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INDIAA Strategic Overview
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Overview
Organizing Framework
External Factors
Firm Level Factors
Key Strategic Choices
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Organizing Framework
Country
Environment Govt. Policy
Competitor
Capabilities
Market
Driven
Value
Proposition
Resources &
Capabilities
Objectives &
Motivations
External Factors Firm Level Factors
Firm
Driven
Key Strategic Choices?
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External Factors
Country
EnvironmentGovt. Policy
Competitor
Capabilities
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I. Country EnvironmentEco no mic Sta ts - Sn ap shot
Source: http://investmentcommission.in
Sound economic fundamentals Healthy average GDP growth of above 8% since 2003 Savings rate 32.4% in 2005-06 has been increasing at 7% CAGR since 2002 Forex reserves increasing at 30% CAGR since 2002 Interest rates high and stable at ~ 11.5% suggested strong demand for credit Inflation rates below compared to other emerging economies however recent
spikes (6.6%) are a huge cause of concern.
Rising income levels have led to increased consumer spending power
6.6%5.0%Inflation
-$640Per Capita
$9.2B$15.7BFDI Inflow
$18B$6.7BFII Inflow
$276B$199BForex reserves
-9.4%GDP Growth
Current FiscalEnded 2007
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I. Country EnvironmentEc ono mic S ta ts - GD P
Source: MOSPI Statistics
105 105 135 145
103 125
204 231191
237
398453
0
100
200
300
400
500
600
700
800
900
1999-00 2002-03 2005-06 2006-07
USD
Billion
Agriculture Industry Services
India's GDP at Current Prices: 2002-07
469556
638737
830
477
0
100200
300
400
500
600
700
800
900
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(H1)
USD
Billion
- Indias GDP has witnessed high growth and was
the 2nd fastest growing GDP after China in 2006-07
- $1 Trillion GDP (PPP)
GDP Contributors (2006-07)
Industry: 26% ($138B) growing at 16.2%
Services: 55% (269B) growing at 16.3%
Agriculture: 19% (73B) growing at 10.2%
Huge Services contribution is a characteristic of adeveloped economy
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I. Country Environment
Source: World Economic Outlook IMF 2005,www.photius.com
Ec ono mic S ta ts - GD P
12th largest economy based on real GDP
4th largest based on PPP
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I. Country Environment
Gros s Dome stic Sav ings
Source: Central Statistical Organization
Gross D ome stic Inve stments
-Very high Private sector savings mainly contributed by households
-Increase in Gross Domestic Investment over Gross Domestic Savings a good sign
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I. Country EnvironmentEc ono mic S ta ts - Per Capi ta In com e & Cons ump tion
Source: http://indiabudget.nic.in,http://investmentcommission.in
-Strong growth in per capita Income & Consumption; signaling economic prosperity
-Boom in consumer spending Over 380M Indians (72M households) with annual income > $10,000 Fast growing disposable incomes, increased availability of credit cards and consumer finance Affinity towards western/ global brands Huge market especially for retail, telecom, automobiles, textiles, electrical appliances etc.
