Indian Subsidiary Research Articles

OMNI Channel: Is It Really Omni?

This case study is about ZARA’s transformation from conventional stores for women’s apparel brands to omnichannel concept stores to provide a seamless shopping experience inside its stores. This case is about the time when, in 2019, ZARA’s Indian subsidiary was on the verge of adapting to a new concept store model. The challenges ZARA faced in transforming its Indian stores from brick-and-mortar stores into omnichannel stores, and ZARA’s entry strategies adopted across markets and its plan to convert from the current multi-channel strategy to omnichannel stores are all elaborated on in the case.

Two Decades of Industrial Disputation at an Indian Auto Plant: Lean Production versus Local Cultural Values

AbstractThis case study finds that disrespect by international expatriate managers towards local employees triggered long-term industrial unrest in the Indian subsidiary of the global car maker Toyota. Whilst innovative production models and their tools provide economic advantage to the company, the interaction of the application of the lean production model within the context of host country institutions often creates workplace disputation and unrest due to unilateralism and managerial hegemonies that overrides local customs and norms. The power of multinational enterprises to override or ignore institutional resistance and to inflict disrespect towards the local workforce can result in worker resistance, a lack of trust, and ongoing industrial unrest. This case study demonstrates how a lack of respect of local customs and workers grievances had long-lasting consequences in terms of the subsequent conflict and a poor industrial relations climate at the production plant in India.

Rocky road? Driving gender diversity & inclusion in Cummins India through inclusive leadership

Learning outcomes 1. To understand the importance of creating and implementing a vision for enhancing gender diversity and inclusion relevant to the manufacturing and engineering sector in an emerging market. 2. To develop insights into the vision and characteristics of an inclusive leader. 3. To evaluate the strategies and organizational levers that created and nurtured a climate of gender diversity and inclusion in Cummins India. 4. To identify organizational levers that will enable the sustenance and institutionalization of a climate of inclusion. Case overview/synopsis This case study traces a 16-year journey of diversity and inclusion at Cummins India, a subsidiary of the Fortune 500 manufacturing organization Cummins Inc. headquartered in the US. Initially spearheaded by Anant Talaulicar, and then continued by Ashwath Ram, gender D&I initiative at Cummins India has made significant strides. Talaulicar had an opportunity to immerse himself in the ethos of the parent company before joining the Indian subsidiary. In India during the early 2000s the external environment was characterized by rapid technological and regulatory changes and increasing complexity. To make matters more difficult, the internal culture was steeped in a traditional manufacturing mindset marked by dismal female participation rate and an over-representation of locals with similar beliefs and value systems. Given the mammoth task already taken up by Talaulicar by improving the diversity numbers from 3% to 33%, Ram had big shoes to fill. On one hand, he had to drive the business amidst uncertain market conditions; on the other hand, he had to carry on a legacy. Given that he himself had a lived experience of Cummins global values, he knew D&I was an integral part of the Cummins way of life. His familiarity with the socio-cultural challenges of the country coupled with his drive to continue and rejuvenate the D&I agenda, brought some interesting, yet challenging, questions for him. With the internal and external pressures looming large before him, could he institutionalize a climate of inclusion that could serve as a strategic lever to place the company on the path of growth, vibrancy and economic prosperity? Through qualitative research conducted by the authors, this case study brought out learnings pertaining to linkage of leadership in creating a climate of inclusion and expansion of talent diversity through a set of people strategies and HR practices. The contribution of this case study is primarily to theory and practice in the field of Human Resource Management, D&I as well as in developing inclusive leadership. Complexity academic level MBA programs and leadership development programs Supplementary materials Teaching notes are available for educators only. Subject code CSS 6: Human Resource Management.

Nisha Files a Complaint

The case discusses a pressing problem that a Human Resource (HR) Lead was confronted with. A female colleague in the organization had filed a complaint of sexual harassment against a senior male colleague. The HR Lead had never dealt with such a case before and was worried about how to go about the enquiry process and resolve the matter based on the laws applicable in India. This complaint was received at such a stage in the organizational lifecycle when the organization—Kapoor Housing Finance Limited (KHFL) had acquired another organization—Munich Home Finance Limited (MHFL) which was the Indian subsidiary of a multinational bank. While in the short run, the complaint of sexual harassment was seemingly important, however, in the long run, this complaint could be a sign of deeper issues that might have emerged due to the recent organizational change process of Merger and Acquisition (M&A) that the organization and its employees were witnessing. The employees of both the firms could be under stress because of changing expectations and uncertainties arising from restructuring, reshuffling and fear of relocation and layoffs, etc. How should the managers deal with changing dynamics arising out of the organizational change? The case attempts at finding solutions to the problems to increase the level of co-operation, trust and collaboration among the employees.

