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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
COPY RIGHT © 2013 Institute of Interdisciplinary Business Research 479
JANUARY 2013
VOL 4, NO 9
ANALYSIS AND EVALUATION OF MARKET ATTRACTIVENESS FOR FISH
VACCINES IN INDIAN AQUACULTURE INDUSTRY
Mahendra Kumar Pallapothu
BioPro Scientific & Management Consulting, 29 Commonwealth Ave, Charlottetown, PE, C1E 2E7, Canada
Tel: 001-902-367-9890, Email: [email protected]
Abstract: Aquaculture in India is one of the fastest growing fishery segments with an average annual growth rate of
approximately 7.0%. Earlier it was shown that the macro-environmental factors in India are favorable for a fish
vaccines business. The purpose of this study is to determine the market attractiveness for fish vaccines in India using
the market assessment framework proposed by Natarajarathinam and Nepal (2012). The overall market potential for
fish vaccines in the Indian aquaculture industry is estimated, followed by the sales potential through the use of
qualitative and quantitative methods. Finally, a sensitivity analysis on financial scenarios is executed. The results
indicate that the fish vaccines market in India is moderately to highly attractive with overall weighted scores for
market attractiveness ranging from 3.75 to 4.17/5.00 depending on the sales potential micro factor score of the
partnering candidate under consideration. The net present value of USD 4.45 million and an internal rate of return of
37.5% in this opportunity are assumed to be enticing for a small or medium-size enterprise.
Keywords: Market attractiveness, Market potential, Sales potential, Aquaculture, Fish vaccines, Carp vaccines,
India
1. Introduction
In today‟s globalized economy, with Western markets becoming stagnant or shrinking and the emerging markets
booming, most of the Western investors and firms are looking beyond the home country markets for growth
opportunities (S. T. Cavusgil, 1997). Emerging markets such as Brazil, India, Indonesia, China, and South Africa, to
name a few, have been the targets for these firms. Incentives such as tax breaks, subsidized rates on utilities,
availability of skilled labor, cost advantages (Conway, Dougherty, & Radziwill, 2010), low cost of capital, fast
growing customer base, and attractive financial terms (Claessens & Schmukler, 2007) are encouraging the foreign
investors to tap into these emerging markets. In spite of these advantages and opportunities in emerging markets,
investors have to carefully evaluate the target industry and its market potential to assess the investment and hidden
return risks without which the investors may suffer significant losses (Henisz & Zelner, 2010). As a first step, the
macro-environmental factors exogenous to the firm in the entry country have to be evaluated. Once they are
determined conducive, then the next step is to quantify the country‟s competitiveness. Since the market potential is
directly impacted by the entry country‟s competitiveness, which in turn is influenced by the macro-environmental
factors, a market potential that is reasonably attractive must be realized. Similarly, the sales potential is influenced
by the internal capabilities and core competencies of a firm, which would determine the market share appropriation
and revenue generation to reap the return on its investments. One such opportunity was explored by Pallapothu &
Krause (2013) for the aquaculture industry in India. The researchers noted that although the macro-environmental
factors in India are improving there are still some bureaucratic hurdles (for example, evolving intellectual property
rights, poor governance, the lack of a business-friendly environment, bureaucratic hurdles etc.) to be overcome by a
potential entrant to ensure success. As a continuum of determining the feasibility of the fish vaccines business in
India, this research has been objectively focused on quantifying the overall market attractiveness for fish vaccines in
India to help a potential entrant make appropriate strategic decisions.
The paper is presented as follows: the first section includes a literature review on market assessment and a
framework suitable for this study. In the next section, a research methodology is described followed by the
qualitative analysis of the market potential and sales potential for the fish vaccines business, and quantitative
financial forecasts and returns on investments. Potential implications for an entrant are discussed and concluding
with inferences, future research topics are proposed.
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2. Literature Review
Most of the extant literature on market potential measurement is grounded on econometric resource-based theory
(Harris, 1954) and the competitiveness of the countries (Cho, Moon, & Kim, 2008; Moon, Rugman, & Verbeke,
1998; Porter, 1990; Rugman & D'Cruz, 1993) using either complex mathematical models (Amiti & Cameron, 2007;
Hanson, 2005) or a combination of country clustering and country ranking (S. T. Cavusgil, Kiyak, & Yeniyurt,
2004). Cavusgil (1997) defined three issues for capitalizing on the market potential in an entry country: market
potential estimation and access, market entry, and market establishment. Subsequently, Cavusgil, Kiyak, and
Yeniyurt (2004) included market dimensions of size, growth rate, intensity, receptivity, free market structure,
commercial infrastructure, and country risk in the market potential estimation and categorized countries into clusters
of similar commercial, economic, political, and cultural dimensions. Other scholars have demonstrated the need for
foreign direct investment (FDI) and the development of new resources and capabilities when entering an emerging
economy (Delios & Henisz, 2000). Additionally, one of the key determinants for the success in the foreign markets
is the level of control. Agarwal and Ramaswami (1992) provided strategies for mode of entry choices into new
markets with different levels of control, risk, and return in the foreign markets based on the factors of ownership
advantages of a firm, location advantages of a market, and internationalization advantages of integrating
interactions. Jones, Knotts, and Udell (2011) showed that the market attractiveness is affected by the stage of
product development. They concluded that the market attractiveness of innovation stage products is much higher
than invention stage products in a venture creation and the product‟s market viability. Natarajarathinam and Nepal
(2012) identified macro factors at the country and industry levels, and micro factors at the firm level as key drivers
in estimating the market attractiveness.
