Entering the soft drinks industry in india Essay

India is an enormous and diverse country with a population of over 1 billion people, making it difficult to make any generalisations about what Indians like and want from a soft drink (Background to Business in India, 2011). The soft drink industry in India has been growing rapidly since 2006 and in 2010 generated a profit of $3. 8 billion and although the market is set to decelerate, by 2015 he market value will be $5. 9 billion (Soft Drinks Industry Profile: India, 2011). From this, India is an attractive marketplace with many opportunities for a soft drinks manufacturer to want to expand in to. Porter’s National Diamond: Factor Conditions India has a very young population with over half being under the age of 25 (BSCAA , 2009) This is an advantage to the MNC wanting to expand their business in to India as research by Euromonitor (2011) suggests that young people aged 16-25 are more likely to purchase bottled soft drinks. Conversely, the diversity of the population in India must be stressed as it is such a large country, with a huge divide between rich and poor. Also with regards to human resources, the MNC could benefit from the profusion of low-cost labour in India (Maan, M et al, 2011), meaning the MNC could move its manufacturing to India to reduce its operating costs whilst targeting the young population with their soft drink product. When assessing the physical resources in India, the MNC needs to consider the poor infrastructure in the country and how rural some of the areas are. It would not be advised to enter the market in east/northeast India unless selling cheap bottled water because the area is very rural and poor and there is only really a market for selling healthy, clean and sanitised water (Soft Drinks in India, 2011). However, south India would be a much more promising area to invest in to and the MNC would have better business opportunities here. Southern India benefits from a much more affluent population of young, employed people, who in recent years have become much more health-conscious, which has led to an increase of 24% in market sales (Soft Drinks in India, 2011). If the MNC were to invest in India, concentrating on one area to ensure they reach the correct target audience, Southern India would be ideal to bring out a range of waters and juices to attract the young, health-conscious population there. Carbonated drinks should not be considered at research by Euromonitor (2011) stress the saturation of the market by megabrands such as Coca Cola and the need for â€Å"healthier† bottled, soft drinks. These also relate to the social and environmental sectors of the PESTLE model. Porter’s National Diamond: Demand Conditions In India, there is an increasing demand for healthy and hygienic soft drinks but sports drinks will remain to be the most rapidly growing sector due to the popularity of sports with young Indians (Soft Drinks in India, 2011). The research from Euromonitor (2011) states that Indians have moved away from carbonated drinks due to the rising health awareness, and have started to purchase more water and fruit and vegetable juices. For the MNC to compete against the increasing international competition, they would need to think â€Å"glocally†. Glocalisation entails local and global activities acting simultaneously, where they would â€Å"think globally and act locally† (Glocalisation, no date). By adapting to the local environment, the MNC could gain a competitive advantage as an international brand as they would appear to take in to account the local surroundings of their brand and they are more likely to be successful as they would be selling a product that the local Indians would want. The MNC should internationalise to respond to the megatrend of competitors, which is a deterministic force, and then compete through adaptation of their product to suit the local surroundings in India. The strategy the MNC should consider after analysing the demand conditions is to consider both price and value together. They should differentiate themselves from other soft drink suppliers by offering a strong brand that young Indians are conscious of (Soft Drinks in India, 2011) but also an acceptable price. Although there is a huge poor population in India, if the MNC were to target Southern India as suggested after looking at the factor conditions, research by the Bureau of South and Central Asian Affairs (2011) depict a large and growing middle-class population of India that have a disposable income of between $4,166-$20,833 per year; this suggests that they could price their product in correspondence with the other brands as there is a growing population of richer Indians. Also by offering benefits of a brand and a health-conscious drink that is in high demand at the moment, they can concentrate on focussing on that one area of India where they could possibly dominate the market in a smaller area. Porter’s National Diamond: Firm Strategy, Structure and Rivalry With regards to structure of firms, the MNC will have to consider how different India is in terms of how they do business compared to Europe. In India, the majority of organisations have a strong hierarchical structure, with one authoritarian leader at the top (World Business Culture, 2011). When investing in to the Indian market it is recommended to approach business in the same hierarchical structure that India have as it is indisputably acknowledged. If they were to enter the market dealing with business in a more democratic, flat manner, how Europe would normally deal with business, they are unlikely to thrive. In terms of rivalry, there appears to be a lot of competition from other brands of soft drinks. Bisleri holds the largest amount of market share with 23. 