Ia intro feder_manager_fr_v12

India: Now, tomorrow or never ?

Turin, 12th April 2012

© InAlliance Consulting – All rights reserved

FederManager - 2012 - Seminar 1

1

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Agenda

Page
1.

Introduction, major macro-economic challenges

3

2.

Market entry: options, barriers

11

3.

Manufacturing in India: some potential pitfalls

16

4.

Introduction to Indian culture

24

5.

Case studies
1.

Local manufacturing case study: Automotive sector

28

2.

Adapting to local demand and supply chain case study: Beer sector

36

INTELLECTUAL PROPERTY RIGHTS & DISCLAIMER
This document is the exclusive property of InAlliance Consulting. It is intended solely to its primary recipient and may not be communicated, disseminated, reproduced, or copied in whole or in part
without the prior consent of InAlliance Consulting.
Concepts, tools, information represented herein are the result of the expertise of InAlliance Consulting. While this document has been produced with due professional care using data collected with our
best attention, the recipient recognises that this document does not constitute recommendations, advice, or other suggestions to implement any of the ideas presented. In particular, financial, fiscal and
legal information contained herein shall be verified by the recipient before attempting any implementation.
This document shall not be complete without the accompanying verbal explanations by InAlliance Consulting.


2

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

India takes increasing importance in European Union’s external trade as well as foreign
investment due to very strong macro-economics
Key figures

Per capita GDP evolution
India

Italy

Surface (km²)

3 287 263

301 340

Population (million, 2011)

1 210

61

1200

Population density (p. / km²)

367

202

1000

Median age (years)

26,2

43,5

800

Life expectancy (years)

64,7

81,86

600

Per capita GDP (PPP(1), US$)

3 703

30 165

400
2000 2001 2002 2003 2004 2005 2006 2007 2008

Per capita GDP (absolute(1), US$)

1 527

37 046

GDP (US$), India, 1990-2008
Source : United Nations
US$

EU27 – India external trade

Foreign direct investment into India
M US$

M EUR

40 000
35 000

CAGR 2000-2008:
+12,1%

3%
2,5

Share of India in trade
with the EU:
+4% CAGR 1999-2010

50 000

30 000
2

25 000
20 000

2010 FDI:
~ US$48 bn

60 000

40 000

FDI into India (all, EU27
included):
+38% CAGR 1991-2011

1,5
30 000

15 000

1

10 000

Trade volumes:
+10% CAGR 1999-2010

5 000
0

0,5
0

Importations
Part importations

Exportations
Part exportations

Liberalization of
Indian economy

20 000
10 000
0

Source : Eurostats, Sherbrooke University, United Nations, McKinsey, Wikipedia, CIA factbook, InAlliance analysis

(1) Purchasing Power Parity, 2011 IMF figures

3

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

However, besides the obvious opportunities, India also presents challenges that require a
differentiated approach
Inflation mitigates GDP growth’s benefits

Large country,failing infrastructure

Corruption remains a major challenge


Commodity
basket index

3000 km

Average inflation:
+7,4% / yr

170
160
150
140
130
120
110
100
90
80

3000 km



3000 km

FY '06- FY '07- FY '08- FY '09- FY '10- FY '11'07
'08
'09
'10
'11
'12
(est.)





Ranked 87th out of the 178 most
corrupt countries in 2010, similar to
Albania and Morocco
55% of all Indian citizens have at least
once had to recourse to corruption
In 2008, 120 members of parliament
(out of 522) were under scrutiny in
relation with criminal cases
1400bn US$ in grey Indian assets in
Switzerland, more than grey assets from
all other countries combined, 13 times
the Indian national debt

Cultural differences, although bridgeable, must be taken into account
Power Distance
80
60
Long Term
Orientation

India
Italy

40
20

Individualism

Long Term
Orientation

0

Uncertainty
Avoidance

Masculinity

Uncertainty
Avoidance

Power Distance
100
80
60
40
20
0

USA

Power Distance
80

China

Individualism

60
Long Term
Orientation

Germany
Italy

40
20

Individualism

0

Masculinity

Uncertainty
Avoidance

Masculinity

Source : Hofstede cross-cultural analysis, Office of Economic Advisor (India), Transparency International, Global Integrity, Association Suisse des Banquiers , InAlliance analysis

4

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

India’s poor are fast climbing into the consuming classes, which are projected to account for
over 600 million individuals by 2025, more than the entire population of EU27
Evolution of income distribution in India
Population
(Million)
1600

« Strivers »:
US$ 47 000 to 94 000
household income

« Globals »:
Household income
over US$ 94 000

2025, India:
607 million
consumers

1400
1200
1000

2005, India:
55 million
consumers

2010, India:
163 million
consumers

Seekers:
US$ 19 000 to 47 000
household income

2025, EU27
519 million total
population

« Aspirers »:
US$ 8 500 to 19 000
household income

800
600
400

« Deprived »:
Household income
under US$ 8 500

200
0
1985

1995

2005

Source: National Council of Applied Economics Research, McKinsey Global 2007, Eurostat, InAlliance analysis

