to the table of contents and original headers are not

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Please note:

Since the version for the library has to be in one document, the page numbers of this version are mainly not according

to the table of contents and original headers are not

present!

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This paper serves as a Master thesis in the field International Business and Management at the Rijksuniversiteit Groningen, the Netherlands, and was written in the period from February 15^th to July 4^th, 2005.

Supervisor: Dr. Bram Neuijen

Co-supervisor: Florian Becker-Ritterspach

The author is responsible for the content of this thesis.

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Wow, now this paper is written and the time in Groningen is draw to a close. However, before finalizing this thesis, I would like to give a word of acknowledgement to several persons who have contributed to this piece of work or who had to ‘bear’ with me during the last months.

First of all, I would like to express thanks to STK, specifically to Sabine Kupietz, for giving me the opportunity to write a thesis on such an interesting topic; I would not have guessed before that a product like stamping ink could cast a spell on me. Additionally, I would like to thank my two supervisors Dr. Bram Neuijen and Florian Becker-Ritterspach for supporting me and for giving so much valuable advice. Also thanks to Dr. Ebeling and Ms Jain from the GTZ, and Mr Andreßen and Mr Rodewald from the Indo-German Chamber of Commerce – without your help some chapters of this report would have been not realizable.

Furthermore, I would like to thank my family for their support during the last months.

Specifically, I would like to mention my grandfather in this respect who has always given me feedback and for allowing me to ‘refresh his mind’. Last but not least, thanks to my boyfriend Fabian for all the ‘cheering-up flowers’ and his encouragement.

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Appendix 1: STK’s product range ...XVII Appendix 2: The current state of the firm’s internal characteristics... XX Appendix 3: The questionnaire... XXIV Appendix 4: India’s diversity ... XXIX Appendix 5: Important figures on India... XXXIV Appendix 6: Important economic laws ... XXXIX Appendix 7: Major industries ... XLVII Appendix 8: Indian competitors ...LIII Appendix 9: Exhibitions in India... LIV

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FIGURES

Figure 2.1: Direct and indirect export ...5

Figure 2.2: The strategic planning process ...6

Figure 2.3: The export-marketing model...7

Figure 2.4: Porter’s five forces governing competition in an industry ... 11

Figure 2.5: Conceptual model... 14

Figure 3.1: The research process ‘onion’ ... 16

Figure 4.1: India ... 23

Figure 4.2: Location of major industries ... 35

Figure 5.1: GDP development according to sector ... 40

Figure 7.1: The organizational structure of STK ... 53

Figure A4.1: Inhabitants according to state (2002)... XXIX Figure A4.2: Population density according to state (2001) ... XXX Figure A4.3: Cities with more than one million inhabitants (2001) ... XXX Figure A4.4: Distribution of languages (2001)... XXXI Figure A4.5: Religions ... XXXI Figure A4.6: Literacy rates (2002)... XXXII Figure A4.7: Income per capita according to state (1997/98) ... XXXII Figure A4.8: Level of economic development (2001) ...XXXIII Figure A5.1: Population development... XXXIV Figure A5.2: Literacy rates ... XXXIV Figure A5.3: GDP development 1950-2003 ...XXXV Figure A5.4: GDP growth rates 1951-2003...XXXV Figure A5.5: Industrial production growth rates 1961-2003 ... XXXVI Figure A5.6: Percentage changes in foreign trade ... XXXVI Figure A5.7: Development of Indian exports ... XXXVII Figure A5.8: Development of Indian imports... XXXVII Figure A5.9: Trade between Germany and India...XXXVIII Figure A5.10: Structure of German exports to India ...XXXVIII

TABLES

Table 2.1: Ranked criteria... 13

Table 5.1: Price list of Kores International Pvt. Ltd. ... 45

Table 6.1: Problems of German b2b companies with exporting to India... 48

Table 8.1: SWOT analysis ... 55 Table A7.1: Major industries in the individual states ... XLVII Table A9.1: Exhibitions in India... LIV

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EXECUTIVE SUMMARY

Stefan Kupietz L.P. (STK) is a medium-sized company located in Germany, and it is specialized in producing stamping inks of many different types. In this area, they are one of the three market leaders all around the world and they export their products to many countries within and outside the European Union. Since the Indian market (with more than one billion inhabitants) became liberalized in 1991, and has experienced rapid growth rates since then, this country increasingly becomes the target of exporting activities. However, whether it also represents an attractive export target for STK is not known yet since the company does not have any information about this country in question.

The paper in hand tries to fill this information gap by conducting a SWOT analysis. In this course, it opposes the strengths and weaknesses of STK with the opportunities and threats stemming from both the Indian macro and microenvironment. The latter two aspects are dealt with a PESTEL analysis (i.e. the Indian political, environmental, socio-cultural, technological, economic, and legal environment) and an analysis of the stamping ink market. However, since information about the stamping ink market in specific was only scarcely available, the paper partly tries to circumvent this problem by concentrating on the concept of derived demand, meaning the industries which may demand stamping ink.

The main strengths of the company include its broad product range and high quality products, while its major weakness is its high prices. In contrast, the most important opportunities (stemming from both the macro and microenvironment) consist of India being a mega-market with massive growth rates which allows for non-exclusive competition, the rapid shift towards industries and services (which can be seen as a precondition for the demand of stamping ink), and that the leading industries are those for whom STK offers inks. Furthermore, the major international competitors are not present in the Indian market (or only to a minor extent), and the local stamping ink manufacturers have only a very limited product range. On the other hand, there are also several threats; the main ones being high tariff rates and a low quality consciousness, a much lower price level and that all potential competitors are specialized on stationery stamping ink.