6% in 2010; however this is the main seller of clean, hygienic water in India (Soft Drinks in India, 2011). After this, Coca Cola and Pepsi with all their sub-brands hold high shares in the market in India. If the MNC were to invest in to the Indian market, the strategy they would have to take would be to introduce a new soft drink that promotes sustainable benefits of being a healthy, branded, bottled soft drink that is different from the standard carbonates that the international, well-known brands offer. By differentiating their product and adapting it to the local environment in India, the MNC will gain competitive advantage. Porter’s National Diamond: Related and Supporting Industries Soft drinks are sweetened with sugar (Beverage Health, 2010) and India is the second largest producer of this commodity in the world (Sugar: Supply and Demand, 2010). This would be a benefit to the MNC as a main ingredient to soft drinks is readily available and will be cheaper rather than importing it from other countries. Plastic is also heavily involved when packaging soft drinks, through a third party factory. Luckily for the MNC, India has had a high development of their machinery which can create high-quality plastic products, including bottles (Indian Plastic Portal: 2009). By having plastic bottlers locally available, the MNC will have an advantage on being able to easily be supplied the service; however the price at which they purchase the plastic bottles for their soft drink product could be expensive due to the competition of other, more established brands such as Coca Cola. Porter’s National Diamond: Role of Chance The role of chance could invalidate the advantages of investing in the market in India at any time. Chance events that could affect the MNC introducing a new soft drink in India could include: well-established brands like Coca Cola or Pepsi creating a new product which young Indian’s are more likely to be swayed towards due to brand loyalty; another chance event could be new health awareness campaigns that may affect a young individual’s view on bottled soft drinks. There are constantly rising issues concerning health and the amount of sugar young people consume which could seriously harm the reputation and also the sales that the MNC could potentially make when entering the Indian Market. Also factors such as soaring prices in sugar or limited water supply could dramatically affect the manufacture and production of soft drinks. Porter’s National Diamond: Role of Government Currently, India is considered at a low-cost option for organisations to invest in to with its strong domestic market, high savings rates and positive demographic trend (World Business Culture: 2011), however, this could quickly change as India’s government could, at any time, implement new tax laws, quality standard laws or changes in antitrust laws which could alter the ease of entering in to the Indian marketplace for soft drinks. The MNC must take in to account and assess all the different policies and laws for foreign markets to invest to ensure they can operate their business properly. Issues that may arise in this determinant will also occur in the PESTLE model if the MNC were to undertake this from of country analysis. Porter’s Five Forces Buyer Power: Research by Datamonitor (2010) suggests that buyer power is temperate within the current soft drink suppliers in India as they sell not only to independent retailers but they sell their concentrates to bottling companies. However, the buyer power for a new brand of soft drink in India could affect the MNC profusely; this is due to the fact that the consumers will already have brand loyalty to the well-known and well established soft drink brands in India. The buyers would have to have an incentive to purchase the new product over something they are already used to and like; therefore having a relatively strong power over the new entrant. Supplier Power: Due to the fact that most ingredients of soft drink products are commodities means that supplier power is reasonably low and these commodities are readily available, for example: sugar (Datamonitor: 2010). Water, which is also a main component needed for the manufacture of a soft drink product, could be a problem in India as the sanitation of the water can be a problem and the supply is not always constant (India: Development Policy Review, 2007). Finally, supplier power from plastic packaging companies is growing due to the rise in awareness of environmentally friendly packaging (Datamonitor, 2010). New Entrants: If the MNC were to invest in to India, to ensure they were successful, they will need to ensure that they concentrate on differentiating and adapting their product to the area and from other brands (Datamonitor, 2010). Research by Euromonitor (2011) also suggest that by having a strong brand name and by using national figures to advertise the brand, a new entrant to the soft drinks market in India will thrive. From this, it suggests that there is a market for new entrants as long as the product is differentiated and well distinguished from the other products that already exist. Datamonitor also recommend that a new entrant should stress the health benefits of their product to attract more consumers. Substitutes: There is a reasonable threat from substitute products in the soft drink market in India. Research by Datamonitor (2010) depicts the larger brands like Parle Bisleri to be a higher threat as they offer other kinds of confectionary products as well as a wide range of soft drinks and the substitutes are able to stored differently (on shelves at room temperature). Datamonitor recommends that leading brands, as they have a diverse range of products, can reduce the risk of the substitutes on their performance. Rivalry: Research by Datamonitor (2010) gives evidence that the marketplace for soft drinks in India is concentrated with the top three players (Parle Bisleri, Coca Cola and Pepsi) holding 74. 1% of the market volume. These brands not only offer standard carbonated soft drinks and bottled water but speciality bottled teas and coffees. Therefore, if the MNC were to enter in to the Indian soft drink market, to remain a competitive brand, they would need to offer an adapted product to attract new consumers and draw them away from the well-established brands they know well. The Diffusion Curve. (Pearce, 2011) India as a whole would be placed in sector â€Å"late majority† due to the whole population of India being respectively poor with a GDP of only $1190 (World Business Culture, 2010). This means that they would purchase the product but maybe not straight away, when it is released, they will start to consume when the soft drink has become much cheaper. However, in a much more affluent area like South India where there is a population of young professionals with brand consciousness (Euromonitor, 2011) the population would be within the â€Å"early majority† sector. This is due to the fact that younger, wealthier people are more likely to want to try out new products when