The Chinese And Indian Economies On The Rise Business Essay Example
The Chinese And Indian Economies On The Rise Business Essay Example

The Chinese And Indian Economies On The Rise Business Essay Example

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  • Pages: 14 (3775 words)
  • Published: September 5, 2017
  • Type: Essay
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Goldman Sachs predicts that by 2050, the Chinese and Indian economies will rank as the second and third largest in the world. Furthermore, businesses from these nations are already establishing themselves as major global contenders.

The study examines key strategic issues in the internationalization process of Indian firms, including organizational change and the development of new organizational forms and capabilities. In recent years, India has experienced significant economic changes and its companies have become more involved in global markets. This research draws upon literature on internationalization theory, organization theory, and studies on organizational change and capabilities to identify important strategic factors and issues related to organizational design during the internationalization process. The focus is on both the overall emerging economy situation and the specific Indian context. The main findings indicate that as India opens up to international markets, leading Indian companies have undergone substantial transformations towards newer forms of organization

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within the last five years. These transformations are evident across various aspects such as structure, processes, human resources, leadership, and culture.

The study explores the relationship between organizational changes and organizational performance, focusing on strategic issues like internationalization practices, competitive drivers, geographical focus, and aspirations. It specifically examines factors driving organizational changes in Indian companies expanding globally. The findings reveal that increasing internationalization has a U-shaped relationship with organizational performance among a large sample of Indian companies. This research is valuable for practitioners, policymakers, top executives of internationalizing companies, and the academic community at large.

Abbreviations: EMNC (Emerging Economy Multinational Corporation), FDI (Foreign Direct Investment), IT (Information Technology), M&A (Mergers and Acquisitions), MNC (Multinational Corporation), p.a.

  1. Per year
  2. % - percent
  3. RBV: Resource-based View
  4. TQM: Total Quality Management
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  • USD: United States Dollar
  • Keywords:
    Organizational Change
    Organizational Design
    Structure
    Process
    Culture
    Emerging Economy Multinational Corporation Innovative Forms of Organizing Internationalization Theory Resource-Based View Organizational Capabilities India

    Introduction

    Research on organizational change in India takes place amid significant institutional changes in the country's economy over the past 15-17 years.Following years of socialist-oriented policies, a significant turning point took place in 1992 when the government, led by the Prime Minister and Finance Minister, enacted decisive measures to tackle balance of payments and economic crisis. These measures involved a dramatic transition towards embracing market forces within the economic structure. This change in policy direction has endured and produced considerable advantages for the nation. The Indian economy has surpassed its previous yearly growth rate of 2-3% to attain an annual growth range of 6-9% in terms of Gross Domestic Product (GDP).

    India's expanding scope has made it a favorite among the international business and investment communities. Concurrently, domestic Indian companies have utilized the liberalized policy environment and their own entrepreneurial abilities to compete in the global market. The Indian economy has experienced double-digit export growth for several years, and there has been a notable increase in outward foreign direct investment (FDI) and international merger and acquisition (M&A) activity by Indian companies.

    Indian companies are expanding their global presence by offering more advanced products and services, while maintaining their traditional advantages of lower labor and infrastructure costs. They are also succeeding in international competition in various areas such as product design, process design, marketing, and branding. According to international management literature, the success of global companies depends on their ability to effectively utilize resources across borders and navigate different institutional, cultural, and competitive environments. Achieving global success requires organizational

    design and adaptation to provide a competitive advantage. However, there is limited research specifically on these topics for firms from emerging economies despite extensive research available for multinational companies from developed economies.

    Several writers have suggested that in order to have a complete theory of the house, more research should be focused on houses in planned economic systems. The reason for this suggestion is that these economic systems have made significant transitions towards becoming market-based economies since the 1980s. This offers organizational researchers interesting opportunities to refine and test existing theories, as well as develop new ones. The literature also mentions other reasons for studying internationalizing houses in emerging economic systems separately from their counterparts in developed economic systems. These reasons include unique characteristics found in the former, such as a capital gap between houses in emerging and developed economies. Additionally, the legal and institutional framework and factor markets needed for organizational transformation have been slower to develop in emerging economic systems.

