U1567501

Masters Programmes

Assignment Cover Sheet

Submitted by: U1567501

Date Sent: 13-03-2018

Module Title: Doing Business in India – Final Assignment

Module Code: XX 9DBI

Date/Year of Module: Feb 2018

Submission Deadline: 14-03-2018

Word Count: 3500

Number of Pages: 20

Question:

Pick any two business sectors with potential to expand into India that interest you. For each of these
two business sectors, analyse the business environment, establish why there might be an opportunity,
and discuss key success factors and risk factors that need to be considered for a successful entry or
expansion into India. Perform a comparative analysis and lessons learnt for establishing a successful
business in India. Your assignment should draw on theories, models and data from this module and
your own independent reading.

“I declare that this work is entirely my own in accordance with the University's Regulation
11 and the WBS guidelines on plagiarism and collusion. All external references and sources
are clearly acknowledged and identified within the contents.
No substantial part(s) of the work submitted here has also been submitted by me in other
assessments for accredited courses of study, and I acknowledge that if this has been done
it may result in me being reported for self-plagiarism and an appropriate reduction in marks
may be made when marking this piece of work.”

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A. Introduction: With industrialization in 1991 and globalization followed by various policy reforms;
India is on the threshold of becoming the third-largest economy of the world by 2030. India
offers the 3 'Ds' for business to thrive— democracy, demography and demand. Demographics
advantage is from sustained availability of quality workforce at low cost, strong consumerism in
domestic market, strong technical and engineering capabilities backed by top-notch scientific
and technical institutes. Democracy provides a stable political environment for business to
flourish. 1.3 billion Young consumers provide substantial demand and business prospects.
India also offers 3Ts-Tax, Trade and Transparency to boost economy.

2) Why Internationalize? A business enterprise aims to establish global presence with minimum
risk and maximum returns, hence exploring new markets, devising new market entry strategy
and risk assessment is crucial for business success. Companies embark on an expansion
strategy to improve the cost-effectiveness of their operations, to expand into new markets for
new customers and to follow global customers. (J Daniels et al, 2015)

The general decision making framework for foreign entry (Mason et al, 2017) is as follows
(fig1):

Fig1-Evaluation of business

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B. Choice of Market (Location Decision): In this assignment the focus will be on “Where” of
decision making criteria fig (1). Transforming global presence into global competitive advantage
requires value creation by exploiting local market differences and economies of global scale.
Thus location decisions affecting international operations depend on three factors, its
objectives, its strategies and comparative environment fit with host country (J Daniels et
al, 2015). Factors affecting choice of business sector are (i) physical and social factors like
political, economic, legal, cultural and geographical influences & (ii) Competitive factors like
price, marketing, innovations and competitors (fig 2).

Fig 2 –Location Decisions for international operations

Generally, businesses from developed economy where market is saturated for further expansion;
look for markets in Emergent economies. As exchange rates and geographical distances are
important criteria, let’s assume that a US MNC is expanding its “E-commerce” and “Healthcare”
businesses in India after evaluating Indian market. Both the businesses shall be evaluated for
growth potential and viability in Indian market context. Subsequently a comparative analysis will be
done to identify strength and weaknesses of the two business in Indian market.

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C. Analysis of chosen business:

a. E-Commerce sector

Why opportunity?

The Indian e-commerce industry has an upward growth trajectory and is expected to surpass the
US to become the second largest e-commerce market in the world by 2034. Online retail in India is
estimated to grow over 1,200% to $200 billion by 2026, up from $15 billion in 2016 -Morgan
Stanley (fig-3). 
With growing internet penetration, 35% in 2016, internet users in India are
expected to increase from 429.23 million as of September 2017 to 829 million by 2021 (fig-4).
Rising internet penetration is expected to lead the growth in ecommerce. 
 


Fig 3: E-commerce industry growth Fig 4-Internet Users’ growth

An AlphaWise survey (paywall) concluded that “from financial year 2020, more than half of India’s
internet population will have matured, with five years or more usage, and this will likely mark an
inflexion point in online shopping.”

