socio-culture issues faced by it companies in india

INTERNATIONAL MARKETING 2010

Executive Summary

Globalization has drop down trade barriers and business big players have spilled

throughout the world. Many Multinational Companies started foraying Indian market

because of its huge consumer base. MNCs have mixed performance in India in spite

of huge potential. India was a mysterious country and poses many challenges such as

cultural mix, tastes, religion and economic development before liberalization.

Therefore many MNCs failed to enter or failed miserably if have a presence already.

But not all companies struggled to understand the consumer behavior of India.

This report examines success of two IT companies in India WM-data and IBM.

Through the experiences how these MNCs keyed in rightly to get maximum benefits.

IBM left India three decades ago because of complicated nationalistic policies. But

return hard in 1992 and thereafter it is a story to tell. They very well handled cross-

cultural differences and succeeded to manage Indian operations through adaptive

strategy. IBM’s revenue is growing at a rate of 40-50% per annum.

WM-data always struggled to enter India before 1991. It was acquired by LogicaCMG

which already had operations in India. WM-data got opportunity to enter the lucrative

Indian market. Initially, they found many difficulties while dealing with Indian

employees. But with their better human resource planning and operation skills they

manage to survive and succeed in enigmatic Indian environment.

India is a huge market but still many MNCs failed here because of lack of

understanding of Indian culture and stubbornness not to adapt with it. IBM and WM-

data are the perfect examples how to approach India and make out best from it. These

both companies understood the complexities involved and readily changed their

structure to suit Indian market. Thus, they are one of the most successful MNCs in

RUPESH KUMAR SHUKLA 10189339


India.

CONTENT PAGE NO.

CHALLENGES OF MANAGING INTERNATIONAL BUSINESS 3

INDIAN MARKET 3

THE INDIAN IT INDUSTRY 4

CASE ONE: IBM

Background 4

Pre-liberalization story 5

Come back for IBM 6

IBM IN INDIA: CROSS-CULTURAL MANAGEMENT

Organizational view on diversity 6

Communication misunderstandings 6

Leadership Style 7

IBM IN INDIA: MEASURES TO OVERCOME

CROSS-CULTURAL PROBLEMS

Conflicts Resolution 7

Creation of third culture 7

Case Two: WM-data

Background 8

WM-data in India

Political and Legal issues 8

Cross-Cultural Management

Communication misunderstandings 9

Cultural aspects 9

Leadership Style 10

WM-data in India: Measures to Overcome Cross-Cultural Problems

Governance program 10

Bridge Manager 10

Creation of third culture 11

Preventing Conflicts 11

CONCLUSION 12



REFERENCES 13

APPENDIX

Challenges of Managing International Business

Transparency of national borders and great global openness has made business

environment more understandable than before. There is a growing

acknowledgement of ideas and products from different cultures and a greater

enthusiasm to slot in multilateral operations between companies. Global

competition is increasing and intensifying for firms and more companies are

involved in International operations. Multi-national corporations (MNCs) are

changing their strategies to encounter the differences in each country they enter

and heading towards more transnational than before.(Kanungo, 2006; Holmberg,

Bäckman and Tonnby, 2006; Hodgetts and Luthans, 2003)

Indian Market

The Indian economy is the 12th largest economy and the fourth largest as per

purchasing power parity in the world. India opened its economy in 1991 and began

to experience fast economic growth. Foreign investment and international

competition started pouring in. India is the second fastest growing economy in the

world with vast natural and human resources. India will be one of the leading

economies in coming decade (IMF, 2009).

MNCs have always been in two notions while entering into Indian market in spite of

its huge potential. Many companies who had enjoyed great success elsewhere failed

miserably here. It is always a challenge to understand Indian market due to its

cultural mix, heterogeneity, religion, in terms of economic development and tastes.



But some countries have been successful to cope up with Indian consumer behavior.

India is one of the largest markets in the world and can be a turning point for any

company that click.

The Indian IT Industry

India today is one of the fastest economies in the world and Information

Technology (IT) has played a huge role in it. IT sector boosted Indian economy

which is then well guided by a liberalized policy. No doubt, India is now the world

leader in IT and business outsourcing. The contribution of IT sector in India’s GDP

has increased significantly from 5% in FY07 to 7% in FY08. Since FY01 the

sector is growing at rate of 28% per annum (India, 2010).

