Case Studies
Turnaround

When loss of control becomes part of everyday working life

Location: India · Year: 2024

Only professionally conducted audits, continuous control procedures and structural adjustments ensure the company’s success in India

A case study on a successful turnaround in India

Loss of control – a creeping phenomenon

The challenges and difficulties faced by European companies that have been active in India for many years are diverse and vary from company to company. However, they usually have one thing in common: their problems, which arise after years of successful corporate activity in the Indian market, often result 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 similar: due to the long-standing cooperation with the top management of the Indian subsidiary, the European parent company gives them a leap of faith and freedom, which they then unfortunately abuse. Control mechanisms do not exist or are not effective. On-site inspections take place too rarely or are made more difficult. Dishonesty is covered up by a network of accomplices and irregularities are concealed by employees and colleagues for fear of reprisals. The coronavirus pandemic in particular has made it virtually impossible to carry out checks for many months due to the difficult travel conditions and has caused the problem to arise in many Indian subsidiaries in the first place.

At some point, the Indian subsidiary gets into difficulties, problems become apparent and the company’s success stagnates.

The problems then diagnosed by the European parent company often have their origins in sources other than the ones they themselves have identified. They usually turn out to be just the “tip of the iceberg”. Turning these corporate difficulties into a sustainable success story requires in-depth research by people who have known and understood Indian culture and the Indian market for years.

It all starts with an operational and process analysis

A typical example of this, an owner-managed family business that specializes successfully in the metalworking industry, has written this success story with the help of an audit carried out by WB.

The company has also had a (production) site in India for a number of years.

When the Indian subsidiary got into financial difficulties, the management of the German parent company contacted WB. There were growing problems with the RBI (Reserve Bank of India); the subsidiary was in the red and had difficulties servicing supplier loans.

After a rough overview, WB discovers irregularities in expense reports, guest gifts and stock valuations. This initial situation, combined with tax problems, leads to an intensive audit by WB.

The forensic investigation (audit) confirms the suspicion of fraud in travel expense reports, guest gifts and material invoices from suppliers. In accordance with the change strategy jointly developed and legally approved by company management and WB, the Indian sales manager is dismissed without notice, his notebook is immediately seized and forensically analyzed by experts. As a result, it is recognized 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 business continues to run smoothly.

The findings require immediate measures to safeguard the company’s existence

A strategy for terminating the employment contract of the Managing Director (MD) is defined in consultation with the parent company. One particular challenge is that the MD has enjoyed a great deal of trust from the shareholders of the parent company due to his many years of cooperation with them.

In times of the coronavirus pandemic, this personal basis of trust was also the reason for the transfer of control from 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, his cooperation on important issues was temporarily required to ensure business continuity.

Use of qualified interim management

In order to prevent a management vacuum and implement the necessary immediate measures, the parent company immediately deploys an experienced WB manager on site to take over the 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 is appointed as head of finance, and WB also provides the required factory manager at short notice.

Fulfilling obligations towards authorities and institutions

Negotiations with the ex-MD are essential to ensure all regulatory requirements and measures to protect against manipulation and thus the business continuity of the subsidiary. 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 the initial contact with WB, the Indian subsidiary is back in the black for the first time. Industrial peace has been restored and the team is newly 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 costing structure and restructures the production area. New, larger orders are acquired, additional staff are recruited to strengthen sales, and a key performance indicator system is created for reporting to the parent company.

Approximately 1½ years after the appointment of WB, the new MD joins the company following a thorough and successful recruitment process.

In order to stabilize the 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 is set up, which regularly and closely discusses the key issues of the Indian subsidiary. Of course, the WB interim manager and German project manager are still available to the company to provide support if required.

The lasting success of this project has shown that complex problems in particular – as can occur time and again in India – can only be achieved through the coordinated interaction of important specialist tasks. In the case of this company, these were

The turnaround in India has been achieved and a success story has been written.

We would like to thank the German management for their trust, openness and excellent cooperation.

Perhaps you also see a need for action on the topics of “management and control” in one of your subsidiaries? We look forward to talking to you.