Would Mondelez branch out into plant-based products in India?

Research methodology Prepared based on Secondary Sources of Published Information. Case overview/synopsis Mondelez International launched Cadbury Plant Bar in UK in 2021. It was a plant-based chocolate made using almond milk as a substitute to the conventional product to target vegan consumers. The Indian subsidiary of Mondelez International, always known for its various dairy-based products, had many sub-brands in chocolates and related categories, which were targeted at children and adults effectively. Though the company had been the market leader for about 60 years, it was yet to plan for the launch of any vegan products in the country. However, there were several new marketers who had proactively launched their respective vegan products in India, whereas large companies like Mondelez were shying away from plunging into this game. This case explores the market available for Cadbury Plant Bar in India and whether Mondelez can introduce a similar version in India. Complexity academic level The case is suitable for use in the Marketing Management course of MBA programmes. It can also be used in elective courses related to Brand Management and Integrated Marketing Communication.

The role of recontextualization and socialization practices in transferring corporate values from a small Norwegian IT company to an Indian subsidiary

Companies that nurture a shared corporate culture based on specific corporate values can improve their performance. However, when companies expand globally, communicating and transferring these values can be challenging, particularly when there are significant linguistic and cultural differences. This qualitative study examined the case of a small Norwegian IT company that has put its two corporate values at the core of its activity, and how these values were transferred to a subsidiary in India. Drawing on the concept of recontextualization and socialization theory, the study investigates the following: (1) how the corporate values were transferred, recontextualized and renegotiated in the Indian subsidiary; (2) how those values were implemented through a set of socialization mechanisms. Our main findings reveal how the Indian leaders actively recontextualized the values into prevailing cultural practices in India, and how senior employees were engaged in the value transfer process. Moreover, this article outlines how a small company without a formal HR department and with no expatriates to guide the process can use soft control mechanisms related to more formalized and structured HR practices to implement the headquarters’ values. Additionally, the article discusses the theoretical and practical implications of the findings.

Country Note: Abolition Of Ddt In India: A Treat For Foreign Investors?

The Indian government eliminated the much maligned dividend distribution tax (DDT) through Finance Act 2020. The abolishing of the DDT marks a return to the shareholder regime of dividend taxation (hereinafter ‘shareholder regime’). Foreign enterprises (generally multinational corporations) aiming to do business in India through subsidiaries or enterprises that already have subsidiaries in India can benefit from this change. This article analyses the tax impact of this change when an Indian subsidiary distributes its profits to its parent or holding company. Thus, the paper presents a tabular representation of taxation in the DDT regime and the shareholder regime and compares them. To present the complete scenario, the paper also analyses different profit distributing mechanisms other than dividends that are used by companies – specifically, the buyback of shares and share capital reduction. Finally, limited liability partnership (LLP) firms offer another vehicle for companies to conduct business in India. Thus, the paper also analyses the taxation aspects of an LLP distributing profits to its partner company. The return to the shareholder regime will allow non-residents to avail beneficial tax rates provided for dividend taxation in double taxation avoidance agreements (DTAAs) signed by India with other countries. Thus, the final section of this article discusses the mechanisms that are in force to prevent treaty shopping. The principal purpose test (PPT) brought in by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (Multilateral Instrument or MLI), the threshold of beneficial owners found in most DTAAs, and India’s domestic general anti-avoidance rule (GAAR) are analysed to determine the essential requirements of these mechanisms. CFC, Individuals, BEPS, Action 3, Brazil.

