Introduction
The strengths of DFS and the friendly business environment in India place the company, which is a leader in the production of sofas in the United Kingdom and Europe, at a better place to exploit the Indian market. The strengths include forty years of experience in the upholstery industry in the designing and manufacturing of these products. With an easy payment method, capability to make high-quality designs, automated booking, and delivery procedures, and a ten-year guarantee, the company’s products are better placed to attract customers and offer a viable competitive challenge to competitors.
India on the other side is better placed as a target market because of the social, demographic, and business environment and opportunities. These conditions however require specific attention and analysis to come up with a marketing plan and strategy to launch a market for the named products. In addition, variations may be expected as relates to customer choices and preferences and competitor’s strengths and weaknesses. This report analyzes the possibility of business success in India for DFS sofas business and how best the company can utilize the existing internal strength and the market conditions in India to take advantage of marketing conditions in India to establish a business venture and succeed.
The macro-environmental factors of the Indian market
Economic Conditions
Analysis of the economic conditions in a country helps one to identify the likelihood of success and the growth of the business to be launched. Economic indicators showing a positive likelihood of improvement would increase the chances of the establishment of the business and vice versa, whereas control measures may be put in place to avoid the likely dangers if the negative indicators do not erode the likelihood of attaining other benefits.
In consideration of the DFS products, the company may wish to know the current political conditions that would influence stability necessary for investment, capital inflows, and markets, which are players in the economy. Thriving of the Indian market would be expected to largely translate to better performance of DFS other factors remaining constants. Moreover, the consumption pattern and the demand for products in question would be necessary tools for scrutiny.
Whereas the present conditions may be necessary for analysis, it is important to consider that the success of the business will also depend on the future effects and all the possibilities would better be analyzed. This is because markets are dynamic and there is always the possibility of arising new factors that could influence performance.
The political climate of a particular country plays an important position in determining the economic conditions of that particular country. If the government is fragile, weak capital markets, slowing capital inflows and private investments may be experienced in a country, and also the government may not be able to make the necessary economic reforms. Although questions have been raised whether the country can recover from the current global meltdown following the outcome of a general election, the economy has been estimated to grow at about 4-5% in 2009 (Dua, 2009). India is the 12th largest consumer market. A GDP growth of about 5.5-6% was predicted in 2009-2010 (Dua, 2009).
India has not experienced the devastating effects of the current global recession on its economic determinants, namely, large and growing domestic demand, and high domestic savings. This means that the sofa company can expect some potential stability of the Indian economy even in the current economic crisis. Indeed, the lower manpower costs increase the benefits of setting up an outlet in India because; the company will not spend more money on labor.
Global firms that would relocate to India will benefit from the labor-intensive capability of India, together with reasonable productivity (Dua, 2009). Strong domestic demand is important for the success of businesses in the domestic setting. The country has realized rural prosperity as a result of the government expenditures on some projects like the National Rural Health Mission and Pradhan Mantri Gramin Sadak Yojana whereas the consumer durables industry is sustained by the rural demand, which also would ensure that the industrial growth doesn’t fall below 5%. The domestic demand is being raised by a number of economic stimuli induced by the government, for example, lowering the exercise duties by 4%.
It is projected that economic sectors like automobiles will realize growth. The government has also increased expenditures and lowered interest rates for private borrowers, something that appears to help the construction industry. This points out the fact that DFS Sofas Company could also benefit from these incentives. The possibility of the existence of demand for households can be figured out in consideration of the figures put forward that about six million of the country’s households are spending more than USD 28 billion per year.
Low levels of inflation and balance of payment have been sustained by the current oil prices since the Indian economy depends on imports of crude oil. In case the aforementioned prizes remained low until 2010, private and public investment would remain favored. In addition to the transport sector coming up as a result of affordable energy prices and increased demand due to nascent industrial revival.
The importance of growth in all aspects of the economy to such a company like DFS sofas is that the rise in or the high number of employed people will be able to afford the commodities and therefore would increase the demand for the sofas. In addition, it is necessary to have a high population in the event of high population estimates. The service sector has maintained a growth rate of 7-7.5% although the IT industry and BPO’s are still affected by the financial crisis in the United States. The industry has a 25% weight in GDP and is expected to grow at a rate of 4% as a result of growth in the service sector.
According to Dua, the country can expect a GDP growth of 6% in 2009-2010 (2009). India is not to be with many barriers in the trade as compared with others. WTO provides a forum through which members can negotiate for the reduction of trade tariffs and relaxation of trade and market restrictions. The organization consists of 149 members of whom are almost from all the developed countries (Columns, 2006). The WTO also may seek to achieve trade liberalization which has been perceived by experts as having many merits to producers and little to them (Mash’hoor, 2005).
