Opportunities and Challenges in the Indian market
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This presentation describes why global corporations should invest in India. The 4 dimensions of the Indian market discussed are 1) Consumption & demographic dividend 2) Vibrant corporate sector 3) ...

This presentation describes why global corporations should invest in India. The 4 dimensions of the Indian market discussed are 1) Consumption & demographic dividend 2) Vibrant corporate sector 3) Broad-based growth across industries and regions and 4) Political commitment. The presentation was made by me in 2011 at the International Cablemakers Federation (ICF) Congress in New Delhi. This deck was prepared by the Strategy group of IBM India.

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Opportunities and Challenges in the Indian market Presentation Transcript

  • 1. ICF (International Cablemakers Federation) Congress New Delhi October 2011 © 2009 IBM Corporation
  • 2. Agenda India Market Overview – The Growth Story – Corporate Leverage of India 2 © 2011 IBM Corporation
  • 3. Did You Know… India is World’s largest producer of Milk, Spices, Pulses, Chillies and Lemon World’s largest consumer of Gold, Tea and Sugar India is the largest producer of movies in the world with over 950 movies a year, followed by USA India produces 3M+ graduates, with 440K of technical graduates and 300K of post graduates per annum Indian Railways is the world's largest commercial or utility employer with more than 1.6 M employees With 150,000 post offices, India has the largest postal network in the world 3 70% percent of India's population, 56% of income, 64% of expenditure and 33% of savings come from rural India India is the world’s fastest growing mobile market added about 190M new mobile connections taking the total to 545M (51% YoY growth) in 2009 © 2011 IBM Corporation
  • 4. India is on its way to become the second largest economy by 2050 1 Booming Consumption & Demographic Dividend# 3 Broad based growth across Industries and Geos • Household income to rise 3x by 2025 • Middle class to increase from 50 M to 600 M by 2025 • $500B to be invested on building infrastructure • Median age of 25.3 yrs • 65% of working population 2 • All major industries growing at >10% (2010-13) • 60 cities witnessing substantial growth Vibrant corporate sector with global ambitions Strong political commitment & action 4 • Entrepreneur at the center of India growth model • Despite 7 Prime Ministers and 6 governments since 1991, reform agenda continues • 79 “Billion-$” companies as of ‘09 • Target of $200B from exports to 26 new markets in 2yrs • 75 cross-border deals in ’09 • 47 Indian companies in Forbes 2000 India at a glance* Real GDP Population FDI Services as % GDP GDP per capita 4 #Base data as of 2005 * Data as of 2009. Source: EIU $1.1T 1.2 B $18.2B 55% $1,100 © 2011 IBM Corporation
  • 5. 1 Robust consumption growth, favorable demographics, growth of household incomes and the changing shape of the income pyramid will drive future growth Favorable demographics Increased urbanization Percentage of rural vs. urban population in India Median age of population of major countries 2009 44.2 Rural 40.2 38.4 36.7 34.1 Urban Japan UK Russia USA China Brazil 26% 28% 30% 31% 36% 74% 28.6 72% 70% 69% 64% 1990 2000 2009 2015E 2025E 25.3 India 3x increase in consumption by 2025 Rise of middle class Share of population in each income bracket Share of average household consumption 755 928 1,107 1,278 1,429 6% 2% 4% 1% 2% 9% 18% 19% 41% Annual household income >$25K $10K-25K 32% $5K-10K 43% Middle Class %, million of people $1K 4% 3%1% 11% $2K $3K $6K 7% 5% 2% 9% 6% 3% 13% 5% 12% 6% 36% $2K-5K 5% 42% 35% 22% <$2K 1995 2005 12% 56% 54% 1985 19% 2015E 2025E 5 Source: The rise of India’s consumer market, McKinsey 2007, CIA World Factbook 1995 2005 34% 2015E 9% 6% Healthcare Education Communication 20% 17% 93% 80% Discretionary spending Ave. Household Income %,, US Dollars Transportation 11% 3% 10% 5% Personal Pdcts Household Pdcts Housing Apparel 25% Food & beverage 2025E © 2011 IBM Corporation
