Globalization and a very high competition level influence companies all around the world. In order to enlarge their businesses, they try to increase their market shares and look for new prospective markets for the further expansion. Nowadays many emerging markets, particularly India, attract solid overseas investments.
The aim of this bachelor thesis is to estimate the potential attractiveness of India as a market for expansion of an online fashion retailer.
In order to attain the mentioned aim, the thesis will consist of several chapters with theoretical and practical information. Chapter 2 will be focused on the principal information on this topic: market selection criteria, including evaluating market attractiveness and potential risks. Based on these criteria, the most important economical, political, demographical, geographical and administrative information about India, which is relevant to the research, will be provided in chapter 3. This will be followed by an analysis of Indian textile business, including retail market overview and its influencing factors (infrastructure, logistics, IT development, culture, legislative regulations and restrictions). According to restrictions in online business, chapter 5 will be focused on description of four market entry strategies, their advantages and disadvantages.
Next the analysis of the pioneer and follower timing strategies will be provided. Based on all findings before, success factors for running online fashion retail business in India will be formulated. Then there will be given an overview about the important players in the field of online fashion retail in India, the main points of their activities in comparison.
As the completion of the research, the potential Indian market entry strategy will be formulated. This includes an analysis of locations in India and a SWOT analysis, which information will be provided according to the previous findings of the thesis. All derived information and ideas formulated in the thesis will be summarized in conclusion and the main thesis question introduced in the aim will be answered.
Table of content
List of Figures
1 Introduction
1.1 Problem
1.2 Aim
1.3 Procedural method
2 Market selection criteria
2.1 Market attractiveness
2.2 Country risks
3 India: the emerging market
3.1 India: general information
3.2 Administrative territorial division
3.3 Political aspect
3.4 Economic stage
3.5 Life standard
3.6 Perspectives
4. Textile business in India
4.1 Retail market
4.1.1 Market overview
4.1.2 Menswear
4.1.3 Womenswear
4.1.4 Childrenswear
4.2 Online retail market
4.3 Influential factors
4.3.1 Information technology
4.3.2 Foreign direct investments in online business
4.3.3 Logistics
4.3.4 Culture
5. International strategies
5.1 Market entry strategies
5.2 Timing strategies
5.3 Success factors
6. Otto GmbH & Co. KG
6.1 Company introduction
6.2 International representativeness
7. Current competitors
7.1 Myntra
7.2 Jabong
7.3 Yepme
8. Expansion attractiveness assessment
8.1 Location selection
8.2 SWOT Analysis
8.3 Expansion strategy
9. Conclusion
References
Internet References
List of Abbreviations
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List of Figures
1. Preferred territories of foreign companies
2. Four broad group of states based on their performance
3. World economies by GDP 2014
4. Unemployment rate 2010 – 2013
5. Inflation rate 2010 – 2014
6. Exchange rate USD/INR June 2010 – June 2015
7. Exchange rate EURO/INR June 2010 – June 2015
8. Combined deficits of the central and state government as % of GDP
9. Development of India’s middle class 1985 – 2025
10. World’s largest economies by GDP 2020
11. Estimated GDP, PPP in 2020
12. GDP, PPP per capita in USD of states in 2025 compared to middle and high income nations
13. Share of the retail market, 2013
14. Relative apparel market size of major economies
15. Category growth in menswear in 2012
16. Category growth in womenswear in 2012
17. Category-wise breakup: boyswear/girlswear
18. E-Tailing Market – Category Split
19. Caste system
20. Advantages and disadvantages of export strategy
21. Advantages and disadvantages of license strategy
22. Distinct Company Model
23. Advantages and disadvantages of distinct company strategy
24. Marketplace model
25. Advantages and disadvantages of marketplace strategy
26. Comparison of competitors
27. Advantages and disadvantages of regions in India
28. SWOT Analysis
1 Introduction
1.1 Problem
Globalization and a very high competition level influence companies all around the world. In order to enlarge their businesses, they try to increase their market shares and look for new perspective markets for the further expansion. Nowadays many emerging markets, particularly India, attract solid overseas investments. Otto GmbH & Co KG, a German online fashion retailer, considers India as a potential market for expansion. The company is already represented in many developing countries such as China, Brazil and Russia and has a 2.3 billion € turnover of its online shops established abroad.[1]
1.2 Aim
The aim of this bachelor thesis is to estimate the potential attractiveness of India as a market for expansion of the online fashion retailer Otto GmbH & Co. KG.