Coupled with the local conditions are the liberal international trade policies in India that can improve market conditions for entry and performance. The country realized a 44% growth in the FDI inflows from 2005 to 2006. Among the local conditions that have contributed to the improved business climate in India is the development of infrastructure. The government of India spent USD 280 million on infrastructure development operations and urban development projects. In addition, the country has realized high improvement in the communication and transportation facilities that are necessary for business prosperity.
Growth in GDP is predictive of an increase in business opportunities and growth in investments. The Indian economy has been recorded as changing from an agrarian to a service-based economy. There is also a high GDP growth rate of about 8% from 2003 to 2008 with increasing customer expenditure with six of the country’s households spending more than US$ 28 billion per year.
Products Mix
Production mix can be used as a marketing strategy when properly organized. It refers to the product target, i.e. those who are the aim for the product, a benefit that is expected, the planning expected for a product in the market, and the differential advantage of the products to the competitors. An analysis of the competitor’s goods available to the consumer is necessary to make sure that the company improves in terms of marketing its products. In this case, the type of Sofas in the market includes 100% leather with frames and springs; fabric products including chenille, cotton, with different colors; and a mixture of fabric and leather.
The producers should be able to make sofas that are of quality and cheaper since there will be competitors like Dreams Office Systems who will be competing with them in the business. The aforementioned company determines the requirements of the customers and proceeds and does the production, not only for sofas but also for other products. Nakshatra Furniture Works also is a potential seller of Sofas in India and Greenscape is.
So that the Sofas gain the good market, they should be sold at a cheaper price than those from competitors. With an increase in the number of middle-income groups, the company can introduce more quality design products targeting this economic class. This means that because more people will be interested in commodities for more leisure, the company may experience sales for the quality design sofas. In addition, this position is represented by the fact that there is an increase in the number of those young people who have disposable income. Having products that vary in respect to the economic class is very important.
Since there is a group that will remain to be in the low economic group, offering products with low quality but cheaper is also important to capture this group. The benefit of offering different prices is to capture different economic groups while high-quality commodities will ensure a market for those for prestige is captured and that quality is matched with a price.
India is better placed as a target country for the DFS business because of the growing population. The growing population means that the number of people using the products is also rising. The population in India currently has reached about 1,182,160,000. The rate of natural increase was about 1.80 according to a 2001 population census and was expected to overtake that of China by 2010 (IndiaMART InterMESH Limited, 2009). Although the rise in the demand can be translated to mean the company could attain success, this is subject to factors like the competition by the already existing players in the market. Further increase in the market may be expected because those who are below 25 years of age form more than half of the population.
According to the CIA World Factbook, the population of India changed by a percentage of 1.60% in 2008, from 3.15% in 2007 as reported by the index Omundi (n.d.). The Indians are also brand conscious with western tastes of a high-income group and also a market for the local flavors.
Sociological factors
Families in India are shifting towards smaller and single households with an increase in households recorded at 210 million in 2006 from 148 million households in 1991. In addition, the trend for urbanization creates the demand for sofas. The market has a rising population which has rising disposable income, which is an opportunity for the company to sell its products. India has a highly improved disposable income as a result of economic growth. The people in India, in addition to being brand conscious, have a taste of western brands.
Economic business challenges
Although the economic trend of India has been indicated as suitable for investment by DFS Sofas Company, a lot more factors need to be considered and the economic conditions further weighed to identify the likely challenges and initiate countermeasures. The economic business of a particular country largely depends on the business of other countries, and especially the trading partners. The performance of the Indian economy and the business environment largely depends on its major trading partners including the United States and China.
The economies of these countries will have to recover to enable the good performance of the Indian export market. These countries have not been shielded from the effects of the current economic challenge. The United Kingdom, Japan, the U.S, and China have responded to the said recession by injecting a particular amount of money to save their economies. Although major economic reforms in India are determinant for the growth of GDP, an 8% rate may be hard to achieve because recovery of the global economy is also essential.
Among the reforms needed at the domestic level include opening up of the banking, increasing the FDI, privatization of pension funds as an example of financial sector reforms, increasing spending on basic school education and health to ensure that youths are healthy and employable. The increase in the FDI would help the company to increase total production capacity, avoid pressures from the foreign government for local production, avoid the trade barriers-both hidden and expressed, and make lower production costs possible.
The company would also be able to participate in joint marketing and licensing among other activities, participate in co-production with local partners, and avail joint ventures. In addition, there is a need to ensure the creation of sources of internal financing through deepening the capital markets in the country (Dua, 2009).
In the financial year 2008-2009, the rupee declined by 23% and became the second worst-performing currency across the globe and this has resulted in a postponement of importation of essential goods as well as making foreign debt become a burden.
