A project in my masters outlining the entry to north india

1. GROUP
19
Market 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. Group 19 NGM 27/03/2012
Declaration
I the undersigned declare that the project material, which I now submit, is my
own work. Any assistance received by way of borrowing from the work of
others has been cited and acknowledged within the work. I make this
declaration in the knowledge that a breach of the rules pertaining to project
submission may carry serious consequences.
I am aware that the project will not be accepted unless this form has been
handed in along with the project.
Signed:_________________________
Signed:_________________________
Signed:_________________________
Signed:_________________________
Signed:_________________________
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Table of Contents
Declaration ................................................................................................................. 1
Maps of India: ............................................................................................................. 3
Introduction ................................................................................................................ 4
Facts on India: ............................................................................................................ 6
Political ..................................................................................................................... 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 ......................................................................................................... 19
Social ....................................................................................................................... 20
Technological ........................................................................................................... 21
Legal ........................................................................................................................ 22
India‟s trade policies ............................................................................................. 22
Environmental .......................................................................................................... 23
Detailed Market Analysis .......................................................................................... 24
Market Considerations ............................................................................................. 27
Hofstede‟s Cultural Dimensions: Ireland v India ....................................................... 28
Pricing and Procurement Process ............................................................................ 31
Any 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
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Determinants 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: .......................................................................................................... 52
Bargaining Power of Suppliers ................................................................................. 53
Bargaining Power of Buyers ..................................................................................... 54
Threat of Substitutes ................................................................................................ 55
Plastic ................................................................................................................... 55
Steel ..................................................................................................................... 56
Virtual Office: ........................................................................................................ 56
Appendices .............................................................................................................. 69
References: .............................................................................................................. 79
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Executive Summary
While the US and European economies struggle towards economic recovery,
emerging economies such as Brazil, Russia, China and India (BRIC) are
experiencing exponential growth. Now is the time for western firms to gain a foot
hold in these booming economies in order to reap the potential rewards. Trade
relations between India and the EU in particular have been steadily growing in recent
years 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 enter
the market space of North India. This report draws from many facets of the Indian
business climate such as culture, demographics, and current market conditions.
Throughout the report various methodologies and frameworks have used to analyse
the suitability of FTT ‟s possible venture into the North Indian economy. Such
frameworks included inter alia PESTLE analysis, Porter‟s 5 Forces and Competitive
Strategy, Hofstede‟s Cultural Dimensions, Chris HerbertsB2B Marketing Mix (4 Rs)
and a SCOR analysis. India is a thriving economy with over 500 million consumers
and an evolving culture open to new ideas. Pollution and overcrowding, while posing
serious environmental and social issues, also provide a market opportunity for FTT
in terms of e-space Solutions. Ultimately, the market analysis undertaken indicates a
joint venture as the most appropriate market entry strategy for FTT .
Company overview
First Touch Technologies is an office equipment organisation that offers desk and computer
solutions to the ICT market. The product at the core of their business is the e-Space office
solution. FTT have supplied the e-Space office desk to many large organisations within
Ireland and the UK. These include The University of Chester, General Insurance LTD,
Hayling College, Price Water house Cooper and the National University of Ireland
Maynooth. As can be seen from the above client list, one can surmise that First Touch
Technologies have an established market within the UK and Ireland. It is clear that their
product offering appeals to all sorts of organisations, from Academic to Multinational. When
attempting to enter a new market, reputable customers such as Price Water house Cooper’s
will play a key role when offering the e-Space desk technology in a new region.
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Product overview
The FTT e-Space desk solution is a versatile product that can be customized to fit any desk or
office space. The e-Space desk solution has advantages over conventional desk solutions in
the current market. According http://www.FTT -emea.com the product is designed with
sustainability and health benefits at the core of the product offering. In addition to this, the
product 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 business
environment, 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 and
making the desk multifunctional.
User Benefit
The e-Space desk solution offers a range of benefits to the individual user within an office
setting. The design incorporates and contemporary look and feel that will add to a positive
and professional atmosphere within the office setting. While the e-Space office solution is
built 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 desk
provides a comfortable viewing position to the user through the design of the product, this is
illustrated with the following diagram:
As illustrated in the diagram, the screen position can be adjusted to suit the sitting position of
the user, thus benefitting the overall user experience. The e-Space office solution also offers
confidentiality and privacy to the user which once again promotes a positive user experience.
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From a technical perspective, the product is video conferencing enabled and in addition the
product is touch screen friendly.
Employer benefits
There 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 time
offering increased occupancy densities, this increase in density means that an organisation
can 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 that
can arise from lose cables in a work environment. With the e-Space solution, wires and
cables can be hidden with ease, thus eliminating any health hazards that are associated with
wires and cables in the office environment.
Facts on India:
Population: 1,205,073,612 second in the world
Age 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 world
Geographic location Southern Asia, bordering the Arabian Sea and the Bay of
Bengal, between Burma and Pakistan
Geographic Co-ordinates 20 00 N, 77 00 E
Languages: 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
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commercial communication
Major 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 Sarnath
National 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
stagnation
National Animal: Tiger
National Bird: Peacock
National Flower/tree Lotus/Banyan
National Fruit: Mango
National Currency Indian Rupee (1 Indian rupee = 0.0151453952 Euros)
National Sport: Hockey/Cricket
Regional Overview:
Geography
Located in Southern Asia, bordering the Arabian Sea and the Bay of Bengal, the
Federal Republic of India is just over one-third the size of the US, covering roughly
1.3 million square miles. India measures 1,860 miles from east to west and 1,997
from north to south, while its coastline is approximately 4,349 miles long. In terms of
land 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 Indian
subcontinent, which comprises Pakistan, Nepal, Bangladesh, Bhutan, Maldives Sri
Lanka 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
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India‟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, Arabia
Sea in the west, and the India Ocean (the third largest ocean in the world) to the
south (Chary, 2009: 21).
