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I wish to express my heartfelt gratitude In all earnestness to the following

persons without whose support and guidance this study would have not been a

success.

I would like to extend my sincere thanks to Dr. v. Prabhudev, Director SURANA

PG CENTER, for his support to carry out the project.

I like to express my thanks to Mrs. K Aparna Rao for her support to carry out the

project work.

I like to express my thanks to Mrs Sowmya Rani sales manager, ING Vysya life

insurance Ltd for her support to carry out the project work.

I am thankful to ING Vysya life insurance Ltd for giving me an opportunity to carry

out my project in their organizations.

I also thank all the faculty members of Surana PG center for the great support to

carry out my project. I thank my friends and all who have helped me directly and

indirectly to complete the project work successfully.

I am also glad to express my sincere appreciation and thanks for all the support

given by my parents.

Finally I wish to express my gratitude to all the employees of the organization

who co-operated to give me all the necessary details to finish my project.

PLACE: Bangalore Lakshmi B.R

DATE: 06KXCM6050

TABLE OF CONTENTS

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CHAPTER NO TITLE PAGE N0

1 INTRODUCTION TO

CULTURE

2 - 22

2 RESEARCH DESIGN 23-25

3 COMPANY PROFILE 26-43

4 ANALYSIS AND

INTERPRETATION

44-53

5 FINDINGS SUGGESTIONSAND CONCLUSIONS

54-56

LIST OF TABLES

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TABLE NO TABLE NAME PAGE NO

1 Acceptance level of employee

regarding merger

44

2 Adoption to merger 45

3 Change in working culture after

merger

46

4 Change in working culture after

merger

47

5 Organizations importance to

culture

48

6 Quality of training after merger 49

7 Relationship with top management

before merger

50

8 Relationship with top

mangement after merger

51

9 Participation level before

merger

52

LIST OF GRAPHS

TABLE NO GRAPH NAME PAGE NO

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1 Acceptance level of employee

regarding merger

44

2 Adoption to merger 45

3 Change in working culture after

merger

46

4 Change in working culture after

merger

47

5 Organizations importance to

culture

48

6 Quality of training after merger 49

7 Relationship with top management

before merger

50

8 Relationship with top

mangement after merger

51

9 Participation level before

merger

52

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EXECUTIVE SUMMARY

Executive Summary

Even companies that appear to be very similar can have different corporate

cultures -- and those cultures can be hard to integrate when companies merge or

are acquired. Managing cultural changes is critical to the success of a merger or

acquisition. The question is what culture is, how to assess it, and how to

integrate two different corporate cultures.

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CHAPTER - 1

INTRODUCTION

CHAPTER 1

INTRODUCTION TO CULTURE

Culture is the pattern of norms, values, beliefs, and attitudes that influence

individual and group behavior within an organization. Originating with the

founders of the organization, these norms, values, and beliefs are shaped and

honed over time by senior executives and other stakeholders. These values filter

down through the organization, further refined and modified in the day-to-day

priorities and actions of all the managers and employees in the business. They

then circle back up the organization, reinforcing and refining the thinking of senior

managers.

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Culture is "the way things are done". It includes factors such as:

* Treating of customers.

* The type and level of participation in decision-making

* The level, speed, and process of decision-making

* The level of formality and controls

* Performance rewards

* Risk tolerance

* Quality and cost orientation

Corporate culture is not an independent variable in the business equation.

Rather, culture exists, or should exist, to support the business strategy. If culture

is how we get things done, strategy shows us what needs to be done. Culture, to

borrow Obi Won's description of "the force," is the power that binds us together.

Organizationally, it provides a common thread for day-to-day activities and offers

consistency in a turbulent environment.

Differences in the two organizational cultures involved in a merger or acquisition

and how they are managed are crucial to the success or failure of the process.

An organizational culture is comprised of the patterns of shared beliefs and

values that give the members of an institution meaning, and provide them with

the rules for behavior in their organization. The culture is not generally

recognized within organizations, because basic assumptions and preferences

guiding thought and action tend to operate at a preconscious level. Nevertheless,

this preconscious level affects many areas within the organization, including,

performance, cooperation, decision making, control, communication,

commitment, perception and justification of behavior.

Strong versus Weak Cultures

Three elements determine the strength of corporate culture.

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1 The number of shared beliefs, values, and assumptions. Higher the number of

shared assumptions, thicker will be the culture. In thin cultures, there are few

commonly held assumptions and values.

2 Number of employees who accept, rejects, or share in the basic beliefs, values,

and assumptions. If employee acceptance is high, a strong corporate culture will

emerge.

3 The higher the number of shared beliefs, values and assumptions, the stronger

the culture of the organization.

In addition, a homogenous and tenured workforce contributes to cultural strength:

surviving the good and bad times together makes the employees a close-knit

group. Finally, a smaller, centrally located organization is likely to have a stronger

organizational culture than one which is larger and geographically dispersed

since employee interaction is more frequent and informal in a smaller and

centrally located organization.

Once a corporate culture is established, it provides employees with identity and

stability, which in turn provide the corporation with commitment. On the other

hand, a strong culture, with well-ordered values, beliefs, and assumptions may

hinder efforts at change, especially in a merger or takeover. Much will depend on

the type of merger and the compatibility between the two organizations cultures.

During mergers, companies frequently direct their energy to strategic and

financial issues, neglecting HR issues.

Types of Organizational Cultures

Four main types of organizational culture are summarized below:

1. Power Cultures:

In organizations with power cultures, power rests either with the president, the

founder, or a small core group of key managers. This type of culture is most

common in small organizations.

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Employees are motivated by feelings of loyalty towards the owner or their

Supervisor, these types of organizations foster a sense of tradition in both the

physical and spiritual sense. Power cultures tend to have inequitable

compensation systems and other benefits based on favoritism and loyalty, as

well as performance.

2. Role Cultures:

Role cultures are highly autocratic. There is a clear division of labour, and

authority figures are clearly defined. Rules and procedures are also clearly

defined, and a good employee is one who abides by them. Organizational power

is defined by position and status.

These organizations respond slowly to change; they are predictable and risk

averse. This type of culture for example thrives in industries which employ mass

production techniques, in automobile manufacturing.

3. Task/Achievement Cultures:

Task/achievement cultures emphasize accomplishment of the task; research and

development is an example. The employees usually work in teams, and the

emphasis is on what is achieved rather than how it is achieved. Employees are

flexible, creative, and highly autonomous.

4. Person/Support Cultures:

Organizations with a person/support culture have minimal structure and serve to

nurture personal growth and development. They are egalitarian in principle, and

decision making is conducted on a shared collective basis. This type of culture is

rarely found in profit making corporations; it is more typical of professional

partnerships such as law firms.

Cultural Compatibility:

When an organization acquires or merges with another, the contract may take

one of three possible forms depending on the nature of the two cultures, the

motive for and the objective and power dynamics of the combination. The

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success of a merger or acquisition depends, on the cultural compatibility of the

two organizations. Cultural compatibility is compared with marriages. They are:

The Open Marriage

In an open marriage, the acquiring firm accepts the acquired firms differences

in personality, or organizational culture, unequivocally. The acquiring firm allows

the acquired firm to operate as an autonomous business unit but usually

intervenes to maintain financial control by integrating reporting systems and

procedures. The strategy used by the acquirer in this type of acquisition is non-

interference.

Traditional or Redesign Marriage

In traditional or redesign marriages, the acquirer sees its role as being to

dominate and redesign the acquired organization. These types of acquisitions

implement wide-scale and radical changes in the acquired company. Their

success depends on the acquiring firms ability to displace and replace the

acquired firms culture. In essence, this is a win/lose situation.

