Managing Diversity- Challenges for Corporate India going global

Prepared & Presented by Arun Kuruvila, Jasmin Patel & Swati Wadhwani for GODREJ at AIMA YOUNG MANGERS COMPETITION, JULY 2008. Mumbai.

India’s Growth Story
India Inc. today is riding the crest of the wave of success and progress today. India's economy is on an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world.
India's per capita income has increased at a rapid pace, from US$ 460 in 2000-01 to almost double to US$ 797 by the end of 2006-07. In 2007-08, India's per capita income is estimated to be over US$ 825.07. This growth rate will, consequently, propel India into the middle-income category.
By all indicators, the economy is vibrant, flourishing and growing speedily towards even better days ahead.
Interestingly, a significant aspect is evident by the broad-based nature of the growth process. While new economy industries like Information Technology and biotechnology have been growing around 30 per cent, significantly old economy sectors like steel have also been major contributors in the Indian growth process. For example, India has moved up two places to become the fifth largest steel producer in the world.
The Diversity in Indian Industry spanning Core Sectors to Information technology and Service oriented industries is very much an integral part of this growth story.
Globalization : a driver for Future Growth
For India to attain its full potential as an economic power, Globalization is being recognized as the driver for future growth for Indian industry. When a business goes beyond the national borders of its country, the complexity grows. This complexity is created by the sheer diversity of factors to be balanced and managed at every level. Beyond marketing, finance or production, a range of legal, political, cultural and sociological dimensions enter the picture.
In Context of Globalization, Diversity is Inevitable
Diversity is inherent to India’s culture: it almost epitomizes Unity in diversity
The earliest example of India managing diversity can be seen in the Administrative aspect in Indian Military & Public Services. Here the British took the principle approach of taking advantage of the cultural diversity to ensure unity. They effectively organized the military & state public services into regional specific cadres. For Eg: In the Unified Indian Army. This has ensured that the Army managed workforce diversity by building a cohesive unified fighting force under a single command. The civil service too took the approach with Indian Civil services being an All India service yet having state specific cadres.
The earliest of challenges experienced by Indian Industry also came in the form of integrating workforces that spread from across the country. The challenge lay in managing with different cultural and religious backgrounds among others.
Indian corporates have also had to tackle marketing challenges at a Nationwide level by adapting to different languages, market preferences etc effectively, yet at the same time considering India as a homogenous market for optimizing on scale.

Unity in diversity is a definite advantage in era of globalization, but its true potential is yet to be realized.
However we are now confronting unprecedented diversity at multiple levels as we emerge from regional/national challenges into global paradigms. We go beyond India to face diversity at the global level.
Globalization being the buzzword for growth, Indian companies -- big or small - after making a mark in the domestic markets are now reaching for the overseas destinations to tap new markets and acquire technologies.
The route to globalization is possible through Exports, Licensing of technology & knowledge, Multinational trading, Joint ventures, Mergers and Acquisitions: full fledged global operations
Ranking these in terms of the level of diversity encountered, if Exporting is at the lower end of the scale, diversity is most pronounced in case of Mergers and Acquisitions.
We chose to define diversity for corporate India in context of globalization, in terms of the peak of the scale – Indian Multinationals: Indian Corporates who aim for integration with global partners.
Recent trends and events signal a new level of participation by Indian firms in global business and its arrival on the global map.
It is a distinct trend of the year for India Inc: Indian companies are shopping overseas for acquisitions as part of a strategy meant to announce India's arrival on the global stage. In a bid to be competitive with their global peers, Indian companies have indulged in heightened global M&A activity
The recent transnational acquisitions made by Indian firms were spread across all major industry segments with varying deal sizes and structures. India Inc had 92 merger and acquisition deals, valued at nearly US$ 6 billion, in the first two months of 2008.. In fact, the year 2007 has been accredited as the year of mergers and acquisitions for corporate India. . As well as volume, both number and average size of deals also rose significantly. Indians bought up companies in Europe and the US, splashing out some US$ 33 billion.
Due to the rapid growth in Indian companies' M & A activity, India has emerged as the most acquisitive nation in emerging nations.
The spurt in India's M&A is the outcome of a number of converging factors.
· Government facilitating financing to give Indian companies access to resources for acquisitions, the reforms to capital markets like funding FDI through the external commercial borrowing route, and the removal of regulatory limits to debt that companies can raise, have facilitated bold acquisitions across sectors.
· Second, the far higher valuations of Indian stocks compared to the stocks of overseas companies — together with a stronger rupee — give Indian entrepreneurs a strong 'currency' to carry out acquisitions, even as acquisitions often are funded by cash and debt through off-shore special purpose vehicles.
Reasons for the deals varied from access to high growth markets, technology & knowledge, enhancement of own positioning in the value chain, obtaining economies of size and scale of operations to tapping of natural resource banks and leveraging international brand names for own brand building. India’s foreign acquisitions are testimony to the continued growth in the Indian economy and healthier Indian companies.
This clearly signals intense M&A activity forecasted in the future. More important, while preferred markets have been North America (38% of deal value in 2007) and Europe ( 52% of deal value) due to familiarity and comfort level with language and legal systems , it is observed that the deals are happening across a broader spectrum of industries and in more dispersed geographies.

