Kids’ Eats needs to decide about investing in India or China in order to expand the growth. The aim of this report is to analyze the potential risk and opportunities that India and China offer and suggest the best and most suitable destination for the company. In order to do the political, economic, and social risk as well as opportunities such as the demographic, the market size of the food industry, lifestyle, and eating habits are being discussed in detail. The findings Kids’ Eats will be better off it decides to enter the Indian food market since the demand for the good is higher and the market is still not fully captured. The rising importance of healthy eating in the Indian market along with it, India provides with more working-age population and a larger consumer base. Also, the suitable way of entering the Indian market will be a Joint venture. Although further research needs to be done so as to consider which organization to form Joint Venture with.
Table of Contents
Ease of doing business.
Bribery and corruption risk.
Foreign Direct Investment
Food Industry in China.
Food Industry in India.
Modes of entry in India.
A healthy diet is important to safeguard against malnutrition and other diseases such as diabetes, stroke, heart diseases, and cancer. The food habits are influenced by income, prices, availability, culture, geographical as well as environmental changes (WHO 2020). With increased awareness about eating healthy food, people are switching to wholesome food, as a result, the demand for these food items is augmenting. However, there are various social and economic factors that impact the availability of wholesome foods. India and China both the countries are emerging market economies; there are untapped markets in both countries. These two countries are experiencing high economic growth as a result both these markets have the potential to sustain growth in business (Paul & Mas 2016).
India and China, both the countries provide opportunities for growth to Kids’ Eats, however, there is risk involved. The organization needs to decide one country. The aim of this paper is to analyses the risk and opportunities in both the countries and then based on the findings indicate which will country will be more suitable to enter. Furthermore, the proposed entry for the selected country is provided in detail.
According to Marsh and McLennan (2020), findings, India’s short term political index score was 77.7 in 2018, reduced to 75 in 2019, and expected to fall to 67.6 in 2020. The fall in the short term political risk can be attributed to the removal of special rights of Jammu and Kashmir in 2019 which might raise tension between India and Pakistan. Although the long term political index score is 73.4 is an average score since there is a rise in geopolitical competition with China (Marsh & McLennan 2020).
According to Marsh and McLennan (2020), in the year 2020, China is expected to face higher political risks. The short term political risk index score was 74.4 in 2018 rose to 77.3 in 2019 and is expected to fall to 73.3 in 2020. The fall in the score can be attributed to the Hong Kong crisis, rising US-China tensions, and the conflicts with Taiwan. However, the long-term political risk index score is 66.4. This is because of rising fluctuations over the evolution of the political system of China along with socio-economic inequalities that are rising in the country (Marsh & McLennan 2020).
According to Central Intelligence Agency reports (n.d.), China tops the list for Gross Domestic Product (GDP) (Purchasing power parity) with $25,360,000,000,000 while India is on the third position China $9,474,000,000,000. The real GDP growth rate was 6.90 in 2017 for China and India it was 6.70%. GDP per capita is a more suitable indicator to measure the purchasing power of people as compared to the GDP. In the year 2018, the GDP per capita of China was $18,200 while for India it was $7,200 (Central Intelligence Agency reports n.d.).
Economic freedom is associated with the independence to work, manufacture, consume as well as invest as per the desire of the individuals or organization. Higher economic freedom allows higher liberty to the movement of capital, labor as well as goods (Heritage n.d.). Moreover, more economic freedman is linked with better societies, higher per capita wealth, democracy, a cleaner environment, and poverty reduction. The economic freedom report includes factors namely; Financial freedom, Monetary freedom, investment freedom, labor freedom, Business freedom, Trade freedom, fiscal health, property rights, Judicial effectiveness and Tax burden, and government spending (Heritage n.d.).
According to the 2020 Index of economic freedom report by Heritage, India ranks 120 in economic freedom while China rank is 103. This suggests that China is more economic freedom. India ranks higher in property rights, government integrity, tax burden, monetary freedom, government spending, trade freedom, and financial freedom will in other categories China ranks higher (Appendix, Table 1).
The ease of doing business (World Bank 2020) comprises all those elements that affect the opening up of a business in the economy to operating in a safe working environment (World Bank 2020). The purpose is to examine the regulation that supports efficiency and promotes flexibility and freedom to do business. It is calculated by taking into consideration the factors such as starting a business, recruitment of employees, managing the construction permits, electricity, registration if the property, accessibility to credit, safeguarding the investors who are minor, taxation, trading domestically as well as across borders, dealing with the government, establish contacts and resolving of solvency (World Bank 2020). India ranks 63 of the 190 countries while China ranks 31 of the 190 countries. China is highly effective in trading across borders as compared to India (World Bank 2020).
