A Note on Passage to India Marketing Perspective

8/12/2019 A Note on Passage to India Marketing Perspective

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A Note on P a s s a g e to Ind ia :A M a r k e ti n g P e r s p e c t i v eG.M. NaiduUniversity ofWisconsin Whitewater

A Note onPassage toIndia

61The attractiveness of the Indian market for American firms for either directexports or trade collaborations was discussed in the article Passage to India:A Marketing Perspective . When reading the article by Sethiet al.(1990) itis important to note there are two reasons why the use of gross national product(GNP) and per capita income (PCI) may not be meaningful measures indetermining the attractiveness of a foreign market.A Case for Un derest im ating th e Indian Market Potentia lVarious studies indicate that the black-market economy of India is extensiveand was estimated at around 49 per cent of the GNP for 1978/79 (Gupta andGupta, 1982) and40-50per cent oftheGNP for1982/83(Kumar,1985;NationalInstitute of Public Finance and Policy, 1985).Non-resident I ndian s (NRIs) as a Major So urce of Re aching th e In dianMarket through Joint Ventures or Indirect Export ingIt is estimated that there are over15million non-resident Indians as of 1989.They are becoming an important force in shaping the policies related to foreignexchange, foreign trade collaborations and joint ventures.Amajority oftheNRIsare either entrepreneurs, semi-skilled people, or highly-skilled professionalssuch as doctors, scientists, researchers and high-tech en trepreneurs. Recently,the NRI Economic Forum urged the then Prime M inister Rajiv Gandhi to createa separate ministry to attract NRI investments and stimulate economicdevelopment (Ninan, 1989). NRIs' contribution to India's foreign exchangereserves is evident from Table I. The foreign currency non-resident (FCNR)deposits for 1988-89 more than doubled over the previous yeartoover 2billion.The NRIs enjoy special incentives to set up enterprises in India. Some ofthese include:

(1) Forty per cent repatriation of capital and the income earned.(2) In priority industries repatriation is permitted up to74per cent of paid-up capital if at least 60 per cent of the output is exported.(3) Import capital goods, components and raw materials for setting upindustrial units in accordance with the import-export policy.

Table II presents NRI approved projects during 1983-86.Of the 522 NRI projects approved, 30 per cent of them were from NorthAmerica, followed by 23 per cent from the United Kingdom. NRIs could bea major source of reaching the Indian market through joint ventures or indirect

Received June 1989Revised September 1989,November 1989


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Bank deposits(1) NRE a/c(2) FCNR a/cDirect investment(1) Repatriable(a) 40% scheme(b) 74% scheme(2) Non-repatriablePortfolio investment(1) Repatriable(2) Non-repatriableCom pany deposits(1) Repatriable

1984-85

6,3203,398

1985-86

5,97512,336

2,425129413

884

1986-87

9,19313,229

4,104128577

272

140

1987-88

8,87314,359

1,600180642

696

2

1988-89(to March1989)

6,09033,079

1,969106516

60*2*

2** These figures refer to the statistics at the end of 1988.Note: 1 US $ = 16 rupeesSource: India Abroad (1989), 14 July, p. 16.

I Investments in

SectorElectronicsMiscellaneous chemical industriesMiscellaneous mechanical engineeringindustriesTextilesFood, fermentation and oilMetallurgical industriesInstrumentation industryInorganic and organic chemicalsIndustrial machineryTransportationTelecommunicationsMiscellaneous industries

Number of approved projects8838353224231915121211

213Total 522

Source: Indian Investment Center (1987), Investing in India: A Guide to Entrepreneurs.


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Year1988198719861985198419831982Total

Total926853957

1024752673590

5775

US Firms191196189197144135110

1162

(%)(20.6)(23.0)(19.7)(19.2)(19.1)(20.1)(18.6)(20.1)

Source: Indian Investment Center

Table I I I .Number of ForeignCollaborations: 1982-1988Approved byGovernment of India

exporting. The Indian Investment Center plays a match-making role inbringing the exporters and importers together in an effort to promote trade.Since 1982, there have been5,775foreign collaborations with Indian firm s ofwhich 1,162 or 20.1 per cent were from the US (see Table III).In analysing foreign country opportunities various market indices are used forcountry selection.Business Internationalpublishes three business indices forsome177countries. These include: Market Size, Market Growth and M arketIntensity. India is ranked fifth byBusiness International(1986) by market size,with 5.15 per cent of the world market. Only the US (19.72 per cent), USSR(10.92 per cent), China (9.07 per cent) and Japan (7.03 per cent) were aheadofIndiain market size. The same publication indicates the market growth rateto be in the vicinity of50per cent for the period of 1978-83.Only Indonesia,South Korea and China had higher growth rates. A recent Fortune articlereconfirms India as being one of the high growth global markets (Baig, 1989).The Indianmiddleclass, withapopulation of around100-150 million isprojectedto swell to 200 million by the year 2000. This middle class may be termed asthe new rich consisting of professionals, enterpreneurs, government officialsand film actors. The old rich with inherited wealth are the establishedindustrialists, wealthy landlords, politicians and power brokers. The fast growing

