4.1 Isomorphism to Local Institutional Conditions: Interactions with the Regulator
Most of the institutional work is carried out daily with the banking regulator—the RBI (Indian central bank). Given the centrality of the regulator, MNBs respond to legal duties and interact with it through organisational practices observable at the level of the organisation (conformity to the regulator’s requirements and collective lobbying) and country managers’ personal relations with the regulator. For the regulator to grant a licence or any specific favour, foreign banks must justify why they are in India and how they are contributing to the Indian economy: “It’s true that we have to prove our raison d’être” (French bank 3 CEO). Similarly, “We put up billions of dollars on the table” (this firm had acquired the Royal Bank of Scotland’s Indian corporate asset portfolio). “This is a strong commitment with respect to the RBI” (Emirati bank CEO). In addition to pressuring foreign banks for commitment, the regulator has also proved to be quite bureaucratic in its relationships with MNBs: “The regulator is very punctilious and intrusive. It is difficult to meet its requirements” (French bank 1 CEO); “Although the regulator carries out an overall audit only once per year, we (i.e., our bank) receive letters from him every week requesting some information” (French bank 1 CEO). In contrast, other foreign banks’ CEOs stated that the regulator was rather accessible: “When it comes to representing the bank’s activities in India, we can say that the regulator is very approachable—no need for any intermediary to talk to the regulator” (Singaporean bank CEO); “We talk to the regulator, try to understand what [he] wants. The regulator is very approachable” (Canadian bank CEO). However, French bank 3 CEO noticed that since September 2016, when a new RBI governor was nominated, “It has become impossible to meet the RBI, [and] embassies say the same thing. The RBI governor is inaccessible and very silent. We miss the former governor.”
Therefore, country managers have tried to engage in interactions with the regulator: “In addition to office work, there is also an institutional representation work: French and European institutions in India […]. French bank CEOs meet very regularly, less often than with other European banks. It’s mostly the case at European Business Group meetings: We produce a yearly brief for the public authorities. It’s like lobbying regulatory institutions” (French bank CEO 1). One key issue for foreign MNBs in India relates to their collective organisation: “Foreign banks are institutionally very poorly organised: There is no professional association. There is the IBA [i.e., Indian Banks Association] but the agenda of the IBA is very domestic. Large Anglo-Saxon foreign banks do not need professional associations; they already have their own institutional channels and want to protect this advantage vis-à-vis other foreign banks. They do not need any sectorial organisation” (French bank 3 CEO). All MNB country managers agreed on the need to approach the regulator routinely. Complying with demands is central to this process; thus, we consider it isomorphic from a coercive point of view. Although MNBs in India spend significant resources developing relations with the regulator, the lack of institutional rooting and the inability to organise collective actions remain essential challenges. Indeed, several foreign MNBs have recently withdrawn from the Indian market (e.g., the Commonwealth Bank of Australia in 2016). However, French MNB subsidiaries—despite complaints regarding the high level of bureaucratic management—have been able to meet the regulator’s requirements.
4.3 Political Activism: Interactions Between Governments
Interactions at the highest political level remain elusive for the French MNBs, even though core decisions regarding entry into the Indian market, along with the number of branches across the territory (i.e., distribution), mostly lie within the host government. The following statement illustrates how crucial political relationships are in this industry: “If your government has a good relationship with the government of India, banks are more successful. This is just a point to keep in mind” (Singaporean Bank CEO). Intergovernmental relations represent the backbone of international banking development, consistent with the national sovereignty characteristics of the banking industry.