    Conventional houses in passage economic systems lack full discretion to acquire and distribute resources and struggle to compete in market-based economies. Emerging economy firms often have subpar assets and inexperienced managers, which hinders their ability to compete globally. The significant changes in emerging economies can overwhelm the cognitive abilities of managers and employees, while the differences in institutional structures between emerging and developed economies can affect managers' strategic orientations. The managerial capabilities that were successful in stable planned economies are no longer effective in market-oriented economies, necessitating the acquisition of new skills. These factors suggest that theories and models applicable to multinational corporations from developed economies may need to be tailored to the specific circumstances

    of emerging economies.

    The content of this text can be summarized as follows: The research discusses the potential benefits of studying organizational forms in emerging economic systems, particularly in the context of internationalizing Indian companies. This research aims to explore organizational strategies and changes in these companies. Additionally, it highlights the research opportunity presented by emerging economies as they transition into becoming significant global players.

    In recent years, research has focused on understanding how houses in emerging economies respond to institutional transitions towards market-based economies. These houses initially adopt a web-based approach, utilizing interpersonal relationships and interorganizational connections. They also build relationships with government authorities. However, these houses do not actively initiate strategic changes, but rather respond to existing crises and attempt to navigate the transition with minimal modifications. Over time, regulatory, normative, and cognitive pressures push these houses to develop organizational capabilities and rely less on networks for competitive advantage. This shift, also known as a market-based strategy, focuses on independent competitive resources and capabilities such as quality, funding, and marketing. As a result, houses must "unlearn" their traditional organizational routines.

    Furthermore, the success of both domestic start-ups and foreign companies has inspired some established officeholders to pursue capability-based strategies. Building on previous research, this study will specifically examine two key research areas: 1) Understanding the strategic approach that Indian firms are adopting as they expand internationally, such as the modes they employ, their international ambitions, and their target geographical regions; and 2) Analyzing whether these firms have indeed been transitioning towards newer, "market-based," "excellent," or "efficient" organizational forms in recent years.

    The present study has a strategic analysis purpose. It aims to explore the organisational

    signifiers suggested to be important or useful in facilitating internationalisation success. The study also aims to detail the components of this alternation and test whether there are any performance implications of this organisational change. Specifically, the progress purpose of the study is to examine the extent of organisational change towards newer forms of organising in a large sample of internationalising Indian firms. Additionally, the performance purpose is to analyze the performance implications of these newer forms of organising.

    The purpose of the process is to analyze the steps involved in this alternation. The analysis aims to understand key internationalization related strategic options and the importance of newer forms of organizing in the firm's internationalization situation in India. The research model and hypotheses, including the dependent variable, independent variables, corporate internal environment, internationalization decision, competitive advantage, and branding, are as follows:

    - Dependent Variable
    - Independent Variables
    - Corporate Internal Environment
    - Internationalization Decision
    - Competitive Advantage
    - Branding

    The corporate internal environment includes the organizational structure, organizational culture, organizational procedures, human resources, competitive advantage, low cost advantage, product/service quality, fiscal resources availability, organizational skills, and branding.

    Based on a review of literature on emerging market firms and specifically Indian firms regarding the factors influencing the decision to expand internationally, and using regression analysis based on questionnaire data pertaining to the research problem and objective, the research model will be tested.The suggested theoretical model of research examines the three factors that influence the decision of Indian businesses to expand their operations globally.

    This research focuses on three key areas: the corporate internal environment, competitive advantage of Indian firms, and the brand image of Indian products and services.

    The

    corporate internal environment includes organizational structure, culture, procedures, and human resources.

    Factors that determine the competitive advantage of Indian firms include low cost advantage, product/service quality, availability of financial capital/resources, and organizational skills.

    Additionally, the "Made in India" brand image greatly influences how Indian products and services are perceived.

