VIVEK CHAAND SEHGAL HAD TO steel himself against more than the brisk chill of a spring morning as he approached the Visiocorp cafeteria in Hampshire, Britain: Waiting inside were 4,000 employees, a mix of managers and shopfloor workers, all hostile. It was March 2009. The chairman of Samvardhana Motherson Group, a leading Rs 7,120-crore auto component maker out of India, had just bought Visiocorp, one of Europe’s largest suppliers of rear-view mirrors. And he sacked CEO Ulrich Bruhnke along with six members of the senior management team on day one.
The workers weren’t just worried about their jobs but were also anxious about the future of Visiocorp. Bruhnke was no stranger to the auto industry, having worked with the likes of BMW and Daimler before private equity investors had placed him atop Visiocorp. And now the Indians had got rid of him. The faces of the workers were drawn, many had fists clenched. Sehgal had to do something before all hell broke loose.
Sehgal’s son, Laksh Vaaman, who was with him that morning, says his father did something totally out of character: He cracked a joke. The normally taciturn Sehgal spoke of his lack of public speaking skills. Some in the audience sneered, but most laughed. He then spoke plainly and explained why Bruhnke had to go. “His three-year turnaround timeline for Visiocorp does not work for us. We cannot risk having him run the show anymore. We want to make Visiocorp profitable in a year,” Sehgal explained. He also laid out his long-term plans for the company. Visiocorp had changed hands three times in four years. It was now being rescued by a buyer with long-term plans. (Sehgal has since added staff to take Visiocorp’s headcount to 5,100.)
Ask him what he learnt that frosty morning and he’ll say it was a lesson in breaking the ice in a different land. Speak plainly and leaven it with wit, especially the self-deprecatory variety if in Britain. “They just love it,” says Sehgal, who comes from a culture where people in positions of power rarely laugh at themselves.
It might not be the conquest of the West as seen in old John Ford movies. Nor is it the dramatic buying up of the world, China style. But Indian companies have been steadily and quietly acquiring large chunks of corporate America, Europe, Africa, Australia and Asia. Jab a pin on a map, and chances are that it’ll land in a country where there’s an Indian subsidiary, or five. In the last 10 years, India Inc. has spent close to $62 billion (Rs 2.92 lakh crore) on acquiring foreign companies according to a Grant Thornton–Kotak Investment Banking study; in 2009 alone, Indian companies struck 83 M&A deals worth $1.37 billion across the globe. What that means is that Indian firms are employing more foreigners than ever before. Total numbers aren’t available because many companies are reluctant to share them. But available data gives a fair indication of the diversity. Tata Corus, for instance, employs 37,000 workers in Britain, while Birla has close to 12,000 workers at its Novelis plants in the U.S. Samvardhana Motherson has a total of around 6,000 foreign employees in four countries (Britain, Germany, the Czech Republic and Australia); Apollo Tyres employs 2,000 in South Africa, and so on.
The numbers vary depending on the industry, but the roster of India Inc. today represents a rainbow of nationalities and cultures—American, British, German, Chinese, Venezuelan, Chilean, Puerto Rican and more. The ability to deal with this workforce in alien surroundings could emerge as the most significant challenge for local managers in the next decade. And, along the way, shape the
India story abroad. “Nearly 60% of all cross-border mergers fail because of cultural mismanagement,” says Franz Neumeyer of Munich-based Global Synergies LLC, a certified global coach who helps multinationals with cultural integration during takeovers.
Indians have no history of managing foreign workforces. Conducting an indigenous acquisition itself is fraught with complexity and uncertainty. Deciding on the leadership of the combined entity, quelling employee anxieties about layoffs and career progression are all complex, detailed and immediate concerns that need redressal. If the acquired entity is overseas, a new layer of complexity gets added. From ensuring compliance with the law of the land on issues like labour unions, to meeting different regulatory norms, to corporate governance issues—understanding market nuances specific to a country’s culture is a virtual minefield.
