Analyzing the International Business Environment in India

This report examines the business environment in India and analyzes the opportunities for international companies. It includes a PESTLE analysis, Porter's five forces model, and strategies for entering the Indian market.

INTERNATIONAL BUSINESS
ENVIRONMENT

Contents
Introduction...........................................................................................................................................3
Aalst......................................................................................................................................................3
Industry Outlook in India......................................................................................................................4
Pestle Analysis......................................................................................................................................5
Five Porter`s forces model.....................................................................................................................9
International strategy to enter the country...........................................................................................12
Conclusion...........................................................................................................................................14
References...........................................................................................................................................15

Introduction
This report brings out a discussion on analysing and examining most appropriate models in
order to identify the scope of the business in India. This report carries out a model
frameworks such as PESTLE analysis, SWOT analysis, internationalisation strategy, and
Porter`s five forces model to examine the business environment of India to decide whether
there is an opportunity to invest and earn higher profitability. Further, it will decide modes of
entry such as wholly subsidised, partially subsidised, joint ventures, acquisition, FDI,
licensing, franchising, or exporting as an entry proposal. Recent reports of US reveals that US
chocolate company “Hershey” while entering into the Indian market, it is not about worrying
because in order to expand a brand to build brand and wide network of distribution channel as
needed by it.
Aalst
Aalst is the manufacturer of chocolates, compounds, gourmet, and other related products,
which was established I n Singapore in 2003. The company operates with a global network of
nearly 45 countries such as china, UK, and Middle East (Aalst chocolate, 2019). The owners
of the company named as Richard and Connie who aimed to bring their resources,
capabilities, and experience that they have received after working in the food and service
industry. The mission of the company to deliver the quality chocolate, which makes it to
stand out and finally contribute to market success (Aalst chocolate, 2019). The company has
doubled its production facilities accomplished with formalised and efficient processes and
continuously investing in the greater resources. The company offers wide range of products
for chocolates, biscuits, ice cream, semi-finished compounds, and chocolate compounds. The
company operates and distributes certain brands such as Cocao ivory, Aalst Chocolate, Aalst
home, louella, and Patissier (Aalst chocolate, 2019).

Industry Outlook in India
From the recent reports, it has been seen that Indian chocolate market is experiencing
tremendous hike and growth of value and volume. This governance of market has been
maintained by large chocolate international giants with the help of expansion and franchisee
in the market like India (Kaul, 2019). Therefore, India has become a market of great
opportunity and it is expected that it will grow at the healthier rate for the next upcoming
years. After seeing at the chocolate industry, developing countries remained successful
markets, as they are the main growth drivers and promoters in the emerging countries.
Increasing liberalisation and urbanisation, availability of confectionary items and other
related products remained other key market booster (Kaul, 2019). It is expected that the sale
of seasonal and holiday chocolate are estimated to pace up in the upcoming years. It is
enriched with suppression of the blood pressure. While viewing the market future it is seen
that Indian consumers are estimated to consume 228 thousand tons of chocolate in 2016,
which reflects customer`s preference towards the chocolate based snacks and customer`s will
towards spending for the premium confessionary (Kaul, 2019).

(Source: Thomas, 2017)
Pestle Analysis
Progression in the company depends on various multifarious factors, which have direct and
apparent impact on whole functioning of the company. It is important some of the key points
in these factors such as social, political, technological, legal, environmental factors, and
economic factors (How and What, 2019).
Political factors- at the same time, India provides and grants legal assistance and financial
remittance if the industry is evergreen and will earn ample profit margin with higher initial
investments.
Stability- India has stable political and support foreign direct investments but at the same
time, it becomes instable during elections that held in 2019 and other scandals (How and
What, 2019).

