Full Furniture

School of Business
Mälardalen International Master Academy (MIMA) International Business and Entrepreneurship (IB&E) EX0110 Master Thesis Advisor: Pär Vilhelmson

Furniture market in India: Evaluating a potential market
Qazi Shujaat Mahmood 810217 Ratchada Sornmanapong 810620 Hongyun Zhang 770801

Abstract
Date Program Authors : 7th June 2006 : International Business and Entrepreneurship (MIMA) : Ratchada Sornmanapong 810620-P521 [email protected] Qazi Shujaat Mahmood 810217-P231 [email protected] Advisor Title Problem : Pär Vilhelmson : Furniture market in India: Evaluating a potential market : Is it suitable for foreign companies to enter Indian furniture market? Purpose : The objective of this paper is to study, evaluate and explain the various factors involved in entering India furniture market. Target group : The target group of our thesis are the foreign companies and institutions who are considering to enter Indian market specifically furniture sector. Method : We conducted this paper based on qualitative documentary research as our research is primarily descriptive. We have analyzed a furniture potential market in India, according to two theories: PEST analysis and Porter’s five forces model. Conclusion : From our research findings and analysis we have been able to conclude that India is a suitable market for foreign furniture companies. Key words : India, Furniture industry, PEST analysis, Porter’s five forces model. Hongyun Zhang 770801-P502 [email protected]

Acknowledgements
We would like to thank our tutor Mr. Pär Vilhelmson for his guidance, support and encouragement throughout our research process.

We would also like to thank our lecturer Mr. Leif Linnskog who has always been there for us to share his wisdom and guided us through our studies here at Mälardalen University.

Västerås, June 2005

Qazi Shujaat Mahmood Ratchada Sornmanapong Hongyun Zhang

Table of content List of Figure.................................................................................... iii List of Table ..................................................................................... iii 1. Introduction ................................................................................ 1
1.1. 1.2. 1.3. 1.4. 1.5. Background ............................................................................................1 Purpose ..................................................................................................2 Motivation ...............................................................................................2 Target group ...........................................................................................3 Disposition ..............................................................................................3

2. Research methodology.............................................................. 4
2.1. 2.2. 2.3. 2.4. 2.5. 2.6. Introduction.............................................................................................4 Method selection ....................................................................................4 Data collection ........................................................................................5 Finding presentation and analysis ..........................................................5 Conclusion and recommendations .........................................................6 Limitations ..............................................................................................6

3. Literature review ........................................................................ 7
3.1. PEST analysis ........................................................................................7 Political-Legal Factors .....................................................................7 Economic Factors............................................................................8 Socio-cultural Factors......................................................................8 Technological factors.......................................................................8 3.1.1. 3.1.2. 3.1.3. 3.1.4. 3.2.

Porter’s five forces of Competition Framework .......................................9 The barriers of new entrants..........................................................10 The bargaining power of buyers ....................................................11 The bargaining power of supplies..................................................12 The threat of substitute products or services.................................12 Rivalry among existing firms..........................................................12

3.2.1. 3.2.2. 3.2.3. 3.2.4. 3.2.5.

4. Conceptual framework............................................................. 14 5. Empirical findings .................................................................... 16
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5.1. 5.2.

India country overview ..........................................................................16 Macro-environment factors ...................................................................17 Political-legal factors......................................................................17 Economic Factor ...........................................................................22 Social Factor .................................................................................24 Technological factor ......................................................................25

5.2.1. 5.2.2. 5.2.3. 5.2.4. 5.3.

Indian furniture industry ........................................................................26 Industry overview...........................................................................26 Product segments..........................................................................26 Furniture manufacturing ................................................................27 Competition in the furniture industry ..............................................28 International trade..........................................................................29 Furniture consumption...................................................................32 Purchase process and buying criteria............................................33 The furniture buying process .........................................................33 Distribution channel .......................................................................34

5.3.1. 5.3.2. 5.3.3. 5.3.4. 5.3.5. 5.3.6. 5.3.7. 5.3.8. 5.3.9.

5.3.10. Imported furniture trends ...............................................................35 5.3.11. Furniture prospect in the future .....................................................35

6. Analysis .................................................................................... 37
6.1. India (PEST) analysis ...........................................................................37 Political factor ................................................................................37 Economic factor.............................................................................38 Social factor...................................................................................39 Technological factor ......................................................................39 6.1.1. 6.1.2. 6.1.3. 6.1.4. 6.2.

Indian furniture industry analysis ..........................................................40 The barriers of new entrants..........................................................40 The bargaining power of Buyers....................................................41 The bargaining power of suppliers.................................................41 The threat of substitute products or services.................................42 Rivalry among existing competitors ...............................................42

6.2.1. 6.2.2. 6.2.3. 6.2.4. 6.2.5.

7. Conclusion and Recommendation ......................................... 44
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7.1. 7.2. 7.3.

Conclusion............................................................................................44 Recommendation .................................................................................45 Reflection on our study .........................................................................45

8. Reference.................................................................................. 46 9. Appendix: The wooden furniture value chain ....................... 51

List of Figure
Figure 1: PEST Analysis .......................................................................................9 Figure 2: Porter’s five forces of competition framework ......................................11 Figure 3: Conceptual framework .........................................................................15 Figure 4: Breakdown of furniture production .......................................................27 Figure 5: Furniture industrial production growth..................................................28 Figure 6: Indian Imports by countries..................................................................30 Figure 7: Indian Imports by products...................................................................30 Figure 8: Indian Imports-Exports.........................................................................31 Figure 9: Indian Exports by countries..................................................................32 Figure 10: Indian Exports by products ................................................................32 Figure 11: Furniture buying process ...................................................................33 Figure 12: Imported distribution channel.............................................................34

List of Table
Table 1: The imported furniture growth from 2002-03 to 2003-04 ......................... 35

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1. Introduction
1.1. Background

Globalization plays a major role for a firm to expand its revenues by increasing the opportunities to sell its product around the world. Business management is or will be forced to deal in the global marketplace. Many firms are motivated to expand their revenues across border by the enormous growth and potential profits in overseas market. (Wood et al 2000). This phenomenon, Globalization, also have a positive impact on the volume of FDI1. Since FDI is concerned as a tool which integrates economies at the level of production into the global economy it follows that the development in FDI has significantly increased in recent years. In addition, raising the investment rate and expanding the stock of capital are largely contributed by FDI.

India has been known as an attractive investment destination for investment and a huge and growing market for business for the past many years. The Indian economies have become strong and stable. The Indian market is now being determined by a powerful new force of entrepreneurship unleashed by the economic reforms and openness of recent years. With this reforming, India has emerged into an attractive place for investment.

The economy of India is around $700 billion. The economic growth rate has been at 8.5 per cent in 2003-2004. Today, India is the world’s 4th largest economy and the 7th most attractive destination for foreign direct investments. The reason why India has emerged as a key of FDI destination is that foreign investors can gain higher rate of return in India than in other emerging markets.