1.3 Procedural method
In order to attain the mentioned aim, the thesis will consist of several chapters with theoretical and practical information. Chapter 2 will be focused on the principal information on this topic: market selection criteria, including evaluating market attractiveness and potential risks. Based on these criteria, the most important economical, political, demographical, geographical and administrative information about India, which is relevant to the research, will be provided in chapter 3. This will be followed by an analysis of Indian textile business, including retail market overview and its influencing factors (infrastructure, logistics, IT development, culture, legislative regulations and restrictions). According to restrictions in online business, chapter 5 will be focused on description of four market entry strategies, their advantages and disadvantages. Next the analysis of the pioneer and follower timing strategies will be provided. Based on all findings before, success factors for running online fashion retail business in India will be formulated. Chapter 6 will include the introduction of the Otto GmbH & Co. KG and the main facts concerning its international online activities. Chapter 7 will give the overview about the important players in the field of online fashion retail in India, the main points of their activities in comparison.
As the completion of the research, the potential Indian market entry strategy for Otto will be formulated. This includes an analysis of locations in India and a SWOT analysis,which information will be provided according to the previous findings of the thesis. All derived information and ideas formulated in the thesis will be summarized in conclusion and the main thesis question introduced in the aim will be answered.
2 Market selection criteria
Before entering a new market an analysis of the market attractiveness and country risks is necessary. This chapter will be focused on the theoretical criteria and in the following chapters these criteria will be analyzed with reference to Indian market to give an answer if India is an attractive market for expansion.
2.1 Market attractiveness
The criteria to evaluate market attractiveness are the following:
- Market size;
- Market growth of last 5 years and growth projection;
- GDP per capita;
- Infrastructure;
- Competition in market;
- Limitation of FDI;
- Sales prices in market;
- Costs (workforce, taxes etc.);
- Skills and education level of workforce.[2]
With reference to the market size, the number and development of population as well as age structureis to be analyzed. The market growth of last 5 years and the growth projection will give an answer if the market has a stable growth.
GDP per capita is a representative factor to evaluate if the population hasenough income to buy the goods. The infrastructure can be divided into communication and transport infrastructure. The communication infrastructure shows if all customers can be reached by internet or other communication tools. Whereas the transport infrastructure reveals if goods can be delivered in all parts of the country. The further important factor is the competition in the market segment. As in many countries there are also restrictions on foreing investments in Indian market which influence the market strategy.
However, sales prices in the market give an answer if products can be sold profitable. It is also necessary to take into account the costs e.g. for workforce and taxes. A key success factor in business is theskills and education level of the workforce.
2.2 Country risks
The country risks can be divided into political and economical risks.
Political risks:
- Political systems e.g. dictatorship;
- Confiscation;
- Exchange rate;
- Inflation;
- Security e.g war, environmental disaster;
- Corruption.[3]
Economical risks:
- Socioeconomic risks e.g. wrong estimation of demand;
- Delcredere risks e.g. unable to pay or paying with delay;
- Delivery risks as misdelivery or delivery delay;
- Transport risks as damage or loss of goods, delay in transportation.[4]
With reference to the political risks, the political system gives the company rights in the country that e.g. a company can’t be ousted. The current exchange and inflation rate as well as the development are indicators of the stability of a country. Further factors as war and environmental desaster are indicators ofthe stability as well. If a country has a high level of corruption, the companies which do not participate in this system willprobalby have a big disadvantage in business. The costs of corruption and if the company wants to participate in this system, have to be considered.
With reference to the economical risks, a wrong estimation of demand can lead that business will not be profitable in future. Customers or business partners who are not able to pay or pay with delay will have bad impact on solvency of company. Further transport risks as damage or loss of goods can lead to losses.
3 India: the emerging market
3.1 India: general information
India is the seventh largest country, covering an area of 3.3 million km² and it is more than 9 times bigger than Germany. The capital is New Delhi.
India borders on Pakistan, China, Nepal, Bhutan, Myanmar and Bangladesh.
With the exception of the mountainous area, in north and central India obtains a subtropical climate and in the south and coastal areas a maritime tropical climate. By temperatures of 10 – 15°C in December and January and max.temperatures of 40 – 50°C in April – June, the north of India is subjected high temperature fluctuations.However, in the south obtains high temperatures whole year.[5]
India has a population of 1.27 billion and is the second largest country based on the number of citizens.[6] Only China has a higher number of population (1.37 billion).[7] According to current statistics, the population of India is growing much faster than in China and will overtake China as theworld’s populous country in 2045.The population density of India is 329 citizens per km², in comparison to Germany 231 citizens per km².[8] Indians speak 23 official languages. However, Hindi and Englishare the official national languages.[9]
The age average in India is 26.9yearsand only 5 % of the population is older than 65 years. The reason is the low expectancy of 65 years.[10]
Based on the urbanization nowadays 36 cities have more than 1 million inhabitants.[11] The most populous cities are Mumbai (18.39 million), Delhi(16.35 million) and Calcutta (14.06 million).[12] Nevertheless, the urban population has just a share of 26.7 % of the population. Still the most Indians live in the countryside. Due to the urbanization the UNO expects that the number of townspeople will be tripled in the next 20 years, which leads to the fact that every second of the 1.27 billion citizens will live in the towns.[13]
3.2 Administrative territorial division
Like virtually no other country, India shows a big political, geographical, economicaland cultural heterogeneity.[14] Therefore there are relatively large regional differences in the infrastructure, tax systems, buying and sales markets in the 29 states.Moreover, further facts as support of public authorities and other important stakeholders could be different from state to state.[15]
The same as in China, the companies in India concentrate their business in specific regions. As distinct from China the business is not limited on the coastal areas. Rather the companies distribute in the regions of the metropolises New Delhi, Mumbai, Pune, Bangalore, Chennai, Ahmadabad, Hyderabad and Calcutta.[16]
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1.Preferred territories of foreign companies
Source: Holtbrügge and Friedmann (2011): p. 39.