Back home, companies have traditionally hired workers who shared a cultural, linguistic or ethnic background, making it easy to understand the dynamics of a group. The chances of conflict go up when there’s no common ground. “No acquisition integration is easy, especially where multiple cultures are involved,” says K.R. Lakshminarayana, former chief strategy officer at tech major Wipro.
The issues can be as mundane as how we speak. The $29 billion Aditya Birla group, which generates 60% of its turnover from overseas, found that this seemingly minor issue created problems at the group’s Thailand operations. “We realised that most of our Indian managers were loud and would bark orders. As a result, the locals just wouldn’t turn up,” says Santrupt Misra, HR director of the group.
Or, it may have to do with deeper prejudices, shaped by how Indians are seen by the rest of the world, as upstarts from a Third World country ridden with poverty and corruption. During Lakshmi N. Mittal’s 2006 Arcelor takeover, its then CEO Guy Dollé went public with statements about not wishing to be taken over by a company from India, which, he said had a “bicycle economy”. Mittal Steel was eau-de-cologne compared with Arcelor, which he claimed was French perfume.
Even earlier, in 2004, when Mahindra & Mahindra (M&M) bought a majority stake in China’s 100-year-old Jiangling Tractor Company, the workers were indifferent. “On the shopfloor, people didn’t know whether to say hello, or just turn away,” says V.S. Parthasarathy, Group CIO and head of mergers and acquisitions, M&M. The Indian team managed to win the Chinese over by learning about local customs and taking care to show respect to the workers and their bosses.
Given the enormity of the task at hand (and money at stake) Indian companies are sparing no effort in figuring out how to deal with their new recruits. In June, in an industry first, Godrej Industries set up a global cultural integration programme, headed by an associate vice president (corporate HR). Sumit Mitra, executive vice president, HR, explains why they needed this. In January, Godrej had just 250 employees across the globe. By June, after four successive acquisitions, that number had gone up to 1,600. “This is a big shift from six months ago, when we asked ourselves if we could manage the growing number of global employees along with our day-to-day activities through incremental changes, or whether we should look at it as a single large piece and focus on it with dedicated resources and a structured plan,” says Mitra.
For every overseas buyout, Godrej now conducts a cultural due diligence that accompanies the financial one, seeking early cues on what will need to be done if the deal materialises.
THERE ARE no rulebooks yet. But sensitising Indian managers to the ways of the new territory is a good way to begin, as M&M discovered after the Jiangling acquisition. “At that point, 90% of the team, including me, had never visited China. For us to land there and learn would be costly. So I called in experts from Indian companies with the experience of working in China, people from the Chinese embassy and Chinese students to give us a crash course. We picked up some handy cultural nuances: What kind of gifts should you avoid giving?” says Parthasarathy. (Never a timepiece; it signifies your time is up. To avoid gaffes, M&M’s executives prefer gifting miniature cars or tractors.)
Then, 50 Chinese from Jiangling, many of them shopfloor workers, were brought to India for a few weeks to learn what M&M was all about. Many returned as M&M advocates. Soon afterwards the Indian management was tested when it had to lay off 700 of the 1,100 workers at Jiangling. But the early efforts paid off. The downsizing proceeded without a murmur.
But not everyone gets it. Robinder Sachdev, who used to teach cross-cultural communication at American University in Washington, D.C., talks of how an Indian company lost the chance to acquire a Norwegian firm simply because the Indians finalising the deal did not understand much of the non-verbal communication of the Norwegians (such as pushing a non-disclosure contract towards the speaker, meaning that they wanted the Indian to sign it before talking).
Respecting employees of diverse ethnic groups is key to managing a multi-cultural workforce. As Gene Gitelson, John W. Bing and Lionel Laroche noted in their 2001 study, The Impact of Culture on Mergers and Acquisitions, “National culture has a great influence on the behavioural patterns of different nationalities. For instance, tolerance for uncertainty varies around the world and this may play havoc in international M&As. Similarly, the concept of time can become a cultural issue.” They should know. Gitelson has helped Fortune 500 companies manage organisational transition. Bing is the president and founder of ITAP International, a Pennsylvania-based consultancy specialising in the cross-cultural aspects of international business, with clients like Johnson & Johnson, Merck and Colgate-Palmolive. Laroche has authored over 100 publications on this subject.
