ASSIGNMENT -1 BUSINESS ENVIRONMENT

BY : ABHISHEK PATHAK
ROLL NO :00280401715
QUES 1: IMPACT OF MACRO ENVIRONMENT ON INDIAN INDUSTRY?

Opportunities and Threats in India

With reference to the analysis of macro business environment identified in the previous section,
we have identified the following opportunities and threats to business in India. They are
discussed under each macro environmental headings.
Opportunities

Political Environment

Political ideology of market economy

Indian political parties have realized that socialism or socialist economic policies have
hampered the economic growth in the past. The results of liberalization are visible with
the growth in economy and standard of living. It is unlikely that the current ideology
would change. This gives a great opportunity to private sector for business growth and
expansion.

Economy becoming top priority

Economy is becoming a top priority of government and the importance of economic
diplomacy has significantly increased in the last few decades. With the incidents like
global financial crises, government of all economies have emphasized more and India
is no exception. This is a positive sign for economy.

Reducing instability
Indian government is slowly becoming stable. Since its independence in 1947, political
scenario has improved slowly to take the present shape. Political parties have become
more responsible and as a result, governments have become more stable than in the
past. This is a great confidence booster for domestic as well as foreign investors.
Economic Environment

Growing Market Size Indias GDP is constantly growing and the growth is likely to
continue in upcoming years. It has become one of the fastest growing economies of the
world. The population size and growing market is a tremendous opportunity for
businesses.

Growing middle class population

Indias middle class is growing with the growth in economy. GNI per capita is growing
every year signally the increment in purchasing power of people. This has fueled he
demand for various good and services.

Base for low-cost production

India is increasingly being recognized as a place for low-cost production. China
succeeded with that factor and India is heading in the same direction. Due to the stiff
competition in global arena, the need for cost-reduction has become significant. The
growth in IT sector in India is the result of focus towards cost reduction.

FDI
The continuing inflow of foreign direct investment reinforces the positive view that the
Indian market has the capacity to absorb investment and generate a return based on
productive growth. At the same time, a balance needs to be struck between the
immediate priorities for the Indian economy and the long-term concerns that include
environmental and security concerns.

Social Environment

The large diverse group present in the country provides many business opportunities to
cater to one or many groups.
The country is slowly shifting from the traditional culture to more Western style of
living.
The large middle-class citizens are diverse from poor to very rich people.
Governments initiatives towards providing more education favor most of the business
areas in terms of educated workers and even educated consumers.
 Women empowerment shows the trend of women rising towards managerial and
authorized positions.

Technological Environment

In India, lifestyle, consumption pattern in changing rapidly and with development of

technology new market is created and this increases opportunities for the business
houses.
The use of technology and its advancement has increased competitiveness of Indian
goods in both domestic and foreign market which is an opportunity for the country.
Large FDI in IT sectors show growth trend for many years.

Ecological Environment

Different programs like drinking water protection, solid waste management, vehicle
emission monitoring, eco-cities program and many other programs are launched by
government of India as a step to protect environment.

Indias climatic conditions are extremely favorable for the cotton farming, which is one
of the major raw materials for textile production. This provides great scope for the
development of the Indian textile industry.

Threats

Political Environment

Political influence in business

India is a combination of states with policies still existing at the local level. This has
distorted uniformity. India is a big country which holds different caste, religion, cultures
and values. This adds more difficulty to uniformity. For example, we can take the case
of shifting of manufacturing plant of TATAs Nano car. Such differences can create
problems for business in the future too.

Uncertainty in government policy

 Government policies are bound to change and no business can stay isolated from that.
Policies can change due to pressure or for the prevention of problem. For example, even
the government like US government increased the tariff rates in tires being imported
from China. If it had not done that, it would have lost thousands of jobs in that sector.
This decision from US government seriously hit Chinese exporters. Such situation can
also arise in India which is a great threat for foreign investors.

Economic Environment

Strikes and Lockouts

During 2008, as per the information available, Tamil Nadu experienced the maximum
instances of strikes and lockouts followed by Kerala, Andhra Pradesh and Karnataka.
Industrial unrest was concentrated mainly in financial intermediation (excluding
insurance and pension), textiles, air transport, and mining of coal and food products.
These incidents pose a threat to economic environment.

