Vol. 1 - SMS Lucknow

Adhyayan
A Journal of Management Sciences
ISSN : 2249-1066
Vol.1 No.1 - JAN-JUN 2011
Kasimpur Biruha, Post Kasimpur, Lucknow Sultanpur Road,
Lucknow 227125 (India)
EDITORIAL BOARD
Editor-in-Chief
Prof. (Dr.) M. Mehrotra
Director, SMS Lucknow
Consulting Editor:
Ms. Ritu Tayal
Lecturer, SMS
Managing Editor:
Dr. Dharmendra Singh
Associate Professor, SMS
Consulting Editor:
Mr. Vikram Singh
Lecturer, SMS
ADVISORY BOARD
Prof. B. P. Singh
Former Professor,
Delhi School of Economics
New Delhi
Dr. Anand Pradhan
Indian Institute of Mass Communication
New Delhi
Mr. A. T. Raman
Dy. Editor
Business India
New Delhi
Prof. Kamalesh Dutt Tripathi
Former Professor of Philosophy, BHU, Varanasi &
Honorary Director
C-SHE (of SMS), Varanasi
Prof. B. D. Singh
Institute of Management Technology
Ghaziabad
Prof. (Dr.) Rattan Sharma
Director
Bhavan Institute of Management Studies,
New Delhi
Prof. (Dr.) H. Indurkar
HOD, Department of Management
Medi-Caps Institute of Technology & Management
Indore
Prof. Devi Singh
Director
Indian Institute of Management
Lucknow
Prof. (Dr.) H. J. Goshroy
Director, IMSAR
MD University
Rohtak
Prof. S. K. Singh
Faculty of Management Studies
Banaras Hindu University
Varanasi
Adhyayan- A Journal of Management Sciences is half yearly publication of School of Management Sciences, Lucknow,
India. The vision of the Journal is to present a pedagogic platform to scholars all over the world to publish their novel,
original, empirical and high quality research work. The editorial board would like to publish research papers/articles from
scholars pertaining to contemporary developments and practices in all the areas of management and emerging issues in
allied areas of management.
No part of any paper/article can be reproduced without the prior permission of the Editor-in-Chief, ADHYAYAN – A
Journal of Management Sciences.
Disclaimer: The view and opinions presented in the research papers / articles published in the Journal are solely
attributable to the person or entity. The Journal / Institution shall not be liable for the presented opinions, inadequacy of the
information, any mistakes or inaccuracies.
© School of Management Sciences, Lucknow
Editorial
It gives us immense pleasure to put forth the first issue of our management journal-Adhyayan. Through this journal we hope
to create a platform for knowledge sharing amongst professionals and researchers working in various domains of
management. The aim of the journal is to provide a valuable addition to the management literature, which not only covers
contemporary topics, but also serve as a precious reference material for the academic community.
The first paper titled ‘VAS an Interface between Police and Citizen’, aims to find the establishment in a technological
application that would benefit the masses and minimize the current distance between police and citizens .The major issue
discussed in this paper is the increasing crime rate in our country which is an important concern for safety and security of
the citizens.
The second paper ‘Green Marketing – The Growing Marketing Mantra’ is a conceptual paper on green marketing, which
attempt to introduce – the terms, concept and importance of green marketing; it also highlights some problems that
organizations may face to implement green marketing and its managerial implications along with few case points.
The third paper ‘Creating Success Formula to Excel in Rural Markets’ deals with the Indian Rural Markets and the myths
about the rural markets. The paper attempts to reveal the hard facts that create a new understanding about the existing rural
markets and its changing trends. It also proposes a 7-A-Strategic Model to succeed in the rural market.
The fourth paper ‘A Study on Consumer Perceptions and Expectations for TATA Nano’, explores the customers' perception
of TATA Nano, it analyzes how various variables like price, style, attributes, availability etc. affects customers perception
about TATA Nano. It was found that the three major factors influencing the decision of purchasing Nano are price, fuel
efficiency and performance of the car.
The fifth paper ‘Emerging Scenario of Facilities and Concessions to Exporters in India-An Appraisal’ is an attempt to study
various export promotion schemes introduced from time to time to promote exports from India after economic reforms and
their resultant impact. It has detailed discussions on the various export promotion schemes like Market Access Initiative
(MAI) Scheme, Special Economic Zones (SEZs), and Focus Market Scheme, etc.
The sixth paper ‘Malls as a Buying Destination in Delhi, NCR: An Exploratory Study’ is an attempt to analyze the areas
where retail sector is growing and has growth potential in future. It also throws light on the reasons why consumers will
prefer to shop from shopping malls and what will be the target strategies to best serve mall customer segments.
The seventh paper ‘Impact of Piracy on Bollywood: Issues and Challenges Ahead’ aims to find out the possible reasons for
the customers opting for piracy. The study brings forth that easy availability and convenience are the major proponents of
piracy.
The eighth paper ‘Features of Indian MNCs : An Exploratory Study’ aims to study the impact of Indian multinationals on
the destination countries and the effect of transnational corporation’s strategies in India on its future.
The ninth paper “Impact of FII’s and FDI’s on Indian Stock Market” discusses the features and characteristics of FII’s, the
investment trends they have followed till date. The paper also throws light on the impact of FII and FDI on the Indian
economy.
The tenth paper ‘3G Telecom Services – Will They Be Profitable?’ presents a debatable view on a burning contemporary
issue.
The last paper “Role of Knowledge Management in building up effective Leadership Styles: A Study of Modi Continental
Tyres Pvt. Ltd.” examines the relationship between Knowledge Management and Leadership Qualities. This relationship
has been approached from a multidisciplinary perspective, to produce an accurate picture of the nature of relationship.
Authors also discussed the factors influencing this relationship and suggested some measures to make effective Leaders.
We would like to thank all the members of the editorial advisory board for their unrelenting support to Adhyayan. We are
also grateful to reviewers for providing their comments and suggestions. Our sincere appreciation goes to all the authors for
their timely contribution and to the readers for their incessant support.
We look forward to your comments on this issue and suggestions on matters concerning the journal.
Prof. (Dr.) M. Mehrotra
Editor-in-Chief
School of Management Sciences,
Lucknow
Contents
1.
VAS an Interface between Police and Citizen
Dr. Devendra Arora & Dr. Poonam Kumar
1
2.
Green Marketing – The Growing Marketing Mantra
Dr. Aashish Kumar Sharma & Mr. Yatish Joshi
6
3.
Creating Success Formula to Excel in Rural Markets
13
Dr. Manoj Mehrotra
4.
A Study on Consumer Perceptions and Expectations for TATA Nano
Pooshan Upadhyay & Keertiman Sharma
21
5.
Emerging Scenario of Facilities and Concessions to Exporters in India-An Appraisal
Syed Shahid Mazhar & Dr. Sankalp Srivastava
28
6.
Malls as a Buying Destination in Delhi, NCR: An Exploratory Study
Dr. S. Goswami & Dr. Vikas Nath
34
7.
Impact of Piracy on Bollywood: Issues and Challenges Ahead
Dr. Shitala Tripathi, Ritu Tayal & Pratibha Arora
43
8.
Features of Indian MNCs : An Exploratory Study
Ashoo Sachdeva
50
9.
Impact of FII’s and FDI’s on Indian Stock Market
Dr. Kamlesh Kumar Shukla
53
10.
3G Telecom Services – Will They Be Profitable?
R.K. Mandan & Rahul Jain
60
11.
Role of Knowledge Management in building up effective Leadership Styles:
A Study of Modi Continental Tyres Pvt. Ltd.
Jyoti Sardana & Mr. Sandeep Kumar
63
VAS an Interface between Police and Citizen
Dr. Devendra Arora* & Dr. Poonam Kumar**
ABSTRACT
Mobile value-added services (VAS) are those services that are not part of the basic voice offer and are availed off
separately by the end user. They are used as a tool for differentiation and allow the mobile operators to develop another
stream of revenue. The growth of VAS in India has been helped both by macro level environmental factors and specific
market initiatives to develop this category. VAS as an interface between police and citizens would definitely be a
differentiating feature for all the operators in this cut throat competition and would also enable better interaction and
coordination between police and citizens. The paper aims to find the establishment in a technological application that
would benefit the masses and minimize the current distance between police and citizens by comparing the analysis of survey
done on both. As we all know the major issue is the increasing crime rate in our country which is an important concern for
safety and security of the citizens. This research explores the key issues around the current VAS to be used as an interface
between Police and citizens. It evaluates the effectiveness of different services provided through VAS which would be
helpful to people and also analyses the same from the viewpoint of the policemen in order to make some concrete
conclusions regarding feasibility of the study.
UNDERSTANDING DIFFERENT MVAS
CATEGORIES
Entertainment VAS - The key differentiating factor of
Entertainment VAS is the mass appeal it generates. These
provide entertainment for leisure time usage. These not
only generate heavy volume (owing to its mass appeal) but
also heavy usage. An example of these kinds of services is
Jokes, Bollywood Ring tones, CRBT (Caller Ring Back
Tone) and games. These services continue to be popular
and have been key revenue generators for the Indian
mobile VAS market. This is a high value MVAS and will
continue to show growth. Other popular Entertainment
VAS driving the market are dating and chatting services.
The service was first introduced 2 years back and is now
being offered by all the operators. Each circle generates
about Rs 30 lakhs per month. This service is not only
growing fast but also witnessing less churn as compared to
other MVAS. Owing to its sticky nature, it requires
comparatively less marketing efforts and cost.
Entertainment VAS has the potential to remain a key
contributor to Mobile VAS industry. To sustain the MVAS
growth, it is the responsibility of the industry to keep
discovering/innovating killer applications like CRBT
(Caller Ring Back Tone) at regular intervals.
INTRODUCTION
Mobile phones today have moved beyond their
fundamental role of communications and have graduated to
become an extension of the persona of the user. We are
witnessing an era when users buy mobile phones not just to
be in touch, but to express themselves, their attitude,
feelings & interests. Customers continuously want more
from their phone. They use their cellular phones to play
games, read news headlines, surf the Internet, keep a tab on
astrology, and listen to music, make others listen to their
music, or check their bank balance. Thus, there exists a
vast world beyond voice that needs to be explored and
tapped and the entire cellular industry is heading towards it
to provide innovative options to their customers. Spoilt by
choice, the mobile phone subscribers are beginning to
choose their operators on the basis of the value added
services they offer. The increased importance of VAS has
also made content developers burn the midnight oil to
come up with better and newer concepts and services.
VAS- DEFINITION
Mobile value-added services (VAS) are those services that
are not part of the basic voice offer and are availed off
separately by the end user. They are used as a tool for
differentiation and allow the mobile operators to develop
another stream of revenue. The nature of value added
services change over time. A VAS may become
commoditized and becomes so common place and widely
used that it no longer provides meaningful differentiation
on a relative basis. For example several mobility operators
& other stakeholders in the industry no longer consider
P2P SMS as a form of VAS. However for the purpose of
estimating the market size we have taken P2P into account,
though we also feel that P2P SMS is ceasing to be a
meaningful tool for service differentiation.
*
Info VAS- These services are characterized by the useful
information it provides to the end user. The user interest
comes in from the personal component and relevance of
the content. Apart from mobile, alternate modes are
available to access Information VAS like Newspaper, TV,
and Internet. E.g. of Info VAS is information on movie
tickets, news, banking account etc. They also include user
request for information on other product categories like
real-estate, education, stock updates, etc. Information VAS
needs to target the right person at the right time with the
right content.
Dr. Devendra Arora, Director, Vishveshwarya School of Business Management, Greater Noida
Dr. Poonam Kumar, Assistant Professor, Amity Institute of Telecom Technology and Management, Amity University.
**
1
Entertainment VAS
Information VAS
M Commerce
Definition
1) These services provide
Entertainment for leisure time.
2) These services usually
generate mass appeal
1) These are the services which provide
some useful information to the end user.
2) The user interest comes from
personal or relevant component of the
content.
These are the services which involve
some transaction non mobile
Current
status
Entertainment VAS is driving
the VAS market both in terms
of volume and revenue.
Information VAS is getting popular
with different categories depending on
the relevance
M Commerce is currently in
embryonic stage
Drivers
Industry focus is on
Entertainment VAS with new
players coming from media
and movie houses e.g. STAR,
Rajshri
Entities using mobile as another channel
to deliver information is driving
information VAS. E.g. stock updates,
bank account information, travel
information, etc.
RBI guidelines is expected to give a
big boost to M Banking
Challenges
Currently, music is the biggest
component. Challenge is to
drive the usage of other
content/services like games
1) Marketing is the biggest challenge
since Information need differs across
different segments
2) Credibility of the source is another
challenge since there are alternate
channels available to get Information
VAS
1) Identifying the best access mode to
provide M Commerce is a big
challenge
2) Handset penetration and usage of
the key access mode
3) (GPRS) of M Commerce is low in
India Allaying security concerns
Future
status
Entertainment VAS is
expected to remain the VAS
driver for the next few years
Information VAS is going to be key to
address the needs of growing rural
market
M Commerce has the potential to
emerge as a key VAS component once
security concerns are addressed
Table 1
Source : IMRB 2008
M-Commerce VAS (Transactional services)- These are
the services which involve some transaction using the
mobile phone. An example of this kind of service is buying
movie tickets using mobile phone or transfer of money
from one bank account to the other. These can broadly be
classified into 2 types - Mobile banking and Mobile
payments.
STATEMENT OF THE PROBLEM
The crime rate is increasing at an alarming rate in the cities
these days and everyday the newspaper has enough news
on thefts, chain snatching, and other mish chaps to leave
everyone frightened and afraid. In majority of the cases the
lack of coordination between police and citizens is the
major reason for delay in trials therefore, the thrust of the
present study lies along with all these entertainment
services of VAS, if some kind of services are provided
through mobile that will create some new interface
interaction between police and citizens and help to better
understand and lead to better resolution of problems. The
people will find it easier if all the help they want from
police would be available on their touch of a mobile phone
which they carry with them most of the time.
Perceived Value - Perceived value of a MVAS depends on
perceived rather than the actual utility to the end user.
When the immediate benefit may not be clear to the
subscriber, the value that a subscriber derives from it
largely depends on the marketing efforts and persona
related to the service. The value is gauged more from the
intangible benefits derived from the service like emotional
benefits. A good example of a MVAS with high perceived
value is CRBT (Caller Ring Back Tone).
REVIEW OF LITERATURE
Allan J. Sayle, President Allan Sayle Associates , 2005
addressed that there is a need of innovative ways to come
out in VAS to take care of customer integrity and safety,
this can be achieved when the operators come out with
some cost effective innovative ideas which other than
entertainment can provide security and safety information
to the customers.
Practical Value - Practical value is completely based on
tangible benefits derived from the service. The benefits
considered could be based on convenience, time or money.
E.g. Service availed to get the cheapest air fares available,
money transfer using mobile these above three categories
of MVAS provide a unique combination of perceived and
practical values for every user and this may change over
time as the market & users evolve. To understand the
growth of the different types of MVAS and their future
growth, they have been analyzed on both the above
mentioned factors.
Government also has supported the growth of this sector
by coming out with a number of initiatives for the low end
subscribers of rural India, and Universal Service
Obligation (USO) fund was one such initiatives. The USO
2
security issues and to create a bond between the police and
citizens specially women. The survey had to be done at the
police stations to know their interest and ease. So it was
carried out in local Thaana’s , Police check post and police
station , and different telecom retailers and where the
mobiles and connections are sold & places like Hotspot &
offices in Noida and Gautam Buddh Nagar where working
men and women can be targeted and household in Noida
and Gautam Buddh Nagar.
fund was an initiative taken up by the government to
increase rural tele-density. In recent developments, BSNL
and two private operators will erect 427 towers in remote
areas offering over four lakh mobile connections. All the
towers are expected to be erected and commissioned by
December 2008. Under the second phase, DoT aims at
erecting 11,000 towers throughout the country to offer over
11 million mobile connections ADC was levied by
Telecom Regulatory Authority of India (TRAI) in 2003 to
provide support for BSNL's rural telephone obligation.
Telecom Regulatory Authority of India (TRAI) has
recently given orders for the withdrawal of the ADC
(Access Deficit Charge) and the subsequent passing of the
benefit to the consumers by the telecom operators.
SAMPLING TECHNIQUE
Non Probability Sampling Technique was used & in that
on the spot sampling was done. The responses were
collected from 200 Citizens (50 working males, 25
students, 50 senior citizens, 50 working females, 25
housewives) , who were interviewed, also 20 Thaana’s
were targeted to take the view of police.. A convenient
sampling was used which would enable using personal
judgment to conveniently approach the men and women
working and non working.
Mobile applications will now take centre-stage as Bharti
Airtel grows its business, source by Leslie D'Monte in
2009. Users can install a client application, called the
Mobile Applications Tool for Enterprises (MATE) from
Airtel on their handsets. The move makes business sense
for Airtel, which derives around 22 per cent of its total
revenues from the enterprise. Enterprise value-added
services, or VAS, plays a crucial part in the overall VAS
industry (estimated to touch Rs 16,500 crore by 2010-end),
offering high-value tailor-made solutions and services to
enterprises. Enterprise VAS alone is expected to touch
around Rs 1,000 crore (Rs 10 billion) in three to five years.
SECONDARY DATA
The secondary data is collected from previous research
reports on the related issues, though no current report were
relating the police usability and likings and disliking of
VAS for security purpose still report on VAS were studied.
Apart from the secondary data is also collected from
internet for getting the data about the various statutory
rules and regulations on security issues for citizens. The
data is also collected from the websites of TRAI and
operators view on innovations in VAS etc.
OBJECTIVES
The major objectives of the study are framed in below
1) To find whether by making mobile as medium to
interact with Police would be beneficial for citizens.
2) To evaluate the effectiveness of different services to
be provided to citizens through Mobile VAS.
ANALYSIS OF FINDINGS
A] PRIMARY DATA FINDINGS
1. Generally all citizens were asked about their nature and
approach motivation towards police by asking “Do you
think people hesitate to approach Police?” 73% said that
they are hesitant and 27% said they are not.
RESEARCH DESIGN
The research paper deals with various studies about the
perception of the police man in using VAS services for
security purpose and study of various segments of citizens.
The data collection was done using on the convenience
sampling in the form of personal interview through
questionnaire. I used various secondary sources for
gathering data related to the research. Analysis of data has
been done using quantitative methods such as Arithmetic
mean. Those analyzed facts & findings are presented in
different forms for ease of understanding by use of pie
charts and bar charts. The Research design was a blend of
descriptive and exploratory research design. An
Exploratory research was conducted initially to validate the
feasibility of the research objective but the actual research
and conclusions are drawn from descriptive research.
80
TRUE
73
70
60
50
40
30
TRUE
FALSE
27
FALSE
20
10
0
Chart 1: Chart showing the opinion of citizens regarding their
nature towards police.
DATA COLLECTION
2. A study was done separately on services and their rating
which can be innovated in MVAS like Traffic Alert (A),
Complaint Booking (B),
Tracking of complaint(C),
Emergency Services(D), Women Help(E) and citizen
journalism (F), separately for all segments and analysis is
tabulated as :
PRIMARY DATA
Primary data is collected from the respondents with the
help of interview schedule and questionnaire. It was
mainly directed towards the investigation of the various
impacts of VAS being used in terms of fulfilling the
3
6.
Sr.
Working
Working House Police
Variables
Students
Citizens Males
Females wife
Men
A
7%
21%
22%
21%
10%
12%
B
19%
20%
21%
15%
16%
10%
C
22%
10%
10%
10%
17%
10%
D
32%
18%
8%
23%
21%
15%
E
10%
16%
22%
24%
31%
27%
F
10%
15%
17%
7%
5%
26%
An analysis was done on the preference of per usage
based of the citizens. (87% went for only local SMS
call while 13% went for premium)
100
90
87
80
70
ONLY LOCAL
SMS/CALL
60
50
Table 2: Self analyzed from Primary data collection
3.
An analysis was done on the usage of mobile as
interface by asking “Do you think by making mobile
as medium to interact with police would make the task
easy for citizens and also help Police to maintain law
and order”? 92% was in favor while only 8% were not
in favor.
30
20
0
Chart 5: Chart showing the opinion of citizens regarding
SMS / Premium Service.
CONCLUSION & SUGGESTIONS
According to the primary survey of citizens, 73% of people
responded that they hesitate in approaching Police for their
problems, and 92% of people supported the fact that if
mobile is used as medium for interaction it would help in
maintaining law and order. This shows that there is major
requirement of any such type of service and if provided
through a suitable platform. While analyzing the rating of
services, majority of the services were readily accepted by
citizens including Traffic alert, Women help and
emergency services. They believed that by getting all these
services at through mobile phone which they carry with
themselves most of the time will definitely help them in
getting their problem solved by the policemen. An
interesting response was seen for citizen journalism, where
people belonging to all the age groups and occupation are
ready to cooperate with policemen in marinating law and
order by providing all the vital information that police
expects from citizens. Traffic alert had distributed views
by segment of Housewives as they felt the need for this
service would not be much as they remain in their houses
most of the time, while students and working
males/females both showed their interest in receiving
traffic alerts. Another interesting but expected result was
that majority of the people want to subscribe to the
services on per usage basis and only 31% opted for Rental
basis. This clearly supports the fact why India as majority
of prepaid subscribers than postpaid subscribers.
Analyzing the response of policemen, the results were
quite similar for traffic alerts as even they felt that this
would not even help citizens but also help them in
managing the traffic well. But for complaint booking their
views were not very acceptable as they felt it would be
difficult to authenticate the individual and note down and
understand the legal aspects. Women help was equally
important for them as it was for citizens and even they
appreciated the efforts of citizens as a part of citizen
journalism to provide them with information. In the end,
the research concludes that there is enough need of the
services among the citizens and VAS is definitely an
appropriate medium in providing the services and it would
be of great benefit and help to both citizens and police.
90
80
70
60
TRUE
50
FALSE
40
30
FALSE
8
20
10
0
Chart 2: Chart showing the opinion of citizens regarding
mobile as medium between police and citizen.
4.
From the operators point of view to install this service
an analysis was done to find out how citizens would
like to subscribe for these services, 61% went for per
usage while 39% said rental.
70
61
60
50
39
40
RENTAL
PER USUAGE
30
20
10
0
Chart 3: Chart showing the opinion of citizens regarding
mobile Rental and per usage
5.
The total expenditure they would like to invest was –
62% said 10-25k, 27% said 15-25k, and 11% said
above 30k.
70
A (10-25),
62
60
50
40
30
20
A (10-25)
B (15-25),
27
13
10
TRUE
92
100
PREMIUM ALSO
40
B (15-25)
C ( 30>=)
C ( 30>=),
11
10
0
Chart 4: Chart showing the opinion of citizens regarding
MVAS expenditure.
4
between banks and the telecom industry also facilitate
mainstreaming and differentiation of new services and
offered India’s telecom industry has posed unique
challenges for mobile operators. MVAS has emerged as a
great opportunity to rescue the industry from the declining
ARPU. From the above analysis, it is clear that the MVAS
space is set to witness a high growth trajectory, creating
tremendous opportunities. However, stakeholders across
the value chain will have to work collaboratively to
overcome barriers and create a business ecosystem that
generates fair rewards for all the players.
The services presently offered in India include information
based services (account balance and activity alerts, foreign
exchange rate notifications, etc.) and transaction services
(securities trade, cash roll-overs, debt trade, stoppayments). Their growth, however, is limited by low user
awareness and confidence in- use, and by infrastructural
constraints and high pricing. What is needed, therefore, is
close cooperation between the telecom industry on one
hand and banks on the other. Support from the telecom
industry for new services will help extend their reach to
new customer segments (e.g., M-commerce in rural areas)
and this will increase their profitability. Such partnerships
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http://www.iamai.in/digitalsummit2007/Day%202/Opening%20Session/Thomas%20Puliyel.pdf.(accessed July 23, 2007).
19. The Indian Telecom Industry. IIM Calcutta. http://www.iimcal.ac.in/community/consclub/reports/telecom.pdf. (accessed July 18,
2008)
20. http://www.trai.gov.in (accessed July 13, 2007).
5
Green Marketing – The growing marketing mantra
Dr. Aashish Kumar Sharma* & Mr. Yatish Joshi**
ABSTRACT
In the industrialised nations around the world, both businesses and consumers are concerned about the environment and the
future of our planet. As society becomes more concerned with the natural environment, businesses have begun to modify
their behaviour in an attempt to address society's "new" concerns. The term “Green Marketing” has been used to describe
marketing activities which attempt to reduce the negative social and environmental impacts of existing products and
production systems, and which promote various types of goods and services that are considered to be environmentally safe.
The idea behind green marketing is to find ways to connect consumers who want to live a lifestyle that is as ecologically
responsible as possible. Green marketing in services includes service delivery processes. Other known titles for green
marketing are: sustainable marketing, environmental marketing, and ecological marketing. Marketers need to develop
strategies which will allow them to overcome major problems associated with green marketing.
This is a conceptual paper on green marketing, which attempt to introduce – the terms, concept and importance of green
marketing. It also highlights some problems that organization may face to implement green marketing and its managerial
implications along with few case points.
damage to the environment. The movement quickly caught
on in the United States and has been growing steadily ever
since. The development of ecologically safer products,
recyclable and biodegradable packaging, energy-efficient
operations, and better pollution controls are all aspects of
green marketing. Green marketing was given prominence
in the late 1980s and 1990s after the proceedings of the
first workshop on Ecological marketing held in Austin,
Texas (US), in 1975. Several books on green marketing
began to be published thereafter.
Green Marketing
According to the American Marketing Association, green
marketing is the marketing of products that are presumed
to be environmentally safe. Thus green marketing
incorporates a broad range of activities, including product
modification, changes to the production process, packaging
changes, as well as modifying advertising. Yet defining
green marketing is not a simple task where several
meanings intersect and contradict each other; an example
of this will be the existence of varying social,
environmental and retail definitions attached to this term.
Other similar terms used are Environmental Marketing and
Ecological Marketing. Thus "Green Marketing" refers to
holistic marketing concept wherein the production,
marketing consumption an disposal of products and
services happen in a manner that is less detrimental to the
environment with growing awareness about the
implications of global warming, non-biodegradable solid
waste, harmful impact of pollutants etc. Both marketers
and consumers are becoming increasingly sensitive to the
need for switch in to green products and services. While
the shift to "green" may appear to be expensive in the short
term, it will definitely prove to be indispensable and
advantageous, cost-wise too, in the long run.
The concept of green marketing has been around at least
since the first Earth Day in 1970. But the idea did not catch
on until the 1980s, when rising public interest in the
environment led to a demand for more green products and
services. Manufacturers responded to public interest by
labeling hundreds of new products "environmentally
friendly"—making
claims
that
products
were
biodegradable, compostable, energy efficient, or the like.
In spite of its growing popularity, the green marketing
movement faced serious setbacks in the late 1980s because
many industries made false claims about their products and
services. For instance, the environmental organization
CorpWatch, which issues annually a list of the top ten
"greenwashing" companies, included BP Amoco for
advertising its "Plug in the Sun" program, in which the
company installed solar panels in two hundred gas stations,
while continuing to aggressively lobby to drill for oil in the
Arctic National Wildlife Refuge.
Evolution of Green Marketing
The green marketing has evolved over a period of time.
Green marketing began in Europe in the early 1980s when
certain products were found to be harmful to the earth's
atmosphere. Consequently new types of products were
created, called "green" products that would cause less
* Dr. Aashish Kumar Sharma, Director, MOIMT, Hassanpur, Palwal, [email protected] &
** Mr. Yatish Joshi, AP, GSMVN, Palwal, [email protected]
6
such industries. Many global players in diverse businesses
are now successfully implementing green marketing
practices.
Without environmental labeling standards, consumers
could not tell which products and services were truly
beneficial. Consumers ended up paying extra for
misrepresented products. The media came up with the term
"greenwashing" to describe cases where organizations
misrepresented themselves as environmentally responsible.
Why Green Marketing?
As resources are limited and human wants are unlimited, it
is important for the marketers to utilize the resources
efficiently without waste as well as to achieve the
organization's objective. So green marketing is inevitable.
