Agthia Group PJSC on India Market

Company Overview

Agthia Group PJSC is a food and beverage company, located in the UAE. Its portfolio of brands covers a wide range of high-quality products, which fall into two business divisions: Agri-Business and Consumer Business. The Agri-Business provides 47% of the company’s revenue (Agthia Group PJSC 2017) and includes flour and animal feed. The Consumer Business provides 53% of the profit (Agthia Group PJSC 2017) and includes the following brands: water and beverages (bottled water, juice, etc.); dairy (yogurts); processed food; baked products; and trading items (pure natural food products, Al Ain tissues, and olive oil). Currently, the company operates across several regions: the UAE, GCC, Turkey, and the wider Middle East region.

Purpose of the paper

The purpose of this paper is to create a proposal for Agthia Group to expand its operations further and open a branch in India. For this purpose, we analyzed the Indian market. In particular, we justified the selection of India as a new market for the company’s products. Further, a description of potential risks of market entry, including commercial, cross-cultural, country, and currency risks, was provided. Next, the paper includes an analysis of threats and opportunities, based on the SWOT, PESTEL, and Porter’s Five Forces methods. Because Agthia Group is planning to expand its market to a foreign country, we compared cultural, social, and economic differences between the UAE and India. Hence, based on the conducted investigation, a summary of possible strategies for market entry was included. Finally, the paper outlined the required core competencies and sources of competitive advantage for Agthia Group in the Indian market.

Market Analysis

Nowadays, many multinational businesses started to focus on India as a target for their business expansion. The country’s population accounts to be around 1,339.18 million (World Bank, 2018), making it a comparatively large market for various players. As PWC (2018a) reported, the Indian market is among one of the fastest-growing markets for non-alcoholic beverages. For instance, in 2018 total revenue in the sector of bottled water on the Indian market will amount to approximately US$7,062 million (Statista, 2018a), and it is expected that during the next three years it will grow at the 14% annual rate (Appendix A.1). Overall, the average consumption of bottled water per capita accounted for 17.2 liters (Appendix A.2), which allowed generating $5.2 revenue per person (Statista, 2018a). Regarding the fact that profit and annual growth rates of volume are expected to continuously decrease, stable development is still estimated for this market segment in India.

The growing popularity of bottled water consumption among Indians explains this steady growth. It is rated the 6th most regularly consumed beverage in India (Appendix C). Increased awareness among Indian customers about water-borne diseases can account for such significant growth in the prevalence of bottled water use (PWC, 2018a). Moreover, in urban areas, consumers started to purchase bottled water instead of installing water filters to avoid huge maintenance and upfront investment costs (PWC, 2018a). Generally, the sales potential for bottled water is positive for the Indian market.

Similarly, juices are highly popular among Indians. Notably, while bottled water is considered to be regularly used by 24.1% of customers, juices have almost two times higher popularity, with 47.55% of customers naming it as the most regularly used beverage (Appendix C). In these terms, juices are inferior in usage frequency only to tea (65.79% of customers) and coffee (53.51% of customers) (Appendix C). In addition, changes in customers preferences can explain their increasing popularity, as Indians start to switch from carbonated drinks to juices (PWC, 2018a), which has become a supplement to breakfast in many households. Consequently, it is expected that customers’ preferences will continue to shift to healthier drinks.

Risks

There are several risks, that the Agthia Group leaders should consider while evaluating the company’s expansion in the Indian market. We can divide the major threats associated with the transition to a new market into four types: commercial, cross-culture, country, and currency (financial) risks.

• Commercial risk.

Commercial risks seem to be significant for companies, planning to expand their businesses to India. Firstly, the company can lose talents, since Indian professionals usually perceive their job with a short-term outlook. Therefore, employee turnover is high, especially among young workers (Gupta & Bhaskar, 2016). Such a situation is based on the explosive country’s growth, which provides multiple opportunities for professionals. As the result, it is common for Indians to leave their company after less than a year to look for opportunities in another one.

• Cross-culture risk.

The main feature of India as a market is that it is extremely diverse at national level. There are significant differences among Indian citizens just within two hours of flying time. For instance, in India there are thousands of local languages (Gupta & Bhaskar, 2016), which clearly describes the cultural variety of this country. Therefore, in order to succeed on this market, international businesses are required to consider its different cultures and sub-cultures when developing its HR, supply, marketing policies, and so on.

• Country risk.

There is a comparatively low country risk for foreign businesses working in India because nowadays India is characterized as a stable democracy and there is no potential of political instability. Even in the case of changes of the leader or ruling party, it can be expected that the majority of current regulations and laws will be continuously maintained. However, application of new policies can be conducted without consulting with business representatives, which makes it inconsistent and non-transparent. Moreover, pressure from public interest groups in India may affect political decisions, which in turn could influence international businesses.