Foreign completion putting pressure on domestic companies

Opening of the economy has made entry of foreign companies possible and brought the
technology of production skills. This has created more competition for the domestic
industry. This is the result of Indias move towards market economy and only efficient
firm survives. This has created pressure for domestic industries to be more competitive.

Shortage of skill in manufacturing

India is seen as a vast pool of talent with great diversity and with a demographic
advantage. However, the industrial sector faces acute shortage of skills. The swiftness
with which this skill deficit is bridged will be critical in determining whether India can
move up the value chain in manufacturing.

Depleting resources
The growth in many industries is constrained by the acute scarcity/depleting reserves
of important raw materials like coal, irons ore, natural gas and forestry resources. This
is a threat to industry operating on a base of such resources.
Social Environment

Growing conflict over different religion groups such as between Hindu and Muslim.
The traditional beliefs still surpass any new ideologies in rural areas.
Most of the population is in rural areas, which is still under developed.
Large unequal income distribution leads to wide product categories.

Technological Environment

Too much of industries and use of technology have led to ecological imbalance and
environmental degradation.
Technology centered only in major cities such as Mumbai, Delhi, and Bangalore.
Due to concentration in few cities, these cities are being crowded, leading to growing
urbanization.
Most parts of India still are deprived of electricity.

Ecological Environment

Rapid population increase, dramatic changes in production and consumption patterns

and massive rural-to-urban migration in India have transformed the way environment
and natural resources are used. Ultimately, we are heading towards the collapse of
ecological system which can be greatest hurdle to growth and civilization in India.

Environmental degradation is now all pervasive, accelerating and largely unabated.

This is manifested in polluted air, depleted biodiversity, degraded lands, exhausted
aquifers and polluted aquatic and marine ecosystems, as well as increasing exposure to
hazardous and toxic wastes. Peoples health and longevity have suffered, natural
resource based livelihood has been compromised, and ecosystem services and resources
that underpin long term economic development are at risk.

Development can hardly be sustained when the natural resources of soil, water and
vegetation, the basic economic capital of a country, are depleted recklessly.
Information Technology Industry

As a relatively poor country, India is not normally thought of as a nation that is capable of
building a major presence in a high-technology industry, such as computer software. In little
over a decade, the Indian software industry has astounded its skeptics and emerged from
obscurity into an important force in the global software industry. Measured by the age of many
industries, the computer or information technology (IT) software industry in India is still in its
infancy. Yet, its growth and development has caught the attention of the world market so much
so that India is now being identified as the major powerhouse for incremental development of
computer software. Although Indias domestic software market is burgeoning fast, the most
important factor that has driven this progress is the growth of the export market. While still a
relatively small share of export market, Indias software export business is mushrooming and
export revenue has been growing at an increasing rate.

8.1 Why Information Technology Industry?

The software services industry provides a lower bound on the relative advantage of family
business groups over independent entrepreneurs in exploiting new opportunities for a number
of reasons:

The industry is very conducive to starting entry because of low capital requirements.
Little government regulation on entry.
A relatively low level of minimum economic scale to achieve profitability.

Further, the Indian government invested in elite technical institutions, such as the Indian
Institutes of Technology and Indian Institutes of Management, and a large number of other
engineering colleges. These institutions produce abundant talent, a critical input for the
software services industry. Graduates of these institutions, relying on a recognized education
brand, are more willing to work for de novo startups than for incumbent business groups.
Finally, government policies restricting operations of multinationals such as IBM leaves plenty
of opportunities for domestic entrepreneurs. Given all these factors, software services is one
industry where individual entrepreneurs can compete effectively with established family
business houses of India.
Strengths

The strengths that lie in the IT industry in India are:

Availability of large pool of cheap and talented software personnel
Indias important middle class is highly educated and its top educational institutions are
world class.
Emphasis on engineering in India and esteemed institutes such as IIT and IIM.
Presence of the biggest English speaking population after the United States.
Support from the government in the form of industrial parks, which enjoy various
incentives and tax benefits.
Liberal import export policy.
Strict quality policies adopted by the IT industry in terms of reliability, stability and
maintainability by adhering to the standards laid down by the ISO 9001 or SEI/CMM
(Software Engineering Institute Capability Maturity Model) or both.
NASSCOM (National Association of Software and Services Companies) acting as the
platform for all IT companies to make representations to the government on industry
problems and integrating the domestic industry with the global industry.