2015

2025

Note: Income brackets are yearly household incomes in purchasing
power parity, using a constant 52 INR / USD exchange rate

5

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Although India’s economy has grown much faster than Italy’s in the last decade, it will
probably take another decade or so before India’s total national GDP reaches that of Italy
GDP projections comparison
US$
000 bn
3,5E+12

3E+12
Intersection:
2020

2,5E+12

2E+12

Italy
CAGR 2000-2010:
+0,2%

Italy
India

1,5E+12

Linéaire (Italy)
Linéaire (India)

1E+12

5E+11

India
CAGR 2000-2010:
+7,7%

0

Source: United Nations Statistics Division, InAlliance analysis

Note: Statistics based on 2005 constant prices and exchange rates, linear extrapolation

6

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Like Europe, India has many different faces resulting from its rich history and wide array of
geo-climatic environments

South Block, Delhi

The Himalayas

Taj Mahal

Rice paddy in SIkkim
 New Delhi

 Kolkata

Thar Desert

Victoria Palace, Kolkata
 Mumbai
 Hyderabad

Bangalore 

Mumbai by night

Beaches of Goa
Source: India Tourism Promotion Board

 Chennai

Streets of Chennai

Fishing villages of Kerala

7

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Measured in figures, India’s disparities are even more obvious: India is not a homogeneous
country when it comes to business or industrial environment either

8611m elevation
(K2, Kashmere)

-40°C
(Drass, Kashmere)
40% of population below
absolute poverty level
(State of Bihar)

€1600 average individual income
(Chandigarh)
 New Delhi

>11m rainfall / yr
(Mawsynram, Meghalya)

<2cm rainfall / yr
(Thar desert, Rajasthan)
 Kolkata

 Mumbai

 Hyderabad

€20 000 /m2 professional
real estate
(Nariman Point, Mumbai)

+51°C
(Purulia, W. Bengal)
Bangalore 

 Chennai

100% literacy rate
(Nagercoil, Tamil Nadu)
Sources : Census of India, Wiki Answers, Times of India, InAlliance analysis


8

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Indian agricultural crops depend heavily on the yearly monsoon for water and suitable
temperatures
Monsoon cycle in India

Illustration - Rainfalls in Mumbai vs. Paris
Winter monsoon
(« Northeast
Monsoon »)

mm
700
600
500
400

Mumbai (2167mm/yr)
Paris (585mm/yr)

Mumbai receives more
rainfall in the month of
July (650mm) than Paris
in the entire year
(585mm)

300
New Delhi:
approx. 15th
July to late
August

200

 New Delhi

100
0
 Kolkata

Mumbai:
monsoon
starts approx.
5th June to
late July

The two seasons of Indian agriculture

 Mumbai

Hyderabad

Bangalore 

 Chennai

Summer
monsoon
(« Southwest
Monsoon »)
300 km

Season

Kolkata :
Kolkata : July
moussons en
and November
Juillet et
monsoons
Novembre

Chennai :
moussons
June and
December
en Juin et
monsoons
Décembre

Period

Sowing

Harvest

Major Crops

"Kharif"
(summer)

JuneNovember

June-July:
Presowing
and preparatory
tillage of the soil

September December

Jowar Rice
Maize, Pulses
Groundnut,
Cotton,
Soyabean
Sugarcane

"Rabi"
(winter)

Mid OctoberFebruary

SeptemberNovember

FebruaryMarch

Wheat, Barley
Mustard, Sesame
Peas, Gram
Safflower

Source: MétéoFrance, «Hydrologie» (André Musy,Christophe Higy), Bloomberg Businessweek, desk research, InAlliance analysis


9

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Agenda

Page
1.


3

2.


11

3.


16

4.


24

5.

Case studies
1.


28

2.


36



10

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

India is undoubtedly an attractive economy, but the specific market segment targetted may
prove much less attractive than initially expected, and much less accessible too
Illustration – Major challenges of Indian agriculture require highly specific approach in the agro-equipment sector
Extremely fragmented land-holding

Rural poverty

Average farm size (ha)

Rural India
Population below poverty line
(income < €6.5 / month)

469

349

287
197
73

32

31

42%
1,6

•
High rural illiteracy
Illiteracy, rural India
(e.g. Bihar)

Illiteracy, major city
(e.g. Chandigarh)
13,6%

36,2%

Low / slow / improper
technology adoption

•

Very low budgets

•

High variability in
harvest characteristics

Lack of seed management
According to various sources :
• Only approximately 10% of cereal harvest in India
results from managed seed multiplication
•

In 2009, the states of Orissa, Bihar, Uttar
Pradesh had not yet adopted seed management
techniques

