Doing Business in India

Entry into the Fast Food Industry of Indian Market

DELL

This report has been prepared by Marie James (Freelancer) for a client who paid me to write her paper

Executive Summary The focus of this report is the challenges, opportunities, and risks involved in doing business in India. India is a growing market in the world, with the fastest-growing fast food industry across the globe. The fast food business is selected due to its growing nature, especially in Indian markets. In this report, the macro environmental factors are considered, which are political, legal, social, competitive, and economic. The culture of India is also studied including the elements like clothing, languages, art, architecture, and religions. The country is famous for its diversified cultural heritage. The advantages of doing business in culturally diverse India are many. The business idea of a fast food company must be unique and innovative, as there is much competition in the Indian market. Therefore, the product selected is unique and according to local taste of Indian consumers. The global industry of fast food is the only industry that has grown even after the recession. The low cost and easy accessibility of fast foods keep the industry grow faster. The local market of the Indian fast food industry is also growing at a rate of almost 34%. Careful planning and thoughtful strategy are necessary due to the prevalence of already existing players in Indian markets. Therefore a franchise is selected as an entry mode in India for fast growth and expansion in Indian markets.

INTRODUCTION In this report, emphasis is made on analyzing opportunities, challenges, and conditions related to entering the fast food business in India. Today, India is considered a wonderful destination for many foreign organizations across the world. The organizations can reduce cost by doing business in a country where there is a large number of highly educated graduates with lower level of pay as compared to western countries. The organizations find not only lower pay rates, but also cheap raw material. That is the reason that India is now recognized as the worlds largest market for goods and services. Running a fast food business in India has huge opportunities like low labor costs in India(US$ p.a) 2200, which is 3600 in China, 6600 in Brazil, and 8500 in Poland. India has the worlds largest number of English-speaking scientists and engineers (Gesteland, & Gesteland, 2010). There is wide availability of skilled workforce, as the country, as of 2011, has 544 universities and 31,324 colleges. The government of India is encouraging foreign investment, as new investment of the firms is financed by banks with credit of 27.7%, which is 14.7% globally The (Times of India, 2013). The country has great infrastructure, attracting foreign investors with the largest road networks and fifth largest installed power capacity, at 123GW (Gesteland, & Gesteland, 2010). This report will focus on the conditions, opportunities, and risks involved in entering the Fast Food Industry in India. THE MACRO ENVIRONMENTAL FACTORS The fast food business in India is growing because large numbers of foreign restaurant chains have entered the Indian market like, McDonalds, KFC, and Dominos. The fast food industry of India has gained marvelous growth in the past few years and India is the worlds second largest food producer, after China. It is expected that total food production will be doubled in the next ten years. Doing business in the fast food industry will be beneficial, but macro environmental factors must be considered like political, economic, legal, and technological. Political Factors

Political factors play an important role in business operations. India is known as the largest democracy in the world. The political conditions of India affect the commencement of fast food business. Every business entity must comply with the political requirements of that country in which it operateslike minimum wage regulations, anti-discrimination laws, voluntary codes and practices, trade agreements, and taxes. The current Indian government has shown flexibility towards foreign investments and companies and towards FDI. In 2010, India was ranked second place in global foreign direct investment (FDI) and is included in the top five destinations to invest (FDII,2013). All these economic reforms have facilitated to enter the market of India. After considering the political environment of India, the bureaucracy, and the FDI controls, it is favorable for commencing fast food business in the new markets of India. Economic Factors Despite the recession and decrease in confidence of consumers in the world, the consumption of fast food has increased (The Economist, 2010). The fast food industry is growing worldwide due to its convenience and low prices. The economy of India is growing day by day, and World Bank forecasted 6.7% GDP growth rate for the next fiscal year (Inflation, 2013). India is the tenth largest country counted for GDP and the third largest by PPP (purchasing Power Parity) (International Monetary Fund, 2013). The growth level of GDP shows the stable economic growth in the country. The inflation rate was high in 2010 but this is reduced due to government intervention and adjustment by Central Bank of India. The economy of India is developing as an open market and there is economic liberty, less control on foreign trade and investment, deregulation of industries, and privatization (India Economy Profile, 2013). The entry of fast food stores is favorable due to big cities in the countryMumbai, for instance, is known as the financial center of India. Many foreign companies operate here and Bangalore is known through the world for its IT Industry and there are many call centers and IT companies in Bangalore. The government of India is striving for poverty eradication, reduction of inflation, and developing infrastructure. Social Factors Social factors cannot be ignored in the fast food industry because they greatly affect the success of any business. Today consumers are more aware of healthy lifestyles, so they pressure the fast food companies to serve healthier foods on their menu. There is pressure to include low-calorie

