Business Environment in India

India tune purlieu Analysis MNGT375. 102 Inter kingdomal Business F all in all 2009 Thursday 630PM Mr. Dennis L. Noah By Brandon Barrett Andrew Murphy I. General Characteristics of the pastoral The countrys terrain varies by expanse. The renowned Himalayas lie to the North speckle highland plains occupy the south, home to the Dec squirt Plateau. The West conveys a diverse terrain obstetrical deli genuinely swelled deserts. As a result of the terrain varying from region to region the climate follows suite. In the south the climate is tropical exactly wretched northward it becomes more(prenominal)(prenominal) tempe grade. ,000 km of coastline coer Indias borders making it very(prenominal) accessible. The Arabian Sea and the Bay of Bengal allow water transportation to be d peerless easily for most of the country. The country has a fewwhat open up infrastructure. The infrastructure does non support its 1 billion plus large number properly but despite that its infrast ructure is sufficient for the short ope treasure and allow for only improve in the future. Telecommunications in new- do days has undergo significant expansion due to the deregulation of telecommunication laws. The cellular service pains is experiencing extremely rapid becometh.However the telephone niggardliness is merely 40 out of 100 people across the nation. in that location be a summarise of 81 million internet users which is a huge untapped commercialize available. thither atomic number 18 349 airports in all of India. 250 of these airports lose paved run focussings however the a nonher(prenominal) 99 airports runways atomic number 18 unpaved. There is 63,327 km of railways throughout the country which is a very established railway corpse. There is 3,316,452 km of established roadways in India which is the snatch largest amount for any country in the world. There be 53 national highways which carry a majority portion of the traffic.In auxiliary to roads, in that respect is 14,500 km of waterways brinyly in rivers and canals in India. India contains 11 major seaports The conditions inside India atomic number 18 not the finest. India is a premier destination and consultation of human trafficking for commercial sexual abuse and forced labor. Men, wo manpower, and as yet children be exploited and forced to work on mills, factories, and women are forced to embrace un exitingly. India is as well the worlds largest producer of Opium for pharmaceutical purposes however an overt but high rate is as well as illicitly developed.Despite straightforward obstacles in Indias current thrift, the potentiality for this untapped mart is blank and an intelligent investment for many multinational corporations. II. Political & Legal Environment The governance of disposal in 23 severalises closely resembles the federal arranging Union (Political structure, 2009). However, seven Union territories in the country are ad looked by the Presi dent. The honcho Minister (CM) of a state politics has the executive powers musical composition the Governor, elected by the President, is the head of Executive (Indias politics, 2009).The Council of Ministers of a state is broaden by the CM and is responsible to the elected legislative assembly of the state just like the federal presidency (Political structure, 2009). The judiciary is independent of the executive in India. The Supreme Court (SC) is the apex court in the country. The utmost Court stands at the head courts of the states. Each state is divided into discriminatory districts presided over by a district and sessions judge, who is the highest judicial authority in a district (Indias politics, 2009). There are courts of civil jurisdiction, known in different states as munsifs, sub-judges, civil judges and the like.Similarly, criminal judiciary comprises disposalal boss judicial magistrate and judicial magist evaluate of first and second class (Indias politics, 2 009). Corruption has de parted down in India due to transparency, reformed and free judicial system (Country profile India, 2009). The Supreme Court is supreme it has original, appellate and advisory jurisdiction (Daniel, 2004). Its exclusive original jurisdiction extends to all disputes between the Union and one or more states or between two or more states and protects the Fundamental Rights of people (Indias politics, 2009).The Supreme court has 25 justices and one Chief Justice (CJ) appointed by the President and hold the office cashbox the duration of 75 years (Indias politics, 2009). It does not deal with criminal cases (Daniel, 2004). III. frugal Environment Despite stinting woes that swept through the united States, and in turn the rest of the world in mid-2008 India has wea on that pointd the storm succession outpacing recovery relative to many other developed and emerging nations. yr to date the Bombay subscriber line Exchange miniature cap index has outperformed t he S 500 and Dow Jones Industrial Average by over 100%. vermiform appendix A) Financial markets flip recovered at an unprecedented pace however, constitutional and frugalal indicators suggest this rally is fueled by massive injections of liquidly, government intervention, and quantitative easing therefore deeming issue unsustainable. part evidence from monetary, fiscal, and economic policy globally suggest a double-dip recession is palpable inhalation between the Old solid ground (US, Western Europe, Japan) & tonic World (Total World minus US, Western Europe, Japan) has changed. Currently emerging markets are expanding and consuming more than developed economics.Contrary to prior trends, OPECs largest customers now lie within emerging economies, and China is now the main consumer of Asiatic goods not the united States. India is poised to exponentially contribute towards New World growth dictated by a free-market democracy, emerging middle class, capitalistic mindset, young communicatory entrepreneurial population, and large in clings of outside direct investment. (Market Commentary Report, Marc Faber) match to Citi emerging Markets first moment nominal GDP in US$ bn was 1175. 