MANAGEMENT

IN
INDIA
To my Sister Susan
—Herbert J. Davis

This volume is dedicated to my immediate and extended families

in Australia and India, who are tied together by their love for,
and confidence in, India
—Samir R. Chatterjee

To my Wife Melanie
—Mark Heuer
 MANAGEMENT
IN
INDIA
Trends and Transition

Edited by
Herbert J. Davis
Samir R. Chatterjee
Mark Heuer

Response Books
A division of Sage Publications
New Delhi / Thousand Oaks / London
Copyright © Herbert J. Davis, Samir R. Chatterjee, Mark Heuer, 2006

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Library of Congress Cataloging-in-Publication Data

Management in India: trends and transition/edited by Herbert J. Davis, Samir R.

Chatterjee, Mark Heuer.
p. cm.
Includes bibliographical references and indexes.
1. Management—India. 2. Personnel management—India 3. Corporate
culture—India. I. Davis, Herbert J. II. Chatterjee, S. R. (Samir Ranjan), 1945–
III. Heuer, Mark, 1954–
HD70.I4.M342 2005 658'.00954—dc22 2005025554

ISBN: 0-7619-3363-8 (Hb) 81-7829-593-8 (Pb)

Production Team: R.A.M. Brown, Sanjeev Sharma and Santosh Rawat

 Contents

Foreword by Sam Pitroda viii

Preface x
Acknowledgements xi
Introduction 1

Section One: Understanding Indian Management and Culture

1 Understanding Indian Management in a Time of Transition

Samir R. Chatterjee and Mark Heuer 11
2 The Influence of Indian National Culture on Organizations
Mark Heuer 28

Section Two: Indian Management Culture in Transition

3 Determinants of Managerial Performance: A Cross-cultural

Comparison of the Perceptions of Middle-level Managers
in Four Countries
James P. Neelankavil, Anil Mathur and Yong Zhang 49
4 India: A Non-Tiger of Asia
Monir Tayeb 74

Section Three: Managerial Values and Leadership

5 Leadership in Indian Organizations from a Comparative

Perspective
Sudhir Kakar, Shveta Kakar, Manfred F.R. Kets de Vries and
Pierre Vrignaud 105
6 Work Goals and Societal Value Orientations of Senior Indian
Managers: An Empirical Analysis
Samir R. Chatterjee and Cecil A.L. Pearson 120
vi Management in India

7 Does Age Matter? An Empirical Examination of the Effect of

Age on Managerial Values and Practices in India
Kamel Mellahi and Cherif Guermat 134

Section Four: Managing Human Resources and Industrial Relations

8 Linkages between Industrialization Strategies and Industrial

Relations/Human Resource Policies: Singapore, Malaysia,
the Philippines, and India
Sarosh Kuruvilla 169
9 Industrial Relations Law, Employment Security and Collective
Bargaining in India: Myths, Realities and Hopes
Anil K. Sen Gupta and P.K. Sett 205

Section Five: Managerial Ethics and Indian Values

10 Business Ethics in India

S.K. Chakraborty 223
11 Indian Managers in Transition: Orientations, Work Goals,
Values and Ethics
Samir R. Chatterjee and Cecil A.L. Pearson 239

Section Six: Some Special Managerial Concerns in Contemporary India

12 India’s Emerging Competitive Advantage in Services

Devesh Kapur and Ravi Ramamurti 261
13 Women Managers in India: Challenges and Opportunities
Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal 285
14 Managing Alliance Intricacies: An Exploratory Study of
U.S. and Indian Alliance Partners
Manab Thakur and B.N. Srivastava 313

Section Seven: Indian Management in Transition and Implications for

Global Management Practices

15 Effective Organisational Response by Corporates to India’s

Liberalisation and Globalisation
Pradip N. Khandwalla 339
 Contents vii

16 Application of American Management Theories and Practices

to the Indian Business Environment: Understanding the
Impact of National Culture
Suresh Gopalan and Angie Stahl 376

Section Eight: Global Managers in India

17 Managing in a Changing Environment: Implications and

Suggestions for Expatriate Managers in India
Samir R. Chatterjee, Herbert J. Davis and Mark Heuer 401

About the Editors and Contributors 418

Author Index 422
Subject Index 425
 Foreword

Today, India is considered one of the most exciting and vibrant emerging
markets in the world. India’s distinct advantage as a future economic
power lies in its large pool of skilled managerial and technical manpower
capable of competing with the finest in the world, a burgeoning middle
class whose size exceeds the population of most countries, and an eco-
nomic system which is increasingly investor friendly. Demographically
too, India is an extremely young country which makes it an attractive
market for consumer goods and services. India’s long tradition of demo-
cracy, an independent judiciary, and a remarkably free press are all con-
ditions for continuing economic progress. Additionally, these conditions
make it an ideal destination for business investment. Hence business growth
for the future might well lie in doing business in India and with India.
However, things may not always be as they seem. The business scenario
in India can be deceptively simple. It is by no means an easy management
system to understand either in terms of its culture or its processes. It is a
business system which is in transition, dynamic, and complicated. In
fact, it is almost trite to say that Indian management culture is compli-
cated; however, it is precisely because it is complicated that one needs to
understand how and why it is complicated and what its drivers are.
Consequently, understanding the complexities of business and manage-
ment in India begins with a solid grounding in its economic policies and
laws. Additionally, the aspiring manager in India must also understand
and internalize the Indian mindset, culture, approaches to leadership,
values, ethics and change. These find their roots in India’s history as a
large, diverse, multiracial, and multireligious nation.
Following nearly three decades of often acrimonious political, social,
and cultural discord, India has entered the 21st century as a globalizing
economy. After independence from the British in 1947, India was a new
and desperately impoverished nation. Rightfully, India’s founding fathers
focused on the development of basic infrastructure and human resources
necessary to sustain its economy. India’s first Prime Minister Jawaharlal
 Foreword ix

Nehru launched programs to establish institutions of higher learning

including the Indian Institute of Technology as well as management and
other engineering colleges to encourage self-reliance and indigenous
development.
However, successive political leaderships maintained a socialistic
orientation and focused on a centrally planned economy and capacity
building even as they maintained democracy in the most diverse nation
in the world. In the mid-1980s Prime Minister Rajiv Gandhi inspired
new hopes and dreams of transforming the country through decentral-
ization and technology, thereby, enabling India to more adequately
provide for basic human needs. India’s success, particularly, in the in-
formation technology sector, can be traced to this period in her history.
Today, India is the leader in business process outsourcing with an un-
precedented $150 billion in foreign currency reserves. While India’s
economic reform process begun in 1990 and the continuing policy initi-
atives of the last few years have resulted in significant inflows of foreign
investments, understanding Indian managerial thinking is of critical
importance for future managers in India. In recent years Indian manage-
ment culture has changed substantially. Understanding the way managers
in India approach issues such as human resources, their values, ethics
and work goals are essential if one is to succeed in this dynamic economy.
This volume, assembled by three experienced observers and scholars
of India, is therefore, an extremely significant and remarkable accomplish-
ment. It brings together a large and diverse set of issues that often are
neglected and side-stepped when one considers the Indian business
scenario. More importantly, the diverse background of the contributors
brings together differing perspectives which will be extremely useful to
those managers who look to understand and draw their own conclusions
about the human and cultural aspects of doing business in India.
This book examines a wide range of issues of management culture, all
of which will play a critical role in the success of India going forward.
Drawing on the talents of an outstanding team of contributors, this
volume will be a landmark reference to understanding management in
India. It will be a valuable read for all those who wish to do business
in India as well as for management students worldwide.
Sam Pitroda
Chairman, National Knowledge Commission of India
(Reporting to the Prime Minister)
 Preface

This book is the result of a commitment made by the first two editors at
least a decade ago to make a contribution to the enrichment of managerial
learning about India. It took a much longer time than was envisioned.
The starting point of the idea has now become overlayed with many
developments propelling Indian managers to focus on global imperatives
in every sphere of their work. The future drivers of economic prosperity
need their logic, ideas and practices carefully considered as they broaden
their visions of building dynamic world class organizations. Competing
issues, challenges and explorations need to be brought into focus in mak-
ing this intellectual journey meaningful.
However, it is impossible to reach a level of optimum balance in com-
piling a volume on the many faceted challenges facing Indian managers
during this first decade of the 21st century. This volume is designed to
contribute to a new genre of analytical and empirical thinking to assist
this new generation of managers in India as well as expatriate managers
with interest in India. Managerial culture in India has advanced to a
point where ‘connectedness’ to regional and global challenges is critical
to India’s continuing business success.
This volume is designed to analyze and, therefore, better understand
Indian managerial culture. In an emerging economy like India’s, manager-
ial culture is subject to extensive change and, consequently, new behaviour
patterns emerge. A decade after India chose to initiate economic reforms,
this volume looks at India’s managerial culture to both identify and under-
stand cultural paradigms as well as how managerial thinking has evolved
in India since reforms were first initiated.
Our attempt has been to cover as many diverse issues as possible with-
out compromising academic rigour or accessibility. We hope students,
scholars and managers will find this a valuable and enriching read.
 Acknowledgements

This book has been a truly global endeavour with the editors and con-
tributors spread across many nations. We are conscious that a book
attempting to cover managerial challenges in the dynamic context of
contemporary India is bound to be a work in progress. While the editors
accept sole responsibility for limitations and inadequacies, we express
deep gratitude to the large number of contributors who have helped
shape the ideas of the book.
Our special thanks to the Department of Strategic Management and
Public Policy at George Washington University, USA, and the Inter-
national Business Unit and the School of Management, Curtin University
of Technology, Australia, for continuing support and encouragement of
the project. Our sincere thanks to Mr Chapal Mehra of Sage for his profes-
sional stewardship of the book and Mr Subramaniam Ananthram, Research
Associate at the School of Management, Curtin University of Technology,
for his continuing research assistance and Mr Adam Korengold of the
School of Business at The George Washington University for his assistance
with the introduction. We have carefully followed the proper procedures
in contacting relevant copyright holders for this book. However, if any
have been inadvertently left out we will make every endeavour to correct
them at the earliest opportunity.
We also wish to acknowledge the following copyright holders for
granting permission to re-publish articles from their respective journals:

American Business Review

S. Gopalan and A. Stahl (1998), ‘Application of American Management
Theories and Practices to the Indian Business Environment: Understand-
ing the Impact of National Culture’, American Business Review, 16(2):
30–41.
xii Management in India

Academy of Management Executive

D. Kapur and R. Ramamurti (2001), ‘India’s Emerging Competitive
Advantage in Services’, The Academy of Management Executive, 15(2):
20–31.
Blackwell Publishing
Sen Gupta and P. K. Sett (2000), ‘Industrial Relations Law, Employment
Security and Collective Bargaining in India: Myths, Realities and Hopes’,
Industrial Relations Journal, 31(2): 144–53.
Cornell University
S. Kuruvilla (1996), ‘Linkages between Industrialization Strategies
and Industrial Relations/Human Resource Policies: Singapore, Malaysia,
the Philippines, and India’, Industrial & Labor Relations Review, 49(4):
635–57.
Elsevier Limited
M. Tayeb (1996), ‘India—A Non-Tiger of Asia’, International Business
Review, 5(5): 425–45.
K. Mellahi and C. Guermat (2004), ‘Does Age Matter? An Empirical
Examination of the Effect of Age on Managerial Values and Practices in
India’, Journal of World Business, 39: 199–215.
Emerald Group Publishing Ltd.
S. R. Chatterjee and C. A. L. Pearson (2000), ‘Work Goals and Societal
Value Orientations of Senior Indian Managers: An Empirical Analysis’,
The Journal of Management Development, 19(7): 643–53.
A. Gupta, M. Koshal and R. K. Koshal (1998), ‘Women Managers in
India: Challenges and Opportunities’, Equal Opportunities International,
17(8): 14–26.
Management International Review
S. R. Chatterjee and C. A. L. Pearson (2000), ‘Indian Managers in
Transition: Orientations, Work Goals, Values and Ethics’, Management
International Review, 40(1): 81–95.
Palgrave Macmillan
J.P. Neelankavil, A. Mathur and Y. Zhang (2000), ‘Determinants of
Managerial Performance: A Cross-cultural Comparison of the Perceptions
 Acknowledgements xiii

of Middle-level Managers in Four Countries’, Journal of International

Business Studies, 31(1): 121–40.
Sage Publications
S. Kakar, S. Kakar, M.F.R. Kets de Vries and P. Vrignaud (2002),
‘Leadership in Indian Organizations from a Comparative Perspective’,
International Journal of Cross Cultural Management, 2(2): 239–50.
Springer
M. Thakur, and B. N. Srivastava (2000), ‘Managing Alliance Intricacies:
An Exploratory Study of U.S. and Indian Alliance Partners’, Asia Pacific
Journal of Management, 17: 155–73.
Springer
P. N. Khandwalla (2002), ‘Effective Organisational Response by Cor-
porates to India’s Liberalisation and Globalisation’, Asia Pacific Journal
of Management, 19, 423–48.
Springer
S. K. Chakraborty (1997), ‘Business Ethics in India’, Journal of Business
Ethics, 16(14): 1529–38.
 Introduction

Approximately one out of every three people on Earth lives in India or

the People’s Republic of China. India’s orientation to the West (as a
British colony) and to the East (owing to its relationships with key Asian
economies) positions it as a major economic player in the developing
world as well as in the global economy.
India’s intellectual capital is formidable as evidenced by an annual
output of half a million engineers, a quarter of a million medical doctors,
and some one hundred thousand management school graduates. An entre-
preneurial culture has taken root at the village level, a competitive strategy
orientation is making increasing demands on traditional quality concepts,
and a vast internal market provides a sustainable basis for increasing
market development. India’s legal framework, banking infrastructure,
maturing accounting systems, established financial markets, and both
marketing and management professions provide India with a distinctive
advantage. Additionally, India’s population estimated at well over one
billion, and its relative youthfulness (seventy percent under the age of
thirty-five) makes it both an attractive market and a continuing source
of intellectual and professional resources. India therefore rivals China as
among the world’s largest markets.
Just as Western observers have long viewed China as the world’s largest
market, the emergence of India as another nation of over one billion
people has targeted it as a major opportunity for business. While large
segments of the population are highly educated, both in the West and
domestically, at the same time dramatic deficiencies in poverty are being
alleviated along with improvements in literacy, and education at all levels.
The relative size of India’s economy compared to China presents a
growth opportunity. As China’s economy continues to expand and factor
prices rise, India is positioned to take on a larger share of foreign direct
investment (FDI). India’s overall GDP is less than half of China’s and
2 Management in India

inflows of foreign direct investment to India remain negligible relative

to China. In 2003, for example, FDI to India was only six per cent of that
to China. However, total FDI to India has risen more than tenfold since
the beginning of reforms (from $1.7 billion in 1991 to $22.3 billion in
2001).1 Consequently, India now stands on the cusp of becoming one of
the world’s most attractive destinations for foreign direct investment.2

Overall Economic Growth

In nominal terms, India is the world’s twelfth largest economy with an

estimated 2004 gross domestic product (GDP) of $500 billion.3 Measured
by purchasing power parity, India’s economy is the fourth largest in the
world.4 Annual GDP growth slowed from between 7 and 7.5 per cent in
the mid-1990’s to 4.3 per cent in 2002.5 In 2004, India failed to meet
its target growth rate of 8.1 per cent annually due to destructive monsoon
rains in the latter half of the year; however, growth recovered to approx-
imately 6.5 per cent from the 2002 figure.6
This inability to meet the requisite growth targets due to a destructive
monsoon indicates a strong dependence on agriculture. Fifty eight per
cent of the population depends on agriculture7 which accounts for
25 per cent of total GDP.8 While the manufacturing and services com-
ponents of the economy have experienced growth in recent periods, the
susceptibility of the agricultural portion of the economy to changes in
weather patterns or other uncontrollable factors has contributed to the
volatility of the overall economy.9

Industry and Policy Overview

A watershed in Indian economic policy took place in the 1990’s with

India’s market based transformation. Reforms began in the 1990s resulted
from a balance of payments crisis as a result of oil price shocks that re-
sulted from the Persian Gulf War, the collapse of the former Soviet Union,
and the emergence of China as an economic power. This prompted a
program of International Monetary Fund (IMF) assistance conditioned
on extensive economic reforms. Before the crisis, annual economic growth
 Introduction 3

was under 3 per cent, national budget deficits were over 7 per cent of
GDP, and foreign direct investment stood at approximately $100 million
annually.10 Spurred by the IMF, the government in Delhi undertook
two key reforms: trade liberalization and the elimination of restrictions
on foreign and domestic investment.11
The present government under prime minister Manmohan Singh
has sought to increase the share of foreign investment in GDP from ap-
proximately 25 per cent (half the figure for China).12 According to the
consulting firm A.T. Kearney’s annual survey of corporate leaders con-
cerning foreign direct investment, India is now the third most favoured
destination for foreign direct investment in the world, based on the quality
of its workforce, management talent, legal regime, lack of cultural barriers,
and favourable legal and regulatory environment.13 India’s pre-1991 trade
policy, which focused on import substitution, has given way to a stronger
emphasis on international trade. India has been a member of the World
Trade Organization (WTO) since 1995 during which time both imports
and exports have risen steadily. According to the WTO, trade now com-
prises 29.8 per cent of Indian GDP. Its trade volume ranks within the
top twenty per cent of countries, tenth in the world for services exports,
and eighth for services imports.

Monetary Policy, Money, and Finance

The Reserve Bank of India (RBI) policy has emphasized a managed

depreciation of the rupee. It has increased the money supply between 10
and 16 per cent each year since 2000, and has maintained steady interest
rates as the commercial bank lending rate has fluctuated between 11.5
and 12.5 per cent between 1999 and 2003.14
The IMF has not provided funds to India since the reforms of 1991.
India’s external debt represents a significantly smaller share of GDP
(approximately 10 per cent, compared to 28 per cent) than it did at the
time of the IMF intervention in 1991.15 The rupee has depreciated sig-
nificantly against the euro (see chart), depreciated more steadily against
the British pound and the dollar during the past several years, and
remained comparatively stable against the Japanese yen.16
4 Management in India

Foreign Exchange Rates, 1999–2003

Source: India Country Report 2004, Economist Intelligence Unit, 2004.

Foreign exchange reserves have not been depleted to maintain the

exchange rate; on the contrary, they have steadily increased since 1999.17
In May 2003, reserves stood at $113 billion, representing the fifth highest
position among emerging markets and the sixth largest in the world,
and providing approximately fourteen months of import cover.18

Development Indicators

India has made tremendous strides in its economic development since

the initiation of market-based reforms in 1991. In particular, access to
sanitation and potable water greatly improved in the last decade of the
twentieth century. However, nearly one quarter of the population was
still undernourished in 2000, and government expenditures for education
were still only about 4 per cent of GDP.19 There is still a large segment of
the Indian population which has restricted access or no clean water, food
sanitation or health services. Questions of human development and
growth still persist in India as do those of economic equity and oppor-
tunity. India’s needs for energy, clean water, sanitation and education, in
the coming decade, will pose a major obstacle to continued growth.
 Introduction 5

Development Challenges and Accomplishments, 1990–2000

Source: United Nations Development Programme.

Conclusion

Since 1991 Indian business and industry have been forced to accept and
simultaneously compete in a globally competitive marketplace. The ini-
tial reaction to this competition was a sense of panic and then a slow but
steady embrace of globalization. With the introduction of economic
liberalization Indian managers and their underlying managerial culture
has begun to change. Indian corporations and their managements increas-
ingly view themselves as members of a wider global economic commu-
nity. This volume brings together the diverse issues of leadership, culture,
ethics, gender, and globalization to map the trends and transitions in
Indian management. The first section provides an overview of the
changing contexts of Indian management and then proceeds to examine
the cultural values affecting the shape of organizations and behavioural
patterns in India. Section two explores the specific patterns of managerial
culture to a considerable depth. Section three considers the conceptual
and empirical perspectives of managerial leadership in India. Section
four continues the broad leadership discussion in the area of human
6 Management in India

resources and industrial relations. In section five the critical area of ethics
is considered. Section six includes three special areas of concern for
managers including; managerial challenges in the services sector, woman
managers in India, and global alliance management.The two articles in
the following section specifically address the response of Western
managerial practices in India. The final section overviews the challenges
facing the growing band of expatriates working in India.
The content of the volume reflect three criteria. Firstly, it includes
contributions that are sufficiently broad relative to contemporary man-
agement issues in India. Secondly, the editors wanted to combine a range
of approaches in studying managerial challenges from abstraction to field-
based evidence. Thirdly, the editors wished for the volume to be reasonably
comprehensive and at the same time accessible to a wide range of reader-
ship. The focus of this book, therefore, is on a holistic approach to changes
in Indian management.

Notes

1. Jha, Rhaghbendra. “Recent Trends in FDI Flows and Prospects for India.”
Australian National University, South Asia Research Centre. Internet: http://
ssrn.com/abstract=431927 (4 June 2005).
2. Jha, Rhaghbendra. “Recent Trends in FDI-India.” ASEAN Analysis. Internet:
http://www.aseanfocus.com/asiananaylsis/article.cfm?articleID=672 (4 June
2005).
3. India Country Commercial Guide FY 2004. U.S. Commercial Service, U.S.
Department of Commerce. Internet: http://www.doc.gov.
4. “Indian Economy Overview.” EconomyWatch.com. Internet: http://www.
economywatch.com/indianeconomy/indian-economy.overview.html (23 April
2005).
5. Ibid.
6. Back to earth: India’s economy. The Economist (18 September 2004): 76.
7. “Indian Economy Overview.”
8. India Country Commercial Guide.
9. International Monetary Fund. Staff Report of India Article IV Consultation.
IMF Country Report No. 05/86 (March 2005).
10. Morrison, Wayne and Alan Kronstadt. “India-U.S. Economic Relations.” U.S.
Congressional Research Service (10 February 2005).
11. Singh, Nirvikar and T.N. Srinivasan. “Indian Federalism, Economic Reform
and Globalization.” Stanford Center for International Development (September
2004).
12. International Monetary Fund.
 Introduction 7

13. FDI Confidence Index. A.T. Kearney Global Business Policy Council (October
2004).
14. India Country Report 2004. Economist Intelligence Unit (2004): 48. (Inter-
national Monetary Fund statistics.)
15. Ibid, 42.
16. India Country Report 2004. Economist Intelligence Unit (2004): 57.
17. Ibid, 57.
18. Ibid, 42.
19. India Human Development Report. United Nations Development Programme.
Internet: http://hdr.undp.org/statistics/data/cty/cty_f_IND.html (24 April
2005).
 Section One

UNDERSTANDING
INDIAN MANAGEMENT
AND CULTURE
 Understanding Indian Management in a
1 Time of Transition

Samir R. Chatterjee and Mark Heuer

In many ways, business and management culture in India has always

been a reflection of the complexity and diversity that characterises the
country as a whole. Today, the contours of Indian management also
reflect contemporary processes of social and economic change that are
now re-shaping the very ‘idea’ and image of India. Several developments
over the last few years, particularly attempts by the government to re-
structure the economy by opening it up to international competition,
have brought India to the threshold of a major transformation in its
business culture. In this sense, India is a nation in transition. Moving
away from a government-controlled, inward looking ‘command’ economy,
India has begun to embrace the global market in the hope of achieving
rapid economic development. As a result, Indian management systems
are moving towards a new global orientation and operational context.
Family dominated business conglomerates and large public sector enter-
prises continue to dominate the Indian economy but these are beginning
to give way to innovative, globally oriented, corporate players—particu-
larly within the booming Information Technology (IT) industry.
The significance of these structural transitions cannot be under-
estimated. As many of the contributors to this current volume note,
several ‘traditional’ characteristics of management in India remain in
place—notions of authority and hierarchy, the role of familial networks,
indigenous ethical-philosophical frameworks and community boundaries;
the importance of continuity and stability in institutional and individual
norms and practices; and, finally, a general acceptance of ambiguity.
12 Samir R. Chatterjee and Mark Heuer

The degree to which these ‘typical’ features of Indian management systems

are likely to be transformed by a new global context is, in some respects,
the crux of contemporary debate about the evolution of Indian manage-
ment systems. As suggested by the broad range of arguments and per-
spectives presented by these selected readings, such debates can perhaps
never be resolved with complete satisfaction. Nonetheless, it is possible
and plausible to suggest that India is moving towards developing a unique
‘hybrid’ form of management that seeks to remain grounded in selected
‘traditional’ patterns of behaviour, while embracing many of the best
practices of global management systems.

India’s Potential in a Global Context

For certain observers, the story of India in the latter period of the 20th
century is a tale of unfulfilled potential. As the convenors of a 2003 con-
clave on India’s future have noted, there is an ‘unacceptable performance-
potential gap’ with India making up 16 per cent of world population
but accounting for a global GNP share of only 1.5 per cent, while its
share of total world trade is a mere 0.7 per cent (Purie, 2003, p. 9). An
unresolved question, therefore, is whether the 21st century will mark
India’s emergence as a ‘global giant’ or whether it will be a nation char-
acterised by stunted growth and frustrated ambitions.
By other measurements, however, there are indications that India is
beginning to emerge as a significant global economic player. In a very
long-term historical sense this may even be characterized as a global re-
emergence since as the first Indian empire under Chandra Gupta Maurya
(325 BC) India was once possibly the single largest economy in the
world. Over two thousand years later, the world’s 10 largest economies
accounted for two-thirds of the gross world product (Table 1) and, by
this measurement, India ranked as the fourth largest economy, confirming
its increasing significance as a global economic force.
In 1980, China and India both had around 3 per cent of the share of
the world product. By 2000, India had a per capita income of $2,390, a
population of over a billion people, and accounted for over 5 per cent
of the world product. According to World Bank estimates, in terms of
GDP, the decades of the 1980s and 1990s witnessed a remarkable change
in relative national product shares and ranking. During this period, China
jumped from being the ninth largest economy in the world to second place
 Understanding Indian Management in a Time of Transition 13

Table 1: Income of the World’s 10 Largest Economies in 2000

Per Capita Gross Share of

Income Population Domestic Gross World
($) (m) Product ($b) Product (%) Ranking
United States 34,254 282 9,646 21.7 1
China 4,297 1,289 5,540 12.5 2
Japan 26,430 127 3,354 7.6 3
India 2,394 1,016 2,432 5.5 4
Germany 24,988 82 2,054 4.6 5
France 24,448 59 1,440 3.2 6
United Kingdom 23,568 60 1,407 3.2 7
Italy 23,362 58 1,348 3.0 8
Brazil 7,306 170 1,245 2.8 9
Russia 8,022 146 1,168 2.6 10
Rest of World 5,332 2,766 14,748 33.2 11–206
World 7,331 6,054 44,382 100.0 1–206
Source: World Bank’s World Development Report 2002.

and India advanced to become the fourth largest from the eighth position.
Russia was the biggest loser contracting from the third to the tenth rank.
A scenario built on recent World Bank models indicates the continued
upward movement of India into third place by 2010. During the third
period of this scenario (2026–50), India is projected as joining China as
the two largest economies. This study suggests:

with 18 percent of world income each, the economies of the two Asian
giants are three times larger than that of the United States, whose share in
the world income has fallen to six percent, half the share of China in 2000
(Hooke, 2003, p. 103).

Furthermore, this model suggests that between 2051–2100, India would

emerge as the largest economy in the world with 16 per cent of the world
income, followed by China with 15 per cent. However, regional groupings
like ASEAN, NAFTA, and the EU were also predicted to become more
important than specific countries.
It is prudent to sound a note of caution on measurements based solely
upon gross domestic and world products, and predictions that suggest
the inevitability of uninterrupted patterns of rapid economic expansion.
Certainly, however, the Indian economy had demonstrated a steady, if
14 Samir R. Chatterjee and Mark Heuer

not always spectacular, growth by the end of the 1990s. After decades of
relative insularity in terms of the broad thrust of economic policy and
industrial development, the new global orientation of the economy has
also generated intense interest among international investors and analysts
over India’s long-term potential.

Historical Context of Transition

In the decades after independence in 1947, India, under the political

leadership of Jawaharlal Nehru and his daughter Indira Gandhi, pursued
a development policy based upon the promotion of a highly planned,
state interventionist ‘command’ economy. Although there were many
notable successes during this period, criticism of this approach began to
accelerate. In particular, many critics felt that India had become locked
into relatively stagnant rates of national economic expansion of around
3.5 per cent per annum, a so-called ‘Hindu rate of growth’ that could only
improve by adopting a more competitive, outward oriented economy.
Other critics argued that India’s massive public sector and excessive gov-
ernment intervention was constraining private industries. From a man-
agerial perspective, it was certainly evident that India’s policy settings
over many decades had given rise to something of an insular and ‘closed’
managerial mindset.
Since 1991, the Indian economy is increasingly being reformed in
line with contemporary global imperatives, which is creating fundamental
shifts in managerial culture. Significant progress has been recorded in
industries like computer software and hardware; automobiles and auto-
components; agriculture; mining; banking and insurance; and, the media
and entertainment industries. Despite these improvements, India’s rank-
ing in the IMD World Competitiveness score, A.T. Kearney’s FDI con-
fidence index, or Standard and Poor’s Transparency Indicators, has been
relatively disappointing. For a country that is so large, culturally diverse,
and rich in natural and human resources, to be 135th out of 173 countries
on the UN Human Development Index hardly signals India’s true
potential.
India’s managerial heritage is of considerable relevance in understanding
the more general economic and cultural transformations currently being
witnessed in Asia. This is because India has a deeply felt, sophisticated,
 Understanding Indian Management in a Time of Transition 15

and very durable cultural heritage that has shaped and re-shaped itself
over thousands of years—a heritage that has also had a defining influence
on many ‘neighbouring’ countries of the Asian region. At the same time,
India is also one of the most amenable of Asian nations to ‘global’
information and cultural flows. It has a British inspired institutional
underpinning, a vigorous democratic political system and a highly edu-
cated, somewhat ‘Westernised’ and/or English speaking social elite.
In spite of this, a ‘negative’ work culture and relatively insular man-
agerial perspectives have often been identified as significant inhibitors
of progress. As some scholars have pointed out, ‘India’s low “efficiency
orientation” can be interpreted in terms of the level of power-distance, a
low risk taking propensity and the importance of familial and social
networks’ (Sparrow and Budhawar, 1997, p. 235). Such statements made
in isolation, however, may lead those who are unfamiliar with India to
develop an overly negative image of the country as static and unchanging.
In fact, India’s history demonstrates that it has an extraordinary capacity
to absorb and accept change while maintaining deep-rooted traditions.

Reforms in the 1990s and into the 21st Century

During the decade of the 1990s India underwent significant trans-

formation. In 1991, a Congress party government introduced a series of
important structural economic ‘reforms’. Although these policies were a
response to a pressing economic crisis, it was also related to a long-term
shift towards more ‘liberal’ trade and economic policies that had begun
in the 1980s under the political leadership of Indira and Rajiv Gandhi.
As a result, by the early 1990s India was ready to embark upon a program
of ‘liberalisation’, including, among other policy measures, the gradual
removal of ‘protectionist’ trade barriers, the deregulation of domestic
production, the promotion of foreign investment, and the pursuit of
long-term policy goals such as financial sector restructuring, governmental
fiscal restraint, and public sector ‘disinvestment’. Significantly, however,
many of these policy agendas remain incomplete today—a fact that has
generated ongoing debate as to the pace and the consequences of ‘liberal-
isation’ in India.
The gradual dismantling of the so-called ‘licence permit raj’ saw the
states and sub-regions of the country assuming a much more prominent
16 Samir R. Chatterjee and Mark Heuer

role as economic actors in terms of investment and policy formation.

The 1990s, therefore, are best characterized as a time of tumultuous
national, regional and local level political and social change in India as
these fundamental changes to policy settings began to filter through the
economy at regional and local levels. Another critical aspect of the
changing face of India was the new importance in economic policy for-
mation, managerial culture, and popular consciousness, accorded to
international forces. It is this new global context that perhaps represents
the greatest transition for Indian management over this period.

India’s Changing Corporate Structure

Internationally competitive costs and an available pool of highly skilled

local labour have contributed to a new image for India as a nation moving
away from a traditional agrarian base and heavy industries towards a
‘knowledge-driven’ society. While these images of generalised social
transformation are often wildly exaggerated, this type of discourse has
undoubtedly been, in part, responsible for leading MNC’s locating major
R&D facilities in India in recent years. Indeed, in doing so, knowledge-
based corporations such as Microsoft, Motorola and General Electric
have professed their faith in India’s long-term potential to become a
leading agent in the global information revolution.
Similarly, the launch of the Government of India’s national IT task
force in 1998 represented a new strategic paradigm. The task force
announced the bold goal of making India an IT superpower within 10
years and aimed to provide a new vision of economic development for
the information age. Acting on the recommendations of the task force,
the Government of India introduced a range of measures designed to
stimulate the sector. These policy measures included: reducing tariffs
and duties on imported IT-related equipment, easing foreign investment
and exchange controls, tax and regulatory/bureaucratic exemptions, and
providing the industry with greater access to finance (Economic Analytical
Unit, 2001, p. 105). In many respects, the emergence of the Indian IT
sector in the 1990s marked a new cooperative spirit between the public
and private corporate sectors and helped to develop a revitalised sense of
confidence in the country.
By the year 2001, the IT sector’s total output had reached about
US $10 billion and, until the meltdown in the global knowledge sector,
 Understanding Indian Management in a Time of Transition 17

software exports had risen to around US $6 billion—nearly 10 per cent

of total national goods and services’ exports. Sectoral growth rates were
phenomenal. Between 1994–95 and 2000–01, the Indian IT industry
grew at an average annual rate of 46 per cent. Using 1994 as a base year,
software revenues had increased by 785 per cent by 2001 (Economic
Analytical Unit, 2001, pp. 100–103). More than 800 firms within the
sector were working with a clear vision to begin with small, feasible IT-
related projects and then slowly climb up the value chain as the reputation
of the company and the consequential image of the country as an IT
centre became established. As some scholars have noted: ‘By 2000, more
than 200 of the fortune 1,000 companies were outsourcing their software
requirements to Indian software houses, and in software services, “made
in India” was becoming a sign of quality...’ (Kapur and Ramamurti, 2001,
p. 21). Moreover, the rapid growth of the Indian IT sector may well
stimulate much needed inputs in terms of developing fundamental
communication infrastructure (for instance, improvements in telephony
systems and number of lines) that will allow for the Indian information
‘revolution’ to proceed to the next level. In this way, the international
acclaim India has received for its excellence in the high-tech service sector
within the short period of a decade also offers some potential for this
success to be replicated in other affiliated sectors of the economy.
It is also important to note that the wider Indian corporate sector is
undergoing a period of unprecedented change. Well-established corporate
champions of the past have sometimes found it difficult to adapt to a
much more ruthlessly competitive business climate, while a select group
of companies, particularly within the ‘knowledge’ sector, have recorded
phenomenal rates of growth. As Table 2 indicates, over the course of a
decade, there has been a great deal of change in terms of the market
valuations of leading companies, with new IT-related players such as
Wipro and Infosys displacing formerly important manufacturing
concerns.
Again, a snapshot of the value of leading Indian companies in 2011 is
likely to be quite different to Table 2 and may well include a number of
new corporate ‘players’. In this respect, it is apparent that the relative
stability that formerly characterized the Indian corporate scene has now
given way to a more uncertain and volatile business climate.
Moreover, the growth of the IT industry is slowly beginning to shift
the geographic centre of power within India’s business culture. Whereas
18 Samir R. Chatterjee and Mark Heuer

many of the diversified family conglomerates are headquartered in the

Western ‘megacity’ of Mumbai (Bombay), the location of IT-related indus-
tries and their executive management headquarters are more dispersed.

Table 2: Ten Leading Indian Companies in 1992 and 2001

by Market Capitalization (US $ Billion)

Company 1992 Company 2001

Tisco 2.21 Hindustan Lever 10.30
ITC 1.20 Reliance Industries 8.84
Telco 1.14 Wipro 6.65
Century Textiles 1.13 Infosys Technologies 5.79
Hindustan Lever 0.89 Reliance Petroleum 4.65
Reliance Industries 0.77 ITC 4.29
Grasim 0.74 Oil & Natural Gas 4.05
GSFC 0.71 Indian Oil 2.73
ACC 0.67 State Bank of India 2.26
Colgate 0.57 HCL Technologies 2.22
Source: ‘The Plot Thickens: A Survey of India’s economy’, The Economist, 2 June
2001.

As indicated in Table 3 industry appears to be developing in three

major geographic ‘hubs’: Western India (Mumbai-Pune), a small section
of the North (New Delhi-Noida) and, most significantly, in the states

Table 3: Leading Software Companies in India, 2000–2001

Per cent Share of

Firm Location of HQ Industry Revenues
Tata Consulting Services Mumbai 8.3
Wipro Bangalore 5.2
Infosys Technologies Bangalore 4.9
HCL Technologies Noida 3.4
Satyam Computer Services Secunderabad 3.4
IBM India Bangalore 2.2
Cognizant Technology Solutions Chennai 1.9
NIIT New Delhi 1.8
Silverline Mumbai 1.7
Pentasoft Chennai 1.7
Total 34.5
Source: Economic Analytical Unit (2001, p. 103).
 Understanding Indian Management in a Time of Transition 19

and cities of South India (Bangalore-Chennai-Hyderabad). Regional

governments in these southern states have also played a significant role
in corporate development through the establishment of state-of-the-art
software technology parks. Bangalore’s ‘Electronic City’ and Hyderabad’s
‘Cyber City’ are not only comparable to global benchmarks but also link
directly to leading educational institutions. A number of leading global
IT companies, such as Microsoft and IBM, have invested in these regions
because of proactive government policies at a state level. These regionally
concentrated investments are only likely to intensify over forthcoming
years.

Managerial Culture in Transition

Understanding culture and the values and social norms it enshrines is

crucial in a rapidly globalizing context. Managers in India retain a strong
orientation towards the cultural legacy of an ancient but continuously
living and evolving civilization. However, superimposed on this legacy
is the impact of changing technological and organizational systems. In
India, cultural factors deeply influence many aspects of organizational,
social, familial and religious life at the micro level, while, at the macro
level, these cultural systems are beginning to adjust to the unavoidable
realities of economic reform, communication technology and global-
ization. In terms of their capacity to cope with these dramatic transform-
ations, it is perhaps relevant that Indian managers have been noted for
their ability to tolerate high levels of uncertainty and ambiguity—as
indicated by research that shows that India is one of five countries with
the lowest scores of ‘uncertainty avoidance’ out of an extensive sample of
nations (Hofstede, 1991).
Almost five decades after gaining independence, a new generation
has come into its own in India and has assumed a position of corporate
and familial leadership. The worldview of this generation is much less
ideology-driven than that of its predecessors, who were, typically, reared
on stories of the sacrifice and idealism of heroic figures from the Indian
nationalist movement. Several developments have caused a break with
continuity, shifting values from selfless service and the pursuit of salva-
tion to a ‘here and now’ approach, which is more focused upon individual
self-interest and advancement (Chatterjee, 1998). In contrast with previous
20 Samir R. Chatterjee and Mark Heuer

decades, entering a commercial profession is now seen to be the first,

rather than the last, preference for many of India’s ‘best and brightest’
graduates. In part, this is due to a widening gap between public and
private sectors in terms of salary remuneration (Lawler et al., 1995).
More generally, this change in perceptions is also due to a more general
aspiration among the so-called ‘great Indian middle class’ towards entre-
preneurial success and ‘conspicuous’ consumption.
In fact, the size and the quality of India’s highly educated middle class,
across a range of industry sectors, is a notable source of international
competitiveness. As some observers have noted:

None of the large Western companies investing in India are doing so simply
for cheap labour, China’s main lure. The more important attractions are
India’s large and increasingly open domestic market and the enormous
pool of the skilled labour. More engineers graduate each year in India
than in China and South Korea combined. That is why Motorola is
planning to make India what it calls a “brain centre” for engineering and
design work, and why Digital Equipment Corporation, Japanese subsidiary
chose Indian software engineers, over its own Japanese employees, to write
the tricky computer programs that translate English code into Japanese
characters (Forbes, 1994: 132).

Moreover, there has also been a discernible shift in India towards valuing
professional/technical personnel and inputs within the workplace. Thus,
even the oldest of ‘family’ conglomerates are now keen to stress that
their business operations are driven by dedicated teams of specialized
professionals who have obtained their positions through their technical
or managerial expertise. This trend has also been strengthened by the
share-market listing of corporations, meaning that professional organ-
izational and managerial structures and standards of corporate governance
are subject to greater scrutiny.
In addition, Indian corporations and managers are beginning to create
synergistic links with the social networks of the so-called Indian ‘diaspora’
living abroad. Overseas Indians and their associated social networks have
become increasingly important and influential contributors in setting
the managerial culture that predominates in various industries in India
today. Again, the IT sector is leading the way in forging new technical
and investment linkages. In particular, there are close connections between
 Understanding Indian Management in a Time of Transition 21

the IT industry in India and extensive networks of overseas Indians living,

studying, and working in technology hubs in the United States such as
Silicon Valley and key centres of higher learning. The growth of the IT
sector in India, therefore, could be another indication, and even an agent
of change, in relation to the growing influence of ‘Anglo-American’ models
of management and corporate governance in India. In reviewing the
development of the Indian economy in 2001, the Economist noted:

Software engineers in Bangalore disport themselves on pristine campuses,

fitted out with state-of-the-art gymnasiums. Call centres near Delhi equip
themselves with spare telephone lines, back-up generators, and back-ups
for the back-ups. Their quality standards, management styles and ideas of
corporate governance owe more to western, especially American, models
than to the traditions of Indian firms. The gleaming campus in Bangalore
of Infosys, India’s third-biggest information technology firm, has a golf
green and a Domino’s Pizza as the staff canteen. You might as well be in
Silicon Valley. (‘The Plot Thickens: A Survey of India’s Economy’,
Economist, 2001).

As indicated, an increasing number of foreign businesses and MNCs are

now establishing major operations in India. Again, their entry has
introduced a new ‘global’ dynamic within Indian management culture
as employees and local managers learn to operate within the broader
context of the unique corporate cultures of these transnational business
giants. Nonetheless, very often there is also an equivalent need for these
corporations to adapt their marketing and management strategies to the
local Indian context. This gradual adaptation often takes place through
a painful process of ‘trial and error’ as international businesses identify
the unique problems and opportunities of operating in an Indian context.
Among others, these challenges include problems with infrastructure
(power, telecommunications, transport); forging partnerships with
government agencies; developing effective quality control and assurance
programmes; and, perhaps most notably, accommodating differences
between ‘foreign’ and Indian cultural norms and management styles.
With reference to the interplay between indigenous and international
influences, some prominent scholars of Indian management strongly
advocate that a paradigm shift in managerial values and assumptions
does not necessarily imply a rejection of ‘traditional’ wisdom, ethical
22 Samir R. Chatterjee and Mark Heuer

frameworks, and values (Chakraborty, 1998). These scholars suggest that,

like the Japanese, Indian managerial values and goals need to arise out of
deeply rooted social and ethical traditions. While ‘tradition’ is unmis-
takably observable in the daily lives of managers and employees across
the country, work organizations appear to be at the crossroads. At least
amongst senior-level Indian managers, there appears to be a parallel
emergence of ‘global’ value paradigms (Chatterjee and Pearson, 2000a;
Chatterjee and Pearson, 2000b).
Similarly, scholars of business culture have been debating theories
of ‘convergence’ and ‘divergence’, as the influence of globalization takes
hold. The convergence theorists argue that the emergence of a Western
market-oriented economy inevitably leads to the adoption of values and
culture associated with it (Bond and King, 1985; Webber, 1969; Child,
1981). In contrast, the divergence theorists argue that if the culture of the
indigenous location is sufficiently powerful, it will retain its uniqueness
in spite of the impact of broader factors of homogenization (Laurent,
1983; England and Lee, 1974). In contrast, anthropological ‘accultur-
ation’ theorists suggest that the dynamic interaction of all of these influ-
ences often allow for the emergence of ‘hybrid’ forms of culture (Beals,
1953). Several research surveys of Asian managers have also contended
that these business leaders are able to maintain a duality of values, one
field of value formation is drawn from their own cultural heritage, while
the other impacts on them through the wider forces of international-
ization (Bedi, 1991). In the Indian context, it is thus possible to suggest
that a hybrid blending of values is creating neither convergence nor
divergence but a unique Indian managerial value system.

Managerial Challenges in Tomorrow’s Economy

Many first wave peasant economies are still at the bottom. Second wave
cheap labour, mass-manufacturing countries are in the middle. A single
advanced Third wave country is on top. A third floor has been built on
what until now was a two storied structure. Where in that three level house
will India fit? That is the central question facing India (Toffler, 2003,
p. 21).

In answering this rhetorical question, futurologist Toffler suggests that

the managerial challenge before India is to expedite the application of
 Understanding Indian Management in a Time of Transition 23

Third wave knowledge to the First and Second wave sectors for example,
the application of genetics to the production of cotton, and the applica-
tion of lasers, satellites, and computers thereby radically transforming
agricultural outputs. In the areas where India has been successful in the
last decade, including the IT sector, cheap labour has been the critical
success element not managerial vision. Cheap labour as a source of success
does not provide a secure future because of its substitutability by another
country at anytime, the inevitable protectionist responses it encourages,
and because the lower wage advantage is always at the mercy of tech-
nological breakthrough. The challenge of an economy moving away from
‘cheap labour’ is not merely in having an educated workforce. A know-
ledge economy requires opportunities to apply such knowledge. Global
quality, for example, cannot be achieved unless quality is both recognized
and institutionalized in the home market.
In tomorrow’s economy, dominated by the Third wave mindset, man-
agers will have to have a completely different approach to their functions
and roles. Grand strategy-making and resource allocation will be insuffi-
cient without inspiration, empowerment, innovation, entrepreneurship
and learning.

Frontline managers, heading small, disaggregated and interdependent units

focused on specific opportunities, are the company’s entrepreneurs. They
are the builders of the company’s performance by continuously strength-
ening those business. Like coaches who leverage the strengths of individual
players to build a winning team, senior level mangers link these separate
businesses into a coherent, winning company (Ghoshal et al., 2001,
p. xxiv).

As global linkages take hold across the organization, managerial chal-

lenges will have to be driven by learning and innovation. Capability for
a world-class organization essentially emerges from the values, compet-
encies and mindsets of new generation of managers. The challenge of
upgrading employee skills and reorientation of mindsets is a formidable
challenge for Indian managers with broad macro-level implications for a
realignment of India’s overall educational system.

Japan’s heroes work for Toyota, Sony and Honda; German heroes work
for BMW, Audi and Mercedes. While we did not have national heroes in
24 Samir R. Chatterjee and Mark Heuer

our traditional exporting businesses, we did begin in the nineties to make

our software into national icons. People like Narayana Murthy and Azim
Premji increasingly became role models for the young. This is a welcome
development (Das, 2002, p. 262).

Mapping Transitions in Indian Management:

Some Highlights

The articles in this book attempt to chart the fundamental and often
difficult transitions that are taking place in Indian management systems
today. The selected readings in the early part of the book consider in
depth many of the questions posed in our introduction—What is the
influence of cultural context and social norms? Have value orientations
begun to shift among Indian mangers given the new global context of
economic activity and social and informational flows? and, Is it possible
to facilitate cultural and organizational transitions that will nurture organ-
izational innovations, individual leadership, and a new culture of entre-
preneurial activity and energy in India?
Specific articles in this volume examine the critical issue of the culturally
embedded and yet, dynamic, ethical frameworks underpinning Indian
management systems. In some respects, the readings included in this
section are among the most provocative and thought provoking in the
entire volume. They also speak directly to one of the core themes outlined
in the introduction—What is unique about the evolving pattern of Indian
management?
An issue of paramount importance in India is the role of trade unions.
Unlike many East Asian countries, labor unions in India (as in many
other South Asian countries) exert considerable influence in determining
the work culture of both private and public sector organizations. Typically,
unions are organized on an industry-wide basis and often have local,
regional and national affiliations with powerful political parties.
The article by Anil Gupta and P. K. Sett examines the collective bargaining
environment in India and its implications. Articles eight and nine present
a range of views on the present state of human resource management,
training, and development in India. The article by Gupta, Koshal, and
Koshal addresses one of the most notable developments in Indian business,
 Understanding Indian Management in a Time of Transition 25

the increasing participation and prominence of Indian women in business

and managerial hierarchies.
All of the articles in this volume demonstrate, in different ways, the
importance of a greater degree of vitality, responsiveness, vision, leader-
ship, ethical commitment, organizational learning, and innovation on
the part of Indian management culture if India is to truly achieve greater
international competitiveness in the coming years.

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 The Influence of Indian National Culture
2 on Organizations

Mark Heuer

Most observers would agree that the national culture of India differs
fundamentally from the Euro-American baseline often used for evaluating
business strategy and performance. But how and why is India different?
And do India’s cultural differences matter in terms of economic growth
and participation in the globalization of the world economy?
An initial observation would be that India, in the parlance of national
culture researchers, is more collective and accepts higher power distance
than the US and many European countries (Hofstede, 1980). Why is
this? The immediate explanation could be that Indians retain a stronger
identity to family and religious values, which cause Indian society to
retain traditional ties. But how does that explain the success of the in-
creasingly sophisticated software industry in India and the educational
system in India that provides a large supply of highly trained technical
personnel? On the other hand, depending on the Indian state involved,
employers in smaller businesses reportedly still accrue and delay wages
of employees in order to make them highly dependent on their bosses
(Sinha, 2000).
There are many pieces to this puzzle. The purpose of this article is
to explore the dynamic nature of India’s national culture and how the
organizational culture, values and management practices are evolving in
response to environmental influences, such as economic liberalization
and globalization. For example, different types of organizations, such as
MNCs, as well as private and public Indian organizations, may accept or
synthesize cultural adjustment differently than others. Certain industries,
 The Influence of Indian National Culture on Organizations 29

such as software, experience rapid growth and integration into the global
marketplace while others retain indigenous management practices. These
issues will be explored here, followed by an attempt to explain the in-
fluences on Indian management culture from the perspective of three
management theories: resource dependence, resource-based view of the
firm and institutional theory.

National Culture: An Indian Perspective

Despite the importance of cross-cultural management issues, most past

studies have not been concerned with cultural distance at both the na-
tional and organizational levels. Following Pothukuchi, Damanpour,
Choi, Chen and Park (2002), this article evaluates culture at both levels
by operationalizing national culture in terms of values and organizational
culture in terms of management practices.
Hofstede’s (1980) values dimensions are a common approach for
operationalizing national culture in terms of values. While Pearson and
Chatterjee (2001) argue that Hofstede’s five dimensions of national cul-
ture may no longer be suitable because they were developed in an era
with different environmental imperatives, this article uses Hofstede’s meas-
ures as a baseline for comparison due to the widespread recognition and
application of these dimensions. Hofstede’s four dimensions (along with
a fifth which was later identified) can be described as follows:

Individualism-Collectivism: the extent to which ties between

individuals are loose versus a society in which people are integrated
into strong, cohesive groups. Individualism implies a loosely knit
social framework in which people are expected to take care of their
immediate families and themselves, while Collectivism involves a
tight social framework in which people expect those in the in-
group (family and organizations) to look out for them in exchange
for strong loyalty.

Power distance: the extent to which people believe that power
and status are distributed unequally and accept an unequal dis-
tribution of power.

Masculinity-femininity: the extent to which society values achieve-
ment versus affiliation. Masculinity characterises a society in which
assertiveness and merit-based reward practices are commonly
30 Mark Heuer

accepted and supported, as opposed to a more feminine society in

which quality of work life and interpersonal relationships receive
more emphasis in the workplace.

Uncertainty avoidance: the extent to which people are threatened
by uncertain, unknown or unstructured situations. Career stability,
formal rules and procedures, attainment of expertise and belief in
absolute truths are characteristic of a society with high uncertainty
avoidance. Newman and Nollen (1996) indicate that uncertainty
avoidance may be an artifact of the time during which Hofstede
did his research and may not be relevant in Asian countries.

Hofstede and Bond (1988) also identified Long-term orientation
as an additional dimension. It refers to the extent to which a society
values patience, perseverance and a sense of obedience and duty
towards the larger good.

National culture can be described as the collective programming of a

group of people with common experiences, such as political and edu-
cational systems, at the national level. Hofstede (1991) refers to this as
software of the mind. For Indian managers, as well as those wishing to
manage multinational corporations or other concerns in India, national
culture is important in understanding what factors will motivate em-
ployees in India in order for organizations to enjoy sustainable perform-
ance. Neelankavil, Mathur and Zhang (2000) argue that understanding
differences in values and values dimensions has a profound impact on
effective cross-cultural management. They reason that values dimensions
such as individualism relate to a variety of constructs in the social sciences,
such as self-actualization and security needs, and are crucial to explaining
cross-cultural differences in management. This argument is valid both
in terms of using national culture value dimensions as a baseline approach,
as well as in understanding a rapidly changing environment and the impli-
cations this has on values measurements (Pearson and Chatterjee, 2001)
On a foundational level, comparisons of national culture dimensions
should assist managers assess the risks inherent in a ‘one size fits all’
approach to global human resource management. From a more fine-
grained perspective, such comparisons can be useful in understanding
how to motivate personnel in individual countries and to track and adjust
for possible changes. For example, Neelankavil et al. (2000) evaluate
national culture similarities and differences in a study of middle-level
 The Influence of Indian National Culture on Organizations 31

managers in India, China, the Philippines and the United States. A key
factor in this study is that while India, China and the Philippines are
Asian, the amount of Western influence in each is markedly different.
The differing degree of Western influence allows the examination of
culture on job evaluation and motivation using the US as a benchmark.
The measurement of individualism-collectivism provides a key result
of the study, with China and the US on opposite ends and with India
and the Philippines in between. India, the Philippines and the US rank
relatively close on uncertainty avoidance (40, 44 and 46 respectively,
based on a 0–100 scale), while China is at 69. Masculinity-femininity
is also similar with India, the Philippines and the US at 56, 64 and 62
respectively, while China is at 45. Neelankavil et al. (2000) explain this
result based on China’s weaker exposure to Western management prac-
tices, while India and the Philippines show a mix of Asian traits and
Western management practices in their results. In the case of India, in
particular, Neelankavil et al. reason that national culture has evolved
into a hybrid approach toward management practices. They reason that
India is rooted in a framework of transcendent ideology. As a result,
there is a primary mode of behaviour supported by the traditional Indian
approach, as well as a secondary mode supported by Western influence.
This leads to unique superior-subordinate relationships, work behaviour
and management practices in India. In essence, this study shows that
Asian countries are not all the same despite some geographic similarities
based on input from middle-level managers.
Additionally, in a study comparing Indian CEOs with US CEOs,
Kakar, Kakar, deVries and Vrignaud (2002) raise the issue of whether
the Westernisation of Indian firms has a significant impact on the leader-
ship practices of the Indian executive. Their research utilises a Leadership
Practices Inventory to identify how Indian hybrid organisations differ
from its US counterparts. They reason that power distance, viewed as
the tendency to idealize the leader of an organization, remains a significant
difference between Indian and US organisations.
So, what does this mean for managers? The results suggest that
managers are socialised by their own national culture, regardless of man-
agement level in an organization, and tend to develop values, beliefs, be-
haviours and practices that are compatible with the main features of that
national culture (Gopalan and Rivera, 1997). As an example, Gopalan and
Rivera (1997) cite a cross-national study of US and Indian salespersons
32 Mark Heuer

in which US salespersons responded negatively to organisation formal-

ization and bureaucratic structures, whereas Indian salespersons reacted
favourably by demonstrating a higher level of work commitment and
reduced work alienation. The study theorises that differences in the social-
ization process may explain the response, as American salespersons are
socialised in a culture characterized by low power distance and a high
degree of individualism. They dislike authority, conformity and close
supervision. Conversely, Indian salespersons are raised in an environment
emphasizing high degrees of collective dependence and power distance and
respond favourably to tighter control and supervision (Agarwal, 1993).
Similarly, Tan and Khoo (2002) note that as the expansion of India’s
economy heralds the mass adoption of Western technology, knowledge
and management systems, cultural management has to be considered
because knowledge of a host country’s culture-related values are crucial
for managing the best results from every employee. It also reduces the
potential for misunderstanding and conflict between management and
the workforce. Cultural management is particularly important in India,
as it is a deeply religious nation where its people display behaviours that
are highly influenced by religious norms, values and beliefs.
Indian society demonstrates a high power-distance culture. This means
that workers prefer authoritative and hierarchical forms of management.
They also respond favourably to close supervision. Bosses are expected
to demonstrate powerful personalities and be authoritative. Managers
who demonstrate a high ‘power figure’ type of behaviour are more likely
to gain the respect of subordinates. Clear and direct orders are preferred
(Tan and Khoo, 2002). According to Sinha and Kanungo (1997), the
lack of clear job descriptions and expectations, fluid timeframes, or
ambiguity in job objectives, affect negatively the work behaviour of Indian
employees. In order to create worker enthusiasm and motivation, clear
job descriptions and detailed instructions need to be provided.
The meaning of work for Indian workers is more than what one
accomplishes in one’s job. Indian workers greatly value good relationships
between superiors and subordinates. Such relationships are highly power-
based with leaders or managers as the power figures. It is common practice
in India for subordinates to show reverence and respect towards their
superiors. In return, subordinates expect their leaders’ protection, concern
and support (Sinha and Kanungo, 1997).
 The Influence of Indian National Culture on Organizations 33

The Western-style manager, on the other hand, places the highest

importance on driving the workforce towards developing self-initiative,
creativity and intrapreneurship in their jobs (DeVries, 1998). Indian
workers may view the democratic management styles adopted by
charismatic-type Western leaders as a sign of managerial weakness or
incompetence (Gopalan and Rivera, 1997).

Environmental Influences of National Culture

The traditional American relationship vis-à-vis nature has been one of

dominance although there is an increasing emphasis on conservation
and ecological awareness, suggesting a trend towards living in harmony
with nature. In this dominance approach, the majority of Americans be-
lieve that natural resources and elements can and should be utilised for
the benefit of mankind. Science and technology are considered allies
used to minimise or mitigate the effects of disease, pestilence, drought,
floods and earthquakes. This dominance over nature and other elements
has resulted in most Americans having an internal locus of control.
Responsibility and accountability lie with the individual and outcomes
cannot be shifted to an unknown supernatural force. This tendency to-
wards an internal locus of control carries over to goal-setting practices in
organizations along with a belief that individuals with a strong internal
locus of control are more likely to actively pursue, and thus achieve,
their goals than are those with an external locus of control (Gopalan and
Stahl, 1998).
Traditional cultures such as those found in India socialise people to
be predisposed towards an external locus of control. Individuals with an
external locus of control believe that humankind is basically helpless in
influencing life’s events, which are largely controlled by fate and/or by
supernatural forces that are largely beyond human control. Even if
individuals in the Indian corporate environment can intellectually relate
to and understand the basic premise behind goal-setting practices, to
what extent will they be effective in implementing such practices over
the long run if it is not positively reinforced by societal values? Can ad-
vanced education neutralise and overcome the force of fatalism? Will
exposure to international management practices neutralise the effects of
national culture allowing Indian employees to develop a strong internal
locus of control? Although India has one of the largest pool of well
34 Mark Heuer

qualified and talented scientists, technicians and other professionals in

the world, it lags behind several countries in both basic and cutting-
edge research in many areas. While some may attribute this phenomenon
to lack of resources and other structural issues, an alternative explanation
may be that it could be due to a lack of adequate positive reinforcement
from society. It is reasonable to hypothesise that Indian scientists and other
professionals working in the US and other Western countries are able to
have a high level of achievement not only because of access to superior
resources, but also because of the prevailing mindset that encourages
and nurtures an internal locus of control (Gopalan and Stahl, 1998).

Organizational Culture: The Link to Management Practice

Newman and Nollen (1996) note that the key competitive advantage
derived from correctly adapted management practices comes from align-
ment between key characteristics of the external environment (national
culture in this case) and internal strategy, structure, systems and practices.
For managers of MNCs, the implications are that adaptation to local
cultural conditions is necessary to achieve high-performance outcomes.
Corporate initiatives that are created at headquarters and promoted
worldwide run the risk of conflicting with unreceptive national cultures.
The US, with its extreme values of individualism, is a particular example
as management practices such as employee participation, merit-based
systems and individual responsibility are likely to be unwise in countries
culturally unlike the US. In essence, Newman and Nollen (1996), in
their study of financial results of work units in 18 countries on three
continents, found that management practices should be adapted to the
local culture to be most effective.
In practice, Mendonca and Kanungo (1996) note that organizations
in developing countries—traditionally those in the private sector and,
more recently, public sector organizations—have invested considerable
resources, time and effort to adopt state-of-the-art human resources man-
agement practices developed in Europe and North America. While the
poor management practices, bureaucratic inefficiencies and low produc-
tivity evident in many of the organizations creates pressure to adopt quick
solutions, the effectiveness of this approach is open to serious questions.
 The Influence of Indian National Culture on Organizations 35

Mendonca and Kanungo point to mounting evidence against the in-

discriminate transfer to developing countries of techniques and practices
based on Western thought and value systems.

Socialization of Work Relationships

As mentioned in the discussion on individualism-collectivism, Indians

are socialized in a culture where an individual derives his/her identity
based on family and caste membership. It is not uncommon to see Indians
sacrifice or defer their individual goals for the collective goals of the
family or a larger collective entity. Additionally, age and seniority are
given great respect in India (Gopalan and Stahl, 1998). Conversely,
socialization practices in the US stress independence over dependence
and ascendancy of individual rights over group goals and aspirations
(Gopalan and Stahl, 1998).
Developing this relational context further, Gopalan and Rivera (1997)
draw on the five categories of value orientations based on Kluckhohn
and Strodtbeck (1961). While Hofstede’s value dimensions deal with
society in general, Kluckhohn and Strodtbeck can be used to relate
national culture to organizational culture in a context more specific to
India. These value orientations are:

Human Nature
Most Indians are socialized to believe that their present nature and
current state of affairs are unchangeable and a result of their actions
and lifestyles in previous births. Qualities and personality traits
possessed by individuals are ascribed to the particular caste that they
are born into. Consequently, less effort is focused on improving one’s
present situation than in Western cultures.

Man-Nature
A widespread belief is that life’s events are predetermined and con-
trolled by supernatural forces external to an individual. Consequently,
most Indians tend to have an external locus of control and subjugate
themselves to nature. This disposition may negatively impact qualities
such as ambition, work ethic and persistence. In contrast, many
Westerners believe they can control nature and their own destiny.
36 Mark Heuer

Time
Indians are oriented towards the past and view time as an infinite
entity. This orientation toward time causes tremendous pressure to
conform to traditional practices and beliefs. This view contrasts with
the Western focus on the future which translates into a preference for
planning, scheduling and a sense of urgency.

Relational
As discussed in terms of power dominance, most Indians prefer hier-
archical relationships, which may be a consequence of the caste system.
These relationships, supported by the caste system often extend to
business in which there is strong mutual support based on caste mem-
bership. This can lead to hiring in a company or industry based on caste.
Whereas other cultures tend to hire more based on skill sets dominating
a particular industry.
How, then, do value orientations influence employee motivation and
organizational culture as a whole? Western management practices support
the belief that employees are motivated when they are given a greater
degree of autonomy, responsibility and control over their work and they
lose motivation when placed in a highly bureaucratic, structured and
controlled environment.
As mentioned previously, Mendonca and Kanungo (1996) suggest
there is mounting evidence that argues against the indiscriminant trans-
fer to developing countries of techniques and practices based on Western
thought and value systems. Programmes that are highly successful in the
industrialized, developed countries of the West can, and often do, fail in
the developing countries because of incongruence with the internal work
culture. Thus, while an employee’s job performance will benefit in any
culture from goal-setting, performance feedback and valued rewards,
the manner in which these practices are carried out is where problems
arise (Mendonca and Kanungo, 1996). In particular, management
practices that are favoured in the US, such as employee participation,
individual responsibility, merit-based rewards, and short-term approaches,
are likely to be unwise in countries such as India that are culturally unlike
the US. A mismatch between work-unit management practices and
national culture is likely to reduce performance. As mentioned previously,
Newman and Nollen (1996) note that the issue of fit is especially salient
for US managers because the US has extreme values for both individualism
 The Influence of Indian National Culture on Organizations 37

and long-term orientation cultural dimensions. They conclude that the

competitive advantage derived from correctly adapted management
practices comes from alignment between key characteristics of the external
environment and internal strategy, structure, systems and practices.
The globalization of business will have a tremendous impact on life-
styles and role relationships in developing countries such as India. For
example, as MNCs establish operations in what are previously ‘closed
economies’, they will begin to affect tradition and culture (Gopalan and
Stahl, 1998). As there is a striking difference in culture and values es-
poused by large tradition-bound organizations and new global organ-
izations, Chatterjee and Pearson (2000a) reason that the core beliefs and
values of an ancient and complex society with a massive rural population
need to be sharpened to make them context relevant rather than be re-
placed by wholesale imported values. Indian managers are combining
traditional values and dimensions of the contemporary global market
imperatives in a unique way. In fact, Chatterjee and Pearson reason that
Indian managers may encompass the ‘crossvergent values’ concept
developed by Ralston, Holt, Terpstra and Kai-Cheng (1997), which
occurs when both national culture influences and economic ideology
form a unique value system. In fact, for many Indian managers, cross-
vergence means that the modern technological and globalized world
does, in fact, exist, but does not extend beyond the boundaries of their
professional role. Indian managers may not synergise divergent values in
a terminal sense but may rearrange their work goals and related values
in different layers at different points of time (Chatterjee and Pearson,
2000a). In a study of over 400 senior Indian managers from the public
and private sector, Chatterjee and Pearson (2000b) found that managers
participating in the study viewed their society as being in transition, and
the focus is on how to be successful in a market economy and less on
goals that were important prior to economic reform. In particular, the
study found that an emphasis on learning and market responsiveness is
displacing goals of stability, tradition and security.

India in a Global Business Context:

Organizational Responses

As discussed in this article, Indian management practices are undergoing

a significant shift in response to economic liberalization and global
38 Mark Heuer

business integration. The response to these forces appears to differ based

on type of organizations, industry segment and geography. Additionally,
perceptual differences may be apparent based on the managerial level of
the individuals (e.g., middle or senior management). In this final section
the differences will be discussed while also providing a theoretical context
to explain, on an exploratory basis, the reasons for the differences.
Indian organizations, from an organizational perspective, can be
broadly grouped under three categories: Western industrialized firms,
which include joint ventures/subsidiaries of MNCs; hybrid firms, which
are medium-to-large, family-dominated firms and may be involved in
joint ventures with Western firms; and, indigenous firms, which include
small-to-medium enterprises and may provide ancillary support services
to larger firms (Gopinath, 1998). Additionally, public and private organ-
izations in India should be differentiated in terms of organizational
culture. In all cases, the multiplicity of languages prevalent in India must
be recognized. There are 15 major languages in India with distinct scripts,
traditions and literature. This poses challenges for the cross-fertilization
of management ideas in India and may contribute to differing degrees of
convergence in terms of management practices (Gopinath, 1998).
Gopalan and Stahl (1998) suggest that as MNCs (Western industrial-
ized firms) establish operations in previously ‘closed economies’, such as
India, they will affect tradition and culture. Compared to domestic firms
(hybrid and indigenous firms), MNCs may be more inclined to hire
women, pay higher salaries and promote them to managerial positions.
They also speculate that as the use of English, use of the Internet and
familiarity with Western modes of education become more widespread,
Indian managers will develop a hybrid or crossvergence approach to man-
agement that will combine indigenous and imported methods. In par-
ticular, Gopalan and Stahl identify loyalty, an integral Indian value, as a
management value that may be retained because it maintains and fosters
an environment of trust necessary to build effective business relationships.
On the other hand, equal employment opportunity practices may lead
to hiring the most qualified person for a job, as opposed to preferential
hiring of family members or relatives, which is more of an established
practice in indigenous firms.
Another impact of liberalization and the greater involvement of MNCs
is an increased level of competition of Indian firms with the MNCs. This
 The Influence of Indian National Culture on Organizations 39

has raised concerns about total quality management, workforce skills

and pressure to change from indigenous, costly and probably less effective
technology to more effective technology applications (Sparrow and
Budhwar, 1996). Nevertheless, Hofstede (1993) asserts that development
cannot be pressure-cooked. Liberalization and globalization require a
cultural infrastructure, which takes time to develop. Hofstede concludes
that local management must be part of this infrastructure; it cannot be
imported in package form.
In contrast to larger (hybrid) organizations, which are more able to
influence their environments, smaller organizations are affected by their
environment, by the community as well as the values, beliefs and assump-
tions prevalent in their environment. This environment often involves
pervasive poverty, inadequate infrastructure facilities, a weak industrial
base and underdeveloped human resources (Sinha, 2000).
Kamdar (2002) also identifies regional differences in Indian work
culture, such as Maharashtra, where worker unions are known for their
aggressive stance; Kerala, where employees are highly literate; and Gujarat,
where the society’s norm of relaxation spills over into the work culture
for at least three hours during the afternoons. The regionalization issue
contributes to the growth of industries in certain areas. For example, India’s
software industry has been growing at a 50 per cent rate for the better
part of a decade with more than 800 firms located in cities like Bangalore,
Hyderabad, Pune, Chennai and New Delhi providing a range of software
services, mostly targeted at foreign customers (Kapur and Ramamurti,
2001).
Pertaining to industries, Kapur and Ramamurti (2001) pose the
question: how has a country whose economic achievements were other-
wise modest, managed to develop a reputation for excellence in this rapidly
growing high-tech sector? Software makes extensive use of resources in
which India is at a comparative advantage. India produces the second
largest annual output of scientists and engineers in the world, behind
only the US. The cost of an Indian software engineer is one-half to one-
fourth that of an American engineer. Additionally, Indian engineers are
trained in English, which gives them a decisive advantage over their
Chinese counterparts.
India’s success with software has spilled over into other knowledge-
based industries such as pharmaceuticals and biotechnology, attracting
investments from MNCs, while also serving as a source of talent abroad,
40 Mark Heuer

where technical workers may collaborate with others back home in India.
Both of these developments provide the opportunity for building
competitive advantage through intellectual capital.

Challenges and Opportunities for Growth through

Resource Advantages

From the perspective of the organization, India seems to be straddling two

currents of economic development which can be explained by strategic
management theory. One is that of resource dependence, or the need to
access needed resources through strategic interactions (Andrews, 1971)
in order to nurture ongoing growth. Another is the Resource Based View
of the Firm (Barney, 1991), which involves developing resources and
capabilities into a sustainable competitive advantage. As discussed
previously, various types of organizations have responded differently to
economic liberalization and globalization. The Resource Based View of
the Firm suggests that Indian firms able to develop sustainable competitive
advantages build rare, unique combinations of capabilities and resources.
The resources could be accessed through alliances or joint ventures with
MNCs, and can bridge opportunities with Indians working abroad with
entrepreneurial and technical capabilities. In essence, resource dependence
involves accessing needed resources and capabilities from external sources,
while the Resource Based View of the Firm involves developing the resources
into unique combinations internally. For the computer software industry,
India already possesses a resource advantage through an available pool of
trained technical specialists with lower labour costs than the US and
other developed countries. Additionally, Indians working overseas may
offer the intellectual resources needed to address resource gaps. Other
industries, however, are limited by a lack of access to resources. These
constraints come in many forms, not all of which are economic.
Acting as a potential constraint or facilitator of these firm-level efforts
are the more macro issues of government, social tradition and national
culture. These forces have the potential to provide opportunities or con-
straints to Indian firms and managers in their efforts to adjust to liberal-
ization and globalization. From an institutional theory perspective, Meyer
and Scott (1983) note that shared belief systems and relational frameworks
come together in complex and shifting ways, in that they may be mutually
supportive or they may work in opposition.
 The Influence of Indian National Culture on Organizations 41

Taken together, resource dependence, the Resource Based View of the

Firm and institutional theory provide the theoretical support to evaluate
organizational culture and Indian management practice. While in the
medium to long term, India may emerge as a leading provider of knowledge-
based tradable services, there remains the politics, Indian style, described
by Kapur and Ramamurti (2001) as ‘cacophonous and fractious, playing
itself out in one of the most socially heterogeneous societies in the world,
with sharp social inequities, a corrupt and inefficient bureaucracy, and
poor accountability of political actors.’ As an indication, there have been
four general elections and six prime ministers in the last decade. On the
plus side, India has systemic stability anchored by deep-rooted, democratic
institutions, which is one of the reasons why coalition politics both nation-
ally and in the states is so evident. Also, there is the large and sophisticated
network of educational institutes which supply the human capital required
by the software industry. Many of these graduates migrate to the US for
higher education and jobs and form a part of the social network that
nurtures the Indian software industry (Kapur and Ramamurti, 2001).
The factors that support growth of industries in India rely on cultural
adaptiveness. The upgrading of India’s roads, ports, power supply and
rail transportation has not been able to support growth for other industries
in the way that telecommunications links and air have been able to sup-
port software. Finally, from a corporate culture perspective, the IT sector
has affected Indian capitalism, because the corporate culture and business
practices of India’s IT firms are vastly superior to those of India’s traditional
business houses. Conversely, Indian IT firms have been at the forefront
of improved corporate governance.
From the perspective of organizational culture and management
practices, India is a country in transition with vast potential and chal-
lenges, very significant accomplishments, but also respect for the past
and social traditions. Future research could build on propositions in-
volving resource dependence, the Resource Based View of the Firm and
institutional theory as a way to identify various strands of Indian national
culture and their influence on organizational culture and management
practice. Comparisons of various industries from the perspective of these
theoretical approaches could differentiate among the industries and help
better understand the challenges ahead during this transition period.
42 Mark Heuer

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Managers: Some Empirical Evidence of Responses to Economic Reform’,
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Pothukuchi, V., F. Damanpour, J. Choi, C.C. Chen and S.H. Park. 2002. ‘National
and Organizational Culture Differences and International Joint Venture Per-
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 Section Two

INDIAN
MANAGEMENT
CULTURE IN TRANSITION

An Overview of the Culture of Management in India

In spite of the converging forces of globalisation, local contextual

imperatives still remain a major managerial challenge for cross-national
work organisations. The cultural uniqueness of a country is a variable in
the development of a major strategic platform for any industry or any
company with ambition to expand beyond national boundaries. This is
specifically relevant to a high-context society like India where the various
macro-level initiatives need unique cultural understanding for diffusion
to the ‘meso’ and ‘micro’ levels. There has been a continuing debate on
the cultural influences not only in terms of conceptual validity but also
in terms of characteristics such as industry type, social and administrative
heritage, educational and demographic profiles, etc. The complex, multi-
faceted construct of ‘culture’ can only be categorised and compared from
a very limited range of theoretical frames in management literature.
46 Management in India

An alternative understanding of the diversity across cultures and their

meaningful conceptualisation may be obtained through the experiences
of large-scale economic reform and managerial reorientations as local
adaptations and resilience are studied. The globalisation advantage
postulates cultural diversity as a source of potential benefit that enhances
the building of a global mindset. The two articles of this part underpin
the essential competencies of ‘learning’ and ‘adapting’ as the deeply con-
tested notion of corporate globalisation takes hold and a distinctive Indian
brand of management emerges.
The chapters by Neelankavil, Mathur and Zhang included in this
section emphasise ‘learning’ in the specific context of India’s recent trans-
formations and the dynamics of the institutional forces that strongly
influence these. The chapter by Tayeb (Chapter Four) demonstrates the
‘adaptability’ of ideas of the determination of managerial performance
in three Asian countries. Here, Tayeb presents a number of illustrations
of positive developments in India’s economic competitiveness in recent
years. The paper contends forcefully that the human resource quality
and the infrastructural investment by the government have been able to
provide the pre-requisite to building the strategic success of many national
and global companies. Some commentators have described India more
as an ‘elephant’ economy which is large, strong and intelligent, but not
as agile and dynamic as the smaller Asian ‘tiger’ counterparts.
The article by Tayeb extends beyond an analysis of the strategic found-
ations initiated in recent decades by the government. Besides an emphasis
on innovative physical and social infrastructure and the adoption of
forword-looking fiscal and monetary policies, ensuring the continuity
and stability of such policies across successive democratically elected
governments has been a remarkable feature of governance in recent years.
Against this background of macro-level reform agenda, the weakness of
managerial level internalisation has been a serious criticism of the Indian
progress. Neelankavil et al. on the other hand explore this common criti-
cism by introducing a research study on the perceptions of middle-level
managers in India, China and the Philippines as a contrast to USA in
terms of the determinants of managerial performance. Confirmation of
the postulation can be found in many research studies of recent years.
For example, a well known scholar and executive distilled his thoughts as,
 Indian Management Culture in Transition 47

My experience as a consultant to a dozen Indian companies during the

past decade is that while many have acquired a reasonably robust strategy,
they implement poorly. I am also associated with a venture capital fund
that has invested in fifteen Indian companies in information technology,
and its experience is the same—the best successful firms are not the ones
with the best business model that those with execution ability (Das, 2002;
pp. 139–40).

Numbers of scholars, management consulting firms and social com-

mentators have been highlighting the paradox demonstrated by Indian
managers evidenced through a glaring gap between the sophisticated
skills in strategy development as against its implementation. The trend
of global companies working closely with their Indian counterparts has
been accelerating this process. Neelankavil et al. highlight that in order
to achieve success as a company, industry or country, competencies and
values, performances of managers need to be aligned to gain a quantum
synergy. This is particularly relevant to the lack of national accountability
of the under-performing public sector. In spite of emerging national
consensus in terms of global market orientation, the reality is that more
than 80 per cent of the top 25 companies in India are still in the public
sector domain.
The two chapters of this part provide an overview of where the journey
of transformation began, what some of the recent trends have been and
some indication of how the managerial mindset of performance
orientation may be taking shape in India. It is to be noted that a decade
ago India had about the same GDP as China while it is almost double
for China today. Is this sudden tearing away of the Chinese due to a
performance focus? Or, does it have the cultural context as an explanation?

Reference

Das, G. (2002). The Elephant Paradigm: India Wrestles with Change, Penguin Books,
pp. 139–40.
 Determinants of Managerial
Performance: A Cross-cultural
3 Comparison of the Perceptions of
Middle-level Managers in Four Countries

James P. Neelankavil, Anil Mathur and Yong Zhang

Introduction

The rapid growth of international business has led to unprecedented

demands on firms’ ability to manage their diverse cross-border activities.
Success in such activities necessitates a thorough understanding of the
process of cross-cultural management. Despite the rapid rise of globalism
with the attendant drive toward standardization and the predominance
of Western management theories, the belief that what works in the West
should also work in other parts of the world has met with growing
skepticism (Newman and Nollen, 1996; Adler and Jelinek, 1986; Black
and Porter, 1991; Hofstede, 1994; Laurent, 1983, 1986; Traidis, 1989,
1990; Earley and Erez, 1997). Researchers and practitioners have long
argued over what factors motivate managers in different countries and
how managers can effectively manage a firm’s international activities.
Some believe that these factors differ significantly across countries and
are heavily influenced by national cultures (e.g., Bigoness and Blakely,
1996). As a consequence, firms need to adapt their management practices
to suit the national cultures in which they operate in order to achieve a
high level of managerial performance.
However, the research community offers only limited guidance on
how management practices should be adapted. The field of international
management is still considered to be in a nascent, pre-paradigmatic stage
50 James P. Neelankavil, Anil Mathur and Yong Zhang

with a dire paucity of theory-driven studies in the “hypothetico-deductive

category” (Adler, 1983; Kyi, 1988; Black and Mendenhall, 1990).
Research findings often offer mixed recommendations when attempting
to match approaches to the management of international activities to
the conditions companies might face. For example, under what conditions
should companies transfer their effective management practices across
cultures, rather than subscribe to the “cultural relativity” theory as argued
by some researchers (e.g., Hofstede, 1994) and adapt their managerial
approaches? The situation is further exacerbated by caveats in studies
that have dealt with the influence of culture on management practices.
For example, studies have often focused on countries that were not sig-
nificantly different from one another, used samples that were not repre-
sentative of the target population, or involved only limited numbers of
firms and industries (Heiskanen, 1985).
The current study studies management practices through the study
of managers themselves. We surveyed 784 middle-level managers from
four countries (China, India, the Philippines, and the United States) with
diverse cultural and industrial backgrounds to identify what managers
themselves consider to be important determinants of managerial perform-
ance. The central thesis of the present study is that cultural influences
are important factors affecting the process and outcome of management.
Effective cross-cultural management is a function of a country’s cultural
peculiarity, and for that matter, its similarity with other cultures.
In the sections to follow, we will review the literature, describe our
research, and finally, discuss the implications of the findings and directions
for future research.

Literature Review

Research In Cross-cultural Management

Studies of international management have dealt with the issues from

several perspectives: managerial values, value dimensions, comparative
management, and managerial factors/determinants. Studies on managerial
values have focused on the differences in managerial values in different
countries (England and Lee, 1974; Ralston et al., 1992; Bigoness and
Blakely, 1996) and tried to explain how such value difference account
for managerial differences. For example, Ralston et al. (1992) compared
 Determinants of Managerial Performance 51

Western-developed measures (such as machiavellianism, locus of control,

intolerance of ambiguity and dogmatism) with Eastern-developed
Chinese Value Survey (such as Confucian dynamism, human-heartedness,
integration, and moral discipline) and found that both culture and the
business environment interact to create a unique set of managerial values
in different countries.
Research on value dimensions (See Chinese Culture Connection, 1987;
Hofstede, 1980 and 1994; and Punnett and Yu, 1990) took a more in-
depth approach in studying how dimensions of value differ and how
such differences affect cross-cultural management. Dimensions such as
“individualism” and “moral discipline” relate to a variety of constructs in
the social sciences, such as self actualization and security needs from
Maslow’s hierarchy of needs. These value dimensions were found to be
crucial in explaining cross-cultural differences in management (Hofstede,
1980, 1994).
Understanding differences in value and value dimensions has profound
impact on effective cross-cultural management. Earley and Erez (1997)
effectively argue in their book, the Transplanted Executive, that there is a
direct relationship between culture and managerial beliefs/ practices, and
cultural value shapes the meaning of varied aspects of the work-place.
Managerial practices that work effectively in one culture often work poorly
in others. They alert the global managers to the danger of assuming that
effective management practice is universal. Synthesizing the works of
various scholars in cross-cultural research, they suggested a framework
with two essential elements: self-knowledge and cultural values.
Earley and Erez (1997) posit that the cornerstone of successful cross-
cultural management, is “knowing thyself,” particularly understanding
the relative importance of three self-motives: (a) self-enhancement, the
desire to maintain a positive self-image, (b) self-growth, the desire to
feel competent in the face of challenge, and (c) self-consistency, a desire
to experience coherence in their lives. The second element consists of
the cultural values that influence a manager and his subordinates. The
authors used two principal dimensions of cultural difference: the self-
vs. group-focus (more commonly referred to in the psychological liter-
ature as individualism-collectivism) and power differential (the amount
of power a person can acceptably exercise over others, c.f., Hofstede’s
‘power distance’). The self- vs. group-focus dimension of culture has a
direct bearing on the self-motives. The extent to which managers with
52 James P. Neelankavil, Anil Mathur and Yong Zhang

self-focused values are driven or satisfied by each motive is largely deter-

mined by internal standards, whereas the relative strength of the self-
motives for those who are group-focused is socially determined (Adler,
1998).
The study of comparative management (such as Bartlett and Ghoshal,
1992) suggests that multinational companies should focus on individual
managers and the cultural context in which they operate. Studies in this
stream of research have investigated cross-cultural factors in the identi-
fication of managerial potential (Evans, Sculli, and Yau, 1987), managerial
job attitude (Kanungo and Wright, 1983), and cross-cultural training
effectiveness (Black and Mendenhall, 1990).
Studies in the area of managerial factors have focused on issues such
as human resources management (HRM) (e.g., Lengnick-Hall and
Lengnick-Hall, 1988; Milliman, et al., 1991). In their research of strategic
human resources management, Lengnick-Hall and Lengnick-Hall found
a reciprocal interdependence between a firm’s business strategy and its
human resource strategy. Issues dealt with include gender and training
of managers for foreign assignment (e.g., Edstrom and Lorange, 1984;
Tung, 1984), managerial satisfaction (Gomez-Mejia and Balkin, 1987),
compensation and motivation (McCelland and Burnham, 1995; Morais,
1993).

Differences in National Cultures and Their Influences on

Managerial Practices within Organizations

Culture exists at various levels, in a group, in an organization, and in a

nation. Many researchers shared the view that organizations exist within
cultural contexts. As a result, management assumptions, organizational
structure and functions are influenced by national culture (e.g., Hofstede,
1980). Each culture has its own unique set of beliefs, value systems, atti-
tudes, and related behaviors. Such uniqueness precedes organizational
values and any role-centered managerial skills (Chakraborty, 1991). For
example, the potential effectiveness of various management practices and
motivational techniques used within an organization depends on the
prevailing cultural values and norms. Management practices that reward
personal competition may be highly valued in individualistic cultures
such as America, but not in collectivistic cultures such as China. A middle-
level manager who encourages open criticism will be appreciated by
 Determinants of Managerial Performance 53

employees in a culture of low power differential where employees feel

more free to exchange ideas with their bosses, but may instead raise the
suspicion of employees in a culture of high power differentials. As a con-
sequence, it is not surprising to find that the authoritarian style of the
Japanese manager (high power differentials) is often met with resistance
and resentment from U.S. (low power differentials) auto workers in the
United States (Earley and Erez, 1997). Therefore, managers from different
national cultures vary widely as to their basic conception of what con-
stitutes effective managerial practices. Each culture must be studied within
its own unique context in order to understand the important determinants
of managerial performance in a particular organization.
National culture is a complex, multi-faceted construct. One of its
most basic dimensions is the individualism-collectivism distinction in
which countries differ (Hofstede, 1980). Evidence suggests that differ-
ences along this dimension of culture account for major differences in
managerial assumptions and practices. For example, Laurent (1986)
indicated that for American managers, “ambition and drive” were seen
as crucial to managerial career success. This reflects a pragmatic and
individualistic achievement-orientation. In contrast, their French counter-
parts viewed “being labeled as having high potential”, a more social/col-
lective element, as the most critical element. Such deep-seated managerial
beliefs are strongly shaped by national cultures, and a thorough under-
standing of individualism/collectivism dimension of culture will shed
light on differences in managerial perceptions and performance.
Hofstede (1980) defines individualism-collectivism as the relationship
between the individual and the collectivity that prevails in a particular
society. Many countries differ in this important cultural characteristic.
In Europe and North America, individuals prefer independent relation-
ships to one another, and individual goals take precedence over group
goals (Hofstede, 1980). But in many countries in Asia, Africa, and Latin
America, people are more likely to have an interdependent relationship
with each other. Such collectivistic cultures embrace interdependence,
family security, social hierarchies, cooperation, and low levels of com-
petition (Triandis, 1989, 1990).
China is often considered a country with a collectivistic culture. As
such, the Chinese society has historically focused on social interests and
collective actions, and de-emphasized personal goals and accomplishments
(Oh, 1976; Li, 1978). In the Chinese society, harmony and conformity
54 James P. Neelankavil, Anil Mathur and Yong Zhang

not only tend to govern all interpersonal relations, but these qualities
also enjoy social and cultural approval (Hsu, 1981). Some researchers
have observed that differences on the collectivism and individualism
dimension reflect a fundamental difference in China’s cultural orientations
(Ho, 1979).
On the other hand, the United States is ostensibly a country known
for its “rugged individualism.” The concept of individualism is the belief
that each person is an entity separate from the group and, as such, the
individual is endowed with natural rights (Spence, 1985). In sharp con-
trast to cultures that are characterized by self-sufficiency and inter-
dependency, the Americans view rugged individualism as a desirable trait
worth striving for. They embrace the belief that an individual is not only
self-sufficient as a matter of fact but that he must strive toward it as an
ideal. Thus, individualism is considered central to the American character
(Spence, 1985). American values such as individual achievement orient-
ation and encouragement of the attainment of material prosperity are
rooted in individualism. This is also evidenced by theories of ego and
moral development which hold that the highest stage a person can attain
is one in which the individual rises above the acceptance of and conformity
to the society’s standards to an autonomous level (Loevinger, 1976).
Somewhere in between these two extremes along the individualism-
collectivism dimension are India and the Philippines. While the Indian
society reflects certain characteristics of collectivism as do many Asian
cultures, the basic cultural orientations of India is profoundly rooted
in Buddhism, Vedantic and Yogic Psychology, derivative epic and Pauranic
literature (Chakraborty, 1991, p. 19). The Indian value system is set
within the framework of transcendent ideology (such as “Chitta-shuddhi”
or purification of the mind; self-discipline and self-restraint; and renun-
ciation and detachment) which is the cutting edge of India’s deep cultural
structure. Such cultural uniqueness is reflected in Hofstede’s survey on
culture’s dimensions (Hofstede, 1980). While China’s score (using Taiwan
as a surrogate) on individualism dimension is 17 and the United States’
is 91, India is somewhat neutral with a score of 48. The Philippines is
similar to India in several aspects. For example, the score for the Philip-
pines on the Hofstede’s cultural value dimension survey is 32. Although
Filipinos exhibit many Asian traits in family and other social interactions,
in business management they tend to mix Asian traits with Western
management philosophies. For example, in their work place, Filipino
 Determinants of Managerial Performance 55

managers maintain very close personal relationships with their peers and
subordinates, reflecting a collectivistic cultural trait. It is also not un-
common for Filipino managers to become God-parents to the children
of their subordinates and to act as sponsors at the weddings of staff
members. Yet, they are ardent believers and practitioners of Western,
and especially American, management methods in their business activities.
Filipino managers value formal business education and utilize Western
management methods.
Such western influences in both India and Filipino businesses are also
reflected in other dimensions of culture (Hofstede, 1980). For example,
both India and the Philippines had scores (40 and 44 respectively) similar
to the U.S. (46) on the uncertainty avoidance measure, while China had
a score of 69. Uncertainty avoidance measures the extent to which people
in a society tend to feel threatened by uncertain, ambiguous, risky or
undefined situations. On the measure of masculinity, the same pattern
holds. Masculine cultures are characterized by assertiveness, valuing
achievement and abhorring failure while feminine societies favor nur-
turing roles, interdependence between people and caring for others. The
scores of India, the Philippines, and the United States were 56, 64, 62
respectively while China’s was 45.
Such differences in cultural orientation are bound to influence man-
agerial styles (defined as the overall set or pattern of behavioral character-
istics that distinguish the country’s general approach to management) in
each country and reflect an important dimension of organizational culture
(e.g., Wagner and Moch, 1986). Researchers argue that the impact of
cultural differences along the individualism/collectivism dimension
of culture on managerial styles should be treated more specifically and
explicitly in management research because of its implications for
organizations.
Therefore, we would expect significant differences in the perceptions
of the most important determinants of managerial performance between
managers from the four countries. Specifically, perceived importance of
factors that determine managerial performance would show a high degree
of cultural influence with managers from the People’s Republic of China
and those from the United States exhibiting the most amount of dif-
ference. In fact, we expect that China and the U.S. would represent bi-
polar extremes on a continuum with India and the Philippines placed
somewhere in between. Although India and the Philippines are
56 James P. Neelankavil, Anil Mathur and Yong Zhang

hypothesized, a priori, to be closer to each other on the continuum and

exhibiting less cultural influence, Indian and Filipino managers are also
expected to show differences in what they believe to be the most important
determining factors of managerial performance.

