HR in Next PLC

Table of Contents

Executive Summary. 2

Introduction. 3

1)The Business Environment in India. 4

1.1)              Cultural Environment 4

1.2.1) Power distance index. 4

1.2.2) Individualism Vs Collectivism.. 6

1.2.3) Masculinity. 6

1.2.4) Uncertainty Avoidance. 6

1.2.5) Long-term Orientation. 7

1.2)              Economic Environment and government policies. 7

2)Business Relationship between India and UK. 10

3)Influence of international institutions of trading between India and UK. 11

Appendix. 13

References. 15

 
Executive Summary
This report is intended to give an analysis to the CEO of NEXT Plc on international business
in India. India is one of the fastest growing economies today and was named the third largest
economy in 2006. The country has experienced growth over the past two decades with annual
growth rate of 6% since 2004. India has attracted a lot of international companies as well as
small businesses because of the favourable policies created by the government to encourage
investment. The government is always giving opportunities to new investors to invest in the
country in order to increase employment and improve on the standard of living amongst the
people. India creates opportunities for all types of businesses.

The Indian government give grants to manufacturers who establish in areas that are lacking
employment and growth in order to encourage evenness in growth. Building a relationship
with the Indian government in order to establish in the country has been made easier by the
formation of the UK-India round table which is an alliance both governments have formed in
order to enhance on their relationship: the UK’s relationship with India goes back hundreds
of years, of course – (indeed, it could be said it was the British who actually created the
country called India which was not a united country before British administration) – and there
are no language barriers because of this, English being the common unifying language.

Despite the strict employee laws and difficulties faced to get a license to invest in the country
as a manufacturer, the country still has a lot of advantages that investors will gain both in the
short run and long run.

Introduction
So many companies today are now looking to invest in less developed countries in order to
expand or reduce cost of production in order to make more profits. Investing in another
country does not just involve cost of production but also understanding the culture and the
economy of that country. Differences in the business environment could be a disadvantage to
the company or an advantage to the company if they learn and try to understand them

This report will be giving an analysis of an international environment for NEXT Plc. The
main aim of carrying out this analysis is to find out if it will be beneficial for NEXT to carry
out direct invest in India. In order to give a clear recommendation to the company, this report
will start by analysing the business environment of India which includes culture and
economic environment. In order to clearly understand the cultural environment, Hofstede’s
Cultural Dimension model will be used to analyse how the culture in India is different from
that in the UK. Hofstede use five dimensions to describe cultural differences. He used power
distance, individualism, masculinity, uncertainty avoidance and long-term orientation. The
economic environment will give an overview of the present economic position of India. This
section will be talking about the GDP and government policies that have been implemented
to encourage investment and growth and for faire employment opportunities.

The report will also give an overview of the relationship between the UK and India by
mentioning the UK-India Round Table that was formed in 2000. The report will further give
the role of the World Trade Organisation (WTO) in the clothing and textile sector.

A final recommendation will be given on whether NEXT should carry out direct foreign
investment in India or export.

1)   The Business Environment in India

Investing in India in not an easy task, especially for a company like NEXT, that is operating
in a completely different region and country. The rules and laws on how business activities
should be carried out will be different from that of the United Kingdom. One of the greatest
challenges companies face in investing in another country in the differences in the business
environment. That is the role culture and the economy play in the success of the business.
Understanding the culture and how people in a particular environment behave and
communicate is as important as know the economic conditions of the country.

1.1)        Cultural Environment

The culture of a country is a very important aspect of communication in when doing business.
Culture refers to the socially transmitted behaviour, norms and values and believes that
govern a particular group of people (Hofstede, 1984). Any UK company moving in to India
to start a business should be able to study the cultural differences, especially with employing
people. The best and most used model of cultural studies was developed by Geert Hofstede.
He developed a model know as Hofstede Cultural Dimensions. Hofstede (1984) described
culture as a source of conflict than of synergy and should be well handled in organisations,
especially with international companies. In his study, Hofstede (1984) used five dimensions
to describe differences in culture between countries and regions. The five dimensions include

 Power Distance Index

 Individualism Vs Collectivism
  Masculinity Vs Femininity
 Uncertainty Avoidance Index
 Long Term Orientation Vs Short Term Orientation

1.2.1) Power distance index

This is when the less powerful people accept that power is not divided equally (Hofstede,
1984). This could be an organisation, country or family. India has one of the highest power
distance of 77% compared to 55.6% of the world’s average (Hofstede, 1984).  This means
India has a high level of inequality in power and wealth in the country. This is arguably not
something that has been imposed on people, but what those with lower power distance have
come to accept and is part of the norm of the country. This needs to be taken into
consideration especially by a company from the UK with a power distance of about 30%.
This means the company should expect a greater power distance between management and
employees in India than what they are used to in the UK. A high power distance might
indicate there is a high difference in compensation and wage. Most of the final decisions in a
country like India are made by the boss and maybe without consulting anyone. This does not
just happen in families but also in company. The hierarchy is very strong in such societies.
While in the UK decision making involves almost everyone that works in an organisation.