0 in FY08 compared to 913. 5 a year before. Real GDP yoy growth was 9. 0% in FY08, and is judge to contract to 6. 7 in FY09 and steadily grow back to 8% yoyby FY12. Real meanings and exports are pass judgment to grow by 17. 9% and 12. 8% respectively in FY09. While imports and exports stomach experienced negative growth over the past few months the parcel out symmetricalness has narrowed to US $5 bn. Over the next year judge higher oil colour colour prices should impact Indias external card considering they import 70% of their crude oil. Majority of GDP growth is filmn internally so the nation is less depended on export growth than other countries. Indias current account is expected to be US -$43. 7 bn exports go out make up 169. bn while imports were 286. 5 bn. The current account in FY08 makeed 1. 5% of GDP, and is expected to be 3. 8% in FY09. strange direct investment was US 15. 4 bn in FY08, and is expected to grow to 20 bn in FY09. According to Citi Investment research human beings debt should be reduced by US $200M this year. Before 1992 the Indian primordial government exercised tight control over opposed-exchange transactions and investment. From 1975-1992 Indian government managed a floating exchange rate system in which the rupee was pegged against a weighted basket of currencies similar to special drawing rights from the IMF.In March 1993 a free-floating exchange rate system was implemented. In relation to other exchange rates the INR/USD has been less volatile. In Q2 2008 the exchange rate was 43 rupees for 1 U. S sawbuck, currently 1 U. S dollar yields 46. 44 rupees. In the past year the U. S dollar has comprehended against the rupee however, semipermanent we believe the U. S dollar go out underrate against m ost currencies. Expansion of the get together States balance sheet and monetary instal suggests over the next few years the inflow of dollars in circulation will devalue our currency and eventually lead to inflation.Operating a manufacturing quickness in India does pose some exchange rate attempt, but in the long run divesting some operations international whitethorn run an inflation hedge. If the rupee does appreciate against the U. S dollar as expected the quick-wittedness in India could use their rupee hire and cash flow to purchase raw materials at a discount and retain earnings in a currency that will hold its value, and yield more purchasing power when converted back to U. S dollars in the future.Foreign capital investment as well experienced deregulation with a lazzi-faire access code during the same period. Prior to July 1991 the central government of India followed the Foreign-Exchange Regulation Act. This act requisite all foreign capital be granted approval b y Indias government aft(prenominal)wards the new foreign investment policy was announced, automatic approval was prescribed for 34 industries deemed high priority with an honor limit of 51%. In regards to ownership, after elections earlier this year Indias foreign investment policy has become even more deregulated.According to the Ministry of Finance the upper level of foreign ownership has been raised from 51% to 74% and in some cases to a 100%. The pay minister announced the governments commitment to a 90-day period for plausive all foreign investment. Government officers will be assigned to big foreign investment proposals and will facilitate Central and States clearances in a time-bound manner. (Foreign Investment Policy, Ministry of Finance) Other recent policy changes have been developed to render incentives for foreign rigid participation within India.Indias most recent foreign investment policy on the Ministry of Finance website indicates the ban against disciplin e foreign brand names/ trademarks has been lifted, the corporate tax rate for foreign companies was reduced to 55% from 65% (domestic tax rate is 40%), long-term capital gains rates were lowered to 20% for foreign hards, and the Indian Income appraise Act exempts export earnings from corporate income tax for both Indian and foreign firms.India has a three-tier tax structure in which majority of taxes are indirect such as sales, value added, and goods and services tax. Intellectual office rights are also regulated the Embassy of India posts in their policy statement that there is a well-e stablished statutory, administrative and judicial framework to safeguard intellectual attribute rights in India, whether they relate to patents, trademarks, copyright or industrial designs. Intellectual topographic point Rights in India, Embassy of India) India has become a developed market place the Bombay Stock Exchange is the largest in South Asia, and the 12th largest in the world with a mar ket capitalization of US 1. 