Analysis of India as an Emerging Market for Business Expansion

This report provides an analysis of India as an emerging market for business expansion. It covers the political, economic, social and technological factors that make India a suitable country for overseas expansion. The report also discusses India's trade policies, existing levels of foreign direct investment and the impact of foreign currency and exchange on the country's economy.

INTERNATIONAL BUSINESS
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Executive Summary
This report is aimed at performing a detailed analysis of one such emerging market that has
created attractive investment opportunities for global business organisations. The emerging
market selected for this report is India because it is one of the strongest developing country
that has been inviting a lot of business owners to invest in their country. The report provides a
general overview of India and the factors that make it one of the best suitable countries for
overseas expansion.

Table of Contents
Executive Summary............................................................................................................2
Introduction.......................................................................................................................4
General Overview..............................................................................................................4
PEST Analysis.....................................................................................................................4
Factors Promoting Business Expansion...............................................................................5
Foreign Currency and Exchange Influence..........................................................................6
India’s Trade Policies.........................................................................................................7
Existing Levels Of Foreign Direct Investment......................................................................7
Summary and Recommendations.......................................................................................8
Bibliography......................................................................................................................9

Introduction
The spread of globalisation and liberalisation has made the world of business highly complex
and competitive. The reduction in barriers to global expansion has allowed business
organisations to take their work operations overseas and achieve the benefits of operating in
multiple countries. Business organisations are trying to explore untapped markets that can
offer them a competitive edge in the industry. Most of the business organisations are eyeing
upon world’s largest developing countries, such as India, China, Russia, Thailand, Indonesia,
Turkey, Nigeria, Mexico, etc. to expand their business operations and make use of economies
of scale.
General Overview
India, also known as the Republic of India, is a part of Asia and is the seventh largest country
in the world. In terms of population, India stands as the second most populated country with
over 1.2 billion people. The country ranked sixth in terms of GDP in 2017 and was declared
to be the third largest country in terms of purchasing power parity. After the 1991 economic
reforms, India became one of the fastest growing economies in the world (BBC News, 2018).
Due to its large population, India faces a number of challenges, such as poverty, corruption,
malnutrition, lack of employment, inadequate healthcare, etc. Out of the world’s top 15
information technology outsourcing companies, seven are based in India and as a result of
this, India is considered to be the most suitable country for business expansion after the
United States (IBEF, 2018).
PEST Analysis
PESTEL analysis is a framework that allows to assess the macro environment of a country on
the basis of six different factors i.e. Political, Economic, Social and Technological. A
PESTEL analysis of India is given below:
Political Factors
India is one of the largest democracies in the world and have a stable form of government
that supports foreign direct investment. The government of the country has experienced an
improvement in its political environment post liberalisation. Post 1991, India started
abolishing the rule that required foreign industries to take licences for expansion in India

(Giri & Debnath, 2016). Thereafter, the country has been increasing the percentage of FDI
that is allowed in different sectors. As a result, a stable and an FDI friendly government
makes India a suitable country for business expansion
Economic Factors
India experiences high purchasing power parity and has a GDP that is aggressively growing
year by year. A report by Pricewaterhouse Coopers, also known a PwC, in 2011 suggested
that India’s GDP could overtake the GDP of the United States of America by 2045. A strong
economy of the country has created a lot of potential for the overseas expansion of
multinational organisations (Rahman, 2018)
Social Factors
India has the second largest population in the world and a lot of educated people are still
looking for employment in the country. Further, a population of 1.2 billion people provides
an excellent market for multinational organisation. The standard of living of the Indians is
improving day by day and they have a good amount of disposable incomes to spend on high
quality products and services.
Technological Factors
India is one of the most advanced countries in the world. Some sources say that India is the
3rd most advanced country in terms of technology. India also has a lot of technological
institutes and a large pool of technology professionals that are looking for job opportunities
(Bhasin, 2018). Availability of large pools of IT professionals is one reason because of which
some of the top multinational IT companies, such as Google, Facebook, etc. are investing in
the country.
Factors Promoting Business Expansion
Over the last few decades, a lot of companies have expanded their operations in the Indian
subcontinent while many other companies are trying to enter the Indian market. There are a
number of factors that promote business expansion in India. Following are the factors that
make India a prime location for business expansion:
Availability of resources: India is a country that is rich in natural as well as man-made
resources. Business organisations operating in India get access to cheap electricity and raw

