Pratibimb nov

PRATIBIMB FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | OPERATIONS | SYSTEMS

The Reflection of Management

A Students’ Initiative

November 2013

Pratibimb | November 2013 | 2

T. A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal

and is well known for its academic rigor & faculty-student interaction. The Institute has been

recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The

Week Magazine.

Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed

impetus to the task of building professional management capability in the country. In the

process, it has also played a role in strengthening the existing educational and health

infrastructure of Manipal.

“To excel in post-graduate management education, research and practice”.

Means:

By nurturing and developing global wealth creators and leaders.

By continually benchmarking ourselves against best in class institutions.

By fostering continuous learning and reflection, achievement orientation, creative

interdependence and respect for diversity.

Value Bounds:

Holistic concern for ethics, environment and society.

T. A. Pai Management Institute

Manipal, Karnataka

About TAPMI

Our Mission


TAPMI’s e-Magazine - is the conglomeration of the various

specializations in MBA (Marketing, Finance, HR, Systems and

Operations). It is primarily intended to provide insights into the

plethora of knowledge that relate to the various departments of

Management and to give an opportunity to the students of TAPMI

and the best brains across country to exhibit their creative cells. The

magazine also strives to bring expert inputs from industries, thereby

bringing the academia and industry together.

Pratibimb the e-Magazine of TAPMI had its first issue in December

2010. The issue comprised of an interview of well known writer Ms.

Rashmi Bansal along with a series of articles by students and industry

experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader

and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first

rank globally for learning & development . It also included a hugely successful and engrossing game

for finance geeks called “Beat the Market” to bring out the application based knowledge of

students by providing them the platform where they were expected to predict the stock prices of

two selected stocks on a future date. The magazine is primarily intended for the development of all

around management knowledge by providing unbiased critical insights into the modern

developments.

TAPMI believes that learning is a continuous process and is not limited to the four walls of the

classroom. This viewpoint is further enhanced through Pratibimb wherein students manage and

contribute to create a refreshing learning environment outside the classrooms which eventually

leads to a holistic development process. The magazine provides a competitive platform and

opportunity to the students where they can compete with the best brains in the B-Schools of the

country. The magazine also provides a platform for prominent industry stalwarts to communicate

their views and learning about and from the recent developments from their respective fields of

business which in turn helps to create a collaborative learning base for its readers.

Pratibimb is committed in continuing this initiative by bringing in continuous improvement in the

magazine by including quality articles related to various management issues and eventually creating

a more engaging relationship with its readers by providing them a platform to showcase their

talent.

We invite all the best brains across country to be part of this initiative and help us take this to the

next level.

PRATIBIMB TAPMI’S MONTHLY e-MAGAZINE NOVEMBER, 2013


It is a matter of great delight that Pratibimb is out with yet another issue. It just seems like a moment ago that the

preceding issue was released. As Pratibimb continues with the fulfilment of its role of serving as a platform for the sharing

of thoughts, insights and expressions, its readership continues to grow and flourish. It also, in its own unique style serves as

an emissary of TAPMI in the world of Business School Publications.

With great pride, I wish Pratibimb the best in the times to come and hope that its growing readership and appreciation

remains ever prevailing.

Dr RC Natarajan

Director

Director’s

Message


Editor’s corner

Arun Stephen

Abhineet Rastogi

Bhavnita Nareshkumar

Devi Kailas

Kannan Venkat

Shubha Prabhu

Aditya Bhat

Lloyd George

Ayon Kumar Gayathri Mohan

Amruth C Debidatta Sathapathy

Priyam Goyal Debayan Bhattacharjee

Akash Gupta Pallavi Prasad Avni Mooljee

Prof. Chowdari Prasad

Dean (PR) & Chairman-Admissions

Prof. Aparna Bhat

Editor in Chief

Marketing & Advertising

Creative & Cover Design

Communications

Operations

Publishing

Greetings from Pratibimb!

We are back with another issue, and this issue, like its predecessors, is but a

collection of keen perceptions of the Business world. The perceptions which

each of us possess and the sheer variety of them give us the ability to look

at things from every angle and to come up with innovative ideas like never

before. This trend of sharing perceptions is continued in this issue, and we

bring you a host of new thoughts and ideas wrapped up in one cloth, known

as Pratibimb.

We have Mr. Saurabh Bhuwania and Mr. Rajiv Singh from FMS, who pose an

important question with respect to our readiness to adopt new

technologies while maintaining the balance with the Humanity within us, in

their article ‘Our Future Offices’. Continuing with the Human aspect, we

have Mr. Udayan Dhar who in his article ‘The Future of Labour Relations in

India’ covers many detailed aspects, such as Altered realities of Collective

Bargaining, permanence of temporary workers, unions in IT companies etc.

A highly detailed and comprehensive read is the article ‘Indo-Chinese

Bilateral Trade : A bitter pill for the Indian Pharmaceutical Industry’ by Mr.

Shamik Mukherjee and Mr. Suvajyoti Bhattacharjee from SJMSOM, IIT

Bombay; a must read for anyone with even an iota of interest in the Pharma

World. Furthermore, Mr. Nitesh Sinha from IIM Ahemdabad questions the

very Manufacturing policy of the Indian Government, and comes up with a

substantive argument for his conclusions in his article ‘India yearning for a

Manufacturing Revolution’. On similar lines we have the article ‘Gold : A

celebration, an Occasion and now a Nemesis’ by Mr. Siddharth Singh from

NMIMS, Mumbai, in which the links between Gold and the current account

deficit in a Gold-loving nation are explored thoroughly.

Speaking of India, Mr. Harsh Garg and Mr. Kishalay Datta from NMIMS,

Mumbai, tell us about the value proposition and the steps IKEA should take

given its interest in India, in their article ‘IKEA – The INDIAN way’. Another

article ‘Revenue Maximization with Dynamic Pricing’ by Mr. Prahaladhan S

and Mr. Shyam Suresh from IMT Ghaziabad, constructs a simple, logical

argument so beautifully that one has to go through it to believe it.

While Branding is done at so many levels, the sixth level of differentiation

takes you to a different world altogether- the world of Festivals, as is

explained in the article ‘Sixth level of differentiation – Standing out during

Festivals’ by Ms. Seerat Jangda from IIM Lucknow. And finally, what would

be a better way to end the journey of reading than with the article

‘Nostalgia in Marketing and Advertising’ by Ms. Akriti Sahai from Welingkar

Institute of Management Development and Research, which, as the name

suggests, is a journey into the past.

Sub Editors

Faculty Advisors


We hope that these readings satiate your yearnings for knowledge and help you grow in every aspect till the next issue of

Pratibimb comes forward to simulate your intellect again with its collection reflecting Simplicity, Reason and Creativity.

“Education begins the Gentleman, but reading, good company and reflection must finish him.”

Our sincere thanks to all the contributors of articles who make Pratibimb what it is, to our readers who give us their most

precious thing – their time, and to our Faculty members at TAPMI, without whose valuable inputs and critical insights

Pratibimb would not be half as worthy as it is today. Kindly e-mail us your suggestions, inputs or feedbacks at- prati-

[email protected]

So keep reading, keep reflecting.

Editor

Arun Stephen

mailto:[email protected]



Contents Our Future Offices 8 by Saurabh Bhuvania, FMS Delhi

The Future of Labour Relations in India 10 by Udayan Dhar , NMIMS Mumbai

Revenue Maximization with Dynamic Pricing 12

by Shyam Suresh & Prahladan S, IMT Ghaziabad

Sixth Level of Differentiation 14 by Seerat Jangda, IIM Lucknow

Nostalgia in Marketing and Advertising 17 by Akriti Sahay, Wellingkar

Gold: A Celebration, an Occasion and Now a Nemesis 19 by Sidharth Singh, NMIMS Mumbai

IKEA– The Indian Way 23 by Kishalay Datta & Harsh Garg, NMIMS

India - Yearning for a Manufacturing Revolution 25 By Nitesh Sinha, IIM Ahemedabad

Indo-Chinese Bilatteral Trade 30 By Shamik Mukherjee & Suvajyoti Bhattacharjee, SJMSOM, IIT Bombay


We all wonder how the future world looks like. We talk about flying car; touch screens

projectors, army without single man, folding laptop etc. Also if, the technology changes

the organizations working culture will get changed. Also not the technology only but the

thought process will also change.

As per the latest studies the new workforce will not have an employer-employee

relationship. But be more as of stake folders, they are not called up as an employee

anymore. Trust will be the parameter which leads to the success story for the

organization. Already organizations are moving towards this culture, and role of HR

manager is changing from compliance and engagement to become enablers.

As per existing Maslow pyramid organizations have self-actualization at the top of the

pyramid. But now for the new organizational structure this will be the starting and trust

being at the top.

Tomorrow lack of opportunity and exciting new initiative will make talent to look

elsewhere. Psych of the new talent pool is changing, with new technologies,

methodology and innovation driving the future, new talent will seek for their own way of

working. Traditional thoughts are over driven by innovation.

Also to keep the talent interested, one has to make them believe that they are part of

something big. They are the integral part of keeping them big. In near future sense of

purpose will be more critical than the compensation and designation. Future organization

will come with all new designations, new functionaries, providing flexibility and will make

the talent force realize how they are asset to them. How it is important to be there.

Some of the people will say that the purpose is the only thing which drives them. But for

the future organization making this realized by the people who are down the ladder is

where future lies. It is an unwritten rule in current organizations that one should keep

hierarchical distance for subordinates to have control. For future organizations this

thumb rule will appear to be unproductive, and change towards collaboration team

working will become future ahead. The matrix structure will collapse to open culture;

people feel more on discussion rather following.