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I. Country EnvironmentEc ono mic S ta ts FD I & FII
Net FII into India: 2001-07
1.8
0.6
10.0 10.2 9.4
6.7
18.0
02
4
6
810
12
14
1618
20
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(till 14
January)
USD
Billion
FDI Inflow - India: 2001-07
4,2223,134 2,634
3,755
5,546
15,730
9,277
0
4,500
9,000
13,500
18,000
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(till
October)
USD
Million
185 percent
Increase
Source: DIPP (October Report),SEBI
-With improved performance on PE ratio and ROE, Indian markets have attracted large
investments-India ranked 2nd in AT Kearneys FDI confidence index (2007)
-FDI inflow in 2006-07 grew by 185% over 2005-06
-Large FII activity has led to an upsurge in the Sensex
http://dipp.nic.in/fdi_statistics/india_fdi_index.htmhttp://dipp.nic.in/fdi_statistics/india_fdi_index.htmhttp://www.sebi.gov.in/Index.jsp?contentDisp=FIITrendshttp://www.sebi.gov.in/Index.jsp?contentDisp=FIITrendshttp://dipp.nic.in/fdi_statistics/india_fdi_index.htm8/3/2019 INDIA a Strategic Overview
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I. Country EnvironmentEc ono mic S ta ts Fo rex & Deb t R atio
Source: RBI Statistics
India's Forex Reserves: 2001-08 (Till 28 December 2007)
5475
112
141 152
199
276
0
50
100
150
200
250
300
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
(Till28
December)
USD
Billion
External Debt-to-GDP Ratio
21.120.4
17.8
17.3
15.816.4
10
13
16
19
22
2 001 -0 2 2 00 2-03 20 03 -0 4 2 00 4-05 2 005 -0 6 2 00 6-0 7
Ratio
- Increased investor confidence in Indiancompanies has increased cross borderborrowing by corporate houses
- 2007-08 Forex reserves already 39% above2006-07
- Steadily increasing Forex offer securityagainst possible currency crisis or monetaryinstability
- Forex reserves are in excess of external debtindicating a strong economic platform
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I. Country Environment
Source: AT Kearney, Outlook Business,http://domain-b.com
-Major sectors attracting FDI in 2007-08 are Services, Telecom,Electrical equipments, Real estate and Transportation
-Mumbai, Delhi, Bangalore, Chennai and Hyderabad bring in nearly
66% of total FDI inflows
-Top corporate investors: Vodafone ($800M), Matsushita ($340M)
-Top holdings investors: GA Global Investments ($258M)EMAAR Holdings, Mauritius ($200M)LB India Holdings, Mauritius ($120M)
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I. Country EnvironmentEcono mi c St ats - Im ports & Ex por ts
India's Imports: 2002-08
6278
112
150
191
130
0
50
100
150
200
250
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(April-
October)*
USD
Billion
India's Exports: 2002-08
5364
84
103
126
86
0
20
40
60
80
100
120
140
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08(April-
October)*
USD
Billion
Petroleum products are the major contributors towardsIndias growing imports
-Quality and cost advantage are the two importantparameters leveraged by the Indian producers toincrease exports
-Services sector has been a major contributor toincreased exports
Source: Ministry of Finance (November Report)
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I. Country EnvironmentInvestment Routes
Source: Invest Commission of India
-Strategically important sectors are excluded from Foreign investment
-E.g. Railways, Atomic Energy, Postal Service, agriculture
Prior Permission
General Rule-No prior permission required-100% equity
By Exception-Prior Govt. approval needed-Equity Cap depending on sectorand market conditions
Automatic Route
Investing in India
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I. Country Environment
Source: Invest Commission of India
FDI Cap in Manufacturing
0%
20%
40%
60%
80%
100%
Steel/
Aluminium
Textiles
Electronics
Hardware
Chemicals
Automobiles
Auto
components
Gems
Defense
Equipment
Mining
genera
l
Atomic
Minerals
Coal/
Diamond
Industry
F
oreign
EquityCap
Domestic Equity
Foreign Equity
-100% Foreign equity in most cases
-Manufacturing in defense, cigarettes, brewing, industrial explosives etc. subject toequity cap
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I. Country Environment
Source: Invest Commission of India
Infrastructure FDI Cap
0%
20%
40%
60%
80%
100%
Powe
r
Telecom
Roads
Ports
Aviation&
Airports
Petroleum
Urban
Infrastructure
Industry
FDICap Domestic Equity
Foreign Equity
-100% Foreign equity permitted in power, roads, petroleum, urban infrastructure
-Equity cap in Telecom, Aviation & airports
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I. Country Environment
Source: Invest Commission of India
Services FDI Cap
0%
20%
40%
60%
80%
100%
Banking&
Financail
Services
Insurance
Retail
RealEstate&
Construction
Tourism/
Hotels
Entertainment
IT/ITeS
Business
Services
Venture
Capital
Industry
FDICap
Domestic Equity
Foreign Equity
-100% Foreign equity permitted in IT & ITeS, Real estate construction, hotels, tourism,films, business services & consulting, venture capital etc.
