Pratibimb nov by Pratibimb TAPMI

November 2013

A Students’ Initiative

T. A. Pai Management Institute Manipal, Karnataka

About TAPMI T. A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal and is well known for its academic rigor & faculty-student interaction. The Institute has been recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The Week Magazine. Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed impetus to the task of building professional management capability in the country. In the process, it has also played a role in strengthening the existing educational and health infrastructure of Manipal.

Our Mission “To excel in post-graduate management education, research and practice”. Means: 

By nurturing and developing global wealth creators and leaders.



By continually benchmarking ourselves against best in class institutions.



By fostering continuous learning and reflection, achievement orientation, creative interdependence and respect for diversity.

Value Bounds: 

Holistic concern for ethics, environment and society.

Pratibimb | November 2013 | 2

PRATIBIMB TAPMI’S MONTHLY e-MAGAZINE

NOVEMBER, 2013

TAPMI’s e-Magazine - is the conglomeration of the various specializations in MBA (Marketing, Finance, HR, Systems and Operations). It is primarily intended to provide insights into the plethora of knowledge that relate to the various departments of Management and to give an opportunity to the students of TAPMI and the best brains across country to exhibit their creative cells. The magazine also strives to bring expert inputs from industries, thereby bringing the academia and industry together. Pratibimb the e-Magazine of TAPMI had its first issue in December 2010. The issue comprised of an interview of well known writer Ms. Rashmi Bansal along with a series of articles by students and industry experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first rank globally for learning & development . It also included a hugely successful and engrossing game for finance geeks called “Beat the Market” to bring out the application based knowledge of students by providing them the platform where they were expected to predict the stock prices of two selected stocks on a future date. The magazine is primarily intended for the development of all around management knowledge by providing unbiased critical insights into the modern developments. TAPMI believes that learning is a continuous process and is not limited to the four walls of the classroom. This viewpoint is further enhanced through Pratibimb wherein students manage and contribute to create a refreshing learning environment outside the classrooms which eventually leads to a holistic development process. The magazine provides a competitive platform and opportunity to the students where they can compete with the best brains in the B-Schools of the country. The magazine also provides a platform for prominent industry stalwarts to communicate their views and learning about and from the recent developments from their respective fields of business which in turn helps to create a collaborative learning base for its readers. Pratibimb is committed in continuing this initiative by bringing in continuous improvement in the magazine by including quality articles related to various management issues and eventually creating a more engaging relationship with its readers by providing them a platform to showcase their talent. We invite all the best brains across country to be part of this initiative and help us take this to the next level. Pratibimb | November 2013 | 3

Directorâ&#x20AC;&#x2122;s Message

It is a matter of great delight that Pratibimb is out with yet another issue. It just seems like a moment ago that the preceding issue was released. As Pratibimb continues with the fulfilment of its role of serving as a platform for the sharing of thoughts, insights and expressions, its readership continues to grow and flourish. It also, in its own unique style serves as an emissary of TAPMI in the world of Business School Publications. With great pride, I wish Pratibimb the best in the times to come and hope that its growing readership and appreciation remains ever prevailing.

Dr RC Natarajan Director

Pratibimb | November 2013 | 4

Editor’s corner Greetings from Pratibimb! We are back with another issue, and this issue, like its predecessors, is but a collection of keen perceptions of the Business world. The perceptions which each of us possess and the sheer variety of them give us the ability to look at things from every angle and to come up with innovative ideas like never before. This trend of sharing perceptions is continued in this issue, and we bring you a host of new thoughts and ideas wrapped up in one cloth, known as Pratibimb. We have Mr. Saurabh Bhuwania and Mr. Rajiv Singh from FMS, who pose an important question with respect to our readiness to adopt new technologies while maintaining the balance with the Humanity within us, in their article ‘Our Future Offices’. Continuing with the Human aspect, we have Mr. Udayan Dhar who in his article ‘The Future of Labour Relations in India’ covers many detailed aspects, such as Altered realities of Collective Bargaining, permanence of temporary workers, unions in IT companies etc. A highly detailed and comprehensive read is the article ‘Indo-Chinese Bilateral Trade : A bitter pill for the Indian Pharmaceutical Industry’ by Mr. Shamik Mukherjee and Mr. Suvajyoti Bhattacharjee from SJMSOM, IIT Bombay; a must read for anyone with even an iota of interest in the Pharma World. Furthermore, Mr. Nitesh Sinha from IIM Ahemdabad questions the very Manufacturing policy of the Indian Government, and comes up with a substantive argument for his conclusions in his article ‘India yearning for a Manufacturing Revolution’. On similar lines we have the article ‘Gold : A celebration, an Occasion and now a Nemesis’ by Mr. Siddharth Singh from NMIMS, Mumbai, in which the links between Gold and the current account deficit in a Gold-loving nation are explored thoroughly. Speaking of India, Mr. Harsh Garg and Mr. Kishalay Datta from NMIMS, Mumbai, tell us about the value proposition and the steps IKEA should take given its interest in India, in their article ‘IKEA – The INDIAN way’. Another article ‘Revenue Maximization with Dynamic Pricing’ by Mr. Prahaladhan S and Mr. Shyam Suresh from IMT Ghaziabad, constructs a simple, logical argument so beautifully that one has to go through it to believe it. While Branding is done at so many levels, the sixth level of differentiation takes you to a different world altogether- the world of Festivals, as is explained in the article ‘Sixth level of differentiation – Standing out during Festivals’ by Ms. Seerat Jangda from IIM Lucknow. And finally, what would be a better way to end the journey of reading than with the article ‘Nostalgia in Marketing and Advertising’ by Ms. Akriti Sahai from Welingkar Institute of Management Development and Research, which, as the name suggests, is a journey into the past.

Pratibimb | November 2013 | 5

Editor in Chief Arun Stephen Marketing & Advertising Abhineet Rastogi Bhavnita Nareshkumar Creative & Cover Design Devi Kailas Communications Kannan Venkat Shubha Prabhu Operations Aditya Bhat Publishing Lloyd George Sub Editors Ayon Kumar Gayathri Mohan Amruth C Debidatta Sathapathy Priyam Goyal Debayan Bhattacharjee Akash Gupta Pallavi Prasad Avni Mooljee Faculty Advisors Prof. Chowdari Prasad Dean (PR) & Chairman-Admissions

Prof. Aparna Bhat

We hope that these readings satiate your yearnings for knowledge and help you grow in every aspect till the next issue of Pratibimb comes forward to simulate your intellect again with its collection reflecting Simplicity, Reason and Creativity. “Education begins the Gentleman, but reading, good company and reflection must finish him.” Our sincere thanks to all the contributors of articles who make Pratibimb what it is, to our readers who give us their most precious thing – their time, and to our Faculty members at TAPMI, without whose valuable inputs and critical insights Pratibimb would not be half as worthy as it is today. Kindly e-mail us your suggestions, inputs or feedbacks at- pratibimb@tapmi.edu.in So keep reading, keep reflecting.

Editor Arun Stephen

Pratibimb | November 2013 | 6

Contents Our Future Offices

by Saurabh Bhuvania, FMS Delhi

The Future of Labour Relations in India

by Udayan Dhar , NMIMS Mumbai

Revenue Maximization with Dynamic Pricing

by Shyam Suresh & Prahladan S, IMT Ghaziabad

Sixth Level of Differentiation

by Seerat Jangda, IIM Lucknow

Nostalgia in Marketing and Advertising

by Akriti Sahay, Wellingkar

Gold: A Celebration, an Occasion and Now a Nemesis

by Sidharth Singh, NMIMS Mumbai

IKEAâ&#x20AC;&#x201C; The Indian Way

by Kishalay Datta & Harsh Garg, NMIMS

India - Yearning for a Manufacturing Revolution

By Nitesh Sinha, IIM Ahemedabad

Indo-Chinese Bilatteral Trade By Shamik Mukherjee & Suvajyoti Bhattacharjee, SJMSOM, IIT Bombay

Pratibimb | November 2013 | 7

Our Future Offices Saurabh Bhuwania, Faculty of Management Studies, Delhi

We all wonder how the future world looks like. We talk about flying car; touch screens projectors, army without single man, folding laptop etc. Also if, the technology changes the organizations working culture will get changed. Also not the technology only but the thought process will also change. As per the latest studies the new workforce will not have an employer-employee relationship. But be more as of stake folders, they are not called up as an employee anymore. Trust will be the parameter which leads to the success story for the organization. Already organizations are moving towards this culture, and role of HR manager is changing from compliance and engagement to become enablers. As per existing Maslow pyramid organizations have self-actualization at the top of the pyramid. But now for the new organizational structure this will be the starting and trust being at the top. Tomorrow lack of opportunity and exciting new initiative will make talent to look elsewhere. Psych of the new talent pool is changing, with new technologies, methodology and innovation driving the future, new talent will seek for their own way of working. Traditional thoughts are over driven by innovation. Also to keep the talent interested, one has to make them believe that they are part of something big. They are the integral part of keeping them big. In near future sense of purpose will be more critical than the compensation and designation. Future organization will come with all new designations, new functionaries, providing flexibility and will make the talent force realize how they are asset to them. How it is important to be there. Some of the people will say that the purpose is the only thing which drives them. But for the future organization making this realized by the people who are down the ladder is where future lies. It is an unwritten rule in current organizations that one should keep hierarchical distance for subordinates to have control. For future organizations this thumb rule will appear to be unproductive, and change towards collaboration team working will become future ahead. The matrix structure will collapse to open culture; people feel more on discussion rather following. As the standard of living and resources increase, future organization will fulfill the basic needs of the talent. For global workforce it will not matter where do you work? Whether you are in London or Gurgaon, Auckland or Sydney itâ&#x20AC;&#x2122;s all equal. Talent will demand equally rewarding and challenging career ahead of them. As of now there is a linear variable compensation model which is followed. Deliverables are directly linked with the variable component; not the zeal of taking risk, thinking out of the box, and for going for an implementation of unrealistic work. The risk to fail is associated with it. In near future employer (co stake holders) will let the talent fail, fail in their innovation and will pay variable incentive for innovation and not on the success for the innovation.

