BUSINESS & NONBUSINESS ACTORSIN A TURBULENT ENVIRONMENT

BY

Amjad Hadjikhani & GUMZU- Sjögren

Uppsala universitetReprocentralen HSCUppsala 1995

1. Introduction2. Network Model

2.1 Business & Non-Business Activities3. Bofors and the Turbulente in the Indian’s Business Environment4. The Swedish Firms and Bofors Scandal

4.1 Sandvik Asia Ltd4.2 Ericsson India Ltd4.3 Tetra Pak India Ltd4.4 ABB Ltd. (Rihand-Dehli project)4.5 Uri Civil Contractor AB4.6 Kokums AB4.7 Bofors AB

5. Analysis6. Conclusions7. References

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ABSTRACT

The existing studies in the industrial nehvork have devoted their attention extensivelyto the commercial actors. The politital and intermediary actors stand in the farhorizon and their impacts are implicitly considenzd to be manageable. These studiesmay be relevant for a condition of harmony or a positive interaction among theseactors. But the bushess world is becomiq increasingly complex and dynamit. ‘zheresearch question for this paper concems the interaction of politital, intermediarysystems within industrial networks. Tb research emphazis business, two interrelatedquestions. one question coum tbc basis of the relationship behveen these threenetworks. The next question is how a bange in the value of the politital systemmake change in the behaviour of intermediary and business actors. The studypresents six cases about the Swedlsh MNCs in India confronted with a changedpolitital value system and the. ability of management to understand UE Meraction ofthe three systems of politital, intennediary and business. ‘I%e aim of this paper is tocontribute some knowledge about the Wationships between the politital andbusiness networks.

1. Introduction

For analysis of the environment, the marketing and organizational literature identifydimensions like degmes of heterogene@, complexity, capacity, turbulente, anddynamism @aft, 1983, Steers, 1977 and Mintzberg, 1979). For each dimension aspecific strategic action is presented. Some devote their attention to influenceprocedure in the environment and some others concentrate on adaptations. ln thisconnection, i.e., Emery and Trist (1965) explain that the development of strategiesillustrates the principle of isomorphism (Aldrich, 1979). In the marketing literaturethe environmental factors are treated calculatively Therefore, the most literaturedealing with international marketing focus on the strategic plantring, implementationand control. This view simplifies the business environment and provides simpleprocedures to measure the uncertainty and strategic actions. The general utility inthese concepts is delimitation of the enviromnent from the fm. The disintegration ofthe environment has become a means to simplify the business world to implynormative strategy. It is because of such conceptualization that Mintzberg (1994) putssuch management principle under question and introduces a completely differentmanagement principle. He states that one major reason for the differentes in betweenthe intended and apparent strategy in the business world is the interaction of the sotalled environmental factors and the firms.

The critical problem in dealing with environment is the categorizations which areemployed by researchers as a mode for the establishment of simple models. But on

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the other hand the models can go so far that they may become autonomous conceptswith no connection with the real business world. The models assume a simpleprocedure. The action of one fum is to influence environment. Or they generallyassume that environmental impacts have a general and homogeneous influence on allfinns. This research, on contrary, aims to explain how an environmental problem fora firm defuses and influences other business firrns which in reality are far distantfrom the original problem. Moreover, how and why the fums are influenced is quitedifferent. This research aims to study the environment, specifically the interaction ofnon-business actors in India with the Swedish Transitional Companies (TNC). Byemploying the network model the research is to focus on the interactions behveen thebusiness and the so talled “environment”. The aim of this study is not to introduceanother model. It is rather is to show how change in an international environmentinfluences the business firms and also how the changes in the politital rules evolvedifferent changes for a variety of TNCs. More specifically, it is to study the impact ofthe polititians, media and people in India on Swedish fms because of a businessproblem which emerged from Bofors selling military artillery to Irrdia. The researchis based on 8 case studies. Attention is given to how and in what ways the 7 Swedishfirms were influenced by the changing environmental conditions. For analysis, thestudy employs the business network model. The study observes the environmentalelements as parts of the business netsvork having cooperative or conflict types ofrelationship. The final goal of the study is to conhibute mom knowledge to thenetwork model, i. e., concems the interaction of the business and nonbusiness actors.The result sims to provide some hypotheses about the interaction of these actors.

