India is likely to be the world’s fastest growing large economy this year (The Economist, May 2022).
There is an ever-increasing number of Indian organisations who are partnering with organisations from other nationalities. Often, the same organisations are simultaneously collaborating and competing in different markets or product segments. In this melting pot of multi-dimensional relationships among organisations, there is one central element that plays a significant role in the success of these operations – that is Culture.
Culture provides a distinct competitive advantage to a business. It manifests itself in multiple ways depending on the business model of the company. Looking at the Indian business landscape, the scenarios where culture has been proven to be a critical factor for business success in India are:
1. Inbound M&A: An organisation from a different country entering India through the acquisition of
an Indian company
2. Outbound M&A: Indian organisation acquiring an overseas organisation
3. An Indian organisation ‘rebadging’ customer’s employee as a part of a strategic outsourcing deal
4. An overseas organisation establishing a subsidiary in India
5. An existing multinational operation competing with an Indian homegrown business
Entry into India via M&A (Inbound M&A)
India’s attractiveness as one the fastest growing large economies has resulted in a steady flow of M&A, which surged from 9% in 2015 to 20% in 2018 (ref: India M&A report 2019 Bain & Company). While these M&A may be grouped under several categories of archetypes, we will focus our attention on people and culture integration, to inbound M&As only at this point. Several large headline deals have been inbound M&A, such as Walmart’s acquisition of Flipkart, and IHH’s bid for Fortis Healthcare and so on.
The dominant India entry deal is aimed at tapping into India’s growth within the acquirer’s core business lines. For example, the Rosneft-led Russian consortium acquired Essar Oil to play a role in one of the fastest growing energy markets of the world. Another common deal is targeted at the acquisition of certain capabilities in the Indian market. For example, Fosun has acquired a stake in Gland Pharma’s operations in India to expand its manufacturing footprint and add more products to the pipeline with the aim of exporting products outside of India. Walmart’s acquisition of Flipkart, serves both above objectives, providing entry into one of the fastest growing retail markets and access to Flipkart’s leading edge e-commerce capabilities.
In each of these cases, whether the sector is e-commerce, Pharmaceutical or Energy & Utility, as in the cases of Flipkart, Glen Pharma or Essar oil respectively, organisational working practices and people integration remain critical for smooth operation of these merged entities.
If the organisation is coming in from the Anglo-Saxon countries or some of the western European countries, they should be aware of the fact that there are many differences in comparison to India in terms of attitudes to certain very basic dilemmas in society.
Let’s take the attitude towards hierarchy to start with. India is a hierarchical society. There is a clear acceptance of uneven power distribution. In egalitarian societies, lower-level employees can freely ask questions to the power holder without offending that person and expect to get answered. The same may not be true in India; There could be many other dimensions where these kinds of differences may occur depending on which country the acquiring organisation is coming from. Clearly, awareness of and sensitivity to such national culture differences is critical for building a boundaryless team.
Understanding national culture differences in an inbound M&A operation is the first step. The second is awareness of the differences in working practices too, aka organisational culture. While both the entities (the acquiring and the acquired) may be outcome-focused, the degree of their result orientation may significantly differ. For example, one could follow a judicious mix of Process (how) versus Result (what) as opposed to pushing for Result at any cost, without bothering to follow the process. Again, this is just a difference in one dimension. There could be other differences too in terms of the balance between Task vs People, the focus of control from internal to external and so on.
Outbound M&A
When we consider those Indian organisations who are acquiring a niche player outside India, we talk about outbound M&A. These are also called Scope deals, which strengthen market leadership, accelerate top line growth by adding attractive market segments or new capabilities. Some deals blend both scale and scope, but the vast majority lean one way or the other. Large Indian conglomerates across sectors, particularly in Minerals & Metals, Automobile and IT, have found themselves executing such deals either for scale or scope. The cultural implications that we discussed in the case of inbound M&A are equally applicable in these deals.
One word of caution here is, since these are typically mergers of un-equals, the acquiring company may tend to make the acquired entity align to its working practices, which may not deliver desired results if the acquired entity, though smaller in size, has a stronger organisational culture.