The Modern or Collaborative Marriage

Successful modern, or collaborative, mergers and acquisitions rely on an

integration of operations in which the equality of both organizations is

recognized. The essence of the collaborative marriage is shared learning. In

contrast to traditional marriages, which centre on destroying and displacing one

culture in favor of another, collaborative marriages seek to positively build on and

integrate the two to create a best of both worlds culture. In collaborative

marriages the two organizations are in a win-win situation.

Acculturation

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Regardless of the cultural fit, all mergers and acquisitions will involve some

conflict and turbulence during a necessary process of acculturation.

The Conflict Stage

While the two firms try to overcome their difficulties, each firm, depending on the

merger type, the amount of contact each has with the other, and its cultural

strength, will compete for resources and try to protect its turf and cultural norms.

The Adaptation Stage

Conflict between the two organizations will eventually be resolved either

positively or negatively. In a positive adaptation, agreement will be reached

concerning operational and cultural elements [that] will be preserved and [those]

which will be changed. In a negative adaptation, the conflict will be manifested as

Employee dissatisfaction and high turnover rates, can result in operational under

performance.

Modes of Acculturation

There are four different modes of acculturation:

1. Assimilation

Assimilation is the most common method of acculturation and results in one firm,

usually the acquired firm, relinquishing its culture willingly and taking on that of

the acquiring firm. Thus, the acquiring firm undergoes no cultural loss or change.

Generally, the acquired organization has had a weak, dysfunctional, or undesired

culture. Therefore, the new culture usually dominates and there is little conflict.

2. Integration

If the cultures are integrated, the acquired firm can maintain many of its cultural

characteristics. Ideally, the merged firm retains the best cultural elements from

both firms. During integration, conflict is heightened initially, as two cultures

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compete and negotiate but it is reduced substantially upon agreement by both

parties.

3. Separation

If the acquired firm has a strong corporate culture and wishes to function as a

separate entity under the umbrella of the acquiring firm, it may refuse to adopt

the culture of the acquiring firm. Substantial conflict may be engendered and

implementation will be difficult.

4. Enculturation

Enculturation is the least desirable possibility. It occurs when the culture of the

acquired firm is weak, but it is unwilling to adopt the culture of the acquiring firm.

A high level of conflict, confusion, and alienation is the result .

Human Resource Implications

Mergers and acquisitions can be threatening for employees and produce anxiety

and stress. Many researchers have found identifiable patterns of emotional

reactions experienced by employees during a merger or acquisition; they have

labeled this phenomenon the merger-emotions syndrome.

There are identifiable patterns of emotional reactions during a merger.

Acceptance

Relief

Interest

Liking

Denial Enjoyment

Fear

Anger

Sadness

The Merger-Emotions Syndrome:

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Introduction to Mergers and Acquisition

Background

History of merger and acquisition:

During the licensing era, several companies had indulged in unrelated

diversifications depending on the availability of the licenses. The companies

thrived in spite of their inefficiencies because the total capacity in the industrywas restricted due to licensing. The policy of decontrol and liberalization coupled

with globalization of the economy has exposed the corporate sector to severe

domestic and global competition. The Indian companies have just been getting

gripped by this unavoidable fever for apparently right reasons.

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Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were

synonymous, the terms mergerand acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new

owner, the purchase is called an acquisition. From a legal point of view, the

target company ceases to exist, the buyer "swallows" the business and the

buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about

the same size, agree to go forward as a single new company rather than remain

separately owned and operated. This kind of action is more precisely referred to

as a "merger of equals." Both companies' stocks are surrendered and new

company stock is issued in its place.

In practice, however, actual mergers of equals don't happen very often. Usually,

one company will buy another and, as part of the deal's terms, simply allow the

acquired firm to proclaim that the action is a merger of equals, even if it's

technically an acquisition. Being bought out often carries negative connotations,

therefore, by describing the deal as a merger, deal makers and top managers try

to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining

together is in the best interest of both of their companies. But when the deal is

unfriendly - that is, when the target company does not want to be purchased - it

is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on

whether the purchase is friendly or hostile and how it is announced. In otherwords, the real difference lies in how the purchase is communicated to and

received by the target company's board of directors, employees and

shareholders.

The scenario in the US:

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Merger activities have been classified by various authors into so called waves by

clustering activities of the US business during various periods. Weston has

identified three major periods of merger movements while studying the business

behavior of the US companies and the environment after these waves have

taken place.

First wave (1898-1903)

During this period, market was giving way to partial monopoly structure.

Corporate laws were relaxed and hence effective mergers took place. The main

reasons for the mergers were:

Expand operations

Economies of scale and

To counter competition

Transport networks and national markets were developed which increased the

possibility of achieving the economies of size through mergers.

Second wave (1926-1929)

Many mergers during the second wave essentially had the shape of vertical

integration:

To achieve technical gains from integration

To avoid dependence on other firms for raw materials

To consolidate sales and distribution networks

Third wave (1940-1947)

This period saw the disappearance of at least 2500 firms and the growth of the

eight largest steel corporations in the US. No pervasive motive could be

identified. Various factors like circumventing fiats, high taxes during the war

period, managerial reorganizations, product diversifications, etc lead to 4th wave.

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Fourth wave (1980-1990)

In the 1980s and 1990s, companies in the US responded to a common set of

environmental/ macro factors by opting for restructuring exercises. These were

mainly due to three macro trends:

Globalization of markets

Deregulation of financial and real estate sectors

Increasing threat of take over bids.

Merger:

A merger is a tool used by companies for the purpose of expanding their

operations often aiming at an increase of their long term profitability. There are

15 different types of actions that a company can take when deciding to move

forward using M&A. Usually mergers occur in a consensual (occurring by mutual

consent) setting where executives from the target company help those from the

purchaser in a due diligence process to ensure that the deal is beneficial to both

parties. Acquisitions can also happen through a hostile takeoverby purchasing

the majority of outstanding shares of a company in the open market against the

wishes of the target's board. In the United States, business laws vary from state

to state whereby some companies have limited protection against hostile

takeovers. One form of protection against a hostile takeover is the shareholder

rights plan, otherwise known as the "poison pill".

Historically, mergers have often failed to add significantly to the value of the

acquiring firm's shares. Corporate mergers may be aimed at reducing market

competition, cutting costs (for example, laying off employees, operating at a more

technologically efficient scale, etc.), reducing taxes, removing management,

"empire building" by the acquiring managers, or other purposes which may or

may not be consistent with public policy or public welfare. Thus they can be

heavily regulated, for example, in the U.S. requiring approval by both the Federal

Trade Commission and the Department of Justice.

http://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/Due_diligencehttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/U.S._statehttp://en.wikipedia.org/wiki/Poison_pillhttp://en.wikipedia.org/wiki/Competition#Economics_and_business_competitionhttp://en.wikipedia.org/wiki/Competition#Economics_and_business_competitionhttp://en.wikipedia.org/wiki/Taxeshttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/United_States_Department_of_Justicehttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/Due_diligencehttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/U.S._statehttp://en.wikipedia.org/wiki/Poison_pillhttp://en.wikipedia.org/wiki/Competition#Economics_and_business_competitionhttp://en.wikipedia.org/wiki/Competition#Economics_and_business_competitionhttp://en.wikipedia.org/wiki/Taxeshttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/United_States_Department_of_Justice

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The U.S. began their regulation on mergers in 1890 with the implementation of

the Sherman Act. It was meant to prevent any attempt to monopolize or to

conspire to restrict trade. However, based on the loose interpretation of the

standard "Rule of Reason", it was up to the judges in the U.S. Supreme Court

whether to rule leniently (as with U.S. Steel in 1920) or strictly (as withAlcoa in

1945).

Classifications of mergers

Horizontal mergers take place where the two merging companies produce

similar product in the same industry.