2. Network Model

Industrial network models basic classes of variables are actors, activities andresources. These variables are related to each other in the overall structure ofnetworks (Håkansson, Johansson, 1988). The model presumes the cumulative processwhich emphasizes that relationships are constantly established, developed and broken(Ford, 1986). The change is presented to be related to the bistory of and for themutual interest of the actors. The underlying assumption is based on a kind ofstability sinte the changes are also presumed to have stability. This concept is trueunder condition of minor and manageable changes in the structure of actors andrelationships. Such a view can be unrealistic when the changes are not so predictableor are of a more drastically nature.

The delimitation of business actors from environmental (non-business actors) canhave one of these three reasons,

a) the interdependency between the business actors are so strong that theexternal turbulente has no impact on the business actors,

b) oversimplification of the fatts and realities,c) assumption of an harmony in the environment which makes uncertainty

more predictable.But from the our point of view nonbusiness actors have an active role in the businessexchange. They, by the resources legal or politital positions that they control alwaysexert power and influence on the business actors and vice versa (Hadjikhani, 1993).The view employed in this study extends the barriers and integrates non-businessactors into the business network’s tontext.

The view of tontext in the network is becoming more tommon among researchers(Snehota, 1992). This statement emphases integration of institutional actors into thebusiness network for a better understarrding of changes (Sjöberg, 1993). Extension ofthe boundaries in studying the changes in non-business actors has substarmaladvantages for two main reasons,

a) it provides more understarrding about the actors in the so talledenvironment,

b) it integrates non-business actors like media, polititians and people which bytheir legitimate power undertake supportive or coercive actions to influencethe business relationships (Sharma & Hadjikhani, 1993).

This is more evident in condition of change where the nonbusiness actions causeuncertainty for the business actors. A weakening or absente of trust influences thebusiness actors’ relationship with the nonbusiness actors and the cumulative processin the relationship can be interrupted. The activities of nonbusiness actors influenceall actors. They can interrupt or strengthen relationships. The variety of consequencesdepend on the types of actors and relationships. Thus, the interaction withnonbusiness actors can tonfront the business actors with surprises and some tutresdramatically situations. The business actors usually at least in the short run, followthe roles they have adopted sinte the redistributive exchange imposed by nonbusinessactors is often by means of legislative power.

2.1. Business & Non-Business ActivitiesWhether there is a change or not the business network, in reality, integrates twodifferent types of actors, namely, nonbusiness and business ones. Business actorsoperating in foreign markets must adhere to the national laws and values and show

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willingness and interest in the demands raised by the lotal interest groups and actors.In general, the actions of non-business actors towards the business actors can bepassive or active. In the passive mode the role of the nonbusiness actors is limited tomaking exchange for some basic services and these supplies are often kept to aminimum. These supplies are more or less the same to all the business actors. In otherwords, the nonbusiness actors would not supply critical resources that could be usedfor competitive advantage by the business actors. This view of the non-businessactors falls very close to the role that neo-classical economics assigns to thegovemment. On the contrary. the active mode implies mat the nonbusiness actorspossess resources and execute activities mat are valued by the business actors. Theseresources could be fmancial or non-fmancial. The active mode, in tum, could besupportive or coercive.

A nonbusiness action is supportive when its impact on the business actors is positive.The supportive nonbusiness actor may supply valuable resource to business actors inthe shape of, for example, pecuniary support and subsidies. Thus, govermnents, e.g.,supply R&D grants and incentives to firms to export or to locate a plant in aparticular area or region. Some business actors receive more and others obtain less. Itis contingent upon the ability of a business actor to defme and interpret its ownactivities in terms of the prevailing ideologies, values and norms in the society. Theredoes not exist an ‘objective’ interpretation. A non-business action is coercive whennonbusiness actors by their legitimate position apply restrictions on a finns activities.Coercion could, in extreme cases, manifest in restrictions on the business actor’sactivities. Some are more subtle and less visible. For example, discriminating as tothe supply of specific resources that people have shown their willingness to provide.Govemment through imposition of quotas and/or resetving markets for certain firmsat the expense of others. Some actions, such as nationalization, are of course highlyvisible. Obvious examples are restrictions on, Japanese tar imports into USA,demands on lotal production and nationalization of USA owned firms in Iran afterthe 1978 revolution.

The tontent of the supportive or coercive actions taken by the nonbusiness actors canbe specific or general. The nonbusiness actions can be directed toward all thebusiness actors or they may focus on specific actors. Prohibition for imports from aspecific country or very high tariff for specific types of products from a country areonly two types of specific actions infhrencing the business exchange relationship. Inour view, the exchange between the non-business and the business actors is betteranalysed by researching its specitic characteristic rather man its general nature.

