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Indian Market Opportunities and Challenges

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Indian Market Opportunities and Challenges Powered By Docstoc
					 Indian Market
Opportunities and
   Challenges
Economic Policy Regimes




       Socialism (1947 – 1984) = import
       substitution-based industrialization + central
       planning + state ownership
    Gross Domestic Product [2007]
                        Gross Domestic
                                       [11]
 Ran Coun GDP (millions Product [2050]
                              Ran Coun GDP (millions
 k   try     of USD)          k     try     of USD)
1     United 13,843,825      1       China  70,710,000
            States
2            Japan        4,383,762   2     United   38,514,000
                                           States
3            German 3,322,147         3     India    37,668,000
            y
4            China  3,250,827         4    Brazil    11,366,000
5            United       2,772,570   5    Mexico    9,340,000
            Kingdo
6           mFrance       2,560,255   6    Russia    8,580,000
7            Italy        2,104,666   7     Indone   7,010,000
                                           sia
8            Spain        1,438,959   8     Japan    6,677,000
9            Canada       1,432,140   9     United  5,133,000
                                           Kingdo
10           Brazil       1,313,590   10   mGerman 5,024,000
                                           y
11           Russia       1,289,582   11    Nigeria 4,640,000
12           India        1,098,945   12   France    4,592,000
13           South        957,053     13    South    4,083,000
            Korea                          Korea
14           Australi     908,826     14    Turkey   3,943,000
            a
15           Mexico       893,365     15   Vietna    3,607,000
Rank
Country
GDP (millions of USD) 2007
Goldman Sachs
                  1    United States   13,843,825
                  2    Japan           4,383,762
                  3    Germany         3,322,147
                  4    China           3,250,827
                  5     United         2,772,570
                       Kingdom
                  6     France         2,560,255
                  7    Italy           2,104,666
                  8    Spain           1,438,959
                  9    Canada          1,432,140
                  10   Brazil          1,313,590


                 11     Russia         1,289,582

                 12     India           1,098,945
     Rank
     Country
     GDP (millions of USD) 2050
     Goldman sachs

    Rank      Country           GDP (millions of USD)
1               China              70,710,000
2               United States      38,514,000
3               India              37,668,000
4               Brazil             11,366,000
5               Mexico             9,340,000
6               Russia             8,580,000
7               Indonesia          7,010,000
8               Japan              6,677,000
9               United             5,133,000
               Kingdom
10              Germany            5,024,000
     Economic Policy Regimes

   Early reforms ( 1984 – 1991)
   Comprehensive but incomplete
    liberalization (1991 – present)
    Economic Policy (1947-1984)

   Import substitution industrialization
    - Central planning

    - High tariffs and trade barriers (over60%)

    - Tight restrictions on foreign direct investment
      (FDI) ,controls on foreign trade

    - Government-owned enterprises,large public sector

    - Licensing “License raj”

    - Labor-intensive goods reserved for small firms
Economic Policy (1991-present)

 Comprehensive liberalization in 1991
- Industrial licensing abolished
- Slashed average tariff rate from 79% to 12%
  on non-agricultural goods
- Abolished import quotas
- Opened to foreign
- direct investment
- Trimmed reservation list to 506 goods
- Privatized some state-owned companies
Economic Policy




                  Manmohan Singh
                  Bush
          Economic Reforms

FDI Policy
   Most sectors including manufacturing activities permitted
    100% FDI under automatic route (No prior approval
    required) http://dipp.nic.in/


