A Report on Marketing Strategies

for RICE, A Spanish Cosmetic Firm

Under the guidance of:

Prof. Krishna K. Veluri

Submitted by:

Akhil S 1224108103

Avinash P Chauhan 1224108113

Chittaranjan Gantayat 1224108123

Kumari Poonam 1224108133

Praveena Yadav 1224108143

Sonal Sharma 1224108153

Vijaya Saradhi 1224108163

GITAM Institute of International Business,

Visakhapatnam – 530045
 ACKNOWLEDGEMENT

We are grateful to our Professor K. K. Veluri for teaching us curriculum of marketing. His
versatile knowledge in marketing field and unique teaching style has developed our knowledge
and cleared many marketing concepts.

We are all the most grateful to him for assigning this project, which has further helped us in
evaluating many interrelated dimensions of marketing.

Finally we thank one and all who have directly or indirectly supported us and guided to prepare
this report and accomplish broader vision to visualize things in marketing concepts.

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 CONTENTS

Overview .........................................................................................................................................4

A. INTRODUCTION..............................................................................................................................5

B. INDIAN COSMETIC MARKET – A BRIEF REVIEW................................................................6

C. PRICE AND INDIAN COSMETIC CONSUMERS......................................................................7

D. URBAN AND RURAL COSMETIC CONSUMERS.....................................................................7

E. MARKET ENTRY STRATEGIES.........................................................................................8

F. COMPETITIVE ANALYSIS................................................................................................10

G. ADVERTISEMENT RECOMMENDATIONS.............................................................................11

H. SWOT ANALYSIS...........................................................................................................................11

STRENGHTS AND OPPORTUNITIES......................................................................................................11

WEAKNESSES ....................................................................................................................................12

THREATS..........................................................................................................................................13

I. MARKET SIZE AND CONSUMER BUYING BEHAVIOUR....................................................14

J. SALES PROMOTION STRATEGIES...........................................................................................14

K. DECISION CRITERIA FOR INTERNATIONAL BUSINESS...................................................15

POLITICAL RISK.................................................................................................................................15

MARKET ACCESS...............................................................................................................................15

FACTOR COSTS AND CONDITIONS.......................................................................................................15

14

COUNTRY INFRASTRUCTURE..............................................................................................................17

FOREIGN EXCHANGE.........................................................................................................................17

CREATING A PRODUCT-MARKET PROFILE...........................................................................................17

MARKET SELECTION CRITERIA...........................................................................................................18

L. CONCLUSION..................................................................................................................................20
 OVERVIEW

God made man in his own image. But not all human beings bear the same looks and features.

Some are more beautiful than others. It is an innate human desire to be beautiful. Even fairy tale

eulogizes the beauty of good characters and admonishes the ugliness of evils. Historical

evidences prove that people have been enhancing their beauty since time immemorial.

Archaeological remains like combs, mirrors, kohl and various other artifacts of beautification

from ancient civilizations of Egypt, Greece, Rome, China and India showcase human’s eternal

quest for beauty. In modern days, however, the concept of beauty has changed. If one is not born

beautiful, one can attain beauty and even enhance the existing beauty through various services –

parlors, salons, fitness centers, gyms, spas and cosmetic surgery. Ideal faces and body types have

changed through ages. The craze today is more for the permanent or eternal beauty. Beauty today

thus does not just mean bedecking and beautifying temporarily. With the changed perception of

beauty, modern day visions have also changed. One can be born pretty but to be beautiful is an

equal opportunity for all.

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 INTRODUCTION

With saturation of domestic markets and intense competition, it is imperative for companies to
internationalize their operations. In order to survive and grow, the companies are forced to seek
and exploit opportunities in newer markets. But the process of penetrating and then developing
an international market for the product is a laborious activity. With no sales and marketing
infrastructure in place, and little or no knowledge of the market, the efforts required to enter a
new market is similar to that of establishing a start-up venture. Companies enter international
markets for varied reasons. But, the fundamental reason is the potential demand of the new
market. Besides, internationalization can help the company achieve greater economies of scale.
But in certain cases, a company may enter a new market as a reaction to a competitor’s move.
This is driven by the belief that the competitor would gain a significant advantage if it were
allowed to operate alone in that market. At times, some companies undertake foreign market
entry with the objective of learning. Learning indirectly, via a local distributor or a partner, is
less effective and does not contribute significantly to enable the company develop itself into a
global player. Apart from the varied marketing objectives, government incentives to boost
exports and global operations also encourage companies to enter markets it would otherwise not
have ventured into. Companies often follow, what is sometimes referred to as the “increasing
commitment” pattern of market penetration, in which it starts with exporting its products to the
target countries, thereafter has a tie-up with a local distributor or a partner and later switches to a
directly controlled subsidiary. The choice of the alternative modes of market entry is also
determined by the level of risk-control, trade-off the company desires. On the one hand, low-
intensity mode of entry minimizes risk, as the company does not have to make any investment in
the target country in the form of offices, distribution facilities, sales personnel, or marketing
campaigns. At the same time, the company will have little or no involvement in most elements of
the marketing plan, including the investment in marketing, distribution arrangements, and service
standards. The company is also clueless about timely and accurate market information, such as
customer behavior, market shares and price levels. On the other hand, a higher-intensity mode of
market participation, involving investments in on human resource, distribution, and marketing
programs, would ensure control but increases the risks for the company. The potential financial
and marketing risk also plays a decisive role in the choice of market-entry mode. Financial risk is
usually the major consideration at the point of market entry, and it is minimized by low-intensity
modes of market participation. But in such cases the marketing risk is maximized, with a local
14

partner making all the important marketing decisions.