To enter the market, foreign banks must obtain a banking license, which requires a long process that has more to do with political than business negotiations. Throughout this process, regulators tend to adopt a conservative approach to prevent foreign banks from gaining too large an access to the Indian market, so that they ensure that they meet World Trade Organisation obligations, as stated by Shaji Vikraman, in the daily The India Express: “The power to grant licences to banks, both domestic and foreign, lay with the central bank and were laid out in the RBI Act. But to determine the number of branches for foreign banks in India, and to ensure compliance with international rules like those specified by the World Trade Organisation, the Ministries of Finance and Commerce too were involved” (Licensing foreign banks: RBI’s caution and a hard lesson, April 5, 2017). More precisely, a committee composed of central bank and government representatives makes the decision regarding the number of branches to be granted to the foreign bank: “The proposals of foreign banks intending to start their Indian operations, either through branch operations or representative offices, are vetted by a high-powered committee which includes representatives from the home ministry, finance ministry, Reserve Bank of India and intelligence agencies.”
Archive documents from French bank 2 reveal that the license acquisition process depends considerably on intergovernmental relationships. French banks 1 and 2 sought a licence to operate in India at around the same period (beginning in the 1980s). A French bank 2 internal note states: “The decision between several same-country candidates is based on: the applicant’s international standing reputation and pre-existing activities developed in India …[and] the anteriority of the licence request, conditioned by recommendations formulated by home country authorities”. The latter aspect highlights the importance of French authorities in shaping the decision regarding the banking licence. In this particular case, it is interesting to note that there was a conflict between the French authorities and the Indian Ministry of External Affairs on one side and the Ministry of Finance on the other, the former privileging French bank 1 and the latter French bank 2. Despite an audience with Prime Minister Indira Gandhi, the decision was shaped in favour of French bank 1.
Moreover, political interactions do not cease even after the foreign bank has entered the market. French bank 3 CEO related how the Indian subsidiary has been at the centre of a political negotiation by connecting its clients with the Indian Minister of Finance: “The Indian Minister of Finance was in Paris for an [Organisation for Economic Co-Operation and Development] meeting and went to Roland-Garros [a tennis tournament]. I got a phone call from one of my Indian clients asking if it was possible to get tickets with the Indian Minister of Finance. It was very easy for me to get the tickets through the headquarters. We were the three of us at the tennis match, I left them at some points: they discussed a lot as they had things to tell each other. The goal was to see each other outside India.” This example illustrates that French bank subsidiaries in India, however small, are connected to key politicians and even establish a bridge between the corporate and the political worlds. They maintain corporate institutional relations with the support—when needed—of the headquarters. The case of India is particularly revealing, as the current political climate may not allow corporate employees to meet the government and discuss issues openly. Only outside the country can they talk freely.
To gain access to the Indian market, MNBs have established relationships with host and home governments. As a WTO member, India is required to open its market to foreign MNBs, and yet this process is carefully monitored by both governments. French MNBs must spend a considerable amount of time lobbying for their entry to both governments in competition with their peers. However, these political interactions do not cease following their entry into the local market. Country managers reveal that they maintain a high level of political interactions at the crossroads between corporate clients and the government. The case of India is particularly revealing, as the current political climate does not allow business groups to discuss issues openly with the government inside the country. Such discussions can happen abroad, notably with the help of foreign MNBs, which often represent the overseas institutional and financial support of such business groups. Thus, French MNBs use political tools (home–host diplomatic relations and corporate institutional relations through the appointment of intermediaries) to secure a good relationship with the host government, which is less conservative than the regulator.
The political activism legitimation strategy involves the appointment of intermediaries, especially for French bank 2. Following an initial setback, described previously, French bank 2 continued to lobby the Indian government taking a different route, as stated in an internal note: “We’ve just met with some ‘middlemen’ to get the licence: Z—who is close to Indira Gandhi […] and S—met at the Duke and the Duchesse de la Rochefoucault”. In another internal note, French bank 2 also recruited “two advisors to facilitate our licence application: Mr. M—whose name should not appear as he is a ‘member of the family’, and Mr. G—[…] funded on our entertainment budget […]. We need to hide the payment source, especially his treatment and flight tickets”. French bank 2 obtained the licence in 1984 at a time when Indo–French relationships were deepening significantly.
