Foreign Market Analysis on China and India Essay Example
16Foreign Market Analysis on China and India
Foreign Market Analysis on China and India
Foreign Market Analysis on China and India
It is known that selection of the appropriate foreign market is one of the most important decisions that firms take during internationalization of their processes. Nonetheless, research indicate that inadequate knowledge on the foreign market is the major factor deterring businesses from operating in these markets. Market experts often have strategic ambitions and consider foreign markets as prospective opportunities of intensifying their sales and profits. In this report, the focus will be on Vegan products in India and China. Throughout the years, Vegan has made life easier through its quality products. As a result, the business acquired global brand recognition and high level of customer loyalty through diversification strategy by offering quality honey. Its customers accept another factor that has led to its growth ample acceptance of organizational brand and whatever the business produces since the products quality meet their expectations (Horngren, Datar, & Rajan, 2012, 159). The aim of this report has been accomplished through critical analysis of the business’ environmental analysis by focusing on both the macro-economic and microanalysis factors. Starting and developing an effective business pose both an adventure and a huge challenge. Any favourable business environment needs to be imperative for the entrepreneurs for creation and sustainability of the profitable business. Various factors are instrumental in facilitating creation of successful events. For example, there is need to access capital, clarity of legislations, development of entrepreneurial culture, and development of crucial business support network.
Macro-economic Analysis for India and China
The Indian economy has experienced a robust growth rate of 9% in 2004-2008 accompanied with major macroeconomic indicators. However, with the occurrence of North Atlantic Financial Crisis (NAFC), India suffered a setback in 2008. The country’s growth rebounded in response to the large monetary and fiscal stimuli. In 2008-2009, the country experienced widening of the current account and fiscal deficits and inflation that increased to an inflated level. The main factor that led to slowdown growth in India in 2011-2014 was vis-à-vis the immediate post-crisis years (2008-2009 and 2009-2010) which might have occurred due to withdrawal of the large monetary and fiscal stimulus administered after the crises. Due to intensification of NAFC, India experienced large capital outflows that reflected the sales by international investors within the domestic stock market. On the monetary side, the effective policy rate of India was cut sharply from 9% to 3.25% between 2008 and 2009 which led to cash reserve ratio from 9% to 5% within similar period. In addition, the country initiated various monetary and liquidity measures that potentially had the ability to release liquidity more than10% of the GDP.
Contrary to the prevailing pessimistic outlook within the global economy, the real GDP of India between financial years 2009-2010 and 2010-2011 remained stronger. The stronger growth started to be reflected in high inflation especially in food. The elevated international commodity prices and domestic structural imbalances within the availability of the selected domestic food items added to the inflationary pressures. With large and increasing capital flows, from 2.7 of GDP in 2003-2004 to 8.6% in 2007-2008, the Indian Reserve Bank had to deploy a range of instruments for managing the capital flows including the sterilized interventions. However, the country experienced growth in broad money averaging to more than 21% annually between 2005 and 2008 with growth in the non-food credit that averaged to 28% and real GDP growth that averaged to 9.5% within three years. It is contended that higher food inflation led to the minimum support prices (MSP) policy. The shift in the dietary patterns shifted in the favour of protein-rich items mainly due to higher incomes. Such a trend seemed to have the support from Mahatma Gandhi National Rural Employment Guarantee Act (Tjosvold & Leung, 2004, 129).
The GDP of the country for the financial year the ended in June 30, 2015 was 6.4% reflecting an improvement in the economic growth. Despite its political agitation that affected its transport services, private investments, and exports, the country help up well due to its domestic demand, private sector wages, higher worker remittances, and public investments. In the financial year 2015, export growth rate was 3.3%, which was a reduction from the 12.1% in 2014. In the country, exportation of the garments contributed about 80% of the total export, which grew slowly by 4.1%reflecting disruption of the supply chains by political demonstrations. The findings the IMF show that India’s FDI flows have statistical importance and positive influence on the country. Besides, India has been victorious in accumulating the inward FDI. As an attraction from its investment opportunities, sheer size, and ever-growing domestic market, India received approximately 20% of its FDI from the developing countries over the ten years and over $100 billion in 2008. With regard to the country’s GDP and investment, FDI add approximately 2.5% of the GDP. FDI policies are keen on liberalization processes. Before the market institutions, the country focused on opening foreign investment in the selected coastal areas with much emphasis on attracting export-oriented manufacturing FDI (Northern Melbourne Regional Development Australia, 2014).