National Capital Region
The National Capital Region in the north of India is India’s largest and world’s fourth largest urban agglomeration with a population of over 22 million citizens. The urban area covers Delhi with the capital New Delhi* and portions of the surrounding states of Haryana, Uttar Pradesh and Rajasthan.It is alocationof major companies in the IT, manufacturing, outsourcing and service sector. Almost 80 % of India’s ecommerce companies are located in the National Capital Region. Furthermore, this region represents India’s retail capital because of largest number of shopping malls and favorite place of luxury retailers.[17] Additional, it has the highest growth of a local market in India and a high urbanization level.
An important advantage is the nearness to the central government which enables enterprises toinfluence the political decisions. Due to this fact many companies are represented in Delhi to be in contact with the governmental authorities.The close contact to the governmental authorities promotes the corruption which is higher in Delhi than in many other regions.
Besides, there is a bad infrastructure which leads to congested roads and an overwhelmed airport. Moreover the power supply is insufficient which causes daily blackouts.
However, the surrounding cities Gurgaon, Faridabad and Noida in the industrial belt of Delhi became famous for expansion last years. Reasons are the better infrastructure, lower hiring and reduced environmental pollution.[18]
*The capital New Delhi is a part of the city Delhi. In 1931 New Delhi has been established at the edge of Delhi.[19]
Maharashtra
Maharashtrais thesecond populous andthe most important economic state with a population of 109 million citizens.[20] By 50 % of the industrial output and over 40 % of India’s national revenue, it is India’s leading industrial state.[21] 43% of the inhabitants live in the towns which is much higher than the average of 28% urban population.[22] In Maharashtra mainly located industries include petrochemicals, automotive, pharmaceuticals, financial services, media and entertainment, IT and textile industries. It is the location of the world’s largest film industry Bollywood.[23] Mumbai, the capital of Maharashtra, has the biggest share of foreign companies in India. This and the high economic growth attract many well-educated executives who earn in Mumbai more than in many other regions.A further advantage is the better developed public infrastructure in comparison to other regions. However, Mumbai has a big traffic problem.[24] Further, 54 % of Mumbai citizens live in slums.[25] The reason is the high rental price. The slums are already located in desired metropolitan locations which display the high growth of the slums. Therefore an expansion of companies in Mumbai is hardly possible.[26] Pune the second biggest city in Maharashtra has a high number of slums as well and in addition lack of infrastructure.[27]
Karnataka
Karnataka, located in the south west, is the eighth largest state by area and with 62 million citizens ninth largest based on population.[28] Although Karnataka is more industrialized than other states, many citizens work in the agriculture.[29] The total land area used for agricultural is 65 % and about 80% of the population is depending on it.[30] Karnataka is famous for IT companies. More than 2500 IT companies are located there. The capital Bangalore is an IT capital of India, the fourth largest technology city and theworld’s largest bio cluster.[31] The IT sector in Bangalore had a huge growth from 50 million USD in 1991 to 40 billion USD in 2005. Therefore it is called the Silicon Valley in India as the original Silicon Valley in California.[32]
Based on the great number of IT and scientific enterprises there are many high qualified and good earning scientists and IT experts. A reason for the good educated people is the big number of very good universities.In many cities infrastructure development doesn`t answer their fast growth. Based on blackouts and inadequate public transport, many foreign companies have installed diesel generators and own bus lines which care about the transportation of their employees.[33]
Tamil Nadu
Tamil Nadu is the 11th largest state by area and has a population of 72 million citizens.It is a very industrialized state and fifth in term of GDP.[34] For that reason Tamil Nadu has the largest number of registered factories in India in sectors as automotive, engineering, health care, electronic hardware and cotton. Based on this fact, the world’s largest handsets manufacturing plant is located in Tamil Nadu.[35]
Tamil Nadu is rich in mineral resources. As one of few states, Tamil Nadu produces excess electricity and forwards it to the neighbor states.