8.3 Weaknesses
The weaknesses that lie in the IT in India are:
Poor telecommunication infrastructure
Indias telecommunication infrastructure is poor compared even to developing
countries. The reason behind this has been the state monopoly over telecommunication
in India.

Lack of cities with good infrastructure for the IT companies to set up offices
Most of the IT companies in India are situated in the cities of Bangalore, Hyderabad,
Pune, Gurgaon, Mumbai and Chennai. However with more and more companies setting
up offices in these cities, the infrastructure in these cities has begun to get overloaded.
Infrastructure within these cities has deteriorated leading to many problems. Internet
and Web infrastructure in most of these cities are not capable of taking any further load.
 Lack of enough electricity remains a big problem even in the metropolitan cities.
Therefore the infrastructure in these cities needs to be developed. However this process
could take a long time considering the delays involved in decision making and
implementing projects in India.

Potential shortage of skilled human resources

The outsourcing contracts coming to the country is expected to increase significantly.
However country may face shortage of people with the right kind of talent to execute
these contracts. This is a real possibility in the case of high end software services. The
infrastructure and educational facilities in many of the countrys institutes are abysmal.

Faculty crunch is a problem faced by even the prestigious institutes like the IITs and
the IIMs. The lack of sufficiently qualified professionals may severely restrict Indias
capability to deliver high quality services to the outsourcing contracts expected to come
to India. The shortage of skilled professionals can also push up the salaries of Indian IT
professionals. This may lead to India losing its advantage in providing low cost
outsourcing services.

Comparative Advantages

These are the comparative advantages the software industry provides to India in comparison to
the same industry in other countries in the world:

Cost advantage
The wages commanded by the Indian software professionals is much less compared to
their counterparts in the developed countries. The cost of setting up and running offices
is also less in developing countries compared to the developed nations.

Availability of qualified professionals

India has a large talent pool of highly skilled and English speaking professionals. This
factor gives India advantage over other developed nations which are facing a talent
 shortage and over other developing countries like China which do not have a large
English speaking population.

Time zone advantage

Indias geographical position has given it a time zone advantage. Indian engineers can
fix software bugs, upgrade systems, or process data overnight while their users in
Western companies are asleep.

Proven delivery quality

Over the years Indian software companies have consistently delivered high quality
software products to clients across the world. Most of the major Indian software
services companies have obtained CMM Level 5 ratings, the highest ratings on the
predominant quality scale developed for software at Carnegie-Mellon University. Out
of the nine software development centers in the world with CMM Level 5, five are in
India. This fact underscores the high quality software development and management
practices employed by Indian software companies and has led to an increase in the trust
shown by various clients around the globe.

Rise of Indian software companies up the value chain

India is no longer seen as a destination for outsourcing low cost less critical services.
Indian software majors have started offering high end consulting services, designing
and developing end-to-end software solutions for various business verticals and
providing high quality Research and Development services. The share of software
services exports across these areas is expected to go up in the future. In recent years
India has emerged as a global leader in providing software services capable of offering
low cost high quality services ranging from high end consulting to low end
maintenance services.

Growth Trend of Software Industry

During the past decade, the Indian IT industry has been experiencing a dramatic growth.
Between 1991-92 and 1996-97, sales of Indian software companies grew at a compound rate
of 53 percent annually. In 1991-92, the industry had sales totaling $388 million. By 1996-97
sales were around $1.7 billion. By 1997, there were over 760 software companies in India
employing 160,000 software engineers, the third-largest concentration of such talent in the
world. The industrys total revenues in 2002 stood at $10.2 billion, and it grew at more than
40% per year during the 1990s. The industry accounted for $7.7 billion in exports in 2002 while
it accounted for $40.4 billion in exports in 2007, which was a significant portion of the total
exports of goods and services from India in that year.

Pharmaceutical Industry

Pharmaceutical sector is an important industry of any modern day economic power.

Pharmaceutical industry in India has a very humble past. After independence, development of
pharmaceutical industry was one of the top agenda of government along with steel and
manufacturing industry. The market was protected against competition for a long period of
time by giving incentives to small firms, license-raj etc. Today the Indian pharmaceutical
industry is the front-runner science-based industries in the country. Today the industry boasts
of wide ranging capabilities in the complex field of drug manufacture and technology. India is
poised to be one of the fastest growing pharmaceutical markets in the world. This has led to
entry of many major companies in the Indian market and a huge amount of FDI inflow.