There is growing interest among the consumers all over the
world regarding protection of environment. Worldwide
evidence indicates people are concerned about the
environment and are changing their behavior. As a result
of this, green marketing has emerged which speaks for
growing market for sustainable and socially responsible
products and services. Thus the growing awareness among
the consumers all over the world regarding protection of
the environment in which they live, People do want to
bequeath a clean earth to their offspring. Various studies
by environmentalists indicate that people are concerned
about the environment and are changing their behavior
pattern so as to be less hostile towards it. Now we see that
most of the consumers, both individual and industrial, are
becoming more concerned about environment-friendly
products. Most of them feel that environment-friendly
products are safe to use. As a result, green marketing aims
at marketing sustainable and socially-responsible products
and services. Now is the era of recyclable, non-toxic and
environment-friendly goods. This has become the new
mantra for marketers to satisfy the needs of consumers and
earn better profits. Green marketing is the process of
developing products and services and promoting them to
satisfy the customers who prefer products of good quality,
performance and convenience at affordable cost, which at
the same time do not have a detrimental impact on the
environment. It includes a broad range of activities like
product modification, changing the production process,
modified advertising, change in packaging, etc., aimed at
reducing the detrimental impact of products and their
consumption and disposal on the environment. Companies
all over the world are striving to reduce the impact of
products and services on the climate and other
environmental parameters. Marketers are taking the cue
and are going green.
In 1992, the Federal Trade Commission (FTC) stepped in
to prevent further deception. The FTC created guidelines
for the use of environmental marketing claims such as
"recyclable," "biodegradable," "compostable," and the like.
The FTC and the U.S. Environmental Protection Agency
defined "environmentally preferable products" as products
and services that have a lesser or reduced effect on human
health and the environment when compared to other
products and services that serve the same purpose. The
label "environmentally preferable" considers how raw
materials are acquired, produced, manufactured, packaged,
distributed, reused, operated, maintained, or how the
product or service is disposed.
Today, special labels help the public identify legitimate
environmentally preferable products and services. Several
environmental groups evaluate and certify products and
services that meet FTC standards—or their own tougher
standards. One popular product that has received
certification is shade-grown coffee, an alternative to coffee
beans that are grown on deforested land in the tropics.
During the late 1990s, green marketing received a large
boost after President Bill Clinton issued executive orders
directing federal offices to purchase recycled and
environmentally preferable products. Some industries
adopted similar policies.
According to the Joel makeover (a writer, speaker and
strategist on clean technology and green marketing), green
marketing faces a lot of challenges because of lack of
standards and public consensus to what constitutes
"Green".
According to Peattie (2001), the evolution of green
marketing has three phases. First phase was termed as
"Ecological" green marketing, and during this period all
marketing activities were concerned to help environment
problems and provide remedies for environmental
problems. Second phase was "Environmental" green
marketing and the focus shifted on clean technology that
involved designing of innovative new products, which take
care of pollution and waste issues. Third phase was
"Sustainable" green marketing. It came into prominence in
the late 1990s and early 2000.
Importance of Green Marketing
Man has limited resources on the earth, with which she/he
must attempt to provide for the worlds' unlimited wants.
There is extensive debate as to whether the earth is a
resource at man's disposal. In market societies where there
is "freedom of choice", it has generally been accepted that
individuals and organizations have the right to attempt to
have their wants satisfied. As firms face limited natural
resources, they must develop new or alternative ways of
satisfying these unlimited wants. Ultimately green
marketing looks at how marketing activities utilize these
limited resources, while satisfying consumers wants, both
of individuals and industry, as well as achieving the selling
organization's objectives.
Green marketing is a vital constituent of the holistic
marketing concept. It is particularly applicable to
businesses that are directly dependent on the physical
environment; for example, industries like fishing,
processed foods, and tourism and adventure sports.
Changes in the physical environment may pose a threat to
7
from used goods. Efficient products not only save water,
energy and money, but also reduce harmful effects on the
environment. The marketer's role in product management
includes providing product designers with market-driven
trends and customer requests for green product attributes
such as energy saving, organic, green chemicals, local
sourcing, etc., For example, Nike is the first among the
shoe companies to market itself as green. It is marketing its
Air Jordan shoes as environment-friendly, as it has
significantly reduced the usage of harmful glue adhesives.
It has designed this variety of shoes to emphasize that it
has reduced wastage and used environment-friendly
materials.
When looking through the literature there are several
suggested reasons for firms increased use of Green
Marketing.
Five possible reasons cited are:
1. Organizations perceive environmental marketing to be
an opportunity that can be used to achieve its
objectives.
2. Organizations believe they have a moral obligation to
be more socially responsible.
3. Governmental bodies are forcing firms to become
more responsible.
4. Competitors' environmental activities pressure firms to
change their environmental marketing activities.
B. Price
Green pricing takes into consideration the people, planet
and profit in a way that takes care of the health of
employees and communities and ensures efficient
productivity. Value can be added to it by changing its
appearance, functionality and through customization, etc.
Wal-Mart unveiled its first recyclable cloth shopping bag.
IKEA started charging consumers when they opted for
plastic bags and encouraged people to shop using its "Big
Blue Bag".
Cost factors associated with waste disposal, or reductions
in material usage forces firms to modify their behavior.
Benefits of Green Marketing
The success of any green product results in tangible
benefits to the environment only if the product sells: of
what use are unsold energy saving and water saving
washing machines if they languish unsold? Thus green
communication is important and empowers the
consumer with knowledge and provides choices.
C. Place
Green place is about managing logistics to cut down on
transportation emissions, thereby in effect aiming at
reducing the carbon footprint. For example, instead of
marketing an imported mango juice in India it can be
licensed for local production. This avoids shipping of the
product from far away, thus reducing shipping cost and
more importantly, the consequent carbon emission by the
ships and other modes of transport.
Today's consumers are becoming more and more
conscious about the environment and are also becoming
socially responsible. Therefore, more companies are
responsible to consumers' aspirations for environmentally
less damaging or neutral products. Many companies want
to have an early-mover advantage as they have to
eventually move towards becoming green.
Some of the advantages of green marketing are :
• It ensures sustained long-term growth along with
profitability.
• It saves money in the long run, thought initially the
cost is more.
• It helps companies market their products and services
keeping the environment aspects in mind. It helps in
accessing the new markets and enjoying competitive
advantage.
• Most of the employees also feel proud and responsible
to be working for an environmentally responsible
company.
D. Promotion
Green promotion involves configuring the tools of
promotion, such as advertising, marketing materials,
signage, white papers, web sites, videos and presentations
by keeping people, planet and profits in mind. British
petroleum (BP) displays gas station which its sunflower
motif and boasts of putting money into solar power. Indian
Tobacco Company has introduced environmental-friendly
papers and boards, which are free of elemental chlorine.
Toyota is trying to push gas/electric hybrid technology into
much of its product line. It is also making the single largest
R&D investment in the every-elusive hydrogen car and
promoting itself as the first eco-friendly car company.
International business machines Corporation (IBM) has
revealed a portfolio of green retail store technologies and
services to help retailers improve energy efficiency in their
IT operations. The center piece of this portfolio is the IBM
SurePOS 700, a point-of-sale system that, according to
IBM, reduces power consumption by 36% or more. We
even see the names of retail outlets like "Reliance Fresh",
Fresh Namdhari Fresh and Desi, which while selling fresh
vegetables and fruits, transmit an innate communication of
green marketing.
Marketing Mix of Green Marketing
When companies come up with new innovations like eco
friendly products, they can access new markets, enhance
their market shares, and increase profits. Marketing mix of
green marketing consists of 4ps. They are structured by
three additional Ps, namely people, planet and profits.
A. Product
The products have to be developed depending on the needs
of the customers who prefer environment friendly
products. Products can be made from recycled materials or
8
Londonderry, UK, is one such example. It produces one of
the healthiest and nutritious yoghurt and other dairy
products while supporting social and environment related
beneficial causes. One point that green companies need to
watch out for is the loss of credibility and an unexpected
backlash.
Green marketer can attract customers on the basis of
performance, money savings, health and convenience, or
just plain environmental friendliness, so as to target a wide
range of green consumers. Consumer awareness can be
created by spreading the message among consumers about
the benefits of environmental-friendly products. Positing
of profiles related to green marketing on social networks
creates awareness within and across online peer groups.
Marketing can also directly target the consumers through
advertisements for product such as energy saving compact
fluorescent lamps, the battery –powered Reva car, etc.
Most of the companies are venturing into green marketing
because of the following reasons:
Opportunity
In India, around 25% of the consumers prefer
environmental-friendly products, and around 28% may be
considered healthy conscious. Therefore, green marketers
have diverse and fairly sizeable segments to cater to. The
Surf Excel detergent which saves water (advertised with
the message—"do bucket paani ab rozana hai bachana")
and the energy-saving LG consumers durables are
examples of green marketing.
Why is Green Marketing chosen by most Marketers?
Environmentally-responsible or "green" marketing is a
business practice that takes into account consumer
concerns about promoting preservation & conservation of
the natural environment. Green marketing campaigns
highlight the superior environmental protection
characteristics of a company's products and services. The
sorts of characteristics usually highlighted include such
things as reduced waste in packaging, increased energy
efficiency of the product in use, reduced use of chemicals
in farming, or decreased release of toxic emissions and
other pollutants in production. The people are worried and
some are even willing to pay more if it means saving the
planet. As environmental-friendly products are moving
from shelves in dingy shops to speciality stores and
department stores, their sales are soaring.
Social Responsibility
Many companies have started realizing that they must
behave in an environment-friendly fashion. They believe
both in achieving environmental objectives as well as
profit related objectives. The HSBC became the world's
first bank to go carbon-neutral last year. Other examples
include Coca-Cola pumped syrup directly from tank
instead of plastic which saved 68 million pound/year. Walt
Disney World in Florida, US, has an extensive waste
management program and infrastructure in place.
With increased environmental awareness and a growing
desire amongst consumers to ‘do the right thing', and a
rapidly increasing 'green' market, the temptation amongst
marketers and advertisers to overstate environmental
benefits of the product or business and capitalize on this
newly found awareness has become virtually irresistible.
As a result, there is a growing market for sustainable and
socially responsible products and services. Marketers have
responded to growing consumer demand for environmentfriendly products in several ways, each of which is a
component of green marketing.
Government Pressure
Various regulations are framed by the government to
protect consumers and the society at large. The Indian
government too has developed a framework of legislations
to reduce the production of harmful goods and by products.
These reduce the industry's production and consumers'
consumption of harmful goods, including those detrimental
to the environment; for example, the ban of plastic bags in
Mumbai, prohibition of smoking in public areas, etc.
Badarpur Thermal Power station of NTPC in Delhi is
devising ways to utilize coal-ash that has been a major
source of air and water pollution. Similarly, Barauni
refinery of IOC is taken steps for restricting air and water
pollutants.
Realizing that environment and economic concerns are not
necessarily mutually exclusive, many companies are
realizing that environment concerns are here to stay. Thus
the best way to beat censure is to toe the line and get green.
With all the information that is pouring, companies are
now better equipped in dealing with ecological issues and
they use this as a chance to boost their corporate image.
Competitive Pressure
Many companies take up green marketing to maintain their
competitive edge. The green marketing initiatives by niche
companies such as Body Shop and Green & Black have
prompted many mainline competitors to follow suit. For
example, McDonald's restaurant's napkins, bags are made
of recycled paper.
After two decades of floundering with marketing of green
products, replete with examples of exaggerated claims,
green companies are finally getting learning how to market
their products. To their pleasant surprise, these products
are increasingly being picked up by a growing number of
"eco-conscious' consumers. The founders declare,
"Conventional marketing is out. Green marketing is in.'
Cost Reduction
Reduction of harmful waste may lead to substantial cost
savings. Sometimes, many firms develop symbiotic
relationship whereby the waste generated by one company
is used by another as a cost-effective raw material. For
Some companies have come out with innovative methods
of marketing their product. Stonyfield Farm of
9
example, the fly ash generated by thermal power plants,
which would otherwise contributed to a gigantic quantum
of solid waste, is used to manufacture fly ash bricks for
construction purposes.
2.
Challenges in Green marketing
3.
Need for standardization
It is found that only 5% of the marketing messages from
“Green” campaigns are entirely true and there is a lack of
standardization to authenticate these claims. There is no
standardization to authenticate these claims. There is no
standardization currently in place to certify a product as
organic. Unless some regulatory bodies are involved in
providing the certifications there will not be any verifiable
means. A standard quality control board needs to be in
place for such labeling and licensing.
4.
5.
New concept
Indian literate and urban consumer is getting more aware
about the merits of Green products. But it is still a new
concept for the masses. The consumer needs to be
educated and made aware of the environmental threats.
The new green movements need to reach the masses and
that will take a lot of time and effort.
6.
By India’s ayurvedic heritage, Indian consumers do
appreciate the importance of using natural and herbal
beauty products. Indian consumer is exposed to healthy
living lifestyles such as yoga and natural food
consumption. In those aspects the consumer is already
aware and will be inclined to accept the green products.
Eco-labeling
Environmental certification or labeling programs attempt
to increase consumer awareness and knowledge of
environmental issues. Marketers use eco-labels to convey
information about a product's environmental benefits and
to differentiate among competing products. Eco-labels may
identify a product's contents, e.g. the triangular
arrangement of arrows on recycled paper and plastic
products, or highlight other benefits, e.g., reduced water
usage or increased energy efficiency. At least 25 countries
maintain eco-seal programs, usually whereby seals are
awarded for specific environmental attributes. Germany's
"Blue Angel" program is the oldest and most successful
eco-labeling program. Introduced in 1977 by the federal
minister and ministers for environmental protection of the
various German states, it now appears on more than 4,000
different products. The Blue Angel is awarded on the basis
of comparisons with similar products, and is designed to
guide consumers in their purchasing decisions. For
instance, a product may have particularly low pollutant or
noise emissions, entail less waste in its production, or be
designed for easier recycling than its competitors. The
Blue Angel has proven to be a useful selling tool in
Germany's ecologically conscious society. A few other
countries have established eco-labels, though none has yet
had as great an impact as the Blue Angel.
Patience and perseverance
The investors and corporate need to view the environment
as a major long-term investment opportunity, the marketers
need to look at the long-term benefits from this new green
movement. It will require a lot of patience and no
immediate results. Since it is a new concept and idea, it
will have its own acceptance period.
Avoiding green myopia
The first rule of green marketing is focusing on customer
benefits i.e. the primary reason why consumers buy certain
products in the first place. Do this right, and motivate
consumers to switch brands or even pay a premium for the
greener alternative. It is not going to help if a product is
developed which is absolutely green in various aspects but
does not pass the customer satisfaction criteria. This will
lead to green myopia. Also if the green products are priced
very high then again it will loose its market acceptability.
Golden rules of Green marketing
1.
a CFC-free refrigerator because consumers did not
know what CFCs were.).
Empower Consumers: Make sure that consumer feel.
By themselves or in concert with all the other users of
your product, that they can make a difference. This is
called “empowerment” and due to this main reason
consumers will buy greener products.
Be Transparent: Consumers must believe in the
legitimacy of the product and the specific claims made
in regard.
Reassure the Buyer: Consumers must be made to
believe that the product performs the job it’s supposed
to do-they won’t forego product quality in the name of
the environment.
Consider Your Pricing: If you’re charging a
premium for your product-and many environmentally
preferable products cost more due to economies of
scale and use of higher-quality ingredients-make sure
those consumers can afford the premium and feel it’s
worth it.
Thus leading brands should recognize that consumer
expectations have changed. It is not enough for a
company to green its products; consumers expect the
products that they purchase pocket friendly and also to
help reduce the environmental impact in their own
lives too.
Know Your Customer: Make sure that the consumer
is aware of and concerned about the issues that your
product attempts to address, (Whirlpool learned the
hard way that consumers wouldn’t pay a premium for
In the United States, two private firms, Scientific
Certification Systems and Green Seal, have developed
guidelines to identify environmentally preferable products.
Scientific Certification Systems, a private testing concern,
awards a "Green Cross" for products meeting very specific
10
take back products at the end of their useful life ("reverse
logistics"). Germany is again the world leader in this arena;
it has already passed ordinances targeting the electronics,
automobile, and packaging industries.
criteria, e.g. X percent recycled content, less than Y
percent pesticide residues, and so on. Green Seal, a
nonprofit organization formed in 1990, is engaged in more
ambitious efforts using life-cycle analysis to identify a
product's impact on the environment at all stages of its life.
The group has demarcated 84 categories of products (and
according standards) that qualify for certification.
Faced with the undesirable option of accepting used
packaging from consumers, German manufacturers banded
together in 1990 to create the "Dual System"—an
alternative, country-wide waste management system that
guaranteed the collection and recycling of various
packaging materials. Administered by the Duales System
Deutschland (DSD), a consortium of retailers, distributors,
manufacturers, waste haulers, and recycling firms, the
system requires manufacturers to pay a small fee for the
right to display a green dot (griiner Punkt) on their
products, indicating that the packaging is eligible for
recycling by the DSD.
Eco-labeling
programs
increase
awareness
of
environmental issues, set high standards for firms to work
towards, and help reduce consumer uncertainty regarding a
product's environmental benefits. They have also been
criticized as confusing, misleading, overly simplistic and
prone to manipulation by firms with less-than-honorable
intentions. Thus far, aside from some Environmental
Protection Agency (EPA) programs discussed below, the
U.S. government has resisted instituting an officially
sanctioned eco-label program.
Green marketing strategies are also reducing inventory and
production costs. Standardization and identification of
product parts and packaging materials benefits the
environment by reducing complexity and improving
efficiency. Substituting electronic or computer controls for
analog devices improve quality and reduces waste.
Eco-sponsoring
Another avenue for companies to promote their ecological
concern is to affiliate themselves with groups or projects
engaged in environmental improvements. In its simplest
form, firms contribute funds directly to an environmental
organization to further the organization's objectives.
Another approach is to "adopt" a particular environmental
cause, e.g. a community recycling program, demonstrating
the company's willingness to put its money and its
reputation on the line. Sponsoring educational programs,
wildlife refuges, and clean-up efforts communicates a
firm's commitment to finding environmental solutions.
Partnerships with environmental organizations can open
lines of communication and provide new perspectives on
"business as usual."
The EPA, for example, sponsors the Energy Star and
Green Lights Buildings programs, in which partners in
industry agree to upgrade their facilities over time to
reflect environmental concerns (usually energy efficiency
and waste minimization). The EPA, in turn, agrees to
provide technical support and labeling, which contributes
to a green marketing program.
Conclusion
Green marketing is based on the premise that businesses
have a responsibility to satisfy human needs and desires
while preserving the integrity of the natural environment.
Green marketing should not be considered as just one more
approach to marketing, but has to be pursued with much
greater vigor, as it has an environmental and social
dimension to it. There are significant indications that
environmental issues will grow in importance over the
coming years and will require imaginative and innovative
redesign and reengineering of existing marketing efforts on
the part of many businesses.
Recycling of paper, metals, plastics, etc., in a safe and
environmentally harmless manner should become much
more systematized and universal. It has to become the
general norm to use energy-efficient lamps and other
electrical goods.
Marketers also have the responsibility to make the
consumers understand the need for and benefits of green
products as compared to non-green ones. In green
marketing, consumers are willing to pay more to maintain
a cleaner and greener environment. Finally, consumers,
industrial buyers and suppliers need to pressurize effects
on minimizing the negative effects on the environmentfriendly.
In the short term, business solutions—the enlightened selfinterest of commercial enterprises finding new ways to
incorporate technology and carry on exchanges with
greater concern for heretofore unpriced environmental
goods and services—offer particular promise. Green
marketing and the promotion of responsible consumption
are part of that solution.
In considering an eco-sponsorship, firms must address the
problems of legitimacy and believability. Not all
environmental sponsorships are legitimate or appropriate
for a particular company's needs. Chemical firms, for
instance, may find it difficult to support Greenpeace's antichlorine campaign. Believability is even more critical.
Business firms consistently rate lowest in surveys of
credibility with consumers. Eco-sponsoring should not be
used as an alibi for a firm's day-to-day actions.
Greener distribution
Logistics and transportation costs are coming under greater
scrutiny due to rising fuel prices, congested highways, and
global-warming concerns. Package redesign for lighter
weight and/or greater recyclability reduces waste while
simultaneously reducing costs. In some countries,
marketers must also consider two-way flows, as
governments pass legislation requiring manufacturers to
11
References
1.
Charter M, Polonsky MJ (eds). 1999. Greener Marketing:a Global Perspective on Greening Marketing Practice,
2nd edn. Greenleaf: Sheffield.
2.
Chavan, M., 2005. An appraisal of environment management systems: A competitive advantage for small businesse
,. Management of Environmental Quality: An International Journal. Vol 16, pp. 444-463.
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Feldman, L. and Staehler, S, 1996. Green Marketing: Do corporate strategies reflect
Journal of Marketing Management. Vol. 5, No. 1, pp. 20-28.
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Ken Peattie, 2008. Green marketing, 6th Ed.,, Pages 562-585.
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Kotler, Keller, Koshy Jha, “Marketing Management- A South Asian Perspective”, 12th Edition,
Education.
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Ottman, J.A. et al, "Avoiding Green Marketing Myopia", Environment, Vol-48, June-2006
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Peattie, Ken, 2001. Towards Sustainability: The Third Age of Green Marketing, Marketing Review. Vol. 2, No. 2,
pp. 129-147.
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Roy, M. and Epstein, J.M., 2000. Strategic Evaluations of Environmental Projects in SMEs.Environmental Quality
Management. Vol. 3, pp. 37-47.
12
experts’ advice?, The
Pearson
Creating Success Formula to Excel in Rural Markets
Dr. Manoj Mehrotra*
ABSTRACT
The paper deals with the Rural Markets in the Indian context. There exist a number of myths about the rural markets. The
paper attempts to reveal the hard facts that create a new understanding about the existing rural markets and the changing
trends. It also highlights the need to focus on the rural market. Earlier it was a new geographic segment for the marketers
but now there is no choice. Rural marketing therefore is not only a survival strategy but also a growth strategy for many
firms. However, to be successful in the rural markets it not only requires an understanding about the factors and
characteristics of this market but also the wise use of an effective marketing strategy.
The focus of the paper is to discover as to how the elements of the marketing are integrated for the rural markets. Are they
the same elements used in other markets i.e. the 4-P’s, or are there some different elements that increase the acceptance in
the rural markets? It also aims to gain an understanding about the impact of these elements in creation of a model to
succeed in the Indian rural markets. It further examines a success formula of “7-A’s Model” suggested by the author that
will help the marketers to excel in the rural markets.
technological innovation. Also advanced technological
innovation is not needed in rural markets.
Introduction
Today, rural markets are critical for every marketer - be it
for a branded shampoo or an automobile. Before trying to
examine issues like where the Indian rural market stands
and the opportunities for corporates therein, let's look at
what is rural. The Census (Government of India) defined
rural India as - "All the places that fall within the
administrative limits of a municipal corporation,
municipality, cantonment board, etc., or have a population
of at least 5,000 and have at least 75 per cent male
working population in outside the primary sector and have
a population density of at least 400 per square kilometer
are urban, and rural India, on the other hand, comprises
of all places that are not urban!"
Reality
The stark realities tell a different picture removing the very
basis of the myths. Undoubtedly the challenges of Indian
rural market are unique in nature and multifold. But the
rural market represents the largest potential market in the
country. It encompasses over 70% of population. Its
primary activities – agriculture, animal husbandry,
fisheries and forestry – account for half of the national
income. Rural assets also amount to more than 50% of the
country’s tangible wealth. The Indian rural market is a
complex mosaic of mind-sets, cultures, and lifestyles.
Despite lower incidence of premium product purchases,
the rural consumers across all income segments exhibit
marked propensity to spend on premium high quality
products which are backed by strong brand values, where
they correspond to their own aspirations and quality needs.
Common Myths about rural markets
Some common myths exist amongst marketers about the
rural markets that can be stated as under:
• The poor are not our target customers and the rural
markets cannot afford our products.
• The rural people do not have any use for the products
sold in urban markets.
• As the urban-rural markets convergence, rural market
will be mainly an extension of urban markets and will
eventually embrace the product and brand lifestyles of
the latter.
• That even fringe presence or limited acceptance of
lifestyle consumer products in rural market would
translate into future market potential to be tapped.
• That rural market represents a more or less
homogenous matrix of attitudes, values and
purchasing behavior across regions leading to what
may be termed "one size fits all" approach.
• That rural markets are highly price-inelastic and only
suited for 'value-for money' products as against
premium quality products.
• Only urban markets appreciate and pay for
The main challenge lies in having the basic understanding
of the rural consumer who is very different from his urban
counterpart. The increasing literacy level and media
explosion, have made people more conscious about their
lifestyles and about their rights to live a better life.
Increasing brand consciousness and disposable incomes
has made the rural consumer more demanding and
choosier in his purchase behaviour. However fringe
acceptance of consumer products or brands is no indication
of market potential. Rural market dynamics instead
demand sustained effort at brand building and product
acceptance.
Also distribution remains to be the single largest problem
marketers face today when it comes to going rural.
"Reaching your product to remote locations spread over
400 districts and around 630,000 villages and poor
*Dr. Manoj Mehrotra, Director, School of Management Sciences, Lucknow
Mob: 9919777701, E-mail: [email protected]
13
R&D departments must get nearer to the customer rather
than evolve in closed door technological developments.
Adi Godrej, Chairman, Godrej Industries said in one of his
famous speeches, “If you can make hand operated
washing machines which obviate electricity, craft
chocolates that don’t need a refrigerator, design vehicles
that can handle tough roads. Bikes and scooters with
better fuel efficiency and all at a lower price then you can
succeed in the market”
infrastructure - roads, telecommunication etc and lower
levels of literacy, fragmented income levels and varied
degree of penetration and geographic distance are a few
hinges that come in the way of marketers to reach the rural
market," says MART managing director Pradeep Kashyap.
No single program works for the diverse rural markets.
Patankar of HUL says, “Campaigns have to be tailor made
for each product category and each of the regions where
the campaign is to be executed. Therefore a thorough
knowledge of the nuances of language, dialects and
familiarity with prevailing customs in the regions that you
want to work for is essential.” He further adds, “Decisionmaking is still conscious and deliberated among the rural
community. But nevertheless, the future no doubt lies in the
rural markets, since the size of the rural market is growing
at a good pace. There was a time when market predictions
were made on the basis of the state of the monsoon but this
trend has changed over the years; there is a large non
farming sector, which generates almost 40 per cent of the
rural wealth. Hence the growth in the rural markets will be
sustained to a large extent by this class in addition to the
farmer who will always be the mainstay of the rural
economy.”
Facts, Figures and Opportunities
According to a McKinsey survey conducted in 2007, rural
India, with a population of 627 million, (approximately
74.3 per cent of the total population), would become bigger
than the total consumer market in countries such as South
Korea or Canada in another twenty years. As per the
National Council of Applied Economic Research
(NCAER) reports, there are 720 million consumers across
627,000 villages in rural India. With 128 million
households, the rural population is nearly three times the
urban. Also there are as many 'middle income and above'
households in the rural areas as there are in the urban
areas. There are almost twice as many 'lower middle
income' households in rural areas as in the urban areas. At
the highest income level there are 2.3 million urban
households as against 1.6 million households in rural areas.
The Indian rural market with its vast size and demand base
offers a huge opportunity that MNCs cannot afford to
ignore. The rural market accounts for half the total market
for TV sets, fans, pressure cookers, bicycles, washing soap,
blades, tea, salt and toothpowder, What is more, the rural
market for FMCG products is growing much faster than
the urban counterpart. (Refer Table 1).
More than technological breakthroughs there is a need to
offer consumer-centric innovations suited to the specific
requirements of the rural customer. Some amazing
innovations have been developed in the rural markets and
the large corporate houses may learn from them, to adapt
their offers in a similar style. Glimpses of such innovations
find a mention here:
•
In parts of Northern India, condoms are used by
weavers as gloves on their fingers to weave fine
threads. Lubrication on condoms allows them fine
control on threads and protects their sensitive fingers.
Products
Analgesic tablets
Batteries
Coconut Oil
Iodized salt
Safety Razor Blades
Tea
Toilet Soaps
Washing Soaps
Washing Powder / Liquid
LIC
Nail Polish
Lipstick
Shampoo
Mosquito repellants
Share or Rural Market
45.7%
56.2%
41.6%
51.4%
54.1%
51.3%
41.9%
54.6%
46.4%
55%
77%
65.6%
76%
68.7%
•
Buffaloes displayed at the haats for sale are dyed an
immaculate black with Godrej hair dye because they
fetch a higher price as they would otherwise do.
•
Horlicks is used as a health beverage to fatten up cattle
in Bihar.
•
In villages of Punjab, washing machines are being
used to make frothy lassi in bulk.
•
Paints meant for colouring up the rich-smooth walls
are used to paint the horns of cattle to make
identification easier and to achieve a long-term
protection from theft.
•
Iodex is rubbed into the skins of animals after a hard
day’s work to relieve muscular pain.
Table 1 (Source: NCAER)
•
The Diesel Gen Set Engines are converted into
specially crafted vehicles (called JUGAAD) for
commuting on the tough road conditions and is very
common in North Indian villages.