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In this respect, each business actor enjoys a ‘unique’ relationship with the nonbusinessactors in its enkronment. Thereby, a general coercive or supportive action pursuedby nonbusiness actors, particularly govemments, are myths. It is the ability of abusiness actor to relate its actions to the values and norms of the non-business actorsthat determines the true supportive or coercive nature of the actions. Thus, theintensity and the sevemess of supportive and coercive non-business actions areshaped by the ability of the individual business actors to interpret their actions interms of the prevailing values and norms. It is the specificity of the nonbusinessactions which become crucial for a particular business actor. An issue of interestconcems the degree of the non-business actions as well as the types and tontents ofthese actions. A low degree of coercive and specific action, e.g., may considerspecific regulations which leads to weakening the business relationship. A highdegree, on the other hand, leads to confiscation of the business actors ownership orinterruption of the business relationships.

3. Bofors and the Turbulente in the Indian’s Business Environment

In the beginning of the 1980s because of a contract between the Swedish firm Boforsand the Defence Ministry, a problem was rakes in the Indian politital and socialsystem. The media and opposition blamed the govemment for corruption and forseveral years there was a high uncertainty for the Swedish TNCs in India. There weredemonstrations in the streets and the newspapers were full of articles about the sotalled fiasco in the Rajiv Ghandi’s govemment and the state departments. Theaccusations dominated the socio-polkal life for several years. In the empirkal partthe attention is firstly paid on the source of the problem and then on how the problemeffected the Swedish firms.

The Bofors scandal in India is a clear example of how the non-business actorsinfluence business actors. Bofors, is a well known Swedish MNC which producesand sells products for military purposes. In 1986, Bofors signed one of the biggestcontract with the Indian arrny for providing 410 pieces of 155 mm howitzers PH 77.The contract also included ammunition and pulling vehicles. The contract was for thetotal sum of 8.4 BSCr. The negotiation had already started in 1981 and before thecontract the parties had several years hard discussions. The competitor was the stateowned Indian firm PIAT. After the Swedish election in 1982, Olof Palme, theSwedish prime Minister, assisted Bofors sinte the contract was important for theSwedish industry.

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It is not surprising then that the negotiations also beside Bofors and Indian Army,involved the govemments iu both countries. The negotiation was carried out at a highleve1 and eventually the parties agreed not to engage agents in order to reduce theproject’s cost. In 1985, the question for the Indian govemment was to choose betweenPIAT and Bofors. In the same year Rajiv Ghandi informed Olof Palme that thecontract can be signed with Bofors and recommended rniuor price changes andremoval of provision for the agents co&. Bofors, sinte 1970, had two unpopularnotorious agents, one in Switzerland and the other in Panama. Bofors informed theIndian govemment that the agents were not to be included in the project. In 1986,when Bofors reduced the project cost, all the demands from the bulian govemmentwere fulfilled and soon after the contract was signed.

In 1986, the central bank in Sweden discovered that Bofors had paid 188 MSCr to theagent in Panama. The investigation started and Bofors declared that the Panamamanfirm has always been as agent and the money is transferred legally. The SwedishCentral Bank accepted the declaration. But the acceptante also meant that Bofors hadnot followed the demand of the Indian govemment. This resulted in an enormousreaction in the media and among various people in India. Rajiv Ghandi had earlierlydeclared that he was going to fight against corruption and now he himself wasaccused of being iuvolved in corruption 1991. The media together with the oppositionstarted to blow up the affair and declared that Ghandi “Mr Clean”, was a part of theBofor& deal. Several powerful ministers and parliament members proposed toGhandi to annul the contract. Bofors was asked to disclose the names of agents whoreceived money, otherwise the contract would be annulled. Bofors did not accept andstated that the information were secret. A legal procedure was started to investigatethe problem and for a period it seemed that the problem was solved. In 1987, Ghanditogether with the defence minister and few others declared that they were going toinvestigate the accusations. In 1988, an Indian newspaper printed an article about thesecret payment of Bofors to the agents. The new ligure was 319 MSCr. The articleblew up again the affair and new articles and demonstrations agaiust Ghandi started.The Ghandi administration tried in many ways maintain a distance from the problem,but it was impossible. The opposition started to take up the affair in the parliamentand Ghandi had difficulty to defend his innocence. In the 1989 election theopposition took advantage of the accusations on Ghandi, and succeeded to defeat theCongress party. The whole election was dominated by the corruption changes againstthe Ghandi administration.

