From Hollywood to Bollywood

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Online DVD Meets Bollywood

The entry of Quickflix Limited into the India market

MGMT 8505: International Management

MBA Trimester 2, 2011

Tina Brune 20852407

Carl Celedin 19109861

Patrick Gallagher 20805458

Christina Gravdahl 20872627

Nur Farahana Khalid 20893861

Wei Zhe Poh 20605321

Ayrin Tjoe 20727067


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EXECUTIVE SUMMARY

Quickflix Limited is an Australian online DVD-by-mail company where subscribers can

select DVDs and build a queue online through Quickflix‘s website or iPhone application and

receive them from the Australian post. The online DVD rental industry in Australia is currently

undergoing a significant change as after a number of years of intense competition, Big Pond

Movies announced a closing down of their DVD- by- mail service in July 2011. Now that

Quickflix has strengthened their position as market leader, increased paying subscribers 48

percent to 82,000 and are planning to release their new digital streaming service in August 2011,

the company is looking to expand their business internationally. This is part of their forward-

looking business strategy to increase revenue and build a regional brand in Asia-Pacific.This

report presents a case study and in-depth analysis of Quickflix Limited into the Indian market.

India is one of the most important emerging global markets with a growing 20s and 30s age

population, GDP and disposable income levels. Furthermore, with the entertainment and film

industry presence of Bollywood, many opportunities exist to engage with and reach out to Indian

consumers. Therefore, Quickflix has decided to target India‘s young professional, time poor but

technologically savvy emerging middle class through a low cost focus strategy.

The first part of this report, a case study, introduces the current online DVD rental market

in Australia and information concerning the host country India. A country analysis is performed

on India and investigates marketing and government factors, consumer purchasing behaviours,

cost factors and possible entry strategy options that are available to Quickflix. Furthermore, the

current competition, political structure and barriers to conducting business in India are explained.

The second part of the report is an analysis of the case study using international

management frameworks and models. This presents communication and negotiation methods,

different foreign entry modes and partner selection options, IHRM policies, organisational

structures and marketing recommendations to Quickflix‘s entry into the Indian market.

Strategies

Form an international joint venture with local courier company Gati

Enter the Indian market starting with Mumbai

Roll-out the DVD-by-mail service in year 1 of the IJV


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Table of Contents

Executive Summary ............................................................................................................ 2

Quickflix Limited Case Study ............................................................................................ 4

Introduction ..................................................................................................................... 4

Decision Point ................................................................................................................. 7

India ................................................................................................................................ 8

Government Drivers........................................................................................................ 8

Market Drivers .............................................................................................................. 12

Competition Drivers...................................................................................................... 18

Cost Factors .................................................................................................................. 22

Entry Strategy ............................................................................................................... 27

Case Study Analysis ......................................................................................................... 28

Introduction ................................................................................................................... 29

General Business Environment ..................................................................................... 30

Market and Competition factors ................................................................................... 32

Communication and Negotiation .................................................................................. 34

Organisational Structure, Process and Strategy ............................................................ 36

Entry Strategy ............................................................................................................... 40

Ethical Issues ................................................................................................................ 46

Marketing and Segmentation ........................................................................................ 47

Current Issues Facing The Company ............................................................................ 49

Recommendations ......................................................................................................... 50

Conclusion .................................................................................................................... 51

Appendix ....................................................................................................................... 52

References ..................................................................................................................... 61


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QUICKFLIX LIMITED CASE STUDY

INTRODUCTION

History of DVD-by-mail

DVD-by-mail services were first introduced in the USA by entrepreneur Reed Hastings

in 1997. The service allows customers to rent DVDs, Blu-ray Discs and other film media online

for delivery by mail. Examples of such companies include Blockbuster Video Online, Netflix

and LoveFilm. A typical DVD-by-mail operation model can be found below:

Customers join the rental service online and create a list of titles they wish to watch.

The titles from the list are then put into a queue and mailed to the customer once available.

The customer watches the films and then sends them back to the rental company.

Customers are allowed to keep the films as long as they want, but there is a limit on the number of

films rented out at any given time.

Quickflix History

Quickflix Limited is an online DVD-by-mail company based in Perth, Australia. The company

applies a similar business model to the USA-based Netflix Inc and UK-based LoveFilm

International. It maintains a library of 500,000 DVDs and offers a choice of 44,000 DVD and

Blu-Ray titles across 400 genres from its website and iPhone application through trial and paying

subscription based rentals across Australia. Quickflix‘s network of distribution centres in

Sydney, Melbourne, Brisbane, Perth, Adelaide and Hobart handle service with delivery through

the Australian Post to the whole of Australia.

Quickflix was established in December 2003 with a simple website, a distribution centre and

small DVD library. It became publicly listed on the Australia Stock Exchange in June 2005.

DVD sales was added to its product offering in 2006, but was terminated in 2008 as a result of

the global financial crisis and declining DVD sales across the industry. During 2010, the

company achieved the market leader position in the online movie subscription market segment in

Australia with over 68,000 subscribers. This number has grown to over 82,195 at the end of the


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financial year in June 2011, representing a 48% growth from 2010 (Figure 1). Quickflix has

allocated a significant proportion of its expenditure on marketing to attract new customers. This

is expected to increase to over $5 million in 2011.

Figure 1: Quickflix trial and paying subscriber base (Quickflix 2011).

Quickflix Business Model

Quickflix has no physical retail outlet and operates exclusively online. Customer service

is also mainly provided via email or phone. Quickflix partners with Australia Post which handles

delivery of films requested by customers within one day for metropolitan customers and two

days for regional customers. The company also has a network of distribution centres across

major cities in Australia to service its customers nation-wide. Quickflix negotiates different

content rights and pricing with American and Australian movie studios and distributors for its

DVD library. Exhibit 3 in the appendix demonstrates the step by step rental process, and the

various price points and rental volume flexibility offered by Quickflix.

Quickflix‘s primary target markets are young professionals and families who spend a lot

of leisure and recreation time indoors. The company aims to provide a value proposition through

a flexible, simple, convenient and customised experience for its customers. The development of

its technology platform is crucial to deliver this experience to the customers.


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The core competencies of Quickflix‘s business are its technology platform, a

subscription-based model with different price points and monthly volume choices, web-based

queue selection system, its large DVD and Blu-Ray library and its distribution and delivery

system. Quickflix also plans to introduce its leading-edge digital streaming services to customers

in August 2011.

Australia Market

Australia is predominantly a middle-class society with an unemployment rate of 5.1%. In

2009, approximately 61% of total households had an annual disposable income of more than

US$45,000. In purchasing power parity terms, 36% of Australian households had an annual

disposable income of more than US$75,000 while 10.5% had an annual disposable income in

excess of US$150,000.

Attending the cinema is a popular social activity especially among young Australians.

The rise of technological progression and decreasing equipment prices have driven an increase of

household technological spending on items such as DVD players. It is estimated that only 16%

of Australian households did not have a DVD player in 2011 (Euromonitor, 2010c).This number

is expected to decrease to 12% in 2015 and to 11% in 2020(Euromonitor, 2010c). Consequently,

an increase in DVD sales is expected over the coming years.

Australia‘s annual A$600 million video rental market is dominated by the traditional

rental store networks with over three million annual customers. The main video rental outlets are

Video Ezy, Blockbuster, Civic Video and Network Video. Furthermore, large Australian retailers

such as, K-Mart, Target, Big W, Myer, JB Hi-Fi, Sanity and Harvey Norman are including

DVDs in their product offerings.

Internet retailing in Australia has grown by 47.4% amounting to nearly A$2.9 billion in

2009. Despite this growth, Australian household expenditure on internet retailing is still

relatively low in international terms. Currently there are four DVD-by-mail companies including

Quickflix in Australia (Table 1).

Pay TV in Australia is delivered either through cable or satellite for a monthly

subscription fee. FOXTEL is Australia's leading subscription television provider and is

connected to over 1.63 million subscribing households through retail and wholesale distribution.


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FOXTEL commenced distributing its services on cable with 20 channels in 1995 and increased

its offering to 45 channels in 2002. The FOXTEL Digital service was launched in 2004 and

FOXTEL is now giving Australian viewers the choice of more than 200 digital channels.

Table 1: Summary of Australian Online DVD Rental companies

Company Name DVD Titles Summary

Big Pond Movies 44,000 Inception since 2003 by Telstra and have distribution network all

over Australia. Introduced the ability to buy movies online, which

can be downloaded and played on the computer for a limited amount

of time. Only service which offers a 12 month contract.

DVD Direct 10,000 Inception since 2002 operating in WA. Only service which offers

both DVD and video game rental and sales service.

WebFlicks 17,000 Inception since 2003 operating from two distribution centres.

The global entertainment market

The Global Entertainment & Media (E&M) industry has grown 2.2% in 2009 and was

valued at US$13 billion. The E&M industry is dominated by TV, print and filmed entertainment,

and the majority of revenues came from the non-digital segment. However, due to the increasing

access to Internet, broadband and smartphone, the E&M industry is expected to continue to

migrate to digital format. In 2009, digital accounted for 24% of spending and is expected to rise

to 32-33% by 2014. It is expected that, globally, in the next five years, digital technology will

progressively increase dominance.

In overall, the E&M industry in North America, EMEA (Europe, Middle East, Africa),

Asia Pacific, and Latin America will increase from $1.3 trillion in 2009 to $1.7 trillion in 2014,

growing at a compounded annual rate of 5%. Spending in Asia Pacific increased by 1.3% in

2009 and will average 6.4% compounded annually through 2014, rising to $475 billion in 2014

from $348 billion in 2009. Excluding Japan, Asia Pacific will increase at a projected 9.2%

compound annual rate during the next five years. Therefore, the global E&M market outlook is

promising.

DECISION POINT

On 5 of July 2011, Quickflix entered into an agreement with its competitor Big Pond Movies

who announced that it was shutting down its DVD-by-mail business on 30 September 2011. This


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agreement provides additional payments from BigPond Movies DVD customers transferring to

Quickflix and the BigPond Movies DVD library acquisition. Therefore, with success in the

home-market and enormous control of market share, Quikflix has started to consider

international expansion. The market of India with the size of its entertainment industry,

popularity of Bollywood in Mumbai and distribution system in place has presented an exciting

opportunity for Quickflix.

INDIA

Entering the Indian market presents both challenges and opportunities for Quickflix.