Differences among Eastern Cultures

This study also focuses on the differences within Eastern cultures.

Relatively few studies have dealt with differences among Eastern cultures
and none, to our knowledge, on what local managers themselves perceive
as important determinants of managerial performance in the three Asian
countries. Since cultures and levels of economic development vary more
widely across regions, researchers tend to focus on major differences be-
tween the East and the West, and across countries with different levels of
economic development, such as between the developed and developing
countries (e.g., England and Lee, 1990; Welge, 1994). Major differences
within such groupings tend to be overlooked. For example, Asian
countries are not necessarily very similar despite geographical proximity
and economic similarity. In addition, few studies have compared less de-
veloped countries in the region.
Although China, India, and the Philippines are all Asian countries
facing similar sets of issues in their economic development, they are far
from being homogeneous. Significant differences exist between them
with regard to their cultural heritage and managerial philosophy. While
both India and the Philippines had considerable Western influences in
managerial philosophy, it is only quite recently that the Chinese managers
began to be exposed to Western management concepts. Further, although
management practices in both India and the Philippines had similar
origins, they have progressed and developed differently in modern times.
Modern Indian management practices evolved from the British system
prior to India’s independence and adopted similar practices in the “man-
agement agency system” since independence (e.g., Bhagwati and Desai,
1970; Jones, 1989). Similarly, a significant number of multinationals
who came to the Philippines since World War II provided a rich source
of managerial skills (Tiglao, 1992). However, while the Philippines con-
tinued to benefit from multinational presence and westernized educa-
tion (Tiglao, 1992), Indian management practices have developed a
distinct Indian flavor. For example, Indian companies are still run very
 Determinants of Managerial Performance 57

paternalistically with personal relationships playing a critical role in the

management of a business organization (Garg and Parikh, 1986). It is,
therefore, both meaningful and important for companies to develop a
better understanding of the differences in managerial practices between
India and the Philippines.
Thus, this study seeks to compare middle-level managers among three
developing countries, i.e., China, India, and the Philippines, in addition
to comparisons with the United States. The recent renewed interest in
these developing countries as potential markets for both exports and
foreign investment makes this study worthwhile. Researchers have called
for increased efforts directed toward studying such markets (e.g., Thomas
and Philip, 1994).

The Study

This study focusses on middle-level managers (distinct from senior ex-

ecutives and entry-level managers) because of the critical role they play
in the daily operations of a company. It is increasingly recognized that
middle managers play an important role in the implementation of cor-
porate strategy (Bourgeois and Broadwin, 1984; Hart, 1992). Middle
managers, by virtue of their pivotal position within a company, function
as a conduit between policy/strategy makers and entry-level managers.
They are suppliers of information to top management and consumers of
decisions made by top management (Westley, 1990). When representing
and implementing strategic and tactical decisions of top executives, they
must remain extremely sensitive to the nature and requirements of lower-
level managers and other members of the organization.

Method

Data Collection

Data for this study were collected directly from middle-level managers
in the four countries using self-administered questionnaires. Initial con-
tacts were made with the chief executives of publicly-held companies in
all countries except China. Upon contact, CEOs were told the purpose of
the study and their cooperation was sought in collecting data from their
subordinate managers. They were requested to distribute questionnaires
58 James P. Neelankavil, Anil Mathur and Yong Zhang

to middle managers in their organizations. For this study, middle man-

agers were defined as those below the rank of vice-president with at least
three years of managerial experience. Potential respondents were contacted
by their CEOs for participation. Completed questionnaires were returned
to the researchers directly, thus ensuring the anonymity of the respond-
ents. In China, due to the lack of a sufficient number of publicly-held
companies, samples were obtained from a Cadres Training School in
southern China. Trainees were all middle-level managers sent to the school
for management training by their respective companies located through-
out the region.
A total of 784 responses were received from all four countries, 204
from China, 184 from India, 220 from the Philippines, and 176 from
the US. These responses came from 79 Indian companies, 36 Philippine
companies, 56 American companies, and 38 Chinese companies. Demo-
graphic and other characteristics of the samples are given in Table 1.
The majority of the respondents were male and relatively young (under
45 years). A closer examination of the data revealed sufficient variability
in the demographic characteristics (age, education) and work-related vari-
ables (functional responsibilities, number of subordinates, hours worked,
years with the present employer, and years on the present job). Such
within-sample variability ensures that each sample represented a wide
cross-section of middle-level managers in the country so that the opinions
expressed by the respondents are independent of variables such as types
of companies, functional areas, or specific industries. Analyses also suggest
sufficient sample compatibility across countries in age, gender, weekly
work hours, number of subordinates, and area of expertise.

Measures

The development of the measures followed a two-step process. Prior re-

search suggested various determinants of managerial performance, such
as leadership ability, communication skills, planning, controlling, etc.
(Grimsley and Jarrett, 1973). The starting point of the measure develop-
ment was a list of 46 items used by Johnson, Neelankavil, and Jadhav
(1986) to assess the importance of various performance factors. In their
study, Johnson, et al. (1986) identified five key performance factors for
middle managers: problem solving, ability to work under pressure, integ-
rity, organizing, and planning. Responses to the 46 statements representing
 Determinants of Managerial Performance 59

Table 1: Demographic Profiles of the Four Samples

Philippines India USA China

Characteristics (N = 220) (N = 184) (N = 176) (N = 204)
Sex
Males 67.3% 89.7% 63.6% 66.8%
Females 32.7% 10.3% 36.4% 33.2%
Age
Under 35 29.3% 53.6% 28.9% 47.5%
35–44 42.3% 27.8% 39.9% 28.3%
45–54 20.5% 14.8% 24.8% 15.6%
55–64 7.9% 3.8% 6.4% 8.6%
Functional responsibility
Data processing/computer 3.2% 7.1% 9.1% 2.0%
Engineering/research 8.7% 13.6% 10.0% 13.2%
Finance/accounting 14.6% 16.3% 22.7% 25.9%
Marketing/sales 21.9% 15.8% 18.2% 11.2%
Personnel/HR 7.8% 9.2% 8.0% 13.7%
Production/maintenance 11.4% 15.2% 3.4% 10.6%
Others 32.4% 22.8% 26.7% 23.4%
Number of direct subordinates
(Mean) 12.5 8.3 7.8 19.7
Average number of hours spent
on the job/per week 45.0 49.8 50.4 42.8
Time with the present company
(number of years) 11.6 8.3 11.6 9.8
Time in the present job
(number of years) 5.5 4.0 3.4 5.6
Number of years of formal education
Less than 13 9.6% 61.1% 6.3% 43.6%
13–17 77.6% 27.2% 46.3% 53.0%
18 or more 12.8% 11.7% 47.4% 3.4%

the five dimensions were reviewed by a sample of middle-level managers.

They indicated whether the statements were clear and easy to understand
and whether the statements represented key determinants of managerial
performance. Based on the feedback, some statements were reworded
and redundant statements were removed. Finally, 40 statements were
used in the survey instrument. In addition to measuring determinants
of managerial performance, the survey questionnaire asked for
demographic and work-related (e.g., length of experience) information
from the respondents. The study reported here is part of a large-scale,
60 James P. Neelankavil, Anil Mathur and Yong Zhang

global study which tracks managerial value and performance in various

countries.
Respondents from Indian, Filipino, and American companies received
an English version of the questionnaire. Those from Chinese companies
received a Mandarin Chinese version of the questionnaire. A cross-cultural
consulting firm was hired to translate the original questionnaire into
Chinese. The translated version was validated through the back-
translation technique and was properly tested for consistency with the
original version. To ensure accuracy of the translation, the entire process
was closely monitored by one of the principal investigators who is pro-
ficient in both languages. Discrepancies in the translations were resolved
with translators from the consulting firm. The final version of the ques-
tionnaire was prepared professionally.

Analysis and Results

Prior to testing the main prediction of this study and to justify the pooling
of data from the four countries, factor analyses were conducted to deter-
mine whether data from the four countries share similar data structure.
Items that had dual loadings or very low loadings were dropped from
the analysis to purify the data. This process resulted in retaining 18 items
that are shown in the appendix.
Subsequent factor analysis produced five factors in Chinese, Indian,
and Philippine sub-samples, and 6 factors in the American sub-sample.
There were striking similarities in the factor solutions from the four
countries that warrant further factor analysis.
In the subsequent factor analysis, the number of factors to be retained
was first constrained to be five, next six, and finally seven (independently
for each country). Factor structures that emerged from these analyses
were compared across the four countries. The six-factor solution showed
striking similarities across the four samples and is reported in Table 2.
These six factors represented the following dimensions of managerial
performance: planning and decision making ability; self-confidence and
charisma; educational achievements; communication skills; past ex-
perience; and leadership ability. This analysis suggests that the underlying
dimensions of managerial performance perceived by the middle managers
were very similar across the four countries. Therefore, data from the
four countries were pooled in subsequent analyses.
 Table 2: Factor Loadings for the Four Countries and Combined Samples

Item Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6

# P I U C 4 P I U C 4 P I U C 4 P I U C 4 P I U C 4 P I U C 4∗
1. .43 .86 .77 .79 .47 .84
2. .31 .31 –.43 .33 .33 –.34 .55 .43 .59 .37 .78 .46
3. .84 .81 .84 .32 .82 .31 .54
4. .32 .83 .79 .84 .80 .31 .40
5. .58 .55 .45 .33 .55 .31 .36 .39 .39 .33
6. .71 .71 .56 .35 .66 .67 .56
7. .80 .73 .66 .66 .77 .72
8. .60 .79 .78 .80 .76 .38
9. .70 .59 .74 .84 .71 .36
10. .86 .80 .79 .85 .88
11. .83 .84 .82 .86 .85
12. .37 .55 .81 .68 .61 .54 .56
13. .49 .50 .83 .72 .82 –.45 .44
14. .50 .57 .69 .77 .67 .67 .31
15. .74 .44 .62 .48 .63 .57
Determinants of Managerial Performance

16. .77 .71 .86 .82 .79 –.33

17. .37 .77 .82 .88 .83 .84
18. .33 .69 .42 .46 .32 .48 –.35 .80 –.30
Note: Table entries are factor loadings. Loadings of less than .30 are not printed for clarity.
* P = Philippines, I = India, U = USA, C = China, and 4 = full sample.
61
62 James P. Neelankavil, Anil Mathur and Yong Zhang

The second phase of the analysis focused on identifying similarities

and/or differences across these countries based on the importance attached
to the factors of managerial performance. For this purpose, data from the
four countries was pooled and factor analyzed. For this analysis too, the
number of factors was constrained to six. The resulting factor structure
was similar to the one reported in the earlier analyses and the interpret-
ation of the factors was also similar. Factor scores for these six factors
were used in subsequent analyses.
To test the prediction of this study, MANOVA analysis was carried
out to see if there are any differences across the four countries in terms
of managerial performance factors. For this test, factor scores for the six-
factor solution were used as the dependent variables. This analysis revealed
that there are significant differences across the four countries (Multivariate
F = 20.616, p < .001). Univariate tests for the six-factor scores revealed
that significant differences do exist for all the six factors. Mean factor
scores for the four countries and corresponding univariate F-statistic are
shown in Table 3, along with the results of post-hoc pair-wise com-
parisons. While Filipino managers attached great importance to planing/
decision making ability (mean factor score = .218), Indian managers
attached least importance (mean factor score = –.220). The mean scores
for American and Chinese managers were close to the overall mean (.006
and –.038 respectively). As far as self confidence/charisma is concerned,
Chinese managers felt it is very important with a mean factor score of
.214, and American managers felt it was least important with mean factor
score of –.228. The scores for Filipino and Indian managers were close
to the overall mean (.039 and –.070 respectively). Educational Achieve-
ments were rated very highly by Filipino managers (mean factor score
= .310) and very low by American managers (mean factor score = –.513).
Indian and Chinese managers rated this near the overall mean (.078 and
.040 respectively).
While Filipino and Indian managers rated communication to be im-
portant (factor scores of .141 and .121 respectively), Chinese managers
rated it to be low (mean factor score = –.340). Both Filipino and American
managers rated past experience to be important (mean factor scores = .399
and .232 respectively), while Chinese rated it to be rather low (mean
factor score = –.625). Finally, Filipino and Indian managers rated leader-
ship ability to be high (mean factor score = .193 and .214 respectively),
while Chinese managers rated it to be rather low (mean factor score =
–.470).
 Determinants of Managerial Performance 63

Table 3: Comparison of Managerial Performance Factors

Across the Four Countries

Factors Philippines India USA China F-Value

1. Planning/decision making
ability .218 –.220 .006 –.038 6.677a
Philippines
India ∗∗∗
USA ∗∗∗ ∗∗∗
China ∗∗∗
2. Self-confidence/charisma .039 –.070 –.228 .214 6.703a
Philippines
India
USA ∗∗∗
China ∗∗∗ ∗∗∗
3. Educational achievements .310 .078 –.513 .040 25.095a
Philippines
India ∗∗∗
USA ∗∗∗ ∗∗∗
China ∗∗∗ ∗∗∗
4. Communication skills .141 .121 .090 –.340 11.109a
Philippines
India
USA
China ∗∗∗ ∗∗∗ ∗∗∗
5. Past experience .232 .033 .399 –.625 46.950a
Philippines
India ∗∗∗
USA ∗∗∗
China ∗∗∗ ∗∗∗ ∗∗∗
6. Leadership ability .193 .214 .075 –.470 22.588a
Philippines
India
USA
China ∗∗∗ ∗∗∗ ∗∗∗
Note: Table entries are mean factor scores for the four samples. Asterisks (***)
indicate significant differences across countries.
a Significant at p < .001.

Post-hoc pair-wise comparisons of the four countries on the six

dimensions of managerial performance revealed an interesting pattern
of similarities and differences. On three out of six dimensions
(communication skills, past experience, and leadership ability) Chinese
64 James P. Neelankavil, Anil Mathur and Yong Zhang

managers were clearly different from those from the others. With respect
to the remaining three dimensions, Chinese managers were closer to
some than to others. For example, on educational achievement, Chinese
managers were similar to Indian managers but different from American
and Filipino managers. With respect to self-confidence, Chinese managers
were similar to Filipino managers but different from Indian and American
managers. Finally, with respect to planning and decision-making, Chinese
managers were similar to Indian and American managers but different
from Filipino managers. Overall, these results indicate that Chinese man-
agers were most unique in their perceptions, as if representing an extreme
position or viewpoint.
Although American, Filipino, and Indian managers tend to be similar
on some factors (leadership ability and communication skills) there are
many differences across these countries. For example, on educational
achievements and planning/decision making ability, managers from these
three countries had quite different views. With respect to past experience,
while American and Filipino managers tend to agree, they responded
differently from Indian managers. Finally, with respect to self-confidence,
while responses of American and Filipino managers were different, no
such differences were found between American and Indian managers as
well as between Indian and Filipino managers. These findings indicate
that there are significant differences that are critical for understanding
management performance in these countries.

Table 4: Overall Distance Across the Four Countries in Terms

of Managerial Performance Factors

Philippines India USA China

Philippines .000
India .297 .000
USA .838 .580 .000
China 1.576 1.239 2.035 .000
Note: Table entries are squared Euclidean distances based on factor scores.

Finally, to determine the overall pattern of similarities and differences

across the four countries, mean factor scores for the four countries were
used to compute an overall distance matrix. The distance matrix is given
in Table 4. As shown in the table, the distance between India and
 Determinants of Managerial Performance 65

Philippines is the least (.297) indicating these two countries are most
similar in terms of the overall managerial performance factors. Also, India
and Philippines are both closer to the US than either is to China (distances
of .580 and .838 respectively). Finally, China is the most dissimilar of
the four countries as indicated by its distance from the other three
countries. These results are discussed in greater detail in the discussion
section.

Discussion

This study set out to assess the perceptions of Chinese, Indian, Filipino,
and U.S. middle-level managers with respect to the importance of various
factors in contributing to managerial performance. An understanding
of such differences is important for effective management across cultures
because these perceptions play a critical role in determining the effort
and focus of the managers.
This study revealed that there are clear differences in the perceptions
of managers across the four countries with respect to the importance
they attached to various factors of managerial performance. This finding
is consistent with the framework proposed by Tayeb (1988, 1995) and
Misumi (1985). Tayeb (1988) suggested that many companies, driven
by common task environments, tend to develop similar structures across
cultures. However, culture plays a role in determining how these structures
are developed. Similarly, Misumi’s (1985) findings suggest that certain
underlying supervisory behaviors are genotypic or task oriented (inde-
pendent of cultural influence), but they might be expressed differently
in different cultures due to cultural influence. We found that the perceived
importance of performance factors differ across all four countries as a
result of cultural differences.

Differences between China and the U.S.

A unique result of the present study is the mapping of cultural distances

between the four countries. On the basis of middle managers’ perceptions
regarding managerial performance factors, our study found that the U.S.
and China are the most dissimilar pair. These two can be taken to
represent the two extremes of a continuum. A review of the underlying
pattern reveals that these two countries differed on all factors of managerial
66 James P. Neelankavil, Anil Mathur and Yong Zhang

performance except for planning and decision making. Managers from

both China and the US rated this factor close to the overall mean, indi-
cating that they did not hold extreme position on this issue. But the
similarity on this factor does not undermine the significance of the vast
differences across the two countries along the other factors.
These differences are not surprising given the widely acknowledged
cultural differences between these two countries. The Chinese society
had long been closed to Western influences until the “Open Door Policy”
was instituted in the late 70’s. Deep-seated cultural values and customs
and a central planning system led to substantial differences in manage-
ment styles. Despite recent gradual abandonment of such a practice and
the corresponding shift to a market-oriented economic structure, many
Chinese managers are still new to modern management theory and tech-
niques. Remnants from the old economic system are bound to influence
managers’ perception and practices.

Differences between India/Philippines and U.S.

A complex pattern of similarities between the perception of managers

from India, Philippines, and the US tends to support the notion that
India and Philippines might be between the two extremes represented
by the US and China. While the differences across these countries suggest
that India and Philippines themselves do not assume polar positions,
similarities between India/Philippines and the US suggest that these
countries might be closer to the US rather than to the Chinese end of
the continuum. Further, the fact that there are substantial differences
between the perceptions of managers from India and Philippines, suggests
that these two countries do not occupy the same position on the con-
tinuum along the theoretical framework expounded by Hofstede.
Collectively, these results suggest that India and Philippines are
somewhere between these two extremes. Although we did not attempt
to establish any direct relationship between the cultural orientation of
middle managers and their perceptions regarding managerial perform-
ance factors, empirical evidence suggests that cultural orientations could
have played a role in these perceptions. These results are consistent with
those of Hofstede (1980). While a theoretical perspective suggests that
the U.S. and China would be on the two ends of the Collectivism—
Individualism continuum, Hofstede found it to be empirically true. Also,
 Determinants of Managerial Performance 67

consistent with Hofstede’s findings we found that India and the

Philippines are between the two extremes. The results of this study were
in line with the theoretical prediction of Hofstede’s results. From these
findings, it appears that cultural orientation toward individualism/
collectivism has some influence on the perceptions of managers.

Differences between China, India, and the Philippines

Conventional comparisons of the Eastern and the Western countries

have either implicitly or explicitly assumed that all Asian countries are
similar and therefore can be culturally grouped and labeled the Eastern
or Oriental culture. Contrary to this assumption, sufficient differences
in managerial perceptions across these countries prevent us from making
such an assertion, particularly with regard to managerial practices. For
example, we found that Filipino managers showed marked differences
from Indian and Chinese managers with respect to planning/decision
making, educational achievement, and past experience. Also, perceptions
of Chinese and Indian managers differed on four out of five factors: self-
confidence/charisma, communication skills, past experience, and leader-
ship skills. Differences in perceptions across these Asian countries can
be accounted for by the historical contexts within which these cultures
have evolved. While the Chinese culture was isolated from outside influ-
ence for a very long time, both Indian and Filipino cultures have had
outside influence for a very long time. Furthermore, the nature of outside
influences experienced by India and Philippines were also quite different,
as discussed earlier.
Taken together, this study supports the view that cultural values, such
as collectivism/individualism, impact managerial perceptions, attitudes,
and behaviors. Therefore, anyone attempting to do business in a global
setting should pay special attention to cultural factors.
Equally important in the study of managerial differences are the simi-
larities shared by the managers across the four countries. Such similarities
can be further examined in the context of their organizational, historical,
and cultural backgrounds. Despite significant cultural differences, man-
agers need not assume that the determinants of success will always differ
across all countries and at all times. For example, the middle managers
from our four countries considered similar factors as determinants of
their performance. As mentioned, this might be driven by the similarities
68 James P. Neelankavil, Anil Mathur and Yong Zhang

in their roles (as middle managers), tasks performed (motivating, training,

evaluating, communication, controlling, etc.), and organizations (struc-
ture, etc.). The importance of these factors testifies to the notion that
certain non-culturally dependent variables relate to managerial success.
However the relative importance of these factors may be culture-bound.
These findings should be helpful to global and international companies
in planning their human resource recruitment and training efforts. As
the globalization of business continues, placement and management
competent middle-level managers across national boundaries and cultures
become increasingly critical.

Implications and Conclusion

The findings of this study have important implications for researchers

interested in understanding cross-cultural differences in managerial prac-
tices as well as for practitioners interested in doing business in the four
countries. First of all, this study supports the notion that culture has a
significant impact on managerial practices particularly between vastly
different countries such as China and the United States. Secondly, for
researchers interested in cross-cultural comparisons of managerial prac-
tices, this research contributes to our understanding of the differences in
seemingly similar countries. Many differences exist among countries and
managers of international business enterprises should take note. Asian
countries are not necessarily similar to one another in their managerial
orientations, despite cultural relatedness. Similar cases can be made about
Latin American or other regional clusters. This study serves as a basis for
conducting further comparative studies involving these countries/cultures.
For managers in the studied countries, the findings provide insight
into the factors that lead to effective managerial practices and successful
job performance. The managers should, on the one hand, develop suffi-
cient self-knowledge to become an effective manager. He should ask him-
self what his own cultural values are and whether his subordinates share
those values. If not, how to create an environment which is conducive to
effective management. This is particularly important to companies in
selecting, training, and motivating expatriate managers for assignments
in India, Philippines, and China. For example, by understanding the pro-
cesses of how people are driven and motivated in a culture, we can gain
important insights into why our subordinates work and react the way
 Determinants of Managerial Performance 69

they do. We can also determine the most effective way to manage employees
who come from diverse cultural backgrounds. Self-enhancement or a
desire to feel good about oneself and the desire to maintain a positive
self-image may be universal. But what is important but less obvious is
that the source of what makes people feel good differs according to their
general cultural value. An American worker may feel that “I have made
it all by myself ” while a Chinese worker may feel that “I couldn’t have
made it without others,” when mesmerizing the joy of achievement.
This information is also valuable for evaluating the performance
of expatriate managers. A thorough understanding of managerial percep-
tions as moderated by cultural differences enables companies to adopt a
more effective global human resource strategy and better prepares an
expatriate upper-level manager for dealing with middle managers in those
countries. The findings suggest that a manager might have to rely more
on his/her leadership ability in India and the Philippines compared to
China to achieve success. On the other hand, while in China he/she may
need to rely more on personal charisma/self confidence compared to in
India or Philippines.
All in all, culture plays an important role in global business, and to
achieve success in cross-cultural management, managers should
understand both themselves and others. This entails understanding one’s
self knowledge and the cultures of those he manages. He must also
understand what constitute effective managerial practices in a particular
cultural context and what is considered acceptable work behavior. The
competitive advantage derived from correctly adapted management prac-
tices comes from appropriate alignment between the external environment
and a firm’s internal strategies, structures, and managerial practices. The
congruence between managerial practices and the national culture is likely
to produce better performance outcomes.
However, limitations of the study should be kept in mind. First, no
direct attempt was made to measure the cultural orientation of individual
managers. Although desirable from a methodological standpoint, it is
considered trite given the large volume of literature attesting to such
differences. This study is based on the a priori assumption that significant
cultural differences exist between the four countries. Yet, future research
may try to measure the cultural orientation of the managers when assess-
ing the influence of culture. Second, only four countries are studied. The
inclusion of more countries is certainly desirable in the quest for better
knowledge of culture’s impact on managerial performance.
70 James P. Neelankavil, Anil Mathur and Yong Zhang

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 Determinants of Managerial Performance 73

Appendix: Items Used To Measure Managerial Performance

1. The ability to lead a group to accomplish a task without arousing hostility

2. The ability to modify approach or behavior tendencies in order to reach a goal
3. The ability to effectively present an oral report to a conference group
4. The ability to effectively express ideas in writing
5. The ability to effectively organize the work effort
6. The ability to effectively plan and follow through on those plans
7. Consistently making decisions in a timely manner
8. The ability to sort out all the relevant facts related to a problem or situation
9. The ability to solve problems effectively
10. The reputation of the college or university where a degree was obtained
11. Level of formal educational achievement in terms of degrees and grades
12. Degree of experience, either on the job or in related jobs or fields
13. A track record of favorable results on previous assignments
14. Degree of self-confidence
15. Level of charisma
16. Level of self-esteem
17. Level of self confidence
18. Having an optimistic outlook on life
 4 India: A Non-Tiger of Asia

Monir Tayeb

Introduction

The newly industrialized countries of Central and South East Asia are
becoming an increasingly competitive and formidable force to be reckoned
with. They have made inroads in the markets which have hitherto been
regarded as the domain of Japanese and Western companies. In the race
to catch up with, and in some cases even to surpass, the advanced indus-
trialized nations, they have left their other fellow Asian countries far
behind, even though at some stage in the race they were all on the same
line. Why didn’t the other runners make it? The present paper takes
India as an example of the non-Tigers of Asia and compares it with the
Tigers in an attempt to start answering this question. In doing so the
paper seeks to understand the “why” of the phenomenon under study,
and is therefore an explanatory paper rather than a prescriptive one.

Competitive Advantage of Nations

We know that nations which succeed in the international market are

those which not only have competitive advantage on certain factors of
production, but also are able to manage these factors in such a way as to
translate their potential advantage to an actual one. This point can
specially be noted in Porter’s seminal study (1990).
In his national “diamond”, Porter considers four sets of conditions/
characteristics as playing determinant roles in a nation’s international
success:
 India: A Non-Tiger of Asia 75

1. Factor conditions. The nation’s position in factors of production,

such as skilled labour or infrastructure, necessary to compete in a
given industry.
2. Demand conditions. The nature of home demand for the industry’s
product or service.
3. Related and supporting industries. The presence or absence in the
nation of supplier industries and related industries that are
internationally competitive.
4. Firm strategy, structure, and rivalry. The conditions in the nation
governing how companies are created, organized, and managed,
and the nature of domestic rivalry.

Porter placed his emphasis on industry advantages, rather than on the

national advantage as a whole. It is argued here, in line with Francis’s
argument (1992), that there are national differences in competitiveness
and not just differences in where competitive advantage lies. None of
the countries that Porter included in his sample was a non-runner. That
is to say, had he included also countries like Pakistan and Bangladesh he
would have observed that these latter nations are not competitive
internationally at any level, be it firm, industry or nation (Tayeb, 1995),
whereas “Porter’s countries” are major players in the international market.
The present paper builds on Porter’s model, by concentrating on a non-
runner country, India. In comparing India with some of the more
successful Asian countries, the paper attempts to explain why she has
not been able to turn her potential competitive advantages into success
in the international market.

National Performance

On nearly every measure of a nation’s well-being, both material and non-

material, India has lagged behind. The latest report by the World Bank
classifies Hong Kong, Singapore, Taiwan and South Korea as high ($7911
or more) and upper-middle ($2556–7910) income nations and India as
a low income one ($635 or less). India, according to the same report
fares poorly on the annual GNP growth rate. Table 1 illustrates the
positions held by these countries.
76 Monir Tayeb

On non-financial measures such as commercial energy consumption

per capita, infant mortality rate, population per physician ratio, and life
expectancy at birth, India has a much worse record than its successful
Asian counterparts.

Table 1: Average Annual Growth Rate of GDP

1970–1980 1980–1990
Hong Kong 9.2 6.9
Singapore 8.3 6.6
South Korea 9.6 9.6
Thailand 7.1 7.9
Malaysia 7.9 5.7
India 3.4 5.4
Indonesia 7.2 5.6
Source: World Bank Development Report, 1993.

In 1991 Singapore’s per capita energy consumption was over 6000 kg

of oil equivalent, Hong Kong’s just over 1400, South Korea’s over 1900,
Malaysia’s over 1000, and India’s was 337. As Table 2 shows these
countries’ records in this respect were, expect for Singapore, very similar
in 1970.

Table 2: Commercial Energy Consumption Per Capita (kg of Oil Equivalent)

1970 1991
Hong Kong 973 1,438
Singapore 3,863 6,178
South Korea 495 1,936
Thailand 150 438
Malaysia 452 1066
India 113 337
Source: World Bank Development Report, 1993.

Table 3 shows that Indian people’s state of health also compares poorly
with that of their fellow Asian nations. Infant mortality rate, life ex-
pectancy at birth and population per physician ratio have improved
greatly for all the nations under consideration, but India’s progress has
been much slower on all these criteria than the other nations over the
period between 1970 and 1991.
 India: A Non-Tiger of Asia 77

Table 3: State of Health

Infant Mortality Life Expectancy

Rate (per 1000 Population Per at Birth (years)
live births) Physician Female Male
1970 1991 1970 1990 1970 1991 1970 1991
Hong Kong 19 7 1510 NA 73 80 67 75
Singapore 20 6 1370 820 70 77 65 72
South Korea 51 16 2220 1370 62 73 58 67
Malaysia 45 15 4310 2700 63 73 60 68
Thailand 73 27 8290 5000 61 72 56 66
India 137 90 4890 2460 49 60 50 60
Source: World Bank Development Report, 1993.

Competitive Advantage in Human Resources

A major production factor which the Asian Tigers have been able to
turn successfully to their competitive advantage is their human resources.
They have done so through the management of this resource at both
firm level, through management styles, and national level, through
government policies, especially education and economic ones. Indeed,
these nations have hardly any natural resources other than their people.
Not surprisingly, the pattern of development in these economies reflected
their competitive advantage in cheap labour.
Typically, rapid growth began in the agricultural economy. Rising
incomes in the countryside created a surplus of investable resources and
a market for domestic manufacturers. The industrial take-off came next,
led by labour-intensive manufacturing. As demand for labour went up,
so did urban and rural wages. The economy began to rise out of poverty.
In other words, a “magic mix” of human resource management and eco-
nomic policies catapulted these nations from a state of underdevelopment
to that of highly competitive players in the international market.
The following sections discuss these two factors, human resources and
government policies, in India and explore the reasons why she was unable
to follow the same pattern as her fellow Asian nations. But let us first
examine in some detail where the Asian Tigers stand on these and other
related factors.
78 Monir Tayeb

The Tigers

The South East Asian Tigers are former LDCs (less-developed countries)
that have achieved their aspirations through mainly export-led develop-
ment and openness to foreign direct investment. These are Hong Kong,
South Korea, Taiwan, Singapore, Indonesia, Thailand, and Malaysia.
They are sometimes referred to as the Asian Dragons, Asian Tigers, and
are included in various combinations in wider regional clusters such as
the Pacific Rim, the Asia–Pacific and the ASEAN.
There were several factors which gave these countries a comparative
advantage in many manufacturing and service areas and contributed to
their spectacular economic take-off. First, they achieved their growth
through export. Taiwan and South Korea, for instance, have few natural
resources, little arable land, and the highest population densities of any
country except for Bangladesh and the city-states of Hong Kong and
Singapore. The one policy that both have pursued is to be export-
orientated. This simply means that they did not handicap their exports
in world markets. Almost all developing countries do this, by bans, quotas
or tariffs on imported goods. One of the disadvantages of trade restriction
is that it both makes the home market more attractive to a would-be
exporter, and also raises the cost of their imported input, so hampering
them if they try to sell abroad.
In partnership with Japan, South Korean and Taiwanese firms have
penetrated new markets. In the period from 1989 to 1990, when the
value of world trade expanded by an annual average of 13%, Thailand
increased its exports by 31%, Malaysia by 23%, and Indonesia by 15%
(The Economist, 8 September 1990).
Second, some, but not all, of the NICs (newly industrialized countries)
adopted an open approach towards foreign direct investment. Unlike
many of the LDCs, they actively encouraged foreign direct investment
without foreign ownership in their economies. Singapore’s offer of gen-
erous tax breaks to foreign investors three decades ago lured major oil
refineries. These have made the country the world’s third largest refining
centre, after Houston and Rotterdam, even though the island republic
produces no petroleum of its own and consumes only 10% of its refinery
output (Time, 30 July 1990). This policy is still pursued to date.
The primary attraction of Thailand, Malaysia and Indonesia for foreign
investors was these countries’ low-cost production sites and highly skilled
 India: A Non-Tiger of Asia 79

workforces. South Korea, however, only recently decided to open up its

territory to foreign direct investment and to allow a very limited entry as
of January 1992. No single investor can hold more than 5% of a South
Korean company, and total foreign ownership in any company is limited
to 10%. Major industries such as steel, electricity and finance are closed to
foreign investors altogether.
Third, cultural, political and economic characteristics, such as a strong
commitment to public education and a neutral role for religion have been
major reasons behind the success of Asian Dragons and their would-be
imitators in the region (Schlossstein, 1991). These countries have a highly
skilled, committed and loyal workforce who are prepared to sacrifice them-
selves for the good of their company to a far greater extent than are their
counterparts in other LDCs (and indeed in Western advanced countries).
As West (1989) puts it,

“East Asia can point with pride to the more accurate measure of economic
vitality, their increasing rates of productivity. Here we confront the East
Asia edge as a reflection not of trade surpluses but of ideas about work,
loyalty to their country, and notions about the future. East Asia cultures
have turned on its head the long-held claim that successful modernization
was somehow linked to the “particularistic” values associated with Western
thought” (p. 5).

Herman Kahn stated it boldly in 1979 when he said the Confucian ethic
was playing a “similar but more spectacular role in the modernization of
East Asia than the Protestant ethic played in Europe” (see also Weber,
1930). These “non-Confucian countries”, Khan added, “now outperform
the West” (quoted in Solomon, 1979, p. 185).
Fourth, as industrialists, these nations are very entrepreneurial, aggres-
sive and competitive, and keep an eye for new opportunities and new
markets. For instance, Thailand, which has the region’s most flexible
and vigorous private sector, was very quick to react to the Persian Gulf
crisis in late 1990 and early 1991. With a characteristically sharp eye for
a good opportunity, the country’s Prime Minister exhorted Thai business-
men to sell fruit juice to Coalition soldiers stationed in the Persian Gulf
(The Economist, 8 September 1990).
Fifth, as late developers, the NICs utilized modern techniques and
high technology in their efforts to pursue their policies and to achieve
their economic objectives. Singapore is typical of the Tigers. Lacking in
80 Monir Tayeb

major natural resources, Singapore must trade to survive. The information

technology industry makes a crucial contribution to those export efforts
and, in the process, it has modernized the entire business infrastructure.
Indeed, Singapore owes its strategic position in the international trading
network to its electronic links to global markets. To capitalize on the full
potential of information technology, Singapore formed a National Com-
puter Board in 1981. Its objective was to establish Singapore as an inter-
national computer software services centre. Singapore has also poured
millions of dollars into its utilities and infrastructure (e.g. modern high-
ways, an excellent underground system) and has underwritten R&D and
office/science parks.
Finally, political stability in these countries in the past three decades
or so has also played a significant role in their economic success. Their
governments have pushed through development policies single-mindedly
and with resistance to special interest groups. Land reforms, for instance,
were carried out in Taiwan by a dictator (Chiang kai Shek), and in South
Korea by a government carried along by a wave of public anger at collab-
orators with the Japanese colonizers.
These countries, even though they have the appearance of a democracy,
and now respect civil liberties, have pursued an authoritarian regime
throughout the period of their industrialization and economic take-off.
It was only in 1987 that the South Korean street riots drove the military
out of office. Taiwan’s gradual political reform started in the early 1980s
and culminated in the end of martial law and a much freer electoral sys-
tem as recently as 1988. Singapore is still a virtual “benign autocracy”. It
is interesting to note that political reforms in these countries began only
after they had achieved a high level of prosperity and growth.

The Non-Tiger—India

India, like many other developing countries which were until a few
decades ago the colonies of major imperial powers, is suspicious of foreign
powers and attempts to avoid domination at all costs. For this reason,
she considers economic growth and industrialization as her top priority,
and is willing to sacrifice everything to this end. But has she been success-
ful? The answer seems to be an emphatic “no”. India has not achieved the
level and growth rate of per capita output that its endowments of produc-
tive inputs and institutions would seem to warrant (Trinque, 1993).
 India: A Non-Tiger of Asia 81

In the 1960s, when India’s approach could still be deemed promising,

its industrial output went up on average by 5.5% a year. Its manufacturing
output (a narrower measure) went up more slowly, at 5.2% a year. By
developed-country standards this looks impressive. At such a rate of
growth, industrial output would double every 12 years. However, by the
standards of India’s Asian neighbours, it was decidedly unimpressive.
Industrial output in Pakistan grew almost twice as fast, at 10.8% a year.
Thailand managed 11.5%, Taiwan 13.2%, and South Korea, 16.5%. In
the 1970s these gaps widened substantially and India fell even further
behind. In the 1980s India’s industrial output grew as quickly as elsewhere
in Asia, thanks to modest liberalizing reforms that began early in the
decade—but it was satisfactory growth from, by then, an anomalously
small base. Judging performance over the past 30 years by the narrow
priorities that India set itself, its development strategy has been an un-
ambiguous failure. Nowhere else, not even in communist China or the
Soviet Union, is the gap between what might have been achieved and
what has been achieved as great as in India (The Economist, 4 May 1991).
Two factors which are arguably most crucial and which have contri-
buted to the economic take-off of the Asian Tigers are their human re-
sources and their economic policies.
The following sections discuss these two factors in India and explore
the reasons why she was unable to follow the same pattern as her fellow
Asian nations. The discussion is summarized in Fig. 1.

Indian Human Resources

The country is rich in human resources, which matter most for economic
advance, as well as other natural resources. A review of the literature on
the Indians show that they are resourceful and hard working, have a keen
sense of responsibility, are thrifty and entrepreneurial, and are ambitious
and materialistic. And as many of us who live in Western societies observe
in our day-to-day life, a vast majority of the Indian immigrants who
have settled in these societies have done very well in various walks of life,
be it academia, business or other professions. As an Indian industrialist
put it “Overseas Indians have successfully faced competition in their
host countries. There is no reason why Indians can’t do the same in their
own country if they are given the same opportunities” (Time, 10 January
1994, p. 27).
82 Monir Tayeb

Figure 1: The Twin Contributions of Human Resource Management

and Government Policies to India’s Position in the
International Market

A likely explanation for why Indian people do not succeed in their

own home country as much as they do abroad, is that India, or rather
her leaders, have systematically mismanaged her valuable, but at the same
time, low-cost human resources.
The extent of employee productivity is one of the criteria by which
one can judge a country’s performance in the management of human re-
sources. Table 4 demonstrates the different rates at which Indian and
South East Asian employees contribute to the economic performance of
their respective countries.

Table 4: Gross Output Per Employee (1980 = 100)

1970 1988 1989 1990

Singapore 73 122 129 135
South Korea 40 177 193 204
Thailand 77 109 112 113
Malaysia 96 NA NA NA
India 83 175 179 NA
Source: World Bank Development Report, 1993.
 India: A Non-Tiger of Asia 83

Human Resources and Educational System

Education, of course, plays a crucial role in the development and manage-

ment of human resources. India has many excellent universities, and one
of the biggest cohort of technically trained manpower in the world.
At the lower end of the system, however, India has done less well.
According to the 1981 census, only 36.17% of the total population of
India are literate. The figure for Malaysia and China is 60% and 70%,
respectively. According to the Financial Times (26 June 1992) India has
highest illiteracy rate in the world. This will, of course, hinder her
economic growth.
The Indian educational system is experiencing several problems. The
basic educational objectives of universal primary education, and equality
of access and expansion of opportunity, which are enshrined in the
Constitution of the country, have yet to be achieved (Mehta, 1989; Rao-
Seshadri, 1993). Out of 179 million children in the age group of 5–14
years—about 27% of the total population in 1981—only 38.45% of
those in the age group of 5–9 years and some 50% in the age group of
10–14 were actually enrolled in schools. It was worse in rural areas where
two in every three children in the age group of 5–9 years and six in every
ten in the age group of 10–14 years were not attending school. Children
of scheduled castes and scheduled tribes, and girls in general were the
worst sufferers (Census of India, 1981).
India’s record in this respect, as Table 5 shows, compares poorly with
her Asian competitors. Moreover, Indian schools are marked by a high
degree of infrastructural constraints. In the mid-1980s (the latest date
for which data are available), of the total number of primary schools in
the country, only 47% were housed in permanent buildings, 59% of the
schools were without drinking water facilities; 85% without a lavatory;
40% without blackboards; 53% without playgrounds and 71% of the
primary schools had no library facilities (Krishna, 1985). Given such
conditions it is not surprising that more than seven out of every ten
children enrolled drop out without completing their schooling (Ministry
of Education, 1985: p. 36). One obvious reason for this state of affairs is
the amount of money that the government is willing or can afford to
spend on education. Table 6 compares India with Asian Tigers; she does
not compare well with them.
84 Monir Tayeb

Table 5: Percentage of Age Group Enrolled in Education

Primary Secondary
1970 1990 1970 1990
Hong Kong 117∗ 106∗ 36 NA
Singapore 105∗ 110∗ 46 69
South Korea 103∗ 108∗ 42 87
Malaysia 87 93 34 56
Thailand 83 85 17 32
India 73 97 26 44
*For some countries with universal primary education, the gross enrollment ratios
may exceed 100% because some pupils are younger or older than the country’s
standard primary school age.
Source: World Bank Development Report, 1993.

Table 6: Central Government Expenditure on Education

(Percentage of Total Expenditure)

1980 1991
Singapore 14.6 19.9
South Korea 17.1 15.8
Thailand 19.8 20.2
India 1.9 2.5
Source: World Bank Development Report, 1993.

Of those Indian children who do get a chance to receive some form of

education, only a small elite gets the best. There are four types of schools
in India: the English style public schools, independent private schools,
state run and controlled schools, and centre schools whose curricula and
administration come under Central Government authority. The first two
categories care for the children of a very small elite and constitute a neg-
ligible percentage of all the schools in the country. They usually provide
the students with a variety of means of learning such as laboratories,
libraries, games and sporting facilities. For the rest of the schools, the
only method of learning, apart from lectures given by teachers, are text-
books whose publication and contents are controlled by the State or
Central governments.
Textbooks have been primarily responsible for killing the interest
of young minds in learning. There is, therefore, no scope for innovation
when children’s studies are confined to textbooks. Another major
 India: A Non-Tiger of Asia 85

characteristic of the system is an emphasis on conformity. The system

does not seem to encourage creativity, self-discovery, curiosity, divergent
opinions, self-expression and reading books other than those related to
school books.
A third major characteristic of the educational system is its tradition-
orientated policies. The emphasis is on learning for certificates and degrees
and not on development of the mind.
As a consequence of the problems which beset the educational system,
as Rao-Seshadri (1993) argues, the general perception of the functioning
of the system is low, as demonstrated by widespread student unrest and
strikes; the level of educated unemployment is high, indicating that the
usefulness of the certification awarded by the system is negligible for
many students; and “brain drain” or the export of Indian-trained scientists
and technicians to the West also continues to be high, which means that
the economic, scientific and industrial climate in India is such that those
who can are choosing to leave.
Some remedies have been adopted by the government in its 5-year
educational plans to improve this situation. (a) There has been increased
investment in education, leading to an impressive expansion in educa-
tional facilities; (b) policies such as reservation of seats, scholarships, etc.
have been adopted to increase participation of women and minorities;
(c) manpower planning and vocational-technical education have been
receiving increased attention in an effort to make education more relevant
to the workplace; (d) privatization of primary education has been sug-
gested in order to elevate the quality of education; and (e) the non-formal
sector is also being encouraged and given more credibility in an effort to
increase access to education (Rao-Seshadri, 1993). The impact of these
plans on the present and future generations of young Indians remains to
be seen.

Management of Cultural Characteristics

India has a complex and varied culture and it is dangerous to talk about
an Indian culture. However, there are certain characteristics that many
researchers and writers on the subject agree are shared by the diverse
peoples of India (Koestler, 1966; Segal, 1971; Parekh, 1974; Mehta,
1989; Tayeb, 1988), such as, arranged marriage, fatalism and expression
of emotions. Of the characteristics which are most held in common by
86 Monir Tayeb

Indian people, collectivism is one which can be readily identified as related

to work organization, and which India shares with the Asian Tigers. It
would therefore be useful to examine how this trait is being managed in
these countries.
South Eastern Asian cultures, as was noted earlier, are characterized by
collectivism. Many writers on cross-cultural management attribute the
hard work and high degree of commitment of the employees in the region
to their collectivism. On the basis of this argument, one would expect
the Indians also show high commitment to and involvement in the inter-
ests of their work organizations. In a survey of a large sample of Indian
employees, Tayeb (1988) found that this was not the case.
The explanation may lie in another aspect of the culture of the country,
i.e. the nature and size of the in-group. An example can clarify this point.
Let us take three cultures, Iran, India, and Japan. These societies are
characterized by, among others, a strong sense of group and community.
A typical Japanese, Indian or Iranian person is very loyal to his or her own
group or team, and places the interest of the group before his or her own
interests. On the face of it, one would expect to see this characteristic—
collectivism—to have been carried over into their work organizations,
in the form of, for instance, hard work and a high degree of commitment,
dedication and emotional attachment to the company. But a closer
examination of societal cultures, employees’ attitudes and values, and
the management structure of work organizations in these countries
(Tayeb, 1979, 1988, 1990) reveals that it is only in Japan that the collect-
ivism of Japanese culture has been carried over into its companies. The
Iranians and Indians as employees are as detached from their work organ-
izations and have as individualistic a relationship with their workplaces
as any individualistic nation.
Now if one goes beyond collectivism and look into the in-groups, the
focus of loyalty and commitment, in these three cultures, one notices
striking differences. In Iran, the in-group consists of the immediate family,
i.e. parents, siblings, spouses and children. In India, the in-group includes
other members of the extended family as well: the grandparents, grand-
children, uncles, aunts, cousins, close friends, and relatives. There are even
different names by which different members of the extended family are
referred to, depending on their age. For instance, the elder brother is dada,
the elder sister is didi and so forth, signifying the importance of each
family member. The workplace does not seem to have any place in Iranian
 India: A Non-Tiger of Asia 87

and Indian in-groups. It belongs to the out-group. One is quite prepared

to put the interest of the in-group above that of the out-group. The em-
ployee’s low commitment to the work organization observed in Iran
(Tayeb, 1979) and India (Tayeb, 1988) and the corruption, which be-
devils Indian public administration (Mehta, 1989), are manifestations
of the position of the workplace within the in-group-out-group division.
In contrast, in Japan one’s workplace appears to be decidedly a part of
one’s in-group, and it is therefore a focus of the employee’s commitment
and loyalty.
It is true that the high degree of employee commitment in Japan and
other South East Asian countries, and the low commitment in India and
Iran have other explanations beside culture (Briggs, 1988; Tayeb, 1988,
1990), but culture plays a significant part.
As mentioned earlier, other characteristics such as resourcefulness, hard
work, risk aversion, and emotional dependence have also been attributed
to Indian people (see for instance Parekh, 1974; Hofstede, 1980; Tayeb,
1988). These characteristics are not unique to the Indians. They can
certainly be attributed to their Central and South East Asian counterparts
as well, among others. But what is interesting to note is that the Japanese
and other Asian Tigers appear to have been able to build on the cultural
characteristics of their people and incorporate them into their organiza-
tional culture: quality circles thrive on collectivism (Tayeb, 1990), ringi
decision making cushions employees against individual risk taking
(Hofstede, 1980), and close management-subordinate relationships
provide an atmosphere of emotional support (Tung, 1984, 1988). Indian
managers do not appear to have succeeded in incorporating the cultural
characteristics of their employees into their organizational culture.

Trade Unions and Industrial Relations

There are no craft unions in India. Trade unions are either plant-based
or national organizations which are run locally in each state and focus
their activities on the interest of their immediate members at the plant
or local industry level. There are provisions for setting up works commit-
tees in factories and workers participation in decision making at shopfloor
and plant levels. However, these committees, and indeed any other form
of workers participation, have not been successful (Chaudhuri, 1981).
There are various acts of Parliament which secure minimum wages,
88 Monir Tayeb

regulation for payment of wages, working conditions, equal remuneration

for men and women and several schemes providing security to the workers
against contingencies, such as industrial accidents. Generally, industrial
relations legislation is pro-worker and aims at protecting their employ-
ment and general well-being. For instance, the regulations are such that
it is virtually impossible for management to sack a worker or reduce his
or her wages even if he or she has seriously breached the terms of their
contract (Tayeb, 1988).
There is obviously a dilemma here. If one continues with the existing
practices, the inevitable result will be inefficiency, overmanning and low
productivity. If one decides to change the rules and, for instance, dismiss
the under-performing worker (more often than not a villager who sends
a large proportion of his wages to his family back home), one deprives not
only the worker of livelihood and means of survival but also his extended
family.
It is also important to mention that, in contrast to the situation in the
Asian Tigers, Indian Industrial relations is prone to conflict (Johri, 1992),
and mistrust and hostility bedevils the relationships between the two
sides of the industry from time to time (Tayeb, 1988).

The Role of the State

Politics

India is sometimes referred to as the world’s largest democracy, unlike

most other developing countries which have centralized non-democratic
governments. The system, however, can more realistically be considered
as a peculiar mixture of ‘democracy’ and ‘non-democracy’.
Take freedom of expression and the party political system, for example.
The All India Radio and Doordarshan (television network) are directly
run and controlled and manipulated by the government. The advent of
satellite and cable television has, however, increased the Indian viewers’
choice and the government-controlled television and radio are having to
adapt to the new circumstances.
Films shown in public movie halls are heavily censored for scenes and
dialogues that the officials consider immoral. Newspapers, however, enjoy
freedom of expression, and criticize government bodies, politicians and
other public figures freely. The Indian press, unlike radio and television,
 India: A Non-Tiger of Asia 89

is not a monolithic body, and represents a wide range of social and political
values and views. Indeed, India is probably the only society outside the
Western world where issues of public importance can still be debated
freely in the press.
Also, there is the Parliament and the party political system, whose
characteristics make them very different from many other democracies,
especially those in Western societies. First, the government machinery is
very centralized and the Centre has far more substantial powers in rela-
tion to the states than exists in any other similar federations (Segal, 1971).
For instance, the central government can declare a state of emergency,
not only in times of war but even to maintain law and order and proper
government in the states, and it can assume extraordinary powers over
constituent states and over individual citizens whose fundamental rights
may be disregarded. Finance is centrally controlled, but agriculture, irri-
gation, power, education, health and road transport are in the hands of
the states which make up the current political and geographical map
of the country.
Second, the opposition has until recently been fragmented into many
small groups. Since independence, virtually only one party, the Congress
Party, has been in power. This dominance of the Congress Party over the
political scene has resulted in an almost single-party system and the elec-
torate is not given a meaningful national choice.
Third, because of the dominance of the government by the Congress
Party, at the time of elections, Congress politicians make extensive use
of government facilities and officials to organize their campaigns and
this puts them at an enormous advantage compared to their financially
and otherwise weaker rival candidates (see for example Segal, 1971; Time,
27 June 1994).
Fourth, the elections are in most cases far from free and fair. Party
workers usually spend a great deal of money and organize lunch and
dinner sessions for villagers or distribute food items among them to induce
them to vote for their candidates. There are also cases of violation of
rules and fraud. The efforts by independent election commissioners in
their fight against such practices has in recent times met with vehement
opposition from the Congress Government and other interested parties.
In a democracy such as this, powerful interest groups such as farmers
in rural areas, the middle classes in towns can and do derail policies
which may otherwise be beneficial to the country as a whole.
90 Monir Tayeb

Compare this with the situation in East Asian Tigers. In considering

the development of political institutions and their role in economic
change and industrialization in East Asia, one of the most crucial features
is the extent to which state agencies and controllers are able and willing
to develop policies independently of powerful economic and social groups
and then have the capacity to implement them (Whitley, 1992). This is
commonly discussed in terms of the “autonomy” of the state to pursue
objectives that do not simply reflect the demands or interests of social
groups, classes or society and have been evaluated in terms of the back-
ground of bureaucratic elite and their ties to the dominant landed, com-
mercial and industrial classes (Skocpol, 1985; Wade, 1990). An important
aspect of state autonomy here is its capacity to implement its policies,
either through direct control of economic institutions and resources or
through indirect manipulation and guidance (Whitley, 1992).
A related significant feature of political system is the overall commit-
ment of the political and bureaucratic elite to state-led industrialization
(Samuels, 1987) and their perception that state legitimacy rests signifi-
cantly upon rapid economic development.
State autonomy, as Whitley (1992) points out, needs to be combined
with a political commitment to economic development led by state in-
stitutions, of course, if it is to play a major role in the industrialization
process and structure the sorts of successful forms of business organization
that develop. This commitment was quite high in Japan, South Korea
and Taiwan for much of the post-war period, although less tied to direct
state control of resources and enterprises in Japan than South Korea and
Taiwan. In Hong Kong, however, it was much more muted and expressed in
relatively indirect ways. Broad elite support for industrialization and eco-
nomic growth here did not imply a leading role for the state.

The Economy

Although India has become an industrial power in its own right (ninth
in the world), agriculture is still the mainstay of its economy—it is by
far the largest single employer in the country and accounts for around
40% of the country’s gross national product (Financial Times, March
24, 1982). Seventy percent of the population still lives in the rural areas
(The Economist, 4 May, 1991).
 India: A Non-Tiger of Asia 91

A major characteristic of all developing countries is the all-pervasive

and crucial role that their governments play in the management of the
economy as well as in politics. Almost all of these countries pursue pro-
tectionist industrial and economic policies. India is no exception.
India’s may be described as a mixed economy with protective inter-
ventionist policies where the private sector is allowed to operate under
governmental guidelines and direct control, and where the government
also owns and manages manufacturing and service industries. Like many
other third world countries, the government’s objectives in economic
planning are mainly: removal of poverty; creation of employment; attain-
ment of self-reliance; reduction of inequalities in income and wealth
(through high taxes and setting a low upper limit for wages and salaries);
and attainment of balanced regional developments.
The government tries to achieve these goals by exerting its hold over
the economy through such means as carrying out 5-year economic plans,
issuing licences for setting up factories, discriminative licensing policies
for different industries according to the country’s needs, giving priorities
to applicants who set up factories in the “centrally noted backward areas”,
strict import control to protect domestic industries, restricting establish-
ment and expansion of capital intensive high technology industries, and
setting up social goals, such as employment and prosperity of backward
areas, before profit for private industries (Mehta, 1982). Although in
the past few years government has eased its hold on the economy, espe-
cially the private sector, and relaxed its import policies, the economic
policy is still highly protectionist and far from being one based on a free
market.
Consequences of a virtually closed and insular economy are enormous,
the most serious of which are the neglect of industrial modernization
and the phenomenon of industrial sickness (Johri, 1992). One mani-
festation of this industrial sickness can be seen in both state-owned and
private organizations. The government’s enterprises are run with extra-
ordinary inefficiency. Various BICP (India’s Bureau of Industrial Costs
and Prices) studies of state-owned steel plants, coal mines, shipyards,
machine-tool factories and so on have found the same management
failures every time: under-use of capacity, poor materials planning,
excessive inventories, egregious over-staffing, obsolete technology, inade-
quate maintenance and inappropriate products. The costs are simply
92 Monir Tayeb

passed on to India’s private sector, in the form of either higher prices

(especially to private industrial customers) or higher taxes.
In the private sector, the restriction on imports and foreign investment
in the name of building up national industries and economic self-reliance,
has resulted in coddled, inefficient enterprises that find it difficult to
compete with the outside world. According to an Indian top trade official,
until recently, India was just off the map as far as world trade and invest-
ment are concerned. The figures back him up: the world’s second most
populous nation accounts for less than 0.5% of global commerce (Time,
10 January 1994). IMF figures available for 1950–1994 show a downward
trend in the period from just over 2% to just over 0.05% of world exports
(The Economist, 21 January 1995). Moreover, because of lack of com-
petition, consumers have a limited choice. There is also no incentive for
producing high quality products.
In a comparative study of English and Indian firms, the author (Tayeb,
1988) found that the English electronics companies which participated
in research had a market share of not larger than 3 or 4%, thanks to their
German, American and Japanese rivals. But their Indian counterparts
had between 50 and 90% share of their domestic market in the absence
of foreign competitors. As a result, the English companies had specialized
departments for R&D in order to meet the challenges posed by their
competitors. But none of the Indian firms felt the need for such a specialist
function. At the most, they would send their senior managers to attend
international exhibitions and conferences in order to learn and come
back with new ideas.
This may be sufficient for a domestic captive market; but it cannot do
for the international market
The protectionist policies of the government have shielded producers
from competition and left them free of any pressure to control costs or
innovate. Protected markets have allowed workers in the large companies
to demand, and receive, high wages. As a result, Indian products cannot
compete in the international market either on quality or on price. The
scene is changing gradually and slowly. Since 1991 the government has
started a process of limited liberalization. Reforms such as the dismantling
of the restrictive import licensing system, removal of many of the barriers
to foreign investment and reductions in tariffs are designed to open up
the Indian economy to overseas trade and investment (Crompton and
 India: A Non-Tiger of Asia 93

Rodriguez, 1992). Until 1992, for instance, foreign firms were not allowed
to control more than 40% of a domestic enterprise; now they may acquire
as much as 51% and, with special government permission, even 100%.
But the government bureaucracy and the private sector vested interests
are slowing the process down.
In 1993 the central government approved $2.5 billion in foreign
investments, including funding for five large power stations, as well as
dozens of $5 million to $10 million investments by foreign companies
seeking to gain toeholds in a potentially lucrative market. Since govern-
ment follow-through remains slow and complicated, however, less than
$450 million of the approved amount has flowed into the country. That
is small change compared with Thailand, for example, which in 1993
attracted $1.5 billion in foreign investment, or China, which got nearly
$20 billion (Time, 10 January 1994).
The businessmen, although understanding the need for liberalization,
seem reluctant to carry it out, as they have a stake in the present system. The
most successful have learned to manipulate the rules and the bureaucrats
in charge, and have invested heavily to that end. Moreover, protection
means less competition and safe profits. Businessmen may be waking up
to what this approach has done to the economy as a whole, but they are
bound to fear that they themselves will lose out if real reform ever happens
(The Economist, 4 May 1991).
There are also oppositions to the government’s economic reform
programmes from trade unions and some politicians (Financial Express,
20 February 1992; Wall Street Journal, Eastern Edition, 17 January 1994).
An active role played by the government in the management of econ-
omy, is not, of course, unique to India. But it is the nature and the direc-
tion that this role takes that make a difference. Whereas India’s policies
in effect encourage inefficiency, and suffocate innovation and compet-
ition, those of its fellow Asian countries achieve quite the opposite.
Taiwan, for instance, had one of the largest public enterprise sectors
outside the Communist bloc and sub-Saharan Africa from the 1950s to
the 1970s (Wade, 1990). According to Whitley (1992), state support and
connections are often a crucial aspect of business activities in South East
Asian societies, particularly in South Korea (Amsden, 1989; Jones and
Sakong, 1980), and form a key component of their dominant business
systems. This support does not, though, usually extend to the granting
94 Monir Tayeb

of monopoly powers or toleration of sustained inefficiency. Rather, it tends

to reward success and punish failure and so “accelerate market forces”
(Abegglen and Stalk, 1985: pp. 136–144).
In South Korea, primarily through credit rationing and control of the
banking system, but also through the tax system, control over licences
and other administrative devices, state agencies have exercised decisive
influence on the strategic choices and investment decisions of the favoured
conglomerates, or chaebol (Amsden, 1989; Jones and Sakong, 1980;
Kim, 1988; Wade, 1990). The oligopolistic pattern of industrial structure
in many heavy manufacturing industries is largely the result of state co-
ordination of economic activities and encouragement of particular devel-
opments. Through cheap loans and other inducements certain chaebol
have been pushed into new sectors of activity, while others have been
discouraged from entering these areas (Zeile, 1989). Generally, the state
ensured that at least two chaebol had firms in each of the new industries
it wanted to develop but restricted the total number to ensure significant
profits and opportunities for expansion.
The Taiwanese state has pursued “developmentalist” policies, in the
sense that it has systematically encouraged industrialization and export
sectors since the 1950s (Cumings, 1987; Gold, 1988; Haggard, 1988).
Tax incentives and selective assistance for exporters have directed entre-
preneurs’ attention to particular sectors, such as plastics and electronics
(Amsden, 1985; Hamilton, 1989; Orru, 1991), and the state has tended
to use public enterprises as the preferred instrument for sector develop-
ment (Whitley, 1992).

Social Welfare Through Economic Policies

India, like many other third world countries, lacks an extensive and well-
developed national welfare state. People largely depend on their families
and other relatives for help when they get old, or are sick or are without
a job. Social issues such as poverty, unemployment and even ethnic
problems are tackled through economic plans via business organizations.
Generally, labour-intensive technologies are encouraged in order
to increase the level of employment. Quotas are set for the companies to
recruit workers from among lower castes and migrants from rural areas.
As was mentioned earlier, all firms, whatever their size, are encouraged
to put themselves in “backward areas”. They are told what to produce
 India: A Non-Tiger of Asia 95

(for example, textile mills had to supply a quota of cheap cloth for the
poor) and, in many cases, how much to charge. Despite various measures
such as tax breaks, cheap credit and subsidies and regulated freight prices,
costs tend to be higher in the backward areas. Unions, protected by
stringent labour laws, keep wages high, and there is high resistance to
job shedding. There are also regulations and measures which make it
almost impossible for managers to sack their manual workers or deduct
from their wages even if they do not carry out their tasks properly.
Partly to avoid making employees redundant and causing their families
to suffer, the protection of inefficient firms has gone to such an extent
that failed (the so-called ‘sick’) firms cannot under existing laws close
down. Most sick firms are kept alive with subsidies, tax relief and credit
extended by the state banks. Nearly 20% of the outstanding loans of
India’s financial institutions are loans to sick enterprises (The Economist,
4 May, 1991).
In spite of the welfare through enterprise and other developmental
policies, successive governments have failed to reduce the widespread
poverty in the country.

Poverty

Since independence in 1947, the Indian state has intervened extensively

in the countryside with a plethora of policy packages in order to promote
rural development, advance social justice and improve the conditions of
the poor. However, the “achievements” of over four decades of such planned
“deliberate development” fall far short of the goals and aspirations. While
relative inequalities have not increased, the conditions of the majority
of the populace has not improved. Today, as much as 45–50% of India’s
populace continue to live under variously drawn poverty lines, a propor-
tion that has not changed in India (Sharma, 1992). Sharma argues that
the roots of poverty are fundamentally political. That is, the poor masses
of the country are effectively disenfranchised when it comes to making
authoritative decisions affecting their plights. In competition over re-
sources and the fruits of development they lose out to dominant interests
because these exercise hegemonic control over the discourse of develop-
ment and its resources, organizations and programmes.
Trinque (1993) sees the poverty as a result of the mismanagement of
the economy. He argues that the country’s disappointing economic
96 Monir Tayeb

performance is the result of economic incentives that bias investments

towards the perpetuation of a relatively stable, slow-growth equilibrium.
Trinque then attributes the long history of slow growth to a relative neg-
lect of agriculture, particularly in the eastern region. This neglect stems
from economic incentives unfavourable to the provision of the necessary
physical infrastructure. Failure to utilize fully India’s agricultural potential
is responsible for the widespread poverty that has hindered the growth
of the country’s other economic sectors.
Whatever reasons one might believe to be behind the massive poverty
in India, the fact remains that it slows down the country’s economic
growth and competitiveness in the international market.

Concluding Remarks

This paper attempted to explore why a country like India, which has
ample natural resources and a reasonably trained low-cost workforce,
has been unable to match the spectacular achievements of some of its
fellow Asian nations, notably the so-called East Asian Tigers. It was dem-
onstrated that on significant indicators of national performance, such as
rate of GDP growth, per capita energy consumption, infant mortality,
life expectancy, and health provisions, India compares poorly with Central
and South Eastern Asian Tigers.
The paper discussed the socio-political, economic and cultural factors
which have played a significant role in the Tigers’ current status in the
international market. India was then compared with these countries. Two
major factors, human resources and the role of the state, were discussed
in detail. It was argued that the country’s human resources have been
mismanaged, thanks to both macro and micro level policies. Education,
politics and economic/trade policies of the government were especially
singled out as areas whose mismanagement contributes most to the
country’s inability to benefit from its potential comparative advantages,
and compete in the international market successfully.
The country has not achieved its aim of providing universal primary
education for its citizens. The system suffers from serious problems, such
as underfunding, poor infrastructure and inadequate teaching practices.
It was also argued that Indian people in general compare equally well
with their fellow Asian counterparts on such work-related cultural char-
acteristics as hard work, entrepreneurial spirit, collectivism and willingness
 India: A Non-Tiger of Asia 97

to accept responsibility. However, the economic, political and business

climate of the country has been unable to provide them with opportunities
to realise their full potential.
The largely insular and protectionist industrial and economic policies
of successive governments since independence are considered to be
responsible for inefficient private and state-owned enterprises and their
lack of competitiveness in domestic and international markets.
Changes are however taking place. A process of restructuring and
reorientating of the educational system is currently underway. There is
also a change of direction on the economic policies front. Privatization
of state-owned enterprises, removal of trade restrictions, and exposure of
domestic firms to competition from foreign firms are gradually taking
place. It remains to be seen how far the reforms will be allowed to progress,
given the immense political will that is needed to accompany it, and the
opposition to it from some quarters.
One thing is clear. These reforms will have major implications for
Indian organizations. They have to adapt to a competitive and changing
market, where customers can no longer be taken for granted. They need
to invest in employee training and in technology in order to improve
their productivity and efficiency. In their attempt to flourish in the new
dynamic market they have to carry their employees with them. A different
style of management-employee relationship is called for, one which will
be based on cooperation and teamwork, instead of hostility and division.
As for foreign firms, India offers new opportunities, albeit not totally
risk-free. Many multinationals have already set up subsidiaries and joint-
venture partnerships there. The future for India is bright, if the oppor-
tunities thus created are utilized and expanded judiciously. If India’s
economic reforms gain strength and turn around the country’s fortune
in the international market, those developing countries which have not
yet done so can take heart and embark upon a similar enterprise.

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 Section Three

MANAGERIAL VALUES
AND
LEADERSHIP

Emerging Trends in Work Values and Leadership in India

Section Three includes three field-based explorations of managerial

conceptualisations of leadership, work-related values and related issues.
In a country where roles, responsibilities and goals of managers are often
intimately linked by tradition, heritage and a strong belief system,
empirical analysis can provide a significant glimpse of workplace re-
orientation of contemporary leadership approaches. In their research on
a comparative perspective of organisational leadership in India, Kakar
and Kakar’s, Kets de Vries and Vrignaud’s perceptions of five leadership
practices, namely, challenging, inspiring, enabling, modelling and en-
couraging are evaluated amongst both CEOs and ‘followers’ in large
organisations where both Indian and Western managerial approaches are
in practice. The chapter examines the extent to which the widely held
‘culturist’ propositions of leadership are still valid in such large and ‘hybrid’
102 Management in India

forms in the corporate context. The interesting conclusion is that in

spite of the global linkages and reorientation of the competitive managerial
mindset, traditional values and idealizations still strongly influence the
domains of leadership behaviour in India
In Chapter Six, espousing work goals and societal value orientations,
Chatterjee and Pearson provide empirical evidence suggesting a strong
convergence of learning orientation and strategic outlook amongst senior
managers while there is a new gap in terms of a diffusion of social vision
amongst corporate leaders, creating a wide chasm between national reform
goals and micro-level managerial visions.
Chapter Seven by Mellahi and Guermat deals with the demographic
variations in managerial values in the Indian context. This is a significant
issue given that 70 per cent of Indians are under the age of 35. The emerg-
ing generational shift in values therefore needs to be considered carefully.
The recent large-scale research in the area of cross-national leadership
and value orientations has been provided by a project called Global
Leadership and Organizational Behavior Effectiveness or GLOBE. The
project involved 200 researchers from 62 countries and underpinned an
exploration into the debate of ‘culturally endorsed’ and ‘universal’ aspects
of values in leadership. The two culturally endorsed attributes that re-
ceived wider acceptance were value-based charismatic and participative
leadership. In terms of societal practices in performance orientation, India
was surprisingly placed with a moderately high score. The scores on future
focus, humane orientation, industrial sector influence all tended to see
the leadership platform in India in a very positive light. There is an im-
plicit thread of leadership and value shift towards more global skills,
cosmopolitanism, inter-cultural dexterity, learning emphasis, commitment
to performance, and future orientation that cuts across the three chapters
in this section.
The focus of this section is to discuss the managerial challenge of
establishing a fine balance of holding on to a long-held traditional value
system while adopting a new layer of values, assumptions and belief
systems necessary to make a mark in a globalising world. The empirical
evidence contained in chapters here point to a clear shift away from a
paternalistic orientation to more thoughtful and inclusive values. The
strong value-based leadership role observed in organisations such as
Infosys has had a strong transformational impact on the managers of
 Managerial Values and Leadership 103

Indian corporations. Such nurturing of leadership can instill not only

world-class quality, excellence and performance, but also a new and
enriching connection between organisations and their people.

Reference

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 Leadership in Indian Organizations from
5 a Comparative Perspective

Sudhir Kakar, Shveta Kakar,

Manfred F.R. Kets de Vries, and Pierre Vrignaud

The proposition that a people’s cultural tradition, comprising beliefs,

values, attitudes, and social practices, strongly influences their behavior
in modern business organizations, thus leading to diversity in manage-
ment around the world, has enjoyed considerable theoretical and empir-
ical support (Haire et al., 1966; Hofstede, 1980; Laurent, 1983; Tayeb,
1988; Lincoln and Kalleberg, 1990; Schneider and Barsoux, 1997). In
the last three decades, this ‘culturalist’ thesis has continued to provide the
dominant paradigm for the study of management and leadership styles
in Indian business organizations (Chakraborty, 1987; Elhance, 1984;
Garg and Parikh, 1995; Kakar, 1971; Singh and Bhandarker, 1990; Sinha,
1972, 1979, 1995; Virmani and Gupta, 1981). According to this para-
digm, there are certain culture-specific expectations, shared by leaders
and followers alike, that arise from socialization patterns within the family
(Garg and Parikh, 1995; Kakar, 1978; Sinha, 1972).
These culture-specific expectations are said to play a significant role
in shaping the context of organizational leadership in India. Among the
patterns that have been identified in the literature, the following are the
most relevant to the present research.

A strong preference for an authoritative (not authoritarian) leader

who is strict, demanding but also caring and nurturing—very much
like the karta, the paternalistic head of the joint family in India.
Sinha (1979) has called this type of leader the ‘nurturant-task’ (NT)
106 Sudhir Kakar et al.

leader, who is strict in getting the task accomplished and tries to

dominate the activities of the subordinates. He is, however, not
authoritarian but nurturant in the sense of functioning as a benevo-
lent guide to the subordinates and taking a personal interest in
their wellbeing and growth. Among the subordinates, on the other
hand, there is a complementary tendency to idealize the leader
and look on him as a repository of all virtues, deserving of faith and
respect. He is thus a role model with many facets—high integrity,
system builder, humane father-figure (Virmani and Gupta, 1981).
The modeling function of leadership, then, has a high salience in
Indian organizations.

The cultural preference for the NT leader is related to a strong
desire for power combined with dependency needs—wishes that
are manifested in a search for proximity to the leader (Nandy and
Kakar, 1980; Sinha, 1972). There is thus a pervasive use of ingrati-
ating behavior towards the leader in Indian organizations, the in-
gratiators tending to exaggerate the power distance, showing their
dependency and thereby seeking to evoke nurturant behavior from
the leader (Pandey, 1981).

There is a tendency to centralize power and control and a high status
orientation (Virmani and Gupta, 1981; Singh and Bhandarker,
1990), making a collaborative team effort difficult—a pattern
further reinforced by difficulties in giving and receiving negative
feedback.

There is a high preference for a personalized mode of relating across
functions and tasks and thus a greater influence of informal net-
works on organizational decision-making (Dayal, 1988; Garg and
Parikh, 1995).

Given the current state of the country’s industrialization and integration

with respect to the global economy, the question arises whether the cul-
turalist thesis is still adequate to explain leadership in Indian organizations.
One need not completely subscribe to its polar opposite, the ‘universalist’
thesis, which argues that since modern organizations are essentially based
on Western technology, the fundamental problems of management are
invariant and independent of the organization’s cultural location (Hickson
and Lammers, 1979; Negandhi, 1979, 1985), to recognize some of the
problems in the culturalist thesis that generally takes a country or nation
 Leadership in Indian Organizations 107

as its unit of culture. In the case of India, the culturalist dilemma may be
posed in the form of a basic question: is there an Indian culture? The
answers to this question have been varied (Ramanujan, 1990). One answer
may state that there is no single Indian culture. There are historically
rooted and contemporary traditions, ancient and modern, rural and
urban. Each regional, linguistic, religious and caste group has its own
culture. A contrary approach may be that under the apparent diversity,
there is a real cultural unity in India that lets us speak of the Indian cul-
ture with some confidence. Another answer may be that what we see of
Indian culture is nothing special to India. It is nothing but pre-industrial,
feudal, agricultural, or whatever other category of social evolution we
might care to use. Others, of course, may argue that mere is a unique
Indian way that imprints and patterns all things that enter the sub-
continent, including modern Western organizational forms.
Apart from the problem of taking India (or any other large, hetero-
geneous country) as a unit of culture, the culturalist paradigm must also
confront the problem of cultural change. In other words, cultures are
not static but dynamic. This is especially true of Indian management
culture which, among all of India’s various cultures, is arguably the most
exposed to forces of modernization and globalization and therefore to
the processes of cultural assimilation, transformation, reassertion and
recreation which, too, are inherent in all cultural encounters.
Perhaps the most important fact, then, that demands a modification
of the culturalist thesis in its original form is the rapid social and economic
change that has taken place in the last three to four decades and which
has recently picked up pace with the liberalization of the Indian economy
and its increasing integration with the global marketplace. This change
has been especially marked in the sub-culture of modern business organ-
izations which have been in close contact with other, chiefly Western,
management cultures through easy access to Western management litera-
ture, joint ventures and participation of Indian managers in management
development programs mounted by local, regional and national chambers
of commerce and management associations and also by the universities.
Depending on the type of modern business organization, one would thus
expect leadership practices, especially of chief executives who are the
most exposed to these influences, to approach closer and closer to those
of their Western colleagues.
108 Sudhir Kakar et al.

From the viewpoint of leadership, modern business organizations in

India can be grouped under four categories. First, there are the subsidiaries
of multinational companies, some of the successors to the British-
managed firms before Independence, which follow the management
practices of their parent organizations. Second, there are the medium to
large firms, family managed, which often have collaborations and joint
ventures with Western (but now also a few Japanese and Korean) com-
panies, where the management style is a ‘hybrid’ (Gopinath, 1998) of
traditional Indian and Western practices. In addition, put into the cat-
egory of ‘hybrid’ are those companies where top management has been
exposed through management training (MBA and advanced management
programs) to Western practices. Third, there are the indigenous firms,
small to medium enterprises, which are family controlled and follow the
traditional Indian, paternalistic management style. And, fourth, there
are the entrepreneurial ventures run by young professionals, many of
them small in size but with a large market capitalization, such as the
ones in the fields of information technology, whose leadership styles have
still to be systematically explored. It is the leadership of the hybrid firm,
where significant changes in the management culture have taken place
in the last two decades, which is the focus of our study.

The Hybrid Firm

The hybrid firm, which dominates the Indian industrial economy today,
is a further development of the private company that was generally owned
and managed by a family belonging to one of the traditional business
communities, notably the Gujaratis, Parsis, Sindhis and Marwaris. The
reason for the domination of these communities was their particularly
high level of internal trust, mutual co-operation and close network of
channels for business, loans, information and other resources (Tinberg,
1979). Homogeneous in their composition of top and middle manage-
ment, the community’s traditional culture and family socialization pat-
terns were particularly salient for a study of its leadership practices.
As some of these family businesses grew and ventured into large-scale,
complex enterprises, often in partnership with Western companies, the
need for professionalization of the organization became imperative, their
leadership now reflecting a juxtaposition of divergent and heterogeneous
elements of two separate cultures (Garg and Parikh, 1995). Many of
 Leadership in Indian Organizations 109

these companies are still not fully professional in the sense that the top
leadership positions, especially that of the CEO, are occupied by members
of the owner’s family. But these family members have almost always been
professionally trained in well-known institutions of higher learning in
India or in universities in Europe, the UK and the US.
Besides the professional qualifications of the top management, another
important change bearing on these firms’ management culture has been
in the composition of their employees, especially at the middle and senior
management levels. Most of these executives come from upper and middle
classes of urban India and do not necessarily belong to the traditional
business community of the owners. Most have also physically grown up
in nuclear families (although they may have been inculcated with the
ideology and values of the extended family). The cultural predispositions
deriving from traditional socialization within the extended family do
not inform their organizational expectations and behavior quite as em-
phatically as postulated by the culturalist thesis. Further, these employees
have also been educated at colleges, universities, and especially institutes
of management set up after the 1960s which have exposed them to
Western management values that may sharply differ from the accepted
Indian cultural values (Boer and van Deventer, 1989).
In spite of these changes in the background and socialization of those
occupying managerial positions in Indian organizations, there is still a
debate on the degree to which an Indian manager is westernized. Whereas
some see increasing convergence of management practices (Filella, 1981;
Das and Manimala, 1993), others believe that this westernization is a sur-
face phenomenon that does not touch the core personality of the Indian
manager who, when push comes to shove, reverts to cultural detours to
get things done (e.g. Sinha, 1995). Yet, whatever the pervasiveness and
dominance of ‘core’ Indian values is in the rest of society, a recent study
of a large sample of senior level managers suggests that such traditional
values as close interpersonal relations at work are increasingly receding
in importance and that ‘there is an emergence of global value paradigms’
(Chatterjee and Pearson, 2000: 94).
The question remains whether the westernization of Indian firms has
a real impact on the leadership practices of the Indian executive. Do the
encroaching Western practices really make a difference? To explore this
question the study reported in this article examines the dimensions on
which the top leadership of modern Indian business organizations, of
110 Sudhir Kakar et al.

the hybrid variety, differs from its Western, chiefly US, counterparts. By
top leadership, we mean the CEOs of individual firms (or their equivalent
in large corporations), a group which is vital for the study of business
leadership but is rarely willing to collaborate in organizational research.
We were thus interested in comparing the leadership practices of Indian
and American CEOs, as described in their direct reports and reports
from their subordinates.

Method

Sample

The Indian part of the study was carried out in the summer of 1999 in
23 family-owned ‘hybrid’ companies based in Delhi, Ahmedabad,
Bombay and Bangalore. Twelve of them were engaged in various forms
of collaboration with Western firms. One hundred and twenty people
were surveyed and interviewed. We collected data from 16 CEOs1 (direct
report), and 104 of their subordinates (observer reports). Each CEO
was described by an average of four observers. The companies were
medium- to large-scale enterprises in different sectors of industry, such
as automotive, textile, chemicals, and computers, with an annual turnover
that ranged from 20 million to 1.1 billion US dollars and a workforce
ranging from 250 to 18,000 employees. Except for two, all the CEOs
were members of the owner families. The average age of the Indian CEOs
was 50 years. All the Indian CEOs were men and came from Punjab,
Delhi, Gujarat, Bengal, Maharashtra, Tamil Nadu, Uttar Pradesh and
Rajasthan.

Measures

For the assessment of leadership practices, each CEO and four to five
senior managers reporting directly to the CEO were asked to complete
the Leadership Practices Inventory (LPI) for that CEO. The LPI, com-
prising 30 descriptive statements, is perhaps the most widely used 360-
degree instrument for leadership evaluation in the organizational world
today. In this instrument, feedback is sought on five leadership practices
which have been identified as common to extraordinary leadership
achievement: challenging the process (also called envisioning), inspiring
 Leadership in Indian Organizations 111

a shared vision (i.e. creating a ‘buy-in’ for the vision), enabling others to
act (i.e. team building), modeling the way (‘walking the talk’), and en-
couraging the heart (giving constructive feedback). We chose to use the
LPI because this instrument is widely used for evaluation of managers.
The sound psychometric properties of the LPI have been proven in large-
scale samples (Posner and Kouzes, 1988, 1993; Kouzes and Posner, 1995).
For their database of 43,899 American managers, including CEOs’ self-
reports (n = 6651), and their subordinates’ reports (n = 37,248), Posner
and Kouzes state that the Cronbach alpha coefficients are respectively
0.81, 0.87, 0.85, 0.81, 0.91 for the five scales: challenging, inspiring,
enabling, modeling, and encouraging (Kouzes and Posner, 1995: 343).
A factor analysis (principal axis factoring followed by varimax rotations)
of the data in this same data base shows that five factors explain 60.5 per-
cent of the variance, and that the saturations of the items on these five
factors are consistent with the five scales of the LPI (Kouzes and Posner,
1995: 344–45).

The Subscales

Each scale is measured by six items that are on a five-point Likert scale
ranging from 1 (= strongly disagree) to 5 (= strongly agree). Therefore
for each scale, the minimum score is six and the maximum 30. Following
are descriptions of the scales, including sample questions.

1. Challenging—six items

I seek out challenging opportunities that test my own skills
and abilities.

I challenge people to try out new and innovative approaches to
their work.
2. Inspiring—six items

I talk about future trends that influence how our work gets
done.

I describe a compelling vision of what our future could be like.
3. Enabling—six items

I develop cooperative relationships among the people I work with.

I actively listen to diverse points of view.
112 Sudhir Kakar et al.

4 Modeling—six items

I set a personal example of what I expect from others.

I follow through on promises and commitments that I make.
5 Encouraging—six items

I praise people for a job well done.

I find ways to celebrate accomplishments.

Such 360-degree instruments are particularly interesting because the

CEOs’ responses can be compared with those of observers. Using the
questionnaire in such a manner, the test-taker not only does a self-
assessment, but also receives feedback from colleagues, subordinates,
superiors, and others who are familiar with his or her leadership style.
Such a feedback process on these various dimensions of leadership will
give the test-taker a more balanced view of how his or her leadership
style is perceived. Note that Kouzes and Posner did not find a significant
difference between ‘self ’ and ‘observer’ responses (Kouzes and Posner,
1995: 345–6).
The LPI has also been shown to be valid for intercultural studies. It
has been successfully used for these kinds of studies both in English (the
language in which the instrument was originally created) as well as in
Spanish and French translations (see a review of this work in Posner and
Kouzes, 1988, 1993; Kouzes and Posner, 1995). These studies did not
show a significant difference between American and European managers,
between Americans and Mexicans, or Americans and French Canadians.
A similar study was done with managers from four Pacific Rim countries
(Korea, the Philippines, Taiwan and Malaysia), and it showed similar
results.

Results and Discussion

Reliability Analysis

Before proceeding with a comparison of averages, we verified the reliability

of the scales by calculating the Cronbach alpha coefficients. The values
of these coefficients are respectively: 0.68, 0.80, 0.81, 0.78 and 0.91 for
the five scales: challenging, inspiring, enabling, modeling, and encour-
aging. These values show an acceptable validity given the small size of
 Leadership in Indian Organizations 113

the data sample; they are in fact similar to the values generally observed
for LPI scales within specific small-scale professional categories (Posner
and Kouzes, 1993; Kouzes and Posner, 1995). We then compared the
averages of the direct reports in our Indian group (‘self ’) with the observer
reports on the five scales; and did not find any significant differences.
We therefore decided to aggregate the data for the responses as a whole.

Comparison of Data on Indian Leaders to the US Norms

In order to test the hypothesis of the existence of cross cultural differences,

we compared the parameters of the Indian sample group with the group
of American managers who made up the population that constituted
the database of Kouzes and Posner’s (1995) validation study for the LPI.
We retained the aggregated data from the direct and observer reports
(n = 43,899).
Table 5.1 shows the results of the subjects in the Indian sample group,
as well as those of the American managers to which they are compared.
The differences in the averages (Table 1) vary from 2.90 to 1.02 in
absolute value. For the dimensions of challenging, inspiring, enabling,
and modeling, the differences are negative (the averages of the Indian
group are higher than those of the American group). On the other hand,
for the dimension of encouraging, we observed a positive difference’ (the
average of the Indian group is lower than that of the American group).
These differences are all significant as assessed by Student’s tests (p<.001).
In order to evaluate the effect size we calculated Cohen’s d (the ratio between
the difference in means and the standard deviation of the reference
population). Based on the levels generally adopted to judge the size of
this effect (Cohen, 1992; Corroyer and Rouanet, 1994), we considered
the differences on the challenging, inspiring and modeling scales to be a
medium-size effect, and the differences on enabling and encouraging to
be a low-size effect (note that the scores of the Indian group are lower
than those of the American norm on this last scale). In sum, the Indian
group is characterized by scores that are higher than the American norm
for the challenging, enabling and modeling dimensions, and lower for
the dimension of encouraging. In their comparison of different groups,
Kouzes and Posner (1995) examined not only differences in averages, but
also the ranking of the dimension averages, which—according to them—
shows the relative importance afforded to leadership in each of these
114 Sudhir Kakar et al.

dimensions. We have observed, from a descriptive point of view only,

that the order of the dimensions in the Indian groups (enabling, modeling,
challenging, inspiring and encouraging) is different than that of the
American group (enabling, challenging, modeling, encouraging, and
inspiring). The organization of the dimensions of leadership in the Indian
group is, therefore, different from the organization of these dimensions
in the American group.