Consumer buying preferences

Mobile phones, electronics, and apparel are currently the most

popular segments for online shoppers in India. Groceries,
personal and beauty products, furniture, and food delivery will
also have a larger number of takers. E-commerce in the FMCG
(fast-moving consumer goods) space can potentially grow to
up to $6 billion by 2020 (Google and the Boston Consulting Group).

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Future demand: By 2020, there will be very high penetration of over 10% in categories like
nutraceuticals and colour cosmetics, high penetration of 7-10% in categories like weight
management and baby care, moderate penetration of 3-7% in categories like hair care and
laundry, and low penetration of less than 3% in dairy products and confectionery (PwC report).

Existing competition & Global position: Given all this potential, several global companies are
trying to tap E-Commerce market for e.g. Amazon & Alibaba. Currently India among top ten
countries in terms of e-households (fig 5).

Fig 5- Top ten Countries-E households(PwC report)

Operating environment:

PESTEL analysis (E-commerce)

Factors Description Impact

Political Government is pro-digital transformation. 100 per cent FDI is permitted High
in B2B e-commerce.

Social/ Indian consumers have accepted digital transformation. E-commerce is High

widely used both in urban and rural sectors. Multi language and
cultural/
cultures make India a country with diversity. Language barrier is
demographic/ resolved through e-commerce portals in local languages.

geographic

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Factors Description Impact

Economic Total online spending, inclusive of domestic and cross border shopping, High
is expected to increase by 31 per cent year-on-year to Rs 8.76 trillion
(US$ 135.8 billion) by 2018. The Indian consumer internet market is
expected to grow by 44 per cent year-on-year to touch US$ 65 billion in
2017, up from US$ 45 billion in 2016.

Technology Propelled by rising smartphone penetration, the launch of 4G networks, High

and technology enabled innovations like digital payments, hyper-local
logistics and analytics driven customer engagements; support the
growth in the sector.

Environmental Impact on Environment is low. Low

Legal India has well placed and effective Judicial system. Companies High
experience economic freedom to operate their businesses in India.

Source: PWC, Economic Times, Financial Express

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Key Success Factors:

Factors Description

Expansion: There is huge potential for both product and location expansion as both
urban and rural population are exploiting technology for hassle free online
purchases with door step delivery.

Growing demand Being driven by a young demographic profile, increasing internet penetration
and relative better economic performance, India’s E-commerce revenue
is
expected to grow at an annual rate of 51 per cent, the highest in the world.

Increasing The recent rise in digital literacy has led to an influx of investment in e-
investment: commerce firms, creating the market for new players and disrupt old
functioning. 
Private equity and venture capital investments in the e-
commerce industry in India touched a record US$ 11.2 billion in the first half
of 2017, a 41 per cent rise over last year.

Policy support: 
Favourable Government initiatives namely, Digital India, Make in India,
Start-up India, Skill India and Innovation Fund will support the e-commerce
growth in the country.

Market Potential: The total size of e-Commerce industry (only B2C e-tail) in India is expected to
reach US$ 101.9 billion by 2020.

Source-ibef.org

Competition factors for e-commerce: Main competition factors are major advantage in Price,
marketing, innovation, competitive difference by country and existing competitors. Utilizing Porter’s
five forces it is found that there is low bargaining power of suppliers but high threats for new
entrants and substitutes, high bargaining power of buyers and high competition from existing
players like Flipkart and Amazon. Therefore, new entrant will meet stiff competition (fig6).

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Fig 6: Porter’s Five forces (Porter,1986) for E-commerce (Source:ibef.org)

Key risk factors:

Fraud is one of the biggest risk these companies face. A recent Cyber Source survey suggests that
North American businesses expect to lose 0.8% of total revenue due to fraud. Whereas in India,
this number ranges between 4-5% as per some estimates.
 Buyer side frauds: Where buyers file fraudulent claims, chargebacks or compromised
payment cards.
 Merchant side frauds: These typically range from non-fulfilment to selling counterfeit and
many other complex models.
 Cyber security fraud: Customer accounts are compromised and subject to account
takeovers (ATO) and identity theft. Credit card details are sold online.
Secondly, operational costs are higher in India due to high costs of Generation and sustenance of
traffic, customer acquisition and Last-mile delivery.