foods, salads with burgers, and hygienic nutritional food. To do business in India, many things must be kept in mind, like Hindus avoid all foods consisting of meat and eggs (Faith in Food, 2013). In addition, they are also reluctant to eat garlic and onions. Therefore, many fast food stores are offering products which are truly vegetarian like vegetarian pizza and vegetarian burgers to satisfy consumers in India. But now the trend is changing in India and the nation is switching to fast foods that contain impure contents or go against their religious beliefs. Competitive Factors The fast food industry is one of the growing industries in India and the eating trend in India is rapidly changing. The factors which contributed to the success of this industry are disposable income, change in consumer behavior, and demographic change (India, 2013). Due to this reason, large numbers of fast food stores are opened like McDonalds, KFC, Dominos, and Barista. The fast food business will have to face competition not only from local fast food stores but also from other multinational fast food chains. The competition is heavy in Indian fast food industry, as, according to Euromonitor and market research from RNCOS, the fast food industry in India is growing from 25% to 30% a year and the global fast food chains like McDonalds, KFC, and Pizza Hut are becoming second- and third-tier cities (Overdorf, 2011). In addition, KFC and Pizza Hut are planning to open 1,000 stores and KFC will probably draw $1 billion in revenue over the next four years. Therefore, to cope with this competition there is need of careful planning, strategies, and innovation in fast food products. Technological Factors Today is the world of technology and innovation, as the consumers are more familiar with new technology. Therefore, the fast food company has to use channels such as social media websites to attract customers. Fast food companies mostly attract a young population, so play spots and toys in meals are introduced to attract children and youth. The improvement and innovation in inventory system and supply chain will make the business successful in an international context. Legal Factors The legal environment is a very important factor for starting business in a new country. Before starting business in a foreign country, the company must consider the attitude of the country towards international business, bureaucracy, political and legal conditions (Armstrong and

Kilter, 2009). To open fast food stores in India, one must know the political instability in India, as there have been ten governments elected during a period of 25 years (Perreault et al., 2009). The legal environment of India is not as favorable as compared to the parent countrythe USA. The country is affected due to corruption and social unrest. The situation of law and regulations is not as good as compared to the Western world. But the good thing is that India is a member of the Geneva Convention, so India has to follow international legal proceedings. There are hurdles in the legal system, but there is the International Center for Alternative Dispute Resolution, which is responsible for resolving international disputes. In addition, the judiciary system in India is not connected with the political system. But a fast food business can face difficulty in copyright and trademark protection, as there is piracy in the country. The government of India is intended to join the Madrid Protocol, which will relax foreign firms. But India is struggling for reforms and the behavior towards foreign companies has changed and this effort will boost FDIs in India. CULTURE OF INDIA The culture of India is about 5,000 years old (How old is India and its Culture, 2012). The culture of India is described as the first and the superior culture of the world. India is a country with diversified culture and different customs in different regions of the country. The culture of India is the mixture of many cultures present across the Indian subcontinent, and the traditions of India are very old (Mohamad, 2007). There are many elements of Indian culture, which makes it different from other cultures in the world. Religions There are many religions in India, which are called dharmic religionsthese include Hinduism, Jainism, Early Buddhism, and Sikhism, and all these religions originated in India (Census of India, 2011). India is well known for its diversified religions and has many religious societies in the world. Religion plays an important role in the culture of India, as it leaves a great impact on the minds of Indian people. Many customs, beliefs, ideologies, and philosophies are based on religion. There are 23 million Christians, 19 million Sikhs, 8 million Buddhists, and 4 million Jains (Census of India, 2011).

