PESTEL AND RISK PROFILING OF INDIA

Prepared By:-

Deepak Varghese (M-14-02)

Dixon D. Palett (M-14-04)

Ishan Parashar (M-14-06)

Soham Das (M-14-16)

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Course:- International Business

Course Facilitator:- Dr. S.K. Kar

Indian Retail Industry

■ The Indian retail industry is driven by twin-growth engines - Economic growth &

demographic profile.

■ The biggest challenge and opportunity : unique structure.

■ 92% - unorganized sector - Huge potential for growth and consolidation.

■ Revenue - organized retail – INR 2.4 trillion (2013)

INR 5.5 trillion (2019-E)

■ Remarkable position in global retail rankings; often remarked to have high

market potential, low economic risk, and moderate political risk.

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Top Retailers

■ Reliance Group

■ TATA Group (Westside, Titan, etc.)

■ AV Birla Group (Pantaloons)

■ K Raheja Group (Shoppers Stop)

■ RPG Group (Spencers)

■ Future Group (Big Bazar)

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PESTEL

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Political

■ Govt. has eased FDI across 15 key sectors, which include single brand retail and e-

Commerce. (Indian Express)

■ For online presence , single brand retail companies should have a brick-and-mortar outlet

in India. ( Flipkart , snapdeal etc. ) (articles.economictimes.indiatimes.com)

■ Indian manufacturers with foreign investment that are controlled by Indians can now sell

their products through online channels (30% of the output should be sourced from locals

– Make In India) – Relaxation ~ high Tech Cos – eg. Apple , Rolex , IKEA

■ According to recent DIPP notification, FDI cap for multi-brand retailing increased to 49%

without Govt. approval.

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Political

■ Service tax increased from 13.56% to 14%

■ VAT varies as levied by state government.

■ Octroi levied on inter state transport of goods.

■ Current Government is pushing for GST (unified tax regime).

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Economic• India’s real GDP stands at $2.1 trillion, ( World Bank )

• The Economic Survey 2014-15 forecasts a growth rate of over 8% for FY16,

as compared to the growth rate of 7.4% in FY15

• Private investment to be the engine of long-run growth

• Inflation likely to remain in the 5~ 5.5% range, creating space for easing of

monetary conditions

• Foreign portfolio flows have stabilized the Rupee.

• Fiscal deficit target of 4.1 % appears achievable

• In FY 2014, services contributed 65 % to GDP followed by industry (18%)

and agriculture (17%).

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Social

■ Immensely rich cultural heritage including numerous languages, traditions

and people.

■ The 2nd most populous country with over 1.25 billion people, and the most

populous democracy in the world.

■ India has quite a young population with 27.6% of the population (25-44

years)

■ While India's per capita income is low, the average household size and

consequent household incomes are relatively high.

■ India's per capita income (nominal) was $ 1570 in 2013, ranked at 120th

out of 164 countries by the World Bank.

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Technological

■ The Magic Mirror (Intelligent Photo Booth)

■ CRM - shift from product-centric to customer-centric

■ Mobile Money offers a complimentary mechanism for delivering

benefits to a large proportion of population. (eg. PayTm )

■ New Business Intelligence: Swarm intelligence, Swarm

optimization, BiS intelligence ,etc.

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Legal

■ All employees earning up to Rs.10,000/- a month are eligible for a minimum bonus

of 8.33% of their annual salary and a maximum of 20%. This ceiling takes into

account any productivity-linked bonus that employers may offer.

■ Labor law recast to add more leave to maternity

■ Gratuity to be made portable

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Environmental

■ Ban & prohibition on the plastic carry bags thickness of 40microns

and above (Section3,6&5 of the environment Protection Act 1986)

■ Recycling standards for plastic bags used (Recycled Plastics

Manufacture and Usage Rules,1999)

■ Places like Delhi has started to impose GREEN TAXES on commercial

vehicles passing through the city

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RISK PROFILING

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Top 5 Risks

1. Corruption, Bribery and Corporate Frauds

2. Strikes, Closures & Unrest

3. Political & Governance Instability

4. Crime

5. Information and Cyber Insecurity

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Source:- FICCI

Corruption, Bribery and Corporate Frauds

■ Recognized as major risks that affect businesses

in India

■ Major frauds and scandals have come to light in

the last few years

■ Huge losses happen due to incidents of fraud

■ Government has now made considerable efforts to

investigate these incidents of corporate frauds and

bring the culprits to book (whistle blower programs)

