Investments in foreign markets have significantly grown, as many international companies have expanded into new markets to gain market advantages and a strong customer base and to build a global image (Froot 2008). FDI allows companies to stimulate economic development in a target country by creating a more conducive environment for investors and has facilitated international trade, which allows firms to transfer technology, products or services at lower costs. However, organisations must understand the market and economic situation of a target country before deciding to invest in a foreign market (Blaine 2009, p. 175).To aid in this, market studies inform firm decisions about which entry modes are most productive and ensure long-term growth and sustainability. This report focuses on the Indian market, which Vera, a United Kingdom (UK)-based retailer, is targeting for expansion and for international operations. Thus, Political, Economy, Social, Technology, Legal, International, Environmental and Demographics (PESTLIED) and Strengths, Weakness, Opportunities and Threats (SWOT) and competitor analyses are performed to understand the market situation, and a specific mode of entry is proposed to ensure the company’s expected results.
Vera is a well-established fashion and homeware retailer in the UK and has been successful in increasing its number of stores across the country. The company sells their own brand of clothing, as well as other well-known brands, and is popular among youth. However, the company has been facing stiff competition from the many other clothing retail firms in the UK. Thus, FDI would be effective for gaining a competitive advantage in a foreign market with lower costs for labour, economic suppliers, distribution channels and production and for providing economies of scale and coordination advantages (Moran, Graham & Blomström 2005, p. 93). FDI would allow Vera to transfer resources, exchange market knowledge of personnel and provide a range of opportunities to trade products and services.
Establishing a strong position in the Indian market would allow Vera to provide new customers with a range of clothing for different age groups. The company could expand operations on a much wider scale, which would help bring the organisation more international attention. This would enable the company to access large-scale production and raw materials while setting up stores at lower costs. Furthermore, by investing in a foreign country and working with local workers, Vera would gain better insight into what works well for local markets, which would provide opportunities to establish a stronger value chain.
India is a growing market and attractive to many multinational companies because it has emerged as a potential option for FDI in different sectors. The retail sector of India is increasing very rapidly, with the current size of the market being approximately $28 billion; this is expected to reach $260 billion by 2020 (Jain & Godha 2012). FDI in the Indian retail market has supported organisational growth and created employment opportunities for youth. In addition, firms have been able to tap into both market and customer knowledge and resources at lower costs. Thus, Vera aims to capitulate and develop a distribution channel for its products in the Indian market from a value chain perspective. This would allow Vera to gain a competitive advantage in the Indian retail market and position its fashion and homeware products strongly among the competitors available in Indian retail market.
The PESTLIED analysis and theory is useful for measuring market situations and would allow Verato determine whether the Indian retail market can ensure long-term benefitsfor apparel and clothing businesses.
3.1 Political: The federal political system of India is strong, and the business environment is influenced by multivariate political factors. There are many regulations and laws that influence how firms are allowed to operate; for example, Tata Nano was forced to leave its plant in West Bengal due to political pressure (Singh & Srivastava 2012). If Vera wants to invest in India, it is important that the firm has a good understanding of Indian politics and of government regulations and policies. International trade regulations, taxation policies and entry mode regulations influence FDI in a country (Marmol 2015, pp. 113) because governments may impose new duties or taxes that affect the revenue-generating structures of companies. Additionally, the levy of fiscal policies or trade tariffs can affect business environments significantly. In context to this, if the government develop the policy for the foreign company to pay more taxes then it can restrict the firm like Vera to invest in the targeted market. Therefore, it is important to understand the political situation in a foreign country to ensure positive support from foreign governments.
3.2 Economic: Since the introduction of industrial reform policies in 1991, the economy situation in India has been stable. The nation has been remarkably successful in various sectors, such as manufacturing, retail and agriculture (Elearn 2008, p. 247). Foreign investment has been significantly encouraged, and new companies continuously start up in the Indian market. Factors such as the inflation rate, foreign exchange rate and feasible interest rates and economic growth patterns would attract foreign investors. The average inflation rate in the country was 5.88% in 2015, which was down from 8.87% in 2011(Media 2016). This indicates that Vera would be able to attract customers for their clothing range, and the company would be able to borrow money from financial institutions for setting its distribution centres across retail market. Furthermore, the Gross Domestic Product (GDP) of India improved to 5% in 2015 from 4.35% in 2013, which indicates the country’s economic growth (ENS Economic Bureau 2015).