Table 1: LPI Scores as Assessed by Indian and US CEOs and Observers

Indian sample US sample a Difference

LPI Scales Mean SD Mean SD Mean db
Challenging 24.26 3.23 22.38 4.17 –1.88∗∗∗ –0.45
Inspiring 23.38 4.14 20.48 4.90 –2.90∗∗∗ –0.59
Enabling 24.91 3.59 23.89 4.37 –1.02∗∗∗ –0.23
Modeling 24.48 3.58 22.18 4.16 –2.30∗∗∗ –0.55
Encouraging 20.81 5.30 21.89 5.22 1.08∗∗∗ 0.21
a data from LPI validation sample, n = 43,899, Kouznes & Posner (1995: Table A3,
pp. 345–46);
b effect size: d = (mUS – mindian)/SUS; ∗∗∗significant at .001.

Leadership Practices

In comparing the LPIs of the Indian group to the American norm, perhaps
the most surprising finding is that for the top leadership of Indian organ-
izations (as reflected in the assessments of their own and the observers’
reports), scores were higher on all dimensions of leadership except that
of encouraging (see Table 1).
The difference in means is significant and demonstrates a medium-
size effect in favor of the Indian group in three areas. The first is inspiring,
which concerns the leader’s capacity to envision the future and enlist the
support of others. The second is modeling, in which the leader is rated
on his success in building teams, setting clear goals, planning small wins,
setting an example and ensuring that certain values are adhered to in the
organization. The third is challenging, which assesses if the leader is able
to search for opportunities and to experiment and take risks. The differ-
ence in means is significant and demonstrates a low-size effect in favor
of the Indian group in the area of enabling, which measures the leader’s
success in planning, empowerment, delegation, and building trust. The
 Leadership in Indian Organizations 115

high scores of the Indian CEOs on enabling and modeling are consistent
with Singh and Bhandarker’s (1990) study of five Indian ‘transform-
ational’ leaders who were also rated highly on these aspects of leadership.
And last but not least, the difference in means is significant and demon-
strates a low-size effect, but this time against the Indian group for the
dimension of encouraging—which indicates a lower ability of the Indian
CEOs to recognize contributions arid celebrate accomplishments.
We did consider whether or not the fact that the LPI was designed
within an American cultural context would bias our study. The fact that
we observed differences between the Americans and Indians is particularly
interesting in this case, since, as we discussed earlier, previous intercultural
studies using the LPI did not show significant differences. The LPI proved
thereby to be relatively insensitive to cultural context. Also, the majority
of the participants in our study had enough experience in Western busi-
ness organizations to be familiar with the cultural context that frames
the LPI questionnaire.
We acknowledge, however, that this assumption would be strength-
ened by a statistical analysis designed to verify the equivalence of this
instrument in different cultural contexts. (For a review of equivalence
among instruments in cross cultural studies, see Berry et al., 1992; and
for a recent review see Vrignaud, in press.) Unfortunately, the size of our
sample group is too limited for this kind of analysis, as the statistical
methods for identifying culturally biased psychometric instruments, in
particular at the item level, require samples of several hundred subjects.
A more fundamental criticism can be raised about the perspective of
cultural universalism introduced by the use of the LPI as a means of
cross cultural comparison despite the fact that it is based on theoretical
references that are external to the culture being studied. The LPI was
constructed through open-ended questionnaires and interviews of a vast
sample group of managers on best leadership practices. Because the
participants were North American, cultural absolutism was unavoidable.
This type of research could be broadened by interviewing managers
from different cultures, thus adopting a perspective of moderate cultural
relativism. We are currently developing a questionnaire for leadership
evaluation that will take into consideration cross cultural variations (Kets
de Vries et al., 2001).
Another possible explanation for the higher LPI scores of Indian leaders
could be that because of the greater power distance in Indian organizations,
116 Sudhir Kakar et al.

as postulated by the culturalist thesis, senior managers are apprehensive

about criticizing the CEO and thus do not honestly express their true
opinions on the LPI questionnaire. Considering that the difference in
means is not significant between direct and observer reports, which show
the same difference with the US norm, the fear explanation does not
seem very plausible. The perception that the leaders have a tendency to
be authoritarian is also reflected in the Indian leaders’ comparatively low
scores on the encouraging dimension.
Another possible cultural explanation is a widely shared unconscious
tendency among Indian managers to idealize the leader. This would be
consistent with the culturalist postulate that, because of the socialization
pattern in the family, Indians are more inclined to perceive the leader as
a wise, caring, dependable yet demanding father-figure on the model of
the karta of the joint family:

In India, this automatic reverence for superiors is a nearly universal fact.

Leaders at every level of society and politics, but particularly the patriarchal
elders of the extended family and jati [caste] groups, take on an emotional
salience independent of any realistic evaluation of their performance, let
alone acknowledgement of their all too human being. When it comes to
leadership in the larger social institutions of business and government in
India, charisma plays an unusually significant role’ (Kakar, 1978: 138)

If there is an idealization of the leader it is no longer completely blind to

his deficiencies or unmindful of the organizational needs of the sub-
ordinates that the leader does not fulfill. The fact that Indian CEOs still
score significantly higher on the inspiring, modeling, challenging and
enabling aspects of leadership than US CEOs lends further support to
the hypothesis of idealization in the case of the Indian sample. In any
event, whatever the extent of idealization of the leader and its possible
cultural roots, and whatever the unconscious dynamics at work, the higher
LPI ratings of Indian CEOs will normally be interpreted as an indication
that senior managers in India feel more committed and satisfied with
the leadership of their companies than their US counterparts.

Conclusion

Our study of the leadership practices in the ‘hybrid’ form of modern

Indian business organizations shows that, in spite of their extensive ex-
 Leadership in Indian Organizations 117

posure to Western management concepts and practices at a time of India’s

increasing integration with the global economy, the influences of Indian
culture on the senior managers’ perception of top leadership has not dis-
appeared. Consistent with the culturalist postulate, the Indian CEO,
even when criticized as authoritarian in some aspects of his behavior, is
the recipient of greater idealization from the team of senior managers
than is the case with the Western sample. The Indian idealization of the
leader has, of course, certain advantages such as a greater esprit de corps
in the senior management team and in its higher degree of satisfaction
with and commitment to the leadership of the organization. Yet ideal-
ization, that great construct of the imagination which is capable of con-
ceiving with the conviction of a known fact a more perfect and valuable
reality while ensuring that what is idealized is inevitably admired and
held in awe, distorts the perception of the CEO’s leadership. The leader
is thus deprived of the critical feedback from his senior managers that
would help him to eliminate certain dysfunctional behavior while he
develops other, more effective, leadership practices.
Further research on leadership behavior in different cultures will per-
haps have to grapple with the issue of the unit of culture more effectively
than was possible in the present study. Civilizations as units of culture—
Indian and Western—are based primarily on the criteria of political geo-
graphy and secondarily on a common religious and cultural heritage,
Judeo-Christian in the case of the West and (mainly) Hindu in the case
of India. Such large units may be too diffuse and include too much cul-
tural heterogeneity to be optimally useful. The same objections may also
be raised if we take nations as cultural units. Considering that language
is one of the main carriers of a group’s culture, we may need to give lin-
guistic groups greater importance than they have so far received as markers
of cultural identity.

Note

1. In spite of our best efforts, seven CEOs did not fill out the questionnaire, although
we did get observers’ responses for these same CEOs.

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 Work Goals and Societal Value
6 Orientations of Senior Indian Managers:
An Empirical Analysis

Samir R. Chatterjee and Cecil A.L. Pearson

Introduction

Societies in Asia are undergoing considerable transformation with the

increasing dominance of market ideology. The agenda for change in old,
tradition-bound Asian societies, like India, has become critically linked
to the work goals and values of the managerial élite, who have been seen
to be responsible for ensuring the transition. The success of the market-
based transformation in these societies will be an outcome of how deeply
the reform ideology is shared at the managerial level. In spite of the im-
portance of the profound changes in the economic life of these societies,
cultural-based theories have dominated the managerial research frame-
work (Hofstede, 1991; Westwood and Posner, 1997). Until the beginning
of 1990s the managerial value system diversity was considered to be
mostly due to systemic and cultural differentiation, and the researchers
argued that different cultural and social experiences created different
value premisses (Bass et al., 1979; England, 1986; Hofstede, 1980). The
imperatives of market ideology in a strong tradition bound society create
a perplexing array of options for managers in their choice of action frames.
Alleviation of this dilemma requires paradigms beyond the cultural
analyses in understanding specific contexts.
In a survey of over 2,500 managers, in a five-country study, England
(1978) found a high degree of pragmatism amongst the managers in all
countries except India where moralistic emphasis of the managers of the
 Work Goals and Societal Value Orientations 121

1960s and 1970s contrasted sharply with the contemporary management

scene elsewhere. The results of the England study suggested that Indian
managers paid much more importance to organisational stability than
the managers from other countries. For instance, compared with US
managers, Indian managers attached more importance to employee
welfare than to the goal of profit maximisation. England’s findings also
showed that the Indian managers more consistently valued obedience
and conformity and, subsequently, it was contended that Indian managers
were strongly against any value that signified change and innovation
(Sinha, 1990).
Managerial assumptions and values highlighting the country’s long
and complex traditions have mostly been considered by the Indian scholars
(Chakraborty, 1991; Kao et al., 1995; Saha, 1992; Sinha, 1990). Some
general considerations are now being given to the impact of economic
reform on management practices (Gopalan and Rivera, 1997; Monappa
and Engineer, 1999). It is perhaps more important to focus on work goals
that the values generate as the basis of action frame during the rapid re-
form. While managerial values provide the basis for organisational archi-
tecture, work goals tend to provide the action frame by prioritizing the
agendas of managers (Harpaz, 1990; MOW International Research Team,
1987; Pearson and Chatterjee, 1999a; 1999b; Shenkar and Ronen, 1987).
The traditional conceptualisation of work in the Indian context has al-
ways been rooted to the idea of work as a duty (Saha, 1992). However,
in recent decades studies in urban centres have found a displacement of
these traditional values in favour of convergence with market oriented
goals. Recently, for instance, Sinha (1990) reported findings that were
not aligned to this duty orientation. He found, contrary to his expect-
ations, that the individual preference for utilization of competencies,
status and personal growth opportunities was more valued as work goals
than social relations and a sense of duty. These studies provide evidence
that the traditional values of managers in contemporary organisations
are undergoing shifts. The need for balancing economic imperatives with
the traditional societal context is acknowledged as:

It is important that organizations continue to grow and evolve newer

perspectives in terms of their values and redefine their linkages with the
society. In doing so the organisations should acknowledge the emotional
expectations and personal values of the employees which influence their
122 Samir R. Chatterjee and Cecil A.L. Pearson

attitude to work and their behaviours. Unfortunately, these dimensions of

sociocultural reality are either ignored or rarely considered in designing
organisations or in socializing the employees (Prakash, 1995, p. 200).

This paper explores these issues by investigating the changing work goals
of managers as they balance multiple imperatives of reform, tradition,
organisational and personal priorities. The evidence of this paper, which
is based on an empirical survey of senior Indian managers, suggests a
striking shift is taking place in the managerial mindset. A strong inference
of the data is that a considerable number of new imperatives are affecting
the managerial work goals in ways that are leading to more convergence
in managerial values. Significant amongst the findings is that the managers
surveyed strongly expressed preferences for the goal orientations towards
learning and market responsiveness. The learning focus amongst managers
is evidenced across gender, rank, age, education, regional variation and
other related demographic variables. This trend of “a learning goal”, which
is displacing previously held goals of “stability, tradition and security”,
signals the diffusion of reform culture at the micro level. The empirical
evidence also confirms the paradox of the learning value emphasis not
being associated with a clear social goal orientation.

Changing Managerial Work Values

Bass et al. (1979) and England (1978) have provided a seminal framework
of Indian managerial work goals based on their multi-country fieldwork.
Bass and colleagues administered about 5,000 scenarios on budgeting
decisions as a means of interpreting managerial work values. It was re-
ported that pragmatic managers chose not to prioritize such issues as
safety, strike resolution, improvement to workforce morale, an emphasis
on quality or to promote their environmental integrity ahead of budgetary
constraints. This was a surprising revelation as the earlier England studies
had identified Indian managers to be high on moralistic orientations.
The results of the Bass et al. study demonstrate that shifts in managerial
work values were occurring before the launching of the economic reform
program in 1991.
The study reported in this paper addresses the connection between
reform orientations and work goals. Work goal priorities and social ori-
entations link the internal characteristics of an organisation to its broader
 Work Goals and Societal Value Orientations 123

macro context. A number of well-known studies (England, 1978; England

et al., 1974; England and Lee, 1974) have suggested that the work goal
values of Indian managers were more skewed towards organisational
stability, which in turn perpetuated an emphasis on status, hierarchy and
security. In contrast to this view, a number of other authors (Gopalan
and Rivera, 1997; Kao et al., 1995) have indicated strong convergence
of managerial work goals to align more with Western societal contexts.
For instance, in a study of 200 UK and 400 Indian companies, Khan
and Atkinson (1987) found strong similarities of Indian and UK
managers in both recognition of social responsibility and potential gains
in social involvement.
During the 1990s, the reform movement in India affected the senior
managerial cadre in a way very different from the previous decades. Kao
et al. (1995) summarised these emerging trends of social values, work
goals and managerial priorities. They contended, first, a predominance
of hierarchical perspective where juniors yielded to their seniors on all
symbols and values and the seniors reciprocated with patronage and
affection. This is very similar to the “oyabun-kobun” relationship of the
Japanese context. Second, political culture of the organisations was based
on patronage. Third, there was a strong preference for personalised rela-
tionships in the work organisation. Fourth, social networking through
status and role was valued. Fifth, the importance of community orient-
ation was significant. Finally, the general culture promoted a sense of
worldview where work was not considered central to the society. In add-
ition, the concept of “time” did not encourage a sense of urgency.
Given the tumultuous effect of macro-level reform movement of the
1990s, it was felt that such broad transformation of the Indian business
culture can only be confirmed through the shifts in the work goals of
senior decision makers in key sectors of the economy. It has often been
argued that the transformation of the high tech industry in the Bangalore
region has more to do with the managerial values and innovative work
goals than a systematic convergence of competence and infrastructure.
The “greenhouse” effect, which is evident in the emergence of high tech
industry in Bangalore, diamond processing in Western India and similar
other dramatic areas of clear distinctive value shift, provides interesting
examples of new managerial paradigms at work. The managerial work
goal shift needs to be understood against the background of dominant
124 Samir R. Chatterjee and Cecil A.L. Pearson

business family values of key sectors. In a special research survey of 50

top business family values, it was concluded that:

. . . not one of the top 50 business houses is sending out a powerful survival
signal. Only 14 of them display qualities that make for strong—albeit by
no means powerful—survival signals . . . The lessons can hardly be ignored:
for India’s family business groups to survive, unidimensional excellence
will not suffice. Only a leap on to the level occupied by world-class com-
panies on every aspect of performance will ensure survival (Business Today,
1998, p. 21).

This study aims to examine the degree to which such paradigm shifts are
noticeable across the general managerial mental models.

Methodology

Site and Respondents

The study was conducted with senior Indian managers who undertook
management development courses conducted by the Management Centre
for Human Values, Indian Institute of Management, Calcutta. Each of
the study respondents either was a participant of a week-long residential
programme at this most prestigious centre for value studies, or attended
similar courses that were conducted by programme directors, from the
Institute, at other Indian cities. A questionnaire was administered to
most of the respondents by the first author, at the Institute, where he
was the Sir Ratan Tata Visiting Fellow for six months. In most cases
he briefed the participants, and this ensured the very high response rate
of 85 per cent. A total of 421 questionnaires were completed. Generally,
the participants completed the questionnaire on the first day of their
seminar.
Respondent selection was a feature of the study. Most of the study
participants were from public or private sector organizations that had
approached the Indian Institute of Management to provide training in
the area of Indian tradition and values. The increasing pressure of eco-
nomic liberalisation programmes in the Indian workplace has been
recognised by powerful and socially conscious Indian business leaders
who are calling for the integration of the human values paradigm in
Indian business. Some sources (Gopinath, 1996; The Hindu, 1997)
 Work Goals and Societal Value Orientations 125

contend that senior managerial cadre need to re-immerse themselves in

traditional Indian values. Therefore, the sample had an element of self-
selection in terms of the respondents being predisposed to incorporating
value considerations in their managerial outlook.

Measures

The administered questionnaire provided demographic and perceptual

data. The demographic data, which included gender, age, managerial
level, educational qualifications and details about childhood upbringing
as well as residence for the first 25 years of their life, were used to develop
a profile of the managers studied. Demographic detail was also obtained
about the company ownership, main business activity and organisational
size of the respondents.
Perceptions about reform orientations and work goals were provided
by the respondents. To evaluate the manager’s reform orientations a
12-item instrument was designed. These items, which were aimed to cover
concerns fundamental to the Indian worldview, were established after
considerable consultation. To complete the reform value scale managers
were required to rank each item for importance, from the most important
(1) to the least important (12). In addition, 11 facets of work goals were
assessed with an instrument that was employed by Harpaz (1990) in an
extensive international study. The managers were required to rank each
work goal item from most important (1) to least important (11).

Analysis

Frequency tables were employed to show the range of responses for the
421 managers. Means and their standard deviations were computed for
each item, for the two scales of reform orientations and work goals. The
reform orientations and work goal responses data were separately reduced
by appropriate factor analyses. Employing polychoric correlation outputs
the 12 reform items were reduced to five constructs, and the 11 work
goal items were reduced to five variables. The combinations of items for
each construct or variable are shown later in Table 3. The association
for each bivariate pair was estimated with Spearman rho correlations.
These analyses were undertaken with statistical analysis system (SAS)
subroutines.
126 Samir R. Chatterjee and Cecil A.L. Pearson

Results

The demographic profile of the managers studied is shown as Table 1.

These data show that the sample was dominated by senior men who
were mainly employed in large organisations. An unique feature of the
sample is that 70.1 per cent of the managers were employed in senior
managerial positions. A further striking feature of the sample was that
almost 94 per cent of the managers held senior level university qualifi-
cations. Age and managerial level were significantly correlated (r = 0.55,
p < 0.0001). Nearly one half of the managers worked in government
and local government institutions, most of which were involved in finan-
cial activities (e.g. banking, accounting). Almost two-thirds of the study
managers had lived in eastern and northern India for the first 25 years of
their life and there was a strong relationship between the region of their
birth and their vocation (r = 0.22, p < 0.0001). A great number of the
participants were from joint families. From the profile of the managers
(as given by Table 1) it might be predicted that the respondents would
be anchored to traditional values that would encourage the maintenance
of the status quo. However, the data of Table 2 indicate significant
shifts from conventional foundations.
In Table 2 the ranked mean scores and standard deviations for the
reform orientations and work goals are presented. The reform orientations
of the study managers may be partitioned into two distinct sections.
The first section, including work quality, personal integrity, team work,
customer service and social responsibility, can be ascribed to be associated
with features of a market orientated society. The second section, including
workplace harmony, organisational learning, respect for seniority,
innovation and creativity, an ordered relations structure value tradition,
and wealth and material possessions may arguably be linked to a society’s
concept of organisational configuration. In the context of India the data
surprisingly place work quality ahead of all of the other items, which are
commonly stereotyped to have greater priority in the Indian context. In
addition, the low ranking of tradition may also be interpreted to mean a
displacement of tradition in preference to the higher ranked items. In
reality, these data show a paradox amongst Indian managers in balancing
these two sections of reform values. For example, personal integrity could
have been linked to the second section, whereas organisational learning
 Work Goals and Societal Value Orientations 127

Table 1: Demographic Data (%) for the Indian Managers

Percentage
Gender
Male 93.1
Female 6.9
Age
<30 4.7
1–39 16.9
40–49 34.2
>49 44.2
Level
Senior 70.1
Middle 25.4
Junior 4.5
Organisation (ownership)
Government 46.6
National 17.3
Corporate 10.9
International 9.5
Private 7.8
Residence ( first 25 years)
Eastern 34.0
Northern 30.6
Western 17.3
Southern 16.4
Company size
<100 8.6
100–499 11.9
500–1,000 8.8
>1,000 70.7
Education
Postgraduate 55.6
Graduate 38.2
Diploma 6.2
Business (activity)
Finance/banking 41.1
Manufacturing 26.4
Government 11.2
Professional 10.8
Other 10.3
Childhood ( family)
Joint 61.8
Nuclear 31.8
Hostel/boarding 5.7
Other 0.7
Note: n = 421
128 Samir R. Chatterjee and Cecil A.L. Pearson

Table 2: Means and Standard Deviations of Reform Orientations

and Work Goals

Variable Description Mean Std

Reform orientations
Work quality 3.61 2.40
Personal integrity 3.86 3.10
Team work 4.37 2.33
Customer service 4.90 2.98
Social responsibility 5.13 3.00
Workplace harmony 6.57 2.59
Organisational learning 7.16 2.45
Respect for seniority 7.17 2.45
Innovation and creativity 7.29 3.56
Ordered relations structure 8.82 2.72
Value tradition 8.94 3.83
Wealth and material possessions 10.21 2.31
Work goals
Opportunity to learn new things 3.81 2.52
Work that is liked and interesting 4.09 2.74
Job with a variety of tasks and roles 4.33 2.37
Job that is matched abilities/experience 4.75 2.64
Social inter-relationships between colleagues
and supervisors 5.24 2.65
Opportunity to improve and be promoted 5.62 2.59
Autonomy in decision making 6.00 3.25
Good job security 7.16 3.00
A good salary 7.60 2.78
Good physical working conditions 8.69 2.12
Convenient work hours 8.69 2.52
Notes: n = 421. The lower the mean, the higher the perceived level of importance;
Std = Standard deviations of the means

and innovation and creativity could have been associated with the first
section. Such ambivalence points to a definite shift in values and confirms
a transition in the perceptions of reform orientations amongst senior
managers.
The right hand side of Table 2 presents the assessed work goals in
their ranked order of importance. The study managers nominated the
opportunity to learn new things as their most important work goal. The
next three important work goals that were identified by the managers
were strongly associated with elements of enrichment, and the matching
 Work Goals and Societal Value Orientations 129

of their skills and competencies with the workplace dimensional require-

ments. Interestingly, the work goal of good social interpersonal relations
was the fifth most important work goal, yet Indian society is considered
to be a collective community (Hofstede, 1991). The study managers re-
garded physical work conditions and convenient work hours as the least
important of their work goals. Also of low importance was salary and job
security. Not only is this observation at considerable variance with other
international studies (Harpaz, 1990) where salary has always been highly
ranked, but in Indian society the possession of a job and the associated
income are vital. Overall, the findings for the ranked work goals indicate
that the managers realise that their society is in transition and their focus
is more on the attributes needed to be successful in a market economy,
and considerably less importance is attached to the work goals that had
greater relevance prior to the Indian economic reform (England et al.,
1974).
Table 3 reports the significant relationships between the reform
orientation constructs and the work goal variables. The combinations of
reform orientation items that formed the five constructs, and the work
goal items that clustered to form the five variables are shown on the
vertical and horizontal axes respectively. The combinations of the items
are intuitively appealing. For instance, the three items of the reform ori-
entation construct, which was termed work culture, was the summary
of the items of respect for seniority, workplace harmony, and ordered
relationship structure, a set that reflect a socially, stabilising group of
workplace features. Also, the work goal items of learning new things,
interesting work, ability and experience, and promotion suggest a match
of personal attributes that are vital for advancement in contemporary,
dynamic, competitive work settings and this work goal variable was
termed social capital. The combination of the questionnaire items that
formed the five reform orientations constructs and five work goals
variables are shown in the footnotes of Table 3. A total of 52 per cent
(13/25) of the bivariate relationships of these ten constructs variables
were in the range of 5 per cent to 1 per cent level of significance.
Table 3 presents an interesting set of relationships about reform
norms and valued work goals. It is shown that three of the reform orient-
ation constructs, that provide a blend of traditional and contemporary
societal attributes, are strongly linked with three work goal variables that
broadly integrate learning properties as well as context and content
130 Samir R. Chatterjee and Cecil A.L. Pearson

dimensions of current work domains. It is shown in Table 3 that a fourth

reform orientation construct, which includes innovation and wealth
indices, was strongly correlated with work goals with learning dimensions,
convenient work hours and autonomy. A striking observation was that
the relatively important reform orientation of social responsibility was
non-significantly correlated with any of the five work goal variables. An
inference of this finding is that the items developed in the 1980s (MOW
International Research Team, 1987) and used in this study need to be
extended. In order to be relevant to the context-specific issues, newer items
need to be incorporated.

Table 3: Reform Orientations and Work Goal Correlations

Work Goals a
Social Empower- Meaning-
Reform Orientations b Capital Security ment fulness Status
Work culture 226** 277** 216** 007 144**
Market responsiveness 118* 251** 172** 014 062
Competency and character 250** 102* 166** 075 053
Strategic tension 228** 036 111* 188** 093
Social vision 012 026 027 048 002
Notes: a Work goals: social capital (learning, interesting work, ability/experience,
promotion); security (social relations, security, salary); empowerment (con-
venient hours, autonomy); meaningfulness (task variety); status (physical
work conditions)
b Reform orientations: work culture (workplace harmony, ordered relations
structure, respect for seniority); market responsiveness (quality in all work,
customer service, valuing tradition in change); competency and character
(team work, organisational learning, personal integrity); strategic tension
(innovation and creativity, wealth and material possessions); social vision
(social responsibility)
Decimals omitted from correlations. * p < 0.05; ** p < 0.01; n = 421.

Concluding Discussion

The content of Table 3 suggests a strong causal link connecting the work
cultural orientation, market responsiveness orientation and the level of
competency to the goals of building social capital, security and empower-
ing climate in work organisations. It is revealing that the strategic tensions
brought about by the reform imperatives are linked to the meaningfulness
 Work Goals and Societal Value Orientations 131

variables. This may demonstrate that the new outward looking culture
of corporate governance has brought about a mindset reorientation whose
meaningfulness of managerial work life is expressed less through the trad-
itional power relations and more through the strategic arena of the external
context. This new work goal trend is tempered by the predictable link of
status only with the work cultural issues. It is surprising that, in spite of
the data suggesting the meaningfulness of work life deriving from strategic
orientation, the status is still perceived to be strongly defined within the
boundaries of work cultural domain. Perhaps the most striking impli-
cation of the study lies in the area of complete lack of linking to any of
the work goals with the reform orientation of social vision. This disturbing
finding confirms the generally held belief that Indian managers are not
comfortable in the macro-micro boundary relations. This contrasts sharply
with a small transitional society like Mongolia where social vision drives
the micro-level work goals of managers at all levels of corporate life (Pearson
and Chatterjee, 1999b).
The dramatic shift in managerial views about the meaning and import-
ance of work goals is of considerable relevance to the diffusion of macro-
level reform ideology. Observers of Indian corporate functioning tend
to attribute the general lack of systematic reform to an inward looking
tradition bound culture. The study presented here refutes the idea that
financial reward is a significant work goal for senior managers. This con-
trasts sharply with China, where managers attach more importance to
financial rewards. In a four-country study of work goals in Confucian
societies, Shenkar and Ronen (1987) found Chinese managers placing
higher importance on autonomy and a very low importance on promo-
tion. The decades of the party influence obviously devalued the attractive-
ness of promotion as a work or career goal. Instead, Chinese managers
were more eager to obtain role clarity and autonomy in decision making.
International organizations like World Bank, IMF and ADB have been
generally particular in imposing the conditionalities of social orientation
emphasising the environmental domain over the recent years. The find-
ings of this study suggest that such conditionalities have yet to be accepted
as work goals by senior managers in spite of their overwhelming interest
in learning new ideas. In a collectivistic society like India, contrary to
expectations, it appears that managerial values are not necessarily linked
to social visions. The collectivism in the Indian context refers mostly to
family and kinship groups. It does not extend to work organisations auto-
matically. Therefore, organisations need to understand that while India
132 Samir R. Chatterjee and Cecil A.L. Pearson

may have a collectivistic orientation at one level it does not extend to all
situations. The broadening of the corporate performance model needs
to be embedded in the work goal organisations of senior managers in
providing a sustainable future for the reform movement in India (Wartick
and Cochran, 1985; Wartick and Wood, 1998).
The findings presented in this paper are of interest for several reasons.
First, they demonstrate the convergence of traditional and reform values
through a new emphasis on learning. This has significant implications
for management and training approaches in India. It appears that cor-
porate education for the twenty-first century needs to emphasise values
much more than competencies. Second, the findings point to the social
value orientations and contemporary market imperatives in a unique
divergent direction where tradition and modernity have a possibility of
higher ground in the corporate arena. Finally, given the quest of Western
corporate, social and political leaders to know more about the emerging
trends in societies like India, the study results offer some basis for their
understanding. These findings not only have considerable implications
and consequences for Indian society, but also suggest, by inference, present
complex and difficult challenges for any nation undergoing reform.

References and Further Reading

Bass, B.M., Burger, P.C., Doktor, R. and Barrett, G.V. (1979), Assessment of
Managers: An International Comparison, Free Press, New York, NY.
Business Today (1998), “India’s business families: the strategic response”, Special
Anniversary Issue, January/February, p. 1.
Chakraborty, S.K. (1991), Management by Values: Towards Cultural Congruence,
Oxford University Press, Delhi.
Chatterjee, S.R. (1998), “Work-related value orientations of Indian managers: an
empirical investigation”, Monograph, No.6, Management Centre for Human
Values, Indian Institute of Management, Calcutta, Monograph No. 6.
England, G.W. (1978), “Managers and their value systems: a five-country compar-
ative study”, Columbia Journal of World Business, Vol. 13, pp. 33–4.
England, G.W. (1986), “National work meanings and patterns—constraints on
management action”, European Management Journal, Vol. 4 No. 3, pp. 176–84.
England, G.W. and Lee, R. (1974), “The relationship between managerial values
and managerial success in the United States, Japan, India and Australia”, Journal
of Applied Psychology, Vol. 59, pp. 411–19.
England, G.W., Dhingra, OP. and Agarwal, N.C. (1974), The Manager and the Man:
A Cross-Cultural Study of Personal Values, The Kent State University Press, OH.
 Work Goals and Societal Value Orientations 133

Gopalan, S. and Rivera, J.B. (1997), “Gaining perspective on Indian value orient-
ations: implications for expatriate managers”, The International Journal of
Organizational Analysis, Vol. 5 No. 2, pp. 156–79.
Gopinath, C. (1996), “Relevance of Gandhian leadership for business”, available
at: http://www. hindubusinessline.com/bline/1996/09/30/BLFP05.html
Harpaz, I. (1990), “The importance of work goals: an international perspective”,
Journal of International Business Studies, Vol. 21 No. 1, pp. 75–93.
(The) Hindu (1997), “Essentials of an Indian manager”, 30 August, p. 23.
Hofstede, G. (1980), Cultures Consequences: International Differences in Work Related
Values, Sage, Beverly Hills, CA.
Hofstede, G. (1991), Cultures Consequences: Software of the Mind, McGraw-Hill,
London.
Kao, H.S.R., Sinha, D. and Ng, S.H. (Eds) (1995), Effective Organisations and
Social Values, Sage, London.
Khan, A.F. and Atkinson, A. (1987), “Managerial attitudes to social responsibility:
a comparative study in India and Britain” Journal of Business Ethics, Vol. 6 No. 6,
pp. 419–32.
Monappa, A. and Engineer, M. (1999), liberalisation and Human Resource Manage-
ment: Challenge for the Corporations of Tomorrow, Response Books, London.
MOW International Research Team (1987), The Meaning of Working, Academic
Press, New York, NY.
Pearson C.A.L. and Chatterjee, S.R. (1999a), “Work goal characteristics and organ-
isational reform: an empirical study of senior Indian managers”, Asia Pacific
Journal of Economics and Business, Vol. 3 No. 1, pp. 1–28.
Pearson, C.A.L. and Chatterjee, S.R. (1999b), “Work goals in a country in transition:
a case study of Mongolian managers”, International Journal of Manpower, Vol.
20 No. 5/6, pp. 324–33.
Prakash, A. (1995), “Organizational functioning and values in the Indian context”,
in Kao, H.S.R., Sinha, D. and Ng, S.H. (Eds), Effective Organizations and Societal
Values, Sage, New Delhi.
Saha, A. (1992), “Basic human nature in India and its economic consequences”,
International Journal of Sociology and Social Policy, Vol. 12 No. 1/2, pp. 1–50.
Shenkar, O. and Ronen, S. (1987), “Structure and importance of work goals among
managers in the People’s Republic of China”, Academy of Management Journal,
Vol. 30, pp. 564–76.
Sinha, J.B.P. (1990), Work Culture in the Indian Context, Sage, New Delhi.
Wartick, S.L. and Cochran, P.L. (1985), “The evolution of the corporate perform-
ance model”, Academy of Management Review, Vol. 10 No. 4, pp. 758-69.
Warwick, S.L. and Wood, D.J. (1998), International Business and Society, Blackwell,
Oxford.
Westwood, R.L. and Posner, B.Z. (1997), “Managerial values across cultures:
Australia, Hong Kong and United States”, Asia Pacific Journal of Management,
Vol. 14, pp. 31–66.
 Does Age Matter? An Empirical
7 Examination of the Effect of Age on
Managerial Values and Practices in India

Kamel Mellahi and Cherif Guermat

1. Introduction

A growing body of literature indicates that the increasing globalization

of economic transactions in emerging economies since the early 1990s
has been generating new sets of managerial values, especially among young
managers (Birnbaum-More, Wong, & Olve, 1995; Ralston, Carolyn,
Egri, Terpstra, & Yu, 1999; Ralston, Gustafson, Terpstra, & Holt, 1998;
Mellahi, 2000; Viega, Yanouzas, & Buchholtz, 1995). Despite the growth
of empirical research on emerging managerial values of young managers
in emerging economies, research has been criticized for not examining
managerial practices and the impact of managerial values on practices
(Ralston, Holt, Terpstra, & Yu, 1997). Based on a survey of Indian man-
agers, this paper provides an exploratory study into the possible impact
of emerging managerial values in India on managerial practices.
Managerial values are used here to refer to preferences for socially desirable
modes of work behavior (Meglino & Ravlin, 1998; Ravlin & Meglino,
1987, 1989). They are general orientations that can be displayed in work
settings and represent how the work ‘ought to be’ done (Meglino & Ravlin,
1998). ‘Ought to be’ refers here to what the individual thinks is right
rather than what the organization requires. Managerial practices are what
managers do in practice (Hayes, 1999).
The impact of age on managerial values in emerging economies has
been investigated recently by several scholars (Birnbaum-More et al.,
 Does Age Matter? 135

1995; Ralston et al., 1998, 1999; Viega et al., 1995) but has received
scant empirical study. In developed western countries, however, and in
the United States of America in particular, extensive comparative research
has been carried out on the so-called Baby Boomers (born between 1946
and 1964) and Generation X-ers (born mid-1960s till late 1970s) (Smola
& Sutton, 2002). In particular, these studies have looked at the relation-
ship between age, values and behavior and specific attitudes, such as job
satisfaction, commitment, work values, and feeling and behavior toward
authority. In general, research in developed economies demonstrates a sig-
nificant linkage between age, managerial values and practices (Cannon,
1991; Cherrington, Condie, & England, 1979; Kacmar & Ferris, 1989;
Kalleberg & Loscocco, 1983; McEvoy & Cascio, 1989; Rhodes, 1993;
Rosen & Jerdee, 1976; Smola & Sutton, 2002; Tang & Tzeng, 1992;
Zeitz, 1990). The available literature on managerial values and practices
and age provides two important insights. Firstly, there appears to be a
basis for exploring relationships between age and managerial values and
practices. Secondly, there is a lack of research on the impact of age on
managerial values and practices in emerging economies. Thus, an assess-
ment of the impact of age may provide additional understanding into
emerging managerial values and practices in India.
As an initial step towards filling this gap in the literature, we seek in
this study to assess (a) whether old managers perform different levels of
managerial practices, (b) whether old and young managers hold different
managerial values, and (c) whether managerial values have an impact on
managerial practices.
India is chosen for this study for two main reasons. First, since the
announcement of the New Industrial Policy (NIP) in 1991, the Indian
government initiated a number of measures to deregulate the economy
and encourage foreign investment. The latter resulted in increased open-
ness to international trade and capital flows, which could have resulted
in a shift in managerial values and practices. Prior to 1991, foreign firms
were allowed to invest only if they could contribute technology unavail-
able in India. Second, the importance of India in the global and regional
economy is substantial. India attracted more than 75% of the total Foreign
Direct Investment (FDI) inflow to South Asia in 1995. According to
the latest World Bank global debt figures, India attracted $1.2 billion of
the $2 billion in FDI inflows to the region.
136 Kamel Mellahi and Cherif Guermat

2. Research Framework

2.1. Age and Managerial Practices

Situational norms place different demands on people (Cherrington et

al., 1979). Young managers are expected to be under more pressure than
old managers to conform to old management practices for a number of
reasons. First, in a high power distance society, such as India, where re-
spect for elders is highly valued, it is fair to assume that older managers
have more power than younger managers (Hofstede, 1980). Therefore,
younger managers are expected to adjust their practices more than senior
managers to accommodate corporate cultural norms and norms of social
control. We also expect that young managers are likely to adjust and
display their behavior to be more appropriate with the expected social
and managerial norms as set by old managers.
Second, according to Schneider’s (1987) “attraction-selection-attrition”
framework, similarity in attitudes is a major source of attraction between
individuals in organizations. Consequently, managers prefer to recruit,
promote and work with managers who share or appear to share similar
attitudes to theirs. Other managers, lacking or not willing to adopt these
attributes will either be less likely to be recruited and promoted, or, if
selected, will feel pressured to display similar managerial attributes. Thus,
according to the “similarity-selection-attraction” framework, less powerful
people in the organization, if they want to be recruited and promoted to
top management jobs, will try to exhibit similar managerial attributes
by acting and behaving according to what they think powerful managers
expect them to do. The key reference group that could influence decision-
making is likely to be the one that is the most powerful in the organiza-
tion such as the founder (Schein, 1985) or a group of powerful members
(Schneider, 1987). In India, Negandhi (1973) reported that the owners’
and founding families’ authority and influence on the running of the
firm is much higher than what was prevalent in firms operating in western
countries. Conformity pressures such as coercive persuasion exercised by
powerful people can serve to exert a great deal of social influence as young
managers seek inclusion to the power circle.
In India, noting that around 60% of all business activities are con-
ducted by firms that are family owned or family controlled (Ramaswamy,
 Does Age Matter? 137

Veliyath, & Gomes, 2000), managers are appointed, promoted and

rewarded according to their working relationships with the controlling
family. Ramaswamy et al. (2000) found that CEOs in India are invariably
appointed to the post largely on the basis of social connections and often
are members of the inner family circle. Invariably, Indian families prefer
to have someone who shares or appears to share similar values and
attitudes to theirs (Piramal, 1996). This may be due in part to the strong
distrust of outsiders in India. Ramaswamy et al. (2000) noted that by
definition powerful people in Indian organizations seek a direct control
in the running of the company. In addition, the power play in Indian
organizations tends to be very personal, wherein those who are close to
the superior are bestowed with all kinds of favors, while those who are
not, tend to be distanced and discriminated against (Sahay & Walsham,
1997). Roland (1984) described the relationship towards powerful people
in Indian organizations as submissive and accommodating to avoid
conflicts. In a similar vain, Jain and Dwivedi (1990) noted that rules of
paternalism and powerful superiors govern Indian organizations.
Third, socialization researchers argue that, as a result of the socialization
process, managers’ change their behavior according to new work situations
(Van Maanen & Schein, 1979). Socialization involves the long-term in-
ternalization of the values, norms, and culture of an organization (Meek,
1988). When new managers join an organization, they are often thrust
into the social milieu of the organization and exposed to the organization’s
cultural paradigm that assists them in interpreting their work experiences
and guide their behaviors. This experience accompanied by new skills,
behaviors, and attitudes, regularizes managers’ behaviors (DiMaggio &
Powell, 1983). Van Maanen and Schein (1979) note that people must
not only acquire new skills but also adopt the social norms and rules that
govern how they should conduct themselves in new work situations by
conforming to the appropriate mannerisms, attitudes, and social rituals.
Failure to adapt to the work situation not only diminishes one’s effect-
iveness in the new role but may also cause the individual to lose the right
to enact the role (Leary & Kowalski, 1990). In contrast, acting the role
facilitates passage through a firm’s “inclusion boundaries” (Van Maanen
& Schein, 1979).
Young managers therefore are under more pressure than older managers
to adjust their behavior to suit the situation in which they find themselves.
138 Kamel Mellahi and Cherif Guermat

Compared with old managers, they are more concerned about fitting in
and are more willing to go along with expected social norms and behaviors
as set by older managers. In brief, taken together, the above literature
assumes that because young managers’ career prospects and status are
significantly improved by demonstrating conformity and adherence to
the expected appropriate conduct—which is set by the older and most
powerful managers within the organization—they will act according to
what is expected of them regardless of what they think is right. In contrast,
senior managers are less malleable and under less situational pressure to
adjust and expect younger managers to behave in similar ways.
Following the above discussion we hypothesize,

Hypothesis 1: Other things being equal, there is no significant difference

between management practices of young and old managers.

2.2. Age and Managerial Values

Prior to the economic reforms in the early 1990s, India adopted a socialist
socio-economic policy after her independence from Britain. Saha (1992)
noted that the adoption of socialism, which is to a very large extent
compatible with Indian values and norms, aimed to preserve the Indian
social values, norms and values characterized by contentment, absence
of desire, undesirability of material goods, and stability and harmony.
Social relations tend to be hierarchical and people are status conscious,
finding it easier to work in superior–subordinate relationships. Sinha
and Sinha (1990) listed caring for subordinates, showing affection, taking
personal interest in the well being of employees and commitment to
their growth as the key characteristics of Indian managers. England’s
(1978) seminal study found that Indian managers put more emphasis
on organizational stability than their counterparts from other countries;
pay more attention to employee welfare than to the goal of profit maxim-
ization; and value obedience and conformity.
Chatterjee and Pearson (2000) noted that the recent radical economic
reforms and the imperatives of globalization have impacted on Indian
managerial mindsets with a set of new values creating tension between
traditional indigenous Indian values and the new values (hybrid values)
 Does Age Matter? 139

(see also Kao, Sinha, & Ng, 1995; Khandwalla, 1996). They added that
the new emerging generation of managers is influenced to a very large
extent by the market culture and reforms since the early 1990s rather
than the traditional Indian managerial values. They listed “technological
education, consumerism, electronic mass media, trade union culture,
foreign investment, changing infrastructure and urbanization of values”
among the most important factors creating the new changes in values.
Chatterjee and Pearson (2000) noted that recent studies in India observed
a displacement of traditional Indian values in favor of convergence with
market-oriented goals. In a study of young and old Indian managers’
perceptions towards ethical concerns, older managers scored equal or
higher than their younger counterparts in all ethical business practices
(Viswesvaran & Deshpande, 1998: 29). Viswesvaran and Deshpande
(1998) concluded that “the trend observed in age groups reflects changing
value systems” in India.
While personal values such as honesty are less affected by socialization
attempts and pressures because they are more stable over time, and less
susceptible to social influences (Fazio & Zanna, 1981), managerial values
are social-preference values and therefore are highly influenced by social
desirability (Dose, 1997). In India, several writers (see for example
Chakraborty, 1991) noted that the market economy and globalization
imperatives have not affected the core traditional Indian values (deeply
held and widely shared values) but have had a strong impact on situational
values (role dependent values contingent upon situational elements of
macro-environmental policies and corporate culture) and, to a lesser
extent, on individual managerial values (work values, ethical values and
other such values anchored to the core tradition but also in the process
of transition). Similarly, Chatterjee and Pearson (2000) noted that while
the traditional values still dominate the consciousness of the Indian society
and institutions, managers are able to work with global market economy
values such as individualistic values at their individual managerial levels.
Thus,

Hypothesis 2: Other things being equal, there is a significant difference

between the management values of young and old managers.
140 Kamel Mellahi and Cherif Guermat

2.3. The Impact of Managerial Values on Managerial Practices

The above two hypotheses do not examine the possible link between values
and practices. As they stand, the hypotheses cannot confirm whether or
not managerial practices are influenced by management values. All that
these hypotheses tell us is whether old and young managers hold similar
or different managerial values and practices.
There are two main conflicting schools of thought on the effects of
values on managerial behavior. A juxtaposition of the two main bodies
of literature on the determinants of managerial behavior suggests that
the findings are inconsistent. On the one hand, a large number of studies
advocate that managerial practices are a product of managers’ values
(Rokeach, 1973; Schwartz & Bilsky, 1987), and that values have a strong
influence on leadership style (Adler, 1991) and the decision making
process (Ravlin & Meglino, 1987; Rokeach, 1973). On the other hand,
a preponderance of evidence strongly supports the view that managerial
practices are a product of situational factors and not managerial values.
Mintzberg (1973) argues that some managerial tasks and roles are imposed
on managers and not chosen by them. Tsoukas (1994) noted that the
key issue is not what managers want to do, but rather what they are
capable of doing. Similarly, Meglino and Ravlin (1998) noted that values
should have their greatest impact in the absence of strong situational
variables that affect behavior in other ways. Therefore managers might
be acting according to what the situation dictates rather than what they
believe they ought to be doing. Recently, several theorists and researchers
advocated a middle ground. Chatman and Barsade (1995) noted that
several researchers in organizational behavior now accept that behavior
is a function of both personal values and beliefs and the situational char-
acteristics. According to this body of research, values used in the decision
making include not only the personal values of the decision maker, but
also the situation such as the values of those to whom the decision maker
must respond such as powerful people in the organization.
In India, a large body of literature suggests that managerial behaviors
are determined to a very large extent by the situation rather than internal
attributes (Miller, 1984; Sinha & Kanungo, 1997). Miller (1984) noted
that whereas Americans explained others’ behavior predominantly in terms
of traits, Indians explained comparable behaviors in terms of social roles,
obligations, the physical environment, and other contextual factors. Miller’s
 Does Age Matter? 141

work suggests that attributions for social events are largely the product
of culturally instilled belief systems stressing the importance of either
dispositional or situational factors in producing social behavior. Sinha
and Kanungo (1997: 96) attribute the strong influence of situational
factors to the high “context sensitivity” of the Indian culture. Context
sensitivity is “a thinking principle or a mind-set that is cognitive in nature
and determines the adaptive nature of an idea or behavioral context.”
Sinha and Kanungo (1997: 49) noted that “some of the top men in
Indian organizations are not quite consistent in their behavior patterns
and values.” In contrast to western managers who are expected to react
in consistent and individually different ways in different situations, Indian
managers’ reactions depend more on the desh (place), kal (time), and
patra (person) (Sinha & Kanungo, 1997: 96). They noted that “some
behavior that is judged appropriate for a given place, time, and person(s)
may not be appropriate for other times, places and persons.” Similarly,
Gupta, Surie, Javidan, and Chhokar (2002), based on the Globe study
(see Journal of World Business special issue 37(1)) found that significant
differences between what Indian managers do (As Is) and what they
thought they ought to be doing (Should be). To sum up, research on
India indicates that values have little impact on managerial practices.
Thus, the third hypothesis is as follows:

Hypothesis 3: Other things being equal, the values of managers have no

impact on their managerial practices.

3. Research Design and Methodology

The 44 managerial tasks items questionnaire used in this research has

been widely used in developing and emerging economies (see Lubatkin,
Ndiaye, & Vengroff, 1997; Lubatkin & Powell, 1998). The list of man-
agerial tasks are based on the work of Montgomery (1985, 1986), and
has been used for the purpose of hypothesis testing by, among others,
Lubatkin et al. (1997), and Lubatkin and Powell (1998). For an extensive
description of the instrument and its appropriateness in developing and
emerging countries, see Lubatkin et al. (1997). It must be pointed out
however, that the fact that the instrument was not developed specifically
to examine Indian values and practices may fail to capture some idio-
syncratic Indian values and practices.
142 Kamel Mellahi and Cherif Guermat

The difference between young and old managers in attitudes, values

and preferences, and other reactions to their work situations could simply
be the result of spurious effects of other variables that co-vary with age
(Furnham, 1990), thus confounding the comparisons. Consequently,
we controlled statistically for the effect of such variables. Specifically, we
used a stratified sampling design consisting of Indian top managers, two
sectors of activity, both genders, and age to draw inferences about the
validity of the proposed hypotheses. Furthermore, all participating com-
panies were small or medium size firms (SMEs), thus, size was excluded
from the analysis. We identify small firms as firms employing no more
than 100 employees and medium firms as firms employing no more than
250 employees. The research excluded micro firm (very small firms) that
employed less than 50 employees. We deliberately avoided adopting the
official definitions of SMEs proposed by official Indian bodies such as
the Industry Policy Statement of 1990 (see Datt & Sundharam, 2000:
615, for the a review of the different official definitions of small firms in
India). Official definitions do not fit with the aim of this study because
they are developed to serve administrative purposes such as helping SMEs
to have access to financing from institutional bodies. We selected SMEs
for two reasons. First, SMEs are now the driving force behind a substantial
share of export growth and future economic prosperity in India (Datt &
Sundharam, 2000: 616) and other emerging economies (OECD, 1997;
United Nations, 1993). The nature of SMEs activities has also changed.
Datt and Sundharam (2000: 616–17) report that in India the sector
has progressed from “the production of simple consumer goods to the
manufacturing of many sophisticated and precision products like elec-
tronics control systems, micro-wave components, electro-medical equip-
ment, TV sets, etc.” Second, most SMEs have a flat structure and it is
likely that individual managers hold multiple positions and roles. Being
generalists, SME managers often deal with several management functions.
Given that managers’ functional experiences are one of the most import-
ant background characteristics that affect managers’ values and practices
(Hambrick & Mason, 1984), using SMEs is expected to limit the impact
of functional variations and different positions on managerial values and
practices.
We categorized managers into two different generation–age groups.
Generation is defined as “an identifiable group that shares birth years,
age location, and significant life events at critical development stages”
 Does Age Matter? 143

(Smola & Sutton, 2002: 364). We used an age of 40 years as the cutoff
point between older and younger managers for two main reasons. First,
we took into consideration the liberalization of the Indian economy as
the key factor for differentiation between pre-liberalization (old) and
post liberalization managers (young) (Gopalan & Rivera, 1997). There-
fore, assuming that most people join the world of management in their
30s, most people who entered the world of work after the liberalization
of the Indian economy, which took place in 1991, are less than 40 years
old. Second, the previous research that examined age differences tend to
use the age of 40 as the cutoff between the two age groups (see Ruegger
& King, 1992).
We use the perceptions and attitudes of Indian managers about their
employment situation as a means of measuring managerial practices and
values. Specifically, respondents were asked how frequently they engaged
in each of the 44 managerial routines on a 3-point scale (low, medium,
and high). The resulting 44 items reflect the perception of Indian man-
agers on how things “are or appear to be” (Lubatkin et al., 1997). These
are used as a proxy for managerial practices. Respondents were also asked
how frequently they believe they “ought or they think it’s right” to be
engaged in the 44 managerial practices. These responses are also measured
on a 3-point scale (low, medium, and high) and are used as a proxy for
managerial values. This method is similar to the Globe method used by
investigating “as is” to represent what leaders do and “should be” to what
they think they ought to be doing (Gupta et al., 2002).
The survey was conducted in English, which is a commonly used
business language in the three cities targeted for this research (Bombay,
Delhi, and Calcutta). Given the low response rate for postal surveys in
India (Sharma, 1992), we used a network of Indian managers to obtain
a larger sample. Eight Indian managers filled in the questionnaire and
agreed to distribute the questionnaire to top managers in their respective
region. The eight managers were used as pilots to make sure the items
are clear and reflect what Indian managers do. The 44 skill items were
mailed to the eight managers in early 1999 and all responses were obtained
by summer 1999. A total of 104 usable responses were obtained.
In this research, we adopt the Probit methodology. Probit models are
specifically suited for limited dependent variables. Suppose we are
measuring a variable by two states: high and low. Let yi = 1 when the ith
individual’s response is high and yi = 0 otherwise. Suppose also that the
144 Kamel Mellahi and Cherif Guermat

variable may be influenced by two factors, x and z. The Probit model

then consists of estimating a model, using maximum likelihood, based
on the utility index given by

Ii = β0 + β1xi + β2zi (1)

where Ii is the utility index. The probability of a positive response (in

this case ‘high’, i.e., yi = 1) is given by F(Ii) where F is the Normal cumu-
lative distribution function. A significant slope parameter (that is either
β1 or β2 in model (1)) would indicate a significant influence of a particular
variable on the respondent’s response.
The binomial Probit is readily generalized to an ordered Probit, which
models variables with more than two states. Suppose we have three states:
low (yi = 0), average (yi = 1), and high (yi = 2). The Probit model now
involves one additional parameter, µ, called the threshold parameter.
Thus we have the utility index given by

Ii = β0 + β1xi + β2zi (2)

and we observe

yi = 0 if Ii ≤ 0;
yi = 1 if 0 < Ii ≤ µ; and
yi = 2 if µ < Ii

The probabilities are given by:

P(yi = 0) = 1 – F(Ii);
P(yi = 1) = F(µ – Ii) – F(–Ii);
P(yi = 2) = 1 – F(µ – Ii)

3.1. Model Considerations

The two main variables considered in this paper are managerial practices
and managerial values. Each variable is represented by 44 questionnaire
items, and the interest is centered on the impact of age and other
independent variables on these 44 items jointly rather than individually.
 Does Age Matter? 145

The technique for estimating two-dimensional relationships is called panel

data. The advantages of panel data models are discussed in Baltagi (2001).
In panel data the variability of a given variable is measured in two dimen-
sions, the time and the cross-section dimensions. In the present paper
we also have two dimensions, but with the difference that the time dimen-
sion is replaced with the ‘item’ dimension. Thus, by using the panel data
approach we can obtain an ‘average’ effect that takes into account both
the respondent effect (cross-section dimension) and the item effect.
Ideally, one would pool the 44 questionnaire items in a single model
of panel data. However, the 44 items may reflect practices that do not
exhibit the same pattern. Thus, pooling them is problematic. Usually, in
panel data models, heterogeneity is dealt with by using a fixed effect or a
random effect model, and even this would only be applied on the intercept
term. In Probit models, this becomes more complicated, even for the in-
tercept fixed or random effect (Hartzel, Agresti, & Caffo, 2001). One way
of resolving this heterogeneity of items is to derive their dimensions and
cluster them into homogenous clusters.1 Factor analysis is therefore used
to obtain the latent dimensions generating the 44 items, and these dimen-
sions are the basis for clustering items into distinct types of practice. By
using this procedure, the items within each dimension are homogenous
enough to justify pooling the data in a single panel model.
Factor analysis of managerial practices resulted in four significant
factors or dimensions, explaining a total of 99.56% of the total variation
in the 44 items. The four factors explained 44.92%, 23.84%, 17.87%,
and 12.91% of the variation, respectively. The factors were then optimized
using the Quartimax rotation method. This rotation method minimizes
the number of factors that explain each variable, which helps us identify
which item belongs to which dimension.
Table 1 presents the four dimensions and their loadings, or impact,
on the 44 items. In deciding which items belong to which dimension, the
highest loadings were used. Although the majority of items have positive
loadings, some do have negative ones. A negative loading suggests that
the item in question is negatively related to the dimension and, thus, has
a different direction compared with other positively loaded items. For
example, a manager who thinks of himself or herself as having a strategic
role would have positive loadings for strategic tasks such as item 25—
“anticipating local conditions” and negative loadings for operational tasks
such as item 41—“using technical skills in unit operations.” The latter
146 Kamel Mellahi and Cherif Guermat

Table 1: Managerial Practice Dimensions: What Managers “Do”

Loading
Dimension 1: Strategic and Operational Tasks
1 Promoting a positive image of the organization 0.898
4 Supervising subordinates while recognizing their individuality 0.815
5 Determining priorities on assigned tasks 0.954
6 Recruiting employees 0.936
8 Delegating authority to subordinates 0.898
17 Monitoring the impact of programs/projects on local and
national level 0.815
18 Adjusting implementation actions as needed 0.756
21 Ensuring the timely and accurate flow of information 0.815
22 Conveying organizational goals to the outside world 0.936
23 Analyzing policy options 0.839
24 Setting goals for an organization or unit(s) 0.946
25 Anticipating local conditions and structures programs
accordingly 0.946
26 Structuring programs/projects to reflect national or corporate
goals 0.941
27 Trying new ways to improve performance or sole problems 0.905
36 Applying detailed rules and regulations relevant to unit operations 0.839
38 Identifying key aspects of an issue for the purpose of decision-
making 0.756
39 Using time effectively 0.967
42 Considering organizational directions in light of economic trends 0.939
43 Analyzing data 0.807
19 Organizing the acquisition of goods and services in a timely
fashion –0.898
41 Using technical skills (other than administrative) in unit
operations –0.868
Dimension 2: HR and Stakeholders Tasks
11 Make sure that you are followed and listened to by subordinates 0.813
12 Managing conflicts and competition within a unit or organization 0.698
14 Developing good working relationship with the local community 0.776
20 Writing clear and concise official reports 0.705
34 Negotiating with representatives of other organizations 0.950
10 Coordinating among individuals and/or organizational units –0.962
15 Keeping accurate records of financial transactions –0.950
16 Handling contracts for goods, services and labor –0.902
30 Organizing resources and services to minimize operating costs –0.851
31 Handling monetary resources to stay within projected costs –0.950
33 Negotiating intra-organizational differences –0.954
(Table 1 contd.)
 Does Age Matter? 147

(Table 1 contd.)
Loading
Dimension 3: Management of Internal and External Partnerships
2 Dealing with politicians 0.870
3 Involved in local social activities 0.826
7 Encouraging subordinates to perform effectively 0.819
9 Organizing training in order to correct detected deficiencies 0.712
28 Detecting and resolves situations where individuals violate goals
or rules 0.883
32 Managing resources efficiently to transform project inputs
into outputs 0.660
40 Planning specific tasks to achieve assigned goal –0.887
44 Initiating actions –0.870
Dimension 4: Public Relations
13 Maintaining cordial relationships between organizations 0.690
35 Negotiating with representatives of foreign organizations 0.853
29 Coping with unexpected conditions and events –0.747
37 Using extralegal means to meet objectives –0.870

item is not compatible with strategic roles of managers. Thus, the more
s/he believes that his or her roles should be involved in strategic roles the
less s/he is expected to carry out operational roles such as item 41.
It is therefore necessary to pool items of the same sign together within
each dimension. As can be seen from Table 1, most loadings for the first
dimension are high and positive and only two items have negative load-
ings. In the second dimension there are six negative items and only five
positive items. Dimensions 3 and 4 have a total of eight and four items,
respectively, two of which are negative.
Each dimension is named on the basis of its constituent items, namely
Strategic and Operational Tasks (SOT), Human Resources and Stake-
holders Tasks (HRST), Management of Internal and External Partnerships
(MIEP), and Public Relations (PR), respectively. The first two dimensions
are clearly the most important, accounting for 32 items between them.
Since managerial values do not necessarily stem from the same
underlying process of managerial practices, extracting the dimensions of
values is also required. Thus, factor analysis was carried out on managerial
values, resulting in four significant dimensions. These four dimensions
explain almost 100% of the total variation in the 44 items. The four
factors explained 43.25%, 26.92%, 17.88%, and 11.94% of the
148 Kamel Mellahi and Cherif Guermat

variation, respectively. The Quartimax method was also used to optimize

the factors.
Table 2 lists the four dimensions together with their respective value
items and their loadings. It is quite obvious that managerial values have
different dimensions from managerial practices. First, there are only
3 negative items compared with 12 in managerial practices. Second,
managerial values share only a few items with managerial practices. These
are shown in bold and underlined in Table 2. The distribution of items
over the four dimensions in Table 2 does not make it easy to interpret
these four dimensions. However, based on the majority of items within
each dimension, we named the dimensions as Practicing Thoroughness
(PT), Social Recognition and Strategic Control (SRSC), Influencing,
Negotiating, and Conflict Solving (INCS), and Sense of Financial Control
(SFC), respectively.

Table 2: Managerial Value Dimensions:

What Managers Think they “Ought” to be Doing

Loading
Dimension 1: Practicing Thoroughness
1 Promoting a positive image of the organization 0.903
5 Determining priorities on assigned tasks 0.936
20 Writing clear and concise official reports 0.947
27 Trying new ways to improve performance or solve problems 0.909
30 Organizing resources and services to minimize operating costs 0.946
38 Identifying key aspects of an issue for the purpose of
decision-making 0.994
39 Using time effectively 0.950
43 Analyzing data 0.952
Dimension 2: Social Recognition and Strategic Control
3 Involved in local social activities 0.916
6 Recruiting employees 0.904
8 Delegating authority to subordinates 0.882
14 Developing good working relationship with the local community 0.926
16 Handling contracts for goods, services and labor 0.856
17 Monitoring the impact of programs/projects on local and
national level 0.676
23 Analyzing policy options 0.668
24 Setting goals for an organization or unit(s) 0.848
25 Anticipating local conditions and structures programs accordingly 0.946
(Table 2 contd.)
 Does Age Matter? 149

(Table 2 contd.)

Loading
26 Structuring programs/projects to reflect national or corporate goals 0.919
36 Applying detailed rules and regulations relevant to unit operations 0.766
42 Considering organizational directions in light of economic trends 0.728
44 Initiating actions 0.884
34 Negotiating with representatives of other organizations –0.637
Dimension 3: Influencing, Negotiating, and Conflict Solving
2 Dealing with politicians 0.856
7 Encouraging subordinates to perform effectively 0.892
9 Organizing training in order to correct detected deficiencies 0.715
28 Detecting and resolving situations where individuals violate
goals or rules 0.904
41 Using technical skills (other than administrative) in unit operations 0.670
12 Managing conflicts and competition within a unit or organization –0.710
37 Using extralegal means to meet objectives –0.889
Dimension 4: Sense of Financial Control
15 Keeping accurate records of financial transactions 0.949
19 Organizing the acquisition of goods and services in a timely fashion 0.596
22 Conveying organizational goals to the outside world 0.833
31 Handling monetary resources to stay within projected costs 0.783
32 Managing resources efficiently to transform project inputs into
outputs 0.861

Thus, we require separate Probit models for each dimension and for
both positively and negatively loaded items. Within each cluster (dimen-
sion/sign), the items are likely to be homogenous and can therefore be
pooled together without the need for fixed or random effect. Thus, the
panel-Probit model will consider the dependent variable yij for i = 1, 104
respondents, and j = 1, N items. For managerial practices, N = 19+ and
2–, 5+ and 6–, 6+ and 2–, and 2+ and 2– for Dimensions 1 to 4, respectively.
The superscripts represent positively and negatively loaded items. For
managerial values, N = 18+ and 0–, 13+ and 1–, 5+ and 2–, and 5+ and 0–
for Dimensions 1 to 4, respectively.
The “managerial practices” items consist of practices coded as 0, 1,
and 2 for ‘low,’ ‘average,’ and ‘high’ level of practice, respectively. These
are labeled as low level practice (LLP), average level practice (ALP), and
high level practice (HLP). The “managerial values” items are coded in a
similar way. The labels are low level value (LLV), average level value
(ALV), and high level value (HLV).
150 Kamel Mellahi and Cherif Guermat

There are three independent variables, namely age, gender, and sector.
These are represented by dummies taking the value of one for old
managers, males and the industry sector, respectively, and zero otherwise.
The panel-Probit models are estimated by nonlinear maximum
likelihood, using the BFGS algorithm (Press, Flannery, Teukolsky &
Vettering, 1988). The general form of the estimated model is given in
Eq. (3) for the utility index 1 representing the utility for higher response
(practice or value).

I = β0 + β1 Age + β2 Gender + β3 Sector (3)

The interpretation of the model is straightforward. For example, if β1

is statistically insignificant then we would conclude that there is no
difference between young and old managers and that age has no impact
on the dependent variable (managerial practices or managerial values).
The coefficients are tested using individual t-statistics.

4. Results

4.1. Managerial Practices

The estimation results for the four clusters of practice are presented in
Table 3. The table shows the estimated values of the betas and the
t-values (in parentheses) for the utility Eq. (3). Each dimension is repre-
sented by two models, one for the positively loaded items and one for
the negatively loaded items. As expected, the coefficients of age, gender
and sector in the two models have opposite signs in all cases. We will
therefore mainly focus on the results for positive items since higher
‘positive’ practices imply lower ‘negative’ practices. We use a superscript,
for example SOT+, to indicate positive practices. Also, note that since all
independent variables are dummy variables, their relative influence on
the utility index, and thus on the probability of a particular response,
can be compared directly.
In the first, third, and fourth dimensions, the slopes for age are highly
significant and positive for positive items. This means that older managers
have on average significantly different SOT, MIEP and PR practices.
For the last two dimensions, the impact of age is similar for positive and
negative practices, but for the SOT dimension the impact of age is by far
 Table 3: Probit Estimation Results for the Panel Model
of Managerial Practices

Dimension Items Threshold Intercept Age Gender Sector

SOT Positive (19) 1.83 (31.77) –1.01 (–13.25) 0.61 (7.67) –0.76 (–11.68) 3.31 (32.90)
Negative (2) 9.69 (34.18) 15.24 (29.27) –4.93 (–23.31) –a –5.53 (–32.75)
HRST Positive (5) 5.21 (5.38) –0.84 (–6.93) –5.10 (–5.79) –0.56 (–4.46) 6.83 (7.23)
Negative (6) 5.87 (2.54) 6.31 (2.69) 10.46 (2.50) 0.77 (7.53) –5.83 (–2.43)
MIEP Positive (6) 1.22 (14.37) –0.77 (–7.96) 1.46 (8.51) 2.48 (14.83) –a
Negative (2) 5.07 (7.27) 6.63 (13.88) –1.43 (–4.59) –1.96 (–7.70) –a
PR Positive (2) 1.26 (12.11) 0.41 (2.52) 0.94 (4.58) 1.22 (6.32) –a
Does Age Matter?

Negative (2) 0.37 (6.37) 0.78 (4.59) –0.57 (–2.34) –0.51 (–2.64) –a
SOT: Strategic and Operational Tasks; HRST: Human Resources and Stakeholders Tasks; MIEP: Management of Internal and External
Partnerships; PR: Public Relations.
a Parameter insignificant at the 5% level.
151
152 Kamel Mellahi and Cherif Guermat

greater on the negative items. Thus, the results suggest that age has a
statistically significant impact on managerial practices. Indeed, all age
coefficients are highly significant, which rejects our first hypothesis of
no difference between management practices of young and old managers.

4.2. Managerial Values

A model similar to Eq. (3) was fitted using the value items. The clustering
derived in Table 2 is used in the estimation. Because there are only three
negative items in total, including two dimensions having no negative
items, it was decided to ignore the negative cases. Table 4 presents the
estimation results for the four dimensions.
As with managerial practices, the four dimensions show different pat-
terns. More specifically, age has a positive impact in the first and third
dimensions, but a negative impact in the second and fourth dimensions.
Thus, while older managers put significantly stronger emphasis on
Dimension 1 (Practicing Thoroughness) and Dimension 3 (Influencing,
Negotiating, and Conflict Solving) values than younger managers, younger
managers put significantly higher emphasis on Dimension 2 (Social
Recognition and Strategic Control) and Dimension 4 (Sense of Financial
Control) values (see Tables 2 and 4). Gender has an identical impact to
that of age (males put more emphasis on PT and INCS, but less on SRSC
and SFC). Finally, managers in the industry sector have higher levels of
values in three out of four dimensions (PT, SRSC, and SFC).
The above findings confirm our second prediction that there is a signifi-
cant difference between the management values of young and old
managers. Older managers put more emphasis on 23 values, while
younger managers put more emphasis on 18 different values. Thus, as
with managerial practices, older and young managers emphasize different
sets of values.

4.3. The Effect of Managerial Values on Managerial Practice

In this section, we assess whether managerial values have any significant

impact on managerial practices. We have already seen that, as dependent
variables, both practices and values are explained by age and other situ-
ational variables. One remaining question is therefore whether values
have any additional information content to improve the explanation of
 Table 4: Probit Estimation Results for the Panel Model of Managerial Values

Dimension Threshold Intercept Age Gender Sector

PT (18) 0.63 (18.31) –1.28 (–14.64) 0.47 (5.06) 0.20 (2.88) 2.49 (24.92)
SRSC (13) 1.18 (24.04) –a –0.48 (–4.23) –2.03 (–17.56) 1.69 (15.80)
INCS (5) 0.17 (5.84) –0.39 (–4.87) 1.50 (9.65) 0.62 (4.87) –0.17 (–6.46)
SFC (5) 0.50 (10.07) –0.68 (–4.33) –1.01 (–6.53) –1.36 (–9.16) 2.83 (14.56)
PT: Practicing Thoroughness; SRSC: Social Recognition and Strategic Control; INCS: Influencing, Negotiating, and Conflict Solving;
Does Age Matter?

SFC: Sense of Financial Control.

a Parameter insignificant at the 5% level. Only positive items were included in the estimation.
153
154 Kamel Mellahi and Cherif Guermat

managerial practices. However, to proceed we need to treat managerial

values as an independent variable.2
The effect of managerial values can be assessed by adding two dummy
variables to Eq. (3). The average level value dummy variable is set to one
for an average response and zero otherwise. The high level value dummy
is set in a similar manner. The low level value case is therefore obtained
by setting both dummy variables to zero.
The estimation results are shown in Table 5 for the four managerial
practice dimensions. Removing the two value dummy columns from
Table 5 provides us with a table that is almost identical to Table 3.
A comparison between Tables 3 and 5 shows that all coefficients are of
the same sign and magnitude. This clearly indicates that the inclusion
of managerial values does not affect the fundamental process that links
managerial practices with age and the other situational variables.
Managerial values have statistically significant coefficients on fourteen
out of sixteen cases. However, for the first, and most important, three
dimensions the impact of managerial values is positive on both positive
and negative managerial practice items. This suggests that while age and
other situational factors may have varying effect on managerial practices,
the effect of managerial values is uniform in the sense that managers
with higher levels of values tend to have higher levels of both positive
and negative managerial practices. Thus our third hypothesis that man-
agerial values have no impact on managerial practices is clearly rejected.
In other words, managers’ internal attributes have a significant impact
on managerial practices.

5. Discussion

We hypothesized that young managers in India would adopt different

managerial values, but that in work situations these differences are
overridden by situational factors and, thus, young managers would be
expected to adopt managerial practices similar to those of old managers.
The evidence found in this paper rejects our first hypothesis. The results
suggest that young and old managers in India put significantly different
emphasis on different managerial practices. The analysis clearly indicates
that age has a significant impact on the level of managerial practices.
Overall, young managers in India put significantly less emphasis on 33
out of the 44 managerial tasks examined in this research than old managers.
 Table 5: Probit Estimation Results for the Panel Model of Manager Practice

Dimension Items Threshold Intercept Age Gender Sector ALV Dummy HLV Dummy
SOT Positive (19) 1.94 (28.92) –1.41 (–14.19) 0.57 (7.09) –0.69 (–9.07) 3.36 (25.95) 1.14 (13.21) 0.35 (4.96)
Negative (2) 10.68 (12.81) 16.25 (12.34) –3.76 (–29.19) 0.25 (1.68)(1) –14.12 (–11.47) –a 8.57 (13.48)
HRST Positive (5) 5.30 (5.46) –0.91 (–8.11) –5.13 (–4.95) –0.56 (–4.92) 6.61 (6.28) 0.41 (3.23) 0.57 (4.60)
Negative (6) 5.75 (15.17) 5.82 (13.29) 14.61 (12.61) 2.67 (11.21) –8.35 (–13.17) 1.78 (21.67) 3.92 (14.76)
MIEP Positive (6) 1.23 (15.08) –0.88 (–8.65) 1.28 (7.60) 2.48 (15.56) –a 0.25 (1.83)∗ 0.43 (3.83)
Negative (2) 5.33 (3.33) 3.90 (5.46) –1.62 (–5.91) –2.05 (–8.92) –a 2.44 (3.07) 3.18 (4.57)
PR Positive (2) 1.79 (10.75) 1.27 (4.32) 2.23 (11.38) 1.84 (9.44) –a –0.69 (–2.99) –2.64 (–13.46)
Negative (2) 0.44 (6.23) 0.74 (4.25) –1.12 (–4.83) –1.18 (–4.80) –a –a 1.38 (6.85)
Does Age Matter?

SOT: Strategic and Operational Tasks, HRST: Human Resources and Stakeholders Tasks, MIEP: Management of Internal and External
Partnerships, PR: Public Relations.
a Not significant at the 5% level.
∗ p-value less than 0.10.
155
156 Kamel Mellahi and Cherif Guermat

Thus, we argue that young managers are departing from old practices by
putting less emphasis on one set of practices and more emphasis on an-
other set of practices. On reflection, this result may not be too surprising.
Young managers may be departing from old practices for several reasons.
Old managers who, according to the socialization perspective, exercise
power to converge young managers to old managerial practices might be
more supportive and, in the current global economy where new man-
agerial practices are needed, perhaps identify more with young managers’
practices than their own. This may well have led them to put less pressure
on young managers to adopt similar practices. Whatever the underlying
reasons, the findings of this study do not support the core proposition
that young managers will embrace old managerial practices for the reasons
advocated by the socialization perspective.
Our second hypothesis, that is young and old managers hold different
managerial values, is strongly supported by the data. This paper found
differences in terms of managerial values and preferences indicating that
young managers, in comparison with older managers, hold different man-
agerial values. This confirms our second prediction that young managers’
values are indeed different from those of older managers. More import-
antly, these differences are not monotonic. Young managers emphasize
23 values less than old managers, but at the same time put more emphasis
on 18 values. Thus, we could argue, albeit indirectly, that our findings
suggest that young managers are departing from old values by putting
different emphasis on the four value dimensions. These results lend cre-
dence to those who argue that young managers in emerging economies
are moving away from old managerial values and embracing new values
(Mellahi, 2001; Ralston et al., 1997).
Finally, the strong statistical significance of the model relating man-
agerial practices with age, situational variables and managerial values
rejects our third hypothesis. The fact that 42 out of the 44 practices are
positively related to managerial values makes it clear that, overall, those
who have higher values tend to have higher levels of practice, regardless
of whether the practices are positively or negatively correlated with their
underlying dimensions. These results provide evidence to suggest that
managerial values have an impact on managerial practices. That is, man-
agerial practices are not the sole product of situational contingencies.
This could be explained by the fact that as managers in emerging eco-
nomies are becoming more individualistic and power distance is becoming
 Does Age Matter? 157

less important, managers are basing their actions on both internal attri-
butes and social contingencies.

6. Research Implications

Our results have a number of implications of interest to both scholars

and practitioners. For scholars, the evidence presented here complements
the increasing body of literature on the impact of age on values in emerg-
ing economies (Birnbaum-More et al., 1995; Ralston et al., 1998, 1999;
Viega et al., 1995). Most prior research comparing old and young man-
agers in emerging economies has focused primarily on whether or not
new young managers are adopting new managerial values. Much less
research has sought to explore the actual impact of the emerging values
on managerial practices. This study makes a unique contribution to the
existing literature by examining the impact of emerging managerial values
on managerial practices.
The results of this study clearly tie in with previous research that found
that young managers in emerging economies are adopting new managerial
values (Ralston et al., 1999). It is clear that emerging economies are wit-
nessing a broad shift in managerial values and practices, with one set of
managerial values replacing another. Further, these findings are in line
with the growing body of research on national (sub)culture heterogeneity
(see for example: McSweeney, 2002). The basic contention of this body
of research is that the assumption of homogeneity of values within
countries and the notion of national culture sharedness are false (Bock,
1999; McSweeney, 2002: 92), because they do not take into consideration
the heterogeneity of managerial values within a country.
There is another implication born from the prior discussion that is
worthy of note. It appears that old managers in India still put more em-
phasis on old managerial practices. This means that recent developments
in the business environment have had little impact on old managers’
values and practices. If so, the implication of this finding supports the
view that managerial values once developed are difficult to change. For
the young generation however, the new managerial values are substantially
different from that of old managers. One possible interpretation of these
differences might be that they are the result of the radical changes in the
business environment that has occurred over the last ten years.
158 Kamel Mellahi and Cherif Guermat

For the purpose of this article, the most important result was the strong
impact of young managers’ values on managerial practices. This has been
the missing link in the research on young managers’ values in emerging
economies. Previous researchers only reveal that young managers are
adopting different managerial values. Our research extends their results
by demonstrating that despite substantial institutional pressure to neu-
tralize the effects of the new managerial values on managerial practices,
we found that young managers’ values have a strong impact on managerial
practices. Contrary to expectations, our results suggest that both young
and old managers’ behaviors are largely mediated by the values they hold.
It must be emphasized that it would be incorrect to conclude that internal
attributes were the only determinants of managers’ decisions. Demonstrat-
ing a significant effect of values on practices does not necessarily negate
the role of situational factors, nor does it suggest that internal attributes
provide a better explanation of managerial practices in India than situ-
ational contingencies. We subscribe to the person–situation interactionist
model, and believe that neither the internal attributes perspective of
individuals acting in isolation nor the situational deterministic view of
individuals obedient to social norms and culture can adequately provide
an independent explanation of managerial behavior in emerging
economies.
The results of this study have implications both for Indian managers
and international managers operating in India. For Indian managers,
the results of this study show that different managerial values and practices
are likely to coexist within the same organization. Old managers can ex-
pect to work alongside young managers who hold different values to
theirs and vice versa. This heterogeneity in managerial values and practices
has the potential to produce negative as well as positive outcomes. One
possible negative outcome is that the presence of two demographic groups
holding different values and practices in an organization could create a
distance between young and old managers, which makes social integration
and communication between the two groups more difficult. There is a
possibility that managers from different generations will be directly con-
fronted with each other’s negative stereotypes and self-serving biases,
and misunderstanding and conflict may become more pronounced. In
addition, borrowing from the large body of comparative research on
heterogeneous and homogeneous groups, given the divergence of values
 Does Age Matter? 159

and practices of old and young managers, one would expect that the
divergence of values and practices, if not managed properly, would impede
teamwork, increase conflict and could lead to difficult information ex-
change between the two age groups (Ancona & Caldwell, 1992). It must
be pointed out, however, that Indian managers are well equipped to deal
with diversity given the diverse cultural, linguistic, racial and ethnic
diversity present in India. In addition, this heterogeneity of values and
practices could result in more formal reinforcement of rules. Being dif-
ferent may decrease the predictability of attitudes and behaviors, and
thus managers may feel the need for formal reinforcement of rules within
organizations through monitoring and control to make sure that the ap-
propriate practices are followed. In contrast, differences between young
and old mangers could lead to more innovations in management processes
and output (Bantel & Jackson, 1989). Thus, a further implication is
that those managers who are best able to identify the probable sources of
value conflict between young and old managers, and to prepare for them,
will likely be more effective than those who do not. Managers have to
play a difficult balancing act, paying attention to the negative effects of
divergent values and practices while simultaneously attempting to capture
the benefits of heterogeneity. Dealing with such diversity requires man-
agers in India to invest time and efforts to facilitate communication and
coordinate actions between the young and old managers.
For international managers operating or planning to operate in India,
the results of the study suggest that a “one size fits all” approach to deal-
ing with, and managing Indian managers is not appropriate, and that
what is expected to work well with young managers might not work
with old managers. The results show that demographically different
managers in India hold different values and exhibit different behaviors.
Further, evidence of such divergence in managerial values and practices
between young and old managers in India underscores the need to re-
examine the cultural homogeneity paradigm which dominates cross
cultural literature, calls into question the usefulness of national cultures
labels, and highlights the risks of national stereotyping. So far, cross cul-
tural research, and expatriate teaching and training have generally focused
on differences between countries and assume cultural homogeneity within
countries (see Osland, Bird, Delano, & Jacob, 2000). As a result, differ-
ences within countries are generally overshadowed by national cultures
160 Kamel Mellahi and Cherif Guermat

effect (McSweeney, 2002). Thus, it is conceivable that international man-

agers, constrained by their training, cultural myopia, and sophisticated
stereotyping could run into problems because of the assumption that all
Indian managers hold common managerial values and behaviors. Our
results show that managerial values and practices vary significantly
between old and young managers within the same country, hence, it
would be misleading for international managers operating in India to
assume cultural homogeneity within the country. In order to work
successfully in India, it is important that international managers develop
an awareness of how demographic dissimilarity such as age may impact
managerial values and practices and lead to within-culture differences.

7. Limitations and Future Research

Any conclusions drawn from this study must be assessed against its
limitations. First, this study was restricted to three main cosmopolitan
cities in India. The influence of old managers on young managers in
other rural and less cosmopolitan areas could be stronger than that of
the three areas studied here. In addition, it is useful to duplicate the
study in other emerging and developing countries. Second, only small
and medium companies were considered in this study. As explained earlier,
most small and medium companies have a flat structure and it is likely
that individual managers hold multiple positions and roles in these organ-
izations. Should this research be duplicated in large organizations, re-
searchers should pay attention to the possibility that age could be closely
associated with managerial positions. Thus, one would need to partial
out the effect of roles in order to ensure that the observed effect is indeed
due to age and not to position. This will require collecting additional
information on positions during the survey and including the position
variable as an independent variable in the Logit model. Third, as with all
survey type research, this study does not fully capture the richness of the
interaction between old and young managers in India. A longitudinal
case study approach would complement this study by providing richer
insights onto the interactions between old and young managers.
We believe that this paper has only scratched the surface of the
emerging managerial values and practices in emerging economies. The
framework that explains the reasoning process which translates personal
value into behavioral action is still underdeveloped because of the number
 Does Age Matter? 161

of factors that need unpacking—and it is not the focus of this paper.

However, the issues raised in this article will hopefully provide impetus
for both conceptual and empirical research on emerging managerial values
in emerging economies.

Notes

1. We are grateful to a referee for suggesting this alternative.

2. A more appropriate way of estimating the effect of values on practice would be
to estimate a simultaneous equation model where both values and practice are
treated as endogenous variables. However, to our knowledge, a simultaneous
model for multinomial Probit has not yet been formulated.

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 Does Age Matter? 165

Tang, T. L., & Tzeng, J. Y. (1992). Demographic correlates of the protestant work
ethics. Journal of Psychology, 126: 163–170.
Tsoukas, H. (1994). What is management? An outline of a metatheory. British
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 Section Four

MANAGING HUMAN RESOURCES

AND INDUSTRIAL RELATIONS

Trends and Transition in the Human Resource

Management (HRM) Context in India

Human resource management (HRM) is approached differently in different

socio-cultural contexts. In USA, the primary emphasis of HRM is to
focus on worker performance and motivation through extensive analysis
of individual needs, training, evaluation, reward systems, job enrichment,
career development, performance management etc. In contrast, the
European approach to HRM has relied on a sociological perspective and
focuses more on the holistic social system, the socio-political context
and stakeholders like the union, government and corporate managers.
The concepts and practices of HRM in India perhaps, fall somewhere
between the “instrumental” view in USA and the “social embeddness”
approach in Europe. Valuing people on their loyalty, integrity and com-
mitment as opposed to their performance is often considered more
relevant in traditional organizations while the corporate ethos of the
globally active organizations are increasingly anchored on measurable
performance achievements.
168 Management in India

In the first chapter of this part, Kuruvilla compares the impact of

industrialization strategy for economic development on human resource
policies and practices and the industrial relations context in four Asian
countries including India. Students of Indian management may find this
approach of regional comparative views as relevant and innovative to
their understanding. Industrialization or globalization strategies at the
macro level have a significant impact on the design and implementation
of international relations (IR) and HR practices and they are viewed
differently in different contexts.
The chapter by Sen Gupta and Sett overviews the industrial relations
experiences of the past three decades in India. This synoptic alternative
view provides an insightful understanding that economic progress as a
nation or corporate success as an organization needs the critical support
of internal stakeholders. Increasingly the role of foreign capital in India
and the global ambitions of Indian companies make it essential that a
deeper alignment of workplace harmony through dynamic HR policies
and practices be achieved by vision-driven managers. A recent study of
59 South Asian firms in Bangladesh, India, Nepal, and Pakistan by Sett
suggests that the choice of HRM practices and their implementation
varies greatly between “newer” and “older” organizations in these coun-
tries. The findings of the case studies suggests that global orientation in
South Asia has been witnessing a definite trend away from the old
“adversalism” to newer modern HRM practices (Sett, 2004).
As global firms become more active in India and as Indian firms become
more active globally, the emergence of a cosmopolitan human resource
culture becomes imperative. Issues such as individual versus group per-
formance, objective versus subjective evaluation processes, culturally
contexted practices in giving and receiving feedback, job rotation,
training, competence versus loyalty and integrity and other such dilemmas
need thoughtful resolution. The two chapters in this section, one from a
global perspective written by a scholar working in USA and the other by
two scholars from India, provide a two-dimensional insight into an area
of utmost importance in understanding Indian management.

Reference

Sett, P. K. (2004). ‘Human Resource Management and Firm Level Restructuring: The
Asian Drama’, Research and Practice in Human Resource Management, 12(1): 1–18.
 Linkages between Industrialization
Strategies and Industrial Relations/
8 Human Resource Policies: Singapore,
Malaysia, the Philippines, and India

Sarosh Kuruvilla

The expectation that the logic of industrialism would make industrial

relations systems increasingly similar (Kerr, Dunlop, Harbison, and Myers
1964) has not withstood the test of history: today’s “advanced” countries
have vastly different industrial relations systems. However, industrial-
ization continues to be a central explanatory variable in research on the
transformation of industrial relations systems in “developing” countries,
particularly in Asia, given that continent’s rapid industrialization over
the past two decades.
In this paper I argue that industrialization strategies (IS’s) and industrial
relations and human resource (IR/HR) policy goals are closely intertwined
and mutually reinforcing. Changes in the focus of national IR/HR policies
are strongly influenced by changes in IS, since IR/HR policies are important
components of the industrialization strategies of countries. In Asia, the key
determinants of industrial relations change are the choice of an industrial-
ization strategy and the shifts between strategies, not the logic of indus-
trialism (Kerr et al. 1964) or the levels of industrialization (Sharma 1985).
This paper does not fully examine the reasons different countries chose
certain IS’s, nor does it analyze the causes of variations across countries
in the institutional arrangements adopted to meet IR/HR policy goals,
although I do present hypotheses concerning these issues. The focus is
largely on the relationship between IS’s and IR/HR policy goals at the
national level.
170 Sarosh Kuruvilla

To support this argument, I present case studies of four vastly different

Asian countries: Singapore, Malaysia, the Philippines, and India. I chose
these countries for three reasons. First, all four experienced shifts in their
IS’s after their independence. Second, the countries are currently following
different IS’s. Singapore currently follows a mixed strategy of advanced
export-oriented industrialization and exports of services; Malaysia is in
transition between low-cost and advanced export-oriented industrial-
ization; the Philippines is primarily a low-cost exporter; and India has
long pursued an advanced import substitution industrialization strategy
and is currently shifting toward an export-oriented strategy. Thus, these
countries permit both longitudinal and cross-sectional analyses of the
links between IS and IR/HR. Third, the four countries differ vastly in
their economic and industrial relations conditions.