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Strikes, Closures & Unrest

■ Graded as the second-most disturbing risk that affects

the business environment in India

■ Frequent disruption of business of multinational

companies

■ Affect of strikes is more felt when strikes called by

political parties

■ Disrupt normal life and in turn the functioning of

corporations

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Political & Governance Instability

■ Made an entry into the top five risks last year

■ Slowing down of decisions in certain key

economic initiatives due to bureaucratic

interferences

■ Coalition governments like UPA-2 creates lot of

hindrances in functioning due to varied and

sometimes contradicting interests

■ Regional and caste-based politics also

interfere a lot in the functioning of an

organization

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Crime

■ Crime has been graded as the 4th risk in India

■ India remains as one of the violence prone nations with violent

crimes registering a 65 % increase

■ Foreign respondents to the survey have also recognized the

increasing percentage of crime as one of the major dampeners

that inhibit prospects of business in India [FICCI, 2014]

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Information and Cyber Insecurity

■ This is the 5th most important risk in the regard

■ Improvement in the risk rating which in 2012

was the top risk and this year it has been

graded as the No 5 risk (overall awareness of IT

security amongst the IT companies in India)

[FICCI, 2014]

■ International publicity that hackers get and the

opportunity to portray the company in poor light

is the major incentive

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Source:- FICCI

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Source:- FICCI

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Source:- FICCI

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Source:- FICCI

Risk Profiling (Overall)

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7.6

7.8

8

8.2

8.4

8.6

8.8

Strategic Risks

Operational RisksSafety Risks

1. Political and governance

instability

2. Terrorism and insurgency

3. Intellectual property theft

4. Natural risks

1. Corruption, bribery and

corporate frauds

2. Strikes, closures and unrest

3. Information and cyber security

4. Business espionage

1. Fire

2. Crime

3. Workplace and sexual

harassment

4. Accidents

OPPORTUNITIES AND CHALLENGES

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OpportunitiesLarge number of retail outlets

■ India is the 6th largest preferred retail destination globally by the prospective

investors, going by the FDI Confidence Index developed by AT Kearney

■ IKEA, the world’s largest furniture retailer, for instance, has announced an

ambitious plan to invest Rs 12,500 crore in the country and set up 25 stores over

the next 10 years

Rural markets offer significant growth potential

■ With increasing investment in infrastructure, retailers would be able to increase

their access to high-growth potential rural markets.

■ Various rural development programs have been introduced by Central and state

governments which have been instrumental for an upsurge of employment

opportunities for the rural poor.

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Opportunities

Private label opportunities

■ The organized Indian retail industry has begun experiencing an increased level of activity

in the private label space.

■ For product categories like FMCG, fruits, vegetables which may be bought on daily basis, a

good quality can draw a premium price from the consumers at the higher end who are not

very sensitive to price as compared to quality.

Sourcing base

■ India’s price competitiveness attracts large retail players to use it as a sourcing base

■ Global retailers are moving from 3rd-party buying offices to establishing their own wholly-

owned/wholly managed sourcing and buying offices.

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OpportunitiesLuxury retailing

■ The Indian consumer is ready to splurge on luxury items and is increasingly doing so.

■ This rate of growth has been triggered by accelerating influence of the affluent class, high net worth individuals, ever growing middle class population, sophisticated consumers with a desire for exclusive products and several other related factors.

New Goods and Service Tax (GST) to simplify Tax Structure

■ Elimination of tax cascading is expected to lower input costs and improve profitability.

■ The application of tax at all points of supply chain is likely to require adjustments to profit margins for retailers.

■ Distributors are also expected to experience cash flow from collection of GST in their sales.

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Challenges

Lack of Retail space

■ One of the biggest challenges facing the Indian organized retail sector is the lack of retail space.

■ The per capita retail space in India is among the lowest in the world while it boasts of one of the most attractive retail markets in the world.

Talent shortage & lack of trained manpower

■ There is a limitation of capabilities in the middle and top management due to inadequate specialized training and depth of experience in the sector.

■ This in turn affects the streamlining of various activities that are essential to ensure that efficacy of the retail value chain is maintained at an optimum level.

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ChallengesEconomic challenges

■ They plague Indian modern retail on both demand and supply side.