Pratibimb | November 2013 | 8

They push them to try new things. Off course it never means that successfully implemented work will not be appreciated, but as the innovation caries risk of failure will not be bothering for the future talent.

will teach the well-rounded workforce. Greater transparency of all together new communication method will make the circle bigger and bigger. Also restless will be new definition for the future talent. Not being restless for being different, but will have greater zeal to succeed.

Emerging technologies will enable the employees to work offsite with greater ease. Geographic location will become immaterial. Companies will depend increasingly on “plug and play” offices. Which get establish quickly wherever required. The concept of going to office will change to use portable and wireless tools. These inevitably reduce overhead expenses of leases, property taxes and facilities management.

Organizations will become big with small offices; companies will expand their counts but shrink in disparity. Organizations which will become successful will be the one which has one of the robust and transparent communication systems. Current organizations still said to be European or American or Indian one cannot see a unified global culture. Future lies with the rapidly changing world, a unified single world. To achieve this significant amount of de-centralization is reAdvance electronic communicating device will eliminate quired, in terms of execution and decision making. traditional time, distance and language barrier; facilitate The question still lies with the changing world are they ready communication and preventing lag of production. Virtual for organizational chaos, to manage it better? Does we are interaction will be replaced by face-to-face meetings. People ready for the next revolution in technology? With growing will start working from home. technology does we are going away from humanity? Does Social media effect is already driving the new talent to bun- we are ready for changing the definition of office? dles of information. Business managers in their late 30s and early 40s communicate with traditional mode of communication. Gen Y is more towards the social medial like Google+, References: Twitter and Facebook. Earlier role of HR heads is to limit the www.infosysbpo.com information flow to restrict the information chaos. But for  the future talent heads social media will become a platform  www.officeofthefuture2010.com for sharing new information and data. Obviously in the controlled manner, and the control is not forced it will come from the trust they will develop. Command and control HR policy will get changed to own and deliver in the future. Intangible values will play greater role in the success of the organizations rather the more controlled scenario, which is driving the current talent pool. Today’s organization lost their valuable discussions to small packets of talent heads. Well-connected future organization

Pratibimb | November 2013 | 9

The Future of Labour Relations in India Udayan Dhar, NMIMS Mumbai

Management professionals and students of the post-reforms era in India have little cognizance of the frequent strikes and labour disputes that marred the industrial scene of the country- especially states like Kerala and West Bengal that have a history of labour-based politics. The ushering in of economic reforms in 1992 also meant a major policy change in the Indian Government with regard to industrial relations. The fundamentally pro-labour policies were replaced by a more “market-friendly” approach that saw relaxation of labour laws, minimal state interference in labour disputes and a withdrawal of open support to the erstwhile powerful unions. But 1992 was two decades ago and things have come a full circle. Last year in July the nation got an ugly reminder that all was not well when otherwise peaceful workers at Manesar went berserk at the Maruti plant and attacked executive employees, even killing an HR manager. Earlier, during the 2008-10 recession, as IT companies fired thousands of employees there was renewed demand for tighter labour law implementation in this lucrative sector. So, how does the industrial relations minefield look like in the years to come? What strategies are companies and labour unions implementing to meet the challenges of a fast churning economy? The altered reality of collective bargaining Labour unions and their leaders have (belatedly though) realized the changed landscape of the Indian economy. Workers can no longer stand up against exploitation the way they could do earlier, and strikes hurt them more than they hurt the companies they work for. Let’s take the Manesar example. Despite a massive increase in profits (2200% in two years), quantum jump in the CEO’s pay (419% in four years), increase in productivity (400% in 8 years with just a 65% rise in total employee headcount) the real wages of workers increased by a meager 5.5% (contrast this to the Consumer Price Index jump of 50% during the same period). Add to it the continuing use of contract labour in clear violation of the Contract Labour (Regulation and Abolition) Act, 1970, and Contract Labour (Regulation and Abolition) Central Rules, 1971. It’s not difficult to realize which way the balance is tilted. The Manesar violence was followed by the arrest and sacking of dozens of workers, and well as the shutting down of the factory for weeks thereafter. While union leaders have expressed dismay at the attitude of the management, they have also realized the futility of violence and adverse actions on part of the workers. That a safe and healthy industrial relations environment is detrimental to both workers’ welfare and the economy, is a reality which they have now accepted. Will the corporate leadership too now show a willingness to engage with workers’ unions and treat their legitimate demands in a fair and transparent manner? That remains to be seen. The permanence of temporary workers In blatant violation of the law, the Maruti management was employing contract workers even for jobs that were “perennial” and “necessary for work in the factory”.

Pratibimb | November 2013 | 10

According to research, in the Delhi-NCR region, up to 85% of industrial workers are on temporary employment. These workers are paid a fraction of a permanent employees’ salary, given minimal benefits and can be terminated with little notice. Unions are now taking up the cause of these workers in an attempt to broaden their support base. The website of the Indian National Trade Union Congress mentions in its charter of demands states- “The trade union vehemently demands implementation of the labour reforms in the first instance of the contract workers who are working on the permanent nature of work and should be made permanent. They want to improve their salary and other perquisite, pension and bonus etc. for which review of labour laws is essential to give more job protection and security.” The inclusion of these temporary workers will broaden the scope of industrial relations in India and companies will have to rethink the way they manage them with impunity.

entirely of knowledge workers? While the change may not be so dramatic, companies and HR managers need to be aware of the unique pitfalls in this industry. According to Vikram Shroff, Head-International HR Law, Nishith Desai Associates, it is a myth that IT sector employees do not approach labour courts or are not aware of labour laws. His company is currently representing one such case at the labour court where an outsourcing company fired an employee. The employee sued the company for unfair labour practices under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act.

Implementation of labour laws and increased awareness of their rights among IT/BPO employees will bring new and unique changes, and well as challenges to employeeemployer relations in India. One such unique feature may be the emergence of “virtual unions” that will lead to greater and freer communications among workers and an inOn similar lines, trade unions are also contemplating the creased number of legal cases. unionization of the unorganized sector of India. Since 92% A new paradigm of employer-employee relationship of the Indian workforce belongs to this category, this sector holds the key to giving new lifeblood to the flagging labour While the pre-reform era saw an overbearing welfare economy that virtually stifled growth by rewarding militant ununion movement of this country. ionism, the decades following reforms saw a near reversal Unions in IT companies? with employee welfare being largely compromised in the Until March of this year, IT and ITES companies in Karnataka name of market friendly policies. The emerging paradigm is enjoyed the extraordinary exemption from all Indian labour a more balanced approach where employers and employlaws. This had been going on since 1999, ostensibly to cre- ees realize that they’re both stakeholders in each other’s ate a more investor friendly climate. What resulted was a growth, and that there is no win-lose in this tug-of-war. multi-billion dollar industry in the state where employees When employees feel unfairly treated, productivity and could be hired and fired at will, made to work extra hours morale suffers; Likewise, when profits take a plunge it’s the with no or little extra pay, and were paid a tiny fraction of workers who feel the first pinch. As the euphoria of the reform decades wear off, the Indian industrial space will the amount they were billed for. benefit from the emergence of a more mature and inclusive When recession struck, anywhere between 77,000 to labour relations environment. 110,000 workers were unceremoniously laid off. Such random firings, unregulated working hours and a high intoler- References: ance of collective bargaining led to IT workers coming to Can India Inc. face the truth about the Manesar violence? gether to form unions outside the workplace. An example is Jul 29, 2012, DNA, By G. Sampath UNITES, a Bangalore-headquartered union for IT and ITeS  IT industry to lose blanket exemption from labour laws: employees. Shekhar and Prithviraj Lekkad, the duo who Deepa Kurup, The Hindu, 5th Oct, 2012 head Unites, claim membership (largely BPO employees)  Workers' struggle in Maruti Suzuki, September 28, 2011, had shot up from 5,000 to 18,000 in a year during the recesThe Hindu, By Prasenjit Bose and Sourindra Ghosh sion. “A few years ago, we were the fringe guys. People  Changing Face of Industrial Relations in a Knowledgewould laugh at us. Not anymore.” Unites’ Shekhar, a former Driven Economy, By Akanksha Khare, Arunima Khullar & Soumitra Mehrotra, SHRM India Blogs IBM employee told Outlook magazine in an interview.  Outlook Business, 27 June 2009: Chronicles of the rise and So as the labour laws finally come into force in the IT sector fall of the Indian software engineer in its home turf Karnataka, will employees now take up the  INTUC Website: http://www.intuc.net/ opportunity to unionize an industry that consists almost display_issues_detail.php

Pratibimb | November 2013 | 11

Revenue Maximization with Dynamic Pricing Shyam Suresh & Prahladan S, IMT Ghaziabad

“The way you set prices doesn’t just influence demand. It also guides the way buyers use your product or service-and that can have a lasting impact on customer relationships” Dynamic Pricing is where prices respond to supply and demand pressures in real time or near real time (Sahay, 2007). The most famous example will have to be that of EBay using auctions to sell more than $20 billion worth of goods in 2005. Thus dynamic pricing when managed well offers a feasible and attractive path to increase revenues and profits. If managed well, it can turn out to be a potential source of competitive advantage.

