Joint Ventures is a preferred way to Enter India

India has emerged on the global business map and global giants are eager to enter India. In their rush to enter India, global companies are entering into a slew of joint ventures and strategic alliances. While some of these ventures are driven by government regulations, most are driven by their need to lower risks. In my previous article, I had mentioned that JV offers a lower risk option to enter newer markets for Indian companies venturing abroad. The same hold true for foreign firms entering Indian markets.

Notable JV of Recent Times

• Tata Motors & Fiat: The JV will manufacture cars from Tata & Fiat stables. Tata Motors will also buy diesel engines for it cars from Fiat, while Fiat will distribute Tata cars in Europe.
• Mahindra & Renault: This JV is the market entry strategy for Renault. The JV will manufacture Renault’s Logan cars in India. Renault will gain market knowledge - while Mahindra’s will learn how to make good cars, and leverage its dealership network to additional profits.
• Tata-AIG: This JV was created to take advantage of the new government regulations on private insurance companies. Private insurance companies need foreign collaboration for technical know how. While the current regulations prevent foreign insurance companies setting up a green field venture in India. Similarly other JV in this field are: ICICI Lombard, ICICI Prudential, Bajaj- Allianze etc.
• Bharthi-Walmart: JV was primarily created by Wal-Mart’s desire to enter India and the government regulations regarding large foreign retail firms operating in India. This 50:50 venture with Bharti will give Wal-Mart an entry into India ( a long awaited one at that)

Why form JV?

The main reasons for a JV has always been an entry strategy. JV provides a lower risk option of entering into a new country. For Fiat, Pepsi, Ford, Xerox, Suzuki, etc., the JV is an ideal way to enter Indian markets and establish itself as a leader ahead of other competition. The JV also provides an opportunity for both the partners to leverage their core strengths and increase the profits.

For example, Modi-Xerox venture gave Xerox an early lead in the photocopier market and help secure a strong brand recognition. For the Modi group, this turned out to be a very profitable venture. JV also provides a learning opportunity for both the partners. A smart partner will learn a lot about other partner’s capability. For example, Xerox learnt about distribution channels and copier usage model from the JV. TVS learnt a lot about making motorbikes from Suzuki.

Other reasons to form a JV in an Indian context are:

Technology: When partners have mutually rights over exclusive technology, then JV forms an option to exploit the opportunity by combining these technologies. Alternatively, when a partner has identified a profitable market opportunity - but does not have the necessary technology, then a JV is an option to go. However both parties need to have a good understanding to protect each others IP.

Lower Risk of Geographic Expansion: A JV with a local partner is an ideal way to minimize risks of cross-border expansions. For foreign firms a JV with a local partner lowers risks via: ability to hire the best talent, knowledge of local markets, connections with local government, pre-existing distribution networks etc.

Government Regulations: In most emerging markets government rules and regulations prevent foreign players from establishing a wholly owned subsidiaries. For example, Indian government laws prevent foreign retailers, insurance companies from entering India directly. The current regulations force these companies to form JV with local partners

Access to Capital: Often times companies in emerging economies lack capital to expand. A JV or an strategic investment will infuse capital to the local operations and make it more profitable. In an emerging economy - the local partner provides the distribution network, human capital and government links as its investment in the JV, while the foreign partner provides the capital and technology.

JV has a definite Life span

All JV’s have a definite life span. Oftentimes the end objectives and exit strategy will be negotiated during the formation of the JV itself. Despite the fact that everyone knows that a JV has a definite life span, most JV falls apart earlier than expected.

The main reason why a JV falls apart is changes in partner’s strategy. Often either one of the partner changes their strategy which makes this JV redundant. For example Ford-Mahindra JV. Ford wanted to expand the operations but Mahindra wanted to focus more on SUV segment and did not want to invest for the expansion. Thus forcing Ford to go alone.

Often times the conditions which made a JV necessary change - like government regulations, access to technology or capital or the partner has gained sufficient confidence to go alone: All this causes the JV to fall apart. For example TVS-Suzuki JV fell apart when TVs learnt how to design motorbikes on its own. TVS designed "Victor" on its own and it was a success. This gave TVS the confidence to go alone.

