Professional Documents
Culture Documents
by
Manish Mathur
Principal, A.T. Kearney
n Key challenges
n Summary
A.T. Kearney 2
Overview of the India opportunity
India is the second fastest growing economy in the world and the
fourth largest in PPP terms
10,518
Japan
5 11% China
France 4,069
Germany 3,942
UK Italy 2,605
India’s economy would be larger than two of the India is already the fourth “largest” economy in
current G8 countries in 2014 – Canada and Russia “Purchasing power parity”
Source: Goldman Sachs BRICs report, World Market Research Centre; A.T. Kearney analysis A.T. Kearney 3
Overview of the India opportunity
As many as 500 million people will enter the middle class in next 15
years
Upper-Middle
$10,000+ PPP(1)
17m 14% 123m
Middle
$5,000-10,000 PPP
94m 12% 478m
Emerging
$2,500-5,000 PPP
391m 3% 628m
Poor
Under $2,500 PPP
588m -11% 101m
The size of this new middle class is much more than the total
population of countries like US, UK and Germany combined(2)
Note: (1) PPP denotes Purchasing Power Parity; (2) Population data US~ 300 mn, UK~60 mn and Germany~82 million
Sources: U.N. Population Studies; A.T. Kearney analysis A.T. Kearney 4
Overview of the India opportunity
§ India’s working population (25-54 yrs) growth rate is 2.5% § India has large and widespread educational infrastructure
compared to 0.7% in China – Over 380 universities (11,200 colleges)
§ Brazil and Russia have a smaller population base – 1,500 research institutions and around 9,000 PhDs
– Over 200,000 engineering graduates
§ Russia will experience a decline in population in the future
– Over 250,000 post graduates and 2,000,000 graduates
Source: ICICI-OneSource, Malaysia Ministry of Education — Department of Statistics: China Population Statistical yearbook; Statistical Abstract of
India; Bureau of Labor and Statistical Standards, Philippines; AICTE; Asiaweek; IMD World Competitiveness yearbook, Statistisches
Bundesamt 2001; A.T. Kearney analysis A.T. Kearney 5
Overview of the India opportunity
15 years of reform have meant that investment norms are liberal today
§§ India
India permits
permits FDI
FDI in
in almost
almost all
all sectors
sectors
§§ except
except atomic
atomic energy,
energy, defense,
defense, railways,
railways, coal
coal and
and lignite,
lignite, mining
mining of
of iron,
iron, manganese,
manganese,
Investment chrome,
chrome, gypsum,
gypsum, gold,
gold, diamonds,
diamonds, copper
copper and
and zinc.
zinc.
norms §§ Automatic
Automatic approvals
approvals are
are granted
granted by
by the
the Reserve
Reserve Bank
Bank ofof India
India in
in sectors
sectors where
where
up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as
up to 100%, 74%, 51%, 40% or 26% foreign equity is allowed as a rule a rule
§§ Dividends,
Dividends, capital
capital gains,
gains, royalties
royalties and
and fees
fees can
can be
be repatriated
repatriated easily
easily with
with the
the
Repatriation of permission of the Reserve Bank of India
permission of the Reserve Bank of India
profits §§ In
In case
case of
of an
an exit
exit decision,
decision, the
the overseas
overseas promoter
promoter can
can repatriate
repatriate his
his share
share after
after
discharging tax and other obligations
discharging tax and other obligations
§§ SEZ's
SEZ's are
are duty
duty free
free enclaves
enclaves where
where up
up to
to 100%
100% FDI
FDI in
in manufacturing
manufacturing sector
sector is
is
Other fiscal allowed through automatic route barring a few sectors
allowed through automatic route barring a few sectors
§§ Other
Other benefits
benefits of
of SEZ's
SEZ's include
include exemption
exemption from
from customs
customs duty
duty on
on import
import of
of
incentives (SEZs) capital
capital goods,
goods, raw
raw materials,
materials, consumables
consumables & & spares
spares and
and exemption
exemption from
from
income
income tax
tax
A.T. Kearney 7
Overview of the India opportunity
India’s score = 1.05 India’s score = 1.04 India’s score = 1.4 India’s score = 1.95
Source: A.T. Kearney analysis
A.T. Kearney 8
Overview of the India opportunity
Financial Score
Environment Score On the radar screen
People Score Taiwan To Consider
7.12 80 Slovenia
Lower priority
Hungary Chile Size of the bubble indicates retail
South Korea Slovakia
