Business in Asia
Country Based Business Opportunities Project

Housing Opportunities in India

Entering the Indian Housing Market

ASIAM 2005

Due: 16th September 2005
Submitted: 10th September 2005

Submitted by: Please return graded assignment to:

Brendan O’Farrell – 15 Tandanya Street
Deakin Uni - S/N 201027576 Mansfield QLD 4122
TABLE OF CONTENTS
1. Executive Summary 3
2. Introduction 4
3. Country Profile 5 3.1 Population & Demographics 5 3.2 Raw Materials and Infrastructure 6
4. Socio-culture 7 4.1 Religion and Language 7 4.2 Indian Housing 7 4.3 Regional Development 8 4.4 Business Environment 9
5. Political, Security and Legal 10
6. Current and Future Environmental Factors now and as at 2008 11 6.1 Economical 11
7. Industry and Competitor Analysis 13
8. Strategy and Planning 14 8.1 Product Description 14 8.2 Product Manufacturing 14 8.3 Product Distribution Channel 15 8.4 Resource Delivery and Labourer Relations 16 8.5 Product Advantage 16
9. Mode of Entry 17 9.1 Options for Mode of Entry 17 9.2 Recommended Mode of Entry 18 9.3 Organisational Structure and Compensation 20
10. Monitoring and Control 21 10.1 Product Monitoring 21 10.2 Performance Measurement 21
11. Future and Exit Strategy 22
12. Conclusion 23
13. References 24
14. Appendices 27
1. Executive Summary

This report was commissioned to examine and analyse environmental information on India to produce an entry strategy, structure, controls and performance monitoring to exploit the opportunities that exist in India. This continued country diversification, clearly sits with XYZ’s global goals to enter stronger performing markets.

XYZ undertook research to determine the demand and attitudes from builders towards the proposed new prefabricated steel products. Based on favourable results, further research was undertaken with various Indian manufacturers. The outcomes from the various surveys strongly indicated that XYZ export to India its superior based technology and software and transfer this technology application to prefabricated steel based materials.

Reasons for this are: • GDP and income per capita growth continues and is forecasted to strongly increase • Continued Government support for India’s Housing Sector and Infrastructure • Political and Legal Landscape to remain stable with improved relations with India’s bordering neighbours • Indian people’s desire to own their home • Timber is a ever increasing scarce commodity; • Technology transfer to steel based material has been successfully trialled • Unique construction type provides speedier construction and provides a substitute product to compete against timber • Lack of competition in the area of prefabricated steel roof trusses and wall frames.

Following favourable discussions with various manufactures, XYZ identified the Steel Authority of India Limited (SAIL) who is well known for its strong brand and distribution networks. Strategically, SAIL’s regional positioning of its manufacturing plants fits with XYZ’s identified areas of growth.

It is recommended that following an intensive discovery period that XYZ enters into an Memorandum of Understanding with SAIL with an anticipated JV commencement date within six months.
2. Introduction

The Business Opportunities Project that I will be investigating is the potential for an Australian Building Company (referred to as XYZ – small Aust.Company) to utilize its expertise in the development of superior building technology to enter the Indian Housing Market. This Project will undertake investigation into the appropriate market entry mode after considering the Economic, Socio-culture, Political, Legal and other Market Barriers which will affect the ultimate mode of entry by XYZ.

In considering certain market entry methods it is assumed that XYZ has unique technology in the development of local building materials.

India is undergoing significant expansion with growth anticipated to continue at 8% from 2005 - 2007. (Consulate General of India, Sydney; 2005) The projects purpose is to exploit opportunities that exist now and in the future and to ensure XYZ’s readiness to enter the Indian marketplace.

Major project planning issues to consider are mode of entry, products to promote and the appropriate company structure to achieve its goals and profitability.

In analysing the environment and associated data, I will be able to prepare a successful strategy based on the environmental factors, values of the Indian people, how to conduct business in India (including industry and competitor analysis) and the elements of Indian culture that is critical to XYZ’s success.