A modified boosted support vector machine to rate banks

PurposeThe purpose of this study is to compare the classification learning ability of our algorithm based on boosted support vector machine (B-SVM), against other classification techniques in predicting the credit ratings of banks. The key feature of this study is the usage of an imbalanced dataset (in the response variable/rating) with a smaller number of observations (number of banks).Design/methodology/approachIn general, datasets in banking sector are small and imbalanced too. In this study, 23 Scheduled Commercial Banks (SCBs) have been chosen (in India), and their corresponding corporate ratings have been collated from the Indian subsidiary of reputed global rating agency. The top management of the rating agency provided 12 input (quantitative) variables that are considered essential for rating a bank within India. In order to overcome the challenge of dataset being imbalanced and having small number of observations, this study uses an algorithm, namely “Modified Boosted Support Vector Machines” (MBSVMs) proposed by Punniyamoorthy Murugesan and Sundar Rengasamy. This study also compares the classification ability of the aforementioned algorithm against other classification techniques such as multi-class SVM, back propagation neural networks, multi-class linear discriminant analysis (LDA) and k-nearest neighbors (k-NN) classification, on the basis of geometric mean (GM).FindingsThe performances of each algorithm have been compared based on one metric—the geometric mean, also known as GMean (GM). This metric typically indicates the class-wise sensitivity by using the values of products. The findings of the study prove that the proposed MBSVM technique outperforms the other techniques.Research limitations/implicationsThis study provides an algorithm to predict ratings of banks where the dataset is small and imbalanced. One of the limitations of this research study is that subjective factors have not been included in our model; the sole focus is on the results generated by the models (driven by quantitative parameters). In future, studies may be conducted which may include subjective parameters (proxied by relevant and quantifiable variables).Practical implicationsVarious stakeholders such as investors, regulators and central banks can predict the credit ratings of banks by themselves, by inputting appropriate data to the model.Originality/valueIn the process of rating banks, the usage of an imbalanced dataset can lessen the performance of the soft-computing techniques. In order to overcome this, the authors have come up with a novel classification approach based on “MBSVMs”, which can be used as a yardstick for such imbalanced datasets. For this purpose, through primary research, 12 features have been identified that are considered essential by the credit rating agencies.

Vodafone and Idea Merger: A Shareholder’s Dilemma

In the month of May 2019, Ms Priya Vaidehi who works as a chartered accountant in a small firm in the city of Pune was pondering about her personal investment. While surfing on social media on the sunny hot afternoon of 2 May 2019, she came across the news of the biggest merger deal in the Indian telecom sector. The news was about how Britain’s Vodafone Group merged its Indian subsidiary with Idea Cellular, to create the country’s largest telecom firm. They mentioned how the combined entity will accelerate the pan-India expansion of wireless broadband services and also expand financial inclusion through mobile money services. Since the merger, the network has an outreach of 92 per cent of population of India. Ms Vaidehi planning for her future investments narrowed down her investment search to do a deeper analysis of the merger of two telecom giants Vodafone and Idea. The Indian telecommunication market has a subscriber base of 1.20 billion and is rapidly growing. The country’s wireless subscriptions has witnessed compound annual growth rate (CAGR) of 19.62 per cent to reach 1,183.41 million in the year 2018. Over the past few years, from the announcement of merger to the declaration of completion of merger, she has noticed that there has been volatility in the share price of Idea Cellular. Though the subscriber base of Vodafone, Idea’s is around 400 million, and sales had gone up 53.5 per cent in the third quarter of FY 2018–2019, but the share price had been plunging to an average fall of 14 per cent. She was in deep thought whether she should invest in buying the shares of Vodafone Idea? Will her instinct help her or the knowledge of financial markets aid in taking the right decision?

“Wag the Dog” initiatives and the corporate immune system

PurposeThis paper aims to contribute to the subsidiary initiative literature by studying the interaction between a headquarters and its subsidiary during an initiative process that has the potential to “wag the corporate dog” that is, for the global corporation’s promising subsidiary initiative in a strategically important emerging market to question the corporation’s prevailing schemata.Design/methodology/approachThe longitudinal single case study draws on evidence from the Indian subsidiary of Swedish Volvo Bus and its efforts to introduce a value product in India.FindingsThe study argues that wag the dog initiatives provoke the corporate immune system independent of the initiative’s potential and the subsidiary’s autonomy and legitimacy. If the idea behind the wag the dog initiative is perceived as strategically important for the multinational corporation, then the corporate immune system tries to engulf – most likely unsuccessfully – the idea within the prevailing schemata. Failed attempts to engulf the initiative weaken the corporate immune system temporarily, thereby opening the organization to revitalization of the original initiative. Resistance, even though weakened, from the corporate immune system continues to exist.Practical implicationsSubsidiary managers need to avoid having their headquarters perceive an initiative as a wag the dog initiative by balancing their need to sell persistently the initiative with avoiding negative attention.Originality/valueThis study is a pioneer in explaining how the corporate immune system reacts towards wag the dog initiatives taken from subsidiaries in large emerging markets.

Axel Motors

The case deals with Axel Motor's expansion into India and the clash between expectations and communication styles of the Indian subsidiary and Headquarters. While the subsidiary wants to follow a responsive, market-driven approach to product design and marketing strategy, the top management is driven by the strong belief that the group's core values are universal and no tweaking is needed for particular locations. Anil Mishra, Head of Sales, and the team at the corporate office of Axel Motors India have received an email from Maximilian Klotz, Head of Strategy at Axel Motor's Headquarters. Klotz has expressed complete dissatisfaction with the performance of Axel Motors India. Mishra and the team have to decide how to handle the challenge of getting their input - based on an understanding of the local environment - valued at Headquarters.

