Global Marketing: Entering a New Country With New Product as an Example Costco - Term Paper Example

Executive Summary The operations of a company are affected by numerous forces operating in the macro environment. Two aspects of this external environment that needs special attention are the economic environment and demographic profile of the people in the country in which the company intends to do business. An examination of India’s economic environment reveals that the country has strong fundamentals. The company has registered robust growth rates and has become the third largest economy of the world. The country is rich in mineral and natural resources and has a well developed network of rail and road that connects almost all parts of the country. The demographic profile of India also appears propitious for Costco to enter the country. India boasts of a young population and burgeoning middle class. The communication systems in the country are well developed and the government is committed to develop other infrastructural facilities in the country. Section II: The Economic Analysis of India  I. Introduction: The Indian Economy When India gained independence in 1947, the country’s leaders adopted an inward-focused, socialist-style, economic framework. The economic goals were elaborated and pursued through the five-year plans. The banks were nationalized and their lending policies were aimed to meet the government targets with regard to priority sector lending. Private enterprises had little autonomy, to say the least. India remained a state-controlled economy till the early 1990s (The Economist, 2011). The government-led Indian economy landed in deep trouble and faced a balance-of-payments crisis in 1991. The crisis provided the impetus for change and India embarked on the policy of liberalization, privatization and globalization. Since then, India has slowly but surely implemented reforms and has become a market driven economy (Wilson & Keim, 2006). II. Population a) Total Population India is the second most populous country of the world next only to China (See Appendix Figure 2-A: Population Pyramid). The total population of India is estimated to be more than 1.2 billion (CIA, 2014). The infant mortality rate in India is 43.19 deaths per 1,000 live births. The life expectancy at birth is 67.8 years. The population growth rate in India is expected to be 1.25 percent in 2014. India is likely to overtake China to become the most populous country of the world by 2030 (Haub & Sharma, 2006). b) Distribution of Population The demographic profile of India is really attractive. India boasts of a pretty young population as 28.5 percent of the people living in the country are less than 14 years of age. 18.1 percent of the population is aged between 15 and 24 years. The proportion of people aged between 25 and 54 years is 40.6 percent. Merely 11.5 percent of the Indian population is above the age of 55 (CIA, 2014). The median age in India is 27 years. 31.3 percent of the total population lives in urban areas. New Delhi (Capital of India), Mumbai, Kolkata, Chennai, and Bangalore are the major urban areas with very large population (CIA, 2014). III. Economic Statistics and Activity a) Gross National Product The GDP of India at purchasing power parity (PPP) was estimated to be $4.962 trillion in 2013. India is thus the fourth largest economy in the world behind United States, European Union and China (See Appendix Figure 2-B India’s GDP). The real growth rate in GDP was 4.7 percent in 2013. With a GDP - per capita (PPP) of $4000 in 2013, India ranks 168 in the world on this parameter. The Gross National Savings at 28.8 percent of the GDP are pretty high. Household consumption accounts for 56.4 percent of the GDP while investment in fixed capital accounts for 29.6 percent of the GDP. The service sector in India contributes 66.1 percent of the GDP followed by industry (17 percent) and agriculture (16.9 percent) (CIA, 2014). b) Distribution of Wealth India is a rich country inhabited by the poor. The statement appears true if one considers that 57 percent (684 million) of the households lives on an annual income of less than $3500. The aspiring middle class accounts for 30 percent (359 million) households and earn between $3500 and $8000 per year. The number of middle class households which earns $8,000 to $35,000 per year is 160 million (13 percent). At the top of the pyramid are the rich households that earn more than $35,000 per year. Their proportion however is a measly 1.3 percent (Arora, 2011). c) Minerals and Resources India has a multitude of minerals and natural resources. The country produces 87 minerals including different types of fuels, atomic minerals. India’s huge