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DISSERTATION REPORT
ON
“STRATEGIC OF MARKETING OF RICE.”
Submitted for the fulfilment of the degree of
DIPLOMA IN BUSINESS ADMINISTRATION
2013-2014
SUPERVISED BY: SUBMITTED BY:
S.K. DUBEY HEMANT AGARWAL
F.M.S. F.M.S. (P.G.D.B.A.) 2nd SEM.
BHU VARANASI ENROLLMENT : 13926MA007
Faculty Of Management Study
Banaras Hindu university
Varanasi- 221005
PREFACE
The Dissertation report on “STRATEGIC OF MARKETING OF RICE” In
an honest reflection of various dimensions of a detailed study conducted by me
recently to address a relevant curriculum requirement in our PGDBA programme.
The work contents to explore the various pertinent issues in; “STRATEGIC OF
MARKETING OF RICE.”
This project emphasizes on the financial aspect about the MARKETING
STRATEGIC .I have tried my level best to make a good dissertation report which
could be further used for any reference work. However no one can claim perfection
in it entirely. So I apologize further discrepancy, if any crept in .
Preparation of project requires perseverance, initiative, proper guidance and
direction. So it mandatory to take aids from various departments.
ACKNOWLEGMENT
Life of human beings is full of interactions. No one is self-sufficient by himself
whenever anyone is doing some work. I cannot forget acknowledging them in few
words as without the guidance and co-ordination of them in my dissertation report
would not have been possible.
A large no. of individual contributed to this project. I am thankful to all of them for
their help and encouragement. My writing in this project report has also been
influence by a no. of websites and standard text book. As far as possible they have
been fully acknowledgment at the appropriate place. I place my gratitude to all of
them.
First of all I owe my heartful thanks to Prof.S.K DUBEY DEAN, Faculty OF
MANAGEMENT STUDIES BHU for providing me a golden oppourtunity to carry
out with the Dissertation as a part of fulfillment of PGDBA Degree for the session
2013-2014.
.I am also thankful to all staff of Faculty of MANAGEMENT STUDIES BHU for
their kind cooperation during completion of this dissertation.
GUIDE CERTIFICATE
TO WHOMSOEVER IT MAY CONCERN
This is to certify that HEMANT AGARWAL A STUDENT OF OF PGDBA SEM 2 BATCH
2013-2014 has completed the dissertation work in fulfilment of “DIPLOMA IN
BUSINESS ADMINISTRATION” (2013-2014) under my supervision and guidance.
Her dissertation entitled “STRATEGIES OF MARKETING OF RICE”
During this period he was found sincere and dedicated to her work.
I recommend this project for evaluation.
Supervised by:
Professor S.K. DUBEY
Faculty of MANAGEMENT STUDIES ,
Banaras Hindu university
PLACE: VARANASI
CONTENTS
Overview .........................................................................................................................................4
A. INTRODUCTION..............................................................................................................................5
B. INDIAN COSMETIC MARKET – A BRIEF REVIEW................................................................6
C. PRICE AND INDIAN COSMETIC CONSUMERS......................................................................7
D. URBAN AND RURAL COSMETIC CONSUMERS.....................................................................7
E. MARKET ENTRY STRATEGIES.........................................................................................8
F. COMPETITIVE ANALYSIS................................................................................................10
G. ADVERTISEMENT RECOMMENDATIONS.............................................................................11
H. SWOT ANALYSIS...........................................................................................................................11
STRENGHTS AND OPPORTUNITIES......................................................................................................11
WEAKNESSES....................................................................................................................................12
THREATS..........................................................................................................................................13
I. MARKET SIZE AND CONSUMER BUYING BEHAVIOUR....................................................14
J. SALES PROMOTION STRATEGIES...........................................................................................14
K. DECISION CRITERIA FOR INTERNATIONAL BUSINESS...................................................15
POLITICAL RISK.................................................................................................................................15
MARKET ACCESS...............................................................................................................................15
FACTOR COSTS AND CONDITIONS.......................................................................................................15
COUNTRY INFRASTRUCTURE..............................................................................................................17
FOREIGN EXCHANGE.........................................................................................................................17
CREATING A PRODUCT-MARKET PROFILE...........................................................................................17
MARKET SELECTION CRITERIA...........................................................................................................18
L. CONCLUSION..................................................................................................................................20
OVERVIEW
God made man in his own image. But not all human beings bear the
same looks and features. Some are more beautiful than others. It is an
innate human desire to be beautiful. Even fairy tale eulogizes the beauty
of good characters and admonishes the ugliness of evils. Historical
evidences prove that people have been enhancing their beauty since time
immemorial. Archaeological remains like combs, mirrors, kohl and
various other artifacts of beautification from ancient civilizations of
Egypt, Greece, Rome, China and India showcase human’s eternal quest
for beauty. In modern days, however, the concept of beauty has changed.
If one is not born beautiful, one can attain beauty and even enhance the
existing beauty through various services – parlors, salons, fitness
centers, gyms, spas and cosmetic surgery. Ideal faces and body types
have changed through ages. The craze today is more for the permanent
or eternal beauty. Beauty today thus does not just mean bedecking and
beautifying temporarily. With the changed perception of beauty, modern
day visions have also changed. One can be born pretty but to be
beautiful is an equal opportunity for all.