  • 6. 2 The growth will also be enabled by the rising private sector with world-class companies and global ambitions Flurry of M&A Deals since 2007 Year Deal Size ($B) Deal Type Steel Jan 2007 12.2 Outbound 4 Telecom Feb 2007 11.1 Inbound 13 Telecom March 2010 10.7 Outbound Metals Feb 2007 6.0 Outbound Pharma June 2008 4.5 Outbound 32 E&U Jan 2009 2.8 Outbound 1 4 6 Telecom Nov 2008 2.7 Inbound Banking Feb 2008 2.4 Domestic Automotive March 2008 2.3 Outbound E&U May 2007 1.7 Outbound Number of billion dollar companies (by revenue) 79 147% increase >$10 B $5-10 B $2-5 B $1-2 B Industry Acquirer Target Company 27 35 21 1998 2008-09 Number of cross border deals increased from 26 in 2002 to 75 in 2009 6 Source: McKinsey Report, Rediff India, “Largest M&A deals in India”, LiveMint, “Outbound deals to boost M&A in 2010”, Reserve bank of India, “Indian Investment Abroad” © 2011 IBM Corporation
  • 7. 2 India has a healthy base of globally competitive companies across sectors Global Rank* Company Industry Sales ($B)   Global Rank* Company Industry Sales ($B) 1 Reliance Industries Oil & Gas Operations 34.03 21 987 ITC Food, Drink & Tobacco 3.65 2 150 State Bank of India Group Banking 22.63 22 989 Wipro Software & Services 4.98 3 152 Oil & Natural Gas Oil & Gas Operations 24.04 23 997 Bank of India Banking 3.62 4 207 Indian Oil Oil & Gas Operations 51.66 24 1002 Hindustan Petroleum Oil & Gas Operations 5 317 NTPC Utilities 9.63 25 1037 GAIL (India) Utilities 4.69 6 329 Icici Bank Banking 15.06 26 1057 NMDC Materials 1.42 7 463 Tata Steel Materials 32.77 27 1059 Canara Bank Banking 4.19 8 508 Bharti Airtel Telecom Services 6.73 28 1085 Power Grid of India Utilities 1.15 9 582 Steel Authority of India Materials 9.82 29 1157 Tata Motors Capital Goods 8.54 10 689 Reliance Communications Telecom Services 4.26 30 1184 Bank of Baroda Banking 3.56 11 773 Larsen & Toubro Capital Goods 7.3 31 1324 Power Finance Business Services 1.26 12 795 Bharat Petroleum Oil & Gas Operations 27.71 32 1332 Axis Bank Banking 2.2 13 796 Bharat Heavy Electricals Capital Goods 4.81 33 1350 Union Bank of India Banking 2.66 14 808 HDFC-Housing Devel Banking 2.21 34 1380 Grasim Industries Construction 4.23 15 834 Tata Consultancy Svcs Software & Services 5.7 35 1462 Indian Overseas Bank Banking 2.25 16 848 Hindalco Industries Materials 14.87 36 1522 Sun Pharma Industries Drugs & Biotechn 0.82 17 864 HDFC Bank Banking 3.09 37 1529 Mahindra & Mahindra Consumer Durables 5.92 18 883 DLF Diversified Financials 3.5 38 1629 Allahabad Bank Banking 1.81 19 891 Infosys Technologies Software & Services 4.16 39 1659 Indian Bank Banking 1.56 20 7 121 946 Punjab National Bank Banking 4.15 40 1663 Syndicate Bank Banking 2.2 *Source: Forbes- global 2000 Note: List is indicative and not exhaustive, March 2009 25.43 © 2011 IBM Corporation