■ On the demand side, throughputs are still not high enough as the average Indian consumer

is just getting used to modern trade practices.

■ Pricing and promotions are often poorly executed because the customer willingness and

ability to pay not leveraged adequately.

Inefficiency of supply chains

■ Supply chains consist of too many intermediaries which in turn driving up the operating

costs of the retailers.

■ Infrastructure issues like pitiable roads, poor means of transport, unreliable communication

systems, lack of uninterrupted electricity all contribute towards the ineptitude of supply

chains.

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Challenges

Effect of Labor Regulations

■ A number of studies have shown that burdensome labor regulations can hinder job

creation.

■ A research undertaken by World Bank (Mohammad Amin, 2008) concluded that labor

regulations in India’s retail sector are detrimental to job creation.

Bureaucratic hurdles

■ A plethora of clearances are required for setting up retail outlet which limits the expansion

of retail outlets at a faster pace.

■ Government restrictions on FDI limit are resulting in limited exposure to international best

practices.

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SUGGESTED LOCATIONS

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Where to invest?- future lies hereBased on several factors we recommend the following two cities as preferred locations to start business.

Ahmedabad Amarawati

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AHMEDABAD – DEMOGRAPHICAL ADVANTAGE

The population of Ahmedabad is 7.2 million

The sex ratio is 904 females per 1000 males.

The literacy rate is 89%

Ahmedabad is a growing cosmopolitan city with several ethnic groups residing there

The GDP per capita of Ahmedabad is among the highest with around $16000

As of 2013 Gujarat had one of the lowest urban unemployment rate.

Unemployment rate of Gujarat is one the lowest which stood at 1% as of 2012

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WHY INVEST IN AHMEDABAD?• Gujarat ranked 1st in Economic Freedom Index 2013 among all states

• World Bank raked Gujarat as the best state in India for ease of doing business

• Ahmedabad has a GDP of $119 (7th among metro cities)

• One of the fastest growing Tier 1 City of India

• Political stability is improving and recent huge developments like GIFT City

• Gujarat attracts one of the highest FDI in India

• Infrastructure is very developed in Ahmedabad (e.g: BRTS, Proposed Metro)

• PM Narendra Modi proposed direct air connectivity with London(UK) in his recent UK visit

• Disposable income among its citizens is one of the highest in India

• Huge customer base (market) due to its proximity to state capital Gandhinagar .

• Real Estate sector is growing at a neck break pace.

• Proposed industrial corridor between Mumbai and Ahmedabad is a huge boost.

• Huge coast-line with well developed ports like Kandla Port can boost international trade.

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AMARAWATI• The State Government offers attractive land pooling schemes to investors

• Various tax incentives have also been announced for enticing prospects

• Amarawati is proposed to be developed on the lines of Singapore

• There will be an integrated network of 12km of Metro railways, 15km of Bus Rapid Transit systems,

7km of downtown roads, 26km of arterial and sub-arterial roads and 53km of collector roads.

• The capital region is close to Vijayawada and Guntur, two very developed and populous cities

• The Seed Capital Area will be home to about 3 lakh residents.

• Being developed as a vibrant business hub, about 7 lakh jobs are expected to be created in various

sectors, including in the government.

• There will be a thriving, state of the art, Central Business District (CBD) for business and living.

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Conclusion■ Rising incomes, urbanization and attitudinal shifts reaffirm an optimistic outlook, pointing to

a certainty of growth in the future in the retail sector.

■ Large international retailers are contemplating to invest in India to leverage the strong

demand potential of the world’s fifth-largest consumer market.

■ They can look beyond the top 20 Indian cities, pro-actively exploring the retail space and

closely following mall developments across the country.

■ Though there are inevitable trade-offs as far as FDI in retail is concerned, its judicious

implementation can bring about unprecedented prosperity to the segment and a world-class

experience for the value-demanding Indian consumer.

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INDIA IS THE PLACE TO BE !

References■ India Risk Survey- 2014, Pinkerton and FICCI

■ Crisil Research Estimates-2014

■ Households data for India Census of India 2011, Govt of India (2013)

■ www.trak.in

■ www.dailyo.in

■ articles.economictimes.indiatimes.com

■ http://indianexpress.com/

■ www.economictimes.com

■ www.indiaretailing.com

■ www.indianexpress.com

■ www.pestelanalysis.com

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THANK YOU!

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