    The research aims to test three hypotheses. The first hypothesis states that a strong and stable corporate internal environment is crucial for Indian firms when deciding to expand internationally.

    The research investigates the correlation between the decision to travel internationally and expand global operations, taking into account the internal environment of the organization, such as its organizational structure (whether it is simple, functional, strategic business unit structure, centralized or decentralized divisional structure). It also examines the organizational culture and core values that reflect the level of commitment of corporate members to the organization's norms and best practices, the level of equality among all members, and the power distance between supervisors and subsidiaries. Furthermore, it analyzes the impact of all these factors on the decision-making process and the perceived expectation of success when venturing internationally. The study also considers the organizational processes (such as daily operations, procedures, policies) as well as the long-term orientation of the corporate strategic thinking and future plans.

    The house assesses the technological and operational capabilities of a company, as well as its capacity to be a learning organization that generates, utilizes, obtains, and manages knowledge among its members and society. It also evaluates the company's emphasis on research and development and innovation to ensure sustainability and capitalize on durability. Moreover, it examines the approaches employed by the company for entering new markets and expanding operations via horizontal

    and vertical integration.

    And the level of trust in a fully integrated information technology systems and enterprise resource planning high technology system.

    H2:

    An Indian company with a competitive advantage must expand internationally and take the following steps towards internationalization. The study examines whether an Indian company with a comparative advantage in overall cost in four aspects of overall cost leadership, high product or service quality, strong and highly leveraged financial resources, and good organizational skills should take the step towards international expansion. Assessing the sufficiency of comparative advantage to rely on for decision making.

    Investigating the global competitiveness of the house and its ability to establish a strong brand presence in the minds of customers as a multinational corporation is a common topic in literature reviews. Many studies examine the potential success and failure of companies with a competitive advantage in their home market when expanding internationally.


    H3:

    The internationalization decision for Indian companies is negatively influenced by the "Made in India" label. This research aims to evaluate how global customers perceive Indian products or services under the "Made in India" brand, specifically focusing on whether it is viewed as a high-quality brand.

    Considering whether the label "Made in India" is seen as a drawback or a desirable attribute when making a purchase, especially when compared to the perception of Chinese products being of lower quality. Is India also subject to this perception? Would this perception of newness in the global market negatively impact international expansion decisions? It would also be helpful for the increasing number of skilled Indian migrants, particularly professionals, in various countries worldwide to play

    a role in changing the international perception of India as a source of high-quality human resources and other talents. The methodology analysis of the research includes:

    • The research population and sample
    • Data aggregation methods
    • The operational definition of research variables
    • Developing and administering the questionnaire
    • Statistical methods
    • Cogency and dependability

    The analysis of the regression assumptions is as follows:

    • A positive relationship exists between Y and X1, but it is weak because the R-square is too low.
    • H1 is accepted since the P-Value is larger than Alpha 0.05.
    • 40% of the changes in Y can be explained by the changes in X2, indicating a good relationship.
    • H2 is rejected.
    • 57% of the changes in Y are explained by the changes in X3, indicating a strong relationship.
    • H3 is discarded.

    Analysis and findings:

    Introduction to the changing institutional situation in India:
    In the 15th century, India and China were two of the largest economies in the world, accounting for approximately 50% of world GDP together.

    Both of these states experienced a decline in their economies, only to rebound in recent years and become the focus of global attention and key drivers of current and future worldwide economic growth. Brazil and Russia, along with other countries like India and China, are now favored by international investors despite years of poor economic growth. According to Goldman Sachs (2003), the BRIC countries (Brazil, Russia, India, and China) are expected to surpass the current G6 economies in combined size by 2050, with China and India

    emerging as the second and third largest economies in the world respectively, after the United States. Among these four BRIC countries, India has the potential for the highest growth rates of around 5% per annum.