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4. The Swedish Finns and Bofors Scandal

The following the discussion is devoted to a presentation of 7 case studies (includingBofors). The emphasis is on the question of how Bofors scandal caused disturbancesin the relationships between the other Indian buyers and Swedish TNCs. Theinformation are gatbered has been by interviews and published articles about theaffair. The interviews with the responsible managers were carried out both in Swedenand India.

4.1. Sandvik Asia LtdThis firm is the Sandviks subsidiary in Irrdia. The operation is completely orientedtoward selling specific Sandvik products. It has a dominant position and supplies alarge percentage of domestitally produced steel equipment. Moreover, the firmproduces products for hard stone tutting, hard metal powder and products fromCormorant - a Sandviks subsidiary in Sweden- and also mining tools. The Indianmarket is cowered by eight different selling offices located in different parts of thecountry.

The manager in Sandvik explanred that the Bofors scandal did not have any impacton their business. One of the major reasons was mat they have been operating in theIndian market for long time and the production and selling offices are recognised bypeople and amhormes as native firms. The firm as a whole is not measured by theIndian authorities as a foreign firm. These values were also shared by Indian buyers.They believed that the whole scandal was a nonbusiness affair and did not have muchto do with the real business world.

The buyers saw the fm, Sandvik Asia, as an Indian firm and not much as having aSwedish identity. The finn had been in the market sinte 1960 and before the scandalit had succeeded to expand in the market. Moreover, the identity of the firm has beenunder less attention during the scandal period. In this period several production unitshad been established in the country. They have more than 1200 lotal people workingboth in the administrative and production urrits. As a whole, almost all therecruitment is lotal. Based on this background, the firm had succeeded to establish apowerful position in the market. The firrn has a unique condition sinte it isrecognized as the market leader and delivers the whole as sortiment of special metal,tools to the steel and the mining industries and also to other primary sectors in India.This together with the lotal production tmits have increased the importante of thefm. The firm is recognized to have an important role for employment and for the

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transfer of technology. These factors operating over the years had strengthened thefirm and provided a leading position in the market.

As mentioned, the buyers belong to different state and private categories. But tbescandal did not have any impact on the fm. In the category of the publit sector, thefirm plays an important role in the mining industry which is recognized as apriovitized sector by polititians in India. Despite of the incidents, the firm succeededto keep a strong relationship with the publit buyers. For the biggest buyers, theprivate ones, there was only the business rules which dominated the relationship.

4.2 Ericsson India LtdThe fum is responsible for selling Ericsson’s products in India. The operation ismainly concemed with big individual projects like communication systems. Thebuyer is usually, the Indian Telecommunication Department (DOT). The managers inEricsson, India stated that when the scandal became tommon knowledge in India,they started to be uncertain about the future. They believed that it was easy for theEricsson negotiators to be connected to Bofors. This naturally could create problemsfor the marketing. In the election year, 1989, in more than 9 months there were anumber of articles about Bofors in the media and thereafter Ericsson realized severalunnecessary critical problems in negotiations with DOT. The firm was negotiating forseveral contracts with DOT about projects like internal switchboards. The projectsalso included a production unit with licensing and also direct delivery of components.Earlyer, the negotiations had proceeded well and the firm was very optimistic ingetting the contracts. When the Bofors scandal broke started to dominate tbc mediaand Indian people, negotiation problems were encountered. The project group forDOT became barder and more detail oriented. This causes delays and highnegotiation costs. Beside this, the problem was that Ericsson could not accuratelypredict the future. The competitors had become more aggressive to take over andfinalize the contract. Immediately before the election, all negotiations wereinterrupted and DOT informed Ericsson that there would be no further order in thefuture. Ericsson’s managers tried in different ways to perceive the motivation for thedecision, but did not succeeded. There was an implicit understanding among theDOT’s managers that they did not want to be connected to the Swedish firmspecifically before the election. The managers in DOT advised Ericsson to have a lowactivity profile in the market.

After the election the business life became normal again. The negotiation restartedbut again witb more toncentration on detailed rules. It seemed that DOT did not want

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to face similar problems like Bofor’s buyer. After a delay for several years andincreased costs, Ericsson and DOT finally signed the encountered contracts.However, the managers in Ericsson declared that the scandal had its effects in severalways:

a) tbc delay in the contractual agreement,b) tbc repetition of negotiations,c) intensification of the negotiation between Ericsson in Sweden and Ericsson

in Irrdia,d) uncertainty for tbc future sinte it also was costly to keep the personal on

projects without any knowledge about the future,e) increased costs.

