ARMEN GRIGORYAN, MAT THEW HILAMEN, JEFF MAROT TA , MICHAELA SCHMID AND

MEAGAN SHADDOCK

India

Costco Case Study

Business Model

Costco Wholesale Corporation began business operations in Seattle, WA in 1983. Costco stock is traded on the NASDAQ Global Select Market under the COST stock ticker.

Costco operates membership warehouses in which high quality merchandise from a broad range of categories are offered at lower prices than other retailers

Business Model – Key Features

Warehousing Storing inventory just above the sales floor results in reduced

handling of merchandise and thus lower labor costs due to less time handling and stocking merchandise.

Turnover Costco generally sells merchandise before it is required to pay

vendors and takes advantage of early payment discounts. Distribution

Costco buys a majority of their products directly from manufacturers and distributes it either directly to the warehouse or to a depot for consolidation and then to the warehouse, generally within 24 hours. This maximizes freight volume and handling efficiencies, which

reduces costs associated with multi-step distribution processes.

Business Model – Key Features

Marketing Costco limits marketing and promotional activities to

new warehouse openings, occasional direct mail to prospective members, and direct marketing programs to members including The Costco Connection magazine, coupon mailers, weekly emails and handouts. This reduces marketing expenses and thus increase the

profit margin.

Short work week Costco operates on a seven day per week, 69-hour work

week. This shortened work week reduces labor costs.

Business Model – Key Features

Ancillary Businesses Located within or adjacent to Costco warehouses, business such as the food court,

gas station, pharmacies, one-hour photo, eye care centers, hearing-aid centers, car washes, and print and copy centers provide additional services and merchandise to keep shoppers coming back and to increase profits.

Electronic Commerce Costco.com offers products not usually found in Costco warehouses, which gives

customers more shopping options. Direct Buying relationship

Costco works directly with manufacturers and buys products in bulk, which reduces costs and cuts out distributers. Also, Costco has relationships with multiple suppliers, so there is no risk of disruption of business if a supplier is unable to provide the merchandise Costco requires.

Competitors Competition for Costco is related to prices, quality and selection of products,

locations and member services. Competitors of Costco include other warehouse club locations like Wal-Mart, Sam’s Club and BJ’s Wholesale Club as well as regional retailers and wholesalers like supermarkets, supercenters, general merchandise chains, specialty chains, gas stations and e-commerce businesses.

Costco Customer Value Statement

What makes Costco a better place to shop? High Quality Merchandise

Costco strives to offer the best quality merchandise at lower prices than competitors. They limit purchasing in each product line to fast selling items, sizes and colors. To this end the carry less products per warehouse than competitors and offer Kirkland Signature® and Costco Wholesale® products, which are their own brands.

Prices Due to the direct relationship with supplier, efficient distribution, high

turnover rate, low storage and handling costs and other aspects of the business model, Costco is able to keep prices lower than competitors.

Membership Membership to Costco helps to increase customer loyalty and to provide

additional revenue. Three types of membership include Business, Gold Star and Executive membership. Membership provides entrance into Costco warehouses as well as discounts and special offerings on products.

Economy - India’s GDP

At the end of 2011 India’s GDP was $4.463 trillion.

India ranks number 4 out of 226 countries for GDP in 2011.

Below is a graph of the United States GDP and India’s GDP over the last 3 years.

2011

2010

2009

$0.00$10.00$20.00

IndiaIndiaUnitied States

India’s Inflation

India’s inflation rate is relatively high at 6.8% in 2011.

India’s inflation rate ranks it as number 154 in the world.

The United States inflation rate ranks at number 57 in the world comparison chart.

India’s GDP Growth rate

India

United States

China

-5.00% 0.00% 5.00% 10.00% 15.00%

201120102009

•India’s growth rate in 2011 was 7.8% which is a good growth rate placing India at number 15 in the world.•The United states growth rate was much lower at 1.5% placing it at number 172 in the world rating.•China continues to have a steady growth rate over the last 3 years, compared to US and India.

India’s Foreign Reserves

India has strong foreign reserves ranking at number 24 with the rest of the world.

On December 31st 2011 India’s Reserves of Foreign Exchange and Gold was $345.8 Billion

In 2009 India’s Foreign Reserves were $91.86 Billion.

India’s cash on hand supply is good.