9.1 Why Pharmaceutical Industry?

There are certain favorable factors that underlie the fact that there is growing opportunity for
pharmaceutical industry in India:

Aging of the world population

With the aging of the world population combined with new diagnoses and new social
diseases, the demand for the medical products on a whole is increasing. Also, there is a
growing attention to health. Moreover, with new therapy approaches and new delivery
systems, Indian industry is bound to grow.

Migration to the new patent product regime

The migration to the new patent product regime will transform the industry by bringing
with it new innovative drugs. This in turn will increase the profitability of the Indian
MNCs and will force domestic companies to focus more on the R&D front.
 Expected growth in the per capita income
The expected growth in the per capita income and opening up of health insurance sector
are the key growth drivers for long-term. This will lead to an expansion of the healthcare
industry of which pharmaceuticals is an integral part.

Market saturation point is far away

With new diseases being discovered, cure to some diseases still undiscovered and
growing world population signals that the market saturation point is still far away.

Growing attention for health

Asian people are also becoming more health conscious and use of medicine is
increasing not only to cure problems but also to maintain health. This is expanding the
market size of pharmaceutical industry.
Strengths

The strengths of pharmaceutical industry are as follows.

Well-developed industry with a strong manufacturing base

It is a well-developed industry with a strong manufacturing base. The cost of production
of drugs in India is one of the lowest. India can produce drugs at about 40-50% of the
cost to the rest of the world, which in some cases may reach up to as low as 90%.

Huge untapped market

The high middle class growth has led to fast changing lifestyles in urban as well as to
some extent in the rural centers. This has opened a huge market for lifestyle drugs,
which currently have a low contribution in the Indian pharmaceutical market.

Presence of patent protected drugs ensuring future revenue streams

One more factor adding to the strengths of this industry is the presence of patent
protected drugs that ensure future revenue streams.
 Existence of a large pool of installed capacities
Due to consolidation of acquisition's operations, a large pool of installed capacities
exist. Economies of scale in marketing, production and administration can be garnered.

Access to a pool of highly trained scientists

As research forms an integral part of the industry, access to a pool of highly trained
scientists also add to the strengths.

Liberalization fuelling growth (FDI policy)

Liberalization policies of government are also a great contributing factor since it has
added to the confidence of foreign investors in this industry. The government of India
has allowed foreign direct investment up to 100% through the automatic route in the
drugs and pharmaceuticals industry of the country, on the condition, that the activity
should not fall into the categories that require licensing.

Weaknesses

The weaknesses of pharmaceutical industry are as follows.

Lack of product patent preventing new drugs introduction

Lack of product patent prevents new drugs introduction in the country and thereby
suppresses innovation and drug discovery. Also there is lack of experience even to
efficiently exploit the new patent regime.

Slow growth in the Indian pharmaceutical market leading to reliance on exports

Indian pharmaceutical market is one of the least penetrated markets in the world. Slow
growth has made the Indian majors to rely on exports.

Low entry barriers and highly fragmented market

Although the installed capacities are high, due to very low entry barriers, they are highly
fragmented. There are about 300 large manufacturing units and 18,000 small units
 across the country. This makes the Indian market extremely competitive. This has led
to price competition, which in turn affects the growth of the industry in value term.

High monetary obligations due to the need for acquisitions and mergers
Recently the industry has been exposed to high monetary obligations due to the need
for acquisitions and mergers.

Low R&D investment and thus greater competition with MNCs

Low investment in R&D and lack of desired resources make it difficult to compete with
the MNCs on a worldwide basis. Few drug discovery systems and low level of
biotechnology add to the problem.

Low quality drugs tarnishing the industry image on a whole

Due to the fragmented nature of industry and lack of adequate quality control
mechanism, low quality drugs that enter though formal or informal channel is damaging
the quality image of the industry.

Weak feedback from the industry

There is no strong linkage between the industry and the academia as such, which could
have proved to be a growth driver by providing regular feedback.

Industry lacks accurate technology forecasting and strategic future planning

There is a huge shortage of medicines containing psychotropic substances, some of
which are lifesaving.

