Sunday, March 13, 2011

India Inc’s Globalization Challenge: Need for Cross-cultural Expertise

India Inc is at the cusp of an unprecedented globalization wave, which is an opportunity as well as a challenge. The key opportunity is that India is poised to be a 5 trillion economy by 2020, and become the third largest economy by 2030. As part of this economic transformation, India would be a manufacturing powerhouse as much as an information technology leader. India would see increased foreign direct investment in services, manufacturing and infrastructure as well as low-cost product development. Globalization for India Inc would take two forms: Indian companies would make more international buys to access technologies, resources and markets (outbound globalization) while being open to getting partially acquired to support expansion and diversification, or simply to unlock value for newer forays (inbound globalization). Globalization is an irreversible multilateral phenomenon with solid hypotheses.

Hypotheses of globalization

Overseas companies view India as an investment destination for several valid reasons. India offers a huge market for new products and services more particularly as social economics and demographics change in favor of a larger middle class and younger population. The already established perspective, of course, is of India being the world’s back-office, covering both information technology (IT) and IT enabled services (ITES) and business process outsourcing (BPO). From a manufacturing perspective, India offers a low cost manufacturing footprint, not merely of labor cost but also of materials and components. Not many, however, still appreciate that there is also a uniquely Indian way of conceptualizing and executing projects with lower investment costs and faster time to market. In terms of global supply chain management, the advantages are of low cost sourcing and supplier development for global optimization. The new opportunity is one of product development comprising design services as well as development of low cost products for global needs. Added to this, availability of high caliber firms with established competencies in the above areas and open for capital participation by overseas enterprises is a distinct advantage. Clearly, India offers a holistic opportunity for multinational corporations seeking further globalization.

Similarly, Indian companies have valid motivations for overseas forays. Overseas countries offer ready markets for India’s low cost, high quality goods, with appropriate value propositions for both developed and developing countries. Essentially, overseas markets offer scale and scope for India Inc. within the established IT base, Indian companies can diversify into less developed regions on one hand and expand into IT product development and knowledge outsourcing. From a manufacturing perspective, India Inc can look to selective overseas manufacturing presence to turn around acquired assets with Indian materials and component support, and also establish lower cost projects, the India Way. An optimized global footprint that brings manufacturing and markets closer could result. From a supply chain perspective, India could benefit from an ability to absorb the sophisticated supply chain technologies and systems of the developed world, and to offer products at multiple value points. In terms of product development, an entry into sunrise sectors and access to development areas which require global scale would be feasible.

Talent as an enabler, and a barrier

Globalization is dependent on talent. Indian companies seeking inward or inbound globalization (into India by overseas companies) need to realize that entry into India in future would not merely be for a market or cost opportunity but more for the India Way of conceptualizing and executing projects and operations. Plentiful availability of talent in India is given, but talent which is fully immersed in the Indian way and, worse still, talent that is able to articulate the Indian way is in short supply. Talent meeting such criteria is not cheap, thus reducing cost arbitrage. Also, such talent tends to be migratory impacting sustainable globalization. Indian companies seeking outward or outbound globalization (into overseas countries by Indian companies) need to realize that globalization is more than valuations, collaborations and contracts. The availability of technological and managerial bandwidth in Indian companies is essential for the companies to realize the envisaged objectives. Given the relatively nascent stage of outbound globalization, availability of true global talent is indeed an issue for Indian companies.

As discussed in the earlier two way hypotheses, globalization has an economic logic. Successful globalization, therefore, requires talent that can enable desired objectives in business, marketing, manufacturing, supply chain, product development and financing. Capability to achieve required synergies and competitiveness through fusion of Indian and global resources is necessary. Indian executives must hone their skills in due diligence studies, business negotiations, valuation studies, and transaction consummation. Ability to conceptualize globalization plans as well as plan and execute collaborations, alliances and joint ventures would be essential. These skills are particularly tested in mergers and acquisitions where post-transaction transition and integration requires special skills of handling people. Management of multiple cultures becomes as important a facet of talent as the technical and commercial competency profile that enables the realization of economic rationale.

Culture and complexity

Culture is multi-factorial and defies easy definition. Cultural diversity occurs across all nations and within nations too. Similarly, different entities have different cultures, and it is not unusual to have subunits of an entity sporting different cultural traits. Culture defines the personality of an organization as much as it defines the personality of an individual. Understanding the diverse cultural patterns and the cross-cultural interplays is crucial to successful globalization. This is easier said than done as culture gets partitioned in many ways: local culture versus overseas culture, western culture versus eastern culture, developed market culture versus emerging market culture, professional culture versus family culture and established corporate culture versus start-up entrepreneurial culture. Many times, culture camouflages or gets mixed up with managerial styles and systems. Addressing cultural issues without the accompanying organizational noise is a challenge.