they see others consuming them and also feel the need to try out new products if the benefits and brands are well advertised to them (Euromonitor, 2011). Recommendations After assessing the market for soft drinks in India, it would be recommended for the MNC to invest in to this attractive marketplace. It is important for the MNC to internationalise its operations to diversify themselves, to respond to foreign competition and to take advantage from lower costs and increased technological expertise. However, there are many factors to consider when entering the market in India: firstly, the MNC must take in to account how diverse the nation is. As mentioned before, the population is huge and it would be ignorant to make any generalisations; therefore it would be a sensible idea for the MNC to only enter the market in one area of the country, for example southern India. It has been discussed that southern India is a much more affluent area of India, in which are many young, employed Indians who should be the target audience for the MNC as they are accessible and sustainable. Secondly, the competitors in this area must be considered. In order to be successful in investing in to India, it would be sensible for the MNC to create a product that is not standardised but adapted to the needs and likes of the population in this area. The MNC should conduct some research in to what kinds of flavours and tastes that are preferred in order to create a product that would thrive in Southern India. It is also very important for the MNC to create a product in which the health benefits are a main factor of their soft drink. Throughout the research in this feasibility study, it has been stressed that there is a need from consumers for a soft drink where the health benefits are highlighted as although the carbonated soft drink market is booming (Euromonitor, 2011) it is saturated with other competitors; therefore, the MNC should compete through differentiation and offering benefits of their â€Å"healthier† soft drink product. Overall, the MNC has the chance of being successful when investing in to Indian soft drink market. They need to be careful when dealing with business with them, ensuring they have conducted enough research in to how they do business as it is very different to Europe, as said before, they deal with business in a hierarchical and authoritarian way. However the foreign environment is uncontrollable and the MNC has no control over the macro environment, so they must ensure to fully understand the marketplace and how India operates with foreign investors. Critical Evaluation of Porter’s National Diamond Porter’s National Diamond is described as a â€Å"methodological approach to analyse the most current industry occurrences and competitive status, and to identify emerging issues and opportunities for successful market development† (Batra, M et al, 2009). The diamond is used to investigate an organisation’s ability to compete in international markets by looking at four different components: factor conditions, demand conditions, related and supporting industries and strategy, structure and rivalry. Secondary to these four determinants, porter stresses the need for considering the role of chance and the role of the government in order to have a sound analysis of the competitive advantage of nations. Porter’s national competitive advantage theory suggests that a country’s competiveness within a certain industry will depend on the whether or not the industry has the room to innovate and advance (Wild, 2011, p177). Porter’s diamond is mainly concerned with how and why certain countries are more competitive in different industries. His theory amalgamates the two different denominations of international trade theory from country based theories such as mercantilism and comparative advantage, and also firm based theories such as product life cycle and national competitive advantage (Griffin, 2007, p164) There are many advantages of using Porter’s National Diamond: it allows an organisation to asses and analyse a country, covering all necessary areas to think about, ensuring that it would be a successful country to invest in to. It ensures that the organisation takes in to account everything they need to when considering investing in another country. Although it is only a forecast, if the organisations thinks about all possible occurrences and fully assesses all the components, it should give them an extensive knowledge and assertion that they are making a prosperous investment. Another advantage is that it is academically renowned and used by many organisations and governments across the world. However, Porter’s National Diamond has been criticised for many reasons: firstly it suggests that any role of government is negative, where it could be positive and encourage foreign investments and make domestic industries less competitive (Hadjidakis, 2007, p88). The role of chance is also too difficult to predict as any environment can change very rapidly and unexpectedly. According to Dickens (2007, p187) the diamond compresses too much complex and intricate information in to a â€Å"four-pointed diamond model† and this is not enough to be able to measure the national competitiveness of a country adequately. It has also been argued that porter’s model lacks any distinct definition of the four determinants which in turn, will reduce the predictive power and accuracy of the diamond model (Grant, 1991). Within international business management, when applying Porter’s national diamond, it should be ensured to consider every single aspect that Porter recommends in to major detail to ensure a forecast for investment is as accurate as possible. The different aspects of the diamond should be developed as much as possible so that international competitiveness is driven to thrive and succeed. Reference List Background to Business in India (2011) Available at: http://www. worldbusinessculture. com/Indian-Business-Style. html (Accessed: 10 January 2012). Batra, M. , Niehm, L. (2009), â€Å"An opportunity analysis framework for apparel retailing in India: economic, social, and cultural considerations for international retail firms†, Clothing and Textiles Research Journal, Vol. 24 No. 4, pp. 287-300 Beverage Health (2010) Available at: http://www. beveragehealth. org. au/scripts/cgiip. exe/WService=ASP0017/ccms. r? 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