Computer Numerical Control (CNC) Metal-Cutting Machines in India: A Strategic Reference, 2007

How to Strategically Evaluate India

Perhaps the most efficient way of evaluating India is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to computer numerical control (cnc) metal-cutting machines are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries

Demand/Market Potential Driven Firm

Relative Accessibility

Accessibility/Supply Averse Firm

In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).

Latent Demand and Accessibility in India

This report provides a detailed overview of factors driving latent demand and accessibility for computer numerical control (cnc) metal-cutting machines in India. Latent demand is largely driven by economic fundamentals specific to computer numerical control (cnc) metal-cutting machines. This topic is discussed in Chapter 2 using work carried out in India on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for computer numerical control (cnc) metal-cutting machines in India. I use the term “micro” since the discussion is focused specifically on computer numerical control (cnc) metal-cutting machines.

Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in India. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in India. The numbers are only indicative of an average firm whose primary activity is in India. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in India. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “metal cutting machine tools”, as defined in Chapter 3. Again, while “metal cutting machine tools” does not exactly equate to “computer numerical control (cnc) metal-cutting machines”, it nevertheless gives an indicator of how India compares to other countries for a proxy adjacent category along various dimensions.

Chapter 4 deals with macro-accessibility and covers factors that go beyond computer numerical control (cnc) metal-cutting machines. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in India:
Openness to Trade in India
Openness to Direct Investment in India
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks

Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in India. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering India. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier. SHOW LESS READ MORE >

