by Deepak Sharma | May 2018

Strategists look for trends in business environment to develop successful strategies and gain advantage in their markets. The new year brings with it a number of trends to watch out for and factor in for business planning by India Inc

 

2011 has been heralded as the year of  India. Foreign  investment  is  predicted  to  increase  and  the  Elephant  economy  is  said  to  be  on  the  right  path  to  overtake China in terms of GDP growth within the next few years.

 

Business  trends  play  an  important  role  in  identifying  emerging  opportunities and  keeping  a  tab  on  potential  threats in the external environment.

 

Our   experts   have   been   tracking business  trends  along  2010  affecting  businesses in India, and have identified  50  or  so  amongst  which  we  have selected the top 11 to watch out for in 2011. To  do  so,  we  rated  trends  on  following five criteria:

 

- Relevance to the business world

- Likelihood of occurrence in 2011

- Continuity beyond 2011

- Breadth of impact  across  economicsectors

- Relevance in terms  of  geography (India  vs.  the  World:  3G  is  officiallybeing  launched  in  India  this  year,thus has scored highly)

 

Each  criterion  held  the  same  weight  inranking the trends.

 

 

3G - The next growth driver

 

After   years   of   bickering   between ministries and the telecom industry, 15 telecom  companies  bid  for  licenses  in 22 Circles, the 3G auction finally reeled in  Rs.  677.2  billion  ($14.6  billion)  in revenue  for  the  Government,  almost twice the predicted amount. 

 

One  of  the  factors  that  set  India’s telecom market apart is the ferocity of the  tariff  wars  that  have  raged  in  the past,  resulting  in  the  cheapest  call rates across the globe ($0.01/min. or 2 Paise/second).  If  3G  services  follow that  path  even  to  a  slight  extent,  the effects of the spread of 3G network will be huge. 

 

Kunal  Bajaj  (of  BDA  Connect)  believes that  the  current  40  Million  users equipped with 3G phones will rise to 60 Million  within  next  2  years,  which added  to  29  Million  laptop  users  will make  for  a  market  of  $15  Billion  by 2013 for 3G services. 

 

The arrival of 3G technology as well as the  emergence  and  growing  popularity of  scores  of  websites  based  on  user generated  content  (facebook,  youtube, twitter, ...) will create a virtuous cycle: both  trends  will  feed  off  each  other. Enterprises will gain access to potential customers which were not within reach so far.

 

 

Web 2.0 - Creating communities online

 

India  is  poised  for  something  of  an internet  revolution.  As  the  variety  of mediums  (Wifi  spots,  3G  USB  Keys, mobiles,   ...)   for   Internet   access increase,      the  ease  with  which consumers  will  be  able  to  log  on  to  the Net  will  rise  ever  so  high.  At  the  same time,  social  networks  and  other  user generated content oriented websites are becoming more popular and numerous. 

 

In  July  2010,  Comscore  revealed,  more than  33  million  Internet  users  in  India visited  social  networking  sites.  This represents  84%  of  all  users  and  an increase of 43% year on year. 

 

All  the  while,  e-commerce  and  m-commerce are on the verge of becoming a  major  distribution  channel.  As  online purchases  spread  from  the  current online  ticketing  (IRCTC,  MakeMyTrip,  ...) to consumer goods and packages, digital advertising  will  explode;  triggering  a demand   for   relevant   and   targeted audiences  which  social  networks  will  be happy to provide. 

 

Enterprises  will  also  be  able  to  benefit from  Enterprise  Social  Networking  as well   as   the   emergence   of   Cloudcomputing facilities.

 

 

Made for India - Made by the World

 

Western  brands  are  launching  new products  or  even  new  brands  dedicated to  India  and  other  emerging  markets. As  current  economic  trends  tend  to show,  the  consumption  epicentre  is slowly  shifting  from  the  West  to  the East.  In  addition,  Western  brands  still enjoy  a  perception  of  quality  and  bycustomising   products   for   local population,  they  will  gain  a  double benefit of a better fit (i.e. skinnier Levis jeans) as well as answering the cultural need   for   recognition   of   emerging markets.

