Rectorseal in India - Research Paper Example

Rectorseal in India Table of Contents Rectorseal in India 1 Table of Contents 1 Introduction 2 Background of Organization 3 Rationale behind International Expansion 4 Alternative International Expansion Strategies 8 Conclusions 10 References 12 Introduction The present dynamics of the business world has rendered it more competitive with players engaged in a cut throat competition with each other to grab a share of the market. The advent of globalization has made this competition even more intense with organizations moving beyond geographic and political boundaries to reach out to new markets with considerable potential. This has even further accentuated the competition in the market. The advent of free trade and removal of trade barriers has further made international expansion one of the most commonly used strategies by firms across the world. In addition to this the saturation of the traditional markets of Western Europe and USA as well as the massive growth of nations like India and China has ensured that business organizations make a beeline for these lucrative markets. International expansion is also more favored by business organizations as it helps in improving the brand image of organizations that helps in long term sustainability in the turbulent and competitive business markets. It also helps create diversification in the organization as multiple customer segments can be targeted. Organizations are able to gain economies of scale and scope by virtue of expanded operations making international expansion a very important strategic aspect of business organizations in the current business environment. Also the aspect of lower operating costs in overseas markets like India and China act as added impetus to businesses houses to expand their operations internationally into highly populated regions like China and India where talented labor is available at comparatively cheaper rates than western nations where the costs are much higher. This explains the growth of manufacturing and outsourcing activities in nations like China and India respectively. The present study would focus upon the international expansion strategy of Rectorseal in the Indian markets. The choice of Indian market assumes significance considering the fact that it is one of the fastest growing economies that offers a huge pool of talented labor force at cheap rates and also that the market has a good domestic demand for the company’s products and services. Background of Organization Rectorseal is a Houston USA based corporation established in the year 1937 and deals with the manufacture of chemical based products that are intended for use to various trading companies like automobiles and other manufacturing industry segments. The company operates in multiple global markets including USA, Brazil, China, France and Germany. The company sells its products through a network of wholesalers based across these international markets to serve a wide and diversified target market audience. The company has a diversified product portfolio with the primary products being chemical sealants plastic based pipe cement, thread based sealants, other forms of sealants. Other products also include chemicals that are used in cleaners apart from a host of customized specialty products that are manufactured through a blend of innovation and technology as well as customer demands that are manufactured with high level of expertise and quality to meet the full satisfaction from the clients (Rectorseal, 2012). Financially the company is quite sound with the company earning about 9571 thousand US dollars and generating a total business revenue of around 10207500 US dollars in the year ended 31st March 2010 showing a significant increase over its value from the previous years (Bloomberg Businessweek, 2012). The following sections would try to analyze the aspect and the possible reason for investing capital to enter the Indian market. The choice of market assumes significance for Rectorseal considering the growing influence and high growth rate of manufacturing activities and related industries in the nation. Rationale behind International Expansion International expansion is the buzzword of business organizations in the present competitive environment. The choice of India as a choice for Rectorseal’s international expansion assumes considerable significance considering the magnanimous growth of its economy over the last few years. The chemical industry in India has evolved continuously from being a manufacturer of basic chemical products to advanced research and innovations. The Indian chemical industry is dubbed to be the fourth largest in the world and the third largest in Asia. The industry contributes approximately 3 percent towards the GDP of the nation with a present valuation running into 35 billion US dollars. The industry segment is accountable for about 9.3 percent of the total value of goods exported from the nation as of 2010. The industry is expected to grow with a Compounded Annual Growth rate of 18 percent offering lucrative opportunities to business organizations (IBEF, 2010, p.5). In addition to this India also offers considerable opportunities to players like Rectorseal as there is huge increase in demand for plastic based production. According to a report published by IBEF, the per capita consumption of plastic based products is expected to double from its figures in 2010. This shows considerable demand for chemical products like phenol and other chemicals offering significant opportunities to players like Rectorseal. Secondly, there is a huge diversified manufacturing industries set up in the nation including products like industrial solvents and dies being projected to generate a demand of about 2.6 billion US dollars in value till the year 2020. Thirdly, the automobile sector in India is also experiencing growth with a significant rise in demand due to increase in disposable income levels of individuals due to increased FDI and other job opportunities. Major automobile manufacturing units have either set up their units in the nation or are planning to do so. In addition the products can also be exported to nearby South East Asian nations where