Developing A Foreign Country Strategic Framework

Creating a Chain of Internet Cafes in India
II. Table of Contents
Introduction
Specific Competitive Advantages of Proposed Business
Developing A Foreign Country Strategic Framework
. Analysis of economic factors
. Analysis of social/cultural factors
. Analysis of political factors
Analysis of Entry Mode to be Used
Other Factors Influencing Decision
Conclusion
III. Introduction
The purpose of this plan is to evaluate the creation of a series of
Internet caf?s throughout India, specifically concentrating on the cities
of Bangalore, Chennai, and Hyderabad, all located in the southern regions
of the country, and all experiencing rapid growth as call and outsourcing
centers. Both the influx of expatriates from Europe and North America to
manage outsourcing and call center operations in these cities, and the
increasing interest on the part of Indian call center, outsourcing, and
office workers to use personal e-mail in addition to wireless devices of
all types for social networking, the need for Internet access in these
cities continues to grow exponentially. The business model of the proposed
series of Internet caf?s looks to capitalize on the growing cultural shift
away from an agrarian economy to a more urban one. Young professionals in
the 20s, working in these companies, are more connected than ever before
digitally to each other and to the outside world, yet cannot afford the
cost of having Internet access in their homes. Only 7% of the entire
Indian population has Internet access in their homes due to the expense,
and only one in ten has a personal computer of their own (The World is
Flat, 2005). As a result of these dynamics and the growing social
acceptance of using digital forms of communication, the concept of a chain
of Internet caf?s is an attractive one.
IV. Main Discussion
1. Specific competitive advantages of enterprise
The typical Internet Caf? is configured with between seven to ten
computers, with printers, scanners, video conferencing equipment, and
website development expertise is available in larger metro locations. It
is common to also find in the larger metro Internet cafes workspaces or
what is called in these locations “work cabins” where Internet browsing
privacy is assured. This is one of the biggest reasons why students are
drawn to Internet cafes for their e-mail and Instant Messaging, and online
gaming activities. Almost all of these facilities, especially in the
larger metro areas are air conditioned and provide both social networking
and gaming areas. The business model is that of charging a per hour rate
for Internet access, with additional charges for value-added services
including the development of websites, developing e-commerce sites for
local small businesses, and connection in the metro area via wireless
access in the most populated areas of India’s major cities. It is common
for the franchised Internet caf?s to have alliances with national telephone
and broadband providers.
2. Analysis of Key Factors
a. Analysis of Economic Factors
India’s $1.5 billion outsourcing business is the shining start of all
industries in the country today, and illustrates how illustrates how
foreign investment, trade, and a more cooperative political climate can
increase the performance of an industry within a nation that is otherwise
struggling to find economic growth in its core industries. India’s two
largest core industries apart from outsourcing are agriculture, textiles,
chemicals, food processing, steel, transportation equipment, cement,
mining, petroleum, and machinery manufacturing according to the (CIA
FactBook, 2007).
Along with IT and software, business-process outsourcing is the country’s
most open sector. In 2002, it attracted 15 percent of total foreign direct
investment and accounted for 10 percent of all exports. By 2008, it is
expected to attract one-third of all foreign direct investment and to
generate $60 billion a year in exports, creating nearly a million new jobs
in the process. This is however leading to a skills shortage and one that
is predicted to outpace the graduation rate of the country’s schools. As a
result, companies outsourcing accounting, payroll and other easily
replicated processes are moving to Malaysia, the Philippines, China and
other nations in the region, chasing talent in the process.
Without early investments by multinational companies, the outsourcing
industry probably would never have emerged. Pioneers such as British
Airways and GE were among the first to see the opportunity to move IT and
other back-office operations to India. The success of these companies
demonstrated to the world that off shoring in India could deliver
significant cost benefits according to partners at McKinsey and Company (Di
Lodovico, A., William, P., and Sanke, S., 2001). Aside from the immediate
infusion of capital into the Indian market, these companies are
contributing to the growth of new businesses in the country through
accelerated training programs.
As a result of foreign direct investment and the infusion of capital
India’s economy has more than doubled in real terms since a more
cooperative approach to managing joint ventures has begun starting in 1991
according to the research completed (Chakraborty & Basu, 2002) in their
extensive work on Foreign Direct Investment (FDI) in the Indian economy.
India’s consumer demand, increasing three to five times faster than their
economy, is starting to develop an aspiring middle class that is young and
looking for higher wages and work and as a result, have latent demand for
Internet access. 70 percent of India’s citizens are less than 36 years
old, and the country is home to 20 percent of the world’s population under
