YOU THOUGHT CHINA WAS HOT? TAKE A LOOK AT INDIA!

TRENDS YOU CAN USE FROM THE KETCHUM GLOBAL RESEARCH NETWORK
NOVEMBER 2005

Have you called your computer company’s tech support line recently? If you have,
chances are your call was forwarded to a calling center somewhere in India. With
an average 20 million Indians graduating from universities each year–-many in the
fields of math or computer sciences–-Silicon Valley has taken notice of this highly
educated workforce and has outsourced many of their technical calling centers to
this region as a way of cutting expenses while still maintaining a skilled workforce.

India is on the rise, and is quickly becoming a booming supplier of—and a thriving
market for—backshop software, wireless infrastructure, chip design and more.1

And, it’s not just the field of computers that is growing by leaps and bounds in
India. The country’s airline companies have been on a buying spree this past
summer, placing jet orders in record numbers, fueled by India’s recent
deregulation measures. And jet manufacturers like Airbus and Boeing are now in
heavy competition for this market.

A booming services industry, falling interest rates, and a surging stock market are
also spurring the explosion of the Indian market.

In this edition of the Ketchum Global Research Network newsletter, we examine

how the economic growth of India will impact our clients’ business. Specifically, we
look to understand the emerging Indian business and consumer markets that
represent a significant opportunity for our clients around the world.

India Versus China

September’s Newsletter focused on the emergence of China in the global
marketplace. And while China is poised to have a huge impact on the global
economy, it is India that could have a far greater impact, and in a shorter
timeframe.

Why? India will have the world’s largest population by the year 2050–-1.6 billion
people versus 1.4 billion in China. And, more importantly, India’s population will be
much younger and more highly educated. Sixty percent of India’s population is
under age 32, while the Chinese demographic skews much older. In 20 years,
China will have an estimated 300 million people age 60 or older. China typically
relies on cheap labor from unskilled workers to drive its export business and has
largely ignored an investment in high technology industries. India, on the other
hand, has an educated workforce that for the most part is fluent in English. As
things stand, India will soon have more English-speaking computer operators than
the entire rest of the world put together, and it will be organically linked to all the
advanced economies.2

1
The role of government is also critical to
both economies. China still remains a
communist regime while India’s government
is a more progressive federal republic. Just
take a look at the billboards plastered
around Bombay—these ads speak out on
everything from local politics to sex. Such
freedom of ideas and expression are almost
unheard of in China.
A look at Indian and Chinese publicly listed
companies reveals that Indian businesses
have, with a few exceptions, outperformed
their Chinese counterparts on return on
equity (ROE) and return on invested capital
(ROIC).3
“Of all the emerging markets countries, India
is the one with the solid foundation,” says
Christopher Taylor, emerging-markets
portfolio manager at Hudson Fairfax Capital.
Consumerism of the Middle Class
The rapid growth in outsourcing has created
good jobs in India. As the Indian economy
has become more robust, the emerging
middle class—some 300 million strong—is
now in a much better buying position. That
includes being able to buy automobiles, cell
phones and other luxury items that they
could not have afforded before. For
instance, in 1999 India had 2 million cell
phone subscribers. Today, that number
signs up every month.
Five years ago Indians saved 30% of their
income; today the savings rate is 18%. This
additional disposable income makes the
Indian middle class an attractive consumer
market for all the world’s manufacturers. Cell
phone companies, banks, car manufacturers
and insurers are all looking to sell their
products to the growing middle class.
And, more disposable income means more Public education was to be free and
flexibility when it comes to travel. The recent compulsory for all children. Increasingly,
deregulation of the Indian airline industry
makes flying cheaper–-both domestically
and internationally.
Moreover, India’s GDP (gross domestic
product) increased 8.2% last year, and 7% is
expected in 2005.4 Advertisers and retailers
have quickly gotten on board with this
economic boom. Shopping malls are
popping up in major cities. With only a
handful of malls in existence only three
years ago, it’s anticipated that there could be
100 malls in and around New Delhi alone
within the next several years.
“The increase in the number of
households headed by salary
earners, professionals and
business persons, and the
emergence of a thriving
consumer finance business, are
expected to continue the
consumerism boom in India.”
—Ernst & Young
Poverty Affects Education
While its middle class is indeed growing,
India is still one of the poorest nations on
earth, with as many as 70% of its people
living in poverty and having a per capita
annual income of only $500.5 In just two
decades, China’s people have become twice
as rich as India’s.
India is a nation striving to be a global leader
in brainpower and produces four times as
many engineers annually as does the U.S.
But it struggles to provide adequate
education for its poverty-stricken youth.6
“Education is the ticket out of poverty,” says
New Delhi economist Surjit Bhalla.
In 2001, an education law was passed to
help boost enrollment and graduation rates.
Indian parents want their children educated,
particularly in English and computing.
2
The Affluent Indian Market
With the middle class gaining economically, so too are the elite Indian upper class. It is
estimated that there were 61,000 Indians whose financial assets exceeded $1 million in
2003. That number rose 22% from the previous year, thanks to stock market gains and
solid economic growth.7

