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PRATIBIMB FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | OPERATIONS | SYSTEMS
The Reflection of Management
A Students’ Initiative
November 2013
Pratibimb | November 2013 | 2
T. A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal
and is well known for its academic rigor & faculty-student interaction. The Institute has been
recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The
Week Magazine.
Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed
impetus to the task of building professional management capability in the country. In the
process, it has also played a role in strengthening the existing educational and health
infrastructure of Manipal.
“To excel in post-graduate management education, research and practice”.
Means:
By nurturing and developing global wealth creators and leaders.
By continually benchmarking ourselves against best in class institutions.
By fostering continuous learning and reflection, achievement orientation, creative
interdependence and respect for diversity.
Value Bounds:
Holistic concern for ethics, environment and society.
T. A. Pai Management Institute
Manipal, Karnataka
About TAPMI
Our Mission
Pratibimb | November 2013 | 3
TAPMI’s e-Magazine - is the conglomeration of the various
specializations in MBA (Marketing, Finance, HR, Systems and
Operations). It is primarily intended to provide insights into the
plethora of knowledge that relate to the various departments of
Management and to give an opportunity to the students of TAPMI
and the best brains across country to exhibit their creative cells. The
magazine also strives to bring expert inputs from industries, thereby
bringing the academia and industry together.
Pratibimb the e-Magazine of TAPMI had its first issue in December
2010. The issue comprised of an interview of well known writer Ms.
Rashmi Bansal along with a series of articles by students and industry
experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader
and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first
rank globally for learning & development . It also included a hugely successful and engrossing game
for finance geeks called “Beat the Market” to bring out the application based knowledge of
students by providing them the platform where they were expected to predict the stock prices of
two selected stocks on a future date. The magazine is primarily intended for the development of all
around management knowledge by providing unbiased critical insights into the modern
developments.
TAPMI believes that learning is a continuous process and is not limited to the four walls of the
classroom. This viewpoint is further enhanced through Pratibimb wherein students manage and
contribute to create a refreshing learning environment outside the classrooms which eventually
leads to a holistic development process. The magazine provides a competitive platform and
opportunity to the students where they can compete with the best brains in the B-Schools of the
country. The magazine also provides a platform for prominent industry stalwarts to communicate
their views and learning about and from the recent developments from their respective fields of
business which in turn helps to create a collaborative learning base for its readers.
Pratibimb is committed in continuing this initiative by bringing in continuous improvement in the
magazine by including quality articles related to various management issues and eventually creating
a more engaging relationship with its readers by providing them a platform to showcase their
talent.
We invite all the best brains across country to be part of this initiative and help us take this to the
next level.
PRATIBIMB TAPMI’S MONTHLY e-MAGAZINE NOVEMBER, 2013
Pratibimb | November 2013 | 4
It is a matter of great delight that Pratibimb is out with yet another issue. It just seems like a moment ago that the
preceding issue was released. As Pratibimb continues with the fulfilment of its role of serving as a platform for the sharing
of thoughts, insights and expressions, its readership continues to grow and flourish. It also, in its own unique style serves as
an emissary of TAPMI in the world of Business School Publications.
With great pride, I wish Pratibimb the best in the times to come and hope that its growing readership and appreciation
remains ever prevailing.
Dr RC Natarajan
Director
Director’s
Message
Pratibimb | November 2013 | 5
Editor’s corner
Arun Stephen
Abhineet Rastogi
Bhavnita Nareshkumar
Devi Kailas
Kannan Venkat
Shubha Prabhu
Aditya Bhat
Lloyd George
Ayon Kumar Gayathri Mohan
Amruth C Debidatta Sathapathy
Priyam Goyal Debayan Bhattacharjee
Akash Gupta Pallavi Prasad Avni Mooljee
Prof. Chowdari Prasad
Dean (PR) & Chairman-Admissions
Prof. Aparna Bhat
Editor in Chief
Marketing & Advertising
Creative & Cover Design
Communications
Operations
Publishing
Greetings from Pratibimb!
We are back with another issue, and this issue, like its predecessors, is but a
collection of keen perceptions of the Business world. The perceptions which
each of us possess and the sheer variety of them give us the ability to look
at things from every angle and to come up with innovative ideas like never
before. This trend of sharing perceptions is continued in this issue, and we
bring you a host of new thoughts and ideas wrapped up in one cloth, known
as Pratibimb.
We have Mr. Saurabh Bhuwania and Mr. Rajiv Singh from FMS, who pose an
important question with respect to our readiness to adopt new
technologies while maintaining the balance with the Humanity within us, in
their article ‘Our Future Offices’. Continuing with the Human aspect, we
have Mr. Udayan Dhar who in his article ‘The Future of Labour Relations in
India’ covers many detailed aspects, such as Altered realities of Collective
Bargaining, permanence of temporary workers, unions in IT companies etc.
A highly detailed and comprehensive read is the article ‘Indo-Chinese
Bilateral Trade : A bitter pill for the Indian Pharmaceutical Industry’ by Mr.
Shamik Mukherjee and Mr. Suvajyoti Bhattacharjee from SJMSOM, IIT
Bombay; a must read for anyone with even an iota of interest in the Pharma
World. Furthermore, Mr. Nitesh Sinha from IIM Ahemdabad questions the
very Manufacturing policy of the Indian Government, and comes up with a
substantive argument for his conclusions in his article ‘India yearning for a
Manufacturing Revolution’. On similar lines we have the article ‘Gold : A
celebration, an Occasion and now a Nemesis’ by Mr. Siddharth Singh from
NMIMS, Mumbai, in which the links between Gold and the current account
deficit in a Gold-loving nation are explored thoroughly.
Speaking of India, Mr. Harsh Garg and Mr. Kishalay Datta from NMIMS,
Mumbai, tell us about the value proposition and the steps IKEA should take
given its interest in India, in their article ‘IKEA – The INDIAN way’. Another
article ‘Revenue Maximization with Dynamic Pricing’ by Mr. Prahaladhan S
and Mr. Shyam Suresh from IMT Ghaziabad, constructs a simple, logical
argument so beautifully that one has to go through it to believe it.
While Branding is done at so many levels, the sixth level of differentiation
takes you to a different world altogether- the world of Festivals, as is
explained in the article ‘Sixth level of differentiation – Standing out during
Festivals’ by Ms. Seerat Jangda from IIM Lucknow. And finally, what would
be a better way to end the journey of reading than with the article
‘Nostalgia in Marketing and Advertising’ by Ms. Akriti Sahai from Welingkar
Institute of Management Development and Research, which, as the name
suggests, is a journey into the past.
Sub Editors
Faculty Advisors
Pratibimb | November 2013 | 6
We hope that these readings satiate your yearnings for knowledge and help you grow in every aspect till the next issue of
Pratibimb comes forward to simulate your intellect again with its collection reflecting Simplicity, Reason and Creativity.
“Education begins the Gentleman, but reading, good company and reflection must finish him.”
Our sincere thanks to all the contributors of articles who make Pratibimb what it is, to our readers who give us their most
precious thing – their time, and to our Faculty members at TAPMI, without whose valuable inputs and critical insights
Pratibimb would not be half as worthy as it is today. Kindly e-mail us your suggestions, inputs or feedbacks at- prati-
So keep reading, keep reflecting.
Editor
Arun Stephen
Pratibimb | November 2013 | 7
Contents Our Future Offices 8 by Saurabh Bhuvania, FMS Delhi
The Future of Labour Relations in India 10 by Udayan Dhar , NMIMS Mumbai
Revenue Maximization with Dynamic Pricing 12
by Shyam Suresh & Prahladan S, IMT Ghaziabad
Sixth Level of Differentiation 14 by Seerat Jangda, IIM Lucknow
Nostalgia in Marketing and Advertising 17 by Akriti Sahay, Wellingkar
Gold: A Celebration, an Occasion and Now a Nemesis 19 by Sidharth Singh, NMIMS Mumbai
IKEA– The Indian Way 23 by Kishalay Datta & Harsh Garg, NMIMS
India - Yearning for a Manufacturing Revolution 25 By Nitesh Sinha, IIM Ahemedabad
Indo-Chinese Bilatteral Trade 30 By Shamik Mukherjee & Suvajyoti Bhattacharjee, SJMSOM, IIT Bombay
Pratibimb | November 2013 | 8
We all wonder how the future world looks like. We talk about flying car; touch screens
projectors, army without single man, folding laptop etc. Also if, the technology changes
the organizations working culture will get changed. Also not the technology only but the
thought process will also change.
As per the latest studies the new workforce will not have an employer-employee
relationship. But be more as of stake folders, they are not called up as an employee
anymore. Trust will be the parameter which leads to the success story for the
organization. Already organizations are moving towards this culture, and role of HR
manager is changing from compliance and engagement to become enablers.
As per existing Maslow pyramid organizations have self-actualization at the top of the
pyramid. But now for the new organizational structure this will be the starting and trust
being at the top.
Tomorrow lack of opportunity and exciting new initiative will make talent to look
elsewhere. Psych of the new talent pool is changing, with new technologies,
methodology and innovation driving the future, new talent will seek for their own way of
working. Traditional thoughts are over driven by innovation.
Also to keep the talent interested, one has to make them believe that they are part of
something big. They are the integral part of keeping them big. In near future sense of
purpose will be more critical than the compensation and designation. Future organization
will come with all new designations, new functionaries, providing flexibility and will make
the talent force realize how they are asset to them. How it is important to be there.
Some of the people will say that the purpose is the only thing which drives them. But for
the future organization making this realized by the people who are down the ladder is
where future lies. It is an unwritten rule in current organizations that one should keep
hierarchical distance for subordinates to have control. For future organizations this
thumb rule will appear to be unproductive, and change towards collaboration team
working will become future ahead. The matrix structure will collapse to open culture;
people feel more on discussion rather following.
