India Brand Equity Foundation - Assignment Example

India Brand Equity Foundation Introduction Background India is located in Asia and is considered as a regional power in terms of its industrialization and political influence in the Asian Peninsula. India is the tenth industrialized country of the world and has a population of over 1 billion people, the second largest population next only to China. India has the fourth largest economy in the world based on purchasing power parity and has a large skilled and educated manpower base. (National Information Center, 2005). With a consistent growth rate of over 9% per year a 9.2% growth in 2007 and 9.6% in 2006, (National Information Center, 2005) India has the 3rd largest market growth rate and 2nd biggest market in the world. (International Business Center, 2008). The country has been showing a tremendous potential as for investment and large amounts of FDI has flown into the country in the past 10 years. (India Brand Equity Foundation, 2008). Indian retail sector is going through a revolution with big corporate, both indigenous and international, are moving into to establish supermarkets, departmental stores, hypermarkets and huge shopping malls. The retain sector has been growing at 8.3 % during the 2003- 2008 period with booming retail sales during that time. (National Information Center, 2005). The retail sector has been expanding due to growing middle class’s changing attitudes towards shopping and consumer culture that is penetrating the country due to the influx of new jobs brought about by the MNCs and change in lifestyle brought about by the new-found prosperity. (India Brand Equity Foundation, 2008). India has a large population, and most of its citizens are young and fall in the earning section of the society. This provides a ready customer base as well as an employee base for those organizations that want to enter the Indian market via retail outlets. The year 2008 has been marked by a worldwide economic crisis affecting the capital markets and consumer purchase behavior, and India too has seen its share of stock market downturns and slowing of economic growth as well as increase in inflation rate. However, the current trend in the Indian economy is not hailed as a doom situation by scholars and economists alike, who feel that the Indian economy is going a market correction and things will move ahead in a normal manner in the very near future. The Indian economy rides robustly with the support of the structural as well as financial, legal and regulatory reforms that were introduced as early as the 1991. PEST analysis A PEST analysis or a Political-Legal Economic Social and Technological analysis, is a framework of analyzing the environment in which a firm already operates, or in which it hopes to expand to. (Porter, 1985). It is an exhaustive analysis of the Political, Economic, Social and Technological Environment of the targeted market. In addition to these four parameters, a more exhaustive analysis can be undertaken by including the environmental and legal factors within the political ones. As the PEST analysis deals with the macro-environment, some factors that are assessed while conducting PEST include government regulations and legal issues like labor laws, environmental restrictions, trade and tariff barriers, and political stability. Economic factors that are included comprise of growth rate in terms of GDP, interest rates and inflation, while the social factors include an assessment of population growth rate, demographics, and attitudes of the people towards the product. (Aguilar, 2006). A PEST analysis assess the macro conditions of the business environment and explores the opportunities as well as risks that are evident in a particular environment. It is however, used only as a first step in conducting an overall evaluation of a region. The PEST analysis is able to only indicate if a particular business environment is lucrative and attractive enough that further investigations should be carried out. In addition to the PEST analysis, micro level analysis of the market, consumer behavior, infrastructure, taxation and labor laws – the ground level business climate needs to be assesses in order to decide upon a possible investment in the region. The following pages will contain an exhaustive analysis of the country India in terms of its political-legal, social and technological environment in order to arrive at the country’s attractiveness as a market for franchising the Australian coffee retail chain. Environmental Analysis: Opportunities and Risks Involved in Opening a Coffee Retail Chan in India Political-Legal Environment Opportunities India is a working democracy, and the largest one in the world, (The World Fact book – India, 2008) and this makes negotiation and working with the Indian government in some ways easier and in some ways tougher. It is easier to deal with the government in a democracy as there is a legitimacy and credibility attached with the government’s behavior, and abrupt reactions like closing down the foreign business or making new arbitrary laws that may hurt the international business, do not occur. The country has political stability, with an independent judicial and executive system and hence provides a safe and secure environment to the investors and the business that operate from within the country. The introduction of the reform system has led to the diminishing of the influence and interference of bureaucratic controlling bodies like the Coffee Board of India that used to regulate the coffee trade prior to the