    According to the study, over the next 50 years, the Indian economy underwent reforms and liberalisation starting in 1992. This change had important implications for Indian companies. Previously advantageous factors like access to licenses and government networks became less important, and companies had to develop new capabilities such as operational efficiency and marketing skills. Many companies responded positively to these challenges by transitioning from family or government-driven, often bureaucratic and inefficient organizations, to professionally managed and market-oriented entities. These transformed companies now have the confidence to compete in international markets. The changes in the institutional and organizational environment in India are discussed in detail in the following sub-sections.

    The Indian economic system in the past was characterized by several factors that contributed to low productivity in companies. McKinsey and Company (2009) identified these factors as excess labor, poor organization of functions and tasks, lack of scale, and insufficient resources. The study revealed that poor organization of functions and tasks was due to the lack of multitasking, decentralized common tasks, low workforce motivation, and ineffective managerial practices. However, in recent years, the Indian economic system has overcome these challenges and achieved success both domestically and internationally. Business efficiency in India improved during the period from 2001 to 2005, as the country moved up from rank 42 to rank 23.The International Monetary Fund (IMF) defines concern efficiency as the degree to which endeavors are operating in an advanced, profitable, and responsible manner.

    In India, there

    have been significant improvements in business efficiency in various areas such as the labor market, management practices, and attitudes/values. This restructuring has been observed at Tata Steel, which faced challenges in the domestic market due to reduced duties after India's liberalization. The company responded by cutting its workforce in half from 1995 to 2003, investing $1.8 billion in plant overhauls, and focusing on higher value-added products like steel for automobile manufacturing. This led to a doubling of productivity and a 15% share of exports in total revenue by 2003. Even government-owned public sector companies have undergone changes to become globally competitive. Over the decade leading up to 2005, Corporate India underwent a significant restructuring, resulting in more professional management and increased efficiencies. As a result, Indian companies are now globally competitive in industries such as telecommunications, automobile and auto-parts manufacturing, pharmaceuticals, and commodities like steel and aluminum.

    However, Indian companies are still advised to improve their selling and distribution skills for international markets. Nonetheless, there has been a noticeable increase in the international presence of some Indian firms in recent years. An example is Reliance Industries Limited, which is India's largest private sector company. From 2005 to 2008, foreign sales grew by approximately 350%, reaching USD 20 million, and accounted for over 60% of total sales in 2008. Another example is Infosys, one of India's largest IT companies, which experienced a 328% increase in foreign sales from 2003 to 2008, with export revenues comprising 98.6% of total sales in 2008. Overall, Indian businesses are becoming more globally oriented, evident in the annual growth of over 20% in India's exports in recent years.

    The outbound foreign direct investment

    (FDI) from India has significantly increased in recent years. Notable acquisitions include Tata Steel's purchase of Corus for USD 13, Tata Motors' acquisition of Jaguar and Land Rover from Ford, and Hindalco's USD 6 acquisition of Novelis. Other significant acquisitions include Dr. Reddy's purchase of German pharmaceutical maker Betapharm for over $500 million and various acquisitions made by companies such as Bharat Forge, Reliance, and the Tata group. According to the Reserve Bank of India, the outbound FDI reached USD 17 in 2007-08. Amit Chandra, joint managing director for Merrill Lynch India, predicts the emergence of Indian multinationals in the next three to five years.

    The easy access to liquidity for Indian companies in recent years has been one driving factor behind the increase in outward foreign direct investment (FDI). Ratan Tata, head of the Tata group of companies, highlights in an interview with the Financial Times that Indian businesses' ability to overcome obstacles such as poor infrastructure and bureaucratic red tape gives them a competitive edge internationally. According to the Financial Times article, reasons for the recent global competitiveness of Indian companies include: leveraging India's affordable labor by completing a majority of labor work domestically, utilizing international acquisitions to enhance the value chain, leveraging skills developed in serving low-income consumers in India globally, benefiting from Indian banks' competitive advantage of lower transaction costs due to their use of cost-effective technology, and taking advantage of strong economic growth in India to strengthen balance sheets and obtain equity and debt for international acquisitions.