The Himalayas separates India from China, and stretching 1,500 miles over the
north of the country, is the highest mountain on the planet. Kanchenjunga is the
tallest mountain in the Himalayas, and the world‟s third highest peak, standing at
28,169ft (or 8,586 meters). The two other primary land regions are the flat rolling
Northern plains along the rivers Ganges, Brahmaputra and Indus, and the upland
plains (Deccan/Southern Plateau) in the southern peninsula. Both the Northern
Plains 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 the
fourth largest coal reserve in the world, along with other natural resources such as
natural gas, diamonds, petroleum, iron ore. The Northern Plains and Deccan Plateau
regions are separated by a rugged mountain range called the Eastern and western
Ghat Mountains. Certain sections of these mountains are densely wooded and home
to much wildlife. To the west of the Northern Plains is the Thar Desert (or „Great
Indian Desert‟). India also controls the Lakshadweep and Minicoy Islands in the
Arabian Sea, and the Nicobar and Andaman Islands in the Bay of Bengal. The latter
two suffered tremendously in the 2004 tsunami. India‟s rivers can be divided into two
major categories: the Himalayan (snow and rain fed, and flow all year, for example
the Ganges), and Deecan rivers (rain fed and non-perennial, for example the
Krishna, Cauvery and Godavari rivers) (for full overview see Chary, 2009:22; also
CIA Fact-book, 2012).
Regarding climate, India experiences three main seasons: summer, monsoon
season and winter. Each season lasts roughly four months, although the Himalayan
states 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 the
Himalayan states where the hills ensure a nice climate. Consequently, hill resorts are
popular tourist attractions. The rain takes hold from July through to September and
monsoon rains bring much needed irrigation for agricultural production (Chary,
2009:23). However, India's also experiences destructive flash flooding, as well as
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severe earthquakes, thunderstorms, and even volcanism (Barren Island volcano in
the Andaman has been active in recent years). This extreme weather, coupled with a
huge and growing population (India is now the second largest country in the world
after China with a population of 1,205,073,612, or just over one billion people) has
lead to other problems in the form of deforestation, air pollution from vehicles and
industry, and pollution of the fresh water system from agricultural waste /pesticides
and raw sewage (for full overview see CIA Fact-book, 2012). Moreover, only 54 % of
people living in urban areas have access to proper sanitation facilities, and this figure
is 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 people
lived below the poverty line in 2005 (a slight improvement from 45.3 % in 1994). Life
expectancy in 2009 was 65 (this is expected to be 69 in 2012). After Nigeria and
South Africa, India has the third highest number of people living with Aids, and the
third 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 Culture
India‟s primary ethnic groups are Indo-Aryan (72%) who live in north and central
India and Dravidian (25%), who live in the South. The latter are thought to have
descended from earlier settlers to India, while the Indo-Aryans trace their ancestry
back to central Asian people who came to India around 1500 BC. The remaining
three % are Mongoloid and other smaller ethnic/tribal groups (Chary, 2009: 24).
Twenty two languages (Hindi, English and 22 others) are recognized by the Indian
Constitution, and these are spoken in more than 1,600 different dialects (Chary,
2009:25). Yet, individual Indian states may have different official languages, with
some states having more than one official language, although the central
government does not recognise some of these. Bihar in the east, for instance, has
three official languages, all of which are recognised by the central government:
Hindu, Urdu and Bengali. Conversely, Sikkim, another east Indian state has four
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languages, of which only Nepali is recognised. Hindi is the most widely spoken
throughout the country and is the first language of 41% of people 1. The 14 other
official 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 popular
variant of Hindi/Urdu is Hindustani. This is spoken in Northern India, but is not
officially recognised (see CIA Fact book, 2012; also kwintessiantial website, 2012).
English was brought to India during British colonial rule and remains the common
language between non-Hindi speaking states. Indeed, almost one third of India‟s
population is competent in basic English, while English is widely used in Government
correspondence as well as by the Education and Court‟s system. The availability of
millions of English speaking workers is a key reason that India fast became the
number 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; also
kwintessiantial website, 2012). Indian people, regardless of social hierarchy are
deeply spiritual in nature, and are inclined towards religion for that reason. In
general, trust in religion in rather high, and failures are rationalized on the basis that
events are predetermined by a supreme power (see Banjeree, 2009: 374-5). That
said, India is still a secular state, as the constitution does not afford any particular
religion preferential treatment (Chary, 2009: 26).
Social Structure: Family and Hierarchy
Indian people generally identify with certain groups and define themselves by these
groups, and not their own individual status. These in-groups or „collectives‟ could be
co-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 here
is „a social pattern that consists of individuals who see themselves as an integral part
of one or more collectives or in-groups… It encourages connectedness and mutual
deference or compromise and social interdependence as dominant values creating a
collective identity among individuals‟ (cited in Banjeree, 2008: 373). Therefore, the
1
Over 400 million people
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family 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 the
individual. These deep-rooted personal ties bring with them trust, but also a wealth of
rules, obligations and structures. Conformity is therefore very important. The
patriarch also plays a crucial role as the leader of the family. This reflects a society
that is also deeply hierarchical in nature. Indeed, the tradition of the caste system2
and influences of Hinduism have resulted in a society that is very conscious of social
order 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. These
hierarchies are clearly set out and must be respected to preserve social order
(Banjeree, 2008: 373; also kwintessiantial website, 2012). The wisdom and
experience of old age is respected in Indian Culture. Happiness is another core
value, but materialism is not seen a primary way of achieving contentment
(Banjeree, 2008: 374-5).
Trade Overview
India is now exporting goods at almost twice the level of services exported, and key
exports include high value products such as refined petroleum products, industrial
machinery, automobiles and car parts. Indeed, Chennai in the South has been
dubbed „India‟s Detroit‟ as car manufactures there export small Nissans, Hyundais
and Fords to Africa, Latin America and European countries. Gujarat State in the
West houses many major petroleum refineries, which transform imported crude oil
into diesel and jet fuel for other Asian markets. Over the last ten years, (and with the
aid of government planning) hubs for industrial export have sprouted across the
country. Other Asian countries like China, Korea and Japan began by exporting toys
and clothing products, produced by many, low paid and unskilled workers, and only
later started producing refined products like industrial machinery and cars. India, on
2
Albeit caste based discrimination is now outlawed, and the Constitution affords all citizens equal rights. This
has resulted in the decay of caste barriers, and the government has even set aside a percentage of jobs in
parliament, and educational institutions to those from socially disadvantaged areas. Despite this, caste still plays
an 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).
