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Introduction
Conducting business in a foreign country comes with numerous challenges. The main reason is the fact that countries possess divergent orientations on various aspects that directly or indirectly affect the way businesses are conducted. Not taking close consideration to some of the unique attributes in every country can potentially result in the failure of excellent business ideas. Entrepreneurs crossing borders should thus take time to understand the socio-economic, political as well as other factors for better adaptation. This paper adopts a comparative discussion of Indias business environment as defined by the legal aspects, the social-cultural aspects in comparison with that of the US.
Country Profile
India is an expansive country estimated to cover 1.27 million sq. miles. This is about a third of the US land coverage. The administrative capital is New Delhi with a population of 12.8 million. Other major commercial cities are Mumbai, Bombay, Chennai, Calcutta, Bangalore and Hyderabad. The entire population is 1.17 billion people with 29% of them living in urban areas. India is governed by a federal government headed by New Delhi (US Department of State, Par2).
The Indian GDP stands at $1.21 trillion. In recent years the economy has been experiencing a high growth rate of above 6%. The three major sectors driving the economy are agriculture, industry and services. Agriculture accounts for 18%, industry accounts for 29%, while the service sector is the largest and accounts for 54% of the GDP. The country engages in major export trade with the most important trade partners being China, the US, the U.A.E, EU, Japan and Russia (US Department of State, Par3).
The economy is the 12th largest in the world and is only number three in Asia being led by Japan and China. Since 1997 poverty levels have reduced by about ten percent and more importantly the middle class is expected to grow ten-fold by the year 2025. Some notable hindrances to smooth business operations are foreign investment controls, cumbersome bureaucracy and corruption. However, major economic reforms in areas such as intellectual property rights, monetary and fiscal policies, reduction in tariffs, and other controls continue to propel the economy.
Legal Aspects
Most foreigners investing in India prefer to wholly own their businesses. A large percentage of businesses owned by foreigners are established as branch offices, wholly-owned subsidiaries, acquiring of existing businesses and joint ventures. The legal and cultural framework in India is very different thus forcing alterations in the companys policies (Lawyers.com, Par2).
It is easy to establish a branch in India especially if the branch is to perform tasks such as a representation of parent company in India, to engage in research activities, to carry out export or import business, or to support financial and technical collaborations between Indian and foreign company. A form called FNC-12 has to be filled and sent to the Controller, Exchange Control Department for authorization.
Setting up a fully foreign-owned company has several stipulations. Software companies are allowed to be fully foreign-owned but others have to either set up operations in areas known as Export Processing Zones (EPZ), Software Technology Park (STP), and Electronic technology Park (EHTP). However, setting up a business under the said parks requires that at least 75% of the formed companys output be for export and only 25% for local sales. This protects local producers. Again, setting up a business under these parks has advantages especially in taxation. Imports are duty-free, incomes are free from taxes, and there exists well-developed infrastructure. Setting up such businesses requires an application form to be submitted to the Secretariat for the Industrial Approvals (SIA) (Lawyers.com, Par4).
Joint ventures are the most common and easiest to form. The maximum allowable foreign ownership is 51%. Despite the low ability to control, foreigners are able to establish businesses and channels of distribution fast.
Acquiring Indian-owned companies is allowed but subject to RBIs approval. However, no foreigner can own more than 5% of paid-up capital in publicly listed companies nor can he/ she own more than 24% of total capital.
There exist some requirements imposed by the federal governments as well as others imposed by the state governments. Under the federal requirements, all businesses except for sole proprietors should obtain an Employment Identification Number (EIN). In addition, those who offer health insurance require a National Standard Employer Identifier (NSEI) used to track electronic transactions. No federal licenses are required unless the business involves drug manufacturing, investment advising, broadcasting, ground transportation, broadcasting, manufacturing of meat products, and sale of tobacco, alcohol and firearms (Lawyers.com, Par5).
The state however requires businesses to obtain some form of permit. The business license is the main certificate. It is required for taxation. For Professional services and occupations, special licenses are required. Employers are also expected to make unemployment insurance contributions.
India had resisted the implementation of intellectual property rights. It managed to strengthen copyright laws in the 1990s to meet international standards. Indeed, the country is a party to Berne Convention on copyrights. Therefore, registering intellectual property in the US leads to automatic protection by the federal government in India.
Most of these legal requirements are meant to regulate the business operations and protect the indigenous Indians from foreigners who are well endowed with capital. Requirements for maximum foreign shareholding often discourage foreign investors who are keen on ensuring full control.
Negotiations
Carrying out successful negotiations in India is substantially different from the American way. First, negotiations are primarily based on a widely believed adage that love comes after marriage . Unlike in the US where there is a broader room for successful negotiations at the middle-level management, negotiations in India must be done at the top of the highly hierarchical structures.
Parties negotiating have to be harmonious. Attempts to coerce or confront as is the case in the US are counterproductive. More importantly, it is not common to obtain straight negative answers such as no from Indians as they consider this rude. Instead, they prolong the negotiation by evading. Again, unlike the case in the US, swaying the head from left to right during negotiation does not mean refusal or denial. It is actually a sign that one understands or consents to the proposals (Negotiations Training Institute of America, Par2).
A large number of businesses in India are owned by families, unlike the US. This fact makes negotiating more complex. One has to be willing to deal with families in securing deals. Identifying the most powerful and most influential family member is often the first step towards successful negotiations. The caste system is much respected in India. In this case, sending or accompanying someone of a higher social level may boost the chances of closing a deal.