As the standard of living and resources increase, future organization will fulfill the basic

needs of the talent. For global workforce it will not matter where do you work? Whether

you are in London or Gurgaon, Auckland or Sydney it’s all equal. Talent will demand

equally rewarding and challenging career ahead of them. As of now there is a linear

variable compensation model which is followed. Deliverables are directly linked with the

variable component; not the zeal of taking risk, thinking out of the box, and for going for

an implementation of unrealistic work. The risk to fail is associated with it.

In near future employer (co stake holders) will let the talent fail, fail in their innovation

and will pay variable incentive for innovation and not on the success for the innovation.

Our Future Offices

Saurabh Bhuwania, Faculty of Management Studies, Delhi


They push them to try new things. Off course it never means

that successfully implemented work will not be appreciated,

but as the innovation caries risk of failure will not be bother-

ing for the future talent.

Emerging technologies will enable the employees to work

offsite with greater ease. Geographic location will become

immaterial. Companies will depend increasingly on “plug

and play” offices. Which get establish quickly wherever re-

quired. The concept of going to office will change to use

portable and wireless tools. These inevitably reduce over-

head expenses of leases, property taxes and facilities man-

agement.

Advance electronic communicating device will eliminate

traditional time, distance and language barrier; facilitate

communication and preventing lag of production. Virtual

interaction will be replaced by face-to-face meetings. People

will start working from home.

Social media effect is already driving the new talent to bun-

dles of information. Business managers in their late 30s and

early 40s communicate with traditional mode of communi-

cation. Gen Y is more towards the social medial like Google+,

Twitter and Facebook. Earlier role of HR heads is to limit the

information flow to restrict the information chaos. But for

the future talent heads social media will become a platform

for sharing new information and data. Obviously in the con-

trolled manner, and the control is not forced it will come

from the trust they will develop. Command and control HR

policy will get changed to own and deliver in the future. In-

tangible values will play greater role in the success of the

organizations rather the more controlled scenario, which is

driving the current talent pool.

Today’s organization lost their valuable discussions to small

packets of talent heads. Well-connected future organization

will teach the well-rounded workforce. Greater transparency

of all together new communication method will make the

circle bigger and bigger. Also restless will be new definition

for the future talent. Not being restless for being different,

but will have greater zeal to succeed.

Organizations will become big with small offices; companies

will expand their counts but shrink in disparity. Organiza-

tions which will become successful will be the one which has

one of the robust and transparent communication systems.

Current organizations still said to be European or American

or Indian one cannot see a unified global culture. Future lies

with the rapidly changing world, a unified single world. To

achieve this significant amount of de-centralization is re-

quired, in terms of execution and decision making.

The question still lies with the changing world are they ready

for organizational chaos, to manage it better? Does we are

ready for the next revolution in technology? With growing

technology does we are going away from humanity? Does

we are ready for changing the definition of office?

References:

www.infosysbpo.com

www.officeofthefuture2010.com


Management professionals and students of the post-reforms era in India have little

cognizance of the frequent strikes and labour disputes that marred the industrial scene

of the country- especially states like Kerala and West Bengal that have a history of la-

bour-based politics. The ushering in of economic reforms in 1992 also meant a major

policy change in the Indian Government with regard to industrial relations. The funda-

mentally pro-labour policies were replaced by a more “market-friendly” approach that

saw relaxation of labour laws, minimal state interference in labour disputes and a with-

drawal of open support to the erstwhile powerful unions.

But 1992 was two decades ago and things have come a full circle. Last year in July the

nation got an ugly reminder that all was not well when otherwise peaceful workers at

Manesar went berserk at the Maruti plant and attacked executive employees, even

killing an HR manager. Earlier, during the 2008-10 recession, as IT companies fired

thousands of employees there was renewed demand for tighter labour law implemen-

tation in this lucrative sector. So, how does the industrial relations minefield look like in

the years to come? What strategies are companies and labour unions implementing to

meet the challenges of a fast churning economy?

The altered reality of collective bargaining

Labour unions and their leaders have (belatedly though) realized the changed land-

scape of the Indian economy. Workers can no longer stand up against exploitation the

way they could do earlier, and strikes hurt them more than they hurt the companies

they work for. Let’s take the Manesar example. Despite a massive increase in profits

(2200% in two years), quantum jump in the CEO’s pay (419% in four years), increase in

productivity (400% in 8 years with just a 65% rise in total employee headcount) the real

wages of workers increased by a meager 5.5% (contrast this to the Consumer Price In-

dex jump of 50% during the same period). Add to it the continuing use of contract la-

bour in clear violation of the Contract Labour (Regulation and Abolition) Act, 1970, and

Contract Labour (Regulation and Abolition) Central Rules, 1971. It’s not difficult to real-

ize which way the balance is tilted.

The Manesar violence was followed by the arrest and sacking of dozens of workers, and

well as the shutting down of the factory for weeks thereafter. While union leaders have

expressed dismay at the attitude of the management, they have also realized the futili-

ty of violence and adverse actions on part of the workers. That a safe and healthy in-

dustrial relations environment is detrimental to both workers’ welfare and the econo-

my, is a reality which they have now accepted. Will the corporate leadership too now

show a willingness to engage with workers’ unions and treat their legitimate demands

in a fair and transparent manner? That remains to be seen.

The permanence of temporary workers

In blatant violation of the law, the Maruti management was employing contract work-

ers even for jobs that were “perennial” and “necessary for work in the factory”.

The Future of Labour Relations in India Udayan Dhar, NMIMS Mumbai


According to research, in the Delhi-NCR region, up to 85%

of industrial workers are on temporary employment. These

workers are paid a fraction of a permanent employees’ sala-

ry, given minimal benefits and can be terminated with little

notice. Unions are now taking up the cause of these work-

ers in an attempt to broaden their support base. The web-

site of the Indian National Trade Union Congress mentions

in its charter of demands states- “The trade union vehe-

mently demands implementation of the labour reforms in

the first instance of the contract workers who are working

on the permanent nature of work and should be made per-

manent. They want to improve their salary and other per-

quisite, pension and bonus etc. for which review of labour

laws is essential to give more job protection and security.”

The inclusion of these temporary workers will broaden the

scope of industrial relations in India and companies will

have to rethink the way they manage them with impunity.

On similar lines, trade unions are also contemplating the

unionization of the unorganized sector of India. Since 92%

of the Indian workforce belongs to this category, this sector

holds the key to giving new lifeblood to the flagging labour

union movement of this country.

Unions in IT companies?

Until March of this year, IT and ITES companies in Karnataka

enjoyed the extraordinary exemption from all Indian labour

laws. This had been going on since 1999, ostensibly to cre-

ate a more investor friendly climate. What resulted was a

multi-billion dollar industry in the state where employees

could be hired and fired at will, made to work extra hours

with no or little extra pay, and were paid a tiny fraction of

the amount they were billed for.

When recession struck, anywhere between 77,000 to

110,000 workers were unceremoniously laid off. Such ran-

dom firings, unregulated working hours and a high intoler-

ance of collective bargaining led to IT workers coming to-

gether to form unions outside the workplace. An example is

UNITES, a Bangalore-headquartered union for IT and ITeS

employees. Shekhar and Prithviraj Lekkad, the duo who

head Unites, claim membership (largely BPO employees)

had shot up from 5,000 to 18,000 in a year during the reces-

sion. “A few years ago, we were the fringe guys. People

would laugh at us. Not anymore.” Unites’ Shekhar, a former

IBM employee told Outlook magazine in an interview.

So as the labour laws finally come into force in the IT sector

in its home turf Karnataka, will employees now take up the

opportunity to unionize an industry that consists almost

entirely of knowledge workers? While the change may not

be so dramatic, companies and HR managers need to be

aware of the unique pitfalls in this industry. According to

Vikram Shroff, Head-International HR Law, Nishith Desai

Associates, it is a myth that IT sector employees do not ap-

proach labour courts or are not aware of labour laws. His

company is currently representing one such case at the la-

bour court where an outsourcing company fired an employ-

ee. The employee sued the company for unfair labour prac-

tices under the Maharashtra Recognition of Trade Unions

and Prevention of Unfair Labour Practices Act.

Implementation of labour laws and increased awareness of

their rights among IT/BPO employees will bring new and

unique changes, and well as challenges to employee-

employer relations in India. One such unique feature may

be the emergence of “virtual unions” that will lead to great-

er and freer communications among workers and an in-

creased number of legal cases.

A new paradigm of employer-employee relationship

While the pre-reform era saw an overbearing welfare econ-

omy that virtually stifled growth by rewarding militant un-

ionism, the decades following reforms saw a near reversal

with employee welfare being largely compromised in the

name of market friendly policies. The emerging paradigm is

a more balanced approach where employers and employ-

ees realize that they’re both stakeholders in each other’s

growth, and that there is no win-lose in this tug-of-war.

When employees feel unfairly treated, productivity and

morale suffers; Likewise, when profits take a plunge it’s the

workers who feel the first pinch. As the euphoria of the

reform decades wear off, the Indian industrial space will

benefit from the emergence of a more mature and inclusive

labour relations environment.

References:

Can India Inc. face the truth about the Manesar violence?

Jul 29, 2012, DNA, By G. Sampath

IT industry to lose blanket exemption from labour laws:

Deepa Kurup, The Hindu, 5th Oct, 2012

Workers' struggle in Maruti Suzuki, September 28, 2011,

The Hindu, By Prasenjit Bose and Sourindra Ghosh

Changing Face of Industrial Relations in a Knowledge-

Driven Economy, By Akanksha Khare, Arunima Khullar &

Soumitra Mehrotra, SHRM India Blogs

Outlook Business, 27 June 2009: Chronicles of the rise and

fall of the Indian software engineer

INTUC Website: http://www.intuc.net/

display_issues_detail.php


“The way you set prices doesn’t just influence demand. It also guides the way buyers use

your product or service-and that can have a lasting impact on customer relationships”

Dynamic Pricing is where prices respond to supply and demand pressures in real time

or near real time (Sahay, 2007). The most famous example will have to be that of EBay

using auctions to sell more than $20 billion worth of goods in 2005. Thus dynamic pric-

ing when managed well offers a feasible and attractive path to increase revenues and

profits. If managed well, it can turn out to be a potential source of competitive ad-

vantage.