Four reasons which drive the usage of dynamic pricing

 

Technology for accessing and deploying Dynamic Pricing has become affordable



Facilitates new ways of extracting value and reallocating demand amidst pricing pressures and supply constraints



To increase efficiency, many companies are now looking at the downstream aspect where dynamic pricing becomes a natural consequence

Recent research (Sahay, 2007) which shows customers will accept Dynamic Pricing though they are buying using Fixed Prices currently

Forms of dynamic pricing



Posted Prices: Systems such as revenue management for airlines, demand based variable pricing or combination of approaches. Price changes across transactions



Price Discovery Mechanisms: Prices are determined by active participation of customer in the transaction. The price changes during the transaction with examples being auctions, group buying, negotiations, etc. Ebay is an example of straight auction where customers bid and the highest bidder gets to purchase the product whereas in reverse auctions, suppliers bid to sell goods to the buyer at the lowest price. This reduces upstream costs for the buyer.

Pratibimb | November 2013 | 12

The conventional view Dynamic pricing is limited to services/products such as hotel rooms, airline seats the value of which becomes zero if not used within the specified time. But for apparels, consumer electronics, computers, cell phones, etc., value diminishes as newer products hit the market. The value becomes 20 to 75% lesser in a span of 1 to 6 months. This is evident when apparel brands offer end of season sale by marking down up to 50% to clear the shelves. In these cases dynamic pricing approaches can be used to raise or lower prices right from the beginning, the prices can be calculated by examining latitude of price acceptance. Latitude of Price Acceptance (LPA) This is the range of possible prices within which price changes have little or no impact on purchase decisions of the customer. It ranges from 17% for consumer health and beauty products to 10% for engineered industrial components to 2% for financial products (Mc Kinsey Study). Companies can create LPA in consumer’s minds by varying prices across different channels and geographies. They can also create LPA by communicating value relevant to different target customers. Companies that move to the higher end of the LPA band can substantially increase profits. For example, Spicejet airlines has individual bookings, group bookings and corporate bookings and prices are different across each channel.

to reallocate and manage demand



Products and services that have a well defined shelf life are amenable to use demand based Dynamic Pricing even if they are perishable in the conventional sense.



The more that the company needs to sell or excess reassigned inventory, greater the potential for Dynamic Pricing.



The greater the possibility of using one off transactions to obtain inputs for production, greater the potential use of dynamic pricing as in the case of reverse auctions



When the relation between price and cost is little and the product can be evaluated from a distance. (In case of auctions)



In many instances of B2B selling where negotiations happen before the sale. Negotiation is a dynamic pricing method.

The counter view However the counter view than dynamic pricing will continue to sustain, supports itself with the argument that the advent of internet has led to decrease in search costs and ease of comparison. With e-commerce websites like flipkart and cardekho, the level of transparency has increased across channels and hence the prices are bound to fall until they become equal and fixed.

The prices need to stay within the LPA. As long as they do, customer purchase intentions are not affected. Making cusApproach 1: To observe the range of prices for which the tomers involved in the pricing process leads to price acproduct can be purchased through different channels. A ceptance. Example: Price discovery mechanisms like aucSamsung mobile phone for instance can be purchased at a tions. certain price through an online flipkart, another price in an Logistical issues for retailers include replacing price tags each organized multi brand mobile chain like mobile store, third time there is a price change. For this purpose, electronic tags price at an exclusive Samsung mobile outlet and a fourth can be used which can be controlled from a centrally located price at a local unorganized mobile outlet. system which prices products based on demand and supply Approach 2: Based on surveys that test consumers’ willing- data. Despite incurring costs to implement these systems, once these systems are in place, cost savings and increase in ness to pay. revenue resulting from this will be significant. Approach 3: Analysis of actual demand elasticity in geograPricing to reflect demand and supply variation will be the phies, products, sales channels and customer segments price that will maximize revenue. The demand side can be Situations for using dynamic pricing controlled by understanding buying cycles and purchasing habits of customers. Also segmenting customers by creating  Bigger the market, larger the number of customers price discrimination will lead to LPA. and greater the number of transactions, greater the opportunity for using Dynamic pricing Reference: Approaches to find LPA



The more the customer is involved in the process and  greater the heterogeneity on valuation that customers put on the same service, greater the opportunity

Pratibimb | November 2013 | 13

Arvind Sahay, How to reap higher profits with dynamic pricing, 2007

Sixth Level of Differentiation– Standing Out During Differentiation Seerat Jangda, IIM Lucknow

Festival, the word that brings zeal and enthusiasm to not only the common people, but also to the marketers’. During the festive times, brands try to be as innovative and creative as possible in order to lure customers. Some of the very recent campaigns taken for this festive season of Dushhera and Diwali by Amazon and 94.3 My FM are commendable. Amazon has recently launched its ‘Light up a Child’s Diwali’ Campaign in which it encourages its customers to help the underprivileged children by gifting them some items available on Amazon’s website. These items can be selected by spending a few minutes on the wish list prepared by the two NGOs-Pratham and Naandi Foundation, working for the improvement of disadvantaged children. Amazon plans to donate the fees it earns from these transactions to the two NGOs. 94.3 MY FM recently launched its campaign “Shakti ke 9 Roop” on the occasion of Navratri celebration. This is one of its kind campaigns as no other campaign of this sort has been done ever before by any FM Channel. This campaign revolves around giving tribute to the women who have made a unique space for themselves in the professional arena. The FM would air an interview of such woman each day of the Navratri season. There seems to be a connect of each woman with the Goddess of each day. Sudha Murthy ,Bachendri Pal, Mary Kom, KiranBedi are somw of the interviewees to name a few. I would like to cite an exclusive marketing place which marketers’ of various companies took as a big market opportunity- The KumbhMela. Where on earth would you find 100 million consumers at the same place in just one month of time? For advertisers, it’s more like once-a-decade chance to reach millions of new consumers at the same place. And this group of consumers is important because according to Crisil, for the past two years, per-capita spending by India’s rural population grew faster than that of urban dwellers for the first time in two and a half decades. As per the Mumbai-based unit of McGraw-Hill Companies, rural spending was almost 12.9 trillion rupees ($235.7 billion) in the two years ended last March 31, as compared with 10.4 trillion in urban areas, making the rural consumers as the next big targets. Moreover, the outdoor media including hoardings, banners, posters, kiosks, stalls, along with the on-ground activation would eventually create a meaningful engagement with the customer more than from any other media, which gave an additional edge to KumbhMela as opportunity. While some companies needed such a huge gathering for generating leads, others used it just as a branding exercise spot. Colgate-Palmolive hawked toothbrushes, Britannia Industries pitched cookies, and Dabur India sold hair oil—all the said products were sold at steep discounts. Coca-Cola had its kiosks around the Mela area, where it sold 150milliliter glasses of its namesake soda for Rs.5 , along with bottles for 25 rupees. JC Bamford Excavators, which is a U.K.-based construction equipment maker, marketed a back-

Pratibimb | November 2013 | 14

backhoe loader, used for digging trenches, at the Mela. Various Ads for HUL’s Close Up toothpaste and bikes from the country’s largest motorcycle maker, the Hero MotoCorp, could be seen too. Vodafone Group also ran a 40-seat theater featuring a cable TV program on the religious story behind the KumbhMela. This film also included some easy to understand information about two Vodafone service numbers - 121 and 123. Idea also had its OOH campaign in the form of several outdoor formats such as welcome gates, indication balloons, boats, inter-city buses, railway stations hoardings, bus shelters and others. HUL’s Lifebuoy campaign- the “Roti Reminder” grabbed many eyeballs at the KumbhMela this year. HUL partnered with 100 dhabas and small hotels at the mela site to serve chapatis that were stamped with "Lifebuoy se haathdhoyekya?" (Have you washed your hand with Lifebuoy?) The words were heat stamped onto the baked rotis, and to ensure the rotis were completely edible, no ink was used in stamping. HUL got this idea clicked by the fact that roti beng the staple diet of Indian consumers, can’t be eaten without the use of hands. This unique intervention had the right timing: giving the message of hand wash just before consuming food. HUL made special heat stamps to make an impression of the above said message on rotis and hired 100 promoters to stand in 100 kitchens across the KumbhMela. The company also placed Lifebuoy in the wash rooms of each of the dhabas/hotels and used banners and billboards to reach millions more people with its communication message of hand washing.

Idea also introduced an ad campaign during Diwali festival last year, which signified the importance of all religions and promoted secularism. The ad film shows a Muslim man standing outside a watch shop and looking at a watch’s price, the man gets disappointed.

Pratibimb | November 2013 | 15

Seeing this, the shopkeeper shows him the festive offer card for Diwali and the ad ends with the tag line "Dharamjobhi ho, hartyauharmanaanaacha idea hai." They also released three more TVCs about Holi, Eid and Christmas in continuation of this campaign. Maruti Suzuki also came up with a ‘Festivals’ ad in 2012 having the tagline “MarutiSuzukui: for a festival called Life”. The TVC shows various car models of Maruti Suzuki at different shots depicting different festivals like Eid, Holi, Christmas, Diwali, Durga Puja, Ganesh Chaturthi. Whether it’s a festive campaign or any other campaign, the only thing which binds the consumers to the brand is the Experience!

