Every country is unique in the business opportunities and risks it presents to any organization. In this country report, I will evaluate the Indian market for economic, social, cultural, political and legal risks and opportunities that it could present to Read the World or RTW. Secondary research and literature review are the methods that have been employed to relevant data for the analysis. The paper will conclude with remarks on why RTW will not be able to run successfully in India.
Read the World (RTW) is a multinational organization that aims to combine moderate profitability with education of the poor by supplying low cost educational books and magazine to countries where people can ill afford them. It aims to launch its operations in India, a country known for its high poverty levels. RTW plans of completely producing its product within India and then handing them over to retailers to supply to the consumers.
Despite its plans to minimize costs by using technology to create high quality prints on recycled papers as well as using local man power for production, RTW will face stiff challenges in India, where NGOs providing free educational material find few takers for their products. An in-depth analysis of the market reveals that the toughest hindrances to the success of the organization will come in the form of:
1. Economic Factors and Concepts of Poverty and Education
2. Corruption and Red Tape at all levels.
3. Lack of response from target consumers.
There are several other factors that will have a negative impact on operations and these will be discussed in detail in the analysis.
The results of the analysis reveal that there are far too many risks associated with running a low cost publication house for educational books in India. However, if RTW can execute certain measures, its chances of success may improve to a degree.
1 Economic Factors and Concepts of Poverty and Education
India has been show cased on the international stage as a fast emerging economic power. Although the Indian economy has shown a great deal of improvement over the years, the most important factor that will influence RTW operations is the wide gap between the rich and the poor of the country. With a population of over a billion people, India has a relatively small rich class, a massive middle class and a fairly large number of people living below the poverty line. This is what the records show officially. However, the poverty line itself varies greatly at a national and international level.
As per official 2009 UNICEF statistics, about 42% of the total Indian population lived below the poverty line if it was set at US$ 1.25 per day (UNICEF 2008). However, the Planning Commission of the Government of India defines the poverty line much lower than this. The poverty line varies in each of the states if India. Table 1 shows the poverty lines set by the Planning Commission of India (Planning Commission, 2005)
According to this set of poverty lines, the rural Indian who earns more than 20 cents and the urban Indian who spends more than 40 cents a day is considered to be above the poverty line. This amount is barely enough to buy half a litre of milk and a one piece each of a commonly available fruit and vegetable. If you spend more than that, even on clothing or education or fuel, you cannot be termed as below the poverty line and therefore you are not eligible for BPL-related benefits and subsidies on food, shelter, and medical treatment (Dow Jones Newswire, 2011). From the above mentioned data, it is clear that the target audience of RTW i.e. the poor of a country who cannot afford expensive books, will be difficult to be defined in India. The company will need to strive to keep prices down to a minimum, as a person who cannot afford decent meals in a day will not be interested in spending money to buy books.
The Constitution of independent India states that: the State shall endeavour to provide, within a period of ten years from the commencement of this Constitution, for free and compulsory education for all children until they complete the age of fourteen years (Article 45). Education found a place of importance in almost every 5 year development plan of India since its independence. Yet, there is a great difference in the concept of literacy and education. Someone who has not completed even primary level of education is considered ‘literate’ in India.
From the details given in the above table, it is clear that there is also a great divide between the male and female members of the society who have access to education, although both genders dwindle as the level of education rises. Hence, even if statistics show that a certain number of the populace is educated enough to read books, RTW will need to evaluate whether its target audience is capable enough of making use of its products.
2 Corruption and Red Tape at all levels
If RTW is to successfully run operations in India, it will need to work closely with government agencies for acquiring licenses and permits that will allow them to implement their business plan. However, the Indian government and ministry machine is wrought with corruption and red tape. For example, every Indian state is required to provide certain incentives to motivate parents of poor households to enrol their children for primary education. These incentives include mid-day meals, government sponsored vaccinations, free uniforms and scholarships. However, a study of major states shows that these incentives do not always reach those they are intended for.