-Equity cap in banking, financial services, insurance, retail etc.
-Retail being one of the biggest and most promising industries is most hurt by the cap.
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I. Country Environment
Source: http:ibef.org
RetailRetail growth
$330
$427
$637
$13.20
$93.94
$223
$0
$100
$200
$300
$400
$500
$600
$700
2007 2010 2015
inb
illions
Indian Retail
Organized Retail
-Contributes 10% to GDP, 8% of employment-Expected CAGR at 20-25% until 2016
-$47B in 2007 revenues, 30% growth-68% revenue from exports growing at 35%
IT/ I Te S
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I. Country EnvironmentTelecom
-Revenues 2006 $20B, CAGR 21%-160M subscribers increasing at CAGR 38%-Staged to become the 2nd largest telecom network in2008 behind China-Worlds lowest call rates (2 cents/ min)-Thriving private sector-2nd highest FDI attractor
-$7.7B market size, CAGR 19%, 2010 target $19B-Major growth in Television and Film segments
Revenue growth20
15
1110
9
0
5
10
15
20
2002 2003 2004 2005 2006
$Billi
CAGR - 21%
353402
473562
686837
0
200
400
600
800
1000
2005E 2006F 2007F 2008F 2009F 2010F
INR
Billion CAGR 19%
Source: http:ibef.org
Medi a & En ter ta inm en t
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I. Country EnvironmentAutomobiles
-$34B market growing at 14%; 2nd largest 2 wheelermarket, 4th largest commercial vehicle market-$10M size in 2006, growing at 17%
-$16B market, CAGR 30%-5% of GDP-Growth driven by IT/ ITeS, foreign businesses, risingincomes, consumer finance, organized retail etc.
Size of Component Industry (US$ mn)
3849 39654470
5430
6730
8700
10000
FY00 FY01 FY02 FY03 FY04 FY05 FY 06
Source: http:ibef.org
Real E stat e
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I. Country EnvironmentPharmaceuticals
-$8.7B market, 1.4% of GDP, CAGR 7%-4th largest market in world by volume, 13th largest byvalue-Currently only 30% of population tapped for modernmedicine-Huge base of talented scientists and medical experts-Local companies have 70% market share
-$2B market, CAGR 37%-Exports of $760M-Bio-pharma is the biggest segment but agri-biotech andbio-services fast increasing
Source: http:ibef.org
Biotech
8.2 8.79.4
10.1
10.811.6
0
2
4
6
8
10
12
2004 2005 2006 2007 2008 2009
Projected Pharmaceutical market, 2004-2005
0.50.7
1
5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2002-03 2003-04 2004-05 2009-10
Indian Biotech Market projected Size
i
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I. Country Environment
Human Capital: critical mass of skilled manpower English speaking population Cost competitive labor Indigenous availability of raw materials Technology superpower
- Software services grew at 50% CAGR over past decade- 65% of worlds CMMI level 5 cos. in India- Over 100 MNCs with R&D labs
Entrepreneurial culture and abundant SMEs- Open to collaboration
Large domestic market allowing scale economies- Growing youth segment with increased spending power ($42B/ yr)*- 300M middle consumer class expected to grow @ 8 %
Fact or Advant age & M arke t Con di tion s
C i
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I. Country Environment
Severe bottlenecks in road, airport, power, transportation Govt. commitment to ramp development
-$13 B Golden Quadrilateral, $22 B Sagar Mala projects-$1.5 B investment in Mumbai-Delhi high speed freight corridor-New and modernized international airports in Mumbai and Delhi