Significantly, the profile of players is also forecasted to change — beyond the larger companies , mid-size and small companies are expected to participate as well.
It is evident that the small yet steadily growing group of Indian Multinationals are set to face the most pronounced diversity challenges at all levels.
A Multinational firm is characterized by: Advantageous scale economies, Manufacturing/sourcing/marketing bases across world markets, command of high resources and capacity to absorb big losses, capacity to leverage markets and cross-subsidize markets/products across countries, cost and differentiation advantages, and strength in production and technology.
However, becoming a genuine global firm is not just about these factors.
It is more about building a mindset aiming of taking on the challenges to transcend the barriers of language and cultures to leverage resources and create value, for maximizing organizational performance.
When a company goes global, it undergoes a turbulence and flux. There is an inherent instability. Corporations that embark on this growth trajectory will face churn and uncertainty amidst change.
4 Levels of Diversity Experienced for Indian Multinationals.
The Indian Multinational corporations shall encounter diversity at various levels: At the Individual, Organizational, National and Global Level. In this endeavor, success will come to those corporations in which the leadership is able to manage the Challenges of diversity at each level in an integrated manner.

ORGANIZATIONAL
NATIONAL
INDIVIDUAL
GLOBAL
Language
Race
Gender
Attitudes
Skills
Motivation
Career development

Brand Equity
Internationalization
and Strategic Orientation
Organization Structure and Size
Ownership
Recruitment and retention
Work Culture
Corporate Communication
Cultural Dynamics
Political environment.
Macro Economic forces.
Regulatory/legal frameworks
Public Administration,
Infrastructure,
Financial Markets and policies
Communications
Ethics
Competitive advantage of the nation:
Geographical Time Zones
Climate differences
Geo-Political Factors
Demographic composition


