Business Standard, February 7, 1995

Why is globalisation becoming an imperative for Indian companies today?

And what choices do they have in the new environment?

How does the individual company gear itself to be a global player? That is the question worrying Indian corporate chieftains today. But before the question can be answered, we need to go back one step to understand what has essentially triggered off the globalisation process all around the world. Why is it happening now and at such a rapid pace?

Not only has the process of globalisation been sparked off, but it is actually happening faster. There are two or three notable factors which have been responsible for accelerating this process. Obviously, global changes are not a new phenomenon. But while there has always been a tend for business transcending national boundaries - manufactured goods, traded goods, services, communication and so on - a new thrust on international business has emerged only in the recent past.

What are the responsible factors ?

In the West, for instance, the wave of globalisation evolved from economic imperatives. The recession and the maturity of their markets made companies in the West seek newer markets. The second factor was competition - the rapid development of Japan as a low-cost and more efficient producer forced western countries to look for ways to make themselves more productive. And that made western companies search for cheaper ways to do the same - be it raw material sourcing, factory location or assembly.

Elsewhere, in developing countries like India, the process of globalisation has been accelerated by different factors. One of them is the sheer customer pressure - when customers demanded world class goods and Indian companies couldn't produce them being technologically way behind, these companies were forced to go out and source technology from around the world as developing it themselves would have taken too long. To catch up, they needed to shop abroad and that increased the pace of globalisation. The other factor, of course, is economic liberalisation.

Those are the factors that have speeded up the globalisation process. Having looked at that, one now needs to look at individual companies and why they are all being forced to the global route.

Part of the reason is that when any company in a particular sector goes global, it automatically forces others in the market to consider that option as well. This is how it happens. Suppose an Indian company has been operating strictly in the domestic market and has never considered any international links so far. But suddenly it sees that all its competitors are going global. It often decides that before others go global, it has to go global to stay at the same level as the competition.

They do so because when others go the global way, the level of company has to go the same way if only to stay in competition in the domestic market. There are a number of factors which mount pressures on a company to go global.

The first factor could be simply bringing in a better brand from abroad, that is, welcome a well known international brand. For example, if someone has brought Coke, the other company needs to bring Pepsi to say in competition.

The second factor is getting technology. If a company has found a collaborator to upgrade quality and technology, obviously others in the field will also have to join the race. They need to find international collaborators to upgrade their technology and quality in double quick time.

The third factor is product range. Suppose a company is getting a collaborator to bring in a wider product range. Its rivals too will have to search for away of getting a wider product range.

Finally, if a company achieves technology upgradation and economies of scale, it will also get better pricing. And its rivals need to follow suit. So all the companies are looking at the competition to chalk out their strategies accordingly. If a company assesses that its rivals have gone global, it does the same itself. This is one important environmental factor that often drives an Indian company to go for globalisation.

The second is that because of liberalisation, the protection that was offered to many product categories is now removed. That creates its own brand of pressure and incentives. For example, in many sectors, Indian companies had to either develop from their own technology or buy from an Indian collaborator. But now he has the choice of getting even better technology from abroad without any problems. All these factors are driving even the smallest of Indian companies to consider the option of globalisation.

To make a point here, "going global" doesn't necessarily mean setting up a factory abroad or expanding operations to the neighbouring countries. Indeed, in the Indian context, the term could simply stand for a technology tie-up an international partnership or a joint venture with a global company to boost competitiveness.

Whether a company actually needs it or not depends purely on the kind of sector it is operating in. If the company is in a sector, like some consumer products where there is no particular pressure of technology or wider range, or if it has already built up some amount of strength on its own within the country or within the total setup, it doesn't need to consider the globalisation option.

For instance, if the company can tailor-make certain products or brands, it does not need to go global. What it needs to do is study the market. If the industry itself is going for a technological upgradation and if a certain company already has the skills to met the needs of its clients, it doesn't need to go in for globalisation option.

But if a wider range of product it might need to consider that step. So the company has to decide first when that actually needs a particular kind of technology.

Any company has to carefully evaluate its needs first. Because a lot of companies don't evaluate this wrong path to globalisation. For example, someone might just give up his major share in a company just for technological upgradation when he could have simply bought that technology. Or a company might go for a joint venture or consider other available options.

After a company has evaluated its needs and precisely why it needs to go global, it still has to thrash out several issues. The first, of course, is whether the organisation is prepared to go global.

This is a crucial issue many Indian companies overlook. For example, if the company is small, or totally family-owned, it needs to go through several stages of upgradtion before it can even think of going global. That's because the organisational structure itself is not geared to globalisation or a collaboration. In many family-owned firms, the structure basically has the owner with others being the workers. Thus the owner takes all decision while the accountants, the manufacturing staff etc. simply execute orders.

This sort of company can hardly go global or take in an international partner overnight. First it needs to make the functioning in the company and create the right environment to go global.

But many companies say that this is a chicken and egg situation. They can't attract middle managers and professional staff simply because they haven't a foreign collaborator. And they can't have a collaborator unless they have professional managers in place.

The way out of this is to give incentives to hire the right sort of people - whether that means allowing them to independently take decisions in certain areas of functioning or providing the right pay. The gap has to be bridged first. After this has been in place for some time, the company can then take the next step and consider going global.

Of course, there are many companies that have already built up a certain size and are fairly professional in their management that are also considering the globalisation option. But there are a whole host of issues to be trashed out before they can even consider the option.

Among the biggest problems that many Indian companies face while trying to attract international collaborators is the lack of information. Many foreign companies, especially the Japanese companies, ask for to distinct sets of information before they consider any company for a partnership. One is information about the company - what products it offers, how many workers it has, how long has it been operating etc. The other set is information about the market - how big it is, who are the competitors, what is the growth rate etc.

Indian companies need to access both these sets of information before taking the first step towards globalisation. The other important step is to develop an orientation towards other people's ways of thinking and speaking. The key is to overcome cultural differences with an open mind. Also, it is not advisable to restrict dealing on a one-to-one basis with the top level but to open up liens of communication at various levels.

Check the company out for its culture, its business values, its method of functioning to decide on compatibility before jumping into any relationship.


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