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Conducting Successful Business in India

- A Perspective

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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

Slide 2
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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

Slide 3
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India ranks high on many macro-economic indicators as compared
to other emerging nations

Top destination in the AT Third largest economy–


Kearney Global Retail GDP in terms of PPP
Development Index (2007) (2007)

Most preferable destination Stable 8–9 percent annual


for Services sector (AT India is the second- GDP growth rate in the past
Kearney, 2007) fastest growing 2–3 years
economy in the world.

Ranks first in the availability


Estimated to become the fifth
of qualified engineers in the
largest consumer market by 2025
labor market (IMD, 2006)
(MGI)

Slide 4
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High growth in FDI inflows in the past 2–3 years
FDI Inflow – India (2001–07)

18,000 15,730
 FDI inflows increased by 185
USD Million

13,500 185 percent


11,141 percent from 2005–06 to 2006–07.
Increase

9,000  Electronics, manufacturing and


5,546
4,222 3,755
telecom were the sectors that
4,500 3,134 2,634 witnessed significant FDI inflow.
0
2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08
 Total PE and VC investments
(A pr–No v) increased from USD 1.1 billion in
2004 to USD 14 billion in 2007,
Private Equity and Venture Capital with maximum PE and VC
Investments in India in (USD million) - Amount investments going into banking and
Invested and Number of Deals financial services, telecom and
14,234 manufacturing sectors.
PE & VC Investments (in

16,000
387 420
14,000
12,000 299 350  The total value of M&A deals
USD mn)

No. of Deals

10,000 280
8,000
7,500 increased by more than 151
146 210
6,000 percent from 2006 to 2007.
140
4,000 71 2,200
2,000 1,050 70
0 0
2004 2005 2006 2007
Value of Deals Number of Deals

Slide 5
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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

Slide 6
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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

Slide 7
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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.

Slide 8
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Less time and few procedures required to start a business
India’s attractiveness as compared to other emerging economies

Starting a Business–Time Required

Brazil 152
China 35
The time required to start a business
India 35 in India is the same as that in China
Russia 28 and lower than that in Brazil

Korea, Reb. Of 22

0 20 40 60 80 100 120 140 160


Time (Days)

Starting a Business–No. of Procedures Required

Brazil 17
The number of business procedures China 13
required to start a business in India Korea, Reb. Of 12
are less compared to most of the India 11
emerging nations Russia 7

0 2 4 6 8 10 12 14 16 18
Number of Procedures

Slide 9
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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

Availability of talent pool Cost advantage (lower labor


(presence of academic and real estate costs)
institutions)
Advantages
of tier II and
tier III cities:

Growing infrastructure Lower attrition rates

Slide 10
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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

Population 2001 2006 2011 2016


Total (Million) 1,027 1,114 1,194 1,268
Age Group (Years) Population Percentage
India’s demographic mix is
0–14 35.6% 32.5% 29.7% 27.1%
shifting towards the 15–59
15–59 58.2% 60.4% 62.5% 64.0% years age group

60+ 6.2% 7.1% 7.8% 8.9%


*Institute for Management Development (IMD) World Competitiveness Year Book 2006
1Source: Nasscom
Slide 11
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Emerging middle class – Creates opportunity for companies to tap
the changing lifestyles of Indian consumers
Household 2005 E 2015 F 2025 F
income
brackets Number of Households, (in million)

Globals 1.2 3.3 9.5

Strivers 2.4 5.5 33.1

Seekers 10.9 55.1 94.9

Aspirers 91.3 106 93.1

Deprived 101.1 74.1 49.9

Aggregate disposable income–2000 (in INR trillion)

Globals 2 6.3 21.7

Strivers 1.6 3.8 20.9

Seekers 3.1 15.2 30.6

Aspirers 11.4 14.6 13.7

Deprived 5.4 3.8 2.6

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
Slide 12
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Increasing disposable income
Increase in per capita income and consumption

Per-Capita Income and Consumption

31,500 29,786
27,784
25,696
27,000 23,890
22,413
20,996
22,500
INR 17,145
18,000 15,422 16,279
13,352 13,918 14,413
13,500

9,000

4,500

0
2002–03 2003–04 2004–05 2005–06 2006–07 2007–08
Year

 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.

Slide 13
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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 growing subscriber 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

Slide 14
© Evalueserve, 2008. All Rights Reserved - Privileged and Confidential
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

Slide 15
© Evalueserve, 2008. All Rights Reserved - Privileged and Confidential
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  Availability of skilled  Availability of raw


talent pool materials
 Increasing purchasing
Power  Cost Savings  Presence of strong
industry infrastructure
 Growing size of middle  Knowledge/R&D hub
and higher consumer  Developed technology
class  Cost savings

Penetrating domestic markets and leveraging India presence

Slide 16
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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.

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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)

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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

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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.

Slide 20
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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

Slide 21
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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.

