Foreign Investment

The Role of Culture in Business Entry Strategies in India

Business Entry Strategy

India is vibrant country when it comes to cultural diversity. India has a history of unique business culture. It is among the top ten most industrialized nations across the globe. The Indian culture is spread through all spheres of the country, from following a religion to carrying on a business. Further, these cultures vary from region to region within the country. Despite the variations, interpersonal relations among different regions are not affected. People from all cultures, whether intra-country or inter-country, freely function in India.

The moment one steps into India, one can witness the warmth of Indian culture. From warm greetings, respect, and warm hospitality to the enthusiasm to work together. Sometimes foreign investors get overwhelmed by the multi-faceted and diverse Indian culture. However, there is no need to get overwhelmed and barricade oneself from investing in India as India is emerging as the fastest-growing economy in the world. So being open to learning will not just be beneficial for the foreign investor but also for the Indian economy. Foreign investments in India do not just have a huge bearing on the Indian culture and also on how business is conducted with foreign investors. Before formulating a business entry strategy in India, the foreign investor must analyze the aspects of business culture in India. The cultural prospects include not just the national-level characteristics but also the regional, industry-wise characteristics. A strategy that caters to the cultural aspects of the country is considered to be an effective business entry strategy.

The Role of Culture in Business Entry Strategy

The Indian culture plays a significant role in formulating the business entry strategy. A foreign investor needs to understand and analyze the aspects of Indian culture for carrying out a successful business in India. Let’s discuss the cultural aspects in detail:

  1. Relationship

The relationship is an important aspect of conducting business in India. Business transactions in India are based on trust. The business relationship has to be continuously pursued for a long-lasting and productive relationship with the Indian counterpart. The employee-management relationship is considered the basis for the success of a business in the Indian market. Unlike in Western countries, personal relationship in business is not always considered to be casual.

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2. Collectivism over Individualism

The overall culture in India promotes collectivism over individualism. It is essential to understand that in Indian culture, the sense of belonging to a group or a team is given importance. The group can be for any purpose, from caste, community, religion, family or business. The entire group gets the credit for carrying out a single work.

3. Hierarchy

While doing business in India, it is extremely important to appreciate the hierarchy. The importance of hierarchy comes from the patriarchal society where many businesses are run by family members and the top member of the family takes every decision. An understanding of the Indian culture helps the foreign investor understand that an Indian boss expects a certain level of dependency from its subordinates.

4. Religion

While conducting business in India, it is important to understand the importance of religion in different communities in India. Various religious beliefs, rituals and festivals should be respected. During such times, the work is supposed to be halted. The respect given by a business to religion and consumer demand is directly proportional to the success of the business.

5. Communication

India has a high context communication culture meaning thereby that communication may be indirect and may have several interpretations depending upon the context, tone, body language, etc. Foreign investors coming from low-context culture employees have to be careful with their communications in India. Adopting the clarifying and confirming approach may prevent a major misstep.

Cross-Cultural Differences

India being the most diverse country in the world, has broad cultural differences between different regions. The cultural orientation of different regions within the country is worth considering before choosing a business entry strategy for India. Some of the major cultural differences between different regions have been discussed below:

  1. Northern Region vs Southern Region

The common languages spoken in the northern region are Hindi, Gujarati, Punjabi and Sindhi. In the northern region, status is given importance along with the outward display of wealth. People in this region are mainly business minded and skillfully play the relationship role.

Common languages spoken in the southern region are Kannada, Tamil and Malayalam. People of this region are modest, humble and subdued. They tend to under display their wealth. They are mostly oriented towards employment and the service sector.

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2. Western Region vs Eastern Region

Western region and Eastern region also have culturally unique characteristics. The western region has a strong merchant community and is business minded. The western region has more Textile industries[1]. Whereas the Eastern region has developed through communism. Labour is cheaper in eastern states.

3. Urban India vs. Rural India

When it comes to urban vs rural India, the urban area is more liberal, whereas the rural area is conservative. Where in urban areas, people are educated, confident, class-conscious, and aggressive and pursuing a flashy lifestyle in rural areas, people are uneducated, conservative, unaware and not confident. Variations also arise depending upon the region in which the urban or the rural area is situated

How to build an effective relationship in the Indian market?

To build an effective relationship with the Indian consumers, the foreign business has to make an effective business entry strategy that focuses on the values, beliefs and culture of the consumers. Foreign businesses have to integrate the traditions and behaviour of Indian consumers. The foreign business has to cater to the needs of the consumer to be successful. Culture is the fundamental pillar around which a foreign business must shape its strategies. Let’s discuss how culture can be crucial for building effective relationships:

  1. Product

Culture has an impact on the choice and preference of products. The decision whether to adopt the product as per Indian consumer preference or risk imposing its product should be taken before entering into the Indian market. Religion and culture dominate consumption. A company can’t avoid having knowledge about the product preference if it wants to expand its business in India. The product should favour the needs of the Indian customer and should be as per the local culture and religious dictates.

2. Language

Language plays a major role in marketing the product. Often literal translation of a message does not convey the same meaning or value or essence. The same type of marketing may not be suitable for all markets. As marketing is one of the key promotional aspects of a product, it must have a cultural component. This is the reason why companies invest large amounts in different marketing campaigns.

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3. Price and Placement

Pricing and Placement are important considerations for making an effective strategy. Consumers in a few countries consider high prices synonymous with high quality, whereas in some countries, the customers are price sensitive. For pricing strategy, the manner of thinking of the Indian consumers towards the product should be analyzed. In India, the majority of the population is middle class, where a major portion of their income goes into availing basic necessities. This makes the Indian market price sensitive as Indian consumers would generally not prefer the high priced products. In addition to this, the placement of the product also impacts the success of the product. For instance, in India, eating beef is considered against religious sentiments, so selling beef in India may not have a good impact on the business.

4. Power Distance

Culture not only affects consumer behaviours, it also affects the internal organization of the foreign business. A foreign business operating in India has a high social hierarchy and the difference between the two levels can be made out easily. Whereas in some Western countries, all the employees of the company are not just involved in the work but their opinion and ideas are also given the same importance and power as compared to the person at a higher level in the hierarchy. This is usually not the case in India. Here some decisions may be taken by the lower level but the majority of the decision is taken by the high-level management.

Conclusion

In summation, it can be put that India is a pluralistic society with multiple languages, ethnicity and culture, which vary from place to place. Culture is of great value when it comes to Indians. The Cultural aspect plays an important role in the success and failure of any business so when a foreign business is willing to enter the Indian market, it has to formulate a business entry strategy keeping in the Indian culture and its diversity.

Read our Article: Select the Right Business Entry Strategy for India: A Comparative Analysis of Joint Ventures, Wholly-Owned Subsidiaries and Franchising

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