indian tea expansion into russian market
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DESCRIPTIONThis presentation presents an market entry analysis and recommendations for Indian tea companies looking to expand into the growing Russian tea market.
- 1.Market Entry Opportunities forIndian Tea Companies in Russia Aginsky Consulting GroupOctober 7, 2009 www.aginskyconsulting.com 1
2. Presentation Outline Whois ACG? Project Objectives and Approach Company Analysis Why go Global? Global Outlook for Tea (2007) Why Russia? Analysis of the Russian Tea Market Analysis of the Indian Tea Market October 7, 2009 www.aginskyconsulting.com 2 3. Presentation Outline Comparison of Russian and Indian TeaMarkets Cost Benefit Analysis of Different SalesChannels How to go Global Approach for Selecting the Best MarketEntry Strategy Case Studies How can ACG Help You? Conclusion 4. Who is ACG? Trulyinternational boutique firm Focused on emerging markets, particularly economies of Russia and the CIS Staffed with graduate-degree holders from top- tier schools (Harvard, Yale, Thunderbird, Columbia, etc.) Customized project teams for each individual client engagement Entrepreneurial! 5. ACG Service Offering Wide range of consulting servicescustom-tailored for each client Strategic market entry Primary and secondary research Customer mapping and field research Competitive landscape analysis Comprehensive market research Business strategy and marketing planning Distribution and channel partnership building Cross-cultural communication and integration Sales and channel management Emerging markets product/service launches 6. Project Objectives and Approach Objectives: 1) Market Entry Evaluation Understand tea companies current distribution footprint Examine acquisition best practices Examine joint venture best practices Examine licensing best practices 2) Russian Market Analysis Russian business environment- Opportunities- Challenges 3) Strategic Entry Recommendation 7. Project objectives and approach Approach: Develop best entry strategy based on tea companies priorities and future plans Consider the opportunities and challenges of the Russian business environment Examine and incorporate best practices derived from practical experiences of other firms and industry experts 8. Why go global? To increase sales, revenues, and profits To grow the companys global market share To achieve greater economies of scale To reduce costs To reduce risk To establish a foothold in a promising market To learn from a leading market To build a global brand To respond to competitors To receive investment from VCsOctober 7, 2009www.aginskyconsulting.com8 9. Why go global? To increase sales, revenues, and profits Limited or declining home market Excess capacity Competitive advantages in new markets: Russia: top location for global retail - A.T. Kearney 2007 70% of Russians' income is disposable vs. around 40% in the West Lower costs and higher prices - opportunities for profit Global consumers' tastes are converging. Easier to offer a globally standardized product October 7, 2009www.aginskyconsulting.com9 10. Why go global? To grow the companys global market share It is not enough to grow with the market. You need to grow your market share globally if you want to be a leader. To achieve greater economies of scale Efficient operations and increased production to reduce cost per unit.October 7, 2009www.aginskyconsulting.com10 11. Why go global? To reduce costs Fixed costs vs. variable costs Labor-related vs. non-labor-related costs Competitive advantageTo reduce risk Decreasing dependence on domestic market and anyindividual client minimizes overall risk profile October 7, 2009www.aginskyconsulting.com 11 12. Why go global? To establish a foothold in a promising market Fragmented or less competitive markets. EX.: P&G in Russia. To learn from a leading market Participate in highly-competitive markets to improve products and marketing. EX.: Koc in Germany, the world's leading market for dishwashers, refrigerators, freezers and washing machines. To build a global brand Build a more powerful image of your brand: global marketing exposure, more investment dollars, long-term growth.October 7, 2009www.aginskyconsulting.com 12 13. Why go global? To respond to competitors Domestic competition entering international markets. Competitive response. Eg: Tata Teas entry in to the U.S., China, and other global markets; J.V. Gokals entry in to the Russian market. Competition coming from international players. Offense as defence.To receive investment from VCs Prerequisite for venture funding: very large market. Global firms received more than twice as much funding from VCs October 7, 2009 www.aginskyconsulting.com13 14. Global Outlook for Tea (2007) Market size in terms of retail value: $23,323 millions Market size in terms of retail volume: 1,765 million kg Growth rate in terms of retail value (2006-07): 4.5% Growth rate in terms of retail volume (2006-07): 3.5% Per capita consumption: 0.3 kg Average retail price: $13.2 per kg Growth in retail price: 0.9% 15. Global Outlook for Tea (2007) Majorproducers of tea: China, India,Kenya, and Sri LankaMajorimporters of tea: Russia, U.K.,U.S., Pakistan and Japan 16. As seen above, from 2004 to 2007 the world supply for tea has far exceeded demand. 