The next country risk is related with high levels of corruption and bureaucracy in India. Corruption is presented at all government levels (Gupta & Bhaskar, 2016), and serves as a source of creating protectionist policies and bureaucracy. In particular, companies planning to import or export to India face several hurdles with the approval process. Thereby, corruption creates multiple barriers for businesses planning to launch in India.

• Currency (financial) risk.

Indian rupee is sliding down together with other currencies of emerging markets. As Iyengarish (2018) reported, due to a 13% of loss in its value against US dollar, it can be considered as vulnerable and one of the world’s worst performing currencies. In the case of Agthia Group, a weaker national currency will make its imported goods more expensive for local citizens. The volatile currency also creates significant financial risks, since it could potentially result in a national economy break, which would harm Agthia Group's revenues.

International and Local Environmental Analysis

In order to assess international and local environment properly, SWOT, PESTLE and Porter’s Five Forces methods were applied to Indian market.

SWOT analysis

1. Strengths. The main advantage of Agthia Group is its significant experience in the Food and Beverage market. During a long period of its history, the company was able to acquire a significant amount of working practices, which it can implement in the new market. Besides, it has a strong innovativeness base that marketers could use to develop new products, strategically focused on the local market.
2. Weaknesses. However, the company also has some weaknesses, mainly related to the total absence of experience in doing business in India. Although Agthia Group already supplies products to several international markets, India is new to the company. This factor will definitely lower its competitive advantages, when it will start its expansion.
3. Opportunities. Nowadays, Indian market is attractive for international businesses due to several factors. Firstly, demand for bottled water is growing, and it is expected that in 2021 its annual growth rate will reach 8.1% (Appendix A.3). It should be noted that the rates will start decreasing slightly during the next years, while the overall demand will continue increasing (Appendix A.3). Growing opportunities for bottled water producers are based on contamination of water bodies in India, which resulted in a shortage of drinking water supply. In order to respond to this issue, Indians started to use mainly bottled water or install water filters at their homes, especially in urban areas. However, water filters installation has comparatively high costs. Hence, the popularity of bottled water in India is increasing, thereby providing opportunities for new market players.

Secondly, changing customers’ preferences and patterns create possibilities for selling juices and vitamin drinks. As PWC (2018a) estimates, carbonated beverages will lose their market share due to the rising popularity of healthier drinks (Appendix B). It is predicted that Indians will start consuming more juices and flavored vitamin water (PWC, 2018a), since these products claim to contain vitamins and minerals to keep a person healthy.

Thirdly, lucrative business opportunities in India relate to the increased quality of its workforce and growing middle class. The research of McKinsey Global Institute, estimating that by 2025 there will be 69 cities in India with the population more than one million, provided evidence to this (Kaka & Madgavkar, 2016). Such rapid development of urban population will require infrastructure improvements, which will also stimulate India’s move to the middle-income nations (Kaka & Madgavkar, 2016). Moreover, rising disposable income also provides sufficient opportunities for businesses introducing new products to Indian customers. Therefore, continuous urban population growth will require companies to sustain the quality of their livelihood.

Threats. Although the possibilities for Agthia Group expansion on India market look vast, many challenges remain prevalent. Further, the company will face significant competition on the well-developed food and beverage market. Indian market is presented both by well-established international corporations, such as Coca Cola and PepsiCo, and famous local companies, such as Dabur and Parle. Together, these companies account for 72% of juices market (PWC, 2018a). Other domestic enterprises also pose a threat, since they are able to understand market preferences, deal with government and local authorities, and identify opportunities and threats of local market better.

In particular, there is a diverse social and demographic structure in terms of religions, cultures, and languages. For instance, there is a high number of different local languages, dialects, and subcultures. Hence, the company’s leaders should consider new HRM strategies, suppliers’ relationships, and marketing campaigns more critically. Finally, there is a low development level of relationships between businesses and governmental institutions. Thecountry ranks 77 across 190 economies by the ease of doing business with 67.23% of total rank, with the average region rank of 56.71% (World Bank Group, 2018). Significant bureaucracy barriers to registering property and enforcing contracts can explain a low rank of the ease of doing business (World Bank Group, 2018). There are a significant number of procedures, time, cost and paid-in minimum capital requirements. Therefore, a significant threat to Agthia Group's business development in India is related to high corruption levels at all government levels. Corruption pervades multiple aspects of daily life in India and creates hindrances to efficient development of private sector.