4.4 Rhetoric Legitimation: Interactions with Local Clients, the Civil Society, and the Media
We observe that political lobbying and regulatory compliance interactions are not sufficient to grow business; ultimately, the subsidiary’s survival depends on its capacity to attract local customers, which defines its local commercial performance. From this perspective, rhetoric strategies of legitimation aim at diffusing a positive image of the organisation and give a prominent role to communication to, and public relations with, key legitimacy providers. Our results suggest that rhetoric processes target three recipients: local customers (and indirectly local competitors), the civil society, and, to a lesser extent, the media.
We start with the marketing perspective and first present interactions with local customers. In terms of relationships with clients, rhetoric strategies tend to be supported by three categories of practices: a specialization offering strategy carefully communicated to the market, an ethical reputation in brand management heavily emphasized in the communication with clients, and the management of customer relationships adapted to the Indian culture. The first two heavily rely on the transference of a global expertise and ethical reputation from the headquarters to the subsidiary. The third relies on effective cultural sensitivity of the organisation concerning the host environment.
Looking in detail at the three categories of practices used in rhetoric strategy, we first note that French MNBs tend to specialise in a set of corporate activities based on exclusive competences that local banks do not possess, and they carve out market niches where they can enjoy monopolistic positions. French bank 3 CEO says: “We bring funding to the Indian economy where Indian banks cannot go” (e.g., they engage in international operations, especially those involving MNBs’ home markets, offering services such as foreign exchange and access to capital markets). They also accompany Indian firms abroad by providing a range of services (e.g., tax payments, salary treatments, customs guarantees). No Indian bank has the capacity to follow its customers in Europe, and similarly, no French bank has the capacity to follow an Indian company in the United States (this business accrues to American banks): “If an Indian company wants to take over a firm in Europe, there will be no Indian bank to support it in Europe; therefore, the company has to rely on a bank present in Europe. […] More generally, each bank has geographical specificity; no bank can cover the whole world” (French bank 3 CEO).
We found that MNBs communicate about their superior expertise in designing complex products according to customers’ requirements and/or a specific sector: “There are many areas where Indian banks do not master the expertise, for instance in personal finance derivatives” (French bank 3 CEO); “There is a knowledge and technical expertise gap with Indian banks, who lag behind foreign banks by far in this respect” (French bank 1 CEO). In a similar vein, French MNBs have developed expertise in certain specific sectors (e.g., French Bank 1 is a worldwide leader in aviation financing) and hold certain clear advantages over other MNBs: “French banks are known to be good at structuring and in project finance” (German bank CEO), so that they can make use of this expertise rhetorically. French MNBs, as with many other MNBs (at least in India), are known for their high levels of service. Being a client of a foreign bank allows one to enjoy higher service quality, which Indian banks cannot provide currently (though some local banks, especially in the new private sector, are catching up quickly). For French bank CEO 3, “Banking business requires a high level of trust and a significant knowledge: We have [had] relations with Volkswagen for a very long time, for instance, not General Motors. Indian banks can’t do business with European companies as their level of knowledge is not enough.”
Second, rhetoric strategies used in the marketing context are based on MNBs setting up compliance departments in charge of internal control (“The internal police”, German bank CEO). When it comes to complying with world-class ethical standards, French MNBs retain a high reputation as well as governance advantage over local competitors:
“Our bank is known to be risk-averse, meticulous and to ask for many documents in order to mitigate potential risks to clients. When I was posted in Africa, our clients used to tell me that we were annoying. Yes, we are annoying, that’s true, but thanks to our meticulousness, for instance, we do not have any outstanding debts in the oil sector, where we are very much involved although prices are very low” (French bank 2 CEO).
“There have been significant issues around the Tata Mundra project [a large power plant project]. When contracting with Tata, we introduced a series of clauses, and today Tata is paying us, unlike Indian banks that need now to restructure their loans. We have a better risk assessment” (French bank 3 CEO).
However, a German bank CEO contradicted this view: “Japanese banks are very good in compliance, while French banks are lagging a little behind.”