new rich is an attractive market for many consumer products. As Abraham(1989) noted,manyIndian stores are carrying foreign brands suchas VanHeusen,Chesterfield, Rothmans, North Star, Adidas andOilofOlay.The growing demandfor these brand name goods and the doubling of Indian tourists from 1980 to1986 to such countries as the US, UK, USSR, West Germany and Australiaare indicative oftheincreasing discretionary income ofmiddleand upper classIndians India Today 1987).Focus the Stra tegy to Serving the Market NeedsIndian import policy permits only industrial equipment, high-tech instruments,and selected raw materials not available locally. The best way for foreigners


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to reach the consumer market isthrough jointventures with local entrepreneursor established businesses. T he US Department of Commerce identifies at leastten industry sectors where there is an attractive opportunity forUSfirms. TheUS and Foreign Commercial Service (1988) estimates the Indian market forthe ten industry sectors in1988to be around 10.6billion, ofwhich 1.21billionwas captured by the US firms (see Table IV).Slowly AT&T, Digital Equipment, Control Data, Microsoft, Ashton-Tate andUniroyal are finding India to be an attractive opportunity. For example, Indiaplans to spend $37 billion on telecommunications between 1989 and 2000.However, in the last go-around Europe and Japanese firms won most of thecontracts (Rayner, 1989).India provides also a very attractive opportunity for computer hardware andsoftware firms. It is estimated that some 150 US firms have joint venturesincluding DEC, Control Data and Apple Computer (Chandrasekar, 1989). Thepotential is great, as India tries to computerise railways, banks and selectedproduction facilities. Further, inexpensive high-skilled labour needed for theindustry is available in abundance in India. Many experts think that India isto computer software what South Korea and Hong Kong are to microcomputers.

Industry

TelecommunicationsOil and gas fieldPower generation, transmission anddistribution equipmentComputers, peripherals and add-onsMining and excavation equipmentMachine tools and metal workingmachineryPrinting and graphic arts equipmentMedical and healthcare equipmentElectronics industry production andtest equipmentFood processing equipment andmachinery

Total

1988 Market$m

1,3752,7003,800

685610600130

300360

4010,6 billion

Near-termprojected growth%

20128.535

51820152418

1988 importsfrom US$m

8548518015045221035

18515

1,21 billionSource:US and Foreign Commercial Service (1988),Country Marketing Plan and variousissues of Industry Sector Analysis and International Marketing Research.


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A Case for Joint Ventures and Strategic AlliancesIndia presents an opportunity for US firms to enter the market through jointventures. Since the import of consumer goods is not permitted, and importof industrial goods is often subject to high tariffs, joint ventures are the mostattractive vehicles for reaching the market. Further, the supply of highly skilledlabour at bargain wages makes India an attractive country to producegoods/services for export.Extrem e climatic conditions, blackouts and brownouts are very common inIndia. Many productswill haveto be modified to perform under such conditions.This provides an opportunity forUSmanufacturers to design products speciallyto suit such vagaries of nature and export them to similar countries in the MiddleEast and Africa. India offers a major opportunity for product adaptations toreach Third World countries. Above all, India provides the necessarymanufacturing base to reach the Eastern bloc countries that are parties tobilateral trade agreements. Historically the US has accounted for nearly20percent of the foreign collaborations inIndia.Whilejoint venturesmaybe the routefor someUSfirms to enter the Indian market, some firmsmaypreferastrategicalliance whereby both the partners join forces and profit from each other'sexperience. (This approach is similar to G M's and Toyota's alliance in the US,andAT&Tand Olivetti in Italy.) These alliances could involve either distributionaccess or technology transfers. There are plenty of such opportunities for USfirms if they are content with 40 per cent ownership.

The strategy being pursued by Pierre Cardin (PC) to link with Indian TourismDevelopment Corporation (ITDC) to market clothing and travel accessoriesunderitsinternational brand name may facilitate opening of retail outlets in mostITDC hotels. Further, Pierre Cardin's desire to open a duty-free boutique inthe New Delhi International Airport may receive favourable consideration asit will generate foreign exchange. Pursuing public sector partners like PC isdoing may be a sm art way to avoid bureaucratic frictions and develop allianceswith locally powerful public sector entities.Pay Attention to the Central and State Government PoliticsThe Central Government has exclusive jurisdiction over all matters of nationalconcern such as defence, communications, currency andbanking,railways andairways, international trade and foreign affairs. The State Government has theprimary responsibility for education, health, local administration and agriculture.Aforeign company trying to ente r the market should keep this factor in mind.Be Prepared for Some Shocks

Some tariffs and import charges are high. Some 59 per cent of Indiantariffs fall between 120 and 140 per cent. Import licensing regulations for non-high tech items remain a majorbarrier. Indian policy does not favour the use oflimitedforeign exchangefor non-essential products. Be prepared for some countertrade.