Another popular reason why a JV falls apart is when the JV is successful. The JV becomes a cash cow and both the parties now want greater control over it. This often results in a nasty fight for control - and in the process the JV falls apart. Alternatively, when a JV is not doing well, the partners start blaming each other and want to take over the control to prevent further deterioration.

Closing Thoughts

Joint Ventures are becoming a popular means to enter Indian markets for global giants. However, the risks of cross-border expansion are slightly lowered, but they still remain. To have a successful JV, both partners should have a good understanding of each other’s cultures, establish a good work collaboration and work towards a common objective. The risks of cultural integration still exist - often times management from both the sides often ignore the cultural integration issue assuming that they can take care of it - but cultural integration often falls between the cracks - and the JV ultimately fails.

Also See:

Successful Joint Ventures

Emergence of Indian MNCs

Year 2006 will probably known as the year when Indian businesses & Indian businessmen emerged on the global map. India’s emergence in the global business arena has been driven mainly by acquisitions and mergers. In January 2006, Lakshmi Mittal CEO of Mittal Steel launched a hostile takeover bid for Arcelor - which was completed by July 2006. On similar lines, Tata Steel went abroad with acquisition of NatSteel in Singapore and Corus Steel in the UK.

Notable cross-border acquisitions

Some of the Notable cross-border acquisitions in the year 2006 are:

1. Videocon Industries buying Daewoo Electronics - $731 Million
2. Dr Reddy Labs acquires Betapharm Arzneimittel - $572 Million
3. Ballarpur Industries buys Sabah Forest Industries - $261 Million
4. Ranbaxy Labs acquisition of Terapia - $324 Million
5. Suzlon Energy buys Hansen Transmission - $565 Million

In total, Indian firms spent $15.72 billion in 192 overseas acquisitions. While this number may not be significant when compared on a global scale, this number is significant in the global context. The real significance of this should be seen from the fact that next year this number could double or even triple, making India as Asia’s largest acquirer abroad.

India Plays with Global Expansion

Indian companies are using all the tricks of the trade to go global: Mergers & Acquisitions, Organic expansions, Green field investments, and Joint Ventures. The scale and the business share may not be significant today, but Indian businesses are slowly but surely establishing themselves abroad.

Tata Motor’s successful acquisition of Daewoo’s truck unit in 2002 in S. Korea has become a classic business case study. Tata acquired a loss making unit - and without any layoffs, turned the loss making unit around. This built enormous goodwill and reputation for Indian companies in S. Korea. This helped Videocon acquire Daewoo Electronics and is aiming to acquire LG-Philips LCD Co. In S. Korea. Success of one acquisition in a particular country/market has prompted other Indian companies to look for acquisition in the same country. Given this mentality, one should not be surprised if Indian companies make a major acquisitions in S. Korea in 2007.

Similarly, Tata’s successful acquisition of Tetly Tea in UK prompted several Indian companies to look for acquisitions in the UK and European markets. Tata-Corus deal (if it succeeds) will mark a new beginning for mega deals involving Indian companies.

Why opt for Acquisitions

Indian companies have long practiced conservative business practices, have maintained almost zero debt and are in very good financial health. This when coupled with access to significant pools of capital - either foreign debt or stock markets - creates an ideal situation for acquisition abroad. Another potent power which Indian companies can leverage is its vast pool of highly talented human resources. All this when combined together creates an ideal conditions for Indian companies to expand abroad.

The reasons for cross border acquisitions by Indian companies stems from their traditional thinking: Reduce risk and build global competencies. Cross-border acquisitions make natural sense for Indian firms. The five main reasons (pretty much in the same order) why Indian companies opt for acquisitions are:

• The lure of access to global markets.
• Leveraging the synergy with the existing businesses
• Strengthening the acquired company - via better management
• Reduce competitive threats and vulnerability to other global giants
• Create a Global Company.

To understand, consider the example of Dr Reddy Labs acquisition of Betapharm Arzneimittel. This acquisition gives Reddy Labs access to German and high grown Central & Eastern European markets. Betapharm Arzneimittel’s business has a good synergy with Dr. Reddy’s existing business, and give the company a significant presence in Germany.

