Ngm market entry_assignment_north_india_group_19

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A project in my masters outlining the entry to north india

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Ngm market entry_assignment_north_india_group_19

  1. 1. GROUP 19Market Entry Assignment NORTH INDIA Mark Greene (11210906) – MeCB David Luttrell (58405778) – MeCB Mark Greene David Lutters Cormac Moran (11211415) – MeCB Cormac Moran Elizabeth Cusack Elizabeth Cusack(56524206)– MSBM Niall Hanlon NGM Niall Hanlon (11210590) - MeCB 3/25/2012
  2. 2. Group 19 NGM 27/03/2012DeclarationI the undersigned declare that the project material, which I now submit, is myown work. Any assistance received by way of borrowing from the work ofothers has been cited and acknowledged within the work. I make thisdeclaration in the knowledge that a breach of the rules pertaining to projectsubmission may carry serious consequences.I am aware that the project will not be accepted unless this form has beenhanded in along with the project.Signed:_________________________Signed:_________________________Signed:_________________________Signed:_________________________Signed:_________________________ 1
  3. 3. Group 19 NGM 27/03/2012Table of ContentsDeclaration ................................................................................................................. 1Maps of India: ............................................................................................................. 3Introduction ................................................................................................................ 4Facts on India: ............................................................................................................ 6Political ..................................................................................................................... 16 Taxation policy ...................................................................................................... 16 International trade regulations .............................................................................. 16 Government stability ............................................................................................. 16 International stability ................................................Error! Bookmark not defined.Economical............................................................................................................... 16 Money supply ....................................................................................................... 17 Credit control ........................................................................................................ 18 Financial markets.................................................................................................. 18 Inflation/Interest rates ........................................................................................... 19 Globalization ......................................................................................................... 19Social ....................................................................................................................... 20Technological ........................................................................................................... 21Legal ........................................................................................................................ 22 India‟s trade policies ............................................................................................. 22Environmental .......................................................................................................... 23Detailed Market Analysis .......................................................................................... 24Market Considerations ............................................................................................. 27Hofstede‟s Cultural Dimensions: Ireland v India ....................................................... 28Pricing and Procurement Process ............................................................................ 31Any other Relevant Info ...............................................Error! Bookmark not defined.Threat of new entrants: ............................................................................................ 36 Government Policy: .............................................................................................. 36 Proprietary Learning Curve: .................................................................................. 39 Complex Tax Regulations: .................................................................................... 39 Logistics & Supply Chain: ..................................................................................... 41 2
  4. 4. Group 19 NGM 27/03/2012Determinants of Rivalry .......................................................................................... 42 Brand Identity: ...................................................................................................... 42 Access to Capital: ................................................................................................. 43 Absolute Cost Advantage: .................................................................................... 43 Market Size and Opportunity: ............................................................................... 43 Property Costs: ..................................................................................................... 49 Competitors: ......................................................................................................... 49 Himachal Pradesh: ............................................................................................... 51 Rajasthan: ............................................................................................................ 52 Haryana ................................................................................................................ 52 Chandigarh: .......................................................................................................... 52Bargaining Power of Suppliers ................................................................................. 53Bargaining Power of Buyers ..................................................................................... 54Threat of Substitutes ................................................................................................ 55 Plastic ................................................................................................................... 55 Steel ..................................................................................................................... 56 Virtual Office: ........................................................................................................ 56Appendices .............................................................................................................. 69References: .............................................................................................................. 79 3
  5. 5. Group 19 NGM 27/03/2012Executive SummaryWhile the US and European economies struggle towards economic recovery,emerging economies such as Brazil, Russia, China and India (BRIC) areexperiencing exponential growth. Now is the time for western firms to gain a foothold in these booming economies in order to reap the potential rewards. Traderelations between India and the EU in particular have been steadily growing in recentyears and the EU is now India‟s main trading partner.This report aims to conclusively prove whether or not it is feasible for FTT to enterthe market space of North India. This report draws from many facets of the Indianbusiness climate such as culture, demographics, and current market conditions.Throughout the report various methodologies and frameworks have used to analysethe suitability of FTT ‟s possible venture into the North Indian economy. Suchframeworks included inter alia PESTLE analysis, Porter‟s 5 Forces and CompetitiveStrategy, Hofstede‟s Cultural Dimensions, Chris HerbertsB2B Marketing Mix (4 Rs)and a SCOR analysis. India is a thriving economy with over 500 million consumersand an evolving culture open to new ideas. Pollution and overcrowding, while posingserious environmental and social issues, also provide a market opportunity for FTTin terms of e-space Solutions. Ultimately, the market analysis undertaken indicates ajoint venture as the most appropriate market entry strategy for FTT .Company overviewFirst Touch Technologies is an office equipment organisation that offers desk and computersolutions to the ICT market. The product at the core of their business is the e-Space officesolution. FTT have supplied the e-Space office desk to many large organisations withinIreland and the UK. These include The University of Chester, General Insurance LTD,Hayling College, Price Water house Cooper and the National University of IrelandMaynooth. As can be seen from the above client list, one can surmise that First TouchTechnologies have an established market within the UK and Ireland. It is clear that theirproduct offering appeals to all sorts of organisations, from Academic to Multinational. Whenattempting to enter a new market, reputable customers such as Price Water house Cooper’swill play a key role when offering the e-Space desk technology in a new region. 4
  6. 6. Group 19 NGM 27/03/2012Product overviewThe FTT e-Space desk solution is a versatile product that can be customized to fit any desk oroffice space. The e-Space desk solution has advantages over conventional desk solutions inthe current market. According http://www.FTT -emea.com the product is designed withsustainability and health benefits at the core of the product offering. In addition to this, theproduct also offers a range of extra features that contribute to the overall USP of the product.One of the product is the e-Spaces’s, “Space saving” design. In today’s competitive businessenvironment, every company must engage in whatever practice is necessary to save on costs.With the e-Space desk solution, the monitor is placed below the work space, saving space andmaking the desk multifunctional.User BenefitThe e-Space desk solution offers a range of benefits to the individual user within an officesetting. The design incorporates and contemporary look and feel that will add to a positiveand professional atmosphere within the office setting. While the e-Space office solution isbuilt to the highest possible design specifications in order to be aesthetically pleasing, the e-Space office solution also offers practicality to the user with regard to comfort. The deskprovides a comfortable viewing position to the user through the design of the product, this isillustrated with the following diagram:As illustrated in the diagram, the screen position can be adjusted to suit the sitting position ofthe user, thus benefitting the overall user experience. The e-Space office solution also offersconfidentiality and privacy to the user which once again promotes a positive user experience. 5
