The nation-wide roll-out of ADSL throughout the most wired and affluent regions of India has been abnormally slow, hampered by the lack of infrastructure needed to complete the last mile cabling and integration across legacy telecommunications networks. This has led to a high growth rate in broadband adoption, specifically in the area of cable modem access, with 69% of all of India's cable access customers being in the Global High Income segment. This figure is calculated from Table 1, where the total number of Cable Subscribers was divided by the number from the Global high income segment to find the 69% figure. Further on, 21% of the cable access customers in the Global Middle Income segment. This translates into a disadvantage for creating an Internet cafe business because the penetration of cable access into the most affluent segment in India is being driven by both the demand for Internet access in this highest income segment and the preponderance of PCs already being owned by members of the Global High Income segment.
Starting in the first part of 2006 there have been taxes and duties in the Indian telecommunicates sector that are among the highest and most prohibitive to FDI in the world. Taxes in India on telecommunications sector on new revenues are hovering around 35%, as compared to 2.5% in many other Asian nations. Despite the influx of FDI ready to wire the entire nation, this tariff issue is slowing down development of the telecommunications sector as a result, which in turn is continuing to make the digital divide grow deeper over time.
Resources
As the purpose of this paper is to evaluate the potential of opening an Internet cafe, which is envisioned to be a retail establishment offering Internet access services, the retail sector of India is used as the basis of this resources discussion. With more than 5 million outlets, the Indian retail sector is marked by its unorganized, largely underdeveloped, and unorganized structure. Of these 5 million outlets, it is estimated that nearly 300,000 of them are Internet cafes (Glaser, 2003). Of these, the majorities are clustered in the larger cities, yet it is common to find at least four or five Internet Cafes even in villages (Glaser, 2003). This sector of the Indian economy is dominated by small, family-owned firms. Modern retail chains, most of which have established themselves in the past five years, account for just 2% of retail sales, compared with 65% in the United States, 40% in Thailand and 10% in China.
As a result of this fragmentation, there is significant growth in the retail sector possible. At Kearney (2006) defines India as the most attractive retail environment in the world in their Global Retail Development Index published yearly by the consultancy. The index ranks global economies on four factors, which include Country Risk, Market attractiveness, Market Saturation, and Time Pressure. While at Kearney sees moderate risk and a relatively high level of costs associated with being in compliance to government regulations, India is consistently one of the top ranked countries due to the low market saturation in the retail sector.
Despite the high level of market opportunity consultancies and industry experts see in the retail sector in India, specifically around services, the inflexible labor laws and often high and unpredictable supply chain costs and performance, the preference for in-country retailers by the majority of lower income segments (Kumar, 2004), all these factors have led to a muted growth of the retail sector in India. Labor laws specifically state that employees must be given full benefits in the event they are let go is quite expensive. The difficulty of foreign retailers and service providers getting a foothold in the market is well-known, and since 2005 there has been much discussion about permitting foreign investment in the retail sector. In early 2006 the government allowed up to 51% FDI in single-brand retailing (such FDI could previously take place only through the franchisee route), but shied away from a comprehensive opening up of the retail sector to foreign competition.
Advantages
A highly balkanized retail marketplace makes market entry easily accomplished. Given the highly fragmented nature of the retailing marketplace, there is the potential for any new business to quickly move into a specific niche product or service area and quickly deliver significant value through differentiated offerings.
Higher levels of FDI ownership will boost services to assist entrepreneurs in getting their own retail and services chains opened. The growth of telecommunication infrastructure, the majority of which is being funded by companies competing to dominate the Indian market, will eventually...
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