India covers an area of 3.3 million sq. Km (Exhibit 1), extending from the snow-covered

Himalayan heights to the tropical rain forests of the South, and is the seventh largest country in

the world (CIA, 2011). India is the second largest country in the world by population which

supports currently 1.18 billion people (CIA, 2011). Internet and technology are embraced by the

younger generation with a median age of just 26.2 years in the country. As one of the most

important emerging markets in the world and the opportunity to build a regional brand in Asia-

Pacific, the potential market for Quickflix is present. However, Quickflix will also face

challenges such as regulatory inefficiencies, poor infrastructure, piracy and cultural distance

between India and Australia.

GOVERNMENT DRIVERS

Political System

India is a democratic country with a federal republic government of 25 states and seven

union territories. The president of India is the head of the republic and the first commander of

chief of India‘s armed forces (UBC, 2008).The United Progressive Alliance (UPA) won the

election in 2007 with their left centred politics and nominated Smt. Pratibha Devisingh Patil as

the first female president of India.

Political and Regulation Barriers and Risk

Corruption presents one of the largest political risks to foreign investment in India.

Corruption involves government officials accepting bribes to give advantage to private

businesses to reduce regulation and accelerate legislation process (Collins et al., 2009). India

experienced a major scandal in 2010 involving 122 licenses for 85 MNCs that were under priced


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and manipulated to favour some companies. This scandal cost the Indian government US$39.33

billion (BMI, 2011).Despite the high corruption rate, anti-corruption movements have also

flourished involving thousands of anti-corruption activists (Suri, 2011).

India also ranked relatively high for its ineffective governmental processes that hinder

smooth and effective practice (Morris, 2010). For example, there were 597 infrastructure projects

facing delays in 2010 (BMI, 2011).

Another challenge is the change in government and the constant discussions and conflicts

between caste, religion, socialists, leftists and capitals which leads to the rules being changed

randomly. Though the Indian market welcomes foreign enterprises, they also have nationalistic

laws that protect India‘s local businesses (UBC, 2008).

India has recently reformed its FDI policy allowing foreign firms to invest directly in

India either on their own by setting up a branch office or wholly-owned subsidiary or as a joint

venture with an Indian partner (Ernst&Young, 2010). This reform is meant to encourage

investment and allow foreign firms to invest without prior government approval (Khan, 2011).

FDI up to 100% is allowed to proceed under the automatic route for most sectors except for retail

trading (RBI, 2010). India allows only 51% of FDI in single brand retail and no FDI is permitted

for multi-brand retail (Guruswamy et al., 2010). Exhibit 15 in the appendix provides a summary

on the level of FDI allowed in the E&M industry.

Trade Blocs

Being the leader of the developing world and the Non-Aligned Movements (NAM), India

strengthens its political and commercial ties with United States, Japan, the European Union

(EU), Iran, China, the Association of Southeast Asian Nations (ASEAN) , the South Asian

Association for Regional Cooperation (SAARC) , the World Trade Organization (WTO) and has

remain a long participant in United Nations (UN) peacekeeping operations (State, 2010).

Historical Context

When India became independent in 1947, the signs for prosperity and growth were

propitious; it had a large domestic market, a diversified natural resource base, large supplies of

skilled and semi-skilled labour, sufficient home-grown entrepreneurship, an efficient


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bureaucracy and a political leadership seemingly committed to development (Lal, 1999).

However, the next few decades were characterised by strong centralised planning, government

ownership of key industries, excessive regulation of private enterprise, trade protection and a

general ‗inward-looking‘ economical approach(Prasad, 2008). In 1991, India started to change its

economic policy by privatising government-owned firms, mobilising the labour market,

introducing automatic approval of foreign investment and lifting import restrictions on

intermediate and capital goods (Lal, 1999) .

Gross Domestic Product (GDP)

India is ranked as one of the top economies in the world in terms of purchasing power

parity (PPP) of the Gross Domestic Product (Figure 2).

Figure 2: India GDP growth rate (TradingEconomics 2011).

As you can see from Figure 2, India‘s GDP has been relatively robust over the years. The

average GDP rate from 2004 to 2010 was 8.4% with highest point of 10.1% in 2006 and lowest

point of 5.5% in 2004. GDP growth has slowed towards the end of 2008 and early 2009 due to

the global financial crisis. However, India‘s economy has recovered and GDP expanded to 7.8%

by the end of the first quarter in 2011 (TradingEconomics, 2001).Despite the robust GDP

growth, income distribution is highly unequal in India. The top 10% of the population earns 31%

of the country‘s income and the lowest 10% earns merely 3.6% (InternationalBusiness, 2011).


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Employment

Unemployment rate fell from 9.2% in 2005 to 8.6% in 2008. However, it rose again in

2009 to 9.1% due to the global financial crisis. An increase in unemployment leads to a decrease

in consumer spending, since there are no unemployment benefits that one can claim in India.

Unemployment rates were particularly high among the 25-29 years old age groups (21%) and 30-

34 year olds (17%) with these age groups representing the majority of workforce for the IT

sector. However, the economy has since recovered with as many as 230,000 jobs are estimated to

be created in 2010 in healthcare, real estate, IT, education, manufacturing and Banking, Financial

Services and Insurance (BFSI) sectors (Euromonitor, 2010c) .

Disposable Income

Disposable income per capita in India grew by 11% from Rs36,020 in 2005 to Rs39,857

in 2009 (Euromonitor, 2010c) .The biggest growth is seen in the middle income households with

disposable income between US$10,000 and US$25,000, which constituted 5.4% of the total

households in 2009. This proportion has increased from 2.6% in 2005 (a growth of 127%). The

second highest rise can be seen in households with disposable income between US$5,000 and

US$10,000, which constituted 22.4% of the total households in 2009. This proportion has

increased from 12.9% in 2005 (a growth of 86%). The proportion of well-off households, those

with an income above US$25,000, has increased from 1.0% in 2005 to 1.5% in 2009

(Euromonitor, 2010c) .

In 2009, the highest earners were the 35-44 year olds, followed by the 25-29 year olds.

The rise in average income of the 25-29 age group can be attributed to growth of the information

technology enabled services (ITES) sector, which has created employment for people in this age

group. In addition, this age group prefers to complete their education to a Masters level and this

allows them to obtain higher salary (Euromonitor, 2010c) .

Inflation Rate

Inflation rates have increased to all-time high levels in recent years. Driven

predominantly by higher food and fuel prices, India's annual inflation rose from 1.4% in May

2009 to 10.2% in May 2010. The high inflation rate implied a significant reduction in household


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disposable income (Euromonitor, 2010c) .Forecasts for India's 2011/12 inflation are set at 7.9%,

on the back of surging oil prices globally and heightened demand side pressures

(moneycontrol.com, 2011).

Savings rate

Indians consider savings as highly important, especially for the education of their

children and for retirement support. Around a third (34%) of their monthly income goes in

various forms of savings. According to the Central Statistical Organisation (CSO) Indians are

among the largest savers in the world with a savings rate of 32.5% of GDP in 2008-2009

(Euromonitor, 2010c). Financial savings constituted around 50% of household savings in 2008-

2009. The share of bank deposits in financial savings, increased from 33% in 2000-2001 to 55%

in 2008-2009. (Euromonitor, 2010c).

MARKET DRIVERS

Social and Cultural Barriers

India has a diverse culture with several different ethnic groups with various customs and

behaviour patterns. Hindu is the main religion practiced in India but Christianity, Islam, Sikhism,

Buddhism and Jainism are also practiced. The caste system is also widely accepted within the

Indian society. The caste system is a hierarchy that places individuals from birth into distinct

categories. Social responsibility and appropriate work are assigned for individuals within the

categories (Manian, 2011). Although this type of discrimination exists, in urban India different

classes work side-by-side and foreigners are not expected to treat individuals of different classes

differently (Manian, 2011). It is not uncommon, however, for local leaders to give orders to less

superior caste employees who then follow these without question (Nehruzii).

The British colonisation of India has had a significant impact on language (Mahtani,

2006). Hindu is the most common language spoken in India, but people are often trilingual with

the mix of Hindu, local language and English. There are 18 official languages recorded in India

and more than 1600 local languages. 15 % of the population speaks English although the

language is modified to suite the Indian culture. India also has the highest illiteracy rate in the

world (which represents approximately 33.8% of its population).


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Doing business in India

Being aware of cross-cultural communication barriers is important when doing business

in India (Mahtani, 2006). The word ‗no‘ is perceived as confronting, hence negotiations can be

ambiguous (Mahtani, 2006). Messages in communication are at times misunderstood e.g.

western people might utter ‗that‘s impossible‘ meaning a challengeable task (Mahtani, 2006),

whereas the same message can be interpreted in India as an unaccomplishable task. Body

language and humour are also culture related. Body language is essential due to the implicit high

context culture of India.

It is not uncommon for business meetings to be delayed in India. Although there can be

legitimate reason for the delays, to an extent the delay is cultural related (Mahtani, 2006). It is

also essential to establish good relationships between expatriates and their host counterparts

because trust and social power is seen as important for future successful business. Due to the

legacy of the caste system, it is common to address leaders as Mr and Mrs and either first name

or second name. The formality is there to keep a distance between work and social life.

However, relationship is still prioritised before business(Nehruzii).

Business meetings can be perceived as laid back and informal. It is common to have

frequent interruptions, food during the meeting, and small talk between participants. Meetings

can therefore take more time and be perceived as ineffective, but it is part of building trust

(Nehruzii). Dress codes in India are similar to Western style, however it is important for women

not to expose too much skin (Nehruzii).

Consumer Purchasing Habits

Indian consumer expenditure grew steadily by 22.5% between 2005 and 2009 as income

levels increased. India is forecasted to become the fifth largest consumer market in the world by

2025 with an expenditure market of US$ 1.7 trillion from US$430 billion in 2009 (Euromonitor,

2010a).As can be seen in Figure 3, expenditure on DVDs and VCDs is placed fifth in the

hierarchy above categories such as eating out, accessories, home line accessories and going to

the movies and theatre (Singhal, 2009).

Spending time with family and watching TV together is highly valued as leisure activities

in India (Euromonitor, 2010b) .In cities such as Delhi, Mumbai and Kolkata, households watch


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15 hours of television per week. Women that stay at home watch in excess of 2 hours of

television daily in the afternoon, which has impact on the television broadcasting during the

afternoon. India‘s soap operas with Indian actresses, scenes and spoken in Hindu are usually

telecasted during the afternoon. Indian youths spend 98 min a day on average watching

television, 32 minutes reading news, 44 minutes reading magazines, 70 minutes surfing the

Internet and 61 minutes listening to the radio (Euromonitor, 2010a).