§ India outperformed its peers on the basis of § The large size and fragmented nature of the Indian retail
high availability of skilled manpower and its market makes it attractive for large foreign players
low cost structure
25 20
15.72
20
15
15
15
Global Increased 10
5.55
10
5
0.7 Indian corporates investment 0
2003-04 2004-05 2005-06 2006-07
0
2000 2005 2006 2007 (Till
May)
§ FDI of US$15.7B in 2006-7 compared to
§ Global deals by Indian corporates worth US$3.6 B in 2004-05
US$28 B in first five months of § From Jan to Oct 2007, FIIs had pumped in a
2007compared to US$4.3 B in year 2004 hefty US$ 16.3 billion in equities
§ Major deals in recent years include Tata’s
acquisition of Corus for US$ 12 billion and
of Tetley for US$ 2.5 billion; Hindalco-
Novelis deal of US$ 6 billion
Table Of Contents
n Key challenges
n Summary
A.T. Kearney 11
Characteristics of the Indian business environment
The Indian political and judicial system are fundamental to the long
term sustainable growth of India
Judiciary Executive
Source: National Informatics Centre, India; Supreme Court website; A.T. Kearney analysis A.T. Kearney 12
Characteristics of the Indian business environment
Note: (1) There were 3 governments in the interim between 1996 and 1998
(2) BJP: Bharatiya Janata Party
Source: A.T. Kearney analysis A.T. Kearney 13
Characteristics of the Indian business environment
Dimensions of Diversity
Liberal
North § Language and cultural diversity:
Poor – There are 28 States and 22 national
languages. Other than these 22 languages,
there are hundreds of dialects that add to the
multilingual nature of the country
§ Young India Vs Conservative India
– While the young liberal India may be clamoring
for change and reform, there is a large section
which is still fears any further reform in policy
Rural
Urban § Highly educated Vs Illiterate:
– On one side, there are established institutes of
higher learning, and on the other 28% of the
population is still illiterate
Conservative § Rich Vs Poor:
Rich – While the benefits of economic development
are percolating downwards, 26.1% of the
entire population is still below poverty line
South
Culturally, the themes which bind the country are uniquely Indian
Table Of Contents
n Key challenges
n Summary
A.T. Kearney 16
Key Challenges
A.T. Kearney 17
Key Challenges
Wholly Owned
Manufacturing § Deep understanding of doing business in India
(18 to 36 months)
§ Significant attention from senior management
§ Strong on-site management team
Potential Benefit
Majority-owned
Joint Venture
(12 to 24 months)
§ Basic understanding of doing business in India
§ Strong and reliable partner
§ Good relationship with partner
Alliance
(6 to 18 months) § Senior management attention
Representative
Office § Strong and balanced team
(Up to 6 months) § Established link to and support from
headquarters
Low
The 12 major Indian ports, handle There are significant issues of India’s road network extends
90 percent of the all-India port congestion in key international and 3.319mn km, of which 1.517mn km
throughput domestic airports (45%) is paved
§ Average ship turnaround time § At many airports, passenger § Average truck speeds=> 30-40km
(ASTA) at Indian ports is ~7 days amenities need to be upgraded per hour (km/h), in comparison to
ASTA at Singapore port is six to developed country standards of 60-
eight hours 70 km/hr
§ There are also deficiencies in
respect of ground handling facilities,
§ Container moves per hour ranges night landing systems, cargo § India also has a poor road safety
from (7-15) for Indian ports handling, etc., at some airports record, with an average of 75,000
compared to range of (35-40) for deaths on the road every year
Singapore and Hong Kong
§ Reasons are limited terminal
capacity, bunching of flights, delay
in passenger clearances, etc
Source: National Informatics Centre, India; A.T. Kearney analysis A.T. Kearney 20
Key Challenges
Table Of Contents
n Key challenges
n Summary
A.T. Kearney 22
Summary
Opportunities Challenges
A.T. Kearney 23
Thank You
Manish Mathur
manish.mathur@atkearney.com
Table Of Contents
Table Of Contents
n Key challenges
n Summary
A.T. Kearney 25
Appendix
Key trends
India Processed Food Market Forecast
