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NATIONAL UNIVERSITY OF SINGAPORE BMA5112 Group Project Indias Design Leap Forward

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India in the last decade Infrastructure Bureaucracy and Corruption Import tariffs Engineering skills Entrepreneurship Trade imbalances and inflation Indian Political scene People

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The Fashion Industry The Indian Fashion Industry Factors driving growth Local and Foreign players

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Fashion design industry an example of Indias design 22 future

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INTRODUCTION India's 'design' leap forward?

Abstract India has always been a unique country and this is especially true of how its economy has developed. Rather than aggressively pushing for export growth or attracting foreign direct investment like China and most others in Asia, Indias unique setting, resources and boundaries led it to develop the service sector instead. Was this an accidental development or a purposeful push by the government? If purposeful in nature, what drove the Indian government to take such an approach? In fact, what are the key drivers (or should be the key drivers) on a macro-economic level that determine a countrys developing path? In our paper, we would like to explore three areas specifically: The Indian government and its policy making, given infrastructure and institutions and finally Indias political base to see if a conclusion can be made with regards to its economic development. With this macro environment understanding in place, we would then like to look from a micro-economic level and analyze how businesses can succeed within the India service industry given this framework. The latter question will be answered while evaluating the rapidly growing Indian desi fashion industry as an example of the design future for Indian, which has become very much about focusing on the taste and preferences of locals in terms of design. Is there a way that foreign design firms might be able then compete given that the local companies are so in tuned with the local culture and tastes, not to mention cheaper? Would there be a way to educate the local consumers to adopt a brand conscious mindset as the economy develops and the affluent community increases in size? Or will the culture remain a loyal to a Made in India concept for the years to come and hence be a waste of time for foreign firms to try and break that mold. With this paper we will try to address these issues to draw a conclusion and recommendation on how best to approach entering this unique and challenging market.


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India, with 1.189 billion people (July 2011), is the second largest country behind China. Though only 30% of the total population is living place in at cities, 2.4% the per urbanization is taking annum. Only 6% of the population is above 60 years. However, due to

longer life expectancy at birth of 66.8 years (2011), this segment is constantly growing. The population below 15 years remains relatively constant because on average every Indian woman is giving birth to 2.6 children but with an infant mortality rate of 5%. It is important to mention that the working population age 15 to 59 will increase dramatically in the next five years from 720 to 800 million, seeking jobs and enlarging the economy. The government is spending 3.1% of GDP on education in order to increase literacy rate (only 61% of Indians above the age of 15 can read and write) in order to prepare a young workforce to enter the labour market [Data based on CIA fact book 2011]. India and China were the biggest economies until approximately 200 years ago because they had the biggest populations and size was a dominant factor in economic output. Once the industrial revolution commenced in England in 1800s, followed by the information revolution in the late twentieth-century, mere size mattered less. First the Europeans, and then the Americans leveraged technology to increase GDP in absolute terms and on a per capita basis. Now, India and China are developing fast, and are moving up in the world in GDP terms. In 2010, Indias GDP in purchase parity was $3.92 trillion and listed as fourth-largest economy in the world after the US, China and Japan.


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2.1 India in the last decade

It is interesting to note that while services now make up more than 50% of the GDP of India, it wasnt that long ago that India was also embarking on the conventional path towards an advance economy through the typical agriculture to manufacturing route. After all, Japan, then Taiwan and South Korea, and now China have demonstrated that manufacturing can accelerate development because its output can be exported to rich countries. However, in Indias case, while export and trade rules were relatively lax at the time, the domestic market was one where there were massive protectionism laws in place, so much so it became known as a license raj. At that point in time, India had just gained independence and eager to boost export growth while still protecting local industries and expertise. The reality was however, that this strategy was a failure and led to a much slower growth rate than its neighbour leading it soon to a brink of bankruptcy in 1991, despite the Green revolution and massive growth of its agricultural segment. Looking back however, this phase might have BMA5112 - INDIA Page 7

actually saved India and probably served as the platform where Indias true growth began. The Prime Minister then Narashimha Rao and Finance Minister Mammohan Singh, with fresh money from the IMF and conditions of the loan, engineered sweeping economic reforms throughout India which included steps to remove the license raj that it had became. In tandem with this, tariffs were reduced along with interest rates. Many public monopolies were also removed, markets were opening up and automatic approvals for foreign investment were granted into many areas (but not all). The results from these reforms have been impactful. As mentioned in the earlier section, India is now the 4th largest economy by purchasing power parity and has been experiencing an average GDP growth rate of 8.5% since 2005, making it second only to China in terms of growing economies. Additionally, despite the global economic slowdown, for FY11, India is still expected to achieve at least 7.5% growth for its GDP. This is partially due to the fact that its domestic consumption is extremely strong and this helps to insulate it from external shocks. Looking a bit closer at the GDP split, one would find that services now make up the bulk of it, accounting for 56% of the GDP while the industrial and agricultural sectors represent 29% and 15% respectively as of 2010, a sharp turnaround for India when compared to the 1970s where agriculture used to be the shining star of growth, contributing close to 42% of the overall GDP. In addition, the contribution from the industry sector only increased from 21% to 29% during the last 40 years, which is very unimpressive when compared to the services sector. Source: Worldbank With the various reforms also comes increased foreign investment into the country. This has amounted to some 178 billion USD between 2000 and 2010, a massive jump from 1991 where it was only averaging USD $200 million per year before in FDIs. Among some of Indias key investors include Mauritius, Singapore and USA which rank 1st, 2nd and 3rd respectively, with interests in such investment obviously gaining ground given Indias significant potential and prospects of high profitability. As discussed above, the strong domestic consumption has led to a lot of overseas investment into the country and the government has been doing its share to promote such FDIs, through the continued removal of investment caps across all the industries. There still remain an unfinished agenda of permitting greater FDI in politically sensitive areas such BMA5112 - INDIA Page 8