Figure 3: Categories of consumption in India (Singhal, 2009).

Movie rentals from mom-and-pops operations are becoming part of the past (Prasoon,

2010). A recent study conducted in cooperation with Bigflix states that the Indian DVD

consumers within 18-35 years age group prefer online rental. The main reasons for this attraction

were convenience, price, variety and privacy. Table 2 summarise the finding of the research.


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Table 2: Summary of findings on Indian Online DVD Rental consumers

Cost at which DVD are bought by the companies Rs 300

Average run by a copy 20 consumers

Cost of renting one movie Rs 15

Average numbers of movies ordered 12

Courier charges per delivery Rs 2

Cost of supplying movies per month per to costumers Rs204

Average monthly plan prescribed by costumer Rs 650

Net profit margin Rs 446

Mobile and Internet Usage

Indian consumers have a remarkable appetite for digital content. In fact, they consume an

average of 4.5 hours of it daily across offline channels such as television, DVDs, and CDs. This is

being driven by a market of 826.93 million mobile phone users with 66 percent being in the urban

areas. However, just 17 million are mobile-internet users (or less than 1percent of the total

population) but this is growing tremendously. India has 12 telecommunication firms offering

mobile phone internet access.While India is a relatively poor country, more than 70 percent of its

urban consumers already spend about $1 a month on content and services through offline,

unorganized retail channels—a market estimated to be worth more than $4 billion annually. The

average price of smart phones that deliver much richer content, including video, is falling rapidly

already nearing $125, which is significantly less than the cost of PCs. Mobile devices also are

inherently easier to operate than PCs, and the ability to access web sites with a single touch or a

voice command. The mobile Internet could deliver the personalized entertainment that Indian

consumers crave. If India‘s latent demand is unleashed, the total number of Internet users will

increase more than fivefold, to 450 million, and total digital-content consumption will double, to

as much as $9.5 billion by 2015 to $20 billion representing 184.5 million mobile internet users

(Figure 4).


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India‘s base of 81 million internet users is the world‘s third largest and has been steadily

increasing since 2000 with a projected 100 million users by 2011. However, this figure is a

function of sheer population, not acceptance as this is just 7 percent of the total population in

2010 and 8.5% in 2011 (Figure 4), which means it is one of the lowest penetration rates in Asia.

Furthermore, only 20 percent of India‘s urban citizens are connected to the Internet. This low

rate is driven by the cost and ease of access to Internet services and infrastructure development in

rural areas of India that support broadband establishment or PC availability. In urban area,

however, households PC penetration rate has doubled between 2008 and 2010, which means 28

million people have PCs in their homes. The desirability of obtaining a PC is also rising from

35- 57% within the middle class of India (Manaktala, 2010).

India is currently experiencing a rise in online video content as a result of the increase in

internet users. 71% of the total internet audience consumes videos monthly, resulting in 1.7

billion total videos and 5 total hours per viewer (Figure 5). Most of this time is spent on

YouTube with 78% of all Indian monthly unique viewers where entertainment and multimedia

consist of the top two video categories. Furthermore, 66% of the visitors are males, which are

predominantly in the 15-34 age range, while females account for 34% with a large percentage in

the 35-44 age range (refer to Exhibit 6 for further details). The increase of internet usage has

also changed consumer pattern behaviour. Online shopping is now perceived to be more reliable

and consumer numbers are increasing (Rastogi, 2009). The e-commerce market has increased

from $227.6 billion in 2010 with projections of $395.56 billion in 2011 and $785.12 billion by

2015. However, about 75% of this comes from travel related expenses such as airline and rail

Figure 4: Share of Internet use by channel in India

(Narasimhan, 2011) Figure 5: Online Video Monthly Figures for

India (Comscore,2010)


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tickets. Online Retailing comprises about 12.5% of the industry with close to 10 million online

shoppers and is growing at an estimated 30% annually.

Indian consumers choose online shopping mainly because of greater variety in products

and convenience. 46% of consumers buy less than five products annually and around 26% buy

up to ten products annually. Out of these consumers, 61 % pay for goods on delivery, whereas

26% buy and pay for the goods online and the remainder search for products online and purchase

goods in stores. The number of credit cards in India has witnessed noteworthy growth during the

recent years and this is expected to reach around 28 million by 2014, reflecting a CAGR

(compound annual growth rate) of around 13% between 2011 and 2014. However, credit card

penetration is just 2-3% in India, and many consumers are wary about the security of booking

online. Exhibit 5 presents the number of annual credit card transactions in India.

Consumers of the Indian market are used to promotional giveaways. These are often

given in conjunction with purchases of electrical appliances. They come in the form of toiletries

and snacks. Indians are also price sensitive and seek value for money (Chennai, 2005) .However,

Indian consumers are also becoming more service oriented and prefer reliable and quality goods.

Accordingly known brands and organized retail chains are seen as more accountable and have

become increasingly popular. Indians are also becoming more environmentally aware and are

therefore interested in environmental friendly services and products (Chennai, 2005) .The growth

in disposable income has shifted the consumer savings mentality to spending mentality.

Social networking is also popular in India. There are more than 29 million Facebook

users in India, and 75.9% of them are in the 18-34 age group. This is growing at 10.71%

monthly, representing a penetration of 2.51%. Mumbai alone has around 3.6 million Facebook

users representing 18.8% penetration rate (SocialBakers, 2011) .Furthermore, Indian users are

the 2nd

most populous country on Linkedin with over 10 million users representing a 0.89%

penetration rate and Orkut also has over 20 million Indian users accounting for a 20.2% market

share.

Consumer Perceptions of Local and Foreign Products

India‘s entertainment and media market is booming. Indians tend to prefer Bollywood to

Hollywood movies. Bollywood movies are usually musicals with melodramatic story lines. The


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success of the movie is largely dependent on the quality of song and dance presented.

Bollywood movies are unrated and children usually watch the movies together with their

families. However, the demands for Hollywood movies, western fashion and music are also

growing. Exhibit 7 in the appendix outlines the preferred movie type, language and source by the

Indian population.

COMPETITION DRIVERS

Domestic Competition

India‘s domestic media and entertainment industry has increased by 11% to $14.5 billion

(Rs 652 billion) in 2010 with an estimated growth of 12.4% to $23.15 billion ($1.040 Rs trillion)

by 2014 (Exhibit 4). The industry, however, still continues to be dominated by traditional media

such as television, print and filmed entertainment. Furthermore, digital spending in India has not

been growing at the same pace as that internationally due to the lack of adequate digital

infrastructure . However, Internet advertising is expected to increase to Rs 15 billion by 2014

representing a 20% growth. Quickflix‘s entry into the Indian market will be impacted by direct

competitors in the home video segment and indirect competitors in television, digital streaming

and cinema from both domestic and international companies.

Home Video Segment

The home video segment in India represented revenues of Rs. 6.5 billion in 2009 and is

expected to grow to Rs. 12 billion in 2014. India is heavily affected by piracy which accounts for

600 million DVDs sold annually representing $1 billion dollars worth of revenue

(FilmIndustryNetwork.Biz, 2010). Increasing initiatives by the Government to curb piracy as

well as decreasing dependence on rental market and growing digitisation will drive the home

video market.

There are currently five major domestic competitors in the online DVD rental space in

India which include BigFlix, SeventyMM, Clixflix, Cinesprite and M (Exhibit 8). However,

unlike online DVD rental companies in other countries, Indian companies individually charge a

security deposit, registration fee and membership fee ranging from Rs. 150 to Rs. 500.

Furthermore, the business format in India comprised of both online and physical retailing with a

business model of sell-through from rental (Figure 6). Sell-through from rental accounted for


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100% of sales in 2004 and is expected it will capture 90% of the market by 2014. This will

inherently lead to sharp declines in rental spending (PWC, 2010).

Figure 6: Typical India Home Video Value Chain (PWC 2010).

Digital Streaming

The digital streaming rental segment in India started slowly in the early 2000s but in

2008 expanded with iTunes India and now has included major players Big Flix, SeventyMM,

Eros and Shemaroo. However, in India, only limited episodes of a few TV shows are streamed

online legally, but movie production houses and distributors on the other hand are slowly opting

to make full length feature films available on the Internet and their choice for distribution seems

to be YouTube (Zdnet, 2011). The cost for streaming a movie online in India ranges from $1 to

$2 (Rs. 38.2 to 68) per view, which include the content rights fee of Rs. 20 to Rs. 50 and

bandwidth and server costs.

Cinema

Watching movies is the most popular social activity across all socio-economic classes in

India and over fourteen million people attend movie sessions daily, representing about 1.4% of

the population. Driving the film industry in India has been the Bollywood genre, which is the

largest film producer in India and one of the largest centres of film production in the world.

There are 10,000 theatres in India, comprised of multiplexes and single screen theatres. The

Cinema market is dominated by two domestic major players, Big Cinemas and PVR Cinemas

and an international player, Cinepolis from Mexico (Exhibit 9).


Page 20

In the last three years there has been a decline in the industry of box office revenues by

20% from $2.3 billion in 2008 to $1.85 billion in 2010 which can be contributed to the economic

slowdown and a major strike in the multiplex industry in 2009. However, the Indian film

industry is projected to grow 12.4% over the next five years, with a focus on regional areas.

Television

The television industry in India is an integral aspect of family tradition. As a result,

television households escalated to 124 million in 2009 from 118 million in 2008, indicating a

penetration rate of 60% within the country. The industry is projected to continue to be the major

contributor to overall industry revenues and is estimated to grow at a healthy rate of 13.0%

cumulatively over the next 5 years. Subscription revenues form the biggest share of revenues for

the television industry, accounting for 62%, while the rest goes to advertisement and content

revenues. India is dominated by five cable television networks and one government owned free

to air network (Exhibit 10).

International Competition

International competition in the Indian market has also been prevalent in recent years

through a number of acquisitions and mergers as well as the presence in India from the top six

motion picture studios of 20th

Century Fox, Warner Brothers, Disney, Paramount Pictures,

Universal and Sony Pictures. The US and International film industry in India had an estimated

size of Rs 3 billion ($66 million) in 2009 and is expected to increase steadily. Sony Pictures

Televisions International (SPTI), recently, acquired Channel 8, a Bengali language film channel

to mark its increase presence in the regional space. Disney has also distributed three channels

devoted to the children market in India.

