The Indian corporate sector has to take a proactive role in bringing globalization of business. Every business entity has to pass through different stages. Firstly, Indian business has to develop exportable surplus for foreign customers.
The exporting company should set up its manufacturing unit abroad. It may also set up sales offices and send its own personal staff to those offices and who would work along with countrymen of those countries. But sales personnel’s should be recruited from foreign country.
Most of the Indian firms have not adequate capacity to be global. Firstly, they are content with home market, Secondly, many of them are dishonest, who would not be agreeable to foreclosure of information.
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The outlook of Indian business community is conservative, Businessman lack innovative ideas, many of the business lack proper ethics. The outlook of business community would hardly generate ‘loyalty from customer. The business units also do not have adequate expertise that can be leveraged.
The changing realities of global trade practices require India firms to adopt globalisation. There should be quality improvement and cost improvement. Mckinsey’s 7-S framework is most relevant here viz. strategy, structure, systems style, staff, skill and shared values. Indian firms should develop and give more stress on core competencies.
In order to establish “pre-dominance” in the industries Aditya Birla Group first established its manufacturing base abroad. Indian producers have not been able to establish their manufacturing base in other countries excepting a few. That is why Indian producers are lagging behind in the globalised market.
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One of the strategies of Indian firms is to expand globally to acquire more foreign companies. M&A has unique potential of getting directly into the distribution channels of other companies. Tata Tea acquired Tetley gave Tata Tea an opportunity to use Tetley’s European marketing network.
Indian Business may also engage itself in starting joint ventures abroad. This has been started by some pharmaceutical companies such as Dr. Reddy’s Lab, Lupin, and Ranbaxy etc. According to many Pundits Indian business man should adopt the techniques of niche marketing. ”
Niche is small segment of a market that the major competitions or producers may overlook/ignore, or have difficulty serving. The niche may be a narrowly defined geographic area, or it may relate to the unique needs of small and specific group of customers, or it may target some, highly specialised aspects of a very broad group of customers. In some cases niche market may be actually very large in numbers of customers even though it is a small percentage of company’s total consumer base particularly if the company operates globally.”
Globalisation is a culture and results of mindset. The governmental machinery, rules and regulatory structure should be conducive to growth. Rules should take the case of Indian economic condition as well. Recently there has been a decision to allow export of Indian capital through investment in foreign companies.
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This will affect adversely the growth of Indian economy as well as our capital market. Our economy is starved for its growth. Outflow of capital either by individual or by mutual funds would deprive our economy of precious capital resources.
Investment in foreign capital should be allowed after capital market is matured enough. (Prithvi Haldea, the Economic Times, 10.7.03). Thus for successful globalisation we need to strengthen the economic parameters of our country, a situation conducive to globalisation.
Interface between Business and its environment: Bearing of Corporate Governance on Business Environment.
Our analysis has shown Business is totally dependent on its Environment. Business is nothing but organising production and supplying finished products. In the process there remains a series of activities.
A production plan has many stages such as raw material procurement, financial planning, marketing strategies, and determination of value chains. There is a chain of distribution agencies or supply channels through which finished product reaches the hands of customers. Every product has a standard life cycle*. Business should be well aware of that and features of that cycle.
Business is generally guided by profits if the shoe manufacturing company offers one thousand pairs of its shoes to the poor and destitute that cannot be considered business. Business would only include those activities which follow legal requirements. Illegal activities do not constitute what is called business.
Today’s business is a highly complex phenomenon. Some of the business firm’s turnover like Microsoft is more than the value of output of many small nations. A business has to face competition in the country itself and also outside.
It has to face competition in respect of price and quality as well as non-price competition in respect of advertisement, packaging and design of the product. Each company has to comply with many legal parameters before launching production.
A healthy company follows the rules of ethics and norms of corporate governance. The corporate governance means “the ways in which suppliers of finance to corporations, i.e., debt holders and equity holders, exercise control and ensure accountability of company so as to assure themselves best possible return on investments.
The modern business environment is so complex that these issues have also become highly important ones. So this is another complex dimension of business. Good corporate governance helps to” flourish the corporate which provide more employment, wealth and satisfaction but also improves standard of living.