Pratibimb | November 2013 | 16

References: 



Brands and bands make music festival experience (2012) Retrieved Oct 15, 2013, from www.marketingweek.co.uk/ brands-and-bands-make-music-festival-experience/ 3033914.article Using Traditional Marketing to Promote Social Media Campaigns: An Analysis of Blue Cross/Blue Shield (2013) Retrieved Oct 15, 2013, from //brightwhistle.com/usingtraditional-marketing-to-promote-social-media-campaignsan-analysis-of-blue-crossblue-shield/ Light up a child’s Diwali (2013) Retrieved Oct 15, 2013, www.amazon.in/gp/feature.html?ie=UTF8&docId= 1000753323

Nostalgia in Marketing and Advertising Akriti Sahay, Wellingkar

Marketing is omnipresent. As consumers, in our day to day lives, we are surrounded by communication or messages from all the directions.be it communication through radio, TV, social media, mobile networks etc. Every product is trying to infiltrate itself in our lives.in a world, where, people do not even know how many messages their mind is registering, there is a concept used by marketerâ&#x20AC;&#x2122;s to stand out. And this amazing yet not -so-talked-about concept is called Nostalgic Marketing. Nostalgia means a sentimental desire for the happiness felt from a former place or time. And nostalgic marketing is marketing that evokes a feeling or an emotion in the mind of the consumers. Basically, nostalgia can be triggered from anything around you. It reminds you of something that happened to you or is in some way associated to you in your past, predominantly positive. Nostalgia is being considered by many marketers in many ways. The fundamental reason is that it makes the consumer happy. The consumer thinks about certain events in his life, he will also remember or try to connect as to what made him walk down the memory lane, thus making way for a strong brand positioning as well as stronger brand recall. It is believed that nostalgic marketing works best in the times of recession or instability in the economy. The logic is that when there is recession, the distressed always dream of going back to the times when things were better. They want to go back to a more stable time, when things were simpler and life seemed easier. Many companyâ&#x20AC;&#x2122;s launch products incorporated with tunes from older songs or jingles relating to older songs. It evidently strikes the consumer minds and such ads make an impact on the consumerâ&#x20AC;&#x2122;s mind. Whenever marketers use nostalgia in marketing, they always are very precise and particular about their target market. It is common sense that a 25 year old will be nostalgic about very different things as compared to someone who is now a 50 year old. The most important criteria to consider nostalgia is the time flow according to your target customer. If what a marketer is doing is not old enough to trigger nostalgia in the consumer, the whole effort will be in the wrong direction and consumer will perceive you to be outdated, if nothing else. A very big risk is that nostalgia, if executed incorrectly, can backfire and spoil the whole show. Imagine if you have an amazing product, and people love it and have very beautiful memories of using the product, but you change it in a way that people do not like, it will cause them to let it go and switch to some other option as you smeared their perfect memory of the product. Now, let us enter the world of advertising and how nostalgia is shrewdly used by ad agencies to make a different space in the clutter of the ad world. We should also discuss some examples to get a clear picture of the various aspects of this concept. Advertising is another world in itself. Advertising is a paid form of communication for marketing and is used to encourage, persuade or manipulate an audience. Nostalgia is used by advertisers the most and that too very skillfully. Advertisers understand very well that consumers are influenced by their past and their anticipated futures.

Pratibimb | November 2013 | 17

Though they cannot return to their past, they can try to preserve it through nostalgic consumption activities. The effectiveness of nostalgia in advertising can be seen through the increase in level of brand awareness and brand attitude.

psyche is something that varies from person to person and is difficult to understand. Important but very minute insights help marketers to use nostalgia and hit the right target. Let’s look at some international examples which we can relate to. Sony playstation revisits its 1990’s roots in a video called Advertisers use jingles and music that easily registers in your “the Beginning” that shows the journey of the brand over mind and you start singing them in your routine. For examthe years. It has an amazing nostalgic appeal to it and has ple- the Lyril soap old ad used the jingle which became a benefited son in numerous ways. household tune overnight. Another evident example to clearly explain the concept is the Vicco turmeric ad. The Microsoft aims at its target audience with the opening jingle singing “vicco turmeric..nahi cosmetic…vicco turmeric words of a nostalgic video re-launch of the internet explorer ayurvedic cream” became an instant hit and is still remem- browser: “We met in the 90’s. We are generation Y.” the bered by people.vicco used this for its benefit and is still parting line of the video says: “You grew up. So did we.” playing that same old ad to create nostalgia in the consum- Beautiful, short and touching. Nostalgia basically makes you ers. Though people might not start using a product but they romance with your past.it sometimes has a very personal have it registered in their mind and who knows one can give touch to it. It is said that the human brain sometimes intenway to sale of the product. An interesting example can be tionally fogs the unpleasant parts of a memory and makes the “proud to be an Indian” ad by Bharti Airtel, an undoubt- us remember the good part of it. This happens because you ed impactful nostalgic advertisement. want to see yourself doing perfect things in the past and being right about your actions or basically, feeling happy A very recent example would be Manikchand Company’s about the memory. This is a big fact that contributes to the Oxyrich bottled water brand. Their recent ad is, though an success of nostalgia in advertising. Marketing research clearad for their bottle Oxyrich, it has been edited from the old ly shows a positive resonance with both nostalgic ads and version of the same Manikchand pan masala ad. The jingle the products advertised. It even shows more persuasive goes,”unche log unchipasand ,aey hey hey , Manikchand”. influence on consumers. But amany a times, what is absent The ad shows a scene of dahihandi being celebrated and a is a clear correlation to either purchase intent or actual purperson throws Manikchand water bottle to the person on chase of the products advertised. Advertisers trust that the top of the formation of the dahihandi celebration. The origipositive resonance towards the ad will lead to increase in nal ad showed the person throwing the pan masala box, sales of the product. which is now replaced by the Oxyrich water bottle. But what is to be kept in mind is that the study of the range It was a very smart move, as the ad itself has a place in the of age should be very precise and it should be aiming at the mind of the consumers and after watching this ad it created right segment of consumers, as nostalgic ads tend to aliennostalgia in the minds of the consumer and they registered ate consumers if the appeal is not matched with the target the brand shown and it increased the brand awareness. The markets. Consumers’ chronic feelings state (past few days or advertisement of hero which has a jingle “hum me hai hero” past few weeks) have been shown to affect their response by A.R. Rahman became famous nation-wide in a few days to nostalgic advertising. . and has left a very strong imprint on the minds of the consumers. Every time it is played, people can tell without In conclusion, the question for marketers is whether getting watching the video that the tune belongs to which brand.it consumers to “covet or yearn for the past” is an effective has stirred up emotions in the minds of the consumers and advertising strategy for their product or not. In my opinion, its positive if the appeal includes the right product targeting has thus made a space in their heads. right segment of consumers. Nostalgia can lead to a strong Another way of showing nostalgia is through use of it inside bond of the consumers with the product and will help in the advertisement. Many advertisers make ads where they increasing brand awareness and brand loyalty. It can be a show flashbacks etc where traditional ways of doing things perfect solution for few brands under certain market condior rituals or ceremonies are shown. This is an instant trigger tions. We should let nostalgic marketing and advertising to the memories of the consumers. Such mental images evolve. It should be studied deeply as it is an art and a scimake them think of their past and they relate the ads with ence in itself and has many hidden facts to it. how they used to live in the past and how things have changed. Nostalgia can also be used to make the consumer References: feel that it was very recent past of his that he is relating to  studioden75.com and the fact that he hasn’t grown that old. The consumer  arcwebsite

Pratibimb | November 2013 | 18

Gold: A Celebration, an Occasion and Now a Nemesis Siddharth Singh , NMIMS, Mumbai

The imports of gold have decelerated with ‘g’– the acceleration due to gravity. In India gold is religion, and it can be considered as a reason why we are amongst the largest importer of gold in the world. Since British Raj the Indian gems and jewellery sector has reached new heights with skilled craftsmen, superior techniques for polishing & cutting and cost efficiency. In India, gold jewellery is most preferred as it is considered auspicious to purchase gold on occasions like festivals, marriage, birth etc. Gold is also perceived as a relatively safer investment option. The law of demand in economics says, “When the price of a commodity increases its demand decreases”, but this proved rationale doesn’t hold true for gold in “India”, investment in gold is becoming price inelastic. Gold has remained remarkably resilient during arguably the worst financial crisis the world has seen since the Great Depression. As the financial sector came close to collapse during the recession, gold seemed to have the greater appeal as an investment option. More than two decades ago U.S dollar was uncontested standard value; euro didn’t exist at that time. The situation has not been like this, quite different- before Liberalization and Globalization in 1992 gold imports were restricted by the then existing Gold control act, 1968 and the precious metal used to be brought into India through illegal sources. Under the liberalized policy for importing gold, Government of India permitted certain nominated agencies viz. State Bank of India, Minerals and Metals Trading Corporation, State Trading Corporation, Handicrafts and Handlooms Export Corporation and other agencies authorized by RBI to import gold.

Source : guardian.co.uk

The imports of gold have been rising at an exorbitant rate, irrespective of the price associated with it. This large import of gold, at the time when the rupee is depreciating, adds to the deterioration of our CAD. The bulging trade deficit, demands for financing from the foreign exchange reserves, which could become a drag on the external debt.

Pratibimb | November 2013 | 18

In 2013-14, we expect international gold prices to average about 16 per cent y-o-y, as the yellow metal becomes less attractive for investments. However, the decline in domestic gold prices will not be as steep and will be limited to 810 per cent in 2013-14. Recent hike in the import duty on gold (in September 2013) to 15% and a weak rupee will cushion the decline in domestic gold prices.

account deficit which will harm Indiaâ&#x20AC;&#x2122;s gold imports. 3. Emergence of Silver:-

There has been a revival of silver as a purchase asset in the precious metals segment. Silver is viewed as a more stable commodity than gold and also the cost of storing silver safely in less than the corresponding cost for physical gold. This However gold has started to underperform as a purchase has led to a rise in the trading of gold ETFs (Exchange Traded Funds) and preference of silver over gold. Also China is asset due to the following reasons:leading the way in the investment of silver which sees the 1. Upward Movement of the US Stock and Bond markets:- metal as undervalued when compared to gold and having Since gold cannot be invested anywhere; it is an idle asset better accessibility. which is used to hedge against the vagaries of the equity and debt markets. Thus its demand is dependent on the Magnitude of Gold imports: current sentiment prevailing in the market. However the US Statistics say that the contribution of gold was nearly 30% securities market has performed better than expectations; of trade deficit during 2009-10 to 2011-12, which is higher which has led to the strengthening of the dollar against oththan 20%. during 2006-07 to 2008-09. The gold imports in er currencies. In this bullish scenario, people have decided India grew at 39%. In 2011-12, when the world gold deto repose their faith in stocks and this has led to a fall in mands was growing at 24%. demand for gold. This weak demand has led to lowering of price. Had it been in tandem with the world demand our CAD 2. Negligible Interest Rates:Gold demand also tends to be higher in a zero or negative interest rate scenario. Currently the Federal Reserve prints dollars and uses them for cash generation by purchasing debt securities. Due, to the excess cash, the interest rates remain low. However, according to the Quantitative Easing policy announced by Mr. Ben Bernanke(14th Chairman of the U.S Federal Reserve), there will be lesser printing of dollars which will lead to real interest rates rising in the USA. Accordingly, an investor who invests in India but resides in the US will be tempted to withdraw his money and invest in the US market. Hence these investors, who contribute to cash inflows for India, will now widen the current

Source: World Gold Council

Pratibimb | November 2013 | 18

would have been lower by 0.3%. Of GDP. This unabated gold demand is putting pressure on our Balance of Payment (BoP) management, which can make our external sector vulnerable and can have implications on for maintaining adequate forex buffer. We all know that the production of Gold in India is insignificant as compared to its demand, so the consumption is entirely met through imports. Change in the guidelines: As mentioned earlier, investment in gold is price inelastic. So, if there are efforts made to suppress its demand then the supply of gold from the authorized channels might be restricted but there is a huge possibility that buyers may take recourse to illegal channels.