 

The  traditional  four  Ps  will  be  replaced by the four As: affordability, awareness availability  and  acceptability  for  local markets.  Indeed,  companies  are  payingmore  and  more  attention  to  the  “Rs.5 strategy”,  which  sacrifices  the  size  of

unitary  sales  for  a  much  larger  market penetration.

 

- Nokia had earlier  launched  a  basic handset  with  a  torch  (large  parts  of rural India don't have electricity) and an alarm clock. 

- Coca cola and  Pepsi  sell  200  ml  cans at Rs.5

- Chik shampoo created  the  jasmine variant for local women. 

- TVS mopeds created  functional  value in tune with the 'all purpose' vehicle

culture existing in several parts of the non-metro areas. 

- Philips designed gas   stoves   and lanterns  that  will  be  useful  to  such markets, as current stoves are fuelledwith  anything  and  everything  and often present health risks.

- Tide launch washing powder sachets at Rs.1

 

 

 These  strategies,  which  completely challenge  the  norm,  are  becoming  the standard in many parts of India. 

 

 

Inflation - Raising its head, again

 

The Indian government  has  been  trying to  keep  inflation  at  bay;  however,  this has  proved  to  be  an  elusive  goal.  It reached a high point of 9.7% in October 2010,  which  doesn’t  bode  well  for  the central  bank’s  forecast         of  5.5%  for March  2011.  Inflation  is  likely  to  be closer  to  7%  due  to  rising  food  prices.

 

According   to   CARE   Ratings,food inflation  itself  is  at  its  worst,  having reached  a  23  week-high  of  18.32%  on December 25th, 2010.

 

The  main  problems  are  structural.  Food producers  and  suppliers  are  finding  it impossible to meet the demand from the increasing number of consumers. This is notably  caused  by  land  restrictions, archaic   retail   networks   and   bad infrastructure. 

 

Subir  Gokarn,  deputy  governor  of  the Central bank, calculated that a 39% rise in income per person in the previous five years  might  have  engendered  an  extra 220  million  regular  consumers  of  milk, eggs,  meat  and  fish.  As  the  economist points out, suppliers simply haven’t been able to keep up with the extra demand.

 

India’s current account deficit has grown to  4.3%  of  GDP  in  the  quarter  ending September  2010.  Though  this  hasn’t seemed   to   affect   India’s   growth, Goldman  Sachs  points  out  that  “funding a growing deficit from short-term capital flows”  presents  “the  biggest  risk  to India’s growth”. 

 

As a result, demand for other consumer goods  may  be  pushed  downwards  as households  end  up  spending  a  higher proportionate amount of their disposable income on food.

 

The  Government  will  have  a  tough challenge to tackle this year, as no quick fixes  will  suffice  to  shackle  the  rising prices. 

 

Uncertainty - Never to far

 

The trend of   increasing   business uncertainty in India is notably due to the integration  of  the  Indian  economy  with the rest of the world. In fact, the financial crisis also affected the Indian   economy   despite   its   resilient growth.  

 

In   addition,   protectionist   measures recently announced by Barack Obama, with fiscal   exemption   for   firms   creating employment  in  the  US  and  encouraging less  subcontracting  abroad,  might  affect the IT sector in India. 

 

Moreover,  proliferation  of  players  and products  in  the  Indian  market,  consumerbehaviour  and  preferences  change  ever faster. As a result, it is becoming harder forfirms  to  predict  the  future  and  develop long - term   and   even   medium - term

strategies. 

 

Political issues such as the terrorist threats and  other  potentially  vigourous  separatistmovements,  and  farming  rebellion  against industrial  projects  (Nano  project  in  Singur,for  instance)  will  likely  add  to  the  general turmoil.

 

India   is   on  the   path   of   becoming increasingly  business  friendly,  however problems  of  old  won’t  go  away  by  being ignored  and  will  eventually  have  to  be resolved if it is to take on new challenges.

