India – Investment Opportunities
February, 2004
31/01/13
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Indian Economy
Primary Sector (Agricultural) – Developing
Secondary Sector (Manufacturing) – Under Developed
Tertiary Sector (Services) – Developing
Opportunity to invest exists in all sectors of the Indian economy 31/01/13
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Case Studies (Primary Sector)
India is one of the largest agricultural economies in the world.
Farming Technology – Monsanto (seed)
Storage and Transportation Systems – Carrier
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Case Studies (Secondary Sector)
Pharmaceutical
Technology
Engineering
Auto & Auto-ancillary
FMCG
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Manufacturing - Pharmaceutical
India is home to the largest number (about 60) of pharma plants approved by US FDA outside US.
At $ 6.5 bn, it has the fourth largest pharma industry in the world. Exports $ 2.0 billion worth per annum.
India is one of the top 5 producers of bulk drugs.
US pharma companies can make India as the manufacturing hub and cater to both the global and growing Indian market. E.g. – Pfizer, Wyeth, Bristol Meyers, Eli-Lilly
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Research and Development (R&D) of Pharma
The pharmaceutical industry has an unusual cost structure:
Extremely high upfront investment (at least M$500 for a new product)
Very high product failure rate
High product liability
Relatively low variable cost of production within capacity for most non-biotech products
Require long payback period (dependent on patents)
R & D expenses are much higher for pharmaceuticals than for other industries
13-20% of sales in USA.
>30% of total cost of developing, producing, and marketing a drug in US.
Globally it costs approx $ 950 mn to develop a new drug including clinical trials. In India the same can be done for as low as approx $350 mn, a saving of 60%.
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9% Cost Saving: Total cost of Pharmaceuticals production in India. 100
+1 -13
+3 91
90
Total Cost in US
Labor Cost Savings
Higher Duty on Import raw Mtrl
Production Cost in India
Transp ortatio n Cost
India Cost
Source: Consultancy firm
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Advantage INDIA !!!
India has world class engineering, R&D capabilities at a scale and cost that cannot be replicated elsewhere in the world.
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Manufacturing – Engineering & Technology
India has one of the largest pool of skilled manpower.
Technology companies like Texas Instruments have
had
their
R&D
centres
and
manufacturing facility in India. Over 70 MNCs have R&D facilities in India
100 of the Fortune 500 companies have presence in India.
Defence companies from US can outsource from India.
India is worlds largest diamond cutting and polishing centre. Nine out of every 10 stones sold anywhere in the world pass through India.
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Manufacturing – Auto & Auto-ancillary
India serves an export base for automobile and autoancillary companies to export from India.
Companies like General motors have long been sourcing products from India. (15 of the worlds leading automobile manufacturing source components from India)
Rover has tied-up with Tata Motors to supply cars for the UK market.
Aston Martin has contracted proto-typing it’s largest luxury sports car to Indian based designer.
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Manufacturing – Auto & Auto-ancillary – (contd.)
According to AT Kearney the Indian auto ancillary exports could grow at a CAGR of 31% until 2010 to US$5 billion given the expected rise in outsourcing.
Delphi has $ 140mn outsourcing plans from India in 2004, which would increase to $250 mn in the next 3 years.
Gabriel (US), manufactures shock absorbers for both the Indian and international market.
Federal Mogul manufactures piston rings and liners in JV with Indian Companies.
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22 to 23% Cost Saving: Total cost of producing a car in India & shipping it to the US. 100 -13 77 to 78 -16
- 1 to- 2
+5
+3
76
Total Cost in US
Labor Cost Savings
Lower Component Cost
Higher Duty Production on Import Cost in India Comp’
lower levels of automati on
Source: McKinsey
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Transp ortatio n Cost
India Cost
Manufacturing – FMCG
Gillette – razor blades and male shaving preparations, Batteries and Oral care products
Procter & Gamble – toiletries and skin care
Avon Beauty Products – cosmetics
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Case Studies – (Tertiary Sector)
Financial Services
Hospitality Services
Software Services
Retail
BPO
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Services
Financial
Banking – Citibank, Bank of America
Consulting – McKinsey, Ernst & Young, AT Kearney
Financial Products – GE Capital
Insurance – AIG, New York Life, MetLife
Hospitality
Hotels – Hyatt, Sheraton, Marriott
Fast-food – McDonalds, Subway, Pizza Hut
Airlines – Delta Airlines
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Services – (contd.)
Software
Solutions – Accenture, Microsoft, Siebel, SAS
Security Management – Computer Associates
Digital Asset Management - IBM
Remote Infrastructure Management - Cisco
Retailing
Product Sourcing - Wal-Mart sources $ 1.00 Bn woth of goods from India, plans to increase it to $ 4.0 Bn
Supermarket – Metro AG (Germany)
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Services – (contd.) Business Process Outsourcing (BPO) Service
Market size
US companies in India
Content Development
$ 650 million
Datamatics Technologies
Contact Management
$ 700 million
E-serve, Convergys, e-funds, Amex, Capital One
Finance & Accounting
$ 450 million
Datamatics Technologies
Administration & HR
$ 385 million
EXL Service, Accenture
Intelligent Services
N.A.
GE Capital
Emerging Opportunities •Logistics 31/01/13
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65 to 70% Cost Saving: Economics for a typical offshore Call Center in India 100
-60
45-55
to -65
+5
- 5 to -7
+ 5 to +10
Total Cost in US
-10 to -15
Management Cost base cost available
Savings from reengineeri ng
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Labor Telecom Cost Cost Savings
Source: Mckinsey
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Savings from process es
30 to 35
India Cost
Thank You
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