3. Methodology
The framework proposed by Natarajarathinam and Nepal (2012) is employed in this research. The modified flow
chart of the process is outlined in Figure 1 and the focus of this research paper in assessing the market attractiveness
of the fish vaccines business is highlighted in broken-line insert. Future research topics are also presented as a
separate insert as a continuum in estimating the industry competitive forces and formulating a strategy. Briefly, the
framework covers the exogenous factors of an entry country in terms of market potential and then assesses the sales
potential of the region by qualitatively measuring the macro and micro factors that drive the sales potential. Since a
return on investment is important to make an investment decision, the framework allows the quantitative
measurement of the same with a sensitivity analysis to measure the risks if any. However, this paper takes a different
approach to determine the sensitivity of the revenue forecasts as it is a start up organization that is influenced by
several factors that are different from an established firm entering a new market. These differences from the original
framework will be described in the relevant sections below. The rationale for choosing Natarajarathinam and
Nepal‟s (2012) framework is that it uses data sources that are accessible to the managers and/or analysts who are
engaged in foreign market assessments and employs simple computational techniques to derive meaningful figures.
Market attractiveness was assessed in three steps: (1) the national market potential and sales potential scores for fish
vaccines in the Indian aquaculture segment are determined using the formula:
n
∑ Wi Fi
i=1
Where Wi and Fi are weight and score for a factor type „i,’ respectively. Factor types such as market size, market
growth rate (including aquaculture market growth rate), country risk, economic freedom and commercial
infrastructure were chosen to measure the market potential while the sector specific factors such as number of
potential customers, clusters, and geographic concentration of biotechnology firms etc. were chosen to assess the
sales potential macro factors. To estimate the sales potential micro factors, at least three potential candidate partners
for a joint venture with the entrant were ranked based on the capabilities offered by each of them. To gather the data,
the author relied on secondary sources such as peer reviewed journals, articles, expert commentaries, consultancy
reports, country reports, company financial reports, government reports, and budget plans etc. The overall sales
potential was computed as:
(Total weighted score of sales potential macro factors × 0.6) + (Total weighted score of sales potential micro
factors × 0.4)
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In step (2), the overall market attractiveness was computed (with an assumption of the higher influence of the sales
potential score in decision making) with a ratio of 70:30 for the sales potential score to the market potential score as
follows:
(Total weighted score of sales potential × 0.7) + (Total weighted score of market potential × 0.3)
Subsequently, in step (3), revenues were forecasted from the sale of vaccines. The Net Present Value (NPV) and the
Internal Rate of Return (IRR) were determined from the revenue forecasts, followed by a sensitivity analysis of
NPV and IRR to the identified variables.
4. Analysis
4.1. Market potential assessment for fish vaccines in India
The market assessment to determine the aquaculture market potential in India is presented in Table 1. To determine
India‟s value, the total market size was estimated based on 100% carp produced being available for vaccination at a
maximum market share appropriation projected in the base scenario of Table 2. This resulted in a total market size
of USD 18.35 million. Refer to Table 2 for financial analysis. A threshold value for the market size for fish vaccines
in India is determined based on an assumption that the target market is comprised of big fish farms that contribute
up to 40% of total carp production and the entrant achieving a market share projected in the base scenario which,
when realized, would lead to an NPV of USD 4.45 million that may sufficiently be attractive to a small or medium
size enterprise (SME). The factor score for market size for India was assigned as 3.0 and considered as “meeting
threshold.” Market growth rate was estimated using the combination of five year average growth rates of the Indian
aquaculture industry provided by the Food and Agricultural Organization (FAO) (FAO-Statistics, 2010), real gross
domestic production (GDP) growth rate provided by The World Bank (The World Bank, 2012) and the primary
energy use reported by the U.S. Energy Information Administration (USEIA, 2009). India experienced a very
attractive AAGR of 9.94% between 2006 and 2010 in the aquaculture segment (FAO-Statistics, 2010). This AAGR,
when compared to Norway and China, the leaders in salmon production, showed rates of 8.95% and 4.93%,
respectively during the same time frame. The threshold value was chosen as a minimum of 5% for this factor and as
this is a major driver for entry decisions, this factor was assigned a weight of 60%. The GDP growth rate, although it
reached 8.4% in 2009 and 2010, has declined to 6.9% in 2012 due to residual consequences of global economic
meltdown in 2008. However, the GDP is forecasted to reach 7.5% in 2013 (The World Bank, 2012). Since the GDP
is a good indicator of the overall growth of an economy, a weight of 30% was assigned to this factor while 10%
weight was assigned to the energy consumption factor as it is one of the drivers of the overall GDP. Each factor
measure in the market growth rate was assigned a factor score of 5.0 (as all the three parameters of growth rates
exceeded the threshold limit of 5.0%) and the combined factor score was calculated as [(0.6 × 5) + (0.3 × 5) + (0.1 ×
5)] = 5.00. Therefore, the market growth rate in India is designated as „highly attractive‟.