As the standard of living and resources increase, future organization will fulfill the basic
needs of the talent. For global workforce it will not matter where do you work? Whether
you are in London or Gurgaon, Auckland or Sydney it’s all equal. Talent will demand
equally rewarding and challenging career ahead of them. As of now there is a linear
variable compensation model which is followed. Deliverables are directly linked with the
variable component; not the zeal of taking risk, thinking out of the box, and for going for
an implementation of unrealistic work. The risk to fail is associated with it.
In near future employer (co stake holders) will let the talent fail, fail in their innovation
and will pay variable incentive for innovation and not on the success for the innovation.
Our Future Offices
Saurabh Bhuwania, Faculty of Management Studies, Delhi
Pratibimb | November 2013 | 9
They push them to try new things. Off course it never means
that successfully implemented work will not be appreciated,
but as the innovation caries risk of failure will not be bother-
ing for the future talent.
Emerging technologies will enable the employees to work
offsite with greater ease. Geographic location will become
immaterial. Companies will depend increasingly on “plug
and play” offices. Which get establish quickly wherever re-
quired. The concept of going to office will change to use
portable and wireless tools. These inevitably reduce over-
head expenses of leases, property taxes and facilities man-
agement.
Advance electronic communicating device will eliminate
traditional time, distance and language barrier; facilitate
communication and preventing lag of production. Virtual
interaction will be replaced by face-to-face meetings. People
will start working from home.
Social media effect is already driving the new talent to bun-
dles of information. Business managers in their late 30s and
early 40s communicate with traditional mode of communi-
cation. Gen Y is more towards the social medial like Google+,
Twitter and Facebook. Earlier role of HR heads is to limit the
information flow to restrict the information chaos. But for
the future talent heads social media will become a platform
for sharing new information and data. Obviously in the con-
trolled manner, and the control is not forced it will come
from the trust they will develop. Command and control HR
policy will get changed to own and deliver in the future. In-
tangible values will play greater role in the success of the
organizations rather the more controlled scenario, which is
driving the current talent pool.
Today’s organization lost their valuable discussions to small
packets of talent heads. Well-connected future organization
will teach the well-rounded workforce. Greater transparency
of all together new communication method will make the
circle bigger and bigger. Also restless will be new definition
for the future talent. Not being restless for being different,
but will have greater zeal to succeed.
Organizations will become big with small offices; companies
will expand their counts but shrink in disparity. Organiza-
tions which will become successful will be the one which has
one of the robust and transparent communication systems.
Current organizations still said to be European or American
or Indian one cannot see a unified global culture. Future lies
with the rapidly changing world, a unified single world. To
achieve this significant amount of de-centralization is re-
quired, in terms of execution and decision making.
The question still lies with the changing world are they ready
for organizational chaos, to manage it better? Does we are
ready for the next revolution in technology? With growing
technology does we are going away from humanity? Does
we are ready for changing the definition of office?
References:
www.infosysbpo.com
www.officeofthefuture2010.com
Pratibimb | November 2013 | 10
Management professionals and students of the post-reforms era in India have little
cognizance of the frequent strikes and labour disputes that marred the industrial scene
of the country- especially states like Kerala and West Bengal that have a history of la-
bour-based politics. The ushering in of economic reforms in 1992 also meant a major
policy change in the Indian Government with regard to industrial relations. The funda-
mentally pro-labour policies were replaced by a more “market-friendly” approach that
saw relaxation of labour laws, minimal state interference in labour disputes and a with-
drawal of open support to the erstwhile powerful unions.
But 1992 was two decades ago and things have come a full circle. Last year in July the
nation got an ugly reminder that all was not well when otherwise peaceful workers at
Manesar went berserk at the Maruti plant and attacked executive employees, even
killing an HR manager. Earlier, during the 2008-10 recession, as IT companies fired
thousands of employees there was renewed demand for tighter labour law implemen-
tation in this lucrative sector. So, how does the industrial relations minefield look like in
the years to come? What strategies are companies and labour unions implementing to
meet the challenges of a fast churning economy?
The altered reality of collective bargaining
Labour unions and their leaders have (belatedly though) realized the changed land-
scape of the Indian economy. Workers can no longer stand up against exploitation the
way they could do earlier, and strikes hurt them more than they hurt the companies
they work for. Let’s take the Manesar example. Despite a massive increase in profits
(2200% in two years), quantum jump in the CEO’s pay (419% in four years), increase in
productivity (400% in 8 years with just a 65% rise in total employee headcount) the real
wages of workers increased by a meager 5.5% (contrast this to the Consumer Price In-
dex jump of 50% during the same period). Add to it the continuing use of contract la-
bour in clear violation of the Contract Labour (Regulation and Abolition) Act, 1970, and
Contract Labour (Regulation and Abolition) Central Rules, 1971. It’s not difficult to real-
ize which way the balance is tilted.
The Manesar violence was followed by the arrest and sacking of dozens of workers, and
well as the shutting down of the factory for weeks thereafter. While union leaders have
expressed dismay at the attitude of the management, they have also realized the futili-
ty of violence and adverse actions on part of the workers. That a safe and healthy in-
dustrial relations environment is detrimental to both workers’ welfare and the econo-
my, is a reality which they have now accepted. Will the corporate leadership too now
show a willingness to engage with workers’ unions and treat their legitimate demands
in a fair and transparent manner? That remains to be seen.
The permanence of temporary workers
In blatant violation of the law, the Maruti management was employing contract work-
ers even for jobs that were “perennial” and “necessary for work in the factory”.
The Future of Labour Relations in India Udayan Dhar, NMIMS Mumbai
Pratibimb | November 2013 | 11
According to research, in the Delhi-NCR region, up to 85%
of industrial workers are on temporary employment. These
workers are paid a fraction of a permanent employees’ sala-
ry, given minimal benefits and can be terminated with little
notice. Unions are now taking up the cause of these work-
ers in an attempt to broaden their support base. The web-
site of the Indian National Trade Union Congress mentions
in its charter of demands states- “The trade union vehe-
mently demands implementation of the labour reforms in
the first instance of the contract workers who are working
on the permanent nature of work and should be made per-
manent. They want to improve their salary and other per-
quisite, pension and bonus etc. for which review of labour
laws is essential to give more job protection and security.”
The inclusion of these temporary workers will broaden the
scope of industrial relations in India and companies will
have to rethink the way they manage them with impunity.
On similar lines, trade unions are also contemplating the
unionization of the unorganized sector of India. Since 92%
of the Indian workforce belongs to this category, this sector
holds the key to giving new lifeblood to the flagging labour
union movement of this country.
Unions in IT companies?
Until March of this year, IT and ITES companies in Karnataka
enjoyed the extraordinary exemption from all Indian labour
laws. This had been going on since 1999, ostensibly to cre-
ate a more investor friendly climate. What resulted was a
multi-billion dollar industry in the state where employees
could be hired and fired at will, made to work extra hours
with no or little extra pay, and were paid a tiny fraction of
the amount they were billed for.
When recession struck, anywhere between 77,000 to
110,000 workers were unceremoniously laid off. Such ran-
dom firings, unregulated working hours and a high intoler-
ance of collective bargaining led to IT workers coming to-
gether to form unions outside the workplace. An example is
UNITES, a Bangalore-headquartered union for IT and ITeS
employees. Shekhar and Prithviraj Lekkad, the duo who
head Unites, claim membership (largely BPO employees)
had shot up from 5,000 to 18,000 in a year during the reces-
sion. “A few years ago, we were the fringe guys. People
would laugh at us. Not anymore.” Unites’ Shekhar, a former
IBM employee told Outlook magazine in an interview.
So as the labour laws finally come into force in the IT sector
in its home turf Karnataka, will employees now take up the
opportunity to unionize an industry that consists almost
entirely of knowledge workers? While the change may not
be so dramatic, companies and HR managers need to be
aware of the unique pitfalls in this industry. According to
Vikram Shroff, Head-International HR Law, Nishith Desai
Associates, it is a myth that IT sector employees do not ap-
proach labour courts or are not aware of labour laws. His
company is currently representing one such case at the la-
bour court where an outsourcing company fired an employ-
ee. The employee sued the company for unfair labour prac-
tices under the Maharashtra Recognition of Trade Unions
and Prevention of Unfair Labour Practices Act.
Implementation of labour laws and increased awareness of
their rights among IT/BPO employees will bring new and
unique changes, and well as challenges to employee-
employer relations in India. One such unique feature may
be the emergence of “virtual unions” that will lead to great-
er and freer communications among workers and an in-
creased number of legal cases.
A new paradigm of employer-employee relationship
While the pre-reform era saw an overbearing welfare econ-
omy that virtually stifled growth by rewarding militant un-
ionism, the decades following reforms saw a near reversal
with employee welfare being largely compromised in the
name of market friendly policies. The emerging paradigm is
a more balanced approach where employers and employ-
ees realize that they’re both stakeholders in each other’s
growth, and that there is no win-lose in this tug-of-war.
When employees feel unfairly treated, productivity and
morale suffers; Likewise, when profits take a plunge it’s the
workers who feel the first pinch. As the euphoria of the
reform decades wear off, the Indian industrial space will
benefit from the emergence of a more mature and inclusive
labour relations environment.
References:
Can India Inc. face the truth about the Manesar violence?
Jul 29, 2012, DNA, By G. Sampath
IT industry to lose blanket exemption from labour laws:
Deepa Kurup, The Hindu, 5th Oct, 2012
Workers' struggle in Maruti Suzuki, September 28, 2011,
The Hindu, By Prasenjit Bose and Sourindra Ghosh
Changing Face of Industrial Relations in a Knowledge-
Driven Economy, By Akanksha Khare, Arunima Khullar &
Soumitra Mehrotra, SHRM India Blogs
Outlook Business, 27 June 2009: Chronicles of the rise and
fall of the Indian software engineer
INTUC Website: http://www.intuc.net/
display_issues_detail.php
Pratibimb | November 2013 | 12
“The way you set prices doesn’t just influence demand. It also guides the way buyers use
your product or service-and that can have a lasting impact on customer relationships”
Dynamic Pricing is where prices respond to supply and demand pressures in real time
or near real time (Sahay, 2007). The most famous example will have to be that of EBay
using auctions to sell more than $20 billion worth of goods in 2005. Thus dynamic pric-
ing when managed well offers a feasible and attractive path to increase revenues and
profits. If managed well, it can turn out to be a potential source of competitive ad-
vantage.