Source: FAO farm census, University of Sussex, National Census of India 2011, Tendulkar Committee 2009 on poverty, NeoFocus / InAlliance analysis


11

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Market sizing and competition assessment can be a difficult exercise in India due to
« unaccounted for cottage industry » and product definitions varying from western standards
Illustration – Precisely assessing competition in the spirits market is virtually impossible
Total spirits production estimate: 61,3 mhl
White
spirits;
0,3 mhl
Illegal distillation: 64%

Rum;
1,2 mhl
Illicit country
liquor;
12,3 mhl (3)

Licensed
country liquor;
11,2 mhl (3)

Brandy;
3,1 mhl
Indian-made
Foreign
Liquors (IMFL);
10,8 mhl (2)

Fake IMFL ;
27,0 mhl (3)

(1)
(2)
(3)

Over 90% (1) made from
sugar cane mollasses (does
not qualify for “whisky” name
outside India)
“Whisky”
6,3 mhl

No official data available. A 10% proportion is given by several unconfirmed sources but seems unrealistically high as it would imply a malt requirement of 60 to 80 kt per year, an unlikely
amount considering malting barley availability
2008 figure
Extrapolated from a health survey conducted in the State of Karnataka in 2005

Source: National Council of Applied Economics Research, RaboIndia Finance estimates, The Lancet, desk research, NeoFocus / InAlliance analysis


12

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Motivated by external trade growth, India has continuously reduced import duties in the past
decade, especially on industry consumables and production equipment
Customs duty evolution since 2001
80%
67%

70%

2001

60%

2008

48%

50%
40%

2005

37%

37%

30%

39%
33%

27%

30%

40%

35%

33%

33%

33%
26%

21%

20%

20%

6%

10%

10%

9%

8%

7%

7%

0%
Live Animals
and Animal
Products

Vegetable
Products

Animal or
Prepared
Vegetable Fats Foodstuff,
& Oils
Beverages,
etc.

Mineral
Products

Miscellaneous
Plastics &
Manufactured Articles thereof
Articles

Products of
Chemicals

Base Metals & Machinery &
Articles of
Mechanical
Base Metal
Appliances

Vehicles,
Aircraft and
Vessels

Trade balance evolution since 1998
-

+2

-

0

-

-2

-

-4

-

-6

-

-8

10 -

-

- 10

5-

-

- 12

40 35 30 -

Exports

Imports

Products / equipments
strategic to Indian
industry

25 20 15 -

1998

2001

2004

2007

Trade balance

2011

Sources : Ministère Canadien des Affaires Etrangères, InAlliance analysis


13

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

As a result, the competitive disadvantage on imported products has reduced significantly
and does not always justify on its own a production localization
Illustration – Imports vs. Local production of a major automotive sub-system
IMPORT : EXW to DDP

Rate depends on
product, typically 7,5%

Systematic « antidumping » tax
Tax alligned on Central
Excise Duty (levied on
all national productions)

State rate, figure
depends on applicable
State and product

EUR

Rate

(1)
2000
(1)
110
(1)
23
2133

EXW INDIA PRICE
Shipping
Insurance
C I F INDIA PRICE

7,50%
10,00%

2154
162
232

Assessable Value
Basic Customs Duty
Countervailing Duty

Education CESS on BCD
3,00%
Education CESS on CVD or CED
3,00%
Additional Duty of Customs 4,00%

7
12
103

EXW EU PRICE
Shipping
Insurance
C I F INDIA PRICE
Assessable Value
Basic Customs Duty
Countervailing Duty

Less: Refundable duties
DDP INDIA COST
Basic Excise Duty
Specific Duty
Cess
NCCD
Education & H Edu Cess

Federal rate

LOCALIZED : EXW to DDP

Rate

EUR
(1)
2000
(1)
110
(1)
23
2133

0,00%
0,00%

2154
0
0

Education CESS on BCD
3,00%
Education CESS on CVD or CED
3,00%
Central Excise Duty
4,00%

0
0
86

Ex-showroom Price

Less: Refundable duties
DDP INDIA COST
Basic Excise Duty
Specific Duty

22%
0%

-86
2133
469
0

0%
1%
3%

3
23
16

Cess
NCCD
Education & H Edu Cess

0%
1%
3%

3
21
15

2%
13%
3%

Central Sales Tax
Local Sales Tax / VAT
Octroi / Local Body Tax

22%
0%

-342
2307
507
0

57
364
98

2%
13%
3%

53
337
91

3375

Central Sales Tax
Local Sales Tax / VAT
Octroi / Local Body Tax
Ex-showroom Price

3122

Applicable in certain
cities only, rate
depends on product
Competitive disadvantage on imported product : 7,5%

Sources : Indian Central Board of Customs and Excise, past client project, InAlliance analysis

(1) illustrative figures

14

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Agenda

Page
1.


3

2.


11

3.


16

4.


24

5.

Case studies
1.


28

2.