Since China commenced its reforms in 1978, it has been enjoying rapid growth and moderate stability in the prices of most products. In addition, China experienced improvement in the pace of its economic and periodic expansion, enjoying efficient and decentralized administration, quality of labour force, elasticity supply, increasing volumes of savings, and higher levels of fixed capital investments. Another factor contributing to financial and economic performance is its large flows of direct investment from the foreign investors. Over the last years, the country experienced rapid economic growth standing at 10%. Nonetheless, in the past three-quarters of 2012, the country’s economic growth experienced significant decline, which to some extent further developed China’s structural production capacity. These circumstances have made it difficult for some businesses to operate effectively. Moreover, most country’s consumers and investors have been able to anticipate strongly their pessimism. In China, the government made a commitment to ensure the achievement of a real GDP growth of not less than 8% annually with an aim of assisting to maintain the social stability. As a result, the country has been remedying its negative macroeconomic shocks associated with slowdown in the export growth and financial crisis in Asia through the swift policy response.
In the first half of 2013, China’s economy developed towards the desired direction and performed properly. However, within the second period, the country’s economic factors experienced significant growth including consumption rates, investments, and industrial activities. In the same period, China registered a GDP of 17.28 trillion Yuan; consumer price index (CPI) registered 2.6% growth and trade surplus of USD55.3 billion representing USD40.9 billion. In China, the main indicator of its performance at international level is the stability of the currency against the standard reference currency, the U.S. dollars. The major factor attributed to such performance is the decision by the People’s Bank of China to devaluate the Yuen currency. Nonetheless, the country’s downward pressure remained strong on the currency due to the capital outflows that forced the bank to intervene with an aim of protecting the economy, several downside risks have emerged in the recent years. Additionally, China has sectors with the capacity of putting a dent in its economic growth such as strong capital outflows, heightened volatility within the stock markets, and overcapacity. Over the long run, the country’s economic status could depend on the size of its workforce and productivity level. The integration of two factors determines the quantity of products and services supplied within the country without necessarily overstretching its economic processes.
In the past 20 years, China has been experiencing rapid economic growth that stands at about 10%. However, in the first three quarters of 2012, the economic growth of the country has experienced significant decline, which to some extent has made structural production overcapacity become more serious. Such circumstances have made it difficult for most businesses to operate. In addition, most consumers and investors have strongly anticipated their pessimism. The Chinese government made a commitment of achieving a real GDP growth of not less than 8% annually to assist in maintaining social stability. Consequently, the country has been remedying the negative macroeconomic shocks associated with slowdown in the export growth and financial crisis in Asian through swift policy responses. In the first half of 2013, the economy of china developed towards the intended direction and generally performed well. Within the same period, other factors that experienced growth include consumption rates, investments, and industrial activities. The country registered a GDP of 17.28 trillion Yuan, consumer price index (CPI) registered 2.6% growth, and trade surplus of USD55.3 billion representing USD40.9 billion decline from the same period of last year (Weber, 2012).
Micro-economic Analysis for India and China
Like any other industry, the government due to increased number of fast food companies entering the markets controls the Chinese and Indian’s food industry. To determine the relevance of operating in either China or India, Vegan Food Truck needs to undertake a SWOT analysis of both countries. Some of the China’s strength includes the large strongest point and dynamic economy that is complemented with the largest population; the government has through the years done better jobs compared to the other emerging markets while putting in the physical infrastructure needed for supporting the rapid industrialization (Green, 2011, 153). Moreover, China is considered a powerhouse for the manufactured products with its domestic market emerging as a growth engine. These factors are favourable for Vegan Food Truck to experience the required growth. China has a large number of highly educated workers with reputation for working hard and being productive and enjoys the benefits associated with the country’s authoritarian system of being able to make and implement the decisions quickly.