Louis Vuitton, Zegna, Porsche and Bentley are among the cachet brands being
purchased by affluent Indians. And there’s a sort of turf war between the super rich and
the regular affluent. India’s super rich are buying luxury goods to maintain their
distinction from the merely affluent and showcase their place in Indian society. The
super rich status is bestowed on only the top 1,000 families in the country. Their high-
end taste is derived from travels to other Asian destinations such as Singapore,
Thailand and Hong Kong.

Foreign Investment Is Now Welcome

Another key component of the Indian economic boom is the influx of foreign investment
into the country.

Take the media sector, for example. Just last year, New Delhi changed the rules barring
foreigners from the media sector. Now, foreigners can hold up to 26% of Indian news
media companies (radio, television, newspapers). In the past 18 months, Indian media
ventures have raised $3 billion in foreign funds and an additional $250 million is
expected to be added later this year.8

Although progress has been made, investors are still holding back due to shortcomings
in India’s infrastructure, according to a study by KPMG. The electricity is unreliable.
Poorly maintained roads and ports, as well as corruption and bureaucracy, make
transporting goods difficult. Pockets of excellence do exist, such as the campuses built
by the big software firms. While China is way ahead in this area, a more positive attitude
by the Indian government toward foreign investment is helping India start to catch up.9

Indian Companies—Shedding Traditional Business Practices

With all of the changes happening on the Indian economic scene, the biggest change
of all is expected to be the internal business practices of Indian companies.

Until now, Indian companies have conducted business almost exclusively in India,
selling products and services to Indian customers and managing a workforce comprised
almost entirely of Indians.

Reaching out to the worldwide marketplace means that Indian execs must now learn to
deal with a multi-ethnic, multi-cultural workforce and consumer. And to compete
globally, they will need to focus on employee issues, corporate social responsibility and
ethics.10

3
 “A solid period of domestic economic growth,
the perception of India as a premier destination
for international outsourcing, the rise of India-
based multi-nationals, and an explosion in direct
foreign investment by Indian firms have thrust
Indian business practices into the global
spotlight.”—Poonam Barua, Director of The
Conference Board’s India Operations

Indian companies, which had a very small presence in foreign locales just a few years
ago, have inked 62 overseas deals worth $1.38 billion so far this year, buying up a
variety of foreign outfits, from engineering design house INCAT International in Britain to
Valeant Pharma in the U.S. That compares with just $202 million in deals in 2002.11

Keys to Success:
Learn that having a true global perspective means more than just having a physical presence in other
countries. Think globally in terms of size of operations, quality, processes, talent and best practices.
Go beyond platitudes and focus on execution. Strategy, ethics, and principles of good management that are
written in textbooks may look relatively easy to introduce, but their successful implementation is difficult,
requiring sustained efforts by senior management.
Develop skills in talent management, retention, and recruitment. Indian CEOs must create and communicate
a vision that is knowledge-led and shared by all employees.
Embrace technology developed throughout the world, not just in India.
Aggressively manage performance and benchmark competency standards against global norms.
Be prepared to meet regulatory compliance on an international scale.
Source: “India: A Quiet Shopping Spree,” Business Week, October 10, 2005

Media Habits
Generally speaking, when we refer to media consumption in India we’re talking about
urban Indians. That’s because of 750 million Indians, 200 million don’t read any
publication. Print readership in urban India is 3 times that of rural areas. TV has only
penetrated 30% of homes (the urban penetration is 2.5 times that of rural).12

TV is the news media staple, according to a study released by the market research
company Synovate. While one in 10 Asians now access web blogs on a weekly basis
for news and current affairs information, blogs have not yet caught on with Indian
consumers. A majority of Indians (78 per cent) and Indonesians (73%) trust a lot of the
news stories they see or hear. Indians (71%), Filipinos (68%) and Thais (67%) are the
strongest believers that news and career success go hand in hand. By comparison, only
32% of respondents in Hong Kong agree that keeping up with the news is important for
their work.13

4
India falls behind many other major nations when it comes to Internet penetration.
However, growth of greater than 20% through 2008 is expected. The greatest growth in
usage is in increased time online by established users.14 Consumer purchasing online in
India is beginning to pick up as well. According to the most recent figures published by
the Internet & Online Association of India (IOAI), annual online consumer purchasing
totaled roughly $130 million in 2004-2005. That total is expected to grow sharply over
the next two years, topping $550 million by 2006-2007.15

