India is a country known for being among
the world’s leading democratic countries, as well as being culturally
diverse.  The country also has the second
largest population in the world with more than 1.2 billion people. Many multinational
companies looking enter India to conduct business oppose a few risks, such as
the lack of preparation and patients. Many companies assume that doing business
in India will be very similar to doing business in China, seeing as they are
both Asian countries. However, the business culture in India and China are very
dissimilar. India has one of the largest democracies in the world, but that doesn’t
necessarily mean it’s the best. For one, there is a slowdown
in government decisions due to the political instability that is taking place.

One of the biggest political risks for a multinational
company that is looking to enter India would be the consumer market risk. A
consumer market risk is “possibility for an
investor to experience losses due to factors that affect the overall
performance of the financial markets in which he is involved.”(Staff, 2016) Market risk can
also be described as systematic risk. This could be a problem for the reason
that consumer demands can vary from country to country, which could cause
problems for a number of companies. This would mean that a company would have
to enter niche markets. They have to make sure there is a market in India for
the product they are trying to sell. For instance, the United States has the
same consumer demands across the entire country, preference will vary, but it’s
not a significant difference. However, India is so large that consumer demands
will vary from state to state. For example, Northern India prefers wheat, while
Southern India prefers rice. Some companies might not like how big the
economies of scale are for selling a single product across the entire county.

Another major political risk for a business looking to enter
India is weak law enforcement. Corporate frauds, bribery, and corruptions are
now being recognized as one of the highest risks for doing business in India. (Pinkerton,
2014) There is plenty of corruption in the police and judiciary departments
throughout the country. “The Department of Justice (DOJ) would say the risk is
high because of the number of licenses and permits required. More pruriently, this
leads to more folks having their collective hand out looking to speed things
up.”(Fox, 2014) A lot of companies start to look for ways around these constraints
being that there is a lengthy process to obtain permits, licenses, and other
regulatory approvals so businesses do whatever they can to speed the process
up.  “A host of regulatory hurdles exists
in India, including the need to obtain permits, licenses, and other regulatory
approvals and to pay various application and registration fees. These types of
low-level transactions provide opportunities for bribery.” (Fox, 2014) There
have been instances of companies providing money in order to overlook incorrect
paperwork. Companies will even go to the extent of paying a local health
regulator to overlook health code violations.

 Not only does
obtaining licenses and permits take long, but the revision of laws in India
takes several years as well. The labor laws are strictly set in place for the
manufacturing sector or the blue-collar employees; however, the laws are
slightly different for the service sector of white-collar employees.

 

The economy of India has been a stable one for quite some
time now however; India has plenty of economic risk for businesses that are
looking to enter the country. “Huge transfer payments to the rural poor,
subsidies for food and fuel, and disproportionate raises for state employees
and retirees have bled the economy from time to time.” (CommonRisks, n.d) Companies
need to pay attention to the exchange rates as well as interest rates being
that they can cause risks when deciding to do business in India. The economic
risk mainly has to do with inflation, and the lack of fiscal discipline. There
is also variation in interest, and currency rates. Doing business in India also
involves unpredictability, unfavorable changes on foreign investment or even pricing
and tax issues.

The political risks are high and without a proper plan to successfully
deal with political risks, the investment plans a multinational company would
make can get out of control. India
provides extensive growth opportunities to any company that is looking to enter
the market. In order for a multinational company to be successful it would be
best if they prepared the appropriate business strategy for such a market.
India has plenty of opportunities for a multinational company that is willing
to learn the interests and preferences of the country they plan to penetrate. 

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