INDIAN COSMETICS MARKET: A BRIEF REVIEW

Many of the world’s popular cosmetics brands entered the Indian market in the 1990s as the
Indian market opened up to foreign companies. The cosmetics and personal care industry has
been growing at an average rate of 15-20 percent for the last few years. Growth has come mainly
from the low and medium-priced categories, which account for 90 percent of the cosmetics
market in terms of volume. Even though mass-market products still constitute the major portion
of the India cosmetics and toiletries market, increased disposable income has led to growth in
demand for premium products. The urban population in particular, with its rising purchasing
power, is the main force that drives the demand for various cosmetic products in India.

The reasons for the growing demand for cosmetic products in India are threefold: first, a greater
access to television, which has created a growing awareness of the western world, second,
increased advertising in general and third, greater product choice and availability. The success of
contestants from India in several international beauty pageants in the last few years has also
contributed to making Indian women more conscious of their appearance and more aware of
western cosmetic products and brands. Also, a boom in the Indian fashion world has contributed
to the rise in demand for professional beauty care products.

Even with double-digit growth rates, the market penetration of cosmetics and toiletries products
in India is very low. Current per capita expenditure on cosmetics is approximately $1.00, as
compared to $36.65 in other Asian countries. This low market penetration for cosmetics and
personal care products in India can be viewed as an opportunity for more significant growth
down the road in this country of 1.2 billion people.

In India there is a large demand for cosmetic products. Total Indian beauty and cosmetic market
size currently stands at U.S. $970 million and showing growth between 15-20 percent per year.
The overall beauty and wellness market that includes beauty services stands at about $2,680
million. One can easily see that middle and high class Indian people spend a large portion of their
money in cosmetic product or service. According to the latest Euro monitor report the Indian
color cosmetic market stands at $4113.4 million and skin care at $346.9 million. If properly
marketed and advertised, any cosmetic product will be successful within the India market.

MARKET DEFINITION:
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The potential market involves a wide-range of people with an interest in looking fresh and
different every day. Those who thought it is very necessary to look fresh on the business place
and also in the social life. In addition to this group includes young people who are students
(college going girls) Over the past several decades the cosmetics industry has grown into
Rs.5000 million a year industry. The cosmetics industry developed more, because of the
information and globalization of the world. This commercialization has made cosmetic
somewhat of a trend in the 90’s, both in India and around the world.

The Indian cosmetic market, which has been traditionally a stronghold of a few major Indian
players like Lakme and Ponds has seen a lot of foreign entrants to the market within the last
decade. India is a very price sensitive market and the cosmetics and personal care product
companies, especially the new entrants have had to work out new innovative strategies to suit
Indian preferences and budgets to establish a hold on the market and establish a niche market for
them. Given the price-sensitivity of the Indian consumer who do not normally prefer to fork out a
large sum at one time, many cosmetic and toiletries companies launched their products in smaller
pack sizes to make them more affordable.

PRICE & INDIAN COSMETIC CONSUMERS

There is high maturity and price competition in established mass market toiletries such as bar
soap and toothpaste. Since the average Indian household continues to be highly price sensitive,
these popular mass-market products will have the lion’s share of cosmetics and toiletries sales.
This will offer high growth prospects of the overall market over the coming years. The cosmetics
and toiletries market are also facing competition from other consumer durables (computers,
mobile phones, home theatres and automobiles) as well as the housing sector. The drop in
interest rates has led to a boom in housing loans and real estate purchases. Being value
conscious, there is a limit to the amount that the average consumer will spend on luxury items
such as fragrances.

URBAN & RURAL COSMETIC CONSUMERS

India's spending on cosmetics and toiletries is relatively small, with rural and suburban areas
concentrating on basic toiletries and cosmetics. The purchasing power of Indian consumers is
increasing thereby shaping the aspirations and lifestyles of consumers, who are upgrading to
good value products at affordable prices. The Cosmetic Companies have invested heavily on
promoting product visibility among rural folk, which has increased the demand for bar soap,
talcum powder, lipstick, tooth powder and hair oil in these areas. This has also increased the
demand for essential everyday items like bath and shower products, hair care, oral hygiene and
skin care. Another strategy followed by companies to promote cosmetics in rural areas was
sachets’ approach. While rural India contributed to growth in volume terms, the urban population
contributed 69 % of value sales in 2005 especially for sophisticated products. These high-quality
added-value niche products include mascara, toners, body wash/shower gel, depilatories, sun
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care and deodorants, amongst others which are unaware to the rural users. Sales are almost
completely generated from the urban pockets, concentrated within the key metropolitan areas of
Ne w Delhi, Chennai, Mumbai and Calcutta. Due to Western influences, men's grooming
products are used more predominantly in urban population compared to their counterparts in
rural areas.

