globalisation in emerging india {navin}

7/27/2019 Globalisation in Emerging India {Navin}

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Internationalization of India Inc.

For Asia and around the world, India is not simplyemerging. India has emerged US President, Barack Obamaaddressing the Indian parliament on 8 th November, 2010.

In the aftermath of the global financial crisis, the Western economiesare under pressure as their growth has either stalled or drasticallyslowed down and there is growing awareness that their dominance of the global economy might be under serious threat. They increasinglysee their future in the emerging markets. At the same time, major emerging economies, including China and India, are powering aheadand in the process are redefining the global economic landscape.

Multinational companies from emerging economies, particularlyfrom Asia, now account for 70 of the Fortune Global 500 list andaccording to the United Nations Conference on Trade andDevelopment (UNCTAD), today account for over 16% of outwardforeign direct investment (FDI). As a result, the Western model of the multinational firm is coming under scrutiny and management

scholars are paying increasing attention to the uniqueness of theemerging economy multinationals.

Whilst today China occupies the central place in this scrutiny, thereare structural barriers in transferring best management ideas and

practices from China to the rest of the world due to the peculiaritiesof its political and economic systems. On the other hand, India shares

many common bonds with the Western world - democratic politicalsystem, free market economy and judiciary, respect for intellectualcopyrights, familiarity with Western economic systems andlanguage. Accordingly, the India model is worth considering indrawing lessons on how to navigate the changing contours of the 21 st century global economy.


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With its increasing integration with the international economy and

the burgeoning middle class, Indian economy offers a fertile groundfor international expansion for Western multinationals. As we willsee in this paper, Indian firms are fast internationalizing by investingabroad and employing locals. According to a Columbia Universitystudy, Indian firms have invested over $75 billion overseas in the

past decade. A joint study by the University of Maryland, India-USWorld Affairs and the Federation of Indian Chambers of Commerceand Industry reported that over the last five years, Indian FDI

projects in the US created about 60,000 jobs with investment worth$26.6 billion. Similarly, according to the Confederation for IndianIndustry (CII), Indian firms are the second highest foreign employersin Britain, with Tata, the UK s largest foreign investor, employingover 47,000.

In 2008-2009, we conducted 88 extensive interviews with the CEOs, business heads, country heads and other senior managers of eightIndian multinationals not only in their Indian headquarters but also intheir subsidiaries in both the developed and developing markets. Wewanted to track their global footprints in order to ascertain their corporate and international business strategies and how they differedfrom Western multinationals. We captured not only the corporatestrategic intent of these companies but also how it is executed in theworld markets they operate.

Our study discovered that Indian multinationals adopt a wide rangeof differentiation strategies underpinned by innovation and a soundcorporate philosophy. One of the core strengths of Indian firms is toextract maximum value from even ailing businesses by applyinginnovative and cost effective methods that they have developed over the years in an extremely resource constrained and uncertaindomestic environment. They have a unique approach to their international growth that is grounded in their Indian heritage andculture. We call it compass ionate capitalism and it manifests in


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several ways, such as a preference for sustainable growth, long-term

commitment to their businesses despite economic turbulences, faithin the management team of the acquired overseas companies andcommitment to employees in terms of job security and investment intraining. This approach however, has not dampened their ambition toreach for the stars with stretched goals.

In the following sections, we describe the international odyssey of

five Indian multinationals, mostly in the words of their top 25 business leaders. Our analysis is based on two well establishedconglomerates (Birla and Tata), two well known IT companies(Infosys and Wipro) and an upcoming bio-pharmaceutical company(Biocon). See the sidebar on their brief profile.

Internationalization Process

We begin with India s two most well known and establishedcompanies, the Aditya Birla Group and the Tata Group. Both of themhave a strong Indian heritage and have contributed immensely to themodernization and globalization of India. They are firmly embeddedin the psyche of the nation and instead of resting on their past laurels,they have reinvented themselves as modern multinationalcorporations in a range of sectors, both manufacturing and services.The founder of Birla Corporation, Ghanshyam Das Birla, was a closeassociate of Mahatma Gandhi and the founder of the Tata Group,Jamshedji Tata was known for his vision for India and establishedthe nation building industries, from steel to chemicals to cement andaviation. While both the companies are still India centric, they haveexpanded overseas rapidly and successfully.

Aditya Birlas internationalization journey began in South East Asiain line with India s so -called First Wave of internationalization in the1970s when the Government of India actively encouraged South-South cooperation in foreign investment. At the time, the major Indian industrial houses, including Tata and Birla, opted for Greenfield investments by pursuing joint ventures with firms in the


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host countries and leveraged on their capability in reverse

engineering by replicating foreign technologies in cost efficientmodes, mostly in the manufacturing sector.

While 90% of Aditya Birla Group s income comes from thecommodity business, over 60% of its revenues are generated outsideIndia. As Sudhakar Ramasubramaniyan, the President and Head of Corporate Strategy, explains: Most of the businesses that we are in

are the businesses of the First World in the 50s, 60s and the 70s.Today, the first world economies do not have the ability to do these

businesses. I cannot set up an aluminum smelter in America andEurope anymore. It s not worth it. I will service the Americancustomers (but) Mexico is the geography that I enter to service theUS market ... even for new age businesses I would hesitate to go anddo something there because the markets are very consolidated ... pole

positions have been taken by few players ... and labor costs are veryhigh.