Respect need not just mean giving the day off for specific local festivals; it could be something as simple as taking employees to a pub to celebrate St. Patrick’s Day. That’s what Punj Lloyd, an engineering and construction major, did in Singapore.
Or, as Neeraj Kanwar, managing director of Apollo Tyres, found out: “Cultural acceptance can be as simple as playing a common game or getting a particular handshake right.” When Apollo Tyres was buying Dunlop in South Africa, one of the most effective ice-breakers was a cricket match between the South Africans (who had an Indian batsman on their team) and the Indians. Although ways of doing business and even shaking hands were totally different, the South Africans and Indians bonded over their common religion, cricket.
If Apollo Tyres was able to iron out cultural differences on the pitch, some companies have had to resort to a fair bit of arm-twisting in the boardroom to be taken seriously. Global Green, the agri-business arm of the $4 billion Avantha group, is a case in point. Its acquisition of Intergarden NV, a Belgian food processing company, in 2005, was fraught with problems: Intergarden’s employees were hostile and resistant to any change made by the new owners. In fact, they viewed the Indian company as an upstart that had little understanding of doing business in Europe. The fact that the Belgian outfit was five times the size of the Indian one made matters worse.
Initially, Global Green gave Intergarden a chance to shape up without outside interference. However, it made it very clear that if the new management and the staff could not work amicably, Global Green would have a free hand to make changes.
“For years, the Intergarden sales force had been campaigning against our products and pushing their own to retailers. Now, suddenly, they were in a situation where they had to convince the same retailers that the combined entity offered world-class products,” says Vineet Chhabra, managing director and CEO of Global Green. As the takeover progressed, the fissures became even more apparent. At Intergarden, promotions, perks and pay hikes had depended on the whims and fancies of the promoter. In the case of Global Green, Chhabra says appraisals were conducted in conjunction with the headquarters, in a systematic manner, which took time. “Used to a more aggressive decision-making style, Intergarden employees concluded that their new CEO lacked the necessary authority and power to take quick decisions,” he says.
After 18 months of trying to get Intergarden’s employees to work with Global Green, Chhabra lost patience and sacked five managers who did not fulfil expectations. Avantha then sent an Indian chief financial officer to Belgium. His appointment was followed by a new chief operating officer as well as a new sales and marketing head. The change of national identity at the top drove home the point to the remaining recalcitrant workers and managers in Belgium that the acquired entity was indeed under Indian ownership.
Should this have been done earlier? That is often the dilemma. As Birla’s Misra says, in the West, the emphasis is typically on being direct. “You are expected to voice your opinion, even it if means disagreeing with your superiors; it’s part of the culture.” Here, being direct doesn’t always help. Layer this with the natural hesitation that comes with doing things for the first time, and the nature of the dilemma emerges: How early should Indians establish who the boss is? Put differently, should companies follow the example of Samvardhana Motherson Group or Global Green?
Here’s Chhabra’s take: “In retrospect, I think we should have fired these people three or four months earlier. Indian managers are patient, but our patience must not be misconstrued as weakness. Four years after the acquisition and two years into integration, Intergarden employees seem more appreciative of the group’s strategy.”
Not everybody agrees. In August 6, 2007, some 17 months before the Motherson-Visiocorp deal, Wipro picked up New Jersey-based InfoCrossing for $600 million, its largest acquisition. The American data centre employed more than 1,000 people and Wipro did not want to rock the boat. Instead of changing the top management, Wipro signed a pact with InfoCrossing’s C-level employees, including CEO Zach Lonstein, to stay on with the organisation for at least two years. Apart from maintaining staff morale, this also ensured minimal attrition, a critical factor. In an earlier acquisition in 2005, of NewLogic, a niche chip design firm in Lustenau, Austria, Wipro had made a similar deal with its CEO, Hans-Peter Metzler.
