Market Entry Strategy: Analysis Of Wal-Mart In India

Market Entry Strategy: Analysis Of Wal-Mart In India Generally in formulating a plan the business turns to the choice, in the situation whenever the object is to locate a market which would make their business money spinning or in the situation a new market is to be ventured into. At times when there is no plan of action, venturing into an untapped market will seem tricky, thus recognized the term market entry. According to Cinco (2003) the vendor must be able to differentiate their supply ways that might be beneficial either to the company or to the nature of alternatives it can be able to add value. So to increase its market share, the vendor must have competitive sustainable benefits, the time to build-up their proposal and other resources. In the era of competition vender must posses some attributes that are hard for competitors to copy (Barney, 1991). For the companies that are aspiring towards entering a foreign market, there are various modes that could be employed for the gaining of access. They are as follows Licensing Exporting Franchising Joint ventures or strategic alliances Establishing a subsidiary that is wholly owned Exporting This refers to the transferring of the services or production over the boundaries of the nations and the majority of the companies initiate their plans of expansion into another nation by means of this process of international expansion by exporting the goods produced in abundance and best quality and then they move on to follow other available strategies to gain their entry and make their presence felt stronger. There are many advantages that are associated with the process of exporting like the nation that is planning to gain access to a foreign market can control production by means of maintaining the facilities of production at the home land itself and then can transport the services or products to other nations (Miller, 1998). Licensing This is nothing but a arrangement by means of which the international company who is naturally the licensor offers the company where it plans to enter or the licensee one among the following Rights of trademark Rights of patent Copyrights Know how on the product and its associated processing Any of the above would be offered to the nation in exchange for a payment from the country who buys it or a specific performance Following are the list of things paid or offered by the nation that has bought the rights from the other nation Agree to produce the service or the product which any one of the above rights have been bought Agree for marketing the product or service in an area that has been already assigned Agree to pay money to the nation that has sold the license that is proportional to the volume of sales that is obtained by selling the product as royalty (Minor et al, 1991) Franchising This refers to an agreement through which the franchiser is involved in the selling of the rights of the product so that the name of the brand can be used by the franchisee and in return, a payment of a big sum of money can be made. Along with this the profit gained by the franchisee could be shared with that of the franchiser. This mode of gaining market entry has been used by the companies involved in marketing and services whereas the mode of licensing is used by the companies involved in marketing (Mintzberg and Quinn, 1992) Strategic alliances and joint ventures The concept of forming strategic alliances and the formation of combined ventures are clubbed together since the formation of strategic alliances is rather weaker than that of the joint ventures. Hence we can define a strategic alliance as the agreements that are formed between the participating firms so that the activities of value chain of the companies could be aggregated for the gaining of advantage in competitive terms. In majority of the cases the strategic alliances are formed between two concerns that are equal competitors in the same field. But a joint venture is nothing but a venture that is formed between a foreign firm with that of a national firm and in this alliance, the foreign firm would have sufficient equity stake in order to have a strong hold on the management functions but still not a complete hold so that it can have full domination of the venture at hand. Hence the equity share possessed by the international firm could be varied and this can range from 10 to 90 percent, but normally this would be from 25 to 70 percent (Johnson and Scholes, 1999). Wholly owned subsidiary This is nothing but a mode of entry where the company that initiated has a total and complete ownership of the stock possessed by the subsidiary. This type of wholly owned subsidiary could be set up by the process of acquisition or by the process of setting up a wholly new entity. The advantages of establishing a wholly owned subsidiary is many. In case if the company possesses a lot of competitive advantage in terms of its technical background, it can have a 100 percent hold on it and hence there is no control exerted by any external forces. A wholly owned subsidiary also helps in benefitting greatly from the process of strategic co-ordination at the global level. Another advantage of this system is that a company can enjoy the total benefits offered by the economies of location and also from that of the experience curve effects (Keegan and Green, 1997) The retailing giant Wal-Mart has been successful in the obtaining of a toehold in the sector of retail in India by means of adopting the mode of entry as a joint venture and has had a significant impact on the traditional system of retail existing already in India. Importance of market entry strategies There are many studies existing to show that the position of first entry into market provides the entrant with a lot of advantages