  7. 7. Group 19 NGM 27/03/2012From a technical perspective, the product is video conferencing enabled and in addition theproduct is touch screen friendly.Employer benefitsThere are many benefits that an employer can gain from installing the e-Space desk solution.The e-Space office solution is compliant to ISO safety standards while at the same timeoffering increased occupancy densities, this increase in density means that an organisationcan maximise every inch of office space, in turn providing increased productivity.Another positive feature of the product is the fact that cable management can be made easier.Wires and cables can be quite the eyesore in an office, not to mention the health hazards thatcan arise from lose cables in a work environment. With the e-Space solution, wires andcables can be hidden with ease, thus eliminating any health hazards that are associated withwires and cables in the office environment.Facts on India:Population: 1,205,073,612 second in the worldAge Structure: 0-14 years: 29.7% (male 187,450,635/female 165,415,758) 15-64 years: 64.9% (male 398,757,331/female 372,719,379) 65 years and over: 5.5% (male 30,831,190/female 33,998,613)Area: 3,287,263 sq km 7th in the worldGeographic location Southern Asia, bordering the Arabian Sea and the Bay of Bengal, between Burma and PakistanGeographic Co-ordinates 20 00 N, 77 00 ELanguages: Hindi 41%, Bengali 8.1%, Telugu 7.2%, Marathi 7%, Tamil 5.9%, Urdu 5%, Gujarati 4.5%, Kannada 3.7%, Malayalam 3.2%, Oriya 3.2%, Punjabi 2.8%, Assamese 1.3%, Maithili 1.2%, other 5.9% note: English enjoys the status of subsidiary official language but is the most important language for national, political, and 6
  8. 8. Group 19 NGM 27/03/2012 commercial communicationMajor Religions: Hindu 80.5%, Muslim 13.4%, Christian 2.3%, Sikh 1.9%, other 1.8%, unspecified 0.1%National Anthem: "Jana-Gana-Mana" (Thou Art the Ruler of the Minds of All People)National Emblem Replica of the Lion Capital of SarnathNational Flag: Three equal horizontal bands of saffron (subdued orange) (top), white, and green, with a blue chakra (24-spoked wheel) cantered in the white band; saffron represents courage, sacrifice, and the spirit of renunciation; white signifies purity and truth; green stands for faith and fertility; the blue chakra symbolizes the wheel of life in movement and death in stagnationNational Animal: TigerNational Bird: PeacockNational Flower/tree Lotus/BanyanNational Fruit: MangoNational Currency Indian Rupee (1 Indian rupee = 0.0151453952 Euros)National Sport: Hockey/CricketRegional Overview:GeographyLocated in Southern Asia, bordering the Arabian Sea and the Bay of Bengal, theFederal Republic of India is just over one-third the size of the US, covering roughly1.3 million square miles. India measures 1,860 miles from east to west and 1,997from north to south, while its coastline is approximately 4,349 miles long. In terms ofland area, India is the seventh largest country in the world, after Russia, Canada,China the US, Brazil and Australia. India is the largest country of the Indiansubcontinent, which comprises Pakistan, Nepal, Bangladesh, Bhutan, Maldives SriLanka and India. India is surrounded by Nepal, Bhutan and China on the northeast,Pakistan on the northwest, and Myanmar on the east. Bangladesh is surrounded by 7
  9. 9. Group 19 NGM 27/03/2012India‟s eastern and north-eastern states, and situated south of India is Sri Lanka.India is surrounded by ocean on three sides: the Bay of Bengal in the east, ArabiaSea in the west, and the India Ocean (the third largest ocean in the world) to thesouth (Chary, 2009: 21).The Himalayas separates India from China, and stretching 1,500 miles over thenorth of the country, is the highest mountain on the planet. Kanchenjunga is thetallest mountain in the Himalayas, and the world‟s third highest peak, standing at28,169ft (or 8,586 meters). The two other primary land regions are the flat rollingNorthern plains along the rivers Ganges, Brahmaputra and Indus, and the uplandplains (Deccan/Southern Plateau) in the southern peninsula. Both the NorthernPlains and Deccan Plateau have fertile soil that is used for agriculture (with 48.8 %of land used for this purpose). However, apart from arable land, India boasts thefourth largest coal reserve in the world, along with other natural resources such asnatural gas, diamonds, petroleum, iron ore. The Northern Plains and Deccan Plateauregions are separated by a rugged mountain range called the Eastern and westernGhat Mountains. Certain sections of these mountains are densely wooded and hometo much wildlife. To the west of the Northern Plains is the Thar Desert (or „GreatIndian Desert‟). India also controls the Lakshadweep and Minicoy Islands in theArabian Sea, and the Nicobar and Andaman Islands in the Bay of Bengal. The lattertwo suffered tremendously in the 2004 tsunami. India‟s rivers can be divided into twomajor categories: the Himalayan (snow and rain fed, and flow all year, for examplethe Ganges), and Deecan rivers (rain fed and non-perennial, for example theKrishna, Cauvery and Godavari rivers) (for full overview see Chary, 2009:22; alsoCIA Fact-book, 2012).Regarding climate, India experiences three main seasons: summer, monsoonseason and winter. Each season lasts roughly four months, although the Himalayanstates of Kashmir, Pradesh, Sikkim and Himachal also enjoy spring and autumn.Summer heat from March to June can be severe (usually 90-100°F), except in theHimalayan states where the hills ensure a nice climate. Consequently, hill resorts arepopular tourist attractions. The rain takes hold from July through to September andmonsoon rains bring much needed irrigation for agricultural production (Chary,2009:23). However, Indias also experiences destructive flash flooding, as well as 8
  10. 10. Group 19 NGM 27/03/2012severe earthquakes, thunderstorms, and even volcanism (Barren Island volcano inthe Andaman has been active in recent years). This extreme weather, coupled with ahuge and growing population (India is now the second largest country in the worldafter China with a population of 1,205,073,612, or just over one billion people) haslead to other problems in the form of deforestation, air pollution from vehicles andindustry, and pollution of the fresh water system from agricultural waste /pesticidesand raw sewage (for full overview see CIA Fact-book, 2012). Moreover, only 54 % ofpeople living in urban areas have access to proper sanitation facilities, and this figureis 31 % for the country as a whole (The World Bank, 2012a).Dubbed by the World Bank a „lower middle income country‟, some 37.2 % of peoplelived below the poverty line in 2005 (a slight improvement from 45.3 % in 1994). Lifeexpectancy in 2009 was 65 (this is expected to be 69 in 2012). After Nigeria andSouth Africa, India has the third highest number of people living with Aids, and thethird highest when it comes to Aids related deaths (CIA Fact-book, 2012). Only 72% of young children receive adequate immunization vaccines (The World Bank,2012b). Adult literacy (those above 15 yrs of age) is just 63%, and despite this,unemployment remains rather low at 4.4 % (The World Bank, 2012c).People and CultureIndia‟s primary ethnic groups are Indo-Aryan (72%) who live in north and centralIndia and Dravidian (25%), who live in the South. The latter are thought to havedescended from earlier settlers to India, while the Indo-Aryans trace their ancestryback to central Asian people who came to India around 1500 BC. The remainingthree % are Mongoloid and other smaller ethnic/tribal groups (Chary, 2009: 24).Twenty two languages (Hindi, English and 22 others) are recognized by the IndianConstitution, and these are spoken in more than 1,600 different dialects (Chary,2009:25). Yet, individual Indian states may have different official languages, withsome states having more than one official language, although the centralgovernment does not recognise some of these. Bihar in the east, for instance, hasthree official languages, all of which are recognised by the central government:Hindu, Urdu and Bengali. Conversely, Sikkim, another east Indian state has four 9
  11. 11. Group 19 NGM 27/03/2012languages, of which only Nepali is recognised. Hindi is the most widely spokenthroughout the country and is the first language of 41% of people 1. The 14 otherofficial languages are Bengali (8.1%), Telugu (7.2%), Marathi (7%), Tamil (5.9%),Urdu (5%), Gujarati (4.5%), Kannada (3.7%), Malayalam (3.2%), Oriya (3.2%),Punjabi (2.8%), Assamese (1.3%), Kashmiri, Sidhi and Sanskrit. Another popularvariant of Hindi/Urdu is Hindustani. This is spoken in Northern India, but is notofficially recognised (see CIA Fact book, 2012; also kwintessiantial website, 2012).English was brought to India during British colonial rule and remains the commonlanguage between non-Hindi speaking states. Indeed, almost one third of India‟spopulation is competent in basic English, while English is widely used in Governmentcorrespondence as well as by the Education and Court‟s system. The availability ofmillions of English speaking workers is a key reason that India fast became thenumber one outsourcing destination for US technology firms (Chary, 2009: 26).Hindu is the major religion of India (80.5%), followed by Muslim (13.4%), Christian(2.3%), Sikh (1.9%), and others (1.8%) (see CIA Fact book, 2012; alsokwintessiantial website, 2012). Indian people, regardless of social hierarchy aredeeply spiritual in nature, and are inclined towards religion for that reason. Ingeneral, trust in religion in rather high, and failures are rationalized on the basis thatevents are predetermined by a supreme power (see Banjeree, 2009: 374-5). Thatsaid, India is still a secular state, as the constitution does not afford any particularreligion preferential treatment (Chary, 2009: 26).Social Structure: Family and HierarchyIndian people generally identify with certain groups and define themselves by thesegroups, and not their own individual status. These in-groups or „collectives‟ could beco-workers or the family they belong to, and concern for group welfare is paramount.In this vein, Hofstede (1980) defined Indian society as „collectivist‟. Collectivism hereis „a social pattern that consists of individuals who see themselves as an integral partof one or more collectives or in-groups… It encourages connectedness and mutualdeference or compromise and social interdependence as dominant values creating acollective identity among individuals‟ (cited in Banjeree, 2008: 373). Therefore, the1 Over 400 million people 10
