a q u a r t e r l y r e p o r t b y May 2009 / Volume 01 a q u a r t e r l y r e p o r t b y VOLUME 3 / 2010

Editorial Team
Raghav Gupta, President I raghav.gupta@technopak.com I +91-9958522993
Veenu Sharma, Senior Consultant I veenu.sharma@technopak.com I +91-9810562621
Sajani Mrinalini Dutta, Associate Consultant I sajani.dutta@technopak.com I +91-9910502350
Anamika Mukharji, Editor I Anamika.mukharji@technopak.com I +91-9769091553
Design & Development
Bharat Kaushik, Design Manager I bharat.kaushik@technopak.com I +91-9811661493
Arvind Sundriyal, Senior Designer I arvind.sundriyal@technopak.com I +91-9910493934

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
What will be the big trends in consumer spending, retail, healthcare, fashion, education, agriculture, India’s workforce, and retail real estate in 2010? What sectors will see fast tracked investment, how will competition change in these, and what will be opportunities and challenges for your business? Our team shares our views on these and many more topics in this first issue of the Perspective for 2010.
Fundamental shifts in India’s consumer spending are taking place, with need based and aspiration based consumption category buckets becoming distinct. These have far reaching implications for manufacturers and marketers, for retailers, and indeed for Indian society as a whole. In Changing India, Changing
Consumption, Changing Consumers we examine these trends in detail.
Women in India’s workforce have largely been those employed in agriculture, labour related jobs, etc.
However, a silent revolution is in the making with new jobs in services in the next 5-6 years expected to have a large share of women. The Emerging Women Workforce of India: A Silent Revolution in the
Making projects this trend and the opportunities for companies catering to the growing number of working women. Continuing with the workforce, in The Way We Will Work, we project India specific trends for our work environment.
Retailers turning to multi-channel retailing, increasing share of private labels, return of international retailers to India, more balanced retail real estate economics, growth funding through private equity, SaaS enabling
SME retailers to migrate to best in class applications, retail expansion through franchising, and the growth of luxury retail are the key trends covered in New Found Optimism in the Retail Sector: Trends for
2010.
Expectedly, value retailers in developed markets have performed well during the 2008-09 financial crisis. In
Global Emergence of Value Retail: Impact on Indian Apparel and Textile Manufacturers we detail out the preparation textile and apparel manufacturers need to undertake to become stronger suppliers to this category of international retail.
Evolving single specialty healthcare models, increasing penetration of low cost healthcare delivery models, leveraging the inherent strengths of integrated medicine, arresting the rising cost of healthcare, technology partnerships, etc. are some key trends we examine in A Peek into the Future of Healthcare: Trends for
2010.
In two focused pieces, we examine Vocational Education and Packaged Foods in India. Both are under-penetrated segments that provide new opportunities. The Threatened Traditional Marketplace highlights how popular high streets are now losing out business to new malls, and suggests steps for the authorities and retailers to stem this decay. Lastly, Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation maps technological advancements that are shaping Indian agriculture today.
I hope you enjoy reading this New Year issue of the Perspective. Comments and feedback that we have been receiving have provided us motivation and guidance, and I hope we continue to hear back. Here’s wishing our readers a very Happy and Successful 2010!
Raghav Gupta, President I raghav.gupta@technopak.com

a q u a r t e r l y r e p o r t b y Volume 03 / 2010
01
Changing India, Changing Consumption, Changing
Consumers
Arvind Singhal
Fundamental shifts in consumer spending patterns have farreaching implications for all of India and Indian society as a whole.
11
The Way We Will Work
Anil Rajpal, Stuti Mody, Pragya Singh
A futuristic outlook anticipates paradigm shifts in the way the Indian workspace will evolve over the next 2–3 decades.
25
New Found Optimism in the Retail Sector: Trends for 2010
Baqar Iftikar Naqvi, Madhulika Tiwari
Closely assessing the happenings of 2009 across eight key areas in retail and projecting trends for the near future.
45
A Peek into the Future of Healthcare: Trends for 2010
Dr. Rana Mehta, Gulshan Baweja, Abhishek Pratap Singh,
Monika Kejriwal
In 2010, Indian healthcare sector would witness 10 key trends covering healthcare delivery models, integrated medicine, technological partnerships, operations optimization and patient safety etc.
59
Global Emergence of Value Retail: Impact on Indian
Apparel and Textile Manufacturers
Ashish Dhir, B. Prakash, Vijaya Kumar
Growth of value retailing, a global phenomenon now, has serious implications for Indian apparel and textile manufacturers.
65
The Emerging Women Workforce of India:
A Silent Revolution in the Making
Anil Rajpal, Pragya Singh
The growing women workforce presents a significant opportunity to consumer goods and services companies as well as marketers and retailers.

73
Vocational Education in India:
Key Challenges & New Directions
Luv Jasuja, Prashant Kashyap
Assessing the vocational education scenario in India as it assumes significance with the country’s economic growth.
83
Opportunities in the Packaged Food Market in India
Rohit Chadha, Rohit Bhatiani, Sajani Mrinalini Dutta
Changing lifestyles and growing health consciousness is driving the packaged foods industry in India to new growth horizons.
90
The Threatened Traditional Marketplace
Arvind Singhal
As modern shopping concepts gain popularity with the growth of modern retail, many traditional markets face the risk of fading away.
93
Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation
V. Sridhar
Changing consumer attitudes and climate changes prompt transformations in agricultural priorities.
99
About Technopak

Background
Factors Contributing to a
Dynamic Economy
Changing Priorities in
Consumer Spending
Impact of the Changing
Consumption Patterns
Conclusion
03
05
10
02
02

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
As India changes and reinvents itself at a remarkably accelerated pace, the private consumption patterns of its population have been transformed. What is new about these changes in the consumer behaviour of
1.15 billion individuals? Historically, change has been a gradual and largely predictable process, allowing industry experts to reasonably forecast consumption patterns and consumer behaviour in the near future based on the current and immediate past. Those days are history. The fundamental shifts in consumer spending patterns have far-reaching implications not only for manufacturers, marketers and retailers of consumer products and services, but for all of India and Indian society as a whole.
This article highlights and analyses these shifts in consumer spending patterns and the implications for manufacturers, marketers and brand owners, and retailers. The key lies in understanding the nature of this change in consumer behaviour and consumption patterns and thereby the change in the wallet-share of
Indian consumers. Today’s reality consists of many new, unique and disparate factors that have come into play simultaneously.
First, India has seen a very strong economic growth (averaging around 6.5 per cent) for almost 18 years on the trot, with the last five showing an even stronger growth trajectory. With the size of the economy hitting a
US$ 1,000 billion mark about two years ago, its scale can now support myriad new consumption categories that go much beyond traditional needs and desires. More details on some of these new categories of consumption are discussed later. While India’s annual per capita income in absolute terms remains below
US$ 1,000, the annual household income is now almost US$ 4,000, and if purchasing power parity is to be applied, then it is over US$ 12,000 per year. Further, it is quite likely to more than double in the next 10 years, creating the potential for a sustained boom in consumer spending in the decades to come.
Second, the demographic profile is turning extremely favourable towards sustaining growth in economic activity and in consumption, with almost 550 million consumers across urban and rural India in the 15+ age group (excluding the 250 million or so who are still, unfortunately, below the poverty line). Of these, about
400 million are in rural India while the remaining live in urban India. Of the latter, about 100 million reside in the top 100 cities alone, and there is a very positive geographic broad-basing of this consuming class. As the dependency ratio continues to drop in India (in marked contrast with the developed economies where it continues to rise, creating the spectre of social challenges in the decades to come), and as more Indians get educated, their consumption aspirations will continue to change very markedly.
Third, there is a very encouraging broad-basing of the different sub-components of overall gross domestic output, encouraging broad-basing of geographic spread of economic activity, and well-founded optimism on broad-basing of the nature of jobs that match the population’s current skill-sets.
Exhibit 1: Current Break-up of India’s 480 Million Jobs
• Agriculture: 18 per cent of GDP, 56 per cent of the workforce (270 million)
• Manufacturing: 26 per cent of GDP, 14 per cent of the workforce (65 million)
• Services: 56 per cent of GDP, 29 per cent of the workforce (145 million)
An estimated 90+ million jobs will be created over the next five years, of which almost 50 per cent are expected to be in the services sector (45 million). Of these, an estimated 7-10 million are expected to be created in modern retail, healthcare, and hospitality alone, adding to the 10+ million who are already directly employed in these three high-growth services sectors.
2 | Changing India, Changing Consumption, Changing Consumers

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Manufacturing is already seeing signs of a renewed boom in investment in diverse industries including defence, heavy engineering, power, transportation including automobiles, petroleum and petrochemicals, textiles, and food processing. Unlike in the past, where manufacturing came up in the proximity of metros and mini-metros unless there were backward area benefits or other incentives, this time around manufacturing investments are spread almost all across India. This is, of course, after evaluating attributes such as the availability of raw material, manpower and its relative costs, environment issues, supply chain and logistics issues, and market factors which render availability of fiscal incentives as just one of the many variables in the manufacturing location selection grid.
The services sector is also moving beyond IT. The largest growth in the coming years will be in a host of new services including retail, healthcare, leisure and recreation, education and coaching, construction and other real estate, grooming and well-being, and travel and hospitality. This, in turn, has many dimensions, with the most important being the certainty of unprecedentedly large numbers of women entering the workforce. Further, these sectoral jobs are even more spread out across the length and breadth of both urban and rural India and a lot of these jobs will employ people even without any professional degree (like engineering, management etc.), thereby leading to a further spread of purchasing power.
Fourth, there is a huge multiplier effect in the offing on account of the dramatically increased ‘social/ electoral politics-inspired’ spending. While political formations have always come up with schemes to support the really underprivileged, the quantum of funds allocated in the first 55 years of independence was very small compared to the size of the economy, as a result of which there was limited impact in the overall context of spending power and its broad-basing. Under UPA (I), and now continued under the current UPA (II), schemes such as NREGS, Bharat Nirman Yojana, Nehru National Rural Health Mission,
Jawaharlal National Urban Renewal Mission and Pradhan Mantri Gram Sadak Yojana and others now have allocations exceeding US$ 695 million per year generating additional spending incomes across small town and rural India. (Irrespective of the leakages in the system, the funds are still being disbursed.)
And, finally, there is a very fundamental shift in urbanisation patterns across India, with new, economically important urban centres emerging beyond the traditional top-8 or top-20. By 2011, over 60 Indian cities will have a population above 1 million, up from 35 in the 2001 census. By 2021, this figure may increase to 100, with another 100 cities having a population between 0.5-1 million all capable of supporting consumption of a scale currently that of, say, Belgaum or Gwalior or Meerut or Kolhapur, which belong to the 500,000+ population towns.
Let us now look at the size and composition of consumption in India. Notwithstanding the current concerns of the truant monsoon impacting consumer spending, India is expected to have seen a spending of almost
US$ 435 billion at current prices in 2009 (assuming a GDP growth rate of 6 per cent). Further, factoring in 5 per cent inflation and assuming that GDP will further grow at 6 per cent, consumer spending is likely to cross US$ 485 billion in 2010. Hence, all those who have been talking about the recession in India, or even a downturn in consumer spending, should consider looking at these broad economic indicators that show a very robust growth in consumer spending over the last 12 months and point to a similar trend for the coming year (and years).
A deeper analysis of this gross data on consumer spending throws up some very interesting insights. For as long as we can remember, roti, kapada aur makaan have been the primary needs and drivers of private consumption. Now, with the impact of the sustained economic growth of the last two decades, it seems that for a large part of the population, consumption has moved beyond these basic survival needs. While food and grocery continue to account for the largest quantum of spending (about US$ 260 billion in 2009),
Changing India, Changing Consumption, Changing Consumers | 3

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 followed by healthcare (about US$ 34 billion) and then textiles and clothing (about US$ 31 billion), the surprise inclusions on this list in 2009 have been spending on mobile phones and talk-time (about US$ 25 billion), jewellery and watches (about US$ 25 billion), and personal transport, comprising two/four-wheelers and related spending on fuel and repairs/maintenance (about US$ 24 billion). More interestingly, spending on non-basic needs is growing much faster now and so it is likely that by 2012 spending on textiles and
Exhibit 2: Size of Consumption in India
GDP US$ 1,161 Billion
Private Consumption
US$ 680 Billion - 59%
Retail
US$ 435 Billion - 64%
Public Spending & investment
US$ 481 Billion - 41%
Non Retail
US$ 245 Billion - 36%
Non-retail Spend Covers:
•
•
Transport
Communication
•
•
•
Recreation
Cultural Services
Education
•
•
Rent & Utilities
Other Services
Urban
US$ 201 Billion - 46%
Organised Retail
US$ 21 Billion
-10% of Urban
Rural
US$ 234 Billion - 54%
Organised Retail
Negligible
•
•
•
The following account for 94% of retail spend:
• Food & Grocery
Apparel
Footwear
CDIT
•
•
Home
Health & Wellness
•
•
Jewellery & Watches
Books, Magazines and Entertainment clothing could be relegated to the sixth spot (from the current third) and the hierarchy (excluding healthcare) will be roti, mobile, personal transport, and jewellery and watches. This data is at some variation with the official data since it includes some level of spending through the parallel economy, but is more reliable since it has been arrived at ‘bottom-up’ sector by sector, by considering their reported sales/size.
The shift in consumer spending priorities does not stop here. The total Central Government outlay on higher education was about US$ 2 billion in 2008-09. The estimated revenue of the higher education coaching market (including preparation for entrance examinations like JEE, CAT, GRE, and GMAT) is about
US$ 2 billion. If tutoring and other self-learning is included, the guesstimated private spending would be is almost US$ 10 billion! Spending on domestic leisure (and religious) travel and tourism would be US$ 12.5 billion, while spending on consumer durables and consumer electronics would just to about US$ 11 billion.
Spending on leisure and entertainment would be is about US$ 11 billion, nearly equalling the entire size of
Exhibit 3:
S. No
India: Consumer Spending, 2009
Consumer spending (excluding institutional and government spending)
Size in 2009 (in
US$ billion)
1 Food and grocery
2 Healthcare
3 Apparel and home textiles
4 Education (K-12, higher education & vocational)
5 Telecom
6 Jewellery & watches
7 Personal transport (vehicles + fuel + repairs)
8 Travel and leisure
9 Consumer durables and IT products
10 Home (furniture, furnishings, etc.)
11 Personal care
12 Eating out
13 Footwear
14 Health and beauty services
11
10
10
5
4
1
25
25
240
12
260
34
32
28
*Estimated figure
Size in 2014
(in US$ billion)
41
34
37
20
325
55
43
45
17
15
14
7
5
2
Likely Ranking in 2014
6
8
5
7
4
3
1
2
9
10
11
12
13
14
4 | Changing India, Changing Consumption, Changing Consumers

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 the personal and home care FMCG industry! Other fast-growing categories of consumer spending include personal computing (including Internet) amouting to US$ 2 billion, and personal grooming services where the spending was over US$ 830 million already in 2008-09 and growing in strong double digits.
However, beyond these broad estimates of spending by Indian consumers in 2009, it is interesting to see how Indian consumers’ spending priorities have changed over the last 18 years and how they may further change in the next five. Based on a tracking of consumer spending patterns over these years, we find that in 1991, the average Indian household* spent 80 per cent of its discretionary income across just seven categories (Exhibit 4). In 2009, there are as many as 19 categories that account for this discretionary spending budget. The next five years may see further additions of two or three more categories to this spending basket.
Exhibit 4:
1991
1.
2.
3.
4.
5.
6.
7.
Food and Grocery
Clothing
Footwear
Consumer Durables
Home Linen
Movies and Theatre
Eating Out
Categories of Consumption
2009
5.
6.
7.
8.
9.
1.
2.
3.
4.
Food and Grocery
Clothing
Footwear
Consumer Durables
Expenditure on DVD and VCD’s
Home Linen
Home Accessories
Accessories
Gifts
10.
11.
12.
Take-away/RTE meals
Movies and Theatre
Eating Out
13.
14.
Entertainment Parks
Mobile Phone and Services
15.
16.
17.
Household Help
Travel Packages
Club Membership
18.
19.
Computer Peripherals and Internet
Personal Transport
2015
5.
6.
7.
8.
9.
1.
2.
3.
4.
Food and Grocery
Clothing
Footwear
Consumer Durables
Expenditure on DVD and VCD
Home Linen
Home Accessories
Gifts
Take-away/RTE meals
10.
11.
12.
Movies and Theatre
Eating Out
Entertainment Parks
13.
14.
Mobile Phone and Services
Household Help
15.
16.
17.
Travel Packages
Club Membership
Computer Peripherals & Internet
18.
19.
Beauty and Spa
Gaming
20.
21.
Personal Transport
Coaching/Training/Learning
These shifts in consumer spending patterns have several implications. Though income levels have been growing in the country, they have not kept pace with aspirations and desires. As a result, competition now and in the future will not only be from businesses that are operating within the same category but also from those in other categories. For example, a soft drink brand will need to understand that its competition will come not only from the rival brand or a local substitute like lemon water but also from across categories like mobile services. A young consumer with limited pocket money is being equally targeted by Airtel/
Vodafone/Coke/Pepsi, etc. This category collide has to be dispassionately understood, and business strategies reoriented. This has major implications for categories such as food and grocery, clothing and textiles, and others.
Changing India, Changing Consumption, Changing Consumers | 5

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Manufacturers and marketers need to gain a deeper understanding of consumer and shopper behaviour
(going beyond traditional consumer/market research), and then work out the appropriate value proposition and delivery channels for their basket of goods and services. Entrepreneurs and businesses seeking to diversify into new areas need to understand that there are incredibly large new business opportunities, but these require new business models (product, channel, consumer connect, delivery). Those planning to enter the workforce would be well advised to study these new emerging sectors and plan accordingly. As is evident from the earlier discussion, the sectors likely to create the most jobs (besides retail, since most of this consumption will be facilitated through modern brick-and-mortar retail channels) include healthcare, telecom, travel and leisure, education and training, media and entertainment and personal grooming and fitness.
The Government too needs to better understand these shifts since they have implications not only for its own revenue generation opportunities through direct and indirect taxation, but also in dimensions such as vocational and higher education, and infrastructure (such as retail).
The most important implication is still for manufacturers and marketers of consumer goods and services.
The starting point should be to come out with a fundamentally different way of segmenting consumers and their consumption habits.
We could classify two types of ‘mass’ consumption.This consumption class excludes those under 15 years of age (350 million); the ultra rich, who comprise about 5 per cent of the total population (about 30 million); and BPL families, who comprise about 28 per cent of the population (about 225 million individuals)-leaving a core of about 550 million consumers. This classification would be:
• Need-based merchandise and services
• Aspiration/lifestyle-based merchandise and services
Exhibit 5:
Consumption Classification
Need-based Merchandise and Services
• Food and grocery
• Prepared food/food services
• Textiles and apparel
• Footwear
• Medicine and reactive healthcare services
• Air/train travel and other public transportation
• Consumer durables (white and brown goods)
• Consumer electronics (select categories such as DVD players)
• Kitchen appliances
• Mobile telephone handsets
Aspiration-based Merchandise and Services
• Home and home décor
• Education for children
• Personal transport vehicle
• Jewellery and watches (both for women and men)
• Accessories (handbags, pens, others)
• Grooming
• Well-being and preventive healthcare
• Coaching and learning for self and for children
• Leisure and recreation
• Socialising and other lifestyle
Need-based consumption categories are increasingly becoming low-involvement items for these ‘core’ consuming classes. Low involvement, in turn, implies that consumers will be zeroing in on just one or two attributes for taking the buying decision such as, for example, the size of the LCD panel for the TV, the
6 | Changing India, Changing Consumption, Changing Consumers

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 capacity of the refrigerator, the fibre composition of the garment/apparel and the confidence in the retailer/ brand. For these categories of consumption, the majority of consumers will optimise their purchases largely based on simple attributes of price and convenience (time efficiency) in order to release more resources
(money, time, mental involvement) for the aspiration/lifestyle-based consumption categories.
This, in turn, would result in the rapidly diminishing power of manufacturers’ brands operating in such categories, leading to a steady loss of branding and pricing power. Further, as these products and services become generic, they will offer limited room for differentiation. In the past, some differentiation was feasible on the basis of proprietary technology, cutting-edge design, exclusivity of retail channel and, of course, on the basis of an emotional appeal through advertising and through role models and brand ambassadors.
With the rise of global and regional giant mass merchants, technology and design become more universally accessible to most manufacturers and brand marketers, leaving them with a rapidly diminishing opportunity to differentiate brands. Finally, this will also lead to fickleness-or no brand loyalty-of the average consumer for products and services falling in this need-based consumption segment.
Thus, with the commoditisation of a product or a service category-with the concomitant loss of branding and pricing power-it shifts in the consumers’ mind from being aspirational to becoming just another need.
At some point, the differentiation between competing brands becomes so indistinguishable that the product or service becomes generic, and at that time, consumers’ buying behaviour undergoes a fundamental change as they shift their aspirations to other product or service categories.
This process of commoditisation started in the early 1970s in the US and then other select developed markets when mass retailers first experimented with ‘brown-bagged’ products (the early precursor to what are now known as ‘private labels’) in categories such as sugar, wheat flour, breakfast cereal and several other
FMCG products. Over the last 40 years, the share of these no-name generic products (or, more correctly, the private label products) has moved up to almost 40 per cent in the most intensely branded FMCG product categories, at times even more than 50 per cent in some markets. As a result, while behemoths such as P&G, Unilever, Nestle and a few others have still managed to hold their ground and even expand, countless other brands and producers have disappeared or have become terminally weakened.
Consumer durables and kitchen appliances were the next category to get commoditised, leading to the demise of some of the biggest US and European (especially many German brands) businesses and the rapid consolidation of the survivors, leaving just about five major global players (which include LG and
Samsung) still in the pink of health. Even within these brands, categories such as washing machines, microwave ovens, stoves, and even refrigerators have seen rapid commoditisation at the mass end. Kitchen appliances such as mixers, grinders and electric irons have already been commoditised, as has been the
DVD player with retailers like Wal-Mart selling millions of units per year with just about no history as a brand in such categories. Music systems, with the extremely disruptive impact of digital music distributed through the newer mediums and stored in a plethora of devices including the computer and the cellphone, have seen rapid commoditisation. The MP3 player category, including the ultra-successful iPod, have probably also reached their zenith and should see rapid commoditisation soon (notwithstanding the superlative effort that Apple continues to put into new product development year after year).
Which are next in the list of endangered species (from the perspective of branding and pricing power)?
The owners and marketers of these currently iconic brands will vehemently disagree, but I believe that the categories which should see (at least in the Indian context) very disruptive changes in consumer behaviour include colour televisions, digital cameras, and mobile telephones. This is to add to the list that already includes most FMCG products, branded apparel, and health and wellness products.
As far as India is concerned, the phenomenon is somewhat easier to explain. It is on account of a combination of factors (some of which have already been elaborated upon earlier): demographic shifts that are leading to massive shifts in consumption aspirations; entry of over 300 million new consumers to the consuming class in the last 20 years and the expected entry of another 200 million in the next 10; commoditisation of
Changing India, Changing Consumption, Changing Consumers | 7

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 technology and of manufacturing leading to open-source availability of product design, technical knowhow, and manufacturers; and changes in modern retail formats and multiplicity of retail channels that not only include the internet, direct selling, catalogues, and even TV shopping channels.
Unfortunately, there is not much that the owners of the current power brands can do to reverse this trend. At best, they can slow down the process in order to give themselves some breathing time to re-jig their current business to ride the next big growth opportunity area(s).
To this ‘core’ Indian consumer, though ‘low price’ is still of primary importance, it will in the coming years steadily shift to a ‘price-plus’ platform. Here, the consumer will seek a greater balance of price with quality, convenience, consistency, innovation and shopping experience. The recent economic slowdown has made the Indian consumer’s mindset more conservative, and this will remain so for some more years to come. Further, the ‘shift to thrift’ is redefining value-in terms of price, brand and quality. This trend is global, and most likely to stay long after the recovery of the global economy, and will be very applicable to Indian consumers too.
Point of purchase (POP) will become more important, and will be the moment of truth for brands and retailers if they are to deliver their promise to the consumer. Hence, smart brands and retailers will spend more effort in-store in terms of improving not only store interiors but also the overall shopping experience, even if they are high value-seeking ones. So far as shopping behaviour is concerned, there is a strong increase in the trend of going shopping as a ‘family’ which, in turn, is on account of the increasing time poverty for most Indians in this core consuming class. Shopping together saves time for the family while also providing some additional time together. Modern retail (of which more details appear later) which offers ‘all under one roof’ options, optimises for this core consumer-many dimensions including saving of time, enhanced shopping experience, and combining shopping with leisure and recreation. Hence, given a choice between traditional shopping markets and a well-planned, well-tenanted shopping centre (mall), this consumer is more likely to opt for the latter.
Let us now take a closer look at modern retail and its impact on the Indian consumer, as well as on manufacturers and brands.
Notwithstanding the many stories of gloom and doom about the fate of organised retailers, and of modern retailers currently in the fray, the modern retail sector continues to grow steadily. In fact, there has been exceptional broad-basing of the sector in the last three years in particular, and an extraordinarily steep learning experience for most of the serious players in the fray. Yes, there have been some casualties on the way, and there are many still grappling with the challenge of achieving desired profitability levels.
Nevertheless, many are poised to achieve rapid growth in the next five years while concurrently improving their profitability levels.
Exhibit 6:
Size and Scale of Modern Retail
600
500
400
300
200
100
0
2005
Total Retail Sales
2009 2014
Organised Retail
Modern Retail is expected to grow to 3 times its current size by 2014, and add
US$ 45 Billion. Unorganised retail would add close to US$ 150 Billion in this period
8 | Changing India, Changing Consumption, Changing Consumers

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
On a pan-India big-scale level, there are at least 10 credible players in India who have the requisite experience of retailing in India (with some having formidable global experience), have the management and financial strength to deploy for sustained growth in the coming years, and also have the determination and commitment to succeed in this particular sector. While the Future Group continues to be India’s largest retailer and continues to experiment, learn and grow very steadily, not many recognise that the Tata Group is already the second-largest retail group in India, and perhaps poised to be the most formidable (or among the most formidable) in the country in the coming years. With many successful retail formats and businesses within the group (Titan/Tanishq, Westside, Croma, Landmark, and Star India Bazaar to list the major ones), and some solid global partners (Woolworths of Australia, Tesco, and Inditex of Zara and many others), they are not only already profitable to a degree but also have a very interesting portfolio of businesses in some of the most promising categories of future consumption growth (food and grocery, apparel, consumer durables and electronics, books, music and gifts, and jewellery). Reliance has made exceptional progress since its first launch not more than three years ago, and is well poised to pick and choose formats to focus on from the wide repertoire they launched. They also have a formidable array of partners-which include Marks & Spencer, Vision Express and Hamley’s to name a few-to support their speciality ventures. It would surprise no one if more such partnerships are announced by them in the near future. Defying naysayers, Aditya Birla group’s retail ventures (More, Madura Garments’ different brands, and others) show strong growth potential. The Bharti/ Wal-Mart partnership also promises to be one of the most successful ones, if early results from their first 40-odd retail stores are anything to go by. Metro (of
Germany), having established a solid presence in the country, is now poised to grow rapidly. There are also reports of an expected launch of Carrefour (the world’s second largest retail business after Wal-Mart) in India sometime in 2010. Completing this pantheon of capable and potentially successful big-scale retail businesses are Spencer, Shoppers Stop, and the Landmark Group (from Dubai).
The growth in speciality retail has been no less spectacular in terms of product categories and formats and players as shown in Exhibit 7. If the Government were to, finally, take a pragmatic view of the overarching benefits of modern retail (not only to the Indian economy but also the average Indian consumer) and open up the sector to foreign direct investment (both FDI and FII), the growth of this sector would be even stronger and the positive impact even more far-reaching.
Exhibit 7:
Key Players in Speciality Retail
• Next (Videocon)
• The Mobile Store (Essar)
• Apollo Pharmacy, Guardian Lifecare, Medplus
• Tanishq, Gitanjali (jewellery)
• Reebok, Nike, Adidas (footwear and clothing and accessories), Esprit, Tommy Hilfiger, Raymond, and many others
• Welhome, Roseby’s (home furnishings)
• Fabindia
• Ethos (watches)
• Carplus (car accessories)
• Landmark (books, music, and gifts)
• Carnation (car repairs and servicing)
• Mom & Me (Mahindra & Mahindra), Mothercare (mother and child)
• Brands’ own stores (LG, Sony, Samsung; tiles/paints/home hardware companies, etc.)
As these players expand in the coming years, they will provide a much anticipated and much needed boost to consumer spending. Many of these players operate in the ‘value’ segment and will contribute to the rapid increase in consumerism across India.
Changing India, Changing Consumption, Changing Consumers | 9

