Porters National Diamond Analysis Economics Essay
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Published: Mon, 5 Dec 2016
This analysis report aims to investigate the suitability and availability of India as a new food retail market concerning the expansion of operations from a multinational company based in the UK. Using the extended version of Porter’s National Diamond, the competitiveness of India will be assessed. To further analyze India, the Hofstede theory and the Porter’s 5 forces would be used. After analyzing every factor, a conclusion would be made on whether that factor provides opportunity or threats.
2.1 Physical Resources
2.1.1 Electric Infrastructure
Data: Major power Breakdown happened in 2012 affecting several states in India including Delhi. Twice in a month, time to restore power takes more than 8 hours. (Daily Bhaskar, 2012)
Analysis: Electric power supply is an indispensable input to any business enterprise. Without electric power supply, business operations would be negatively affected in terms of communication, water and equipment. To overcome these issues, businesses have to invest in backup power in terms of diesel fuels. Power outages also result in increased cost for equipment replacements and repairing costs. (Oseni, M. O., 2012) Electricity plays an important role in food storage especially those that requires refrigeration, power outages may cause these materials to turn bad and result in huge business losses.
Threats: Non-constant and unreliable power supply. Operations of the F&B business would be affected. Businesses may incur losses due to replacing and repairing equipment and also the cost of investing in a backup power source.
2.1.2 Availability of water supply
Data: 25% of India’s population lives in water-scarce areas, per capita availability is less than 1000 cubic meters per year. 75% lives in water-stressed area, per capita availability is less than 2000 cubic meters. (United Press International, 2011). Availability of water supply is only for few hours per day with questionable quality. (McKenzie-Ray, n.d.)
Analysis: Water has the same importance as electric supply to F&B business. Huge amount of water is needed in F&B industry operations ranging from cooking, washing to consumption. There is lack of water availability in India because of bad water quality, water need to be bought or imported. Water quality problems in India are caused by industrialization and agriculture growth. Water treatment is needed. Alternatives such as rainwater and groundwater is inconstant, limited and may contain impurities. Considering water availability in terms of water scarcity and water stressed, F&B business would be unsustainable in the long run.
Threats: Demand of water supply is not met. Treatment of water is needed. Costs will be incurred and will be time consuming. Buying or importing of water will result in higher operating cost.
2.2.1 Transportation system
Data: India has 9 million km of roads, 50% are paved and 20% in good condition. India’s roads are narrow, poorly maintained with heavy traffic congestion. (ASIRT, 2004) India’s highway density is at 0.66km per square kilometer, much denser than China’s 0.16km per square kilometer. (World Bank, 2011)
Analysis: The importance of transportation can’t be overlook because it is meant to ensure smooth acquisition of materials and on product delivery on time to the consumers. Without proper transportation management, F&B business may incur huge expenses. Demand of transportation in India has risen due to the availability of motorized transport, increase in income and commercial-industrial activities. (Singh, 2005) Severe traffic congestion and delays are common in Indian cities. With these issues, the logistical operation of the F&B business would be affected. It would result in deadlines not being met, products and raw materials not reaching on time and employees turning up for work late. In addition, vehicles and hawkers are usually parked along major roads in India, further reducing vehicular movements.
Threats: Poor transportation affects logistical operations of business. Productivity will be affected and lowered.
3.1 Size and composition of population
Data: India has a total population of 1billion. India houses several ethnic groups and religions with Hinduism as the dominant religion. Other than English, 14 other languages are spoken in India with Hindi the common language, spoken by 41% of the population. (IndexMundi, 2012)
Analysis: When there is integration of several different religions means that there would different beliefs, different eating habits and food preference in India. So entering a country with diverse religions would require F&B business to make a thorough market research to avoid producing products that would or may cause unhappiness among the religions, which may leads to social unrest. Different types of products could be produced to be directed towards the various religions specifically.
Opportunities: Diverse religion means more market group could be directed at. With the right product directed to the right market group, there will be higher market share and increase competitiveness for the F&B business.
3.2 Taste and preferences of consumers
Data: 20-30% of the Indian population are vegetarians due to Hinduism. Beef and pork consumption is prohibited due to religion, other than halal products. Other types of meat are consumed sparingly. Indians have strong preferences for fresh products, traditional spices and ingredients. (Mishra & Sood, 2012)
Analysis: India as a Hinduism-Islamic country, consumption of beef and pork products is prohibited. Since India is a country that focus much on agriculture and also domestic products, wheat, spices and milk are easily available, the Indian population have develop the habit of using these locally produced ingredients to make products for their own consumption. Over the years, their preference for locally produced ingredients or products would be strong and would be hard for them to give up. It would affect the depth of market penetration by foreign food. (Mishra & Sood, 2012)
Threats: Strong preference base for local products. It would hinder the progress of entering India with foreign products.