  12. 12. Group 19 NGM 27/03/2012family plays a vital role in Indian society; people do not strive for individual freedom,but look for refuge and prestige within the confines of family and extended family;and possessions often bring more prestige to the family than they do to theindividual. These deep-rooted personal ties bring with them trust, but also a wealth ofrules, obligations and structures. Conformity is therefore very important. Thepatriarch also plays a crucial role as the leader of the family. This reflects a societythat is also deeply hierarchical in nature. Indeed, the tradition of the caste system2and influences of Hinduism have resulted in a society that is very conscious of socialorder and a people who are very concerned with their status compared to others(family of otherwise). Hierarchy is entrenched in all relationships, be it the teacher(„guru‟) in school, the manager in a business, or the father in the family. Thesehierarchies are clearly set out and must be respected to preserve social order(Banjeree, 2008: 373; also kwintessiantial website, 2012). The wisdom andexperience of old age is respected in Indian Culture. Happiness is another corevalue, but materialism is not seen a primary way of achieving contentment(Banjeree, 2008: 374-5).Trade OverviewIndia is now exporting goods at almost twice the level of services exported, and keyexports include high value products such as refined petroleum products, industrialmachinery, automobiles and car parts. Indeed, Chennai in the South has beendubbed „India‟s Detroit‟ as car manufactures there export small Nissans, Hyundaisand Fords to Africa, Latin America and European countries. Gujarat State in theWest houses many major petroleum refineries, which transform imported crude oilinto diesel and jet fuel for other Asian markets. Over the last ten years, (and with theaid of government planning) hubs for industrial export have sprouted across thecountry. Other Asian countries like China, Korea and Japan began by exporting toysand clothing products, produced by many, low paid and unskilled workers, and onlylater started producing refined products like industrial machinery and cars. India, on2 Albeit caste based discrimination is now outlawed, and the Constitution affords all citizens equal rights. Thishas resulted in the decay of caste barriers, and the government has even set aside a percentage of jobs inparliament, and educational institutions to those from socially disadvantaged areas. Despite this, caste still playsan important role in everyday social life, and marriages for instance, are usually decided on the basis of caste.Inter-caste marriages in India are akin to interracial marriages in the US (Chary, 2009:25). 11
  13. 13. Group 19 NGM 27/03/2012the other hand, has gone straight to the latter, by producing capital-intensiveproducts made by skilled labourers (albeit not many of them). In this vein, andreminiscent of Germany‟s export production, India aspires to produce a bundle ofindustrial goods for the global market- not the traditional model of exports for adeveloping country. As one Indian economist notes, „India has moved away from thetextiles story…now, it is engineering goods and chemicals, includingpharmaceuticals.‟ In fact, traditional exports such as agricultural products and textilesrepresent less than 20 % of India‟s exports (for full discussion see The New YorkTimes, 2011).India‟s top five commodities of export are (1) petroleum (crude and products) (2)gems and jewellery (3) transport equipments (4) machinery and (5) drugs,pharmaceuticals and fine chemicals. The top commodity imports are (1) petroleum(crude and products), (2) gold (3) electronic goods (4) pearls, precious and semi-precious stones, and (5) machines, except electronics (see figures 9 and 10).Between April 2011 and January 2012, India‟s cumulative exports were valued atUS$ 242791.81m. This is almost 24 % higher in terms of dollars (and almost 29 %higher in terms of Rupees) than exports in the previous year. There was equally asignificant rise in the cumulative growth of imports. Imports over the same periodwere valued at US$ 391459.42m. This constituted more than a 29 % rise in dollarterms and a 35 % rise in imports in Rupee terms. Ultimately, there wasa trade deficitfor the period April-January 2011-2012 of roughly US $ 148667.61m, higher than theUS $105895.99m recorded the previous year (Indian Dept of Commerce PressRelease, 2012). The main reason for this deficit is the large volume of crude oil thatis imported for domestic use (The New York Times, 2011).In recent years India has entered various regional and bilateral trade agreements (orquasi agreements) with neighbouring countries and is seeking to establish newagreements with the United States and East Asian Countries. Agreements atdifferent stages of development include the India-Nepal Trade Treaty; India-SriLanka Free Trade Agreement; Comprehensive Economic Cooperation Agreement(CECA) with Singapore; Framework Agreements with the Association of SoutheastAsian Nations (ASEAN), Thailand and Chile; Trade Agreements with Bangladesh, 12
  14. 14. Group 19 NGM 27/03/2012Bhutan, Sri Lanka, Maldives, China, and South Korea.Beyond that, there are alsopreferential trade agreements with Chile, Afghanistan and Mercosur (the latter beinga trading area between Argentina, Brazil, Urguay and Paraguay) (The World Bankwebsite, 2011). However, India‟s most lucrative trade relationship has been withEuropean Union countries.India-EU Trade RelationsDiplomatic relations between the EU and India were established in the 1960s. Yet, itwas not until the 1994 Cooperation Agreement that a legal framework forcooperation was established, which has resulted in annual EU-India summits since2000. Central to these summits is an institutional framework to deal with agriculturaland industrial policy issues and issues of barriers to trade. In 2004, India became a„strategic partner‟ of the EU through the EU-India strategic partnership. To bolsterthis partnership, the EU-India Joint Action Plan (JAP) was signed in 2005, whichplanned various bilateral activities in the areas of economic and politicaldevelopment. Jap was revised in 2008, to prioritize sustainable development,research and development, peace and comprehensive security, as well as people-to-people and cultural exchanges. (Europa, 2012:a).Trade between the EU 27 and India more than doubled between 2003 and 2010,with trade jumping from €28.6bn to €67.9bn for these years respectively. This cameabout following a process of economic reforms since the early 1990s. As a result ofthese reforms, per capita incomes in India doubled between 1990 and 2005, and thishas been coupled with an exponential rise in EU-India trade in particular. Therefore,The European Union is now India‟s main trading partner3, with 12.2 % of India‟simports coming from the EU, 11.9 % from China and 8.9 % from the United ArabEmirates. What‟s more, 18.8 % of India‟s exports go to the EU, followed by 13.4 % tothe United Arab Emirates, 10.7 % to the US and 7.9 % to China (see Figure 11). Interms of goods, the EU exported €34.7bn to India in 2010, while imports from Indiaamounted to €33.2bn. The EU also exported €9.8bn in services to India in the same3 Conversely, India is ranked 8th on the list of the EU’s key trading partners 2010, compared to 15 th place in2002 (Europa website, 2012: a). 13
  15. 15. Group 19 NGM 27/03/2012year, while service imports from India amounted to €8.1bn. In fact, the accumulatedfigure of €17.9bn trade in commercial services is three times the figured of €5.2bnrecorded in 2002. Foreign direct investment to India from EU member stateseffectively tripled from €759m in 2003 to €3bn 2010, while Indian investment into theEU was €0.6bn in 2010. While these figures are promising, India‟s regulatoryenvironment and trade regime remains rather restrictive. Apart from prolonged andcomplex customs procedures, India imposes tariff barriers on imports and variousnon-tariff measures such as import licensing, obligatory testing, and quantity limitson a wide variety of products. The extent of these restrictions is such that in 2009,the World Bank downgraded India from 120, to 165th place (out of 183 countries) interms of „ease of doing business‟ (Europa website, 2010:b).On February 10th 2012, the 12th India-EU Summit was held in New Delhi. Here, theIndian Prime Minister encountered talks with the President of the EuropeanCommission and President of the European Council on „bilateral, regional andmultilateral issues of mutual concern with a view to, inter alia, strengthen theirmultifaceted bilateral cooperation, coordinate responses to regional issues, andtackle international challenges including the current financial crisis‟ (Europa website,2012b). Central to these talks was satisfaction that the India-EU free tradeagreement (officially known as the India-EU Broad based Trade and InvestmentAgreement or BTIA) is near completion. The treaty, which has been undernegotiation since 2007, would cover the areas of competition policy, state aid,nuclear power, renewable energy, government procurement, cross borderinvestments, intellectual property rights, as well as trade in goods and services. TheEU has forecasted that this ambitious treaty could see bilateral investment increaseby up to 30 %. This is crucial for the Indian government, considering that decliningconfidence among investors has lead FDI to fall by more than 35 % in 2011. TheIndian government considers FDI in logistics, infrastructure, and the financialservices industry a central catalyst in domestically driven growth. Indian Minister forCommerce, Anad Sharma has highlighted that „a trade deal of this magnitude andambition will generate sizeable benefits for the GDPs of India and the Europeancountries. We are near the final agreement on the issue of movement ofprofessionals as well as trade and services‟ (for discussion see The Telegraph,2011). 14
  16. 16. Group 19 NGM 27/03/2012While this deal is seemingly near a close, negotiations have been stalled by politicalcontroversy, not least over the fact that the new treaty could seriously curtail India‟sproduction of inexpensive generic drugs (especially HIV medicine), which isdistributed throughout the developing world.. This element, which appears to protectEuropean Pharmaceutical giants, has caused consternation amongst opponents ofthe treaty (see The Washington Post, Feb, 2012).PESTLEIn business the role of PESTLE analysis is very important.It is the analysis of theexternal macro environment in which a business operates or plans to operate in.These are the factors which are beyond the control or influence of abusiness,PESTLE stands for Political, Economic, Social, Technological,Environmental and legal. Political Environment Economic Legal Social Technological 15