However, Birla chose the acquisition route to expand downstreamaluminum business (Novelis in the USA) and the BPO business(Minnax in Canada) as these acquisitions offered big and stickyclients with marquee names . The current Chairman,Kumarmangalam Birla set the goal in 2003 to join the Fortune 500league and having achieved that his next goal is to join the Fortune150 league which meant tripling the businesses. In the process thestrategic focus of the Group which was earlier conglomerate-centric

based on manufacturing and large scale operations has changed to being flat-footed and focusing on niche opportunities. As a result, theinternal management dynamics has also changed. As Santrupt Misra,a member of the Corporate Board and Group HR Director explains,from individual personality dependence, it has moved to systemsdependence and process dependence and I believe it will move tomore and more self regulating norms dependence... it is a best


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leverage approach (as it is) flexible, adaptable, sustainable and

scalable.

The international character of the Tata Group was evident more than130 years ago when its founder Jamshedji Tata employed foreignmanagers in Tata Steel and Tata Electric. The present Chairman,Ratan Tata believes in the same philos ophy. He says one of thereasons I have been keen to find a way to really prepare the

organization proliferated with other nationals is nothing changes the perspective quicker or deeper than in fact having to have acoexistence of cultures.

Whilst like the Birlas, the Tata group is a conglomerate with multiple business lines, here we focus on Tata Motors which has a dominantmarket share in trucks in India and the neighboring countries,

including South Africa. Its product profile has traditionally suited thebottom of the pyramid emerging markets which is now changingwith new world class products, such as pick-up trucks and prestigecars, being added. Global auto companies that are coming to Indiaare forging collaborations with Tata Motors. For example, thecompany has a joint venture with Marco Polo in Brazil for bus body

building and distributes Fiat cars in India. It has been in the car market for only 10 years and already boasts an impressive range of cars from Nano, the world s cheapest car to prestige global brandswith the acquisition of Jaguar and Land Rover (JLR). It also recentlyacquired the truck business from Daewoo.

Rajiv Dube, President, Passenger cars, believes that (as a result) weare in the phase of transforming as a corporation and Tata Motors (of the future) will be very different from the one that you see. He saysthat the international image of the Tata Group rides on the success of its car business, as it is highly visible and emotive to customers, andas such we have gre at opportunity to be the ambassadors of thegroup in terms of opening countries for other businesses.


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Tata Motors have effectively leveraged their dominant presence in

the domestic market to expand overseas. Says Rajiv, All of our group companies are wedded towards nation building activities andwe are very proud of the fact that we are an Indian company. For example, despite bitter experience in the Indian state of West Bengalwhere local agitation on land acquisitions forced the closure of Nanocar plant, Tata Group continues to invest there. While compared tothe meteoric rise of the biggest Indian company, Reliance, thegrowth of Tata Group might be considered slow and the philosophyas conservative but as Rajiv says it would prefer core values andquality over aggressive growth. It is not a value judgment on others

but reflects the belief that fast growth often leads to temptations tocut corners.

In contrast to the growth story of the Birlas and Tatas, our next threecompanies are the products of modern India and were set up only inthe last three decades. Wipro and Infosys are globally renowned ITcompanies whereas Biocon is a fast growing bio-pharmaceuticalcompany. Shibulal, COO of Infosys, describes his company sinternational ization process in terms of three phases: the where

phase when people didn t even know where India was in the early90s, the when phase when they wanted to do business with Indianfirms but not sure when and the now phase where they are nowready to strengthen and deepen their engagement. He says yesterdaywas all about automation, industrialization, productivity throughrepeatability, capital intensive projects and leveraging on theregulatory regime. Today it is all about people, intellectual property,technology, innovation and capital light projects in a less regulated

world.The business model of Infosys is based on four pillars -

predictability, sustainability, profitability, and de-risking (PSPD). Itwants to be the trusted transformation partner for its clients byattracting the best and the brightest, building world class


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infrastructure and following best in class practices. Infosys is a

federated organization with an inclusive decision making and ahighly evolved governance process. The five year corporate strategy

planning process is bottom up and collaborative. Sanjay Purohit, VPand Head, Corporate Planning & Business Assurance explains thatInfosys s strategic planning process takes place over three timehorizons with different focus areas: the annual planning is driven byoperational units focusing on optimization, the three year planning isdone by the business units and is built around differentiation and the5 year planning is about sustainability and is spearheaded by theBoard.

Infosys has grown rapidly at a five year CGR of 42% to reach aturnover of over $5 billion and an employee base of over 100,000. Ithas expanded its services footprint rapidly by 51% in five years fromapplication development to enterprise solutions, infrastructuremanagement, outsourcing and consulting. Sanjay describes thisevolution from keeping the lights on projects to building businesssolutions and now being trusted transformation partner. The successof its high touch, high relationship model is reflected in the factthat its repeat business is traditionally over 95%.