This SWOT analysis leads to the conclusion that the Indian stamping ink market can indeed considered as being an attractive export target for STK, although several restrictions have to be taken into account, which can be canvassed with the 4Ps. The products on which the company should concentrate for exporting to India should be very specialized ones for which high quality is the decisive purchase reason (e.g. they should not try to export standard paper stamping ink) which justifies higher prices. Nevertheless, their pricing strategy should be oriented at a lower end while still leaving room for negotiations, and it might be advantageous to set those prices in euro. Promotional activities can be carried out on exhibitions or via the internet – whereas it is important to note that the internet cannot substitute personal meetings when trying to build up long-term relationships with Indian companies. Finally, if a direct export mode is chosen, this should be done without an Indian intermediary but directly to the customer, however, the opportunity of an indirect export mode can also not be excluded.

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CHAPTER 1: INTRODUCTION

This introductory chapter will serve as background for this research and will present the company for which this paper is conducted. Furthermore, the subject of research, including its relevance and limitations, will be discussed, followed by a short outline of this report.

1.1. Background

The liberalization of world trade together with the saturation of many local markets has led to increasing global competition. This is why Papadopoulos noted already in 1987,

“internationalization for SMEs is more important now than ever” (1987:129) since, compared to larger multinational companies, they are lacking the resources and capabilities to defend themselves against new entrants. According to the so-called ‘Uppsala-model’ (see e.g.

Sarathy, 1987), exporting can be seen as the first step of internationalization and is favoured by many SMEs because of its high flexibility, low risk, and missing set-up costs.

Due to the falling trade barriers in developing countries, these have become increasingly the target of export activities of industrialized countries, too. Reasons for this are that these countries often provide a massive potential customer base (due to high number of inhabitants), the demand in those countries is often not saturated yet, and their growth levels often exceed the ones of developed countries by a multiple. This is also the case in India, which has more than one billion inhabitants, of which 300 million can be considered as belonging to a well-funded middle class. The country has liberalized its economy in 1991 and has offered a relatively stable annual growth rate of 11.5% since then. Consequently, its annual imports have risen from 7.4 billion in 1990 to 59.2 billion in 2003 (see Figure A5.8¹) (Econstats, 2005).

1.2. The company

The above facts have also attracted Stefan Kupietz limited partnership (henceforth simply STK), a medium-sized company which is located in Germany. They are specialized in producing stamping inks for all kind of materials: paper, textiles, leather, metal, plastics, human skin, food, and food packaging (for a detailed description of their product range, see Appendix 1). On an international basis, they are one of the three market leaders in terms of product range and market coverage, and although they are exporting already to several countries, they are considering enlarging their export activities by selling their inks to companies in India. By this, they hope to contribute to their general long-term expansion and to increase competitiveness. (A more detailed description of the company will follow in Chapter 7.)

1.3. Research objective and research question

So far, STK does not have any experiences or information about India and its stamping ink market, however, they would like to enter the market and establish a market share before their major German competitor Noris-Color does. The precondition is of course that there is a market for their products, that the import of stamping ink is allowed at all, and that they can compete with local manufacturers. Since these influencing factors are so miscellaneous, this paper shall assist STK in receiving all relevant information which is needed to decide on whether exporting to India is a rational choice or not.

1 A5 in Figure A5.8 means that the figure can be found in Appendix 5.

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Is the Indian stamping ink market an attractive export target for STK?

The research objective behind this question is:

To reveal the opportunities and threats of the Indian market in general and its stamping ink market in particular, as well as STK’s strengths and weaknesses, so that the export attractiveness can be determined.

1.4. Relevance

Practical relevance

Since nothing has been written so far about the niche market stamping ink in India, the practical relevance of this research is straightforward. It will provide STK with information about India and its stamping ink market, by which it will help the company in deciding whether exporting to India is a rational choice for them or not. Furthermore, the findings will assist them to formulate the export marketing mix components and an export strategy later on, for which this paper will provide some impetuses.

Theoretical relevance

Certainly, the findings cannot be generalized to any other market or country since the analysis focuses only on the present situation in India and its local stamping ink market. Nevertheless, since most literature deals with business-to-consumer and mass markets, this paper gives valuable insights into the problems a business-to-business firm is faced with when it operates in a niche market, such as the stamping ink market, and on how to conduct a market analysis when information is scarce. Furthermore, the paper will close with a discussion about the appropriateness of SWOT analyses since those are always implemented without much hesitation.

1.5. Limitations

The main limitation of this paper is that since the market which will be investigated is very small and specialized, specific information about it is hardly available, so that some features will not be included in this paper. This is especially true for the exact trade of stamping ink and the competitive situation of this market in India.

Furthermore, since many aspects have to be dealt with when analyzing the export possibilities to a country, it will not be possible to go into depth with most of them, so they will only be touched.

1.6. Outline

In the following chapter, the theoretical background of the topic will be presented which serves as a basis for the research. The different modes of exporting will be described, followed by an explanation of the so-called ‘export-marketing model’ which will serve as a guideline of the paper. These aspects are incorporated in a so-called SWOT analysis which will be introduced as well, followed by a ranking of those according to importance for this specific case. Finally, the investigative questions and conceptual model of this research will be the logical follow-up of this theoretical framework.

Chapter 3 will describe the methodology behind the study and will answer questions concerning the scope of research, the research process (including the research philosophy,

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approaches, and strategies, as well as the time horizon and the data collection methods), the data analysis, and research quality issues.

This will be followed by Chapter 4 which will deal with the Indian macroenvironment, i.e. the geography and demography, environmental issues, the socio-cultural environment, technological issues, and the political, legal, and economic environment. Since risks resulting from these aspects are often measured by country risk analyses, some of those will be presented afterwards.

The fifth chapter will be concerned with the operating environment of the Indian stamping ink market. It will analyze the shift away from agricultural to industrial production and services in India, which will serve as a basis for the market potential for stamping ink. This will be followed by a short description of the present trade of stamping ink in India. Additionally, the main potential competitors will be investigated according to location, prices, and product range, and a short indication of potential customers and intermediaries will be given.

However, the actual problems of German business-to-business companies exporting to India are not necessarily covered by an analysis of the macro and operational environment. To receive some additional insights into this, a mail survey and an expert interview were conducted, which can be examined in Chapter 6.

After that, this paper will inspect the company STK by analyzing its internal and external environment, its competitive advantage, and its mission and objectives for exporting to India.