FDI = Foreign Direct Investment which occurs when a firm invests directly in facilities to produce and/or market a product in a foreign country. (Hill 2005)

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However, entering a foreign market is not a move that can be easily implemented because of the different cultural, economical and various other differences that exist in the host country. Many variables need to be considered such as industry conditions, marketing opportunities and also the political, legal, socio-cultural and technological environment. To enter a new market and to be better able to plan the internationalization or market entry strategy a comprehensive knowledge of international business environment is of a significant issue. For a firm to obtain such knowledge, information is important as it helps to monitor a changing marketing environment, especially in particular industries. Information also helps them interpret past performances as well as plan future activities.

The above mentioned statements have led us to come up with a question: Is it suitable for foreign companies to enter Indian furniture market? We have also chosen specifically furniture industry as one of our group members happens to be involved in the family business which deals in manufacture and sale of furniture in Thailand.

1.2.

Purpose

In this research we will try to study the various factors in India which can be used by the receivers to devise and apply their strategies. The aim of this paper is to describe and analyze (explain) factors that may influence entering Indian furniture market.

1.3.

Motivation

The major motivation behind this topic is our interest in the subject area of internationalization as this has been a major part of our course. Through this study we will be able to know different factors of concern while entering a new market and studying various competitive forces which are active in a market.

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1.4.

Target group

The target group of our thesis consists of the foreign companies and institutions who are considering to enter Indian market specifically furniture sector.

1.5.

Disposition

This paper is divided into 6 chapters: Introduction, Methodology, Literature review, Conceptual framework, Empirical findings and analysis, and Conclusion and Recommendations. However, in each chapter, it also be separated into sub chapters in order to facilitate the understanding of this study.

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2. Research methodology
In this chapter we have presented the method we have used to conduct our research. We hope that the research methodology will assist the reader to follow the actions and thoughts of the researchers with little or no interruption or distortion.

2.1.

Introduction

Before carrying on the investigation, it is necessary to decide that which methodological approach is the most appropriate and effective. The research method will affect the way of collecting data. There are two traditional views of research, quantitative research and qualitative research. Quantitative research study data which are statistic and number whilst qualitative research study data which are description and explanation (Easterby-Smith et al., 1991).

Since the aim of our investigation is to evaluate the various external environments for entering new market, therefore we believe that qualitative research is most appropriate for our study. Furthermore, the key of qualitative research is to compare between data and data with existing theories which are an attempt to draw generalized findings from specific cases. (Fisher 2004)

2.2.

Method selection

A qualitative research approach was considered appropriate to conduct our research since the majority of our investigation is descriptive rather than Statistic. The certain research methodology was shaped by the following considerations. Firstly, searching, scanning and reviewing the literature relevant to the topic presentation, Secondly, drawing the conceptual framework. Thirdly, presenting and analyzing the empirical findings. Consequently, suggesting conclusions and recommendations.

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2.3.

Data collection

There are two types of data: primary data and secondary data. Primary data can be viewed as raw data which is not gathered before. Most of primary data is gathered through interviews. Secondary data is information that is gathered already in some way.

For our research, only secondary sources which refer to any materials for instance books, articles, websites, etc. We wanted to find some relevant theories that pertained to the problem of our study. In this manner we considered PEST analysis and Porter’s five forces industry analysis. After that the literature search and review concerning those theories was done. Further, large numbers of articles were studied and large amount of information was searched on the Internet in order to gather information for analyzing both country and furniture industry.

Most of the information has been acquired from different reliable websites such as government websites and university database. Further, we have also consulted the online newspapers of India such as The Hindu Business Line and The Tribune online edition.

2.4.

Finding presentation and analysis

A comprehensive review of the literature and the conceptual framework was used to connect to the empirical findings and carry out the analysis. After gathering the relevant information from the secondary sources, the collected information has been presented and analyzed according to the theoretical model. The analysis has been done by applying the empirical findings to the theoretical approach and coming up with the description. The paper investigated overall furniture market in India.

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2.5.

Conclusion and recommendations

To round off, the summary of the findings and fruitful analysis in brief is extracted together with recommendations in our study. Research question is

complemented and answered by analyzing the information gathered.

2.6.

Limitations

Due to the lack of enough time on our hands and the unorganized structure of Indian furniture industry we have limited our research to secondary resources which is a major drawback of our thesis. It would have turned out better if we could have arranged a survey with the help of questionnaire and could have interviewed different people who are involved in Indian furniture industry.

Second major limitation in this thesis is that our study is very broad in its scope where we have generalized the Indian furniture industry and have not been able to focus on some specific geographical region. We are aware of the fact that India is a huge market of heterogeneous cultures, population density and market varies in different part of the country. A focus on localities of dense population and major potential market would have been of more help to the reader in order to give a more in depth picture of Indian furniture industry.

In this research, one of the main tools we have used is Porters five forces model. Porter discusses how five competitive forces play a crucial role in an industry competition. Nevertheless, a shortcoming with the Porter’s five forces model is that it neglects other important variables such as labor force, partnerships, networking, etc. In order for a more complete view of the competitive environment, these additional factors are essential and necessary in an analysis.

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3. Literature review
A comprehensive theoretical background of our research is crucial in order to understand our study. In this chapter, we have made a presentation of two main theoretical approaches, the PEST analysis and the Porter’s five forces model.

3.1.

PEST analysis

PEST analysis is very helpful tool for an organization to consider its environment before beginning the marketing process. It involves identifying the political, economic, social and technological influences on an entity. Such external factors do not only promise additional foreign earning for companies, it also involves further risks and uncertainties. So it is necessary to have a look at all the factors in order to proceed in a broader manner. 3.1.1. Political-Legal Factors The political-legal environment has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses.

‘Marketing decisions are strongly affected by developments in the political and legal environment. This environment is composed of laws, government agencies, and pressure groups that influence and limit various organizations and individuals (Kotler, 2004, P89).

According to Worthington, politics is a universal activity which affects the business world in a variety of ways. Understanding political systems, institutions and processes provides a greater insight into business decisions and into complexities of the business environment.

Government interventions play an important role the way that a company plans its marketing strategy. Government formal and informal rules under which the

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companies should operate, such as tax policy, employment laws, environmental regulations, trade restrictions and tariffs and political stability (QuickMBA 19992004) 3.1.2. Economic Factors Economic risks relate to general or regional trends in economic conditions that can have an adverse effect on a business organization. Economic issues mainly include a centrally planned economy or free market economy, controlling inflation, levels of economic growth, reducing the unemployment rate, stable exchange rate, fiscal policy of the government, monetary policy and a favorable balance of payments. (Worthington & Britton 2003 p.83) 3.1.3. Socio-cultural Factors Purchasing power is directed toward certain goods and services and away from others according to people’s tastes and preferences. Society shapes the beliefs, values, and norms that largely define these tastes and preferences. The social and cultural influences on business vary from country to country. Social factors to some extend have a impact on the size and the marketing operation of the company. It is very important that such factors are considered. Factors mainly include: educational levels of the population generally, population growth rate and age distribution among the society, occupational structure of the population etc. (Worthington & Britton 2003) 3.1.4. Technological factors Technology can affect many facets of an entity including the way it conducts its basic operations, processes information, markets its products, designs its manufacturing process and develops new products. It is vital for competitive advantage, and is a major driver of globalization. In the view of Janet Morrison, points should be considered as the following: What is the level of technology education and training which would influence the recruitment of skilled staff? Is

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technological

innovation

encouraged?