Languages India is a large country not only by population but also by area, having 28 states and 7 territories with distinct languages. The national languages of India are Hindi and English, but there are 22 official languages and 400 languages are spoken across the country (Indian States and Union Territories, 2012). Food Food occupies a very vital position in the culture of any country, and food represents not only the nutrients but also the culture, art, and tradition of that particular country. The Indian cuisines are inspired by Arab, Turkish, and European foods, as India has been invaded by many peoples like Arabs, Turkish, Mongol, and English. India has been famous for its spices; even Columbus wanted to discover India in search of spices (Gesteland et al., 2010). Architecture The architecture of India is deeply rooted in the past and inspired from Mughal period architecture. The marvelous example of Mughal architecture is Taj Mahal, which was built by Mughal emperor Shah Jahan in memory of his beloved wife Mumtaz Mehal. Architecture of India is multidimensional and has many innovative ideas. The architect of India has impact of Islamic, Persian, Turkish, English, and Indian architecture styles. Arts India is an art-loving nation, well known for its film industry, dance, drama, theater, and music. Indian classical dance is famous and includes eight classical dance forms. Indian theater is also has a long history, like dance and music. Music is part of Hindu religion and an important element of Indian culture. Visual arts include painting and sculptures and in India sculpture making is part of Hindu religion, like sculptures of Hindu gods and goddesses. Clothing Indian clothing includes a wide variety, like saris are mostly worn by Hindu women and dhoti by men. Indians also wears kurta pajamas, kameez doppatta, and shalwar. They also wear sandals, and ornaments are also very traditional (Briseno, 2013).

Advantages of doing business in India Doing business in the culturally diverse India is beneficial because the culture of the country has great capacity to absorb different cultures and their foods. India has welcomed many nations and their cultures and traditions, like Turkish, Arabic, and English foods. Therefore, keeping all this in view, commencing fast food business in India can be a success. The trend in India is changing, and now the nation has developed a taste for fast food. It has been reported by the Indian Ministry of External Affairs that the disposable income of Indians has increased and the middle class of India has risen. The Indian government has made investment-friendly policies and reforms, which has made India an attractive place for foreign investors. Limiting Factors There are many limiting factors of doing business in India, like political factors, inflation, cultural differences, and security. The Indian administration has been weakened by corruption and increasing prices of fuel. The corruption cases have caused unrest in the country. The inflation in India is 6-7%, which is above the Central Banks target (Inflation, 2013). The interest rates have increased, which is decreasing the countrys growth. Doing business in India means dealing with different customers, different norms and values. Security risks are also involved in doing business in India, as there is terrorism in the region. All these limitations need a thoughtful strategy to enter in the business. BUSINESS IDEA A business idea can be defined as a concept used for commercial purposes. The business idea is centered on the product or service you are willing to sell. Here the business idea is about starting fast food stores in the Indian market. Carrying out this idea is not an easy task, as the fast food business is very competitive and entry into new market needs a lot of research. The business idea of starting fast food stores must include the following details: The Product or Service Description The fast food business will offer a variety of products like burgers, spring rolls, and pizza, which will be all made up of vegetables. To make fast food items more innovative, a taste of Indian foods will be added. The vegetarian fast food will be offered due to religious values of Indian

