Business expansion- an analysis of India Report

Executive summary

The demand for business expansion outside national boundaries has been increasing steadily over the years. This has been due to the current dynamic nature of consumerism and globalization trends. A business intending to expand to a new market like India needs to first of all, gain adequate understanding of the country.

The vast population and resources in India offer one of the best locations where foreign businesses can expand to. However, there are challenges that may make a foreign business to hesitate expanding to this region.

Such challenges include the image of India to the rest of the world as a poor nation with a greater percentage of its population living under the poverty line, issues related to culture as well as language barriers.

Nonetheless, expanding a business from Canada to India would provide with an opportunity for growth, improved sales due to huge population as well as considerable competitive advantage against other market rivals.

Introduction

The increasing competition and pressure in the global business arena have driven many firms to seek opportunities where they can expand their operations internationally.

The prosperity and viability of a firm expanding to another country greatly depends on its ability to respond efficiently and effectively to challenges in its environment. Studies indicate that expanding a business internationally is an initiative that may come with various risks and challenges with regards to operating in environments which are not familiar.

However, Hughes points out that expanding to new grounds may boost the sales and performance of a business.¹ Therefore, finding a good location provides a business with numerous advantages which include relatively low cost of production as well as potential market growth.

On the other hand, poor choice of location may yield risks that can affect growth of a business. This paper analyses India as a location for business expansion and also offers recommendations and conclusions on whether it is the best environment to expand business operations.

Overview of India

Geographic profile: India is located in the south of Asia and it is ranked as the seventh largest country in size and the second largest in terms of population. Reports from the Central Intelligence Agency indicate that India hosts up to 16% of the total world’s population who occupy its 3.29 million square kilometers.²

Additionally, it has a population of 1.16 billion people with Hindu being its official language and English used as a business language. Geologically, its climate is tropical monsoon with four seasons.³

Its natural resources include coal, natural gas, diamond and manganese among others. In terms of transport, India has numerous airports although waterways, roadways and railways aare the major channels of transportation.

Demographic profile: In terms of age structure, a larger percentage of its 1.16 billion people are young individuals of ages 15-64 years representing 64%.⁴ Penn points out that the median age group in this country is 25.3 years which is comparatively lower than most countries.⁵

Culturally, India has a diverse culture which is spread across religion, languages and festivals. The latter include Deepawali, Id-ul-Zoha and Christmas as well as Guru Nanak Gayanti festivals. Religiously, its cultural diversity embraces four main religions like Sikhism, Christianity, Islam and Hinduism. Other related religions include Zoroastrianism, Judaism, Jainism, and Buddhism.

Economic profile: Penn continues to point out in his article a glimpse of the future that the Indian economy has gone through a systematic transition since economic reforms hit the country back in 1991.⁶ The impacts of those reforms have been far reaching and have unleashed and opened avenues for enormous growth potential.

Today, the economy of India has been characterized by liberalized trade and investment policy, a role undertaken by deregulation and private sector. Analysts regard India as a trillion dollar economy due to its diversified industrial base, an agricultural sector that is self sufficient, and a stable service and financial sector.

Kraten concurs with Penn’s argument and adds that the economy of India is diverse and encompasses a multitude of manufacturing, textile and handicraft services.⁷ The presence of internet and the digital age presents India as a transformed economy and a destination for global technical support, customer services and outsourcing.

Challenges of expanding a business in India

India is a strategic location and a significant as well as an inevitable business destination to expand a foreign business due to its economic growth and the huge population which forms large customer base. However, Casey argues in her publication one great concept that there are a number of factors which may pose a threat to business expansion in India.⁸

These include internal reluctance and the perceptions individuals have of the country, inadequate information of the Indian market that would aid an expanding business to develop a well devised implantation strategy.

Internal difficulties

The media has played an important role of creating and destroying the image of nations both politically and economically.⁹ India as a nation has not escaped the influence of media and the tarnishing of its image to the world. Many foreign businesses that have intended to expand in India have been faced with the challenge of the struggle against prejudice and stereotypes. For instance, in the past decade, the image of India has been that of being a city of joy.

Besides, this country has been perceived as a poor country for many years with nearly 80% of its population living in poverty.¹⁰ Iyer posits that this perception may hinder a business expansion plan to this country.¹¹ He adds that the internal decision process of a company may be massively affected by such views which are commonly spread by the media.