INTRODUCTION
With saturation of domestic markets and intense competition, it is
imperative for companies to internationalize their operations. In order to
survive and grow, the companies are forced to seek and exploit
opportunities in newer markets. But the process of penetrating and then
developing an international market for the product is a laborious activity.
With no sales and marketing infrastructure in place, and little or no
knowledge of the market, the efforts required to enter a new market is
similar to that of establishing a start-up venture. Companies enter
international markets for varied reasons. But, the fundamental reason is
the potential demand of the new market. Besides, internationalization
can help the company achieve greater economies of scale. But in certain
cases, a company may enter a new market as a reaction to a competitor’s
move. This is driven by the belief that the competitor would gain a
significant advantage if it were allowed to operate alone in that market.
At times, some companies undertake foreign market entry with the
objective of learning. Learning indirectly, via a local distributor or a
partner, is less effective and does not contribute significantly to enable
the company develop itself into a global player. Apart from the varied
marketing objectives, government incentives to boost exports and global
operations also encourage companies to enter markets it would
otherwise not have ventured into. Companies often follow, what is
sometimes referred to as the “increasing commitment” pattern of market
penetration, in which it starts with exporting its products to the target
countries, thereafter has a tie-up with a local distributor or a partner and
later switches to a
directly controlled subsidiary. The choice of the alternative modes of
market entry is also determined by the level of risk-control, trade-off the
company desires. On the one hand, low-intensity mode of entry
minimizes risk, as the company does not have to make any investment in
the target country in the form of offices, distribution facilities, sales
personnel, or marketing campaigns. At the same time, the company will
have little or no involvement in most elements of the marketing plan,
including the investment in marketing, distribution arrangements, and
service standards. The company is also clueless about timely and
accurate market information, such as customer behavior, market shares
and price levels. On the other hand, a higher-intensity mode of market
participation, involving investments in on human resource, distribution,
and marketing programs, would ensure control but increases the risks for
the company. The potential financial and marketing risk also plays a
decisive role in the choice of market-entry mode. Financial risk is
usually the major consideration at the point of market entry, and it is
minimized by low-intensity modes of market participation. But in such
cases the marketing risk is maximized, with a local partner making all
the important marketing decisions.
INDIAN COSMETICS MARKET: A BRIEF REVIEW
Many of the world’s popular cosmetics brands entered the Indian market
in the 1990s as the Indian market opened up to foreign companies. The
cosmetics and personal care industry has been growing at an average
rate of 15-20 percent for the last few years. Growth has come mainly
from the low and medium-priced categories, which account for 90
percent of the cosmetics market in terms of volume. Even though mass-
market products still constitute the major portion of the India cosmetics
and toiletries market, increased disposable income has led to growth in
demand for premium products. The urban population in particular, with
its rising purchasing power, is the main force that drives the demand for
various cosmetic products in India.
The reasons for the growing demand for cosmetic products in India are
threefold: first, a greater access to television, which has created a
growing awareness of the western world, second, increased advertising
in general and third, greater product choice and availability. The success
of contestants from India in several international beauty pageants in the
last few years has also contributed to making Indian women more
conscious of their appearance and more aware of western cosmetic
products and brands. Also, a boom in the Indian fashion world has
contributed to the rise in demand for professional beauty care products.
Even with double-digit growth rates, the market penetration of cosmetics
and toiletries products in India is very low. Current per capita
expenditure on cosmetics is approximately $1.00, as compared to $36.65
in other Asian countries. This low market penetration for cosmetics and
personal care products in India can be viewed as an opportunity for more
significant growth down the road in this country of 1.2 billion people.
In India there is a large demand for cosmetic products. Total Indian
beauty and cosmetic market size currently stands at U.S. $970 million
and showing growth between 15-20 percent per year. The overall beauty
and wellness market that includes beauty services stands at about $2,680
million. One can easily see that middle and high class Indian people
spend a large portion of their money in cosmetic product or service.
According to the latest Euro monitor report the Indian color cosmetic
market stands at $4113.4 million and skin care at $346.9 million. If
properly marketed and advertised, any cosmetic product will be
successful within the India market.
MARKET DEFINITION:
The potential market involves a wide-range of people with an interest in
looking fresh and different every day. Those who thought it is very
necessary to look fresh on the business place and also in the social life.
In addition to this group includes young people who are students
(college going girls) Over the past several decades the cosmetics
industry has grown into Rs.5000 million a year industry. The cosmetics
industry developed more, because of the information and globalization
of the world. This commercialization has made cosmetic somewhat of a
trend in the 90’s, both in India and around the world.
The Indian cosmetic market, which has been traditionally a stronghold
of a few major Indian players like Lakme and Ponds has seen a lot of
foreign entrants to the market within the last decade. India is a very
price sensitive market and the cosmetics and personal care product
companies, especially the new entrants have had to work out new
innovative strategies to suit Indian preferences and budgets to establish a
hold on the market and establish a niche market for them. Given the
price-sensitivity of the Indian consumer who do not normally prefer to
fork out a large sum at one time, many cosmetic and toiletries companies
launched their products in smaller pack sizes to make them more
affordable.