Wipro’s Lakshminarayana emphasises the need for companies to enter acquisitions with sensitivity towards employees’ immediate concerns. “At the individual level, the concerns are mostly personal. Is my job safe? Will my compensation change or remain the same? Will the company continue with its current policies such as hiring locals or will it outsource to cheaper locations overseas?” Employees also wonder if the acquired entity will have to turn to India for every little requisition or if they will continue to enjoy some amount of autonomy.
If Wipro had not kept morale up, there would have been a real danger that some of the best people at InfoCrossing, and earlier at NewLogic, would have left. This sort of thing could happen to any company that does not manage people integration well; good performers are usually the most marketable—and neglecting their personal concerns could prove costly. Companies like Wipro realise that there could be a loss of productivity among those who stay back after the exodus of the top leadership.
In the technology space, there’s also the fear of loss of knowledge. “When you acquire a company, you are buying a brand. The value of the brand is usually in the intellectual property, which is in the heads of the people whom you don’t want to lose because of a mismanaged integration,” says Paul Birch, group president, HR, Punj Lloyd.
MANAGING CROSS-cultural issues can become that much more complex when companies are faced with the realities of economic cycles, natural disasters, changing political scenarios and the like. Even with the most detailed planning, things can go wrong. Take the Tata-Corus deal. Tata Steel left no stone unturned to take over U.K.-based steel major Corus. There was a tremendous rapport between the senior management of Tata Steel and Corus—between Ratan Tata and the former CEO of Corus, Philippe Varin (who was replaced by Kirby Adams, who makes way for Karl-Ulrich Kohler in October), and between Arunkumar Ramanlal Gandhi, head of the M&A division at Tata Steel, and Jim Leng, former chairman of Corus. The new management under Ratan Tata also ensured that key personnel at Corus would stay on for two years, with Leng at the helm, while continuing with Corus’ pension plans, which earned the goodwill of the unions. What the Tatas could not do was factor in the severe impact of the global recession on the automobile industry, primary buyers of steel. Demand dried up and the group had to lay off 4,000 workers, bringing the staff strength down to 37,000. As a result, it had to face the wrath of the unions. In August, Tata Steel was compelled to sell its Corus’ Teesside plant in Britain to Thailand’s largest steel company, Sahaviriya Steel Industries Public Company Limited, for $500 million.
Tata Steel Group CFO Koushik Chatterjee’s lesson in all this: “There could be a disparate set of risks like an economic crisis, a banking crisis, a currency crisis, a political crisis ...” These may be completely unrelated to the acquisition, which is what happened in the economic crisis—it was not a Tata Steel Europe issue, it was a Europe issue.
Unions managed to gum up the works during Vedanta’s acquisition of Konkola Copper Mines in Zambia. In 2005, the first year of the acquisition, the Vedanta management had a face-off with the two Zambian unions over wage negotiations, which led to the loss of millions of dollars. The unions demanded a 45% pay hike, which the management found too steep. There ensued a 10-day shutdown; operations resumed only after management agreed to a 35% hike.
In November 2009, there was another strike at Konkola because of the management’s failure to communicate effectively. The general practice there is to link salaries to the price of the commodity being mined. In 2008, the unions made a collective decision not to ask for higher wages because of a sharp fall in copper prices, the result of the global slump. Workers kept an eagle eye on copper prices since it is linked to their wages. When prices started moving up from mid-2009 and there was no reassuring news from the management, about 50 workers went on strike, supported by the unions. Normalcy was restored only when they were promised an 11% wage hike.
The Vedanta management in Zambia also inherited a challenge in terms of the rivalry between expatriates and locals. The Zambians believed they were being short-changed because, despite having similar qualifications and experience, they got lower salaries than the expats. The company initially hired expats because of a shortage of Zambian metallurgical and mining engineers and geophysicists. However, over the years, as the locals received training in both technology and the English language, the expat advantage blurred. Vedanta responded by bringing in fewer expats. “I do not see any kind of hostility now. After all, the Indian management has taken time to observe and understand their customs. Once they realised expats would not take away their jobs, they accepted us as their bosses,” says Kishore Kumar, head of Vedanta’s Zambia operations.