-Mobile telephony deregulated and showing vigorous growth-Electricity Act, 2003 passed, $75 B to be spent in 5 years
Modern financial systems-ICT, Basel II compliance, RBI regulation-Retail banking, credit systems, microfinance increasing consumer finance
Mature capital markets-SEBI regulations acquired international credibility-NSE 3rd largest in the world, BSE $640B market cap, Mutual funds $82B as of 2007-Private Equity $2.3B in investments; set to touch $25B by 2012
Infr astruct ure
I C E i
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I. Country EnvironmentTo p citi es
Kolkata
Hyderabad
Chennai
Bangalore
Pune
Mumbai
Surat
AhmedabadDelhi
Pop: 12.8MGDP: $40B growing at 8.4%FDI: $7.6B (23% of total)
Ind: Telecom, IT, Hotels, Banking,Tourism, Retail , Manufacturing,Construction
Pop: 3.8MGDP: $8.8B growing at 10.1%FDI: $1B (3% of total)
Ind: Textiles, Petrochemicals,Pharma, IT, chemicals
Pop: 3.2MGDP: $7.5B growing at 11.5%FDI: Included in AhmedabadInd: Gems, Textiles, Chemicals
Pop: 16.4MGDP: $50B growing at 8.5%FDI: $8B (25% of total)Ind: Films, Financial Services,Media & Entertainment,Textiles, Seaport, IT, engineering,Diamond polishing, Healthcare
Pop: 3.2MGDP: $12B growing at 7.4%FDI: Included in MumbaiInd: IT, Engineering, Mfg,Automobiles
Pop: 6.8MGDP: $14.7B growing at 10.3%FDI: $2.3B (6.8% of total)
Ind: Electronics & Telecom, IT,Biotech, Auto, Apparel, Real estate
Pop: 13.2MGDP: $25B growing at 6.3%FDI: $0.4B (1% of total)Ind: Financial Services, , IT
Pop: 3.6MGDP: $10.7B growing at 7.8%FDI: $1.3B (4% of total)Ind: IT, Pharma, Services,Real Estate
Pop: 6.4MGDP: $15.8B growing at 6.2%
FDI: $2.5B (7.5% of total)Ind: Automobiles, IT, Hardware Mfg,
Healthcare, financial services
Source: http://dipp.nic.in, compiled internet sources,http://mapsofindia.com
I C E i
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I. Country Environment
High foreign trade barriers: high corporate tax, complexindirect taxes, high tariffs, foreign equity cap etc. Stringent Labor Laws Corruption, bureaucracy Regulatory uncertainties in many sectors Strong IPR, enforceable laws, freedom of press,
independent legal system
Coalition govt. risky but fairly stable in terms ofsustained economic reforms
Non- ma rket fo rc es
E l F
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External Factors
Country
EnvironmentGovt. Policy
Competitor
Capabilities
II G P li
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II. Govt. Policy
Openness to foreign investments and operations-Sustained economic liberalization across all sectors-Increasing FDI limits except in strategically sensitive sectors-Continued reduction in foreign imports and tariffs
Commitment to intl trade-Active participation in GATT & WTO negotiations
Proactive regulations & legislations to enhance business
environment-IPR legislations, RBI/ SEBI monetary & financial policies
FDI & fin anc ia l p ol ici es refor ms
II G t P li
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II. Govt. PolicyEn abl ing Comp eti tion & C omp etit ivene ss
Pa rtial / f ul l d is inve stment pr ospe ctsIndo Wagon Engg. Ltd.27%72%Heavy
EngineeringJessop & Co. Ltd.
Sterlite Industries50%26%MetalsHindustan Zinc
TCS-100%ITCMC
Group of auction buyers-90%TourismIndia Tourism Development Corp.
54% Suzuki, rest IPO-100%AutomotivesMaruti Udyog Ltd.
Reliance Petro Investments34%26%Oil & GasIndian Petrochemicals Ltd
45% Tata Group26%25%TelecomVidesh Sanchar Nigam Ltd.