The capital of Tamil Nadu is Chennai. It is called Detroit of India because 40% of all cars are produced there. Additional, Chennai is an important IT location as Bangalore, New Delhi and Hyderabad.[36]
Gujarat
Gujarat with a population of 60 million citizens is India’s western state. It has the longest coastline of 1,600 km and evolved from a shipping power to a modern-day industrial state.[37] Gujarat is home of engineering and automotive manufacturing, food and agribusiness, textiles, jewelry, port and shipbuilding. 26% of India’s foreign investments account to Gujarat.The capital of Gujarat is Gandhinagar, but Ahmedabad is the city of the highest economic importance. It is the largest city and the commercial centre of this state. Furthermore it is the textile capital of India.[38]
An advantage for investments in Gujarat is the single access window. According to the single access window foreign enterprises have just one contact point to negotiate about investments and this saves time.[39] A further advantage is the good developed road and rail network.[40]
On the other hand, in Gujarat governs the nationalist Hindu organization BJP which leads to conflicts between Hindu and Muslims. Last big conflict has been in2002. 800 people died, the most Muslims.[41]
Andhra Pradesh
Andhra Pradesh has 84.6 million inhabitants and it is the fourth largest state in India (275,045 km²).[42] A big share of 90 % of Hindus lives in Andhra Pradesh which is higher than the average. Andhra Pradesh is rich in raw materials (natural gas and coal) and is the third largest electricity producer.[43] Further strong sectors are agriculture, information technology and biotechnology.[44]
The most important industrial location is the capital Hyderabad with a population of 4 million inhabitants. In the last years especially American and Japan companies like Google, Microsoft have expanded to Hyderabad.
Location advantages of Hyderabad are the high purchasing power and a good communication and infrastructure in comparison with other locations. In addition, in Hyderabad the Indian school of Business (ISB) is located, which has an excellent reputation by western standards.
On the other hand the whole south area as well as the Telangana region is hardly industrialized.[45]
West Bengal
West Bengal, the eastern state in India, is the fourth most populous state with more than 91 million citizens.[46] Activities are in the steel, mining, metals, railways, leather and tea area. Furthermore West Bengal is the sixth largest contributor to India’s net domestic product.The capital is Calcutta.[47]
West Bengal borders to the poorest states Orissa and Bihar and this leads to high immigration of poor and unqualified people.
Today Calcutta is considered as poor and bleak city. 2/3 of the citizens live in slums and the hospitals can`t fulfil simplest standards. Since the liberalization in 1977 the government tries to modernize the infrastructure, but the poor farmers and unions react against the modernizations.[48]
Based on McKinsey8 high performing states generate 45 % of India’s GDP. The chart 2 classifies states in 4 broad groups based on their GDP per capita in 2012. The performance of the most urbanized states Goa, Chandigarth, Delhi and Pondicherry was more than twice the national average in 2012 and therefore these states are classified as very high performance states. The performance of the states Haryana, Maharashtra, Gujarat, Kerala, Himachal Pradesh, Tamil Nadu, Punjab and Uttarakhand was between 1.2 – 2 times of India’s average and classified as high performance states. Further 12 states are classified as performing states with a GDP per capita between 0.7 – 1.2 times of India’s average. States with a GDP per capita lower than 0.7 times of India’s average are classified as low performing.[49]
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2. Four broad group of states based on their performanceSource: McKinsey (2014)[50]
The chart shows that a higher urbanization rate leads to higher performance. According to Holtbrügge and Friedmannexcept Delhi, Maharashtra, Gujarat and Tamil Nadu the other very high and high performance states are not mentioned as preferred states for expansion of foreign companies. Based on high GDP per capita, consideration of thesestates as sales markets is important.
3.3 Political aspect
India is the world’s largest parliamentary democracy.[51] The political situation in India is relatively stable.[52]
Since 2003 there is a cease-fire agreement between India and Pakistan. Nevertheless, there are still religion and political conflicts between Hindu India and Muslim Pakistan which led to cease-fire violations along the Indian Pakistan border in 2014. Some civilians were killed and around 2000 villagers fled.[53]
According to the British colonial era, the Indian government adopted the English common law system which could simplify dealing regarding to law for foreign companies. In addition the government has increased FDI (Foreign Direct Investment) for particular industries in 2006 e.g. for retail business. Due to this fact the investments of foreign companies have enhanced.
A great strength of India’s democracy is that it is representative at a local level. The Indian political landscape is dominated by two strong national parties. One of them is the Congress party of Gandhi and Nehru and the other one is the more recently nationalist party BJP. However, the emergence of increasingly strong local state based parties during the term of the past governments,has brought an important change in the political landscape. One of the changes is the inevitable dilution of tough policy measures, because India’s coalition governments are depending on cross party support. Due to this fact it is difficult to push new economic and socially sensitive legislation because this tends to be state based. There are many urgent reforms in areas as protection of domestic industry and restrictive labour practices necessary but it is blocked by a lack of coalition consensus.