Also of the 1 million BSNL connections, 50% are in rural
India; the billing per cell phone in rural Andhra is higher
than Hyderabad; of the 20 million who have signed up for
Rediffmail, 60% users are from small towns; the 24
million Kissan Credit Cards issued in rural India exceeds
the 17.7 million credit cards issued in urban India. A study
by internet research firm ‘JuxtConsult’ revealed that one
The explicit point is that innovations suited to the needs of
the rural customers have potential for the future, and the
14
Realizing the tremendous market potential Corporate India
is now investing a sizeable chunk of its marketing budget
to target the rural consumers. Organizations like Hindustan
Unilever Ltd., Nirma Chemical Works, Colgate Palmolive,
Parle foods and Malhotra Marketing have carved inroads
into the heart of rural markets. And some others are slowly
making headway in this area viz. Coca Cola India, Colgate,
Eveready Batteries, LG Electronics, Philips, BSNL, Life
Insurance Corporation, Cavin Kare, Britannia and Hero
Honda. Corporates are now using rural as a strategy for
expansion and sustenance. In a report by market research
firm AC Nielsen, in April–May 2008, it was seen for the
first time that the rural market has outpaced urban India in
certain key product categories.
out of every seven regular internet users is from the rural
belt.
With rising incomes, both consumption and production
have increased significantly. Food grain production was in
excess of 227.3 million tonnes in 2007–08 which was an
increase of 4.6 per cent over the previous year. The FMCG
industry in India was worth around US$ 16.03 billion in
August 2008, and the rural market accounted for a robust
50 per cent share of the total FMCG market in India.
The table 2 below shows the increasing rural expenditure
on various items:
The Rural Wallet
Groceries
Personal Care
Medicines / Health care
Fuel
Entertainment / Music
Savings / Investments
Interest payments
Jewellery
Agri inputs
Household maintenance
Home textiles
Vehicles
Consumer Durables
Home appliances
Apparel / Footwear
Hard Liquor / Tobacco
HUL estimated that only about 1.5 lakh villages have been
explored out of over 6 lakh villages. Hence a big gap of
untapped potential exists. According to Mr. D.
Shivakumar, Business Head (Hair), Personal Products
Division, Hindustan Unilever Limited, the money available
to spend on FMCG products by urban India is Rs. 49,500
crores as against is Rs. 63,500 crores in rural India.
36%
26.5%
4%
8%
6%
3%
5%
6%
3%
13%
2%
1%
6%
5%
0.5%
7%
Besides FMCG (Fast Moving Consumer Goods), a survey
carried out by FICCI, has indicated that the consumer
durable goods sector is all set to witness 12 % growth in
2008. The rural market is growing faster than the urban
markets, although the penetration level in rural area is
much lower.
India is presently the fifth largest life insurance market
globally in the emerging insurance economies, and its
insurance market is growing at 32–34 % annually.
According to the international consultancy firm ‘Celent’,
the rural life insurance market will grow to a potential of
US$ 1.9 billion by 2015 from the current US$ 487 million.
Table 2 (Source: NCAER)
Focus Rural – Importance
Earlier marketers used to try out the rural markets for
exploring new market segments. But with urban markets
getting saturated, most companies do not have a choice.
They are looking at the huge potential in rural markets. A
mere one percent increase in India’s rural income
translates to a mind-boggling Rs 10,000 crore of buying
power. For the country’s marketers, small and big, rural
reach is on the rise and is fast becoming their most
important route to growth. 68 percent of the villages in
India are below the 1000 population (Refer Table 3).
Distribution of villages in India
Number of
% of
Population
Villages
Total
Less than 200
114267
18%
200-499
155123
24.30%
500-999
159400
25.00%
1000-1999
125758
19.70%
2000-4999
69135
10.80%
5000-9999
11618
1.80%
10000 and above
3064
0.50%
Total
638365
100%
The Indian pharmaceuticals market is regarded as one of
the fastest growing in the world. According to a report by
Mckinsey—Indian Pharma 2015—the rural and tier-2
pharma market will account for almost half of the growth
till 2015.
According to the Indian Communications and IT Minister,
Mr A Raja, India will have 200 million rural telecom
connections by 2012. A Gartner forecast revealed that
Indian cellular services revenue will grow at a compound
annual growth rate (CAGR) of 18.4 per cent to touch US$
25.6 billion by 2011, with most of the growth coming from
rural markets. Also, a joint Confederation of Indian
Industries (CII) and Ernst & Young report reveals that of
the next 250 million Indian wireless users, approximately
100 million (40 per cent) are likely to be from rural areas,
and by 2012, rural users will account for over 60 per cent
of the total telecom subscriber base in India. Mobile
phones in rural India also grew by close to 13.72 per cent
to reach 70.83 million in April–June 2008. CII also
estimates the number of subscriber addition in rural areas
to exceed the additions in metros by 2012 as about 120
Table 3: (Source: NCAER)
15
million new users are expected to adopt wireless telephony
in rural areas as compared to about 62 million in the
metros.
This formula of 7-A’s is being represented in the figure
below.
According to the report—India Retail Report 2009—by
Images FR Research, "India's rural markets offer a sea of
opportunity for the retail sector. Rural India accounted for
almost half of the Indian retail market, which was worth
about US$ 266.05 billion in September 2008.” With most
of the retail markets getting saturated in tier-I and tier-II
cities, the next phase of growth is likely to be seen in the
rural markets.
Affluence
Availability &
Accessibility
Affordability
Attachment
7-A Model of
Rural
Consumer
Acceptance
Acknowledgemen
t
Strategy to increase Acceptance in Rural Markets
Awareness
Attitude
There have been various disjointed initiatives that proved
to be successful for a few companies and were termed as
strategies for the rural markets.
• HUL in 1980’s initiated their scheme called
“Operation Harvest”, to extend their distribution to
villages with a population of 2000 or more. In 1990’s
it started ‘Operation Bharat” to cover villages of
population of 1000 and in the recent past they harped
on their programme “Project Shakti Amma” (started in
AP spreading to MP) to cover villages with less than
1000 persons to tap the unexploited potential of the
rural market a little deeply.
• ITC launched its first rural ‘hypermarket’ – “Choupal
Sagar” in Madhya Pradesh, spread over five acres and
markets an array of products from groceries to seeds
to even tractors.
• Godrej Aadhar (retail) was established in Pune in
December 2003 which tried to position themselves as
a ‘complete solution provider’ for farmers and the
entire rural populace. Provided not only variety of
products but also provided customer service and
consultancy for farming.
• HPCL’s – “Apna Pump” consists of de-scaled pumps
situated away from the highways and run by rural
entrepreneurs.
• Coca-Cola India tapped the rural market in a big way
when it introduced bottles priced at Rs 5 and backed it
with the Aamir Khan ads.
• The sachet strategy by Kavin Care and HUL has
proved so successful that, according to an ORG MARG data, 95 per cent of total shampoo sales in
rural India is by sachets.
• Dharmendra riding Escorts in their advertising and
with the punch line – “Jandar sawari, shandar sawari”
fetched gigantic sales of 95,000 vehicles annually.
Now let’s take-up the understanding and influence about
each of there A’s that build the winning rural marketing
strategy. Each of these ‘A’ needs to be integrated in such a
manner that it suits the requirements of the specific rural
segment sought to be served. The model is only suggestive
and does not proceed to test the extent of influence on
consumer acceptance or its effectiveness under a given
condition. Characteristics of each ‘A’ is explained, action
plan suggested and substantiated with examples.
An insight into these success stories suggests a model to
the author that is being proposed as a marketing strategy to
increase acceptability in rural markets. It can also be
termed as the success formula for winning in rural markets.
New elements of the marketing mix (7A’s) are being
proposed to the rural marketers that go beyond the
traditional 4P’s (Product, Price, Place & Promotion).
Covering such a vast stretch of geographic market is
possible only through mobile vans which can be afforded
by only big players in the market. Thus companies with
relatively fewer resources can come together through
syndicated distribution, through co-partnering with noncompetitive marketers for the same market. Companies are
coming together to piggy back on each other’s product mix
1. Availability and Accessibility
Availability along with accessibility is the first ‘A’ that
deals about making the product reach the consumers. It has
been acknowledged by many that distribution systems are
the most critical component and a barrier which needs to
be overcome for succeeding in rural markets. Ensuring
availability of the product or service in India's 627,000
villages are spread over 3.2 million sq km; and accessing
700 million people is not easy. However, given the poor
state of roads, it is an even greater challenge. Direct
delivery of goods even to the top one percent of villages
cost twice as much as servicing urban markets. Marketers
must trade off the distribution cost with incremental
market penetration.
This trade-off may lead to cost effectiveness in distribution
and enhance availability in rural markets for the
companies. However it does not restrict the rural consumer
to venture into the nearby urban markets for his other
needs. This is more out of necessity and once in the urban
market they prefer to purchase even those items from
urban areas that are available at their doorstep. Companies
have therefore got to offer an assortment of products and
services under one roof to create convenience for the rural
consumer.
16
daily wages. Some companies have addressed the
affordability problem by introducing small unit packs.
• Godrej recently introduced three brands of Cinthol,
Fair Glow and Godrej in 50-gm packs, priced at Rs 45 meant specifically for Madhya Pradesh, Bihar and
Uttar Pradesh — the so-called `Bimaru' States.
• For HUL, a one rupee or a five rupee sachet or the
Kutti Hamam (the small Hamam) helps in giving the
consumers a trial opportunity. It also launched a
variant of its largest selling soap brand, Lifebuoy at Rs
2 for 50 gm. mainly targeted at the rural market.
• Coca-Cola has addressed the affordability issue by
introducing the returnable 200-ml glass bottle priced
at Rs 5. The initiative has paid off: Eighty percent of
new drinkers now come from the rural markets. CocaCola has also introduced Sunfill, a powdered softdrink concentrate. The instant and ready-to-mix
Sunfill is available in a single-serve sachet of 25 gm
priced at Rs 2 and multiserve sachet of 200 gm priced
at Rs 15.
• Amway India Ltd is planning a foray into rural
markets with an array of low-priced brands. The
strategy has a code named “Operation Ghar”.
and logistics facility to reduce the cost of distribution and
increase market coverage. Marico Industries and Procter &
Gamble came together through their joint rural distribution
program to cater to the rural markets.
• Over the years, HUL has built a strong distribution
system which helps its brands reach the interiors of the
rural market. To service remote village, stockists use
auto rickshaws, bullock-carts and even boats in the
backwaters of Kerala.
• Coca-Cola, which considers rural India as a future
growth driver, has evolved a hub and spoke
distribution model to reach the villages. To ensure full
loads, the company depot supplies, twice a week, large
distributors which who act as hubs. These distributors
supply, once a week, to smaller distributors in
adjoining areas.
• LG Electronics defines all cities and towns other than
the seven metros cities as rural and semi-urban
market. To tap these unexplored country markets, LG
has set up 45 area offices and 59 rural/remote area
offices.
• Hero Honda Mobile Service Workshops and Service
Extensions in the hinterland of rural markets is another
example of enhanced service availability.
• Some companies are conducting health-care
workshops in the rural areas by tapping the local
doctors.
• Nicholas Piramal has focussed on general practitioners
to cater to rural markets to increase its penetration
with a field-force of 800 people.
It is not just price that is important. The rural consumer
also looks at the life value of the product. Thus
affordability must consider the resale value offered within
the price. This becomes almost a necessity as impulse
purchase is minimal and frequencies of purchases are less.
The affordability element must therefore take into account
a long-term perspective of the rural consumer.
Some of the channels that can be exploited to serve the
rural markets, increase reach, and enhance cost
effectiveness, are:
1. PDS (Public Distribution System) - Ration shops
2. Common dealers for agricultural inputs/ tractors /
pumpsets, etc.
3. Semi-wholesalers in mandi towns acting as hubs.
4. National Consumer Cooperative Societies
5. State Consumer Cooperative Societies
6. Local Post-offices
7. Rutailing (Rural Retailing)
3. Awareness
The Indian rural market today accounts for only about Rs 8
billion of the total ad pie of Rs 120 billion, thus claiming
6.6 per cent of the total share. So clearly there seems to be
a long way ahead. The greatest challenge for advertisers
and marketers continues to be in finding the right mix that
will have a pan-Indian rural appeal. Coca Cola, with their
Aamir Khan ad campaign succeeded in providing just that.
With nearly 60 languages and over 114 vernacular dialects
it multiplies the challenge to adopt a universal
communication model and further complicates it with the
rural populace having varying literacy levels. Hence oral
communication – WOM becomes the only possible way
out to promote the products in the rural markets.
Companies are planning variable warehouses in semiurban and rural areas, which can cater to the fluctuating
demand patterns of rural consumers. Increasing the load
per van and doing proper route planning can reduce the
higher cost of transportation. Many companies are using
‘Global Positioning Remote Sensing Systems’ for mapping
villages and developing optimal transport models to cater
to the rural market at lower transportation cost. It is time
for Product Management and Product Managers to be
replaced by Place Management and Place Managers.
Anugrah Madison's chairman and managing director RV
Rajan sums up, "There is better scope for language writers
who understands the rural and regional pulse better. I also
see great scope for regional specialists in the areas of
rural marketing - specialists like Event Managers, Wall
painters, folk artists, audio visual production houses. In
fact all those people who have specialized knowledge of a
region are bound to do well, thanks to the demands of the
rural marketers."
2. Affordability
The second element is to ensure affordability of the
product or service. With low disposable incomes, the
money goes straight into consumption as mostly there are
17
11. Unconventional media like ‘yatra’ in eastern India,
‘yakshini gan’ in southern India, ‘garba’ in Gujarat,
‘pala’ and ‘daskathia in Orissa are popular forms of
rural advertising vehicles.
Large parts of rural India are inaccessible to conventional
advertising media (only 41 per cent rural households have
access to TV). Fortunately, however, the rural consumer
has the same likes as the urban consumer — movies and
music — and for both the urban and rural consumer, the
family is the key unit of identity. However, the rural
consumer expressions differ from his urban counterpart.
Outing for the former is confined to local fairs and
festivals and TV viewing is confined to the state-owned
Doordarshan. Consumption of branded products is treated
as a special treat or indulgence.
• HUL relies heavily on its own company-organised
media and promotional events organised by stockists.
Godrej Consumer Products, which is trying to push its
soap brands into the interior areas, uses radio to reach
the local people in their language.
• Coca-Cola uses a combination of TV, cinema and
radio to reach 53.6 per cent of rural households. It has
also used banners, posters and tapped all the local
forms of entertainment.
• LG Electronics uses vans and road shows to reach
rural customers. The company uses local language
advertising.
• Philips India uses wall writing and radio advertising to
drive its growth in rural areas.
• Samsung rolled out its 'Dream Home' road show
which was to visit 48 small towns in 100 days in an
effort to increase brand awareness of its products.
4. Attachment / Acceptability
Acceptability issues would include issues needed to be
addressed to improve the willingness to consume,
distribute or sell a product. It would also include how the
product or service could be more attached to the rural
consumers by incorporating features which would make it
attractive to them. With a telecom service there are two
basic components of the service one being the handset and
second being the recharge coupons. Innovation is needed at
both the ends to be able to tackle both the issues.
In the rural families, studies indicate a slow but determined
shift in the use of categories. There is a remarkable
improvement in the form of products used. For instance,
households are upgrading from indigenous teeth-cleaning
ingredients to tooth powder and tooth-pastes, from
traditional mosquito repellant to coils and mats. There is
also a visible shift from local and unbranded products to
national brands, from low-priced brands to premium
brands.
There is a need to differentiate the brand according to
regional disparities. The differentiation may not
necessarily be in terms of product content. It may also be
in terms of packaging, communication or association with
the brand. The brand has to be made relevant by
understanding local needs. Even offering the same product
in different regions with different brand names could be
adopted as a strategy. At times it is difficult to pass on an
innovation over an existing product to the rural consumer
unlike his urban counterpart - like increased calcium or
herbal content or a germ-control formula in toothpaste.
Rural India experiments with various other media to spread
awareness and for promotion of products and services,
such as:
1.
Local village Cinemas
2.
Wall paintings, hoardings and other outdoor media
3.
PCOs
4.
Bus Terminus
5.
Occasion based - Marriage Seasons, Harvest Season
6.
Sponsorships - Rural sports, Melas, Touring Talkies
7.
Mechanic Contact Program of Hero Honda
8.
Rituals, festivals, celebrations, Melas, Haats, Mandis,
etc.
9.
Message should be aimed to modify the behaviour by
influencing perception and attitude.
In 1998, LG developed a customized TV for the rural
market – “Sampoorna”. It offered the feature of ‘On
Screen display in the languages Hindi, Tamil& Bengali, to
rural consumers with the choice to read the display in their
language. It was a runway hit selling 100,000 sets in the
very first year.
Because of the lack of electricity and refrigerators in the
rural areas, Coca-Cola provides low-cost ice boxes — a tin
box for new outlets and thermocol box for seasonal outlets.
10. Personal selling is the main focus for promotion
especially due to lack of persuasive media and poor
literacy levels. Salesmen with mobile vans move from
village to village. Vans are fitted with projecting
equipment or music system to catch the attention of
people and announce for their assembly at some point
in the village for entertainment. Salesmen can then
talk about his product, demonstrate and do spot
selling.
The insurance companies that have tailor-made products
for the rural market have performed well. HDFC Standard
LIFE topped private insurers by selling policies worth Rs
3.5 crore in total premia. The company tied up with nongovernmental organisations and offered reasonably-priced
policies in the nature of group insurance covers.
Arvind Mill’s decision to enter the rural market with the
Ruff and Tuff brand has met with astounding success. In
18
of Ariel using families also use Nirma detergent, 3% of
Denim users use Pond’s Dreamflower talc and 18% of
Pantene using households use Clinic shampoo as well.
the first two months, demand crossed a million pieces as
against a production capacity of 2,50,000 kits.
The marketers who understand the rural consumer and fine
tune their strategy that attach to the needs and psyche of
the rural consumers are sure to reap benefits in the coming
years.
It will be unjustified to think that rural consumers are less
bothered about product quality. Marico has found that the
rural consumers in the interior of India willingly pay a
reasonable price premium for branded cooking oil, over
community oil, because they are certain of its consistent
quality. Unbranded products are often considered by some
of them to be adulterated.
5. Acknowledgement
A study on the buying behaviour of rural consumer
indicates that the rural retailer influences about 35% of
purchase occasions. Hence, sheer product availability can
effect the decision of brand choice, volumes and market
share. The rural consumers interact directly with their retail
salespersons who has a strong conviction power and whose
recommendations carry weight.
There is a definite attitudinal shift towards health, hygiene,
sanitation, etc. due to education. This opens up
opportunities for the healthcare sector, education, etc. The
rural awareness programmes, literacy programmes, and
health consciousness programmes run by the government
are also paying off. Similar campaigns can be implemented
by the large business houses for making their presence in
the rural markets.
United Phosphorous Limited (UPL), an Indian crop
protection company, realized that in its rural markets small
farmers were not applying pesticide at all, or applying it
inappropriately due to the lack of application equipment.
The capital cost of the equipment (mounted pumps and
dispensers that cost up to $3000) was placed out of reach
of small farmers and most rural retailers. UPL designed a
program in which it arranged for bank loans for its rural
retailers to purchase application equipment and
demonstrated to their retailers the additional revenue
possibilities from renting this equipment to small farmers.
The result was an added revenue stream for rural retailers.
Rural attitudes are in a transformation phase and so must
the offer be to the rural customer. On youth, the attitude
has its impact on knowledge and information and while on
women it still depends on the socio-economic aspect.
7. Affluence
The sources of income in the rural markets are limited,
erratic and dependent on seasons. There is a need to first
create opportunities of development from within to
generate wealth. Marketers can catalyze ‘Rural Wealth
Creation’ that would translate in greater acceptance of the
global brands in rural India.
If the product or service is acknowledged by the decision
makers – like the ‘Sarpanch’ or ‘Mukhiya’ or ‘Gram
Pradhan’ it carries weight. The Block Development
Officers can also act as brand ambassadors. Most
marketers have realized this and they get a prior approval
from these influencers to make a firm hold in the
respective villages.
The development of rural infrastructure is an important
priority for the government and out of the total projected
investment of US$ 283.83 billion to be incurred by the
centre and the states in the Eleventh Plan; US$ 80.82
billion would be spent entirely towards improvement of
rural infrastructure.
6. Attitudes
Rural India is not averse to trying out the premium brands
at high prices. A study indicated that a majority of the
premium brand users are using the brand for the first time.
Similarly 0.9% of the talcum powder-using families have
started using Denim talc and 0.7% of the shampoo using
households started using Pantene.
Lately many large land-holders in rural areas have sold off
their land-holdings and the sudden affluence has given
them a different status. However there is a need to develop
fiscal discipline and regular savings habit. This offers lot
of opportunities to local bankers to use their creativity and
offer customized wealth creation plans to rural markets.
Surveys also reveal that trials are not restricted to the more
affluent echelon of the villages. The experimenting
households are more-or-less evenly spread across the
various socio-economic clusters of the rural market. This
should further encourage the marketers to focus their
attention on rural buyers. The rural youths are more open
to fresh concepts as against their elderly family members.
Their difference in choice of products/brands with the
seniors of the households often leads to a “dual-usage” of
product categories. As an instance, 20% of the households
using tooth powder also use tooth paste. Similarly, many
of the households using premium brands also use mass
market brands. For example, while 15% of Surf and 12%
Retailer Credit is another weapon that can increase the
purchasing power of the rural clientele and enhance the
sale of branded products.
Another opportunity lies in offering low-interest personal
loans to the rural population. To tap this market,
microfinance institutions (MFIs) are now using mobile
phone technologies to augment the reach of microfinancing in rural India.
19
Government has also done its bit several times by waving
the interest of even the loan repayment of farmers, upto a
certain amount, but true benefit has yet to be created.
4.
Some notable tactics that could be implemented for such
rural markets are:
It needs to be remembered that the rural north is not the
same as rural south or rural west. Hence what works in one
village might not be a winning proposition in another. I’ll
like to end here by saying that these 7A’s of the rural
marketing mix need to be integrated in a proportion that
would be appropriate for the specific rural segment.
1.
Financing schemes- especially for durables can be
offered.
2.
Loan Melas by Rural Banks/Land Development
Banks/Lead Banks have also helped in enhancing the
affordability for various items.
3.
Traders at the local level may adopt a daily collection
scheme from their regular rural consumers.
Job rotation and employment opportunities to the
farmers during the slack season can also be a fruitful
initiative.
As a concluding remark I would like to recall C.K.
Prahlad’s words, “Improving the lives of the billions of
people at the bottom of the economic pyramid is a noble
endeavour. It can also be a lucrative one”
Bibliography
1.
2.
3.
4.
Alternative Nation, Baxi, Sachin, Brand Equity, The Economic Times, 15 May, 2002
Backcountry Business, Business Today, November 11, 2001
Growing Brand Awareness, Joseph, Sophie, The Hindu Survey of Indian Industry, 1999
I’ll play the game my way, Vindi Banga’s interview with Rahul Joshi and Alika Rodrigues, Brand Equity, The
Economic Times, May 22, 2002
5. Rethinking Marketing Programs for Emerging Markets, Chattopadhyay, A., and Dawar. N., Insead R&D,
2000/47/MKT
6. Gopalaswamy T.P., 2005.Rural Marketing, Vikas Publishing House, New Delhi..
7. Krishnamacharyulu C.S.G. & Ramakrishnan L., 2002.Rural Marketing, Pearson Education Asia.
8. Singh Sukhpal, 1985.Rural Marketing Management – A Development Approach, , Vikalpa ,July –Sept.
9. C. Rajendra Kumar & Dr. Sanjay S. Kaptan, 2005.Rural Marketing mix – Enlargement of 4 P’s to 6 P’s, International
Journal of Business Research., Vol. June 2005.
10. The Consumer, Business Today, January 20, 2002
Web References
www.domain-b.com
www.dspace.iimk.ac.in
www.etstrategicmarketing.com/smJune-July2/
www.ficci.com
www.hindu.com/
www.ibef.org/economy/ruralmarket.aspx
www.iceg.net/2007/books
www.indiantelevision.co.in
www.livemint.com/2007
www.thehindubusinessline.com
www.wikipedia.org/wiki/Rural_markets
20
A Study on Consumer Perceptions & Expectations for Tata Nano
Pooshan Upadhyay* & Keertiman Sharma**
ABSTRACT
The paper presents the primary data of 150 respondents across Lucknow region. To explore the customers' perception of
Nano, analysis has been done on various variables like price, style, attributes, availability, and the factors affecting the
Indian customers are highlighted. A study of the performance of the retailers has also been done for fastest sales conversion
.It was found that the three major factors influencing the decision of purchasing the car are price, fuel efficiency and
performance of the car. The study also revealed that the majority of the respondents’ like the car because of their style and
effective price and 70 percent Nano customers already had a car. It was also found that these perceptions are reflected in
the performance of the company, too. With the increasing competition amongst automobile companies, the findings can act
as a strategic tool to achieve competitive advantage and customer satisfaction.
Tata Nano.
Introduction
Tata Motors Limited is India's largest automobile
company, with consolidated revenues of 92,519 crores
(USD 20 billion) in 2009-10. It is the leader in commercial
vehicles in each segment, and among the top three in
passenger vehicles with winning products in the compact,
midsize car and utility vehicle segments refer to figure 1.
Research Design
Research Design used here is of Explorative nature
because the researchers need to obtain a very specific
picture about the perception and preference of Tata Nano.
It has been used to get an accurate idea about a specific
segment of the market such as the level and extent of brand
awareness and preferences among the consumers.
Fig. 1: Market Share of Automobiles companies
The sampling method used is a Simple random sampling.
Within random sampling, judgment sampling methods
were used.
Data Collection Method
The data collection method used for the research purpose
in this project was Questionnaire and In-Depth
Interviews through the questionnaire with the customers (
people who do not own the car). The questionnaire
contained around 17 different questions on which a
detailed response was obtained from the respondents.
Source: Business World May 2010
Prior to this survey, a Pilot Survey was performed to test
the probability of the success of the research work, which
was to be performed later during the project. This pilot
study was done on a small sample of 10-15 individuals to
assess the effectiveness of the research over a short period
of time. The inferences drawn were then extrapolated as
per the requirements of the research and the larger sample
with a longer duration of time was assessed to attain the
overall research objective. A total of 150 respondents were
surveyed.
Nano has been a mega success in generating public
interest. Given its on road price ranging from Rs 1.23 lakh
to Rs 1.85 lakh (albeit, it being slightly above expectation),
the car has a robust potential of being a marketing success.
According to Crisil Research estimates, the new price point
reduces the cost of ownership of an entry-level car in India
by 30 per cent. This will make the car affordable to an
additional 14 million families, including a section of the 58
million two-wheeler owners.
Profile of Respondents
The demographic characteristics of the respondents in
Table 2 indicate that the majority of respondents belong to
the 20 to 30 age group, followed by 30-40 age groups.
Research Objectives
• To study the general criterion and preferences
concerning purchase of a car.
• To study & analyze the general perception and
awareness about Tata Nano.
• To gather information regarding the expectations from
*Consultant- Branding & Tourism Marketing, Lucknow. **Assistant Professor SRMS, International Business School, Lucknow.
21
Table 1: Demographic Characteristics of Respondents
The top 3 factors that influence the purchase of a car for
the majority of the population, based on the ranks given by
them, has been found out to be –
1. Price of the car
2. Fuel efficiency
3. Performance & maintenance cost
Demographic Characteristics
Age
Percentage
Below 20
4%
20-30
61%
30-40
13%
40-50
10%
50 & Above
12%
Characteristics appreciated & disliked in Nano:
Nano recorded the largest sales at their first quarter In
this question respondents were asked to tell the benefits
associated with Nano that were most liked by the
customers.
Income group
Less than 5 Lakh
52%
5 to 10 lakh
32%
10 to 15 Lakh
10%
15 to 20 Lakh
2%
Compact Size
More than 20 lakh
4%
Spacious interiors
3
5.7%
Economic Pricing
29
54.7%
Table 3: Characteristics of Nano Car
Line of Work
No. of
respondents
27
Percent
50.9%
Service
39%
High Fuel Efficiency
13
24.5%
Business
28%
Exclusivity
2
3.8%
Teaching
2%
Great features at low cost
11
20.8%
Student
29%
Others
2
3.8%
Defense Service
2%
More than 50% of the population likes Nano for its
Compact Size and Economic pricing. Only 24.5% of the
population likes the car for its High fuel efficiency. Some
other are: Less impressive interior, skinny tyres, etc.