Based on the previous four chapters, Chapter 8 will then analyze the strengths and weaknesses of STK, as well as the opportunities and threats of India and its stamping ink market, so that the research question will be answered which will also include several restrictions concerning the export marketing mix.

This will be followed by Chapter 9, the conclusion, in which all insights gathered during this research will be summarized and limitations concerning the study will be stated. Furthermore, steps which the company should take next will be recommended.

Finally, Chapter 10 will discuss the usefulness and appropriateness of SWOT analyses in general, based on the experiences made within this research.

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CHAPTER 2: THEORETICAL BACKGROUND

This chapter describes the framework which forms the theoretical basis of the study and explains the factors that are relevant for an export decision. After having defined what is meant by exporting and what types of exporting exist, the selected theoretical models which provide the background of the research will be presented. These are, following the export- marketing model, a PESTEL analysis, as well as a description of the operational environment and the company in question, which allow a marketer to set up a SWOT analysis in the end.

Finally, based on this theoretical background, the chapter will close with the relevant investigative questions which the paper will attempt to answer, and a conceptual model which visualizes the concepts that will be used.

2.1. Exporting

According to the so-called ‘Uppsala-model’ (see e.g. Rugman & Hodgetts, 2003), exporting is the first step towards internationalization since it implies the smallest commitment to a foreign market (Blythe, 2001). It can be defined as selling domestically produced goods and services in foreign countries and it is part of a country’s external trade (Gabler, 2000).

Motives for exporting

The main motives of companies to start exporting can be miscellaneous. Internally, the firm may want to receive marketing advantages or economies of scale (since the utilization of existing capacities can be increased), it may try to diversify risk or decrease excess capacity of resources. On the external side, the firm may have realized foreign market opportunities or there may be export promotional programmes of government agencies and trade associations.

Furthermore, if the home market is small, stagnant, or declining, a company might be pressured to export its products to survive or grow. However, also unsolicited orders by foreign companies may lead to exporting activities. (Albaum et al., 2002; Kirch, 2003)

Advantages and disadvantages of exporting

Generally, exporting offers very good growth opportunities. Since it requires only low foreign capital, possible political risks of overseas countries can be mainly circumvented and firms can remain flexible – which is certainly a positive aspect especially for SMEs who do not have the possibility to spread risk over a large product or country range (Papadopoulos, 1987). On the other hand, exporting bears also many disadvantages, the main one is that the company may be faced with trade barriers, e.g. tariffs or quotas. Furthermore, transportation costs have to be covered and the company might be faced with the risk of rapid exchange rate changes. Since SMEs are likely to lack specific market information, problems with sudden demand fluctuations may occur – which is also resulting from the missing market proximity.

Other problems may include foreign government or public attitudes (which may result in an image problem because the company is considered as ‘not indigenous’), communication with foreign customers (especially for goods for which specific service is required), and documentation obligations (Albaum et al., 2002; Kirch, 2003).

2.1.1. Modes of exporting

Most authors (e.g. Albaum et al., 2002; Cavusgil & Ghauri, 1990; Djärf & Engström, 2003;

and Gabler, 2000) distinguish between direct and indirect export modes which difference is graphically depicted in Figure 2.1 and will be discussed in turn.

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XIV Figure 2.1: Direct and indirect export

(Source: Albaum et al., 2002:249)

Direct exporting

When a company uses a direct export mode, it sells directly to a foreign importer, a foreign customer (both located overseas), or it uses its own overseas sales branch or staff. When the product is differentiated, particularized selling efforts are required, and the sales volume is large, closer supervision over sales is often required. In these cases, so-called dependent organizations like foreign sales branches (even foreign sales subsidiaries) or travelling salespersons may be implemented. However, when products do not need close supervision, direct export can also be done directly to the final customer or to independent marketing organizations, like foreign distributors or agents. (Albaum et al., 2002) Distributors are merchant intermediaries who can be seen as customers of the exporter since they take title to the goods. In 1990, de Mortanges estimated that the majority of Western export sales were made through those overseas distributors. Agents, on the other hand, act more as a representative of the exporter and thus do not buy the products (Micacle & Albaum, 1970).

Cavusgil and Ghauri (1990) name different advantages of direct exporting (independent of the specific form), which are control over the foreign marketing plan, quicker information feedback from the target market, and better protection of trademarks, patents, and goodwill.

However, it requires of course that the manufacturer is familiar with export shipping procedures and international payment.

Indirect exporting

Indirect exporting involves trading via domestic intermediaries, such as cooperative organizations or international marketing organizations (i.e. agents or merchants). While the difference between agents and distributors was already explained above, it may be solely interesting to note that in case of choosing a domestic distributor, the manufacturer’s marketing task is reduced to domestic marketing, whereas when a domestic agent is employed, the manufacturer has to bear all financial risks related to exporting. Cooperative organizations, on the other hand, can take the form of piggyback marketing (i.e. one manufacturer uses its foreign distribution facilities to sell another company’s product as well) and exporting combinations (under which independent companies are organized for selling to foreign markets) (Albaum et al., 2002). Generally, indirect entry modes are mainly chosen for

DIRECT EXPORT:

Manufacturer

HOME COUNTRY FOREIGN COUNTRY

Cooperative firm

Domestic agent or distributor

Foreign customer Border

Foreign distributor or agent

Foreign customer Foreign customer

Foreign customer

Overseas sales

branch/staff Foreign customer INDIRECT

EXPORT:

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distant markets because managers perceive higher risks with increased distance (Mühlbacher et al., 1999).

The main advantages of indirect exporting is that all activities like documentation, the physical movement of goods, and the distribution of sales are accomplished by others (Young et al., 1989). Furthermore, in the early stages of exporting it is less expensive. The major disadvantages, in contrast, are the firm’s loss of control over foreign sales and that the company’s reputation in the market is reflected in the reputation of the intermediary.

