Business operations and practices in India

¶ … business in India

Exceed Corporation - Doing Business in India

It is an undisputed fact by now that the world is no longer the place we once knew. Faced with numerous changes, the individual and the company are forced to adjust to the new requirements of the community and the environment. A major feature which organizations are currently facing is globalization. Much has been said about globalization, and its capability to economically, politically and culturally integrate numerous countries (the World Bank Group, 2001) but the fact remains that globalization is an international force that "increasingly touches the lives of people living in all countries of the world" (International Monetary Fund, 2008).

Among the numerous companies which engaged or are currently attempting to engage in international activities is the Exceed Corporation. Located in Hyattsville, MD, the company offers management services to the U.S. Government and its institutions, as well as the private sector within the United States. Among its most significant clients, one can easily point out the U.S. Department of Homeland Security, the U.S. Department of Defense, the U.S. Department of Labor, the U.S. Departments of Transportation and Education or the Federal Deposit Insurance Corporation (Corporate Website of the Exceed Corporation, 2008). "EXCEED offers a unique array of management, analytical, and technical services to the federal government and private industry. Founded in 1998, EXCEED provides solutions to the complex management, organizational, and programmatic challenges of the 21st Century" (Indeed, 2007). The corporate mission at Exceed is to "be recognized nationally as a quality professional management services firm that provides tangible value and solutions to its clients and to maintain a culture that attracts and retains professionals who are dedicated to exceeding our clients' expectations" (Corporate Website of the Exceed Corporation, 2008).

The company is now considering expanding their business to foreign territories, particularly the southern Asian country India. During the recent years, India has become a desirable destination for foreign investors due to its technological developments and the large and cheap workforce. India is the world's fourth largest economy in terms of gross domestic product. The country develops international relations with numerous partners, including the United States of America, the United Kingdom, China and Germany (Central Intelligence Agency, 2008). However, the entry to India is far from secure and sure to generate a most beneficial outcome. For instance, however during the past years the country has increased efforts to become more open to international affairs and increase the operations transparency, India remains one of the closest economies of the globe. "Thus, India's tariffs remain among the highest in the world. Over the last thirteen years, beginning with its economic reform program initiated in 1991, India has taken noteworthy steps to open its markets. A progressively more open and transparent trade regime stimulated a strong increase in U.S.-India trade and investment in the first half of the 1990s" (Office of the United States Trade Representative). In 2004, several taxes and duties were reduced in order to stimulate international commerce, but even so, the Indian tariffs remain amongst the highest in the world. This would automatically imply increased costs for the Exceed Corporation.

But aside from the tariff barriers, there is also a wide variety of non-tariff barriers to cross and several features to take into consideration before actually entering the Indian market and offering the Indian authorities and corporation management services.

2. Non-tariff Barriers

The wide variety of barriers which present the Exceed Corporation with difficulties on penetrating the Indian market belong to numerous domains and have various natures, starting with the general perception of the public and ending with political regulations. These barriers can be divided into three major categories: tariff barriers, para-tariff barriers and non-tariff measures - NTMs or non-tariff barriers - NTBs. There is no internationally agreed definition or list of non-tariff barriers, but they basically represent "all measures restricting trade, others than tariffs; and hence any list of NTMs will be very long, and is probably continuously growing" (Mehta, 2006). Of the most significant barriers to entering India, one could easily point out import policies; standards, testing, labeling and certification requirements, anti-dumping measures or service barriers (Gupta, 1997)

Import Policies

The Indian economy was, and continues to be, based on protectionist procedures. They prefer to produce their subsidies within the boundaries of the country and get involved in as little international activity as possible. Aside from the economics theories which clearly state the disadvantages of a closed economy, it is obvious that such regulations hurt the country by limiting the choices and development opportunities of all medium and small size companies as well as the population's. The closed economy fosters monopolistic procedures by preventing foreign traders to enter the local market and present the consumers with high quality products at competitive prices.

In the context of a closed economy implementing numerous import licenses, foreigners' entering on the Indian market was barely possible. However, during a meeting held by the World Trade Organization, the international institution ordered the southern Asian country to eliminate their import licensing on the largest part of consumer goods. "India continues to maintain a negative import list. The negative list is currently divided into three categories: (1) banned or prohibited items (e.g., tallow, fat, and oils of animal origin); (2) restricted items which require an import license (e.g., livestock products); and (3) "canalized" items importable only by government trading monopolies subject to cabinet approval regarding timing and quantity. India has liberalized many restrictions on the importation of capital goods. The government allows imports of all second-hand capital goods by actual users without license, provided the goods have a residual life of five years" (Office of the United States Trade Representative).

However this can raise numerous problems for the Exceed Corporation, they can easily benefit from the fact that the Indian government has raised most of these barriers in the services department. In their attempt to attract foreign investors, the Indian authorities have adopted several measures to "raise foreign investment limits and to align prudential requirements with international practice. [...] Greater progress has been made in reforming services than in other sectors of the economy. Trade, hotels, transport, and communication services grew at double digit rates for the three consecutive years (from 2003/04 to 2005/06). As a result of the continuing growth, services share of GDP increased from 50.5% in 2000/01 to 54.1% in 2005/06" (World Trade Organization, 2007).

Standards, Testing, Labeling and Certification Requirements

These requirements have been identified for a total of 159 types of products (Office of the United States Trade Representative) and are regulated by the Agreement on the Application of the Sanitary and Phytosanitary Measures (SPM) and by the Agreement on Technical Barriers to Trade (TBT). They are basically applicable for actual products, but can easily be adjusted to fit service requirements. These regulations are approved by the World Trade Organization and can be implemented by the country as they consider fit if through them, they protect the health and life of India's population, animals and environment (Gupta, 1997).