Keeping in mind the objective of the study, a major share
of the sample was chosen from the population with an
Annual family income of less than Rs.10 lakhs. Only 6% of
the respondents belonged to the income group of More
than Rs.15 lakhs per annum .A good mix of respondents,
from different line of works, was tried to be maintained.
Purpose associated with Nano: In this question
respondents were asked to tell the purpose of purchasing
the car viz. for personal use or due to its low price, Nano is
a substitute for the 2- wheeler. Further the analysis carried
with reference to age group and occupation of respondents’
is shown in Table 4 and Table 5.
Findings and Analysis
Major influencing factors while making a purchase: As
Nano has brought innovations in the automobile sector all
over the world, specific questions were asked about the
major factors influencing the purchasing of the Nano
(Table 2).
Figure 2: Purpose of purchasing the Nano
Table 2: Factors Influencing the
Purchase of Nano Car
Price of the Car
Mean
1.77
Sum
85
Performance & Maintenance cost
0.93
45
Size
0.25
12
Status
0.2
10
Resale Value
0.27
13
Fuel Efficiency
1.25
60
After Sales Service
0.37
18
Looks & comfort
0.81
39
Others
0.25
12
It is clear from figure 2 that the purpose for which Tata
Nano is most associated with is for its utility within the
city. Tata Nano was chosen by a major share of the
population to be of best use as a substitute for a 2- wheeler
and for personal use.
22
Table 4: Cross Tabulation of Purpose with Age group
Age
group
Below 20
20-30
30-40
40-50
Above 50
Total
Substitute
for a 2
wheeler
1
5
2
1
2
11
Personal
use
Family
use
Commercial
0
7
1
1
1
10
0
3
3
1
1
8
0
2
0
0
0
2
Utility
within
city
0
13
1
0
0
14
Gift to my child or
somebody close
Others
0
0
0
1
0
1
1
1
0
0
0
2
2
31
7
4
4
48
It is revealed from the above table that the maximum people in the age group of 20 to 30 years see Nano for its utility
within the city. It is only the people in the age group of 30 to 40 years that see it as a family car.
Table 5: Cross tabulation of Line of work with purpose of purchasing Nano
Business
Line of work
Service
Defense
Services
Teaching
Student
Substitute
for a 2
wheeler
Personal
use
Family
use
Commercial
Utility
within
city
4
3
2
0
3
Gift to
my child
or
somebody
close
0
36.4%
30.0%
25.0%
.0%
21.4%
3
4
6
0
5
27.3%
40.0%
75.0%
.0%
0
1
0
.0%
10.0%
1
0
9.1%
Frequency
%
Frequency
%
Frequency
%
Frequency
%
Frequency
%
Others
0
12
.0%
.0%
25.0%
1
0
19
35.7%
100.0%
.0%
39.6%
0
0
0
0
1
.0%
.0%
.0%
.0%
.0%
2.1%
0
0
0
0
0
1
.0%
.0%
.0%
.0%
.0%
.0%
2.1%
3
2
0
2
6
0
2
15
27.3%
20.0%
.0%
100.0%
42.9%
.0%
100.0%
31.3%
The above table depicts that most of the people in business
see Nano as a substitute for a 2- wheeler, while people in
service line of work see it more as a Family car and,
students, find it most suitable for the usability of the car
within the city.
Figure 3: Preferred mode of payment
Willingness to consider Nano & Preferred Mode of
payment for Nano : In this question respondents were
asked to tell whether they considered the Nano as their
choice for their next purchase of a car or not and if they
considered the Nano then what mode of payment did they
prefer for making the payments of the car.
Table 6: Willingness to purchase the car
13/21 (13 out of 21) would prefer getting 50-70% finance
for the purchase
Frequency
Maybe
Yes
No
30%
16%
54%
Considerable waiting time for car delivery: After getting
the responses regarding the willingness to purchase the car,
the next question asked to the respondents’ that due to the
high demand of the car, to what extent were they willing to
wait for the car.
The above table 6 revealed that more than 54% people said
that they would not at all consider Nano while buying a
car. And of the remaining 46%, only 16% confirmed that
Nano would be in their list of considered cars.
23
•
•
•
•
•
•
•
•
Figure 4: Willingness to wait for Nano Car
The people expecting an air conditioner in the car just
exemplifies the unawareness about the car. There have
been many inputs regarding the noise of the engine and
thus an elegant engine sound was also a major suggestion.
There also exists concern regarding the security features of
the car and thus many also suggested that there be air bags
available in the car.
A waiting time of 2 weeks was chosen by the majority but
a great number of respondents were also willing to wait for
more than 8 weeks
Preferred point of contact for booking: In this Question
respondents were asked to tell them for booking the Nano
which channel they preferred for booking
Some accessories
Of all the people willing to consider Nano for their next
purchase, the accessories that they would like to decorate
their cars with were majorly:
• Music System
• Bluetooth Facility
Table 7: Preferred point of Booking
Channel of Booking
Dealer
Bank
Online
Tata Group Outlet
CNG
Good Looking Headlights
Air bags
Comfort Features
Elegant Engine Sound
A Richer Look on The dashboard
Twin Viper
Large Boot Space
Percentage
39%
9%
17%
35%
Some suggestions from the respondents to make the
buying experience better
• Address the safety concerns
• Adequate Advertising
• Better customer dealing
• Discounts & Accessories
• Less waiting time
• Offer Warranty
• Provide finance
• Quick & convenient paper work
• Quick delivery
• SMS updates about expected date of delivery, and
• web based booking
Table 7 depicts that most of the respondents prefer to make
the booking at the dealership and Tata group outlets. Most
of the people prefer to see the car while making the
booking.
Preferred booking amount
Figure 5: Preferred booking Amount
Other Suggestions
• Extensive advertising as a ‘youth car’
• Marketing of the car not just as ‘A car for all’ but as a
special car. The commoner tag to the car shadows the
exclusivity of the car
• Programmes required to eliminate misconceptions
about the car and educate people about utility of the
car
• Market the car with stress on the ‘beautiful design’ of
the car a la the strategy used by Hyundai to promote
its Santro
Figure 5 clearly indicates that 10% booking amount, of the
car price, is the most accepted and expected booking cost
for the car, with another share of the population willing to
pay 20-30% as the booking amount.
Suggestions
This section of the study covered the suggestions given by
respondents’. Like some features that the Nano should
have. Such features that the customers’ for Nano would
appreciate or would like to see in the car, as stated, are:
• A.C
• Powerful Engine
Results & Conclusion
The conclusions derived from the research were that the
reasons for decreasing enthusiasm for the car have been:
Lack of advertising, thus lack of information, Long waiting
time, Bad word of mouth and negative reports in the
market, ‘Auto-rickshaw’ like sound. But it has been
24
car. The wonderful experiences of the customers can be
used as a tool to ‘clear the air’ about Nano by means of
customer meets & publicity and positive propaganda of the
same. Nano is more popular with the service class & the
student population, hence the car may be targeted
specifically to these segments. Many complaints were
recorded for poor customer dealing both at the dealer &
the company end, thus resulting in not only unsatisfied
customers but also a bad word of mouth or negative buzz.
Special care needs to be taken to strengthen people’s
confidence in the customer relationship & dealing at
TATA MOTOR.
found that Nano scores high on both of the top 2 purchase
influencers for car buyers – Price & fuel efficiency but in
reality company still isn’t positioned so. This is attributed
to lack of awareness. For overcoming this drawback the
company has to plan an effective promotion campaign &
execute it with a comprehensive media plan to quickly and
widely spread awareness about the car.And, since Nano
finds a major market with people aged between 20 to 30
years it may be positioned as a ‘Young Car’ so as to attract
this segment. But misconceptions exist about Nano not
being safe & about it being congested, although, the
customers using the vehicle are extremely happy with the
References:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Bartels, R.: 1967, ‘A Model for Ethics in Marketing’, Journal of Marketing (January) 31, 20–26.
Ekin, M.G. and S. Tezölmez: 1999, ‘Business Ethics in Turkey: An Empirical Investigation with Special Emphasis on Gender’,
Journal of Business Ethics 18, 17–34.
Engel, J. F. and R. D. Blackwell: 1982, Consumer Behavior, The Dryden Press, New York.
Ferrel, O. C. and L. G. Gresham: 1985, ‘A Contingency Framework for Understanding Ethical Decision Making in Marketing’,
Journal of Marketing (Summer), 87–96.
Fleming L. 2001. Recombinant uncertainty in technological search. Management Science 47: 117–132.
Forsyth, D. R.: 1980, ‘A Taxonomy of Ethical Ideologies’, Journal of Personality And Social Psychology 39(1), 175–184.
Forsyth, D. R.: 1992, ‘Judging the Morality of Business Practices: The Influence of Personal Moral Philosophies’, Journal of
Business Ethics (May) 11, 461–470.
http://www.expressindia.com/latest-news/Tatas-Nano-fulfills-common-mans-dream/259927/
http://www.scribd.com/doc/21385074/Case-Study-on-Tata-Nano
25
Questionnaire
1.
Do you own a car?
a.
b.
Yes
No
If yes, please specify the car(s)’s name __________________________
2.
3.
Which of the following features majorly affected your buying decision of your present car? Please tick all that
apply
:
a. Fuel efficiency
f. Resale value
b. Cost
g. Looks and comfort
c. Performance
h. Size
d. Friends and Family
i. Service network
e. Market response
When would you probably buy your next/first car?
a. Within 15 days
e. About an year
b. A month
f. After 1 year
c. 3 months
d. 6 months
4.
Kindly rank the 5 most important factors that would influence the purchase for your next car. Please DO NOT
repeat ranks (1 – Most significant feature, 5 – Less important feature)
a. Price of the car
___
g. After sales service
___
b. Maintenance cost
___
h. Visibility around me ___
___
c. Size
___
i. Looks & Comfort
j. Others ___________ ___
d. Status
___
e. Resale value
___
f. Fuel efficiency
___
5.
Your preferred mode of payment would be:
a. 70 – 85 % finance
b. 50-70 % finance
c. Less than 50 % finance
d.
Cash purchase
6.
Some cars that you would like to consider are __________________________________
7.
The first thing that comes to your mind when you think of TATA NANO is_____________
8.
If you were to consider Nano, what purpose would Nano best suit you for?
a. Substitute for a 2 wheeler
e. Utility within city
b. Personal use
f. Gift to my child or somebody close
c. Family car
g. Other_________________
d. Commercial
9.
Characteristics of Nano that you appreciate are – (Please tick all that apply)
a. Compact size, thus easy maneuverability
e. Exclusivity
in traffic
f. Great features & facilities at low cost
b. Spacious interiors
g. Other___________________
c. Economic pricing
d. High fuel efficiency
10. Some thing(s) you do not like in Nano is/are ___________________________________
11. What, according to you, is the fuel efficiency of Nano? (in km/liter)
e.
a. Less than 10
f.
b. 10-15
c. 16-20
d. 21-25
26
More than 25
No idea
12. What, in your knowledge, is the price for the base model of Nano? (Ex-showroom price In Lac Rs.)
a. 1.0
d. No idea
b. 1.2
c. 1.3
13. Which of the following features, in your knowledge, does Nano offer through its variants? Please tick all that apply
a. Air conditioner
f. Central locking
b. Air conditioner with heater
g. All of these
c. Power windows
h. No idea
d. Power steering
e. Fog Lights
14. How many colors, in your knowledge, are available for Nano?
a. Less than 3
b. 3
c. 4
d.
e.
5
More than 5
15. Are you aware about the Tata Motors’ plant at Sanand now being operational, thus boosting the availability of the
car?
a. Yes
b. No
16. Would Nano be a part of your considerable options for car purchase?
a. Yes
b. No
c. Maybe
d. If yes/Maybe,
i.
What according to you, is Tata Nano missing and should have to make it the real “People’s
Car”?_____________________________________________________________
ii.
What duration would you find considerable if you were to wait for the delivery of the car? ____
iii.
What mode of booking would you prefer the most?
(a) Dealer
(e) Banks
(b) Tata Group outlets
(f) Others ______________
(c) Online
(d) Malls
What booking amount, according to you, is most suitable ( in Rs. or % of the cost) _________
iv.
17. Did you participate in the 1st round of booking for Tata Nano?
a. Yes
b. NoIf not,
The reason for not participating was ____________________________________
18. What factors do you think/consider could make the buying experience better for Nano
Name:
__________________________
Contact no. :
Age group :
(a) Below 20
__________________________
(b) 20 – 30
Line of work:
a)Business b)Service
(c) 30 – 40
c)Defense Services
(d) 40 – 50
d)Teaching
Thank you for your precious time.
27
(e) Above 50
e)Student
Annual Family Income:
a) Less than 5 lacs
b) 5 - 10 lacs
c) 10 - 15 lacs
d) 15 - 20 lacs
e) More than 20 lacs
f)Other ___________________
Emerging Scenario of Facilities and Concessions to Exporters
in India-An Appraisal
Syed Shahid Mazhar* & Dr. Sankalp Srivastava**
ABSTRACT
Government of India like all other governments has been making sincere efforts to promote exports. After independence
export promotion was given very low priority due to easy and adequate assistance from World Bank and other international
institutions. After 1965 such assistance began to recede and as a result India had to depend on export promotion efforts to
meet its development requirements. India then considered export promotion, as a major challenge to meet its import needs.
Thus over the last couple of decades export promotion has assumed critical importance in Indian economy. The process of
liberalization and globalization has further boosted the export promotion efforts. After economonic reforms, Government of
India introduced various export promotion schemes like Duty Drawback, Special Economic Zone Scheme, Focus Product
and Focus Market Scheme, Market Access Initiative Scheme etc to promote exports. Through this paper an attempt has
been made by the researchers to study various export promotion schemes introduced from time to time to promote exports
from India after economic reforms and their resultant impact.
enable the country to meet its imports. Fortunately, it
received an encouraging response from the industrial
sector that was also looking for international markets. Over
the last of decades, export promotion has assumed critical
importance in Indian economy. Export growth has become
the main determinant of economic growth in India. The
process of globalization and liberalization initiated in 1991
has further enhanced the need of strengthening the support
of export-import trade business of the country.
Thus from time to time, Government of India, introduced
from time to time various facilities and concessions to
promote exports which are as follows –
Introduction
Government of India, like almost all other governments
has been endeavoring to develop exports. Export
development is not only important from the point of view
of the unit but also from the point of view of the economy
as a whole. Government measures aim, normally at the
general improvement of the export performance for the
general benefit of the economy.
After the independence, export promotion was accorded a
very low priority. During the 1950s and up to mid 1960s
export promotion was not at all considered as an essential
element in India's economic development process. Easy
and adequate assistance from World Bank and other
international agencies has provided India with more than
adequate amount of foreign exchange for financing
development as well as imports.
Marketing Development Assistance (MDA)
The Ministry of Commerce and Industry has a scheme of
Marketing Development Assistance (MDA), which was
launched in 1963 with a view to stimulate and diversify the
export trade, along with development of marketing of
Indian products and commodities abroad. The MDA is
utilized for: Market research, Commodity research, Area
survey and research, participation in trade fairs and
exhibitions, export publicity and dissemination of
information, trade delegation and study teams,
establishment of offices and branches in abroad. Grant in
aid to Export promotion council and other approved
organizations for the development of export and promotion
of foreign trade and any other scheme, which is generally
aimed at promoting the development of markets for Indian
products and commodities abroad.
Hence, the urgency of earning foreign exchange through
expanding exports was not there. In addition, because of
the large size of the domestic markets in India, "Import
Substitution" rather than "Export Promotion" was
considered as a prominent strategy for India's economic
development process. Similarly, during the period of first
three five-year plans over 1950-51 to 1965-66, Indian
economy was in a formative stage. Consequently, India's
capacity to export manufactured or industrial products was
extremely limited.
However, after 1965-66, the aid flows to India
substantially declined. Consequently, for the first time
India was made to depend significantly on her exports for
acquiring foreign exchange earnings to meet her needs of
essential imports.
During the year 2008-09, the various export promotion
councils undertook 373 export promotion activities with
the assistance received under the schemes. Details of
outlays approved and actual expenditure under the scheme
during the period 2004-05 to 2008-09 are given below:
Government of India therefore, considered it as appropriate
to lay emphasis on the needs of export promotion so as to
*Assistant Professor, Devprayag Institute of Management, Allahabad
**Assistant Director, Institute of Productivity & Management, Lucknow
28
An export house is defined as a registered exporter who
satisfies certain specific criteria. These houses are entitled
to certain facilities and incentives. Every export house
holds a valid export house certificate issued by the DGFT.
Year wise status of MDA release/Allocation (Rs. Crore)
Year
BE
Release
55.00
55.00
2004-05
55.00
38.00
2005-06
52.25
52.25
2006-07
52.25
52.25
2007-08
52.25
52.25
2008-09
The objective of the scheme was to recognize established
exporter as Export House, Trading House, Super Trading
House and Super Star Trading House with a view to build
marketing infrastructure and expertise required for export
promotion. Such houses had to operate as a highly
professional and dynamic institution and act as an
important instrument of export growth. In the past different
categories of Export Houses like Export House, Trading
House, Star Trading House and Super Star Trading House
were recognized based on foreign exchange earnings.
Source: Annual Report 2008-09 Deptt. of Commerce, Govt. of India
Market Access Initiative (MAI) Scheme:
The Market Access Initiative (MAI) Scheme introduced in
April 2001 is a plan scheme formulated to act as catalyst to
promote India's exports on a sustained basis, based upon
"Focus Product" and "Focus Market" concept. Under the
scheme, the Government shall assist the industry in
Research & Development (R&D), market research specific
market and product studies, warehousing and retails
marketing infrastructure in select countries and direct
market promotion activities through media advertising and
buyers sellers meet. Financial assistance shall be available
under the scheme to the Department of Central
Government and organizations of Central/State
Government Export promotion council, trade associations
and other eligible activities.
The Foreign Trade Policy (FTP) (2004-09) classifies
Export House into five categories- one star to five star
Export House, Another supplement to FTP (2004-09)
issued on April, 2007 classified export House into another
five categories- Export Houses like Export House, Star
export house, Trading House Star Trading House and
premier Trading house.
Category of houses
The scheme was revised in the year 2006. The revised
scheme was launched with effect from January
2007.During the year 2008-09, as total of 92
projects/studies were approved for receiving assistance
under the scheme. Details of outlays allocated and actual
expenditure incurred under the scheme during the period
2004-05 to 2008-09 is given below:
Export House
Star Export house
Trading house
Star trading house
Premier Trading house
Year wise status of MDA Allocation (Rs. Crores)
Year
BE
Release
102.24
4.84
2004-05
40.00
19.91
2005-06
40.00
39.99
2006-07
45.00
44.99
2007-08
50.00
49.99
2008-09
Export Performance
FOB/POR Value (Rs in
crore)
20
100
500
2500
10,000
According to the current foreign trade policy (FTP) 200914 issued on 27 August 2009 States category has changed
and new category of Export House is as below:
Category of Houses
Source: Annual Report 2008-09 Deptt. of commerce, Govt. of India.
Export House
Star Export house
Trading house
Star trading house
Premier Trading house
Export Houses and Trading Houses
From the beginning of the second five-year plan, the
foreign exchange problem began to assume serious
proportions, and the government began to realize the need
for vigorous export promotion efforts. It was very clear
that concerted efforts should be made for the promotion of
exports of non-traditional items. It was also realized that
unless positive steps were taken to build up a number of
merchant houses, concentrating almost exclusively on
exports and capable of undertaking trade on a sustained
basis it would be impossible to complete successfully
against the highly experienced and resourceful trading
houses of other countries. Consequently, Government of
India introduced the scheme of Export Houses.
Export Performance
FOB/POR Value (Rs in
crore)
20
100
500
2,500
7,500
A status holder is entitled to the following special benefits:
• Authorization and customs clearance for both
imports and exports on self-declaration basis.
• Fixation of input-output norms in priority within
60 days.
• 100% retention of foreign exchange in EEFC
account.
• Exemption from furnishing of Bank Guarantee in
schemes under Foreign Trade Policy (FTP).
• Star Export House and above shall be permitted to
establish Export warehouses.
29
•
•
b.
Exemption from compulsory negotiation of
documents through banks. Remittance/Receipts
however, would be received through banking
channels.
Status holders of specified sectors shall be eligible
for status holder incentive scrip.
SPECIAL ECONOMIC ZONES (SEZ)
In a major initiative to boost export led growth and
motivated by the success of Chinese Special Economic
Zones (SEZs) and with a view to overcome the
shortcomings on account of world class infrastructure,
unstable fiscal regime and to attract larger Foreign Direct
Investment (FDI), Government of India introduced the
scheme of Special Economic Zones (SEZs) in the year
2000. SEZs are a geographical region that has economics
laws that are more liberal than country’s typical general
laws. The scheme intended to make SEZs an engine of
economics growth supported by quality infrastructure
complemented by an attractive fiscal package both at the
centre and at the state level with the minimum possible
regulation.
•
•
•
•
To instill confidence in investors and to make this scheme
successful Government of India enacted SEZ Act
supported by SEZ Rules, which came into effect on
February 2006.
•
The main objective of the scheme is as follows:
• Generation of additional economic activity.
• Promotion of exports of goods and services.
• Promotion of investment from domestic & foreign
sources.
• Creation of employment opportunities.
• Development of infrastructure facilities.
•
•
•
Facilities to SEZ developers:
Government of India provides various facilities and
incentives to make this policy stable and successful, which
are as follows:
• 100% of profits of the developer arising from the
business of developing a SEZ, notified after April
1, 2005 under the SEZ Act shall be deducted from
taxable income. This deduction can be claimed at
the option of the assessee for any 10 consecutive
years out of 15 years.
• The developer of SEZ is not required to pay
minimum alternate Tax (MAT).
• A developer engaged in developing and
maintaining SEZ shall pay no dividend
distribution tax.
50% exemption of profits and gains from the
next 5 years.
c. 50% exemption to the extent that such
amount is reinvested in the SEZ special
reserve account.
d. Losses falling under the heads "Business and
Profession" and income from Capital gains
can be carried forward/set off as long as such
loss related to the business of the SEZ unit.
e. Interest, income received by a non-resident or
a person who is not an ordinarily resident in
India on a deposit made is an offshore
banking units (OBU), situated in SEZ shall
be exempted from total income.
SEZ units may import or procure from the
domestic source duly free capital goods without
requiring any license or specific approval.
Domestic sales by SEZ units shall be exempted
from special additional duly (SAD).
Exemption from applicable excise duty on goods
brought in from Domestic Tariff Area to SEZ.
100% FDI under the automate route is allowed in
the manufacturing sector in SEZ to units.
Exemption from Central Sales Tax on inter-state
sale or purchase of goods.
Flexibility to keep 100% of export proceeds in
Exchange Earner Foreign Currency account
(EEFC).
Exemption from service tax to the developer and
the SEZ units to carry on authorized operation in
the SEZ Service Tax exemption granted only to
units in DTA providing Service to SEZ developer
or to a SEZ unit.
SEZ units may sub-contract part of their
production or production process through units in
the DTA or through other EOV/SEZ units.
Benefits Derived from SEZ
Benefits derived form SEZ are evident from the
investment, employment, exports and infrastructural
development additionally generated.
SEZ- Visible Gains –Export
Exports
Growth Rate
Year
(Rs. in Cr.) (Over per year)
2001-02
9,189
2002-03
10,056
2003-04
13,854
39%
2004-05
18,314
32%
2005-06
22,840
24.70%
2006-07
34,615
52%
2007-08
66,638
92%
2008-09
99,689
50%
(Up to June 09)
42,501
2009-10
Facilities to SEZ units:
• The units set up in SEZ after April 1, 2005 will
get the following exemptions:
a. 100% exemptions from profit and gains from
business for the past 5 years.
Source: Economic Survey Various Issues.
The above-mentioned table exhibits a tremendous increase
in the export performance of SEZ. Exports from 2003-04
30
intend to carry out SEZ specific business and generate
stipulated numbers of jobs.
• On the issue of food security and loss of agricultural
land, priority should be given to waste and barren land
for the SEZ.
• Moreover land should be given on rental basis and the
Government should preserve its rights by arranging a
legal committee.
• On the issue of displacement government of India
should pay proper attention to the property
implementation of the "Rehabilitation Policy” to
ensure adequate rehabilitation package to the affected
people.
• As far as tax concessions are concerned, these are
given to make our exports more competitive in world
market. Initially the policy would cause a revenue loss
but after a few years the benefits will far outweigh the
losses.
Thus there is a clear understanding that a well
implemented and designed SEZ can bring about many
desired benefits like increase in employment, economic
growth foreign exchange earnings, international exposure
and transfer of new technologies and skills. Hence, the
government should try to promote SEZ to make India as a
global manufacturing hub.
have increased at a rate of 39% over the previous year. In
the year 2008-09 exports increased at a rate of 50% over
the previous year. The export in the year 2008-09 is Rs.
99,689 crore.
Employment and Investment in SEZ
(As 31 March, 2009)
Persons
Employment:
SEZ notified under the Act
1,34,627
State/Pvt. SEZ set up before 2006
55,890
Government SEZs
1,96,922
Total employment
3,87,439
Investment
SEZ notified under the Act
State/Pvt. SEZ set up before 2006
Government SEZs
Total investment
(Rs in crore)
1,04,589.30
6,657
3,393.65
1,14,640.53
Source: (Annual Report 2008-09, Govt. of Ind, Ministry of Commerce)
No doubt SEZs play an important role in encouraging
manufacturing activity, providing sustained employment
thereby accelerating the pace of economic growth but
critics argue that SEZ and its projects have instigated
certain controversial issues. They argue on the following
grounds:
• Relocation – Companies will simply relocate to SEZ
to take advantage of tax concessions being offered and
no activity being generated.
• Revenue loss – The policy could cause a revenue loss
of more than 40,000 crores every year.
• Land Acquisition –The act will lead to large-scale land
acquisitions by developer and displacement of farmers
with meager compensation and no alternative
livelihood.
• Loss of Agricultural land – SEZ will be built on prime
agricultural land with serious implication to food
security.
• Misuse of land for real estate – Promoters will get land
at cheaper rates and will make their fortune out of real
estate development.
• Uneven Growth – There is a strong possibility that
SEZ will be set up in states where there is a already
strong tradition of manufacturing and exports. This
will lead to regional disparities.
• Socio-Economic Disparity- It would create socioeconomic disparity as the SEZ would accommodate
high and mighty and the poor people will be pushed
towards poverty and unemployment.
Replying to the criticism faced by SEZ, Ministry of
commerce said that criticism of SEZ is entirely misplaced
and the propaganda against it are not based on facts. As far
as criticism of SEZ is concerned following points should
be put forward.
• On the issue of relocation of units, Government should
make the approval process more stringent where
applicants for any particular SEZ must prove that they
Focus Market Scheme:
For offering high freight cost and other disabilities faced
by Indian products in accessing international markets, a
new scheme, namely "Focus Market Scheme" had been
launched on April 1, 2006. The Scheme allows exporters to
get an incentive in the form of freely transferable duly
credit scrip @2.5% of the annual FOB value of exports of
notified products being exported to notified linked
markets. The initiative aims at enhancing India's
competitiveness for exports to these identified focus
market (countries).
In order to give further boost to this scheme, 10 new
markets have been identified w.e.f. 01.04.2008 and
consequently made eligible for availing benefits under the
scheme. Thus a total of 83 countries have been identified
as Focus Markets. The short-term impact of the scheme is
evident from the increase in volume of exports to these
notified countries. During the period April' 2008 –
February' 2009 a total of 3829 authorization having CIF
value of Rs 313 crores and FOB value of Rs. 16322 crores
have been issued under the scheme.
Focus Product Scheme:
Product originates from rural and semi urban areas have
high employment potential. These products however suffer
from high inherent infrastructural bottlenecks and other
associated cost involved in marketing of such products. To
offset a portion of this unwarranted cost, a new scheme
namely "Focus Product Scheme" has been introduced on
April 1, 2006. The scheme allows exporters to get an
incentive in the form of freely transferable duty credit
31
Thus in line with India’s commitment to the WTO,
quantitative restrictions on all import items has been
withdrawn.
scrips @12.5% of the annual FOB value of exports of
notified products. Items identified so far for benefits under
the scheme are value added leather products and leather
foot wear, sports goods, fireworks and stationery items,
handicraft items, handloom items value added fish
products and value added coin products. Further to widen
the product base under the scheme, w.e.f. 01.04.2008, New
Additional Focus Products i.e. Diesel engines up to 20HP,
nuts and bolts parts of sewing machines, staples in strips
and vacuum glass inners have been notified and made
eligible for export incentives @12.5% of the annual FOB
value of exports.
In order to give further boost to the scheme, toys and
sports goods have been made entitled to higher duly credit
scrip’s equivalent to 6.25% for FOB for exports made
w.e.f. 1st April 2008.
