Term Paper: International Business Venture

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International Business Plan Venture - Launching Low Cost Cell Phones into India

Introducing a series of low-cost and ultra-low cost mobile phones into India is an opportunity that is significant enough in market size that is accentuated in its potential for long-term growth by the Indian governments' lowering of call tariffs in 2002. As of April 1, 2002 there is no tariff on in-bound calls to Indian citizens and a small tariff on outbound calls depending on destination. Indian regulators and government leaders are actively supporting the build-out of their telecommunications infrastructure and as of 2008 continue to look favorably on Foreign Direct Investment (FDI) through joint ventures and shared ownership approaches to ensure Indian autonomy in telecommunications (Das, 135, 136) and Dasgupta (et.al.) illustrate.

Demographic and socioeconomic trends are also creating a fertile marketplace for low-cost and ultra-low cost mobile phones throughout India, as this analysis will illustrate. Porter's Five Force Model (79, 80) includes many useful insights for analyzing the market potential for low-cost and ultra-low cost mobile phones throughout India. The rationale for choosing India as the market for choice for the launch of low-cost and ultra-low cost mobile phones is presented, in addition to the strategy that will be employed to launch the cell phones after creating a series of partnerships with providers throughout the country. Organizational structure, the managing of foreign exchange risk and financial considerations of the launch are also discussed. As India has one of the fastest growing economies globally, there are also lessons to be learned in terms of penetrating China as a follow-on market for low-cost and ultra-low cost mobile phones as a future market development strategy.

Indian Market Potential: Rationale for Choosing This Country

Economic growth within India is among the strongest globally, starting at the beginning of this decade and accurately forecast by McKinsey & Company partners Lodovico, Lewis, Palmade, and Sanke (28, 50) as eventually outperforming many western nations combined. Averaging just over 7% GDP growth in 2007, India is attracting the majority of the world's venture capital, much of it focused on increasing the quality of the telecommunications infrastructure according to Glasner (13). According to her research of venture capital investment in India during the majority of 2007, just over $1 billion was invested in seventy-seven India-based companies. Glasner (13) cites the figure of $932 million invested in sixty-three companies during the previous year. The largest venture-based investments continue to be in biomedical, consumer products and telecommunications. The Indian government has made it clear that its no-tariff policy on all incoming land-line and cellular-based telephone calls will continue indefinitely, and tariffs on outbound calls will diminish as more of the cellular and telecommunication infrastructure of the country is built out. Further, Indian government officials have made it clear as early as 2001 that their intention is to partner with global telecommunications providers, as these companies already have global economies of scale and knowledge of how to integrate existing telecommunications processes throughout the country. As a result the market potential for low-cost and ultra-low cost mobile phones that include color plasma screens and low-end digital convergence features is expected to grow at a compound annual growth rate of 25% through 2001 (Ovum Research, et.al). Tables 1 and 2 provide market analysis of the opportunity of launching low-cost and ultra-low cost mobile phones in the Indian market. According to IBIS market research, India has the highest annualized real revenue growth of cellular and telecommunications spending between the years of 2002 to 2007, averaging 37.6% as is shown in Table 2. This is the most significant growth globally, as the worldwide market grew at 10.5% in annualized real revenue growth in the same time period.

Table 1: Global Cell Phone Revenue Forecast

Dollars in Millions)

2007 2008 2009 2010 2011 CAGR Europe

Asia-Pacific

North America

Source: Ovum Research (2007)

Table 2: Cellular and Telecommunication Revenue Growth Rates by Geographic Region: 2002 to 2007

Region

Percentage

Annualized Real Growth

Africa and Middle East

Europe

India and Central Asia

North America

North Asia

Oceania

South America

South East Asia

Total Global

Source: IBIS World Estimates

Note: All figures in 2006 constant U.S. dollars

Table 3, generated from an analysis of Friedens' surveys of telecommunication also illustrate how the world-leading compound annual growth rate of India is attributable to the very small base of subscribers and, even in 2007, the very low rate of mobile market penetration at just 8.2% of the national market. Table 3 presents an analysis of the mobile subscribers by top ten countries in 2002 versus 2007.

Table 3: Cellular Mobile Subscribers: 2002 and 2007

Country

Million

Mobile Subscribers: 2002

Million

Mobile Subscribers: 2007

Percentage

Mobile Penetration

China

United States

Russia

Japan

India

Brazil

Germany

Italy

United Kingdom

Mexico

Ten Total

Global Total

Source: International Telecommunication Union based on analysis of Frieden (et.al.)