Vertical mergersoccur when two firms, each working at different stages in

the production of the same good, combine.

Co generic mergers occur where two merging firms are in the same general

industry, but they have no mutual buyer/customer or supplier relationship,

such as a merger between a bank and a leasing company. Example:

Prudential's acquisition of Bache & Company.

Conglomerate mergers take place when the two firms operate in different

industries.

Reverse merger is used as a way of going public without the expense and

time required by an IPO.

The contract vehicle for achieving a merger is a "merger sub".

The occurrence of a merger often raises concerns in antitrust circles. Devices

such as the Herfindahl index can analyze the impact of a merger on a market

and what, if any, action could prevent it. Regulatory bodies such as the European

Commission, the United States Department of Justice and the U.S. Federal

Trade Commission may investigate anti-trust cases formonopolies dangers, and

have the power to block mergers.

http://en.wikipedia.org/wiki/Sherman_Acthttp://en.wikipedia.org/wiki/Rule_of_Reasonhttp://en.wikipedia.org/wiki/U.S._Supreme_Courthttp://en.wikipedia.org/wiki/U.S._Steelhttp://en.wikipedia.org/wiki/Alcoahttp://en.wikipedia.org/wiki/Horizontal_integrationhttp://en.wikipedia.org/wiki/Industryhttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/w/index.php?title=Congeneric_integration&action=edit&redlink=1http://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Reverse_mergerhttp://en.wikipedia.org/wiki/IPOhttp://en.wikipedia.org/wiki/Antitrusthttp://en.wikipedia.org/wiki/Herfindahl_indexhttp://en.wikipedia.org/wiki/European_Commissionhttp://en.wikipedia.org/wiki/European_Commissionhttp://en.wikipedia.org/wiki/United_States_Department_of_Justicehttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/Monopolyhttp://en.wikipedia.org/wiki/Sherman_Acthttp://en.wikipedia.org/wiki/Rule_of_Reasonhttp://en.wikipedia.org/wiki/U.S._Supreme_Courthttp://en.wikipedia.org/wiki/U.S._Steelhttp://en.wikipedia.org/wiki/Alcoahttp://en.wikipedia.org/wiki/Horizontal_integrationhttp://en.wikipedia.org/wiki/Industryhttp://en.wikipedia.org/wiki/Vertical_integrationhttp://en.wikipedia.org/w/index.php?title=Congeneric_integration&action=edit&redlink=1http://en.wikipedia.org/wiki/Conglomerate_(company)http://en.wikipedia.org/wiki/Reverse_mergerhttp://en.wikipedia.org/wiki/IPOhttp://en.wikipedia.org/wiki/Antitrusthttp://en.wikipedia.org/wiki/Herfindahl_indexhttp://en.wikipedia.org/wiki/European_Commissionhttp://en.wikipedia.org/wiki/European_Commissionhttp://en.wikipedia.org/wiki/United_States_Department_of_Justicehttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/Federal_Trade_Commissionhttp://en.wikipedia.org/wiki/Monopoly

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Accretive mergers are those in which an acquiring company's earnings

per share (EPS) increase. An alternative way of calculating this is if a

company with a high price to earnings ratio (P/E) acquires one with a low

P/E.

Dilutive mergers are the opposite of above, whereby a company's EPS

decreases. The company will be one with a low P/E acquiring one with a

high P/E.

The completion of a merger does not ensure the success of the resulting organization;

indeed, many mergers (in some industries, the majority) result in a net loss of value due to

problems. Correcting problems caused by incompatibilitywhether of technology,

equipment, orcorporate culture diverts resources away from new investment, andthese problems may be exacerbated by inadequate research or by concealment of losses or

liabilities by one of the partners. Overlapping subsidiaries or redundant staff may be

allowed to continue, creating inefficiency, and conversely the new management may cut

too many operations or personnel, losing expertise and disrupting employee culture. These

problems are similar to those encountered in takeovers. For the merger not to be

considered a failure, it must increase shareholder value faster than if the companies were

separate, or prevent the deterioration of shareholder value more than if the companies were

separate.

Acquisition:

An acquisition, also known as a takeover, is the buying of one company (the

target) by another. An acquisition may be friendly or hostile. In the former case,

the companies cooperate in negotiations; in the latter case, the takeover target is

unwilling to be bought or the target's board has no prior knowledge of the offer.Acquisition usually refers to a purchase of a smaller firm by a larger one.

Sometimes, however, a smaller firm will acquire management control of a larger

or longer established company and keep its name for the combined entity. This is

known as a reverse takeover.

http://en.wikipedia.org/wiki/EPShttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/EPShttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/Corporate_culturehttp://en.wikipedia.org/wiki/Corporate_culturehttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Takeover#Friendly_and_hostile_takeovershttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Reverse_takeoverhttp://en.wikipedia.org/wiki/EPShttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/EPShttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/P/Ehttp://en.wikipedia.org/wiki/Corporate_culturehttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Takeover#Friendly_and_hostile_takeovershttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Reverse_takeover

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Types of acquisition

The buyer buys the shares, and therefore control, of the target company being

purchased. Ownership control of the company in turn conveys effective control

over the assets of the company, but since the company is acquired intact as a

going business, this form of transaction carries with it all of the liabilities accrued

by that business over its past and all of the risks that company faces in its

commercial environment.

The buyer buys the assets of the target company. The cash the target receives

from the sell-off is paid back to its shareholders by dividend or through

liquidation. This type of transaction leaves the target company as an empty shell,

if the buyer buys out the entire assets. A buyer often structures the transaction as

an asset purchase to "cherry-pick" the assets that it wants and leave out the

assets and liabilities that it does not. This can be particularly important where

foreseeable liabilities may include future, unquantified damage awards such as

those that could arise from litigation over defective products, employee benefits

or terminations, or environmental damage. A disadvantage of this structure is the

tax that many jurisdictions, particularly outside the United States, impose on

transfers of the individual assets, whereas stock transactions can frequently be

structured as like-kind

The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a

situation where one company splits into two, generating a second company

separately listed on a stock exchange.

Motives behind M&A

These motives are considered to add shareholder value:

Synergy: This refers to the fact that the combined company can often reduce

duplicate departments or operations, lowering the costs of the company relative

to the same revenue stream, thus increasing profit.

http://en.wikipedia.org/wiki/Demergerhttp://en.wikipedia.org/wiki/Spin-offhttp://en.wikipedia.org/wiki/Spin-outhttp://en.wikipedia.org/wiki/Synergyhttp://en.wikipedia.org/wiki/Demergerhttp://en.wikipedia.org/wiki/Spin-offhttp://en.wikipedia.org/wiki/Spin-outhttp://en.wikipedia.org/wiki/Synergy

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Increased revenue/Increased Market Share: This motive assumes that the

company will be absorbing a major competitor and thus increase its power (by

capturing increased market share) to set prices.

Cross selling: For example, a bank buying a stock brokercould then sell itsbanking products to the stock broker's customers, while the broker can sign up

the bank's customers for brokerage accounts. Or, a manufacturer can acquire

and sell complementary products.

Economies of Scale: For example, managerial economies such as the increased

opportunity of managerial specialization. Another example are purchasing

economies due to increased order size and associated bulk-buying discounts.

Taxes: A profitable company can buy a loss maker to use the target's loss as

their advantage by reducing their tax liability. In the United States and many

other countries, rules are in place to limit the ability of profitable companies to

"shop" for loss making companies, limiting the tax motive of an acquiring

company.

Geographical or other diversification: This is designed to smooth the earnings

results of a company, which over the long term smoothens the stock price of a

company, giving conservative investors more confidence in investing in the

company. However, this does not always deliver value to shareholders (see

below).