Figure 1: Power Distance chart

Source; Hofstede, 1984

Source; Hofstede, 1984

1.2.2) Individualism Vs Collectivism

This is the extent or degree to which individuals work in a group or as individuals (Hofstede,
1984). Individuality measures how loose the bond is between individuals where individuals
take care of themselves and function individually without the support of other people
(Hofstede, 1984). Collectivism measures how individuals work in cohesive groups and
families for protection in return for unquestionable. From the figure above, it can be seen that
India has a lower rate of individualism than the UK. This means they are likely to work better
in a group or as a team than as individuals. This might be because of the benefit they gain
working as a team. While in the UK, working as an individual is better than working as a
group (Hofstede, 1984). Therefore, setting up a company in India will mean the company will
have to assign work in teams or groups. Individuality index for India is about 45% compared
to the 85% in the UK (Hofstede, 1984). A country like India with low rates of individualism
indicates respect for age and wisdom (Hofstede, 1984). Change in a collectivism country is
very slow. The implementation of any strategies to adapt to changes tends to be slower that in
a country where individualism is high.

 
1.2.3) Masculinity

This is the distribution of role between gender in an organisation, family or a country

(Hofstede, 1984). This study is based on two aspects: men in the masculine countries are
more assertive and competitive and women in feminine countries are more modest and caring
(Hofstede, 1984). India has a masculinity rank of 56% compared to 51% of the average
world’s rank (Hofstede, 1984). This means there is high competition and that is a distinction
between men’s work and women’s work (Hofstede, 1984). This means there are some jobs
that cannot be given to women because they are considered to be men’s jobs, and vice-versa. 
Any company moving in to India has to consider this aspect before establishing themselves in
the country.

1.2.4) Uncertainty Avoidance

This is how much the society can tolerate uncertainties and ambiguity, which is the search for
truth (Hofstede, 1984). This refers to the extent to which people are comfortable with
unstructured situations and how far laws and rules are used to prevent uncertainties to happen
(Hofstede, 1984). Cultures that are more uncertainty avoidance try to minimise risks by using
rules, laws and other security measures to reduce risks (Hofstede, 1984). India has the lowest
ranking in uncertainty avoidance compared to the 65% of the world’s average. India has a
higher uncertainty avoidance level than the UK meaning they are more like to have a more
formal way of dealing in business, avoiding differences, providing detail plans on how jobs
are being done and follow them, clear about expectations and express emotions. This is
different from the way UK companies operate. In a low uncertainty avoidance country like
the UK, they are more informal with business operations and accept risks. Rules are not
restricted in business operations. This is very important to consider, especially if the company
plans to have a business partner from India. They should know Indians do not take as much
risk as the British and should therefore try to compromise of risk taking procedures. The
avoidance of risk may, of course, lead to corruption and a general acceptance of bribe-giving
too.

1.2.5) Long-term Orientation

Countries that are long term oriented are more perseverant and look at long term goals than
countries that are short-term oriented are more about meeting obligations and protecting
one’s ‘face’ (Hofstede, 1984). Saving face is avoiding any shameful act that is not going to
make an individual or a company lose its respect to others or to the society. This is very
common in less developed countries, as in much of Asia. Indians are more long term oriented
than the British. India has a long term orientation of 61% compared to UK’s almost 25%.
This means in India, family is more valued, there is strong work ethics and there is high value
placed on education (Hofstede, 1984). In this culture, people avoid doing things that will
cause others to lose face; they base worth on ethics and loyalty and show respect for tradition
(Hofstede, 1984). This is not the case in the United Kingdom where there is equality and
people treat others the way they like to be treated, although European countries arguably used
to show exactly the same traits as places such as India: those of village-based, religious,
hierarchical, pre-industrial societies.

 
1.2)        Economic Environment and government policies

Doing business in India has become an increasingly known decision companies are taking
today in order to improve productivity, and, most of all, cut down their cost of production.
Many clothing companies are moving to India, in particular.

