Foods in racks

Food Industry

Executive Summary

The food industry has been reaching new marks in recent years and the nearly $5.7 trillion value market seems to be highly complex. Only 8% of the market value gets into processed or canned foods when compared to other forms of agro-based food supplies. The growth pattern of the food processing industry seems to be folded with double-digit growth in the emerging markets. Due to the government policies and regulations, the opportunity for the developed countries gets limited in growth. But at the same time, the emerging markets identify the scope of the food processing in the canned and preserved segments for the upper and the lower class of people (Jain, 2009). Especially, emerging markets like India recording a growth of more than 10% for five consecutive years. The growth will be more in future years if the GDP of the country touches the mark of 7-8% consistently. In addition to that of the above, India records only 2% of the global trade output in terms of preserved foods and canned foods. The next key emerging market in the world would be ‘brazil’ which records considerable growth in the preserved or canned markets.  Brazil is a member of the southern common market (MERCOSUR) gets the opportunity to tap the market that originates from Alaska to Patagonia (rugman, 2012). Specifically, Brazil concentrates more on meat product production in terms of higher shipments and value addition. Next to the meat preserved segments, bakeries and tortilla manufacturing would make more space for the growth and the value addition. Brazil intensifies its activities more on the food processing industry and its impact has been high in recent years. Out of all, India would be a suitable emerging market for making FDI in the preserved and canned segments.  The government incentives, regulations, increase in per capita income, infrastructure developments, and growing consumer market are the key reasons that override Brazil’s competence.

Institutional analysis- INDIA

India is on the faster track on realizing its credibility in the field of agriculture and the food processing industry (wild, 2014). Though, India record to be one of the largest producers of food in the world, its contribution to the preserved or canned foods seems to be very minimal.  There are many positive shades for the key exporters and the investors especially in the segment of preserved /canned foods. The key factors that bring harmony to the development of this particular sector would include the increase in the per capita income of the consumers,  increasing level of urbanization,  increased power on purchasing ability, improved levels of living standards, the high end of domestic consumers.  When compared to other countries, the untapped set of domestic consumers would be more in India. This article will describe the impact of the political environments & legal environments, economic & business environments, and social environments (Beardwell, 2010).

Political and legal environments

The essence of political and legal color would be the most critical aspects that decide the fate of any set of businesses. The ready-to-eat market would be the key aspect that finds enormous growth. For example, the ready-to-eat sector seems to work out for 28 crores trade in the year 2006 and now it is expected to reach the mark of 3000 crores(Collinson, 2012). The real essence behind the growth would be the political and legal favoring environments. Especially the cold chain development, taxation streamlines, disintermediation, and reforms in food markets. Nearly 73% CAGR has been worked for these specific sectors in the preserved segments. Specifically, the canned or preserved market has been growing independently for CAGR of 63%. The political and legal aspects in India would welcome a higher level of FDI to the food processing sectors (Jain, 2009). The liberalizations policies by the government of India have made food processing industries into new platforms. The fiscal policies, as well as the export & import regulations, have made a difference for the preserved/canned food processing units. The policies such as exchange as well as the control of interest rate bring a positive flavor to the preserved and the canned food markets. The key challenges in the political and legal arena would include the procedural delays in policies frameworks, prolonged approaches in the implementation of the policies, and the delay aspect in offering the subsidies as well as incentives for the preserved/canned market players. The newly formed government in India would limit more FDI in retail units and their related sectors which could diminish the prospect in certain levels (McGaughel, 2009). In addition to that of the above, the incentives for big investments over the preserved and canned markets will increase the scope in new margins. FDI arrangements up to 100% especially in the food park, warehousing, and the cold chain activities for the food industries will increase the opportunity for the preserved and canned food segments. The investments from foreign in SSI items of reserved nature in the subset of export obligation will also increase the scope of the industry (Minocha, 2010).

Economy and business environments

The Indian food industry could be segmented into three segments such as the organized sectors, unorganized sectors, and small-scale industries.  Indian food industry records the very minimal level of processing the producing aspects when compared to the other key countries. The processing level of agriculture yield seems to be very less to 3%. The processing rate for Malaysia would be around 80% and Brazil will record 77% from the agricultural output. In addition to that of the above, china process about 70% and Thailand process about 30%. This shows that, India is losing out the big opportunity in processing and hence, the space for the development will be enormous (wall, 2010). Since, the gap of processing rate is too high, the opportunity will be very high for transformation. The preserved and canned products can get the raw materials more than the other countries (Collinson, 2012).  The cost of labour in the preserved and the canned industries will be very less in India when compared with the other leading countries. Since, the government regulations are more favourable to the development of such industries and segments, the marginal income as well as the profits from the industries would be much more (wild, 2014). For example, income tax rebate, investment subsidies and incentives for export promotion will help out the organizations for gaining the higher rate of ROI and profits. The value adding products from the sector has been increasing steadily with the growth pattern of 15% annually. The economic output could be too good due to the market space for preserved and canned foods. Nearly 1000 million domestic customers are available in the Indian market. Out of it, nearly 700 million customers are highly iterated with the preserved and the canned foods in the near future. Hence, the point of investment would be easily justified in the Indian market. In addition to that of the above, the market value for the next two years would be around $ 340 billion with the steady growth of 12% growth. The economic output of the country would also be increased in near future due to the availability of the huge resources (rugman, 2012).  The challenges would be the fewer infrastructures available within the country in the cold storage as well as the transportation of the perishable materials. The rising cost of the raw materials and the artificial elevation of prices would create the back biting in the sector to certain extents.  Absence of certain investments in the technological elements will also be the critical challenge in the unit of preserved as well as the canned market segments (Inkpen, 2009).

