary source of stability: Core states have a strong governmental structure integrated with a national culture, and are developed, rich, and domi-nating within the system; late-twentieth-century examples include the EU, Japan and the USA. Peripheral areas have weak indigenous states and invaded cultures, and are poor and therefore economically dependent

12 on the core states; late-twentieth-century examples include the newly industrializing countries of the South i.e. in Asia, Africa and Latin America. Semiperipheral areas include countries with moderately strong governmental structures, single-commodity or low-technology economies and that are somewhat dependent on core states; they may be earlier core states in decline or they may be emerging from the periphery; late-twentieth-century examples include oil producers, former socialist states in Eastern Europe, and the young dragon societies of South-East Asia. There is a division of labour between states in each of these regions: tasks requiring higher levels of skill and greater capi -talization are reserved for higher-ranking areas (Wallerstein 1974: 350). However, the position of the semiperipheral areas is of special theoretical importance because their existence prevents polarization and conflict between the core and the periphery. Capitalism functions in relation to long-term cyclical rhythms, the central one of which is the regular boom/bust pattern of expansion and contraction of the whole economy (Wallerstein 1990: 36). In a spectacular piece of anthropomorphism, Wallerstein identifies one of the responses to this cyclical pattern: [T]he capitalist world-economy has seen the need to expand the geographic boundaries of the system as a whole, creating thereby new loci of production to participate in its axial division of labour. Over 400 years, these successive expansions have transformed the capitalist world-economy from a system located primarily in Europe to one that covers the entire globe.

trading places: the international economy 13 Although some have hailed Wallersteins theory as a precursor of more genuine globalization theory (e.g. Giddens 1990: 6870), his argument is fundamentally at odds with such formulations. It only genuinely applies to the period of internationalization that culminated at about the middle of the twentieth century. For Wallerstein the mechanisms of geosystemic integration are exclusively economic they are constituted as trading and exploitative relationships between relatively sovereign states and relatively independent cultures. By contrast, genuine globaliza-tion theories involve a global unification of cultural orientations which turns on and breaks down the barriers between national polities and local economies. More importantly, the existence of a world-system or systems does not itself imply global unification. Wallersteins worlds are phenomenological not material. Several world-systems can coexist on the planet. The world-system argument can only truly inform us about global-ization if it can give an account both of the incorporation of all states into a capitalist world-system and of the integration of polities and cultures by virtue of that expansion. The former is given in Wallersteins recent statements on the cyclical nature of capitalist development; the possibility of political and cultural integration appears for the moment only to reside in his utopian formulation of world-socialism. Although bearing a family resemblance to Wallerstein and Frank, Sklairs argument (1991) is an injunction to social scien-tists to pay more attention to trans-national relationships that emerge under globalization and is therefore more explicitly a theory of it. The resemblance to Wallerstein lies in the argument that the global system of trans-national practices is largely structured by capitalism. Trans-national practices operate on three levels, analytically distinguished, the economic, the political and the culturalideological, each dominated by a major institu-tion that heads the drive towards globalization. Respectively then, the main locus of trans-national economic practices is the

14 trading places: the international economy trans-national corporation; of political practices, the trans-national capitalist class; and of cultural-ideological practices, the culture of consumerism. Sklair is equivocal about the balance of effectivity between trans-national practices and nation-states. The nation-state is the spatial reference point for them, the arena within which they intersect, but another, perhaps more signifi-cant reference point is: the global capitalist system, based on a variegated global capitalist class, which unquestionably dictates economic transnational practices, and is the most important single force in the struggle to dominate political and cultural-ideological transnational practices (1991: 7). However, Sklair returns even the global capitalist class to the internal workings of a national social system, albeit that of a hegemon: there is only one country, the United States, whose agents, organizations and classes are hegemonic in all three spheres (1991: 7). In an argument reminiscent of Gilpin then (see Chapter 5), it is hegemonic states that promote capitalism as the global system: Britain in the nineteenth century and the USA in the twentieth. Unlike Gilpin, however, Sklair attrib-utes altruism to neither hegemon, holding them individually responsible for global inequalities constructed in their own interests.