India’s GDP per Capita

India has a very low per capita GDP.In 2011 the per capita was $3700, comparing

to the US at $48,1000 per capita. This means that most of India’s population

does not have enough money to purchase goods, in turn something like Costco probably would not do well in India, unless it was in wealthy region.

Currency Stability in India

The Indian Rupee exchange rate over the last 12 months is 47.83.

In the last ten years the average exchange rate of the US dollar to the Indian Rupee was 45.83

Based on the trends over the last 12 months and the last 10 years, it seems that the rupee is fairly stable.

Economy Conclusion

India has a strong growth rate and has been consistently growing over the last few years.

Although there is a strong growth rate in India, the per capita GDP shows that things are not spread evenly and most areas are not wealthy.

Costco probably would not have great success in India right now, but may when the per capita GDP raises.

Government - Ruling party & leader

President: Smt. Pratibha Devisingh Patil Held office since July 25, 2007 Has been politically involved in Indian government

since 1967 1st woman elected into office Vice President: Mohammad Abdul Aziz Ansari,

elected: August 11, 2007 Prime Minister/ Head of Government : Dr. Manmohan

Singh

Stability of Government

Sovereign socialist secular Democratic Republic

Parliamentary system of government India’s main threat is China byy also other

Asian countries form a threat against India’s growth.

Getting money out of India

There is a wide variety of banks and coporations to help get money out of India at a national level for companies and entreprenuers.

-IDBI: Industrial Development bank of India-IFCI: Industrial Finance corporation of India- SIDBI: Small industries bank of India- IVCF: Venture capital funds specializes in

services that increase the financial needs of commerce and trade in India

How easy is it for foreign companies to compete?

Cultural shock is the main problem for foreign companies. Indian culture compared to western culture is compltely different. To be successful one needs to convince them of your company and its importance.

Before 1991- India implemented protection policies against its foreign comptetitors to allow for India’s companies to expand and grow

Today- India highly influences foreign companies to be involved in their countries

Tariffs and Import Barriers

Follows the Harmonized System implemented by the 1985 Customs Tariff Amendment Act.

Agricultural tariffs range from 30-40% with strong anti-dumping measures.

non-agricultural tariffs have dropped below 15% and have no quantitive restrictions.

Due to Costco’s low profit margins, they might face financial challenges with exporting agricultural goods to India, while non-agricultural goods will show no ill affect.

Member of World Trade Organization

Active member since January 1, 1995.Disputes filed against India by the US

regarding import restriction on agricultural products.

Played a major role in doha negotiations.India’s global trade has increased from 15-

35% of their GDP since joining the WTO.Currently negotiating with third world

countries to offer them duty-free importing and exporting.

Level of Corruption

Police ranked highest with judiciary and land administration in a close second. Fake combat missions Re-selling of government property

Government hospitals are ranked high due to medicines not being easily available.

Black money(black market) Estimated that Indians have over $1.4 trillion in offshore

Swiss accounts. India’s black market economy is roughly 50% of the

country’s GDP(approx. $640 billion).

Acceptance of Imported Products

No import licenses required for capital products declared as “free importable”

Import license required for precious stones, livestock, selected chemicals, and pharmaceuticals.

Duties can range from 5-40%Given that about 70% of Costco’s daily sales

are food based, there should be no import issues or barriers for their products, only duty charges will vary.

Local Competition

India is one of the largest food service countries with over $30 billion spent at restaurants in 2011 alone.

Street vendors deliver fresh foods to your door.

Most street vendors and local markets already operate on low profit margins.

10/1000 residents own a motor vehicle.Costco will have to determine different

strategies to adhere to India’s lifestyle.

Seaports

14,500 km of waterways

Strategically located on the Arabian Sea and the Bay of Bengal.

Large merchant Marine fleet – 29th in the world.

Airports

India ranks 23rd in the world in number of airports with 352 – 249 of which have paved runways.

All major cities have access to airports making air freight a viable shipping option.

Roads and Rail System

India has the 3rd largest road system in the word and the 4th largest rail system.

Infrastructure - Telecommunications

India has recently deregulated and liberalized telecommunications laws and policies and is thus one of the fastest growing markets for telecommunications in the world.

Recently installed one of the worlds largest domestic satellite systems, the Indian National Satellite System (INSAT)

Real Estate

India

Pricing Index

Limited area of availability is marked in red and available in green .