The Dimensions or levels at which Diversity is encountered is described in Nested Model since the factors at work at innermost level ‘Individual’ are given its context by broader level of ‘Organizational’, which in turn is given its context by the ‘National’ level .The overarching context is of the ‘Global’ level. Therefore diversity comes into play at different levels in broader context of its outer levels.
Global: Diversity presents challenges to the Indian Multinational at Global level across nations in regard to
Geographical Time Zones: Operationally coordinating diverse / varied working hours and working habits across national boundaries and aligning with the demands of the parent company.
Climate differences: Extremities of weather, vulnerability to climactic phenomena like tsunamis, earthquakes
Political Factors: state of peace or war in the region eg: the impact of the political situation in Middle-East on its business scenario.
Demographics: Ageing nations vis-à-vis continents/countries with majority of population in younger age groups, impacting the economy of a region.
National
Diversity challenges the Indian Multinational at the National level, in terms of differences between the host country and India , with regards to
n Environmental and Cultural Dynamics: Each country’s beliefs, traditions, sensibilities, and cultural diversity forms a background to the business environment and business relationship. Despite advances in communication and transport bringing world closer, cultural diversity continues to grow. Language is only one aspect: its history, religious heritage, value systems have to be understood. Moreover, culture is not static, but continuously evolving. It forms a context in which other aspects can be viewed. The challenge for the global Indian manager is to keep up with the cultural dynamics at play.
n Political Environment: Diversity is fuelled by differences in the nature of government of the country, its conduciveness to business and the stability of the political environment.
n Macro Economic forces operating in both countries, like the exchange rate, the level of protectionism, the existence of price controls in certain sectors, the market structures, the level of domestic competition in each nation, create diversity.
n Regulatory/legal frameworks: Differences arise in areas like licenses, foreign exchange, modes of payment, documentation, invoices, shipping/air freight procedures, insurance regulations, safety norms and quality regulations.
n The global Indian manager is required to understand and balance Public Administration, Infrastructure, and Financial Markets and policies.
n Communications: Market Communications across different countries is full of complexity due to diversity and cultural dynamics in different markets. Advertisements and media campaigns are rarely transferable across global markets, which history has several instances to prove. The global Indian manager is challenged to retain the essence of the brand and message across diverse markets, while customizing the form, for effectively communicating the message.
n Ethics: The code of business ethics varies in degrees across nations: acceptable business customs in one nation may be considered a serious digression in another. While there is no universally accepted guideline to this issue, India Inc can take it on to be sensitized and gain insights by first-hand study and experience-sharing of business environments.
n Competitive advantage of the nation: varies across sectors and industries as well as countries. Attributes that shape a nation’s competitive advantage:
i. Factor conditions like availability of resources and infrastructure,
ii. Demand conditions like quality and volume of demand for the industry output,
iii. Presence of related and supporting industries,
iv. Strategies and structures of rival firms.
When national environment permits and supports accumulation of specialized assets and skills, encourages flow of information about products and processes, puts pressure on companies to innovate and invest, domestic competition drives innovation and improvement, the entire nation rises in terms of competitive advantage. Different nations display competitive advantage in different industries.
Organization
Diversity and its impact is encountered at the organizational level by the Indian Multinational through the following aspects:
n Brand Equity: ‘Will an Indian company be able to competently manage a Multinational?’ Competency & brand perception of Indian companies abroad was a concern area till recent times. A case in point would be acquisition of a Dutch manufacturing unit by an Indian corporate, giving rise to the question from stakeholders ‘Does Indian Ownership mean Indian (read ‘substandard’ ) quality?’
India Inc needs to develop holistic approach to become globally competitive.
The national brand needs to be developed before the organizational brand. When ‘Brand India’ becomes synonymous with high standards in multiple aspects, India Inc will be at an advantage.
n Internationalization and Strategic Orientation: International orientation of Indian Business needs to be improved. International activities need to be seen as strategic objectives by Indian Inc. It is advisable not to view corporate stgy as secondary to daily operations, but to consider it as focus area. The vision, mission and values of the two merging organizations requires alignment to have clarity on the core objective and purpose of the Indian Multinational and the way the objectives are to be achieved. India can meet this challenge by actively including global strategies in their business. Indian companies have management personnel and Board of Directors mostly comprising of only Indian nationals: it may be worth considering other nationals for different international perspectives. International strategic orientation is achieved by tailoring corporate strategy to suit market conditions, stronger focus on customer & market needs, leveraging resources across boundaries.
n Organizational structures and Size
Organizations in different countries have marked differences in structures and hierarchies, as well as flows of decision making.
The Indian multinational is often faced with a dilemma in context of ‘Parent company v/s acquired company v/s suitability to the industry/sector.’ Should Indian parent homogenize its original structure into the acquired company / take the middle path and strike a balance between both organization structures to minimize turbulence / be driven by the over reaching demands of the sector / industry for the most suitable org structure?
E.g. Matrix structure of Dual reporting work in IT/ITeS, Retail. Indian managers follow hierarchical structure, dictatorial management styles. They require maturity to adapt to different organizational structures
India Inc can deal with this challenge by being open to choose new structure, suitable to the companies, the markets and industry. Multiplicity can translate into strength. For transnational management of corporations, management of horizontal networks is taking over the traditional formulas to centralized management. Indian corporates can selectively decentralize some functions, maintain others under centralized control.
Flexible organizational structures are the need of the times, to suit market demands.
n Restructuring: We can manage restructuring by blending human concern with corporate objectives.
Mentoring will help bridge the leadership gap, to empower middle managers beyond functional and technical competencies to people skills and leadership skills, since de-layering and flatter structures would affect them. Training, Development and Counseling needs to be done at organizational level.

n Ownership: Indian corporates are viewed as being dominated by family businesses, characterized by single decision maker.
Leverage positives of family business approach, eliminate negatives: while fostering loyalty by security, encourage individual performances by drivers like performance pay, variable component, job rotation, mobility for growth opportunities.
Professionalism is an area to be developed in family businesses:
Ø Short term; objectively separate working of business from family interests.
Ø Medium term: transparency should increase in decision-making.
Ø Long term: plan succession well such that interests of both the business and family are maintained.