reserves of coal (293 billion tones), iron ore (28.5 billion tones) and bauxite (3.5 billion tones) will last for many decades. The issue however is that all these three sectors are besieged either by corruption or by inefficiency. The biggest irony is that India has coal reserves that are likely to last the next 200 years. However the country is still importing coal to meet its immediate requirements (Madhavan, 2013). At present, Coal India, a state run enterprise, is the only organization authorized to mine coal for commercial purposes. The way forward is probably allowing private sector companies to jump in the fray which will boost output as well as productivity. d) Surface Transportation India boasts of one of the largest network of roads, railways and ports. The surface transport infrastructure in India covers a humungous area of 3.3 million square km and has played a monumental role in rapid economic development of the country. The Indian railways have one of the largest networks in the world spanning a route of 63,974 kilometers. Of this 54,257 kilometers is broad gauge (1.676-m gauge) and 7,180 kilometers is narrow gauge (1.000-m gauge). 18,927 kilometers of the broad gauge has been electrified (CIA, 2014) The roadways in India span over 4,689,842 kilometers. This road network includes 79,116 kilometers of national highways and expressways and 155,716 kilometers of state highways. In addition to this there are 4,455,010 kilometers of other roads that help link different parts of the country (CIA, 2014). India has 14,500 kilometers of waterways of which 5200 kilometers are on major rivers. The main ports in the country are located in Chennai, Kandla, Kolkata, Mumbai and Vishakhapatnam (CIA, 2014). e) Communication Systems The Indian telecom sector was deregulated during the post liberalization era of 1990. As a result of this deregulation, many private sector companies entered the telecom industry making it highly competitive. The telecommunications sector has benefited tremendously from favorable government policies and has become one of fastest growing telecom markets. India also enjoys one of the lowest telecom tariff rates in the world. The telecom subscriber base in India increases by a whopping 20 million persons every month. The country has achieved an overall teledensity of 75 percent. The urban areas of the country have cent percent teledensity.  The international calling code of India is 91. The country has a number of international submarine cable systems including Sea-Me-We-3,Sea-Me-We-4, Fiber-Optic Link Around the Globe (FLAG), and South Africa - Far East (SAFE) (CIA, 2014). Indias public TV network Doordarshan is available throughout the country. In addition to this more than 100 million homes in the country have access to channels aired by the cable and satellite service providers. The AM radio services are controlled by the government through the All India Radio which has the sole right to broadcast news via radio. Numerous privately-held FM stations have come up in the country after 2000. According to the data available with the Internet and Mobile Association of India (IAMAI), there were 190 million internet users in the country as of June-end, 2013. The tally of internet users is expected to increase 28 percent and is likely to touch 243 million by June-end, 2014. The growth in internet user base has been fueled by smartphones as 75 percent of the people in the country access internet through mobile phones (IAMAI, 2014). f) Working Conditions The Indian work culture is pretty diverse. Working conditions vary from one region to the other. Furthermore there is a considerable difference in the working conditions in small entrepreneurial set ups, Indian companies and multinational companies operating in India. Majority of the Indian workers are employed in the unincorporated and unorganized sector. These people are susceptible to exploitation and generally have long working hours. The government of India has passed certain laws to ensure dignified working conditions in Indian establishments. The Building and Other Construction Workers (Regulation of Employment and working Conditions) Act, 1996 and Plantation Labour Act, 1951 are two prominent legislations that provide for welfare of the workers. g) Principal Industries  India is primarily an agrarian economy with more than two-third of the population engaged in agriculture. Over the years, numerous modern industries and a large number of services have gained prominence in the country. The service sector has become the engine of growth in the country and accounts for 66 percent of the output. India’s well-trained, low wage workers make it an attractive destination for off shoring and outsourcing. The