Analysis Of Britannia Industries Limited Marketing Essay

Analysis Of Britannia Industries Limited Marketing Essay An Analysis On The External Factors Affecting The Company And The Role And Importance Of Stakeholders Britannia Industries Limited (BIL), formerly known as Britannia, was established in the year 1892. Britannias business was flourishing. In 1910, Britannia mechanized its operations, and in 1921, it became the first company east of the Suez Canal to use gas ovens. In 1979 it was renamed to Britannia Industries Limited, with an Indian shareholding of more than 60%. After few years, in 1997, Britannia made its debut in the dairy products market. Britannia is not only known for the quality of its products but also for the innovative approach towards them and the marketing. In 2002, Britannias New Business Division formed a joint venture with Fonterra, the worlds second largest Dairy Company, and Britannia New Zealand Foods Pvt. Ltd. was born. Britannia was rated One amongst the Top 200 Small Companies in the World (200 Companies for 2002 (2002) Forbes.com) and was awarded The Economic Times as The Second Most Indias Trusted Brands (Dettol is most trusted brand (2002) The Times of India ). Britannias market is not only limited to India but also extends to few countries in Middle East, Seychelles, Singapore, Ghana and USA. Today, the company is operations extend from manufacturing bakery products like biscuits and breads to the production of dairy products like cheese and butter. Aim of the Report To analyse the macro and micro external environment with the help of tools like PESTEL and Porters Five Forces respectively. To role of stakeholders and the importance of stakeholders in influencing the strategies with reference to Corporate Social Responsibilities. Macro External Environment Analysis Macro external environment here includes the factors such as issues related to politics, economical reforms and achievements, social behaviour, technological enhancements and inventions, environmental changes and environmental concerns and legislation and legislative changes. All these factors bear a significant effect on any industry and business. A business has take into consideration all such effects and then formulate its strategies and policies to work along with them and prosper. PESTEL analysis tool helps in determining the effect of all such factors on an industry and businesses. With the help of PESTEL analysis we will be seeing the affects of such factors on Indian Bakery and Dairy Industry. PESTEL analysis is a technique for identifying and listing the political, economic, social, technological, environmental and legal factors in the general environment most relevant to an organisation. (Boddy, D (2005). Management An Intoduction. 3rd ed. UK: Pearson Education. 88.) Type of Factors Effecting Factors Political Economical Social Technological Environmental Exemption on Customs on Sugar Raw Material Import Shortage of Milk Need for Healthy Eating Habits Cloning of Livestock Change in the Climatic Conditions VAT on Biscuits Rise in Sugar Production and Duty Free Sugar Imports Problems with Cloned Livestock New Age Packaging Removal of Import Duty on Dairy Products Globalization Incentives to Build Cold Storage Facilities Requirement for Logistics Political Exemption on Customs Duty on Sugar Raw Material Import Due to the shortage in the production of sugar the deadline for the exemption on customs duty on raw sugar imports has been extended by the government to April 1, 2011 (Dey, A Jha, Dilip K (2010) Duty-free sugar imports extended till April 2011, Business Standard). Since sugar is a major input in the bakery, the price of sugar highly influences the price of inputs of the bakery industry. Exemption on customs duty will help in purchasing sugar at lower cost, which in turn will control the cost of production. VAT on Biscuits The VAT of 12.5% on Biscuits, being the only processed food item to attract such high VAT rates, will affect the pricing of the product (Bhushan, R (2009) Biscuit prices to rise by 10%, The Economic Times). Price of the biscuits might need to be increased due to the high VAT rates which may result in switch of brands due to the highly competitive market. Removal of Import Duty on Dairy Products The whole-sale price based inflation indicates that the milk prices have moved up by 14.73% over the last year. Worried about the rising prices government announced the removal of duty on Skimmed Milk Powder (SMP) and other dairy products (Govt removes import duty on dairy products (2010), Business Standard). The imports at cheaper rate would help in reduce the cost factor for dairy products. Incentives to Build Cold Storage Facilities Wastage of food items due to lack of cold storage facilities lead to a loss of Rs. 500 billion every year. The government announces schemes and incentives to attract investments in cold storage warehousing (Union Budget 2010: Cold-storage incentives to attract fresh funds (2010), The Economic Times). Increase in the number of cold storage facilities would help in preserving products better and reduce the wastage cost. Economical Shortage of Milk Even though the milk production has risen by 4.6% compound annual average growth rate, it still cannot match up with the increasing demand. The demand for milk has been growing at a faster rate than the growth rate of milk production resulting in the shortage of milk supply (Milk output would stagnate (2010) The Economic Times).   