In the process, the employee profile has changed to include 72different nationalities which Sanjay believes is a fairly good spread

but we need to increase the depth . Its international employee basewhich has already grown from 2 to 10% in the past few years willgrow further. One of its successful endeavors in this regard is theglobal internship program affiliated to over 95 universities creatingenormous brand equity and future leadership team from the globaltalent pool. This is augmented by investment in employee training of over $200 million with the world s largest corporate education centrein Mysore, near Bangalore. Sanjay believes that the company scommitment to developing employee talent is unparallel. The fact


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that 97% of its customers are overseas and are serviced mostly by

India based talent is a unique model of leveraging global talent .

At the core of Infosys s success is its value system which issummarized as CLIFE (customer delight, leadership by example,integrity, fairness and transparency and pursuit of excellence). Theseare well ingrained and seeped into the company through multiplemeans, such as education, leadership behavior and role modeling. To

the company, its value system is time invariant and contextinvariant . In the future, Infosys intends to reduce its dependence ondeveloped markets by expanding into developing markets. Whilecurrently the mix of markets for Infosys is 65% USA/25%Europe/10% Rest of the world it wishes to change the mix to40/40/20. This shift will obviously lead Infosys to become a truemultinational in all its dimensions investor, clients, geography andemployee base.

Wipro is another successful global IT services brand coming out of India. Like IBM, Wipro has transformed itself from a hardwarecompany into a software powerhouse as is well documented in the

best- seller Bangalore Tiger . Wipro s approach tointernationalization is based on the global service delivery modelwhere the immediate value proposition lies in cost competitivenessalong with value additions in terms of high quality and high servicelevels. With regard to internationalization in the developing markets,cost competitiveness is replaced by high competence and expertisealong with high quality and service. In addition to seeking marketaccess, the developing markets are also used as a resource pool to tapthe local talent base to service both local as well as overseas clients.

Girish Paranjpe, Joint CEO, Wipro Technologies says that the bulk of Wipro s growth has been organic and is expected to continue thatway because the services business is mainly about people and clientrelationship with little hard assets and as such M&As can only besupplemental to its growth strategy. Wipro follows a string of pearls


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approach to M&A as a vehicle to fill in niches where Wipro

couldn t build business or capability fast enough. Girish defines theorganizational culture of Wipro in terms of strong work ethic,customer focus and autonomy to employees. Wipro also strongly

believes in offering career opportunities to internal employees to theextent that in filling a position, it prefers an employee who is 70%

job ready to an external candidate who is 100% ready.

Wipro s approach to entering developing markets is based onlocalization. As Bala, Sr. VP Manufacturing & Healthcareexplains, in Western markets one can get straight into businesswhereas in emerging markets it takes enormous time to cross the

barrier of trust before you can start getting to be effective (and that broad basket of trust includes) local networks, forums and contacts(which an expat cannot access). So, he believes that in emergingmarkets one needs to establish trust before selling content whereas indeveloped markets content alone is enough to start a dialogue. WhenIndian MNCs enter developed markets, the immediate intent is toexploit the present (in terms of market share, infrastructure, talent

base etc) whereas when they enter developing markets, such asChina the intent is to exploit the future potential even though itmeans taking a hit in the short run.

Throughout its evolution, Wipro has never compromised on its coreethics and that has placed in good stead over the years. Wipro sability to drive its cultural DNA throughout its global operationswithout diluting its values in spite of rapid organic growth andacquisitions has underpinned its success. This has been made

possible with huge investment in learning and developmentopportunities for employees.

So far, Wipro s growth has been underpinned by its entrepreneurialspirit but today it is in a maturity and consolidation phase andtherefore, many of its senior executives feel the recession in theglobal market has given them the chance to take a breather,


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Biocon s internationalization strategy is based on organic growth

through partnerships and not to dramatically increase market share by acquisitions which it believes is a recipe for disaster. It wants to be known as a large, India based, innovation lead, world class biotechnogy company with a world-wide distribution network builton partnership with local players. It wants to continue to focus on

both domestic and global markets simultaneously. Accordingly, ithas marketing and distribution arrangements in Latin America,Mexico, Middle East, Eastern Europe and South East Asiancountries.

The world is also coming to India to conduct clinical trials inrecognition of the increasing maturity of Clinical ResearchOrganizations (CROs) in India and Biocon is riding the wave of thisoffshoring to the extent that 80% of its business in this space comesfrom overseas clients. Arvind, COO of Biocon subsidiary, Clinigene,says the dependability and integrity of (cl inical trial data from India)is surely but slowly getting better but still it is a long way to go.With the increasing affluence of Indians, the Indian market is

becoming too big for pharma MNCs to ignore.

Biocon has always been known as a quality provider and has gained particular appreciation from regulators who visit Biocon s plants andrate them as being at par with the best in the world. Biocon is driven

by its founder Kiran s leadership vision and her leadership style has percolated down to other senior managers. Says Arvind: we areencouraged to be an entrepreneur in the entrepreneurial enterprise ..with lot of freedom. Biocon has succeeded because of quicker decisions that we have taken and like a flee we move quicker,flexible to the client compared to the large monoliths of big MNCs...We have gone through a model of learn, earn, burn rather than burnand then earn.. (Biocon will keep changing) because (we) would liketo make a mark as a discovery company rather than a me-too productcompany.


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Innovation-driven Differentiation Strategies

At the heart of the success of the above Indian multinationals is theemphasis on innovation which they believe is the only sustainablecompetitive advantage in the 21 st century knowledge intensive globaleconomy.