consumers. But the fast food stores will also place chicken and fish on the menu for nonvegetarian consumers. Ice creams will be the main part of desserts, including low-fat and sugarfree ice creams. Need of the product Research will be conducted prior to the launch of products in India to analyze the level of customer appreciation of the product. The idea of vegetarian fast food is designed especially for the majority of vegetarian consumers in India. It is hoped that they will like the idea and welcome the product. But the product must be unique from the products of competitors in the market. Innovation There are many players in the fast food industry in Indian market like KFC, McDonalds, and local fast food chains. The business will have to face both types of competition from local and international fast food stores. Therefore it is needed to make product unique from other competitors products by conducting a study of the consumer preferences and tastes. Research will be done about Indian markets, local trends, preferences of consumers, and potential demand of the product. India has a large vegetarian population, so to satisfy them the fast food business will use a completely distinct menu of vegetarian items as an Innovative strategy. The company will offer a separate menu of vegetarian and non-vegetarian items. THE GLOBAL INDUSTRY During the past five years, the global fast food industry has expanded in its size despite changes in consumers tastes, preferences, and economy. The disposable income has decreased due to recession in 2007 and for this reason consumers have reduced eating out. Consumers are now more health-conscious than before. Therefore, the fast food companies are now considering more healthy foods and avoiding fatty food stuff. But the good thing is the industry has more demand in emerging economies like India, which has improved the performance of the industry. Key Drivers of Fast Food Industry

There are many driving forces which have shaped the fast food industry and are success factors of the industry. In past, the fast food industrys main motive was to provide low-cost foods, but with the expansion, the industry is more focused on the customers needs. They are using many strategies to be successful in the market. The Challenges facing Fast Food Industry The fast food industry is the most challenging industry in the world due to much competition, changing consumer trends, and the intense rivalry. To get your share in the market is very challenging. There are a number of challenges faced by this industrysome of them are listed below: Health-Related Issues The main challenge faced by the fast food industry today is health-conscious consumers, obesity, and hygienic foods. Obesity has increased in the world, and in America two-thirds of people are obese. Fast food is blamed for obesity because of its greasy and fat-rich products. To cope with this challenge, the fast food industry is trying to bring low-calorie foods in its servings. Preference of Low Carbohydrate Diet The Atkins diet by Dr. Atkin suggested that consumers take a high protein diet and avoid carbohydrates. This low carb craze has influenced the fast food companies to include low carbohydrate items and increase protein items. So this is a challenge for the fast food industry to what they offer as low carb substitutes to the existing menu items. The intense competition There is a lot of competition and rivalry in the fast food industry, as many fast food chains are striving to get more market share. Like Subway, Krispy Kreme, Pizza Hut, McDonalds, KFC, Papa Johns, and Dominos. THE LOCAL MARKET The local Indian fast food market is growing rapidly due to positive developments, government policies, and changing consumer tastes in India. There are many reasons for market growth, like

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increase of young population, working women, tough working schedules, and rising middle class and disposable income. Market Size The Indian fast food industry is growing rapidly and is currently a $47 billion industry (Gesteland et al., 2010). The increase in such a large size is due to westernization and a large number of working professionals. Therefore, many foreign brands are struggling to expand their businesses into India, like Dominos, which plans to open 60-65 outlets every year, and Yum brands, which will open 1,000 fast food stores by 2015 (Domino, 2010). Market Growth According to research, the Indian fast food market is growing at the rate of 30% to 35% per year (Domino, 2010). Many multinational brands have succeeded in expanding business in the country and their business is growing at a fast pace. The growth is mainly in large cities, but there is capacity for growth in tier II and tier III cities. Market Segments The market is divided by different segments, but in the fast food industry the market is segmented demographically (Armstrong, & Kilter, 2009). There are different segments in the Indian market like men, women, children, and old people. But the target of fast food business is young generation and children. Competitors in the Market There is much competition in the fast food market in India because of the entry of international giants. KFC has planned to expand from 21 cities to 75 cities and open 500 stores by 2015. Likewise, McDonalds is planning to open 1,000 outlets by 2020. McDonalds is also planning to invest $10 billion to increase its growth. Nandos is also planning to open 35 outlets by 2013 in different places in India. Dominos pizza is the largest pizza chain in India with 300 stores and a workforce of 9,000 people in India (The Globe and Mail, 2013). ENTRY MODES IN INDIA