In 2006, the largest number of acquisitions were in the pharmaceuticals sector, followed by IT and manufacturing sector. Indian companies are buoyed by strong local demand, red hot stock market, strong management capability and a desire to move up the value chain. Indian managers have the vision to go global - this vision is further encouraged by brain gain, when experienced expiates are returning back to India and using their rich experience and capability to help local firms expand abroad.

Risks in Cross-Border Acquisitions

Cross-border acquisitions are always fraught with risks. Indian companies also have to face a lot of risks when compared to European, Japanese and American companies. The risk is greater for Indian companies - mainly because Indian firms lack experience in international acquisitions & mergers, coupled to it, Indian companies are not exposed to different cultures. The five biggest risks Indian companies face cross-border acquisitions are:

Risk of overpaying for the acquisition or Risk of over-leveraged acquisition
In a competitive bidding scenario, there is a high possibility of over bidding for the acquisition, and that may result in Indian firms over-leveraging for the foreign acquisition. This risk is particularly very high in a cyclical markets when the market is on the upswing.

For example, Tata Steel would be over paying for Corus Steel if Tata outbids CSN. CSN had bid 475 pence a share Vs Tata Steel’s original bid of 455 pence a share. Coupled to that Tata Steel’s acquisition strategy is driven by taking on large debt to pay for Corus acquisition - and things can get really nasty if there is downturn in the global steel industry.

Risk of downturn in the global market

Companies which deal in commodity products: steel, metals, chemicals, etc. face the risk of global downturn in markets. For example, Tata Chemicals acquired UK based Brunner Mond - this acquisition made Tata Chemicals the 3rd largest manufacturer of Soda Ash. If there is a downturn in this market, then Tata Chemicals will be in trouble. (Also see: China’s Globalization Plans off to a rocky start)

Cultural Integration Risks

Cross-Border acquisitions always carry the risk of cultural integration. Though this risk exists in all acquisitions, the risk is particularly greater in a cross-border, cross-cultural acquisitions. For example when Tata Motors was bidding for Daewoo truck division, The biggest challenge for Tata Motors was to convince the bankruptcy courts that Tata Motors are a serious about their bid and had a viable revival plan. Toughest challenge for Tatas was to integrate Korean workforce with the new Indian-Korean management. Similarly, when Indian companies acquired American firms in early 2000, there were cultural integration issues - where American employees were reluctant to work under the Indian management.

Government Regulations can affect Global Markets

Sectors like health care, Pharmaceuticals, and Energy are highly regulated by governments. Changes in government regulations can have severe impact on the profitability.

Political Instability in emerging MarketsRisks of political instability are very high in emerging markets. For example coup in Thailand, Fiji, instability in Nigeria, Central Africa, Zimbabwe etc. Can have adverse effect on profits. Many Indian companies are expanding in Africa, and Asian markets - which are susceptible to political risks.


Minimize risks with Partial Acquisitions

Since acquisitions carry a great risk - companies can try to take another route to avoid the risks of an outright acquisition - use partial acquisition. Partial acquisition is when a company acquires a substantial stake in another company - and with a right to buy the remainder as per a predetermined plan or without an option to buy the remainder.

Companies like to use this option of partial acquisitions so that they can learn the local operations from the partner - without exposing themselves to these operational risks. This is a preferred way to enter new market segments and new geographies - where the company has very little experience. For example, Tata Tea has acquired 30% stake in Energy Brands Inc., the maker of flavored tea drinks. Since Tata Tea does not have expertise in selling soft drinks - this will be an ideal way to venture into new areas. Similarly, ONGC has invested 15% in a Brazilian oil exploration venture.

Joint Ventures is also an attractive option

Ranbaxy completed five acquisitions in the year 2006. This is surely a mark of success and confidence, for Ranbaxy - this was just another year in their long march towards becoming a global pharma giant. Ranbaxy started venturing abroad via joint ventures. In 1977, Ranbaxy expanded into Nigeria via a joint venture. Today Ranbaxy has several JV all across the world.
Joint ventures offers a low risk option for going abroad. Often times, a joint venture is used as an entry vehicle into foreign markets. Aditya Birla group used joint venture as a preferred means to enter into Thailand, Egypt, China, Canada, and Indonesia.

