UNDER THE GUIDANCE OF DR.

KARINA KAKKAR
PESTEL Analysis, Key Business Sectors,
BUSINESS IN Expansion Strategy, Funding Methods
MBA (A) SEM I

GLOBALIZED
MARKETS
IBS7702
 COUNTRY: THE REPUBLIC OF FRANCE

COMPANY: PATANJALI AYURVED LIMITED

TABLE OF CONTENTS

Sr. No. Particulars Page No.

(i) Economy at a Glance 3

(ii) PESTEL Analysis 4

(iii) Key Business Sectors 7

(iv) About the Company 9

(v) Expansion Model 10

(vi) Sources of Funding 16

 ECONOMY AT A GLANCE
France, officially called the French Republic, is a country consisting of
metropolitan France in Western Europe and several other overseas regions and
territories. The country has 18 integral regions (five of which are situated
overseas) spanning a combined area of 643,801 km2 and a total population of
67.07 million (June 2020).
France is a unitary semi-presidential republic with its capital in Paris, the
country's largest city and main cultural and commercial center. (Wikipedia, n.d.)
France is a world’s fifth largest economy. It has the second largest consumer
market in Europe with 66 million inhabitants. France is a geographical hub for
business with European Union (EU), but also with Africa and the Middle East.
France is a diversified economy, where service generates 80% of the GDP. The
economy also builds on world class industrial sectors. This includes Europe’s
largest aerospace and nuclear industries, second largest agriculture and chemical
industries and third largest information and communication technology (ICT)
and pharmaceutical sectors.
Paris is the Eurozone’s leading financial center. It is the second most popular
location in Europe for foreign financial firms with a total of 500 banks and
financial institutions. Its strategic location between northern and southern
Europe. Excellent internal transport network with motorways and highspeed
trains. Although certain declarations and permits are necessary, there are
practically no restrictions on foreign investments in France.
France’s GDP grew by 18.2% between July and September, the country’s
statistics office reported recently. France’s GDP had contracted by 13.7%
during the second quarter, which included the first full month (April) of
nationwide lockdown in the wake of the pandemic. Despite the improvement
during the summer period, GDP remained below the level it had before the
crisis. In comparative terms, the third quarter recorded a 4.3% decline as
opposed to the same quarter in the previous year.
 PESTEL ANALYSIS
▪ Political Analysis

French political map is not confided to one country, it has 12 regions in the
mainland France (or Metropolitan France), and other overseas regions. Each
overseas region has an overseas department which holds the same status as the
departments of Metropolitan France.
French political structure majorly consists of three government systems: Unitary
State, Constitutional Republic and Semi-Presidential system. According to their
constitution, the government directs and decides the policy of the nation.
The internal structure of the country like healthcare, technological access and
social protection have extremely positive scores in the Social Mobility Index
2020. But sectors like work opportunities and lifelong learning require
improvement. (Report, 2020). But the unemployment rates are still high,
especially for the youth, migrants, and semi-skilled workforce and structural
reforms are needed to boost growth. (Outlook, 2019)
According to Credendo’s Political risk analysis, short term/medium/long term
risks are low. Political risk related to credit transactions is also low in France.

▪ Economic Analysis

France has a mixed economy that combines both capitalist and socialist
characteristics. Where capitalism involves private ownership of capital and
other means of production and socialism the government directs economic
activity and owns major parts of most industries. The economic profile of the
country has shown a growth from last year’s Global Competitiveness Report.
Out of 141 countries, France has scored overall 15th rank in GCR 2019.
The economic growth declined to 1.7 percent in 2018, due to slowing global
growth and some one-off domestic factors. Still, economic activity remained
relatively more resilient compared to France’s peers, and the labour market
improved gradually. (Outlook, 2019)
Growth is expected to gradually converge to its long-term potential level of 1.5
percent by 2021, supported by ongoing tax relief and structural reforms.
However, due to a disorderly Brexit, trade tensions and softening of activity is
consistent throughout Europe. The France Financial Sector Assessment
Program (FSAP) concludes that the authorities made notable progress in
supporting financial stability. (Outlook, 2019). But still there is a huge corporate
as well as public debt, which needs a close monitoring and preparedness to
maintain the economic stability due to corona pandemic.
Some factors such as currency depreciation, high real interest rates, an
economic recession or corruption, have an influence on the business
environment, thereby affecting the payment capacity of all debtors in the
country. The economic risk in France is high due to high debt in the country.