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According to the Indian Patent Act of 1970, foreign and Indian patentholders are treated alike. India is a member of the World IntellectualProperty Organization even though it is notamember oftheParis UnionInternational Intellectual Property Convention. The maximum period forpatents is 14 years, but in the case of food, drug and agro-chemicals,the patent period is for seven years. However, foreign collaborationguidelines do not permit the use of foreign brand names on productsfor internal sale, although it can be used on products for exports. Asa result, hybrid brand names such as Maruti Suzuki, Carrier Aircon,L&THoneywell, Wilkinson's Wiltech, Modi-Champion, Modi-Xerox andcoined compound labels are widely promoted through well-placedadvertisements. Red tape and elaborate government bureaucracy and the slow pace oflife. Frequent power failures and shortages leading to disruptions (ifyouarenot located in the Export Processing Zone (EPZ)). Invisible operational barriers (government bureaucracy, corruption,infrastructure).

In Spite of Certain Limitations India is Still an Attractive OpportunityIndia offers the following unique advantages:

Abundant low-wage skilled/semi-skilled labour; India's strategic location offersapromising manufacturing/exporting base; Abundant supply of raw materials; Deregulation and liberalisation of industrial policy; Incentive packages for Export Processing Zones (EPZs) and ExportOriented Units (EOUs) are very attractive; India is changing rapidly and offers an attractive opportunity based onmarket size (200 million middle class by the year 2000) and growth; The non-resident Indians estimated to number over15millionhavemajor

impact on the Indian economy, industrial policies and foreigncollaborations; India is poised to be a major industrial power by the turn ofthecentury.It is advantageous for American firms to position themselves as partnersin this fantastic growth. The business climate of India is improving (Naidu, 1984).

ConclusionIndia, with more than 800 million people, ranks 13th in the world in GrossDomestic Product (GDP). GDP alone is probably not a valid measure to assess


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its market attractiveness . T here is a strong 100 - 150 million middle class thathas considerable discretionary income making India an attractive market forconsumer goods. The 15 million or so non-resident Indians play a vital rolein the transfer of technology and offer an opportunity for joint ventures andindirect exporting. In spite of some current difficulties, India represents anattractive opportunity for international firms with long-term horizons.R e f e r e n c e sAbraham, P.C. (1989), Ma king the Mos t of Brand-name Sales in the Indian Mark et , BusinessInternational 22 May, p. 155.Baig, E.C. (1989), W he re th e Global Growth is Going , Fortune 31 July, p. 71.Business International (1986), Ind icato rs of M arke t Size for 117 Co un tries , 3 July.Chandrasekar, R. (1989), U S Com puter Firms Dash to India ,ElectronicsBusiness 23January,p. 78.Gupta, P. and Gupta, S. (1982), Es tim ates of Unre ported Economy in India , Economic andPolitical Weekly Vol. 18 No. 3, 16 Janu ary 1982, pp. 69-75.Indian Investment Center (1987), Investing in India: A Guide to Entrepreneurs.India Today (1987), An Indian Sum m er , 31 May, pp. 134-7.Kumar, A. (1985), Sizing Up the Black Economy (1985): Some I ssu es Revised by the NIP FPMethodology , Economic and Political Weekly Vol. XX No. 35, August, pp. 1485-8.Krishman, G. (1989), Big Growth in Non-resident Dep osits , India Abroad 14 July, p. 16.Naidu, G.M. (1984), Bu sin ess Climate in India: A Marketing Perspe ctive , 13th AnnualConference on South Asia, University of Wisconsin-Madison.National Institu te of Public Finance and Policy (NIP FP) (1985), Asp ects of the Black Econom yin India , New Delhi.Ninan, A. (1989), Inve stme nt Link for NRIs Planned , India Abroad 21 July, p. 17.Rayner, B.C.P. (1989), Cra ckle, C rac kle .. .It 's India on the Line , Electronics Business 23January, pp. 72-3.Sethi, V., Datta, L. and Wise, G. (1990), Pas sag e to India: A Marketing P erspe ctive ,International Marketing Review Vol. 7 No. 1, pp. 48-60.US and Foreign Commercial Service (1988), C ountry Marketing Plan for India.

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A Note on Passage to India Marketing Perspective