Conducting Successful Business in India - A Perspective

1. Conducting Successful Business in India- A Perspective

2. Presentation Plan India – A Fast Emerging Business Destination What makes India a Fast Emerging Business Destination? How to do Business in India? Challenges Faced by MNCs in India

3. Presentation Plan India – A Fast Emerging Business Destination What makes India a Fast Emerging Business Destination? How to do Business in India? Challenges Faced by MNCs in India

4. Top destination in the AT Kearney Global Retail Development Index (2007) Third largest economy–GDP in terms of PPP (2007) India is the second-fastest growing economy in the world. Most preferable destination for Services sector (AT Kearney, 2007) Stable 8–9 percent annual GDP growth rate in the past 2–3 years Ranks first in the availability of qualified engineers in the labor market (IMD, 2006) Estimated to become the fifth largest consumer market by 2025 (MGI) India ranks high on many macro-economic indicators as compared to other emerging nations

5. High growth in FDI inflows in the past 2–3 years FDI Inflow – India (2001–07) • FDI inflows increased by 185 percent from 2005–06 to 2006–07. • Electronics, manufacturing and telecom were the sectors that witnessed significant FDI inflow. • Total PE and VC investments increased from USD 1.1 billion in 2004 to USD 14 billion in 2007, with maximum PE and VC investments going into banking and financial services, telecom and manufacturing sectors. • The total value of M&A deals increased by more than 151 percent from 2006 to 2007. 185 percent Increase Private Equity and Venture Capital Investments in India in (USD million) - Amount Invested and Number of Deals

6. Presentation Plan India – A Fast Emerging Business Destination What makes India a Fast Emerging Business Destination? How to do Business in India? Challenges Faced by MNCs in India

7. What makes India a Fast Emerging Business Destination? Special incentives provided by the government to attract investments Less time and few procedures required to start a business Growing potential of Tier II and Tier III cities Easy availability of skilled talent pool Emerging middle class Increasing disposable income Number of emerging sectors witnessing growth

8. Special incentives provided by the government to attract investments The government of India offers a number of incentives to encourage investments in India • Liberal FDI norms: As much as 98 percent of the Indian economy is open to FDI through the automatic route. • Special Economic Zones (SEZs), Electronic Hardware Technology Parks (EHTPs) and Software Technology Parks (STPs): They offer incentives, such as tax exemptions, duty-free imports and low-cost power supply. • Compliance with Trade-Related Aspects of Intellectual Property Rights (TRIPS) (since 2005): This has led to an increase in the number of R&D centres set up by MNCs in the country. • Reduction of custom duty: In the Budget for 2008–09, the Government has reduced the custom duty on projects imports from 7.5 percent to 5 percent. • Industry associations promoting India: Industry associations such as, CII, ASSOCHAM, and NASSCOM have been set up to promote India as an investment destination.

9. Less time and few procedures required to start a business India’s attractiveness as compared to other emerging economies Starting a Business–Time Required The time required to start a business in India is the same as that in China and lower than that in Brazil Starting a Business–No. of Procedures Required The number of business procedures required to start a business in India are less compared to most of the emerging nations

10. Availability of talent pool (presence of academic institutions) Cost advantage (lower labor and real estate costs) Growing infrastructure Lower attrition rates Growing potential of Tier II and Tier III cities Potential of the tier II and tier III cities • Tier I—Cities such as Delhi and Mumbai—offer developed infrastructure, ease of accessibility and availability of talent pool but includes high costs • Tier II—Emerging cities, such as Pune, Hyderabad and Chennai • Tier III—Potential cities, such as Nagpur, Ahmedabad, and Chandigarh Advantages of tier II and tier III cities:

11. Easy availability of skilled talent pool Availability of skilled talent pool and strong academic infrastructure • India ranks first in the availability of qualified engineers in the labour market.* • The country adds about 69,000 engineers and science graduates every year.1 • India has world-class institutes, such as Indian Institutes of Technology (IITs), Indian Institutes of Management (IIMs) and Indian Institute of Sciences (IISc). “ “ India is a developing country but it is a developed country as far as its intellectual infrastructure is concerned. We get the highest intellectual capital per dollar here. John Welch, Former CEO GE Young population – A Demographic Dividend India’s demographic mix is shifting towards the 15–59 years age group *Institute for Management Development (IMD) World Competitiveness Year Book 2006 1Source: Nasscom

12. Number of Households, (in million) Aggregate disposable income–2000 (in INR trillion) 2 1.6 3.1 5.4 Emerging middle class – Creates opportunity for companies to tap the changing lifestyles of Indian consumers Globals 1.2 3.3 9.5 2.4 Strivers 5.5 33.1 Seekers 10.9 55.1 94.9 91.3 106 93.1 Aspirers 101.1 74.1 49.9 Deprived Globals 6.3 21.7 Strivers 3.8 20.9 Seekers 15.2 30.6 11.4 14.6 13.7 Aspirers 3.8 2.6 Deprived Middle Class Definition of household income brackets based on annual household income: Globals (more than INR 1,000,000), Strivers (INR 500,000 to 1,000,000), Seekers (200,000 to 500,000), Aspirers (90,000 to 200,000), Deprived (less than 90,000) Source: MGI

13. Increasing disposable income Increase in per capita income and consumption Per-Capita Income and Consumption • The per-capita income has grown at a CAGR of 7.24 percent from INR 20,996 in 2002–03 to INR 29,786 in 2007–08. • The per capita consumption has grown at a CAGR of 5.1 percent from INR 13,352 in 2002–03 to INR 17,145 in 2007–08. • Over the next 20 years, India’s middle class is expected grow from about 5 percent of the population to more than 40 percent, creating the world’s fifth-largest consumer market.