In MP and UP, textbooks and uniforms reach the students much more than mid day meals or scholarships; more than 80 percent of students received textbooks and uniforms. A student belonging to SC or ST category in UP received Rupees 229 in scholarship when the entitled amount was Rupees 300 and in MP, a female SC or ST student received Rupees 53 when the entitled amount was Rupees 150 (World Bank, 2008). However, the state of Karnataka fared relatively better with 93% of the incentives actually reaching the student base. There are several such instances of corruption at every level of government agencies. However, the instances of corruption and red tape affecting the educational sector vary from state to state. RTW will need to evaluate which Indian state is least likely to present challenges in the form of corruption and select a target audience accordingly.
3 Lack of response from target consumers
Considering that RTW aims to provide low cost educational books that are aimed at those sections of the Indian society that cannot afford regularly priced books, it is important to know if the said section of the society would be willing to spend on education. Although the government does provide free primary education, this education is provided through the medium of state run schools. The quality of education taught here is quite poor when compared to private run schools. The curriculum is mostly taught in the local language and the English language is not given prominence.
Yet, people realise the importance of fluency in English which is why they prefer to send their children to unregulated private schools, often paying premiums in the form of ‘donations’ to school to enrol their children. The poor quality of state schools and the demand for education in the medium of English have seen an increasing number of low-income parents send their children to unregulated primary schools where they have to pay tuition fees (Nambissan, 2010). Also, text books, uniforms and meals are not provided for free at such institutions and the expense has to be borne by the parents of the pupil. Hence, those members of the target market who are concerned about providing their children with quality education spend a major part of their earning on paying school fees and so may not be able to afford spending on extra books, no matter cheap they are.
Then there are those parents who are interested in educating their children but cannot afford private school which is why their children study at government run schools. Needless to say, this section of the society will not be able to afford to buy books as they are driven to opt for government education as it provides free text books. Below this segment lies that section of the poor class that is simply not interested in educating their children. Most of such households make their living through irregular modes of earning like working as labour at construction sites or as domestic helps. The children of these households are mostly forced into child labour so that the family can afford to feed them. Although there are hundreds of NGOs operating in every state of the country that are aimed at motivating the poorest members of the society to enrol their children for education, the number still remain low with most children dropping out of primary school level within a year of enrolment. RTW will need to closely evaluate its target audience and find means by which it can motivate them to purchase its products.
4 Eye on the Future – an Economic Point of View
It is important the RTW analysis the growth prospects of its offerings in the educational sector of India. It has already been mentioned that India has placed great importance on compulsory primary education in all of its 5 year development plans. The forecasts for the growth of the Indian educational sector are good for the next 10 years. The annual disposable income over US$ 10,000 among households of emerging economies like India is expected to grow exponentially between 2010 and 2020, with 571 million households falling in this category, up from 269 million in 2010. However, a majority of this income is expected to be spent on luxury, leisure and recreation and not education.
In the 10 years from 2010 to 2020, India’s expenditure in this sector is expected to rise by an astounding 100%. It should be noted that India has the lowest per capita spending among all emerging economies at US$690. Comparatively, China has a per capita spending of UD$ 1,399. Companies involved in consumer and leisure related activities are expected the most gains over the next 10 years as the focus of consumers shifts from necessities to luxury goods. The forecasted spending of consumers by the year 2020 is illustrated in Table 3 given below:
On the brighter side, spending on education are expected to grow too, although not as prominently as the leisure and recreation sector. On average the share of education in total spending in EMEs is expected to rise from 3.6% in 2009 to 4.2% in 2020 (Euromonitor, 2010). This slow but steady growth in the educational sector could prove profitable for companies like RTW, who can capitalize on the potential demand for educational resources to drive sales.