(€ billions) • Market growth expectation of 10% per year up to 2010
139 • Today only 2% of India’s agriculture production is
10% processed
15%
• Rapid urbanization, and rising per capita income, have
87 68
78 led to rapid growth of food processing industry
30
33 • Diverse climate and land in India results in large raw
material base suitable for food processing industries
71 7%
47 54 • Primary food processing is highly fragmented with a
small organized sector and unorganized sector that
2004 2005 2010
includes hundreds of thousands of processing units
2 • Indian food and beverage companies are exporting to
1
Primary processed food Value added food regional overseas markets with similar tastes
• EU countries such as Netherlands, Germany, Italy and
Level of processing in food processing Industry in India - 2005 France account for 30 per cent of FDI in this sector
(Processed food as % of total food) • Fiscal incentives by several governments have led to
high investments in those regions
37%
21%
Key Players
11%
6%
2% • Indian Players: Amul, Britannia Industries, Dabur, Godrej
Beverages Foods, Haldiram, Gits Food Products, MTR,
Parle Agro
Meat
Vegetables
Products
Poultry
Fisheries
Marine
Fruits &
Dairy
Notes: (1) Packed fruits and vegetables, packed milk, unbranded edible oil, milled rice, flour, tea, coffee, sugar, pulses, species and salt
(2) Processed fruits and vegetables, juices, jams, pickles, squashes, concentrate, processed dairy products etc
Source: Ministry of Food Processing, India, A.T. Kearney analysis A.T. Kearney 27
Appendix
Mandideep
Mithapur Sankrail
Kolkata
Nashik Nagpur
Silvassa
Nandur
Pune
Mumbai
Ghatkeshar
Rajahmundry
• Silvassa is a key industrial area
in this cluster Chirala
Bangalore Hosur
Mysore Chennai
Nanjangud
Coimbatore
Chittur • Major players like ITC, Britannia
Food Processing Industry and MTR have presence in this
region
A.T. Kearney 28
Appendix
Opportunities Challenges
• Setup large low cost production bases in India for • Absence of quality cold storage facilities and
domestic and export markets by using low cost workforce transportation leads to high wastage in sector
• Existing laws hamper growth of contract farming
• Enter ready meal and health food segments as they see • Multiple ministries and laws govern the food processing
burgeoning demand industry increasing complexity for the industry players
• Agricultural Produce and Marketing Act leads to most of
• Customize Italian concepts to suit Indian flavors as the food products getting traded through regulated
successfully done by McDonalds and Pizza Hut mechanism rather than open market
• Essential commodity act restricts free inter-state
movement of certain food products
• Multiple tax rates and levies across states and locations
create procedural complexity
• High cost of packaging affect the margins of the industry
• Execution of existing law for prevention of food
adulteration is time consuming
31.5 Man made fiber • Indian Players: Raymond, Bombay Dyeing, Arvind Mills,
41% based cloth
36% Vardhman Group, Aditya Birla Nuvo, Welspun, Century
27% Textiles, Alok Industries, Indo Rama Synthetics, Century
13% Blended1
13% 15% Cloth Enka, SRF
• Global Players: Belgian UCO (JV with Raymond), VF (JV
49% 46% Cotton
with Arvind Mills)
60% Cloth
The textile industry in India has clusters in various parts of the country
each specializing in different fibers
Srinagar
Kanpur
Ahmedabad
Indore
Surat Calcutta
Nagpur
Coimbatore
Madurai
A.T. Kearney 32
Appendix
Opportunities Challenges
• Leverage Italian capabilities and quality in machinery and • Market access in India is difficult due to
equipment, fashion and design to transfer know how and regulatory/custom duty issues
capacity to Indian industry
• Industry not self reliant, around 75% of investment is
• Invest in setting up vertically integrated large scale units / channeled through government aides in promoting the
retail chains (single brand) industry
• Enter into marketing joint ventures with Indian companies • Inefficiencies in customs procedures/bureaucracy
or brand licensing to Indian players
• Partner with Indian vendors to import from India, by • Products less sophisticated with a focus on low to
nominating large Indian companies having credibility in medium priced goods