Resource transfer: Resources are unevenly distributed across firms (Barney,

1991) and the interaction of target and acquiring firm resources can create value

through either overcoming information asymmetry or by combining scarce

resources.

Assessing the culture

While organizational culture is unquestionably the soft side of business reality,

we know it can be a real M&A buster. To ensure that the force is always with you

http://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Cross_sellinghttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Economies_of_Scalehttp://en.wikipedia.org/wiki/Taxeshttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Cross_sellinghttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Economies_of_Scalehttp://en.wikipedia.org/wiki/Taxes

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in your M&A efforts, it is critical to understand and assess the current culture of

both companies involved in the M&A process.

Yet too often the issues of culture take a back seat to financial issues as

accountants and lawyers do their jobs. In many cases, cultural due diligence is

virtually ignored -- but ignorance is perilous.

More specifically, attention must also be paid to the following issues during the

due diligence process:

* Management approach

* Budget and projections conventions and strategies for long-range planning

* Management reports and reporting procedures

* Organizational and human resource structures

* Manufacturing and procurement processes

* Engineering and research and development infrastructure

These, and the balance among these factors, will also help define. These, and

the balance among these factors, will also help define and assess the culture of

an organization.

It is important to remember that the purpose of cultural due diligence is not to

eliminate culture clash -- an unlikely event even in the best of circumstances. Nor

is the purpose to find a perfect fit between two organizations. But, while a wide

gap is unhealthy, the best mergers occur when a fair amount of culture

differentiation prompts debate about what is best for the combined organization.

Ideally, these discussions are well underway before the merger occurs.

Understanding values

Values -- those that are both explicitly stated as well as those that are implicitly

held -- are a key element in assessing culture in an organization. In an M&A

situation it is key that both types are examined and intimately understood.

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The strategy of an organization is a gold mine for the discovery of explicit values

within an organization. For example, what does the mission statement say about

the organization and its goals? What values are manifest in strategic statements

dealing with future markets, future products, capabilities, and financial

expectations? What does the annual report emphasize? Such statements speak

volumes about the culture of the organization.

Values and beliefs should express the most fundamental underpinnings of how a

business is to conduct itself when dealing with employees and the outside world.

Here are some examples of companies' stated values and beliefs:

* "We believe in honesty and integrity in all of our personal and business

dealings."

Cultural integration

Once you develop an understanding of the current culture and have compared

that with the goals of the merged organization, it is time to think through what it

will take to implement that strategy. This process requires consideration of a

number of issues, including organizational structure, operating and decision-

making apparatus, reward systems, and people-related issues.

Integration of corporate cultures in an M&A environment is not easy. Project

plans are extensive in scope. While each plan will be developed around unique

needs, these plans do have a number of elements in common. Managers will

need to:

Establish the strategic context early on. The strategic context can be formulated

by asking -- and answering -- some very basic questions about the strategicdirection of the merged enterprise. For example: What should the integrated

company look like in two or three years? What are the products and markets that

will receive the highest emphasis and resources? What are the barriers to the

success of this new enterprise? What will cause us to succeed? What

infrastructure and skills do we need to support our competitive advantage? What

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is the driving force (key strategic concept) that drives strategic decisions around

products and markets?

By addressing these issues, companies will be able to formulate the strategy of

the new enterprise and ultimately return higher value to their customers and

establish themselves as a powerful competitor in their markets.

* Communicate to all constituencies, including employees, suppliers, customers,

and shareholders. Concepts such as values and beliefs provide a description of

acceptable ways to interact with both internal and external constituencies. These

are the foundations upon which business is conducted and, though difficult to

explain, these sometimes amorphous concepts must be clearly communicated.

Processes on the other hand such as decision-making is to be pushed up or

down in the organization which might be bit easier to communicate. But ease of

communication is not the deciding factor. Rather, all values and beliefs as well as

the processes having to do with culture must be communicated throughout the

organization.

Communications is an important element for managing a company's culture in

preparation for M&A activities. But it is even more important in the period leading

up to and following closure of a deal. Fortunately, the task is made easier by the

fact that most people want to support and contribute to the goals of the

organization -- they simply need sufficient understanding of what the goals are

and how they can behave to support them.

Management behavior -- the "body language" of an organization -- is another

form of communication that often gets overlooked in an M&A situation. It is,

however, a critical element of managing culture. The literature is replete with

examples of companies in which managers act in a manner completely contrary

to written values and beliefs. This sends a mixed signal that typically results in no

change. Actions speak louder than words, especially in M&A situations.

In today's technologically advanced world, communicating strategy and

supporting culture have become multi-media events. Utilize traditional media

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such as newsletters, but also take advantage of new technologies such as

corporate intranets, kiosks, and videos. By using all these resources, companies

can increase the number of people they reach, increase the repetition of the

message, and enhance the likelihood that the message will be understood and

accepted.

* Identify and resolve important cultural differences early. Differences in culture

and values often lie beneath the surface and are not identified until it is too late.

For example, the defense industry has experienced almost unprecedented

consolidation during the past decade. The number of companies accounting for

two-thirds of all defense sales shrank from 15 in 1990 to just six in 1998. In a few

cases, such as when Boeing acquired McDonnell Douglas, the cultural upheaval

was reduced. But many of these consolidations were not smooth.

In some cases, companies acquired a variety of defense operations in an effort

to achieve critical mass and remain a defense player. However, despite what

may be defensible strategy investors have punished the top-tier defense

companies. There is a long list of reasons why the investor community has

turned on the defense industry, but one of the most commonly cited reasons is

that the companies failed to integrate the diverse cultures that existed in the

industry before consolidation.

These were highly competitive companies that, although they looked similar, had

very different operating systems, decision-making processes, and management

styles. In many cases, the combined operations were effectively non-functional.

Indian scenario:

During the licensing era, several companies had indulged in unrelated

diversifications depending on the availability of the licenses. The companies

thrived in spite of their in efficiencies because the total capacity in the industry

was restricted due to licensing. The companies, over a period of time, became

unwieldy conglomerates with a sub optimal portfolio of assorted businesses. The

policy of decontrol and liberalization coupled with globalization of economy has

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exposed to the corporate sector to serve domestic and global competition. This

has been further accentuated by the recessionary trends which resulted in falling

demand, which in turn resulted in over capacity in several sectors of economy.

The industry is currently passing through a transitionary phase of restructuring.

Companies are currently engaged in efforts to consolidate themselves in areas of

their core competence and disinvest those businesses where they do not have

any competitive advantage.

The actual wave in the Indian context, however, started after 1994 when the

necessity of formulating a new takeover code was felt by the regulatory

authorities. Prior to 1994, the Murugappa group, the chabbria group and the RPG

group, sought to build industrial practice of building a conglomerate of diverse

businesses into one group. In recent times, M&A have attempted to restructure

firms and achieve economies of scale to deal with an increasingly competitive

environment.

EFFECTS OF MEREGERS AND ACQUISITION AND REMIDIES:

Stages in the Merger-Emotions Syndrome

The merger-emotions syndrome provides management and researchers with the

opportunity of pinpointing the emotional stage of the employees of an acquired

corporation. Management should recognize that these emotions exist among the

employees and deal with them as expeditiously as possible. At a minimum,

managers should provide positive feedback to employees, emphasizing that their

performance is commendable under the stressful situation brought about by the

acquisition, in order to alleviate negative work related feelings.

Employee Stress

Even the best-orchestrated mergers can be threatening, unsettling, and stressful

for some employees. Some common merger stressors include uncertainty,

insecurity, and fears concerning job loss, job changes, job transfers,

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compensation changes, and power, status, and prestige changes. They can lead,

in turn, to organizational outcomes such as absenteeism, poor performance, and

higher employee turn over.

