Monthly Archives: May 2014

Challenges to Indian companies in going Global – by Ajatshatru from MYRA School of Business

Global market is not a new place for India if Periplus Maris Erythraei, a Greek travel manuscript written in the 1st century CE, is to be believed. The manuscript details that there used to be extensive trade between Romans and the Indians, the leading economic powers in that era. However, some factors such as continuously changing political scenario in India, dominance of Britain over world trade in medieval period, advent of Industrialization etc. pushed India from the position of a significant world trader to a small participant.

India is progressing well to gain the lost glory, gaining steam after independence in 1947 and accelerating even more after Economic Reforms of 1991. It is striving hard to be among the leading exporter of the world. Indian participation in global trade has increased manifolds in last two decades; though taking it to its true potential demands a thorough strategic planning and arduous execution, as most of the low hanging fruits have already been plucked.

Indian Companies need to find answers to the major challenges posed in their way to be global leaders.

These challenges can be classified as Internal and External as described below:
A. Internal – These are the challenges which are inherent to companies and to make the real impact at global level, Indian companies need to first strengthen themselves by getting rid of these significant challenges.

a) Talent crunch – Companies need strong talent pool which can take leadership position both in global market as well as in India, as and when required. This talent pool can be in-house trained as companies like Aditya Birla Group, Tata Group, Infosys, TCS etc. are doing or like some startups hire experts from related or unrelated Industries in India as well as abroad to nurture their global aspirations. Still most of the companies have not been able to come out with solution to this challenge and are struggling as success to them is largely dependent upon hiring and retaining highly skilled technology professionals, sales professionals and management professionals.

b) Cultural Impact – McKinsey in their study found that managing a global business is a major challenge as it makes different set of people with different cultural orientations to work together, and orienting them for a common goal with standard process is very difficult. To achieve global success a company needs to localize while pushing for the common goal.

Raghvan in his study observes that “As more and more “Indian MNCs” go global, their managers would need to gear up, in a very short time, the knowledge base needed to face the new challenges they would inevitably face in multiple global markets.” He also concluded that, “Indian managers should develop a “global mindset” that would enable them to understand and manage cultural differences, and lead their multinational teams to success.”

c) Strong Vision and Credentials – The exposure to big projects in India in comparison to global scale is limited. Only few companies like L&T, GMR, PunjLLoyd, etc. have been able to complete global scale projects, still there is a long way to go. Companies need to put forward a strong vision for future and plan for their global footprint by leveraging their Indian experience, e.g. Suzlon aspires to be a global leader in providing wind power solutions. This will help in making a strong brand having proven credentials, even PSU’s like ONGC, ISRO etc. are following the same model and have been comparatively successful in becoming a recognizable global brand.
B. External
There are many external challenges beyond control of Indian companies. These challenges are discussed as below:

a) Liquidity Shortage: Leading Indian researcher CRISIL has opined in their study that Indian companies will face depressed credit profiles over the coming months due to weaker demand for their products and liquidity problems. A shortage of liquidity leads to an underutilization of capacity and thereby significantly lower volumes.
Further, shortage of liquidity hits companies expansion plans, options to put new technologies for cost reduction and quality improvement.

b) Regulatory Matters : Legislations pertaining to anti-outsourcing, restrictions on immigrations are gaining momentum in certain countries and may hamper growth plans of many IT and other companies having outsourcing as their main business model or requiring Indian experts to run their plants in other countries. Tightening visa process, increasing rejections for visa and work permit applications, increasing minimum wage requirement may hamper growth prospect in major markets.

c) Integrating acquisitions and managing operations in diverse international locations is very critical as post-acquisition challenges include cultural, financial and technology integration risks. These challenges if not addressed adequately could result in failure to achieve the strategic objectives and the resultant synergy expectations. Lijee’s analysis found that Indian companies are struggling with their Chinese acquisitions.

d) Slow Global Economic growth : Due to significant slowdown in established markets of Europe and USA, companies are aggressively pushing for market share, significantly impacting margins. In 2012, Global GDP fell to 3.2% compared to 4% in 2011. The IMF projects growth at 3.25% in 2013, increasing to 4.0% in 2014. GDP growth in emerging markets and developing countries is placed at 5.3% in 2013, increasing to 5.7% in 2014. US GDP is expected to grow 1.9% in 2013, rising sharply to 3.0% in 2014. Europe will remain a laggard, with growth projected at -0.3% this year, and inching to just over 1% in 2014. This all brings a huge challenge for Indian companies to strategize their growth plans and optimize their resources to meet competitive challenges.

e) Fluctuating exchange value Un-hedged trade and financial exposure creates potential to adversely impact company’s projects and overall profitability. Further, volatility and uncertainty in forex rates creates complexity and challenges the margins.

Indian companies need to plan their global growth considering their organization structure, culture, financial aspects and macro-economic conditions. They should leverage experience of consultants advising on global growth, target countries based on CAGE analysis by Pankaj Ghemawat and should plan their global endeavors with optimal solutions to the foresaid challenges based on resources available with their organization.

Ajatshatru-Kaushal

– Ajatshatru Kaushal,

PGPX, 2014

Myra School of Business

 

Reference

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