What

funding

is

available,

from

government and elsewhere, for technology development? How computer literate is the society generally?

• • • •

•

Political stability Form of government Incentives to foreign investors Competition law and policy Employment law

• • • •

Political-legal

•
Economic

Level of economic development Trends in GDP Rate of inflation Wage levels and level of unemployment Rates of taxation

•

• • • •

Growth rate of population and age distribution of population Language(s) Main religious and cultural groupings Education attainment levels Level of social cohesion

Socio-cultural

• •

Technological

• • •

Government spending on R&D Legal regime for patent protection Energy availability and costs Innovation system, including availability of skilled workforce Level of technology transfer

Figure 1: PEST Analysis Source: Morrison, J, The international Business Environment, page 24

3.2.

Porter’s five forces of Competition Framework

In practice, the intensity of competition and the level of profitability are determined by many varieties of an industry. Michael Porter of Harvard Business School develops a very useful, widely used framework for categorizing and

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analyzing these factors of an industry known as Five Forces model. In essence, this model suggests that the state of competition in an industry is determined by five basic competitive forces: new entrants, suppliers, buyers, substitutes, and competitors. (Bowman 1998)

Without an analysis, the key structure of an industry still remains unclear. Hence, the five forces model provides a clearer view of the industrial features that determines the strength of competitive environment and industry profitability. This helps to assess the industry’s attractiveness. (Porter 1980)

Knowledge about competitive force underpins the critical strengths and weaknesses of a company and also highlights the industry trend which yield either opportunities or threats. Each company has its own unique strengths and weaknesses when it comes to handling the industry structure which mostly changes gradually over time. Therefore, industry fundamental analysis is a starting point for strategic analysis as industry structure strongly influences the formulation of competitive strategy. (Porter 1980)

These five forces of competition are based on three horizontal sources of competition from substitutes, entrants and existed rivals and two vertical sources of competition from the bargaining power of suppliers and buyers. 3.2.1. The barriers of new entrants The threat of entry determines the degree to which the industry can enjoy profit in the long run and protect the high profit levels of firms in the market and reduce additional rivals from entering the market. Mostly, new entrants cannot enter the new market with the same condition of existing firms. The factors which are considered as barriers of entry are, capital costs of entry, economies of scale, customer brand royalty, government and legal policy, etc.

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Empirical findings show whether entry barriers are effective in opposing potential entrants depends on resources possessed. However, effective barriers against new comers may be ineffective against existing firms that spread from other industries (Charles and Warren 2006).

Figure 2: Porter’s five forces of competition framework Source: Charles and Warren p.74 3.2.2. The bargaining power of buyers According to Keller and Kotler, buyer’s bargaining power increases when they possess information about suppliers and their prices and costs, when the product is significant as its proportion of total costs, when the product is not differentiated, when they are sensitive to the prices they are charged or when they are able to integrate vertically, for example large auto manufacturers’ purchases of tires

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3.2.3. The bargaining power of supplies To produce a product, a capability of firm access to raw materials is needed. This requirement affects to buyer-supplier relationships between the industry and the firm that supply the raw materials used in manufacturing. Thereby, supplier’s bargaining power increases when the purchase is significant to the buyer, when there are few alternative, when buyers have high switching costs or when sellers are able to integrate upstream, for example (QuickMBA 1999-2004), Baxter International, manufacturer of hospital supplies, acquired American Hospital Supply, a distributor. 3.2.4. The threat of substitute products or services Substitute products or services are alternative choices to meet the same types of customer needs (Bowman, p.82). This implies that the more complex the needs being fulfilled by the product and the more difficult it is to distinguish differences, the lower the extent of substitution by customers (Charles and Warren 2006). However, in Porter’s view, substitute products or services refer to products or services in other industries. The competition generated by the threat of substitute comes from products outside the industry. 3.2.5. Rivalry among existing firms There are a number of variables that determine the probable intensity of competition in an industry. • • The slowing growth potential tends to lead to a severe competition as firms need to fight for their market share (Bowman, p.76). Barriers to exit are related with costs of leaving the industry. This impediment implies how firms can be challenged to exit owing to the high costs (Shin, 2001). • The product differentiations enable the firms to gain competitive advantage. In industries where the offerings are distinguished, the

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competition among rivals tends to be weak as customers are not willing to substitute. • High fixed costs: the firm must produce its product at a high output level in order to lower per unit cost. This implies that a high level of production will urge the firm to compete for market share to increase its sales and this would cause an increase in rivalry.

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4. Conceptual framework
“A conceptual framework is formed of patterns of concepts and their interconnections.” (Fisher 2004, p102) There are basically two main purposes for creating the framework;

a) It makes the readers easily understand our structure of the paper b) It simplifies the research task and guides us as “a map” during preparation process.

An evaluation of potential markets is the first step in the planning process. For uncontrollable factors we have used the well known model, PEST analysis to analyze and evaluate the broad area of India’s settings. Afterwards, Porter’s five force model is used in order to cover a wide range of the particular area of focus which is the furniture market in India. Based on our findings we have performed the analysis which leads us to draw the conclusion and recommendations at the end.

The focus of our study is on the Preliminary analysis and screening of India as a country and then we go in depth analysis of the furniture market. For this purpose we have done the PEST analysis for host country India. We found PEST analysis a very suitable tool for this purpose as it helps to study different aspects of concern when evaluating a market as it helps to become familiar with different political, legal, economic, social and technological aspects of the market.

In order to know more about our host country and our specific market of interest we chose to use Porter’s five forces which helped us to get an in depth knowledge of different influential factors in the Indian furniture industry. We found Porter’s five forces to be a very useful and widely used framework for categorizing and analyzing these factors.

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From our plan to conduct the research we devised the following conceptual framework which has helped us to analyze and answer the research problem and propose and bring us to our recommendations at the end. This will also help the reader to understand how the theories and models have been used to draw the conclusions and answer our research problem.
Background& Question

Porter’s five forces model

PEST analysis

Literature study & Data collection Barriers of new entrants Bargaining power of buyers

Political & Legal Factors Economical Factors Social Factors Technological Factors

Bargaining power of supplies

Threat of substitute products or services Rivalry among existing firms

External Environment Analysis

Furniture Industry Analysis

Figure 3: Conceptual framework Source: Own model

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5. Empirical findings
In this chapter, we have presented the outline about India and overview of furniture industry in India. After that, we have also provided critical analysis about India and its furniture industry.

5.1.

India country overview

India is the world’s largest democracy and populous, next to China. India is one of the most diverse nations with numerous ethnicities as wide as all of Europe.

