Changing Spending Habits of Indians - Essay Example

Running Head: INTERNATIONAL BUSINESS International Business Submitted by: XXXXXX Number: XXXXXXX XXXXXXX XXXXXXX University of XXXXXXX Date of Submission: XX – XX – 2010 Introduction: With the high levels of globalization and the constantly improving technology across the world, companies from every part of the world wish to expand to different international locations. According to Stephen Gill, globalization is a method of reducing the costs in terms of transaction and Trans – border movements of, capital as well as goods and also the factors of production and goods (The Globalization Website, 2009). However Guy Brainbant has described globalization to be a process which does not only includes the world trade, but also includes a number of other factors like the development of advanced means of communication, financial markets becoming internationalized, higher and growing importance to multinational companies, higher mobility of people, population migration, and mobility of other factors like goods, capital, data and also ideas. He also mentions that globalization is also a mode for mobility of infections, pollution and also diseases (Robert, Gordon, 1996). This paper aims at discussing two developing economies and comparing the two to analyze which of the two markets is relatively better for the expansion of Australian companies. First each of these markets will be analyzed separately following which the markets will be compared. Austrade: The company in focus here for the study is Austrade, which provides assistance to all the different businesses across the country for international trade and investment. The company is an investment development agency which deals with practical advice and market intelligence and also provides ongoing support to the Australian businesses. The main aim of the company is to provide advice on international trade and investments to the companies both nationally as well as internationally. As the company’s website explains, ‘At the national level we share global commercial insights with other areas of government. At the industry/sector level, we work closely with business, industry and governments. And at the individual enterprise level we deliver services, programs and initiatives to help Australian businesses and attract foreign investment’ (Austrade, 2010).  The company specifically deals with providing assistance to the Australian companies for both the imports and exports and helps in proper foreign direct investment in Australia. The aim of the company is to reduce the barriers of trade and to help in the administration of the export market development grants which provided financial assistance to the companies in the Australia that deal with exporting. The organization also works on delivering the passport and other government services to the oversea locations and deals with all advice regarding the trade and investment policies of Australia. Indian Market: Globalization has lead the county to witness a number of positive foreign direct investments and also lead the country to be one of the few with considerable global economic growth in South East Asia. Globalization however, has had a number of negative impacts on the country as well (Shiva, 2004). The country one end has a number of five star hotels and a number of rich people with all the facilities in life while another huge chunk of the country is faced with days and even months of hunger, lack of clothes or even shelter. Similarly, India has gained a lot from globalization while on the other hand the country has even lost a lot due to globalization. The negative aspects of globalization has been on the field of agriculture, distribution of money, increased unemployment and poverty, suicide rate in the country have also seen a high level of growth in the country. Based on all the aspects that have been discussed it is clear that the effects of globalization has been as negative on the country as much as it has been positive. The Indian market is known to be one of the fastest developing and improving markets with intense competition for several international companies. The Indian markets are open to a lot of international investments. Considering the PESTLE analysis of the company, it is clear that the companies will find it simpler to introduce their businesses in India as there are relatively much lower levels of political and economic levels of restrictions and regulations for the introduction of newer companies. The investment required by companies is relatively lower in the case of India as one Australian Dollar converts to as much as forty two Indian Rupees (XE Currency Calculator, 2010). Considering the social factors of the country, it is clear that the markets are developing and so is the population with the higher levels of inclination to improved living and life style and a willingness to spend (George, 2009). The economic condition of the country has also seen intense growth and the need for innovative products and services are well received within the country. A report on the changing spending habits of Indians has shown that the Indian choices have been changing to a great extent post globalization and a few examples of this are clearly seen in the recent past, where the use of telephones has increased by almost 515% since 1999 – 2000 (George, 2009). Also with the higher level of internet availability and internet literacy both the urban and rural India have now undertaken the changing cultures