Internet Cafe in India

Internet Cafe in India

To set up a new business or expand existing business operations into some international market, a comprehensive analysis of the business environment of that market is essential (Lambin). This analysis constitutes the issues and challenges which an organization may face in that new market. These issues and challenges may be described in terms of different forces; like political, legal, social, cultural, religious, financial, and technological aspects.

This paper presents a complete marketing plan for an American service organization that wishes to set up an internet cafe in the Indian market. It starts with a brief country profile and explains how it will prove to be a potential market for this specific business. This marketing plan also explains the competitive environment, economic and political climate, marketing and promotional strategies, managerial and labor climate, and other important factors that may affect this business one way or another.

The Country profile: India

India is the second largest country in the World with respect to population and seventh largest country with respect to geographical area. It has 28 independent states. According to the International Monetary Fund, India is one of the largest economies of the World with respect to GDP and Purchasing power parity (The International Monetary Fund). However it is not recognized as a successful state if we see the income distribution, basic needs of life, and poverty level in this country (Bureau of South and Central Asian Affairs).

The following section explains the different operational factors of the legal environment which the American organization will face if it sets up an internet cafe in the Indian market:

A. Economic Factors in India and their impact on Internet Cafe Business:

1. The three biggest challenges for Internet Cafe Business:

The Global Competitiveness Report of World Economic Forum says that Indian economy is dominated by some evils which mainly include; high level of poverty, poor government structure, less expenditures on health and education facilities, etc. (The World Bank Group). As per the Economic Freedom Index, multi-national corporations who are intending to do business in India may have to face three big challenges; high level of corruption, complex taxation system, and inadequate supply of electricity (The World Bank Group).

2. Population growth rate:

India has the second largest population in the World after China, and the population growth rate is continuously on a rapid pace (The International Monetary Fund). But more than half percentage of Indians lives without the basic necessities of life; mainly including education, health facilities, clean water, nutritional food, and good living conditions (The Central Intelligence Agency). The result is that the poor are getting poorer and more vulnerable.

If we see it in the perspective of opening an internet cafe in this market, it is not a healthy sign for this business. An internet cafe uses a very expensive technology which can only be afforded by upper-middle to high income classes. It means half of the Indian population which is said to be under the poverty line, will be totally excluded from the target market for internet cafe business.

3. The monster of Inflation:

The inflationary pressures are always a big problem for businesses. In India, inflation rate is quite high which negatively affects the customers as well as the businesses (Bureau of South and Central Asian Affairs). The purchasing power of customers is continuously decreasing while cost of running the business operations is increasing (The Central Intelligence Agency). This economic factor also brings a threat for internet cafe business.

4. High unemployment level and Low literacy rate:

The unemployment level is also very high in Indian Economy. The reason for which is the low literacy level in this country. The Government of India and the private sector are unable to provide adequate employment opportunities to illiterate persons except labor work (The International Monetary Fund). There are no strict regulations for controlling Child labor. This high level of unemployment and low literacy rates are affecting the earning and spending patterns of the Indian people which are not good signs for an international organization wishing to start a business in India (Executive Planet). In other words, high unemployment and illiteracy level have made internet services a kind of luxury instead of a necessity of this technological era (Bureau of South and Central Asian Affairs).

5. Financing Facilities from Formal means of Finance:

The financial sector of India is also growing very fast. The financing facilities for businesses and customers are available with very easy regulatory conditions. However the interest rates are high for both the segments (The Central Intelligence Agency). If the American organization starts an internet cafe chain in this country, it may have to get finances from this new market to support this international business strategy. The upfront costs of this business and the high level of interest rates in the Indian economy will further reduce the profit margins in the initial years (Executive Planet).

6. Unstable exchange rate:

Further, the Indian currency is relatively unstable. It may go either in favor or against of this business in India. If the American organization imports technological products from the home country, it will have to foresee the changes in exchange rates in order to keep itself on the safer side.

B. Political, Governmental, and Legal Environment in India and its Impact on Internet Cafe Business:

1. Taxation System:

The biggest political factor which will affect the internet cafe business in India is the complex and unfair taxation system (Executive Planet). Tax rates are applied on every operation of the business; there are very few exemptions in taxation (The Central Intelligence Agency, 2011). The raw material used in the manufacturing of technological products and accessories is also expensive. Moreover, high electricity rates, fuel prices, and other costs will affect its profit margins (Bureau of South and Central Asian Affairs).

2. Trade Regulations:

Unlike the taxation system, the American organization will find relaxed and favorable trade regulations in India. There is a great support from the government on exports. This will help the internet cafe business in the long run when it will strengthen its position in this economy and will be in a position to provide variety of services in the same and related lines of business. The overall government behavior towards international companies is favorable (Executive Planet).

3. Environmental Protection and Labor Laws:

There are no strict environmental protection and labor laws in India. But as a responsible corporate citizen, this organization will have to adhere to these laws and regulations.

C. Geographical, Social, Cultural, and Demographical factors in India and their Impact on Internet Cafe Business:

1. Income disparity:

A high rate of population growth, unemployment, low literacy level, and inadequate basic necessities, etc. all have deprived the Indian population from enjoying the real meanings of life. There is an income disparity throughout the India. Some of its biggest states are very poor and some are extremely rich. These all things are putting burden on the government in its infrastructure development policies (The Central Intelligence Agency).

2. Love for entertainment:

Like other vivacious nations, Indians also love entertainment and sports (The Incredible India). There is no difference in age or gender when it comes to entertainment facilities; men, women, and children equally love and enjoy watching movies, sports, and listening music.

As far as the feasibility of an internet cafe chain in Indian market is concerned, the overall behavior towards internet services is quite positive (Export.Gov). All those who can not afford an internet connection at their home, will definitely appreciate this facility in their locality. This is a great potential opportunity for this American organization if it will provide super-fast internet at affordable rates.