  • 8. 3 Growth is well distributed across the country - 60 cities in India are witnessing substantial growth Tier 1 “Megacities” (3 cities)  Population > 10 M  80,000+ households with income > $11K  0.5-1 million SMBs per city Delhi Mumbai Kolkata 36 cities with population >1M Tier 2 “Climbers” (12 cities) Ahmedabad Hyderabad Bangalore Jaipur Chandigarh Ludhiana  Population > 1 M  10,000-80,000 households with income >$11K Coimbatore Pune  0.1-0.5 M SMBs per city Chennai Surat Ernakulam (in 2005) Vadodara Tier 3 “Mainstream” (45 cities) Agra Cuttack Kanpur Patiala Ahmednagar Dehradun Kolhapur Patna  1,000-10,000 households with income >$11K Alwar Durg & Raipur Madurai Rajkot  10K-50K SMBs per city Ambala Ghaziabad Meerut Ranchi & JSR Amritsar Guwahati Moradabad Salem Aurangabad Hisar Muzafarnagar Trivandrum Bellary Hubli Mysore Trichy Bhavnagar Indore Nagpur Valsad Bhopal Jalandhar Nasik Varanasi Noida Vijaywada Bhubhaneshwar Jalgaon Bokaro Kanchepuram Panipat Vishakhapatnam Other smaller towns and Rural areas 8 Source: McKinsey, 2009 *Note: Cities market in Blue have population more than a million © 2011 IBM Corporation
  • 9. 3 Clusters of competency exists across these cities Emerging Clusters Key Industries 1 9 Source: McKinsey, IBM Analysis 2009 Iron & Steel, Power Southern Jharkhand – Jamshedpur, Ranchi Iron & Steel, Auto & Ancilliaries, Power 10 Delhi, Noida, Gurgaon (NCR) Infrastructure, Power, C&P, Multipurpose SEZ, IT/ITeS 11 Kutch-Saurashtra (Jamnagar-Rajkot) Chemicals, Textiles, Petrochem, SEZ, Power, Food Cochin-Trivandrum Chemicals SEZ, IT/ITeS, Smart City Coimbatore-Tirupur Textiles, Iron & Steel, IT/ ITeS Bhopal-Indore-Nagpur Industrial Products, Electrical Machinery, Thermal Power, ITITeS, Health, Manufacturing-SEZ, Education, Cargo Hub Chandigarh-Ludhiana-Amritsar-Jalandhar Textiles, Industrial Products, Auto Ancilliaries, IT/ ITeS Guwahati, Digboi, Numaligarh Oil & Gas 17 Kanpur, Lucknow, Agra, Allahabad Industrial Products, Leather, Tourism, Electrical, Auto 18 Mangalore-Kudremukh-Udupi Chemicals, Iron & Steel, Mining, Education, IT/ITeS 19 Hyderabad-Secundarabad IT/ITeS, Pharma Jaipur –Ajmer-Bhilwara Tourism, Textiles, Banking, IT/ ITeS, Power, Industrial Products 21 13 Raipur-Bilaspur 20 12 Chemicals SEZ, IT/ITeS 16 Major clusters of manufacturing activity are emerging in various Tier II cities Haldia-Kolkata 15 4 Iron & Steel, Refinery, IT/ ITeS 14 3 Paradip-Bhubaneshwar 13 5 Iron & Steel, Chemicals, Pharma SEZ, Power 12 2 Vishakapatnam 9 6 Chemicals, Auto-SEZ, Textiles, Iron & Steel, Power, IT/ ITeS, Industrial Products 8 8 Chennai-Sriperambadur, KancheepuramTrichy 7 11 IT/ ITeS, Electrical Machinery, Textile, Chemicals, Electronics 6 9 Bangalore-Mysore 5 7 Banking, C&P, Iron & Steel, Power, Auto, Auto Components, Food Industry, IT/ITeS 4 14 Mumbai-Pune-Nasik 3 1 Chemicals, Textile, Gems-SEZ, IT/ITeS 2 10 Ahmedabad-Baroda-Surat Goa Tourism, Pharma & Biotech–SEZ © 2011 IBM Corporation
  • 10. Over the years, despite changing government, the economic reform process continues 4 Birth of a democracy 1950 - 1975  Starting of the Green Revolution  Focus on 5 year plans and social empowerment  Focus on macro stability  Dominant politiacl party: Indian National Congress(INC) 1959-. India become the largest manufacturer of 2/3wheelers in the world. 1952: First general elections 1965 - Green revolution started Socialist regime 1975 - 1990  License Raj creates a closed economy  Focus on growth, technology adoption and macro stability  Monopoly of PSUs  Dominant political parties: INC, Janata dal 1976: Compulsory birth control introduced. 1977: Coca-cola and IBM leave India Key Indices GDP growth rate GDP Mix (%) (Agri.: Industry: Services) Life Expectancy 10  Liberalization  IT/ITeS industry starts to take shape  Six-fold increase in Sensex*  Focus on Privatization, disinvestment and PPP  Dominant political parties: INC, Bharatiya Janta Party (BJP), Communist Party of India 1991 - Economic liberalization program initiated 2000 - Birth of its billionth citizen. The Growth Years 2000 - 2009  Growth led by service sector and IT exports with policies aimed at reducing deficits and debts  The emergence of Indian MNCs  Setting up of SEZs, telecom infrastructure etc.  