We begin our analysis of differentiation strategies of Indianmultinationals with Infosys. To the question, how does the company

try to avoid the strategic sameness trap by differentiating itself withits local and international competitors, Sanjay Purohit, VP & Head,Corporate Planning highlights three building blocks: To become atransformation partner, to become a global sourcing expert andexecution via non linear growth. See the sidebar on Infosys sDifferentiation Mantra .

In order to infuse fresh thinking at all levels of the company, Infosyshas established a Voice of the Youth program under which eachmanagement council of each business unit has to have 15% of its

people who are below 30 years of age from diverse backgroundswho participate in the deliberations as equals. This approach placesthe hierarchy of ideas above the hierarchy of experience . Everyquarter, the participants in the Voice of the Youth program have aglobal video conference with the CEO providing a direct link to air their views directly to the top management without bureaucracy andmanagerial interference. Another bottom up decision makingapproach is the strategy internalization contest whereby employeesat the bottom three layers of the company articulate the companystrategy as to how they live and practice the company vision andmission. This gives them the sense of ownership of corporate goals.Thus, through the philosophy of triangulation , the senior management makes sense of what is happening inside and outsidethe company.

The company recently won the Balanced Scorecard Hall of FameAward for implementing a metrics driven performance assessment


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and reward system from top to the bottom that helped the company

to achieve and measure organizational alignment, communicateorganizational priorities, reengineer the performance review processand focus on key areas.

The focus on performance metrics is also at the heart of Infosy slocal rival, Wipro. One way Wipro has tried to manage its globalgrowth is by creating a metrics driven organization that fosters

autonomous team based structures because it believes thatcollaborative teams scale up faster and better. In order to encouragewhat Wipro calls applied innovation , the company has establishedan Innovation Council that recognizes and rewards innovative ideasand uses the visibility provided by these events as a springboard of innovation.

Manoj Punja, Wipro s Chief Sales & Operations Officer Americas, believes that the Indian IT companies global delivery model has been a disrupter of business model as much as Google being atechnology disruptor. He believes it is a radical not an incrementalinnovation. For example, the services business in the BPO markethas today evolved from transactional back office to knowledgeintensive, value added services, such as research and analytics.However, being a service innovation in the B to B space, it is not asvisible as a product innovation. Lee Fields, Sr. VP GlobalPrograms Team, who joined Wipro after the acquisition of his

previous company (Infocrossing) says Indian IT companies arehighly process, quality and metrics oriented. He is pleasantlysurprised by the level of energy that he found in the company, whathe calls fire in the belly , the ability to deliver and excellence incustomer service.

Similar to IT companies, Tata Motors which is hardly 10 years intothe global passenger car business, is taking on the world auto majors

based on innovation. For example, referring to the effect thatevolution of Nano car has had, Ratan Tata says: Nano effect is


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much beyond the car industry, it is forcing people to think how you

can do things differently to address a market which you thought doesnot exist or will take some time that those consumers will graduateand come into higher segment after some time. And I am sure insidethe company it has had a great amount of impact in the way westarted looking at things. So, people are now willing to believe thatnothing is impossible to achieve.

Biocon is also trying to make a similar difference in the bio-pharmaindustry. According to its founder and Chairperson, KiranMazumdar, Biocon s philosophy has always been aboutdifferentiation. Considering the increasing scrutiny by healthregulators about the side effects of the long term use of drugs, Kiran

believes that pharmacovigilance is now proving to be a veryimportant part of any pharmaceutical company s business activitiesand that is another point of differentiation that she sees for thecompany in the future. The other area that the company is focusingon is antibody technologies which it wants to again makeaffordable by developing a pipeline of antibodies in collaborationwith Cuban firm. By simultaneously focusing on generic and noveltechnologies, the company wants to spread its risks by channeling its

profits from low risk generic drugs into high risk novel drugs.

Unique Characteristics of Indian ManagementIt is widely recognized in the management literature that the countryof origin and national culture play an important role in the shaping of multinationals. Many articles have appeared in the HBR highlightingthe uniqueness of Indian management style, particularly with respectto innovation (Innovation s Holy Grail, HBR, July -August, 2010)and investment in people (Leadership Lessons from India, HBR,March, 2010). Our research unearthed similar features, which aredetailed below.

Indian Culture


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In the minds of the Indian business leaders there is no doubt that

Indian culture and mindset are quite different than Western countrieswith both positive and negative effects on their global growth. Thesedifferences show up in unexpected ways. Ratan Tata gives anexample on the concept of clarity. The Indian executive has all theclarity he needs but it is not dotted in cross like the Western peoplewant ... they want clarity of direction three months before the personhere needs it. They want it in writing whereas the Indian executive isquite happy to just exchange it verbally .. . So, there is a formalitythat the Western companies have come to accept which we don thave here.

The Indian leaders point out that the Indian culture is fairly adaptive.Unlike the Chinese and Japanese, it is very multicultural. SaysManoj Punja from Wipro: The personal life (of Indians) is verytraditional but when it comes to business they are highly adaptive. Compared to the multinationals from other emerging economies,India has certain natural advantages: multi-ethnic and multi-religioussociety, democratic political system that is often chaotic butfunctional, good education system, young population, familiaritywith English and Western management systems and highlysuccessful Indian diaspora.

