International Marketing Plan For Indonesia [PDF]

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INTERNATIONAL MARKETING



INTERNATIONAL MARKETING PLAN KHADIM INDIA LIMITED



GROUP 9 Mohammed Shakeel (P16139) Aibel Johny (P16167) Deepak Jayan (P16183) Rajil Chandra (P16207) Anjali Viswam (P16109)



Contents Introduction .................................................................................................................................................. 2 Strengths ................................................................................................................................................... 2 Key risks / weakness ................................................................................................................................. 4 Why Southeast Asia? ................................................................................................................................ 5 Four filter model ........................................................................................................................................... 5 Filter - 1 : Macro level factors ................................................................................................................... 5 Filter – 2 : General market factors related to product category .............................................................. 6 Filter 3 – Micro level factors specific to the product ................................................................................ 7 Filter 4 – The final screening of target markets ........................................................................................ 7 Market Segmentation ................................................................................................................................... 8 Targeting ....................................................................................................................................................... 8 Positioning .................................................................................................................................................... 8 Marketing mix elements ............................................................................................................................... 9 Marketing Action Plan .................................................................................................................................. 9 Implementation plan .................................................................................................................................. 11 Controlling Mechanism ............................................................................................................................... 12 Conclusion ................................................................................................................................................... 13 References .................................................................................................................................................. 14



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Introduction Khadim India Limited (KIL), incorporated in 1981 is one of the leading footwear brands in India with a two pronged focus on retail and distribution of footwear. Company operates exclusive retail stores (contributes ~70% of its net revenue) under the 'Khadim's' brand with major presence in East India and is one of the top three players in South India (FY2016). KIL has manufacturing facilities at Panpur and Kasba (in West Bengal) and 4 distribution centers across India. Khadim's both business verticals complement each other, as each of them predominantly own customer base, sales channels and product range. Khadim's retail business has grown at a CAGR of 17.2% while distribution business has grown at a CAGR of 42% over FY15 to FY17. Khadim has a scalable, asset-light and less capital-intensive business model to operate its exclusive retail stores. With its affordable product offerings commanding high brand recall, Khadim has carved out a special place for itself in the Indian footwear industry. Backed by better product mix and increase in average selling price (ASP), revenue from its premium sub-brands increased to 52.3% in FY17 from 42.7% in FY13 and Gross margins grew from 42.5% in FY13 to 46.9% in FY17. With GST implementation, organized player like Khadim with its premium sub-brands is expected to benefit from the transition and boost its revenue and profitability. KIL also had the largest footwear retail franchise network in India in FY16. KIL’s core business objective is ‘Fashion for Everyone’, and the company has established and identity as an ‘affordable fashion’ brand, catering to the entire family for all occasions. Khadim can expand its business to other developing countries. Their strategy of ‘affordable fashion’ can satisfy the aspiration of middle class of a developing country.



Strengths 1) Leading footwear brand. The company is the second largest footwear retailer in India in terms of number of exclusive retail stores operating under the “Khadim’s” brand, with the largest presence in East India and one of the top three players in South India, in FY16. Also, the company has the largest footwear retail franchisee network in India as of FY16. Company's product range offers a wide variety of designs and styles, and caters to various customer segments across a wide range of price points. Company's brand and sub-brands command high consumer recall and is associated with high quality products at affordable prices. Owing to affordable fashion positioning, the company has been able to straddle both the retail and distribution business verticals and grow seamlessly across geographies. 2) Two-pronged business model. Company operates through two distinct business models, retail and distribution, each with its own customer base, sale channels and product range. Retail business operates through company owned or franchised exclusive retail stores, catering to middle and upper middle-income consumers in 2