Comparative Advantage

These are the factors that give pharmaceutical industry in India comparative advantage over
industries in other countries.

Competent workforce
 India has a pool of personnel with high managerial and technical competence as also
skilled workforce. It has an educated work force and English is commonly used.
Professional services are easily available.

Cost-effective chemical synthesis

Pharmaceuticals track record of development, particularly in the area of improved
cost-beneficial chemical synthesis for various drug molecules is excellent. It provides
a wide variety of bulk drugs and exports sophisticated bulk drugs.

Legal and financial framework

India has a 53 year old democracy and hence has a solid legal framework and strong
financial markets. There is already an established international industry and business
community.

Information and Technology

India has a good network of world-class educational institutions and established
strengths in Information Technology.

Growth Trend of Pharmaceutical Industry

The Indian pharmaceutical industry has grown from a mere IRs. 1,500 crore turnover in 1980
to over IRs.78,000 crore in 2008 with about 10 per cent of share volume of global production.
High growth has been achieved through the following means the creation of required
infrastructure capacity building in complex manufacturing technologies of active ingredients
and formulations, entering into drug discovery through original and contract research and
manufacturing (CRAM) and clinical trials and product specific strategies of acquisition and
mergers. The domestic sector had a production turnover of IRs. 47,241 crore from about 10,000
small-scale and 300 large and medium manufacturing units in 2008.

Pharmaceutical industry in India ranks 4th in terms of volume globally and 13th in terms of
value. It has 8% share in global sales and 20% to 24% share in production of generic drugs.
The domestic players satisfy almost all of the countrys demand for formulations and bulk
drugs.

Pharmaceutical exports have grown from IRs.6,256 crore in 1998-99 to IRs. 30,759 crore in
2008. Exports of pharmaceuticals have been consistently outstripping the value of
corresponding Imports in the period 1996-97 up to 2007-08. Exports registered a growth rate
of 25 per cent in 2007-08 over 2006-07. The sector attracted FDI amounting to US$1,401.60
million during 2000-01 to September 2008,of which, US$ 125.30 million occurred during
April-September 2008.

Investments in pharmaceutical sector are now expanding into areas of innovative R&D focused
outsourcing opportunities like clinical trials, data management services, pharmaceutical
informatics, lead discovery and optimization, pharmaco-kinetics and pharmaco-dynamics and
pre-clinical drug discovery in combinatorial chemistry, chiral chemistry, new drug delivery
systems, bio informatics and phyto-medicines. The Indian pharma industry is taking leaping
strides in innovative drug discovery with clinical trials underway in 34 molecules.
Consequently, the Indian drug discovery market has grown from US$ 470 million in 2005 to
US$ 800million in 2007.

Textile Industry

The textile industry holds significant status in India. Though the industry was predominantly
unorganized industry even a few years back, but the scenario started changing after the
economic liberalization of Indian economy in 1991. The opening up of economy gave the
much-needed thrust to the Indian textile industry, which has now successfully become one of
the largest in the world. Textile industry provides one of the most fundamental necessities of
the people. It is an independent industry, from the basic requirement of raw materials to the
final products, with huge value-addition at every stage of processing. It provides one of the
most basic needs of people and holds importance for maintaining sustained growth for
improving quality of life.
It has a major contribution to the countrys economy. The textile sector also has a direct link
with the rural economy and performance of major fiber crops and crafts such as cotton, wool,
silk, handicrafts and handlooms, which employs millions of farmers and crafts persons in rural
and semi-urban areas. It has been estimated that one out of every six households in the country
depends directly or indirectly on this sector.

1 Why Textile Industry?

Apart from providing ample employment opportunities to the middle and lower class of India,
the textile industry has many other opportunities:

Elimination of quota restriction leads to greater market development.

Large potential domestic and international market.
Increased disposable income and purchasing power of Indian customer opens new
market development.
Market is gradually shifting towards branded readymade garment.
Indian manufacturers and suppliers are improving design skills, which include different
fabrics according to different markets.
Greater investment and FDI opportunities available in this segment.