material. Further, large population in the country has always been able to offer cheap labour
to business organisations in abundance (Santander, 2018). Because of large population, there
is still unemployment in the country and even highly professional candidates are looking for
attractive job offers. The labour resources in India are also cheaper than many other countries
because of low wage rates. As a result, availability of such resources can help business
organisations in becoming more competitive in the global market.
Government policies: as discussed in the PEST analysis, the Indian government is a stable
one and is attracting a lot of Foreign Direct Investments by offering lucrative opportunities
for business organisations. In exchange of the investment that the foreign companies make in
the country, they get cheap labour, resources and tax incentives as well (JaZaa Financial
Advisory, 2016). The policies implemented by the government to invite FDI has moved India
into the top 100 countries in the World Bank’s Ease of Doing Business global rankings (PTI,
2018).
Technology: Technology has been having a huge impact on the Indian population and the
Indian market is experiencing a rapid shift from brick and mortar shops to e-commerce
websites. A drastic increase in the number of online shoppers has made India one of the best
places to expand business operations to.
Increase in income: Because of India’s rapid development rate and high GDP, there has
been a great rise in the income of the people. Indian’s are enjoying a high purchasing power
and are able to spare major portions of their incomes for expenditure. Further, there has also
been an increase in the middle class consumers in the Indian market. As a result, it has
become a great market opportunity for many business organisations.
Foreign Currency and Exchange Influence
The imbalance between the supply and demand in the foreign exchange market has been
having an impact on the value of rupee, which has been depreciating against the dollar.
Dollar has also experienced a great appreciation in the international market. The depreciating
value of rupee has been having an effect on both higher and lower sectors of the economy.
The rise in demand of oil in India year-by-year has decreased the value of rupee because the
Indian government makes payment for oil imports in dollars.

Another reason for depreciation in the value of Rupee is the difference between the quality of
Indian and foreign products. Indian manufacturers are not able to compete with foreign
products in terms of quality and price, which increases the demand for import of foreign
products. India has also been experiencing a decline in its foreign exchange reserves, which is
creating a fiscal deficit. According to a number of studies, it has been discovered that for one
unit fluctuation in the currency, there is a rise in 0.605 unit of FDI (Dwivedi, 2016). The
decreasing value of rupee makes it easier for foreign companies and NRIs to invest in India
because the power of their currency increases and they can buy resources that have a greater
value than what they are spending. Overall, even if the value of the currency depreciates,
India has been able to reap some benefits as an increase in the FDI because of currency
fluctuations affects the country’s international wealth. It results in economic growth of India
and the country has been developing in terms of technology and infrastructure as a result of
it.
India’s Trade Policies
India is a top choice for foreign direct investment but the country has been facing a number
of challenges with regard to its trade policies, economic slowdowns and protectionism. One
area where the country has been facing problems is the decline of its manufacturing sector,
which has resulted in an unsatisfactory experience with Regional Trade Agreements. The
lack of innovation in other sectors, such as textiles, garments and pharmaceuticals has also
been a major factor that has been having an effect on India’s trade policies (PURI, 2017).
The country has also been experiencing a frequent fluctuation in its currency value and Rupee
touched down to its lowest level against US dollar in the last quarter of 2018. Some sources
have also concluded Rupee as the worst performing Asian currency. To deal with the
country’s currency downfall, the government has also started ‘Make In India’ campaign,
which is aimed at promoting the manufacturing in the country and restricting import of
foreign goods. ‘Make In India’ policy has been having a great impact on Foreign Direct
Investments and trade policies of the country. The Department of Commerce in India has also
strengthen its export policies recently and has included some new items under the
Merchandise Exports from India Scheme to promote manufacturing and export in India
(IBEF, 2018).

Existing Levels Of Foreign Direct Investment
India has been a choice for Foreign Direct Investment for many business organisations since
many years, which can be understood from the fact that the level of FDI in the country was
found to be around USD 62 billion during 2017-2018. Within four years of the Modi
government alone, the level of FDI increased to USD 222.75 billion from USD 152 billion
(PTI, 2018). The first half of 2018 experienced an FDI of around 22 billion USD, according
to a report by the UN. The FDI was experienced in that time when the global FDI was
experiencing a downfall of about 41 percent because of the tax reforms carried out by the
new government of the United States of America (PTI, 2018).
In 2018, India has received the maximum FDI inflows from Singapore, Mauritius, Japan,
Netherlands and United Kingdom. The service sector in India receives maximum FDI from
the United States, which is estimated to be around 2.43 billion USD (IBEF, 2018).
Summary and Recommendations
India offers a lot of business opportunities to multinational organisation, which has been a
prime reason for an increase in foreign direct investment in the country over the past few
years. The political, economic, technological and social factors in India promote foreign
direct investment in the country while the depreciating value of rupee is making investment
easier for NRIs and multinational organisation.
A major point that can be concluded from the above information is that the government of
India is amending its trade policies, which has been having an impact on the products being
imported in India. The government is trying to bring down its imports and increase its
exports. For a company that wants to invest in India, it will be beneficial to setup a
manufacturing unit in the country itself. As the government is restricting imports, a company
operating in the Indian market by exporting products to the country can face difficulties in
carrying out its business smoothly.
Overall, investing in India by establishing manufacturing units in the country can help
business organisations in achieving economies of scale, reducing their overall operational
costs and in becoming more profitable. Availability of a large pool of talented employees can

also help investors in manufacturing high quality products and offering better services to the
customers. Therefore, multinational organisations should look for expansion options in India
before expanding into other countries.

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