 

 

Rising Rural - Hard to ignore

 

Rural  India  has  become  a  big  market. Many  businesses  are  now  developing new marketing strategies to target rural consumers who have seen an increase in their  purchasing  power,  notably  due  to the rise of procurement prices and less-rain dependant activities such as poultry or fisheries, the switch to new crops andtechnology,  government  schemes  like NREGS  and  raised  wages  and  benefits from  loan  waivers  for  farmers.  The media has provided a window into urban

lifestyles  creating  aspirations  for  similar goods  and  services  in  rural  India.  Assuch, companies have identified a latent demand which promises good prospects. 

 

So,  rural  India,  a  large  and  untapped market of more than 800 million people, will  prove  to  be  a  key  growth  driver, especially  in  automobile,  healthcare, telecom, retail, real estate, banking and insurance sector.

 

For  example,  LG  Electronics  developed the  customised  TV  Sampoorna,  which  is cheap  and  capable  of  picking  up  low-intensity  signals,  for  the  rural  markets. Dabur  decided  to  go  rural  with  Odomos Oil   at an   affordable   price after identifying the largely untapped mosquito repellent market in rural India.

 

 

Urbanomics-The emerging segments

 

Three  major  emerging  segments:  kids, the  youth  and  the  urban  Indian  women are   the   new   drivers   of   the   urban consumer market.

 

Kids  are  increasingly  influencing  their parents  in  purchase  decisions,  even  forcars,  consumer  durables  or  electronics. Exposed  to  the  outside  world  throughthe  media,  kids  do  not  hesitate  to  voice  their  preferences  to  their  parents  when it  comes  to  decisions  that  will  affect them.  In  addition,  thanks  to  their familiarity  with  product  features,  kids are  often  seen  as  in  the  know  by  their parents who will trust their judgement.

 

Indeed, companies tend to keep in mind the  400  million  Indians  under  15  yearsof  age  when  designing  and  packaging products. For instance, the Kissan range of  jams  in  a  jar  offers  a  free  “Tom  and Jerry smacker” in it. 

 

Businesses also try to build relationships with children when they are young such as  L’Oreal  which  created  a  new  line called  Garnier  Kids  aimed  at  creating brand loyalty.

 

Increasing brand awareness and purchasing  power  among  the  young urban  Indians  also  make  them  a  main target. In their mid-twenties, they spend a  lot  of  time  outside  home  and  are  not used  to  saving  money.  They  don’t hesitate  to  spend  on  expensive  globalbrands  and  often  want  two  and  four-wheelers.

 

The  growing  independence  of  urban women has led them to spend more and more  time  out  of  home  and  pay  an increasing attention to their appearance. As a result, product categories targeting the  urban  women  have  increased  a  lot, for  instance  in  jewellery,  cosmetics, apparel, mobile phones or computers. 

 

These  consumer  segments  represent tremendous  growth  opportunities  for India Inc.

 

 

Big retail - Coming soon near you

 

Long-term  growth  has  been  predicted for  the  estimated  $400  billion  Indian retail  market,  the  fifth  largest  in  the world.  “Mom  and  Pop  outlets”  are  now facing  competition  from  new  medium sized  players  and  major  Indian  retailers such   as   Pantaloon   which   launched India’s first hypermarket “Big Bazaar” in 2001. 

 

“Big  retail”  in  India  is  supported  by strong   drivers   such   as   increasing numbers of families with double incomes,  urbanisation  leading  to  higher customer density areas, improvement in the  transportation  infrastructure, increasing  automobile  penetration  and

use of credit cards.

 

The  organised  retail  sector  hit  a  rough patch in 2008 when Indian economy was impacted  by  global  financial  crisis;  its fortunes  have  changed  since  then.  Not only  the  costs,  especially  rentals,  have become   more   reasonable   but   the

companies  have  also  rationalised  their strategies based on market feedback. 

 

No  wonder,  the  companies  have  cut down  their  losses  in  2009-10  compared to  a  year  ago  and  have  clocked  high double digit growth in their sales. There is  going  to  be  more  action  in  2011  with further penetration of organised retail at an increased pace.

 

 

Health is Wealth

 

Health   and   wellness   awareness   is emerging  amongst  Indians  who  look after   their   body   more   and   more, especially in urban areas. 

