Tuesday, July 10, 2012

Tips for Korean Companies Doing Business in India

It is now close to two and a half years since Korea and India implemented the Comprehensive Economic Partnership Agreement (type of FTA), but economic relations between both sides is growing slowly. Although bilateral trade has been growing on an average at 20% annually over the last five years, the investment figures are much more modest. Compared to $2.52 billion in 2001 total trade stood at $ 20.57 in 2011, with a target of $ 30 billion set for 2014. However, Indian investment in Korea is still a low figure of $1 billion, while Korea’s total investment in India is just $2.3 billion. Some of the Indian companies with a presence in Korea are Novelis Inc., Tata Motors Limited, Mahindra and Mahindra, Nakhoda Ltd., and M/s Creative Plastic. Major Korean companies active in India include Hyundai Motor, Samsung Electronics, LG Electronics, POSCO, Hyundai Mobis, Wia Corporate, Lotte Group, Doosan Heavy Industries and Hankook Tires. In addition some 150 others have smaller businesses in India. I would argue that if more Koreans companies do not explore the Indian market, they will be left behind their global competitors. Having emerged as a global center for services and outsourcing, India is also becoming an attractive destination for outsourcing industrial production, specifically for specialty manufacturing. In addition, the expanding Indian middle class is about the same size as the population of the US. It has seen a significant rise in its desire to buy high-quality consumer products, thereby providing a large domestic market for companies that choose to set up consumer manufacturing operations and sales centers in India. Further, it is expected that as India continues to grow, its need for development of its physical and human infrastructure will correspondingly increase. In this context, it is anticipated that India will require some $500 billion over the next five years in investments into the infrastructure sector. All in all, there is little doubt that Korean companies need to devise an appropriate India-strategy. The Indian business market is large and bubbling with newer opportunities in possibly every sector - financial services, telecom, IT, automobiles, media, real estate and alike. The large talent pool of India also offers extensive opportunities. To explore these opportunities extensively, Korean companies need to build up strategic partnerships with the Indian industry. They should first keep India as a key focus, and after that, devise bold, long term targets. The entire decision-making process should be extensive so that India-specific business models pertaining to product, value and pricing can be effectively built. However, one should remember that there are also a number of key cultural challenges in India that can create misunderstanding and conflict as well as huge direct and indirect costs to the organisation if overlooked. Navigating the challenges of doing business in India can be difficult without a comprehensive understanding of Indian social and business culture. India is a country riddled with complexities – distinct differences in culture, language, class, hierarchy and communication styles. So a first-timer’s experience doing business in India can be both exciting and extremely vexing. I list below a few tips that may help you understand Indian business culture. Firstly, the attitudes towards authority are similar to Korean culture. Traditionally a caste society with roots in Hinduism, Indian culture places a high importance on authority and status. Communication between levels is relatively closed so valuable insight or suggestions from employees in lower positions will rarely be shared with their superiors. In this context, Koren companies will feel at home. Like in Korea, Indians have a high tolerance to uncertainty, generally accepting social etiquette and norms instead of rules and regulations. Even though rules do exist, the low level of adherence to them creates huge challenges for companies setting up business in India ,who are used to following Korean regulations. Another similarity between Korean and Indian business cultures is the focus on relationship and trust building. As is the communication style. Indians have a preference for indirect, high context communication. In other words, Indians prefer to see the whole picture, place a high importance on the impact relationships, body language and emotion have on communication and will often avoid saying ‘no’. What might be a bit upseting for Korean businessmen is the lack of respect for time schedules in India. People’s attitudes towards punctuality are relaxed and they tend to change priorities depending on their importance. Most Korean companies are accustomed to the ‘ppalli ppalli’ way of working which requires adherence to strict deadlines and fast decision-making, so they may struggle to cope with the idea that when doing business in India, time cannot be controlled. In India there are a number of cultural differences to keep in mind, especially as they relate to the day to day interactions with Indian clients and employees. The traditional caste system has been outlawed, however the large power distance indicates that the attitudes still remain. As a result, it will be important to make sure to adhere to formal titles and take great care to treat all with a great deal of respect. There is a lot of subtle emphasis on class and hierarchy. Language compatibality is also one thing that must be taken care of. Most Koreans are used to ‘American English’ which is quite different from ‘Indian English.’ Although most university graduates and Indians residing in major urban centres have a very high level of English, understanding them can be challenging, because of the different vocabulary and expressions as well as heavy accents. Many people are unaware of these differences and expect communication with Indians to be simple. In India, business is usually done over lunch as opposed to dinner. Remember to check what their culinary preferences are as many people in India are vegetarians and don’t drink alcohol. Also, gift giving is not a very important part of business and if receiving one, they should never be opened in the presence of the giver. Understanding the cultural differences which exist when doing business in India is only the first step. Korean companies must also develop strategies to effectively cope with these challenges. This will help companies maximize the immense opportunities and benefits of doing business in India.


Ravi Chandra said...

Hello Ram,

Thanks, Its crisp and gives gist of doing business. Thanks for covering so many of important aspects in concise.

My name is RAVI, Director at ATN GLOBAL. We are a technology consulting company helping Korean Tech companies enter India market.

As all of us are aware, outsourcing has been keen working area for Korean businesses with India. However there is a huge potential for consumer, automotive, wireless technologies or other markets that Korea is pretty mature.

With my personal association working with Korean companies for past 7 years. Major blocking factor for companies entering INDIA has been on to cost and margins being too low except for engineering skills availability. I suggest having a deeper look into strategic advantages and make a more informed decision.

I hope to see more active engagement and investment between Korea and India so there is balance and effective utilization of market demand.

Best Regards,
Ravi Chandra
Director / Global Business
ATN Global Ltd, Korea
Cell: 010-8683-4199
Skype: atnglobal

SeoulBuffoon said...

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