Another company which used JV to successfully expand abroad is Essel Propack. Essel Propack is the world’s largest manufacturer of lamitubes - used to package toothpaste, gels, and creams. Essel operates in 14 countries and has 24 manufacturing facilities. Many of these outposts were created via JV, acquisitions and green field ventures. Essel’s march into the global scene has been partially driven by the fact that its main product - "empty tubes" are not cheap to transport, thus forcing the company to setup manufacturing facilities close to its customer locations. Essel has a global vision and an advantage of lowest cost operations. This helped Essel acquire Propack - which propelled Essel to the top.

Main reasons to opt for Joint Ventures: Lower risk Option
Joint Venture with the local partner will lower the risk as the local partner knows the local market, the local partner has greater capability to attract talent, has the necessary contacts/links with the local government, and provides an entry into new markets.

Unfortunately, JV also has the highest failure rates - if the venture becomes successful, one partner will try to muscle out the other, or if the venture fails, the partner tries to blame the other. Having a well defined exit strategy is vital to prevent a painful breakups.

Green field Ventures

Establishing green field ventures is a core competence for several Indian companies. Tata group for example has setup several green field operations in South Africa, Kenya, Nigeria, Sri Lanka, Vietnam, etc. Mahindra & Mahindra has setup new operations in China to make tractors.

Indian companies have been very prudent when expanding into newer territories. Indian management lays a great emphasis on integrating the overseas operations first. Only when the management gets a feeling of comfort that the overseas operations is fully integrated, Indian managers will look for further acquisitions.

A classic example of this prudent expansion is Asian Paints - 2nd largest manufacturer of decorative paints. Asian paints started global expansion in 1999. Initially this was done via small acquisitions in Egypt, Sri Lanka etc. This was followed by well managed integration and then a green field expansion. By 2003, the company had enough expertise and experience to play a bigger role in acquisitions - it acquired Berger International. This acquisition gave Asian paints a global reach to market its products over 70 countries.

According to Ashwin Dani, MD of Asian Paints: "We have rolled out a mega operational efficiency initiative which focus on productivity, safety, environment, reducing losses, planning & Control systems. So the message is clear - you should constantly adding value to your acquired operations"

Closing Thoughts

These risks have not decreased Indian companies appetite for acquisitions. Understanding these risks have prompted Indian companies to approach cautiously towards acquisitions - starting with small, less than $30 Million, all cash acquisitions in late 1990’s - Indian companies have progressed steadily to multi-billion dollar acquisitions. Several Indian business houses have built a dedicated capability for acquisitions: Tatas, Ranbaxy Laboratories, Dr. Reddy Labs, Wipro, Ruias, Videocon, Kalyani etc. Past successful acquisitions have also added to the confidence levels of Indian firms.

While Indian firms are expanding abroad - more global giants are entering India. Global Retail giants, Banks, Insurance companies, manufacturing firms - cars, tyres, consumer goods, heavy engineering, chemicals etc. - all are eager to enter India. Some are forced to enter into joint ventures with Indian companies due to legal legislation while others are pondering on how to enter Indian markets.

International business fraternity has finally recognized that Indian firms are credit worthy and has the expertise to successfully manage global assets. This confidence can be seen how willing the banks are willing to help Tata Steel to acquire Corus.

Indian companies have just started venturing abroad. In the next decade, lot of Indian multinationals will be listed in the Fortune-500 list of companies. As a vanguard of things to come, Infosys is now listed in NASDAQ-100 index - the first Indian company to achieve this fame.

