This article is from 2008. For a more up-to-date version, see Understanding Indian Culture for Successful Business in 2015/16.
With a population of over one billion, 3.29 million square kilometres of landmass to cover and a multitude of languages and customs, the Indian market can be a daunting place for businessmen. Business success can depend to a large extent on an understanding of the culture, the people, the land and the business environment that a foreign company and investor would be expected to operate within.
However, India promises great business opportunities and many organisations have already turned to this vast country, seeing potential in a substantial developing workforce and a cost effective geographical base for offices and factories. Yet, how is it possible to overcome the challenges of doing business in India due to a lack of relevant information, political uncertainly, the geographical scale that the country presents, the regional variations that exist and above all the cultural complexity that needs to be contended with?
The answer lies in gaining a general understanding of the culture. India is diverse with varied and distinct geographical regions each having its own language, customs and festivals. The country is comprised of a rapidly developing population. At present, 70% still live in villages and work in agriculture, 13% work in the industry sector and 17% in services. Literacy is highest in the South at almost 90%. This is contrasted with Northern regions where the literacy rate is only about 45%.
It is critical to also note the importance religion plays amongst all communities. The four principle religions are Hinduism (80%), Islam (14%), Christianity, and Sikhism with a small fraction of the population also practicing Buddhism, Zoroastrianism, and Judaism. Festivals are celebrated with much fanfare, so it is important to respect the major festivals of Holi, which is celebrated in the spring and Diwali, which is celebrated in October/November. During these holidays work comes to a halt.
As with most countries India has its own unique and subtle manner in which business is conducted. People in India tend to categorise most foreigners into three main groups, namely, Americans, English and German. With this classification comes a certain amount of preconception - fuelled by Hollywood - of how a foreigner is likely to behave. Likewise, many foreign business westerners enter India with pre-conceived notions of what the country has to offer based on media reports and fleeting first time impressions. It is important to give oneself time to adjust to the new cultural surroundings and not be taken in by initial reactions.
There are several idiosyncrasies attaching to the country which also vary from state to state. Consider the following:
• As a sign of respect it is customary to address persons by their family name as opposed to first names. Very often younger people will persist in using family names together with an appropriate title, such as Mr./Ms, as a sign of deference and respect. If a foreign business person wishes to be addressed by his Christian name he may have to request this several times over.
• Indian society remains patriarchal and thus it is important to understand the importance of hierarchy. When dealing with Indian businesses it is important to ascertain who is the authority figure and who has the final say. Many businesses are still family run and thus power vests at the top.
• Hierarchy also runs within middle and junior management. An understanding of this culture of dependence expected by a boss from his subordinate is important when running a team of local staff. There is often a tendency to seek support and advice in situations that may not warrant this level of dependency by junior staff on his superiors.
• Indian time keeping is better known for its lack of punctuality. Indian Standard Time (IST) or better known as Indian S t r e t c h a b l e Time means that deadlines are not always strictly adhered to in the work environment. Hence strict guidelines and enforcement may be necessary to adhere to western style fixed deadlines.
• It is important for a foreign visitor to understand gestures, body language and non verbal communication. The well known Indian rolling of heads is often a sign of acknowledgement and affirmation and not a negative. It is also not meant as a sign of any disrespect and should thus be acknowledged appropriately.
• Use of mobile phones, even during meetings, is customary and not intended to be a sign of disrespect.
• Giving and receiving business cards is also common and expected even at social gatherings!
• Religious sentiment runs high and many Indian businessmen may defer business decisions based on what may considered “good and auspicious” days. Superstitions may also have to be accounted for in various business dealings.
• Allow enough lead-time for projects and budget for unexpected costs – everything takes longer in India and therefore can be more expensive. Similarly, it is advisable to handle red tape with caution – exchange controls do exist and regulatory procedures can be highly bureaucratic. Exit strategies must also be considered up front.
With any foray into India it is imperative to ensure one creates and maintains a paper trail. Unlike the UK, India has a written contract act, namely the Indian Contact Act of 1872. This legislation applies to all agreements in India including letters of intent and memorandum of understandings. The position in relation to enforceability of letters of intent/memorandum of understandings can be ambiguous. It is advisable that any intention of making a preliminary understanding enforceable is clearly reflected in the documentation. An ‘agreement to agree’ is, in principle, not enforceable under Indian law.
It is also important to ensure that one contracts with the correct legal entity. These days many Indian companies have bases abroad. However, this is also an area which requires caution. Companies have been caught out in the past where they have signed agreements with foreign branches of Indian organisations (a UK branch of an Indian company for example) which in effect can be shell companies. Thus, in case enforcement for damages is necessary the foreign party would find it difficult to get redress against an entity that has no assets and where the parent company has not been made a party to the agreement.
Indian tax implications also require attention. Often foreign companies inadvertently create a permanent establishment [“PE”] in India without realizing the regulatory and tax consequences of doing so. India continues to have exchange controls and any movement of foreign exchange into or out of the country is regulated by the Reserve Bank of India.
Protecting intellectual property rights (IPR) is another critical facet of doing business in India. A well thought out IPR strategy can save much time and cost in future. It is advised that IPR is protected in the early stages of negotiation and that the IPR is registered with the relevant registry. Although there is no legal requirement to register trademarks or copyright material doing so facilitates the enforcement of one’s rights in case of infringement.
As with most countries, India has its own unique and subtle manner in which business is conducted. Success can depend on an appreciation and understanding of the cultural aspects in addition to patience and a high level of long-term commitment and personal attention and involvement. Establishing and maintaining strong relationships with Indian business associates is fundamental to successful business in India.
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