    Over the past few years, there has been a shift in the Indian economic system towards a market-based system and increased openness to

    the outside world. Within this shift, some Indian companies have responded by improving their organizational effectiveness and expanding their international presence. One key question is: How and why do companies expand internationally? Research in international management suggests that organizations increasingly rely on a strong international presence for long-term success and survival. The benefits of internationalization include leveraging research and development and knowledge across different countries, responding to foreign competitors in their home markets, and expanding the range of cultures, customers, and competitors.

    International diversification leads to improved performance. The benefits include opportunities in different markets, steady returns, market influence, and value in intangible assets. However, scholars warn about the challenges of international expansion, such as dealing with unfamiliar business, legal, and cultural environments, and operating in markets where the company is not well-known. In particular, products and services from emerging economies may face a "liability of origin" as they are often seen as lower quality compared to similar offerings from developed countries.

    Bartlett and Ghoshal ( 2008 ) refer to this prejudice in the Indian context as the "liability of Indianness". International management theory also sheds light on why and how firms go global. Some of the early research in international management includes the works of Hymer ( 1976 ) and Vernon ( 1966 ). Vernon's Product Life Cycle theory explains how an innovative product goes through different stages, starting from its initial production in a developed country like the USA and eventually being produced in developing countries. According to this theory, product innovation usually occurs in developed countries during the early stages of the product life cycle.

    As the product matures, it starts being mass-produced and

    there is an increase in international demand, leading to its export. Eventually, as the product becomes standardized, companies begin manufacturing in cheaper locations and developing countries, which brings production closer to the point of consumption. Often, the product is then exported from these foreign locations back to the home country. Vernon's theory is relevant to emerging economies like India, as they are becoming low-cost manufacturing locations for exporting goods to developed countries. Meanwhile, Hymer (1976), building on his 1960 doctoral thesis, suggested that companies expand internationally to take advantage of "special advantages" such as market power, advanced production techniques, deficiencies in input markets, and being the first mover in a market.

    A national house can be profitable in foreign countries, despite the higher costs resulting from its lack of knowledge about local conditions. Previous research on internationalization has provided valuable insights. Knickerbocker's strategic behavior approach explains internationalization as firms imitating their competitors in oligopolistic competition by matching investments in foreign markets. Williamson's transaction cost analysis examines the decision-making process between exporting through the market or internalizing activities to minimize costs. Tormenting's eclectic paradigm combines these theories and identifies three major advantages that multinational companies have: ownership specific advantages, location-specific advantages, and internalization-incentive advantages. How do firms determine their international behaviors?In their influential article on organizational signifiers for transnational concerns, Stopford and Wells (1972) argue that international expansion introduces complexities to the management process, as the organization must acquire new skills and procedures and integrate them into the overall system. The evolution of organizational development as companies expand globally is said to follow these stages:

    • In the initial stage, foreign subsidiaries are established and connected to the

    parent company through loose financial connections, such as a holding company.

  • Subsequently, organizational consolidation occurs and an international division is created. This division is typically considered independent from the organization and not subject to the same strategic planning as domestic activities.
  • In the third stage, strategic planning is conducted consistently and globally, and the structure of foreign activities is modified to establish closer connections with the rest of the organization.
  • The organizational structure of this can be in the form of a global product structure, where divisions have global responsibility, or a regional structure, where each division is accountable for a specific geographic region in the global market, or a combination of both, where some product lines are managed globally and others are managed by regional divisions.

    Some houses, however, create staff groups or management commissions with responsibilities that cut across formal boundaries of the organization - a type of grid (or matrix) structure - as they find that none of the three traditional organizational structures are completely satisfactory. These are four organizational structures commonly used by international organizations:

    • The first structure is the mother-daughter structure, where central offices or the CEO personally oversees each foreign unit, allowing them to operate relatively independently and serve their own market. This structure is predominantly used by smaller MNCs in their early stages of internationalization.
    • The second structure is the internation
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