Finally, this project will highlight that XYZ’s technology has an overall competitive marketplace advantage. Currently, the majority of construction of wall frames and roof trusses in India is performed manually and XYZ’s unique software that drives the docking saws and lasers will be seen as revolutionary and sought after in the Indian market.

XYZ views the Indian market as positive with strong income per capita and a Government that continues to support Foreign Direct Investment. (World Trade Organisation; India; 2002)
Whilst XYZ has a current Australian strong business acumen and products to be successful in the Indian market, this unique and complex market creates different issues concerning cultural, business dealings and structure that needs to be addressed to be successful.
3. Country Profile

3.1 Population & Demographics

India’s land mass is 3.3M sq. km representing 2.4% of the world’s land area supporting over 15% of the world’s population being the second most populous country, with 1,055M people, with an expected growth rate of 1.2%pa cumulating in 1,174M by 2010. (Energy Information Administration; 2005) The following graph highlights India’s forecasted population growth from 1980 to 2010 (Goldman Sachs; 2003)

Population density is highly uneven with the country’s three largest states (Uttar Pradesh, Bihar and West Bengal) located in the North. Although cities such as Bombay and New Delhi account for 10 million persons each, the vast majority of India’s population lives in rural areas. (Energy Information Administration; 2005)
[pic]

3.2 Raw Materials and Infrastructure

Raw materials (timber) is under increasing pressure due to excess demand from the ever increasing income and lucrative housing schemes and the current restriction on timber harvesting in order to conserve remaining forests for environment services. Excess demand is met by importing timber products. (International Tropical Timber Organisation; 2003)

India’s infrastructure is the one component of the economy under the most pressure with an unreliable energy/power system and a road system that is well below standard. However, with 30,000km of highway under construction, an extensive and well above average rail system, and a country demographic that will lead to less future financial strain all leads well for the ease of future infrastructure investment funding. (KPMG; 2005)

4. Socio-culture

4.1 Religion and Language

Hindi is India’s official language spoken by approximately one-third of the population. There are more than a dozen official languages. English is an associate language, primarily used in business, commerce and politics. (CIA; 2005)

4.2 Indian Housing

The key to future housing construction in India will lie in the strength and ease of construction. Traditional timber frame homes are being replaced with steel frames and roof trusses, to withstand earthquakes measuring up to 7.3 on the Richter Scale. Research indicates an enormous requirement to produce homes capable of withstanding earthquakes equivalent to the quake that struck Gujarat State on the 26th January 2001, killing tens of thousands of people. (Forum for International Trade Training; 2002) No Indian state is immune from these natural disasters as shown on the map below. (Maps of India; 2005)

[pic]
It was estimated that 275,000 timber homes were destroyed in this earthquake and the need to build inexpensive, quickly-erected houses is still a priority. (Forum for International Trade Training; 2002)

Homes need to be simpler to produce than traditional timber structures and need to be erected in approximately half the time. Recently introduced steel walls & roof trusses, have provided resistance to most aliments afflicting wood homes, such as fire, termites, rot, moisture and cracking which is prevalent in India. Steel homes would be environmentally friendly as steel is completely recyclable and eliminates tree harvesting, a scarce commodity in India. (Forum for International Trade Training; 2002)

3. Regional Development

Despite India’s strong GDP growth, a group of four outward oriented states South and West of the country, Gujarat, Karnatake, Maharashtra, and Tamil Nadu, are growing more rapidly than the rest of India due to a concentration of new service sector industries, such as information technology, telecommunications and finance. These states have achieved stronger GDP and per capita income growth. Looking forward, these “new economy” sectors and high performing states should continue to grow at above average levels, well into 2008 (rediff.com, Business; June 2004) Subsequently, it would be a sound strategy for XYZ to establish itself, in or around these clustered “boom states” and niche markets.