terms of capacities and quality
• Highly labor intensive manufacturing with many small and
• Export of lifestyle brands of garments and accessories to medium size firms
India
• Lack of technological upgradation and economies of
scale
Key Players
• Indian Players: Superhouse Leathers, Mirza
1.7 1.8 International, Liberty Shoes, Bhartiya International,
1.4
Lakhani India, Forward Group
• Italian Players: Conceria Virginia Italy (JV with Forward
Group)
• Global Players: Bata, Fossil (stake in Crew B.O.S
2003 2004 2005 Products)
Source: IBEF, Exim Bank
A.T. Kearney 35
Appendix
Jallandhar
Haryana
• West Bengal is one of the
New Delhi Noida country's top state for export of
Agra finished leather goods
Kanpur • Bata which is the largest
• Uttar Pradesh is an important manufacturer and marketer of
center for tanneries as it has a footwear products in India is
large population of livestock located in Kolkata
• Kanpur is a prominent centre for • The Government of West Bengal
leather processing and specializes has setup a state-of-the-art
in processing hides into heavy integrated Leather Complex on the
leather eastern fringe of Kolkata
Kolkata
Ranipet
Hyderabad
A.T. Kearney 36
Appendix
Opportunities Challenges
• Focus on manufacture and export of value added • Limited production with respect to raw material: with
products as opposed to raw material about 15% of the world livestock population, India
accounted for only 8% of the leather production in 2002
• Export machinery to India or to have technology
agreements with Indian firms, as technology used by most • Fragmented sector: Indian leather industry consists of
players is outdated 42,000 small-scale industry (SSI) units, which account for
75% of the total production
• Economies of scale in setting up large scale units
• Environmental challenges as leather industry is
• High growth of the local footwear market traditionally considered polluting especially tanning and
finishing
Mathura
Barauni
Panipat
• Mumbai High is the key source of Bongaigaon
oil production in India
• Jamnagar has the biggest oil Digboi
refinery in India Numaligarh
Guwahati
Koyali
Jamnagar
Haldia
Mumbai
Vishakhapatnam
or Vizag
• Cauvery and KG basin have some
of the largest gas fields in India Tatipaka
• Oil refining capacities in Cochin,
Chennai, Mangalore and Vizag
Manali
Mangalore Chennai
Oil & Gas Industry Cochin Narimanam
A.T. Kearney 40
Appendix
The oil and gas sector has recently been deregulated and is still
evolving
• Under the NELP upto 100% foreign participation is allowed and a fast track approval
mechanism is in place through single window Empowered Committee of Secretaries
• MoPNG has conceived a more coordinated approach to acquisition of overseas oil and
gas assets through :
• joint foray (compared to the current fragmented approach)
• bilateral engagements with other countries to benefit from each others strengths in
areas of technology transfers, R&D, safety and training
• multilateral engagements such as the Asian Round Tables, International Energy Forum
etc
Opportunities Challenges
• Leverage on India’s key advantages as an export refining • Natural decline in ageing oil and gas producing fields
hub like cost competitiveness and location
• Limited infrastructure available for gas transmission and
• Alliances and partnerships to diversify the energy supply distribution
base and improve long term supply security
• Exploring of new resources of hydrocarbons such as • Distortion in public tenders, subject to custom duty
application
CBM and Gas Hydrates
• Cooperate in technology assistance programs to improve • Absence of statutory framework in the upstream industry
quantity and quality of power generation
• Lack of clarity in Open Access Policy
Europe is currently the largest and fastest growing export market for
Indian auto components suppliers
Halol
Indore(2) • Chennai is the export hub and
Kurla Nagpur Calcutta component sourcing hub for Ford and
Hub: Pune Nasik Hyundai and the transmissions
Igatpuri Mumbai Aurangabad sourcing hub for Toyota
Kanhe
• Chennai is also the manufacturing
Pune hub for the TVS Group (two wheelers
and components)
Hub: Chennai
Irrungattukottai
Bidadi Chennai
Maraimalai Nagar
Opportunities Challenges