Strengths

The strengths of textile industry in India are:

India enjoys benefit of having plentiful resources of raw materials. It is one of the
largest producers of cotton yarn around the globe, and also there are good resources of
fibers like polyester, silk, and viscose.
Indian textile industry is an independent and self-reliant industry.
The country has a huge advantage due to lower wage rates. Because of low labor rates
the manufacturing cost in textile automatically comes down to very reasonable rates.
Availability of large varieties of cotton fiber and has a fast growing synthetic fiber
industry.
India has great advantage in spinning sector and has a presence in all process of
operation and value chain.
 Industry has large and diversified segments that provide wide variety of products.
The garment industry is very diverse in size, manufacturing facility, type of apparel
produced, quantity and quality of output, cost, requirement for fabric etc. It comprises
suppliers of ready-made garments for both, domestic or export markets.
Weaknesses

The weaknesses of textile industry in India are:

Massive Fragmentation
A major loop-hole in Indian textile industry is its huge fragmentation in industry
structure, which is led by small scale companies. Despite the government policies,
which made this deformation, have been gradually removed now, but their impact will
be seen for some time more. Since most of the companies are small in size, the examples
of industry leadership are very few, which can be inspirational model for the rest of the
industry.

Distant Geographic Location

There are some high-level disadvantages for India due to its geographic location. For
the foreign companies, it has a global logistics disadvantage due the shipping cost is
higher and also takes much more time comparing to some other manufacturing
countries like Mexico, Turkey, China etc. The inbound freight traffic has been also low,
which affects cost of shipping - though, movement of containers are not at reasonable
costs.

Labor Laws
In India, labor laws are still found to be relatively unfavorable to the trades, with
companies having not more than ideal model to follow a hire and fire policy. Even
the companies have often broken their business down into small units to avoid any
trouble created by labor unionization.

Lack of trade membership

India lacks in trade pact memberships, which leads to restricted access to the other
major markets. This issue made others to impose quota and duty, which restricts on the
sourcing quantities from India.
 Industry is highly dependent on cotton textile
The growth of cotton textile has remained negative for last two fiscal years which poses
a threat to overall textile industry. The dependency on cotton is not favorable.

Lack of adequate technological development that affect the productivity and other
activities in whole value chain

Growth Trend of Textile Industry

Role of textile industry in India GDP has been quite beneficial in the economic life of the
country. The worldwide trade of textiles and clothing has boosted up the GDP of India to a
great extent as this sector has brought in a huge amount of revenue in the country.

In the past one year, there has been a massive upsurge in the textile industry of India. The
industry size has expanded from USD 37 billion in 2004-05 to USD 49 billion in 2006-07.
During this era, the local market witnessed a growth of USD 7 billion, that is, from USD 23
billion to USD 30 billion. The export market increased from USD 14 billion to USD 19 billion
in the same period.

The role of textile industry in India GDP had been undergoing a moderate increase till the year
2004 to 2005. But ever since, 2005-06, Indian textiles industry has been witnessing a robust
growth and reached almost USD 17 billion during the same period from USD 14 billion in
2004-05. At present, Indian textile industry holds 3.5 to 4 percent share in the total textile
production across the globe and 3 percent share in the export production of clothing. The
growth in textile production touched USD 22.1 billion during 2007-08. USA is known to be
the largest purchaser of Indian textiles.

10.5 FDI Inflows to Textiles Industry and Government Initiative

The textiles industry in India is experiencing an increase in the collaboration between
national and international companies International apparel companies like Hugo Boss,
Liz Claiborne, Diesel, Ahlstorm, Kanz, Baird McNutt, etc have already started their
operations in India and these companies are trying to increase it to a considerable level .
 National and the international companies that are involved in collaborations include
Rajasthan Spinning & Weaving Mills, Armani, Raymond, Levi Strauss, De Witte
Lietaer, Barbara, Jockey, Vardhman Group, Gokaldas, Vincenzo Zucchi, Arvind
brands, Benetton, Esprit, Marzotto, Welspun, etc.
Foreign Direct Investments (FDI) up to 100% is allowed in this sector through the
automatic route by the Reserve Bank of India.
In order to provide quality cotton raw materials at reasonable price to the
manufacturers, the Technology Mission on Cotton was launched.
In order to facilitate the technological advancement in the textile industry, the
Technology Upgradation Fund Scheme (TUFS) was set up.
The Scheme for Integrated Textile Park (SITP) is set up to provide world standard
infrastructure facilities.
The reservations for the small scaled units in textiles were abolished.