Marketing and Promotional Strategies

Quickflix must recognize the most suitable and effective ways of marketing and

promoting itself to Indian consumers, if it was going to set up its online DVD operations and

service in India. They need to position themselves as an affordable low cost product offering an

extensive library of titles, guaranteed and speedy delivery and a high-quality and reliable

technology platform. Furthermore, the Indian consumers are also very interested in ease of

access and the complete user experience, which is reflected in the fact that a majority of online

DVD companies have established either physical stores or drop boxes to complement their


Page 21

website service. These stores and drop boxes are located in high traffic areas such as malls and

are concentrated in larger cities such as Mumbai, Delhi, and Bangalore which can act as a

vehicle to increase the company‘s brand awareness and some even offer free trial promotions.

A traditional marketing strategy has been around the bundling of services including

rental, sell-through and the availability of up to 15,000 titles of international and Indian

languages. Another marketing channel has been the use of 3rd

party logistic services for delivery

which provides a highly visible presence and promotion of the company and its website through

their vehicles and even some rickshaws throughout each of the cities. Furthermore, the websites

of online DVD companies in India in conjunction with its digital streaming services have been

adapted to act as a platform for increasing brand awareness and technology expertise by offering

the ability to watch upcoming movie trailers thus driving traffic. The emergence of social media

has also been an integral medium for marketing and promotions through contests and branding

and banner advertising on Facebook, Orkut and Linkedin (Exhibit 11). BigFlix has expanded its

presence on Facebook with 34,710 Facebook fans representing 3.26% growth and even have

included an application for users to download to add movies to their queues. Furthermore,

SeventyMM has 17,360 Facebook fans and have been running 25% off sales and 75% off rentals

mobile coupons to fans who ―like‖ their page in cooperation with Mastercard and the Mumbai

Indians of the India Premier League.

In India, advertising is still controlled by the three main mediums of television, print and

outdoor advertising. Although the popularity of these three mediums in India is extremely high,

the prices are very expensive. Star India charges RS 90,000 to 450,000 for a 10 second television

advertising spot and during the recent Cricket World Cup rates increased to as much as 1.7

million rupees for a 10 second spot. However, both SeventyMM and BigFlix have continued to

invest in majority television advertising with numerous campaigns. BigFlix even received some

recognition for their very successful campaign titled ―Don‘t kill blockbusters. Choose original

DVDs over pirated ones‖, which was complemented with television and print advertising.

Furthermore, Online DVD companies have also been using local television and print to launch

new products and services at hotels and clubs through celebrity endorsements. Lastly, internet

marketing has been increasing due to its cost-effective and tracking metrics where MovieMart

has focused solely on search engine marketing through Google India.


Page 22

COST FACTORS

Setting up a Business

India is ranked 134 out of 183 economies in the ease of doing business with Singapore

being the top ranked nation (IFC, 2011). Setting up a business in India is very challenging and

difficult due to their long delays in legal formalities and procedures (Exhibit 12).

Despite the poor rank, starting up a business in India has improved recently due to the

computerisation method introduced by the government. It takes an average 29 days to start a

business and only 12 initial procedures are required with cost as low as USD 560 (IFC, 2011).

However, the estimate excludes procedures of dealing with permits, registering property, trading

across borders, enforcing a contract, getting electricity, employing workers and closing a

business. These activities can take years for foreign firms to complete. However, average total

costs that foreign firm can spend is limited up to USD 4000 (IFC, 2011).

Location Factors

India stands apart from the rest of Asia, surrounded by mountains and the sea, which

gives the country a distinct geographical entity (India.gov.in, 2011). Well-plugged information

can easily be found in localized business areas such as New Delhi , Mumbai , Chennai ,

Ahmedabad , Bangalore and Calcutta (Buyusa.gov, 2011) . In addition to these cities, there are

30 other cities in India with a population of more than 1 million people. Each of them has its own

unique advantages and drawbacks.

Relative cost of real estate is rising fast across India with Mumbai ranked as the 4th most

expensive market in terms of office space rentals in the world and New Delhi the 11th (ET,

2010) . Occupancy cost per square feet in Mumbai is USD130.41 annually, while that of New

Delhi is USD 101.21. However, rents have started to stabilize slowly since 2010.

Distribution System

Distribution systems in India involve many intermediaries between companies and retail

customers. Multiple channels and multiple layers are common; although each layer may be

relatively inexpensive, the cumulative costs can be substantial (Bhalla et al., 2007). This system

is designed to isolate foreign companies from end-customers and their changing preferences.


Page 23

India‘s retail sector also ranks among the lowest in terms of organised distribution system in the

world1 (EconomyWatch, 2011).

Availability of Labour Law and Labour Costs

With a rapidly growing middle-class, demand for education is high among all levels

(Kumar, 2010). Despite India‘s high illiteracy rate, there are currently over 100,000 Indian

foreign students studying abroad in the USA (Euromonitor, 2010b).Hence there is an abundance

of law, engineering, management, and science graduates available for foreign businesses in

India. With the recent downturn in the United States, more English speaking foreign students are

returning to India to complete their studies.

While many foreign companies are initially attracted to India because of the low labour

costs, low health workers‘ compensation and other insurance costs, the basic yearly salaries in

India differ with regards to their position and job nature. The salary of a managerial position can

go as high as USD 225,000 or as low as USD 5,500 per year (CCI, 2011) . According to the CCI

database, a marketing and sales person earns as high as USD 110,000 basic salary a year and can

go as low as USD 2,200 a year for junior levels, whereas the minimum average salary of

administrative job is about USD 2,000 per annum but an executive salary could earn USD

10,000 a year.

Expatriate and Repatriation Cost and Training

Expatriates in India are among the highest paid globally, and many expats receive

relocation packages, including monthly complimentary rent housing up to Rs 600,000

(Hattaway, 2011). However, cost of living in India can be relatively high particularly in Mumbai

and New Delhi due to the high property prices.

Expats residing in India must pay income tax, which is calculated on a progressive scale.

There is no tax on salaries less than Rs 160,000 per year; 10% on an amount earned between Rs

1 Distribution in the retail sector especially is measured by the reach of its products to people and implies

the dispersion among the organised and unorganised stores ECONOMYWATCH. 2011. Retail Distribution in India

[Online]. Economy Watch. Available: http://www.economywatch.com/business-and-economy/retail-distribution-

india.html [Accessed 6th July 2011 2011].. Retail store is nominated as organised only when it features more than

10 employees.


Page 24

160,000 and Rs 300,000; 20% on an amount earned between Rs 314,000 and Rs 500,000 and

30% on an amount earned above Rs 500,000 (Hattaway, 2011).

Infrastructure: Power, Telecommunication and Transport

India‘s power generation is estimated to be around 174.3 GW, with the private sector

contributing around 21% of the capacity. Even with increases in the last few years, power

generation has not kept pace with the growth in demand, which has resulted in power shortages

throughout the country. Hence most factories and offices require backup power in the form of

diesel-fired generators and batteries (IFC, 2011). In addition, the costs of setting up an electricity

connection in a newly constructed building may reach up to Rs 200,000. The Indian Minister of

Power, however, has set a goal to deliver ―Power for All by 2012‖ (Powermin, 2011).

Currently, almost half of the population does not have access to electricity (Euromonitor,

2010b).

Within a population of 1.18 billion people, India represents the world‘s largest

technology, communications and media market. Since the liberalisation of the

telecommunications market in the early 1990s, the national incumbent (BSNL) still controls 75%

of the Indian fixed-line market. Fixed-line telephones connection is still one of the lowest in the

world at 18.8% in 2009. This has grown from 13% in 2004, largely due to the increase in

consumers‘ incomes and strong economic growth. Internet connection is relatively expensive in

India and only 2.8% of Indian households had a broadband connection in 2009 (Exhibit 13). The

government, however, has set out a policy to connect India‘s rural population to the digital

network, along with its district offices. It is forecasted that more than 15% Indian households

will have access to Broadband connection by 2017 (Exhibit 14).

India has the fastest growing market for mobile phones. Household possession of mobile

phones was 18.4% in 2009. There was a good GSM network coverage of about 70% of the

country in 2010 with a current 3G network being planned for the near future (BBC, 2010).

However the plan costs approximately US$1.0 billion to implement, which will be a major issue

for 3G operators in India.


Page 25

Financial Institutions and Foreign Exchange Restrictions

The banking sector has experienced extensive reforms since the 1990s. This has resulted

in more competition, although the public sector still dominates. Other types of entities in this

sector include the private sector and foreign banks (Chakrabarti et al., 2008). The rupee is freely

allowed to be exchanged on the trade market by foreign companies. In addition, any foreign

capital invested in India is allowed to expatriated, along with any profits or dividends, provided

any taxes have been paid.

Availability of Energy Resources

India suffers from a shortage of domestic fossil fuels required to meet the energy

demands. Fossil fuels provide up to 65% of the energy output required to meet energy demand.

The Ministry of Power estimates that by 2020, over half of fossil fuels required to meet energy

demand will have to be imported. Coal, oil and gas supplies are slowly diminishing. The

government is looking to renewable and nuclear energy to continue to meet the growing demand

of a burgeoning population.

Accounting and Legal System

The accounting and legal systems in India are well established, albeit slow-moving

(2009). The system is based on British law and legal system. India has a written constitution

and is based on common law with individual and property rights. The major laws affecting

foreign investment are the Foreign Exchange Management Act 1992; the Companies Act of 1956

and the Competition Act of 2002 (Rathinasamy et al., 2003).

India has strong labour laws that make it difficult for an employer to arbitrarily remove

and mobilise employees. They also varies with different states , territories and districts (Carver,

2010). Other laws include protections of intellectual property rights, anti-trust regulation,

Negotiable Instruments Act 1881, the Sale of Goods Act 1930 and the Arbitration and

Conciliation Act 1996. This varied and complex nature of business investment, accounting and

tax laws ensures a tough time is in store for any new foreign business in India.

The accounting standards in India are developed and issued by the Institute of Chartered

Accountants of India (ICAI). The government has proposed a move to accept the International

Financial Reporting Standards (IFRS) over the next few years which will be an advantage for


Page 26

foreign companies moving into India. The ICAI may even allow foreign companies to issue

yearly reports based on these international standards even before it becomes mandatory to do so.