(Cavusgil & Ghauri, 1990) The role of e-commerce

In the course of the increasing digitalization and communication possibilities, the internet has become an important tool for exporting to foreign markets, which is called e-commerce. It can both be used to sell directly to the foreign market and to local intermediaries who will then handle the export transaction. In this way, it can support both direct and indirect exporting.

However, the internet merely serves as a source of information rather than a place to buy.

The advantages of the internet in terms of exporting are low capital investment, that small size does not make a difference anymore, updates are easy and immediate, it is a reliable means of communication, and companies have full control over what information is sent over the internet. However, it has to be emphasized that websites do not substitute travel (or communication with intermediaries and customers), not everyone has access to the internet, and there is a potential for fraudulent use. (Albaum et al., 2002)

2.2. The export-marketing environment

However, before choosing any export mode (or strategy), several steps have to be undertaken, which Bradford et al. (1999) examine within the first two stages of a strategy formulation process. This is shown in Figure 2.2.

Figure 2.2: The strategic planning process

(Source: Bradford et al., 1999:24) According to Papadopoulos (1987), the mission and objectives of a company concerning exporting can range from volume (i.e. to unload excess inventories), over extra revenue or profit, and survival, to long-term growth (i.e. markets are penetrated in which strategic foothold can be acquired and future growth rates are expected to be high).

Mission and objectives

Environmental scan

Strategy formulation

Strategy implemenation

Evaluation and control

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After having established the objectives behind the export decision, an environmental scan has to be conducted. Environmental scanning is a process in which information about the firm’s outside environment are explored and it is important because the company operates in an

‘open system’, e.g. it is dependent on resources, it competes with other firms, and it has to behave according to law (Woodside & McKee, 1994). Albaum et al. (2002), Blythe (2001), and Bradford et al. (1999) state that such a scanning has to include an analysis of the macroenvironment, one about the company’s industry (the microenvironment), and an internal analysis of the company. After having done that, the marketer can decide on an export marketing mix, including the 4Ps. This is shown in Figure 2.3 below and is further explained in the following sub-sections (only the export marketing mix will not be explained since it is not the topic of the research question but it will only be used in the restrictions of it.)²

Figure 2.3: The export-marketing model

(Sources: Albaum et al., 2002; Blythe, 2001)

2.2.1. The macroenvironment

The macroenvironment comprises all country-specific factors which are surrounding specific industries, single firms, and individuals, but which are out of their direct control. For assessing these, a PEST analysis (consisting of political, economic, socio-cultural, and technological issues) is often used, which is sometimes expanded to a PESTEL analysis (which adds ecological and legal factors). Although the items in a PEST (or PESTEL) analysis rely on past events and experience, it can be used as forecast for the future as well (Johnson & Scholes, 2002). However, first, countries are most often shortly introduced in

2 A discussion of the 4Ps offer e.g. Wright, 1999, or Mühlbacher et al., 1999.

MACRO-ENVIRONMENT (uncontrollable)

MICRO-ENVIRONMENT (uncontrollable)

Demography geography

Politics

Economy

Socio-cultural factors

Legal factors

Technology

Ecological factors Competitors

Publics

Customers

Suppliers

Intermediaries COMPANY

(short-run uncontrollable)

Size Export

volume

Type of export product Price

Channel

Export structure EXPORT MARKETING

MIX (controllable)

Export experiences

Export competitive-

ness Promotion

Product modification

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terms of their geography and demography since that has an influence on consumer consumption as well (Giglierano & Vitale, 2002).

2.2.1.1. PESTEL analysis Demography and geography

To introduce a country, aspects like the geographic proximity of the country, its population (race, gender, occupation, size and density of population), the size of the country, and its infrastructure (roads, railways, airports, and ports) are interesting starting points. These factors do not only have an influence on the attractiveness of a market but also on distribution aspects. (Blythe, 2001; Mühlbacher et al., 1999)

Environmental issues

The natural environment of a country, e.g. climate, mineral resources, and water supply, is the next aspect which may help assessing the market attractiveness for importers whose products are depended on this. For example, the demand for air-conditionings is probably low in the Arctic or Greenland.

Socio-cultural environment

The socio-cultural environment of a country strongly influences consumer needs, expectations, and tastes. A societal culture consists of the sum of beliefs, values, and behaviour of people, “reflecting their desire to maintain continuity as well as to adapt to external demands” (Sinha, 2000:14). Factors considered for this are the languages spoken, religions (Mühlbacher et al., 1999), attitudes towards foreign products (Marketingteacher, 2005), and changes in values and lifestyles (Blythe, 2001). Although the most famous and accepted work on culture, is probably the one of Hofstede³, the aspects he takes into account are more relevant for foreign subsidiaries than for preparing for possible communication or negotiation problems which are important for an importer.

Technological issues

Technological issues mainly include technological advances, like the internet or other communication facilities, and how dispersed these are in the country in question. This is particularly important for reaching or contacting customers and for promotional activities.

Furthermore, advanced technologies may allow local manufacturers to produce goods much cheaper and with higher quality, so that the importing company may lose its competitive advantage (Marketingteacher, 2005). However, in some less developed countries, the loss of the importer’s competitive advantage may also result from a lower technological standard, which allows for lower prices. Thus, although domestically produced goods often have a lower quality, they are also offered at lower prices which the potential importer cannot meet - and since quality consciousness is often lesser in these countries, the sales potential can be very limited.

The political environment

The political environment is especially an important criterion for the assessment of the attractiveness of a country when business opportunities depend directly on this system (Mühlenbacher et al., 1999). For example, many communist countries did not allow imports of goods which they could have produced on their own. Describing factors are the political party which is in charge, the movement towards privatization, and national and local government actions (Blythe, 2001). Furthermore, an analysis of the stability of the political environment, the government’s policy on the economy, and the possible involvement of the government in trading agreements, such as the EU or ASEAN (Marketingteacher, 2005),

3 See e.g. Harzing & van Ruysseveldt, 1995

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gives a valuable insight in this respect. Finally, cooperative agreements between the exporter’s home and host governments can add to a country’s attractiveness since trade between those two countries may be promoted (Mühlbacher et al., 1999).