Sterlite Industries49%51%MetalsBharat Aluminum Company
Bidder/ buyerStakeresidualStake soldSectorPrivatized/ DisinvestedCompanies
II G t P li
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II. Govt. Policy
Special Economic Zones (SEZ)- SEZs offering tax holidays, no import/ export tariffs- Along with physical infrastructure development could boost manufacturing
capabilities
Distortions in market processes- Purchase preference to public enterprises anti-competitive (concrete sleepers forrailways)- Deliberate interconnectivity issues between private telecom operators and BSNL
Anti-competitive policies
- Trade Policy: Anti-dumping measures, Inverted duty structures- Labor Policy: Exit difficult, Inspection regime creates high entry barriers- Frequent price regulations in commodities like oil, grains, coal
En abl ing Comp eti tion & C omp etit ivene ss
E t l F t
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External Factors
Country
EnvironmentGovt. Policy
Competitor
Capabilities
III C tit C biliti
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III. Competitor Capabilities
Innovative & Creativity-Knowledge of domestic needs & quick product roll out-Asian Paints, Tata Motors, Godrej refrigerators, Bajaj Auto, Amul
Access to technology becoming flat-Mainly through JVs and collaboration: MUL-Suzuki, Reliance-Dow Chemicals,
Hero-Honda, GSK-Ranbaxy-Global acquisitions: Tata-Corus, Tata-Jaguar, ONGC, ICICI Bank, Infosys, Aditya
Birla group
Access to global markets- Exports & Operations: IT, Pharma, FMCG, Textiles, Gems, Auto
Strong domestic penetration-Monopolies in many manufacturing sectors: Reliance 54%, Grasim 91%, Exide
Batteries 62%-Access to bottom of pyramid in the rural areas
Local Firms
III C tit C biliti
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III. Competitor CapabilitiesMajor de als by Indi a In c. ab road
Other Major Acquirers
Acq. Corus Plc for $12BAcq. Jaguar &Land Rover for $2.3B
Acq. Novelis Inc. for $6B
Acq. REpower for $1.6BAcq. Whyte &
Mackay for $1.1B
Acq. Algoma Steel for $1.6B
E t l A l i
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External Analysis
Huge market potential, Value conscious consumers demandingbest quality for lowest prices, high cultural sensitivity Heterogeneous market, mostly fragmented few concentrated 3rd party distributors critical in supply chain to cover markets
Global emergence of local players reducing leveling the MNCadvantage Unavoidable destination for IT, Biotech and Retail Monopolies, Collusion and Price rigging exist in some sectors
-Pharma, Cement, Transportation, Petrochemicals
Nationally strategic industries dominated by state entities Fairly stable economic policies
Conclusions
Fi L l F t
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Firm Level Factors
Value Proposition Resources &
Capabilities
Objectives &
Motivations
I C t E i t
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I. Country EnvironmentMajor MNC s
I C t E i t
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I. Country EnvironmentMajor MNC s
I V l P iti
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I. Value Proposition
Western brands but at value for money-Winners: LG, Samsung, Unilever, Reebok-Losers: Sony, Apple, Tang, Levis, Nike
Customized and localized brands for the taste conscious- Winners: McDonalds, Unilever, Nestle* (Maggi), LG, Samsung, Nokia- Losers: Kelloggs, GM, KFC, Thompson, Philips, FIAT, Dominos
Tight product positioning and customer segmentation-Winners: Parker, Mont Blanc, LG, Lee, Arrow-Losers: Pierre Cardin, Sony, Lacoste, Levis, GM, Ford
Super accessibility to untapped segments- Winners: Gillette, ITC Ltd., Unilever, Nokia, Coke
Sense dynamic local needs and innovate-Winners: Tata Motors, Godrej Appliances, ICICI Bank Ltd., Nokia-Losers: Citigroup, Standard Chartered, Motorola, Siemens
Firm Le el Factors
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Firm Level Factors
Value Proposition Resources &
Capabilities
Objectives &
Motivations
III Resources & Capabilities
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III. Resources & Capabilities
Brand power-Penetration among youth and upper class (Lee, Reebok, L'Oreal)-Ability to lure local firms into collaboration (Suzuki, Honda, Wal-Mart, Dow