Relevant Literature and Argument

Space constraints disallow a long review of the large and burgeoning

literature on industrialization and economic development. The literature
reviewed in this section is therefore illustrative.
Previous researchers have had different views regarding the relationship
between IS and IR/HR policy goals. Kerr et al. (1964) claimed that the
logic of industrialism causes a convergence of industrial relations systems
at both national and workplace levels: to put the case briefly, modern
technology requires modern institutions. Frenkel (1993) suggested that
the level of industrialization determines the influence of trade unions on
workplace industrial relations, with unions in more advanced Asian coun-
tries having greater influence. Sharma (1985) and Bjorkman, Lauridsen,
and Marcussen (1988) argued that different stages of industrialization
reflect different regimes of capital accumulation, leading to different kinds
of capital labor relations. Frenkel and Harrod (1995) concluded that
industrialization does not result in convergence to any specific IR model,
given differences in technology, national institutions, and political dy-
namics. Deyo (1989) focused on the weakness of East Asian labor move-
ments in the context of export-oriented industrialization and suggested
that this weakness is linked to structural economic factors, communities’
role in engendering labor organizing and protest, the oppositional poten-
tial of workers, and the degree to which elites intervene to control labor
dissent. While this literature points to the existence of a link between IS
 Linkages between Industrialization 171

and IR/HR policies, the nature of that link is never clarified due to
differences in approaches and dependent variables.
This paper draws on the work of Roemer (1981), Haggard (1990),
Bradford (1990), and Gereffi and Wyman (1990) to develop a typology
of industrialization. Several different patterns (or trajectories) of indus-
trialization exist. These patterns are distinguished primarily by whether
they are inward- or outward-oriented and by the sector of their focus
(Gereffi and Wyman 1990). An import substitution industrialization
(ISI) strategy, for example, typically focuses on the promotion of locally
owned industries catering to a relatively large domestic market in order
to conserve foreign exchange and to promote industrialization and local
entrepreneurship. Under this strategy, domestic industries are protected
from foreign competition through state regulation and high import tariffs.
In some countries all sectors are protected, while in others only the state-
owned sector enjoys protection. The primary outcome of ISI is the gen-
eration of a local industrial base with local capital.
Within the ISI strategy category, however, there is some variation.
As Gereffi (1990) noted, primary ISI most often focuses on developing
consumer goods industries, while secondary ISI uses domestic production
to produce substitutes for imports of a variety of capital- and technology-
intensive manufactured goods, consumer durables (for example, auto-
mobiles), intermediate goods (for example, petro-chemicals and steel)
and capital goods (for example, heavy machinery). The focus of a sec-
ondary ISI strategy is to create a domestically owned diversified industrial
base that will fuel future economic growth. Singapore, Malaysia, and
the Philippines, during the early stages of their post-independence de-
velopment, pursued a primary ISI strategy; India followed a secondary
industrialization strategy until 1990.
In contrast, export-oriented industrialization (EOI) typically involves
an outward-looking focus, with foreign exchange earnings constituting
the basis for economic development and growth. Typically, under this
strategy, appropriate incentives for export and for inward foreign invest-
ment are enacted by the state. Here, too, there is variation. In Asia, pri-
mary EOI has been characterized by labor-intensive manufactured
exports (often electrical and electronic components, footwear, and
garments), for which the primary source of competitive advantage is the
low costs of labor and production. In several Asian countries, this export
172 Sarosh Kuruvilla

growth has been financed by foreign investments made by multinationals,

although Korean EOI has been largely financed by domestic firms and
the state. Secondary EOI includes the export of higher value added items
that are skill-intensive and require a relatively developed industrial base.
Secondary EOI includes the strategies of “industrial deepening” noted
by Cheng (1990) in Korea and Taiwan. There also exist other types of
industrialization strategies, such as the “heavy industries strategy” and
the “small scale industrialization strategy” alluded to by Roemer (1981),
as well as the commodity export strategy that predated the ISI strategies
used in the countries studied here, before their independence (Gereffi
and Wyman 1990).
In this paper I describe four countries’ dominant strategies to illustrate
how IS and IR/HR policy goals are closely intertwined. However, it must
be noted that identifying a country’s industrialization strategy is diffi-
cult, since several IS’s can be pursued at the same time. The typology used
in this paper refers to the industrialization strategy that is most prominent
at any given time. It is also difficult to pin down the exact dates of strat-
egy shifts, since shifts invariably take several years to accomplish. As the
cases will show, the shift from primary to secondary EOI in Singapore
took approximately three years (Rodan 1989), while in the Philippines,
the shift from ISI to Primary EOI took almost 20 years, partly because
of the lack of coherent IS policies (Bello and Verzola 1993).
To analyze IR/HR policy goals, I use an inductive approach, based on
what governments have done. In some countries these government policy
goals include political suppression of unions to keep labor costs down,
and in others they include union restructuring, restrictions on the subjects
of collective bargaining, or changes in wage and overtime payment sys-
tems. In the primary EOI regime, for example, the key policy goal of the
government involves keeping wages and other labor costs low. Govern-
ment policy goals are in some instances inferred from the actions taken
by the state. In most cases, I have selected only policy goals that suggest
a major change in direction. I focus on the IR/HR policy goals affecting
the private sector in each country.
IS’s require particular national-level industrial relations policies for a
number of reasons. For example, an export-oriented industrialization
strategy based on cheap labor and foreign investment requires a cheap
labor force with the appropriate levels of productivity and skills, a labor
 Linkages between Industrialization 173

movement whose structure and policies do not deter foreign investment

through labor militancy or resistance to the introduction of new
technology, and dispute resolution mechanisms that can quickly solve
industrial conflict. The dominant actor (in these countries, the state)
will ensure that appropriate industrial relations and human resource
legislation is enacted to support the industrialization strategy.

Figure 1: Industrialization Strategies and National Industrial

Relations/Human Resource Policy Goals: The Framework

Import Substitution Export-Oriented

Industrialization Industrialization
Primary IR/HR Policy Goal IR/HR Policy Goal
= Stability = Cost Containment
Secondary IR/HR Policy Goals IR/HR Policy Goals
= Stability and = Workplace Flexibility,
Productivity Productivity,
Enhancement Skills Development
Note: The institutional arrangements countries choose to meet the IR/HR policy
goals described here will vary as a function of the state’s political choices and
the previous IR/HR institutional history.

The transition to secondary EOI requires IR/HR policies that empha-

size productivity, increased skills formation, and workplace flexibility
(defined as the ability of the employer to quickly react to changes in the
market by restructuring work organization, compensation, human re-
source practices, and labor relations).1 This transition often implies funda-
mental changes in national-level policies.
In addition, changes in workplace practices and production organ-
ization will force employers to substitute positive human resource practices
for repressive labor management strategies, and such developments at
the workplace or firm level will require supporting national level IR/HR
policy changes. Therefore, different IS’s imply different goals for national
IR/HR policy. Under primary ISI, the lack of significant external com-
petition permits the state to pursue pluralistic IR/HR policy goals. Under
secondary ISI, the requirements of different industries for productivity
gains force a change in the IR/HR policy goal. The focus of national IR/
HR policy under typical primary EOI will be keeping labor costs low,
174 Sarosh Kuruvilla

and its focus under secondary EOI will be flexibility and productivity
enhancement.
The reasons for the adoption and even success of the IS are often idio-
syncratic (see Bowie 1991 for Malaysia; Rodan 1989 for Singapore; and
Bello and Verzola 1993 for the Philippines). Adoption of IS could also be
linked to the need for imitating successful development strategies (Cheng
1990), may be orchestrated by either “independent” states or “dependent”
states (Frenkel and Harrod 1993), or may be linked to globalization.
Similarly, the adoption of particular IR/HR policies may be caused by
factors other than IS. For example, Haggard (1990) and Deyo (1989)
argued that suppressive labor policies were initiated in some countries
for political reasons, even before the adoption of EOI. This paper focuses
not on the reasons an IS is adopted, but rather on the ways in which IS
and IR/HR policy goals are mutually reinforcing (see Figure 1).2
While there is a strong interrelationship between IS’s and IR/HR
policy goals across countries, the specific institutional industrial relations
arrangements in each country vary tremendously. What explains these
variations in industrial relations institutions within and across indus-
trialization regimes? I would suggest that the specific institutional arrange-
ments used to meet IR/HR policy goals are determined by the political
choices made by the state in each country, as well as the previous industrial
relations institutional history in each country. The ability of the state to
fully enact policies consistent with the focus of the IS is constrained by
several political and social factors, such as the degree of political stability
and opposition to the ruling government, the legitimacy of the govern-
ment, the nature of the political system, the institutional history of indus-
trial relations, and the strength and political influence of trade unions.3

Country Studies of Industrialization Strategies

and IR/HR Policy Goals

This section describes the industrialization strategies and IR/HR policy

goals of four countries—Singapore, Malaysia, the Philippines, and
India—drawing from recent research. The date of independence is used
as the starting point of the analysis in each country to ensure consistency
in the comparisons. Note, however, that each of these countries had an
IS even prior to independence (Gereffi and Wyman 1990).
 Linkages between Industrialization 175

Industrialization Strategy and IR/HR Policy Goals

in Singapore

Singapore adopted an import substitution industrialization (ISI) policy

after independence in 1959. Because an ISI policy requires a large internal
market to be self-sustaining, Singapore reunited with the Federation of
Malaya in 1961, which provided it with a large market. Despite the eco-
nomic rationale for integration, however, political differences resulted in
a breakaway from the Malay federation in 1963 (Huff 1987). As Huff
suggested, given the lack of a large market and local entrepreneurship
talent, Singapore had no choice but to adopt an outward-looking export-
oriented industrialization (EOI) strategy financed by foreign investment
for its economic development. Rodan (1989: 85) suggested that after the
collapse of the federation and the ISI strategy, the People’s Action Party
(PAP, the party in power in Singapore) employed the “ideological appar-
atus of the state to sponsor values and attitudes that enhanced the poltical
legitimacy of the PAP’s right to exclusive power to determine the course
ahead.”
The state-sponsored primary EOI strategy adopted in 1965 initially
focused on attracting foreign investment in the radio receivers and tele-
visions industries. Attracting foreign investment required policy changes
in several different areas, such as infrastructural development (the develop-
ment of transport, communication, free trade areas, and export processing
zones); financial and fiscal incentives (land subsidies, electricity and power
subsidies, building subsidies, exemption from corporate taxes, and export
duty subsidies); and industrial relations policies (Huff 1987).
During British colonial rule the focus of industrial relations policy
was on the control of communist unions through the union registration
process, although the colonial administration enacted laws ensuring
minimum standards in wages, conditions of employment, collective bar-
gaining, and arbitration. With the adoption of EOI, however, the focus
of the state’s industrial relations policy was to provide foreign investors
with a “stable, cheap, and flexible industrial relations system” (Chiang
1988: 239). Stability in industrial relations was promoted through the
creation of a tripartite national governance structure. The National Trade
Union Congress (NTUC), aligned with the PAP, led by Lee Kuan Yew,
and the Employers Federation (SNEF) were provided with representation
in all important national bodies, including the National Wages Council,
176 Sarosh Kuruvilla

the Economic Development Board, the Housing Board, and the Em-
ployees Provident Fund Board, as well as various other boards in several
different spheres of government (Chiang 1988). To create responsible
unionism, the government provided funding to the labor movement for
the education of union leaders and members regarding economic
development issues (Chiang 1988).
At the local level, workplace flexibility was promoted through many
IR/HR policies. One such policy was to place restrictions on the subjects
of bargaining; specifically, transfers, promotions, job assignments, redun-
dancies, layoffs, and retrenchments were deemed to fall outside the scope
of bargaining.4 To contain industrial disputes in the interest of economic
development, the right to strike was prohibited in essential industries,
and in nonessential industries the ability of unions to strike was circum-
vented through various administrative requirements.5
Further, to ensure cost control, the Industrial Arbitration Court was
empowered to ratify all collective bargaining agreements and to reject
agreements if they conflicted with Singapore’s national interest (Chiang
1988; Krislov and Legget 1985). To provide employers with stability in
industrial relations and labor costs, the period of collective bargaining
contracts was fixed at five years. Wage increases were controlled via wage
guidelines of the tripartite National Wages Council that took into account
the competitive position of Singaporean exports (Chew and Chew 1995).
Clearly, these workplace policies reflected the need to provide foreign
investors with both stability and flexibility in industrial relations.
The low-cost foreign investment–dominated EOI strategy adopted
in 1963 was largely successful. By the early 1970s, manufacturing ac-
counted for 21.4% of employment, up from 9.3% in 1965. The contri-
bution of manufacturing to GDP increased from 15.6% in 1965 to
23.9% in 1980. In 1980, about 20 foreign corporations accounted for
76% of manufactured output, 65% of capital formation, 28% of GDP,
and 82% of manufacturing exports (Huff 1987).
By 1974–76, rising wage levels due to labor shortages in manufactur-
ing, combined with increased competition from other low–labor cost
Asian nations such as Korea and Taiwan, threatened the future of a low-
cost EOI strategy. The state aggressively spearheaded a second indus-
trialization phase toward higher value added foreign investment, primarily
in computer assembly and semiconductor manufacture, beginning in
1980.6 The shift into a higher value added EOI was assisted by the
 Linkages between Industrialization 177

tripartite National Wages Council, which recommended wage increases

that were in excess of 12% for three consecutive years between 1979 and
1981. These high wage increases drove out low-cost producers (Rodan
1989: 145).
This high tech EOI strategy required IR/HR policies providing high
technology and capital-intensive investors with highly skilled labor. As
Chew and Chew (1995) suggested, several policy changes were introduced
to meet these needs. The education system was restructured in 1981.
The new curricula emphasized secondary education, several vocational
training institutes and polytechnics were opened, and a new university
(the Nanyang Technical University) was established to provide foreign
investors with skilled labor (Begin 1993).
In order to provide companies with greater flexibility in industrial
relations (the ability to quickly make changes in workplace rules), the
state altered the union structure in 1981. Although the government ini-
tially sponsored a shift toward German-style industrial unionism, arguing
that industrial relations outcomes should reflect industry-specific char-
acteristics, the diversity of foreign investment eventually led the govern-
ment to accept the National Productivity Council’s recommendation to
implement Japanese-style enterprise unions, called “house” unions. The
claim was that the house unions would increase firm level flexibility and
productivity, and allow collective bargaining outcomes to reflect the finan-
cial circumstances of each firm rather than each industry (Chiang 1988).
To encourage firms to continuously invest in skill enhancement and
training, the Skills Development Fund (SDF) was introduced in 1982.
The SDF legislation requires firms employing 50 employees or more to
pay 2% of their payroll costs into the SDF. Employers contributing to
the SDF can recover 80% of their contributions, provided they invest in
training (Chew and Chew 1995). Applications for funds for training
can be based on either a single training program or an entire year’s training
calendar. This system not only provided an economic incentive for skills
development, but also was able to subsidize skill formation in smaller
firms that do not contribute to the fund (Chew and Chew 1995).
A final change in industrial relations policy made in 1981 to support
the new advanced EOI strategy was seen in wages. The National Wage
Council discouraged centralized wage setting by recommending wage
increases that reflected the “profitability, performance, and progress of
different industries” (Pang 1983: 32–33). Following wage freezes after
178 Sarosh Kuruvilla

the 1985 recession, the NWC resumed its drive toward increased work-
place flexibility by advocating flexible wage systems that would increase
the variable portion of wage increases and use lump sum payments instead
of base wage increases (Straits Times, Nov. 19, 1993).
Although the driving out of low-cost producers in the early 1980s
caused a temporary economic slow-down in the early 1980s, by 1986,
the restructuring of investment incentives and the investments made in
education and skills development began to pay off. Higher-quality
Japanese investments appeared, expanding the manufacturing of semi-
conductors, disk drives, and computer assembly. The technological depth
of the foreign investments increased steadily, with many firms (for
example, Motorola) locating higher-end processes and R&D services in
Singapore (Salih, Young, and Rajah 1988). The influx of investment re-
sulted in a shortage of skilled and unskilled labor, and in 1986, immi-
gration policy was altered to allow the importation of “guest workers.”
By early 1987, more than 195,000 guest workers had been imported
(Huff 1987).
Singapore’s economic development strategy is currently undergoing a
shift. By the end of the 1980s, with a skilled work force and a higher-
wage economy, Singapore began to turn to the service sector for continued
growth after facing increased competition from other Southeast Asian
countries such as Malaysia in the manufacturing of electronics. The pre-
dominant strategic change currently under way is to emphasize the
finance, banking, and ports sectors in order to make the country a regional
financial center and a trading and ship repairs center (Huff 1987). The
service sector now accounts for 53.8% of GDP and 30% of total
employment.
Singapore’s industrial relations system demonstrates both stability
at the national level and flexibility at the local level. At the national level,
unions have significant voice in decision-making.7 At the local level, the
enterprise union structure, coupled with the restrictions on the ability
of trade unions to bargain and strike, and the efficacy of the Industrial
Arbitration Court (Krislov and Leggett 1985) have completely eliminated
strikes. Labor-management relations are cordial, and real wages have in-
creased steadily since 1985 (see Table 1). The trade union movement has
focused its efforts on servicing its members in different spheres through
 Linkages between Industrialization 179

Table 1: Economic and Industrial Relations Conditions in

Singapore, Malaysia, the Philippines, and India

Variable Singapore Malaysia Philippines India

1. Population (Millions, 1991) 2.7 18.4 63.8 862.7
2. GDP per Capita (PPP $ 1990) 15,880.0 6,140.0 2,303.0 1,072.0
3. GDP Growth Rate
1971–75 9.4 7.2 5.7 2.4
1976–80 8.5 8.6 0.0 3.4
1981–85 6.2 5.2 –1.2 5.4
1986–90 7.9 6.1 5.1 5.4
4. Sectoral Share of GDP
Agriculture, 1980 1.2 22.9 25.1 38.1
Agriculture, 1990 0.3 18.7 22.1 32.4
Industry, 1980 29.1 19.6 25.7 25.9
Industry, 1990 29.1 26.9 25.5 27.5
Services, 1980 44.7 22.4 26.2 36.0
Services, 1990 53.8 22.7 30.7 40.0
5. Foreign Share of
Mfg. Exports, 1988 86.0 60.0 66.0 0
6. Exports as Percentage
of GDP, 1990 157.0 71.0 20.0 6.0
7. Union Density (percentage of total work force):
1979 24.5 18.0 10.9 1.06
1984 16.4 16.0 9.7 1.85
1988 17.2 9.9 9.6 2.00
1993 14.2 9.5 9.6 2.00
8. Strikes
1960 45 37 43 1,026.0
1970 5 17 104 2,843.0
1987 0 24 62 1,799.0
1989 0 17 267 1,786.0
1992 0 17 136 1,388.0
9. Average Annual Growth Rate of Earnings per Employee
1970–80 3.0 2.0 –3.7 0.4
1980–89 5.0 3.2 6.4 3.4
Sources: Human Development Report (1993); ILO Yearbook of Labor Statistics
(1993); unpublished figures assembled by author.
180 Sarosh Kuruvilla

the creation of union-run cooperatives for transportation, textbooks,

insurance, and supermarkets, and the unions also sponsored a consumer
movement (Chiang 1988). With the decline of manufacturing and the
rise of services, union density fell sharply from a high of 25% in 1970 to
14.5% in 1993 (Begin 1993).
The stable yet flexible IR system that Singapore created was necessary
given the country’s need to attract foreign investment. The choice of the
specific tripartite institutional framework, however, was facilitated by
several political factors, such as the lack of significant opposition to the
PAP (see Chew and Chew 1995), the ability of Lee Kuan Yew to get union
leaders to buy into the tripartite arrangement, and the broad societal
acceptance of the need for foreign investment and exports. Arguably,
the ability of trade unions to have voice in important national level
decisions through the tripartite framework more than compensated for
the curtailment of bargaining subjects at the local level.
The Singaporean case also demonstrates that higher technology–
intensive EOI is associated with IR/HR policy that is focused on work-
place flexibility and skill development. Further, IR/HR policies were well
integrated with macro policies focusing on education, immigration, and
economic development. In fact, Singapore provides a model of macro
policy integration that other countries such as Malaysia have tried to
emulate.

Industrialization Strategy and IR/HR Policy Goals

in Malaysia

Like Singapore, Malaysia embarked on a vigorous ISI strategy after

independence, although its ISI phase lasted longer given its larger internal
market. The first phase of ISI (1957–63) focused on infrastructural and
rural development, with industrialization left to the private sector. In
the second phase of ISI (1963–70) the state emerged as a leading investor,
motivated by the New Economic Policy (NEP) that promised the
economic advancement of ethnic Malays (relative to ethnic Chinese and
Indians). The NEP was based on the premise that the primary way to
accomplish this goal without ethnic strife was to enact policies that would
ensure rapid economic growth, and at the same time, through regulation,
reserve both investment and jobs for Malays (see Kuruvilla and Arudsothy
1995; Bowie 1991; and Spinanger 1986).8
 Linkages between Industrialization 181

During the ISI phase, industrial relations in Malaysia reflected the

system inherited from the British, with legislation providing for collective
bargaining and minimum standards, while the focus of government policy
was to contain conflict in the interest of economic development (Kuruvilla
and Arudsothy 1995). The prohibition of political strikes and restrictions
on the ability of the various national labor federations to carry out trade
union functions (they were registered as societies) also ensured that the
Malay-dominated government had control over the labor movement
(Arudsothy 1990). At the level of the workplace, the legislation was simi-
lar to that of Singapore, with restrictions on the subjects of bargaining
(transfers, promotions, layoffs, retrenchments, and job assignments being
deemed outside the scope of bargaining), and restrictions on the ability
of unions to strike.9 During this period, there was relatively steady union
growth, while wage bargaining was largely at the industry level, particu-
larly in the plantations sector. Since the government did not use the ex-
tensive powers it commanded to regulate industrial relations in this phase,
Kuruvilla and Arudsothy (1995) have referred to this period as “controlled
pluralism.”
A resource crunch resulting from NEP policies, the state’s failed heavy
industries program, and Malaysia’s increasing foreign debt (which was
30% of GNP by the mid-1980s) forced Malaysia in 1973–74 to embark
on an intensive export promotion drive based on cheap manufactures
financed by foreign investment (Spinanger 1986; Bowie 1991). The
mechanisms used to induce foreign investment, largely in the electronics
industry, were similar to those followed by Singapore, except in industrial
relations, where several new policies were enacted (Kuruvilla and
Arudsothy 1995).
The first direction of change in IR/HR policy reflected the need to
contain costs in the export sector. By 1975, policy changes included an
extension of tax and labor exemptions for foreign corporations (companies
were exempted from several labor protection laws), an alteration of the
definition of wages for the calculation of over-time to reduce costs in the
export sector (which used overtime because of the labor shortage), and a
reduction in the rate of overtime pay for working on holidays and rest
days. The emphasis on cost containment could also be seen in the govern-
ment’s refusal to enact minimum wage legislation for the export industry,
and its refusal to enact equal pay for equal work in the export-oriented
182 Sarosh Kuruvilla

electronics sector, where 78.6% of those employed were female (Rajah

1994; Grace 1990).
A second direction of change in IR/HR policy focused on union
control, largely at the local level. As part of the “look east” policy of the
Prime Minister in 1980, the government encouraged the formation of
Japanese-style enterprise unions (currently about 30% of unions are
enterprise-based) (Arudsothy and Littler 1993).10 In the export-oriented
electronics sector, unions were banned. Although the ban on electronics
unions was lifted in 1988 due to international pressures (Kuruvilla and
Arudsothy 1995), electronics workers were not permitted (unlike their
counterparts in the electrical industries) to affiliate themselves with
national or industry level federations. A combination of state policies
and employer opposition (Kuruvilla and Arudsothy 1995) ensured that
the electronics sector continued to be union-free (less than 10% of elec-
tronics firms are unionized). The decision to allow only in-house unions
in electronics is largely attributed to pressure from foreign investors (Grace
1990), although it is also consistent with the government’s pursuit of a
low-cost export-oriented strategy.
The third direction of change in IR/HR, involving a more activist in-
volvement of the government in industrial relations matters, arguably
developed because of the government’s role as an investor and employer
as a consequence of the Heavy Industries Program. Kuruvilla and
Arudsothy (1995) documented the different manifestations of the new
activism, including extensive powers given to the labor minister to declare
industries “essential” and to suspend trade unions acting against the
“national interest,” and greater involvement in union recognition cases
(with increased rejection of registrations in manufacturing) and in dispute
settlement, where an increased number of cases were referred to compul-
sory arbitration. The greater involvement of the government in industrial
relations reflected efforts to contain industrial conflict in the interest of
fast-paced economic development.
The low-cost EOI strategy has paid rich dividends. By 1989, the manu-
facturing sector accounted for 30% of GDP (up from 15% in 1970) and
40% of export earnings, and the contribution of transnational corpor-
ations to exports increased from 28% of total exports in 1971 to 58%
in 1988 (Kuruvilla and Arudsothy 1995). The electronics industry,
the centerpiece of the dramatic export performance, employed 16.7%
of the manufacturing work force in 1988 (Onn 1989), and exports of
 Linkages between Industrialization 183

semiconductors exceeded M $4 billion, comprising 24.8% of total

manufacturing exports, in 1989 (Grace 1990). The Malaysian economy
registered annual growth rates of over 6% during the 1980s.
Yet, in the mid-1980s, an impetus for changing this low-cost manufac-
turing export strategy came from firms within the electronics industry.
While the low-cost EOI strategy attracted foreign investment, it also
resulted in a labor shortage. (Currently, out of a work force of about
13 million, roughly 2.5 million are guest workers, according to govern-
ment statistics, while unofficial estimates place the figure at 4 million;
see Kuruvilla and Arudsothy 1995.) The consequent rise in wage costs
(annual wage increases exceeded 6% during the latter half of the 1980s),
combined with a world-wide recession in 1985, forced the electronics
industry to restructure itself. The industry started to shift toward increased
automation and adopted new forms of flexible work organization (see
Rajah 1994). Competition from low-cost producers in other countries,
and the need to build forward and backward linkages involving the
electronics industry, motivated the state to formally announce a shift
from its primary EOI strategy. The new strategy emphasized the attraction
of more technology-intensive foreign investment, but also emphasized
the need for Malaysia to build and deepen its industrial structure.
The new industrial strategy (revised and articulated in the state’s Vision
20/20 plan) implied restructuring of investment incentives to attract
higher technology-based capital investment (the attraction of R&D and
higher-end processes of semiconductor manufacture were key goals) and
the creation of small-scale industries (which were expected to stimulate
linkages primarily as subcontractors to the electronics industry [PSDC
1993]). The new strategy also implied several macro economic and social
policy changes. Immigration policies were altered to allow the import of
both skilled and unskilled “guest” workers, given the labor shortage.
The education sector was reformed and deregulated, leading to a mush-
rooming of private colleges having exchange arrangements with univer-
sities in Australia and Canada (Young and Kiat 1992). Between 1985
and 1992, enrollment in polytechnics increased by 113%, and enrollment
in colleges increased by 45% (Young and Kiat 1992).
The central elements of IR/HR policy thus have shifted away from
cost containment and union control to training and skills development
designed to provide a better-quality work force necessary to attract higher-
technology investment. More specifically, the government enacted the
184 Sarosh Kuruvilla

Human Resources Development Act in 1992, which established the Skills

Development Fund, similar to that of the Singaporean system. The 1%
of payroll cost paid by all firms is matched by the government, and the
SDF subsidizes training costs of all applicant firms. The tax on the firm
is larger than in Singapore, however, since each firm can only take back
a maximum of 60% of its contributions to the SDF (Kuruvilla and
Arudsothy 1995).
At local and regional levels, skills development centers have been set
up by the government to work in collaboration with business. These
efforts are complemented by initiatives in the private sector, such as the
new agreement between the Federation of Malaysian Manufacturers and
the University of Science and Technology for skill training programs,
and the initiatives taken by foreign multinationals in Penang. Although
these firms are often fierce competitors in the international semiconductor
market, they cooperate locally in the development of skills at the Penang
Skills Development Center (PSDC 1993). Wage bargaining has been
decentralized to the enterprise level in the unionized sector, although in
some industries, such as banking and plantations, industry-level bar-
gaining is still the norm (Kuruvilla and Arudsothy 1995).
The move to advanced EOI has continued to attract foreign investment
of high quality. Rajah (1994) suggested that higher-end processes such
as chip design, wirebonding, and research and development operations
are increasingly being located in Malaysia. Work organization in the
electronics industry mirrors practices followed in the advanced countries,
and human resource management techniques are based increasingly on
the development of skills with high pay and employee involvement in a
nonunion environment (Rajah 1994).
In sum, in Malaysia, industrial relations at the workplace level in the
export sector exhibits the goal of workplace flexibility. In the more
traditional ISI sector, industrial relations at large state-run organizations
like the Malaysian Airlines System and Proton (a car manufacturer) also
shows trends toward increased joint labor-management consultation and
flexibility (Rajah 1994). At the national level, however, the Malaysian
government has resisted the efforts of labor federations to unite into a
single federation, and the government’s recent “behind the scenes” support
of a rival labor federation is indicative of its intention to keep the labor
movement fragmented in the interests of political stability (Arudsothy
and Littler 1992). Union density has steadily declined in Malaysia from
 Linkages between Industrialization 185

over 12% to 9.9%, and the export manufacturing sector is increasingly

nonunion. The growth in real wages (average annual growth has exceeded
6% since 1987), coupled with a labor shortage and union suppression and
substitution practices of employers, has successfully prevented the growth
of the labor movement. In sum, a shift to a nonunion model at the local
level and fragmentation at the national level is apparent (Frenkel 1993).
The Malaysian case suggests a congruence between first-stage EOI
and an industrial relations system geared toward cost containment. In
addition, the institutional arrangements governing industrial relations
included several elements of labor suppression. During the transition to
second-stage EOI, however, Malaysia’s industrial relations policies have
increasingly resembled Singapore’s, with a clear congruence between a
more advanced EOI and policies focusing on skills development. And as
in Singapore, EOI based on higher skills in Malaysia is bringing about
an integration between IR/HR policies and macro level policies focusing
on education, immigration, and economic development. The lack of op-
position to the ruling political party (the Barisan National Front, which
was a coalition between the United Malay National Organization [the
party of the ethnic Malays] and the parties representing the ethnic Chinese
and Indians, MCA and MIA respectively), and the economic advance-
ment of the largest section of the Malaysian population (the Malays)
under the current economic development strategy, provided the state
the legitimacy to enact policies that apparently trade off labor and union
rights for increased foreign investments in the export sector. The demands
of foreign investors also appear to have been an important factor in influ-
encing the state’s choice of institutional industrial relations arrangements
in the export sector (Grace 1990).

Industrialization Strategy and IR/HR Policy

Goals in the Philippines

The Philippines adopted an ISI strategy (after postwar independence) that

used tax incentives and protection from foreign competition to stimulate
the growth of local industry. The ISI strategy successfully fostered the
growth of a new domestic industrial-capital elite, and expanded
manufacturing, which experienced annual growth rates of 14% between
1949 and 1953 and 11% between 1953 and 1959 (Villegas 1988). The
dependence of the Philippines on the import of capital and technology
186 Sarosh Kuruvilla

to sustain its ISI strategy, however, resulted in a balance of payments

crisis in 1960 (Ofreneo 1994). The shortage of foreign exchange was
alleviated by stabilization loans from the International Monetary Fund
(IMF) and the World Bank, granted on the condition that the Philippines
deregulate its economy and open it to foreign investment through
adoption of an EOI strategy (Bello, Kinley and Elinson 1988).
During the ISI phase, the focus of IR/ HR policy was pluralistic, with
little effort to tinker with inherited IR/HR institutions, which were
primarily American. For example, the Industrial Peace Act of 1953 was
based on the Wagner Act and promoted free collective bargaining, volun-
tary arbitration, unfair labor practice legislation, and business unionism.
The number of registered unions increased from 435 to 839 during the
1950s, with a new generation of union leadership in ISI industries such
as textiles, banking, sugar, and mines (Ofreneo 1994).
The 1962–72 period was characterized by a mixed approach to indus-
trialization. The powerful agricultural elite continued to push for eco-
nomic liberalization and free trade, while the new industrial elite argued
for the continuation of protection for ISI industries that had just stabilized
(Bello and Verzola 1993). Some liberalization followed, via a devaluation
of the peso and removal of protections in some sectors (Villegas 1988).
Social unrest resulted from the devaluation of the peso, however, and set
the conditions for the declaration of martial law in 1972 (Villegas 1988;
Ofreneo 1994). Martial law allowed the Marcos regime and its World
Bank advisers to implement the recommendations contained in the Ranis
Mission report (a World Bank–funded mission) and the World Bank
Country Report of 1975, both of which argued for a full-scale export-
oriented agricultural and industrial strategy based on the comparative
advantage of cheap labor. To attract multinational corporate investments
in export processing zones established in Bataan and Mariveles, the gov-
ernment accelerated the decontrol of trade; increased foreign borrowings
to finance reforms in education, industry, and financial systems; simplified
tariffs and customs codes; and rationalized investment incentives (Villegas
1988; Macaraya and Ofreneo 1993).
To keep costs low to attract foreign investment, industrial relations
policies were transformed through a new labor code introduced in 1974
(Villegas 1988). A key change in IR/HR policy focused on guaranteeing
industrial peace to foreign investors. A ban on strikes was instituted, but
later modified to apply only to “vital” industries “including those engaged
 Linkages between Industrialization 187

in the production and processing of commodities for export” (Villegas

1988: 61). The Secretary of Labor was empowered to obtain injunctions
against strikes. Compulsory arbitration also was introduced through the
National Labor Relations Commission. Unions were prohibited from
soliciting contributions to their strike funds, and all existing strike funds
were to be shifted to labor education and research purposes. In addition,
Article 271 of the labor code banned foreign donations to unions. These
provisions, notes Villegas (1988), significantly weakened the unions’
ability to strike in non-vital industries. Unfair labor practices by employers
were “decriminalized.”11 Furthermore, decree No 1458 allowed perman-
ent replacement of striking workers (Villegas 1988).
The second direction of change in IR/HR policy focused on union
structure, to facilitate a tripartite corporatist arrangement for stability
in industrial relations. The highly fragmented labor movement was
restructured on a “one union in each industry” principle. Unions were
required to become affiliated with one recognized labor center, the
Marcos-controlled Trade Union Congress of the Philippines. An em-
ployers confederation was also formed to participate in tripartism.12
The third direction of change in labor policy focused on the provision
of cheap labor to the growing numbers of foreign investors in the EOI
sectors. The National Manpower Youth Council ensured a constant sup-
ply of trained workers, and the Apprenticeship Program allowed children
aged 14 and older to be employed in export industries at a fraction of
the prevailing minimum wage (Villegas 1988). Although minimum wages
were revised numerous times, these increases fell far short of the rise in
living costs.
The final direction of change in IR/HR policy was a downward revision
of existing labor standards regarding working hours, overtime, and health
and safety. This change was justified on grounds that existing labor pro-
tection standards were too high and did not reflect Philippine realities
(Villegas 1988).
The martial law period did not accomplish a full-scale EOI strategy,
given the continuing dominance of some of the industrial elites during
the period of “crony capitalism” described by several authors (for example,
Macaraya and Ofreneo 1993). However, foreign investment in the low-
cost electronics sector continued to increase, along with foreign aid, and
both helped sustain the EOI strategy. Repeated devaluations of the peso,
188 Sarosh Kuruvilla

coupled with a financial crisis that stemmed from the political excesses
of the Marcos regime, the failure of domestic industries under an export
regime, and the inability of exports to offset the debt payment require-
ments in the 1980s (the debt had reached 93% of GNP in 1986), resulted
in further dependence on World Bank financing (Macaraya and Ofreneo
1993; Bello and Verzola 1993). The result was a series of “structural
adjustment” loans in 1983 and 1986.
The strategic thrust of structural adjustment was a more determined
implementation of EOI and deregulation of the economy, coupled with
a systematic easing out of inefficient Filipino firms (Macaraya and Ofreneo
1993; Villegas 1988). The World Bank’s report on the Philippines em-
phasized that “priority should be given to the continued expansion of
labor-intensive manufacturing taking advantage of the competitive aspect
of labor costs” (Villegas 1988:70).
Foreign investment increased by 1156% after the structural adjustment
policies were implemented in 1983 (Macaraya and Ofreneo 1993). The
nontraditional manufactures (electronics and garments) attracted 80%
of the investments, and by the end of 1983, the electronics sector ac-
counted for 32% of total Filipino exports (Macaraya and Ofreneo 1993).
However, the removal of policies protectioning domestic industries and
the devaluations of the peso had a devastating impact on domestic indus-
tries. For example, the number of closures of domestic firms climbed
from 831 in 1981 to 2,284 in 1984 (Department of Labor and Employ-
ment 1985).
To contain the growing strikes against martial law, the government
enacted BP 130 (prohibiting strikes against the national interest) and
BP 227 (allowing the use of law enforcement agencies to control strikers).
In addition, procedures for terminating workers were simplified in re-
sponse to employer pressures (Villegas 1988), leading to increased layoffs
and terminations. During 1981–82, 65,000 workers were laid off
annually, whereas during 1983–85, after the 1983 implementation of
structural adjustment, the annual number of layoffs increased to 82,000
(Department of Labor and Employment 1986). At least 60% of workers
in the growing export sector were still receiving less than the minimum
wage in the early 1980s, and this period witnessed a decline in union
membership from 12.2% to 9.3% (Villegas 1988). These developments
intensified the schism that existed between the pro-government TUCP
 Linkages between Industrialization 189

and other illegal labor centers such as the KMU and FFW that opposed
structural adjustment policies. This deep schism in the Filipino labor
movement still persists (Ofreneo 1994).
Structural adjustment continued under the democratic regimes of
Aquino and Ramos, although labor laws were altered to expand union
rights. Union formation was simplified, with mandatory representation
if 20% of the employees in an establishment petitioned for representation.
Collective bargaining was allowed in the public sector, and the one-
union-per-industry rule enacted by the Marcos regime was withdrawn.
In cases of unfair labor practices such as the firing of union activists, the
mandatory 15-day cooling off period before labor action was rescinded,
and a simple majority was deemed sufficient in strike ballots (a change
from the previous requirement of a two-thirds majority). However, the
provisions restricting strikes, such as BP 130 and BP 227, continued to
be enforced more firmly than during the Marcos regime, and the govern-
ment cracked down on illegal strikes (Ofreneo 1994).
In an effort to curb industrial unrest, arbitration was mandated to be
the final step in all grievance cases, and the terms of collective bargaining
agreements were fixed at five years. To encourage more collaborative
labor-management relations, a joint labor-management consultation
scheme based on the Japanese example of JCC’s was introduced, and a
form of tripartism was introduced under which labor centers participated
in the setting of regional minimum wages. It is still too early to evaluate
the effects of these changes.
Although President Aquino rolled back the more repressive elements
of Marcos’s labor policy, suggesting a return to the sort of pluralistic
policy that the Philippines had immediately after World War II, this has
not resulted in the strengthening of the labor movement, nor has it pro-
moted more stable industrial relations. If anything, easing of the rules
governing union formation has resulted in even more fragmentation of
the labor movement, with 7 or 8 national centers, 155 national federations
along a myriad of political lines, and more than 5,600 independent local
unions organized on a “general unionism” principle (Ofreneo 1994).
Inter-union rivalry (“every federation behaves like a general at war with
the other generals” [Ofreneo 1994: 324]) has resulted in a weak union
movement, with few union victories in representation elections. The
unions rely on the minimum wage as the floor for collective bargaining,
and their economic muscle is weakened by the restrictions on strikes,
190 Sarosh Kuruvilla

the government’s crackdown on illegal strikes, and employers’ replacement

of striking workers. Further, subcontracting, casualization, and the use
of contract labor have increased five-fold, and have contributed to
declining union power (Ofreneo 1994). Although trade unions claim a
total of 3,000,000 members, the actual number of workers covered by
collective bargaining contracts is under 600,000 (Department of Labor
and Employment 1993). While strikes have declined over the past two
years, the number of cases pending arbitration has increased sharply,
suggesting that there is still conflict in the system (Department of Labor
and Employment 1993).
The Philippine case suggests a correspondence between low-cost
export-oriented development and a cost containment–oriented and re-
pressive industrial relations policy. However, in this case, almost 30 years
elapsed between the announcement of the EOI policy and its full imple-
mentation. Although the focus of the cost containment–oriented labor
policy was consistent with a low-cost primary EOI strategy, the institu-
tional industrial relations arrangements varied across different political
regimes. During the Marcos dictatorship labor relations policies were
extremely repressive. During the Aquino and Ramos governments, in
contrast, democratization led to the removal of the restrictive IR/HR
policies of the Marcos era. However, the liberalization of labor regulations
to make union formation easier has resulted in an increasingly fragmented
labor movement. Furthermore, declines in real wages and job security,
the downward revision in labor standards, and an extremely weak union
movement indicate that IR/HR policies have helped sustain the low-
cost development strategy. Finally, the Philippines case also suggests that
pressures from external bodies such as the World Bank and IMF can
strongly influence a government’s industrialization strategy and conse-
quently the industrial relations system.13

Industrialization Strategy and IR/HR Policy Goals in India

After independence in 1947, driven by considerations of self-reliance,

India adopted an advanced ISI model under the rubric of a centrally
planned mixed economy (Mathur 1993). The ISI strategy emphasized
the growth and long-term development of heavy capital goods industries
run by the state with largely indigenous technology (Sodhi 1993). The
private sector was regulated through restrictions placed on investment
 Linkages between Industrialization 191

and production capacity. The ISI strategy was sustained by a policy of

industrial licensing that regulated the entry of new firms into economic
sectors, and extensive import duties ensured the protection of domestic
industry from foreign competition.14 Forty years of ISI resulted in a slow
but steady economic growth rate of 2–3% per year, a diversified industrial
structure with both heavy industrial and consumer goods industries, a
nuclear program, and space industries. Moreover, the insularity of the
ISI strategy kept the Indian economy relatively unaffected by worldwide
recessions (Singh 1994).
Industrial relations policy in India was influenced by the close ties
between political parties and the labor movement forged in the struggle
for independence (Ramaswamy 1983). First, labor legislation was ex-
tremely protective of labor. In terms of labor standards, India’s Factories
Act of 1948 is among the most advanced in the world, with maternity
leave and benefits, the provision of child care in all factories, and advanced
legislation on health and safety.15
Second, union formation is relatively simple, with any seven persons
being able to form a union. Each political party sponsors its own national
union federation, which ensures that a multiplicity of unions are affiliated
to various political parties in each enterprise. Efforts to reform union rec-
ognition legislation to allow single bargaining agents have been resisted
by the political parties (Reddy 1978).
Third, since union leadership is a stepping stone to political leader-
ship, Indian trade union law allows “external” leaders (who are not em-
ployed in the enterprise and are normally political figures) to run union
affairs. Industrial action therefore is often driven by political consid-
erations not connected with enterprise problems (Ramaswamy 1983).
In terms of collective bargaining, industry-wide bargaining occurs in
certain industries where the employers are organized, but bargaining
otherwise is decentralized to the enterprise level. Although there are no
restrictions on the subjects of bargaining, the Industrial Disputes Act of
1947 restricts the ability of employers to fire, lay off, or retrench em-
ployees, or to close businesses. While layoffs are costly (the employer
must pay 50% of wages for the first 90 days, and layoffs are permitted
only for a maximum of 180 days), retrenchment and the closure of firms
require government permission, which, given the close relationship that
exists between unions and politicians, is rarely given.
192 Sarosh Kuruvilla

Industrial relations is largely conflictual (the number of man-days lost

due to strikes is the highest in the world) despite restrictions on strikes
(for example, the provision that a strike or lockout must be withdrawn if
the dispute is referred by either party to third party conciliation [Lansing
and Kuruvilla 1987]).16 The dispute resolution system is ineffective,
largely because state-appointed conciliation and mediation officers are
also political appointees, which allows unions and political parties influ-
ence over the dispute settlement procedure (Lansing and Kuruvilla 1987).
The political orientation of trade unions has provided the labor
movement with political influence far greater than their union member-
ship alone would warrant. Labor is the swing vote in at least 30% of all
parliamentary constituencies, although the labor movement is not large
(India has about 47,000 registered unions with about 6 million members,
comprising about 2% of the work force [Venkataratnam 1993]).
There is considerable agreement that Indian industrial relations is
“inefficient” (see Ramaswamy 1983; Mathur 1993; Lansing and Kuruvilla
1987). The multiplicity of constantly competing unions in an enterprise
hinders the development of stable labor-management relationships, re-
sulting in a very high rate of industrial action. The power of unions, it is
argued, has resulted in excess employment in the public sector, and slowed
rationalization and restructuring in the private sector (Venkataratnam
1993). The protection from foreign competition afforded to Indian manu-
facturers, and a guaranteed internal market, created huge and inefficient
industries that were not able to compete internationally once the economy
was liberalized (Economist 1994).17
The ISI strategy and industrial relations policy goals are mutually
reinforcing, although they had different roots (labor policy was adopted
due to the influence of trade unions, while industrialization policy was
adopted in order to attain self-reliance). A protectionist ISI strategy was
congruent with a highly protectionist IR/HR system that blocked the
development of collaborative and flexible industrial relations.
The best evidence of this congruence can be seen in the actions of
manufacturing employers, who, when protectionism was withdrawn with
trade liberalization in 1991, started calling for revisions in labor legislation
to allow them to retrench workers and close unprofitable firms. Mean-
while, industrialists in other sectors have been calling for a continuation
of protection from external competition to give them time to restructure
and rationalize their firms (See Sodhi 1993; Venkataratnam 1993).
 Linkages between Industrialization 193

A balance of payments crisis in 1991 was the factor that precipitated

the change in India’s economic policy. For several reasons, India’s for-
eign exchange reserves had declined from U.S. $3 billion in 1990 to less
than U.S. $0.2 billion in March 1991 (Kuruvilla and Erickson 1994).
In danger of defaulting on its debt payments, India approached the World
Bank and the IMF for emergency assistance, which was granted on the
condition that India “liberalize” its economy and change its “inward
orientation.”
“Liberalization” is in progress currently. Industrial policy has shifted
from ISI to a form of EOI. The licensing of industries has been virtually
eliminated, the rules regarding monopoly restrictions have been relaxed,
the ceilings on foreign investment have been removed, and the public
sector has been opened to privatization. Firms are now allowed free entry
into and exit from all industries except for a few strategic ones. In add-
ition to these reforms, trade policy has been revamped to promote exports
and freer trade, the Indian currency has been made fully free-floating
and convertible, and restrictions on the importation of several goods
have been removed. Fiscal policy has been amended to reduce the fiscal
deficit and control the underground economy (estimated to be 1/5 of
the economy), agricultural subsidies have been reduced, and several price
controls have been removed. Furthermore, financial markets have been
liberalized, banking regulations have been reformed, and stock markets
have been freed from government control (see Venkataratnam 1993;
Sodhi 1993).
Economic liberalization has put pressure on industrial relations insti-
tutions to change. Both employers (who now must restructure to survive
in the face of international competition) and the World Bank are strongly
lobbying for changes in IR/HR legislation that would allow firms to lay
off and retrench workers without government permission (Sodhi 1993).
Although labor legislation has not yet been changed, IR/HR practices
are undergoing rapid change. One significant outcome of structural
adjustment and liberalization has been work force reduction. Given their
inability to retrench, employers have introduced voluntary retirement
schemes (VRS) to shed excess labor. Although precise estimates of the
number of people participating in VRS are not available, Venkataratnam
(1993) suggested that a total of 5 million jobs will be lost through
VRS, plant closures, and the privatization of inefficient public sector
organizations.
194 Sarosh Kuruvilla

Employers’ industrial relations practices clearly have become more

aggressive recently. For example, the number of lockouts has increased
dramatically, even as strike frequency has declined (Venkataratnam 1993).
In addition, in order to avoid unionization, employers are promoting
workers into administrative and supervisory ranks to make them ineligible
for unionization by shifting them outside the purview of the Industrial
Disputes Act (Venkataratnam 1993). Employers are also pushing for joint
consultation over productivity improvements, and recent collective bar-
gaining contracts assert management rights more forcefully than ever.
For the first time, concession bargaining has occurred in several industries
(Venkataratnam 1993; Sodhi 1993).
Venkataratnam (1993) suggested that for the first time, the employers
feel that government is on their side. The beginnings of a government-
business coalition (in contrast to the previous government-labor coalition)
are increasingly apparent. For example, in the state of Maharashtra, for
the first time, the government has attempted to neutralize labor unrest
by declaring several private sector firms “essential and public utilities,”
thereby outlawing strikes in these firms (Abreu 1994).
Economic liberalization has weakened labor’s ties with political parties
and forced unions to face what Sodhi (1993) calls an “existential crisis.”
The Congress Party, the party in power, actively supports liberalization,
even though its trade union arm, the powerful INTUC, fundamentally
opposes liberalization. The decline of the INTUC’s political influence
has further weakened a labor movement whose membership is already
declining due to the spread of VRS. The excessive fragmentation of unions
on political lines, a growing alienation between trade unions and their
members, and the waning influence of national unions over enterprise-
based unions have further weakened the union movement (Sheth 1991;
Sarath 1992).
Economic liberalization has thereby called into question the economic
and political basis of previous IR/HR policies. Current trends indicate a
movement toward increased workplace flexibility. If and how this
flexibility will be institutionalized through new legislation remains open
to question.
India provides an illustration of how a country’s IR/HR policy goals
and its ISI strategy became mutually sustaining. The close relationship
between political parties and trade unions since independence ensured
that the state’s choice of institutional industrial relations arrangements
 Linkages between Industrialization 195

governing industrial relations was geared toward the protection of labor

rights and labor power. With the creation of a more open economy since
1991, the existing labor policy is being questioned, and workplace prac-
tices have already shifted toward greater flexibility in industrial relations.
Although employer IR/HR practices have already changed, the govern-
ment is approaching reform of IR legislation slowly, and through tripartite
discussions. Economic liberalization has weakened trade unions consid-
erably, but the long history of trade union partnerships with political
parties has ensured that unions retain a voice in the design of the new
system.

Discussion

The four country cases demonstrate that there is a close relationship

between industrialization strategies and IR/HR policy goals, as argued.
Each type of IS appears to be congruent with certain IR/HR policy
goals (see Figure 1). Under ISI, national IR/HR policies in all four
countries have focused on stability and have been relatively pluralistic.
Under primary EOI, the IR/HR policies of Malaysia and the Philippines
focused on cost containment, which included a substantial amount of
union repression and initiatives to keep labor costs down. Under second-
ary EOI, the IR/HR policies of Malaysia and Singapore emphasized skills
development, workplace flexibility, and productivity. In India, a shift
from second stage ISI to a more “liberalized” EOI-type economy has
oriented IR/HR practice toward increased employer autonomy and
productivity, while debate about policy change continues.
Events in the four countries show that changes in IR/HR policies are
primarily caused by changes in industrialization strategies. For example,
in Singapore, changes in national IR policy were a product of deliberate
decisions taken by the state after adoption of export-oriented industrial-
ization. As Chiang (1988) suggested, it was clear to the Singaporean
state that industrial relations stability and flexibility were critical to the
attraction of foreign investment, and industrial relations policy was con-
figured to meet that need.
In Malaysia, the adoption of more repressive IR policies evolved more
gradually, after EOI was adopted, and appears to have been part of efforts to
attract and retain foreign investment, notably in the electronics industry.
Clearly, the cost containment aspect of IR policies in Malaysia developed
196 Sarosh Kuruvilla

in response to pressures from foreign investors. In the Philippines, repres-

sive IR policies were adopted to support export-oriented industrialization
by keeping costs low. In India, the IR institutions gradually evolved under
a protectionist ISI regime, and the shift to an export-oriented industrial-
ization policy has produced pressures, mostly from employers, for IR
system change.
The close relationship between IS and IR/HR policy goals manifests
itself in different ways. In at least two of the four countries, IR/HR policies
have been used to promote the shift from one IS to another. In Singapore,
the transition to a secondary EOI was encouraged when the National
Wages Council mandated double-digit wage increases in an effort to
drive low-cost producers out of Singapore. In Malaysia, new forms of
work organization and increases in labor costs forced the government to
support a second-stage export-oriented industrialization strategy, with
its attendant implications for IR/HR policy as well, suggesting that the
impetus for change in IS was triggered by IR/HR developments at the
level of the firm. This is further evidence of the close relationship between
IS and IR/HR policy goals.
There is some evidence that the arguments made in this paper are
generalizable to other Asian countries. Lee (1995), Park and Lee (1995),
Levin and Hong (1995), and Brooks (1995) found evidence of a similar
relationship in their respective analyses of Taiwan, Korea, Hong Kong,
and Indonesia.18

Conclusions

The results of this paper suggest that congruence between IS and IR/
HR policy goals is an important precondition for successful economic
development. This paper also identifies several issues for further research.
One open question is why substantial variation exists across countries
in institutional industrial relations arrangements, even when the IS and
IR/HR policy goals are similar. Although I have shown that changes in
IS have shaped IR/HR policy goals in the four countries examined, the
industrial relations institutions and practices are different across those
countries, and often more resistant to change, as Figure 2 shows. The
experiences in these four countries suggest that the institutional arrange-
ments used to meet national IR/HR policy goals are dependent on the
choices governments make, and these choices are constrained by political
 Figure 2: Variation in Institutional Arrangements to Meet National
IR/HR Policy Goals: Singapore, Malaysia, the Philippines, and India

ISI EOI
1st Stage IR/HR Policy Goal = Stability IR/HR Policy Goal = Cost Containment
Political Choices Political Choices
Malaysia and
India, Singapore, Philippines, Singapore, Malaysia, Philippines,
1947–1980 1955–1965 1945–1959 1955–1970s 1975–1986 1960–Current
-Minimum -Minimum -Minimum -Tripartism -Cost Martial Law
standards standards standards -Centralized reduction -Ban on strikes
legislation legislation legislation wage through -Compulsory
-Free CB -Collective -Unfair determination changes in arbitration
-Multiple bargaining labor -Restrictions overtime -Downward
unionism -Emphasis on practices on bargaining legislation revision of labor
-Job conflict legislation subjects and -Ban on standards
security reduction -Free CB strikes unionization -Rationalization of
-Industry and -Restrictions -Industry in export union structure
enterprise on and sector -Decriminalization
Linkages between Industrialization

level bargaining enterprise -High of UFLP of

bargaining subjects bargaining governmen employers
-Political involvement Democracy
unionism in union -Liberalization
-Institutions recognition of Marcos-era laws
to reduce and dispute -Fragmented and
conflict settlement weak unions
197

(Figure 2 contd.)
 198
(Figure 2 contd.)

2nd Stage IR/HR Policy Goals = Stability IR/HR Policy Goals = Workplace Flexibility,
and Productivity Enhancement Productivity, Skills Development
India, Singapore, Malaysia, India,
1980–1991 1978– 1986– 1991–
-Emphasis on economic unionism -Education -Education -Labor
-Emphasis on productivity restructuring restructuring relations
enhancement -Skills -Skills legislation
development development under
institutions institutions debate
-Rational- -Withdrawal of -Job security
ization of unionization provisions under
bargaining ban revision
structure to -Less -Workplace
Sarosh Kuruvilla

enterprise government flexibility

level intervention under debate
-Wage -Rules
decentralization emphasizing
-Rules workplace
emphasizing flexibility
workplace
flexibility
 Linkages between Industrialization 199

conditions (for example, the power of the ruling party and the influence
of unions) as well as the previous institutional history. But more research
is needed to uncover the factors causing the variation in IR/HR institu-
tions and practices.
Although most IR scholars have viewed labor, management, and
government as the primary actors in any IR system, the close relationship
between industrialization and industrial relations found in the four coun-
tries analyzed in this paper suggests that several external actors can affect
the IR system through their infuence on the industrialization strategy.19
For example, in Singapore and Malaysia, foreign capital played a signifi-
cant role in shaping IR/HR policies and institutions. In the Philippines,
the World Bank has had a fundamental impact on industrial relations
through its effect on IS. Although it is not easy to separate the effects of
industrialization strategy and foreign capital on industrial relations
change, external actors appear to be important, and their importance is
only likely to grow as the international economy becomes more global.
In addition, external organizations such as the new World Trading Organ-
ization are attempting to link trade issues more directly with industrial
relations policies and practices.
It is also necessary to extend the analysis of IR/HR policy to the meso
(company) and workplace levels. In another study, for example (Kuruvilla
1996b), I found that ISI sector firms in Malaysia and the Philippines
typically had paternalistic, complacent, and passive IR/HR practices,
whereas EOI sector firms had dynamic, aggressive, and flexible IR/HR
practices. In countries where inter-firm networks are important, and when
employer associations are more active, the meso level assumes great im-
portance. Thus, it is essential that future research analyze how IS, national,
and meso-level IR/HR policies are linked to work-place practices.
Finally, in contrast to the prediction of Kerr et al. (1964), the only
way in which the four countries analyzed here exhibit convergence is in
terms of the congruence between industrialization and IR/HR policy
goals. These countries diverge widely in their industrialization strategies
and corresponding IR/HR policy goals and in the institutional arrange-
ments by which the goals of national IR/HR policies have been pursued,
and thus they do not converge in IR/HR institutions and practices.
200 Sarosh Kuruvilla

Notes

This research was partially funded by grants from the Institute of Collective
Bargaining, the Center for Advanced Human Resource Studies, and the Faculty
Incentive Grant Program of the New York State School of Industrial and Labor
Relations at Cornell University. The author thanks Harry Katz, Rehana Huq,
Christopher Erickson, Jan Hack Katz, and Stephen Frenkel for helpful comments
on earlier versions of this paper.

1. My definition of workplace flexibility differs substantially from that of Standing,

who uses the term “flexibility” to describe the activities that firms engage in to
reduce employment during economic downturns, such as subcontracting,
layoffs, and use of probationers. My use of the term “workplace flexibility”
follows Katz, Kuruvilla, and Turner (1993).
2. The argument is consistent with Deyo (1989) in associating EOI with labor
suppression, but differs from Deyo regarding the focus of inquiry, the dependent
variable, and the relationship between IS and IR/HR policy goals.
3. Although the focus in this paper is on national IR/HR policy goals, I have also
studied the relationship between IS’s and IR/HR practices at the workplace
level. Details of this relationship can be found in Kuruvilla (1996b).
4. This feature was introduced by the Industrial Relations (Amendment) Act of
1968.
In British usage, layoffs are temporary and retrenchments are permanent.
5. For instance, strikes were allowed only after a 14-dav notice period, and only
after a secret ballot was conducted with at least two-thirds of the members
voting for a strike. Political strikes were disallowed, and the government could
prohibit strikes if they were deemed to be against the national interest. Since
strikes were not permitted once a dispute was under conciliation or mediation
by a third party, either of the parties could request mediation services of the
government, which would effectively end any strike. See Chiang (1988) for a
more detailed description of other policies.
6. See Rodan (1989:119) for a more detailed description of this transition.
7. See Chew and Chew (1995) for support for this statement, and Leggett (1988),
who argues that the labor movement has been hobbled by authoritarian
government.
8. Essentially, the New Economic Policy attempted to increase the economic
power of the Malay population through legislation on affirmative action in
employment and in corporate investments and shareholdings.
9. Workplace policies were virtually identical to those in Singapore, and reflect
the policies of the British (Kuruvilla 1996a).
10. Essentially, the “Look East” policy of the Prime Minister focused on cajoling
Malays to adopt the diligent and hardworking practices of the Japanese and
Koreans.
 Linkages between Industrialization 201

11. Under the Labor Code introduced by the Marcos government, article 250
made unfair labor practices such as union busting into administrative offenses,
punishable by fine only. Under the old Industrial Peace Act, these had been
criminal offenses, punishable by imprisonment, fine, or both.
12. Tripartism was, however, never fully institutionalized, given opposition from
other labor groups, and the efforts to change the union structure actually led
to the rise of the KMU (Kilusang Mayo Uno) to challenge the supremacy of
the TUCP.
13. For a more detailed discussion of the World Bank’s influence on the Philippines,
see Bello, Kinley, and Elinson (1988) and Macaraya and Ofreneo (1993).
14. For a more detailed description of the development of India’s ISI strategy, see
Venkataratnam (1993).
15. Factories’ rules are so detailed that even the toys to be kept in child care centers,
called “creches,” are specified by the law.
16. The man-days lost due to strikes in 1987, 1989, and 1991 were 36,583,000,
30,440,000, and 7,640,000, respectively, and strikes in those years numbered
1,799, 1,893, and 831. Note that the figures for 1991 reflect only the period
January–July.
17. For instance, Ashok Leyland, one of India’s largest truckmakers, argues that it
costs $14,000 to make a Ford Cargo van in India, due to high labor costs and
costs of licensing and import duties, whereas the same van can be made in
Britain for half the price (Abreu 1994).
18. In addition, Dombois and Pries (1994) posited a similar argument in the case
of Latin America.
19. The influence of external actors on the IR system has been noted by Frenkel
and Harrod (1995).

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 Industrial Relations Law, Employment
9 Security and Collective Bargaining
in India: Myths, Realities and Hopes

Anil K. Sen Gupta and P. K. Sett

Economic liberalisation programme initiated by the Indian government

in 1991 revived the debate over the need for comprehensive reforms in
the industrial relations law of the country. While the issues central to the
debate, namely, excessive state intervention in industrial disputes, the
need for statutory union recognition and the role of employment security
provisions in creating structural rigidities, remained unchanged over the
years, the new economic context, with its inherent need for a market
based labour system, lent an overriding urgency and salience to the last.

The Industrial Relations Law in India

Three important pieces of legislation have played a major role in shaping

Indian industrial relations. They are: the Trade Unions Act, 1926 (TUA),
the Industrial Employment (Standing Orders) Act, 1946 (IEA) and the
Industrial Disputes Act, 1947 (IDA). These enactments are significant
not merely in themselves, but also in the way they have interacted upon
each other to produce a distinctly Indian system (Ramaswamy and
Ramaswamy, 1981).
The most striking features of Indian industrial relations law are: absence
of provisions on recognition of a trade union as a collective bargaining
agent and the omnipresent role of the government in regulating the
industrial relations. Mere registration of a union under the TUA does
206 Anil K. Sen Gupta and P.K. Sett

not entitle it to recognition by the employer as a legitimate representative

of his workers, or to the bargaining relationship that would arise from
such recognition. Under the IDA, the government enjoys full dis-
cretionary power whether or not, when, and how to intervene in an
industrial dispute—actual or threatened. It may or may not decide to
conciliate, it may refuse to send a dispute for adjudication or it may even
decide not to implement the award of a Labour Court or Industrial Tri-
bunal. While it may prohibit strikes or lock-outs, or it may refuse permis-
sion for a lay-off, retrenchment or closure, no court can take cognisance
of an offence under the IDA, by way of an illegal strike/lock-out/lay-off/
retrenchment/closure, unless the government formally notifies such an
action as illegal and makes a complaint to the court. In total, in India, the
government plays a vital role in shaping the industrial relations climate.
Also, the adjudication system is so structured and manned that the state
apparatus exercises substantial influence over its functioning.

The Legacy

State domination of industrial relations in India is a legacy of its colonial

past. All the three relevant statutes mentioned above were enacted before
Independence. IDA, which is the most important of the three, is a virtual
replica of the Section 81A of the Defence of India Rules and was pro-
mulgated by the British government in 1942 in the wake of the Second
World War. It intended to have complete state control over industrial
relations, to ensure uninterrupted wartime production. After Independ-
ence, when initial attempts to reform IDA and TUA were shelved, state
control was sought to be justified on the grounds of the need for industrial
harmony in order to achieve speedy economic development. Intervention
by the state was also required, it was argued, to ensure social and economic
justice to the workers, who were perceived to be weaker. An ironic conse-
quence of this line of reasoning, which could not later on be changed on
populist political considerations, was that the emergency measures
adopted by the British to fight the war, which bestowed upon the state
an overwhelming interventionist role, continued to rule the industrial
relations scene of an industrialising nation with a democratic political
set-up.
 Industrial Relations Law 207

A Broad Profile of the Debate

The debate on comprehensive reforms in industrial relations law in India

has to be understood in the context of its colonial legacy. The current
debate has three important themes: the need to encourage bipartism
and strengthen collective bargaining as an institution, the need for relaxing
the rigidities of employment security provisions, and the need for an
independent empowered authority for promoting the settlement of
industrial disputes without the intervention of the executive wing of the
state.

(i) Bipartism and Collective Bargaining

The arguments on this issue revolve around the need for and alleged
consequence of state intervention in industrial disputes. Those who argue
against third party intervention claim that it has inhibited the growth of
collective bargaining and trade union strength by providing a ready
alternative leading to disinclination of the disputants to search for other
options including bargaining. The widespread criticism of the functioning
of the state conciliation machinery and the allegations of arbitrariness in
referring disputes for adjudication are highlighted, in support. Instances
are also cited to buttress their argument that the present system lends
itself to subversion by unscrupulous politicians (Ramaswamy, 1984).
Those who favour retention of provisions relating to state intervention
as a remedy, point out that it could not be reasonably argued that adjudi-
cation inhibited the growth of collective bargaining, as the parties were
free to settle the disputes bilaterally and they could not go for adjudication
directly. The fact that in a good many cases the government did not
make a reference for adjudication itself had put enough pressures on the
parties to settle their disputes bilaterally. They further contend that the
employees have achieved better conditions of service through adjudication
rather than through collective bargaining, given the endemic organisa-
tional weaknesses of the Indian trade unions (Government of India,
1969).
However, consensus appears to have emerged on three fundamental
points. First, statutory union recognition is considered to be the most
essential prerequisite for promoting long term industrial harmony, given
208 Anil K. Sen Gupta and P.K. Sett

India’s socio-political milieu. Lack of adequate pressure for union recog-

nition prevented the emergence of strong trade unions and growth of
collective bargaining—both being vital ingredients of sustained industrial
peace. Secondly, a structural framework to support collective bargaining
should be built into the present statute that lacks it. The framework
envisaged is one of a negotiating council at corporate and industry levels,
comprising representatives of the recognised trade unions—on a propor-
tional representation basis. Lastly, third party intervention may be
allowed, as a last resort, only by an autonomous agency like the proposed
Industrial Relations Commission, and not by the state executive (Govern-
ment of India, 1990).

(ii) Employment Security Provisions

The major points related to employment security being debated are the:
need for obtaining prior permission of the government by the employer
for lay-offs, retrenchment and closure and the level of compensation to
be paid to the workers in such cases. These provisions are contained in
the Chapter VB of the IDA that was incorporated into the statute in
1976.
The employers view the prior permission clauses, which did not exist
in the statute before 1976, as unreasonable restrictions affecting the
economic viability of an enterprise. They allege that the government in-
variably refuses permission on populist political grounds and point out
that even the Supreme Court and some of the High Courts have struck
down some of the related provisions of law as unconstitutional as they
purported to confer arbitrary powers on the government to refuse
permission.
The trade unions on the other hand hold the employers responsible
for industrial sickness and point out that the employers in violation of
the law have effected large-scale job loss. Cumbersome legal processes
involved in prosecuting an erring employer and the meagre penalties
that could be imposed even after conviction have helped the employers
to break the law with impunity, they allege. The trade unions, therefore,
insist that the employers must obtain the permission of the proposed
negotiating council before resorting to any lay-offs, retrenchment or
closure. If no agreement is reached within a stipulated period, then the
matter could be raised as an industrial dispute to be adjudicated by the
 Industrial Relations Law 209

proposed Industrial Relations Commission. They demand that the rate

of compensation has also to be raised substantially—at least twice or
thrice the existing rate.
So, on the employment security provisions there is no apparent
consensus, particularly on the need for prior permission—though many
observers feel that trade unions might attenuate their stand on the prior
permission clause if the employers could offer attractive severance
compensation.

(iii) Industrial Relations Commission

The main criticism of the existing regulatory framework is that it is

highly vulnerable to political misuse and hence lacks credibility. The
conciliation process tends to be either powerless, when conducted by
the lower functionaries, or highly discriminatory, when the ruling
politicians take undue interest in it. The adjudication, apart from being
time consuming and expensive as any other litigation process in India, is
also charged to be discriminatory as the power to make reference rests
with the government.
Because of the very structure of the present arrangements, the decisions
of the government, though fair sometimes, have not appeared to be so to
the affected party. On the other hand, in a democratic system the pressure
on the government to actively intervene may be powerful. To resolve this
essential tension, the National Labour Commission (1969) recommended
setting up of an Industrial Relations Commission (IRC), independent
of the state executive, entrusted with the functions of conciliation, ad-
judication and union recognition (Government of India, 1969). Appeal
against an IRC award would lie only before the Supreme Court.
There exists a fair amount of unanimity on the desirability of formation
of an independent empowered authority like the IRC to regulate the
industrial relations system in India.

The Myths and the Realities

(i) Labour Restructuring at the Enterprise Level

Quite contrary to the commonly held perception that associate industrial

restructuring with the economic liberalisation programme initiated in
210 Anil K. Sen Gupta and P.K. Sett

1991, the process of labour adjustment at the enterprise level commenced

in India roughly from the mid-seventies.
Two wars and successive droughts in the early sixties resulted in a
severe economic crisis during the mid-sixties, which ultimately led to
economic stagnation throughout the seventies. After 1965 the industrial
growth rate slowed down considerably. This combined with the slower
annual growth rates of food-grain and non-food grain production during
the period caused the crisis (Sen Gupta, 1993). In the industrial sector it
led to acute demand recession. The increased competition for the limited
market, which did not achieve the anticipated growth, resulted in
overcapacity.
Faced with the bleak economic prospects, the employers felt the urge
to restructure their units. As a survival strategy the employers preferred
risks in the labour market than in the product market. Their focus of at-
tention was to use wage and employment related policies as a cutting
edge for survival. Their main priority became introducing flexibility in
labour processes and cutting down labour costs by reducing dependence
on permanent labour force.
The main stumbling blocks, however, were not only the employment
security related provisions of the IDA but also the provisions of the
Contract Labour (Regulation and Abolition) Act, 1970 (CLA). Under
the CLA the government had full powers to decide areas of work in an
organisation where engagement of contract labour would be permitted
and under what circumstances and, areas it would be prohibited. The
government could decide, in its discretion, the sphere of prohibition
and annex new areas, where contract labour may have been engaged
traditionally in the past, under prohibition. For lawful engagement of
contract labour, the contractor should possess a valid license issued by
the government and the establishment that engages contract labour
should obtain a certificate of registration under the CLA. Obtaining
licence or permission of the government is a time-consuming and difficult
task mired in a complex web of bureaucratic procedures. Moreover, the
government quite often refused permission on the ground that the area
of work applied for was of a ‘perennial’ nature, or was ‘incidental’ to the
work of the establishment, for which permanent labour, rather than con-
tract labour, could only be engaged. Under the statute the sole discretion
for making such decisions lay with the government. Over the years, the
governments in the states, yielding to the pressures created by growing
 Industrial Relations Law 211

levels of unemployment and also to keep promises made by them to

provide more jobs, brought more areas under prohibition ostensibly to
compel the employers to employ more permanent workers. That the
result of such actions was just the opposite was another story. These pro-
hibitions made company labour processes still more rigid and the em-
ployers even more desperate to break the shackles of the law in order to
survive. To circumvent the provisions of the law, they contrived various
ways and means; some common to what employers had adopted in other
countries and some distinctively indigenous.
To reduce dependence on a permanent workforce the employers
adopted predominantly two strategies. One was to escape the nexus and/
or coverage of the law and the other was to farm out regular production
to outside sources. To avoid the nexus, the employers increasingly hired
labour through the intermediary of contractors, who undertook to supply
labour in the guise of ‘job contracts’ or ‘contracts for services’. Most of
these were sham contracts, used merely to camouflage the real employ-
ment relationship within the firm. Some used still more blatant methods
of forcing people to work without any written records of wage or attend-
ance. In order to escape the coverage of law employers adopted several
means, some demonstrating weird imagination and creativity of mind.
Employment of persons on a casual basis, even for work of regular or
permanent nature, became a wide practice. Since the Indian law prohibits
such a practice, the employers devised ingenious ways to avoid the cov-
erage of law. Designations such as ‘learner’, ‘trainee’, ‘improver’ were
invented. Some employers even forced the workers to change their names
or they shuffled the workers within their syndicated groups, several times
during a year, so that the persons concerned could not earn the eligibility,
in terms of required minimum length of continuous employment under
one employer, to seek protection of the law. For white-collar workers de-
scriptions of work or responsibilities and designations were so manipu-
lated that they were projected as exempt categories of employees (Mathur,
1992). As a unionist in a pharmaceutical company, which redesignated
telephone operator as ‘communication officer’ and accounts clerk as ‘pay-
roll executive’, puts it (Davala, 1995): ‘They were offered three things—
an attractive designation, a visiting card and a tie’.
Several studies (Frensen, 1991; Goyal, 1984; Ramaswamy, 1988) point
to a significant shift in employment from the organised to the unorganised
sector through sub-contracting and emergence of a typical employment
212 Anil K. Sen Gupta and P.K. Sett

practice where those who work for an enterprise do not have direct em-
ployment relationship with it, even though they may be working within
the firm’s premises (Mathur, 1991). A study of six major industries also
points to a rise in the incidence of casual and contract employment
(Sarath, 1992).
The macro-level data amply support the above findings. During the
period from 1971 to 1991 the percentage of casual workforce of the
total organised labour increased from 23 to 35. Also, the unorganised
sector employment has grown much faster than the organised sector
employment in almost all non-agricultural sectors. Employment in
organised manufacturing, for example, grew at an average annual rate of
1.44 per cent compared to 4.57 per cent growth in unorganised manu-
facturing, during the period from 1972–73 to 1987–88. In 1981 the
employment in the ‘middle sector’ (comprising unorganised but non-
household industries) constituted 45 per cent of the total manufacturing
employment as against 27 per cent in 1961.
In the organised industry as a whole, the entire growth of about 8 per
cent per annum during 1980s has been due to productivity growth as
employment had a negative growth of about 0.5 per cent per annum
while value added per worker grew, in real terms, at a rate over 9 per cent
per annum. The employment elasticity of Gross Domestic Product (GDP)
growth steadily declined during 1970s and 1980s. In 1980s the average
employment elasticity in the manufacturing sector turned out to be as
low as 0.2.
All the evidences indicate that permanent workers have lost their jobs
not so much to machines as to cheap labour supplied by casual and con-
tract labours. All kinds of industries, from the traditional and declining
to the modern and buoyant were shifting work to such underpaid labour
(Ramaswamy, 1992).
Interestingly, the measures to increase labour flexibility did not include
retraining in new skill of any significance. Technological changes have
generally not led to much reduction in employment within enterprises
since enterprises upgrading technology were also the ones who expanded
production and restructured their labour forces through recruitment (in
new skills) and redeployment rather than shedding of manpower. Thus,
employer strategy varied in response to context. For industries in a phase
of growth and diversification, restructuring of labour processes were
carried out painlessly without loss of employment or adverse impact on
 Industrial Relations Law 213

wages—as these firms followed a strategy of product innovation and

could maintain an oligopolistic position in product market. Where the
firms faced market competition or demand recession, the employers’ ap-
proach was diametrically different.
To force rationalisation of labour forces in old plants with entrenched
trade unions, high wages and inflexible work practices, the employers
used several innovative tactical ploys to circumvent the rigidities imposed
by the law. Without declaring ‘closure’, which required prior permission
of the government, they stopped operations on the whole, or a part, of
the establishment and forced the employees, or a group of them, to either
accept transfer to a plant in a distant location, or take ‘voluntary retire-
ment’. Sometimes, closure of the business was brought about perfectly
legally by deliberately defaulting on payments to the creditors and per-
suading some of them to file a petition in a civil court for winding-up
of the company under the Companies Act. In a somewhat similar fashion,
the arm of the law was twisted to allow the lay-off of workers due to con-
tinued non-availability of power where electricity supply was discon-
nected on account of persistent default in payment of electricity bills by
the company! However, by far the most frequently used method was to
resort to ‘lock-outs’. Lock-outs, perceived as employers’ counter-sanctions
against workers’ strikes, do not require any prior permission of the govern-
ment and workers are not entitled to any compensation during a lock-
out, unless it is declared as both unjustified and illegal by the government.
From the employers’ point of view, prolonged lock-outs were better than
closures, as there were no liabilities of taking prior permission and making
payment of any compensation to workers, as were required in formal
closures. Depending upon the circumstances and employer objectives,
declared or undeclared lock-outs have been used as an offensive to
pressurise the workers in accepting either, tighter work-norms (as a
precondition for wage negotiation) or, manpower rationalisation through
‘voluntary retirements’ (most popular with the MNCs operating in India).
They have also been used to simply close down a business or, shift capital
or employment from ‘rigid’ and ‘high labour cost’ to ‘more flexible’ and
‘low labour cost’ regions within the country (Mathur, 1991).
Thus in the absence of any means of dealing with the problem of
redundancy under the existing statutes, the employers found their own
ways, not always within the bounds of law, to tackle them. As they con-
fronted the unions to alter balance of power and force through the
214 Anil K. Sen Gupta and P.K. Sett

restructuring on their own terms, the politically motivated and, often,

pliant state machinery and dilatory adjudication process helped them to
achieve their goals, as would be seen later.

(ii) Efforts to Weaken the Trade Unions

Trade unions as independent and countervailing power centres had been

perceived by the employers in India as a serious impediment to restruc-
turing, as anywhere else in the world. So, reducing union power had
been high on their agenda. The emerging economic context greatly helped
them to achieve their goals.
In the face of economic crises, particularly since the mid-eighties, the
government’s economic imperatives shifted, as it desperately needed to
attract private investments to stimulate growth. There was concomitant
change in the government labour policy that tended to become increas-
ingly supportive of employers. Change in policy regime also seemed to
influence the judicial interpretations of the statutes. They became
increasingly aligned with the new policy. These congruent developments
enabled the employers to emerge stronger and to snatch the initiative
from the trade unions, which stood already weakened by the adverse
economic circumstances. The balance of power in industry has decisively
shifted in favour of the employers, especially since the mid-seventies (Sen
Gupta, 1993). This is unambiguously reflected in the trends of strikes
and lockouts (see Table 1). The average duration of lockouts—i.e., em-
ployer offensives—led to a steady increase in mandays lost from the early
seventies until the end of the eighties—the period of largest relative
increase being 1975–79. The severity of industrial action, as measured
by the average number of mandays lost per year per worker involved,
was far greater in case of lockouts than strikes, during this period.
Other evidence also corroborates the shift. The percentage of un-
successful strikes steadily increased during this period, excepting during
1985–89 when it decreased compared to the previous five years. During
1990–94, 47.6 per cent of strikes proved to be unsuccessful as compared
to 33.9 per cent during 1965–69. Conversely, the incidence of indefinite
strikes, which reflect the workers’ ability to engage the employers in a
tough battle, declined consistently from 17.7 per cent in 1965–69 to
2.9 per cent in 1985–89 and thereafter it increased to 6.1 per cent during
 Industrial Relations Law 215

1990–94. Similarly, the cases of voluntary resumption of work by the

striking workers, which also reflect the breakdown of workers’ resistance,
steadily increased from 29.5 per cent in 1965–69 to 45 per cent in
1990–94 excepting during 1985–89 when it decreased compared to the
previous five years. Union density in organised manufacturing, which
was around 45 per cent in the late seventies, progressively declined
through the eighties and stood around 25 per cent in early nineties. All
evidence, therefore, consistently supports the hypothesis of the shift in
the balance of power in favour of the employers, since the mid-seventies.
Recent studies (Shrouti and Daur, 1995) suggest that this shift continues
through the nineties.

(iii) Distinctively Indian Experience

The shift in the balance of power in favour of employers, in the face of

economic adversity or product market competition, and associated crisis
in unionism is not a uniquely Indian phenomenon. Several studies (Deyo,
1989; Frenkel, 1993; Frenkel and Harrod, 1995; Kuruvilla, 1996;
Wilkinson, 1994) document this trend which appears to be common to
both developed and developing countries. However, what is unique about
the Indian experience is the way democratically elected governments used
their enormous discretionary powers under the industrial statutes and
subverted the functioning of dispute resolution machinery, to further
their narrow political interests. In the process, growth of genuine trade
union power base was stifled. Because, under such circumstances, power
of a union was determined by its influence over the political party ruling
the state; not by its ability to organise the workers.
Political interventions in industrial disputes took place through three
sources: calculated use of police force, conciliation proceedings and dis-
criminatory use of power of reference of the disputes for adjudication.
The minister or the chief minister of the state entered the scene in the
guise of a conciliator interested in finding an amicable settlement to the
dispute. Then, taking advantage of the glaring weaknesses of the existing
law (like absence of provisions for statutory union recognition or, fool-
proof method for union membership verification) and using their formid-
able political clout, they forced settlements which favoured trade unions,
union leaders or employers of their choice. Under such dispensations,
216 Anil K. Sen Gupta and P.K. Sett

even the smallest union with only seven (minimum number required for
registration under TUA) members but with right political patronage,
could adroitly exploit conciliation and adjudication processes to carve
out a role for itself and undermine the influence of an established union.
The history of industrial disputes in India is replete with instances of
abuse of political power and subversion of dispute settlement machinery
to promote political interests (Government of India, 1968; Ramaswamy,
1984).

Table 1: Trends of Strikes and Lockouts during 1965–94

1965–69 1970–74 1975–79 1980–84 1985–89 1990–94

∗ Average percentage 10.6 11.9 13.4 16.4 29.6 31.1
of lockouts per year
∗∗ Average percentage 29.3 25.9 36.3 a 36.4 58.8 59.0
of mandays lost
per year due to
lockouts
Average number of
mandays lost per
year per worker
involved in:
a) strikes 7.8 9.2 10.6 b 21.4 9.9 12.3
b) lockouts 29.0 30.4 50.0 63.1 84.9 45.2
∗ As a percentage of average total number of industrial disputes per year.
∗∗ As a percentage of average total number of mandays lost per year due to industrial
disputes
a) During 1980–84 there have been two very large but localised strikes; one in
public sector units in Bangalore in 1981 and another in textile mills in Bombay
during 1982–83. If mandays lost in these two localised strikes are factored out,
the percentage increases to 47.2 per cent.
b) The sudden steep increase is attributed to the two very large but localised
strikes mentioned earlier.
Source: Pocket Book of Labour Statistics of relevant years, published by the Labour
Bureau, Government of India.

The time-consuming and cumbersome adjudication process, with in-

built scope for multi-level appeals against the judgement of a lower court,
could not provide any effective relief to the affected parties. Taking ad-
vantage of this dilatory and costly litigation process, the employers also
could, with impunity, illegally terminate the services of the union activists
 Industrial Relations Law 217

to break the workers’ resistance, even where the state did not act in a
partisan manner.
A number of recent studies (Mathur, 1991) confirm that the earlier
tradition continues unabated and reveal how the political executives of
the state, aided and abetted the process of tilt in the balance of power
in favour of the employers, as the restructuring process at the firm level
went on. Apart from using the state apparatus in favour of the employers,
the political party in power also used its affiliate trade union to facilitate
restructuring. The political affiliations of the rival trade unions or the
workers’ groups did not help them in either deriving political strength
or mobilising public support to fight their employers. Ironically, under
such circumstances, agitation by the workers against restructuring only
helped the employers to achieve their objectives faster by precipitating
‘crises’ and forcing the issues more vigorously.

(iv) Effect on Conditions of Labour

Conditions of labour varied greatly across industries and even regions.

In traditional and mature industries gains of the permanent workforce,
which was reducing in size, were achieved at the cost of new employment
and worsening conditions of employment of the peripheral workforce.
Even for the permanent workforce the economic gains were in exchange
for intensification of work norms as reflected through data on productivity
or value added per employee (Ahluwalia, 1991; Jose, 1992; Ramaswamy,
1988). With the balance of power shifting in their favour, the employers
were able to impose a labour regime to meet their interests and
requirements.
In new industries the essential nature of the power dynamics was the
same; only some external manifestations were different. These firms,
mostly enjoying oligopolistic product market conditions, offered larger
increases in wages and benefits. But they ensured tight control over unit
labour cost by pushing through improved labour standards as they up-
graded their processes and technologies in tune with their changing
product portfolios and diversifying businesses. There was no loss of
employment as these businesses expanded and diversified. The pangs of
change were made bearable by employing sophisticated human relations
initiatives (Davala, 1995; Mathur, 1991).
218 Anil K. Sen Gupta and P.K. Sett

The Hopes

By and large, the employers in India have been successful, particularly

since the early seventies, in pushing through labour restructuring
programmes at the enterprise level, in spite of the employment security
provisions of the law. The trade unions have failed to stall them. The
economic imperatives of the state to a large extent facilitated this course
as the state machinery favoured the employers.
As the process of economic liberalisation in India advances further,
the concomitant changes taking place in product market structure would
have profound bearing upon the nature of employment and strength of
trade union power base. By that logic, these would also determine the
future prospects of collective bargaining, which is an important insti-
tutional edifice of the industrial democracy.
Given the supply characteristics of the Indian workforce, there is every
likelihood that differentiation within the labour market will be heightened
(Mukhopadhyay, 1992). Increasing product market differentiation and
technological diversity between firms within the same industry would
also differentiate the labour market. The tendency would be towards de-
centralised firm specific bargaining. Increasing geographical spread of
firms in the same industry would also facilitate this emergent decentralised
bargaining structure. Even in the same industry mutually exclusive market
segments may emerge; one, oligolopistic, high technology firms catering
for niche markets where competition is on brand equity and the other,
price sensitive lower market segment. This market segmentation would
not only have impact upon the collective bargaining structure but may
also influence union-type at firm level (Bhattacherjee, 1989). Typically
multiple-plant firms with decentralised bargaining structure put workers
in their weakest position. So, if the present trend continues, the trade
unions in India would continue to remain weak and to that extent the
prospect of collective bargaining is not bright.
However, the only hope for a fundamental change in the industrial
relations scene in India lies in the formation of the proposed Industrial
Relations Commission (IRC) which is to be a high-power statutory body,
independent of the state executive. It would be made responsible for
conciliation and adjudication of industrial disputes as well as for granting
statutory recognition of trade unions as bargaining agents.
 Industrial Relations Law 219

Constitution of IRC at the central and state levels, along with the
statutory recognition of trade unions as bargaining agents and formation
of negotiating councils at plant and/or industry level, is likely to bring
about fundamental change in the structure of industrial relations ma-
chinery. Impact of this change on consolidation of trade union power
base and also on the process of collective bargaining would be important
areas of future studies.
Formation of IRC is likely to make the settlement of industrial disputes
faster, more effective and also less discriminatory, being insulated from
political influence. A somewhat similar experiment with the disputes
relating to the government employees in India has given encouraging re-
sults. It is likely to foster greater confidence among both employers and
workers in institutional arrangements and thus help improving industrial
relations. More effective conciliation by this high-powered body is likely
to obviate the need for frequent adjudication. Similarly, a speedier adjudi-
cation process would make it less expensive. It would also result in better
enforcement of the law as well as agreements and awards. Above all, IRC
may possibly play the role of an effective bulwark against employer
arbitrariness.
However, it may be prudent to put in a caveat here against any undue
optimism. Efficient functioning of IRC as an effective dispute processing
institution may well lead to some paradoxical consequences. It may en-
courage greater resort to the services of IRC by the disputants which, in
turn, may lead to juridification of industrial relations. If this really hap-
pens, then that would greatly undermine the very process of collective
bargaining, which is sought to be promoted. To avoid this adverse
possibility, it is imperative that the IRC identifies an appropriate style of
functioning from its inception.
Finally, the role of the state in India, particularly of its law and order
enforcing agency, would always remain pivotal in determining the
outcome of an industrial dispute that often involves open conflict.

