Assignment-Midterm done by Kunal Kathuria H2018OD006

MA in Organizational Development, Change and Leadership

Name of the Course: Basics of Economics, Sociology, and Psychology
Word Limit: 2000
Date of Submission: 24th October, 2018

Question: Examine the nature of markets for the following products in India.
a) Furniture market in India
b) Market for cement in India

(Specific expectations: The write up should include detailed information and analysis about
nature of the products, number of players in the market, policies which signify the entry and exit
from the market, nature of product and product differentiation (if any) and various business
strategies which could reflect strategic behavior(if applicable)

a) Furniture market in India

The furniture market in India is roughly around 350 billion rupees as of 2017 and from this 90
percent of the industry is the unorganized sector and only 10% is the formal sector. 11 percent is
imported and imports are growing as fast as 50 to 60 percent each year. India is the largest
importer of furniture in the world with a total market share of 17% in the imports section. Close
to 11,000 importers shipped their furniture to India with most of the importers being from Italy,
Germany, Spain, Korea, China, Russia, Malaysia, China and Philippines. The furniture sector
contributes to about 0.5% to the GDP of India’s economy. According to the world bank, the
formal sector in the furniture industry is bound to grow by 20% each year and India would be the
biggest market of furniture in the near future because of the increase in middle class population.
Manufacturing in India is usually a 4 tier system namely- manufacturer, distributor, wholesaler
and retailer with either one of the layers clubbed with the other. The market is also distributed
into 3 types based on the cities- A being the tier 1 cities like Delhi, Mumbai, B being the tier 2
cities like Lucknow, Pune and 3 being the Tier 3 cities like Madurai, Dindigul. A and B types
cities contribute to roughly 50 percent of the market and the rest is from the tier 3 cities. Because
the Indian economy being healthy and household spending increasing each year the market for
furniture is also growing. The furniture industry composition is also categorized into 3 types
based on the where the demands are coming from. First, is the household furniture segment
which contributes to roughly 60 to 70 percent of the furniture sales. Then comes the office
segment which contributes to 15-20% of the furniture sales and the rest of the 15-20% is the
contract segment.
There is a wide variety of home furniture needs that cater to the needs of the different customers.
A typical urban middle class Indian house hold has 3 rooms- a hall, kitchen, a bathroom or two
and 2 or 1 rooms. The type of furniture that a home customer uses depends on 3 factors- the
wealth of the individual or family, the taste of the consumers and the number of rooms that are
available in his/her household. The rich upper class is usually very attentive to the interior decors
and design and usually hire private designers to design the furniture and decors for them.
Demand for the furniture of international quality is limited to only tier 1 cities and mostly people
do not change furniture at households for 5 to 10 years. The office furniture segment caters to all
the commercial and office space needs of the consumers and their needs are more basic and
simpler as compared to the households. Usually the furniture for the office segment are in large
economies of scale with it being bought in bulk which would also reduce costs for the purchaser.
The contract segment caters to the tourism industry and the hotels in the particular network and
this network would be the biggest money spinner in the future because of the influx in
investment in the tourism and hotel industry. Another aspect which could help the furniture
sector is the boom in the real estate market with increased constructions and also re-designing
interiors.
The raw materials that are used in the furniture industry is mainly 3- wood, metal and plastic in
that order with wood being used in almost 70 percent of the furniture that is sold. The only
substitute for wood re metal and plastic but that too is very less substantially hence wood
suppliers enjoy a high demand in this market. Hence, there is no threat of substitutes in this
industry so far. But, with the increasing concerns of conserving nature there could be a
possibility of moving to more eco- friendly raw materials like recyclable wood which IKEA
does. There is always threat of new entrants in the market and there is no cartel or a union
formed which act as a barrier. It is also a perfectly competitive market and the price is not
controlled by 1 or 2 large sellers and the consumers also do not check international level
standards before purchasing. The consumers would purchase those products which are cheaper
as they get value for money. Also, with the entry of new players the domestic market is growing
both in the formal and informal sector and most of the formal sector players in the country face
threats from the informal players which are large in number and provide not only greater value
for money to the customers but also have a personal connect with them thereby developing trust
and rapport with the local customers. We can say that the market is customer driven and
customer is truly the king here. Also, the formal sector is investment sensitive but the organized
sector is not very investment sensitive thereby they make larger returns on the little investment
that they have made. In the formal sector some of the key players in India are – Godrej & Boyce
manufacturing limited, Nilkamal furnitures, Durian, Featherlite, style spa and wood pecker.
These players are also facing competition from IKEA which has recently entered the Indian
market apart from the unorganized sector in the country.
The Indian furniture market has grown rapidly over the years and will continue to grow so and
hence potential investors or new entrants whether it is the unorganized sector or the organized
one have to note down 3 key aspects while entering into this customer driven segment- There is
an increased focus on design and usability of the product amongst the Indian public. Next, would
be to understand how the market functions and one would be advised to study the market
carefully and operate on a small scale before taking it on a larger scale. Last would be to build a
brand or the goodwill that is earned which indicates the assurance of a value. With a strong brand
there is increased respect amongst the consumers and owning it would be a sense of ride.
b) Market for cement in India