36



15

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

While attractive at first sight, a decision to start manufacturing in India must fit company
strategy and be preceded by extensive research
India ?
(localize production)

Enter new markets, new
clients ?

Other markets better
accessible from India ?

What market(s) ?

(Market driven)

(localize and export)

Europe ?

Leverage skills ?
•
•

Company objective(s) ?

Improve
production
/
production efficiency ?

(re-locate & export back)

Hard to retain
May lack
experience

depth

of

(Process driven)
Leverage low cost labour
?
•

Not necessarily lowest
cost

Secure supplies ?
(Supply driven)

What raw materials ?

What benefit being local
?
•
•

Source : InAlliance analysis

Logistics cost / kg ?
Bargaining power ?


16

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

The decision to set foot in India is often market driven, and a sound decision requires
research to ensure strategic fit and not just opportunity-grabbing
« Global product » ?
•

•

India ?
(localize production)

Any conflict
culture ?

with

Indian

Loss of image if not « Made
in Italy » ?

Is your product « India proof » ?
Mass product ?
•

Specificities
of
environment ?

•

Europe ?
What market(s) ?

(re-locate & export back)

Is India likely to bring you the
best competitive advantage
sustainably ?

Overkill ?

•

Indian

Pricing ?

Eastern Africa ?
•
•

Probably medium to long term

Leveraging
various
ties,
geographical
proximity,
India’s higher skills

Middle East ?
Other markets better
accessible from India ?

•
•

(localize and export)

Short term
Leveraging
geographical
proximity, India’s lower cost

Other Asian markets ?
•
•

•


Short term
Leveraging
proximity

geographical

Will India remain low cost ?

17

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

India’s high attrition across its entire industry presents businesses with specific overheads
and HR strategy issues
Attrition rates in various industries in India, 2007
60%
50%
40%

Average attrition rate:
> 30% / yr

How critical to your
business is individual
know-how ?

30%
20%
10%
0%

How much of your knowhow might they transfer
to your competitor ?
Out of 100 trained
personnel,
as
much as 30 may
leave each year

Attrition rates comparison in IT and BPO, 2010
60%
India: twice as much
as China, 3 times as
much as Brazil

50%

Are your recruitment
resources
structured
enough to take the
challenge ?

40%
Are
your
training
budgets
tailored
for
these attrition rates ?

30%
20%
10%
0%
Chile

Brazil

US

China

India

Source : ASSOCHAM, AT Kearney, Pragmatic Outsourcing, Compensation Force, InAlliance analysis


18

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

The ease of communicating in English in India plays in favour of India as an outsourcing
destination but is often greatly over-estimated
Only 7 times more Indians than Italians actually speak English…

… and 89% of the population do not speak or understand it at all

300000000
250000000
200000000

2nd language
3%

1st language
0,03%

India:
125m

As a foreign
language
8%

Italy:
17m

150000000
100000000

50000000
0

Not spoken
89%
Additional language

First language

English is not evenly practiced in India
English as a business language is much more common in South
India than in the North, where the indigenous Hindi is usually the
language of reference

Terminology, meaning can differ from British or American English

Sources : Graddol, Crystal, Census of India 2001, InAlliance analysis



« We will consider » = « We agree »
« Yes » = « we will do our best to achieve your requirement »
« Tomorrow » = « not now »



« auto » = motorized 3-wheeler



« Rest-room » = toilet



English as a second language follows Indian societies socioprofessional stratification and is typical of upper-middle class,
educated, urban India

« It will be difficult » = « I will be unable to help you » ~ « No »










…

19

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Logistics in India can be easily overlooked: the size of India is comparable to that of a small
continent rather than to that of any single EU country, and major cities are just as far apart
Size comparison: EU vs. India
It takes longer, by train, car, or plane,
to travel from Mumbai to Delhi than
from Turin to London

 Copenhagen

 New Delhi
 London

 Berlin

3000 km

 Paris

 Kolkata

 Mumbai

Hyderabad
 Roma
Bangalore 

 Lisbon

3000 km
Source : Various airlines schedules, InAlliance Analysis

 Chennai

3000 km


20

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Indian roads, amongst the world’s deadliest and most congested, suffer greatly from the
effects of the monsoon and hardly suffice to move people and goods within the country

Indian roads are often considered the most
dangerous in the world:
86 000 deaths in 2003 (France: 5700)

Sources : World Bank, Prévention Routière, InAlliance analysis

The third largest road network in the world is
heavily limited in large and growing cities
such as Mumbai, Chennai or New Delhi

Monsoon causes gridlocks each year and
renders some roads totally useless for
months thereafter

| Photos : The Hindu, bigfatcars.com, superstock.com, flickr.com, unep.org, New York Times

21

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

State intervention has decreased substantially since liberalization in 1991 but still limits or
bars foreign – or even private – direct investment in some sectors
Broad sector-wise foreign direct investment (FDI) policy in India

Government reserved sectors
-

Railways
Some postal / courrier services
Electricity distribution (1)
Lottery / gambling
Nuclear energy
Higher education (1)
…
-

Sectors with FDI caps and / or
requiring specific government
approval (2)
Retail (51% FDI cap)
Insurance (26%)
Bank (49%)
Mobile telephone networks (49%)
Civil aviation (40%)
Refineries (26%)
Media (20 to 49%)
Mining and quarries (49 to 74%)
etc ...