Lee Fields (Wipro) believes that India owes it to itself to do a better job of branding so that they are not seen as a very foreign culture because there are many similarities between India and the UnitedStates people don t realize it. The need for national branding wasclearly evident in the way India organized the recent CommonwealthGames. In contrast to China which successfully showcased itsstrengths in holding the Beijing Olympics, Delhi floundered badly inthe beginning attracting widespread criticism and even though iteventually went well, the initial bitterness lingered on.

The Indian leaders unanimously agree that one of the key challengesfor Indian multinationals is the need to develop a global mindset .


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For example, they point out that Indians take their work too seriously

and emotionally which upsets their work-life balance; they involvetoo many people in the decision making process which often leads to

bureaucratization and concentration of power in the Indianheadquarters. Another challenge is the chalta hai , that iscomplacent attitude, which leads to lack of discipline, compromiseon quality and poor customer service.

According to Birla s Santrupt Misra, Indian multinationals willhave the challenge of meaning in the sense of time, space,forthrightness, transparency, speaking their mind freely, sharing your feeling, learning to say no. A lot of the cultural nuances of thesewould be challenging for Indian companies as they go global

because they are for far too long used these categories in a certainway. Ratan Tata believes that the Indian companies need a mixingof cultures to encourage people to have the ability to speak up

because hierarchies, stratification, even sycophancy cause manyIndian corporations to live in a fo ols world and sometimes the bossis isolated. However, as Manoj Punja (Wipro) points out thechallenges are not so cultural but more evolutionary issues, moreglobalization issues, more scalability issues, management issues ...have I learnt fast enough that is the bigger challenge.

Compassionate Capitalism

Bharat Singh, the Managing Director of Aditya Birla Nuvo, states:the philosophy that rules the (Birla Group) is very, very strong, thatis that if we are blessed with an opportunity to deploy the wealth of the society, then we owe it to deploy it in the wisest possible way. ..whichever international market we have pursued, we have never gone as mighty conquerors... we don t want to project the image,ever, of anything else other than good businessmen in the trueGandhian concept. That we are here to contribute to construction andadvancement of that society, of building that society rather thandoing anything destructive... spirituality is in our psyche .


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This compassionate approach manifests in many ways, for example,

preference for sustainable growth (as detailed in previous sections),long term commitment to international expansion and acquisitions,keeping the management team intact after acquisition andcommitment to job security and employee growth. As Gautam Das,COO of Biocon subsidiary, Syngene International Limited, saysIndian multinationals in general don t start a business with an exitroute that in itself shows that they have a better sense of commitmentto continue with the business.

When Birla acquired Minnax, a BPO business in Canada, theemployees at Minnax welcomed the acquisition as they believed thatthey would not get sacked because they thought that Indian firmswith benevolent management style do not easily sack people. So,there the perceived image of Indian firms in taking care of employees helped (the integration process). Similarly, the tradeunions at Jaguar Land Rover (JLR) in the UK preferred Tata Motorsover other bidders when Ford sold the company bec ause they feltthat Tatas had a high degree of integrity in the way they dealt withemployees and felt comfortable that they could trust Tata to do theright thing for employees.

When Tatas took over JLR, Ratan Tata promised that both the brandswill retain their distinct identities and will continue to pursue their own business plans. Despite the ensuing global financial crisis thatseriously affected all luxury brands, Tatas stuck to their promise. AsDes Thurlby, Head of HR at Jaguar Land Rover (JLR), explainsthey have been true to their word in terms of leaving the Jaguar Land Rover business to run itself and leaving the brands to developthemselves. The management team was also left intact. Descompares this to Ford and says they were more hands-on. It wasdirective and my way o r high way kind of stuff . In the aftermath of the global financial crisis, JLR had to resort to many cost cuttingexercises, such as reducing the workforce, enforcing pay cuts and


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shelving expansion plans. However, Tata to ok a conscious decision

to carry on with product development spending and launching of new products and these products have now started to hit the market... Tata are a long-term holder of businesses so they know that thingsare cyclical.

Dirk Ulrich, CEO of Axicorp which was recently acquired by Bioconnarrates a similar experience. While looking for suitable partners,

Axicorp found that Biocon fitted the bill not only for businessreasons but also in terms of cultural fit. While there was some initialapprehension as to whether the work would move to India as

portrayed in some German media , it ended up as the best deal of our life because Axicorp now have better growth, profitability and localemployment with a wonderful working relationship with Biocon ssenior management. He appreciates the fact that even though saleswent down significantly immediately after the merger, Biocon keptfaith in Axicorp and as a result the current growth rates are better than expected . The senior leadership team at Axicorp has alsoremained intact as a deliberate strategy. Nehal Vora, Biocon s Headof European operations, explains One of the principal reasons whyIndian MNCs have succeeded with their foreign acquisitions is

because their net sale to the debt ratio is very, very small even when plenty of venture capital was available during the boom time. In thatsense opportunities have been well used not misused.