This has impact on fashion brands with reference to restrictions on foreign ownership, inflexible labour markets, business conflict resolution and tax regime.[54]
3.4 Economic stage
India belongs to the emerging markets. Dr. Vladimir Kvint, president of the International Academy of Emerging Markets describes emerging markets as “a society transitioning from a dictatorship to a free market oriented economy, gradual integration within the global marketplace, an expanding middle class, improving standards of living and social stability and tolerance, as well as an increase in cooperation with multilateral institutions.”[55]
According to the economy of India, in2014 the GDP (Gross domestic product) has reached 2.0 trillion USD[56] and consequently India is the world’s ninth largest economy, the third largest in Asia and among emerging markets. The largest economy is by far the USA who amounts to a GDP of 17.4 trillion USD, followed by China with a GDP of 10.4 trillion USD (see chart 3.).
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3.Wold economies by GDP 2014 Source: Bergmann (2014).
India’s economy grew by 7.5 % and faster than China’s in 2014 and is currently the world’s fastest growing economy.[57]
However the GDP per capita is 1,626.98 USD, based on purchasing power parity 5,855.30 US dollar and therefore one of the lowest among emerging countries. By comparison, Russia has a GDP, PPP of 24,805.49 USD, China of 12,879.85 USD and Brazil of 16,096.32 USD.[58] A reason for India’s low GDP per capita is that still 400 million Indians earn less than 1.25 USDper day.[59] In contrast India is home of 100 billionaires who own 175 billion USD. According to this fact, India is ontheworld’s sixth place based on countries with the most billionaires and on the second in Asia after China. China counts 190 billionaires and unsurprisingly the USA has with 571 billionaires by far the world’s most billionaires.[60]
Among the top 3 Asian GDP countries, India has the lowest andthe most stable unemployment rate; however there is an increasing trend. In 2013 the unemployment rate increased from 3.5 % in 2012 to 3.6 %. In comparison, China had a raise of unemployment from 4.5 % in 2012 to 4.6 % in 2013 and Japan a reduction from 4.3 % in 2012 to 4 % in 2013.Germany, the top GDP country in EU,has reached an unemployment rate of 5.3 % in 2013 in comparison to 5.4 % the year before (see chart 4.).
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4. Unemployment rate 2010 - 2013Source: Own graphic by: World Bank (2014).
A big challenge for India is the high number of 287 million adults who lacked basic literacy skills in 2010. It is by far the world’s largest population of literate adults.
The literacy rate rose from 48.2 % in 1990 to 62.8 % in 2010 and is estimated to reach 71.4 % in 2015.[61]
Furthermore India is plagued by chronically high inflation. From 2010 until 2013 the inflation rate amounted to 8.9 – 12 %. Due to lower food and fuel prices the inflation rate fell to a five-year low of 6.4 % in 2014[62] (see chart 5. on next page).
In the first 3 months of 2015, the inflation rate falls even to 5.17 %. This is in line with the government’s aim of keeping inflation below 6 %.[63]
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5.Inflation rate 2010 - 2014Source: Own graphic by:World Bank (2015).
Over the past 5 years the Indian rupee (INR) has depreciated. Currently 1 USD purchases 64.06 INR. 5 years ago, 1 USD purchased 46.17 INR (see graphic 6.).However, as the economy of India has been growing faster than the USA’s economy, the currency has been weakening.[64]
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6. Exchange rate USD/INR June 2010 - June 2015
Source: Bloomberg (2015): USD to INR Exchange rate.
Based on the real GDP growth of the last 5 years,India has averaged 7.2 %, in contrast to the United Statesof 2.2 %.[65] Nevertheless, despite India’s higher growth, its currency has depreciated against the USD because of 2 reasons. Firstly,recent cut backs on Quantitative Easing (QE) by the US Federal Reserve has a positive effect and has strengthened the USD against emerging market currencies and secondly India’s industrialization has been attended by current account deficits.[66]
In addition, the Indian rupee has depreciated against the EURO the last 5 years. Currently 1 Euro purchases 71.66 INR. 5 years ago 1 Euro purchased 57.03 INR.[67] Since 2014 an appreciation trend of INR against EURO is visible. Just since April 2015 the trend has changed to depreciation again (see graphic 7.).
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7. Exchange rate EURO/INR June 2010 - June 2015
Source: Bloomberg (2015): EUR to INR Exchange rate.
As mentioned in the chart 8 on next page, the fiscal deficits, the difference between the government`s expenditures and its revenues, have been continuously high, much beyond the targets defined by the authorities. The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) was intendedto reduce the fiscal deficits of the central government.