Social environment

The demographic trends favoring the players of preserved and canned market segments more in the Indian context. Since the population contribution of India would be more in the near future, the consumers’ numbers would be high for the market.  Nearly the Indian population accounts for more than 18% of the world’s population, the consumer flow would also increase to greater numbers (McGaughel, 2009). In addition to that of the above, the income level raising would be the other key component that could bring harmony to the players of the preserved and the canned market segments. In the spending pie, grocery, as well as the food, contributes the major proportions in the Indian market. This would be a positive sign for the players to make more FDI (Jain, 2009).  The consumers class which earns more than $ 1000 keeps on increasing at a rapid pace, which would be the biggest positive note for the expansion of such categories in the food processing sectors. This consuming class would touch nearly 85% of the proportions in a couple of years.  Hence, the potential market for the preserved/canned makers will be very high in the coming years. Consumers in India have already started to spend more on the preserved and canned food products in recent years. In addition to that, the youth community has been moving close with the preserved and canned food products when compared with the other segments of the people. Indian population will carry nearly 55% of the younger population with the age range of 20-59(McGaughel, 2009).  This younger slot will be trendier in the future and increases out the demand for the preserved foods and canned foods (rugman, 2012). The key challenges in the social environment would be the lack of consumer education over the preserved foods and canned foods. In the same way, the lack of support from the Indian housewives over the preserved products. In addition to that, people are more likely to connect themselves with homely made foods.

Institutional analysis- BRAZIL

Brazil seems to be highly lucrative in the food processing sectors and quickly moved to fifth place in terms of packaged food trade aspects. Brazil moves ahead of the leading economies such as France, Italy, and the UK.  Especially, Brazil proves its credibility in the packaged food market with a value of more than $145 billion. Brazil records out high defined growth in the last 5 years with 45% altogether (Inkpen, 2009). In addition to that of the above, the country concentrates more on the South American market which helps to gain better growth.

Political and legal environment

Brazil gains fair trade through various arrangements and agreements with other nations. Brazil seems to be an eminent member of the southern common market called the (MERCOSUR). Brazil has made some agreements for free trade in the regions that range from Alaska to Patagonia(rugman, 2012).  The agreements by the Brazilian government on FTAA have increased the potential space for the players to market their preserved/canned products. Allowing more than 25% of the foreign equity especially in the SSI sector will improve the developmental workouts for the markets. In addition to that, liberal corporate tax policy especially for the income earned through the exports will act as a promoting tool for the players of the preserved or canned industry.  Further, bringing many rebates for the income generated will also improve the net margins of the preserved or canned organizations. For example, an income tax rebate of up to 100% will be applicable for the first 3 years and then the 25% -50% for the next consecutive five years will be the added advantage for the investors in the preserved and the canned segments. Some specific segments will be exempted from the excise duties which will also help to improve the cash flow for the company in the next 5 years. Limiting the restrictions in the quantity would improve the earnings through the exports and other aspects (Kaynak, 2010).  Reducing the duties of customs will also help out the makers of preserved or canned products in the market. Especially, the dairy products-related segments will be exempted from the excise duty. Incorporation of free trade zones (FTZ), export processing zones (EPZ), export-oriented zones (EOU), EPZ/FTZ, Agri export zones, and the food parks (rugman, 2012). The key challenge that presides in Brazil includes the high level of taxation, lack of developments in the channel infrastructures, and the lack of cold chains. In addition to that, taxation along the line of other nations and the food laws streamlining would also create the backlog on developing the potential viability for players (Beardwell, 2010).

Economic and business environment

The processing rates of Brazil along the production seem to be too good when compared to other emerging countries (rugman, 2012). The value addition of Brazil seems to be less than $ 804 billion in the year 2000 and keeps on increasing the ability to new marks by beating the leading economies such as UK, France, and Italy.  Nearly, Brazil contributes more than 28% to its GDP through the food industry output (rugman, 2012). These proportions would be small for the countries like the US. Brazil has started more development in creating the value addition to the food products in the later part of 2000 after the currency devaluation that happened in the year 1999. Brazil aims to build the value addition especially in the meat product, bakery, tortilla, dairy product, other foods, grains seafood, oilseed, animal food, and beverage and tobacco products. In addition to that of the above, the technological advancements and the impacts of South American have created more economic outputs for the country in the shorter spans. The key challenge in Brazil would be the miss-match in the backward integration of the ‘farm to consumers’ developments.  The processed foods and the preserved foods hold the least price elasticity issues which could harm the investment over the preserved/ canned market segments (Minocha, 2010).