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
In conclusion, the following messages stand out
• There is a fundamental shift in the consumption and buying behaviour of the ‘core’ Indian consuming class.
• There is a positive broad-basing of economic activity in India in terms of geographic reach and jobs being created, and this will make growth much more inclusive than what many political commentators would admit.
• There is a case for segmenting consumption categories along just two dimensions: ‘need-based’ and
‘aspiration/lifestyle’ based.
• Those products and services categorised as ‘need-based’ face the risk of rapid commoditisation, posing a big challenge for the till-now successful brands and marketers.
• Consumers are looking for ‘value options’ which are increasingly becoming ‘price plus’, that is, an option which balances the variables of price, quality, convenience, consistency, innovation and shopping experience.
• And finally, modern retail is already reaching a stage of maturity in India with several formidable players making steady progress. Hence, the coming years will see solid, determined expansion by all serious players, giving them both scale and profitability.
Author
Arvind Singhal, Chairman & Managing Director I arvind.singhal@technopak.com
10 | Changing India, Changing Consumption, Changing Consumers

Background
Looking Beyond
We Will Work Longer
Rise of Women Power
The Reverse Brain Drain
Rise in Part-time Jobs and Workers
The Hand of Technology
The Balancing Act
Incentives Beyond Money
‘Greener’ Workplaces
More Globalised Companies
Back to the Basics
More ‘Home-grown’
Entrepreneurial Ventures
The Final Word
19
20
21
18
19
16
17
22
23
13
14
12
12
15

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
The way we live and work is changing at the speed of thought. Over the last 20 years, there has been a paradigm shift in terms of what we do, why we do it, where we work, who we work with and how we work.
This is, however, only the onset of a larger cycle. Driven by changes in India’s demographic, educational and economic profile, urbanisation, technological advancements and behavioural, aspirational, social and lifestyle changes in urban society, we will continue to witness more paradigm changes in the way we work.
So what will be our work environment two to three decades from now?
Technopak has attempted to outline trends leading to this answer by capturing the implications of some of the changes on the urban jobs and work environment, over the next two to three decades. This article highlights a few of these.
In the past and to a large extent even now, parents in urban India have determined or greatly influenced their children’s career choice. This is especially true for the salaried middle class. Our parents’ generation worked and retired in the same public or private sector job which offered a
‘stable’ income, ‘secure’ career path and ‘social’ acceptance. It is therefore not surprising that their generation wished a similar ‘stability’ for the next generation. A lack of educational avenues and established opportunities in non-mainstream roles made them wish their child to be more focused
Exhibit 1:
Event management
Off-beat Jobs in India
SFX and computer graphics
Wellness management
Content writer
Cell-phones games programmer
Tour management
Bartender
DJ
22%
18%
15%
15%
11%
11%
4%
4% on academic streams like medicine, engineering,
MBA, IAS, CA, law, etc. As a result, most of the
Source: THE WEEK–IMRB survey (THE WEEK, June 2009) extra-curricular activities of the child’s interest and excellence like sports, music or arts were more often than not reduced to mere hobbies.
12 | The Way We Will Work

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
However, this mindset is rapidly changing and we are already witnessing the onset of such change. This is fuelled by the supply-side in terms of both educational and training avenues as well as attractive career opportunities. The demand-side gets a boost from increased exposure through media and the presence of role models in every field, causing the youth of today to increasingly opt for careers that are personalitydriven, not merely system-driven. A few signs of such change are evident when we look around and find institutes like Gopinath Muthukad’s Magic Academy to groom magicians, MIT School of Government’s masters programme for a career in politics and government and professional sports coaching camps that are training close to 0.6 million youngsters every year. Exhibit 1 illustrates some popular current off-beat career options.
Reasons for choosing off-beat jobs include the possibility of working from home, tapping into creativity and skills, the ability to work part-time, freedom from the ‘9 to 5’ routine and openings to newer avenues.
Looking forward, we expect greater diversity in what people would want to do at an educational level as well as at a career level. As the workforce grows younger, we see an increased diversity in choices. Increasingly, the slogan ‘my passion is my work’ would be applicable for the urban youth. This will be further fuelled by an increasing change in society’s perception of what is ‘respectable’. As a result what is ‘niche’ today would be considered ‘mainstream’ in the next few decades. Another growth driver would be the demand for specialists and super-specialists in every field, as everyone would seek expert and customised solutions.
This will drive the youth to pick up specialised skills, which would be more rewarding.
As per Mercer’s 2007 survey 1 , several developed and developing countries have raised the retirement age or are in the process of doing so. Norway’s retirement age is between 67-70 years. Japan is already working on increasing the retirement age from 60 to 65 years between years 2006 and 2013. Denmark, Germany and the United Kingdom have introduced a legislation that will gradually push the retirement age beyond
65 years. In the United States of America, the retirement age for those born after 1960 is 67 years.
While the reasons vary from country to country, one common theme is the experience factor and another is the savings in social security costs. Till the 1990s, the retirement age in India was 58 years. It was then increased to 60 years for Central Government employees in 1998. Recently there have been talks of further pushing it to 62 years. Whether or not it is done, we expect that Indians will continue working till the age of
65 or more in years to come. This will be driven by:
Increase in Demand
India is in a high growth phase. As more and more companies emerge, they will need a higher degree of expertise and skill-sets to compete and grow. The younger generation will bring a lot of energy and mobility, but vision and the ability to think beyond the obvious will be equally important.
Increasing Life Expectancy
In the last 18 years, the average life expectancy of Indians has increased from about 60 years to more than
65 years. As this further improves, the retirement age will also tend to increase.
Delayed Family Phase
Compared to previous generations, the age for marriage in urban centres is moving from the early twenties to the late twenties. Earlier, by the age of 58, children were married and ‘settled’ in life and there was no financial strain if the main bread-winner retired. However, in the changed dynamics, retiring at 58 years may strain family finances.
1 . www.mercer.com
The Way We Will Work | 13

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Lifestyle Changes
With changes in urban lifestyle, the older generation will no longer tend to be non-materialistic and ‘reclusive’ in their tastes. They will still be high on consumption and with added healthcare costs and a weak social security structure; their overall need for money would be steep.
More Rewarding Career
Working for more than 40 years can be very rewarding in terms of achievement of career goals and an overall financial position.
Another growing trend is that people will start working early. There was a time when a simple graduation did not land one in a well-paying job. However, with the Business Process Outsourcing (BPO) and Information
Technology (IT) boom, an increasing number of graduates and even non-graduates are finding employment.
A lot of learning will tend to happen on the job or between jobs. Another implication of this trend would be the constant push that the older generation would feel from the younger generation. The older generationthough rich in experience-will be required to constantly upgrade themselves and be in sync with the latest trends to keep adding value at workplaces.
According to the United Nations, women constitute half of the world’s population, work nearly two-third of its work hours, receive one-tenth of the world’s income and own less than one-hundredth of the world’s property.
India has the largest number of working women in any single country in the world. Of India’s workforce of
400 million, around 30-35 per cent is female but only one-fifth of these women work in urban areas and even fewer women work in a corporate environment 2 .
Working women in urban corporate India, like elsewhere in the world, have traditionally faced the challenging role of balancing their work and family. It is therefore not surprising that many of them switch to relatively
‘less demanding’ roles or prefer to be housewives. Not many employers till date have consciously tried to make workplaces ‘women-friendly’. However, if worldwide trends and some signals from Indian public and private sectors are to be considered, there is an increasing realisation of the diversity and balance women can bring to teams and there is now a greater effort to improve the female-male ratio in companies.
Internationally, several countries have adopted measures to increase women’s participation in the workforce.
Norway has ordained their listed companies to ensure that their boards contain no less than a 40 per cent representation of either gender. Denmark and France have also settled for a 20 per cent representation of women in corporate boardrooms. In the US, 61 per cent of women were working in the year 2000 compared to just 38 per cent in 1960. In India too, the government is trying to promote greater participation by women. In an effort to increase the current participation of working women, which is above 10 per cent in
Central Government, the Sixth Pay Commission has recommended flexible work hours, extended maternity and childcare leaves, crèche and day-care facilities at the workplace, and enhanced education allowances.
The private sector is also trying to attract more women. Recently, the Tata Group launched a drive to attract women who have had a career break for up to 8 years.
In the Indian IT/BPO industry, women accounted for close to 35 per cent of the total workforce in 2008 and this is expected to rise to 45 per cent in 2010. It is estimated that women represent 13–15 per cent of the total managerial workforce in this sector. Exhibit 2 illustrates reasons expressed by employers for preferring women in workforce.
14 | The Way We Will Work

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Human Resources (HR) practices such as a transportation policy conducive to women, flexible work hours and leave policy play a major role in attracting women to an organisation. Other practices that women workers appreciate are the presence of an anti-harassment policy, healthcare and awareness programs, a women’s lounge and recreational activities.
Exhibit 2:
Why Women are Preferred at Workplaces ?
High sense of responsibility 89%
More trustworthy
Can handle pressure
Tidy and methodical
Meet deadlines
81%
80%
77%
76%
At the same time, with more and more women pursuing higher education, women will seek greater participation in the workforce, parity in terms of opportunities, pay as well as advancement. In 2005,
Can analyse effectively
Can multitask
Maintain harmony
Good communicators
75%
75%
66%
61%
40 per cent of the entrants into institutions of higher education were women 2 .Names like PepsiCo’s
Fast learners 61%
Source: THE WEEK–IMRB survey (THE WEEK, June 2009) for 88 employers
Indira Nooyi and ICICI Bank’s Chanda Kocchar are an inspiration to the new generation of women to rise in corporate roles.
2 . NASSCOM–Mercer study on gender inclusivity in India
There was a time when it was a dream for most Indian students to go to the US, UK or other developed economies for higher studies and a better quality of life. Most of them ended up settling abroad after completing their education.
In the last decade, Indian economic growth has created opportunities in India that have somewhat reversed this trend. In a sample survey by Evalueserve Pvt. Ltd (EVS), a global research and analytics firm, it was found that among those IIT professionals who graduated between 1964 and 2001, 35 per cent moved to countries other than India, while among those who graduated in 2002 and later, only 16 per cent went abroad.
Not only are fewer ‘brains’ going out of the country, more and more Indians are returning to work in India.
Initially Indians abroad were returning for personal reasons. Over the last five years, many people have returned because India offered lucrative economic opportunities or because they faced visa problems, especially in the US. The same salary in India ensures a much better lifestyle and a higher standard of living. Organisations are also not compromising on talent and some are ready to pay as much as 80 per cent of the salaries the top-level professionals would get abroad. Additionally, being closer to their extended families is playing a major role in luring professionals back to India.
This trend is only expected to grow in the next few years. A study on immigration by a team at Duke,
Harvard and Berkeley Universities has projected that 100,000 Indians in the US may return to India in the next 3–5 years. As per a sample survey by EVS to predict which country would ‘hold the most promise for success in 10 years time, 72 percent of the IIT graduates who were questioned, named India.
With mature economies slowing down and India still in a high growth phase, moving to India for work would become a lucrative option for foreigners too. According to the 2009 Expat Explorer Survey by HSBC Bank
International, 25 per cent of expatriates in India earn more than US$ 250,000 annually, compared to the global average of 16 per cent. As per Credence Research and Analytics (a research firm) about 40,000 expatriates were working in India in 2008, of which about 15 per cent were in top leadership roles. By far, the biggest draw for recent expatriates is the IT industry but they are also sprinkled across other industries.
The Way We Will Work | 15

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
With infrastructural development and more globalised companies, we can expect more Indians returning and expatriates in workplaces over the next few decades.
According to the US Bureau of Labor Statistics, the US had 27 million part-time workers in June 2009, of which only 30 per cent were working for economic reasons (slack business conditions or unable to find fulltime work). At Wal-Mart, the world’s largest retailer, part-time US workers make up 25-30 per cent of the workforce which enables the store to deploy workers more effectively to meet the peaks and valleys of business in their stores.
Part-time jobs are a win-win situation for the employers and employees. The employers benefit by enjoying more flexibility in the staffing of stores, both in numbers and skills, and the employees benefit by supplementing their incomes without taking on full-time work.
But unlike the developed economies, Indians have mostly looked down on voluntary part-time jobs, especially those involving less ‘cranial’ effort.
Children in India tend to have higher and longer dependency on their parents. They are not encouraged to earn or work before the ‘completion’ of their studies because of social norms. However, this is slowly changing. The younger generation does not want to wait to own desired gadgets and lifestyle products, and one way to quickly get these is by supplementing their pocket-money with part-time jobs. Extra income, added experience and the kick of freedom is what drives them.
Fast food chains like McDonald’s and Pizza Hut started this trend by recruiting well-educated students from ‘respectable’ families for their front-end. Another example is the Oxford Book Store which offers summer jobs for students who are avid readers, as they understand the market trend and reading habits of customers better. As this becomes common, it changes the way these jobs are perceived by society, which fuels their popularity.
Besides students, retirees who may want to supplement a fixed income or ensure that they maintain a certain level of involvement with the world around them, form another major segment. This segment has a high level of expertise and experience but cannot physically take up a full-time job.
Another segment to be targeted includes housewives who have opted out of the workforce because they prefer spending more time at home. They benefit from part-time jobs in terms of supplementary income, more productive time and a break from their household routine.
With modern retail set to grow tenfold in the next 10 years (from US$ 18 billion to US$ 170 billion) and an increasing focus on customer service for differentiation, the demand for more and better quality sales associates is expected to grow exponentially. Besides retail, other service sectors will also see a spurt in part-time workers. Dental hygienists, kindergarten teachers, para-legal and computer support specialists, bank tellers, pharmacy technicians, tax preparers, massage therapists, etc. are witnessing increased demand in countries like the US. In India, too, there will be an increasing requirement for workers in diverse fields. In addition, with the diminishing social stigma previously associated with some of these profiles, we expect to see more and more people joining this workforce.
16 | The Way We Will Work

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Not many of us can imagine offices without laptops, spreadsheets, Enterprise Resource Planning (ERP) systems, etc. But all this is not even two decades old. Nothing has or would change our work-lives more than technological advancements. Unlike other changes which are gradual, these changes are sometimes completely disruptive. Therefore, it is difficult to say how technology would impact our work lives two or three decades down the line. But we can surely say that it would change a lot if the following are any indicators to go by.
‘Devolution’ of Workspaces
We will see an increasingly reduced need for office spaces and work stations. Technology will find ways to make office communication paperless and hence reduce manual interfaces. Conferences and meetings will increasingly move to the web to save time, costs and energy. This would specially assist geographically spread-out companies and reduce the necessity of physical presence in offices. For example, currently more than 7 million people use Cisco’s WebEx products every month to communicate and collaborate online.
High-Speed Connectivity
We have already come a long way from crawling internet speed and expect connectivity to move at the speed of light in the years to come. This will make data transfer and data search effortless. Also, with almost all major areas in urban centres getting Wi-Fi enabled, the expectation is to be connected everywhere, anytime.
Evolved Telecommunication
It is sometimes difficult to imagine how we survived without mobile phones, though that was just over a decade ago. This is one gadget which will continue to make us more dependent on it in the years to come.
From a mere call-making device, it has evolved as our pocket computer-cum-entertainment gadget. It will become more versatile in the years to come and more critical from the work perspective as a single-point communication device. It may also replace our laptops and wallets completely.
Better Control, Feedback and Decision Mechanisms
Technology will evolve the ERP and Management Information Systems (MIS) tools to suit each business requirement. This will provide better toolkits to companies and help with the easy identification of the problem areas. Technology will also enable real-time checks, reduction of response time, and the implementation of comprehensive feedback systems, like 360-degree feedback. Overall, technology will play an important role in streamlining of business control mechanisms.
Another growing trend is towards using technology beyond increasing productivity. Already, many organisations are keen to harness Web 2.0 technologies like blogs, wikis, podcasts, etc. which enable collaboration and participation, for building communities and decision support. This is set to grow as technology evolves further.
Informed Hiring
Technology is already changing the way recruitments take place. Submitting a hard copy of one’s resume is passé. Increasingly, HR managers are scouting social networking sites like LinkedIn, Facebook etc. for the following reasons:
• Wider reach
• Identifying both active and passive job seekers
• Achieving significant cost reduction
• Assessing behavioural attributes of applicants
• Reaching out to candidates with niche skills or in distant locations
• Instant credibility of a professional’s profile
The Way We Will Work | 17

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
According to a 2007 survey by Ponemon Institute, a privacy research organisation, 35 per cent of all hiring managers in the US use Google to run background checks on job candidates and 23 per cent look up candidates on social networking sites. About one-third of those web searches lead to rejections.
With increasing workloads and shrinking deadlines, the urban work life is becoming more demanding with every passing day. At the same time the urban workforce is increasingly seeking to achieve that elusive work–life balance. With the greater participation of women in the workforce and more and more men taking up responsibilities beyond office cubicles, the desirable place of work in the future will be the one that gives its employees the option to enjoy quality personal space along with rewarding jobs. These trends are already being witnessed in the developed countries. As Indian companies become more professional and global, the same will be visible in their policies too.
Lattices in Place of Ladders
Companies would be more open for the lateral movement of employees at different career stages who may not be willing to take on added responsibilities, i.e., the hectic work life of vertical movement, but at the same time want to enrich their experience and continue growing as professionals. For example, Deloitte
LLP, USA is adopting the path of becoming a corporate lattice organisation, based on the insight that today’s career journey is a series of rising and falling phases of engagement that can involve climbs, lateral moves and planned descents.
More ‘Flexi’ Jobs
With longer commuting times, higher rental costs and a perpetual time crunch, work places will have to become increasingly flexible in terms of timings and physical attendance. Work will be increasingly target-driven, not timing-driven. Technology advancements would assist in long-distance interactions and seamless completion of activities, which till now depended heavily on human contact. For example, the
Royal Bank of Scotland (RBS) gives all employees the ‘right to work flexibly’ through a range of practices covering job sharing, part-time work, working from home, variable work hours, compressed hours and term-time work. According to Work & Family Connection 2005 3 ,United Parcel Service (UPS) achieved a significant reduction in employee churn from 50 per cent to 6 per cent after implementing a healthier and more flexible work environment.
Another aspect of ‘flexi’ jobs would be the ability to provide quality breaks to employees to avoid the undue stress which builds up with time or because of too many simultaneous personal and professional commitments. For example, Tesco’s Lifestyle Breaks give employees the chance to take a break for whatever takes their fancy, without having to reveal the reason. Employees can take up to 12 weeks off and can go back to the same job when they return.
More De-stressing Workplaces
Work-related stress is already a major cause of absenteeism and impacts productivity, retention, satisfaction and ultimately profits. As work gets more competitive, working hours will get longer and hence the work environment will have to be made increasingly de-stressing in terms of work-wear, activities, ambience, etc. to extract higher productivity from employees. Some of the more ‘creative’ companies have already adopted such measures. For example, the colourful, casual environment at Walt Disney’s offices probably helps the employees sharpen their abilities to come up with novel and innovative ideas. Google’s offices have game rooms, plenty of lava lamps and free snacks. Dogs are welcome, with a pet centre inclusive of treats and toys.
3.
Work & Family Connection: The Most Important Work-Life-Related Studies, updated 2005
18 | The Way We Will Work

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Everyone knows that motivated employees lead to increased productivity, innovation and diligence as these have a direct bearing on a company’s bottom line. However, most companies go wrong in thinking that money is the only incentive sought by employees; that so long as employees are monetarily incentivised, nothing else matters. Of course, no one works for free and the above school of thought may have been valid till a few years back, but with changing times it is being observed that parameters beyond money are gaining importance for employees in choosing jobs as well as getting motivated. With work hours getting longer, people realise that they are spending more than 40–50 per cent of their overall time at work or in work-related activities like commuting. Employees, therefore, look to derive greater satisfaction from the activity that is absorbing half of their life’s prime. Several developed economies are increasingly witnessing this trend.
A 2005 survey by the site www.salary.com found that an increasing number of American workers would sacrifice pay to spend more time with their families, if given the choice. About 39 per cent of respondents said that they would choose more time off instead of a US$ 5,000 raise. This was a nearly 20 per cent increase from a similar survey three years ago thus indicating an increasing trend towards the decreasing power of money.
According to a 2007 survey by a digital media company Conchango, the majority of employees in the UK value a stimulating work environment and growth opportunities more than financial rewards. The survey results indicated that only 6 per cent of workers stated salary as the most important factor when looking for a job, while the chance to take part in interesting projects was the main motivation for 34 per cent. In addition, 31 per cent said that the opportunity for career progression was the most important factor.
A March 2009 poll for WikiJob users showed that the most important factor in choosing a job was career progression for 43 per cent of respondents followed by salaries for 25 per cent, training for 18 per cent, job security for 9 per cent, work hours for 3 per cent and corporate social responsibility for 2 per cent.
Although the monetary incentives have not lost their importance, the marginal utility of additional monetary incentive has slowly been diminishing. Therefore, once employees have achieved financial security and stability in their careers, there will be an increasing propensity to look for the other motivators in their jobs. These may include a sense of autonomy, collegiality, leadership opportunity, feeling of achievement, recognition, respect, variety, security, fun, etc.
India, too, is at the inflection point where such trends are picking up and would only strengthen in the years to come. As industries mature and salaries stabilize, money will not be the only factor for job seekers and companies will have to increasingly look for incentives beyond money to retain and motivate their employees.
Till recently, the green drive was more of a trend in developed economies. Very few companies in India measured their carbon footprint or even paid heed to the environmental implications of their businesses.
However, companies are increasingly realising the dual benefit of going ‘green’-save costs and earn social equity. The movement led by multinational companies is now spreading fast among all others too.
In mature economies, people are more willing to work with greener companies. More than 80 per cent of
US workers polled in a 2008 National Geographic survey believe that it is important to work for a company or organisation that makes the environment a top priority. The trend is fast catching up in emerging countries.
The Way We Will Work | 19

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
With rising awareness, sense of responsibility and a global outlook, Indian companies will increasingly lay more and more emphasis on recycling, reuse, green offices and environment-friendly work processes. We are already seeing some initiatives across organisations in India. Wipro Infotech has been rated India’s number one ‘Green Brand’ and is named among the top five ‘Global Green Brands’ in Greenpeace’s ‘Guide to Greener Electronics’ ranking. Power savings, density computing, virtualisation, efficient air-conditioning and cheap printing are some of the measures being adopted by enterprises in India and globally to save on costs and emission levels.
Focus on Energy-efficient ‘Green’ Office Spaces
Patni Knowledge Centre at NOIDA is now the largest LEED platinum rated building outside US and the second largest in the world. GreenSpaces SEZ, Faridabad is being planned as the world’s most energyefficient commercial building.
Focus on Recycling
Nokia recently launched a pilot programme to plant a sapling for every handset dropped for recycling at its stores, irrespective of the brand.
Focus on Reducing Wastage
Hewlett-Packard’s duplex printing move has resulted in savings of 800 tonnes of paper and US$ 7 million annually. Cisco Systems, by reducing the font size in its product manuals saves US$ 1 million in printing costs and 22 million sheets of paper annually by just reducing font size.
Focus on Saving Power
Kotak Mahindra Bank estimates significant power savings through consolidation of its existing data centre into a new one. Religare Enterprises has reduced its power costs by 30–35 per cent just by incorporating three modular data centres.
Focus on Reducing Carbon Footprint
Google reached its goal of becoming carbon neutral for 2007 and was almost entirely neutral for 2008. By
2012, Applied Materials aims to reduce its carbon footprint by 50,000 MTCE. As a part of its drive to become carbon and water neutral, Infosys Technologies is focusing on water management, waste management and energy conservation.
Focus on Employee Participation
Intel Corporation has recently made it clear that reducing the company’s impact on the environment is a priority and it is everybody’s business. Last year, Intel included environmental metrics in the calculations that determine employees’ year-end bonuses.
Very few Indian companies figure on the global giant corporate map. The protectionist attitude of the
Government before the 1990s, coupled with opportunity, size and diversity in India itself and lack of ‘worldclass’ practices and processes, gave few reasons to Indian companies to venture out of the country.
However, this is slowly changing. With the Indian economy opening up across sectors and the world becoming more seamless, many companies are forced to compete at the global level in terms of their product, service offerings and work policies. As a result of this, Dabur India and ITC have to compete with
Hindustan Unilever Ltd (HUL) and Procter & Gamble (P&G) in the Indian FMCG space and Reliance Retail will have to compete with Wal-Mart (through Bharti-Wal-Mart) in the hypermarket/ supermarket space.
This will raise the bar for Indian companies to stay ahead of the competition. This will also impact their processes and policies for attracting the best talent in the industry.
20 | The Way We Will Work

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Besides raising their standards, some other Indian companies have made more conscious opportunistic moves to spread their geographic presence beyond India through the acquisition of firms in other countries.
These takeovers remained exceptional events till 2003, but now constitute a trend. As per KPMG’s EMIAT study, between 2003 and mid-2008, there were 322 completed deals wherein Indian buyers had purchased companies (completed deals in which an acquirer took at least a 10 per cent shareholding interest) in the major developed economies. Against this, there were 340 concluded deals, in which companies from developed countries acquired Indian companies.
Some of the more prominent deals in the last decade include:
• Tata Tea’s leveraged buyout of a global company twice its size, Tetley Tea.
• Tata Motors’ US$ 2.3 billion acquisition of the iconic Jaguar and Land Rover brands.
• AV Birla Group’s US$ 6 billion takeover of aluminium products manufacturer Novelis.
• Essel Packaging takeover of Propack of Switzerland to form Essel Propack-the largest Speciality packaging company.
• Videocon’s acquisition of French electronics company Thomson SA’s colour picture tube manufacturing business.
• Vijay Mallya’s acquisition of Scotch whisky group Whyte & Mackay in 2007, making United Breweries
Group the second-largest spirits manufacturer in the world.
• Welspun India Ltd’s acquisition of Christy, the world’s oldest and UK’s top terry towel brand.
• Other examples include Tata Steel’s takeover of Corus, Dr Reddy’s Laboratories acquisition of Betapharm
(the fourth largest German pharmaceutical company), Sterlite Industries’ purchase of copper mines from
Asarco LLC, etc.
Indian companies are also competing with the best in the world and are being recognized as leaders in their respective fields. For example, In April 2009, Forbes rated Infosys Technologies among the five best performing companies in the software and services sector in the world. Reputation Institute, in its 2009 annual list of the world’s most reputed companies, has placed The Tata Group ahead of the likes of Google and Microsoft.
In 2001, the world was taken aback by the Enron Corporation scandal. This was the same company which was named ‘America’s Most Innovative Company’ by Fortune for six consecutive years. India’s Satyam
Computers and its fraudulent management revelation had the same impact-and was especially ironic, after it had won the ‘Golden Peacock Global Award for Excellence in Corporate Governance’ for 2008, before being stripped of the same after the scam.
The US subprime crisis, resulting in the fall of reputed and giant financial institutions like Lehman Brothers, pushed the world into a recession, bringing the business fundamentals of these institutions under a scanner.
It all came down to the same cause. The individual and company greed had somehow made the end more important than the means.
Cases like these and people like Ramalinga Raju and Bernard Madoff have shown the results of poor corporate governance and value systems. Most of the people primarily involved in such scams had a
‘good’ education and connections with ‘reputed’ schools. But it seems this education did not help them in terms of values and ethics.
The Way We Will Work | 21