India has both privately owned companies and those that are controlled by the government,
but the government offers the licensing on the private companies, creating a perfect
environment for corruption to thrive in. Most of big businesses are controlled by the
government, large ‘elite’ families and multinational companies (Raj and Saksena, 2005) The
country also has a large number of small scale businesses that compete with large industries.
The main aim of the government in India has been to raise the standard of living in the
country through quality and social justice (Raj and Saksena, 2005). There has been an
increase in investment in the private sector as more investors invest in this sector. The
government is carrying out a policy where investors are coming into India to invest in the
rural areas where employment opportunities and income levels are low (Raj and Saksena,
2005). The government encourages this by providing incentive to investors investing in
certain sectors of the economy and also encourages the development of infrastructures (Raj
and Saksena, 2005). Incentives are given to investors investing in agriculture, foreign
exchange, industrial development and infrastructure (Raj and Saksena, 2005).

The economy of India has been growing rapidly for the past decade with an increase growth
rate of almost 6% between1980 and 2006 (Gurría, 2007). There has been a fall in the poverty
line in the country due to the faster growth was led by the government opening its economy
to foreign trade and reducing direct tax (Gurría, 2007).

India has been named the third largest economy in the world in 2006 after the United States
and China (Gurría, 2007), though one must always be careful of such glib league tables,
because over 300 million Indians live in dire poverty: it all depends on criteria used to decide
which economy is larger and better. The turnaround in the Indian economy started in the mid
1980s and grew faster in the 1990s when direct taxes where significantly reduced, restrictions
on large companies investing in the country was dropped, the financial market was reformed
and the equity market was transformed (Gurría, 2007). The government reduced tariffs to
10% in 2007 in order to encourage foreign investment in the manufacturing sector which has
been a great impact on the economy (Gurría, 2007). By 2006 the GDP of the country rose to
24% compared to 6% in 1985 because of the inflows of direct foreign investments (Gurría,
2007). The economy has experienced a few changes since its reform. Debt to GDP fell from
82% to 75% between 2004 and 2007; there has been increase in output and there has also
been and estimated increase growth rate of 8.5% (Gurría, 2007). The rapid growth in the
economy has never led to an imbalance of demand and supply in the economy despite its high
GDP (Gurría, 2007).

Figure 3; Growth in GDP in India (%)

Source: Gurría Angel (2007)

The government’s goal to reduce poverty in the country is arguably being gradually achieved
today, though sky-high population growth rates means there will always be those in dire
poverty. The government’s main aim to rapidly reduce poverty is to achieve and annual
growth rate of 10% by restructuring their reforms (Gurría, 2007).
Licensing has become more difficult for manufacturing than the service sector. This means
setting up a manufacturing industry in India might be a little more difficult for a clothing
company because of the difficulty in getting the license.

The number of workers in the manufacturing sector in India has fallen because of low
income. India has some of the strictest employment regulations in the world today. A
manufacturing company with more than a hundred workers has to consult the government in
case they want to lay off just one worker (Gurría, 2007). This is what a company has to
consider before signing a long term contract with employees in India. This might cost the
company a lot of money if they decide to they want to lay off a worker. India is, above all
else, a labyrinthine bureaucracy.

Figure 4: Employment protection legislation is strict; Regular employment (restrictions on

indefinite contracts)

Source: Gurría, 2007

The figure above shows how strict employment laws are in various countries in the world.
India comes third in the strictest laws on employment. This arguably makes it difficult for
manufacturing companies employing people on long term basis.

2)   Business Relationship between India

and UK
The government of India and the United Kingdom have created a strong business link
between these two countries based on long-standing historical ties. This link was created in
2000 by the Foreign Secretary Robin Cook and Indian Foreign Minister Jaswant Singh and
was called the UK-India Round Table (Ukinindia.fco.gov.uk, 2009). This round table consists
of thirty people, with fifteen from the UK and fifteen from India which includes businessmen,
writers, politicians academics and journalists (Ukinindia.fco.gov.uk, 2009). This was created
to strengthen the relationship between the UK and India. The round table meets annually in
India and the UK with the purpose of discussing factors that may affect the relationship
between both countries and also to strength any existing relationship (Ukinindia.fco.gov.uk,
2009). Aspects discussed at the round table include; education, visa policies, climate change,
the economy and research and technology (Ukinindia.fco.gov.uk, 2009).

This symbiotic relationship formed by both countries will be an advantage for any UK
company trying to invest in India. This relationship enables the exchange of ideas and
investment opportunities for each country. The presence of half a million Asians of Indian
heritage in the UK, mostly middle class and educated, is certainly an advantage to both
countries regarding trade.