▪ Socio-Cultural Analysis

Food is one of the greatest passions of the French people. Their cooking is
highly refined and requires detailed, careful preparation. Families are the social
adhesive of the country and despite their romantic reputation, they maintain a
practical approach.
Punctuality is a valued and appreciated characteristic in their business culture. A
good dressing style is also very important part of their lifestyle. They also like
to emphasize on values such as courtesy and formality through their way of
communication. (Ronin, 2020)
France has both public and private education systems. The public education is
free and regulated by the Ministry of National Education.

▪ Technological Analysis

ICT, automobiles, electronics, gas turbines, and machinery are major industries
of France. France is also a leader in technology export. (Adamkasi, 2015) In
2018, electronics export accounted for $42.9 billion, machinery for $88.9
billion, vehicles for $112 billion, chemicals for $116 billion, and metals for
$38.2 billion. (Reports, 2020)
The Frenchy rely heavily on the internet. A high-speed connection called ADSL
is commonly provided by companies. (Frue, 2019) And as of 2016, about 85%
of the population had access to the internet.
The output gap for France in 2019 was positive at 0.113% of the potential GDP.
In World Bank’s ease of doing business ranking France was ranked 32 out of
190 countries in 2019. France’s ease of doing business ranking remained
unchanged from 32nd position in 2018.

▪ Environmental Analysis

In France, forest covers about 30.3% of land. France is the first country to have
a separate ministry for environment. France is been ranked 17th for carbon
dioxide emission. The EPI score for France is 78.2 and it holds the 7th rank.
This could be achieved as Frances 78% of energy production comes from
nuclear power. To reduces its carbon emission, France has imposed a carbon tax
(approx. 17 Euros ton/carbon dioxide emitted). It contributes about 4.5 billion
Euros per year. (Pathan, n.d.)
However, there are some environmental challenges that have raised concerns
among the French residents and tourists. For example, air pollution is a
significant environmental problem in France and so is water pollution. The
country has faced water contamination caused by acid rain. And not only did it
impact water quality, but it also destroyed forests too. Other environmental
concerns are but not limited to natural disasters, household waste, noise
pollution, and the erosion of biodiversity. (David, n.d.)

▪ Legal Analysis

The Law of France is a civil law legal system primarily based on legal codes
and statutes, with case law also playing an important role. France has a dual
legal system; one branch, known as Public Law, defines the principles of
operation of the state and public bodies. This law is applied generally through
public law courts, known as ‘les Tribunaux administratifs’.
The other system, known as Droit privé, or private law, applies to private
individuals and private bodies. In court, the judge/judges arbitrate between the
prosecution and the defense, both of which are generally represented by their
lawyers. The French judicial system does not have recourse to juries except in
assize courts. If the case goes to appeal, the arguments of the prosecution and
the defense are taken over by appeals specialists.
In France, no firm can operate in an industry that has no clear laws and
regulations to help in general governance. The law should be clear on various
operational issues to ensure that operations of one firm do not affect that of
another firm. The government of France has enacted laws that liberalize the
economy. (Kakkar, 2020)

KEY BUSINESS SECTORS

▪ Energy

One of the major industries in France is the energy sector. France’s leading
electricity company, Electricite de France (EDF), is the largest utility company
in the world.
Engie is the world’s largest independent utility company and is involved in a
wide array of activities, including natural gas production and distribution,
nuclear power, and electricity distribution. Engie became the largest solar
energy company in France after acquiring Solairedirect in July 2015.
Energy production in France is primarily based on nuclear energy, which
accounts for 78% of the country’s electricity.

▪ Manufacturing and Technology

Manufacturing is among the largest industries in France, accounting for billions

of dollars in the country’s GDP. The country is recognized as the fourth largest
automobile manufacturer in the world and is home to two of the largest
automobile manufacturers in the world: Peugeot and Renault.
Technology is another important economic pillar in the country's economy.
France is ranked among the most technologically advanced countries in the
world, and the country has an ideal environment for technological research and
innovation.