• The Indian automotive industry has reached a critical size • Infrastructures and access points for car imports still
and is expected to show a healthy growth rate driving the limited
development of the auto components industry
• Quality products difficult to be provide on a consistent
• India is emerging as a global small car manufacturing hub basis from Indian companies
driving the maturity of supplier capabilities across the • Many Indian suppliers do not have the capability to
entire value chain (product design to delivery) supply large scale orders required by global companies
– OEMs such as Maruti-Suzuki and Hyundai have
identified India as small car export bases and are • Focus on product development still non-existent in many
working with Indian suppliers to develop their companies
capabilities
• Localization is essential for international players to enter
• The need for greater localization to achieve cost the Indian market
leadership has also driven growth and development of
the auto ancillary supplier base in India
:6
% • Market growth driven by high growth in the automotive
R market
C AG
• National demand is expected to grow steadily, in
particular in the two wheelers sector
• two wheelers tyres 50% of total national demand in
2.408 2005; expected 54% in 2010)
2.282 • Industry growth driven by replacement market for a long
time but OEM market acquired importance over the last
2.163 three years
• Two tiered industry:
2003 2004 2005 – Tier-I players (top 5 tyre companies), account for over
80% of industry turnover and have a well diversified
India Tyre national demand forecast (2005-2010) product-mix
(Mn, Number of Tyres) – Tier-II companies are small in size, mainly
concentrating on production of small tyres (for two/
CAGR three-wheelers, etc.), tubes & flaps etc.
7 %
: 7,
GR LCV1 8%
CA 73
HCV2 7%
Key Players
58,7 Passenger
6% 5%
50.5 18% Vehicles • Indian Players: MRF, Ceat, Apollo, JK Industries, TVS
6%
6% 20% 22% Srichakra, Falcon, Dunlop
21%
22% Two • Global Players: Goodyear India, Bridgestone India
22% 9%
52% 54% Wheelers
50%
Six large domestic players dominate the market and their plants are
located mostly in Maharashtra and Tamil Nadu
Banmore
Kankroli
Limda
Nasik
Mumbai
• Tyre manufacturers Pune
located close to the
automotive hub
around Pune • Tyre manufacturers located close
Ponda to the automotive hub around
Vikrant Chennai
• Tyre manufacturers
located close to the Tiruvottiyur
automotive industry in Pondicherry
Karnataka Kalamassery Arakonam
Cochin
• Kerala produces over 90% of
India's natural rubber and has
many intermediate rubber units
making it ideal for tyre
manufacturing
A.T. Kearney 50
Appendix
Opportunities Challenges
• Set up facilities for manufacturing tyres for domestic • Narrow product range, large operating overheads and
sales as well as exports (notwithstanding the well high break-even levels
entrenched competition in the domestic market)
• Leverage on technology, as Indian tyre makers are • High costs due to regulation on ISI mark (additional
marking that requires additional investment for foreign
technologically behind global competitors
producers)
• While the PV segment has transitioned over near
completely to radial tyres, the penetration levels for
radials is only at 5% for CV’s; Indian tyre companies • Continuous increase in prices of raw materials such
are however rapidly ramping up capacities in this front as natural rubber, which accounts for nearly one third
to not only serve the expanding OE market, but of total raw material costs
potentially an even larger aftermarket demand going
forward • Cheaper imports of tyres especially from China
• Newer technologies like run-flat tyres have not
penetrated the Indian market yet
• High capital requirements to set up tyre manufacturing
plants
• Sale of equipment / machinery to Indian tyre companies
Financial market reforms are paving way for global players to enter the
sector
Notes: (1) Guidelines for determining the minimum solvency requirements for banks with a new system for weighting the risks run by banks
Source: A.T. Kearney analysis A.T. Kearney 54
Appendix
Opportunities Challenges
• Invest in existing Indian banks as they seek large • With a strong outlook for credit and implementation of