The legal environment

“A country’s legal system determines the rules that govern the conduct of business in that country as well as the norms and standards that products and services have to fulfil.”

(ibid.:277) Since there is no universal international law, the exporting company has to consider the local law system (e.g. common or code law), the different domestic laws, business and marketing regulations, and which licenses, and tariff and quota policies are in place (Albaum et al., 2002). Further, regulations concerning specific product features might be important for an importer since certain ones (like dangerous chemicals) might not be allowed to import or only under special conditions.

The economic environment

The economic environment comprises factors such as GNP per capita, the GPD growth rate, interest rates, exchange rates, the level of inflation, the unemployment rate, the level of development (measured by the HDI⁴), the distribution of income (measured by the Gini coefficient⁵), taxation policies, and whether the country is in a boom or a bust cycle at present (Blythe, 2001). It is important for the exporter to know all these factors since the potential purchasing power or demand for their (industrial) products depends on them.

2.2.1.2. Country risk analysis

Country risk can be defined as the fear firms have when being confronted with limitations, restrictions, or even losses when engaging in trading activities in foreign countries (Raffée &

Kreutzer, 1984). In contrast to risks from domestic markets, foreign country risks arise either from factors that are not relevant in the home market (e.g. currency risk or transfer risk) or that are significantly more difficult to assess because of information lacks, such as specific import regulations. Generally, various forms of risks can arise, which often result from macro forces, like transport risk, political risk (e.g. social conflict, confiscation of goods, limitations of foreign trade), contract fulfilment risks, cultural risks like translating from one language into another, and legal risks (Blythe, 2001; Dichtl & Köglmayr, 1987).

Generally, the procedure to analyse foreign market risks consists of four steps. These are determining the relevant criteria and measurement scales, specifying the actual scale values, allocating weights to the criteria, and, finally, aggregating individual scale values and their corresponding weights, and transforming these into an overall score (ibid.).

However, most economic institutes use different criteria for measuring country risk. For example, Euromoney (1998) uses nine variables for assessing country risks. These are political risk (accounting for 25%), economic performance (25%), debt indicators (10%), debt in default or rescheduled (10%), credit ratings (10%), access to bank finance (5%), assess to short-term finance (5%), access to capital markets (5%), and discount on forfeiting (5%). The Centre for International Development and Conflict Management (2004) concentrates only on political factors of risk, namely polity, democracy, autocracy, durability, and tentativeness;

4 The Human Development Index is estimated yearly by the United National Development Programme for 162 countries and is a summary measure of development which takes GNP per capita, longevity, and education into account. (For further details, see Ghatak, 2003:Ch.1)

5 The Gini coefficient is a measure of inequality in country and it can take on a number between 0 and 1, where 0 corresponds to perfect equality (i.e. everyone has the same) and 1 corresponds to perfect inequality (i.e. a situation in which one person has all income, the others have none). (http://www.laborlawtalk.com)

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however, it considers each factor individually and does not come to an overall conclusion.

The Economist Intelligence Unit (2005) of ‘The Economist’ rates countries from ‘least risky’/A (score 0) to ‘most risky’/E (score 100). For this, it considers political risk (including, e.g., the threat of war, international disputes, or quality of bureaucracy), economic policy risk (monetary, fiscal, trade, and regulatory policies), economic structure risk (growth and saving, the current account, and debt structure), and liquidity risk (e.g., direction of reserves, size of FDI inflows). Finally, Coface North America (2005) concentrates on the growth vulnerability of a country, its foreign currency liquidity crises, external over-indebtedness, sovereign financial vulnerability, banking sector’s fragilities, political and institutional instability, and companies’ payment behaviour. Thus, it can be said, that generally all of the macroenvironmental forces can cause country risks which a potential exporter to that country should consider. This helps adapting to and employing measures to cope with those risks.

However, whenever talking about country risks it has to be stated which factors were included in the analysis.

2.2.2. The microenvironment

The microenvironment (also called task or operating environment) focuses on a specific market or industry which has a direct influence on the company, and it describes the relationship between firms and the driving forces that control this relationship (Blythe, 2001;

Marketingteacher, 2005). Generally, there are five forces describing the microenvironment, which are customers (including a description of the specific market), competitors, intermediaries, publics, and suppliers. An exporter should evaluate all these factors of the potential target country to understand and to adapt to the industrial and competitive conditions prevailing there. However, because in this paper only pure exporting is considered (and no foreign production activities), the influence of those overseas suppliers will be left out.

Furthermore, it can be expected that stamping ink is not a product which may cause public controversy, so that the aspect of publics will not be considered either.

The customers

When assessing a specific industry in a foreign market, it is certainly important for the potential importer to consider the specific market size (which can be measured either by sales or by value, i.e. volume), its growth, and the geographical distribution of the customers (e.g., whether the whole industry is located in a particular region). Furthermore, the profitability of the industry and the changes and opportunities in certain market segments are important to consider. (Blythe, 2001; Lehmann, 1979; Mühlbacher et al., 1999) For these last aspects and because this study will concentrate on a business-to-business product, the concepts of derived and joint demand are particularly important. Derived demand occurs when the customers use the bought product either for resale or for further production. In that case, the demand for the specific product is dictated by the demand for the end product, e.g., the demand for stamping ink is derived from the demand for stamps and stamping pads. This also illustrates the concept of joint demand since stamps are useless without stamping ink. That is, joint demand occurs when the demand for one product dictates the demand for another. (Blythe, 2001) Following that, the marketer does not only have to investigate its own potential customers but also the industries which use the product for further production. Furthermore, it is certainly useful to segment the customers according to the specific product (e.g. stamps for food or steel) since the markets and the demand for each type may be very different.

The competitors

There are four possible competitive structures in an industry. The first one is perfect competition in which there are a large number of suppliers and none of them is powerful enough to influence the overall level of supply. When there is one powerful competitor but

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other firms can still enter the market, economists talk about monopolistic competition.