in terms of stock prices, sustenance and other events as well. But there are chances of success for the other people who enter later as well because they can adopt specific strategies in the market that would help them for positioning themselves better. When some of the pioneering industries have attained the present status, eventually they become very much self-satisfied and would not be able to fulfill the dynamic and ever increasing demands that are posed by the market place. Hence the market entry strategies and the strategies adopted to gain a cutting edge in the market is greatly dependant on the market atmosphere and also on the range of players who exist in the market and their strategic positioning as well (Kanagal, 2006). Hence to maintain the leading position in the market, the pioneer industries should always be prepared to react to the change s occurring and also to expect the possible threats and the new entries. For instance, a leading player can react to the new entries by bringing about reductions in price and thereby decreasing the business value for the new entries. Other modes of reacting are by taking control over the major channels of distribution. Hence a comprehensive perception of the strategies of defense in the market along with a good timing sense complemented by a fool proof decision making plans will make the entry into markets and tackling the customers easier for the entrant (Evans, 2008). Overview of Emerging Economies: BRIC Nations According to World bank (2010) emerging economy is the term given economies or nations having middle to low per capita income. Around 20%of world economy and about 80% and about 80% of world population is represented by such emerging market economies (Burt et al, 2002). BRIC is a short form utilized to represent the speedily developing economies of Brazil, Russia, India and China. Goldman Sachs (2008) has identified BRIC nations is leading world economies by 2050. Data collected on BRIC nations shows that put together BRIC nations have a GDP of 15.435 trillion dollars, 25% of total land and about 40% of world population. RETAIL MARKET IN INDIA: A Scenario The Indian retail industry is still in the embryonic state. This segment has not been paid any attention post Indian Independence (1947). The extent and size and growing populace all are factors which offer an assurance for the retailing sector to develop in the future. The retail setting of India has conventionally centered on small, mom-pop shops which are located next to the residences of people. People have the facility to make payments on a monthly basis in such shops apart from interacting personally with the proprietors. Such shops are also endorsed by committees formed by people living in the localities. Services such as courier pick up and local promotions are facilities provided complementary by the stores. If people face a crisis they may request the proprietors to open the shops even when it is night time (Berman and Evans 2006). Indians usually prefer such stores. The segment pertaining to retailing is not structured and very few rules are followed by the stores. Such st ores comprise of nearly 92% of the total retail shops in the country. The residual 8% organized stores have emerged in the 2-3 years gone by thanks to ever-growing economy and opening up of the Indian economy.  A study undertaken by Market Graph (Research Firm based in New Delhi, India), in June 2008 concluded that the value of trade in India was around INR 12,000 Bn. As per the report it was stated this segment is the second largest provider of jobs for people of the country (Covey 2005) . The retail segment of India is imbalanced as the total market share of ordered retailers is only around 2% according to Bill and Bill (2004). The scenario was the same even in developed nations initially in the previous century; the materialization of huge retail stores including Wal Mart, Sears and McDonalds was the reason of quick development of the structured retail and increasing merging of the retail business in the advanced countries. It is the quick increasing incomes and changes occurring in the way people live which is transforming and encouraging the development of the structured retailing in the West (Kotler, 2004). The structured retail sector in India also shows promise as the purchasing power of Indians has increased while the rapidly growing middle class imitates the Western existence (Srivastava, 2007). Thanks to the tremendous growth of the Indian economy (2002-2008), individuals have more money to spend and they now expect to increase their standard of living. This was a reason for large renowned Indian businesses to venture in the retail business. During 2007-2008, around 33000 retail shops found their way in the country. Products offered by such shops included garments, provisions, fruits and vegetables, Electronics Auto. The next 4-5 years will see several new stores being introduced in the country. This phase of retail development is likely to recede by 2014; the market leaders will be those who are successful and have accurate skills related to operations in this sector. Retail stores who fail to follow suitable strategies related to marketing and consumer satisfaction will be forced to shut shop. The sales growth of US$ 392.63 billion in 2011 to US$ 674.37 billion has been forecasted in India Retail Report (BMI, 2011). Ever increasing upper class consumer base coupled with increase in construction of organized retail infrastructure have been identified as key factors behind its growth. McKinsey and Co (2010) has reported and expected increase from 5% to 14-18 % in organized retail market, which is expected to reach US$ 450 billion by 2015. Regulations and relaxations of the Indian market The business environment in India was characterized by