It is good to note that Indians are very good at negotiations as the process is well embedded in their cultures. Having many options and skills in mind and engaging the best negotiation skills is crucial. Always check around for other vendors before closing the deal. It helps to be flexible and creatively reach deals that not only fulfill ones goals but ensure that the involved party is contented. Being too strict and rigid puts them off (Negotiations Training Institute of America, Par5).
Cultural Components
The most striking cultural issue in India is the Caste system. The Indian culture has established social classes under which people fall. As described above, negotiations can be substantially affected by the inclusion of persons of higher class. In hiring senior management, it makes sense to consider the social level of recruits where possible. Hiring a member of a higher class as the manager may be more effective due to the extra respect he/ she wields. Manual work such as cleaning and moving desks can only be done by people in the lowest caste level called Peon. Again, unlike the US disparities in perception between men and women are high in India. Men are superior to women. It is thus prudent to hire men for top positions (Kwintessential, Par3).
When engaging informal meetings, the handshake just like in the US is widely used. However, the namaste, which involves bringing the pams together near the chest accompanied by a slight bowing of the head is better acceptable and demonstrates some knowledge of their culture. Adhering to this action breaks some barriers between a foreigner and locals.
The most prominent religion in India is Hindu with an 81% following and it is the origin of the caste system. Identification of someones caste can easily be got from their names. A name that has the suffix &jee denotes a person from a high social level. Unlike the US where decisions are almost purely based on statistics and supporting arguments, Indians rely heavily on their religious faith, intuition and feelings. The secret here is to always exhibit good character, be patient and humble. These are critical virtues for Indians and are fundamental in developing trust (Kwintessential, Par3).
It is not uncommon for an Indian to forego a very lucrative deal just to stick with the party where a relationship has been established. They mostly favor those known to them. Unlike the American focus on open tendering, business in India is largely based on friendships and clanships. Conflict of interest is not considered a serious issue. In this regard, it is important to establish networks and strong relationships as opposed to focusing on competitiveness in conducting business.
Corporate social responsibility is very strong among Indians. In this regard, a company must be seen to give to the society for it to be better accepted by the local communities. Focus in India is on stakeholders rather than shareholders in evaluating a companys success.
Even the very formal meetings are normally started with some easy chart as a way of first knowing each other before proceeding to a more serious agenda.
Language
India being an expansive country with different states has several official languages for the states. However, Hindi is the only recognized official language. English is fully accepted as the official language in business circles. It is wise though to include some Hindi translations in some business documents and business cards as this show some form of appreciation for the local language.
Hofstedes Dimension of Culture
The Geert Hofstede Analysis considers four critical dimensions in social-cultural issues. The Power Distance Index (PDI) evaluates issues of inequality. For the Indian case, the PDI is the highest dimension. The country has a ranking of 77 while the US has a rank of 40. This is against a world average of 56.5. Interestingly the issue of the high inequality is accepted as a cultural norm especially due to the strong caste system (Itim International, Par 1).
In the Individualism (IDV) dimension which is tagged on the extent to which the society supports collectivism or individuality, India has a ranking of 40. This is because the family ties in the country are fairly strong and most businesses and other activities are done in a family context. This is unlike the US where individualism is the norm. In this regard, it is always wise to have secure wider support from family members rather than relying on one person whose decision however good may be rejected by other influential figures (Itim International, Par2).
Masculinity (MAS) has a similar argument. India has a ranking of 56. The distribution of roles is largely skewed in favor of men. Most of the leadership and managerial positions are held by men with women being largely seen as implementers. It is thus important to consider men for higher positions to gain support for the community (Itim International, Par 4).
The uncertainty avoidance index (UAI) focuses on the extent to which society is tolerant to ambiguity and uncertainty. India has a rank of 40. This is a relatively low index. The indication is that Indians are not afraid of uncertainties an important attribute to business acumen. They are willing to take risks and the implication to businesses is that it is always possible to engage them in high-risk areas and reap high returns (Itim International, Par5).
Long-term Orientation (LTO) as opposed to the short-term orientation dimension assesses the elements of perseverance and thrift for a society. In this dimension, India has a ranking of 61. This is a result of Indian societys orientation towards forming lasting relationships. The high ranking shows that they are able to persevere to ensure the fulfillment of business obligations a very valuable attribute for long-term foreign investors (Itim International, Par7).
Membership
India is a member of the World Trade Organization (WTO). The implication is that the country is bound by the proposal touching on areas such as intellectual property rights as well as the ban on subsidizing of agricultural sector an area that has remained a bone of contention. However, members of the WTO are focused on rationalizing trade policies, a good opportunity for India to attract western investors. Again, there are increased export opportunities as opposed to non-members.
The country is also a member of the Association of South East Nations (ASEAN). The trade blocks introduced improved economic political and social interactions among the Asian countries. The implication is that by investing in India, the company is able to access markets in neighboring countries without incurring huge cross-border tariffs. The expanded markets help firms to grow faster (ASEAN Secretariat, Par3).
An assessment of the Indian social-cultural as well as economic standing is fair and investing in the country would be a viable decision. Most importantly care should be taken to ensure smoother operations while conducting business.
Works Cited
ASEAN Secretariat. ASEAN-India Dialogue Relations. 2009. Web.
Itim International. Geert Hofstede Cultural Dimensions. 2009. Web.
Lawyers.com. Legal Issues & Starting or Buying a Small Business. 2009. Web.
Negotiations Training Institute of America. Business Negotiations in India: Negotiating with Indian Counterparts. 2009. Web.
US Department of State. Background Note: India. 2009. Web.
Kwintessential. Doing Business in India. Web.
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