 

In   consequence,   heal th   concerns typically  focus  on  the  excessive  use  of pesticides  in  agriculture,  as  well  as obesity,  which  is  being  increasingly perceived  as  a  major  problem  in  India, notably  because  it  is  directly  linked  to heart diseases and diabetes. A study by OECD,  recently  published  in  the  Lancet, revealed  that  India's  overweight  rates increased  by  20%  between  1998  and 2005.  Currently,  almost  1  in  5  men  and over 1 in 6 women are overweight. 

 

Thanks  to  the  rising  concerns  for  health and wellness in India, the size of fitness

Market , notable comprising food supplements, low  fat  and  sugar  free food,  alternative  therapies  and  health clubs  is  growing.  Progressively  more aware  of  the  benefits  associated  with various  ingredients,  more  and  more Indians  are  checking  out  nutritional information  before  purchasing  food  or beverage.  As  a  result,  companies  have started  to  target  the  diet  conscious  by  launching  healthy  products,  such  as

Horlicks with the brand “Foodles” in the noodle  market.  Long-term  growth  is predicted for the fitness market in India. 

 

 

E for Environment - The greening drive

 

Public   demand   for   a   cleaner   and healthier  environment  is  increasing  in India.  Rapid  economic  growth  and  high population density are putting significant pressure on natural resources. 

 

India  is  on  a  thorny  path  with  its energy-intensive  model  and  resource-gobbling  production  and  consumption. Also,  an  increasing  number  of  players have  decided  to  take  action  to  protect the environment. 

 

The  ministry  of  environment  is  leading India’s  climate  change  and  environment policies and wants laws to be respected.  For example, the mining group Vedanta’s  project  to  extract  bauxite  in Orissa  at  the  cost  of  environment  and the rights of local tribes was rejected by the ministry.

 

Environmental  protection  is  gaining  in importance  in  India.  Clean  technology and  pollution  controls  cover  more  and more  firms.  On  March  9th,  2010,  India formally  agreed  to  join  the  international climate  change  agreement  reached  in Copenhagen.

Moreover,  in  the  Union Budget   2010-11,   the   government announced the setting up of the National Clean  Energy  Fund  (NCEF)  for  funding research and innovative projects in clean technologies. 

 

Led  by  its  ministry,  India  is  seemingly getting   to   grips   with   the   world’s greening ideals.

 

 

M & A - Urge to Merge

 

To satisfy their growth ambitions, India’s cash  happy  companies  will  look  for acquisitions in India as well as overseas. 

 

If   one   is   to   judge   by   this   year’s performances,   deal   volumes   have exploded,  tripling  from  US$21.3  billion last  year  to  US$67.2  billion  for  2010, just  missing  pre-crisis  levels  of  $US68 billion in 2007, according to Reuters. 

 

Overseas  deals  included  for  example Bharti  airtel’s  acquisition  of  the  African telecom  assets  of  Zain  for  US$10.7 billion,  or  the  acquisition  of  Grosvenor House by Sahara for US$757 million.  There  will  indeed  be  room  for  more inorganic growth in 2011.

 

Outbound M&A will be vigourously driven by  natural  resources  sectors  given Indian  player’s  “huge  requirement  to buy raw material security” as well as IT.

 

In  India  itself,  sectors  with  busy  M&A activity  will  include  healthcare, consumer and telecom.

 

Indeed,   "one   of   the   key   themes sectorally  is  telecoms  consolidation”, which  given  the  cash  that  was  splashed out  for  3G  licences  and  the  anticipated M & A  guidelines changes will be interesting,  as  Frank  Hancock  (MD Barclays India) observed.

 

Bankers  are  expecting  M&A  levels  in 2011 to surpass this year’s.

 

The  year  2011  promises  to  be  a  busy one.  All  of  our  trends  point  to  an increase  in  activity  with  a  bucket  full  of challenges to take on.

 

Will India really overtake China in terms of GDP growth? This author, for one, will look  forward  to  seeing  if  the  elephant can pull this dance off


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