  17. 17. Group 19 NGM 27/03/2012PoliticalPolitical refers to the government policy of the country. For example,the degree ofgovernment intervention in the economy, what goods and servicesdoes agovernment want to provide,or to what extentdoes it believe in subsidising firms?Politicalimpacts on many vital areas for business such as the legislation for trading,tariffs and labour laws. These are important areas for any company wishing to enterthe Indian market to acknowledge and understand. India is the biggest democracy inthe World with a population of over 1.2billion. India up until 1947 was under the ruleof the British Commonwealth and thus operates an English common law federalrepublic, butit is also important to note that separate personal law codes associatedwith religion are also strong in India applying to Muslims, Christians, and Hindus.In India many political factors affect the businessenvironment;Taxation policy o Corporate tax: The corporate tax rate in India is around 42 per cent. For foreign companies, 40 per cent of income is taxable.International trade regulations o India has many existing trade agreements under which a preferential tariff rate such as CECA with Singapore, Asia Pacific Trade Agreement with Bangladesh, Republic of Korea, China and Sri Lanka as well as a Global System of Trade Preference with 48 countries.Government stability o India currently has a coalition led government and both major political parties the UPA and BJP. It is a politically stableeconomy which aids inward investment indeed, India is ranked on the International Risk Index as having a grade of 8.5(working from a scale of 1 being unstable to 10 being perfectly politically stable).EconomicThe economic section on PESTLE includes interest rates, taxation changes,economic growth, inflation and exchange rates. The increasing economic growth ofIndia encourages companies like FTT to invest and enter the market “few nations 16
  18. 18. Group 19 NGM 27/03/2012have the growth potential that India already enjoys. India holds the promise of a mostsuccessful future…” (Klaus Schwab, 2009)4India is the second largest growing economy boasting GDP growth rate of 8.5% forthe last 5 years and is expected to grow even further despite the global recession.Figure 1: Grant Thornton India, 2011Since 1980 the GDP per capita has more than doubled in India. GDP (purchasingpower parity) in India was estimated at $4.463 trillion in the year 2011 making it thefourth highest in the world behind the EU, the US and China respectively 5. The GDP-real growth rate in 2009 was 6.8% increasing to 7.8% in 20116. Foreign directinvestment rose in the fiscal year ended September 2009 to about US$ 10.532billion.Money supply o India has a stable and liquid money market which boasted an average daily turnover of 224.4 billion Indian Rupees in 2009 according to the “Report on Trends and Progress of Banking in India”.4 Founder and Executive Chairman, World Economic Forum, at the India Economic Summit 2009, New Delhi,8 -10 November 20095 CIA Fact Book6 CIA Fact Book 17
  19. 19. Group 19 NGM 27/03/2012Credit control o India has a wide range of financial institutions from commercial banks to Non-Banking Financial Companies (NBFCs). The country has approximately 80 Scheduled Commercial Banks (SCBs) according to the reserve Bank of India Annual report 2008-09. The State Bank of India, a PSB, is the largest bank in the country.Figure 2: Ernst & Young, 2010Financial markets o India sports a robust and stable financial market, which has become a more liberalized market over time. 18
  20. 20. Group 19 NGM 27/03/2012Figure 3: Indias Financial Market (Ernst & Young 2010)Inflation/Interest rates o The Indian Inflation rate and interest rates were very high in recent years, and economic growth slowed in 2011.Inflation was reported at 12% in 2010 but has since dropped to 6.8% in 20117 to help continue economic growth.Globalization o India has opened its economy to the rest of the world over the last 10 years, and according to Tom Friedman“…people in more places can now compete, connect and collaborate with equal power and equal tools than ever before. Thats why an Indian in Bangalore can take care of the office work of American doctors or read the X-rays of German hospitals” and “I was in Bangalore, India, the Silicon Valley of India, when I realized that the world was flat.” (Friedman, 2005. pg 375-376)7 CIA Factbook 19
  21. 21. Group 19 NGM 27/03/2012SocialChanges in social trends can impact on the demand for firms products and theavailability and willingness of individuals to work. The social environment alsoconsists of the literacy rate, customs, values, beliefs, lifestyle, demographic featuresand mobility of population. It is importantto note the direction in which the society ismoving and formulate progressive policies according to the changing social scenario.India is the second most populous nation in the world. As stated above, thepopulation is separated in the following age structures: 0-14 years: 29.7% (male 187,450,635/female 165,415,758) 15-64 years: 64.9% (male 398,757,331/female 372,719,379) 65 years and over: 5.5% (male 30,831,190/female 33,998,613). 8Of this there is an average literacy rate of 61%, but this figure is skewed as only47.8% of India‟s female population over the age of 15 can read or write incomparison to the 73.4% of males who can(CIA Fact Book). While these rates existthere are also certain segments of the Indian population who are highly educated,but they are usually found in the country‟s major cities such as New Deli andBangalore.8 CIA Fact Book 20
  22. 22. Group 19 NGM 27/03/2012One notable indicator used to measure a countrys quality of life is the HumanDevelopment Index (HDI), which is compiled annually since 1990 by the UnitedNations Development Programme (UNDP) in which India is ranked 115th in themedium human development category in 2001.(India Country Review, 2002)TechnologicalNew technologies create new products and new processes and help open aneconomy to the rest of the world as described in Tom Friedman‟s „The World is Flat‟.Areas like computer games, online gambling9 and high definition TVs are all newmarkets created by technological advances. These new technologies also improvethe way we do business as a result of better technology. Technology can reducecosts, improve quality and lead to innovation. These developments can benefitconsumers as well as the organisations providing the products. This is a key area forFTT to market itself with its e-Space solutions asIndia has fast become known asone of the most influential countries with regards the Information technology sector.IT is one of the pillars of the Indian economy and is going from strength to strength(Country Outlook Reports; 1/19/2011, Pg 335). According to Country Outlooks reportin 2011 the demand for outsourcing IT operations in India is increasing. In the reportit is estimated that latent demand for information technology services andoutsourcing is increasing from 2012 to 2013(5.683-6.122 million UD dollars). Thisgrowth in IT demand can be contributed to many factors, however it is our belief thatthe recent development of both IT and technology in general has enabled India toestablish itself as a world leader in IT and outsourcing services. As salaries in Indiatend to be lower in comparison to many countries it has been seen that many majormultinational companies have outsourced some departments to Indian regions. Inthe region there is an emphasis on IT and financial services, hence many of thesemultinationals have outsourced key departments to India.The technological factors could play a pivotal role in FTT ‟s entry into the NorthernIndia market. As FTT supply an e-Space solution for many different industries, FTThave an opportunity to develop the company and product within the Northern Indiamarket, by taking advantage of the existing IT outsourcing industry that exists withinthe region.9 Albeit online gambling is currently illegal in India it is currently going through a process of legalisations. 21
  23. 23. Group 19 NGM 27/03/2012LegalIt is imperative that a company factors in the legal issues or obligations that mayarise when an organisation is seeking to enter an International market such as NorthIndia. Legal refers to the legal environment in which firms operate. FTT must beaware of these legal issues as the introductions of discrimination and disabilitydiscrimination legislation, and an increase in the minimum wage, has resulted insignificant legal changes that have affected firms behaviour. New legislation that canbe passed by the government can affect a firms costs and demand. Examples ofIndian legislation that is specifically aimed at business operations include the Trademark Act 1969, Essential Commodities Act 1955, Standards of Weights andMeasures Act 1969 and Consumer Protection Act 1996.India’s trade policies-“India has continued to streamline customs procedures and implement tradefacilitation measures” - (www.wto.com).The above quote from the WTO website illustrates how India has been activelyattempting to facilitate trade and foreign direct investment by minimizing theprocedures involved in customs and excise within India. India can improve itsofferingto International organisations by continuing to loosen its customs policy.The countrywill in turn become more competitive in an International context.-“India uses trade policy actively, sometimes as an instrument to attain its long-termgoal such as promoting overall economic growth, or fostering industrialization,development, or self-sufficiency”- (www.WTO.com, 2012)According to the WTO “World trade policy review” India have been using both policyand legal strategies to foster the prosperous economy that is already in existence.FTT could capitalise on this approach to International policy when entering into theNorth Indian market.According to the Ernst and Young report (2011) “Doing business in India” India is amember of the International Labour Organisation. The ILO is a United Nationsagency that is responsible for creating and maintaining decent standards of work foremployees around the world. The ILO brings together Governments, employees andemployers to set out policies with regard to labour laws and policies (www.ILO.org, 22
