In the current globalized world, firms have come to the realization that it is important to look for foreign markets for products in order to remain competitive and sustainable. The emerging technologies have created a global village where geographical barriers that existed before no longer prevent individual from conducting business.
Firms can easily spread their business operations to regions beyond their home countries. Multinational companies are trying to find global markets, which can absorb their products in order to manage market competition. For a long time, the focus of these multinational companies has been on developed nations.
These firms always target the United States and Europe as their best markets because of the high living standards and the purchasing power. However, recent reports show that these markets are already saturated.
The focus has now turned to the developing economies. According to Srinivasan (82), multinational corporations have come to realize that they can make a difference when they target the developing economies with their products.
India is one of the emerging economies in the world. It is one of the most promising economies among the developing economies. One of the most important characteristic of this country as an emerging economy is its huge population. Mishra (51) observes that such huge populations always offer very attractive opportunities for the multinational corporations.
India has about 1.2 billion people, making it the second most populous nation in the world. Multinational corporations cannot ignore this huge market. Another important characteristic of this country as a developing economy is the availability of cheap labor that helps in lowering costs of production.
However, it is important to note that given the fact that this is a developing economy; a good percentage of its labor is unskilled or semi-skilled. In September 2010, The Economist argued, “No large international business can afford to do without an India Strategy.” This research is focused on analyzing this statement with focus on international business developments within emerging and developing economies.
According to Dayal-Gulati (29), most firms have come to appreciate the importance of international business. Such large multinational firms as Coca Cola Company and General Motors realized the importance of going global early enough, and this has helped them become giants in their respective industries.
In the twenty-first century, firms have been faced with stiff competition in their local markets that has threatened the existence of others. New firms are coming into existence, threatening the market share of the existing firms.
This means that these firms must find a strategy that can help them increase their market share in order to remain sustainable. Given the fact that the local market could be congested with similar products, the best option in such cases is always to look for international markets.
Going global does not only help firms increase their market share in their respective industries. Mishra (73) notes that the global market offers a firm an opportunity to cushion itself against the negative market forces that may affect its operations in one market. For instance, the recession that hit that world in 2009 did not affect nations such as India and China.
This means that an American firm, which had subsidiaries in these two countries, would be cushioned against the harsh economic environment in the United States and Europe. Another importance of going global is to spread operations risks. Egypt was one of the most attractive markets in Africa before the civil strife of 2010. Most of the multinational corporations had considered it as one of the best African countries in which to invest.
That is no longer true given the current prevailing political environment. The country has been torn apart by civil unrest. It is not viable to conduct any business in Egypt because of political instability. Business units are not sure of the security of their properties in Egypt.
A business unit that had all its investments held up in this country may suffer losses given that business operations in major cities are almost grounded. Spreading the investment helps in ensuring the risks are spread so that in such unfortunate scenarios, a firm would have a fallback plan, which can help it remain sustainable.
The focus of international investors is turning from developed economies to developing economies. Most of the countries with emerging economies have attracted many investors across the world. The main reason that makes emerging economies more attractive than developed economies is the opportunities they offer. Investors can easily find untapped opportunities in the developing economies as opposed to developed economies.
This has seen an influx of investors into these economies. Another attractive feature that makes the emerging economies very attractive is the cheap labor. Apple Inc moved its production plant from the United States to China because of the easily available and cheap labor in China. Similarly, India has been one of the leading nations where companies from the West have considered outsourcing call center services.
This means that investing in Egypt can be very beneficial to multinational corporations. One such emerging economy that has been considered as being attractive to multinational corporations is India. This is discussed in the section below.
Analyzing India through PEST Theory
India’s political system is defined as a democracy. The political environment of this country has been very stable. Various regimes have come to power and the transition has been very smooth without any interference with the business society. However, it is important to note that some politicians in this country always affect business environment for the sake of their political survival. Economically, India is an emerging economy.
According to Srinivasan (57), India has the aptitude of turning out to be most powerful country with a stable financial system in the near future if there is goodwill from the government and the people of this country. Although China has a larger economy than India, the government holds most of the wealth. The case is different in India where the wealth of the country lies in the hands of its citizens.