References

Ahluwalia, I. J. (1991), Productivity and Growth in Indian Manufacturing

(New Delhi: Oxford University Press).
Bhattacherjee, D. (1989), ‘Evolution of Unionism and Labour Market Structure:
Case of Bombay Textile Mills (1947–85)’, Economic and Political Weekly, 24,
May 27 Issue, M67–M76.
220 Anil K. Sen Gupta and P.K. Sett

Davala, S. (1995), Labour Strategies in Multinational Corporations in India (Delhi:

Friedrich Ebert Stiftung).
Deyo, F. C. (1989), Beneath the Miracle: Labour Subordination in the New Asian
Industrialism (Los Angeles: University of California Press).
Frenkel, S. (ed) (1993), Organised Labour in the Asia-Pacific Region: A Contemporary
Study of Trade Unionism in Nine Countries (New York: ILR Press).
Frenkel, S. and J. Harrod (1995), Industrialisation and Labour Relations: Contem-
porary Research in Seven Countries (New York: ILR Press).
Frensen, J. (1991), Subcontracting and Inequality: The Case of Hindustan Lever in
India (Nijmegen: Third World Centre, Catholic University of Nijmegen).
Government of India (1968), Sarkaria Commission of Inquiry—Final Report (Delhi:
Government of India).
Government of India (1969), Report of the National Commission on Labour (Delhi:
Government of India).
Government of India (1990), Report of the Bipartite Committee on New Industrial
Relations Law (Delhi: Government of India).
Goyal, S. K. (1984), Small Scale Sector and Big Business (New Delhi: Corporate
Study Group, Indian Institute of Technology, Delhi).
Jose, A. V. (1992), ‘Earnings, Employment and Productivity in Organized Industry
in India’, The Indian Journal of Labour Economics, 35, 3, 204–226.
Kuruvilla, S. (1996), ‘Economic Development and Industrial Relations: The Case
of South and SouthEast Asia’, Industrial Relations Journal, 27, 1, 9–23.
Mathur, Ajeet N. (1991), Industrial Restructuring and Union Power (New Delhi:
ILO-ARTEP).
——— (1992), ‘Employment Security and Industrial Restructuring in India’
(Calcutta: Paper presented in the National Seminar on Restructuring Indian
Economy, January 17–18).
Mukhopadhyay, S. (1992), ‘Casualisation of Labour in India: Concept, Incidence
and Policy Options’, The Indian Journal of Labour Economics, 35, 3, 262–265.
Ramaswamy, E. A. (1984), Power and Justice: The State in Industrial Relations
(Calcutta: Oxford University Press).
——— (1988), Worker Consciousness and Trade Union Response (Delhi: Oxford
University Press).
——— and Uma Ramaswamy (1981), Industry and Labour: An Introduction
(Calcutta: Oxford University Press).
Sarath, D. (ed) (1992), Employment and Unionisation in Indian Industries
(New Delhi: Friedrich Ebert Stiftung).
Sen Gupta, Anil K. (1993), Trends in Industrial Conflict in India (1961–87)
(New Delhi: Friedrich Ebert Stiftung).
Shrouti, D. and A. Daur (1995), Industrial Sickness and Its Impact on Workers
(New Delhi: Friedrich Ebert Stiftung).
Wilkinson, B. (1994), Labour and Industry in the Asia-Pacific: Lessons from the New-
Industrialised Countries (Berlin: de Gruyter).
 Section Five

MANAGERIAL ETHICS
AND INDIAN VALUES

Global Imperatives and Indigenous Ethical Values in India

This section returns to the key question of ethical centrality for today’s
managers and leaders in India from two divergent perspectives. Domin-
ation of global economic logic as the central theme gives rise to organisa-
tional prioritisation away from the ethical core and it inevitably leads to
serious consequences for people, institutions and society. In addition,
the idea that managers have responsibilities extending beyond this eco-
nomic logic needs to be a central theme of organisational sustainability.
The societal, organisational and individual level ethics and social respon-
sibilities are not easily distinguished in countries like India. The internal
policies, procedures and administrative behaviour often reflect the values
of the managerial elite.
Indian organisations have received widespread negative rankings in
various global, regional and national surveys on corporate integrity and
managerial probity in recent decades. In 2004, the Corruption Perception
Index of Transparency International ranked India very low (90 out of
146 countries) with a score of 2.6 out of 10. This is quite a depressing
picture given that China had been ranked a much cleaner ethical context
with a ranking of 71.
222 Managerial Ethics and Indian Values

This part highlights the ‘ethical gap’ common in Indian organisations.

The two chapters here emphasise the need for ‘ethical analysis’ along
with economic, technical, financial and other decision parameters as a
very important managerial priority. One of the most prominent scholars
on managerial ethics in India, S.K. Chakraborty (Chapter Ten), views
the broad scene from a kaleidoscope of long tradition of Indian heritage.
One of the key themes of his chapter is the distinction between ‘intel-
lectual’ ethics and ‘consciousness’ ethics. He extends the meaning and
content of a number of related issues including a range of practical ethical
challenges. The second chapter by Chatterjee and Pearson, on the other
hand, offers a field study of managerial perceptions of ethical views,
social responsibilities and work-related values. The findings of this em-
pirical exploration reveal the emergence of a ‘hybrid’ managerial approach
to ethics which combines indigenous traditions and global parameters.
It is evident from the two chapters included in this section that
increasing global linkages and professionalisation of managerial cadre is
creating a new imperative of ethical imagination and deepening of
managerial roots. While there has been extensive theoretical and practical
debate and discussion on the role of corporate governance in East Asian
societies, powerful indigenous doctrines of the Indian tradition have not
been significantly featured in the literature on business ethics. Given the
reality and perception of the managerial ethics in India, a great deal of
progress is urgently needed in this area. Linking the modern corporate
context to traditional Indian values and ethical roots is a blueprint that
needs further attention. Higher social priorities of ‘duty’ as opposed to
‘right’, ‘wisdom’ as opposed to ‘knowledge’, ‘character’ as opposed to
‘competency’ are some of the indigenous values debated by Chakraborty.
He touches on the need for organisations to move beyond economism
and understand the deeper spiritual dimensions of those who work and
grow with the organisation. The spiritual component of the managerial
role can transform organisational ‘motivation’. The responsibility of
setting the strategic goals of an organisation gives a manager a ‘dharmic’
obligation in terms of a broad stakeholder commitment.

Editor’s Note

For Information on the Transparency International Corruption Perceptions Index

(2004), access: http://www.transparency.org/pressreleases_archive/2004/
2004.1020.cpi.en.html.
10 Business Ethics in India

S. K. Chakraborty

1. A Macro Glance

A few initial, general points are worthwhile. Systematic empirical

investigation in the field has yet to start in India. In fact, until the year
1992, ethics in business was hardly a topic of concerted engagement at
any level—except in two or three business schools in the country. It was
only the 2-billion dollar stock-exchange fiasco in 1992 which threw up
the ethics issue at the macro-level. Since then, investigative journalism
has been playing a key role in highlighting corrupt and fraudulent prac-
tices within the “business-politics-criminals” (BPC) triangle. Both the
“legislature” and “executive” wings of nation-management seem to be
losing their credibility. Presently the citizens are hopefully looking up to
the assertive “judiciary” as the ultimate resort in these ethically troubled
times. It has given rise to “judicial activism” triggered by public interest
litigations instituted at the Supreme Court level by some citizens fora,
e.g., Common Cause. The Chief Justice of India, however, believes that
such activism will be a temporary phenomenon. Public feeling strongly
supports this activism though (Times of India, February 27–29, 1996).
The elder generation often recalls that ethical decline in society had
surfaced prominently during the Second World War when black-market
was born, making contractors and traders wallow in riches overnight.
But the “politics-bureaucracy” apparatus had not been dragged then into
this black vortex of ill-gotten money. Since the 1950s however, with the
launching of the era of state-planned and controlled economic develop-
ment, things seem to have been going from bad to worse—though usually
below the surface. This cumulative ethical depression began to break
224 S.K. Chakraborty

loose as an ethical cyclone with economic liberalization adopted by India

in 1991. This storm has been exposing the supportive role of the “politics-
bureaucracy” alliance in fostering and feeding upon economic terrorism
of various kinds. The neutrality of bureaucracy has been tampered rather
heavily since the mid-seventies by the political masters. Business thus
got a readier opening into this caving citadel. Since increasingly expensive
elections are not state-financed, the stimulus to politics-business corruption
remains strong in an otherwise remarkably resilient democratic system.
However, business often complains, and perhaps rightly so, that they
are more the victims than the perpetrators of economic crimes in a regime
of government controls and bureaucratic stickiness. But for many of the
big players this may not be true. They are able to feed the election process
and allied aspects so sumptuously that often crucial government policies
are perceived to be controlled by them. The “victim” syndrome is of
course true for the vast majority of other enterprises.
One would have hoped that with the onset of “liberalization” from
government controls since 1991, the scale and frequency of corrupt prac-
tices would lessen. Along the “business-bureaucracy-government” axis,
this might be a growing reality, which is encouraging. But the accom-
panying “globalization” process has ushered some new dimensions into
the field of business ethics. The competitive fray among global corpor-
ations to enter the Indian economy, and the eager overtures of Indian
businesses to grow fast through collaborations with them, have begun to
manifest fresh varieties of business non-ethics. The possibility of a two-
way traffic is not imaginary: business veering towards criminals and crim-
inals veering towards business. A perceptive analyst had foreseen this
predicament as far back in 1982: “One comes across a wholesale condem-
nation of public regulation and controls . . . These views altogether forget
the implications of an uncontrolled market-mechanism economy . . .”
(Kabra, 1982, p. 150).

2. The Semantics of Business Ethics

The phrase “black market” rolled into circulation during the Second World
War and has remained since that time. It denotes the process of clandestine
sale of scarce, rationed, controlled commodities at inflated prices.
A cognate phrase “black money” seems to have gained currency during
the 1960s. It covers the territory of business deals which entails money
 Business Ethics in India 225

income and asset wealth not appearing in the books of accounts, thus
evading taxes. Sometimes this sphere is described as the “parallel econ-
omy”. According to one study, the percentage of black income to GDP
rose from 42 in 1980–1981 to 51 in 1987–1988 (Gupta 1992, 146).
Expressions like “speed money”, “palm greasing”, “oiling the wheels”
are also widely used to denote bribes. The indigenous words for bribe
are “ghoos”, “rishwat”, etc. Words like “kickbacks” and “commissions”
are also employed in this context.
Since 1992, the two words “scam” and “scandal” have become very
common. They cover corrupt financial/economic practices of vast mag-
nitude affecting large sections of the public. The B-P-C triangle has
been prominently involved in these episodes.
Public perception does not condone such happenings. Yet, in the end,
the scene is largely one of helpless condemnation. Newspaper columnists
and editorials often come down heavily on the perpetrators of such eco-
nomic terrorism, yet the general mood is one of resignation. Business
enterprises themselves, with some highly honorable exceptions, often
consider such practices to be part of the normal business process.
The intellectually articulate class usually chooses to ascribe these events
to “systems” flaws and weaknesses. This was clearly evident in the stand
taken regarding the 1992 stock-exchange scam. Perhaps this is one reason
why no individuals are ultimately pinned down and held answerable.
Some sensitive minds however feel that in the course of such elaborate
system-directed explorations, the basic issues of personal character and
integrity get side-tracked. Although terms like “accountability” and “trans-
parency” are thrown in during public pronouncements, culpability on
such scores is still dodged at all levels.
Whatever recent efforts the business community has been making
seem all to be directed towards offering better deal to domestic consumers
in respect of consumables and consumer durables (some illustrations
will appear below). Consciousness of ethical imperatives in international
business remains to be separately attended to—at least in terms of arti-
culated norms and guidelines.

3. The Basis for Will-to-ethics in Business

A mute minority feels that a true long-term challenge for several major
Indian business and financial sectors is: how far is it ethical to spread
226 S.K. Chakraborty

greed for goods and mercenariness for money in the name of business
growth, economic development, and higher living standards? In fact, to
make the point sharper, is it ethical to pronounce on “higher standard of
living” when it is really “higher standard of consumption” which is being
espoused?
Another general ethical problem relates to the social consequences
of employment contraction in manpower-intensive basic industries.
Modern, capital-intensive technology replacing older technologies is a
process not without severe social-psychological fall-outs in a highly
populated country like India. The ethical issue is: global economic
competitiveness or local social-psychological stability? Is there really any
objective method of rating one to be more desirable than the other?
The third general challenge appears to be one of abuse and misuse of
sophisticated communication technology. Unless ethical-moral maturity
keeps ahead of technological advancement, could we be moving towards
a self-destructive society? Will it be more ethical to advocate decelerated
technology for the sake of more natural and humane living?
Fourth, with increasing psychological drift and volatility in an arti-
ficially stimulated and exteriorized mind-set fueled by business, will soci-
ety tend to lose mental health, replacing peace and harmony by conflict
and violence? If business accepts the mantle of being the most important
change-agent today, then is it required to confront this trans-commercial
ethical dilemma? Is business the end or just a means? Means to what?
Fifth, how is “corruption-in-a-poor-society” to be dealt with on a
footing different from “corruption-in-an-affluent-society”? Artificial cost
escalation in tender bids, tax evasion, misappropriation of bank funds,
cornerning of institutional finance, and diversion of funds from pro-
ductive channels are common-place events in the formers. An opposition
member of parliament of considerable integrity and courage has recently
stated: “A country as poor as ours—judging by the quality of life—cannot
afford to have such pervasive corruption. Crime has transcended moral
barriers and is eating into the vitals of the economy.” (Dasgupta, 1996)
Lastly, as touched upon earlier, the entry of big multinationals in certain
key sectors of the economy, although welcome in general, is yet throw-
ing up new challenges in business ethics. The capacity to corrupt and
the willingness to be corrupted seem to be moving in alliance in several
cases, e.g., the Enron contract for power generation in Maharashtra.
Leaving aside other aspects, it has been reported that Rs. 650 million
 Business Ethics in India 227

were ostensibly spent on “educating” the Indian counterparts involved

in managing the project. This was a “suspect” outlay even according to
an Enron official (The Statesman, August 10, 1995).
The reasons for vigorous engagement with such challenges would seem
to be:

(a) Are we heading for a sick-and-cynical society? Will future gen-

erations be grateful for such a legacy, even if material prosperity
were to increase?
(b) Are we going to prove the truth of the proverb “God and Mammon
cannot both be served at the same time”?
(c) Or can we demonstrate that moderate and essential material pros-
perity is both the effect and cause of ethics in practice?
(d) Should we be sleepless that an unethical society, where every aspect
of life being sucked into this vortex of competitive greed, is going
to suffer from chronic mental ill-health, young children being
the worst victims?
(e) Should we try to change gears and see that greater material equality
across all layers and sectors of society and the globe is essentially
more a matter of ethical values than of system skills? Are systems
not themselves the products of varied ethical pre-dispositions?
For example, was the joint family “system” not a concrete outcome
of an ethical framework for cooperative living in society?

Of course, the “will-to-ethics” such as the above implies a complete

circle—from the individual to the corporate to the national levels and
thence back again through the same levels.

4. Will-to-ethics in the Practical Business World

In July 1956, The Forum of Free Enterprise had published a manifesto.

It contained the following stern words: “Certain malpractices have crept
into the system of company management. They are to be condemned
and should be removed. Hoarding, black marketing and profiteering are
anti-social and evil. Honest business practices can be promoted and
encouraged by an honest and efficient administration in a democratic
state.” (Forum of Free Enterprise, 1956, p. 9)
228 S.K. Chakraborty

During the forty years since the above declaration, neither the business
community nor the administration seems to have come anywhere near
such ardent hopes. A measure of this gulf can be obtained from the fol-
lowing scathing words of a Delhi High Court Judge, uttered while denying
permission to a central minister, who had been arrested for sheltering
notorious criminals, to attend Parliament in February 1996: “In ancient
India kings and emperors thought it a privilege to sit at the feet of a man
of learning. In today’s India, MP’s and ministers think it a privilege . . .
to sit at the feet of underworld dons and base businessmen to get secret
donations from them and to get their blessings.” (Sunday Telegraph,
February 27, 1992)
Yet during this period of down-slide, the positive side of will-to-ethics
has also remained alive. To mention a notable instance, the Council of
Fair Business Practices (CFBP) was established in 1966 by several leading
private sector industrialists in Western India. It adopted the following
code of fair business practices:

1. To charge only fair and reasonable prices and take every possible
step to ensure that the prices to be charged to the consumer are
brought to his notice.
2. To take every possible step to ensure that the agents or dealers . . .
do not charge prices higher than fixed.
3. In times of scarcity, not to withhold or suppress stocks of goods
with a view to hoarding or profiteering.
4. Not to produce or trade in spurious goods of standards lower
than specified.
5. Not to adulterate goods supplied.
6. Not to publish misleading advertisements.
7. To invoice goods exported or imported at their correct prices.
8. To maintain accuracy in weights and measures of goods offered
for sale.
9. Not to deal knowingly in smuggled goods.
10. Providing after-sales service where necessary or possible.
11. Honoring the fundamental rights of the consumers—Right of
Safety, Right to Choose, Right to Information and Right to be
Heard.
12. Discharging social responsibilities and the responsibility to protect
the environment and nature’s infrastructure.
 Business Ethics in India 229

13. Ensuring that the product-warranty is offered in simple, unam-

biguous and concise language, highlighting the rights of the
consumer under it.

It is evident that the above recommendations constitute a primary-level,

self-regulating charter for enlightened citizenship amongst business
entities. The CFBP has instituted a set of prizes and awards called
“Jamnalal Bajaj Uchit Vyavahar Puraskar” (or Jamnalal Bajaj Prize For
Fair Business Practices) to promote exemplary application of the above
norms. At a meeting with the current ex-officio President of the CFBP,
we learnt that there is as yet no provision for deregistration of those
members who are charged with violation of the above guidelines. The
CFBP President claimed that sustained pressure from this Council had
resulted in the creation of the Advertising Standards Council of India
(ASOI) and in the promulgation of the Consumer Protection Act. We
were also informed by him that at least 100 leading CFBP business-
enterprise members had regular “Consumer Affairs Cells” operating in
their offices. But Ethics Officers and Ethics Training are both beyond
the pale of consideration for the time being.
The Federation of Indian Chambers of Commerce and Industry (which
excludes the MNCs) has recently issued a declaration on “Norms of
Business Ethics” consisting of ten points. The list is almost identical to
that of the CFBP. The Punjab, Haryana and Delhi Chamber of Com-
merce has also lately formulated a “Code of Ethics” (The Indian Journal
of Public Administration, July–September 1995, p. 638). Without going
into specifics, this Code is intellectually deeper in content. It says:

Business must maintain the highest standards of behavior . . . (for)

the benefit of industry, employees, customers, shareholders, and
society.

Goods and services must conform to the commitment promised to
customers. Business must be realistic and truthful in stating claims.

Customers must be given best possible service and treated with
respect and fairness.

Business must understand and respect the needs, concerns, and
welfare of the community and society. It should use knowledge
and experience for upgrade of quality of life. All business endeavors
must combine the qualities of private excellence for public good.
230 S.K. Chakraborty

The best way of promoting high standards of business practices is

through self-regulation. The Code has been designed as an instru-
ment of self-regulation to serve as a voluntary guideline towards
better quality of life and higher standards of business practice.

The Advertising Standards Council of India expects, among other things,

that there will be (Balachandra, 1996, p. 83):

(a) no offence to generally accepted norms of public decency;

(b) truthfulness and honesty in claims and representation; and
(c) no indiscriminate advertising of products which are hazardous to
society or individuals.

In a recent “Times of India—MODE” opinion poll, “business” ranked

fifth in a list of ten segments of society evaluated for corruption. Seventy-
six percent of the respondents rated “business” as a corrupting force.
“Politicians and Ministers” had the highest rank by virtue of receiving
98 percent score as being corrupt. “Teachers” fell in the ninth rank—
43 percent of the respondents ranking them as corrupt. “Liberalization”
of the economy has not reduced corruption. “Ordinary people” were
seen as corrupt by only 38 percent of the respondents, the lowest rank
(Times of India, January 14, 1995).
HD Shourie of Common Cause put the proclamations of ethics and
norms by business in its proper perspective: “A strange advertisement
recently found prominent place in newspapers asking for quotations for
the sales of ‘damaged sugar’ which has recently been imported . . . This
is indicative of the present state of commitment of business to abide by
the norms of conduct or code of ethics.” (Indian Journal of Public
Administration, July–September 1995, p. 639)
All this means is that will-to-ethics by business is hardly going to
grow by means of resolutions, circulars, and conferences. The Steel
Authority of India Ltd. offices have recently displayed prominently along
its corridors and foyers a bare list of “Our Core Values”: customer satis-
faction, concern for people, consistent profitability, and commitment to
excellence. Ethics finds no place in them despite several big and small
revelations of internal and external ethical lapses in the last few years.
A private sector outfit (Murugappa Group) has produced a more elabor-
ate statement of “values and beliefs” consisting of seven items. The first
 Business Ethics in India 231

item reads: “Adhere to ethical norms in all dealings with shareholders,

employees, customers, suppliers, financial institutions and government.”
This indicates more serious thought went into the formulation of this
statement. But one does not know what company-wide educational efforts
are made to sustain this ethical declaration in daily business practice at
all levels.
In an interview with Dr. S. Ganguly, the Executive Vice-Chairman
and Managing Director of one of the oldest and largest cement-making
conglomerates, the status of the will-to-ethics appeared in a new light.
This company was born with a strong dose of idealism when India was
still being ruled by the British. An abiding sense of nationalism was
the source of integrity, and the founders were both careful and lucky to
secure an unbroken succession of CEOs imbued with an unflinching
will-to-ethics. The result has been it does not enjoy the extent of market
share or the quantum of profit as is rightfully its due. Yet, every hurdle is
fought through available legal means, and never by cutting corners in a
competitive commodity market. Patience, with an eye on the long-term,
provides sustainability to corporate will-to-ethics. Clearly, there is the
chain of successive individual CEOs behind such sustained corporate
ethicality.
The above CEO also voiced two other profound concerns: the ethics
of privatization and the flooding of India with multinational financial
services companies. He questioned the ethical wisdom of privatizing the
supply of basic needs like health and education in a poor country. This
process of converting social goods into economic goods is going to push
them beyond the bounds of the common citizen outside the orbit of
metropolitan cities. The financial services whirlwind is also accentuating
the great divide in respect to monetary remuneration in society. Manage-
ment Graduates and their ilk in their twenties are being offered pay
packages which can potentially subvert social harmony, even sanity. How
can young managers remain ethical for long in such a heated atmosphere?,
the CEO asked.
When we come to multinational or foreign corporations, two varieties
of issues could be considered—“gross corruption” and “subtle unethic-
ality”. The much-publicized but yet-unresolved “Bofors deal” between
India and the Swedish armaments company could be cited. This seems
to be a major example of “gross corruption” on a massive scale. Driven
by the intense desire to clinch Sweden’s biggest export order, the Bofors
232 S.K. Chakraborty

company paid as much as 5 million USD in terms of “commissions” to

various agents, politicians, and government functionaries, both legisla-
tive and executive (Subramaniam, 1993, p. 3). It is a classic case of the
B-P-C triangle in action. The KFC (Kentucky Fried Chicken) controversy
provides an illustration of “subtle unethicality”. A spokesman of the
Animal Welfare Society revealed some telling details about the use of harm-
ful hormones and chemicals like mono sodium glutamate to fatten the
chickens used by KFC (Times of India, letter to the Editor, February 29,
1996). Recently Glaxo (India) had announced an incredible 175 percent
interim dividend. This is surmised to be a compensation for the U.K.-
based parent company’s investment of Rs. 340 million to raise its equity
holding from 32 percent to 51 percent. The declaration had come too
soon after this increase to rule out such a connection. Even if this dividend
were largely paid out of the sales proceeds of one of the divisions, still
the question remains: why repatriate large sums out of these proceeds
instead of investing them for business growth in India? (Business Today,
January 22, 1996, p. 51) Similarly, another U.S. company has recently
patented an oil extracted from neem tree which grows in India. The
medicinal properties of neem have been of household knowledge and
use in India in numerous forms from time immemorial. The implication
of the above patent secured by the U.S. company seems to be that hence-
forth neem oil cannot be used in India without paying royalty to this
company. Is this a case of “intellectual property rights” versus “natural
property rights”?

5. Will-to-ethics and Academia

Academic concern with applied ethics in business continues to be

marginal, with a few honorable exceptions. The recent XLRI survey
amongst 148 universities elicited only 7 institutions which claimed as
having introduced ethics courses. The Xavier Labour Relations Institute
(XLRI) at Jamshedpur has been the first business school in India to have
introduced a compulsory course in Business Ethics since the early eighties.
It is a Catholic institution and functions in the heart of the Tata business
empire, the Tata Iron and Steel Co. Ltd. These two genetic factors seem
to have synergized well to let an ethics course be born there. Fr. K. Cyriac
is the Course instructor. But the leading management Institutes, estab-
lished by the Government of India in academic collaboration with some
 Business Ethics in India 233

leading U.S. business schools, have so far made no headway, except the
Indian Institute of Management at Calcutta. It appears strange that the
Indian Institute of Management (IIM) at Ahmedabad, set up in collab-
oration with the Harvard Business School, does not yet offer anything
on this subject even as an option. The general attitude amongst academics
in these places is one of avoidance of the normative dimension of manage-
ment. It is better not to be involved in moralizing to business.
The IIM at Calcutta has started a new outfit called “Management
Center for Human Values”. It has crystallized the work being done by
the author in the broader field of “human values for holistic effectiveness”
since 1978. The Center takes the view that ethics-in-practice reflects the
quality of the values corpus internalized by various role players, so, busi-
ness ethics is seen a subset of human values. The Center has been financed
entirely by grants and donations by Indian industry and financial insti-
tutions as many as 35 organizations at the time of this writing. The
House of Tatas has been by far the largest contributor. The Center now
offers two elective courses to second-year MBA students on ethics and
human values (this course has been offered since 1983). It also offers 25
to 30 programs every year to various companies throughout India. An
annual International Workshop on Management By Human Values in
January each year is a major duty of the Center. Nearly 6000 managers
have been through these programs since 1983.
The Xavier Institute of Management (a sister institution of XLRI) at
Bhubaneswar also offers a course on business ethics. The course intends
to “stimulate debate and discussion rather than to formulate principles”.
The course covers a very wide spectrum of issues ranging from ethical
dilemmas in management, values clarification, company philosophies,
social responsibility, advertising, market research, environmental issues,
and social justice to job reservation, national problems, human world
order, and ethics of MNCs.
Professor R. C. Sekhar of the TA Pai Institute of Management at
Manipal is also seriously engaged with both the teaching of and research
in business ethics. Like the XLRI, the TAPIM course also places sub-
stantial reliance upon case studies. He feels that ethical education cannot
be delinked from ambiguous and contentious subjects like psychology,
philosophy and religion (Sekhar, 1995, M-163). However, Sekhar is chary
of “moral rhetoric” which, by implication, seems to endorse XLRI’s
eschewal of engagement with “moral principles”. The empirical content
234 S.K. Chakraborty

of Sekhar’s research (confined for the present to MBA students) indicates

preference for exploring opinions and views, thereby enlarging the scope
for dialogues and discussions. This again is akin to the XLRI approach.
The two courses at MCHV in IIM-C, however, attempt a more direct
approach to ethico-moral upliftment by helping students to adopt a
concrete process for cultivating recognized and universal noble emotions
like gratitude, contentment, transparence, compassion, oneness, and
honesty, all for their own sake. This is expected to establish the human
values base on a healthy, virtuous footing. Ethics-in-practice would then
gradually follow from this groundwork. Efforts are made through univers-
ally applicable psychological disciplines (as demonstrated by their ready
acceptance amongst the participants of the International Workshop) to
strengthen the will-to-ethics for personal character development. These
mental exercises, derived from proven and enduring indigenous Indian
spiritual traditions, convert theory into transformational experience. They
pave the way for natural spill-over into the work context of management
and business. The emphasis is more an “experiential ethics” than on
“intellectual ethics”, and more on personal “managerial/ entrepreneurial
ethics” than on impersonal “business ethics”. An important corollary of
this is the greater emphasis on “direct ethics” compared to “dilemma
ethics”. Some small case studies are used, but with emphasis upon the
finer nuances of individual values/ethics amongst various role players.
The Jamnalal Bajaj Institute of Management Studies at Bombay Uni-
versity first introduced a course on Business Ethics in 1992. It was made
a compulsory second year course in their Masters program in 1994. It is
taught by a number of visiting faculty from industry. As such, it seems
to be a more down-to-earth effort than the others mentioned above.
Giri provides us with the hitherto best and most comprehensive
coverage of ethics education in Indian schools of management/business.
At the end of his survey, he remarks: “In India teaching of ethics has still
a long way to go. The barriers are far too many. Discussions with teachers
in management schools suggest that the reason(s) for not teaching ethics
to MBA students can work as a vicious circle.” (Giri, 1995, p. 9)
A senior academic, Prof. N. R. Sheth, sharing the concern and diagnosis
of Giri, asserts: “No, we cannot leave values alone. All the hurdles involved
in capturing and dissecting values have not dampened public interest in
them.” (Sheth 1995, p. 85)
 Business Ethics in India 235

This, indeed, is true as demonstrated by the opening up of the hawala

scam pandora’s box (of clandestine foreign exchange deals). This was
triggered by a “public interest litigation” (PIL) filed to the Supreme Court
against administrative and legislative soft-pedaling (January–March,
1996).
Some of the reactions to ethics education efforts have been strange. In
January 1994, the Government of India had selected five reputed edu-
cational institutions to impart spiritually-oriented values education. A
sum of Rs. 2000 million was to be given to them. The National Council
of Educational Research and Training criticized this plan by dubbing it
as obscurantist, with the potential to erode the scientific temper in
education. It observed sarcastically that the government should support
the making of students, not monks! (The Telegraph, January 1995) With-
out going into the merits of the specific institutions chosen, the dis-
sociation of spirituality from ethics and values amongst a section of
educationists in India is intriguing.
Unlike the NCERT, later in the year the University Grants Commission
mooted a detailed proposal for universities to engage in the dissemination
of “essential sociocultural values” like love, sacrifice, compassion, non-
violence etc. The Statesman reacted soon by ridiculing the whole idea.
Instead, it advised editorially: “Let us teach them physics, the beauty of
literature and the science of logic properly, and they will do just fine”
(The Statesman, December 12, 1995). Rather than sounding a helpful
caution for the UGC efforts towards depth and purity and modeling for
such values education, the idea itself was dismissed.
So far as publications on business ethics are concerned, there is hardly
much to mention. The first book in this area, to our knowledge, was by
Prof. Arun Monappa at the Institute of Management, Ahmedabad
(Monappa, 1977). After a long interval, the hitherto most comprehensive
volume has been a collection of readings and essays edited by Fr. T. A.
Mathias (1994). In 1995, several other publications were released. The
Indian Journal of Public Administration’s special and comprehensive
number appeared this year. This author’s book also was published
(Chakraborty, 1995). Mr. S. Balachandran’s compact book appeared in
1996, and Prof. Sekhar’s book should have also been published by the
end of 1996. Broadly, Monappa’s and Chakraborty’s books emphasize
ethics of managers as individuals, the former empirically on current
236 S.K. Chakraborty

status, the latter conceptually on what could be done to improve matters.

The edited volume by Mathias takes a broad-spectrum look more at the
corporate entity as an ethical unit rather than at the manager with an in-
tense focus. Balachandran’s book is a blend of Indian psycho-philosophical
concepts and the current events in the sphere of ethics. The volume goes
for “managing ethics” in its title.
Insofar as endowments for Professorships/Chairs in Ethics are
concerned, they seem to be less than ten. XLRI Jamshedpur has a Chair
endowed by the House of Tatas. JBIMS of Bombay University has one
Chair in the name of the industrialist Jamnalal Bajaj. The TAPIM
has a T. A. Pai Chair in Business Ethics. The Unit Trust of India has
endowed three Professorships at the Indian institutes of Management at
Ahmedabad, Bangalore, and Calcutta. Besides, IIM-Calcutta has two
more permanent endowments for research in the areas of human values
and business ethics offered by Orissa Cement Ltd. and the Associated
Cement Companies Ltd. The tally thus is eight. In addition, the Sir Ratan
Tata Trust has offered funds for two Visiting Professors per year for three
academic years beginning with July 1996–June 1997 to the MCHV at
IIM-Calcutta.
Research and consultancy by academia in the field of business ethics
has not yet occurred. Even if some signs of research being undertaken
are available now and then, no publication arising from such work has
come to our notice except Monappa’s book mentioned earlier, and this
was long ago. So far as consultancy goes, it is perhaps for business to
request it. Of this, there are no signs at all. Therefore, the common chal-
lenges before academia and business would now appear to be:

(a) An unflinching grasp that since “business” is being acclaimed as

the most significant change agent, it must, as an aspect of human
endeavor, work for an ethico-moral foundation for itself, otherwise,
it may be discredited as unbridled mammonism.
(b) “Experiential ethics” should undergird “legislative ethics”.
Academia has a special responsibility to engage in the former and
attract people in business towards it.
(c) The richer and more powerful businesses have greater account-
ability for ethics-in-practice.
(d) Recruitment, selection, and evaluation processes should begin to
incorporate ethico-moral criteria.
 Business Ethics in India 237

(e) Academia and business should both realize that ethics can be learnt
and assimilated by means of reasoning and experiencing.

6. Conclusion

What could be the nature or characteristics of a paradigm that might

generate useful responses to these challenges? Fr. Bogaert has suggested a
fruitful, simple two-axis model for the Indian context: “sustainability of
natural environment” plus “doing good for the poor”. (D’Bogaert, 1994,
pp. 60–61) This indeed is a good starting point. The MCHV at IIM-C
is attempting to go a little deeper—why is it that most of us are irres-
ponsible towards the poor despite intellectual lip-service?—and a little
wider—why is it that the feeling of harmonious relationships across all
components and elements of the universe is conspicuous by its absence
despite the declarations of new science? In response to these two funda-
mental challenges, the MCHV is trying to work out a paradigm of the
following kind:

We are aware that it is not easy or common as yet to bring ethics and
values to their base in the holistic spirit-foundation in our discourses on
business/management. Thus, the admirable collection edited by Fr.
Mathias (285 pages) contains no entry in the long index on “spirit/
spirituality”. Yet, responsible academic engagement in business ethics
has to create this foundation for the ultimate survival of human society
through business. The “social responsibility” thrust of business ethics is
necessary, but it must be anchored to its source: “spiritual responsibility.”
238 S.K. Chakraborty

The latter is the real justification of the former. Because of her rich and
living spiritual heritage, India has perhaps a bigger share of duty in this
respect. While India ought to learn “analytical ethics” from the western
approach to business ethics, she ought to offer “intuitive” or “being” or
“consciousness” ethics in her turn.

References

Balachandran, S.: 1996, Managing Ethics (Sangeeta Associates, Bombay).

Chakraborty, S. K.: 1995. Ethics in Management — Vedantic Perspectives (Oxford
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d’Bogaert, M. V. Fr.: 1994, ‘Managerial Decisions in a Developing Economy’, in
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Dasgupta, G.: 1996, ‘Beyond Salvage’, The Statesman (February 26).
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Giri, A. K.: 1995. ‘Management Education and Teaching of Ethics’, Working Paper
137, Madras Institute of Development Studies.
Gupta, S. B.: 1992, Black Income in India (Sage, New Delhi).
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Mathias, T. A., Fr.: 1994. Corporate Ethics (Allied Publishers, New Delhi).
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Sekhar, R. C.: 1995. ‘Ethics and The Indian Manager’, Economic and Political Weekly
(November 25).
Sheth, N. R.: 1995. ‘Values in Search of an Identity’, Journal of Human Values 1(1).
Subramaniam, C: 1993, Bofors (Penguin Viking, New Delhi).
 Indian Managers in Transition:
11 Orientations, Work Goals,
Values and Ethics1

Samir R. Chatterjee and Cecil A. L. Pearson

Introduction

The ideal society envisioned in ancient India is often referred to as “Ramraj”

(benevolent social order of the great King Ram). The key principle guiding
this ancient ideal was the idea of ‘dharma’ or the source of values guiding
action. This traditional social ethos was, however, not well enshrined in
the corporate values that emerged during the British rule of India since
the eighteenth century. In the contemporary context, multiple layers of
values have emerged where, societal values remained very much rooted
to the ancient traditions while institutional and corporate values reflected
values of the colonial era. The recent large scale economic reforms and
the imperatives of globalisation have impacted on managerial mindsets
with a set of new values and world views creating further tensions at the
individual level (Kao Sinha/Ng 1995).
Five decades after gaining independence, a new managerial generation
has come into its own. The world view of this generation has been linked
less to the tradition of the ancient land or the guiding ideologies of the
colonial era, but is more influenced by the market culture and reform of
the past decades. Among the most important factors creating the sea
change of Indian management are the homogenisation of social structure
(People of India Report 1992), technological education, consumerism,
electronic mass media, trade union culture, foreign investment, changing
infrastructure and urbanisation of values.
240 Samir R. Chatterjee and Cecil A.L. Pearson

The dilemma faced by the managers of Indian organisations with the

widespread impacts of economic reform and global imperatives is in the
search for a fine balance of tradition and change. Transforming Indian
organisations into efficient, productive, humane and dynamic institutions
that could match in quality and reputations to other countries is a major
challenge. The lesson of the Asian tiger economics may have some rele-
vance to India in so far as their search for a balance in aligning the Con-
fucian values with modern managerialism. It is not the temptation of
‘adopting’ managerial techniques by ‘adapting’ values and cultures that
underlines the economic reform process. The core beliefs and values of
an ancient and complex society with a massive rural population (unlike
the east Asian tiger economies) need to be sharpened to make them con-
text relevant rather than be replaced by wholesale imported values
(Chakraborty 1998, Garg/Parikh 1995, Sinha/Sinha 1995, Tripathy
1995).
In terms of the Indian corporations, a striking feature is evident in the
differences of managerial values espoused by large tradition bound
organisations and born global new generation organisations. It is often
contended that an unique set of values have been one of the driving
forces for successful emergence of computer software technology indus-
try in India in the recent decade. There is a distinct divergence of work
culture and it is contended that the older and more traditional organ-
isations are not economically dynamic because of their work culture being
out of alignment to the reform process. England (1978) suggested that
it was the better understanding of the value orientations that facilitated
the design of organisations and their motivational dynamics. The per-
spectives of senior managers are the key parameters in translating these
values and linking the organisations to their external environment.
Tradition and modernity have combined to transform the Indian
managerial mindset in an unique way and this has created dualities of
value that is often difficult for others to understand (Chatterjee 1991,
Garg/Parikh 1995). In one of the landmark studies of managerial values
in India it was suggested that the Indian managers gave much more im-
portance to organisational stability than in other countries (England/
Lee 1974). Many commentators (Athreya 1995, Chakraborty 1991) have
suggested that Indian managers feel comfortable with the traditional
system of hierarchy in all spheres of life and a sense of discomfort with the
 Indian Managers in Transition 241

managerial culture of instant feedback, performance and empowerment.

For most Indian mangers, a modern technological and globalised world
view does not extend beyond the boundaries of their professional role. It
has been contended that, “The incidence of this fundamental contra-
diction in India’s top leadership may very well be an important factor in
numerous failures of implementation in the country’s development
programme. There is almost certainly a causal link between ambivalent
attitudes towards modernity and an unconscious reservation as to the
ultimate value of modernisation”. (Lannoy 1971, p. 416). A study of
this complexity of balancing tradition, culture and the imperatives of
global economic reform is, therefore, of considerable relevance at this
time in India.
The study reported in this paper examines the value orientations of
senior level managers in Indian organisations at a time of economic liber-
alisation and globalisation of corporate ideologies. Indian society as a
whole is in a complex process of change, and there are multiple cross-
impacts of educational, economic, political, technological and managerial
reforms. A close examination of value orientations of senior managers
when widespread reforms are being implemented will lead to a better
understanding of the social and organisational priorities. The purpose of
this study is to develop a profile of work-related values among senior
Indian managers at a time when most of them are engaged in large scale
reform programmes.

Economic Reform and Value Reorientations of Managers

Values by nature, are relatively stable standards at the societal level.

Personal work values or ethical yardsticks, therefore, are usually influ-
enced by these relatively permanent frameworks. The literature has tended
to indicate this symbiosis only through mono-dimensional directionality
(Westwood/Posner 1997). Value reorientation due to changes in macro-
level or micro-level economic ideology and practices has only recently
been discussed in the management literature. Allport, Vernon and Lindsey
(1970), England (1967), Hofstede (1980), and Rokeach (1973) were
criticised by Becker and Connor (1986) to have created a disjointed
literature in value studies. Harpaz (1990) introduced the concept of
work values in measuring the degree of convergence amongst nations.
242 Samir R. Chatterjee and Cecil A.L. Pearson

Two deficiencies emerge out of the approaches in the previous literature.

Firstly, the work values are usually considered as a generalised national
aggregate; and secondly, they are viewed to be static in nature.
The study reported here is highly context specific to India at a time of
dynamic reform at macro and micro levels. A country bound by strong
traditions of religious, cultural and organisational imperatives may not
have one set of work values across managerial levels, gender and organ-
isational type. The degree to which tradition and economic pressures of
reform are combined to form these values may vary from region to re-
gion and from organisation to organisation in a country as large as India.
Ralston et al. (1997) termed such values as crossvergent values and defined
the condition as, “crossvergence occurs where an individual incorporates
both national culture influences and economic ideology influences syn-
ergistically to form an unique value system that is different from the value
system set supported by either national culture or economic ideology”
(Ralston et al. 1997, p. 183). This emphasises the synergy approach.
However, in a country like India, managers may not synergise divergent
values in a terminal sense, but may rearrange their work goals and other
work related values in different layers at different points of time. As
Westwood and Posner contend, “Personal value systems begin to be
formed early in life as individuals encounter the socialising mechanisms
of their society. Inevitably, individuals’ values are shaped by the social
milieu in which they develop, and in this way the cultural values prevalent
in the society strongly inform and become part of their personal value
system” (Westwood/Posner 1997, p. 34). The argument here is that, in
spite of deriving personal values from the embedded culture and trad-
ition, managerial values at the individual level, are strongly influenced
by the crossvergent influences of organisational and social forces. The
evidence of this study attempts to highlight this feature.
India had pursued a policy of self-sufficiency until the economic reform
movement of recent years. This has in effect created a work culture of
internal focus and widespread lack of autonomy. With the increases in
autonomy for all types of enterprises created through the process of
economic reform, the areas of individual discretion has enlarged widely,
particularly in the ethical domain of managerial endeavours. The
interaction levels of competing values may be conceptualised in three
layers as is shown in Figure 1.
 Indian Managers in Transition 243

Figure 1. Layers of Managerial Values

Layer One Core Traditional Values: deeply held robust and widely shared
values.
Layer Two Individual Managerial Values: work values, ethical values and other
such values anchored to the core tradition but also in the process
of transition.
Layer Three Situational Values: role dependent values contingent upon
situational elements of macro-environmental policies and cor-
porate culture.

Leading Indian Scholars (Athreya 1995, Chakraborty 1991, Gupta

1996) suggest that the economic reform or market culture only affects
the layers two and three of Figure 1. They contend that the overwhelm-
ing force of core traditional values still dominates the Indian managerial
cadre at a latent level. The cultural factors have been widely researched
in relation to their effects on work related values by scholars (Hofstede
1991). However, Hofstede (1991) contended that the cultural dimen-
sions specific to a national population is not moderated by organisational
type, size and strategy. He argued that cultural values and management
practices need to be consistently matched with one another. Over a long
period of time this may be true, but the current research suggests that
matching culture and management practices may not be possible from
time to time during a period of rapid change. Successful management
practices not only differ from country to country, as suggested by
Hofstede, they also vary within a national group based on the diversity
of member demography, industry culture, technology orientation and
degree of internationalisation.

Methodology

Site and Respondents

The study was conducted under the auspice of the Centre for Human
Values Indian Institute of Management, Calcutta. Each of the study
respondents was a participant either of a week long residential programme
at this most prestigious centre for value studies, or they attended similar
courses that were conducted by programme directors, from the Institute,
at other Indian capital cities. A total of 421 completed questionnaires
244 Samir R. Chatterjee and Cecil A.L. Pearson

were received. The questionnaire was administered to most of the study

managers by the first author, at the Institute, where he was the Sir Ratan
Tata Fellow for six months. In most cases the participants were briefed
by him, and this ensured the very high response rate of 85%. Generally,
the participants completed the questionnaire on the first day of their
seminar.
A feature of the respondents was the manner of their selection. Almost
all the study participants were from companies that had approached the
Indian Institute of Management to provide appropriate training for
Indian human values. The need for integration of the human values
paradigm in Indian business is increasingly being recognised by powerful
and socially conscious business leaders. There is a growing belief that
senior managerial cadre need to reimmerse themselves in traditional
Indian values. Therefore, the sample had an element of self selection in
terms of the respondents being predispositioned to incorporating ethical
considerations in their business practices. This was a deliberately chosen
research strategy as otherwise a cross sectional sample of respondents
with diverse assumptions would have been obtained, and then it would
have been difficult to generalise for a society as large and as complex as
India.

Measures

A questionnaire was administered to obtain demographic and perceptual

data. The demographic data, which included facets of gender, age, and
details about childhood upbringing, were used to develop a profile of
the study managers. Demographic detail about the company ownership,
main business activity and organisational size were also obtained.
Perceptions about work goals, societal values and views about the
relevance of ethics in decision making were provided by the respondents.
Eleven facets of work goals were assessed with an instrument that was
employed by Harpaz (1990) in an extensive international study. The
managers were required to rank each work goal from most important
(1) to least important (11).
To evaluate the manager’s societal values a 12 item instrument was
designed. These items, that tapped concerns fundamental to the Indian
world view, were established after considerable consultation with
respectable Indian academics. To complete the societal value scale
 Indian Managers in Transition 245

managers were required to rank each item for importance, from the most
important (1) to the least important (12).
Consensus or divergence in decision making, in terms of ethical busi-
ness perspectives, was assessed. Respondents were asked to assess 24 state-
ments with a seven point Likert scale (1 = strongly disagree to 7 = strongly
agree). Each item was established by the same procedure that was
employed to generate the societal values statements. This scale assessed
the extent of convergence on four ethical domains. These four subscales
were 1) global, 2) societal, 3) organisational, and 4) personal (Chatterjee
1995). There were six statements for each ethical domain, and a mean
score was computed for each domain. Also, the extent of convergence or
divergence was computed for each one of the 24 items. It was determined
that managers had an ethical dilemma (for the item) if the mean score
was in the range of 3 to 5. For scores greater than 5 it was deemed levels
of violations were low and there was a higher degree of consensus and a
low ethical dilemma.

Analysis

Frequency tables were constructed to establish the range of responses

for the 421 study mangers. Means and their standard deviations were
computed for each item, for the three main scales, and the four subscales
of ethical domains. The differences of the ranked items, for the work
goals and the societal values, were assessed for their level of significance.
These analyses were undertaken with Statistical Analysis System (SAS)
subroutines.

Results

Table 1 details the demographic profile of the study business managers.

These data show that the sample was dominated by senior men who
were mainly employed in large organisations. The gender/organisational
size correlation was 0.13, significant at p < 0.01. An unique feature of
the sample is that 70.1% of the managers were employed in senior man-
agerial positions. A striking feature of the sample was that 94% of the
managers held senior level university qualifications (56% PhD and
Masters degrees. 38% Bachelors degrees). Age and managerial level was
significantly correlated (r = 0.55, p < 0.0001). Nearly one half of the
246 Samir R. Chatterjee and Cecil A.L. Pearson

managers worked in government and local government institutions, most

of which were involved in financial activities (e.g., banking, accounting).
Almost two thirds of the study managers lived in eastern and northern
India for the first 25 years of their life and there was a strong relationship
between the region of their birth and their vocation (r = 0.22, p < 0.0001).
A great deal of the participants were from joint families. From the profile
of the managers (as given by Table 1) it could be predicted that the
respondents would be anchored to traditional values that would encourage
the maintenance of the status quo. However, the data of Tables 2 and 3
indicate significant shifts from conventional foundations.

Table 1: Demographic Data % for the Indian Managers (N = 421)

Gender: Male 93.1 Female 6.9

Age: years <30 4.7 Company Size: <100 8.6
31–39 16.9 100–499 11.9
40–49 34.2 500–1000 8.8
>49 44.2 >1000 70.7
Organisation: Government 46.6 Business: Finance/Banking 41.1
(Ownership) National 17.3 (Activity) Manufacturing 26.4
Corporate 10.9 Government 11.2
International 9.5 Professional 10.8
Private 7.8 Other 10.3
Residence: Eastern 34.0 Childhood: Joint 61.8
(First 25 years) Northern 30.6 (Family) Nuclear 31.8
Western 17.3 Hostel/boarding 5.7
Southern 16.4 Other 0.7

In Table 2 is presented the respondent’s work goals mean scores and

standard deviations. The study managers nominated the opportunity to
learn new things as their most important work goal. The next three im-
portant work goals, that were identified by the managers, were strongly
associated with elements of enrichment, and the matching of their skills
and competencies with the work place dimensional requirements. Inter-
estingly, the work goal of good social interpersonal relations was the
fifth most important work goal, yet Indian society is considered to be a
collective community (Hofstede 1991). The study managers regarded
physical work conditions and convenient work hours as the least import-
ant of their work goals. Also of low importance was salary and job security.
 Indian Managers in Transition 247

Table 2: Means and Standard Deviations of Work Goals (N = 421)

Variable Description Mean Std

Opportunity to learn new things 3.81 2.52
Work that is liked and interesting 4.09 2.74
Job with a variety of tasks and roles 4.33 2.37
Job that is matched with abilities/experience 4.75 2.64
Social inter-relationships colleagues/supervisors 5.24 2.65
Opportunity to improve and be promoted 5.62 2.59
Autonomy in decision making 6.00 3.25
Good job security 7.16 3.00
A good salary 7.60 2.78
Good physical working conditions 8.69 2.12
Convenient work hours 8.69 2.52
Note: The lower the mean the higher the perceived level of importance.

Table 3: Means and Standard Deviations of Societal Values (N = 421)

Variable Description Mean Std

Work quality 3.61 2.40
Personal integrity 3.86 3.10
Team work 4.37 2.33
Customer service 4.90 2.98
Social responsibility 5.13 3.00
Workplace harmony 6.57 2.59
Organisational learning 7.16 2.45
Respect for seniority 7.17 2.75
Innovation and creativity 7.29 3.56
Value tradition 8.94 2.83
Wealth and material possession 10.21 2.31
Note: The lower the mean the higher the perceived level of importance.

Not only is this observation at considerable variance with other inter-

national studies (Harpaz 1990, Lawler 1971), where salary has always
been highly ranked, but in Indian society the possession of a job and the
associated income is vital. Overall, the findings of Table 2 indicate that
the managers realise that their society is in transition and their focus is
more on the attributes needed to be successful in a market economy,
and considerably less importance is attached to the work goals that had
greater relevance prior to the Indian economic reform (England/Dhingra/
Agarwal 1974).
248 Samir R. Chatterjee and Cecil A.L. Pearson

The means and standard deviations of societal values of the study

managers, which is shown in Table 3, may be partitioned into two distinct
sections. The first section, including work quality, personal integrity,
team work, customer service and social responsibility can be ascribed to
be associated with features of a market orientated society. The second
section including, workplace harmony, organisational learning, respect
for seniority, innovation and creativity, value tradition, and wealth and
material possession may arguably be linked to a society’s concept of
organisational configuration. In the context of India, the data surprisingly
places work quality ahead of all of the other items which are commonly
stereotyped to have greater priority in the Indian context. In addition,
the low ranking of tradition may also be misconstrued to mean a dis-
placement of tradition in preference to the higher ranked items. In fact,
Table 3 shows a realistic contradiction amongst Indian managers in
balancing these two sections of societal values. For example, personal
integrity could have been linked to the second section, whereas organ-
isational learning, and innovation and creativity could have been asso-
ciated with the first section. Such ambivalence points to a definite shift
and confirms a transition in the perceptions of societal values amongst
senior managers.

Table 4: Decision Making Means Across Ethical Domains

Ethical Domain Mean Std

Global 5.20 0.72
Societal 4.93 0.68
Organisational 5.20 0.68
Personal 4.88 0.79

Table 4 details the decision making means and their standard devi-
ations for the four examined ethical domains. The respondent managers
expressed the highest states of convergence in ethical decision making
was accommodated in the global, societal and organisational domains.
In contrast, the study mangers reported that the greatest level of ethical
violations or the highest intensity of ethical dilemmas occurred in the
personal domain. Two inferences may be drawn from these observations.
First, as a consequence of the shift in the importance of work goals and
 Indian Managers in Transition 249

societal values away from traditional orientations, the application of

ethical ideas in the contemporary context needs much deeper level of
understanding and should be given greater emphasis. Second, this calls
for a broadening of management education and development to
incorporate value based inputs and processes.

Table 5: Extent of Divergence for Levels of Ethical Domains

Extent of Respondent Divergence

Ethical Domain Mean # Items Ratio
Global 3.96 to 4.14 2 0.32
Societal 4.80 1 0.16
Organisational 4.10 to 4.75 2 0.32
Personal 3.41 to 4.78 5 0.82
# questionnaire items with divergence
Notes: a. Ratio =
# questionnaire items
b. Divergence = 3 < item mean < 5, else convergence

Table 5 outlines the extent of decision making divergence for the four
levels of ethical domain. For the global, societal and organisational
domains the means of the questionnaire items revealed only one or two
of the six items (for each domain) was considered by the managers to be
an ethical dilemma. For the remaining questionnaire items a strong
convergence was recorded. However, for the personal domain five of the
six questionnaire items were reported as ethical dilemmas. The evidence
presented in Table 5 is that in the emerging competitive Indian market
place managers are being increasingly confronted by ethical dilemmas.
This finding suggests the need for both guiding frameworks as well as
managerial education to reduce the gap between standards and normative
societal conceptualisation of ethical codes.
In Table 6 is presented the degree of consensus or divergence in deci-
sion making across four levels of ethical domain. Shown for each domain
is a questionnaire item that is representative of the six items that were
used to measure the ethical domain. As presented previously, higher
degrees of consensus were shown for the global, societal and organisational
domains. The greatest level of violations occurred in the personal domain.
250 Samir R. Chatterjee and Cecil A.L. Pearson

Table 6: Degree of Convergence for Levels Of Ethical Domains

Domain Mean Questionnaire item description Divergence extent

Global 5.96 The building of a modern global Convergence
economy should be underpinned
by the adherence to a set of
universally accepted values
Societal 5.66 Civilised societies guide and Convergence
control citizen behaviours by
embracing legal codes and
conventions that are derived
from their respective cultures
Organisational 5.69 Organisations are guided by strong Convergence
values and cultures and these are
reflected by the way customers are
treated, employees are valued, and
quality issues are addressed
Personal 4.41 The role of an individual in an Dilemma
Indian organisation is shaped
more by the conceptualisation
and interpretation of personal
dharma, rather than the controls
exercised in legal codes
Notes: a. Subject N = 421.
b. Divergence = 3 < item mean < 5, else convergence.

Conclusion and Discussion

This paper attempts to contribute to the growing field of International

management in three distinct ways. Firstly, by being able to collect an
unique set of empirical data from a population of very senior Indian
managers who are well known for their reluctance for participation in
this type of research. The credibility of the sample was enhanced as the
participants came from a wide range of industry sectors, regions and
educational backgrounds. Secondly, the study captures the work goal
measures and social value prioritisations at a time in India when the
macro level economic reform agenda of that country has been one of the
key social debates impacting all levels of society. Thirdly, the results of
the study demonstrate an interesting transition in the managerial con-
ceptualisation of work goals, societal values and ethics. Undoubtedly,
the traditional values still dominate the consciousness of the Indian society
 Indian Managers in Transition 251

and institutions, but surprisingly managers were able to work with global
values at their individual levels of work ideology by successfully building
and relying upon ‘meso’ level work value sets.
The Confucian—plus explanation linking the economic success and
managerial value in East Asia has been widely discussed (Bond/Hofstede
1989, Chen 1995, Kao et al. 1995, Redding 1990). This explanation of
economic and managerial success in East Asia being enriched by the
common Confucian heritage has led to a new hybrid notion of Asian
management. The importance of these managerial perspectives, which
enrich the micro-level synergies in East Asia, may not have direct relevance
to India. But like the East Asian case, the role of indigenous tradition
and the localisation of professional practices still remains a challenge.
No aspect of the managerial values in India appears simple, self-evident
or certain across industries, demographics and regional diversities. But
the ability of Indians, and specifically the Indian managerial elite to
reconcile such complexities with a distinct degree of uniqueness may
become a model from which to draw lessons. This is a striking contrast
to the less optimistic view espoused by Huntington who contended that
the post-modern world would necessarily create a irreconcilable conflict
between economic ideologies and cultural values (Huntington 1996).
The traditional roots of ancient values in India have been deeply uni-
versal in nature. The core problematics addressed through the age old
human values paradigms reflected the richness of human experiences.
But the modern technological market ideology based societies need
managers who are able to add extra dimensions to the classical prob-
lematics. Several management scholars have recently developed models
linking broad cultural value dimensions with micro-level managerial issues
(Anderson 1997, Hampden-Turner/Trompenaars 1993, Kabanoff/
Waldersee/Cohen 1995, McCoy 1985, Trompenaars 1993). However,
these frameworks neither take into account the dynamics of culture nor
the imperatives of economic reform agenda. This paper argues that al-
though the influence of deep-seated and all pervasive tradition may remain
at, the core level, the imperatives of economic experimentation and learn-
ing continues to dominate other levels. Managers’ responses and priorities
with respect to their work related assumptions tend to be significantly
shaped also by other personal weightings such as their upbringing, life
experience, organisational culture and worldview of value frameworks.
252 Samir R. Chatterjee and Cecil A.L. Pearson

Tables presented earlier in this paper suggest that the contemporary

environment of discontinuity is confronting traditional managerial
mindsets. The evidence suggests that managers need to deepen their
understanding of values as they acquire and reprioritise their compet-
encies. Interestingly, in Table 2 the opportunity to learn and undertake
challenging tasks are work goals that align strongly with attributes of
major importance in today’s organisational climates of rapid change and
aggressive competition, which are features that encourage companies to
embrace the philosophy of organisational learning (Black/Synan 1997,
Kloot 1996). It is interesting to note that with the growing importance
if non-financial work goals in terms of quality, learning, teamwork and
customer service there has been a displacement of the traditional goals
of pay and working condition. This suggests a transition in values away
from the old paradigm to a paradigm more in tune with contemporary
managerial approaches elsewhere. For instance, Harpaz’s (1990) study
employed data that were obtained from 1981 to 1983. This was a period
when corporations exercised economic priorities in terms of production
costs, efficiency and profit, a time before the emergence of new business
ideas (eg. TQM, reengineering) and the rejuvenation of US and UK
business for operation in the global market place. Table 3 provides
evidence to suggest a perceived distinction between contemporary societal
values and those that were relevant in earlier periods. The respondents
held the strongest preferences for a set of societal values that are consistent
with attributes of a market driven economy, where some of the more
well known attributes were displaced by new features affecting managerial
mindsets.
The ethical values, reported by the study managers in Tables 4, 5,
and 6 indicate that on the one hand there was a general degree of con-
sensus among the managers in terms of global, societal and organisational
ethics, but on the other hand it is suggested by the evidence that there
was a very high degree of ambivalence at the individual level with respect
to their commitment to actions. A strong inference of these results is
that the study managers perceived successful organisations are held
together by transcendental values that overarch the corporate activity in
such domains as learning skills, customer service and the pursuit of ethical
excellence. Nevertheless, the evidence reveals that the senior managers
of the examined Indian organisations have difficulty in reconciling
 Indian Managers in Transition 253

their value paradigms with frameworks of action at least in the ethical

domain.
With the increasing dominance of market ideology in all spheres of
economic life in the country, there is considerable demand on managers
to come to terms with new ways of conceptualising their work, organ-
isational processes and approaches. Some well known scholars of Indian
management strongly advocate that this paradigm shift in managerial
values and assumptions can only be possible by adhering to the traditional
wisdom of the country (Chakraborty 1998). These scholars suggest that
like the Japanese, Indian managerial values and goals need to arise out of
the deeply rooted tradition. While tradition is unmistakably observable
in the daily lives of the country, the work organisations appear to be at
the crossroads. There is an emergence of global value paradigms at least
amongst the senior level Indian managers. The study findings presented
here suggest that Indian managerial work goals tend to be in line with
attributes needed in a market dominated business culture.
Indian organisations have generally favoured the Webberian model
for designing their management approach over the present century. This
model had totally ignored the indigenous social forces of caste, tradition
or regional ethos, and, generally, created work cultures of apathy and
negatism. A reconceptualisation of work organisations needs to begin by
profiling the contemporary imperatives and this paper aims to contribute
to that process.

Note

1. The authors wish to acknowledge their gratitude to the Indian Institute of

Management, Culcutta for the support of the research and thank the reviewers
for insightful comments on the earlier submissions.

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England, G. W./Dhingra, O. P./Agarwal, N. C: The Manager and the Man: A Cross-
Cultural Study of Personal Values, Kent, Ohio: The Kent State University Press
1974
England, G. W./Lee, R., The Relationship between Managerial Values and
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Applied Psychology, 59, 1974, pp. 411–419.
Garg, P. K./Parikh. I., Crossroads of Culture: A Study in the Culture of Transience,
New Delhi: Sage 1995.
Gupta, G. P., (ed.) Management by Consciousness: A Spirito-Technical Approach, Sri
Aurobindo Society: Pondicherry 1996.
Hampden-Turner, C./Trompenaars, F., The Seven Cultures of Capitalism, New York:
Doublesday 1993.
Harpaz, I., The Importance of Work Goals: An International Perspective, Journal
of International Business Studies, 21,1, 1990, pp. 75–93.
Hofstede, G., Culture’s Consequences: International Differences in Work Related Values,
London: Sage 1980.
Hofstede, G., Cultures Consequences: Software of the Mind, London: McGraw Hill
1991.
Huntington. S. P., The Clash of Civilisations and the Remarking of World Order,
New York: Simon & Schuster 1996.
Kabanoff, B./Waldersee, R./Cohen, M., Espoused Values and Organisational Change
Themes, Academy of Management Journal, 38, 4, 1995, pp. 1075–1104.
 Indian Managers in Transition 255

Kao, H. S. R./Sinha. D./Ng, S. H., (Eds.) Effective Organisations and Social Values,
London: Sage 1995.
Kloot, L., Looping the Loop: New Directions for the Learning Organisation,
Australian Accountant, 66, 6, 1996, pp. 26–27.
Lannoy, R., The Speaking Tree: A Study of Indian Culture and Society, London: Oxford
University Press 1971.
Lawler, E. E., Pay and Organizational Effectiveness: A Psychological View, New York:
McGraw Hill 1971.
McCoy, C., Management of Values: The Ethical Difference in Corporate Policy and
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Culture and Economic Ideology on Managerial Work Values : A Study of the
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Redding, S. G., The Spirit of Chinese Capitalism, Berlin: Walter de Gruyter 1990.
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London: Sage 1995.
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pp. 31–66.
 Section Six

SOME SPECIAL
MANAGERIAL CONCERNS
IN CONTEMPORARY INDIA

Contemporary Issues and Challenges

This section provides three illustrations of the current shifts in managerial

transitions taking place in India. The first chapter here highlights the
emergence of the service sector as a competitive niche for India in the
recent years in addition to its overall implication for managers. Chapter
Thirteen explores the slow but steady dilution of male domination of
the senior managerial levels in India. Chapter Fourteen turns its attention
to the special challenges facing the management of international joint
ventures in India. These three examples of managerial challenges dem-
onstrate three distinct areas where Indian management has recorded
impressive transformations from very humble beginnings to global
consolidation.
The chapter by Kapur and Ramamurti is an in-depth analysis of the
knowledge intensive service sector. Not only is the back office service
258 Management in India

provision through outsourcing in sectors like software, biotechnology,

pharmaceuticals or financial services, catapulting India into a high-tech
nation, but so are some other emerging sectors. The authors also provide
an interesting comparison with China. They highlight how the establish-
ment of large R&D bases in India by a number of Chinese companies
attest to the sophistication of the service sector in India and it is perhaps
this area where urgent managerial inputs is required.
The chapter by Gupta et al. provides an empirical argument on the
new opportunities of enriching the national managerial talent pool. The
authors make a set of recommendations for enriching the gender diversity
in large and dynamic Indian organisations. It is interesting to note the
shift in gender diversity across Asia, particularly China where about
28 per cent of the entrepreneurial cadre consists of women. In contrast,
Indian women managers are more highly trained and professionally
oriented. As Lithgow observed,

many Indian industrialists say that India, in many ways a functioning

matriarchy, should capitalise on and invest in the special skills of its women.
Ambani says in the Indian workplace, women bring patience, perseverance,
the ability to work in a team and the much valued emotional intelligence
(Lithgow, 2000, p. 116).

The chapter by Thakur and Srivastava reports a study of 22 US and 26

Indian organisations operating as alliance partners in India. Numerous
gaps in the concepts and practices of joint venture management are raised
for closer attention and research. The discussion presented in this chapter
is an excellent platform for future researchers as the challenge of managing
joint ventures is bound to become critical to India’s emergence as a global
power. The authors highlight the need for a greater understanding of
the nature and scope of alliances from positioning, resource-pooling,
competency-leveraging to learning alliances. Obviously, the value extrac-
tion of the partners is a dependent variable of the value created by the
alliance. The value creation of international joint ventures on the other
hand depends on the respective contributions, ‘fit’ in the areas of culture,
capability and organisational dimensions. ‘Capability fit’ explores the
complementarity, redundancies, gaps and opportunities. ‘Culture fit’
evaluates the divergences in national cultures of the partners, industry
cultures and specific divergences of the administrative culture of the
 Managerial Concerns in Contemporary India 259

joint ventures. It is evident that Indian managers will be increasingly

involved in cross-border alliances and therefore shedding of the old
‘hierarchical mindset’ and development of ‘network mindset’ is an un-
avoidable imperative.

Reference

Lithgow, L. (2000). Special Blend: Fusion Management from Asia and the West,
Singapore, John Wiley and Sons, p. 116.
 India’s Emerging Competitive
12 Advantage in Services

Devesh Kapur and Ravi Ramamurti

The real treasure of India is its intellectual capital. The real opportunity of
India is its incredibly skilled work force. Raw talent here is like nowhere
else in the world.
—Jack Welch, CEO, General Electric1

India has not yet caught the fancy of foreign investors—even though its
population exceeds one billion and its gross domestic product (GDP) of
half a trillion dollars ranks it as the 11th largest economy in the world.
In purchasing-power parity, India is the fourth largest economy, behind
only the United States, China, and Japan. Yet India’s integration into
the world economy has been limited, as measured by such indicators as
exports and foreign direct investment (FDI). (See Table 1.) But all this is
about to change—not overnight, but through a slow revolution that
will probably take another decade to run its full course.
Meanwhile, what can one glean from the changes under way about
the sectors in which India is likely to be internationally competitive?
And how can foreign firms take advantage of the emerging opportunities?
Our conclusion is that India’s competitiveness does not lie in the same
fields as other low-income developing countries. Rather than enjoying
competitiveness in natural resource industries or low-skill, labor-intensive
manufacturing, India is revealing surprising strength in skill-intensive
tradable services, including software development, information tech-
nology (IT)-enabled services, product/project engineering and design,
biotechnology, Pharmaceuticals, media, entertainment, and healthcare.
262 Devesh Kapur and Ravi Ramamurti

New clusters are emerging in these activities in cities like Bangalore and
Hyderabad, where vibrant Indian firms are being joined by well-known
multinationals. One interesting example is General Electric (GE), which
is investing $100 million in Bangalore to build its largest R&D lab in
the world, employing 2,600 scientists, including more than 300 with
Ph.D. degrees. It was while inaugurating this lab that GE’s CEO Jack
Welch made the remark quoted above.
Similar investments have been made in research and development
centers by dozens of other well-known firms, including Lucent, Hewlett-
Packard, IBM, Microsoft, Cisco, and Eli Lilly. Indian manufacturing is
not showing similar dynamism, although in the medium run it may do
so as India’s physical infrastructure improves. However, in the short run,
services will be the engine of India’s export growth. In that regard, India’s
international competitiveness—and the corresponding opportunities for
multinational corporations—will differ from those in high-performing
Asian economies that have emerged as manufacturing powerhouses.

Table 1: India vs. Brazil and China

Indicator India Brazil China

Population (millions) 998.0 168.0 1,250.0
GNP (US$ B) (rank), 1999 442.0 (11) 743.0 (8) 980.0 (7)
GNP at purchasing power parity
(US$ B) (rank) 2,144.0 (4) 1,062.0 (9) 4,112.0 (2)
Exports, 1998 (US$ B) 44.7 58.2 207.8
FDI inflows, 1998 (US$ B) 2.6 31.9 43.7
Share of FDI flows to developing
countries (%) 1.5 18.6 25.6
GDP growth rate, 1990–99 (%) 6.1 2.9 10.4
World competitiveness Scoreboard
ranking, out of 47 countries,
May 2000 43.0 34.0 31.0
Per capita income (US$) 450.0 4,420.0 780.0
Sources: World Bank 2001. World Development Report, New York: Oxford University
Press; International Institute for Management Development (IMD), 2000.
The world competitiveness Scoreboard, Lausanne, Switzerland: IMD.

We begin this article with a brief overview of the changing economic

and political landscape of India and its implications for the business
climate. Then, using Porter’s “diamond of international competitiveness,”
 India’s Emerging Competitive Advantage in Services 263

we explain why clusters have begun to emerge in India in such tradable

services as software. However, we relax Porter’s requirement that all
elements of the diamond be physically co-located. Instead, we argue that
social networks, connecting India-based participants with U.S.-based
customers, have created a virtual diamond, with some of the same
advantages that co-location would have bestowed. We highlight the role
of overseas Indians in building and sustaining the virtual diamond. We
conclude by arguing that India’s success in software services will spill
over into other IT-based services, and, more generally, into knowledge-
based services, such as design, engineering, and research in diverse indus-
tries and in education and healthcare. India is likely to emerge as the
back office of global corporations in the short to medium term and as a
leading provider of tradable services in the medium to long term.

India is likely to emerge as the back office of global corporations in the

short to medium term and as a leading provider of tradable services in the
medium to long term.

These conclusions have important implications for managers. Within

this decade, India will probably figure in the global portfolio of leading
multinationals, but firms that enter now will be in a better position to
profit from the emerging opportunities than firms that wait longer. In
manufacturing, the main opportunity for MNCs will be that of serving
the large and growing domestic market, because in the near term India
is unlikely to become an attractive platform for exports. But for service
sector firms, and for the service activities of manufacturing firms, India
is already emerging as an attractive location for global operations.

India’s Role in the World Economy

From 1950 to the 1980s, India pursued import-substituting industrial-

ization aimed at achieving economic self-reliance. In these decades, India’s
international trade shrank to as little as 8.5 percent of GDP. The economy
grew at only 3.5 percent annually for three decades, and foreign direct
investment was an anemic $300 million annually. Economic growth
accelerated in the 1980s, following the onset of gradual economic reforms.
Major reforms followed the balance of payments crisis of 1991. Since
then, international trade has more than doubled in importance, FDI
264 Devesh Kapur and Ravi Ramamurti

inflows increased 10-fold by 1998, to $3 billion annually, and the eco-

nomic growth rate has been a robust 6.1 percent annually. Commenting
on India’s macroeconomic performance, the IMF in a 2001 report has
argued that, “since the 1990s, India has been among the fastest growing
economies in the world, inflation has been relatively well contained and
the balance of payments has been maintained at comfortable levels.”2
Nonetheless, despite these improvements, India’s exports are only three-
fourths those of Brazil and barely a fifth those of China. India’s share of
world trade is less than one-third of China’s. And both Brazil and China
receive FDI that is an order of magnitude greater than India’s. Both
countries also fare better than India in rankings such as IMD’s World
Competitiveness Scoreboard or A.T. Kearney’s FDI Confidence Index,
which is based on a survey of one thousand global companies.
Making too much of the backward-looking statistics in Table 1 is a
mistake, however, because the economic and political changes underway
in India are capable of changing those indicators significantly. Even sur-
veys of senior managers of MNCs can be misleading to the extent that
they might reflect a herd mentality rather than independent assessments.
Looking more carefully at the circumstances in India reveals an improving
climate for FDI and exports, especially in the field of services.

Political Environment: Complexity and Bright Spots

Indian politics is cacophonous and fractious, playing itself out in one of

the most socially heterogeneous societies in the world, with sharp social
inequities, a corrupt and inefficient bureaucracy, and poor accountability
of political actors. India’s material resources are relatively modest and its
poverty levels are quite high, although income inequalities are much
lower than Latin America or even China.
Accentuating these problems is political instability in New Delhi,
resulting from the multiplicity of regional parties and the necessity of
forming coalition governments to cobble together a majority in parlia-
ment. As a result, there have been four general elections and six prime
ministers in the last decade. In such an environment, economic reforms
have been predictably slow and uneven. Although the Vajpayee govern-
ment that came to power in 1999 was more stable than the three before
it, it was still a coalition government of 24 disparate parties with differing
 India’s Emerging Competitive Advantage in Services 265

agendas, and was considerably weakened by an arms scandal in March

2001.
But the headline-grabbing manifestations of political instability mask
a deeper systemic stability, anchored by deep-rooted, democratic institu-
tions. An array of powerful and independent institutions, ranging from
the judiciary, the election commission, and the media, have all ensured
that the Indian system has multiple veto points that slow decision making
but underpin its systemic resilience. Multiparty coalitions at the center
have resulted in unstable governments at the central level, but have also
contributed to strengthening India’s federalism. Another stabilizing factor
has been that, unlike many other low-income countries, India’s military
has been apolitical and very much under the thumb of its civilian leader-
ship. Finally, India’s relations with Western nations, particularly the
United States, have become much warmer, despite the strains cast by
India’s 1998 nuclear tests. U.S.-India relations were bolstered by reciprocal
visits by the leaders of the two countries in 2000. An important lubricant
greasing this relationship is the growing economic clout of the people of
Indian origin in the United States.

Multiparty coalitions at the center have resulted in unstable governments

at the central level, but have also contributed to strengthening India’s
federalism.

Economic Environment: Achievements

and Challenges Ahead

On the economic front, the good news is that in the last decade India has
opened up greatly to private participation and global competition. Tariffs
have come down from an average of 100 percent or more to 30 percent,
with commitments to the World Trade Organization (WTO) for further
reductions. Most forms of import or industrial licensing have gone. FDI
is automatic, and 100-percent foreign ownership is permitted in many
sectors, including software. The rupee has been made freely convertible
on the current account. Corporate income taxes have been reduced to
45 percent. Foreign portfolio investment and venture-capital financing
have been encouraged. Many other structural reforms, requiring new
legislation, were underway in 2001. As Finance Minister Sinha notes in
his interview in this issue, these second-generation reforms are harder to
266 Devesh Kapur and Ravi Ramamurti

push through than those undertaken in the 1990s. Implementation is

slowed by the need to work in a democratic framework, by coalition
politics in Delhi, and rivalries between parties in power at the center and
in the states.
Yet in both Delhi and the state capitals, economic growth and effect-
ive governance are becoming more important concerns of politicians in
power. The country’s 10th five-year plan aims for 9-percent annual
growth, which, if achieved, would see India growing faster than China.
We believe that sustained annual growth of 7 to 8 percent by the end of
this decade is quite realistic, with still faster growth possible thereafter—
if painful reforms, such as privatization, cuts in public spending, and re-
direction of government expenditures towards developing human and
physical capital, are implemented. To be sure, even with these reforms,
India’s poor physical infrastructure—from ports and internal trans-
portation to power and water—and its bureaucracy will continue to pose
challenges for business. However, with current growth projections, India’s
GDP should double by 2010 to about $900 billion, and growth itself is
likely to ease some of these bottlenecks.

Expect Gradual Reforms

These features of the Indian situation have several implications for

investors. First, periodic short-term governmental instability will remain,
but like Italy of the not-so-distant past, this will affect the pace of policy
reform rather than the trend. A silver lining has been that the different
parties rotating through power in Delhi have all signed off on opening
up India to greater internal and external competition. Consequently,
political rhetoric notwithstanding, economic reforms had more broad-
based support in 2001 than at any time in the past.
Second, India’s growth has been one of the least volatile among devel-
oping countries. Because India’s external accounts have been managed
cautiously and prudently, its foreign-debt-to-GDP ratio and debt-service
ratios have been low and declining, and it has escaped damage from
international events like the Asian financial crisis.
Third, a more robust federalism has meant there is increasing variance
in strategies and policies at the subnational level, with states increasingly
competing with one other to attract investment. With the central gov-
ernment having considerably liberalized its policies towards foreign
 India’s Emerging Competitive Advantage in Services 267

investment, an understanding of the considerable differences in business

environments among Indian states is becoming more important for
private investors. As in China, coastal states have been the locomotive of
India’s expanding economy.

India’s Success in Software

India has received much attention recently on the prowess of its software
industry, prompting Bill Gates to proclaim that “India is likely to be the
next software superpower.” How has a country whose economic achieve-
ments were otherwise modest, managed to develop a reputation for
excellence in this rapidly growing high-tech sector? Before answering
that question, India’s accomplishments in software need highlighting.3
For the better part of a decade, India’s software industry has been
growing at 50 percent annually. By 2000, the software sector’s output
had grown to $8 billion and exports had risen to $6.2 billion. More than
800 firms, located in cities like Bangalore, Hyderabad, Pune, Chennai,
and New Delhi, provided a range of software services, mostly targeted at
foreign customers. The United States accounted for nearly 60 percent of
Indian software exports, followed by Europe with 23.5 percent, and Japan
with just 3.5 percent.

For the better part of a decade, India’s software industry has been growing
at 50 percent annually.

India’s software industry grew out of the pioneering efforts of com-

panies like Tata Consultancy Services (TCS), in the aftermath of IBM’s
departure from India in 1977 over policy differences with the government.
These firms undertook small projects overseas for multinational firms,
and slowly climbed up the value chain as their reputations were estab-
lished. Although low-end work, such as maintenance of legacy systems
or projects associated with the Y2K millennium bug and euro conversion,
accounted for about 20 percent of export revenues in 2000, the Indian
industry has moved up the technology ladder over time. One indicator
of that shift is that more than half of the software development centers
in the world with Carnegie Mellon University’s CMM Level-5 rating are
located in India. The first company in the world to obtain this distinction
was an Indian company, Wipro, and companies like Citicorp, GE,
Honeywell, IBM, and Motorola had their only CMM-certified operations
268 Devesh Kapur and Ravi Ramamurti

in India rather than the U.S.5 By 2000, more than 200 of the Fortune
1000 companies were outsourcing their software requirements to Indian
software houses,6 and in software services “made in India” was becoming
a sign of quality, according to an MIT expert.7 By 1999, 41 percent of
software services were provided in India rather than on-site at the client’s
location, compared with only five percent in 1990, indicating a growing
confidence in India-based service provision. Indian software companies
also became the darlings of the stock market, accounting for seven of
Asia’s top-20 growth stocks, according to Asiaweek.8
Two recent analyses of India’s IT industry underline the country’s
potential. A study by Goldman Sachs in 2000 projected that India would
capture five percent, or $30 billion, of the $585 billion of the IT services
market by 2004, up from just 1.6 percent in 1999. Another study by
McKinsey & Company projects the Indian software and services indus-
try’s output to rise to $87 billion in 2008, of which $50 billion would
be exported.9 Two-thirds of the increase is projected to come from new
growth opportunities in IT-enabled services, such as call-center oper-
ations, transcription, and design and engineering services. The number
of Indian software companies listed on the stock exchange in 2008 is
projected to quadruple to 400, with a combined market capitalization
of $225 billion. By then, software and IT-related services are expected to
employ 2.2 million people. However, as in the past, McKinsey expects
Indian firms to account for most of the future growth: only $5 billion in
FDI is anticipated to achieve the 2008 projections for IT-sector output
and exports. Fueling new-business formation in 2000 were more than
50 venture-capital firms, compared with only half a dozen in 1998. The
dot-com bust in the U.S. will not affect the Indian IT sector’s growth,
which relies mostly on the outsourcing of existing activities rather than
on future growth of e-commerce. Even if McKinsey’s growth projections
for 2008 are met, India’s share of the U.S. software market will be only
4.1 percent, although Field observes that “India enjoys first-to-market
advantage and owns anywhere from 80 percent to 95 percent of the
U.S. offshore market [for software services].”10

Why is India Competitive in Software?

India has done well in software because that industry makes intensive use
of resources in which India enjoys international competitive advantage,
 India’s Emerging Competitive Advantage in Services 269

while making less intensive use of resources in which India is at a

comparative disadvantage. Figure 1, drawing on Porter, depicts India’s
diamond of competitive advantage in this sector.11

Figure 1: India’s Virtual Diamond in Software

Note: Dashed lines represent weaker interactions.

Software makes intensive use of human capital, and India has several
advantages in this regard. India produces the second largest annual output
of scientists and engineers in the world, behind only the United States.
This labor pool is relatively cheap. Even with the rapid growth of the last
few years, an Indian software engineer costs one-half to one-fourth that
of an American software engineer. The English-language capability of
Indian graduates facilitates interaction and collaboration with pro-
grammers in the United States or Europe. In this respect, Indian graduates
enjoy a decisive advantage over their Chinese counterparts, who are other-
wise nearly as numerous and cost competitive as Indian programmers.
A large and sophisticated network of educational institutes supplies
the human capital required by the software industry. The Indian Institutes
of Technology, which admit one student for every 100 applicants, churn
270 Devesh Kapur and Ravi Ramamurti

out first-rate graduates, who today are sought out by firms from all over
the world. Many of its graduates migrated to the United States for higher
education and jobs and form part of the social network that nurtures the
Indian software industry. Other institutions include the Indian Institutes
of Information Technology, the Indian Institute of Science, a network of
regional engineering schools, and the Indian Institutes of Management.
These public institutes have been joined by private institutes, such as
NIIT and Aptech, that together produce nearly 100,000 IT professionals
annually, a figure that is projected to increase to a half-million by 2006.
Thanks to economic liberalization, private schools are augmenting the
government’s efforts to expand the supply of students to meet the
anticipated needs of the software industry.
Just as important as what software needs is what is does not need—
namely capital, and a well-developed physical infrastructure. Rapid
declines in IT hardware prices and import tariffs in the 1990s sharply
lowered capital barriers to entry. This allowed a new entrepreneurial class
to commence bootstrap operations and then to rapidly scale up. Rapid
technological change in IT hardware meant that latecomers like India
were not locked into older-generation technologies, and could instead
leapfrog technologies. And in terms of infrastructure, all that is necessary
to connect the Indian software worker with foreign customers is a tele-
communications hook-up and an occasional overseas trip. Many state
governments have created software technology parks in which the neces-
sary infrastructure is readily available and is vastly superior to that found
elsewhere in the country. Notable examples include Bangalore’s Electronic
City and Hyderabad’s HITEC City, which offer not only office space and
communications links, but housing and other social amenities, as well.

Rapid technological change in IT hardware meant that latecomers like

India were not locked into older-generation technologies, and could instead
leapfrog technologies.

Improving telecommunications links and airtransport services has been

much easier than upgrading India’s roads, ports, power supply, and rail
transportation—all of which are necessary to boost Indian manufactured
exports. Ghemawat and Patibandla note that Indian garment exports
are hampered by the lack of high quality local suppliers, and the inability
to respond quickly to foreign customers.12 The other leading goods export
sector, gems and jewelry, seems also to have hit a plateau, with limited
 India’s Emerging Competitive Advantage in Services 271

prospects for rapid growth. The Indian government has begun only
recently to create special economic zones, similar to those in China, that
lie outside the country’s customs territory and enjoy full flexibility of
operations. That is why we expect tradable services like software, rather
than manufactured goods, to be the engine of India’s export growth in
the coming decade.
The third node of Porter’s diamond—rivalry— has been strong in the
Indian software industry, possibly because the industry was not subject
to industrial licensing by the central government, and by and large the
India government’s policies have been facilitative, at least relative to other
sectors. Although firms like TCS, Infosys, and Wipro have become large,
they were quite small only five years ago, and aspiring to catch up with
them are dozens of small and mid-sized companies. New venture for-
mation is fueled by overseas Indians, who return to start new companies,
supply venture capital, or act as angel investors. It is also fueled by the
many state governments that have attempted to replicate Bangalore and
Hyderabad’s success in software by creating their own software-technology
parks. Recognizing the possibility that more Indian firms will want to
list on foreign stock exchanges, Nasdaq has opened only its third foreign
office, in Bangalore.
However, Porter’s diamond model does not readily explain India’s soft-
ware success in terms of demand conditions—if one takes that to mean
domestic demand, which is not nearly as large or sophisticated as over-
seas demand.13 Although many Indian software firms cut their teeth in
the domestic market after IBM left India, their success today comes from
serving foreign customers, especially in the U.S. To understand how the
Indian software could become internationally competitive despite being
12,000 miles away from Silicon Valley, one must recognize the unique
features of software that make co-connection a good enough alternative
to co-location, and the many bridging mechanisms that link supply and
demand.14

The Virtual Diamond: Linking Indian

Supply with U.S. Demand15

One key difference between software and the industries that Porter studied
is that software can be digitized and therefore moved back and forth between
different locations instantaneously through telecommunication links.
272 Devesh Kapur and Ravi Ramamurti

In manufacturing industries, on the other hand, physical co-location is

necessary for similar hand-offs between firms in the value chain. Given
the ease of moving software work-in-process, physical distance has turned
into a time-zone advantage for Indian firms, allowing for 24-hour devel-
opment by teams in India and the U.S.—an advantage unavailable with
co-location.

Given the ease of moving software work-in-process, physical distance has

turned into a time-zone advantage for Indian firms, allowing for 24-hour
development by teams in India and the U.S.—an advantage unavailable
with co-location.

But physical co-location also promises other advantages, such as face-

to-face interaction between firms, suppliers, and customers that can spur
innovation. How can India-based organizations be competitive if they
don’t enjoy those advantages? The answer is that some of the work done
in India is not at the cutting edge and can therefore be uncoupled from
U.S. activities; examples include software maintenance or the upgrading
of legacy systems. In such cases, occasional visits by Indian programmers
to the United States and by U.S. customers to India may suffice. As Azim
Premji, chairman of Wipro, explains in his interview in this issue, Indian
software firms internationalized by initially seeking low-skill work in the
United States. Indian programmers visited the U.S. for several weeks or
months to carry out these assignments at the customers’ premises—what
is known in the industry as body shopping. This strategy was then
mimicked by other Indian firms and by overseas Indians, who started
their own body-shopping outfits in the U.S., staffed with Indian pro-
grammers. An important benefit was that this led to rapid skill upgrading
through learning-by-doing in the most sophisticated IT market in the
world.
As the reputation of these software service organizations grew, more
and more of the actual work was done in India, to take advantage of
lower costs there. Simultaneously, as Indian firms gained experience and
software salaries rose in India, they moved up the value chain to more
technically complex assignments. Several mechanisms emerged to bridge
the physical distance between Indian suppliers and U.S. customers, so
that the necessary supplier-customer interactions could take place.
 India’s Emerging Competitive Advantage in Services 273

One important mechanism was the social network connecting people

of Indian origin in the U.S., often working in Silicon Valley, with engin-
eers and managers in India. Indian technology professionals working in
the U.S., who had upgraded their skills through learning-by-doing,
sometimes returned to India, while others circulated between the two
countries, thereby diffusing technology and skills. More than 40 percent
of the Hl-B visa petitions approved recently in the U.S. have been for
nationals from India, with China and Canada a distant second and third,
respectively. This is enhancing both the network effects of the Indian IT
sector and the human capital of this segment of the workforce. Just as
Korea climbed up the technological ladder by importing capital equip-
ment of recent vintage, which embodied frontier technologies, India has
moved up the software ladder by importing human capital, in the form
of U.S.-trained Indians. Another bridging mechanism was American
companies that opened software centers in India to strengthen interaction
between their organizations and Indian suppliers or to do development
work in wholly owned R&D subsidiaries. By 2001, that list included
Cisco, Hewlett-Packard, IBM, Lucent, Microsoft, Motorola, Oracle, and
Sun Microsystems. At the same time, Indian software firms like Infosys
and Wipro opened offices in the U.S., or acquired U.S. companies, to
better serve their clients on high-end projects and to have listening posts
in Silicon Valley. To facilitate this process, the government made it easier
for Indian firms to raise capital abroad and to make foreign acquisitions.
Thus physical distance was bridged by the strengthening of cross-national,
intrafirm networks and by interfirm social networks among Indians and
overseas Indians. The head of the U.S. firm’s software development center
in India was often an American of Indian origin, as was the head of the
U.S. subsidiary of an Indian software company. Overseas Indians helped
enrich and cement the ties between India-based supply and U.S.-based
demand.