liberalization. As a result of this, exporting agricultural and food products to India has been relatively easier. India has opened up 51 per cent Foreign Direct Investment (FDI) in solo brand retail outlets (India Brand Equity Foundation, 2008) and as a result of this it is easier to operate within the country without having to deal with a local dominant partner or contracts that are restrictive. Risks India is a vast country and though it has a strong central government, its different state governments have their own powers regarding trade. This may at times lead to delays due to conflicts of interest between the state governments and the central government of India. The state governments, who are more focused on the regional development, may not view a foreign company as beneficial, while the central government may see it as a source of FDI and a positive sign of India’s growth. This is further highlighted by the fact that the size of Indian bureaucracy so large that getting things done officially leads to a lot of avoidable delays. There is a lot of red tape and bureaucratic paperwork involved and proposals may take lot of time to actually come to the table. The country also occupies a high rank on the index of corruption (Corruption Perception Index, 2008) which again can prove to be a stumbling block for the International business. The Indian labor market is still not highly developed and a lot of employment falls under the un-organized sector. This may make the availability of the labor easy, though the management and payment issues may need to be dealt with sensitively. India has been known for regional and at times religious conflicts that have turned violent. In addition, of late terrorism has also taken roots within the country and market analysis points out to a growing fear among the Indian masses about spending times in market-places and shopping malls, adversely affecting the business. The country is also marred by regional politics and political agitations especially perpetrated by the Marxist parties who largely oppose the process of liberalization and want greater regulations to be put in place to allow foreign players in the Indian domestic market. (The Economist, 2008 ). In addition, there is also a lobby of the Indian masses, largely fuelled by the hardliner Hindu organizations within India who staunchly oppose the influence of Western culture and have low tolerance for the presence of foreign brands within India. These groups are however small in number and are the government is able to curb their influence to a great extent. Another possible cause of concern for doing business in India could be the high tax rates that its government demands from foreign companies operating on its soil. The corporate tax rate levied on foreign corporate is approximately 40%. However, in order to align itself with the globalization trends in other countries, the government has initiated a reform process in its tax laws as well. Under this process, there are several discounts, and exemptions that a foreign organization intending to open its stores in India can avail of. As a result of these concessions, the government of India claims that the actual or the net tax rate is much lower than the stated 40 %. Economic Environment Opportunities India has shown an average GDP (gross domestic product) growth of 6% during the last ten years and made rapid strides in terms of increasing the per capita income of a large section of its people. India being the fourth largest economy (Government of India, 2005) and having a large upper middle class that has considerable disposable income is an advantage for any International marketer as he can work on a customer base that has the money to spend. In addition, India had initiated a process of deregulation of its economy and introduced various reforms as early as the 1991, and this has given the country an edge over several other emerging markets that are only now beginning the reform process. India, is therefore in a better position to provide incentives and infrastructural and procedural support to international business desirous of marketing their products in India. India’s economic liberalization, especially its marking down of the import tariffs, has made the Indian market highly competitive. India is listed at the top in the AT Kearney's annual Global Retail Development Index (A.T. Kearney, 2008), and it is considered as the 5th largest retail investment destination and is expected to grow to US$ 427 billion by 2010 and US$ 637 billion by 2015. It has the largest number of retail outlets, around 12 million in the world, and 5 million out of this cater for the food and beverages sale. (India Brand Equity Foundation, 2008). Though organized retail is a lucrative phenomenon that is gaining space in the urban India, there is a tremendous scope in the country for tapping the semi-urban areas like small cities and towns and even the rural areas. These areas are where the maximum number of Indians live in and they are not much exposed to the concept of organized retailing and the mall culture. Retail franchising, is a good opportunity that can be tapped into in order to make a foray into the non-urban India. It is expected that investment through franchising in tier 2 and tier 3 towns and in the rural India will grow up to become double in the next two years itself. (India Brand Equity Foundation, 2008). India also has a vast pool of educated youth who are well-versed in English language along with the regional languages. The available skilled labor is also of low cost and