Giacomo Caleffi

With 1.2 billion people and the world’s fourth-largest economy, India’s recent growth and development has been one of the most significant achievements of our times. Over the six and half decades since independence, the country has brought about a landmark agricultural revolution that has transformed the nation from chronic dependence on grain imports into a global agricultural powerhouse that is now a net exporter of food. Life expectancy has more than doubled, literacy rates have quadrupled, health conditions have improved, and a sizeable middle class has emerged. India is now home to globally recognized companies in pharmaceuticals and steel and information and space technologies, and a growing voice on the international stage that is more in keeping with its enormous size and potential.

1,267,402,000 people

17,5% of world

population

2° most populous country

It’s projected to be the

world’s most populous

country by 2025

50% of its population below the age of 25

Population mln

7205

1267 508 319

World India Europe Usa

World population density

10th in the world by nominal GDP

3rd in the world by purchasing power parity

2nd in G20 economies by GDP growth

The economy of India is the tenth-largest in the world by nominal GDP that it’s expanded 5.63 percent in the last quarter of 2014 over the same quarter of the previous year. GDP Annual Growth Rate in India averaged 5.82 percent from 1951 until 2014.

0

2

4

6

8

10

12

Indian GDP growth rate from 2008 to 2018

In the last years, the Indian GDP growth is greatly slackened, however, it is still greater than the growth of world GDP. Moreover, future forecasts seem to indicate the achievement of passed results.

-10,0

-5,0

0,0

5,0

10,0

15,0

20,0

China

India

World

USA

Europe

FDI inflows to India increased 17,32 per cent in 2013 to reach 28 billion US$. Foreign investments add a great deal to India’s economy and the continuous inflow, clearly shows the faith that overseas investors have in the country's economy.

Despite a surge in foreign investments, in the past, rigid FDI policies were a significant hindrance. But over time, India has adopted a number of FDI reforms. India's liberalized its FDI policy in 2005, allowing up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment. The most important thing is that the Government is still committed to ensure further improvements for FDI. This means that India is a pro investment environment. As per an industry study, Foreign investment inflows are expected to increase by more than two times and

cross the US$ 60 billion mark in the next years as foreign investors start gaining confidence in India’s new government.

2010 2011 2012 2013

27,3

36,4

23,9 28,1

Indian FDI inflows Bln US$

India has a young population with around 60 per cent in the age group of 15–59 years and a median age of about 26.7 years. India will soon have the largest and youngest workforce the world has ever seen. India benefits from the burgeoning domestic demand created by this young demographic whose consumption is driving the middle class. By 2025, the country is expected to become the world’s fifth

largest consumer market. The second official language is English and this offers a considerable advantage to the country. English speakers in India are estimated to be in the range 9 percent of its total population to 33 percent.

India has third largest pool of

scientific and technical

manpower

in the world

Over 60 6,9%

15-59 years 58,7%

0-15 years 34,4%

As a lot of eastern countries, India shows considerable cost advantages compared to Western and European economies.

A recent report by the Boston Consulting Group argues that India is one of the most competitiveness country in the world if we think about the manufacturing cost index. Especially when we are talking about this index, we are considering four drivers: labor productivity (value added economic output per worker); wages (average hourly wages for manufacturing workers); energy costs (electricity and natural gas import costs); and exchange rates. The score for each country is expressed relatively to the US$, who’s manufacturing cost index is 100. The chart proves once again that India is a pro investment environment.

83

87

91

91

96

100

109

109

111

121

123

124

124

125

130

Indonesia

India

Thailand

Mexico

China

USA

Spain

UK

Japan

Germany

Italy

Brazil

France

Switzerland

Australia

•"With more than one billion people still to be connected, India is just at the beginning. It is not only a challenge for Facebook but for everybody"

Zuckerberg

•“There’s so much energy here, in India. I find the country and people energizing… It’s better and faster. The reason why we’re making such a big investment in India is because of the evidence of success”

Bezos

•"From an iPhone point of view...we saw very strong sales in several of the emerging markets, sort of pre-pay markets. India was up over 400%; Turkey and Poland were both up over 60%. The Philippines was up about 140%"

Cook

Coca-Cola is among the country’s top international investors. Invested more than US$ 1 billion in India in the

first decade. Directly employs approximately 6,000 people, and indirectly creates employment for

more than 125,000 people.