India‘s entertainment law includes the copyright law of 1957 which says that copyright is

a right granted under law to creators of literacy, dramatic, musical and artistic works and

producers of cinematograph films and sound recording in respect of their creation. Copyright

ensures certain minimum safeguards of the rights of authors over their creation thereby

protecting and rewarding creativity (Copyright.gov.in, 2009).The creation of ―rental right‖ in the

act in 1994 for copies of films , sound recordings and computer software was one major

improvement (LexisNexis, 2009) . The 1994 Amendment stated that the copyright owner would

have the exclusive right to control the resale and/or hire of a copy of a film or sound recording

even after its first sale (EBC, 2010) . This has prevented the development of a legitimate second-

hand market in films without the consent of copyright owners and disallowed the recognition of

the first sale doctrine. In 2000, the information technology act was amended which provides that

if any person without permission of the owner or any other person who is in charge of a

computer, computer system or computer network shall be liable to pay damages by way of

compensation to the person so affected for the following: If they engage in the business of

downloads, copies or extracts any data, computer data base or information from such computer,

computer system or computer network including information or data held or stored in any

removable storage medium (Copyright.gov.in, 2009).However , India has not yet enacted

legislation on protecting technological measures and digital rights management information that

conform with the Internet treaties (LexisNexis, 2009).

Taxation Issues

The corporate income tax effective rate for domestic firms is 30% while the profits of

branches in India of foreign companies are taxed at 40%. 7.5% surcharge also applies to

domestic companies and 2.5% for foreign companies if income exceeds Rs 10 million (Deloitte,

2011). Companies incorporated in India (any setup other than a branch) even with 100% foreign

ownership, are considered domestic companies under the Indian laws.

However, the Export-Import Policy of 1992 provides substantial tax incentives for

investments in export. Major exporters are allowed to operate bank accounts abroad to facilitate

trade. Companies that sell in the Indian market as well as international markets may deduct


Page 27

export earnings from their tax liabilities. Exporters and other foreign exchange earners have been

permitted to retain 25% of their foreign exchange earnings in foreign currency. For 100% Export

Oriented Units and units in Export Processing Zones, Electronic Hardware Technology Parks,

retention up to 50% is allowed (Outsource2India, 2011).

The government is attempting to implement a uniform value-added tax across states ; the

system is currently plagued with differential tax rates for various states leading to increased costs

and complexities in establishing an effective distribution network (Bhalla et al., 2007).

Availability of domestic capital market to local and foreign business

Doing Business in India 2011 has ranked India 32 out of 184 in ―Getting Credit‖. A fully

functioning and well regulated banking sector exists for local and foreign companies alike to

obtain credit from the domestic market. The credit market is robust with a wide range of

financial institutions to choose from. The capital markets are run by the Securities and Exchange

Board of India (SEBI) and now rank as some of the most mature markets in the world.

ENTRY STRATEGY

One of the most critical decisions associated with a firm‘s international strategy is the choice

of foreign entry mode. Many factors will affect the foreign market entry choice including the

cultural, legal, political and economic environments. In addition, host-country market size and

market potential will also contribute to the method of foreign market entry. There are numerous

modes of entry to a foreign market for a firm; however they are not all mutually exclusive. In

any market (or country), one firm could avail itself of more than one entry mode. Different

modes suit different firms at different times and in different markets. However, the main factors

that decide which mode of foreign entry is chosen are ‗degree of control‘ and ‗resource

commitment‘. For Quickflix, there appears to be only three options available under the current

market conditions.

1. Establishing a wholly owned subsidiary in one or several of the major markets in India

(for example Mumbai, Chennai, Delhi);

2. Entering into a joint venture (JV) with a local distribution agent;

3. Not to enter the Indian domestic market at this stage.

Page 28

CASE STUDY ANALYSIS

Figure 7: Strategy-Structure-People-Performance (Ganganahalli,, 2011)

General Business Environment • PESTLE • Hofstede Cultural Dimensions

Market and Competition Factors • Porter’s 5 Forces

Entry Strategy • Joint Venture with Local

Partner: • Location of Entry: Mumbai • Negotiation Process

Organisational Structure • Porter’s Generic Strategies • Porter’s Value Chain

People • 5 Model Factor I-HRM • MBI Model

Ethics • Corruption

Strategy – Structure – People - Performance

Performance


Page 29

INTRODUCTION

This part of our report consists of an analysis of the case study presented in Part A. This

section identifies the critical issues faced by Quickflix‘s entry into the Indian market, and uses

appropriate theoretical concepts and international management models to evaluate the

international strategies and processes applicable to Quickflix.

Our analysis is based on a modified version of the ―Strategy-Structure-People-

Performance‖ framework, developed by Michael Porter (Ganganahalli, 2011). Each section of

this framework ties in together to deliver our conclusion and recommendations.

A summary of the recommendations are made (both short term and long term) at the end

of this section, in addition to a conclusion regarding the method of entry into this market.


Page 30

GENERAL BUSINESS ENVIRONMENT

There are many factors that can influence a company when entering a new market in a

foreign country. The PESTL analysis framework is developed to capture these elements in

political, economical, technological and legal aspects (Table 3). The PESTL analysis is very

useful for Quickflix in strategic planning, marketing, research and development (Kotler, 1998).

Table 3: PESTL Analysis

Political

Stable democratic politic environment

Corruption is one of the largest risk factors for investors – High corruption rate

Anti-corruption movements

Governmental bureaucracy

Random change of rules and regulations

100% FDI allowed to proceed in entertainment industry.

Considered the leader of developing world

Trade blocs such as NAM , EU , ASEAN , SAARC , WTO and UN

Long delays in legal business procedures to set up a business in India are common

On average, 29 days and 12 procedures are required to start business

Business areas are New Delhi, Mumbai, Chennai, Ahmedabad, Bangalore and Calcutta

Economical

2nd

largest country in the world - population supports 1.18 billion people

One of the top economies in the world in terms of purchasing power of gross domestic

product

India‘s GDP expanded to 7.8% by the end of the first quarter in 2011. The average GDP rate

from 2004 to 2010 was 8.4%

Disposable income per capita is growing, especially in the middle income households

Rise in average income of 25-29 age group attributed to growth of the information technology

enabled services (ITES) sector

Inflation rate rose from 1.4% in May 2009 to 10.2% in May 2010

34% of monthly income in various savings

The corporate income tax effective rate for domestic firms is 30%

The profits of branches in India of foreign companies are taxed at 40%

High unemployment rates among the age group of 25-29 and 30-34 representing IT workforce

India is among the largest savers in the world with savings rate of household savings in 2008-

2009


Page 31

Social and Cultural

7th

largest country in the world, covers an area of 3.3 million sq. km

Population median age is 26.2 years

Diverse culture with different ethnic groups

Language barrier: Most common language spoken is Hindu, though 15% speak English

India has the highest illiterate rate in world

Working environment is highly hierarchal due to the cast system where Indian leaders

delegate and demand without being questioned. Foreigners are not to treat individuals in low

rank cast differently.

The word ―No‖ is perceived as confronting

Delay in business meetings is not uncommon

Important to establish relationship with business counterparts before business is conducted

Trust and social power is important

Important to address leaders as Mr and Mrs and either first name or second name

Laid back and informal business meetings are not uncommon

Young generation embraces internet and technology

High valued leisure activities in India are spending time with family and watching TV

together

High penetration rate among younger generations who rely on Internet

Real estate in the major cities in India is very expensive and cost of living is high

There is tension between Pakistan and India over the territorial claim of Kashmir, which

periodically cause outbreak of violence

There exist longstanding history of violence and breach of human right initiated by the Armed

Forces of India

―Quick‖ in Hindi language means any area of the body that is highly sensitive to pain (PMA,

2011).

Technological and Legal

Power shortages are common

Half of the population has no access to electricity

World‘s largest technology, communications and media market

Fixed line telephone communication is one of the lowest in the world at 18.8% in 2009 but

increasing

Expensive cost of internet connection

Fastest growing market for mobile phones

Micro level transportation systems

Low level of infrastructure projects

Will adopt the International Financial Reporting Standards (IFRS) over the next few years

Retail sector is the most disorganised distribution system in the world

India has British law and legal system based on common law with individual and property

rights.

India has stringent labour laws

Intellectual Property and Content Rights create barriers to entry for foreign companies

Low labour cost

India has the highest paid expatriates globally


Page 32

MARKET AND COMPETITION FACTORS

Industry Attractiveness

Two things determine your company‘s profitability, namely, the industry in which it

competes and its strategic position in the industry. Strategists need to understand and cope with

competition which includes their view on the five competitive forces that shape the strategy of

rivalry, customers, substitute products, potential entrants and suppliers (Figure 1). Quickflix‘s

entry into India will be impacted by a number of factors including internet penetration, reliable

transport and distribution systems, IP rights and protection, consumer demand and purchase

behaviour (Table 1).

Figure 8: Porter‘s 5 Forces (Porter, 1987)

Table 4: Porter’s 5 Forces (modified by author)

Industry Rivalry Threat Level

Fierce competition from Online DVD companies in India from two big

players, Big Flix and SeventyMM

Numerous small companies operating similar business models

Growing entertainment industry and home video segment in India

Increase in media content competitors such as television, retail DVD and

illegal downloads

High

Medium

Medium

High


Page 33

Supplier Power Threat Level

Reliance on third party packaging, distribution networks and courier services

Reliability of payment processing companies and systems

Control of movie studios and production companies whom control DVD

release dates, and content rights with different pricing structures

Internet hosting companies and platforms

High

Medium

High

Low

Buyer Power Threat Level

Fluctuations in customer demand influenced by release date, celebrity

appeal, different types of genres, award winners and language formats

Low switching costs for end users due to numerous competitors

Increase of disposable income levels for middle-class people

Increase in population of 11.1% and 20% for people in their 20s and 30s

respectively

Consumer purchasing behaviour of DVD expenditure among all consumer

categories

Low credit card penetration levels for consumers

High

High

Medium

High

Low

Medium

Threat of New Entrants Threat Level

Content and Distribution License from film studios and production

companies

DVD retailers such as MoserBaer, Eros and Shemaroo moving into the

online DVD market

Major corruption and bureaucratic red tape to start a business (12 licenses

and 29 days)

Issues with internet capabilities, technology and bandwidth storage

Infrastructure (transport, electricity and utilities) in place

Intellectual Property protection for technology platform and content rights

for DVD library

Reliability and location issues of distribution and delivery systems and

logistics

Complementary products such as television sets and DVD players are

required for use

High

Medium

Medium

Medium

High

Medium


Page 34

Threat of Substitutes Threat Level

Leisure and entertainment alternatives at home such as internet browsing,

digital streaming, books, magazines, video games, radio and television

Recreational alternatives away from home such as movie theatres, theme

parks, sporting events , music concerts, live theatre , restaurants and bars

New entertainment and media content options (iPad, Google+)

Medium

Low

Low

COMMUNICATION AND NEGOTIATION

Communication

Cultural distance influences social and business interactions. Therefore, Quickflix needs

to manage these cultural differences in order to avoid miscommunication and other unintended

consequences. Hofstede‘s (1993) cultural dimensions have been used in the analysis to highlight

the different cultural behaviours between Australia and India (Figure 9). As can be seen,

Australia and India differs widely on power distance, long term orientation and individualism.