there is also a significant demand. The growth of automobile industry is expected to boost the demand for chemical solvents by about 5 percent every year showing considerable opportunities for international market players with a good brand image to venture into the Indian consumer market. Finally the government is also playing an extensive and proactive role in the development of the chemical industries. The government of India is planning to spend about 33 billion US dollars in chemical industries in the form of tax rebates and other attractive schemes to lure investors into the nation. The setting up of dedicated Special Economic Zones for the industry segment can be viewed as one of these policies that tends to drive the demand for chemical based products in the Indian market. Also India has a huge coastline and is also the gateway to various South East Asian nations where the products of Rectorseal can be exported. India also enjoys close proximity to the Middle East nations that are one of the main consumers of the products of Rectorseal. Finally recent government policies of de licensing and enabling of 100 percent FDI in the industry sector is also a good indicative of the remarkable position of India as a potential market for international expansion by organizations like Rectorseal. Another significant aspect of the Indian market is the fact that the industry is currently fragmented with the presence of small and large players. However the industry of late has started showing signs of innovations and improvements with signs of increased investment is research and development. The industry also accounts for a mammoth share of all the foreign direct investment that has taken place in the nation. In addition to these aspects the Indian market also offers considerable advantage in the form of a good demand for the products in the domestic market. The domestic demand alone counts for one tenth of the total average demand of the products globally. The consumption is stated to grow by about 3.9 percent on an annual basis since the year 2003. The growing aspect of research and development in the industry segment is also highlighted from the fact that there are approximately 200 national labs with about 1300 units dedicated solely towards the aspect of research and development. India is also becoming a highly favored destination for transnational as well as multinational firms for manufacturing. This is predominately because of the fact that India offers a steady flow of talented labor force at very cheap rates making it an attractive destination for business organizations seeking to develop products at lower costs. There are also signs of increased consolidation in the industry segment that has led to generation of economies of scale and scope within the industry. The market is however highly competitive with the presence of large number small and large market players. The top players in the Indian chemical industry include a wide list that is led by Tata Chemicals Limited which is the largest in the nation. It is followed by United Phosphorous Limited, Nirma, Gujarat Heavy Chemicals, Gujarat Alkalis’ and Chemicals and Solaris Chemicals that are the major manufacturers of chemical based products in the Indian market. Apart from these top domestic players the market is also characterized by the presence of companies like BASF, Dow, Bayer, EI du pont, Evonik, Lanxess and Wacker Chemie, Mitsubishi Chemicals among the major international manufacturers of chemicals and chemical based products. The government has of late encouraged the chemical industry manufactures by setting up of Special Economic Zones as well as PCPIR (Petroleum Chemicals and Petrochemicals Investment Regions). These are special zones earmarked by the government is specific areas to help make a zone of the industry. The facilities include tax rebates, better rail, road and port connectivity as well as good storage facilities that can help generates a favorable environment for the companies engaged in the chemical manufacturing industry. Four such zones have already become functional in the nation in the states of West Bengal, Gujarat, Andhra Pradesh and Orissa. All these steps by the government have yielded considerable results with the nation attracting FDI inflows of 362 million US dollars in the year 2009 alone and many more in the pipeline (IBEF, 2010, p.4-21). As regards to policy framework the Government of India has removed almost all restrictions such as licensing except in case of highly sensitive and harmful chemicals. A uniform 16 percent excise duty is applied on the chemical industry and a maximum of 7.5 percent customs duty is applied on the products of the chemical industry. Certain other driver of demand includes the increased awareness of citizens and government about use of use of purified water. This involves uses of certain chemicals that are also manufactured by Rectorseal. In addition to this increased focus towards use of recycling has also accentuated the demand for certain chemicals that constitute the primary products of Rectorseal. Furthermore the demand for specialized chemical products is also on the rise with specialized dyes and other products showing an increase in demand over the last few years. This demand is also expected to grow at more formidable rates in the future years showing considerable opportunities for companies Rectorseal to establish their presence in the Indian market (IBEF, 2010, p.21-25). All these aspects show that there is considerable potential for Rectorseal to establish itself in the market. Along with the benefits showed in the section above international expansion would also add to the brand image of the organization. It would also add to the learning curve in the organization that is very essential towards generation of innovation in the organization towards attaining long term sustainability. Alternative International Expansion Strategies In addition to India being one of the most lucrative offshore markets for Rectorseal, there are also certain other markets that can offer considerable potential to the company in terms of growth and opportunities. These include nations like Brazil, Russia and Australia that also offer considerable