79 trillion. With the oldest exchange in Asia and a developed regulatory framework the nation also has a wealthiness of trade systems and cable companionships to set standards and polices for confuse industries. Currently India has several atomic number 6 diligence trade associations ranging from Ahmedabad Electrical Merchants & Contractors fellowship to the Wood Furniture Makers Association.The league of Indian Chambers of Commerce and pains and the Confederation of Indian Industry can be valuable government organizations when researching dissimilar compliance regulations and associations related to your firms industry. According the Federation of Indian Chambers of Commerce & Industry website there is a Manufacturing Committee aimed at making the industry globally free-enterprise(a) while indentifying possible risks and threats faced by the sector. Firms manufacturing small base doohickeys would occasion the Indian Electrical and Electro nics Manufacturers Association (IEEMA). Founded in 1948, Indian Electrical and Electronics Manufacturers Association (IEEMA) is the representative national organization of manufacturers of electrical, master key electronics and allied equipment having over 550 members, Whose feature annual turnover is over Rs. 1,00,000 croresi. e. US $ 22 billion. (About Us, IEEMA. org) The Southern India plan Manufacturers Association (SIEMA) might also be a valuable association to join which aims at protecting the interests of engineering companies.The Focus on the world-wide South organization indicates India currently has nine main regional trade systems, and has 18 more under negotiation. Operational agreements include Agreement on South Asian dislodge Trade Area, Asia Pacific Trade Agreement, Bangladesh India revise Trade Agreement, Bhutan-India Agreement on Trade, India-Maldives Trade Agreement, India-Singapore Comprehensive Economic Cooperation Agreement, India-Sri Lanka Free Trade Agreement, India-Thailand Free Trade Agreement, and the Indo-Nepal Treaty of Trade.The most recent agreement was signed in 1992, and all have a scope on the trade in goods however agreements currently in negotiation focussing on goods, services, investment, and economic cooperation. (Overview, Focus on the Global South) On par with many other emerging countries, Indias main industries are in the agriculture, service, and industrial sectors. Specifically the retail sector is the largest industry and the second largest employer after agriculture which accounts for closely 60% of the population. Press Releases, Department of Commerce) India recently has been a premier outsourcing destination because of its low-monetary value but skilled and educated labor. The teaching technology and software sector has been successful in developing a global footprint with a slew of small subscriber line overhaul niche areas in the IT market. Examples include firms that grant supply chain focus, CRM, and piece of ass solutions to specific industries. India is also on the technological frontier with companies leading the way in smartcard and RFID development and implementation.The largest fellowship in India is Reliance Industries which operates in the oil and gas industry however, it has become a major conglomerate with a market value of US 91. 53 mi. (Indias 40 Largest Companies, Forbes) The companys activities span from exploration and cropion of oil and gas to rock oil refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals), textiles, retail and special economic zones. (About Us, Reliance Industris) Second, is crude & Natural Gas Company with a market value of US 61. 1 mi then the State Bank of India with US 24. 09 mi and assets of US 188,565 mi. In emerging and developing countries its normal for oil & gas, financial, and utilities companies to be the largest, because they build the foundation for growth and stability. India s economy can only grow as fast as the financial and banking sector expands and the infrastructure that supports power, communication, and networking firsts needs to be in place before a modern market place can develop. Historical and present day, India is shut up considered a country with high political and terror risks.Recently attacks in Mumbai and tensions with Pakistan have caused some turbulence in financial markets however, any organization with a long-term focus should not be readily implicated about political and economic risk because India is only bound to win from democracy, growth, and deregulation that benefits free-markets and trade. Geopolitical threats are concerning, but from a U. S base the situation is not any better considering were in two wars. Divesting some operations in India could actually lot as a political and economic hedge reducing our exposure to specific threats the United States may experience.According to the Transparency Internationals Corrupt ion Perception magnate of 2009, India ranked 84th out of a 180 countries with a score of 3. 4 out of 10. While India does not rank well on the cost-of-living index index it is still at the top of all South Asian countries. According to New Delhi most corruption lies in bribes and speed coin to low-level public officials to speed things up. Following general elections on May 13, 2009, the Indian National Congress won 206 seats an supererogatory 61 from before. The Indian National Congress represented 28. 5% of the ballot following the Bharatiya Janata Party with 18. 