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the other hand, has gone straight to the latter, by producing capital-intensive
products made by skilled labourers (albeit not many of them). In this vein, and
reminiscent of Germany‟s export production, India aspires to produce a bundle of
industrial goods for the global market- not the traditional model of exports for a
developing country. As one Indian economist notes, „India has moved away from the
textiles story…now, it is engineering goods and chemicals, including
pharmaceuticals.‟ In fact, traditional exports such as agricultural products and textiles
represent less than 20 % of India‟s exports (for full discussion see The New York
Times, 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 at
US$ 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 a
significant rise in the cumulative growth of imports. Imports over the same period
were valued at US$ 391459.42m. This constituted more than a 29 % rise in dollar
terms and a 35 % rise in imports in Rupee terms. Ultimately, there wasa trade deficit
for the period April-January 2011-2012 of roughly US $ 148667.61m, higher than the
US $105895.99m recorded the previous year (Indian Dept of Commerce Press
Release, 2012). The main reason for this deficit is the large volume of crude oil that
is imported for domestic use (The New York Times, 2011).
In recent years India has entered various regional and bilateral trade agreements (or
quasi agreements) with neighbouring countries and is seeking to establish new
agreements with the United States and East Asian Countries. Agreements at
different stages of development include the India-Nepal Trade Treaty; India-Sri
Lanka Free Trade Agreement; Comprehensive Economic Cooperation Agreement
(CECA) with Singapore; Framework Agreements with the Association of Southeast
Asian Nations (ASEAN), Thailand and Chile; Trade Agreements with Bangladesh,
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Bhutan, Sri Lanka, Maldives, China, and South Korea.Beyond that, there are also
preferential trade agreements with Chile, Afghanistan and Mercosur (the latter being
a trading area between Argentina, Brazil, Urguay and Paraguay) (The World Bank
website, 2011). However, India‟s most lucrative trade relationship has been with
European Union countries.
India-EU Trade Relations
Diplomatic relations between the EU and India were established in the 1960s. Yet, it
was not until the 1994 Cooperation Agreement that a legal framework for
cooperation was established, which has resulted in annual EU-India summits since
2000. Central to these summits is an institutional framework to deal with agricultural
and 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 bolster
this partnership, the EU-India Joint Action Plan (JAP) was signed in 2005, which
planned various bilateral activities in the areas of economic and political
development. 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 came
about following a process of economic reforms since the early 1990s. As a result of
these reforms, per capita incomes in India doubled between 1990 and 2005, and this
has 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‟s
imports coming from the EU, 11.9 % from China and 8.9 % from the United Arab
Emirates. What‟s more, 18.8 % of India‟s exports go to the EU, followed by 13.4 % to
the United Arab Emirates, 10.7 % to the US and 7.9 % to China (see Figure 11). In
terms of goods, the EU exported €34.7bn to India in 2010, while imports from India
amounted to €33.2bn. The EU also exported €9.8bn in services to India in the same
3
Conversely, India is ranked 8th on the list of the EU’s key trading partners 2010, compared to 15 th place in
2002 (Europa website, 2012: a).
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year, while service imports from India amounted to €8.1bn. In fact, the accumulated
figure of €17.9bn trade in commercial services is three times the figured of €5.2bn
recorded in 2002. Foreign direct investment to India from EU member states
effectively tripled from €759m in 2003 to €3bn 2010, while Indian investment into the
EU was €0.6bn in 2010. While these figures are promising, India‟s regulatory
environment and trade regime remains rather restrictive. Apart from prolonged and
complex customs procedures, India imposes tariff barriers on imports and various
non-tariff measures such as import licensing, obligatory testing, and quantity limits
on 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) in
terms of „ease of doing business‟ (Europa website, 2010:b).
On February 10th 2012, the 12th India-EU Summit was held in New Delhi. Here, the
Indian Prime Minister encountered talks with the President of the European
Commission and President of the European Council on „bilateral, regional and
multilateral issues of mutual concern with a view to, inter alia, strengthen their
multifaceted bilateral cooperation, coordinate responses to regional issues, and
tackle international challenges including the current financial crisis‟ (Europa website,
2012b). Central to these talks was satisfaction that the India-EU free trade
agreement (officially known as the India-EU Broad based Trade and Investment
Agreement or BTIA) is near completion. The treaty, which has been under
negotiation since 2007, would cover the areas of competition policy, state aid,
nuclear power, renewable energy, government procurement, cross border
investments, intellectual property rights, as well as trade in goods and services. The
EU has forecasted that this ambitious treaty could see bilateral investment increase
by up to 30 %. This is crucial for the Indian government, considering that declining
confidence among investors has lead FDI to fall by more than 35 % in 2011. The
Indian government considers FDI in logistics, infrastructure, and the financial
services industry a central catalyst in domestically driven growth. Indian Minister for
Commerce, Anad Sharma has highlighted that „a trade deal of this magnitude and
ambition will generate sizeable benefits for the GDPs of India and the European
countries. We are near the final agreement on the issue of movement of
professionals as well as trade and services‟ (for discussion see The Telegraph,
2011).
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While this deal is seemingly near a close, negotiations have been stalled by political
controversy, not least over the fact that the new treaty could seriously curtail India‟s
production of inexpensive generic drugs (especially HIV medicine), which is
distributed throughout the developing world.. This element, which appears to protect
European Pharmaceutical giants, has caused consternation amongst opponents of
the treaty (see The Washington Post, Feb, 2012).
PESTLE
In business the role of PESTLE analysis is very important.It is the analysis of the
external macro environment in which a business operates or plans to operate in.
These are the factors which are beyond the control or influence of a
business,PESTLE stands for Political, Economic, Social, Technological,
Environmental and legal.
Political
Environment Economic
Legal Social
Technological
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Political
Political refers to the government policy of the country. For example,the degree of
government intervention in the economy, what goods and servicesdoes a
government 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 enter
the Indian market to acknowledge and understand. India is the biggest democracy in
the World with a population of over 1.2billion. India up until 1947 was under the rule
of the British Commonwealth and thus operates an English common law federal
republic, butit is also important to note that separate personal law codes associated
with 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).
Economic
The economic section on PESTLE includes interest rates, taxation changes,
economic growth, inflation and exchange rates. The increasing economic growth of
India encourages companies like FTT to invest and enter the market “few nations
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have the growth potential that India already enjoys. India holds the promise of a most
successful future…” (Klaus Schwab, 2009)4
India is the second largest growing economy boasting GDP growth rate of 8.5% for
the last 5 years and is expected to grow even further despite the global recession.
