Business plan for a Multi-National Enterprise that conducts Foreign Direct Investment
Description of the MNE
Paradise Baby Food Company (PBFC) proposes to invest in a factory in India, one of the countries where Foreign Direct Investment (FDI) is growing at a momentous pace, and from there not only create its unique product but also have access to a growing market that is interested in western products. PBFC intends to develop a complete line of health food products for children, using minimal processing techniques. All products will contain wholesome ingredients such as herbs and naturally derived vitamins, minerals, and other supplements. They will be free of chemicals and additives. The herbs are more plentiful in, and cheaper to gain and process, from India. Other companies claim to sell healthy and nutritious baby food, but their herbs are either processed so finely that little remains, or they are imported from long distance by which time they are dehydrated. By PBFC locating its factory close to the natural soil of a country that grows herbs in profusion, and by it's leaving these nutrients in its products, it hopes to develop a superior product to that produced by other companies.
The PBFC product line utilizes research data from cutting-edged, clinical nutritionally-based scientific sources, and is designed to provide a broad range of children's natural food products. Its plans are to introduce select items and to slowly build from there.
A. The Company's Services
PBFC will cater to children aged 6 to 123 months and 1 to 3 years. These food products will contain herbs indigenous to India while remaining free of artificial nutrients, chemical additives, preservatives, flavor enhancers, coloring agents, and refined sugar. All baby products will be tested by a clinical organization that is located in the U.S.A. In the 6 to 12-month groups, baby goods will be packaged in 4.5-ounce jars. Items will include main dishes, vegetables, desserts, and biscuits. For children aged 1 to 3 years, a frozen, 100% natural line will include the same dishes as well as expand to sandwiches and meats. All food will be packaged in plastic bags, making them not only wholesome but also convenient to prepare. A line of naturally sweetened snack food is an idea for the future.
PBFC also plans to offer professional and consumer education programs that will promote its holistic concept and be specifically valuable for the Indian population where its factory is located. Its booklets and marketing, promoting the same concept and serving to increase consumer awareness of chemical additives in food and negative consequences on children, will be primarily created in English so as to appeal to its target market that is located in the U.S.A. And in other internationalized cities.
II. Situation Analysis
PBFC will follow FDA standards for canning and packaging its children products. All labels and ingredient lists must be registered in each country that PBFC will sell its products, as well as dietary-related standards of those particular countries being meticulously observed. Licenses will no doubt have to be gained.
The major risk with FDI is that PBFC will not sell enough of its product that it has manufactured (GoingGlobal.com). However, by introducing its product to other countries (initiating with the U.S.A.), it hopes to recoup its losses.
Assessment of internal resources
The two major baby food product lines that compete with PBFC are Gerber's and Beech-Nut's. The above-mentioned children's food manufacturers supply nearly 87% of the total industry (Wold, 1991). There also has been a noticeable trend towards food products for children that make nutritional or quasi-nutritional claims (ibid.).
On the other hand, PBFC faces little competition from within India itself and circumstances there are propitious to its growth. In India itself, the growth of nuclear families, particularly in urban India, makes this a particularly lucrative opportunity, as well as exposure and interest of the population in Western cuisine, the increasing number of women that are entering the workforce, and India's targeting children as their major customers in the food industry. Finally, due to India's obesity problem, more concern has been placed on low-calories and a healthier diet (Merinews.com). Finally, the food industry is one of the largest industries in India, ranked fifth in terms of production, consumption, export and expected growth (Seth Associates).
Assessment of local market and foreign investment regulations, incentives, profit retention, financing, distribution, and other factors (GoingGlobal.com) indicate that the most profitable way of penetrating the market will be via greenfield, i.e. construction of a facility in India.
India ranks among the top five attractive destination for foreign investors and for PBFC will be particularly attractive due to its indigenous collection of fresh herbs and its growing and unimpeded population of children. The United Nations Conference on Trade and Development (UNCTAD) sees India as one of the five most lucrative locations for FDI up until at least 2012 preceding China in its attractiveness (IBEF)
In more specific terms and relevant to the food industry, India is known as one of the world's largest food producers, producing 600 million tones of food grains every year as well as ranking first in the world in production of cereals and milk. It is also the second largest fruit and vegetable producer and ranks among the top five producers of rice, wheat, and groundnuts all of which are essential products to PBFC (Seth Associates).
There are various food laws and regulations that are applicable to India and that PBFC will have to consider. These include:
* Prevention of Food Adulteration Act (PFA), 1954 and Rules (Ministry of Health & Family Welfare).
• The Standards of Weights and Measures Act, 1976, and Standards of Weights and Measures (Packaged Commodities) Rules, 1977
• Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development).
• The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 and Rules 1993.
• Export (Quality Control and Inspection) Act, 1963.
However, the Food Safety and Standards Bill (2005) wraps all these laws into one package instead of making PBFC culpable, to 15 or more different laws (Seth Associates). This simplified mechanism is advantageous for the company.
IV Problems and Opportunities
Problems seem minimal, since India sees the food industry as one of its largest concerns and is going out of its way to encourage it (Seth Associates).
Opportunities include the advent of the Internet, the increasing role of technology, loosening of direct investment restrictions in many markets and decreasing communication costs. FDI also provides cheaper tax benefits as well as recourse to a cheaper resources and a cheaper labor base. Other advantages of PBFC experimenting with FDI and going global includes the fact that it avoids foreign government pressure for the local production; it circumvents trade barriers; enhances its capability to increase total production capacity; and has greater opportunities for licensing, co-production, joint ventures with local partners, and joint marketing arrangements would it so wish.
The advantages of FDI are that they provide the firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing (GoingGlobal.com). FDI will also provide PBFC, a small company, with the opportunity of becoming more actively involved in international business opportunities (GoingGlobal.com). All of these factors and more make India a particularly advantageous area for PBFC to locate its facilities and introduce its product line.
Finally, as according to the overview provided by Seth and Associates of the Food industry in India and FDI opportunities:
In India the Food Processing Industry is relatively nascent and offers opportunities for FDI. It accounts for Rs 1,280 billion (U.S.$29.4 billion), in a total estimated market of Rs 3,990 billion (U.S.$91.66 billion). There is a rapidly increasing demand for processed food caused by rising urbanization and income levels. To meet this demand, the investment…