The emerging economies are experiencing an amazing level of growth in history and as emerging countries are freeing themselves form the recession; developed countries are still battling with it (The Economist print edition 2010). First, what are emerging markets? Emerging markets or economies are mostly freely defined, according to Luo (page 5, 2002), emerging markets are those developing economies that are characterised by rapid growth, economies are changing structurally in terms of its industries, promising market but also volatile, adoption of a free market system and its regulatory framework favours economic liberalisation and also reduced bureaucracy by its government. Mcmullen, Mauch and Donnorummo (2000) also defined emerging markets as countries that are on the scale between advanced economies or underdeveloped economies. Emerging markets are also regarded as third world countries, according to Carusgil, Ghauri and Agarwal (2002) World Bank's definition of third world countries are countries with GNP per capita of less than $7,300 which includes countries of Asia with an exception of Japan. According to Lou (2002) some characteristics of emerging markets are, they have a weak legal system making it difficult to implement laws which brings about bribery and corruption, support from institutions that is essential for economic growth is very frail. Emerging markets have fast economic growth which is often followed by volatilities and uncertainties like financial crisis, government policy change, emerging markets have a very high market demand and most of this demand comes from the consumers in the emerging middle class. Emerging markets are also characterised by the first mover advantage, although due to the increased competition there is rivalry among local firms and other foreign firms. Increased globalization has allowed for the flow of technologies and capital in emerging economies. Thus, increased global competition has lead western firms to seek opportunities in gaining competitive advantage, and emerging economies have provided various channels for exploration.
This report focuses on exploring the potentials of doing business in an Asian emerging market and also looking at key issues a company manufacturing consumer electronics will face in an Asian emerging market. For the purpose of this report we will be looking at the potentials of doing business in an Indian emerging market and also the Indian consumer electronic industry. Giving advice to a company on what will be faced in the Indian Market.
Asian emerging market is the most promising among developing countries (Cavusgil, Ghauri and Agarwal, page 161, 2002). Asian countries have shifted from the farming and agricultural days to the high tech centres. Although the Asian crisis of 1996 - 1997 affected some countries in Asia like Thailand and Indonesia but major countries like India, China, Pakistan and Vietnam where not affected by the crisis. The crisis led to an increase in deregulation and created competition among companies.
When entering an emerging market it is essential to identify and understand key drivers of change which might likely affect the structure of business, industry or sector. By exploring the business environment will provide a good knowledge of the market and industry. The micro environment will be analysed using the PESTLE analysis (Johnson, Scholes and Whittington 2005). To begin with, PESTLE analysis can be used to analyse how political, economic, social, technological legal and environments can affect a firm or an organisation.
The role of government in an emerging market is mostly prominent than in the developed countries, therefore there is a high possibility of intrusion I businesses (Pelle pg 74, 2007). In the case of India, it is essential to know about its government and its politics as they play an important role in different areas and business as well (De Rosi 2009). Since its independence, India has functioned mostly as a democracy (India country profile 2009). Also India is ranked high because of its deep rooted respect for freedom of expression and media and also its democratic principle. In 1991, liberalisation has lead to rapid economic growth, thus bringing India closer to Western Europe, North America and they also have a strong relationship with Russia. According to Cavusgil, Ghauri and Agarwal (pg 179, 2002) in the year 1998 to 1999, the Indian government approved close to $6 billion worth of FDI. Thus about 12% of this comes from the United States and the rest comes from Europe, Japan, and South Korea. Also the Indian economy has moved higher into increased growth of 8% plus, the government is approaching the economic reforms initiated in 1991 further with the aim of achieving 10% growth rate in future times. According to India country analysis report (2009) the Indian government has been fighting terrorism since the early 1980's, India has accused Pakistan of supporting terrorism and also aiming at weakening India. Even with this challenge it has not stopped the flow of foreign investment to India. The reforms of the government which has to do with reducing aggregate demand, lowered import duties, devaluation of the Indian rupee by 22% and also introducing free mind set of the market into public and private sectors has made the economy stable (Cavusgil, Ghauri and Agarwal, pg 179, 2002). Businesses need political influence also to enable them clear out matters that are related to labour problems, local taxes and other related issues affecting business (De Rosi, 2009).
The political viewpoint and the economic systems are connected (Hill pg 48, 2009). Since India got its independence in August 1947, the country's economy expanded by an annual average of more than 9% for four years in sequence until the Indian economy decelerated due to the impact of the ongoing recession (Thakurta 2009). According to Thakurta (2009) the Indian economy began to accelerate from the early 1990's and continued moving forward as Delhi loosened its bureaucratic controls over trade, services and industry. The Indian economy has witnessed flourishing growth over the past few years, the real GDP growth rate has gone beyond 9% over 2006 and 2008, the country also recognized an average gross domestic product (GDP) growth rate of 8.4% during 2003 and 2008 (India country analysis report 2009). In the profile, it was also stated that in the United Nations conference on trade and development (UNCTAD) on the world investment prospect survey 2007 to 2009, it was indicated that India is the second most preferred FDI target after China in the 2005 and 2006. According to the country report India (2009) with a look at inflation in India, it has been forecasted that inflation in India will slow down to 4.4% in 2010 which will reflect a similar fall in consumer price inflation. The Indian rupee in the first half of 2009 averaged Rs49.2: US$1, its average for the year 2009 as a whole was a bit stronger at Rs48.8: US$1 which depreciated against the US dollar by 10.8% compared to 2008. The rupee is expected to strengthen in 2010 to an average of Rs47.4: US$1 with a nominal appreciation of 2.8% (Country report India 2009). According to the India country analysis report (2009) investment that has been put into infrastructure has been projected at $500 billion during 2009 to 2013. This will lead to growth in the service sector. Thus, this investment will be put into the development of roads, the maritime sector and the power sector which is also known as "Sagarmala Project".