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
However, the beneficial effect of the crisis has put the emphasis back on a general respect for traditional values. It brings back the focus on ‘doing well’ by ‘doing good’. At the centre is the principle of reverting to basics-sound business practice, tight control, honesty and transparency, checks and balances, focus on core competence and caution as sound business fundamentals.
According to the Knights of Columbus business ethics survey 2009, 90 per cent of executives and 76 per cent Americans surveyed said that high ethical standards strengthen a company’s advantage over its competitors, especially in the long-term. When deciding whether or not to invest in a company, 93 per cent
Americans and 96 per cent executives said that they would strongly consider the company’s reputation for honesty and ethical conduct among other attributes. This shows the rising realisation of the importance of corporate values, especially after the global economic crisis.
Some of the business schools are also trying to increase awareness on this aspect. The Nottingham
University Business School is now offering an MBA specialisation in Corporate Social Responsibility. The
Thunderbird School of Global Management has introduced an oath of honour for its graduating class to
“…oppose all forms of corruption and exploitation, take responsibility for [their] actions and strive for an honourable reputation and peace of conscience.” But this cannot be institutionalised. We are far away from a world where one could lose their management license for taking shortcuts or employing unethical means.
And therefore the onus will remain on the companies to encourage and promote their values. For long-term sustainability, they may have to give up some short-term gains because tall buildings on weak foundations will sooner or later collapse.
Indians are inherently enterprising. Our imperfect system makes us look for better solutions, right from childhood. According to the Global Entrepreneurship Monitor’s report 2008, 67 per cent of respondents in a sample survey in India considered entrepreneurship as a desirable career choice. Prevalence rates of entrepreneurial activity (from nascent to established) in India was ~28 per cent vis-à-vis 12 per cent and 19 per cent in the UK and US respectively. Though India also has a high discontinuation rate of 10 per cent, it just shows that people don’t hesitate in taking risks. Earlier, more companies from India were doing product innovation but now, individuals are coming to the fore.
Some of the factors which will continue to fuel entrepreneurship in India are:
More Opportunities
The diversity and size of our country creates a vast space for entrepreneurs to tap into. No matter how many global players come into India, our heterogeneity will always leave gaps for many more players. There are big and small opportunities almost everywhere in India, some of which outsiders would find difficult to identify. These opportunities will be the biggest driver of entrepreneurship in the decades to come.
Easier Access to Funds
Funding has been and is still an issue for Indian start-ups. Access to Private Equity (PE), Venture Capital
(VC) and easier financing schemes by banks will encourage people to start-up their own businesses.
Already, significant VC and PE investments are being received by Indian entrepreneurs. VC investment in
India in 2008 was US$ 740 million across 125 deals. There were 312 PE deals in 2008 with a value of US$
10.6 billion. These numbers were depressed because of economic recession but are expected to increase as India leaps back to healthy growth.
22 | The Way We Will Work

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
More Confidence
As per a 2008 survey by TiE (The Indus Entrepreneurs) and KPMG, the Indian entrepreneurial community indicates an average level of conduciveness at 3.31 on a scale of 1 to 5 (1 being poor and 5 being excellent) for entrepreneurial ventures in the country. Since the Indian entrepreneurs are optimistic, they are willing to take more risks. Also, as the workforce grows ‘younger’, there will be relatively higher creative and risk-taking conduct which will find expression in the years to come.
More Entrepreneurship Assistance
India also has an advantage in terms of entrepreneurship-oriented bodies such as the TiE and Wadhwani
Foundation, which seek to promote entrepreneurship by organising workshops, seminars and help in networking. Several major institutes like IITs and IIMs have entrepreneurship cells which assist incubation of businesses. Also, institutes like the Entrepreneurship Development Institute of India, sponsored by the
IDBI Bank Ltd, IFCI Ltd, ICICI Ltd and State Bank of India help in entrepreneurship education, research and training.
Icons and Success Stories
It also helps if a country has ‘icon’ entrepreneurs who have risen from the masses on pure merit and India certainly has many of these - N.R. Narayan Murthy, Shiv Nadar, Sabeer Bhatia and Dhirubhai Ambani to name a few.
To sum up, at an employee level there is a movement towards greater diversity in career options and also increasing participation of women, expatriates, part-timers and older people in the workforce. Workplaces will get more hi-tech, ‘greener’ and more globalised with a high focus on work ethics. We can expect to see more ‘home-grown’ entrepreneurial ventures in years to come. At the same time, employers will try to provide balancing avenues to their employees and incentives beyond money.
Authors
Anil Rajpal, Vice President I anil.rajpal@technopak.com
Stuti Mody, Associate Director I stuti.mody@technopak.com
Pragya Singh, Senior Consultant I pragya.singh@technopak.com
The Way We Will Work | 23

Introduction
Adopting a Multi-channel
Approach to Retailing
Increasing Private Label
Share in Indian Retail
Franchising: The New
Engine for Retail Expansion
International Retailers:
Returning to India Post the
2009 Blip
India: The New Destination for Luxury
Real Estate: Changing
Retail Economics & Striking a
Balance between Developers and Retailers
Funding Expansion Via the
PE Route
SaaS: Helping Small to Medium
Retail Enterprises Migrate to
Best in Class Applications
26
27
29
32
34
36
39
41
43

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Indian retail has gone through one full cycle of change in the last 2-3 years and seen both sides of the game-the extreme exuberance of 2007-08 and the fearful cautiousness of late 2008 / early 2009. In 2009, the market was flooded with not-so-pleasant news from the sector: downsizing, liquidity issues and even bankruptcy, incomplete projects, inability to meet the expansion plans, etc. The retail business mirrored consumer sentiments and the overall economic scenario, which appeared to be as gloomy, with no end in sight.
As news of large companies laying-off people and cutting salaries was further fuelled by an over-enthused media, consumers shrank their spending to the bare minimum, purchasing only the essentials for immediate requirement. People saw their savings/ investments in various asset classes significantly eroded and their trust in the banking sector dwindled as some of the largest global banks were seen biting the dust. The larger cities which contributed to maximum retail sales were the worst hit.
Retail and other industry sectors continued to hope that the market would revive, and banked on one trigger after another (the new year, the budget, etc.) till the Diwali festival of 2009, which saw extremely good sales for a large number of retailers and sustained itself even after the festive season. Though signs of a revival started in May / June of 2009 as the stock market started to recover, consumer spending only began picking up in August–September, peaking during the festive season. The upswing was broad-based and sustained, and by the end of 2009, gave enough confidence to retailers to start re-looking at their expansion plans. The liquidity crunch of the earlier part of the year also eased up and the future seemed much brighter.
While the slowdown inflicted a lot of suffering on the sector, it also brought the much-needed realism in a market that was taking basic business logic for granted. The concept of ‘value’ as opposed to ‘valuation’ has returned to the Indian retail sector and forced retailers to re-look at the basic structure and tenets of their business foundation. Retailers have realised that a ’me-too’ strategy has not worked and will not work in the future. The new strategy calls for a careful analysis of existing concepts and the re-emergence of retail concepts that are more ‘dissolved’ and customised for the catchment. The shopping experience has to be localised and must suit the psyche of the consumer in the catchment. The focus has clearly shifted to newer formats, concepts and categories and towards making each individual store profitable.
Despite the economic slowdown, the Indian market is and will remain one of the most promising in the world for many years to come. The size of our population-which was seen with extreme negativity in the
1970s (the height of which was Sanjay Gandhi’s controversial sterilisation policy)-has with change in the external and internal factors become one of the key drivers of economic growth and the engine behind our consumption story. This will continue to excite domestic as well as international companies/ retailers about entering and exploring the Indian market. Thus, while the year 2009 may be a blip in the Indian retail sector, like 2000–01 was for dotcom, retail will continue to grow at a scorching pace and will in the years to come emerge as the face of new India.
This article summarises the happenings in the retail sector in 2009 and projects trends across eight key functions for 2010 and the coming years.
26 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
01
With heightened competition and an almost evasive shopper loyalty, retailers globally have adopted a multi-channel approach to retailing, thus interacting, engaging and transacting with the consumer via multiple touch points, enabled by cutting-edge technology. Multi-channel retail refers to the delivery of customer propositions via multiple channels with some degree of cross-channel integration in management, information and service. Some of the popular channels besides ‘brick-and-mortar’ include e-tailing, m-tailing i.e. mobile commerce, interactive TV, catalogues and telephone. These various channels can complement each other or can be used to target and acquire new customer segments that had been unviable for various reasons.
Exhibit 1: Multi Channel Options in Indian Retail
A closer analysis of the two multi-channel options—one already popular and the other carrying immense potential—and their future in the Indian context:
E-tailing: While the global retail sector has gone far beyond the traditional ‘brick-and-mortar’ storefront with the Internet changing the way businesses interact with consumers, e-retailing is still catching on in India. Though industry reports indicate a significant increase in online shoppers between 2006 and 2008-up from 12 million earlier to 19 million with the average frequency of online purchases growing from 2.6 per cent in 2007 to 2.9 per cent in 2008-the total transaction value is still a very minuscule percentage of the ‘brick-and-mortar’ sales. In 2008, online sales were just 0.06 per cent of the total retail sales in the country and amounted to US$ 0.23 billion whereas the UK’s online retail market stood at
US$ 15 billion, roughly about 3.5 per cent of the UK’s total retail sales. Further, online sales are dominated by ticketing and a few other categories like books, music, movies, home appliances, electronics and IT and gift items. Other categories are yet to generate volumes.
Key challenges to the growth of this channel are low density of Internet connections (along with its poor quality) and lower penetration of plastic currency. Consumer apprehension in using new technology is also one of the main barriers. Apart from the psychological ‘touch and feel’ factor
(consumers like to touch and feel the product before buying), they have security concerns regarding online financial transactions and are unsure about product delivery, quality, buyback and return policies. Language also poses problems, as almost all websites are in English and not Hindi or vernacular languages. Thus, this channel is yet to grow to its full potential.
For retailers with ‘brick-and-mortar’ formats, e-tailing has emerged as another way of interacting and engaging with a certain consumer segment, though transactions still happen only at the stores.
Consumers largely use the online channels to collate information before they make purchases through ‘brick-and-mortar’ formats. This is evident from the fact that even for Future Group, the largest retailer in the country with the widest offer in terms of depth and width, their online portal,
Futurebazaar.com, accounted for only 1.5 per cent of total sales in the financial year 2009.
M-tailing: The difference between e-tailing and m-tailing is that while the former is limited to PC users with an Internet connection, with m-tailing moving to an SMS platform, it is open to almost the entire mobile population. And with India’s mobile penetration increasing the way it has, mobile commerce/ m-tailing promises exceptional business market potential with much higher efficiency. Mobile networks are already being used as a marketing and information dissemination tool and it will not be long before they are used for actual transactions.
However, all other issues beyond penetration, which have restricted the growth of online sales, are just as valid for m-retailing. It is thus estimated that with m-tailing maturing over a period of time, it will cut into the online sales of dominant categories and further reduce the ‘brick-and-mortar’ sales of the same. But, the question remains whether it would be able to add newer categories.
Further, an important barrier to m-tailing will be the state of mobile networks today, with a high risk of transactions not maturing due to poor networks.
While m-tailing will still take some time to grow, the use of mobile phones as in-store shopping assistants will start to be seen very soon in the
Indian context. Mobile phones will be used to offer specific promotions and discounts when consumers approach shelves, while they are in the store and deciding on what to buy. They will also offer product reviews and comparisons.
New Found Optimism in the Retail Sector: Trends for 2010 | 27

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
While an average shopper internationally uses at least three channels, alternative retail channels are yet to catch on in India. However, multi-channel retail is a reality which slowly but surely will be a part of Indian retail in a much more significant way than now. Most organised retailers, understanding the potential of the same, have already started to develop these channels. A case in point is ‘Mom & Me’ the newly started retail venture of the Mahindra group, which extends beyond the ‘brick-and-mortar’ stores with a well-developed and interactive portal, a catalogue, and sales assistants to help consumers place orders over the phone.
Though at the moment these channels are more consumer interaction and engagement tools and a device to reach out to consumers beyond the store locations, these will soon become independent and significant revenue streams which will complement and support the ‘brick-and-mortar’ stores business.
The major driver of multi-channel retail besides consumer demand is cost-saving through higher efficiency and infrastructure leverage and effectiveness. Multi-channel retail is also driven by strategic competitive advantage, differentiation opportunities and around ensuring that all customers are able to access the products and services on offer, even in places where a physical store may not be viable due to constraints of threshold business volumes and other management issues.
Customers also exhibit a multi-optional behaviour and need structure. The customer engagement-and hence loyalty-in multi-channel retail is thus much higher as customers benefit from increased choice in interaction opportunities and the option to switch channels of interaction and transaction as convenient and relevant to their current context.
While multi-channel retail offers a large set of benefits, the challenges in implementing a multi-channel strategy are also not small. The biggest challenge is the ability and the maturity of the retailers to provide a seamless customer experience and maintain consistent service levels across the various channels. This, though sounds easy, is not as easy to achieve. The other challenges that multi-channel retail poses are as follows:
• Inventory issues: with some channels online and some offline (e.g. catalogue) ability to fulfill orders booked, often becomes an issue. This is specially so with promotional or time bound offers.
• Pricing: Pricing of products may have to be varied based on channel costs e.g. the cost of home delivery to far flung places is charged extra by some retailers and this may upset some consumers.
• Technical capabilities: Delivering a seamless multichannel experience requires seamless integration of databases and systems across channels and also with other key front end and back end business functions e.g. supply chain.
Thus, while multichannel retailing might be easy to adopt as a strategy, delivering the multi-channel experience will need a long term view and commitment, and if executed poorly, retailers could end up with dissatisfied and disappearing customers thus effecting their top line as well as brand equity. However, the approach is sure to generate long term value and competitive advantage to retailers, if executed well and most retailers will be seen taking cautious baby steps towards creating a multi-channel retail environment.
28 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
02
With the growing retail sector, private labels or store brands are a rising phenomenon in the Indian organised retail market. Though shoppers have been migrating toward private labels long before the economic slowdown started, the slowdown has significantly increased the pace of this shift, thus favourably affecting the private label sales of almost all large retailers like Reliance Retail, Aditya Birla
Retail, Bharti Wal-Mart Retail, Infiniti Retail, Pantaloon
Retail, Shoppers Stop etc., that have private labels in their stable.
Exhibit 2:
Contribution of Organised Retail to Sales
Category
Refined edible oil
Beverages
Packaged atta
Washing powders
Shampoo
Skin creams
Contribution of Organised Retail to Total Sales
9%
8%
8%
7%
7%
6%
Packaged tea 5%
This migration is not only linked to price play, with an average private label in India priced 5–10 per cent below national brands, but also to various factors like improvement in product quality, packaging,
Chocolate
Toilet soaps
Biscuits
5%
4%
3% presentation and retail experience that private labels have graduated to offer. Added to that is the
Others
All India
5%
5% fact that while many product categories like mobile phones, small home and kitchen appliances, etc. were traditionally the strongholds of brands, large-scale commoditisation over the last few years has significantly reduced the power of the brand. Interestingly, consumers will continue to witness heightened competition between national brands and the private labels or store brands in the years to come, with private labels continuing to grow as a painfully visible symbol of retailers’ growing control over consumers and the supply chain. By diminishing the power of traditional brands, private labels are slowly but surely diluting a key source of manufacturers’ influence over consumers, and in turn, their leverage over retailers.
The rise of private labels has thus resulted in many conflicts between retailers and brands owing to issues like margins, display and shelf space. Retailers are more inclined to push sales of private labels as it offers them higher margins, enables them to differentiate themselves from other stores in the vicinity and gives them a chance to have more bargaining power and compete with the national brands rather than just being their customers. The brands view private labels as category killers that make consumers more price sensitive, and are favoured by the retailers in terms of shelf space. Brands are hesitant to offer higher margins to retailers as organised retail still contributes to a very small percentage of their overall sales (see
Exhibit 2), and there is also the option of growing the brand through unorganised retail, as the market is largely under-penetrated.
While Indian retailers and brands are still learning to manage this conflict, globally, there exists a fine balance wherein both private labels and national brands coexist, creating a win–win situation.
New Found Optimism in the Retail Sector: Trends for 2010 | 29

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 3:
Private Label Phenomenon - Global and Indian Scenario
Global Scenario
• The world private label market is estimated to be US$ 1,780 billion growing at 6 per cent p.a. vis-a-vis national brands which are growing at 2-3 percent p.a. For each US$ 100 spent by consumers globally, US$ 17 is spent on private labels. Retailers like Wal-Mart, Tesco and Sainsbury have successfully launched private labels across all price points from value to premium and have more than 40 per cent of their sales coming from private labels. Some of the successful private label examples are as follows:
»
»
Wal - Mart’s private label ‘George’ is one of the highest selling apparel brands in the US.
Aldi, the German deep discounter has more than 90 per cent of its sales coming from private labels. Some of its private labels sell more than any national brand in Germany, e.g., Aldi’s private label ‘Tandil’ is one of the largest selling washing powders in Germany.
Indian Scenario
• As compared to the global scenario, in emerging markets like India the private label market is still at a nascent stage. Though the share is still less than an estimated 7-8 per cent (US$ 1.4-1.6 billion) of organised retail sales, it is growing fast. Growth is primarily driven by:
»
»
Increasing strength of modern trade
Relatively lesser brand loyalty and high ‘value’ loyalty amongst Indian consumers
» Foray of private label products into new categories, largely those that are becoming increasingly commoditised (dry groceries, oils processed foods, basic apparel, home furnishings, small electricals, etc.) and the new emerging categories where brand strength is
»
» relatively much lower.
» India’s largest retail company Future Group has 12 apparel, 4 FMCG and 2 household product private labels in its formats Big Bazaar,
Food Bazaar and Pantaloon. Besides these it also has many other private labels across categories and formats.
» Aditya Birla’s private labels cover 7 brands and many products and variants in categories like cereals, processed foods, detergents, etc.
It is also planning to launch its private labels in milk and dairy products.
»
»
Tata Croma has plans for 100+ private labels across categories like personal care equipment, laptops, small appliances, etc.
Reliance Fresh sells staples and food items under Reliance Select and Reliance Value brands. It has recently launched Dairy Pure, in the liquid milk segment. Reliance also sells a number of private labels in other categories like apparel, through its various other formats.
Shoppers Stop has around 10 private labels, the prominent ones being Stop, Kashish, Life, etc.
Bharti retail recently launched 8 international private labels of Wal-Mart in its supermarket chain, Easy day.
Retailers need to understand that brands attract consumers to the retail store through advertising and promotion, thereby creating demand for the category. Private labels also benefit in the process as it gives them an opportunity to be picked up by consumers. If private labels are the only available products in the store and national brands are phased out, then it could alienate consumers from that store.
Another way in which both entities can benefit is if brand manufacturers offer their excess plant capacity and production/product development expertise to retailers for manufacturing of private labels, thus helping retailers to improve their private label quality standards. In global markets, brands regularly work with retailers to introduce co-branded product lines. For example, Nestle works with Lidl, a discount retailer, to create products and packaging in many categories across countries. In the Indian context, Ruchi Soya had tied up recently with Future Group for manufacturing its private label-Fresh & Pure. Brand owners and manufactures like Indo Nissin (Brand: Top Ramen), Dynamix Dairy (Brand: Dynamix) etc. also manufacture the private labels of a large number of retailers. Refusal to manufacture private labels can greatly hamper the established brands as well. A few years back when Coke and Pepsi in Canada declined to supply private labels to retailers, they took help from a small company called Cott and gained a 20 per cent market share while bringing down the bigger brand’s margins considerably.
National brands need to understand that private labels are and will be a part of life and in many ways provide them with unique opportunities. If a private label is launched in a new product category then the national brand marketers should consider it as a market test amongst consumers and can collate learnings from it to create new products. Further, in-store branding of private labels attracts footfalls towards the category shelves, hence providing more sales opportunities to national brands too.
However, the question is whether the Indian market is mature enough to understand the basis of this mutually beneficial relationship and then create and sustain the same. A case in point is that of a large retail group in India that decided to phase out a famous international cereal brand from its stores owing to margin disputes and is instead pushing sales of its private label. It will take some time to prove how right this strategy is, but taking a cue from the global players Indian retailers need to understand that private labels can flourish more alongside national brands, rather than in isolation.
30 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Going forward, in order to coexist, brand manufacturers and retailers will have to work together and not only attract consumers into the store but convert them into buyers by giving them a wide variety of options in terms of price and range. Innovation, promotion and competitive pricing are a few factors that national brands must adopt in order to compete with the private labels. Brand strategies will have to be improvised upon and made to operate at a more micro level to deal with the different private labels of large retailers.
Pricing and positioning strategies will not be only based on competitors’ moves-brands will have to consider how the retailers react to the brands’ strategy. To counter the price competition, brands will have to offer promotions and pay a higher fee for the more visible shelf space or slot.
On the other hand, retailers would have to continuously work on improving the quality of their private labels amid issues of threshold volumes to justify backend investments. Attractive packaging, in-store branding and promotion, widening the range and exploring categories where there exists untapped potential are other strategies that can bring them at par with the national brands. And there is no doubt that if the retailers and national brand manufacturers create a mutually beneficial coexistence then the ones to benefit most from this would be the consumers!
New Found Optimism in the Retail Sector: Trends for 2010 | 31

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
03
The spillover from the subprime financial crisis weakened both consumer confidence and consumer spending. Uncertainty prevailed, but amidst the chaos, the franchise industry in India presented itself as a promising business opportunity witnessing a +20 per cent growth.
However, with the global economy yet to recover from the ongoing slowdown and changing consumer’s habits, the retail franchising industry witnessed changes which focused on the franchisee-franchisor relations and expectations and the very basics/structure of franchising.
In a market sapped of funds, franchising presented a great opportunity to grow faster without deep pockets and without losing that entrepreneurial streak so important to grow sales, while efficiently managing cost.
Thus, more and more brands and retailers actively sought franchisees that could open stores and help the brand grow. However, the brands acted a little more cautiously and radically changed their working style with the franchisees. MGs (minimum guarantees), which had become the order of the day, went out of the window, and while retailers offered various incentives to the franchisees to sell more, sales responsibility shifted largely to franchisees. With the fall-back option of MG no longer being valid, franchisees had to take responsibility for sales, while the brand took care of the product and the branding aspects. The franchisee
- franchisor relation became a little fairer in that sense.
The changing real-estate scenario also helped the franchising sector. With rentals coming down substantially, franchisee business again became profitable within the given margin structures that brands/retailers offered.
For many brands and retailers, franchising also became a way to get regain their capital investment in real estate and retail infrastructure and to utilise the same in brand-building and marketing. A large number of brands and retailers hence converted company-owned, company-operated stores to franchisee-owned, franchisee-operated stores and subleased their stores to entrepreneurs who were willing to run those stores as franchisees. So, while the franchisee got a running store with established business, the retailers/brand owners got back the money they had invested in the store, while still retaining that store for the brand. In certain cases, retailers got much more than the residual asset value of the fixtures and furniture as the retail store was profitable and hence commanded higher ‘valuation’, or the lease rate of the property was much lower than what the current market price was, even post the fall in the real-estate prices rentals. Thus, the very basis of franchising changed from low-cost expansion to unlocking the value in retail frontend.
Exhibit 4:
Companies with High Focus on Franchisee Stores
Companies
KidZee
Adidas
Raymond’s
Domino's
Pizza
McDonald's
Baskin
Robbins
World of
Titan
Koutons
Retail
Liberty
Reebok
Archies
Khadim's
Numero
Uno
Subway
Total No. of
Stores
697
500
453
270
160
300
274
1400
570
850
550
481
120
145
Companyowned
Stores
-
-
-
-
-
10
10
59
70
150
100
150
55
69
Franchised
Stores
697
500
453
270
160
290
264
1341
500
700
450
331
65
76
%age of
Stores
Franchised
100%
100%
100%
100%
100%
97%
96%
96%
88%
82%
82%
69%
54%
52%
32 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Within the larger opportunity in franchising, entrepreneurs shifted category preferences. The apparel/ fashion segment which had one of the highest penetrations of franchised stores saw few new takers as sales dwindled. New franchising concepts like those in education and vocational training, QSRs, services retail (salons, spas, fitness centres and travel retail) gained favour with the investors/entrepreneurs.
During downturns, people start buying their own jobs through franchising. This trend was very evident throughout 2009 as more professionals, who were forced to quit their jobs due to the economic challenges, utilised their savings to become entrepreneurs/ franchisees. Further, apprehensive of the onslaught of the organised players, a large number of unorganised players also preferred to be the franchisees of large retailers/ brands.
Going forward, the retail franchising industry would gain further prominence. Brands and retailers will continue to see franchising as an efficient expansion route. However, the trend will favour larger franchisees/ master franchisees rather than the traditional single-store franchisees, as brands would find it difficult to deal with numerous individual franchisees. The franchising sector would also become more organised as more brands and retailers begin to understand the importance of presenting a uniform brand experience to the consumers, even though the stores would be owned and managed by different franchisees. Finally, as the gloom in international markets is dispelled, international brands will again start searching for franchisees to start their Indian operations.
The franchise systems that will perform best will focus on the quality of the franchisee, the franchisor’s systems and processes for managing a franchise business and continued thrust on the underlying business economics.
New Found Optimism in the Retail Sector: Trends for 2010 | 33

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
04
While young Indians have always aspired to own international brands, India’s consumption story has also figured, in the last few years, in the boardroom discussions of almost all major brands and retailers across the globe. With a market that even in this global economic crisis grew at a rate upwards of 6.5 per cent p.a. as compared to flat (if not negative) growth in the home markets of these brands, there is no doubt that India has arrived and is the next big destination for brands not already here. The only question that the brands need to ask themselves is whether they are ready to face an opportunity so large and heterogeneous, as the challenges may also be of a similar magnitude. The issue thus is of timing and commitment, rather than entry versus no entry. To that extent, some of the brands and retailers who were planning to enter India in 2009 may have deferred their plans, but India was never a short-term story as has been the experience of most brands. Thus 2009 would just be a minor blip in the entry of the international brands, and those committed will soon enter the market.
The 2009 agenda for all retailers across the globe was to cut costs, realign and consolidate operations.
Very few international retailers ventured into new markets as the credit squeeze and the challenges of the existing markets demanded resources and management bandwidth, hence keeping expansion to new markets outside consideration.
Brands and retailers already present in India were cautious in announcing any further growth plans, waiting to see the full impact of the economic crisis on the country and other emerging markets. The experience of existing international retailers in the recent past had also been quite mixed-some foreign brands found the market conditions to be far more challenging than they expected and had to roll back ventures. Etam, GAS,
Argos, Kappa, Springfield and VNC were some of the retailers that shut shop in India in 2009, primarily due to issues related with products, pricing, and format. Pricing remained a sore point for many retailers, especially for the international apparel brands, as Indians were happy to shift from one brand to another in pursuit of better perceived value.
Amidst the economic upheaval around the world and existing FDI regulations in India, there were retailers who announced plans to delay their entry or where discussions with prospective Indian partners did not result in something more conclusive.
• Ikea announced the decision to stay out of India as the country does not allow full foreign ownership of single brand retailers.
• Topshop and HMV cancelled their plans to enter India in 2009 due to sluggish sentiments in the established markets and also concerns of high real-estate cost and lower sales density in India.
• Amid rumors of Carrefour talking to various large corporates, there was no announcement by the company about finalising a partner in India.
However, a good number of brands and retailers finally signed agreements with Indian partners to venture into the country. These include:
• Spain’s Inditex Group, which partnered with Tata’s Trent, to launch the Zara brand in India. The first few stores are slated to open in mid-2010.
• Leading British shoe retailer Clarks announced a joint venture with Future group to retail Clarks footwear in India.
34 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
• Skechers USA, one of the global leaders in the lifestyle footwear industry, recently signed a deal with
Winner Sports - a wholly owned subsidiary of Pantaloon Retail India-to license and distribute Skechers footwear and apparel in India.
• Booker Group from United Kingdom set up its first 35,000 square-foot cash-and-carry store in Mumbai.
• French sports goods manufacturer, Decathlon, positioned as a one-stop shop for all sports enthusiasts, established its first cash-and-carry store in Bangalore.
• Paul & Shark, Diesel and Timberland tied up with Reliance Brands, part of Reliance Industries.
• Genesis Colors formed a JV with Burberry and will open stores in tier-I and tier-II cities.
• Fashion and lifestyle brand retailer DLF Brands tied up with DKNY, Mothercare, Armani and Salvatore
Ferragamo in the last 2 years.
Further, Wal-Mart Inc.’s maiden entry into the Indian market in 2009 was termed a success and satisfied with the response to its first two stores in Punjab, the company announced plans to open 40 more stores in the country in the near future. Wal-Mart’s success(and that of many others brands and retailers like
McDonald’s, Pizza Hut, Levi’s, Marks & Spencer, Tommy Hilfiger, Pepsi, Coke, LG, Sony, Samsung, etc.) is also proof that those who have invested in studying and understanding the market well and have shown long-term commitment have made money in India.
Outlook for 2010
As domestic markets in the United States and large parts of Europe will continue to witness weakness many global retailers will reinstate their expansion plans to enter India and other emerging markets which have bounced back much quicker than expected and to the surprise of most trend-spotters and analysts.
Retail segments such as fast-moving consumer goods, apparel, accessories and fast food services will dominate in terms of entry of international retailers in 2010, as these sectors continue to grow in double digits and lead the organised retail penetration in India. Some of the international retailers and brands who have been scouting the Indian market and may enter in 2010 include Boots, New Balance, Aeon, etc. It is also speculated that Carrefour will start wholesale operations in 2010. Besides these, some of the other names in the food service sector who are looking to enter India include: Coffee Club (Australia),
Aromas (Australia), CKE Restaurants, Jamba Juice (United States), The Pizza Company & Spicchio Pizza
(Thailand), Chill Out by the Sharaf Group (Middle East) and Akakiko Restaurants (Austria).
Though the modes of entry for international retailers are limited, most retailers with a long-term India strategy in mind will prefer the joint venture or wholly owned subsidiary route (through the wholesale cashand-carry). International companies will be more willing to create corporate structures that will give them a presence in the market today and provide them with an opportunity to step-up to a more controlling stake as and when government regulations ease up. Most retailers, with a vision to create a large business in
India, have found that the franchisee route has not worked well for them, as commitment on both sides remains an issue and as franchising as a business is itself not as evolved in India as in other parts of the world like the Middle East. Franchising, however, will continue to be a safe option for risk-averse brands, with constrained resources, in the current times.
As existing international retailers stabilise Indian operations and get familiar with the Indian market, other global retailers will have to take the plunge or be left behind on the growth curve. Retailers should bear in mind that global trends do not entirely fit in the Indian context, given that the end customer has a different buying pattern and motivators to loyalty. The merchandise as well as the retail experience in India will have to be customised to meet local needs. There remains large untapped potential in the market, and as India carries on along its path of economic growth and the Indian consumer continues to integrate with global trends, international brands and retailers will find India an increasingly fertile ground for growth.
New Found Optimism in the Retail Sector: Trends for 2010 | 35