This means that with proper infrastructure and good governance, India has a capacity of becoming one of the leading economies in the world. Some scholars have argued that it may take a few years for this economy to outsmart that of China and even the United States. Others have refuted this claim saying that this may take eternity, given the current structures and state of affairs in India
The social structure of this country can be defined from various fronts. As stated above, India has a population of about 1.2 billion people. This very large population has varying religious beliefs. The one of the most common religion in this country is Hindu. Other common religions include Islam and Christianity.
It is important for the business fraternity to understand the social system of a country because it affects business environment. Religious beliefs and cultural practices will always determine what the market will buy.
Technologically, India can be considered as an emerging economy with various sectors trying to implement emerging technologies. According to Dayal-Gulati (36), India has not been considered as one of the world’s technological hubs, but various stakeholders have been keen to adopt new technologies in their business operations.
Challenges that make Indian Strategy unattractive
India has a number of factors that makes it unattractive market for foreign investors. Despite its massive population, some factors have continuously made the Indian market very complex to invest into, especially for foreign investors. The following are some of the conditions making this market unattractive to foreign investors. India is one of the countries where corruption is very common.
The government has failed to fight this graft for so many years. According to Narayan (110), foreign investors have described this country as one of the countries with numerous bottlenecks for foreign investors who are trying to invest locally. An investor will have to visit numerous offices and at each office, one has to bribe the officers in order to get the desired documents at the required time.
This makes it very expensive to start operations in India for many firms. Corruption does not end once a firm comes into operation. As Dayal-Gulati (39) observes, officers who are responsible for supervision in various departments use their position to earn many bribes from firm operating in this country. For instance, health officers will always find a mistake that will help them solicit for a bribe.
It does not matter how well a firm tries to follow the laws and bylaws in such cities as Mumbai. The authorities in these large cities would always find a reason to demand for bribes. This makes the cost of production increase as firms are forced to include these bribes as part of the production cost.
Another factor that has made various multinational corporations consider India unattractive is its poor infrastructural developments. India has poor infrastructure even in the main cities. For instance, in the city of Mumbai, transport is always chaotic during peak hours.
A train meant to carry 1500 people is always forced to carry more that 4500 passengers. The highways leading to major cities such as New Delhi and Mumbai always experience massive traffic jams during peak hours.
This may force one to spend hours in a distance that should take under fifteen minutes. This makes movement of products and labor within the cities very complex and expensive. Some of the main roads are in a dilapidated condition due to poor maintenance.
It is a fact that India has a large population, being the second largest country in the world. However, Dayal-Gulati (67) observes that only 66% of this population is literate. Those with the required technical knowledge are even lesser. This means that foreign firms coming into this country are forced to train these employees before they can start working in various fields.
The process of training these employees is always high because even the local graduates do not have the practical knowledge other than the class work. This problem is compounded by the fact that these employees are easily poached away by other firms once they gain the required skills. This has seen most foreign firms increase their wage bill in order to remain attractive employers to retain their skilled labor.
The political environment has been another factor that has seen many foreign investors avoids this market. Shahi (29) says that politicians have been interfering with the business environment just to increase their popularity among the public, especially during the periods of campaign. This scholar says that political leaders would demand for reduction of prices of commodities, especially those considered as basics.
This is done with a total regard to the consequences it may have on the business fraternity. At times, a firm would be denied an opportunity to expand its operations if politicians consider this convenient for them to gain political achievements.
Tata Motors, the largest car manufacturer in India, was denied an opportunity to open a new plan in Mumbai because an influential politician felt that this land was meant for public and it could be used to build a recreational facility.
For this reason, Tata Motors was forced to stop its expansion plans because of what a politician was describing as public interest. This has made some of the multinational corporation consider the political environment in this country as harsh towards investors.
Mishra (67) says that in the current global market, it is difficult for a firm to be successful if it ignores Indian Strategy. This scholar says that India is one of the most attractive markets currently. A number of reasons make Indian Strategy very important for a firm that wishes to be successful in the current global market. The following are some of these reasons.
The first factor that makes this massive population attractive is availability of cheap labor. Most Indians depend on large foreign investors for employment. This country has the highest number of outsourced call center officers in the world. This is because they are cheaper as compared to other employees with similar qualifications in the developed countries.