The demographic factors behind this exponential growth in India for cellular and telecommunications services industry in India is attributable to the demographics, growing economic strength, and philosophy of the Indian government relating to tariffs, as was mentioned at the beginning of this section. Figure 1 provides a series of graphical explanation of demographic and economic growth of India. As the majority of the country is below 34 years of age and make less than 45,000 rupees (about $1,060.70 U.S.) it is imperative that a low-cost and ultra-low cost mobile cell phone service be designed to allow for prepaid service. As of Frieden (et.al.) and other researchers on this topic have shown, there is a high level of aspirant demand on the part of these specific consumers, who look to emulate the behavior of those multiple income layers above them. This includes having a cell phone that can be eventually upgraded to support multimedia, and also has a color screen.

Table 4, India Tariff Analysis provides a glimpse into how forward-thinking the Indian government is in fostering the telecommunications industry growth in their country. The Indian government has eluded to the outgoing calls tariffs being reduced as their infrastructure is completed.

Table 4: India Tariff Analysis (Inbound and Outbound Calls)

Call Specifications

Tariff Basis

Tariffs

Incoming Calls fixed to mobile, mobile to mobile, mobile to fixed)

All incoming calls on mobiles are free since April 1, 2002

Incoming calls on fixed line are free

All incoming calls are free in Home Network (Postpaid & Prepaid)

Incoming is not free on roaming, 0,02 Dollar - 0,07 $/minute

Outgoing Calls all outgoing calls on all networks (roaming, interconnected) are priced between 0,02-0,8 Dollar / minute)

Distance specific call tariffs i.e. home network, 51 -200 kms, 200-500 kms, more than 500 kms and International

Calling Party Pays to M. outgoing in home network: 0,04 -0,04 $/minute to M. outgoing Intercity call < 200 km: 0,04 $/minute to M. outgoing intercity call > 500 km: 0,07 $/minute to Fixed outgoing home network: 0,05 Dollar to Fixed outgoing < 200 km: 0,06 Dollar - 0,08 Dollar to Fixed outgoing > 500 km: 0,12 Dollar to International: 0,80 Dollar - 0,35 Dollar

SMS Receiving: Free

SMS Sending: 0,03 Dollar (domestic) 0,09 Dollar (international)

Strategy for Launching Into India

The foundation for launching a business focused on providing low-cost and ultra-low cost mobile cell phones is to first focus on market segmentation. While there are demographic profiles available of price elasticities by income level of India, the segmentation criteria regarding content delivered over low-cost cell phone has greater long-term implications for the success of the business. First, these segments each have strong aspirational value to Aspirants, Climbers, and the Consuming Class of consumers in India. Second, segmenting on these criteria focus on those services that are the least susceptible to price degradation and therefore contribute to higher levels of differentiation over time. Third, these segmentation criteria align better with lifestyles that the Indian workforce aspire to and are willing to pay for. Table 5, Segmentation Definitions of Multimedia Cell Phone Content and Uses, shows analysis of cell phone segments by lifestyles.

Table 5: Segmentation Definitions of Multimedia Cell Phone Content and Uses

Sources: AMR Research (et.al.); (Rahman, 136- 138) (Dasgupta)

The rapid progression of the cellular phone platform from a production efficiency standpoint has made many of these features available and accessible even on low-cost cellular phone platforms. In launching these cellular phones into India, the concentration will be on color screens capable of delivering downloadable multimedia applications. The unique value proposition of the product introduction will center on delivering exceptional levels of multimedia application performance at the price of an entry-level prepaid cellular phone. Table 6 illustrates the Global Mobile Content Revenues forecasts as derived by AMR Research (et.al.) (Rahman, 136- 138) (Dasgupta) illustrate that multimedia has a 276% market growth opportunity with mCommerce and LBS including Instant Messaging growing at over 100% compounded annually per year through 2011.

Table 6: Global Mobile Content Revenues

2007 2008 est. 2009 est. 2010 est. 2011 est. CAGR Infotainment $4,504 $6,311 $9,040 $12,184 $13,676 32% Multimedia $0 $180 $854 $2,950 $9,563 276% Games $1,150 $2,653 $4,633… [END OF PREVIEW]

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