To alleviate merger stress, stress management plan be implemented, with the

following strategies:

Merger Stress Audit

A merger stress audit assesses employees perceptions of the merger.

Management uses it to identify collective concerns and implement programs to

alleviate them.

Realistic Merger Previews

A realistic merger preview informs employees about what to expect once the

acquisition takes place, in order to help them through the transition. It can be

provided through various media (for example, a video, booklets, or presentations)

and should include information about the following:

Organizational goals, missions, and markets

Management style and organizational culture

Work schedules, benefits, and compensation

Equipment, resources, and information flow

Job security

Career paths

Training and development

Performance evaluation.

Individual Counseling

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Because any major departure from our normal lifestyle acts as a trigger for

stress and insecure feelings, counseling on an individual basis to help employees

overcome merger stress and fear and to suggest coping strategies may help

alleviate negative reactions. Moreover, since acquisitions provide different

opportunities for career mobility, counseling can direct employee energies

towards new career paths and reaffirm employee commitment to the new

organization.

Merger Stress Management Training

Voluntary stress management training might be provided on a group basis.

Employees would share their fears and concerns and would be guided through

methods and processes to alleviate these dysfunctional stress responses.

Communication

During mergers and acquisitions, employees are often kept in the dark about the

sale of the corporation. They often hear about the acquisition on a less than

timely basis, through the press or through the corporate grapevine. This can lead

to a distorted or misrepresented picture of the acquisitions ramifications and to

counterproductive activities by employees, who may be anxious about possible

job losses. There fore, wherever possible, corporations should aim to inform all

employees at the same time, concurrently [with] or in advance of any press

release or radio announcement. As mentioned, upon notification of the

acquisition, employees will likely experience shock, disbelief and grief. followed

by resentment, anger or depression. During this period, management must

continue to listen to and communicate with employees and relay accurate and

comprehensive information as expeditiously as possible.

However, information should not exceed the information actually known by

management. It is far safer for management to acknowledge the lack of

information than to give responses that may later prove to be incorrect.

Management should also indicate that when more information is available, it will

be passed on to the employees. Any layoffs or downsizing should be conducted

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as soon as possible to alleviate anxiety and reduce rumors and to allow

employees to return to business as usual.

Job Satisfaction

Employee job satisfaction before and after the combination on the following

criteria: pay levels, employee benefits, job security, communication levels,

participation in the decision-making process, opportunity for professional growth,

development of personal job skills, promotion potential, and overall job

satisfaction in the decision-making process were particularly affected. Likewise,

in the acquiring companies managers felt that job satisfaction decreased in most

instances, but not to the extent as in the acquired companies. Satisfaction was

reported to have increased in the acquiring companies in two areas: opportunity

for professional growth and promotion potential.

Thus, job satisfaction decreased for both the acquired and the acquiring

organization after an acquisition, perhaps because of the ambiguity and

uncertainty of job retention felt both by employees and by managers.

The Them-Us Syndrome

After the acquisition has been formally announced, employees of both

organizations tend to adopt a them and us stance, particularly in the acquired

organization, if employees have perceived the acquisition as a loss. A merger

can emphasize or even exaggerate the differences in status between employees;

the resultant structure is often a constant reminder of who the winners and who

the losers are.

Differences in organizational cultures including management styles can lead to

competition between employee groups. Distorted perceptions and hostile feelings

toward the other group become common and responsibility for why things were

not going as well as they should, why communications were so poor, or why I or

my boss was not fairly treated [ are] routinely attributed to the other side.

This can be described as the arm wrestling phase.

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CHAPTER- 2

DESIGN OF THE STUDY

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CHAPTER 2

Research Design

TITLE:

ACCEPTANCE OF CULTURE IN MERGER AND AQUISITION

STATEMENT OF PROBLEM:

Over the past two decades, cross-border or international mergers and

acquisitions (IM&A s) have become the preferred method of foreign direct

investment (FDI). The trend shows that IM & As go both ways: towarddeveloping

countries and from them, reshaping the worlds economic boundaries. The highrate of failures has been associated mainly to the fact that M&As are still

designed with business and financial fit as primary conditions, leaving

psychological and cultural issues as secondary concerns. The wider cultural gap

and the current trend of IM&As between developed and developing countries

increases the urgency of understanding the effects of culture on the dynamics of

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IM&As and on issues such as corporate governance and local adaptation

strategy. The present research is designed in response to this shortcoming. It

examines the effects of culture on the outcome of IM&As and the variation of

these effects during the different phases of an IM&A. The research focuses on

the international aspect of cultural differencesthe differentiating factor between

domestic mergers and acquisitions (M&As) and IM&As. It measures success

from an organizations internal perspective, comparing what the IM&A, at

inception, was expected to achieve and what it achieved several years later. This

approach is different from the standard one of measuring success based on

market reaction to the IM&Aan external measure.

Review of literature

Despite two decades of increasing M&A activity, both within and across

countries, researchers have neglected cultural factors or have treated

organizational culture and national culture as one factor. Moreover, none of the

studies have focused on the role of national culture in an IM&A process.

Cultural factors in IM&As can be studied at both the organizational and the

national levels. These two levels of culture should be treated as separate

variables to show how they relate to other aspects of IM&As (e.g., organizational

structure, performance, and acculturation).Various studies have shown that most researchers

(1) have treated organizational and national culture as one factor in their

analyses; (2) have concluded that culture clash results in a decline in

shareholder value at the buying firm, it affects organizational restructuring, it

causes a deterioration of operating performance at the acquired firm, it lowers

employee commitment and cooperation, and it results in greater turnover among

acquired managers.

In summary researchers consider cultural synergy an important success factor.

However, most researchers have treated culture at the organizational level and

discussed success factors of cultural integration in M&As with the exception of

few who have treated culture at the national level but have analyzed IM&As and

trends in a specific region. A few researchers who acknowledge that national and

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organizational cultures act at different levels still include them in their analysis as

one factor. Acculturation takes place at two levels, national and organizationala

concept that has been called a double-layered acculturation process. However,

they consider both levels of culture as part of the leaders mindset, with a major

impact on the acculturation course leading to the eventual success or failure of

the merger.

In summary, researchers seeking to understand the process and outcome of the

IM&A with culture. While cultural fit has been acknowledged to be a potentially

important factor in M&As, the concept is ill defined, with no distinction drawn

between the national and corporate levels of culture.

NEED FOR THE STUDY:

To know the various aspects associated with acceptance level of culture in

merger in acquisition in ING Vysya Ltd and the impact on the condition of the

environment in the organization.

OBJECTIVE OF THE STUDY:

The present study is envisaged with the following objectives:

1. Peoples perceptions and interpretations of their environment and, therefore,

their rationality, are affected by cultural factors.

2. Cultural differences affect our view of business and management and,

consequently, the outcome of IM&As.

3. Cultural differences may be an asset.

4. National cultural differences should be accounted for and planned for so as to

reduce the risk of failure and increase the chances of success.

PRIMARY DATA COLLECTION

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1. Interaction with employees in ING bank Ltd and management and theemployees

2. Questionnaire

SECONADRY DATA COLLECTION

Web sites

Journals

News papers

Company manuals

FORMULA USED:

(NO OF EMPLOYEES/TOTAL SAMPLE SIZE) * 100

LIMITATIONS

Time constraint is the main limitation associated with the particular study

Non availability of certain information may also prove to be a limitation

associated with the study

Employees could not fill the questionnaire properly due to time constraint

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CHAPTER- 3

COMPANY PROFILE

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CHAPTER 3

COMPANY PROFILE

ING Vysya Life Insurance Company Limited (the Company) entered the private

life insurance industry in India in September 2001, and in a span of 5 years has

established itself as a distinctive life insurance brand with an innovative,

attractive and customer friendly product portfolio and a professional advisor sales

force.