Related and supporting industries
4.1 Bargaining power of suppliers
Data: Few of main supplies needed for F&B business are water, wheat and poultries. Easily accessible supplies like agricultural products are produced with an estimated at 218million tonnes, poultry with USD$7500million turnover.(Ministry of Agriculture, 2011) Hard to access supplies such as water are controlled by the government. (Ministry of Water Resource, 2002)
Analysis: Bargaining power of agriculture and poultry suppliers is low because of the easy accessibility towards these products. In contrast, the bargaining power of the water supplier which is the Indian government is extremely high because of the constraints India is facing currently. Water in India is needed for agriculture, consumption and electric distribution, demand is high. As the population of India gradually grows, demand of water would rise further. The Indian government would then be forced to implement tighter regulations on water allocation. That would further increase the bargaining power of the water supplier.
Threats: Moderately-high. Bargaining power of water supplier would increase over the years due to the increasing demand and scarcity of water in India. In the long run, F&B businesses would be unsustainable.
4.2 Bargaining power of buyers
Data: India has a lower-middle income group. (World Bank, 2011) Per capital income have rose from $857 in 2006 to $1265 in 2010. (Athena Infonomics, n.d.) More than 3000 outlets from the F&B industry are operating in India. (Mishra & Sood, 2012)
Analysis: Bargaining power of buyers is high. As the per capital income of India rises, the spending power of the Indian population would increase, they would be willing to spend more on F&B especially those that are under the age of 35. But the concentration of various F&B outlets serving as an alternative source of food consumption is high, the Indian population are also price sensitive.
Threats: High. There are many alternatives F&B outlets available for Indian population. There is higher competitiveness in India F&B industry.
Firm strategy, structure and rivalry
Cultural impact on firm strategy; Hofstede theory
Data: PDI: 71, IDV: 48, MAS: 56, UAI: 40. (Hofstede Centre, n.d.)
Analysis: High power difference, workers working in the lower levels of the organization are required to listen, respect and obey to the orders from their superiors in the organization. Workers are expected to be told on what is to be done; negative feedbacks are never communicated to higher levels. Collectivism culture, Indian workers tend and prefer to work as a group instead of working alone. This improves interpersonal relations and communications between colleagues, minimize chance of conflicts. Reason contributing to this culture is their living habits where several generations living together under one roof.
Masculine society, gender inequality is always present in India. Males are expected to be the breadwinner and females to be homemakers. In the working environment, a display of their work achievements and power is very important, usually in terms of material gains. Medium-low uncertainty avoidance, there is high tolerance and acceptance of bad work values such punctuality issues. Indian work organizations are more willing to condone the imperfection of their workers. Workers are given more freedom in their work life.
Rivalry among existing competitors.
Data: Number of food courts increased from 39 to 270 from 2007-2010. (Athena Infonomics, n.d.).
Analysis: An increase in the number of food outlets such as food courts would provide additional competition towards F&B businesses. Businesses would then have a lower market share and they must compete with one another to regain their share in the market usually through lowering prices or other services.
Threats: High. Large numbers of competitors ranging from food courts to roaming hawkers vying for business and market share in the industry.
Threats of new entrants
Data: More than 65% of India population is young. (Athena Infonomics, n.d.) New policy allows up to 51% of FDI for “multi-brand” and 100% for “single brand” sector. (Gupta, 2012)
Analysis: Younger population has more exposure towards western lifestyle and food habits are changed. Potential in India’s F&B market and changes in FDI policy means India is opening up its untapped market towards foreign companies although the process of applying for investment in India is long.
Threats: High. Changes in investment policy will allow more foreign investors to enter and compete in India’s F&B market.
Threats of Substitutes
Data: India’s overall consumer spending on food is USD181b, two-thirds of the spending is on processed products. Demand for processed products is expected to rise. (FICCI; Ernst &Young, 2009) 300million upper and middle class consume processed products with an expected increase of 200million by 2010. (Harchekar, 2008)
Analysis: India is a developing country going through industrialization. Jobs are produced during industrialization, employment rate goes up. Workers from various income groups would be working and have long working hours. Their lifestyle had changed and is more time constraint. This explains why Indians are seeking convenience in their food consumption and an increased demand for processed value added food products instead of cooked products. This constitutes a growing market for all type of F & B manufactured products now and in the future as India’s economy industrialized further.
Threats: High. Indian’s lifestyle changed and becomes constraint, the demand for processed food increase substantially. Eating at home is also an option for alternatives.
Data: India’s Corruption Perception Index from 2010 to 2012 is 33, 31 and 36. (Transparency International, 2012)
Analysis: Corruption in India is high and prevalent throughout the years. High CPI is due to the poverty situation in India. Corruption comes into play when F&B business requires help from the government or when taking supplies from suppliers. Since India’s economic situation is lingering around poverty, suppliers or officials would resort to corruption to improve their livelihoods. Corruption could take a step further when the resources such as water in India get scarcer.
Threat: Profits gained have a high chance of being claimed by corrupted government officials. Additional cost may be needed to pay for permits.
Part 2: Contemporary Management Issues
Education and technological development.
Part 3: Market Entry Strategy
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