as insurance and retailing, though at least for retailing, some steps have recently been taken to open this market. A deep dive into where this foreign investment is going also reveals, not surprisingly, that a substantial amount or about 23% of total FDI equity goes into the services sector, followed then by the IT and telecommunication segments.


An important element to take stands note on of a is that weak Indias economic growth foundation as highways, bridges and airports are not up to international standards. speed on Average highways is

only 20 miles per hour due to road congestions and generally its roads are of poor quality. losses are be $6 Economic infrastructure estimated to

resulting from such poor

billion per year according to the Federal Planning Commission. In India, highways or expressways constitute only about 67,000 km and while this makes up only 2% of all roads, they carry 40% of the road traffic! The government has been trying to resolve this by setting up a multiple stage National Highway Development Project (NHDP) with its signature project Golden Quadrilateral. The goal of this project is to connect the most populous cities of Chennai, Bangalore, Pune and Mumbai. This has been partly completed in 2011 cutting the travel time on the 1335km route from Chennai to Mumbai from 90 hours to 48 hours (a significant 47% reduction). However, multiple check posts and mobile squads remain a source of corruption, not to mention traffic


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obstruction on highways and toll stations. Various entry restrictions into cities also slow down the transportation of goods. Since cargo traffic is estimated to grow by 15 18% annually, the Indian government is spending $78.5 billion over the next five years and is additionally trying to attract foreign direct investments for road development projects, granting 100% income tax exemption for a period of 10 years to private investors. It is also disappointing that Indias vast railroad network of more than 60,000 km is not as effectively used for goods transportation as compared to China. One reason is a different standard of broad gauge (80%) and narrow gauge (20%). The government has thankfully recognized this and is now investing $5 billion into building dedicated freight corridors in the Western and Eastern routes (Delhi Mumbai and Delhi Kolkata). More significantly, India has opened the freight transportation sector to competition erasing CONCORs previous monopoly of container movement by rail.

Infras tructure (2008) Road density (kmof road per 100 sq. kmof land area) Air transport, freight (m illion ton-km ) Rail lines (total route-km ) Railways, goods transported (m illion ton-km ) Railways, passengers carried (m illion passenger-km ) Burden of custom procedure, WEF (1= s extrem inefficient ely to 7= extrem efficient) ely Quality of port infrastructure, WEF (1= extrem ely underdeveloped to 7= well developed and efficient by international standards) High-technology exports (%of m anufactured exports) ICT goods exports (%of total goods exports) ICT service exports (%of service exports, BoP) Fixed broadband Internet subscribers (per 100 people) Internet users (per 100 people) Mobile cellular subscriptions (per 100 people) Telephone lines (per 100 people)
Source: Worldbank database

India 129 1234 63327 521371 769956 4 3

C hina 39 11386 60809 2511804 772834 4 4

6 1 48 0 5 30 3

29 27 5 6 22 48 26


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Power is another issue as many cities and economic zones suffer from unstable power supply along with shortages of fresh water. India is generating 122 Gigawatts of power from coal-fired plants (57%), hydro power (25%), gas (10%), nuclear power plants (3%) and 5% from renewable sources (wind, solar). There is a silver lining here though. While generation, transmission and distribution is in the hands of public sector companies or state electricity boards, the private sector companies and international players are increasingly investing in Indias energy sector (for example Tata Power has a capacity of 2,203 MW, China Light & Power provides 655 MW). Unfortunately, despite these investments, there is still a large demand / supply gap of 7 to 12% according to Indian investment commission. It is also precisely because of its weak infrastructure that some foreign companies choose other countries in South East Asia, for example Thailand or Vietnam to set-up manufacturing sites.


Bureaucracy and Corruption

Despite Indias best efforts to remove its licence raj stigma, there still exists a fair amount of bureaucracy. The Indian Times summed it up aptly with an article it ran on 3rd June 2009, titled: Indias suffocating bureaucracy worst in Asia! A survey by the Hong-Kong based Political and Economic Risk Consultancy (PERC) compared 12 Asian nations towards business friendliness..