Industrial Licensing
   Licensing limited to only 5 sectors and 18 industries
    (security, public health & safety considerations)
    http://dipp.nic.in/invindia/invind.htm#2.0
Economic reforms
                Main Sectors with FDI
                 Equity/Route Limit
    FDI equity limit-                    FDI requiring prior
    Automatic route                      approval
   Insurance – 26%                     Defence production – 26%
   Domestic airlines – 49%             FM Broadcasting - foreign
   Telecom services- Foreign            equity 20%
    equity 74%                          News and current affairs- 26%
   Private sector banks- 74%           Broadcasting- cable, DTH, up-
   Mining of diamonds and               linking – foreign equity 49%
    precious stones- 74%                Trading- wholesale cash and
   Exploration and mining of coal       carry, export trading, etc.,
    and lignite for captive              100%
    consumption- 74%                    Tea plantation – 100%
                                        Development of airports- 100%
                 Overall Results



   India's Average Real GDP Growth Rate
         3.9% - Post-independence
         5.4% - Socialist era 1951-1984
        6.1% - Early reform era 1985- 1991
         6.5-8.9% - Liberalization era 1992- 2007
          Growth may touch 10% soon,
      global factorssuch as oil price rise recent
    concerns
            India’s Business
           Environment Today
Political                      Geo-political              Cultural
• Strong resilient democracy Abundant natural             • Education base
• Stable secular state         resources                  • Skilled, low cost work
                                                            force
• Strong judiciary,rule of law
                                                          • Performance oriented
• Liberalized economy                  GROWTH             • Engg /IT/ English
• Reform oriented policy                                    language skills


 Economic
• High growth                              Demographic
• Strong Capex Growth                      • Vast working population
• Comfortable BOP position                 • 54% of population < 25 years old
• Well developed entrepreneurial class     • Large domestic market
• Booming stock market                     • Size of the Indian middle class larger
• Increasing international                 • than that in the entire Europe
    competitiveness
• Resilient economy
Sonia Gandhi
Village Council
  Business environment…contd



Negative features

Corruption
Inefficiencies in administration, bureaucracy
Insurgencies in some parts of the country
Terror threats, Kashmir issue unresolved
Infrastructure lagging growth needs
Macro Economic
Parameters
Parameter            India              China

GDP Nominal          1.089 Trillion 12th        3.42    4th
GDP PPP              2.965 Trillion     4th      7.04   2nd

GDP per capita Nom   USD 971          132th        2800 105
GDP Per capita PPP   USD2700          165 th      5300 130th
        Culture of entrepreneurship


   India has more billionaires than China (15 billionaires
    vs 20 billionaires, , 4 Indians in top ten Forbes
    magazine)
    Aristocracy coexists with poverty

 India has emerged as the world's fastest growing
  wealth creator, thanks to a buoyant stock market and
  higher earnings
 Forty-four per cent of Top 100 Fortune 500 companies
  are present in India and in Bangalore!
India’s Competitive Strengths - Human
Capital

   India’s competitive edge - its highly-skilled
    manpower and entrepreneurial expertise
    -   Ranks 3rd in availability of scientist and engineers
    –   Ranks 8th in quality of management schools
    –   Over 200,000 engineering graduates
    –   Over 300,000 post graduates from other technical
        colleges

   Knowledge workers in software industry increased
    from 56,000 in 1990-91 to over 4 million by 2004-05
           Knowledge-based
            industrialization

   India: knowledge knowledge-based
    industrialization

   Knowledge-intensive industries and capital
    intensive industries and capital

   Intensive manufacturing

   Outsourcing
Telecommunications
   5 million+ phones added every
    month
     – Among the lowest mobile
       tariff in the world
   Share of private sector >50%
   Tele-density of 12.73 expected
    to be 20 in next three years
   Investment Opportunities
     – Setting up manufacturing
       facilities
     – Supply of hand sets and
       equipments
     – Telecom & Value added
       service.
Structure of Indian Consumer
Markets
The Many Indias


   Urban India including the urban
    middle class
   Rural India
   The Rich (globalisedIndians)



       A multi tiered market,evolving
Urban versus Rural India
 Urban                           Rural
 (>5000 population,>400per sqm
  Pop density,75% male non
 agricultural occupation)


 5161 cities and       600,000 villages
 towns                 700mn
 318 Mn                70% of population
 30%of Population
 3 cities with over 12
 mn, 30 between 1-
 10Mn
Urban versus Rural India