India cannot meet its expected demand if the demand and supply rise at the same rate. For the same the reason, the milk prices are on a constant rise. Price of milk increased by 12.6% to 13.6% (Goyal, K (2010) Indias Food-Price Inflation Holds Near 11-Year High- Business Week). This can cause an increase in the input cost for the dairy products and which in turn can lead to hike in price or lower profit margins. If the company increases the price of its products, it may affect the sales as it might lose on consumers. Rise in Sugar Production and Duty Free Sugar Imports The total sugar production in the first six months ending September 2010 is expected to be 22% more than the output in the unchanged phase last season, the total production expected is at 16.7 million (Press Trust India (PTI) (2010) Sugar output rises 22% in first half of 2009-10, Business Standard). Due to the shortage in the production of sugar the deadline for the exemption on customs duty on raw sugar imports has been extended by the government to April 1, 2011 (Dey, A Jha, Dilip K (2010) Duty-free sugar imports extended till April 2011, Business Standard). The increase in sugar production and the duty exemption on raw sugar can help in purchasing sugar at lower prices and this in turn can help in producing goods at lower prices. Globalization Globalization a universal phenomenon is affecting each and every industry. The world is coming closer, the communication gap is closing and the businesses are going global. This can serve as an opportunity to expand the business to a global level but on the other hand there is a threat of new entrants from international market. Requirements for Logistics Logistics in India suffer due to the poor infrastructure and other limitations. There is a high demand for sophisticated third party logistics so the domestic logistics service providers are trying to improve their service. International participation is also expected in the logistics industry (Pandey, S Basu, A (2010) Logistics cos ramp up supply chain to meet rising demand, The Economic Times). Sophiscticated logistics system will help in proper supply chain management and on time delivery of goods, which help in maintaining the shelf life of goods on meeting the demand on time. Social Need for Healthy Eating Habits Studies say that Indians are more prone to Coronary Artery Disease (CAD), which is the major independent risk factor causing Cardiovascular diseases, due to the smaller calibred arteries found in Indians (Isalkar, U (2009) Indians more prone to heart disease, The Times of India). This suggests that Indians should move towards more healthy food and diet. This could be a new area to explore for Britannia with its new health associated products like Nuti-Choice biscuits and Actimind flavoured milk. Problems with Cloned Livestock Cloned animals are supposed to be suffering from large-offspring syndrome. The mother cows face a problem in giving birth to the cloned animals as they are larger than normal. Also these cloned animals suffer from health issues (Gogoi, P (2007) The case against cloning, BusinessWeek). It is morally wrong to clone animals as they cause problems to the mother during the birth and moreover the cloned livestock suffer from health issues which might make unsafe to consume the produce from them. Technological Cloning of Livestock India, a late entrant in cloning research, is now moving with a great pace in cloning technology. Hand guided cloning technique, a technique very different from the conservative cloning practice has been a successful venture (Mahalakshmi, BV Chowdhary, S (2009) Cloning Glory, The Financial Express). New Age Packaging The new packaging systems help in protecting food from micro-organisms by creating shelter layer. It uses new technologies like oxygen scavenging function, atmosphere control, biodegrability etc. and is low cost (Han, J Packaging Innovations, Bakers Journal). The packaging technology helps in preserving food for longer by protecting them from micro-organisms with the help of new technologies, thus resulting in longer shelf life of the food. The advantage of low cost packing and longer shelf life could be very beneficial for the company in increasing its profit margin. Environmental Change in the Climatic Conditions Climate plays an important role in the agriculture process. The change in the rainfall pattern has been a matter of concern now in India. The agriculture sector in areas which are monsoon dependent suffered badly due to the change in the rainfall pattern. The sector suffered a huge loss in terms of total output (Bhosale, J (2009) Farmers worried over climate disturbances, The Economic Times). The loss in crop will affect the input supply and this might delay or cause problems in the production. So the industry might not be able to meet the demands resulting in the loss of customers. Legal Raising the Norms for the Probiotic Food There is a need for setting the standards for probiotic food. Clinical tests should be conducted on the probiotic foods before they could reach the market for sale. The Indian Council of Medical and Research has submitted the proposal for the same to the government (Das, S (2009) Probiotic food likely to come under clinical trial ambit, The Financial Express).  Strict norms will help in raising the quality standards but on the other hand the cost and time of production might subsequently increase. Micro External Environment Analysis Factors that influence the micro external environment are Competitor Rivalry, Threat of New Entrants, Threat of Substitutes, Buyers Power and Suppliers Power. These factors play a vital role in determining the current situation of the business and to plan strategies accordingly. With the help Porters Five Forces we will be analysing these factors and their immediate effect on the company. Five forces analysis is a technique for identifying and listing those aspects of the five forces most relevant to the profitability of an organisation at that time. (Boddy, D (2005). Management An Intoduction. 3rd ed. UK: Pearson Education. 83.) Competitor Rivalry: BIL has a market share of 38% and has been growing at 27%, compared to the industry growth rate of 20% (Saxena, R (2007) Battle-scarred Britannia on expansion spree, Business Standard) and has many competitors based on the nature of product. Parle and ITC (Sunfeast) pose a great competition to BIL (Biscuit Industry: India (2010), Market Research India). BIL earning major of its income from the biscuits (Britannia Annual Report 2007-08 (2008)), and Parle and ITC are the other major players in biscuit market. BIL is also into the production of dairy products, where the two major players in market are Amul and Nestle. Amul is the leader in the dairy industry. There is also a high level of competition from the unorganised baking sector. Overall rivalry is high. Threat of New Entrants: The entry on a small scale dairy industry and in the unorganised baking sector is easy. But on the other hand to enter the large scale dairy industry and organised baking sector a huge amount of investment is required in terms acquiring