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b. Health care sector

Why opportunity?

Healthcare is India's largest sectors both in terms of revenue & employment. India is expected to
rank amongst the top 3 healthcare markets in terms of incremental growth by 2020. Rising income
levels, ageing population, growing health awareness and changing attitude towards preventive
healthcare is expected to boost healthcare services demand in future. There is a huge gap
between supply and demand. Fig 7 shows number of health professionals per 10000 population.
Additional 3 million beds needed for India to achieve the target of 3 beds per 1,000 people by
2025. Additional 1.54 million doctors and 2.4 million nurses required and additional 58,000 job
opportunities in the healthcare sector by the year 2025.

Fig7: Human Resource capacity in Healthcare (12th Financial Plan)

The industry is growing at CAGR 16.28%. The total industry size is expected to touch USD 280
billion by 2020. Per capita healthcare expenditure is rising at CAGR 5%.

Fig 8: Economic trends in Healthcare (Source: Frost & Sullivan, LSI Financial Services, Deloitte)

The private sector provides majority of secondary, tertiary and quaternary care institutions with a
major concentration in metros, tier I and tier II cities. The hospital and diagnostic centres attracted
Foreign Direct Investment (FDI) worth US$ 4.83 billion between April 2000 and September 2017.
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Operating environment:

PESTEL analysis (Health care)

Factors Description Impact

Political The Government focuses on providing basic healthcare facilities High

in the form of primary healthcare centres (PHCs) in rural areas.
Favourable Investment Environment and conducive policies for
encouraging FDI, tax benefits coupled with promising growth
prospects have helped the industry attract private equity, venture
capitals and foreign players.

Social/cultural Increasing urbanisation has led to lifestyle diseases due to High

cholesterol, high blood pressure etc. There is more awareness
about personal health and hygiene. Rise of elderly population
expected 168 m in 2026 from 98.9m in 2017.

Economic Per capita health care expenditure grew at CAGR of 5% during High
2008-15. Rising incomes and economic prosperity is driving the
improvement in affordability for healthcare products in market.
During 2015-19 per capita income is expected to increase at
a CAGR of 8.09%.

Technology Telemedicine is a fast-emerging sector in India; major hospitals High

(Apollo, AIIMS, Narayana Hrudayalaya) have adopted
telemedicine services and entered into a number of PPPs. As of
FY16, telemedicine market in India was valued at US$ 15 million
and is expected to rise at a CAGR of 20 per cent during FY16-20,
reaching to US$ 32 million by 2020.

Environment Since it is a service sector so environmental impact is significantly Low

lower than manufacturing industries.

Legal Foreign investment into India is governed by the Foreign High

Exchange Management Act, 1999 (“FEMA”), the rules and
regulations made by the Reserve Bank of India (“RBI”), and the
Industrial Policy and Procedures issued by the Ministry of
Commerce and Industry through the Secretariat for Industrial
Assistance, DIPP.

(Source: Deloitte)

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Key success factors –

Factors Description

Cost India has large pool of well-trained high quality medical professionals and is cost
advantage, competitive compared to its peers in Asia and Western countries. The cost of
Quality and surgery in India is about one-tenth of that in the US or Western Europe. India is
Affordability hub for R&D activities for international players due to its relatively low cost of
clinical research.

Market Size There is 22-25 per cent growth in medical tourism and the industry is expected
to double its size from present (April 2017) US$ 3 billion to US$ 6 billion by
2018. The Healthcare Information Technology (IT) market is valued at US$ 1
billion currently (April 2016) and is expected to grow 1.5 times by 2020.