this provides a great opportunity to an International business in terms of recruitment local personnel and inducting them into the home culture. India is well connected with the world in terms of its International airports and sea ports and hence conducting trade with India is smother in terms of transportation from outside. Risks India is itself one of the producers of coffee and has a share of 4% of the world production. It exports over 70 % of all its produce, thus reflecting upon the low demand of coffee within its own boundaries. (Radhakrishnan, 2004). One of the major impacts of liberalization was that a number of multi-nationals rushed in to participate in the retail boom of India. In the past 17 years of the reform, India already has a several international coffee chains operating in its markets. Other Players in the market include the UK-based coffee shop chain Costa Coffee, US-based coffee store chain Barnie's, Cafe Coffee Day and Indian retail giant Barista. (PTI, 2006). In addition, India still has a rigid labor and land market that make acquisition of property and labor difficult. There is also the government’s presence and influence in the financial sector where repatriation of funds could be regulated. Additionally, the country has severe infrastructural bottlenecks within the country, including rail and road transport. Social Environment Opportunities India has a large population, mostly in the age group of 25-35 years (CIA Factboo-India, 2008). Research has shown that coffee is largely consumed by the urban population of India, and by those falling in the upper middle class and upper classes of the society. Coffee is mostly taken up in homes as opposed to from cafes, and café visits are restricted to the young and the upper middle class people. (Radhakrishnan, 2004) India has a large section of newly rich and upper middle class people who frequent malls and lie to dine and drink out. This provides a great opportunity for the market of coffees in the café’s as the research shows that there is a potential of enticing the young and the rich customers to drink coffee at the cafés. In India, coffee consumers are largely located in the Southern regions (Radhakrishnan, 2004), that leaves the highly populated North as an open territory to explore and convert to coffee drinking. Additionally, India has long summer months starting from April to September and during these months cold drinks become the preferred beverages. This provides an opportunity to market cold coffee through the retail outlets in India. Coffee consumption is largely associated with the youth in the Indian media and it is also represented as a lifestyle trend. This means that coffee drinking is now considered as a fun thing that young Indians enjoy when they go out with friends or even family. This trend spells good for the retail coffee chains who can locate themselves in areas frequented by these sections of the Indian society. The boom in the income of the middle class also brought about a surge in the number of cars that are owned per household. More and more Indians, especially in the urban areas, now posses cars and are highly mobile when it comes to going out to dine or shop. This trend indicates that if the people are offered a quality product, they do not mind commuting the long distances to buy it. This means that if the coffee retail outlet is able to establish itself based on some unique advantage – either taste, brand, country of origin etc. – then it will be in a position to command a large customer base. Risks Coffee consumption in India has not grown much between the past decade 1991- 2000, while in the preceding 50 years it has just grown by 2.14%. The per capita consumption has not increased noticeably even when the population has grown at a large rate. (Radhakrishnan, 2004). This trend is also contributed by relatively higher retail prices of coffee in comparison to other drinks like tea and local made hot drinks like Khahava, flavored hot milk, and cold drinks like buttermilk and carbonated beverages etc. Tea is however the most widely used beverage among the Indians, and India is the world’s largest producer of tea. Tea as a preferential drink of the people can pose a threat to the salability of coffee. India is a country that displays income disparity to large extent. As such, there are pockets of rich and urbanized areas as well as poor and marginalized areas. This means that anyone trying to sell a product to the upper middle class, like coffee, may face additional problem of choosing appropriate location for their outlets. Technological Environment Opportunities Technology is one of the most important factors that derive economic development and ultimately affect the attractiveness of the country as an investment destination. India has an appropriate technological environment for the establishment and running of any world-class business operations facility. It has a vast telecommunications network and a large scale penetration of computers and availability of a huge pool of computer literates. There is also the availability of energy and power supply, especially in the urban regions that are largely the target of coffee chain outlets. The above factors makes India an attractive country to invest in as not only it shows a great promise in terms of enhancing infrastructure and business facilities, it already has some very well-developed and technologically advanced areas like its metros Delhi, Kolkata, Hyderabad, Chennai, Mumbai and Pune to name a few. Additionally, the Indian customers are seeing a new wave of