Global & International Business Contexts in India - Assignment Example

? Global & International Business Contexts Inserts His/Her Inserts Grade Inserts (08, January, 2012) Introduction India is the 2nd largest country of the world according to population. Around 1.2 billion people live in India which means that more than 1/6th of the world lives in India. The country is developing economically at a very good pace. Important sectors include software industry, textile, telecommunications etc. The country has a capitalist system in place and a liberalized economy. The consumer market of India is significant and it is expected to grow even further. All this points out to the fact that India is a place companies should look at because of its immense potential. In this paper a country specific analysis of India will be conducted using extended Porter’s National Diamond Model. The aim is to evaluate Indian soft drink industry in order to formulate a feasibility plan before setting up operations in the country. In the next section Porter’s National Diamond model will be evaluated and its advantages and disadvantages will be identified. Task A: Contextual Analysis India is surely the land of potential because of its growing population therefore it is economically beneficial to evaluate its national market. Porter’s National Diamond framework allows country specific analysis so that a firm may decide to expand into a suited country. The four pillars of the model are factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry (Grant, 1991). Using these four factors PND model aims to evaluate national competitiveness and to study a firm’s ability to operate in a national market. It is therefore a very relevant tool for country specific analysis. Below each of the four factors of the model will be explained with respect to India. Factor Conditions Factor conditions entail those factors in a country that can be of advantage to the firm. Basically all the conditions that a firm can exploit in an economy are included in factor conditions. India has an abundance of labor. Given the high population of the country it can be safely assumed that the firm will not face any labor shortages. 42 percent of the population is living below the poverty line in India according World Bank (2005). This points to the fact that labor is not only in abundance in the country but it is also very cheap. The labor force is both skilled and unskilled in the country so the firm can benefit a lot with regards to labor in their business. Another advantage of working in India is that there is not a language barrier like in China. Official language of India is Hindi but English is widely understood and used in the business (Kapur & Ramamurti, 2001). This is why the firm will find no language barrier to deal with. It is located near the Arabian Sea which will be beneficial when setting up business in the country. The country has a developed technological base with its software industry growing rapidly. This can also give the firms a huge boost when operating in India. Complicated technology will be at the disposal of the firm in India. Demand Conditions The demand conditions factors in the local market conditions of a particular country. A strong and demanding domestic market can have a positive effect on technological growth and innovation in the market. The economy of India is mainly export oriented therefore international markets are also an important part of the country’s economy. Due to the sophistication of international markets, local industries have also developed in order to meet the demand of foreign buyers. This trend has brought many advantages to the local firms. They have enhanced their production and capabilities by innovating on a regular basis as a result of complex foreign markets. The effect of international markets has also impacted the local markets because they have also developed as a result. Domestic markets are now demanding higher quality of products and services. This is a sign that local markets are also becoming sophisticated and developed. Also in India there is a market for expensive goods and for cheap goods. The divide between the upper and lower classes is very high (Kapur & Ramamurti, 2001). The country also enjoys a strong middle class that can positively impact the operations of the company. Strategy, Structure, and Rivalry Management structure prevalent in the country is also important for the economy. Strict tall structures facilitate engineering like in Germany and flat structures like in Denmark can bolster design and biochemistry industry (Business Mate, 2012). Rivalry in the domestic market can improve efficiency of the firms operating in the country. There is no major barrier to entry with regards to regulation in India therefore a lot of firms are entering in the market (Kapur & Ramamurti, 2001). This means that rivalry is strong in the local markets because of limited barriers to entry. As discussed above India is a liberalized economy therefore government does not intervene in the markets on a regular basis. This is the reason behind no regulatory barriers of entry in the country. The management structure in India is strictly hierarchical and every person is expected to have a position (World Business Culture, 2012). This is why majority of outsourcing is being done in India where there is no need for innovation and instructions are to be followed by the book. Outsourcing is also because of the cheap labor force of India but it is successful in the country because of the management structure prevalent in the economy. Related and Supporting Industries In India suppliers have developed because of the international pressure therefore related and supporting industries are strong and competitive. Industries of Software and textile are developed greatly therefore related and supporting industries are also strong. Chip and the hardware industry is also growing at a great speed in the country. Technological boom and growth of software industry has given India a major boost and now the country is home to various research institutions. This is again because of the cheap labor available in the country and lack of regulatory restrictions. Supporting industries exist in the innovative fields like software. Educational sector is also developing and young students are getting degrees. The booming middle class is the reason behind the growth of educational sector. The communication infrastructure of the country is also improving rapidly which is a good sign for all industries (Kapur & Ramamurti, 2001). PEST Analysis: India PEST analysis is another tool that can be used to analyze the business environment