Figure 1: Grant Thornton India, 2011
Since 1980 the GDP per capita has more than doubled in India. GDP (purchasing
power parity) in India was estimated at $4.463 trillion in the year 2011 making it the
fourth highest in the world behind the EU, the US and China respectively 5. The GDP-
real growth rate in 2009 was 6.8% increasing to 7.8% in 20116. Foreign direct
investment rose in the fiscal year ended September 2009 to about US$ 10.532
billion.
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 2009
5
CIA Fact Book
6
CIA Fact Book
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19. Group 19 NGM 27/03/2012
Credit 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, 2010
Financial markets
o India sports a robust and stable financial market, which has become a
more liberalized market over time.
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Figure 3: India's 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. That's 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
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21. Group 19 NGM 27/03/2012
Social
Changes in social trends can impact on the demand for firm's products and the
availability and willingness of individuals to work. The social environment also
consists of the literacy rate, customs, values, beliefs, lifestyle, demographic features
and mobility of population. It is importantto note the direction in which the society is
moving and formulate progressive policies according to the changing social scenario.
India is the second most populous nation in the world. As stated above, the
population 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). 8
Of this there is an average literacy rate of 61%, but this figure is skewed as only
47.8% of India‟s female population over the age of 15 can read or write in
comparison to the 73.4% of males who can(CIA Fact Book). While these rates exist
there 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 and
Bangalore.
8
CIA Fact Book
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One notable indicator used to measure a country's quality of life is the Human
Development Index (HDI), which is compiled annually since 1990 by the United
Nations Development Programme (UNDP) in which India is ranked 115th in the
medium human development category in 2001.(India Country Review, 2002)
Technological
New technologies create new products and new processes and help open an
economy 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 new
markets created by technological advances. These new technologies also improve
the way we do business as a result of better technology. Technology can reduce
costs, improve quality and lead to innovation. These developments can benefit
consumers as well as the organisations providing the products. This is a key area for
FTT to market itself with its e-Space solutions asIndia has fast become known as
one 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 report
in 2011 the demand for outsourcing IT operations in India is increasing. In the report
it is estimated that latent demand for information technology services and
outsourcing is increasing from 2012 to 2013(5.683-6.122 million UD dollars). This
growth in IT demand can be contributed to many factors, however it is our belief that
the recent development of both IT and technology in general has enabled India to
establish itself as a world leader in IT and outsourcing services. As salaries in India
tend to be lower in comparison to many countries it has been seen that many major
multinational companies have outsourced some departments to Indian regions. In
the region there is an emphasis on IT and financial services, hence many of these
multinationals have outsourced key departments to India.
The technological factors could play a pivotal role in FTT ‟s entry into the Northern
India market. As FTT supply an e-Space solution for many different industries, FTT
have an opportunity to develop the company and product within the Northern India
market, by taking advantage of the existing IT outsourcing industry that exists within
the region.
9
Albeit online gambling is currently illegal in India it is currently going through a process of legalisations.
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Legal
It is imperative that a company factors in the legal issues or obligations that may
arise when an organisation is seeking to enter an International market such as North
India. Legal refers to the legal environment in which firms operate. FTT must be
aware of these legal issues as the introductions of discrimination and disability
discrimination legislation, and an increase in the minimum wage, has resulted in
significant legal changes that have affected firms' behaviour. New legislation that can
be passed by the government can affect a firm's costs and demand. Examples of
Indian legislation that is specifically aimed at business operations include the Trade
mark Act 1969, Essential Commodities Act 1955, Standards of Weights and
Measures Act 1969 and Consumer Protection Act 1996.
India’s trade policies
-“India has continued to streamline customs procedures and implement trade
facilitation measures” - (www.wto.com).
The above quote from the WTO website illustrates how India has been actively
attempting to facilitate trade and foreign direct investment by minimizing the
procedures involved in customs and excise within India. India can improve itsoffering
to International organisations by continuing to loosen its customs policy.The country
will in turn become more competitive in an International context.
-“India uses trade policy actively, sometimes as an instrument to attain its long-term
goal 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 policy
and legal strategies to foster the prosperous economy that is already in existence.
FTT could capitalise on this approach to International policy when entering into the
North Indian market.
According to the Ernst and Young report (2011) “Doing business in India” India is a
member of the International Labour Organisation. The ILO is a United Nations
agency that is responsible for creating and maintaining decent standards of work for
employees around the world. The ILO brings together Governments, employees and
employers to set out policies with regard to labour laws and policies (www.ILO.org,
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24. Group 19 NGM 27/03/2012
2012). As India is a member of this organisation, India‟s labour laws are in line with
International standards.
India‟s labour laws are similar to many other nations, comprising mainly of acts and
policies regarding trade unions, wages and fair treatment of employees.
Environmental
Environmental factors include the weather and climate change also known as „green‟
issues like pollution and waste. Changes in temperature can impact on many
industries including farming, tourism and insurance. With major climate changes
occurring due to global warming and with greater environmental awareness this
external factor is becoming a significant issue for firms to consider. The growing
desire to protect the environment is having an impact on many industries such as the
travel and transportation industries (for example, more taxes being placed on air
travel and the success of hybrid cars) and the general move towards more
environmentally friendly products and processes is affecting demand patterns and
creating business opportunities. In India we know that many types of environmental
problems mainly centred on pollution, about 60 per cent of rural and 20 per cent of
urban households do not have electricity. Urban environment has deteriorated and
the number of slum dwellers has been increasing. Air, river and water pollution has
adversely affected quality of life of the urban poor.
Currently India faces some environmental issues such as land and forest
degradation in rural areasand over-exploitation of ground water have reached
disturbing levels.This is an important area for FTT to consider as they are heavily
reliant on the region‟s raw materials and that of timber, as cost may be increased
due 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 the
world's geographical area, 1% of the world's forest area, 0.5% of the world's pasture
lands, and 0.08 ha per capita availability of forest as opposed to the world average of
0.8 ha.
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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 Base
Scope of Cost Leadership Differentiation Broad
Competiti
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.)
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26. Group 19 NGM 27/03/2012
ISO 6385 “Properly applied, ergonomics optimises the performance and
effectiveness of the work system including the workers without detriment to their
health, wellbeing or safety”
ISO 11064 “for minimising eye strain, the viewing distance should be 700mm or
greater. Larger viewing distances improve depth of focus.” The critical 700mm
viewing distance can be achieved using the ESPACE solution.