PRICE & INDIAN COSMETIC CONSUMERS
There is high maturity and price competition in established mass market
toiletries such as bar soap and toothpaste. Since the average Indian
household continues to be highly price sensitive, these popular mass-
market products will have the lion’s share of cosmetics and toiletries
sales. This will offer high growth prospects of the overall market over
the coming years. The cosmetics and toiletries market are also facing
competition from other consumer durables (computers, mobile phones,
home theatres and automobiles) as well as the housing sector. The drop
in interest rates has led to a boom in housing loans and real estate
purchases. Being value conscious, there is a limit to the amount that the
average consumer will spend on luxury items such as fragrances.
URBAN & RURAL COSMETIC CONSUMERS
India's spending on cosmetics and toiletries is relatively small, with rural
and suburban areas concentrating on basic toiletries and cosmetics. The
purchasing power of Indian consumers is increasing thereby shaping the
aspirations and lifestyles of consumers, who are upgrading to good value
products at affordable prices. The Cosmetic Companies have invested
heavily on promoting product visibility among rural folk, which has
increased the demand for bar soap, talcum powder, lipstick, tooth
powder and hair oil in these areas. This has also increased the demand
for essential everyday items like bath and shower products, hair care,
oral hygiene and skin care. Another strategy followed by companies to
promote cosmetics in rural areas was sachets’ approach. While rural
India contributed to growth in volume terms, the urban population
contributed 69 % of value sales in 2005 especially for sophisticated
products. These high-quality added-value niche products include
mascara, toners, body wash/shower gel, depilatories, sun care and
deodorants, amongst others which are unaware to the rural users. Sales
are almost completely generated from the urban pockets, concentrated
within the key metropolitan areas of Ne w Delhi, Chennai, Mumbai and
Calcutta. Due to Western influences, men's grooming products are used
more predominantly in urban population compared to their counterparts
in rural areas.
INCOME HOUSEHOLDS
Cosmetics and toiletries have witnessed a growing demand from the low
and lower middle-income households. The premium labels are being
used in urban areas, whereas regional and national brands in the rural
areas, where close to 70% of the Indian population resides and price
determines purchasing decisions.
MARKET ENTRY STRATEGIES
Introduction
Once the exporter has determined which markets the company should be
targeting, consideration must be given to the different types of entry
strategies available. These can range from the investment-based
strategies more likely to be used by larger companies with more
resources and financial support through to simple partnering agreements
which practically every exporting company will enter into. Some
companies may be in a position to supply direct to the end user, thereby
removing the need for in market representation and distribution.
However, these companies are likely to need some form of readily
accessible after sales support to service their overseas clients, and as
such may need to identify organizations to undertake this work in the
market. For companies aiming to target markets through partnering or
investments, the main options available are Greenfield sites, joint
ventures, mergers and acquisitions, licensing, manufacturing
agreements, franchises or working with agents or distributors. Different
companies will have different entry requirements, and advice should
always be sought prior to drawing up the final entry strategy.
Agents
Working through agents or distributors is often seen as indirect
exporting as products are sold into the target market through a third
party. An agent is a person or organization that undertakes to represent a
foreign company in the target market, often selling on behalf of the
exporter.
Distributors
Distributors differ from agents in that they generally purchase the
exporters products, taking ownership of the goods, with a view to
reselling them in the target market. The distributor will enter into
agreement with the exporter so that he may buy the exporter’s product at
preferential rates, permitting resale in the market at a profit. The
distributor will take on responsibility for the marketing, promotion and
distribution of the product in the target market and will not pay a
commission to the exporter (on the grounds that the exporter has already
received payment for the goods). Distributors will generally have sound
market knowledge, contacts and an established distribution network, and
will seek certain guarantees from the exporter: quality, delivery periods
and after sales service for example. The exporter, in return, may require
the product to be marketed in a certain way or at a particular price. The
exporter may also restrict the area in which the distributor can work,
either geographically or by industry sector.
Licensing
A company can sell the rights to its products through a licensing
agreement. A fee for the transfer of the rights can be agreed and a buyer
organization found. In these situations, the vendor company can
demonstrate that it has developed the technology which it is keen to see
exploited in new markets. The purchasing company will demonstrate
that it has the capacity to add value to the technology and will be able to
produce the product to meet market demands.
The purchaser’s geographic territory will normally be fixed, and any
requirements for branding, quality standards or marketing considerations
will be clarified. Royalties may be payable to the vendor on volume of
sales made in the target market by the purchaser. The length of the
agreement will be written into the contract. As a further benefit to the
buyer, the vendor will usually agree to grant exclusivity to the buyer in
the target market.
Franchising
Franchising is a form of licensing. Under a franchise agreement, a
company (or franchiser) offers to sell the rights to a specific piece of
technology, brand, name, process and structure in exchange for capital.
The agreement is structured so that the organization buying the rights
(the franchisee) buys into a whole commercial concept, from product to
sales culture. This is most obviously seen in some hotel chains and fast
food restaurants. The franchisee is granted use of logos, services,
marketing and advertising support and use of the company’s trademarks.
However, franchise agreements must also take into account the need to
identify franchisees that are capable of undertaking the promotion and
production of the product to the franchiser’s standards. Reputation of the
vendor can be prejudiced through inappropriate franchise agreements.
Although franchises benefit from low capital requirements and easy
market access, they can be hard to control in the market as franchisees
do have a certain level of autonomy. Also, the target market can see
franchises as low commitment to the market, and this can impact on
perceptions of the brand, potentially damaging sales.