[pic] Map Source (Maps of India; 2005)
4.4 Business Environment

Completing business in India requires a focus on a multi-dimensional understanding of its culture and business practices. All business negotiations should be undertaken by the Chief Executive Officer and a longer than usual lead time is provided to complete negotiations as Indian business culture may require additional time for compromise and consultation with higher authority. XYZ should be mindful in addressing prospective partners in the highest manner and conversations surrounding family, friends, cricket and politics are seen as favourable in establishing solid first up relationships. First impressions surrounding meeting punctuality and trust is of high importance. (Stylusinc; 2002)

It should be highlighted to negotiating executives that gifts are only provided once a relationship is established, and care should be taken to avoid gifts associated with leather and alcohol which maybe religiously sensitive. (Business in India; 2005)

Furthermore, people from different socio-economic, educational backgrounds, class and religion may behave very differently. It is advisable that XYZ researches target companies in these areas to better understand and avoid unnecessary cultural differences.

Many Australian and foreign companies successfully trade and invest in India. Growing incomes, expanding middle class, gradual economic liberalisation, lower labourer costs and the widespread use of English are major attractors. Despite reforms over the past decade, companies doing business in India face considerable challenges, such as, limited intellectual property protection, embedded corruption, and a backlog of court cases. Therefore, it is imperative for XYZ to complete thorough due diligence before sourcing a reputable local partner that can assist business dealings with the Government and regulatory bodies, along with facilitating market access. (PhRMA “special 301” submission;2003, pp 51 - 54)

5. Political, Security and Legal

India’s Government recently changed in May 2004 with Monmohan Singh being elected as Prime Minister who is generally regarded as the architect of India's first wave of economic reforms in the early 1990s. India is governed by a Federal System that was developed based on British Parliament and operating on a democratic process. It has 28 states and 7 Unions. (Australian Government Department of Foreign Affairs and Trad; 2005)

The Government is committed to lowering the fiscal deficit via simplifying tax rates and lowering interest rates. (Economist.com; May 2005)

The Government has gradually reduced tariffs and continues to encourage Foreign Domestic Investment which should help stimulate the economy and increase income per capita. (Economist.com; May 2005)

India’s major strategic neighbourhood focus has been Pakistan and China.

India has vast borders with China and strong memories of the short border war in 1962. Despite past differences, China and India recognise the need to engage each other moving forward.

India’s relationship with Pakistan has been problematic since partition. Tensions increased over the years with various indiscriminate terrorist attacks initiated by Pakistan.

Tensions have reduced following Prime Minister Vajpayee’s “hand of friendship” overture to Pakistan in April 2003. Recently, both countries have normalised diplomatic relations, with the visit to Pakistan by Indian’s External Affairs Minister who proceeded to agree with the opening of a bus and rail link between India and Pakistan. (Australian Government Department of Foreign Affairs and Trad; 2005)
India is a common law country administered by British styled constitution guaranteeing individual, property and contractual rights. Strengths are as follows: • Judiciary is independent of the Government; • Majority of legal contracts are drafted in English; • Compliance with court ruling is high; and • Firms have recourse to courts and WTO Dispute Settlements processes for challenging Government actions. (Bajpai, N, Sachs J, D; 1998)
However, case backlogs currently result in procedural delays.
6. Current and Future Environmental Factors now and as at 2008

6.1 Economical

6.1.1 Economic Growth & Gross Domestic Product (GDP) Growth

India's economy is performing strongly achieving 6.9% GDP growth in 2004 – 05 compared to GDP growth of 8.5% in 2003/04. India's economic performance continues to improve with anticipated GDP Growth expected to peak around 7.2% in 2005/06. (The Hindu News; 2005)

The follow graphs compare economies in 2003 & 2050 by GDP: (Goldman Sachs; 2003)

Above graphs highlight that India’s GDP could be larger than all but China & US in 30 years time. Currently, India is Asia’s third largest economy and ranks 12th globally. (Citigroup Report; 2004)

Financial commentary indicates that continued strong economic growth will catapult India into the fastest growing world economy and continued strong GDP growth can no longer be dismissed as a flash in the pan. (Business Line; 2004)

