https://indolinkenglish.wordpress.com/category/key-success-factors-in-india/, March 19, 2011
This article was published few years ago and is being republished as the opinions expressed are even more relevant in current business scenario.
With India opening its doors for foreign direct investments in most of the sectors and more transparent and liberal government policies, India has become much more attractive business destination.
The present article aims at encouraging executives from small and middle scale European companies to set up business in India. With this objective we present the main variables which make India an attractive business destination, the major obstacles limiting the access to available opportunities and, finally, a few suggestions to avoid those constraints and increase their chances of success in setting operations in this country.
Any internationalization process, regardless of its magnitude or destination, constitutes a major decision in the life of a company, with far reaching implications. Given the difficulties which that decision implies, in the introduction of this paper we present an approach which may break the generic conflict many industrial SMEs face in venturing on their first foreign establishment.
1. The conflict of many SMEs when assessing a foreign setup
As managers, we share at least one common objective: make our company prosperous now as well as in the future. We daily devote vast efforts to pursue a goal which appears ever more distant, as shown by decreasing market shares, profit figures far from our targets, mounting liquidity problems, growing labor disputes… which eventually jeopardize the company‟s long-term viability.
The instinctive reaction to this situation is to redouble our efforts in tackling each one of these problems as they arise and, generally, jumping from one to another as their effects on a certain local area become unbearable. We are genuine experts in solving problems; each day we return home exhausted after resolving a countless number of problems to find ourselves, on the following day, with an almost identical number of similar fires to extinguish.
This modus operandi has two pernicious effects on business performance, because:
The attention of the management team is scattered through a number of problems which exceeds the amount they can manage effectively
It generates high bad multitasking levels, which are utterly inefficient
Enormous efforts are diverted to combat undesirable effects, or problems‟ symptoms, rather than addressing their root causes
Thus, it is not surprising that many of these problems eventually develop a chronic nature, which decisively burdens the companies‟ progress.
1.1 Root cause analysis
While that is the most common approach to dealing with daily problems, there is an alternative approach. According to Dr. E. Goldratt, author of the Theory of Constraints, “Systems converge; common causes appear as we dive down. If we dive deep enough, we’ll see that there are very few elements on the base –the root causes– which through cause-and-effect connections are governing the whole system. The result of systematically applying the question Why? is not enormous complexity, but rather wonderful simplicity”
Should we believed this principle of “inherent simplicity” and looked for the ultimate cause/s of the loads of undesirable effects we encounter, we may identify a few root problems or limitations in which to focus our attention and leverage our efforts to substantially improve the performance of the company as a whole.
Chart 1 depicts a simplified analysis of that type, on some harsh facts numerous industrial SMEs have been facing for several years now. The chart is read from bottom to top, and arrows represent “IF…THEN…” connections. An ellipse around the arrows implies that two or more causes have to concur simultaneously to produce the predicted effect.
This way we would start reading the diagram with the sentence “IF our production is mainly local AND costs in low cost countries (LCC’s) are sensibly lower than those in western countries THEN our costs are higher than those of competitors from LCC’s.
If we go on reading each of these connections until we complete the chart we will notice that all undesirable effects presented initially grow from just two root causes (squared by dotted lines): sticking to traditional management methodologies, which restrict our ability to develop a decisive competitive edge, and location of the production in high cost countries, Europe in our case, where price of resources is appreciably higher than those in lower cost countries, whose companies have a growing presence in our markets.
In the analysis, it should also be noted the presence of three negative feedback relationships, or vicious circles, which aggravate the situation in each cycle; this would explain to a large extent the progressive deterioration that many of our SMEs have experienced in recent years.
This is a simplified analysis. Some entities, which might have facilitated a better comprehension, have been omitted due to space limitations.
1.2 The generic conflict
Given the article‟s internationalization approach, we focus our current analysis on the location issues, leaving for another occasion the questioning of the paradigms which shape the managing methodologies above mentioned.
In view of the presented diagram it is clear that, if our objective is to have a prosperous company now and in the future, we need to keep our costs competitive globally. And if so, a sensible action to be taken immediately could be to relocate part of our production in a low cost company.
This need is clear since a long time for most managers; however, many of them keep on postponing this decision. Why?
The answer could be found in the fact that to reach the aforementioned objective it‟s equally vital to avoid risks which may compromise the viability of the company.
And to match this need the right decision seems to be not to embark in a foreign setup.
It‟s obvious that we can‟t setup business units in LCC‟s and, at the same time, not embark on foreign setups. Chart 2 summarizes this generic conflict faced by many managers.

1.3 Direction of the solution
Traditionally, we address such conflicts through three alternative strategies:
Choose one of the actions, usually the one that meets the most urgent need, so that we leave the other unmet. This, by definition, entails forgoing the common objective.
Keep on jumping from one action to the other as the effects of not achieving the unmet need become unsustainable. This prevents, likewise, achieving the objective.
Agree to a middle or compromise solution between both actions, which does not fully satisfy either need but is, somehow, bearable from both sides. This is again an option that inhibits the achievement of the goal.
There is an alternative way of dealing with the conflict: should we find that any the underlying assumptions, which make us believe we are in a conflict, although apparently true, is erroneous, we could break the conflict and solve the problem.
Let‟s see…If we focus on entities C and D‟ and try to reveal the underlying assumptions behind this connection, in order to avoid risks which may compromise company viability we must not embark on foreign setups BECAUSE…
1. A setup in an unknown environment implies substantial risk.
2. Continuing with the activity the same way it has been so far ensures our company‟s long term stability
There’s absolutely no doubt about the certainty of the first assumption, any foreign setup involves risk, which will be greater the more distant or unknown the destination is.
But, the assumption that keeping things the way they’ve been till date guarantees the security of the company in the long-term, IS IT REALLY TRUE?
Although this perception keeps on restraining the overseas expansion of many companies around us, abundant experiences show that in the current environment of global competition, for many industrial companies, such business immobility entails a risk higher than that involved in a foreign venture.
We can see that the apparent conflict is nothing but the result of a distorted perception of inherent risks, which has paralyzed for so many years an internationalization process which is vital to the survival of many companies. It appears that we, as humans, have an asymmetric perception of risk. We are very precise assessing risks of „doing‟, while we usually underrate or neglect those of „not doing‟.
A business is, by definition, an activity involving risk and our responsibility, as managers, is to guide companies through a path of progressive growth while reinforcing their stability. Trying to avoid systematically any immediate risk involves, in the long-term, the assumption of a significantly larger risk that may become a threat to the viability of the company as a whole. Chart 3 shows the proposed solution.
Once we have established the importance, for some industrial companies, of pursuing foreign ventures and shown how to break the conflict which often blocks them, we devote the rest of the article to present opportunities, obstacles and key success factors of one of the most popular alternatives nowadays, India.
To be continued . . . . . .