Four reasons which drive the usage of dynamic pricing

Technology for accessing and deploying Dynamic Pricing has become affordable

Recent research (Sahay, 2007) which shows customers will accept Dynamic Pric-

ing though they are buying using Fixed Prices currently

Facilitates new ways of extracting value and reallocating demand amidst pricing

pressures and supply constraints

To increase efficiency, many companies are now looking at the downstream as-

pect where dynamic pricing becomes a natural consequence

Forms of dynamic pricing

Posted Prices: Systems such as revenue management for airlines, demand based

variable pricing or combination of approaches. Price changes across transactions

Price Discovery Mechanisms: Prices are determined by active participation of

customer in the transaction. The price changes during the transaction with ex-

amples being auctions, group buying, negotiations, etc. Ebay is an example of

straight auction where customers bid and the highest bidder gets to purchase

the product whereas in reverse auctions, suppliers bid to sell goods to the buyer

at the lowest price. This reduces upstream costs for the buyer.

Revenue Maximization with

Dynamic Pricing

Shyam Suresh & Prahladan S, IMT Ghaziabad


The conventional view

Dynamic pricing is limited to services/products such as hotel

rooms, airline seats the value of which becomes zero if not

used within the specified time. But for apparels, consumer

electronics, computers, cell phones, etc., value diminishes as

newer products hit the market. The value becomes 20 to

75% lesser in a span of 1 to 6 months. This is evident when

apparel brands offer end of season sale by marking down up

to 50% to clear the shelves. In these cases dynamic pricing

approaches can be used to raise or lower prices right from

the beginning, the prices can be calculated by examining

latitude of price acceptance.

Latitude of Price Acceptance (LPA)

This is the range of possible prices within which price chang-

es have little or no impact on purchase decisions of the cus-

tomer. It ranges from 17% for consumer health and beauty

products to 10% for engineered industrial components to 2%

for financial products (Mc Kinsey Study).

Companies can create LPA in consumer’s minds by varying

prices across different channels and geographies. They can

also create LPA by communicating value relevant to different

target customers. Companies that move to the higher end of

the LPA band can substantially increase profits. For example,

Spicejet airlines has individual bookings, group bookings and

corporate bookings and prices are different across each

channel.

Approaches to find LPA

Approach 1: To observe the range of prices for which the

product can be purchased through different channels. A

Samsung mobile phone for instance can be purchased at a

certain price through an online flipkart, another price in an

organized multi brand mobile chain like mobile store, third

price at an exclusive Samsung mobile outlet and a fourth

price at a local unorganized mobile outlet.

Approach 2: Based on surveys that test consumers’ willing-

ness to pay.

Approach 3: Analysis of actual demand elasticity in geogra-

phies, products, sales channels and customer segments

Situations for using dynamic pricing

Bigger the market, larger the number of customers

and greater the number of transactions, greater the

opportunity for using Dynamic pricing

The more the customer is involved in the process and

greater the heterogeneity on valuation that custom-

ers put on the same service, greater the opportunity

to reallocate and manage demand

Products and services that have a well defined shelf

life are amenable to use demand based Dynamic Pric-

ing even if they are perishable in the conventional

sense.

The more that the company needs to sell or excess

reassigned inventory, greater the potential for Dy-

namic Pricing.

The greater the possibility of using one off transac-

tions to obtain inputs for production, greater the po-

tential use of dynamic pricing as in the case of reverse

auctions

When the relation between price and cost is little and

the product can be evaluated from a distance. (In

case of auctions)

In many instances of B2B selling where negotiations

happen before the sale. Negotiation is a dynamic pric-

ing method.

The counter view

However the counter view than dynamic pricing will contin-

ue to sustain, supports itself with the argument that the ad-

vent of internet has led to decrease in search costs and ease

of comparison. With e-commerce websites like flipkart and

cardekho, the level of transparency has increased across

channels and hence the prices are bound to fall until they

become equal and fixed.

The prices need to stay within the LPA. As long as they do,

customer purchase intentions are not affected. Making cus-

tomers involved in the pricing process leads to price ac-

ceptance. Example: Price discovery mechanisms like auc-

tions.

Logistical issues for retailers include replacing price tags each

time there is a price change. For this purpose, electronic tags

can be used which can be controlled from a centrally located

system which prices products based on demand and supply

data. Despite incurring costs to implement these systems,

once these systems are in place, cost savings and increase in

revenue resulting from this will be significant.

Pricing to reflect demand and supply variation will be the

price that will maximize revenue. The demand side can be

controlled by understanding buying cycles and purchasing

habits of customers. Also segmenting customers by creating

price discrimination will lead to LPA.

Reference:

Arvind Sahay, How to reap higher profits with dynamic pric-

ing, 2007


Festival, the word that brings zeal and enthusiasm to not only the common people, but

also to the marketers’. During the festive times, brands try to be as innovative and crea-

tive as possible in order to lure customers. Some of the very recent campaigns taken for

this festive season of Dushhera and Diwali by Amazon and 94.3 My FM are commenda-

ble.

Amazon has recently launched its ‘Light up a Child’s Diwali’ Campaign in which it en-

courages its customers to help the underprivileged children by gifting them some items

available on Amazon’s website. These items can be selected by spending a few minutes

on the wish list prepared by the two NGOs-Pratham and Naandi Foundation, working for

the improvement of disadvantaged children. Amazon plans to donate the fees it earns

from these transactions to the two NGOs.

94.3 MY FM recently launched its campaign “Shakti ke 9 Roop” on the occasion of Nav-

ratri celebration. This is one of its kind campaigns as no other campaign of this sort has

been done ever before by any FM Channel. This campaign revolves around giving tribute

to the women who have made a unique space for themselves in the professional arena.

The FM would air an interview of such woman each day of the Navratri season. There

seems to be a connect of each woman with the Goddess of each day. Sudha

Murthy ,Bachendri Pal, Mary Kom, KiranBedi are somw of the interviewees to name a

few.

I would like to cite an exclusive marketing place which marketers’ of various companies

took as a big market opportunity- The KumbhMela. Where on earth would you find 100

million consumers at the same place in just one month of time? For advertisers, it’s

more like once-a-decade chance to reach millions of new consumers at the same place.

And this group of consumers is important because according to Crisil, for the past two

years, per-capita spending by India’s rural population grew faster than that of urban

dwellers for the first time in two and a half decades. As per the Mumbai-based unit of

McGraw-Hill Companies, rural spending was almost 12.9 trillion rupees ($235.7 billion)

in the two years ended last March 31, as compared with 10.4 trillion in urban areas,

making the rural consumers as the next big targets. Moreover, the outdoor media in-

cluding hoardings, banners, posters, kiosks, stalls, along with the on-ground activation

would eventually create a meaningful engagement with the customer more than from

any other media, which gave an additional edge to KumbhMela as opportunity.

While some companies needed such a huge gathering for generating leads, others used

it just as a branding exercise spot. Colgate-Palmolive hawked toothbrushes, Britannia

Industries pitched cookies, and Dabur India sold hair oil—all the said products were sold

at steep discounts. Coca-Cola had its kiosks around the Mela area, where it sold 150-

milliliter glasses of its namesake soda for Rs.5 , along with bottles for 25 rupees. JC Bam-

ford Excavators, which is a U.K.-based construction equipment maker, marketed a back-

Sixth Level of Differentiation– Standing Out

During Differentiation

Seerat Jangda, IIM Lucknow


backhoe loader, used for digging trenches, at the Mela. Vari-

ous Ads for HUL’s Close Up toothpaste and bikes from the

country’s largest motorcycle maker, the Hero MotoCorp,

could be seen too. Vodafone Group also ran a 40-seat thea-

ter featuring a cable TV program on the religious story be-

hind the KumbhMela. This film also included some easy to

understand information about two Vodafone service num-

bers - 121 and 123. Idea also had its OOH campaign in the

form of several outdoor formats such as welcome gates,

indication balloons, boats, inter-city buses, railway stations

hoardings, bus shelters and others.

HUL’s Lifebuoy campaign- the “Roti Reminder” grabbed

many eyeballs at the KumbhMela this year. HUL partnered

with 100 dhabas and small hotels at the mela site to serve

chapatis that were stamped with "Lifebuoy se

haathdhoyekya?" (Have you washed your hand with Life-

buoy?) The words were heat stamped onto the baked rotis,

and to ensure the rotis were completely edible, no ink was

used in stamping. HUL got this idea clicked by the fact that

roti beng the staple diet of Indian consumers, can’t be eaten

without the use of hands. This unique intervention had the

right timing: giving the message of hand wash just before

consuming food. HUL made special heat stamps to make an

impression of the above said message on rotis and hired 100

promoters to stand in 100 kitchens across the KumbhMela.

The company also placed Lifebuoy in the wash rooms of

each of the dhabas/hotels and used banners and billboards

to reach millions more people with its communication mes-

sage of hand washing.

Idea also introduced an ad campaign during Diwali festival

last year, which signified the importance of all religions and

promoted secularism. The ad film shows a Muslim man

standing outside a watch shop and looking at a watch’s

price, the man gets disappointed.


Seeing this, the shopkeeper shows him the festive offer card

for Diwali and the ad ends with the tag line "Dharamjobhi

ho, hartyauharmanaanaacha idea hai." They also released

three more TVCs about Holi, Eid and Christmas in continua-

tion of this campaign.

Maruti Suzuki also came up with a ‘Festivals’ ad in 2012 hav-

ing the tagline “MarutiSuzukui: for a festival called Life”. The

TVC shows various car models of Maruti Suzuki at different

shots depicting different festivals like Eid, Holi, Christmas,

Diwali, Durga Puja, Ganesh Chaturthi.