Reaching for the Stars with Stretched Goals

Indians have been quick learners in internationalization both in scaleand speed. With the domestic market fast catching up with thedeveloped market, the learning has had a multiplier effect. With

booming local economies, the emerging market multinationals arereaching for the stars. This is in contrast to the saturated economiesof the West and decreasing appetite for growth amongst manyWestern multinationals. Says Sudhakar, Birla s head of corporatestrategy, most of the developed world companies are little bit of a


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Western countries have got used to one to three per cent growth. In

India, we are used to six to nine per cent growth. So what they call astretched goal is far easier for me. When you can show the peoplehow we have been able to grow at seven, eight per cent and howmany years you have done that, that creates a credible story then

people start respecting you. So there are these macroeconomicvariables that have shaped and influenced our way of thinking aboutdecision making, risk taking, stretch or performance etcetera wherethere is a gap there.

Referring to the aggressive competitive spirit of Asian MNCscompared to Western MNCs, Manoj Punja (Wipro) says, since theleadership comes from a very different mindset the level of strategyis obviously very different. What is the possibility (to developedworld) becomes a necessity (to developing world)... While theworld s top 500 companies are still largely the same, you will noticethe change in the top 5000 companies. So, it is chipping away at the

bottom and it is going to move on.

The New IndiaAfter decades of inward looking government policies and apathy, theIndia Inc. is finally breaking the shackles to make its mark in theglobal stage. Despite structural deficiencies that still plague theIndian economy, such as poor infrastructure, corruption and

painfully slow process of liberalization, the Indian entrepreneurs aremaking up for the lost opportunities and have found a way to getaround the problems by leveraging their strengths in a globaleconomy that is tilting towards the emerging markets.

In comparison to China, the India growth story may not be thatcompelling but the world s largest democracy a nd soon to be themost populated country on earth is surely finding its feet. Whilefeeling proud of their Indian heritage, the Indian leaders are acutelyaware of the challenges that lay ahead, particularly, the need todevelop a global mindset and innovate radically and not just


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incrementally. Kiran Mazumdar of Biocon stresses this need by

saying that unlike Western counties, failure in India is affordableand therefore, affordable innovation is what India can bring to theglobal economy. Coming from an environment of scarcity and highcost control, Indian enterprises can show the way to the world interms of how to leverage economic and political uncertainties inglobal markets to their advantage and extract value from the bottomof the pyrami d developing economies where the growth rates far outpace those in the developed world.

India is very good at adding value and innovation in a simplistic way(what is called in India as Jugad ) that is when they take a job theywill find a way to get it done, not always in a sustainable way or withacceptable confidence but in a way that will definitely add value. AsSantrupt Misra from Birla says Indian multinationals bring their ability to be very, very efficient with very little resource andtherefore to be often very innovative ... from the usage of resources

point of view.

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trading places: the international economy 1

(Barraclough 1978: 256 7). The first was the development of transportation and communication networks that physically linkedtogether different parts of the planet, especially by rail-ways,

shipping and the telegraph. The second was the rapid growth of tradewith its accompanying pattern of dependency, especially between therelatively industrialized countries of Western Europe and the rest.The third was a huge flow of capital mainly in the form of directinvestment by European firms in non-industrialized areas.

These developments, which form the substance of this chapter,achieved full fruition by about the middle of the twentieth century.By that time, some forms of communication (e.g. the telephone and

fax) had become instantaneous although still relatively costly; it had become possible, again at some cost, for any individual to movefrom any inhabited part of the planet to any other within 30 hours or so; trade in goods approached about a quarter of global production,and approached half of GDP in many non-industrialized countries;and foreign direct investment by multi-national corporationsdominated non-industrialized economies. However, it is important tostress that these developments began in the second half of thenineteenth century.

It is small wonder then that Marx developed an early theory of capitalist internationalization at about this time. Marx writes of theway in which the capitalist seeks to transsect national boundariesextending transportation and communication into the furthest reachesof the planet, restlessly seeking to expand markets throughout theworld and to appropriate ever greater tranches of labour power.Capitalism is clearly the vehicle of economic internationalization

because its peculiar spectrum of institutions financial markets, commodities, contractualized labour, alienable property are highly mobile and fluid, facilitating economicexchanges over great distances. For this reason, many theories of globalization take their lead from Marx in stressing its economicfoundations. For these authors, as capitalism expands across theglobe it internationalizes the associated pattern of social


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2 trading places: the international economy

relations known as class. For some authors (e.g. Frank 1971;Wallerstein 1974, 1980) the international class system consists of struggles between states as the working class in core countries

becomes embourgeoised and as a third -world proletariat developsin the periphery. Others (e.g. Sklair 1991: 8) reify a global capitalistclass that effectively runs the planet on its own behalf.

The following sections outline the various means by which globaleconomic relationships are accomplished: trade, invest-ment,

production, financial exchanges, labour migration, internationaleconomic co-operation and organizational practices. These will

provide the evidence on whether claims about the development of aninternational class structure can be sustained.