Some Proposals: There is a requirement to opt for selected demand and supply management measures.  Demand reduction measures :I.

Gold is a function of economic growth, import duty, exchange rate the availability of credit, alternative financial investments and the current account transactions. Any change in its policy would lead to consider the developments in all of these parameters. The absence of financial instruments that can give real returns to investors leaves gold as the only option for the hedge against inflation. So, if products like inflation indexed bonds are devised, and then they can prove to be an effective alternative to gold. II.

person possess. But still, there are current norms which say that PAN no. has to be provided for buying gold beyond a certain limit, but there is no mechanism to catch hold of the jewelry shops which overtly flouts the rules. Hence, there is a strong need to track these loopholes and plug them. Monetization of idle gold stocks: A lot of gold lies with the sections of the society, which are economically weaker and doesn’t pay tax and in order to meet their untimely demands they fall prey to local money lenders and pawn brokers. Here, banks may start accepting gold jewelry as collateral against loan for all types of productive purposes. Now, there are certain other measures which are existent worldwide but not so known in India, of course, there are some products which have gained attention of the investors but there are still some which needs a greater exposure-

Preferential treatments for gold as compared to other imported products. If the gold import regulations are aligned with the rest of imports, then it will take away most of the incentives given to the Scope of Dematerialization of gold : Gold Swaps:yellow metal, and will create a level playing field We have often heard of interest rate swaps and currency between gold and other imports. swaps- the mechanism of Gold Swap is also very similar to it, but they also have features of repo mechanism. Gold Supply side measures:Swaps are essentially kind of repurchase agreements comIn India, there are some importers which have access to monly undertaken between central banks or between a gold borrowings but with pre specified limits, and in turn central bank and other financial institutions. As, banks keep they pay interest on the amount of gold hence borrowed. government securities with RBI to purchase them back at a Gold lying as ETF which can be put to productive use by later date at a predetermined price, Gold is exchanged for lending a part of their total corpus to the above men- foreign exchange under Gold Swap agreements to repurtioned class of importers. This will benefit us in two ways, chase it at a specified price on a specified future date. They first in the transaction of this kind gold is bought at the in turn can also provide liquidity for the gold loan market, end of the tenor of loan which postpones the demand for when converted into loans by concerned dealers. gold imports and relives the pressure on our stressed Balance of Payment (BoP). Secondly, it would increase the Gold- backed pension products:return on the ETF investments. It’s again an innovative way of mobilizing idle gold stocks and distributing gold equivalent return to the depositor for Plugging loopholes: a period of 20 – 25 years. The basic premise behind this Buying gold is easy with no significant hassles as far as the product is to provide pension to households. Indians by documentation is concerned. If someone invests in equi- nature are highly risk averse which is evident from the popties he has to pay capital gains tax, but there is no such ularity of government jobs even amongst youth. People are deterrent in gold transaction, neither there is any tax de- inclined towards government jobs because the future is duction at source. Traders are exploring the possibility of secure over there; the government takes your responsibility importing jewelry especially gold, as it is hassle free and even after your retirement. Hence, any product which can don’t attract the Reserve bank of India’s 80:20 norms, un- give a regular monthly income just like pension is always der which 20% of imported gold has to be re-exported. welcome here. Besides, giving benefits to customers, this The gold merchants were planning to import crude jewel- scheme also helps in reducing gold imports to the extent of lery, manufacturing cost of which is hardly 1% to avoid gold deposits mobilized. Since, here we are talking of 20-25 80:20 rule from Singapore and Dubai. The major concern periods, so this long gestation period has a cumulative imin India is that, no one knows the amount of gold the other pact on reducing gold imports.

Pratibimb | November 2013 | 18

Conclusion:

References

Current Account Deficit has been ballooning and has been a cost of concern as it has been jeopardizing the economic growth of the country. Some prudent measures should be taken by not only the regulating authorities of India but also by us. It’s highly unlikely love for gold in India is going to diminish anytime soon due to deeply entrenched cultural and economic reasons. As the current account deficit has reached alarming proportion, it is imperative that the government take immediate measures to reduce gold imports in the short run. In the long run, increasing awareness and alternate options would be the key to reducing the debilitating effect of large gold imports.

 http://online.wsj.com/article/

Pratibimb | November 2013 | 18

SB10001424127887323899704578587333915196600.html

     

http://www.gold-eagle.com/article/indias-love-gold-1 http://stats.oecd.org/glossary/detail.asp?ID=1127 crisil.com/ Union Budget 2013-2014 www.gold.org Gold and the CAD, Business Standard dated 23rd July 2013

IKEA—The Indian Way Kishalay Datta & Harsh Garg, NMIMS, Mumbai

The entry of Indian brands and the surge of the aspiring Indian middle class have boosted the furniture retailing in India. NCAER report has said that India will have a middle class population of 267 million by 2015-2016 with average income is on an upswing. CSIL Italy has recognized India to be among the 14 largest furniture industries in the world. Indian Furniture Retail is growing at a steady space over the years. The main segments in the furniture sector are Home furniture, Office Furniture and the Contract Segment. The organized sector consists of importers and Indian manufacturers who cater to the promising business segment. Although they are trying to foray into the Home segment but the intricate Indian customer behavior has posed a major hurdle. 2006(Bn USD)

2011(Bn USD)

2016(Bn USD)

CAGR(201116)

Furnishings & Furniture (OVERALL)

6.5

9.1

17.1

13.50%

Furnishings & Furniture (ORGANIZED)

0.4

0.7

1.2

12.00%

Category

Source:- Technopak Analysis

The big players in the organized sector are Godrej & Boyce, BP Ergo, Featherlike, Haworth, Style Spa, Yantra, Renaissance, Durian, etc. With FDI in multiband extended to 100% from the earlier limit of 51%, International Players are making a move into the Indian market with IKEA recently announcing an investment of USD 1.95 bn by 2017-18.

Customer Behavior in India towards furniture Unlike Westerners, Indians have a totally different attitude towards furniture. Indians love heavy, teakwood furniture with intricate design. Design and material quality are the two top level priorities in the Purchase Decision Hierarchy for Indians towards furniture. Price occupies the third place (Source: KPMG Analysis). Indians do not like similarity of furniture with their relatives or neighbors as furniture is a symbol of social status with “I have the better one” attitude. We must understand that in India family activities hover mostly in the living room and the elegance and beauty of the drawing room is a status symbol. It greatly increases the confidence and dignity of the host when he entertains his guests.

IKEA’s Value Proposition The current problems Indian customer face with regards to Furniture market is inventory shortages, delays in deliveries, partial shipments, non-availability of all components under one roof and unprofessional customer service.

Pratibimb | November 2013 | 18

Plugging in these loopholes is going to be the value proposition IKEA can provide in India. Also there is a tradition in the Indian market of having customized products by local craftsmen but customization is already at the heart of IKEA- you can choose even a back cover for a chair in IKEA. The success of IKEA lies in not trying to change the customized model but dealing with the model in a more professional approach by hiring and training staff to not only deliver the products but to also assemble the same. Though IKEA is having an image of having low cost products overseas but the same may not be true with the Indian customer.

Learning from China It took 12 years (after entering in 1998) for IKEA to breakeven in the most populated country of the world. The reason for this long period is its poor understanding of the Chinese customer and its attempt to impose a global strategy on the Chinese market. Preference of Indian customer and the economic environment in India is very similar to its neighbor.

Juvencio Maeztu, CEO of IKEA plans to open the store spreading over 3 lakh/sq.ft which is a huge space. It should not open a store till it is able to acquire a land having facilities like close proximity to main roads and public transport as according to Transportation Statistics India ranks 102nd with a vehicle ownership of only 15 per 1000 people. It should collaborate with an Indian player having an understanding of the taste of the Indian customer and the local suppliers for supplying products of Teakwood, Cedarwood, handloom fabrics etc. that is very much adored by the Indian customer To gel with price sensitive Indian customer, IKEA will have to take cues from the neighboring CHINA by opening factories in India that will procure and sell the material locally and thus reduce the burden of import duty. This will not impact the global sourcing standards of IKEA as already it is sourcing textiles, rugs, ceramics, lightning articles etc. from India. Whatever IKEA does it must not end up as another shopping mall round the corner clogging a city. It must not be viewed as another place where a family can just visit on weekends. IKEA must replicate and create the success mantra it has achieved in developed countries. Local adaptation is a challenge that every Multinational faces. It is a “Do or Die situation” where a company must adopt itself to local environment to survive or it is destined to perish.