The country risk rating, [which provides an estimate of the political and economic forces that impact the business
environment which in turn affect the profit potential of a firm (Robock, 1971)], was derived from the Euromoney
Country Risk Rating Survey (Euromoney, 2012). India‟s risk rating was 52.68 while the threshold was 55 out of
100. Since India‟s value was slightly lower than the threshold, the factor score was assigned as 2.80. The political
structure and systems are key drivers of policy and incentive creation for entrepreneurs to select an entry country
(Keren, 2009). The political weakness of the government, due to unstable coalitions, is causing the difficulty to
tailor policies to recognized needs such as the creation of a business-friendly national policy (ICON Group, 2007)
and modernization of the Indian economy. The efforts of weakening the country‟s „Permit-License-Quota Raj‟ (rent-
seeking society) (Weede, 2010) that were aimed to reduce the bureaucratic processes in starting businesses have also
been slowed (Keren, 2009). A number of changes in taxation policy have been enacted to attract FDI into the
country. Additionally, the improved credit rating for India from „negative‟ to „stable‟ in March 2010 by Standard &
Poor (S&P) has helped. However, S&P still retained its long-term and short-term sovereign rating at „BBB minus‟
and „A-3,‟ respectively, due to high debt burden and fiscal deficit. It is envisioned that the access to capital
markets/banks, debt indicators and credit ratings to improve further as several of the policies are being carefully
considered in the Indian Parliament in the interest of national economy (Pallapothu & Krause, 2013).
“Economic freedom is an essential aspect of human liberty, without which a person‟s rights to life, liberty, and the
pursuit of happiness may be fundamentally compromised” (Miller, Holmes, & Feulner, 2012, p. 13). The Heritage
Foundation publishes economic freedom indices for various countries which takes into account the freedom of doing
business and trade, fiscal freedom, government spending, monetary freedom, investment freedom, financial
freedom, property rights, freedom from corruption, and labor freedom. Thus, the higher the economic freedom in a
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country, the higher the attractiveness for entry of international firms (EF-Index, 2012). The rating for India in the
2012 index was 54.6 out of 179 countries. The threshold rating for this factor was 55. Therefore, the factor score for
India was determined as 2.90, as it was close to meeting the threshold.
Commercial infrastructure such as paved roads, and Information and Communication Technologies are vital for the
industries to thrive. In this factor, India excelled in paved road density and telephone subscribers but the number of
internet users per every 10 habitants was far below the threshold. Since reaching the customers could be attained
through text messaging or mobile telephone services and through paper-based newsletters, lack of meeting the
internet user threshold is assumed to have little impact (with the exception of increasing marketing costs) on the
business development for fish vaccines. Therefore, the factor score for the combined commercial infrastructure was
assigned as 4.00.
The final weighted score for the overall market potential is 3.42 for the fish vaccines business in India. It is just
above the „meets threshold‟ criteria of 3.00 and hence considered moderately attractive. The two factors that
influenced this low overall weighted score were the country risk rating and economic freedom index.
4.2. Sales potential assessment for fish vaccines in India
The sales potential assessment was carried out using qualitative measures. A scale of 1 to 5 was employed to rate
India‟s macro and micro factors similar to market potential assessment. The factor weights were determined based
on the author‟s experience in both Western and Indian aquaculture industries. Finally, to determine the overall sales
potential in India, the macro and micro factor scores are combined with a weight of 60% and 40%, respectively. If
this final score is greater than or equal to 4.00, the sales potential is deemed „highly attractive.‟ The factor scores for
macro and micro sales potential factors are provided in Tables 3 and 4, respectively. To maintain confidentiality, the
potential candidates for partnering were coded with the names of the states where their main animal health
businesses are located. The macro factor score for sales potential was determined as „highly attractive‟ as it was
4.63/5.00 while the micro factors yielded highly attractive to moderately attractive final weighted scores depending
on the candidate partner in question. For example, the potential partner in the state of AP resulted in a sales potential
micro factor weighted score of 4.28/5.00 while the candidates in Maharashtra and Gujarat have yielded 3.29 and
2.78, respectively. The overall weighted scores on sales potential assessments (qualitative assessment) for potential
candidate partners are 4.49, 4.09 and 3.89 for AP, Maharashtra and Gujarat candidates, respectively. Therefore, the
AP and Maharashtra partners are highly attractive as they both have shown higher than set criteria of 4.00. The
reason for the AP candidate to have demonstrated a higher result was due to broad experience in serving various
segments of animal vaccines, strong customer relationship management system, wide distribution channels and
marketing capabilities. The candidate firm in Gujarat is especially lagging behind compared to the other two in the
areas as outlined previously as it has just started its animal health products in the region with initial focus in the
poultry segment. In the following section, the sales potential is measured quantitatively with some assumptions as
there is no published information available on the latent demand for (unmet need due to lack of satisfactory good or
service) fish vaccines in India. In the absence of such direct data for demand from the end user, the author takes a
conservative step in estimating the revenues based on assumptions.