and vision of the Modern India (George, 2009). India has grown to become a part of the top largest economies in the world and also has the third largest GDP in Asia. The country has a strong and effective emerging market and the Indian markets are known for the high prospects of growth and earning for almost all types of businesses. Although the ability to provided unlimited opportunities for the numerous overseas businesses, India has not been provided with the same levels of enthusiasm and attention that has been given to China. Investing in the Indian markets will permit the companies to deal with a wider range of people. Also in India, it is seen that technology can be a rather empowering at times but often can also be very frustrating. The country has a number of opportunities which can be used by the company to penetrate into the markets effectively. Chinese Market: The Chinese markets are another very effective and exciting market for foreign investments. The Chinese markets are very vast and as known the population of the country is the highest in the world. Investing in China needs to be considered more carefully as the exchange rate of one Australian Dollar to China Yuan Renminbi (CNY) translates to a six CNY (XE Currency Calculator 1, 2010). The cost of investing is quite high in this country. Also with the country is in the developmental stages and hence the laws relating the entrance of foreign companies is quite restraining at present. The foreign direct investment in the country led to increase in the inflow of foreign capital in 1980s and also during the 1990s. Considering the country and the foreign direct investments in the country, it is clear that the policies generally tend to have three stages “gradual and limited opening, active promoting through preferential treatment, and promoting FDI in accordance with domestic industrial objectives. These changes in policy priorities inevitably affected the pattern of FDI inflow in China” (Fung, Iizaka, & Tong, 2002). The Chinese markets is also known for the high population levels and to a great extent makes excellent markets for almost any product and also is very useful in the development of new plants for manufacturing as the labor is relatively cheaper in the country, owing to the high population of China. The computer related technology is becoming one a very important part of the society, and the usage of these technologies has increased a lot over the past few years. With the introduction of Internet there has been a great improvement in the overall lives of many. Internet has infiltrated almost every aspect of life, making it a necessity rather than a luxury. The internet has to a great extent provided a strong ability for global marketing. As discussed, the technological developments have been immense over the years in all sectors. The technological developments over the past few years have been immense in almost every field. These developments have been clearly noted a transformation in the communication, transport and travel industries and has also led these industries towards a converging harmony. This in simpler terms means that the companies are able to now take on a different approach (Farrell, 2000). Instead of providing customized items, companies have now led to developing more standardized products to meet the global standards. The focus is to provide products with higher technology, advanced, reliable, affordable prices and also functional. Comparison of the Countries: Both India as well as China is developing markets and are both working towards providing the companies worldwide with excellent investment opportunities. However it is important to compare the two countries to get an insight into the benefits of investing in the markets. This will help develop the recommendations for Austrade more effectively and efficiently. Firstly, it is important to note that China has a relatively lower cost in terms of labor, however the overall costs of the production or performance is not always as cheap (Frauenheim, 2005). Secondly, considering the exchange rates of the two companies, it is clear that investing in India is relatively much cheaper than in China and there is a vast difference between the two countries in terms of the exchange rates. As discussed earlier, the AUD to Yuan (China) is almost 1: 6, while AUD to Rupee (India) is almost about 41 (XE Currency Calculator 1, 2010, XE Currency Calculator, 2010). Hence it would be easier and lesser investment in India. Also, as seen in the research conducted by Fung et.al, ‘China has been the world largest FDI recipient among developing countries since early 1990s. In recent years, FDI to China accounts for 1/4 to 1/3 of total FDI inflow to developing countries. Foreign investment has become an important source for China’s investment in fixed assets. Its share in total annual investment in fixed assets grew from 3.8% in 1981 to its peak level of 12% in 1996. After the Asian financial crisis in 1997, FDI inflow fell and its contribution to fixed assets investment has also decreased to about 9% and 7% in 1998 and 1999, respectively’ (Fung, Iizaka, & Tong, 2002). Recommendations to Austrade: As a recommendation, it would be best for Austrade to invest in the Indian markets as it is clear from the discussion above that the Indian markets tend to be more effective. It is essential to note that for success in the Indian markets, it is essential to make correct estimation of the potential of the country (Panagariya, 2008). Any kind of