Oligopoly is present when a few companies control the market, and in a monopolistic market structure, there is one firm whose products do not have any substitutes, and thus it controls the market. (ibid.)

To assess the competitive situation in an industry, the work of Michael Porter (1979) is probably the most accepted one. He considers five different forces, which can be seen below.

(However, because exporting is the only option for STK to enter the Indian market, the bargaining power of suppliers will be left out again.) Johnson and Scholes (2002) value these five forces as an important step in the environmental analysis which can be highly recommended for corporate strategy development.

Figure 2.4: Porter’s five forces governing competition in an industry

(Source: Porter, 1979:141) The threat of entrants depends on the entry barriers which are present and on the reactions of existing competitors that the potential entrant can expect. Buyers can have high bargaining power if they can force down prices or if they can play competitors off against each other.

The stronger this force, the more competitive the environment. Substitute products can limit the potential of an industry, and, finally, the rivalry among current competitors is high where entry is likely (and it is influenced by the other forces).

Nevertheless, although Porter’s model is certainly very valuable, it cannot be used in this paper due to the lacking transparency of the Indian stamping ink market (which will be discussed later). Instead, a pure description of the main competitors (in terms of location, product range, and prices) and entry barriers will be employed.

The intermediaries

The main trade channels include agents or distributors, but also marketing service providers or exhibition organizers. (Blythe, 2001) To explore them and their efficiency level is particularly interesting for an importer because they influence the accessibility of his products, his sales and profitability level, as well as his reputation. However, since he is not located in the country in question, he must be able to rely on them. (Mühlbacher et al., 1999) This is why the exporter should investigate which intermediaries are available, how much

Competitive rivalry Threat of

new entrants

Bargaining power of suppliers

Bargaining power of customers

Threat of substitudes

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they cost, which are preferred by current competitors in the market, and which represent the importer’s objectives best.

2.2.3. Firm characteristics

According to Mühlbacher et al. (1999), if a company wants to export, it has to observe whether it will be able to differentiate itself from the potential competitors. For that reason, the management of the company should first identify its current state of internal characteristics. This can include the general internal and external environment (including its size, products, prices, customers, competitors, etc.), its motives for and goals of going international, and the commitment which the management is willing to put in. For the last two aspects, the authors propose to use a questionnaire, which can be found in Appendix 2.

Furthermore, the competitive advantage of the company should be identified, e.g. whether the company has efficiencies of global scale and volume or a good reputation, whether it can exploit local advantages or is able to provide global services.

2.4. SWOT analysis

These three aspects of the export-marketing environment can constitute both to positive and negative sides. To investigate the export attractiveness of a potential target country, a so- called SWOT (stands for strengths, weaknesses, opportunities, and threats) analysis can be set up. In such an analysis, the “key strategic messages from both the business environment and concerning strategic capability can be summarised” (Lynch, 2003:134), i.e. it results from the investigation of the macro and microenvironment, as well as the company characteristics, in the following way. Since strengths and weaknesses are internal factors of the company, its characteristics and competitive advantage are decisive in this respect. The macro and microenvironment (which are external factors), in contrast, determine the opportunities and threats the company might be faced with in the target country.

As such, it is an important analytical tool because it provides a clear picture of the current status of the organization, identifies the relevant internal resources, and helps a marketer to focus on key issues (Blythe, 2001). Particularly, such a SWOT analysis is mainly used in the early project development process (Wikipedia, 2005) and it helps gaining a comprehensive overview and to weigh up of all factors (positive and negative internal and external ones) which influence the potential export, so that in the end a decision about exporting (and the concerning export marketing mix) can be made. Furthermore, it is easier to conduct than other predictive analyses, like e.g. the scenario analysis which tries to analyse future events by considering alternative possible outcomes (ibid., 2004).

2.3. The need for ranking

However, before starting exploring the export-marketing environment to conduct such a SWOT analysis, one should decide which factors are really important for the company in question and to which extend. According to Johnson and Scholes, “the production of comprehensive lists that include every major eventuality and have no priorities has no value.

A better solution is to identify the key factors for success in the industry and then to direct the environmental analysis towards these factors” (2002:88). The authors define the key factors of success as “those resources, skills, and attributes of the organisations in the industry that are essential to deliver success in the market place” (ibid.:102). These key factors are common to all major organizations in the industry and do not differentiate one company from another.

Wright (2004) thus suggests ranking the components of the export-marketing model according to their importance for the specific firm and country before starting to analyze them, which is done in Table 2.1.

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XXII Table 2.1: Ranked criteria

High importance Medium importance Low importance Level of industrialization Infrastructure Environmental issues Economic conditions Culture and language Religion, literacy Import restrictions Political environment Publics

Customs and tariffs Legal system Communication facilities Quality aspects

Level of competition Dependent industries

Competitive advantage of STK Product and price range of STK

The reasons for this ranking follows from the theoretical background described so far when looking at the potential risks an industrial importer might be faced with. Generally, the level of industrialization and economic conditions determine whether demand for the industrial product exists, while import restrictions, customs, and tariffs often decide on the possibility and price of import. Quality aspects are especially important in developing countries like India (as explained before). On a micro level, the level of competition and the position of dependent industries (i.e. which demand stamping inks) determine the potential profitability of market entry. STK’s competitive advantage and its product and price range, are finally decisive for whether the company can realize the advantages of the Indian import possibilities. All these factors can be considered as having a high importance on STK’s export decision, since if one of these does not turn out to be favourable for them, this might destroy the export possibility for the company at all.

Although the infrastructure (which determines the possibility and speed of transportation), culture and language, the political environment, and the legal system are of course important, these cannot deny export opportunities for STK altogether. Finally, religion, literacy, and publics do only have a minor importance, as well as communication facilities (since companies can be expected to have a telephone and internet connection) and environmental factors (since temperature and climate cannot affect STK’s ink compositions).

2.5. Conceptual model and investigative questions

Based on the theoretical background presented in the last sub-sections, several investigative questions which help to answer the main research questions can be set up.

• What is the macroenvironment of India like?

• What kind of risks does India bear?