Mergers & Acquisitions
Mergers and acquisitions are less popular today than in previous years,
due mainly to a reduction in the amount of capital available for
investment globally and an increase in regulatory controls. However,
globalization of companies around the world is leading to corporate
takeovers and merger agreements which can also be useful in
international trade for the smaller company. This type of activity
provides effective access to new markets as well as providing the
company with an existing workforce and infrastructure. As a result of
merger or acquisition, the company can consolidate its position globally
as well as repositioning itself in a particular market or geographic
region. The main difficulty with mergers and acquisitions is that they
must comply with government policies and regulations. Equally,
absorbing a foreign organization, its workforce, cultures, customs and
procedures into the larger company may prove to be a managerial and
administrative problem. Consequently, it is vital that any merger
opportunity be fully assessed for liabilities, legal complications and
financial issues prior to drawing up any agreement.
Joint Ventures
Joint ventures or alliances are becoming increasingly popular as
companies become more experienced in international trade. A joint
venture is an agreement between two companies with the aim of forming
a separate company which will produce, manage and distribute products
within a target market or geographic region. Joint ventures ultimately
allow both participating partners access to trading opportunities in the
partner’s country. Companies considering joint ventures must be aware
that this is not an easy option: joint ventures require hard work and time
commitments if they are to work. Joint ventures are entered into by
companies to access local knowledge and workforce (provided by the
partner organization) and technology (provided by the incoming
partner). Often, legal requirements stipulate that foreign-owned
companies investing in the market must do so via joint ventures. The
main advantages of joint ventures are
the ability to tap into local knowledge, the availability of established
distribution channels, development of skills in both partner organizations
through technology transfer and the facility to pool resources to enable
both partners to access more overseas markets. The disadvantages are
that the reputation of the new company is tied to the reputations of both
partners; more legal and
financial obstacles must be overcome, and the ultimate success of the
venture will depend on the working relationship and trust established
between the partners.
Greenfield Investment
Greenfield sites are investments where a new plant or business is built in
the target market. Construction of new buildings is likely, and the new
facilities will house all functions of the company, including sales,
marketing, production, distribution and management. This type of
investment is extremely costly in terms of start up and capital equipment
costs. It does, however, show commitment to the market, which will
reassure and please the foreign government which will see the
investment as a source of employment and economic benefit. Ownership
of the site normally remains with the parent company, although there
may be a legal requirement in certain countries for local companies to
have ownership. Under these circumstances, the new site will become a
wholly owned subsidiary of the parent company. The main reasons why
a company would consider a Greenfield site are the absence of suitably
skilled partners in the market, the ability to create a purpose-built plant
to meet the needs of the company, establishing a wholly-owned presence
in the target market or simply because improving existing facilities have
become too costly. Greenfield sites have several strengths in terms of
company ownership and purpose (such sites are designed to offer the
parent company 100% control), but the disadvantages are that such
projects are costly, require substantial management input by the parent
company and also a long term commitment to the market if the
investment is to be recouped.
COMPETITIVE ANALYSIS
In general, the Indian market is very receptive to U.S. cosmetics
products. The product lines of American companies such as Estee
Lauder, Avon, Revlon, Mary Kay, Proctor & Gamble, Colgate, and
Johnson & Johnson are extremely popular and enjoy excellent
reputations due to their high quality, attractive packaging, and range of
products. The strongest competitors to American exporters of cosmetic
products, especially in the anti-ageing and anti-wrinkle subsector are
French brands considered to be "traditional" leaders in the world
cosmetics market.
The world's two largest producers of cosmetics, L'Oreal (France) and
Proctor & Gamble (U.S.A.), (the latter represented by such product
trademarks as Blend-a-Med, Max Factor, Camay, Old Spice, Head and
Shoulders, Vidal Sassoon, Pantene ProV, and Safeguard), share 25 - 30
percent of the Indian market. Finnish and Swedish cosmetics
manufacturers are also competitive due to their extensive knowledge of
the Indian business environment, largely due to their long presence in
the market.
Other well-known producers in the Indian market are Unilever
(Netherlands), represented by brand names as Dove, Lux, Pepsodent,
Signal, Sunsilk, Timotei, Impulse, and Rexona; Oriflame (Sweden);
Avon (U.S.A.); Revlon (U.S.A.); Mary Kay (U.S.A.); Christian Dior
(France); Lancome (France); and Estee Lauder (U.S.A.). Local
producers and Eastern European firms from Bulgaria and Poland
compete with Western importers primarily at the lower price levels,
although they lack the quality of more expensive brands.
ADVERTISEMENT RECOMMENDATIONS
One of the many strategies that the Rice Company should implement is
through their marketing strategy. Some Indian people bought the Fair &
Lovely product because they liked the way this product was advertised.
By using this product they hoped to find a true love or a great job. The
Rice Company should emphasize more on the confidence of the women
rather than the beauty of the women. In their advertisement, rather than
showing what the woman would get from using their product they
should show how confident the woman is after using the product. Rice should avoid advertising how beautiful women look because of
their fair skin complexion. They should not persuade the customer to
believe based on their advertisement that fair skin is the trend of beauty.