Laws and regulations- it is important to make up as per the changes in the laws especially
considering the international trade and other food labelling which affect chocolate industry.
Awareness regarding the Food safety act will assist the industry to sustain in the emerging
market. Manufacturer ensures that they are abiding to production standards (How and What,
2019).
For instance- they do not employ children and pay below the minimum rate system to any of
the employee. Political culture of tolerance serves to maintain a stable political environment
that helps to attract FDI (Foreign Direct Investment). One of the major concern is corruption
in India, which pose a challenge for the economic growth. It increases the cost of business
operations, which affect FDI (How and What, 2019).
Social factors- There is a greater consumption of urban people who are aware and more
conscious regarding the chocolate brands. There is a set of common chocolates, which
dominate the entire consumption. Premium offerings have become a trend for the urban
market. From all the identified chocolates named as White, Dark, and Milk. In the Indian
market, chocolate has gained more popularity due to greater health benefits, preferences of
the consumers that has slowly getting accustomed to the taste of dark chocolates (Subhashini,
Radhakrishnan, Ramesh, Valavan, and Karunakaran, 2018).
The country owns an entire population nearly 1.2 billion that is a huge market and
opportunity for the MNCs. It is undoubted that companies wants to operate in India because
of cheap labour and force and it is estimated to reach 170 million by 2020. Affordability and
accessibility among the labour force encouraged several MNCs in order to outsource
organisation’s response for operating in India (Businesswire, 2018). Standard of living has
been improving with good disposable income due to increasing population of middle class.
As per the World bank reports, it is seen that in India, one in every five people in India are

estimated to be poor (Subhashini, Radhakrishnan, Ramesh, Valavan, and Karunakaran,
2018).
Geographically, increasing health consciousness due to increasing rate of obesity in North
Indian places, where it is seen that beverage, bakery and food manufacturers experience huge
demand in terms sugar free industrial chocolate and organic items with a trend “skinny is
beautiful” rather than following the conventional demand for the chocolates. There is a
significant rise in the number of cafes, and bakeries that can open large scope for the
company to manufacturer new and designed products (Businesswire, 2018).
Technological factors- India has the potential to provide advanced technology with well-
equipped factories, which promotes the production of huge goods with higher quality. For
this industry, appearance of the product matters a lot so it is important to have different
colourful and glittering packaging styles for their products (Rastogi, and Trivedi, 2016).
Media provides a platform for the advertisement such as television, radio, and social media
that enables cheap advertisement. Internet is a great platform to sell goods and advertise them
as it provides access to millennial and other larger consumer groups (Rastogi, and Trivedi,
2016).
Packaging with the help of digital designing has led to severe changes in the packaging
procedure for the last few years beginning from emergence of new brew machines to cocoa
gains and blend coffee (Rastogi, and Trivedi, 2016). Recent development in technology in
India is inclusive of use of pathogen examining system and the filing of testing systems and
patents for the heat resistant chocolate. These positive changes in the technological factors in
India can become an opportunity for the chocolate manufacturers (Rastogi, and Trivedi,
2016).

Economic factors- The increasing disposable income of the middle class people will affected
the demand of the chocolate consumption in India. It is important to know that the
consumption is not only limited to the extent of the luxurious option but it has become crucial
part of gifting on occasions, and casual snacking. As per the IMF, forecasting reports in 2018,
it is seen that it earns a GDP of $2.4 trillion, which declares it as the seventh largest
economy. It is expected that GDP increases at the rate of 7 percent and it will pace up to 7.4
percent by 2020 (Businesswire, 2018). Corporate taxation is nearly 30 percent. Moreover, it
keep changing the current corporate tax due to inflation. It is the seventh largest producer of
coffee. The company can innovative a coffee flavoured chocolate due to easy accessibility
(Barba, Sanchez, Segui, Darabkhani, and Anthony, 2016).
(Source: Businesswire, 2018)

Huge consumer spending with low interest rates eventually encourage the launching of new
product. With the emergence of creativity in confectionary items at high pace, it is seen that
there are a lot of uncovered segment, which will require suitable strategic approaches (Barba,
Sanchez, Segui, Darabkhani, and Anthony, 2016).
(Source: Businesswire, 2018)
Environmental factors- this factor affects the cultivation of raw material. For example- milk
sweets and nuts are topped with the toppings of fine chocolate. Some of the truffle sweets are
filled with dry fruits and other spices rolled in chocolate and nut powder. With the
unexpected deviations in rainfall, it is seen that cocoa crops are more dependent on drip
irrigation and these are more sceptical to water loggings in states like Tamil Nadu and Kerala.
Warm temperature areas have reduced the potion (area), which is most suitable for cocoa
cultivation in Tamil Nadu (Barba, Sanchez, Segui, Darabkhani, and Anthony, 2016).

