Industry Based Considerations
1. Rivalry among competitors: (pg. 21)
-The Make-up market is pretty concentrated with the top three firms holding 68.1% of the
market. The Indian make-up market is rather concentrated, with the top three players
holding 68.1% of the total market by value. (Unilver, Revlon, Loreal)
Factors enhancing rivalry:
-Large players have their own production facilities with relatively high fixed costs.
-Retailers may be unwilling to switch between market players since as their customers
are likely to seek the leading brands.
Factors easing rivalry:
-Diverse product range offered by some major players, including skincare and hair care
products, reduces their reliance on the make-up products which protects the company’s
business against competitive pressures in any one particular market.
-On a global level, most of these companies are geographically diversified.
-Overall, rivalry in the make-up market is moderate.
2. Threat of New Entrants: (pg. 19)
-Factors supporting new entrants: Opportunity for new entrants to operate within a
particular niche. Make-up products have a high sales volume and low-product
differentiation.
-Factors against new entrants: There are a small number of widely recognized brands
with strong market position. The large firms can compete more effectively on price. (may
launch price wars). New entrants will need to persuade stores to stock their products
Brand strength of major manufacturers is considerable, which may negate much of the
effect of low switching costs.
There are high costs to enter this market. Money is needed for production, distribution,
and advertising.
-Overall, the threat of new entrants with respect to the make-up market is moderate.
-Mary Kay and Pola (Japan) are entering the market
3. Bargaining Power of Suppliers: (pg. 18)
-Strengths: Chemical suppliers gain revenue from a wide variety of sources, which means
they are not highly dependent of make-up manufacturers.
-Weaknesses: Chemical and mineral products that are widely available from a large
number of chemical companies. Supplier switching costs are negligible for make-up
manufacturers; inputs are typically undifferentiated; and products can be made with a
range of alternative raw materials, which reduces supplier power.
-Overall, supplier power is moderate.
4. Bargaining Power of Buyers: (pg. 17)
-Strengths: Retailers have a strong position in the supply chain which allows them to
negotiate with manufacturers. Where brand loyalty exists, it is more likely that customer
would prefer designer brands over retailer brands, although some designer labels also
have their own retail operations for which a large market exists.
-Weaknesses: Major manufacturers advertise to consumers to build brand loyalty which
leave retailers little choice but to buy what consumers want. Therefore buyers do not
have much power since they must stock what is in demand if they wish to keep their sales
volumes. Consumers also wish to differentiate themselves through the styles and brands
of make-up products they choose.
-Overall, buyer power in the make-up market is moderate.
5. Threat of Substitutes: There is a weak threat of substitutes. Indirect competition may
exist from mineral make-up products, which are seen as being more natural, light and
allergy free. (pg. 20)
Institution Based Considerations
1. Informal
a. Normative Pillar (how values, beliefs and actions affect behavior):
-Improved relationships with Europe and North America- After a period of distinct
communist/socialist bias, India has gradually warmed-up to Western Europe, the US
and Canada. This is reflected in a number of R&D agreements signed between India
and these nations, the most significant example being the India-US Civil Nuclear
deal. The incumbent government is expected to deepen relations with the US,
especially because the INC government has previously defended the nuclear deal in
spite of vociferous opposition from the left and the BJP.
-Social analysis: India is the second most populous nation in the world, with 1.1
billion people. Its population is young, having a median age of 25.3 years, and those
above the age of 65 constitute just 5.2% of the population. The sex ratio in India has
always been favorable to males. India has formulated a population policy which
makes provisions for controlling its growing population. India has a multicultural
ethnic fabric, and maintains uniformity in secular ideas, with the freedom to follow
any religion. The National Health Policy (2002) provides provisions for the
healthcare sector, while the education scenario in India has been consistently
improving both in terms of government expenditure and the number of educational
institutions.
b. Cognitive Pillar (value and beliefs guiding firm behavior):
-Avon believes that beauty products should be accessible and affordable for everyone.
They have increased their under $5 products because of the global economic crisis.
They also promote ease and convenience of shopping. Avon stands for hope and
opportunity for women. Therefore, Avon supports their many representatives.
(Annual report).
-Economic liberalization in 1991 not only led to rapid economic growth but also
brought India closer to North America and Western Europe (India, 12).
2. Formal
a. Regulatory Pillar (laws, regulations, rules): (India, 93)
1. Competition Act, 2002: Law to ensure free and fair competition in the
market.
2. Consumer Protection Act, 1986: Law relating to the protection of consumers
from unscrupulous traders or manufacturers.
