Three lessons from Wal-Mart’s India adventure

Image courtesy of Bharti WalmartDespite Wal-Mart’s alleged misbehavior elsewhere, the company deserves a little sympathy for its ongoing troubles in India. It has spent decades fighting the good fight against resistance in New Delhi to the idea of foreign retailers.

That said, Wal-Mart’s struggles provide a handy summary on how companies routinely create their own compliance problems in India. Most of these choices start as innocuous business decisions and turn into problems after a few reporting cycles.

Here are a few practices that routinely land foreign companies in trouble in India:

• Run India through China HQ. Sino-centric executives typically have little insight and even less sympathy for the very different conditions faced by India-based leadership. Certain critical reporting lines for Wal-Mart India ran through Hong Kong. While China is usually a more important market than India for most companies who operate in both places, the compliance challenges presented by India are idiosyncratic and not well served by China-based reporting lines.

• Your “Compliance Team.” The typical compliance structure at an Indian company is dominated by a CFO to whom the head of legal and the statutorily required company secretary usually report. The strong CFO/weak in-house legal tradition is improving slowly but the attitude behind it often dampens compliance efforts. Foreign companies typically layer correct titles and organizational structures atop this traditional power structure.  Wal-Mart innovatively cut to the chase by combining the CFO and general counsel positions in a CFO who had a law degree. The results were predictable and weren’t good.

• Living La Vida Local. Korean companies such as Samsung, LG and Hyundai have been conspicuously successful in embedding themselves in Indian consumer life since the beginning of liberalization. Those companies are not shy about transferring their values through large numbers of expats. Cost-cutting and rising skill levels in many markets have combined with a latent political correctness to put expats in bad odor, particularly for U.S. companies. However, companies should consider carefully if their India operations can benefit from selecting critical people who can transmit their values. The risks are particularly high if you have a strong local joint venture partner, as Wal-Mart does in India. Alternatively, you should accept the likely implications of a maintaining a largely indigenized operation in a corruption-ridden country.

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Russell Stamets is a Contributing Editor of the FCPA Blog. He was the first non-Indian general counsel of a publicly traded Indian company and was general counsel for a satellite broadcasting joint venture of a large Indian business house. Russ can be contacted here.