of the country. It includes political factors, economic factors, social, legal, and technological factors of a particular economy. Political Factors India is considered the biggest democracy of the world. The country is not very developed therefore issues like corruption are prevalent in government offices (Transparency International, 2011). One good thing about India is that its political environment is fairly stable and there is normally no turmoil or uncertainty in the political arena. This is why foreign businesses are looking up to India and it is used by most foreign companies as an outsourcing nation. Government of India is constantly trying to fight poverty but still the gap between the rich and the poor is significant. The living conditions of the lower classes have not improved and health facilities are usually not available to everyone. Economic Factors India is one of the fastest growing economies of the world and its growth can be compared to China in many respects. It is expected that in future India, alongside with China will become a dominant player in the world economy and will surpass USA. Currently Indian economy is valued at $1.884 trillion being the 9th biggest economy of the world (IMF, 2011). The purchasing power of the consumers is also increasing in the country. It is estimated that by 2015 the purchasing power of consumers of India will reach new heights of $6 trillion which will be only third to USA and China (The Times of India, 2011). Social Factors The population of India is a big problem for the country as it is growing at a great pace with no end in sight. Increase in population does not equal the rate of development and therefore poverty increases in the country. Crimes are also prevalent in India due to extreme poverty. Health issues also exist because people do not have access to medical facilities. The religion of majority of the population is Hinduism, but other religions like Islam, Sikhism, and Buddhism are also practiced. Alcohol is consumed in the country and religion does not prohibit drinking of alcohol. Also India can be considered as a fairly modern country. Technological Factors Technologically the country is not very far behind from the developed world. In some industries like software and telecommunications technology is highly developed. In the beverages industry technology is expected to grow in future due to the increase in purchasing power of Indian consumers and also due to the increasing population of the country. Soft drinks have a high demand in India and non-alcoholic beverages are regularly used in the country. This trend is expected to continue and therefore many multinational firms are trying to enter the market. Legal Factors The legal environment of India is not very strict. The corruption in the country and growing number of residents has made a shortage of courts and legal system is not equipped to handle with the increasing population. Indian government is trying to attract more and more foreign direct investment in the country and therefore laws are relaxed for companies who want to start their production in the country. Due to cheap labor and no stern labor laws India attracts companies selling labor intensive products like shoes and garments. Key Consideration Factors There are some important considerations that the company should keep in mind before starting business in India. Collectivist Culture India has a largely collectivist culture with people living together in close family units (Sinha & Kumar, 2004). But at the same time people also have a strong individualist self and have goals and personal aspirations as well. (2004).This is an important fact that must be kept in mind because we see shades of individualism as well in Indian culture. Company should keep in mind this important fact before entering in the soft drink industry. Marketing strategy in India will have to be different and since our company is from Europe it may experience a cultural shock. People live in close units as a whole but things are on the verge of changing. Majority of the population of the country is composed of youth and they are the most avid consumers of soft drinks and beverages. Young people are inspired by western culture and this is the reason behind the dual culture of India. Competition in the Beverages Industry The competition in the beverages industry is growing every day. Because consumption of alcohol is legal most of the beverage industry is falling in hands of alcoholic drinks. What is left is grabbed by Coca Cola India and Pepsi. The two companies enjoy major share of Indian markets. According to estimates Pepsi and Coca Cola enjoys around 95 percent of the share of Indian soft drink market (Economic Times, 2005). There are also other regional brands operating in the market. This shows how difficult it is to enter the market that is dominated by a few major players. There are also barriers to entry because the two giants advertise heavily therefore no new company can penetrate the market. The competition is intense already therefore the company should take everything into account before entering the soft drink industry. Corruption in Governmental Institutions This is another important fact that must be kept in mind before starting operations in India. Lower cost of labor and cheap production facilities can make India desirable but corruption is a serious issue. It can also help the new company as it will not have to strictly abide by all the laws but at the same time funds will be needed to approve an extension of the company or for any permission. Company will have no prior knowledge of how much money will spend in bribes to local officials and therefore it is also a risk for the new entering company. Recommendation From the above country analysis we have devised a list of recommendation for the soft drink company that is planning to start operations in the country. The company should now immediately set up its manufacturing plant in India. At first the company should try to import the drinks to India to see the demand in the country. A test drive is important because soft drink industry in India is highly saturated and there are many players who are trying to enter the market. With the given barriers to entry it is extremely risky to start operations directly in the country. At first all the concentrate should be imported and only the packaging should be done in India. After analyzing the capacity of growth in the market manufacturing plant should be set. It is also advised to use the local film industry to market the product initially. The film industry of India is extremely famous and has great viewership. This is why marketing