80%. (Election Commission of India) Both major parties represent different alliances the United Progressive Alliance and the National Democratic Alliance. The United Progressive Alliance is said to lean more on the unexpended side of the political spectrum with complaisantist and communist ideologies however, the finance minister has made it clear through economic reforms that reflect a market-based economy whole k it best. Attention needs to be given to the apprehension between Indias governments and the finance ministers economic objectives.Nonetheless, policies have recently keep to favor a free market approach. Last February the Indian government introduced its Union Budget for 2009-2010 which aimed at economic revival from the global slowdown. leash fiscal foreplay packages in the form of tax relief and change magnitude expenditure on public projects along with RBI taking a number of monetary easing and liquidity enhancing measures were introduced. (Union Budget, New Delhi) Indias economy along with many others needs to adjust to a new economic landscape which includes Asias economic surge, Americas decline, and regional agreements.The stimulus packages are used to fuel growth rates in rank domestic harvest-feast while creating profit maximizing incentives and protection for various(a) industries. While Indias regulatory framework is still undergoing major development in terms of trade and economic policy they also have made exponential progress. The nation is growing at over 1. 5% yoy with a rapidly emerging middle class which will drive consumerism in years to come. India is moving forward in the right heed by encouraging investment and ensuing political stability.We have a positive outlook and believe the current environment could be well(p) in minimizing the initial injection of capital to start operations. IV. Cultural and socioeconomic Environment Religion and culture plays an important role in mixer dealing and caper in India. Traditional Indian society is outlined by relatively strict brotherly hierarchy. The curves of Hinduism and the tradition of the caste system have created a culture that emphasizes established hierarchical descents (Social Hierarchy, kwintessential, 2009).Every relationship has a clear- cut hierarchy that must be observed for the social order to be maintained. About 81. 4% of the population of India practice Hinduism, 12 . 4% practice Islam. Other religions include Sikhism, Christianity, Buddhism and other religions (Background note, U. S Department of State). The Indian caste system describes the social restrictions and discrimination in India, in which social classes are defined by thousands of groups, often termed as Jatis or castes. diversity based on caste is officially il healthy, but remains prevalent, specially in rural areas.However, the government has made strong efforts to minimize the vastness of caste through active affirmative action and social policies (Society and Culture, time of India, 2007). India has a high context culture, many things are left unsaid. They do not like to express no, be it verbally or non- verbally. kind of than disappoint you, for example, by saying something isnt available, Indians will offer you the response that they appreciate you want to hear. If terms such as Well see, I will try or possibly are utilise then the chances are that they are saying no(M anners, RiddhiShah, 2005).Religion, education and social class all influence greetings in India. This is a hierarchical culture, so most senior somebodys or eldest are greeted first. Shaking reach is common, especially in the large cities among the more educated who are accustomed to dealing with westerners. Men may shake hands with other men and women may shake hands with other women however there are seldom handshakes between men and women because of religious beliefs. They say Namaste by putting two palms together as a respectful greeting. Business cards are exchanged after the initial handshake and greeting.Using left hand to exchange business cards or gifts is considered disrespectful. It is also important to know that Hindus do not eat beef and Muslims do not eat pork (Meeting/dine Etiquette, kwintessential, 2009). In Indian society, aggressiveness can often be interpret as a sign of disrespect. This may lead to a recognize lack of communication and motivation on the part o f the Indians. Criticism about an individuals ideas or work needs to be through with(p) constructively, without damaging that persons self-esteem (Doing Business in India, 2009).Hospitality is a secern part of doing business in India most business discussions will not even begin until tea is served and there has been some preliminary blab out (Manners, Riddhi Shah, 2005). Indians prefer to do business with those they know. Relationships are built upon mutual conceive and respect. In general, Indians prefer to have long-standing personal relationships prior to doing business. It may be a good idea to go through a third political party introduction. Labor is abundant in India. It is currently estimated to have a innate workforce of 397 million where agricultural and allied sectors accounted for about 60 percent of the total workforce.Only 28 million workers are employed in the organized sectors. Almost70 percent of the Indian workforce is under the age of 30, and 80 percent of t he young people entering the workforce do not have high-school education or skills that are needed in the job market (Human Capital, 2009). With a majority of unskilled labor, many well-educated individuals within the ranks of the unemployed and under-employed, including technicians and engineers, can also be found without a lot difficulty. One area of focus for both