Ericsson was established in 1971 in India. Despite of a long experience in India thefirm’s identity was connected to Sweden and Bofors for several reasons. One wasbecause tbc firm was famous for being associated with a foreign high technology andfor the fatt that Ericsson had a production urrit in India with more than 150 lotalemployees. The complex parts of equipment and marketing were produced andorganized by Ericsson in Sweden. Ericsson India was responsible for simplemarketing activities and production of parts with a lower technology. Anotber reasonwas related to the fatt that Ericsson’s products were mainly sold to the big statebuyers. It was for the setond mentioned reason, having e.g., DOT as a buyer, whichforced DOT to be very cautious in the crisis period. Specifically, during tbc electionwhen the govemment tried to take a distance from the Swedish firms.

The position of the fm, as a Swedish high technological fm, was influenced by theBofors scandal to such a leve1 that the managers in Ericsson measured it ascatastrophic. In 1989, when the government was under a high pressure, tbc electiontactics forced the managers in DOT to undertake a very cautious relationship withEricsson. Because of tbc Bofors scandal, the government did not want to give a bigproject to Ericsson which was identified with Bofors. The media and people couldeasily identify tbc both as firms having tbc same country of origin. There was acrucial effort from DOT and Communication Department not to be related to Swedenand Bofors’ corruption.

When the election was terminated and the Congress Party lost power to V.P. Singes,the new govemment did not see any problem for doing business with Swedish firms.Mainly because the scandal was mentioned less in tbc media and people were tired ofhearing the name of Bofors. Beside that, Ghandi govemment had also lost its

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dominante. It was only then that the business rules of the game started to dominatethe negotiation. But, in the beginning of the recovery, the new govemment was verycautious mainly because the media had still a dominante in checking the staterelationships with the Swedish firms.

4.3. Tetra Pak India LtdThis finn with its packaging of milk products is strongly involved in the agriculturalsector which is highly in India’s socio-economical system. The manager explainedthat despite of the high infhtence of the govemment in the food and milk production,Tetra Pak in India did not face many problems because of the scandal. In the processof scandal treatment in the parliament, the firm did not recognize any complications.The manager stated mat the problem for them was similar to any other daily incidentsin India. He mentioned mat it happened that some buyers stated that Tetra Pak is aSwedish firm and tried to connect Bofors to Tetra Pak. But these statements did notbecome a hinder once to doing business. The diretting manager believed that onlythose Swedish firms which have been engaged in business directly with the statedepartments were faced with business problems. After the removal of the oldgovemment in 1989, even the small problems mat had emerged for Tetra Pak afterthe scandal had disappeared.

The fundamental question was if Tetra Pak really was recognized in the Indianmarket as a Swedish firm. It is true that the frrm was established at 1988 when thescandal was passing its highest turbulente stage. But sinte the headquarter was inSwitzerland some recognized it as a firm from Switzerland. It is not so unusual thatthe people have difficulty to differentiate between these two countries. It may be thecase that sometimes when the misunderstanding stands for the benefit of a speciticgroup, they do not make any effort to correct it. Tetra Pak was also connected to theMinistry of Agricultural which was not under the focus of the media. Compared toBofors the fum had another buyer structure in the country. The products, similar toany other country, were sold to a large number of the lotal producers.

4.4. ABB Ltd. (Rihand-Dehli project)The Dehli and Pihand project is a gigantic power station project with a cost overseveral billion SCr. The Swedish manager responsible for tbc project had been inIndia sinte 1985. He stated that the most practical evidente after the release of theinformation about the scandal in the media has been the increasingly and complicatedbureaucracy. A typical example, he mentioned , was to get a visa and residencepermit for the personnel. He believed that it was not tbc question of trust to the firm’s

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products or management. It was mainly because that Indian managers and polititianshad become frightened of making business with the Swedish firms. In a sense theIndian decision makers adapt all the details in bureaucratic rules. The reason was thatthe relationship with Swedish firms were in focus and a mistake could easily befound out. If a decision went wrong then the bureaucrats could explain that the reasonwas because of the rules and not them.