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
05
With the European and American markets reaching saturation point, leading players have started concentrating on the BRIC (Brazil, Russia, India, China) countries and the focus is shifting to India-one of the fastest growing luxury markets. According to our estimates, the market opportunity for luxury in India is estimated to be US$ 3.3 billion (2009). Though this forms less than 1 per cent of the global share, the promise and potential have attracted some 50-odd luxury brands like Armani, Chanel, Aigner, Christian
Dior, Louis Vuitton, Cartier, Piaget, Tiffany, Moschino, Kenzo, Jimmy Choo, Tod’s, La Pearla, Canali, Paul
Smith and Just Cavalli to cater to the Indian consumer. The Indian luxury market is expected to grow at
25–30 per cent per annum to reach US$ 30 billion by 2015.
Exhibit 5:
Population by Income Class
Factors like changing consumer attitudes, real estate and regulatory environment are important for the growth of the luxury market and these are improving in the country.
• Growing number of luxury consumers: The number of millionaires in
India is expected to reach 3.7 million people by 2013. They are the primary consumers of luxury goods.
• Government regulation: Continuing relaxation of restrictions on foreign direct investment in retail, though very slow, has contributed substantially to the growth of India’s luxury retail market.
• Real estate: The emergence of high-end shopping destinations like
DLF Emporio and The Collection has broken the paradigm of luxury space being available only in 5-star properties. Luxury retailers are also exploring newer markets in tier-I and tier-II cites.
• Duties and Taxation-The duty structure has come down to 60-70 per cent from an initial 100-150 per cent.
Luxurieted [ >USD 100K]
Future Potential [USD >50K]
Other [<USD 50K]
CAGR 2007-13
1.8
9.3
1104
2007
2
10.7
1104
2008
3.7
21.5
13%
15%
1178
2013E
1%
Source: NCAER
With the fastest growing ‘millionaires’ population, the Indian luxury retail market is becoming the focal point of the future, with a number of international brands making their foray into the region and eyeing it as the top emerging destination for high-end goods.
• Giorgio Armani SpA entered into a 51:49 venture with real estate major DLF to set up shops in India.
• Gitanjali Lifestyle entered into an exclusive arrangement with the Italian watch brand Noraletto to sell its products in the Indian market.
• TSG International has tied up with the Italian fashion group AEFFE for exclusive marketing and distribution of its high-end luxury brands in India.
• Late 2008 saw luxury Swiss watch brand Raymond Weil set up an Indian subsidiary, Raymond Weil India
Pvt. Ltd.
• Genesis has tied up with Burberry and plans to open stores across tier-I and tier-II cities.
Indian consumers have started recognising the need for luxury goods and services that connect with their aspirations, dreams, passions and value system. This is evident from the growth in the sales of some of the leading luxury brands which have been able to connect well with the Indian consumers. A case in point
36 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 is LVMH, which invested time and effort in building a strong foundation in India and has reaped lucrative results. LVMH has been able to substantially increase its customer base as well as revenues from the Indian market and encouraged by the response has substantially increased its footprint in India. LVMH’s brands like TAG Heuer have grown by a CAGR of about 50 per cent over the last couple of years and view India as one of their most important future markets. LVMH is now poised to launch its Sephora chain of beauty stores, and other luxury brands in its stable like Thomas Pink in India. Mont Blanc is another example of a luxury brand which has gained immense ground in India and will reap rich dividends.
However, in spite of the success stories, there are enough and more examples of luxury brands which have found retail to be un-sustainable in India (in the current context), and having failed to impress the Indian consumers, have shut shop. A few other brands like Jimmy Choo and Bottega Veneta changed hands.
Paradoxically, though the Indian consumers want to buy the best brands, even at the luxury end of the market they are quite ‘value conscious’, like to be discreet and see the overseas luxury shopping experience as superior to that in India. This has forced the brands to price their products in India at not more than a 10–20 per cent premium, in spite of the heavy import duties. Some of the brands have in fact taken a hit and have actually priced their products at the same price as in the rest of the world. Most brands have also emphasised on their bridge lines and entry-level price points to attract new customers into their fold. Further, successful brands have tried to maintain the same retail standards in their Indian stores as anywhere else in the world.
The Indian consumer still considers luxury purchases as something he/she can flaunt for long and has not upgraded to ‘short life’ products. Thus, while many people do buy an Omega or a Rolex watch for a few hundred thousands, the number of customers willing to shell out a similar premium for categories like apparel, bags and leather products, etc. is relatively lower. Innovative indigenous models have sprung up to counter this hesitance, e.g. the very high-end, very exclusive and very secretive bag-rental service,
Bagsutra. Membership is by invitation only, prospective sign-ups are rigorously screened and need to be recommended by an existing member. Bagsutra stocks the hippiest international labels, from Bottega
Veneta and Chanel to Tod’s and Zac Posen.
Consumers are also looking for products that are customised and suit their requirements and culture.
Understanding this, brands like Canali have launched Indian ranges like the Nawab Collection inspired by
Indian royalty. Jimmy Choo has also launched India-specific products in its Cosma bag and Kenzie shoe.
While international retailers are exploring and building their foundation in India, some of the Indian retailers, too, have started moving up the luxury ladder. A case in point is Titan, which has introduced its luxury/ bridge line watches.
In the last one year, the global economic downturn has had an impact on the luxury goods category too, though possibly to a lesser degree than most other categories. The top end of the market has had relative inelasticity to such an upheaval. In India, too, the impact has been felt but paradoxically, the category continues to remain in an expansion mode. Some of the luxury retailers who are looking for expansion are:
• DKNY is planning to invest in India and open 20 outlets by 2013-14.
• Similarly, crystalware maker Swarovski, too, is looking at expansion in India.
• Lladro has opened its latest store at the UB city in Bangalore and is scouting for space to open more shops in India.
• Versace is also looking at expanding its presence in India. The brand has recently opened a second store of 4,000 sq. ft., which is one of the largest Versace outlets in the world.
• Genesis Luxury is planning to open 50-70 luxury retail stores nationwide.
Luxury brands which had started with single stores in India in the last 3-4 years have expanded and currently have multiple stores.
New Found Optimism in the Retail Sector: Trends for 2010 | 37

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Going forward, the luxury market has excellent potential for players with a long-term strategy and patient to see results. International retailers will have to understand the Indian environment and culture and will have to engage with consumers at a local level. With brands striving to increase their footprint, and luxury retail spaces still taking time to come up, we will see many luxury retailers moving out of the luxury malls, to high street locations and premium malls.
The Indian luxury market is a story waiting to be told.
India will be a lot more significant to the global luxury majors in the years to come.
Exhibit 6:
Foreign Retail Brands in India
Brand
Mont Blanc
Tag Heuer
Canali
Salvatore Ferragamo
Hugo Boss
Fendi
Year of Entry
1995
2003
2004
2005
2003
2003
Current No. of Stores
5
5
16
9
3
2
Moschino
Versace
Gucci
2005
2006
2007
2
2
2
38 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
06
Retail has always been about location. A prerequisite of modern retailing is the availability of quality space in key locations to support the roll-out plans of retailers. Till mid-2008, retailers lapped up every inch of the available quality space and hence, the considerable gap that existed between supply and demand of retail space in India led to spiraling rentals. However, in 2009 a contrasting picture came to the forefront.
Evaporating liquidity and gradually disappearing demand for retail real estate led to corrections in prices across all regions.
In the west, Mumbai saw a sharp real-estate price correction with average peak rentals falling by 25-65 per cent and Pune by 20-45 per cent. Similarly, Delhi saw the correction in the range of 25-45 per cent compared to the previous year. In the south, Chennai remained under pressure with most of the locations registering corrections in the range of 25-35 per cent and Bangalore in the range of 10-25 per cent. Kolkata saw a relatively modest fall of about 10-20 per cent on high streets as the real-estate prices here had not witnessed stellar appreciation during the boom period.
As seen in Exhibits 7 and 8, the fall was more in the malls than in the high streets. Limited supply and comparatively lower operational costs resulted in prominent high streets experiencing a relatively lesser impact of economic downturn in terms of vacancy rates and fall in rentals in comparison to malls.
The year 2009 witnessed retailers vacate non-performing stores and become more cautious about their expansion plans, thus making the market more retailer-driven with higher negotiating power and longer decision-making time. Retailers went to the extent of letting their deposit money sink, instead of opening shops they were not sure of. They thus cancelled their bookings in many of the new malls/emerging catchments. The retailers also started looking at changing their business understanding with upcoming malls / existing developers into a revenue share and minimum guarantee model as an alternative to the fixed rental model previously employed. They also displayed an increasing preference for established retail destinations over emerging locations across most cities in India.
Retailers adopted a ‘wait and watch’ strategy, thereby making it difficult for the developer to demand exorbitantly high rentals. Some of the other trends in the real-estate sector were as follows:
• Retailers started renegotiating their rental commitments as per the actual business potential in the mall/ high street, thereby exerting downward pressure on the rental values.
• Retailers also started looking for other options like zero-rental schemes, lower deposits and shorter lockin period to the tune of 6-12 months as against the previous 3 years.
• Instead of fixed rentals, a revenue-sharing model became common practice with 60-70 per cent of the new malls opting for the ‘performance-based’ revenue-sharing model.
• Retailers also asked developers to support them by reducing the fixed occupancy cost, and investing in flooring, high side ACs, fit-outs, etc.
Thus retailers and developers, in a sense, came a step closer to becoming partners in the business, sharing the upside as well as the downside and creating a win-win situation for both entities. However, few developers, through agreeing to work on a revenue share model, still expected the revenue share to be
18-20 per cent, making it financially unviable for the retailer to take the close the deals.
New Found Optimism in the Retail Sector: Trends for 2010 | 39

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 7:
Cities
NCR
Mumbai
Chennai
Kolkata
Hyderabad
Bangalore
Ahmedabad
Pune
Change in Retail Real-estate Rentals
Location: Prime
Main Street
Rental: Q3
(2009)—Net of Carpet Area
(INR/sq. ft.)
855
Rental
Change
(in 2008)
-34% Khan Market
South Extension
I & II
Karol Bagh
Connaught Place
(Inner Circle)
Linking Road
Kemps Corner /
Breach Candy
Colaba Causeway
Lokhandwala /
Andheri
Nungambakkam
High Road
Khader Nawaz Road
Adyar Main Road
Park Street
Camac Street
Elgin Road
Jubilee Hills
Banjara Hills
MG Road
MG Road
Brigade Road
Jayanagar, 4th block
C G Road
Law Garden
Sarkej Gandhinagar
Highway
MG Road
Koregaon Park
Aundh
562
270
540
495
360
337
270
90
135
90
225
225
180
135
135
90
180
360
180
90
45
45
180
135
112
-40%
-39%
-28%
-61%
-60%
63%
23%
-28%
-41%
-43%
-33%
-40%
-25%
-33%
-9%
-9%
-18%
-35%
-40%
-27%
-25%
0%
-23%
-42%
-46%
Exhibit 8:
Change in Retail Real-estate Rentals- Malls
Cities
NCR
Mumbai
Chennai
Location:
Prime Mall
Noida
Gurgaon
South Delhi
West Delhi
Lower Parel
Goregaon
Ghatkopar
Chennai Central
Rental: Q3
(2009)-Net of carpet area
(INR/sq. ft.)
270
225
405
225
450
270
225
180
% Change in
Rental
(1 year ago)
Kolkata
Hyderabad
Chennai Western
Chennai South
South Kolkata
Salt Lake
Rajarhat
Elgin Road
NTR Gardens
135
90
225
360
90
247
90
90
Bangalore
Ahmedabad
Pune
Himayathnagar
Banjara Hills
(Road No 1)*
Koramangla
Magrath Road
Cunningham Road
Vittal Mallya Road
Vastrapur
SG Highway
Drive-in Road
MG Road
Bund Garden
135
360
292
180
315
90
45
45
270
180
-41%
-61%
-37%
-29%
-38%
Ganesh Khind Road
Nagar Road
112
135
-33%
-22%
* Average of rents in 3 malls namely City Centre, Ashoka Metropolitana and GVK One
-18%
-14%
-11%
-7%
-53%
-26%
-
-40%
-20%
-47%
-34%
-29%
-36%
-33%
-36%
-32%
-44%
31%
-49%
-37%
-28%
Outlook for 2010
Rental values across malls and main streets have stabilised and the trend is likely to continue in the short run. Though demand in the retail segment is likely to remain under stress for the next 4-6 quarters owing to excess supply and weak off-take, the market is likely to become more realistic in terms of both rentals and supply infusion. Developers will hold the unplanned retail developments and will emphasise planned projects. There will be an emphasis on mall management for sustained growth of the developer’s business.
Going forward, retailers will be extra cautious in signing on properties and developers will be more realistic in terms of rentals. The minimum guarantee with revenue-sharing model will steadily gain importance and both retailers and developers will adopt a more cautious and planned approach to expansion plans. Amidst all these, rentals for the quality development are likely to start inching upward in the next 2-3 quarters. The long-term outlook for retail real estate stays positive and in all probability major retail markets across India are likely to gain lost rentals in the next 2-3 years, though regaining their earlier peak seems doubtful.
40 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
07
The passing year was almost a non-starter for retailers looking at expansion and funding growth via the PE route. The US financial sector meltdown coupled with the tightening of the credit market and the liquidity crunch along with our own market fiascos of Subhiksha and Satyam completely dampened the mood.
Many retail companies suspended their plans to seek funding through IPOs, PEs, etc. during the year
2009.
The global market meltdown created an early euphoria in the PE market, which subsided subsequently.
According to industry sources, the first three quarters of 2009 saw 179 deals across sectors with a total announced value of US$ 3 billion compared to 407 deals with an announced value of US$ 10 billion in the first three quarters of 2008. The lower number of deals was primarily due to the global liquidity squeeze,
Indian stock markets plunging, and the valuations gap widening between promoters and PE investors.
It was further fuelled by an extremely conservative investment approach adopted by PE funds as early interest waned into caution and then fear. Pre-IPO placements of shares and buyouts, which together comprised about 8 per cent of total PE investments in India in 2007, also dried up almost completely.
The fundraising process that was underway for a couple of retail chains with possible stake sale to PE firms was stalled, the only deterrent being valuations. PE funds refused to buy the bullish view on the future of these chains, with consumer spending taking a hit. Understanding the issues linked with business scale
-up in India, PE funds were no longer just willing to put in money on a great idea, but were convinced only if the retailers had shown a proof of concept as well as exceptional execution skills.
It was not just the investors who were taking a cautious approach; entrepreneurs, too, were not very eager to ink the deals, given lower valuations. Though both the retailers as well as the PE players believed that the market correction was overdue as the expectations had reached unrealistic levels, the PE players believed valuations had not really come down the way they were touted to have.
A more optimistic picture has, however, emerged in the second half of 2009 with a handful of Indian retailers already having managed to clinch deals in the recent past to fund growth.
• Home Solutions, the electronic retailing arm of Future Group got another round of US$ 30 million funding from Kotak PE and ICICI Ventures (Feb. ’09).
• Bennett, Coleman & Co. Ltd (BCCL) acquired a stake in G. J. Freedom Fashions (GJFFL), a subsidiary of Gini & Jony (Jun. ’09).
• Hong Kong based PE firm Fung Capital picked up about a 26 per cent stake in Future Group’s logistics arm Future Supply Chain Solutions and will pump in US$ 30 million for expanding the firm’s supply chain network (Jul. ’09).
• Henderson Equity Partners, the PE operation of asset management firm Henderson Global Investors, invested US$ 17 million in Genesis Colors, an Indian fashion house (Oct. ’09).
• TVS Capital’s PE arm TVS Shriram bought a 25 per cent stake in Trent-owned bookstore chain Landmark for US$ 13.5 million (Nov. ’09).
New Found Optimism in the Retail Sector: Trends for 2010 | 41

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Over the past couple of months, a slew of funds has been quietly piling on ammunition to move in for the kill in the economy that slowly but surely is on the mend. This is evident from the fact that foreign investors have begun to re-look at the expansion projects of the Indian retailers. Various leading retail chains, both big and small, like Tata’s Croma, Videocon’s Next, Planet M, Provogue, Hidesign, Samsonite and Cookieman have stepped up expansion plans this year in the wake of positive demand trends and a correction in the realestate prices across the country. A lot of retail firms now want to pursue the next set of opportunities and are getting ready for the next round of action. A host of PE funds have shown renewed interest in picking up stakes in these retail chains.
Driven by improved liquidity and business confidence, M&A as well as PE activities in the country is likely to see an uptrend in the coming months. The PE industry in India spanning VC funds, new PE firms-some of them founded by high profile executives now on their own-and established funds such as AV Birla PE,
Reliance PE, Milestone Capital, Tano Capital, Axis PE, ICICI Ventures and India REIT plan to mop up over
US$ 8 billion over the next 12-18 months across all sectors including retail.
PE firms are looking at the strategy of diversifying their portfolio and the resultant lowering of risk. Coinvestments in smaller deals gained momentum recently as VCs used this route to de-risk their investments; e.g., of the ten investments made by IDG ventures, it was a co-investor in 7 instances.
PE investors are confident about long-term growth in India and other emerging markets but are adopting a cautious approach towards new investment activity in the short to medium term. More investment opportunities await PE players, as some firms which had lined up IPOs for 2009 deferred plans to go public in the wake of the slide in the Sensex and the lukewarm response received by the IPOs launched in the recent past. These firms will now look at raising capital from investors, including PE players.
Even in the current market situation, India continues to be one of the most expensive markets in terms of price-earnings multiples among developing nations, but will continue to attract investors due to its long-term growth perspective. There will be a concentration of funds available for the stronger players with established track records and marginal players will continue to face great difficulty in raising capital, at least in the short run. Funds will greatly enhance diligence of their proposed investments so as to reduce the chances of error and will also encourage deal-making within their existing portfolio of companies to improve competitive dynamics. The capability to execute and scale up projects will be one of the most important factors that PE investors will look for in companies.
Thus, 2010 promises to be a year of recovery.
However, the recovery pace and dynamics remain open questions that only time will answer.
Exhibit 9:
Quarter-wise Private Equity Investment
(Volume Terms)
181
2008 2009
125
101
Jan-Mar
59
4806
Jan-Mar
881
Source: VVCEdge
Apr-Jun
60
Jul-Sep
Exhibit 10:
Quarter-wise Private Equity Investment
Deal Value (US$ million)
60
2008
2524 1157
Apr-Jun
2009
3125
Jul-Sep
967
42 | New Found Optimism in the Retail Sector: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
08
The introduction of SaaS (Software as a Service) will, in times to come, radically change the retail IT sector.
Indian retail, characterised by its traditional fragmentation and recent modernisation, still faces issues of threshold business volume to be able to afford best-in-class applications/ softwares. Most retailers growing from single stores to small chains and any midsized corporate dabbling with retail till now ended up either surviving without an IT system in place, hiring small companies to develop function-specific or enterprisewide solutions, or implemented small off-the-shelf solutions. Most of these did not radically improve operations and in certain cases even complicated them further, as the organisations failed to manage the change required to adapt to the system constraints or processes. SaaS is expected to end these issues and help small to medium retail organisations migrate to best-in-class solutions for their specific needs.
SaaS, built on the premise that packaged software as a separate entity will cease to exist, is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. SaaS software vendors may host the application on their own web servers or download the application to the consumer device, disabling it after use or after the on-demand contract expires. Retailers can access the application over a network, with an Internet browser being the only absolute necessity. The on-demand function may be handled internally to share licenses within a firm or by a third-party application service provider (ASP) sharing licenses between firms. In simple words, SaaS is a method of selling software in which a vendor or service provider hosts the applications and makes them available to customers as a service, rather than as a product, thus largely reducing or even nullifying any upfront costs that the client/ consumer may have to bear to purchase the product. Further this removes the responsibility for installation, maintenance and upgrades (and the associated costs) from IT/MIS staff.
The onerous costing structure of ‘traditional’ enterprise software vendors and the inevitable implementation challenges are two of the primary reasons that will drive migration to the SaaS world. As against the traditional product pricing mechanics, most SaaS vendors charge some kind of monthly ‘hosting’ or
‘subscription’ fee, or can even charge per transaction, event, or other unit of value to the customer. These alternative pricing models are possible as there is complete transparency in terms of transactional activity within the system. This ‘pay as you use’ pricing model best suits the small to medium retail enterprises who want to upgrade their IT infrastructure without incurring the associated costs. Most retailers are sceptical about which software suits their needs best; the SaaS model will help them try this without the large investment usually associated with setting up a business on a new IT platform and the huge exit barrier these investments come with.
Software changes take place frequently, hence it is beneficial for a retailer to license the software for a particular time period at low prices. SaaS gives the retailers the liberty to explore better software options as well as choose the apt updates from the provider. Besides this, Saas also allows tremendous flexibility both in terms of scale as well as features that a retailer might want to use, which change as the retailer grows and adds functions like warehousing and logistics, CRM, etc. New features can be tried and adopted only when they fit the business model and the customer mix, without any change in internal IT effort or risk. Thus, small to medium retail enterprises can largely benefit from SaaS and use the same software that a large retail chain retailer would be using, albeit in a more effective way.
New Found Optimism in the Retail Sector: Trends for 2010 | 43

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Globally, retailers in more mature markets, where the basic ERP capabilities were already developed, have been using SaaS to add optimisation solutions to improve business profitability through better in-season decision making. Retailers have always found it difficult to react in season and to make the best business decisions in the situations in which they find themselves. The introduction of optimisation solutions has provided them with a great tool to react positively to market conditions rather than waiting for the next season to take corrective action. Most of these solutions are rich in the science they use and differ drastically from the resources that retailers have within their business, so retailers find it more convenient to manage them in a SaaS environment. SaaS is thus here to stay as it will champion the flexibility that retailers in the developing market need due to the constantly changing business environment.
As per industry estimates, the Indian SaaS market has been growing at a compound annual growth rate
(CAGR) of 77 per cent from 2006 to 2009, and will reach US$ 165 million by 2010. As per the research, the
SaaS market growth is strong and has gained more momentum during the recession phase, as small to medium enterprises wanted to become more efficient without spending much on the enabling technology.
The following key issues, however, still restrain faster growth of SaaS in the Indian environment:
• Data security: Most Indian businesses, irrespective of size, are very hesitant to allow their data to sit outside the geographic boundaries of their office.
• Service issues: Since there are no references in the Indian context and the model is still in its early stages of adoption, the ability of the service providers to provide SaaS within the agreed cost and with the agreed service levels is still unproved.
• Flexibility and control: In case of a required change in SaaS applications due to internal system changes, the adaptability of the service provider and the associated costs are not clear.
However, as the service providers also mature and sort out some of the above issues, the momentum is expected to reach the retail sector, and more small to medium retail enterprises will join the bandwagon and dump suboptimal tier-II solutions.
Like in the mature markets, the first level of migration to SaaS happened with optimisation modules like markdown optimisation, pricing optimisation, replenishment optimisation, etc. The large and established
Indian retailers, too, are expected to follow the same trend as they have already built up their core ERP capabilities. However, the smaller players who have yet not invested will start with the core applications on
SaaS and will slowly upgrade to add other optimisation capabilities.
Authors
Baqar Iftikar Naqvi, Associate Vice President I baqar.naqvi@technopak.com
Madhulika Tiwari, Senior Consultant I madhulika.tiwari@technopak.com
44 | New Found Optimism in the Retail Sector: Trends for 2010

An Overview
Public–Private Partnership:
Search for an Ingenious
Model in India
46
47
Single Speciality Delivery
Models: Single Speciality to
Single Procedural Hospitals 48
Diagnostic Centres:Unbundling from theTraditional Setting 49
Low-cost Healthcare Delivery
Models: Increasing Penetration 50
Healthcare System:
Staying Connected to Your
Patient 51
Integrated Medicine:
Leveraging the Inherent
Strengths
Technology Partnerships:
Arresting the Rising Cost
Operations Optimisation:
Measuring Performance
Patient Safety:
A Renewed Focus
Healthcare Design:
Alternative Care Settings
52
53
54
55
56
45