Source: World Bank Doing Business Publication In the abovementioned article, 1,274 expatriates working in the 12 leading Asian nations found Singapore, Hong-Kong and Thailand to be the most efficient countries followed by South Korea, Japan, Malaysia, Taiwan, Vietnam, China, Philippines and Indonesia. India came in last with its bureaucracy described as suffocating and interaction with civil servants perceived as a slow and painful process. BMA5112 - INDIA Page 11

This is a serious issue not just for its reputation to the outside world, but also domestically. According to World Bank figures, India ranks among the world's worst countries at encouraging entrepreneurs. India is ranked a lowly 166th out of 183 countries in terms of ease of starting a business and second last with regards to enforcing contracts. In addition to bureaucracy, India also suffers from an alarmingly high level of corruption. The 2011 Li-Na report reveals the following:

Other organizations like Transparency International ranked India 73 out of the 102 countries in its Corruption Perception Index (2008) and the World Economic Forum positions India 44th amongst 49 countries surveyed. Over the past two decades since the end of the license raj in the 1990s, the Indian economy has gradually opened up along with the governments relaxation on its tightly controlled policies. On the contrary, corruption in turn has become standard in most business processes. One would find the formal route of setting up a business extremely difficult in India and it is only through bribery that various processes can move or speed up.


Import Tariffs


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Despite steadily opening up its economy, India has however maintained high import tariffs, especially when compared with other countries. Before the 1990s, average tariffs exceeded 200% and quantitative restrictions on imports were extensive. Post 1990, India has been taking steps to cautiously reform tariffs and focus only on goods and services of highest necessity. This has resulted in Indias trade to GDP ratio increasing from 15% to 35% between 1990 and 2005 according to World Bank. Non-agricultural tariffs have fallen below 15% and quantitative restrictions on imports have been eliminated. However, that does not mean India is a completely free market as the government has maintained a degree of economic protectionism. For instance, agricultural tariffs remain between 30-40% and anti-dumping measures have been used to protect trade. There have also been numerous requests by the US to the Indian Ministry of Commerce to reduce tariffs on industrial goods, especially in key segments like commercial air lines. On the other hand, India has recently been pushing for a more liberal global trade regime, especially in services where it is strongest in. So India must find some way to reconcile the 2 issues here.


Engineering skills

In 2008 approximately 350.000 students graduated from college holding an engineering degree, 23,000 with a Masters degree in engineering and only 1,000 students were awarded with a PhD degree. These figures were estimates by Rangan Banerjee and Vinayak Purushottam Muley, both employed by the IIT in Bombay. The number of engineering graduates has been growing significantly over the last years and is now larger than in America. However quantity does not mean quality. According to a survey of local companies, only 4% of Indians engineers are immediately fit to work for software firms and only 18% are employable in the IT sector (McKinseys survey of international firms: 25% of graduates pass IT industry-specific requirements). Hiring companies need to put a lot of emphasis on training on the job in order to bring Indian engineers up to mark.



Author Raghav Bahl argues in his book Super Power? that the Indian entrepreneurship trumps the Chinese due to more private ownership, intense competition and high productivity in India. In his book he describes an interview with George Soros in December 2006, asking him about Indias competitive BMA5112 - INDIA Page 13

advantage over China. Entrepreneurship! was the answer. According to Soros, India had already brought up companies with world-class reputation (Tata, Infosys) which is something China lacks. According to the author entrepreneurship is embedded in Indian genes and he points to the communication industry which was liberalized approximately 15 years ago. Since then the number of TV channels and newspapers have exploded and the telecom industry has now 500 million customers and is adding 15 million per month under extreme competitive conditions. The tough competitive environment demands for high productivity. Since the private sector in India is footed on common law, entrepreneurs can act in a legal thus predictable framework without fearing expropriation. The result is that Indians private sector is booming and is only facing hindrances of the states bureaucracy and poor infrastructure. China, with its massive population, does have its fair share of entrepreneurs of course, but the business environment in China is even more challenging as compared to India. In China, the state and the numerous stateowned enterprises with their easy credit access, are the biggest enemies to the private sector. According to Marshall Meyer (Wharton Business School) the government will always remain in control of the 100 largest firms in China. The tight control limits competition and the drive towards higher productivity.


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Trade imbalance and inflation

Trade imbalance has always been a sore point for India where it has always suffered a trade deficit. Part of this can be explained by the strength of the domestic market and hence the reliance of the GDP growth on it. This trade deficit has however increased significantly over the years and currently stands at some USD $16 billion as of August 2011. Together with this, annual Inflation has also increased significantly and is currently standing at close to 10% in 2011, way above the generally acceptable levels of 6%.

This rise in inflation is despite the India Central banks efforts to contain this through multiple interest rate hikes. However, Indias inflation is caused more by structural factors in the economy, including some discussed above like poor infrastructure, lack of skilled workers and low productivity in agriculture which will require major policy reforms to tackle, rather than simply increasing interest rate. All these factors combined can pose a significant challenge for India moving forward. Inflation does not just affect the cost of goods for the domestic market and hence affordability. It also affects the strength of the Rupee, Indias national currency. The strength of the rupee has been steadily decreasing over the years compared against the dollar and this in the long term would affect Indias competitiveness. Granted, India is still very much a consumption led market. When compared with many Asian emerging economies, this advantage has narrowed down over the years, especially given the fact that India now imports almost two thirds of its oil requirements from overseas markets. Additionally, while the overseas debt has gone up to $306 billion at the end of March 2011 BMA5112 - INDIA Page 15

from $221 billion at the end of March 2008, the cushion of foreign exchange reserves was stable and decreased slightly to $305 billion from $310 billion over the same period, which is a worrying trend.