Innovation capability building in subsidiaries of multinational companies in emerging economies: Insights from the wind turbine industry

Abstract Research on the catching up of latecomer firms has generally overlooked whether, and how, subsidiaries of multinational companies (MNC) operating in emerging economies have developed innovation capabilities. Existing research on innovation capability building in MNC subsidiaries mainly employs quantitative research designs, comprising large samples of MNC subsidiaries using patent statistics to generate insights at a highly aggregated level of analyses. Accordingly, the existing research fails to capture the micro-level dynamics of learning and innovation capability development over time within individual MNC subsidiaries. To overcome this knowledge gap, we pursue a case study approach in this paper, drawing on qualitative data in order to generate an in-depth analysis of the processes underlying innovation capability building within a single MNC subsidiary. We examine the innovation capability development trajectory of a local Indian subsidiary of a Danish first-tier supplier of wind turbine blades. We adopt an analytical framework based on the literature on innovation capability building in latecomer firms, which is combined with insights from the literature on MNC subsidiary capability evolution. The paper points to the key role of the parent company and internal learning in the subsidiary as the basis for the advanced level of innovation capabilities achieved by the subsidiary, enabling it to become a supplier of innovations to its parent company. Contributions to the literature on innovation capability building in latecomer firms are presented and discussed.

The evolution of innovative activity in Asian emerging market subsidiaries of Western MNC’s: the case of Bühler India

Subsidiaries of Western multinational companies located in Asian emerging markets are increasingly taking on a more competence-creating role. However, few studies have explored how these subsidiaries evolve from low-cost manufacturing to innovation. This study builds on longitudinal case data retrieved at the Indian subsidiary of Swiss processing technology manufacturer Buhler AG. The results reveal cross-functional interaction as a key mechanism driving subsidiary evolution and suggest that the relative importance of internal and external linkages varies based on the type of innovation. Thus, managers should also pay attention to innovation-related capabilities developed by other departments than official R&D units.

Entity Versus Enterprise: Dealing with Insolvency of Corporate Groups

Business is being increasingly viewed on an enterprise basis; accounting standards and securities regulators view the business on a “group” basis. However, corporate laws remain anchored to separation of legal entity; this is largely the case of insolvency laws too. However, given the primary object of insolvency laws to rescue an entity, an entity-focused approach mostly may fail to do justice to the needs of an ailing enterprise, where resources, operations and assets may be scattered across entities. In liquidation too, where the intent is to liquidate assets, if the assets are entangled across entities and jurisdictions, no meaningful liquidation may be achieved. While the approaches to achieving group-focused insolvency resolution or liquidation may be many, there are essentially two major ones – procedural consolidation, and substantive consolidation. Procedural consolidation is where the proceedings of insolvency of different entities are coordinated, even if before different judicial or adjudicating authorities. This has successfully been done in several major insolvencies involving cross-border entities, such as BCCI, Maxwell, Lehman and Madoff. Substantive consolidation disregards the separation of entities and pools the assets and liabilities of various entities into a common hotchpot. This extreme remedy is rarely used, even though UNCITRAL has been aggressively working on developing the principles for the same. Basically, substantive consolidation is ordered by courts where pooling of assets and liabilities is to larger benefit of different creditors, and generally not prejudicial to any. Mostly, this is done under circumstances similar to those inviting “lifting or piercing the corporate veil”, even substantive consolidation is different from veil lifting or piercing. Judicial comfort to substantively consolidate entities has been oscillating over time, though the ruling in Owens Corning seems to be a significant milestone. In India, even though there are no precedents to substantive consolidation under winding up proceedings, there have been several rulings of courts where lifting/piercing of veil has been done. This is mostly done in cases where there is abuse of corporate personality. Thus, explicit provisions in sec. 36 (4) (d) of the Code, whereby the assets of an Indian or foreign subsidiary are not to be treated as a part of liquidation estate, may not been as doing damage to the essential principle of disregarding corporate personality, where the personality itself is not real.