campaigns should in corporate starts from the film industry. Also cricket is famous in India therefore cricket stars should also be used as brand ambassadors. There is no need to import high quality of technology to the country for manufacturing. India has got cheap labor and it should be used to lower costs. There is no need for automation because then the company will not be in a position to exploit the cheap labor of the country. Advance technology is not required for operating in the country. There will be a cultural difference that the firm will experience. European culture is exactly opposite of the Indian culture therefore the company should hire locals in large number to remove any cultural shock. Also it is recommended to target the youth of India which is the largest consumer of soft drinks. This section of the population is also inspired by the western culture so it will be easy for the firm to attract them. Before starting operations it is important to take government permission. Some concession should also be taken from the Indian government because the firm will be providing employment to the locals of India. Some tax rebates must be taken in return because Indian government wants foreign direct investment. Conclusion The market of soft drink is saturated but still there is potential in the market and therefore many firms are trying to enter India. The growing population of India is a major boost for firms and so is the fact that the purchasing power of residents of the country is increasing. The company should enter in the market but the entry should be conscious. Small steps should be taken first like importing the soft drink to India before starting local production. For local set up Indian national should be hired so that the cultural gap can be bridged. Task B: Critical Evaluation of the PND Model The use of Porter’s National Diamond Model is to analyze competitiveness of a country with respect to the international markets. The model is also used by firms who are planning to enter into a particular country for country analysis. The model gives description of all the major elements of an economy that can have an impact on the firm. Porter’s National Diamond can be used as a simple country analysis tool by the firm. It can help decide as firm whether a particular country is the right place to start operations or not. There are many advantages of the Porter’s National Diamond. The best thing about the model is that it takes into account both the microeconomic and macroeconomic aspects into account. Demand conditions and factor conditions give information about macroeconomic dimension of the country. Structure, firm rivalry and related and supported industries give microeconomic level information regarding the economy. This makes the model extremely affective. Also the model takes into account major elements that can impact the firm like consumer market and factors of production. Without this information no firm can decide whether to start operations in a particular country or not. Factor conditions also include information about the raw materials available in the India. The disadvantage of the model is that it is quite vague. The model can serve only as a basic tool for country analysis. After that a firm must look into complex tools for evaluation of a country. The models just list basic factors that can provide only limited information about the country. Demand conditions and factor conditions only tell superficially about the markets and resources of the country. There is a lot of information other than that which is needed for a proper country analysis. There is also no mention of multinational activity in a particular country. The presence of multinational companies tells a lot about the policies of the government. But this information is not given in the model. Multinationals can often built barriers to entry like they have done in the Indian soft drink market. But the model ignores this important fact and gives no attention to multinational activity in a particular country. The role of government is also not discussed in the diamond model of Porter. Government can play a major role in the economy of a country but this model has under stated the role of government. Government policies can be a deciding factor for a new entrant firm but this is not present in the model. There is also no discussion of culture in the model. Culture is the most important factor in determining feasibility of a business because cultural differences can have adverse effect on the business. This was a major problem that arises in application of diamond model of Porter in the international business management. Also there religion and other social factors are not discussed in the model which is important information. Social factors can influence the business like anything and therefore they should be included in the model. Bibliography Corruption Perception Index 2010—India continues to be Corrupt. 2011. Transparency International. Accessed on January 07, 2012 Fizzical Facts: Coke claims 60% mkt share in India. 2005. The Economic Times. Accessed on January 07, 2012 from http://articles.economictimes.indiatimes.com/2005-08-05/news/27508131_1_coca-cola-india-sprite-market-share Grant, R. 1991. Porter's Competitive Advantage of Nations: An Assessment. Strategic Management Journal, 12:535-48 India. 2011. International Monetary Fund. Accessed on January 07, 2012 from http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/weorept.aspx?sy=2009&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br=1&c=534&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr1.x=88&pr1.y=9 Indian Business Structure. 2012. World Business Culture Website. Accessed on January 07, 2012 from http://www.worldbusinessculture.com/Indian-Business-Structures.html India's purchasing power to be 3rd largest in 2015. 2011. The Times of India. Accessed on January 07, 2012 from http://articles.timesofindia.indiatimes.com/2011-04-22/vadodara/29462642_1_sheth-development-trillion-dollars Kapur, D. & Ramamurti, R. 2001. India’s emerging competitive advantage in services. Academy of Management Executive, 15(2): 20-33 New Global Poverty Estimates: What it means for India. 2005. World Bank. Accessed on January 07, 2012 from http://www.worldbank.org.in/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/INDIAEXTN/0,,contentMDK:21880725~pagePK:141137~piPK:141127~theSitePK:295584,00.html Sinha, J. & Kumar, R. 2004. Methodology for Understanding Indian Culture. The Copenhagen Journal of Asian Studies, 19: 89-104 What is Michael Porter's Diamond Model? 2009. Business Mate Organization. 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