The consequence of such a conservatism in decisions caused change in the decisioncentres. As the decision makers became afraid of accusations for being connected to aSwedish firm - a potential risk for corruption - they send up the decisions to higherhierarchical levels. The problems extensively increased as there were changes in theproject plans and commitments. It can easily be mentioned, he stated that, all thedecisions, even small and unimportant ones, were sent to the decision boards. Asimple and natural consequences of such treatment were delays, costly negotiationsand uncertainty about the future. The uncertainty was so high that sometimes thequestion was raised if it was worth staying to give a bid for the project. He furtherexplained that, it was not strange that Sweden was recognized as a small andsuspicious country. He refereed to the that fatt that those firms which has been in thecountry a longer period have had an advantage over others coming later. Sinte theirbelongings to Sweden is less as compared to firms which entered into the market lateraccording to publit opinion.

Despite the fatt that ABB (ASEA) as a Swedish fum, has been operating in thecountry for more than 50 years, the belonging to the Sweden was unclear. This is alsoconnected to the project’s size and the period that negotiation started. The criticalproblem was that it corresponded with the period of the scandal. ABB had adominant role in the Indian market. The fm through two headquarters in two partsof the Indian and several regional offlces, covered the selling of the products in thewhole country. Beside these selling offices, ABB also has several production units inBangalore, Mysore and Nasik.

The power transmission between the Riyand and DehIi was recognized as animportant project which could strengthens the ABB’s position in the market. Theproject has been by the govemment mainly because of its importante in the industrialdevelopment of tbc country. It was therefore that the Indian buyers, NTPC (NationalThermal Power Corporation) in reality did not want to lay down the projectcompletely. Accordmg to their view, the scandal was used by the opposition to winthe election. Therefore, the buyer had a low interest in cancelling the activities.

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NTPC followed the cooperation, despite the fatt that they recognized a high leve1 ofpressure from different state departments. Even the buyer noticed a high leve1 ofbureaucracy and complications in other state departments concemed this project.Accordingly, Bofors scandal slowed down the project development and activities.

4.5. Uri Civil Contractor ABUri Civil AB is a Swedish-British consortium which is responsible for a big damproject in Uri located in the north part of India. The group involves Skariska, NCC,ABB Generator, Sweco and the British Kvaemer-Boving which is managed in Indiaby a manager from the Skanskas foreign subsidiary, International Civil EngineeringAB. The negotiations for the construction of the dam started in 1985. It was the yearsthat the scandal had started in the media. The question for the managers was if thenegotiation is going to be influenced by the articles in the media, demonstrations andpolititians. The Indian managers, because of tbc scandal, started to delay thenegotiations. They renewed the demands and always asked the consortium for newadditional information and also new different bids. The manager in the consortiumbelieved that Indians project group were not suspicious on Swedish firms in general.They tried to use the scandal to strengthen the group’s position in the negotiation. Themajor effort was to reduce tbc price of tbc project as far as possible. During tbcnegotiations, the managers did not notice a direct accusation or discussion about theBofors or tbc connection with Bofors. When the negotiation was progressing and theBofors affair had become intensified, it was difficult in the discussions to deny theSwedish origins of the firms in the consortium. A positive factor was that the Uriproject despite tbc engagement of the Swedish firms was not mentioned negatively inmedia. This made it difficult for the people and polititians to cormect the project toBofors. The major impact of Bofors, as mentioned before, was that the buyer’sproject group demonstratively showed that they were obliged to follow the writtenlow and rules literally. The protocol and orders in the negotiations were to follow therules strictly. The details in the system were required to be checked and recheckedand therefore all tbc job became complicated.

Uri Civil is a mixed consortium but the major interesting groups had their origin inSweden. Some firms like ABB with its transformer stations had been active before inthe country. Others in the consortium saw the project as a possibility to penetrate intothe market. Some managers explained that ABB’s earlier engagement in India wasone of the reasons tbat the position of the consortium was strengthened. Beside these,there were other reasons that the scandal only prolonged and complicated thenegotiations of the project which was worth more tban 5 BSCr. The Indian buyers

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could loose much if they wanted to cancel the project. Sinte the whole project wasfmanced by the Swedish and English aid agencies, the Indian govemment had a lowleve1 of input in the project.