Impressive Rural India, which accounts for over 70 per cent of the population, is set to
Growth emerge as a potential demand source. The medical devices market size, valued
Prospects at US$ 4 billion in 2016, is expected to reach US$ 11 billion by 2022. The
Contract Research and Manufacturing Services industry (CRAMS) is estimated
at US$ 8 billion in 2015, up from US$ 3.8 billion in 2012. Cost of developing new
drugs is as low as 60 per cent of the testing cost in the US.

Strong Investment in healthcare infrastructure is set to rise, benefiting both ‘hard’

demand (hospitals) and ‘soft’ (R&D, education) infrastructure. India is the largest exporter
of formulations with 14 per cent market share and ranks 12th in the world in
terms of export value.
Government The Government of India aims to increase the total health expenditure to 2.5 per
Initiatives cent of Gross Domestic Product (GDP) by 2025 from the current 1.15 per cent.

(Source: ibef.org, PWC)

Key risk factors:

 Clinical Risk: Historically, only 10% of drugs that enter human clinical trials become
commercially viable.

 Commercial Risk: Multi-specialty healthcare is a highly capital intensive business because

of the real estate involved in setting up facilities as well as the money required for medical
equipment and hiring staff. It takes at least 3-5 years for a Greenfield project to break even.

 Un-ethical practices: Bribery & corruption, unethical marketing & sales practices, poor
data transparency, failed products endangering patients and accusations of profiteering, can

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severely affect business performance.

 Data privacy: The healthcare sector is under increased scrutiny over data confidentiality
and transfers of electronic medical records. In 2014 alone, data breach incidents in the
medical and health care sector represented 42.5% of the 783 reported data breaches in the
US.

 ROI- Healthcare need longer gestation periods and offer returns of at least 20-25% in 7-10
years.

Competitive factors: There is huge infrastructure gap in healthcare industry so despite many
large players, there is scope of further expansion; hence competition has neutral impact.
Bargaining power of suppliers is high, however patients generally accept the advice of medical
professionals; so buyers have neutral impact. Threat of new entrants is high; as big hospital chains
with range of services have raised the entry barrier.

Fig 9: Porter’s Five forces (Porter,1986) for Healthcare (Source:ibef.org)

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D. Comparative analysis of E-commerce & healthcare for business entry/expansion in India:

A. overall attractiveness (Charles Hill, 2013)

Fig 9: Overall attractiveness of Business

a) Benefits: (High) as already explained, both e-commerce and healthcare find great market
size and growth potential in India.
b) Costs- Both e-commerce and healthcare are service type industry requiring high
infrastructure development, low corruption and low legal costs, but in India corruption
costs and infrastructure gap are high.
1. Corruption: High
2. Infrastructure gap: High
3. Legal costs: Low (Regulatory easing by government)
c) Risks:
i. Political risk (Low) - Indian government is determined to influence investors to do
business in India, and “Ease of Doing Business in India Index” (World Bank) is improving
(fig 10).

Fig 10: EoDB ranking

Major reforms are initiated in fields of taxation, legal (licensing & regulation), financing,
infrastructure availability (land, electricity etc.) and technology (mobile & internet). The process of
applying for Industrial License (IL) and Industrial Entrepreneur Memorandum (IEM) has been made
online. With #Make in India campaign, Government is providing a conducive environment for
investors.

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ii. Economic risks (Moderate)

The Indian economy has performed well despite global economic slowdown and has benefited
from low oil prices in recent years. The country's economic growth is dynamic (7.5% GDP),
stimulated by public spending. The inflation rate is consistently moderate at 4.8% and per capita
GDP has rising trend. Though demonetization and GST implementation brought a slowdown but
GDP growth rate has improved afterwards. However, economy faces high debt, high current
account deficits and has low per capita GDP (Table I).