As part of a priority checklist the product can be moulded to the requirements of the
particular consumer, these being for example multifunction or adult education
classrooms, spaces requiring reduced maintenance or increased space or
environments that must be health and safety compliant. Previous projects have
included educational institutions such as NUI Maynooth, for areas of quiet study,
where ergonomics, privacy and workspace are quite important. Video Conferencing
facilities and Security and Defence forces applications have also been addressed.
Health Service projects have been undertaken where privacy and hygiene are a
must. Traditional Retail Fittings, Boardroom fittings, Banking Facilities and Library
fittings have also been used in order to knock down the barrier which is a computer
that inhibits effective communication. FTT also has conducted projects in Home
office and Multifunctional Workspaces, to create space, ergonomics and a functional
environment.
It has beenconcluded that the product has a wide range of industrial applications and
is approaching the sale and design of the product in a value innovated differentiated
way. But how does FTT fit into approaching the demand from the North-Indian
Industry?
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 India
which FTT could possibly have a chunk of (KPMG report). The sign of 8% economic
growth 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 the
region, all seeking for a potential piece of the pie from 500 million or so potential
consumers.The total market value of office furniture in India we would estimate
would be above $8bn, going on the figures provided by KMPG for 2006 and taking
into account inflation and overall economic growth(KPMG report). If FTT even
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27. Group 19 NGM 27/03/2012
managed to gain a fraction of a per cent of the marketspace it could turn out to be
quite 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 with
the growth in the Indian economy and subsequent demand for office space. The
thrust on real estate and office construction is expected to sustain in the near future,
indicating continued growth for the furniture industry ….. it appears the most
attractive, as it is growing rapidly and also offers large volumes. It is estimated that
the demand for office space in India will grow at a CAGR of 20 per cent over the next
3-5 years. Apart from the demand for creation of new office space, the demand for
office furniture is also driven by renovation of existing offices”(KPMG report.)
Looking at businesses that FTT mainly target, these can be classified as
Universities, Hospitals and industry. There are 244 universities in North India, which
account for approximately 43% of all the universities in all of India (See Appendix 1
for regional breakdown.) There are also a significant amount of hospitals in North
India 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% (See
Appendix 2). Not including the presence of other multinationals and registered
businesses across India, it shows there is quite a significant commercial presence in
this marketspace. Looking at the tensions that are on and off between India and
Pakistan, there is quite a significant security and defence presence that FTT could
possibly target. If the business approaches this industry in the correct way there
could be a huge market potential for FTT and their varying range of furniture
products. These figures do not take into account, libraries, banks, second level
institutions and video conference facilities.
As we have seen earlier on there is a wide range of potential competitors that FTT
would have to deal with on entering the marketspace and this would be a factor that
would affect their potential market presence. In a highly industrialised nation, which
is also close to serial producer China, FTT would face intense pressure in the
saturated market space. This may mean that the company would not be able to
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28. Group 19 NGM 27/03/2012
compete on a cost basis and therefore would have significant problems in doing so
in this regard.
However we see that the product has a wide range and span of versatile
applications; the product is quite differentiated in focus and seeks to meet the needs
of a wide range of applications. This is where the company‟s competitive advantage
lies. If this could be performed on a large scale to suit the growing needs of
industries and institutions it would be a favourable move. However, the current size
of their operations limits FTT in this regard; also there is intense competition from
locallow-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 for
well-known brands”(KPMG report.)
If FTT are willing to adapt their products to order, their market attainment could be
huge. Taking into account that a lot of companies are utilizing increased amounts of
tablet and mobile computing solutions, the products could also be adapted in this
regard. This is where the “value innovation” comes from for their products and this
type of strategy is the basis in which they should approach the market space. There
will be added benefits from doing this according to Kim and Maugbourne (1997). If
FTT are willing to brand their products in the marketplace as increasing
sustainability, ergonomics and space, they could potentially have a significant market
impact. Therefore we would advocate a broad differentiation strategy in a niche area
of the market, as a substitute to traditional office furniture. Similar to what they are
doing in the British and Irish Markets at this moment in time.
Market Considerations
In looking at the divide between the two cultures of the Irish and North Indian
Markets, it‟s interesting to notice how compatible these cultures should be
compatible or at least have an understanding of one another in order to do business
with one another. In this regard I find it appropriate to analyse cultures of the two
countries in order to ascertain the benefits and detrimental factors which could lead
to a flow or barriers to trade. It would be obvious to state that there are differences in
cultures between the two markets but there are also similarities seeing that India is a
former colony of the United Kingdom and a member of the commonwealth.
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Hofstede’s Cultural Dimensions: Ireland v India
This is a useful port of call in analysing this topic. It analyses the countries under 5
main headings Power Distance, Individualism, Masculinity/ Femininity, Uncertainty
Avoidance and Long Term Orientation. In correlating these two countries‟ cultures, a
view can be obtained of the idiosyncrasies between doing business and the culture.
It was coined by academic and cultural anthropologist Geert Hofstede and has been
used 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 of
institutions and organisations within a country expect and accept that power is
distributed in equally.”(Hofstede, 12)
India scores a 77, shows a healthy respect for hierarchy and Organizational authority
Structure in society. If we were to look at this in terms of putting a statement towards
their attitude, they look for dependent direction of an authority figure, there seems to
be the indication that power brings privilege and those lower down the power
structure should be subject to lesser rights. Therefore inequalities are prevalent In
his 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 in
exchange for loyalty from employees…..communication is top down and directive in
its 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 is
directed towards eradication of inequalities and we have a more open environment
for the freedom of speech. What does this mean for the product then, well it means
that it could be quite difficult to persuade the more powerful decision makers in India
to buy our product. This is because of either the difficulties in attaining these
individuals and also the fact that there could be a subtle disrespect towards the
USP‟s of the products, that being safety and privacy. These we believe would have
to be counterbalanced with sustainability, due to the massive pollution in India and
also with saving of space in an overcrowded region where space is at a premium.
(Hofstede, 12)Individualism
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“Individualist society‟s people are supposed to look after themselves and their direct
family only. In Collectivist society‟s people belong to „in groups‟ that take care of
them 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 entering
the market and try to become part of their business “families.” This contrasts from
the individualist Irish culture, which scores a 70 on Hofstede‟s scale. We would
therefore conclude that a sense of loyalty and trust be built up in India in order to
match the two cultures. This would be a good platform to compete as well as local
knowhow and FTT ‟s expertise could drive a killer punch in terms of a feasible office
solution in the Indian Office Furniture market.