Quickflix needs to understand the implication of these underlying characteristics when running

its operation in India.

Figure 9: Australia & India Cultural Dimension (Hofstede, 2009)

.

As Indians are a highly collectivist culture, they are generally group-oriented. Asserting

individual preference is seen less important than maintaining harmony even in a business

36

90

61

51

31

77

41

56

39

61

PDI IDV MAS UAI LTO

Australia & India Cultural Dimension

Australia India

PDI: Power DistanceIDV: IndividualismMAS: MasculinityUAI: Uncertainty Avoidance

LTO: Long Term Orientation


Page 35

context. Consequently, a direct ‗no‘ answer is never given and open disagreement should be

avoided (Katz, 2008). Building relationships is also important prior to the start of any business

discussions. Due to the difference in long term orientation, Indians will expect commitment to a

longer term business relationship than Australian. In a high power distance culture such as India,

status distinction is highly valued. Hence addressing the appropriate professional or academic

title is very important (Katz, 2008). Status difference can also be observed in daily conversation

between subordinates and supervisors.

Negotiation

Table 5 lists the following aspects of cross-border negotiations with potential Indian joint

venture partners that need to be considered.

Table 5: Aspects of Cross-Border Negotiations for Indian market

Negotiation Aspect Description and Application to India

Attitudes and Styles Negotiations tend to follow formal procedures but

atmosphere tend to be relaxed (Metcalf et al, 2006).

Negotiation style tends to be competitive, but in

overall Indians value long term relationships and seek

for win-win solutions.

Negotiation Pace As India is highly collectivist and power distance,

Quickflix can expect a slow negotiation pace as

decisions are made by the consensus of senior ranking

officials. In addition, there is a strong preference to

develop relationships first before getting into serious

business discussions (Katz, 2008).

Consequently, Quickflix needs to take this into

account during negotiation and a initiate negotiation

process as early as possible in anticipation of the slow

negotiation pace.


Page 36

Bargaining The bargaining stage in a negotiation process can be

extensive and price can moved more than 40% from

initial offer to final agreement (Metcalf et al, 2006).

However, overly aggressive bargaining style should be

avoided as it may affect trust.

Decision Making When making decisions, Indian businesspeople tend to

consider personal feeling and emotions (Katz 2008,

Metcalf et al 2006). Therefore, arguments based on

emotional appeals are more convincing than factual

based appeals.

Agreements and Contracts It is important to note that signed contracts may not be

honoured on time, deadlines are viewed as important

but delays can still be expected. Flexibility to change

the condition of the contract is also expected.

ORGANISATIONAL STRUCTURE, PROCESS AND STRATEGY

Organisational Structure

The design of the organisational structure for the JV was based on Porter‘s value chain. The

value chain provides a systematic way to divide the firm into its discrete activities, and thus can

be used to examine how the activities in the firm are and how it could be grouped. Table 6

demonstrates the activities within the value chain in the proposed JV. From the activities

illustrated in Table 6, Figure 10 describes the proposed organisational structure for the JV. The

organisational structure in the JV is grouped into activities under organizational units such as

Marketing, Technology, Services, Finance and Administration which would be directly reporting

to the Chief Executive for the Indian market.

Page 37

Table 6: Value Chain for Quickflix in India

Firm

Infrastructure See figure 10 for detailed organisational structure

Marg

in

Human Resource

Management

Software

developers –

Expat & Locals

Training &

Development

Expats

Local full time &

part time workers

Expats

Locals

Local full time &

part time workers

Technology

Development

Website design

for the India

market

Information

System

development

Inventory Control

System

Online payment

System

Customer

demand

Indicators

Customer

Database

Customer call

centre support

System

Procurement

Computer

Hardware and

Software

Computer

Services

Transportation

Services

DVD Suppliers /

Publishers

Media Agency

Services

Call Centre

Services

Inbound Logistics

Operations

Website

maintenance

Outbound

Logistics

Warehousing

Orders processing

Product

distribution

Marketing & Sales

Advertising

Promotions

Strategic

Alliances

Customer

preference search

engine

Service

Customer Service

Representative

Notes:

1. Inbound Logistics: Activities associated with receiving, storing and disseminating inputs to the products.

2. Operations: Activities associated with transforming inputs into the final product form.

3. Outbound Logistics: Activities associated with collecting, storing and physically distributing the product to buyers.

4. Marketing and Sales: Activities associated with providing a means by which buyers can purchase the product.

5. Service: Activities associated with providing service to enhance or maintain the value of the product.

Page 38

Figure 10: The Proposed Global Geographic Organisational Structure – Quickflix.


Page 39

Human Resource Management

Staffing for the JV is an important component in the strategy implementation process. It

is expected that Quickflix will be required to send a few of its Australian based managers to

assist with the business in India. It is important that the selection of expatriates is performed

carefully whereby the potential issues for expats in India taken into consideration. Table 7

illustrates the 5-factor model used to highlight the potential issues for Expats in India.

Table 7: 5 Factor model of I-HRM (Reid 1999)

Factor Potential Issues for Expats in India

Home Company Appropriate compensation rewarded to international managers

Lack of in-country support or discrimination to international managers at

different levels

No future career planning and policies in place for repatriation back into home

country

Local Company & Job The adaptability of managers to two different organisational cultures resulted

from the JV

International managers who have gone ―native‖

Expatriate Executive The selection process should be based on international experience and

willingness to relocate.

The possibility of experiencing culture shock

Spouse & Family International managers who have spouses with dual careers and schooling

children

High cost of living particularly main business areas

Lack of time and preparation during the relocation process

Country & City Issues Exposure to government corruptions

Local violence (the rich and poor gap in the second largest population in the

world behind China)

Low language barrier (15% of the population speaks English)

International Managers must understand the different cultural perspective and maintain

communication with employees to manage the culture gap. Language in India where only 15%

of the population speaks English can potentially be a huge barrier for managers who wish to

communicate with local employees. Therefore, the MBI model described in Figure 11 shows that

selectively choosing an international manager with cross cultural skills and the appropriate

leadership skills is essential.


Page 40

Figure 11: The MBI Model (Lane et al.,2006)

ENTRY STRATEGY

Entry Mode

The decision on the mode of foreign entry is a significant strategic choice for international firms.

The choice of entry modes depends on the required involvement, risk factors, cost and the

returns of investment. Table 8 shows a summary of the five main entry modes into foreign

markets for international firms. Quickflix needs to take into account these factors when making a

decision on how to enter the online DVD rental market in India.

Table 8: Characteristics of Entry Mode

Type of Entry Mode Degree of Control/

Involvement

Systemic Risk

Dissemination Risk

Resource Commitment

Cost Returns

Export Moderate Low Low Low Low Low

Licensing Low Low High Low Low Low

Franchising Low Low High Low Low Low

Joint Venture Moderate Moderate Moderate Moderate Moderate Moderate

Wholly Owned Subsidiary

High High Low High High High

Source: Adapted from Phatak et al (2009)


Page 41

Quickflix will be mainly looking for an entry mode with medium to high control and

medium to high returns, resulting in international joint venture (IJV) and wholly-owned

subsidiaries (WOS) as the preferred entry mode. Table 9 presents an analysis of the suggested

two entry modes for Quickflix to consider in India.

Table 9: Entry modes advantages and disadvantages

Entry Strategy Advantages Disadvantages

International Joint

Venture (IJV)

Market Entry

Provides local knowledge and

connections

Transfer of technology resources

Joint Product Development

Risk and Reward sharing

Partner can get around government

regulations and legislation

Loss of control

Issues of goal congruency

Takes time to build the right relationship

Different cultures and managements can result in

poor integration

Potential problems of mistrust over proprietary

technology

Wholly-owned

subsidiary

Complex and costly, but gives full

control to the firm

Provides the most potential to provide

above average return

Offers the fastest and the largest initial

international expansion of any foreign

entry mode

Method to achieve greater market

power.

Increased difficulty of operating in India without

local partner and no contacts

Contains high risk due to the costs of

establishing a new business in a new country.

Integrating two organisations can be quite

difficult due to different organization cultures,

control system, and relationships

Takes much time due to the need of starting new

operations and distribution networks,

The IJV is an opportunity to take Quickflix‘s existing product into the new foreign market

(Figure 12) where risk and reward sharing is present. Therefore, the decision for Quickflix is to

enter into an international joint venture with a local partner in India. Furthermore, this entry

mode is less costly and risky than a WOS and offers the advantages to gain the local knowledge

and connections from a partner, whom in return can gain a transfer of technology resources from

Quickflix.


Page 42

Figure 12: Motives for International Joint Venture Formation

Source: Beamish, P (2008), Modified by Author

Partner Selection

Successful IJV‘s emphasizes on building relationships, creating a mutual understanding and

share values and having a long-term vision and commitment. Therefore, the selection of an IJV

partner who brings complementary operation skills and resources, which a venture requires for

its competitive success, is of paramount importance (Geringer and Hebert, 1991). Quickflix has

identified the following potential business partners for an international joint venture in India:

International motion picture studio and distributor

Local motion picture studio and distributor

Local online DVD company

Established ‗brick and mortar‘ rental store

Local courier and delivery service

Table 10 summarizes an analysis of Quickflix potential business partners.

New

Ma

rket

s

To take existing products to

foreign markets

To diversify into a

new business

Ex

isti

ng M

ark

ets

To strengthen the

existing business

To bring foreign products to

local markets

Existing Products New Products


Page 43

Table 10: Quickflix potential business partners

Business partners Description Decision

International motion

picture studio and

distributor

Quickflix is not able to provide enough financial capital to become

associated with large motion picture studios and distributors.

Can also be a conflicting venture as Quickflix normally pays content

rights to the distributor to maintain its library at a higher cost for

mostly Western films and blockbusters.

No

Local motion picture

studio and

distributor

While very intriguing and exciting, this option does not provide

Quickflix immediately with a large enough DVD library to service the

needs of the India consumer whom has a genuine interest in both

local Hindi films and international blockbusters.

