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 user 2003-09-10 at 11:37:00 am Views: 127
  • #4032

    Indian exoduS
    While China’s nabbed the globe’s blue-collar jobs, India’s taken hold of the white collar sector. With 200,000 jobs to go there from the UK alone by 2008, where will it end?
    Spectacular. That’s perhaps the best way of describing India’s growth in the last five years. Since 1997, GDP has risen from $333.32 billion to an estimated $532.75 billion for 2003, a jump of approximately 65%. Next year, that figure is expected to hit $567.77 billion.

    It’s not gone unnoticed by the globe’s big multi-nationals. The likes of Gillette, Intel, Microsoft, Glaxo Smith-Kline, IBM, BT and Samsung to mention but a few all have operations in India either through joint ventures or subsidiaries. What is the attraction?

    “India has a highly literate well-trained, young, English speaking workforce,” says Achal Kaushal, a consultant on the Indian OP market. “It’s an attractive business destination and almost all of the big global companies are here.”

    That of course is something that may have come under question these last few months as India was caught slap-bang in the middle of a double-pronged geopolitical threat. On its western front, the war in Iraq threatened potential turmoil and Pakistan’s nuclear stand-off contnues to exert a regional threat while on the eastern front, the frightening spread of severe acute respiratory syndrome (SARS) also threatened to seriously undermine business confidence throughout the region.

    Indeed, confidence throughout the western Asia region slumped by 2.9% in April according to the business confidence index of the National Council of Applied Economic Research as businesses feared that investment would be hit.

    It is not likely to be a long-term problem though. The Iraqi and Pakistani situation may yet boil over if the US plays its hand incorrectly while SARS remains a threat even if it appears that the epidemic is largely being brought under control.

    The signs nevertheless, are looking better with each passing day and companies joining the Indian bandwagon continue unabated. Global recruitment firm Adecco for example, predicts 200,000 UK jobs will go to India by 2008 with 100,000 of those alone, in the call centre industry.

    Black market

    For India, that is important given the rise in outside investment in the country in recent years. In 2001, overseas institutional investment in India was $2.8 billion and already this year, foreign institutional flows for the first four months of 2003 had reached $849 million. Overall estimates for foreign direct investment in India last year puts the figure at approximately $4 billion and that figure could at least double in the next two years.

    Are OP players among them? Yes is the answer but that is a qualified yes. The vast majority are on the manufacturing side including the likes of Canon, Henkel and 3M. On the retail side however, despite the growing disposable income of the population, that has not yet happened.

    Will it change? Quite possibly. It is the retail sector that particularly looks set to take off in the next few years in big urban centres like Calcutta and Delhi. According to analysts AT Kearney, the retail market in 2002 was worth $4 billion but by 2005, that figure will jump to $32 billion as disposable income among the population grows. In addition, the government has embarked on a raft of policies aimed at tightening monetary control and improving its tax collection procedures which have contributed to making the retail sector potentially more attractive to international players in the next few years.

    “There are at best some regional retailers currently but they are not very focused,” says Kaushal. “Stationery and school supplies continue to be sold through small ‘mom and pop’ stores and the wholesale markets are also glad to sell to any walk in.

    “Each major city has an area known for wholesale stationery and school supplies from which small retailers buy. Then there are these retailers in office districts which double up as printing support and bulk suppliers with the comfort of customer credit thrown in.”

    The government’s taxation measures and business controls have certainly been biting the retail sector’s black market. Although estimates put it at almost 19 times the size of organised retailing currently, it is reckoned that figure will be reduced to just four times the organised retailing sector in 2005.

    Kaushal says: “While nobody expects a Staples or Office Depot to enter the market, the potential for a domestic player with a strong brand to emerge is clearly there.”


    Calcutta-based ITC has certainly spotted the opportunity. It is best known for its greeting cards and packaging businesses but in February, it announced that it is to move into stationery products under the Expressions Paper Craft brand. It plans to promote the new product range through 30,000 stationery stores and 100 distributors throughout the country.

    A spokesperson at the time said: “ITC has always had interests in greeting cards, paper and packaging. Now, due to our vertical integration capacity, we want to convert commodity products into consumer products.”

    If anybody can crack the retail market, then ITC is likely to have as good a chance as any. The expressions brand is well-established and Indians are becoming increasingly brand consciousness as sales of HP, Canon and Epson products in the market demonstrate.

    CEO of the ITC stationery division Chand Das says: “The future has to be built by players who invest in creating superior quality products. We believe we have a unique competitive advantage with an extensive distribution network which will be leveraged for distribution of stationery products as well.”

    However, he adds that although branding is important in India the market is characterised by “price competition. There are very few quality producers that are national players”.

    There is another issue facing the market too – namely the government’s imposition of VAT of 12.5% on a variety of office products goods. OP players such as Camlin, Kores and Hindustan Pencil have taken a short term hit in sales as in the two months preceding the imposition of the new VAT, retailers cut inventory in the fear that they might not be able to sell on product to the consumers. That has directly hit the manufacturers’ pockets leading to calls for the exemptions to be made, particularly in the back-to-school sector which is approaching its busiest period.

    While the Indian government’s efforts to rack up its tax returns are understandable, it could impact heavily on some of the domestic players. Is it cutting off its nose to spite its face? Sales will be the arbiter of that in the coming months.

    Trouble at mill

    The Indian government’s crackdown on pollution has led to the closing down of a large number of smaller mills unable to meet the compliance requirements.

    These include tightening up the criteria on air and water pollution in tandem with specific and non-negotiable deadlines. Those that fall foul of the new regulations have been hit by heavy fines and, if misdemeanours are repeated, the threat of closure.

    It hasn’t all been whip though. The government has incentivised paper producers to make the necessary changes by reducing import duties on pollution controlling equipment. It is clearly beginning to pay dividends with Indian paper producers spending large sums to come up to international standards.

    And for the big five, JK Paper, BILT, APM, TNPL and Century, the race is effectively on to get their houses in order before the big global players decide to develop their own manufacturing facilities in India.

    Biggest player in the cut size branded paper segment is JK Paper with just over two-fifths of the market share. General manager of sales and marketing of JK Paper, Deepak Bose says: “In general, the paper producers here are technologically quite developed but they don’t have the large individual capacity to match that of western producers yet. Although none of the major foreign players have entered the market in a big and systematic way, it may be a threat in the future, depending on the future structure of duties.”

    With market growth rates of up to 16% per annum slated for the branded cut size, it is a prospect that might appeal to a Stora Enso or International Paper at some stage down the line. Additionally, as Bose points out, none of the domestic distribution houses have been able to develop a truly national network, covering the whole of India, working instead on a city-to-city basis.

    There is an opportunity there but will it be taken? Time will tell.