The learning that IKEA got from China that can be applied to India is that its global strategy might be a low cost provider but it can’t compete with the local suppliers solely on the base of its low price. No matter how low the prices may be, local supplier will supply at comparatively lower rates as they will copy IKEA’s designs (laws in India are not stringent enough to prevent the same) and thus will have zero design cost. Moreover Indian customer see western products as References aspirational, so low price strategy will create confusion in  http://businesstoday.intoday.in the minds of the customer.  http://articles.economictimes.indiatimes.com  http://www.tradingeconomics.com/country-list/gdp Its global marketing strategy of using only a product cata http://www.indianmirror.com logue may not work well in the Indian context. It needs to  http://www.nrimatters.com have other communication channels that Indian customer prefer like Television (considered a hygiene factor by Indians) and Social media. IKEA’s eco-friendly policy of sourcing green products or using renewable energy in stores is accepted in the west but Indian customer has not evolved to a stage where they are ready to pay premium for the benefits of the society. So, IKEA has to account that its social responsibility does not make the Indian customer perceive it as a high price brands it did with the Chinese customer.

Recommendations The first problem that will come with IKEA in India will be the land acquisition as the bill is not well established and

Pratibimb | November 2013 | 18

India Yearning for a Manufacturing Revolution Nitesh Sinha, IIM, Ahemadabad

India’s Current Account Deficit (CAD) has climbed to 4.8% of the GDP or about $18.1 billion for the January-March quarter of 2012-13. The magnitude of the situation can be assessed from the fact that India’s average CAD between 1949 and 2012 is $1.5 billion. As is evident from Figure 1, the situation has been deteriorating since Lehman’s ceased to exist. The situation so precarious that Balance of Payments (BoP) may have to be cleared using forex reserves.

Figure 1: India's CAD over the past 12 year

What is to blame for this menace? It is the general opinion among industry and government circles that gold imports are the culprit. India is the largest consumer of the yellow metal (about 25% of world production) and this trend has continued in spite of rising prices of the precious metal. The volume of gold exports have registered only a modest growth, a CAGR of 6.27% since between 2006-07 and 2011-12. In fact, the gold imports declined in the fiscal 2012-13 by 11.8% in volume terms. But it is the price of gold that has become the cause of much damage. The Table 1 below shows the gold import trends in the past 10 years. But a careful analysis of Figure 1 shows that India’s CAD began to increase 2008-09 onwards, a time when gold imports were the lowest (as percentage of imports) in a decade (see Table 1). What has been the cause of increasing CAD then? The answer increased world oil prices and India’s increasing manufacturing (especially medium and high-tech goods) trade deficit, especially with manufacturing strongholds like China, United States and Germany. Figure 2 provides us with the information that India’s trade deficit began to increase from 2008-09 onwards, the same period since when the CAD began to increase.

Pratibimb | November 2013 | 18

Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Gold Imports ($ billion) 3.84 6.52 10.54 10.83 14.46 16.72 20.73 28.64 43.50 61.50 50.38

Total Imports ($ billion) 61.41 78.15 111.52 149.17 185.74 251.44 298.83 288.37 369.8 488.6 491.48

Percentage 6.3 8.3 9.4 7.3 7.8 6.7 6.9 9.9 11.7 12.6 10.2

Table 1: Gold imports by value and as a percentage of total imports since 2002-03.

Let us consider the case of oil imports and exports. Between 2011-12 and 2012-13, the net imports of crude and petroleum related products has increased 24.75% in rupee terms and 11.38% in dollar terms. This is not much different from the previous three years i.e. the CAGR of India’s net oil imports in dollar terms is approximately 11% from 2008-09 to 2011-12 (see Figure 3). As payments for oil imports are usually done in Dollars and Euros, the net effect of this increase is weakening of rupee. This increase in oil import bill is being observed since the time previous to the economic crisis (see Figure 3 for details). But it has started to hurt the economy more since 2008-09. Moreover, this trend (of increasing oil imports) is going to continue as India’s consumption of oil is only increasing. The effect of this depreciation of rupee has been in terms of trade gap for manufactured items increasing by about 9.3% (in rupee terms) between 2011-12 and 2012-13. On the other hand, manufacturing exports from India have increased by only 7.91% in this period. The fact that value (in rupee terms) of imports of manufactured goods was 20.4% larger than exports in 2011-12, makes the situation even

more worrisome. Let us take the case of China in detail. It’s just 5 months in to the year and the trade gap with the country has already touched $12 billion in a total trade value of $26.5 billion. This is despite of reduced gold imports from China (details in Figure 2). This gap is about 2/3rd of the India’s CAD for the first quarter of 2012-13. Now the question that follows from the above facts is why is the trade-gap widening between the largest and thirdlargest economies of Asia? The answer lies in the composition of trade between the two countries. More than half of China’s exports to India comprises electronic goods (27%), machinery (12%), organic chemicals (7%), project goods (7%) and fertilizers (5%). Clearly, China is providing India with two broad classes of goods. Firstly, there are goods which are technology related. Since India is a developing (more appropriately, industrializing) country, the import of these equipment is only going to increase as has been happening in the past. Even economic downturn has only retarded the growth (6.9% increase by value in the import of electronic goods and machinery) of these imports and not reduced imports themselves. Second, China is selling essential commodities like organic chemicals and fertilizers which are indispensable no matter what the market situation is. The escalating need of these goods is further supported by the burgeoning middle class (leading to increased consumption and hence, increased usage of farm inputs) and growing population. Now let us a take a look at the other side of the table. Bulk of India’s exports to China includes raw cotton (16%), nonferrous metals (15%), iron-ore (10%), cotton yarn (9%), other ores and minerals (7%) and plastic products (6%). As is evident, India is supplying goods which have very low level of sophistication.

Figure 2: India's Balance of Trade

Pratibimb | November 2013 | 18

Figure 3: India's net oil related imports

It is common knowledge that the lower the level of sophistication of goods the lower are the holdup costs for the buyer. Therefore, source of such goods (India in this case) is easily replaceable. The theory is exemplified by the fact that Bangladesh is fast eating into India’s pie of cotton exports market. The sporadic supply of iron-ore during recent unveiling of mining scam in Karnataka and elsewhere have caused China to majorly cut down imports from India. In order to further comprehend the vulnerability of India’s imports to China, it is important to understand the past and likely future trend of China’s sourcing from India. These trends are found to be affected by three major factors (which may be interrelated), phase of economy, domestic supply & demand of goods & services and state of exports. Let us take a look at the phase of Chinese economy. The country has witnessed massive growth in the past three decades. It is suspected to surpass US’s GDP (in PPP terms) by 2017. Essentially, the nation is in the latter half of its journey towards being a developed country. As has been commonly observed, a country in such a phase witnesses declining growth rates and correspondingly, declining needs of basic resources. The supply of various items of domestic consumption (e.g. infrastructure build-up) has outstripped its demand in China since the period of recession. The growth of China’s exports in the world market have seen a declining trend (on an average) since the time of recession. Given these factors, the requirements of inputs for manufacturing has seen either a decline or minuscule growth. The combined effect of declining growth rates, over-supply of consumption goods and declining trends in growth of

Pratibimb | November 2013 | 18

exports has been in terms of lower consumption of India’s exports. The Chinese import of iron-ore from India has declined by 62.82% (it includes the effect of the ban on mining activities in India). There is also a decline of 8.13% in cotton related imports. One important thing to note here is that although the above discussion is centered on India’s trade with China, similar observations are also aplenty in India’s trade with other economies (e.g. European Union) as well. This is the reason why the problem of trade deficit is getting exacerbated instead of getting compensated from India’s trade with other nations as well. The country’s export to the world again comprises products of very low levels of sophistication. Half of Indian exports include refined crude (20.05%), gems & jewelry (14.46%), transport equipment (6.13%), low-tech machinery (5.06%) & drugs (4.86%). Except for drugs and transport equipment, India is just a processor of imported raw materials (crude, gems). Again, because of low hold-up costs related to low-tech products, India as a supply source is easily dispensable. Imports, on the other hand, include petroleum, crude & products (34.48%), gold (10.94%), electronic goods (6.41%), machinery (5.63%), pearls and stones (4.61%). Most of these goods are either essential (e.g. petroleum) or related to technology and the consumption of both groups is likely to increase in a growing economy. Table 2 shows the evolving trends in export composition of China and India. India has long relied upon the prowess of its Services Industry which has exhibited spectacular growth in the past decade. But the niche that India had toiled to create for itself is now being eroded by countries like Philippines. These countries are fast emerging as cheaper centers for outsourcing (at least low-tech) for Western nations.

Figure 4: India's Trade Gap with China over the past 6 years

Share of World Manufactured Exports, %

1985 China

2008 India

China

India

Resource-based Low-tech

0.8 1.2

0.9 1.2

3.5 18.1

1.7 2.5

Medium-tech

0.1

10.6

0.8

High-tech

0.1

14.3

0.5

OVERALL

0.5

10.8

1.3

Table 2: Evolution of export composition of India and China between 1985 and 2008

Figure 5: India's Service Exports; Value and Growth

Companies like Infosys, Wipro, Genpact, etc. are augmenting their outsourcing operations in Philippines. The effect of all this development can be perceived in the growth rate of service exports of India. These rates are now hovering around 5-10% from a high of 33% around 200506. The inference from the above discussion and Table 2 is that the problem of Current Account Deficit is not just dependent on the current trends as increased gold imports but also on structural issues in the Indian economy. Therefore, increasing the excise from 6% to 8% on gold (as done recently by the Finance Ministry) is only likely to procrastinate the advent of problem, not resolve it. India needs to take lessons from the development of the Asian Tigers during the last quarter of the 20th century. All these economies were manufacturing based and started from low tech products but eventually became world suppliers of high-tech equipment. India cannot afford to rely just on the services

Pratibimb | November 2013 | 18

industry to fill the trade gap as countries in South East Asia are now challenging its dominance is in this industry. The government needs to take a hard look at its manufacturing policy to increase the sophistication of the manufactured products in order to be able to do both, meet the domestic requirements and compete with countries like China in the international arena.