The following graph highlights India’s ability to sustain its long-term GDP growth primarily due to income per capita doubling from US$468 to US$804 over the next 4 years. (Goldman Sachs; 2003)

India’s median age (24) will continue to see the working population grow the economy faster than other emerging economies through increased productivity. (Goldman Sachs; 2003)

6.1.2 Housing Affordability

The Government is transforming the housing sector into an engine of economic growth through prudent policy initiatives such as, mass housing projects, scrapping of Urban Land Ceiling Act, increased rebates/tax breaks for housing loans and lower interest rates that have halved over the past 6years. (Australian Financial Review; 27/7/2005, p51) Housing continues to be an economic force through purchases of furnishings, electrical goods and property renovations. There has been a transformation in the mindset of the younger Indian generation to own there own home. This trend has brought a boom in the housing sector. Currently, supply is grossly insufficient (estimated at 23 million over the next 10 years) to meet demand and consumers are motivated in looking for immovable, new properties which will also provide capital appreciation. (Cain Fin Holmes Ltd; 2004)

7. Industry and Competitor Analysis

In considering the product to take to the Indian market, research was undertaken to establish what products are currently available to consumers. As raw materials such as timber continues to decline it has been determined to search for a partner that is involved in the Steel Industry.

In the area of prefabricated steel roof trusses and wall frames, there is currently one dominate player in that market, Minaean Ventures Inc. (MVI). MVI has a strategic alliance with Tata Steel to produce, promote and market their steel framing structure, registered under the brand name “VESTA Quik-Build” System. (Minaean International Corporation; 2005)

XYZ envisages that competitors who currently produce timber trusses and wall frames will begin to loose market share due to the limited availability of timber as a raw material.

Based on XYZ’s strategy to enter the prefabricated roof and truss market, a partner with strong builder distribution channels was sought. Research undertaken by XYZ determined that the Steal Authority of India (SAIL), an “86% Government entity with significant operational and financial autonomy” (SAIL; 2005) would be targeted of XYZ to enter into a Memorandum of Understanding.

XYZ’s primary target market would be SAIL’s existing customer base comprising of numerous major building companies operating throughout the growing South and West Regions.

Other new customers will be sourced through the creation of XYZ’s Sales Team which will target Trade Fairs and various other regional based builders.

India’s middle class is predicted to grow at 7% annually over the next 4 years. The largest adult market in India is the young householder, representing 23% of the sector. The young householder is considered well educated compared to other adult groups, and is searching for safety and security in home ownership. (Asian Network Information Centre; 2005) XYZ’s strategy is to have its building client base (primary market) distribute to this affluent consumer group.

8. Strategy and Planning

8.1 Product Description

XYZ will import the technology software and hardware to manufacture steel roof trusses and wall frames in India. XYZ’s strength lies in our Australian technology to provide construction automation of prefabricated frames and trusses. This innovative technology guide’s computer controlled saws to cut steel trusses, roof frames and welds them together without the need to have any manual intervention. XYZ’s worldwide patent, assures that its unique software cannot be freely distributed in the world today.

Due to ever changing technology and varying exchange rates, XYZ will determine at a future date whether to purchase computer hardware locally (India) or to import from Australia where it will carry a current Tariff between 20% and 30%. (Asian Network Information Centre; 2005) XYZ’s design Software will be imported.

8.2 Product Manufacturing

There are 3 Indian Steel Companies that dominate this Sector: (Research and Markets; 2005)

• Tata Iron & Steel Company Ltd; • Steel Authority of India Ltd.; and • Jindal Steel and Power.

As previously mentioned, the Steel Authority of India (SAIL) doesn’t manufacture steel roof trusses or wall frames but has numerous successful JV’s with other compatible suppliers, such as Bokaro Power Supply Company, Sail-Bansal Service Centre, North Bengal Dolomite Limited just to name a few. (SAIL; 2005)

XYZ views its current technology expertise in developing prefabricated frames and trusses as aligning to SAIL’s current strategy to produce “all things steel required in the construction of homes for the Indian people, through the safety of steel”.(SAIL; 2005) Given the Indian Government has substantial Company equity, this will be seen as another positive in assisting the housing industry.