  24. 24. Group 19 NGM 27/03/20122012). As India is a member of this organisation, India‟s labour laws are in line withInternational standards.India‟s labour laws are similar to many other nations, comprising mainly of acts andpolicies regarding trade unions, wages and fair treatment of employees.EnvironmentalEnvironmental factors include the weather and climate change also known as „green‟issues like pollution and waste. Changes in temperature can impact on manyindustries including farming, tourism and insurance. With major climate changesoccurring due to global warming and with greater environmental awareness thisexternal factor is becoming a significant issue for firms to consider. The growingdesire to protect the environment is having an impact on many industries such as thetravel and transportation industries (for example, more taxes being placed on airtravel and the success of hybrid cars) and the general move towards moreenvironmentally friendly products and processes is affecting demand patterns andcreating business opportunities. In India we know that many types of environmentalproblems mainly centred on pollution, about 60 per cent of rural and 20 per cent ofurban households do not have electricity. Urban environment has deteriorated andthe number of slum dwellers has been increasing. Air, river and water pollution hasadversely affected quality of life of the urban poor.Currently India faces some environmental issues such as land and forestdegradation in rural areasand over-exploitation of ground water have reacheddisturbing levels.This is an important area for FTT to consider as they are heavilyreliant on the region‟s raw materials and that of timber, as cost may be increaseddue to the degradation. In addition, India is currently fighting a battle against water&air pollution, desertification and soil erosion.India has 18% of the world population today, 15% of its livestock but only 2% of theworlds geographical area, 1% of the worlds forest area, 0.5% of the worlds pasturelands, and 0.08 ha per capita availability of forest as opposed to the world average of0.8 ha. 23
  25. 25. Group 19 NGM 27/03/2012 Detailed Market Analysis This section examines how the office furniture industry operates in India. It will provide a pathway in which the company can make clear well-grounded judgements into how they could possibly approach entry into the marketspace. Porters Generic Competitive Strategies, What Strategy is a best fit for FTT ? Competitive BaseScope of Cost Leadership Differentiation BroadCompetiti on Cost Focus Differentiation focus Narrow SEGMENTATION Niche Differentiatio Figure 4: Adapted from (Michael Porter, 1985) n In looking at Porters Generic Strategies in this stage of the report seeks to determine what strategy is best fit for FTT in entering the North Indian Marketspace. Looking at what FTT do themselves i.e. the supply side of the business, the general market space for ergonomically designed professional and academic furniture is quite niche at the outset. However when you consider the potential applications for their products it becomes quite clear that the company has a broad base for expansion and potential markets to tap into. Their product has a wide range of diverse applications, it claims to be sustainable, this in the sense that office space can be reclaimed; existing furniture can be refurbished and retro fitted with the e-Space solution. It has the potential to be ergonomically sound, conforming to recommended viewing length for computers as well as being wheelchair accessible and claims to be the first furniture of its kind conforming to ISO and British Safety Standards(FTT website, 2012.) 24
  26. 26. Group 19 NGM 27/03/2012ISO 6385 “Properly applied, ergonomics optimises the performance andeffectiveness of the work system including the workers without detriment to theirhealth, wellbeing or safety”ISO 11064 “for minimising eye strain, the viewing distance should be 700mm orgreater. Larger viewing distances improve depth of focus.” The critical 700mmviewing distance can be achieved using the ESPACE solution.As part of a priority checklist the product can be moulded to the requirements of theparticular consumer, these being for example multifunction or adult educationclassrooms, spaces requiring reduced maintenance or increased space orenvironments that must be health and safety compliant. Previous projects haveincluded educational institutions such as NUI Maynooth, for areas of quiet study,where ergonomics, privacy and workspace are quite important. Video Conferencingfacilities and Security and Defence forces applications have also been addressed.Health Service projects have been undertaken where privacy and hygiene are amust. Traditional Retail Fittings, Boardroom fittings, Banking Facilities and Libraryfittings have also been used in order to knock down the barrier which is a computerthat inhibits effective communication. FTT also has conducted projects in Homeoffice and Multifunctional Workspaces, to create space, ergonomics and a functionalenvironment.It has beenconcluded that the product has a wide range of industrial applications andis approaching the sale and design of the product in a value innovated differentiatedway. But how does FTT fit into approaching the demand from the North-IndianIndustry?The industry itself is segmented into three areas, household, office and contract,which accounts for up to nearly 50% of the whole furniture marketspace in Indiawhich FTT could possibly have a chunk of (KPMG report). The sign of 8% economicgrowth in India is an encouraging; it shows that there is a healthy business culture,but this also stands to increase the possible amount of potential competitors in theregion, all seeking for a potential piece of the pie from 500 million or so potentialconsumers.The total market value of office furniture in India we would estimatewould be above $8bn, going on the figures provided by KMPG for 2006 and takinginto account inflation and overall economic growth(KPMG report). If FTT even 25
  27. 27. Group 19 NGM 27/03/2012managed to gain a fraction of a per cent of the marketspace it could turn out to bequite a profitable venture. The Sector is looking quite healthy at this moment in time;according to a Joint report between KMPG and the Indian Brand Equity Foundation;“The office furniture segment has witnessed rapid growth in recent years, in line withthe growth in the Indian economy and subsequent demand for office space. Thethrust on real estate and office construction is expected to sustain in the near future,indicating continued growth for the furniture industry ….. it appears the mostattractive, as it is growing rapidly and also offers large volumes. It is estimated thatthe demand for office space in India will grow at a CAGR of 20 per cent over the next3-5 years. Apart from the demand for creation of new office space, the demand foroffice furniture is also driven by renovation of existing offices”(KPMG report.)Looking at businesses that FTT mainly target, these can be classified asUniversities, Hospitals and industry. There are 244 universities in North India, whichaccount for approximately 43% of all the universities in all of India (See Appendix 1for regional breakdown.) There are also a significant amount of hospitals in NorthIndia ranging in the number of hundreds. As for registered factories out of all of India,North India accounts for over 46,000 factories which is approximately 30% (SeeAppendix 2). Not including the presence of other multinationals and registeredbusinesses across India, it shows there is quite a significant commercial presence inthis marketspace. Looking at the tensions that are on and off between India andPakistan, there is quite a significant security and defence presence that FTT couldpossibly target. If the business approaches this industry in the correct way therecould be a huge market potential for FTT and their varying range of furnitureproducts. These figures do not take into account, libraries, banks, second levelinstitutions and video conference facilities.As we have seen earlier on there is a wide range of potential competitors that FTTwould have to deal with on entering the marketspace and this would be a factor thatwould affect their potential market presence. In a highly industrialised nation, whichis also close to serial producer China, FTT would face intense pressure in thesaturated market space. This may mean that the company would not be able to 26
  28. 28. Group 19 NGM 27/03/2012compete on a cost basis and therefore would have significant problems in doing soin this regard.However we see that the product has a wide range and span of versatileapplications; the product is quite differentiated in focus and seeks to meet the needsof a wide range of applications. This is where the company‟s competitive advantagelies. If this could be performed on a large scale to suit the growing needs ofindustries and institutions it would be a favourable move. However, the current sizeof their operations limits FTT in this regard; also there is intense competition fromlocallow-cost suppliers. This opinion is backed up by KPMG when they say:““This segment (office furniture) is also relatively price sensitive and likely to go in forwell-known brands”(KPMG report.)If FTT are willing to adapt their products to order, their market attainment could behuge. Taking into account that a lot of companies are utilizing increased amounts oftablet and mobile computing solutions, the products could also be adapted in thisregard. This is where the “value innovation” comes from for their products and thistype of strategy is the basis in which they should approach the market space. Therewill be added benefits from doing this according to Kim and Maugbourne (1997). IfFTT are willing to brand their products in the marketplace as increasingsustainability, ergonomics and space, they could potentially have a significant marketimpact. Therefore we would advocate a broad differentiation strategy in a niche areaof the market, as a substitute to traditional office furniture. Similar to what they aredoing in the British and Irish Markets at this moment in time.Market ConsiderationsIn looking at the divide between the two cultures of the Irish and North IndianMarkets, it‟s interesting to notice how compatible these cultures should becompatible or at least have an understanding of one another in order to do businesswith one another. In this regard I find it appropriate to analyse cultures of the twocountries in order to ascertain the benefits and detrimental factors which could leadto a flow or barriers to trade. It would be obvious to state that there are differences incultures between the two markets but there are also similarities seeing that India is aformer colony of the United Kingdom and a member of the commonwealth. 27