No

Local online DVD

company

Joining forces with an existing DVD rental company would benefit

Quickflix because the existing company has local knowledge, contacts

and experience in running all aspects of the business.

The partner can also utilise Quickflix’s relationship with the six major

motion studios in Australia to their Indian subsidiaries.

However, potential conflicts are most likely to occur over control and

the strategic direction of the business unless the Indian company is

happy to put Quickflix management in control of the operation and

strategies.

No

Established ‘brick

and mortar’ rental

store

IJV with an established physical rental store does not strategically fit

with the Quickflix business model and vision.

This option would require a high capital investment with overhead

costs of labour, inventory and rental space, which contradicts the

low-cost, high inventory, web-based format.

No

Local courier and

delivery service

The advantage of partnering two completely different businesses to

achieve the overall goal of delivering DVDs to customers in the

shortest and safest way possible.

The partner would provide the expertise of local knowledge with its

network of distribution channels.

Quickflix would provide the expertise with its technology in website

development and mobile applications as well as its knowledge in the

online DVD business.

However, drawbacks include possible safety issues in regards to

theft, piracy and receiving no support for DVD marketing and

business dealing in general.

Another possible issue is the difficulty for the courier business to

diversify into a new business with no background or knowledge of

the industry.

Yes


Page 44

The best decision for Quickflix is forming an IJV with Gati who offers customised and complete

3rd

party logistics including warehousing and distribution centre management services (refer to

Table 11 for further analysis). The IJV will go by the name Quickflix Gati Limited and will be a

50-50 split with each partner sharing risk and rewards.

Table 11: Analysis on Potential Joint Venture Partner for Quickflix

State owned

/ Private

Products /

Services

Service Area

Coverage

Pros Cons

India Post (India Post

2011)

Government

owned

- Mailing

services for

residential &

commercial

customers

- Financial

services

- Insurance

products

Widest

distribution area

coverage in

India (covered

both urban and

rural area in

India)

- Tracking system

available

- India Post aimed to be

IT capable by 2012

- Speed Post service

available (guaranteed 1

delivery)

- Poor customer service

and reliability reputation

due to years of monopoly

- India Post do not offer

warehousing services

DTDC India

(DTDC India, n.d.)

Private - Courier and

infrastructure

services for

commercial

customers

Major cities in

India. Regional

offices in

Bangalore,

Delhi, Mumbai.

- Offer customised

infrastructure solutions

for e-commerce

business

- Tracking system

available & Extensive

IT capability

- Extensive list of

current both

international and local

clients (e.g. Citibank,

Dell, IBM, Sony, LG,

Ford, Hyundai, Toyota,

Novartis, Vodafone, etc)

- DTDC do not offer

warehousing services

M.J. Services Logistics

(MJSL 2010)

Private - Courier and

infrastructure

services for

commercial

customers

- Warehousing

and

Distribution

centre

management

Delhi &

Mumbai.

- Offer customised and

complete 3rd Party

Logistics and Supply

Chain solutions for

individual clients

(including warehousing

and distribution centre

management services)

- M.J. Mainly deliver to

wholesalers or distributors

(predominantly handle

large or bulk volumes)

- Specialising in FMCG,

limited experience with e-

commerce businesses.

Gati (Gati, n.d.)

Private &

Public listed

company

- Courier and

infrastructure

services for

commercial

customers

- Warehousing

and

Distribution

centre

management

Connects to 622

districts out of

626 districts in

India

- Offer customised and

complete 3rd Party

Logistics and Supply

Chain solutions for

individual clients

(including warehousing

and distribution centre

management services)

- Extensive IT capability

& investment in

warehousing

- Similar to M.J. Gati

mainly handle large

volume delivery


Page 45

Location Selection

Quickflix must select its first point of entry in India after selecting the international joint venture

route and the local courier service of Gati as its partner. Therefore, the IJV of Quickflix Gati

Limited has identified the cities of Mumbai and Bangalore as potential first point of entry into

India (Table 12).

Table 12: Comparison of Bangalore and Mumbai for India Entry

Location Advantages Disadvantages

Bangalore Silicon Valley of India

Largest number of broadband Internet

connections in India

Fastest growing major metropolis in India with a

46.69% growth in the past 10 years

Fortune 500 technology companies such as Intel,

Microsoft, Google, Oracle, IBM and Yahoo have

their offices in Bangalore

Economic growth of 10.3%

9.59 million population

10% of population lives in slums

Lacks the infrastructure of Mumbai

Traffic is near-impossible to navigate during

the rush hour

Mumbai Financial and commercial capital of India as it

generates 6.16% of the total GDP

One of the world's top 10 global centres of

commerce in terms of financial flow

Entertainment capital of India with the home of

Hindi films, Bollywood

Sony Pictures, 20th

Century Fox, Universal and

Paramount Pictures have office locations here

Low cost of human capital with English speakers

Many of India's numerous conglomerates and five

of the Fortune Global 500s are based here

Ranked among the fastest cities in India for

business start-up in 2009

12.4 million population (6th

in the world)

18th

most populous city in the world on Facebook

with 3.672 million users

Gati presence in Mumbai region

50% of the city‘s population lives in poverty

Widespread unemployment, poor public health

and poor civic and educational standards for a

large section of the population

4th most expensive office market in the world

High standard of living cost as it is ranked 75

on the international standard of living index

Declining population for the last 10 years

http://en.wikipedia.org/wiki/Broadband_Internet


Page 46

The decision for Quickflix-Gati Limited is to enter India in Mumbai. Mumbai presents the IJV

with a much larger market potential and already has a major entertainment and film presence

with Bollywood and the American movie studios with Indian subsidiaries. This shows that

people are genuinely interested in movies and will be motivated to try a new service.

Furthermore, Gati has an existing distribution network in the city and warehouses located just

outside Mumbai with a planning location in Mumbai being currently undertaken.

ETHICAL ISSUES

By far the most important ethical issue for Quickflix in India is the issue of corruption.

There exists a cultural norm at all levels of society that almost expects that if you need to get

anything done (especially in connection with local regulatory bodies or permits), then someone

will be expecting some form of ‗under the table‘ handout. If the payment is not made, then it is

likely that a request will be made directly to help with the request ―at some stage down the line‖.

Quickflix needs to make it clear from the start that they will not be paying bribes. This is

easy to say, but not so easy to do. In general, a bribe is a voluntary payment made to a public

official to induce them to do something in violation of their lawful duty or to exercise their

official discretion in favour of the payer‘s request for a permit, contract or other privilege. If

Quickflix find themselves in such a position where some form of compensation will need to be

made in order to encourage a local official to perform his job, then a ―facilitation payment‖ can

be made. This distinction needs to be clearly made. That is, the payment does not cause

detriment to another company (for example if another company missed out on a permit or a

contract), but rather allows the government official to complete his civil service role. For

example, if Quickflix is applying for a local permit and has met all the legal conditions required

of them, and all that is required is for the official to perform his job and approve the permit, then

a ―facilitation payment‖ can be made. Therefore, Quickflix needs to develop a code of ethics that

clearly communicates management‘s expectations and a formal program must be put in place to

implement the code.


Page 47

MARKETING AND SEGMENTATION

Marketing in India will very transferrable from the Australia market with some adaption

to fit the India market. BigFlix and SeventyMM currently are focused on a mass market

marketing strategy by using print, television and retail marketing to attract consumers.

Quickflix as a niche product needs to focus on the young professional, technology savvy,

time poor segment with a middle class income. This segment, which is growing at 11.1% in the

20s and 20% in the 30s, is one of the largest growing segments in India and there is enormous

competition for their money and time. This segment, if not adequately managed, may lose

interest in the service and switch to other competitors. As a result, Quickflix needs to implement

a marketing strategy of benchmarking the competitors while also adapting marketing channels

from the Australia market to India (Table 3).

Positioning

The three generic industry strategies of either pursuing low cost or differentiation or

focus to a broad market or a narrow market explains the strategic positioning that Quickflix

needs to use in the India marketplace (Porter, 1985).

Quickflix‘s two main competitors, BigFlix and SeventyMM, have focused on the mass

market with numerous stores and a different focus than the traditional physical rental store.

Through the market positioning and the general business environment, the strategic choice for

the Quickflix JV is to become the lowest cost leader in a cost focused strategy tailored at their

main target segment in order to gain market share (Figure 13). This can be accomplished my

offering plans similar to what is done in Australia with one, two and three DVDs priced below

major competitor rates.


Page 48

Figure 13: Porter‘s Generic Strategies (Porter, 1987)(modified by author).

In order for Quickflix to reach the young professional, technology savvy, time poor segment with

a middle class income, the following marketing strategies are being recommended (Table 13).

Table 13: Quickflix-Gati Limited Marketing Recommendations

Marketing Strategy Application Target Market/Partner Advantages

Social Media Marketing Increase brand awareness

and presence on Facebook

and Orkut through targeted

banner advertising,

promotions, fan page and

regular updates

Gen Y (18-34)

In-House Campaigns

Partner with JV on

promotions

Social Media Sponsorship

with IPL

India 3rd

largest country on

Facebook with 32 million

people

CPC rate of $0.59 and

$0.25 CPM

Mobile Marketing Mobile marketing burst

campaign to introduce new

service to Gen Y mobile

users in Mumbai offering

rental promotions and

increasing brand

awareness

Partner with inmobi who

has a reach of over 5

million consumers in

India.