Geographic Spillover

Even as India’s software industry migrated upwards to higher value-adding

activities, its target markets broadened beyond the United States and its
success spilled over into other knowledge-based services. (See Figure 2)
274 Devesh Kapur and Ravi Ramamurti

Figure 2: Competitiveness Building: From Low-End to High-End

Software, to Other Knowledge-Based Services

The geographic spillover occurred because of positive brand-name

externalities—that is, because “made in India” became a signal of quality
in software, just as “made in Japan” is a signal of quality in consumer
electronics. As a result, more countries began to court Indian IT talent
and outsource software development to Indian firms. Among these are
countries like the United Kingdom, where Indian emigration had slowed
to a trickle, and countries like Finland, France, Germany, Ireland, Japan,
New Zealand, and South Korea, where Indian emigration was small to
begin with. Indian IT experts accounted for 20 percent of the green
cards issued by Germany for non-EU computer specialists in 2000.16
Singapore has set a goal of attracting 250,000 Indian IT professionals
over a five-year period.17 Leaders of these countries, as well as of Britain,
France, Japan, and China, made official trips to India in 2000 that in-
variably included a half-day visit to a software cluster and initiatives to
 India’s Emerging Competitive Advantage in Services 275

strengthen ties with India in the IT sector. Within software and IT-
based services, a virtuous cycle has been set in motion, with success in
the U.S. leading to a global expansion of demand for Indian IT experts
and a corresponding expansion of the social network of overseas Indians.

Spillover into Other Knowledge-Based Services

India’s success in software is spilling over into success in other knowledge-

based services for several reasons. Software success has enhanced India’s
reputation and credibility as a provider of skilled services, given that
software is seen as a sunrise, high-technology sector rather than a mature,
low-technology sector. It is no longer improbable for MNCs to consider
India a location for such services.
Other knowledge-based services leverage many of the same strengths
India enjoys in software—namely, access to a large pool of skilled, in-
expensive, English-speaking talent, except that these sectors require
doctors, scientists, chartered accountants, consultants, or mathematicians,
rather than programmers. As in the case of software, public educational
and research institutes nurture talent in these fields too, and increasingly
they will be supplemented by private institutions as demand grows.
Software and IT are general-purpose technologies with economy-wide
applications: capabilities built up in software can be leveraged in other
high-technology fields such as bioinformatics, Pharmaceuticals, media,
and entertainment.18
Indian professionals are well represented in the United States, not just
in software and Silicon Valley but also in other high value-added services,
such as education, management consulting, technical consulting, medi-
cine, and finance. Some of them have also reached the upper rungs of
management in Fortune 500 companies, such as Arthur Andersen, Citi-
group, Computer Associates, McKinsey, PepsiCo, United Airlines, and
US Airways. These factors may increase the propensity of these companies
to do business in, and with, India.
Finally, Indian-Americans have also become more active in promoting
startups in the U.S. and elsewhere. The IndUS Entrepreneur (TIE),
founded in 1992, is a network of Indian entrepreneurs and professionals
with 25 chapters, including five in India, several in the U.S., and one each
in countries like Singapore, Switzerland, and the United Kingdom.19 At
TIE’s core is a group of angel investors, who got rich by starting companies
276 Devesh Kapur and Ravi Ramamurti

in the U.S., and have been recycling their wealth as venture capitalists in
the U.S. and in India. While most of their wealth goes to U.S. companies,
they are also funneling funds into a new generation of start-ups in India,
as well as into hybrid companies and investment funds that operate in
both India and the U.S.20
For all these reasons, India has begun to attract foreign contracts and
investments in other knowledge-based industries, which, while modest
in FDI terms, have significant economic effects in the long term. In a
sign of things to come, between 1990–91 and 1998–99, India’s foreign
exchange earnings from inward remittances and service exports grew
more than twice as fast as the exports of manufactured goods.21 By 2000,
India’s exports of services exceeded the total exports of her two leading
manufactured goods—textiles/garments and gems/jewelry.

Emerging Services

One set of emerging activities leverages the IT revolution to provide

such lower-skill services as call-center operations and medical tran-
scription. An example is GE Capital’s call-center operation, which grew
from two employees in 1997 to a $30 million business in 2000, employing
2,500 people who examined medical claims, car-loan applications, and
credit-card debt.22 Another example is accounting services, whose exports
are projected to grow rapidly within a few years. Towards that goal, the
association of Indian public accountants is negotiating mutual recognition
agreements that would allow Indian accountants to provide bookkeeping
services for companies in the European Union and the United States.
The first such agreement was signed with Italy in March 2001.23
A more advanced knowledge-based service is doing design and
engineering work for industrial and construction projects. The Indian
firm, Satyam Computer, has formed a strategic alliance with TRW to
provide a range of IT-related and engineering services for automotive
applications. Even more advanced work is planned in GE’s R&D lab in
such areas as basic chemistry, polymer science, mechanical engineering,
ceramics, and metallurgy. Other foreign investors with similar aims
include Ford, AOL Time Warner, and Advanced Micro Devices.
Another area holding enormous potential is biotechnology and
pharmaceuticals. Indian firms, such as Dr. Reddy’s Lab, Ranbaxy, and
Shanta Biotech, have developed new molecules and drugs, sometimes
 India’s Emerging Competitive Advantage in Services 277

funded by MNCs like Bayer, Unilever, and Pfizer. Hoping to replicate

the success in software, the Karnataka government is setting up a Biotech
City and an Institute of Bioinformatics and Applied Biotechnology. Not
surprisingly, the government’s strategy replicates many elements of the
strategy that worked in software services. A neighboring state, Tamil
Nadu, announced in January 2001 plans to set up its own biotechnology
research center in collaboration with Cornell University, well-known for
life-science, agricultural, veterinarian, and healthcare research. For its
part, the central government has extended a 10-year tax holiday for re-
search and development companies on their royalty income and fees,
and has created a new Department of Biotechnology.
India is also becoming an attractive site for conducting clinical trials
of new drugs—a procedure that makes up one-third of the cost of intro-
ducing a new drug. Not only are Indian technicians cheap, but the coun-
try’s large and heterogeneous population is an advantage, as is the sad
fact that its people suffer from numerous ailments. With improvements
in the institutional and regulatory infrastructure for trials and pharmaceu-
tical research, India’s exports of services in this sector should grow.24 In a
sign of things to come, by 2001, Quintiles Transnational and Covance,
two leading U.S. contract-research organizations, had started operations
in India. Eli Lilly and AstraZeneca had bought out their Indian joint
venture partners, and the latter was planning a “super-duper research
center,” according to one of its executives.25 Pfizer was doing biometrics
in its Indian facility, Novo Nordisk was testing two new diabetes drugs,
and GlaxoSmithKline was sourcing components for its ulcer, hepatitis B,
asthma, and AIDS drugs in India. To encourage knowledge-based invest-
ments of this sort, the Indian government is rapidly becoming much
more receptive to the idea of protecting intellectual property (IP). Leading
the crusade for tougher IP laws and enforcement is Nasscom, the Indian
association of software and service companies.

India is also becoming an attractive site for conducting clinical trials of

new drugs—a procedure that makes up one-third of the cost of introducing
a new drug.

Finally, India has vast potential in media and entertainment as well.

Apart from the technical synergy between software and media—for in-
stance, in producing animation—India enjoys a home-market advantage
278 Devesh Kapur and Ravi Ramamurti

in this sector, as the world’s largest producer of movies (ahead of

Hollywood, with 800 titles annually). It also has a very large installed
base of subscribers to cable TV, through which 60 channels of entertain-
ment are available, a lot of it local fare. Given the large population of
overseas Indians, foreign distribution rights alone have become sufficient
to cover the cost of making movies. Recognizing this potential, Sony
Entertainment recently announced plans to invest $250 million in India
over the next three years, developing two new TV channels, and getting
into film production and distribution. To leverage India’s resources in
export markets, the Andhra Pradesh government has created Film City,
a studio complex with advanced filming and editing facilities.26 Arthur
Andersen predicts that by 2006, Indian exports of movies will reach
$3 billion annually.

Spillover Effects on Indian Business Climate

India’s success in IT has had positive spillover effects on the general busi-
ness climate in India. For one thing, it has helped unleash entrepreneur-
ship in a country whose cultural and bureaucratic ethos was long regarded
as inimical to capitalism. It has boosted the confidence of the younger
generation that they could make good money in India, and ethically
too. Success in software and IT has blunted domestic political opposition
to India’s integration with the world economy. Equally important, the
IT sector has affected Indian capitalism, because the corporate culture
and business practices of India’s IT firms are vastly superior to those of
India’s traditional business houses, which honed their business practices
in a closed, state-dominated system. Indian IT firms have been at the
forefront of improving corporate governance.27 India’s high-technology
firms have also been at the forefront of corporate philanthropy, particu-
larly in education and civic improvement, through innovative public-
private partnerships. Furthermore, the IT revolution has substantially
enlarged India’s entrepreneurial pool, bringing new social groups,
particularly from South India, into the business mainstream.

India vs. China

We conclude with comparisons between India and the other large Asian
country, China, whose GDP growth, exports, and inward FDI have all
 India’s Emerging Competitive Advantage in Services 279

been much higher than India’s. Economic reforms began in earnest in

India about a decade after they did in China. Therefore, India’s perform-
ance improvement can be expected to lag China’s by at least a decade.
The surge in China’s inward FDI occurred several years after the surge in
the 1980s in China’s annual growth rate to 10 percent. The implication
is that in India, too, the surge in FDI is likely to occur after her growth
rate rises to 8 to 10 percent in this decade. The institutional foundations
of India’s capitalism—be it the legal system, accounting practices, working
language (English), or the democratic context—are more compatible
with those in the United States than are China’s foundations, because of
the common British legacy in India and the U.S. Nonetheless, the annual
FDI inflow into India is unlikely to exceed $10 billion, compared with
$40–50 billion in China. To understand why, one must recognize another
important difference between the two countries, namely, the differing
contributions of overseas Chinese and overseas Indians to their respective
home country’s development.28 (See Table 2.)
Overseas Chinese—the so-called Chinese diaspora—are about 50 mil-
lion, but concentrated in countries close to China, with Hong Kong and
Taiwan accounting for more than half.29 The Indian diaspora is smaller,
at 15–20 million, and more widely dispersed in far-flung regions, such
as the Middle East, the U.K., and North America. More importantly, the
Chinese diaspora is wealthier than the Indian diaspora, and accounted
for up to 80 percent of China’s FDI inflows in the 1980s.30 Overseas
Indians have not been as affluent: in places like the Middle East, they
hold relatively low-skilled jobs and hence have modest incomes; and
even though in North America they hold high-skilled and professional
jobs, only a few have achieved high net-worth positions, and that only
recently. In contrast, the Chinese diaspora is entrepreneurial and quite
affluent everywhere. For these reasons, FDI into China by the affluent
Chinese diaspora has been 20-fold that by overseas Indians into India.
In contrast, remittances by the Indian diaspora have been seven times
that of the Chinese diaspora ($49.8 billion and $7.6 billion, respectively,
between 1991–1998). Furthermore, Indians in the U.S. are mostly profes-
sionals, while overseas Chinese are manufacturers, traders, and exporters.
Therefore, overseas Chinese have helped China boost its exports of manu-
factured goods, especially labor-intensive products, while overseas Indians
have helped India boost its exports of knowledge-based services. In both
cases, though, overseas nationals have played key roles in information,
reputation building, technology transfer, and capital supply.
280 Devesh Kapur and Ravi Ramamurti

Table 2: Overseas Chinese vs. Overseas Indians

Characteristic Overseas Chinese Overseas Indians

Number and 50 million (including 15–20 million, dispersed across
location Hong Kong), con- Southeast Asia, Middle East,
centrated in countries North America, United
close to China, such as Kingdom, Australia
Taiwan, Singapore,
Indonesia, Thailand,
Malaysia
Assets High net-worth individuals Low-skill guest workers with
Manufacturing and distri- modest incomes and savings,
bution networks in Asia partly remitted home (e.g. in
Contacts and reputation the Middle East)
in rich-country export Salaried professionals in North
markets America, positioned in high-
tech companies, universities,
consulting, and financial
services—the “knowledge
diaspora”
Senior positions in Fortune 500
companies
Only a few high net-worth
individuals, but with more
likely in the future
Competencies Entrepreneurship Technical know-how
Light manufacturing Knowledge-based services
Trading High-tech startups
Export marketing Venture financing

Implications for Managers

India is undergoing a slow but steady revolution whose significance may

not yet be readily apparent to foreign investors. Statistics on India’s exports
or inward FDI are still unimpressive compared to other large Asian coun-
tries like China. But significant changes are underway beneath the surface
that have reduced political risk for investors, by strengthening democratic
processes and institutions, and by creating a multiparty consensus on
economic liberalization. They have resulted in greater decentralization
to the states and fostered competition among them for private investment.
And they have begun to lift the heavy hand of government in economic
 India’s Emerging Competitive Advantage in Services 281

matters, boosting the growth rate to 6 to 7 percent annually, with 8 to

10 percent growth likely within a decade. Other promising trends include
the growth of software exports through the 1990s at 50 percent or more
annually and signs that this boom will not only continue in the 2000s
but spread to other knowledge-based industries. Aiding this transfor-
mation process at critical stages has been the overseas Indian community.

Recruit Indian Talent

How should foreign firms and managers take advantage of these

developments in India? In the short run, a few safe opportunities present
themselves. For starters, foreign firms can tap into India’s well-educated,
inexpensive, English-speaking manpower, as consulting companies like
BCG and McKinsey or financial services firms like Citigroup have done.
In the past, Indian manpower went abroad searching for jobs or training;
today foreign companies go to India to recruit talent, be it at the Indian
Institutes of Management, the Indian Institutes of Technology, or from
their Indian subsidiaries (e.g., Citibank, Proctor & Gamble, and Unilever).

Outsource Back-office Services

Another relatively low-risk option is to move less critical steps of the

value chain to India, such as back-office services like accounting, payroll,
or benefits administration. Potential cost savings are estimated at more
than 50 percent of the cost of providing these same services in the U.S.
Firms can set up their own operations in India, as GE Capital has done,
or outsource the work to Indian companies. Similarly, customer inter-
action services, such as call-center operations, can and are being relocated
to India.

Relocate High-skill Services

Although moving higher value-added services to India, such as design

and engineering services, education services, or R&D (as many well-
known software companies have already done) may appear riskier, we
believe that India has a comparative advantage in all such activities that
make intensive use of human rather than physical capital. Similar
opportunities wait to be exploited in biotechnology, financial services,
282 Devesh Kapur and Ravi Ramamurti

media, and entertainment. The FDI associated with these ventures is

low—which means the financial risks are low—but the potential payoff
to the foreign investor are substantial, as are the gains to India by way of
high-paying jobs and foreign exchange earnings. It is becoming easier by
the day to create such operations in India, because of the incentives and
help that state governments are extending to foreign investors. Overseas
Indians, who now number nearly two million in the U.S. alone, can
help launch such operations or help locate reliable Indian suppliers.

Proceed Cautiously with Manufacturing

We have focused on opportunities to move service stages of the value

chain to India because India is much less attractive as a location for
manufacturing operations. That may change, once Special Economic
Zones become functional or the bottlenecks in India’s physical infra-
structure are removed. Until then, manufacturing FDI should mostly be
targeted at serving the Indian market. However, we think it ill-advised
for firms to wait until India’s economic growth rate rises high enough to
catch the attention of the average manager. Because of the complexity of
doing business in India, and the fierce nature of local competitors, there
will be several bumps along the way for foreign investors.31 It is also im-
portant that foreign investors make those investments in the states that
are most business-friendly, such as Andhra Pradesh, Gujarat, Karnataka,
Maharashtra, or Tamil Nadu. Having thus established a toehold in India,
larger manufacturing investments may merit consideration. In the short
run, though, the most promising opportunities for foreign investors will
lie in knowledge-based services.

Endnotes

1. GE research lab in Bangalore will be our largest soon—Jack Welch. The Financial
Express, 17 September 2000, www.financialexpress.com/fe/daily/20000917/
feo17037.html.
2. Callen, T., Reynolds, P., & Christopher, T. (Eds.), 2001. India at the crossroads—
Sustaining growth and reducing poverty. Washington, DC: International Monetary
Fund, February.
3. For one overview, see Moitra, D. 2001. Country report: India’s software industry.
IEEE Software, February 27, 2001, as seen at http://computer.org/software/
homepage/2001/moitra.htm.
 India’s Emerging Competitive Advantage in Services 283

4. Kennedy, R. E. 2000. Tata Consultancy Services: High technology in a low-income

country. Boston: Harvard Business School Publishing, Case No. 9-700-092.
5. Ghemawat, P. 1999. The Indian software industry at the millennium. Boston:
Harvard Business School Publishing, Case No. 9700036.
6. According to Web site of the National Association of Software and Services
Companies (NASSCOM), February 2001, www.nasscom.org.
7. Cusumano, M. “Made in India” a new sign of software quality. Computerworld,
March 2000.
8. Ghemawat, op. cit., 7.
9. McKinsey & Company. 1999. NASSCOM McKinsey study: Indian IT. strategies.
New Delhi: NASSCOM.
10. Field, T. India unbound. CIO: The magazine for information executives. Special
field report on India. 1 December 2000, 176.
11. Porter, M. E. 1990. The competitive advantage of nations. New York: The Free
Press; and Porter, M. E. 1998. Clusters and the new economics of competition.
Harvard Business Review, November–December 1998: 77–90.
12. Ghemawat, P. & Patibandla, M. 1999. India’s exports since the reforms: Three
analytical industry studies. In J. Sachs, A. Varshney, & N. Bajpai, (Eds.), India
in the era of economic reforms. New Delhi: Oxford University Press, 185–221.
13. Ibid.
14. The term “co-connection” was suggested by K. R. Paramesvar.
15. We borrow the term “virtual diamond” from Don Lessard of MIT, who, to the
best of our knowledge, first used this term in his informal teaching notes to
explain the success of Acer Computers in the personal computer business.
16. Indian IT experts account for 20 percent in Germany. The Economic Times
(Bombay), 22 March 2001, as reported in www.economictimes.com/today/
in08.htm.
17. Singapore to outsource 250,000 IT professionals from India. Broadcastlndia.
1 November 2000, as reported in www.broadcastindia.com/techpart/showstory.
asp?strid=4329.
18. Helpman, E., (Ed.), 1998. General purpose technologies and economic growth.
Cambridge, MA: MIT Press.
19. In May 2000, Fortune magazine estimated that the combined market value of
Indian-run firms in Silicon Valley was $235 billion. See The Indians of Silicon
Valley. Fortune, 15 May 2000.
20. Clark, D. South Asian “angels” reap riches, spread wealth in Silicon Valley.
Wall Street Journal, 2 May 2000, Bl.
21. In this period, manufactured exports grew at 8.0 percent annually, compared
with 11.5 percent in the two-decade period before that. On the other hand,
remittances and export of “other services” grew at 17.5 percent annually. Details
in Kapur, D. & Ramamurti, R. 2001. The Indian economy in transition.
Working paper, March 2001, 25.
22. Field, op. cit.
284 Devesh Kapur and Ravi Ramamurti

23. ICAI in talks with A/C bodies of Italy, Turkey, Israel. Economic Times. 21
March 2001. http://216.34.146.167.8000/servlet/form.
24. Clinical trials in India: Patient capital. The Economist, 29 January 2000, 77–78.
25. India braces for brave new drug world. Wall Street Journal, 7 March 2001,
A17.
26. India’s film industry: Growing up. The Economist, 12 August 2000, 57–58.
27. They are also becoming more focused—corporate M&A in India totaled more
than $9 billion in 2000.
28. See Kapur, D. 2001. Diasporas and technology transfer. Background paper
prepared for Human Development Report.
29. Weidenbaum, M. & Hughes, S. 1996. The bamboo network: How expatriate
Chinese entrepreneurs are creating a new economic superpower in Asia. New York:
The Free Press.
30. Based on data in Guha, A. & Ray, A. S. 2000. Multinational versus expatriate
FDI: A comparative analysis of the Chinese and Indian experience. New Delhi:
Indian Council for Research on International Economic Relations, Working
Paper No. 58.
31. United States Foreign Commercial Service and U.S. Department of State. 2000.
Country commercial guide: India 2000. Washington D.C.: National Trade Data
Bank.
 Women Managers in India: Challenges
13 and Opportunities

Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Introduction and Purpose

A plethora of popular books on women managers have flooded the

academic market. However, it was not until 1970’s that a few corporations
and legislatures started addressing the issues of women managers ser-
iously. Since then, a gender revolution has been sweeping the corporate
organizational structure and women have joined the workforce in un-
precedented numbers. Women represent more than 40 percent of the
world’s labor force and half the world’s population (40, p. 6). Govern-
ments, enterprises and organizations have over years committed them-
selves to policies and programs to advance women (40, p. 7). Women
make up 31 percent of the official labor force in developing countries
and 46.7 percent worldwide (37). Also, rural women produce more than
55 percent of all food grown in developing countries (36). History shows
that women have also proved to be successful managers and owners of
businesses. In 1996, women held 35.1 percent of professional posts in
the United Nations Secretariat including 17.9 percent in the senior
management.
In the U.S.A., between 1987 to 1996, there was a 78 percent increase
in companies owned by women (8). In fact, American women now own
one-third of all U.S. Businesses that employ about 26 percent of the
nation’s workforce (39). Also sales in these businesses jumped 236 percent
in nine years (1988–1996). According to another study, women-owned
businesses in America continue to create more jobs than the Fortune
286 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

500 U.S. firms worldwide. This is a tremendous achievement (39). This

data strongly document that women-owned businesses are an increasing
potent economic force. The success stories of professional and business-
women are not only concentrated to U.S.A., it is a world trend. In India,
there is a new group of self-employed women who own and run their
business very profitably and with remarkable elegance. The Self-employed
Women’s Association (SEWA) Bank of India makes loans to “questionable
risks” and it has ninety-six percent repayment rate. In Malaysia, the new
generation of businesswomen is very much a reality.
There is no question that compared to the earlier decade, women today
are better educated and hold more jobs worldwide. Companies and en-
terprises have started to recognize the unique characteristics, attitudes,
behaviors, and management style, that women bring to the professional
world and which is different than that of men. Few companies have
started debates on more, “flexible managerial styles approaches with a view
to maximizing human resource utilization.” The catch phrase of modern
management gurus is “why can’t a man be more like a woman?” (40). In
a new book just out from the Penn State University Press, management
gurus claim to be revaluing feminine “soft skills” as qualities necessary
for corporate success (40). Part of the reason for this change in the attitude
is the movement of global competitiveness. The growing interdependence
of national economies has created a demand for sophisticated managers
who are skilled in working with people of other cultures and who
understand international business.
Experts (15, 19, 26, 27) believe in greater numbers now than ever
before that women possess a unique “interactive management” skill that
needs to be utilized fully in the organizations of the future if the economies
of tomorrow want to be prepared for competing in the 21st century.
Aburdene and Naisbitt in their book entitled “Megatrends for Women”
predicted that 1990’s would be “the decade of women as leaders in
revitalizing business and inspiring competition in the new global
economy” (1). Burniside and Guthrie believe (1992) that the so-called
minorities-women and Hispanics are becoming large majorities and
therefore they no longer can be denied access to leadership (18). According
to Kuhn (1996, p.261), “the number of women leaders in the next cen-
tury will eventually reach a critical mass” (18). The data from the U.S.
Labor Department of Statistics, estimates that American women will
account for 62 percent of all net civilian workforce between 1990–2005.
 Women Managers in India: Challenges and Opportunities 287

The United Nations’ data also predicts that by the year 2000 there will
be as many women employees in the world as men in many industrialized
Nations (34, 35, 33).
While these predictions may be true, the current trend does not paint
a promising future for senior women managers. It is now the end of the
nineties (1998) and women still feel worldwide that their advancement
into upper echelons of senior management needs to be improved. A new
ILO (International Labor Organization) report states that, “while
substantial progress has been made in closing the gender gap in managerial
and professional jobs for women in management, it is still lonely at the
top” (40, p.7).
Statistics reveal that the higher the position, the more glaring is the
gender gap. The ILO report questions if the “glass ceiling,” a term coined
in the United States in the seventies to describe the “invisible artificial
barriers created by attitudinal and organizational prejudices barring
women to executives jobs,” will ever be broken. According to this report,
the glass ceiling is still very much in tact (42). There are other revealing
statistics that support the statement of the ILO Report.
Globally speaking, women hold less than 5 percent of the top jobs
in corporations all over the world. In the most powerful organizations,
the proportion to top positions going to women is generally two to three
percent. “One of the troubles is that old rules about women’s role are
gone and there are no new ones to replace them.” (37) Karin Klenke in
her book “Women & Leadership” (18) states that even though, it is no
longer politically correct to be avertly gender biased, subtle forms of dis-
crimination continue to exist. According to a report based on the tripartite
meeting on, “Breaking through the Glass Ceiling,” at the ILO head-
quarters in December 1997, it was found that, the major underlining
factors for discriminating against women and holding them back from
attaining higher level jobs, were social attitudes, cultural biases and male
prejudices (42).
A survey of top women executives also revealed that many women
feel that the “glass ceiling” is not simply a barrier for an individual, based
on the person’s inability to handle a higher level job. Rather, the “glass
ceiling” applies to “women as a group”; who are kept from advancing
higher because they are women (29). Karin Klenke and others (29) report
that the nature of discrimination against women has changed from “avert”
to more “subtle.”
288 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

There are some interesting and additional striking statistics on women

around the globe that support the above statements. According to the
United Nations publications on “women challenges of year 2000,”
“women constitute half the world’s population, perform two-thirds of
the world’s work, but receive only one tenth of its income and own less
than one-hundredth of its property” (37). “In the largest and most power-
ful organizations, the proportion of top positions going to women is
generally 2 to 3 percent (35).” A survey of 70,000 German companies,
in 1995, reported that only 1 or 2 percent of board members and top
executives were women.” In the U.S., women in 1996 held just over
2 percent of the higher-ranking corporate positions of the 500 largest
companies (of Fortune 500).” Number of women managers all over the
world have increased at the lower and middle level positions, in non-
strategic sectors such as human resources, personnel and administrative
fields (39). It is the nature of these positions that do not allow women to
reach to the top because in these sectors, the positions become dead-end
after sometime. ILO report confirms that the nature of women’s career
paths block their progress to the top positions (41).
According to ILO, the classification of “administrative and manager-
ial” jobs is deceptive as it includes legislative officials, administrative
officials, and managers that are concentrated mainly in the lower and
middle level of management. In other countries and especially Asian
countries, the situation is worse. For example, in Sri Lanka 48 percent
of women are in the total labor force but only 17 percent are holding
managerial level jobs. In Japan, 41 percent of women are in the labor
force and 9 percent are holding administrative positions. In India the
number of females holding administrative and managerial jobs is two
per one hundred economically active men.
The U.S. Labor Department reports that in 1994, American women
held only 5 percent of senior management level jobs in the 1000 largest
companies and less than one percent of women were CEO’s of these
1000 companies. The report further forecast that if things move at this
rate, it would take several generations for women to achieve proportional
representation at the top of American businesses. The period may be
much longer for other nations. Studies on surveys of American women
managers indicate that 91 percent of women believe that barriers exist
to women’s advancement, 88 percent agreed that existence of glass ceiling
 Women Managers in India: Challenges and Opportunities 289

is a barrier and 86–88 percent indicated that exclusion from informal

network due to male prejudices against women act as barriers (41).
From the above discussions it is clear that for tomorrow’s women
executives the question is not to find the reasons for the existing barriers
to women advancement or to analyze if the barriers are really there. Rather
the challenge is to find solutions, ways and means to break the barriers
and improve the situation. Although the literature is full on the “barriers”
the “glass walls,” the “glass ceilings” and “male stereotypes,” not much
research is done on the solutions to remove the barriers.
The ILO report aptly sets the directions for future women mangers.
According to this report “a watershed change from within the corpor-
ations is needed” that requires a change in the structure of the organ-
izations and the attitudes and cultural biases of the male and female
managers. The “watershed change” implies, “creation of workplaces which
are more dynamic, flexible, value-diverse, people oriented and family-
friendly” (42). Already new management structures and work roles in-
volving restructuring, downsizing, decentralization and delayering in the
bid to be more globally competitive have started. However, one of the
greatest challenges that remain to be faced is, “how to make the structures
and dynamics within organizations more conducive and sensitive to
gender equality concepts and practice” (42). One can create organizational
structures on paper but it is impossible to transform the hearts, the “mind
set” attitudes, the prejudices and cultural biases, that are ingrained for
centuries in many of the autocratic, aggressive and stereotyped males.
Without such a transformation of human minds, a “watershed change”
within firms and enterprises is not possible. The organizational delayered
structures on paper will not work and women executives will, in the years
to come, continue to experience “glass ceilings” to attain top executives
and “glass walls” to reach to the top (42. p.8).

Important Issues

This study attempts to focus on one region of South Asia—India. The

attempt here is to find out to what degree the glass ceiling exists in the
largest democracy of the world and how women managers function?
Other issues that this study intends to analyze are as follows: To what
extent the male and female managers feel comfortable taking orders and
working under a female as subordinate? To what extent or if at all the
290 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

“watershed change” (as referred above by the ILO) has been introduced
in the business circles of India? What kind of cultural barriers if any are
existing for women executives in India that prevent them from advancing
to corporate leadership positions? Is it possible that a land that was ruled
by woman as the political head for at least ten years could be infested
with prejudices and cultural biases against women managers? Other
additional questions that we intend to answer in our study are:

(1) How is the work environment for women managers in India with
respect to recruitment, retention, pay and advancement?
(2) What are the managerial competencies and societal expectations
of women managers in India?
(3) Against the gender biased organizations, what kind of coping
strategy/strategies, women managers in India use?
(4) What special talents, traits, and perspective women bring to work
with them just because they are women?
(5) How do men feel working with women at different levels of
administration?
(6) What prevents Indian women from advancing to corporate leader-
ship positions?
(7) What initiatives companies in India could take to assist women
advance in the corporate ladder?

We have selected India for our study due to various reasons. India is
the largest democracy of the world with a population of 900 million, the
seventh industrial nation in the World and is getting global attention for
investment due to liberalization of its economy. It has a great potential
for future economic expansion and growth. Women in India have played
significant roles in politics, social organizations and administration and
therefore there is a need to study the status of the female executives in
the corporations. During the last few years, India is showing strength
not only to become economically independent but also to prepare itself
for global competition.
Since 1975, India’s per capita income has risen from $250 a year to
$1,150. At 1980–1981 prices the per capita income in India has been
steadily rising since 1990 i.e. from Rupees 4,983 in 1990–1991 to Rupees
9,321.4 in 1995–1996. The rate of growth of the gross domestic
 Women Managers in India: Challenges and Opportunities 291

product (GDP) is also steady (from Rupees 4,778 Billion to Rupees

8,541 Billion in 1994–1995). In foreign trade the percentage increase in
both exports and imports has been tremendous. Exports increased from
Rupees 67 Billion to Rupees 325 Billion, an increase of 385 percent in
ten years. For imports the percentage growth was 242.8 percent; from
Rupees 126 Billion in 1980–81 to Rupees 432 Billion in 1990–91 (34).
The data for labor force participation rate indicates that between 1970
to 1990, the average annual growth rate of economically active women
population in India was 1.2 percent. For men it was 2.3 percent. Women
constituted 25 percent of total economically active population in 1990
in India. However, their contribution in the world of business has been
limited. The number of female administrators and managers per one
hundred economically active males in India was only two. This figure was
the lowest when compared to all other countries in Asia and Pacific.
However for 1992–2005, the projections for the annual growth of women
in the labor force by race or Hispanic origin is fastest for “Asians and
others.” “Asians and others” are expected to grow at a rate of 4.9 percent
per year as against 4.3 percent for Hispanics, two percent for blacks and
1.5 percent for white women (35). Also, by the year 2000, there will be
as many women employees as men in many industrial countries. There-
fore, the need to improve the status of women mangers is more now in
the 21st century than ever before. For India, such studies are particularly
beneficial because large number of students graduating from business
and engineering schools today are women but most corporate top pos-
itions are still held by men. When the data for the proportion on female
mangers to male mangers is compared for the countries in Asia and the
Pacific regions, India seems to be at the lowest on the ladder.

Method and Sample Design

In this study, we present the key issues facing the women managers in
corporate India. This study reflects the perspectives of both the male
and female managers. Our sample consists of a total of 162 managers
that includes 63 percent male and 37 percent female. Fifty five percent
of the respondents are between 30 to 49 years of age. The average years
of work experience of the respondent are 21 years. Sixty seven percent of
the respondents had a master’s degree and twenty two percent had an
undergraduate degree. Fifty four percent of the spouses of the respondents
292 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

were working. From the perspective of the levels of administration

64 percent of the respondents were working as senior level managers,
27 percent were at the middle level and 9 percent were lower level
managers. The sample therefore is quite mixed and has a good repre-
sentation of all demographic and human resource management (HRM)
characteristics. Speaking from the “business area” perspectives, 27 percent
were working in general management, 32 percent in human resource
management (HRM), 9 percent in sales and marketing, 6 percent in
finance/accounting and the rest 26 percent in related fields.
A profile of the participating organizations indicates that 42 percent
of the companies were in the service sector and 33 percent in manufactur-
ing. The average workforce of these companies was around 15,000 em-
ployees with on average annual sales of Rupees 270 million. Fifty five
percent of the participating organizations were private, 24 percent were
public and only 8 percent were government operated. The rest 13 percent
were mixed. It is interesting to note that in sixty percent of the companies
participating in this study, the number of senior and middle level women
managers was less than five percent. In 17 percent of the participating
companies, the percentage of senior and middle level women managers
fluctuated between 5 to 10 percent. Seventy three percent of these com-
panies did not provide any child care services.
The method of survey for this study was based on mail questionnaires.
Questionnaire was first tested on a limited number of participants. Based
on their feedback, the questionnaire was later revised and finalized.

How The Study Was Conducted

Mailing lists of Executives who have attended programs conducted by

Eicher Consultancy Services and members of All India Management
Association were prepared. Personalized letters with a questionnaire and
an offer to provide an Executive Summary were mailed to those on the
mailing lists. We received 162 completed questionnaires.

Results

Our results focus on seven key issues. These are (1) hiring practices, pro-
motion and advancement, (2) equity in pay and reward, (3) organizational
perceptions of gender issues, (4) the management and leadership skills
 Women Managers in India: Challenges and Opportunities 293

of women and how useful they are, (5) how men feel working with
women, (6) coping strategies against gender bias in organizations and
what prevents women from advancing, (7) and what initiatives companies
could take. Each of these issues are discussed in the subsequent sections.

Hiring Practices

Perceptions of male and female managers with respect to hiring practices

of corporate India are very similar. To a great extent, both perceive that
employment in their companies is based on merit and not gender. Both
also believe that pregnancy makes women a less desirable employee to
recruit. However, merit is the most important criteria for recruitment.
Only a small group (less than 5%) thought that women are hired to stay
away from legal troubles, or to appear to be a good corporate citizen.

Encouragement for the Advancement of Women

Perceptions of male and female managers regarding encouragement/

advancement of women in corporate India differ on the basis of promo-
tions/advancements. More men (91%) than women (72%) agree that
the promotions are based on merit and not on gender. In other areas
both male and female managers agreed. For example, we found that
about 60% men and women managers perceive that their organizations
encourage women to assume leadership roles, about 62% men and women
managers agree that there are few barriers for women to advance in the
organization. However, only about third of the male or female managers
perceive that their organizations are trying to increase the number of
women executives in senior management positions. The chart presented
on the next page shows percentage of male and female managers who
agree/strongly agree with each statement regarding encouragement to
women to advance in the organization.

Equity in Work & Reward

Even though, both male and female managers perceive that employees
are hired based on their qualifications, merit, and accomplishments, but
gender becomes an important consideration during salary raises, pro-
motions or advancement decisions. More women believe that they must
294 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

work harder than men, are paid less than men for the same qualification,
are forced to prove their competence all the time, and to succeed in the
corporate world, must develop management style which is comfortable
to men. Even at senior level, her status as women does not become irre-
levant; she continues to be perceived as “women” who needs to “prove”
her worth while men are assumed competent till proven otherwise. Fewer
women (71% vs. 81% men) perceive that competence, not gender is an
issue in organizations. We noticed an interesting difference between male
and female managers on performance expectations. More men (48%)
than women (38%) believe that to be successful, women managers need
to consistently exceed performance expectations more often than men.
We were expecting these percentages to be reversed. The way these per-
centages came out in our study suggest that men expect more from women
while women are underestimating these expectations—which may not
be good for their careers.

Organizational Perception of Importance of Gender Issues

Table 1, provides the result of the perceptual gap between male and
female managers on key gender issues. While 93% women feel that they
are as committed to their jobs as men, only 78% men feel so. In fact,
about 20% men perceive that women are less capable than men in
contributing to achieving organizational goals. Only about 38% women
(and 65% men) indicated that their organizations help women managers
‘fit’ in the male culture. Few organizations realize that addressing gender
issues are important to them. While more men than women appear to
think that competence not gender is an issue, only 52% of the women
feel that their organizations are committed to using the talents of women
and only about 20% see that business community is ready to accept
women in key managerial positions. In fact, we found that 22% women
perceive that men do not even consider them as professional colleagues,
half feel that they must sacrifice their femininity to succeed in the business
world and should act more like men, and 74% consider them as less
desirable employees due to the possibility of becoming pregnant. There
appears to be a lack of sensitivity to gender issues and appreciation for
women’s capabilities and talents in corporations.
 Women Managers in India: Challenges and Opportunities 295

Table 1: Organizational Perception of Importance of Gender Issues

(Percentage of Managers Agreeing with these Statements)

Male Female
In this organization, women are as 78% 93%
committed to their jobs as men
Competence, not gender, is an issue in this organization 81% 71%
Pregnancy makes women less desirable employees 80% 74%
This organization helps women managers 65% 38%
‘fit’ into male culture
This organization is committed to utilizing talents of women 62% 52%
To be successful, a woman has to 56% 57%
sacrifice some of her femininity
Addressing gender issues are important 30% 28%
for this organization
Business community accepts women in 21% 19%
key managerial positions
Women are less capable of contributing 20% 7%
to org. goals than men
Men consider women as women, not professional colleagues 18% 22%

What Women Bring To Work?

In this section we will discuss three issues:

(a) Management skills of women managers.

(b) Perspectives that woman brings to work because of their gender.
(c) How important these perspectives are?

(a) Management Skills of Women Managers

Significant differences were observed between male and female managers

regarding the management skills of women. Although, about 97% of
both men and women agree that women have the capability to acquire
necessary skills to be successful managers, fewer male managers believe
so. It seems that 58% men vs. 74% women believe that women have the
objectivity required for evaluating business situation properly and that
they possess the self-confidence required of a good business leader (74%
men vs. 91% women). In fact, our study revealed that 60% male managers
and 36% female managers feel that women managers would let their
296 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

emotions influence their managerial behavior. A greater proportion of

men also perceives that women are not ambitious enough to be successful
in the business world (23% men and 12% women). Also, 19% men vs.
12% women think that women cannot be assertive enough in business
situations that demand it. Twenty three percent men and fifteen percent
women believe that women are not competitive enough to be successful
in the business world and 21% men vs. 14% women are of the opinion
that women cannot be aggressive enough in business situations. On the
positive note, we found that about 26% of men as well as women per-
ceive that female managers are more comfortable with ambiguity than
male managers.

(b) What Women Bring To Work?

Do female managers bring different perspective to solving business

problems because of their gender? We found significant differences in
the perceptions of male and female managers regarding what women
bring to workplace? Chart 1 indicates that more female than male
managers believe that women bring sensitivity to human relations in
solving business problems (43% women vs. 25% men). Also, women
have greater compassion or care in making business decisions (27% vs.
16%) and greater initiative and willingness to go an extra mile to solve a
business problem (34% women vs. 11% men). Women pay greater atten-
tion to details in decision-making (34% women vs. 17% men). When
solving business problems, more women seem to focus on process and
not just the outcome (33% women vs. 9% men). Overall, 29% women
and only 8% men perceive that women bring different perspective to
business problem.

(c) How Important Is What Women Bring To Work?

We asked both male and female managers their opinions on the import-
ance of traits women bring to workplace or decision making. Details are
in Chart 2. Even though, men and women agreed on the relative
importance of these traits, there are significant differences on their
importance ratings. For example, while 53% women agree that being
sensitive to human relations issues in decision making and willingness to
go an extra mile are important traits in a business executive, only about
 Women Managers in India: Challenges and Opportunities 297

Chart 1: What Women Bring To Work?

298 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Chart 2: Importance of These Traits

 Women Managers in India: Challenges and Opportunities 299

1/3rd of the male managers thought so. Similarly, for 40% of female
managers focusing on decision making process and not just outcomes is
very important, only 29% male managers agreed to this.
We were surprised to learn that only 24% male managers (vs. 50%
female managers) think that it is important that women bring different
perspective to solving business problems.

Leadership Style of Women Managers

A review of Chart 3 and 4 indicates that majority of both male and

female managers believe that they differ in the ways they think and
approach business problems. However, in Chart 4, more women (86%)
than men (67%) agree that they have similar leadership traits such as
vision, intelligence, charisma, commitment, and drive. Nevertheless, more
women seem to adopt different leadership styles than men. For example,
in Chart 3, we found that women are more relationship oriented, pay
more attention to processes and how tasks are done while focusing on
results and outcomes, support innovation and change more than men,
emphasize collaboration more than men, and like to build consensus to
a greater degree than men. On the other hand, more men perceive women
to see power as a symbol of prestige and “personal goal fulfillment” rather
than as a tool for getting things done. Men also perceive that women do
not empower subordinates as much as they do, and treat them poorly.
There seem to be some discrepancy between men’s perception of women’s
use of power in the organization and women’s management style. Our
study suggests that more women exhibit/prefer interactive leadership
style while men prefer/exhibit command and control leadership style.
Eighty-two percent male managers (vs. 8% female managers) believe
that women cannot lead in command and control style. Only 14%
women and 33% men perceive that command and control style is more
effective for men. The literature suggests that in dynamic environments
command and control style is neither effective for men nor for women.
While 78% women and 58% men believe that interactive style is the
preferred choice of women, it is interesting to note that, to succeed in
business, more men want women to act like men. Although women do
not feel the need to act more like men, they realize that they need to de-
velop a management style that is comfortable for men.
300 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Chart 3: Thinking Differently

Women Managers in India: Challenges and Opportunities 301

Chart 4: Leading Differently

302 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

How Do Men Feel Working With Women?

When asked how men feel supervising, working with, competing with,
and working for women, we found that most men feel uncomfortable
working for a female boss. According to Chart 5, women also perceive
that men exhibit the feeling of discomfort when they are working for a
female boss. More men (77%) claim to feel comfortable working with
women, while only 57% women concur with this claim. Most women
agree that men feel most comfortable supervising women. Men also seem
quite comfortable in this role. This seems to be the traditional “organiza-
tional man” model in action.

Chart 5: % of Men feeling comfortable

Coping Strategies Against Gender-Bias in Organizations

We wanted to know from male and female managers, their beliefs about
what action women take to cope with the existing gender-bias in organ-
izations. Chart 6 summarizes the results. About a third of the male and
female managers indicate that women believe that gender-bias does not
affect them. More females than male managers believe that woman just
remain silent about the gender bias. They think there is no point in
rocking the boat. They just wait and hope that their day will come. Very
few take legal action. Instead, about 26% indicate that they simply move
to another organization, hoping for better treatment. A majority of female
managers (59%) indicated that women have assumed that they need to
work harder than men to advance at the same rate as men. Interestingly,
only 28% male managers agree with this belief of female managers.
 Women Managers in India: Challenges and Opportunities 303

Chart 6: How Women Cope Against Gender-Bias

304 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Another coping mechanism used by most women (indicated by 69%

female managers and 58% male managers) is to accept slower rate of ad-
vancement as a price for balancing family and work life. Sixty-two percent
of the female managers challenge and question the organizational pro-
cesses, practices and the policies at the individual level and 52% male
managers concur with it. Only in about 24% of the cases, women chal-
lenge organizations collectively. A majority of male managers (61%)
perceive women challenging organizational actions through professional
groups; while only 26% female managers indicate this approach being
used by women.

What Prevents Women From Advancing to

Corporate Leadership

From female managers’ perspective, in Chart 7, the major barriers to

women’s advancement to corporate leadership are: male stereotyping
(72%), exclusion of women from informal networks of communication
(71%), and women’s commitment to family responsibilities (65%). On
the other hand, male managers perceive two major barriers to women’s
advancement: women not being long enough in the pipeline (72%) thus
having less business experience, and family responsibilities slowing
women down (70%). Our study also indicates that 59% male managers
believe that few women can or want to do what it takes to get to the top.
Surprisingly 52% female managers also concur with the feelings of male
managers on this issue. Lack of mentoring of women and lack of awareness
of organizational politics were also perceived as barriers. More women
(50%) than men (34%) thought that inhospitable corporate culture is a
barrier to women’s advancement. More male managers (24%) than female
managers (10%) thought that woman’s ineffective leadership style is a
barrier to their advancement. Perhaps, the leadership style that men are
not comfortable with is labeled as “ineffective.”

What Initiatives Could Companies Take?

Most of the suggestions given by our respondents to assist women ad-

vance on the corporate ladder focused on effective HRM (human resource
management) practices. For example, in Chart 8, 91% of women sug-
gest that they need to be exposed to upper management policies and
Chart 7: What Prevents Women From Advancing to Corporate Leadership
Women Managers in India: Challenges and Opportunities
305
306 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Chart 8: What Can Companies Do?

 Women Managers in India: Challenges and Opportunities 307

procedures. Their work and accomplishments need to be showcased to

the top management. They need to know how top management thinks
and makes decisions. A large number of female executives also emphasized
the need for job rotation (90%), career and leadership development pro-
grams (88%), and good child care facility at work (86 & 88%).
Male managers agree with most of the suggestions made by female
managers, however, fewer men are as enthusiastic as female with respect
to the need for: exposure of women to top management, career develop-
ment programs, and better child-care facility at work. More men actually
thought that job rotation for women is a good idea to help them learn
about the company and develop leadership skills. Almost, 3/4th of our
respondents, both male and female, thought that surveying women em-
ployees every year about issues of concern to them, showing senior man-
agement commitment to gender issues, launching a formal recruitment
program to recruit women at senior level positions and establishing men-
toring programs for women will be beneficial to achieving gender equity
in corporations.

Summary and Conclusions

Gender is an important issue in corporate India. While there are some

similarities, there are significant differences in the perceptions of male
and female managers in several key areas. Our study found that

79% women and 90% men believe that in their organizations,

employment is based on merit and not on gender. However, 74%
women and 80% men perceive that pregnancy makes women less
desirable employees than men.

72% women and 91% men believe that promotion and advance-
ment is based on merit and not genders. More than 40% men and
women believe that there are significant barriers to women’s ad-
vancement in their organizations and organizations do not en-
courage women enough to assume leadership positions. In fact,
only about a third perceive that organizations are seeking ways to
increase the numbers of women at senior management positions.
In our survey, 60% companies had less than 5% of their senior
and middle managers as females.
308 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Among our respondents, 82% of men indicated that they were at

senior level as compared to 33% women.

There appears to be some inequity in pay in corporate India. While
77% women agreed that they are paid equal to men for the same
qualification, 89% men thought that women are paid equal to
men. Gender and not competence, is an issue in the minds of
30% women and 20% men. Even at senior level positions, female
managers continue to be perceived as “women” first. Women need
to work harder than men and need to prove their competence more
often than men. Men perceive women as less committed to their
jobs and less capable of contributing to organizational goals. Al-
most half the women think that their organizations are committed
to utilizing their talents and only about 38% think that organiza-
tions help women fit into “male” culture. In fact, to succeed, 57%
women think that they need to sacrifice some of their femininity
and 36% indicate that they need to act more like men. We found
that job satisfaction among women managers was significantly lower
than men.

Significant differences were observed between male and female
managers regarding the management skills of women. Men perceive
women less self-confident, more emotional, and less objective in
evaluating business situations. Also, more men think women are
not aggressive enough, competitive enough, ambitious enough and
assertive enough in the situations that demand such traits. Male
managers also do not seem to appreciate the perspectives or ap-
proach women bring to work. For example, a significantly lower
percent of men believe that in decision making women focus on
process and not just outcomes, that they pay a great deal of attention
to details, exhibit sensitivity to human relations, and are willing to
go an extra mile. More women than men believe that these are im-
portant traits for a successful executive.

Women and men think differently and lead differently. More female
managers than male managers think that women are more relation-
ship oriented, consensus builder, process oriented, supportive of
innovation and change and emphasize collaboration. On the other
hand, more male managers think that women are power hungry,
do not empower subordinates and treat them poorly. Women real-
ize that to succeed in the business world, they need to develop a
 Women Managers in India: Challenges and Opportunities 309

management style, which is comfortable for men. In fact, more

men want women to act like men. Women prefer interactive style
vs. men preferring command and control style of management.
Few men feel comfortable working for women. Most like either to
be colleagues or supervise women.

Most women cope with gender-bias by accepting slower rate of
advancement, challenging organizational policies or decisions on
an individual basis, work harder to get what men have, and simply
believing that gender-bias doesn’t affect them. Men seem to think
that women also exert pressure against gender-bias through pro-
fessional organizations.

Male stereotyping, exclusion of women from informal communi-
cation network, commitment to family responsibilities, lack of
business experience, and not being in the pipeline long enough
are some of the barriers to women’s advancement. About half the
women and 60% men think that few women can or want to do
what it takes to get to the top.

To assist women advance on corporate ladder, both men and women
agree that HRM practices need to be changed. Women need to get
greater exposure to top management, they should be encouraged
to engage in job rotation within the company, and should partici-
pate in career development programs. Companies also need to pro-
vide better child-care facilities, survey women more often, establish
mentoring programs for women and actively recruit women at
senior level positions.

Recommendations

People are an organization’s most important assets. Both men and women
need to be effectively managed and nurtured to utilize their special talents.
We found that there are significant differences in perceptions between
male and female managers on key gender issues in corporate India. To
develop a healthy, creative and learning community within a corporation,
such perceptual differences need to be addressed aggressively. We
recommend:

Open dialogue between men and women in organizations to learn

about gender differences that exist on important issues affecting
the work environment.
310 Ashok Gupta, Manjulika Koshal and Rajindar K. Koshal

Offer educational and training programs for men and women to

learn how to effectively manage the gender diversity in organization.

Re-engineer HRM practices and implement other suggestions
offered by our respondents to make organizations more “women
friendly.” Such suggestions include:

– Exposure of women to top management

– Job rotation for women
– Career development programs for women
– Leadership development programs for women
– Better child care facilities at work
– Surveying women regularly to assess their job satisfaction
– Senior level commitment to gender issues
– Recruitment of women at senior level positions
– Establishing mentoring program for women

Although, a few women organizations have emerged in India,

we are not aware if there is an Association of Women Managers. We
recommend establishing such a professional body to organize
educational, training, development and research on gender issues
in corporations.

The greatest limitation of our study is the small sample size of women
managers. We would also like to collect some qualitative data by inter-
viewing both male and female managers to capture what is missing from
our paper and pencil survey.

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 Managing Alliance Intricacies:
14 An Exploratory Study of U.S.
and Indian Alliance Partners

Manab Thakur and B.N. Srivastava

1. Introduction

The study of alliances, as a strategic choice, has posited management of

competitive-collaborative nexus as a critical challenge for the coming
decade. Managing this nexus has provided a renewed understanding that
competition is not analogous to destruction of one’s enemies, and co-
operation assures no smooth sailing for a higher market share and better
margin. It is this delicate tightrope between competition and cooperation
that has attracted many scholars to study the intricacies of alliance
management (Bartlett and Ghoshal 1992; Bresser 1988; Buckley and
Casson 1988; Hamel and Prahalad 1994; Harrigan 1988; Rumelt et al.
1994; Teece, 1992).
Walking the tightrope is hazardous at any time but having a safety net
before starting helps to cushion the effect of the fall. In this research study,
we aimed to minimize the hazard by (a) generating a set of transaction-
specific variables, and (b) integrating the content and the process issues
of an alliance. Data was collected, using quantitative and qualitative tech-
niques, from U.S. and Indian firms engaged in alliance arrangements
since 1988.

This paper is published as a tribute to Dr. Thakur, who passed away after submission
of this paper to the APJM.
314 Manab Thakur and B.N. Srivastava

2. Study Perspectives

In the 1960s, the entry mode of many multinational companies (MNCs)

to less developed countries (LDCs) constituted a mixed bag of ad hoc
transactions. Very little strategic thought, if any, went into forming such
arrangements. In the 1990s, as numerous LDCs embraced the concept
of economic liberalization the opportunities for long-term collaborative
ventures mushroomed. The new economic ethos, complemented by the
explosive growth in information technology, has elevated alliance as a
much sought-after strategic choice for many U.S. firms. Intriguing no
doubt that while alliances are expected to grow by 25% per year, over
half of them are expected to fail (Harrigan 1988; Kogut 1989; Porter
1987). Bleeke and Ernst’s study (1991) found a failure rate of over 70%
and predicted a rough ride for many alliances in the future. Replete with
multiple theories and research designs, Osborn and Hagedoorn (1997)
called it ‘a chaotic research field.’ More aptly, the field looks like a patient
hemorrhaging internally while having a blood transfusion.
While the growth of alliances with the LDCs appears to be irreversible,
cultural incompatibility has been posited as a problem in terms of com-
munication, coordination, and interpretation of and responses to strategic
issues (Barkema et al. 1986; Kogut and Singh 1988; Lane and Beamish
1990). However, the thrust of the argument is seemingly based on the
inelastic or static assumption of compatibility which ignores the impact
of discontinuity in industry structure and the global search for new
strategic paradigm (Hamel 1997; Prahalad and Hamel 1994). Given the
strength of the argument, a gradual convergence of management practices
between culturally distant partners is highly desirable, and to an extent,
achievable (see Park and Ungson 1997; Saxton 1997). To illustrate how
such a convergence might come about, consider the alliance between
Tata of India and IBM where the former had to adopt a set of structures
and strategies understandable to IBM in order to enter the PC market
with a brand name product. IBM, on the other hand, had to be cognizant
of the prevailing regional structures, strategies, industry norms, and organ-
ization memories. The role of IBM, in this example, is not that of an
enforcer but more of a synthesizer of discordant practices of its partner.
Tata’s role is not to emulate IBM’s practices but to address the perceived
discordance between the partnering organizations and work through it
to come to mutually agreed governance structures and strategies.
 Managing Alliance Intricacies 315

The probability of opportunistic behavior is another dimension of

the cultural compatibility debate. Opportunism is decried primarily when
one party gains at the cost of and often without the prior knowledge of
the other partner. In order to ensure that neither partner behaves oppor-
tunistically, transaction cost economists suggest erecting contractual
safeguards (e.g. Williamson 1985, 1991). However, the more stringent
and inclusive the contractual safeguards are, the more the cost of writing
such a contractual arrangement and maintaining it. Nooteboom et al.
(1997) argue that ‘habitualization’ increases the propensity of trust and
becomes a ‘significant source of cooperation.’ Parkhe (1993) contends
that the more the frequency of interactions, the more careful the partners
will be in examining their mutual benefits and payoff. Oliver (1990)
suggests that the ability of one partner to reciprocate reduces the pro-
pensity of the other to cheat or take a free ride. Inkpen and Beamish,
summarizing the essence of the resource dependency theory, conclude
that ‘the possession or control of key resources by one entity may make
other organizations dependent on that entity’ (1997: 182–183).

3. Study Design

As a non-hierarchical and a hybrid form of organizational arrangement,

alliances should be viewed in a symbiotic context when all future con-
tingencies will not be anticipated at a given point in time. The symbiosis
will give rise to piecemeal disclosure of information and this may be
irritating, to say the least. In the context of LDCs, managers are com-
monly advised to be ‘flexible,’ ‘accommodative,’ and ‘sensitive to cultural
differences.’ ‘These are hallowed phrases when it comes to direction
setting,’ responded an American manager operating a US$200 million
alliance in India. Referring to asymmetries, a senior executive in India,
echoing many of his counterparts in both countries, argued that ‘as our
resource mix changes, so does our expectations from the alliance . . . .
And this is why we should think seriously about how to mesh the differ-
ences in the ways tasks are designed without reacting endlessly to recurring
problems.’
The process of meshing the differences does not mean that one partner
needs to accept a subservient role or one party has to sacrifice its bargain-
ing leverage. The central premise of co-dependency is to create structural
similarities between the partnering firms on a variety of institutional
316 Manab Thakur and B.N. Srivastava

rules, ‘in a desire to achieve a fit, or become isomorphic with their nor-
mative environments’ (Dacin 1997: 48). Isomorphism warrants a
contextual framework which, we postulate, originates from clear standards
of performance and behavior, a shared vision, fairness and equity, and
by lending assistance and countenance to the other partner (Deephouse
1996). Aspiring a fit on these dimensions is a struggle in a headquarters-
subsidiary relationship but it should not be any more or any less of a
struggle in an alliance when the transacting partners realize that a similar
strategic template, cognition, and a common language system need to
be developed to manage the asymmetries so that the alliance is not saddled
with ‘procedurities’ and legalism.

The Conceptual Quandary

We explored this conceptual quandary with five management consultants

experienced in advising joint venture arrangements in the U.S. and India.
Two of them worked earlier as senior executives for U.S.-based multi-
national companies in Asia and Europe. Three of the consultants were
from India and each of them held senior managerial positions before
they became independent agents. All of them had post-graduate education
either in the United States or England and the Indian nationals had
visited Western nations several times. Our request to these professionals
was to translate and evaluate cultural compatibility in the context of this
study. We exchanged our thoughts with the consultants over a period of
six months by fax, e-mail, telephones, and personal meetings. The salient
points of their deliberations are summarized below:

(a) the need for modernization of industries and technology devel-

opment were forcing isomorphic effects in organization design in
culturally divergent countries (the proliferation of MBAs in Indian
universities following curriculum identical to American univer-
sities, investments by non-resident Indians, and the impact of
British rule for two centuries were cited as factors leading to
isomorphism);
(b) indigenous businesses realized that they could not insulate them-
selves from international competition, and the new economic ethos
did not support the old ‘bailing out’ policies for failed businesses
 Managing Alliance Intricacies 317

by the government. In a new competitive environment, they

realized that a new form of organization design was emerging and
this design might not be strikingly different from the design in
Western nations.
(c) realization by executives that the destabilizing forces of the alliances
could not be sheltered under the ‘Indian or American way of do-
ing things,’ and strategic and structural differences had to be
managed;
(d) Indian alliance partners were able to learn about creating and
allocating resources in a competitive environment as much as their
American counterparts did, and
(e) The factors leading to isomorphism should be examined by the
partners ex ante.

We translated these points into the study design by developing and

testing the predictive strengths of the variables specific to the transaction,
and by generating a sequential model integrating the content and process
issues of alliance management which lead to strategic isomorphism. See
Figure 1 for study design.

Figure 1: The Study Design

318 Manab Thakur and B.N. Srivastava

Transaction-Specific Variables

Chakravarthy and Lorange define strategic intent as ‘a concise description

of the direction in which an organizational unit should head in order to
survive and prosper,’ and they argue, that this intent should ‘reconfigure
the available resources to yield distinctive competencies’ (1991: 98).
Hamel and Prahalad (1989) conceptualize strategic intent as an active
management process which leverages the firm’s internal resources into
capabilities, and then to core competencies. Sharing of intent reveals the
extent to which the alliance decision has been strategically driven, and
the degree to which each partner is willing to commit resources for the
return they expect from the alliance. For this to happen, the role of each
partner spelling out ‘who provides what input when by how much’ helps
to maintain an equilibrium between the respective partner’s input and
output. Any distortion of the equilibrium can elevate a tactical issue
into a strategic impasse leading to unintended dissolution of the alliance.
As one U.S. executive commented that the ‘impasse can perforate the
rules of engagement and brings the venture to a halt without knowing
why and how it is perceived this way.’
Alliances with corporations from developing economies warrant a
careful examination of the economic policy and its national infrastructure.
The economic policy impacts directly on several aspects of international
business especially the provisions for repatriation of profits, investment
restrictions, entry decisions, and corporate taxes. The national infra-
structure includes roads and transportation, power, and energy, financial
services, and availability of skilled manpower. An interesting feature of a
nation’s infrastructure is that its adequacy is evaluated on a comparative
basis—home versus local—and the comparative gaps often act as a refuge
and a punching bag to shield the internally-induced ineffectual organ-
izational arrangement. Another feature is that since the inadequacy is
mostly experienced by operating personnel, it is filtered up later to the
respective top echelons.
Hambrick (1994) and Hambrick and Mason (1984) have suggested
that personal chemistry of the top echelons—demographics, psycho-
social attributes and cognition of the top managers of the partnering
companies—is linked with the strategic choices and their resource allo-
cation process. At the individual level, when top managers of the partnering
 Managing Alliance Intricacies 319

firms ‘like each other,’ it radiates far enough in smoothing out the rough
patches and works like glue in holding together the alliance arrangement.
An important dimension of this personal likeability transcends into the
top echelons’ willingness to involve their mid-level managers in alliance
management. Involvement of middle managers not only helps them to
sell issues to top management but it also epitomizes the self-development
needs of attention and recognition from their bosses. The role of middle
managers, as summarized by Dutton and Ashford (1993), includes:
(a) providing or concealing information about issues (b) framing an issue
in a particular manner (c) directing top management attention to certain
issues by mobilizing appropriate resources, and (d) linking actions and
ideas between the technical and the institutional levels in the organ-
izations. This unheeded power could be effectively used by cross-training
these managers in framing alliance arrangements. In many companies,
cross-training is limited to site visits by a selected few managers ‘to get
acquainted’ with their counterparts. There is nothing wrong with being
acquainted but unless the training is planned to initiate conversations, it
is unlikely to trigger new norms of performance and behavior (Westley
1990). The purpose of cross-training is for the managers to learn how
the other partner creates resources, allocates them, and prepares the
cognitive maps that guides its organizational behavior (Senge 1990).
Having a designated group of managers responsible for concurrent
exploration of the administrative heritage of the respective partners and
working through the labyrinth helps in providing both strategic and
operational focus (Geringer and Herbert 1989). Such a group should
ideally comprise managers from both transacting firms whose primary
job is to reflexively monitor the on-going events. Chesley and Huff define
reflexive monitoring as ‘the capacity of humans to routinely observe and
understand what they are doing both while they are doing it and after
retrospection’ (1994: 8). Thus, their task is not just limited to minimize
operational hitches but also to provide a retrospective focus for the
venture.

The Sequential Model

Several authors suggest that strategy research has begun to focus towards
an integration of the content and the process issues (Fahey and Christensen
1986; Huff and Reger 1987; Robinson and Pearce 1988) but they have
320 Manab Thakur and B.N. Srivastava

hardly suggested ways to achieve it. In building a sequence, one has to

note that complementing each other’s need is a built-in feature of an
alliance, not dominance. A high global stature of one partner should
neither prevent the other from learning nor should it be a pretext for
one to squeeze out from the other its bargaining leverage. The exacting
responsibility of the partners is to energize their strategic conversation
about ‘what we agreed to do (content) and how do we make it happen
(process).’ Content defines the legally enforceable boundary of the
agreement whereas the process spells out the arrangements by which the
content is to be realized. In order to have the conversation strategically
poised, an ideal sequence needs to be constructed using the stages of
alliance negotiation as the theoretical backdrop. The stages, suggested
by various authors, are: placing the option of alliance against other
strategic choices, selecting the alliance partner, negotiating the resources
and return, operationalizing the alliance, and evaluating the alliance
performance (Beamish 1988; Das and Teng 1996; Devlin and Bleackley
1988). Against this ideal sequence, the actual sequence has to be examined
and reasoned.

4. Method

Sample

Selection of Firms
A total of 43 U.S. and 44 Indian alliance partners were identified from
several business publications in both countries. For the U.S., we identified
alliance partners from the Department of Commerce publication, Direc-
tory of Firms Operating in Foreign countries, Fortune, Business Week, and
the Wall Street Journal. For India, the following publications were used:
Economic Times, Business World, Business India, and India Today. The
process of identification of alliance partners also included active support
of several prominent individuals and institutions in both countries. We
targeted only the alliances that were formed between 1988–95, excluded
those who signed only the memorandum of understanding (MOU) and
were yet to set up their operations. The participating companies were
guaranteed no cross-funneling of information between the partnering
organizations.1
 Managing Alliance Intricacies 321

The Respondents
A cover letter explaining the purpose of the study was sent to the offices
of the chief executive officer of all 87 partnering firms requesting details
of the alliances formed, and names and mailing addresses of six of their
key managers (top and middle) involved in the management of the alli-
ance. Restricting it to six managers was for our administrative conven-
ience. For the purpose of the study, a mid-level manager was defined as
below the vice-president and two levels up from the first-line supervisor.
Consistent with the literature, ‘involvement’ of managers was defined as
those who spent time visiting the location, attended meetings at the
formulation and implementation stages, and continued to provide inputs
(see Woolridge and Floyd 1990).
Out of 43 U.S. and 44 Indian organizations, 22 U.S. and 26 Indian
organizations responded providing 123 and 141 names of managers, re-
spectively. The most commonly cited reason for companies at both ends
for not responding to the questionnaire was because they were in the
middle of restructuring their alliance arrangements, and therefore par-
ticipation at this point was difficult. A total of 109 and 114 managers
from the U.S. and India, respectively, responded to the questionnaire.
A high response rate of above 80% and 90% for Indian and U.S. managers
suggests absence of non-respondent bias in the sample.

Procedures

The data was collected in two phases: (a) quantitative data collection
and (b) qualitative data collection. In the first phase, the questionnaire
on transaction-specific variables was addressed to the managers, the
questionnaire contained 43 statements incorporating the independent
variables as discussed in the study design. The statements were presented
on a 5-point scale of (5)—most definitely to (1)—not at all. A factor
analysis of the questionnaire revealed seven orthogonal factors with
eigenvalues greater than 1 accounting for 64.4% and 61% of the total
variance for the U.S. and Indian data, respectively. The relatively similar
factor loadings suggests that each factor was equally important in
explaining the variance.2 These factors were: (a) strategic intent, (b) part-
ners role, (c) designated group, (d) mid-managers (MM) involvement,
(e) infrastructure adequacy, (f ) personal chemistry, (g) macro-policy of
the nation.
322 Manab Thakur and B.N. Srivastava

Stability, as a measure of dependent variable, was defined as the absence

of ‘unplanned or premature events from the perspective of either one or
both partners’ (Inkpen and Beamish 1997: 182) necessitating a joint de-
liberation on the respective scope, resource deployments and synergy.
We preferred stability over ‘success’ as the former denotes a continuation
of the engagement whereas the latter denotes finality. Furthermore,
stability in managing the quasi-lateral relationships includes both financial
return and learning dimension in forming the alliance (Ring and Van de
Ven 1994). We measured stability as a composite of: (a) Did the alliance
meet the expressed demand of each other? (b) Did the alliance help to
spread the fixed costs? (c) Were the managers of both partners involved
willing to address the alliance problems on time? and (d) Did the tran-
sacting parties envisage continuing with the current alliance arrangement?
This composite was measured by averaging the total score of the four
questions (a through d) with a cut-off point of 12 from a scale of 1 (low)
to 5 (high). In addition, we collected a wide range of information on
demographics of the managers and their partnering firms.
The second phase of qualitative data collection focused on the devel-
opment of a schematic diagram integrating the content and process.
For this purpose, we selected a small group of U.S. (n = 43) and Indian
(n = 39) managers representing nine and seven alliance partners, respec-
tively. The selection of managers was based on our assessment of their
(a) understanding of the intricacies of alliance management including
their formal education and experience, (b) openness in sharing alliance
experiences without being defensive, and (c) willingness to spend time
for the study. We identified these attributes in the managers during the
first phase of quantitative data collection. The meetings, in groups of
three to five managers were conducted in three stages at the respective
company’s location. The meetings at each stage lasted about four hours.
At the first stage, we asked the participants to recall the ‘story’ of his/her
company’s alliance efforts from the beginning to the end—how and why
was this alliance formed, who said what, when, with whom, and where.
From these accounts, we wrote three different versions of each story.
Each version was different but not the substance. We disguised the names
or the nationalities of the partnering organizations. A total of 16 stories
(9 + 7) were collected and 48 (16 × 3) versions were mailed to the
participating managers requesting them to read up before the meetings.
 Managing Alliance Intricacies 323

At the second stage of the meetings, they were asked to sketch out the
sequences followed by the partnering firms, and then to note the actual
sequential order followed by their respective firms. After a gap of two
months, at the third stage, we asked the same group of managers (lost
seven of them out of 82) to concentrate on the stages of alliance bargaining
suggested by the authors (each of them was provided with a summary of
stages from the literature), and to delineate the ideal sequential order
from the writings but within the confines of alliances of the study.

5. Results

Demographic Differences

The organizations in India ranged in size from 570 to 1530 employees.

The U.S. partners consisted of multinational companies or a division of
an MNC, most of them being ten to a hundred times larger. Eighty-
seven percent of the partners in the U.S. viewed their choice of alliance
as furthering their related businesses whereas 77% of their Indian counter-
parts saw alliance as strengthening their unrelated businesses. Almost all
participating firms in India had at least 10% to 15% higher retained
earnings than their industry average, and 62% of them had been active
in domestic acquisitions, not domestic alliances, in recent years. Only
11% of the alliances were reported to be time-certain (three to five years
duration).
The nature of alliance partnership in the U.S. and India, respectively,
was: technical collaborations—46% and 42%; manufacturing arrange-
ments—22% and 26%; marketing arrangements—19% and 21%, and
R&D Sharing 11% and 14%. Six American partners reported having
equity sharing arrangements. The industries represented were: electronics,
computer software, financial services, publishing and printing, textiles,
and agricultural products. The number of businesses represented in each
industry category was about the same in the U.S. and India. The market
values (share price on December 1, 1995 multiplied by the latest available
common shares outstanding), return on invested capital (profits plus
minority interest and interest expense adjusted by tax rate as a percentage
of debt and equity funds), and profits (as a percentage of sales) were
computed for each partner at the corporate level. In each measure, 67%
324 Manab Thakur and B.N. Srivastava

of the American partners performed above their respective industry

averages, and 31% of them averaged their industry ratios. Seventy-three
percent of the Indian partners performed above the industry average
and 19% averaged the industry norms. These figures, in all, indicate that
companies aspiring for formulating alliances do so from a position of
financial strength, which we took as a proxy measure for firm reputation.
The actual return from the alliance arrangements was not determined as
the participating firms were unwilling to provide or determine their actual
return from the ventures.
The median age of managers (U.S. = 109, India = 114) was 34 and
44 years, respectively. While 28% of the U.S. managers had MBAs or
equivalent degrees, the corresponding figure for India was 43%. On
average, the U.S. managers had six years of experience in dealing with
alliance management. The modal experience of Indian managers was
only one year. The average tenure of the Indian managers in the current
job was 11 years, the U.S. was 4.5 years.
Sixty-two percent of the managers in the U.S. categorized themselves
as middle managers whereas 41% of the responding managers in India
did so. Others claimed to be in top management positions. Irrespective
of their experience in dealing with alliances, over 87% and 79% of the
U.S. and Indian managers, respectively, did not think management of
alliances to be ‘any more difficult than other ventures.’ Several of them
commented that cultural distance ‘was a novelty at the outset and it then
changed from curiosity to learning.’ It confirms Saxton’s argument that
‘a certain degree of similarity may be necessary and desirable, (but) too
much similarity could limit the benefits because nothing novel is being
brought to the relationship (1997: 456).’

Predictive Strengths of Transaction-Specific Variables

Table 1 provides the means, standard deviations, t-values, and correlation

matrix of the variables.
The U.S. partners associated involvement of mid-level management
and the designated group of managers in explaining stability. They were
not significant for the Indian respondents. Strategic intent, for the Indian
respondents, was only moderately correlated with the role of partners,
national infrastructures, personal chemistry and macro-policy. These
variables, for the U.S., were strongly correlated with other variables except
 Table 1: Means, Standard Deviations, t-values, and Correlations

Variable Mean s.d. t-value 1 2 3 4 5 6

1. Strategic Intent 4.1 0.61 0.86
(4.2) (1.01)
2. Partners’ Role 4.6 1.26 2.07∗ .41∗
(4.31) (0.93) (.47) ∗
3. Designated 4.9 0.74 34.88 ∗∗ .61∗∗ .43∗
Group of Managers (2.12) (2.87) (.14) (.11)
4. MM 4.35 1.11 8.69∗∗∗ .38∗ .44∗ .18
Involvement (2.09) (2.87) (.16) (.21) (.09)
5. Infrastructure 3.12 1.85 1.52 .31∗ .19 .11 .17
(2.76) (1.95) (.44) ∗ (.34) ∗ (.08) (.14)
6. Chemistry 1.19 2.76 13.08∗∗∗ .47∗ .39 .53∗∗∗ .31∗ .12
Managing Alliance Intricacies

(4.46) (.55) (.49)∗∗ (.55)∗∗∗ (.43) ∗ (.25) (.46)∗∗

7. Macro Policy 4.19 .82 13.42∗∗∗ .16 .19 .12 .22 .55∗∗∗ .49∗∗
(2.66) (1.05) (.41) ∗ (.38) ∗ (–.18) (–.14) (.39) ∗ (.21)
Figures in parentheses represent Indian data. Scale: Strongly agree (5) to Strongly Disagree (1).
∗p < .05, ∗∗p < .01, ∗∗∗p < .001
325
326 Manab Thakur and B.N. Srivastava

macro-economic policy. In sum, the U.S. data appears to emphasize the

strategic components in managing alliances whereas their Indian counter-
parts are seemingly manifesting their reverence to top management and
holding the coat tails of externalities such as the inadequacy of national
infrastructure and macro-economic policy. The t-values confirm that
there were significant differences between the U.S. and Indian respond-
ents on four variables—involvement of middle management, designated
group of managers, personal chemistry, and macro-economic policy
(p < .001).
Multiple regression results are presented in Table 2. The predictor
variables accounted for the variation in the outcome variable by 67%
and 62% for the U.S. and Indian data, respectively. The beta values for
the U.S. are highly significant for all variables except personal chemistry.
On the other hand, personal chemistry and economic policy were found
to be highly significant for the Indian respondents. The beta values for
the Indian data, however, failed to show any significant effect of strategic
intent and designated group on alliance stability.

Table 2: Multiple Regression Results

U.S. India
Independent Variables Beta F-Value Beta F-Value
Strategic Intent .83 192.28∗∗∗ .09 9.52
Partners’ Role .32 112.27∗∗∗ .31 67.18∗
Designated Group .68 131.28∗∗∗ .06 2.18
MM Involvement .35 157.19∗∗∗ .10 61.34∗
Infrastructure .72 169.27∗∗∗ .10 64.23∗
Personal chemistry .23 87.59∗ .24 122.38∗∗∗
Macro Policy .32 112.67∗∗∗ .34 102.61∗∗∗
R2 0.67 0.62
∗p<.05, ∗∗p<.01, ∗∗∗p<.00l

In order to measure the independent contributions of the predictor

variables, a stepwise regression analysis was performed. Table 3 provides
the stepwise regression results. The first equation (A), strategic intent,
explained 18% of the variance for the U.S., and the role of partners (B)
added another 14%, closely followed by the need to have a designated
group of managers (C) adding a further 12%. Consistent with earlier
results, the predictive strengths of the four variables—strategic intent,
 Managing Alliance Intricacies 327

role of partners, designated group of managers, and middle managers’

involvement explained a total of 52% of variance for the U.S. data. Forty-
nine percent of the variations of Indian respondents were explained by
personal chemistry (13%), economic policy (12%), designated group of
managers (10%) and national infrastructure (9%). Strategic intent for
the Indian respondents explained only 5% of the variance.

Table 3: Stepwise Regression

U.S. equation: Variable R2

A Strategic Intent .18
B SI + Partners Role .32
C SI + PR + Designated Group .44
D SI + PR + Designated Group + MM Involvement .52
E & F Infrastructure and personal chemistry added .06 and .05, respectively
India equation: Variable R2
A Personal Chemistry .13
B PC + Macro Policy .25
C PC + MP + Designated Group .35
D PC + MP + Designated Group + Infrastructure .44
E PC + MP + Designated Group + .49
Infrastructure + Strategic Intent

The Sequential Model

There was a great deal of congruence among the managers in the devel-
opment of an ideal sequential order. The congruence was striking ir-
respective of the types of alliance, industry effect, equity or non-equity
alliance participation and nationality. The participants envisaged the ideal
sequential order as a continuum of annulment and acculturation (in our
terms). Acculturation was viewed as reformation and readjustment of
the alliance operation to minimize appeasement. Appeasement signifies
correction of a position, not necessarily understanding. However, appease-
ment might lead to annulment, and not acculturation, if not managed
effectively. The steps drawn from the stories helped sequencing the order
progressing from aspiration—assimilation—attenuation—association,
and back to aspiration. The explicit assumption here was that termination
of an alliance should not be equated with failure as long as it was planned
in advance. The recantation of the stories, as described below, provides a
328 Manab Thakur and B.N. Srivastava

unique insight about the ways the alliance partners at both ends went
about forming their venture arrangements.

Step 1
A small group of key managers planted the seed of alliance by identifying
the target firms in response to a felt need expressed in earlier meetings
by the members of the top echelons. Sustained competitive advantage
was the primary concern at this step and the economic exchange models
were the guiding principles. (Aspiration)

Step 2
After some initial soundings with a restricted group of the dominant
coalition members, the managers instrumental in the earlier step gathered
hard and soft data about the target firms. The country data came mainly
from published sources. With a larger group of coalition members, the
managers hammered out the content of the prospective alliance arrange-
ments. This was followed by euphoria for some, but a handful of managers
kept on insisting for more information without necessarily explaining
reasons for it. Formal contacts with the target partner and the country
officials were established. (Assimilation)

Step 3
The partner tuned in to the possibility of alliance. The key stockholders
were briefed with cost-benefit analysis and the possible effects of the alli-
ance on the company’s global operation were discussed. The top echelons
visited each other’s facility followed by visits of the technically qualified
managers and human resource personnel. (Attenuation)

Step 4
Each partner’s strategic disposition was debated within and between the
partners. Contractual obligations for each partner were spelt out and the
contract was formally drawn. (Association)
The insight to the steps actually followed by the partners assisted
the respondents’ group to develop an ideal sequence. Having read the
stories of how the partners went about forming their alliances and
then moving to the theoretical steps of alliance bargaining provided
contextual grounding for the schematic model. Figure 2 provides the
ideal sequence.
 Managing Alliance Intricacies 329

Figure 2: The Sequential Order of the Content-process Issues

Consider the Basic Effects

Aspiration: Why alliance? Why, when and how does this alliance add value?
How will it help our margin? When? What are we asking from our partner?
Why? How long do we wish to continue this alliance?

Discuss with Dominant Coalition Members

Assimilation: Why this country? How does the host government view alliances?
What are the restrictions for future investment, corporate taxes, and convertibility
of currency into dollar? Why this partner? How reputable is the partner? How
similar or different are its structures and strategies from us? How much of our
earlier experiences are of value here? Does the target company have any prior
experiences in managing alliances? Does it have alliances with others at this
time? With whom and why? Could we draw a profile of its existing top- and
mid-level managers?

Tuning in to the Possibility

Attenuation: Do we have enough information to draw a T-account of the alliance?
Which managers visited the location? What do they say? How does our alliance
help or hinder the partnering company? What does it expect from alliance?
Who are the most ‘capable’ managers we have to manage the alliance? How is
our information system like?

Make the Final Decision

Association: How does our partner view the world compared to us? Are the goals
sufficiently clear for both parties? Should this alliance be time-certain? What are
the costs of exit? What will be the signposts for exit? Have we interacted with all
of our stakeholders that matter? Are we enthused about the alliance? Are all the
internal logistics in place?

The ideal sequence based on the stories and against the theoretical
backdrop suggests that, at the outset, alliance is placed in the corporate
context examining the value-added component of the proposed alliance.
The final decision is made after elaborate discussions with the firm’s
330 Manab Thakur and B.N. Srivastava

dominant coalition and preparation of a thorough capital budget and

the logistics. Comparing the ideal with the actual steps followed by the
partners was disappointing since the aggregate picture, for the U.S. part-
ners, appears to be moving from aspiration directly to association, that
is, after seeking reasons for the alliance, the firms went directly to forming
it without discussing with the dominant coalition and without tuning
in to the company for the proposed venture. Just the opposite direction
appeared to be followed by the Indian partners, i.e. ‘let us get the ‘busi-
ness’ first and we will then think strategically and put the logistics in
place.’ Figure 3 provides a summary of both the U.S. and the Indian
responses.

Figure 3: The Sequential Order (Ideal and Actual)

Note: Arrows not pointing to the step indicate bypassing the step.

Was it the rush ‘to get going’ that produced the gap between the ideal
and the actual sequence? We do not know. What we do know is that
alliances with developing nations are perceived largely as ‘a bundle of
opportunity’ and opportunism is still the mantra. The cases where the
alliances became strategic were those with high investment volume. In
this sense, ad hocism may have lost some of its luster but it is far from
 Managing Alliance Intricacies 331

being dead. ‘Expediency is truly stateless,’ retorted an experienced Indian

executive and added, ‘we started thinking strategically when we found
our American partner was serious about managing the venture.’ An
American consultant advising companies on alliances summed up the
issue thus, ‘An unstable alliance in India might not have serious impact
on most American corporations’ future EPS or P/E ratio but will certainly
damage their reputations in this part of the world and instability has a
great multiplier effect.’

Implications for International Management

This research is the first attempt to explore the intricacies of alliance

management in the context of U.S. and Indian partners. Using both
quantitative and qualitative approaches, the study generates a set of
variables that are specific to the transaction and provides a sequential
order to integrate the content and process. The high predictive strength
of variables has the theoretical support but the strengths of the variables
are found to be quite different in two countries. Results of the study re-
inforce our contention that cultural compatibility is not an intractable
barrier for stability. Examining the transaction-specific variables and
framing a sequential order before the alliance is formed are not just finding
room for co-existence; they are about setting the direction of the alliance
in a stable environment, and doing it before the alliance is signed and
sealed. Stability, in itself, does not assure growth but it provides the time
to focus on the strategic issues which might otherwise be diluted in the
noise and hoopla of managing the venture.
Accepting each alliance as unique benefits the arrangement in several
ways. The effort to identify the transaction-specific variables signals a level
of seriousness which reduces the propensity to behave opportunistically.
Another benefit is that seriousness of one partner surreptitiously trans-
forms the expected outcome of the alliance from short-term to long-term
financial returns and from mercantilism to professionalism. According
to our U.S. respondents, stability is greatly dependent on the understand-
ing of the strategic intent of each other, though it is not clear whether
they appreciate that a formal clarification of the intent is not enough.
As the alliance proceeds, the original intents are often supplemented by
a new set of intents as the partners continue to configure their norms of
engagement. For the Indian partners, reverence to top management,
332 Manab Thakur and B.N. Srivastava

macro-economic policy and a designated group of managers addressing

the alliance issues were critical for alliance stability but not strategic intent.
The managerial inputs, by involving middle managers in the formulation
and implementation of the alliance arrangement, cross-training them,
and having a designated group of managers seem to have high predictive
strengths for the U.S. partners. The importance of the role of each partner,
both in strategic and operational terms, also explained stability. Personal
chemistry between the top managers was important, and more so in
India, but this chemistry, according to the American partners, had to be
reinforced by maintaining a linearity between ‘saying’ and ‘doing’—by
allocating resources in proportion to what was agreed upon and intended.
The exogenous factors—economic policy and national infrastructure—
were not seen to be significant by the U.S. partners. The Indian partners
thought differently.
The attempt to develop a sequential model integrating the content
and process issues demanded from the participating managers a great
deal of time and energy. Not only did they have to read 16 stories, they
were also forced to think of a contextually appropriate sequence. That
most of the alliance partners shortchanged the ideal sequential order
raises the question of whether the order was sufficiently grounded or the
rush ‘to get going’ obfuscates the discipline we thought they required. Yet,
the participating managers in this phase of the study voiced the necessity
of adhering to the ideal sequence for alliance stability. And the same
group of managers in recalling the actual sequence pointed out the gaps
from the ideal sequence. Instability, as one senior executive summarized,
echoing many of his counterparts, led to ‘fiat, fiefdom and fiasco which
inevitably leads to cost escalation and narrowing margin ... at that point
you don’t care much about the future, you just want to get hell out of
here.’ It was interesting to find that 89% of the alliances did not have
any stipulated dissolution dates, and that a motley number of managers
in both countries did not see alliances any more difficult to manage than
other types of ventures which, we believe, was largely contributed by the
fact that the partnering organizations did not view themselves as direct
competitors in the foreseeable future.
One of the important limitations was confining the study to dyadic
alliances—the alliances of the U.S. corporations with Indian firms ignor-
ing other existing parallel venturing arrangements. For example, a large
consumer electronics manufacturer in India was found to have alliances
 Managing Alliance Intricacies 333

with companies from Japan, Holland, Britain as well as the U.S. Similarly,
many of the American partners had alliances with companies in Europe,
the newly industrialized nations as well as with Indian firms. Isolating
the experience with the U.S. from other on-going alliances was difficult,
and to this end, this study remains incomplete.
We scratched the surface in deciphering the role of middle managers
in alliance management, which in itself is a subject of study. Our experi-
ence is that middle managers will play a critical role in alliances with
LDCs for two main reasons: (a) since most of the alliances are at the low
level of investments, these managers are increasingly bestowed with strat-
egic and operating responsibilities, and (b) through repeated ineractions,
they are most likely to be able to cut through the double-layered accultur-
ation of both national and corporate cultures and make things happen.
Future research should account for the fact that institutional environ-
ment is not always a ‘result of connectedness with other organizations...
it can result from pressures exerted by societal expectations as well as
from organization–organization interdependencies’ (Dacin 1997: 50).
Managing the intricacies of alliances provides legitimacy of the ventures
and we did not explore the issues related to isomorphism–legitimacy
linkage. It is more than a theoretical interest to examine how the MNCs
legitimize their presence in a developing country and how they change
the contextual role of their Asian partners from mere outsourcing agents
to agents of transformation. One cannot ignore the overarching impact
of ‘nationalism’ which forms the subtexts of alliance management in a
developing country. For instance, corporations like Enron, KFC, Coke
and Pepsi have in recent years experienced the earnestness of nationalism
in India. Our aim was not to delve into the realm of public policy though
we recognize the nature of interdependency. Until free market concept
is entrenched and monetary discipline takes root, it would be wise for
MNCs to concentrate on garnering internal stability of their alliances
and empower their local partners to think strategically from which the
regulatory and public endorsements of their existence will ensue.

Notes

1. Oster defines the central features of an alliance as an arrangement in which the

partners agree to operate ‘for a period of time and for a defined set of operations,’
and ‘agree not to operate through the marketplace’ (1994: 229). Buckley, in the
334 Manab Thakur and B.N. Srivastava

similar vein, defines it as ‘inter-firm collaboration over a given economic space

and time for the attainment of mutually defined goals’ (1992: 91). He excludes
buyer-seller relationships, sub-contracting agreements, licensing and franchising
but includes joint ventures. Glaister and Buckley suggest that an alliance becomes
strategic when it has ‘inputs from all parties and are defined in terms of goals
over a well-defined economic space’ (1996: 302). We accepted this definition
for the study and excluded separate entity joint ventures since the number of
‘children’ are too small in the present context of the U.S. and the Indian alliances.
2. Factor analysis results are separately available from the authors.

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 Section Seven

INDIAN MANAGEMENT IN
TRANSITION AND IMPLICATIONS FOR
GLOBAL MANAGEMENT PRACTICE

Future Directions in Indian Management

This section returns to the analysis of the micro-level responses to the

macro-level imperatives of the strongly contested frames of globality. As
we arrive at a world in which consumer tastes and preferences are homo-
genised and responded to through the design and delivery of standardised
global products and services, the intervention of global corporations with
less than desirable commitment to the forces of locality becomes critical.
The pace and intensity of managerial change necessary to sustain the
global linkages may often overlook the slow ‘domestication’ of many of
these forces. The active role that managers play in the Indian corporate
context in shaping the global managerial imperatives needs to be given
more prominence to produce a more ‘grounded’ understanding of the
absorption and adaptation of a range of managerial philosophies and
practices.
The two chapters here analyse the cultural limits of globalisation in
the context of the Indian managerial outlook. In the chapter by respected
338 Management in India

managerial scholar P.N. Khandwalla we get a synoptic and aerial view of

the recent economic environment before proceeding to clinically evaluate
three corporate cases to arrive at a generalised view of corporate responses
to globalisation. The discussion in this chapter is centred around a model
and an empirical exploration of 139 Indian businesses. The study design
allows the author to report on the correlation with an index of relative
excellence in areas like entrepreneurial management policies, organic
management policies, professional management-oriented policies,
participatory employee-oriented management policies, differentiation-
related practices. The findings are immensely relevant in assessing the
impact of the waning influence of regulatory regimes and the new vigour
by which the corporate sector may be able to respond to the world of
global competitiveness.
The chapter by Gopalan and Stahl examines the transferability of a
number of culture-specific management ideas from the American context
to the Indian context. The importation of concepts and ideas on human
nature orientation, time orientation, approaches to work and relationships
in society are compared with a speculation that Indian managers are dem-
onstrating a strong ‘cross-vergence’ in terms of accepting some American
ideas while keeping their divergent ideas at the forefront of others.
The two chapters presented here challenge the simplistic notion of
Westernisation of the Indian managerial world view. They instead dem-
onstrate the emergence of ‘multiple responses’ rather than a single global
gradient of assumption that modern management resided exclusively in
the West. Little more than a decade ago, it was commonplace to write
about the dearth of research in the area of local responses to global imper-
atives, but these two chapters demonstrate the breaking down of the
hegemonic domination of the field. The radical and cutting-edge quality
of Khandwalla’s propositions may prove to be attractive to new researchers
in India in extending the ideas further by adopting new methodologies
and empirical foci. Reassuringly, some of the stories of world-class com-
panies in India attest to the view that the achievement of sophistication
may not be widely known, but it is real (Ghoshal et al., 2001).