Management of culture needs relational skills, on top of an understanding of cultural determinants. It often is impossible and also irrelevant to aim for cultural homogeneity. The key requirement is to identify the cultural parameters that reflect strongly a local nativity and accommodate or work on them. For example, in a culture which respects authority and hierarchy it would be inappropriate to attempt a flat organization structure or introduce multiple decision makers. The aim of global organization development should be to address the key cultural influencers of organizational effectiveness. The complexity of cross-cultural interactions emerges from the fact that thousands of individual to individual interactions that happen real time on a continuous basis between two interactive organizations aggregate to a dynamic cultural mosaic. It would indeed be difficult to regiment cultural behavior but it would be helpful to develop models of cross-cultural behavior that operate when executives of different cultures interact. As India Inc globalizes, it would need to be aware of the need to be sensitize its executives to cultural diversity that could confront them. Interactions between the executives of the East and the West could be a model of study.

East meets the West?

There are at least seven dimensions on which models of managerial behavior can be developed, with a cultural overlay. These are: communication style, working style, accountability, risk-taking, performance review, professional relationships and lifestyle. If one were to compare a typical US manager with a typical Indian manager on these dimensions the differences would be palpable. A US manager tends to be analytical and quantitative as well as direct and open in communication, emphasizing early communication of successes as well as failures. An Indian executive, in contrast tends to be experiential and emotional as well as indirect and deferential in his communication, with an inclination to report only end-stage results. The US working style tends to be process and metric-driven, with an elaborate stage gated decision making. The Indian working style tends to be end-goal driven, rather than sequential intermediate stage driven, with back-of-the-envelope quick decision making. In the US, job boundaries, and hence accountabilities are well understood while in India overlapping job responsibilities often result in a failure to pin accountabilities. In the US risk is taken in a measured manner based on risk authorization while India is open to take risks, without deep analysis, in pursuance of growth. Performance reviews in US are clinical and non-emotional while performance reviews in India tend to be as much relationship based as performance oriented. In addition, seniority carries weight in India. In US, professional work and personal life tend to be completely distinct while in India work is allowed to intrude into personal and family life. The US lifestyle emphasizes independence and nuclear families while the Indian lifestyle emphasizes dependence and joint families.

As a result of the two polarities of cultural behavior, initial interactions could be challenging for a globalizing India Inc. It takes time to build robust platforms and styles of shared communication. Both sides find the opposing methods of delivery management culturally different. The head oriented approach and the heart oriented approach are seen to be mutually exclusive. An Indian manager could see a US manager as being too process driven and micro-managing too much. On the other hand, a US manager could see an Indian manager to be too fatalistic, often hoping to overcome delays through good crisis management. Despite great strides in professionalization and management education, Indian corporations are driven by emotional themes while the US corporations are driven by economic realities. It is easy to appreciate that unless respective managers are culturally sensitive, both inbound globalization and outbound globalization could lead to cultural logjams for India Inc. Successful corporations tend to address this by separating cultural issues from systemic issues, prioritizing each stream and developing a hybrid model of professional and cultural synergy with open and transparent discussion. While the above East-West cultural model may be typical, It would be facile to assume that cultural divides occur only between the East and the West. The Corporate East itself is quite plural culturally.

A divergent East

Japan, Korea, China and India are the four major countries which have strong and emerging industrial and business relationships. India Inc has the task of deepening and broadening relationships with the three Eastern countries as it seeks to globalize. When analyzed on the seven dimensions of cultural model as above, the four countries display significant diversity. In terms of communication style, for example, Japanese managers are extremely polite and often inscrutable while Koreans are pointed and direct. Chinese communication tends to be complex while Indian communication is highly spontaneous. In terms of working style, Japan tends to be highly systematic and consensual while Korea tends to be competitively opportunistic. China focuses on sustainable mass delivery while India tends to be hungry for growth. All countries except Japan emphasize speed in decision making while Korea and China back it up with speed in execution too. In terms of accountability, seniors assume accountability in Japan while in Korea the middle level leader gets to be empowered and accountable. Accountability in China is hierarchy-bound while in India accountability is often difficult to quantify due to diffused job definitions as well as an accepted practice of moving up accountability by juniors. Japanese managers evaluate risk carefully through geo-political and socio-economic lenses while Koreans are open to experiment with promising external markets in pursuit of growth. Chinese managers are willing to pioneer first entry into even difficult markets while Indian managers prefer to be fast followers.

In terms of performance review, Japanese emphasize collective performance while Koreans gravitate towards individualism. China believes in performance as a mandated mass commitment while India lets relationships overarch performance. In terms of working relationships the ethos in all the four Eastern countries emphasize long and extended working hours, with India not even following the mandated vacation cycle as Japan, Korea or China follow. In terms of life style, Japan respects seniors, independent of either nuclear or joint family system while Korea is relatively more westernized. Chinese executives tend to be migratory while Indians tend to root for nativity. Had India Inc addressed its globalization in cross-cultural context, India would have garnered a much greater share of Japanese investments and would have forged greater collaborative industrial relationships between themselves. With Korea aggressively optimistic on India greater cross-cultural collaboration could have placed Indo-Korean globalization on a more equitable partnership mode. The emerging lesson is one of India Inc needing to follow multiple cross-cultural approaches for a more comprehensive globalization, both within its historical cultural constituency of the East and the historical business constituency of the West.