Hyundai Motors is the largest passenger car exporter and second

largest car manufacturer of India.

Total production capacity is about 6,00,000 units per annum. Presently

markets 54 variants of passenger cars across segments.

IBM India Private Limited operating from this country

since the year 1992. Present in more than

200 cities.

Sony established in India in November 1994, this company

has captured one of

the leading positions in the field of

consumer electronics goods.

Some interesting point

It seems that the Indian market is too attractive to stay out.

The main companies of the world are already there and

who do not yet, it is because they are going to develop

projects investment in the coming future.

That's the reason why I decided to change the title from "is

it possible to do" into "how to do business in the Indian

market for Kiko Milano”.

It’s obvious that if you want to become a great company

and face future changes, to invest in India should be a

priority.

For this reason I believe that the question, whether or not

to do an FDI through India, has a simply and expected

“yes” answer, and the real challenge concern how to

invest in this promising market.

Founded in 1997, KIKO MILANO is an Italian professional cosmetics brand that has revolutionized the rules of cosmetics and won over the most demanding beauty addicts with over 600 points of

sale in 8 countries in Europe (Italy, Spain, France, Portugal, Germany, United Kingdom, Austria and Switzerland) with its presence in 34 nations (thanks to its online service delivery) and now with its new opening in U.S.

Sales volume mln €

100 178

351 418

2010 2011 2012 2013

Kiko Milano offers to its

consumers, three different typologies of products: Make up, Skin care and Accessories. Makeup and Skin care formulas are produced in Europe and in the USA, Accessories are manufactured in Asian countries where oriental production is more specialized.

Make up A big variety of professional cosmetics for

creating make up

Skin care advanced face and body care products

Accessories Professional tools for a perfect product

application

Kiko Milano is constantly committed to a single objective: to allow all costumers to treat themselves to the most innovative

cosmetics without having to sacrifice their budget. Quality is no longer synonymous with high prices. Thanks to Kiko, professional luxury is a tangible and exciting reality. Which anyone can afford.

Kiko’s creative spirit is deeply rooted in "Made in Italy“ values.

“be what you want to be.” This is how Kiko sums up its vision of beauty. They want to

allow everyone to express their own personality with custom made products. A variety of colors, effects and sensations that are unique in the market to suit your style, skin tone, skin type and specific requirements, at every phase of your life.

Kiko’s marketing mix is so well managed that it is considered the phenomenon of the retail sector, able to compete with the world giants of the business. Thanks to the great results obtained, in the last years, Kiko has expanded the number of its brand stores and staff. Kiko is still very committed in the development in all over the world, and the recent new openings in the

US are the proof. Especially Kiko has the target to set up new activities into the emerging economies.

2009 2010 2011 2012 2013 2014

107 107 172

340

487

586

65

168

147

99

70

New openings

2009 2010 2011 2012 2013

612 612 1221

2175

3396

609

954

1221

1051

Staff increase

KIKO MILANO

GREAT ECONOMIC

RESULTS

GOOD QUALITY LOW

PRICES

MADE IN ITALY

VARIETY TYPOLOGIES OF PRODUCT

MAKE UP SKIN CARE

ACCESSORIE

I decided to focus this project on six different points:

Project summary

Target market

Competitors

Product and its marketing mix

Investment mode

Strategy

As already mentioned, Kiko is present in 34 different countries and recently started selling its products also in the US market. It’s logical to think, as the great results show, that they want to extend their business over European borders. In my opinion it could be a good idea to start new projects through economies that show fast growth, as developing countries. Set up a new activities in India can be the right answer to improve results and to catch lot of opportunities.

Besides, can be a starting point to develop business activities in the Asian area, that it seems very promising. India has some cultural affinities with Italy, and it is very attracted by made in Italy products. Furthermore, it’s important to focus on this point: India in recent years has become known to the world as a manufacturer of "good quality low price“ products, the same motto that Kiko shows on its business.

