Multinational Enterprise Management: AeroUK's India Expansion Case Study

AeroUK's Strategic Entry and Cross-Cultural Management in India

1. Overview of the Chosen Country

Every company aims at expanding its business operation that will assist in improving its market share. This report is based on the market expansion strategy of AeroUk which is the leading aerospace company of Britain. For expansion, the company is focused towards establishing a manufacturing plant in India. The company has decided on this country because of less number of competitors available in market and has huge scope for its growth. The country has conveyed effective scope for development as it stood on 5th in the world‘s GDP ranking. The economic freedom score of India is 52.9, which makes it 131 freest economy in the world (Economic freedom score of India, 2023). In Asia, India has been ranked 27th out of 39 countries. In the global competitiveness index of 2023, India has ranked 40Th, which has been provided by the International Institute for Management Development (IMD) (Global Competitive Index. 2023). India and the UK have a strong political relationship, which enables the effective working of UK-based companies in the country. AeroUk is concerned towards using sustainable operation in their company; the chosen country's policies will support in achieving sustainable goals more effectively.

India has been recognized as the third largest producer of renewable energy, which helps in the sustainable working of the company. It has been identified that India has a dominant taxation system, which is effectual for the expansion of business and helps in providing cost-effective expansion. The country has the highest population in the world, which makes it easy for companies to obtain cheap labor for their operation. Aerospace is focused on specialized and updated technology which helps in carrying out operations effectively and efficiently. IT sector in India is growing drastically as most developed countries have been invested in the technology of country which is resulting in advancement of technology. This report depicts the mode which AeroUK will use for entering into India. It will also cover various pros and cons which company need to face for effective working in chosen country. This report will also include various internal issues which the company will be facing while expanding its business operation. It will also focus on all external challenges and issues that are linked with the chosen country. Various theories and models will be used in the report to justify each issue which has been described. It also includes various recommendations by which these issues could be resolved and also emphasis on theories and models which will help in effective international expansion.

2. Entry Mode for Business Expansion

There are various types of entry strategies which firms can use for entering into a new market. These entry modes are evaluated and analyzed according to the needs of the organization. Entry modes have been described into two broad categories, which include market-based entry mode and firm based entry mode. Market-based entry mode refers to the mode by which a company would sell its product to the customer. There are 2 types of market entry mode, which include B2B and B2C. B2B involve providing goods and services directly to other business organizations, which decreases the burden for a company to indulge in marketing strategies. B2C aims at providing goods directly to customers, which will help in reducing cost to customers as no intermediary cost will be added in the selling process.

A firm-based entry mode involves entry into a new market by merging or acquiring existing businesses in the country. There are various types of firm-based entry mode, which involves mergers, acquisition and takeovers (Adedoyin, Alola and Bekun, 2020). Mergers refer to a combination of 2 similar types of companies into one big company. This type of market expansion generally takes place when a company wants to eliminate competition in the industry. This expansion method reduces the cost of marketing for the company as the firm needs to invest a high amount in the advertisement because of the reduction in competitors. Merger creates an issue for consumer as the number of options reduces and the prices are generally kept high after mergers. Consumers are left with fewer choices, which forces them to buy products at higher prices. Sometimes, cultural differences in both merging companies create problems for employees to settle in the given scenario and hampers the working of the organization.

Acquisition is referring to as purchasing well established company of particular country. In this type of expansion, the targeted company lose their existence and works under the brand of the acquired company. This type of expansion is generally done by a company when it targets entry into a new country and does not want to invest time in determining suppliers and customers. This helps the company gain suppliers and customers of an existing company and helps in the easy establishment of the organization (Ali and Puah 2019). It assists in attaining economies of scale for the company and helps in enhancing market share. Cons associated with acquisition are related to the conflicts and culture clashes between employees of different organizations. This creates a problem for the employees to adjust to the rules & regulations of other companies and requires time to adjust to the changing working environment. Takeover is the hostile form of acquisition in which the target company do not want to be acquired by the other company. Acquiring company purchase all shares of the company, and the firm is left with no option other than to merge with the other company. Companies generally undertake a takeover with the motive of increasing market share or creating a synergistic effect for the organization. The company focuses on taking over a making company through which their profit is set off against loss and firm can enjoy tax benefit.

Each company focuses on entering into a new market by indulging minimum cost and enjoys maximum benefits from such investment (Asgharian and Abdelaziz, 2020). The transaction cost theory will be applied on market and firm based entry mode to determine the most effective mode of expansion. In market based entry method it involves high investment as compare to its benefits. In B2C Mode, the Company needs to create awareness in the market, which results in incurring high costs on marketing strategies. To create a competitive edge, a company need to focus on reducing the price of their good which eventually impacts the profitability of the organization. Firm-based market entry is more effective than this as a company need not invest separately on marketing and sales strategies. After evaluating both entry modes it has been identified that firm-based entry modes are more suitable and beneficial for AeroUK.

