The Indian Market - Coursework Example

PEST Analysis of the Indian Market Pertaining to the recent growth in its economy which has marked a consistent increase in the GDP Growth Rates, India is on its way to becoming one of the largest economies of the world. This tremendous growth is backed by high investment in education of the population in the 1980s which gives India a pool of highly skilled workforce. Moreover, with the world’s second largest population, India’s major market is of 350 million households which belong to the middle class. The economy is operating in a growth phase and the growth rate approximately is at 9 to 10% since past 5 years. Pertaining to this growth, various sectors of the economy are sprouting up (Uppal et al, 2009) Apart from the robust middle class, India also ranks as the fourth largest billionaire population in the world. This also makes it a lucrative market for premium products and high end luxury products. Moreover, the country has a pulsating democracy which gives an easier access to Foreign Direct Investment and an encouraging environment for business. Entrepreneurs can exploit these benefits in form of ease in technical issues such as the paper work, licensing hurdles, company registration process, and other tax incentives to operate in India (Uppal et al, 2009). The process for incorporation of a company in India has about 11 steps which are spread over a time period of 35 days. As quoted above, the country’s middle class along with the high income earners constitutes a high overall spending power and as quoted above, this fact makes it one of the most lucrative markets in South Asia and the whole world. Moreover, the political condition in the economy has led to a gap for entrepreneurs in different sectors of the economy like retail, insurance, banking etc. This gap has largely been created because previously, these sectors were owned and controlled by the government and as the Indian economy opens up to the global markets, these government monopolies have started to evaporate leaving space for entrepreneurs (Uppal et al, 2009). No matter how huge and lucrative the market seems, India is not the country of one’s dreams and like all the rest of the world, has some setbacks too. Unfortunately, one of the problems in the business environment which India faces is unimposing law enforcement by the Indian judiciary. This is mainly because of resource constraints and long procedures owing to corruption. However, the problem has been identified and is deemed serious enough to take some actions to avert this drawback in the country’s business environment. Exclusive courts catering to consumer needs and concerns have begun to be set up however it may take time for it to properly shape itself and become functional (Associated Chambers Of Commerce and Industry of India, 2005) Retail Industry of India and SWOT Analysis There are approximately 2 million retail stores spread across India. As great as the number suggest, India’s 10% of the workforce is employed in this industry. The facts may seem like the market has gone saturated however the truth is that only a few large departmental stores and hyper markets are operative in India and the rest are small owned retail shops run by a family or a single owner. Despite such a huge number of retail outlets and a turnover of thousands of billion of Rupees, the retail sector has not yet achieved the status of an industry. Only two percent of the Retailing business is in an organized form and the rest 98% are causal around-the-corner stores. Moreover, the trend of supermarkets, hypermarkets and departmental stores are on the rise for India. However, the mass markets of India prefer to buy their groceries from nearby kiryana stores. With opportunities of organized retail opening up in India, there is a huge potential in the business of a retail supermarket (Ramaswamy, 2008). However no matter how much enticing and lucrative the market seems to be, there are some challenges in the business environment which international businesses have to meet. These are the conservatism with regards to international trade from the Indian government. Traditionally, India was not as much receptive to Foreign Direct Investment as it is comparatively now. The main motive was to encourage its local industry and at a particular time in the past two decades, India had strict embargoes to discourage imports (Iarossi, 2009). However, the current situation suggests that India has started to open up to international trade as the time period of closed imports in the Indian economy gave room for local industries to emerge and grow. With the result, the industry of organized retail is largely governed by a few major players like Foodworld, Pantaloon, Subhiksha, Reliance, Tata etc (Associated Chambers Of Commerce and Industry of India, 2005). This leaves a lot of opportunity for organized retailers to set up businesses and start operations before the market gets too saturated. A few facts that encourage investment in the Indian market are as follows: With consistent growth, the average per capita income of the households tends to rise. Moreover, as the trend of nuclear