metros, Tier I – Tier III cities. Distribution business operates through a wide network of distributors catering to low and middle-income customers in metros and Tier I – Tier III cities. Both business verticals complement each other, as each of them predominantly have separate product ranges, target audience and channels of sale. This two-pronged business model has helped the company to capitalize on growth potential, and target the Indian branded retail footwear market, which is proposed to grow at a CAGR of 18%, and the branded footwear distribution market which is proposed to grow at 23%, from fiscal 2016 to fiscal 2020. Conversely, Khadim's retail business has grown by a CAGR of 17.22% from FY15 to FY17 while distribution business has grown by a CAGR of 42.04% over the same period. 3) Extensive geographical reach. The company has a wide network of 853 and 829 exclusive retail stores across 23 States and one Union Territory in India, as at June 30, 2017 and March 31, 2017, respectively. In FY16, Khadim had the largest retail footwear franchisee network in India. As at June 30, 2017 and March 31, 2017, out of company's 853 and 829 exclusive retail stores, 685 and 667, respectively, were operated by franchisees. In the distribution business, the company have established its presence across East and South India and have also forayed into markets in West India and primarily in Uttar Pradesh in North India. Khadim has a network of 377 and 357 distributors for the threemonth period ended June 30, 2017 and fiscal 2017, respectively, which include 291 and 280 in the East, 25 and 19 in the South and 61 and 58 in North and West India, respectively 4) Asset light model with minimum capital expenditure. Khadim has a scalable, asset-light and less capital-intensive business model to operate its exclusive retail stores. Company's net revenue from new exclusive retail stores over the last five fiscal years was Rs343.32cr, with capital expenditure of Rs14.3cr for the same period. Also, the company has applied the asset light approach with regards to its procurement of products. The portion of products procured from outsourced vendors with respect to retail business amounted to 89.18% and 85.60% of products, in the three-month period ended June 30, 2017 and FY17, respectively. In the distribution business, the company started tracking it as a separate business vertical only from FY15, and has grown distribution business, by adopting an asset light model of manufacturing, by engaging contract manufacturers. 5) Improved product mix, better performance from sub-brands. Company's revenue has grown at a CAGR of 9% over FY14-17 while operating profits increased at a CAGR of 31% over the same period. Revenues from retail business grew by 13.52% to Rs456.4cr in FY17 from Rs402.1cr in FY16, with the expansion in network of retail stores, driven by growth in existing network of stores and 60 new stores being opened during FY17 while revenues from distribution business grew by 35.74% to Rs134.7cr in FY17 from Rs99.2cr in FY16 as the company increased sale to existing distributors, widened distributor base and expanded into new geographies. The company suffered losses in FY15 due to higher expenses and inventory build-up. Revenue from all 9 sub-brands (Pro, Lazard, Softouch, Cleo, British Walker, Turk, Sharon, Bonito and Adrianna) as a percentage of retail footwear business revenue increased to 51.21% in 3M FY18 and 52.38% in FY17, from 42.76% in FY13. The change in the product mix 3



along with reasonable price increases has led to increase in average selling price (ASP). The ASP increase, coupled with management's ability to pass on cost increases, has positively impacted retail business gross margins which has grown from 42.54% in FY13 to 46.89% in FY17 and 47.14% in 3M FY18.



Key risks / weakness • Inability to expand into new geographic markets or penetrate existing markets may adversely affect growth. • Any delay or default in payment from franchisee operated stores or distributors could adversely impact profits. • Inability to maintain and enhance the ‘Khadim’s’ brand, the sales of products may suffer which would affect financial condition. • Failure to successfully procure raw materials or to identify new raw material suppliers could adversely affect results of operations. The target markets Asia is a shining star in the otherwise drab landscape of the economic stalwarts of our recent past. The region has been resilient through the global financial crisis and has experienced consistent average annual GDP growth rates in the range of 5% to 8%. By 2050, Asia will account for 45% of the estimated world population, an increase of 23% over the region’s population in 2013. 63% of the world’s 440 fastest emerging cities are in this region. This growth will add a billion new consumers and a total purchasing power in excess of $10 trillion to the global economy. Asia will house one of the youngest and largest workforces, numbering around 3 billion and representing 52% of the global workforce. By comparison, North America, South America and Europe combined will account for only 21%. Dwarfed by the size of and focus on China and India, the tiger economies of Southeast Asia have been quietly but unrelentingly gathering economic steam.



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Why Southeast Asia? The region is urbanizing rapidly. The cities of Southeast Asia will support 81 million people by 2020, creating greater affluence through high workforce participation. The region is bucking the aging demographic trend. By 2020, almost half of Southeast Asia’s population will be below 30 years of age, providing an ongoing and steady stream of talent that will grow in experience and maturity each year. All the above factors favored the choice of the Southeast Asian countries : 1) Indonesia 2) Thailand 3) Malaysia 4) Philippines 5) Vietnam 6) Singapore 7) Myanmar 8) Cambodia 9) Laos 10) Brunei 11) Timor-Leste



Four filter model Four filter model is used for appropriate market selection



Filter - 1 : Macro level factors Khadims look for mass markets. A relatively big economy is always a positive factor to do the business. So the management decided to go for countries whose GDP is above $500 billion. So from the above 11 countries 5 countries with GDP above $500 billion was chosen: 1) 2) 3) 4) 5)