During the period April 2008 – February 2009 a total of
5942 authorizations having CIF value of Rs 198 crores and
FOB value of Rs 15517 crores have been issued under the
scheme.
Duly Exemption/Drawback:
The scheme of duly exemption is designed to avoid the
incidence of commodity taxes like excise duty and
customers duties on the exports so as to make the export
more price competitive. This is a worldwide practice and
the rational is straight forward. Custom duties and excise
duties raise the cost of production in export industries and
thereby effect the competition of export. Therefore
exporters need to be compensated for the escalation in their
cost attributable to such customs and excise duties.
Duty exemption as an export promotion measure had its
origin in India during the Second Five-year plan. Over the
years, the scheme has been enlarged and modified.
The exporters either are exempted from the payment of
duty while procuring inputs like raw materials and
intermediates or in case where the duty is paid on inputs
the duty are refunded. Thus, under the duty drawback
system the exporters are reimbursed for tariff paid on the
imported raw materials and intermediate and central excise
duties on domestically produced inputs, which enter into
export production.
Convertibility of Rupee on Current Account:
The government of India made a two-step downward
adjustment of 18-19 percent in the exchange rate of the
rupee on July 1 and July 3, 1991. This was followed by the
introduction of partial convertibility of Rupee in 1992-93.
Under the system of partial convertibility of Rupee, a dual
exchange rate was fixed under which 40% of foreign
exchange was to be surrendered at official exchange rate
and the remaining 60% of foreign exchange was to be
converted at a market-determined rate. The 1993-94
budgets introduced full convertibility on trade account. As
a result, the dual exchange rate system regime, the 60.40
ratio was extended to 100% conversion for (i) Almost the
entire merchandise trade transactions (i.e. import export of
goods); and (ii) all receipts, whether on current or capital
account of balance of payments (BOP) but not all payment.
Because of a series of modifications to the import policy
for registered exporters, particularly the introduction of the
advance licensing system, exporters can make most of the
import of inputs without payment of customs duty.
Eligible exporters are entitled to interest free bank credit
against the duty drawback applicable to them up to a
period of 90 days or up to the time they realize the
drawback whichever, is earlier. There are two types of
drawback rates i.e. all industry rate applicable to a group of
product and brand rate applicable to individual products
not covered by the industry rate.
India achieved full current account convertibility in August
1994, when the Reserve Bank further liberalized payments
and accepted obligations under Article VIII of the IMF,
under which India is committed to forsake the use of
exchange restrictions on current international transactions
as an instrument is managing the balance of payments.
Income Tax Concessions
Besides the exemption/rebate of indirect taxes, a special
fiscal treatment granted to exports is the income tax
concession according to which earnings from exports are
either partially exempted from income tax or taxed at a
lower rate. Such income tax rebates have been provided to
exporters in India has given tax exemption to exporters on
export earnings under section 80 HHF provision of the
income tax Act. At the same time Ten years tax holiday is
provided to special economic zone (SEZ) and 100% EOV.
Further exportable goods are exempted from sales tax,
provided the exporters or their firm is registered with the
sales tax authorities. This exemption is given on the
following categories of goods:
• Goods exported
• Goods purchased from the local market for export
purpose
Freer Imports and Exports:
In the pre reform period, Indian's trade policy regime was
complex and cumbersome. There were so many
restrictions on import and export of India. There were
different categories of importers, different types of import
licenses, alternative ways of importing etc. Substantial
implication and liberalization in all these respects has been
carried out in the reform period. The tariff line wise import
policy was first announced on March 31, 1996 and at that
time itself 6161 tariff lines were made free. Till March
2000, this total had gone up to 8,066. Quantitative
restrictions in respect of 1,429 tariff lines remained till this
date. The EXIM Policy 2001-02 removed quantitative
restrictions on the remaining 715 items.
32
the needed results. An effective export promotion should
compensate for the disadvantages of the national exporters
and should make the export business profitable enough to
lure the entrepreneurs to this sector and achieve the
ultimate objective of boosting the exports .The general
feeling is that export promotion strategies, policies,
schemes, incentives and measures adopted so far shall have
to be given a new look and perhaps an altogether new
model of export promotion strategy shall have to be built
for the future in India.
Conclusion
The success of export promotion measures should be
judged by the growth of exports and the dynamism of
export sector. No doubt India’s total export have been
growing and the export sector has achieved some
diversification and sophistication. However, the
achievements have been far below the requirements and
potentials have been very poor in comparison with those of
several developed countries. Thus, export development
measures in India have not been so successful in producing
References:
1.
2.
3.
4.
5.
6.
Annual Report Ministry of Commerce, Government of India 2008-09.
Annual Report Ministry of Commerce, Government of India, 2007-2008.
Economic Survey, Government of India 2005-2006.
Handbook of Statistics on Indian Economy Reserve Bank of India, Bulletin, 2006-07, pp-71.
How to Import, A Nabhi’s Publications, New Delhi, 2003, pp-71.
John, K.C and Kevin, S.K., Traditional Exports of India: Performance and Prospects, New Century Publications, Delhi.2004
.pp-17.
7. Kothari, Monika, “Export Promotion Measures in India: A role of Institutional Support”, Deep and Deep Publications, New
Delhi, 2007, pp-212.
8. Modwell, S.K. and Verma, M.L., “Export Effort of India”, Sagar Publications, Delhi 1986, pp 41.
9. Rafeeque, M.A, “Ready Reference Guide on Foreign Trade Policy & Related Issues”, FIEO, New Delhi, 2005, pp-11.
10. Reserve bank of India Bulletin, 2006-07.
11. www.sezindia.nic.in.
33
Malls as a buying destination in Delhi, NCR : An Exploratory Study
Dr. S. Goswami* & Dr. Vikas Nath**
ABSTRACT
The retailing sector in India has undergone significant transformation in the past 10 years. The organized retail industry in
India is expected to grow 25-30 per cent annually and would triple in size from Rs. 35,000 crore in 2004-05 to Rs.109,000
crore ($24 billion) by 2010. Retailing is gradually inching its way towards becoming the next boom industry.
India's overall retail sector I s expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound
annual growth rate (CAGR) of 10 per cent. As a democratic country with high growth rates, consumer spending has risen
sharply as the youth population (more than 33 percent of the country is below the age of 15) has seen a significant increase
in its disposable income. Consumer spending rose an impressive 75 per cent in the past four years alone. Also, organised
retail, which is pegged at around US$ 8.14 billion, is expected to grow at a CAGR of 40 per cent to touch US$ 107 billion
by 2013.
This research paper is an attempt to analyse the areas where retail sector is growing and will grow, and why consumers
will prefer to shop from shopping malls and what will be the target strategies to best serve mall customer segments.
entry of both Indian and the foreign units.
INTRODUCTION
Over the last few years, retail has become one of the fastest
growing sectors in the Indian economy. Though the
country has highest retail outlet density in the world,
Indian retail sector is highly fragmented and organized
retail in the country is at very nascent stage. Organized
retailing accounts for less than 5% of the retailing industry
in India. Therefore, there is no real retail revolution in
India since the industry is still in the stage of infancy. The
organized retail industry in India is expected to grow 25-30
% annually and is projected to attain USD 23 billion by
2010 (FCCI, 2005). Retailing is gradually inching its way
towards becoming the next boom industry.
With rising consumer demand and greater disposable
income, the US$ 400 billion Indian retail sector is clocking
an annual growth rate of 30 per cent. It is projected to grow
to US$ 700 billion by 2010, according to a report by global
consultancy Northbridge Capital. The organized business
is expected to be 20 per cent of the total market by then. In
2008, the share of organized retail was 7.5 per cent or US$
300 million of the total retail market.
A McKinsey report, 'The rise of Indian Consumer Market',
estimates that the Indian consumer market is likely to grow
four times by 2025. Commercial real estate services
company, CB Richard Ellis' findings state that India's retail
market has moved up to the 39th most preferred retail
destination in the world in 2009, up from 44 last year.
Consumers are the major beneficiaries of the retail boom.
The Indian consumer is changing rapidly. They now have a
choice of wide range of products, quality and prices.
Organised retailing is changing the whole concept of
shopping in terms of consumer buying behavior. In such a
scenario, consumer decision making is of great interest for
consumer educators and marketers interested in serving the
consumer (Canabal, 2002). In this study, an attempt is
made to study the consumer decision making styles while
shopping in malls of Delhi, India.
India continues to be among the most attractive countries
for global retailers. Foreign direct investment (FDI)
inflows as on September 2009, in single-brand retail
trading, stood at approximately US$ 47.43 million,
according to the Department of Industrial Policy and
Promotion (DIPP).
India's overall retail sector is expected to rise to US$ 833
billion by 2013 and to US$ 1.3 trillion by 2018, at a
compound annual growth rate (CAGR) of 10 per cent. As a
democratic country with high growth rates, consumer
spending has risen sharply as the youth population (more
than 33 percent of the country is below the age of 15) has
seen a significant increase in its disposable income.
Consumer spending rose an impressive 75 per cent in the
past four years alone. Also, organized retail, which is
pegged at around US$ 8.14 billion, is expected to grow at a
CAGR of 40 per cent to touch US$ 107 billion by 2013.
LITERATURE REVIEW
The Retail Market in India has undergone significant
changes in the last 10 years. The organized retail market is
expected to grow 25-30 % annually and would triple in
size from the current US $ 330 billion to US $ 427 billion
by 2010 & US $ 637 by 2015. Retail is contributing 10%
to our GDP and is the largest source of employment after
Agriculture. The Indian market has seen vast changes in
political, economic and social environment which has a
great impetus to consumption. The retail market has been
divided into traditional and the organized sector with the
* Dr S. Goswami, Associate professor, Jaipuria Institute of Management, Noida, NCR, India
** Dr Vikas Nath, Associate professor, Jaipuria Institute of Management, Noida, NCR, India
34
Ineffective moves (--) will be presentation of malls as a
fashion premise, vague promises, disconnected bits of
information or dispersed customer knowledge base will be
fatal for a mall and its stores.
Research of shopping behaviour in malls suggests that
women with their unique bargaining power have
successfully patronized retail shopping in malls.
(Murugaiah,V and Vishvas,R.2008). When it comes to
picking up unique needs, women overtake their male
counterparts. So malls and store, layout -everything
depends on women patrons. Designing, merchandising that
catch female attention will certainly win the pie (Dholakia,
R. R., 1999). Women also shop more frequently than men.
They like novelty, excitement, and feel with fancy
products. Though it must be said that women are behind
men when it comes to brand loyalty. (Miller, J et al, 2008).
Interesting differences emerge in impulse purchase
behaviour of men and women with the latter scoring over
men when it comes to gifts buying or buying for others
(Coley and Burgess, 2003). In malls, there is an
intermingling of consumption and leisure (entertainment?)
resulting in creative, enjoyable and fun-oriented shopping
or window-shopping. So malls can change their marketing
strategies suiting shopping purposes and shopping roles.
Three major alternatives are open to malls: market scope
strategy, market commitment strategy, and market
geography strategy. Market scope will target a single
market, multi market or a total market. Market
commitment will mean strong commitment, average
commitment, or a light commitment strategy. Geography
will comprise local market, regional market, or national
market strategy. Corporate resources are scarce and
corporate strengths are limited; so these critical resources
should be concentrated in key markets in terms of type,
geography, time of entry and commitment).
Mall managers must understand content of their mission,
develop processes and then ground themselves into mature
capability so as to garner sales and profits for the long
term. The biggest challenge is not technology but human
or behavioural inputs connecting seamlessly optimum life
cycles of products, sales and profits per unit of area, and
time to market new products.
OBJECTIVES OF THE STUDY
Major objectives of this study include:
1. To do a comparative analysis regarding the
acceptability of mall buying concept.
2. To ascertain the behaviour as to why consumers prefer
to shop from shopping malls
3. To appraise the specific characteristics of buying in
malls, which can help mall managers to develop
appropriate strategies.
This research paper is divided into three major sections.
First, we discuss the theoretical background and previous
research that has been conducted in this area. Although
there has been a dearth of such type of studies in the Indian
Context, theoretical exploration can be based on
international studies carried out in other countries. Second,
we present the research methodology adopted to
investigate acceptability of mall concept of the consumer
of Delhi NCR. The research method includes a survey data
collection instrument and the use of a mall-intercept faceto-face interview method. Finally, we provide a general
discussion of the findings, as well as limitations of the
study.
To be precise, all these strategies have four common
threads:
1. Convenience- the forces that directly impact shopping
behaviour in malls, self service and ease of use.
2. Effectiveness- impacting the relationship between an
organization and its customers
3. Efficiency- Impacting the internal structure and
operating processes of malls
4. Integration- Pushing for one –stop shopping
consolidation.
Research Methodology
Sample
This study used mall intercept survey method. Data were
collected from shopping malls located in New Delhi NCR,
India during month of November & December, 2009. The
target population for this study consisted of active mall
shoppers.
Fig 1. Delivering purposeful strategies
Negative impact
Positive impact
–
+
Sample Selection
The total population of Delhi, Ghaziabad, Noida,
Faridabad and Gurgaon as per population census of 2001
was 16329206. The population of Delhi was 13782976
(84.41%), the population of Ghaziabad 968521 (5.93%),
the population of Noida was 29390(1.80%), the population
of Faridabad 1054981 (6.46%) and the population of
Gurgaon was 228820 (1.40%).
Ineffective strategies
Effective strategies
Easy to implement
Effective moves (+) will be Knowledge obtaining,
Knowledge refining, Knowledge storing and Knowledge
action. It will reflect in adapting messages to different
target groups, focusing on business value combining
market and technology parameters with the mall
orientation.
A structured questionnaire was developed to measure the
Acceptability of mall concept in Delhi NCR region. The
questionnaire consisted of questions concerning
35
There are about 17 more malls expected to come up in
Delhi by Q1 2011. These include properties from
Ambience Group, DLF Group, Mera Baba Reality, Salcon
Projects, Today’s Group, Unique Group, Jacksons
Developers and eight projects of Parsvnath Developers
Ltd.
Acceptability of mall concept, Consumer Purchasing
Behaviour and demographic information of respondents.
The organized retail market is expected to grow 25-30 %
annually and would triple in size from the current US $
330 billion to US $ 427 billion by 2010 & US $ 637 by
2015; A McKinsey report, 'The rise of Indian Consumer
Market', estimates that the Indian consumer market is
likely to grow four times by 2025. Wesley et al. (2006) and
Canabal, M.E. (2002).
While North India leads the way in terms of retail real
estate development in the country, the NCR region (which
also includes Noida, Gurgaon, Faridabad and Ghaziabad)
accounts for the lion’s share of shopping centre space in
Northern Region.
Questionnaire
The questionnaire consists of questions concerning
consumer decision making styles and demographic
information of respondents, Acceptability of shopping mall
concept and its influence on the society, and the impact on
the unorganized retailing using an indigenously designed
structured Questionnaire along with interview format and
the Multi –Dimensional scale (Here: Linkert Scale), to
collect the data. The scale used is five point scale (5Strongly Agree, 4- Agree, 3- Somewhat Agree or Neutral,
2- Disagree and 1- Strongly Disagree) Item wise mean
scores were calculated to know the percentage on that
item. The percentage calculated on scores on each item
was helpful to understand the influence of shopping Malls.
Lastly, the questionnaire also solicited the demographic
information of respondents such as Gender, Age,
Education, Occupation and Income.
Noida in NCR (National Capital region) contributes to the
mall space tally with five operational malls – Ansal Plaza,
Great India Place, Shoprix Mall, Spice Mall, and The
Centre Stage Mall. Noida will have at least two more
quality retail developments – Grand Venezia and Shoppers
Den – coming up by 2011.
Gurgaon alone has as many as 11 operational malls:
Ambience Mall, Ansal Plaza, City Centre, Gold Souk,
Grand Mall, Mega City, Mega City, Mega Mall,
Metropolitan Mall, Omaza Plaza, Plaza Mall, and Sahara
Mall. A total of nine more properties are in the expected
pipeline from Narsee Creations, Omaxe Group, Senior
Builders, Ardee Group, DLF Universal, Emaar MGF, and
Niho Construction Ltd.
For the purpose of the study three structured questionnaires
as shown in appendix, A, B and C were developed. The
language of the questionnaire was kept simple and was
improved during pilot survey.
Faridabad has three operational malls – City Malls, and
Manhattan Mall by Parshvnath Developers Ltd., and
Station 1 by Eldeco Infrastructure & Properties Ltd.
Ghaziabad houses six malls, as of now, including EDM
Mall, Jaipuria Mall, MMX Pacific East, Shipra Mall and
East End Mall; and is looking forward to add eight more
malls collectively from Parshvnath Developers Ltd,
Mahagun Developers, Omaxe Group, Agrawal Promotors
Ltd, and Express Builders Ltd.
Development of Malls in Delhi NCR
The metro city has seen a flurry of activities on the
shopping centre front, with a large number of mall
developments catering to different catchments. Delhi has
an approximate number of 28 operational malls which are
spread across the city, including : Ansal Plaza, City Sqare
Mall, Courtyard, Cross River Mall, Emporio, Gold &
Wedding souk Mall. Inderlok Metro Mall, M2K
Pitampura, M2K Rohini, Metro Mall (Kashmiri Gate),
Metropolitan, North Ex, Pacific Fiesta, Pacific North,
Paragon, Parsvnath Metro Tower, Pratap Metro Mall,
Promenade, Select Citywalk, Shop n Park, Southcourt,
TDI Fun Republic, TDI Mall, V3S East Centre, V3S Mall,
Vikas Surya Shopping Mall, Vasant Square and West
Gate.
Sample Selection for acceptability of Mall concept.
In order to have approximately the same representation of
population in the sample, it was decided to collect data in
the same proportion. The Delhi NCR region was divided
into different blocks as per North Delhi, Central Delhi,
South Delhi, East Delhi and West Delhi. The population
breakup for each area was again obtained from population
census data of 2001. The sample size for each area was
decided in proportion of contribution of population of each
area to the total population of Delhi NCR. For example,
the total population of Faridabad was 1054981 which
constituted 6.46% of the total NCR population.
Accordingly a sample of 97 was decided for Faridabad.
Select Citywalk, the 1.3 million square feet, iconic mixed –
use development in Saket, South Delhi, is one of Asia’s
first fully turnover –rent based shopping centres,
recognized as one of India’s most successful retail projects.
DLF Emporio has given the well – heeled fashionistas a
unique speciality luxury destination with in the country to
choose from an attractive bouquet of the world’s most
envied luxury brands under one roof viz. – Alfred Dunhill,
Bottega Veneta, Burberry, Canali, Cartier etc.
According to the latest update National Council for
Applied Economic Research (NCAER) defines the middle
class as the household earning Rs. 2.5 – 12.5 lakhs
annually. Since middle class population forms the bulk of
the population of the Delhi NCR, it was decided to
36
determine the sample size on the basis of annual household
earnings. Since ±3σ covers 99.73 % population, the
standard deviation for annual house hold income was
calculated as
σ = (12.5 – 2.5)/ 6 = 1.67
Further, sample size was calculated by the formula
n = (z σ)2 / E2 . This gave the value of n = 1071 at 95%
confidence level and 10% allowable error.
The study started with a pilot survey consisting of 100
respondents from Delhi. The pilot survey was conducted
with the objective of removing errors from the
questionnaire and also to have an insight regarding the
occupational, income and educational background of the
customers visiting malls and traditional shops.
Keeping in mind the proportion of population of Delhi,
Faridabad, Gurgaon, Noida and Ghaziabad, 1266 responses
were collected from Delhi, 21 from Gurgaon, 27 from
Noida, 89 from Ghaziabad and 97 from Faridabad.
Out of 1266 responses from Delhi 845 valid questionnaire
were shortlisted for analysis, 14 out of 21 valid
questionnaires were shortlisted from Gurgaon, 18 out of 27
valid questionnaires were shortlisted from Noida and 59
out of 89 valid questionnaires were shortlisted from
Ghaziabad and 64 out of 97 were found valid from
Faridabad. This reduced the number of questionnaire to
1000.
Limitation of the Research Methodology
Statistical Tools & Techniques Used
The data was analyzed by software’s namely SPSS version
17.0 and MS Excel. Especially in this research paper
researcher used factor analysis for analysis. Reliability test
for scale was conducted with the help of Cronbach Alpha
Test.
Demographic Profile of the Sample
A total of 1,000 respondents participated in the survey.
Selected demographic characteristics of the sample
including gender, age, education, Occupation and monthly
family income, are presented in Table 1.
Notwithstanding the significance of the study, the
studies have the following delimitations:
1. It is based on a sample size of 1,000 respondents
which have been proportionately selected from
different area of Delhi NCR. Though at most care has
been taken to ensure that the sample is a true
representation of the population, the generalization of
the result of the study is limited as defined by the
sample size of this sample and findings to retail
industry in general is unwarranted.
2. The present study is largely exploratory in nature.
Thus not withstanding its richness of data, it lacks
control of variables (either through experimental
design or through statistical techniques) influencing
the research results.
3. The study is based on two methods of data collection:
Questionnaires & Analysis of records. Thus, the extent
of reliability and validity of findings of the study
depends on reliability and validity of these methods of
data collection.
4. The organized retailing industry is widespread in India
but this study is confined to Delhi NCR region
enhance the results of the findings may not be
applicable for other parts of the country.
Variable
Gender
Age
Male
Female
Below 20
21-30 Yrs
31-40 Yrs
41-50 Yrs
51-60 Yrs
61 Yrs and Above
Up to High School
Senior Secondary
Graduate
Master degree and Above
Student
Occupation
Executive
Industrialist
Housewife
Businessman
Professional
Less than Rs.10,000
Monthly Family Income
Rs.10,001 to 25000
Rs.25,001 to 50000
Rs.50,001 to 1,00,000
More than Rs.1,00,000
Table 1: Demographic Profile of the Sample
Education
37
Frequency
%
662
338
155
589
155
73
23
03
66.2
33.8
15.5
58.9
15.5
7.30
2.30
0.03
46
127
501
326
290
233
22
40
159
256
323
281
245
99
52
4.6
12.7
50.1
32.6
29
23.3
22.0
4.0
15.9
25.6
32.3
28.1
24.5
9.9
5.2
Table 2 summaries the results of the factor analysis which
was run using the Principal Component Approach with a
varimax rotation. Bartlett’s test of sphericity and KaiserMeyer-Olkin (KMO) measure are adopted to determine the
appropriateness of data set for factor analysis. High value
(between 0.5 to 1) of KMO indicates that the factor
analysis is appropriate, low value below the 0.5 implies
that factor analysis may not be appropriate. In this study,
the result of Bartlett’s test of sphericity (0.00) and KMO
(0.686) indicate that the data are appropriate for factor
analysis.
The sample consisted of 66.2% of male and 33.8% female
respondents. Respondents were mostly between the ages of
21 and 30 years (58.9%). Almost 67.7% of the respondents
reported that their family income was more than Rs.
10,000. Almost 82.7% of the respondents reported that
they were graduate or more than graduate. Almost 67% of
the
respondents
were
Executives,
Industrialist,
Businessman & Professionals.
Acceptability of Mall Concept
Factor analysis was adopted to capture the consumer
perception on purchasing from malls.
Rotated Factor
Loadings
Factor labels and Items
Factor 1: Convenience
1.
2.
3.
4.
5.
6.
0.554
0.501
0.562
0.581
0.581
0.517
I get best buy from shopping mall provide me home service even during odd hours.
The shopping mall provided me home delivery odd hours
Shopping is a recreational activity for me in a shopping mall.
Shopping mall avoids confusion for me as a customer due to over choice of brands.
Shopping mall provided me good credit facilities during purchase
Shopping malls provide me good credit facilities during purchase.
Factor 2: Life Style Shopping
1.
2.
3.
4.
5.
6.
0.514
0.504
0.509
0.523
0.579
0.551
I like to purchasing products from the shopping malls as it gives best value to money
Buying from shopping mall is a matter of social status for me.
Shopping mall Provide me social and eco friendly environment
I am a price conscious customer and shopping mall provide me best bargain
Entertainment
I Choose shopping mall to buy products due to heavy advertisement about them
Factor 3: Variety and Quality
1.
2.
3.
0.505
0.665
0.734
Shopping mall provided me the facility to shop for all my family needs under one roof.
Very High Quality Products are available in shopping malls
New Style, New Design products are available in shopping malls
Table 2: Result of Factor Analysis
Note: In the rotated factor loading the maximum as given in above table has been taken for discussion.
All the three factors together accounted for 54.3 percent of the total variance.
Bartlett’s test of sphericity = 0.00
Kaiser-Meyer-Olkin KMO (0.860)
KMO and Bartlett’s Test
Kaiser- Meyer- Olkin Measure of Sampling Adequacy
Bartlett’s Test of Sphericity
Approx. Chi – Square
Degree of Freedom
Table 3: KMO and Bartlett’s Test
38
0.860
1976.338
Figure 2: Component Plot in Rotated Space
credit facility (loading0.517). All these parameters can be
classified as “convenience” to the buyer.
The value of Cronbach alpha was obtained to be 0.756
(>.5) which reveals that the scale implemented was
reliable. Further the KMO value as seen from the table 4
was found to be 0.860 (>.5) which reveal that sample was
adequate.
Factor2: Life Style Shopping
The respondent perceived that purchasing product from the
shopping malls gave him best value (loading 0.514), he
considered buying from shopping malls as a matter of
social status with in (loading 0.504), shopping malls
provided him social and eco friendly environment (loading
0.509), being a price conscious customer, shopping mall
provided him best bargain (loading 0.623), he liked to
purchase products/ items from the shopping malls as they
have entertainment facilities (loading 0.579) and he is
influenced by the advertisements done by the malls
(loading 0.551). All these parameters can be classified as
“Life Style Shopping” being preferred by the buyer.
In this study, factor analysis was carried out in two stages.
In stage one known as the factor extraction process,
objective was to identify how many factors to be extracted
from the data. Using principal component analysis, fifteen
items were extracted by three factors. All the three factors
together accounted for 54.3 percent of the total variance.
In the second stage, all the factors were interpreted and
labeled. Items having factor loading more than 0.500 were
included in the interpretation.
Factor 3: Variety and Quality
The respondent perceived that products of very high
quality are available in shopping malls (loading0.665), he
was of the view that new style , designs and fashionable
products are available in the shopping malls (loading0.734)
and he was of the opinion that shopping malls provided
him the facility to shop for all his family need under one
roof (loading 0.505). These parameters can be classified as
“Variety and Quality” being considered while purchasing
by the buyer.
RESULTS AND DISCUSSION
As discussed above, three factors regarding acceptability
of mall concept have been extracted with the help of factor
analysis. The major three factors are summarized here.
Factor 1: Convenience
The respondent perceived that he got best buy from
shopping malls even going without prior planning (loading
.554), he felt that malls provided him home services during
odd hours (loading 0.501), shopping is a recreational
activity in a shopping mall (loading 0.562), shopping malls
avoid confusion for him as a customer due to over choice
of brands (loading 0.581), shopping malls have broken the
brand loyalty concept by offering numerous choices
(loading 0.581), and shopping malls provided him good
ANALYSIS AND CONCLUSIONS
This section relates to the interpretation of findings of the
study related to the acceptability of the mall concept in
39
and consumers constantly gather new knowledge or
information. Variety with an assurance of quality enable
shoppers to take the right decisions based on their budgets
and even if they exceed their budgets, it gives emotional
satisfaction. Information collected is cumulative and an
extra dose of information adds to the above factors.
Delhi NCR region. At present modern retail sector is
predominantly made up of fashion and lifestyle products
followed by consumer durables. People mainly visit
shopping malls to buy branded ready made garments and
gift items for themselves.
Transformation of incredible Indian consumers and in
particular Delhi NCR has started. More and more people
are visiting shopping malls and the frequency is increasing
day by day. People do not pay much attention to finer
details within the store but they expect a lot in terms of
overall ambience and experience. Some of the most
preferred factors are product variety, brand image, quality
of products and quality of service as influencing buying
decision.