India is making huge progress in the ease of doing business from 130th rank in 2016 to attaining 63rd rank in 2020, this is the result of the growing emphasis on setting up of initiatives such as Make In India which aimed to increase the foreign investment, stimulating the manufacturing sector and improving the overall competitiveness of India (World Bank 2020). China is also working on issues such as construction permits, electricity, and insolvency to further push its position upwards (World Bank 2020).
Bribery and corruption hinder the development of a nation. Bribery negatively impacts the productivity of the organization. Moreover, bribery tends to impact smaller and older firms highly and less on larger and younger firms (Jain 2020). Corruption hampers the allocation of resources, results in rising prices (indirectly), and hinders FDI inflows in the country. Corruption has impacted the inflow in India and not China (Ravi 2015). According to the bribery risk matrix (2019), China ranked 134 in 2019 while India ranks 78.
China has the highest labor force which was 806,700,000 in 2017 while India follows China with 521,900,000 people in the labor force as in 2017. As of 2017, the unemployment rate in India was 8.50% while for China it was 3.90%. The population growth rate of China is 0.32% while for India is 1.10% for 2020 (Central Intelligence Agency reports n.d.). India is expected to outpace China in terms of being the most populated country by 2024, the working-age population will rise which will constitute 64% of the total population by 2026 (Ministry of Food Processing Industries 2017).
China was able to attract Foreign Direct Investment (FDI) while India could not is due to the nature of corruption in these countries. When entering these two countries for the business pervasiveness of corruption as well as arbitrariness of corruption needs to be considered. In China corruption is found to be pervasive but the arbitrariness is low while in India arbitrariness was found to be substantially high (Ravi 2015).
The major advantage with China is that the government has intrinsic control over the allocation of resources and has a discipline to its economic planning (Department of Foreign Affairs and Trade, Australia 2018). China has transformed itself in the last few decades as a consequence the lifestyle has changed owing to an increased level of urbanization, rise in income, the emergence of convenience stores, supermarkets, and hypermarkets, this has in turn transformed the Chinese food system and altered the supply of food. The interesting characteristic of the Chinese food market is the introduction of new food products in the market. Moreover, the consumption pattern has been shifting towards products like meat, edible oil, dairy, and fruits and vegetables (Costa-Font & Revoredo-Giha 2019). Although the large population of China is undernourished but the obesity rates are high. The obesity rate in India in the year 2016 was 3.90% while in China it was 6.20% in 2016 (Central Intelligence Agency n.d.).The rising obesity is a cause of concern as a result the shift is towards food safety rather than food supply. The inefficiency of organizations to comply with food standards has resulted in many food safety scandals over the last few years. Snacks and bakery us the leading category in the Chinese retail market, little is associated with healthy eating (Costa-Font & Revoredo-Giha 2019). The food categories that are more associated with health and nutritional values pertain to baby food, fruit and vegetables, and ready to drink market (Costa-Font & Revoredo-Giha 2019) The focus on initial players is on differential the safe and natural products to capture the consumer trust, they are not focusing on the improving the Chinese diet with health alternatives (Costa-Font & Revoredo-Giha 2019)
The advantage with India is demographics, a long entrepreneurial tradition, increasing consumer class, a higher scope for improvements in productivity, and rising business confidence in the monetary and financial markets (Department of Foreign Affairs and Trade, Australia 2018). Moreover, the drivers of Indian growth are structured as well as sustainable. The economy is moving from rural population to urbanization as well as transformation from informal to the formal sector (Department of Foreign Affairs and Trade, Australia 2018)
The cultural factors, as well as eating habits, causes weight issues in India, however, there is a transition in consumer taste and preferences this can be attributed to growing urbanization, increasing disposable income, ingenious advertisements, expanding supermarkets, and e-commerce (Ministry of Food Processing Industries 2017). As a result, there is immense scope for the healthy food market in India. Moreover, Indians are ready to pay higher for healthy food. The organic packaged for the market in India rose 17% in 2016. The expected rise in this segment is 10% for 2016-21 (Ministry of Food Processing Industries 2017). There has been a rise in the demand for naturally healthy beverages organic food, dairy, breakfast cereals among children as well as adults. Consumers are known for demanding high-value goods for self-managing health and wellness. The rising awareness about healthy food and beverages is pushing the demand upwards for this category as diseases like hypertension and diabetes are witnessing exponential growth.