Indonesia - $ 3,028 bn Thailand - $ 1,161 bn Malaysia - $ 863 bn Philippines - $ 801.9 bn Vietnam - $ 594.9 bn



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Filter – 2 : General market factors related to product category There is significant upward mobility of the population, a burgeoning middle class that is gaining in size and wealth, stoking demand for consumption of goods and services. Disposable income continues to rise across all segments of the population in each country. Ever greater spending power will support demand for services and higher value-added products. Footwear consumption has ever increased in the countries with higher population. Ecommerce sales can be boosted in a population with good level of digital literacy. Awareness about brands other than local brands among people, international media exposure through internet and other mediums (for following new trends in footwear) are some of the desirable characteristics of a population that will help Khadims grow its business. Population and internet users are used to filter countries this time.



Population Indonesia – 248 million Philippines – 103 million Vietnam – 91 million Thailand – 65 million Malaysia – 29 million Internet users (in thousands) Indonesia – 55,000 Vietnam – 30,859 Philippines – 33,600 Thailand – 18,310 Malaysia – 17,723 Management decides to shortlist countries which has population above 80 million and internet users above 25,000 (in thousands). Thus the following countries were selected : Indonesia Philippines Vietnam



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Filter 3 – Micro level factors specific to the product There criteria used for shortlisting 3 countries is the total footwear export from India to those countries. Footwear export form India (US$ Thousand) Indonesia – 7825.69 Vietnam – 7325.77 Philippines – 2293.88 Since Philippines offer less scope for footwear exports in terms of exports, Indonesia and Vietnam are shortlisted from the above list.



Filter 4 – The final screening of target markets Although the business climate in Vietnam is improving all the time, obstacles still remain. The challenges faced by overseas companies include: 



corruption and bureaucracy



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shipping and customs tax issues



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tax burden



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an opaque legal framework and the slowness of Vietnam’s judicial system



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poor infrastructure



Above risks make it difficult for a new player to do business in Vietnam. When compared to Vietnam, Indonesia is a more welcoming market. Bata has been operating there for quite some time. Footwear recorded robust value growth of 7% in 2016 due to growing demand for high-quality and sophisticated products, provided by many new domestic brands such as Buccheri. The growing number of internet retailers also contributed to growth in 2016. Sepatu Bata Tbk Pt led footwear in 2016 with a value share of 4% and sales of IDR1.4 trillion. Bata is a longstanding brand in Indonesia and has a large number of stores, even in remote areas of the country. In addition, the brand’s affordable prices cater to a wide range of consumers from low-middle income to middle-high income groups. Footwear is expected to continue to grow over the forecast period due to the support it receives from the Indonesian government, which has named the footwear industry as one of its priorities for development by 2021. 7



India and Indonesia have shared two millennia of close cultural and commercial contacts. The Hindu, Buddhist and later Muslim faith travelled to Indonesia from the shores of India. The Indonesian folk art and dramas are based on stories from the great epics of Ramayana and Mahabharata. The shared culture, colonial history and post-independence goals of political sovereignty, economic self-sufficiency and independent foreign policy have unifying effect on the bilateral relations. In 2016, Indonesia exported 661 million pairs of footwear, a 2.9 percent increase year on year (yoy), while it imported 394 million pairs, a 16.9 percent increase yoy. Also according to World Footwear Yearbook 2016, Indonesia’s footwear consumption in 446% higher than Vietnam. So by taking all the above reasons into consideration Indonesia is selected as the target market.



Market Segmentation • Segment the market into Men, Women and Kids categories. • A separate athletic wear segment is also created. • A segment where affordable footwear with quality should be created



Targeting • Average age of population in Indonesia is 28, So the young and sporty generation should be the main target. Also, as they do in India, they can cater the needs of entire family by introducing a line of products.



Positioning • Khadims should position themselves as ‘affordable fashion’ provider. The high level of disposable income among Indonesian customers is a great opportunity for Khadims.



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Marketing mix elements Product All variants of Khadims products. It includes brands such as Turk, British Walkers, Lazard, Clio etc.… Price Prices need not be fixed. Can be increased strategically according to the rising income levels of consumers. Affordability is the most important perceived feeling for the customer. Place Initially the direct outlets are opened in cities. Later develops the network to rural areas through franchise. E-commerce also can be tried once the market is stabilized. Promotion Promotion includes outdoor advertisements, social media advertising, Newspapers etc.… Launching campaign should be implemented extensively. People Experienced sales personnel bringing up the first point of contact for customers with top management including Indonesian business professionals with knowledge about the local market. Process Value delivery is through direct and franchised outlets with all elements of customer satisfaction being delivered through the same.