The main reason why internal public debt has increased in India during in the last decades was the requirement of funds to finance various developmental programmes as both tax and non-tax revenues were totally inadequate to finance the government expenditure. The external public debt in India Increased significantly during 1961-2004 as it was utilized to make import payments and solve balance of payment problems. The tremendous rise in total public debt in India during 1991-2004 provides an alarming signal to Indian economy.


Indian Political scene

Indias political scene has always been an interesting one. It is the worlds largest democracy where literally everyone has a voice and this has on more than one occasion, resulted in slow and costly decision making. While there is a central government in place comprising of the standard hierarchy of politicians and parliament, the states themselves also have their own legislative environment, which differ greatly from one another due to the significant autonomy that they continue to enjoy. In terms of political parties, there are 2 main coalitions: The Indian National Congress (current ruling party) and the Bharatiya Janata Party (BJP). As such, it is unfortunate to note that while Indian National Congress has a majority in the current ruling government and even control some state assemblies, it has failed since to implement any significant reform programs. This is in part due to the complex nature of the Indian political scene, but more important than that is the amount of time and energy spent to manage several high profile corruption cases, the most significant of which (as discussed above) was for the 2010 Commonwealth games and the auctioning of the 2G wireless spectrum. As such, while India has built up a profile of being a hot bed for FDI,


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this volatile political scene has also detracted some countries like the UAE from investing as well.



As a last part of Indias growth story, we also thought it be interesting to explore if the lives have improved over the years as well. After all, a key part of growth is to ensure the peoples standard of living goes up. There are bright spots of course. Gross income per capita has experienced astonishing growth, reaching USD $,219 in 2010, up from close to USD $400 back in 2000, in line with the growth of India to some extent. This represents almost 14% growth on average over the last 10 years. However, such massive growth is not without its problems. The middle class has exploded within India, reaching 32% of the overall population in 2010, and while the service segment has boomed, it only accounts for 20% of total employment in India. Majority of the people are still farmers by trade, working within the agriculture segment that is protected within India but now only accounts for 15% of its overall GDP. In addition, according to the registrar of India, the number of young adults aged between 15 and 50 years will reach 800 million by 2016. This means that the number of people entering the workforce will shoot up dramatically over the next few years. The question then is where are the new jobs going to come from? It is not a realistic expectation for the service segment to dramatically increase employment by another 20 points and the manufacturing segment isnt growing fast enough to contain this population, which in China has taken on the main bulk of the employment.


As per the introduction, this paper will attempt to argue that India should look to develop another industry the Design industry. Why such a specialized segment? What is critical for both India and its MNCs is the ability to build a global brand. There are 2 typical routes taken by companies to establish themselves are as shown below:


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Route A is the more conservative approach where a company looks to develop a consistent revenue stream before embarking on its own brand. Route B, while more risky, brings much faster rewards should one be successful as seen from the likes of HTC and Giordano. The profits reaped however are quite significantly different. Just simply becoming an ODM, yields a 6% increase in terms of margin when compared to just being a simple OEM, primarily because of the additional value one can bring.


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Requires market and technology competencies


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Becoming a design hub would also enable India to grow its manufacturing segment at a much faster pace. India has the potential to become a complete solution provider it is already strong in consultancy and services not to mention a big pool of engineers and scientists, and it has a lot of land available to set up manufacturing plants. Plus it has a large and still relatively low cost labour market. Hence, domestic players who are strong in the services piece can build up its manufacturing capabilities quite easily to up the ante. International firms who already have plants in India, can tap onto the big brain pool and potentially bring lots more R&D investment into India. So in terms of helping India grow both from a brand and FDI perspective, we felt that becoming a design hub is key. Additionally, design is really the driver of profits as it is the key differentiator for a lot of products, which in turn lead to higher price points and consumer willingness to pay. Apple and its iPhone is the perfect example of this. The great part about all this is that design innovation can cross all industries from automotive to design to FMCGs etc, which also means it is not a niche segment that will fizzle out after a period of time. The question is what should India do to develop this segment quickly and effectively, and the rest of the paper will be devoted to that using fashion as a case for analysis.