Power distance in India

PurposeThe purpose of this paper is to explore how cultural differentiation can affect the successful transplantation of lean management and production techniques from the parent country to subsidiary countries in the developing world. In particular, the focus will be on car manufacture in India and the role of hierarchy in Indian society, with reflection on how this seeps into workplace and power relations.Design/methodology/approachLean production techniques have been hailed as revolutionising modern manufacturing, particularly in the automotive sector. In developed world countries, car manufacturers have made significant gains in efficiency and productivity as a result of their implementation. However, as many of these multinational companies (MNCs) have expanded production into rapidly-developing nations to take advantage of both their market and low-labour costs, the introduction of lean production practices have met some resistance. This is because certain underpinning concepts and values of the lean system, such as team work, delegation of authority and upward communication can be considered incompatible with aspects of local culture and employees’ attitude towards work and their superiors. The analysis presented is based on a series of semi-structured interviews with managers and workers from an India-based subsidiary of a MNC car manufacturer and engagement with the existing literature.FindingsIt concludes that paternal relationships, religious values and group orientation in Indian society have a significant impact on the dynamics of the workplace and result in a brand of power distance that is specific to this national context, raising questions about the suitability of universal implementation of lean production practices.Originality/value“Power distance” has become a catch-all term for cultures with an orientation towards hierarchy and status in society. However, this categorisation masks some of the factors belying the phenomenon and intricacies relating to how it plays out in the workplace. It is simplistic to postulate that high power distance cultures might be incompatible with management approaches that decentralise authority and increase worker participation. Rather than rely on overgeneralisations, the analysis provided has attempted to deconstruct the composition of power distance in the Indian context and document systematically how features of Indian culture conflict with the principles of lean production techniques, using a case study from an Indian subsidiary of a MNC. In particular, the study finds that religion, caste and paternalism create an India-specific power distance that manifests itself in worker behaviour and workplace relationships.

Lean Production, Izzat and Industrial Conflict in the Indian Auto Sector: A Case Study

The purpose of this article is to highlight the role that Izzat played in the unfolding industrial disputation that emerged at the Toyota plant in Bangalore between 1999 and 2007. Isolated instances contributed to a build-up of employee and community resentment at what was perceived as an attack on Izzat. Behind the events is the attempt to transpose Japanese “lean production and management systems” into an Indian subsidiary where local industrial and cultural conditions were not suitable for the imposition of such practices from headquarters to a subsidiary. The result of the analysis contributes to the understanding of workplace industrial relations (IR) in India and the centrality of Izzat. Within India, the significance of trade unions; the respect of employees; the importance of family and community; the importance of seniority; and the role of respect and honour are factors that multinationals often fail to understand in the design and implementation of their production and HRM systems. The study contributes to the debate over the transferability of standardized HRM policies and practices. MNEs should play a proactive role in supporting the employees of subsidiaries to adjust to and accommodate new paradigms in workplace industrial relations. The aggressive production and HRM practices at the Toyota plant were not compatible with the norms and cultural institutions of the Indian workforce. One of the key implications of this research is that foreign production, organizational and industrial relations systems and practices cannot be transplanted into host-country environments without the due recognition of key cultural conditions, notably Izzat in India.

Case Note: Payments to Foreign Entity to Accelerate Access to Online Content Not Income under Income Tax Act or United States Treaty

This case note summarizes the recent ruling by the Authority for Advance Rulings in Akamai Technologies Inc. that payments received by a foreign company from its Indian subsidiary for a content delivery solution to accelerate online content and business processes under a services reseller agreement were not in the nature of fees for technical services or royalties under the Income-tax Act, 1961 or the India-United States Income Tax Treaty (1989), and that the arrangement did not create a permanent establishment of the foreign company in India.

Case Note: Subsidiary of Foreign Parent Not Permanent Establishment in India

In this case note, the authors outline the ruling by the Authority for Advance Rulings in Saudi Arabian Oil Company, which determined that an Indian subsidiary of a Saudi Arabian company did not constitute a permanent establishment in India under article 5 of the India-Saudi Arabia Income Tax Treaty (2006) where the Indian subsidiary merely provides business and marketing support services to its Saudi Arabian parent company.

Amiad acquires full ownership of Indian subsidiary

Amiad Water Systems Ltd has acquired 40% of the issued and outstanding share capital of its Indian subsidiary, Amiad Filtration Systems (India) Private Limited (Amiad India), from its local partner.

Analysis of the Samsung Case on the Determination of a Permanent Establishment for Services Provided by Seconded Employees of a Korean Parent to Its Subsidiary in India

This article examines the ruling of the Delhi Bench of the Income Tax Appellate Tribunal (ITAT or the Tribunal), i.e. the highest fact-finding authority under the Indian Income Tax Act (the Act), in the case of Samsung Electronics Co. Ltd. and the ramifications of that case for the interpretation of the treaty article on the determination of a permanent establishment, especially in the case of expatriate employees seconded and visiting the Indian subsidiary and the attribution of profits to a PE. The issue of reassessment proceedings under Indian law is also considered.