It has a dedicated and committed advisor sales force of over 21,000 people,

working from 140 branches located in 74 major cities across the country and over

3,000 employees. It also distributes products in close cooperation with the ING

Vysya Bank network. The Company has a customer base of over 4,50,000 & is

headquartered at Bangalore. In 2005, ING Vysya Life earned a total income in

excess of Rs. 400 crore and also has a share capital of Rs. 440 crore.

The Company aims to make customers look at life insurance afresh, not just as a

tax saving device but as a means to add protection to life. The one thing we hold

in highest esteem is 'life' itself. We believe in enhancing the very quality of life, in

addition to safeguarding an individual's security. Our core values are therefore

defined as Professional, Entrepreneurial, Trustworthy, Approachable and Caring.

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The Companys portfolio offers products that cater to every financial requirement,

at any life stage. We believe in continuously developing customer-driven

products and services and value being accessible and responsive to the needs of

our customers.

In fact, the company has developed the Life Maker. A simple method which can be used to

choose a plan most suitable to a specific customer based on his needs, requirements and

current life stage. This tool helps you build a complete financial plan for life, whether the

requirement isProtection,Savingsor Investment, Retirement.

Corporate Objective

At ING Vysya Life, we strongly believe that as life is different at every stage, life

insurance must offer flexibility and choice to go with that stage. We are fully

prepared and committed to guide you on insurance products and services

through our well-trained advisors, backed by competent marketing and customer

services, in the best possible way. It is our aim to become one of the top private

life insurance companies in India and to become a cornerstone of INGs

integrated financial services business in India.

Our Mission

To set the standard in helping our customers manage their financial future.

MILESTONES

The origin of the erstwhile Vysya Bank was pretty humble. It was in the year1930 that a team of visionaries came together to found a bank that would extend

a helping hand to those who werent privileged enough to enjoy banking services.

Since then the bank has grown in size and stature to encompass every area of

present day banking activity and has carved a distinct identity of being Indias

Premier Private Sector Bank.

http://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htmhttp://www.ingvysyalife.com/productcenter.htm

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In 1980, the bank completed 50 years of service to the nation; the bank made

rapid strides to reach the coveted position of being the number one private sector

bank. In 1990, the bank completed its Diamond Jubilee year. At the Diamond

Jubilee Celebrations, the then Finance Minister Prof. Madhu Dandavate, had

termed the performance of the bank Stupendous. The 75 th anniversary, the

platinum jubilee of the bank was celebrated during 2005.

The long journey of 75 years has had several mile stones.

1930 Set up in Bangalore

1948 Scheduled Bank

1985 Largest Private Sector Bank

1987 The Vysya Bank Leasing Ltd Commenced

1988 Pioneered the concept of company branding Credit Cards

1990 Promoted Vysya Bank Housing Ltd

1992 Deposits cross Rs.1000 crores

1993 Number of Branches crossed 300

1996 Two National Awards by Gem and Jewellery Export Promotion Council

for excellent performance in Export Promotion

1998 Golden Peacock Award for the Best HR Practices by Institute of

Directors. Rated as best Domestic Bank in India by Global Finance

(International Financial Journal-June 1998)

2000 RBI clears setting up of ING Vysya Life Insurance Company

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2001 ING Vysya commenced life insurance business

2002 ING takes over the management of the bank from October 7th, 2002

2002 RBI clears the new name of the bank a ING Vysya Bank Ltd

Partners

A glance at our equity partners:

ING Group

Exide Industries Limited

Gujarat Ambuja Cements Limited

Enam Group

PRODUCT PROFILE

PROTECTION

Conquering Life

ING Term Life

ING Term Life Plus

SAVING

Reassuring Life

Creating Life

Safal Jeevan

http://www.ingvysyalife.com/Partners.htm#inggrouphttp://www.ingvysyalife.com/Partners.htm#exidehttp://www.ingvysyalife.com/Partners.htm#gaclhttp://www.ingvysyalife.com/Partners.htm#inggrouphttp://www.ingvysyalife.com/Partners.htm#exidehttp://www.ingvysyalife.com/Partners.htm#gacl

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Creating Life Money Back

Safal Jeevan Money Back

ING Life Plus

ING Positive Plus

ING Creating Star

INVESTMENTS

Rewarding Life

Powering Life

New Freedom plan

New One Life

Platinum Life

New Fulfilling Life

High Fulfilling Life

ING Life Plus

ING guaranteed Growth

RETIREMENT

Best Years

New Future Perfect

RIDER

Term Rider

Waiver of Premium Rider

Accidental Death Rider

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Accidental Death, Disability & Dismemberment Rider

Board of Directors

Mr. Rajan Raheja, Chairman of the Board.

Mr. Kshitij Jain, Managing Director & Chief Executive Officer.

Mr. N.N. Joshi, Director.

Mr. Satish Raheja, Director.

Mr. Rajesh Kapadia, Director.

Mr. S.B. Ganguly, Director.

Mr. Ron Van Oijen, Director.

Senior Management Team

Kshitij Jain, Managing Director & CEO.

Amit Gupta, Director - Marketing & Communication.

Hemamalini Ramakrishnan, Director Human Resources.

ORGANIZATION CHART

CEO

Senior Executive

Secretary

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\

CORPORATE SOCIAL RESPONSIBILITY

The bank as a part of its corporate social responsibility has undertaken many

purposeful activities. However, these are channelized at a group level under the

ING VYSYA FOUNDATION.

ING VYSYA FOUNDATION

It was set up almost three years ago actively supported by the three business

units of ING Vysya (ING Vysya Bank, ING Vysya Mutual Fund and ING Vysya

Life Insurance) to promote its responsibility. The mandate for this foundation is to

promote primary education for under privileged children. In a country with

an estimated 50 million children deprived of basic primary education and health

care, enormous support, dedication and firm belief is necessary to make a

difference and to change the scenario. The foundations effort has verysuccessful in reaching out to underprivileged children and providing them with a

platform to learn, grow and achieve.

The foundations major program towards the same is the ING CHANCES FOR

CHILDREN. This program is done throughout the globe and has been joined

VP-Alternate

Channels

Director

Employee

Benefits

VP-Sales

Controller

VP

Marketing

VP

HR

CFOAVP

NPD

VP

Sales

COO

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policy. To be a life policy the insured eventmust be based upon life (or lives) of

the people named in the policy.

Insured events that may be covered include:

Death

Accidental death

Sickness

Life policies are legal contracts and the terms of the contract describe the

limitations of the insured events. Specific exclusions are often written into the

contract to limit the liability of the insurer; for example claims relating to suicide

(after 2 years suicide has to be paid in full)(in India after one year Suicide is

covered), fraud, war, riot and civil commotion.

Life based contracts tend to fall into two major categories:

Protection policies - designed to provide a benefit in the event of specified

event, typically a lump sum payment. A common form of this design is term

insurance.

Investment policies -the main objective is to facilitate the growth of capital by

regular or single premiums. Common forms (in the US anyway) are whole life,

universal life and variable life policies.

Principles of insurance

Commercially insurable risks typically share some common characteristics.

A large number of homogeneous exposure units. The vast majority of

insurance policies are provided for individual members of very large classes.

Lloyd's of London is famous for insuring the life or health of actors, actresses and

sports figures. Large commercial property policies may insure exceptional

properties for which there are no homogeneous exposure units.

http://en.wikipedia.org/wiki/Protectionhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Lloyd's_of_Londonhttp://en.wikipedia.org/wiki/Protectionhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Lloyd's_of_London

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Definite Loss The event that gives rise to the loss that is subject to insurance

should, at least in principle, take place at a known time, in a known place, and

from a known cause. The classic example is death of an insured on a life

insurance policy.