IT services sector in the country has flourished because of two major reasons; human resources with requisite skill sets and supportive government policies (Wilson & Keim, 2006). The main industries in the manufacturing sector in India are textiles, chemicals, food processing, steel, cement, mining, petroleum, and pharmaceuticals (CIA, 2014). h) Foreign Investment An Indian company may receive foreign direct investment either through the automatic route or through the government route. The government of India issues the list of activities and sectors wherein foreign entities can invest money without the prior approval of the government or the Reserve Bank of India (RBI). Applications for FDI in activities not covered under the automatic route are scrutinized by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs and Ministry of Finance. India had a FDI stock of $310 billion at home as on 30 November 2013. The stock of direct investment made abroad stood at $120.1 billion as on 31 December 2013 (CIA, 2014). i) International Trade Statistics India exported goods worth $29,578 million during March 2014. The country exported goods worth $30,541 million in the comparative period last year. Likewise India imported goods worth $40,085 million in March 2014 as against $40,947 in March 2013. The oil imports registered an increase of 17.7 percent over last year and were valued at $15,783 million in March 2014. On the other hand, non-oil imports registered an 11.8 percent fall over previous year levels and were valued at $27,539 million in March 2014. India managed to lower its trade deficit to $ 1, 38,593 million in April-March, 2013-14, down from $1, 90,335 million in April-March, 2012-13 (Department of Commerce, 2014). India’s main exports include petroleum products, precious stones, iron and steel, chemicals and apparel. The country’s main export partners are UAE, United States, China, Singapore and Hong Kong. India’s main import partners include China, United States, UAE, Saudi Arabia and Switzerland (Marelli & Signorelli, 2011). j) Trade Restrictions India has initiated numerous economic reforms with the objective of enhancing international trade. However, exporters from United States continue to face tariff and non-tariff barriers that thwart the import of American products into India. Customs tariff in India are pretty intricate and cannot be easily understood. Many exports rue that there is lack of transparency in determining custom duties, excise taxes and other charges levied on imports in India. The Indian government tends to favor domestic companies and therefore foreign firms fail to win government contracts in India. India runs numerous export subsidy programs and grants tax holidays to export oriented firms. k) Extent of Activity Not Included In Income Activities India is plagued by the menace of a parallel economy that that runs in contradiction to the sanctioned sectors of the economy. This parallel economy, also referred to as unaccounted economy, gives rise to black money. Higher rates of taxes, ineffective law enforcement system, funding of political parties, shady real estate deals and agricultural income which is exempt from income tax in the country are often cited as the activities that are not included in the legitimate income activities (Dasgupta, 2012). l) Labor Force The total labor force in India was 487.3 million in 2013. Of the total workforce, 49 percent of the labor force was employed in agriculture, 20 percent in industry and 31 percent in services. The unemployment rate was 8.8 percent. The proportion of women working in the labor force has always been low. The more alarming aspect is that female labor force participation (FLFP) has been decreasing at a fast rate. The FLFP slid to 22.5 percent in 2011-12, down from 29.4 percent in 2004-05 (Subramanya, 2013) m) Inflation Rates A high inflation rate is one economic parameter that the government of India is trying to control; through its monetary policy (Lulla, 2011). The rate of inflation in India was 8.31 percent in March 2014. The rate of inflation reached a peak of 11.16 percent in November 2013. Since the start of the calendar year 2014, the inflation rate has remained below 10 percent (Ganguli, 2014). IV. Developments in Science and Technology India is at the forefront in the field of basic research. The Department of Science & Technology strives to develop cutting edge technologies and hone the skills of the common man to take advantage of state-of-the-art equipment. The government agency also undertakes or sponsors technological surveys, research design and development (Dst.gov.in, 2014). India has embraced science and technology in all walks of life. The Ministry of Science & Technology has taken the initiative to drive e-Health innovations. Telemedicine is being given a boost since the technique is being considered as a viable option to take healthcare to the remotest part of the country. Many Indian hospitals are looking to introduce Electronic Health Records (EHR) so as to improve the standard of care given to the patients (Asia Pulse, 2011). V. Channels of Distribution The channels of distribution enable the producers make their products available to the ultimate consumers. It costs a lot of money and effort to maintain a distribution channel. A highly efficient distribution channel may prove to be a source of competitive advantage to the company. The type of distribution channel depends on the nature of the product being sold. In case of automobiles, the manufacturer sells the vehicle to the dealer who sells the vehicle to the final consumer. This is a one-level channel as there is only one intermediary involved. In case of fast moving consumer goods, manufacturers opt for multiple-level channels. In general, an FMCG product may have the following four-level distribution channel; manufacturer to carrying & forwarding (C&F) agent to stockiest to wholesaler to retailer to the final consumer. VI. Media The Indian communication media includes the print, electronic and the digital media. The newspapers and magazines are the main forms of print media while television is the most popular form of electronic media in the country. The radio plays an important role as it reaches the length and breadth of India. The emergence and rise of Internet in India has made it a very important media type in recent years. VII. Sources of Information Bibliography Arora, N. (2011). India: A Wealth Report. Shunyas Notes. Retrieved from http://blog.shunya.net/shunyas_blog/2011/04/india-a-wealth-report.html Aspalter, C. (2002). Population policy in India. The International Journal of Sociology and Social Policy, 22(11), 48-72. Retrieved from http://search.proquest.com/docview/203704764 BBC. (2014, April, 01). India Profile. Retrieved April 21, 2014, from BBC: http://www.bbc.com/news/world-south-asia-12557384 Dasgupta, S. (2012, Dec 20). India lost $ 123 bn in black money in 10 years politics and nation]. The Economic Times (Online). Retrieved from http://search.proquest.com/docview/1240572907 Department of Commerce.(2014).Indias Foreign Trade: March 2014. Desai, M., Majumdar, B., Chakraborty, T., & Ghosh, K. (2011). The second shift: Working women in India. Gender in Management,26(6), 432-450. doi:http://dx.doi.org/10.1108/17542411111164920 Dst.gov.in,. (2014). Welcome to Department of Science and Technology, Govt. of India. Retrieved 23 April 2014, from http://www.dst.gov.in/ Ganguli, B. (2014). With RBI Governor Raghuram Rajan’s hawk eye on inflation, rates may keep rising through 2014. Retrieved from http://economictimes.indiatimes.com/news/economy/indicators/with-rbi- governor-raghuram-rajans-hawk-eye-on-inflation-rates-may-keep-rising-through- 2014/articleshow/30124977.cms Haub, C., & Sharma, O. P. (2006). Indias population reality: Reconciling change and tradition. Population Bulletin, 61(3), 3-20,2. Retrieved from http://search.proquest.com/docview/237072813 India to have 243 million internet users by June 2014: IAMAI. (2014). Retrieved from http://timesofindia.indiatimes.com/tech/tech-news/India-to-have-243-million- internet-users-by-June-2014-IAMAI/articleshow/29563698.cms Lulla, J. (2010). Inflation in India: Trends, status and issues. SIES Journal of Management, 6(2), 68-78. Retrieved from http://search.proquest.com/docview/726387247 Marelli, E., & Signorelli, M. (2011). China and India: Openness, trade and effects on economic growth. The European Journal of Comparative Economics, 8(1), 129- 154. Retrieved from http://search.proquest.com/docview/884631825 Madhavan, N. (2013). Paucity Amidst Plenty. Business Today. Ministry of Science & Technology, Govt. Of India to Drive. (2011, Aug 04). Asia Pulse. Retrieved from http://search.proquest.com/docview/881074964 Subramanya, R. (2013). Why female labour force participation in India is low. Retrieved from http://www.business-standard.com/article/economy-policy/why-female- labour-force-participation-in-india-is-low-113100800029_1.html The half-finished revolution; Indias economy. (2011, Jul 23). The Economist, 400, 58-60. Retrieved from http://search.proquest.com/docview/878903064 Wilson, B. A., & Keim, G. N. (2006). India and the global economy. Business Economics, 41(1), 28-36. Retrieved from http://search.proquest.com/docview/199841150 VIII. Appendix    Figure 2-A: Population Pyramid Figure 2-B India’s GDP India GDP% (2008 to 2013) Year GDP % 2008 6.2 2009 6.6 2010 10.6 2011 7.2 2012 6.9 2013 4.7 Read More