8.3 Product Distribution Channel

XYZ will use the distribution channel that consists of the option where the manufacturer produces and supplies the product to the various builders within the region. As a consequence, XYZSAIL (proposed name of JV Company) will have a very short distribution channel length as indicated below.

Current regional and local transportation facilities used by SAIL would perform the distribution to builders. A distinct advantage is SAIL’s local knowledge (Indian Market) of the most appropriate distribution channels available. XYZ envisages its JV partner would have the necessary plant and machinery (trucks and cranes) to ensure all frames and trusses arrive without delay.

8.4 Resource Delivery and Labourer Relations

XYZ as partner responsible for information technology (IT) and product development will be required to provide resources in the areas of product development and technology. Therefore, secondment of both Australian engineering and IT specialists will be necessary.

Due to the relatively small size of XYZ, it is recommended that secondments are rotated between area specialists not exceeding six month periods. Secondments in these areas will be necessary to ensure that appropriate skills training and competencies are transferred to local employees. It is envisaged that after a period of 12 months, XYZ employees will only need to undertake short visits to ensure the adequate maintenance of both software and hardware.

The utilisation of local labour will provide significant cost savings due to competitive labour costs in both IT and manufacturing industries.

XYZ will provide its expatriate employees with the commitment to maintain Australian salaries with a 25% offshore allowance and various family friendly initiatives provided.

5. Product Advantage

Design of our light weight steel trusses and frames will be marketed as “Builders Choice”. The design offers significant advantages over conventional wood framed products. Some major advantages are: (Courage Homes; 2005)

Strength of Steel

Lighter and easier to handle on site, earthquake resilient, tested and fire resistant, steel is also durable against termite attack.

Manufacturing

Shortened manufacturing time, pre-engineered frames and trusses for processioned craftsmanship, fully automated mass production.

Building

Can be quickly assembled by a crew with little technical experience; less hold-ups due to bad weather; pre-punched holes means electrical and plumbing services can be installed quickly and efficiently.

Therefore, the overall Builder advantages are a speedy supply and construction which has the affect of significant cost savings. It is envisaged that these cost savings will be partly returned to the end consumer, thereby enhancing marketability and demand.

9. Mode of Entry

9.1 Options for Mode of Entry

The decision of how to enter a foreign market can have a significant impact on results and should be considered carefully.

Expansion into foreign markets can be achieved via one of the following mechanisms: (Hill; 2003, pp 481 – 488)

1. Exporting 2. Licensing 3. Joint Venture and 4. Foreign Direct Investment.

XYZ has chosen the Joint Venture mode of entry due to shortcomings in the other alternatives. Other modes have been disregarded due to following:

Exporting

Exporting was not considered due to tariff barriers, potential conflicts with distributors, logistical complexities such as distribution channels, marketing and language barriers.

Licensing

Licensing has significant risks associated with the possibility of XYZ’s software and technology being replicated without consent, thus creating future possible competitors. This option was not considered due to minimal royalty rewards versus possible loss of intellectual property.

Foreign Direct Investment

This option requires significant financial and human resource investment. Other disincentives includes lack of cultural understanding, obtaining trained labour, political and the time to implement the appropriate legal requirements for business, land and building ownership.

The above methods are explained in greater detail in the Appendix 1.

9.2 Recommended Mode of Entry

The most critical decision in any Business Plan is the mode of entry into a foreign country. I have examined and evaluated the abovementioned options and elected to enter the Indian market through a Joint Venture (JV) arrangement. A JV is a “strategic alliance that is created when two or more firms agree to join together to create a new business venture which is a legal separate entity, distinct from its parents”. (Mahoney; 2001, p 872) Given that XYZ is a relatively small company, there are numerous benefits in this mode of entry. Advantages are as follows:

• Ease of market entry. • Shared costs/risks with local partner. • Access to local partner’s knowledge about India, including culture, product placement, marketing and distribution. • Synergies and competitive advantage with common customer requirements. • Local partner’s management and knowledge of employment and labour related conditions. • Local partners understanding of cultural and business practices (i.e. possible embedded corruption, and mitigation of possible guerrilla operations forming conglomerates running you out of business).