Table I-Economic Indicator

Main Economic Indicators 2015 2016 2017 2018 (e) 2019 (e)
GDP (billions USD) 2,089.87 2,263.79 2,439.01 2,654.17 2,926.24
GDP (Constant Prices, Annual % 8.0 7.1 6.7 7.4 7.8
Change)
GDP per Capita (USD) 1,629e 1,742e 1,852 1,989 2,165
General Government Balance (in % of -7.0 -6.4 -6.2 -5.9 -5.8
GDP)
General Government Gross Debt (in % 69.5 69.6 68.7 67.1 65.2
of GDP)
Inflation Rate (%) 4.9 4.5 3.8 4.9 4.8
Current Account (billions USD) -22.09 -15.23 -33.68 -40.54 -47.08
Current Account (in % of GDP) -1.1 -0.7 -1.4 -1.5 -1.6

Table-Economic Indicators(Source: IMF – World Economic Outlook Database 2016)

Global competitiveness (India):

In World Economic Forum’s Global

Competitiveness Report India has
overall rank of 40 (fig11). India scores
better than south Asian countries in terms
of GCI with higher market size, health
and primary education, macroeconomic
environment, financial market
development (fig 12).

Fig 11: GCI-South Asia

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Fig 12: India vs South Asia - GCI indicators

iii. Legal risks (low) - India follows common law and various acts like companies’ act,
environment protection act, FEMA & competition act and institutions like SEBI are formed
for regulatory control. Taxation agreements with different countries are enforced.

B. Business Entry Strategy- Fig 13 reflects the Integration responsiveness grid (IR grid).
Electronic commerce has High industry pressure both for Global Integration and local
responsiveness. Healthcare has low requirement of global control but high adaptations are
required for local consumers. E-commerce adopts “Transnational strategy” while Healthcare
has “multi-domestic strategy”.

Fig:13-IR grid position for E-commerce & Healthcare (J Daniels et al, 2015)
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C. Impact of geographical distance (US-India) on industry (CAGE):

CAGE analysis
Impact E-commerce Healthcare
Cultural distance High- As India is multi lingual Low-Healthcare practices are
and multicultural country. universal due to Global
exchange in Know-how.
Administrative Distance High- As global control over Low- autonomous operation of
processes and methods. local centres.
Geographic Distance Low- internet reduces Low-resources are created
geographical distance from Locally and high speed
parent country. communication through
internet.
Economic Distance INR 1 = US$ 0.0155; exchange INR 1 = US$ 0.0155; exchange
rates in favour of US and rates in favour of US and
manpower and infrastructure manpower and infrastructure
costs are low compared to US. costs are low compared to US.

D. Major Problem areas: India, with a score of only 3.38, ranks 60th among the 79 developing
economies on the Inclusive Development Index (world economic forum, 2017). Major problems for
Doing Business in India are as shown in fig 14.

Fig 14: problem areas for Inclusive Growth in India

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E. Conclusion: Combining all analysis into one table we get some idea of India as Investment
destination for the two businesses.
Table- II (Comparison)
Factors Factors Comparative E-commerce Healthcare Conclusion
criteria
Benefits Size of economy Favourable Favourable
Growth Favourable Favourable ok
prospects
Costs Corruption High High
Infrastructure High High Problem Area
Overall attractiveness

gap
legal Low Low
Risks Political Low Low ok
Economic Moderate Moderate Needs
improvement
legal Low Low ok
Strategy Business Entry Transnational Multi-domestic
CAGE Cultural High High Problem Area
Management

Framework Administrative High Low ok

Geographic Low Low Ok
Economic High High Ok
Physical and Political Favourable Favourable Ok
Social Economic Favourable Favourable Ok
factors Social Improving improving Needs
improvement
Technology Favourable Favourable ok
Environmental Favourable Favourable ok
Environment
Operating

Legal Favourable Favourable ok

Competition Rivalry High moderate Problem-E-
factors Commerce
Buyer power High moderate Problem-E-
Commerce
Suppliers power Low High Problem-
Healthcare
Substitutes High High Problem for
New entrant High High both
threat

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From Table I we conclude that overall attractiveness of India as an investment destination is

marred by costs of corruption and infrastructure gap. The Operating environment - Political,
Economic, Legal and Environmental factors are favouring both sectors. The multicultural
diversity makes study of market segmentation and consumer preferences difficult in E-commerce.
Language can be a barrier for foreign investor in Healthcare too, where market segments can be
divided on line of urban and rural populations.