As India has become independent more than 50 years ago, it makes a progressive pace in terms of highly improved rate of literacy, health and life expectancy whereas the majority of its citizens have been less affected by poverty, when compared to the past. (India: country paper 2000-2006 n.d.2)

With the rapid development, India has become the fifth largest economy in terms of growth rate and has the third largest GDP 3 in the Asia. Since the world globalization and the increasing demand of people who want an improving economic and social wealth, the challenges India encounters are becoming more complex and urgent.

It is believed that India is a good place to invest. India has an enormous potential for overseas investment and is strongly encouraging foreign players to enter into the market. This country is also expected to become one of the top three emerging economies. India is also one of the few markets in the world which give the possibility of growing and earning highly prospective in practical for all areas of business. (Investment in India n.d.)

2 3

No date Gross Domestic Product

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As tastes and preferences differ greatly among sections of consumers, the correct estimation of the country’s potential mainly influence on success in India. Entering India’s marketplace, a skillful plan concerning critical thinking and careful research is required. Underestimation of the difficulties and

overestimation of the possibilities can lead to failure as well.

All in all, developing a basic understanding or potential of the Indian market, predicting the situation, developing a market entry strategy, and putting these strategies into practice when essentially entering the market are the basic key to make a successful access into India.

5.2.

Macro-environment factors

5.2.1. Political-legal factors According to its constitution, India is a "sovereign, socialist, secular, democratic republic." Indian government has a federal form where the central government which is also known as the union government enjoys a greater power compared to its state governments. Indian Government system is formed on the similar pattern as the British parliamentary system. (The Government n.d.) The broad administrative powers of the government are exercised in the name of the president whose responsibilities are mostly ceremonial. The president and vice president are elected indirectly for 5-year terms by a special electoral institution. (The Government n.d.)

Real national decision-making powers are centered in the Council of Ministers (cabinet), led by the prime minister. The president appoints the prime minister, who is nominated by legislators of the political party or coalition commanding a parliamentary majority. The president then appoints subordinate ministers on the advice of the prime minister. (The Government n.d.)

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India parliament consists primarily of two institutions which are Rajya Sabha (Council of States) and the Lok Sabha (House of the People). The states and union territories elect 233 members to the Rajya Sabha, and 12 more members are appointed by the president. The members who are elected for the Rajya Sabha serve for 6-year terms, whereas the one third of them are elected after every 2 years. (The Government n.d.)

The Council of Ministers is responsible to the Lok Sabha. The Lok Sabha constitutes 545 members; 543 are directly elected to 5-year terms while the remaining two are appointed. (The Government n.d.)

India’s judicial system is independent and was started under the British rule which is the reason why most of its concepts and procedures are similar to those of Anglo-Saxon countries. President appoints the Chief justice and the other 25 justices to the Supreme Court on the advice of prime minister. (The Government n.d.)

India has 29 states and 7 union territories. Some of the legislatures at the state level are patterned similar to the two houses of the national parliament. Similar to the prime minister each state has its own chief minister who has the same responsibilities to the legislatures as the prime minister to the parliament. (The Government n.d.)

For each state the president also appoints a governor who is directed by the central government and who may assume the certain powers upon orders. Central government does not exert much power on the states as upon the union territories. Some of the territories have gained enough power to administer and control their own affairs with less influence form the central government. However, states and local government have much less level of autonomy as compared to states in United States. (The Government n.d.)

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Dr. Manmohan Singh is the currently appointed prime minister of India..He is member of the left-of-centre Indian National Congress party. (Manmohan Singh n.d.) Other major political party in India is the BJP (Bhartya janta party) which shares the same ideology of open trade like the present government. This can be seen from the fact that BJP formed the last government in India and now ruling party Congress is also following many policies that were implemented by BJP tp promote FDi and international trade in India.

Dr. Kalam is the current president of India. He became the 11th President of India on 25th July 2002. He has a vision to transform India into a developed nation by 2020. Dr. Kalam is one of the most great and renowned scientists of India. (The President n.d.)

Indian government has been working on increasing the FDI in the country and is fully aware of its importance for the development of the economy. It has liberalized FDI system in order to attract investment.(Foreign Direct

Investment.n.d). We will go into more details about the steps government has taken to improve FDI in India under the “legal factors”.

India has good relationship with United States and European Union which are the two most influential economic powers in the world right now. During the US visit of Indian Prime Minister Dr.Manmohan Singh in July 2005 President Bush himself said “The relation ship between the two countries had never been stronger”. Also an agreement took place between these two countries in that visit to increase cooperation on civilian nuclear energy programmes. (US and India, n.d)

India also enjoys strong relationship with European Union which goes back quite a long time. India was one of the first countries to strengthen its relationship with EEC (European Economic Committee). Ever since, India has had two mutual agreements in 1973 and in 1983. During the visit of European Union delegates to

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India in September 2005 India agreed to purchase 43 Airbus planes worth US$ 2.2 billion. This is a clear demonstration of healthy and strong relationship among India and European Union (India announces purchase n.d.) The relationship between the two nuclear armed neighbors, India and Pakistan has been unfriendly over the years because of the disputed area of Kashmir. However both countries are working together in order to solve this problem peacefully through table talks. (India.Pakistan.Begin.Peace.Talks n.d) • Legal Factors

As the focus of our study is the Foreign Direct Investment is India so we have studied the different legal aspects addressing to this field mainly

According to its law Foreign Direct Investment is allowed in all sectors except for the following sectors like Atomic energy, Arms and ammunition, Railway Transport, Coal & Lignite and Mining of iron, manganese, gypsum, gold, diamonds, copper Zinc.

A government approval is required for all foreign direct investment. There are mainly two kinds of approvals one is automatic approval and the other one is special approval.

Sectors where up to 100%, 74%, 51%, 40%, or 26% of foreign equity is allowed an automatic approval is given by the Reserve bank of India and the where the foreign equity is above the automatic approval limits the special approvals are given by Foreign Investment Promotion board (FIPB) (Legal systems and major laws of India n.d.) The major bodies of law in India affecting foreign investment include the following:
•

The Foreign Trade (Development and Regulation) Act, 1992

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• • • • • • • • • • • • • • • • • • •

The Industries Act, 1951 The Indian Contract Act, 1872 The Sales of Goods Act, 1930 The Partnership Act, 1932 The Negotiable Instruments Act, 1881 The Consumer Protection Act, 1986 The Monopolies and Restrictive Trade Practices Act, 1969 The Copyright Act, 1957 The Trade and Merchandise Mark Act, 1958 The Trade Marks Act, 1999 The Information Technology Act, 2000 The Company Act, 1956 The Income Tax Act, 1961 The Customs Act, 1962 The SEBI Act, 1992 Air (Prevention and Control of Pollution) Act,1981 The Industrial Disputes Act, 1947 The Factories Act, 1948 The Benami Transactions (Prohibitions) Act, 1988

Export Import (EXIM) Policy of 1997-2002 guides the general provisions regarding exports and imports. This policy was revised on April 1, 2000 which has given several benefits to importers in order to develop India’s export potential. Imports and exports are allowed from and to any country, except Iraq. (The Furniture sector in India, 2002)

As a result of economic reforms in 1991 the trade has been made increasingly more open and transparent by the Government, which has lead to a significant increase in international trade and investment. As a result of the liberalization this trade is expected to grow significantly The Indian economy has become more oriented towards international trade and commerce. This process of globalization

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has made it necessary that patents, trademarks, copyrights and industrial designs are protected by statutory laws in India. (The Furniture sector in India, 2002)

In an attempt to follow the WTO rules India is making rapid changes to phase out quantitative restrictions on imports. India maintains a variety of additional duties, raising effective tariff rates well above the original tariff for some products. Also When an agent or distributor resells imported goods, sales tax is applicable. (The Furniture sector in India, 2002) 5.2.2. Economic Factor India is the fourth largest economy in the world (US$ 3 trillion GDP) in terms of purchasing power parity after USA, China and Japan and is ranked tenth largest in terms of currency conversion. (India in business n.d.)