The buying decision is affected by property prices and therefore the boost in demand may not be as quickly affected by the package provided. High property prizes to the extent of the limit of the rate of concession, i.e. Rs.20 lakh may also influence buying.
Other factors that could help in improving the business conditions for the operation of DFS in the market are; increase in the middle-class consumers and large investment and policies from the Indian government. Many urban projects in the city of Nagpur received an allocation of USD 280 million in 2007. Modernization of the second-tier cities was set to benefit from the government expenditure of USD 29.0 million over seven years from 2007 to 2014. The rise in demand in these second-tier cities could further be realized because migrants would be possibly pulled away from over-populated first-tier cities.
Industry Classification, promotion and process
The rise in the demand for the products of DFS Sofas Company is a possibility because of the rise in housing investments in India. The people owning houses are a good target population for the commodity. Although housing finance in India is a relatively young financial service, it is the second-largest employer in the country and has growth potential. Home equity loans and home extension loans may have played a role in the growth of housing in India.
Home extension loans were to be used for the extension of existing houses like the addition of rooms and other facilities, while the latter refers to a form of finance to a customer by way of mortgage of the existing property to the financier for a loan provided for other purposes, more improvement loans which can be used for repairs and renovations, such as, flooring, tiling, etc. and home Purchase loans that can be used to buy new homes, Land Purchase Loans which can be used for purchasing land for purposes of construction. In January, the government announced a set of measures aimed at stimulating the economy that came after another set was announced in December.
The government sought to revive the demand for the housing sector through the lowering of interests on home loans up to Rs.20 lakh and through concessional treatment to commercial real estate loans which were restructured up to 30 June 2009. Other measures carried out by the government also included granting priority sector lending status to loans to Rs.20 lakh per dwelling per family by housing finance companies with the approval of NHB and facilitating the National Housing Bank core facility.
Reaching a large population has not been possible because of the lack of title deeds in the absence of land records and high down payment requirements. The mortgage penetration is low and its ratio to GDP is about 6%. The reach in rural areas is also low. The high-income and the middle-income group have been the greatest beneficiaries of housing finances from the formal institution. With the consumption having been projected to change in 2013 and the housing sector has undergone unprecedented change over the past two decades, DFS can take the accruing advantages of this.
The home furnishing industry grew in sales by more than 23% in 2006. The market is highly fragmented with 12 top players in the industry accounting for 12% of sales in 2006. The availability of demand for the home furnishing products by the local market can be justified on the consideration that the home furnishing industry accounts for 17% of world furniture imports. The sales were forecasted to increase by 17.7% in 2006.
The evidence for high or potential growth in demand for home products can be identified by the government’s plan to encourage economic expansion in second-tier cities. The company could also perform well due to the rapid growth in the consumer market with rising incomes in about 35 Indian cities holding a population of more than one million people. Smaller cities like Vijayawada, Nagpur, Vadodara, and Ahmedabad hold about 10.7 million households which have an annual income of up to USD 23,000 in 2006. Promotion would provide an opportunity for the firm to publicize the product.
DFS needs to launch a promotion program over the Indian media that will help people become aware of the new products, especially in the second-tier cities. In addition, roadshows in these cities can help the company popularize the product. To ensure that the products gain popularity among customers, the company can offer products at low prices as compared to those of the competitors at first say within a specific period.
Conclusion
The growth of the population presents a potential rise in the demand for household goods. The DFS Sofas product is related to household facilities, and therefore rise in households may significantly lead to a rise in the demand and sales for the company. Potential future customers are a necessary aspect of every business and therefore the large population of young people with rising disposable incomes must be seen as an opportunity for demand. The government’s interest to improve the conditions of the second-tier cities also present a possibility of an increase in demand for household commodities. The improvement of the Indian economy would also help in sustaining populations in employment to empower them economically and drive demand for household goods.
The success of the DFS Company cannot be gauged on the present economic conditions only. Challenges must be well analyzed and the necessary measures are taken to take care of the situation. Any business environment has its challenges. Although the current economic recession has had little effect on the key determinants of the Indian economy, it is not yet over and therefore may pose new challenges in the future.
The performance of the Indian economy, which can closely be associated with the performance of the domestic businesses-the field which DFS seeks to join, is dependent on the performance of the global economy which has been rated as deteriorating. Further negative impacts of the economies of India’s trading partners like China, the United States and the U.K would also affect the economy of the country. The company must therefore be prepared to face these and other new challenges in the future amidst new and favorable marketing opportunities.
References
CIA. 2008. The World Factbook – India. Web.
Columns: Common sense on the World Trade Organization. (2006). Web.
Dua Ajay. 2009. India can safely expect a 6% GDP growth. Web.
Euromonitor. 2009. India-Country Factfile. Web.
IndiaMART InterMESH Limited. 2009. General information-population of India. Web.
The Economist. 2009. Economic data. Web.