Four reasons which drive the usage of dynamic pricing
Technology for accessing and deploying Dynamic Pricing has become affordable
Recent research (Sahay, 2007) which shows customers will accept Dynamic Pric-
ing though they are buying using Fixed Prices currently
Facilitates new ways of extracting value and reallocating demand amidst pricing
pressures and supply constraints
To increase efficiency, many companies are now looking at the downstream as-
pect where dynamic pricing becomes a natural consequence
Forms of dynamic pricing
Posted Prices: Systems such as revenue management for airlines, demand based
variable pricing or combination of approaches. Price changes across transactions
Price Discovery Mechanisms: Prices are determined by active participation of
customer in the transaction. The price changes during the transaction with ex-
amples being auctions, group buying, negotiations, etc. Ebay is an example of
straight auction where customers bid and the highest bidder gets to purchase
the product whereas in reverse auctions, suppliers bid to sell goods to the buyer
at the lowest price. This reduces upstream costs for the buyer.
Revenue Maximization with
Dynamic Pricing
Shyam Suresh & Prahladan S, IMT Ghaziabad
Pratibimb | November 2013 | 13
The conventional view
Dynamic pricing is limited to services/products such as hotel
rooms, airline seats the value of which becomes zero if not
used within the specified time. But for apparels, consumer
electronics, computers, cell phones, etc., value diminishes as
newer products hit the market. The value becomes 20 to
75% lesser in a span of 1 to 6 months. This is evident when
apparel brands offer end of season sale by marking down up
to 50% to clear the shelves. In these cases dynamic pricing
approaches can be used to raise or lower prices right from
the beginning, the prices can be calculated by examining
latitude of price acceptance.
Latitude of Price Acceptance (LPA)
This is the range of possible prices within which price chang-
es have little or no impact on purchase decisions of the cus-
tomer. It ranges from 17% for consumer health and beauty
products to 10% for engineered industrial components to 2%
for financial products (Mc Kinsey Study).
Companies can create LPA in consumer’s minds by varying
prices across different channels and geographies. They can
also create LPA by communicating value relevant to different
target customers. Companies that move to the higher end of
the LPA band can substantially increase profits. For example,
Spicejet airlines has individual bookings, group bookings and
corporate bookings and prices are different across each
channel.
Approaches to find LPA
Approach 1: To observe the range of prices for which the
product can be purchased through different channels. A
Samsung mobile phone for instance can be purchased at a
certain price through an online flipkart, another price in an
organized multi brand mobile chain like mobile store, third
price at an exclusive Samsung mobile outlet and a fourth
price at a local unorganized mobile outlet.
Approach 2: Based on surveys that test consumers’ willing-
ness to pay.
Approach 3: Analysis of actual demand elasticity in geogra-
phies, products, sales channels and customer segments
Situations for using dynamic pricing
Bigger the market, larger the number of customers
and greater the number of transactions, greater the
opportunity for using Dynamic pricing
The more the customer is involved in the process and
greater the heterogeneity on valuation that custom-
ers put on the same service, greater the opportunity
to reallocate and manage demand
Products and services that have a well defined shelf
life are amenable to use demand based Dynamic Pric-
ing even if they are perishable in the conventional
sense.
The more that the company needs to sell or excess
reassigned inventory, greater the potential for Dy-
namic Pricing.
The greater the possibility of using one off transac-
tions to obtain inputs for production, greater the po-
tential use of dynamic pricing as in the case of reverse
auctions
When the relation between price and cost is little and
the product can be evaluated from a distance. (In
case of auctions)
In many instances of B2B selling where negotiations
happen before the sale. Negotiation is a dynamic pric-
ing method.
The counter view
However the counter view than dynamic pricing will contin-
ue to sustain, supports itself with the argument that the ad-
vent of internet has led to decrease in search costs and ease
of comparison. With e-commerce websites like flipkart and
cardekho, the level of transparency has increased across
channels and hence the prices are bound to fall until they
become equal and fixed.
The prices need to stay within the LPA. As long as they do,
customer purchase intentions are not affected. Making cus-
tomers involved in the pricing process leads to price ac-
ceptance. Example: Price discovery mechanisms like auc-
tions.
Logistical issues for retailers include replacing price tags each
time there is a price change. For this purpose, electronic tags
can be used which can be controlled from a centrally located
system which prices products based on demand and supply
data. Despite incurring costs to implement these systems,
once these systems are in place, cost savings and increase in
revenue resulting from this will be significant.
Pricing to reflect demand and supply variation will be the
price that will maximize revenue. The demand side can be
controlled by understanding buying cycles and purchasing
habits of customers. Also segmenting customers by creating
price discrimination will lead to LPA.
Reference:
Arvind Sahay, How to reap higher profits with dynamic pric-
ing, 2007
Pratibimb | November 2013 | 14
Festival, the word that brings zeal and enthusiasm to not only the common people, but
also to the marketers’. During the festive times, brands try to be as innovative and crea-
tive as possible in order to lure customers. Some of the very recent campaigns taken for
this festive season of Dushhera and Diwali by Amazon and 94.3 My FM are commenda-
ble.
Amazon has recently launched its ‘Light up a Child’s Diwali’ Campaign in which it en-
courages its customers to help the underprivileged children by gifting them some items
available on Amazon’s website. These items can be selected by spending a few minutes
on the wish list prepared by the two NGOs-Pratham and Naandi Foundation, working for
the improvement of disadvantaged children. Amazon plans to donate the fees it earns
from these transactions to the two NGOs.
94.3 MY FM recently launched its campaign “Shakti ke 9 Roop” on the occasion of Nav-
ratri celebration. This is one of its kind campaigns as no other campaign of this sort has
been done ever before by any FM Channel. This campaign revolves around giving tribute
to the women who have made a unique space for themselves in the professional arena.
The FM would air an interview of such woman each day of the Navratri season. There
seems to be a connect of each woman with the Goddess of each day. Sudha
Murthy ,Bachendri Pal, Mary Kom, KiranBedi are somw of the interviewees to name a
few.
I would like to cite an exclusive marketing place which marketers’ of various companies
took as a big market opportunity- The KumbhMela. Where on earth would you find 100
million consumers at the same place in just one month of time? For advertisers, it’s
more like once-a-decade chance to reach millions of new consumers at the same place.
And this group of consumers is important because according to Crisil, for the past two
years, per-capita spending by India’s rural population grew faster than that of urban
dwellers for the first time in two and a half decades. As per the Mumbai-based unit of
McGraw-Hill Companies, rural spending was almost 12.9 trillion rupees ($235.7 billion)
in the two years ended last March 31, as compared with 10.4 trillion in urban areas,
making the rural consumers as the next big targets. Moreover, the outdoor media in-
cluding hoardings, banners, posters, kiosks, stalls, along with the on-ground activation
would eventually create a meaningful engagement with the customer more than from
any other media, which gave an additional edge to KumbhMela as opportunity.
While some companies needed such a huge gathering for generating leads, others used
it just as a branding exercise spot. Colgate-Palmolive hawked toothbrushes, Britannia
Industries pitched cookies, and Dabur India sold hair oil—all the said products were sold
at steep discounts. Coca-Cola had its kiosks around the Mela area, where it sold 150-
milliliter glasses of its namesake soda for Rs.5 , along with bottles for 25 rupees. JC Bam-
ford Excavators, which is a U.K.-based construction equipment maker, marketed a back-
Sixth Level of Differentiation– Standing Out
During Differentiation
Seerat Jangda, IIM Lucknow
Pratibimb | November 2013 | 15
backhoe loader, used for digging trenches, at the Mela. Vari-
ous Ads for HUL’s Close Up toothpaste and bikes from the
country’s largest motorcycle maker, the Hero MotoCorp,
could be seen too. Vodafone Group also ran a 40-seat thea-
ter featuring a cable TV program on the religious story be-
hind the KumbhMela. This film also included some easy to
understand information about two Vodafone service num-
bers - 121 and 123. Idea also had its OOH campaign in the
form of several outdoor formats such as welcome gates,
indication balloons, boats, inter-city buses, railway stations
hoardings, bus shelters and others.
HUL’s Lifebuoy campaign- the “Roti Reminder” grabbed
many eyeballs at the KumbhMela this year. HUL partnered
with 100 dhabas and small hotels at the mela site to serve
chapatis that were stamped with "Lifebuoy se
haathdhoyekya?" (Have you washed your hand with Life-
buoy?) The words were heat stamped onto the baked rotis,
and to ensure the rotis were completely edible, no ink was
used in stamping. HUL got this idea clicked by the fact that
roti beng the staple diet of Indian consumers, can’t be eaten
without the use of hands. This unique intervention had the
right timing: giving the message of hand wash just before
consuming food. HUL made special heat stamps to make an
impression of the above said message on rotis and hired 100
promoters to stand in 100 kitchens across the KumbhMela.
The company also placed Lifebuoy in the wash rooms of
each of the dhabas/hotels and used banners and billboards
to reach millions more people with its communication mes-
sage of hand washing.
Idea also introduced an ad campaign during Diwali festival
last year, which signified the importance of all religions and
promoted secularism. The ad film shows a Muslim man
standing outside a watch shop and looking at a watch’s
price, the man gets disappointed.
Pratibimb | November 2013 | 16
Seeing this, the shopkeeper shows him the festive offer card
for Diwali and the ad ends with the tag line "Dharamjobhi
ho, hartyauharmanaanaacha idea hai." They also released
three more TVCs about Holi, Eid and Christmas in continua-
tion of this campaign.