For entering into India, AeroUk is focused on merging with Mahindra Aerospace Company of India. The company is using this market expansion method as it will result in covering a large market share (Borodin et al., 2020). This will help in reducing competition in the market and will result in attracting more customers. Merger has been selected as this will help in creating a synergy effect in operation of both firms. Mahindra aerospace is having effectively goodwill which will be used by the Aerouk in attracting suppliers and investors. AeroUk is having specialized skills and knowledge which can be used by Mahindra in efficiently carrying out its operation. This market expansion mode will help in achieving economies of scale for both company and result in reducing cost and increasing profit margins. It will be easier for firm to understand rule and regulation of Indian market and ease the process of international expansion. Merger will result in enhancing business operation of company which aims at providing job opportunities within country. In India, labor can be hires at less cost than UK that will assist company in carrying out expansion with cost effective measures.

3. Internal Network and Cross Cultural Management Issues for AEROUK

Internal network management issues are linked with the all challenges which company is going to face regarding its management of employees, board of directors, investors and managers. UK and India have various differences in terms of their cultural and mode of working which will create issue for the company. For identifying the internal management and cross cultural issue of AeroUK, Hall's context model & Hofstede cultural dimension model will be used. Under Hall's context model, he has provided various factors which will help in distinguishing company based on high context culture and low context culture (Hall's context model, 2023). He believed that a country follows different modes of communication, which include explicit and implicit that helps in distinguishing countries on the basis on of context culture. According to model India has been considered as high context culture because of use of implicit communication whereas UK determined as low cultural context. It also includes difference on the basis of time and space. Overtness of message, Control on failure, bond among people, communication mode and value of time are various factors which differentiate country on basis of high and low cultural context. Following is the brief description of factors which decide the level of culture context of countries:

• Hofstede' Culture dimension theory: These theory was introduced by researcher greet in 1980 which emphasis on creating better understanding of different culture. Under this theory various aspects has been introduced by him that focuses on enhancing knowledge regarding the culture of different country and develop understanding regarding how this impacted on the business operation (Eckbo, Malenko and Thorburn, 2020). Power distance index, Uncertainty avoidance index, Masculinity vs. femininity, Long term and short term orientation, individualism and collectivism are the factors on which country are evaluated to identify their culture.
• Power Distance index. It is the indexes which assist in determine the level of power inequality prevailing in country. While evaluating India and UK's culture it has been identify that UK is having low power distance which indicate people are focus toward reducing the gap between rich and poor. India's power distance stood at 77 which indicate high inequality between wealth and power within country.
• Collectivism vs. Individualism: This aspect involves determining country on the basis of integration of country's population. This involve identify individual responsibility toward society and community (Favero et al, 2023). UK is considered as individualism in which personal developmental has been seen as the main goal of individual and People are less concerned toward community and social welfare. Collectivism has been followed in India where people from diverse culture come together for community welfare.
• Uncertainty Avoidance Index: This index is aiming at determining country's ability to face risk and people's interest in overcoming uncertainty. It has been identified that both the countries are having low uncertainty avoidance which indicate people became comfortable with current situation and take less initiate toward overcoming challenges. India's index is much lesser than UK which indicates people followed more rigid approach and cannot easily adapt to changing environment.
• Masculinity vs. femininity: This approach is based on determine the gender equality and the traditional role of population. In both country masculinity has been followed which indicate more emphasis has been given on growth and development for males. In India there is high femininity score which determine that country is focus on developing maternity and childcare services but do not focused on developing managerial skills of women.
• Short term vs. Long term orientation: Under this aspect country are evaluated on the basis of their focus in long term growth that includes sustainable development or short term growth which aims at present growth and do not focus on future goals (González-Torres et al, 2020). India and UK both countries are working on the basis of long term orientation which involve focuses on sustainable development and aims at long term success and growth opportunity.
• Indulgence vs. Restraint: These aspects are related to identify the spending pattern in the country. This pays emphasis on determine the importance of social norms and people thought regarding enjoying life (Guan et al, 2020.). UK follow cultural of indulgence which indicate that people are attracted toward spending on luxuries of life and less focus paid toward saving. Restraint has been followed in India, in which people are more focused toward spending on necessity and saving has been promoted in culture.