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The company has to adopt a great marketing strategy to enter new markets. There are many options available to enter into India, but it needs strategic issues when entering into new markets of foreign countries. The company has to arrange its products, technology, human resources, capital, marketing, and other resources when intending to enter new markets. The modes of entry into the new markets help the organizations to set their goals, resources, and maintain policies so that the company can work smoothly in the international new markets. When an organization decides to enter a new market, the best choice of entry mode is included in the expansion strategy of the company. There are different entry modes like exporting, turnkey projects, licensing, franchising, joint venture with the host country organizations, and establishing a subsidiary in the country. So, to make the right decision when entering the market of India, there is need of careful planning and the consideration of all different modes of entry. Franchising is the best option for Fast Food Business to enter in India The franchise can be defined as a system in which semi-independent business owners that is franchisees, pay fees or royalties to the parent company that is the franchiser, for the right to sell its products and services with identified trademark (Zimmerer, 2008). Franchise Format A franchise is a contractual relationship between the franchisor and the franchisee, and both parties are legally independent to run their businesses. According to Cox and Mason (2007), there are four components of franchise business. Product or Service deliverables This component makes the fast food business unique, like uniqueness in its menu, which helps the fast food company in the competitive atmosphere of the market place. Benefit Communicators This component of franchise business let the franchisee gain intangible benefits for the customers like trademarks, clean uniforms in fast food stores, color scheme of the outlet. All these things build confidence in the product or service.

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Format Facilitator These include the policies and procedures in the franchise business, which facilitates smooth functioning of the business. These are the factors which are not seen by the consumers, but the entire system of the franchise is based on all these facilitators. Benefits of Adopting Franchise as entry mode There are many advantages of the franchising model, like low political risks, low cost, and opportunity to expand rapidly in the market. In addition, a franchise is a good option to bring balance in risk and returns and it is a powerful business model in the world today. According to Hokinson et al. (2008), franchise businesses promote growth of the business because it requires few resources and allows greater flexibility. A franchise is also the best option for entering the Indian market because it is the best approach for medium and small business enterprise. The option of a franchise is a good one for our medium-size business, but according to Simpkin (2010), the challenge here for expansion of small-size franchise network is to do it in a structured way and keep control of business, both at home and in the target market. A franchise being successful in one community does not mean it will also be successful in another, so analysis must be done of the culture, demographics, political, legal system, and differences in languages. KEY SUCCESS FACTORS There are many factors which are keys for the success of a fast food business. The fast food companies adopt many strategies to cope with the challenges of competition and changing consumer taste. New Items on the Menu The fast food industry is criticized for its unhealthy foods, and the customers switch to somewhere else if they find food unhealthy. Therefore, the fast food industry is now adding new items to the menu that are healthy. The fast food chains are now adding new items to the menu to satisfy consumer demands. Fast Service

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The main attractiveness of fast food business is its prompt delivery. In fact, the term fast food is derived from the meaning the food which cooks so quickly. For this reason, the main objective of the fast food industry is to provide quality food in the least amount of time. The foods offered in these fast food outlets are called made-to-order meals, as they are cooked quickly. Strategies The fast food industry uses many strategies to expand and be successful in the market. One strategy is acquisitionthe fast food companies acquire small chains to expand their business and getting higher revenues. An example is McDonalds acquisition of smaller chains of Boston Market, Mexican Grill, etc. Another method of expansion is opening a large number of franchises across the globe. McDonalds is currently doing business in 120 countries and has 30,000 stores worldwide (McDonalds, 2013). CONCLUSION There are many learning points in this project about doing business in the international market. In this report I learned the cultural diversity of India, its glorified arts and architecture, and the growing Indian market as well. This report taught me the different entry options in new markets and what option is best for the fast food business. I learned about the challenges, opportunities, and risks involved in doing business in India. I studied the political, economic, socio-cultural, and legal environment of the country and how to survive in a completely changed business environment. The report taught me about the success factors in the fast food business and the innovative ideas used by many fast food companies. This report told me that operating in the fast food business is not as easy as considered, as there is a lot of competition in domestic and foreign markets. What is needed for the success of a fast food business is the uniqueness of your product and service and what you offer. The business idea is very important in this regard, as you have to think differently from others. The innovative strategy proposed in this report is vegetarian menu for vegetarian population of India and the Franchise is the best option for fast food business to enter international markets.

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