Maruti Suzuki also came up with a ‘Festivals’ ad in 2012 hav-
ing the tagline “MarutiSuzukui: for a festival called Life”. The
TVC shows various car models of Maruti Suzuki at different
shots depicting different festivals like Eid, Holi, Christmas,
Diwali, Durga Puja, Ganesh Chaturthi.
Whether it’s a festive campaign or any other campaign, the
only thing which binds the consumers to the brand is the
Experience!
References:
Brands and bands make music festival experience (2012) Retrieved Oct 15, 2013, from www.marketingweek.co.uk/brands-and-bands-make-music-festival-experience/ 3033914.article
Using Traditional Marketing to Promote Social Media Cam-paigns: An Analysis of Blue Cross/Blue Shield (2013) Re-trieved Oct 15, 2013, from //brightwhistle.com/using-traditional-marketing-to-promote-social-media-campaigns-an-analysis-of-blue-crossblue-shield/
Light up a child’s Diwali (2013) Retrieved Oct 15, 2013,
www.amazon.in/gp/feature.html?ie=UTF8&docId=
1000753323
Pratibimb | November 2013 | 17
Marketing is omnipresent. As consumers, in our day to day lives, we are surrounded by
communication or messages from all the directions.be it communication through radio,
TV, social media, mobile networks etc. Every product is trying to infiltrate itself in our
lives.in a world, where, people do not even know how many messages their mind is
registering, there is a concept used by marketer’s to stand out. And this amazing yet not
-so-talked-about concept is called Nostalgic Marketing.
Nostalgia means a sentimental desire for the happiness felt from a former place or
time. And nostalgic marketing is marketing that evokes a feeling or an emotion in the
mind of the consumers. Basically, nostalgia can be triggered from anything around you.
It reminds you of something that happened to you or is in some way associated to you
in your past, predominantly positive. Nostalgia is being considered by many marketers
in many ways. The fundamental reason is that it makes the consumer happy. The con-
sumer thinks about certain events in his life, he will also remember or try to connect as
to what made him walk down the memory lane, thus making way for a strong brand
positioning as well as stronger brand recall.
It is believed that nostalgic marketing works best in the times of recession or instability
in the economy. The logic is that when there is recession, the distressed always dream
of going back to the times when things were better. They want to go back to a more
stable time, when things were simpler and life seemed easier. Many company’s launch
products incorporated with tunes from older songs or jingles relating to older songs. It
evidently strikes the consumer minds and such ads make an impact on the consumer’s
mind.
Whenever marketers use nostalgia in marketing, they always are very precise and par-
ticular about their target market. It is common sense that a 25 year old will be nostalgic
about very different things as compared to someone who is now a 50 year old. The
most important criteria to consider nostalgia is the time flow according to your target
customer. If what a marketer is doing is not old enough to trigger nostalgia in the con-
sumer, the whole effort will be in the wrong direction and consumer will perceive you
to be outdated, if nothing else. A very big risk is that nostalgia, if executed incorrectly,
can backfire and spoil the whole show. Imagine if you have an amazing product, and
people love it and have very beautiful memories of using the product, but you change it
in a way that people do not like, it will cause them to let it go and switch to some other
option as you smeared their perfect memory of the product.
Now, let us enter the world of advertising and how nostalgia is shrewdly used by ad
agencies to make a different space in the clutter of the ad world. We should also discuss
some examples to get a clear picture of the various aspects of this concept.
Advertising is another world in itself. Advertising is a paid form of communication for
marketing and is used to encourage, persuade or manipulate an audience. Nostalgia is
used by advertisers the most and that too very skillfully. Advertisers understand very
well that consumers are influenced by their past and their anticipated futures.
Nostalgia in Marketing and Advertising
Akriti Sahay, Wellingkar
Pratibimb | November 2013 | 18
Though they cannot return to their past, they can try to pre-
serve it through nostalgic consumption activities. The effec-
tiveness of nostalgia in advertising can be seen through the
increase in level of brand awareness and brand attitude.
Advertisers use jingles and music that easily registers in your
mind and you start singing them in your routine. For exam-
ple- the Lyril soap old ad used the jingle which became a
household tune overnight. Another evident example to
clearly explain the concept is the Vicco turmeric ad. The
jingle singing “vicco turmeric..nahi cosmetic…vicco turmeric
ayurvedic cream” became an instant hit and is still remem-
bered by people.vicco used this for its benefit and is still
playing that same old ad to create nostalgia in the consum-
ers. Though people might not start using a product but they
have it registered in their mind and who knows one can give
way to sale of the product. An interesting example can be
the “proud to be an Indian” ad by Bharti Airtel, an undoubt-
ed impactful nostalgic advertisement.
A very recent example would be Manikchand Company’s
Oxyrich bottled water brand. Their recent ad is, though an
ad for their bottle Oxyrich, it has been edited from the old
version of the same Manikchand pan masala ad. The jingle
goes,”unche log unchipasand ,aey hey hey , Manikchand”.
The ad shows a scene of dahihandi being celebrated and a
person throws Manikchand water bottle to the person on
top of the formation of the dahihandi celebration. The origi-
nal ad showed the person throwing the pan masala box,
which is now replaced by the Oxyrich water bottle.
It was a very smart move, as the ad itself has a place in the
mind of the consumers and after watching this ad it created
nostalgia in the minds of the consumer and they registered
the brand shown and it increased the brand awareness. The
advertisement of hero which has a jingle “hum me hai hero”
by A.R. Rahman became famous nation-wide in a few days
and has left a very strong imprint on the minds of the con-
sumers. Every time it is played, people can tell without
watching the video that the tune belongs to which brand.it
has stirred up emotions in the minds of the consumers and
has thus made a space in their heads.
Another way of showing nostalgia is through use of it inside
the advertisement. Many advertisers make ads where they
show flashbacks etc where traditional ways of doing things
or rituals or ceremonies are shown. This is an instant trigger
to the memories of the consumers. Such mental images
make them think of their past and they relate the ads with
how they used to live in the past and how things have
changed. Nostalgia can also be used to make the consumer
feel that it was very recent past of his that he is relating to
and the fact that he hasn’t grown that old. The consumer
psyche is something that varies from person to person and
is difficult to understand. Important but very minute insights
help marketers to use nostalgia and hit the right target. Let’s
look at some international examples which we can relate to.
Sony playstation revisits its 1990’s roots in a video called
“the Beginning” that shows the journey of the brand over
the years. It has an amazing nostalgic appeal to it and has
benefited son in numerous ways.
Microsoft aims at its target audience with the opening
words of a nostalgic video re-launch of the internet explorer
browser: “We met in the 90’s. We are generation Y.” the
parting line of the video says: “You grew up. So did we.”
Beautiful, short and touching. Nostalgia basically makes you
romance with your past.it sometimes has a very personal
touch to it. It is said that the human brain sometimes inten-
tionally fogs the unpleasant parts of a memory and makes
us remember the good part of it. This happens because you
want to see yourself doing perfect things in the past and
being right about your actions or basically, feeling happy
about the memory. This is a big fact that contributes to the
success of nostalgia in advertising. Marketing research clear-
ly shows a positive resonance with both nostalgic ads and
the products advertised. It even shows more persuasive
influence on consumers. But amany a times, what is absent
is a clear correlation to either purchase intent or actual pur-
chase of the products advertised. Advertisers trust that the
positive resonance towards the ad will lead to increase in
sales of the product.
But what is to be kept in mind is that the study of the range
of age should be very precise and it should be aiming at the
right segment of consumers, as nostalgic ads tend to alien-
ate consumers if the appeal is not matched with the target
markets. Consumers’ chronic feelings state (past few days or
past few weeks) have been shown to affect their response
to nostalgic advertising. .
In conclusion, the question for marketers is whether getting
consumers to “covet or yearn for the past” is an effective
advertising strategy for their product or not. In my opinion,
its positive if the appeal includes the right product targeting
right segment of consumers. Nostalgia can lead to a strong
bond of the consumers with the product and will help in
increasing brand awareness and brand loyalty. It can be a
perfect solution for few brands under certain market condi-
tions. We should let nostalgic marketing and advertising
evolve. It should be studied deeply as it is an art and a sci-
ence in itself and has many hidden facts to it.
References:
studioden75.com
arcwebsite
Pratibimb | November 2013 | 18
Gold: A Celebration, an Occasion and
Now a Nemesis Siddharth Singh , NMIMS, Mumbai
The imports of gold have decelerated with ‘g’– the acceleration due to gravity. In India
gold is religion, and it can be considered as a reason why we are amongst the largest
importer of gold in the world. Since British Raj the Indian gems and jewellery sector has
reached new heights with skilled craftsmen, superior techniques for polishing &
cutting and cost efficiency. In India, gold jewellery is most preferred as it is considered
auspicious to purchase gold on occasions like festivals, marriage, birth etc. Gold is also
perceived as a relatively safer investment option.
The law of demand in economics says, “When the price of a commodity increases its
demand decreases”, but this proved rationale doesn’t hold true for gold in “India”,
investment in gold is becoming price inelastic. Gold has remained remarkably resilient
during arguably the worst financial crisis the world has seen since the Great Depression.
As the financial sector came close to collapse during the recession, gold seemed to have
the greater appeal as an investment option. More than two decades ago U.S dollar was
uncontested standard value; euro didn’t exist at that time. The situation has not been
like this, quite different- before Liberalization and Globalization in 1992 gold imports
were restricted by the then existing Gold control act, 1968 and the precious metal used
to be brought into India through illegal sources. Under the liberalized policy for importing
gold, Government of India permitted certain nominated agencies viz. State Bank of India,
Minerals and Metals Trading Corporation, State Trading Corporation, Handicrafts and
Handlooms Export Corporation and other agencies authorized by RBI to import gold.