This model helps in determine the difference which both countries are having in their culture. These will create issues for AeroUK in effectively carrying out their operations in India. Some of the major cross cultural issues which company will face are as follows:

• Ethics and regulation: It has been identified that people in India are more focused toward competing work based on their ethic and social norms. This will create issue for company to adjust their policies and producers according to the norms and ethics of India.
• Barrier in communication: In UK, company is focused toward verbal communication and did not focus on non verbal communication. This will create barrier as employees in India are more focused toward body language of speaker and work on the basis of their assumptions. Difference in language will also be one factor which will impact effective communication.
• Organized labor: India follow the culture in which less focused is paid toward time management (Hu et al, 2023). AeroUk will face issue in finding and recruiting more skilled and organized people as UK follow monochromic culture.
• Difference in employees' satisfaction: India's culture is more focused toward saving which indicate that only financial incentives can enhance motivation level of employees in the company. AeroUK will face issue in providing benefits which can satisfy employees in Indian company as policies in UK are more concerned toward non- financial benefits.
• Collectivism: AeroUk need to make policies which promote collectivism in the country as people in India are more exacted towards group benefits then individualism. Indian prioritizes family relation than work which create problem for company to establish policies which benefits both family and workers.

4. External Network Management Issue for AEROUK

External network issues are linked to challenges which company is going to face due to rules and regulation in the chosen country. These challenges are occurred due to interaction of company with external stakeholders. External stakeholder includes government, suppliers, labor union, creditors and customers (Huy et al, 2021.). According to Zaheer, company need to incur additional cost for its operation because of the dissimilarities and distance between various countries. He has defines Liability of foreignness as the assumption theories which has been used by MNCs (Liability of Foreignness, 2023). AeroUk need to determine all LOF of India before entering into mergers as it will impact working company. Non identification of LOF and inattentiveness toward fulfilling all laws may result in failure of merger or restrict company from enjoy some benefits. Various LOF which company needs to follow for entering into Indian market are as follows:

Government Rules and Regulations

There are various rules and regulation which has been formed by government of India which merging company needs to follow. For commencing merger RBI approval is required by the foreigner company, Section 23A of CA 2013 makes it mandatory for companies to apply for permission before merger. All cross border merger should be compile with rule and regulation of Foreign Exchange management act 1999. This creates challenge for AeroUk as if the company is enabling to fulfill any of guideline prescribed by government than it can result in the failure of mergers (Foreign Exchange management act, 1999). It will eventually result in increasing in cost for the company as firm need to pay penalty as define by government.

Competition strategy:

Under the Competition Act 2002 it has been clearly defined that merging with international companies should not create negative impact on domestic market. This act help in preventing domestic company form international company by limiting misuse of power and introducing anti competitive agreement within country. Based on this act various licensing has been introduced in country which reduces international merger and helps in reducing competition (Perego, Bernuzzi and Radice, 2019). Merger are generally take place with motive of enjoying monopoly situation in the country by reducing number of competition, this creates issue for consumer as they need to pay high prices for the goods. This act Create challenge for AeroUk to keep the prices of the good at reasonable rate and follow all regulation related to competition.

Sustainability development:

India is focusing on using sustainable measures in the country which will help in reducing impact of company's operation on environment. Aerospace companies had created high amount of pollution in the country. It has been identified that 2.3 million tone of CO2 emission has been recorded in India due to aerospace company's operations. Various policies has been formed which emphasis on using SAF fuel in aircraft that assist in reducing environmental impact. This creates challenge for AeroUk for identify best measures which can assists in development of companies with equivalent protection to environment. Company is already taking measures for enhancing sustainability in country but it needs to pay more focus toward the suitable laws which has been created in chosen country (Pierson and Higbie, 2022). It has clearly defined that models and devices of aerospace should be formed which could help in reducing using of fuel and work on SAF fuel. Company need to invest in determine best technology by which efficient and effectively process of company could be carry out.

Customer's Preference

In today's situation customer are more preferred towards development of domestic business and organization. Individual prefer purchasing from companies which are carrying out there operation domestically and aims at improving their profitability. These create issue for AeroUK as it is international company which takes time to gain confidences and trust of local people. Merger usually results in increasing in the price of goods which create inflation in the country. Social aspect of consumers also creates challenges for company to link all there working with beliefs and attitude of local people. Company need to incur high cost on research and development to identify scope of merger in Indian market. This increase cost for the company and eventually impact on overall position of AeroUK.

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Acquiring Investors and Supplier

Company need to attract investors and suppliers which helps in successful working of the firm. AeroUk faced challenge in gaining and attracting investors as existing investors lack confidence in investing into new company (Rampat et al, 2021). Firm needs to incur in sustainable activities which will help in creating positive image and enhance reputation of the firm. This will assist in attracting new investors and solving issue of the additional capital when required.