Also See:

1. Cultural Assessment - Prerequisite for successful Mergers
2. Challenges of Working Across Cultures
3. China’s Globalization Plans off to a rocky start
4. Build a Multilingual Web Site to cater to your Global Customers
5. Why Build a Global Website
6. Improved Cross-cultural Communication Increases Productivity
7. Managing Global Careers - Dealing with Culture Shock
8. Keep Overseas Staff Focused on the Right Goals
9. Trans-cultural Business Failure: Wal-Mart Exits Germany
10. Making Multicultural Virtual Teams Work
11. Virtual Scale - Alliances for Leverage

Technology for Collaboration Across Cultures

In my recent articles I had written about the challenges involved in working across cultures. The challenge of work collaboration across cultures becomes more acute as organizations grow and have operations across multiple geographies. Most companies respond by deploying various collaboration tools (mostly software tools). While these tools are essential to improve collaboration, the value of these tools will not be realized fully unless these address the complete needs of the organization.

For example at my previous firm, the initial challenge of collaborating across Sunnyvale office and Bangalore office was met with VoIP, Video Conferencing, Internet, Intranet, Shared drives and a Project workflow Management software. While these tools were useful in the beginning, but as the company expanded operations in Taiwan and Israel these technologies were not enough. We found out that people in Taiwan & Israel were not using these collaboration tools to the extent that was needed to maintain a standard level of collaboration. To get over this problem, the company deployed a knowledge portal and several other region specific Internet portals to help in Taiwan & Israel.

The Challenge

Collaboration across cultures is always a challenge. With the advent of multiple collaboration tools, collaboration has improved - but this is only a temporary reprieve. As companies grow in size, the need for collaboration increases and so does the complexity of the joint tasks. As the organizational complexity increases, companies tend to do one of the following:

1. Deploy more tools and invest in newer collaboration tools
2. Believe that existing tools are sufficient and refuse to invest in additional collaboration tools

Often times companies respond to this challenge by deploying more software, more tools and technology. Deployment of multiple tools - improves collaboration but beyond a point, increasing technical solutions does not promise a similar return on investments. The law of diminishing returns will apply to organizations - and the cost of maintaining these collaboration tools will exceed the return on these investments.

In my experience, Silicon Valley companies tend to favor the first option, while rest of the world tend to favor the second option.

Recently, I was involved in a case where a leading Telecom company in UK had deployed 23 web portals - all to do the same job. After some prodding, the program director decided to optimize this into a set of 6 web portals. This type of rationalization is very rare in the industry and the reason for it is quite obvious - there is no single department or a group which deals with improving cross-border, cross-site, cross-cultural collaboration. Most of the collaboration tools were deployed on ad-hoc basis and once they were deployed nobody ever reviewed its value or its performance.

At the same time, there was another IT services company serving the largest British telecom company - which had serious operational issues because the company had not invested in proper collaboration tools. This was the 7th largest Indian IT services company with more than 15000 employees spread over 6 countries - and the company had very few collaboration tools to talk about.

Few companies deploy collaboration tools on ad-hoc basis - any tool to overcome the current problem. This is done by individual groups and is independently of the corporate planning. The result is reinvention of the wheel, repetition of work and an endless list of collaboration tools which are rarely used. This leads to excessive investments and lower ROI.

Most companies are usually very reluctant to deploy collaboration tools - and will invest only if it becomes a critical bottleneck. Indian IT companies, manufacturing companies typically tend to work this way. Companies are scared to invest in things on which ROI is easily measured. As a result, these companies do not collaborate very well - resulting in poor performance, disjoint efforts and wasted resources.

In both cases the results are not optimal - thus resulting in lower ROI. The root cause for this type of problem in both the companies is surprisingly common. Companies do not have a plan or a process to review its collaboration needs and then develop a solution that is geared to meet those needs.

Current Collaboration Tools in a Glance

Today, there are several collaboration tools available for any company. Some of these tools are widely used such as Telephone and Emails etc. The following table lists the current set of tools that can be used.