INCOME HOUSEHOLDS
Cosmetics and toiletries have witnessed a growing demand from the low and lower middle-
income households. The premium labels are being used in urban areas, whereas regional and
national brands in the rural areas, where close to 70% of the Indian population resides and price
determines purchasing decisions.

MARKET ENTRY STRATEGIES

Introduction

Once the exporter has determined which markets the company should be targeting, consideration
must be given to the different types of entry strategies available. These can range from the
investment-based strategies more likely to be used by larger companies with more resources and
financial support through to simple partnering agreements which practically every exporting
company will enter into. Some companies may be in a position to supply direct to the end user,
thereby removing the need for in market representation and distribution. However, these
companies are likely to need some form of readily accessible after sales support to service their
overseas clients, and as such may need to identify organizations to undertake this work in the
market. For companies aiming to target markets through partnering or investments, the main
options available are Greenfield sites, joint ventures, mergers and acquisitions, licensing,
manufacturing agreements, franchises or working with agents or distributors. Different
companies will have different entry requirements, and advice should always be sought prior to
drawing up the final entry strategy.

Agents

Working through agents or distributors is often seen as indirect exporting as products are sold
into the target market through a third party. An agent is a person or organization that undertakes
to represent a foreign company in the target market, often selling on behalf of the exporter.

Distributors

Distributors differ from agents in that they generally purchase the exporters products, taking
ownership of the goods, with a view to reselling them in the target market. The distributor will
enter into agreement with the exporter so that he may buy the exporter’s product at preferential
rates, permitting resale in the market at a profit. The distributor will take on responsibility for the
marketing, promotion and distribution of the product in the target market and will not pay a
commission to the exporter (on the grounds that the exporter has already received payment for
the goods). Distributors will generally have sound market knowledge, contacts and an established
distribution network, and will seek certain guarantees from the exporter: quality, delivery periods
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and after sales service for example. The exporter, in return, may require the product to be
marketed in a certain way or at a particular price. The exporter may also restrict the area in which
the distributor can work, either geographically or by industry sector.

Licensing

A company can sell the rights to its products through a licensing agreement. A fee for the transfer
of the rights can be agreed and a buyer organization found. In these situations, the vendor
company can demonstrate that it has developed the technology which it is keen to see exploited
in new markets. The purchasing company will demonstrate that it has the capacity to add value to
the technology and will be able to produce the product to meet market demands.
The purchaser’s geographic territory will normally be fixed, and any requirements for branding,
quality standards or marketing considerations will be clarified. Royalties may be payable to the
vendor on volume of sales made in the target market by the purchaser. The length of the
agreement will be written into the contract. As a further benefit to the buyer, the vendor will
usually agree to grant exclusivity to the buyer in the target market.

Franchising

Franchising is a form of licensing. Under a franchise agreement, a company (or franchiser) offers
to sell the rights to a specific piece of technology, brand, name, process and structure in
exchange for capital. The agreement is structured so that the organization buying the rights (the
franchisee) buys into a whole commercial concept, from product to sales culture. This is most
obviously seen in some hotel chains and fast food restaurants. The franchisee is granted use of
logos, services, marketing and advertising support and use of the company’s trademarks.
However, franchise agreements must also take into account the need to identify franchisees that
are capable of undertaking the promotion and production of the product to the franchiser’s
standards. Reputation of the vendor can be prejudiced through inappropriate franchise
agreements. Although franchises benefit from low capital requirements and easy market access,
they can be hard to control in the market as franchisees do have a certain level of autonomy.
Also, the target market can see franchises as low commitment to the market, and this can impact
on perceptions of the brand, potentially damaging sales.

Mergers & Acquisitions

Mergers and acquisitions are less popular today than in previous years, due mainly to a reduction
in the amount of capital available for investment globally and an increase in regulatory controls.
However, globalization of companies around the world is leading to corporate takeovers and
merger agreements which can also be useful in international trade for the smaller company. This
type of activity provides effective access to new markets as well as providing the company with
an existing workforce and infrastructure. As a result of merger or acquisition, the company can
consolidate its position globally as well as repositioning itself in a particular market or
geographic region. The main difficulty with mergers and acquisitions is that they must comply
with government policies and regulations. Equally, absorbing a foreign organization, its
workforce, cultures, customs and procedures into the larger company may prove to be a
managerial and administrative problem. Consequently, it is vital that any merger opportunity be
fully assessed for liabilities, legal complications and financial issues prior to drawing up any
agreement.
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Joint Ventures