▪ Transport
Transport in France is a multi-billion industry, and some of its key players are
major global companies. France has one of the densest networks of road and
railways in the world, which interconnects the nation’s cities. The railway
network in France stretches 18,580 miles, most of which is under the operation
of SNCF (French National Railway Corporation).

▪ Agriculture

Agriculture was traditionally the primary economic activity in France prior to

the Industrial Revolution in the 19th century. France is recognized as having the
sixth largest agricultural production in the world, and the largest in the
European Union.
France is the largest producer of sugar beets and the second largest producer of
cheese and wine in the world. Western France is the main producing region of
dairy products, poultry, apples, and pork.

▪ Tourism

France is the most popular destination in the world, receiving about 85.7 million
tourists each year. This massive tourist traffic also means that France is ranked
fifth in the world in terms of tourist spending. The tourism industry is a key
economic pillar in France, injecting over $70 billion to the country’s GDP.

Support for all Companies

The French government has set up a wide range of public support measures to
mitigate the impact of the Covid-19 outbreak. These measures which essentially
aimed at preserving the companies’ liquidity throughout the crisis encompass
notably tax and social measures such as deferral and/or rebates of tax and social
contributions, short-time work measures and financial support schemes, the
Coronavirus Guarantee Scheme of confirmed short-term lines and the
Coronavirus guarantee scheme to reinforce cash position and the direct lending
“Priority Loan” scheme from BPI-France).
The main measures implemented by the French Government to help companies
overcome their liquidity issues is the State Guarantee scheme. Additional
liquidity will be obtained by French companies facing the economic impact of
the COVID-19 outbreak. French State will guarantee the reimbursement of
certain eligible loans up to an aggregate amount of 300 billion euros as provided
by the Amended 2020 Budget Bill. Other urgent measures have been
implemented by the French Government and key market players in order to
handle companies’ financial difficulties.
 ABOUT THE COMPANY
Patanjali Ayurved was formed in January 2006 as a private limited company by
yoga guru Ramdev and his partner Sri Acharya Bal Krishna ji. In June 2007, it
was converted to a public limited company. In its first year of operations
(2008), Patanjali generated a revenue of over 60 crores. Almost 13 years later,
the homegrown venture has grown to be a 5000-crore company and is posing a
threat to the well-established companies in the FMCG domain.
Patanjali started its operations with Patanjali Yogpeeth in Haridwar,
Uttarakhand. It is one of the largest yoga institutes in the country. Swami
Ramdev and Acharya Balkrishna set up Patanjali Ayurveda Pvt. Ltd. for
treatment, research and development and for the manufacturing of ayurvedic
medicines in yoga and ayurved. The company was started with the vision of
uplifting the life of Indian farmers by locally sourcing the raw materials from
them and making their lives better providing an opportunity to the Indian
masses to move towards healthy lifestyle by promoting sustainable and herbal
products.

Since the FMCG market in India has low entry barriers, Patanjali soon
established itself as a major consumer goods’ manufacturer. The recent trends
clearly imply that the company’s priorities are shifting from medicines to
consumer goods, because the net revenues earned through FMCG are on par
with ayurvedic medicines. (Chanana, n.d.)
Patanjali has a wide product line ranging from home care, cosmetics, health,
food and beverages and health drinks. All the products are either 100% natural
or with the minimum of chemical ingredients. And while there are over 350
products currently being manufactured under the Patanjali brand umbrella, we
have only selected a handful of them for the 1 st Phrase of expansion in Paris.
There selected few products include:

Skincare Haircare Food Healthcare Toiletries

Face wash, Shampoo, Hand Wash,

Biscuits, Kesar, Honey
Face Cream, Hair oil, Baby Care,
Spices & & Health
Face Scrub & Conditioner and Shaving
Jaggery Drinks
Dental Care & Body Care Cream
 EXPANSION MODEL
FOCO Franchising Model
In this model the franchisee owns the business, but the brand and operations are
handled by the company with regular reporting done to the franchiser on the
performance of the business.
Patanjali will scout potential franchisees as per the company’s guidelines. Once
contact is made with them, the franchisee with the strongest distribution
network and brand image will be selected. Under the franchising contract, all
day-to-day operations will be done by the franchisee. No further hidden costs
are expected as all the maintenance to run the store will be done by Patanjali.
The franchise owner will receive profits calculated as a fixed margin on daily
turnover of the store.