Large Loss The size of the loss must be meaningful from the perspective of the

insured. Insurance premiums need to cover both the expected cost of losses,

plus the cost of issuing and administering the policy, adjusting losses, and

supplying the capital needed to reasonably assure that the insurer will be able to

pay claims.

Calculable Loss Probability of loss is generally an empirical exercise, while cost has more

to do with the ability of a reasonable person in possession of a copy of the insurance policyand a proof of loss associated with a claim presented under that policy to make a

reasonably definite and objective evaluation of the amount of the loss recoverable as a

result of the claim

.

TYPES OF INSURANCE

Below is the list of the many different types of insurance based on the coverage:

Life & Annuity Coverages

Health Coverages

Disability Coverages

Property & Casualty Coverages

Liability Coverages

Credit Coverages

Other Types of Coverages

Types of insurance companies

Insurance companies may be classified as

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Life insurance companies, which sell life insurance, annuities and

pensions products.

Non-life or general insurance companies, which sell other types of

insurance.

Brief History of Insurance Sector In India

The insurance sector in India has become a full circle from being an open

competitive market to nationalization and back to a liberalized market again.

Tracing the developments in the Indian insurance sector reveals the 360-degree

turn witnessed over a period of almost 190 years.

The business of life insurance in India in its existing form started in India in the

year 1818 with the establishment of the Oriental Life Insurance Company in

Calcutta.

Some of the important milestones in the life insurance business in India are:

1912 - The Indian Life Assurance Companies Act enacted as the first statute to

regulate the life insurance business.

1928 - The Indian Insurance Companies Act enacted to enable the government

to collect statistical information about both life and non-life insurance businesses.

1938 - Earlier legislation consolidated and amended to by the Insurance Act with

the objective of protecting the interests of the insuring public.

1956 - 245 Indian and foreign insurers and provident societies taken over by the

central government and nationalized. LIC formed by an Act of Parliament, viz.

LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of

India.

The General insurance business in India, on the other hand, can trace its roots tothe Triton Insurance Company Ltd., the first general insurance company

established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact

all classes of general insurance business.

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1957 - General Insurance Council, a wing of the Insurance Association of India,

frames a code of conduct for ensuring fair conduct and sound business practices.

1968 - The Insurance Act amended to regulate investments and set minimum

solvency margins and the Tariff Advisory Committee set up.

1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized

the general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National

Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental

Insurance Company Ltd. and the United India Insurance Company Ltd. GIC

incorporated as a company.

Insurance Sector Reforms

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI

Governor R.N. Malhotra- was formed to evaluate the Indian insurance industry

and recommend its future direction. The Malhotra committee was set up with the

objective of complementing the reforms initiated in the financial sector. The

reforms were aimed at creating a more efficient and competitive financial system

suitable for the requirements of the economy keeping in mind the structural

changes currently underway and recognizing that insurance is an important part

of the overall financial system where it was necessary to address the need for

similar reforms.

In 1994, the committee submitted the report and some of the key

recommendations included:

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need to exercise caution as any failure on the part of new players could ruin the

public confidence in the industry. Hence, it was decided to allow competition in a

limited way by stipulating the minimum capital requirement of Rs.100 crores. The

committee felt the need to provide greater autonomy to insurance companies in

order to improve their performance and enable them to act as independent

companies with economic motives. For this purpose, it had proposed setting up

an independent regulatory body- The Insurance Regulatory and Development

Authority. Reforms in the Insurance sector were initiated with the passage of the

IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a

statutory body in April 2000 has fastidiously stuck to its schedule of framing

regulations and registering the private sector insurance companies. Since being

set up as an independent statutory body the IRDA has put in a framework of

globally compatible regulations. The other decision taken simultaneously to

provide the supporting systems to the insurance sector and in particular the life

insurance companies was the launch of the IRDA online service for issue and

renewal of licenses to agents. The approval of institutions for imparting training to

agents has also ensured that the insurance companies would have a trained

workforce of insurance agents in place to sell their products.

Present Scenario

The Government of India liberalised the insurance sector in March 2000 with the

passage of the Insurance Regulatory and Development Authority (IRDA) Bill,

lifting all entry restrictions for private players and allowing foreign players to enter

the market with some limits on direct foreign ownership. Under the current

guidelines, there is a 26 percent equity cap for foreign partners in an insurance

company. There is a proposal to increase this limit to 49 percent.

The opening up of the sector is likely to lead to greater spread and deepening of

insurance in India and this may also include restructuring and revitalizing of the

public sector companies. In the private sector 12 life insurance and 8 general

insurance companies have been registered. A host of private Insurance

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companies operating in both life and non-life segments have started selling their

insurance policies since 2001.

Non-Life Insurance Market

In December 2000, the GIC subsidiaries were restructured as independent

insurance companies. At the same time, GIC was converted into a national re-

insurer. In July 2002, Parliament passed a bill, delinking the four subsidiaries

from GIC.

Presently there are 12 general insurance companies with 4 public sector

companies and 8 private insurers. Although the public sector companies still

dominate the general insurance business, the private players are slowly gaininga foothold. According to estimates, private insurance companies have a 10

percent share of the market, up from 4 percent in 2001. In the first half of 2002,

the private companies booked premiums worth Rs 6.34 billion. Most of the new

entrants reported losses in the first year of their operation in 2001.

With a large capital outlay and long gestation periods, infrastructure projects are

fraught with a multitude of risks throughout the development, construction and

operation stages. These include risks associated with project implementation,including geological risks, maintenance, commercial and political risks. Without

covering these risks the financial institutions are not willing to commit funds to the

sector, especially because the financing of most private projects is on a limited or

non- recourse basis.

Insurance companies not only provide risk cover to infrastructure projects, they

also contribute long-term funds. In fact, insurance companies are an ideal source

of long term debt and equity for infrastructure projects. With long term liability,they get a good asset- liability match by investing their funds in such projects.

IRDA regulations require insurance companies to invest not less than 15 percent

of their funds in infrastructure and social sectors. International Insurance

companies also invest their funds in such projects.

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Insurance costs constitute roughly around 1.2- 2 percent of the total project

costs. Under the existing norms, insurance premium payments are treated as

part of the fixed costs. Consequently they are treated as pass-through costs for

tariff calculations.

Premium rates of most general insurance policies come under the purview of the

government appointed Tariff Advisory Committee. For Projects costing up to Rs 1

Billion, the Tariff Advisory Committee sets the premium rates, for Projects

between Rs 1 billion and Rs 15 billion, the rates are set in keeping with the

committee's guidelines; and projects above Rs 15 billion are subjected to re-

insurance pricing. It is the last segment that has a number of additional products

and competitive pricing.

Insurance, like project finance, is extended by a consortium. Normally one

insurer takes the lead, shouldering about 40-50 per cent of the risk and receiving

a proportionate percentage of the premium. The other companies share the

remaining risk and premium. The policies are renewed usually on an annual

basis through the invitation of bids.

Re-insurance business

Insurance companies retain only a part of the risk (less than 10 per cent)

assumed by them, which can be safely borne from their own funds. The balance

risk is re-insured with other insurers. In effect, therefore, re-insurance is insurer's

insurance. It forms the backbone of the insurance business. It helps to provide a

better spread of risk in the international market, allows primary insurers to accept

risks beyond their capacity settle accumulated losses arising from catastrophic

events and still maintain their financial stability.