Joint ventures or alliances are becoming increasingly popular as companies become more
experienced in international trade. A joint venture is an agreement between two companies with
the aim of forming a separate company which will produce, manage and distribute products
within a target market or geographic region. Joint ventures ultimately allow both participating
partners access to trading opportunities in the partner’s country. Companies considering joint
ventures must be aware that this is not an easy option: joint ventures require hard work and time
commitments if they are to work. Joint ventures are entered into by companies to access local
knowledge and workforce (provided by the partner organization) and technology (provided by
the incoming partner). Often, legal requirements stipulate that foreign-owned companies
investing in the market must do so via joint ventures. The main advantages of joint ventures are
the ability to tap into local knowledge, the availability of established distribution channels,
development of skills in both partner organizations through technology transfer and the facility to
pool resources to enable both partners to access more overseas markets. The disadvantages are
that the reputation of the new company is tied to the reputations of both partners; more legal and

financial obstacles must be overcome, and the ultimate success of the venture will depend on the
working relationship and trust established between the partners.

Greenfield Investment

Greenfield sites are investments where a new plant or business is built in the target market.
Construction of new buildings is likely, and the new facilities will house all functions of the
company, including sales, marketing, production, distribution and management. This type of
investment is extremely costly in terms of start up and capital equipment costs. It does, however,
show commitment to the market, which will reassure and please the foreign government which
will see the investment as a source of employment and economic benefit. Ownership of the site
normally remains with the parent company, although there may be a legal requirement in certain
countries for local companies to have ownership. Under these circumstances, the new site will
become a wholly owned subsidiary of the parent company. The main reasons why a company
would consider a Greenfield site are the absence of suitably skilled partners in the market, the
ability to create a purpose-built plant to meet the needs of the company, establishing a wholly-
owned presence in the target market or simply because improving existing facilities have become
too costly. Greenfield sites have several strengths in terms of company ownership and purpose
(such sites are designed to offer the parent company 100% control), but the disadvantages are
that such projects are costly, require substantial management input by the parent company and
also a long term commitment to the market if the investment is to be recouped.

COMPETITIVE ANALYSIS

In general, the Indian market is very receptive to U.S. cosmetics products. The product lines of
American companies such as Estee Lauder, Avon, Revlon, Mary Kay, Proctor & Gamble,
Colgate, and Johnson & Johnson are extremely popular and enjoy excellent reputations due to
their high quality, attractive packaging, and range of products. The strongest competitors to
American exporters of cosmetic products, especially in the anti-ageing and anti-wrinkle
subsector are French brands considered to be "traditional" leaders in the world cosmetics market.
14

The world's two largest producers of cosmetics, L'Oreal (France) and Proctor & Gamble
(U.S.A.), (the latter represented by such product trademarks as Blend-a-Med, Max Factor,
Camay, Old Spice, Head and Shoulders, Vidal Sassoon, Pantene ProV, and Safeguard), share 25
- 30 percent of the Indian market. Finnish and Swedish cosmetics manufacturers are also
competitive due to their extensive knowledge of the Indian business environment, largely due to
their long presence in the market.
Other well-known producers in the Indian market are Unilever (Netherlands), represented by
brand names as Dove, Lux, Pepsodent, Signal, Sunsilk, Timotei, Impulse, and Rexona; Oriflame
(Sweden); Avon (U.S.A.); Revlon (U.S.A.); Mary Kay (U.S.A.); Christian Dior (France);
Lancome (France); and Estee Lauder (U.S.A.). Local producers and Eastern European firms from
Bulgaria and Poland compete with Western importers primarily at the lower price levels,
although they lack the quality of more expensive brands.

ADVERTISEMENT RECOMMENDATIONS

One of the many strategies that the Rice Company should implement is through their marketing
strategy. Some Indian people bought the Fair & Lovely product because they liked the way this
product was advertised. By using this product they hoped to find a true love or a great job. The
Rice Company should emphasize more on the confidence of the women rather than the beauty of
the women. In their advertisement, rather than showing what the woman would get from using
their product they should show how confident the woman is after using the product.

Rice should avoid advertising how beautiful women look because of their fair skin complexion.
They should not persuade the customer to believe based on their advertisement that fair skin is
the trend of beauty. This kind of advertisement is not appropriate in Indian culture because most
Indians have dark skin. Advertising that dark skin is unattractive is unethical. Through its
advertisement strategy Rice would attract many new customers and hopefully gain a preferential
market share in the Indian cosmetic market.
It is important to understand the culture and policies of the market in order to properly advertise
in a way that would not offend any group of people. Also, when advertising cosmetics it is
important to be aware of truth in advertisements. In other words, the company should not make
promises in their advertisements that most likely would not be true.

In India today, the increasing number of women in the age group 22 to 45 are becoming
independent. They have the disposable income and the decision making power to buy what they
want (Bhattacharya, 2007). HLL should take advantage of this statistic and start promoting their
products to this demographic. Female Indian upper and middle income urban women employees
are conscious about picking the right makeup colors for the office. Therefore they should have a
line of makeup specifically for working women.

