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Business Commentary/ Jay Dubashi

Culture clash

Two months into the new fiscal year, there are signs that recovery may be on the way. The signs are not all that clear, for some industries like steel are still in the doldrums. But the motor car market is picking up, with sales that are not only higher than the month before but also higher than in the same month of last year.

But there are also other factors at work. The chief one among them is that industries are not expanding. There may be some marginal expansion here and there, but by and large no great capacities are being added. This does not mean that things are at a standstill. Companies are busy with internal restructuring, both financial and managerial, and some of them are doing pretty well.

In the public sector, this has taken the form of huge layouts which add up to thousands of people. This is being done through attractive premature retirement schemes. Nearly 200,000 people have taken advantage so far and left their jobs. At this rate, maybe a million employees will have been laid off in another three or four years.

The private sector too, has such schemes but for one reason or another, they are not as attractive as in state owned companies. But even then, large-scale retrenchment is taking place in almost all companies, including big business groups.

According to one estimate, in Bombay alone, as many as a million people have been laid off, voluntarily or otherwise, in the last few years. Days when management institute graduates could walk into a posh office and ask for six-figures salaries are over. There have been cases where companies, particularly financial companies, have downed shutters on the very day they have asked freshers to join.

Indian companies have by and large emerged unscathed from the recession. Unscathed is not perhaps the right word since they are no more the companies they used to be. Several have been forced to sell off some of their businesses and go on a slimming diet. But the dieting has done wonders for their figure, though there are still some difficult times ahead.

A company like Voltas was almost given up a few years ago when it made a huge loss and its CEO resigned. After several years, it has just declared a profit and also announced a dividend. Voltas used to be like a general store, selling or making everything from airconditioners to butter. It was essentially a trading company with a big turnover but slim profits. As competition increased, the company did not know how to cope, until it decided to go in for complete financial engineering. Today it is a much small company but a profitable one, though how long it will be able to survive is anybody's guess.

There are not only internal pressures but external ones too. In India, the pressures arise mainly from foreign companies. Foreign companies usually enter the Indian market arm in arm with an Indian company, with a 50:50 partnership. As business expands and the company establishes itself, the foreign partner gets restive and often ends up getting rid of the Indian partner. Sometimes the Indian partner tries to get rid of the foreign partner.

Kirloskars, Mahindras, Doshis have all had their little problems with their foreign partners. Mahindras and Doshis (of Premier Automobiles) are nearly out, and Kirloskars who set a up a joint venture with Toyota barely two years ago, are slowly being marginalised. The DCM group of Delhi went out of Daewoo Motors long ago.

This week, there were two such stories. In one, IBM, which has a 50:50 partnership with Tatas in their computer company, has got rid of Tatas and will now run the company on its own. In another story, the Singhanias of Kanpur have apparently decided to get rid of their Italian partners, LML, in their scooter manufacturing company. LML says they have no faith in their Indian partners, whatever that means, and have gone in for arbitration.

It is not clear what exactly is happening and why. Are the two cultures so different that is virtually impossible for Indians and foreigners to work together? Or are foreign companies getting too cocky for their own good? And how will this affect future foreign investments? Your guess is as good as mine.

Jay Dubashi

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