3)   Influence of international institutions of

trading between India and UK
The World Trade Organisation (WTO) has been one influence on the way companies in India
and the UK function and carries out trading. WTO has 148 members and encourages trade
between members (Vasan, 2009). In particular, WTO encourages trade between India and
other members of the organisation in order to develop the country’s economy. Before the
formation of WTO in 1995, the General Agreement on Trade and Tariff (GATT) acted as a
body in charge of lower customs duty rates and other trade barriers (Vasan, 2009). GATT
came to be in charge of agriculture and textile industries after it moved under WTO. GATT
was also in charge of product standards, customs duty rates and other trade barriers in
countries (Vasan, 2009). One of the main functions of WTO has been setting standard rules
for marketing procedures in the textile and clothing industry, globalise trade, fix international
standard for labour wage and working conditions and remove corruption in government
policies (Vasan, 2009). Therefore, the clothing industry should not only look for government
policies in India that will influence location in the country, but also WTO’s rules regarding
the clothing industry and employment policies on wages and working conditions. As a
member of the WTO, India is capable of exporting goods to other WTO member states. This
means if a company like NEXT opens a manufacturing site in India, they are allowed to
export their finished products into the UK and other ‘first world’ countries with large
consumer bases.

Recommendations
The textile industry is very strong in India. There is an availability of raw material in the
country and a huge and hungry (literally) labour force as well. Labour is cheaper in India than
in the United Kingdom because people are so desperate to avoid poverty of proportions
unimaginable in the UK. Therefore, NEXT should invest in the country for these reasons.
There are two ways through which NEXT can carry out investment in the country. They can
either do so directly as a company on their own, or by going into joint venture with another
investor of Indian origin: the latter is often preferred by any businesses investing abroad, in
order that localisation in put into practice.

Going into a joint venture with another Indian investor could be an advantage for the
company as there are so many competitors in the clothing industry today. Another investor
would already know the rules, traditions and customs in their home country and what
procedures are required; they will also know how to bypass a lot of red tape via the usual
endemic corruption and bribes. This will also be an encouragement for the government to
make the licensing procedure quicker. A country with a strong culture like that of India
prefers to deal with their own from the same country than to deal with an outsider – arguably
this is xenophobic, even racist, but that is just the culture of Asia. NEXT Plc can also operate
in India as a subsidiary. Being a subsidiary means they will not need a business partner.

Another suggestion for NEXT is to use short term contracts or temporary workers in order to
reduce the pressure of the strict employment laws; local partners will know how to get round
anything through ‘rewarding’ contacts in the administration.

Conclusion
This report has looked at how NEXT Plc can analyse the business environment in India in
order to decide on whether they would like to invest in the country or not. The report first
looked at culture as a means of analysing the country’s environment and also comparing it
with that in the UK. This was done by using the Hofstede Cultural Dimension Model which
described behaviour using power distance, individualism, masculinity, uncertainty avoidance
and long term orientation.

The report also looked at the economic environment and government policies that are used to
encourage investment in India. This was done by looking at the country’s GDP and annual
growth rate and also government policies on taxes and tariffs and their objective to improve
the standard of living in the country. An overview on the formation of the UK-India Round
Table was also given to show the relationship that exists between the two countries. The
report also showed the impact of WTO rules on the textile and clothing industry. Finally, a
recommendation was given to suggest that if NEXT carried out direct foreign investment,
perhaps with a partner company, it would be a good idea.

The company should invest in the country after looking at the bottom line advantages NEXT
will gain by carrying out manufacturing in India.

Appendix
Source; Hofstede, 1984

References
 Geert Hofstede (1984). Cultural dimensions in management and planning; Asia Pacific
Journal of Management. Vol. 1. Pages 81-99
 Gurría, Angel (2007). Economic Survey of India 2007. New Delhi. Date accessed 16/12/2009
http://www.oecd.org/document/5/0,3343,en_2649_33733_39428741_1_1_1_1,00.html
 Raj, R and Saksena, (2005). Economic Environment of India. Excel Books
 Ukinindia.fco.gov.uk (2009). UK-India Round Table http://ukinindia.fco.gov.uk/en/working-
with-india/india-uk-relations/uk–india-round-table
 Vasan, M. (2009). WTO AND ITS IMPACT ON SMALL SCALE INDUSTRIES IN INDIA. Date
accessed 17/12/2009  http://www.articlesbase.com/small-business-articles/wto-and-its-
impact-on-small-scale-industries-in-india-897767.html