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
We initiated providing informed insight into the healthcare market in India through quarterly feature as
‘Health Outlook’ in 2007. Most of the earlier trends* that we predicted are shaping today’s healthcare industry in India.
Some of these trends (Exhibit 1) will have a major impact in the healthcare marketplace in the future.
Exhibit 1:
Trends Impacting Healthcare in India
Secondary Care Hospitals:
Unleashing the new potential in smaller towns
Health Insurance: The changing scenario
Five year tax holiday has provided further impetus to the growth of hospitals outside the metros.
Both existing & upcoming healthcare providers are already investing or announcing future plans for setting up secondary care hospitals in tier-II and tier-III cities.
Voluntary health insurance has seen a phenomenal growth over the past few years and is expected to grow further with the entry of new players and innovative products. The shift in the role of
Government from delivery to the financing of care with launch of Rashtriya Swasthya Bima Yojana
(RSBY) is expected to cover 60 million Below Poverty Line families by 2020
Corporatisation of Medical Education
Corporate entities will be allowed in field of medical education in future to address huge shortage and improve quality of health workforce. This will lead to growth of Academic Medical Centers in
India.
Med-polis : The emerging healthcare cities
Health cities could change the way healthcare delivery, medical education, research and development is conducted in India. A growing number of players including Medanta, Narayana
Hrudyalaya, Reliance, Care Hospitals are looking for set up health cities.
Infusion of Private Equity
Healthcare sector has emerged as one of the preferred sectors for investments by private equity and further growth is expected given the huge potential of the sector .
The coming decade will shape the future of the healthcare industry with innovations in technology, financing and delivery models. While hospitals will continue to be the mainstay of treatment for episodic acute care, there will be a fundamental shift in the nature, mode and means of delivery of care. Speciality centres, retail clinics, diagnostic centres and wellness centres with simplified processes and focus will improve quality, service and convenience for the consumer. With rising lifestyle diseases, preventive and chronic care will gain more importance and play a major role in addressing medical needs.
Advances in technology and medical research will make it possible to envision an entirely new health care system that provides more individualised care without necessarily increasing costs. Healthcare will become increasingly personalised with the development and delivery of new treatments tailor-made to patients’ needs as far as possible.
New financing schemes and partnership modes will be developed to make healthcare more accessible and affordable. This transformation is already evident and shall continue to grow.
The country will loose national income of US$ 236 billion over the next 10 years due to premature deaths caused by heart disease, stroke and diabetes. Overall improvements in health and a 20 per cent reduction in Disability Adjusted Life Years (DALYs) over the next decade would translate into a gain of national income of over US$ 100 billion per year, 2020 onwards.
This edition continues to focus on and attract attention towards the newer trends, which range from innovative business models to logical integration possibilities.
*The 2007-2010 trends as detailed on page 57
46 | A Peek into the Future of Healthcare: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
01
Public-Private Partnership (PPP) models have proved to be a successful tool in the infrastructure sector like national highways, power, transport, airports and seaports. The Central and State Government is now increasingly pursuing this model to bridge the equity and accessibility gap prevalent in the country’s healthcare. PPPs would usher in private sector expertise along with efficiencies in operation and maintenance, thus leading to improved healthcare service delivery to the masses. PPP in healthcare
Exhibit 2:
State
Karnataka
Tamil Nadu
Andhra Pradesh
West Bengal
Madhya Pradesh
Rajasthan
PPP Models
PPP Model
Karuna Trust; Yashaswini Scheme
Mobile health services
Aarogyasri
Mobile health services
Community outreach program
Contracting in public hospitals delivery can facilitate the creation of new capacity as
Gujarat Chiranjeevi Project well as improve efficiency in the existing facilities. As of now, there is preponderance of non-institutional than institutional PPP. The emergence of epidemics like H1N1 swine flu, HIV, etc., also saw the Government recognising PPP engagements to combat the epidemics. However, it is imminent that such cooperation can extend far beyond national emergencies and public health provisions.
With the advent of national schemes like Rashtriya Swastya Bima Yojana (RSBY), the Government is increasingly taking on the role of insurer providing a substantial patient base for private providers. There seems to be a search for an ideal PPP model for healthcare, which continues to be elusive.
Key Success Factors for PPP
• Political Commitment and enabling legislation
• Need for clear policy and legal framework for PPP
• A strong control mechanism to undertake efficient oversight and dispute resolution procedures
• Careful design of the contract with appropriate risk apportionment
• Defining an ‘acceptable rate of return’ for the private sector
Exhibit 3:
Primary Health
Centre
Management contract
Private player/NGO undertaking the management and operation of PHC.
Goverment pays a portion of the running cost.
ssible Player
NGO Organized
Providers
District Hospital
Design, build and operate
In addition to the design, build and full operation of the hospital, the private player can deliver all clinical services.
The Goverment pays annual fixed service payment for delivery of all services.
Public–Private Partnership Options
Single Specialty
Hospital
The Government provides land, building and immovable.
The private player hires manpower, pays salaries and provides medical services.
Multispecialty
Hospital
The Government provides land, infrastructure at concessional rates.
The private player provides medical services to people below poverty line
(BPL) within the city and the region at subsidsed rates.
Organised Providers/
Technology Providers
Physician Group Practice
Organised Providers
Physician Group Practice
Organised Providers/
Technology Providers
Academic Medical
Centre
The possible models could be joint ownership model involving strategic partnership,both financial and technical or pure management model with no equity involvement
Physician Group Practice
Organised Providers/
Technology Providers
A Peek into the Future of Healthcare: Trends for 2010 | 47

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
02
Single speciality hospitals are a small but rapidly growing genre among today’s hospitals in India. The growing number of speciality centres and hospitals signals a move towards maturity of the healthcare industry with an increasing complexity of business and consumer affordability.
Exhibit 4:
Advantages of Single Speciality Models
What sets these hospitals apart is their focus on one single speciality or service line. Whether it is highend disciplines such as oncology or neighbourhood specialities such as ophthalmology and day-care surgery, they are growing by sticking to their core strength. While there have always been stand-alone speciality clinics or hospitals run by doctors, these providers are moving towards corporate set-up offering the same precision of quality care in multiple locations.
• Cost efficiency due to higher volumes
• Provide higher quality care due to greater specialization
• Easily attract human resource
• Economies of scale and scope
• Ease of operation
• Increase consumer satisfaction
• Competitive pricing and increased choice for consumer
Speciality hospital formats range from low-risk speciality including eye care, dermatology, mother and child to high-end speciality including cardiology, cancer and transplant medicine. The mid-level specialities are offered in a multi speciality hospital format. The low-risk speciality models require low capital expenditure and have comparatively low operating costs as in-patient stay is rarely required for day procedures. This minimises the need for support infrastructure and offers easy replication. Consumers expect convenience and are not willing to travel too far for such speciality services.
On the other hand, high-risk speciality models require a high level of expertise, capital investment and operating cost due to the complexity of procedures and specialised equipment.
These speciality centres have been spurred by rising affordability and healthcare awareness. Currently, speciality centres are operating in mature markets and there is a huge opportunity to offer such services in tier-II and tier-III cities. The speciality models have become favourite investment options for private equity firms. In future, the single speciality hospitals will transition into single procedural hospitals - such as
Shouldice Hospital, Canada - that focus on conducting surgeries only for abdominal hernias.
Exhibit 5:
Evolution of Hospitals
1500 - 1800 AD
General Hospital &
Nursing Homes
1500- 1800 AD
Military & Slave
Hospital
400 - 100 BC
Religious Inpatient
Homes
1900
Teaching
Hospital
1950
1980
2000
Multispeciality
Hospital
Teritary Care
Hospital
Speciality centre
Future
Single Procedral
Hospital
Exhibit 6:
53%
Break-up of Speciality-wise Market
18%
3%
9%
17%
Women & Children
( US$ 5422 Mn)
Cardiology ( US$ 4889 Mn)
Oncology ( US$ 2667 Mn)
Ophthalmology
( US$ 947 Mn)
Others ( US$ 15542 Mn)
48 | A Peek into the Future of Healthcare: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
03
Traditionally, diagnostic centres have been part of hospitals and physician offices. The marketplace is evolving, with diagnostic centres operating as stand-alone entities. In the future, diagnostic services will be offered at retail outlets, pharmacies and at home (personalised testing).
Diagnostic test results impact more than 70 per cent of healthcare decisions and thus form an essential element in the delivery of healthcare services. Physicians use lab tests and radiology procedures to assist in the diagnosis, evaluation, monitoring and treatment of medical conditions.
Exhibit 7: Diagnostic Centers: Services
Pathology
Haematology
Biochemistry
Microbiology & Infectious Diseases
Histopathology
Immunology & Radio Immunoassay
Gene Testing
Radiology & Imaging
PET CT
MRI
CT
Ultrasound
Mammography
X Ray
Speciality Diagnostics
Cardiology
Neurology
Oncology
(Services offered based on local market needs)
The Indian market for diagnostics is worth US$ 1.1 billion, and constitutes 4 per cent of the overall healthcare delivery market. Currently the marketplace has several hundred smaller players with a handful of organised players who have a good presence in the metros. Unfortunately, the good quality diagnostic services are inaccessible in rural areas. Despite current business challenges, the diagnostic marketplace will continue to grow due to some of the key trends, such as:
• The growing and ageing population will increase demand for diagnostics testing.
• Continuing research and development in area of genomics is expected to yield new and specialised tests. These advances are spurring interest in and demand for personalised medicine which relies on diagnostic and prognostic testing.
• Consumers and insurers increasingly recognise the value of diagnostics as a means to improve health and reduce the overall cost of healthcare through early detection and prevention.
• Organised players offer consumers increasing convenience and access to quality diagnostic services.
• Point-of-care testing will enable solutions that improve care to the patients by enabling faster diagnosis and treatment.
• There are new opportunities arising in infectious disease testing, molecular oncology and pharmacogenomics.
Exhibit 9: Exhibit 8:
Diagnostic Centres: Moving Closer to the Patient
Home based testing point of care testing
Retail outlet pharmacy testing centers
8
6
4
Growth of Diagnostic Market in India
US$ in Billion
CAGR 20%
7
Stand alone labs & diagnostic centers
2
3
Hospital & physician office labs
0
1
2010 2015 2020
A Peek into the Future of Healthcare: Trends for 2010 | 49

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
04
Over the years, most healthcare providers were developed keeping in mind the metro markets. But now, metros with developed healthcare infrastructure and rising competition have reached a saturation level serving a certain socio-economic segment of the population. The healthcare providers have now started realising that they cannot serve all segments of population through high-cost structures. To serve
Exhibit 10:
Low-cost Secondary Care Hospital Services
• Secondary care with basic and a few super specialties
• 100 beds
• 15-20 ICU beds
• 3-4 operation theatres different consumer segments such as lower middle income, urban poor and rural population, they need to develop low-cost healthcare delivery models.
Low capital intensive models will ensure viability of
• Endoscopy
• Health check-up services
• Lab, radiology and blood bank services
• Fully equipped ambulance services the project and expand the healthcare providers’ reach in different geographies and consumer segments. There are some hotel brands such as Taj that are operating luxury as well as budget hotels (Ginger), thus serving different consumer segments with appropriate services.
There is much that can be done to reduce healthcare costs without reducing the quality of care. To reduce initial capital cost for setting up low-cost healthcare facilities, land can be bought on the outskirts rather than in the centre of town to reduce the overall land cost. The overall built-up area per bed can be reduced to reduce per-bed cost. Similarly, rather than buying the latest medical equipment, appropriate technology needs to be deployed. Usage of good quality indigenous medical equipments can be promoted. Also, outsourcing or third party arrangements can be evaluated for diagnostic and other support services. Airconditioning can be considered just for special rooms and areas instead of full building air-conditioning solutions.
The low-cost models will have a lower cost of operation. The tariff for the services will be low as compared to that offered in high cost hospitals. Initially, such models will feature in secondary care space and later graduate to tertiary care speciality and super speciality based on local market needs.
Exhibit 11:
Parameters
Floor space per bed
(sq. ft.)
Building cost
(US$ /sq.ft)
Equipment cost
(US$ /bed)
Total cost
(US$ /bed)
Reinventing the Value Chain: Low-cost Models
Current Secondary Care 100bed Hospital
Low-cost Secondary
Care 100-bed Hospital
1,000 - 1,200
63 - 73
42,000 - 52,000
700 - 800
42 - 50
21,000 - 31,000
Remarks
Optimising space allocation without compromising on functionality
Reducing building cost by value engineering, choice of material cost based on project vision and model
Reducing equipment cost by deploying appropriate technology in diagnostic and laboratory services. Further reduction can be brought about by group purchasing and outsourcing of certain services.
105,000 - 110,000 52,000 - 62,500
50 | A Peek into the Future of Healthcare: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
05
Traditionally, healthcare providers have been offering in-patient services in the geographies they serve.
With the evolving healthcare marketplace, major organised healthcare providers such as Apollo Hospitals,
Fortis Healthcare operating in tertiary care space are diversifying apart from their core hospital business to include retail pharmacies, clinics and other services to serve patients better and to achieve economies of scale. With increasing accessibility to insurance and rising consumer awareness, healthcare providers will offer the entire gamut of services across the value chain, including primary, secondary and tertiary services to attract patients into the healthcare system right from the entry point. The primary and secondary healthcare formats will act as feeders to tertiary care hospitals. The integrated healthcare provider will be able to negotiate contracts with insurance companies and equipment vendors.
Characteristics of the Healthcare System
• Develop integrated healthcare delivery model around core ‘hospital’ business
• Offer a broad spectrum of services across the value chain in the most cost-effective manner
• The hospitals have high volume and high margin speciality services
• Out-patient services are an integral component of the healthcare system to increase attractiveness to patients
• Ability to negotiate service contracts with purchasers of group health care services
• Implement advanced health information technology to improve the quality and convenience of services
• Achieve price efficiencies through group purchasing
• Build cost savings by sharing of support and other services
Exhibit 12: Leading Healthcare Networks
Hospital Corporation of America, US
• 166 hospitals including 160 general acute care hospitals, 5 psychiatric hospitals, 1 rehabilitation hospital
• 104 free-standing ambulatory surgery centres
• 49 free-standing diagnostic treatment facilities, and 74 providerbased imaging facilities
• Comprehensive rehabilitation and physical therapy centres
Netcare, South Africa
• 120 hospitals
• Primary care community care centres offering GPs, dental, pharma, pathology and imaging services
• 120 retail pharmacy outlets
• Diagnostics: 6 main laboratories, 215 collection centre depots and 120 radiology centres
• Ancillary Healthcare Business: 41 dialysis centres, 14 travel clinics, 7 radiotherapy/oncology centres, emergency medical services
Exhibit 13:
Components of the Healthcare System
C om mon I T I n fr astru ctu re a nd S erv i ces
Emergency
Services
Pharmacies
Hospitals
As
Core
Services
Diagnostic
Services
Speciality
Services
S h aring o f S u pp or t S erv i ce s , Go u p Pur c ha s i ng
Day Care
Surgery
Centres
A Peek into the Future of Healthcare: Trends for 2010 | 51

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
06
Integrated medicine is a new paradigm in health care that focuses on the synergy and deployment of the best aspects of diverse systems of medicine including modern medicine, Homeopathy, Siddha, Unani,
Yoga and Naturopathy in the best interest of the patients and the community.
Exhibit 14:
Components of Integrated Medicine
Exhibit 15:
Market Size of Integrated Medicine
Ayurveda
7%
3%
Yoga &
Naturopathy
Modern
Medicine
Homeopathy
19%
US$ Mn
Yoga & Naturopathy (US$ 11 Mn)
Unani & Siddha (US$ 22 Mn)
Homeopathy (US$ 58 Mn)
Ayurveda (US$ 222 Mn) 71%
Unani &
Siddha
The increasing public demand for traditional medicine use has led to considerable interest among policymakers, health administrators and medical doctors on the possibilities of bringing together traditional and modern medicine. Traditional medicine looks at health, disease and causes of diseases in a different way.
The integration of traditional medicine with modern medicine may mean the incorporation of traditional medicine into the general health service system. The purpose of integrated medicine is not simply to yield a better understanding of differing practices, but primarily to promote the best care for patients by intelligently selecting the best route to health and wellness.
Surveys and other sources of evidence indicate that traditional medical practices are frequently utilised in the management of chronic diseases. Traditional medicine presents a low-cost alternative for rural and semi-urban areas where modern medicine is inaccessible.
An approach to harmonising activities between modern and traditional medicine will promote a clearer understanding of the strengths and weaknesses of each, and encourage the provision of the best therapeutic option for patients.
Exhibit 16:
Advantages of Integrated Medicine
Exhibit 17:
Integrative Medicine Centre at Griffin
Hospital, Connecticut USA
• Widest array of options available to patients(One in three adults in the United States used at least one complementary or alternative medical therapy (CAM))
• Provides an opportunity to combine the ‘best’ of both conventional medicine and complementary alternative medicine.
• Provides cost-effective treatment options
• Results in better patient outcomes, measured in terms of symptom relief, functional status and patient satisfaction
• Focus on holistic health and well-being
• The hospital was founded on the principles of patient-centred care and evidence-based medicine. The patient is provided with evaluations that are holistic and involve a conference of five on-site experts: Medical
Doctors (MD) specialising in internal and preventive medicine, a Nurse
Practitioner, and two Naturopathic Physicians with expertise in a wide array of natural, complementary and alternative therapies.
• Treatment approaches available at the IMC include internal medicine, naturopathic medicine, preventive medicine, nutritional counselling, nutritional supplements, nutriceuticals, herbal medicine, acupuncture, craniosacral therapy, therapeutic touch, homeopathy, intravenous micronutrients, relaxation therapies, as well as referrals to counselors, trauma therapists (EMDR), and chiropractors.
52 | A Peek into the Future of Healthcare: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
07
Technology is seen as one of the three important drivers of increasing healthcare accessibility.
Selection and adoption of appropriate technology often makes a critical difference in the success of healthcare reform and reengineering. It has the capability to revolutionise the way healthcare is delivered.
Exhibit 18:
Novel Ways to Rationalise Technology Cost
• Reducing the cost of medical technology research and development
• Encouraging indigenous production of medical devices
• Devising innovative ways of dealing with obsolescence
However adopting and implementing technology in healthcare forms a significant area of cost in
• Testing the new and upcoming business models of technology services healthcare projects. It is estimated that almost 30-40 per cent of the project cost is allocated to medical technology including both medical devices and information technology. Therefore, it is imperative to devise ways to rationalise this cost by adopting some innovative methods.
Top medical technology companies like GE, Philips and Siemens-in their effort to lower the costs of care and improve the quality of outcomes-have been using innovation as a main tool. These companies come up with a slew of products endeavouring to bring down cost while upgrading the level of technology. For example, the Active Technology Partnership (ATP) initiative of GE enables the provider to control their equipment budget over a long period of time while managing technology obsolescence through planned equipment renewals.
Exhibit 19:
Company
Health Hiway
Pay-per-use Model
YOS Technologies
Pay-per-use Model
GE
Active Technology
Partnership Solution
Innovative Options in Healthcare Technology
Model
Software As A service (SaaS) model wherein the vendor sets up an IT infrastructure in hospitals, looks after the complete maintenance, training and effective implementation of the modules and the provider has to pay some annual fee only for the required modules within the hospital.
Provides record management and hospital management software to hospitals along with value-added services like smart cards and patient portal.
The ATP program is individually tailored to the hospital needs, both at an organisational and departmental level.
Differentiating Factor
• The model allows easy adoption of technology and helps save on the cost of further development and upgrading of solutions.
• Innovative pricing mechanisms based on a subscription model .
• Smart card issued by the hospital acts as Hospital
ID card which stores patient health information, eliminating the need to carry bulky medical files.
• The card is also linked to the record management and hospital management software of YOS, enabling ready retrieval of required records and thus reducing patient wait time.
• Enables the provider to control their equipment budget over a long period of time while managing technology obsolescence through planned equipment renewals.
A Peek into the Future of Healthcare: Trends for 2010 | 53

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
08
Healthcare providers and administrators today are under constant pressure to meet the everincreasing customer expectation and stay ahead in the competitive race. Operations optimisation in hospitals can enable hospitals to provide worldclass services with a finite set of resources and can significantly impact competitive strengths, enhancing the business performance of the organisation.
Exhibit 20:
Service Quality
Performance Parameters
Clinical Outcomes Commercials
Shorter waiting time
Increased patient satisfaction
Lower ALOS
Reduction in the trend of re-admission
Increased sales and revenue
By definition, operations optimisation relates to appropriate workforce management, quality management, planning and control, sound clinical processes and outcome performance.
Although many healthcare providers rely mainly on technology to optimise service delivery, it is largely felt that automated support can only help the organisation to a certain level of process management. The key to any real improvement lies with better understanding of process workflow and tackling the bottlenecks.
While staff performance also plays a very important role, it is process design and management-or lack of it-that needs to be tackled on a priority basis.
Introducing and implementing operations optimisation techniques is a complex and time-consuming procedure. However, the associated benefits of operations optimisation far outweigh the difficulties. There are reports of a number of benefits associated with the introduction of techniques like queuing, clinical pathways, standard operating protocol and integrated care pathways. These include reduction in the length of stay in hospital, reduction of costs in patient care, improved patient outcome, improved quality of life, reduced complications, increased patient satisfaction with service, improved communication between staff, and reduction in time spent by health staff on paperwork.
Exhibit 21:
Tools for Operations Optimisation in Hospitals
• Variability methodology
• Queuing theory
• Scheduling and forecasting
• Simulation modeling
• DMAIC
Exhibit 22:
Benefit Analysis of Operations Optimisation of a Leading Hospital in India
53%
40%
30%
20%
Increase in medicine availability at customer end
Increase in
OPD pharmacy revenue
Savings in inventory
Note: Results indicated for a leading hospital in India
Reduction in lead time
54 | A Peek into the Future of Healthcare: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
09
With the rise in patient awareness and a subsequent surge in hospitals going for accreditation-which imposes a mandate to take greater accountability for patient safety and risk reduction, there is a renewed focus on patient safety amongst the care-givers. Furthermore, the new legislation and governmental programmes, like Consumer Protection Acts, etc. have given healthcare entities a clear mandate and agenda for addressing medical error in health care.
In fact, the intent of statements of principle by the healthcare professional is perfectly aligned with the goal of patient safety. The maxim in the Hippocratic oath ‘do no harm’ is intended to guide the ethical sensibilities of physicians.
The first step towards achieving these safety goals would be imbibing and crystallising a culture of safety within the organisation. Encouraging an open and non-punitive environment goes a long way in enhancing patient safety.
The Indian healthcare industry, too, is moving towards acquiring patient safety goals. Hospitals are using technologies like RFID, Computerised Physician Order Entry, etc.
The Indian Confederation for Healthcare Accreditation (ICHA), a non-profit organisation consisting of various associations, aims to spell out clear-cut healthcare standards, train employees of hospitals, nursing homes and clinics in spotting medical errors and adverse reactions as well as encourage them to report the same in order to create a database.
Exhibit 23: Patient Safety Facts
Exhibit 24:
What Steps Can a Hospital Take to
Improve Patient Safety?
• Estimates of as many as 44,000 to 98,000 people die in
US hospitals each year as the result of problems in patient safety.
• Every hour, 10 Americans die in a hospital due to avoidable errors; another 50 are disabled.
• Implementing computer physician order entry
• Having full-time doctors and nurses certified in critical care
• Implementing a patient safety compliance checklist
• Encouraging adverse event reporting
• Robust infection control mechanism
Source: To Err is Human: Building a Safer Health System,
Institute of Medicine report, 1999.
Exhibit 25:
Managing Concentrated
Injectable Medicines
WHO’s Proposed High 5s Project to Facilitate Implementation and
Evaluation of Standardised Patient Safety Solutions
Assuring Medication
Accuracy at Transitions in Care
Communication During
Patient Care Handovers
Improved Hand Hygiene to Prevent Health Care-
Associated Infections
Performance of Correct
Procedure at Correct Body
Site
A Peek into the Future of Healthcare: Trends for 2010 | 55

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
10
Healthcare design has undergone an incredible change over the last few years. The emergence of ambulatory care services has transformed the way healthcare facilities are programmed and configured.
Due to faster procedures and fewer in-patient stays, ambulatory care centres are able to deliver care in less intensive settings, covering a wide range of health care services for patients who do not need to be admitted overnight.
Some design implications for ambulatory care centres are:
• Need to emphasize more on providing structured spaces along with aesthetic appeal to achieve efficiency in design.
• Reduced travel time and distance between clinical areas and offices results in cost-effectiveness and better services.
• Standardisation of spaces such as the operating rooms, recovery and treatment rooms helps achieve functional efficiency.
• These facilities have more potential to incorporate natural light and ventilation due to factors such as narrower floor plates.
• A single service core surrounded by operating/treatment/recovery rooms reduces the amount of equipment required for individual units.
The ambulatory care hospitals are intended to serve patients who have not undergone complex surgeries and are able to walk; nevertheless facilities must incorporate measures for handicapped and patients under slight sedation.
Exhibit 26: Advantages of Ambulatory Care Settings Exhibit 27:
Ambulatory Surgery Centres
• Larger number of units of care at significantly lower cost per unit
• Faster construction
• Less complicated planning
• Improved quality of care
• Cosmetic and facial surgery centres
• Endoscopy centres
• Ophthalmology practices
• Laser eye surgery centres
• Centres for oral and maxillofacial surgery
Exhibit 28:
Parameter
Space Requirement*
Space Implications: Ambulatory Vs. In-patient Environment
Ambulatory Care Hospital
40,000–60,000 sq. ft
(typical size of facility)
Works more effectively
In-patient Hospital
100,000 sq. ft
(100-bed facility)
Less efficient due to specific individual requirements Standardisation of space
Need for support infrastructure
Reduced requirement for facilities such as dietary and linen
Full support services required
*The size of a typical and well designed ambulatory care facility is significantly less than that of an inpatient hospital for similar patient volumes/ workloads.
56 | A Peek into the Future of Healthcare: Trends for 2010

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 29:
Special
Procedure
Endoscopy
Operating
Room
Typical Patient Flow in Surgical Ambulatory Care Setting
Reception
Registration
Waiting
Consents Lab Work
Anesthetic Assessmment
Patient to Prep/Hold
(Relative to Surgical Waiting)
Change
(Accompanied By Relative)
Nurse Station
Day Care Bed
(Relative joins)
Post-OP
Recovery
Discharge Follow up
Scheduling
Follow up OP
Visits
Exhibit 30:
2007
The private sector takes the lead
Health Insurance: Increasing accessibility
Standardisation: Need for uniformity
The Empowered Indian Patient
Manpower: Reversing the brain drain
Technology Takes Centrestage
Public–Private Partnership: The way ahead
Medical Value Travel: Hype and reality
Special Economic Zones
Infusion of Private Equity
2008
Ten Trends 2007–2010
2009
Academic Medical Centres:
Delivering excellence in care, education & research
Public–Private Partnerships: The current imperative
2010
Public–Private Partnership: Search for an ingenious model in India
Healthcare Consumerism in India:
Rising awareness and spend
Corporatisation of Medical
Education:The impact
Single Speciality Delivery Models:
Single Speciality to Single
Procedural Hospitals
Newer Formats of Healthcare
Delivery: Taking healthcare closer to the consumer
Medpolis: The emerging healthcare cities
Healthcare REITS: Addressing the real-estate challenge
Private Equity: The race for value deals
Clinical Trials: Making inroads
Emergency Evacuation Services:
Building a network for India
Healthcare Architecture: The business of design
Healthcare Outsourcing: Providers focus on their core competence
Medical Device Innovation :
Involving providers and physicians
Secondary Care Hospitals:
Unleashing the potential in smaller towns
Designing Cost-effective
Infrastructure: A green approach
Newer Partnerships: Catalysing growth of healthcare delivery
Appropriate Technology:
Optimising healthcare delivery
Lean Thinking: Improving the bottom line
Clinical Protocols : Standardizing care
Health Insurance: The changing scenario
Diagnostic Centres: Unbundling from the traditional setting
Low-cost Healthcare Delivery
Models: Increasing penetration
Healthcare System: Staying connected to your patient
Integrated Medicine: Leveraging the inherent strengths
Technology Partnerships:
Arresting the rising cost
Operations Optimisation:
Measuring performance
Patient Safety: A renewed focus
Healthcare Design: Alternative care settings
Authors
Dr. Rana Mehta, Vice President I rana.mehta@technopak.com
Gulshan Baweja, Associate Director I gulshan.baweja@technopak.com
Abhishek Pratap Singh, Principal Consultant I abhishek.singh@technopak.com
Monika Kejriwal, Principal Consultant I monika.kejriwal@technopak.com
A Peek into the Future of Healthcare: Trends for 2010 | 57

Growth of Value Retail 60
Changing Global Consumer
Trends 60
Shift in Consumers’ Preference 60
Shift in the Price–Fashion
Continuum
Consistent Growth of Value
Retailers
61
Popular Private Labels
Value Retail in India
Conclusion
62
63
61
62

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
The year 2008-09 saw a worldwide drop in consumption due to the global recession. In an uncertain environment, consumers cut down their discretionary expenditure and looked at reducing their purchasesincluding apparel buying. Consumers were willing to compromise on high fashion or luxury and shifted more towards affordable fashion. Many of these value-fashion retailers benefited as can be seen from the overall increase in sales for most of the value retailers in this period. However, a closer look suggests that the growth of value retail is not necessarily a recession-driven phenomenon and that this has been the trend for more than a decade now.
The share of apparel in the consumer wallet has been reducing over the years in the biggest consumption markets-the US, EU and Japan (see
Exhibit 1). Spending choice for consumers has been increasing with a growing basket of goods and services in the market in the last decade. Hence consumers are increasingly looking at reducing their apparel purchases.
Exhibit 1:
Share of Apparel in the Consumer Wallet
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
US
EU
Japan
A research conducted by BIG research firm found that in the US, more than 87 per cent of 8,000 consumers questioned usually or only buy clothing during sales, while a separate research in the UK by
4.5%
4.0%
3.5%
3.0% research agency Mintel says 57 per cent of people Source: Eurostat, USCES, JBS in UK say they would buy from value stores and 74 per cent say they will cut down on clothing purchases.
In Germany, the fashion industry saw a 13.1 per cent increase in the share of price-driven consumers, according to Roland Berger Strategy Consultants.
In this context, brands in general are losing consumers to value retailers. Brand loyalty is slowly being replaced by value loyalty. While on the one hand there are some successful brands with niche positioning, most of the established brands have seen a shift of their consumers towards value retailers providing apparel at much lower costs with similar fashion content. Consumers are choosing private label fashionable products which look similar to their favourite brands. The global slowdown has only intensified the value-shopping behaviour as consumers further reduce experimentation with styles in difficult times and opt for clothing which is less likely to go out of fashion.
60 | Global Emergence of Value Retail: Impact on Indian Apparel and Textile Manufacturers