In his book, Mayer (1998) has provided five channels through which corporate governance exerts its influence. These channels are activated though various “structural and institutional factors pertaining to a corporation” viz. The ownership and financial, structure, structure of Boards and internal control system and legal, political and regulatory environment in which corporate functions.
Following Jayati and Subrata Sarkar’s article quoted above we may draw a chart how corporate governance interacts upon entire environment and how various parameters are mutually related.
The legal and regulatory framework provides the institutional aspects of business environment. The quality of corporate governance depends upon this legal and political environment.
It may be mentioned here the shareholder’s rights will depend upon strength of Company Law. How debtors will be able to protect their rights depends on Bankruptcy Laws.
It is argued that corporate governance and corporate control system is misnomer since the logic of competitive environment will automatically ensure least cost combination and maximum efficiency. This will call for absolutely fine corporate governance practice. But it must also be recognised that a formal legal structure and institutional arrangement ensures a more suitable and guaranteed measure.
It will not be out of context here to mention the difference between Corporate Governance and Corporate Management. Management aims at conducting or supervising action with judicious use of resources and evolve certain strategies to accomplish certain objectives which are suitable for the company. Management has to do these in a well-defined time horizon.
Whereas corporate governance is concerned with overseeing of strategic directions, socio-economic, cultural context, externalities faced by the institution. Corporate Governance has to identify itself with the tradition and cultural heritage of the society and country.
Corporate management is task and goal oriented, internally focused, having limited term implications whereas Corporate Governance is strategy, culture and tradition oriented, has a long term implications and is externally focused.
Thus Corporate Governance is a matter largely determined by environment of business. The matter of Corporate Governance got a formal shape and became subject matter of organised discussion after May 1991, when in A committee in Great Britain was set up under the chairmanship of Sir Ardian Cadbury.
The recommendations of the committee included about the work of Board of directors. The committee was of the view that decision making process should not be vested in a single person, and chairman and chief executive should not be the same person.
The relationship between the board and the executives should be professional and objective information regarding the audit fee should be made open and transparent and there should be regular rotation of auditors. Non-executive directors should act independently on issues of strategy, performance, allocation of resources and designing codes of conduct.
In India, first organised steps were taken in this regard by CII. CII formed a committee under the chairmanship of Shri Rahul Bajaj. One of the major recommendations of Bajaj committee was any listed company with a turnover of Rs 100 crore and above should have professionally competent, independent, non-executive directors who should constitute at least 30 percent of the board.
The key information which is to be reported to the Board are: — quarterly results of the company as a whole, performance and functions of operating divisions or its business segments, internal audit reports, including cases of theft and dishonesty of a material nature, capital budgets, man-power budgets and overhead budgets, default in payment of in or non-payment of the principal of any public deposit, and or to any secured creditor or financial institutions.
After the CII task force, Kumar Mangalam Birla Committee report under the aegis of SEBI took up this issue. Lately in 2002, the finance minister Mr. Jaswant Singh formed Naresh Chandra committee on corporate Audit and Governance.
The major recommendations of the committee are:
(1) At least half of the seats on the Board of a company with a paid up capital of Rs 10 crore and above, and a turnover of Rs 50 crore and above to go to independent directors. It has further stated that the nominees of financial institutions cannot be counted as independent directors.
(2) Setting up of quality review boards for the ICAI, ICSI, ICWAI, instead of a public oversight Board similar to the one in U.S.
(3) Annual Accounts of a company should be certified by CEO or CFO.
(4) Amendment of companies Act to enable the Department of company Affairs to order compliance audits and also provide it with powers of attachment of bank accounts to ensure that proceeds from acts and frauds do not escape recovery.
(5) Beefing up staff and infrastructure facilities in the Department of company affairs, which is unable to cope with the workload.
(6) Prohibiting audit firms from providing several non-audit services to their clients.
In spite of so many recommendations and platitudes true corporate governance principles has been violated worldwide. The cases of WorldCom and Enron, Tata Finance, the effort of Tata Tele services to use reserves of VSNL are pointers to the breach of Corporate Governance principles.
Corporate Governance is a matter of social awareness; it is not just a set of rules and regulations. In the era of globalisation the sound corporate governance principle is necessary; more transparency in the corporate behaviour is sincerely needed to avoid disputes and repositioning of shareholder’s and stockholder’s trust.