Table of Contents
Developed nations often make investments in the under-developed or developing nations as a part of their business operations. Such an effort undertaken not only provides welfare facilities to the less developed nations, but also the developed nations with the opportunities to attain the required resources for a production at a cheaper cost. This helps in reducing the cost of production and aims at exploring more profits in business.
The profitably of foreign investment in India has been discussed here. To find out the advantage and disadvantage of investments, the analysis of the cultural, social, and business environment in India and the way it can facilitate the growth of assets and investments, has been done here. A comparison has been drawn on the cultural ground between the US and India and its implication in investment has also been discussed.
Cultural difference between the residents of two different nations usually refers to the variance between the collective mental programming of minds of human, which can distinguish one person from the other. The cultural comparison between the US and India here is done on the six parameters of the Hofstede model.
The first parameter is power distance, which is defined as the limit, up to which the commoners of a nation expect and are ready to accept the inequality in the distribution of power. Here the score of India is 77, whereas the US has a score of 40 (Hofstede Insights). This refers to the fact that the Indian mass are more tolerant towards the inequality of power distribution than their US counterparts.
Individualism refers to the interdependence between the society and its members. It aims at exploring the attribute of self-dependence citizens in a country, whether the residents of the nation are self-dependent or not (Hofstede Insights). Here India stands at 48, while US is at 91 (Hofstede Insights). This states that the people in this country are not great at managing things by their own, regardless whether it’s a personal or professional issue.
Masculinity here points to the characteristic of what drives people to be the best in what they do. A high masculinity score means that the society is mostly driven by the success and achievement. In this respect, the score of India and US is more or less similar, i.e., India is and the US is 44 and 46 respectively (Hofstede Insights). India lies close to the US in this dimension, which means that the Indians are quite determined to achieve what they desire for, so investment here may turn out to be profitable.
The fourth parameter is uncertainty avoidance, which usually refers to the risk averse nature of the individuals. Here, the score of India and the US is 40 and 46 respectively. The US population is more risk averse than the Indians, as people of India are more tolerant and immune to phenomena, which are unanticipated. This cause is often stated to be the reason responsible for India’s misery but if taken proper advantage can turn out to be the reason for its empowerment.
Long term orientation
When the parameter of long-term orientation is taken into consideration, the score of India is 51 and in case of America turns out to be 26 (Hofstede Insights). This particular parameter refers to the dependence of the society on its past to face the challenges of the present and future. Hence, it shows that the future activities are in many ways relies on the past actions.
The last parameter in the context of social differences is indulgence. Indulgence depends on the way a person has been raised in his childhood, which can determine to which extent the individual can try to control his impulse and desires in future. India scores 26 in this dimension while US scores 58 here. This means that India has restrains, which can even imply that the Indian mass are pessimistic in their approach (Hofstede Insights).
The cultural factors can affect the productivity and labour participation in several ways. The somewhat low score in the dimension of uncertainty avoidance can influence the Indian labour force participation. The citizens of the country are rarely judgmental about the job profile as long as they feel motivated and interested in the work they do. Although, it can be stated that the low score in individualism dimension is likely to hamper the productivity of the workers and the labour force participation.
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The business environment of a nation refers to the macroeconomic situation of the country and analyses whether the country is ready for any kind of investment or not.
The labour availability in India is very high compared to other nations. The nation ranks as the seventh largest economy according to the nominal GDP and if the purchasing power parity is considered, it ranks third in the list (Mehra). According to the researches on the Baseline Profitability Index (BPI), the success of the foreign investments in developing countries can be determined. The three factors of BPI are the growth in the value of all the asset, the preservation cost of those asset and the ease of earning the cash by selling the asset. In such index, India has secured higher rank than China and the USA. China was at the 65th position, the US at 50th, while India was ranked as the 6th lucrative destination for foreign investments (Mehra). This shows that the US would find it a profitable venture for investing in India. The US does not need to think twice for the labour force employment for operating business here. The inflation of India is moderate as the country follows steady state rate. The annual inflation rate for the year 2015 was 3.78%. This depicts that the currency of the economy is stable and financial stability is not supposed to be a hurdle. The inflation of India is moderate as the country follows steady state rate, the annual inflation rate for the year 2015 was 3.78%. This depicts that the currency of the economy is stable and financial stability is not supposed to be a hurdle.
Abundance of labour force in India does not imply that the labours of the nations are unskilled. The population of India is comparatively literate, and the technological advancements that are occurring in the recent decade have made the lion’s share of the population adept to any technology advancements that are newly introduced in the country. Investment in India’s research and development raised to 3.67% in 2016 and amounted to US $ 71.48 billion. (Ghosh and Chandrasekhar 731). The remote parts of the country have also internet facilities these days, which has further helped the human resource of India to become skilled.
India is a democratic country with the second largest population in the world. It has multi-party system, where a political party is chosen by the people of India in every five year with the help of election (Mehra). The political environment of the country is stable for foreign investments.
Legal barriers are not strict here for attaining the foreign investment, but property rights are well defined. The judiciary system of the country is effective enough to control corruption and maintain law. The US investors can hope to operate business in a country with less legal barriers and moderate duty fees.
India does not follow any kind of over protectionism social barriers, nor does it levy any on the people coming from other nations. Social barriers, though, exist in the country, are not excessive (Mehra). There is a culture of socializing, which prevails in the nation and this attitude is sure to facilitate the investors to invest here.
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The investor is said to be philanthropist, so he is likely to choose a country from the under-developed or developing nations, which will not only earn him revenues, but will also give him a chance to do welfare for that nation. India is a country with high GDP, moderate inflation and financial stability (Mehra). The investors while investing should make good use of all the resources that are available in the country. The labour, capital, and land should be used optimally. Capital is cheaper here compared to other nations and so is labour. The investor can be benefitted from these low cost resources while providing employment to the nation’s unemployed labour force. The investor can take advantage of the country’s stable political environment and social advantages.
The paper analyses the macroeconomic environment of India, which is a very significant developing nation of Asia, and the factors that can affect the business decisions of the US investors to invest in this country. The cultural differences between the US and India can be considered as a factor for investing in this country, but there are few parameters in the social context, which can be helpful while investing. The political, legal, technological, and economic factors mostly go in favour of investing in this country and not anywhere else.
- Ghosh, Jayati, and C. P. Chandrasekhar. “The costs of ‘coupling’: the global crisis and the Indian economy.” Cambridge Journal of Economics vol. 33, no. 4, 2009, pp 725-739.
- Hofstede Insights. Country Comparison, 2017.
- Mehra, Puja. “India ranked best for investment.” The Hindu, 27 Jun. 2017.