n Manpower recruitment and retention
Assessing competency of people abroad while recruiting them is a major challenge of diversity. In India, an IIT/IIM stands for a certain level of caliber, but in different countries, there is no clear measuring scale for competence of manpower since different universities specialize in different subjects. Judgment / assessment of skill/competencies and fit to the demands of the role/organization is a difficult task.

n Work culture: Indian managers attitude toward sharing of knowledge and information, transparency in data sharing and decision making is low, causing communication gaps and showing lack of team orientation.
n Corporate Communication : Corp communication is a vehicle for transformation.A framework of understood and practised values and guiding principles to guide the behaviour of the people in the organization.
Its purpose is to provide control and direction . In small companies, personality of the owner-CEO is the personality of the organization, reflected in every decision. However larger organizations are more complex, layers increase, more diverse people. Only if values and principles are communicated clearly , can they be understood and implemented clearly.
Communication gets fragmented often Communication routes given low importance in the Indian context, especially bottom-up communication and diagonal communication across hierarchy and function. Non-involvement of workforce is another issue.
Sharing of information and transparency, are related to atmosphere of trust and loyalty.
If managed correctly, it can be used to integrate individual employees and groups towards a common corporate culture.

Individual
n Language is the most visible aspect of diversity, forming the basis of communication.
n Race: stereotyping persists, which must be transcended to arrive at a new understanding and build an integrated multiracial workforce. Proactive tolerance needs to be practiced.
In Intl work environments, our inherent cultural diversity is an advantage, but tolerance needs to be developed and differences not just tolerated/respected but creatively applied for maximizing performance.
n Gender: Address not only the composition gender diversity of the workforce, but also attitudes of the Indian manager toward evolving gender roles.
Different paradigms for Racial and Gender Diversity:
i. Discrimination and Fairness: Homogenization (melting pot) colour blind and gender blind
ii. Access and Legitimacy: Tolerate the differences
iii. Learning and Effectiveness: Value, respect and learn from differences, using learning’s to boost organizational effectiveness.
n Skills: Increasingly, with expanding avenues in education and professional opportunities, a diverse skill set and work experience is present in employees , challenging the manager to match skill sets and competencies with roles, to optimize the effectiveness of the organization.
n Attitude: A merger looks for a match on levels of Knowledge –skills – attitude for fit. While we assess Knowledge and Skills accurately, organizations tend to underestimate the importance of an attitude match. While selecting candidates for a partnership, attitude and level of buy-in should be an equally compelling factor, if not a deciding factor. It may be less important in Production/Mfg industries where critical success factor is Technology, but it becomes more important on the scale as we move to People oriented Service Industries where Key Success Factors are people, like ITeS and Banking. An attitude mismatch which could be managed in retail, could be fatal in these heavily people-oriented industries
n Motivation : At the Individual level it is required to balance individuals who have diverse needs with regard to motivation and approach towards work. The motivating factors range from financial reward, power, authority, recognition, to sense of service, developing a technical competence, work-life balance.
n Career Development following Restructuring: Every merger brings restructuring in its wake. While downsizing may not be necessary in all cases, a certain turbulence and churn is created in the organization, impacting individuals in terms of their job security. The challenge is to support the human resource to undergo the transition as smoothly as possible; to give cross functional exposure and training, and develop leadership abilities in middle management such that when organization structure is redefined, their roles are flexible. It is possible for the global Indian manager to handle downsizing in a mature manner. The imperative is to manage corporate communications, creating forums for discussion, and counseling.

n Conclusion:
In search for Indian way to bridge distances successfully and to develop business approaches which achieve & maintain competitive edge, concept of unity in diversity can translate into managing the diversity across various levels.
A single ‘one size fits all’ solution’ would be shortsighted, since we recognize that every organization deals with diversity in its individual situation, with unique nuances and intricacies.
However, we have endeavored to offer a framework for awareness and understanding of the challenges that arrive at different levels, which we believe is the first step towards evolving suitable action plans and solutions for India Inc to meet these challenges with competence and grace.

_____________________________________________________________________ References:
Harvard Business Review on Managing Diversity
The Promise of Diversity – Elsie Y.Cross, Judith H. Katz, Frederick Miller. Edith W. Seashore
Managing Corporate Culture- Karl Ulrich, RS Chaudhary, Kishan S Rana
Integrative management- Pauline Graham
Interviews with Aditya Birla Group, Godrej Industries.