Source : guardian.co.uk
The imports of gold have been rising at an exorbitant rate, irrespective of the price
associated with it. This large import of gold, at the time when the rupee is depreciating,
adds to the deterioration of our CAD. The bulging trade deficit, demands for financing
from the foreign exchange reserves, which could become a drag on the external debt.
Pratibimb | November 2013 | 18
In 2013-14, we expect international gold prices to average
about 16 per cent y-o-y, as the yellow metal becomes less
attractive for investments. However, the decline in domes-
tic gold prices will not be as steep and will be limited to 8-
10 per cent in 2013-14. Recent hike in the import duty on
gold (in September 2013) to 15% and a weak rupee will
cushion the decline in domestic gold prices.
However gold has started to underperform as a purchase
asset due to the following reasons:-
1. Upward Movement of the US Stock and Bond markets:-
Since gold cannot be invested anywhere; it is an idle asset
which is used to hedge against the vagaries of the equity
and debt markets. Thus its demand is dependent on the
current sentiment prevailing in the market. However the US
securities market has performed better than expectations;
which has led to the strengthening of the dollar against oth-
er currencies. In this bullish scenario, people have decided
to repose their faith in stocks and this has led to a fall in
demand for gold. This weak demand has led to lowering of
price.
2. Negligible Interest Rates:-
Gold demand also tends to be higher in a zero or negative
interest rate scenario. Currently the Federal Reserve prints
dollars and uses them for cash generation by purchasing
debt securities. Due, to the excess cash, the interest rates
remain low. However, according to the Quantitative Easing
policy announced by Mr. Ben Bernanke(14th Chairman of
the U.S Federal Reserve), there will be lesser printing of
dollars which will lead to real interest rates rising in the
USA. Accordingly, an investor who invests in India but re-
sides in the US will be tempted to withdraw his money and
invest in the US market. Hence these investors, who con-
tribute to cash inflows for India, will now widen the current
account deficit which will harm India’s gold imports.
3. Emergence of Silver:-
There has been a revival of silver as a purchase asset in the
precious metals segment. Silver is viewed as a more stable
commodity than gold and also the cost of storing silver safe-
ly in less than the corresponding cost for physical gold. This
has led to a rise in the trading of gold ETFs (Exchange Trad-
ed Funds) and preference of silver over gold. Also China is
leading the way in the investment of silver which sees the
metal as undervalued when compared to gold and having
better accessibility.
Magnitude of Gold imports:
Statistics say that the contribution of gold was nearly 30%
of trade deficit during 2009-10 to 2011-12, which is higher
than 20%. during 2006-07 to 2008-09. The gold imports in
India grew at 39%. In 2011-12, when the world gold de-
mands was growing at 24%.
Had it been in tandem with the world demand our CAD
would have been lower by 0.3%. Of GDP. This unabated
gold demand is putting pressure on our Balance of Payment
(BoP) management, which can make our external sector
vulnerable and can have implications on for maintaining
adequate forex buffer. We all know that the production of
Gold in India is insignificant as compared to its demand, so
the consumption is entirely met through imports.
Change in the guidelines:
As mentioned earlier, investment in gold is price inelastic.
So, if there are efforts made to suppress its demand then
the supply of gold from the authorized channels might be
restricted but there is a huge possibility that buyers may
take recourse to illegal channels.
Source: World Gold Council
Pratibimb | November 2013 | 18
Some Proposals:
There is a requirement to opt for selected demand and sup-
ply management measures.
Demand reduction measures :-
I. Gold is a function of economic growth, import duty,
exchange rate the availability of credit, alternative
financial investments and the current account trans-
actions. Any change in its policy would lead to con-
sider the developments in all of these parameters.
The absence of financial instruments that can give
real returns to investors leaves gold as the only op-
tion for the hedge against inflation. So, if products
like inflation indexed bonds are devised, and then
they can prove to be an effective alternative to gold.
II. Preferential treatments for gold as compared to
other imported products. If the gold import regula-
tions are aligned with the rest of imports, then it
will take away most of the incentives given to the
yellow metal, and will create a level playing field
between gold and other imports.
Supply side measures:-
In India, there are some importers which have access to
gold borrowings but with pre specified limits, and in turn
they pay interest on the amount of gold hence borrowed.
Gold lying as ETF which can be put to productive use by
lending a part of their total corpus to the above men-
tioned class of importers. This will benefit us in two ways,
first in the transaction of this kind gold is bought at the
end of the tenor of loan which postpones the demand for
gold imports and relives the pressure on our stressed Bal-
ance of Payment (BoP). Secondly, it would increase the
return on the ETF investments.
Plugging loopholes:
Buying gold is easy with no significant hassles as far as the
documentation is concerned. If someone invests in equi-
ties he has to pay capital gains tax, but there is no such
deterrent in gold transaction, neither there is any tax de-
duction at source. Traders are exploring the possibility of
importing jewelry especially gold, as it is hassle free and
don’t attract the Reserve bank of India’s 80:20 norms, un-
der which 20% of imported gold has to be re-exported.
The gold merchants were planning to import crude jewel-
lery, manufacturing cost of which is hardly 1% to avoid
80:20 rule from Singapore and Dubai. The major concern
in India is that, no one knows the amount of gold the other
person possess. But still, there are current norms which
say that PAN no. has to be provided for buying gold be-
yond a certain limit, but there is no mechanism to catch
hold of the jewelry shops which overtly flouts the rules.
Hence, there is a strong need to track these loopholes and
plug them.
Monetization of idle gold stocks:
A lot of gold lies with the sections of the society, which
are economically weaker and doesn’t pay tax and in order
to meet their untimely demands they fall prey to local
money lenders and pawn brokers. Here, banks may start
accepting gold jewelry as collateral against loan for all
types of productive purposes. Now, there are certain other
measures which are existent worldwide but not so known
in India, of course, there are some products which have
gained attention of the investors but there are still some
which needs a greater exposure-
Scope of Dematerialization of gold : Gold Swaps:-
We have often heard of interest rate swaps and currency
swaps- the mechanism of Gold Swap is also very similar to
it, but they also have features of repo mechanism. Gold
Swaps are essentially kind of repurchase agreements com-
monly undertaken between central banks or between a
central bank and other financial institutions. As, banks keep
government securities with RBI to purchase them back at a
later date at a predetermined price, Gold is exchanged for
foreign exchange under Gold Swap agreements to repur-
chase it at a specified price on a specified future date. They
in turn can also provide liquidity for the gold loan market,
when converted into loans by concerned dealers.
Gold- backed pension products:-
It’s again an innovative way of mobilizing idle gold stocks
and distributing gold equivalent return to the depositor for
a period of 20 – 25 years. The basic premise behind this
product is to provide pension to households. Indians by
nature are highly risk averse which is evident from the pop-
ularity of government jobs even amongst youth. People are
inclined towards government jobs because the future is
secure over there; the government takes your responsibility
even after your retirement. Hence, any product which can
give a regular monthly income just like pension is always
welcome here. Besides, giving benefits to customers, this
scheme also helps in reducing gold imports to the extent of
gold deposits mobilized. Since, here we are talking of 20-25
periods, so this long gestation period has a cumulative im-
pact on reducing gold imports.
Pratibimb | November 2013 | 18
Conclusion:
Current Account Deficit has been ballooning and has been a
cost of concern as it has been jeopardizing the economic
growth of the country. Some prudent measures should be
taken by not only the regulating authorities of India but also
by us. It’s highly unlikely love for gold in India is going to
diminish anytime soon due to deeply entrenched cultural
and economic reasons. As the current account deficit has
reached alarming proportion, it is imperative that the gov-
ernment take immediate measures to reduce gold imports
in the short run. In the long run, increasing awareness and
alternate options would be the key to reducing the debili-
tating effect of large gold imports.
References
http://online.wsj.com/article/
SB10001424127887323899704578587333915196600.html
http://www.gold-eagle.com/article/indias-love-gold-1
http://stats.oecd.org/glossary/detail.asp?ID=1127
crisil.com/
Union Budget 2013-2014
www.gold.org
Gold and the CAD, Business Standard dated 23rd July 2013
Pratibimb | November 2013 | 18
The entry of Indian brands and the surge of the aspiring Indian middle class have boost-
ed the furniture retailing in India. NCAER report has said that India will have a middle
class population of 267 million by 2015-2016 with average income is on an upswing. CSIL
Italy has recognized India to be among the 14 largest furniture industries in the world.
Indian Furniture Retail is growing at a steady space over the years. The main segments in
the furniture sector are Home furniture, Office Furniture and the Contract Segment. The
organized sector consists of importers and Indian manufacturers who cater to the prom-
ising business segment. Although they are trying to foray into the Home segment but
the intricate Indian customer behavior has posed a major hurdle.
The big players in the organized sector are Godrej & Boyce, BP Ergo, Featherlike, Ha-
worth, Style Spa, Yantra, Renaissance, Durian, etc. With FDI in multiband extended to
100% from the earlier limit of 51%, International Players are making a move into the
Indian market with IKEA recently announcing an investment of USD 1.95 bn by 2017-18.
Customer Behavior in India towards furniture
Unlike Westerners, Indians have a totally different attitude towards furniture. Indians
love heavy, teakwood furniture with intricate design. Design and material quality are the
two top level priorities in the Purchase Decision Hierarchy for Indians towards furniture.
Price occupies the third place (Source: KPMG Analysis). Indians do not like similarity of
furniture with their relatives or neighbors as furniture is a symbol of social status with “I
have the better one” attitude. We must understand that in India family activities hover
mostly in the living room and the elegance and beauty of the drawing room is a status
symbol. It greatly increases the confidence and dignity of the host when he entertains
his guests.
IKEA’s Value Proposition
The current problems Indian customer face with regards to Furniture market is invento-
ry shortages, delays in deliveries, partial shipments, non-availability of all components
under one roof and unprofessional customer service.