The counter part in India was NHPC (National Hydro Power Corporation) which wasappointed by the Indian govemment., under the Gandhi congress party. The projectwas not discussed by the opposition or media because of among other reasons, theproject was mainly fmanced by the Swedish and British governments. They alsoknew the risk that by a criticism of project the Swedish govemment may draw backthe finantial support. But on the other hand, the Indian authorities increased thebureaucratically complications that prolonged the negotiations and prevented thesolution of problems. Despite the problems, NHPC because of the importante of theproject and the Swedish fmancial support decided to continue the negotiations withthe Swedish firms. The manager further stated that there was a period mat they didnot know if they really can have the contract. The whole process of negotiationsbecause of the scandal, he denoted, had become more frustrating and timeconsuming.

4.6. Kokums ABThe firm had extensive marketing activities for selling sub-marines and shippingequipment. The bidding process and negotiations were arranged by managers fromKokums in Sweden. Kokum AE3’s position in the Indian market was highly exposedbecause of the scandal. The reasons were e.g., the firm was a well known Swedishfirm in the shipping and defence industry and the buyer was Indians navy. There wasan unwillingness from the side of the Company to release information about theimpact of the scandal in their business in India. But the fatts show severalcharacteristic similarities with Bofors. During and after the scandal the Indiansdefence ministry had been under revision and there were several criticisms fromdifferent groups against the Indian army and navy departments. The ministry anddepartments had received the most criticism and accusations. They also were underattack by media, opposition groups and people. Even several years after the scandalthere was scepticism from different sides, with regard to the defence ministrypurchasing from Sweden. It was general knowledge that there was no one in thedefence ministry who wanted to jeopardise his future by doing business with aSwedish fm.

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4.7. Bofors ABBofors AB naturally had been under the focus of the politital opposition and mediafor special scrutinization. The finn was declared as tbc reason for the scandal andsinte 1989 the name of the frrm is on the black list. The name has been adopted as aspecial word in the neologism of Indian’s vocabulary with the meaning of stum orcorruption at a high level.

The manager who has been responsible for the delivery of the project to the Indianarmy tried not to make any tomments on tbc impacts and the fms condition in themarket. The manager stated that the most important aspect was Bofors to have asatisfred tustomer. He explanred that in this project as compared to other scandals -where the tustomer has been unsatisfied- Bofors had made all efforts to fulfil thedemands of the Indian army. Therefore, he proclaimed, they did not have muchcomplications with the buyer. The Indian army wished them and still wishes to buythe products. They could not do so mainly because the issue had become anonbusiness question. Despite the scandal, the cooperation had been functioning wellwith different ministries as well as with the Indian army’s personnel. All the Indianpartners have knowledge about the situation and noted that the question has become anon-business issue.

Obviously, Bofors was the firm which had been impacted the most. The murre of thefirm is on the black list. Therefor, tbc firm had witbdraw itself from the market.Accordingly, it had become difficult for tbc Indian arrny to have tbc delivery of allthe 1200 piece of artillerie that was included in the contract. The arrny wished tofulfil the contract and signed new contracts because of tbc quality of the products.But no one dare to become close to the fm.

5. Analysis

The cases simply illustrate the interaction of tbc business and nonbusiness actors. Thestreet demonstrations, opposition groups and media influenced on the govemmentand forced them to make some changes in the business relationships. Some of theSwedish firms because of tbc Bofors scandal were faced with problems. despite thefatt that tbese firms had no business relationship with Bofors. We can identify livetypes of relationships changes because of the scandal. Bofors itself was faced with anembargo after 1989 nohvithstanding tbc fatt that tbc buyers saw no problem tocontinue the business interactions. The setond type is shown by the Kokumsrelationships which encountered higher risks due to the pressure from tbc media,

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people and opposition groups. The firm was Swedish, the project concemed the sameindustry as Bofors and the buyers had the same origin. The third one concemed thebusiness relationship with Ericsson India in which the contracts were set-back andEricsson could not get the contract. The fourth type was increasing bureaucracy forUri Civil and ABB India. The Indian partners became very cautious in negotiationsbecause they did not want to fall inta similar problems as Defence Ministry. The fifthconcems the three Swedish firms, Tetra Pak, Sandvik and Elof Hansson India whichcontinued as before with no turbulente in the business interactions.