Whether it’s a festive campaign or any other campaign, the

only thing which binds the consumers to the brand is the

Experience!

References:

Brands and bands make music festival experience (2012) Retrieved Oct 15, 2013, from www.marketingweek.co.uk/brands-and-bands-make-music-festival-experience/ 3033914.article

Using Traditional Marketing to Promote Social Media Cam-paigns: An Analysis of Blue Cross/Blue Shield (2013) Re-trieved Oct 15, 2013, from //brightwhistle.com/using-traditional-marketing-to-promote-social-media-campaigns-an-analysis-of-blue-crossblue-shield/

Light up a child’s Diwali (2013) Retrieved Oct 15, 2013,

www.amazon.in/gp/feature.html?ie=UTF8&docId=

1000753323

http://www.amazon.in/gp/feature.html?ie=UTF8&docId=1000753323

http://www.amazon.in/gp/feature.html?ie=UTF8&docId=1000753323


Marketing is omnipresent. As consumers, in our day to day lives, we are surrounded by

communication or messages from all the directions.be it communication through radio,

TV, social media, mobile networks etc. Every product is trying to infiltrate itself in our

lives.in a world, where, people do not even know how many messages their mind is

registering, there is a concept used by marketer’s to stand out. And this amazing yet not

-so-talked-about concept is called Nostalgic Marketing.

Nostalgia means a sentimental desire for the happiness felt from a former place or

time. And nostalgic marketing is marketing that evokes a feeling or an emotion in the

mind of the consumers. Basically, nostalgia can be triggered from anything around you.

It reminds you of something that happened to you or is in some way associated to you

in your past, predominantly positive. Nostalgia is being considered by many marketers

in many ways. The fundamental reason is that it makes the consumer happy. The con-

sumer thinks about certain events in his life, he will also remember or try to connect as

to what made him walk down the memory lane, thus making way for a strong brand

positioning as well as stronger brand recall.

It is believed that nostalgic marketing works best in the times of recession or instability

in the economy. The logic is that when there is recession, the distressed always dream

of going back to the times when things were better. They want to go back to a more

stable time, when things were simpler and life seemed easier. Many company’s launch

products incorporated with tunes from older songs or jingles relating to older songs. It

evidently strikes the consumer minds and such ads make an impact on the consumer’s

mind.

Whenever marketers use nostalgia in marketing, they always are very precise and par-

ticular about their target market. It is common sense that a 25 year old will be nostalgic

about very different things as compared to someone who is now a 50 year old. The

most important criteria to consider nostalgia is the time flow according to your target

customer. If what a marketer is doing is not old enough to trigger nostalgia in the con-

sumer, the whole effort will be in the wrong direction and consumer will perceive you

to be outdated, if nothing else. A very big risk is that nostalgia, if executed incorrectly,

can backfire and spoil the whole show. Imagine if you have an amazing product, and

people love it and have very beautiful memories of using the product, but you change it

in a way that people do not like, it will cause them to let it go and switch to some other

option as you smeared their perfect memory of the product.

Now, let us enter the world of advertising and how nostalgia is shrewdly used by ad

agencies to make a different space in the clutter of the ad world. We should also discuss

some examples to get a clear picture of the various aspects of this concept.

Advertising is another world in itself. Advertising is a paid form of communication for

marketing and is used to encourage, persuade or manipulate an audience. Nostalgia is

used by advertisers the most and that too very skillfully. Advertisers understand very

well that consumers are influenced by their past and their anticipated futures.

Nostalgia in Marketing and Advertising

Akriti Sahay, Wellingkar


Though they cannot return to their past, they can try to pre-

serve it through nostalgic consumption activities. The effec-

tiveness of nostalgia in advertising can be seen through the

increase in level of brand awareness and brand attitude.

Advertisers use jingles and music that easily registers in your

mind and you start singing them in your routine. For exam-

ple- the Lyril soap old ad used the jingle which became a

household tune overnight. Another evident example to

clearly explain the concept is the Vicco turmeric ad. The

jingle singing “vicco turmeric..nahi cosmetic…vicco turmeric

ayurvedic cream” became an instant hit and is still remem-

bered by people.vicco used this for its benefit and is still

playing that same old ad to create nostalgia in the consum-

ers. Though people might not start using a product but they

have it registered in their mind and who knows one can give

way to sale of the product. An interesting example can be

the “proud to be an Indian” ad by Bharti Airtel, an undoubt-

ed impactful nostalgic advertisement.

A very recent example would be Manikchand Company’s

Oxyrich bottled water brand. Their recent ad is, though an

ad for their bottle Oxyrich, it has been edited from the old

version of the same Manikchand pan masala ad. The jingle

goes,”unche log unchipasand ,aey hey hey , Manikchand”.

The ad shows a scene of dahihandi being celebrated and a

person throws Manikchand water bottle to the person on

top of the formation of the dahihandi celebration. The origi-

nal ad showed the person throwing the pan masala box,

which is now replaced by the Oxyrich water bottle.

It was a very smart move, as the ad itself has a place in the

mind of the consumers and after watching this ad it created

nostalgia in the minds of the consumer and they registered

the brand shown and it increased the brand awareness. The

advertisement of hero which has a jingle “hum me hai hero”

by A.R. Rahman became famous nation-wide in a few days

and has left a very strong imprint on the minds of the con-

sumers. Every time it is played, people can tell without

watching the video that the tune belongs to which brand.it

has stirred up emotions in the minds of the consumers and

has thus made a space in their heads.

Another way of showing nostalgia is through use of it inside

the advertisement. Many advertisers make ads where they

show flashbacks etc where traditional ways of doing things

or rituals or ceremonies are shown. This is an instant trigger

to the memories of the consumers. Such mental images

make them think of their past and they relate the ads with

how they used to live in the past and how things have

changed. Nostalgia can also be used to make the consumer

feel that it was very recent past of his that he is relating to

and the fact that he hasn’t grown that old. The consumer

psyche is something that varies from person to person and

is difficult to understand. Important but very minute insights

help marketers to use nostalgia and hit the right target. Let’s

look at some international examples which we can relate to.

Sony playstation revisits its 1990’s roots in a video called

“the Beginning” that shows the journey of the brand over

the years. It has an amazing nostalgic appeal to it and has

benefited son in numerous ways.

Microsoft aims at its target audience with the opening

words of a nostalgic video re-launch of the internet explorer

browser: “We met in the 90’s. We are generation Y.” the

parting line of the video says: “You grew up. So did we.”

Beautiful, short and touching. Nostalgia basically makes you

romance with your past.it sometimes has a very personal

touch to it. It is said that the human brain sometimes inten-

tionally fogs the unpleasant parts of a memory and makes

us remember the good part of it. This happens because you

want to see yourself doing perfect things in the past and

being right about your actions or basically, feeling happy

about the memory. This is a big fact that contributes to the

success of nostalgia in advertising. Marketing research clear-

ly shows a positive resonance with both nostalgic ads and

the products advertised. It even shows more persuasive

influence on consumers. But amany a times, what is absent

is a clear correlation to either purchase intent or actual pur-

chase of the products advertised. Advertisers trust that the

positive resonance towards the ad will lead to increase in

sales of the product.

But what is to be kept in mind is that the study of the range

of age should be very precise and it should be aiming at the

right segment of consumers, as nostalgic ads tend to alien-

ate consumers if the appeal is not matched with the target

markets. Consumers’ chronic feelings state (past few days or

past few weeks) have been shown to affect their response

to nostalgic advertising. .

In conclusion, the question for marketers is whether getting

consumers to “covet or yearn for the past” is an effective

advertising strategy for their product or not. In my opinion,

its positive if the appeal includes the right product targeting

right segment of consumers. Nostalgia can lead to a strong

bond of the consumers with the product and will help in

increasing brand awareness and brand loyalty. It can be a

perfect solution for few brands under certain market condi-

tions. We should let nostalgic marketing and advertising

evolve. It should be studied deeply as it is an art and a sci-

ence in itself and has many hidden facts to it.

References:

studioden75.com

arcwebsite


Gold: A Celebration, an Occasion and

Now a Nemesis Siddharth Singh , NMIMS, Mumbai

The imports of gold have decelerated with ‘g’– the acceleration due to gravity. In India

gold is religion, and it can be considered as a reason why we are amongst the largest

importer of gold in the world. Since British Raj the Indian gems and jewellery sector has

reached new heights with skilled craftsmen, superior techniques for polishing &

cutting and cost efficiency. In India, gold jewellery is most preferred as it is considered

auspicious to purchase gold on occasions like festivals, marriage, birth etc. Gold is also

perceived as a relatively safer investment option.

The law of demand in economics says, “When the price of a commodity increases its

demand decreases”, but this proved rationale doesn’t hold true for gold in “India”,

investment in gold is becoming price inelastic. Gold has remained remarkably resilient

during arguably the worst financial crisis the world has seen since the Great Depression.

As the financial sector came close to collapse during the recession, gold seemed to have

the greater appeal as an investment option. More than two decades ago U.S dollar was

uncontested standard value; euro didn’t exist at that time. The situation has not been

like this, quite different- before Liberalization and Globalization in 1992 gold imports

were restricted by the then existing Gold control act, 1968 and the precious metal used

to be brought into India through illegal sources. Under the liberalized policy for importing

gold, Government of India permitted certain nominated agencies viz. State Bank of India,

Minerals and Metals Trading Corporation, State Trading Corporation, Handicrafts and

Handlooms Export Corporation and other agencies authorized by RBI to import gold.

Source : guardian.co.uk

The imports of gold have been rising at an exorbitant rate, irrespective of the price

associated with it. This large import of gold, at the time when the rupee is depreciating,

adds to the deterioration of our CAD. The bulging trade deficit, demands for financing

from the foreign exchange reserves, which could become a drag on the external debt.