underestimation of the complexity or even over estimation of the probabilities can lead to failure of the company in the country. It is also essential that the company considers all the factors that are related to the country and all uncertainties that are present in the Indian system (Panagariya, 2008). As in the case of any country, there is a need to build a strong back up and contingency plan and extensive research before stepping into the markets. The country is relatively better for long term investments rather than for the short term profit expectations. Before moving into the country, it is also important to note that there are a few aspects which might be negative however these should in no way stop the company from investing the country. The country has a very diverse market and is a home to almost 17 different languages with almost 6 major religions and an ethnic diversity as wide as Europe (Government of India - Ministry of Finance, 2010). This also leads to a wider and more diverse set of tastes and preferences among the different sections of customers as well. The most important step is therefore to learn more about the country and the overall markets before making the dip into the markets (Government of India - Ministry of Finance, 2010). India on a whole is a market where entering in would be easy if the research and understanding of the markets is intense. It is also important to note that the country is currently on the way to globalization, expansion and liberalization and hence it is necessary to study the policies of the country before taking the plunge into the markets. Australian companies can gain all the research and market information from the various research agencies that are present in the country and it is important to note that these companies also tend to perform all the necessary research, and assist with the development of partners and also help with the financing and complete all paperwork as well (Government of India - Ministry of Finance, 2010). Also as in the case of any business, the Austrade needs to encourage the Australian countries to perform the basic research in terms of the feasibility of the projects and the need for the businesses to access their financial positions while entering into the international markets. The Indian markets is comparatively new to the globalization and liberalization hence there is a higher chance for the companies to grow and develop and be a part of the policy setting in the country (Government of India - Ministry of Finance, 2010). Also, the Chinese markets have a number of local companies that are already present and hence in a few cases these companies tend to get an edge over the international companies. Conclusions: In conclusion, as Austrade is an authoritative organization by itself, the company can use this to recommend the companies the various steps that relate to introduction of the companies to international locations. Also the company could provide the customers with checklists for expanding the businesses to the different locations. It is essential to also note that all companies have different needs and target markets and hence if Austrade is to provide a recommendation for which country to invest in, it is important that the companies study the markets and check for their target audiences in the markets accordingly. For instance, a company manufacturing race cars or dealing with race cars will be able to operate better in China than in India due to the obvious reasons of road type and the driving style in the country (Jukens, 2008). Hence to some extent the choice is also dependent on Austrade to provide recommendations to the companies based on the industry that it relates. This will help ensure that the companies choose the right direction for the business and do not wastefully invest in countries where the product or service will not work. References Austrade. (2010). About Us. Retrieved April 10, 2010, from Who we are: http://www.austrade.gov.au/About-Austrade/default.aspx Frauenheim, E. (2005, February 17). China not cheaper than India? Retrieved April 10, 2010, from http://news.cnet.com/8301-10784_3-5581300-7.html Fung, K., Iizaka, H., & Tong, S. (2002). Foreign Direct Investment in China: Policy, Trend and Impact . China’s Economy in the 21st Century . George, S. (2009, November 30). Changing Spending Habits Of Indians. Retrieved April 6, 2010, from South Asian Connections: http://www.southasianconnection.com/blogs/1533/Changing-Spending-Habits-Of-Indians.html Government of India - Ministry of Finance. (2010). Investment in India - Investing in India - Venturing into the Indian Market. Retrieved April 11, 2010, from http://www.finmin.nic.in/foreign_investment/fii/index.html Jukens, C. (2008, October 13). Driving In India: Can You Do It? Retrieved April 7, 2010, from http://helloji.wordpress.com/2008/10/13/driving-in-india-can-you-do-it/ Panagariya, A. (2008). India: The Emerging Giant. Oxford University Press. RobertC.Feenstra, Gordon H. Hanson, (1996), ‘Globalization, Outsourcing, and Wage Inequality’, American Economic Association Papers and Proceedings, 86(2), 240-245 XE Currency Calculator 1. (2010). Universal Currency Converter™ Results . Retrieved April 8, 2010, from http://www.xe.com/ucc/convert.cgi?Amount=1&From=AUD&To=CNY&image.x=26&image.y=9&image=Submit XE Currency Calculator. (2010). Universal Currency Converter™ Results . Retrieved April 7, 2010, from http://www.xe.com/ucc/convert.cgi?Amount=1&From=AUD&To=INR&image.x=53&image.y=16&image=Submit Read More