By 2008, the aim was to eliminate revenue deficits and reduce the fiscal deficits of the central government to an amount of 3 % of GDP. In practice, high fiscal deficits continued. In 2007-08 the fiscal deficits were amounted to 4 % of GDP.[68] The years after, the fiscal deficit has increased to 6.9 % - 9.3 % (see chart 8.).
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8. Combined deficits of the central and state governments as % of GDP
Source: Own graphic by: Reserve Bank of India (2014): p. 369.
A high fiscal deficit has bad impact on a country. It could cause inflation risk, minimize the growth of the economy, affect the country`s sovereign rating, which turn will limit foreign investors from considering India as a country for investments.[69]
3.5 Life standard
Over the last 2 decades India’s economic has accelerated significantly and this has a positive effect on the spending power of the inhabitants. With reference to the total Indian market, real average household disposal income has almost doubled since 1985. Rising income led that household consumption has soared and a new India middle class has emerged.[70]
Based on McKinsey Global Institute, in 1985, 93% of the Indian population had an annual household income of less than 90,000 Indian rupees (1,970 USD) per year or less than 5.40 USD per day. McKinsey Global Institute categorizes this group as deprived. In 2005 this number has dropped to 54 % of population, with the biggest fall occurring since 1995. More than 103 million people moved out of poverty – not just in India’s urban centers, also in rural areas. At the same time the population grew by 352 million which in total shows that in 2005 there have been 431 million less poor people than there would have been if poverty had remained at its 1985 rate.
The forecast shows that the economic growths will continue and that India’s poorest inhabitants will benefit. The deprived segment will drop from 54 percent of population in 2005 to 35 % this year and finally to 22 % in 2025.[71] Further the middle class (seekers, strivers) will have the biggest growths from 2015 – 2025 (see chart 9.).
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9. Development of India’s middle class 1985 – 2025 Source: McKinsey Global Institute (2007)[72]
With reference to chart 9, McKinsey Global Institute describes the 5 economic groups as follows:
Deprived (less than 90,000 Indian rupees; less than 1,969 USD): Poorest group, which earn their livelihoods by unskilled or low-skilled activities and often engaged in seasonal or part-time employment.
Aspirers (90,000 – 200,000 Indian rupees; 1,969 – 4,376 USD): These people are usually small-time shop-keepers, small-hold farmers or low-skilled industrial and service workers which spend almost half of their income on basic necessities.
Seekers (200,000 – 500,000 Indian rupees; 4,376 – 10,941 USD): Seekers belong to India’s lower middle class. This group is the most various in terms of employment, attitudes, age and other factors. This could include young college graduates who have just started working to traditional white-collar employees, mid-level government officials and medium-scale traders and businesspeople.
Strivers (500,000 – 1,000,000 Indian rupees; 10,941 – 21,882 USD): Strivers belong to India’s upper middle class. This people are generally regarded as very successful in Indian society, working as businesspeople in urban areas, senior government officials, medium-scale industrialists in cities and rich farmers in villages.
Globals (1,000,000+ Indian rupees; 21,882+ USD): Richest group in society. Globals are senior corporate executives, large business owners, politicians, big agricultural-land owner and top-tier professionals. The rapid emergence of a new breed of the upwardly mobile has been seen; mid-level executives or graduates from India’s top colleagues who are able to command premium salaries from international companies. McKinsey Global Institute forecasts that 2% of population, in numbers more than 28 million inhabitants will be globals in 2025. This group of Indians is global in its tastes and preferences and enjoys a very high standard of living.[73]
3.6 Perspectives
As mentioned before, India is supposed to become the most populous country in 2045, the number of townspeople will be tripled next 20 years and currently it is the fastest growing economy. Due to this fact the IMF estimates that India’scurrent GDP of 2.0 trillion USD (2014) will be nearly doubled and reach 3.6 trillion USD in 2020. Hence, India will be the sixth largest economy by GDP, almost on the same level as Great Britain and larger than France (See chart 10.).
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10.World’s largest economies by GDP 2020Source: Bergmann (2014).
According to purchasing power parity,China will be the largest country by GDP, followed by the U.S.and India in 2020 (see chart 11.). With reference to India, the GDP, PPP is more than 3x higherin contrast to the currency translation of 3.6 trillion US dollars. Based on this fact India’s purchasing power parity is very high.
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11.Estimated GDP,PPP in 2020Source: Own graphic by:IMF (2015).