Reference

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of Companies in Transformation. New Delhi: Penguin Books.
 Effective Organisational Response
15 by Corporates to India’s Liberalisation
and Globalisation

Pradip N. Khandwalla

Introduction

The 20th century saw major societal changes: the Great Depression; the
Russian and Chinese revolutions; independence for many former colonies;
democratisation and planned socio-economic development in many poor
countries; and relatively more recently, the liberalisation and globalisation
of most economies. Studies of organisational adaptations to such major
societal changes are relatively infrequent. But they can be rich in insights
(Stinchcombe, 1965; Barley and Kunda, 1992; Clark and Soulsby, 1995;
Wilkinson, 1996; Suhomlinova, 1999). They can provide insights into
the general organization adaptation to a major societal change, alternative
adaptations that are or can be utilised, and what may be the more effective
among these adaptations in performance terms. The attempt in this paper
is to examine how the liberalisation and globalisation of the Indian econ-
omy after 1990 have influenced corporate organisations in a country that
was earlier quite statist, and what sort of organisational adaptation may
be relatively more effective in the new context. After presenting the model
of effective adaptation, the paper presents evidence from four different
sources: published information on how Indian corporates have been
coping with liberalisation and globalisation; two corporate case studies
of what appear to be effective adaptations and one of ineffective
adaptation; data from a post-liberalisation study of 139 Indian corporate
340 Pradip N. Khandwalla

organisations; and the major findings from a recent study of 54 Indian

organisations.

The Indian Economy

India is a country with an immense economic potential. It has a billion

customers; and one of the world’s largest pools of entrepreneurial, man-
agerial, scientific, and technical manpower. It is one of the world’s leaders
in IT, nuclear, space satellite, and rocket technologies. It has among the
ten largest industrial economies and among the five largest agricultural
economies. It has been growing for the past 20 years at just about 6%
per annum (World Bank, 2001, Table 1, pp. 274–275), nearly twice the
rate of the US economy. In purchasing power parity terms, the World
Bank has estimated the size of its economy in 1999 at US $2144 b (World
Bank, 2001, Table 1, pp. 274–275), the fourth largest economy in the
world. And yet it has miles to go. It was ranked 52 in an international
competitiveness assessment (World Economic Forum, 1999). By way
of comparison, China was ranked 32, Malaysia 16, Thailand 30, and
Indonesia 37 respectively. IMD’s 1999 world competitiveness rankings
indicated that on customer orientation, entrepreneurship, social respon-
sibility of managers, and shareholder value creation, India ranked well
below China and Malaysia (Sharma, Nair and Suny, 2000). Its overall
manufacturing productivity is perhaps a tenth of the world average
(Sharma, Nair and Suny, 2000, Table 6). Its cement and steel plants,
again on an average, consume twice the fuel per ton as do the Japanese
plants (Sharma, Nair and Suny, Table 12). Its exports at around US
$45 b are quite small for the size of the economy. Indian goods have yet
to establish a reputation for quality. Indian infrastructure has significantly
improved, but yet lags far behind that of even China. There are huge
intra-industry variations in productivity and efficiency, suggesting highly
variable management competence. For instance, in a study of ten Indian
machine tools producers, value added per employee varied by a factor
of seven, and order delivery times by a factor of six (Nandi, 1995). The
liberalisation and the globalisation of the economy was attempted in a
major way beginning in 1991 to modernise the country’s economy and
actualise India’s economic potential through a competitive market
economy.
 Effective Organisational Response by Corporates 341

Liberalization of the Indian Economy

India began to decontrol its statist, centrally planned economy in the

1980s. But substantial liberalisation of the economy began in earnest in
1991. In that year, following a serious balance of payments crisis when
foreign exchange reserves were down to a billion dollars, India resorted
to a bailout by IMF, and accepted the structural adjustment of its economy
broadly as per IMF and World Bank conditionalities.
Indian structural adjustment so far has had several components that
have made the economy far more competitive and turbulent than before
1991 (Ahluwalia, 1996). These include graduated deregulation of indus-
try through substantial but phased elimination of licensing for setting
up industries and for expanding capacity, abolition of the office of
Controller of Capital Issues, drastic reduction in the number of industries
reserved for the public sector, liberalization of corporate access to foreign
technology, phased elimination of import and export controls, and phased
reduction in import duties (from an average of around 100 per cent in
1991 to about a third of this by 2000–2001). The economy has been
opened up to foreign private investment. At the same time the government
has also taken several business friendly initiatives. Overseas investments
by Indian firms have been liberalised. There has been rationalisation of
taxes, substantial reductions in income tax, wealth tax, and corporate
tax on profits, selective and phased lowering of excise duties, the setting
up of a national stock exchange with electronic operations, the enforce-
ment of new accounting norms to bring reporting of income by corporates
and banks to international standards, increase in the functioning auton-
omy of public enterprises (but also greater risk to them of closure, if
they malfunction). The government has also stepped up investment in
infrastructure and human resource development. Public policy after 1990
has considerably increased the exposure of corporates to competitive pres-
sures and at the same time also raised opportunities for relatively unfet-
tered growth and diversification. A recently concluded study of 54 Indian
corporates reveals that out of eight items of rated change in the business
environment over the past five years, the four largest perceived changes
were: greater turbulence in the product market environment characterised
by many unexpected changes, more intense competition, greater buoy-
ancy and growth potential, and greater requirements for technological
sophistication (Som, 2002).
342 Pradip N. Khandwalla

Economy’s Response to Liberalization

The economy’s response to liberalisation and structural adjustment

appears, by and large, to have been effective (Business Today, 1995b;
Jain, 1996; Raghavan, 1996). After a stall in 1991, the economy resumed
its growth path, with the GDP growth rate of about 6 percent per annum
during 1992–2000. After China, India has been the fastest growing of
the world’s major economies in the 1990s. Inflation is sharply down from
1991, and by 2000, exports have increased by 150% in dollar terms.
Private foreign direct investment, about US $ 160 m in 1991, has risen
to about US 2 billion dollars a year. A large number of MNCs have set
up shop in several manufacturing industries like automobile, white goods,
foods, cosmetics, and IT hardware, and service industries like IT software,
banking, management consultancy, and merchandising. Foreign collabor-
ation approvals were around 1600 during 1991–1995, compared to
around 700 in 1980–1990 (Subrahmaniam et al., 1996). Thousands of
indigenous enterprises have also got set up. Industrial production doubled
during 1991–2000 (Reserve Bank of India, 2002:56–57), and the services
sector has emerged as a dynamic growth sector. These changes are in
stark contrast to the post-liberalisation performance of several other coun-
tries, notably the constituents of the former Soviet block, several African
countries, and several South American countries as well (World Bank,
2001, Table 1, pp. 274–275). For instance, Russia began its liberalisation
and structural adjustment also in 1991. The performance of the Russian
economy up until the late 1990s has been disastrous (World Bank, 2001,
Table 1, pp. 274–275), with sharp declines in GDP and industrial output.

Model of Effective Corporate Response to

Economic Liberalisation

Economic liberalization and globalization have two major implications

for the corporate world (Khandwalla, 1996). They intensify competition
by lowering barriers to entry. They also open up many opportunities for
growth through the removal of regulations and artificial barriers on pric-
ing and output decisions, investments, plant scales, mergers, acquisitions,
joint ventures, technology imports, import of foreign capital, etc. They
enable corporations to expand, diversify, integrate, and globalize more
 Effective Organisational Response by Corporates 343

freely. Both these implications may have profound consequences for the
effective management of corporations in a liberalizing economy.
Corporate organisational designs represent strategic choices (Child,
1972; Peters and Waterman, 1980; Khandwalla, 1977, 1992; Bobbitt and
Ford, 1980; Miller and Friesen, 1984) and they are likely to vary from
enterprise to enterprise, industry to industry, and economy to economy.
And yet there may be some core adaptations to liberalisation suggested
by contingency theory (Thompson, 1967; Lawrence and Lorsch, 1967;
Child and Kieser, 1981; Donaldson, 1996). These cover systemic and
strategic organisational responses. Systemic responses encompass organ-
isational structural, process, functional, and cultural responses, while
strategic responses relate to the formulation of goals, priorities, business
strategy, etc. (Khandwalla, 1996).
Greater competition, especially when competition is multi-dimensional,
poses a serious problem to the organisation’s decision makers of coping
with uncertainty (Khandawlla, 1981). This uncertainty stems from com-
petitive moves by domestic, and with globalisation, by foreign rivals
vis-à-vis price cutting, introduction of new or differentiated products,
promotion campaigns, acquisition of distribution channels and advanta-
geous locations, etc. Each competitive move triggers chains of reactions,
which in turn trigger further reactions, rendering the environment tur-
bulent (Thompson, 1967). Uncertainty makes planning of operations
difficult (March and Simon, 1958; Thompson, 1967), and organisations
therefore need to consider various uncertainty control measures.
Where there are a lot of local uncertainties, regional decentralisation
of operations may be required. Where parts of the external environment
are particularly ambiguous, specialised units to monitor them may be
needed. More and more mechanisms and more and more powerful un-
certainty control mechanisms may be required by the corporation as an
economy moves towards a full liberalisation and globalisation. To remain
viable, the organisation increasingly needs to become a strong information
acquiring, information processing, and quickly learning and adapting
organism (Burns and Stalker, 1961; Nilakant and Ramnarayan, 1998).
Multi-sided competition has another systemic consequence. It tends
to differentiate the decision structure of the organisation (Lawrence and
Lorsch, 1967). A wide range of expertise is needed to cope with the nu-
merous contingencies created by a competitive environment, and a wide
344 Pradip N. Khandwalla

range of organisational mechanisms needs to be considered to cope with

these contingencies, such as sophisticated quality control, MIS, planning,
formal market research, and functional and role specialisation. These
may imply the setting up of specialised staff units. A structure differ-
entiated by numerous specialised units would imply the existence of
correspondingly numerous operating subcultures (Katz and Kahn, 1966;
Lawrence and Lorsch, 1967; Van de Ven and Delbecq, 1974), each with
its distinctive mode of conducting its operations. Under liberalisation
induced competition, therefore, to remain viable the corporate organ-
isation may need to get much more differentiated as compared to that in
a regulated, protected economy. In turn, such differentiation may need
to be offset by the greater use of integrative mechanisms (Lawrence and
Lorsch, 1967), such as core values (Peters and Waterman, 1982), profes-
sionalism, and participatory, consensus seeking decision making (Likert,
1961). Thus, competition, especially multi-faceted competition, may
require the organisation to deploy extensively uncertainty reduction,
differentiation, and integration mechanisms for remaining viable. There
is evidence that synchronised deployment of uncertainty reduction,
differentiation, and integration mechanisms as a response to high levels
of environmental uncertainty is associated with organizational perform-
ance (Lawrence and Lorsch, 1967; Khandwalla, 1973; Miller and Friesen,
1984). There is also evidence of positive synergy in competitive environ-
ments between professional and participative modes of management
(Khandwalla, 1977, ch. 11).
Indian economic liberalisation has opened up many entrepreneurial
opportunities, such as for relatively unfettered expansion and diversifica-
tion, joint ventures, mergers and acquisitions, and internationalisation
of operations. Such opportunities can be seized by a “prospector” organisa-
tion, and an “entrepreneurial” mode of strategic management (Mintzberg,
1973; Miles and Snow, 1978; Manimala, 1992) that is flexible and organic
(Burns and Stalker, 1961). Research on entrepreneurial management
suggests a strong synergy between entrepreneurial management and the
organic style of management (Khandwalla, 1977, ch. 11; Covin and
Slevin, 1988; Naman and Slevin, 1993).
Diagram 1 summarises the model of an effective corporate manage-
ment response to liberalisation and globalisation.
Diagram 1: Economic liberalisation and effective corporate response
Effective Organisational Response by Corporates
345
346 Pradip N. Khandwalla

Reported Corporate Response to Indian Liberalization

A national policy of stepping up domestic and foreign competition

through deregulation and globalisation seems to have elicited greater
corporate attention to productivity, quality of processes and products,
operating efficiency, and customer needs. During the 1990s, many
corporations appear to have utilized business process reengineering,
quality circles, computerisation, and ISO certification (Abraham, 1995a,
1995b; Joseph, 1995; Mukerjea and George, 1995). There were barely a
dozen ISO certifications in 1990; the number in 2000 may be over
2000. In a poll of corporate executives reported in 1995, over half rated
quality as extremely important (Business Today, 1995a). Service to the
customer as an essential adjunct to marketing products, called morph
marketing, has been picking up (Chatterjee, 1995). Marketing expend-
iture as a percentage of sales has gone up. In a survey of 200 large corpor-
ations, the increase was from marketing cost to sales percentage of 5.07
in 1990 to 5.65 in 1993; however, marketing flops seem to be on the
increase, suggesting greater corporate vulnerability due to competition
(Mukerjea, 1995; Mukerjea and George, 1995).
The corporate sector has also apparently responded proactively to
the growth opportunities afforded by liberalisation. Earlier, Indian cor-
porations tended to opt for plant sizes keeping in mind the size of the
protected domestic market. They have increasingly been opting for sizes
that can cater also to the international market and thus avail of greater
economies of scale. For instance, by 1995 there were at least fifteen Indian
private sector companies that were already one of the five largest in the
world (or expected to be so shortly) in specific product lines (Vora and
Assomull, 1995). There were virtually none before 1991. As of end 1993
there were at least a hundred private sector projects involving an invest-
ment of 200 million dollars or more, a number vastly larger than the
number before liberalisation (Ghani, 1994). Earlier, “internationalisation”
amounted mostly to getting a foreign technical collaboration with a firm
from a developed economy, and a modest export effort. Not only have
foreign technical collaborations gone up, but in a study of 200 large
Indian corporations, corporate exports appear to have risen sharply, from
4.5 percent of sales in 1990 to 6.4 percent of sales in 1993 (Mukerjea
and George, 1995). True globalization may have begun in earnest in the
form of Indian companies buying foreign firms and plants, large joint
 Effective Organisational Response by Corporates 347

ventures with MNCs, global marketing, raising of finance overseas, etc.

(Kawatra, 1995; Mukerjea and George, 1995; Ramachandran, 1995; Vora
and Assomull, 1995). Several business houses have been re-examining
their strategies in the new economic environment. Some seem to be
seeking aggressive diversification in their areas of competence to build
up competitive strength, while the more entrepreneurial ones appear to
be actively seeking opportunistic diversification to take advantage of
opportunities afforded by liberalisation and globalisation (Khanna,
1994). Mergers and acquisitions have sharply increased, from 2 in 1992
to 97 in 1997 (Rao and Das, 1998). A recently concluded study of 54
Indian corporates indicates that over the past five years 74% reported
change in their business focus, 69% reported a new product/market
strategy, 61% reported significant outsourcing, and 54% reported en-
gaging in joint ventures (Som, 2002).
Liberalization also seems to be inducing significant cultural and man-
agement systems related changes in the corporate sector in the expected
direction. The new rhetoric of corporate India seems to be “change is
the only constant,” “only quality ensures survival,” “people, not products,
are paramount,” and “information is everything”; and the main challenges
before their chief executives are seen to be to create flexible systems, to
develop a culture of excellence, to facilitate teamwork and empower em-
ployees, and to speed up and decentralize data flows (Business Today,
1994). There may still be a gap between rhetoric and reality. But the
change in corporate culture and management seems to be increasingly
compatible with a competitive market environment.
Organizational structures, too, seem to be changing to cope with
greater competition and to avail of growth opportunities afforded by
liberalization and globalization (Business Today, 1994; Roy, 1995).
Corporate restructurings, many involving the services of international
management consultants (Som, 2002), have become far more frequent
(National Management Forum, 1995; Monga, 1997; Khandwalla, 2001).
The major reason for restructuring appears to be unsatisfactory corporate
structure and business processes in a much more competitive and tech-
nologically turbulent operating environment (National Management
Forum, 1995; Monga, 1997). Intensive scanning of the national and
the international environment for growth opportunities is on the rise,
and so is comprehensive strategy-making that is integrated with a human
resource management strategy (Som, 2002). By the mid-1990s, some
348 Pradip N. Khandwalla

business houses, such as the Duncan Goenka Group, were regrouping

their varied product lines spread over diverse companies into synergistic
product clusters for sharper focus; some, such as Godrej, were graduating
product divisions into “strategic business units” with more freedom to
make financial and investment decisions and for entering into alliances;
some, such as Modi Xerox, were converting functional departments into
profit centres via the transfer pricing mechanism for greater bottom line
consciousness in management (Roy, 1995; Mukerjea and George, 1995;
National Management Forum, 1995; Monga, 1997). Some multi-
product companies, such as Chloride India, were transiting to a division-
alized set up for greater market responsiveness; while some, such as the
public sector Balmer Lawrie, were spinning off joint ventures with foreign
partners into companies, each with equity stakes by the parent
organizations, in order to escape organizational limits to growth. A few,
such as Tata Consultancy Services and Wipro Infotech, in the business
of executing projects, were resorting to the matrix structure in which
staff members were grouped both by areas of core competencies and by
principal markets or industries served. Divisionalization, resort to stra-
tegic business units, spin offs, matrix structure, etc., often create problems
of corporate-wide coordination, economizing, synergy, integration, etc.
To tackle this problem some businesses, such as the Lloyds Group, were
setting up a central monitoring group to coordinate strategies formulated
by the chief executives of its different businesses, and also to serve as a
nodal agency for technical and financial alliances. Some others, such as
Asea Brown Boveri India, were setting up a holding company to propagate
corporate vision and core values in the subsidiaries. The preferences seem
to be to try and increase organizational differentiation through decentral-
ization (Som, 2002), and through setting up self-contained, autonomous
units with bottom line responsibility, and try and increase integration
through a system of apex coordination, use of coordinating committees
and cross functional teams, internal communications, participative deci-
sion making, shared vision, and institutionalisation of core values (Som,
2002). There seems also a sharply rising resort to establishing a compre-
hensive, computer-based MIS (Som, 2002). Greater focus on businesses
in which the corporation has “core competence” (Prahalad and Hamel,
1994), attempts to realise synergies between the businesses of the diversi-
fied corporation or business group, and some divestment of peripheral
 Effective Organisational Response by Corporates 349

or unprofitable businesses also appears to be growing (Monga, 1997).

Two emerging priorities appears to be becoming “world class” and
managing business professionally to expand overseas (Monga, 1997).
Downsizing through voluntary retirement schemes, and human resource
development also seems to be on the rise (Monga, 1997; Som, 2002). The
human resource management systems of the corporates seem characterised
by rising emphasis on professionalism, skills development, incentives,
accountability, flexibility and openness, and rightsizing (Som, 2002).
The foregoing suggests that many of the post-liberalisation changes
in corporate organisations in India are along the lines predicted by the
model. Greater emphasis on scanning, MIS, internal communications
on corporation-related developments, and the services of consultants for
diagnosis and restructuring purposes indicates increased resort to un-
certainty reduction mechanisms. Increased recourse to decentralisation,
divisionalisation, spin offs, etc. indicates increased differentiation.
Increased recourse to visioning and core values, apex coordination, and
core competence indicates greater attempt at integration. Greater em-
phasis on mergers, acquisitions, joint ventures, collaborative ventures,
and internationalisation of operations indicates a step up in the entre-
preneurial mode of management. There seems also to be greater emphasis
on operating flexibility and responsiveness to environmental change
(organic management); on marketing, profit centres, matrix structure,
more focused and comprehensive business strategies (professional man-
agement); and on better human resource management, HRD, and more
consultative, participative decision making (participative management).
Aggregate corporate performance has improved, indicating that the
reported organisational strategic, structural, cultural, and operating
changes have been effective overall. Corporate private sector sales and
profits have practically doubled in real terms. There has also been sizeable
growth in the sales and profits of central government-oriented public
enterprises (Rekhi, 1995). Between 1990 and 1997 their aggregate sales
tripled in nominal terms and profits increased six times (Department
of Public Enterprises, 1997–98). Since the reported organizational
changes during liberalisation have broadly been along the lines indicated
by Diagram 1, the improved performance of the corporate sector may
constitute a broad support for the model of effective corporate response
to liberalisation.
350 Pradip N. Khandwalla

Performance Variability during Liberalization

Although the overall corporate response in India to liberalization seems

to have been compatible with the model outlined earlier, an interesting
development has been high intra-industry and intra-sector variability.
Practically in every industry, some companies have done very well while a
number have floundered. For instance, several corporate stars of the
1980s, including companies of big business groups like the Birlas, the
Tatas, the Mafatlals, the Thapars and so forth, have lost their lustre in
the era of liberalization. On the other hand, several companies have also
held their own, and some have grown drammatically, such as Reliance
Industries, L&T, East India Hotels, Grasim, and Hero Honda. While
the well-established subsidiaries of such MNCs as Unilever, Pfizer,
Novartis, Glaxo, British Tobacco, Britannia, Cadbury, Castrol, Nestle,
etc. have tended to continue to prosper, there are also MNC subsidiaries
whose performance has declined, or is unsatisfactory, such as Siemens,
German Remedies, BOC, Thermax, Pepsi, Coca Cola, Kelloggs, GM,
Ford, and Daewoo. In the public sector, while the majority of the 250-
odd enterprises owned by the central government have held their own,
several that were sickly before liberalization have floundered further. With
a few exceptions, the performance of the 800-odd enterprises owned by
the various state governments in India, generally with a politician as the
board chairperson and a bureaucrat as the chief executive, has declined
disastrously.
Across a broad swathe of Indian industries, operating margins have
been varying wildly in the same industry. Operating profit as a percentage
of sales in the financial year 2000–2001 varied in the computer software
industry from 0.9% to 65.7%; in the entertainment industry from
–27.1% to 90.9%; among financial services companies from 0.5% to
96.5%; among hotels from 7.7% to 46.1%, among 2 and 3 wheeler
producers from 2% to 17.5%; among cement producers, from 3.5% to
37.2%; among petrochemicals companies, from 1.0% to 25.4%; among
pharmaceutical companies, from 2.5% to 34.2%; among electronics
firms, from 0.9% to 14.7%, and so forth (Fortune India, 2002:25–38).
There can be many reasons for the considerable variability in the
performance of Indian corporates in the post-liberalization era in each
industry. For instance, some companies may be occupying highly profit-
able niches while others may be occupying far less lucrative niches. But
 Effective Organisational Response by Corporates 351

this may not explain sustained variability because in a liberalised economy

no niche is likely to remain highly profitable for long without inviting
the entry of competitors. Variation in management and organisational
capabilities may be a surer reason for persistently large intra-industry
variability in profitability (Peters and Waterman, 1980; Collins and
Porras, 1994). Adequate development of the uncertainty reduction, differ-
entiation, and integration mechanisms needed to cope with much greater
market turbulence after liberalization, and appropriate policy frameworks
and modes of management may have been responsible in part for the
relative successes, while inadequate adaptation may have been responsible
for the relative failures. Three case studies illustrate what may be appro-
priate and inappropriate restructuring responses to liberalisation.

Case Studies of Corporate Response to Indian Liberalisation

Clariant India

Clariant India came into existence as a result of the global divestiture

by Sandoz, an MNC, of its chemicals business in 1995. These businesses
went to Clariant, and its Indian subsidiary came to be known as Clariant
(India) Limited. The subsidiary’s shares were listed on the Indian stock
exchanges. The company had then a staff strength of 1500. The new
CEO, Mr. Prakash Rastogi, an insider with a marketing background, set
about the process of transforming a relatively sleepy operation with sub-
stantial management deficiencies into a dynamic, customer focussed
organisation (Khandwalla, 2001).
Several steps were taken to reduce operating uncertainty. Early on, all
170 executives met to grapple with a tough question: how did they want
the company to be known 3 years later by its customers, owners, em-
ployees, and vendors? Out of the intense deliberations emerged a clarity:
a shared vision of being a customer-driven company with a mission of
providing high quality products. A powerful communications effort was
launched. Boards went up at each plant to keep employees informed
about targets and achievements. Executives were enabled to access any
report prepared by any department. Members of the Board interacted
with the shopfloor staff. Every manager set four monthly priorities for
himself/herself, and these were shared with the others. Under a new
system, service departments entered into an agreement with their internal
352 Pradip N. Khandwalla

“customers” for specified services and greater accountability. To get to

know the customers better, and for them to get to know the organisation
better, the customers were invited to the company’s manufacturing facil-
ities to interact with the staff. They communicated their concerns about
the quality of Clariant’s products and services directly to the staff. Cross-
functional staff teams were formed and sent to the premises of the major
customers to understand their needs better. They also sought to under-
stand more fully the complexities of competition in Clariant’s markets,
including the importance of speed and service.
From the differentiation angle, the autonomy of SBUs was strength-
ened, and their missions were clarified. Managers, too, got to enjoy a lot
more autonomy. Several management functions were professionalised
further.
Several integrative mechanisms were initiated/strengthened. The new
vision statement was widely discussed and internalised by the staff. A
core value that was strengthened was transparency in operations. Any
manager could access the reports to management of any other manager.
The successes and failures of the organisation were shared even with the
lower staff. Efforts were strengthened to inspire the staff with corporate
vision and challenges, and to involve them in the corporation’s decision
making processes. A quarterly system of performance review was framed
through the participation of all the managers. Targets were set or reset
participatively, and most policy decisions were also taken participatively.
In terms of the style of management, the company was already highly
professionlised. But now the management became a lot more participative.
The company also veered towards an entrepreneurial mode of manage-
ment. It mounted a strong exports thrust by seeking a greater integration
with the parent company’s global operations. Market development was
given priority. In 1997–1998 alone 30 new products were introduced.
The company began exiting from high volume/low margin commodity
markets, and into speciality chemicals and fashion related and eco-friendly
products. In terms of organic management policies, the company stepped
up interactive decision making, innovations in processes, solutions, and
products, and customization.
Possibly because of these initiatives, the company turned into an
attractive “bluechip” company, and its share price rose smartly. Its sales
and profits grew from Rs. 1450 m and Rs. 70 m in 1995 to Rs. 2350 m
and Rs. 150 m in 1998.
 Effective Organisational Response by Corporates 353

Bharat Petroleum Corporation (BPCL)

The former subsidiary of Burmah Shell was nationalised by the

Government of India several decades back. Up until the early 1990s,
this petroleum refining and petroleum products company, as other
government-owned oil companies, operated in an administered prices
regime (APR). After the mid-1990s, the APR began to be dismantled,
and was scheduled to be completely dismantled by 2002. Anticipating
the onrush of competition, the giant company (annual sales of about
US $8 billions) began its restructuring in earnest in 1997 with the help
of an international management consultant, who, unlike many others
operating in India, strongly emphasised innovation and highly par-
ticipative change (Khandwalla, 2001; Som, 2002).
Uncertainty reduction was sought in an imaginative fashion. Like
Clariant, the top management first sought clarity in its vision for the
company. At the suggestion of the consultant, this exercise was extended
to all 3000 managers of the company. When the vision statements were
compared there was a lot of commonality, and a vision statement accept-
able to all was developed. Six internal teams were formed to scrutinise
refining, logistics, LPG (cooking gas cylinders), lubricants, marketing of
other products, and support services and management processes. The
outcome was a change plan that ran into 1600 pages. It included an as-
sessment of current reality, definition of organisational values, the long
term vision for each of the critical activities of the organisation, and spe-
cification of what was needed to be done to turn the vision into reality.
Further, linkages across opportunities for more effective operations were
sought. The change plan was widely distributed throughout the organ-
isations at all levels, including to the unions. It articulated not only what
needed to be done, but also how to develop/modify business strategy,
brand creation, and better human relations. The management infor-
mation system was strengthened through computerisation.
Differentiation was attempted by creating a new decentralised structure
that enabled better customer satisfaction. The old functional structure
was dismantled. It was replaced by several strategic business units, notably
for the refining, petroleum retailing, lubricants, aviation fuel, bottling
gas cylinders (LPG), and the industrial customers businesses. In addition,
corporate-wide support service departments were formed under the board
level directors of finance, personnel, and marketing. These had a policy
354 Pradip N. Khandwalla

making role and also the role of general supervision of the corporate-
wide functions. They provided policy guidance to relevant functional
specialists located in the SBUs. Considerable authority was delegated to
the SBUs and down the line. Shared services teams were also set up for
non-business specific support tasks like brand building and IT.
Besides the elaborate corporate visioning exercise, integration was pro-
vided by the corporate centre and various councils. The corporate centre
consisted of the committee of functional directors, the governance council
consisting of the top executives, and the integrative council. The govern-
ance council itself consisted of an apex council, an executive council,
and a management council of a large number of managers whose role
was advisory. Each major function, such as human resource management
or IT, had its own across-the-SBUs policy making and learning oriented
council. The board inducted several independent directors, and played
an overall guidance role. Integration was also strengthened through the
human resource development route. The consultant coached an internal
inter-disciplinary team to play the change agent and coaching role. The
coaches have been working with various business teams to enable each
team to develop its collective vision and enhance its capabilities. All these
teams participate in the Foundations Learning Training Programme and
Visionary Leadership and Planning Workshops. For each territory, an
integrator and mentor role has been created to provide guidance to terri-
tory managers. The company’s operations have been integrated through
computerisation and SAP-designed enterprise resources planning.
Compared to the conservative and bureaucratic management style
upto 1995, the management has become notably more entrepreneurial,
organic, professionalist, and participative. A number of entrepreneurial
initiatives have been taken. These include the acquisition of a couple of
refineries and expansion of the existing refinery, and the launch of a re-
tail business in which several of the company’s petrol stations also site
general provisions stores. An R&D centre is in the process of being set
up. Several joint ventures have been set up or are in the pipeline. The
organisation has become notably more flexible and resilient, and in-
novation and experimentation in all the technical as well as management
areas have been stressed. The company bagged several innovation awards
in a recent petroleum sector competition. Participative management at
all levels is being stressed, primarily through councils, committees, and
teams. Professionalism and the tools and techniques of professional
 Effective Organisational Response by Corporates 355

management are also being stressed—two recent mechanisms are a

sophisticated “balanced scorecard” performance management system tied
to the company’s vision and priorities, and ERP.
The company has thrived despite increasing competition. Sales have
more than doubled between 1996 and 1999, and profits have increased
from Rs. 4.3 billions to Rs. 7.2 billions. The company’s shares have been
quoting at a very healthy premium (as of February 2002 they were quoting
at 30 times their par value, substantially higher than those of the other
major petroleum products companies in India).

Mahut

A case study of a corporate that substantially failed to respond to the

policy and structural implications of economic liberalisation indicates
the costs of such a failure (Som, 2002, Appendix A). The Mahut group
(name disguised) is a business group that operates two cement companies
in the state of Gujarat in western India. As of 1999, each had a production
capacity of 1.2 million tons of cement a year. Prior to 1998 both used to
compete with one another, as also with other cement players operating
in the region.
In terms of uncertainty reduction, an American consultant was hired
in 1998 to restructure the two companies and integrate their marketing
operations. Based on the consultant’s recommendations, competency
exercises were carried out for the redefined positions in the new structure.
As per the practice before the restructuring, market information was
collected by the combined sales force of the two companies; forecasting
continued to be done by the forecasting and planning unit. Some initi-
atives, like masons’ meets, were organised to meet important stakeholders
like engineers, architects, house builders, masons, etc., both to seek their
views and concerns and to inform these stakeholders about corporate
developments. However, this sort of interaction appeared to be done less
professionally compared to major competitors. One persistent area of
weakness was low interaction with industry associations and bureaucrats,
politicians, traders, and dealers—often very important sources of market
and public policy information. Some other weaknesses were the absence
of a formal management information system and the absence of teams
and task forces to probe areas of weakness.
356 Pradip N. Khandwalla

As far as differentiation is concerned, some new roles were created

pertaining to technical, industry, and market research functions, and
suitable personnel were recruited. But a critical weakness was a relative
lack of decentralisation. All powers appeared to be concentrated in the
hands of the managing director of the cement operations. Equally serious
was erosion of differentiation through attrition: several specialists like
geologists, engineers, quality control persons left the organisation during
the past 3–4 years. Another problem was that the organisation continued
to be riven by casteism and regionalism.
As far as integrative mechanisms are concerned, the style of the owners
appeared to be benevolently paternalistic. But it was not a strong inte-
grative factor because this sort of paternalism did not percolate down-
wards. The top management was autocratic, and since the owners had
pretty much left the functioning to the top management, the kind of
loyalty benevolent paternalism generates in India was largely eroded.
The style of the top management appears to have been a factor in the
exit of a large number of specialists. Very few management committees
were in operation, and control systems were weak. Nor were corporate
communications utilised to knit the company together through vision,
core values, challenges, and stretch goals.
The management style appeared to be reactive (Miles and Snow, 1978).
Despite being in a cyclical industry, with margins under pressure due to
excess capacity, there were no significant attempts at product mix changes,
diversification, or joint ventures. The management was neither entre-
preneurial nor organic nor participative nor professional. Instead, there
was much autocracy, adhocism, and stasis.
The performance of the company seems to reflect the many
unaddressed management deficiencies relating to the management style
as well as to the uncertainty reduction, differentiation, and integration
mechanisms. Sales have been falling, and so, too, the market share. Both
the cement operations have been making losses. The net worth of one of
the two cement units has got completely eroded; that of the other is
nearing the bottom.
The three cases indicate differential corporate responses to Indian
economic liberalisation and the much more intense competition it has
generated. Clariant and BPCL have restructured aggressively and im-
aginatively; Mahut has appeared so far to be a far more sleepy organiza-
tion. Both Clariant and BPCL have resorted to many more uncertainty
 Effective Organisational Response by Corporates 357

reduction, differentiation and integration mechanisms than Mahut, and

have turned much more entrepreneurial, organic, professionalist, and
participative. Mahut has remained autocratic and conservative. A strategic
choice in both Clariant and BPCL was the cooptation of several significant
stakeholders in their respective restructurings. Lower level managers and
employees were coopted in the decision making process in both the com-
panies. In addition, in Clariant the customers, too, were coopted, while
in BPCL independent professionals on the company’s board of directors
were coopted. In Mahut, the cooptation of managers and employees
appeared to be non-existent, though there was a relatively feeble effort at
coopting customers like engineers, architects, and builders.
As a result, Mahut management missed out on the suggestions for
change that the internal stakeholders may have made, thus depleting its
restructuring choices. Such differential responses to major new contin-
gencies may reflect differences in the personalities of top level managers,
their cognitive functioning, their differential interpretation of contin-
gencies, the ingrained culture of the organization, and past commitments
(Child, 1972; Bobbitt and Ford, 1980; Miller and Friesen, 1984; Carroll,
1993; Ginsberg, 1994).
From anecdotal evidence we turn to a fairly large sample study of
the systemic and management style response of Indian corporates to
liberalisation.

A Post-liberalisation Study of Indian Corporate Management

Reported below are the findings of a study on the policies and practices
of 139 corporates during the post-liberalisation period in India. Policies
are more strategic in nature than practices. They have organisation-wide
implications, and they are more guides to management actions than
actions themselves (Simon, 1965). That is, there is usually greater dis-
cretionary action component in policies than in practices, although prac-
tices, too, need to be interpreted in the various situations that arise in an
organisation’s functioning. The study reports the performance-related
correlations of certain policies thought to represent an effective response
to the uncertainties, competitive pressures, complexities, and oppor-
tunities created by liberalisation. These policies reflect four styles of
management, namely, the entrepreneurial, the organic, the professionalist,
and the participative styles. The study also reports the performance
358 Pradip N. Khandwalla

correlates of uncertainty reduction, differentiation, and integration-

related practices in the sample of 139 Indian businesses.
The data were gathered in the context of a programme on the man-
agement of excellence by chief executives conducted at the Indian Institute
of Management Ahmedabad and coordinated by the author. The
participants were chief executives or their direct reports. An important
part of the programme was the feedback to the participants on the policies
and practices of their respective organisations, and the benchmarking of
these with the scores of a sample of high performance Indian organisa-
tions. The data were gathered anonymously from an average of about
five top level respondents from each organisation, who provided ratings
on Likert-type 6-point scales. Their responses were averaged to derive
the organisation’s score. Table 1 shows some sample characteristics.

Table 1: Sample Profile (N = 139)

A. Sector-wise distribution
Indian private sector organisations 69%
Indian public sector organisations 18%
MNC subsidiaries operating in India 13%
B. Annual sales (in millions of rupees)
Small (up to Rs. 500 m) 33%
Medium (Rs. 501 m to Rs. 2000 m) 29%
Large (Rs. 2001 m to 10000 m) 25%
Very large (Rs. 10001 m to Rs. 100000 m) 10%
Giant (over Rs. 100 b.) 3%
C. Number of employees
Small (up to 500 employees) 45%
Medium (501 to 5000 employees) 42%
Large (over 5000 employees) 13%
D. Industries represented
Consumer durable goods 5%
Consumer non-durable goods 13%
Industrial and producer goods 39%
Capital goods 13%
Services 27%
Miscellaneous 3%

The corporate performance measure was called the index of relative

performance. It consisted of ten indicators of performance, namely pro-
fitability, growth rate, financial strength, performance stability, operating
 Effective Organisational Response by Corporates 359

efficiency, staff morale, corporate public image, impact (through e.g.

pioneering of new products in India), adaptability, and innovativeness.
These indicators were rated anonymously by the associates of the partici-
pants, and each rating was done in relation to the perceived performance
on the indicator of the best-performing organisation(s) in the industry.
The ratings on all the indicators were aggregated and averaged across the
respondents from the organisation to derive the organization’s score on
the index of relative performance. The use of numerous indicators ob-
viated over-reliance on just one or two indicators, and yielded a score
compatible with a multiple stakeholders’ perspective on organizational
effectiveness (Price, 1968; Kanter and Brinkerhoff, 1981; Khandwalla,
1988). The index had a very satisfactory reliability of .89. For a sample
of 45 Indian companies, the index was correlated .40 with the ratio of
cash profit to sales (Verma, 2002). Table 2 shows the basic statistics of
the aggregates of the policies comprising, respectively, the entrepre-
neurial, organic, professional, and participative styles of management,
as well as the aggregates of respectively, uncertainty reduction, differ-
entiation, and integration mechanisms. It also shows their rehabilities
(Cronbach’s alpha), which range from .70 to .94, satisfactory for an
exploratory study (Nunnally, 1967:193).
The aggregated variables seem to have reasonable construct validity.
In prior Canadian research, risk taking, conceptually and operationally
similar to entrepreneurial style, and flexibility, conceptually and oper-
ationally similar to organic management style were significantly positively
correlated, as were technocracy (resembling professional management
style) and participation (resembling participative management style)
(Khandwalla, 1977, Table A-3). In the present study, too, entrepreneurial
and organic management styles are significantly positively correlated, as
are professional management and participative management styles (see
Table 2). In prior US research, uncertainty reduction, differentiation,
and integration mechanisms were positively correlated, especially for high
performance firms (Khandwalla, 1973). In the present study uncertainty
reduction, differentiation, and integration aggregates are significantly
positively correlated and also with the measure of performance (see
Table 2). In a study of Australian, Canadian, and published data samples,
too, measures of uncertainty reduction, differentiation, and integration
variables were positively correlated, especially for the “successful” samples
(Miller and Friesen, 1984, Table A 9-1). In their study (Miller and Friesen,
 360

Table 2: Intercorrelations of Policies and Practices Aggregates and

their Correlations with Index of Relative Performance (N = 139 Indian Corporates)

“Best” policies and Mean Correlations Index of relative

practices aggregates (Std. Dev.) Reliability 2 3 4 5 6 7 performance
1. Entrepreneurial management 18.2 .70 .42 .75 .47 .33 .41 .41 .48
policies aggregatea (4.1)
2. Organic management 15.1 .72 .59 .66 .70 .66 .65 .36
policies aggregatea (2.8)
3. Professional management 18.7 .73 .53 .51 .51 .57 .49
policies aggregatea (3.6)
4. Participative management 19.7 .74 .63 .69 .66 .45
policies aggregatea (3.3)
5. Uncertainty reduction 33.8 .92 .84 .90 .55
Pradip N. Khandwalla

practices aggregateb (6.1)

6. Differentiation practices 34.0 .89 .88 .56
aggregateb (5.7)
7. Integration practices 35.7 .94 .63
aggregateb (6.1)
Note: all the correlations are statistically significant at the 1 % level (2 tails).
a Aggregate of 5 scales.
b Aggregate of 9 scales.
 Effective Organisational Response by Corporates 361

1984, Appendix 7-A), “entrepreneurship” and “technocratization” were

significantly positively correlated as are entrepreneurial management and
professional management in the present study, and “entrepreneurship”
was significantly correlated with “scanning”, a form of uncertainty re-
duction, and with “differentiation, as are entrepreneurial management
with uncertainty reduction and differentiation in the present study—
see Table 2.
The eight aggregated variables in this study could be correlated simply
because of set effects induced by subjective ratings by the same group of
respondents. The maximum likelihood factor analysis (Bobko, 1998:
666–669) of the eight aggregated variables yielded three factors explaining
79% of the variance, explaining respectively 43%, 23%, and 13% of the
total variance. The results indicate that set effects may not be a predom-
inant factor explaining the structure of observed correlations. Discrimin-
ant validity is also indicated by the variability in the inter-correlations
(see Table 2). The correlations among the seven organisational variables
range from .33 to .90, the difference being significant at well beyond the
.01 level. The correlations between the organizational variables and the
index of relative performance also vary substantially, although less dram-
matically, ranging from .36 to .63, the difference being significant at the
1% level.
Table 3 shows the product moment correlations of the items of
entrepreneurial, organic, professional and participative policies and their
respective aggregates with the index of relative performance. Table 4
shows the correlations of the items of uncertainty reduction, differenti-
ation, and integration related practices as well as their respective aggregates
with this index.

Fit between Model and Practices

Economic liberalisation, as argued earlier, renders the corporate operating

environment much more turbulent and uncertain, competitive, complex,
and opportunity-rich. In such an environment the model of effective
corporate response described earlier (Diagram 1) indicates the need
for relatively high deployment of uncertainty reduction, differentiation,
and integration mechanisms, and the use of policy frameworks that em-
body entrepreneurial, organic, professional, and participatory styles of
management.
362 Pradip N. Khandwalla

Table 3: Correlations of Entrepreneurial, Organic,

Professional, and Participative Management Policies with
Index of Relative Excellence (N = 139 Indian Corporates)

Correlation with
index of relative excellence
Entrepreneurial management policies
1. Emphasis on pioneering into one’s industry
technologically sophisticated products/services .38∗∗
2. Emphasis on exploring all growth avenues
including risky ones .15
3. Emphasis on growing into a
truly multinational corporation .35∗∗
4. Strong export orientation .36∗∗
5. Emphasis on cultivation of informative
contacts for intelligence on future developments .41 ∗∗
Aggregate of 1 through 5 above .48 ∗∗
Organic management policies
1. Emphasis on sharing all important business-related
information with the staff and other stakeholders .22 ∗
2. Emphasis on setting up task forces to examine
complex issues to find innovative solutions .24 ∗
3. Emphasis on experimentation and innovation in
all the operations of the organization .43∗∗
4. Preference for periodic reorganization studies
(to respond flexibly to the emerging context) .33∗∗
5. Emphasis on managers settling their disputes
directly without the boss’s intervention .24 ∗
Aggregate of 1 through 5 above .36 ∗∗
Professional management oriented policies
1. Emphasis on long range planning and forecasting .49∗∗
2. Emphasis on detailed annual planning and
operations scheduling .49∗∗
3. Emphasis on benchmarking with globally best
management practices .28∗∗
4. Emphasis on locating plants or operations at
globally most advantageous places .25∗∗
5. Emphasis on shopping globally for optimal
know-how and technology .27∗∗
Aggregate of 1 through 5 above .49 ∗∗

(Table 3 contd.)
 Effective Organisational Response by Corporates 363

(Table 3 contd.)
Correlation with
index of relative excellence
Participatory, employee oriented management policies
1. Emphasis on participative,
consensus based decision making .29∗∗
2. Emphasis on group brainstorming to
generate consensus-based novel solutions .26∗∗
3. Emphasis on empowerment through training .35∗∗
4. Emphasis on family like relations at work .34∗∗
5. Provision of benefits and amenities to
staff above the industry norm .34∗∗
Aggregate of 1 through 5 above .45 ∗∗
∗ correlation significant at 5% (2 tails).
∗∗ correlation significant at 1% (2 tails).

Table 4: Correlations of Uncertainty Reduction,

Differentiation, and Integration Related Practices with
Relative Performance Excellence (N = 139 Indian Corporates)

Correlation with relative

performance index
Uncertainty reduction related practices
1. Openness, frankness, and participative
brainstorming for options .47∗∗
2. Systematic research, forecasts, data-based analysis
for formulating goals and strategy .52∗∗
3. Quantitative assessment of costs and benefits of options .51∗∗
4. Information on challenges, goals, etc. shared with
all managers and staff on a systematic basis .38∗∗
5. Management periodically disseminates information
to staff on significant external developments .40∗∗
6. Sharing of targets, budgets, performance by
departments with one another on a regular basis .44∗∗
7. Periodic performance review meetings of top
management .35∗∗
8. Strong emphasis on research and data-based decision
making .56∗∗
9. Use of a comprehensive management information system .36∗∗
Aggregate of 1 to 9 above .55∗∗
(Table 4 contd.)
364 Pradip N. Khandwalla

(Table 4 contd.)
Correlation with relative
performance index
Differentiation-related practices
1. Departmental/divisional goals and strategy evolved
by departmental committees (decentralisation of
departmental goals and strategies) .43∗∗
2. Conflicts resolved as low down in the hierarchy
as possible, and without intervention by top bosses
(decentralised conflict resolution) .40∗∗
3. Use of inter-functional tasks forces for designing
innovations/changes (decentralised designing of
innovations/changes) .33∗∗
4. Use of peer group pressure for staff excellence
in performance (decentralised control device) .46∗∗
5. Use of responsibility centres for decision making
(form of decentralisation) .33∗∗
6. Practice of making new employees members of
committees (decentralised induction) .31∗∗
7. Rewards to staff for innovations and successful
experimentation (decentralised initiative taking) .45∗∗
8. Emphasis on building up expertise at all levels
and in all areas and on technical training .49∗∗
9. Strong emphasis on professionalism and
professional pride .48∗∗
Aggregate of 1 to 9 above .56∗∗
Integration-related practices
1. Emphasis on developing strong staff identification
with the organisation’s core values, vision, mission
(through training, various communications,
corporate functions) .65∗∗
2. Corporate goals and strategy evolved by top level
committees .38∗∗
3. Emphasis on teamwork and cooperation at and
between all levels of the organisation .51∗∗
4. Emphasis on interdepartmental cooperation and
teamwork .49∗∗
5. Management looks after all the stakeholders
(to ensure collaborative relations) .48∗∗
6. Emphasis on comprehensive, integrated strategy .56∗∗
7. Long term planning and goal setting .54∗∗

(Table 4 contd.)
 Effective Organisational Response by Corporates 365

(Table 4 contd.)
Correlation with relative
performance index
8. Advance planning of activities and initiatives
(to anticipate coordination problems) .53∗∗
9. Managers and supervisors rewarded for
practising participative leadership .53∗∗
Aggregate of 1 to 9 above .63∗∗
∗∗ Correlation significant at the 1% level (2 tails).

All but one of the 54 correlations reported in Tables 3 and 4 were

statistically significant at the 5% level (2 tails), and of these, all but three
were significant at the 1 % level (2 tails). All the aggregated policies and
practices variables were correlated with the relative index of perform-
ance at the 1% level, and ranged from .36 to .63. This constitutes a sub-
stantial support for the model shown in Diagram 1. Interestingly, the
practices aggregates had higher correlations with the index of relative
performance than the policies aggregates. This suggests that policy pre-
scriptions are not enough; appropriate practices may matter even more.
A regression of the index of relative index on these seven aggregated
variables yielded a multiple correlation coefficient of .68, R2 of 47%,
and adjusted R2 of 44%. Thus, the model of effective corporate response
to liberalisation seems well-supported, although over 50% of the variance
in the performance index remains to be explained.
Additional support for part of the model has come from another recent
study of 54 Indian corporates (Som, 2002). Som’s model was change in
environment (liberalisation) causes corporate strategy changes, which
in turn lead to changes in the “redesign” variables of uncertainty reduction,
differentiation, and integration, and these changes in redesign variables,
in association with changes in human relations management, produce
change in corporate performance (index of relative performance). For the
purposes of his study, Som calculated “now” minus scores 5 years earlier.
The correlations of the first differences of strategy, redesign, and human
relations variables with change in corporate performance indicated that
changes in uncertainty reduction, differentiation, and integration were
most strongly and positively correlated with change in the relative index
of performance. These averaged .58 versus .06 for the strategic changes
and .28 for the changes in human relations management variables.
366 Pradip N. Khandwalla

Discussion

Published work on corporate restructuring during the liberalisation of

the Indian economy after 1991, three case studies of corporate restruc-
turing, the study of 139 Indian corporates, and Som’s study of 54 Indian
corporates all seem to converge broadly in their support for the model
shown in Diagram 1.
Since the model in Diagram 1 was based on Western research, the
support for it in the Indian setting extends the generalisability of the
contingency theory models of organisational adaptation to environ-
mental competition (Khandwalla, 1981) and to uncertainty (Burns and
Stalker, 1961; Lawrence and Lorsch, 1967; Khandwalla, 1973; Miller
and Friesen, 1984; Miller, 1986).
The support for the model also extends the generalisability of strategic
choice models (Child, 1972; Montanari, 1979; Hrebiniak and Joyce, 1985).
Not all organisations in India have responded to liberaisation identically.
The three cases described earlier show large differences in the response
to liberalisation. The data for 139 Indian corporates indicate fair variation
in each of the organisational variables (see the standard deviations in
Table 2). What is more, the correlations in Table 2 indicate that some
organisations conformed to the model far more than others. The former
chose to enlarge the armoury of their uncertainty reduction, differ-
entiation, and integration mechanisms and to adopt more professional,
participative, entrepreneurial, and organic modes of management; the
latter chose not to do so, even though the change in their task environments
required a proactive response along the lines shown in Diagram 1. If
contingency theory explains most of the variation in organisational stra-
tegies, structure, systems, and functioning (Donaldson, 1996), the inter-
correlations in Table 2 should be much smaller, since there is a large
amount of shared task uncertainty, competitive pressure, turbulence, etc.
due to the liberalisation of the Indian economy. The fact that they are
sizeable suggests that the adaptation variables in Diagram 1 are also strategic
choice variables. Thus, strategic choices are not restricted only to business
growth or competitive strategies but extend also to such other organisation
design variables as management style and uncertainty reduction, differ-
entiation, and integration mechanisms.
The model in Diagram 1 is intended to be both a descriptive model
and a normative model. It is descriptive to the extent that it says that
 Effective Organisational Response by Corporates 367

liberalisation tends to produce certain kinds of changes in corporate

organisations affected by liberalisation. It is normative to the extent that
it says that such changes are desirable for superior corporate performance.
The support for the model, therefore, reinforces both its descriptive and
normative dimensions.
There have been studies of the organisational response to the de-
regulation of specific industries like the savings and loan association
industry in the US and the electronics industry in China (Haveman,
1992; Jennings and Seaman, 1994; Tan and Litschert, 1994). Studies of
the organisational adaptation to the de-regulation and globalisation of
an entire economy, especially in a Third World context, seem much rarer.
Thus this study fills a void. The organisational studies of industry-level
deregulation indicate a frequent “defender” (Miles and Snow, 1978)
organisational response (Haveman, 1992; Jennings and Seaman, 1994;
Tan and Litschert, 1994). But Jennings and Seaman (1994) also found
an interesting variation in their study of de-regulated US savings and
loan associations. Some of these stuck close to their original domain of
activities, that is, stuck to the knitting (Peters and Waterman, 1982),
and they worked well with a “defender” organisational response with a
mechanistic structure. The others broadened their legitimate domains,
and thrived with a “prospector” (Miles and Snow, 1978) organisational
response and an organic, flexible structure (Burns and Stalker, 1961).
Thus, both the defender as well as the prospector response are possible
in a liberalising environment, and indeed, as the case studies of BPCL
and Clariant indicate, their combinations are also possible. BPCL has
not only been adding refining capacity and diversifying its existing pro-
duct portfolio, along with many efficiency enhancing initiatives such as
SAP, balanced performance scorecard, more professional and participative
management (“defender”—“analyser” response), but it has also sought
to diversify into consumer goods retailing and has entered into a number
of entrepreneurial joint ventures (“prospector” response). Clariant, too,
has been demonstrating a similar “defender,” “analyser,” and “propsector”
response. The study of 139 Indian corporates reported in this paper
suggests that a proactive response to liberalisation may make it possible
for the organisation to adopt a “prospector” (entrepreneurial and organic
management style), “analyser” (professional management style, un-
certainty reduction mechanisms), and “defender” (participative manage-
ment, differentiation and integrative mechanisms) responses.
368 Pradip N. Khandwalla

The support for the model makes it possible to argue that the policies
and practices in Tables 3 and 4 constitute “metacapabilities.” Liedtka
defines metacapabilities to be those that “allow organisations to adapt to
change on a continuous basis by contributing the kinds of skills and
knowledge that underlie the process of capability building itself ” (Liedtka,
1999; 5). Since the policies and practices studied in this paper are not a
random collection, but stem from the functionally logical corporate adap-
tation to a hypercompetitive, complex, but opportunity-rich environ-
ment, it should be possible to call them a community of adaptive
“best” policies and practices that yields performance excellence in such
an environment.
How universal is this community of adaptive policies and practices?
They or their close versions seem to have applicability both in the eco-
nomically developed West (Khandwalla, 1973, 1977, ch. 11; Child, 1974,
1975; Miller and Friesen, 1984; Covin and Slevin, 1988; Naman and
Slevin, 1993) and in an emergent market economy like India, and there-
fore may be relevant to most sectors and industries anywhere in the
world wherever there is a competitive market economy or a movement
towards it. “Cultural relativity” (Hofstede, 1983) does not seem to impede
seriously the widespread applicability of this model. Obviously, a lot
more research needs to be done to test out this generalisation, but there
are fairly strong logical reasons why these practices may have wide rele-
vance in the globally emerging market economy.
Taken together, this community of adaptive policies and practices
incorporates many strengths. In a world of flux, the first mover advantage
is critically important. The entrepreneurial policies cluster may provide
this. But entrepreneurial moves can be quite risky, since they often repre-
sent bold excursions in relatively unfamiliar areas (Mintzberg, 1973; Miles
and Snow, 1978). The organisation must have the capacity to be flexible,
to learn quickly, to improvise and innovate (Burns and Stalker, 1961).
The organic policies cluster may provide these capabilities. Effective imple-
mentation of entrepreneurial initiatives may be buttressed by appropriate
systems of forecasting, planning, research-based assessment of options,
optimisation in the context of multiple constraints, contingencies, and
objectives. These may help initial risks to be drastically reduced by the
time implementation begins. These capabilities are provided by the pro-
fessional management cluster of policies. In a time of flux and cut-throat
competition, effective inter-departmental collaboration, staff motivation,
 Effective Organisational Response by Corporates 369

and commitment and so forth assume great importance. These capabilities

are provided by the cluster of progressive human resources management
related policies. Thus, these four policies clusters provide to a beleaguered
organisation the capacities of seizing new opportunities and implementing
them effectively. The uncertainty reduction, differentiation, and inte-
gration mechanisms not only enlarge the capacities to take risks and im-
plement them effectively, they keep the organisation finely tuned to the
environment by reducing uncertainties associated with initiatives, issues,
and options. They provide to the decision makers the depth of expertise
required for making and implementing sound decisions. They reduce
drastically the overload of relatively routine decisions and functions from
the shoulders of decision makers. Despite the multiplicity and diversity
of management initiatives needed to respond to a complex and turbulent
environment, they keep the organisation cohesive and focused on its
priorities. As a community of adaptive policies and practices, they may
well obviate many of the incompatibilities between internal and external
“fit” reported by Miller (1992).
There is a difference between the universal applicability of “best”
practices and policies and their acceptability. Even when “best” practices
are demonstrated to be good for performance, many organisational
barriers can impede their adoption (Pfeffer, 1996). Pfeffer has described
several best practices that failed to diffuse much. He has listed several
impediments to such diffusion, such as preoccupation of top management
with fancy strategy and finance models, the over-hyped role of visionary,
“big picture” leadership, organisational vested interests in the status quo,
hierarchical barriers, etc.
There is, however, considerable evidence that many “best” practices
are able to migrate across countries, cultures, and industries (Mueller,
1994; Lillrank, 1995). Mueller indicates that many MNCs from the
First World have been able to transport their best practices into their
Third World subsidiaries or joint ventures. Most contemporary societies
offer a wide variety of niches, and these include niches in which MNC
“best” practices evolved in the “home” country can flourish in societies
across the world. Indeed, many Japanese management practices have
been transplanted even into such fiercely individualistic societies as the
US. Globalisation has been proceeding apace for several decades now,
and this has not only linked economies but also management systems.
Thus, many of the practices and policies identified in this paper may
370 Pradip N. Khandwalla

have not only wide applicability in the industries of most market econ-
omies, they may also have wide acceptability.
A point of importance concerning the diffusion of “best” policies and
practices is their form. If a policy or practice is too specific, it is unlikely
to diffuse much, for there may be too few organisational situations where
it could fit. Some years ago an MNC subsidiary operating in India and
marketing personal care products decided to improve customer orient-
ation by getting all 300 employees (including the CEO) to hit the road
for at least 3 days in a year and meet the company’s customers. It worked
like a charm in changing the mindset. Another company with ten times
the number of employees tried it out, but soon gave up. Its customers
were spread out all over India, and they were industrial customers. Neither
the customers appreciated the hordes of “sight seers”, nor could the
company afford the high costs of travel, hotel stay, and absence from
work. Thus, “best” policies and practices are likely to diffuse much more
when they are not too context specific, but broad enough to be context-
ually adaptable. In other words, diffusion is likely to depend upon whether
local variants of the “best” policy or practice are feasible. The “best” pol-
icies and practices identified in the present study are mostly of this
interpretable and contextualisable form.
There is a further issue concerning the institutionalisation of the
policies and practices identified in this study. Any change in policy or
practice needs to be buttressed in certain ways (Pfeffer, 1996). It needs
to be participatively emplaced so that it is more appropriately context-
ualised, and there is reasonably enthusiastic commitment to it of those
who are its stakeholders. It needs to be publicised internally so that every-
one is aware that a change is being implemented. Progress of emplacement
or modification has to be monitored. An incentive system needs to be
enacted that rewards those falling in line and punishes those that do not.
To improve execution, training needs to be provided to those who oper-
ate the new policy or practice. Without this sort of buttressing, “best”
practices and policies may yield little.
Finally, how best can “best” policies and practices remain when they
get widely diffused? Many business strategies and management tools and
techniques no longer provide a sustainable competitive advantage when
they diffuse so much as to get institutionalised in industry (Collis, 1994).
Business strategies like price leadership or product differentiation are too
highly visible and imitable to sustain for long any competitive advantage
 Effective Organisational Response by Corporates 371

(Barney, 1991; Peteraf, 1993; Ginsberg, 1994). This has also been the
fate of such widely imitable tools and techniques as budgeting, annual
planning, market research, internal audit, inventory control, and so forth.
However, this sort of erosion of competitive advantage may not take
place when the practices and policies form a whole cluster of interpretable
rather than imitable, functionally inter-related, aligned (Powell, 1992)
policies and practices. Thus, although some of the policies and practices
identified in this study may lose their sustainable competitive advantage,
given their number (47), the synergies they incorporate as a group, and
their capacity to be contextually modified, it is unlikely that as a system
they would lose their sustainable competitive advantage for a fairly long
period (Khandwalla, 1998). And even if all these polices and practices
do get diffused, they may still be able to provide a sustainable competitive
advantage depending upon how creatively and effectively they are
interpreted and executed.

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 Application of American Management
Theories and Practices to the Indian
16 Business Environment: Understanding
the Impact of National Culture

Suresh Gopalan and Angie Stahl

Introduction

Falling trade and economic barriers have increased global trade.

Increasingly, South Asian countries like India which have embraced free
market reforms are facing increased exposure to not only Western (par-
ticularly American) products and services, but also to their management
philosophies, ideologies, and practices. According to Gopalan and Dixon
(1996), the United States has emerged as a significant investor in India
accounting for over seventeen percent of all actual foreign direct invest-
ment from 1991 until 1994. Additionally, the Clinton Administration
has designated India as one of the world’s “ten big emerging markets.”
Future projections indicate an increased U.S. presence and involvement
in diverse areas ranging from telecommunications, consumer goods,
power generation, financial services, software, and automobile manu-
facturing (Phillips, 1992).
While some management ideas (especially those of a technical nature)
are easily transferred across countries (i.e, they are culture free), a large
number of American management ideas and practices are “culture-
specific” (Hofstede, 1980b; Kanungo and Jaeger, 1990). They cannot and
should not be blindly imported to developing countries such as India
where the cultural, social, political, economic, and judicial environments
 American Management Theories and Practices 377

are vastly different than that of the United States. Unfortunately, this
has not been the case—as the American business model is considered to
be the paradigm for success, American management ideas and practices
have been largely replicated with little or no modification in several de-
veloping countries including India (Jaeger, 1990).
American and Indian managers would benefit a great deal if they gained
a better understanding of the cultural context in which American manage-
ment theories originated. Such knowledge would enhance their ability
to better discriminate and differentiate between management ideas that
are culturally compatible against others that are incompatible (Davis
and Rasool, 1988). Additionally, cultural awareness will enable managers
from both countries to make suitable modifications and revisions to
American management ideas and approaches in their application to the
Indian business environment.

Can Behavioral Models and Management

Theories be Universally Transplanted?
The Debate within the Management Community

The majority of organizational behavioral theories (a) originate from the

United States, and (b) are for the most part based on samples consisting
of Anglo-Saxon male managers who have been socialized in cultural,
political, and economic environments that are vastly different from Asian
and African cultures (Kanungo and Jaeger, 1990; Kanungo, 1983).
Consequently, a question arises whether these management models can
be transplanted universally. In other words, would such management
theories be effective in countries where the socio-cultural environments
are vastly different from that of the United States?
There are three schools of thought that address the above mentioned
question. Management scholars such as Weber (1958), Negandhi (1975),
and Pascale and Maguire (1980) who advocate the “convergence perspective”
(which is the first school of thought) contend that as countries across
the world achieve similar levels of industrialization and standards of living,
business behavior and thinking would become similar and come together
(hence the term convergence). Under such circumstances, the effects of
national culture would vastly diminish as managers will be thinking,
speaking, and acting with common global business values, beliefs, and
378 Suresh Gopalan and Angie Stahl

behaviors. In such situations, behavioral models and management theories

may have universal application and relevance even if their origins are
rooted in American culture.
Scholars who believe in the “Divergence perspective” propose that
national culture is (and will continue to be) the primary force in shaping
the values, beliefs, and attitudes of managers within a country (Ottoway,
Bhatnagar, & Korol, 1989; Hofstede, 1980a, Laurent, 1983). They reject
the arguments of convergence and maintain that as long as countries
have dissimilar values, management ideas and practices cannot be univers-
ally transplanted. These scholars maintain that while organizational
structures and work processes may tend to converge with increasing levels
of industrialization, the behavior of people within organizations will be
largely influenced by the national culture.
More recently, the “cross-vergence” perspective has gained increasing
attention from the management community (Bond & King, 1985; Ralston,
Gustafson, Cheung, & Terspstra, 1993; Gopalan and Dixon, 1996).
Management researchers have found that in many developing countries,
a new management ideology has emerged over the last 10 years. The
new management ideology appears to be a hybrid—one which combines
both domestic and “imported” ideas. As managers in many developing
countries have come into increased contact with international counter-
parts, they have learned to adapt by creating a management approach
that blends the best elements of both their native and foreign cultures.

The Primary Focus of this Paper

Regardless of which school of thought one belongs to, it is important

that both American and Indian managers develop a basic understanding
of the national culture-management relationship. Therefore, this paper
has two objectives. The first is to offer a comprehensive explanation of
the cultural context and origins of American management practices and
the second is to examine the degree of their relevance and effectiveness
with respect to the Indian business environment. Although a brief
explanation of the Indian national culture is offered to facilitate
comparison with that of American national culture, it is not the intent
of this paper to focus on Indian national culture.
 American Management Theories and Practices 379

Description of American National Culture

and Ensuing Management Practices

Developing a cultural profile of any country is difficult because culture

is a multi-dimensional and multi-layered concept (Nahavandi and
Malekzadeh, 1988, Schein, 1984). Additionally, culture is hard to define
due to multiple definitions from several fields (Rousseau, 1990). Despite
such difficulties, management scholars (Adler and Jelinek, 1986; Adler,
1997) are increasingly using five value orientations developed by two
anthropologists, Kluckhohn and Strodtbeck (1961) to develop cultural
profiles of countries. The basic assumption behind this framework is that
in any country, there are fundamental assumptions and choices regarding
the following:

Human nature (Is human nature evil? Is it good? Is it a combination

of good and evil?) A separate but related issue is whether human
nature can be fundamentally changed in this lifetime.

Natural and supernatural elements (Is man dominant over nature?
Does man live in harmony with nature? Does he subjugate himself
to nature?)

Time (Do we look to the Past? Do we focus on the Present? Is a
Future orientation the most important way to approach life?)

Work (Does man derive his identity from Work and is it a calling
from God? [Doing orientation]; Should we work just for meeting
short term needs necessary to enjoy life? [Being orientation]; Should
work be considered as a means for fulfilling one’s duty after which
one should seek salvation as the ultimate goal? [Being-in-becoming
orientation])

Relationships (Should individualism and individual rights be the
foundation for a society? Or should it be based on a lineal collective
group-oriented approach? Or should it be based on an organized
hierarchical structure with an elaborate definition of roles, duties,
and responsi bilities?)

By identifying the preferred choice by the majority of the population for

each of these five value orientations, it is possible to develop a cultural
profile for any country. The Kluckhohn and Strodtbeck framework is
380 Suresh Gopalan and Angie Stahl

used to describe value orientations that are typical of American national

culture. This cultural profile may not represent the values of sub-cultural
groups within the country whose cultural preferences may be markedly
different than that of mainstream culture.

Human Nature Orientation

Americans tend to believe that humans have a combination of both good and
evil qualities and that they are capable of evolving into better persons.

The majority of Americans believe that by appealing to the good nature

within individuals, change and improvement is possible and desirable.
Fundamental changes in human nature can be accomplished through a
combination of right training, education, and exposure (Adler, 1997;
Samovar, Porter and Jain, 1981). The origin of such a belief can be traced
to the Christian theological belief that “no matter how sinful you have
been, you can be saved if you seek redemption by being born again.”
Such beliefs affect business thinking considerably. Organizations
spend millions of dollars annually in training seminars and other human
resource development activities (Adler and Jelinek, 1986). Such seminars
include a wide range of topics from sexual harassment, diversity sensitivity,
discrimination in the workplace, team work and development, employee
empowerment, leadership skills, improving speaking and other com-
munication skills, positive thinking, and so forth.
The underlying principle behind such investments is that employees
can “change,” and that will result in a “better” and “improved” workforce.
Alcoholism, for example, is considered to be a disease and many organ-
izations have Employee Assistance Programs to help them kick the habit.
Alcoholism is not considered a “moral lapse” or a “character flaw” in an
organizational context. The focus is on helping the individual change
his/her behavior instead of making moral judgements about his/her
habits.
Companies large and small are actively involved in helping and in-
teracting with the local community through organizations such as the
UNITED WAY which supports an umbrella of local agencies that help
the sick, the young, the elderly, and the indigent. Executives volunteer
time, effort, and other resources to help with many of the civic organ-
izations in their city (Romano, 1994). More recently, several organizations
have been in the forefront of promoting their employees’ health by having
 American Management Theories and Practices 381

“smoke free” work environments. Smoking or use of tobacco items are

prohibited inside office buildings—smokers have to go outside the
building in order to smoke. A growing number are experimenting with
policies that would ban smoking on company premises and property
including the parking lot. Smokers have to go outside the company’s
property if they have to light up! (McShulskis, 1996; Lang, 1992) While
there are those who may consider such measures an intrusion on freedom
and individual choice, the underlying assumption behind such actions
is that “intervention can result in an improved society” and that by exten-
sion, a healthier society is an improved society. From an organizational
viewpoint, such interventionist measures translate into a healthier and
more productive workforce—leading to higher job satisfaction in the
long run (Sorohan, 1994; Wolfe and Johnson, 1993; Lau, 1990).
Most (not all) Indians believe that an individual’s situation in this
present life is largely a consequence of actions committed in previous
birth or births (in other words life is predetermined) and that change
is relatively difficult to accomplish (Saha, 1992; Kuppuswamy, 1994).
While a sizeable number of Indians may not subscribe to such a view,
there is nevertheless a widespread sense of fatalism found in the Indian
psyche that has been documented by Indian scholars (Srinivas, 1972;
Kuppuswamy, 1994). For example, poverty in India is tolerated to a
greater extent than other cultures. It is endured without widespread
protest both by the observer and the person experiencing it. Does such a
sense of resignation result as a consequence of fatalism or apathy or a
combination of both factors?
If the mind set stated earlier is true for the most part (i.e., life is pre-
determined), would Indian organizations be committed to investing in
human resource development programs at a high level? Would senior
managers believe that their junior managers can fundamentally change
their belief systems and become beacons of change and progress after
receiving the right training and education? Do hiring practices focus
more on hiring the “right type” of people because once hired it may not
be possible to “change” the individual to suit the organizational mold?
Would a “Theory X” type of management approach be more suitable
than a “Theory Y” type approach in the Indian environment?
Obviously, additional research is needed to answer these and other
questions. But clearly one has to better understand the inherent differences
underlying American and Indian value orientations about human nature
before transferring American management ideas to India. It is possible
382 Suresh Gopalan and Angie Stahl

that the contemporary Indian manager has moved away from traditional
ideas such as the theory of karma and has evolved a more Western
(Americanized) approach to the idea of human nature. This issue is worthy
of further exploration.

Relationship to Nature and Supernatural Elements

The traditional American relationship to nature has been one of Dominance

although there is an increasing emphasis on conservation and ecological
awareness suggesting a trend towards living in Harmony with nature.

The traditional view towards nature has been one of Dominance—

exploiting natural resources is one of the primary reasons for the economic
progress achieved by the United States (Kluckhohn and Stodtbeck, 1961;
Stewart, 1972; Turner, 1920). The majority of Americans believe that
natural resources and elements can and should be utilized for the benefit
of mankind (Tersptra and David, 1991). Science and technology are
considered allies used to minimize or mitigate the effects of disease,
pestilence, drought, floods, earthquakes, and other natural catastrophes
that have been the bane of mankind.
Only in recent years have Americans been concerned with issues of
ecological preservation, conservation of resources, and the harmful effects
of pollution. These concerns have influenced a somewhat paradoxical
approach to the manipulation of nature. Advanced technology is de-
veloped to further maximize progress towards a higher future standard
of living. Yet advancing technology is also expected to minimize depletion
or destruction of ecological, environmental, or scarce natural resources
requisitioned for use in past progress efforts (White, 1996; Barnett,
Weathersby & Aram, 1995; Gold-smith, 1993).
Dominance over nature and other elements has resulted in most
Americans having an internal locus of control (Stewart, 1972). In other
words, they believe that they are in control of most if not all of life’s
events and that their individual actions and effort will make a difference
in their personal lives. Responsibility and accountability lie with the
individual and outcomes, whether successful or unsuccessful, cannot
be shifted to an unknown supernatural force.
Such a fundamental assumption is reflected in the goal-setting and
motivational practices that have originated in the United States (Locke,
Latham, and Erez, 1988; Locke and Latham, 1990). Central to the idea
 American Management Theories and Practices 383

of any goal-setting theory is that if an individual expends the right type

and degree of behavior, he/she can control and reasonably predict the
outcome of his/her output. While several factors can affect the effect-
iveness of goal-setting practices in organizations, one critical factor is an
individual’s internal locus of control. Individuals with a strong internal
locus of control are more likely to actively pursue, and thus achieve their
goals than are those with an external locus of control.
Traditional cultures such as those found in India socialize people to
have a predisposition towards an external locus of control. Individuals
with an external locus of control believe that man is basically helpless in
affecting life’s events which are largely controlled by fate and/or by
supernatural forces that are largely beyond human control (Husain, 1961,
Tripathi, 1988). Even if individuals in the Indian corporate environment
can intellectually relate to and understand the basic premise behind goal-
setting practices, to what extent will they be effective in implementing
such practices over the long run if it is not positively reinforced by societal
values? Can advanced education neutralize and overcome the notion of
fatalism? Will exposure to international management practices neutralize
the effects of national culture allowing Indian employees to develop a
stronger internal locus of control?
Although India has one of the largest pool of well qualified and talented
scientists, technicians, and other professionals in the world, it lags behind
several countries in both basic and cutting edge research in many areas.
While some may attribute this phenomenon to lack of resources and other
structural issues, an alternative explanation may be that it could be due
to a lack of adequate positive reinforcement from society (McClelland,
1961). It is reasonable to hypothesize that Indian scientists and other
professionals working in the United States and other Western countries
are able to have a high level of achievement not only because of access to
superior resources but also because of the prevailing mind set found in
both organizational and societal atmosphere that encourages and nurtures
an internal locus of control.

Time Orientation

Americans are oriented towards the Future with respect to both personal and
business time orientations. The American notion of Future is relatively short
term oriented extending at best from four months to a year.
384 Suresh Gopalan and Angie Stahl

The Future time orientation results in several assumptions, two of

which are discussed in this paragraph. These assumptions are true for
most Americans in both their professional and personal lives (Hall and
Hall, 1989; Weber, 1958). First, time is viewed as an asset with a perish-
able value and secondly as a linear entity which when utilized improperly
or inefficiently is wasted. Time is compartmentalized wherein meeting
deadlines, schedules, and appointments are emphasized. People are social-
ized to value punctuality and promptness and express strong disapproval
towards late-coming, tardiness, and excessive delays. Lateness may be
considered a reflection of rudeness and/ or slothfulness.
The two key assumptions mentioned earlier are building blocks for
strategic management practices found in American organizations (Collins
& Montgomery, 1997; Thompson & Strickland, 1997). Strategic man-
agement includes the development of (a) a vision and mission statement,
(b) long-term goals and objectives spanning five or more years, (c) annual
goals and objectives up to a year, (d) monthly and weekly goals and ob-
jectives. The entire planning process is based on the assumptions that
(a) “management is time-bound” and (b) unless critical targets and out-
comes are achieved by a specified time period organizational success will
be severely compromised. Many seminars and workshops on time man-
agement are offered to American managers. These training sessions re-
inforce and strengthen the presuppositions of time management (Sunoo,
1996; Oshagbemi, 1995). Utility is gained and maximized by efficient
use of time. As quantity of time is considered to be a limited and fixed
resource, Americans tend to view time utilization as a zero sum game—
time not efficiently used to gain maximum productivity is time wasted.
Since most American employees profess the same time orientation in
their personal and professional lives, they tend to exhibit required
behaviors that conform to meeting organizational goals based on
preestablished time tables (Adler, 1997; Hall and Hall, 1989).
Future time orientation also results in the belief that the future will
be “bigger,” “brighter,” and “better” than either the present or the past.
Consequently, not much emphasis is given in the United States to main-
taining or upholding traditional customs or beliefs—the focus is not on
maintaining the status quo—change is valued and embraced (Tocqueville,
1945). One of the class assignments given by the first author to students
over the past few years is the “Circle Test” developed by Tom Cottle (1967).
This assignment requires students to draw three circles, each representing
 American Management Theories and Practices 385

the past, present, and the future. Students are asked to draw these circles
in any manner (including size and arrangement) as they see fit. A trend
emerged. The majority of the American students tend to draw the circle
representing future as biggest in size and mostly unconnected with either
the present or the past circles. Most students from Asian countries tend
to assign a bigger size to the circle representing the past relative to
Americans and to draw all three circles intersecting one another. Although
this study is unscientific in nature, such pictorial representations of time
reflect cultural patterns that are unconsciously embedded in the minds
of young people from different backgrounds. Americans value the future
and think that eventual outcomes are unconnected to either the present
or the past. Asians tend to attach more importance to the past and believe
that events are influenced and interconnected through the three time
orientations (Trompenaars, 1993).
Despite the rhetoric of strategic management with long term plans,
in reality the focus of corporate America is on achieving short term goals
based on quarterly targets (Cavanagh, 1990). Companies that fail to de-
clare dividends on a quarterly basis have seen their stock price plummet
in Wall Street and other capital markets. High-level management and
CEO compensation plans including bonuses, pay raises and stock options
are often based on their firm’s quarterly performance and stock price
(Frazee, 1996; Dimma, 1996). Consequently, “making the numbers” is of
paramount importance to American managers. This environment tends
to promote a more impatient short-term orientation that focuses on
“here-and-now” results than patient long-term thinking (Adler, 1997).
This may be one of the many reasons why Americans have not been as
effective as the Japanese in their approach to world markets. While the
Japanese are willing to wait for five or more years to see the results of an
investment, Americans tend to get impatient if no tangible returns are
seen within a year.
Indian time orientation appears to be significantly different than
that of the United States. Time is not viewed in a linear fashion, nor is it
viewed as a commodity with perishable value (Sinha, 1990; Saha, 1992).
Time is viewed as an infinite loop—one which has always been there
and which will continue to exist. Consequently, Indian society has evolved
with a more relaxed and reflective attitude towards time—one which is
quite different from and at odds with the Indian corporate/business envir-
onment which tends to be more similar to the American corporate
386 Suresh Gopalan and Angie Stahl

environment. Additionally, Indians attach pride and importance to

maintaining their heritage by following practices that are handed down
from the past by tradition. Such past time orientation places tremendous
pressure to conform to time-honored practices and beliefs. Therefore,
the focus may be maintaining status quo through perpetuation of the
past, and not change. The preference for planning, compartmentalizing,
scheduling time, and a sense of urgency—key factors that enable the
successful implementation of strategic planning and compensation
practices characteristic of future-oriented societies such as the U.S. may
have to be extensively modified in India due to a different time
orientation.

Approach to Work

A combination of historical and religious factors have led Americans to link

individual identity with his/her occupation/career. Additionally, work is
considered as an end to itself and not as the means to an end.

Traditional American ideas of work are derived from a Protestant belief

which considered work to be a calling from God and to pursued for its
own sake (Cavanagh, 1990). Individuals who became wealthy were con-
sidered to have been blessed or rewarded for their hard work, effort,
dedication, and perseverance. Although the biblical origins of work are
seldom consciously considered in contemporary living, the centrality of
work to one’s life is widely prevalent in the United States (Weber, 1958;
Ferraro, 1990). Individuals derive their identity from work and will con-
tinue to work even after they have “retired.” If you ask an American
individual who he/she is they will identify themselves by their occupation
or profession (Adler, 1997).
Able-bodied individuals who remain poor over their lifetime are looked
at with disdain as they are perceived to be lazy—poverty in such situations
is attributed to indolence and a lack of effort, not fate or chance. Social
loafing is discouraged. Most Americans believe that all individuals re-
gardless of their background or origin can become materially successful
if they “work hard.” Social welfare policies, though widespread, are
increasingly coming under attack and are being scaled back because they
are thought to perpetuate poverty instead of relieving it (Friedlander &
Hamilton, 1996; Ulhman, 1996).
 American Management Theories and Practices 387

The strong work ethic in the United States favors objectivity, com-
petitiveness, and a need for achievement (Ferraro, 1990; McLelland,
1961). Consequently, the laws pertaining to hiring new employees
are structured with the idea that the most qualified candidate should be
hired for the job—not the owner’s son or son-in-law. Individuals are
respected for the quality of their work and contribution they make to
the organization—not for the status ascribed to them by caste member-
ship or family connections. Such sentiments of anti-nepotism are reflected
in human resource policies that prohibit family members such as husband
and wife or father and son from working for the same organization (Reed
& Cohen, 1989; Young, 1995). While discrimination and favoritism do
exist in corporate America to some extent, the nation’s laws and popular
sentiment are against such practices.
A flip side to the American approach to work is that loyalty from the
employee to the organization or from the organization to the employee
tends to be based on self-interest, and therefore is short-lived at best and
nonexistent in most instances (Friedman and Friedman, 1980). Employees
are loyal to their profession—not to their organization. Job hopping is
fairly common and layoffs are even more common. In most situations,
employees work at the “will” and “pleasure” of the employer. If the
employer no longer requires the services of any employee the employer
can “let them go.” A two weeks notice of termination from the employee’s
side is standard industry practice. Work relationships are relatively
impersonal, legal, and contractual—nothing is implied or assumed—it
has to be in the form of a contract in a written form (Trompenaars, 1993).
This type of atmosphere results in low trust and a “us” versus “them”
mentality. Management operates from the assumption that the organ-
ization exists to provide a return to the stockholders and that is their pri-
mary goal. If profits are at stake, management may resort to restructuring
and downsizing (typically resulting in hundreds of employees losing
their jobs) to strengthen the bottom line. With managerial performance
linked to financial performance of the firm (i.e. share valuation), it is
reasonable to conclude that the primary focus is on meeting the share-
holder needs and not on providing employees long term employment.
Employees likewise are under no obligation to stay with the organization
even after receiving advanced technical or management training at the
organization’s expense. They are not required to sign a bond or compensate
388 Suresh Gopalan and Angie Stahl

the organization and are free to leave anytime without any restraint or
constraint. Freedom is a two-way street in the United States.
Motivational theories originating from the United States advocate that
“job enrichment” is the primary way to motivate employees (Herzberg,
1968). In other words, the assumption is that individuals derive more
satisfaction from job content such as increased autonomy, responsibility,
and recognition and less fulfillment from contextual factors such as pay
raises, bonuses, and relationships with bosses and co-workers. Managers
exhort are encouraged to enhance intrinsic factors at work to sustain
worker motivation (Staw, 1976, 1977; Deci, 1975; Petty, McGee &
Cavender, 1984 ).
Space not does not permit a comprehensive assessment to examine
the relevance of all American work related practices. But suffice to say, the
widespread practice of layoffs and terminations will be highly unpopular
in India for a variety of reasons (Bedi, 1995). Indian employers and em-
ployees are more inclined to exhibit feelings of loyalty and desire to have
a long term relationship relative to the United States although job hopping
has become increasingly common among the younger generation. Em-
ployment in India is also considered to be an extension of social justice
(Khandwalla, 1990). For example, most (not all) Indian public sector
organizations India have been “running in the red” for several years.
They continue to exist solely due to massive government subsidies which
are an indirect form of taxation paid by Indian citizens. Yet it is un-
thinkable to shut these organizations down or streamline their operations
as hundreds and thousands of workers will be laid off. Keeping people
employed appears to be more important than achieving profitability in
the Indian context.
While Indian multinationals may be similar to their Western counter-
parts in hiring practices (reflecting impartiality and hiring someone with
the best credentials), it may not be reflected in family-owned organizations
and public sector companies where caste and family considerations along
with political pressures may favor less qualified candidates (Khandwalla,
1990). Sinha (1990) noted that Indians have a strong distinction between
“insiders” and “outsiders” and prefer loyalty and dependability over effici-
ency and independence. These preferences will certainly continue to make
the hiring and promotion practices more “personal” than “impersonal.”
While motivational theories that focus on enhancing job content may
have relevance in materially advanced and comparably wealthy countries
 American Management Theories and Practices 389

such as the United States, their widespread application may have to be

examined with caution in developing countries such as India where satis-
faction of economic needs may be more important to many employees.
So focusing on contextual factors such as pay and bonus may be more
relevant than increasing autonomy or independence at work. Additionally,
most Indians value relationships that have been built over a lifetime and
tend to display increased spiritualism and less emphasis on material goods
as they get older. Therefore, work in an Indian context is a means to an
end (for most if not all Indians).
People may approach work primarily for satisfying their family’s
needs; or for finding work for their relatives and friends; or because they
like their superior and want to show their affection and regard for him/
her (Sinha and Sinha, 1994). Once the primary needs are satisfied, for
example, all the children are educated and married, a house has been
constructed and fully paid for, and grandchildren are born, it is reasonable
to expect the average Indian to shift his/her focus in life away from work
towards other pursuits.

Relationships in Society

Americans tend to be highly individualistic, autonomous, and egalitarian

(non-hierarchical) in nature. Socialization practices stress independence over
dependence and ascendancy of individual rights over group goals and
aspirations.