Sectors on automatic approval route (3)
All other sectors, including:
- Automotive
- Mechanical engineering
- Tourism
- etc…

Notes :
(1) A few exceptions date back from before independence
(2) Approval is granted on a case-by-case basis from Foreign Investment Promotion Board
(3) Specific notice must however be made to Reserve Bank of India within 30 days after investment has been made
Source : Indian Department of Industrial Policy & Promotion, InAlliance analysis


22

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Agenda

Page
1.


3

2.


11

3.


16

4.


24

5.

Case studies
1.


28

2.


36



23

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Indian culture considers several foundation concepts very differently from Western culture,
causing many misunderstandings and possible goal misalignments in cross-border projects
Illustration – 3 major concepts seen from Western and Indian philosophical angles
In Western philosophy




Origin: centred on a single messiah / prophet



Time
concept

Scale: human scale (years, centuries, a few millenia at most)

Sequential, linear actions exclusively, rigid agenda

In Hindu philosophy






Scale: much beyond mankind (perpetual
repetition of “Yuga” cycles, 4,3m years each)
Origin : none (cyclical)
Parallel actions, indirect effects of actions,
multi-tasking

Individualism
concept



Scale: a few decades



Scale: none



Limitations: physical birth and death



Limitations: none



Life
concept

Continuation : spiritual exclusively (heaven, hell, …)







Collectively, humans make up humanity, and by extension
universe, which revolves around humans
Individuals cluster into families, friends circles, nations, etc…
for convenience, interest, or due to proximity or biological ties





Continuation: perpetual (reincarnation), both physically and
spiritually
Universe includes
components

humans,

amongst

many

other

Individuals exist by, and for, a complex apparatus which
has a much more important meaning than the individual
itself

The individual only has one life to achieve the mission he has
assigned to himself. Free will is key, destiny can be overcome.

Participation to common effort, struggle towards goal of the
community are the main roles assigned to individuals.

Deadlines (including death), failures, successes are present at all
times.

Destiny is key, free will is bound by community interest.

Failure or success are directly measured as a result.
Source : Desk research, InAlliance observations during various client projects, InAlliance analysis

The meaning of an action is more important than its measurable
success. Failure is a delay, not a definitive result.

24

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Although castes are outlawed by constitution, they still structure much of Indian society,
explain fatalism, and impact human resources management
Origins

Definition of the main castes

Castes where originally codified in the Vedas, the founding texts of
Hinduism and have structured Indian society for the past 3000 years.

Society was considered to function similarly to the human body, and was
therefore structured on the same model, each caste being assigned a set of
roles similar to one of the parts of a human body

Depending on regions and mode of religious conversion, “imported”
religions (judaism, islam, christianism) have either rejected or adopted and
adapted the caste system (e.g. Goa Christians).
Traditionally, an individual born in a given caste would marry in the same
caste and practice exclusively the trades assigned to his / her caste,
ensuring perpetual reproduction of the existing social organization.

Visible effects in today’s India
Indian constitution and law abolished the caste system at India’s
independence in 1947.
However, tens of generations of soft skills and learnings passed from
parents to children mean that yesterday’s caste system has often been
transposed into company hierarchy: Brahmins often occupy strategic
positions, “warriors” thrive in sales management position and Vaisyas in
production management, Sudras abound on the shopfloor…and ”outcasts”
are still likely to work in janitorial or refuse collection…

Representation

Caste / role

Desirable soft skills

Brahmins :
Priests,
intellectuals...

Fundamental
thinking,
conceptualization

Kshatriyas :
Warriors,
administrators…

Competitiveness
Resilience
Authority

Vaisyas
Craftsmen,
traders...

Management
Implementation

Sudras
Workers,
farmers,...

Physical strength,
productivity,
obedience

Pariahs / Harijans / Dalit
« Outcasts », or « untouchables »:
any trade related to death, waste,
dirt….

Source : Desk research, InAlliance Analysis

Obedience,
fatalism…


25

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Private or public, large or small, Indian companies model their corporate hierarchy on Indian
society’s stratification
Illustration – Typical hierarchy in a large Indian company
Chairman & Executive Officer
Managing
Director
Senior Executive
Director

Senior Executive
Director

Executive
Director

Executive
Director

General
Manager
Deputy General
Manager
Senior
Manager

Manager

Senior
Engineer

Engineer

General
Manager
Deputy General
Manager

Senior
Manager

Engineer

Deputy General
Manager
Senior
Manager

Manager

Senior
Engineer

Deputy General
Manager

Senior
Manager

Manager

Senior
Engineer

Engineer

General
Manager

Manager

Senior
Engineer

Engineer

Senior
Manager

Manager

Senior
Engineer

Engineer

Senior
Engineer

Engineer

Engineer

Sources :Corporate / Business Unit presentations of various indian companies mentioned , hierarchical structure of Indian Railways, clients projects, InAlliance analysis

26

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Agenda

Page
1.