The JV would be established with clear divisions of responsibility, performance benchmarks, quality control, target market, equity structure and technology/intellectual property ownership to protect both parties.

Since the Indian partner has existing complementary products, it would be agreed the local partner would be responsible for raw materials (steel), marketing and distribution, whilst XYZ supplies technology and associated resources.

Given the local partner would be contributing greater resources and infrastructure in terms of understanding the market conditions and their existing customer contacts, it is proposed that the JV has an ownership structure of 60% (local partner) and 40% (XYZ).

Timing of Market Entry

XYZ would discuss with SAIL market entry timing. It has been decided that due to contract structure, the current political environment (Congress Party only 15 months into term), training and recruitment requirements, hardware and software implementation, and the perceived Indian cultural inability to implement speedy decisions, would required XYZ to consider a project timeframe of 6 months to ensure both parties fully understand each others needs and provide the necessary time to ensure contract agreement.

Regional Manufacturing Establishment

XYZ’s JV partner SAIL, has seven steel manufacturing plants spread throughout India. (Sail; 2005) With our local focus on the previously stated four fastest growing regions, it has been determined that products will be manufactured at SAIL’s Bhadravati factory located in State of Karnatake in South West India.

This existing manufacturing plant is located in the middle of XYZ’s identified niche market, providing ease of distribution and control.

9.3 Organisational Structure and Compensation

The JV Organisational Structure will be one of a Functional nature, including various functions such as Operations, People Services, Information Technology, Financial Management and Market Development and Distribution. These departmental heads will report through to the JV‘s Managing Director who will in-turn report through to the Board of Directors (60% SAIL/40% XYZ). Refer proposed Company and Organisational Structure in Appendix 2.

All Divisional Heads, with the exception of the Head of Information Technology (Australian expatriate), will be of Indian background and Culture. This structural design will provide protection to XYZ’s key strengths in Information Technology and will leverage of SAILS current distribution and local operational expertise.

All employees will be paid in Indian Rupee whilst any expatriates will receive their equivalent Australian salary with an additional 25% offshore loading and specific family friendly initiatives.

10. Monitoring and Controls

1. Product Monitoring

Quality Assurance will be the key test of product quality with testing of every 100th Frame and Trusses to ensure a 99% confidence level which will achieve long term savings due to minimal product return and production wastage.

Customer satisfaction surveys will also be conducted initially on a quarterly basis to ensure Builder satisfaction with product.

10.2 Performance Measurements

The introduction and monitoring of Key Performance Indicators (KPIs) is critical to the success of financial management.

Initially, the Board will receive monthly financial and productivity reports, to ensure JV financial objectives are achieved with efficient resource allocation. One method of measurement is revenue per employee. All current revenues and expenses will be monitored against monthly budgeted and yearly forecasts.

To enhance the above mentioned monitoring relevant policies and procedures would be implemented to help eliminate wastage and improve quality control.

Employee moral may be measured by regular staff surveys, analysis of sick leave taken and staff turnover.

All key performance indicators will be reported to both JV partners’ parent companies on a quarterly basis.

11. Future and Exit Strategy

1. Future

From previous analysis, XYZ has established that environmental factors, stable interest rates, stability with neighbouring Pakistan, population and demographics and the continued reduction of timber materials will see the housing sector targeted by XYZ grow substantially over the next decade and beyond. To highlight the opportunities to enter the Indian market I have developed an Environmental Factors Ranking Matrix (Appendix 3). This Matrix has moved India from a current “good potential” rating (6.94/10) to an “excellent potential” rating (8.06/10) in 2008.

This Indian opportunity will not only provide increased profitability through XYZ’s ability to capture market share from a single dominant Indian competitor but will reduce risk through diversification away from its primary Australian market.