Phone Based Tools

1. Land lines with International dialing
2. Cell Phones with SMS, ISD and email ( blackberry)
3. Voice mail on land lines & Cell phones
4. VoIP: Connect remotely or direct dialing
5. Video Conferencing
6. Tele-Conference facility
7. Voice to Text transcription
8. Digital voice recording
9. Voice to Text Transcription services
10. Video Broadcasting

Internet Based Tools

1. Web based Email
2. Shared Drives & mapped drives
3. Microsoft Net Meeting or Web Ex
4. Instant Messaging
5. Microsoft exchange or Lotus Notes
6. Company Web Pages
7. FTP gateways & servers
8. Knowledge Databases or portals
9. Project workflow manager
10. Issue Tracker
11. Secured Internet Portals
12. Microsoft sharepoint services
13. CVS or revision control tools
14. Podcasting
15. P2P networks
16. Intranets
17. VPN
18. Blogs
19. RSS
20. Wikis
21. Online forums
22. Chat Rooms
23. Bulletin Board Service (BBS)
24. Salesforce.com or web based third party services
25. Social Networking web sites

The list of tools is ever growing. But the fact is that several tools are now available to enhance collaboration. The usage & deployment of these tools are beyond the scope of this article.

Challenges in Selecting the Right set of Collaboration Tools

Most organizations agree that they need collaboration tools, but the major challenge lies in selecting the right set of tools based on their needs and budgets. Often times, companies do not have a firm understanding of the organizational needs: Managers do not have a firm understanding of their organizational structure and organizational design, Managers do not understand the cultural differences within different parts of their organization, Managers do not understand the impact of collaboration tools on the organizational structure and employee culture.

The gaps in understanding results in either over/under investments in collaboration tools or lack of utilization of the deployed collaboration tools - which ultimately affects the nature of collaboration between various parts of the organization.

Deploying the right technology and the right tool is critical for the success of work collaboration. To illustrate this consider an example of British Petroleum. BP developed and installed a video conferencing system on all its oil rigs - this system was called “Virtual Teamwork”. Virtual teamwork stations platform stressed on the richness if the communication between and the company implemented the state of the art technologies (in 1993) to make this happen. Virtual teamwork platform consisted of Video Conferencing system, multi-media computer system, e-mail, desktop application sharing, document scanner, digitally shared chalkboards, video recording facility, groupware software - Lotus notes/domino, and Internet. Back in 1993, this was the state of the art technology. Even today, most companies do not have all the above collaboration tools in every single location.

This investment paid off regularly and handsomely. This system allowed BP experts in one location to troubleshoot problems on different oil rigs. When one of the rigs in North Sea had a problem - causing a complete halt in production, an expert from Houston was able to join the video conference and see the malfunctioning equipment visually over the video. He quickly diagnosed the problem and guided the site engineers through the necessary repairs. Without this Virtual Teamwork system, it would have cost BP lots of money - the cost of lost production was running at $150,000/day, in addition the expert had to be flown in to the oil rig on a helicopter - all this meant big savings for BP and higher operational efficiency.

Development & Deployment of Collaboration Tools

A common problem in developing & deploying collaboration tools is that the onus of developing and deploying these tools often falls on the IT department or the project managers or divisional directors. In all these cases, the people whom are entrusted with this task do not have a clear vision or strategy for their intercompany collaboration. This leads to ad-hoc deployment or non-deployment.

Often times, companies take great interest in developing and deploying a custom built collaboration tool. Once the tool is deployed, all the relevant employees are trained to use it - and then something stupid happens: forget to support the tool. As the organization grows & expands in other georgaphies, or when new employees join, they will not be trained on how to use the tool. As a result new employees or employees in other locations do not use this collaboration tool - and eventually the tool is discarded.

Another common mistake in deploying collaboration tools is that the tools are developed with only one language interface (mostly English) and the same tool is imposed on their subsidiaries in non-English speaking nations. People whose native language is not English will find the tool difficult to use and thus do not make full benefit of it. Ideally multi-site collaboration tools should have multi-language interfaces so that people from different cultures can make use of it. If multi-language support is not available, then the language used in the tool must be simple enough for everyone to understand ( if not, please provide a good thesaurus built into the tool)

Ideally, the person or department who is entrusted with this task must have a thorough understanding of the organizational needs, must understand the impact of culture on the usage of collaboration tools, account for cultural differences between various parts of the organization, account for the need for continued training and support for the deployed tools.