The main weakness is the systemic risk associated with corruption. Besides, the qualities of main institutions like the judiciary have been compromised with political interference that might influence the performance of the business. In addition, the country experiences problems associated with accuracy of the official data, which affect the quality of services. Other affected factors include transparency and clarity and legal risks that businesses are exposed to while trying to collect the data independently. Therefore, it is important that the business becomes keen while investing in the country. In addition, there is lack of convertibility of the Chinese Yuan, which might be a drawback for the business within the country (Live Mint, 2012). There are negative side-effects associated with the Chinese scorching economic growth such as severe air pollution, worsening levels of inequality, and traffic gridlock.
There are opportunities for investing in China including provision of solutions to the negative side effects especially cleaning up the pollutions and assisting to protect the infrastructure and environment to support the mobile market. With the Chinese labour pool acquires high levels of disposable income, sizeable amount of households are likely to cut across the threshold at which the utilization of more diversified mobile phones, education, and entertainment (Prowle & Lucas, 2016). Currently, China is experiencing increasing numbers of state-owned businesses being purchased on the foreign technology outright. Such opportunity is meant for the foreign businesses like Vegan Food Truck to sell in China. There are existing economies of scale and extreme price sensitivity of the domestic market; therefore, business like Vegan Food Truck might use China in developing the whole range of new products and services. China also experiences numerous threats including diplomatic strains with the trading partners and has a large working force, which rapidly increases the cost which makes China to lose its competitive edge in various countries.
In India, the strengths include highly developed and diversified industrial base and a relatively sophisticated financial sector, enjoy large size domestic market, and rapidly increasing size of the middle class. The large population are highly educated and qualified and cheap to employ. The country enjoys a democratic political system that seems to offer large degree of predictability and stability. Like China, the biggest problem in India is corruption and potential sources of political instability due to frustrations associated with increased population and failure by the government to handle these issues. India’s development strategy is far for many years focused on substituting the imports and intervention from the government, which has created systemic weaknesses (Babu, 2011). Most of the public sector entities are less productive as they struggle to protect their interests, which makes the country limit the private sector opportunities. In India, high levels of unionization have restricted the labour reforms and technological improvements threatening the jobs and deter investors like Vegan Food Truck. Indian cities are known for environmental hazards and sanitation challenges due to its underinvestment, very weak physical infrastructure, and fiscal populism that have ensured that India’s public finances are wobbly.
India experiences a bureaucracy level that is overbearing with the political system vulnerable to special interest groups. There are also opportunities that India enjoys including rapid economic growth and low rates of per capita penetration, which have created investment opportunities. In India, area that were considered exclusive domain within the public sector are now opening to the private sectors. India has been able to integrate technology in various processes to open up its borders and enable development of competitive services. India also experiences certain factors that contribute to threats including the weak power, communication, and transport infrastructure, which are considered growth constraints (Dhingra, 2016, 191). The volatile capital flow within the country is threatening increment in pressure on the balance of payment; poor coordination among government seems to hurt the development of many industries.
Demand and Supply for Vegan Food Truck Products
The demand Vegan products follow the tastes and preferences of the customers. Globally, there are many customers favourable to the Vegan products compared to the others. The industrial demand for foods without meat and associated products are driven by various factors including disposable income, per capita sales of the phones, attitude of people towards the phones, world pricing of the phones, and demographics. During the economic recession, there was decline in the household disposable income for both India and China due to increased rates of unemployment and stagnant wages that caused the downward pressure on the business revenues and the profit margins within the fast food industry (Salvatore, 2015, 132). While analyzing the demand within the industry, per capita sales for Vegan products is another critical factor in which increased sales in the vegetable foods increase revenues for the business. The main factor likely to increase such factors is increased level of disposable income with the economy improving and customers starting to relax their budgets. This driver seems to have positive effect on the market revenue.