   Urban Share of total population in
    China is 40%,USA is 69%.
   Urbanisation rate is set to rise to 47 %
    by 2025,urban population is growing
    three times faster than rural,due to
    migration,increase in population
   Urban India driving economic growth
Urban and Rural India
    Rural India


   India is in many ways two economies
   Rapidly growing urban India(IT,
    Services,industry)
   Labour pool, capital infrastructure
    concentrated in the urban areas
   Rural India (agriculture,rural services)
   Wide diversity, range of cultures languages,
   Rural India gradually getting integrated into
    the urban markets (pull through effect)
   Reaching products to 600,000 villages!
     The great Indian Middle class


   The Indian middle class
   Current estimates put size of Indian
    middle class at between 50 million to
    100 million
   The upper Middle class lead lifestyles
    comparable to the average middle
    class in the developed world
   About 13 million households in 2005
The great Indian Middle
class
   5 Economic Classes based on real annual disposable income
   Deprived Class   <USD1969 , less than Rs 90,000 (Poorest)

   Aspirers         USD 1969 to 4376, Rs90,000 to 2 lacs(small farmers,
    shopkeepers,low skilled workers)

   Seekers          USD 4376 to 10941 Rs 2 lacs to 5 lacs(white collar
    workers,mid governemt officials,medium business men)

   Strivers         USD 10941 to 21882,Rs 5 Lacs to 10 Lacs( bigger
    businessmen, professionals,rich farmers ,reasonable wealthbase


   Global Indians     USD >21882 ,Rs10 lacs (senior corporate executives,large
    business owners,politicians, big land owners,upwardly mobile executives




                   Source Mckinsey global Institute
MGI forecast

   MGI Forecast
    real annual compound growth rate of
    7.3% over the next two decades
   Average annual disposable incomes
    will grow by 5.3 % (US average real
    household income grew by 1.5% over
    past two decades)
583 mn
people




 1.8tr
  USD
 Spend
 g pow
Indian Middle class now about 50 million
(Mckinsey Global Institute estimate)
will swell to 583 million 41 % of
population, ten fold increase
Global Indians , the cream of the country,global in taste
and preferences
Will reach 9.5 Mn households by 2025 with a spending
power of USD 475 billion
Private consumer spending driver of economic
growth,consumption led growth
India, Consumption economy


 India relies on domestic consumption led
 growth
 unlike China, akin to Japan and the USA
 China 47 % of GDP is from Exports
 India 22 % of GDP is exports
Share of discretionary spending on the rise

South Korea 57 % (1970) to 22 %
Japan        35% (1980) to 22 %
US           26% (1970) to 14%
India         35% (1985) to 52% (2005)
Discretionary spending =spending other than on
food and apparel
 About 400 million middle class consumers
  will reside in Indian cities
  By 2025
  India will become 5th largest consumer
  economy up from 12th now by 2025
 ( At 7% GDP growth per anum)
Middle class will be 41 % of population by
  2025
English India


 India has one of the largest English
 speaking
  populations in the world more than
 Europe estimated at over 150 million
         The Indian Youth Market
400 Million in the age group 15-30
About 100million well to do and live in the cities
World’s largest youth market

India has a demographic advantage over China till 2035
Huge target market for Apparel, Entertainment, Eating
out,Mobile Phones, Jewellery, Sunglasses Sports
footwear,Music CDs , motorcycles, entry level cars etc

Liberalisation Generation Born after 1991

Seeking self expression and identity, more materialistic,
Habituated to easy availability of products ,instant
gratification
India’s dependency ratio, the ratio of working age population to total population
will decline from 0.71 currently to 0.59 in 2011