4.3 Overall market attractiveness of fish vaccines in Indian aquaculture industry
The overall weighted scores for the market potential was determined as 3.42 and sales potential (macro + micro) for
the three candidates were 4.49, 4.09, and 3.89. The overall market attractiveness was computed as (with an
assumption of the 70% weight given to the total weighted score of sales potential plus a 30% weight assigned to the
total weighted score of market potential) 4.17 (Highly attractive), 3.89 (Moderately attractive), and 3.75 (Moderately
attractive) for AP, Maharashtra, and Gujarat candidates, respectively.
4.4 Financial analysis and internal rate of return
Revenues were forecasted using an incremental appropriation of the market share by the Joint Venture (JV) firm
from the extrapolated AAGR of aquaculture production in India from 2010 through to 2045 with an intermediate
target production estimate available for 2020 (8-10 million tons) from Paroda and Praduman (2000). Initial
production growth rate between 2011 and 2020 was estimated at 7.0% per annum, and subsequent to 2020, the
annual market growth rate was forecasted to decline and reach 2.5% by 2045. Value-based pricing was proposed at
an initial average dose price of INR 1.0 (USD 0.0182) to encourage aquaculturists to switch from conventional
substitutes and to make vaccines available at an affordable price. The After Tax Cash Operating Earnings (ATCOE)
were derived by using a progressive increase of market share of the entry firm from 5% in year three (2016) of JV
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to peak share of 42% in year 11 (2024) over a 32 year horizon (2014-2045) while the first two years are dedicated to
partnership, licensing, development, and registration of product(s). The current corporate tax rate stands at 37.5%
for domestic corporations but the tax calculation takes into consideration the Direct Tax Code (DTC) which will be
effective this year. Hence, a tax rate of 30% was used in the pro-forma income statement. The terminal value of the
business was calculated from the present values of ATCOE during 2021 and 2045, which is then used in the NPV
calculation, while the ATCOE for the entire 32 year horizon (data not shown) was used in the calculation of IRR.
The NPV of initial investment into this business was assumed at USD 4.3 million with the entry firm joint venturing
with an established partner who has the required infrastructure and incremental investments totaling USD 8.5
million between 2021 and 2045. These incremental investments were netted out in the respective year‟s ATCOE for
the sake of simplicity in calculating the IRR.
Return on investment proposed by the original framework (Natarajarathinam & Nepal, 2012) was replaced with the
IRR in the present research, as IRR takes into consideration those future investments that are highly likely in a start
up organization. Also, IRR has gained reputation in the business world for reducing a capital budgeting project to a
percentage return that is easy to understand and communicate. The criteria in decision making is that if the IRR for a
project is greater than or equal to a company‟s cost of capital, then the project should be accepted for
implementation (Gitman & Hennessey, 2008).
As there is no competition in the market at this point in time (Pallapothu & Krause, 2013), a progressive increase of
market share from 5% in year three to 42% peak market share in year eleven was envisioned. Since the financial
forecasts were projected using only the cost of equity [cost of capital (COC)] as a means of financing the business in
the form of FDI by a foreign investor group, a COC of 25% was assumed for this case. The reasons for the COC of
25% is that the opportunity cost of investing is slightly higher in India due to market potential being moderately
attractive and the borrowing costs being high due to inflation (Pallapothu & Krause, 2013) and informal payments
(Prime, Subrahmanyam, & Lin, 2012). Based on this assumption, the base scenario yielded an NPV of USD 4.45
million and an IRR of 37.5%. Refer to Table-2 for base scenario of revenue analysis. Furthermore, India‟s value for
the total market size could be estimated as an NPV of USD 18.35 million (data not shown) if the total Indian Carp
production between 2014 and 2045 is used in the calculation at a market share appropriation rate projected in the
base case scenario.