In Vogue
With the current trend toward heightened interest in spirituality and the quest to find
purpose and meaning in life, India has enjoyed a resurgence in cultural appeal.
Madonna and other celebrities have lent their glamour to all things Indian. Exemplifying
this trend is graphic designer Sanjay Patel’s “Little India” book, a guide to the Hindu
gods for children. From Shiva to Ganesha to Kali, the text explains each of the 14
deities’ mythological origins. The self-published book’s first run numbered just 500, but it
has proven immensely popular with kids and adults.16

Similarly, India’s wine reputation is beginning to flourish, both domestically and

internationally. Indian wines are especially popular in England and other places where
Indian food has gained traction. Wines from Indian wineries like Grover, Sula, and
Chateau Indage are spicing up cellars and complementing menus. Wine importers in
England say that demand for Indian wines has jumped by as much as 30% annually in
recent years. And according to the consumer trends analysts at Iconoculture, Indian
wines appeal to the timeless consumer values of authenticity, deliciousness,
experimentation, quality and discovery.17

5
Implications for Our Clients

Now that India has conquered the IT sector, Indian CEOs believe that the country
is poised to become one of the low-cost manufacturing hubs of the world.18
Manufacturing may lack the glamour and cachet of IT, viewed by some as a
stodgy, slow-growth sector, but with the growth of outsourcing and the success of
Indian businesses in attracting international clients, more of our clients should be
rethinking Indian manufacturing.

India’s new patent legislation has forced the Indian pharmaceutical industry to
focus on research and development of new drugs, like its Western counterparts.
Estimates are that the drug industry will raise more than $3 billion in the stock
market in the next year for overseas acquisitions, which will facilitate research
collaborations and “cross-border brain transfers.”19 This will necessitate
investment in cultural sensitivity training for both U.S. and Indian pharmaceutical
company employees.

There is great disparity in media consumption between urban and rural India.
Marketing spending on below-the-line promotions and PR is likely a good choice,
since access to mass media is limited. While Internet penetration is currently low,
it is on the upswing and so is the popularity of online shopping. Our online retailer
clients will want to use this new business environment to their advantage.

India is a land of promise for luxury goods makers, a sleeping giant whose
potential is only now beginning to emerge. "Luxury brands have to use strategy
and determination toward a market which has the highest consumer potential in
the immediate future," says Leonardo Ferragamo, head of Altagamma and chief
executive of the family-owned business Salvatore Ferragamo.20 Messages of
opulence, sumptuousness and indulgence will reach a receptive audience.

Marketers looking for potential partners, spokespersons and cultural trends to

capitalize on will want to keep the global appeal of Indian foods, celebrities,
movies and spirituality in mind.

Top Sectors to Watch

It is expected that India will play a greater role in global

industries outside of IT. Here are a few that are expected to
expand through global acquisitions in the next couple of
years:

Pharmaceuticals
Automotive parts
Telecommunications
Steel and aluminum

6
1
“India Rising: A Silicon Valley Vet Scours the Subcontinent for the Next Great Tech Company,” Forbes,
September 5, 2005
2
“Look to India,” Forbes, September 5, 2005
3
“China and India – The New Corporate Model,” Business Week, August 22, 2005
4
“Look to India,” Forbes, September 5, 2005
5
“Indian Summer,” Forbes, July 25, 2005
6
“China and India – The Education Gap,” Business Week, August 22, 2005
7
“FT Report: India and Globalisation,” Financial Times, March 22, 2005
8
“Read All About It: India’s Media Wars,” Business Week, May 16, 2005
9
“Investors ‘Put Off by Weak Infrastructure’ in India,” Financial Times, July 26, 2005
10
“Indian Companies Must Shed Traditional Business Practices to Continue Becoming World-Class Players,” The
Conference Board, July 6, 2005
11
“India: A Quiet Shopping Spree,” Business Week, October 10, 2005
12
“Future of Mass Media Audience in the Two-in-One Nation!” Business Recorder, March 19, 2005
13
“Asia: Survey Finds TV the Main Medium of Choice For News,” BBC Monitoring Media, September 12, 2005
14
“Internet Use Remains a Rarity in India,” eMarketer, August 15, 2005
15
“Online Shoppers in India,” eMarketer, July 07, 2005
16
“Little India, a Kiddie Guide to Hindu Gods, Gives Dharma Deities a Dose of Cuteness,” Iconoculture, May 26,
2005
17
“South Asian Wineries like Sula and Chateau Indage Putting India on the Wine Map,” Iconoculture, September 6,
2005
18
“Indian Companies Must Shed Traditional Business Practices to Continue Becoming World-Class Players,” The
Conference Board, July 6, 2005
19
“India: A Quiet Shopping Spree,” Business Week, October 10, 2005
20
“Courting the New Russian and Indian Luxury Consumers,” International Herald Tribune, September 30, 2005