INDUSTRIALIZATION AND MODERNIZATION

In the introduction to this book we note that Durkheim had arguedthat the general direction of change in society is one of structural

differentiation. In the middle of the twentieth century, structural-functionalist sociologists expanded and modified Durkheim sargument to encompass the globalizing effects of differentiation. Inthematic terms their thesis ran as follows. Industrialization involves a

primary social separation between capitalization and collective production on one hand, and domestic production and reproductionon the other. To the extent that a society can make this separation, itsmaterial wealth and therefore its political success relative to other

societies will increase. Once the option of industrialization isavailable, political and economic leaders will tend to choose and

pursue it. Therefore, indus-trialization spreads from its seed-bed outinto societal contexts in which it is not indigenous and the world

becomes more industrialized.Industrialization carries with it more general societal ramifica-

tions. It introduces the pattern of differentiation to other areas of social life as these areas articulate increasingly with the industrialcore: families specialize in biological reproduction and inconsumption, schools teach differentiated skills to the


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labour force, specialized units of government provide economicinfrastructure, the mass media sell appropriate symbolizations,churches promulgate supporting values, and so on. These struc-tural

changes induce value shifts in the direction of individual-ization,universalism, secularity and rationalization. This general complex of transformations is called modernization . As indus -trializationspreads across the globe, it carries modernization with it,transforming societies in a unitary direction. Imitating societies mayeven adopt modern institutions, such as universities or airlines,

before effectively industrializing. 1 Parsons (1964, 1966) takes the lead in arguing that this social

change has a specific evolutionary direction and a logic or dynamicwhich drives it in this direction. The logic or dynamic is adaptation:the capacity of a living system to cope with its environment (1964:340). Modernization proceeds in the direction of adaptive upgrading:

If differentiation is to yield a balanced, more evolved system,each newly differentiated sub-structure . . . must have increased

adaptive capacity for performing its primary function, ascompared with the performance of that function in the previous,more diffuse structure. Thus economic production is typicallymore efficient in factories than in households.

(1966: 22)

The institutional path which adaptive upgrading forces on anysociety can be tr aced through a series of evolutionary universals(Parsons 1964), a concept based on the idea of natural selection inorganisms. They are defined as: any organizational devel -opmentsufficiently important to further evolution that, rather than emergingonly once, it is likely to be hit upon by various systems operatingunder different conditions (1964: 329). Parsons identifies four base

universals found in all, even the most undiffer-entiated of societies:technology, kinship, language and religion. Then there are twouniversals associated with evolution to an intermediate stageexemplified by ancient empires and feudalism.


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CONVERGENCE

The most influential theory of internationalizing impacts of

industrialization comes not from any sociologist but from a group of Californian labour market theorists (Kerr et al. 1973). Kerr, Dunlop,Harbison and Myers propose that industrialization causes societies to

become more alike. While they insist that industrial societies in theinternationalization phase are not identical or even similar, they doclaim that such societies are enmeshed in a process of convergence,moving towards a point where they are identical. They support thisclaim with two arguments. First, they suggest that industrial societiesare more similar to each other than to any non-industrial society.Second, although the industrialization process may be generated indifferent ways in different societies, industrial societies will over time become increasingly similar to one another. The driving forcefor this convergence is the logic of industrialism as societies

progressively seek the most effective technology of production their social systems will also progressively adapt to that technology.Technological development will more closely determine some socialrelations than others, particularly the economic arenas of employment and consumption. However, technology will necessarilyaffect most areas of social life.

Kerr et al. outline the key features of this societal convergence.Individual skills become highly specialized so that the labour force

becomes highly differentiated into occupations. As science andtechnology advance, the occupational system will change, inducinghigh rates of occupational mobility. This process will be underpinned

by very high levels of educational provision and credentialization.Equally, industrial technology demands large-scale socialorganization in order to support mass produc-tion and massmarketing. Industrial societies will therefore be organized spatiallyinto cities; governments will expand to provide a socializedinfrastructure for industry. And organizations will generally be largein scale, hierarchical and bureaucratic. Industrial societies will alsodevelop a distinctive value-consensus


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focused on materialism, commitment to work, pluralism, individualachievement, and progress for its own sake. They conclude that:The industrial society is world -wide because The science and

technology on which it is based speak in a universal language(1973: 54).However, by the beginning of the third quarter of the twentieth

century it was clear that such materialistic or techno-logicalarguments could not substantively be supported. There was anincreasing recognition that culture could not be reduced to economicor class relationships. Indeed, by this time most occupational activitywas not directed to the production of material commodities and didnot employ machine technology. However, there was one lastattempt to: re -write the last chapter of [Durkhei m s] The Division of

Labour with a happy ending , as Archer (1990: 101) puts it. This isBell s (1976) forecast of the emergence of post -industrial society

but this time the focus was on service production rather than the production of goods. In caricature, Bell specifies the post-industrialsociety as a game between people rather than a game between people

and things. Its central characteristics are as follows:

The number of people engaged in occupations producing services predominates over the number engaged in producing rawmaterials or manufactured goods; these occupations are

predominantly professional and technical in character. The class structure changes in the direction of a system of

statuses; the predominant status consists of members of professional and technical occupations and the locus of power shifts from the economic to the political sphere.

Theoretical knowledge predominates over practical knowledgeand becomes the main source of innovation and policyformulation.

Technological development comes within the ambit of humancontrol and planning; technological goals can be set and activities

co-ordinated to accomplish them; invention is no longer anindividualized activity governed by chance.


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inter-state politics and the disruptive threats of population growth.

