Only professionally carried out audits, continuous control procedures and structural adjustments ensure company success in India
A case study on the successful turnaround in India
Loss of control – a gradual phenomenon
The challenges and difficulties faced by European companies that have been active in India for many years are diverse and vary from person to person. However, they usually have one thing in common: their problems, which arise after years of successful business activity on the Indian market, often arise from a certain degree of loss of control by the European parent company.
The reasons for this loss of control on the part of the company management are also similar: Due to the long-term cooperation with the management of the Indian subsidiary, it receives an advance of trust and freedom from the European parent company, which it then unfortunately abuses. Control mechanisms do not exist or do not work effectively. On-site inspections take place too rarely or are made more difficult. Dishonesty is covered up by a network of accomplices and irregularities are kept quiet by employees and colleagues for fear of reprisals. The corona pandemic in particular made controls practically impossible for many months due to the difficult travel conditions and gave rise to the problem in many Indian subsidiaries.
At some point the Indian subsidiary gets into trouble, problems become visible and the company's success stagnates.
The problems then diagnosed by the European parent company actually often have their origins in sources other than those they identified themselves. They usually turn out to be just the “tip of the iceberg”. In order to transform these corporate difficulties into a sustainable success story, deeper research is required by people who have known and understood the Indian culture and the Indian market for years.
It starts with an operational and process analysis
A typical example of this, an owner-managed family business that successfully specializes in the metal processing industry, wrote this success story with the help of an audit carried out by WB.
The company has also had a (production) location in India for several years.
When the Indian subsidiary ran into financial difficulties, the management of the German parent company contacted WB. There are growing problems with the RBI (Reserve Bank of India); The subsidiary is in the red and is having difficulties servicing supplier loans.
After a rough overview, WB discovers irregularities in expense reports, guest gifts and inventory valuations. This initial situation, combined with tax problems, leads to an intensive audit by WB.
The forensic investigation (audit) substantiates the suspicion of fraud in travel expense reports, guest gifts and material invoices from suppliers. In accordance with the change strategy developed and legally approved jointly between management and WB, the Indian sales manager is terminated without notice, his notebook is immediately confiscated and forensically evaluated by experts. This makes it clear that not only the sales manager, but also the managing director, who has been working for the company for 15 years, is involved in dishonesty. All of these measures are carried out under the supervision of an Indian WB expert, who then remains on site to ensure that the business continues to run smoothly.
The knowledge gained requires immediate measures to secure livelihoods
In coordination with the parent company, a strategy for terminating the employment contract for the Managing Director (MD) is determined. A particular challenge is that the MD enjoyed a great deal of trust from this side thanks to his long-standing collaboration with the shareholders of the parent company.
In times of the Corona pandemic, this personal basis of trust was also the reason for the transfer of control of the European parent company to the Indian management as described above. The negotiations with the ex-MD were also complex and sensitive because, on the one hand, a separation had to take place and, on the other hand, his cooperation on important issues was temporarily required to ensure business viability.
Use of qualified interim management
In order to prevent a funding vacuum and to implement the necessary immediate measures, the parent company immediately appoints an experienced WB manager on site to take over management of the company on an interim basis. In addition, interim managers from WB are deployed for both production and finance, who only work on site temporarily. A financial expert from the Indian WB team will be appointed as head of finance, and WB will also provide the required factory manager at short notice.
Fulfillment of obligations towards authorities and institutions
In order to ensure all official requirements and measures to protect against manipulation and thus the business continuity of the company subsidiary, negotiations with the ex-MD are essential. At the same time, WB India's HR recruiting team begins the search for a new MD and takes on other important control functions - with Financial Services, WB supports the operational financial transactions and provides the Indian director, replaces the incumbent auditor and is assigned the tasks of the company secretary. All financial transactions are carried out online directly by the management in Germany.
The crisis becomes an opportunity
Just 9 months after initial contact with WB, the Indian subsidiary is back in the black for the first time. Peace in the company has been restored and the team has been re-motivated.
At this point the company's success story continues. The turnaround also includes serious restructuring measures to further consolidate the position in the local market. The WB interim manager revises the calculation structure and restructures the production area. New, larger orders are acquired, additional staff are hired to strengthen sales, and a key performance indicator system is created for reporting to the parent company.
Approximately 1 ½ years after WB was commissioned, the new MD joined the company after a thorough and successful personnel search.
In order to maintain business success in India, an advisory board consisting of shareholders of the parent company, the MD India, the WB interim manager and the project manager of WB Germany will be set up, which will regularly and closely discuss the key points of the Indian subsidiary. Of course, the WB interim manager and German project managers are still available to support the company if necessary.
The sustained success of this project has shown that complex problems in particular - such as those that can arise again and again in India - can only be achieved through the coordinated interaction of important specialist tasks. In the case of this company, these were
- Operational and process analysis
- HR measures: personnel search and organizational planning
- Optimization of purchasing of goods, production processes and pricing
- Tax and accounting
- Local representation on the Board of Directors
The turnaround in India has been achieved and a success story has been written.
We would like to thank the German company management for their trust, their openness and the excellent cooperation.
Perhaps you also see a need for action on the topics of “management and control” in one of your company subsidiaries? We look forward to hearing from you.