Global strategy under a cultural umbrella

Established wisdom is that strategy determines the structure. In a globalizing economy, both strategy and structure are influenced by culture. There is a need for India Inc to understand local cultures and work in alignment, and through, local cultures to achieve strategic objectives. Tata Motors did culturally appropriate moves prior to and post acquisition of Daewoo Commercial Vehicle in Korea and Jaguar- Land Rover assets from Ford, and reaped successes. Not only that, it appointed an experienced automotive expatriate leader for its global business to reflect the international culture. M&M appears to follow an Indian talent driven approach in its management of Korean SsangYong Motor. In mergers and acquisitions particularly, there is a need to understand how local culture responds to challenges of consolidation and opportunities of growth. Employees of developing economies like India despite plentiful job opportunities appear to be concerned with stagnation and job losses upon acquisitions of Indian entities while employees of developed countries appear to be taking the challenge and opportunity of getting acquired without much churn. In any case, it would be incorrect to treat cross-cultural management as a solely human resources functional issue. While HR leadership could drive the change or acceptance management all the initiatives should be owned and managed by operations and business leaders. Cultural sensitization must be set in the context of day to day job experiences for effectiveness.

Strategy and structure would be impacted by several cultural variations that could occur during the implementation of globalization initiatives. Some of these variances relate to leadership and talent surpluses or shortages as well as misalignments. These arise mostly due to non-involvement of human resources function in due diligence studies, pre-acquisition and in integration exercises, post-acquisition. In some cases, urgent considerations of business continuity force skews in or place restraints on green field or brown field organization development. From a strategy and structure point of view, therefore, several questions need to be addressed a priori to make head quarters and regions work in a seamless fashion. Adoption of the right organization structure - product, geographic, SBU, matrix - could be one option to guide global governance and managerial processes in a manner appropriate to both business and cultural contexts. Globalization succeeds when the processes of managing the relationships and communications between head quarters and subsidiaries as well as between subsidiaries are well defined. Organizational structures, cultural factors and communication channels, therefore, constitute a triad for successful globalization.

One global firm, several local entities

Globally successful organizations operate as one firm, despite being several entities. They sport a common set of vision and values while providing for locally customized strategies and structures. Cross-functional and cross-border mobility enables unity in diversity. In India, despite the heterogeneity of States, cultures and languages, Indian Administrative Service and Indian Railway Service each emerged as one singular service. In international scene, McKinsey, the leading management consulting firm is a perfect example of the One Firm concept, with shared vision and values, common high standards in talent, respect for uniquely local cultures, pursuit of economic logic, knowledge sharing with client firewalls, and so on. Virtually all large multinational corporations seek to institutionalize the One Firm concept in a number of ways. Several global companies make knowledge sharing and best practice integration across global locations as a means for the one firm experience. Automotive, engineering and electronics companies have taken strides in knowledge sharing portals as a tool of successful globalization.

As India Inc with its limited technical and managerial bandwidth, and the largely domestic market orientation seeks to globalize at a more aggressive pace, it needs to evolve its own paradigm of One Firm. The first need is to build a talent pool for globalization. The new breed of Indian managers bestowed with high quality engineering and management education in reputed institutes such as the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs), yet integrating the uniquely Indian emotional ethos, reflect a unique combination of head, heart and gut management, so essential to meet the multiple needs of diverse countries and cultures. To enhance the talent pool, India Inc must depute its managers of the previous generations to long refresher courses by such institutes to realign their skills to the new globalization needs. Strategies of globalization must be based on validated hypotheses of inbound and outbound globalization with appropriate structures and processes that deliver efficiency and effectiveness across the global network. Case studies of successful globalization by the Indian conglomerate groups such as the Tatas and Birlas offer several insights for India Inc as a whole. It is perhaps time for the leading industry associations such as the CII, FICCI and Assocham as well as the IIMs to diffuse the knowhow of globalization amongst their constituent firms.

Posted by Dr CB Rao on March 13, 2011

1 comment:

Narayanan said...

One of the often mentioned truisms - "Culture eats strategy for breakfast" is relevant now more than ever in the globalized village of today. However, any effort to better understand cross-cultural nuances should be preceded by efforts to help employees gain better self-awareness and appreciation for diversity of personality types and traits in the organization. Too often the cultural chasms evident in the organization is molded by proximate history than remote geography! In this context, tools such as MBTI (Myers-Briggs type indicator)help initiate appropriate conversations in small team settings to help appreciate diversity of thought and action in a seemingly homogeneous group. While corporate sponsored cross-cultural team building exercises have their place, it is imperative that HR and functional managers co-create customized programs for their organization that is "fit for purpose" to help top talent achieve both professional and personal aspirations. Just as astute marketers today recognize ethnographic tools and Voice of the customer research are far superior to random surveys and focus groups, organizations that succeed in helping colleagues develop a better self-portrait and genuine appreciation for cultural differences that transcends nominal attributes of gender, color, race etc will be successful in competing for the future.