WORLD CAPITALISM

The view that societies proceed along a continuum of moderniza-tiondominated social scientific thought on global development in the 30or so years after the Second World War. The predomi-nant pardigm,and one that was appropriate for this international economy, was thatof development . The idea of development, especially of societiesexperiencing low levels of industrialization, was the focus in the

middle years of the twentieth century, not only for social scientists but for politicians and journalists. An appropriate metaphor for thisview is that of countries as a series of mountain climbers clawingtheir way up Mount Progress . 4 The strongest are near the top whileothers lag behind hampered by smallness of stature, poor equipmentor lack of training. They meet blockages on their paths and cannoteasily withstand natural calamities visited on them by landslide and

climatic inclemency that occasionally throw them further down themountain. The climbers near the top will often throw down ropes tohaul the others up. Frequently the ropes are not strong enough

because the good climbers never throw down their best ropes and arealways selective about which of those lower down will receive help.However, most of the stragglers believe that by following in thefootsteps of the lead climber they will all get to the summit in the

end. There are those who select an alternative route and refuse helpfrom the lead climber but they are not doing nearly as well. Wheneveryone gets to the summit they will join hands in mutualcongratulation because they are all in the same place.

There has always been a problem in describing countries withdiffering positions in this developmental ascent. In the 1960s there

were developed and underdeveloped countries; in the 1970s thefirst world and the third world , with the second world , the state -socialist societies, poised awkwardly between them; in the 1980s wespoke of more developed and less devel -


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level of development plainly did not occur. Monopoly-capitalistimperialism has indeed survived with considerable stability for abouta century, but the reason, argues Frank (1971) (see also Cockroft,Frank and Johnson 1972), is that monopolistic firms only give the

appearance of being capital exporters when they are in fact netcapital importers. They import profits made in colonies which

provide for internal capital accumulation. Capital exports toeconomic colonies are only seed money investments, principallydirected to the exploitation of labour for the production of food andraw materials. Colonial commodities can be imported to the centre atlow prices while manufactured goods can be exported at high prices

with the difference providing a surplus which returns to the investor and thus makes capital grow. As a consequence, underdevelopmentis perpetuated as a pattern of dependency between the colonialist andthe colonized.

The most influential sociological argument for considering theworld as a single economic system comes from Wallerstein (1974,1980; also Hopkins and Wallerstein 1980, 1982). His primary unit of analysis is the world-system, a unit which has a capacity to developindependently of the social processes and relationships which areinternal to its component societies or states. There are three possibletypes of world-system:

World-empires, in which a multiplicity of cultures are unifiedunder the domination of a single government; there have beenmany instances of world-empires, e.g. ancient Egypt, ancient

Rome, ancient China, Moghul India, feudal Russia, OttomanTurkey. World-economies, in which a multiplicity of political states, each

typically focusing on a single culture (nation -states ), areintegrated by a common economic system; there has been onlyone stable instance of a world-economy, the modern world-

system , integrated by a single capitalist economy (which includesstate-socialist societies).

World-socialism, in which both the nation-state and capitalismdisappear in favour of a single, unified political-economic


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system which integrates a multiplicity of cultures; there is noinstance of world-socialism and it remains a utopian construct.

It is the second of these, the modern world-system, that corre-sponds

with the notion of an inter-nationalized economy.Wallerstein concentrates on the emergence and evolution of the

modern European world-system which he traces from its latemedieval origins to the present day. He describes the emergent

phenomenon in the following way:

In the late fifteenth and early sixteenth century, there came into

existence what we may call a European world-economy. It wasnot an empire yet but it was as spacious as an empire and sharedsome features with it. . . . It is a world system, not because itencompasses the whole world, but because it is larger than any

juridically- defined political unit. And it is a world -economy because the basic linkage between the parts of the system iseconomic, although this was reinforced to some extent by

cultural links and eventually . . . by political arrangements andeven confederal structures.

A critical feature of Wallerstein s argument that differentiates it fromthe dependency theory of Frank and Amin is that the focal point of

pressure in the world-economy is the state structure. The state helps

to stabilize capitalism by absorbing its costs and managing the social problems which it creates. The modern world-system is stratifiedinto three types of state, depending on the interaction between themas the primary source of stability:

Core states have a strong governmental structure integrated with anational culture, and are developed, rich, and domi-nating within

the system; late-twentieth-century examples include the EU,Japan and the USA. Peripheral areas have weak indigenous states and invaded

cultures, and are poor and therefore economically dependent


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trans-national corporation; of political practices, the trans-nationalcapitalist class; and of cultural-ideological practices, the culture of consumerism. Sklair is equivocal about the balance of effectivity

between trans-national practices and nation-states. The nation-state isthe spatial reference point for them, the arena within which theyintersect, but another, perhaps more signifi-cant reference point is:the global capitalist system, based on a variegated global capitalistclass, which unquestionably dictates economic transnational

practices, and is the most important single force in the struggle todominate political and cultural- ideological transnational practices

(1991: 7).However, Sklair returns even the global capitalist class to theinternal workings of a national social system, albeit that of ahegemon: there is only one country, the United States, whoseagents, organizations and classes are hegemonic in all three spheres(1991: 7). In an argument reminiscent of Gilpin then (see Chapter 5),it is hegemonic states that promote capitalism as the global system:Britain in the nineteenth century and the USA in the twentieth.

Unlike Gilpin, however, Sklair attrib-utes altruism to neither hegemon, holding them individually responsible for globalinequalities constructed in their own interests.

globalisation in emerging india {navin}

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