In 2013-14, we expect international gold prices to average

about 16 per cent y-o-y, as the yellow metal becomes less

attractive for investments. However, the decline in domes-

tic gold prices will not be as steep and will be limited to 8-

10 per cent in 2013-14. Recent hike in the import duty on

gold (in September 2013) to 15% and a weak rupee will

cushion the decline in domestic gold prices.

However gold has started to underperform as a purchase

asset due to the following reasons:-

1. Upward Movement of the US Stock and Bond markets:-

Since gold cannot be invested anywhere; it is an idle asset

which is used to hedge against the vagaries of the equity

and debt markets. Thus its demand is dependent on the

current sentiment prevailing in the market. However the US

securities market has performed better than expectations;

which has led to the strengthening of the dollar against oth-

er currencies. In this bullish scenario, people have decided

to repose their faith in stocks and this has led to a fall in

demand for gold. This weak demand has led to lowering of

price.

2. Negligible Interest Rates:-

Gold demand also tends to be higher in a zero or negative

interest rate scenario. Currently the Federal Reserve prints

dollars and uses them for cash generation by purchasing

debt securities. Due, to the excess cash, the interest rates

remain low. However, according to the Quantitative Easing

policy announced by Mr. Ben Bernanke(14th Chairman of

the U.S Federal Reserve), there will be lesser printing of

dollars which will lead to real interest rates rising in the

USA. Accordingly, an investor who invests in India but re-

sides in the US will be tempted to withdraw his money and

invest in the US market. Hence these investors, who con-

tribute to cash inflows for India, will now widen the current

account deficit which will harm India’s gold imports.

3. Emergence of Silver:-

There has been a revival of silver as a purchase asset in the

precious metals segment. Silver is viewed as a more stable

commodity than gold and also the cost of storing silver safe-

ly in less than the corresponding cost for physical gold. This

has led to a rise in the trading of gold ETFs (Exchange Trad-

ed Funds) and preference of silver over gold. Also China is

leading the way in the investment of silver which sees the

metal as undervalued when compared to gold and having

better accessibility.

Magnitude of Gold imports:

Statistics say that the contribution of gold was nearly 30%

of trade deficit during 2009-10 to 2011-12, which is higher

than 20%. during 2006-07 to 2008-09. The gold imports in

India grew at 39%. In 2011-12, when the world gold de-

mands was growing at 24%.

Had it been in tandem with the world demand our CAD

would have been lower by 0.3%. Of GDP. This unabated

gold demand is putting pressure on our Balance of Payment

(BoP) management, which can make our external sector

vulnerable and can have implications on for maintaining

adequate forex buffer. We all know that the production of

Gold in India is insignificant as compared to its demand, so

the consumption is entirely met through imports.

Change in the guidelines:

As mentioned earlier, investment in gold is price inelastic.

So, if there are efforts made to suppress its demand then

the supply of gold from the authorized channels might be

restricted but there is a huge possibility that buyers may

take recourse to illegal channels.

Source: World Gold Council

http://en.wikipedia.org/wiki/List_of_Chairmen_of_the_Federal_Reserve

http://en.wikipedia.org/wiki/Chairman_of_the_Federal_Reserve


Some Proposals:

There is a requirement to opt for selected demand and sup-

ply management measures.

Demand reduction measures :-

I. Gold is a function of economic growth, import duty,

exchange rate the availability of credit, alternative

financial investments and the current account trans-

actions. Any change in its policy would lead to con-

sider the developments in all of these parameters.

The absence of financial instruments that can give

real returns to investors leaves gold as the only op-

tion for the hedge against inflation. So, if products

like inflation indexed bonds are devised, and then

they can prove to be an effective alternative to gold.

II. Preferential treatments for gold as compared to

other imported products. If the gold import regula-

tions are aligned with the rest of imports, then it

will take away most of the incentives given to the

yellow metal, and will create a level playing field

between gold and other imports.

Supply side measures:-

In India, there are some importers which have access to

gold borrowings but with pre specified limits, and in turn

they pay interest on the amount of gold hence borrowed.

Gold lying as ETF which can be put to productive use by

lending a part of their total corpus to the above men-

tioned class of importers. This will benefit us in two ways,

first in the transaction of this kind gold is bought at the

end of the tenor of loan which postpones the demand for

gold imports and relives the pressure on our stressed Bal-

ance of Payment (BoP). Secondly, it would increase the

return on the ETF investments.

Plugging loopholes:

Buying gold is easy with no significant hassles as far as the

documentation is concerned. If someone invests in equi-

ties he has to pay capital gains tax, but there is no such

deterrent in gold transaction, neither there is any tax de-

duction at source. Traders are exploring the possibility of

importing jewelry especially gold, as it is hassle free and

don’t attract the Reserve bank of India’s 80:20 norms, un-

der which 20% of imported gold has to be re-exported.

The gold merchants were planning to import crude jewel-

lery, manufacturing cost of which is hardly 1% to avoid

80:20 rule from Singapore and Dubai. The major concern

in India is that, no one knows the amount of gold the other

person possess. But still, there are current norms which

say that PAN no. has to be provided for buying gold be-

yond a certain limit, but there is no mechanism to catch

hold of the jewelry shops which overtly flouts the rules.

Hence, there is a strong need to track these loopholes and

plug them.

Monetization of idle gold stocks:

A lot of gold lies with the sections of the society, which

are economically weaker and doesn’t pay tax and in order

to meet their untimely demands they fall prey to local

money lenders and pawn brokers. Here, banks may start

accepting gold jewelry as collateral against loan for all

types of productive purposes. Now, there are certain other

measures which are existent worldwide but not so known

in India, of course, there are some products which have

gained attention of the investors but there are still some

which needs a greater exposure-

Scope of Dematerialization of gold : Gold Swaps:-

We have often heard of interest rate swaps and currency

swaps- the mechanism of Gold Swap is also very similar to

it, but they also have features of repo mechanism. Gold

Swaps are essentially kind of repurchase agreements com-

monly undertaken between central banks or between a

central bank and other financial institutions. As, banks keep

government securities with RBI to purchase them back at a

later date at a predetermined price, Gold is exchanged for

foreign exchange under Gold Swap agreements to repur-

chase it at a specified price on a specified future date. They

in turn can also provide liquidity for the gold loan market,

when converted into loans by concerned dealers.

Gold- backed pension products:-

It’s again an innovative way of mobilizing idle gold stocks

and distributing gold equivalent return to the depositor for

a period of 20 – 25 years. The basic premise behind this

product is to provide pension to households. Indians by

nature are highly risk averse which is evident from the pop-

ularity of government jobs even amongst youth. People are

inclined towards government jobs because the future is

secure over there; the government takes your responsibility

even after your retirement. Hence, any product which can

give a regular monthly income just like pension is always

welcome here. Besides, giving benefits to customers, this

scheme also helps in reducing gold imports to the extent of

gold deposits mobilized. Since, here we are talking of 20-25

periods, so this long gestation period has a cumulative im-

pact on reducing gold imports.


Conclusion:

Current Account Deficit has been ballooning and has been a

cost of concern as it has been jeopardizing the economic

growth of the country. Some prudent measures should be

taken by not only the regulating authorities of India but also

by us. It’s highly unlikely love for gold in India is going to

diminish anytime soon due to deeply entrenched cultural

and economic reasons. As the current account deficit has

reached alarming proportion, it is imperative that the gov-

ernment take immediate measures to reduce gold imports

in the short run. In the long run, increasing awareness and

alternate options would be the key to reducing the debili-

tating effect of large gold imports.

References

http://online.wsj.com/article/

SB10001424127887323899704578587333915196600.html

http://www.gold-eagle.com/article/indias-love-gold-1

http://stats.oecd.org/glossary/detail.asp?ID=1127

crisil.com/

Union Budget 2013-2014

www.gold.org

Gold and the CAD, Business Standard dated 23rd July 2013

http://online.wsj.com/article/SB10001424127887323899704578587333915196600.html

http://online.wsj.com/article/SB10001424127887323899704578587333915196600.html

http://www.gold-eagle.com/article/indias-love-gold-1

http://stats.oecd.org/glossary/detail.asp?ID=1127

http://www.gold.org


The entry of Indian brands and the surge of the aspiring Indian middle class have boost-

ed the furniture retailing in India. NCAER report has said that India will have a middle

class population of 267 million by 2015-2016 with average income is on an upswing. CSIL

Italy has recognized India to be among the 14 largest furniture industries in the world.

Indian Furniture Retail is growing at a steady space over the years. The main segments in

the furniture sector are Home furniture, Office Furniture and the Contract Segment. The

organized sector consists of importers and Indian manufacturers who cater to the prom-

ising business segment. Although they are trying to foray into the Home segment but

the intricate Indian customer behavior has posed a major hurdle.

The big players in the organized sector are Godrej & Boyce, BP Ergo, Featherlike, Ha-

worth, Style Spa, Yantra, Renaissance, Durian, etc. With FDI in multiband extended to

100% from the earlier limit of 51%, International Players are making a move into the

Indian market with IKEA recently announcing an investment of USD 1.95 bn by 2017-18.

Customer Behavior in India towards furniture

Unlike Westerners, Indians have a totally different attitude towards furniture. Indians

love heavy, teakwood furniture with intricate design. Design and material quality are the

two top level priorities in the Purchase Decision Hierarchy for Indians towards furniture.

Price occupies the third place (Source: KPMG Analysis). Indians do not like similarity of

furniture with their relatives or neighbors as furniture is a symbol of social status with “I

have the better one” attitude. We must understand that in India family activities hover

mostly in the living room and the elegance and beauty of the drawing room is a status

symbol. It greatly increases the confidence and dignity of the host when he entertains

his guests.