IKEA—The Indian Way Kishalay Datta & Harsh Garg, NMIMS, Mumbai
Category
2006(Bn
USD)
2011(Bn
USD)
2016(Bn
USD)
CAGR(2011-
16)
Furnishings & Fur-
niture (OVERALL)
6.5 9.1 17.1 13.50%
Furnishings & Fur-
niture
(ORGANIZED)
0.4 0.7 1.2 12.00%
Source:- Technopak Analysis
Pratibimb | November 2013 | 18
Plugging in these loopholes is going to be the value proposi-
tion IKEA can provide in India. Also there is a tradition in the
Indian market of having customized products by local crafts-
men but customization is already at the heart of IKEA- you
can choose even a back cover for a chair in IKEA.
The success of IKEA lies in not trying to change the custom-
ized model but dealing with the model in a more profes-
sional approach by hiring and training staff to not only deliv-
er the products but to also assemble the same. Though IKEA
is having an image of having low cost products overseas but
the same may not be true with the Indian customer.
Learning from China
It took 12 years (after entering in 1998) for IKEA to breake-
ven in the most populated country of the world. The reason
for this long period is its poor understanding of the Chinese
customer and its attempt to impose a global strategy on the
Chinese market. Preference of Indian customer and the eco-
nomic environment in India is very similar to its neighbor.
The learning that IKEA got from China that can be applied to
India is that its global strategy might be a low cost provider
but it can’t compete with the local suppliers solely on the
base of its low price. No matter how low the prices may be,
local supplier will supply at comparatively lower rates as
they will copy IKEA’s designs (laws in India are not stringent
enough to prevent the same) and thus will have zero design
cost. Moreover Indian customer see western products as
aspirational, so low price strategy will create confusion in
the minds of the customer.
Its global marketing strategy of using only a product cata-
logue may not work well in the Indian context. It needs to
have other communication channels that Indian customer
prefer like Television (considered a hygiene factor by Indi-
ans) and Social media.
IKEA’s eco-friendly policy of sourcing green products or us-
ing renewable energy in stores is accepted in the west but
Indian customer has not evolved to a stage where they are
ready to pay premium for the benefits of the society. So,
IKEA has to account that its social responsibility does not
make the Indian customer perceive it as a high price brands
it did with the Chinese customer.
Recommendations
The first problem that will come with IKEA in India will be
the land acquisition as the bill is not well established and
Juvencio Maeztu, CEO of IKEA plans to open the store
spreading over 3 lakh/sq.ft which is a huge space. It should
not open a store till it is able to acquire a land having facili-
ties like close proximity to main roads and public transport
as according to Transportation Statistics India ranks 102nd
with a vehicle ownership of only 15 per 1000 people.
It should collaborate with an Indian player having an under-
standing of the taste of the Indian customer and the local
suppliers for supplying products of Teakwood, Cedarwood,
handloom fabrics etc. that is very much adored by the Indi-
an customer
To gel with price sensitive Indian customer, IKEA will have to
take cues from the neighboring CHINA by opening factories
in India that will procure and sell the material locally and
thus reduce the burden of import duty. This will not impact
the global sourcing standards of IKEA as already it is sourc-
ing textiles, rugs, ceramics, lightning articles etc. from India.
Whatever IKEA does it must not end up as another shopping
mall round the corner clogging a city. It must not be viewed
as another place where a family can just visit on weekends.
IKEA must replicate and create the success mantra it has
achieved in developed countries. Local adaptation is a chal-
lenge that every Multinational faces. It is a “Do or Die situa-
tion” where a company must adopt itself to local environ-
ment to survive or it is destined to perish.
References
http://businesstoday.intoday.in
http://articles.economictimes.indiatimes.com
http://www.tradingeconomics.com/country-list/gdp
http://www.indianmirror.com
http://www.nrimatters.com
Pratibimb | November 2013 | 18
India Yearning for a Manufacturing
Revolution Nitesh Sinha, IIM, Ahemadabad
India’s Current Account Deficit (CAD) has climbed to 4.8% of the GDP or about $18.1
billion for the January-March quarter of 2012-13. The magnitude of the situation can be
assessed from the fact that India’s average CAD between 1949 and 2012 is $1.5 billion.
As is evident from Figure 1, the situation has been deteriorating since Lehman’s ceased
to exist. The situation so precarious that Balance of Payments (BoP) may have to be
cleared using forex reserves.
Figure 1: India's CAD over the past 12 year
What is to blame for this menace? It is the general opinion among industry and
government circles that gold imports are the culprit. India is the largest consumer of the
yellow metal (about 25% of world production) and this trend has continued in spite of
rising prices of the precious metal. The volume of gold exports have registered only a
modest growth, a CAGR of 6.27% since between 2006-07 and 2011-12. In fact, the gold
imports declined in the fiscal 2012-13 by 11.8% in volume terms. But it is the price of
gold that has become the cause of much damage. The Table 1 below shows the gold
import trends in the past 10 years.
But a careful analysis of Figure 1 shows that India’s CAD began to increase 2008-09
onwards, a time when gold imports were the lowest (as percentage of imports) in a
decade (see Table 1).
What has been the cause of increasing CAD then? The answer increased world oil prices
and India’s increasing manufacturing (especially medium and high-tech goods) trade
deficit, especially with manufacturing strongholds like China, United States and Germany.
Figure 2 provides us with the information that India’s trade deficit began to increase
from 2008-09 onwards, the same period since when the CAD began to increase.
Pratibimb | November 2013 | 18
Table 1: Gold imports by value and as a percentage of total
imports since 2002-03.
Let us consider the case of oil imports and exports. Between
2011-12 and 2012-13, the net imports of crude and petrole-
um related products has increased 24.75% in rupee terms
and 11.38% in dollar terms. This is not much different from
the previous three years i.e. the CAGR of India’s net oil im-
ports in dollar terms is approximately 11% from 2008-09 to
2011-12 (see Figure 3). As payments for oil imports are usu-
ally done in Dollars and Euros, the net effect of this increase
is weakening of rupee. This increase in oil import bill is be-
ing observed since the time previous to the economic crisis
(see Figure 3 for details). But it has started to hurt the econ-
omy more since 2008-09. Moreover, this trend (of increas-
ing oil imports) is going to continue as India’s consumption
of oil is only increasing.
The effect of this depreciation of rupee has been in terms of
trade gap for manufactured items increasing by about 9.3%
(in rupee terms) between 2011-12 and 2012-13. On the
other hand, manufacturing exports from India have in-
creased by only 7.91% in this period. The fact that value (in
rupee terms) of imports of manufactured goods was 20.4%
larger than exports in 2011-12, makes the situation even
more worrisome.
Let us take the case of China in detail. It’s just 5 months in
to the year and the trade gap with the country has already
touched $12 billion in a total trade value of $26.5 billion.
This is despite of reduced gold imports from China (details
in Figure 2). This gap is about 2/3rd of the India’s CAD for the
first quarter of 2012-13.
Now the question that follows from the above facts is why
is the trade-gap widening between the largest and third-
largest economies of Asia? The answer lies in the composi-
tion of trade between the two countries. More than half of
China’s exports to India comprises electronic goods (27%),
machinery (12%), organic chemicals (7%), project goods
(7%) and fertilizers (5%). Clearly, China is providing India
with two broad classes of goods. Firstly, there are goods
which are technology related. Since India is a developing
(more appropriately, industrializing) country, the import of
these equipment is only going to increase as has been hap-
pening in the past. Even economic downturn has only re-
tarded the growth (6.9% increase by value in the import of
electronic goods and machinery) of these imports and not
reduced imports themselves. Second, China is selling essen-
tial commodities like organic chemicals and fertilizers which
are indispensable no matter what the market situation is.
The escalating need of these goods is further supported by
the burgeoning middle class (leading to increased consump-
tion and hence, increased usage of farm inputs) and grow-
ing population.
Now let us a take a look at the other side of the table. Bulk
of India’s exports to China includes raw cotton (16%), non-
ferrous metals (15%), iron-ore (10%), cotton yarn (9%), oth-
er ores and minerals (7%) and plastic products (6%). As is
evident, India is supplying goods which have very low level
of sophistication.
Figure 2: India's Balance of Trade
Year Gold Imports
($ billion)
Total Imports
($ billion)
Per-
centage
2002-03 3.84 61.41 6.3
2003-04 6.52 78.15 8.3
2004-05 10.54 111.52 9.4
2005-06 10.83 149.17 7.3
2006-07 14.46 185.74 7.8
2007-08 16.72 251.44 6.7
2008-09 20.73 298.83 6.9
2009-10 28.64 288.37 9.9
2010-11 43.50 369.8 11.7
2011-12 61.50 488.6 12.6
2012-13 50.38 491.48 10.2
Pratibimb | November 2013 | 18
Figure 3: India's net oil related imports
It is common knowledge that the lower the level of sophisti-
cation of goods the lower are the holdup costs for the buy-
er. Therefore, source of such goods (India in this case) is
easily replaceable. The theory is exemplified by the fact that
Bangladesh is fast eating into India’s pie of cotton exports
market. The sporadic supply of iron-ore during recent un-
veiling of mining scam in Karnataka and elsewhere have
caused China to majorly cut down imports from India.
In order to further comprehend the vulnerability of India’s
imports to China, it is important to understand the past and
likely future trend of China’s sourcing from India. These
trends are found to be affected by three major factors
(which may be interrelated), phase of economy, domestic
supply & demand of goods & services and state of exports.
Let us take a look at the phase of Chinese economy. The
country has witnessed massive growth in the past three
decades. It is suspected to surpass US’s GDP (in PPP terms)
by 2017. Essentially, the nation is in the latter half of its
journey towards being a developed country. As has been
commonly observed, a country in such a phase witnesses
declining growth rates and correspondingly, declining needs
of basic resources.
The supply of various items of domestic consumption (e.g.
infrastructure build-up) has outstripped its demand in China
since the period of recession. The growth of China’s exports
in the world market have seen a declining trend (on an aver-
age) since the time of recession. Given these factors, the
requirements of inputs for manufacturing has seen either a
decline or minuscule growth.
