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Costco Case Analysis. INDIA. Overview. Costco’s Business Model Costco’s Value Proposition Review of India Economy Government Infrastructure Real Estate Cost Real Estate Availability / Partners Conclusion on Costco in India Citations. Costco Business Model.

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overview
Overview
  • Costco’s Business Model
  • Costco’s Value Proposition
  • Review of India
    • Economy
    • Government
    • Infrastructure
    • Real Estate Cost
    • Real Estate Availability / Partners
  • Conclusion on Costco in India
  • Citations
costco business model
Costco Business Model
  • Factory direct purchasing, high velocity resale.
    • Manufactures ship containers directly to Costco consolidation depot’s.
    • Allocation of product to warehouse locations is fast (<= 24 hrs)
    • Cost reductions realized from fast inventory sales.
    • SKU’s on hand limited to fast-selling models, sizes and colors.
    • Efficient sales floor layouts – more product, less wasted space = more sales.
    • Customers must pay to shop at Costco.
      • Provides another source of revenue.
      • Builds customer loyalty.
      • Helps reduce shrink.
costco value proposition
Costco Value Proposition
  • Very low marketing, labor and a targeted discount model
    • Coupon/Sales blasts sent to a limited target audience – members only.
    • Reduction in marketing dollars over competitors equals lower costs for goods.
    • Labor costs reduced via larger volumes of stock on hand, in pallets and ready for customer distribution with low labor required.
    • Hours of operation limited to core shopping times and light need for overnight stocking staff.
    • Return policy highly favorable in the market, most goods accepted back without receipts and with extended warranty options.
india economy
India - Economy
  • Gross Domestic Product (GDP)
    • 2010 - $4.06 trillion (5th in the world)
      • $3.44 Trillion in 2008
      • $3.67 Trillion in 2009.
  • Inflation
    • 2010 - 12% - High (206th in the world)
      • 10.9% in 2009
  • GDP Growth Rate
    • 10.4% (5th in the world)
      • 6.2% in 2008
      • 6.8% in 2009
  • Foreign Reserves
    • $287.1 Billion (7th in the world)
  • GDP Per Capita
    • $3,500 (262nd in the world)
      • $3,000 in 2008
      • $3,200 in 2009
  • Currency Stability
    • The Indian Rupee is trading around 43 - 49:1 USD in the last 52 weeks.
india government
India - Government
  • Ruling Party and Leader
    • PratibhaDevisinghPatil – (2007 – Current)
    • Party: Indian National Congress
  • Government Stability
    • Democratic Nation
    • Harsh relations with China over allegations of munitions being traded with Pakistan and China’s oversized military footprint.
  • Subsidies
    • 14% of Indian GDP is subsidized.
    • Majority of Indian subsidies are oil of which 39% of subsidized kerosene is stolen.
india market access
India - Market Access
  • Tariffs and import barriers
    • Indian Tariffs vary largely depending on what type of goods you are importing. The fees are not percentage based, rather flat fees.
  • Member of World Trade Organization
    • India has been a member of the WTO since 1995.
  • Level of corruption.
    • India has high levels of corruption. In 2010 $19B USD in illicit funds left the country.
  • Acceptance of imported products
    • There are some items now allowed to be imported into India, namely unprocessed Ivory products, however this would not impact Costco’s ability to do business in India.
  • Local competition
    • No competition for Costco in India.
india imports
India – Imports
  • India is one of the largest importers of fossil fuels in the world.
  • Pearls and precious stone imports are important as a large portion of India’s revenue comes from the export of handicrafts.
  • These two represent 50% of all imported goods into India from 2009 to now.
  • Growth from 2009 - 2011
    • Fuels – 20.6%
    • Pearls – 66.35%
india infrastructure
India - Infrastructure
  • Indian Transport and Fuel Infrastructure
    • Airports – 353 (249 with paved runways)
    • Heliports – 40
    • Pipelines
      • Condensate/Gas – 2km
      • Gas – 9,596km
      • Liquid Petroleum Gas – 2,152km
      • Oil – 7,448km
      • Refined Products – 10,486km
    • Railways – 63,974km (4th in the world)
    • Roadways - 3,320,410km (3rd in the world)
    • Waterways – 14,500km (9th in the world)
    • Merchant Marine – 324 (29th in the world)
      • Air and sea import/export is generally considered to be sufficient in India. The recent thread of pirates from Somalia have reduced the efficiency of waterway capability and have added risk of shipping/freight contains being compromised.
      • Road and railway conditions are poor in India. Public investment has been insufficient to correct this condition and India is seeking private investments to help improve these two.
      • Energy infrastructure in India is sufficient for sustaining retail business operations.
india real estate cost
India – Real Estate Cost
  • Indian Real Estate Cost
    • India-wide real estate prices have increased 21.3% in Q2 2011.
    • Ranked 2nd out of 50 countries for annual growth
    • High Growth - Compared to 2010 by City
      • Bhopal +46.41%
      • Faridabad +44.74%
      • Chennai +35.52%
      • Bengaluru +35.29%
      • New Delhi +33.64%
    • Low Growth – Compared to 2010 by City
      • Kolkata +10.23%
      • Surat +9.56%
      • Jaipur +4.92%
india real estate avail partners
India Real Estate – Avail/Partners
  • Real Estate Availability
    • Moderate availability due to financial situations in India.
    • High cost is a big detractor in Indian Real Estate Sales.
    • Cost of land post Indian 2001 Economic Bubble exceed that of the median home sales prices.
    • 65% of flats sold in Delhi and 35% of flats sold in Mumbai have sold to speculators.
    • Booming growth in Indian GDP may result in more availability over 2013-2015 at affordable prices.
    • Jones Lang LaSalle remains the largest partner for real estate sales and coverage in India.
costco in india conclusion
Costco in India - Conclusion