Indian Government has taken many initiatives to expand the sector. For example:

1. Incentives have been provided by Government up to 2010 including tax

holiday and competitive duty structures.

2. International communication cost has been reduced.

3. Infrastructure support has been provided through organizations like

software technology parks.

Now I will highlight the success story of WM-data and IBM in India. I have also

discussed about how they dealt with Indian legal issues, socio-culture differences,

language barriers and working conditions.

Case One: IBM

Background



International Business Machines (IBM) is multinational IT consulting, computer

and technological corporation which is headquartered in New York, United States.

IBM is the largest technology company and second most valuable brand in the

world. IBM is one of the oldest IT companies dating back to the 19 th century. IBM

is into business of software and hardware, and offers consulting services,

infrastructure issues and hosting services in fields ranging from nanotechnology to

mainframes computers

IBM is the largest systems integrator and computer company and employs more

than 407,000 employees throughout the world. In India IBM has their facility in

major cities. Head count of IBM has increased by over 1000% in India, from 9,000

in 2003 to 74,000 in 2007. Indian employees are in the largest number in IBM

(History of IBM Global Services, 2010).

Pre-liberalization Story

IBM started business in the 1930s in India and established manufacturing in 1951.

Everything has been operating successfully till the mid-1970s, when Foreign

Exchange Regulation Act (FERA) of India asked foreign owned firms to decrease

their equity ownership to 26% (in IBM’s case). IBM decided to cease its

operations in 1978 but continue to be an off-shore entity and conduct business

through a Liaison Office.

IBM started making changes to operate in a new mode and series of restructuring

steps were taken. As equipment was leased by the month in India (a GOI

requirement), IBM sold all its installed equipment for a nominal price of less than

$10 to the existing users. The service Bureaus (profitable) were handed to present



existing employees in India. The most senior managers of India established a

management structure and became the largest shareholders in the new firm called

as International Data Management (IDM). IBM handed over its equipment service

business to the Government of India as a single total entity on mutual

understanding that GOI will serve the existing users (Raman, 2003).

Come back for IBM

After the liberalization in 1991, India opens the door for foreign investment. IT

sector rules and regulations were eased to attract the foreign players. IBM took the

opportunity and now running successful in the country. IBM India is given a stiff

challenge to home-based IT companies in global delivery and human resource

attraction/retention (Raman, 2003).

IBM in India: Cross-Cultural Management

Organizational view on diversity

IBM believes that all culture has its own sides. The managers should not be surprised

when point of opinions differs while working abroad. The individuals should use

their common sense when working abroad and be more patient. Thus, IBM never had

any problems in their working places due to diversity (Gupta, 2009).

Communication misunderstandings

Most of the Indian employees can understand and speak English. IBM believes this

fact as the strength of India when compared to another markets like China and

therefore India is attractive enough to enter. English is the only language which is

understands by all Indian employees.



The major difficulty encountered by IBM was related to communication

misunderstands. The fact that whenever manager asks any question, Indian

employees never leave a negative answer even he did not understand the task. IBM

managers should be specific and clear while communicating with the Indian

counterparts to avoid any misunderstandings (Gupta, 2009).

Leadership Style

Indian employees show great respect to their managers and leaders due to hierarchical

nature of leadership style. IBM employees do have respect for their managers but have

no problem to confront or argue with him. On the other hand, Indian employees avoid

argument as it is consider impolite. IBM manages these major difficulties very well and

adapted according to the Indian culture while dealing with Indian employees (Raman,

2003).

IBM in India: Measures to Overcome Cross-Cultural problems

Conflicts Resolution

IBM left to employees to adapt to different cultural differences and does not has any

cross-cultural training for them. IBM has same policy of conflict resolution in India as

it exists in US. They try to solve the issues by discussing with the involved parties and

even if conflicts do not resolve then they are assigned different task to avoid any

further conflicts (Kripalani, 2007).

Creation of third culture

IBM is not trying to build a third culture but it is automatically happening because



American managers adapt to Indian culture and Indian counterpart also when they

interact. The managers understand these differences and are trying to adapt. IBM is

working with highly qualified Indian employees and one must adapt to develop a

mutual business understanding (Yaun, 2006).