It would not be an exaggeration to state that Americans exhibit the

highest individualism of any country in the world (Hofstede, 1980a; Adler,
1997). The focus is on maintaining and enhancing individual rights,
liberties, goals, and aspirations. Parents encourage their children from a
very young age to become “independent” and it is common practice for
teens over 18 years to “leave” their parent’s home and live by themselves.
From their infancy, most children have their own room in their parent’s
homes which is considered their private space. It is customary for parents
to knock and obtain permission before entering their childrens’ rooms.
Babies that are a few months old learn to sleep by themselves in a separate
room—the practice of children sleeping with their parents either in the
same bed or room is atypical and uncommon. Elderly Americans often
choose to live by themselves or in a retirement home rather than stay
390 Suresh Gopalan and Angie Stahl

with their children—the preference is for independence and individuality

over dependence and collectivism. Social relationships in the United States
tend to be relatively transient and ephemeral resulting in high divorce
rates and large numbers of single parents.
Educational practices in schools and colleges encourage students to
ask a lot of questions and express personal opinions. It is acceptable for
students to disagree with their teachers as long as it is done in a polite
manner. University-bound students do not have to choose a major area
of specialization until the end of their second year (a bachelors degree is
typically obtained over four years). Once a major area of specialization is
chosen, students are not “locked in” that particular choice for the rest of
their lives. They have the option of changing their minds as many times
as they want—while they will certainly take a longer time to graduate in
such situations, the choice of “who they want to be” is in their own
hands. Interpersonal relationships between teachers and students tend
to be relatively informal and casual. For example, students do not stand
and greet the professor when he/she walks into the classroom nor do
they display a highly deferential manner of communication. In relating
to one another, Americans display a strong streak of egalitarianism wherein
social equality is desired and hierarchy downplayed (Cox, 1993).
Similarly, in workplace environments, there is a sizeable and growing
movment towards a form of egalitarianism in the workplace. Many em-
ployers encourage an “open door” policy which encourages employers to
discuss issues or concerns with any member of management—not simply
the employee’s immediate supervisor. Additionally, American employers
are generally more supportive of a participative management style which
allows employees from all organizational levels to engage in managerial
decisions and practices through direct input (Cox, 1993).
Socialization practices emphasize competitiveness over cooperation
(Cox, 1993). Two assumptions prevail here. First, an individual’s achieve-
ment must be measured by standards external to that individual (not by
their family connections or money) and second, an individual maximizes
his/her talents and abilities to the fullest extent only in a competitive
atmosphere. Notice that the emphasis is on developing the individual to
the fullest extent—not the group or another collective entity. Athletic
programs glorify the spirit of competitiveness . There are “little league”
soccer teams where children as young as 4–5 years old compete with
other teams. Even in team-oriented sports such as basketball and football,
 American Management Theories and Practices 391

individuals are singled out for their proficiency and skill over their team
mates.
These cultural practices have given rise to certain management prac-
tices, such as Management by Objectives (MBO), which have their origins
in the United States. Implicit assumptions that serve as a foundation for
MBO are that (a) subordinates can sit down with their superiors and have
meaningful negotiations on future job performance (i.e., low power
distance is present), (b) the superior welcomes and invites subordinates
to participate in a joint-management process, and (c) hierarchy is best
when minimized. In such an organizational situation both the supervisor
and the employee are psychologically comfortable in coming together to
initiate the MBO process (Drucker, 1954; McGregor, 1960; McClelland,
1961).
Human resource development (HRD) practices in the United States
are driven by law with a strong emphasis on protecting individual rights
and welfare. Two examples illustrate this point. The Americans with
Disabilities Act considers employees infected with HIV and those with
full blown AIDS as “protected” workers who cannot be discriminated
in organizational recruitment, transfer, promotional, or termination prac-
tices (Gopalan and Summers, 1994). Organizations cannot require a
blood test for HIV or AIDS as a condition of employment (for new em-
ployees) nor can they fire someone if they are HIV positive (for current
employees). If requested, reasonable accommodation must be made for
such employees such as a transfer from a field to a desk job. Managers are
required not to discuss or disclose the medical conditions of these em-
ployees with anyone including their immediate superiors, unless the
employee has authorized them to do so.
An increasing number of American organizations do not discriminate
between heterosexual and homosexual lifestyles and extend health care,
dental, and life insurance benefits to the gay and lesbian partners of their
employees (Gopalan and Summers, 1994). Some communities in which
these companies were located, initially expressed their objections to such
HRD practices which, in the minds of some community members, con-
tributed to encouraging “sinful” and “undesirable” lifestyles. Most organ-
izations contended that their response was consistent in meeting their
employees changing needs and wants. In all such HRD practices, the
reader will note that the focus is on meeting and enhancing individual
(and not a group’s) needs.
392 Suresh Gopalan and Angie Stahl

Indians are socialized in a culture where an individual derives his/her

identity based on family and caste membership. The group is considered
to be more important than the individual (Prakash, 1994; Tripathi, 1994).
Additionally, age and seniority is given great respect in Indian tradition.
Children are raised to obey their elders and teachers who are considered
to be the “experts” having answers to all questions. In India, relationships
are long lasting, organized on a hierarchical basis, and status oriented—
husband over wife, elder brother over younger brothers and sisters,
patriarchical side over matriarchical side, etc (Sinha, 1988). It is not un-
common to see Indians sacrifice and/or defer their individual goals and
desires for the collective goals and welfare of their family or a larger col-
lective entity. The degree of psychological distance and social interactions
between different groups in society is impacted by a variety of factors
including but not limited to age, seniority, socio-economic class, caste
affiliation, religion, and so forth. It should be noted that there are sub-
cultures within India whose relationship norms may deviate substantially
from the description given here.
Nevertheless, it is obvious that socialization practices in Indian are
vastly different than that of the United States. Given this situation, it is
interesting to examine the degree of relevance of general management
practices such as MBO and other American HRD practices mentioned
earlier. Given the large power distance between superiors and subordinates
in most social and organizational settings, would MBO or variations of
MBO and participative management be truly effective in India? Would
Indian managers and employees put aside feelings of hierarchy and status
and relate to one another as equals? Would age and seniority take backseat
to knowledge and competence (even if coming from a younger person)
in an organizational setting? Alternatively, would a benevolent and nur-
turing patriarchical style be more suitable for an Indian setting as it may
be more compatible with Indian culture where people do not relate as
equals? A related but separate issue is the impact of regional cultures.
Are there regional differences in the values emphasized in India? For ex-
ample, is Western India more aggressive and risk embracing? Is Southern
India more conservative and risk aversive? What part (or parts) of the
country would be more inclined to be neutral to organizational policies
that recognize gay and lesbian lifestyles? What part (or parts) of India
would be more inclined to oppose such lifestyles? More importantly,
would Indian society even tolerate such policies that deviate from
 American Management Theories and Practices 393

“traditional” notions of family? Obviously, there are no easy answers to

such questions but they are raised to demonstrate the vacuity of replicating
American management practices.

Conclusions and Suggestions for Further Research

The primary objective of this paper is to trace the cultural origins of some
of the behavioral theories and practices commonly found in American
management approaches and to discuss their applicability to the Indian
business environment. A profile of American cultural values are presented
through the Kluckhohn and Strodbeck (1961) cultural profile and are
juxtaposed with brief glimpses of Indian cultural values. The close rela-
tionship between American cultural values and management styles and
practices are illustrated through several examples. A number of questions
are offered to initiate discussion and offer suggestions for future research
regarding relevancy and transferability of American management practices
to India.
Globalization of business will have a tremendous impact on lifestyles
and role relationships especially in developing countries such as India.
For example, as multinational companies (MNCs) establish operations
in what are previously “closed economies”, they will begin to affect trad-
ition and culture. Compared to domestic companies, MNCs may be
more inclined to hire women, pay high salaries, and promote them to
managerial positions. Under such conditions, economic disparities and
earning capabilities between women and men are likely to disappear
allowing women to achieve a status equal to men. Increasing financial
independence will enable Indian women to remove externally imposed
constraints and become more assertive. This in turn will eventually cause
women to reexamine traditional male-female role relationships which
historically placed Indian males at the focus of power and control within
the family. Therefore we theorize that, as we head into the 21st century,
business institutions will continue to become more powerful in India
and international influences will be felt to a greater degree than ever
before.
We speculate that along with the factors mentioned above, the
widespread usage of English language, familiarity with Western modes
of education especially in urban areas in India, and the influence of the
INTERNET may lead Indian management thinking to a state where
394 Suresh Gopalan and Angie Stahl

some ideologies and approaches will reflect national culture while others
will become more similar to Western practices and ideas (i.e., they will
reject Indian national cultural values). Indian managers would develop
and follow a hybrid, or cross-vergence approach in the future, which will
reflect a combination of indigenous and imported approaches to manag-
ing people at work. For example, Loyalty, which is an integral Indian
value, may still be retained in Indian organizations as it maintains and
fosters and environment of trust necessary to maintain build effective
business relationships. On the other hand, exposure to equal employment
opportunity practices may create a desire to hire the most qualified person
for a job, as opposed to preferential hiring of family members or relatives.
These issues are worthy of further exploration for cross-cultural researchers.

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 Section Eight

GLOBAL
MANAGERS IN
INDIA
 Managing in a Changing Environment:
17 Implications and Suggestions for
Expatriate Managers in India

Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

Introduction

India’s gradual integration into a global trading system and its growing
appeal as an investment and production location, particularly in ‘know-
ledge’ industries, means that the question of the place of expatriates in
the Indian management system is more crucial than ever. In particular,
there has been the significant growth of the information technology
(IT) and knowledge-related industries in a number of key development
‘clusters’ that are often located adjacent to major Indian cities. Thus, in
key knowledge industry ‘clusters’ such as New Delhi-Noida, Chennai,
Bangalore, and Hyderabad, there have been major investments on the
part of several leading multinational corporations who have established
their regional headquarters in these areas and there has been the mush-
rooming of associated small- to medium-sized IT consultancy firms. The
increasingly global nature of Indian industry in both the ‘old’ and the
‘new’ economy therefore requires greater inputs in terms of globally-
oriented managers and technical competencies.
Expatriate management is nothing new in Indian business culture. In
fact, the development of the modern Indian business system occurred
under British colonial rule with expatriate British managers filling exe-
cutive positions in the emerging local enterprises of the 19th and early
20th centuries. The legacy of expatriate management from this period
was mixed. On the one hand, British managers were influential in setting
402 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

organizational norms, values and systems of corporate administration

and governance. On the other, local Indian managers became resentful
and frustrated with the inherent inequities of the colonial context and
demanded greater control and executive authority within these enter-
prises. In the post-Independence (1947) era there was a decisive culmin-
ation to this trend as British expatriates largely left the Indian business
scene and local managers and entrepreneurs assumed full control of local
enterprises and industries.
By the dawn of the 21st century, the wheel had again turned and the
arrival of expatriate managers and employees in India was being welcomed
as a sign of India’s emergence within the global economy. From an ex-
patriate viewpoint, however, working and living in India poses a series
of very considerable challenges. These challenges range from learning to
work successfully with local colleagues, to dealing with ‘culture shock’
and the everyday difficulties of relocating home and family to India—a
nation that is often complex and confusing for newly arrived expatriates
but which is also characterized by economic potential and astounding
cultural and geographic diversity. This chapter will consider some of the
general challenges confronting expatriate managers in the workplace
before moving on to briefly note some of the more practical aspects of
successfully adjusting to life in India.

Working in India: An Overview

Expatriate Managers and Employees in India: A Rare Commodity?

In the past, because of a more inwardly focused national strategy that

focused on import substitution and government ‘command’ over eco-
nomic development, expatriate management in India was limited in terms
of both size and scope. To a certain extent the limited involvement of ex-
patriate managers in Indian business culture has also continued during
the ‘liberalization’ (post 1991) era. In many ways, this is not surprising.
India has a solid pool of local managerial talent and technical expertise,
with the most prominent and skilled individuals often drawn from the
internationally renowned Indian Institutes of Management (IIMs) and
Indian Institutes of Technology (IITs). Aside from local companies, a
wide range of multinational corporations and foreign-owned enterprises
operating in India continue to draw on these resources. In fact, given
 Managing in a Changing Environment 403

the complexity of the operational business environment in India and the

importance of ‘local knowledge’, relying primarily on the recruitment of
local managers has been one strategy for managing risk and pursuing
competitive advantage.
A defining feature of the Indian business environment in the liberal-
ization era has been the perceived influence of Non Resident Indians
(NRIs). The term NRI is often used to refer to both ‘first generation’
overseas-based Indians as well as individuals who are ethnically of Indian
origin but who have been raised in nations such as the US or the UK.
Although no statistical evidence is available, anecdotal evidence suggests
that a number of NRIs have returned to India to establish ‘start-up’
companies and consultancies and to provide managerial leadership in
foreign-owned subsidiaries (Sharma, 2003). The advantages of ‘returning’
NRI’s include their comparative familiarity with the local culture and
business environment. Their presence in many of India’s emerging know-
ledge industry clusters is causing observers to switch from lamenting
‘brain drain’ to discussing the new phenomenon of ‘brain circulation’ as
these skilled professionals and managers re-engage with India (Patel,
2002). According to one report on returned Indians in the information
technology sector:

The returnees are often familiar with the latest trends and standards in
America. They have networks of friends and contacts in Silicon Valley and
other tech hot spots. Since many return for personal reasons, they are less
likely than their Indian counterparts to be lured by the glamour and fat
salaries of the West—giving companies the chance to acquire the solid
middle- and senior-level backbone many lack. They also bring other, less
tangible skills (Dhume, 2000).

As the aggregate size of international business activity in India is set for

long-term growth, non-Indian expatriate managers are also likely to
become increasingly evident in Indian business culture. In this sense the
days where ‘foreign’ managers and employees were a rare commodity
appear to be numbered. In fact, there have been some notable recent de-
velopments in terms of the growth in the number of expatriate managers
and employees working in India. In previous years, there was a clear ex-
pectation that expatriates were brought to India to fill senior managerial
positions in multinational enterprises. According to a recent report (Basu,
2003) a remarkable shift is beginning to occur as expatriates begin to fill
404 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

middle-ranking positions in process management or to provide specialist

skills across a wide range of industries including telecommunications and
media, pharmaceuticals, IT services and the retail sector, biotechnology
and tourism.
Rather than merely being restricted to ‘global’ companies operating
in India, domestic companies are now leading this drive for international
talent. Indian companies are now seeking to lift their competitiveness
and quality in order to be successful in the international product and
service markets and thus the experiences of international managers and
skilled employees are even more essential. By 2003, recruitment agencies
estimated that there were 20,000 expatriate employees and managers in
India drawn from North America, Asia and a wide range of Western
European nations (Prayag, 2002; Basu, 2003). The vast majority of these
expatriates have been hired by local Indian companies to provide special-
ist competencies, prominent examples include the garment manufactur-
ing company S. Kumars, Ranbaxy Labs, Reliance Infocom and Bharti
Televentures (Basu, 2003). Thus, ingrained perceptions of the prevalence
and the organizational role of expatriates are giving way to a new dynamic
within the Indian business culture. As one senior Indian executive stated
‘expatriate induction into India has become more a rule than an exception.
If Indian companies have to stay in the business, they have to identify
the right talent’ (Basu, 2003).

Business Regulations and Procedures

As specified by the Companies Act, foreign companies in India are those

that have been incorporated outside India while conducting business in
India. These companies are required to comply with a set of special legal
requirements. All companies are required to maintain a very high standard
of records and accounts. These records and accounts are also required to
be audited periodically as per the provisions of the Act. Indian companies
may recruit foreign nationals for short-term assignments without prior
regulatory approval. Business visas may be issued for up to five years
with the provision for multiple entries. Foreign passport holders wishing
to work in India need to obtain a ‘Residential Permit’ from the Foreigners
Regional Registration Offices (FRRO). These offices are located in major
cities and, in the case of a foreigner living in a smaller city, approval may
be obtained from the area police station. However, such registration is
 Managing in a Changing Environment 405

normally not required for stays not exceeding 180 days by a foreign
passport holder.
Foreign executives arriving in India for stays of reasonably long dur-
ation may find the ‘Transfer of Residence’ scheme to be a very helpful
method. This scheme allows foreign nationals to import personal effects
without having to pay customs duties. A foreign national is allowed to
repatriate two-thirds of the net after tax income once his/her employment
is approved by the government and the exchange control authorities. A
foreign national working under government approval is allowed to open
bank accounts in India and receive funds from abroad. India has recently
signed treaties with many countries where foreigners working in India
are not liable for double taxation. The double taxation relief is normally
available to persons employed by foreign companies to work in India.
Such managers can stay in India for not more than 180 days during a
financial year. The individual remuneration for such employees is not
allowed to be claimed as a tax deduction in India by the foreign company.
India is a member of the International Labour Organization (ILO)
and is a signatory to many global conventions on labour relations. Trained
managerial, professional and technical staff is available in India, and em-
ployment in foreign companies is considered highly prestigious in the
society. The quality of graduates from the premier national institutions
like IIM and IIT is well known.

Managing the Expectations and Perceptions of Local Managers and

Employees

As indicated, an increasing number of foreign businesses and MNCs are

now establishing major operations in India. Their entry has introduced
a new ‘global’ dynamic within Indian management culture as employees
and local managers learn to operate within the broader context of the
unique corporate cultures of these transnational business corporations.
Nonetheless, very often there is also an equivalent need for these corpor-
ations to adapt their management strategies to the local Indian context.
Perhaps one of the most difficult challenges confronting an expatriate
manager is managing preconceived expectations. First, the expatriate
manager should be aware of his/her own expectations. For example, is
he/she beginning placement with an unjustifiably negative perception
of the challenges of living in India and the nature of the local workforce?
406 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

Is he/she expecting instant results or is he/she prepared to invest time in

learning about the local culture and in forging relationships? Is the
expatriate manager expecting that his/her established individual style of
managerial leadership will be wholly relevant to the Indian context?
Second, the expatriate manager should be aware that local managers
and employees might have preconceived ideas (both negative and pos-
itive) about the priorities, motivation, skills and general leadership styles
of foreign managers. The period in which foreign managers were viewed
with suspicion or distrust is no doubt over. In certain circumstances,
however, especially where managers are perceived to have gained a position
through their expatriate status rather than through demonstrable com-
petencies, resentment could surface among local colleagues. The case of
Hyundai Motors in India (see Box 1) demonstrates that language and
cultural barriers can also lead to perceptual differences between local
and expatriate managers.
Nonetheless, there are also indications that the new global focus of
Indian industry is beginning to break down some of these barriers as the
competitive advantage afforded by expatriate knowledge and experience
becomes recognized and more highly valued. According to the director
of human resources for the RPG Group (Goenka), one of India’s oldest
and largest traditional family-based business ‘houses’, resentment on the
part of local managers was ‘definitely an issue at one point of time, but
Indian managers have come around to accepting expatriate managers as
people bringing specialized skills to the table’ (Basu, 2003). However, the
same manager also suggested that such attitudes could resurface when an
expatriate is unable to demonstrate core competencies or is a highly un-
suitable ‘hire’ for the needs of the local Indian organization (Basu, 2003).

Managing Working Relationships

Developing the most appropriate type of managerial leadership in India

is often context dependent. Some ‘global’ managerial leadership styles
are well suited to certain industries but inappropriate for others. While
it is very difficult to generalize, a number of observers have suggested
that senior managers need to adopt a more ‘familial’ approach to building
relationships in the Indian workplace. Gopalan and Rivera (1997) suggest
‘leadership styles accentuating an impersonal distant and contractual
relationship may be ineffective in an Indian work environment.’ Instead,
 Managing in a Changing Environment 407

Box 1: Hyundai Motor Company in India: Managing Perceptions

In 1996, the Korean automotive giant Hyundai Motor Company (HMC) began
construction of a new manufacturing plant in Chennai (South India) to produce
vehicles suited to the unique demands of urban life in India. The plant
manufactured two vehicles, the Santro and the Accent, which quickly became
extraordinarily popular with Indian consumers. This required a rapid increase in
production and employment in the Chennai plant. By 2001, the Chennai plant
had 3000 employees.
Expatriate Korean managers made most key strategic and operational decisions
at the plant. This generated some tension between local and expatriate managers.
Some local managers observed that expatriates adopted a management style that
was unsympathetic to prevailing customs and practices in India and complained
that the expatriates communicated with each other in Korean, which excluded
Indian managers from the decision making process. Alternately, the study found
that expatriates displayed a negative impression of the local ‘work ethic’ and
complained that the caste system interfered with the efficient operation of the
plant, as some Indian managers were appointed to positions based on their caste
position rather than on the basis of merit.
HMC is now employing a greater number of Indian managers, particularly in
production related activities, and is working to dissolve some of these perceptual
differences. This case illustrates the common problem of dealing with
preconceived expectations on both sides of the local-expatriate management
divide.
Source: Lansbury et al., 2003.

they argue that expatriates could participate in the social dimensions of

the workplace community (weddings and other important community
events) and should look, where possible, to develop a ‘personalized and
nurturing relationship with their subordinates’ in order to foster ‘a sense
of mutual obligation and loyalty’. Similarly, an overly participative leader-
ship style could be open to misinterpretation by some local employees
who expect a more assertive personal style and directive process of strategy
formation.
The caste system, which originates from the social structures of ancient
India, is now officially outlawed; however, the system remains a significant
element in Indian national culture. Analysts of expatriate management in
India often discuss the importance of the caste system. These discussions
often address the inappropriate utilization of ‘team’-based HRM approaches
in a cultural environment where the acknowledgement of hierarchy and
social status are crucial (Gopalan and Rivera, 1997; Frazee, 1998). The caste
408 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

system is an extremely difficult issue for expatriate managers to fully

understand. While the caste system in India has not been removed through
official measures, the caste system is certainly dynamic rather than static.
Also, there are significant differences between various regions, as well as
rural and urban areas, in terms of its relevance. It is, therefore, advisable
for an expatriate not to overestimate, or make simplistic assumptions
about, the significance of caste in Indian society and local workplaces.

There are four main castes in which most Hindus can be categorized:

1. Brahmins: originating in the religious roles as priests, teachers and

idea leaders.
2. Khatriyas: the warriors, administrators and keepers of faith.
3. Vaidyas: traders and commercial workers.
4. Shudras: skilled labourers and farmers.

Caste categories, such as the ‘untouchables,’ are not included in the four
main categories.
On the general issue of working relationships, Frazee (1998) has sug-
gested that there are two major differences between expatriate Americans
and local employees and managers. First, American managers are likely to
have a different conception of the idea of control, believing that through
sheer persistence, all variables can be brought under control and all prob-
lems definitively resolved. In contrast, Indians are more likely to accept
ambiguity and their inability to achieve full control or final closure over
all aspects of a project or a business strategy decision. Second, there is a
strong cultural preference in India for criticism to be subtly implied
rather than directly stated. American expatriates often fail to understand
the true state of their working relationships with Indian colleagues. Ac-
cordingly, developing a more accurate assessment of the current state of
working relationships and the effectiveness of management practice may
require a considerably greater investment of time than the expatriate
would otherwise be accustomed to in their ordinary ‘home’ environment.
Gopalan and Rivera (1997) also advise expatriate managers to
understand differing sources of employee motivation in India (extrinsic–
collectivist rather than intrinsic–individual) and to beware of reacting
negatively to local cultural practices such as bestowing small ‘favours’
and gifts on superiors. However, while these observations are generally
useful, it is again wise to sound a note of caution. Management practice
 Managing in a Changing Environment 409

is changing and an increasing number of Indian managers are influenced

by international HRM ‘best practices’ and by models developed in leading
Indian management institutes and international business schools.
Evidence of ‘convergence’ is perhaps most visible in the emerging
knowledge industries and thus it could be dangerous to assume that
there are general rules for understanding working relationships that
apply in all cases. The case of ANZ (see Box 2) illustrates the challenges
and opportunities expatriate managers may encounter in India while
managing work relationships.

Box 2: ‘Learning to Live’ in India: ANZ

ANZ, an Australian-based banking firm, entered the Indian market by acquiring
a local banking network (Grindlays) in the 1990s. However, in 2000, after years
of mixed fortunes in banking and local financial markets, ANZ sold its Indian
banking operations. Despite this withdrawal, ANZ had still accumulated a great
deal of local market knowledge over the years. More importantly, it retained a
local software/IT firm (ANZIT) based in Bangalore (South India).
According to Dr Richard Tait, ANZ’s head of customer technologies, the
company ‘learned to live with’, and to solve, a number of fundamental challenges
of working in India. Aside from problems with infrastructure (power,
telecommunications) and the development of formal quality control and assurance
programs, the company faced some very notable differences in terms of local,
versus expatriate, cultural and workplace norms and management styles. In
particular, there were differences in areas such as:

Degree of informality versus formality in personal interactions

General awareness and recognition of rank, functional level and status
The importance of family networks
Different perceptions of self-development and career advancement

By 2001, the firm had grown to around 500 employees who helped to service
ANZ’s global IT needs and develop financial services software. Moreover, ANZ
announced plans to extend the capacities of ANZIT and to seek strategic
partnerships with other financial-services software companies in Europe and the
United States. The success of this venture was due to ANZ’s willingness to identify
and learn from the unique problems and opportunities of operating in India.
One of the most crucial lessons for ANZIT, in an industry where there is
considerable competition for skilled developers of software, was the need to
focus on building relationships and adapting established management approaches
to suit the local Indian context.
Sources: (Economic Analytical Unit, 2001; Tait, 2001)
410 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

Living in India: Easing the Transition

Developing Local Social and Business Networks

Perhaps no task is more essential for expatriates in India than developing

local social and business networks. As one recent survey of business in
India has noted:

As in much of Asia, India business culture is strongly relationship based.

Relationships are normally built over a long period of time and may extend
to families. Developing an extensive network of relationships is a very worth-
while investment and may assist in dealings with bureaucracy, gathering
market intelligence or identifying potential partners (Economic Analytical
Unit, 2001, p. 52).

Aside from workplace related business contacts, the expatriate cultivates

business networks by attending functions or conferences hosted by local
industry-specific associations or the larger national industry associations,
such as the Federation of Indian Chambers of Commerce and Industry
(FICCI) or the Confederation of Indian Industry (CII). Additionally, many
of India’s leading business schools regularly host management develop-
ment programmes and conferences, which could also serve as a potential
means for developing national or cross-industry business networks. How-
ever, as with many aspects of life in India, investing time in building
relationships is crucial, and it may be advisable to ask an Indian colleague
to act as a facilitator and guide in developing these linkages.
Local social networks and business networks are likely to develop in
tandem and the expatriate manager should to take care to nurture these
developing links by accepting all possible social invitations, including
important ‘festival’ occasions, such as weddings. Most expatriates,
particularly those who relocate to India with their families, will develop
informal and formal links with the local expatriate ‘community’. In the
latter respect, consulates and embassies should be able to provide infor-
mation on expatriate associations, which operate in major cities such as
Chennai, Mumbai and New Delhi. For example, for US nationals there
are associations such as the American Women’s Association (AWA) and
the American Community Support Association (ACSA).
 Managing in a Changing Environment 411

Cultural Adjustment

For many expatriate managers, the most difficult aspect of relocating

to India is dealing with ‘culture shock’ as they engage with a social and
environmental context that is profoundly different from their own home
country. Culture shock is sometimes compounded when the expatriate
manager is also relocating with his/her spouse and family, as different
individuals will adapt to life in India at a different pace. One website
with helpful guidance and tips on dealing with culture shock is http://
www.indax.com/stayhlthy.html. Additionally, the website Indian
Unlimited (http://asnic.utexas.edu/asnic/outreach/pages/dbimodule/
iu1.html) provides an excellent range of resources on the social and prac-
tical dimensions of doing business in India.
Many HR managers are now implementing a more proactive approach
to cultural adjustment. For instance, some companies and relocation con-
sultants invite prospective expatriate professionals to come to India for a
short visit before committing to relocation. This allows both the pro-
spective expatriate employee and the local company to make some prelim-
inary assessments as to how well they are likely to adjust to the challenge
of a new cultural and organizational environment. Once relocated, some
companies also choose to pair the newly arrived expatriate with a ‘buddy’
(either a fellow expatriate or an Indian colleague with international
experience) to manage the transition in the workplace and assist in estab-
lishing a home and a welcoming social network (Prayag, 2002).

Cultural Engagement

As well as viewing relocation as a challenge, the expatriate should consider

India as an opportunity. Aside from developing valuable experience in
local business culture, working in India offers a tremendous opportunity
to engage with a rich cultural heritage and a diverse natural environment.
Cultural engagement might encompass visits to museums, art galleries,
craft displays and important monuments in India’s larger cities or short
trips to India’s many famous temples, forts and palaces. Popular religious
festivals are a recurrent feature of life in both north and south India and
Indian colleagues are likely to be more than willing to explain the signifi-
cance and form of each major event.
412 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

Box 3: Relocation and Adjustment Agencies: Managing the Transition

The difficulties of adjusting to life in India and the rapid growth in the number
of newly arrived expatriate workers and managers have led to new industry
relocation and adjustment agencies. Typically, these agencies act as specialist
consultants to the human resource sections of multinationals or domestic Indian
corporations and manage virtually every aspect of the process of relocating an
expatriate manager or employee in India. These agencies have become especially
important in knowledge industry growth centres such as Bangalore, Hyderabad
and Chennai and are reported to have acted for international corporate clients
such as Chevron, Ford, Intel, Motorola, Hewlett Packard, Nokia and Procter &
Gamble.
Relocation agencies oversee introductory visits and short courses designed to
allow prospective expatriate employees an opportunity to imagine their lifestyle
in India and to begin the process of cultural adjustment by learning about the
local culture and social system. Once relocation occurs, the agencies provide a
range of assistance services to expatriates, including social introductions (local
and expatriate networks), advice or active involvement in the search for rental
property, establishing a home and local bank accounts, access to appropriate
health care and education, and ongoing cultural adjustment training programs.
Sources: Adapted from Prayag, 2002; various company websites.

While most expatriates are familiar with north Indian cuisine, there is
again tremendous diversity to explore in terms of regional culinary special-
ities. Similarly, there is great diversity in the natural environment, from
national parks and mountainous regions in the north to beaches in the
south. Both the north and the south of India have renowned, generally
peaceful ‘hill stations’, which expatriates can take advantage of as a respite
from congested cities.
India is also characterized by linguistic diversity. The widespread use
of English by the educated middle classes means that India is one of Asia’s
more accessible destinations in terms of international communication.
However, learning a few simple phrases or words in Hindi or one of the
major regional languages (Bengali, Tamil, etc.), will be a clear sign of
cultural engagement and is likely to be warmly received.

Taxation Issues

In 2003, the Government of India announced some important changes

to tax regulations on expatriate earnings. In the past, under long-standing
 Managing in a Changing Environment 413

provisions originally introduced to protect the foreign earnings of British

executives and officials, expatriates and NRIs were largely shielded from
paying tax on foreign earnings. In particular, expatriates and NRIs return-
ing to India were afforded a nine-year exemption from paying tax on
‘global earnings’. The changes introduced in 2003 cut the length of this
exemption and stipulated that expatriates or ‘returning’ Indians, would
be liable for tax on global earnings after three to four tax years (Merchant,
2003).
The revisions were viewed by taxation experts as having the greatest
potential impact on the NRI community. However, given the uneven
spread of dual bilateral taxation treaties and the relative inexperience of
the local bureaucracy in dealing with global tax issues, some feared the
possibility of ‘double taxation’ in both the home and host country (ibid.).
The government and other observers offered a more optimistic
interpretation of the implications of the changes, with one (Murlidharan,
2003) stating that:

…the apologists for the NRI have got it all wrong. It is not as if a ROR
[Resident and Ordinarily Resident] ends up paying tax twice over, once in
India where he pays tax on his global income and again in the source
country. The Indo-US Double Taxation Avoidance Agreement (DTAA),
for example, clearly precludes double taxation of the salary as well as fees
for technical services.

Nonetheless, critics of the policy suggested that the regulatory changes

would have a real impact on the general attractiveness and costs associated
with expatriate postings in India, although the accuracy of this prediction
remains as yet unclear.

Housing

Most expatriates will be based in the major cities of India, where a wide
range of quality housing is available. The larger the city, the greater the
choices, ranging from short- to long-term rental properties, to partially-
or fully-furnished homes. Real estate agents or rental consultants will
facilitate arrangements in a relatively short time frame and may even be
able to arrange for domestic help (usually considered to be a necessity by
middle-class Indians). Many large corporate employers will have already
established furnished properties for expatriate workers. For further
414 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

information on estimated costs, a number of agents now list properties

on websites while expatriate Internet guides such as Indax (http://www.
indax.com/) provide a general overview of the rental process.
Establishing a home in India involves more than merely considering
the features of a property itself. Location is essential in terms of proximity
to the place of employment (reducing the need to travel through often
congested traffic), safety and local amenities such as parks, quality
restaurants and well-stocked supermarkets. Feeling comfortable with the
local neighbourhood is vital, so it is advisable to spend time exploring
the area before committing to renting a property. The expatriate influx
in certain desirable areas in cities such as New Delhi (which attracts
international business, government and NGO workers) and Bangalore
(in the wake of the IT boom) is driving up competition and prices for
rental properties.

Health Services

Travel and medical guides will provide expatriates with adequate

introductory information on basic health issues in India, including basics
such as avoiding water that is not purified, the consumption of certain
types of food and dealing with the climatic extremes of India’s monsoon
and summer. The most immediate and important task for an expatriate
is to identify a reliable and trusted doctor or medical service. Employers
and business colleagues will provide information on reliable medical ser-
vices. In general, expatriates are often overly concerned about their ability
to access adequate health care in India. In fact, private hospitals and
medical centres, which claim to meet ‘world class’ standards and the
achievement of ISO certification for their quality management systems,
are now a feature of India’s larger cities. The quality of many of these
facilities and services, which are nonetheless low-cost in comparison to
international prices, has led to recent attempts to promote India as a
regional ‘medical tourism’ destination (Marcelo, 2003).

Education Services

India has been striving to make primary education compulsory across

its regions and states in the last decade. Growing awareness of education
as the essence, and schools as the centre of excellence, has led to the
 Managing in a Changing Environment 415

establishment of a number of public schools, independent schools, and

government-aided schools. Selecting an appropriate school or college
for children is often one of the most difficult decisions confronting an
expatriate family in India. Again, the major cities have several options,
and many expatriates opt for high quality international and diplomatic
schools in these cities. Facilities and teaching staff in such schools are
generally excellent and, as a result, there is competition for placement. If
the employment location is comparatively remote, some consideration
might also be given to elite international boarding schools. In general, it
would also be advisable to thoroughly investigate the curriculum design
in terms of compatibility with ‘home’ educational systems and the experi-
ence of teaching staff in assisting students to adjust to a new educational
environment.
Many expatriates educate their children in prestigious boarding schools.
Boarding schools admit children at the age of 11. Seven hundred students
is the average size for a boarding school. The medium of instruction is
English, although Hindi is compulsory until the tenth standard, while a
third language is compulsory until the eight standard. The academic
year consists of a spring and an autumn term, both lasting four months,
with most boarding schools remaining closed over winter or summer,
depending on the location.

Entertainment and Recreation

There are a variety of entertainment and recreation options in India’s

larger urban centres. India has an established golf tradition, and a number
of new internationally designed courses have been developed over the
last decade. Sporting clubs and leading hotels also provide recreational
activities, including facilities for tennis, swimming and squash.
The larger cities also offer diverse culinary options, from international
cuisine and fast food chains to regional Indian specialties. Multiplex
cinema complexes, often showing newly-released English language films,
alongside more traditional ‘Bollywood’ fare, are a new and rapidly pro-
liferating feature of these cities. Satellite television channels, such as
Discovery, BBC and Star TV, are available for entertainment in homes.
Cities such as Chennai, Bangalore, Kolkata, Mumbai and New Delhi
also boast several excellent English language bookshops that stock inter-
national fiction titles and a wide range of non-fiction and scholarly texts
416 Samir R. Chatterjee, Herbert J. Davis and Mark Heuer

on India’s history and culture. Expatriates should also take advantage of

international libraries and cultural centres such as the British Council
Library and the American Information Resource Centers in these cities.
Bangalore, New Delhi and Mumbai also have an active nightlife with
a number of bars and nightclubs. Local metropolitan English language
newspapers and magazines also provide regular guides and feature articles
on recreation and entertainment options.

Security Issues

As with other nations, there is a new security environment in India and

security issues are now prioritized in the strategic planning of many
international companies. In particular, many international companies
and their HRM professionals have developed detailed contingency plans
in the event of a security crisis. Typically, these plans envision the pos-
sibility of evacuating expatriate staff to a safe location in the event of a
major security crisis. In a worst case scenario this might involve a chartered
flight while in less demanding circumstances expatriates would be re-
located to consular offices or placed on the first available standard com-
mercial flight (Prayag, 2002). In considering the security scenario and in
forming an accurate assessment of risk, there is an obvious need for close
cooperation with relevant consular officials. For their part, it is essential
for all expatriates to register with their embassy or consulate and keep
this information updated.
During the 1999 ‘Kargil’ low intensity war between India and Pakistan,
some expatriate managers were reportedly evacuated to Singapore (Prayag,
2002). However, during renewed border tensions between the two
countries in 2002, most multinational firms opted not to evacuate their
staff from India (Bearak, 2002). Overall, many expatriate employers
appear to be have the necessary strategic planning and organizational
infrastructure in place to make realistic and considered ‘risk assessments’
and to act swiftly should the need arise.

References

Basu, I. (2003). ‘India Calling’ The Washington Times, 24 October.

Bearak, B. (2002). ‘Many Americans, Unfazed, Go on Doing Business in India’,
The New York Times, 8 June.
 Managing in a Changing Environment 417

Dhume, S. (2000). ‘Bringing it Home’, Far Eastern Economic Review, 163 (7): 44–46.
Economic Analytical Unit. (2001). India: New Economy, Old Economy, Canberra,
Department of Foreign Affairs and Trade, Commonwealth of Australia.
Frazee, V. (1998) ‘Working with Indians’, Workforce, 3(4): 10–11.
Gopalan, S. and Rivera, J.B. (1997). ‘Gaining a perspective on Indian value orient-
ations: Implications for expatriate managers’, International Journal of Organiza-
tional Analysis, 5(2): 156–80.
Lansbury, R.D., S.H. Kwon, W. Purcell and C. Suh. (2003). ‘Korean Employment
Relations Practices and Global Manufacturing Strategies: The Hyundai Motor
Company in Canada and India’, in Proceedings of the 17th Conference of the Asso-
ciation of Industrial Relations Academics of Australia and New Zealand,
4–7 February, Melbourne, 2003.
Marcelo, R. (2003). ‘India Hopes to Foster Growing Business in ‘Medical Tourism’,
Financial Times, 2 July.
Merchant, K. (2003). ‘Indian Tax Change will Close Expatriate Loophole’, Financial
Times, 12 August.
Murlidharan, S. (2003). ‘Why Shed Tears for the Well Heeled’, Business Line,
23 August.
Patel, D. (2002). ‘The Round Trip Brain Drain’, HR Magazine, 47(7): 128.
Prayag, A. (2002). ‘At Home in India’, Business Line, 9 December.
Sharma, A. (2003). ‘Come Home, We Need You’, Far Eastern Economic Review,
166(3): 28–30.
Tait, R. (2001). Working in India: ANZ’s Lessons of Experience, Presentation at
launch of the Economic Analytical Unit Report, India: New Economy, Old Economy,
Melbourne, Australia. Available at: http://www.dfat.gov.au/publications/
india_new_old_economy/index.html
 About the Editors and Contributors

About the Editors

Herbert J. Davis holds a joint professorship in the schools of Business

and International affairs at the George Washington University, USA. He
is concurrently Vice-President, South Asia, Middle-East and Africa Affairs
at the United States Chamber of Commerce in Washington, DC. He has
extensive teaching and research experience in the area of management
throughout South and South-East Asia. He has been a distinguished
scholar at the East-West Centre in 1995 and a series Fulbright scholar at
the University of Dhaka, Bangladesh in 1984. Professor Davis has pub-
lished extensively in the area of international management and strategy.

Samir R. Chatterjee was born and educated in India. He is currently

professor in International Management at Curtin University of Technol-
ogy, Australia. Besides Australia, he has researched, consulted and taught
in the USA, China, Japan and many other countries in Asia and Europe
over the past three decades. He was an advisor to the UNDP in setting
up the management education in Mongolia from 1994 to 1998, advisor
to ADB in the Higher Education sector reform in Indonesia in 2003–
2004 and one of the program leaders for managerial training for senior
officials of the Ministry of Finance and Ministry of Foreign Affairs and
Trade in China funded by the Australian Government. His distinguished
fellowships include the American Graduate School of International
Management, Indian Institute of Management, Calcutta, University of
Ljublijana in former Yugoslavia, E.M Lyon in France, and University of
Hokkaido in Japan. He has written six books, over twenty book chapters
and more than a hundred referred scholarly journal papers and inter-
national conference proceeding papers.
Mark Heuer is currently a senior executive of a management consulting
company in USA. He received his PhD from George Washington
 About the Editors and Contributors 419

University in the area of international management strategy. He has held

senior management positions over two decades before spending
considerable time as an academic in various US universities. He has held
visiting fellowships at the George Washington University and University
of Maryland, USA. His research interests focus on national culture and
managerial challenges and he has published a number of scholarly papers
on international management and strategic studies.

About the Contributors

S.K. Chakraborty is the founder and former Convenor of the Manage-

ment Centre for Human Values and Professor of Management at the
Indian Institute of Management, Calcutta, India. A prolific writer, he
has published 23 books and is the Editor of the Journal of Human Values.
Suresh Gopalan is an Associate Professor of Management and Director
of T. Boone Pickens College of Business, West Texas A&M University,
USA. His consulting interests are in the areas of cross cultural
management and ethics.
Cherif Guermat is a Lecturer in Economics at the University of Exeter,
UK.
Ashok Gupta is the Charters G. O’Bleness Professor of Marketing at the
Ohio University, USA.
Shveta Kakar is a Research Associate at INSEAD, France.
Sudhir Kakar is currently an Adjunct Professor at INSEAD, France. He
has been a longstanding Professor of Organizational Behavior at the
Indian Institute of Management, Ahmedabad, and Head of Humanities
and Social Sciences at Indian Institute of Technology, Delhi, India.
Devesh Kapur is an Associate Professor at the Department of Govern-
ment, Harvard University.
Manfred F.R. Kets de Vries is the Director of Leadership Centre and
Professor of Leadership Development at INSEAD, France.

Pradip N. Khandwalla is the former Director and the L&T Professor of

Organizational Behavior, Indian Institute of Management, Ahmedabad,
420 Management in India

India. His research interests include organizational design, management

of excellence, innovative turnaround management, effective management
of public enterprises and strategic organizations individual and collective
creativity, and innovation.
Manjulika Koshal is a Professor of Operations Management at Ohio
University, USA.

Rajindar K. Koshal is a Professor of Economics at the Ohio University,

USA.
Sarosh Kuruvilla is a Professor of Comparative Industrial Relations and
Asian Studies at the School of Industrial and Labour Relations at Cornell
University, USA.
Anil Mathur is the Associate Dean at the Frank G. Zarb School of Business
and a Professor at the Department of Marketing and International
Business at Hofstra University, New York. He received his Ph.D. in busi-
ness administation from Georgia State University.
Kamel Mellahi is a Lecturer in International Business Strategy at the
Loughborough University, UK.
James P. Neelankavil is a Professor at the Department of Marketing and
International Business, Frank G. Zarb School of Business, Hofstra
University, New York. He received his Ph.D. in international business
from Stern School of Business, New York University.
Cecil A. L. Pearson is a Senior Research Fellow at the School of Manage-
ment, Curtin University of Technology, Australia.
Ravi Ramamurti is a Professor of General Management at North-Eastern
University, USA.
Anil K. Sen Gupta is a former Professor of the Human Resource Group
of the Indian Institute of Management, Calcutta, India.
P.K. Sett is a Professor of Human Resource Management at the Indian
Institute of Management, Calcutta, India.
B.N. Srivastava is a Professor of Management at the Indian Institute of
Management, Calcutta, India.
 About the Editors and Contributors 421

Angie Stahl is a Research Fellow at the Texas A&M University, USA.

Monir Tayeb is a Reader in Management at the Heriot-Watt University,
UK. She has researched and published widely on national culture and
organization.
Late Manab Thakur was a Professor of Management at the Craig School
of Management, California State University, USA.

Pierre Vrignaud is a Research Scientist at the Institute of National Pro-

fessional Conservatorium, France.
Yong Zhang is currently an Associate Professor of International Business
at the Frank G. Zarb School of Business, Hofstra University, New York.
He received his Ph.D. in business administration from the University of
Houston.
 Author Index

Aburdene, P., 286 Datt, R., 142

Allport, G.W., 241 Deshpande, P.S., 139
Arudsothy, 182 DeVries, Kets, 31
Athreya, M.B., 235 Deyo, Frederik, 170, 174
Atkinson, A., 123 Dixon, R., 376
Dwivedi, O., 137
Balachandran, S., 235, 236
Baltagi, B.H., 145 Earley, P., 51
Barsade, S.G., 140 England, G.W., 120–22, 138, 240,
Bass, B.M., 122 241
Beamish, P.W., 315 Erez, Miriam, 51
Becker, B.W., 241 Ernst, D., 314
Bhandarker, A., 115
Bjorkman, Maja, 170 Forum of Free Enterprise, 227
Bleeke, J., 314 Francis, 75
Bond, M.H., 30 Frazee, V., 408
Bradford, 171 Frenkel, Stephen, 170
Burniside, 286
Gereffi, Gary, 171
Chakraborty, S.K., 235 Ghemawat, 270
Chakravarthy, B.S., 318 Gopalan, S., 31, 35, 38, 376, 406, 408
Chatman, J.A., 140 Gupta, V., 141
Chatterjee, S.R., 29, 37, 102, 138–39 Guthrie, 286
Cheg, Tun-Jen, 172
Chelsey, J.A., 319 Hagedoorn, J., 314
Chen, C.C., 29 Haggard, Stephen, 171, 174
Chhokar, J., 141 Hambrick, D.C., 318
Chiang, T.B., 195 Hamel, G., 318
Choi, J., 29 Harpaz, I., 125, 241, 244, 252
Connor, P.E., 241 Harrod, Jeffrey A., 170
Cottle, Tom, 384 Hofstede, Geert, 29, 30, 39, 53, 66–
67, 241, 243
D’Bogaert, M.V. Fr., 237 Holt, D.H., 37
Damanpour, F., 29 Huff, A.S., 319
 Author Index 423

Huff, W.G., 175 Meglino, B.M., 34–36, 140

Huntington, S.P., 251 Meyer, J., 40
Miller, J.G., 140, 369
Inkpen, A.C., 315 Mintzberg, 140
Misumi, Juji, 65
Jadhav, 58 Monappa, Prof Arun, 235, 236
Jain, R., 137 Montgomery, J., 141
Javidan, M., 141 Mueller, F., 369
Jennings, D., 367
Johnson, Richard A., 58 Naisbitt, J., 286
Neelankavil, J.P., 30–31, 46–47, 58
Kahn, Herman, 79 Negandhi, A.R.T., 136, 377
Kai-Cheng, Y., 37 Newman, K.L., 30, 34, 36
Kakar, S., 31 Nollen, S.D., 30, 34, 36
Kakar, S., 31 Nooteboom, B., 315
Kamdar, 39
Kanungo, Rabindra N., 32, 34–36, Oliver, C., 315
141 Osborn, R.N., 314
Kapur, D., 39, 41
Kearney, A.T., 3, 14, 264 Park, S.H., 29
Kerr, Charles, 199 Pascale, R.T., 377
Khan, A.F., 123 Patibandla, 270
Khoo, H.H., 32 Pearson, C.A.L., 29, 37, 102, 138–39
Klenke, Karin, 287 Pfeffer, J., 369
Kluckhohn, C.L., 35, 379, 393 Porter, M.E., 74–75, 262–63, 269,
Kouzes, 112–113 271
Kuhn, 286 Posner, B.Z., 112–13, 242
Kuruvilla, Sarosh, 167, 182 Pothukuchi, V., 29
Powell, G., 141
Laurent, Andre’, 53 Prahalad, C.K., 318
Lauridsen, Laurids, 170
Lindsey, G., 241 Rajah, Rasiah, 184
Littler, C., 182 Ralston, D.A., 37, 242
Lorange, P., 318 Ramamurti, R., 39, 41
Lubatkin, M., 141 Ramaswamy, K., 137
Ranis Mission, 186
Maguire, M.A., 377 Ravlin, E.C., 140
Marcussen, Herbert, 170 Rivera, J.B., 31, 35, 406, 408
Maslow, 51 Rodan, Garry, 175
Mason, P.A., 318 Roemer, Michael, 171, 172
Mathias, T.A., 235, 236, 237 Rokeach, M., 241
Mathur, A., 31, 46 Roland, A., 137
Mckinsey & Company, 268 Ronen, S., 131
424 Management in India

Sachs, Goldman, 268 Tan, K.C., 32

Saha, A., 138 Tayeb, M.H., 46, 65, 75
Schneider, B., 136 Terpstra, R.H., 37
Scott, R., 40 Trinque, B.M., 95
Seaman, S., 367
Sharma, Basu, 170 Vernon, P.E., 241
Shenkar, O., 131 Villegas, E., 187
Sheth, N.R., 234 Viswesvaran, C., 139
Shourie, H.D., 230 Vrignaud, P., 31
Singh, P., 115
Sinha, D, 138 Weber, M., 79, 253, 377
Sinha, J.B.P., 32, 121, 138, 141, 388 Westwood, R.I., 242
Som, A., 365–66 Whitley, R., 93
Stahl, A., 38 Wyman, Donald L., 171
Strodtbeck, F.L., 35, 379, 393
Sundharam, K.P.M., 142 Zhang, Y., 31, 46
Surie, G., 141
 Subject Index

ability to work under pressure, 58 restructuring, 321; sequential

absolutism, 115 model, 319–20, 327–31; stability,
absorption, 337 322, 331, 333; transaction specific
accomplishments, 41, 115, 307 variables, 313, 318–19, 321, 324–
accountability, 33, 41, 47, 225, 264, 27, 331
349, 352, 382 ambiguity, 11, 19, 51
acculturation, 22, 327, 333 American Community Support As-
achievement orientation, 53, 54 sociation (ACSA), 410
ad hocism, 330, 356 American Women’s Association
adaptive policies and practices, adapt- (AWA), 410
ability, 46, 240, 337, 339, 366, Anglo-American models of manage-
368, 369 ment, 21
adjudication system, 206 Animal Welfare Society, 232
administrative behavior, 221 annulment, 327
administrative heritage, 319 anti-nepotism, 387
administrative prices regime (APR), 353 ANZ, 409
adulteration, 228 AOL Time Warner, 276
Advanced Micro Devices, 276 apathy, 253, 381
Advertising Standards Council of India appropriateness, 141
(ASCI), 229, 230 Aptech, 270
affirmative action, 24 Aquino, 189, 190
age, managerial values and practices, arbitrariness, 207
linkage, 135, 136–39, 144, 152, arms scandal, 265
154, 157, 160 Arthur Anderson, 278
agriculture, agricultural economy, 2, artificial cost escalation, 226
77, 90, 96 Asea Brown Boveri India, 348
alcoholism, 380 Asian Development Bank (ADB), 131
All India Management Association, Asian Tigers, 46, 77, 78–80, 86, 88,
292 90, 96
alliance management: conceptual aspiration, 327–30
quandary, 316–17; demographic assertiveness, 296
differences, 323–24; implications assimilation, 327, 328, 329
for international management, Associated Cement Companies Ltd
6, 331–33; negotiation, 320; (ACC), 236
426 Management in India

Association of Southeast Nations Bofors deal, 231

(ASEAN), 13, 78 B-P-C triangle, 225, 232
association, 327–30 brain drain, 85, 403
AstraZeneca, 277 brand building, 354
attenuation, 327, 328, 329 brand equity, 218
attitudes, See values and beliefs British colonial rule, 239, 401
attraction-selection-attrition, 136 British Tobacco, 350
attributes, 140–42, 154, 157 Buddhism, 54
attrition, 356 budgeting, 371
authoritarianism, 105, 106, 116, 117 Bureau of Industrial Costs and Prices
authority, 11, 32, 36 (BICP), 91
autocracy, 80, 356, 357 bureaucracy, bureaucratic procedures,
autonomy, 90, 130, 242, 388, 389 32, 34, 36, 41, 90, 210, 224, 264,
average level practices (ALP), 149 354
average level value (ALV), 149 Burmah Shell, 353
awareness, lack among women man- business area perspective, 292
agers, 304, 305 business communities, 108
business culture, ethics, 222, 234,
balance of payments (BoP), crisis, 193, 237–38, 404; semantics, 224–25
263, 341 business focus, 347
balance of power, 214–17 business management, 54
balanced performance scorecard, 367 business process reengineering, 346,
Balmer Lawrie, 348 347
Bangalore: high tech industry, 123,
business regulations and procedures,
262, 267
404–5
Bangladesh: competitive advantage,
business strategies, 370
75; economic performance, 78
business values, beliefs and behaviors,
banking regulations, 193
17, 38, 124, 377–78, 401
barriers against women, 288–90, 304
business-bureaucracy-government
behavior patterns, 6, 12, 32, 122, 135,
axis, 224
377–78
Being orientation, 379
capability building, 368
beliefs and practices, belief system, 31,
52, 101, 105, 141 capital-intensive technology, 226
best policies, 369–70 capitalism, 41, 278
BFGS algorithm, 150 career advancement, 167, 409; pro-
Bharat Petroleum Corporation Ltd gram for women, 306, 307, 309,
(BPCL), 356–57, 367 310
Bharati Televentures, 404 caste system, 35, 36, 253, 356, 407–8
biotechnology, 277, 281 casualization, 190
bipartism and collective bargaining, central government oriented public
207–8 enterprise, 349; variability during
black money, black market, 224, 227 liberalization, 350–51
body shopping, 272 challenging, 111, 112, 113, 114
 Subject Index 427

charismatic and participative leader- commitment, 86–87, 102, 117, 135,

ship, 33, 60, 62, 67, 69, 102 138, 230, 369
cheap labour, 22–23 commodity market, 231
child-care facility at work, 307, 309, common Cause, 230
310 communication skills, technology, 17,
China, Chinese, 1, 81; culture, cul- 19, 58, 60, 63, 64, 68, 158–59,
tural orientations, 54; economy, 304, 314
12–13, 278–79; foreign direct communism, 81
investment (FDI), 278–80; GDP, community orientation, 11, 123
47, 278; India and the Philippines, Companies Act, 213, 404
differences, 67–68; individualism, comparative advantage, 40, 96, 281
54, 66; literacy, 83; managerial comparative management, 50, 52
practices, managers, 31, 46, 57, 58, compatibility, 314
60, 62–66, 67–68, 131; Revolu- compensation, 52, 173, 209, 213
tion, 339; society, 53; and United competence, competencies, 123, 132,
States, differences, 65–66; Value 222, 252, 347; versus loyalty and
Survey, 51 integrity, 168
Chloride India, 348 competition, 23, 52, 53, 92, 93, 97,
Circle test, 384–85 101, 176, 178, 183, 249, 252,
Cisco, 262, 273 266, 280, 313, 317, 352, 356,
Citicorp, 267 357, 368; domestic and foreign,
Clariant (India) Limited, 351–53, 346; liberalization induced, 341,
356–57, 367 342–44, 347
Clinton, Bill, 376 competitive advantage, 34, 37, 74–75,
closed economies, 37, 38 171, 370–71, 403, 406; in human
coalition politics, 41, 264 resources, 77
Code of Ethics, 229, 230 competitiveness, 75, 97, 224, 261–62,
co-dependency, 315 296, 340, 348, 366, 387, 390, 404
coercive persuasion, 136 computer software technology, 240
cognition, 318 conciliation, 209
collaboration, 300, 349 Confederation of Indian Industry
collective bargaining, 172, 176, 181, (CII), 410
189, 194, 205–6, 218–19 conflict solving, 152
collectivism, 29, 31, 35, 51, 53, 54– conformity, 32, 53, 85, 136, 138
55, 66–67, 86–87, 96, 129, 131– Confucian values, 79, 240, 251
32 Congress, 15, 89, 194
co-location, 263, 272 consciousness, 222, 225, 238, 250
colonial administration, 175 consensus, 245, 344
colonial legacy, 206 consensus building, 300
command and control style, 299, 301, Constitution of India, 83
309 Consumer Protection Act, 229
command economy, 11, 14 consumer rights, 228
commercial energy consumption, 76 consumer tastes and preferences, 337
commissions, 225, 232 consumerism, 139, 239
428 Management in India

content and process, integration, 322, cross-industry business networks, 410

332 cross-section dimension, 145
contextual factors, 141, 316, 388–89 cross-training, 319, 332
contingency theory model, 343, 366 cross-vergence, 242, 338, 378
contract labor, 190 culture, cultural, 6, 19, 21–22, 24, 28,
Contract Labour (Regulation and 39, 35, 50–52, 54, 56, 66, 106–7,
Abolition) Act, 1970 (CLA), 210 115, 117, 131, 137, 158, 251,
contractual arrangement, 315 391; adjustment, 411; assimilation,
control systems, 356 107; awareness, 377; barriers, 406;
controlled pluralism, 181 biases, 287, 289, 290; changes, 5,
Controller of Capital Issues, 341 347, 349; characteristics, manage-
convergence perspective, 19, 22, 38, ment of, 32, 85–87; compatibility,
122–23, 132, 241, 314, 377–78, 316, 331; differences, 56–57; en-
409 gagement, 411–12; and geographic
cooperation, 53, 313–15, 348, 349, diversity, 402; characteristics as
390 hard work, 96; context, 377; differ-
core competence, 318, 348, 349 ences, distances, 29, 65, 120, 160,
corporate sector, 18, 34, 132; admin- 315; homogeneity, 159, 160;
istration, 402; cultural norms, incompatibility, 314; influences,
136, 167, 405; governance, 20–21, 242; and managerial beliefs/prac-
41, 131; management, post- tices, relationship, 51; myopia,
liberalization, 349, 357–61; 160; orientation, 54–55, 66–67,
organization structure, 285; per- 69; preferences, 408; relativity, 50,
formance, 349, 365; response to
368; specific expectations, 105;
economic liberalization, 342–43,
specific management, 376; trans-
346–49; restructuring, 347, 366;
formation, 14; uniqueness, 45, 54;
structure, change, 16–19; vulner-
universalism, 115; values, 242–43
ability, 346; women, 304
culture shock, 402, 411
corruption, 41, 224, 225, 230, 231;
customer orientation, 340
in-an-affluent-society, 226; in-a-
customer satisfaction, 230
poor-society, 226
customer service, 126, 248, 252
Corruption Perception Index of
customization, 352
Transparency international, 221
Cyber City, Hyderabad, 19
cosmopolitanism, 102
Council of Fair Business Practice Cyriac, Fr. K., 232
(CFBP), 228–29
countenance, 316 Daewoo, 350
countervailing power centers, 214 debt-service ratios, 266
creativity, 33, 85, 248 decentralization, 191, 289, 343, 348–
creches, 201n15 49, 356
crony capitalism, 187 decision making, 60, 62, 64, 66–67,
cross-cultural differences, 49–69, 115 87, 140, 248, 344, 352; consensus,
cross-cultural management issues, 29, 245; divergence, 249; women
30, 50, 86 managers, 296, 299, 308
 Subject Index 429

Defence of India Rules, 206 348; achievements and challenges,

defender, 367 265–66; change, 11, 90, 107;
demand conditions, 74 competitiveness, 46; context, 214;
demand recession, 210 crimes, 224; and cultural values,
democracy, democratic system, 15, 33, conflict 251; development, 4, 11,
41, 88–89, 224, 289, 265, 280, 290 21, 40, 56, 90, 167, 171, 175, 226,
demographic characteristics, 58, 158, 402; disparities, 393; equity, 4;
160, 318, 322 ethos, 314; experimentation and
dependability, 388 learning, 251; factors, 170; growth,
dependency, 106 28, 263, 281; ideologies, 37, 218;
deregulation, 15, 188, 342, 367 response to liberalization, 342–71;
designated group, 321 managerial challenges, 22–24;
developing countries, 169 performance, 82; policy, 2, 14,
development, 39 193, 318, 326, 327, 332;—social
development indicators, 4–5 dimension, 24; priorities, 252; re-
diamond rivalry, 271 forms, 1990, 4–5, 19, 45, 81, 92–
diaspora, 279; social network, 20 93, 122–23, 15–16, 138, 240,
differentiation, 344, 352, 356–57, 251, 264, 266–67, 279;—impact
361, 365–67, 369 on management practices, 121–23,
Digital Equipment Corporation, 20 129–31;—and value orientation of
discontinuity in industry structure, managers, 241–50; stagnation,
314 210; terrorism, 225
dispute resolution mechanisms, 173, economies of scale, 346
192 education system, 83–85, 97, 231
distrust, 406 educational achievements, 62, 67
divergence perspective, 22, 378 efficiency orientation, 15, 367
diversification, 344, 347, 356, 368 egalitarianism, 390
diversion and misappropriation of ego, 54
funds, 226 Eicher Consultancy Services, 292
diversity, 45, 47, 107, 159, 243, 380 Eli Lilly, 262, 277
divisionalization, 348, 349 emotional expectations, 121
dogmatism, 51 emotions and managerial behavior,
domestic market, 3, 20, 92, 346, 404 296
domestication, 337 employee motivation, 368, 408
dominance, 33, 382 employee participation, 34, 36
double taxation, 405 employer autonomy, 195
downsizing, 289, 349, 387 employment contraction, social con-
Duncan Goenka Group, 348 sequences, 226
duty orientation, 121, 222 employment relationship, 211–12
employment security provisioning,
ecological conservation/preservation, 206, 209, 218
33, 382 empowerment, 130, 241
economic, economy, 1, 12–14, 17, 22, enabling, 111, 112, 113, 114, 115
77, 90–94, 123, 135, 222, 340, encouraging, 111, 112, 113, 114
430 Management in India

Enron, 226–27, 333 federalism, 264, 266

entertainment industry, 350 Federation of Indian Chambers of
entrepreneurial management, entre- Commerce and Industry (FICCI),
preneurship, 1, 340, 344, 361, 229, 410
366, 368 feedback, 241, 358
enterprise resources planning (ERP), firm strategy, structure and rivalry, 75
354–55 fiscal and monetary policies, 46, 193
environmental influences of national fiscal restraint, 15
culture, 33–34 fit between model and practice, 361–
envisioning, 110 65
equity in work and reward, 293–94, flexibility, 174, 176–78, 180, 184,
316, 327 212, 347, 349, 368
ethical norms and values, 6, 21, 35, Ford, 276, 350
139, 221, 225, 227, 231, 244, forecasting, 368
248–49, 252; gap, 222; relevance, foreign competition, 171, 192
244–45 Foreign Direct Investment (FDI),
European Union (EU), 13 2–3, 78, 135, 261, 263–64, 265,
excellence, 347 276, 282, 376
exchange controls, 16; authorities, 405 foreign exchange reserves, 4, 171, 193
exchange rate, 4 foreign investment, 15, 16, 173, 239
exogenous factors, 332 foreign portfolio investment, 265
expatriate managers, 405–6, 408, foreign technical collaboration, 346
411–16; education services, 414– foreign-debt-to GDP ratio, 266
15; and employees in India, a rare Foreigners Regional Registration
commodity, 402–4; entertainment Offices (FRRO), 404
and recreation, 415–16; health foreign-owned enterprises, 402–3
services, 414; security issues, 416 formal market research, 344
export-oriented industrialization Forum of Free Enterprise, 227
(EOI), 171–75, 182–83, 185, forward and backward linkage, 183
193, 195–96; and Industrial Foundation Learning Training Pro-
Relations (IR)/Human Resources gram and Visionary Leadership and
(HR) policies, 173 Planning Workshop, 354
exports, 270–71, 280 free market, 376
freedom, 388
factor conditions, 74 functional and role aspiration, 344
Factories Act, 1948, 191
fairness, 316 Gandhi, Indira, 14, 15
family, familial networks, 11, 15, 28, Gandhi, Rajiv, 15
53, 105, 116, 124, 392, 394 Ganguly, Dr. S, 231
family-based business houses, 38, 136, Gates, Bill, 267
406 gender issues, gender relations, 6, 25,
fatalism, 381 52, 152, 285, 289, 292–94,
favoritism, 387 307–9; gap in managerial and
 Subject Index 431

professional jobs, 287; bias in growth through resources advantages,

organizational coping strategies, challenges and opportunities,
302–4; organizational perception 40–41
of importance, 294–95 guest workers, 178, 183
General Electric (GE), 16, 262, 267,
276, 281 habitualization, 315
Generation X-ers, 135 harmony, 53, 379
glass ceiling, 287–89 Harvard Business School, 233
Glaxo (India), 232, 350 hawala scam, 235
global imperatives and indigenous headquarters-subsidiary relationship,
ethical values in India, 221–22 316
global companies, 404 heterogeneity, 41, 108, 117, 145,
global competition, 5, 25, 265, 286 158–59, 264
global economy, 1, 106, 156, 249, Hewlett-Packard (HP), 262, 273
401–2; Indian integration, po- hierarchy, hierarchical relationships,
tential, 12–14, 117 11, 36, 123, 240, 369, 390–92, 407
global focus, 406 high level practices (HLP), 149
Global Leadership and Organization high level value (HLV), 149
Behavior Effectiveness (GLOBE), hiring practices, perceptions of male
102 and female managers, 293
global linkages, 23, 101, 222 Hispanics, 286, 291
global market orientation, 11, 14, 46, hoarding, 227, 228
47, 168, 347 homogeneity, homogenization, 22,
globalization, 5–6, 19, 22, 28, 37, 39, 157
40, 45, 49, 68, 134, 138, 139, 168, Honeywell, 267
174, 224, 239–41, 337, 339, 342– Hong Kong, education, 84; national
43, 346, 367, 369, 393; corporate performance, 75, 76, 78; state
responses, 338; cultural limits, 337 control, 90
General Motors (GM), 350 house unions, 177
goal orientation, goal-setting practices, housing for expatriate managers, 413–
33, 36, 114, 122, 382–83 14
governance, 402 human development, 4
government command, 402 human nature, 35; orientation, 380–
government controls, 224 82
government intervention, 14 human relations, 217, 296
government-business coalition, 194 human relations management (HRM),
Great Depression, 339 347, 349, 354, 365, 369, 497, 409
greenhouse effect, 123 human resources, 81–85, 96, 170–71,
Gross Domestic Product (GDP), 1, 2– 173–96; and education system,
3, 4, 12, 47, 96, 212, 261, 263, 83–85
266, 290–91; decline, 342 human resource development (HRD),
gross national product (GNP), 12 349, 391–92
group focus, 51 human resources and stakeholders
growth and diversification, 212 tasks (HRST), 147
432 Management in India

human resources management Indo-US Double Taxation Avoidance

(HRM), 24, 52, 77, 82, 167, 292, Agreement (DTAA), 413
304, 309, 310, 354; concept and industrial development, 14
practices in India, 167; and indus- industrial disputes, 173, 176, 207,
trialization strategy, 170 219; political intervention, 215–
humane orientation, 102 17; state intervention, 205–7
hybrid firm, 108–16, 315 Industrial Disputes Act, 1947 (IDA),
hybrid managerial approach to ethics, 191, 194, 205–6, 208, 210
222 Industrial Employment (Standing
Hyundai Motor Company (HMC), Orders) Act, 1946 (IEA), 205
406, 407 industrial output, 81; decline, 342
industrial production, 342
idealism, 19 industrial relations, 25, 88, 168, 169,
identity, 35, 392 175, 191–92; law in India, 205–6
import-export controls, 341 industrial relations (IR)/human re-
import substitution, 3, 402 source (HR), 168, 169–71, 173–
import substitution industrialization 74, 199
(ISI) strategy, 171–73, 199 Industrial Relations Commission
impunity, 208 (IRC), 208, 209, 218–19
incentives, 349 industrial sickness, 208
income inequalities, 264 industrialization, 80, 90, 94, 106,
India: in a global business context, 167–68, 377–78
organizational responses, 37–40; industrialization strategy (IS), 169–70,
industrialization strategy (IS) and
199; and industrial relations (IR)/
industrial relations/human re-
human resource (HR) linkage,
sources (IR/HR) policy goals, 190–
170–71, 173, 174–96
95, 196; integration into world
industry effect, 327
economy, 261; Philippines and
Industry Policy Statement (1990), 142
United States, differences, 66–67
infant mortality rate (IMR), 76
Indian Institute of Management,
inflation, 342
Ahmedabad, 358
influencing, negotiating and conflict
Indian Institute of Management,
solving (INCS), 148, 152
Kolkata, 233, 234, 236, 237, 243–
44 informality versus formality, 409
Indian Institute of Technology (IIT), information age, 16
268–69, 281, 402, 405 information technology (IT) sector,
Indian National Trade Union Congress 16, 22, 41, 91, 108, 261, 263,
(INTUC), 194 274–76, 342, 354, 401, 403–4;
indigenous values, 222 geographic center, 17–18; growth,
individualism, individualistic relation- 18, 20, 314; output, 16–17; spill-
ship, 86, 379, 389–90; and col- over effects on Indian business
lectivism, 29–32, 34–35, 51, 53, climate, 278; technical and invest-
54–55, 66–67 ment linkage, 20
 Subject Index 433

Infosys, 17, 21, 271, 273 internationalization, 22, 46, 243, 346,
infrastructure, 321, 332 349
innovation and creativity, 126–27, 130 Internet, 38, 393
innovation and experimentation, 248, interpersonal relations, 54, 109
300, 354 interpretation, 314
inspiring, 111, 112, 113, 114 intra-industry variation, 340
instability, 332 isomorphism, 316–17
institutional forces, institutional item dimension, 145
theory, 29, 41, 46, 74
institutional industrial relations, 174, Jamnalal Bajaj Institute of Manage-
180, 196 ment, Bombay University, 234,
institutionalization, 370 236
institutions and society, 221 Japan, 74, 86; authoritarian manage-
integrative mechanisms, integration, ment, 53; competition, 23; eco-
58, 106, 168, 319, 344, 348, 354, nomic performance, 78; hierarchy,
356–57, 361, 365, 366, 367, 369, 123; JCC, 189; management
401 practices, 369, 385; state control,
intellectual capital, 40 90; unions, 177, 182; women
intellectual ethics, 222 labour force, 288
intellectual property rights (IPRs), 232 job contracts, 211
interactive management, 286 job enrichment, 167, 388
inter-correlations, 361 job hopping, 387
inter-cultural dexterity, 102 job performance, 36, 391
inter-departmental collaboration, 368 job satisfaction, 135, 381; for women
interdependence, 53, 333 managers, 306, 310
internal attributes perspective, 158 job security, 129, 246
international activities, 49 joint family system, 227
international business activity, 49, 318, joint-management process, 391
403 joint ventures, 38, 108, 316, 344,
International Business Machines 346–47, 348, 349, 354, 367, 369
(IBM), 19, 262, 267, 271, 314 judiciary, 265
international competition, 11, 20, 25,
193, 316 karma, 382
international economy, 199 karta, 105
International Labour Organization Kentucky Fried Chicken (KFC), 232,
(ILO), 287, 288, 289, 405 333
international management practices, knowledge industry, sector, 1, 17, 32,
33, 49, 50, 160, 250 222, 401, 403
international markets, 96, 97, 263, Korea: export-oriented industrial-
346, 404 ization (EOI), 172
International Monetary Fund (IMF),
2–3, 92, 131, 186, 190, 264, labor, conditions, effect of indus-
341 trial law, 217; and management
434 Management in India

relations, 173, 178, 189, 192; local culture, 406

market based systems, 205; local entrepreneurship, 171
movement, 170, 173, 185, 189, local knowledge, 403
192; policy, 214; processes, 211; local social and business networks,
rationalization, 213; restructuring 410–16
at enterprise level, 209–14, 218; locality, 337
unrest, 194; women participation, lock-outs, 194, 213, 214
291; See also trade unions Logit model, 160
language and cultural barriers, 406 long-term orientation, 30, 37
lateness, 384 look east policy, 182
law and order, 89 low level practice (LLP), 149
lay-offs, 176, 181, 191, 200n1, 213, low level value (LLV), 149
388 lower wage advantage, 22–23
leadership ability, 58, 63 loyalty, 38, 387, 388, 394
leadership practices, style, 6, 101, Lucent, 262
105–10, 112–17, 380; of foreign
managers, 406; of women man- macro-economic policy, 321, 324,
agers, 299–302; ineffective, 304, 326, 332
305 macro-micro boundary relations, 131
leadership practices inventory (IPI), Malaysia, 178; British inherited sys-
31, 110–16 tem, 181; education, 84; export-
learning dimension, 46, 102, 130, oriented industrialization (EOI),
132, 252, 322 182–83, 185, 195; foreign debt,
Lee Kuan Yew, 175
181; Heavy Industries program,
legal and regulatory environment,
182; Human Resource Develop-
legalism, 3, 208, 316
ment Act, 1992, 184; import
less developed countries (LDCs), 78–
substitution industrialization (ISI)
79, 314, 333
strategy, 170, 171, 180–81, 184;
liberalization, 3, 5, 15, 25, 38–40, 81,
and industrial relations/human
92, 93, 117, 124, 143, 190, 193–
resource (IR/HR) policy goals,
95, 205, 209, 218, 224, 230, 241,
170, 180–85, 195–96, 199;
280, 290, 314, 315, 339, 341,
literacy, 83; national performance,
357–61, 366–67, 402–3
license permit raj, 15 76, 78; New Economic Policy
licensing policies, 91, 193 (NEP), 180, 181; Penang Skills
Lickert-type 6-point scale, 111, 358 Development Centre (PSDC),
life expectancy at birth, 76 184; unions, 184–85; United
likelihood factor, 361 Malay National Organization, 185
litigation process, 209 male culture, 308
Lloyd group, 348 male-female role relationships, 393
local and expatriate managers, per- male stereotypes, 289, 304, 305, 309
ceptual differences, 406 malpractices, 227
local conditions, anticipation, 145 management agency system, 56
 Subject Index 435

management by objectives (MBO), manpower planning, 85

391–92 manufacturing, 282, 340
Management Center for Human Marcos, 186, 187, 188, 189, 190
Values (MCHV), Indian Institute market culture, 120, 139, 213, 243,
of Management (IIMs), 402, 405 346, 352
management culture, 405 market economy, 22, 129, 139, 224,
management education, 249 247, 252–53, 368
management information system market orientation, 66, 126, 248
(MIS), 341, 344, 349 market responsiveness orientation, 37,
management initiatives, diversity, 368 130, 348
management of internal and external market segmentation, 218
partnerships (MIEP), 147, 150 marketing flops, 346
management skills of women man- masculinity-femininity, 29–30, 31
agers, 295–96 material prosperity, 54, 227
management system, 401 mentoring, 309, 310; lack among
management tools and techniques, women managers, 304, 305, 306
370 mercantilism, 331
management, managerial values and mergers and acquisitions, 344, 347,
practices, 28–29, 34–37, 49–69, 349
50–56, 101, 105–9, 121–22, 135, merit-based rewards, 36
140–41, 149, 152–54, 157, 158, meta-capabilities, 368
222, 240, 251, 369–71; diversity, Microsoft, 16, 19, 262, 273
120; impact on managerial work, middle class, 20, 89
middle managers, 57–59, 66, 68, 321,
changing values, 122–30; of young
324
and old managers, 150–51, 159
middle sector, 212
managerial challenge, 45
mind-set, 141, 226, 240, 289; change/
managerial culture, transition, 19–22
shift, 1, 5; reorientation, 23, 131
managerial factors/determinants, 50,
mismanagement, 96
52
modeling, 111, 112, 113, 114, 115
managerial job attitude, 52
modernity, modernization, 91, 107,
managerial mindset, 23, 47, 252; shift,
132, 240–41, 316
122
monetary policy, money and finance,
managerial perceptions of ethical
3–4
views, 222 monitoring and control, 159
managerial performance, 46–47, 49, moral barriers, morale, 51, 54, 122,
50, 56, 59–60, 62–65 226, 233–34
managerial reorientations, 45 motivation, motivational practices, 30,
managerial satisfaction, 52 31, 32, 36, 52, 68, 167, 222, 240,
managing the expectations and per- 382, 388, 406
ceptions of local managers and Motorola, 16, 20, 267, 273
employees, 405–6 multinational corporations (MNCs),
MANOVA, 62 16, 21, 28, 30, 34, 37, 38, 39, 40,
436 Management in India

108, 213, 229, 233, 262–64, 275, organic modes of management, 366
277, 314, 323, 333, 342, 350, organizational barriers, 369
369, 370, 393, 401, 402, 405 organizational behavior, 140
Murthy, Narayana, 24 organizational configuration, 248
organizational culture in terms of man-
Nasdaq, 271 agement practices, 29, 34–37, 251
National Council of Educational organizational leadership, 105
Research and Training (NCERT), organizational learning, 126, 248
235 organizational perceptions of gender
national cultures, 40; an Indian per- issues, 292
spective, 29–34; influence on organizational performance, 344
managerial practices within organ- organizational strategies, 366; changes,
izations, 52–56, 377–78 349
national infrastructure, 318 organizational norms, structures, 347,
National Labour Commission (1969), 402; stability, 121, 138; sustain-
209 ability, 221
national performance, 75–77 Orissa Cement Limited, 236
nationalism, 19, 333 outsourcing, 333, 347; back-off ser-
natural property rights, 232 vices, 281
nature and supernatural elements, oyabun-kobun relationship, 123
382–83
negative growth, 212 Pakistan: competitive advantage, 75;
negative work culture, 15, 253 industrial output, 81
negotiating, 152 Panel data models, 145
Nehru, Jawaharlal, 14 paradigm shift, 22
net after tax income, 405 parallel economy, 225
New Industrial Policy (NIP), 135 participation, 357
newly industrialized countries (NICs), participative decision making, 349
78–79 participatory management, 338, 344,
non-financial measures, 76 361, 366, 367
normative environments, 316 partners role, 321
norms and practices, 11 party system, 88–89
Novartis, 350 patents, 232
Novo Nordisk, 277 paternalism, 108, 137, 356
nurturant task (NT), 105–6 perceptions and practices, 66
performance, 12, 30, 34, 58, 69, 177,
objectivity, 295, 387 241; and behavior, 316; excellence,
open door policy, 66, 390 368; feedback, 36; management,
openness, 78, 349 167; orientation, 47, 102; review,
operational business environment, 403 352; variability during liberal-
opportunistic behavior, opportunism, ization, 350–51
315, 330, 347 personal chemistry, 321, 324, 326,
Oracle, 273 327, 332
ordered relations structure, 126, 129 personal goal fulfillment, 299
 Subject Index 437

personal integrity, 126, 248 power distance, power relations, 15,

personality traits, 35 28–29, 31–32, 36, 51, 115, 131,
personalized mode, 106 156
person-situation interactionist model, practicing thoroughness (PT), 148,
158 152
pervasiveness, 109 pragmatism, 120
Philippines: export-oriented indus- Premji, Azim, 24, 272
trialization (EOI), 187–88, 190; price leadership, 370
import substitution industrial- private sector, 34, 91, 92, 228, 230,
ization (ISI) strategy, 171, 185–86; 346
and India, China differences, 67– privatization, 97, 193, 231; of edu-
68; management practices, 31, 46, cation, 85
54–57, 60, 62, 64–68; India and Probit model, 143–50
United States, differences, 66–67; problem solving, 58
individualism, 54, 56; Industrial process management, issues, 319,
Peace Act, 1953, 186; industrial- 404
ization strategy (IS) and industrial product innovation, 213
relations/human resources (IR/ product market conditions, 213, 217–
HR) policy goals, 170, 185–90, 18, 347
195, 199; Marcos regime, 186, production location, 401
187, 188, 189, 190; National production organization, 173
Labor Relations Commission, 187; productivity, 195, 346; and efficiency,
structural adjustment policies, 340; enhancement, 174
188–89; Trade Union Congress of professionalism, professional manage-
Philippines (TUCP), 187, 188; ment, 344, 349, 354–55, 361
union formation, 189 profit maximization, 121, 138
planned economy, 341 profitability, 177, 227, 228, 230, 351,
planning, 58, 60, 64, 67, 114, 344, 388
368, 371, 386 promotion and advancement, 176,
policy change, 16, 370 181; women managers, 292, 293,
policy formation, 15, 16 303–4, 307
policy framework, 361 prospector response, 367
political, politicians, politics, 15, 41, protectionism, 192
88–90, 91, 93, 207, 209; and psychological distance, 392
bureaucracy, 224; considerations, psychological drift and volatility, 226
206; and corruption, 230; dy- psycho-social attributes, 318
namics, 170; and educational sys- public perception, 225
tems, 30; environment, complexity public regulation and control, 224
and bright spots, 264–65; public relations (PR), 147, 150
instability, 264; institutions, 90; public sector, 14, 34, 47, 341; dis-
stability, 174 investments, 15; and private sector,
popular consciousness, 16 16, 19, 38
poverty, 39, 77, 94, 95–96, 264, 381, punctuality, 384
386 purchasing power parity, 261, 340
438 Management in India

quality, 404; concepts, 1; control, 21, scepticism, 49

344, 356, 409; of life, 229; of security, 122, 123, 130, 416
process and product, 346 Sekhar, C., 233
quartimax rotation method, 145, 148 self actualization, 51, 30
quasi-lateral relations, 322 self-confidence, 60, 62, 67, 295
Quintiles Transnational, 277 self-consistency, 51
self-development, 319, 409
Ranbaxy, 276, 404 self-discipline, 54
Rastogi, Prakash, 351 Self-employed Women’s Association
recession, 213 (SEWA), 286
reciprocity, 52, 123, 315 self-enhancement, 51
redeployment, 212 self-initiative, 33
redundancies, 176 self-interest, 387
reform orientations and work goals, self-motives, 51–52
125, 127–31 self-regulation, 230
regionalism, regional culture, 39, 356, self-reliance, 91, 92, 192, 263
392 self-restraint, 54
regression analysis, 326 self selection, 244
relative performance, 365 sense of financial control (SFC), 148,
Reliance Industries, 350, 404 152
religious norms and values, 28, 32, 79 service market, 404
Reserve Bank of India (RBI), 3 Shanta Biotech, 276
resource allocation, 23, 317–18 shared vision, 316
resource dependency theory, 29, shareholder value creation, 340
40–41, 315 short-term approaches, 36
resource utilization, 286 Silicon Valley, USA, 20–21
respect for seniority, 126, 129, 248 similarity-selection-attraction, 136
responsibility, responsiveness, 25, 33, Singapore, 181; economic develop-
36, 349, 379, 382, 388 ment strategy, 178; education,
restructuring, 25, 173, 289, 349, 387 84, 177; Employees Federation
retrenchments, 176, 181, 191, 193, (SNEF), 175; export-oriented in-
200n 4 dustrialization (EOI), 175–77,
retrospection, 319 180; import substitution indus-
reward systems, 167 trialization (ISI) strategy, 171;
rightsizing, 349 Information Technology industry,
roles, duties and responsibilities, 37, 80; and industrial relations/human
379 resource (IR/HR) policy goals,
RPG Group (Goenka), 406 170, 175–80, 195, 196, 199;
Russia: liberalization, 342; Revolution, national performance, 75, 76, 78;
339 National Trade Union Congress
(NTUC), 175; National Wages
salary, 129, 246, 247 Council (NWC), 175–78, 196;
Satyam Computer, 276 People’s Action Party (PAP), 175;
scanning, 349, 361 unions, 180
 Subject Index 439

situational factor, variables, 140, 154 spin offs, 349

Skills Development Fund (SDF), 177, spiritual dimensions, spiritualism, 222,
184 237–38, 389
skills formation, development, 173, stability, 122
177, 180, 195, 349, 406 staff motivation, See employee motiva-
small and medium enterprises (SMEs), tion
142 standard of living, 226, 377
smoking at workplace, 381 standardization, 49
social and economic justice, 206 stasis, 356
social capital, 129, 130 state(s), and trade unions, 218; regu-
social change, 11, 15–16, 107, 339 lation, 171; role, 88–96
social factors, issues, 90, 94, 105, 139, statistical analysis system (SAS), 125
141, 157–58, 174, 239, 253 status quo mindset, 23, 106, 123, 126,
social norms, 19, 24, 136, 138, 158 131, 369, 384
social orientations, 122, 131 statutory recognition of trade unions,
social recognition and strategic control 219
(SRSC), 148, 152 Steel Authority of India Limited
social relations, 41, 53, 54, 102, 121, (SAIL), 230
122–23, 129, 137–38, 140, 167, stereotypes, 159, 160
231, 239, 246, 389–93 stock exchange scam, 1992, 225
social responsibility, 123, 126, 222, strategic and operational tasks (SOT),
228, 237, 248, 340 147, 150
socialization process, 32, 105, 108, strategic business units (SBUs), 348,
116, 156 352, 354
social-psychological stability, 226 strategic choice models, 366
societal cultures, 86 strategic management practices, 40,
societal values, See values 314, 321, 384–85
societal, organizational individual level strategy development, 47
ethics, 221 strategy orientation, 1
socio-political, economic and cultural strikes, 189–90, 194, 214–15
factors, 96, 167, 208 structural adjustment program (SAP),
soft skills, 286 193, 342, 354, 367
software industry, 18, 28, 39, 40, 41, structural similarities between the
267–68; competitiveness, 268–71; partnering firms, 315
geographic spillover, 273–75; subcontracting, 190, 200n1, 211
spillover into knowledge-based subordinate, 106; empowerment, 300;
services, 273, 275–76; See also management-relationships, 87
information technology (IT) Sun Microsystems, 273
Sony Entertainment, 23, 278 superior-subordinate relationships, 31,
South Korea: education, 84; industrial 32, 138
output, 81; national performance, supplier-customer interaction, 272
75, 76, 68, 69, 80; state control, suspicion, 406
90; public sector enterprise, 93–94 synergy, 348
Soviet Union, 81; disintegration, 2 system-directed explorations, 225
440 Management in India

TA Pai Institute of Management weaken, 214–15; and liberal-

(TAPIM), Manipal, 233, 236 ization, 193–95; and politics,
Tait, Richard, 409 politicians, relation, 191–95; regis-
Taiwan: economy, 94; export-oriented tration process, 175; restructuring,
industrialization (EOI), 172; in- 172; and industrial relations, 87–
dustrial output, 81; land reforms, 88
80; national performance, 75, 78, Trade Unions Act, 1926 (TUA), 205–
79; state control, 90 6, 216
tariffs, tariff barriers, 92, 265 Tradition, 21, 40, 122, 132, 242–43,
Tata Consultancy Services (TCS), 267, 249, 253; and change, balance,
271, 348 240–41; See also modernity
Tata Iron and Steel Company Limited training, 52, 167
(TISCO), 232 traits, 140
Tatas, 314, 350 transaction-specific variables, 324,
tax, taxation, evasion, 226; incentives, 326–27
185; issues for expatriate managers, transcendent ideology, 54
412–13 transfer pricing mechanism, 348
team work, team building, 111, 114, transfers, 181
126, 248, 408 transformation, 2, 11, 14, 16, 107,
technical skills, 145 120, 123
technocratization, 361 transition, 11, 19–22, 24–25, 120;
technological, technology, 97, 170, historical context, 14–15; manage-
173; advancement, 226, 382; ment, 412
applications, 39; changes, 212, transparency, 225
270; diversity, 218; education, 139, tripartite arrangement, 180, 189
239; market ideology, 251; ori- trust, 108, 114, 315
entation, 243; sophistication, 341;
transfer, 279 uncertainty avoidance, uncertainty
telecommunications, 271, 404 reduction mechanisms, 19, 30–31,
Thailand: economic performance, 78, 343–44, 349, 355, 356–58, 361,
93; industrial output, 81 365, 366, 369
The IndUS Entrepreneur (TIE), 275 underdeveloped human resources, 39
time, 36; concept of, 123; manage- unemployment, 85, 94, 211
ment, 384; orientation, 383–86 Unit Trust of India, 236
top management, 319; preoccupation, United Nations (UN), 285, 287, 288
369 United Nations Human Development
total quality management (TQM), 39 Index, 14
trade barriers and restrictions, 15, 78 United States of India: economy, 340;
trade policy, 193 human resource management, 167;
trade unions, 25, 93, 95, 139, 170, individualistic culture, 52, 53, 54,
174, 177, 181–82, 191, 207–9, 57; management practices, man-
239; recognition as a collective agers, 62, 64, 65, 112, 113–14,
bargaining, 205–6; efforts to 116, 315, 369;—application to
 Subject Index 441

Indian business environment, 376– top management, 306, 307, 310;

94; national culture and ensuing managers, 6, 285–310; and organ-
management practices, 379–93; izational politics, 304; prejudices
organizational culture, 31–33; against, 289–90; workforce partici-
women–owned business, 285–86, pation, 5; See also gender issues
288 work, 35, 379; approach to, 386–89;
University Grants Commission behavior, 31, 69; commitment, 32;
(UGC), 235 cultural orientation, 25, 129–31;
urbanization, 139, 239 goals, 244, 246, 249, 252; ideol-
utility index, 150 ogy, 251; life, meaningfulness,
130–31; norms, 213, 217; quality,
value orientation, 24, 35, 36, 50, 54, 126, 248; relationship, 387; trad-
102, 241–50, 379–80; see also itional conceptualization in Indian
economic reforms context, 121; values, concept of,
values and beliefs, value systems, 22, 135, 241–42
23, 28, 29–33, 35, 47, 52, 54, worker, workforce: participation, 87;
101–2, 114, 122–23, 126, 135, performance, 167; skills, 39
137, 140, 142, 159, 230, 248–53, working conditions, 25, 88, 129, 246
287, 378, 402; behavior and age, working relationships, management,
relationship, 135 137, 406–10
victim syndrome, 224 work-place, 51; community, social di-
virtual diamond, linking India supply mensions, 407; flexibility, 173,
with U.S. demand, 271–73 176, 184, 194, 195; harmony, 126,
vision, 111, 131, 349, 369 129, 168, 248
voluntary retirement scheme (VRS), work-related values, 135, 222
193–94, 213, 349 work-unit management practices, 36
World Bank, 12–13, 131, 135, 186,
watershed change, 289–90 188, 190, 193, 340, 341
Welch, Jack, 262 world class, 338, 349
west, westerners, westernization, 31, world economy, 28; India’s role, 263–
35, 49, 109; influence, 31, 35, 56, 64
66; management philosophies/ World Trade Organization (WTO), 3,
practices, 6, 31, 36, 49, 51, 54– 265
56, 67, 117; organizational forms, World War II, 56, 189, 206, 224
107; societal context, 123; tech- World’s Competitiveness Scoreboard,
nology, 32, 106 264
will-to-ethics and academia, 232–37
will-to-ethics and business, 225–32 Xavier Institute of Management,
Wipro Infotech, 17, 267, 271, 348 Bhubaneswar, 233
wisdom, 222 Xavier Labour Relations Institute
women, women’s: commitment to (XLRI), Jamshedpur, 232, 233–34,
family, 304, 305; discrimination 236; family, traditional notions,
against women, 287; exposure to 393