17. Though, India is the second largest producer of tea in the world, the domestic consumption of tea is quite high, resulting in Indias exports being only the fourth largest. 18. Prices of Tea at different World auctions (Q3)Prices in US $Regions 20082007% ChangeNorth India 2.211.73 27.75South India 1.53 1.227.5All India 1.991.58 25.95Colombo (Sri Lanka) 3.032.38 27.31 Chittagang (Bangladesh)1.611.1540Mombassa (Kenya)2.31.64 40.24Jakarta (Indonesia)1.521.36 11.76Limbe (Cameroon) 1.361.02 33.33 Sri Lankan tea had the highest price per kg in 2008, followed by India and Bangladesh at their respective auction houses. 19. Highest Per Capita Markets in 2007 126.96.36.199.12kg 1.5 1.31.3 1 0.70.5 0.3 0 Turkey Ireland U.K.Poland RussiaIndia GlobalAs can be seen from the graph, the average per capita consumption of tea in Russia was 1.3 kg, which was far greater than the average per capita consumption of tea both globally (0.3 kg) and in India (0.7 kg). 20. Current statistics and trends in the TeaIndustry (2008)Tea production and export statistics until Q2 (in millions of kg) India China KenyaSri Lanka2008 (E) 20072008 (E) 2007 2008 (E) 20072008 (E) 2007 Production 599.73576.07nilnil 181.69221.52199.6169.82 Export 124.04106.64 203.05191.76210.82216.74 204.52191.08 21. Current Statistics and Trends in the Tea Industry (2008) Tight supply due to a projected decrease in Kenyan tea production. Continuation of upward trend in world tea prices. (FAO report) FAO composite price, (a world indicator price for commodities) has increased 6.5% to US$1.95 per kg in 2007. For the next 10 years to 2017 1. World black tea production is expected to grow at 1.9%annually to reach 3 million tons 2. World green tea production is expected to grow at 4.5%annually to reach 1.6 million tons (FAO projections) 22. Current Trends in the TeaIndustry (2008) Possibilityof an oversupply of black tea in the coming years in the global tea market (FAO) A growing health and wellness trend boosting the sales of specialty tea varieties such as fruit/herbal tea, green tea, and other tea Higher disposable incomes in many developing economies such as China, India, and Russia prompting a shift from unpackaged to branded and specialty tea varieties 23. Why Russia? Surging Economy Real GDP Growth 8.1% to $1.3 trillion The fastest growing economy in the G8 group of industrialized nations Investors pouring money into improved storage facilities, infrastructure, and logistics Improving financial services, rule of law, and banking infrastructure FDI into Russia to reach $58 billion in 2008, an increase of about 16% compared to the value in 2007 Even as the financial crisis shows no signs of abating and deleveraging continues, Russian economy will remain strong because of very low levels of public debt.- Yuri Soloviev, CEO of VTB Capital 24. Why Russia? Wealthier Consumers 140 million consumers Price conscious consumers but willing to pay for quality Disposable income increasing, consumers willing to spend on brand names Real wages 16%, increased consumer spending Per Capita GDP reached $14,800 in 2007 (CIA World FactBook) Consumers more health conscious than ever Russian consumers are now the fourth biggest spenders on high end goods behind the U.S, Japan and China (Business Week) 25. Why Russia? Government Government seeking to streamline customs and taxation regimes to attract more FDI Supporting the E-Russia program, designed to stimulate growth of e-commerce, including B2B e- commerce New reforms targeting bureaucracy and corruption Government focus on expanding manufacturing base and improving infrastructure developmentOctober 7, 2009www.aginskyconsulting.com 27 26. Why Russia? Deals in Russia 2006 - 2007 Measured by dollar volume, M&A activity in 2007 in Russia rose 61% in 2006, registering an estimated $179 billion M&A activity equaled a robust 14% of GDP and contributed to Russias continued strong economic growth 2,151 M&A deals in 2006 2007; 146 in the food & beverage industry 249 JVs formed in 2006 2007; less than 10 in the food & beverage industry Increasing middle class demanding more premium products. 27. 29 Market OverviewRussian Market Overview 140 million consumers Dollar income per capita 140 million consumers has risen by nearly 29% 2007 Real GDP Growth: 8.1% to $1.3 trillion 2007 Real GDP Growth: 8.1% to $1.3 trillion per annum [2001-2006], Remains relatively dependent on oil, gas, natural faster even than in China. Remains relatively dependent on oil, gas, natural 70% of Russians' resourcesresourcesincome is disposable, vs. Government attempting to build manufacturing Government attempting to build manufacturingaround 40% for a typical baseWestern consumer. "Webase have 13% flat income tax, Federal budget surplus of $72