Indian and foreign investors has been on information technology.This sector has been described as the engine of growth of the Indian economy. The Indian software industry is growing at a rate of more than 50 percent a year, and the country appears to be on track to achieve IT exports of $50 billion by 2010. Approximately 10,000 lucre companies were established in India in 1999, and after years of experiencing a brain-drain effect, Indians are returning home to start and work for technology companies. However, labor shortages are beginning to occur at the highest levels of some service industries especially in IT enab led services (Human Capital, 2009).The numbers of persons with managerial and other white-collar skills are increase as newly established management institutes begin to produce graduates. There are 5,114 industrial training institutes as well, which have a total capacity of around 742,000 students, offering courses in engineering and non-engineering trades. Even for those graduates from professional disciplines, quality of education imparted is a major issue. Only 25% of engineers, 15% of finance, and accounting professionals and 10% of professionals with Indian academic degrees are suitable for work in multinationals companies (Globalization and education, 2008).It is important for an investor to meet local business community and start networking at Indian trade fairs to make the right connections. Local business consultants, government agencies and local US embassy also provide necessary information and assist to start up a business there. It is also good to conceive of using a local agent or setting up your own office and take legal advice on regulations that may declare to the product or service. V. Industry Specific Information There are hundreds of privately owned companies that make small pushs in India but there are no public companies that manufacture this product.Since private companies are not required to disclose their activities and financial information to the public, there no industry information available to us. There are at least 450 small motor manufacturers and suppliers in India (Electric Motors, India Mart). The existence of huge number of manufactures indicates that the small appliance industry is doing quite well. round manufacturers sell their products within the country and some of them have extended their market to other countries.For instance, one of the largest manufacturers and suppliers of small motors in India, New Bharat Group, sells its products to at least 23 countries in Asia and Africa (Export, New Bharat Group). It wi ll be one of the biggest competitors among many other competitors. on with the economic growth and rapid urbanization, the Indian household appliances market has been growing each year. The household appliances market reflects the sale of six product sectors refrigeration appliances, washing appliances, vacuum cleaners, dishwashers, room comfort appliances and cooking appliances. The Indian ousehold appliances market generated total revenues of $4. 8 billion in 2008. In 2013, the Indian household appliances market is forecasted to have a value of $7. 7 billion, an increase of 60. 7% since 2008 (Market Analysis, Datamonitor). It indicates that there is a possibility that the market size of electric motors in India will even get bigger. The availability of raw material suppliers is companionable to the small motor manufacturers because metal industry is one of the leading industries in Indian economy. Some other materials could be imported from neighboring country China as well (El ectric Motors, Indiamart).VI. Benefits and liabilities of current situation Deciding where to locate productive activities for a manufacturing planet is a major business decision in which various risks need to be accessed to ensure the long-term strategic role of the firm and country align. In our case study we decided to own foreign yield activities instead or outsourcing and developing a complete fucking solution. While initial start-up cost and risk increase there is also a direct relationship between profitability. While production activities may already be organized, more focus must be placed on the logistics of the operation.How will the firm acquire materials? How is the location strategic towards business processes? Our organization must look beyond firm specific and product factors that may effect production, and focus on political risk, exchange risk, market risk, etc. If our company begins developing small motors for the appliances we already sell, then our manufacturi ng planet will aid in making our company more vertically integrated. Being able to supply components required to build the finished product lowers cost, protects proprietary technology, and improves overall business efficiency and practice.Considering equity ownership varies among industries, our manufacturing facility will most likely have to be in association with a local firm. However, considering the engineering and operational expertise, Indian firms that can provide a strategic alliance or joint venture may benefit our organization and business process. Labor capital is one of the main reasons U. S companies have outsourced operations to India. From a human imagerys perspective India has a young population thats educated and English speaking a manufacturing facility would have no problems acquiring college grads for anagement and engineering positions while also obtaining machinist and assembly line workers. The overall labor cost used in the production of appliances would be less in comparison to the United States and quality would not be sacrificed. International human resource management will play a vital role for the firm as a dodge needs to be implemented to get modify to the host country through cultural, language, and practical training. A partnership or strategic alliance will help our international labor relations an ability to develop a competitive advantage while enhancing negotiate power.Compensation would be based on equalizing the base salary in terms of purchasing power between the countries the standard of living in the home country would be on par for the host country. India with over 1. 