Closing Thoughts

Global business delivery, and global sourcing requires excellent collaboration between various business units. In the world of global outsourcing - either IT services or production or distributed production etc., the need for collaboration is now greater than ever before. Selecting the right collaboration tools is just the beginning. Deploying these collaboration tools, supporting and maintaining these collaboration tools is the biggest challenge. Often times companies fail to invest adequately for deploying various collaboration tools - and even when the company spends the money, it is not spent wisely. Companies often times fail to take cultural, language and operational issues into considerations while deploying these collaboration tools.

The key to success today is effective collaboration between various business units (this includes internal business units, business partners, and vendors). Collaboration tools are there only to help and improve the work collaboration. Without the right set of tools, the level of collaboration will never reach its full potential.

To successfully deploy collaboration tools, one needs to consider the cultural issues, organizational design, technical competence of the users, adequate training for the users and continued support of the tools.

Also See:

1. Offshoring Requires Better Collaboration
2. Collaborate to Innovate
3. Challenges in Offshoring to India
4. Challenges of Multi-Cultural Teams
5. Making Multicultural Virtual Teams Work
6. Managing Virtual Teams - Use of Collaboration Tools
7. Build a Multilingual Web Site to cater to your Global Customers
8. Virtual Scale - Alliances for Leverage
9. Cutting Edge R&D in India
10. Global R&D Network
    
    

Launching Kottolli-investments

I am starting a new blog is dedicated for analysis of investments. Mainly stock investments, mutual fund investments and other bank instruments. In this blog I will mainly write about financial analysis and how my investment decisions are based on these analysis. The analysis are based on my learnings during my MBA studies at University of Texas. I will be writing about the stocks I own, stocks I buy and stocks I sell. These trades will be based on market analysis based on annual reports and market trends.

Initially my analysis will cover only Indian stocks and Indian investments as these are the only once I will be investing in. However, I will cover few US stocks too - namely Intel, IDT, Oracle and Accenture.


See regularly: http//kottolli-investments.blogspot.com

Challenges of Working Across Cultures

In the last several articles I have written about benefits of cultural diversity, the need for cultural diversity and how to manage cultural diversity in an organization. Today, almost all companies in Silicon Valley have embraced cultural diversity and have learnt to thrive in a culturally diverse world. But outside the silicon valley, American companies are yet to understand the impact of cultural diversity - let alone manage cultural diversity.

Recently, I was talking to a senior executive at an American company based in Austin, Texas. This company has drawn up ambitious plans to expand operations in Bangalore, India. Few months ago, the company setup an office and started staffing up its Indian operations for a major R&D project. Within months problems arose - managers were unable to resolve the conflicts between its Indian team members and their American counterparts. The collaborative work environment collapsed into a battle zone. The CEO was then informed about this problem rushed into Bangalore to take stock of the situation. But even his intervention would probably fail to stem the rot and the company may have to start its operations all over again.

The problem here was mainly of cultural integration issues - I had briefly touched upon it in my previous articles titled "Offshoring Requires Better Collaboration", " Challenges in Offshoring to India"& "Challenges of Multi-Cultural Teams". In this case the problem was much deeper and was deeply rooted into the "Texas Style" of business. Since I lived in Texas for a long period of time and also in Bangalore, I was quickly able to root cause the problem as the one caused by cultural conflicts that can be attributed to:

• Ethnocentrism
  
• Parochial Attitude
  

Ethnocentrism and Parochial attitude is the result of interaction with a different culture. Managers who are often sent abroad have little knowledge or experience in dealing with a foreign culture. As a result, these expat managers tend to respond to cultural differences which can be called as "Ethnocentrism" and "Parochial Attitude"

Ethnocentrism

Ethnocentrism results when managers recognize the differences in cultures - but have a tendency to think that their culture and their way of doing things is the right way, their way of doing things is the only way and their way of doing things is the best way. Any deviation from their culture or from their way of doing things is seen as "distortion" or as a "mistake" or as "Wrong way".