The combined effect of declining growth rates, over-supply
of consumption goods and declining trends in growth of
exports has been in terms of lower consumption of India’s
exports. The Chinese import of iron-ore from India has de-
clined by 62.82% (it includes the effect of the ban on mining
activities in India). There is also a decline of 8.13% in cotton
related imports.
One important thing to note here is that although the above
discussion is centered on India’s trade with China, similar
observations are also aplenty in India’s trade with other
economies (e.g. European Union) as well. This is the reason
why the problem of trade deficit is getting exacerbated in-
stead of getting compensated from India’s trade with other
nations as well. The country’s export to the world again
comprises products of very low levels of sophistication. Half
of Indian exports include refined crude (20.05%), gems &
jewelry (14.46%), transport equipment (6.13%), low-tech
machinery (5.06%) & drugs (4.86%). Except for drugs and
transport equipment, India is just a processor of imported
raw materials (crude, gems). Again, because of low hold-up
costs related to low-tech products, India as a supply source
is easily dispensable. Imports, on the other hand, include
petroleum, crude & products (34.48%), gold (10.94%), elec-
tronic goods (6.41%), machinery (5.63%), pearls and stones
(4.61%). Most of these goods are either essential (e.g. pe-
troleum) or related to technology and the consumption of
both groups is likely to increase in a growing economy. Ta-
ble 2 shows the evolving trends in export composition of
China and India. India has long relied upon the prowess of
its Services Industry which has exhibited spectacular growth
in the past decade. But the niche that India had toiled to
create for itself is now being eroded by countries like Philip-
pines. These countries are fast emerging as cheaper centers
for outsourcing (at least low-tech) for Western nations.
Pratibimb | November 2013 | 18
Figure 4: India's Trade Gap with China over the past 6 years
Share of World
Manufactured
Exports, %
1985 2008
China India China India
Resource-based 0.8 0.9 3.5 1.7
Low-tech 1.2 1.2 18.1 2.5
Medium-tech 0.1 0.1 10.6 0.8
High-tech 0.1 0.1 14.3 0.5
OVERALL 0.5 0.5 10.8 1.3
Table 2: Evolution of export composition of India and China
between 1985 and 2008
Figure 5: India's Service Exports; Value and Growth
Companies like Infosys, Wipro, Genpact, etc. are aug-
menting their outsourcing operations in Philippines. The
effect of all this development can be perceived in the
growth rate of service exports of India. These rates are now
hovering around 5-10% from a high of 33% around 2005-
06.
The inference from the above discussion and Table 2 is that
the problem of Current Account Deficit is not just depend-
ent on the current trends as increased gold imports but
also on structural issues in the Indian economy. Therefore,
increasing the excise from 6% to 8% on gold (as done re-
cently by the Finance Ministry) is only likely to procrasti-
nate the advent of problem, not resolve it. India needs to
take lessons from the development of the Asian Tigers dur-
ing the last quarter of the 20th century. All these economies
were manufacturing based and started from low tech prod-
ucts but eventually became world suppliers of high-tech
equipment. India cannot afford to rely just on the services
industry to fill the trade gap as countries in South East Asia
are now challenging its dominance is in this industry. The
government needs to take a hard look at its manufacturing
policy to increase the sophistication of the manufactured
products in order to be able to do both, meet the domestic
requirements and compete with countries like China in the
international arena.
Pratibimb | November 2013 | 18
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Sustainability.
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Petroleum Products: 2004-12. Retrieved from
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crude-oil-and-petroeum-products-2004-12
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India From 2011-12 And 2012-13.
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Indian Rupee(INR) History. Retrieved from http://usd.fx-
exchange.com/: http://usd.fx-exchange.com/inr/
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overtake US in next four years, says OECD. Retrieved
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cid-1.html
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www.tradingeconomics.com/india/current-account
WTO. (2012). International Trade Statistics 2012. WTO.
Pratibimb | November 2013 | 18
Indo-Chinese Bilateral Trade: A Bitter Pill for the Indian Pharmaceutical
Industry Shamik Mukherjee & Suvajyoti Bhattacharjee, SJMSOM, IIT Bombay
Introduction
Over the past 50 years, Indian pharmaceutical industry has undergone a massive
makeover – from a modest beginning of “process patents regime” in the seventies to a
modern and WTO-compatible regime under the TRIPs Agreement in 2005. In the last two
decades, India has witnessed significant trade and industrial policy liberalization, which
have led to structural changes in the domestic industries. There has been rapid growth in
the pharmaceutical sector in India which was led by the migration of economic and
research activities from Europe to India in particular and some other fast-growing
markets.
It becomes important to analyze trade trends to ascertain whether India has increasingly
become dependent of one source, China, for its imports. However, over-dependence on
any country runs the risk of import disruptions causing havoc for Indian manufacturers,
as was seen in the case of temporary shortage of bulk drugs required for penicillin
coinciding with the 2008 Beijing Olympics. Such an eventuality in the future may have an
adverse impact on the whole pharmaceutical sector in India. This could pose a threat to
the health security of millions of poor Indians as it could raise the drugs prices or even
lead to non-availability of the essential medicines, and in the long run, it could adversely
impact the exporting capabilities of India in the formulation segment. China and India
established diplomatic relations on April 1, 1950. The bilateral trade crossed US$13.6
billion in 2004 from US$ 4.8 billion in 2002, reaching $18.7 billion in 2005. With the
expected increase in Chinese healthcare spends, the Indian pharmaceutical sector has
the potential to tap into the need that is present in the Chinese market and increase their
exports, which currently stands at $0.5 billion compared to the $3 billion worth of APIs
and bulk drugs that are imported from China.
Indian Pharmaceutical Sector
The structure of the Indian pharmaceutical has undergone significant changes.
Pharmaceutical products consist of two main components - (i) the active pharmaceutical
ingredient (API) or bulk drug; and (ii) the formulation segment (i.e., a suitable final
dosage form). Till the year 2001, the bulk drug production increased by nearly 20 per
cent annually, whereas that of formulations increased at an average rate of 15% per
year. A comparison of value or production of bulk drugs and formulations to the value of
exports of formulations and bulk drugs shows that 80% of the formulations produced are
consumed indigenously, compared to the majority of the bulk drugs manufactured,
which are exported. According to an Associated Chambers of Commerce and Industry of
India (ASSOCHAM) forecast, the Indian pharmaceutical industry will account for about
30% of the increasing generics market from the current figure of 22 percent of the
generics world market.
Pratibimb | November 2013 | 18
A study on India’s exports and imports trends in
pharmaceutical sector carried out using the SITC
nomenclature concluded that exports of formulations
have grown faster while their imports have not registered
any jump, keeping a positive balance of trade. However,
there has been a decline in domestic production of bulk
drugs and a growth in imports because the industry is
moving away from intermediates and is focusing on bulk
drugs at the high end of the value chain. There are various
data sources on drugs and pharmaceuticals trade and it is
important to adopt a uniform definition of the term
“drugs and pharmaceuticals”, the lack of which has
resulted in disparate conclusions on the performance of
the industry on the trade front.
Chinese Pharmaceutical Sector According to a report by KPMG in 2011, the Chinese
pharmaceutical industry is the fifth largest in the world.
With domestic growth projected to be about 20% p.a.
combined with high volume, the industry is expected to
overtake Japan and subsequently push into the second
place in the world by 2015.
A United Nations Conference on Trade and Development
(UNCTAD) survey in 2004-05 identified China as the most
attractive location for future investments in R&D
according to nearly all the world’s top R&D spending
MNCs. China has been an important producer of bulk
drugs (raw materials or APIs) which is required for the
manufacture of several essential drugs, including anti-
retroviral drugs for the treatment of HIV/AIDS. These two
factors provide China with the required strength to
compete with Indian pharmaceutical sector globally.
Figure 1: Trend in India's Pharmaceutical Imports (US$ Billions) (Data Source: WITS online database)
Figure 2: Trend in India's Pharmaceutical Exports (US$ Billions) (Data Source: WITS online database)
Pratibimb | November 2013 | 18
The pharmaceutical industry in China is characterized by
both minor and major players, and though the domestic
companies lack the necessary administrative or R&D
sophistication possessed by the international players, they
manage to compete with them due to their scale of
operations and ability to penetrate the market. Their
strength lies in manufacturing of generics and active
pharmaceutical ingredients (API) for exports- China is one
of the world’s largest exporters of APIs, which constituted
about 80% of China’s pharmaceutical export in 2009.
There have been studies comparing India and China’s
pharmaceutical industries. In one such study by Zhang et
al., the authors calculated the Trade Competitive Index
(2004-2008) for China and India’s raw and prepared
medicine, and found that both China and India have a
certain degree of overall competitiveness in the
pharmaceutical industry, but the origin of the
competitiveness differs greatly. The Chinese TC index is
very high for raw medicine, showing that China has
absolute comparative advantage in raw medicine
production, while India is located at a relatively low
position.
Since 2004, in the global pharmaceutical value chain
production link, China mainly specializes in raw medicine
whereas India specializes in prepared medicine. It has also
been observed that the China exported raw medicine
while it imported manufactured medicine products, i.e.,
formulations. So these trade flows are not characterized
by intra-industry trade. Hence, it can be said that the
policy driven Chinese pharmaceutical industry is in a race
to meet the twin objectives of quantity and quality set by
the reforms of 2009. The industry has all the necessary
incentives as well as support to achieve these objectives.
Sectoral Trade Trends
India has emerged as a major supplier of affordable
generic drugs globally. Any disruption of production
activities in India, owing to any externalities, may
adversely impact the global access to medicine. During
the last 12 years, MNCs did not undertake any major
green-field (organic) investments initiatives in India, the
MNCs largely opted for brown-field (inorganic)
investments. A change in management at many of India’s
pharma companies has altered the channels of
procurement of raw materials, keeping the destinations of
exports unchanged. The dependence on China can be an
advantage for the firms operating in India and sourcing
their inputs from China. On the other hand, there is a risk
of imports from China displacing domestic production in
India.