THESE ARE EARLY days yet for Indians abroad as owners. Gary Eaborn, who participated in the Tata-Corus deal as partner, Slaughter and May, the principal corporate lawyers appointed by Corus, says Indians need to hone their skills: “Indian companies lack the experience necessary to deal with a global workforce or run businesses across multiple jurisdictions. They tend to stick with the management of the acquired company. They don’t believe in rocking the boat.” Adds Global Green’s Chhabra: “The problem with India at present is that it has managers but not enough leaders. Managing a multicultural workforce increases the complexity of leadership exponentially.”
But there is hope that an Indian style of management will eventually emerge. M&M’s Parthasarathy says that managers need to consciously create the Indian way. Mirroring management practices from back home is the most obvious step. British Trade Union Community general secretary Michael Leahy, who witnessed the Tata-Corus deal, says: “Indian management can be paternalistic, but it is not adversarial.”
That is not surprising: Most companies buying assets abroad are family run and their heads see themselves as patriachs. This also explains another trend: In most companies abroad, the head of finance is usually Indian, even though the incumbent CEO is a foreigner. Given that the head of finance back home is usually a person the family trusts, companies often choose to continue this overseas.
Parthasarathy argues that while this will continue, Indians need to contextualise it. At Jiangling, M&M showed concern for workers needs, as many Indian family-run businesses do. But they held back when it was appropriate in the Chinese context—not once did M&M officials engage the workers in conversations about their families.
One way to examine the impact of Indian management would be how the acquistions have fared. It’s too early to determine clear trends. Corus, for instance, had reported an Ebidta of £730 million (roughly Rs 5,214 crore) in December 2006 (the year of the takeover). By the next fiscal, that rose to just over £1,000 million. Then came the slowdown and a drop in earnings (2008-09), followed by a rise again in 2009-10. When Hindalco, part of the Birla group, bought U.S. aluminium firm Novelis in 2007, it had reported a net loss of $64 million on sales of $2.6 billion. Today, sales are up to $8.7 billion and profits $405 million.
Managing diversity will never be easy. Ultimately it’s about understanding how someone else thinks. For us, this requires shedding the assumptions we have about the kind of managers we are. Only then can we get into a foreigner’s mind. Machines used in Christopher Nolan’s Inception to enter others’ thoughts might be just the thing. But since we don’t have them, an honest effort of the kind being exhibited by Indian managers is a good enough start.
The great wall
Troubled companies the world over balk at a chinese takeover, fearing an inflexible management style. The lesson for indian managers: learn from china’s mistakes.
Chinese buyouts globally have dwarfed what the Indians have done. But, with many of China’s acquisitions running into trouble, corporate India could well learn from its neighbour’s mistakes.
Given that its companies are often viewed as extensions of the government, China’s problems usually begin even before an acquisition. Remember China National Offshore Oil Corporation’s failed bid for Unocal, a U.S. oil company, in 2005?
But more pertinent to India Inc. is how the Chinese run their companies once they manage to buy them. In 2003, China’s TCL bought French consumer electronics firm Thomson for $560 million. Intended to revitalise China’s high-end electronics industry but thwarted by technology issues and a huge culture gap in management style, the deal soured. The $1.75 billion Lenovo-IBM joint venture took five years to stabilise. China’s problem: Its managers are seen as inflexible.
“Chinese management is viewed as hierarchical, favouring managers who absorb but don’t argue,” says Bharti Gupta Ramola, executive director at PricewaterhouseCoopers. Chinese firms are often accused of being blind to workers’ needs; in 2007, a high-profile inauguration of a Chinese-owned copper mine in Zambia had to be cancelled as workers rioted against harsh working conditions.
“To break away from the impression of government control, Chinese firms now enter acquisitions with consortia of global players,” says Ramola. This might be an easy way out in the short term but the only long-term solution is to be more culturally aware. Is India Inc. listening?