India is the second largest producer of cement in the world after China. India is also the second
largest market for cement as well making it an important market in the world. Thus India’s
cement industry provides employment both directly and indirectly up to a million people thus
contributing to the GDP of the country. The construction sector as a whole contributes to over
7% of the GDP thus the cement industry is in a very strategic position which is attracting
investments from both within India and abroad on a large scale. It was a highly regulated market
until 1982 and since then private players have operated the market. With a lot of development in
the real estate sector and constructions going up there is a vast scope for the cement industry to
benefit. With the recent plan of building and revamping of 100 cities into smart cities things are
definitely looking upwards for the cement industry after a brief lull for almost 5 years when the
real estate market was going through a slump. One of the main reasons for India producing a lot
of cement is the availability of raw materials in the resource rich country- limestone and coal.
The market is divided into 3 segments- First is the housing sector or real estate sector which
contributes to around 65% of the market. Then comes the development of public infrastructure
like building of fly overs, metro rails and rail way tracks which contribute to around 20% of the
market and finally the last 15% is for the industrial developments like construction of factories,
renovating of industrial spaces. India’s total cement manufactured is 455 million tonnes as of YE
2017-2018.Consumption of Cement is expected to grow by 4.5 per cent in FY19 which will also
be supported by pick-up in the housing segment and higher infrastructure spending. The industry
is currently producing 280 million tones for meetings its domestic demand and 5 million tonnes
for export requirements. The cement industry requires a lot of capital to begin with and it is not
easy to set up a cement factory and enter into the market. The factory must be set up with state of
the art facilities and a lot of labor is also required to work in the particular factory as well.
Hence, we can conclude that apart from a lot of investments if a certain player wants to enter into
the market they would also need the assistance from banks for loans of huge amounts and also
from the government for tax rebates and exemptions in the initial few years before the
organization can reap in profits.
Another issue to deal with is the cement industry cartel which exists in the country. The Indian
cement industry is dominated by 20 companies which amount to almost 70 percent of the total
cement produced in the country. These players have set up 210 cements plants which
cumulatively account for 350 million tonnes of production and of these 210 almost 80 are spread
over 3 states- Rajasthan, Andhra Pradesh and Tamil Nadu. Because these 20 industries form the
cement cartel in India we can rightfully say that the market is oligopoly in nature with a few
operators 20 big and the rest are small players who either operate on a small scale individually or
have tie ups with the big players and there exists a large number of buyers in the market. These
players also set the price for the cement and based on which the prices fluctuate. The prices are
dependent on 2 factors- the availability of the raw materials both limestone and coal which are
abundant in plenty in Rajasthan, Andhra Pradesh and Tamil Nadu and also with the demand of
the cement in case of high demand the prices will be up and in case of moderate or low demand
the process will stay constant or low. These Indian players will also have to compete with the
foreign players who are looking to build and grow their business in India. Some of the largest
foreign players to have invested and started business in the country are Lafarge-Holcim,
Heidelberg Cement, and Vicat. The largest Indian players are India cements, Shree cements,
ultra tech cements, Ambuja cements, ACC, Binani, Birla, JK cements and Ramco cements
respectively.
Some of the major investments in Indian cement industry are as follows:

 As of August 2018, Vicat Group is planning to invest Rs 1,735 crore (US$ 258.80
million) to expand its cement production capacity in India by 50 per cent to 13 million
tonnes by 2021. The expansion will strengthen its presence in the southern and western
markets of India.
 During 2017-18, Ultratech commissioned a green field clinker plant with a capacity of
2.5 MTPA and a cement grinding facility with 1.75 MTPA capacity in Dhar, Madhya
Pradesh. The company is expecting to complete a 1.75 MTPA cement grinding facility
and a 13 MW waste heat recovery system by September 2018 at the same location.
 In May 2018, Ultratech Cement decided to acquire the 13.4 MTPA capacity cement
business of Century Textiles and Industries.
 JK Cement is planning to invest Rs 1,500 crore (US$ 231.7 million) over the next 3 to 4
years to increase its production capacity at its Mangrol plant from 10.5 MTPA to 14
MTPA.

In order to help the private sector companies thrive in the industry, the government has been
approving their investment schemes. One such initiative by the government in the recent past is
during the Budget 2018-19, Government of India announced setting up of an Affordable Housing
Fund of Rs 25,000 crore (US$ 3.86 billion) under the National Housing Bank (NHB) which will
be utilised for easing credit to homebuyers. The move is expected to boost the demand of cement
from the housing segment.

The eastern states of India are likely to be the newer and virgin markets for cement companies
and could contribute to their growth in the future. In the next 10 years, India could become the
main exporter of clinker and gray cement to the Middle East, Africa, and other developing
nations of the world. Cement plants near the ports, for instance the plants in Gujarat and
Visakhapatnam, will have an added advantage for exports and will logistically be well armed to
face stiff competition from cement plants in the interior of the country.
Due to the increasing demand in various sectors such as housing, commercial construction and
industrial construction, cement industry is expected to reach 550-600 Million Tonnes Per Annum
(MTPA) by the year 2025.
A large number of foreign players are also expected to enter the cement sector, owing to the
profit margins and steady demand. In future, domestic cement companies could go for global
listings either through the FCCB route or the GDR route.

With help from the government in terms of friendlier laws, lower taxation, and increased
infrastructure spending, the sector will grow and take India’s economy forward along with it.

References:
IBEF articles on both the cement and the furniture market