Question

Entering the Indian Market

Gotta Go Freight Forwarding is looking to develop a logistics agency network offering all modes of transportation inclusive of warehousing and distribution in India. Your marketing department has submitted their first report of findings.

Confidential Report of Findings - India

The overall logistics market in India which currently stands at about Rs 3,50,000 (exchange rate 1USD = 51.4100 Rs) crore (10 million) is likely to go up to Rs 7,00,000 crore in the next five years on the back of the country's economic boom. The main drivers that will fuel the growth in the logistics market include the upcoming freight corridor project, building of logistics hubs and warehouses, port development, technology up gradation, investment by private players and also the impending industry status for the logistics sector.

The logistics market in India is poised for a fast growth in the next ten years but the domestic logistics services providers need to embrace the latest technology to keep pace with their overseas counterparts. IT will play a significant role in the growth of logistics sector and facilitate consolidation. Most of the domestic players in the logistics sector are reluctant to adopt the latest technology available in the country.

Experts opined that with the conferring of the industry status on the logistics sector, the logistics cost would come down to 11 per cent of the country's GDP. The cost reduction would help the sector to enhance its competitiveness in global trade. Although the sector is growing in value as well as in volume terms leading to sustainable opportunities in the logistics space, India's logistics cost is among the highest in the world at almost 13 per cent of its GDP.

Logistics costs in India are estimated at over Rs 4.5 trillion, growing at a compounded annual growth rate (CAGR) of 8 - 12 percent. The high logistics costs are attributed to the highly fragmented Indian logistics market with small local players dominating the supply chain landscape. The industry status for the logistics sector would lead to consolidation and also bring in large, organized global players to the domestic market.

Today only 15 percent of the domestic logistics providers are in the organized sector. Once the sector is accorded the industry status, the domestic market will witness more organized players, especially the global players, thereby enhancing competition and cutting logistics costs. The industry status for logistics sector would enable the existing organized players in the logistics business to cater to a wider client base.

Apart from the availability of land and the requisite infrastructure, industry status for the logistics sector also means that the logistics services providers can avail greater loans as the borrowing rates will come down. Small firms are often caught in a bind because they lack bargaining power to negotiate costs, which in turn puts a squeeze on profits thereby restricting their ability to invest in capacity-building. Bigger logistics companies on the other hand have more resources to upgrade network capabilities, systems and invest in people, thereby offering more cost-effective and efficient services. Also, with the need for specialized logistics service providers, there is an increasing trend towards outsourcing supply chain activities.

Owing to India's strategic importance in the global economy and huge consumption base, domestic and international players are showing strong commitment to the sector.

1. List the challenges your company might face upon entering the Indian market.

2. Describe your short term and long-term marketing plan.

3. What primary/secondary research information is required before your company can make a decision on building the network of agencies?

Answer 1

1) The company would face difficulties due to the high cost of logistics operations in India. The country accounts for the highest logistics cost in the world contributing around 13% of its GDP. Besides, it would have to bear the uncertainties and rising costs, which increase at a compounded annual rate of 8 to 12%. Furthermore, the local players dominate the logistics market, which would provide tough competition to the company. Besides, it would also be difficult to attract the loyal customers from the small and local players with a strong base in the industry.

2) Both the short and long-term marketing planning of the company would be to attract the intial customers for developing a base in the market and consequently, cater to their needs for making them loyal to the brand. The three main objectives that it must focus on the logistics planning is developing strategic goals, identifying the means for achieving such goals and undertaking suitable processes. Long-term strategy of the company would focus on enhancing customer satisfaction, maintaining high levels of service, lowering costs, expanding distribution network, improving efficiencies in logistics operations, enhancing asset utilization and gaining competitive advantage.

3) Relevant information about the supply chain and logistics network is required for the company. Information about the local players in the market would identify the intensity of competition. Besides, identifying the choice of distribution of the customers, strategies undertaken by competitors, information about suppliers and partners, transport and communication means at the locations and the technologies used in the supply chain would be required for building the network of agencies.

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