Indian economy was the second fastest growing economy in the year 2003-2004. According to the previous growth rates which have been recorded as 8.5 per cent and 7.5 percent, and the economy is expected to grow at 8.1 percent in the current year 2005-2006. (India in business n.d.)

Gross Domestic Product (GDP) has grown phenomenally in the last five years at an excess of 8 percent at constant prices. Food grain production is also expected to increase by 5 million tons in 2005-06. (India in business n.d.)

Indian Rupee has been quite strong against the US dollar. During the 2004-05 fiscal years it started to depreciate from May 2004, but it started to come up again in September 2004 and since then it showed appreciation. In spite of the fact that Indian Rupee is seen appreciating against the US dollar it is actually depreciating against various the other major currencies like Euro, Pound and yen. This has led to lowering of domestic inflation. (Exchange Rate Movements.n.d)

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FDI inflows in net have been registered as high as US$ 647.7 million as of January 2006 as compared to a mere US$ 152 million in the corresponding period. Inflation has loss been recorded to decrease from 5.0 per cent in February 5, 2006 to 4.1 percent as of February 4, 2006 which has been measured on basis of Wholesale Price Index (WPI). The Exchange Rate recorded as of April 2006 stood at 1 US Dollar (USD) = 44.74 Indian Rupee (INR). (India in business n.d.) Indian Consumer market is a large market which constitutes middle class consumers of around 300 million. Also, the economy includes a large portion of young population along with rising salaries which bear an incredible increase in demand for lifestyle products. (India in business n.d.)

According to A.C.Nielson's global online consumer confidence survey – Indian consumers are found to be the most optimistic in the whole world. This survey also ranks India among the top five countries who are ready to purchase what they desire and invest in mutual funds. ACNielson also suggest that an increase in the job prospects and personal finances are the factors that make India an inspiring country for consumer marketing. There has been a robust average growth of 14% on monthly expenditure according. (India in business n.d.) The Indian Economy is also witnessing a boom in the Retail sector. Almost 60 percent of the consumers are willing to try out new products and services. Around 44 percent of Indians are willing to invest in the stock market as the disposable incomes are going beyond the level of savings. The attitudes and thinking of consumers has also changed compared to the previous year because of a reduction in the dependence on male member or shopper. According to the survey Indian consumers are willing to spend more on home improvements (38%) and leisure holidays (37%) (India in business n.d.) India is currently being rated as the fifth most attractive retail market. 3 percent of total retail market is organized which is worth US$210 billion. Organized retail is

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expected to be 9-10 percent of total retail by the year 2010. Of the total retail trade more than 65 percent comprises of food and grocery items. The retail industry employs 21 million people which is the 7 percent of total workforce. After the agriculture sector it is the largest employer in India. (India in business n.d.) 5.2.3. Social Factor India has a total land area of 3.29 million square kilometers and a population of 1027 million according to 2001 census. The population density is 324 persons per square kilometer. The population growth rate is 1.93 %( 1991-2001). India covers 2.4 % of the whole world area and has 16.7 % of world’s population. (India at a Glance n.d.)

300 million of the total population is working middle class and nearly 54%of India’s population is below the age of 25. The average life expectancy is 60.4 years with males is 61.8years and females 59 years. The average literacy rate is 65.38% with the state of kerala accounting for the highest literacy percent of 90.92 and overall the male literacy rate is 60% and female literacy rate over 50%. (India at a Glance n.d.)

Hinduism is the major religion in India and among the minorities are Islam, Christianity, Sikhism, Buddhism, Jainism etc. According to the constitution there are 18 official languages in India. Hindi is the national language while English is the preferred business language. (India at a Glance n.d.) India can be divided into four broad geographical areas: In the north there are mountains of great Himalayas, the vast Indo-Gangetic plains, the Southern (Deccan) Peninsula bounded by the Western and Eastern Ghats and fourthly, the coastal plains and islands (India at a Glance n.d.)

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5.2.4. Technological factor As we know that furniture industry does not involve high tech technology and most of the furniture manufacturers and resellers exist in the form of a highly “non-organized” industry. More explanation of this non organized industry will follow under “industry overview” when we will go into more details for Indian furniture industry. One of the factors contributing to the non organized form of this industry is that furniture comes in a lot of variety and varies from handicrafts made in the form of domestic household factories to aluminum furniture which is made in rather bigger factories. So it’s not easy to define specific technological advancements that could help the furniture industry. Due to this reason we will just take a broader look at the overall technological advancements in India.

Indian institutes for management and technology have an international repute for producing qualified and talented professionals. The United kingdom- based times higher education supplement has ranked the Indian institute of technology as the third best technological university in the world for 2005. (IITs rated world’s third best tech body 2005)

India has very made commendable advancements in the fields of space research atomic energy, supercomputing and oceanography. India has 1500 research facilities which constitute a very well developed research and development infrastructure India is one of the six countries who have the ability to launch satellites in the space. This includes the ability to produce as well as the use of this technology for development. After USA and Japan, India is the only country to have built a super computer.(Knowledge society n.d.).

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5.3.

Indian furniture industry

5.3.1. Industry overview The furniture industry in India is considered as a “non-organized” sector as it represents a small percentage (about 0.5%) of contribution to the formation of GDP. Moreover, the production is increasing every year. The furniture industry is categorized into various categories amongst which handicraft production is the major category which accounts for about 85% of the total furniture production in India. (India Furniture Industry n.d.)

The wooden furniture is the major part of this non-organized sector, which caters mainly to home furniture demand. Demand for household furniture is easily affected by economic conditions such as disposable income, interest rates, employment level, income growth, etc. (India Furniture Industry n.d.)