However, with reference to the GDP, PPP per capita India’swill amount to 9,327.53 US dollars in 2020 and will be the lowest of the top 10 countries by GDP. The top 3 countries by GDP, PPP are the USA (67,697.19 USD), followed by Germany (54,952.03 USD) and United Kingdom (48,270.50 USD).[74]
As shown in the chart 12 on next page, McKinsey has projected, that in 2025 the GDP, PPP per capita of some states will mirror that of high and middle income nations today. By projected population, these states will be very large markets. Maharashtra’s population of 128 million inhabitants in 2025 will have purchasing parity similar to that of Brazil today.Delhi will be a market of 22 million residents with a standard of living similar to Russia. Further Goa’s and Chandigarh’s purchasing parity will mirror Spain today.[75]
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12.GDP, PPP per capita in USD of states in 2025 compared to middle and high income nations. Source: McKinsey[76]
4. Textile business in India
4.1 Retail market
4.1.1Market overview
According to Gugnani, Vice President of Fashion and Brahma, Senior Consultant of Fashion, the Indian retail market of 490 billion USD in 2013 is expected to grow by 6 % year on year to reach 865 billion USD by 2023. The largest share of 69 % of India’s retail market belongs to the food & grocery assortment, followed by apparel with a share of 8 %, corresponding to a value of 40 billion USD.[77]
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13. Share of the retail market, 2013 Source: Own graphic by:Technopak Analysis (2014)[78]
In international comparison, India’s apparel retail market is the fastest growing in the world. Projected to grow at a CAGR of 13 % and reach 124 billion USD in 2020.[79]
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14. Relative apparel market size of major economiesSource: Wazir Advisors (2012)[80]
Until 2020 it is estimated that the EU will losethe biggest apparel share of 8 %. Although, the EU will be still the world’s largest apparel market, followed by China. India will betheworld’s fifth largest apparel economy. The key growth drivers are the increasing disposal income, growing consuming population, increasing discretionary as well as higher urbanization rate. However, the current spending on apparel is still very low in India. The apparel consumption per capita amounted to 33 USD in 2011, in comparison to the United States of 988 USD per capita, Japan of 746 USD per capita and China of 65 USD per capita.[81]
In 2012 with a market size of 87,500 crore INR (16 billion USD), the menswear assortment was the largest segment in India’s apparel market, accounting for 42% of market share, followed by womenswear (38 % of market share) and kidswear (20% of market share).[82] Due to high growth in womenswear apparel, in 2020 the womenswear assortment will bethe largest segment (42% of market share), followed by menswear (39% of market share) and kidswear (19%of market share).[83]
4.1.2 Menswear
It is forecasted that the menswear market will grow at CAGR of 8.5 % andreach 131,000 crore INR (24 billion USD) by 2017.
Within the menswear segment, the largest categories are shirts and trousers. The highest growth categories within menswear with CAGRs of 16 %, 14 % and 12 % are denim, activewear and t-shirts. Despite less optimistic scenario of 2012 the demand for denim has been grown among men, especially among the younger generation.The increasing acceptance of casual or Friday dressing, the penetration of denim into Tier II* and Tier III* cities and rural India are playing a part in contributing to growth of men’s denim in India.The activewear assortment primarily consists of sportswear, swimwear and gymwear. Activewear became an essential part of modern life due to increasing health consciousness.[84]
*Tier I cities have a very high economic and cultural stage of development as New Delhi. Tier II cities consists to the fast climbers. Tier III and IV cities just concentrate on the necessities as electricity and water supply.[85]
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[1] Cf. OTTO Group (2015), Unterwegs. Klares Ziel, spannende Reise. Geschäftsbericht 2014/15, p. 11.
[2] Cf. Kutschker und Schmid (2011), pp. 933ff.
[3] Cf. Büter (2010), p. 73; Kutschker/Schmid (2011) pp. 933ff; Meffert/Bolz (1998), p. 69.
[4] Cf. Ibid.
[5] Cf. Holtbrügge and Friedmann (2011), pp. 7 – 9.
[6] Cf. Statista (2015), Indien: Gesamtbevölkerung von 2004 bis 2015 (in Millionen Einwohner).
[7] Cf. Statista (2015), China: Gesamtbevölkerung von 2004 bis 2015 (in Millionen Einwohner).
[8] Cf. Holtbrüggeand Friedmann (2011), p. 9.
[9] Cf. Bautze (2006), p. 12.
[10] Cf. Statista (2015), Indien: Durchschnittsalter der Bevölkerung in Indien von 1950 bis 2015;Statista (2013), Statistiken zu Indien.
[11] Cf. Holtbrüggeand Friedmann (2011), p. 9.
[12] Cf. Statista (2011), Indien: Die zehn größten Städte im Jahr 2011 (in Millionen Einwohner).
[13] Cf. Holtbrüggeand Friedmann (2011), pp. 9 – 10.
[14] Cf. Bautze (2006), pp. 7 – 636.
[15] Cf. Charkravorty and Lall (2007) quoted by Holtbrügge and Friedmann (2011), p. 39.
[16] Cf. Holtbrügge and Friedmann (2011), p. 39.