Shopping alters an individual’s self experience for the time
being in a mall and so mall is a source of compensatory
realization of the self. Browsing, window shopping, and
actual shopping experience may compensate for perceived
self deficiencies. It adds to the social experience by
enriching communication, peer group affiliations, status,
and pleasure. Innovations brought by retailers and malls
provide sensory stimuli to shoppers through see-touch-andfeel-sense-select process or olfactory senses (perfume for
example). As usual, process of decision making can take
extended problem solving, limited problem solving, and
routine buying activity. Shoppers can buy in blinkered
mode (low involvement and repeat buying types, familiar
brands), or Magpie mode (different brands on display
distract and shopper seeks a change), or a browser
mode(reading the M.R.P., comparing price-value and
wanting to know more attributes of brands, reducing
perceived risk).In any case, convenience, variety, and
lifestyle
all connote towards optimizing choicesoptimizing value based on variety of merchandise,
information available and needed, quality of merchandise,
and enjoyment. Lifestyle shoppers include at the same time
stressed shoppers who charge themselves emotionally
while shopping in a mall and they tend to relax. This group
will like to finish as soon as possible and will also like to
shop from the nearest mall. With more and more lifestyle
products such as cards, gift items, cosmetics, medicine,
music etc an old format of a store changes into a new
format where the onus of information (knowledge) search
is on the shoppers. Shoppers may return the product when
they are not completely satisfied. All the same, shoppers
look for quality products, are driven by brands, buy
individually even when they are accompanied by others.
The following Table 4 depicts how lifestyle trends have an
influence on shoppers:
Customers agreed to the fact that malls provided better
customer care and after sales service which was liked by
them. Malls are taking care of their Loyalty Programmes to
build strong customer relations. Most loyalty programmes
offered some form of delayed and accumulated economic
benefit to the customer based on repeated purchase.
Consumers perceived and believed that malls offered
products at higher prices as compared to unorganized
sector. Such a perception mainly developed because of
grand look and ambience of these malls along with good
quality services being provided by them.
Consumers agreed to the fact that development of
organized retailing is in turn helpful for the development of
nation as it will bring in foreign direct investment
contributing to GNP of India and shall lead to development
of all round good infrastructure in Delhi NCR region.
Ease and Convenience followed by speedy delivery
emerged to be the essence of organized retailing business.
More and more customers are moving towards shopping
malls because of these reasons.
Three important factors which were mainly preferred by
consumers to go to shopping malls were
1). Convenience to Shop,
2). Lifestyle shopping and
3). Variety and quality of products available at mall
Table 4
Lifestyle trend
Assertive women
Mall marketing messages
Advertisements of women
Women oriented durables
Time scarcity for women Time saving for durables
Quick food mixes
Specialty services
Working family
Ready-to-eat meals
Tailored holiday packages
Creches, Day care centres
Male grooming
Male fashion accessories
Readymade garments
(Adapted from Managing retailing by P. K. Sinha, and D.
P. Uniyal, Oxford, 2007)
The malls with new style stores caters to the growing
demand of affluent, social and geographically dispersed
urban population. Convenience, variety and lifestyle can be
said to fulfil functional, social, and aspirational needs of
mall shoppers. Modern shopping is private activity. It
means moving in a crowd and hooking oneself to a wide
range of stimuli. The mall ambience, and shop windows
with displays, games etc. present a landscape to be
enjoyed and consumed. Mall shops convert otherwise
routine activities into a chain of fragmented stimuli. It is
also a cultural ritual to add colour to the shopping
experience. Lifestyle, variety factors impart a new
meaning and personal relevance to products and services
40
Managerial Implications
Information on acceptability of malls concept in Delhi
NCR will be useful for retailers targeting Indian markets.
As Indian retail Industries is in boom today and more and
more national and international players are interested in the
emerging retail market in India. So, they have great
opportunity with great future in Organized Retailing in
India. Variables provide more meaningful ways to identify
and understand various consumer segments and to target
each segment with more focused marketing strategies.
Suitability
Validity
Feasibility
Mall managers have to systematically develop and change
themselves with their offering of product/service baskets
with the objective of improving their performance.
However, this contains a wide diversity of organizational
activities from investing in basic buying behaviour
research, development of technology to track information
particularly for creating new products, to modifications in
organizational processes(such as communication, ordering
systems, knowledge management systems etc.
Internal consistency
Vulnerabilit
While the literature on organizational innovation has
typically been characterized by diverse theoretical
perspectives,
(Slappendel,1996,
Wolfe,1994).
We
formulate a typical stage model of strategy evaluation
below to show the typical components of mall strategy. It
is a linear process consisting of a number of discrete
stages. The time required to develop resources is so
extended, and the time scale of opportunities is so brief and
fleeting that a mall which has not carefully appraised its
strategy will be drifting in water.
Workability
Fig. 2 Mall strategy evaluation
In our model, the stages are suitability, validity, feasibility
in terms of skills, resources, and commitments, Internal
consistency, Vulnerability, and workability within a time
horizon. There can be dynamic loops of interactions which
will make the model complex for managers.The main
purpose here is not to depict complexity of buying
behaviour and resultant mall strategies. Rather, it is an
interconnected, iterative chain which works in stages
alongwith evolution of mall retail formats in NCR and
India.
Limitation of the Research
1. Lack of in –depth Approach
Notwithstanding its comprehensive coverage, the
present study may be criticized because it misses an in
–depth analysis of the type the psychologists or
anthropologists have often conducted. The study has
not been analyzed by using any psychometric test or
econometric test. The study is totally based on the
practices being followed by the industries and has
been viewed from marketing point of view.
41
2.
Retailing is a continuous process.
Retail marketing has been described as a race without
a finish time. Because definitive answers to questions
of retailing are not always available and absolute
retailing excellence is more an ideal than a realistic
goal, it is best to view e-tail as a series of small steps
on a learning curve. This study too small is a step in
this direction and should be treated as a small
contribution to the academic world.
3.
Accuracy and dependability of Interpretative
material used as plausible Reasons
Most of the interpretative material used as plausible
reasons for research findings of the present study
consisted of the opinions of executives and general
masses from a number of industrial settings of
different nature, speculation and haunches of
researcher rather than conclusions and inferences
drawn from empirical studies. Explicitly, this study
must be viewed with circumspection and appropriate
regard from human frailty.
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42
Impact of Piracy on Bollywood: Issues and Challenges Ahead
Dr. Shitala Tripathi*, Ritu Tayal** & Pratibha Arora***
ABSTRACT
Theft of intellectual property has become one of the most visible problems in today’s’ knowledge era. Currently, Bollywood
industry is in trouble, yet there are signs that it is indeed emerging from the doldrums. Through this research paper we
primarily aim to find out the possible reasons for the customers opting for piracy. For accomplishment of this objective a
structured questionnaire was designed. A total of 250 respondents were surveyed in this study. The study brings forth that
easy availability and convenience are the major proponent of piracy.
jobs due to piracy. At present there are more than 40,000
cable system existing in India and these systems are
frequently transmitting pirated VCD or DVD. The major
hindrances in combating piracy in India are police
corruption and an overstrained and dawdling court system
that thwarts conclusion of even the uncomplicated criminal
or civil cases. Another hindrance that is being cropped up
recently is that leaks occur before the raids & the police
also seizes only that material for which report has been
lodged and not other material which is susceptible products
and other tools which are being used for conducting
unauthorised business. Even when the raid is completed
the process is further hampered by delay in follow up and
other related process for prosecution.
Introduction
Bollywood’s producers are having sleepless nights just
because the banshee of piracy is taking a complete toll
over the film industry. They are of the view that it’s the
piracy, due to which their share is shrinking at the global
level, at least 50% of revenue share of Bollywood industry
is being eaten up by these pirates of Bollywood. Today
curbing piracy is the major challenge that is being faced by
various industries including Automobile, I.T, Pharmacy
and Entertainment. The advancements in technology are
also alleviating piracy. According to the U.S.C.C, the
impact of piracy on world economy accounts for USD 500600 billion. However, USD 200-250 billion of sales is
being lost each year in the US only on account of
counterfeiting and piracy1.
Indian government is amending its copyright legislation
regularly to facilitate technological changes and prevent
piracy; however, the problem has worsened over the
yearsTechnology on one hand is facilitating creativity but
on the other way it is destroying it as well as the
technology and the laws made to protect technology can
not prevent the piracy in actual terms. Piracy demand for
strict measures to be taken up as the measures taken till yet
has remained ineffective to deter piracy. There were
reportedly 36 Optical Disks (OD) Factories in India in
2007, in 2005 only MIB ordered FICCI to draft an optical
disc law and this law was made public in 2007 but no
further improvement was made by MIB in 2008. The delay
is being caused by objections from the largest OD factory
in India, Moser Baer, which opposes the inclusion of blank
disc licensing in the bill.
Background
PIRACY
The concept of piracy is not new to this world it has exist
for centuries and in various forms, but its only a decade or
two since when people have started to observe negative
effects of piracy as few pirates with a labour of few hours
try to have a feast on the labour of others. History states
that piracy has been traced back to more than 3,000 years.
The roman historian Polybius used the word pirate initially
in around 140 B.C. “Piracy is slang for copyright
infringement, which means unauthorized duplication of
an original work for commercial gain without the
consent of the rights owner.” Piracy exists in various
forms such as End User Piracy, Reseller piracy, Internet
Piracy, Trade mark/name infringement, etc. events of
piracy has grown since 1970’s as development of
technology has facilitated the ease in unauthorised copying
of original work and then these unauthorised copies are
available at reduced rates around the world
Piracy losses to the music and recording industry from
mobile chip, physical, Internet and public performance
piracy were US$36.2 million in 2008. Losses from mobile
chip piracy are estimated to be about US$5 million. The
motion picture industry states that sites like
rapidshare.com, megauploads.com and gigashare.com are
the most popular with pirates as download sites. Recently
only, high compression files have been found, which
indicates that downloads to mobile phones is growing.
Piracy of cable and satellite broadcasting signals still
remains a major problem, mainly because of under avowal
Indian movie industry makes more than 800 films annually
and has produced more 70,000 feature films and thousands
of short documentaries in various languages. It has been
estimated by various industry analysts that 5 in every 10
music CD & 6 in every movie CD being sold today is
pirated. India is losing 4bn $ each year and 8, 00,000 direct
*
Sr Lecturer, SMS, Lucknow. E-mail: [email protected]
Lecturer, SMS, Lucknow. E-mail: [email protected]
***
MBA student (2007-09), GLA ITM, Mathura
**
43
FIG1: key
reasons for high
piracy in India
Source:
Combating
Counterfeiting
and Grey Market
- A Challenge for
Indian Corporates
December 22,
2008, KPMG &
FICCI
Indian Entertainment Industry on the Growth Path! KRC
Research Weekender Feb. 19, 2005—the report focus on
Indian Entertainment industry and how it lost its position
in global industry to USA which produces about 450
movies a year and earns $32 billion while India makes 800
movies a year but earns paltry revenue of $0.5 billion.
of subscribers. It is estimated that India's cable companies
assert only 20% of their subscribers and that the piracy
level in this market is at 80% with momentous losses.
The principle challenge being faced by the Indian
enforcement system is to make the system work despite
corruption, inefficient court procedures, lack of training,
massively long delays, and few convictions.
Combating Counterfeiting and Grey Market - A Challenge
for Indian Corporates December 22, 2008: KPMG &
FICCI. This study discussed about the the impact of piracy
on various industrial sectors and the contribution of
advancement in technology in spiralling piracy.
LITERATURE REVIEW
HOLLYWOOD piracy in China: A case of US public
diplomacy in the globalization age? This research paper
identified the concept of Hollywood piracy in China as an
agent of American expansion of US popular cultural
masterpiece. The author has tried to analyse this concept
from an American perspective within the process of
globalization. The author emphasises that with the
development of technology the process of distribution of
unauthorised copies of various movies and artwork is made
easy as now geographical location is no more an issue of
concern.
INTERNATIONAL INTELLECTUAL PROPERTY
ALLIANCE 2004 SPECIAL 301 REPORT INDIA:
In this study authors revealed about the key problems in
India; and ineffectiveness of law and machinery in curbing
it. The primary obstacles to plunging piracy rates in India
are police corruption (larger pirates are often protected by
the police); reluctance to act ex officio in criminal cases
outside the largest cities; lack of resources and training;
and an overburdened and slow court system that prevents
conclusion of even the simplest criminal or civil cases.
CD-R burning is assuming a larger percentage of the pirate
market (replacing VCDs and manufactured CDs) but
imports of pirate OD product, from Pakistan, Malaysia and
other countries, continue unchecked by customs and other
enforcement authorities and also suggested various
measures that are need to be taken by government on an
immediate basis.
FICCI Frames 2006: the Indian Entertainment and Media
Industry Unravelling the potential by FICCI & PWC, this
study brings forth how entertainment and media industry
has outperformed the Indian economy, it revealed that
(E&M) sector has a CAGR of 19% for next five years. The
key growth drivers are the, advancement in technology,
FDI, increased income and licensed digital distribution
services.
44
FICCI FRAMES 2008:
PWC & FICCI March 25th 2008 discusses the
diversification in entertainment industry and rising foreign
investment in this sector which reached to $211million.
The data collected as already stated is combination of
primary as well as secondary data. The primary data has
been collected through questionnaire containing a set of 15
questions including both open ended and close ended
questions in order to gain specific inputs as well as to
invite ideas from respondents for what can be done to
obstruct the growth of piracy in India. As the piracy is a
market which can’t be eradicated completely but the rate at
which it is escalating can be controlled by adopting strict
measures.
The primary objective of this research paper is to uncover
the root cause behind piracy i.e. the demand for pirated
products. Any thing that is being sold in the market is
doing so because its demand exists in the market. If the
concerned industry and the government really want to
check piracy then one of the major possibilities for doing
so is to impede the demand for the same. The secondary
objectives which aid this objective are as follows:
• To study reasons behind consumers opting for
pirated stuff
• To study the role of Internet towards growth in
piracy.
• Trace the growth of Indian piracy market along
with growth of Indian entertainment industry
• Study effectiveness of measure undertaken to
check piracy.
Whereas secondary data comprises of information
accumulated through various governmental publications
along with the contribution made by various research and
consultancies firms. One such publication is FICCI
FRAMES which is published annually by FICCI along
with a research and consultancy firm. The secondary data
collected via such reports includes information on size of
Indian E&M industry, Bollywood Industry, revenue loss
suffered by Bollywood Industry due to Piracy, Box Office
collection of various movies for the year 2004 to 2008 and
various measures undertaken by the government and the
industry to restrain piracy
RESEARCH METHODOLOGY
The research paper is based on descriptive research design
as here we have studied the mind-set of people engaged
activities causative to escalation of piracy, such as
acquiring pirated stuff or partaking movies with in friends
and family. For completion of our overall objectives we
have used amalgamation of data. For way of collecting
primary data we selected the sample from New Delhi
where 250 respondents were selected indiscriminately as
per convenience from diverse places such as malls,
shopping areas, residential areas etc. in order to gather
inputs as for why viewers engage themselves in acts that
lead to piracy. The respondents selected were of age group
15 and above. These inputs were collected by way of a
structured questionnaire. The respondents were asked to
fill in the questionnaire face to face and then their
responses were analysed by way of various statistical tools
as applicable. Secondary data was collected through
websites of various governmental organisations and
consultancies such as FICCI, PWC, KPMG, Ministry of
Information & Broadcasting, IIPA etc. as these sites gave
us the requisite information we required. The data
collected from these sites include size of Entertainment
and Media Industry, Bollywood Industry and annual loss
of revenue to the Bollywood Industry due to piracy for last
5 years i.e. 2004 to 2008 (both inclusive), legal and
industrial measures adopted by the concerned parties to
curb piracy as well as the loopholes in the enforcement
system were identified so that the measures being
formulated could be implemented efficiently. Apart from
this we also collected Box Office collection of 30 movies
for each year of period under consideration and then the
verdict given by the Box Office was clubbed together to
give a summarised verdict of what happened to the Box
Office collections and their verdict.
ANALYSIS AND FINDINGS
On the basis of the analysis of the collected data it has
been found out that most of the people watch only those
movies at theatres which are either multistarer or are those
movies that had created pre-release hype in the market. In
metropolitan areas of New Delhi 71.6% of respondents
surveyed like to watch movies at multiplexes wheras
28.4% prefer cineplexes as they provide abundant choices
in movies, timings along with other pleasurable
experiences such as shopping, restaurant etc along with
various facilities inside the hall premises only.(fig 2)
80%
71.60%
70%
60%
50%
40%
28.40%
30%
20%
10%
0%
Mult iplex
Cinef lex
The average money being spent by the user at a single
show being watched at multiplex amounts to INR 850
including all the costs paid by the user.
There are 76% of respondents who are engaged in
watching new movies at their home or in act of sharing
new movies with in their family and friends with the aid of
various advent technologies such as Pen Drive, CDs,
DVDs or Web Links etc.(fig 3)
45
Very Low
Performance,
21.2%
76%
80%
70%
Very High
Performance,
27.6%
60%
50%
Low
Performance,
26.4%
40%
30%
High
Performance,
24.8%
24%
20%
% o f Resp o n d en ts
10%
Fig 7
Fig 8 cites that major source of getting the pirated CDs is
internet (42%). Amongst which maximum users are within
the age group of 25 to 9 and minimum users are above age of
45 years.(fig 9) 21% of the respondents say that rental library
is another source for pirated CDs. Other possible sources can
be grey market (24%) and local CD shop (13%).
0%
Yes
No
From fig 4 it is clear that the there are only 22 % of the
viewers who goes to watch movies in theatres every week.
On the contrary 21 % of the people frequently don’t visit
cinema halls.
Fig 8
Fig 4
Fig 5 indicates that 39.2 % of the respondents have cited
time as the main factor for opting pirated stuff. 12.4% of
Very High
Perf ormance,
12.4%
Very Low
Perf ormance,
32.4%
High
Perf ormance,
25.6%
Fig 9
In spite of above facts to our disbelief there are 34% of
respondents who are aware of the fact that their above acts
lead to growth of piracy (fig 10) 68% of respondent were
aware that involvement of any type in piracy is punishable
under law (fig 11).
Low
Perf ormance,
29.6%
% of Re sponde nt s
Fig 5
% o f Re sp o n d e n t s
Very Low
Perf ormance,
10.8%
70%
60%
50%
40%
Very High
Perf ormance,
39.2%
Low
Perf ormance,
22.8%
66%
34%
30%
20%
10%
0%
High
Perf ormance,
27.2%
Yes
No
Fig 10
% of Re sponde nt s
Fig 6
the respondents have claim convenience as one of the
possible reason for watching the pirated stuff (fig 6) and
27.6 % show easy availability of the pirated stuff gives
high preference to the respondents.
80%
% o f Re sp o n d e n t s
68%
70%
60%
50%
40%
30%
32%
20%
10%
0%
Yes
No
Fig 11
46
The respondents are of viewpoint that if government wants
to restrict the growth of piracy then in that case
government can adopt various measures like;
• Blocking all the internet sites providing illegal
movie downloads
• Making punishments strict for those who violate
the law.
• Increasing awareness regarding piracy by way of
organising anti-piracy campaign.
• Keeping the cost of original CDs at such a level
that both the producer and viewers are at
beneficial position.
• Keeping intense check against corruption as grey
markets are flourishing regularly because of the
same.
Table 1
The widely held respondents use internet sites such as
www.bwtorrents.com,
www.gigabyte.com,
www.megashare.com,
www.youtube.com,
www.bhejafry.com,
www.mininova.com,
www.btjunke.com, www.thepiratesbay.com etc. with the
aid of P2P softwares responsible for that like limwire,
aries, vuze, DC++ etc. as they provide full movie
download and with that of original quality and other
features.
With the changing lifestyle of people, their preferences are
also changing and to compliment the same the people are
going for pirated movies these days as they think they
don’t have considerable time say around 5 hrs. or so to
spend on a movie of 3 hrs. as well as time schedule
according to the availability of tickets. Along with the lack
The respondents will go and watch movies at theatres if the
prices of tickets are reduced further and rate of
entertainment tax being charged is also reduced by
considerable amount & making such movies which are
worthy enough to be watched at theatres.
of time availability of pirated movies at a large scale is also
a factor promoting piracy as these pirated movies are
available all around the corners of city whether u talk
about heart of the city such as Palika Bazaar in Cannaught
place or in localities like Najafgarh or Hastsaal village in
Uttam Nagar area.
Table 1 gives the size of Indian E&M Industry along with
Bollywood industry and loss to Bollywood due to piracy
for the period of 2004 to 2008. Along with growth
projections made by FICCI and the actual growth that
materialized for the given period. The graph plotted for the
same is as under. (Fig 12)
There were certain issues of concern for producers that
were uncovered as for why viewers don’t go for seeing
movies at theatres such as movies being made are not at all
worth enough to be watched at theatres and the story lines
are really pathetic and lots of theme repetitions as same old
love story or family drama or road side comedy as theses
kind of themes don’t work every time until they don’t have
something new and exciting for viewers.
Growth of piracy Industry along
Bollywood and E&M Industry
180000
150000
58,400
120000
10930
2004
0
Fig 12
47
2008
30000
2007
60000
51,300 97950
43,800 9600
industry
22,500
35,300
46520
6800 8750
5175
bollywoo
6300 9300
d
1700
piracy
2006
90000
2005
INR cr.
Inspite of the fact that various optical disks companies
have came up with the concept of selling CDs of original
movies at comparatively lower prices, the demand of
pirated movies is at a continuous rise as these original
movies arrive late in the market, supply side suffers from
shortage, having less degree of reach in the market and
moreover the price charged for a single movie is still more
than the price charged for pirated movies.
CONCLUSIONS
Based on the above analysis and interpretations it can be
said that majority of viewers had watched movies 15
days ago only, but viewers had watched only those
movies which were either multi starer or there were huge
expectations from them, but still it’s only matter of 2 or 3
days as after that duplicate prints arrive in market thus
causing a decline in rate of audiences going to theatre. A
considerable portion of the viewers (76%) had watched
new movies at their home and even had indulged in act of
sharing (85.2%) movies within their family or friends
with the aid of pen drive, CDs or web links but to my
incredulity most of the viewers (66%) are not aware
about the acts leading to the event of piracy. Lack of time
is a major factor (39.2%) that motivates viewers to go for
pirated stuff as in today’s fast life.
The original low costing CDs such as Moser Baer has
failed to make an impact in the market because of their
late arrival in the market because by the time they arrive
in the market it’s already a month or two after the
release, whereas pirated CDs are available with in a day
or two after the release of movie. The viewers feel that
price of Moser Baer CDs is considerably high when
compared that of pirated stuff thus they should be as such
that they suit the pocket of a common man. Majority of
viewers are unaware of the fact that piracy is illegal in
India. Viewers are of the viewpoint that prices of the
tickets at hall are very high and thus a major obstruction
for attracting viewers to cinema halls. Sources used by
the respondents to get pirated stuff are Internet (42%) and
then grey market this points out to the fact that with the
advancement of technology along with the facilities
given by these technologies there are some drawbacks also
that pose a threat and thus by aid of these antisocial elements
ensnare the benefits on labour of others. Moreover people
having unlimited broadband connections say that why they
should purchase original CDs by paying cost when they can
have DVD print absolutely free. Majority of respondents feel
that there is a need of blocking sites offering illegal
downloads completely in order to eradicate piracy from
market completely and punishments should be made stricter
for those who violate the law. Respondents falling in age
bracket of 15-35 yrs. are the ones who are principally
responsible for downloading movies from internet with the
average age being 27 yrs. The piracy market is growing
parallel to the Bollywood industry and infact the revenues
made by the Bollywood were surpassed by the loss incurred
to the industry via piracy. Law system is a big failure when
it comes to tackle piracy as the officials either lack morale to
do their task or there is lack of training in handling such
complicated issues. The Indian judiciary system is sluggish
and fouled thus they fail to punish the culprit in due course
of time. The various measures taken by the government at
either state level, industry level or central level such as
digital code embedding, video piracy cell or Goonda act in
Tamil Nadu have not been sufficient enough to eradicate
piracy at same pace at which it is flourishing. Anti social
practises such as corruption, bribe or “Hafta Wasooli” needs
to be checked at grass root level as these practises only are
responsible for flourishing of pirate market such as Palika
Bazaar or Gaffahar Market etc. Laws should be amended
regularly in such a manner that there are no loop holes in the
judiciary system being followed.
48
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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
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Combating Counterfeiting and Grey Market - A Challenge for Indian Corporates December 22, 2008, KPMG &
FICCI
Combating Counterfeiting and Grey Market - A Challenge for Indian Corporates December 22, 2008, KPMG &
FICCI
Exchange4media exclusive FICCI FRAMES 2007
Exchange4media exclusive FICCI FRAMES 2008
Exchange4media exclusive FICCI FRAMES 2009
FICCI FRAMES 2006
India steps up fight against piracy, BBC, August 22, 2007
International Intellectual Property Alliance (IIPA) 2009 special 301 report on copyright protection and
enforcement
K. Moti Gokulsing, K. Gokulsing, Wimal Dissanayake (2004), Indian Popular Cinema: A Narrative of Cultural
Change, Trentham Books, pp. 98–99, ISBN 1858563291
Piracy gnaws at Indian movie profits, leaves filmmakers anxious. By Ramola Talwar Badam SPAN
JULY/AUGUST 2005
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http://sachinkelkar.blogspot.com/2008/04/bollywood-vs-hollywood-complete.html
http://timesofindia.indiatimes.com/Columnists/C_Rajghatta_Bollywood_in_Hollywood/articleshow/3201937.cms
http://timesofindia.indiatimes.com/India_Buzz/Who_is_the_next_Bollywood_queen/articleshow/3085603.cms.
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www.austrade.gov.au
www.exchange4media.com
www.ficci.gov.in
www.google.com
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www.kpmg.com
www.krc.com
www.mib.gov.in
www.wikipedia.com
49
Features of Indian MNCs : An Exploratory Study
Ashoo Sachdeva*
ABSTRACT
India, one of the fastest growing economies with a projected GDP growth rate of nearly 9% is also expected to produce the
most new multinational companies, overtaking China as potentially the emerging world’s largest source of new
multinationals. On the other hand India too has undergone different economic, cultural, socio-political changes since 1990
when the economy opened its door to the world. This paper aims to study the impact of Indian multinationals on the
destination countries and the effect of transnational corporation’s strategies in India on its future.
their expertise not only to the advantage of the Indian
economy but also to spearhead the global economy
(Table1)
1. Introduction
Globalization was initially believed to be driven by the
West with developed countries setting the rules and
western companies and consumers reaping the benefits.
However Global economic environment is fast evolving
and in today’s complex and dynamic business environment
the only factor constant is change whereby the new trend
in globalization is characterized by multinationals from
emerging
markets
gobbling
up
western
companies1.Although firms are becoming more global,
markets while still large are becoming more local.
Emerging market multinational firms are faring well
against challenges at both their home turfs and in
developed markets. They are in the process redefining
management practices and innovation thus having an
overall impact on the global business environment. About
70% of the world’s growth in the next five years is
expected to come from emerging markets.
Table 1 Indian Multinational Companies; Turnover, Sales,
Earnings, Forex/ Sales (%) (2007)
Top 10 Indian
MNCs by
turnover
Jindal Saw
KEC Int’l
Lupin
Cipla
Dr. Reddy’s Labs
Ranbaxy Labs
Jindal Stainless
MRPL
Nalco
Sterlite Inds.
Emerging markets provide an invaluable catalyst to
companies in their core activities at home, which are then
leveraged internationally as is evident from the fact that
not even a single emerging market firm was world class a
decade ago and now they are world’s best in 25 industries.
BRIC (Brazil, China, India and Russia) nations are all set
to dominate the global business scenario.
Sales
(Rs.
Crores)
3873.1
2093.2
2013.7
3572.1
6422.9
6017
4978
28563.3
5942.5
24386.8
Total Forex
Earning (Rs.
Crores)
2446.2
1257.8
1093.9
1865.1
3092.5
2755.9
2267
11917.2
2318.2
4244.1
Forex
/ Sales
(%)
63.2
60.1
54.3
52.2
48.1
45.8
45.5
41.7
39
17.4
Source: Economic times Intelligence Guide Database
2.1 Leading Sectors
While talking about Indian presence in global business the
first thought that comes to mind is the IT sector, a sector
that revolutionized the Indian business scene and placed
India on the global business map. Thus making India lead
the globalization of knowledge industry. Besides IT many
non IT companies are also making a foray into the
international business. Starting by aggressively exporting
from their low-cost operations in India and gradually
opting for options as going in for overseas acquisitions,
making Greenfield investments in foreign markets, signing
joint ventures or a mix of all these. Indian Pharma
companies were amongst the first to touch the foreign
shores beginning their journey by exporting from their low
cost bases, they are now aggressively acquiring companies
in their overseas markets, a similar trend is visible in auto
ancillaries, steel and metal sectors. India is only one of the
major markets for these companies, which are expanding
their footprints in overseas markets. In the pharma sector,
Dr Reddy's Labs acquired betapharm Arzneimittel,
Ranbaxy acquired Terapia, and Sun Pharma is trying to
2. The Indian business powerhouses
During the last decade we have seen Indian companies
outgrowing their national roots and making a mark in the
global market. These new multinationals are expected to
become more prominent in the future, providing a host of
opportunities for infrastructure and business service firms
in developed economies. Some will become
International powerhouses of the future requiring high
levels of support services around the world – IT and
telecoms services, for example. Domestic companies are
symbolizing success nationally and internationally, they
have made it big while staying archetypically Indian in
nature undisputedly emerging as Indian MNCs. In an
increasingly globalized world this is a paradigm shift. A
number of these companies have successfully leveraged
∗ Ashoo Sachdeva, Institute of Productivity and Management Vikas Khand 1, Gomti Nagar Lucknow IndiaTel: 091522 2301525,
Fax: 091522 2301526, E-mail: [email protected]
50
wrest control over Taro. Bharat forge and Amtek auto have
followed a similar model in the auto ancilliary sector.