While GIC's subsidiaries look after general insurance, GIC itself has been the

major reinsurer. Currently, all insurance companies have to give 20 per cent of

their reinsurance business to GIC. The aim is to ensure that GIC's role as the

national reinsurer remains unhindered. However, GIC reinsures the amount

further with international companies such as Swissre (Switzerland), Munichre

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(Germany), and Royale (UK). Reinsurance premiums have seen an exorbitant

increase in recent years, following the rise in threat perceptions globally.

Life Insurance Market

The Life Insurance market in India is an underdeveloped market that was only

tapped by the state owned LIC till the entry of private insurers. The penetration of

life insurance products was 19 percent of the total 400 million of the insurable

population. The state owned LIC sold insurance as a tax instrument, not as a

product giving protection. Most customers were under- insured with no flexibility

or transparency in the products. With the entry of the private insurers the rules of

the game have changed.

The 12 private insurers in the life insurance market have already grabbed nearly

9 percent of the market in terms of premium income. The new business premium

of the 12 private players has tripled to Rs 1000 crore in 2002- 03 over last year.

Meanwhile, state owned LIC's new premium business has fallen.

Indians, who have always seen life insurance as a tax saving device, are now

suddenly turning to the private sector and snapping up the new innovative

products on offer.The growing popularity of the private insurers shows in other

ways. They are coining money in new niches that they have introduced. The

state owned companies still dominate segments like endowments and money

back policies. But in the annuity or pension products business, the private

insurers have already wrested over 33 percent of the market. And in the popular

unit-linked insurance schemes they have a virtual monopoly, with over 90

percent of the customers.

The private insurers also seem to be scoring big in other ways- they are

persuading people to take out bigger policies. For instance, the average size of a

life insurance policy before privatization was around Rs 50,000. That has risen to

about Rs 80,000. But the private insurers are ahead in this game and the

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average size of their policies is around Rs 1.1 lakh to Rs 1.2 lakh- way bigger

than the industry average.

Buoyed by their quicker than expected success, nearly all private insurers are

fast- forwarding the second phase of their expansion plans. No doubt the

aggressive stance of private insurers is already paying rich dividends. But a

rejuvenated LIC is also trying to fight back to woo new customers.

Benefits of Life Insurance

Apart from the insurance coverage there are many other advantages with a life

insurance policy. Policy owner

1. Can avail loans from banks and other financial institutions with a life

insurance policy.

2. Can avail tax benefits as per Income tax department of Indias rules with

an investment in life insurance policy.

3. It is also a good investment method for future needs.

4. Above all the policy owner gets life insurance coverage for the insured

period.

Life Insurance - Indian Scenario

Life insurance in India was nationalized in 1956 by incorporating Life Insurance

Corporation of India and all private life insurance companies were taken over by

LIC. Again in 2000 Govt. of India passed a new insurance bill Insurance

Regulatory and Development Authority Act and appointed a new insurance

regulator Insurance Regulatory and Development Authority to issue license to

private insurance companies. This again opened door to private players and

major Indian financial companies tied up with global insurance giants to get moreshare in Indian life insurance market. But still Life Insurance Corporation is the

biggest player mainly due to the fact that it is backed by Govt. of India.

Life Insurance Companies in India

1. Life Insurance Corporation of India (LIC)

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CHAPTER- 4

DATA ANALYSIS AND INTERPRETATION

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CHAPTER 4

ANALYSIS AND INTERPRETATION

Table no 1 Acceptance level of employee regarding merger

Scale No of employees Percentage

Poor 0 0

Very poor 2 6.67

Good 21 70

Very good 7 23.33

Excellent 0 0

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From the above graph we can interpret among 30 employees 70% i.e. 21 of them

have felt that merger is a good decision and have accepted it. 7 of them among

30 i.e. 23.33% have felt its very good working with this global environment. Very

least i.e. only 6.67% i.e. 2 of them among 30 have not able to accept that the

merger which is really a small amount which is negligible which can be sorted out

with personnel counseling and make them understand why was the merger

needed. None among the 30 employees have shown poor and excellent in the

acceptance of merger.

Table No 2 Adoption to merger

Scale No of employees Percentage

Immediate 2 6.67

After sometime 28 93.33

Not adopted 0 0

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From the above graph we can analyze that among 30 employees 93.33%

employees i.e. 28 members needed time to get into the new culture including the

entry and exit in the daily activity which will be having a enormous amount of

change in the global culture when compared to Indian scenario. Very least No of

employees have adopted immediately who have the idea of global scenario i.e.2

among 30 which shows a percentage of 6.67%. No employee till now has left

without adopting to the global merger.

Table no 3 Change in working culture after merger

Scale No of employees Percentage

Rapid 20 66.67

Not much 10 33.33

Not at all 0 0

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From the above graph we can interpret that among 30 employees 20 employees

i.e.66.67% of employees have noticed a rapid change in the working culture after

merger where as 10 people which shows a percentage of 33.33% felt not much

of change in the working culture. Majority of them have felt the change because

they have seen the typical Indian scenario in working where in after merger its a

global scenario in the working culture.

Table no 4 Acceptance by customers towards merger

Scale No of employees PercentagePoor 2 6.67

Very poor 2 6.67

Good 21 70

Very good 5 16.66

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Excellent 0 0

The above graph shows the response of customers regarding the merger which

is felt by employees seeing the customers before and after. Among 30

employees 21 of them i.e.70% have felt that customers have accepted the

drastic change in the culture which usually make feels customers very difficult to

accept. Where as rating of poor and very poor is represented by 6.67% i.e.2

employees each.5 employees i.e.16.66% have shown a response of very good

towards the customers acceptance.

Table no 5 Organizations importance to culture

Scale No of employees Percentage

Poor 0 0

Very poor 1 3.33

Good 19 63.33

Very good 9 30

Excellent 1 3.34

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This graph depicts the organizations importance to culture which is purely a

personnel feeling of employees which is obtained by the on going activities in the

organization. Among 30 employees very high percentage of 63.33% i.e.19

employees have felt good that organization has given importance to culture. Next

rating is among 30 employees 9 of them i.e. 30% have felt that organization is

giving very good importance towards culture. Where as very poor and excellent

is felt by 1 employee which shows a percentage of 3.33%. This shows that

organization has not rooted out the basic culture of the oragnization.

Table no 6 Quality of training after merger

Scale No of employees Percentage

Poor 0 0

Very poor 8 26.67

Good 16 53.33

Very good 5 16.67

Excellent 1 3.33

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The graph depicts the quality training program given to the employees after the

merger. Among 30 employees 16 employees i.e. 53.33% have felt that quality of

training was good, 8 i.e. 26.67% have felt quality of training was very poor, 5 i.e.

16.67% have felt very good with the quality of training provided where as 1 i.e.

3.33% have shown that quality of training provided was excellent after the

merger. This shows that majority of them have got partially satisfied with the

quality of training provided after merger.

Table no 8 Relationship with top management before merger

Scale No of employees Percentage

Poor 0 0

Very poor 2 6.67

Good 17 56.67

Very good 11 36.66

Excellent 0 0

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The above graph depicts the relationship with the top mangement before merger.

Among 30 employees a highest no of 17 i.e.56.67% have felt that the relationship

with the top mangagement before merger was good, 11 have felt i.e. 36.66%have felt that the realationship with the top mangement was very good with the

top management before merger, 2 i.e. 6.67% have shown that there was very

poor relationship with top management. This shows that the top management

was valuing employees during working and was supporting them when needed.

Table no 9 Relationship with top mangement after merger

Scale No of employees Percentage

Poor 1 3.33

Very poor 0 0

Good 17 56.67

Very good 11 36.67

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Excellent 1 3.33

The above graph depicts the relationship with the top mangement after merger.

Among 30 employees a highest no of 17 i.e.56.67% have felt that the relationship

with the top mangagement after merger is good, 11 have felt i.e. 36.66% have

felt