  29. 29. Group 19 NGM 27/03/2012Hofstede’s Cultural Dimensions: Ireland v IndiaThis is a useful port of call in analysing this topic. It analyses the countries under 5main headings Power Distance, Individualism, Masculinity/ Femininity, UncertaintyAvoidance and Long Term Orientation. In correlating these two countries‟ cultures, aview can be obtained of the idiosyncrasies between doing business and the culture.It was coined by academic and cultural anthropologist Geert Hofstede and has beenused as a useful market analysis ever since.(Hofstede, 12)Looking at the different sections what does he mean by the specific terms“Power Distance is defined as the extent to which the less powerful members ofinstitutions and organisations within a country expect and accept that power isdistributed in equally.”(Hofstede, 12)India scores a 77, shows a healthy respect for hierarchy and Organizational authorityStructure in society. If we were to look at this in terms of putting a statement towardstheir attitude, they look for dependent direction of an authority figure, there seems tobe the indication that power brings privilege and those lower down the powerstructure should be subject to lesser rights. Therefore inequalities are prevalent Inhis report Hofstede indicates that“Immediate superiors accessible but one layer above less so, paternalistic leader,management directs, gives reason / meaning to ones work life and rewards inexchange for loyalty from employees…..communication is top down and directive inits style and often feedback which is negative is never offered up the ladder.”Comparing this to Ireland‟s power distance how do the two cultures compare?Ireland is one of the lower scoring nations, therefore we possess a culture that isdirected towards eradication of inequalities and we have a more open environmentfor the freedom of speech. What does this mean for the product then, well it meansthat it could be quite difficult to persuade the more powerful decision makers in Indiato buy our product. This is because of either the difficulties in attaining theseindividuals and also the fact that there could be a subtle disrespect towards theUSP‟s of the products, that being safety and privacy. These we believe would haveto be counterbalanced with sustainability, due to the massive pollution in India andalso with saving of space in an overcrowded region where space is at a premium.(Hofstede, 12)Individualism 28
  30. 30. Group 19 NGM 27/03/2012“Individualist society‟s people are supposed to look after themselves and their directfamily only. In Collectivist society‟s people belong to „in groups‟ that take care ofthem in exchange for loyalty.”India‟s score in this section is 48 which mean that the society is that of collectivists.In this regard FTT should drive towards loyalty with Indian business when enteringthe market and try to become part of their business “families.” This contrasts fromthe individualist Irish culture, which scores a 70 on Hofstede‟s scale. We wouldtherefore conclude that a sense of loyalty and trust be built up in India in order tomatch the two cultures. This would be a good platform to compete as well as localknowhow and FTT ‟s expertise could drive a killer punch in terms of a feasible officesolution in the Indian Office Furniture market.(Hofstede, 12) Masculinity and Femininity“A high score (masculine) on this dimension indicates that the society will be drivenby competition, achievement and success, with success being defined by the winner/ best in field – a value system that starts in school and continues throughoutorganisational behaviour….A low score (feminine) on the dimension means that thedominant values in society are caring for others and quality of life. A feminine societyis one where quality of life is the sign of success and standing out from the crowd isnot admirable. The fundamental issue here is what motivates people, wanting to bethe best (masculine) or liking what you do (feminine).”So how is competition viewed in both these countries, both countries have masculinetraits thus highlighting that there is a healthy climate for businesses competing in thisview. In competing with Indian businesses FTT should be prepared to fight tooth andnail with other Indian businesses competing in the market. India already has ahealthy manufacturing culture, and possibly pairing up with another business in Indiawith the competencies to fight in the Indian Marketplace could be a good option. Dueto the product being bespoke and job focused we would find it difficult to perceivethat FTT would compete in this market on cost.(Hofstede, 12) Uncertainty Avoidance“Uncertainty Avoidance has to do with the way that a society deals with the fact thatthe future can never be known: should we try to control the future or just let ithappen? This ambiguity brings with it anxiety and different cultures have learnt to 29
  31. 31. Group 19 NGM 27/03/2012deal with this anxiety in different ways. The extent to which the members of a culturefeel threatened by ambiguous or unknown situations and have created beliefs andinstitutions that try to avoid these is reflected in the UAI score.”In this section we can see that Ireland is a place that respects new Ideas of doingthings, however is this culture respected in India? India has a similar score howeverits ambiguous here whether or not it‟s a healthy respect for imperfection or a drive fora new look on conventional ideas. It could be in this regard that both ends of thescale are looked upon here. Tolerance for the unexpected is high but there also is atolerance for a new look and “adjusting” conventional Ideas. Therefore FTT ‟sproducts could be taken up in the marketspace however would they be made to thehigh standards that they demand in the Irish and English markets, if they wereproduced in India. More than likely no, and initially this could demand a quitesignificant amount of oversight in the Indian market by FTT in the early phase ofentering the market.(Hofstede, 12) Long Term Orientation“the extent to which a society shows a pragmatic future-oriented perspective ratherthan a conventional historical short-term point of view.”In India the score here is 61, therefore its culture is focused on the long term;therefore any projects that would be set up would be good for the long term. Thismay be a good thing if FTT are after a long term market presence, however thiscould be detrimental if their products are not focused towards smaller and newintegrated technologies. Looking at the Irish Culture it scores 43 which is more shortterm focused and looks for quick results. Therefore FTT would have to be patient inIndia when looking towards the future, and adapt to their long term focus. The bigquestion here is will desktop pc solutions become obsolete before smaller andportable technologies take over in the market.So summing up on Hofstede‟s Cultural Dimensions what can we take from IndianCulture in terms of crafting a strategy for the company entering the Indianmarketspace? To start a healthy respect for authority should be shown by thecompany and every chance to meet with a high authority individual should berespected as a great opportunity, and therefore the product should be moulded, andtherefore the product sale negotiations should be moulded to their views on certainissues and not challenged. A sense of loyalty and trust should be built up in the 30
  32. 32. Group 19 NGM 27/03/2012North Indian marketspace for a long term business relationship. The business shouldbe prepared to compete and a culture of high standards would be an appropriateselling point for the business in the North Indian Market.Pricing and Procurement ProcessAs previously stated the market for office furniture and contract furniture in India isquite price sensitive, and with no pricing model apparent in FTT ‟s case theyobviously provide bespoke and contracted solutions which can be quite costly toprovide, however being able to offer bespoke solutions to the market may make upfor this. We would therefore advocate a similar contractual/project model be taken upin India, as this also allows for the important element of trust to be built up betweenthe businesses they are developing their furniture for.In this case we would advocate a strategy of market-orientated, cost plus pricing,therefore it ensures that all costs of the project are covered with a fixed profit marginon them. The pricing model is transparent and one that instils trust between thebusinesses that they are conducting trade with. The pricing will be have to bematched to the market in India, which has a considerably smaller GDP than Irelandand cost plus pricing would be a perfect tool for this, therefore the business ismatching costs, maintaining a margin and not pricing itself out of the market.This may be complex process if operating a joint venture in India and perhaps ifdoing this, costs could be matched from both sides in funding each project, andmargins on each project be split through the middle. As manufacturing costs will besmaller in India due to efficiencies and cheaper costs of raw materials andproduction, however this may also impact in the quality of the products, especiallywith the culture in India which accepts imperfections in products. Exporting isdefinitely not an option as the costs alone would be enough to drive FTT out of themarket, especially with India‟s industrial strength at this moment in time and China‟sdominance of the manufacturing Industry; we would therefore suggest that theproducts for the Indian market be produced on site in India.Market Entry Strategies 31
  33. 33. Group 19 NGM 27/03/2012There are three primary legal ways that an entrepreneur can reduce the riskassociated with a new business venture. These are licensing, franchising and jointventures. Licencing is most suitable when a firm has valuable technicalknowledge/patents but does not have the resources to enter a foreign market.Through licencing, the firm can introduce its product to new markets and makeprofits on the licence‟s royalties, while avoiding the risks of setting up in an unknownmarket on its own. The licensee bears the brunt of the costs. Therefore, licencing isconducive to firms that possess specialist knowledge, and many pharmaceutical andsoftware companies follow this path. Franchising on the other hand is better suitedto international expansion of retailing enterprises and services (for exampleStarbucks/McDonalds). Similar to licencing, the franchisee bears most of the costsand risk. However, maintain the brand‟s quality and image can present problems,and product offerings may need to change to accommodate local tastes (fordiscussion see Thompson et al, 2010: 216). Joint ventures refer to a businessventure that is jointly owned, and involves more than one organization. Jointventures are particularly popular with international manufacturing firms, who insteadof risking direct inward investment, partner with indigenous producers to share therisk (Worthington & Britton, 2009: 263). In short, a joint venture allows a firm toaccess information and take advantage of a local firm‟s strengths. Yet, the motivesfor sharing ownership and control of your business with a foreign partner are many.At the outset, joint ventures may help overcome obstacles such as trade barriers andmake it easier for a foreign business to establish relationships with suppliers anddistributors in the local market (which is particularly helpful in an emerging economylike India). In that vein, the partnership may secure the supply of raw materials andother supplies, especially if the venture is established in a country that is resourcerich. This in turn, makes it easier for the firm to offer a competitive price for itsproduct on the international market. What‟s more, a joint venture is a fantastic way ofleveraging the valuable knowledge, production processes, R&D, skilled labour, andeven the capital/financial resources that another organization possesses. Dependingon the firm‟s location, the joint venture often provides direct access to the targetmarket, which results in quick growth of market share. There may also be attractivetax or customs regimes applicable to ventures, which can be taken advantage of.Despite these advantages, the return on the initial investment may not be high, andlosses may be incurred in the beginning. Moreover, management of the partnership 32
