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Changing Business Landscape of India

by: Akhilesh Mandal, Managing Director of Hofstede Insights India

Why should I read this document?

India is a growth market. Though the Indian economy has taken a severe beating due to the recent pandemic, Nomura research in their very recent analysis predicts that India would be the fastest growing Asian economy in 2021.

The Indian business scenario is interestingly dynamic and constantly changing. This changing landscape together with a complex national culture, which is driven by an interesting mix of western and eastern values, begs the business leaders and professionals to acquire greater insights and understanding of Indian business and, more importantly, Indian way of conducting business, for their growth and success in this country. This article attempts to look at different scenarios in the Indian business landscape as well as the need to recognize the critical role culture plays in succeeding in these environments.

 

Important!

Culture provides a distinct competitive advantage to a business. It manifests itself in multiple ways depending on the business model of the company. Looking at the Indian business landscape, the scenarios where culture has been proven to be a critical factor for business success in India are:

  1. Inbound M&A: An organization from a  different country entering India through the acquisition of an Indian company  

  2. Outbound M&A: Indian organization acquiring an overseas organization

  3. An Indian organization ‘rebadging’ customer’s employees as a part of a strategic outsourcing deal

  4. An overseas organization establishing a subsidiary in India

  5. An existing multinational operation competing with an Indian homegrown business

 

 

Short Introduction

There is an ever-increasing growth in the number of Indian organizations who are either partnering with organizations from other nationalities or competing with them. Often, the same organizations are simultaneously collaborating and competing in different markets or product segments. In this melting pot of multi-dimensional relationships among organizations, there is one central element that plays a significant role in the success of these operations – that is Culture. 

In each one of these business operations, either 2 or more different cultures are coming in together to work for a common business goal or one is transforming to align itself with its corporate, brand or talent strategy. Since alignment or transformation of culture determines a great deal the success of a business, it is of paramount importance to inspect each of these possible relationships most prevalent in Indian business landscape, and their challenging and changing dynamics. 

So, what happens with respect to culture? A whole lot. But, before we get there, we need to establish some common understanding of culture starting with the definition of the term culture.

As the culture guru Geert Hofstede defines culture, it is: “the collective programming of the human mind by which one group of people distinguishes itself from another group.” Very elegant and very propound definition. Programming, per se, can happen by our society/ country/ nation where we have been brought up and/or in an organization where we all come together to conduct business. We call the former one National Culture and the latter Organization Culture.  If you are hungry for more, please visit www.hofstede-insights.com.

For more on national culture differences please refer to the country comparison based on Hofstede’s 6D Model of National Culture.
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For more on Organization Culture, please refer to the Multi-Focus Model.

 

Entry into India via M&A (Inbound M&A)

India’s attractiveness as one the fastest growing large economies has resulted in a steady flow of M&A, which surged from 9% in 2015 to 20% in 2018 (ref: India M&A report 2019 Bain & Company). While these M&A may be grouped under several categories or archetypes, we will focus our attention on people and culture integration, to inbound M&As only at this point. Several large headline deals have been inbound M&A, such as Walmart’s acquisition of Flipkart, and IHH’s bid for Fortis Healthcare and so on.

The dominant India entry deal is aimed at tapping into India’s growth within the acquirer’s core business lines. For example, Rosneft-led Russian consortium acquired Essar Oil to play a role in one of the fastest growing energy markets of the world. Another common deal is targeted at the acquisition of certain capabilities in the Indian market. For example, Fosun has acquired a stake in Gland Pharma’s operations in India to expand its manufacturing footprint and add more products to the pipeline with the aim of exporting products outside of India. Walmart’s acquisition of Flipkart, serves both above objectives, providing entry into one of the fastest growing retail markets and access to Flipkart’s leading edge e-commerce capabilities.

In each of these cases, whether the sector is e-commerce, Pharmaceutical or Energy & Utility, as in the cases of Flipkart, Glen Pharma or Essar oil respectively, the integration is beyond that of business. Organizational working practices and people integration remain critical for smooth operation of these merged entities going forward.

Let’s inspect what are the cultural aspects at play that we should be aware of. First and foremost, if the organization is coming in from the US, UK or some of the western European countries, they should be aware of the fact that there are many differences in comparison to India in terms of attitudes to certain very basic dilemmas in society. 

Let’s take the attitude towards hierarchy to start with. India is a hierarchical society which means there is a clear acceptance of the fact that there is uneven power distribution. In egalitarian societies,  lower-level employees can freely ask questions to the power holder without offending that person and expect to get answered. The same may not be true in India; normally here one does not question her manager, at least not in a group situation, as it may be construed as questioning the authority of her superior. This is just one example of the difference between national culture of the acquiring company and Indian national culture. There could be many other dimensions where these kinds of differences may occur depending on which country the acquiring organization is coming from. Clearly, awareness of such national culture differences is critical for building a boundaryless team where members from different geographies, who think differently, can work together for a common goal of the organization.

Understanding national culture differences in an inbound M&A operation is the first step.  The second is awareness of the differences in working practices too, aka organization culture. While both the entities (the acquiring and the acquired) may be outcome-focused, the degree of their result orientation may significantly differ. For example, one could follow a judicious mix of Process (how) versus Result (what) as opposed to pushing for Result at any cost, without bothering to follow process. Again, this is just a difference in one dimension. There could be other differences too in terms of the balance between Task vs People, the focus of control from internal to external and so on. 