Demographic dividend
    The Rich India
    Market for luxury products


   1.6 million households in India with a disposable
    income INR 400,000 (USD 100,000)
   9.5 million homes by 2025 (MGI)
   Growing at 14% per anum
   Global in tastes and outlook
   Upscale products such as designer wear, Designer
    Jewellery, Gourmet foods, Digital accessories,
    Timewear, Crystal wear is growing
   Leading luxury brands of the world entering India
    Mont Blanc, Longines, Rado, Christian Dior,Piaget
      The $10,000 plus brand conscious club
      is emerging
Consumer
Psychographics(MTVstudy)


                    Self Actualisation needs



                        Aeshetic needs


                     Esteem Needs



                     Safety needs



                    Physiological needs
   Indians are generally at the esteem and social recognition needs level
A ranking of cool in the liberalisation
generation(MTV study)

Smart          51% FTV       54%
Cellphones
Perfumes and   57% International 52%
deodarants         VJS
Lots of Cash   47%
Credit Card    49%
Walkman        51%
Discman
Laptop         44%
Marketer’s Challenges
Segmentation and positioning Challenge
 Potential market in each demographic and
  psychographic segment is large,
 A product offering and value proposition for
  each segment and price point is required
 High volume, Large scales of operation,large
  domestic market shares
 Set up Manufacturing plants in India
   Maruti Suzuki has over 14 models from
    price points as low as Rs 200,000 to
    Rs 800,000 ( USD 5000 to USD
    30,000) for a volume of about 200,000
    cars
   LG Electronics sells over 20 models
    televisions from prices as low as USD
    200 to USD 5000
Maruti 800
Ta Ta Nano $2500 car world,s chepest car
Product challenge
    Product Challenge
   Adapting product to Indian culture and and
    preferences within India (food and
    beverages, personal care )
   Eg Kellogs attempt at standardised product
   Mcdonalds Veggie Burger, Maharaja Big Mac
   Redesigning for tough Indian conditions
    (Low slung cars,Consumer electronics for
    erratic power supply)
Pepsi
Kelllogs




 Kellogs Mango Flavour
Unilever Indian Herbal personal care product
Nokia 1110
Packaging and labelling

   Packaging and labelling
   Packaging to withstand tropical
    conditions,tough transportation,
   Smaller quantities ,not so much
    economy packs
   Colour,shape appeals
Competition
   Global Brands, Established Indian brands(market
    shares of over 70%), Regional brands, Private
    Labels
   In almost categories foreign and national level
    Indian brands have to compete with regional
    Indian brands who nibble at their shares
   High level of price and promotion based
    competition, differentiation based on support
    services for technology products
Regional Brands




                  South Indian regional Brand
    The distribution challenge
   8 cities with a population > 4 million
   26 cities with a population> 1 million
   33 cities with a population > 500,000
   5094 small towns           100,000 >
   More than 500,000 villages
Ensuring adequate market coverage and efficient
   reach ,
keeping channel costs low
Intense competition, thin margin retention in cities




               Stockist        Distributor   Retailer
Manufacturer                                            Consumer
               In each state   Within        Small,
                               state         big
                               (district)
Distribution Challenge

Unilever operates with a network of over
300 stockists,

more than 100 warehouses,and sells
through over 5million outlets

There are over 13 million mom and pop
stores in India
More than 400 modern “Wall Mart type
stores coming up
Distribution Challenge
Communication Challenge


Linguistic Diversity (almost 200 ldialects), 14 official
languages
creative
Development
Cultural diversity limitations on creative strategy

Advertising Campaigns in at least 10 different lannguages (
including English and Hindi)

Media fragmentation (over 80 Television Channels,
10 large circulation newspapers in each state, cable
televesion , outdoor, trade shows, promotions etc)
Pricing challenge

   India is largely a price conscious market
   Profit at the bottom of the pyramid
   Product adaptations, packaging adaptations
   Multiple price levels for multiple segments
   The sachet revolution in consumer goods
The sachet
revolution
8ml shampoo!
Waves of change have gripped in
India,
at the cusp of a major revolution,
Will be a paradise for marketer’s in
the 21st century

				
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