potential to the business prospects of the organization. Brazil is touted as another fast track developing economy along with India and China. The country has of late started a reform policy that has led to generation of investor confidence resulting in FDI flows and a spurt in the economy. After its independence from Portugal the country was under military dictatorship however presently there is a democratic system in place with the government pursuing policies that tend to create a favorable business environment for investment. It has also adopted free trade and liberalization policies and also offers various sops to foreign investors. Economically the country has made good strides by registering a GDP of 2.284 trillion US dollars as of 2011 growing at 2.8 percent annually. The country has a good reserve of natural resources and also has a considerable domestic demand for chemical industry products. It can also serve as the hub for the company in the South American markets due to its strategic location. Sociologically Brazil has a huge population that is the fifth largest in the globe that offers significant opportunities to firms like Rectorseal for gaining a good talent force at comparatively cheaper rates. The country has a well defined and impartial judiciary that ensures the interests of business organizations. However the nation does not accept the jurisdictions of the International court of Justice (CIA, 2012). In addition to Brazilian market Russia can also be one of the potential markets for international expansion. Politically Russia is a stable country with a democratic government. The nation also follows polies that tend to support foreign investment. Apart from this Russia also offers a pool of resources both in form of human capital as well as raw materials required by Rectorseal in its chemical manufacturing business. Economically the GDP of the nation stands at 2.373 trillion US dollars that is registering a growth of 4.3 percent as of the year 2011. The country has huge deposits of natural resources required in the chemical industry apart from offering a huge domestic market that can help generate a sustainable edge for Rectorseal in the future. Sociologically Russia has a huge population and a good culture having its roots in Europe that makes it another good location for Rectorseal to invest in the nation. Technologically Russia is one of the most advanced regions of the world with giant strides made by the nation in space technology and other industries that can add to the learning curve of the company and also offer a significant pool of talented resources (CIA-a, 2012). However the only drawback with this market is the intense level of competition that if not handled in a proper manner can generate threats to Rectorseal. Australia is another vibrant market that can be a potential region for investment by Rectorseal. Australia has a stable democratically elected government that encourages foreign investment. Also the nation has abundant natural resources and a good domestic market that can offer significant advantage to Rectorseal. Economically Australia has registered a GDP growth rate of 1.8 percent as of 2011 for GDP of 1.507 trillion US dollars (CIA-b, 2012). Australia has a favorable socio economic scenario with the nation having a good pool of talented resources that can offer good potential for Rectorseal. Technologically the nation has made good strides with a large number of technological innovations having their roots in the nation. Conclusions The analysis of the international expansion of Rectorseal shows the importance of expanding overseas considering the rapidly changing business dynamics of the modern world. International expansion apart from generating cost benefits to the organization also allows access to new markets offering market diversification that is one of the most essential business strategies that are undertaken by the organizations operating across the globe. International expansion would also help generate cost advantages by creation of economies of scale and scope that offers a dual advantage of reduced cost and greater efficiency. International expansion also helps in creating multi cultural aspect in the organization with operations being spanning across multiple nations that have diverse culture and sentiments. The choice of India as a strategic location also offers considerable opportunities both in terms of getting access to a good market with considerable domestic demand as well as access to skilled labor at comparatively lower rates. India also has shown tremendous growth over the recent years making it one of the best possible places to invest capital. Additional drivers for the company to invest in India includes the strategic location of the nation through which Rectorseal can supply products to other South Asian and Middle East nations that also have a good demand for the products manufactured by Rectorseal. Favorable government policies including tax rebates and other indirect benefits would act as a good opportunity for the company to invest its capital into India. Investing in India would allow access to a good market that is very important in the current business environment where the traditional markets of Europe and USA are getting highly saturated. A committed and long term strategy along with good control measures would help generate sustainable competitive advantage in the long run. References Bloomberg Businessweek. (2012). The RectorSeal Corporation. Retrieved February 11, 2012 from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=33674. CIA. (2012). The World Factbook. Retrieved February 22, 2012 from https://www.cia.gov/library/publications/the-world-factbook/geos/br.html. CIA-a. (2012). The World Factbook. Retrieved February 22, 2012 from https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html. CIA-b. (2012). The World Factbook. Retrieved February 22, 2012 from https://www.cia.gov/library/publications/the-world-factbook/geos/as.html. IBEF. (2010). Chemicals. Retrieved February 13, 2012 from http://www.ibef.org/download/Chemicals_270111.pdf. Rectorseal. (2012). Our Company. Retrieved February 11, 2012 from http://www.rectorseal.com/our-company.php. Read More