Physical Evidence The physical evidence being our product delivered, it is pretty much straight forward, on what is being communicated to the customer as the physical evidence.



Marketing Action Plan A major footwear brand in India has prominent presence in Indonesia and Khadim’s being a positioned as a better alternative Indian brand will go down well with the huge number of foreign tourists and western population visiting the country. This would also take Khadim’s outside the country for global exposure and over sea market exploration while also taking the brand name to 9



new heights. This venture opens up a whole new world of growth, opportunities, and good will in taking the Khadim’s brand to whole new heights. The primary objective of this new foray being the continuous growth of Khadims as a reputed brand and acceptance by Indians as a brand of their own has resulted in a strong need for strengthening the brand name along with the potential financial and monetary gains as a business venture in a highly developing market for footwear, with a wide variety of affordable and premium footwear for all members of a family in designs trending in local tastes, the brand acceptance should be a given high. The initial foray would be through direct company owned outlets which would introduce the new market to the whole new world of Khadim’s and its exciting range of products catering to both the sexes alike. The few locations in the new market would be the capital city of Jakarta, Semarang and Bali. Strategic locations which would help cater to domestic and tourist population alike. Semarang and Bali have a huge sandals and slippers culture which we are very keen on and Jakarta has a huge population interested in the entire range of Khadim’s product list. We would also team up with IFC, Indonesia footwear Centre (www.indonesiafootwearcenter.com) an initiative to promote local and global brands in the country along with additional exposure for members, which would go a long way in creation of awareness among the general population about Khadim’s and its products. This would ideally be the best way to tap into the new Indonesian market because Khadims is an unheard brand in the new market and it is essential to create a bang by highlighting our competencies and strengths through established institutions and pre-launch promotions as well as post launch offers and introductory prices. Nationwide campaigns, including newspaper advertisements, television commercials, and billboard shout outs, promoting the launch of the new brand, highlighting the legacy and the way forward with special introductory prices and attractive new designs, especially for the new market. The further foray into the others parts of the country will be through franchising. Franchises are of two types, exclusive franchise and dealer franchise, replicating the system in India. Exclusive franchises would solely be dealing with Khadim’s products and will receive more attention and support for growth and penetration including annual advertising campaigns. Dealer franchises would be multi branded outlets also catering to Khadim’s products. With products to suit the needs of each and every individual in the country, Khadim’s will get the right entry by positioning itself as a strong competitor to the already existing market leaders by tapping into the rural initially and the urban markets gradually.



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Implementation plan Khadim’s can ensure its correct marketing plan through controlling procedures of top management and with proper guidance to all departments of organization. The objectives of Khadim’s can be correctively achieved by proper check and balance of company’s market share, profit, sales, budget and continuous analysis of all departments of company so that marketing plan could implemented and could meet with targets. Also through proper setting of milestones, budget and department selection to work on objectives of marketing communication, channels and research then the marketing plan would be executed in timely basis and with fewer errors. Personal contact and meetings with the decision-makers in the shoe industry Several “telephone meetings” should be held with the purchasing managers from retailer chains, to ensure that they are aware of the market potential of the ecolabel and that they know how to place environmental demands on their suppliers. The pamphlet is to be prepared and sent to them. The idea is to give the companies a forum where they can discuss the market potential of the product and what it will take for them to commit to the product. The next meeting will focus on how to implement a management system to control and document the suppliers' compliance with the product criteria.



Pamphlet for the decision-makers in the shoe industry The pamphlet clarifies what the European ecolabel stands for, the market potential of the ecolabel and the costs in connection with the product. The pamphlet gives a number of good reasons for the enterprises to opt for the product and the enterprises can use the pamphlet in the dialogue with their suppliers and customers.



Theme meeting for professional purchasers of shoes The discussion is done to know how many private purchasers do not find the product criteria comprehensive enough, mainly because the product does not address the workers’ health and safety and social and ethical aspects but they can use the product criteria as a checklist when they develop their own demands for their suppliers.



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Controlling Mechanism Some of the tools and approaches are complementary or substitutes; some are broad in scope, others narrower. The monitoring and evaluation methods are: 



Performance indicators - These measure inputs, processes, outputs, outcomes and impacts of development interventions. They are used for setting targets and measuring progress towards them.



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The logical framework (LogFrame) approach - This identifies objectives and expected causal links and risks along the results chain. It is a vehicle for engaging partners and can help improve programme design.



