Foreign Direct Investment in the Indian Market

As an investor interested in setting up a manufacturing firm oversees, the choice for the market is informed by various conditions including financial expectations, industry requirements and most importantly, the possibility of attaining a breakeven in the short term and generating high returns over time. In an overseas market, cultural, religious, political and economic factors determine the nature of a foreign direct investment given that consumers depict varying characteristics. However, the new firm will offer solutions in the form of generic phone accessories and tablets made out of plastic. The reason for the product portfolio is the largest consumer population is composed of low and middle income earners. As such, affordability is one of the critical factors to consider in strategizing for the foreign direct investment as discussed in the rest of the essay.

Presentation of the Country

Among the four nations that are considered the emerging global blocks, India is the only strong and consistent block based on a research by Anand (2015). Analysts perceive the Indian market as a long-term investment opportunity and as such, businesses penetrating the country at current level should have a long-term perspective. Notably however, India is characterized by a segmented retail market. Relative to United States, most of the goods are purchased from the conventional brick and motor stores which are composed of small shops and supermarkets (Argawal, 2015).

The poor road system favors a localized system given that most of the consumers try to avoid spending time commuting from the shopping centre. The strict foreign direct investment policies are instituted to foster growth of the domestic industries and as a result, the localized shopping system continues to dominate the Indian market (Hesizn and Zelma, 2015).

Arguably however, the prospect of generating additional employment opportunities and contributing to the Gross Domestic Product gives the new manufacturing an advantage over local firms (Malhotra, 2014). In addition, mobile accessories are attractive to multiple market segments given that more than 60% of the Indian population is in possession of a phone.  A deeper evaluation of the Indian market is conducted through the PEST model to assess its attractiveness.

PEST Analysis: Indian Market

The PEST tool is used to scan the external environmental factors that influence market performance of an organization and it is critical in the determination of opportunities and threats that can be countered using a firm’s core resources (Jenifer, 2018). In this case, the new firm is trying to position its phone accessories brand in the Indian market with the prospects of gaining a considerable market share. The PEST analysis examines political, economic, social and technological factors that directly impact the operations of the manufacturing firm.

Political

India is one of the largest democracies in the worlds and as such, it is influenced by multivariate political aspects. India’s political environment progressed post liberation and since a new industrial policy was introduced in 1991, competition in the nation was heightened leading to an increase in foreign direct investments. The earlier requirement for licenses and approvals was abolished therefore creating room for new businesses. As illustrated in figure 1, India’s political rights has increased and this implies that the country political environment is suitable for investment.

Figure 1: India’s performance as a measure political climate

Economic

The industrial policies also led to a reduction in licenses and tax rate to 29%, further stabilized the economic stability of the nation. For example, in 2014, the country recorded a GDP of 5.07 trillion which was an improvement of 5% compared to the previous years (Rapozza, 2015). With a low unemployment rate of 3.51 percent, the country’s population is economically empowered to own cellular phones and tablets and thus the demand for accessories and repair tools is high.

Social Factors

More than 70% of India’s population is aged between 15 and 65 (Rapozza, 2015). Since the individuals are employable, majority of them own phones hence are likely to demand the products accessories. Relative to other emerging nations, India has the highest population of English speaking people thereby making it easier for the personnel of the new manufacturing firm to connect with the consumers and make solutions that are customized to their needs. Notably however, the geographic distance that is a result of poor road system favors local brands and for the new brand to get a sustainable market position, more financial and capital investment is required to penetrate the regional market.

Technology

India is served with both 3G and 4G technologies that motivate most of the literate and in particular millennial population own phone gadgets (Rapozza, 2015). The tech-oriented population also attracts global firms such as Samsung and Apple to the market thus creating a market gap in the form of phone accessories and repair equipments that will be provided by the new manufacturing firm.

Although the PEST framework helps in revealing market opportunities and threats that influence operations, the findings are short term since conditions change periodically and the tool does not explain how the changes affect future decisions. In addition, the analysis does not compare with the internal environment of the organization for an informed decision making process. In light of this limitation, the assumption of this report is that the new manufacturing firm is financially positioned to penetrate the Indian market, the management is capable of handling diversity issues, and the operational structure and culture can be standardized across various regional markets.                                                               

Analysis

Based on the PEST analysis and examination of India’s profile, the country is positioned to offer a sustainable market share for the new brand. Majority of the population own phones due to the low unemployment rate and as such, the demand for accessories is high. The country’s industrial policies are attractive to investors given that the low corporate tax makes it possible for businesses to report high net profits. However, the dominant localized system acts as a barrier to investors since consumers prefer purchasing from local shops which are conveniently located (Ashe-edmunds, 2017).

Recommendations

The new manufacturing firm should be launched since India presents more opportunities compared to threats. The political and economic stability of the nation offers growth prospects especially now that India is among the fastest growing and sought after emerging markets. To thrive under the current conditions, it is recommended for the management to begin by outsourcing its brand so that the local retailers who are already familiar with the cultural and political aspects of the country can get a market for the firm (Kuepper, 2018). After analyzing the periodical financial and market results, the decision for a foreign direct investment should be made to maximize on profits by reduction operational costs. Moreover, it is possible to directly invest in the country but in phases. The management can locate the most viable market and establish the brand for the manufacturing and distribution process. After establishing the brand and creating visibility of the brand, penetration in other local markets should be initiated by ensuring that diverse needs of market segments are met for maximum satisfaction (Pastakia, 2016).

Conclusion

The analysis of the political, social, economic and technological factors that impact performance of a foreign manufacturing brand in India stipulate that the country presents growth opportunities for the phone accessories firm. The management can balance the demands of the consumers by locating the brand across the country for easier accessibility and availability. A match between the firm’s internal resources and the potential threats and opportunities in the Indian market should inform the management about the best strategies to use for sustainable growth and profitability.

References

Anand, K. (2015). Indian Markets Still a Favorite among Investors. Retrieved from https://economictimes.indiatimes.com/markets/stocks/news/indian-markets-still-favourite-among-foreign-investors-but-china-russia-catching-up/articleshow/47082606.cms

Agrawal, G. (2015). Foreign direct investment and economic growth in BRICS economies: A panel data analysis. Journal of Economics, Business and Management, 3(4), 421-424.

Ashe-Edmunds, S. (2017). Advantages and Disadvantages of Opening a New Facility in a Foreign Country. Retrieved from https://bizfluent.com/info-8676723-advantages-production-facility-foreign-country.html

DF (2016). Overseas Manufacturing Pros and Cons. Retrieved from http://businessknowledgesource.com/manufacturing/overseas_manufacturing_pros_and_cons_022738.html

Henisz, W. J., & Zelner, B. A. (2015). The hidden risks in emerging markets. In International Business Strategy (pp. 646-654). Routledge.

Jeniffer, P. (2018). What is PEST Analysis.  Retrieved fromhttps://www.businessnewsdaily.com/5512-pest-analysis-definition-examples-templates.html

Kuepper, J. (2018). The Ultimate Guide to Investing in India. Retrieved from https://www.thebalance.com/the-ultimate-guide-to-investing-in-india-1979063

Malhotra, B. (2014). Foreign Direct Investment: Impact on Indian Economy. Global Journal of Business Management and Information Technology, 4(1), 17-23.

Pastakia, A. (2016). Ecopreneurship in India: A Review of Key Drivers and Policy Environment. Making Ecopreneurs: Developing Sustainable Entrepreneurship, 125.

Rapozza, K. (2015). Five Reasons to Invest in India. Retrieved from https://www.forbes.com/sites/kenrapoza/2015/03/05/five-reasons-to-invest-in-india/#2d807e5e4a36