8TH NATIONAL

COMPETITION FOR MANAGEMENT STUDENTS

BUILDING SUSTAINABLE INDIAN MULTINATIONALS : AGENDA FOR ACTION

A report submitted for the 8th National Competition for Management Students by AIMA by Asha Kakoti and Niharika Tyagi of Jaipuria Institute of Management, Noida

CONTENTS

INTRODUCTION THE INDIAN MNC MANAGING THE GLOBAL CHALLENGES o ACHIEVING BRAND RECOGNITION o DIVERSE WORKFORCE o ADVERTISING AN PROMOTION STRATEGY IN DIFFERENT COUNTRIES o LOCALIZATION AND ADAPTION o THE GLOBAL SUPPLY CHAIN o CORPORATE SOCIAL RESPONSIBILTY RESEARCH DATA STRATEGIES FOR GOING GLOBAL: SOME CURRENT INDIAN EXAMPLES

INTRODUCTION

Since the last decade we are living in a highly globalized and integrated world economy. The art of business has changed drastically. The rise of multinational corporations due to market imperfections and enhanced opportunity set has prompted the companies around the world to put on their thinking hats. Companies have to continuously reshape strategies and innovate to compete on a global basis. New methodologies, new products, new markets, new practises, new technology are the rules of the game as companies seek new ways to boost profits while curbing costs. Foreign exchange markets, International Financial Reporting System ,mergers and acquisitions in emerging markets, outsourcing, cloud computing are all examples of such innovative processes to achieve global recognition. Apart from coordinating the various manufacturing, distribution processes the multinationals also have a herculean task of managing the diverse workforce in their companies.

THE INDIAN MNC

The Indian MNC is a company which has its roots in India, but is now spreading its wings to set up operations and deliver service in various markets around the world. Increasingly, Indian MNCs have resorted to mergers and acquisitions as a favourite method for jump-starting their global expansion. Indian firms began investing abroad in 1992 when policy guidelines were defined to promote enhanced investment opportunities in the country. Indian companies are increasing their overseas investments to gain access to the US and EU markets. A.V Birla Group(18 countries including Australia and China), ONGC Videsh Ltd.(Sudan, Angola, Russia, Iran, Libya, Myanmar etc), Tata Steel, Hindalco, Infosys, Reliance, Ranbaxy, Wipro, TVS Logistics Services Ltd. etc are examples of leading Indian companies which have established a stronghold on overseas market.

2007 was a record year for out-bound mergers and acquisitions from India in which a staggering number of 223 deals worth $33 billion was transacted. This represented an increase of 300 per cent over the previous year. Tata Steels acquired Corus in United Kingdom for $ 12.1 billion while Hindalco Industries acquired of Novelis, USA for $3.3 billion. TVSL has set up operations in the US, UK, Spain, Germany and Thailand. Ranbaxy gets 70% of its revenue from its operations outside India with 40% from USA.

The concept of market imperfections have led to the establishment of 100 per cent wholly-owned subsidiaries in overseas markets. Sundram Fasteners set up a subsidiary in China to manufacture fasteners and bearing housings for the Chinese and global markets. But this growth strategy has many hurdles which the top management has to overcome in order to be successful in foreign shores. The top management of a multinational has to very carefully chalk out a plan to overcome these hurdles of various nature- financial, human resource management, marketing and operations. They need to acquire the managerial skills needed to deal with varied customer needs and diverse competitive forces; learn to work with team members from different cultural backgrounds; and also learn how to manage the companies that have been acquired through the Merger and Acquisition route.

MANAGING THE GLOBAL CHALLENGES Achieving Brand Recognition In the globalization era and among increased competition the companies face a cut throat competition in order to get the customer attention. The brand name becomes the ultimate source of recognition representing the product quality, values of company, services etc. The multinational companies face a tough task of achieving the same reputation in a foreign land as compared to the home country. Therefore, the manager in the emerging Indian MNC has to have a game-plan ready for building brands on a global scale, which will enable the company to compete with established global brands. This will require a deep understanding of local customers needs in different markets through market research, and significant investments in brand building over long periods of time. The Tata group has leveraged on the brand names it acquired Jaguar , Corus. It has seeked to retain the brand names and reap benefits from the association instead of starting from the scratch.