amount of capital to sustain credit demand by Indian Basel II norms, Indian Banks would require additional
capital to support their growth plans
economy
• Policy hurdles for foreign banks planning to invest in India
• Use NBFC route to start operations in India and launch • Increased competition in the sector as foreign and private
full scale banking operations after obtaining banking players look to expand across businesses
license from RBI • Weak recovery mechanisms and legal procedures
increase the cost of doing business in India
• Partner with Indian banks to launch products where • Small sizes of most Indian banks with weak balance
Italian banks can bring in operational expertise and sheets hampering their growth in global financial market
Indian banks can provide distribution network
Key trends
India Insurance market value
(€ billions) • High growing sector (cagr 20% in last two years)
20 % especially in life segment
C AG R :
17.1 • Insurance penetration similar to China but unbalanced
20 towards life premium
13.9
15 11.8 • 14 insurers companies, among which 1 government
22% insurer in life and 4 in non-life dominate the market
10 14.0
9.4 11.2 • Most private insurance companies are joint ventures
5 between Indian & foreign partners
2.7 3.1 14%
0 2.4 • Banking channels are the preferred distribution modes
for private insurance companies accounting for 20-25%
2003 2004 2005 of sales
Non Life Insurance premium Life Insurance premium • Unit linked insurance plans are popular in life insurance
segment
Insurance Penetration • Foreign players like Generali, Fortis, Paternoster, Swiss
(Year 2004, Premiums as a % of GDP) Re are planning to enter Indian market
9.4
7.6
4.1
• Every insurer is required to write certain percentage of its policies in the rural sector
which varies from 5% to 15%
• IRDA plans to remove tariff regulations for non-life insurance premium from Year 2007
which will allow companies to set rates
• Separate licenses are required to enter into life and non-life segment
• The minimum paid-up capital requirement presently stands at € 16.9 mn for both life and
non-life business and € 33.8 mn for the reinsurance business
Opportunities Challenges
• India’s large rural and small town population largely under • Weak distribution network in small towns and villages is a
penetrated but offering a huge market for all players key barrier in growth of insurance in these areas
• Segments like health, life and disability plans have a large • Lack of trained manpower is hampering growth of
growing market in the Indian middle class insurance sector
The Indian IT and BPO industry has witnessed strong growth across
segments
Exports Domestic
Source: Nasscom, A.T. Kearney analysis and research A.T. Kearney 61
Appendix
China
Malaysia
Singapore
Philippines
Canada
Chile
Poland
Brazil
Czech
Rep.
Opportunities Challenges
• Leverage the Indian advantage for business process • Lack of infrastructure and data protection laws could
outsourcing of services hamper growth of IT/ITES sector in India
• Use India as a outsourcing hub for content development, • Availability of trained manpower for growing needs of
R&D services and software products industry could be a potential bottleneck
• China and other countries in the ITES sector are
• Indian companies can use Italy as a hub to serve Italy increasingly challenge India’s dominance in the sector
and other European countries
• Rising labor costs are reducing India’s competitive
• Indian companies can use Indian experience to help advantage in the sector
development of IT clusters in Italy
UK
South
Italy
China
India
Australia
Spain
Brazil
Germany
France
Korea
Netherlands
Japan
Mexico
Canada research
Per Capita
Note: (1) Domestic market value is for western finished medicines only. India also imports drugs to meet its requirements
Source: IDMA, Espicom, IMS, Crisinfac, Secondary Research, A.T. Kearney analysis
A.T. Kearney 66
Appendix
The are four major forces driving the Indian Pharmaceutical industry
A.T. Kearney 67
Appendix
Maloda
Kadi
Kalol
Kandla Hlrapur Halol
Dholka Ratlam
Valsad Indore
Vatva Bhandara
Vadodara Athal Aurangabad
Vapi
Ankleshwar Chikalthana
Nashik
Bhimpore
Piparia Waluj
Thane Patalganga
Vishakhapatnam
Mumbai Vikhroli