the age of 24. While the growth of the middle class continues at a rapid
pace, it’s important to realize that one out of every four Indians live in
poverty, or nearly 250 million people out of the 1.1 billion total
population of the country. The services and outsourcing sector accounted
for just more than half of the country’s GDP in 2004 for example and
employs less than 30% of the workers. The other two thirds of the
country’s workforce earns a living through agriculture, where growth is
slow, and prospects for earning more are often limited.
1. Advantages
The Indian government is heavily involved in economic development and
planning, with the currently ruling Congress Party defining economic
policies that have a direct impact on Internet-related businesses that are
quickly globalized. This ruling political party is very pro-business in
terms of inviting FDI as it relates to globalization strategies including
Internet access. This ruling party realizes that for India to continue its
rapid economic growth, the following steps will need to be taken:
. Further reduction tariff levels, targeting an average reduction of 10
percent. This would put India into parity with Association of South
East Asian Nations (ASEAN), their national neighbors and further
increase investment in services and stimulate investment in all forms
of services businesses including Internet access service companies.
. Foreign-ownership restrictions most likely will lifted in the coming
three years. At present, foreign ownership is not only prohibited
altogether in industries such as agriculture, real estate, and
retailing but also limited to minority stakes in many others, such as
banking, insurance, and telecommunications.
. More equitable labor laws to further stimulate FDI in knowledge-
centric industries. The software and business-outsourcing companies
are exempt from many labor regulations, such as those regarding hours
and overtime. Manufacturing however is not, and this is one of the
major impediments of India not growing its manufacturing industries as
fast as China for example. CEOs of companies how have outsourced
major parts of their back-office tasks say that without these labor
law restrictions the 40% cost advantage commonplace in outsourcing
programs would not exist.
. Demographics and rapid Internet adoption and maturity favor the
extension of Cyber Cafes in India into gaming zones and meeting
places. According to research (Internet in India Report, 2006),
Internet users between the ages of 18 and 35 comprise the largest
segment of all users, accounting for 50% of all users of the Internet
throughout the entire nation. While Internet access from home is
growing, the most popular point of access is Internet caf?s in metro
cities. This is because Internet cafes serve an important function of
providing beginning Internet users with guidance. As of 2006
according to (Internet in India Report, 2006) the Internet Caf? is now
also turning into a place for social interaction and networking, and
in top metro areas, is becoming the focus point for gaming zones. The
analysis from the Internet & Mobile Association of India in their
report say that Internet caf?s will continue to be the dominant point
of access for students, driven by convenience and privacy. The
research shown in the (Internet in India Report, 2006) also provides
as startling statistics of 38% of Internet users clock an average of
8.2 hours per week on the Internet. That’s impressive given the state
of India’s overall infrastructure.
2. Disadvantages
. Capricious policies on tariffs could impact the ability to bring
networking equipment into the country. As the Schindler Elevator
learned in their strategies to enter the Indian market with elevators
(Columbus, 2005) the capricious and very damaging effects of
fluctuating tariffs can put a halt to any light manufacturing or
assembly in addition to the more intensive operations of building
subassemblies for consumption in other areas of the world.
. Lack of tax incentives for infrastructure development including
broadband penetration. The key elements of the infrastructure
including electricity, telephone and internet service are at time
unpredictable in their performance. The biggest weakness of India
today is its infrastructure, and with only 30% of the workforce
relying on communications links to other nations, India will be forced
to spend greater and greater percentages of their GNP on making their
infrastructure world class.
. Growth of Instant Messaging and convergence applications may make e-
mail a secondary approach to communicating in India in the next ten
years. According to the (Internet in India Report, 2006) the
corresponding growth of the Instant Messaging and all other forms of
peer-to-peer communications from cellular and PDA devices is expected
to be dominated by the Chinese and Indian markets according to
(Tekelec, 2006) as well. The findings of Ovum Consulting are provided
in the white paper cited.
. Crackdown on the part of the Indian government requiring
identification of every Internet caf? user is drastically dropping
business in metro areas. According to the (India Times, 2006) metro-
based Internet cafes throughout India are facing a rapid decline due
to government officials requiring each person getting online showing
their identification. This is due to the fact there have been several
threatening e-mails to Indian government officials sent from these
cafes, and the fines to shop owners are expensive. The Internet cafes
in the rural areas however are continuing to grow as these areas of
India have little in the way of Internet access in homes today. The
Indian government is also cracking down on Internet caf? use as it
believes terrorists are using these cafes to communicate via e-mails.