This kind of advertisement is not appropriate in Indian culture because
most Indians have dark skin. Advertising that dark skin is unattractive is
unethical. Through its advertisement strategy Rice would attract many
new customers and hopefully gain a preferential market share in the
Indian cosmetic market.
It is important to understand the culture and policies of the market in
order to properly advertise in a way that would not offend any group of
people. Also, when advertising cosmetics it is important to be aware of
truth in advertisements. In other words, the company should not make
promises in their advertisements that most likely would not be true.
In India today, the increasing number of women in the age group 22 to
45 are becoming independent. They have the disposable income and the
decision making power to buy what they want (Bhattacharya, 2007).
HLL should take advantage of this statistic and start promoting their
products to this demographic. Female Indian upper and middle income
urban women employees are conscious about picking the right makeup
colors for the office. Therefore they should have a line of makeup
specifically for working women.
Today, many women have more money to spend on separate sets of
products, especially color cosmetics. Many young women in India
move into the work force instead being a stay at home mom. Rice should
start promoting the anti-aging and anti-wrinkle cream that are proper in
the business works and emphasize advertisement how important it is to
be presentable in the work place. In India, women in the work force are
relatively new. Rice could emphasize that women can be presentable in
India just as men and age is never a bar to work in the corporate
environment.
SWOT ANALYSIS
STRENGTHS, OPPORTUNITIES
Image
Traditionally, Spanish products in India generally have a higher quality
perception than similar products from other South East Asia countries
and China. The quality of Spanish-made products bearing multi-
national brands is a testimony to the Indian consumers.
USD-denominated contracts
During last year, Euro gained 20% in value against the USD, which
makes Euro-denominated products and services less competitive in
India. Importers prefer to deal with companies, who denominate their
contracts in USD. In this connection, foreign companies, most of which
quote their contractual prices in USD have a strong advantage and may
win over new customers.
Political and economic stability
India’s GDP is growing at approximately 5% per annum (before the
global meltdown). The country has a surplus in trade with other
countries, brought forth by revenues from exports of oil, gas and
minerals. Incoming currency revenues encourage imports (+22.3% in
the first 6 months of 2003 compared to the corresponding period of the
year before). Political risks of doing trading business in India are
minimal.
Import tendencies
Since 1999 import volumes of cosmetics product group has increased
significantly (according to the data obtained from State Statistics
Committee).
WEAKNESSES
Low level of awareness
Spanish cosmetics can be found only in a few specialized stores and web
sites of major distributors across the country.
Distance
Long time of delivery is one of the most acute problems faced by
importers of Spanish-made products. Often importers prefer to buy from
EU companies just because they offer considerably shorter period of
delivery to India. For example, a container loaded in France will reach
India in just 5-7 days, whereas Spanish will be shipping it more than 20
days. Longer delivery time affects turnover and increases other related
expenditures of importing companies.
Lack of goods EX-WAREHOUSE in Russia or EU countries
At the present time there are few Spanish companies able to supply their
products ex-warehouse in India or EU countries. Delivery from
warehouse would considerably reduce time and transportation costs.
However, a warehousing project involves certain risks and investments.
Spanish companies venturing to start such a project should find a
reliable Indian partner first. An alternative to setting up a warehouse in
India would be to use neighboring countries (Pakistan, Nepal) as
gateways to the Indian market.
Payment terms
The most common method of payment for foreign trade transactions in
Russia is cheque. Cheques remain the most common method of payment
in India. Currently there are 2010 local clearing houses across the
country, with those in Indian metropolitan areas being controlled by the
central bank, while clearing in non-metropolitan areas and smaller towns
is usually run by state-owned banks. Historically, the clearing systems
have been local and confined to a defined jurisdiction covering all the
banks situated in the area under a particular zone. However, with the
introduction of the Speed Clearing Service and the Cheque truncation
system, clearing houses are now empowered to process instruments from
other jurisdictions and areas.
In addition, regulators are encouraging electronic payments through
NEFT, RTGS and ECS, as well as direct debits and direct credits.
An alternative mode of payment would be LC. However, the cost of
opening LC for Indian companies is very high as banks charge a very
high interest rate and commission.
Nevertheless, we recommend Indian companies to request for a 30%
prepayment for the trial order, the balance to be covered by LC at sight.
Other methods of payment are also practiced. Terms are negotiable.
THREATS
Competition from EU countries, China and Taiwan
The main competitors of Spanish in this market sector are EU (France,
Germany, Italy, Austria, Sweden, and Finland) companies and suppliers
from USA, India, Poland, Bulgaria, Hungary, China, Japan, Latvia.
Often EU traders have a better position in the market, since they can
offer quick delivery and extended payment terms. Products from China
and Taiwan dominate the low-end market. Taiwan and China are
Malaysia’s main competitors as suppliers of cosmetics. Japan is
defending the policy to be on the high-end market along with France.
Tariff and non-tariff barriers
Indian importers contacted by INDTRADE 2001-2002 identified Indian
customs administration was the most difficult trade barrier to deal with.
Among the most common problems are non-transparency of customs
regulations, bribery and the so-called “grey” imports schemes, which
importers have to use and the customs generally support. The main
reason for duty-dodging and improper declaration of goods is exorbitant
import duties on certain manufactured products. However, in many
cases, even if the importing company wants to be transparent and
declare goods properly, the customs suggest they should use the “grey”
scheme and pay a bribe to the customs officer. Otherwise, clearance of
goods becomes a long and tedious process, whereby all products have to
be counted manually and verified against the supporting documents.
