Indian Companies as Customers, Competitors & Collaborators

By Kumar, Nirmalya | Indian Journal of Industrial Relations, July 2009 | Go to article overview

Indian Companies as Customers, Competitors & Collaborators


Kumar, Nirmalya, Indian Journal of Industrial Relations


Indians as Customers

Indians have a long tradition as buyers and sellers with foreign countries, having traded for centuries with their neighbours in the Middle East and Southeast Asia. Since the fifteenth century, this trade also included Europe, though trade with the Romans has been documented as early as the first century. This has led Indians engaged in business to have a "trader" mentality, with both its positive and negative connotations. Positively, this makes them highly entrepreneurial, always looking for opportunities to do business. Perhaps negatively, especially from the supplier's perspective, this makes them inordinately price sensitive in their purchasing. In other words, Indians are tough negotiators and love bargaining. Any foreigner desiring to sell to an Indian firm should be prepared for this.

Indian procurement officers like to be knowledgeable buyers and drive a hard bargain. For example, R. C. Bhargava, former purchase director of Suzuki India, used his knowledge of costs almost cold-bloodedly in purchase negotiations. Car tires have always been sold as proprietary products. Nowhere in the world was their price negotiated on a cost-plus basis. Yet, Bhargava stunned the tire industry in India by declaring: "You show me your cost structure and I will give you a remunerative margin." Indians use their knowledge of zero-based costing remarkably well in buying situations.

Indians are not shy of using their relationships in business. For example, Shiv Shivram, a veteran buyer of forty years with Imperial Tobacco and Dunlop, is friendly with salespersons at all levels. When the general sales manager of a vendor comes to negotiate a contract, one of the vendor's salesmen he is friendly with will whisper the bottom price in Shivram's ear. Thus when Shivram negotiates, he knows the price below which he cannot go as it would hurt the seller. The strategy is to use long-standing relationships to get the best deal while giving a fair return, but not to squeeze the last dollar out of the seller.

When major purchases, big-ticket items, or capital equipment are at stake, the negotiations can be frustrating to non-Indians. Westerners are often heard complaining that the discussions take forever and the specifications keep changing. Consider, for example, the current rush by foreign vendors to sell arms to India. Reflecting on the experience, Rear Admiral Rees Ward, head of the United Kingdom's defence manufacturers' trade association, said: "It is a rapidly growing market of a potential superpower ... however, the procurement processes often cause delays and cancellations and therefore overseas companies need to understand that they have to commit to the long haul if they are going to win contracts" (Sylvia Pfeifer & Amy Yee 2008: 9).

After months of tough negotiations have brought a handshake agreement and the deal is ready to be signed the next morning, be prepared for a surprise. It is too soon to start celebrating. At the eleventh hour, after the lowest price has been negotiated, it will be length of credit that will determine who gets the order. There will be a new negotiation about the payment terms because Indian companies, usually strapped for cash, like long credit cycles.

The negotiations are conducted by the professional managers in the company. However, with any significant purchase, the promoter or owner will be brought in to bless the deal at the final stage. The professional managers of family-owned companies are usually unwilling to stick their necks out and complete the transaction without involving the promoter. Doing so may leave the professional manager open to the accusation of having received a kickback from the supplier.

Peter Smith, senior executive of General Electric, who for thirty years sold power plants to many Indian companies, remarked: "After the negotiations are over and the draft purchase order has been seen by the seller, the real decision maker arrives. …

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