b. Analysis of Social/Cultural Factors
Cultures influence and impact one another at a personal level first,
comprised by millions of moments of truth that over time define how
cultural values conflict or align with one another. As a result of these
moments of truth accumulating over time, cultures define their distances
from each other. In looking to develop Internet caf?s throughout India, the
cultural implications of bringing Internet access into both metro and rural
areas will require inordinate patience and understanding that India is a
nation known for slow, ponderous development. It is the antithesis of the
alacrity and speed of the United States, European nations or Australia for
example. The urgency in these more advanced nations is not present in
India, mainly as a result of the sporadic performance of its
infrastructure. It is common for electricity to not be available for
possibly days at a time. There is also the cultural attitude of working to
live as opposed to living to work, and in this difference is the cultural
dichotomy that will make the developing of Internet caf?s challenging for
any westernized companies.
Yet despite this different perspective on life, many Indian actively
emulate western cultural values. As Thomas Friedman notes in his book (The
World Is Flat, 2005) call center employees in India are taking voice
training and diction courses to deliberately sound more westernized to
inbound callers from the U.S., U.K., Canada and other English-speaking
nations. Experiences of call center representatives who have gone through
this training indicate that higher levels of customer satisfaction are
achieved and less derogatory comments made about outsourcing in general
occur when callers think they are more westernized. Just one of many
examples of the dynamics of the Indian culture being influenced by western
values and cultural norms, the ongoing training of Indians to sound more
like westerners casts an unflattering light on the entire aspect of
globalization. The elimination of regional differences in culture to “fit
in” globally also highlights how strong ethnocentric behavior influences
others, even half a world away, in a matter of minutes on a telephone call.
This reaction to the world shrinking in terms of who each of us interact
with every day to get things done personally and professionally is driving
changes in behavior no government, organization or company can dictate.
Advantages
. The Internet is increasingly seen as a polycentric medium for
learning, communicating and entertainment. This is exemplified in the
early adopter statistics as shown (Internet in India Report, 2006).
The majority of Internet early adopters are students who are seeing
the Internet as a polycentric medium for communicating and learning.
. The Internet is seen as an equalizer to status differences and an
answer to the caste system in India. The egalitarian benefits of
having access to the Internet is equalizing the Indian society, and
making it possible for many students to pursue learning objectives
that would otherwise have been beyond their means to pursue. The use
of the Internet as a method for education is transforming the
structure of Indian society.
. Eroding the delineation of knowledge and learning between genders.
What is most promising for women is that the Internet is giving them a
means for increasing their educations and increasing their development
as professionals. In previous generations of the Indian culture, this
was not possible for the average Indian woman.
Disadvantages
. India struggles with free speech that is anonymous over the Internet.
The Indian government reflects the broader cultural belief in conformity
and adherence to standards of respect for the government that is unlike
many other nations of the world where free speech is aggressively
pursued.
. Westernization of students seen as a threat by previous generations of
Indians. This is a critical issue as many previous generation Indians
are fighting to keep the Internet out of the rural and more conservative
religious villages of India. There is a backlash of certain religions to
the rampant westernization of India. A case in point is the banning of
dancing in Bangalore night clubs.
. Extensive culture shock for those westerners going in to set these caf?s
up. There will be a major culture shock for any team of investors and
installers who go into India to set these up. It is advisable to allow
for several months of assimilation to get a sense of how to get projects
done in India.
c. Analysis of Political Factors
The political risks of beginning a new venture in India are several,
including the message voters sent in the last election of wanting to spread
the wealth obtained from services, privatization, deregulation and foreign
direct investment more evenly throughout the country. The Congress Party
won the last election, and relies heavily on Leftist parties located in
India’s many provinces for support. As a result of these surprising
election results in 2005, there is a higher level of risk for companies
looking for start their own companies in India, especially if foreign
direct investment is involved.
Leaders of the Congress Party have warned however that taking isolationist
measures will only lead to India seeing a slow-down in economic growth.
India’s recent experience-and that of its Asian neighbors-shows that
continuing rural poverty stems not from too much economic reform but rather
from too little (Di Lodovico , A., William, P., and Sanke, S. 2001) of
McKinsey and Company. Since more aggressive growth strategies have began
since 1991, annual GDP growth has been twice as high as it had been
previously. As a result, poverty rates have fallen by nearly a third in
both rural and urban areas. The highly successful software and outsourcing
industries are considered by many Indians to be the path out of poverty and
proof of the countries’ ability to compete on a global scale.
The challenge facing the new political party in power is how to extend the
success of the IT and outsourcing industries into the broader Indian
economy and not leave the remainder of the populace feeling isolated and
disillusioned. To accomplish that goal, foreign investment and global
competition are being pushed into more sectors, including some in which the
government now plays a significant role. Although India has broadly cut
import duties and increased foreign-ownership limits over the past ten
years, large parts of the economy remain protected by high tariffs,
restrictions on foreign direct investment. In looking at interrelationship
between the Indian government and foreign direct investment, it’s important
to keep in mind that to just 0.7 percent of India’s GDP, compared with 4.2
percent in China and 3.2 percent in Brazil are comprised of imports
including the influence of foreign direct investment.
Clearly the Congress Party has to build on the current momentum of
outsourcings’ contribution to the growth of the economy. McKinsey and
Company have found that product market regulations, the lack of clear land
titles, and pervasive government ownership were preventing India from
achieving 10 percent annual GDP growth. McKinsey & Company’s economic
research shows that India must go further in lowering trade and foreign-
investment barriers if it is to continue integrating itself into the global
economy.
3. Analysis of entry mode to be used
The initial entry mode will be to fund the development of a series of
outlets in Bangalore, partnering with one of the leading Indian
telecommunications vendors. It’s critical that a Joint Venture strategy be
initially used, when the investing partners choose the locations for the
caf?s, defining hiring practices, and rely on both the brand awareness and
network connectivity and integration from a major telecom partner to ensure
a high quality of service. Further, the investment decision needs to also
consider adding a third partner, possibly the leading coffee distributors
in India, to create coffee shops that have an entire range of Internet
access options. The combining of these two concepts, a coffee shop and an
Internet caf? would also be unique enough in the current competitive
environment of these cities to attract additional partners. The use of a
Joint Venture to spread and dissipate risk is critical for the success of
the initial years of this business model and its execution.
4. Other factors affecting decision
Additional factors to consider in creating the chain of Internet caf?’s and
coffee house pilot programs are the following:
. Starbuck’s has been noticeably absent from penetrating the Indian
market. By proposing the concept of an Internet caf? that is funded
by a major telecom provider and acting as the logistics provider,
Starbucks’ may decide to enter the Indian market also through a joint
venture or completely acquire a company there. The entrance of
Starbucks into the Indian market is inevitable; it is only a matter
of which form of Foreign Direction Investment they choose to rely on.
There is potential for partnering with Starbucks’ however to get
this accomplished.