2.1.1 Strategies of Indian MNCs
Internationalization of the Indian companies does not
conform to the conventional form where firms expand
overseas to exploit their firm specific advantages; rather,
these firms have largely been driven by a search for
resources, technology and other strategic assets.Several
Indian companies have entered foreign markets targeting
their exports at the ethnic population. Raymonds and BirlaVXL, have a number of showrooms in West Asia top sell
their range of textiles items. Shaw Wallace launched a beer
brand called Lal Toofan in UK through Shaw Wallace
Overseas; the target consumers of this brand sold at the up
market Indian restaurants are Indians.
Table 3
(/10)
Investment Factor considered by
Indian companies
Economic Basic Conditions
6.1
Political Development
5.6
Legal Indicators
4.2
Infrastructural Standards
7.0
Total Expenditure Comparison
6.3
Financing and Taxation
5.8
Staff Management
7.5
Cultural Influences
6.9
In their quest for better technology and to increase their
scale of operations electrical equipment companies as
Havelsl and Crompton Greaves are following the same
footsteps. Suzlon Energy is also aiming for the same, as it
tries to fill the market share and technological gap between
itself and its global peers in wind energy. In the metals
space, Tata Steel bought Corus, while Hindalco bought
Novelis. Textile is another sector where many Indian
companies have emerged as MNCs. The textile industry is
the third-largest group among Indian MNCs.
Table 2 Cross-border deals by Indian firms post-liberalization.
Most of the companies use local management and skills
(only 4-5 Indians are sent) through adoption of their own
best practices, suitably modified for local conditions.
Cultural integration is the key, achieved through extensive
communication at every level including Indian personnel
learning to speak the home country’s local language.
Acquisitions facilitate quicker transformation by enabling
transfer of status and reputation which helps emergingeconomy firms to overcome the liabilities of newness and
foreignness in global markets, and allow integration of new
and diverse organizational practices with their traditional
management techniques (Cuervo-Cazurra, Maloney, &
Manrakhan, 2007; Uhlenbruck, Hitt, & Semadeni,
2006; Vermeulen & Barkema, 2001). Acquisitions have
been a strong alternative mechanism to indigenous R&D
efforts and internal development of innovation capabilities
(Business Line, 2007a; Vanhaverbeke, Duysters, &
Noorderhaven, 2002). Such capabilities are essential to
enter higher value-added segments. For instance, in
announcing the acquisition of US-based Wausaukee
Composites Inc. (WCI), the Managing Director of Sintex
Industries, a leading plastic manufacturing company in
India, commented: with a portfolio of established products
that have tremendous growth potential … [WCI] will
enable [Sintex]to enhance its various skills in
manufacturing and marketing of value-added offerings,
which will be extremely relevant in a rapidly changing
Indian business environment. (Sintex Industries, 2007)
Advanced markets are likely to be superior venues in
which to acquire knowledge-based resources. A case in
point is the Tata Steel–Corus merger, where it is expected
that Tata Steel, with a 20% cost advantage in slab
production, will supply low-cost slabs to Corus. In turn,
Source: UNCTAD
The rise of Indian multinationals stems from the fact that
these companies have been operating in a very traditional
manner resulting into low debts and high liquidity.
Liberalization, Privatization and Globalization policy of
1990 has given a wider horizon and a global vision free
from many regulatory shackles to the Indian companies.
As per UNCTAD, India's cumulative outward FDI
increased exponentially from about $0.5 bn in 1995 to
about $62 bn by 2008. This includes both FDI investment
abroad and acquisition of global assets. Thus globalization
of Indian business has been on the rise since the mid '90s
and has significantly accelerated in recent years. (Table2).
Availability of large, talented and cheap manpower in
India gives companies a major advantage and helps them
to remain cost-competitive amidst cutting-edge
technology. 2007 was a record year for out-bound M&As
from India. A total of 223 deals, worth $33 billion, were
transacted. This represented an increase of 300 per cent
over the previous year. The average deal size increased
from $58 million in 2006 to $150 million in 2007. Europe
topped the list as far as investment destinations were
concerned, accounting for 54 per cent of the total value.
The US followed in second place, accounting for 27 per
cent. In terms of sectoral composition of these M&A deals,
metals led the way with 56 per cent of the total value,
followed by engineering (7%), IT (7%), oil and gas
(4%),pharma and healthcare (3%). Other sectors
contributed the remaining 23 percent
51
Corus, with its superior product-finishing facilities,
branded products and access to a wider geographical
market, can realize better average yields for the combined
entity (Business Line, 2007b).
3. Conclusions
This study reveals that the way Indian firms have
internationalsed is very unconventional rather than
Greenfield projects these Indian firms however have
globalized in search for resources, technology and related
assets. The following remarks summarize the points made
in this paper and suggest a way forward:
1. These new Indian multinationals are also increasingly
likely to operate in the higher value-add business
services or manufacturing sectors and not in the more
basic natural resource extraction sectors.
2. In order to reap the long term gains from globalization
Indian companies need to create employment and
benefit the economies of the destination countries.
3. These companies need to provide enormous
opportunities for business-to-business suppliers in the
host countries, in the infrastructure and business
services sectors in particular, as the new
multinationals are likely to require services all around
the world.
4. The multinationals in India now look at it as the
knowledge hub where a lot of technical talent is
available at a reasonable cost.
5. With India emerging as the nation of young people,
growing affluence of its rural population and an
educated middle class a lot can be harnessed by the
MNCs from this growing market in the coming years.
2.1.2 Trends in activities of MNCs in India
Globalization started with many international companies
making a foray into the Indian markets to take advantage
of the availability of cheap labor, large English speaking
population, leverage the growing middle class market and
increasing disposable incomes of the rural Indian
population. A recent trend that has emerged in the process
of globalization is global R&D activity being
predominantly located in East and Southeast Asia
including India, Most R&D in India was in IT but
increasingly chemicals, life sciences and engineering
specialties are seeing R&D related activity. Another recent
trend is that India is now looking for a big leap in KPO.
India automatically becomes a natural choice if we analyze
the comparative costs of various aspects of KPO for
different countries some of which are Great record of
software development, Government Support and policies,
English Language proficiency Strong tertiary education,
Process quality focus Skilled workforce, Cost advantage
Entrepreneurship, Reverse brain drain Expansion of
existing relationships, Leverage relationships in West to
access overseas markets Indian domestic-market growth.
With the more enlightened and aware Indian consumer the
MNCs are really slogging out hard to get their share of
attention.
References
1.
Economies. Price Waterhouse Cooper report, April 2010.
2.
Kumar Nagesh. Emerging TNCs: trends, patterns and determinants of outward FDI by Indian enterprises, 2006.
3.
Parwan Ravi. The Indian Tiger Is on a Global Prowl. The Economic times 500 stories, 2005.
4.
Transnational Corporation Volume17 Number 3 UNCTAD December, 2008
52
Impact of FII’s and FDI’s on Indian Stock Market
Dr. Kamlesh Kumar Shukla*
ABSTRACT
FIIs are companies registered outside India. In the past four years there has been more than $41 trillion worth of FII funds
invested in India. This has been one of the major reasons on the bull market witnessing unprecedented growth with the BSE
Sensex rising 221% in absolute terms in this span. The present downfall of the market too is influenced as these FIIs are
taking out some of their invested money. Though there is a lot of value in this market and fundamentally there is a lot of
upside in it. For long-term value investors, there’s little because for worry but short term traders are adversely getting
affected by the role of FIIs are playing at the present. Investors should not panic and should remain invested in sectors
where underlying earnings growth has little to do with financial markets or global economy.
INTRODUCTION
When people think about globalization, they often first
think of the increasing volume of trade in goods and
services. Trade flows are indeed one of the most visible
aspects of globalization. But many analysts argue that
international investment is a much more powerful force in
propelling the world toward closer economic integration.
Investment, often alters entire methods of production
through transfers of know-how, technology and
management techniques, and thereby initiates much more
significant change than the simple trading of goods.
Over the past ten years, foreign investment has grown at a
significantly more rapid pace than either international trade
or world economic production generally. From 1980 to
1998, international capital flows, a key indication of
investment across borders, grew by almost 25% annually,
compared to the 5% growth rate of international trade. This
investment has been a powerful catalyst for economic
growth.
But as with many of the other aspects of globalisation,
foreign investment is raising many new questions about
economic, cultural and political relationships around the
world. Flows of investment and the rules that govern or
fail to govern it can have profound impacts upon such
diverse issues as economic development, environmental
protection, labour standards and economic stability.
Forms of Foreign Investment
International investment or capital flows fall into four
principal categories:
Commercial loans: These primarily take the form of loans
by banks to foreign businesses or governments.
Official flows: This category refers generally to the forms
of development assistance given by developed countries to
developing ones.
international investment in which the investor obtains a
lasting interest in an enterprise in another country. FDI is
calculated to include all kinds of capital contributions, such
as the purchases of stocks, as well as the reinvestment of
earnings by a wholly owned company incorporated abroad
(subsidiary), and the lending of funds to a foreign
subsidiary or branch. The reinvestment of earnings and
transfer of assets between a parent company and its
subsidiary often constitutes a significant part of FDI
calculations. An investor's earnings on FDI take the form
of profits such as dividends, retained earnings,
management fees and royalty payments.
Foreign Portfolio Investment (FPI): FPI is a category of
investment instruments that are more easily traded, may be
less permanent, and do not represent a controlling stake in
an enterprise. These include investments via equity
instruments (stocks) or debt (bonds) of a foreign enterprise
which does not necessarily represent a long-term interest.
The returns that an investor acquires on FPI usually take
the form of interest payments or non-voting dividends.
Investments in FPI that are made for less than one year are
distinguished as short-term portfolio flows.
Until the 1980s, commercial loans from banks were the
largest source of foreign investment in developing
countries. However, since that time, the levels of lending
through commercial loans have remained relatively
constant, while the levels of global FDI and FPI have
increased dramatically. Over the period 1991 - 1998, FDI
and FPI comprised 90% of the total capital flows to
developing countries.
Similarly, when viewed against the tremendous and
growing volume of FDI and FPI, the funds provided in the
past by governments through official development
assistance, or lending by commercial banks the World
Bank or IMF, are diminishing in importance with each
passing year. When one talks about the recent phenomenon
of globalization therefore, one is referring in large part to
the effects of FDI and FPI, and these two instruments will
therefore be the primary focus of this issue brief.
Foreign Direct Investment (FDI): This category refers to
*
Asstt. Professor, AKS Manangement College, BKT, Lucknow, [email protected], Mb. No. 9335326934, 8960993319
53
Calculating Investment:
Calculations of FDI and FPI are typically measured as
either a "flow," referring to the amount of investment made
in one year, or as "stock," measuring the total accumulated
investment at the end of that year.
Analysis of share of top ten investing countries FDI
equity in flows
Table no. 2: Share of top investing countries FDI equity
inflows. (Source: http://dipp.nic.in/fdi_statistics/ india_fdi_
index.htm)
Cumulative amount of FDI inflows (From Aug. 1991 to
march 2007): Rs. 2,32,041 crore and US$ 54,628 million.
Ranks
Country
1.
Mauritius
2.
U.S.A.
3.
U.K
4.
Netherlands
5.
Japan
6.
Germany
7.
Singapore
8.
France
9.
South Korea
10.
Switzerland
TOTAL FDI INFLOWS
Cumulative
inflows
(from Aug.
1991 to march
2007)
Amount
Rupees in
crore.
79162
24536
16660
11402
9313
7060
7050
3803
3234
2879
232041
%age
with
total
inflows
(in
terms of
rupees)
paying certain taxes through a process known as “round
tripping.”
The existence of the treaty makes it difficult to clearly
understand the pattern of FDI flows, and likely leads to
reduced tax revenues collected by the Indian government.
United States
The United States is the second largest source of FDI in
India (10.57 % of the total), valued at 24536 crore in
cumulative inflows between August 1991 and March 2007.
According to the Indian government, the top sectors
attracting FDI from the United States to India during
1991–2007 (latest available) are fuel (36 percent),
telecommunications (11 percent), electrical equipment (10
percent), food processing (9 percent), and services (8
percent). According to the available M&A data, the two
top sectors attracting FDI inflows from the United States
are computer systems design and programming and
manufacturing.
The largest share (36 percent) was found in the
manufacturing sector, most prominently in the machinery,
chemicals, and transportation equipment manufacturing
segments. Other important categories of employment are
professional, scientific, and technical services; and
wholesale trade, with 29 percent and 18 percent of U.S.
affiliate employment, respectively.
34.11
10.57
7.17
4.91
4.01
3.04
3.03
1.63
1.39
1.24
European Union
Foreign investors have begun to take a more active role in
the Indian economy in recent years. By country, the largest
direct investor in India is Mauritius; largely because of the
India-Mauritius double-taxation treaty. Firms based in
Mauritius invested 79162 crores in India between Aug.
1991 and March 2007, equal to 34.11 percent of total FDI
inflows. The second largest investor in India is the United
States, with total capital flows of 24536 crore during the
1991–2007 periods, followed by the United Kingdom, the
Netherlands, and Japan.
Mauritius
According to Indian government statistics, Mauritius
accounts for the largest share of cumulative FDI inflows to
India from 1991 to 2007, nearly 34.11 percent. Many
companies based outside of India utilize Mauritian holding
companies to take advantage of the India- Mauritius
Double Taxation Avoidance Agreement (DTAA). The
DTAA allows foreign firms to bypass Indian capital gains
taxes, and may allow some India-based firms to avoid
54
Within the European Union, the largest country investors
were the United Kingdom and the Netherlands, with 16660
crore and 11402 crore, respectively, of cumulative FDI
inflows between Aug. 1991 and March 2007. The number
of EU Greenfield projects was distributed among four
major clusters: ICT (17 percent), heavy industry (16
percent), business and financial services (15 percent), and
transport (11 percent). However, the heavy industry cluster
accounted for the majority (68 percent) of the total value of
these projects.
Japan
Japan was the Fifth largest source of cumulative FDI
inflows in India between August 1991 and March 2007,
i.e. the cumulative flow is 9313 crore and it is 4.01% of
total inflow. FDI inflows to India from most other
principal source countries have steadily increased since
2000, but inflows from Japan to India have decreased
during this time period. There does not appear to be a
single factor that explains the recent decline in FDI inflows
from Japan to India. India is, however, one of the largest
recipients of Japanese Official Development Assistance
(ODA), through which Japan has assisted India in building
infrastructure,
including
electricity
generation,
transportation, and water supply. It is possible that this
Ranks
Sector
CI (from Aug. 1991 to
Mar. 2007) rs. ( crore)
%age with
total inflows
36,034
18.77
34,238
17.84
16,691
8.7
15,427
8.04
4
Electrical Equipments (including computer software &
electronics)
Services Sector (financial & non-financial)
Telecommunications (radio paging, cellular mobile, basic
telephone services)
Transportation Industry
5.
Fuels (power + oil refinery)
12,105
6.31
6.
Chemicals (other than fertilizers)
9,510
4.95
7.
Construction activities (including roads & highways)
6,396
3.33
8.
Drugs & Pharmaceuticals
5,281
2.75
9.
Food Processing Industries
5,143
2.68
10.
Cement and Gypsum Products
4,329
2.26
1.
2.
3.
TOTAL FDI INFLOWS
2,32,041
(source:http://dipp.nic.in/fdi_statistics/india_fdi_index.htm)
Table no. 3: Sectors attracting highest FDI equity inflows
Japanese government assistance may crowd out some
private sector Japanese investment. The top sectors
attracting FDI inflows from Japan to India are
transportation (54 percent), electrical equipment (7
percent), telecommunications, and service
s (3 percent).
The sectors receiving the largest shares of total FDI
inflows between August 1991 and March 2007 were the
electrical equipment sector and the services sector, each
accounting for 18.77 and 17.84 percent respectively. These
were followed by the telecommunications, transportation,
fuels, and chemicals sectors. The top sectors attracting FDI
into India via M&A activity were manufacturing;
information; and professional, scientific, and technical
services. These sectors correspond closely with the sectors
identified by the Indian government as attracting the
largest shares of FDI inflows overall.
The heavy industry and transport equipment sectors
together attracted over FDI of 15427 crore in Greenfield
FDI projects during 1991 to 2007. The cluster with the
highest reported value during 2002–06 is heavy industry.
Projects in this sector tend to be highly capital intensive,
with single projects frequently requiring upwards of $6
billion in startup investment costs. The largest recent
examples include the POSCO and Arcelor-Mittal Steel
projects, and Vedanta Resources’ (United Kingdom)
aluminum smelter project, all planned for the state of
Orissa.
Trends of Foreign Institutional Investments in India
Portfolio investments in India include investments in
American Depository Receipts (ADRs)/ Global Depository
Receipts (GDRs), Foreign Institutional Investments and
investments in offshore funds. Before 1992, only Non55
Resident Indians (NRIs) and Overseas Corporate Bodies
were allowed to undertake portfolio investments in India.
Thereafter, the Indian stock markets were opened up for
direct participation by FIIs. They were allowed to invest in
all the securities traded on the primary and the secondary
market
including
the
equity
and
other
securities/instruments of companies listed/to be listed on
stock exchanges in India. It can be observed from the table
below that India is one of the preferred investment
destinations for FIIs over the years. As of March 2007,
there were 996 FIIs registered with SEBI.
Analysis of trends in FII
investment
During the initial year
1992-93, the FII flows
started in September, 1992
which amounted to Rs. 13
crore because at this
moment government was
framing policy guidelines
for FIIs. However, within a
year,
the
FIIs
rose
39338.46% of 1992-93
during 1993-94 because
government had opened
door for investment in
India. Thereafter, the FII
inflows witnessed a dip of
6.45%. The year 19951996
witnessed
a
Table no. 4: SEBI
Registered FIIs in India
Year
End of March
1992-93
0
1993-94
3
1994-95
156
1995-96
353
1996-97
439
1997-98
496
1998-99
450
1999-00
506
2000-01
527
2001-02
490
2002-03
502
2003-04
540
2004-05
685
2005-06
882
2006-07
996
turnaround, gliding up the contribution of FII to a massive
of Rs. 6942 crore. Investment by FIIs during 1996-1997
rose a little i.e. 23.52% of the preceding year. This period
was ripe enough for FII Investments because at that time
where international capital markets were in the phase of
overheating; the Indian economy posted strong
fundamentals, stable exchange rate expectations and
offered investment incentives and congenial climate for
investment of these funds in India. During 1997-98, FII
inflows posted a fall of 30.51%. This slack in investments
by FIIs was primarily due to the South-East Asian Crisis
and the period of volatility experienced between November
Year
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Gross Purchases (a)
(Rs.crore)
17
5593
7631
9694
15554
18695
16115
56856
74051
49920
47061
144858
216953
346978
520508
1997 and February 1998. The net investment flows by FIIs
have always been positive from the year of their entry.
Only in the year 1998-99, an outflow to the tune of Rs.
17699 crore was witnessed for the first time. This was
primarily because of the economic sanctions imposed on
India by the US, Japan and other industrialized economies.
These economic sanctions were the result of the testing of
series of nuclear bombs by India in May 1998. Thereafter,
the FII portfolios investments quickly recovered and
showed positive net investments for all the subsequent
years.
Table no. 5: Trends in FII Investment
Gross Sales (b)
Net Investment (a(Rs.crore)
b) (Rs.crore)
4
13
466
5127
2835
4796
2752
6942
6979
8575
12737
5958
17699
-1584
46734
10122
64116
9935
41165
8755
44373
2688
99094
45764
171072
45881
305512
41466
489667
30841
FIIs investments declined from Rs. 10122 crore during
1999-2000 to Rs. 9935 crore during 2000-01. FII
investment posted a year-on-year decline of 1.8 % in 200001, 11.87 % in 2001-02 and 69.29 % in 2002-03.
Investments by FII posted a fall of 80 % in 2002-03 as
compared with investments in the period of 1999-00.
Investments by FIIs rebounded from depressed levels from
the year 2003-04 and witnessed an unprecedented surge.
FIIs flows were recycled to India following readjustment
of global portfolios of institutional investors, triggered by
robust growth in Indian economy and attractive valuations
in the Indian equity market as compared with other
emerging market economies in Asia. The slowdown in
2004-05 was on account of global uncertainties caused by
hardening of crude oil prices and the upturn in the interest
rate cycle. The resumption in the net FII inflows to India
from August 2004 continued till end 2004-05. The inflows
of FIIs during the year 2004-05 was Rs. 45881 crore.
During 2006-07 the foreign institutional investors
continued to invest large funds in Indian securities market.
However, due to global developments like meltdown in
global commodities markets and equity market during the
three month period between May 2006 to July 2006, fall in
Asian Equity markets, tightening of capital controls in
56
% increase
39338.46154
-6.456017164
44.74562135
23.52348027
-30.51895044
-126.5861027
739.0151515
-1.847460976
-11.87720181
-69.29754426
1602.529762
0.25565947
-9.622719644
-25.62340231
Thailand and its spillover effects, there was a slack in FII
investments.
FII and Indian Economy
1. FII Leads to Appreciation of the Currency
When FII come in India they creates rupees demand and
by demand and supply rule the price of INR appreciates.
Similarly if FII withdraw the capital from the domestic
market or we can say when they sell their share it creates
the demand for US dollar and that time demand for dollar
will be more and resulted INR will depreciate. In 2008 our
forex rate over the US dollar was USD = 39 INR. This is
just because of FII was net buyer (FII inflow was more in
Indian market) but now you will see 1 USD = 48 INR.
This is because of FII out flow from Indian market is more
and they are net seller.
This FII inflow makes the currency of the country invested
in appreciate. (E.g. FII investing in India may lead to
rupees appreciating over other currencies) and their selling
and disinvestment may lead to depreciation.
disturb the economy at the time of coming and going. And
Hench this concept called hot money concept.
2. FII and exports:
If our Indian currency appreciates just because of FII (net
inflow in India) there is adverse effect on our export. Our
export industry will become uncompetitive due to
appreciation of rupees.
The excess FII fund inflow in the country can also make a
negative impact on the economy of the country.
In this situation our Indian IT industries, jewellery and
textiles industry affect. However you have seen at the
appreciation time government give them some package
especially for this category.
3. FII and Stock Market
When cap on FII is high then they can bring in lot of funds
in country’ stock market and thus have great influence on
the way the stock market behaves, going up or down. The
FII buying pushes the stock up and selling results in stock
market crash.
Factors affecting the FII
1. INTEREST RATE OF THE COUNTRY: if the
interest rate of the country high of course FII will want to
invest in that country to make good capital gain.
2. MONEY SUPPLY AND INFLATION RATE: if
money supply is adequate and inflation rate is stable FII
will invest in that country.
3. EXCHANGE RATE OF THE COUNTRY: if the
exchange rate of country is highly volatile or fluctuate of
course FII will be discourage to invest in that country. So
exchange rate should be stable.
4. BOP: deficit in balance of payment is the indicator. So
FII will avoid investing in that country.
4. FII and Inflation:
5. ECONOMIC GROWTH: of course FII will invest in
those countries which are growing at fast rate like India,
china and Korea.
The huge amount of FII fund flow creates the huge
demand for Indian rupees. In that situation RBI print more
money in the market. this situation could lead to excess
liquidity therby leading to inflation , where too much
money chase too few goods and service ( perfect example
of demand pull inflation) Thus there should be a limit to
the FII inflow in the country.
1. Impact of FII on S&P CNX Nifty: The effect of FII on
Nifty is positive and the co-efficient of correlation is high
so the effect is also high. The standard error comes out to
be 575.658 which are high. This does not mean the relation
is false but we can say that the error in linear relation is
high.
5. FII and Local Companies
2. Impact of FII on Bank Nifty: The effect of FII on
Bank Nifty is positive. So, FII is directly related to Bank
Nifty. But the co-efficient of correlation is high so the
effect is also high. The standard error comes out to be
1229.644 which are very high. This means that the
deviation from the mean value is high. This does not mean
the relation is false but we can say that the error in linear
relation is high. The value of multiple-R is also high. We
can say that FII have significant impact on Bank Nifty
during the period of 31-January-2000- 30-March-07.
When huge FII comes in any country there is much
availability of fund for local company in this time local co.
can expand their coverage.
6. Capital Formation in Domestic Market
If there is much FII inflow in the country will not borrow
from other country or from international bank. If home
country’s saving rate are not sufficient to meet its
investment programmed but if FII inflow is well there is no
problem. India is developing country and its domestic
saving is low compared to developed countries. So here is
need for FII inflow.
FII is very dangers in case of HOT MONEY concept:
We take one example. If RBI gives the interest rate 9% on
foreign investor deposit which is high in Asia ten of course
foreign investor will attract in Indian market to make
capital gain. But if in this case bank of china raised their
interest rate up to 10 % which will be higher in Asia of
course all FII will be shift from Indian market to Chinese
market an d this will be happen if any nation again increase
the interest rate. These FII inflows are very volatile. Its
57
3. Impact of FII on CNX 100: CNX 100 is inversely
related to FII for the period of 31-January-03- 30-March2007. But the extent of impact is low as co-efficient of
correlation is -0.159.
4. Impact of FII on CNX IT: FII has inversely little
significant relation with CNX IT, as the value of
correlation is -0.191. This does not mean that there is no
relation at all between them. It shows the absence of linear
relation between the two variables but not a lack of
relationship altogether.
5. Impact of FII on CNX NIFTY JUNIOR: CNX
NIFTY JUNIOR directly related to FII for the period of
31-Oct-1995- 30-March-2007. But the value of R is high
so the degree of relation is also high low. Standard error in
this case is 1319.6 which are high compared to other
standard errors between FII and other stock indices.
6. Impact of FII on S&P CNX 500: S&P CNX 500 is
also highly correlated with FII. In this case again the
degree of correlation is high.
CONCLUSION
The process of economic reforms which was initiated in
July 1991 to liberalize and globalize the economy had
gradually opened up many sectors of its economy for the
foreign investors. A large number of changes that were
introduced in the country’s regulatory economic policies
heralded the liberalization era of the FDI policy regime in
India and brought about a structural breakthrough in the
volume of the FDI inflows into the economy maintained a
fluctuating and unsteady trend during the study period. It
might be of interest to note that more than 50% of the total
FDI inflows received by India during the period from
58
1991-2007 came from Mauritius and the USA. The main
reason for higher levels of investment from Mauritius was
that the fact that India entered into a double taxation
avoidance agreement (DTAA) with Mauritius were
protected from taxation in India. Among the different
sectors, the electrical and equipment had received the
larger proportion followed by service sector and
telecommunication sector. Net FDI in India was valued at
$4.7 billion in the 2005–06 Indian fiscal year, and more
than tripled, to $15.7 billion, in the 2006–07 fiscal year.
Almost one-half of all FDI is invested in the Mumbai and
New Delhi regions.By country, the largest investors in
India are Mauritius, the United States, and the United
Kingdom. Investors based in many countries have taken
advantage of the India-Mauritius bilateral tax treaty to set
up holding companies in Mauritius which subsequently
invest in India, thus reducing their tax obligations. By
industry, the largest destinations for FDI are electrical
equipment (including computer software and electronics),
services, telecommunications, and transportation.
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http://ezinearticles.com/?A-Study-on-Capital-Stock-Market-Movement-in-India---Present-Scenario&id=719360
http://www.isb.edu/faculty/rajeshchakrabarti/FII_Basu.pdf
http://www.citeman.com/4005-fiis-and-their-impact-on-indian-stock-market/
www.sebi.gov.in, Securities and Exchange Board of India, www.sebi.gov.in.
wwwnse.co.in, National Stock Exchange, www.nseindia.com.
www.moneycontrol.com. etc.
59
3G Telecom Services – Will they be profitable?
R.K. Mandan* & Rahul Jain**
ABSTRACT
With the launch of mobile telephones in 1991 through the private sector an unprecedented revolution in telephone
connectivity has taken place in India. From a situation where one had to wait for years for a telephone connection to one
where even an ordinary maid servant owns a telephone, the country has witnessed the effects of privatization in what was
once considered the sacred domain of the government. This revolution was aided in no small way by the reasonable license
allocation policy followed by the government.
