Perth Sportsworld has decided to set up a new operation in India. The project entails the design, procurement and manufacturing of sporting goods for European, Asian and Australian markets. This will be Sportsworld’s first international venture.
In 1997, the company had a turnover of about $10.2 million in Australia, and it employed about 200 people. With the new India venture, Sportsworld is looking to larger markets in Asia and Europe, and also extending its base in Australia. The company is hoping to market its products with a big promotional campaign, enlisting the support of high-profile sports personalities in the Asian region.
In India, Sportsworld would like to gain a foothold not only in selling its sporting goods but also in running training seminars for potential players, coaches and government officials.
William Brown, an Australian, has accepted the job of developing corporate strategy and operational plans for the India venture. He and his wife Jill have recently taken up residence in India. Brown has appointed Ashok Ganguli as the office manager assisting him in his initial activities.
A local university team has been recruited by Ganguli to conduct market research and develop a strategic plan. Their work so far has pinpointed several opportunities and areas of un-met demand. However, Brown is ambivalent as to how much emphasis should be placed on design, development and marketing of products, in comparison to the seminar training and sports management activities.
Brown recommended to head office in Perth that Sportsworld enter a joint-venture agreement with a long-established Indian sporting company based in New Dehli. Head office has agreed to the joint venture.
One of the first challenges for Brown after the development of the joint venture has been to set up a modern office to accommodate about 250 staff who are to be recruited soon. Ganguli has demonstrated exceptional talent in arranging the office facilities and residential accommodation for the Australians, and in developing networks with government departments. Ganguli has a university degree and has worked for a German company in India for several years. It is clear that he has connections at all levels of Indian society contacts that will be very useful for an expatriate like Brown.
The joint venture has issued a memorandum stating that all procurement procedures for the setting up of the office in India must be in accordance with the Australian code. The new company is about to decide on an important tender including office equipment, computers and the company’s fleet of cars and trucks that is valued about $3 million.
Brown has been surprised by an approach in confidence by Ganguli indicating that one of the short-listed tenderers is his wife’s brother. Ganguli’s relative seems to have a good record in such projects and has worked for international agencies like UNDP and the World Bank. What surprised Brown most was a subtle hint from Ganguli that there might be some personal benefit if Brown was able to steer the contract towards Ganguli’s relative.
The company is very keen to make a success of the joint venture. It has committed itself to moving away from being a Perth-based wholesale and retail sporting-goods venture to becoming a successful international company in sporting products and services. Its success depends on Brown’s capabilities in the first two years. Brown is aware of the extensive network that Ganguli can call on, and he also has become a friend of Ganguli during the first few months of the venture. However, he is not sure that he could breach the company’s tendering code, even if the relative of Ganguli turns out to be a good supplier.
On the other hand, due to recent problems of relocation and placement of his children in Australian boarding schools, some financial benefit would be of considerable help to Brown’s budget.
Was the international move of Perth Sportsworld well considered? What are the strengths and weaknesses of going into an overseas market in the way that this company did?
What should Brown do about the tender? What type of ethical considerations does a company entering Asian markets need to evaluate and adopt?
Thanks to Samir Chatterjee, Curtin Business School, WA, for this case study.
Proposed solution #1
Dr Sajed Rahman, PhD (London), MBA (Macquarie), FAIM, AAMI, is executive director of the Sydney-based AusTech Marketing International. The company provides international business development consultancy services to Australian companies wanting to enter and/or develop markets in South and South-East Asian countries. He specialises in market research, strategy formulation and planning through to the development of joint ventures and other strategic alliances. Dr Rahman is program leader for the Managing Business in Asia training program at AIM Sydney.
Perth Sportsworld’s Indian joint-venture initiative is a typical case where two different worlds are colliding a tale of two cultures. Managing and doing international business is not just about procurement, manufacturing, marketing and technical expertise, but also about managing and dealing with people in business and social cultures different from one’s own.
Sportsworld’s decision to go international and start up a joint-venture operation in India is commendable in a global market. Definitely there are competitive advantages in utilising the abundant, low-cost but mostly educated skilled and unskilled Indian workforce in labor-intensive sporting-goods manufacturing. However, it should be aware of the different concepts in India of “time” and “quality” that are likely to affect the joint venture.
Sportsworld, so it seems, has overlooked cross-cultural issues in conducting business in a country with a commercial and social culture unlike anything in Australia. It is clear that Brown has inadequate cross-cultural skills to conduct business and deal with people in India.
The success of Sportsworld’s joint venture now hangs not so much on the strategies and plans formulated at its Australian head office, but on Brown succumbing to Ganguli’s hint of a personal benefit (“bribe”) in return for awarding the contract to his brother-in-law (“nepotism”). Brown, hitherto so unfamiliar with any of these forms of corruption in Australia, but now tempted, is in an ethical dilemma to do or not to do.
Also at stake is Sportsworld’s image and reputation at home and abroad, hidden and unaccounted costs, and with them potential legal repercussions for the company in Australia related to its dreams of going international.