Today, many women have more money to spend on separate sets of products, especially color
14

cosmetics. Many young women in India move into the work force instead being a stay at home
mom. Rice should start promoting the anti-aging and anti-wrinkle cream that are proper in the
business works and emphasize advertisement how important it is to be presentable in the work
place. In India, women in the work force are relatively new. Rice could emphasize that women
can be presentable in India just as men and age is never a bar to work in the corporate
environment.

SWOT ANALYSIS
STRENGTHS, OPPORTUNITIES

Image

Traditionally, Spanish products in India generally have a higher quality perception than similar
products from other South East Asia countries and China. The quality of Spanish-made products
bearing multi-national brands is a testimony to the Indian consumers.

USD-denominated contracts

During last year, Euro gained 20% in value against the USD, which makes Euro-denominated
products and services less competitive in India. Importers prefer to deal with companies, who
denominate their contracts in USD. In this connection, foreign companies, most of which quote
their contractual prices in USD have a strong advantage and may win over new customers.

Political and economic stability

India’s GDP is growing at approximately 5% per annum (before the global meltdown). The
country has a surplus in trade with other countries, brought forth by revenues from exports of oil,
gas and minerals. Incoming currency revenues encourage imports (+22.3% in the first 6 months
of 2003 compared to the corresponding period of the year before). Political risks of doing trading
business in India are minimal.

Import tendencies

Since 1999 import volumes of cosmetics product group has increased significantly (according to
the data obtained from State Statistics Committee).

WEAKNESSES

Low level of awareness

Spanish cosmetics can be found only in a few specialized stores and web sites of major
distributors across the country.

Distance

Long time of delivery is one of the most acute problems faced by importers of Spanish-made
products. Often importers prefer to buy from EU companies just because they offer considerably
shorter period of delivery to India. For example, a container loaded in France will reach India in
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just 5-7 days, whereas Spanish will be shipping it more than 20 days. Longer delivery time
affects turnover and increases other related expenditures of importing companies.

Lack of goods EX-WAREHOUSE in Russia or EU countries

At the present time there are few Spanish companies able to supply their products ex-warehouse
in India or EU countries. Delivery from warehouse would considerably reduce time and
transportation costs. However, a warehousing project involves certain risks and investments.
Spanish companies venturing to start such a project should find a reliable Indian partner first. An
alternative to setting up a warehouse in India would be to use neighboring countries (Pakistan,
Nepal) as gateways to the Indian market.

Payment terms

The most common method of payment for foreign trade transactions in Russia is cheque.
Cheques remain the most common method of payment in India. Currently there are 2010 local
clearing houses across the country, with those in Indian metropolitan areas being controlled by
the central bank, while clearing in non-metropolitan areas and smaller towns is usually run by
state-owned banks. Historically, the clearing systems have been local and confined to a defined
jurisdiction covering all the banks situated in the area under a particular zone. However, with the
introduction of the Speed Clearing Service and the Cheque truncation system, clearing houses are
now empowered to process instruments from other jurisdictions and areas.

In addition, regulators are encouraging electronic payments through NEFT, RTGS and ECS, as
well as direct debits and direct credits.

An alternative mode of payment would be LC. However, the cost of opening LC for Indian
companies is very high as banks charge a very high interest rate and commission.

Nevertheless, we recommend Indian companies to request for a 30% prepayment for the trial
order, the balance to be covered by LC at sight. Other methods of payment are also practiced.
Terms are negotiable.

THREATS

Competition from EU countries, China and Taiwan

The main competitors of Spanish in this market sector are EU (France, Germany, Italy, Austria,
Sweden, and Finland) companies and suppliers from USA, India, Poland, Bulgaria, Hungary,
China, Japan, Latvia. Often EU traders have a better position in the market, since they can offer
quick delivery and extended payment terms. Products from China and Taiwan dominate the low-
end market. Taiwan and China are Malaysia’s main competitors as suppliers of cosmetics. Japan
is defending the policy to be on the high-end market along with France.

Tariff and non-tariff barriers

Indian importers contacted by INDTRADE 2001-2002 identified Indian customs administration

14

was the most difficult trade barrier to deal with. Among the most common problems are non-
transparency of customs regulations, bribery and the so-called “grey” imports schemes, which
importers have to use and the customs generally support. The main reason for duty-dodging and
improper declaration of goods is exorbitant import duties on certain manufactured products.
However, in many cases, even if the importing company wants to be transparent and declare
goods properly, the customs suggest they should use the “grey” scheme and pay a bribe to the
customs officer. Otherwise, clearance of goods becomes a long and tedious process, whereby all
products have to be counted manually and verified against the supporting documents.
There are 2 scales of duties in India – ad valorem, whereby duties are based on declared value of
goods and a fixed rate based on the weight of goods. By default all goods imported into India is
liable to a 20% ad valorem import duty. However, Indian customs legislation specifies that in
case the fixed rate based on the cargo weight is higher than the ad valorem rate, the customs
should apply the former. A 20% VAT is levied on top of the contract price and import duties
payable.