The total size of the Indian furniture industry is estimated at around INR 350 billion. From this, the share of the wooden furniture market is around INR 600 million. Eighty five percent of this falls into the unorganized sector. The furniture market is growing by 12-15 per cent per annum and is likely to grow to INR 750 billion by 2010. In fact, around 300,000 workers are held by the furniture industry. (Indian Furniture Industry n.d.) 5.3.2. Product segments The furniture industry consists of eight sectors: Corporate or office furniture (15%); hotel furniture (15%); and other furniture which mainly includes furniture parts (5%). The upholstered furniture and the bedroom furniture make up approximately 30% and 20% respectively of the total production. The remainder is comprised of kitchen furniture, with almost the same weight; 6% as dining room furniture 6% and other furniture (garden, home office, small furniture) which

26

accounts for 3% of the total production. (The European Furniture Manufacturers Federation 2002)

6% 6%

5%

3% 30%

15% 15% 20%

U pholstery D ining room

B edroom K itchen

O ffice Parts

H otel O thers

Figure 4: Breakdown of furniture production Source: The European Furniture Manufacturers Federation 2002 5.3.3. Furniture manufacturing In India, the furniture supply covers up all range of possible uses. Three main type of material were used as the supply of furniture; Approximate 65% of the furniture made from wood, 25% from metal and the remaining 10% from plastic. Wood and Wood Products, Furniture and Fixtures" carry a weight of 27% in the total manufacturing sector. (The European Furniture Manufacturers Federation 2002)

Household production largely produces sofas, dining tables and seating whilst professional production mainly produces for offices and companies. Various sectors can be found in the Indian furniture industry. Within these sectors, manufacturers are not as specialized in the production of a particular kind of

27

furniture as in other industrially advanced countries. The largest segment with the number of medium and large companies is the office furniture sector. (The European Furniture Manufacturers Federation 2002)

Figure 5: Furniture industrial production growth Source: India furniture industry 2006 5.3.4. Competition in the furniture industry In Indian furniture industry, the market power extends widely since no single manufacturer or retailer dominates a significant fraction of the industry. Not many manufacturers and retailers are in the industry. Only very few large and modern retailers have established specialized stores. Style Spa Furniture is the largest retailer for furniture market in India. With its network of over 55 outlets, the company has been growing rapidly and is looking for providing furniture in individual customer tastes. (Why style is passion 2004)

Due to globalization domestic companies have been challenged by overseas companies and the competitive environment in the furniture industry has

28

changed a lot over time. Therefore, there is a considerable potential for the entry or expansion of specialized retail chains in India. (India Furniture Industry n.d.) 5.3.5. International trade In 1998, India ranked 48th among furniture exporters and 49th among importers as the result of the high import duty. On the other hand, the low technological level of Indian company and local responsiveness influencing the style of the product offered makes them difficult to export. This implied that foreign trade picture with regard to furniture is not very impressive. (India Furniture Industry n.d.)

Although the tariff reduction significantly affects imports and exports, the impact on other variables such as production, investment and employment is less likely to get effected since the quantitative importance of international trade regarding the size of the domestic economy in India is not very high.

In the Indian furniture industry, the reductions in tariff rates along with an increase in market access and depreciation in exchange rate has increased imports and decreased the value of production. (Virmani et al 2004). However, the degree of openness to foreign trade is still very small though liberalization in the furniture sector in India has been generated recently. • Imports

With the 17% of the total imports worldwide in 2004 and up to the mid 2005, this makes India the world’s top furniture importer. The lowering of tariffs by the government has enabled importers all over the world to enter the Indian furniture market and provide Indian consumer many choices. Dramatically lower import duty from a high of 300 per cent to 36-40 per cent on stated value of goods has attracted a large number of foreign players as a vast potential market. (India tops in furniture imports 2005)

29

Furniture imports, by countries, mainly come from Germany, Italy, Korea, etc. Whilst furniture imports, by products, are mainly of seating, seating parts and furniture parts as the fact is that assembly is cheaper for foreign companies.

Figure 6: Indian Imports by countries Source: The European Furniture Manufacturers Federation 2002

Figure 7: Indian Imports by products 30

Source: The European Furniture Manufacturers Federation 2002 • Exports

India exports cheap furniture and, at the same time, imports high quality furniture, thereby the Indian export are basically ten times higher than Indian furniture imports.

Figure 8: Indian Imports-Exports Source: The European Furniture Manufacturers Federation 2002

Furniture exports, by countries, are mainly shipped to United States, the United Kingdom, Germany, etc. Whilst furniture exports, by products, are mainly wooden furniture and office furniture.

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Figure 9: Indian Exports by countries Source: The European Furniture Manufacturers Federation 2002

Figure 10: Indian Exports by products Source: The European Furniture Manufacturers Federation 2002 5.3.6. Furniture consumption In India, upper segments of the population contribute the major purchasing power. However the middle class of consumers are also attracted to foreign companies who are selling in the Indian market. This segment of the population

32

significantly becomes a market for consumer products including furniture. The location of the consumer as well as income is strongly connected to the consumer purchasing power in India. 5.3.7. Purchase process and buying criteria Potential consumers buy furniture through retailers and not directly from a manufacturer. This makes the furniture buying process complicated. Consumer buying decisions are mostly based on style, design, perceived value, quality, and price of the furniture. There are many ways for retailers to buy products; from manufacturers, agents representing manufacturers, and from large purchasing companies. Price, quality and design are the first criteria for retailers to buy products in order to meet the customer needs. (Pine of the Times Furniture 1998) 5.3.8. The furniture buying process Consumers are diverse in different market segments however the furniture buying process below is according to the view of most consumers.
Aroused need Looking and Shopping Buying Decision Use of product Post purchase Attitudes

Figure 11: Furniture buying process Source: Furniture marketing p. 164 • •

Aroused Need: The consumer starts looking for ways to satisfy his need Looking and Shopping: This stage can be lengthy since furniture would be considered as a specialty good. Magazines, newspapers and even interior designer opinions are the source of looking for alternatives while the internet and visiting retail furniture stores or outlets are the sources of shopping. Well-designed web site and wellconceived advertisement highly effect consumer’s perceptions.

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•

Buying Decision: The conclusion of many small decisions such as which size, what color, what material, what retailer and method of payment will be finalized.

• •

Use of product: This phase occurs after product has been delivered to consumer’s home and satisfies a consumer need. Post purchase Attitudes: The customer feelings after using the furniture which have an affect on the next decision whether to use the same brand or retailer.

5.3.9. Distribution channel In general, Indian companies sell their product directly to the market or through distributors. In other case, the larger companies have their own showrooms in the larger cities in India, Calcutta, Mumbai, New Delhi and Madras. For a company who wants to sell its products without establishing a branch office or a subsidiary, it can appoint an agent or a distributor. The distribution channel for the import of furniture into India is as follow:

Foreign Furniture Company

Importers/ Distributors Wholesalers

Retailers

Consumers Figure 12: Imported distribution channel

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Source: Product market study 2005 5.3.10. Imported furniture trends

Today, most of home furniture buying concerns not only necessity but fashion and design. The fancy difference of foreign furniture style is ready for acceptance of young generation. A matter of brand name of the seller become significant when it comes to imported furniture. Word of mouth plays an important role for buying imported furniture from a particular store. Imported furniture which varies according to the material used and the design is now offered at every price level.

The attraction of increasing consumer demand, reduced tariff barriers and growing at almost 12 per cent every year make a number company and international traders come into this market. (Branded furniture market grows 2005). Presently, the total value of imported furniture is approximately INR 8 billion.