4.5 Sensitivity analysis
The base case scenario of financial forecast was built on several assumptions and found to be attractive with a, NPV
of USD 4.45 million and an IRR of 37.5%. However, to capture any deviations from the base case scenario, few
variables, namely ± 5% Cost of Capital (COC), 20% less dose price, 20% less market share, and 20% higher
operating costs, were identified as the variables that may have an impact on the NPV and IRR which were used
either individually or in combinations to determine the sensitivity of the NPV and IRR.
As per the sensitivity analysis presented in Table 5, it is evident that all the variables chosen (except COC of -5%
and its combination with other variables), have a negative impact on the NPV and IRR either individually or in
combination with other variables. The highest impact was observed with the COC of +5% in combination with 20%
higher operating costs, where the NPV decreased substantially from USD 4.45 million to USD 0.072 million, a 98%
decrease in NPV from the base scenario. Considering the optimistic scenario where the COC is -5%, even if the dose
price and market share are reduced by 20% and operating costs increased by 20% from the base case, the IRR would
range between 31% and 33% which is considered „attractive.‟ Similarly, if the COC is increased by 5%, then the
scenario would turn negatively with the IRR dropping to a range of 30% to 32% depending on the combination of
the variables considered. Therefore, given the inherent uncertainties in the financial forecasts, with all the likely
variables considered, the IRR demonstrates that the project of fish vaccines business in India is still attractive and of
a strong opportunity. This sensitivity analysis thus provides the upper and lower boundaries of the project financials
in order for the decision makers to take appropriate measure. For example, if the COC is greater and the market
share realized is lower than the base case, then the managers may develop a strategy to increase efforts in aggressive
marketing and sales to encourage the product adoption by the customer.
5. Managerial Implications
In today‟s globalized economy, investors and firms are looking beyond their home countries for opportunities to
expand. Identifying such opportunities outside a home country is challenging, especially in developing countries
where some of the vital information required for analysis is limited. Utilizing Natarajarathinam and Nepal‟s (2012)
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framework, the author attempted to identify a new opportunity (fish vaccines business in India) and determine its
attractiveness using the data available from secondary sources. The market and sales potential factor analysis,
coupled with financial analysis, revealed that the Indian aquaculture market is highly attractive for a potential
vaccines business.
In the author‟s estimation, an NPV of an initial investment of USD 4.3 million is required for salaries, licensing of
technologies, purchase of automated vaccination machines, and regulatory and operational expenses during the first
two years only if it is a JV with an established veterinary vaccine partner in India. The analysis suggests that the JV
partners secure capital that costs below 25% while maintaining other variables (discussed in Table 5) as close to the
base scenario as possible to maximize the NPV. The opportunity described in this paper with an NPV of USD 4.45
million over a 32 year period is presumed to be enticing to a SME partnering firm in India that is interested in
adding new products to its portfolio, thus increasing its bottom and top line growth. Therefore, an entry mode of
choice for the fish vaccines business in India could be a JV, which Johnson and Tellis (2008) reported as one of the
successful ways of establishing business in the Indian market. In this mode, the entrant could not only avoid
corporate taxes of up to seven percent as per current taxation system imposed by India on a sole-venture owned by
foreign enterprise, but also can accelerate the speed to market. Since the partnering firm is assumed to have
established infrastructure, distribution, and marketing channels, as well as an established relationship with the
regulators, the firm could realize the revenues in the earliest time possible, which in this case is expected to be two
years (by 2016). Also, the partners can expand business to supply products to a secondary market comprising of
small fish farms to realize the upside potential or export products to neighboring countries like Sri Lanka and
Bangladesh. Since there is no direct competition in this segment and the likely competition is from the substitute
manufacturers, a window of opportunity exists for first mover advantages like securing higher market share in fish
vaccines while also setting value-based but affordable pricing for the vaccines, such that the initial entrant could
impose entry barriers on the potential future entrants into the market place. In one of the studies, Chakraborty and
Agoramoorthy (2010) noted that although the Indian biopharmaceutical industry is steadily increasing, the industry
is facing limitations in attracting funding in the form of government grants. They quoted one of the company
founder‟s on the risk sharing approach and reported that the Indian entrepreneurs are willing to share the risk if
foreign partners are prepared to take a higher share of the risk in a new venture. This would mean that the animal
health segment, in spite of its fastest growth rates with about USD 200 million revenues (Chakraborty &
Agoramoorthy, 2010), is constrained by limited funding sources as the major focus today in India is on human
health segment. Therefore, the willingness to participate in a JV creation is highly likely with established animal
health firms if the risk is skewed to foreign investors. This entry mode also holds true for a foreign investor group
that has experience in foreign markets but does not have the necessary resources to start up a firm right from scratch
by itself (Agarwal & Ramaswami, 1992).