The current risk in opening a business in India is given by the government's possibility of abusively implementing the standards, testing, labeling and certification requirements to protect the local entrepreneurs in the detriment of foreign ones. The best thing the Exceed Corporation could do is to entirely subject to the regulations imposed by the Indian government and, whether they approve of them or not, but they must comply with the local requirements of the hosting country.

Anticompetitive Practices

The anticompetitive or antidumping procedures encompass a set of regulations aimed at protecting the country from foreign exporters which, due to dumping activities or governmental subsidies, might negatively impact the national industry. However approved and stated by the World Trade Organization, when abusively implemented, these measures can be looked at as non-tariff trade barriers (Gupta, 1997). As such, the Indian authorities might object to the opening of an Exceed subsidy within their country and base their decision on the corporation's close collaboration with the United States Government.

But the antidumping procedures can be looked at from another angle, one which once again raises difficulties for the American managerial service provider. Say that the Exceed Corporation has managed to enter the Indian market but they encounter fierce and even unfair competition from an organization holding monopoly of the managerial services in India. If the monopolistic company is state owned or a private investor supported by the Indian authorities, they will be able to implement anticompetitive prices and crush the American organization. "India suffers from a slow bureaucracy and regulatory bodies that reportedly apply monopoly and fair trade regulations selectively. With little or no fear of government action and with a clogged court system where cases languish for years, Indian firms face few if any disincentives to engaging in anticompetitive business practices" (Office of the United States Trade Representative).

Other barriers

However not intentionally applied by the Indian state authorities to harden the penetration of foreign investors onto the domestic market nor approved by the international regulation institutions, the Exceed Corporation might encounter numerous other difficulties on entering the Indian market. These other barriers are of various natures and can include social and cultural barriers or difficulties related to an unsatisfactory communications system or transportation network.

From a cultural perspective, the Indian population is highly different from the American one. The people are more conservative and might find it difficult to accept foreigners. However, since the Exceed Corporation is focused on offering their consultancy services to state institutions or the Indian government, they would have little to do with the general population. And also, the Indian citizens are more and more oriented towards the liberalization of their economy. The language barrier would be barely existent since the large majority of the Indians speak English. "English enjoys associate status but is the most important language for national, political, and commercial communication" (Central Intelligence Agency, 2008).

However still underdeveloped, at least in comparison to the United States, the communication systems and transportation networks have been met with major improvements during the past few years, developments which would ease the American company's penetration of the Indian market and would support them in conducting business. The telecommunications are basically centered on highly populated urban areas and the most commonly used gadgets are the mobile and fixed phone. "Recent deregulation and liberalization of telecommunications laws and policies have prompted rapid growth; local and long distance service provided throughout all regions of the country, with services primarily concentrated in the urban areas; steady improvement is taking place with the recent admission of private and private-public investors, but combined fixed and mobile telephone density remains low at about 20 for each 100 persons nationwide and much lower for persons in rural areas" (Central Intelligence Agency, 2008). The increased interest young Indians have for technology has supported and will continue to support technological advancements in India.

From a transportations stand point, India possesses a total of 346 airports, out of which 250 have paved runways and 96 have unpaved runways. They also possess: 30 heliports; 63,221 kilometers of railways; 3,383,344 kilometers of roadways; 14,500 kilometers of waterways and 477 merchant ships (Central Intelligence Agency, 2008).

All in all, the Indian government has instituted numerous barriers to entering the market based on their desire to protect local manufacturers and the domestic economy. However some of these regulations have been abandoned throughout the years due to the intervention of international regulatory institutions, most importantly the World Trade Organization, some still stand. And regardless of how the America service provider feels about these restrictions, they must comply with them in order to retrieve a successful outcome from their operations in India.

3. Product/Service Standards

The product/service standards are those promoted through the Agreement on the Application of the Sanitary and Phytosanitary Measures (SPM) and the Agreement on Technical Barriers to Trade (TBT). These regulations have generally been implemented to protect the safety of the Indian consumers and the general population through the protection of the national economy. "The SPM Agreement gives a right to take sanitary and phytosanitary measures necessary for the protection of human, animal or plant life or health, provided that:

such measures are not inconsistent with the provisions of the Agreement;

they are applied only to the extent necessary;

they are based on scientific principles and are not maintained without sufficient scientific evidence;

they do not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail including between their own territory and that of other Members, and they are not applied in a manner which would constitute a restriction on international trade" (Gupta, 1997)

The regulations, however justly intended to protect the Indian consumer and economy, are not applicable to all products imported, but can easily be adapted to meet other protectionist needs. Take for instance the particular product requirements in regard to proper labeling. It would be rather difficult to apply the same requirements for a service, but in order to make sure one complies with the regulations, they must adjust. In other words, the Exceed Corporation must ensure that their services are properly promoted, presented, placed on the market and delivered to the end consumer. Therefore, the major recommendation the Exceed Corporation must keep in mind is to make sure that they, at all times, comply with the regulations implied by the Indian authorities. The American company may not always understand or agree with the standards, testing, labeling and certification requirements, but they must adjust their internal policies in order to subject to them. For the success in a foreign country is not based solely on the core competencies and high quality of the services delivered, but also by the company's ability to adapt to the particular needs within the country and adjust to the regulations imposed.

The Exceed Company would offer the same products in India as they do in their homeland, adjusted of course to the demands and requirements of the hosting country. It would be however improbable that the American consultant be able to contract the Indian government as a client due to their foreign origins and the authorities' fear of foreign intrusion into their domestic affairs. As such, most of Exceed's services would be addresses to the market of private investors.