There are 2 scales of duties in India – ad valorem, whereby duties are
based on declared value of goods and a fixed rate based on the weight of
goods. By default all goods imported into India is liable to a 20% ad
valorem import duty. However, Indian customs legislation specifies that
in case the fixed rate based on the cargo weight is higher than the ad
valorem rate, the customs should apply the former. A 20% VAT is
levied on top of the contract price and import duties payable.
MARKET SIZE AND CONSUMER BUYING BEHAVIOUR
Indian Skincare market – Rs 2100 crores
Anti ageing market – Rs 60 crores
Anti-wrinkle market – Rs 75 crores
Customers are becoming more aware and consequently more demanding
of the services available at cosmetic retail outlets. It is now a common
practice when a store assistant acts as a consultant and advisor to the
customer on the products offered and their use. That requires
considerable staff training from companies selling cosmetic products.
In general, any imported cosmetic product has strong prospects in the
Indian market if it can be offered at a competitive price and quality. The
key is to avoid unnecessary logistical and service costs, although a new-
to-market firm should be prepared for start-up costs. Many firms have
found it sensible to test the market with direct sales to local dealers, thus
avoiding tax complications within India. Others have chosen to begin
operations in a regional market within India, deliberately avoiding a
rural presence. Still other firms have chosen to market their products
directly from overseas in order to minimize reliance on intermediaries.
This approach offers some cost advantages since compensation of sales
representatives is largely based on commission. However, this also adds
to transportation costs and extends the time of delivery, along with
potential delays at Indian Customs.
New products, if professionally marketed, could enjoy significant
opportunities in India. The markets for anti-ageing and anti-wrinkle, for
instance, have significant room for expansion. However, aggressive
promotion strategies are necessary to compete and maintain market
share with the traditionally well-recognized trademarks.
SALES PROMOTION STRATEGY
Citing the reasons for such a low per capita consumption for branded
cosmetics and toiletries products India’s 20 million uses well-known
branded products made by Unilever, Procter & Gamble, Godrej, Dabur
etc.
Remaining 80 million use low-cost cosmetics and toiletries products. A
case for example is that most of Indians use Boroline to remove the
wrinkles and skin bruises which cost only Rs. 12 per piece as against
Garnier and Pond’s brand of wrinkle cream cost their customers over
Rs.400.
At the time of launching, Rice may provide free samples for customer’s
attraction along with the ad that would be placed in magazines and
newspapers. As a strategy to compete with its competitors at a later date
Rice may launch some new promotional activities like distributing some
incentives like Buy and Get 25% free. Rice may also offer some price
deduction on twin pack.
DECISION CRITERIA FOR INTERNATIONAL BUSINESS
Before doing any business internationally through sourcing, exporting,
investing, or a combination of these strategies, the company must look at
conditions in the potential country to analyze what the advantages,
disadvantages, and costs will be and whether it is worth the risk.
1. POLITICAL RISK
Political risk, or the risk of a change in government policy that would
adversely impact a company's ability to operate effectively and
profitably, is a deterrent to expanding internationally. The lower the
level of political risk, the more likely it is that a company will invest in a
country or market. 1ne difficulty of assessing political risk is inversely'
proportional to a country's stage of economic development: All other
things being equal the less developed a country; the more difficult it is to
predict political risk. The political risk of the Triad countries, for
example, is quite limited as compared to a less developed preindustrial
country in Africa, Latin America, or Asia. In general, there is an inverse-
relationship between political risk and the stage of development of a
country. The higher the level of income per capita the lower the level of
political risk.
2. MARKET ACCESS
A key factor in locating production facilities is market access. If a
country or a region limits market access because of local content laws,
balance-of-payments problems, or any other reason, it may be necessary
to establish a production facility within the country itself. The Japanese
automobile companies invested in U.S. plant capacity because of
concerns about market access. By producing cars in the United States
they have a source of supply that is not exposed to the threat of tariff or
non tariff barriers. In the 1950sand 1960s, U.S. companies created
production capacity abroad to ensure continued access to markets that
had been established with supply exported from U.S. plants.
3. FACTOR COSTS AND CONDITIONS
Factor costs are land, labor, and capital costs. Labor includes the cost of
workers at every level: manufacturing and production, professional and
technical, and management. Basic manufacturing direct labor costs
today range from $0.50 per hour in the typical developed country (LDC)
to $6 to $20 or more per hour in the typical developed country. Note
that, compared to the United States, manufacturing compensation costs
are higher in Western European countries despite a recent decline, and
Asia's emerging countries have increased relative to the United States
since 1980.
German hourly compensation costs for production workers in
manufacturing are 155 percent of those in the United States, whereas
those in Mexico are only 10 percent of those in the United States. For
Volkswagen (VW), if wages were the sole criteria for making a decision,
the wage differential between Mexico and Germany would dictate a
Mexican manufacturing facility that builds Golf and Jetta models
destined for the United States. Do lower wage rates demand that a
company relocate its manufacturing to the low-wage country? Hardly. In
Germany, VW Chairman Ferdinand Piech is trying to improve his
company's competitiveness by convincing unions to allow flexible work
schedules. For example, during peak demand, employees would work
six-day weeks; when demand slows, factories would produce cars only
three days per week.