Moreover, the underlining of imported wooden furniture which is increasing significantly from 2002 to 2003 is the development of India’s imported potential market and the overall economic performance. (Wiles R. 2005)

Table 1: The imported furniture growth from 2002-03 to 2003-04 Source: Universal Expositions n.d. 5.3.11. Furniture prospect in the future

As a matter of fact many agreements, especially about production, have been signed between local producers looking for the technology and European companies which try to take benefit from a potential opportunity in production

35

cost. Moreover, around 150 Indian company profiles are ready in order to start doing business or industrial cooperation with EU counterparts. Those companies are furniture manufacturers, retailers, banks and enterprises. (The prospect of the furniture sector in India seems positive 2005)

In order for the foreign companies to establish their business, either alone or with partners in India, there are various ways on legislation of setting up business and on intellectual property rights. The duty liberalizing and the entry-exit barriers minimizing for foreign companies are progressing by Indian government. Though, comparing with other countries such as China and Mexico, it takes more time to start a business in India as it involves more legal fulfillments. However, these shortcomings will be eradicated very soon in coming years. (The prospect of the furniture sector in India seems positive 2005)

There are two important reasons which currently make India a good perspective to sell furniture firstly, India has large size of demand and secondly, Indian preferences and tastes have become more refined. These circumstances are also expected to contribute to further market growth in the coming years. (The prospect of the furniture sector in India seems positive 2005)

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6. Analysis
6.1. India (PEST) analysis

6.1.1. Political factor The policies and philosophies of major political parties within the country are important for a marketer to know as a shift in power of major political parties may alter the existing prevailing policies which can bear a risk for the business (Cateora & Ghauri 2000, p 49)

The empirical findings show the signs that the present Government is stable and will complete its term of five years. Even if the government changes after the next elections the other major party in India BJP (Bhartiya Janata party) also has the philosophy of open market similar to the present government. So, there seems no threat to the investors investing in India as the government policies seem to be stable for the future.

India has good relations with the United States and European Union which will help India in providing stability to trade, financial and monetary system

The only cause of concern for investors in India is its relations with its neighbor Pakistan. Although in the present situation there are signs of improvement between their relations but this can change quite dramatically, as in 1999 both the countries were on a brink of a war. • Legal factor

The legal systems affects the attractiveness of a country as an investment site and/or market because the country’s laws regulate business practices and also governs how the business needs to be done. (Hill 2005 p.46)

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According to the findings the economic reforms in 1991 lead to a significant increase in international trade and investment and India is still in the process of making this trade more open and transparent

Indian government is taking serious steps in order to protect patents, trademarks, copyrights and industrial designs by statutory laws which is a positive sign for companies entering furniture industry as their designs will be protected by these laws.

India is also trying to phase out quantitative restrictions on imports which will help the furniture exporters to India. But, a major cause of concern is the variety of additional duties in India which raise the tariff rates quite high also the sales tax is applicable when an agent or distributor resells imported goods. 6.1.2. Economic factor The economic level of the country is the most important element to which a foreign marketer must adjust. Entire marketing process is affected by the economic growth within the country. Static economies have rigid consumption patterns while in the dynamic economy consumption pattern changes rapidly. (Cateora & Ghauri p 174)

As shown in findings Indian economy is growing at a very fast and stable rate over the last years which make it one of the fastest growing economies in the world today. India needs to keep up with this continuous growth and should not get self-satisfied. This economic growth is a very positive sign for the future investors in India.

Indian Rupee although being stable over the last few years and its value being appreciated against the dollar is good sign, but Rupee has been depreciating against the other major currencies like the Euro, Pound and Yen which might not be a good sign and will bear a cause of concern as it may hinder the profit

38

margin for the future investors. Inflation has been reduced a lot over the years and this bears positive sign for the investors in the furniture sector as this show more potential buying power for the consumers. 6.1.3. Social factor People are the most important input in the production process. The quantity and quality of people available in the economy affect its productivity. (Worthington & Britton, 2003. P.121).

India has a huge population of over a billion which makes it a huge potential market for investors who can make huge profits from catering such a large population needs in furniture sector..

Empirical findings show that India has very cheap skilled/unskilled labor which is an important factor that is looked upon by the companies planning to invest in a foreign country. This again is positive factor for the companies making an FDI in Indian furniture market, 6.1.4. Technological factor As mentioned earlier in the empirical findings Furniture industry is a much unorganized form of business especially in India. There is a very wide definition to the goods referred to as furniture ranging from wooden and aluminum furniture to handicrafts. But as we know this field is not known for technically advanced or cutting edge techniques which are required to be used in furniture manufacturing so we believe this factor does not carry a major importance in the decision making of making an FDI in Indian furniture industry.

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6.2.

Indian furniture industry analysis

6.2.1. The barriers of new entrants Barriers to entry explain the different perceptions between companies that are already in the market and those who are trying to enter the market. The more difficult the barriers are to overcome, the better as they protect the companies already in the market from potential new entrants, and the less attractive the industry is. • Cost of capital requirements

Capital for setting up is concerned as the most essential impediment to entering the furniture industry. Starting a furniture business in India cost not less than $50,000 (Marone J. n.d.). However from empirical findings, banks are another option of financial support for those who want to start their business. • Experiences and knowledge

Since furniture business, in term of manufacturers and retailers, is considered as a shopping good which needs more time in selection so reputation is significant for the companies. Consistent with Imported furniture in India are booming, design becomes the first criteria in selecting furniture. This is influenced heavily by reputation and strong relation with customers and suppliers.

How to begin and maintain the relationship along the value chain will help ensure survival in the furniture business. Developing relationships require knowledge and experiences which can be acquired and collected during operating in the market. This implies that this factor favors the companies already in the market. • Legislation

The legal aspect is not much of relevance for India furniture industry in terms of an impediment. Rather, it provides the opportunities of lower tariffs for the new comers.

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6.2.2. The bargaining power of Buyers The power of buyers can be viewed as the expense of industry profitability. The stronger the power of buyers is, the less profitable the industry is. In light of the furniture value chain (see Appendix), the two main buyers are retailers and wholesalers.

In India the bargaining power of customers in furniture market is high. Most of the time in furniture buying process is spent in looking and shopping products and once consumers decide what to buy, they will buy from retail or wholesale stores. Furthermore, designed furniture increasingly becomes to the furniture trend in Indian market. Product design is mostly in hand of retailers or wholesalers since they meet the need of consumers who come to their shop therefore they know styles in the current trend.

Porter (1998) suggest that retailers power become significant greater over manufacturers when they are able to influence consumer’s purchasing decisions. In case of India furniture market, the ability of retailers to shape future market significantly increases the power of the buyers. 6.2.3. The bargaining power of suppliers The power of suppliers is in the same direction as the power of buyers in the sense that it can squeeze profitability out of the industry. Suppliers can use bargaining power over participants in an industry by raising prices or reducing the quality of goods or services.

In Indian furniture industry the bargaining power of customers in furniture market is low. The modern design furniture rapidly becomes a furniture trend. Manufacturers produce furniture in various styles given by interior designers or retailers. This can lower the supplier power.

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6.2.4. The threat of substitute products or services Porter (1998) discusses substitute products as products that can perform the same function as the product of the industry. The stronger the substitution in the industry is the less profitable the industry is.