References  ASSOCHAM. (n.d.). India’s Gold Rush: Its Impact and Sustainability.



data.gov.in. (2012). Import/Export of Crude Oil and Petroleum Products: 2004-12. Retrieved from data.gov.in: http://data.gov.in/dataset/importexportcrude-oil-and-petroeum-products-2004-12



GOI. (2013). Commodity And Country Wise Imports In India From 2011-12 And 2012-13.



http://usd.fx-exchange.com/. (2013). US Dollar(USD) To Indian Rupee(INR) History. Retrieved from http://usd.fxexchange.com/: http://usd.fx-exchange.com/inr/ exchange-rates-history.html



Moulds, J. (2012, November 9). China's economy to overtake US in next four years, says OECD. Retrieved from Guardian: http://www.guardian.co.uk/ business/2012/nov/09/china-overtake-us-four-yearsoecd PTI. (2013, June 27). Current account deficit widens to record 4.8%.

Pratibimb | November 2013 | 18



PTI. (2013). India's trade deficit with China balloons to $12 billion. Beijing: Business Standard.



RBI. (2012). India’s Foreign Trade: 2011-12. RBI.



RBI. (2013). Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs. RBI.



Silicon India. (2009, December 28). India fast losing BPO jobs to Philippines. Retrieved from Silicon India: http:// www.siliconindia.com/shownews/ India_fast_losing_BPO_jobs_to_Philippines_-nid-64084cid-1.html



Trading Economics. (2013, July 13). INDIA CURRENT ACCOUNT. Retrieved from Trading Economics: http:// www.tradingeconomics.com/india/current-account



WTO. (2012). International Trade Statistics 2012. WTO.

Indo-Chinese Bilateral Trade: A Bitter Pill for the Indian Pharmaceutical Industry Shamik Mukherjee & Suvajyoti Bhattacharjee, SJMSOM, IIT Bombay

Introduction Over the past 50 years, Indian pharmaceutical industry has undergone a massive makeover â&#x20AC;&#x201C; from a modest beginning of â&#x20AC;&#x153;process patents regimeâ&#x20AC;? in the seventies to a modern and WTO-compatible regime under the TRIPs Agreement in 2005. In the last two decades, India has witnessed significant trade and industrial policy liberalization, which have led to structural changes in the domestic industries. There has been rapid growth in the pharmaceutical sector in India which was led by the migration of economic and research activities from Europe to India in particular and some other fast-growing markets. It becomes important to analyze trade trends to ascertain whether India has increasingly become dependent of one source, China, for its imports. However, over-dependence on any country runs the risk of import disruptions causing havoc for Indian manufacturers, as was seen in the case of temporary shortage of bulk drugs required for penicillin coinciding with the 2008 Beijing Olympics. Such an eventuality in the future may have an adverse impact on the whole pharmaceutical sector in India. This could pose a threat to the health security of millions of poor Indians as it could raise the drugs prices or even lead to non-availability of the essential medicines, and in the long run, it could adversely impact the exporting capabilities of India in the formulation segment. China and India established diplomatic relations on April 1, 1950. The bilateral trade crossed US$13.6 billion in 2004 from US$ 4.8 billion in 2002, reaching $18.7 billion in 2005. With the expected increase in Chinese healthcare spends, the Indian pharmaceutical sector has the potential to tap into the need that is present in the Chinese market and increase their exports, which currently stands at $0.5 billion compared to the $3 billion worth of APIs and bulk drugs that are imported from China. Indian Pharmaceutical Sector The structure of the Indian pharmaceutical has undergone significant changes. Pharmaceutical products consist of two main components - (i) the active pharmaceutical ingredient (API) or bulk drug; and (ii) the formulation segment (i.e., a suitable final dosage form). Till the year 2001, the bulk drug production increased by nearly 20 per cent annually, whereas that of formulations increased at an average rate of 15% per year. A comparison of value or production of bulk drugs and formulations to the value of exports of formulations and bulk drugs shows that 80% of the formulations produced are consumed indigenously, compared to the majority of the bulk drugs manufactured, which are exported. According to an Associated Chambers of Commerce and Industry of India (ASSOCHAM) forecast, the Indian pharmaceutical industry will account for about 30% of the increasing generics market from the current figure of 22 percent of the generics world market.

Pratibimb | November 2013 | 18

Figure 1: Trend in India's Pharmaceutical Imports (US$ Billions) (Data Source: WITS online database)

Figure 2: Trend in India's Pharmaceutical Exports (US$ Billions) (Data Source: WITS online database)

A study on India’s exports and imports trends in pharmaceutical sector carried out using the SITC nomenclature concluded that exports of formulations have grown faster while their imports have not registered any jump, keeping a positive balance of trade. However, there has been a decline in domestic production of bulk drugs and a growth in imports because the industry is moving away from intermediates and is focusing on bulk drugs at the high end of the value chain. There are various data sources on drugs and pharmaceuticals trade and it is important to adopt a uniform definition of the term “drugs and pharmaceuticals”, the lack of which has resulted in disparate conclusions on the performance of the industry on the trade front.

Chinese Pharmaceutical Sector According to a report by KPMG in 2011, the Chinese

Pratibimb | November 2013 | 18

pharmaceutical industry is the fifth largest in the world. With domestic growth projected to be about 20% p.a. combined with high volume, the industry is expected to overtake Japan and subsequently push into the second place in the world by 2015. A United Nations Conference on Trade and Development (UNCTAD) survey in 2004-05 identified China as the most attractive location for future investments in R&D according to nearly all the world’s top R&D spending MNCs. China has been an important producer of bulk drugs (raw materials or APIs) which is required for the manufacture of several essential drugs, including antiretroviral drugs for the treatment of HIV/AIDS. These two factors provide China with the required strength to compete with Indian pharmaceutical sector globally.

The pharmaceutical industry in China is characterized by

advantage for the firms operating in India and sourcing

both minor and major players, and though the domestic

their inputs from China. On the other hand, there is a risk

companies lack the necessary administrative or R&D

of imports from China displacing domestic production in

sophistication possessed by the international players, they

India.

manage to compete with them due to their scale of operations and ability to penetrate the market. Their

Indian

Pharmaceutical

strength lies in manufacturing of generics and active

Dependence on China

Sector’s

Growing

pharmaceutical ingredients (API) for exports- China is one of the world’s largest exporters of APIs, which constituted

With a view to understanding the growing dependence on

about 80% of China’s pharmaceutical export in 2009.

imports from one source, this section examines the trends in India's imports of pharmaceutical products from China.

There have been studies comparing India and China’s

The examination is done for the overall pharmaceutical

pharmaceutical industries. In one such study by Zhang et

sector with focus on the two sub-sectors of bulk drugs and

al., the authors calculated the Trade Competitive Index

intermediaries and formulations.

(2004-2008) for China and India’s raw and prepared medicine, and found that both China and India have a

Overall Pharmaceutical Imports

certain degree of overall competitiveness in the the

The total imports during 1996 to 2010 were close to US$

competitiveness differs greatly. The Chinese TC index is

15.7 billion (see Figure 3). We can decompose the total

very high for raw medicine, showing that China has

imports into three phases: a) Phase-I constituting of years

absolute

medicine

1996 to 2000; b) Phase-II constituting of years 2001-2005,

production, while India is located at a relatively low

and; c) Phase-III constituting of years 2006-2010. It can be

position.

observed that imports have increased from US$ 2.0 billion

pharmaceutical

industry,

comparative

but

the

advantage

origin

raw

in the first phase to US$ 3.6 billion and further to US$ 10.1 Since 2004, in the global pharmaceutical value chain

billion in second and third phases respectively.

production link, China mainly specializes in raw medicine whereas India specializes in prepared medicine. It has also

Bifurcated analyses of sub-sectors conducted for a

been observed that the China exported raw medicine while it imported manufactured medicine products, i.e., formulations. So these trade flows are not characterized by intra-industry trade. Hence, it can be said that the policy driven Chinese pharmaceutical industry is in a race to meet the twin objectives of quantity and quality set by the reforms of 2009. The industry has all the necessary incentives as well as support to achieve these objectives.

Sectoral Trade Trends India has emerged as a major supplier of affordable generic drugs globally. Any disruption of production activities in India, owing to any externalities, may adversely impact the global access to medicine. During the last 12 years, MNCs did not undertake any major green-field (organic) investments initiatives in India, the MNCs

largely

opted

for

brown-field

(inorganic)

investments. A change in management at many of India’s pharma

companies

has

altered

the

channels

procurement of raw materials, keeping the destinations of exports unchanged. The dependence on China can be an

Pratibimb | November 2013 | 18

Figure 3: Total Imports of Pharmaceutical Sector: 1996 to 2010 (Data Source: WITS COMTRADE online database)

detailed understanding of the distribution of China’s imports under the bulk drugs and formulations (Table 1) reveals that the total imports of US$ 14.4 billion was of the bulk drugs and rest of US$ 1.3 billion of formulations. In terms of decomposition of individual shares, the bulk drugs had an average of close to 92 percent for the three phases and the residual 8 percent was formulations sub sector, see column 6 of Table 1.

Imports/Shares

1996-2000

2001-2005

2006-2010

Total (US$ billions)

% Shares

Bulk Drugs and Intermediaries

94.0

92.8

91.2

14.4

91.9

6.0

7.2

8.8

1.3

8.1

2.03

3.56

10.10

15.7

100

Formulations India's Imports from World (US$ billions)

Table 1: Decomposition of India’s Imports in Pharmaceutical Sector (Data Source: WITS COMTRADE online database)

Imports/Shares

1996-2000

2001-2005

2006-2010

India's Imports from World (US$ bil.)