• What are the characteristics of the stamping ink market in India?

• What are the experiences of other German B2B firms that have already exported to India?

• What are STK’s strengths and weaknesses in terms of exporting?

Firstly, the macroenvironment of India will be investigated (by using a PESTEL analysis), including the type of risks which these macro forces may cause. Secondly, the microenvironment, or the characteristics of the Indian stamping ink market, will be explored.

To double check these findings and to gain additional insight to the specific experiences which German business-to-business companies made when they started exporting to India, these will be assessed with the help of a survey. Aspects of these three questions generate the opportunities and threats of the Indian market since they are external to the company.

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The fifth sub-question, about the strengths and weaknesses of STK, will be answered by describing its internal and external environment, its competitive advantage, and its mission and objectives for going international.

Finally, after having set up a SWOT analysis, consisting of the aspects described above, a decision whether exporting to India can be recommended or not can be made.

Figure 2.5 below shows a conceptualization of these issues, and how the factors considered depend on each other.⁶

Figure 2.5: Conceptual model

6 The relationship between the operational environment, i.e. of the Indian stamping ink market, to the experiences of other German companies is shown only in a dashed line since the respondent companies of the survey were not active in the stamping ink market but other specific operational environments had an influence on them (this will be further discussed in chapter three and six).

Macroenvironment: India

-Demography and geography - Socio-cultural environment - Technological issues - Environmental issues - Political environment - Legal environment - Economic environment

Indian country risk

Microenvironment:

Stamping ink industry

-Size of market (consumers) - Competitors

- Import restrictions - Intermediaries

Experiences of other German b2b

firms

The company: STK

-Internal & external environment - Competitive advantage - Goals

Strengths Weaknesses

Opportunities Threats

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CHAPTER 3: METHODOLOGY

Methodology is not the same as method; methodology is actually the study of method, and is concerned with the philosophy behind the choice of a specific method. (Blythe, 2001:83) In this chapter, the methodology which was used to conduct the research will be presented. It will start by outlining the purpose, or scope, of the research, followed by the research process.

This includes an analysis of the philosophy behind the study, the research approach and strategy, the time horizon, and data collection methods. The final subsections are about the analysis of the collected data, and research quality issues.

3.1. Scope and purpose of the research

This study is conducted to explore the import attractiveness of the Indian stamping ink market for STK. Since STK has already restricted the possible entry mode to exporting and, according to them, they do not know anything about India (in the context of import possibilities), the objective of this report is to help STK with the decision of whether to export their stamping ink to the Indian market. Thus, the purpose is to fill the ‘gap’ of a first evaluation of the Indian market potential, so that STK can develop a specific export strategy based on that.

The research is conducted by a student of the Rijksuniversiteit Groningen, the Netherlands, in the framework of a Master thesis. The time frame for this project is from February 15^th to July 4^th, 2005.

The nature of this study is on the one hand certainly descriptive because it is concerned with portraying a comprehensive profile of the importing situation in India (Robson, 1993). For this, it asks questions like who, what, where, when, and how much (Cooper & Schindler, 2003), based on the clear framework of phenomena which was presented in the last chapter.

These questions will be answered by employing a ‘meta analysis’, i.e. the work of a large number of sources and authors will be included. However, descriptive studies often act as a forerunner to some kind of exploratory research, as well (Saunders et al., 2000), since the purpose of that is to gain basic knowledge within the problem area (Wallén, 1996), i.e. the Indian market shall be ‘explored’. Generally, exploratory research types are appropriate when a problem or important relationships are difficult to determine (Erikson & Wiedersheim-Paul, 1997) and when ideas and insights shall be discovered. Cooper and Schindler (2003) argue that such an approach is particularly useful when the field of study is so new or unclear that the researcher needs to do an exploration just to find out something about the dilemma facing the manager. In this case, it is not known yet which factors may in the end influence the decision of whether exporting is advisable or not. The main characteristics of an exploratory research are that it is flexible and versatile in nature and is conducted by using mainly secondary data and a qualitative research approach (Malhotra, 2004).

3.2. Research process

Saunders et al. (2000) emphasize that before deciding on the data collection methods which shall be used for one’s research, one should be aware that this is already in the centre of the research process, as can be seen in Figure 3.1. It is called a research process ‘onion’ because there are several important layers around the decision of which data collection methods to use.

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XXV Figure 3.1: The research process ‘onion’

(Source: Saunders et al., 2000:85) The different layers, i.e. the research philosophy, research approach, research strategy, time horizon, and data collection methods, are now discussed in turn.

3.2.1. Research philosophy

The research philosophy depends on the researcher’s view of the development of knowledge and can take the form of positivism and phenomenology. Positivism highlights the use of methods that are mainly used in natural sciences in that it tries to produce law-like generalizations which can explain the past and can predict future observations (Gill &

Johnson, 2002).

However, this research follows more the view of phenomenology, i.e. a study on how things appear to people (ibid.). Saunders et al. (2000) state that this philosophy is more suitable for business and management researches because the business world in general is much too complex to use generalizing ‘laws’ since business situations and organizations are not only complex, they are unique. In the case of this research, investigating a country like India on its environmental features is a complex process that provides rich insights including both qualitative and quantitative information. Qualitative information thereby is the crucial character or nature of something and describes the ‘what’, whereas qualitative information is the amount of something and describes the ‘how much’ (Maanen et al., 1982). Many of these factors cannot be narrowed down to ‘law-like’ generalizations. Furthermore, the situation of the Indian market can be very different in a few years time since business environments are constantly changing.

3.2.2. Research approach

Based on the arguments of the research philosophy (mainly the importance of gaining a close understanding of the research context), this study can be said to follow an inductive research approach (which is sometimes also referred to as a qualitative research approach). The objective of such an approach is to gain a qualitative (i.e. without quantitative or numeric data) understanding of underlying reasons and motivations and the goal is to develop an initial

Sampling Secondary data

Observations Interviews Questionnaires

Cross sectional

Longitudinal Experiment

Survey

Case study

Grounded theory

Ethnography Action research

Deductive

Inductive

Positivism

Phenomenology

Research philosophy

Research approaches

Research strategies

Time horizons

Data collection methods

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understanding of the situation in question (Malhotra, 2004) – although also quantitative data is used but to a minor extent.