Consumption of breakfast cereal is high in China as compared to India, this indicates that this market has the potential to grow in India; moreover, the growing CAGR for savory snacks as compared to China makes its critical market for doing business. The naturally healthy beverages recorded a growth of 22% in India in 2016 while for China it was below 10% (Ministry of Food Processing Industries 2017).
Kids’ Eats should enter India because of better economic relationships between India and Australia. The major advantage in India is by 2025, it is expected that one-fifth of the world’s working-age population will be Indian. Moreover, the expected rise in internet users will be 850 million in India by 2030 (Department of Foreign Affairs and Trade, Australia 2018). Over the years, Australia and Indian bilateral trade has risen which establishes a strong link, The annual demand for food in India is anticipated to rise by 2% to 3% until 2025, moreover the demand will exceed the supply (Department of Foreign Affairs and Trade, Australia 2018). The rise in demand for food can be attributed to a surge in consumers, modification in diets, and a rising preference for higher-value products. These include proteins, fruits, and wholesome foods, dairy, and high-end products (Department of Foreign Affairs and Trade, Australia 2018).
There are 7 recognized ways of entering international business namely; Direct exporting, Indirect exporting, Licensing, Franchising, Joint ventures, Direct Investment, and Global Web Strategy (Kumar 2016).
Kids’ Eats wants to capture the market of wholesome food in India, the main objective of the firm is to increase the awareness about healthy eating and sell the wholesome foods in India. The joint venture will be the most appropriate market strategy to enter the Indian market for food, it can do so by forming an alliance with the Indian company that deals in wholesome food but is not operating at a very large scale so that foreign investment can be a win-win situation for both the companies. The existing local company can provide knowledge of the local markets, the distribution channel required to enter the market, provide information, and make access to local suppliers easier. Furthermore, the local company can provide Kids’ Eats with the requisite information about the accessibility to raw material, how to produce locally where to set up the production plant, and government contracts.
An International Joint venture is a sort of international strategic alliance, in this type of alliance the company can enter the domestic market by forming a partnership and the ownership is shared by the parent company and the other company (Mittal 2018). There can be two types of joint ventures namely Equity and contractual joint venture. For Kids eats' the contractual joint venture will be more suitable as a new joint enterprise is established. The two firms join hands to form a partnership and can share the cost, profits as well as risk (Kumar 2016). Moreover, the joint venture will reduce the investment that is required by the Kids’ Eats since the investment is shared. The joint venture reduces the level of political as well as an economic risk by forming a joint venture with an Indian local company the credibility will be strengthened, it can form new networks and supports the legal and regulatory requirements (Mittal 2018).
Further research needs to be undertaken so as to see which company Kids' Eats should form a joint venture with. The performance of the local companies needs to be analyzed and the selection will be made accordingly. Once the company is chosen, the company needs to sign a memorandum of understanding to clearly define the ownership rights, the management of profits and losses, management of resources, and the administration of the organization. The memorandum should include details of applicable laws, management committee, and transfer of shares, dividend policy, confidentiality, indemnity, and others (Shishido, Umetani & Fukuda 2015). All the terms and conditions need to be discussed and signed in advance so there is no conflict in the future (Shishido, Umetani & Fukuda 2015).
The increased awareness about living a healthy lifestyle has increased the demand for wholesome food. People are now buying more goods that have good nutritional value in order to stay healthy and fit. India and China are potential markets as they are witnessing huge growth in the market and the healthy food market has still not developed completely. When investing in any country Kids’ Eats needs to take into consideration the risk as well as the opportunities. India’s long term political risk is low as compared to China, however, considering the economic freedom China offers better opportunities. In addition to this, China witnessing more growth in GDP as compared to India. When considering the opportunities, India is more favorable in terms of demographic structure and the potential consumer class. China’s food industry is characterized by new food and less emphasis is on healthy eating while in India the healthy food industry is expanding at a rapid pace. For Kids’ Eats, it is more favorable to enter the Indian market owing to all the opportunities it offers and it can do so by the means of Joint venture. However, more research needs to be done so as to decide on which organization will be suitable to form Joint Venture with.
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