Moreover, wages are only one of the costs of production and, many
times, a small percentage of the total cost associated with the product.
Many other considerations enter into the sourcing decision, such as
management's aspirations. For example, SMH assembles all of the
watches it sells, and it builds most of the components for the watches it
assembles. It manufactures in Switzerland, the highest-income country
in the world. SMH's Hayek decided that he wanted to manufacture in
Switzerland in spite of the fact that a secretary in Switzerland makes
more money than a chief engineer in Thailand: He did this by making a
commitment to drive wage costs down to less than 10 percent of total
costs. At this level, wages rates are no longer a significant factor in
competitiveness. As Hayek puts it, he does not care if his competitor's
workers work for free! He will still win in a competitive marketplace
because his value is so much greater?
The other factors of production are land, materials, and capital the cost
of these factors depends on their availability and relative abundance.
Often, the differences in factor costs will offset each other so that, on
balance, companies have a "level field" in the competitive arena. For
example, the United States has abundant land and Germany has
abundant capital these advantages partially offset each other. When this
is the case, the critical factor is management, professional, and worker
team effectiveness.
World factor costs that affect manufacturing a be divided into three tiers.
The first tier consists of the industrialized countries where factor costs'
are tending to equalize. The second tier consists of the industrializing
countries-for example, Singapore and other Pacific Rim countries-that
offer significant factor costs savings as well as an increasingly
developed infrastructure and political stability, making them extremely
attractive manufacturing locations. The third tier includes Russia and
other countries that have not yet become significant locations for
manufacturing activity. Third-tier countries present the combination of
lower factor costs (especially wages) offset by limited infrastructure
development and greater political uncertainty.
The application of advanced computer controls and other new
manufacturing technologies has reduced the proportion of labor relative
to capital for many businesses. In formulating a sourcing strategy,
company managers and executives should also recognize the declining
importance of direct manufacturing labor as a percentage of total
product cost. The most advanced global companies are no longer blindly
chasing cheap labor manufacturing locations because direct labor may
be a very small percentage of total. As a result, it may not be worthwhile
to incur the costs and risks of establishing a manufacturing activity in a
distant location. The experience of the Arrow Shirt Company also
illustrates several issues relating to factor costs. During the 1980s,
Arrow sourced 15 percent of its dress shirts from the Far East at a cost
savings of $15 per dozen compared to U.S.-manufactured shirts. Arrow
decided to phase out imports after spending $15 million to automate its
U.S. plants. Productivity increased 25 percent and Arrow is no longer at
the mercy of a 12-month lead time between ordering and delivery; U.S.-
sourced shirts can be ordered a mere three months in advance-a critical
issue in the fashion industry. Interestingly, the Arrow experience
illustrates how the decision to source at home rather than abroad does
not automatically defuse the political issue of exporting jobs: After
automating, Arrow laid off 400 U.S. workers and closed four factories.
Many companies have been chagrined to discover that today's cheap
factor costs can disappear as the law of supply and demand drives up
wages and land prices. Shirt makers like Arrow began sourcing in Japan
in the 1950s. As wages and real estate costs increased, production was
shifted to Hong Kong and then to Taiwan and Korea. During the 1970s
and 1980s, production kept shifting to China, Indonesia, Thailand,
Malaysia, Bangladesh, and Singapore. In recent years, shirt production
has shifted from the Far East to Costa Rica, the Dominican Republic,
Guatemala, Honduras, and Puerto Rico. In addi60n to low wages, these
countries offer tax incentives under the 1983 Caribbean Basin Initiative
agreement.
4. SHIPPING CONSIDERATIONS
In general, the greater the distance between the product source and the
target market, the greater the time delay for delivery and the higher the
transportation cost. However, innovation and new transportation
technologies are cutting both time and dollar costs. To facilitate global
delivery, transportation companies such as CSX Corporation are forming
alliances and becoming an important part of industry value systems.
Manufacturers can take advantage of inter modal services that allow
containers to be transferred between rail, boat, air, and truck carriers.
Today, transportation expenses for U.S. exports and imports represent
approximately 5 percent of total costs. In Europe, the advent of the
single market means fewer border controls, which greatly speeds up
delivery times and lowers costs.
5. COUNTRY INFRASTRUCTURE
In order to present an attractive setting for a manufacturing operation, it
is important that the country's infrastructure be sufficiently developed to
support a manufacturing operation. The required infrastructure will vary
from company to company, but minimally it will include power,
transportation and roads, communications, service and component
suppliers, a labor pool, civil order, and effective governance. In addition,
a country must offer reliable access to foreign exchange for the purchase
of necessary material and components from abroad as well as a
physically secure setting where work can be done and product can be
shipped to customers.
A country may have cheap labor, but does it have the necessary
supporting services or infrastructure to support a manufacturing activity?
Many developing countries offer these conditions, yet there are also
many other countries that do not, such as Lebanon, Uganda, and El
Salvador. One of the challenges of doing business in the Russian or
Chinese market is an infrastructure that is woefully inadequate to handle
the increased volume of shipments.