1 billion people not only makes for a premier location to operate a manufacturing facility, but more importantly a marketplace for its appliances. Our firm has decided to implement a global normalisation strategy that utilizes the local labor force. We feel this strategy is best for reaping cost reductions, economies of scale, and value added locat ion economics.A global strategy would best serve our facility over a transnational or localization strategy because our product doesnt have to be tailored to tastes across different geographic markets. Considering differences in consumer tastes and preferences dont change much in what is required of appliances our manufacturing facility should be focused on achieving economies of scale and utilizing various distribution channels locally with strategic partnerships. India also has several resource endowments that will help in reducing cost of raw materials from availability and ease.In addition being close to raw materials required for production reduces transportation cost while shipping cost are also reduced from have a facility in the middle of Asia, the largest potential market. India has a developed and regulated political economy with an individualistic mentality. The nation has a democratic political system in which government officials are elected through the people either d irectly or indirectly. While political risk does exist given the controlling political party (United Progressive Alliance) drives from socialist and communist ideologies.However, the government is a democracy and the citizens wee a free-market approach is best for their society thus we consider the government politically stable without the risk found in totalitarian regimes. The economic system in India is evolving and moving towards a market economy, but currently has the elements of a mixed economy with some regulatory restrictions. As the finance minister continues to enact polices that discourage government intervention and open up markets for trade and investment the economy is rapidly evolving into modern capitalistic system.Along with regulated and historically stable financial markets the legal system also has the framework necessary for protecting intellectual property and ownership. Business laws and incentives have been enacted to encourage foreign development and inves tment corporate tax rates have been reduced and equity ownership caps have increased. After accessing the political, economic, and legal environment we believe the potential return and value creation offsets the risk and possible implications faced by operating a facility in India.Inherent with divesting operations internationally the host firm accepts a degree of translation, transaction, and economic exposure. However, given the fundamentals on the U. S dollar outlook in the economic environment section we believe future favorable exchange rate fluctuations will increase the value of our companys equities, assets, cash flow, and earnings. The caste system is still present in India, but the government has outlawed caste-based discrimination, and their social stratification allows for upward mobility.Considering socioeconomic factors shoot down production to India not only reduces cost, but will help our firm penetrate a potentially large marketplace as Indian consumers will be mor e likely to purchase products developed and produced in their home country. VII. Expectations of country competitiveness related to industry The household appliances market is rapidly expanding in emerging countries such as India and China where subscribe to is driven by an emerging middle class. In India it is expected by 2012 the middle class population will be size of our total population, around 300 million.The manufacturing industry specifically dealing with the production of small-motors is a saturated marketplace consisting of over 450 companies. Industry leaders include the New Bharat Group and Havells which supply small motors across Asia and Africa. Considering the concentration of firms in this atom it would in all likelihood be most beneficial for our company to partner with a retail distribution chain or technology firm that will be sure to add value while protecting our business processes. Our strategic lliance or joint venture would only be done if it was a governm ent requirement due to foreign investment regulations which it probably will. Given the pace of technological innovation and capital investment the industry is bound to experience heighten competition and barriers to entry in India. desegregation within the industry is unlikely in the near term as sheer population growth and consumerism we expect will outpace the influx in supply. VIII. Itinerary The itinerary for our country visit can be found in Appendix D.