Wooden furniture is the main product in Indian furniture industry. The potential substitution of tropical wood products is the obvious non-wood products. Aluminum or plastic products may be a substitute for wood products.

The threat of the substitute aluminum is gradually high since the demand for aluminum product is gradually growing with the current prospects of Indian economic development in the coming decades (Storen S. 2003). To compare with wood the advantage of aluminum is mainly its durability, high flexibility, easy maintenance and no rust. 6.2.5. Rivalry among existing competitors Rivalry among existing firms can be fierce. For a company to improve its competitive position, knowledge of its industry situation and its rivals is essential. The more the rivalry is intense, the less that industry is profitable. • Number of rivalry

The competitive environment in India furniture industry seems to be low in the terms of intensity since there are not many companies in the industry. However, foreign competitors through foreign investment play an important role in the industry because of the growing trend of imported furniture. • The industry growth

Porter (1980) argues that slow industry growth leads to increasing competition since firms in the industry are inevitable to seek their expansion. From empirical findings, we found out that furniture market in India is growing positively every year. This implies that competition in the industry is not likely to be severe.

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•

Product differentiation

In an industry, product differentiation plays a significant role in protecting from competitors as customers have preferences and loyalty to particular sellers according to Porter. In Indian furniture industry, design makes product differentiated and design rapidly becomes trend. This means competition in this industry tends to be weak as a lot of design options are available which can generate product differentiation to meet the customer’s specific needs.

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7. Conclusion and Recommendation
In this final chapter we have wrapped up this thesis by presenting the most important findings from our study of India as a whole country and furniture industry specifically and by giving some recommendations which would be of interest to any company who wants to enter India furniture market.

7.1.

Conclusion

To conclude India has a very stable political environment which has been suitable for foreign investors and its policies over the last few years have been successful to attract FDI in various sectors This shows that India is a fruitful market for companies planning to invest and enter this market. India is an important member of WTO which urges it to abide by its rules and regulations. India has the second largest population in the world which makes it a huge economy as it also has a rapid and stable economic growth with low inflation rate and strong rupee value. India also has a cheap labor as compared to other developing countries. These indicators clearly signify India as a suitable place for the investors to invest.

Additionally, we have seen many prospects to entering into this market due to many reasons. We have noticed that imported furniture is flooding in the market and growing up rapidly every year. The government policy regarding this kind of industry also provides and enhances opportunities for foreign players in entering into Indian market. The ability of retailers to shape future market is increasing, however, buyer’s bargaining power is exerted very little as it doesn’t appear to be one single buyer who purchases large volumes of furniture and supplier’s bargaining power is also low as most of products are in hand of retailers in view of product design. The substitution, Aluminum, in this industry seems to be strong as it can gradually replace in any sense such as physical outlook, attribute or benefit of wood products. Competitive situation in India furniture industry is not

44

too intense due to the high growth of the industry and a small number of companies in the industry.

7.2.

Recommendation

Based on our opinion we would like to have some recommendation for a company who wants to penetrate the Indian furniture market. Having good management and a trained work force, building strong relationships with suppliers and customers, understanding the relationships within the market and watching for competition, as well as knowing the organization are some keys that influence companies to compete in the marketplace. Furthermore, time condition also comes as a major factor in competitive environment since the competition in furniture industry always changes over time.

7.3.

Reflection on our study

During our research we came across many different methods that could have been adopted in order to improve the quality and the reliability of our thesis. As writing a thesis is a learning process we learned a lot from our experience. During the discussions with our fellow student groups we came across different approaches that can be adopted in order to write a thesis such as ours. One of the alternate approach could be to contact some people who are involved in the Indian furniture industry and in this way we could gather some first hand information about the current situation of the industry. Another way to approach this topic could also be to survey some specific geographical areas in India, also to contact certain organizations in Europe who are helping the furniture companies to export to India. With all this being said, under the time constraint and the unorganized structure of Indian furniture industry we found our approach quite suitable for carrying out this research.

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8. Reference
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Ricky

W

&,

Michael

W,

1999,

International

Business:

A

Managerial

Perspective,2nd Ed. Shin, N., (2001), Strategies for Competitive Advantage in Electronic Commerce, Journal of Electronic Commerce Research, VOL. 2, NO. 4, pp.164-171. Retrieved April 11, 2006 from http://www.csulb.edu/web/journals/jecr/issues/20014/paper4.pdf Storen S., ALUMINIUM EXTRUSIONS IN INDIA – A CONCEPT FOR SUSTAINABLE USE OF MATERIALS, Department of Machine Design and Materials Technology, Norwegian University of Science and Technology, NO-7491 Trondheim, Norway. Retrieved April 12, 2006 from http://www.indecol.ntnu.no/indecolwebnew/indecol/evaluation%20document s/selectedpublications/ALTECH03CORtext.pdf Strauss, A. and Corbin, J. (1994), "Grounded theory methodology", in Denzin, N.K. and Lincoln, Y. (Eds), Handbook of Qualitative Research, Sage Publications, Newbury Park, CA, pp. 273-85. The Furniture sector in India, 2002, European Furniture Manufacturers Federation – UEA. Retrieved April 8, 2006 from www.eu.int/comm/europeaid/projects/ asiainvest/download2002/mpm111_indiareport.pdf – The Government, Retrieved May 1, 2006 form http://presidentofindia.nic.in/govern.html The President Retrieved May 1, 2006, from http://presidentofindia.nic.in/scripts/presidentprofile.jsp The prospect of the furniture sector in India seems positive, 2005. Retrieved May 2, 2006 from www.furniture.co.in/News/news1.html Virmani A., et al., (2004) IMPACT OF TARIFF REFORMS ON INDIAN INDUSTRY: ASSESSMENT BASED ON A MULTI-SECTOR ECONOMETRIC MODEL, WORKING PAPER NO.135, INDIAN COUNCIL

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FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS. Retrieved May 1, 2006 from www.icrier.org/wp135.pdf United Nations Industrial Development Organization (UNIDO), 2003 Retrieved May 3, 2006 from http://www.unido.org/doc/12771 Universal Exposition, India & The furniture market. Retrieved May 09,2006 from http://www.ueindia.com/papers/media_aboutindia.pdf US and India, Retrieved May 3, 2006, from http://news.bbc.co.uk/2/hi/south_asia/4692013.stm Why style is passion, The Hindu 2004. Retrieved May 2, 2006 from http://www.hinduonnet.com/thehindu/mp/2004/07/26/stories/200407260299 0200.htm Wiles R., 2005. India: Potential Market for US Softwoods?, the American Forest&Paper Association. Retrieved April 30, 2006 from www.softwood.org/PDFPUBS/India%20%20Potential%20Market%20for%20US%20Softwoods%20%20Feb%202005.pdf Wood, Van R; Robertson, Kim R (2000) Evaluating international markets, ‘international marketing review’, vol.17, no.1, pp.34-55. Retrieved March 2, 2006, from ELIN@Malardalen database.

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9. Appendix: The wooden furniture value chain

Source: UNIDO, 2003

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