JOINT VENTURE

How the investment

will take place?

Joint venture corporation

with an Indian cosmetics

company, where Kiko will

own 51% of ownership.

It is an excellent way for entering in a huge and tricky market as it may be the Indian cosmetic industry. To have an Indian partner, who already knows the market and who is used to operate with suppliers and consumers, is a good strategy for success and it can drive through considerable savings.

The 51% owned by Kiko guarantees joint venture’s control, and it allows to produce with brand Kiko Milano, a product that we still want to have "made in Italy" characteristics.

Why joint venture?

We want to have high control on investment

We want to start to produce directly in India to take advantage from market size and economies of scale

The cultural and social problems of India cause legal uncertainty to foreigners investor, and for this reason it’s required an high involvement of capital

We don’t want to pay high customs tariffs to sell products in the market (import tariff is around 40%)

JOINT VENTURE

How the investment

will take place?

• Establishment of a

manufacturing plant in

Maharashtra

• My choice is to produce

directly to selling directly in

India. In this way, Kiko products, might not be named as “made in italy”, but using the same brand through the Indian market, consumers vision will remain related to Italian values. (fashion, style…)

• Starting to open concept

stores in the main city (Mumbai, Delhi, Bangalore, Hyderabad, Chennay…)

The state of Maharashtra has capital in Mumbai and it is located in the western region of India. Maharashtra leads in terms of gross state domestic product. It accounts for 14% of the total GDP of India. It is among the most prosperous states in India

with a GDP per capita of 2014 USD. This is my choice because key industries in the state include pharma and petrochemicals, as well as biotech, IT, electronics, engineering, auto and auto Components. • Among the top two states in India in terms of

industrial investments and among the top destination for FDI in India.

• Among the most investment friendly and deregulated states in India.

• Large pool of skilled and unskilled labour by virtue of being one of the most industrialized states in India.

• Excellent road and port infrastructure facilities.

• High quality – low price

• Young target

• Italian product seen as

fashion

• Concept store

• On-line selling

• Distribution

• Only women as main

consumers

• Few and scattered

stores

• Global expansion

• Most male involvement

• Sales increase

• Top and low competitors

• New competitors

• More management

trouble due to

expansion

Beauty and makeup products is being used since olden days and nowadays it appear like a booming economy in India, which would be the largest cosmetic consuming country in a next few decades.

While the demand of beautifying substances are growing day by day, a large number of local as well as international manufacturers gradually extend their ranges and products in different provinces of India. Since 90s with the liberalization and the crowning of many Indian women at international beauty pageants, the cosmetic industry has come into the limelight in a bigger way. Subsequently there has been a change in the cosmetic consumption and this trend is fueling growth in the cosmetic sector. Main reasons for this growth are increased purchasing power and rising fashion awareness due to media and other exposures amongst the people. Increased advertising creates and captured the imagination and awareness of the people. The

Bollywood factor or the Indian movie industry and its changing fashion also create an impression and cause purchases to be expedited to match the images people hold close to their ideals.

The market size of the cosmetics industry in India is estimated to be worth 1.5 billion US$, and is expected to double to billion US$3 by 2020, market studies said. Annual growth in the Indian beauty and cosmetics markets is estimated to remain in the range of 15-20

per cent in the coming years, twice as fast as that of the US and European markets. Over the last five years, cosmetics products have seen a growth of 60 per cent. Skin care cosmetics have experienced a relatively slower growth and products such as anti-wrinkle creams, cleansers and toners are not as popular as facial creams, moisturizers and fairness creams in this genre. The beauty industry is seeing a per capita annual spend of 1.2 US$ which is expected to grow to 6.2 us$ in the next years.

+15-20 % every year

1,5 billion US$ in 2013 market size

1,2 US$ annual spending per capita

6,2 US$ next years forecast

More than 7 billion US$

Market size

Narendra Modi, BJP Hindu nationalist party leader and ex governor of Gujarat, has won the 2014 election. The majority of seats in the lower house ensures to him, a stronger government ability than his predecessors. It expected a greater

commitment in terms of liberalizations, since the economic model that has made the richest state of Gujarat in India, it has been driven by Modi. It is possible an increase of internal tensions between ethnic and religious minorities.