IKEA’s Value Proposition

The current problems Indian customer face with regards to Furniture market is invento-

ry shortages, delays in deliveries, partial shipments, non-availability of all components

under one roof and unprofessional customer service.

IKEA—The Indian Way Kishalay Datta & Harsh Garg, NMIMS, Mumbai

Category

2006(Bn

USD)

2011(Bn

USD)

2016(Bn

USD)

CAGR(2011-

16)

Furnishings & Fur-

niture (OVERALL)

6.5 9.1 17.1 13.50%

Furnishings & Fur-

niture

(ORGANIZED)

0.4 0.7 1.2 12.00%

Source:- Technopak Analysis


Plugging in these loopholes is going to be the value proposi-

tion IKEA can provide in India. Also there is a tradition in the

Indian market of having customized products by local crafts-

men but customization is already at the heart of IKEA- you

can choose even a back cover for a chair in IKEA.

The success of IKEA lies in not trying to change the custom-

ized model but dealing with the model in a more profes-

sional approach by hiring and training staff to not only deliv-

er the products but to also assemble the same. Though IKEA

is having an image of having low cost products overseas but

the same may not be true with the Indian customer.

Learning from China

It took 12 years (after entering in 1998) for IKEA to breake-

ven in the most populated country of the world. The reason

for this long period is its poor understanding of the Chinese

customer and its attempt to impose a global strategy on the

Chinese market. Preference of Indian customer and the eco-

nomic environment in India is very similar to its neighbor.

The learning that IKEA got from China that can be applied to

India is that its global strategy might be a low cost provider

but it can’t compete with the local suppliers solely on the

base of its low price. No matter how low the prices may be,

local supplier will supply at comparatively lower rates as

they will copy IKEA’s designs (laws in India are not stringent

enough to prevent the same) and thus will have zero design

cost. Moreover Indian customer see western products as

aspirational, so low price strategy will create confusion in

the minds of the customer.

Its global marketing strategy of using only a product cata-

logue may not work well in the Indian context. It needs to

have other communication channels that Indian customer

prefer like Television (considered a hygiene factor by Indi-

ans) and Social media.

IKEA’s eco-friendly policy of sourcing green products or us-

ing renewable energy in stores is accepted in the west but

Indian customer has not evolved to a stage where they are

ready to pay premium for the benefits of the society. So,

IKEA has to account that its social responsibility does not

make the Indian customer perceive it as a high price brands

it did with the Chinese customer.

Recommendations

The first problem that will come with IKEA in India will be

the land acquisition as the bill is not well established and

Juvencio Maeztu, CEO of IKEA plans to open the store

spreading over 3 lakh/sq.ft which is a huge space. It should

not open a store till it is able to acquire a land having facili-

ties like close proximity to main roads and public transport

as according to Transportation Statistics India ranks 102nd

with a vehicle ownership of only 15 per 1000 people.

It should collaborate with an Indian player having an under-

standing of the taste of the Indian customer and the local

suppliers for supplying products of Teakwood, Cedarwood,

handloom fabrics etc. that is very much adored by the Indi-

an customer

To gel with price sensitive Indian customer, IKEA will have to

take cues from the neighboring CHINA by opening factories

in India that will procure and sell the material locally and

thus reduce the burden of import duty. This will not impact

the global sourcing standards of IKEA as already it is sourc-

ing textiles, rugs, ceramics, lightning articles etc. from India.

Whatever IKEA does it must not end up as another shopping

mall round the corner clogging a city. It must not be viewed

as another place where a family can just visit on weekends.

IKEA must replicate and create the success mantra it has

achieved in developed countries. Local adaptation is a chal-

lenge that every Multinational faces. It is a “Do or Die situa-

tion” where a company must adopt itself to local environ-

ment to survive or it is destined to perish.

References

http://businesstoday.intoday.in

http://articles.economictimes.indiatimes.com

http://www.tradingeconomics.com/country-list/gdp

http://www.indianmirror.com

http://www.nrimatters.com

http://articles.economictimes.indiatimes.com

http://www.tradingeconomics.com/country-list/gdp

http://www.nrimatters.com/


India Yearning for a Manufacturing

Revolution Nitesh Sinha, IIM, Ahemadabad

India’s Current Account Deficit (CAD) has climbed to 4.8% of the GDP or about $18.1

billion for the January-March quarter of 2012-13. The magnitude of the situation can be

assessed from the fact that India’s average CAD between 1949 and 2012 is $1.5 billion.

As is evident from Figure 1, the situation has been deteriorating since Lehman’s ceased

to exist. The situation so precarious that Balance of Payments (BoP) may have to be

cleared using forex reserves.

Figure 1: India's CAD over the past 12 year

What is to blame for this menace? It is the general opinion among industry and

government circles that gold imports are the culprit. India is the largest consumer of the

yellow metal (about 25% of world production) and this trend has continued in spite of

rising prices of the precious metal. The volume of gold exports have registered only a

modest growth, a CAGR of 6.27% since between 2006-07 and 2011-12. In fact, the gold

imports declined in the fiscal 2012-13 by 11.8% in volume terms. But it is the price of

gold that has become the cause of much damage. The Table 1 below shows the gold

import trends in the past 10 years.

But a careful analysis of Figure 1 shows that India’s CAD began to increase 2008-09

onwards, a time when gold imports were the lowest (as percentage of imports) in a

decade (see Table 1).

What has been the cause of increasing CAD then? The answer increased world oil prices

and India’s increasing manufacturing (especially medium and high-tech goods) trade

deficit, especially with manufacturing strongholds like China, United States and Germany.

Figure 2 provides us with the information that India’s trade deficit began to increase

from 2008-09 onwards, the same period since when the CAD began to increase.


Table 1: Gold imports by value and as a percentage of total

imports since 2002-03.

Let us consider the case of oil imports and exports. Between

2011-12 and 2012-13, the net imports of crude and petrole-

um related products has increased 24.75% in rupee terms

and 11.38% in dollar terms. This is not much different from

the previous three years i.e. the CAGR of India’s net oil im-

ports in dollar terms is approximately 11% from 2008-09 to

2011-12 (see Figure 3). As payments for oil imports are usu-

ally done in Dollars and Euros, the net effect of this increase

is weakening of rupee. This increase in oil import bill is be-

ing observed since the time previous to the economic crisis

(see Figure 3 for details). But it has started to hurt the econ-

omy more since 2008-09. Moreover, this trend (of increas-

ing oil imports) is going to continue as India’s consumption

of oil is only increasing.

The effect of this depreciation of rupee has been in terms of

trade gap for manufactured items increasing by about 9.3%

(in rupee terms) between 2011-12 and 2012-13. On the

other hand, manufacturing exports from India have in-

creased by only 7.91% in this period. The fact that value (in

rupee terms) of imports of manufactured goods was 20.4%

larger than exports in 2011-12, makes the situation even

more worrisome.

Let us take the case of China in detail. It’s just 5 months in

to the year and the trade gap with the country has already

touched $12 billion in a total trade value of $26.5 billion.

This is despite of reduced gold imports from China (details

in Figure 2). This gap is about 2/3rd of the India’s CAD for the

first quarter of 2012-13.

Now the question that follows from the above facts is why

is the trade-gap widening between the largest and third-

largest economies of Asia? The answer lies in the composi-

tion of trade between the two countries. More than half of

China’s exports to India comprises electronic goods (27%),

machinery (12%), organic chemicals (7%), project goods

(7%) and fertilizers (5%). Clearly, China is providing India

with two broad classes of goods. Firstly, there are goods

which are technology related. Since India is a developing

(more appropriately, industrializing) country, the import of

these equipment is only going to increase as has been hap-

pening in the past. Even economic downturn has only re-

tarded the growth (6.9% increase by value in the import of

electronic goods and machinery) of these imports and not

reduced imports themselves. Second, China is selling essen-

tial commodities like organic chemicals and fertilizers which

are indispensable no matter what the market situation is.

The escalating need of these goods is further supported by

the burgeoning middle class (leading to increased consump-

tion and hence, increased usage of farm inputs) and grow-

ing population.

Now let us a take a look at the other side of the table. Bulk

of India’s exports to China includes raw cotton (16%), non-

ferrous metals (15%), iron-ore (10%), cotton yarn (9%), oth-

er ores and minerals (7%) and plastic products (6%). As is

evident, India is supplying goods which have very low level

of sophistication.

Figure 2: India's Balance of Trade

Year Gold Imports

($ billion)

Total Imports

($ billion)

Per-

centage

2002-03 3.84 61.41 6.3

2003-04 6.52 78.15 8.3

2004-05 10.54 111.52 9.4

2005-06 10.83 149.17 7.3

2006-07 14.46 185.74 7.8

2007-08 16.72 251.44 6.7

2008-09 20.73 298.83 6.9

2009-10 28.64 288.37 9.9

2010-11 43.50 369.8 11.7

2011-12 61.50 488.6 12.6

2012-13 50.38 491.48 10.2


Figure 3: India's net oil related imports

It is common knowledge that the lower the level of sophisti-

cation of goods the lower are the holdup costs for the buy-

er. Therefore, source of such goods (India in this case) is

easily replaceable. The theory is exemplified by the fact that

Bangladesh is fast eating into India’s pie of cotton exports

market. The sporadic supply of iron-ore during recent un-

veiling of mining scam in Karnataka and elsewhere have

caused China to majorly cut down imports from India.

In order to further comprehend the vulnerability of India’s

imports to China, it is important to understand the past and

likely future trend of China’s sourcing from India. These

trends are found to be affected by three major factors

(which may be interrelated), phase of economy, domestic

supply & demand of goods & services and state of exports.

Let us take a look at the phase of Chinese economy. The

country has witnessed massive growth in the past three

decades. It is suspected to surpass US’s GDP (in PPP terms)

by 2017. Essentially, the nation is in the latter half of its

journey towards being a developed country. As has been

commonly observed, a country in such a phase witnesses

declining growth rates and correspondingly, declining needs

of basic resources.