3. Comprehensive legal framework for business entities: Legal and regulatory
aspects are crucial to creating a successful business environment in any
country. They reflect the policy framework and the mindset of the
governmental structure of that country and ensure that every company is
functioning according to the statutory framework of the country. The
regulatory regime in India has comprehensive laws that have been amended
from time to time. Some of the important laws regulating business in the
country are: the Companies Act, Patents Act, Copyrights Act, Trademarks
Act, Special Economic Zones (SEZ) Act, Labor Laws, Right to Information
Act, Information Technology Act, Environment Protection Act and Foreign
Exchange Management Act (FEMA), which was a shift from the stringent
FERA (Foreign Exchange Regulation Act). Some of the regulatory bodies in
India are: the Securities and Exchange Board of India (SEBI), Reserve Bank
of India (RBI), Registrar of Companies (ROC), Director General of Foreign
Trade (DGFT), Insurance Regulatory and Development Authority and
Telecom Regulatory Authority of India (TRAI). The country has a sound legal
framework for business entities that has driven business growth in the country,
although work still needs to be done regarding the proper implementation of
these laws and regulations. By and large, it can be stated that the legal system
provides a fair, equitable, and transparent framework for both employers and
employees.
b. Trade Barriers: Since 1991, India has gradually opened up its markets through
economic reforms and reduced government controls on foreign trade. UPA
government has been focused on international trade and integration. The areas of
priority have been agriculture, education, infrastructure, urban renewal, water and
employment. Foreign policies have been focused on developing trade relations.
However, in 2008 trade began declining. Its total trade fell from $657.1 billion in
2008 to around $532.3 billion in 2009. Trade in India is regulated by the Foreign
Trade Act, 1992. It allows the central government to make provisions for the
development and regulation of foreign trade by facilitating imports into, and
augmenting exports from, India and for all matters connected therewith or incidental
thereto.
c. Currency Risks: Inflationary and fiscal risks are working against the rupee in 2010
but this should be offset by higher capital inflows, increased investor confidence, and
falling investor risk aversion because the global economy is beginning to recover.
Analysts expect the currency to have a nominal appreciation of 7.6% compared with
its average value in 2009. The rupee should continue its appreciating trend in 2011.
SWOT Analysis of India
The Indian make-up market grew by 9.5% in 2009 to reach a value of $141.6 million.
The compound annual growth rate of the market in the period 2005–09 was 12.9% (Make-UP,
10). Economic reforms previously initiated in 1991 have led to robust growth in the economy.
The GDP growth in India averaged 8.2% during 2003–00 (India, 11). The Indian economy is
expected to grow at a rate of 7.9% during 2010-11. The growth process is driven by the services
sector and supported by industrial activity. The median age is 25.3 years producing a large
working-age population which is expected to provide economic growth in the country (India,
16). The Indian make-up market witnessed a double digit growth between 2005 and 2009, as a
result of strong sales growth in the eye make-up, face make-up, lip make-up and nail make-up
categories. However, the growth rate in this market is expected to decelerate in the forthcoming
five years (Make-Up, 9).
Expanding domestic market driven by rising disposable income and improving penetration
-The domestic market is expected to expand significantly over the next 20 years.
-In 2005, people with a disposable income of $10,940 or more contributed just $79 billion in
aggregate disposable income. This is expected to increase exponentially by 2025 to $932 billion.
-Aggregate disposable income for households with an income between $4,380 and $10,980 per
annum is also expected to grow exponentially to reach $670 billion by 2025.
India also has a significantly larger untapped market potential in comparison to other developing
economies such as China. An expanding domestic market and rising penetration (tapping new
markets) will propel the economy into a self sustaining growth mode, by fueling the key sectors
of manufacturing and services.
The retail sector is one of the fastest growing sectors in India. This is primarily driven by rising
disposable income and rapid urbanization. Coupled with the fact that organized retail is still at a
nascent stage in India, it presents a great growth opportunity for the country.
Strengths
Economic:
-Inherent strength of the economy
-Largest working-age population pool in the world
-Highly favored FDI destination
Social:
-Improving sex ratio (number of females relative to males is increasing)
-Growing proportion of young people
-Rapid urbanization
Weaknesses
Economic:
-Unemployment
-GDP fluctuates with monsoons
Opportunities
Economic:
-Strong infrastructure spending and FDI expected to drive industrial growth
-Expanding domestic market driven by rising disposable income and improving penetration
-Sector-specific opportunities
Social:
-Employment guarantee scheme
Threats
Economic:
-Imbalanced regional development and widening economic disparities