We do not believe Costco should seek India as a market to move into over the course of the next 3 years. The following points highlight how we came to this decision:

  • Indian land prices are too high
    • High land prices now make moving into India in the short term less attractive.
    • Continued GDP growth over the next 1-2 years may help lower land prices.
  • Indian Inflation too high
    • Continued growth in Inflation would make doing business in India risky.
    • GDP Per Capita shows the standard of living is improving in India, however not at a rate fast enough to make India an attractive market to enter.
  • Indian Infrastructure is poor and threats loom
    • Indian road conditions would not support the Costco business model of central delivery and distribution within 24 hours.
    • Higher costs would be incurred by Costco by moving product slower than they do in the US, Canada and Mexico markets.
    • The presence of pirates from nearby Somalia makes importing of goods via sea risky.
apa citations
APA Citations
  • The following Web Content was used for this presentation.
    • The United States Central Intelligence Agency, Retrieved 10/6/2011 from

https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

    • Yahoo! Finance, Retrieved 10/6/2011 from

http://finance.yahoo.com/q/bc?s=USDINR=X&t=5y&l=on&z=m&q=l&c

    • Wikipedia, Retrieved 10/6/2011 from

http://en.wikipedia.org/wiki/Energy_policy_of_India

http://en.wikipedia.org/wiki/Real_Estate_in_India

    • Global Property Guide, Retrieved 10/6/2011 from

http://www.globalpropertyguide.com/Asia/India

    • Costco Investor Relations, Retrieved 10/6/2011 from

http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-sec

    • World Trade Organization, Retrieved 10/10/2011 from

http://www.wto.org/english/tratop_e/tpr_e/s249_sum_e.pdf

    • India Department of Commerce, Retrieved 10/10/2011 from

http://commerce.nic.in/eidb/Icomq.asp

    • India Imports, Trade Chakra, Retrieved 10/10/2011 from

http://www.tradechakra.com/indian-economy/imports/index.html

    • India, Speaking up for Integrity. (2011, 08 26). Retrieved 10/10/2011 from http://www.transparency.org/news_room/in_focus/2011/india_speaking_up_for_integrity
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