Economic performance continues to improve thanks to dynamic growth in key sectors. The main problems are: high public deficit, volatility of exchange rate, and the high rate of inflation, although measures implemented by India’s central bank have managed to limit this phenomenon.

The banking system is dominated by public banks and the private sector loans sector is underdeveloped The operational environment is generally business friendly but bureaucracy and widespread corruption tend to deter direct foreign investments.

0

2

4

6

8

10

Jan Feb Mar Avr May Jun Jul Aug Sep Oct Nov Dec

India inflation rate 2014

320,3 Bln

US$

external

debt

14,5%

of

GDP

Traditional Indian society is sometimes defined by social hierarchy. The Indian caste system embodies much of the social stratification and many of the social restrictions found in the Indian subcontinent. Social classes are defined by thousands of endogamous hereditary groups, often termed as jātis, or "castes". Hinduism, with over 800 million adherents (80.5% of the population), was the largest religion in India; it is followed by Islam (13.4%), Christianity (2.3%), Sikhism (1.9%), Buddhism (0.8%), Jainism (0.4%), Judaism,.

It’s important to underline that business culture is often influenced by their religious heritage. Life expectancy in India is at 68 years with life expectancy for women being 69.6 years and for men being 67.3. The literacy rate in 2011 census was 74.04%: 65.46% among females and 82.14% among males. Corruption is present in the nation and it’s not a phenomenon to be underestimated.

The status of women in India has been subject to many great changes over the past few millennia. From equal status with men in ancient times through the low points of the medieval period, to the promotion of equal rights by many reformers. In modern India, women have held high offices in India including President and Prime Minister. However, women in India continue to face atrocities such as rape, acid throwing, dowry killings, and the forced prostitution of young girls.

Female infanticide in India have caused a discrepancy in the sex ratio, as of 2005 it was estimated that there were 50 million more males than females in the nation. One of the reasons for this situation is the payment of Dowry, although illegal, remains widespread across class lines. However the recent report from 2011 shown improvement among the gender ratio.

In India there are local and multinationals cosmetics manufacturers. For this reason is very important to develop new and innovative

technologies, able to guarantee success in the business as Kiko has showed in the Italian and European cases.

LAKME’

•Is the Indian brand of cosmetics, owned by Unilever. It started as a 100% subsidiary of Tata Oil Mills, part of the Tata Group. This company holds significant share in the market and it is probably the most trusted over generations. It is also the first makeup brand to launch an array of skin and face products for woman in India.

REVLON

•One of the first international brands to its set foot in India, it offers a wide range of high quality products. Pricing is done for the mid-level consumers as it neither too high nor too low priced. The company owns approximately 20-25 % of the domestic color cosmetic market share.

L’OREAL

•L’Oreal is one of the giants in the cosmetic segment in the world. The Company has been present in India for about 20 years. In 2013 the company grew at a commendable rate of 70% . it has strong market base in Shampoo, hair color and related to Kiko’s products , skin care category.

Saloon

providing

beauty

services

Mid level

price

Advertised by the

most well

known

faces of

the world

MAYBELLINE

•It’s owned by L’oréal. One of the major factors that have helped this brand to carve its niche is being reasonably priced in spite of having an international appeal. The Maybelline Colossal range was a huge hit in India which made the brand more popular.

AVON

•This brand has emerged in India and is very well known for direct marketing. It has paved the way for introduction of a huge variety of cosmetics and skin products which is easily available sitting at home via the hands of the direct selling agents.

MAC

•This is undoubtedly the most famous luxury international cosmetic brand now widely marketed and loved in India as well. This is especially loved by most backstage makeup artists since its quality. It offers a wide range of face products.

COLOR BAR

•Color bar Cosmetics is one of the leading brands of cosmetics in India. It was founded in 2004. The brand is known for its bright peppy colors and has a number of products to add color to nails, eyes, lips and face.