Coalition governments with emergence of regional parties 2008 - Indo-US 2009 – ISRO civilian nuclear launches first agreement moon probe 1995 : Internet in 2001 - mobile India telephone service FDI norms revised 2009* - India surpasses China as largest exporter of cars 3.5%* 4.3% 5.7% 7.2% 47 : 20 : 33* 31: 26 : 43 27: 26 : 47 19: 28 : 53 1,004M (1.8%) 1,166M (1.5%) Population (Growth) 613M (2.2%*) Literacy# Liberalization 1990 - 2000 47.2%* 53y* 838M (2.1%) 49.3% 60y 57.2% 61.0% 63y 65y Note: Average for the period used except for population, literacy & life expectancy which are at the end of the period; # Adult literacy rate (% of pop over 15); Life expectancy is in years Source: EIU, World Bank, * Estimates for lack of granular data © 2011 IBM Corporation
  • 11. 4 The country has built strong economic fundamentals, that also helped it remain resilient to the financial crisis Decreasing debt as a % of GDP Recovering GDP Growth (%) 9.1 6.1 5.5 6.8 7.7 8.0 8.2 59 59 8.0 61 61 61 ’10E ‘11E ’12E 59 55 53 ’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E Sufficient Foreign Exchange Reserves ($ B) 274 254 275 317 350 385 ’07 ’08 ’09 ’13E Appreciating Exchange Rate (USD/INR) 437 41 44 ’07 ’08 48 46 45 44 43 ’10E ‘11E ’12E ’13E 18 5 ’90 ’90 ’07 ’08 ’09 ’10E ‘11E ’12E ’13E ’90 Increasing GDP per Capita ($) 1051 1100 1100 1270 ’07 ’08 ’09 ’10E 1460 1670 ’09 Reducing Consumer* Inflation (%) 1910 9.0 6.4 8.3 10.9 10.7 5.7 5.2 5.2 ‘11E ’12E ’13E 322 ’90 ‘11E ’12E ’13E ’90 ’07 ’08 ’09 ’10E Note:CPI – Consumer price Index; Year 2010-13 are forecasted values 11 Source: The Economist Intelligence Unit (EIU) © 2011 IBM Corporation
  • 12. 4 India showed resilience during the current crisis, remaining largely unscathed Strong Banking fundamentals - The RBI (Reserve Bank of India) maintained a tight leash on treasury operations - Low exposure to overseas foreign assets - Banks not allowed to borrow >200% of NW Measured liberalization of the economy - PSUs (Public Sector Units) showed strong growth - Few sectors have 100% FDI - Banking and Insurance; 76% and 26% FDI allowed Growth driven by domestic consumption with lower dependency on global trade - Private consumption in India drives > 50% of India’s GDP - India relies on external trade for about 20% of its GDP Government moves helped demand and fuel economic expansion - Monetary measures exercised by government which pushed for lower interest rates, expanded credit, and reduced excise duties, all of which have boosted growth - Strong foreign exchange reserves maintained by the government; in excess of $250B throughout 12 Source: Reserve Bank of India, Live Mint- “To hell and Back” Sep 2009, Investing Contrarian © 2011 IBM Corporation
  • 13. Some hard challenges remain and the government is taking actions to address majority of these Illiteracy & Education Quality Governance, delivery system & implementation  Low adult literacy rates of 61%  Low public spending on education (3.2% of GDP)  Centralized provision of public services  Low number of universities (480 in 2009 -10) - bill has been passed allowing more foreign universities  Low transparency  Quality of education an issue Poor Infrastructure  Historically, low investments on infrastructure (only3-4% of GDP till 2008) India’s Challenges  Regulatory constraints regarding private-sector participation  Challenges in executing to planned outlays  Power outages remains an issue Fiscal Policy  Huge government deficit (5.5% of GDP)  Low govt. expenditures on health (1% of GDP) and education (3.2% of GDP) Environmental Quality  Low public awareness about environmental sustainability  Regulatory framework needs overhaul 13 Source: Nasscom, McKinsey, Fitch, EAC, Govt. of India © 2011 IBM Corporation