3. Population shift:

Moreover, there is a trend of population shift from rural areas to urban areas (The Incredible India). It is really a positive sign for internet cafe business. The consumer behavior is also determined by the income level of Indians (Export.Gov). Only the upper middle and above classes can afford a high quality internet facility at their homes, so the availability of an internet cafe will enable them to use these services without paying any subscription and monthly charges.

4. Attitude towards Foreign Companies:

The attitude of the Indian population towards foreign companies and their products and services depends on their availability, price, and quality (Export.Gov). For example; Chinese products have low prices but they are not considered reliable at all. On the other hand, Japanese products are highly reliable but they are out of the reach of half of the Indian population. If the American organization will provide reliable and high quality internet services, the Indians will definitely appreciate it.

5. Price Conscious vs. Status Conscious Indians:

Indians also vary with respect to price and status consciousness. The former category of people does not go for imported products or products from MNCs working in India due to their high price. Converse to this, the status conscious people are always in a quest for bringing the most expensive and advanced consumer products to their homes. Same is also true for this internet cafe business; the super-fast internet services will be available for every class of Indians irrespective of their social status or income level (Export.Gov).

D. Technological Factors in India and their impact on Internet Cafe Business:

The Information Technology is the most successful sector of the Indian economy and contributes a big portion in the country's export earnings. Its technological products are highly innovative, stylish, and cost-effective (affordable prices) for customers. To manufacture these products, the Indian companies spend a lot on the Research and development.

The Indian Government also supports the IT companies in their research and development expenditures. This is the reason why IT companies are able to bring innovative models of their products every up coming day. If the American organization sets up its business operations in India, it will greatly benefit from an established IT market and an attractive business environment (Export.Gov).

The Indian Workforce -- from the perspective of Internet Cafe Business

1. Availability of Professionals and Lower-Level Workers

India is a very complex economy composed of both the high and low extremes of different factors (The Incredible India). On one side, there are highly educated Indians with high professional qualification, technical education, and vast industrial exposure. While on the other hand, there are extremely poor Indians having very low or no educational background (The Central Intelligence Agency). This international organization will find both types of Indians in a very large number. So there is no shortage of labor and skilled workforce in India. This organization can easily hire managerial employees, technical workers, and lower level labor from the market.

2. Cheap Labor:

The labor is very cheap in this region of the World (The Incredible India.Org). This will control the administration costs of the American organization up to much extent. Child and women labor is also in a considerable percentage but as a socially responsible corporation, this Organization will have to adhere to the International Labor Law (Cherunilam). In a nut shell, it can be said that the American organization will find highly specialized and skillful workforce at very lower salary and wage rates.

An Anticipated Behavior of the Indian Government, Supply Chain Members, Competitors, and other Stakeholders towards this new Internet Cafe Chain

1. The Indian Government:

As mentioned above, the Indian Government has a very favorable and encouraging behavior towards the information technology industry. If the American organization sets up its internet services business in India, it will enjoy a support from the Indian Government in its research and development. Moreover, it will get an incentive of tax relief in the initial year of its establishment in the form of duty free imports on some specified technological products.

As far as the legal implications, laws and regulations are concerned, the Organization's Management will have to adhere to all the business rules, trade policies, Law of industrial relations, Equal employment opportunity law, and foreign exchange policies made by the Indian Government in order to put off any negative impacts on its public image (Cherunilam).

2. Supply Chain Members:

The main supply chain members of internet cafe will be the vendors of computers and their accessories. Moreover, the business development agents and firms will also be among the key stakeholders in this business. The Information Technology industry of India has a large number of suppliers and distributors that always welcome the Multi-national corporations to do business with them. They are considered reliable members because the industry never faces any problem regarding shortage of raw material, unfair demands, strikes, etc. (Global Edge).

3. Competitors:

India is recognized for top IT giants of South Asian region (Global Edge). The American organization will have to compete with well established internet networks like Asianet, SATCOM, etc. These companies have captured the Indian market by providing highly reliable and quality internet services. If this American organization comes to India and opens a large number of internet cafes, these competitors will definitely boost up their marketing and promotional strategies in order to retain their market share and prevent this chain to make its customers in India.

Recommended Action Plan for the American Organization to set up Internet Cafe Chain into the Indian Market:

After critically analyzing all the environmental factors and their anticipated impact on this international expansion strategy, it can be concluded that this will be a very feasible project for the American organization in terms of potential market opportunities and attractive returns. The following action plan further elaborates the feasibility of this business opportunity:

The Entry Strategy -- Direct Investment:

There are many ways in which an organization can enter into the international market, for example; exporting, licensing, franchising, management buyout, joint venture, direct investment, etc. (Lambin). Keeping in view the favorable investment opportunities, the American organization should adopt the Direct Investment strategy into the Indian market. Although this strategy possesses the highest risk among all other strategies, and require more resources and management consciousness, but it will also bring the highest advantages as compared to other strategies. Through this strategy, the American organization will get 100% ownership and presence in India; there will be no holding company, no joint venture, or other business consortium (Lambin).

This strategy is proposed because this organization will get a full control over its operations and strategic business decisions in this way. It will not have to take the limitations and drawbacks of any local company; everything it will do will be under its own management's supervision. It will be able to spend as much as it wants on marketing, research and development, long-term assets, and other business operations (Lambin).

Staffing Policy for Top Level Managers:

If the American organization comes to the Indian market, it should not just bring financial resources from its headquarters; there will be a strong need for those brilliant and innovative minds that have made it in such a position to go International. For staffing of the Board of Directors and the Top level management, the American organization should take the services from its international professionals working in its Headquarters as well as make hiring from the Indian region.