PESTLE analysis

• Political factors. Political climate in India remains stable. The government declares openness to foreign markets and invites international companies to start doing business in the country. The fact that they create new working places and increase tax volume stimulates such positive relation to foreign enterprises. However, high pressure of corruption and bureaucracy on business causes barriers to creating new companies.
• Economic factors. India’s GDP is one of the largest in the world, accounting for more than $2,600 million (Countryeconomy.Com, 2018). Its economic growth is steady, estimated for almost 7.7% in 2019 (Countryeconomy.Com, 2018). Strong household demand and investment activity of private businesses support significant economic development.
• Social factors. Indian population constitutes 1,339.18 million (World Bank, 2018) and is culturally diverse. There are 22 official languages and numerous local dialects. Moreover, there is also religious diversity of Indians, and predominant religions are Hinduism, Jainism, Sikhism, and Buddhism. Besides, growing middle class that provides opportunities for consumption, education of the young, forming well-developed talented workforce, represents Indian social structure.
• Technological factors. Indian market is characterized by constant development of the IT sector. In particular, there are significant improvements in mobile and internet ordering platforms, wider Internet access, and the appearance of innovative digital technologies. In their turn, the achievements of IT can be used in marketing campaigns, product development processes, communication, talent attraction, etc.
• Legal factors. Indian legislation system undergoes severe changes in the areas of minimum wage increase and new requirements regarding employment of people with disabilities. Further, the Indian Government has implemented initiative “Make in India’, focused on enhancing innovative development of cities. This program focuses on developing knowledge infrastructure for “Smart Cities and stimulating clean technologies for protecting environment.
• Environmental factors. India is located in South Asia, which has warm climate. Thus, constant hot weather stimulates strong demand for cold beverages, such as water and juices. However, since India covers large geographical areas, its climate varies by region. While choosing potential local markets, the Agthia Group managers should consider these differences and provide appropriate products to customers. Moreover, significant water pollution increases the demand for bottled water. The company should also investigate this factor before the market penetration.

Porter’s Five Forces

The bargaining power of suppliers is medium in the Indian market. On the one hand, there is a high dependency on agriculture for raw materials, and on the other, there is high supply level both from local and foreign manufacturers. Next, the bargaining power of buyers remains high, since they are able to choose from a multiple variety of brands and easily turn to another company. The threat of substitutes is medium, because there is a small probability of replacing Food and Beverage industry, even if some trends might occur. Further, the threat of new entrants is neutral due to capital-intensive structure required for this field. Finally, competition is high, because multiple brands exist on the market.

Cultural, Social, and Economic Comparisons

• Cultural

The major similarity between the United Arab Emirates (UAE) and India is that both are located on the Asia continent and have been under the British rule during a certain period of their history. However, considering other aspects of their cultural, social and economic development, these countries appear to be significantly different from each other.

Cultural distinctions mainly concerns varying religions, taught on their territories. There are four major religions in India: Hinduism, Jainism, Sikhism, and Buddhism. Islam is the predominant religion in the UAE, which forms different social structures and traditions for two nations. Hindi is the dominant language in India, with 22 official languages in total, while Arabic is the most spoken language in the UAE. Besides that, cultural differences also are illustrated by food preferences, which are largely determined by the geographical distribution of nations and predominant religions. Nevertheless, coffee and tea are popular between both nations, followed by cold drinks such as juices, milk, water, etc.

• Social

In terms of social characteristics, the UAE and India remain different. The population of the UAE accounts for 9,400 million, while Indian population is more than 1,339 million (Countryeconomy.Com, 2018). Further, citizens of the Emirates live in a more peaceful environment, compared to Indians, since in 2018, the Global Peace Ranking of the UAE was 45, and India 136 (Countryeconomy.Com, 2018). In addition, both countries have significant gender gaps, which is lower in India (87% in contrast to 124% in the UAE) (Countryeconomy.Com, 2018). Indians have higher birth rate – 19.01%, compared with 9.59% in the Emirates (Countryeconomy.Com, 2018). Overall, Indians differ from the citizens of the UAE, which Agthia Group should consider while creating its expansion strategy.

• Economic

Distinctions in economic development between the UAE and India are also significant. In particular, while India’s GDP composes $2,600 million, which is 6.8 times higher than the UAE's GDP, its GDP per capita is almost 20.8 times lower than that of the Emirates ($1,941 versus $40,425) (Countryeconomy.Com, 2018). Moreover, the UAE Government spends a higher share of the country’s budget on healthcare – 8.69%, compared with 5.05% in India (Countryeconomy.Com, 2018). Consequently, the UAE nation lives in better economic conditions than Indians do.

Foreign market entry strategy

Opening a branch in the Indian market is one of the possible market entry strategies for Agthia Group. However, it has its advantages and drawbacks, considered in this analysis. Hence, based on the Indian market examination, an overview of alternative market entry strategies was conducted to discover the most appropriate strategy for Agthia Group. Discussed alternative market entry strategies are export and wholly owned subsidiaries.