2. Exit Strategy

XYZ will formulise within the JV legal contract to have the ability to reduce its Equity Holding to a mutually agreed predetermined level, if financial forecasts either exceed or perform within predefined constraints, whilst maintaining ownership of its Technology and Software platforms.

This strategy would provide XYZ with the ability to enter other identified markets or reduce its financial exposure and resource allocation to a non-performing country.

12. Conclusion

XYZ’s environmental findings indicates India is a country with significant growth potential for building type products with consideration provided for the many hidden traps for foreign investors regarding business culture and logistic problems that are evident in a country of India’s size.

Initial analysis lead XYZ to conduct market research to determine if proposed steel products would be accepted by the local building industry, and whether manufacturers would share an interest in this type of product.

Research indicated that XYZ target companies with the aim of creating a strategic alliance through a Joint Venture (JV) Partnership. Companies targeted would have strong brand and distribution capabilities to enable immediate access to a stable customer base.

Following numerous meetings, XYZ entered into a Memorandum of Understanding with the Steel Authority of India (SAIL) to create a JV company named XYZSAIL owned 60% by SAIL and 40% by XYZ. SAIL was viewed by XYZ as a favourable fit due to similar organisational values, and ownership of centrally positioned manufacturing plants providing XYZ with a ready-made distribution platform.

Entry via JV arrangement serves well leading into the future with strong forecasted economic growth, reducing raw material supplies such as timber, significant under supply in the housing market, and political liberalisation encouraged by major political parties.

Another positive to XYZ’s JV arrangement is that it will be structured in a way that is flexible to allow possible down-weighting of equity ownership while maintaining all software and design patents.

While entry to the Indian market has its risks, XYZ’s JV arrangements are reasonable based on solid environmental factors, strong financial performance, a ready-made distribution platform in SAIL, an agreed exit strategy, and the added benefit of providing XYZ with a product that diversifies away from timber which is globally becoming a scarce commodity while also providing country diversification. 13. References

1. Australian Financial Review; 27/7/2005, p 51

2. Asian Network Information Centre; 2005, “Module 3 – India and the Global Economy” http://asnic.utexas.edu/asnic/outreach/pages/dbimodule/mod3.htm - accessed 27/7/2005

3. Australian Government Department of Foreign Affairs and Trad; 2005, India Country Brief, July 2005, http://www.dfat.gov.au/geo/india/india_brief.html – accessed 26/7/2005

4. Bajpai, N, Sachs, J,D; 1998, Development discussion papers, “Strengthening India’s Strategy for Economic Growth”, July 1998 paper 641

5. Business Line; 2004, “To keep India shinning”, http://www.thehindubusinessline.com/iw/2004/04/04/stories/2004040400401300.htm - accessed 27/5/05

6. Business in India; 2005, “Business Culture of India”, http://business.indiaserver.com/business-culture-india.html – accessed 25/7/05.

7. Cain Fin Holmes Ltd; 2004, “Housing – Engine for Economic Growth” http://www.naredco.org/article_article_12.doc - accessed 27/7/2005\

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9. Citigroup Report; 2004, China and India, “The New Powerhouse of Asia”– Citigroup Global Markets Report.

10. Consulate General of India, Sydney; 2005 www.indianconsulatesydney.org/indian_economy.htm; The Indian Economy – Accessed 25/07/05

11. Courage Homes; 2005’ “Steel Framed Houses”, http://www.couragehomes.com.au/steel.htm - accessed 27/7/05

12. Economist.com; May 2005, Country Background, from the Economist Intelligence Unit, http://www.economist.com/countries/India/profile.cfm?folder=Profile-FactSheet – accessed 26/7/2005

13. Energy Information Administration; 2005 – International Energy Outlook 2004 p 177 http://www.eia.doe.gov/oiaf/ieo/pdf/appa9_a14.pdf - accessed 25/7/2005

14. Energy Information Administration; 2005, The People of India – www. eia.doe.gov/emeu/cabs/india/indiach1.htm – accessed 25/7/2005.