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4.1 The Fashion Industry

The worlds fashion industry was born together with modernisation, even though fashion has been in existence for more than five thousand years. industrialisation, capitalisation continuous

And with global has




from the 20

century onwards,

the fashion industry

contributed to a significant share of the worlds output. A study on emerging fashion markets showed that India, amongst countries like South Africa, the UAE, Singapore, Russia and Brazil had emerged as a new and unique player in this global industry since year 2000. support. Others mentioned are factors such In many of these awareness of countries, one of the key growth drivers identified was actually government increased international brands and higher demand for fashion as countries globalised (Grial Research Sep 2009). For India, the government had not played any key role in its emergence in the fashion industry. We would want to explore what the key drivers are, and how they can be used to plot Indian fashion on the global success map. In Asia, China is the biggest apparel and fashion market with domestic clothing sales worth US$33.1 billion in year 2008 (Price Waterhouse Coopers report). As the Chinese are relatively more brand conscious than most Asians, the high-end fashion market is actually dominated by key brand names of US, Europe, Japan and Korea in China. As for India, it is the third largest in apparel market after China and Japan ($31.8 billion Willy Barker.com) with US$5.8 billion (PWC report). Refer to Chart A. With experts looking to the fashion industry in Asia for good growth potential, China and India are expected to have double-digit growth in sales in the next two years.


The Indian Fashion Industry

In a McKinsey report on Indias fast-growing apparel market, Indias apparel sales was expected to reach an estimated US$25 billion by end of year 2010


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(McKinsey Jun 2010).

In fact, apparel is the second largest retail category

(behind food and groceries), and this growth of double digits showed that the great potential of this industry will continue to see strong and positive expansionistic opportunities. With that we do expect to see faster growth in the Indian fashion industry. How true is that? In order to know whether it can be true, we will need to understand the underlying factors, key drivers and perhaps the ways of overcoming constraints of this industry. In addition, it is important to look from inside out as well as outside in and explore whether Indian fashion can be truly globalised and whether foreign industry players stand a chance in penetrating the Indian market. All in all, with potential growth in Indian fashion design, it will push its manufacturing requirements, and truly globalize Indian fashion as well as setting pace and example in an important industry for India to carry through from design innovation throughout all industries, just like fashion design is trying to do.

4.2.1 Factors driving growth

Indeed there are several key drivers which drove, and most of these will probably continue to drive the local domestic fashion industry to greater heights. These can be grouped into 3 key areas; mainly the increasing disposable income of Indians with economic growth driving GDP per capita from US$329 in 1991 (Wiki) to an expected US$2,110 by year 2016 (refer to Chart B);

Indian youths behaviours and expectations of fashion; as well as Indian-Western fusion and influence. These are definitely interrelated and formed a powerful
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driving force which will continue to shape the Indian fashion industry, as well as how Indian fashion can be truly globalized.

Figure A 10 Real average household disposable income in India has more than doubled since on the 19 20 main ago by about US$2,000 per household (Earthpulse). In addition, the years 91 middle class portion is expected to continue a significant growth rate and this growth will create afor drivers robust consumer market internally in India. With stronger Indian
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purchasing power, fashion products will definitely see faster growth as such goods have been proven to be demanded as people become richer. Latest figures (refer to Chart C) show that comparing year 2007 through to year 2010, Indias gross and disposable income has grown by almost 50%, and with this comes prospering urban consumer lifestyle which push for stronger demand for fashion, given more social opportunities as Indians evolved to have richer tastes and improved social and work lives. At 29% of population residing in cities, India has one of the lowest urbanisation rates in the world (McKinsey report), and this shows the potential upward growth as Indians continue to stream into the urbanised cities to work and live, and with that will continue to demand strongly for new styles and fashions in order to stay relevant to the rest of the more developed societies, which is part and parcel of urbanization and changing cultures in growing ad developing countries. Also, with higher disposable income, it pushes more businesses, both foreign and local enterprises to expand in hope of being first movers in many areas and aspects of fashion such that they will be the preferred brands or choices as Indians grow richer by the day. As such, larger shopping malls are opening and many are focussing on apparels and other fashionable items. In addition, with the increase in the usage of credit cards with more Indians holding jobs in bigger companies, there is no doubt that this factor will continue to drive consumer demand, and definitely the fashion industry growth.

The second driver is really the change in the demographics of the Indian population. With better education, younger age groups, more exposure to foreign ideas and stuff through growing internet users and all, the youthful Indian population (in comparison with aging societies of Japan and China) have refreshed the fashion and apparels market with fresh and new ideas, and as a result, even traditional costumes such as saris are modernised and being worn differently, and India has also seen many renowned designers on the international scene. Coupled with things like the launch of new programs and courses in various Indian schools, such as Indian School of Business launched Business of Fashion: Strategic Brand Management, there is much greater promotion of fashion and push of local designers and the industry to an international level. BMA5112 - INDIA Rising affluence of the younger generation has also Page 23

increased the brand awareness of Indian consumers, thus helping India moving closer to the Chinese standards of brand consciousness, giving rise to the vibrancy of the fashion industry. Hence, as Indias economy continues to grow stronger, and with the help of a sustainable youthful population, the Indian fashion industry can be boosted with much more international exposure and clientele, thus truly globalizing this industry to attract and promote Indian fashion products and output internationally to a greater level of competitiveness. Another important driver is really the fusion of Indian and Western tastes and perhaps some parts of culture, which has gradually influence the lives and lifestyles of Indian nationals. This can be attributed to several reasons such as the ever growing number of foreign multinational companies setting up branches and even regional headquarters in India; the bombardment of foreign television programs, all thanks to cable TV, as well as movies and the Internet which played a big role in educating and updating Indians of the latest global fashions and trends; many more Indians receiving education overseas as compared to previous 20 years. As a result, this mixing of the East and West has also provided a unique Indian fashion line and trend which has given foreign fashion lines a run for their money. Also, Indians themselves for opting for more Western, especially American and European styles of fashion as compared to traditional clothing, although it will still take many decades and generations to dilute the traditional Indian clothing. This fusion is essential for Indians to embrace the fast pace changes that we are seeing in the fashion industry globally, and enable them to quickly adapt and even be able to set trends for the future.