technology as the banking sector has modernized and embraced e-banking. The people are now able to conduct purchases and transactions over the internet and use ATM cards for getting ready cash wherever and whenever needed. The infiltration of credit cards has further enhanced the impulsive buying behavior for the customers. Risk India has made rapid strides in terms of technological enhancement and it has one of the best research and development personnel in the world working on its space and civil defense program. However, the country still faces problems like power failures and at times tele-communications breakdown due to natural disasters or technical problems. In addition, the use of e-banking, credit and debit form of ready cash, and automobiles are very much concentrated in only urban pockets of India. Large sections of smaller towns and rural areas do not have access to much technological breakthrough and may not open to the idea of giving up their traditional lifestyles. Recommendations It is recommended that India should be kept as a potential market for opening the Australian coffee Chain and should be further evaluated in terms of the micro-economic factors relevant for selling coffee. The above recommendation is made on the basis of the results of the PEST analysis of India that evaluated its macro-economic business environment in terms of the opportunities and the risks that the country offered to foreign franchises. India has a vast population that provides a potential data base for a beverage company. Its population is mostly young and it has a growing middle class that has an increasing purchasing power. Though coffee is not among the favorite household beverages of the country, recently coffee drinking has been associated in India with young and upward economically mobile. This again provides a ready market for a coffee seller who can target the young and professional Indians who are in the race to acquire a trendy and westernized lifestyle. Indian cities have also seen the establishment of international offices and call centers of oversees business that work around the clock. The employees who work in these places, mostly youth and affluent in terms of disposable income, are can be targeted by choosing appropriate locations. In addition to the attractiveness of the market, India could also be a suitable choice of destination for the Australian coffee chain as the Indian government has also shown its determination and commitment to promote foreign investment both indirect as well as direct. The Government of India offers various tax incentives and infrastructural support to the foreign companies wishing to do business in India. The Indian retail sector is booming on the consumers enthusiasm to buy and own product and services. There are a few words of caution that need to be added to the above recommendation. India is basically a tea-drinking nation, and great efforts may be required to convert the common people to drinking coffee. However, by proper targeting the different sections of the society, this problem can be resolved further. Secondly, there is a certain element of disfavor against the foreign organizations, especially in some regions of India. This again should be taken into account while finalizing suitable locations for the outlets. As a final word, it can be said that India offers a great investment environment, a considerable infrastructural support, and a lucrative and a very large customer base for the Australian coffee retail chain to tap into. References 1. National Information Center. 2005. India At A Glance. Government of India. Available at http://india.gov.in/knowindia/india_at_a_glance.php Accessed on November 9, 2008. 2. International Business Center. 2008 Market Potential Index for Emerging Markets – 2008. Michigan State University Available at http://globaledge.msu.edu/resourceDesk/mpi/index.asp?year=2008&sort=1#mpiGrid Accessed on November 9, 2008. 3. India Brand Equity Foundation. 2008. Indian Economy Overview. Ministry of Commerce & Industry, Government of India. Available at: http://www.ibef.org/artdispview.aspx?art_id=20686&cat_id=140&in=36 Accessed on 8 November 9, 2008. 4. Porter M. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press 5. Aguilar, F. 2006. Scanning the Business Environment. New York: Macmillan 6. India Brand Equity Foundation. 2008. Retail. Ministry of Commerce & Industry, Government of India. Available at: http://www.ibef.org/artdispview.aspx?art_id=18150&cat_id=376&in=63 Accessed on 8 November 9, 2008. 7. The World Fact book – India, 2008. Central Intelligence Agency Factbook- 2008. https://www.cia.gov/library/publications/the-world-factbook/print/in.html Accessed on 8 November 9, 2008. 8. 2008 Corruption Perception Index. Transparency International Available at Retrieved from http://www.transparency.org/news_room/in_focus/2008/cpi2008/cpi_2008_table Accessed on 8 November 9, 2008. 9. The Economist. 2008. Terrorism in India. Delhi: The Economist Newspaper Limited 2008 10. The Global Retail Development Index 2007. A.T. Kearney, 2008 Retrieved from http://www.atkearney.com/shared_res/pdf/GRDI_2007.pdf Accessed on 8 November 9, 2008. 11. Radhakrishnan, 2004. Coffee Consumption in India – Perspectives and Prospects in Indian Coffee. April 2004. Bangalore: Coffee Board of India 12. Press Trust of India (PTI). 2008. Call a coffee chain and it is desperate for India. Mumbai: Indian Express Newspapers (Mumbai) Ltd. Retrieved from http://www.financialexpress.com/old/latest_full_story.php?content_id=141451 Accessed on 8 November 9, 2008. Read More