14. Number of emerging sectors witnessing growth Key sectors witnessing growth IT • The Indian IT sector witnessed a growth of 30.7 percent in 2006–07 and accounted for 65–70 percent of the global off-shoring market. • India is among the top 30 countries with regard to parameters supporting IT services.1 Telecommunications • India is the fastest growing telecommunications market in the world. • It has the world’s lowest call rates (2–3 US cents) and fastest growingsubscriber rates (15.31 million in just four months in 2007). • Leading global telecom equipment manufacturers, such as Nokia, Samsung, Motorola and Sony Ericsson, are setting up their bases in the country. Health Care • The Indian health care sector is valued at USD 34 billion. • The sector attracted 6.3 percent of the total PE investment in India in 2006, amounting to USD 379 million. 1Gartner

15. Presentation Plan India – A Fast Emerging Business Destination What makes India a Fast Emerging Business Destination? How to do Business in India? Challenges Faced by MNCs in India

16. India offers both domestic market opportunity and off-shoring opportunity for MNCs Business Opportunity in India Domestic Market Opportunity Off-shoring Opportunity Sourcing Opportunity • Vast population • Increasing purchasing Power • Growing size of middle and higher consumer class • Availability of skilled talent pool • Cost Savings • Knowledge/R&D hub • Availability of raw materials • Presence of strong industry infrastructure • Developed technology • Cost savings Penetrating domestic markets and leveraging India presence

17. Case Study – Domestic Market Opportunity McDonald’s is one of the world’s leading fast food restaurant chain. • Steps taken by McDonald’s: • Menu customised to Indian taste – McAloo Tikki, Paneer Salsa Wrap, Chicken Maharaja Mac and Veg McCurry Pan. • Advertisements that appeal to Indian customers. • Menu priced to suit Indian pockets with burger price as low as INR 20. • Success in India: • Made its debut by opening two restaurants in Delhi and Mumbai in 1996. • Currently, the company has around 132 restaurants in India. • Planning to increase the number of outlets to about 220 by the end of 2008.

18. Case Study – Off-shoring Opportunity IBM entered the Indian market in 1992 through a joint venture with Tata group. • IBM India, a subsidiary of IBM Inc., was set up in September 1999. • Steps taken by IBM • IBM expanded its BPO operations with the acquisition of Daksh, the third largest BPO outfit in India. • Set up operations in all the sectors of its businesses in the country. • Reduced the prices of specific products making them more competitive in the market. • Success in India • Operates almost all its businesses in India. • Has its second highest number of employees in India (73,000 employees as of December 2007)

19. Case Study – Sourcing Opportunity Piaggio is an Italy-based company that specialises in the design and manufacture of two-wheel motor vehicles. • Steps taken by Piaggio: • Localized 100 percent of its 3-wheeler product in India in order to compete effectively • Set up a predominant Indian management team for India operations • Setting up of R&D operations in India • Success in India: • Introduced, new 3- and 4- wheeler models, superior engine technology, and innovative customised solutions in India. • Leveraging India: • Planning to make India a global hub for 3-wheeler manufacturing and export products components to the EU

20. Case Study – Penetrating domestic markets and leveraging its India presence for exporting to other countries Cadbury is one of the world’s leading confectionery and non-alcoholic beverage companies. . • Steps taken by Cadbury: • Tailored products to suit Indian consumers (almonds are more preferred in India as compared to peanuts). • Innovative distribution strategy and advertisements that appeal to Indian consumers. • Products sold at lower margins as the company believes high penetration compensates for the reduced margins. • A predominant Indian management team for India operations. • Success in India: • Leads the chocolate and confectionary market in India. • Leveraging India: • Exports finished goods and innovative concepts to its other branches around the world.

21. Presentation Plan India – A Fast Emerging Business Destination What makes India a Fast Emerging Business Destination? How to do Business in India? Challenges Faced by MNCs in India

22. Challenges Faced by MNCs • Distinct taste and habits from rest of the world and variations within India–McDonalds solved this problem by bringing out customized menu for the Indian market. • Large variation in Paying capacity–Phillips addressed the problem by using the right value proposition. It cut the prices of its acclaimed Compact Fluorescent Lamps. • Reaching target customers in a cost effective way–Companies, such as Allianz-Bajaj, GSK, and Danfoss, follow partnership models with local organisations to increase their reach • Large number of supply chain intermediaries–Piaggio addressed the problem by localising 100 percent of its 3-wheeler products in India.