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
This shifting consumer behaviour has been successfully tapped by value retailers like Primark, H&M, Zara, etc. and in the last few years these value retailers have seen significant growth. Exhibit 2 shows how, by offering fashion at low prices, these retailers have established a distinguished position in the market through a disruptive pricing strategy incorporating both the characteristics of price warriors like Wal-Mart,
Tesco, etc., and high-end brands like Abercrombie & Fitch, Ralph Lauren, etc.
Exhibit 2:
The New Price-Fashion Continuum
High High
Primar k
H&M
ZAR
A Aeropostal e
Ralph Lauren
Lizclaiborne
Loyal
Brands
Value R etailers
Loyal
Brands
Price
Warriors Wal Mart
Tesco
Price
Warriors
Low Low
High Price Index High
Price Index
Source :Technopak analysis
A comparison of the financial performance of the top retailers in the world reflects the higher growth of value retailers compared to price warriors and brands. In the last 4 years the major low-cost retailers (price warriors) have shown cumulative sales CAGR of 11 per cent, while major brands have shown a cumulative sales CAGR of 2 per cent, with many of the established brands like Gap, Limited Brands, Lizclaiborne and
Exhibit 3:
Sales Growth of the Top Retailers
Value Retailers Price Warriors Brands
30%
10%
-10%
Source: Company reports, Google finance, Technopak analysis
Global Emergence of Value Retail: Impact on Indian Apparel and Textile Manufacturers | 61

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Dillard’s showing negative growth. Compared to this, value retailers have shown a significant CAGR of 19 per cent, with almost all of the major value retailers showing double-digit growth in the last 4 years. In fact, as Exhibit 3 shows, sales of most of the established brands have declined further during the recession period in 2008, while sales of value retailers and low-cost retailers have grown, suggesting a further shift towards value retail. High positive growth amongst brands is shown specifically by niche brands like Urban
Outfitters, Gymboree, etc. suggesting that going forward brands will have to look at more focused offering and target specific customers.
Retailers are also focusing on developing their private labels as it allows them to cut costs on margins and reduce prices. Customers, too, are buying into the private labels. As per a recent survey by AC Nielsen,
63 per cent of consumers consider the quality of retailer brands as high as branded goods. Private labels constitute around 70 per cent of sales of retailers like Wal-Mart and Target.
Exhibit 4:
Freshness as a Performance Norm
Ther new performance norm is freshness with good enough product quality
Performance Factor
Now: Freshness
Performance Factor
Earlier: Quality: (RM,
CUT,FIT,Variety)
Freshness is the new quality for retailers and has become the performance norm (see Exhibit 4). Value fashion retailers like Zara and H&M have led the industry in this regard and set the trend for faster turnaround of inventory and a quick response sourcing model across their supply chain.
Time
With value-retailers booming, there will be increasing stress on price warriors and fashion brands. The price warriors have to strengthen their position by means of cost reduction and fashion brands through product development and delivery excellence. This will lead to a phenomenon of polarisation among retailers.
Value retailing in India is picking up with many retailers and brands proactively focusing on the value market including Koutons, Big Bazaar and Reliance Trends. With Zara entering India by next year it will not be surprising to see the ‘Zara-like’ fast fashion business model emerge in the Indian market. In addition, value sensitive rural Indian market constitutes more than half of India’s apparel market. Rural consumption is also growing significantly and is expected to provide much of the economic growth in coming years.
Consequently, there is huge potential for value retail which has so far been unexplored by the majority of
Indian apparel retailers. Already, many apparel companies have taken note of this opportunity and are foraying into rural markets, with the likes of Koutons already having a significant presence (78 per cent of their stores are already present in cities other than the top 35). Other leading players like SKNL, Arvind
Mills, Alok Textiles, and Welspun Retail are either already present in or have plans to enter the tier-II/III/IV cities and rural areas.
62 | Global Emergence of Value Retail: Impact on Indian Apparel and Textile Manufacturers

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Impact of Emerging Value Retail on Textile and Apparel Manufacturers
The manufacturers, who are currently supplying to multiple segments of retailers, use the same pool of resources and plans for execution in most cases. This can be a misfit with the retailer strategies. Going forward, there will be stress on different dimensions of product development, price, quality and speed of execution, based on the differing priorities of different retailer segments. Right now, the imperative for manufacturers is to re-look at the resource allocation and the retailers they serve.
With each of the retail segments having different positioning strategies the requirements from manufacturers vary for each retailer. This can be observed by the value curve drawn across different retailer segments and the value involved in servicing these segments across different organisational dimensions (Exhibit 5).
Exhibit 5:
Differentiating on Value Curves….
High
Brand Value Retailers Price Warriors
Low
Operations People Process Supply
The change in the global consumer landscape has made it apparent that apparel retailers must align themselves with one of the segments-price warriors, value retailers, or fashion brands. This positioning will lead to a change in the value curves at manufacturing level for each of the segments. It is inevitable that manufacturers adapt to these different segments.
Manufacturers will thus have to focus on one of the retailer segments and align their supply chain and resources suitably towards that segment. This will help them build the capability which retailers/buyers can clearly perceive through products and services. Large organisations that serve a large buyer or retailer base can build teams, production capacities and a supply chain specific to each retailer segment. Here they will forego the advantage of economies of scale in capacity planning, merchandising and purchasing.
However, based on the execution capability and local optimisation, increased customer loyalty and additional value can be created.
Authors
Ashish Dhir, Associate Vice President I ashish.dhir@technopak.com
Vijaya Kumar, Senior Consultant I vijaya.kumar@technopak.com
B. Prakash, Consultant I b.prakash@technopak.com
Global Emergence of Value Retail: Impact on Indian Apparel and Textile Manufacturers | 63

Background
The Change Catalysts
Women in the Workforce
Implications and Imperatives
In Summary
69
70
66
66
72

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
With the economic, demographic and social changes India is witnessing, one of the most impactful implications will be the large number of women in the workforce in the coming years.
About 30-35 per cent of the estimated 480 million jobs in the country are being performed by women, though most of these are menial roles like labourers, housemaids, construction workers, etc. About 25 per cent of women in India are part of the workforce (compared to 50 per cent of men) but only about 5 per cent (7-10 million) work in an organised set-up and only 3 per cent of senior management positions are occupied by women.
Though the proportion of women working in the organised set-up is small, in absolute terms this number is bigger than the female workforce of several other nations. The picture is also rapidly changing. Indian women have travelled the road from exploitation to empowerment and equality. And we are not talking of a select few like Chanda Kochhar or Indra Nooyi; they have undoubtedly inspired a generation of Indian women, but we are talking of those who may not be individually known for their achievements, and who together form a force that can no longer be ignored. These women have catalysed changes in the lives of other women and in society at large.
This document aims to understand the underlying change drivers that are making these women a revolutionary force of the future and the implications of this change on consumer product companies, service providers, marketers and retailers.
There are several factors which have contributed to the numerical growth and evolution of working women in India. Some of the key ones are demographic and social changes, increasing focus on education and increasing work opportunities.
Most of the demographic and social changes are a direct outcome of increasing education and awareness levels of society at large and women in particular. This in turn promotes awareness and focus on education.
• Greater acceptance and empowerment of females: The most important change in the attitude of Indians is greater acceptance of the girl child. This is reflected in the increased sex ratio which has gone up from 927 females per 1000 males in 1991 to 933 females per 1000 males in 2001 1 .
This acceptance is fast moving from merely having a daughter to giving her an upbringing at par with the male child, and to accepting her as a colleague or manager at work. With higher education levels and greater exposure through media and travel, women today are significantly more empowered than those of previous generations. Even as homemakers they are influential in household decisions which were previously considered the man’s domain, e.g., the purchase of electronics, financial investments, etc. A woman who contributes to the family finances is even more empowered in decision making. According to a UNICEF report, ‘When a woman brings income or assets into the household, she is more likely to be included in decisions on how the resources will be distributed 2 ’.
• Delayed family phase: There was a time when most parents feared that their daughters would not get married if they did not do so by their early twenties. Given that most of the women were homemakers, there was limited focus on higher education or career avenues for women and so getting married in the early twenties was convenient for all. Today, this is changing. Many women now want to ‘complete’ their
1 Census of India, 2001,
2 Census State of the World’s Children, 2007
66 | The Emerging Women Workforce of India: A Silent Revolution in the Making

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 education and be ‘financially independent’ before they marry. Parents also want their daughters to finish higher education before marriage, which enables them to contribute financially to their families whenever needed and also to be more aware and assertive of their rights in their new homes. As a result, the marriage age has slowly risen from the early twenties to the mid and late twenties. This effect is more pronounced in urban centres but visible at an all-India level too. As per the National Family Health Survey,
71 per cent of women with no education get married by the age of 18, while this drops drastically to 12 per cent for women with more than 10 years of education. At an all-India level this number has dropped from 54 per cent in 1992-93 to 44 per cent in 2005-06 and will only drop further in the years to come 3 .
• Reduced child-bearing responsibilities: A few decades back, having 3-5 children was a common occurrence even in urban households. However, more and more families are increasingly realising the need to have fewer children so that their resources invested in terms of money, time and effort are less divided, resulting in the ability to provide more to their children. This, clubbed with women getting more empowered to control the number of children they want to have, has resulted in fertility rates in India going down from 3.9 in 1995 to 2.8 in 2007 4 . This has several implications:
» It gives women more time free from home responsibilities which can help them take up jobs.
» Having fewer children enables the families to provide a good education to all the children instead of being forced to be selective (like the male child getting better education opportunities than female child).
» This has a direct impact on the financial well-being of the family, thereby increasing the discretionary consumption.
The National Family Health Survey reveals that 83 per cent of married women with two children wanted no more children in 2005-06 as compared to 60 per cent in 1992-93. This number climbs to more than 91 per cent for women who have more than 10 years of education. At an overall level, the fertility rate for women with more than 12 years of complete education is at 1.8 versus 3.6 for women with no education.
Education has played a major role in bringing about most of the changes in the status of women in India.
The female literacy rate has increased tremendously over the last three decades. While in 1971 only 22 per cent of Indian women were literate, by 2001 the figure stood at 54 per cent. In fact, the female literacy growth rate during the period 1991-2001 was 14.9 per cent compared to male literacy, which was 11.7 per cent 5 .
In the last few decades, there has been a steady rise in the demand for universities and higher education in India. Today more and more women are enrolling for higher education. As per the Ministry of Human
Resource Development, the enrolment figures in higher education are 4.6 million females compared to 7.1 million males 6 .The relative enrolment of women in higher education has increased by 10 per cent between
1991 and 2001 as compared to a mere 2 per cent in the previous decade as shown in Exhibit 1. This is reflective of the steep change in the thinking and upbringing of Indian women.
Exhibit 1:
Year
Absolute Women
% of Women in
Total Enrolment
1950–51
43,245
11%
Enrolment of Women in Higher Education
1960–61 1970–71 1980–81
170,078 429,814 748,663
16% 22% 27%
1990–91
1,438,061
29%
2000–01
3,309,381
39%
Though Arts is the most popular stream with women, over the years the relative enrolment in Arts has grown at a slower pace than in Science, Engineering and Technology and Commerce/ Management. This effect is getting more pronounced with every passing day.
3 National Family Health Survey, 2005-06
4 National Family Health Survey, 2005-06
5 www.indiaedu.com
6 Selected Education Statistics 2004-05, MHRD 2007
The Emerging Women Workforce of India: A Silent Revolution in the Making | 67

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Though all the streams are seeing an increase in women enrolment, Engineering and Technology has displayed the steepest growth at 15 per cent CAGR between 1995 and 2000 as shown in Exhibit 2.
Exhibit 2:
Faculty/Year
Arts
Science
Medicine
Agriculture
Veterinary Sciences
Engineering & Technology
Commerce/Management
Law
Education
Others
Total
Women (number)
1,283,811
452,423
75,877
5,640
2,367
62,059
Enrolment of Women in Different Faculties
1995–96 2000–01
Women as a % of
Total Enrolment
41%
37%
40%
14%
18%
16%
Women (number)
1,711,487
655,257
107,177
8,769
3,511
124,606
Women as a % of
Total Enrolment
44%
39%
44%
17%
21%
22%
365,350
44,177
45,854
25,310
2,366,642
33%
17%
47%
35%
36%
545,712
67,196
55,907
28,499
3,325,927
37%
20%
51%
38%
39%
CAGR (’95–‘96-’00–‘01)
5.9%
7.7%
7.2%
9.2%
8.2%
15.0%
8.4%
8.7%
4.0%
2.4%
7.0%
The rise of the services sector that forms 55 per cent of India’s GDP has given a tremendous boost to female employment.
The IT/BPO sector has been a key driver of women’s employment in the last decade. According to Nasscom, women accounted for close to 35 per cent (700,000) of the total workforce in the Indian IT/ BPO industry in
2008 and this is expected to increase to 45 per cent by 2010, translating into more than a million women in the IT/BPO workforce. It is also estimated that women represent 13-15 per cent of the total managerial workforce in this sector. Women are estimated to form 38 per cent of software programmers in this sector, which is the largest for any demography. The biggest feature of this sector growth is its broad-based nature, which provides aspirational opportunities for young graduates from small town and ‘middle-class’
India. This has given financial independence and consumption power to young women who otherwise would have very limited avenues to achieve the same.
Another service sector which has employed a significant number of women is the financial sector.
In 2005, about 420,000 women were employed in the financial sector, which has risen from about
250,000 in 2001 7 . This set is estimated to cross a million in the next few years. Modern retail, even though still very small in overall size, is doing the same for women in an even more influential way since many modern retailers now reach over 300
Indian cities.
Sectors like aviation, travel and hospitality, grooming and personal care, healthcare and education are a few of the many which will offer career-oriented jobs to women in the next decade. Exhibit 3 demonstrates how more and more urban women are taking up jobs in the services sector.
Exhibit 3:
Type of Activity of Usually Employed Urban Women
100
(All figures in %)
80
60
40
20
26.6
1.5
9.1
3.1
26.7
3.5
1.3
10.0
4.1
24.7
35.9
1.4
12.2
3.8
28.2
Agriculture
Manufacturing
Construction
Trade, hotel & restaurants
Transport & communications
Other services
31.0
24.7
18.1
0
1983-84 1993-94 2004-05
Source: Study by Chandrasekhar and Ghosh, ‘Women workers in urban India’, 2007
7 Study by Chandrasekhar and Ghosh, ‘Women workers in urban India’, 2007
68 | The Emerging Women Workforce of India: A Silent Revolution in the Making

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
The proportion of women in the workforce has been increasing for the past few decades. In 1981 it was 20 per cent, and it rose to 23 per cent in 1991, further rising to 26 per cent in 2001. It is estimated to be around
30-35 per cent at present, translating into 150-170 million women. Traditionally most women have been working in the unorganised sector. There were very few women working in the organised sector as shown in Exhibit 4. This number has been on the rise in the past decade from 3.7 million in 1991 to about 5 million in 2001 8 . This is estimated to be around 7-10 million today.
Exhibit 4:
Women in the Workforce
5mn =Organised female workforce(4%)
127mn =Female working population(32%)
402mn =Working population(39%)
7-10mn =Organised female workforce(4.6%)
168mn =Female working population(35%)
480mn =Working population(40%)
1029mn =Total Indian population 1200mn =Total Indian population
2001
Source: Census of India, 2001 and Technopak analysis
2009
The total organised workforce in India is 30-35 million of which women comprise about 20-25 per cent. Indian women are increasingly seeking greater participation in the organised workforce and equality in career advancement and incentives. As a result of demographic, social and education changes, more and more women are joining the workforce and they are increasingly not just seeking ‘jobs’ but ‘careers’.
Exhibit 5:
Best Practices to Support Women at Work
14% Surveys(Internal and external)
27% Creche for kids parenting workshops
18% Women’s forum
23% Women’s lounge/recreation
Of the estimated 90 million or more new jobs expected to be created in India in the next 5 years, almost 45 million are expected to be in services alone. Of these 45 million new service jobs, as many as 20 million could be potentially taken up by women. This number can be much higher if we factor in employment across non-service sectors as well.
Hence, there is a potential of trebling the current market in the next 5 years.
18% Round tables across groups/regular communication
Health & wellness awareness program 50%
Anti-sexual harassment policy
55% Transportation policy
Flexible work schedules/ hours
68%
68%
Corporate India has also become more aware of the importance and participation of women at all levels of the organisation. At the same time, there is no denying the fact that women still hold primary accountability for their home and children and hence, their ideal workplaces are different than those of men.
According to a survey by EMA Partners International, around 11 per cent of Indian companies have women
8 Ministry of Labour and Employment
Flexible leave policy
18% Team management
64%
0 10 20 30 40 50
Percentage of Respondents
60 70 80
Source: Mercer- NASSCOM Gender Inclusivity Building Empowered Organisation
Study-2008
The Emerging Women Workforce of India: A Silent Revolution in the Making | 69

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
CEOs, while in the case of the Fortune 500 list from the US, the women CEOs account for 3 per cent of the total consideration set. On a standalone basis this is far from ideal, given that this is heavily skewed towards banking and financial services and a significant number of these women are from promoter families, but it is a positive trend nonetheless.
Many companies are already trying to address the needs of women to attract and retain them. Infosys
Technologies set up a Women’s Inclusivity Network in 2003 to address the work–life balance and developmental needs of women employees. Vaahini, a forum at Accenture India, was launched to address women’s issues proactively by nurturing, sustaining and building the female workforce at all levels in
Accenture. Exhibit 5 illustrates some of the best practices to support women at work.
The women workforce of the future will be a more empowered segment than ever before-and these women will also continue to hold the primary responsibility of their households. Most working women seek to save time or effort in their daily routine but not at the cost of compromising the family’s health and upbringing.
This will result in a big shift in the consumption and shopping behaviour of this segment-paving the way for several opportunities for consumer goods and service provider companies, marketers, retailers, etc. A potential of generating an additional spend of US$ 5-10 billion by 2015 can be created by sheer increments in spends of women (necessary and indulgent) because they are working. This is in addition to what they would buy or consume if not working. Some companies have already taken proactive steps to address this segment. Others will need to gear up for the same. A few opportunities which are emerging are:
Apparel and Accessories
‘Office wear’ clothing and accessories customised for the Indian woman, her sensibilities, tastes and contours will be a significant segment in future. Also, given her busy schedule, apparel that is easy to maintain and comfortable across Indian weather conditions will be important. A niche segment is the plussize apparel market which is about 8-10 per cent of the total market and is highly under-served today. As more women get into the workforce, more innovation and variety in the ‘office wear’ part of this segment will be in demand.
Beauty, Health and Fitness
Working women are time-starved and hence, multipurpose and easy-to-use products which reduce complexity in their lives present a big opportunity. We have already seen some innovative products in the markets-all-in-one sunscreen, anti-aging and moisturising cream designed to replace moisturiser and speciality skin care products; shampoos containing hair-oil, etc.
Another important aspect for working women will be health. Almost all women want to be fit but family and work tends to take priority. As per an ASSOCHAM survey, 68 per cent of working women are afflicted with lifestyle diseases like obesity, depression, chronic backache, diabetes, hypertension, etc. while 77 per cent of the working women respondents have avoided visiting the doctor. This opens up a healthcare opportunity to reach out to the working women by customising the delivery mechanism to their needs.
On the fitness front too, often women do not want a specialised training regime but simple facilitation to keep their weight in check. This throws open a plethora of opportunities like neighbourhood/office complex simple gyms for women, food supplements, effective but doable diet plans. We have already seen some products in the market geared towards this effect e.g. shoes which assist in muscle toning, cornflakes which help lose weight, etc.
70 | The Emerging Women Workforce of India: A Silent Revolution in the Making

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Food & Grocery
The kitchen will continue to remain the primary responsibility of most working women even if their spouses assist them more for the same or they have household help. Though women seek convenience in kitchen, they are unwilling to compromise on family health in any way. As a result, ready-to-cook, instant packaged foods, and frozen foods that have equal nutritional balance but save time and effort will be a growing segment.
Multipurpose kitchen appliances will be a big opportunity, given the need for automation in the kitchen, but kitchen space for such appliances is limited. The same would be applicable for IT and communication solutions. Products launched in this domain include small-size laptops that can fit into a handbag, reducing the need for working women to carry two separate bags.
Besides these, there are several other products/services which may be an opportunity in the making:
• Organised, trained domestic help and babysitters to take care of the household chores and children can emerge as one of the major requirements.
• With major companies trying to make workplaces more women-friendly, crèches for children especially in/near office complexes will be another opportunity.
• Given that more and more women in the workforce would like to be independent in their commuting, driving schools focusing on women (e.g., with women trainers) can be an opportunity to look at. This also will result in an opportunity for automobiles and auto-accessories targeted at these women.
• There is also an opportunity for easy, safe but affordable urban transportation services.
Opportunity in Channels
Not only will the increase in working women change what she consumes or buys, it will also have a significant bearing on how and where she shops. Channel choice will be guided mostly by her convenience than by any other factor:
• Internet: The Internet would become a key enabler because she is now internet-savvy and would prefer the quickest and easiest route to complete routine work such as payment of bills, booking of tickets, ordering grocery online, etc. She may also use it more frequently for lifestyle shopping.
• ‘At your doorstep’ products and services: Since working women are left with little time after office hours, it will increasingly become important to serve them at home especially for essential services.
» Eating out may be still occasion-based but working women would not mind ordering outside food more often to save time and effort (as it would give them a break from routine cooking).
» Home services like laundry, beauticians, etc. can also find a market.
• Large formats: The good old neighbourhood kirana who can deliver a 10-Rupee item in 10 minutes will remain a channel for daily needs though she may indulge in monthly hypermarket trips to avoid the need for frequent trips to market. There is an opportunity to study the shopping patterns of working women and to identify ways of reaching out to her.
‘By-product’ Opportunity
Working women will also have an impact on the role of their spouses. Even though the ultimate accountability for the household may rest with women, an increasing number of men will be assisting them in this work, making it important for companies to develop products which are as easily handled by men as women. A few recent product communications have focused on this segment, such as microwave ovens with built-in recipe timers, higher front-loading washing machines, etc.
The Emerging Women Workforce of India: A Silent Revolution in the Making | 71

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
A few imperatives to targeting working women are:
• Identify newer basis of segmentation: Marketers may need to re-segment their female customers to target them better. The needs of working women can be different from those not working hence, one-sizefits-all may actually work for no one in the coming years.
• Develop the right product and services: Once companies have their segmentation in place, they need to understand and develop product and services after understanding each segment. Companies need to accept that women have a complex life pattern and varying needs at each stage of life. They need to avoid stereotypes-targeting women is not merely about making it pink or red, but identifying how the product service fits in her life at different stages in life and hence, how she may want it to be. Also, she may be unaware about certain products or technologies but that does not make her a stereotypical
‘dumb’ customer.
• Invest in right communication: Companies may often not need to make most products too differently, but to communicate differently with different segments based on what those segments attach more importance to. For example, while buying technology one segment may be looking for memory size and the other may be looking at ease of use. It is also worthwhile to study which media different women segments respond to better and target them through it, such as print versus internet versus mass media.
Women in India are gaining visibility as we speak. They are taking leaps in all spheres - education, career, or social empowerment. A lot of changes have happened over a few decades and are hence less palpable to us. However, now that a critical mass has been achieved, we can expect these changes to occur faster and in a more pronounced manner. It is imperative for consumer goods and services companies, marketers and retailers to understand the evolving working women segment more closely and serve them better. The rising women workforce is bound to change the ways companies design, make and market products.
Some of them have already begun focusing on this segment, while others will have to catch up soon.
Targeting this segment may be an opportunity for today but can become a necessity tomorrow.
Authors
Anil Rajpal, Vice President | anil.rajpal@technopak.com
Pragya Singh, Senior Consultant | pragya.singh@technopak.com
Ruby Jain, Associate Consultant | ruby.jain@technopak.com
Himani Agrawal, Associate Consultant | himani.agarwal@technopak.com
72 | The Emerging Women Workforce of India: A Silent Revolution in the Making

Introduction 74
Opportunities in Vocational
Education 76
Challenges for the VET Sector 80
The Road Ahead: Key Policy
Initiatives 81

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Since the opening of the economy in the early 1990s and the subsequent evolution of India into a knowledgebased economy, the demand for higher levels of specific skills has been constantly increasing. Availability of skilled manpower is a critical success factor for driving the services sector, which in turn fuels the development of a knowledge economy. To become a superpower in the true sense, India needs to have a huge base of skilled manpower. This is essential to match the ever growing demand of modern industries where services predominate over agriculture or manufacturing. It is in this context that vocational education and training assume greater significance.
According to the Team Lease Labour Report, 2007, ‘Vocational education can be broadly defined as a training program, which prepares an individual for a specific career or occupation’.
The key objective of vocational education is to help develop individuals’ skills in very specific fields by giving them applied or concrete experience in specific vocations or trades. This not only makes them employable but also helps create opportunities for entrepreneurship.
The incidence of higher education is very low in
India because of the poor education infrastructure.
As per the 61st round of NSSO (see Exhibit 1), the percentage of population that completed primary education was 70 per cent, but less than 10 per cent go on to complete a graduation course and above.
This huge drop-out rate is largely due to reasons ranging from accessibility to affordable education to low perceived short-term benefits, to household circumstances that demand immediate employment for the students. Driven by the urgency to start earning at a younger age, most Indians resort to acquiring employable skills informally in a trade that gives them very low income. This has resulted in a huge shortage of a skill-trained workforce in India.
Exhibit 1:
Education Profile of Indian Population
80
70
(All figures in %)
55
35
20
6 6
Graduation
& above
Completed
Diploma
Completed
Higher
Secondary
Source: NSSO, 61st Round
Completed
Secondary
Completed
Middle
Completed
Primary
All
Literates
Exhibit 2:
Incidence of Vocational Training
The 61st round of NSSO further suggests that almost 97 per cent of individuals in the age bracket of 15–60 years have had no exposure to technical education, which is another indicator of low skills sets among Indians. The other mode of acquiring employable skills sets is by vocational education, and the numbers here, too, are not at all encouraging.
The demographic pattern of the country indicates that close to a third of the population of India are young people in the age band of 15–29 years. Of this population, only 7 per cent have received any
93
2
4
1
Source: NSSO, 61st Round
(All figures in %)
No vocational training
Received formal vocational training
Received informal vocational training
Receiving formal vocational training
74 | Vocational Education in India: Key Challenges & New Directions

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 form of vocational training. Further, of this 7 per cent, only 2 per cent have received any form of formal vocational training. As seen in Exhibit 2, according to the occupational profile of India’s workforce, 90 per cent of the workforce population is employed in skill-based jobs, whereas more than 90 per cent have not had any kind of exposure to vocational education or training.
Exhibit 3: Incidence of Vocational Education and Training: Difference in Urban and Rural India
7
(All figures in %)
6
3
2
1
0.6
2
3
2 Total
Urban
Rural
15-19 years 20-24 years 25-29 years
Poor penetration of vocational education and training is not restricted to rural areas alone. It is also low in urban areas where there is a higher installed capacity to impart vocational education and training.
Skills in India are largely acquired through two main sources: formal training centres and the informal or rather, the hereditary mode of passing on skill sets from one generation to the next. Formal sources are largely channelised through the mainstream education system, under the ministry of HRD, through training institutions outside the purview of school and university schemes and also through polytechnics which offer various diploma courses.
Exhibit 4:
Vocational Education and Training In India
Type of Source Capacity Quantity
Mainstream education System
Institute
Centrally Sponsored Scheme of
Vocationalisation of Secondary
Education run by the Ministry of
Human Resource Development
Enrolling less than 3 percent of students at the upper secondary level
9,583 schools offering about 150 educational courses of two years’ duration
Training institutions outside the school and university systems
Diploma level
Industrial Training Institutes
(ITIs) and Industrial Training
Centres (ITCs)
Polytechnics
Total seating capacity of 785,000
1,244 polytechnics run by MHRD with a capacity of over 295,000\
5,488 public (ITI) and private
(ITC) institutions imparting VET, of which 1,922 are ITIs and 3,566 are ITCs
1,747 AICTE-approved diploma programs with 294,370 seats
Source: Knowledge Commission Report
As the above table indicates, there is clearly little capacity for imparting vocational education in India. It is also an established fact that, of the total capacity available, the capacity utilisation is quite poor. This has actually led to a huge mismatch in terms of demand and supply for a skilled, trained workforce.
Exhibit 5:
51
Seat Utilisation in ITIs
24 25
(All figures in %)
Seat utilisation against sactioned strength in ITIs
Exhibit 6:
59
Seats Utilisation - Technician, Trade and Graduate Apprentices
70
(All figures in %)
22
Under utilisation
Source: FICCI Survey, 2006
Full utilisation
Over utilisation
Technician apprenticeship
Trade apprentices
Graduate apprentices
Source: Annual Report 2002–03, Ministry of Labour, Govt. of India
Vocational Education in India: Key Challenges & New Directions | 75