chemicals)
Deep pockets-Heavy investments in marketing & advertisements (P&G, Unilever, Pepsi,Vodafone, New York Life Insurance, Skoda, L'Oreal)
-Ability to sustain long trial periods (Coke, GM, Sony)
Unique aspects-Finance: Posco, Vodafone, Citigroup, Goldman Sachs
-Technology: IBM, Coke, Sony, Apple, RIM, SAS, SAP
-Operational: Toyota, GE
Global experience-Knowledge economies out of learning from other markets: Org designs, local mgmt,
localization techniques, local sourcing, govt./ local partnerships (J&J, IBM, LG, GE)-Ability to exploit scale economies (Hyundai, PC manufacturers)
MNCs
Firm Level Factors
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Firm Level Factors
Value Proposition Resources &
Capabilities
Objectives &
Motivations
III Objectives & Motivations
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III. Objectives & Motivations
Access to large and growing emerging market-Tap 300M strong middle class with spending power e.g. Levis, Nike, MTV,McDonalds, Yum!, Pepsi, Nokia-Tap other regional markets through India as a strategic hub e.g. Hyundai, IBM
Access to low cost sourcing, investor pressure-Product sourcing: Walmart, Tesco, Marks & Spencer, Adidas
-Material sourcing: Cummins, Hyundai, GE, Suzuki, IKEA, Ford-Offshore services: GE, GSK, Pfizer-Manufacturing base mainly for low end generic products
Access to global intellect-MNC R&D investments-Local talent: GE, ABB, Volvo
Learnings from China-To make early investments-Hedge against excessive reliance on China and other countries
Conclusions Firm Level Analysis
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Conclusions - Firm Level Analysis
Consider how India fits the global strategy-Is it to grow, to preempt competition, to strategically strengthen domestic/ other
markets, reap economies of scale/ scope, low cost sourcing?
Is there a substantial value proposition you can offer?-Consumer tastes are diverse form those of developed or other emerging countries
Evaluate resources vis--vis the strengths/ weaknesses ofcompetitors
-Will you compete on cost basis or through differentiation?-Do you have the required resources that will be required?-The required capabilities to execute?
Key Strategic Choices
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Key Strategic Choices
Greenfield-If focus is more on global markets and cost reduction through sourcing-If focus is use as regional hub e.g. GE, IBM-Exceptions if absolutely confident about local market Hyundai, Unilever, Nokia
Acquisitions-Acquisition has had a bad record of legal issues including licenses, visa etc.
JVs/ Partnerships-If focus is on domestic market, most sought after mode of entry-Tie up with local partner to mitigate non market forces (GSK with Ranbaxy)
Mode of Entry
Commitment of senior management and selection of local partners withcomplementary interests is crucial.
Key Strategic Choices
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Key Strategic Choices
Decentralization preferable to Global strategy-Local CEOs (Pepsi, Hutch, Unilever),-If expat CEO, then strong local No. 2 (Hyundai, LG, GE)
Understand Indian market & consumer needs-Hire local staff in key areas of marketing and operations (HLL, LG, Nokia, GE)
-Make customer a part of product development (Schiller Healthcare)
Comparative Performance Hyundai vs. GM/ Daewoo,
McDonalds vs. KFC
Localization & Adaptation
Key Strategic Choices
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Key Strategic ChoicesInnovation in logistics to cover markets
Dispersed population, 70% in rural areas
12 million retail outlets, underdeveloped transportation
Many companies work with ~ 500 distributors, in addition to
wholesalers and franchised outlets (LG, HLL)
Direct sourcing from village farmers eliminating middleman
(Nestle, PepsiCo, ITC, Reliance Retail)
Retain Local Talent
Most talent migrates to developed countries of the West forhigher wages and opportunities
High Turnover rate especially in IT
Create best possible incentives for employees
Overview
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Overview
Organizing Framework External Factors
Firm Level Factors
Key Strategic Choices