‘Rebadging’ Customer’s workforce
Focusing on large Indian Information Technology Services (ITS) and Information Technology Enabled Services (ITES), industry players who enter sizable Strategic Outsourcing deals with their customers, we talk about ‘rebadging’ a customer’s workforce. Since a part or all of a customer’s business process is outsourced to the Indian entity, a part or all of the customer’s employees who were executing those processes get ‘rebadged’ as the Indian company’s employees. These customer’s employees who move from say a bank or an insurance company to an Indian IT Company, may experience a change of organisational culture, including a change of brand and employment experience. This may result in their disengagement with the Indian company. It’s critical for both sides i.e. customer and the service provider to carefully consider each other’s organisational culture and make necessary adjustments for continued engagement and performance of these ‘rebadged’ employees.
Foreign Subsidiary in India
This is a classic expansion of an overseas organisation into India to make its goods and services available to the growing Indian market. Unless it is a joint venture with a local Indian player, these operations demand that the overseas organisation be fully aware of Indian cultural nuances with respect to its own national culture. Failure to do so could be very costly in the short term and provoke the loss of trust in the long-term, leading to a significant loss of business.
MNC vs. Home-grown Indian Companies
Home-grown Indian companies are closing culture gaps with MNC operations in their bid to attract, engage and retain top talents. Whether they are Indian companies such as ITC, Godrej, Dabur competing with Unilever, P&G in the Fast Moving Consumer Goods (FMCG) space; Tata Motors & Mahindra’s playing neck and neck with Volkswagen, Fiat or Renault in the Automotive sector or Piramal, Dr Reddy, Cipla giving steep competition in the pharmaceutical market, the important point to note is that there is a war for talents in India. The organisational culture shaping their Employer Brand is a key determinant of attraction, engagement, and retention of talented employees and therefore a key arsenal to win the best talent.
Short case study ( Illustrative only)
An interesting case is Walmart’s acquisition of Flipkart – a home-grown e-commerce leader in India. We will restrict ourselves to dive in a bit deeper only from the standpoint of culture – what kind of cultures came into play in such an amalgamation and where one would see potential gaps that must be worked on. But, first, a brief outline of the companies themselves and a sense of their culture presumably reflected by their values.
Flipkart: Indian e-commerce leader with a runaway success of a start-up. In 2007 two young Indian entrepreneurs founded this e-commerce outfit to sell books with a princely sum of about 7000 USD from their own money. By 2018, a decade after its inception, Flipkart’s valuation stood at 21 billion USD.
Tag line: A decade of Disruption
Values: Integrity with Audacity, Bias for Action, Customer First.
Walmart: An American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. The company was founded by Sam Walton in 1962. As of January 31, 2021, with 11,443 stores and clubs in 27 countries, operating under 56 different names, Walmart is the world’s largest company by revenue, with US$514.405 billion, and also the largest private employer in the world with 2.2 million employees.
Tagline: The business of Better.
Walmart Values:
- Guided by good
- Service to the customer, Respect for the individual, Strive for excellence, Act
with integrity.
Clearly, these two organisations brought two different cultures on the table. Walmart’s organisational culture is characterised by Set Practices, Hierarchical Process, Stability and Thoughtful planning. In contrast to this, consider what Flipkart brought on the table. Defining attributes of Flipkart organisational culture were: Innovation, Entrepreneurial Spirit, Flexibility and Agility. One cannot
overemphasise the need to align these contrasting work cultures if these two companies were to synergize at an employee and organisational level, the most critical ingredients of an M&A integration.
And what about the national culture differences? Walmart corporate team, predominantly filled with American nationals, as opposed to Flipkart’s leadership team, constituted by Indians, clearly have different cultural perspectives. As we discussed earlier, as far as National culture goes, Hofstede’s 6D model tells us that the USA has a significantly lower score in Power Distance Index (PDI) than
Indians. Also, Americans score way higher on Individualism than Indians, resulting in their attitude towards autonomy which is quite different from rather collectivistic views of Indians.
In summary, the culture an organisation would strive to nurture post M&A is clearly a collective leadership decision based on its business goals and strategic intent going forward. Be that as it may, the leadership is well advised to carefully consider the culture gaps of both organisations before embarking on a certain direction.
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I think you’ve made an important point about culture driving competitive advantage in M&As. In my experience, cultural differences often pose the biggest challenges in cross-border deals, and the success of the integration often depends on how well both companies blend their cultures.
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