6. FOREIGN EXCHANGE
In deciding where to locate a manufacturing activity, the cost of
production supplied by "a country source will be determined in part by
the prevailing foreign exchange rate for the country's currency.
Exchange rates are so volatile today that many companies pursue global
sourcing strategies as a way of limiting exchange-related risk. At any
point in time what has been an attractive location for production may
become much less attractive due to exchange rate fluctuation. For
example, the financial crisis in Russia in 1998 saw the ruble drop from 6
to the U.S. dollar to 25 rubles to the dollar. The prudent company will
incorporate exchange volatility into its planning assumptions and be
prepared to prosper under a variety of exchange rate relationships.
The dramatic shifts in price levels of commodities and currencies are a
major characteristic of the world economy today. Such volatility argues
for a sourcing strategy that provides alternative country options for
supplying markets. Thus, if the dollar, the yen, or the mark becomes
seriously overvalued, a company with production capacity in other
locations can achieve competitive advantage by shifting production
among different sites.
7. CREATING A PRODUCT-MARKET PROFILE
The first step in choosing export markets is to establish the key factors
influencing sales and profitability of the product in question. If a
company is getting started for the first time in exporting, its product-
market profile will most likely be based on its experience in the home
market, which may or may not be relevant to the individual export
markets being considered. The basic questions to be answered can be
summarized as the nine Ws:
1. Who buys our product?
2. Who does not buy our product?
3. What need or function does our product serve?
4. What problem does our product solve?
5. What are customers currently buying to satisfy the need and/or solve
the problem for which our product is targeted?
6. What price are they paying for the products they are currently buying?
7. When is our product purchased?
8. Where is our product purchased?
9. Why is our product purchased?
Any company must answer these critical questions if it is going to be
successful in export markets. Each answer provides an input into
decisions concerning the four Ps. Remember, the general rule in
marketing is that, if a company wants to penetrate an existing market, it
must offer more value than its competitors-better benefits, lower prices,
or both. This applies to export marketing as well as marketing in the
home country.
8. MARKET SELECTION CRITERIA
Once a company has created a product-market profile, the next step in
choosing an export market is to appraise each possible market. Six
criteria should be assessed: (1) market potential, (2) market access, (3)
shipping costs, (4) potential competition, (5) service requirements, and
(6) product fit.
a) Market Potential
What is the basic market potential for the product? To answer this
question, secondary information is a good place to start. Valuable
sources were discussed in Chapter 6, "Global Marketing Information
Systems and Research." In the United States, the federal government has
numerous publications available, compiled by the Central Intelligence
Agency (CIA) and various other agencies and organizations.
The cost of assembling sales literature, catalogs, and technical bulletins
should also be considered in comparison to market potential and
profitability. This cost is particularly important in selling highly
technical products.
b) Market Access
This aspect of market selection concerns the entire set of national
controls that applies to imported merchandise and any restrictions that
the home-country government might have. It includes such items as
export license, import duties, import restrictions or quotas, foreign
exchange regulations, and preference arrangements. Because this
information is quite detailed, it is best to directly consult the trade
bureaus of countries that are being considered.
c) Shipping Costs and Time
Preparation and shipping costs can affect the market potential for a
product. if a similar product is already being manufactured in the target
market, shipping costs may render the imported product uncompetitive.
If it takes months for the product to reach the target market and the
product competes in a rapidly changing category such as computers,
alternative transportation strategies should be considered. It is important
to investigate alternative modes of shipping as well as ways to
differentiate a product to offset the price disadvantage.
d) Potential Competition
Using a country's commercial representatives abroad can also be
valuable. When contacting country representatives abroad, it is
important to provide as much specific information as possible. If a
manufacturer simply says, "I make lawn mowers. Is there a market for
them in your territory?," the representative cannot provide much helpful
information. If, on the other hand, the manufacturer provides the
following information: (1) sizes of lawn mowers-manufactured, (2)
descriptive brochures indicating features and advantages, and (3)
estimated cost insurance freight (C.I.E) and retail price in the target
market, then the commercial representative could provide a very useful
report based on a comparison of the company's product with market
needs and offerings.
e) Service Requirements
If service is required for the product, can it be delivered at a cost that is
consistent with the size of the market?
f) Product Fit
With information on market potential, cost of access to the market, and
local competition, the final step is to decide how well a company's
product fits the market in question. In general, a product fits a market if
it satisfies the criteria discussed previously and is profitable.
CONCLUSION
The keys to success in the market for cosmetics products in India are:
1. Aggressive promotion of new products
2. Large-scale advertising
3. Cooperation with reputable and knowledgeable local distributors; and
expansion into regional markets with a wide range of products
offered.
On the whole, Rice, looking to sell its cosmetic products in the Indian
market should be prepared to undertake the following actions:
1. Initial investment in advertising and promotion campaigns to
establish the image of the product in the market
2. Registration of trademarks
3. Establishing a reliable distribution and sales network
4. Expansion of range of products
Often, multinational companies presume that the market-entry strategies that served them well in one market would hold well in other markets as well. Such strategies
plan to leverage on competitive assets such as brand names, managers, and suppliers of marketing services. However, it ignores the fundamental tenet of marketing — companies should adapt their product offerings to meet the different market conditions. The more experienced international companies find ways of adapting to local market conditions, including new locally-oriented brands, distribution channels, and new packaging and pricing.