The value creation for the firm in serving the latent demand in aquaculture segment is by volume-driven business
via collaboration with experienced or knowledgeable external partners (domestic or foreign), who may help reduce
the innovation risk. To be successful, the investor group has to choose between an invention-based (idea) or
innovation-based (market-ready product) business model before entering into India. Jones, Knotts, and Udell (2011)
empirically confirmed that an innovation approach would likely have better chances to succeed in a new venture
creation, and the product as late in the stage of development has much influence on market viability. This approach
specifically applies to India (Reid & Ramani, 2012). In one of the previous works (Pallapothu & Krause, 2013), this
strategy was suggested by in-licensing the products that have already been tested in target animals by which the risk
in attrition of a new invention could be mitigated and speed-to-market can be accelerated which aligns with the
approach suggested by Jones, Knotts, and Udell (2011), and Reid and Ramani (2012).
The location advantages in high market potential countries like India enable the entrant to reach economies of scale
with lower marginal cost of production leading to long-term profitability. The JV mode also allows the entrant to
satisfy the lower investment needs and gain control over the venture by increasing the proportion of equity
participation (Agarwal & Ramaswami, 1992). Internalization advantage lies in partnering with firms that have the
successful track record of collaboration with foreign enterprises. To identify such partnering candidates, the author
assessed the sales potential micro factors of three candidates in India. Based on the analysis, the descending order of
choice of selecting a partner by the entrant is as follows: (1) AP candidate, (2) Maharashtra candidate and (3)
Gujarat candidate. Although other animal health firms are available in India, only the above three candidate firms
have been found to have experience in animal vaccines. However, the author disclaims any preference to a particular
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candidate but suggests the entrant to conduct thorough due-diligence to understand the alignment of interests
between the entrant and the candidate partner.
6. Conclusion
In conclusion, the overall market attractiveness for fish vaccines was determined as „moderately to highly
attractive.‟ Although the market potentials was 3.42 (moderately attractive), the author is optimistic on the
improvements in the market in the near future (based on the positive changes that are occurring in the Indian
political system and economic landscape). The overall sales potential macro factor score was found to be „highly
attractive‟ with a factor score of 4.63 as the latent demand is not being met with suitable products. The candidate
partners for the proposed JV are also suitable (in the order of their attractiveness) for this venture as they have
diverse experience in other segments of the animal health industry and capabilities in expediting new product
development processes for the fish segment and reaching customers. With diverse levels of expertise, the total
weighted score of sales potential micro factors for three of the partnering candidates were determined as 4.28, 3.29,
and 2.78 for AP, Maharashtra, and Gujarat candidates, respectively. Factoring these scores into the estimations of
overall market attractiveness resulted in scores of 4.17, 3.89, and 3.75 depending on the candidate partner
experience. The revenue forecasts also confirm the qualitative assessments of market attractiveness with an NPV of
USD 4.45 million and an IRR of 37.5%. However, these financial forecasts built on secondary data warrant
confirmation by gathering data from end users through a survey instrument, which the author recommends as the
next step for the entrant. As with any research, this research is limited in addressing the competitive forces within
the aquaculture segment and the formulation of a suitable strategy to maintain competitive position within India.
These topics could be of interest for future researchers.
Finally, the author attempted to evaluate the attractiveness of Indian market for a specific segment, thus validating
the utility and value of the framework developed by Natarajarathinam and Nepal (2012) in a different industry than
the one being studied earlier.
7. Acknowledgements
The author acknowledges and extends his gratitude to Dr. Sean Hennessey, Professor, Corporate Finance, UPEI, for
excellent guidance in financial analysis, and Dr. Robin Sutherland and Mr. Damon Ansems for assistance in English
language review.
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References
Abraham, T. J., Sil, S. K., & Vineetha, P. (2010). A comparative study of the aquaculture practices adopted by fish
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Table 1. Market potential assessment for fish vaccines in India.
Macro Factor (i) Factor Measure India's
Value
Factor
Weight
(Wi)
Threshold
value
Factor
Score a
(Fi)
Market Size Total fish vaccine doses in India (between
2016 and 2045) (NPV million) (Table-2)
$ 18.35 30% $4.45 3.00
Market Growth
Rate (Higher the
risk score lower
the country‟s risk)
1. Indian aquaculture market growth rate
between 2006 and 2010 (FAO-Statistics,
2010)
9.94% 20% 5% 5.00
2. Real GDP growth rate between 2008 and
2012 (The World Bank, 2012).
7.60% 20% 5% 5.00
3. AAGR of primary energy use between
2004 and 2009 (USEIA, 2009).
7.10%
Country Risk
Rating (Higher
the risk score
lower the
country‟s risk)
Political risk; Overall economic; Access to
banks/capital markets performance; Debt in
default or rescheduled; Debt indicator; Credit
rating (Euromoney, 2012).
52.7 20% 55/100 2.70
Economic
freedom
Economic Freedom Index (EF-Index, 2012) 54.6 20% 55/100 2.90
Commercial
Infrastructure
Paved road density (km per million habitants)
(GOI-MoRTH, 2012).