  34. 34. Group 19 NGM 27/03/2012may be wrought with problems for language or cultural reasons (See Campbell&Netzer, 2009: 24-5; also figure 12). India does not have specific legislation togovern the establishment, conduct or termination of joint ventures. Nonetheless, theagreements that comprise the partnership should comply with the general principlesand rules in force. Government authorization may also be required (2009: 183).In India, there are „incorporated joint ventures‟ (which apply only to domestic firms),and „unincorporated joint ventures‟. The latter is a contractual partnership, affectedby a legally binding agreement. In effect, this type of arrangement is usually enteredinto for a limited period, and for a certain purpose. Unincorporated ventures in Indiamay be either „contract‟ or „partnership‟. Contract ventures involve the partiesentering a contract, which outlines their respective rights and liabilities. It furtheroutlines information such as the intended capital contribution of the parties, how theywill distribute profits, and the contract‟s tenure (Campbell &Netzer, 2009: 184-5). Apartnership joint venture is subject to the Indian Partnership Act 1932, and may takethe form of an express or implied agreement. It may be advantageous to register thepartnership with local authorities (albeit this is not mandatory), as registration mayafford certain benefits and exemptions, as well as making the partners eligible toenforce their rights in the agreement through the court‟s system. Beyond that, inIndia, joint ventures are also classified according to the specific strategy they willpursue, such as a production joint venture, marketing joint venture or buyingcollaboration (Campbell &Netzer, 2009: 185-6).Joint ventures frequently experience problems the longer they go on. Commonissues involve the partners having different „long term‟ goals for the venture, withdifferent horizons and expectations in mind. Partners often fear that their strategicflexibility is being lost, and this often augments issues in the daily running of theoperation. There may also be a „perceived‟ loss of control over capital invested, andinformation as well as the problem of opportunities forgone (Harrigan, 2003: 38).Therefore, it is clear that collaboration, substantive engagement and goal alignmentis central to a successful joint venture. In addition, free riding issues or moral hazardis significantly reduced in all-equity joint ventures, and as a result, the vast majority 33
  35. 35. Group 19 NGM 27/03/2012of joint ventures in the US and Europe witness 50-50 equity allocations (or a 50 plusone share) (see Hauswald, &Hege 2006:3).Given the nature of FTT ‟s furniture business, it is advisable to first establish aninformal strategic alliance with a local partner, to test run the suitability of FTT ‟sproducts in this new market. This method is a popular alternative to a formal jointventure and is dubbed „piggybacking‟. Here, „a rider firm utilizes the market channelsof the carrier firm instead of internalizing or developing its ownchannels. In thiscontext, the rider relies on the carrier to sell its products and the carrier relies on therider toprovide the new products‟ (Terpstra and Chwo-Ming, 2001: 54). Effectively,the rider firm takes advantage of the carrier firm‟s local knowledge and distributionnetworks, while the carrier firm benefits by having more products to add to itsportfolio. By its nature, this method of internalization is relatively quick and costeffective. However, a clear (and arguably major) disadvantage with this approach isthat the carrier firm does not gain any of the market insights that it would under ajoint venture arrangement.Therefore, it is expected that having established itself witha local partner, and assuming the alliance is successful, FTT will have gainedsufficient insight to pursue a joint venture in the region.A note on targeting businesses for joint venturesWhen it comes to international joint ventures, the main issues/factors that determinepartner selection are the following: trust, communication, past association, controland culture. Trust emerges specifically in the phase of searching for and selecting apartner. In fact, trust between the top management teams has been identified as theforemost deciding factor in partner selection for various developed country firms.Communication is equally important. Both parties must communicate their objectivesand their commitment to the partnership before the venture is formed. Transparencyin communication must be maintained at all times, to ensure both firms are on anequal footing. Past association refers to any pre-existing relationship between thefirm and potential partners. „Favourable‟ past associations can have a significantimpact on the partner selection process. Control refers to those aspects of theventure that each partner seeks to govern, depending on their own core 34
  36. 36. Group 19 NGM 27/03/2012competencies and skill set. Addressing these skills and competencies is central tofinding the right partner. Beyond that, national and corporate culture is veryimportant, and foreign firms benefit most from local partners in a country has adistinct culture. At the same time, cultural differences can cause issues whenmanaging international joint ventures (for discussion see Islam et al, 2011: 26-7). 35
  37. 37. Group 19 NGM 27/03/2012Porter’s 5 ForcesThe model was used to assess to environment within the industry. This will highlightthe key dynamic factors evident in North India critical to the success of theenterprise.Threat of new entrantsGovernment Policy:The following options are available to foreigners establishing companies inIndia.(The Department of Industrial Policy & Promotion. 2012) (I) Indian Company:A foreign company can commence operations in India by incorporating a companyunder the Companies Act, 1956 through: Joint Ventures. Wholly Owned Subsidiaries.Foreign equity in such Indian companies can be up to 100% depending on therequirements of the investor, subject to equity caps in respect of the area of activitiesunder the Foreign Direct Investment (FDI) policy. (II) Joint Venture with and Indian Partner:Following advantages: Established distribution channels. Inside Marketing Knowledge. Financial resources of Indian partners and easier access to funding (state & private). Local knowledge in optimising the operation set up issues (time, costs, staffing etc) (III) Wholly Owned Subsidiary: 36
  38. 38. Group 19 NGM 27/03/2012 100% FDI must be allowed in their industry/ sector in accordance with FDI policy. Register with the Registrar of Companies, will be subject to Indian laws and regulations as applicable to other domestic Indian companies. (IV) As a foreign company: Liaison Office/Representative Office Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India. This acts as a channel of communication between the principal place of business or head office and entities in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. Liaison office can not undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Project Office A temporary project site for the undertaking of a specific project. Such an office may work on the specified project only. They cannot undertake any other commercial activity. Branch Office Can be set up for the following purposes: (i) Export/Import of goods (ii) Rendering professional or consultancy services (iii) Carrying out research work, in which the parent company is engaged. (iv) Promoting technical or financial collaborations between Indian companies and parent or overseas group company. (v) Representing the parent company in India and acting as buying/selling agents in India. (vi) Rendering services in Information Technology and development of software in India. (vii) Rendering technical support to the products supplied by the parent/ group companies. 37
  39. 39. Group 19 NGM 27/03/2012 (viii) Foreign airline/shipping company.**Branch offices are not allowed to carry out manufacturing on its own but maysubcontract the work out to domestic manufacturing companies.Automatic Route:The concern about the stagnant and low share of the manufacturing sector in India„sGDP necessitated a dedicated policy for the sector with a view to accelerateddevelopment, inclusive growth and provision of gainful employment. The DIPP„svision to increase the share of manufacturing in GDP from 16% to 25% wasendorsed in the conference of State Industry Ministers on 17 November 2009.Consequence to this realisation FDI is welcomed, encouraged and assisted in India,not solely dedicated to large TNC‟s but also SME‟s. FDI under automatic route isnow allowed in all sectors, including the services sector, except a few sectors wherethe existing and notified sectorial policy does not permit FDI beyond a ceiling.Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy andPromotion, Government of India provides a single window service for entrepreneurialassistance, Investor facilitation and monitoring implementation of the projects. Mayneed pre government approval for FDI Automatic Route for certain sectors/industrieshowever the existing products provided and model used means this will not apply toFTT .The foreign Investment Implementation Authority is a dedicated initiative to assistand act in a facilitative capacity to potential investors overcoming operationaldifficulties. This service is provided in many languages including, Spanish, German,Korean, Italian and Japanese. The manufacturing sector and related industries areheavily targeted as a producer of domestic economic growth. 38
