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India functions on a democratic system, which heavily influences the political situation of the country.
However, this democracy stems from a caste system. A caste system is a social grouping that combines a group of particular members based on specific professions and usually leads to the isolation of each individual caste.
The Indian people adopted the caste system to create an easy differentiation of communities and neighborhoods. Recently in India there has been a relaxing of the caste system depending on the part of India in which you are looking.
In the cities you will see more of an intermingling and mix of the higher caste systems but as you explore the rural areas, you find a traditional form of the caste system.
In recent years India has become the largest democracy in the world. The economy is highly affected by the political situation in India. The country suffers from high unemployment and poverty as two of its main issues that currently influence the economic standing of the country.
With two opposing parties with vastly different views for the vision of the economy the country is found being pulled for a free market economy and an economy that strongly opposes globalization and favors a “land-for-all” attitude. (“Politics of India”) In India the legal situation highly resembles a common law model that is found in England today but is clout with Indian culture. In the courts India has a judge that acts as a neutral party that enforces the law fairly amongst each party.
The government too has three branches: the executive, the judiciary and the legislative. The courts hold a common theme of carrying out justice to the people. (Srikrishna) One article says, “According to Gallup’s annual public opinion polls, India is perceived by Americans as their 7th favorite nation in the world” (“India-United State Relations”) Based off this observation, the relationship between the United States of American and India seems to be quite close and cordial.
However, this does not mean the countries have always agreed on every matter. Back in the late 1990’s when Atal Bihari Vajpayee became the Prime Minister he began to authorize testing of nuclear weapons and the United Sates chose to form against them and eventually was mandated to cut off economic ties.
In 2001 the United States under the Clinton administration began to have economic discussion, opening the door for the Bush administration to partake in close monitoring of India’s nuclear weapons and began strengthening the economic ties. The two countries have really come together in times of need such as the attacks on September 11,2001 and the December 2004 tsunamis.
The most recent development in the relationship is under the pressing of the Obama administration. Right out of the gate of the first term of his presidency, President Obama addressed the issue of the Indian-American relationship and said that he was going to take the steps necessary “further strengthen the excellent bilateral relationship” (“India-United State Relations”) This goal was communicated vastly amongst the administration, assuring the citizens of both countries that it was a beneficial relationship.
The main person taking care of this relationship is Hilary Clinton. As time passed the country of India became concerned that the relationship was not being as cared for like they were assured would be done. Rather they believed the United States was more focused on their relationship with China and eventually the country of Pakistan.
The issues of the bilateral relationship continued to struggle for some time, even after a visit to the White House from Prime Minister Singhin November 2010, which was to hopefully fix or strengthen the relationship. In May 2010 President Obama communicated that shared values, interests and the two larges democracies established the partnership between the United States and India.
(“India-United State Relations”) The economic relation between the United States and India has been continuing to be strengthened since the Clinton administration where the bilateral economic dialogue was established. This is a system where the accountability for consultations amongst multiple high powers.
(See exhibit A) (“Embassy of India”) Since this original discussion; there have been multiple dialogue mechanisms to strengthen the bilateral relationship on the economy and trade issues. This includes different forums and financial partnerships. In the first seven or so months of the year 2013 the United States of America increased the percent they did trade with India 7.4%. (“Embassy of India”)
The relationship of the United States and India is perfectly summed up by the words of the National Security adviser Shivshankar Menon, “From a time when we dealt with each other formally, sometimes warily, we today have a full spectrum relationship, between our governments, our peoples and our institutions.”
(Menon) In the year 2011 the Gross National Product increased over 8 billion INR, an increase of 11,846.1 INR since 2010. It has a forecast of following a trend and reaching almost 9 billion INR for the next year. This is also a steady view of how the inflation levels have effected the GNP of India and will continue do so in the future.
(See exhibit B) (No current data was found) (“India Gross National Product”) The most current GNP per capita was calculated using the PPP to the US dollar using the atlas method divided by a midyear population. In 2011 in India, the GNP resulted to be $1,420.00 at a ranking of 142/191. In consideration of the past is a very steady increase, however, in comparison the U.S it is hardly an increase at all.
(“India-GNI per capita) As of 2006 India spends 3.11% of their gross national product on their education system. Looking to increase this percentage over the years and have lowered the illiteracy rate by 2015. (“Infochange India”)
Today when discussing the opportunity for a company, of any kind, but especially a U.S company, to manufacture in India the support to do so is quite present. One major benefit of manufacturing in India is that the government has been putting into place a plan of action to create a substantial steady flow of economic progress and one of the crucial aspects is through manufacturing.
It began in 2010 with the implementation of a Manufacturing Policy, that industry and the government fully supports. The plan began with the rubber industry in India and where they were choosing to invest, it has continued into medical supplies, a chocolate factory and a huge factory by the direct marketing company, Amway.