Kurkumbh
Solapur
Jeedimetla Pashamylaram
Verna
Margao Kazipally
Hyderabad
Bangalore
Mysore Chennai
Poonoon
Pharmaceutical Industry
• Bangalore is the key
hub for biotechnology
industry
A.T. Kearney 68
Appendix
Opportunities Challenges
• India as a suitable alternative for R&D activities on • Intellectual Property Laws regarding patents in India still
account of cost advantage (30-50%), time to market not stringent; many global companies are hesitant to
advantage (cycle time reduction of 30-40%) and strong introduce products in this market
people skill availability
• Prices of key drugs still regulated by Drugs Price Control
• Abilities of national companies in-licensing and out- Order
licensing for drugs at different stage of development (pre-
clinical, clinical and manufacturing phase)
Key Players
2003 2004 • Indian Players: BHEL, L&T, Crompton Greaves,
Cummins India, Elgi Equipments, HMT, Kirloskar Oil
Domestic Market Exports Engines
• Foreign Players: Siemens, ABB, Thermax
Notes: (1) Capital goods as per CMIE classification
Source: CII A.T. Kearney 71
Appendix
Areas of western India and few northern states are major hubs of
machinery and equipment production
Goindwal
Hardwar
Pinjore
Rudrapur
New Delhi
Gurgaon
Faridabad Jagdishpur
Ajmer Varanasi
Malanpur Jhansi
Dewas
Vadodara
Mandideep
Hazira Bhopal
Daman and Diu
Jamshedpur
Nashik
Pune Jamshedpur
Ahmednagar
Mumbai Ranipet
Kalwa Sitara
Kirloskarvadi
Shirval Hyderabad
• Most of the big players like ABB,
L&T etc in machinery & equipment Goa
have plants in states of Kondhapuri
Maharashtra & Gujarat Bangalore
Mysore Chennai
Tiruchchirappalli
Coimbatore
Machinery & Equipment Manufacturers
Ernakulam
A.T. Kearney 72
Appendix
Opportunities Challenges
• Outsource engineering components from Indian • Increase in raw material prices has resulted in low profit
manufacturers to leverage cost advantage of Indian margins for the heavy engineering industry
manufacturers
• Increased competition
• Invest in setting production facilities in India to take
advantage of low production cost
• Indian capital goods manufacturers face cost
disadvantages due to high cost of finance, power and
• Export of machinery & equipment to India as demand of poor infrastructure
capital goods surges with growing infrastructure needs of
the country
• Duty structure in India is distorted with lower duty on
• Bring in a lot of technical expertise to Indian electrical machinery & equipment imports and high excise duties
machinery market as India is compliant with the European which leads to disadvantage for local manufacturers
standards for electrical engineering
• Access to technology is a challenge for Indian companies
as technology absorption requires large amount of capital
52
Accruals 8 44
6 38
Private 15 Key Players
23 • Indian Players: RIL, ADAE, Mahindra & Mahindra, IOC
Debt 24 14 and ONGC, NTPC, L&T , Gammon India Ltd , HCC
8 4 1 • Global Players: Nokia, P&O, PSA, Maersk, Gammon
4 4
Govt. 5 7 5 2 2 India, CWC and the Dubai Port Authority
Opportunities Challenges
• Investments in power generation and transmission as the • The massive investment programme for infrastructure
power demand increases with the growing economy has to be funded at a time when government is trying to
• Invest under Build Operate and Transfer basis in the reduce its fiscal deficit
national highways segment as they carry more than 40 • Private investment in sectors like power was curtailed by
per cent of the traffic the lack of financial sustainability of projects due to
• Deregulation in the ports sector and multiple options for subsidy
private participation provides opportunity for Italian • Government has limited focus on maintenance or road
players with strong expertise in the sector infrastructure
• Growing demand for real estate makes it an attractive • Bulk of the infrastructure is still controlled by government
prospect for Italian investors leading to limited private participation
• Italian companies can provide expertise in modern
ground-handling facilities and cargo-handling facilities to
Indian airports
• Investments in SEZ as government is providing various
incentives to developers
Ghaziabad
• There is manufacturing location
Kotdwara of Hindustan aeronautical ltd.