MARKET SIZE AND CONSUMER BUYING BEHAVIOUR

• Indian Skincare market – Rs 2100 crores

• Anti ageing market – Rs 60 crores

• Anti-wrinkle market – Rs 75 crores

Customers are becoming more aware and consequently more demanding of the services available
at cosmetic retail outlets. It is now a common practice when a store assistant acts as a consultant
and advisor to the customer on the products offered and their use. That requires considerable
staff training from companies selling cosmetic products.

In general, any imported cosmetic product has strong prospects in the Indian market if it can be
offered at a competitive price and quality. The key is to avoid unnecessary logistical and service
costs, although a new-to-market firm should be prepared for start-up costs. Many firms have
found it sensible to test the market with direct sales to local dealers, thus avoiding tax
complications within India. Others have chosen to begin operations in a regional market within
India, deliberately avoiding a rural presence. Still other firms have chosen to market their
products directly from overseas in order to minimize reliance on intermediaries. This approach
offers some cost advantages since compensation of sales representatives is largely based on
commission. However, this also adds to transportation costs and extends the time of delivery,
along with potential delays at Indian Customs.
14

New products, if professionally marketed, could enjoy significant opportunities in India. The
markets for anti-ageing and anti-wrinkle, for instance, have significant room for expansion.
However, aggressive promotion strategies are necessary to compete and maintain market share
with the traditionally well-recognized trademarks.
SALES PROMOTION STRATEGY

Citing the reasons for such a low per capita consumption for branded cosmetics and toiletries
products India’s 20 million uses well-known branded products made by Unilever, Procter
& Gamble, Godrej, Dabur etc.

Remaining 80 million use low-cost cosmetics and toiletries products. A case for example is that
most of Indians use Boroline to remove the wrinkles and skin bruises which cost only Rs. 12 per
piece as against Garnier and Pond’s brand of wrinkle cream cost their customers over Rs.400.

At the time of launching, Rice may provide free samples for customer’s attraction along with the
ad that would be placed in magazines and newspapers. As a strategy to compete with its
competitors at a later date Rice may launch some new promotional activities like distributing
some incentives like Buy and Get 25% free. Rice may also offer some price deduction on twin
pack.

DECISION CRITERIA FOR INTERNATIONAL BUSINESS

Before doing any business internationally through sourcing, exporting, investing, or a

combination of these strategies, the company must look at conditions in the potential country to
analyze what the advantages, disadvantages, and costs will be and whether it is worth the risk.

1. POLITICAL RISK

Political risk, or the risk of a change in government policy that would adversely impact a
company's ability to operate effectively and profitably, is a deterrent to expanding
internationally. The lower the level of political risk, the more likely it is that a company will
invest in a country or market. 1ne difficulty of assessing political risk is inversely' proportional to
a country's stage of economic development: All other things being equal the less developed a
country; the more difficult it is to predict political risk. The political risk of the Triad countries,
for example, is quite limited as compared to a less developed preindustrial country in Africa,
Latin America, or Asia. In general, there is an inverse-relationship between political risk and the
stage of development of a country. The higher the level of income per capita the lower the level
of political risk.

2. MARKET ACCESS

A key factor in locating production facilities is market access. If a country or a region limits
14

market access because of local content laws, balance-of-payments problems, or any other reason,
it may be necessary to establish a production facility within the country itself. The Japanese
automobile companies invested in U.S. plant capacity because of concerns about market access.
By producing cars in the United States they have a source of supply that is not exposed to the
threat of tariff or non tariff barriers. In the 1950sand 1960s, U.S. companies created production
capacity abroad to ensure continued access to markets that had been established with supply
exported from U.S. plants.
3. FACTOR COSTS AND CONDITIONS

Factor costs are land, labor, and capital costs. Labor includes the cost of workers at every level:
manufacturing and production, professional and technical, and management. Basic
manufacturing direct labor costs today range from $0.50 per hour in the typical developed
country (LDC) to $6 to $20 or more per hour in the typical developed country. Note that,
compared to the United States, manufacturing compensation costs are higher in Western
European countries despite a recent decline, and Asia's emerging countries have increased
relative to the United States since 1980.

German hourly compensation costs for production workers in manufacturing are 155 percent of
those in the United States, whereas those in Mexico are only 10 percent of those in the United
States. For Volkswagen (VW), if wages were the sole criteria for making a decision, the wage
differential between Mexico and Germany would dictate a Mexican manufacturing facility that
builds Golf and Jetta models destined for the United States. Do lower wage rates demand that a
company relocate its manufacturing to the low-wage country? Hardly. In Germany, VW
Chairman Ferdinand Piech is trying to improve his company's competitiveness by convincing
unions to allow flexible work schedules. For example, during peak demand, employees would
work six-day weeks; when demand slows, factories would produce cars only three days per
week.