This huge population also makes this country an attractive market for firms around the world. According to Gilboy (92), India has overtaken Japan to become the third largest market for electronics after the United States and China. This huge market has attracted firms in various industries concerned with expanding their market. To succeed in tapping into this huge market, a firm must understand the local industry.
A firm must understand the needs locals and their exact purchasing power. Understanding their culture can make a firm succeed in attracting this huge market. For instance, LG has considered the Indian market the most attractive of the emerging market. This is because this electronic firm has been able to understand the needs and capacity of the people of India.
This firm has been able to realize that Indians do not value fancy and expensive products. For this reason, it has been producing products that are relatively inexpensive. Indians are generally vegetarians. For this reason, LG manufactures fridges with several compartments to meet the local needs. This firm has also realized that Indians live high volumes on their televisions, and it has given them just that.
Dayal-Gulati (67) says that LG has identified with the locals to an extent that the market feels that it is a local firm specialized in delivering quality products to the local market. This means that for a firm that can manage to be integrated into this local market, then chances of tapping into this massive market is very high.
India is one of the emerging economies in the world. This means that this economy is very promising to various investors who seek to increase their investment beyond the developed countries. One of the most important factors that make this country attractive given its economic capacity is that the people and not the government hold its wealth, as is the case in China. Mishra (112) appreciates that majority of Indians are poor.
However, this scholar says that the government does not hold the country’s wealth as some governments around the world do. In India, people can own property without any intimidation from the government. This means that the 1.2 billion people have some level of buying power that foreign firms can tap. When most of the wealth is held by the state, purchasing power of people of that particular country is always reduced.
Srinivasan (89) describes India as a ‘global sweet spot’ because of its recent economic reforms. It is a fact that this country has bureaucratic system to foreign investors, but this does not mean that it is practically impossible to start a successful business in this country. The government of India has come up with various reform policies that would help protect business environment from political insurgency.
The parliament of this country has come to appreciate the importance of supporting growth of business environment that is not disruptive to players. One of the most important reforms that this country has come up with is to make the local market to international players. There is no law that stops foreign investors from making investments into the Indian market. This has seen a series of multinational corporations come to this country to invest.
This has helped create a healthy competitive environment where business units compete on a fair ground. These polices have not only helped foreign investors. Local firms have also benefited from this competitive environment.
Some of the Indian firms have come out stronger in this market and even in international markets. Bharti Airtel has also been successful in the telecommunication industry since the local market was made more liberal. This means that foreign firms that believe in the spirit of fair market competition can flourish in India.
How India can use its resources
The population of India is estimated to be over 1.2 billion people. This massive population has seen this country become very attractive to Multinational Corporation in two ways. The country should educate this large population to increase its skilled labor. Other resources such as minerals, wildlife, and other natural resources should be used responsibly.
How to grow Indian economy
Indian economy can greatly be improved if the infrastructure is developed. The government of India has committed itself to improve the infrastructure in this country. The government has been keen on improving the transport system as a way of boosting its economy. Major cities like New Delhi and Mumbai already has electric trains to help decrease traffic congestion on roads.
The government also has programs to expand its road network in the entire country starting with the major cities as another way of decongesting traffic.
This means that movement of people and goods has been made easier. Firms operating in India will find it easy to move their goods from the major cities to other markets where they are needed. It is also important to note that the level of literacy is also on the rise, a fact that would improve quality of workforce in this country.
Conclusion and Recommendations
India is a very attractive country for multinational corporations that wish to expand their operations. Although some people have argued that numerous factors bedevil this country making it unattractive for investment, the fact is that any serious firm that wishes to expand cannot ignore this market.
The massive population of about 1.2 people in this country makes it attractive in terms of cheap labor and a huge market. This country has also liberalized its market making it easy for foreign firms to make an entry into it. This means that multinational corporations can no longer ignore the Indian Strategy. To succeed in this market, the following recommendations should be observed.
- Multinational corporations coming to this country should understand the market culture by understanding Indian cultural practices.
- It is important to define the market segment that is targeted and understand how to meet its needs.
- Foreign firms coming to India should be able to counter some of the external environmental challenges such as occasional political interference.
- The government of India should address various issues of concern raised by investors to encourage local investments.
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