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 5 makes it clear that more than half of the available seats remain unutilised, which is another reason for the mismatch in demand and supply for skilled workforce. Given the rate at which the economy and the youth population of the country is burgeoning, if the current shortfall is not met in terms of developing a more skilled workforce, we run the risk of high unemployment which would, in turn, adversely impact the fortunes of the country.
The current size of vocational education is estimated at US$ 1.4 billion and is expected to grow to US$ 5.8 billion, a CAGR of 15.3 per cent.
Exhibit 7:
Growth In Vocational Education and Training
(in US $ billion)
5.8
It is estimated that 90 million jobs will be created over the next five years, of which almost half (45 million) are expected in the services sector. Of these, an estimated 7-10 million are expected to be created in hospitality, healthcare, and modern retail alone. Of these new jobs, more than half would require some form of vocational training.
1.1
2.9
2008 2013
Source: Technopak analysis, Company websites, published articles
2018
India is emerging as one of the world’s largest consumers of education services with a target population of close to 450 million (in the age band of
5-24 years). This number is expected to increase to
486 million by 2025, exceeding the combined target population in China (354 million) and US (91 million).
In India, public and private spending aggregates to approximately US$ 100 billion per annum and private spends on education have grown at a CAGR of 10 per cent since 1994. In fact, compared to other developed countries, private spends in India are relatively higher (4 per cent of GDP, as seen in
Exhibit 8).
Exhibit 8:
Education Expenditure as Percentage of GDP
UK
USA
India
Russia
China
5.0%
4.8%
3.5%
3.8%
3.8%
2.3%
1.3%
1.2%
2.3%
4.0%
Public Private
Source: National Bureau of Statistics of China, 11th Five year Plan (Govt of India),
OECD
India’s economy has witnessed continuous positive growth, which has led to a huge demand for a workforce in India. Recent economic surveys show that employment growth has been the largest in the
Services sector, and this trend is in all likelihood going to grow in the future. Also, technological product and service innovations have fuelled the demand for more skilled workers. This demand has not been met, due to unavailability and poor quality of skilled workers. There is a lack of training facilities and skill development in as many as 20 high-growth industries such as logistics, healthcare, construction, hospitality and automobiles. Exhibit 9 shows the split of people intake over the next 5 years (2008-13) by different sectors.
76 | Vocational Education in India: Key Challenges & New Directions

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 9:
People intake over the next 5 years = 90 million
35
14
51
Job Creation Over the Next Five Years
Service
Manufacturing
Agriculture
5.8
1.8 0.4
5.6
4.2
3.8
3.3
6
6
12.7
12.7
37.8
(All figures in %)
Construction
Wholesale trade
Community Service
IT/BPO
Banking & Insurance
Hotel & Restaurant
Public Admin & Defence
Communication
Source: Talent for Services Sector, Boston Consulting Group and Technopak analysis
India has roughly close to 5,500 public (ITI) and private (ITC) institutes as against 500,000 similar institutes in China. As against India’s 4 per cent formally trained vocational workers, countries like Korea or even
Botswana have a 96 per cent and 22 per cent vocationally trained workforce respectively. This does lead us to believe that there are tremendous opportunities for vocational education and training in India. These opportunities favour the organisations willing to enter the vocational education market as well as the students wanting to take up vocational courses to increase their employability.
Government Initiatives
Interestingly, the highest growth rate is being witnessed in vocational education in India, growing at almost double the rate of the K-12 education segment. The Government, too, has realised the potential of vocational education and training and has listed it as one of the priority areas in its 11th five-year plan. As per the VET framework suggested by the government, VET had an outlay of more than US$ 1 billion. The
Central Government has launched a mission on vocational education and skills development. It plans to set up more than 1,500 new ITIs and polytechnics, 10,000 new vocational schools and 50,000 new skill development centres across the country.
As per government’s plans, of the 15 million students who need vocational education every year, about
5 million students would be provided initial training by strengthening existing VET Institutions and setting up new VET Institutions. The remaining 10 million students would be trained through non-formal/informal mode. The Government also plans to encourage the participation of the private sector and NGOs in a number of areas such as improvement of facilities and resources of VET institutions/centres, development of skills/standards, training packages, competency-based curricula and instructional materials, conducting tests, and providing joint certification. It wants to take up the accreditation of private VET providers (schools, colleges, universities, industry and community organisations) for quality assurance and uniformity in skills development. On an average, the government has earmarked an expenditure of roughly US$ 104 per person for imparting training and certification through the private sector.
Private Players in Education
Since the VET segment of education is not regulated, profit-making is allowed. With no controlled fee structure and limited mandatory recognition (except for ITIs and polytechnics), it has received huge interest from private players. One of the biggest success stories of private players making it big is that of Educomp
Solutions. Educomp started its operation in 1995 as a computer service provider to schools, and now operates along the entire range of educational services, from ICT to e-learning and additional learning resources, content development and teacher training, and is now aggressively moving into actual school management and services. This success is strongly reflected in the share price of the company where its market capitalisation has increased 14 times (US$ 104 million to US$ 1458 million) in just two years. Other players like NIIT, Aptech, Everonn and Jetking too have their own successful business models. It is not just
Vocational Education in India: Key Challenges & New Directions | 77

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 the IT and ITES sectors that have seen an influx of private players. This trend is also visible, though limited, in sectors like aviation, hospitality, retail management etc.
Corporates’ Individual Initiatives
Across business sectors, companies and industry bodies are not only beefing up their in-house training facilities, but also developing initiatives to make potential employees job-ready even before they enter the organisation. Some key measures include:
• Hiring of skilled labour from outside the country
» A leading infrastructure development conglomerate, DLF Laing-O’Rourke is planning to bring over
20,000 carpenters and electricians from West Asia for projects in India.
» India’s largest private sector company, Reliance Industries is using 40,000 blue-collar workers from abroad for its Jamnagar project.
• Creating in-house training facilities
» Bharti Group has created Bharti Resources, its own training and development company.
» Wipro spends 1 per cent (capital expenditure costs not included) of its revenue on training 14,000 fresh graduates a year over a period of 12-14 weeks.
» Wipro launched ‘Mission 10X’ on Teachers’ Day: a non profit programme aimed at enhancing employability skills of engineering graduates.
Exhibit 10:
Non-Government Initiatives
Private Sector
Technical Institutes’ corporate in-house training (e.g. Tata, Infosys,
Reliance), Confederation of Indian Industries (CII), Federation of
Chambers of Commerce and Industry (FICCI)
Non-Government Organisations
Education programmes in slums/rural areas, Religious groups
(sub-contracted to run MES and TECOS by state govts)
Source: Company websites and published articles
Based on the trends of employability in the industry, retailing, healthcare, banking and insurance, construction and hospitality sectors are the key emerging segments.
Exhibit 11:
Services Sector
Retail
Healthcare
Banking and Insurance
Construction
Hospitality
Manpower Requirements in Key High Growth Services
Market Size 2008
(US$ billion)
410
40
28
71
23
Market Size 2013
(US$ billion)
535
80
47
114
39
Additional Direct
Employment 2008–13
(million)
2 to 4**
3.5 to 4*
3.35
18
1.6–2
*Doctors and nurses estimates of~2million jobs are not considered in this dataset ** Estimated only for organised retail
Source : Technopak analysis, Industry sources
% Population Requiring
Vocational Training
90
20
80–85
30–40
65–70
Retail
There are about 1.6 million people employed in India’s organised retail sector and another 2-4 million new recruits are expected in the next 5 years. Almost 90 per cent of these are expected to be in front-end jobs where vocational training is most required. The current in-house capabilities and outside training institutes are not equipped to impart skills to this large number. The biggest skill-gaps exist in areas such as:
• Sales and customer management
• Store maintenance
• Visual merchandising
78 | Vocational Education in India: Key Challenges & New Directions

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
• Merchandise planning
• IT (billing package, merchandise planning tool, bar-codes, etc.)
Construction
The construction industry can be classified into real-estate segment, which is growing at a CAGR of 30 per cent and infrastructure segment, which is growing at a CAGR of 15 per cent. There is therefore a need to mobilise manpower for these industries which are growing at a faster rate than the overall economy. The difference in skill-based manpower within the two segments is:
• Real Estate: It needs a relatively higher number of designers, carpenters, plumbers, electricians, i.e., semi-skilled professionals.
• Infrastructure: There is a greater need for high-skilled professionals such as engineers, though the need for semi-skilled workers such as supervisors, quality controllers, etc. is also significant.
Similar shortages of manpower and a requirement for skilled and trained workers are quite evident in other key growing sectors as well. In all, it translates into a big opportunity for private players to enter the vocational education and training segment to cater to the ever-increasing demand for skilled manpower.
Since the government-installed capacity is neither adequate nor fully utilised due to a plethora of reasons, ensuring private participation in vocational education and training would ensure far greater success in responding effectively to the needs of the economy.
One of the guiding principles, under which PPP can be developed for vocational education and training, is the university township model. Under this model, the land for the training institute is made available by the government, the infrastructure and operations are managed by a private player and the funding is provided by setting up a corpus of funds or grants by private players, alumni and donors. This not only helps in imparting international standards of high-quality education but also helps in providing the right mix of desired skilled workforce.
Exhibit 12:
University Township Under PPP
Land
Government
Infrastructure, Operations
Private Player
Funding
Private Players
Alumni
Donors
Salient Features
•Land made available by Gover nment
•Same stature as Harvard / K ellogg
•Focus on research and development
•Create funding through corpus and
endowments
Opportunity
•Brand-building for generations
•Imparting international standard
high-quality education
•Create institution to attract talent and
location of business
Investments
•Land: 500–700 acre s
•Number of graduates: 15,000-17,000
by end of 10 year s
•Funding through corpus built by
corporate donors and investors
•Capex (excluding land): US$ 312 million
Vocational Education in India: Key Challenges & New Directions | 79

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Though there is a growing demand for vocationally trained workers, the segment per se has not really picked up in India because of a variety of reasons.
Current Infrastructural Facilities and Poor Utilisation
The Kothari Commission on Educational Reforms, 1966 had visualised that 25 per cent of students at the secondary stage would opt for the vocational stream by the year 2000. However, the actual implementation of the plan has turned out to be quite poor. Less than 7,000 schools have received grants and at present only about 5 per cent of children in the 16-18 age group are in the vocational stream. Compared to India, these figures are far higher in not only developed economies but in some developing economies as shown in Exhibit 13.
Exhibit 13:
Country
Russia
China
Chile
Indonesia
Korea
Mexico
Malaysia
South Africa
International Comparisons on the Size of Vocational–Technical Secondary Education
Secondary Enrolment Ratio
88
52
70
No. of Students (’000s)
6,277
15,300
652
Vocational–Technical Share (per cent of total secondary enrolments)
60
55
40
43
93
58
59
77
4,109
2,060
–
533
–
33
31
12
11
1
Source: World Bank Report
More recent information suggests that the enrolment figure is less than 3 per cent of the students attending
Grades 11-12. The weighted average capacity utilisation of the schools receiving grants is less than 50 per cent. This implies that the 350,000-400,000 students enrolled in vocational education comprise 3 per cent of the 15 million students or more in Grades 11 and 12. Thus, what it eventually means is that less than 1 per cent of students who had entered Grade 1 over the last decade or so would have eventually participated in vocational education. It is also widely recognised that the existing student capacity in ITIs/
ITCs largely goes unutilised.
Societal Pressures
Historically, social stigma has been attached to vocational education and training as manual or industrial jobs were perceived as low paying and meant for low-caste communities. Largely because of this, students who completed their higher secondary education were more inclined towards academic or professional courses. Due to this attitude, the vocational education and training segment has suffered from poor enrolment.
Training of Trainers
Good trainers have always been an issue with vocational education in India. Because of societal pressures, the segment has failed to attract good mentors. Teachers in general are poorly paid in India and the salaries of teachers in VET have been at the lower end of the spectrum. In many cases, in rural polytechnics or technical institutes, the teachers themselves have had only basic education.
Revision of Existing Curricula and Introduction of New Courses
In some states, the course curriculum has not been updated for 20 or more years, so even if students have completed VET qualifications, they may not be employable in modern industry. Due to the transition of the
80 | Vocational Education in India: Key Challenges & New Directions

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Indian economy from being agriculture-based to knowledge-based, it is all the more imperative to have new and revised courses which fulfil the requirement of modern industries. Of the trained candidates, the labour market outcomes as seen from placement/ absorption rates are reportedly very low. An ILO study done in 2003 reports that in the states of Orissa, Andhra Pradesh and Maharashtra, the percentages of graduates found to be in wage employment/self-employment upon graduation from ITIs were 16.2 per cent, 41 per cent and 35 per cent respectively. The corresponding percentages for those graduating from
ITCs were 21.3 per cent, 22.8 per cent and 35.6 per cent respectively.
Inflexible Approach
The current framework requires minimum qualifications, varying from Class VII-XII, for participation in formal vocational training. While this may be necessary for certain trades, it is unnecessarily restrictive in others. Additionally, once an individual leaves mainstream education for vocational training, there is no provision for him/her to return to the former at a later stage. This not only encourages a general view of work and study being mutually exclusive options, it also increases the perceived risk of taking up vocational training. Moreover, there is not enough emphasis on short training courses designed to impart specific skills. Vocational education and training in India rely exclusively on a few training courses of long duration
(2-3 years) covering around 100 skills. In China, on the other hand, there exist about 4,000 short-duration modular courses which provide skills more closely tailored to employment requirements.
Association with Industries
While there exists a provision for the participation of industry representatives/experts in the setting of curriculum and hiring of apprentices, there is still a significant mismatch between industry skill requirements and the talent pool emerging from ITIs/ITCs. This has contributed to low success in the labour market for VET graduates. The private sector largely undertakes in-house training programmes but training to outsiders is very limited, restricted to catering to their own felt needs in the nature of captive skill development. This is largely because of the fear of losing trained skilled workers to competition which has resulted in constant shortages in private investment in this area.
Encouraging Public–Private Partnership
The central government too has realised the importance of industries in the creation of a suitably trained workforce for the country’s labour requirement. The DGET (Directorate General of Employment and Training,
Ministry of Labour) initiated a pilot programme ‘Formation of Institute Managing Committee (IMC) for ITIs’ in 1998 in collaboration with the Confederation of Indian Industry (CII) to improve cooperation between
Industry and ITIs. Under this concept, Industry is associated as partners rather than advisors. An IMC is formed at the ITI level, which manages some of the activities of ITIs. An IMC comprises members from
State Government, Industry, ITI and others. The chairperson of the committee is a representative of the local industry. This committee works under the supervision and control of the Steering Committee, formed at the state level. The concerned State Secretary in charge of the vocational training at state level is the chairperson of the Steering Committee. The IMCs have already been formed in 515 ITIs in 28 states. Major benefits from IMCs are active participation of industry, organising campus interviews, arranging on-the-job training and industrial visits, training and development of faculty, vocational guidance and counselling, better upkeep of equipment, resource generation and utilisation by the ITI itself.
Upgradation of 500 ITIs into Centres of Excellence (CoE)
A scheme for upgradation of 500 ITIs into CoE to produce world-class technicians has been launched by
DGET. Already, 100 ITIs have been chosen for upgradation from domestic funding while another 400 are proposed to be taken up under a project with the World Bank’s assistance for which negotiations are taking
Vocational Education in India: Key Challenges & New Directions | 81

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 place. Multi-skill modular courses with active participation of industry are being introduced for different industrial sectors. The industry would also be involved for testing and joint certification.
Skill Development Initiative
To fulfil the budget announcement of 2005–06, a scheme-‘Skill Development Initiatives’-to train 1 million persons in 5 years and thereafter 1 million every year is being taken up with a Public-Private Partnership model. It is envisaged to utilise available infrastructure with spare capacity to impart skill training to these persons.
National Mission for Skills
The Prime Minister announced the setting-up of the National Mission on Skill Training in his speech on
Independence Day, 2006. The Ministry of Labour and Employment accordingly has undertaken the task of setting up a ‘National Mission for Skills’ under its control for a period of 5 years initially so as to ensure that envisaged targets are met and the workforce is equipped with the necessary skills to be competitive in the world economy.
Authors
Luv Jasuja, Principal Consultant | luv.jasuja@technopak.com
Prashant Kashyap, Senior Consultant I prashant.kashyap@technopak.com
82 | Vocational Education in India: Key Challenges & New Directions

84 Introduction
Consumer Trends Fuelling the Indian Packaged
Food Market
Key Growth Enablers
Emerging New Categories
85
86
89

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
India saw rapid economic growth fuelled by economic reforms during the period 2004 to 2007. FDI inflow increased and GDP growth was at 8-10 per cent during the period.
The global economic downturn seen in 2008 had a deep impact on the economy with industrial output slowing down and inflation increasing by two percentage points over the previous year to 8.3 per cent.
However, real GDP growth remained strong at 7.3 per cent.
With its vast population base, growing middle class and strong macro-economic environment, the Indian market has seen processed food emerge as the one of its fastest growing segments. Rapid lifestyle transformation, particularly in urban areas, has resulted in a dramatic increase in the demand for processed, packaged and ready-to-eat food products.
The arrival of food multinationals and the proliferation of Quick Service Restaurants(QSR) outlets have further added to the growth of this industry. The proliferation of modern retail trade and expansion of supermarkets /hypermarkets, shopping malls and fast food outlets, coupled with favourable industry trends is contributing to radical shifts in the Indian food and grocery industry.
The size of the packaged food market in India is estimated to be US$ 10 million and is expected to reach
US$ 20 million by the year 2014. Packaged food, which is now 4 per cent of the overall F&G market, is expected to reach 5 per cent of F&G market by 2014.
The main categories of packaged food include baby food, bakery products, canned/ dried processed food, confectionery, dairy products, frozen processed food, ice cream, meal replacement products, noodles, nutrition/staples, pasta, ready meals, sauces, dressings and condiments, snack bars, soup, spreads, sweet and savoury snacks, etc. Exhibit 1 summarizes the key players in the packaged food segment.
Exhibit 1:
Player
Hindustan Unilever Limited
(HUL)
Nestle India Pvt. Ltd.
ITC Ltd.
Pepsico
Dabur India Ltd.
Godrej Industries Ltd.
Segment
Key Players in the Processed Food Segment
Beverages, Staples,Dairy, Snack Foods
Dairy, Beverages and Snack Foods
Staples and Snack Foods
Beverages and Snack Foods
Beverages and Culinary Products
Cadbury India Ltd Confectionery
Haldiram Marketing Pvt. Ltd. Snack Foods
Britannia Industries Ltd.
Bakery Products
Beverages and Staples
Products
Tea, instant coffee, biscuits, ice creams, salt, wheat flour (atta), instant drinks, soups, jam and squash
Instant coffee, condensed milk, dairy whitener, infant food, chocolates and confectioneries
Wheat flour (atta), salt, ready-to-eat meals, biscuits, confectioneries, snacks and cooking paste
Fruit Juices, cereals, snack foods, dairy derivatives
Fruit juice, cooking pastes, coconut milk, tomato puree, lemon drink, chilli powder and honey
Chocolates, hard-boiled confectionery, maltfoods, cocoa powder
Sweets, namkeens, syrups, crushes, chips and papads
Biscuits, flavoured milk, dairy whitener, ghee, bread, cake and rusks
Edible oils, vanaspati, bakery fats, fruit drinks, fruit nectar, fruit juices and tomato puree
Parle Agro Private Ltd.
Beverages, Bottled Water and Snack Foods
Growing and organised retail penetration is expected to aid the growth of the processed food market in
India. A number of categories which are highly dependent on organised retail-like frozen food products - are expected to witness significant growth in the years ahead.
84 | Opportunities in the Packaged Food Market in India

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
The segment that has shown maximum exponential growth is the ready-to-eat segment. Ever since the processes of freezing and chilling products have become very refined, technologically sound and subject to stringent hygiene practices, this sector has expanded and is expected to grow in the next few years. Staples which are currently sold loose are also expected to undergo significant changes with the advent of private labelling. The trend of wellness food, in the form of nutritionally enhanced and fortified food, probiotic food and organic food is expected to grow. Organic food is rapidly becoming a distinct and well-defined category. Similarly, the other concepts mentioned here will grow as much and gradually occupy more shelf space in the near future.
Exhibit 2:
Break-up and Category Share within the Packaged Food Sector
In 2008 and 2014
12
13
5
3
3 2
19
43
(All figures in %)
Cereals, pulses & spices
Fruits & vegetables
Packaged food
Milk & milk products
Meat, fish & poultry
Beverages
The larger food processing companies like Nestlé, Parle, Britannia etc., have diversified often over the years. Nestlé’s foray into the pre-cooked noodle segment (Maggi noodles) from milk products-which were its core competency-proved that there was a huge untapped market for packaged goods. Similarly,
Britannia, synonymous with biscuits, had boldly entered the space for milk products, with its range of cheeses and later curd.
Changing Demographics of the Indian Population
The Indian population is younger, more urban, with greater disposable income and high purchasing power parity (PPP). Urban consumers are typically busier and more affluent, thus more willing to pay for convenience.
The main impact of urbanisation has created a growing demand for convenient products. Ready meals thus saw a strong 18 per cent growth in 2008 over the previous year, with these products regarded as a convenient alternative to cooking from scratch. Packaged soup also benefited, with dehydrated soup growing by 21 per cent in current value terms, while instant noodles became an increasingly popular snack or meal component, with sales thus growing by 24 per cent.
Convenience
The demand for ‘convenience’ is dominant in more than one segment. Apart from convenience in cooking at home, food services and chains have an equally strong share in the purchase of packaged foods.
There was a strong focus on expanding consumer food service chains across urban areas which is set to continue to grow. Consequently, urban commuters will enjoy easy access to trusted consumer food service brands offering affordable food.
This demand for convenience also supported good growth in canned/preserved food and frozen processed food, with consumers appreciating the convenience of stocking up and keeping easily-prepared food at hand. Consequently, canned/preserved food saw 12 per cent current value growth in 2008 over the previous year, while frozen processed food grew by 13 per cent.
Opportunities in the Packaged Food Market in India | 85

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Nutritional and Health Benefits
There has been a growing focus on health conditions, with most consumers having at least a rudimentary awareness of cancer, diabetes and heart disease. The bulk of new product development is expected to focus on nutritionally enhanced and fortified/functional products, with these areas having proved successful.
Increasingly, the two concepts will be combined, with low-fat impulse and indulgence products more and more likely to offer fortification. Players meanwhile launched numerous products with a health and wellness positioning. Nestlé India, for example, re-launched Maggi Two Minute Noodles fortified with 20 per cent of the RDA of calcium and protein in 2008. Gujarat Co-operative Milk Marketing Federation Ltd. launched
Amul Sugar Free Probiotic Frozen Dessert and Amul Prolife Probiotic Wellness Ice Cream in 2007, thus creating a new niche of probiotic ice cream.
Players will also seek to become first-movers in the niches of health and wellness packaged foods. Organic products are thus likely to see strong development, generally targeting affluent urban consumers. Naturally healthy products could also see a growing emphasis on their health benefits, with basmati rice, for example, having its low glycaemic index emphasised on the packaging.
Exhibit 3: Outlook for the Food and Grocery Market
• The food and grocery market will continue to grow at a real growth rate of~4.1 per cent in the next 5 years
• Organised F&G will grow from~US$ 3 billion in 2008 to~US$ 19 billion by 2014 at a CAGR of 33 per cent
• F&G retail is dominated by the unorganized sector, with ~98 per cent of the market being local kirana stores
• Packaged food is 4 per cent of the F&G market. RTE/ frozen food share is less than 1 per cent of the packaged food market at US$ 64 million
• 2,800 organised retail outlets catered to F&G in 2008. The bulk of these are supermarkets (87 per cent) followed by hypermarkets (13 per cent)
• Total organised F&G space was ~20 million sq. ft. in 2009, of which 60 per cent were hypermarkets and 37 per cent supermarkets
• Between 2004 and 2008, the number of outlets grew by 68 per cent CAGR, while space grew by 70 per cent CAGR
• The key decision-maker for food and grocery shopping for the household still remains the housewife in 95 per cent of all cases
Key implications: Supermarkets/ hypermarkets and Cash & Carry formats will fuel F&G organised retail in India. Larger formats like Cash
& Carry and Hypermarkets can be significant sales contributors for the frozen food
Exhibit 4 shows how the packaged food category has grown in China.
Exhibit 4:
Growth of Packaged Food Sector in China: A Case Study
• In 2007, China’s food market estimated at US$ 96.2 billion was the biggest value among the five BRICM countries. It also recorded a strong track records of value growth from 2002, putting it in second position behind Russia.
• The popularity of processed and Western-style food in urban China is starting to be mirrored in parts of rural China, and will grow dramatically as major retailers such as Carrefour seek to expand out of saturated ‘first-tier’ cities into other regions over the next five years. It is the increasingly sprawling urban population that will drive strong value and volume growth in processed and packaged foods; by 2050 an increase of 115 per cent to 970 million is anticipated in the urban region-up from the 450 million ‘urban-dwellers’ found in China in 2000.
• Previous growth has been driven by strong economic development in China, increased penetration of organised retail, and the entry of multinational brands. The demand for packaged food grows annually as people trade up to packaged rather than loosely packed food. The rising role of modern retail formats such as supermarkets, convenience stores (c-stores) and hypermarkets is also having a big impact on the type of food people are buying.
86 | Opportunities in the Packaged Food Market in India

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Urbanisation
India has witnessed ongoing urbanisation in the past decade or so, and this is linked to the country’s economic growth and foreign direct investment. The main impact of urbanisation was a growing demand for convenient products, with consumers preferring to have ready access to easy-to-prepare foods that were either canned/preserved or frozen.
Aggressive advertising campaigns by food companies have led urban consumers to develop an increasing interest in Western lifestyle trends. Urbanisation boosted sales of products such as breakfast cereals and ketchup, which grew by 13 per cent each in current value terms in 2008 over the previous year. These products are strongly advertised and benefited from a fashionable western image. Canned/preserved food saw 12 per cent growth in 2008 over the previous year, while frozen processed food grew by 13 per cent.
Exhibit 5 shows the share of food and grocery sales in the organised and unorganised sector between
2005 and 2008 and its estimated growth in the next 6 years.
This is expected to drive strong growth in many product areas in meal solutions, with pouch instant noodles, for example, set to see 115 per cent growth. These products offer a quicker and more convenient meal
Exhibit 5: Growth of Indian Food and Grocery Retail Market
350
300
250
200
150
100
50
0
1.4
195
2.1
216
2.9
237
3.3
266
4.3
277
6.1
288
8.1
298
11.7
307
14.7
316
18.5
326
2005 2006 2007 2008 2009P 2010P 2011P 2012P 2013P 2014P
Traditional or Organised Organised component than rice and, thanks to their use of flavouring, can also be consumed as a snack. This trend is also expected to benefit ready meals, canned/preserved food, frozen processed food and sauces, dressings and condiments, all of which make food preparation quicker and more convenient.
Growth of Organised Retail
Retailing saw strong growth in India benefiting from strong GDP growth and the emergence of a large consumer base-the urban, young middle class. Supermarkets notably saw strong growth, with sales rising by 108 per cent in 2008 alone. Exhibit 6 summarises the key facts of the growth of organised retail formats, and consumption of packaged food and grocery products.
Exhibit 6:
Organised Retail and F&G Consumption
Supermarkets/hypermarkets gained share across packaged food during the review period, thanks to expansion in the number of outlets. This channel more than doubled it’s share from 5 per cent in
2003 to 11 per cent in 2008. In the year 2008, supermarkets/hypermarkets also accounted for a dominant share in canned/preserved food and
• The share of organised retail is expected to grow from current ~5 per cent of total retail to~12 per cent by 2014 and will show a
CAGR of 25+per cent between 2008-14.
• F&G forms the largest share (65 per cent) of retail consumption.
The market was about US$ 270 billion in 2008 and is expected to reach~US$ 345 billon by 2014.
Opportunities in the Packaged Food Market in India | 87