4.2.2 Local and foreign players

Being one of the oldest civilisations in the world, Indian fashion has combined tradition, culture and modernisation to become an emerging market since year 2000. Fusions of Indian and Western styles have dominated the catwalks of Indias various fashion weeks, which have become popular and saw strong demands locally and overseas. Since year 2000, India has organised an increasing number of fashion weeks, such as Delhi fashion week and Lakme India Fashion Week, which are annual events showcasing the works of the nations best fashion designers. This has BMA5112 - INDIA Page 24

attracted local and foreign purchasers, facilitating business opportunities as well as giving local talents the platform to globalise their designs. Lakme 13th India Fashion week which attracted many buyers both locally and abroad

With recognition and the foresight of continuous strong growth, in year 2008, a group of established Indian designers founded the Fashion Foundation of India (FFI) and it aims to help all local designers and the fashion industry grow internationally. At a particular Delhis fashion week, about 70 out of 150 buyers came from abroad, and this numbers continues to grow as more overseas buyers recognized the popularity of Indian fashion. With the local scene doing well with their local product designs, given that more and more Indian grown companies are also moving into the fashion and apparels markets, such as ITC (Imperial Tobacco Company of India Ltd) creating Wills Lifestyle with 61 stores in 34 states, Trent, Reliance Retail, Indiabulls, etc., the fashion and apparel sector are bound to see double digit growth for the next 5 to 10 years, and this is a boom for the apparel manufacturing industry indeed. In addition, India is attracting foreign investment in fashion as well. We see the country being a focus for Inditex, the Spanish clothing retailer which opened 25 Zara shops in year 2010 in partnership with the Tata group.


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Another international renowned fashion company who had made their debut in India since a few years ago opened its third store in Mumbai selling international as well as local designs which includes exclusive sari designs which sold for between USD $6,000 to $8,000 each piece, targeting at the expanding luxury market in India. Although Hermes (French) did not divulge whether their sari designers are locals, but from the design, it appeared obvious that Indian designers would definitely had played a key role. Hermes is definitely not the only company that had launched Indian collections. Other luxury brands like Tods (Italian) and Prada have gone into the market with the Indian touch of silk satin clutches, woven sandals and embroidered cotton dresses which are typically made in India!


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From the above, we can see that there is very strong foreign interest in Indian design and thereafter manufacturing in fashion products locally as most foreign players see the great potential of Indian consumer market given its strong growth in GDP per capita and other factors as already discussed earlier. The challenge for these global brands will be how they can translate the interest and investments into successes. One area is of course trade barriers which should see changes if the Indian government wish to liberalize this sector further.

4.2.3 Fashion design industry an example of Indias design future

Confidence is for sure to be going the positive way as even the worlds leading fashion and style consultancy firm, WGSN, had set foot in India with the intention to partner with the Indian fashion industry to identify the opportunities and the process to become a global player. WGSN had planned to focus on the whole fleet which included fashion designers, manufacturers and retailers by helping them move up the value chain to tap on more and bigger opportunities both in the local scene as well as in the global fashion design industry. As quoted in an Economist article on Indian fashion design future, it stated that It is India's potential as a source of future design stars that attracts the foreigners. Many foreign players are really looking for that polished diamond, i.e. designs or designers, which are able to combine Western cuts with Indias talent for embellishment and its famously fine textiles. BMA5112 - INDIA Page 27

However, many Indian designers also lack the organisational skills and infrastructure needed to handle large orders. But as Indian designers attract investors, their business skills will no doubt improve. And as discussed in the macro analysis earlier, there are many constraints atypical in hindering exponential growth which basically applies in impending the faster growth in the Indian fashion industry as well. These are constraints such as poor infrastructure, inflexible labour laws, even the difficulty of growing from small to big because of conservative banking systems, etc. We can see that more has to be done for the fashion design industry, which will be further elaborated in the next section of this paper. Depending on current fashion institutes, and push from Indian domestic designers such as Rina Dhaka, Anamika Khanna and Manish Arora who have gained some success in the international scene and are trying to push more for this industry through creation of associations like FFI (Fashion Foundation of India), this will still not be sufficient in growing faster unless the government re-look at their own strategies and is able to see the importance of the fashion design industry in driving both the fashion industrial and service sectors, as well as to put a name for India in international fashion arena. With this, we draw parallel to other Indian industries (IT, Healthcare, Higher-end consumables) which too can ride on design to bring about a positive and effective change in the value chain of India, and as such may bring India to the next level in climbing up the ladder of being the worlds main heavy weight in economic power in competition with China. An example which can show how many are envisioning this trend and are trying to ride on the bandwagon to perhaps have first movers advantage is the fact that IDEO, the worlds top design and innovation consultancy firm, has landed in India. It is pretty obvious that IDEO has recognised the potential of India and Indians being groomed to put design and innovation in their move to grow the economy exponentially


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All of IDEOs work is done in consideration of the capabilities of our clients and the needs of their customers. As we iterate toward a final solution, we assess and reassess our designs. Our goal is to deliver appropriate, actionable, and tangible strategies. The result: new, innovative avenues for growth that are grounded in business viability and market desirability.