Although there can be no doubt about the role and importance of business contacts and relationships in businesses anywhere, Brown, it seems, went “Aussie” egalitarian all the way to become a “mate” of his subordinate, Ganguli, during the first few months of the joint venture. He failed to maintain a boss-subordinate power/distance relationship with his office manager in the highly hierarchical Indian society where the boss is king.
Also in the collectivist Indian society where people have expectations from family members and friends unlike in the individualistic Anglo-Saxon societies favoritism and nepotism are norms. One instance of bribery, favoritism or nepotism now is likely to lead to several in future for example, a job for a nephew, education in Australia for another brother-in-law, and so on. In India, locals tend to develop personal friendship with expatriates not necessarily because of a desire to make friends with foreigners but often for personal reasons or needs in an impoverished society.
Had Brown maintained a distance from his office manager and not become his mate so quickly, Ganguli would have maintained a distance and done only things that were ordered by his boss not approached him in confidence as a friend. Brown could have nipped the “to do or not to do” situation in the bud.
The options available to Brown are:
- Accept Ganguli’s offer in return for awarding the tender to the brother-in-law, and face potentially detrimental consequences to his own career and Sportsworld’s image.
- Reject Ganguli’s offer and tell him in a boss-like manner that he will consider all tenders on their merits.
- Inform the Australian head office of Ganguli’s offer, seek a transfer back to Australia and recommend a replacement with cross-cultural skills for doing business and dealing with people in India.
Proposed solution #2
Mac Thomson is a director of Step InTo Asia, an international market development company based in Queensland. The company helps small and medium Australian enterprises to enter Asian markets. He has extensive on-the-ground experience in Europe, South America and South-East Asia across a wide range of industries. The recent downturn in the Asian economies is seen by SITA as an ideal opportunity to expand its operations and relations in the region. To reflect this, SITA has recently opened an office in Brunei Darussalam, an ideal step for other Asian markets.
Sportsworld does not seem to have conducted an initial analysis or market scan to determine which international market has the most potential. If this is the case, the international move of Sportsworld was not very well considered or planned. Most multinational companies hire external consultants or conduct internal research to assess the market and strategically plan the international expansion of their operations. It is an intricate process that requires a certain degree of resource allocation.
It seems that Sportsworld had not planned or prepared itself to find a joint-venture partner for its operations in India. Be that as it may, joint ventures are usually the preferred method of entry into a foreign country, because they involve less risk. The reasoning behind the choice of India as an international expansion market is uncertain.
To minimise confusion and to ensure that the objectives of the parent company are well understood throughout the company’s operations, a strategic plan should have been developed long before Ganguli appointed a local university team to do so. This suggests that the strategic management of the Australian owned company is quite decentralised and lacks direction.
Experience tends to show that the most successful process for internationalisation involves:
- Market scan.
- Country profile.
- Market research.
- Establishment of market contacts and identification of possible joint venture partners and business opportunities.
- Strategic expansion plan incorporating cross cultural management issues.
- Market visit(s).
- Office set-up and administration in the foreign country through joint business arrangements with a national company.
The strengths of entering an overseas market through a joint venture include:
- o The acquisition of local knowledge and expertise.
- The ability to achieve a larger scale of production in less time.
- The benefits of greater production and market development (economies of scale).
- Easier access to local distribution outlets.
- The sharing of financial and management resources.
- The synergies associated with working with a company with similar products.
Alternatively, the weaknesses of going into an overseas market in this way include:
- A loss of control in both companies.
- Profit sharing.
- Conflicting management styles.
- The lack of trust if both partners are not supplying each other with mutually beneficial information.
In this case, the Australian company has established a code that expresses the procurement standards that a manager should adopt. This code simplifies and standardises the procurement process. For this reason, Brown has a responsibility to the Australian company to uphold this code. When making decisions, Brown needs to assess the rights of all stakeholders involved in the opening and operation of the new office in India. Legally, Brown should follow the memorandum issued by the joint-venture company, stating that all procurement procedures for the establishment of the office in India must be in accordance with the Australian code.
The code established by Perth Sportsworld has probably been efficient and effective in Australia. However, this does not imply that the particular code will have the same success across borders. Business systems will be substantially different in India, and some slight adaptation in business procedures will be necessary. A realistic appreciation of the management styles and methods of operation in India could be beneficial to the business culture.
An international manager will be aware that company products and the corporate image must be adaptable to the market. At the same time, certain business cultures and social customs must be respected. However, at all times the company must operate at a standard that is internationally accepted as best practice. If such standards are not met, then legal action can be taken in the company’s home country.
The issue of business ethics is a delicate matter, as it involves perception and judgment. Ethical dilemmas are frequent in international business dealings due to cross-cultural differences in business etiquette. There are many types of ethical considerations that any company entering the Asian market needs to evaluate and adopt.
The ethical dilemma facing Brown is that the situation described appears to Australians as a clear case of bribery. Without a detailed understanding, it is impossible to judge the situation. However, if there is such confusion it is best to discuss the matter openly with all related parties. Beforehand, all parties must be aware that the outcome of the discussion will be reported back to head office.
In general, a set of ethical standards must be adopted by companies working internationally. These standards will be formed from professional values and can be applied to any ethically questionable situation. These standards will never be a set of answers, but rather guidelines to determine the right behavior.