India is regarded as the second well known nation in the world (India country analysis report 2009). It has a population of 1.1 billion; the age structure is from, 0-14 years with a percentage of 30.5%, 15-64 years with a percentage of 64.3%, while 5.2% is a percentage of those aged 65 years and above (CIA fact book, India 2010). Also the life expectancy rate at birth is 66.09 years. India has a presence of multicultural ethnic fabric and allows for the freedom to practice any religion (India country analysis report 2009). According to the CIA fact book on India (2010) the most practiced religion in India is Hindu with a percentage of 80.5% of the population, followed by the Muslims with a percentage of 13.4%, Christians 2.3%, Sikh 1.9%, others are 1.8% and unspecified are 0.1%. The ethnic groups are Indo - Aryan with 72%, Dravidian with 25%, Mongoloid and others are 3%. Also the most widely spoken language and primary tongue in India is Hindi with about 41% of the people, although English is the official language and is important for political, national and commercial communication (CIA fact book, India 2010). A lot of Indians lack basic health care amenities although less than 5% of GDP has been allocated to the countries health care, the health care system available to the public is very in adequate (country condition India, page 15, 2010). According to Hofstede cultural dimensions, there is a high level of inequality of wealth and power within societies in India and also the Indian culture is a lot more open to ideas and situations that are unstructured.
The technological landscape of India has changed considerably. According to the Indian country analysis report (2009) India has a huge scientific and managerial talent pool which is available at low cost than in the Western Europe and the United States. The Indian government support, a strong knowledge base and low cost has made India an attractive destination for research and development (R&D). Thus, India has a large amount of well educated people and the country produces about 125,000 engineer graduates every year which is twice as much as that of that of the United States (Cavusgil, Ghauri and Agarwal 2002).
For a successful business environment it is essential to have the knowledge of regulatory and legal factors of a country. India has observed successful tax reforms such as the value added tax (VAT) (County analysis report India 2009). According to the report India has a sound legal framework for businesses which has brought about growth in India although there is a problem of implementing these laws which needs to be worked on. Corporate governance has been a key issue in most emerging markets, although India has very good corporate governance laws but there are problems of effectively implementing these laws into the system. This problem has been driven by lack of commitment by the management for transparency in business operations and also abiding by the legal framework that has been generated by government.
Looking at the competitiveness of the consumer electronic industry, in doing business this means gaining competitive advantage (Johnson, Scholes and Whithington 2005). There are a lot of factors that can affect the competitiveness in an industry and the Porters five forces analysis will help to access the profit potentials in an industry. The porter's five forces include level of rivalry, threat of substitute, threat of entry, buyers bargaining power and suppliers bargaining power.
In the Indian consumer electronic industry there is a lot of competition (Consumer electronics in India, 2009). The market is strongly dominated by larger players and also the size of these players in the market. Some cost may be required when seeking for specialised logistics network and staffs, these costs need to be recovered and this may create exit barriers and make rivalry more intense. There is high competition when it comes to branding strengths and the ability of players to differentiate their products and this requires a lot of R&D. an increase in competition has also resulted in price wars (Indian markets 2010). Although due to the growth in this industry there is still a light at the end of the tunnel for potential entrants. Therefore the there is competition but its not too high.
Due to the level of competition in the consumer electronic industry, potential entrants will be tempted as there is an increasing growth in figures and also there is still some room for growth without getting into the way of other players that are established in the market (Consumer electronic industry India 2009). Initial capital outlay is required when setting up a production plant. The Indian consumer electronics industry has a lot of strong brands of which end users are familiar with. Although, there are similarities in these products and also intellectual property in some cases are used by players that are well established.
The key buyers in the consumer electronic industry will be the retailers, music stores and super markets (consumer electronic industry India 2009). Buyers need to maintain a good relationship with the players who are the producers of this industry, in cases where these players decide to change the location of their products to a different retailer. Well known players in the market are important to the buyers in order to provide good quality brands which are well known to the end-users. Buyer are also open to the risk that the producers of consumer electronics may decide to open their market directly to the end-users, for example the online direct sales is most common. Although some of these major buyers may decide to rebrand these products from the producers and this may incur a lot of cost. Therefore the bargaining power of buyers is not excessive or extreme.
The main suppliers in the consumer electronic industry are the manufacturers of test gear, electronic components and other related products (consumer electronic industry India 2009). There are complications when becoming a supplier in the industry. This is due to the fact that suppliers must be capable in terms of capital with good prospects, suppliers should have a reliable distribution network for products, they should be knowledgeable of the e-commerce and they should also have distinctive products from rivals. The suppliers need to be aware of the environment with environmentally friendly products and factories and also it must adhere the players overall attribute and this may be costly. The acquisition of a suppler chain in the hopes of reducing its supply power is common in this market as major players produce semi conductor components that are upstream of manufacturing consumer electronics (consumer electronics in India 2009). Therefore for the bargaining power of suppliers is moderate.
There is a strong influence by end-users demanding for substitutes in the consumer electronic market and this influence is mainly on retailers (consumer electronic industry India 2009). Thus, it was also identified that, form the view point of consumers, potential substitute may include games consoles which also includes leisure functions for radio and audio products and substitutes for personal computers which serve as home entertainment centres. Releases of latest versions can increase the demand to games consoles improving and enhancing such products is growing fast and is essential in this market. In product categories like large screen TV and portable audio, there will be a need for retailers to stock such products. Therefore threat of substitutes is not too high as it is not required in all categories.
1. India's culture and work place.
PDI - Power Distance
IDV - Individualism
MAS - Masculinity
UAI - Uncertainty Avoidance Index
LTD - Long Term Orientation
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