[17] Cf. Australian Trade Commission (2013), National Capital Region (NCR) India.
[18] Cf. Holtbrügge and Friedmann (2011), pp. 42 – 43.
[19] Ibid., p. 39.
[20] Ibid., p. 43.
[21] Cf. Australian Trade Commission (2013), Maharashtra, India, Market Summary.
[22] Cf. Holtbrügge and Friedmann (2011), p. 43.
[23] Cf. Australian Trade Commission (2013), Maharashtra, India, Market Summary.
[24] Cf. Pittalwala (2014).
[25] Cf. Unicef (2015), Maharashtra.
[26] Cf. Holtbrügge and Friedmann (2011), pp. 45 – 46.
[27] Cf. Jadhav (2014), The Times of India (2015).
[28] Cf. Australian Trade Commission (2013), Karnataka, India, Market Summary.
[29] Cf. Holtbrügge and Friedmann (2011), p. 48.
[30] Cf. Unicef (2015), Karnataka.
[31] Cf. Australian Trade Commission (2013), Karnataka, India, Market Summary.
[32] Cf. Boroian and De Poix (2010), p.109.
[33] Cf. Holtbrügge and Friedmann (2011), p. 49.
[34] Cf. Unicef (2015), About Tamil Nadu.
[35] Cf.Australian Trade Commission (2013), Tamil Nadu, India, Market Summary.
[36] Cf. Holtbrügge and Friedmann (2011), pp. 50 – 51.
[37] Cf. Unicef (2015), Gujarat.
[38] Cf. Australian Trade Commission (2013), Gujarat, India, Market Summary.
[39] Cf. D`Souza (2011), p.33.
[40] Cf. Holtbrügge and Friedmann (2011), p. 53.
[41] Cf. Religion & Ethics Newsweekly (2002).
[42] Cf. Holtbrügge and Friedmann (2011), p. 54; Unicef (2015), Andhra Pradesh.
[43] Cf. Holtbrügge and Friedmann (2011), p. 55.
[44] Cf. Australian Trade Commission (2013), Telangana & Andhra Pradesh, India.
[45] Cf. Holtbrügge and Friedmann (2011), pp. 55 – 56.
[46] Cf. Unicef (2015), West Bengal.
[47] Cf. Australian Trade Commission (2013), West Bengal, Market Summary.
[48] Cf.Holtbrügge and Friedmann (2011), pp. 57 – 59.
[49] Cf. Braret al. (2014), p. 24.
[50] See Ibid.
[51] Cf. Holtbrügge and Friedmann (2011), p.11.
[52] Cf. Boroian and De Poix (2010), p.58.
[53] Cf. Iyengar (2014); Waldkirch (2013), p. 27.
[54] Cf. Boroian and De Poix (2010), pp. 58 – 59.
[55] See. Kvint (2008).
[56] Cf. Statista (2013), Gross domestic product GDP in India.
[57] Cf. The Economist (2015).
[58] Cf. IMF (2015).
[59] Cf. United Nations (2014), p. 9.
[60] Cf. Wealth-X and UBS (2014), p. 36.
[61] Cf. UNESCO (2012), pp. 6, 13.
[62] Cf. BBC (2014).
[63] Cf. BBC (2015).
[64] Cf. SGX (2014).
[65] Cf. Statista (2015), India: Real gross domestic product (GDP) growth rate from 2010 to 2020 (compared to the previous year); Statista (2015), Real gross domestic product (GDP) growth rate in the United States from 2010 to 2020 (compared to the previous year).
[66] Cf. SGX (2014).
[67] Cf. Bloomberg Business (2015), EUR to INR Exchange rate.
[68] Cf. Agarwala (2014), p. 44.
[69] Cf. Ravikumar (2013).
[70] Cf. Shukla et al. (2004) quoted by Ablett et al. (2007), p. 9.
[71] Cf. Ablett et al. (2007), pp. 11 - 12.
[72] Ibid., p. 12.
[73] Cf. Ablett et al. (2007), p. 42.
[74] Cf. IMF (2015).
[75] Cf. Brar et al. (2014), p. 32.
[76] See Braret al. (2014), p. 32.
[77] Cf. Gugnani and Brahma (2014).Fashion Retail Scenario in India.
[78] See Ibid.
[79] CF Sahni (2012), p. 4.
[80] SeeIbid., p. 6.
[81] Cf. ibid., pp. 7, 12, 13.
[82] Cf. Gugnani (2013).
[83] Cf. Sahni (2012), p. 5.
[84] Cf. Gugnani (2013).
[85] Cf.Holtbrügge and Friedmann (2011), p. 154.
- Quote paper
- Steven Wolf (Author), 2016, India as a potential market for expansion of an online fashion retailer, Munich, GRIN Verlag, https://www.grin.com/document/338541
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