Most people have the tendency to follow ethnocentrism. Americans, Japanese, Chinese, Germans, French, Scandinavians, and Russians are more prone to ethnocentrism than other cultures - when compared to other Asians, Latin Americans, British, Australians, Africans and Indians. ( I do not have a scientific evidence to prove this - but the above statement is based from my experience.)

Ethnocentrism is often ingrained into almost all cultures. Every dominant culture tends to think of itself as the center of the world. For example, the word "China" means the middle kingdom. At the height of the Chinese empire, China truly believed that China was indeed the middle kingdom and even the Japanese, Koreans and Cambodia - all referred to China as the middle kingdom. The British empire drew the modern world maps with the Zero longitude passing through London - thus making England as the center of the world. US today refers to non-Americans as "Aliens" - a term which shows the ethnocentric attitude.

Parochial Attitude

Parochial attitude refers to a persons inability to see cultural differences. This is exactly the opposite of ethnocentrism.

Managers who are sent abroad often meet people who are also dressed in suits and speak their language - this prompts them to ignore all other cultural differences and make them think that all others are "just like us". In today’s business world, most people tend to dress similarly - in suits or other formulas and talk in English, But this does not mean that all people have the same culture - but people often only see the surface and assume that the other person shares the same cultural values.

Expat managers from US/UK often tend to display a strong parochial attitude - mainly because the people with whom they interact on regular basis can speak English and are dressed similarly in suits or western dresses.

Impact on Businesses

Often times, expat managers tend to display both parochial attitude and ethnocentrism at the same time. Problems in the organization are often blamed on cultural differences or on the culture of the local employees while successes are attributed to the culture/practices at the head office.

The inability of the managers to recognize the benefits of cultural differences puts these expat managers in a constant state of cultural blindness which at first seems to have no negative impact on the organization. On the contrary, by failing to recognize cultural differences, organizations and managers initially succeed abroad. This initial success is often due to the fact that the local employees tend to play the role of a gracious host - and accommodate the demands of the expat manager. But over a longer period, local employees tend to settle down to their usual practices and that's when the expat managers find it difficult to manage.

Parochial Attitude and Ethnocentrism together tend to pull off a 1-2 punch on the expat managers. The problems/failures are often blamed on the local culture while successes are attributed to the expat’s culture. This demotivates local employees and trouble starts in the local operations. Parochial attitude forces the expat managers to ignore local culture and in the process his/her behavior would have offended local sensibilities - thus creating discontent among the local staff.

Companies - especially MNCs tend to openly display their Parochial Attitude and Ethnocentrism. Examples of this are:

1. Use of common company wide HR policies
2. Use of common operating procedures
3. Use of common posters, advertisements and other PR material

Closing Thoughts

Companies which are newly going global or expanding into a new country have to be on the guard against some of the common management mistakes - Parochial Attitude and Ethnocentrism. The problems faced by expat managers are often blamed on the local employees - without fully understanding the true situation. This results in several false starts, misguided efforts and wasted resources.

Even established global companies tend to suffer from Parochial Attitude and Ethnocentrism from time to time. This is mainly because the expat managers who are sent to manage the local operations are not fully briefed or aware of the impact of culture on business operations.

The best solution to this problem is to create awareness among all managers. Both expat managers, company bosses in the head offices, and local employees must have a good understanding of each other’s cultures and have a working plan to benefit from this cultural differences. Often times, the managers and top executives are so busy working on operational issues - that they might be better off hiring external consultants/coaches who can guide them though this maze of cultural differences and bring out the best from that organization.

Also See:

• Offshoring Requires Better Collaboration
• Collaborate to Innovate
• Challenges in Offshoring to India
• Challenges of Multi-Cultural Teams
• Making Multicultural Virtual Teams Work
• Building a Diverse Workforce
• Cultural Assessment - Prerequisite for successful Mergers
• Soft Skills For Global Managers
• Global Manager
• Improving communication with Indian Engineers
• Leveraging Diversity-Use Brainstorming Session
• Common Mistakes in Recruiting a diverse workforce
• Managing Virtual Teams - Use of Collaboration Tools
• Improved Cross-cultural Communication Increases Productivity
• Managing Diversity for High Performance
• Keep Overseas Staff Focused on the Right Goals