1.91

3.3

9.21

India's Imports from China (US$ bil.)

0.3

0.73

2.83

China's share in India's Imports (%)

15.6

22.15

30.71

Table 2: Trends in Imports of the Bulk Drugs and Intermediaries (Data Source: WITS COMTRADE online database)

However, the trend in composition of the pharmaceutical sector over the three phases suggests a marginal drop in significance of bulk drugs and intermediaries sub sector as its share in total pharmaceutical imports decreased from 94 percent in the first phase to 91 percent in the third phase. On the other hand, there has been a marginal increase for the formulations sub sector imports, but this increase was seen at a very low base. Therefore the bulk drugs sector continues to be the main sub-sector of imported pharmaceutical products. The total import under the bulk drugs sub sector of the pharmaceutical sector was close to 92 per cent. As shown in Table 2, the bulk drugs showed a spurt in import values from US$ 1.9 billion in the first phase to US$ 9.2 billion by the third phase. India’s import from China’s increased from US$ 0.3 billion in the first phase to US$ 2.8 billion by the third phase, suggesting a growth of 216 percent for bulk drugs. This was 90 percentage points higher than the growth in total imports of India from the world. While imports of bulk drugs from the world increased 5 times by the end of third phase, imports from China surged by almost 10 times during the period 1996-2010. It may be noted that share of China in India's total pharmaceutical imports at the end of 2010 far exceeds the share of any other country in India's import market over the past 2 years. Across the board, there have been significant gains for exports of China in the Indian pharmaceutical sector growth story, with each and every indicator suggesting an increasing trend. The surprising aspect is phase-wise growth trends observed in the case of formulations, particularly because India is considered the global leader of

Pratibimb | November 2013 | 18

generic/formulation products.

Trend in imports from China in the pharmaceutical sector As shown in Table 4, China’s share in India’s imports of pharmaceutical showed a sharply increasing trend, in both relative and absolute terms. During the period 1996-2000 (Phase 1), China had 13.79 per cent share in India’s imports. This surged to 20.6 per cent during 2001-2005 (Phase 2). The pace of increase in China’s share accelerated further to 28.32 per cent during 2006-2010 (Phase 3). Increasing import share reflects the fact that imports from China have increased relative to imports from other countries. Not only has India’s imports from China increased significantly compared to imports from India’s other trading partners, it has also increased in absolute terms as well. Average imports during the period 2001-2005 grew at an impressive rate of 162 per cent compared to imports during 1996 - 2000. However, even this impressive growth was outstripped in the subsequent period, as imports during 2006-10 registered a growth of 290 per cent as compared to 2001- 2005. With almost a quarter of total imports of pharmaceutical products in to India is originating from China, it is clear that India has already become overwhelmingly dependent on one source for meeting its import requirements. The surge in import share per se cannot be a basis for concluding that India's pharmaceutical sector is facing adverse effects on account of these imports. Further analysis is required for assessing whether imports from China are trade creating and have mainly displaced domestic production, or these imports have resulted in trade diversion by displacing

Imports/Shares

1996-2000

2001-2005

2006-2010

India's Imports from World (US$ mil.)

122.5

256.5

891.0

India's Imports from China (US$ mil.)

1.6

8.6

42.4

China's share in India's Imports (%)

1.3

3.3

4.8

Table 3: Trends in Imports of the Formulations (Data Source: WITS COMTRADE online database)

1996-2000 (USD

2001-2005 (USD

2006-2010 (USD

Mil.)

India's Average Global Imports

2,029.3

3,557.6

10,091.1

India's Average Imports from China

280.0

733.0

2,856.6

China's Share in India's Imports

13.8

20.6

28.3

Table 4: China's share in India's pharmaceutical imports (Data Source: WITS Database)

imports from other competing countries in those products in which domestic supply is insufficient to meet the demand. Another line of enquiry relates to possible linkages between imports from China causing an increase in India's exports through inputs and intermediates becoming available at competitive prices. Another line of enquiry relates to possible linkages between imports from China causing an increase in India's exports through inputs and intermediates becoming available at competitive prices.

Indian Exports to China Indiaâ&#x20AC;&#x2122;s pharma exports have been growing at close to 25% CAGR for the past 5 years. Last year the export to BRIC countries grew by 22% but the U.S. is the largest importer of Indian drugs. Though China has far more lenient FDA norms as compared to the U.S., India was able to export only $ 0.5 billion of formulations to China. Given the fact that there is China's increased competition even in formulations sector, India's exports to China have been continuously slipping. Most foreign companies had entered China and set up R&D centers and manufacturing facilities in China beginning from 1980. Indian pharma companies do not enjoy this advantage. Bilateral trade is tilted heavily in favor of China and it would be difficult to continue sustaining bilateral trade on the basis of current trends. With there being an urgent need to change the trade basket and introduce elements where India has proven competence and pharmaceuticals readily fit the bill. India is pushing for market access based on the assurances by Chinese Prime Minister Wen Jiabao, to address the trade imbalance, and a proposed nodal body comprising

Pratibimb | November 2013 | 18

of SFDA officials and Chief Controller of Drugs of India to interact on the market access issues has been formed. While the Chinese companies trading in Active Pharmaceutical Ingredients (API) generally get clearances in about a year, it takes three to five years for an Indian company to get the necessary clearances in China. A case had been made by an Indian pharma delegation to the officials of State Food and Drug Administration (SFDA) and Chinese Ministry of Commerce that like India making use of Chinese machinery to expand its infrastructure, China, too, should take advantage of well-placed Indian pharmaceutical industry which can help to make the basic drugs available for far cheaper prices benefiting the Chinese public. The Indian government has constituted a sub-committee, under the chairmanship of joint secretary to look into the product registration in China, present status and hurdles. It is good to see that China is being taken up as a challenge. The only way to penetrate the hugely fragmented Chinese market is by collaborating with existing Chinese players. Otherwise it will be difficult for Indian pharma companies to increase their exports to China.

Conclusion At present, to global pharma companies, India and China possess the best ratio of cost to product/service quality among all emerging economies. However, the current labor and raw material costs in the Indian pharmaceutical industry are generally about 25% to 30% higher than in China, which makes China more attractive than India to pharma companies when sourcing bulk materials or outsourcing long-term, large-scale manufacturing projects.

At present, the Indian companies are the better choice for formulation development, and the manufacturing and marketing of dosage form drugs, whereas Chinese companies are a better fit for upstream work, such as contract manufacturing (and sourcing) of advanced pharma intermediates and APIs. Chinese companies also offer better cost-reduction benefits than their Indian counterparts by charging less for the same type of services/products. On the other hand, even though they are presently the hotbeds for global pharmaceutical manufacturing, China and India still play much less significant roles than developed countries, particularly in high-end areas such as the special formulation techniques and the manufacture of APIs and finished drugs that are still under patent protection. This is largely determined by the intrinsic weaknesses of these two countries due to low R&D investment in pharmaceutical industry. Indian dependence on bulk drugs from China needs to be reduced. The Department of Pharmaceuticals of the Ministry of Commerce has pointed out that India need to tap the global contract research manufacturing opportunity worth US$ 44 billion as of 2013-14. Indian pharma companies have to seize the chances in new drug delivery systems, tap the potential in the biotech market including monoclonal anti-bodies, and complex APIs in order for the industry to improve the composition of production/ export basket of India. Otherwise, the terms of trade can be expected to worsen every passing day.

References 

European Federation of Pharmaceutical Association, “The Pharmaceutical Industry in Figures 2011”.



Joshi, Hemant N., 2003, “Analysis of the Indian Pharmaceutical Industry With Emphasis on Opportunities in 2005”, Pharmaceutical Technology, January 2003.



Joseph, Reji K., 2009, “Estimating India’s Trade in Drugs and Pharmaceuticals”, Economic and Political Weekly, vol. 44 no. 02, January 10 - January 16.



Editors’s Note, 2012, “Generics under threat: Access to affordable medicines in jeopardy”, Issue no. 259



C-TEMPO, “COUNTRY DOSSIER ON MINING & MINERALS CHINA”, Centre for Techno-Economic Mineral Policy Options, January 2011.

Pratibimb | November 2013 | 18



Ghose, Jayati, “Pharma Inc relies on China for API needs”, The Financial Express, May 21, 2013. http://www.financialexpress.com/news/pharma-increlies-on-china-for-api-needs/1118366/0 (Accessed September 14, 2013)



Stanton, Tracy, “Olympics spawned API shortages”, Fierce Pharma, September 5, 2008 http://www.fiercepharma.com/story/olympics-spawnedapi-shortages/2008-09-05 (Accessed September 14, 2013)



KPMG Report, 2011, “China’s Pharmaceutical IndustryPoised for the Giant Leap”. http://www.kpmg.com/cn/en/issuesandinsights/ articlespublications/documents/china-pharmaceutical201106-2.pdf



Zhang, Yansheng, Li, Dawei, Yang, Changyong, Du, Qiong, “On the Value Chain and International Specialization of China’s Pharmaceutical Industry”, Journal of International Commerce and Economics, United States International Trade Commission.



Department of Commerce (Economic Division), “MidTerm Review of Strategy for Doubling Exports in three years (2011-12 to 2013-14): Draft Discussion Paper”, Ministry of Commerce & Industry.



Pharmacy Industry News, “India makes strong pitch for pharma exports to China”, July, 2011. http://www.pharmacyindustrynews.com/2011/07 (Accessed September 14, 2013)

Join us on:

pratibimb@tapmi.edu.in Visit: http://www.tapmi.edu.in/student-life/pratibimb/overview/

Team Pratibimb Pratibimb | November 2013 | 18

TAPMI P. B. No: 9, Manipal - 576104, Karnataka