The market structure is a competitive environment in which both the businesses and customers operate. There are different types of market structure: perfect competition, monopoly, monopolistic competition, and oligopoly. Demand is the amount of quantity of products and services needed by the customers (Chiswick, 2011, 142). People are increasingly becoming conscious on the type of food they undertake. Vegan Food Truck produces food without meat products, which is highly demanded by the customers due to its high level of quality and a number of features provided by these products. The food satisfied different needs of the customers including health and wellbeing and tastes and preferences; as a result, the customers perceive the business to offer valuable product. Like any other product, Vegan Food Truck products are affected by different demand factors. In both China and India, availability of substitutes affect the demand for the Vegan products. For example, initially, most businesses were keen on offering food diet with meat contents. Research undertaken revealed that most health issues were associated too much consumption of meat; however, in the recent years, the gap has reduced due increased number of substitutes to provide diets without meat contents. For such reason, the demand for meat diets declined while the competitors launched their products of similar dietary contents. Consequently, the image of the brand seems to affect the demand positively for the business products; as a result, the customers of the company’s products tend to be faithful through the brand through buying the Vegan products and recommending to the others.
Technology plays important role in influencing the demand of the products considering that buyers are willing to pay higher prices for products they consider of higher technological value. Most demands within fast food industry are created through the presence of new technology within the market. Furthermore, businesses tend to influence the demand for its products through the advertising campaigns (Index Mundi, 2017). Since Vegan Food Truck aims to explore the Indian ad Chinese market, it needs to be sensitive to the changes associated with income of the buyers. In countries whose personal incomes have been on rise like China and India , the demand for food without meat contents has been increasing in similar proportion that show that manner in which demand is backed to the willingness to pay.
Elasticity of Demand for Vegan Products in China and India
Elasticity of demand tends to measure the extent to which quantity demanded responds to the changes associated with price. In economics, the demand for a product is considered elastic if the demanded supply responds substantially to the price changes. In China, the demand for Vegan product depends on the model and the phase in which the product cycle is (Lambertini, 2009, 172). In India, the demand for new food without meat is inelastic which means that the increased price would merely affect the quantity of the phones demanded. For example, in Figure 1, increase in the price of products from 500 to 600 lead to the production of new equilibrium in X1 that even if the demanded quantity is merely less, there is considerable increment in the profit (Area A). In Figure 2, during the launch of new phone, there is limited supply but considering the high level of product demanded and the total revenue rises from A to B.
Figure 1: Inelastic Demand
Figure 2: Limited Supply
Based on such analysis, the business model that came earlier experienced elastic demand. If either China or India experiences such market conditions, then the business would have to lower the prices of its products with an aim of making more profit (Asia Risk, 2011). Through cutting the prices of the old models, the business would be producing an increase in the demand in quality for the old models, which in turn opens the new market to the low income buyers while increasing the total revenue as shown in Figure 3.
Figure 3: Elastic Demand for the Fast Food
Cross Price Elasticity and Income Elasticity in China and India
Through launching its products in the Indian and Chinese market, Vegan Food Truck had effects on the elasticity of the other products: the cross price elasticity, which is considered as the percentage of change in the quality of the product A in regard to the percentage change of the price in B. Based on the previous analysis, it is clear to see the effects on the complementary products. On the general view, foods without meat in the diet has been on the rise due to increased awareness on health and wellbeing; as a result, the customers who shifted to would need to buy healthier products. Therefore, the cross elasticity of demand for both diets, with and without food, is negative figure that complement each other. In such case, if the demand for food with meat declines, the demands for associated products reduce as well (Sharma, 2015, 110).
The income level is increasingly becoming important in determining the demands of goods and services. It is calculated based on the change in the quantity demanded in relation to the changes of the consumer income. In the countries like China and India that have experienced PDI (personal disposable income), the value has been increasing which makes the demand of the business product to increase with equal proportion. Therefore, income elasticity for the Vegan product is positive.
Figure 4: Income Elasticity Vegan
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