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Negotiating with the Indian Government
by
Dr. Rajesh Kumar
Associate Professor of International Business Strategy
University of Nottingham
The relationship between the Indian government and foreign multinationals is now much improved but this has not always been the case. The onset of economic reforms in 1991, the success enjoyed by the Indian software firms, and an increasing awareness of China’s rise to power have all conditioned the now much more favorable attitudes of the Indian government towards foreign investors. This is a far cry from the era of the 70’s when companies such as IBM and Coca Cola exited India due to the draconian Foreign Exchange Regulations Act (FERA) act that had been introduced by the government in the 70’s. Nevertheless, even though the relationship, is now much better than before, foreign investors must still be cognizant of the fact that the negotiating process with the Indian government may require foreign investors to carefully calibrate their negotiation strategies.
Negotiation is not necessarily a straightforward affair and negotiating with governments poses hazards for foreign investors just about everywhere in the world. That said negotiating in India, poses its own unique challenges and it is these challenges that I will now address.
India has traditionally been wary of foreign investors. There has been the lurking suspicion that foreign firms act in ways that may be inimical to Indian interests. The origins of this perception date back to the Indian experience of colonialism which has made India very sensitive to the activities of foreign investors. The onset of economic reforms in 1991 and the continuing liberalization thereafter has lessened regulatory intrusion but not eliminated it entirely. The traditional suspicion of foreign investors means that their proposals can often be subject to detailed scrutiny and time taking review process. When the negotiating process is open ended and subject to constant delays, it can be frustrating for the foreign investor. They may be uncertain as to whether the negotiation process will yield the desired results and/or if the regulatory authorities may backtrack on their earlier proposals. This problem is often exacerbated by the fact that in many projects the foreign investor will have to negotiate with the central government as well as the state authorities. Negotiating with one regulatory body may be difficult in itself but seeking a consensus with multiple regulatory authorities amplifies the problem. Indians are often seeking for the ideal solution, do not work well as part of a team, and when coupled with a suspicion towards foreign investors it makes it problematical for them to achieve consensus among the regulatory authorities. Bureaucratic inertia and the lack of incentives for the bureaucrats to change their behavior only compound the problem.
How should the foreign investor tackle the Indian regulatory authorities?
- The foreign investors must be extremely patient. There is no point in getting worked up about things over which you do not have control. Lack of patience may lead the foreign investor to make concessions in haste, impose ultimatums, and/or hastily exit the negotiation process. They must recognize that in addition to all of the above Indians are often enough also insensitive to time.
- Foreign investors must follow the motto “small is beautiful”. Projects of a smaller size may more easily attain regulatory clearance as they will not attract the kind of critical scrutiny that may derail projects.
- Foreign investors must also somehow communicate to the Indian government and to Indians at large that they are committed to the country. In other words, they are not entering the Indian market to make short term profits and are concerned about the well being of the country.
- It is also important that the foreign investor demonstrate flexibility and not oversell the project. Overselling the project may only be counterproductive as it will invite additional criticism and extensive media scrutiny in a democratic India.
- The foreign investors must also be cognizant of the fact that their behavior and actions must not only be above board, but must also be seen as being above aboard. In particular, not only must the foreign investors not engage in corrupt activities, they must also not be perceived to be seen to be engaging in these activities. The foreign investors must also demonstrate persistence and if they are persistent enough success will surely come their way.
It is often said that negotiation is an art and not a science. Nowhere is this adage truer than in the case of India. In this short piece I have attempted to briefly highlight some of the challenges of negotiating with the Indian government. For a fuller exposition of negotiating and doing business in India you may want to take a look at R.Kumar & A. Sethi (2005). Doing business in India: Palgrave-Macmillan: New York.
© Rajesh Kumar
Associate Professor of International Business Strategy
University of Nottingham
Email: Rajesh.Kumar@nottingham.ac.uk
Intercultural Communication bv - Amsterdam – The Netherlands - www.intercultural.nl
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