Extract: IDEOs website And it is truly what the Indian government can concentrate on, and that is to use design and innovation as key drivers in improving the performance of both the local industrial and service sectors, which will in turn improve the Indian economy tremendously and the lives of Indians with more jobs and economic stability, moving from Third World to First World country for all Indian humanity. BMA5112 - INDIA Page 29


The ancient Chinese strategist and philosopher, Sun Tze has once said, If you know the enemy and know yourself, you need to fear the result of a hundred battles. This can also be applicable to India in the path that it takes in formulating its core strategy to develop the design industry. In the previous section, we have done the detailed analysis about the Indian economy and the potential direction of its economic development. leveraging on the development of its design industry. Firstly of all, we shall identify Indias main competitor in the various key sectors. For the manufacturing industry, based on the market size, Indias major competitors within the same geographical area are mainly China, Japan and Korea. For the service industry, Indias main competitors are mainly USA and China. For the design industry, Indias main competitors are Italy, USA and China. Thus, we can tell from this simple comparison that China is basically the overall key competitor that India should take on. Since China and India both are considered leaders in such emerging markets, both appear to have similar competitive advantages such as massive labour resource, cheap but high skill workers, high GDP growth, etc., and as such, there is much more competition between the two countries. A further analysis shows that China has already made a leap in the development of its design industry. As per Forbes global 2000 companies list17, we can tell that there are very few Indian companies in product-innovation related industry. Majority of the listed Indian companies are in industries such as banking, steel manufacturing and natural resources. However, there are many Chinese companies in the list that are famous for their product innovation & design, for example, Lenovo Group is the global leader in PC design & manufacturing industry, ZTE is famous for its network equipment design & innovation and TCL is famous for the electronic appliance innovation and design. In order for India to compete in manufacturing gaining from a leap in its design industry, we think In this section we will discuss how India should compete in the global market by


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that it is reasonable for India to study how China developed its design industry, and take some of these learnings as precious lessons from China. The Chinese government recognised the importance of design and innovation in the 1980s. Since then, the government has been taking steps in helping to develop its design industry. There are basically three steps taken to develop its design industry, which are further elaborate in the next few paragraphs. The first step was to establish the education system for the design industry. In 1984, China setup the first design course in Hunan University. Since then, there are more and more students graduating with major in industry and fashion design. Till now there are nearly 10.000 students graduating with major in design from 400 colleges every year. This large talent pool provides an enhanced support for China to develop its design industry. This is also one of the major factors which enticed many multi-national design related companies to set up their design innovation centres or R&D centres in China. The second step was to establish the design industry network across the country. China has established 34 design associations across the country. There are more than 30 design festivals and nearly 50 seminars in China every year, and many of these events are sponsored by the Chinese government. The government also encourage and promote design & innovation by introducing countrywide awards to motivate designers. For example, since year 2005, the government established events honouring and recognising brilliant and successful Chinese designers such as establishing the China Top Ten Outstanding Young Designers yearly. Also, since year 2006, the government established the national industrial design award Red Star to recognise outstanding individuals and companies for their contribution to the Chinas design and innovation progress. The third step was to support the local companies and projects. The government made plans to introduce national support to develop the fashion & design industry by providing funding for design projects. There are also government policies to encourage design related firms to develop. As a whole, China has achieved progressively positive results in developing its design industry. In year 2009, the Chinese government produced an advertisement of an international image promoting Made in China brand and


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aired on CNN Asia18. This ad is deliberately made to rebuild and strengthen the Made in China reputation. In addition, it also showed that China has taken the product branding onto a national level, and the government may be aiming to promote Design in China in the near future. 6.


India can use the Chinese government as a leading example in the development of its design industry. Based on the above elaboration of the Chinese strategy, our team felt that India should recognize the need for the country to develop its design industry by learning from its competitors for starters and apply these strategies modified according to its own market needs. With reference to Chinas strategies, the team has derived some

recommendations which we felt that the Indian government can consider: The first recommendation pertains to building stronger support for design education. Although there are two top global design schools in India, there are not many schools offering design as a specialization. Even within the two top schools, there are reports which showed that the facilities for design faculty are very limited and students do not have enough exposure to the international design industry19. In order to develop the industry, there must be enough talents available, and as such, the Indian government may consider the following strategies to support the design education: 1. The government can identify several schools in each state and introduce design courses. Funding for the school will be required in order to recruit experienced teaching staff either from the industry or from overseas. 2. The government should encourage overseas internationally renown design companies to open branch offices in India. Such local operations of the overseas design companies will generate the market demand for the design talents and attract the younger generation to take up the design related courses and aim to work for such companies. 3. The government should establish international activities to provide international exposure for local design talents, Indian schools and their students. The second recommendation is to establish its design network across the country. As India is a rather huge country, it should consider establishing the