3,424 10% 1000 4.00
Internet users (per 10 habitants) (GOI-MoCIT,
2012).
0.3 6.0
Telephone subscribers (per 10 habitants)
(GOI-DOT, 2012; ITU, 2012).
7.8 7.0
Total weighted score for market potential 100%
3.42
Overall market potential attractiveness Moderate a Scale of 1 = unattractive and 5 = highly attractive
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Table 2. Revenue forecast and pro-forma income statement for fish vaccines business in India.
Worksheet
Production Year 2013 2014 2015 2016 2017 2018 2019 2020 2021-2045
Market annual growth rate 7% 7% 7% 7% 7% 7% 7% 7%
Total fish production (tons) 5 327 326 5 700 238 6 099 255 6 526 203 6 983 037 7 471 850 7 994 879 8 554 521
Total fish production (kg) 5 327 325 630 5 700 238 424 6 099 255 114 6 526 202 972 6 983 037 180 7 471 849 782 7 994 879 267 8 554 520 816
Total carp production (1kg at harvest)
(87% of total fish production) 4 634 773 298 4 959 207 429 5 306 351 949 5 677 796 585 6 075 242 346 6 500 509 311 6 955 544 962 7 442 433 110
Proportion of fish available for
vaccination from big fish farms (40%) 1 853 909 319 1 983 682 972 2 122 540 780 2 271 118 634 2 430 096 939 2 600 203 724 2 782 217 985 2 976 973 244
Dose Price (USD) a 0.01818 0.01818 0.01818 0.01818 0.01818 0.01818 0.02273 0.02273
Market Potential (USD) 33 707 442 36 066 963 38 591 651 41 293 066 44 183 581 47 276 431 63 232 227 67 658 483
Market Share
5% 8% 15% 25% 35%
Direct Costs as % of sales
10% 10% 10% 12% 12%
Operating Costs as % of sales b
50% 50% 50% 50% 50%
Tax rate
30% 30% 30% 30% 28%
Cost of Capital
25%
Investment (USD)
-3 750 000 -2 000 000
Pro-Forma Income Statement (All in USD)
Project's
Terminal Value
Sales
2 064 653 3 534 686 7 091 465 15 808 057 23 680 469
Direct Costs
-206 465 -353 469 -709 146 -1 896 967 -2 841 656
Gross Margin 1 858 188 3 181 218 6 382 318 13 911 090 20 838 813
Operating Costs
-1 032 327 -1 767 343 -3 545 732 -7 904 028 -11 840 234
Cash Operating Earnings 825 861 1 413 875 2 836 586 6 007 062 8 998 578
Taxes -247 758 -424 162 -850 976 -1 802 118 -2 519 602
ATCOE -3 750 000 -2 000 000 578 103 989 712 1 985 610 4 204 943 6 478 976 23 450 411
Present Value of ATCOE 295 989 405 386 650 645 1 102 301 1 358 740 4 917 908
Present Value of Investments -3 000 000 -1 280 000
NPV 4 450 968
IRR 37.5%
Notes: a Average weight of fish at harvest = 1kg; Price per vaccine dose = INR 1.0 (~USD 0.01818); Wholesale price of 1kg fish INR 40-50 (~USD 0.73-0.91); and Cost of production INR 15-25
per kg fish (~USD 0.27-0.45) (Jha, 2009). Initial investment is estimated based on the need to pay licensing fee to secure existing vaccine technologies from research institutes in India, where as
the expenses included variable costs and operating costs (cost of sales, salaries, taxes, interest expenses etc). b Excluding amortization. Product mix is not included in the study which may further
add to upside potential.
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Table 3. Sales potential macro factors for fish vaccines in India.
Macro Factors (i) Indian Market Situation
Factor
Weight
(Wi)
Factor
Scorea
(Fi)
Number of potential
core customers
A minimum of 153 customers are available in Andhra Pradesh
and West Bengal states (Abraham, Sil, & Vineetha, 2010).
20% 4.50
Clustering and
geographic
concentration
Major biotechnology industrial clusters are located in
Maharashtra, Karnataka, AP, Gujarat and National Capital
Region (Prahalathan, Kumar, & Mazumdar, 2010).
20% 4.50
Special Economic
Zones
158 operational SEZ of which 4 in Biotechnology. In total,
588 SEZ are formally approved of which 32 in Biotechnology
(GOI-MoCI, 2005; GOI-MoCI, 2012). This may enable the
entrant to reduce costs in logistics.
10% 4.50
Advertisement intensity
in population
Direct advertisement in biologics is regulated and hence
informal product awareness through scientific conferences is
possible and the cost is negligible.
3% 5.00
Number of major
aquaculture farms
WB is the leader followed by AP in aquaculture. In addition,
other states namely, Haryana, Karnataka, Orissa, Uttar
Pradesh, Tamil Nadu, Kerala etc are also major producers.