an atmosphere that has been regulated to a high degree by a system of license that is pervasive and by tariff barriers that are high and this was the case till the year 1991. In the year 1991, there have been many sweeping reforms introduced by the Indian government and the other succeeding governments have also consistently operated so that the whole course of the economy of India has undergone a radical change (Bajpai and Sachs, 1999). The nation of India is one of the largest economies next only to China in the continent of Asia. There are a large number of investors from the foreign nations who are being attracted to India particular in the sector of retail. This trend has been happening ever since the market in India was subject to the processes of liberalization as well as privatization (Das, 2001). The nation is now being looked upon as a thriving market for the investment purposes in spite of the hassles in the bureaucracy and also shortcomings in the facilities and infrastructure in India. The nation also presents with a huge capacity for investment from abroad and the nation has realized this and hence in keeping with this trend, the nation is encouraging the entry of players from that of the foreign market. Also the nation also uses English language as the medium of communication for the business purposes, governmental policies and administrative issues and these factors offer a friendly environment for th e investors. Hence any company that aspires to be a leader in the global arena cannot afford to ignore India which is one among the emerging nations of the world (Bajpai, Jian and Sachs, 1997). In the present scenario India experiences the fresh spirit of economic freedom that is helping the nation to introduce changes that are far reaching and helping it to unleash the great capacity of the economy of India. An array of reforms have been introduced that helped in the additional deregulation and stimulation of foreign investment and these steps have pulled the nation to the forefront in the row of leading international players (Sreejith and Raj, 2007). Some of the obvious strengths possessed by India are the skills in information technology and soft wares and the huge capacity for e-commerce. There also exists a strengthened consensus from the political arena in the concept of economic liberalization at the level of central government and state governments (Das, 2001). These combined factors promises a continued and increasing strength in the policies pertaining to the investors in a friendly manner and have led to the formation of opportunities in ample amounts for the inv estors at the foreign and the domestic level. Overview of the Indian retail Industry The industry of retail in India is divided in to unorganized and organized sectors and the activities of trading that are being undertaken by the retailers who are licensed and are liable to pay taxes like the sales and income tax is called as organized retailing. The organized retailing is inclusive of the hypermarkets that are backed by the corporate and the chains of retail and the businesses in retail that are being owned privately. Retailing that is not organized is inclusive of the formats of retailing that is of low cost. This is inclusive of the kirana shops that is located in the local areas, general stores that are manned by the owners and the beedi or paan shops, stores of convenience and the carts pulled by hand, the vendors on the pavement etc. there are new trends coming up in the retail scenario of India and this sector has a rate of growth of over 45 percent which amounts to the three year growth rate and hence it is one of the sectors with rapid growth among all the other sectors (India Retail, 2008). There are new and innovative formats like the departmental stores that have come up and this is replacing the specialty stores, supermarkets, hypermarkets etc. Particularly in the metros, malls in the western style have started appearing and these malls are now spreading out to cities in the second rung and these promise the consumers in India a shopping experience that is unparalleled (Johnson Tellis 2007). There is a high degree of fragmentation in the retail sector of India because over 97 percent of the businesses being run in the country is by the retailers who are not organized. Hence organized retailing in India is still at its infancy even though there are lot of attempts that are being made to bring an increase in its relative proportion to over 10 percent by the end of the year 2010. This would also bring about tremendous opportunities for the aspiring young players. This sector also provides the largest resource for employment next onl y to the agricultural sector and also is penetrated deeply in to the rural parts of India. This sector is also involved in the generation of over 10 percent of the total GDP of India (Das, 2006). FDI in the Indian Retail According to Department of Industrial Policy and Promotion (DIPP, 2010) India had an inflow of US$ 1,392 million in October 2010 through FDI. In total US$ 122.68 billion has been channeled in to India from April 200o to October 2010. Decision to implement consolidated FDI policy has provided India with a respected position as a key partner in trade on international scale. Policy allows foreign investor to their funds through automatic route, do not mandate any permission prior to investment from the government of India (IBEF, 2010). In a survey Earnest Youngs 2010 have ranked India as 4th most attractive destination to invest. Similar results have been published in various repots like UK Trade and Investments, Japan Bank for International Cooperation and United Nation Conference on Trade and Development (UNCAD), which have ranked India as second most lucrative destination following China in next three