(Hofstede, 12) Masculinity and Femininity
“A high score (masculine) on this dimension indicates that the society will be driven
by competition, achievement and success, with success being defined by the winner
/ best in field – a value system that starts in school and continues throughout
organisational behaviour….A low score (feminine) on the dimension means that the
dominant values in society are caring for others and quality of life. A feminine society
is one where quality of life is the sign of success and standing out from the crowd is
not admirable. The fundamental issue here is what motivates people, wanting to be
the best (masculine) or liking what you do (feminine).”
So how is competition viewed in both these countries, both countries have masculine
traits thus highlighting that there is a healthy climate for businesses competing in this
view. In competing with Indian businesses FTT should be prepared to fight tooth and
nail with other Indian businesses competing in the market. India already has a
healthy manufacturing culture, and possibly pairing up with another business in India
with the competencies to fight in the Indian Marketplace could be a good option. Due
to the product being bespoke and job focused we would find it difficult to perceive
that 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 that
the future can never be known: should we try to control the future or just let it
happen? This ambiguity brings with it anxiety and different cultures have learnt to
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deal with this anxiety in different ways. The extent to which the members of a culture
feel threatened by ambiguous or unknown situations and have created beliefs and
institutions 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 doing
things, however is this culture respected in India? India has a similar score however
its ambiguous here whether or not it‟s a healthy respect for imperfection or a drive for
a new look on conventional ideas. It could be in this regard that both ends of the
scale are looked upon here. Tolerance for the unexpected is high but there also is a
tolerance for a new look and “adjusting” conventional Ideas. Therefore FTT ‟s
products could be taken up in the marketspace however would they be made to the
high standards that they demand in the Irish and English markets, if they were
produced in India. More than likely no, and initially this could demand a quite
significant amount of oversight in the Indian market by FTT in the early phase of
entering the market.
(Hofstede, 12) Long Term Orientation
“the extent to which a society shows a pragmatic future-oriented perspective rather
than 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. This
may be a good thing if FTT are after a long term market presence, however this
could be detrimental if their products are not focused towards smaller and new
integrated technologies. Looking at the Irish Culture it scores 43 which is more short
term focused and looks for quick results. Therefore FTT would have to be patient in
India when looking towards the future, and adapt to their long term focus. The big
question here is will desktop pc solutions become obsolete before smaller and
portable technologies take over in the market.
So summing up on Hofstede‟s Cultural Dimensions what can we take from Indian
Culture in terms of crafting a strategy for the company entering the Indian
marketspace? To start a healthy respect for authority should be shown by the
company and every chance to meet with a high authority individual should be
respected as a great opportunity, and therefore the product should be moulded, and
therefore the product sale negotiations should be moulded to their views on certain
issues and not challenged. A sense of loyalty and trust should be built up in the
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32. Group 19 NGM 27/03/2012
North Indian marketspace for a long term business relationship. The business should
be prepared to compete and a culture of high standards would be an appropriate
selling point for the business in the North Indian Market.
Pricing and Procurement Process
As previously stated the market for office furniture and contract furniture in India is
quite price sensitive, and with no pricing model apparent in FTT ‟s case they
obviously provide bespoke and contracted solutions which can be quite costly to
provide, however being able to offer bespoke solutions to the market may make up
for this. We would therefore advocate a similar contractual/project model be taken up
in India, as this also allows for the important element of trust to be built up between
the 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 margin
on them. The pricing model is transparent and one that instils trust between the
businesses that they are conducting trade with. The pricing will be have to be
matched to the market in India, which has a considerably smaller GDP than Ireland
and cost plus pricing would be a perfect tool for this, therefore the business is
matching 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 if
doing this, costs could be matched from both sides in funding each project, and
margins on each project be split through the middle. As manufacturing costs will be
smaller in India due to efficiencies and cheaper costs of raw materials and
production, however this may also impact in the quality of the products, especially
with the culture in India which accepts imperfections in products. Exporting is
definitely not an option as the costs alone would be enough to drive FTT out of the
market, especially with India‟s industrial strength at this moment in time and China‟s
dominance of the manufacturing Industry; we would therefore suggest that the
products for the Indian market be produced on site in India.
Market Entry Strategies
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There are three primary legal ways that an entrepreneur can reduce the risk
associated with a new business venture. These are licensing, franchising and joint
ventures. Licencing is most suitable when a firm has valuable technical
knowledge/patents but does not have the resources to enter a foreign market.
Through licencing, the firm can introduce its product to new markets and make
profits on the licence‟s royalties, while avoiding the risks of setting up in an unknown
market on its own. The licensee bears the brunt of the costs. Therefore, licencing is
conducive to firms that possess specialist knowledge, and many pharmaceutical and
software companies follow this path. Franchising on the other hand is better suited
to international expansion of retailing enterprises and services (for example
Starbucks/McDonalds). Similar to licencing, the franchisee bears most of the costs
and risk. However, maintain the brand‟s quality and image can present problems,
and product offerings may need to change to accommodate local tastes (for
discussion see Thompson et al, 2010: 216). Joint ventures refer to a business
venture that is jointly owned, and involves more than one organization. Joint
ventures are particularly popular with international manufacturing firms, who instead
of risking direct inward investment, partner with indigenous producers to share the
risk (Worthington & Britton, 2009: 263). In short, a joint venture allows a firm to
access information and take advantage of a local firm‟s strengths. Yet, the motives
for 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 and
make it easier for a foreign business to establish relationships with suppliers and
distributors in the local market (which is particularly helpful in an emerging economy
like India). In that vein, the partnership may secure the supply of raw materials and
other supplies, especially if the venture is established in a country that is resource
rich. This in turn, makes it easier for the firm to offer a competitive price for its
product on the international market. What‟s more, a joint venture is a fantastic way of
leveraging the valuable knowledge, production processes, R&D, skilled labour, and
even the capital/financial resources that another organization possesses. Depending
on the firm‟s location, the joint venture often provides direct access to the target
market, which results in quick growth of market share. There may also be attractive
tax 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, and
losses may be incurred in the beginning. Moreover, management of the partnership
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34. Group 19 NGM 27/03/2012
may be wrought with problems for language or cultural reasons (See Campbell
&Netzer, 2009: 24-5; also figure 12). India does not have specific legislation to
govern the establishment, conduct or termination of joint ventures. Nonetheless, the
agreements that comprise the partnership should comply with the general principles
and 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, affected
by a legally binding agreement. In effect, this type of arrangement is usually entered
into for a limited period, and for a certain purpose. Unincorporated ventures in India
may be either „contract‟ or „partnership‟. Contract ventures involve the parties
entering a contract, which outlines their respective rights and liabilities. It further
outlines information such as the intended capital contribution of the parties, how they
will distribute profits, and the contract‟s tenure (Campbell &Netzer, 2009: 184-5). A
partnership joint venture is subject to the Indian Partnership Act 1932, and may take
the form of an express or implied agreement. It may be advantageous to register the
partnership with local authorities (albeit this is not mandatory), as registration may
afford certain benefits and exemptions, as well as making the partners eligible to
enforce their rights in the agreement through the court‟s system. Beyond that, in
India, joint ventures are also classified according to the specific strategy they will
pursue, such as a production joint venture, marketing joint venture or buying
collaboration (Campbell &Netzer, 2009: 185-6).