Five Porter`s forces model
This model provides a deeper insight in regards to several factors affecting organisation’s
growth and structure. Continuous changes in the market structure and share price with the
emergence of several new producers, which demonstrates threat of existing market. In order
to identify the external environment demonstrates bargaining power of suppliers, bargaining
power of customers, threat of existing rivalry, threat of new entrants (Thomas, 2017).
Threat of existing competitors- some of the competitors such as Perfetti, Mars incorporated,
Hershey`s, Nestle, Modelez International, Nutrine, Parle, Ravalgaon, and Ferrero. Moreover,
a giant chocolate and confectionary company “Cadbury” remained a sustainable value as it is
a reputed corporate (Bharucha, 2016). Cadbury emerged as a bigger threat and there is no
question of increasing competition and dispersion for all the new chocolate producers. This
severe competition shows that it is important to analyse the current market so that the
company can spread its competitiveness and add wings to their success. Aalst faces huge
competition from number of rivals especially from the international giants such as nestle,
Hershey`s, Cadbury and Indian local producers such as Amul and Campo (Bharucha, 2016).
It is easy to understand that organisation`s profitability is inversely proportional to intensity
of competition.

(Source: Mordor Intelligence, 2018)
Bargaining power of suppliers-, It is the process and pressure through which a supplier can
impose on several sources for the inputs which are needed to manufacture goods and
services. It is seen that bargaining power of supplier is high in India where large suppliers
dominate the chocolate and confectionary market. The switching cost from one supplier to
another supplier is generally high by forward integration by the suppliers and the buying
industry generally in India has low barriers. Aalst seeks higher quality, excellent services, and
great value from all the related suppliers.
Threat of new entrants- Further, it is important that the company purchase its raw material
from the suppliers that follow ethical sourcing program that always remained an important
element in the procedure of ensuring the production standards at every step of supply chain
(Francis, and Ramalingam, 2019). Aalst can develop a supplier diversity program in order to
improve the supplier`s base to reflect that they can serve market. Aalst can chose to deliver
overall best value consisting of technological foresight, competitive pricing, ongoing several

services of supply chain, customer services excellence with the material standards (Francis,
and Ramalingam, 2019).
Bargaining power of buyers- it is observed that bargaining power of buyers is generally high
as the competition is so high due to numerous manufacturers with large volumes. Moreover,
Indian population has developed their sense of content education on its packaging when they
have knowledge regarding the important potential competitive company and production cost.
Aalst will face serious challenges where it is difficult to position itself among the target
market. The company will have to design overall effective marketing to maintain the market
dominance with the assistance of targeting impulse customers (Francis, and Ramalingam,
2019).
Threat of substitutes- Another threat is the threat of substitution, Aalst has many other
substitutes and competitors that has emerged as general eating habits of the people to take
into consideration. Substitutes can definitely point out sweet dominancy in the Indian market.
Festive season in India is a witness of huge sales of sweets and chocolate products.
Advertisement with a strong market analysis during the peak periods that helped in making
huge profits. It has been noticed that cookies, confections, carob, bakery products, pastries,
and ice cream are found to be a good substitute for the chocolates. With the emergence of
health, conscious, natural products and fruits have been emerging as substitute for chocolates
(Pillai, Dasgupta, Mathur, and Arora, 2015).
International strategy to enter the country
In order to enter the Indian market, the company can choose from several modes of entry in
the country. Modes are exporting, licensing, franchisee, Joint venture, and foreign direct
investment (Mordor Intelligence, 2018). Licensing is a process and a cross border agreement,
which allow company to enter in the targeted country to access rights in order to use the