Difference In Institutional Environment

Institutional environment refer to the set of rule, legislation and norms which are being followed in particular country. It has been identified that UK and India differs drastically in there instructional environment. This creates challenge for company to mould its regulation which will beneficial in fulfilling India and UK's regulation. India business culture is different form UK culture on the basis of punctuality, etiquettes, dress code, work life balance etc (Renneboog and Vansteenkiste, 2019). Company in UK is more punctual regarding completion of work and follows time line for each activity. There are rigid rules and regulation in company and any one violating such rule will need to face penalties. This create problem for AeroUk to hire employees in India which can fulfill all these guideline as in chosen country work environment is totally different form that of UK.

Institutional Duality

It refers to that company which is merging in another company need to follow rule and regulation of both countries. Firm should focus on developing strategies which do not violated law of any country and successfully carrying out its operation. Institution distance is the major factor which impacts the institutional duality for the company. Increase in distance between host and chosen country increases the impact of institutional duality. Company faced challenges in effectively identifying measures which can be useful in managing rule and expectation of both countries. This creates pressure on the merging company to successful completing task with consideration of laws of host and chosen company. Business entity needs to focus on the sustainable act that is associates and beneficial for both the country as they are focusing on carries out operation with sustainable development.

Economic Factors

It has been identified that India is facing various economic issue which will hamper the growth and expansion of AeroUK. Inflation rate in India has been rose by 2.3% in current financial year. This indicates that it will create issue for company in procuring raw material at cheaper rate and increase the cost of operations. Rate of interest on loan has been increased that will create issue in raising additional capital for working and reduces overall profitability of company.

These are all the factors which impacted the successful working of the international company in India (Samantaray et al, 2020). Aero UK need to identify various measures and solution by which the impact of the factors could be reduces and which help in effectively working of all organization. These factors create pressure for company to formulate its strategies which can follow rule and regulation of both countries.

5. Conclusion and Recommendation

Recommendations

There are various factors which are impacting successful merger between AeroUk and Indian Company. AeroUk should undertake various measures which can be helpful in overcoming or mitigating the impact of this risk. It will assist in successful carrying out the process of merger and results in increasing its market share. Following are various recommendations which AeroUk should implement before entering into new market:

• AeroUK should focus on forming strategies with consideration of cultural and ethical belief of country (Sarala, Vaara and Junni, 2019). It has been identified that people in India are more focused toward their culture and any mistake in this will result in failure of company.
• Company should focus on provide friendly and effective working environments. It has been identified that retention of employees is highly depended on the bond among employees in India.
• Aero UK should focus in investing in research and development that enable them to get better insight of the countries rules and regulation. Company should focus on appointment of team which assist in determine laws of both country and all strategies should be evaluated on such basis.
• It has been indentified that India focusing on sustainable development within the country (Tarba et al, 2019). Firm should invest on identifying best measure which will help in reducing negative impact on environment and helps in attract more customers.
• Barrier in communication is core problem which company will face in efficiently carrying out its operations. AeroUK should include mode of communication which enable every employees in organization to better understand their task. Policies should be made clear to each employee so that no scope of Confusion is prevailing among them.
• Cultural and beliefs of each community should be given importance in the company that enables efficient and effective cross culture management.

Conclusion

It has been concluded from the report that company should focused on cross-cultural management while entering into international market. It has been reported that Aerouk has been entering into the Indian market for expanding its business operations. India has having stable economy and has shown an impressing growth in their GDP, which promotes scope for expansion. Country is having effective polices for sustainability which assist in achieving the goals of AeroUK for sustainable development. The transaction cost theory has been applied to identify the best mode of entering into a new market. It has been identified that market-based expansion provides less scope of diversification and include high transaction costs. The Company has been using mergers for expanding in the Indian market as it includes less transaction cost as company need not invest in the marketing strategies. After using hall context culture theory it has been identified that India and UK differ in their culture. According to theory, India come under high context culture in which relationships come over professional work and people pay less attention toward time. Whereas UK‘s culture has been classified into low cultural context in which professional life come over personal bonds. Hofstede cultural theory has been applied which assist in determine the high power index and collectivism has been adopted in India. This creates issue for AeroUk in internal management and cross cultural management.

Along with this, it has been articulated that company is facing high external management issue which in turn impacts company's strategy pertaining to merger. This issue includes government rules and regulation, laws regarding sustainability, economic and political condition of India. Country has formed various licenses requirement for international company which will help in protecting domestic company. This creates issue for AeroUK to form polices and strategy by which rules and regulation of country could be effectively fulfilled. It has been identified that AeroUk is going to face pressure form the both country regarding its working. For Compacting with all issues company should focus on investing in research and development which help in determine the appropriate strategies that fulfilling requirement of both countries. For gaining customer and government support in India Company should focus on indulging in sustainable activities that creates positive image of the company. It has been identified that company should focus on safeguarding belief and cultural that result in successful merger.

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