Case Two: WM-data

Background

WM-data is one of the best IT service enterprises in Sweden and has strong

position in Denmark, Finland and Norway. LogicaCMG a European IT company

acquired WM-data. With 30,000 employees across 36 countries LogicaCMG

provides IT and business process outsourcing to different markets including

financial services, telecoms, energy and utilities industry and the public sector.

LogicaCMG and WM-data combining forces made them one of the largest

European IT services.

WM-data earlier tried to enter into many other markets including India. But when

LogicaCMG acquired WM-data they automatically entered India as LogicaCMG

already has existing outsourcing operations in India. There were 2500 Indian

employees and WM-data developed the GT integration program with aim to learn

how effectively outsourcing works and to cut costs (LogicaCMG buys Swedish IT

Services Company WM-data, 2006).

WM-data in India



Political and Legal issues

WM-data aspired but was unable to enter India pre-liberalization because of many

legal issues involved as discussed in IBM case. Even after Indian liberalization WM-

data hesitated to enter in mysterious Indian market but somehow wanted to have

operations in this lucrative world. WM-data is acquired by LogicaCMG in 2008 and

thus provided opportunity to WM-data to work in India as later has already presence

in India. Therefore, WM-data did not face any direct government interference as

LogicaCMG took care of that (Jonas, 2007).

Cross-Cultural Management

Communication misunderstandings

WM-data’s all documentation and communication was used to be done in Swedish

as it was basically a Nordic company. When WM-data started dealing with India it

faced huge difficulty of communication problems. Indian managers were good in

English but Swedish managers had poor skills in English and therefore usually

misunderstandings happened. WM-data realized and gave a good instance of such

misapprehension; the meaning of “should” and “must” in India and Sweden. In

India the “should” has stronger impact but in Sweden “must” is stronger in its

meaning (Jonas, 2007).

One of the major issues Swedish and Indian employees were facing that

influenced the communication between them is the geographical distance.

Telephone meetings are used for all communication because of large distance and

this thing make the circumstances even more difficult in comprehending each

other. WM-data was finding difficulties in describing technical problems in detail.



Cultural aspects

WM-data noticed that in Indian culture saying “no” to someone’s question is

considered as impolite and is uncomfortable for other person. Therefore, many

times Swedish managers faced difficulties while describing tasks to an Indian

employee and then asking if they understood everything, the Indian employee just

cannot say “no”. This often results into frustration and can create problems

(Miroshnik, 2002).

Leadership Style

One major concern was that leadership styles are also different. In Sweden the

consensus way of leading is existed whereas Indian culture is hierarchical in nature. In

consensus culture everyone should be engaged and be a part of decision making process.

Thus, there were difficulties in handling the operations.

WM-data also encountered another cross-cultural issue that more detailed instructions

are to be given by leaders to Indian employees on how to perform a certain task. This

can lead to disaster if any crucial information is missed and if description of task is not

so clear to them. Indian employees can work “out-the-box”, they want every tasks to be

well defined when given to them; they need to what and how to do it. Swedish

employees on the other hand love freedom and initiate, find additional information, or

ask questions but Indian engineer are not used to it and does not like (Anna, 2007).

WM-data in India: Measures to Overcome Cross-Cultural Problems

Governance program



WM-data came up with a program called “governance program” in order to avoid any

problems due to cross-culture. All the project managers were invited for telephone

meetings by the program manager at WM-data, every 14th day to evaluate and debrief

them on eventual problems and progress. This helped WM-data to prevent any major

concerns as program manager has control over it by keeping an eye on the

advancement of the projects (Jonas, 2007).

Bridge Manager

WM-data assigns a bridge manager back to India. This manager acts as a

communication link between India and Sweden. This manager helps to prevent any

communication misunderstanding. The bridge manager should have working experience

of more than 10 years in WM-data (Anna, 2007).

Creation of third culture

WM-data never believe in establishing a “third culture” to bridge gap between

cultural differences. Instead, mutual understanding developed between Swedish and

Indian employees on individual bases, realizing that difference exist in their culture

and better adapt and mutually respect each other. Earlier the program manager gets

quickly to the point of conversation when he interacted with Indian employee because

they often discuss about the families and weekend, but now he understands that it is

normal in Indian culture to start a conversation with short introduction about the

family. Even Swedish culture was adapted by the Indian counterpart and they tried to

have a shorter talk. Individual in WM-data is adapting with conditions and that is why

they are so successful in India (Miroshnik, 2002).