Misunderstandings in communication

Expanding to India requires finding a reliable workforce and human resource which is fluent in English or Hindu. Many foreign companies that wish to expand into India do not have fluent English speaking employees and executive teams. Ardichvili et al point out that this is true for countries that English is a not national language such as Germany, Japan, Spain, Italy and France.

Expanding to such regions would pose immense difficulties in terms of communication due to language barriers and misunderstandings due to use of jargons and poor language.¹² In their book intercultural communication for business, Elizabeth and O’Rourke point out that language barrier may not greatly affect the technical side of the business, but on areas of commercial agreement like procurement and distribution, legal agreements and forming of joint ventures, the impact may be devastating to business.

It is important to note that in conducting effective transactions, perfect understanding among parties involved must be ensured through good communication to save wasting of time and losses. As such, with misunderstandings in communication, certain essential elements may be ignored if a negotiation is being done orally.

Recommendations

Expanding into India would be the best recommendation for this Canadian Company due to location advantage and the potential economic growth in this country. The Indian economy provides immeasurable business expansion opportunities and a fertile ground for establishing a business.

The OLI model by Dunning indicates that shifting to a new location may provide a business with location specific advantages which include market growth, per-capita income and low cost of production. Inasmuch as moving into India may result into liability of foreignness, this business with its unique services will gain competitive advantage which will be used to compensate the liability.¹³

Conclusion

To sum up, the discussion in this paper was based on the thesis statement that “the increasing competition and pressure in the global business arena have been some of the important factors that have driven many firms to seek opportunities where they can expand their operations internationally. “

From the discussion, it is evident that India is a country that offers business expansion opportunities to foreign businesses due to its economic growth, vast population and resources. As indicated, expansion strategies require clear understanding of the target location since it enables a business to plan and acquire knowledge of potential benefits. However, there are considerable challenges like language barriers, culture and a country’s perception that come with expanding a business to a foreign nation.

Bibliography

Ardichvili Alexandre, Jondle Douglas, Kowske Brenda, Cornachione Edgard, Li Jessica, and Thakadipuram Thomas. “Ethical cultures in large business organizations in Brazil, Russia, India, and China.” Journal of Business Ethics 105, no. 4 (2012): 415-428.

Casey, Bernadette. “One great concept.” License! Global 13, no. 2 (2010): 22-27.

Central Intelligence Agency. “The world factbook”. Last modified January 29, 2012. https://www.cia.gov/the-world-factbook/

Hughes, Shirley. “More tools, more time to serve.” The Journal of Government Financial Management 52, no. 2 (2003): 10.

International Monetary Fund. “Data and statistics”. Last modified January 29 2012. https://www.imf.org/en/Data

Kraten, Michael. “Sixty questions to address before expanding a business practice.” The CPA Journal 78, no. 1 (2008): 58-62.

Iyer, Patrick. “The Indian Disconnect.” Time International, (2012) 1.

Penn, Robert. “A glimpse of the future.” Journal of Accountancy 188, no. 1 (1999): 35- 40.

The World Bank. “India and business”. Last modified January 29, 2012. Web.

United Nations ESCAP. “Advancing statistics for development”. Last modified January 29, 2012. https://www.unescap.org/our-work/statistics

Footnotes

¹ Shirley Hughes. “More tools, more time to serve.” The Journal of Government Financial Management 52, no. 2 (2003): 10.

² Central Intelligence Agency. “The world factbook”. Last modified January 29, 2012.

³ United Nations ESCAP. “Advancing statistics for development”. Last modified January 29, 2012.

⁴ Ibid

⁵ Robert Penn. “A glimpse of the future.” Journal of Accountancy 188, no. 1 (1999): 39.

⁶ Ibid.p.40.

⁷ Michael Kraten. “Sixty questions to address before expanding a business practice.” The CPA Journal 78, no. 1 (2008): 59.

⁸ Bernadette Casey. “One great concept.” License! Global 13, no. 2 (2010): 27.

⁹ Ibid.p.26.

¹⁰ International Monetary Fund. “Data and statistics”. Last modified January 29 2012.

¹¹ Patrick Iyer. “The Indian Disconnect.” Time International, (2012) 1.

¹² Alexandre Ardichvili, Douglas Jondle, Brenda Kowske, Edgard Cornachione, Jessica Li and Thomas Thakadipuram. “Ethical Cultures in Large Business Organizations in Brazil, Russia, India, and China.” Journal of Business Ethics 105, no. 4 (2012): 420.

¹³ The World Bank. “India and business”. Last modified January 29, 2012.