Asia Strong top box

Acceptance of Mobile ads

CPM Rates of $1-2

Market well positioned

Less media division than

developed

markets

Healthy market today

Outdoor Advertising Quickflix Gati Limited

branded bikes, rickshaw

Everyday Indian

consumer

Differentiates company

from other Online DVD

1. Cost Leadership 2. Differentiation

3. Cost Focus 4. Differentiation Focus

Competitive Advantage

Com

peti

tive S

cop

e

Broad

Target

Differentiation

Narrow

Target

Lower Cost


Page 49

and scooters with website

address, logo and colours

to be used for delivery

purposes

Partner with Reckon

Advertising as a vendor

competitors

Increases brand presence

throughout Bangalore

Channel Partnerships Partnership with local

healthcare systems ,

insurance companies and

financial institutions, to

offer members trial

subscriptions

SPS Apollo Hospitals

State Bank of India

Reliance Industries

Emphasis on social

responsibility

Increase community ties

Sponsorship Partnership with the Indian

Premier League as the

home video category

sponsor

IPL

IPL Vendor List for

partnership and promos

500 million weekly Indian

consumers

Enormous Brand

recognition

Event Marketing Promotional giveaways

and street team in high

traffic areas such as

sporting venues, malls and

movie theatres

Gen Y

Young Professionals

University students for

street team

Low Cost

Increase trial subscriptions

Increases brand recognition

CURRENT ISSUES FACING THE COMPANY

The online DVD industry in Australia has been rapidly changing with Quickflix

continuing to expand and increase its market share with the news of Big Pond Movies. On the

13th

of July 2011, the organisation announced a partnership with Sony to launch its streaming

rental service via their internet-connected TVs by the end of 2011. Then, on the 21st of July,

Quickflix completed a private placement that raised $4.675 million from investors. However, as

the organisation is planning to introduce its upcoming streaming service, increase the prices of

its monthly plans, and sign on Big Pond customers to Quickflix, there is uncertainty facing the

organisation in the future. The DVD and rental industries globally have been declining steadily

and this is a major threat facing the long-term sustainability of the company. Furthermore, the

introduction of the national broadband network in Australia with completion by 2015 is likely to

introduce new domestic and international competitors in the digital streaming segment.


Page 50

RECOMMENDATIONS

Quickflix‘s entry into India needs to ensure an efficient and effective IJV for both

partners. Therefore, recommendations have been made for Quickflix in doing business in India

(Table 14) as well as short-term and long-term corporate goals (Figure 14).

Table 14: Recommendations for Doing Business in India

Detailed analysis of the general business environment and competitive drivers

Quickflix should recognise the ―high power distance‖ culture in India.

Quickly needs to establish who is in charge and ensure that Quickflix sends an equally important person

(i.e. Founder and Executive Chairman Stephen Langsford) in the organisation to communicate with the

joint venture partner.

Quickflix needs to try and work on building relationships before getting to the details of the arrangement.

In India, more effort is put into building the relationship first, then dealing with the business issues later.

This is because once you have a good working relationship, then the agreements over business issues

should be easier to agree on.

During negotiation, prepare to spend plenty of time, and do not expect decisions to be taken either quickly

or lightly.

India has a long term orientation, which means that open disagreement should be avoided. The agreed

contract is always changing, as the relationship is more important than the written contract.

An organisational structure based on Porter‘s ―Value Chain‖ structure has been proposed for Quickflix in

India which was grouped into activities under organizational units such as Marketing, Technology,

Services, Finance and Administration.

Quickflix will need to send some expatriates from Australia with the knowledge of the core business and

embed the global corporate culture into the local workforce. Managers in India, particularly leaders of the

organisation, will need to commit and support a code of ethics which says no to bribery and corruption.


Page 51

Figure 14: Quickflix Corporate Goals and Implementation for India

CONCLUSION

Quickflix currently has a successful online DVD business in Australia and as a result

Quickflix started to look to international markets to expand their business, increase revenue and

build a regional brand in the Asia-Pacific region. Therefore, Quickflix preferred entry mode into

the Indian market is through an international joint venture. The major aspect for Quickflix to be

successful in India is that the partner has to have an extensive distribution network and logistics

already in place. Therefore, it is recommended that Quickflix will form an IJV with local courier

company Gati which will be known as Quickflix Gati Limited and initially be located in

Mumbai.

The target market for Quickflix Gati in India is the technology savvy, time poor, young

professional and burgeoning middle class. Quickflix will target this segmented market with a low

cost product and service as an alternative to current online DVD competitors in India. The

company will primarily utilise the channels of social media marketing on Facebook and Orkut

and mobile marketing through a new service burst to increase brand awareness, trial subscription

and membership plans.

Year 1

•Roll-out DVD- by- mail business in Mumbai market

•Establish relationship with movie studios and distributors for DVD library content

• Increase brand awareness though marketing channels and distribution

Year 2

•Roll-out digital streaming business

•Expand library database

• Increase distribution to Bangalore and Delhi markets

•Return expatriate managers back to Australia

Year 3-5

•Continue roll-out to more Indian markets (Chennai, Hyberabad, Agra)

•Re-negotiate content rights and structure with studios

•Re-evaluate the direction of the IJV and partner objectives (Year 5)

•Explore possibility of buying out the 50 percent stake in the JV from Gati or selling 50 percent stake to Gati


Page 52

APPENDIX

Exhibit 1: Map of India. (Athaia,2010)


Page 53

Exhibit 2. Annual economic data and forecast for India.(IFS, 2011)


Page 54

Exhibit 3: Quickflix Step-by-step rental process and volume offering (Quickflix 2011).

Exhibit 4: Projected Growth of Indian E&M Industry in 2009-14 (PWC 2010).

Exhibit 5: Annual credit card transactions in India (TOI,2010).


Page 55

Exhibit 6: India's Online DVD consumer profile (Comscore 2010).

Exhibit 7: Movie type preferences, language preferences and reasons for watching movie in India(Prasoon,

2010).


Page 56

Company Name Location Number of Titles

Summary

BigFlix Ahmedabad,

Bangalore,

Chandigarh,

Chennai, Delhi

NCR, Hyderabad,

Kolkata, Mumbai

and Pune

15,000 BigFlix is the largest video-on-demand, online and offline

movie rental service in India offering Indian and

international titles. Subscribers can rent movies from a

BIGFlix store or queue them up online for free home-

delivery. Discs can be returned at any BIGFlix store or via

Pick-up requests, through SMS, email or telephone

ClixFlix Mumbai 10,000 As the first online DVD service in India, ClixFlix DVD

Club has been at the forefront of pioneering the movie rental

revolution - first with an online model in 2004 and shortly

thereafter with physical format stores and a centrally located

phone-in ordering model.

CineSprite Delhi 10,000 CineSprite was founded in March 2006 and offers a library

of including Hindi, regional and international selections.

Subscribers are able to order movies online, through SMS or

walk-in rentals from the chain of Express Counters with the

flexibility to choose the shipping option and flexibility to

return their movies via pick up or at any Express Counters.

MovieMart 300 Cities Unknown MovieMart is India‘s first subscriptions based DVDs, Blu

Ray‘s and PS3 games rental service. They are only rental

service in India serving more than 300 cities where they

have partnered with Blue Dart a leading multinational

courier company. Also launched first Blu-Ray service in

India in 2009.

SeventyMM Bangalore, Mumbai,

Delhi

20,000 SeventyMM is India‘s largest movie rental service with

original movies in 14 languages and from every genre. They

also provide offering free delivery and pick-up, not charging

any late fee as well as with constant customer care, technical

support and plenty of rewards.

Exhibit 8: Online DVD Rental companies currently operating in India (Source : Company‘s website).

Film Exhibitor Name

Summary

Cinepolis Cinepolis is a Mexican chain of movie theates. It has made a blueprint to operate 500 screens in

India with an investment of Rs 1,500 crore and the result is the signing of deals with 12

developers in eight cities for setting up 110 screens.

Big Cinemas India‘s largest cinema chain with over 516 screens spread across India, US, Malaysia and

Netherlands and caters to over 35 million consumers. BIG Cinemas has established leadership

in film exhibition in India with 253 screens and accounts for 10 to 15% of box office

contributions of large movies.

PVR Cinemas PVR Cinemas is one of the largest cinema chains in India. By introducing the multiplex concept

in India, PVR Cinemas brought in a whole new paradigm shift to the cinema viewing

experience: high class seating, state-of-the-art screens and audio-visual systems. PVR has a total

of 142 screens in 33 multiplexes across India. PVR commands a significant presence in New

Delhi and NCR with 37 screens in 13 multiplexes. PVR recently launched its premium brand,

PVR Premiere, targeted at urban consumers in metros

Exhibit 9: Cinema operators in India(Source : Company‘s website)


Page 57

Television Network

Summary

Colors Television Colors is a Hindi language Indian general entertainment channel based in Mumbai, part of

the Viacom 18 family, which was launched on July 21, 2008. Currently, the channel is featuring

a number of successful shows, such as Balika Vadhu, and Bigg Boss 4, Uttaran, Naa Aana Is Des

Laado and Laagi Tujhse Lagan. The channels' most popular show, Balika Vadhu has been ranked

in the TOP 5 shows of Indian television's TRPs charts, within 3 months of its launch.

Doordarshan Doordarshan, the national television service of India, is devoted to public service broadcasting. It

is one of the largest terrestrial networks in the world. Its network of 1400 terrestrial transmitters

cover more than 90.7% of India's population. Today, it has a total of 59 channels and 21 radio

channels.

Sony TV Sony TV is one of India‘s most popular urban Hindi-language based general entertainment

channel. Based in Mumbai, Maharashtra, it is owned by Multi Screen Media Pvt. Ltd, a

subsidiary of Sony Pictures Entertainment since 1995. SET's programming is targeted towards

family audiences. The programming covers genres including drama, reality, comedy, horror,

Bollywood, and live events.

Star India STAR India, the leading media and entertainment company, has the highest reach among the

country's broadcasters, beaming to over 168 million people every week across India and over 65

countries across the globe. Its portfolio includes 32 channels in eight languages. It is owned by

the News Corporation.

ZeeTv

Zee TV is an India-based satellite television channel based in Mumbai, Maharashtra, which

broadcasts various programmes in Hindi and other regional languages of India. Broadcasting is

also present in various nations of South Asia, Europe, the Middle East, Africa, East

Asia, Australasia and North America.

Exhibit 10: Television channels in India (Source : Company‘s website).

Facebook Advertising Rates

Country CPM Rate CPC Rate

India $0. 51 $0.20

Australia $1.33 $0.87

United States $1.57 $0.67

United Kingdom $0.76 $0.33

Cost Per Thousand Impressions (CPM): is what it costs to show an ad to one thousand viewers which is used to calculate the relative cost of an advertising campaign or an ad message in a given medium.

Cost Per Click (CPC): is the sum paid by an advertiser to search engines and other Internet publishers for a single click on their advertisement, which directs one visitor to the advertiser's website.

Exhibit 11: Facebook advertising rate(Socialbakers, 2011).


Page 58

Exhibit 12: Economy Ranking of India in the Ease of Doing Business (IFC 2011).

Exhibit 13: Household possession of broadband enabled computer and fixed line telephone (Euromonitor

2010c).


Page 59

Exhibit 14: Forecast of household possession of durables: 2009 – 2020 (Euromonitor 2010c).


Page 60

Exhibit 15: Summary of FDI Guideline in India (PWC 2006).

Page 61

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