Preventing Conflicts

Different projects are closely monitored by WM-data at management level to spot the

eventual issues before they create the problems. All the working process is structured

by Project managers to avoid any opportunities for development of problems and

misunderstandings. According to WM-data this is very important to prevent issues of

cross-culture (Miroshnik, 2002).

Conclusion

India is a land of opportunities, India is a land of huge customer base and at the

same time India is a land of threat. The only way to succeed in India is to

internalize. This fact cannot be ignored. It is not good to compete with India as an

enemy rather companies should think how to break down their business and which

part should be operated in India, which products/services companies want to sell

and which part they want to buy from India.

India is rich in highly educated workforce and management talents. Rule of law,

regulatory environment, transparency and cultural affinity are now more favorable

than pre-liberalization. Any company can be successful in India if they are ready to

change. Companies only fail because of lack of leadership, imagination to adapt and

less flexibility.

IBM and WM-data successfully fulfill all parameters required to be successful in



India. It is a lesson to other MNCs which are planning or entered in Indian market.

References

Anna, P. M.-d. (2007, November 30).

Gupta, V. (2009). When Diversity Differentiated for Success. Vikalpa: The

Journal for Decision Makers , 108-111.

History of IBM Global Services. (2010, April). Retrieved April 08, 2010, from

www03.ibm.com:http://www03.ibm.com/ibm/history/documents/pdf/gservices.pdf

IMF. (2009, October). World Economic Outlook Database. Retrieved April 4,

2010, from www.imf.org:

http://www.imf.org/external/pubs/ft/weo/2009/02/weodata/weorept.aspx?

pr.x=61&pr.y=5&sy=2009&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1



&c=534&s=NGDP_RPCH,NGDPD,NGDPDPC,PPPGDP,PPPPC,PPPSH&grp=0

&a=

India, G. o. (2010, April). India’s Information Technology Industry. Retrieved

April 6, 2010, from www.indianembassy.org:

http://www.indianembassy.org/indiainfo/india_it.htm

Jonas, S. D. (2007, December 10). Market Unit India. (Carlsson, Interviewer)

Kripalani, M. (2007). A RED-HOT BIG BLUE IN INDIA. Business Week , 52-53.

Kripalani, M. (2007). IBM: Star of India. Business Week , 12-13.

LogicaCMG buys Swedish IT Services Company WM-data. (2006, August 24).

Retrieved April 07, 2010, from basman.wordpress.com:

http://basman.wordpress.com/2006/08/24/logicacmg-buys-swedish-it-services-

Miroshnik, V. (2002). Culture and International Management. Journal of

Management Development , 521-544.

Raman, M. M. (2003, August 3). Interview: Marketing IT in India, Perspectives of

Mr. Murali Raman, Country Manager, IBM India. (A. Chandra, Interviewer)

Yaun, D. (2006, May 23). Driving culture change by consensus at IBM. Strategic

Communication Management , pp. 14-17.



Appendix

Key Positives & Negatives for the Indian IT Industry



SWOT Analysis- Indian IT Industry

Strengths

Highly skilled human resource

Low wage structure

Quality of work

Initiatives taken by the

Government (setting up Hi-

Tech Parks and implementation

of e-governance projects)

Many global players have set-

up operations in India like

Microsoft, Oracle, Adobe, etc.

Following Quality Standards

such as ISO 9000, SEI CMM

etc.

English-speaking professionals

Cost competitiveness

Quality telecommunications

infrastructure

Indian time zone (24 x 7

services to the global

Weaknesses

• Absence of practical knowledge

• Dearth of suitable candidates

• Less Research and Development

• Contribution of IT sector to India’s

GDP is still rather small.

• Employee salaries in IT sector are

increasing tremendously. Low wages

benefit will soon come to an end.



customers). Time difference

between India and America is

approximately 12 hours, which

is beneficial for outsourcing of

work.

Opportunities

High quality IT education

market

Increasing number of working

age people

India 's well developed soft

infrastructure

Upcoming International

Players in the market

Threats

Lack of data security systems

Countries like China and

Philippines with qualified

workforce making efforts to

overcome the English

language barrier

IT development concentrated

in a few cities only


socio-culture issues faced by it companies in india

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