Social environment

The social environment in Brazil would be highly attractive to the players who opt for the FDI in the preserved/canned market segments. Since Brazil connects more cultural identity and social identity to the South American, the players can elaborate the market space.  The purchasing powers of the consumers are considerably high and the chances of launching premium products will also be appreciated (Kaynak, 2010).   In addition to that of the above, the changing lifestyles have also improved potential viability for the preserved/ canned players. Spending more outside the home has been increasing significantly in recent years and the figures for such segments will be increased double-fold within the span of five years. The rural population has also improved their lifestyles and getting ready to consume such preserved/canned products from the markets (Inkpen, 2009). Such changes would be more in the next couple of years and would altogether increase the market potential space.  Demographic segments will also be highly favored by the market players due to the increase in the lower consumer bases in the past five years.   In the case of challenges, the population of the country seems to be not too high and hence, the consumers’ fleet will be normal like other countries. In addition to that of the above, the high purchasing power consumers are very less and lower consumer bases with price sensitiveness would be large. Matching them equally would add some criticality to the players of the preserved/ canned market segments. Some awareness regarding the attack of microbial aspects, infestation, and biochemical process workouts will impact the preserved/canned market segments (Kaynak, 2010).

Comparison of INDIA and BRAZIL

Since Brazil and India are notable emerging leaders in recent years, there are some differences in making outputs between these two countries. BRIC nations will be the next leaders in the near future and both countries likely to lead in the future. For making the FDI in the food processing sectors especially in the preserved/canned food market segments, India will have the competitive edge over the country of Brazil (Minocha, 2010). The very first reason for justification would be the ‘numbers of consumer’s base’. India with its huge consumer base will play more merits for the FDI actions. For example, nearly 700 million consumers’ base will be highly related to food processing products.  Brazil with the least population when compared to India, could not offer such an opportunity to the FDI maker. In addition to that, the ‘youth’ community seems to be the highest growing unit in India which could grasp the products more than the other sets of the community (Collinson, 2012). Brazil does not have such a community in large numbers. India holds more than 70% of the rural counts and these rural counts are turning towards the preserved and canned products which would be the biggest sign for the FDI maker. When such things happen, the entire population of Brazil could not beat the Indian rural base with sales as well as profits. In addition to that, the Indian government has been so lucrative in availing more incentives and promotional schemes for exporting the products to other nations.  Indian government working fair with the clearance through single window systems will improve the overall implementation when compared to the country of Brazil. In addition to that of the above, the exemption from duties and the rebate for the investments as well as taxes will increase the organization to reduce the overall cost factors. India could be the best destination for investments and investing organizations could improve both the exports as well as domestic sales (Collinson, 2012). When consumers are more in the country, the ROI would also be easy for the investors. The changing lifestyles and the increase in the high spending consumers in India have been increasing steadily when compared with Brazil. In addition to that of the above, India being the largest producer of food products when compared to Brazil in terms of values and quantities (Kaynak, 2010). It would be easy for the investor to gain the raw materials within the country for the larger expansions which would not be comparatively possible in the country of Brazil.  Hence, on all grounds, India would be strategically the best choice for making such FDI in the preserved/canned market segments (Collinson, 2012).

Conclusion

The food industry seems to be the major contributor to the country’s GDP in most of the developed and developing countries (Minocha, 2010).  Though India produces more in agricultural output, converting the output into value-added products seems to be missing in big numbers (Jain, 2009). This article will describe the market potential for the Indian as well as the Brazilian market with respect to the preserved/canned market segments (wall, 2010). Finally, the justification will be made for India over Brazil in the units of competitiveness.

References

Beardwell. (2010). International Business: Text and Cases (Sixth Edition)PHI Learning Pvt. Ltd.

Collinson, S. (2012). International Business. Pearson.

Inkpen. (2009). Oxford handbook of international business. Oxford University Press.

Jain, S. C. (2009). Emerging Economies and the Transformation of International Business: Brazil, Russia, India, and China (Third Edition)Edward Elgar Publishing.

Kaynak, E. (2010). Strategic global marketing: issues and trends (Fourth Edition)International Business Press.

McGaughel, S. L. (2009). Asia+Pacific issues in international business (Tenth Edition)Edward Elgar Publishing.

Minocha, S. (2010). International Business (First Edition)Prentice Hall.

rugman, M. (2012). International Business. Pearson.

wall, S. (2010). International Business (Fourth Edition)Prentice Hall limited.

wild, J. (2014). International Business. Pearson.

Appendix:

Food

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