Joint ventures frequently experience problems the longer they go on. Common
issues involve the partners having different „long term‟ goals for the venture, with
different horizons and expectations in mind. Partners often fear that their strategic
flexibility is being lost, and this often augments issues in the daily running of the
operation. There may also be a „perceived‟ loss of control over capital invested, and
information as well as the problem of opportunities forgone (Harrigan, 2003: 38).
Therefore, it is clear that collaboration, substantive engagement and goal alignment
is central to a successful joint venture. In addition, free riding issues or moral hazard
is significantly reduced in all-equity joint ventures, and as a result, the vast majority
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of joint ventures in the US and Europe witness 50-50 equity allocations (or a 50 plus
one share) (see Hauswald, &Hege 2006:3).
Given the nature of FTT ‟s furniture business, it is advisable to first establish an
informal strategic alliance with a local partner, to test run the suitability of FTT ‟s
products in this new market. This method is a popular alternative to a formal joint
venture and is dubbed „piggybacking‟. Here, „a rider firm utilizes the market channels
of the carrier firm instead of internalizing or developing its ownchannels. In this
context, the rider relies on the carrier to sell its products and the carrier relies on the
rider toprovide the new products‟ (Terpstra and Chwo-Ming, 2001: 54). Effectively,
the rider firm takes advantage of the carrier firm‟s local knowledge and distribution
networks, while the carrier firm benefits by having more products to add to its
portfolio. By its nature, this method of internalization is relatively quick and cost
effective. However, a clear (and arguably major) disadvantage with this approach is
that the carrier firm does not gain any of the market insights that it would under a
joint venture arrangement.Therefore, it is expected that having established itself with
a local partner, and assuming the alliance is successful, FTT will have gained
sufficient insight to pursue a joint venture in the region.
A note on targeting businesses for joint ventures
When it comes to international joint ventures, the main issues/factors that determine
partner selection are the following: trust, communication, past association, control
and culture. Trust emerges specifically in the phase of searching for and selecting a
partner. In fact, trust between the top management teams has been identified as the
foremost deciding factor in partner selection for various developed country firms.
Communication is equally important. Both parties must communicate their objectives
and their commitment to the partnership before the venture is formed. Transparency
in communication must be maintained at all times, to ensure both firms are on an
equal footing. Past association refers to any pre-existing relationship between the
firm and potential partners. „Favourable‟ past associations can have a significant
impact on the partner selection process. Control refers to those aspects of the
venture that each partner seeks to govern, depending on their own core
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36. Group 19 NGM 27/03/2012
competencies and skill set. Addressing these skills and competencies is central to
finding the right partner. Beyond that, national and corporate culture is very
important, and foreign firms benefit most from local partners in a country has a
distinct culture. At the same time, cultural differences can cause issues when
managing international joint ventures (for discussion see Islam et al, 2011: 26-7).
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37. Group 19 NGM 27/03/2012
Porter’s 5 Forces
The model was used to assess to environment within the industry. This will highlight
the key dynamic factors evident in North India critical to the success of the
enterprise.
Threat of new entrants
Government Policy:
The following options are available to foreigners establishing companies in
India.
(The Department of Industrial Policy & Promotion. 2012)
(I) Indian Company:
A foreign company can commence operations in India by incorporating a company
under the Companies Act, 1956 through:
Joint Ventures.
Wholly Owned Subsidiaries.
Foreign equity in such Indian companies can be up to 100% depending on the
requirements of the investor, subject to equity caps in respect of the area of activities
under 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:
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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.
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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 may
subcontract the work out to domestic manufacturing companies.
Automatic Route:
The concern about the stagnant and low share of the manufacturing sector in India„s
GDP necessitated a dedicated policy for the sector with a view to accelerated
development, inclusive growth and provision of gainful employment. The DIPP„s
vision to increase the share of manufacturing in GDP from 16% to 25% was
endorsed 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 is
now allowed in all sectors, including the services sector, except a few sectors where
the existing and notified sectorial policy does not permit FDI beyond a ceiling.
Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy and
Promotion, Government of India provides a single window service for entrepreneurial
assistance, Investor facilitation and monitoring implementation of the projects. May
need pre government approval for FDI Automatic Route for certain sectors/industries
however the existing products provided and model used means this will not apply to
FTT .
The foreign Investment Implementation Authority is a dedicated initiative to assist
and act in a facilitative capacity to potential investors overcoming operational
difficulties. This service is provided in many languages including, Spanish, German,
Korean, Italian and Japanese. The manufacturing sector and related industries are
heavily targeted as a producer of domestic economic growth.
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40. Group 19 NGM 27/03/2012
Proprietary Learning Curve:
Given FTT have direct competition currently operating in North India assumed to
have amassed superior knowledge of the office furniture market in North India the
company may face a challenge in escalating to levels of operating efficiency
exhibited by their in place competitors. However there is no company also offering
the service of retrofitting existing furniture, a possible lead from which they can
assume market share. The Indian government policies have indicated a desire to
provide opportunities for uneducated and unskilled citizens to up-skill. With special
attention to SME‟s (such as FTT ).The SME sector contributes close 45% to the
manufacturing output, 40% of the total exports, and offers employment opportunities
both for self-employment and jobs, across diverse geographies. The Indian
Government wish to sustain and increase this growth of the manufacturing sector as
also the national economy by policy interventions in areas like manufacturing
management, including accelerated adoption of Information technology; skill
development; access to capital; marketing; procedural simplification and governance
reform (Passad. 2011).