Slide 22
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BAGEDARI SYSTEM

 Unregistered firms
 Self employed practitioners like Lawyers, Doctors,
CAs etc
 Proprietor and partner companies
 Small scale Industries - Investment less than 1.5 Cr
 Ancillary Industry – Components industry
 Tiny Industry – Less than 25 Lakhs
 Cottage Industries – Traditional comapnies

Slide 23
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Importance of SSI

• Employment Generation
• Self Employment
• Lesser Capital requirement
• Mobilization of capital
• Mobilization of entrepreneurial skill
• Equitable distribution of Income
• Balanced regional development
• Quick Investment
» Problems of SSIs
• Inefficient Labour
• Defective supply chain
• Absence of credit facility
• Lack of Machinery
• Unsuitable location
• Marketing Problems
• Competition
• Obsolete Technology Slide 24

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Startups

• Micro Small and Medium Enterprises (MSMEs)


• Khadi and Village Industries ( KVIs)
• Start up India
• A startup is an entity that is headquartered in India which was opened less than seven years
ago and has an annual turnover less than ₹25 crore
• Single Window Clearance even with the help of a mobile application
• 10,000 crore fund of funds
• reduction in patent registration fee
• Modified and more friendly Bankruptcy Code to ensure 90-day exit window
• Freedom from mystifying inspections for 3 years
• Freedom from Capital Gain Tax for 3 years
• Freedom from tax in profits for 3 years
• Self-certification compliance
• Innovation hub under Atal Innovation Mission
• Starting with 5 lakh schools to target 10 lakh children for innovation programme
• new schemes to provide IPR protection to start-ups and new firms
• encourage entrepreneurship.
• Stand India across the world as a start-up hub

Slide 25
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MSMEs

• Micro Enterprise – Investment less than 25 Lakhs


• A Small Enterprise – Investment in plant & Machinery Rs 25 Lakhs to Rs
5 Crores
• A medium enterprise – Investment between Rs 5 crores to Rs 10 crore

• Characters
• Generally organized
• Run by Indviduals
• Require less capital
• Fundamentally labour intensive
• Use simple technology
• Highly localized
• Use local resources
• Eligible for Government concessions
• Flexible
Slide 26
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Advantages & Role of MSMEs

• Employment Generation
• Self Employment
• Lesser Capital requirement
• Mobilization of capital
• Mobilization of entrepreneurial skill
• Equitable distribution of Income
• Balanced regional development
• Quick Investment

Slide 27
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Large Scale Enterprises

• Reduce the problem unemployment


• Proper utilization of resources
• Sources of Government revenue
• Development of basic infrastructure
• Development in agriculture sector
– Problems
• Lack of Capital
• Lack of Infrastructure
• Lack of skilled manpower
• Lack of competitiveness
• Limited market

Slide 28
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MNCs

• Reasons for growth


– Expansion of market territory
– Market Superiorities
– Financial Superiorities
– Technological superiorities
– Product Innovation
• Features
– Giant Size
– International operations
– Transfer of resources
– Varies activities
– Oligopolistic Market
– Spontaneous evolution
– Multinational ownership
– Multinational Management
Slide 29
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TYPES of MNCs

• Equity Based MNCs


– Resource companies
– Public utility companies
– Manufacturing companies
– Service industry MNCs
• Technology based MNCS
• Management Contracts

• Advantages
– Employment
– Technology transfer
– Foreign exchange flow
– Development of economic activity
• Disadvantages
– Exploitation of labour, resources
– Hamper the growth of SSIs
– Unethical practices
– Tax evasions
– Home country affliation
Slide 30
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Family business

• Advantages
– Assurance
– Awareness Continuity
– Reliability and pride

• Limitations
– Difficulty
– Informality
– Lack of Discipline

Slide 31
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Industry Associated Bodies

• The Automotive Component Manufacturers


Association of India (ACMA
• Indian Drug Manufacturers Association (IDMA)
• Cement Manufacturers Association (CMA)
• Indian Machine Tool Manufacturers Association
(IMTMA)
• Federation of Indian Chamber of Commerce and
Industry (FICCI)
• The Confederation of Indian Industry (CII)

Slide 32
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Profile of eminent industry persons and houses

• Tata Group
• Bharti Enterprises
• Aditya Birla Group
• Wipro
• Infosys
• ITC Limited
• Reliance
• Mahindra & Mahindra
• VRL group
• Murugappa group

Slide 33
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Present Status of Various Industries

• Agriculture and Allied fields


• Food Processing
• Animal Husbandry
• Fishing
• Contract Farming
• Textiles
• Chemicals
• Paper
• Machine Tools
• Auto components
• Engineering products
• Pharmaceutical
• Biotechnology
• Semiconductor
• Hardware
• Coal
• Mining
• Consumer Durables
• FMCG
Slide 34
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Present Status of Various Industries

• Service Sector
IT
Hospitality
Tourism
Health care
Banking
Financial Services
Insurance
Tourism
Retail

Slide 35
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