(HAL ) apart from several Indian
Gurgaon Kanpur ordnance factories
Lucknow
• There are several Indian ordnance
factories in Maharashtra
• Leading defense shipyard Mazagon
dock ltd is located in Mumbai
Bhandara Ichapur
Nashik
Bhusaval Nagpur Kolkata
Bhadravati
Ambarnath Jabalpur
Pune • Missile manufacturing units
Koraput
of BDL are located in Andhra
Bhanpur
Machilipatnam Pradesh
Hyderabad
Kanchanbagh
Bangalore
• Key aeronautical establishments of
Chennai HAL is located in Bangalore
Aerospace and Defense Industry • The defense electronics company
Aruvankadu BEL has units in Bangalore and
Chennai
A.T. Kearney 80
Appendix
Partnership with local players is the key to enter the Indian market
• FDI: India opened for up to 100 % Indian private sector investments in the defense industry and
allowed FDI of up to 26% in select areas of the defense industry
• Foreign defense vendors who are short listed for purchase are required to enter into technology
transfer agreement with Indian private players or state owned players
Opportunities Challenges
• Procurements in the sector heavily influenced by political
• Direct equipment sales to armed forces as India plans
climate and strategic relationship between governments
large expenditure on purchase of defense equipment in
its effort towards modernization of armed forces
• Strong international competition due to incumbent players
• Joint development of technology and equipment in from Russia, Israel and USA
partnership with Indian private and public players
• Indirect offset not allowed
• Italian companies can potentially use India to outsource
components for their global manufacturing operations
• Indian Ministry of Tourism has identified 31 villages across the country to be developed as tourism hubs
• Tourism ministry launched scheme for integrated development of tourist circuit where government will fund
capital costs for infrastructure development
• FDI: up to 100% is permitted on the automatic route in hotel and tourism sector
• Government provides a capital grant of 10% on loans for new approved hotel projects
Opportunities Challenges
• Investment in assets to develop own holiday destination/ • Lack of infrastructure facilities like airports, quality roads,
hotels as they see increasing demand and limited supply sanitation, water quality in the country hampering
development of many tourist destinations
• Tour operators looking to enter India should customize
offerings to match the tastes and preferences of Indian • Lack of direct flies between Italy and India
travelers
• Health and personal safety concerns due to water quality
• Invest in existing tour operators and provide technology and hygiene among international tourists
and expertise to build large scale of operations
• Create offerings to make India as one of the preferred • High Governments charges on road, passenger, toll,
tourist destination for Italian tourists luxury and sales taxes on the proceeds of travel
operators
• Retail does not belong to the “granted industry status” which hinders creation of retail specific laws
• Many retail products are purchased from small scale industries (SSIs) as 506 items are reserved for
manufacturing by SSIs
• Urban Land Ceiling Act and Rent Control Acts have resulted in very high property prices
• VAT policy has been implemented in all states, except Tamil Nadu
Opportunities Challenges
• Enter into a joint venture or agree on a fee based • Lack of basic infrastructure creates difficulty in sustaining
mechanism with Indian retailers and provide in-store retail operations across the large geographical spread of
management expertise to Indian retailers country
Kuthethoor
Chennai
A.T. Kearney 93
Appendix
Opportunities Challenges
• Tight demand - supply situation in the Indian • Cyclicality of Industry’s profitability
petrochemical market
• Significant capacity is being built in the Middle East which
• Large and growing domestic market for petrochemicals has a cost advantage due to the cheaper cost of natural
gas
• Cost advantages for exports
2004 2005
Domestic Market Exports
Arakonam
ACC
Madukkarai
Ultratech Cement Reddipalayam
Grasim Cement
Gujarat Ambuja Cement
A.T. Kearney 97
Appendix
Opportunities Challenges
• Huge and growing demand for cement due to • Highly fragmented market and regional in nature
infrastructure spending (particularly on roads, ports and consisting of over 54 players and more than 129
airports), a spurt in housing construction and expansion manufacturing plants
in corporate production facilities • Risk of excess of supply due to large capacity additions
expected to become operational in the coming years
• Efficiency of Indian cement companies due to low cost • Transportation costs which account for 20% of overall
technology and extensive restructuring costs are expected to increase
• High energy cost, one of the most important component
• Sector fragmentation favor purchasing of equity stakes by of cement productive cycle
international firms: e.g. Italcementi has acquired a stake
in the K.K. Birla promoted Zuari Industries' cement plant
in Andhra Pradesh