1 INTRODUCTION & METHODOLOGY 1
1.1 What Does This Report Cover? 1
1.2 How to Strategically Evaluate India 1
1.3 Latent Demand and Accessibility in India 3
2 COMPUTER NUMERICAL CONTROL (CNC) METAL-CUTTING MACHINES IN INDIA 5
2.1 Latent Demand and Accessibility: Background 5
2.2 Latent Demand: Market Composition 5
2.2.1 Market Trends 5
2.3 Imports 6
2.4 Accessibility: The Structure of Competition 6
2.5 End Users 6
2.6 Market Entry 7
2.7 Key Contact 7
3 FINANCIAL INDICATORS: METAL CUTTING MACHINE TOOLS 8
3.1 Overview 8
3.1.1 Financial Returns and Gaps in India 9
3.1.2 Labor Productivity Gaps in India 12
3.1.3 Limitations and Extensions 12
3.2 Financial Returns in India: Asset Structure Ratios 13
3.2.1 Overview 13
3.2.2 Assets - Definitions of Terms 13
3.2.3 Asset Structure: Outlook 16
3.2.4 Large Variances: Assets 17
3.2.5 Key Percentiles and Rankings 20
3.3 Financial Returns in India: Liability Structure Ratios 35
3.3.1 Overview 35
3.3.2 Liabilities and Equity - Definitions of Terms 35
3.3.3 Liability Structure: Outlook 37
3.3.4 Large Variances: Liabilities 38
3.3.5 Key Percentiles and Rankings 41
3.4 Financial Returns in India: Income Structure Ratios 52
3.4.1 Overview 52
3.4.2 Income Statements - Definitions of Terms 52
3.4.3 Income Structure: Outlook 54
3.4.4 Large Variances: Income 55
3.4.5 Key Percentiles and Rankings 58
3.5 Financial Returns in India: Profitability Ratios 71
3.5.1 Overview 71
3.5.2 Ratios - Definitions of Terms 71
3.5.3 Ratio Structure: Outlook 73
3.5.4 Large Variances: Ratios 74
3.5.5 Key Percentiles and Rankings 77
3.6 Productivity in India: Asset-Labor Ratios 92
3.6.1 Overview 92
3.6.2 Asset to Labor: Outlook 93
3.6.3 Asset to Labor: International Gaps 94
3.6.4 Key Percentiles and Rankings 97
3.7 Productivity in India: Liability-Labor Ratios 112
3.7.1 Overview 112
3.7.2 Liability to Labor: Outlook 113
3.7.3 Liability and Equity to Labor: International Gaps 114
3.7.4 Key Percentiles and Rankings 117
3.8 Productivity in India: Income-Labor Ratios 128
3.8.1 Overview 128
3.8.2 Income to Labor: Outlook 129
3.8.3 Income to Labor: Gaps 130
3.8.4 Key Percentiles and Rankings 133
4 MACRO-ACCESSIBILITY IN INDIA 146
4.1 Executive Summary 146
4.2 Dynamic Markets 147
4.2.1 Agriculture 147
4.2.2 Industry 147
4.2.3 Services 148
4.2.4 Insurance 148
4.2.5 Healthcare 148
4.2.6 Pharmaceuticals 148
4.2.7 Broadcasting 149
4.2.8 Software Services 149
4.3 Economic Fundamentals and Dynamics 149
4.3.1 Government Intervention Risks 149
4.3.2 Infrastructure Development 150
4.3.3 Regional Economic Integration 152
4.4 Political Risks 152
4.4.1 Economic Relationship with the United States 152
4.4.2 Political Risks 152
4.4.3 The Political System 153
4.5 Marketing Strategies 153
4.5.1 Distribution Channel Options 153
4.5.2 Agents and Distributors 155
4.5.3 Franchising Activities 156
4.5.4 Direct Marketing Options 158
4.5.5 Joint Ventures and Licensing Options 159
4.5.6 Technology Transfers 163
4.5.7 Creating a Sales Office 163
4.5.8 Selling Strategies 166
4.5.9 Advertising and Trade Promotion 167
4.5.10 Major Indian Business Associations and Organizations 170
4.5.11 Pricing Issues 170
4.5.12 Government Procurement 172
4.5.13 Hiring Local Counsel 173
4.5.14 Performing Due Diligence and Checking Bona Fides 174
4.6 Import and Export Regulation Risks 177
4.6.1 Tariff and Non-Tariff Barriers 177
4.6.2 Tariff Schedule 177
4.6.3 U.S.-Imposed Export Controls 179
4.6.4 Licenses Required for Imports 180
4.6.5 Customs Regulations and Contact Information 182
4.6.6 Entering Temporary Imports 184
4.6.7 Special Import/Export Requirements and Certifications 184
4.6.8 Labeling Issues 184
4.6.9 Warranty and Non-Warranty Repairs 185
4.6.10 Free Trade Zone 185
4.6.11 Adherence to Free Trade Agreements 187
4.7 Investment Climate 187
4.7.1 Openness to Foreign Investment 187
4.7.2 Sector-Specific Guidelines for Foreign Direct Investment (FDI) 188
4.7.3 Conversion and Transfer Policies 192
4.7.4 Expropriation and Compensation 192
4.7.5 Dispute Settlement 192
4.7.6 Performance Requirements and Incentives 193
4.7.7 Right to Private Ownership and Establishment 193
4.7.8 Intellectual Property Risks 194
4.7.9 Transparency of the Regulatory System 194
4.7.10 Capital Market Risks 194
4.7.11 Corruption 195
4.7.12 Bilateral Investment Agreements 196
4.7.13 OPIC and Other Investment Insurance 196
4.7.14 Labor 196
4.7.15 Free Trade Zone Options 197
4.8 Trade and Project Financing 197
4.8.1 The Banking System 197
4.8.2 Foreign Exchange Control Risks 199
4.8.3 Financing Export Strategies 200
4.8.4 Availability of GSM Credit Guarantees 201
4.8.5 The Export-Import Bank of the United States (Ex-Im Bank) 202
4.8.6 The Overseas Private Investment Corporation (OPIC) 204
4.8.7 Trade and Development Agency 205
4.8.8 Asian Development Bank 206
4.8.9 The World Bank 207
4.8.10 International Finance Corporation (IFC) 208
4.8.11 The Multilateral Investment Guarantee Agency (MIGA) 208
4.8.12 U.S. Banks 208
4.8.13 Regional MBD/IFI Offices 209
4.9 Travel Issues 210
4.9.1 Local Business Practices 210
4.9.2 Travel Advisories 212
4.9.3 Areas of Instability 213
4.9.4 Crime Information 215
4.9.5 Health 215
4.9.6 Travel Conditions 216
4.9.7 Legal Issues 216
4.9.8 Infrastructure for Conducting Business 217
4.9.9 Country Data 219
4.10 Key Contacts 221
4.10.1 Important Web Sites of U.S. Organizations 222
4.10.2 U.S. Embassy Contacts 223
4.10.3 Chambers of Commerce 225
4.10.4 Trade Associations 227
4.10.5 Government Agencies 229
4.10.6 Multilateral Development Bank Offices in India 235
4.10.7 Other Useful Contacts 235
4.10.8 Market Research Firms 237
5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 240
5.1 Disclaimers & Safe Harbor 240
5.2 Icon Group International, Inc. User Agreement Provisions 241