However, with the advent of new technology in the form of 3G the government changed its policy and decided to auction
licenses as it felt that 2G licenses were given away very cheap to the private sector. The government collected more than
double the amount it had anticipated from the sale of these licenses giving rise to the demand that the allocation policy of
2G licenses was faulty and led to a huge loss to the exchequer.
This article attempts to analyze the investment in 3G services and examine whether the auction process of allotment of
licenses was justified from a financial point of view.
gave an opportunity to the telecom companies to usher in
the revolution we have seen in mobile telephony where
anyone can afford a mobile phone. This is one service that
has actually demonstrated an inclusiveness that the
government is struggling to provide in financial services.
The government needs to learn some lessons for economic
inclusiveness from the telecom revolution!
INTRODUCTION
The government of India has completed the auction of
additional spectrum to Telecom companies for 3G
services. The spectrum has been allotted and the services
are expected to start very shortly. It is expected that the
launching of 3G services will usher in the next stage in the
telecom revolution in India.
Let us evaluate the returns expected from this additional
spectrum and see whether the telecom companies will
actually be able to make profits. Besides paying huge
amounts for 3G spectrum, the telecom companies will now
have to spend equally huge amounts on infrastructure for
3G before they can offer these services to customers. The
capital expenditure is likely to be at least ` 2,00,000 Crores
if not more.
The total amount bid for these licenses is ` 67, 719 Crores.
These licenses are valid for 20 years.
Are these licenses worth the amount bid? Will the telecom
operators be able to earn profits after paying such high
license fees? While the government is gloating over the
fact that it has received twice the amount anticipated, will
this exorbitant amount put a brake on the telecom
revolution instead of ushering a new growth phase?
Because of the high price of 3G spectrum, there have been
various articles in newspapers and magazines blaming
Telecom Minister A. Raja for giving the licenses for 2G at
throwaway prices. In fact the government has started a
probe into the process of allocating 2G spectrum to pin the
blame for the huge loss of revenue on the minister.
INVESTMENT EVALUATION METHODS
There are many methods of analyzing investment
decisions. Some of the common methods used to analyze
such decisions are:
1. Payback period
2. Accounting rate of return (ARR)
3. Net Present Value (NPV)
4. Internal Rate of Return (IRR)
We believe that 3G has been highly overpriced and
companies will find it hard to roll out 3G services with this
burden of capital cost. We believe that the telecom
companies cannot offer 3G at competitive prices and
therefore 3G services will not expand at the speed the
government expects.
All these methods would need forecasts of cash flows in
the future over the life of the project. Accountants would
generally prepare projected P & L accounts and Balance
sheets and calculate the net profit after taxes and the arrive
at the ROI. However this method has many drawbacks
mainly that it does not take into account the time value of
money. Also it uses accounting income and not cash flows.
We believe that if 2G had also been auctioned and similar
bids had been made the telecom revolution in India would
not have taken place! While we do not wish to justify any
favoritism shown by the Telecom Minister, we certainly
feel that the policy of allocating spectrum at a fixed price
Net Present Value, on the other hand factors in the time
*R.K. Mandan, Director, First India School of Business, Gurgaon
**Rahul Jain, 2nd year MBA student, First India School of Business, Gurgaon
60
expected would thus be approximately 180 to 200 million
new subscribers. However, urban tele-density has already
reached 100% and therefore a large number of these
subscribers added in April 2010 are likely to be those who
have changed from one operator to another. TRAI has
calculated that the maximum number of actual subscribers
expected is 700 million. The projected population by 2014
is 1239 million with the urban rural divide being 37:63.
The tele-density expected in urban and rural areas by 2014
is 125% and 60% respectively giving a total number of
subscribers as 1040 million. Assuming these figures to be
correct the return on additional spectrum will come from
these subscribers and from those who use data services
with smart phones. Therefore the additional revenue that
can be expected from voice telephony at the present
average ARPU of ` 2000/- per annum is as follows:
value of money by discounting the cash flows at the cost of
capital. Also NPV uses cash flows instead of accounting
income for the analysis of the investment. NPV is widely
accepted as the best method for investment analysis and we
have therefore used this method for analysing the
investment in 3G services.
In the NPV method, the amount invested is first calculated.
Then once the investment is completed the cash flows are
calculated over the life of the project. Cash flows are then
discounted using the cost of capital as the discounting
factor. Net present value is calculated by subtracting the
investment from the sum of the present values of the cash
flows. Thus
NPV = ∑
CFi
−I
(1 + k ) $i
EVALUATION OF INVESTMENT IN 3G
Year
Additional
subscribers
The total investment has already been mentioned above. T
is the sum of the license fees paid to the govt. and the
further capital expenditure to be made by the companies to
be able to offer 3G services to its customers. The future
cash flows now need to be calculated.
2010
2011
2012
2013
2014
200 million
150 million
100 million
50 million
-
Cumulative
new
subscribers
200 million
350 million
450 million
500 million
500 million
ARPU /
annum
(`)
2000
2000
2000
2000
2000
Revenue
(`)
40,000 Cr.
70,000 Cr.
90,000 Cr.
100,000 Cr.
100,000 Cr.
Table 1
At present the ARPU for GSM operators is approximately
` 144 per customer per month, and for CDMA operators it
is ` 88 per customer per month. If 3G spectrum is used for
providing mainly voice services the ARPU is likely to
remain the same. It is only if a large number of customers
start using the value added services that 3G offers and
starts paying for the same that the ARPU will increase. If
we look at the experience around the globe, 3G has taken a
long time to penetrate and it is still at a very low level of
between 20 to 30% in countries like Germany and France
which are highly developed countries and with very much
higher per capita income than India. In Russia and Brazil
the penetration has just reached 3 to 4% in five years. It is
only in Japan and Korea that penetration levels are very
high. TRAI, in its final recommendations for 3G has
mentioned that smart phone penetration is currently at 4%
and is likely to increase to 12% by 2014. Most data
services are used mainly by smart phone customers.
Worldwide, only 14% of the total mobile phone sales of
1.2 Billion are smart phones.
With net cash profit margins being approximately 25%, the
net cash flows generated would be as follows:
2010
2011
2012
2013 – 2030
10000 Cr.
17500 Cr.
22500 Cr.
25,000 Cr.
Table 2
If growth then becomes negligible it can be assumed that
this cash flow will continue to be Rs. 25,000 Cr. till 2030.
If these cash flows are discounted at 15% the present value
of these cash flows comes to: ` 1,37,540Cr.
The telecom operators will have to incur substantial
infrastructure expenses to support the increase in
customers and the hi-tech 3G services they propose to
offer. If we assume that the ratio of their gross block will
be the same as incurred so far per million customers, they
would have to incur another ` 2,00,000 Cr. Over the next
four years. The present value of this expense is ` 1,75,000
Cr. Thus the present value of the total capital expenses,
including the license fees paid, incurred by telecom
companies would be ` 2,42,719 Cr.
In India there is also a major difference between urban and
rural areas. While mobile telephones have achieved 100%
penetration in urban areas (approx. 400 million customers)
it is hardly 27% in rural areas (approximately 200 million
customers). It can easily be assumed that most smart phone
usage for data services will be in the urban areas in the first
few years.
Therefore the net present value of this project is: 1,37,540
– 2,42,719 Cr. = minus ` 1,05,179 Cr. If this expense is to
be profitable the telecom companies should be able to
generate a positive NPV of at least this amount from the
hi-tech 3G services that they can now offer.
So what revenues are the telecom companies likely to
generate from these new licenses? Telecom companies
(both GSM and CDMA) added approximately 16 million
new subscribers in April 2010. The annual growth
61
Let us now make a few assumptions about data usage from
3G services. Let us assume that the telecom operators will
be able to create 1% penetration every year, and data usage
will give an ARPU of three times that of voice services.
Let us also assume that the net cash flow will remain at
25% of total revenue for 3G services also. The present
value from this revenue over the next 20 years will yield
` 64,771 Cr. This still leaves us with a deficit of ` 40,408
Cr. This then, is the excess license fees paid by the
telecom operators to the government.
these license fees. However, they were forced to pay this
exorbitant fees because of the method used to allot licenses
– auction. While companies should have been expected to
be eagerly awaiting allotment of spectrum so that they
could roll out 3G services at the earliest, this has not
happened. It has taken the leading mobile companies
almost a year to start rolling out these services. In fact,
both BSNL and MTNL requested the govt. to take back
their share of the spectrum as they were sure they would
not be able to offer these services at profitable rates!
Surprisingly, this is very close to the excess collection
the govt. has made over what it had estimated before
the auction started!
CONCLUSION
What then is the future of 3G in India? Will the companies
be able to attract enough customers to make the services
profitable? Or will their overall margins be under so much
pressure that the growth of telecom services will slow
down? Will the slow growth in 3G cause companies to
revise services of normal 2G services upwards, thereby
slowing down the penetration of telecom services in the
rural areas? How will companies make good the loss of R
40,000 Cr. due to the high license fees? How will these
companies satisfy their shareholders?
Auctions of scarce resources may seem like a good method
to net the govt. the maximum possible amount that the
“market can pay”. But it is well known that auctions result
in overpricing the resource. While companies would be
forced to buy this resource at higher prices than
economically feasible because of competition, they would
find it very hard to make a profit. Companies would then
be forced to resort to some sort of manipulation in the
services offered to survive. The result would be unclear
tariffs, customers not given complete details, unfair trade
practices, accounting manipulations to show higher
expenses and therefore less taxable incomes and so on.
These are some of the questions that will be answered in
the next few months. The authors have some theories
which are being researched and will be the subject matter
for further papers on this topic. Till then, let’s wait and
see!
It therefore becomes clear that the telecom companies are
not very confident of the profitability of 3G services at
References
1.
2.
3.
4.
5.
6.
7.
Baijal, Pradip, Can 3G Enable India, Business Today, Sept 5, 2010
Consultation Paper on Issues Pertaining to Next Generation Networks, TRAI, 2006
KPMG, India Telecom 2010
Mitra, Kushan, and others, Hello Tomorrow, Business Today. Sept 5, 2010
Pandey, I.M., Financial Management, Eighth Edition, Vikas Publishing House Pvt. Ltd., 2002
Recommendations on Spectrum Management and Licensing Framework, TRAI, 2010
The Indian Telecom Network Services Performance Indicators, TRAI, 2010
62
Role of Knowledge Management in building up effective Leadership
Styles: A Study of Modi Continental Tyres Pvt. Ltd.
Jyoti Sardana* & Mr. Sandeep Kumar**
ABSTRACT
Knowledge management (KM) and leadership in any organizations is an integrated perspective and can not be separated from
each other. Raw information may be widely available to a number of agencies, but only some organizations will be able to convert
the information into relevant knowledge and to use this knowledge to achieve their aims. The processes by which they do this are
known as KM strategies. Major empirical studies and reviews are critically reviewed and placed within a theoretical framework
derived from both early and more recent work in the field of Knowledge management and Leadership. Certain issues of linkage
between Knowledge Management and Leadership will be taken in the form of questionnaire and few other research questions will
be explored in this study.
The main purpose of this study is to examine the relationship between Knowledge Management and Leadership Qualities. This
relationship has been approached from a multidisciplinary perspective, to produce an accurate picture of the nature of
relationship they possess and how it should be managed. Furthermore, we explore the factors influencing this relationship and
suggesting some measures to make effective Leaders. This study will have some interesting findings and results obtained from the
literature review and will show that there is a perfect relationship between Knowledge Management and Leadership. T – Test/chi
square test will be applied according to the kind of data collected appropriately towards the end to check the validity of the
hypothesis as the number of respondents will be less than 30. Finally, the hypothesis will be accepted or rejected on the basis of
the calculations.
2. Review of Literature
1. INTRODUCTION
In this modern scenario nearly every modern organization
is confronting the change in information systems, from
ledger cards to a digital era. Today, information flows in
directions and with speed that only 10 years ago we could
not even imagine. The change has been nothing short of a
revolution. This trend towards .informatics, effects the
process of leadership by speeding up the inputs, requiring
faster and more personal transformation of the product. To
be certain, the role of leaders in the short-term future is
impacted by the current information revolution.
2.1 Leadership
Leadership is to motivate and influence others to
accomplish the organizational objectives. According to
Bontis (2002), Leaders are responsible for:
1.
2.
3.
4.
5.
Additionally, the information age has put great pressure on
organizational outcomes. Just in time. solutions have
replaced .on hand. inventory, and product quality is more
important than ever before. One of the most serious issues
facing the modern organization comes in the form of an
uncertain future and the prevailing competition in the
market .In short; the modern organization is forced to
produce something faster than ever and better than ever for
a rapidly evolving market. Building knowledge in an
organization is a challenge that begins at the very top—
with the executives who are tasked with seeing a company
through all sorts of changes, ranging from exponential
growth and sudden market changes to mergers and layoffs.
To maintain a firm’s performance and set an example for
employees, leaders need to be flexible, willing learners
who understand that their own knowledge development
begins with an accurate assessment of their leadership style
and a clear understanding of how their skills match the
company’s needs. They should also be aware of the
messages their strategies convey about the importance of
institutional knowledge, especially in times of upheaval.
Promoting stability in an ever-changing environment.
Provide the timely delivery of products/services.
Fostering organizational synergy by sharing resources
and knowledge.
Ensure the feasibility of specialization.
Provide solutions for every problem.
(Bolt & Brassard, 2004, pp. 162-163) identified some of
the most important attributes of leadership.
•
•
•
•
•
*
Jyoti Sardana, Assistant Professor, IIMT, Ganganagar, Meerut
Mr. Sandeep Kumar, Assistant Professor, IIMT Ganganagar, Meerut
**
63
They have a desire to learn: They integrate learning in
all that they do and try to pull knowledge from every
situation.
They have an open and curious mind: They seek out
people who think differently or might provide a
different perspective.
They show humility: They are willing, in fact eager, to
learn from their mistakes. They do not have to ‘know
it all’ and respect people who share that value.
They make their learning public: Feedback is
important. Taking the time to publicly seek input and
letting people know that they are working on learning
more about an issue or topic.
They tolerate risk: Mistakes are important as learning
tools. People need to learn from their mistakes, but
must not shy away from risk for fear of making a
2.2 KNOWLEDGE MANAGEMENT
As a leadership skill, knowledge, according to Northouse
(2004), "is inextricably related to the application and
implementation of problem-solving skills in organizations"
mistake. They also understand that learning absolutely
needs to occur at a faster rate than the rate of change
within the organization.
Baines (1997) suggested that leaders, first and foremost,
were responsible for learning both personally as well as
organizationally. Leaders must be able to see the emerging
opportunities before they become manifest in the
marketplace. Leaders play a crucial role in building and
maintaining an organizational culture of learning. They
specifically infer that leaders must attach a high value to
knowledge, encourage questioning and experimentation
through empowerment, build trust, and facilitate
experiential learning of tacit knowledge.
Davenport and Prusak (1998) also gave very specific
recommendations to would be leaders regarding their role
in knowledge management. They suggest that leaders:
• Advocate the importance of learning and knowledge
in an organization,
• Design, implement, and oversee an organization’s
learning infrastructure,
• Manage relationships with external knowledge
providers,
• Provide ideas to improve the process of knowledge
creation in the organization,
• Design and implement a knowledge codification
approach.
• Measure and manage the value of knowledge,
• Manage the organization’s professional knowledge
managers,
• Lead the development of learning and knowledge
strategies, focusing the organization’s resources. .
Over the past 15 years the term .knowledge management
has evolved to represent the changing nature of the
workplace. a true paradigm shift. in coining the phrase
.knowledge society. Peter Drucker convincingly argued
that land, labor, and capital; the classical factors of
production had been largely replaced by knowledge
(Drucker, 1993), .that knowledge has become the resource,
rather than a resource, is what makes our society .postcapitalist.(p. 45). Hitt (1995) further argued, it seems
evident that the learning organization is a paradigm shift
from the more traditional organization. Indeed, it is a
paradigm shift of the highest order. We are witnessing the
emergence of a radically new perspective of organization:
how they should function, how they should be managed,
and how they should cope with change. Rowley (1999)
suggested that the knowledge based society has arrived,
and those organizations that can succeed in the global
information society are those that can identify, value,
create, and evolve their knowledge assets. Rowley
continued by noting that effective management of
knowledge, change, and innovation are central or .core
competencies. that must be mastered for organizations to
succeed. Neef (1999) expanded the more micro-level view
of knowledge management by commenting,
A knowledge-based revolution is taking place, and it
comes in a matching set: knowledge management for
organizations and the knowledge-based economy for
nations themselves. Both are part of a major evolutionary
economic movement which is beginning to reshape the
global economic structure, and knowledge management
should be seen as one of the most concrete and important
set of practices and policies than an organization can
adopt, marking a significant step in an enterprise’s
evolution towards becoming a global, learning
organization that can survive in the knowledge based
economy
The Centre of Leadership and Knowledge Management
has the following structure, which provides details on the
range of activities involving the Centre:
Politis further commented about the need for leaders to act
within an empowered environment. The empirical
findings, though limited, seem to lend some support to the
theoretical assumptions made by many authors speaking of
the need for leadership in the face of the transition to the
knowledge society.
Finally, Bryant (2003) argued that there is a clear
relationship between leadership and knowledge
management in organizations. While his piece is preempirical, this foundation serves as ample motivation for
further investigation of the relationship between the two
concepts. Bryant (2003) made the point very clearly,
The greatest need in this area is empirical testing of the
organizational knowledge constructs. Researchers may
want to explore the link between leadership and managing
knowledge at the individual level. These findings lead one
to speculate about the causal relationship between
leadership and knowledge management. Bryant’s research
provides some basis from which to speculate that
knowledge management behaviors might be a causative
factor influencing greater leadership
Conference
64
management initiative than the support of leaders and the
visibility of KM role models. Generally speaking, the
higher up in the organization these role models are the
better" (p. 9). 243).Yogesh Malgotra says, "Knowledge
Management refers to the critical issues of organizational
adaptation, survival and competence against discontinuous
environmental
change.
Essentially
it
embodies
organizational processes that seek synergistic combination
of data and information processing capacity of information
technologies, and the creative and innovative capacity of
human beings." Morgan (Goldsmith, Morgan, & Ogg,
2004) believes that the past leadership assets of superior
knowledge and technical expertise alone cannot create a
flourishing organization. Technology’s explosion and
overabundance of information availability creates demand
for a better type of leadership. Competitive advantage
today means sharper and finer lines of work, teamwork,
and “investment in human capital”. Beyond effective use
of human resources, we must draw the best from the best
leaders in our organizations. Retraining successful leaders
from yesterday becomes a key challenge to leadership in a
learning organization concerned with KM. Morgan
suggests that developing human potential and capital must
earn the trust of leaders through integrity and building
meaningful relationships. Their “forward looking vision”
must be compelling and inspiring. This integrity and vision
must be disseminated and carried throughout the
organizational culture and embodied by top executives. In
addition, the organization and leaders must attract and
retain top talent and deploy them for greatest return
In the given paper only three dimensions of Knowledge
management have been tested and the findings have been
shown only on the basis of these three dimensions i.e.
training, conference and seminar.
Baines (1997) put the knowledge management process
squarely at the intersection of technology, organizational
structures, and cognitive based strategies. In this case,
technology becomes the tool, the organizational structure
becomes the context, and the knowledge becomes the
.stuff. of great advances. Seng, Zannes, and Pace (2002)
developed five distinct steps in the process of managing
knowledge:
1.
2.
3.
4.
5.
Capturing knowledge. Record steps involved in
solving a problem.
Storing knowledge. Captured information must be
stored in a database, warehouse, application, or some
other production system.
Processing knowledge. Sorting, filtering, organizing,
analyzing, comparing, correlating, and mining the
knowledge.
Sharing knowledge. Distributing knowledge through
information systems or through personal interaction,
synchronously or asynchronously.
Using knowledge. Solving problems to advance the
objectives of the organization.
Of the conclusions that could be drawn regarding the
specific processes of knowledge management, two quickly
come to mind for these authors. First, each of the
knowledge management process has been traditionally the
domain of leaders and managers. Second, these processes,
as in the past, require much more than just a technological
solution.
3 Methodology
3.1
Subjects
Subjects (N =30) were selected from a sample of Leaders
of Modi Continental Tyres. All of the subject population
was over 30 years of age. There were slightly more males
completing the assessment than females. All the leaders
had been employed for over 5 years, and were in positions
of management (ranging from supervisory to executive
level). Finally, over 90% of the sample indicated that they
used computer technology more than irregularly, and by
far, most used computer technology on a daily basis. Most
of them are heading a team of 5-15 persons. All of them
were either of technical or management backgrounds with
a minimum of an experience of five years. Many of them
were heading their departments.
2.3 Relationship between Knowledge Management and
Leadership
McCollum (1998) states that there are three fundamental
tasks that leaders face: “creating strategies to adapt [the]
organization to the environment, building a structure that is
capable of implementing [the organization’s] strategy, and
building the capacity of the members of [the] organization
Leadership and Knowledge Management (KM)
intermingle the vision and influence of leadership with the
available knowledge base within the organization. When
effective leadership elicits and draws upon the myriads of
experience, wisdom, understanding, and knowledge
inherent in the work force in synergistic fashion creating
shared vision, the organization sits like a space shuttle
ready begging for launch. In the context of a rapidly
changing world and an increasingly competitive
marketplace, successful organizations of today and
tomorrow must harness and align all its potential and
knowledge. Therefore, Goldsmith, et al. (2004) suggest,
"Nothing is more important to the success of knowledge
3.2 Procedure
The entire instrument battery was administered to subjects
following a brief set of instructions. Subjects were asked to
grant legal consent and to indicate if they wished for more
information following the accumulation of results.
Subjects were given ample time to complete both the
instruments (generally 30 minutes was sufficient).
Participants were asked to return the instrument to an
65
instructed location when they completed it. Following
administration of the instrument battery data analysis
occurred. Two questionnaires were distributed to each
subject to check the co-relation between Knowledge
management and Leadership .The data collected was used
to check the set hypothesis. Chi square test was
administered and the result was found. A graph has also
been plotted to see the direct association between
Knowledge Management and Leadership.
100
60
101
61
96
50
109
65
88
49
91
53
86
46
3.3
81
43
102
61
78
42
107
63
105
62
94
54
97
56
107
63
115
71
114
70
115
72
Instrumentation
The first instrument utilized in this instrument battery was
to get information about the Knowledge Management of
the leader which was exclusively based on the behavioral
aspects of knowledge management, based categorically on
three dimensions i.e. training, seminar and questionnaire
and the content of the questions was derived from the
general curiosity. Once created, the KMI was administered
to a pilot sample for the purpose of establishing reliability.
Two of the questions were further clarified based on this
analysis to improve the instrument. .In this questionnaire
only three dimensions of Knowledge Management were
focused containing five questions each
The second instrument, the Leadership Questionnaire, is a
25 item survey. In this questionnaire Subject’s selfreported specific leadership attributes using five point
Likert scales ranging from strongly agree to strongly
disagree have been taken. The LQ has been found to be
very reliable as it is a self-report measure. In the present
application the LQ was used as a self-report of leadership
attributes. Finally, several questions regarding basic
demographics of the sample were deemed important for
this investigation. Subjects were asked to report on the
following: age, sex, years employed, education, type of
career, use of technology; which was kept confidential.
92
52
100
60
76
40
96
55
104
60
Good
Training:
23+22+20+20+20+20+20+20+20+23+24+25+24+22+22 =
325
Seminar:
20+23+24+20+20+23+20+20+20+20+24+20+24+18+20 =
316
4 RESULTS
To apply Chi Square Test we frame the following Null and
Alternate Hypothesis:
H0 - Knowledge Management is directly proportional to
Leadership.
H1 - Knowledge Management is not directly proportional
to Leadership.
Conference:
22+20+17+20+21+22+21+23+22+20+23+25+24+20+18 =
318
Average
Training:
19+23+16+18+22+19+23+15+18+20+22+18+19 = 252
Leadership
Knowledge Management
89
49
96
56
105
65
84
41
Conference :
10+13+10+14+10+13+8+16+10+20+14+20+20 = 178
107
65
Bad
103
61
89
50
Training
Seminar
Conference
Seminar:
20+20+15+18+23+17+12+15+15+15+12+14+16+ = 212
66
:
:
:
12 + 14 = 26
15 + 16 = 31
15 + 10 = 25
Observed Table :
Training
Seminar
Conference
Row Total
Good
325
316
318
959
Average
252
212
178
642
Bad
26
31
25
82
521
1683
Grand Total
Column Total
603
559
Expected value =
Row Total × Column Total
G.T.
Expected Table :
X 2 cal =
Training
Seminar
Conference
Good
959 × 603
= 334
1683
959 × 559
= 319
1683
959 × 521
= 297
1683
Average
642 × 603
= 230
1683
642 × 559
= 213
1683
642 × 521
= 199
1683
Bad
82 × 603
= 29
1683
82 × 559
= 27
1683
82 × 521
= 25
1683
(O1 − E1 ) 2 (O 2 − E 2 ) 2
+
+ O3
E1
E2
+
+
+
(O 9 − E 9 ) 2
E1
X 2 tab = X 2 ( r −1(s −1) = X 24 (.05) = 9.488
X2cal
(325 − 344) 2 (316 − 319) 2 (318 − 297) 2 (252 − 230) 2
+
+
+
344
319
297
230
2
(212 − 213)
(178 − 199) 2 (26 − 29) 2 (31 − 27) 2
(25 − 25) 2
+
+
+
+
++
213
199
29
27
25
2
2
2
2
2
2
2
2
(−19)
(−3)
(−21)
(22)
(−1)
(−21)
(−3)
2(4)
0
+
+
+
+
+
+
+
+
344
319
297
230
213
199
29
27
25
2
361
9
441 484
1
441 9 16 (0)
=
+
+
+
+
+
+
+
+
344 319 297 230 213 199 29 27
25
= (1.04) + (.02) + (1.48) + (2.1) + (.00) + (2.21) + (0.31) + (0.59) + (0.00) = 7.75
=
67
As
X2 cal < X2 tab
So, we
Accept – Ho.
H0 – Km is directly proportional to leadership
H1 – Km is not directly proportional to leadership
Hence, it is proved that knowledge management is directly proportional to effective leadership styles.
contradictory, leadership educators must remain true to
their basic assumption that leadership is more about
personal interaction and empowerment, and less about the
technical aspects. In every modern organization, the drive
to become more knowledge focused is nearly inherent. As
organizations have realigned over the last 20 to 30 years to
include substantial IT departments, and as more business is
conducted in the realm of electronic world, it seems that
leaders must not just cope with this change. They must be
on the cutting edge of these rapid organizational changes.
Leadership educators should be at the forefront in teaching
students how to manage knowledge through both technical
and human solutions. To avoid the technical is to miss part
of our essence. . In our digital world, facing the reality of
learning and utilizing knowledge management tools is
extremely important. Leaders at all levels must adapt to
these changes in order to propel our rapidly evolving
organizations to greater successes. This study has
demonstrated an empirical link between forms of
leadership and knowledge management behaviors. This
link simply provides basis from which to grow new
theories of leadership to help members of the new
knowledge organization turn implicit knowledge into
significant organizational outcomes. . In further
consideration of leadership's intense involvement in
successful KM, Goldsmith, et al. (2004) also suggests, "If
you can't get leaders on board, your KM initiative may be
doomed before it gets started. On the other hand, when
leaders at all levels (supervisors, managers, and
executives) use the KM system, they encourage others to
do the same" (p. 243). As suggested by the very word,
leaders need to take the lead in practicing appropriate and
successful KM.
5 DISCUSSION
Without question, the results of this study provide ample
support for the notion that knowledge management and
leadership are strongly related to each other. Many of the
researchers that have theorized about the relationship have
lacked empirical data on which to base their ideas, but this
study clearly details the link. Researchers like Bryant
(2003), Johnson (2002), and Politis (2001) provided the
theoretical basis, but without empirical support the
relationship was assumed, but unproven.
Among the most specific findings in this research study is
the strong relationship between leadership and knowledge
management behaviors. In an initial investigation of the
relationship, a chi square test demonstrates the undeniable
link. This link may lead to a further investigation through
the use of a regression analysis to establish the validity of a
causal relationship. The regression analysis will provide
strong evidence of the causal nature of the link between the
two variables.
It can now easily be argued that effective managers need
only adopt Knowledge management strategies. After these
interesting findings, further investigation into the
relationship is warranted with large sample size of
different industries to give the blanket statement.
6
Recommendations and Suggestions
This research points to a few inescapable conclusions.
First, part of the essence of leadership must be the ability
to manage technical knowledge. Second, and seemingly
68
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69
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