3

2.


11

3.


16

4.


24

5.

Case studies
1.


28

2.


36



27

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Socio-economic fundamentals point to a sustained demand for motor vehicles
GDP growth, GDP (US$), India, 1990-2008
India, 1990-2008 (US$)

Vehicle ownership in India, 2010

Source : United Nations
1200

No vehicle
Car
Motorbike
Bicycle

CAGR 2000-2008:
+12,1%

1000
800
600

400
2000 2001 2002 2003 2004 2005 2006 2007 2008

Ownership rate:
- car: 1%
- Motorbike: 10%

• 83000 millionaires ($) in India in 2009, 20% more than in 2008
• India’s growth could overtake China’s by 2015
• Average per capita income could overtake USA and EU by 2040

No motor
vehicle:
89%

Evolution of income distribution
Household income, 2010,
PPP

Population by income bracket

« Globals » : > € 80k
« Strivers » : € 40k - 80k
« Seekers » : € 15k - 40k
« Aspirers » : € 7k - 15k
« Deprived » : < € 7k
1985

1995

2005

2015 (e)

Source : United Nations, Indian Finance Ministry, McKinsey Global Institute, InAlliance analysis

2025 (e)

28

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Fast growing sales of motor vehicles remain dominated by 2-wheeler sales, but this is about
to change
Total vehicle sales trends

Sales by vehicle by vehicle type - India -leading to Oct. 2010
type, 12 months FY 2009-2010
Sales

Total vehicles sales - India

Source : SIAM, November 2010


CAGR:
+10,3%

14 000 000
12 000 000

Passenger Vehicles
1 949 776
Commercial Vehicles
531 195

10 000 000

Three Wheelers
440 368

8 000 000
6 000 000
4 000 000
2 000 000

Two Wheelers
9 371 231

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Car sales trends
Passenger vehicles sales trends - India
2 500 000

•

Sustained growth over the last decade

•

Automotive manufacturers in India make investment decisions
based on estimates of continued growth up to 2020 or
beyond

1 000 000

•

Car sales overperform other vehicles’ sales

500 000

•

2-wheelers still represent 75% of the units sold

2 000 000

CAGR:
+13.7%

1 500 000

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Source : Society of Indian Automotive Manufacturers, car manufacturers interviews, InAlliance analysis


29

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Competitive structure in car manufacturing remains highly consolidated, leaving little room
to European manufacturers
Market shares distribution, Jan. 2010

Others Skoda Fiat
Ford
2%
1%
1% 2% Toyota
3%
Honda
3%
GM
4%

•

The largest 4 car makers (Maruti,
Hyundai, Tata, Mahindra) hold
83% of the market shares together

•

The next 4 (GM, Honda, Toyota,
Ford) hold another 12%

•

95% of the market is untouched
by European car makers

Mahindra
8%

Maruti Suzuki
45%

Tata
14%

Hyundai
16%

To fully leverage the Indian market’s
potential, European Tier 1 and Tier 2
suppliers must be ready to enter
clients usually totally unknown to
them

Source : Society of Indian Automotive Manufacturers, InAlliance analysis


30

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Possible entry strategies vary greatly in scope, risk and returns and must therefore be
closely evaluated beforehand
Direct export ?

Alone ?

Total control
No revenue
sharing
 Gain precise
market knowledge
 ….

Slower ramp-up
HR and finance
hungry
 ….



+ +
Transaction =
sale of products







Local assembly ?

With a local partner ?

Faster ramp-up
Lower investment
 Access to partner's
network


+



+

Could create a
competitor
 Partner choice
conditions success


Transaction =
sale of components
Local manufacturing ?

Which location ?
Northern cluster ?
(Suzuki, Honda...)

+ +
Transaction = Sale /
licensing of know-how

Western cluster ?
(EU manufacturers)
Southern cluster ?
(Ford, Hyundai...)

31

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Until recently, European car-makers have mainly positionned themselves importing premium
segment cars or performing minimum local assembly. Localization is now increasing as
those car makers start to fight in the entry-level segments
Some European manufacturers set-up
Localisation and industrial model
Dealerships

Manufacturing

Mercedes

35

CKD / SKD (Pune)

BMW

17

CKD / SKD (Chennai)

Audi

14

CKD / SKD (Pune)

Skoda

62

CKD / SKD (Pune)

Volkswagen

38

CKD / SKD (Pune)

FIAT

110

Distribution network matches the wealthiest areas

CKD / SKD (Pune)

European brands dealers
Wealthiest areas

Import duty on complete cars
(« CBU ») = 100% (2010)

Import duty on SKD and CKD
parts = 10% (2010)
Source : Society of Indian Automotive Manufacturers, desk research, InAlliance analysis

Except
for
luxury
vehicles (low volumes,
less rivalry), the route
to the Indian market for
foreign manufacturers
is either the KD model
or
complete
localisation.