property of the licensor. For this purpose, licensee will pay fees in exchanging for the specific
rights signed between two parties. It is generally opted as it is less risky and has lower
exposure to political and economic conditions, which has high return on investment as
preferred by efficient local governments (Mordor Intelligence, 2018).
Franchisee is a market strategy when an independent business owner who pays royalties and
fees to the franchiser in order to use the trademark and sell the products. It includes
operations, manual management, equipment, staff training, and the locational approval
(Winkelmeyer, Peyronel, Weiss, and Marangoni, 2016). It is important to consider both
positive and negative aspect of franchising. It is most popular and successful mode for the
entry in another country as it capitalises successful strategy as the franchisee always have
knowledge of local market and also it is less risky as compared to foreign entry modes as
when it is not exposed to risk due to greater knowledge of external environment
(Winkelmeyer, Peyronel, Weiss, and Marangoni, 2016).
Partnering and alliancing strategically often share reduced investment, lower risk seen as the
local entity. The company will incur higher cost as compared to licensing, franchising, and
other issues between the two corporate cultures. It includes strategic alliance with any of the
local partner and it generates common and contractual agreement among two and other more
enterprises while achieving common purpose (Nicholls, Shankland, Spillman, and Elleman,
2018).
Foreign direct investment means establishing a venture with a particular sum of investment in
India. It is an investment in the form of controlling the ownership for a business in one
country on the basis of another country. Greater interest differentiates FDI from the different
investment portfolios where the investors hold number of securities from the outside country.
Several methods for a domestic investor can easily acquire huge voting power in the foreign

organisation. Some of the important examples are acquisition, joint venture, semi subsidiary,
and wholly subsidised for a foreign country (Winkelmeyer, Peyronel, Weiss, and Marangoni,
2016).
Aalst has already expanded in nearly 45 countries with the help of the one of the mode of
entry in their markets. Aalst is now planning to enter in India. For the first few years, the
company can use the mode of exporting by manufacturing chocolates in Singapore and
expanding in India so that it can grab larger market of India and its target market by
positioning itself. After getting considerable acceptance while exporting the chocolates and
winning preferences of the Indian customers, the company can enter into a joint venture
alliance. Through direct exporting goods and services to other overseas market, it can easily
understood as direct sales through which a company can predict potential demand for goods
through distribution to many retail outlets in the overseas market. For exporting, customer
can select foreign representative in the international market. The company can use direct
exporting strategy to examine the products in international market before investing huge sum
of money in the overseas market. This strategy will protect goodwill, trademark, and various
tangible assets of Aalst. After a sum a seven years, the company can think of strategic
alliance and create an agreement between two organisations to enter in the Indian market. A
Joint Venture is an preferred mode of entry for the international business who does not mind
in sharing the knowledge, expertise, and brand. Organisations wish to expand in the Indian
market can take the help of other local confectionary company so that they can become joint
venture partners so that it can share the risk as well as the reward associated with the business
(Nicholls, Shankland, Spillman, and Elleman, 2018). It will advantageous for the organisation
while entering Indian market both partners can take advantage and leverage for expertise in
order to expand and grow in the Indian market. The political expose to risk can be reduced
with the presence of local partner and having knowledge of the local market and its related

business environment. Joint venture agreement enables transfer of technical advancement,
assets, and intellectual properties, knowledge of the market between partnering organisations.
The company have five brands under this wing named Aalst Chocolate that produces 30000
tonnes of chocolates and compounds. The company caters the biscuit, confectionary, and the
ice-cream manufacturers. Having being an export-oriented organisation, Aalst was very much
clear regarding its expansion that includes biggest market such as Japan, US, Thailand and
India. However, the company has expanded with the help Joint venture expanding it from
export-oriented business. The company has been looking for the expansion in two countries
named India and Indonesia. The company has to continue the joint venture project for at least
five years. The company plans to hold 60 percent of the equity capital and investment
whereas 40 percent of the investment holding will be with another company. by taking the
advantage of both the organisation`s potentials, it is quite convincing that the partnership will
create unique chocolates as per the requirements of the Indian population (Chan, 2017).
Conclusion
Form the above discussion, it can be concluded that strategic alliances “Joint Venture” can be
advantageous to Aalst if it utilises the opportunity and advantages of joint venture properly. If
the organisation is not able to grab the opportunity as India provides a favourable platform to
expand in the country. Indian chocolate industry is a tremendous match and mix with the
group of consumption patterns, income level of spending, attitude, and beliefs. It is important
to understand demand of the customers and maintaining same level quality that is quite
essential. Pricing in the Indian market is an essential tool for the company to win and grab the
market. There is a great scope for the growth strategy for the chocolate industry in India with
an extensive offering of product range.

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