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design associations in most of its states. We understand that for India, the local state government may have more resources and authority in local development, and as such, we would recommend that the central government provide the policies structured to guide the local state government to encourage a close connection between design associations in each state. The third recommendation is that have a regional design centre. In this way, India can take the opportunity to link its design work with the design centre and enable such good work to be shared across the country. One such city which India can consider to set up its regional design centre is Bombay, as Bombay is named its commercial & entertainment capital. The final recommendation is to entice the local Indian companies to develop its design and innovation strength. The government should provide the funding support for credible design projects in order to show unwavering support and this will help Indian companies develop a long-term sustainable model.

For a business to achieve sustainability, there are basically four key factors: investment, productivity, human development and product quality. high skill work force for companies to develop its design arm. The education support in our first recommendation will help to provide a sufficient With initial government funding, it will provide the investment for such companies to develop the product design and innovation. The introduction of the new drive force for product design & innovation will contribute to the increased value in the product quality as well as increase the productivity. The business sustainability will also help to sustain the design industry to develop. 7.

CONCLUSION An Entrepreneurial viewpoint

India is opening up to the world and increasingly, influences from other parts of the world in terms of design and brand are slowly penetrating the Indian market. When one couples this with increasing disposable income and a huge domestic market, it would be hard to turn a blind eye to this market potential. There are problems within the country of course. Infrastructure in terms of roads, power, etc., is still very poor and this can be a serious problem especially if one was trying to set up a factory from scratch, not to mention the corruption and bureaucracy that might accompany the set-up. There are also the issues


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revolving around inflation and government stability, both of which might affect future profitability of the company. One thing is for certain though and that is Indias growth story. This paper has covered a fair bit around what the Indian government should do but from a business perspective, should new market entrants, both local and foreign, look to become complete solution providers then? The answer interestingly is no, and for the simple reason that India is not ready yet due to the abovementioned issues. The new entrants should as a first step, build up its R&D and design capability in whatever field it is looking to enter. A good design helps sell products, a great design helps sell products at a premium along with bigger profits. Indians, especially the affluent community, are increasingly looking to differentiate themselves from the masses, which typically carry or own Made in India products. This affluent crowd is also willing to pay higher prices for such special products as it emphasizes their status as one of the elites. So building up a great design team should be the first step new market entrant should aim for. And given the large pool of engineers, many of which have been educated overseas, building this team should not be very difficult either. That isnt to say that these new entrants cannot become complete solution providers. An option present is to work with local manufacturing partners within to start and in the meantime work with the governments (both at local and at state levels) around infrastructure improvements along with other regulatory issues. This helps companies pursue the OBM route while cutting out the costs of running a manufacturing operations to start., which is akin to the partnership Apple has with Foxconn. The Design industry is a goldmine for both India as a country and for companies looking to enter India or are looking for growth within India. This can clearly be the catalyst that would help jumpstart Indias next growth phase provided that India develops this in tandem with resolving the fundamentals of the country. If done properly, the team believes India can potentially balance out its GDP between services and manufacturing, which would in turn raise employment, increase FDI and generally improve the lives of its people.


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APPENDIX for references

1) http://zeenews.india.com/news/nation/india-s-suffocating-bureaucracy-worstin-asia-survey_536445.html 2) http://www.li.com/attachments/EntrepreneursIndia2011.pdf 3) http://online.wsj.com/article/SB1000142405297020447950457663923353771 6542.html#project%3DISTARTUP1011%26articleTabs%3Darticle 4) http://business-standard.com/india/news/us-wants-india-to-decreasetariffsindustrial-goods/374667/ 5) http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIA 6) http://www.forbes.com/2010/10/13/india-china-entrepreneur-marketseconomy-raghav-bahl-book-excerpt.html 7) http://www.li.com/attachments/EntrepreneursIndia2011.pdf 8) http://en.wikipedia.org/ 9) Grail research on Global Fashion Industry - Growth in Emerging Markets (Sep 2009) 10)http://www.merinews.com/ - Article on Indian fashion industry becomes global (2nd Mar 2008) 11)McKinsey & Company reports a. Indias fast-growing apparel market (Jun 2010) b. Made in India The next big manufacturing export story 12)http://blogs.wsj.com/indiarealtime/2011/10/12/hermes-goes-local-with-indiasari-launch/ 13)Forbes Fast Fashion Zara in India (29th Jul 2010) 14)Price Waterhouse Coopers Strong and Steady 2011 Outlook for the Retail and Consumer Products Sector in Asia 15)http://willslifestyle.com/Season21/lounge.html 16)http://www.earthpulse.com/ 17)http://www.forbes.com/global2000/ 18)http://www.chinahush.com/2009/12/02/made-in-china-ad-campaign-and-itssecrets/ 19)http://nitawriter.wordpress.com/2007/12/11/india-has-two-of-the-best-designschools-in-the-world/


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