The willingness of the Indian Government to assist in skill development lends well to
the introduction of an ergonomic retrofitting service. However this capability is also
available to other companies therefore cannot be seen as a critical competitive
advantage.
Complex Tax Regulations:
The taxation system in India is very complicated (Deloitte, 2009) with products
typically exposed to two taxes firstly from the Central Government and secondly
within respective State Governments. A Central Sales tax is levied on goods
transported across state boundaries. This has encouraged companies to establish
warehouses in each state to avoid a cross state shipping tax. This must be factored
when considering the North Indian region which consists of five states ring-fenced
within The Northern Zonal Council. Due to its excessive bureaucracy, India has
ranked low in the World Bank's Ease of Doing Business reports and the country
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41. Group 19 NGM 27/03/2012
ranked 133rd out of 183 economies in the 2010 report (Euromonitor, 2010). Different
states also impose varying VAT rates however there are measures that ease this
burden; SEZ‟s (Special Economic Zone) established to encourage investment in
certain areas. SEZ‟s in India have been established to attract FDI an initiative the
Indian government have heavily embraced in relatively recent years. Historically
India heralded a lack in trust of outside investors imposing strict regulations, likely
stemming centuries of colonial rule in the subcontinent where European nations
occupied and plundered the resource wealthy landscape (Daniels. J. 2001 ). This
has changed in recent years with subsequent Governments recognising the
development potential associated with relaxing trade laws and tariffs on foreign
companies. SEZ‟s in this vein are an engine for economic growth supported by
quality infrastructure complemented by an attractive fiscal package, both at the
Centre and the State level, with the minimum possible regulations (Special Economic
Zones in India). North India has been slower to gain advantage from this policy due
to higher land prices deterring investors, however this has been improved in recent
years 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. Chandigarh
The significance from an FTT and their industry perspective is a growing middle
class, increased education levels, increased building development; business‟,
schools, universities, offices, libraries etc. Therefore a greater demand for office
furniture accompanied with a growing economy with the resources to invest in
ergonomic (or other value added) office furniture. There remains also the significant
benefit of a less complex and costly tax system.
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42. Group 19 NGM 27/03/2012
Logistics & Supply Chain:
Establishing a cost and operational effective logistical network is quite a challenge in
North India. This is attributed to a compliment of problems. It is a largely fragmented
and unorganised industry compromising a high number of independent providers
with regional permits and limited fleet sizes. This division carries a large percentage
of 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 described
as slow unreliable and generally lacking in quality, resulting in a higher cost for
commodities. However there have been glimmers of improvement as India moves
away from rail networks as the predominant mode of goods transport and road
infrastructure is improving under the National Highway Authority of Indian the
National Highways Development Project working towards the development of an
Intelligent Transportation System (ITS) which will make transport services on the
highways (like reducing congestion, advance signalling, medical assistance, accident
management, etc.) efficient and automating many processes like toll collection etc.
(Chandra, 2007). This improvement as of yet is still years from satisfactory therefore
in this regard local knowledge of a relatively peculiar transport network is vital in
ensuring an efficient distribution of commodities. Transport is not the only
problematic component of the logistical supply chain in India, warehousing and order
processing are also in dire need for improvement which will in turn reduce overall
operational costs (ciilogistics.com). This aspect too is highly fragmented with little
standardisation, although improvements have been found with the advent of the IT
and telecommunications industry soaring in India it still remains a logistical issue
enhancing the need for extensive local knowledge. A graphical representation and
breakdown of different cost types is presented in Figure 5.
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43. Group 19 NGM 27/03/2012
Figure 5
Determinants of Rivalry
Brand Identity:
As already outlined and discussed there are already a number manufacturers operating in
this market including office furniture and specifically office furniture. All identified are
indigenous manufacturers and therefore this begs whether competing with an Indian brand is
disadvantageous in attracting Indian consumers. Research (Kinra, 2005) stated the opposite
in fact can be true as Foreign brands were perceived in this study, to be more reliable and
safe by Indian consumers than their domestic country brands. This perception is especially
true if a consumer is based their decision from a „quality‟ or „technology‟ aspect. Branding is
particularly important in catering to the office segment as they typically expect the furniture to
compliment or enhance their own brand (India Brand & Equity Foundation. 2007). Given the
proposed 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 a
warning that extensive marketing will be critical to successfully infiltrating the growing service
sector. This assumption is also bolstered with the fact that India was the largest furniture
importer in the world in 2004-05, with a 17 per cent share in the furniture imports worldwide.
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44. Group 19 NGM 27/03/2012
A 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 furniture
penetrating the North Indian with a foreign product receives much encouragement. The
furniture sector is largely unorganised in North India although to a lesser extent in respect to
commercial/office furniture specifically, however the market remains highly fragmented
lending to a low barrier to entry.
Access to Capital:
There remains a wide range of financial options for business‟ and individuals in India
due to a growing diverse financial sector (Euromonitor, 2010). Given a satisfactory
credit history in the business required capital can be relatively easily accessed.
Absolute Cost Advantage:
The business will most likely suffer cost disadvantage from manufacturers selling
inferior or less value added products and having in place a vast supply network with
experience in what can be a difficult logistic exercise to economise with scale.
Competing predominantly on price would not be sensible or advisable. With effective
marketing to the established appreciation for „quality‟ products among the middle and
upper urban classes arises (Neelam. K. 2006), the focus must be on innovative high
quality differentiation especially when targeting business‟ or institutions.
Market Size and Opportunity:
A KPMG report in 2006 (India Brand & Equity Foundation. 2007) estimated the
Indian furniture industry to be valued at US$ 7,922 million wood furniture accounts
for 11% (US$ 152 million).predominantly concentrated within the nation‟s top 600
cities. In perspective North India contains 16 of the top 100 Indian cities; these cities
alone would constitute a sizeable market populating 23million people. Office furniture
occupies the largest segment of the furniture market at 65% with office and contract
furniture occupying the rest, FTT would most likely fall within the office furniture
segment currently standing at 20% which translates to a valuation of US$ 1,584.4
million of total Indian office furniture market.
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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.
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46. Group 19 NGM 27/03/2012
Figure 6
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47. Group 19 NGM 27/03/2012
III. 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