• Export

Export is one of the most popular market entry strategies, founded on transferring goods and services across national boundaries. This strategy provides companies with a range of advantages, such as low level of financial risks and economy of scale. Since the physical presence of the company’s facilities is not required abroad, there is no risk of losing control over its subsidiary. Hereby, the company can manage the quality of its products and protect its facilities from any political issues, which might appear in a foreign country. Nonetheless, there are also several drawbacks of using the exporting strategy. When selling its goods abroad, the company will have to communicate with the local foreign agent, and there is a risk that he will not act in its best interest. In addition, significant tariffs and strict regulations may decrease the enterprise’s exporting advantages.

• Wholly Owned Subsidiary

Creating its subsidiary is an alternative to exporting. In this case, Agthia Group will own 100% of new branch stocks, which will provide complete control of its operations. Therefore, by totally owning its new subdivision, the company will be able to oversee its operations and ensure the quality of its products. Moreover, trade barriers, such as import tariffs or other government regulations on importing goods, will not restrict its activities. The company will be able to gain access to local assets, and cut its costs.

At the same time, there are several disadvantages of creating a wholly owned subsidiary in India. The development of a new branch will require Agthia Group to put in large initial investments, which is associated with a risk of loss and failure. Besides, when starting to compete in a local market individually, the company will face commercial barriers, such as corruption, bureaucracy, and HRM issues. These complications are usually greater for foreign businesses than local companies, which are more aware of the strategies to overcome them.

Joint-venture and strategic alliance

Joint-venture and strategic alliances are other alternative solutions to market entry. Similarly, with the wholly owned subsidiary, the company will succeed in avoiding trade barriers and import restrictions. Unlike the case of a wholly owned subsidiary, the company will share its responsibilities and control with other company/companies. A strategic alliance assumes that Agthia Group will sign an agreement with another firm to combine their value chains. On the other hand, a joint venture is shared ownership with the local company, which will allow the company to overcome local challenges, related to opening a new business, i.e. political or economic issues, efficiently. From its side, the corporation could provide financial resources, while the local company could offer its experience and human sources. Since the extension of its business to India requires a high degree of local adaptation, this approach seems to be the most effective for the Agthia Group's market development.

However, the company still faces a risk of developing tensions and conflicts with the local partner. For instance, it might lose its technologies or patented products. Thereby, by choosing this option, Agthia Group’s leaders should properly consider the business image of their potential partner and thoroughly plan their future relationships.

Required Core Competencies and Sources of Competitive Advantage in the Foreign Market

To succeed in a new market, Agthia Group should properly use its core competencies and sources of competitive advantages. Thus, its long history of doing business can be considered it's core asset. The company was established in 1978 as a Flour Mills and Animal Feed Company, and in 1990, it started to manufacture bottled water (Agthia Group, 2017). Overall, it operated for more than 28 years on the market bottled water, and its employees have the necessary experience to analyze market opportunities and threats. In addition, the company has the expertise of doing business abroad as it already operates in GCC, Turkey, and the wider Middle East region. Therefore, its core competency of long history is one of the sources of competitive advantage.

Another core competency is the company’s innovativeness. Agthia Group has a well-performed innovative product – Al Ain ZERO, which was developed by its specialists. This product has already gained strong performance across the company’s current markets (Agthia Group, 2017) and can be used for market expansion. Its focus on development will serve as an advantage in the Indian market.

Conclusion

Consequently, the Indian food and beverage industry have strong growth potential for Agthia Group. Multiple researchers provide evidence of the sustainable increase in consumption, which is especially illustrated by the increase in water and juice popularity. Growing awareness of water-borne diseases and turning to healthier consumption can explain a significant shift in customers’ preferences.

Among the alternative strategies to market entry, we recommend using the following. Firstly, the company could expand in the Indian market by exporting goods to its biggest cities. This step will allow the company to more closely discover customers’ preferences and examine their attitudes to the company’s products. Besides that, this will allow decreasing local political and economic risks due to collaboration with a local company. At this stage, the company’s marketers will be able to evaluate market reaction to its products and decide whether any changes to its marketing campaign are required. However, this strategy also provides several risks to the Agthia Group, which its leaders should consider.

Further, in the case of positive results, the Agthia Group could consider developing a joint venture or even a wholly owned subsidiary. A joint venture can be created if several concerns appear to the company in the process of doing business in India. After a certain period of working at a joint venture, the managers will become more aware of the specifics of doing business in India, and Agthia Group can consider developing a wholly owned subsidiary, opening a new branch, or purchasing the remaining shares of the previously created joint venture to become a 100% owner. Hereby, the company will be able to decrease the potential risks of entering a new unknown market and increase the probability of success.

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