The Prime Minister has stated that the commitment of expanding the manufacturing in India is of highest priority for the economic growth of the country. (“Manufacturing Sector in India”) Another great aspect of pursuing manufacturing in India versus a country like China is the possibility of lower wages in India, China continues to raise the minimum wage.
There is also the language barrier that disappears when you choose to manufacture in India versus another foreign country with a different native tongue. There is also a younger work force in India than in China and with a similar government as that of the United States it is easier to do business.
(Shilling) With all the rage to rush off and pursue manufacturing in India there are those who have doubts, like the unknown author of the article in The Economist, the author says, “If India is to become ‘the next China’—a manufacturing powerhouse—it is taking its time about it.” (“Manufacturing in India”)
When it comes to a company from the United States and whether or not to compete in India, there is good support that says to go for it. Now a days we have so many jobs outsourced to India it seems foolish to not take it a step further.
Particularly in the software industry, there is a large convention that is held there annually and the United States is greatly underrepresented and most likely missing out on big opportunities, because the reality is that the show will go on with out the U.S present. India has been focusing on the service industry over the last years but are now moving towards an industrial form of business.
Also present is a strong entrepreneurial spirit, which can be wonderful for a new company coming in because the people will be willing to get in on the ground floor of an international operation, as well as bring new ideas and twists to the table.
(“Americans Should Jump on the India Wave”) Another aspect in general to approach entering any country competitively is the exchange rate and currency. Look into how the country performs monetarily and see how the exchange rate and inflation will affect your business on the day-to-day operations but also over time. (Aimes)
When going back and looking at the idea of manufacturing and competing in India based off the Economic Freedom Index, the index can mean multiple things for both. In general India is a 55.2 out of 100 in Economic Freedom.
This is 119th out of 177, (not including Lybia) while the United States is scores a 76.0 sitting at the top as number 10 of 177. When assessing the index with the idea of a company from the Unite States manufacturing in India I look the factors that influence the index such as the labor freedom, this looks into the aspect of the legality of the labor market of the country, or in our case, India.
This means that as a company we have to be cautious not to abuse or practice the immoral practice of extremely low wages or poor work conditions. As far as competing the issue that stands out to me pertaining to the EFI is the corrupt factor, with a low score like India, as a company one would need to watch closely at the practices taking place overseas.
(“Index of Economic Freedom”) The Human Development Index in India is found in the medium HDI. Since 2011 India’s HDI decreased by 2 but is forecasted to increase .07 over the next year.
The HDI refers to how the country’s population is take care of, such as life expectancy, education, etc. This covers the wellbeing of the citizens of the country; I think this affects the manufacture and competitive aspect equally. If the people are not taken care of who is going to manage and operate the company, as an organization it would just be something that must be kept in mind.
(“Human Development Index”) Pertaining to the Global Competitiveness Report it is hard to know how they would affect us because as a country India is not present in the top 30 for the last four years. So the assumption is made the India is not as competitive as portrayed by some people, but that does not mean there is no room for growth.
(“Global Competitiveness Report”) India holds a score of 36 on the corruption perceptions index; this means that again when looking into entering the country either with manufacturing or competitive ambition one must asses the risk that is going be taken, such as how will the government treat your corporation as well as how will the patrons of the country view your corporation.
(“Corruptions Perception Index”) Last but definitely not least another report that is very useful in assessing the want to on pursuing a manufacture or competitive is the World Press Freedom Index. India is in the difficult situation range in this index meaning, that freedom of speech is kind of difficult to actually have because the government watches closely to what is being spoken and said about their country and the people in it.
(“Reporters without Borders”) Based off the indexes and other information presented above do not believe as a company of the United States need to enter the market in India. I believe this is so because of the uncertainty of the market, as stated above India has great potential to grow and be the next China but it has been heading in that direction since the 1950’s and not much change is evident.
There are aspects about the country that would be desirable to enter into and if doing so I recommend the company use the strategy of global standardization.
This strategy uses the low cost of the country to its advantage and in the United States outsourcing is chosen for that very reason, so instead of just outsourcing I believe it would be wise to use this method to pursue a start up of an international branch in a country like India where there is low labor cost and where it is not necessary for the people to respond due to the fact that there is a low economic freedom and instead it relies more on the main office back in the United States rather than the host country, or in our case, India. (Aimes)
Aimes, Frederico. Foreign Exchange. Online Lecture, Stillwater. 07 Oct. 2013. Lecture .
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Shilling, A. Gary. “Why India Will Displace China as Global Growth Engine.” Bloomberg.com. Bloomberg, 16 Dec. 2012. Web. 11 Oct. 2013.
Srikrishna, B. N. (2008) “The Indian Legal System,” International Journal of Legal Information: Vol. 36: Iss.2, Article 8. Available at: http://scholarship.law.cornell.edu/ijli/vol36/iss2/8
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