Indian Pharmaceutical Sector’s Growing
Dependence on China
With a view to understanding the growing dependence on
imports from one source, this section examines the trends
in India's imports of pharmaceutical products from China.
The examination is done for the overall pharmaceutical
sector with focus on the two sub-sectors of bulk drugs and
intermediaries and formulations.
Overall Pharmaceutical Imports
The total imports during 1996 to 2010 were close to US$
15.7 billion (see Figure 3). We can decompose the total
imports into three phases: a) Phase-I constituting of years
1996 to 2000; b) Phase-II constituting of years 2001-2005,
and; c) Phase-III constituting of years 2006-2010. It can be
observed that imports have increased from US$ 2.0 billion
in the first phase to US$ 3.6 billion and further to US$ 10.1
billion in second and third phases respectively.
Bifurcated analyses of sub-sectors conducted for a
detailed understanding of the distribution of China’s
imports under the bulk drugs and formulations (Table 1)
reveals that the total imports of US$ 14.4 billion was of
the bulk drugs and rest of US$ 1.3 billion of formulations.
In terms of decomposition of individual shares, the bulk
drugs had an average of close to 92 percent for the three
phases and the residual 8 percent was formulations sub
sector, see column 6 of Table 1.
Figure 3: Total Imports of Pharmaceutical Sector: 1996 to 2010 (Data Source: WITS COMTRADE online database)
Pratibimb | November 2013 | 18
Imports/Shares 1996-2000 2001-2005 2006-2010 Total (US$
billions) % Shares
Bulk Drugs and Intermediar-ies
94.0 92.8 91.2 14.4 91.9
Formulations 6.0 7.2 8.8 1.3 8.1
India's Imports from World (US$ billions)
2.03 3.56 10.10 15.7 100
However, the trend in composition of the pharmaceutical
sector over the three phases suggests a marginal drop in
significance of bulk drugs and intermediaries sub sector as
its share in total pharmaceutical imports decreased from 94
percent in the first phase to 91 percent in the third phase.
On the other hand, there has been a marginal increase for
the formulations sub sector imports, but this increase was
seen at a very low base. Therefore the bulk drugs sector
continues to be the main sub-sector of imported
pharmaceutical products.
The total import under the bulk drugs sub sector of the
pharmaceutical sector was close to 92 per cent. As shown
in Table 2, the bulk drugs showed a spurt in import values
from US$ 1.9 billion in the first phase to US$ 9.2 billion by
the third phase. India’s import from China’s increased from
US$ 0.3 billion in the first phase to US$ 2.8 billion by the
third phase, suggesting a growth of 216 percent for bulk
drugs. This was 90 percentage points higher than the
growth in total imports of India from the world. While
imports of bulk drugs from the world increased 5 times by
the end of third phase, imports from China surged by
almost 10 times during the period 1996-2010. It may be
noted that share of China in India's total pharmaceutical
imports at the end of 2010 far exceeds the share of any
other country in India's import market over the past 2
years.
Across the board, there have been significant gains for
exports of China in the Indian pharmaceutical sector growth
story, with each and every indicator suggesting an
increasing trend. The surprising aspect is phase-wise
growth trends observed in the case of formulations,
particularly because India is considered the global leader of
generic/formulation products.
Trend in imports from China in the pharmaceutical sector As shown in Table 4, China’s share in India’s imports of
pharmaceutical showed a sharply increasing trend, in both
relative and absolute terms. During the period 1996-2000
(Phase 1), China had 13.79 per cent share in India’s imports.
This surged to 20.6 per cent during 2001-2005 (Phase 2).
The pace of increase in China’s share accelerated further to
28.32 per cent during 2006-2010 (Phase 3). Increasing
import share reflects the fact that imports from China have
increased relative to imports from other countries.
Not only has India’s imports from China increased
significantly compared to imports from India’s other trading
partners, it has also increased in absolute terms as well.
Average imports during the period 2001-2005 grew at an
impressive rate of 162 per cent compared to imports during
1996 - 2000. However, even this impressive growth was
outstripped in the subsequent period, as imports during
2006-10 registered a growth of 290 per cent as compared
to 2001- 2005.
With almost a quarter of total imports of pharmaceutical
products in to India is originating from China, it is clear that
India has already become overwhelmingly dependent on
one source for meeting its import requirements. The surge
in import share per se cannot be a basis for concluding that
India's pharmaceutical sector is facing adverse effects on
account of these imports. Further analysis is required for
assessing whether imports from China are trade creating
and have mainly displaced domestic production, or these
imports have resulted in trade diversion by displacing
Table 1: Decomposition of India’s Imports in Pharmaceutical Sector (Data Source: WITS COMTRADE online database)
Imports/Shares 1996-2000 2001-2005 2006-2010
India's Imports from World (US$ bil.) 1.91 3.3 9.21
India's Imports from China (US$ bil.) 0.3 0.73 2.83
China's share in India's Imports (%) 15.6 22.15 30.71
Table 2: Trends in Imports of the Bulk Drugs and Intermediaries (Data Source: WITS COMTRADE online database)
Pratibimb | November 2013 | 18
1996-2000 (USD
Mil.) 2001-2005 (USD
Mil.) 2006-2010 (USD
Mil.)
India's Average Global Imports 2,029.3 3,557.6 10,091.1
India's Average Imports from China 280.0 733.0 2,856.6
China's Share in India's Imports 13.8 20.6 28.3
Table 4: China's share in India's pharmaceutical imports (Data Source: WITS Database)
Imports/Shares 1996-2000 2001-2005 2006-2010
India's Imports from World (US$ mil.) 122.5 256.5 891.0
India's Imports from China (US$ mil.) 1.6 8.6 42.4
China's share in India's Imports (%) 1.3 3.3 4.8
Table 3: Trends in Imports of the Formulations (Data Source: WITS COMTRADE online database)
imports from other competing countries in those products in
which domestic supply is insufficient to meet the demand.
Another line of enquiry relates to possible linkages between
imports from China causing an increase in India's exports
through inputs and intermediates becoming available at
competitive prices.
Another line of enquiry relates to possible linkages between
imports from China causing an increase in India's exports
through inputs and intermediates becoming available at
competitive prices.
Indian Exports to China India’s pharma exports have been growing at close to 25%
CAGR for the past 5 years. Last year the export to BRIC coun-
tries grew by 22% but the U.S. is the largest importer of Indi-
an drugs. Though China has far more lenient FDA norms as
compared to the U.S., India was able to export only $ 0.5
billion of formulations to China. Given the fact that there is
China's increased competition even in formulations sector,
India's exports to China have been continuously slipping.
Most foreign companies had entered China and set up R&D
centers and manufacturing facilities in China beginning from
1980. Indian pharma companies do not enjoy this ad-
vantage.
Bilateral trade is tilted heavily in favor of China and it would
be difficult to continue sustaining bilateral trade on the basis
of current trends. With there being an urgent need to
change the trade basket and introduce elements where In-
dia has proven competence and pharmaceuticals readily fit
the bill. India is pushing for market access based on the as-
surances by Chinese Prime Minister Wen Jiabao, to address
the trade imbalance, and a proposed nodal body comprising
of SFDA officials and Chief Controller of Drugs of India to
interact on the market access issues has been formed.
While the Chinese companies trading in Active Pharmaceuti-
cal Ingredients (API) generally get clearances in about a year,
it takes three to five years for an Indian company to get the
necessary clearances in China. A case had been made by an
Indian pharma delegation to the officials of State Food and
Drug Administration (SFDA) and Chinese Ministry of Com-
merce that like India making use of Chinese machinery to
expand its infrastructure, China, too, should take advantage
of well-placed Indian pharmaceutical industry which can
help to make the basic drugs available for far cheaper prices
benefiting the Chinese public.
The Indian government has constituted a sub-committee,
under the chairmanship of joint secretary to look into the
product registration in China, present status and hurdles. It
is good to see that China is being taken up as a challenge.
The only way to penetrate the hugely fragmented Chinese
market is by collaborating with existing Chinese players.
Otherwise it will be difficult for Indian pharma companies to
increase their exports to China.
Conclusion
At present, to global pharma companies, India and China
possess the best ratio of cost to product/service quality
among all emerging economies. However, the current labor
and raw material costs in the Indian pharmaceutical industry
are generally about 25% to 30% higher than in China, which
makes China more attractive than India to pharma compa-
nies when sourcing bulk materials or outsourcing long-term,
large-scale manufacturing projects.
Pratibimb | November 2013 | 18
At present, the Indian companies are the better choice for
formulation development, and the manufacturing and
marketing of dosage form drugs, whereas Chinese
companies are a better fit for upstream work, such as
contract manufacturing (and sourcing) of advanced
pharma intermediates and APIs. Chinese companies also
offer better cost-reduction benefits than their Indian
counterparts by charging less for the same type of
services/products.
On the other hand, even though they are presently the
hotbeds for global pharmaceutical manufacturing, China
and India still play much less significant roles than
developed countries, particularly in high-end areas such as
the special formulation techniques and the manufacture
of APIs and finished drugs that are still under patent
protection. This is largely determined by the intrinsic
weaknesses of these two countries due to low R&D
investment in pharmaceutical industry.
Indian dependence on bulk drugs from China needs to be
reduced. The Department of Pharmaceuticals of the
Ministry of Commerce has pointed out that India need to
tap the global contract research manufacturing
opportunity worth US$ 44 billion as of 2013-14. Indian
pharma companies have to seize the chances in new drug
delivery systems, tap the potential in the biotech market
including monoclonal anti-bodies, and complex APIs in
order for the industry to improve the composition of
production/ export basket of India.
Otherwise, the terms of trade can be expected to worsen
every passing day.
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(Accessed September 14, 2013)
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