The supply of various items of domestic consumption (e.g.

infrastructure build-up) has outstripped its demand in China

since the period of recession. The growth of China’s exports

in the world market have seen a declining trend (on an aver-

age) since the time of recession. Given these factors, the

requirements of inputs for manufacturing has seen either a

decline or minuscule growth.

The combined effect of declining growth rates, over-supply

of consumption goods and declining trends in growth of

exports has been in terms of lower consumption of India’s

exports. The Chinese import of iron-ore from India has de-

clined by 62.82% (it includes the effect of the ban on mining

activities in India). There is also a decline of 8.13% in cotton

related imports.

One important thing to note here is that although the above

discussion is centered on India’s trade with China, similar

observations are also aplenty in India’s trade with other

economies (e.g. European Union) as well. This is the reason

why the problem of trade deficit is getting exacerbated in-

stead of getting compensated from India’s trade with other

nations as well. The country’s export to the world again

comprises products of very low levels of sophistication. Half

of Indian exports include refined crude (20.05%), gems &

jewelry (14.46%), transport equipment (6.13%), low-tech

machinery (5.06%) & drugs (4.86%). Except for drugs and

transport equipment, India is just a processor of imported

raw materials (crude, gems). Again, because of low hold-up

costs related to low-tech products, India as a supply source

is easily dispensable. Imports, on the other hand, include

petroleum, crude & products (34.48%), gold (10.94%), elec-

tronic goods (6.41%), machinery (5.63%), pearls and stones

(4.61%). Most of these goods are either essential (e.g. pe-

troleum) or related to technology and the consumption of

both groups is likely to increase in a growing economy. Ta-

ble 2 shows the evolving trends in export composition of

China and India. India has long relied upon the prowess of

its Services Industry which has exhibited spectacular growth

in the past decade. But the niche that India had toiled to

create for itself is now being eroded by countries like Philip-

pines. These countries are fast emerging as cheaper centers

for outsourcing (at least low-tech) for Western nations.


Figure 4: India's Trade Gap with China over the past 6 years

Share of World

Manufactured

Exports, %

1985 2008

China India China India

Resource-based 0.8 0.9 3.5 1.7

Low-tech 1.2 1.2 18.1 2.5

Medium-tech 0.1 0.1 10.6 0.8

High-tech 0.1 0.1 14.3 0.5

OVERALL 0.5 0.5 10.8 1.3

Table 2: Evolution of export composition of India and China

between 1985 and 2008

Figure 5: India's Service Exports; Value and Growth

Companies like Infosys, Wipro, Genpact, etc. are aug-

menting their outsourcing operations in Philippines. The

effect of all this development can be perceived in the

growth rate of service exports of India. These rates are now

hovering around 5-10% from a high of 33% around 2005-

06.

The inference from the above discussion and Table 2 is that

the problem of Current Account Deficit is not just depend-

ent on the current trends as increased gold imports but

also on structural issues in the Indian economy. Therefore,

increasing the excise from 6% to 8% on gold (as done re-

cently by the Finance Ministry) is only likely to procrasti-

nate the advent of problem, not resolve it. India needs to

take lessons from the development of the Asian Tigers dur-

ing the last quarter of the 20th century. All these economies

were manufacturing based and started from low tech prod-

ucts but eventually became world suppliers of high-tech

equipment. India cannot afford to rely just on the services

industry to fill the trade gap as countries in South East Asia

are now challenging its dominance is in this industry. The

government needs to take a hard look at its manufacturing

policy to increase the sophistication of the manufactured

products in order to be able to do both, meet the domestic

requirements and compete with countries like China in the

international arena.


References

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Sustainability.

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Petroleum Products: 2004-12. Retrieved from

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India From 2011-12 And 2012-13.

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exchange.com/: http://usd.fx-exchange.com/inr/

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cid-1.html

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Indo-Chinese Bilateral Trade: A Bitter Pill for the Indian Pharmaceutical

Industry Shamik Mukherjee & Suvajyoti Bhattacharjee, SJMSOM, IIT Bombay

Introduction

Over the past 50 years, Indian pharmaceutical industry has undergone a massive

makeover – from a modest beginning of “process patents regime” in the seventies to a

modern and WTO-compatible regime under the TRIPs Agreement in 2005. In the last two

decades, India has witnessed significant trade and industrial policy liberalization, which

have led to structural changes in the domestic industries. There has been rapid growth in

the pharmaceutical sector in India which was led by the migration of economic and

research activities from Europe to India in particular and some other fast-growing

markets.

It becomes important to analyze trade trends to ascertain whether India has increasingly

become dependent of one source, China, for its imports. However, over-dependence on

any country runs the risk of import disruptions causing havoc for Indian manufacturers,

as was seen in the case of temporary shortage of bulk drugs required for penicillin

coinciding with the 2008 Beijing Olympics. Such an eventuality in the future may have an

adverse impact on the whole pharmaceutical sector in India. This could pose a threat to

the health security of millions of poor Indians as it could raise the drugs prices or even

lead to non-availability of the essential medicines, and in the long run, it could adversely

impact the exporting capabilities of India in the formulation segment. China and India

established diplomatic relations on April 1, 1950. The bilateral trade crossed US$13.6

billion in 2004 from US$ 4.8 billion in 2002, reaching $18.7 billion in 2005. With the

expected increase in Chinese healthcare spends, the Indian pharmaceutical sector has

the potential to tap into the need that is present in the Chinese market and increase their

exports, which currently stands at $0.5 billion compared to the $3 billion worth of APIs

and bulk drugs that are imported from China.

Indian Pharmaceutical Sector

The structure of the Indian pharmaceutical has undergone significant changes.

Pharmaceutical products consist of two main components - (i) the active pharmaceutical

ingredient (API) or bulk drug; and (ii) the formulation segment (i.e., a suitable final

dosage form). Till the year 2001, the bulk drug production increased by nearly 20 per

cent annually, whereas that of formulations increased at an average rate of 15% per

year. A comparison of value or production of bulk drugs and formulations to the value of

exports of formulations and bulk drugs shows that 80% of the formulations produced are

consumed indigenously, compared to the majority of the bulk drugs manufactured,

which are exported. According to an Associated Chambers of Commerce and Industry of

India (ASSOCHAM) forecast, the Indian pharmaceutical industry will account for about

30% of the increasing generics market from the current figure of 22 percent of the

generics world market.


A study on India’s exports and imports trends in

pharmaceutical sector carried out using the SITC

nomenclature concluded that exports of formulations

have grown faster while their imports have not registered

any jump, keeping a positive balance of trade. However,

there has been a decline in domestic production of bulk

drugs and a growth in imports because the industry is

moving away from intermediates and is focusing on bulk

drugs at the high end of the value chain. There are various

data sources on drugs and pharmaceuticals trade and it is

important to adopt a uniform definition of the term

“drugs and pharmaceuticals”, the lack of which has

resulted in disparate conclusions on the performance of

the industry on the trade front.

Chinese Pharmaceutical Sector According to a report by KPMG in 2011, the Chinese

pharmaceutical industry is the fifth largest in the world.

With domestic growth projected to be about 20% p.a.

combined with high volume, the industry is expected to

overtake Japan and subsequently push into the second

place in the world by 2015.

A United Nations Conference on Trade and Development

(UNCTAD) survey in 2004-05 identified China as the most

attractive location for future investments in R&D

according to nearly all the world’s top R&D spending

MNCs. China has been an important producer of bulk

drugs (raw materials or APIs) which is required for the

manufacture of several essential drugs, including anti-

retroviral drugs for the treatment of HIV/AIDS. These two

factors provide China with the required strength to

compete with Indian pharmaceutical sector globally.

Figure 1: Trend in India's Pharmaceutical Imports (US$ Billions) (Data Source: WITS online database)

Figure 2: Trend in India's Pharmaceutical Exports (US$ Billions) (Data Source: WITS online database)


The pharmaceutical industry in China is characterized by

both minor and major players, and though the domestic

companies lack the necessary administrative or R&D

sophistication possessed by the international players, they

manage to compete with them due to their scale of

operations and ability to penetrate the market. Their

strength lies in manufacturing of generics and active

pharmaceutical ingredients (API) for exports- China is one

of the world’s largest exporters of APIs, which constituted

about 80% of China’s pharmaceutical export in 2009.

There have been studies comparing India and China’s

pharmaceutical industries. In one such study by Zhang et

al., the authors calculated the Trade Competitive Index

(2004-2008) for China and India’s raw and prepared

medicine, and found that both China and India have a

certain degree of overall competitiveness in the

pharmaceutical industry, but the origin of the

competitiveness differs greatly. The Chinese TC index is

very high for raw medicine, showing that China has

absolute comparative advantage in raw medicine

production, while India is located at a relatively low

position.

Since 2004, in the global pharmaceutical value chain

production link, China mainly specializes in raw medicine

whereas India specializes in prepared medicine. It has also

been observed that the China exported raw medicine

while it imported manufactured medicine products, i.e.,

formulations. So these trade flows are not characterized

by intra-industry trade. Hence, it can be said that the

policy driven Chinese pharmaceutical industry is in a race

to meet the twin objectives of quantity and quality set by

the reforms of 2009. The industry has all the necessary

incentives as well as support to achieve these objectives.

Sectoral Trade Trends

India has emerged as a major supplier of affordable

generic drugs globally. Any disruption of production

activities in India, owing to any externalities, may

adversely impact the global access to medicine. During

the last 12 years, MNCs did not undertake any major

green-field (organic) investments initiatives in India, the

MNCs largely opted for brown-field (inorganic)

investments. A change in management at many of India’s

pharma companies has altered the channels of

procurement of raw materials, keeping the destinations of

exports unchanged. The dependence on China can be an

advantage for the firms operating in India and sourcing

their inputs from China. On the other hand, there is a risk

of imports from China displacing domestic production in

India.