15. Forum for International Trade Training; 2002 , “A Report from The Forum for International Trade Training (FITT) Skills Students Build for Successful Exports”, July 2002 http://www.fitt.ca/english/News&Events/MVI%20article%20final%2007-02.pdf – accessed 26/7/2005

16. Goldman Sachs, Wilson, D, 1/10/2003, Global Economics Paper No:99 – Dreaming with BRIC’s (Brazil/Russia/India/China Australian Financial Review; 27/7/2005, p51

17. Hill, C., 2003, International Business, Fourth Edition, Competing in the Global Market Place, pp 481 – 488.

18. International Tropical Timber Organisation; 2003, Indian Timber Market Emerges as Prospect and Challenge for Tropical Timber Sector www.itto.or.jp/live/Live_Server/212/news20031105e1.doc - accessed 25/7/2005 19. KPMG: 2005, “Foreign investors still concerned over Indian infrastructure” - www.kpmg.com.au/Default.aspx?TabID=214&KPMGArticleItemID=1491 – accessed 23/8/2005

20. Mahoney, D., Trigg, M., Griffin, R & Pustey, M., 2001 International Business, A Managerial Perspective, 2nd edn, Prentice Hall, Sydney, p 872

21. Maps of India; 2005, India Map, www.mapsofindia.com/maps/india/india-political-map. – accessed 26/7/2005 22. Maps of India; 2005 www.mapsofindia.com/maps/mapinnews/27012001.htm - accessed 26/7/2005 23. Minaean International Corporation; 2005 http://www.minaean.com/company/partnerships.html - accessed 27/7/05

24. PhRMA, 2003; “Special 301” Submission, Priority Watch List Countries Report, pp 51 – 54 http://www.cptech.org/ip/health/phrma/301-03/2003-PhRMA-301.pdf -accessed 30/7/2005

25. rediff.com, Business; June 2004, Karnataka, “top BPO destination in India”, http://www.rediff.com/money/2004/jun/09bpo3.htm

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Appendix 1 - Comparison of Market Entry Conditions
|Mode |Conditions Favouring this Mode |Advantages |Disadvantages |
|Exporting |Limited sales potential in target country; |Minimizes risk and investment.|Trade barriers & tariffs add to |
| |little product adaptation required | |costs. |
| |Distribution channels close to plants |Speed of entry |Transport costs |
| |High target country production costs |Maximizes scale; uses existing|Limits access to local information |
| |Liberal import policies |facilities. |Company viewed as an outsider |
| |High political risk | | |
|Licensing |Import and investment barriers |Minimizes risk and investment.|Lack of control over use of assets. |
| |Legal protection possible in target | |Licensee may become competitor. |
| |environment. |Speed of entry |Knowledge spillovers |
| |Low sales potential in target country. |Able to circumvent trade |License period is limited |
| |Large cultural distance |barriers | |
| |Licensee lacks ability to become a |High ROI | |
| |competitor. | | |
|Joint Ventures |Import barriers |Overcomes ownership |Difficult to manage |
| |Large cultural distance |restrictions and cultural |Dilution of control |
| |Assets cannot be fairly priced |distance |Greater risk than exporting a & |
| |High sales potential |Combines resources of 2 |licensing |
| |Some political risk |companies. |Knowledge spillovers |
| |Government restrictions on foreign ownership|Potential for learning |Partner may become a competitor. |
| | |Viewed as insider | |
| |Local company can provide skills, resources,|Less investment required | |
| |distribution network, brand name, etc. | | |
|Direct Investment |Import barriers |Greater knowledge of local |Higher risk than other modes |
| |Small cultural distance |market |Requires more resources and |
| |Assets cannot be fairly priced |Can better apply specialized |commitment |
| |High sales potential. Low political risk |skills |May be difficult to manage the local|
| | |Minimizes knowledge spillover |resources. |
| | |Can be viewed as an insider | |

Reference from: http://www.quickmba.com/strategy/global/marketentry/

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XYZSAIL Building Products
(Manufacturer)

Indian Builders

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