years (IBEF , 2010). As mentioned earlier the retail sector in India has been kept closed for the foreigners so that the means of livelihood of over 15million kirana store owners and the small shop owners would be safe guarded. It has now allowed only 51 percent of direct investment when it comes to retailing with single brands with the proper permission obtained from the Indian government. In the sector of whole sale trading also there is foreign direct investment allowed. The retailers with single brands like Fendi, Nike, Louis Vuitton and Toyota can have their own operations in India. There is another company called Metro which now has its operations by means of trading on a whole sale basis. There are also options being invited by the policy makers in such a way that the interests of the retail community at the local level are also not affected (Bajpai and Sachs, 2000). The Indian government is also considering the opening of the retailing for sports goods, stationery items, electronic goods, equipme nt for building etc. But the tough part for the government is that it has to maintain the delicate balance and a equal space for all the players. Hence due to the FDI policy that permits over 51 percent of one brand has made options for entering of Nike which sells foot wears, Lladro that is involved with porcelain items, Louis Vuitton that sells watches, textiles, shoes, accessories for travel, etc, Damro that sells furnitures, Fendi that sells luxury goods, Argenterie Greggio that is involved in the selling of cutlery, gifts and silverwares and the retail trader of Cars- Toyota. The successful entry of these players is also attracting others into the Indian market like a luxury industry in France that plans to cover the domestic luxury segment (Guruswamy, 2005). Major players in the Indian retail industry There has been tremendous growth in the retail sector of India with players like Ambanis, ITC, Bharti airtel, Rahejas and a lot of other investors, who are involved in the making of significant contributions in the sector which would lead to the emergence of retailers at the international level. These retailers have the power to make proper bargains with the suppliers and can reap the benefits of the economies of scale. Hence the process of discounting has become a widely accepted practice (SIA, 2003). In the international arena, India is looked upon as the last option left because the sector of retail in the nation of China has almost become saturated. At the same time the restrictions imposed by the government of India on FDI are also giving hard times to the international giants like the walmart and Tesco and a lot of other aspirers. The present scenario is that, only 51 percent of foreign direct investment has been allowed by the government towards shops with single brands like t he Reebok, Nike etc. but the international retailers are also taking other available routes for gaining access to the Indian market in an indirect manner by means of entering in to licensing agreements that are strategic and franchisee agreements. There is also whole sale trading on cash and carry basis being opted by the international players because there is permission to 100 % foreign direct investments when it comes to trading on a whole sale basis ( Narayanaswamy and Zainulbhai, 2007) Pantaloon Retail Pantaloon retail has its head quarters in the city of Mumbai and this retailer possesses a retail space of over four million sq. feet. It also has about 140 stores that are spread over 32 indian cities. The retailer is also involved in the provision of employment to over 15,000 indians and reaped a turn over of about 20 billion rupees for the financial year of 2005-2006. Lifestyle International The major activity carried out by the Life style is the running of outlets for retail as well as departmental stores. The main focus of Lifestyle is the operation of department stores in the high end format. The company possesses two names for its brand- SOGO as well as Jiuguang through which all the operations of the retail business are carried out. RPG enterprises One of the leading and largest conglomerated of business in India are the RPG enterprises and the company has a turn over of about 1.6 billion US dollars. The assets of the company itself amount to about 2 billion US dollars. This enterprise was the most rapidly growing group at the national level right from its inception in the year 1979 and possesses a chain of over 20 companies. It also has its operations in over 7 sectors of business like retailing, information technology, transmission, life sciences, power, tyres and entertainment. Trent (Tata) This group has a relatively recent origin and with its establishment in the year 1998 and has been successfully operating chains of retail stores in the nation in a fast manner. The company took its initial step in 1998 by opening Westside a retail chain for life style after which there was the opening of star India Bazaar in the year 2004. Star India Bazaar is a hypermarket that offers a large range of products at the cheapest prices. The growth of Trent continued with the acquisition of Landmark which is the largest retailer of Music and books. Shoppers stop It was in the year 1991 that this major retailer began its journey by the corporate group of companies owned by K. Raheja. This has now developed to the extent that it has become the sole brand for fashion and Lifestyle for entire family. Viveks limited This retailer is the leading player in the section of household appliances as well as consumer electronics in India. Viveks has over 15 showrooms at world class standards in over 3 major cities like Salem, Banglore and Chennai. The retail occupies a retail place of about 1,00,000 square feet. The annual turn over generated by Viveks is around 1 billion rupee.