Indian Pharmaceutical Sector’s Growing

Dependence on China

With a view to understanding the growing dependence on

imports from one source, this section examines the trends

in India's imports of pharmaceutical products from China.

The examination is done for the overall pharmaceutical

sector with focus on the two sub-sectors of bulk drugs and

intermediaries and formulations.

Overall Pharmaceutical Imports

The total imports during 1996 to 2010 were close to US$

15.7 billion (see Figure 3). We can decompose the total

imports into three phases: a) Phase-I constituting of years

1996 to 2000; b) Phase-II constituting of years 2001-2005,

and; c) Phase-III constituting of years 2006-2010. It can be

observed that imports have increased from US$ 2.0 billion

in the first phase to US$ 3.6 billion and further to US$ 10.1

billion in second and third phases respectively.

Bifurcated analyses of sub-sectors conducted for a

detailed understanding of the distribution of China’s

imports under the bulk drugs and formulations (Table 1)

reveals that the total imports of US$ 14.4 billion was of

the bulk drugs and rest of US$ 1.3 billion of formulations.

In terms of decomposition of individual shares, the bulk

drugs had an average of close to 92 percent for the three

phases and the residual 8 percent was formulations sub

sector, see column 6 of Table 1.

Figure 3: Total Imports of Pharmaceutical Sector: 1996 to 2010 (Data Source: WITS COMTRADE online database)


Imports/Shares 1996-2000 2001-2005 2006-2010 Total (US$

billions) % Shares

Bulk Drugs and Intermediar-ies

94.0 92.8 91.2 14.4 91.9

Formulations 6.0 7.2 8.8 1.3 8.1

India's Imports from World (US$ billions)

2.03 3.56 10.10 15.7 100

However, the trend in composition of the pharmaceutical

sector over the three phases suggests a marginal drop in

significance of bulk drugs and intermediaries sub sector as

its share in total pharmaceutical imports decreased from 94

percent in the first phase to 91 percent in the third phase.

On the other hand, there has been a marginal increase for

the formulations sub sector imports, but this increase was

seen at a very low base. Therefore the bulk drugs sector

continues to be the main sub-sector of imported

pharmaceutical products.

The total import under the bulk drugs sub sector of the

pharmaceutical sector was close to 92 per cent. As shown

in Table 2, the bulk drugs showed a spurt in import values

from US$ 1.9 billion in the first phase to US$ 9.2 billion by

the third phase. India’s import from China’s increased from

US$ 0.3 billion in the first phase to US$ 2.8 billion by the

third phase, suggesting a growth of 216 percent for bulk

drugs. This was 90 percentage points higher than the

growth in total imports of India from the world. While

imports of bulk drugs from the world increased 5 times by

the end of third phase, imports from China surged by

almost 10 times during the period 1996-2010. It may be

noted that share of China in India's total pharmaceutical

imports at the end of 2010 far exceeds the share of any

other country in India's import market over the past 2

years.

Across the board, there have been significant gains for

exports of China in the Indian pharmaceutical sector growth

story, with each and every indicator suggesting an

increasing trend. The surprising aspect is phase-wise

growth trends observed in the case of formulations,

particularly because India is considered the global leader of

generic/formulation products.

Trend in imports from China in the pharmaceutical sector As shown in Table 4, China’s share in India’s imports of

pharmaceutical showed a sharply increasing trend, in both

relative and absolute terms. During the period 1996-2000

(Phase 1), China had 13.79 per cent share in India’s imports.

This surged to 20.6 per cent during 2001-2005 (Phase 2).

The pace of increase in China’s share accelerated further to

28.32 per cent during 2006-2010 (Phase 3). Increasing

import share reflects the fact that imports from China have

increased relative to imports from other countries.

Not only has India’s imports from China increased

significantly compared to imports from India’s other trading

partners, it has also increased in absolute terms as well.

Average imports during the period 2001-2005 grew at an

impressive rate of 162 per cent compared to imports during

1996 - 2000. However, even this impressive growth was

outstripped in the subsequent period, as imports during

2006-10 registered a growth of 290 per cent as compared

to 2001- 2005.

With almost a quarter of total imports of pharmaceutical

products in to India is originating from China, it is clear that

India has already become overwhelmingly dependent on

one source for meeting its import requirements. The surge

in import share per se cannot be a basis for concluding that

India's pharmaceutical sector is facing adverse effects on

account of these imports. Further analysis is required for

assessing whether imports from China are trade creating

and have mainly displaced domestic production, or these

imports have resulted in trade diversion by displacing

Table 1: Decomposition of India’s Imports in Pharmaceutical Sector (Data Source: WITS COMTRADE online database)

Imports/Shares 1996-2000 2001-2005 2006-2010

India's Imports from World (US$ bil.) 1.91 3.3 9.21

India's Imports from China (US$ bil.) 0.3 0.73 2.83

China's share in India's Imports (%) 15.6 22.15 30.71

Table 2: Trends in Imports of the Bulk Drugs and Intermediaries (Data Source: WITS COMTRADE online database)


1996-2000 (USD

Mil.) 2001-2005 (USD

Mil.) 2006-2010 (USD

Mil.)

India's Average Global Imports 2,029.3 3,557.6 10,091.1

India's Average Imports from China 280.0 733.0 2,856.6

China's Share in India's Imports 13.8 20.6 28.3

Table 4: China's share in India's pharmaceutical imports (Data Source: WITS Database)

Imports/Shares 1996-2000 2001-2005 2006-2010

India's Imports from World (US$ mil.) 122.5 256.5 891.0

India's Imports from China (US$ mil.) 1.6 8.6 42.4

China's share in India's Imports (%) 1.3 3.3 4.8

Table 3: Trends in Imports of the Formulations (Data Source: WITS COMTRADE online database)

imports from other competing countries in those products in

which domestic supply is insufficient to meet the demand.

Another line of enquiry relates to possible linkages between

imports from China causing an increase in India's exports

through inputs and intermediates becoming available at

competitive prices.

Another line of enquiry relates to possible linkages between

imports from China causing an increase in India's exports

through inputs and intermediates becoming available at

competitive prices.

Indian Exports to China India’s pharma exports have been growing at close to 25%

CAGR for the past 5 years. Last year the export to BRIC coun-

tries grew by 22% but the U.S. is the largest importer of Indi-

an drugs. Though China has far more lenient FDA norms as

compared to the U.S., India was able to export only $ 0.5

billion of formulations to China. Given the fact that there is

China's increased competition even in formulations sector,

India's exports to China have been continuously slipping.

Most foreign companies had entered China and set up R&D

centers and manufacturing facilities in China beginning from

1980. Indian pharma companies do not enjoy this ad-

vantage.

Bilateral trade is tilted heavily in favor of China and it would

be difficult to continue sustaining bilateral trade on the basis

of current trends. With there being an urgent need to

change the trade basket and introduce elements where In-

dia has proven competence and pharmaceuticals readily fit

the bill. India is pushing for market access based on the as-

surances by Chinese Prime Minister Wen Jiabao, to address

the trade imbalance, and a proposed nodal body comprising

of SFDA officials and Chief Controller of Drugs of India to

interact on the market access issues has been formed.

While the Chinese companies trading in Active Pharmaceuti-

cal Ingredients (API) generally get clearances in about a year,

it takes three to five years for an Indian company to get the

necessary clearances in China. A case had been made by an

Indian pharma delegation to the officials of State Food and

Drug Administration (SFDA) and Chinese Ministry of Com-

merce that like India making use of Chinese machinery to

expand its infrastructure, China, too, should take advantage

of well-placed Indian pharmaceutical industry which can

help to make the basic drugs available for far cheaper prices

benefiting the Chinese public.

The Indian government has constituted a sub-committee,

under the chairmanship of joint secretary to look into the

product registration in China, present status and hurdles. It

is good to see that China is being taken up as a challenge.

The only way to penetrate the hugely fragmented Chinese

market is by collaborating with existing Chinese players.

Otherwise it will be difficult for Indian pharma companies to

increase their exports to China.

Conclusion

At present, to global pharma companies, India and China

possess the best ratio of cost to product/service quality

among all emerging economies. However, the current labor

and raw material costs in the Indian pharmaceutical industry

are generally about 25% to 30% higher than in China, which

makes China more attractive than India to pharma compa-

nies when sourcing bulk materials or outsourcing long-term,

large-scale manufacturing projects.


At present, the Indian companies are the better choice for

formulation development, and the manufacturing and

marketing of dosage form drugs, whereas Chinese

companies are a better fit for upstream work, such as

contract manufacturing (and sourcing) of advanced

pharma intermediates and APIs. Chinese companies also

offer better cost-reduction benefits than their Indian

counterparts by charging less for the same type of

services/products.

On the other hand, even though they are presently the

hotbeds for global pharmaceutical manufacturing, China

and India still play much less significant roles than

developed countries, particularly in high-end areas such as

the special formulation techniques and the manufacture

of APIs and finished drugs that are still under patent

protection. This is largely determined by the intrinsic

weaknesses of these two countries due to low R&D

investment in pharmaceutical industry.

Indian dependence on bulk drugs from China needs to be

reduced. The Department of Pharmaceuticals of the

Ministry of Commerce has pointed out that India need to

tap the global contract research manufacturing

opportunity worth US$ 44 billion as of 2013-14. Indian

pharma companies have to seize the chances in new drug

delivery systems, tap the potential in the biotech market

including monoclonal anti-bodies, and complex APIs in

order for the industry to improve the composition of

production/ export basket of India.

Otherwise, the terms of trade can be expected to worsen

every passing day.

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http://www.pharmacyindustrynews.com/2011/07

(Accessed September 14, 2013)


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