V. Conclusion
The creation of Internet Caf?s in India shows potential providing the plan
includes expanding the services and increasing the value of the Caf? to the
younger clients. There are plenty of risks associated with the strategy of
building caf?s in this nation, where there are cultural skirmishes over the
rampant and rapid westernization occurring in its major cities. In
addition, Internet caf?s are also under suspicion of being used by
terrorists and those against the Indian government, forcing the government
to check identification of every patron to these locations. Counter to
these threats is the demographic and economic trends that show the
potential for this type of service business, just as it expands its value
over time with additional services.

VI. Works Cited

CIA FactBook (2007) – CIA FactBook page on India. Provides an overview of
the Indian economy and political structure. Accessed from the Internet on
July 27, 2007 from location:
https://www.cia.gov/cia/publications/factbook/print/in.html

Columbus, Louis (2005) – Selling Into India: Lessons Learned From Silvio
Napoli. CRM Buyer Magazine, April 22, 2005. Downloaded from the Internet
on July 27, 2007 from: http://www.crmbuyer.com/story/42512.html

Chakraborty & Basu (2002) – Foreign direct investment and growth in India:
a cointegration approach. Chandana Chakraborty and Parantap Basu, Applied
Economics. Volume 34, Number 9/June 15, 2002

Di Lodovico, A., William, P., and Sanke, S. (2001) “India-From emerging to
surging,” The McKinsey Quarterly, 2001 special edition: Emerging markets,
pp. 28-50.

Diana Farrell, Jaana K. Remes, and Heiner Schulz, “The truth about foreign
direct investment in emerging markets,” The McKinsey Quarterly, 2004 Number
1, pp. 24-35.

Internet in India Report (2006) – Mapping the Indian Internet Space.
Internet & Mobile Association of India. Internet in India Report (Summary
Report of I-Cube (2006).
Downloaded from the Internet on July 27, 2007 from location:
http://www.iamai.in/book.pdf

Tekelec (2006) – Forecasts of Instant Messaging by Ovum included in the
white paper, Next-Generation Messaging: Moving Beyond Legacy Short Message
Service Centers (SMSCs). Downloaded from the Internet on July 27, 2007 from
location:
http://www.tekelec.com/rcenter/whitepapers/TKLCNGMessaing.pdf

The World Is Flat (2005) – Thomas R. Friedman, author. Farrar, Straus, and
Giroux. New York, NY. Published 2005

Times of India (2006) – Cafes Headed for Cyberia? City Supplements: Delhi
Times. November 2, 2006. Accessed from the Internet on July 27, 2007 from:

http://timesofindia.indiatimes.com/articleshow/297520.cms

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