 

Outbound M&A

When we consider those Indian organizations who are acquiring a niche player outside India we talk about outbound M&A. These are also called Scope deals, which strengthen market leadership, accelerate topline growth by adding attractive market segments or new capabilities. Some deals blend both scale and scope, but the vast majority lean one way or the other. Large Indian conglomerates across sectors, particularly in Minerals & Metals, Automobile and IT, have found themselves executing such deals either for scale or scope. The cultural implications that we discussed in the case of inbound M&A are equally applicable in these deals. 

In other words, both Intercultural Competence (for aligning two or more national cultures), as well as organization culture alignment or transformation, may be required to equip the merged entity to execute its joint business strategy. One word of caution here is, since these are typically mergers of un-equals, the acquiring company may tend to make the acquired entity align to its working practices, which may not deliver desired results if the acquired entity, though smaller in size, has a stronger culture.  

 

‘Rebadging’ Customer’s workforce

Focusing on large Indian Information Technology Services (ITS) and Information Technology Enabled Services (ITES) industry players who enter sizable Strategic Outsourcing deals with their customers, we talk about ‘rebadging’ a customer’s workforce. Since a part or all of a customer’s business process is outsourced to the Indian entity, a part or all of the customer’s employees who were executing those processes get ‘rebadged’ as the Indian company’s employees. These customer’s employees who move from a bank or an insurance company to an Indian IT Company, for example, may experience a change of organizational culture, including a change of brand and employment experience, resulting in their disengagement with the Indian company. It’s critical for both sides i.e. customer and the service provider to carefully consider each other’s organizational culture and make necessary adjustments for continued engagement and performance of these ‘rebadged’ employees.

 

Foreign Subsidiary in India

This is a classic expansion of an overseas organization into India to make its goods and services available to the growing Indian market.  Unless it is a joint venture with a local Indian player, these operations demand that the overseas organization be fully aware of Indian cultural nuances with respect to its own national culture. Failure to do so could be very costly in the short term and provoke the loss of trust in the long-term, leading to a significant loss of business.    

 

MNC vs. Home-grown Indian Companies

Home-grown Indian companies are closing culture gaps with MNC operations in their bid to attract, engage and retain top talents.  Whether they are Indian companies such as ITC, Godrej, Dabur competing with Unilever, P&G in the Fast Moving Consumer Goods (FMCG) space; Tata Motors & Mahindra’s playing neck and neck with Volkswagen, Fiat or Renault in the Automotive sector or Piramal, Dr Reddy, Cipla giving steep competition in the pharmaceutical market, the important point to note is that there is a war for talents in India. The organizational culture shaping their Employer Brand is a key determinant of attraction, engagement, and retention of talented employees and therefore a key arsenal to win the best talent.

 

 

 

Short case study

An interesting case is Walmart’s acquisition of Flipkart - a home-grown e-commerce leader in India. We will restrict ourselves to dive in a bit deeper only from the standpoint of culture - what kind of cultures came into play in such an amalgamation and where one would see potential gaps that must be worked on.    But, first, a brief outline of the companies themselves and a sense of their culture presumably reflected by their values.

Flipkart: Indian e-commerce leader with a runaway success of a start-up.  In 2007 two young Indian entrepreneurs founded this e-commerce outfit to sell books with a princely sum of about 7000 USD from their own money.  By 2018, a decade after its inception, Flipkart’s valuation stood at 21 billion USD.

Tag line: A decade of Disruption

Values: Integrity with Audacity, Bias for Action, Customer First.  

 

Walmart: An American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. The company was founded by Sam Walton in 1962.  As of January 31, 2021,  with 11,443 stores and clubs in 27 countries, operating under 56 different names, Walmart is the world's largest company by revenue, with US$514.405 billion, and also the largest private employer in the world with 2.2 million employees.  

 

Tagline: The business of Better.

Walmart Values:

  • Guided by good
  • Service to the customer, Respect for the individual, Strive for excellence, Act with integrity.

                                                                                                                

Clearly, these two organizations brought two different cultures on the table. Walmart’s organizational culture is characterized by Set Practices, Hierarchical Process, Stability and Thoughtful planning. In contrast to this, consider what Flipkart brought on the table. Defining attributes of Flipkart organizational culture were: Innovation, Entrepreneurial Spirit, Flexibility and Agility. One cannot overemphasize the need to align these contrasting work cultures if these two companies were to synergize at an employee and organizational level, the most critical ingredients of an M&A integration.

And what about the national culture differences? Walmart corporate team, predominantly filled with American nationals, as opposed to Flipkart’s leadership team, constituted by Indians, clearly have different cultural perspectives. As we discussed earlier, as far as National culture goes, Hofstede’s 6D model tells us that the USA has a significantly lower score in Power Distance Index (PDI) than Indians.  Also, Americans score way higher on Individualism than Indians, resulting in their attitude towards autonomy which is quite different from rather collectivistic views of Indians.

In summary, the culture an organization would strive to nurture post M&A is clearly a collective leadership decision based on its business goals and strategic intent going forward. But, be that as it may, the leadership is well advised to carefully consider the culture gaps of both organizations before embarking on a certain direction. Not only can we see that ‘Culture eats strategy for breakfast’ (Peter Drucker), however cliche it may sound; but also that culture stands out as the only differentiator.