With respect to the question of why the coercive actions varied among the Swedishfirms, one answer is related to the characteristics of the buyers. Those Swedish fumswhich had publit buyers, i.e., those which were connected to the Indian Defenceministry, were faced with severe problems. By tontrast, those firms which hadprivate buyers and were engaged in the country for long time, faced only minorproblems. The Swedish identity of these fms was weaker. The influence had also achanging nature in the process of time. The coercive impacts had highest effectswhen tbe situation was discussed in the media and people demonstrated. When tbeopposition group took over and other social problems occupied the media, the impactbecame less specifically for the third and fourth types of fms mentioned above. Theimpact increased again when new information was released and demonstration startedagain. ABB and Uri Civil unfortunately were negotiating exactly when this latterincident had its highest impact. Kokums received the highest impact mainly becausethe partner was the Indian navy.

6. Conclusions

The industrial network mainly regards the relationsbips between the business actors.Integration of tontext into the network model introduces a need for studying of theinteractions between the business and nonbusiness actors. The cases illustrateextreme condition but they simply provide concrete examples for understarrding therelationships between the business and non-business actors. The non-business actorscan be seen as a system containing politi& actors, people, media which interact withthe business actors. They all need each other and somehow are interdependent. Thefatts in the cases lead to several essential conclusions. The fust is the interaction ofthe nonbusiness and business actors. No matter how strong the relationships arebetween tbc business actors or how willing tbc partners are to make exchange thenonbusiness actors by tbeir coercive or supportive actions can interfere in therelationships. The same interference can be obsetved from the business actors on

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nonbusiness actors when, e.g., a business actor decides to leave the market despite ofthe needs of nonbusiness actors. The integration of the nonbusiness actors make thestudy of the business network more complicated. The coercive-supportive actionsundertaken by actors far in the horizon, despite of no exchange relationship,establishes a need for development of conceptual tools in the network model.

The next conclusion concems coercive-supportive interactions between business andnon-business actors. In this connection the hypothesis is, “the closer the businessactors are to the nonbusiness actors, the higher is the influence of supportive orcoercive actions.” The cases illustrates that despite the absente of an exchangerelationship in between these actors, the connection to an actor far in the horizon canstrengthen or weaken or even interrupt the strong fotal relationship. The influentialrole of the media or people in the streets on business relationships can always beobserved in the daily news. The final conclusion concems the influence of businessrelationships to each other. Bofors had a relationship with the Indian Army. The otherbusiness actors had no business relationsbips but became influenced. It can beconcluded that a relationship can be inf’luenced by other relationships notwith-standing the fatt that the actors have no business exchange and are really far fromeach other. They, as the cases illustrate, were connected to each other because ofbelongings to Sweden or a country of origin. Accordingly, the hypothesis is that, “arelationship may be influenced not because of the business relationship, but becauseof belongings to a network. All business and non-business network in a society orcountry can be seen as one network having one identity”. This identity integrates allactors having/not having business relationship. These actors can obtain coercive orsupportive actions from other networks mainly because of having one identity and notbecause of having business exchange.

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7. References

Aldrich, H. E., 1979, Organizations and Environments, Prentice Hall, New Jersey

Daft, R. M., 1983, Organizational Theory and Design, International Edition, West,Minnesota.

Daft, R., & Steers, R., 1986, Organizations, a Micro/Macro Approach, Scott,Foresman and Company, Glenview

Emery, F. E., Trist, E. L., 1965, The Causal Texture of Grganizational Environments,In: Human Relations, 18, Feb., pp. 21-32.

Ford, D., 1986, The Development of Buyer-Seller Relationships in IndustrialMarkets, In: H&kansson, H., (eds.), International Marketing andPurchasing of Industrial Goods, John Wiely & Sons, London.

Hadilchani, A., & Sharma, D., 1993, Industrial Network Development and Injluenceof Politital Actors, NFÄ August 1993, Lund Sweden.

Hadilchani, A., & Sharma, D., 1993, Politital Actors in Industrial Network, 9th IMPConference, Sep. 1993, Bath, UR.

Håkansson, H., 8z Johanson, J., 1993, Industrial Function of Business Relationships,In: Advances in International Markzting, Vol. 5, Pages, 15-31, JAI Press,New York.

Mintzberg, H., 1979, The Structuring of Organizations, Prentice-Hall, N.J.

Mintzberg, H., 1994, Z%e Rise and Fall of Strategic Planning, Prentice-Hall, N.J.

Sjöberg, U., 1993, Quality dumges in an Industry In.uences and Sources,Department of Business Administration, Uppsala University, Uppsala.

Snehota, 1.. 1990., Notes on A Theory of Business Enterprise, Uppsala University,Sweden.

Steers, R., 1977, Organizational Efictiveness, In: A Behuvioural View, SantaMonica, Goodyear,

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