families are on the rise and both the members of the family are becoming the bread-earners, they are preferring more to make their purchases on one go under one roof because of time constraints. This leads to an increase in trend for organized large supermarkets and departmental stores. Moreover, increased disposable income and consumer aspirations also play a major role when consumers choose to visit a supermarket to make their purchases (Ramaswamy, 2008). The industry is on its initial growth stages. The growth of departmental stores is estimated at an annual 24%. As there is also a low share of organized retailing in the industry, any businesses which set up in the current scenario would see enormous growth prospects (Ramaswamy, 2008). The weaknesses which the retail industry faces are that the prices of real estate have gone up. The rentals and ownership prices have soared which are an obstruction in the profit-earning capacity of the businesses. Pertaining to the low share of the organized retail in the Indian industry, the sales turnover in modern trade is low. As far as foreign supermarkets are concerned, if Sainsbury from the UK for example wishes to enter the Indian retail industry, it has to see that India is not yet as much receptive of the Foreign Direct Investment and that it only encourages FDI at a certain limit (Iarossi, 2009). Also, India only encourages FDI as far as wholesale or joint ventures are concerned. Metro for example has quite recently entered as a cash-and-carry wholesale store. Therefore, a major setback which Sainsbury would foresee is that it would operate as a joint venture with 49% ownership. Apart from that, India has one of the largest populations of the world and the economy is at its growing stage. Along with the economy, the retail market is growing and there is a lot of growth potential (Associated Chambers Of Commerce and Industry of India, 2005). Apart from the weaknesses, the retail market has various opportunities as well. With the second largest population of the world, India is considered as a lucrative market by global retail giants. Moreover, this sector is expected to grow more than the GDP of the country in the next five years (Confederation Of Indian Industry et al, 2006). There are also a few threats which the retail sector faces. Some of them are as follows: The country’s infrastructure has not yet fully developed because of which retail companies face issues in the supply-chain management systems (Ramaswamy, 2008). A major threat which Sainsbury can foresee is limited control over its retail policies as there would be interference from the other 51% of the venture (Ramaswamy, 2008). Another threat which the industry would foresee is that unspecified taxing policies for the organized retail sector have lead to negligence from the government as this sector is comparatively small, it does not attract that much investment because the large 98% of the retail industry is being currently governed by small owned stores (Ramaswamy, 2008). Conclusion Pertaining to the facts and analysis of the business environment in the retail industry of India, it would be advised to Sainsbury to reduce their reliance on a fully fledged supermarket as the Government currently does not allow FDI in exclusive retail stores. And as far as intellectual property rights are concerned, the scope of recognition of patents is restricted to joint ventures. On the brighter side, Indian consumers are extremely receptive to change and innovation. This is mainly because of consistent growth high per capita income of the economy. Moreover, the 2% share of the modern trade implies a great opportunity of growth in the retail industry as the consumers would more and more be switching to modern trade from conventional Kiryana. Entrepreneurs also need to be aware of t he vast lingual and cultural diversity in India which one needs to be aware of in order to expand. Consistent growth rate in the economy and a high growth prospects in the organized retail industry is a strong indicator that Sainsbury should invest in India and gain the advantage of growth and a huge market and capture the market share before anyone else does. However, negotiations have to be made with the government which currently encourages FDI in exclusive single brand retail stores like Nike, Louis Vuitton, Lladro, Toyota etc (Ramaswamy, 2008). References UPPAL, R. K., & MISHRA, B. (2009). Business environment in India: some aspects. New Delhi, India, New Century Publications IAROSSI, G. (2009). The investment climate in 16 Indian states. Policy research working papers, 4817. [Washington, DC], World bank. ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF INDIA. (2005). Retailing in India: opportunities in an unfettered industry. [New Delhi], Associated Chambers of Commerce and Industry of India. CONFEDERATION OF INDIAN INDUSTRY, & PRICEWATERHOUSECOOPERS LLP. (2006). The rising elephant: benefits of modern trade to Indian economy. [Paris], PricewaterhouseCoopers RAMASWAMY, N. (2008). Reinventing retail India: corporate strategies & future direction, 2008. New Delhi, Associated Chambers of Commerce and Industry of India Read More