The structure of such an approach is much more flexible than under the deductive approach since it does not start by setting up hypotheses and testing them afterwards. It rather starts by collecting data from all sources which are open for answering the specific problem to gain a deep understanding of the Indian stamping ink marketing environment (i.e. the macro and microenvironment) by using a flexible, qualitative, multi-method data collection, which will be specified in 3.2.5. The conclusion will be based on these findings, i.e. it ‘builds a theory’, however, it certainly cannot be generalized - but this is not the intention of this study anyhow.

It shall concentrate on the specific characteristics of the Indian stamping ink market at present, which may influence the export decision of the company STK.

3.2.3. Research strategy

A research strategy is a ‘general plan’ of how the researcher will go about answering the research question by stating clear objectives and by specifying the sources of data collection (Saunders et al., 2000). Although most authors name somehow different strategies (e.g.

Eriksson & Wiedersheim-Paul, 1997; Gill & Johnson, 2002; Saunders et al., 2000; Yin, 2003), they all agree on the experimental, survey, and case study approach (Saunders et al.

further mention the grounded theory, ethnography, and action research approach).

The subject of this study is a description and exploration of the Indian marketing environment in terms of stamping ink, so that it can be classified as a case study because of its in-depth nature. Robson defines a case study as “the development of detailed, intensive knowledge about a single ‘case’, or a small number of cases” (1993:40). According to Morris and Wood (1991), this strategy is particularly useful for gaining a deep understanding of a context and processes that are taking place, and this is especially the case in this research; the objective is to gain a ‘deep understanding’ of the factors (strengths, weaknesses, opportunities, and threats) which may influence the export decision.

As said before, the form of this case study will be mainly descriptive. That means that the principal techniques for conducting the research are in the form of analysing secondary data and the experiences made by other German business-to-business companies who have already exported to India. However, a detailed description of the specific data collection methods will be given in 3.2.5.

3.2.4. Time horizon

There are two forms of time dimensions, i.e. cross-sectional and longitudinal studies, whereas the former one is a snapshot of a specific moment and the latter one is repeated over an extended period to track changes (Cooper & Schindler, 2003).

Since the objective is to provide detailed current information of the Indian environment (and not to explore the changes of it), this study is said to be a cross-sectional one – although it is carried out within a time frame of four and a half months.

3.2.5. Data collection methods

As this study follows a qualitative research approach, Malhotra (2004) proposes that an unstructured data collection process should be used. However, Blythe (2001) suggests that after having recognized the problem and having set objectives, the data collection phase should start with collecting secondary data since these sources are cheaper and quicker, and often all information which is needed for answering the research question is already available.

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XXVII Secondary data collection

Secondary research, which is also known as ‘desk research’, concentrates on data that already exists since it has been collected for other purposes (Marketingteacher, 2005). According to Wright (2004), the use of secondary data is also more appropriate for the research of business- to-business industries because primary research (e.g. interviews) is less easily conductible in this field.

Most of the sub-questions of this research (see 2.5) will be answered by using these already existing data sources. Specifically, information about the macro and microenvironment of India will be collected from trade associations (e.g. the WTO and the Indo-German Chamber of Commerce), the national and local press, the German and Indian governments and their departments of foreign affairs, websites, business libraries, trade directories (e.g. Econstats), public data, and by contacting potential competitors. The country risk analysis of India, on the other hand, will be taken from four professional institutes and organizations and omnibus studies⁷. One of these four studies was bought from the Economist Intelligence Unit, the others were freely available from Euromoney, from the Centre for International Development and Conflict Management, and Coface North America. Finally, the last question (about the company) will be mainly answered by using company brochures and its official website.

Yin (1994) and Saunders et al. (2000) list the general strengths and weaknesses of documentation and archival records, which are the secondary data gathering methods of a qualitative research. The advantages are that they are very stable, meaning that they can be reviewed repeatedly; they are unobtrusive, i.e. they are not created as a result of the case; they are exact because they contain exact names, references, and details of an event; and they cover a broad span of time, many events, and many settings. Furthermore, they are precise and qualitative, and the researcher is able to analyse larger data sets since he does not have to collect all data himself.

On the other hand, the weaknesses of such approaches are that the retrievability can be low; if the collection is incomplete, biased selectivity may be the result; reporting bias may take place; and the access of relevant data may be difficult or costly (e.g. in the case of receiving a comprehensive analysis of the major players of the Indian stamping ink market, institutes charge about 2,500), sometimes also because of privacy reasons.

However, since two methods, i.e. books and the internet, were the most employed sources to conduct secondary research, these two should be given a bit more in-depth insight. Books were mainly used to provide the theoretical background of this study (see chapter 2) and the models which will be used for assessing the Indian export-marketing environment, as well as for setting up a well-designed questionnaire. Therefore, these books are mainly in the broad field of international marketing and since a large number of those were used for the same purpose, the result of it can be considered as relatively reliable and valid. Nevertheless, it has to be emphasized that some books are quite old so that they are not concerned with today’s business environment. Furthermore, some books were more focussing on business-to- customer industries and did not include the industrial sector at all.

The internet, on the other hand, was mainly used to collect all kind of information and data about the marketing environment in India, i.e. it was used to apply the models. Sources which

7 “An omnibus study is where an organization purchases a single of a few questions of a ‘hybrid’ interview. The organization will be one of the many that simply want a straightforward answer to a simple question. The research is far cheaper and commits less time and effort than conducting your own research.” (Marketingteacher, 2005)

to the table of contents and original headers are not

Please note:

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TABLE OF CONTENTS

FIGURES

TABLES

EXECUTIVE SUMMARY

CHAPTER 1: INTRODUCTION

CHAPTER 2: THEORETICAL BACKGROUND

CHAPTER 3: METHODOLOGY