American company expansion strategy into the Indian market

American company expanding to a foreign market - India

Indian Economic System - Besides the fact that it has the second largest population in the world, above the critical figure of 1 billion inhabitants, India is known at the global level, for the fact that its economy is booming. The economic growth rate reached the value of 9.4%, right after the most fast growing economy of the world - China. However much is to be done in the direction of economic development since the major international organisations offer India the title of 'underdeveloped country' This unfortunate denomination is attributed to the enhanced level of poverty and lack of economic equalitarian distribution of incomes and revenues. With an income per capita of 885 American dollars, expressed in real terms according to the purchasing power of ordinary citizens, the economic system in this country has much to perform in order to recover the economic development gap between India and the developed countries, like United States, Japan or the states of the European Union.

Diverse economic fields of activity are included in the Indian economic system. Although a large proportion of the population is still employed in the agricultural sector, the service sector is growing at a fast pace, especially in the field of it, where the specialists from this country are well-known for their skills and work capacities. A recent trend noticed in the Indian economic system is the setting-up of outsourcing and customer service companies - multinational companies decided to externalize a part of their activity to Indian companies, taking advantage of incredibly low wages and to the proper educational system.

Good educational background is a definitory characteristic of this society, with Indian universities known on a worldwide basis (BITS, TIFR, AIIMS); however there are difficulties with the primary educational system where due to poverty reason, children can not attend school. The state department that monitors the performances of the educational system in this country has to induce a literacy level of close to maximum (100%). This is very important, both from the social and the economic point-of-view. The current reality of the world demands qualified labor force. The literacy is useful for each individual as they can be better informed, can enjoy the opportunities, have more development possibilities. Although India had a quite restrictive foreign investment policy in respect to business and foreign investors, it strongly encourages the investment in the educational system.

The Geography of India is quite diverse, having various forms of relief - plates (Indian plate), sea opening (Arabian sea), desert (Deccan Plateau), and also the famous Himalayan mountains. From ancient times, agriculture represented one of the most important occupations for Indian people. Among India's neighbors we could mention Pakistan and Afghanistan in the North-Western part of the county, China, Bhutan and Nepal in the Northern side, Myamar and Bangladesh in the East. From the administrative point-of-view, India is divided in 28 states and 7 federally administrated union territories. The division criterions for these states are the cultural and linguistic elements, rather than the geographical aspects.

At the level of 2002, the Indian infrastructure (road, transportation, telecommunication) was in a disastrous state. This was the direct consequence of the Government monopoly in the public infrastructure work, where corruption, bureaucracy and economic interests mattered more than the national welfare. It is well-known the crucial role played by infrastructure in the game of economic and social development. The disagreement of the population and the negative results of the state policy in respect to infrastructure has led to the market liberalization process, and private companies received important infrastructure work proceedings. In order to compare the results since the market liberalization, a simple example is worth mentioning - in January 2007, in India were about 2.10 million broadband lines.

The positive results obtained by the intervention of private companies (both national and international) in national road infrastructure had encouraged the investors willing to contribute to the development of the telecommunication system - telephone, Internet at a national level.

The financial infrastructure is composed by different specialized institutions like the Central Bank (RBI) who is the authority responsible with the money supply supervising the entire financial system, the Bombay Stock Exchange and the National Stock exchange, as well as various commercial banks with services addressed both to natural and juridical persons. Besides the financial network above mentioned, the Government favors the strategy to encourage foreign investments by creating Special economic zones and software parks with tax incentives and a large pool of qualified individuals.

II. Socio-cultural environment

Ethnical diversity is present in India, where the influences from various states are present (Europeans-due to the fact that India was a British province, but also Persian influences). More than 114 dialects are spoken in this country, but the most used languages are the Indo-Aryan (74% from the entire population) and Dravidian (used by 24% of the Indian people).

The official language of the country was selected the Hindi in Devanagari script. This is a new change in the Indian policy, as around the year 1967, the Constitution recognised no less than 14 official languages. This decision had the role to crystallize the problem of the official language. In order to ease up even more the bureaucracy and the document processing issue, English was accepted as the second language. This resulted in a facilitation of trade activities, enhancing the commercial flow and the industrial and investment development in this Asian country.

Hofstede is social scientist that studied the cultural dimensions of international business. He tried to discover common features of individual from the same country so as to set up various stereotypes. This thing has two sides - on one side, it may beneficial for international manages that perform commercial activities in third countries. These cultural stereotypes help international managers to better understand the culture with whom they interact, to understand different gestures and actions. On the other side, negative stereotypes can be created, so common features are summarized into a national category - for example, that Romanians are lazy, the sole interest of Americans is money. Individualism and collectivism are two opposite issues that are embraced by the Indian society, in the sense that due to the ethnical disparities, various societies have different attitudes. This is the case with individualism where in some societies the individual has to act on its own behalf, while in other societies the group is more important than the individual. The collectivist side of the society is very important from the commercial point-of-view, since the decision making is different according to the society the individual lives in. The decision making process for an ordinary citizen includes the buying behaviour and decision, issue that is crucial for the multinational marketers. The short-term perspective is one of the main characteristic of the Indian society, who to a large extent, even nowadays faces severe poverty. This social aspect is translated in everyday actions, perspectives and attitudes. Retailers could take advantage of this general perspective of the society, if the attitude would be backed by strong purchasing power within the Indian society.

IV. Foreign exchange market

The national currency of India is the Rupee, with the 1000 value as the highest printed denomination and the currency with the lowest value is the 25 paise coin. The majority of the Rupee banknotes present the former political leader and opinion formant, Ghandi. The value and the policy of the Rupee is set and monitored by the National Bank, through different direct and indirect measures of monetary policy - reserve level, discount rate, etc. Due to the commercial transaction with its neighbours, Indian national currency is accepted both in Nepal and Bhutan. In the past the national currency was connected and pegged to the British pound and the silver. Due to issues of liquidity and monetary stability and fluctuating exchange rates, but the Rupee is now a fully convertible currency. Thanks to the favorable economic predictions for the commercial future, the role of Rupee will increase on the international monetary market, due to the high demand for this type of currency.

Inflation is another target of the National Bank. First of all, inflation is a negative economic phenomenon that influences the purchasing power of citizens and commercial companies. Although the inflation ended up to in a one figure value at the end of 2006, nowadays is at around 5.4%, economic commentors are skeptical about the Indian inflation kept at a stable pace. The main problem for the inflation stability is the commercial excedent, resulted from the fact the national exports exceed to a large extent the products imported in the country. In many fields of activity, like software programming or manufacturing Indian corporations are in a very competitive position, offering them many advantages against the other companies on the market. The additional amount of money will increase the monetary supply, offering incentives for the inflation surge.

In this paragraph we will discuss the evolution of the exchange rate values for the Indian Rupee and the American Dollar. The table presented above conveys the image of the Indian national currency against the most traded currency at the international level. The first year of analysis is 1970, while the final year included in our presentation is 2007. As we can see from the appendix, starting with 1997 the Rupee registered an upward trend up to the year 2006. The depreciation in the value of the Indian Rupee, in the period 1997-2006 was of approximately 25%. However, in the year 2007, the trend seems to be reversed, as the Indian Rupee appreciated in nominal terms against the American Dollars. This most recent trend has discouraged the national exports, making the imports more cheaper in the eyes of ordinary citizens.

Value of one Rupee (units per U.S.$)