32

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

SKD, CKD or maximum localization are proving profitable for foreign car-makers
Illustration – C segment European vehicle launched in India in 2010
Indian context

Industrial constraints

Very attractive market mid/long term (population, GDP
growth, product demand)
 BUT premium segment demand still limited (estimate =
100 000 veh./yr)
 Political will to promote local industry
 High import duties on built-up vehicles (« CBU »)


Components
collection

CKD packing

EXW price (1)
€ 11K

Critical volumes for a complete assembly line: 800-2000
veh./day (250k to 600k / yr


Lack of locally available skills on some specific
technologies (complex plastic omponents, high precision
metallic panels, etc…)


DDP price (1) Final assembly (1)
€ 13k
Cost: ~ EUR 700
60-100 veh./day

Margin: (1)
20%

Retail price : (1)
€ 18k

Result: similar profit for the European car-maker with SKD or CKD than with CBU imports + better pricing lattitude + damper effect on European
production lines (CKD / SKD demand partly fill European components lines)
Source : European car makers interviews, desk research, InAlliance analysis

(1): indicative figures for confidentiality reasons

33

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

European car-makers assembly lines are concentrated in the Western and Southern
industrial clusters
NCR – Punjab – Rajasthan Madhya Pradesh

 New Delhi

(non exhaustive)

Pune – Mumbai – Nasik –
Aurangabad - Gujarat

 Kolkata

 Mumbai
 Hyderabad

Chennai – Bangalore Hyderabad

(non exhaustive)
Bangalore 

 Chennai

(non exhaustive)
Source : Desk research, InAlliance analysis

(1): indicative figures for confidentiality reasons

34

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Agenda

Page
1.


3

2.


11

3.


16

4.


24

5.

Case studies
1.


28

2.


36



35

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

The Indian beer market is highly consolidated but growing fast
Indian beer market: size and trend

Indian beer market: market shares
Market shares FY11

Million hl

Other players are quite
fragmented (e.g. Mount
Shivalik 4%, Diwan 3%).

Others
16%

17,9
15,6

Carlsberg
5%

13,4
United
Breweries
54%

12,1
10,7

SABMiller
25%

FY 07

Source: annual reports, desk research, NeoFocus / InAlliance analysis

FY 08

FY 09

FY 10

FY 11


36

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

A major component of beer, malt, is elaborated from selected barley. Theoretical yields,
proportional to those of wheat, can vary by a factor of 1 to 4 due to various natural challenges
Wheat and barley growing zones of India

North-Western Plains Zone (NWPZ)
Weed and pests challenges
3,9 t/ha average wheat yield

Northern Hills Zone (NHZ)
Water stress challenge

Central Zone (CZ)
Water stress challenge

Peninsular Zone (PZ)
Water stress and pests challenges
3 t/ha average wheat yield

North-Eastern Plains Zone (NEPZ)
Weed and pests challenges

Southern Hills Zone (SHZ)
Pests challenge
1 t/ha average wheat yield

Source: Indian Ministry of Agriculture, Indian Council of Agricultural Research, NeoFocus / InAlliance analysis


37

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

Barley yields and production in India are lower than the world average, have been growing
faster recently thanks to better seed management, but still show much room for improvement
Barley production and yield (2010, t/ha)

Selected quotes on barley yield improvement

7,0
6,0
5,0
4,0
3,0
2,0
1,0
0,0

t/ha
2,90

Wheat
CAGR: 0,9%

“Even though the government has partnered with private players
for the purpose of seed management, a lot still needs to be done in
this field:
• A majority of certified/qualified seeds consumed were old seeds
whose validity was re-notified beyond their use period
• Additionally, states like Orissa, Bihar, Uttar Pradesh (…) have still
not adopted seed management with no improvements in seed
production and seed replacement rate”
(« Flavours of Incredible India », FICCI / Ernst & Young, 2009)

2,70
2,50
2,30

Barley
CAGR: 3,3%

2,10
1,90

All cereals
CAGR: 2,1%

1,70

Source: Reserve Bank of India, Ministry of Agriculture, FAO, USDA, NeoFocus / InAlliance analysis

Note : figures may show discrepancies due to differing sources

38

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

85% of the Indian barley production is concentrated in the 3 north-eastern states of
Rajasthan, Uttar Pradesh and Haryana, where yield is best and cost of production is lowest
Barley production and yield in India (2008)
Himachal
Pradesh
2%