Geographical distance impact (CAGE) on business is overall Low except for cultural issues.
Competitive factors paint a difficult picture for both sectors due to large players and market
forces. However, we have evidences of successful foreign entry in E-commerce & Healthcare.
“India continues to be a good story for us. We feel that it’s had a lot of growth in the past year,” said
Amazon CFO Olsavsky. Similarly, the hospital and diagnostic centres attracted foreign direct
investment (FDI) worth $2,793.72 million between April 2000 and January 2015, according to
DIPP. PE and venture capital (VC) deals in healthcare has grown in 2017 (37 such deals worth
$797.3 million) as compared to 21 deals worth $207.4 million in 2016.

Major problem areas like corruption, infrastructure gap, institutions, employment gap increase
operational costs of businesses. Indian government’s mantra of “ease of doing business” has
brought about many reforms which will ensure better investment opportunities.

To conclude, both businesses have high opportunity, as per market size and business growth
potential. Still care is required in strategy formulation. Study could have given different results for
different sectors like manufacturing, energy and so on. It is also important to analyse the foreign
investors’ country profile, size of business, financial capabilities and cross cultural and financial
dynamics to arrive at more realistic conclusion.

This study focussed on answering “where” of decision making framework (fig1) and “why” and
“how” are not explored here. Business viability depends on all factors together, so it is very
important to know the amount and type of investment the company is about to make, its experience
and expertise in given business area, as both the businesses require deep pockets. The global macro-
economic environment and its fluctuations, business valuations based on market risk and country
risks rates, exchange rate fluctuations, impact of differential interest rates have not been explored
here. The key problem areas corruption, infrastructure gap, employment gap etc. are mentioned but
its costs to business is not derived.

(Note: Exchange Rate Used: INR 1 = US$ 0.0155 as on January 04, 2018)
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References/Bibliography:

International Business-Environment and Operations-J D Daniels, L H Radebaugh, D P

1. Sullivan
2. International Business-Competing in the Global Marketplace-Charles W L Hill
International Business: Opportunities and Challenges in a Flattening World, v.
3. 2.0 by Mason A. Carpenter and Sanjyot P. Dunung
4. IIM-Ahmedabad Study materials
5. 12th Financial year Plan
6. Airport Privatization in India-case study
7. Doing_Business_in_India.pdf
8. Ecommerce-Report-Jan-2018.pdf
9. Fortune at bottom of pyramid_CKPrahlad
10. Fortune at BoP-IIMA
11. Fortune-BoP.pdf
12. GlobalCompetitivenessReport2017–2018
13. Global economic prospects
14. GRR17_Report_web
15. Healthcare-February-2018.pdf
16. Healthcare-Infographic-November-2017.pdf
17. IEA report 2015.pdf
18. IndiaEnergyOutlook_WEO2015.pdf
19. Indian History.pdf
20. indian_energy_sector.pdf
21. New & Renewable Energy Sector – Achievement
22. PPPs in Infrastructure.pdf
23. PWC report on e-commerce in India
24. PWC report on healthcare in India
25. WEF_Forum_IncGrwth_2017.pdf
George S. Yip, “Global Strategy in a World of Nations,” Sloan Management Review
26. 31, no. 1 (1989): 29–40.
Michael E. Porter, Competition in Global Industries (Boston: Harvard Business School
Press, 1986); George S. Yip, “Global Strategy in a World of Nations,” Sloan
27. Management Review 31, no. 1 (1989): 29–40.
28. Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus and Giroux, 2005).
web links
1. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Doing_

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Business_in_India.pdf
2. www.ibef.org
https://www.gita.org.in/Attachments/Reports/LandscapeofInclusiveBusinessModelsinH
3. ealthcareinIndiaFinalPres.pdf
https://www.weforum.org/agenda/2017/10/eight-key-facts-about-indias-economy-in-
4. 2017/
5. Government of India websites
6. http://www.flatworldknowledge.com/printed-book/127834.

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