French Laws Regarding Franchising

Under French Law, franchising is considered an agreement containing Right to
use a registered trademark and transfer of know-how. Even if the relationship is
not qualified by the parties as a franchise agreement, each agreement containing
the mentioned elements would be regarded as a franchise agreement.
(Casanova, 2020)
All foreign companies are obliged to register with the French Répertoire des
Entreprises (Register for Undertakings) as well as French Law Administration.
The trademark license granted to the franchisee must be registered before the
trademark office (INPI) that has generated the related trademark. The franchisor
must provide the Franchisee with a “Pre-contractual Information Document” at
least 20 days before the signing of a franchise contract, and at least 20 days
before the payment of any sum or any investment in relation to the franchise
relationship (Casanova, 2020).
The disclosure document must contain detailed information including the
following:

▪ The franchisor’s information (company name, registered office, form,

capital, manager, registration number)
▪ The franchisor’s banking information (bank address, account number,
etc.)
▪ The franchisor’s audited financial statements regarding the past two years

▪ The general and local market statements, and development prospects of

the general and local market
▪ List of the undertakings of the network, and the nature of their
relationship with the franchisor
▪ The address of the franchised undertakings located in France

▪ The most important provisions of the contract: duration; renewal;

termination; assignment; and exclusive rights
▪ The investments linked to the franchise operation.

The Franchisor shall also deliver any other information that may be relevant in
the candidate’s decision to enter into the franchise agreement. This general
obligation was incorporated into the French Civil Code in 2016. (Casanova,
2020)
French Courts dictate that the Franchisor has a duty to experiment with or test
the concerned business and concept before franchising it, and will usually
request the Franchisor to prove that the concept has been operated in owned
operations for at least two years before the franchise development started, and
that this experimentation has been profitable. (Casanova, 2020)

Intellectual Property
Trademarks must be registered in order to be protected. The franchisor is able to
register a national French trademark before the French National Register
(“INPI”). Know-how, trade secrets and other business-critical information are
not protected per se under French law.
However, the Franchisor may request the franchisee to sign a non-disclosure
agreement listing precisely which information and data shall be regarded as
confidential and not disclosed to third parties, and shall only be used for the
need to perform the franchise agreement. (Casanova, 2020)
Copyright protection may only apply if the Franchisor is able to demonstrate
that the operations manuals or other data are original. Also, French law does not
protect ideas or concepts. Therefore, work needs to be sufficiently materialised
in a developed form to be eligible for copyright protection. (Casanova, 2020)

Contract Laws
The cancellation of a franchise contract is subject to the demonstration, by the
franchisee, that the incomplete information/absence of pre-contractual
information has invalidated his consent to the contract. The French Courts
analyse if the information provided by the Franchisor is sincere and verify if a
part of it has been consciously hidden from the franchisee, and/or if missing
information that should have been disclosed.
Even if the courts admit that the franchisee should personally proceed with a
precise analysis of the future commercial operation in order to measure the
potential of the business, the franchisor must ensure that the business
plans/figures provided to the Franchisee are not unrealistic or over-optimistic.

Taxation
Royalties will be taxed at a 33.33% rate, unless a treaty for the avoidance of
double taxation has been entered into between France and the country of origin
of the Franchisor. Any arrangement in order to reduce and/or avoid a tax
payment may be regarded as fraudulent. Therefore, any specific avoidance
strategy shall be subject to the specific advice of a French specialized attorney.
Registered companies must observe the taxation rules as well as well as the
reporting and accounting requirements. The corporate income tax in France has
a standard value and is levied on the business profits derived from the country
(both for resident and non-resident companies). Other taxes for companies
include: the payroll tax, real property tax, social security, stamp duty or the
transfer tax.

Import Procedure
To open a branch of a foreign company in France, the company would need
help from a company formation agent who can manage all the paperwork . The
first thing to do is scout a registered office in and register the branch with the
Trade Registry. They will help collate various documents which will need to be
translated by a certified French translator including:

▪ Memorandum and Articles of Association of the parent company.