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Theory-based evaluation - Similar to the LogFrame approach, this provides a deeper understanding of the workings of a complex intervention. It helps planning and management by identifying critical success factors.



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Formal surveys - These are used to collect standardized information from a sample of people or customers. They are useful for understanding actual conditions and changes over time.



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Rapid appraisal methods - These are quick, cheap ways of providing decision-makers with views and feedback from beneficiaries and stakeholders. They include interviewing, focus groups and field observation.



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Impact evaluation - This is the systematic identification of the effects of an intervention on households, institutions and the environment, using some of the above methods. It can be used to gauge the effectiveness of activities in reaching different target segments.



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Cost-benefit and cost-effectiveness analysis - These tools assess whether the cost of an activity is justified by its impact. Cost-benefit measures inputs and outputs in monetary terms, whereas cost-effectiveness looks at outputs in non-monetary terms.



Cultural controls Corporate culture is a key for deriving maximum output and profitability and hence cultural control is a very important attribute to measure the overall efficiency of a firm. It takes form when employees of the firm try to adopt the norms and values preached by the firm. Employees usually tend to control their own behavior following the cultural control norms of the firm. Hence, it reduces the dependence on direct supervision when applied well. In a firm with a strong culture, self-control flourishes automatically, which in turn reduces the need for other types of control mechanisms.



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Cost and accounting comparisons Cost and Accounting Comparisons is a financial approach. It arises due to the difference in expenditure among various units of the subsidiaries. A meaningful comparison of the operating performances of the units is necessary to get the full output from this approach. Cost accounting comparisons use a set of rules that are applicable to the home country principles to meet local reporting requirements



Conclusion Indonesia has a GDP per capita of $3,604 ($11,700 at PPP) that exceeds many of its ASEAN neighbors such the Philippines and Vietnam, and with 258.8 million people (IMF), Indonesia’s economy comprises nearly half of ASEAN economic output. Indonesia is a thriving democracy with significant regional autonomy. According to Euromonitor International, Indonesia has the world’s fourth largest middle class with 17.3 million households as of 2014, and is forecasted to expand to around 20 million households by 2030. The gap of availability of affordable footwear which has high quality and ‘pro-consumption middle class’ can be a great opportunity for Khadims in Indonesia.



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References • http://www.euromonitor.com/footwear-in-indonesia/report • http://www.straitstimes.com/opinion/the-future-of-growth-in-south-east-asia • https://www.jpmorgan.com/country/US/EN/cib/investment-banking/trade-asean-future • http://reports.weforum.org/global-competitiveness-index-2017-2018/east-asia-and-pacific/ • https://www.gov.uk/government/publications/exporting-to-indonesia/exporting-to-indonesia • http://mea.gov.in/Portal/ForeignRelation/India_Indonesia_DEC2016.pdf • https://tradingeconomics.com/india/exports/footwear-gaiters-like •https://www2.deloitte.com/content/dam/Deloitte/jp/Documents/consumer-business/cp/jp-cpci2016idn-eng-1227.PDF • http://blog.euromonitor.com/2017/10/emerging-markets-apparel-footwear.html • http://www.strategyr.com/MarketResearch/Footwear_Market_Trends.asp • https://www.export.gov/article?id=Indonesia-Market-Overview • www.worldfootwear.com • World footwear Yearbook 2016 • https://tradingeconomics.com/india/exports-of-footwear •https://wits.worldbank.org/CountryProfile/en/Country/SAS/Year/2016/TradeFlow/Export/Partn er/all/Product/64-67_Footwear •https://wits.worldbank.org/CountryProfile/en/Country/IND/Year/LTST/TradeFlow/Export/Partn er/by-country/Product/64-67_Footwear# •http://www.thejakartapost.com/news/2017/04/19/growth-of-indonesian-footwear-importsoutpaces-exports.html • http://www.doingbusiness.org/rankings • http://www.haygroup.com/en/our-library/infographics/2017-global-salary-forecast/ • http://www.worldbank.org/en/region/eap/publication/east-asia-pacific-economic-update •https://www.forbes.com/sites/sylviavorhausersmith/2014/03/07/opportunity-is-knocking-insoutheast-asia-can-you-hear-it/#4546ec923b9a 14



• https://www.sisinternational.com/market-opportunities-in-southeast-asia/ • https://www.thebalance.com/export-potential-in-indonesia-1953479 • https://www.pwc.com/th/en/publications/download/south-east-asia-web.pdf



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