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 frozen processed food, at 68 per cent and 79 per cent respectively. The channel’s most significant growth was seen in impulse and indulgence products such as sweet and savoury snacks and ice cream and dairy beverages. Share of supermarkets/hypermarkets grew from below 4 per cent in 2003 to 11 per cent in 2008, challenging the regional dairies’ dominance in this area by offering good quality fresh milk at affordable prices.
Improvement in Packaging Technology
Until recently, the majority of foodstuff was sold unpackaged. In the last few years, all sectors increased their share of packaged production. Despite a definite rise in the number of packaged products, many products are still sold unpackaged.
The technology for packaging products and increasing their shelf life is being developed and adopted very rapidly. Along with the emergence of various forms of processed foods, a corresponding suitable packaging technology is also developing. Milk is one product which is sold in four different types of packaging, with each type further having different designs and forms.
Advances in packaging technology have not only improved the shelf life of products but also significantly reduced the cost of packaging.
New Product Introductions by Brands
Many manufacturers/brands are creating the market by frequently introducing new products for packaged food. Large multinational companies like Nestle have been able to do this very successfully. The new products are customised as per the requirements of Indian consumers and are targeted at satisfying their unmet needs.
In addition to existing brands, a number of importers are also importing a significant amount of processed food from European and South-east Asian countries. The imported product categories are targeted at the premium segment of the market.
Growth in Freezer Space
There has been a remarkable expansion in product categories and ranges due to considerable growth in freezer space in modern retail formats. The retail freezer space for 2008 is estimated to be 247,000 cu. ft.
This is expected to grow to 531,000 cu. ft by 2014 at a CAGR of 14 per cent. The frozen food segment, originally covering only frozen meats, fish and poultry products, currently includes frozen vegetables, ready-to-eat foods also, and will grow from US$ 1.8 billion in 2008 to US$ 2.6 billion by 2014. This growth has been fuelled by the increasing availability of freezer space in modern retail shops.
Exhibit 7 shows the increase in freezer space corresponding to the increase in number of stores in future.
Dairy products, confectionery and ready-to-eat products have received a robust boost in obtaining shelf space and corresponding sales due to their positioning and supporting infrastructure.
Exhibit 7:
1500
1200
900
600
300
0
270
2010-11
878
1013
Increase in Freezer Space
1148
1215 1215
2011-12 2012-13 2013-14
Freezer space (Cu.Ft)
2014-15 2015-16
No. of stores
88 | Opportunities in the Packaged Food Market in India
1215 1215
2016-17 2017-18
300
200
100
0

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Value-added Dairy Products
India is the world’s largest milk producer and dairy is one of the most promising segments of food processing.
The market for dairy products is currently estimated to be US$ 33 billion. The demand for dairy products is expected to grow at a healthy rate of 15 per cent to 20 per cent over the next five years. The segment offers a high potential for value addition-the level of processing value-add, at 37 per cent, is amongst the highest in the food processing industry. At the same time the share of organised players is still small, at 15 per cent, indicating the potential for growth for organised players.
Dairy segments have also been focus areas for policy support by the government with major initiatives like:
• Foreign equity participation permitted to the extent of 51 per cent in dairy processing sector
• De-reservation of many segments like ice cream and ghee from small-scale industries
• Excise duty of 16 per cent on dairy processing machinery fully waived for promotion of dairy processing
• Subsequent to decanalisation, exports of some milk-based products are freely allowed provided these units comply with the compulsory inspection requirements of concerned agencies like the National Dairy
Development Board, Export Inspection Council, etc.
Health-focused Snack Foods
The market for snack foods in India is estimated to be US$ 265 million. For mass products, this business is characterised by high volumes and low margins and is also highly competitive. Growing health consciousness has opened up the market for health-focused snack foods category. A number of existing companies like Frito Lay, Parle Agro, and ITC Foods have taken notice of this segment and are targeting consumers through new product offerings. Given the increasing demand for healthy food, this segment will witness significant activity.
Frozen Ready-to-eat Segment
Increased penetration of organised retail is expected to significantly increase the size of this nascent category-currently estimated at US$ 1,804 million. It is estimated that freezer space will double in 4-5 years leading to the increasing availability of these products in the market. Entry of large international companies like Tyson Foods (In a joint venture with Godrej Agrovet), McCain, etc. is expected to play a significant role in the growth of this market.
Non-vegetarian Processed Foods
Currently, most of the non-vegetarian products in India are sold in raw unhygienic form. Given the increasing health consciousness and increasing need for convenience, it is expected that processed non-vegetarian food category will show significant growth. The increasing penetration of supermarkets/hypermarkets and improvement in cold chain infrastructure will significantly aid the growth of this segment.
The processed food segment in India is currently at a very nascent stage. Changes on the demand as well as supply side such as increasing urbanisation, need for convenience, health consciousness, increased penetration of organised retail, improved cold chain infrastructure and entry of international players are key drivers that will result in significant growth in the market.
Authors
Rohit Chadha, Associate Director| rohit.chadha@technopak.com
Rohit Bhatiani, Principal Consultant | rohit.bhatiani@technopak.com
Sajani Mrinalini Dutta, Associate Consultant| sajani.dutta@technopak.com
Opportunities in the Packaged Food Market in India | 89

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
This article appeared in Business Standard on 03 December 2009
While the debate about the impact of modern retail on traditional retail continues, there are unmistakable signs that modern, well-conceptualised shopping centres will have a far-reaching impact on the traditional marketplaces if the latter do not reinvent themselves in a hurry.
For years, Delhi has had some of the best performing retail marketplaces in the entire country. Till recently, the South Extension market probably delivered the highest sales productivity per square foot for most of the retailers operating there. Greater Kailash-1 (M Block) and Basant Lok (Vasant Vihar) markets were among the best performing in the country matching Linking Road (Mumbai), Commercial Street and Brigade
Road (Bangalore), Abids (Hyderabad), and Khader Nawaz Khan Road, Nungambakkam (Chennai). These markets, despite being extremely crowded with grossly inadequate parking space and fully encroached footpaths, and lacking in basic public amenities, continued to attract throngs of shoppers from the middle and upper strata of the local population. Even when the first set of shopping malls appeared in these cities, these traditional markets continued to deliver results for the traditional and modern retailers operating from there.
In a period of just 2–3 months though, it seems that four of the best markets in South Delhi (South Extension),
Greater Kailash-1 (M Block), Basant Lok (Vasant Vihar) and PVR Anupam (Saket) face an unprecedented threat to their exalted status. If they do not reinvent and renovate urgently, they are likely to get marginalised within the next 12 months itself. The disruptive change for these markets has happened on account of the emergence of a cluster of well-designed, well-executed and well-tenanted new shopping malls offering easier access and parking, air-conditioned dust-free shopping comfort, and an exceptional choice of food and other entertainment. The Saket malls complex has finally begun to draw customers from the major markets within a radius of 5 or more kilometres, while the not-yet-finished Vasant Kunj malls cluster has already decimated Vasant Vihar and other minor neighbouring marketplaces.
There is a similar threat to traditional high streets in other major cities and, in fact, even much greater in the next set of towns beyond the top 8 -10 metros and mini-metros. As new, modern shopping centres come up in more than 100 cities across the country, shoppers of all strata will happily desert the congested, filthy and shopper-convenience-unfriendly traditional markets in those cities.
While modern, organised retailers can easily relocate their stores to these new shopping malls after taking some write-downs of costs related to such relocation, the traditional family-owned outlets in such markets cannot do so easily. How, therefore, can traditional and modern marketplaces co-exist? Both are needed not only from the point of view of the retailers and other businesses operating from there, but also from the consumer point of view since many of these traditional markets offer the biggest convenience—close proximity to consumers’ residences.
To start with, the government (both Central and States), as unfortunately is the case here as well, has a very important role to play. It has to take up the urban redevelopment effort on a priority and also pay attention to the redevelopment of traditional retail marketplaces for a cleaner, fresher and more shopper-friendly orientation. New underground/multi-storied car and two-wheeler parking spaces also have to be created in close proximity to the shopping area. The redevelopment effort must be done in close working relationship with market associations, and where such associations do not exist, efforts must be made to create and institutionalise them. Member retailers/retail property landlords in such markets must come together to ensure that pedestrian footpaths are cleared of encroachments and walkways resurfaced, public toilets cleaned and maintained well, shop signage standardised, lighting improved, and then each shop made
90 | The Threatened Traditional Marketplace

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03 to undertake some basic modernisation of its interiors so as to provide an improved shopping ambience to the shoppers. Rather than limiting their promotional effort only to key festivals, the associations should come up with exciting promotional activities year-round to attract and retain footfalls. Food is always a big draw in India, and hence the associations should especially focus on creating and managing a good repertoire of vendors and hawkers of hygienically prepared and served local street food to compete with food-courts in modern shopping centres.
It would, indeed, be sad for everyone to see what till recently (or currently) were thriving traditional markets fade away. Hence, the retailers need to be encouraged and guided to modernise not only themselves but the entire marketplace as well.
Author
Arvind Singhal, Chairman & Managing Director I arvind.singhal@technopak.com
The Threatened Traditional Marketplace | 91

Introduction
Sustainability: Back to the Basics
Self-sufficiency in Production
Improving Input–Output
Efficiencies
In Conclusion
94
94
96
97
98

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
The boom and bust cycle in the economy in the last few years has led consumers to become more discretionary in their consumption choices while favouring a ‘value for money’ approach in their buying behaviour. This is exemplified globally in the shifting fortunes of many food and service giants who have had to alter consumer offerings, including changes in composition for a healthier constitution, increased menu choices to cater to a lower monetary value, a supply chain that accumulates lower food miles and a process that supports sustainable raw material aggregation and deals in ethical labour norms. These changes naturally have an effect on the chain right up to the farm level from where most raw materials originate.
The realities of a burgeoning population combined with migration trends have meant that governments need to be better prepared in maintaining sufficient food stocks for their own population in addition to the oft-necessary quantities that need to be earmarked as a ‘buffer’ to mitigate shortages caused by erratic weather or climate changes. While measures related to trade and intervention programs allay such concerns to an extent, the pressure on limited resources accentuates the need to develop crop varieties that are high yielders while adapting to a range of demanding agro-climatic zones. This is a challenge facing many scientists given that breeding improvements require time and need to be tested thoroughly before their release in the environment. In the meantime, advances in technology have enabled scientists to impregnate genetic traits in plants that not only enhance their nutritive value but also impart greater disease resistance.
The effect of technology development in areas such as telecom and media has led to greater awareness and affordability, leading to increased penetration especially in the rural areas. While the technology might be the same as that available to the urban consumer, its applications vary given the differing challenges.
These have opened new areas of business lines such as mobile applications in agriculture and m-banking.
These are also expected to lead to an improvement in the quality of life of the farmer, who is likely to have better wherewithal to manage his risks both on and off the farm in a much better manner. The focus by several government and multilateral agencies in making this a reality is a boost to corporate efforts in this area.
The convergence of agriculture into food is becoming seamless, resulting in the fostering of partnerships between producer and consumer groups, government and corporates, corporates and consumers at all levels globally. The result is a more demanding supply chain that is increasingly aware of the range of choices that it can enjoy and exercise, rather than compromising with what’s available on the shelf.
The origins of sustainability in the context of environment emerged in 1983 from the Brundtland Commission of the United Nations that defined it as-follows: ‘Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. While the application of sustainability to agriculture and rural development got reinforced at the Rio Earth Summit
(1982), the importance of sustainability in the food chain has only increased. The Food and Agricultural
Organisation (FAO) considers that sustainable development in the realm of food and agriculture must conserve land, water, plant and animal genetic resources, be environmentally non-degrading, technically appropriate, economically viable and socially acceptable. Further, the sustainability concept also embodies a framework that integrates economic growth, social development and environmental protection as being interdependent and that involves stakeholder participation.
94 | Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Climate Change and its Effects on Agricultural Ecosystems
Agriculture remains affected by weather events in the short term and climate changes in the longer term.
Out of the many interpretations and corresponding data on various possible changes to the climate and weather aspects by 2100, the key data points to a rise in the average temperature (ranging from 1.1 to 6.4 degrees Celsius) that is likely to lead to a latitudinal shift of climates towards the poles with a reduction in the permafrost areas; increase in the global mean precipitation and intensification of the water cycle, and a rise in the average sea levels. These could cause very significant changes in the agricultural systems by altering the length of the farming season, the life-cycle of organisms and concomitant altered or new plantanimal-pathogen relationships, etc., even leading to likely changes in the morphology and physiology of the inhabiting plants and animal species. This could further result in increased variability and risk patterns.
Given the above imperative, governments and corporate bodies are being forced to plan ahead as it is well understood that taking preventive steps is the best solution for a more predictable and healthy environment.
Exhibit 1: Planning Long Term: The Case of Potatoes
Simulation studies on potatoes in the European Union show that in the north European regions, the growing season and the yields could increase and parts of Canada, Siberia and Scandinavia could become viable for growing potatoes. On the other hand, the tropical belt could see yield declines of more than 50 per cent without adaptation. To counter such issues, government bodies such as the Central Potato Research Institute (CPRI),
Shimla, concentrate on developing cultivars that are more adaptable. CPRI has developed a new variety of potato called Kufri Surya, which has higher heat resistance. While the ordinary potato variety requires night temperatures up to 18 degrees, Kufri Surya can endure heat up to 22 degrees Celsius. Corporates too, on their part, are focusing on geographies that might get impacted and are diversifying from the traditional American potato belts towards alternative locations such as Asia and East Europe. They are also looking into varietal development with characteristics that are in line with both the agro-climatic situation and the end product (such as fries, hash browns, wedges, chips, etc).
Changing Cropping Patterns and Reduced Production
Over time, cropping patterns change, mirroring changes in the demand from the market and the changing natural resource positions. However, large scale deforestation and human intervention have led to a significant denuding of the soil profile and, in many cases, severe erosion effects. While the destructive process is quick, the regenerative processes are long-drawn enough to merit a focused approach on sustainability.
Exhibit 2: Getting Returns with Stability: The Case of Sugarcane
In order to bring about harmony between the two objectives of commercialisation and sustainability, governments and corporates are now attempting newer methods such as advocating cropping rotations and inter-plantings that can be win-win. While the Government of India has launched the Sustainable Development on Sugarcane Based
Cropping System (SUBACS) under which it provides incentives, sugar mills (especially in North India) have started extension efforts with a focus on increasing farm incomes from non-cane sources by suggesting suitable intercrops and by providing high yielding seeds to farmers for these crops. This is expected to not only help the mills secure their cane but also lead to an increased income that can accelerate farm modernisation.
Awareness about Environmental Issues and Corporate Responsibility Programs
The increased awareness about environmental issues has led corporate bodies to recognise that profit alone is not enough; it must be accompanied by policies aligned with responsible and good practices.
Sustainability issues have therefore gained significance. Some of the important ways in which companies exhibit this is in the form of ethically employing labour, using resources in a recyclable and reusable manner, supporting programs aimed at greening the environment, etc. For instance, Sainsbury, a UK supermarket chain, committed in 2009 to use only certified sustainable palm oil in its products by 2014 in order to prevent the deforestation of forests and consequent endangering of species like the Orangutans and rare flora and fauna in Southeast Asia. The criteria for sustainable palm oil, as defined by the Roundtable on Sustainable
Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation | 95

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Palm Oil, includes measures such as the manner of palm cultivation, its harvesting, environmental practices used by mills in crushing and the prevalent labour practices, etc. Such changes emanating from the storefronts to the farm side are likely to become more pronounced in the future, leading to changes in the way farming is practiced today.
Exhibit 3: Food Miles: Consuming Food Responsibly
Food Miles are calculated by the distance food travels from where it is grown to where it is ultimately purchased or consumed by the end user. The metric has led to the adoption of food being produced locally that serves both the producer and the environment and has led major multinationals to rethink their supply chains and sourcing methods.
The importance of food miles became evident in 2008 when about 40 food and drink companies from the UK including well known names such as Kellogg’s, Nestlé, Cadbury, Kraft, Mars and
Unilever pledged to reduce food transport miles and signed the Food and Drink Federation’s (FDF)
Environmental Checklist
The emphasis by countries on self-sufficiency in crop production has meant in some cases a change in the directional focus from the earlier line of thought towards food security. This has been underscored by the recession and its attendant protectionist policies by many countries. It is likely to have far-reaching consequences in terms of the shifts in the cropping patterns that are likely to ensue as farmers and supplychain actors get drawn towards subsidies and incentives promoted by the governments.
Exhibit 4: The Commodity Price Rise
According to the FAO, the FAO Food Price Index, a measure of the monthly change in international prices of a food basket composed of cereals, oilseeds, dairy, meat and sugar, has risen uninterruptedly since August
2009. As per FAO, the key factors that have contributed to this increase are low levels of world cereal stocks; crop failures in major exporting countries; rapidly growing demand for agricultural commodities for bio-fuels; and rising oil prices. However, other factors that bolstered this price increase were government export restrictions, a weakening US Dollar and a growing appetite among speculators and index funds for wider commodity portfolio investment on the back of enormous global excess liquidity.
FAO Food Price Indices
(2002-2004)
340
280
While price increases and trades are nothing new, the ancillary factors and the resultant policies that have started to have an increasing effect on commodity prices are cause for concern. One visible effect of this was the debate in 2008 on whether countries should, while permissible under the WTO framework, resort to export restrictions in domestic interest as it leads other countries in taking measures to fend for themselves rather than being dependent upon the international market for imports. Increasing land acquisition in Africa and other parts of Asia by the Gulf states, Japan and Korea, among others, through both state-owned as well as corporate bodies for food and bio-fuel purposes corroborates this trend and leads to concerns of not only changes in cropping patterns but also in the potential to alter trade routes.
220
Dairy
Cereals
160 Oil
& Fats
Meat
100
N D J
2008
F M
Source: FAO, 2009
A M J
2009
J A S O N
Burgeoning Demand from an Increasing Population: Need for Higher Production
As the global population continues to surge at an increasing rate-it is slated to reach 9.1 billion by 2050there is a continuous increase in the demand for food from a shrinking land base which is being usurped for non-crop purposes. The FAO (2009) indicates the level of undernourishment at an aggregate global level to be at 13 per cent while that for Africa is at a high of 24 per cent. Though these are lower than previous estimates (1992) of 16 and 27 per cent respectively, they continue to be alarming. This has led to the need for countries to develop strategies for combating hunger and undernourishment, such as increasing investments into agriculture, production and input programs and price incentives. The industry, too, is focused on developing solutions that lead to not only increased yields in crops but also those that reduce wastages and increase shelf life.
96 | Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 5: Genetic Modification or Not: How much is Enough?
The clearance by the Genetic Engineering Approval Committee in October 2009 of bt Brinjal in India sparked a debate over the safety issues concerned with the crop. While the advocated feature of the bt crop, developed by Mahyco in collaboration with Monsanto is reduced pest incidence, it has raised concerns on the potential health effects. The applications of biotechnology, though often controversial, raise hopes of an increased production possibility with lower disease and pest resistance. A similar offering is that of bt cotton that has now come to occupy an estimated 79 per cent of the total 93.73 lakh hectares under cultivation. This has been due to the lower pest incidence and higher yields compared to conventional varieties. In Australia, Florigene Pty Ltd and a Japan-based company submitted to the regulator for commercial approval a blue rose that is supposed to derive a premium value in the rising cut-flower markets. While many such innovations in both food and non-food crops are in the pipeline for approval for incorporation of such technology, the moot point for many countries is to weigh food safety and crop production in the balance.
Another important way in which self sufficiency is being brought about by governments is through the promotion of schemes aimed at reduction in ‘wastages’ of crop produce. This often means earmarking and channelling resources towards infrastructure creation by way of better market infrastructure, cold chains, mega food parks, modern terminal markets and bulk storage facilities. Despite the subsidies and incentives given by the government, it is the main role of the private sector to bring about real change by way of investments and attendant businesses. A key trend in this regard has been the focus on partnerships and collaborative structures: both private-private and public-private. While there has been a lot of appreciation for such ventures, it has often been felt that the role of governance should not get intermixed with microparticipation and, similarly, the objective of partnership for the private sector should not be the subsidy or incentive component itself, as in both the formats, the model becomes unstable and stops short of the stated objective of extending a better service to the consumer.
Given the spotlight on issues related to climate change, rising prices of commodities on decreased production and ending stocks, attention has been drawn not only towards the ability to produce sufficiently but also to better harness the supply chains from the origins. This has meant designing policies and business plans aimed at getting the maximum out of all inputs-seeds, fertilisers, pesticides, credit and technology. While the former three inputs have always hogged the limelight, it is the latter two that are of recent interest. Both credit and technology penetration has been low in the developing side of the world with the result that yield increases have been limited beyond a point. The use of technology-especially technology non-related to farms, such as telecommunications-has become a key focus as it opens new markets to the sellers and new ways of gathering intelligence for the consumers who have till now used traditional methods for information and price discovery.
While the endeavour towards efficient input utilisation has led to the deployment of satellite and precision technology by the developed world (France being the leader in surveillance related to agriculture) in agronomic and field analyses, a majority of the interventions aim at improving resource utilisation through better natural resource management. A case in point is that of Jain Irrigation’s ‘Village Development Plan’ venture with NABARD being implemented in 75 villages across 31 districts in Maharashtra. The project involves the development of rainwater harvesting and water storage structures, efficient water distribution and utilisation systems using solar pumps, etc.
.
Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation | 97

perspective
Volume 03 / 2010 a q u a r t e r l y r e p o r t b y
| Volume 03
Exhibit 6:
Technology and Agriculture
The Economist estimates that out of the 4 billion handsets in the world, three quarters are in the developing world. While Africa is the region with the fastest rate of subscriber growth, India tops in subscriber additions per month (15 million in the month of March 2009, for example). The GSMA, an association of mobile operators and related companies, estimates that the total number of users will reach 6 billion, with 50 per cent coming from China and India.
A good case in point is that of Thomson Reuters in providing local solutions to farmers on cellphones in India. Marketed as ‘Reuters market lite’, it is claimed to be the world’s first truly personalised professional service delivering information to farmers on their mobile phones. The service delivers decisioncritical information to farmers daily, in the vernacular language on their mobile phones via sms. The service entitles its customers to get fast, unbiased and accurate information daily on daily tehsil, weather forecasts, mandi prices, crop technology information and relevant rural agricultural news. The company already boasts of a customer base of 130,000, two years into operation.
The telecom revolution in rural areas is thus proving a boon to the farmers as it helps them with faster price discovery and risk-management aid in the form of weather and pest advisories from third party service providers.
Similarly, newer technologies aimed at the rural space have accelerated the process of financial inclusion into the rural countryside. Among other benefits, these make it possible for safer money transactions. One such recent case is that of Vortex Engineering, the winner of 2009 Srijan
Technology Innovation Award. Vortex’s revolutionary low-cost Gramteller ATM has brought down the capex by less than half, works well in a rugged non-AC environment and runs on solar energy, making money easily accessible in remote areas of our country. Currently being piloted by 15 banks across the country, Vortex aims to have at least one ATM in every village of India.
In conclusion, the point to be pondered is whether all these initiatives and changes have led to a difference in the quality of lives of the producers. While the rural and, more specifically, agriculture sector has been attracting attention given the saturation in urban markets, it is still vastly untouched. Basic enablers such as electricity and water are supposed to increase the penetration but a key enabler that needs more thrust is education and vocational training at the farm level. This would enable the farmer to make informed decisions about the selection of crops, input mix, crop-growth monitoring and risk-mitigation, harvest and post-harvest care and marketing.
Authors
V. Sridhar, Associate Director | v.sridhar@technopak.com
98 | Agriculture: Focus on Sustainability, Self-sufficiency and Utilisation

We are a management consulting firm with a difference. Founded in 1991 on the principle of “concept” to
“commissioning”, we are in the top 5 consulting firms in India by revenues. We are strategic advisors to our clients during the ideation phase, implementation guides through start-up phase, and trusted advisors overall. The industries we serve include Retail, Consumer Products, Fashion (Textiles & Apparel),
Healthcare, Hospitality & Tourism, Leisure & Entertainment, Food & Agriculture and Education.
Our clients are leading Indian and international businesses, entrepreneurs, investment houses, multilateral development bodies and governments. Our 600+ clients include Aditya Birla Group, Apollo Hospitals,
Arvind Limited, Asian Development Bank, Asian Paints, Temasek Holdings, Essar, GMR Group, Godrej
Group, Gujarat Government, Hospital Corporation of America, ICICI Limited, Hindustan Unilever Limited,
International Finance Corporation, Lenovo International, Mahindra Group, Marks & Spencer, Mother Dairy
Foods, Ministries of Food Processing, Textiles & Commerce, Raymond, Reliance Industries, Samsung,
Sequoia Capital, Starwood (Sheraton), Tata Group, United Nations Development Program, Walt Disney,
Warburg Pincus and many other Indian and international leaders.
At Technopak, we foster innovation and creativity which challenge conventional thinking and generate practical and far reaching solutions for our clients. In 2008, we worked with over 130 clients across 180+ projects, in 20 countries besides India, across 5 continents.
Our key services are:
Business Strategy.
Assistance in developing value creating strategies based on consumer insights, competition mapping, international benchmarking and client capabilities.
Start-Up Assistance.
Leveraging operations and industry expertise to ‘commission the concept’ on turnkey basis.
Performance Enhancement.
Operations, industry & management of change expertise to enhance the performance and value of client operations and businesses.
Capital Advisory.
Supporting business strategy and execution with comprehensive capital advisory in our industries of focus.
Consumer Insights.
Holistic consumer & shopper understanding applied to offer implementable business solutions.
99

100
Insights and innovation led product, packaging, space and strategic design, including design research, concepts, engineering and prototyping. A blend of unique, contemporary and relevant concepts and solutions. www.foleydesigns.com
Holistic consumer understanding applied to offer implementable business solutions revolving around shopper insights, trend insights, design and innovation insights, marketing communication and measuring customer delight.
www.indiamindscape.com
Strategizing, planning and managing creation, development and growth of brands through a scientific, transparent and process-driven methodology.
www.vertebrand.com
Planning, implementation and project management of plants, warehouses and entertainment centres with a focus on modernization, process improvement, technical valuation, power & water audit and environmental engineering.
www.technopak.com/engineering
World’s largest privately held real estate services firm. We offer, through them, comprehensive retail real estate solutions to our clients.
www.cushwake.com
UK’s leading design consultancy for developing brand environments. We offer, through them, design solution for retail environments.
www.dalziel-pow.co.uk
Global research and consulting firm specializing in the study of human behavior in retail, service, home, and online environments. We offer consumer and shopper insights.
www.envirosell.com
D E V E R E U X
A R C H I T E C T S
Partners with Technopak for delivering Projects in India. They are one of the top architectural practices in the UK with extensive experience in architectural and urban design projects in UK and internationally. The practice has major specialism’s in Healthcare Architecture www.devereuxarchitects.com

Concept by Technopak Advisors Pvt. Ltd. ©Technopak Advisors Pvt. Ltd.
Gurgaon
4th Floor, Tower A, Building 8
DLF Cyber City, Phase II,
Gurgaon 122 002
(National Capital Region of Delhi)
T: +91-124-454 1111
F: +91-124-454 1198
Bangalore
Prestige Solitaire, Ground Floor,
6 Brunton Road, Off MG Road,
Bangalore 560 025
India
T: +91-80-4034 8600
F: +91-80-4034 8699
Mumbai
101-105, 2nd Floor, Sunjana Tower
Sun Magnetica Service Road,
Luis Wadi, Thane West,
Mumbai 400 602
T: +91-22-2583 2222
F: +91-22-2583 8408