Diverse Workforce Global business brings people from different cultures together. Understanding and working harmoniously with a diverse workforce is one of the most challenging tasks any multinational company has to face. They need to overcome cultural differences and collaborate with each other, in order to succeed. The hand gesture where the index finger and thumb touch and create a zero can mean different things in different places. In the US and UK, it means ok. In Japan it
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refers to money. While in Brazil, it is viewed as an insult. In western cultures, people like to get to the point of the matter in business meetings and conversations. However, in other countries like Saudi Arabia and Russia, it is customary to converse first about unrelated matters before starting the business discussions for which the meeting was arranged. Barging straight into the business issue, without informal small talk at the beginning, may make them very uncomfortable and may ruin the negotiations. Any multinational has to invest dearly in training its workforce to achieve cultural integration, before exposing them to the dynamics of the global business environment. This minimizes the cultural shocks. In any situation the group goals have to take precedence over individual cultural differences. The key to success in global business lies in building bridges across the cultural gaps, and not seeking to achieve one size fits all homogeneity in the team. The global manager has to collaborate with the team in establishing cultural ground rules for day-to-day work that focus on the common tasks and goals, rather than try to eliminate the individual cultural differences. Advertising and promotion strategy in different countries A huge challenge for any multinational is to come up with different advertising and promotion strategies in different countries keeping in mind the cultural differences while staying true to the product. Also the pricing has to be done keeping in mind the GDP, inflation and the price consciousness of customers in the foreign shores. Advertising products in different countries requires the companies to use specific methods of advertisement that is allowed by the tradition and culture of the country. For example, in western countries, sex appeal is used a lot in advertising many different products. This strategy however wont be successful in countries in Arabic countries where people, especially girls, are mostly covered Therefore, ads that use sex appeal, like girls in revealing clothes, romantic scenes for example, cannot be used.

Localization and Adaption A successful MNC is always able to adapt to the alien land and its customers tastes and preference. For example McDonalds had to discard beef and come up with vegetarian burgers (Aloo Tikki burgers) in India in order to appeal to the vegetarian consumers here. Therefore any MNC has to carefully do a thorough study on the foreign countrys history, norms and culture etc. before launching a product or service there.
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The Global Supply Chain Managing the suppliers and distributors to ensure timely delivery of products worldwide is a emerging as one of the most challenging tasks. Due to intensified globalization of businesses; firms need to develop products for global markets and source components globally. This has made the supply chain more complex since there is a lack of expertise and knowledge about rules, regulations, tax structure and infrastructure of destination countries. Therefore it would do the multinational companies good if they concentrate on their core activities and leave all the non core activities to outside partners. Instead of multinationals attempting to establish their own distribution network in foreign countries which may take up a lot of time and huge capital investment, they may as well invest in outsourcing. The evolution of third party logistics service providers has helped the firms to achieve higher quality operational systems with quick adaptability and at lesser costs. Corporate Social Responsibility Customer empowerment and awareness is prompting the companies around the world to come up with strategies that incorporate Corporate Social Responsibility. Green technology is being incorporated in the promotion strategy of many companies. Also it serves as a great marketing tool for companies as it shows the engaged side of the company. Reliance Industries Limited identifies projects and takes action to reduce water consumption and become carbon neutral and achieve maximum possible recycling and reuse of wastes. They set targets for key environment-related performance indicators such as material intensity, GHG emissions, air quality, water consumption, effluent discharge, waste generation and disposal, and conservation of bio-diversity. RESEARCH DATA Forbes Insight and Wipro conducted a survey in February 2011 of more than 300 Clevel executives (CEO, CFO, CMO, CIO) where key findings were found: Two-thirds of executives believed innovation was the key to a sustainable global strategy Three quarters executives indicated their companies have embraced green technology or environmental safety elements into their innovation strategy. Green initiatives have the greatest scope for long term success. China was quoted as the most favoured destination for investments by 55% followed by emerging markets like India, South East Asia and Eastern Europ
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STRATEGIES FOR GOING GLOBAL: SOME CURRENT INDIAN EXAMPLES The Tata Groups approach to its acquisitionsin terms of cultural integration, branding, and customer focus has been based on very pragmatic considerations. The top management teams at Corus, Jaguar, and Land Rover have been pretty much left intact, with the Tata headquarters getting involved primarily in long-term direction- setting and large investment decisions. An environment friendly strategy is at the core of the both Reliance and Wipro. While IT companies like Infosys are more concerned with coming up with innovations, the FMCG companies would like to target the bottom of the pyramid consumers in emerging markets. But all multinationals should be careful about political risks, diverse culture, consumer preferences while investing in a foreign country. In the case of Sundram Fasteners, a trend-setter in the auto component industry in India, the UK and German companies that have been acquired in recent years have been allowed to retain and strengthen their brands and identities. There is continuity in senior management staff. Best practices in operational excellence are being transferred from one unit to the other through horizontal deployment, without implications of superiority or inferiority between countries, companies, and cultures. Bharat Forge, with its headquarters in Pune, is another aggressive player in the engineering industry, with the goal of becoming one of the top players in the global automotive forging industry. The company has made a series of acquisitions in Germany, USA, Sweden, and Scotland. The company follows a strategy of dualshoring where its global customers needs can be met from at least two of its plants worldwide. This allows the company to satisfy its customers requirements with fast, possibly local responses, while at the same time meeting the constant demand for more competitive prices.

CONCLUSION As more and more Indian MNCs go global, different strategies have to be developed keeping in mind the local tastes and preferences of customers, the various culture differences among its employees and concern for the environment. A company and its managers cannot succeed on a global scale until and unless they develop a mindset or an outlook that leaves behind the traditional way of working and is open to new experience. But the success of these strategies would depend on the ability of their managers to understand the voice of the customer and the importance of establishing the brand. Ultimately, business people from different cultures need to work together in an atmosphere of mutual respect and trust.
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