Creating a Chain of Internet

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.