These high ethical behaviour and reputation standards translate into awards that are displayed on websites and in corporate booklets. French bank 1, for instance, was nominated by the magazine The Banker as ‘Bank of the year 2007’ for its social and environment responsibility, and it is today the world leader in green bonds. Similarly, Fortune magazine ranked French bank 3 the sixth in the world in its World’s Most Admired Companies list; it was also nominated as ‘Best Bank of the Year 2008’ by The Banker magazine. French bank 2 received, in 2015, an Indian award for the best branding amongst small banks.
Finally, since the media and other civil society organisations are more likely to investigate MNBs at home and in respective host markets, these MNBs have developed strong ethical policies to cope with any negative reputation risk to their brand: “When appointing a French expatriate at the head of the subsidiary, this reinforces a discourse of governance under control and allows [us] to avoid the risk of certain practices such as corruption” (French Bank 1). Similarly, French bank 1 CEO put forward this specific action: “We stopped financing coalmine projects as well as coal-based power plants.” The three French banks also withdrew their participation in a mining project developed by an Indian business group in Australia, due to its proximity to a coral reef.
Third, rhetoric strategies used in the marketing context relate a customer relationships management style adapted to the Indian culture. Respondents made it clear that business with local customers is contracted between Indians (French bank 1 CEO: “Indians do business with Indians”). Therefore, those at the negotiation table are exclusively Indians. More precisely, all the MNBs studied herein resort to a similar coverage model: Below the CEO, a few senior bankers are in charge of a portfolio of personal contacts with top corporate managers in a specific industry, and it is their job to gain appointments with them. This coverage work is filled by Indian nationals, as they are deemed more knowledgeable about local business networks and negotiation practices. They can rely on customers viewing them as part of their in-group despite the foreignness of the organisation for which they work. Once a deal is potentially confirmed, the senior banker contacts the corporate investment banking team and asks for the right product expertise to suit the needs of local customers—for instance, in terms of loan instalment conditions.
Beyond the customer, the second category of recipients of rhetoric legitimation strategy is the Indian civil society. Firms must show strong compliance with the country’s cultural and religious traditions. French banks’ subsidiaries grow in the respect of Indian traditions and display the desire to be perceived as natives. For example, the book about the history of French bank 3 in India [The History of (French bank 3) in India, 1860–2010 (2010), 115p] describes the local rituals mobilized when a branch is opened: A Hindu prayer (Pooja) is executed following religious Hindu protocols, followed by the distribution of Indian confectionaries (laddoos) to employees. Another special Hindu prayer is used when antivirus software is installed on each computer, and afterwards, the computers receive a tikka (red religious mark affixed on the ‘forehead’ of computers).
French bank 2 also sponsors sports initiatives in India, and French bank 1 organizes internal auctions benefitting NGOs and educational institutions. French bank 3, which has developed a vast CSR program that covers various domains, organized an exhibition on the theme ‘Women Changing India’ to celebrate the subsidiary’s 150 years in India. The country manager of French bank 2 noted, “Responsibility is created everyday with clients. […] For example, our bank decided to step back from the coal sector. Responsibility in terms of addressing climate change is important for companies today, including banks.” More generally, MNBs also conduct a certain number of CSR activities in line with legal obligations: “We conduct CSR actions, but we do not go through a CSR agency. We have developed internal programmes managed by the HR department” (French bank 1). These initiatives are highlighted in the press and promoted on their website to reach civil society, customers, and the regulator. Indian nationals handle communication and public relations efforts in close collaboration with the headquarters and the country manager.
Finally, a third category of recipients of rhetoric strategies consists of the media. However, an interview with the economic editor of a leading economic daily reveals that the French MNBs in our study do not interact with local press to a great extent: “Reputation is something you’ve got to work on. For example, Citibank approaches journalists quite often. They meet the press regularly and they talk. British and US banks in general talk. European banks are quieter, which, as long as they face no problem, is fine. The day they are in trouble, the situation can very quickly worsen.” More than a possible country-of-origin effect, this reticence is attributable to the personality of the CEO, as a South African bank’s CEO mentions: “I like to talk. I often speak to the media. Also, it helps build the brand.”