▪ Copies of the Certificate of Incorporation

▪ Application to register a branch

Operations carried out within the EU Taxation and Customs Union are free of
duty. The Common Customs Tariff of the European Union applies to goods
originating outside Europe. Generally, the duty is relatively low, especially for
industrial products. (France: Regulation and Customs, n.d.)

An online clearance platform by automated transmission (DELTA) is accessible

from the portal PRODOUANE. In the case of deliveries and purchases within
the European Community, the declaration of exchange of goods (DEB) or
Intrastate declaration must be sent to the Customs Service. (France: Regulation
and Customs, n.d.).

Opportunities
The demand for food supplements and immunity boosters is increasing across
the globe as consumers move from curative medicines to proactive and
preventive healthcare. There is also a growing demand for natural alternatives
that are helping propel the growth of the global herbal medicine market.
Benefits such as low toxicity levels and fewer side effects even over prolonged
periods of use are some of the reasons why consumers are beginning to prefer
herbal alternatives .the growing population and its increased awareness of
nutritional values and preventive healthcare has further augmented the global
herbal supplements market. It is expected to reach $8.5 billion by 2025 and
expand.

Entry Strategy
Patanjali follows a two-stage distribution strategy in general trade:
Stage 1: Create a strong alternative distribution system for demand creation and
building word-of-mouth advocates.

Stage 2: Focus to general trade once a sizable consumer base is generated from
the first stage.

Distribution Stage 1:
In order to cover an adequate area, we would consult a Master Franchisee
and keep the distribution of products scattered and area covering. To enter
French market, our first targeted market would be Paris, the capital of France.
As this would include a lot of paperwork and legal knowledge; a French lawyer
would be hired to make the process easier. After all the legal formalities, a
distribution draft would be prepared with the help of master franchisee.
The economies of scale for the business would be slow and small, large
investments should not be considered as the product demand is still known. As
we do not have any information regarding the market reaction, we would
gradually study the market. The FOCO franchise model would allow us to grab
the ground knowledge about the product preferences, likes, dislikes and
specifications.

Distribution Stage 2:
The second stage comes after creating the market demand for the products. A
thorough analysis would be done about the sales and consumers’ feedback.
Through which a gateway of improvement would be opened, we can increase
the production of highly demanded products and reduce the less or un-
demanded products.

Competitors
Although there are several consumer good producing companies operating in
France, there are hardly any who practice and preach sustainability like
Patanjali. Nonetheless. Some of the major firms that pose a strong competition
to Patanjali are:

The Body Melvita La Vie

Naturalia Biocoop
Company Shop Paris Opéra Claire

Cosmetics Cosmetics Concept Concept Concept

& Perfume & Perfume Stores, Stores, Stores,
Products Cosmetics Cosmetics Cosmetics
& Caterers & Caterers & Caterers
 SOURCES OF FUNDING
Patanjali Ayurved has recently issued non-convertible debentures worth ₹250
crores in May 2020. The purpose of these debentures is to meet the working
capital requirements of the company and strengthen the supply chain network.
These debentures carry a coupon rate of 10.10% and a maturity period of three
years. They are also listed with the country's biggest stock exchanges.
Therefore, it is proposed that the expansion to France be funded by the medium
of the proceeds received from the debentures. If required, the company would
be open to accepting public deposits.
A more detailed strategy is under development by a team of financial analysts.

World Bank (WB)

The International Bank for Reconstruction and Development (IBRD),
commonly known as the World Bank, was a result of the Bretton Woods
Conference. World Bank headquarters are in Washington, D.C., United States
and was founded in July 1944 with 189 member countries. The main objectives
behind setting up this international organization was to aid the task of
reconstruction of the war-affected economies of Europe and assist in the
development of the underdeveloped nations of the world. Its first loan was to
France in 1947 for post-war reconstruction.
The World Bank’s financial products enable companies to manage risk and
broaden their access to foreign and domestic capital markets. Their advice helps
unlock private sector investment, which is essential for expanding businesses,
creating jobs, and growing economies.

World Bank even works with the private sector to encourage entrepreneurship
and build sustainable businesses; advising them on a wide range of issues,
including environmental, social and governance standards, energy and resource
efficiency, and supply chains. It can help expand access to critical finance for
individuals and micro, small, and medium enterprises through our work with
financial intermediary clients. (World Bank Group, n.d.)
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