After having analysed the findings of the above research, I have the following recommendations to make for RTW to increase its chances of success in the Indian market:
a) The company will need to conduct an in-depth analysis of the demographics of each state in India. Considering the vast geography of the country, the target market and the potential it holds for the company’s business will vary greatly from state to state. There will also be a great difference in the level of interest in its product in rural and urban areas. It is recommended that RTW begin its operations at a small scale in urban cities in states that have moderate to high levels of education. The company can then move on to areas where there is scope for growth with minimum risks.
b) The company will also need to analyse the level of corruption and red tape prevalent in each state that it seeks to target. These factors can cause major hindrances to the company, all the way from registration to its day to day operations. It is recommended that the company select a state that shows leniency towards education related businesses.
c) Instead of marketing its products solely through re-seller and retailers, it is recommended that RTW approaches prominent educational NGOs in the country to purchase their products. Such organizations are more likely to be interested in low cost, high quality educational books and magazines than the common retailer. Retailers will also seek to maximize profits by selling the books at a premium which RTW will not be able to control. NGOs have several rebates from the government and can hence use or sell the products at low rates or even at cost price, improving chances of higher sales volumes.
d) RTW can also partner with NGOs to promote their products and motivate their target market to make purchases. This will save RTW costs in marketing as well as research related expenses as the NGOs will already have the knowhow and experience of promoting such products for education.
The annual purchasing power of the Indian populace is expected to grow greatly over the next 10 years but most of this amount will be spent on luxury commodities rather than education. Although India is a fast developing country with a massive population, it presents very solid challenges to the success of an organization like RTW. The most prominent of these are the incidence of poverty across a majority of the population with over 660 million people living below the poverty line, the high rate of corruption and red tape prevalent in government agencies that have the potential of derailing the operations of RTW and, finally, the lack of motivation among target audiences to actually spend on buying educational books when they are being offered free text books by the government. In the face of these challenges, RTW will firstly need to carefully select the state in which to launch its operations. This decision should be made after analyzing the literacy level of the state as well as its attitude towards education related social businesses. The company can also maximize its chances of success by partnering with leading educational NGOs instead of relying entirely on re-sellers and retailers. By balancing its risks and opportunities well, RTW may find gradual success in the volatile Indian education market.
UNICEF, 2008, India Statistics. [online] Available at: < http://www.unicef.org/infobycountry/india_statistics.html> [Accessed 29 May 2011].
Planning Commission, 2005, GOVERNMENT OF INDIA PRESS INFORMATION BUREAU - POVERTY ESTIMATES FOR 2004-05. [online] Available at: < http://www.planningcommission.gov.in/news/prmar07.pdf> [Accessed 29 May 2011]
Dow Jones Newswire, 2011, WSJ BLOG/India Real Time: India Journal: Playing with Poverty Statistics . [online] Available at: < http://global.factiva.com.ezproxy2.library.usyd.edu.au/aa/?ref=DJI0000020110517e75h0007e&pp=1&fcpil=en&napc=S&sa_from= > [Accessed 29 May 2011]
Government of India, 1950, Constitution of India. New Delhi.
UGC, 2003, Selected Educational Statistics 2001 – 2002, New Delhi
World Bank, 2008, Community Participation in Public Schools - The Impact of Information Campaigns in Three Indian States. [online] Available at < http://ddp-ext.worldbank.org/EdStats/INDimp08.pdf> [Accessed 31 May 2011]
Nambissan, Geetha, 2010, Juornal of Education Policy: The global economic crisis, poverty and education: a perspective from India. [online] Available at: < http://www.informaworld.com.ezproxy2.library.usyd.edu.au/smpp/section?content=a929795247&fulltext=713240928> [Accessed 31 May 2011]
Euromonitor, 2010, Emerging Focus: Spending power in emerging market economies grows rapidly. [online] Available at: < http://www.portal.euromonitor.com.ezproxy1.library.usyd.edu.au/Portal/Pages/Search/SearchResultsList.aspx > [Accessed 31 May 2011]