These customers not only serve local markets but also export
to other Indian states (Kumar, Datta, Reddy & Menon, 2010).
4% 5.00
Local import,
legislation and trends
Large international fish vaccines firms do not export to India
due to several constraints (Walker, Lester, & Bondad-
Reantaso, 2005) including their required price margins to
cover overheads to remain profitable which deter the price
sensitive customers (Pallapothu & Krause, 2013). Legislation
is supportive of imports and several import-export tariffs have
been slashed since 1991 (The Economist, 2009).
14% 4.50
Market share from
established companies
of the same industry
No competition in fish vaccines and the Indian government is
open for new product and industry development,
20% 5.00
Market experience with
new foreign companies
In the past, economic nationalism hindered the foreign
companies but since India‟s economic reform in 1991, the
situation has improved significantly with international firms
setting up subsidiaries in India.
10% 4.50
Total weighted score for sales potential 100% 4.63
Overall sales potential attractiveness based on macro factors High a Scale of 1 = unattractive and 5 = highly attractive
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Table 4. Sales potential micro factors for fish vaccines in India.
Potential Partnering
Candidate
AP MH GJ
Micro Factors Potential Candidate Partner
Situation
Factor
Weight
(Wi)
Factor
Score a
(Fi)
Factor
Scorea (Fi)
Factor
Score a
(Fi)
Brand name/value Positive brand name in their
respective segments
10% 4.50 3.00 2.50
Experience in foreign
markets
Experience both in domestic and
foreign animal health markets
5% 4.00 2.00 1.00
Established
distribution channels
Established distribution channels
through institutions and retail line
of business
20% 4.50 3.00 3.00
Degree of innovation
and quality of product
Successful innovators but with
different levels of innovations
serving different segments. Quality
is considered equal as it is highly
regulated.
15% 4.00 3.00 2.00
Price of the product
and price elasticity
Providing affordable products to
different industry segments
20% 4.00 4.00 3.00
Firm's in-house
marketing ability and
strategy
While the foreign entrant is
assumed to have a strong
capability in developing marketing
and overall strategy, the candidate
partners in India have various
levels of international marketing
experiences in animal health
industry
10% 4.50 4.00 3.50
Management
capability
Knowledgeable management teams
with the candidate partners
5% 4.00 3.80 3.50
Customer retention
and relationship
management
Strong relationships with customer
in government agencies,
cooperatives and retail segments
15% 4.50 3.00 3.00
Total weighted score for sales potential 100% 4.28 3.29 2.78
Overall sales potential attractiveness based on micro factors High Moderate Low
Overall weighted score for sales potential (60% macro + 40% micro) 4.49 4.09 3.89
Overall Sales Potential Attractiveness High High Moderate a Scale of 1 = unattractive and 5 = highly attractive (AP = Andhra Pradesh, MH = Maharashtra, GJ = Gujarat)
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Table 5. Sensitivity analysis of the revenue forecasts for fish vaccines business in India.
NPV (USD)
IRRa (%)
COC
(+5%)
Market Share
(-20%)
Dose Price
(-20%)
Operating
Cost
(+20%)
COC
(-5%)
Base
Scenario Constant
COC (-5%) $6 103 526 $6 103 526 $5 045 046 $8 929 054
33.36% 33.36% 31.28% 38.07%
COC (+5%) $1 873 253 $587 137 $587 137 $71 661
36.88% 32.31% 32.31% 30.29%
Market Share
(-20%)
$2 596 640 $1 113 178 $528 501 COC 25%
32.83% 28.60% 26.75%
Dose Price
(-20%)
$2 596 640 $528 501 COC 25%
32.83% 26.75%
Operating
Cost (+20%)
$1 865 794 COC 25%
30.78%
Base Scenario $4 450 968
COC 25% 37.46%
a The percentage presented in parenthesis represent either higher (+) or lower (-) value than that of the base scenario
for the respective variable.
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Figure 1: Process of market assessment and future research topics [Adapted from Natarajarathinam and Nepal
(2012)].
Assessment of macro-environmental factors of an entry country (Pallapothu & Krause, 2013).
Is the country attractive?
Step-1a: Qualitative assessment of market potential at the
country level considering macro factors
Yes (Pallapothu & Krause, 2013)
No
Explore
alternate
markets Is the market
attractive?
Yes
No
Step 1b: Qualitative assessment of sales potential for the firm.
(Sales potential macro and micro factors)
Is qualitative sales assessment attractive?
Yes
No
Step-2: Overall market attractiveness
(Qualitative market potential + sales potential)
Yes
Yes
Step-3: Quantitative estimation of sales potential
(Analysis of NPV, IRR & Sensitivity)
Assessment of competitive forces in the target
industry
Strategy Formulation and implementation
Future Research Topics