  • 14. MNCs leverage India’s potential multi-dimensionally India market driving revenue growth and innovation for Philips  Aiming for 50% revenue contribution from emerging markets (India and China) by 2015  The Philips Innovation Campus in Bangalore also delivers 20% of embedded software globally  Philips has launched India specific products, from smokeless stoves for rural India to lighting and kitchen appliances for the Indian consumer India becomes a major production hub for Hyundai Small Cars  Hyundai re-engineered its supply chain for low cost small cars. Hyundai India a global manufacturing hub and base of small cars  Hyundai buys 90% of auto components locally from Indian suppliers. The company is among the top 3 car manufacturers in the country Penetrating domestic markets and leveraging India for exporting to other countries  Tailored products to suit Indian consumers (almonds preferred in India as compared to peanuts)  Innovative distribution strategy and advertisements that appeal to Indian consumers  Exports finished goods and innovative concepts to its other branches around the world India to become a major export hub for LG worldwide  India is a key element of LG's global game plan - by 2015, India will be the 2 nd largest contributor to LG’s revenue after the US  LG India is looking at exporting products to mature markets eventually growing its exports from 15% of turnover to 30% by 2012 14 Source: McKInsey Quarterly, “The Right Passage to India”, 2005, India Briefing © 2011 IBM Corporation
  • 15. Successful companies in India have tailored their business model and product offering to meet local requirements Localizing the offerings  Menu customised to Indian taste – McAloo Tikki, Paneer Salsa Wrap, and Chicken Maharaja Mac  Advertisements with Indian flavor  Priced to suit Indian pockets with burger price as low as 50 cents  Nokia developed its first ‘made-in-India’ handset 1100 model - in India with India-specific features like torch & anti-slip exterior and at low cost ($50 in 2003)  With more than 200 M units sold worldwide, Nokia 1100 is world’s best selling handset and went on to become a success in India and other developing countries as well 15 Source: IBM Analysis, 2009 Innovating on Supply chain  First company to successfully introduce and run regional distribution model in India  Distributors worked directly with the company thus ensuring better market penetration and increased volume  Foray into retail segment challenged due to competition’s strong brand equity and wider distribution network  Introduced e-choupal system - a twoway sourcing and distribution system for farmers in remote villages, as well as its cigarette and paan network Altering price-value equations  Responding to local competition, launched a new brand Wheel at 30% lower prices - accounts for 45% of its detergent business in India  Through project Shakti, women (~45,000) in self-help groups across India became direct-to-consumer sales distributors for HUL products  Tata Nano priced at $2,000 - equivalent to the price of a DVD player option in a luxury car. 200,000 vehicles booked in first year alone  Targeted at two wheeler buyers (~7M) and second hand small car buyers  All major auto maker have now announced plans to enter the © 2011 IBM Corporation