ELLE 18

•Best choice cosmetic brand in India for teens and college girls. This lively brand has always come up with something innovative to suit the likeness and style of the young people. Products are affordable

Competiti

ve prices

Direct

selling

method

Luxury

products

Wide

range of

products

Cool and

famous in

the young

people

Kiko products are presented as “high quality low price” products. Their most important characteristic is that for each typology of product, you can find many different varieties. This way ensures to meet costumer personal preferences in every case. Furthermore it provides a customized shopping experience to the client.

COLORS many different colors

and texture

INNOVATION the latest innovations in the field of cosmetics

CERTAINTY products are submitted to several clinical tests

TREND fashionable and design

products

HIGH QUALITY LOW PRICE

KIKO does not make or commission animal tests

I think that cosmetics products don’t need changes to be sold in another market.

As seen, the Indian market shows some particular points, but cosmetics products are very similar in

every part of the world, and I think that these can be considerate as standard products.

R&D studies and activities are not moved from Italian market, because I want that products

keeping the made in Italy characteristics.

Probably it will be convenient to move R&D activities to India, when the business it will be

consolidated and when it will be useful to think to start product differentiation which follows

country requirements.

It doesn’t mean to offer the lower market price, but it means to study a policy’s prices that it is

able to guarantee, at the population majority, the possibility to buy Kiko products.

As it happened for the new openings in the US, my objective is to reproduce the concept stores

and its great e-commerce service that Kiko offers in many countries.

These two activities are the strengths of the marketing mix of Kiko, and there is no reasons to

change them.

The innovative concept store enable customers to play with infinite shades, experimenting with

make up and reinvent their look in freedom. In each store, you can also learn about and test the

benefits of different treatment lines, consciously choosing products that are closest to your

requirements.

To enter in Kiko concept stores means not only enjoy a moment of shopping, but to spend a

unique shopping experience.

The e-commerce service where consumers can find and delivery to their house, every typologies

of products, supports and complete sales activity.

Since India adopted liberalization in 1991, the Indian regulatory environment for foreign investment has been consistently eased to make it increasingly investor-friendly.

Routes for obtaining approval for foreign investment in India

Automatic route FIPB route

No prior approvals are required for investing in certain

sectors, under delegated powers exercised by the Reserve Bank of

India.

In cases of foreign investment where the project does not

qualify for automatic approval, prior approval is required

From the Foreign Investment Promotion Board (FIPB) under

The Ministry of Finance.

Automatic

route is it

possible for our

project and

cosmetic sector

A foreign company looking to set up operations in India, can either operate as an Indian company or a foreign entity.

Entry strategy

Operating as an

Indian company or

corporate

entity

Operating as a

foreign company or non

corporate

entity

Joint venture corporation

with an Indian cosmetics

partner, where Kiko will own

51% of ownership.

Once a company has been registered and incorporated in India, it is subject to laws and regulations as applicable to other domestic companies in India.

Incorporation of

a company

Private company Public company

with a minimum of two

members and a minimum

paid-up capital of 100,000

Indian Rupee or a higher

paid-up capital as may be

prescribed.

• Most male involvement in selling products

• Increase the sales volume

• Become top 10

major brand in India

• Open new stores & e-commerce service

• Show with

commercial and new openings of concept stores the main features of the products: “they are for everybody and they present the features of the Italian

fashion style”

• Low cost & high

quality strategy • Innovations and

ongoing development

• Support to the

business with

sponsorship,

public relations,

advertising digital

strategy and

promotions

• Indian market as

the starting point

for a future

expansion through

Asian markets

Despite the current rough winds in the Indian economic climate, the long-term growth story of the

Indian market continues to remain intact. India is expected to continue on the growth trajectory,

and is likely to maintain its position as among the fastest growing economies in the world. India is a

market that no global company can afford to ignore and offers significant opportunities for Italian

companies.

In the context of the current economic climate globally, there is an increasing need to provide

further impetus to the participation of Italian and foreign businesses in the India story.

The increased trade with Italy, especially over the last two years, along with the growing number of

Italian companies investing in India, further reiterate the importance that India occupies for the

Italian business community and the potential for Italian businesses in India.

For these and the others reasons that I showed in this project, I believe that Kiko will have a great

incentive to become active in the Indian market.

Giacomo Caleffi