Moreover, wages are only one of the costs of production and, many times, a small percentage of
the total cost associated with the product. Many other considerations enter into the sourcing
decision, such as management's aspirations. For example, SMH assembles all of the watches it
sells, and it builds most of the components for the watches it assembles. It manufactures in
Switzerland, the highest-income country in the world. SMH's Hayek decided that he wanted to
manufacture in Switzerland in spite of the fact that a secretary in Switzerland makes more money
than a chief engineer in Thailand: He did this by making a commitment to drive wage costs down
to less than 10 percent of total costs. At this level, wages rates are no longer a significant factor
in competitiveness. As Hayek puts it, he does not care if his competitor's workers work for free!
He will still win in a competitive marketplace because his value is so much greater?

The other factors of production are land, materials, and capital the cost of these factors depends
on their availability and relative abundance. Often, the differences in factor costs will offset each
other so that, on balance, companies have a "level field" in the competitive arena. For example,
the United States has abundant land and Germany has abundant capital these advantages partially
offset each other. When this is the case, the critical factor is management, professional, and
worker team effectiveness.

World factor costs that affect manufacturing a be divided into three tiers. The first tier consists of
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the industrialized countries where factor costs' are tending to equalize. The second tier consists of
the industrializing countries-for example, Singapore and other Pacific Rim countries-that offer
significant factor costs savings as well as an increasingly developed infrastructure and political
stability, making them extremely attractive manufacturing locations. The third tier includes
Russia and other countries that have not yet become significant locations for manufacturing
activity. Third-tier countries present the combination of lower factor costs (especially wages)
offset by limited infrastructure development and greater political uncertainty.
The application of advanced computer controls and other new manufacturing technologies has
reduced the proportion of labor relative to capital for many businesses. In formulating a sourcing
strategy, company managers and executives should also recognize the declining importance of
direct manufacturing labor as a percentage of total product cost. The most advanced global
companies are no longer blindly chasing cheap labor manufacturing locations because direct
labor may be a very small percentage of total. As a result, it may not be worthwhile to incur the
costs and risks of establishing a manufacturing activity in a distant location. The experience of
the Arrow Shirt Company also illustrates several issues relating to factor costs. During the 1980s,
Arrow sourced 15 percent of its dress shirts from the Far East at a cost savings of $15 per dozen
compared to U.S.-manufactured shirts. Arrow decided to phase out imports after spending $15
million to automate its U.S. plants. Productivity increased 25 percent and Arrow is no longer at
the mercy of a 12-month lead time between ordering and delivery; U.S.-sourced shirts can be
ordered a mere three months in advance-a critical issue in the fashion industry. Interestingly, the
Arrow experience illustrates how the decision to source at home rather than abroad does not
automatically defuse the political issue of exporting jobs: After automating, Arrow laid off 400
U.S. workers and closed four factories.

Many companies have been chagrined to discover that today's cheap factor costs can disappear as
the law of supply and demand drives up wages and land prices. Shirt makers like Arrow began
sourcing in Japan in the 1950s. As wages and real estate costs increased, production was shifted
to Hong Kong and then to Taiwan and Korea. During the 1970s and 1980s, production kept
shifting to China, Indonesia, Thailand, Malaysia, Bangladesh, and Singapore. In recent years,
shirt production has shifted from the Far East to Costa Rica, the Dominican Republic,
Guatemala, Honduras, and Puerto Rico. In addi60n to low wages, these countries offer tax
incentives under the 1983 Caribbean Basin Initiative agreement.

4. SHIPPING CONSIDERATIONS

In general, the greater the distance between the product source and the target market, the greater
the time delay for delivery and the higher the transportation cost. However, innovation and new
transportation technologies are cutting both time and dollar costs. To facilitate global delivery,
transportation companies such as CSX Corporation are forming alliances and becoming an
important part of industry value systems. Manufacturers can take advantage of inter modal
services that allow containers to be transferred between rail, boat, air, and truck carriers. Today,
transportation expenses for U.S. exports and imports represent approximately 5 percent of total
costs. In Europe, the advent of the single market means fewer border controls, which greatly
speeds up delivery times and lowers costs.

5. COUNTRY INFRASTRUCTURE 14

In order to present an attractive setting for a manufacturing operation, it is important that the
country's infrastructure be sufficiently developed to support a manufacturing operation. The
required infrastructure will vary from company to company, but minimally it will include power,
transportation and roads, communications, service and component suppliers, a labor pool, civil
order, and effective governance. In addition, a country must offer reliable access to foreign
exchange for the purchase of necessary material and components from abroad as well as a
physically secure setting where work can be done and product can be shipped to customers.
A country may have cheap labor, but does it have the necessary supporting services or
infrastructure to support a manufacturing activity? Many developing countries offer these
conditions, yet there are also many other countries that do not, such as Lebanon, Uganda, and El
Salvador. One of the challenges of doing business in the Russian or Chinese market is an
infrastructure that is woefully inadequate to handle the increased volume of shipments.

6. FOREIGN EXCHANGE

In deciding where to locate a manufacturing activity, the cost of production supplied by "a
country source will be determined in part by the prevailing foreign exchange rate for the
country's currency. Exchange rates are so volatile today that many companies pursue global
sourcing strategies as a way of limiting exchange-related risk. At any point in time what has been
an attractive location for production may become much less attractive due to exchange rate
fluctuation. For example, the financial crisis in Russia in 1998 saw the ruble drop from 6 to the
U.S. dollar to 25 rubles to the dollar. The prudent company will incorporate exchange volatility
into its planning assumptions and be prepared to prosper under a variety of exchange rate
relationships.