Uttarakhand
1%

Other states
3%

Himachal
Pradesh
29 kt

Punjab
55 kt

Punjab
3%

Uttarakhand
22 kt

Haryana
185 kt

Madhya
Pradesh
6%

Rajasthan
878 kt

Rajasthan
52%

Haryana
11%

Uttar
Pradesh
376 kt
Madhya
Pradesh
102 kt

Uttar Pradesh
22%
Total barley production (2008-2009) : 1731 kt
Area
(000 ha)

Cost of prod.
(INR/t, wheat) (1)

Yield
(t/ha)

Rajasthan

287

3,06

94,2

Uttar Pradesh

172

2,19

94,4

Haryana

53

3,49

97,6

Madhya Pradesh

81

1,26

113

Punjab

16

3,44

94

Himachal Pradesh

23

1,27

n.a.

Uttarakhand

28

0,79

n.a.

Source: Reserve Bank of India, Ministry of Agriculture, NeoFocus / InAlliance analysis

(1) Wheat cost estimates from Indian Ministry of Agriculture, for illustration purpose. 69 INR / EUR
39

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

As a result of poor security of supply, major malt users United Breweries and SABMiller both
had to resort to barley improvement programmes, two steps above their core business
Malting barley catchment areas of United Breweries and SABMiller
Punjab
Partnership with Punjab Agro Industries
Corporation, started in 2003
Estimated volume: 12 kt
Major breed: VJM-315 (2003 information)

United Breweries major catchment area,
district name
SABMiller major catchment area,
district name

Punjab

xyz State
Sangrur
Punjab, Haryana, Uttarakhand
Programme extension since 2007
2010: Procured 2,5 kt from 650 farmers

Uttarakhand

Patiala
Sirsa
Haryana
Jhajjar

New Delhi
Rajasthan
Programme started in 2005
Operates 15 barley purchase centres
2010: Procured 15,5 kt from 5600 farmers
Major breed: K-551

Sikar

Gurgaon
Alwar

Haryana
Contract farming partnership with
HAFED cooperative
Estimated volume: 10 kt
Major breed: DWRUB-52

Uttar Pradesh

Jaipur
Rajasthan

Madhya Pradesh

Source: Financial Express, Economic Times, Hindu Business Line, SABMiller Progress through Partnership programme, NeoFocus / InAlliance analysis

40

1
Introduction

2
Market entry

3
Manufacturing

4
Indian culture

5
Case studies

SABMiller invested in structuring the supply chain in order to secure volumes and quality of
its malting barley supplies
Illustration - SABMiller’s involvement in the barley supply chain
Specifications, malt
user experience,
(project management ?)

Morarka Foundation
Databank management,
social projects

Rajasthan
Agricultural
University

Barley seed
improvement
programme

Certified
seeds

R&D,
field trials

Certified seeds,
chemicals, financial
support, collection
SABMiller
« Progress through
Partnership Centers”

Kanpur University
of Agriculture

Programme
Member farmers
Malting barley

Agri. Chemicals
suppliers

Micro-credit
lenders

Fertilizers,
pesticides

More,
better quality malt

Finance
Maltings

Source: SABMiller India annual reports, SABMiller website, SABMiller Progress through Partnership programme, NeoFocus / InAlliance analysis


41

InAlliance Consulting, Indian market entry specialists
www.inalliance.eu

Paris (Head Office)
InAlliance Consulting,
33 avenue Philippe Auguste
75 011 Paris, France
Tel : +33 1 44 64 10 35
Fax : +33 1 44 64 10 36
E-mail : info@inalliance.eu

Geneva area (Registered Office)
InAlliance S.A.S.,
7 Chemin de Moruel,
74200 Marin, France
E-mail : admin@inalliance.eu

Chennai (India Head Office)
C/O Mr P.N. Subramanian
A1/3 Century Enclave,
54 Kalakshetra Rd, Tiruvanmiyur,
Chennai – 600 041, India
Tel : +91 9380514778
E-mail : india@inalliance.eu

Turin
C/O Ing. Pietro Boggero,
Via Pietro Bagetti 25
10138 Torino, Italy
Tel : +39 011 447 5325
E-mail : italy@inalliance.eu

London
C/O Dr Deepak Singh
32 Woodsyre, Sydenham Hill,
London, SE26 6SS, United Kingdom
Tel : +44 794 9255476
Email: uk@inalliance.eu

New Delhi
C/O Mr Girish Kathuria
749/B, Sector 49
Faridabad – 121 001, India
Tel : +91 9560823311
E-mail : delhi@inalliance.eu



42

Ia intro feder_manager_fr_v12

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Ia intro feder_manager_fr_v12

Similar to Ia intro feder_manager_fr_v12 (20)

More from Benoit Teppe

More from Benoit Teppe (15)

Recently uploaded

Recently uploaded (20)

Ia intro feder_manager_fr_v12