  40. 40. Group 19 NGM 27/03/2012Proprietary Learning Curve:Given FTT have direct competition currently operating in North India assumed tohave amassed superior knowledge of the office furniture market in North India thecompany may face a challenge in escalating to levels of operating efficiencyexhibited by their in place competitors. However there is no company also offeringthe service of retrofitting existing furniture, a possible lead from which they canassume market share. The Indian government policies have indicated a desire toprovide opportunities for uneducated and unskilled citizens to up-skill. With specialattention to SME‟s (such as FTT ).The SME sector contributes close 45% to themanufacturing output, 40% of the total exports, and offers employment opportunitiesboth for self-employment and jobs, across diverse geographies. The IndianGovernment wish to sustain and increase this growth of the manufacturing sector asalso the national economy by policy interventions in areas like manufacturingmanagement, including accelerated adoption of Information technology; skilldevelopment; access to capital; marketing; procedural simplification and governancereform (Passad. 2011).The willingness of the Indian Government to assist in skill development lends well tothe introduction of an ergonomic retrofitting service. However this capability is alsoavailable to other companies therefore cannot be seen as a critical competitiveadvantage.Complex Tax Regulations:The taxation system in India is very complicated (Deloitte, 2009) with productstypically exposed to two taxes firstly from the Central Government and secondlywithin respective State Governments. A Central Sales tax is levied on goodstransported across state boundaries. This has encouraged companies to establishwarehouses in each state to avoid a cross state shipping tax. This must be factoredwhen considering the North Indian region which consists of five states ring-fencedwithin The Northern Zonal Council. Due to its excessive bureaucracy, India hasranked low in the World Banks Ease of Doing Business reports and the country 39
  41. 41. Group 19 NGM 27/03/2012ranked 133rd out of 183 economies in the 2010 report (Euromonitor, 2010). Differentstates also impose varying VAT rates however there are measures that ease thisburden; SEZ‟s (Special Economic Zone) established to encourage investment incertain areas. SEZ‟s in India have been established to attract FDI an initiative theIndian government have heavily embraced in relatively recent years. HistoricallyIndia heralded a lack in trust of outside investors imposing strict regulations, likelystemming centuries of colonial rule in the subcontinent where European nationsoccupied and plundered the resource wealthy landscape (Daniels. J. 2001 ). Thishas changed in recent years with subsequent Governments recognising thedevelopment potential associated with relaxing trade laws and tariffs on foreigncompanies. SEZ‟s in this vein are an engine for economic growth supported byquality infrastructure complemented by an attractive fiscal package, both at theCentre and the State level, with the minimum possible regulations (Special EconomicZones in India). North India has been slower to gain advantage from this policy dueto higher land prices deterring investors, however this has been improved in recentyears with 5 of the 7 states within the North Zonal Council having established SEZ‟s(indianexpress): I. Haryana II. Punjab III. Rajasthan IV. Delhi V. ChandigarhThe significance from an FTT and their industry perspective is a growing middleclass, increased education levels, increased building development; business‟,schools, universities, offices, libraries etc. Therefore a greater demand for officefurniture accompanied with a growing economy with the resources to invest inergonomic (or other value added) office furniture. There remains also the significantbenefit of a less complex and costly tax system. 40
  42. 42. Group 19 NGM 27/03/2012Logistics & Supply Chain:Establishing a cost and operational effective logistical network is quite a challenge inNorth India. This is attributed to a compliment of problems. It is a largely fragmentedand unorganised industry compromising a high number of independent providerswith regional permits and limited fleet sizes. This division carries a large percentageof the national load and virtually the entire regional (including North India) load.Competitive prices are achieved through low level technology, little maintenance,employing low skilled workers and overloading of truck beyond capacity (Chandra,2007). This has created according to Chandra a service which has been describedas slow unreliable and generally lacking in quality, resulting in a higher cost forcommodities. However there have been glimmers of improvement as India movesaway from rail networks as the predominant mode of goods transport and roadinfrastructure is improving under the National Highway Authority of Indian theNational Highways Development Project working towards the development of anIntelligent Transportation System (ITS) which will make transport services on thehighways (like reducing congestion, advance signalling, medical assistance, accidentmanagement, etc.) efficient and automating many processes like toll collection etc.(Chandra, 2007). This improvement as of yet is still years from satisfactory thereforein this regard local knowledge of a relatively peculiar transport network is vital inensuring an efficient distribution of commodities. Transport is not the onlyproblematic component of the logistical supply chain in India, warehousing and orderprocessing are also in dire need for improvement which will in turn reduce overalloperational costs (ciilogistics.com). This aspect too is highly fragmented with littlestandardisation, although improvements have been found with the advent of the ITand telecommunications industry soaring in India it still remains a logistical issueenhancing the need for extensive local knowledge. A graphical representation andbreakdown of different cost types is presented in Figure 5. 41
  43. 43. Group 19 NGM 27/03/2012Figure 5Determinants of RivalryBrand Identity:As already outlined and discussed there are already a number manufacturers operating inthis market including office furniture and specifically office furniture. All identified areindigenous manufacturers and therefore this begs whether competing with an Indian brand isdisadvantageous in attracting Indian consumers. Research (Kinra, 2005) stated the oppositein fact can be true as Foreign brands were perceived in this study, to be more reliable andsafe by Indian consumers than their domestic country brands. This perception is especiallytrue if a consumer is based their decision from a „quality‟ or „technology‟ aspect. Branding isparticularly important in catering to the office segment as they typically expect the furniture tocompliment or enhance their own brand (India Brand & Equity Foundation. 2007). Given theproposed market of value added furniture in which the quality and innovative aspect is key,this is an encouraging indicator of potential customer acquisition, however it also bears awarning that extensive marketing will be critical to successfully infiltrating the growing servicesector. This assumption is also bolstered with the fact that India was the largest furnitureimporter in the world in 2004-05, with a 17 per cent share in the furniture imports worldwide. 42
  44. 44. Group 19 NGM 27/03/2012A total of 10, 476 importers shipped furniture to India during this period, mainly from Italy,Germany, Spain, China, Korea, Malaysia, Indonesia, Philippines and Japan (India Brand &Equity Foundation, 2007). Given consumer disposition to purchase imported furniturepenetrating the North Indian with a foreign product receives much encouragement. Thefurniture sector is largely unorganised in North India although to a lesser extent in respect tocommercial/office furniture specifically, however the market remains highly fragmentedlending to a low barrier to entry.Access to Capital:There remains a wide range of financial options for business‟ and individuals in Indiadue to a growing diverse financial sector (Euromonitor, 2010). Given a satisfactorycredit history in the business required capital can be relatively easily accessed.Absolute Cost Advantage:The business will most likely suffer cost disadvantage from manufacturers sellinginferior or less value added products and having in place a vast supply network withexperience in what can be a difficult logistic exercise to economise with scale.Competing predominantly on price would not be sensible or advisable. With effectivemarketing to the established appreciation for „quality‟ products among the middle andupper urban classes arises (Neelam. K. 2006), the focus must be on innovative highquality differentiation especially when targeting business‟ or institutions.Market Size and Opportunity:A KPMG report in 2006 (India Brand & Equity Foundation. 2007) estimated theIndian furniture industry to be valued at US$ 7,922 million wood furniture accountsfor 11% (US$ 152 million).predominantly concentrated within the nation‟s top 600cities. In perspective North India contains 16 of the top 100 Indian cities; these citiesalone would constitute a sizeable market populating 23million people. Office furnitureoccupies the largest segment of the furniture market at 65% with office and contractfurniture occupying the rest, FTT would most likely fall within the office furnituresegment currently standing at 20% which translates to a valuation of US$ 1,584.4million of total Indian office furniture market. 43
  45. 45. Group 19 NGM 27/03/2012 Although more precise regional market figures were not specified it is reasonable to suggest North India demands a significant portion of the total Indian office/contract furniture market.I. North India has performed well economically with average state growth in 2010/2011 at 16.8% in comparison to average state growth nationally for the same period 14.6%. Table 1: North Zonal Council State Economies. STATE %GDP %YonY Growth Rajasthan 4.15 18.76 Haryana 3.53 19.19 Punjab 3.03 10.97 Himachal Pradesh 0.72 21.13 Jammu & Kashmir 0.65 10.35 Delhi 3.54 18.80 Chandigarh 0.28 16.54 (VMW Analytic Services, 2012)II. North India as a region contributed most to GDP. 44
  46. 46. Group 19 NGM 27/03/2012Figure 6 45
  47. 47. Group 19 NGM 27/03/2012III. The service industry (target market) had been the dominant sector contributing to GDP in North India across all states. India registered an economic growth of 8.7% in 2011, predicted to become the fastest growing economy of 2012 overtaking China with much of this growth driven by a vibrant manufacturing industry coupled with an expanding and diverse service sector. (Asia & Pacific: Business & Technology Report, 2011). Housing and real estate attracted USD2.8 billion of FDI in 2010 (Department of Industrial Policy and 46

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