The dramatic shifts in price levels of commodities and currencies are a major characteristic of the
world economy today. Such volatility argues for a sourcing strategy that provides alternative
country options for supplying markets. Thus, if the dollar, the yen, or the mark becomes
seriously overvalued, a company with production capacity in other locations can achieve
competitive advantage by shifting production among different sites.

7. CREATING A PRODUCT-MARKET PROFILE

The first step in choosing export markets is to establish the key factors influencing sales and
profitability of the product in question. If a company is getting started for the first time in
exporting, its product-market profile will most likely be based on its experience in the home
market, which may or may not be relevant to the individual export markets being considered.
The basic questions to be answered can be summarized as the nine Ws:

1. Who buys our product?

2. Who does not buy our product?

3. What need or function does our product serve?

4. What problem does our product solve? 14

5. What are customers currently buying to satisfy the need and/or solve the problem for which
our product is targeted?

6. What price are they paying for the products they are currently buying?

7. When is our product purchased?

8. Where is our product purchased?

9. Why is our product purchased?

Any company must answer these critical questions if it is going to be successful in export
markets. Each answer provides an input into decisions concerning the four Ps. Remember, the
general rule in marketing is that, if a company wants to penetrate an existing market, it must
offer more value than its competitors-better benefits, lower prices, or both. This applies to export
marketing as well as marketing in the home country.

8. MARKET SELECTION CRITERIA

Once a company has created a product-market profile, the next step in choosing an export market
is to appraise each possible market. Six criteria should be assessed: (1) market potential,
(2) market access, (3) shipping costs, (4) potential competition, (5) service requirements,
and (6) product fit.

a) Market Potential

What is the basic market potential for the product? To answer this question, secondary
information is a good place to start. Valuable sources were discussed in Chapter 6, "Global
Marketing Information Systems and Research." In the United States, the federal government has
numerous publications available, compiled by the Central Intelligence Agency (CIA) and various
other agencies and organizations.

The cost of assembling sales literature, catalogs, and technical bulletins should also be
considered in comparison to market potential and profitability. This cost is particularly important
in selling highly technical products.

b) Market Access

This aspect of market selection concerns the entire set of national controls that applies to
imported merchandise and any restrictions that the home-country government might have. It
includes such items as export license, import duties, import restrictions or quotas, foreign
exchange regulations, and preference arrangements. Because this information is quite detailed, it
is best to directly consult the trade bureaus of countries that are being considered.

c) Shipping Costs and Time

Preparation and shipping costs can affect the market potential for a product. if a similar product
is already being manufactured in the target market, shipping costs may render the imported
product uncompetitive. If it takes months for the product to reach the target market and the
product competes in a rapidly changing category such as computers, alternative transportation
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strategies should be considered. It is important to investigate alternative modes of shipping as

well as ways to differentiate a product to offset the price disadvantage.

d) Potential Competition

Using a country's commercial representatives abroad can also be valuable. When contacting
country representatives abroad, it is important to provide as much specific information as
possible. If a manufacturer simply says, "I make lawn mowers. Is there a market for them in your
territory?," the representative cannot provide much helpful information. If, on the other hand, the
manufacturer provides the following information: (1) sizes of lawn mowers-manufactured, (2)
descriptive brochures indicating features and advantages, and (3) estimated cost insurance freight
(C.I.E) and retail price in the target market, then the commercial representative could provide a
very useful report based on a comparison of the company's product with market needs and
offerings.

e) Service Requirements

If service is required for the product, can it be delivered at a cost that is consistent with the size
of the market?

f) Product Fit

With information on market potential, cost of access to the market, and local competition, the
final step is to decide how well a company's product fits the market in question. In general, a
product fits a market if it satisfies the criteria discussed previously and is profitable.

CONCLUSION

The keys to success in the market for cosmetics products in India are:

1. Aggressive promotion of new products

2. Large-scale advertising
3. Cooperation with reputable and knowledgeable local distributors; and
expansion into regional markets with a wide range of products offered.
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On the whole, Rice, looking to sell its cosmetic products in the Indian market should be prepared
to undertake the following actions:

1. Initial investment in advertising and promotion campaigns to establish the image of the
product in the market
2. Registration of trademarks
3. Establishing a reliable distribution and sales network
4. Expansion of range of products
Often, multinational companies presume that the market-entry strategies
that served them well in one market would hold well in other markets as
well. Such strategies plan to leverage on competitive assets such as brand
names, managers, and suppliers of marketing services. However, it ignores
the fundamental tenet of marketing — companies should adapt their product
offerings to meet the different market conditions. The more experienced
international companies find ways of adapting to local market conditions,
including new locally-oriented brands, distribution channels, and new
packaging and pricing.

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