assets and to establish supply and distribution chains. Government regulations pertaining to food norms and others may also seem to be unattractive. Looking at the latest trends, the bakery industry is expected to earn huge revenues which might attract new entrants (Vijay, N (2008) Indian Bakery sector foresees high growth and increasing interest in product offering, FnBNews.com). So the threat of new entrants is moderate. Threat of Substitutes: Savoury snacks, crisps, cereals, fruits and other fast food can be substituted for biscuits. Dairy products are dubious to be replacing with other products as they key ingredients of majority of peoples diet. So the threat is a very moderate threat of substitutes. Buyers Power: The buyers of these products could be a retailer or the consumer. Both the dairy and bakery industry are price sensitive, so a little increase in price might lead the consumer to shift other brand or product. So the buyers power is calculated to be very strong. Suppliers Power: The major supplies for a bakery industry include wheat, sugar and other agriculture products. And the major supplies for dairy products are milk. Its difficult to bargain with the suppliers of the above mentioned inputs as the price of these inputs is majorly influenced by the production of these inputs. The prices tend to be high as the demand for these products is rising at much faster rate than supply. The secondary supplies include the packaging material. The secondary supplies can be easily substituted with the low-cost ones to save on cost. Overall the suppliers power is assessed to be moderate. Conclusion of Five Forces Analysis: There is an existence of major players in the market with a moderate level of threat of new entrants and substitutes. The suppliers power is moderate but the buyers power is measured to be strong. So the rivalry is suggested to be high. Stakeholders and Corporate Social Responsibilities (CSR) Freedman (1984) defines a stakeholder as any individual or group who can affect, or is affected by, the achievement of the organisations objectives. Further in addition to that, Clarkson (1995), stated that the government and the other communities that effect the working of the business and the market also form as a part of stakeholders. Stakeholders, except the employees, have a high power over the strategic change ideas (Hayes, J (2007). The Theory and Practice of Change Management. 2nd ed. UK: Palgrave Macmillan. 153). Internal Stakeholders The internal stakeholders are the ones associated with the company internally. For BIL its internal stakeholders would be: The Shareholders The Board of Directors, and The Employees Currently, nearly 51% of shares are held by Corporate Bodies and the rest 49% is held by the public (Statement showing shareholding pattern (2009), Britannia Industries Limited). The board consists of 11 members (Company Overview, Britannia Industries Limited) and employees nearly 2000 people (Britannia Industries Ltd. Overview, MarketLine). External Stakeholders The external stakeholders are the ones who are not immediately associated with company but influence the decision making of the company. To BIL the external stakeholders are as follows: Customers Suppliers Contractors Government Regulatory Agenices (like Food Safety and Standards Authority of India, etc.), and Society Britannia being the leader in the baker industry of India has a huge amount of customers to cater. Britannia has to keep up the tastes and quality preferences of its customers. The government plays an important in influencing the market by creating and changing the policies. BIL has to adhere to the rules and regulations formulated by the regulatory agencies. The suppliers and contractors form an important part of a business. Britannia completely relies on its suppliers and contractors for its raw materials. Corporate Social Responsibility (CSR) For years corporate entities followed the practice of providing goods and services and maximizing wealth. But the trends have changed over the period of years. The companies are now expected to be more socially responsible. The company now has to be responsible to the stakeholders, society and environment. They are expected to pay back to the environment and society for all the affects that are caused due to its operations (Idowu, S Filho, W (2009) Global Practices of Corporate Social Responsibility. Berlin: Springer. 1-2). BIL believes in working with the society and the culture. It gives a premier importance to the nation and its policies. It believes in being a good corporate citizen by not just adhering to the rules and regulations but also by helping the community to improve the quality of life. BIL involves itself in initiating and providing support to community health and family welfare, water management, vocational training, educating people and encouraging the application of modern techniques and technologies. BIL believes in ethical behaviour (Code of Conduct, Britannia Industries Limited). BIL is taking steps toward conserving the environment by employing new process and upgrading the technology. It is trying to reduce its carbon footprints by recycling the waste heat. It has now filed for carbon reduction benefits (Britannia Annual Report 2007-08 (2008)). BIL has taken steps towards helping the society by joining the nutrition program with Global Alliance for Improved Nutrition (GAIN) and the Nandi Foundation. Along with these organisations BIL will is providing mid-day meals in schools and provide nutrition to the deprived (Britannia Annual Report 2007-08 (2008)).

Brian Skyrms? Evolution of the Social Contract Essay -- essays researc

  Ã‚  Ã‚  Ã‚  Ã‚  Skyrms’ book, Evolution of the Social Contract, offers a compelling explanation as to why individuals, when placed with one-shot prisoner’s dilemmas, will often cooperate, or choose the equilibrium that will benefit both parties equally. He uses examples to outline how individuals of certain environments frequently engage in activities that benefit the group at their own personal expense. Using both game theory and decision theory, Skyrms explores problems with the social contract when it is applied to evolutionary dynamics. In the chapters of the book, he offers new insights into concepts such as sex and justice, commitment, and mutual aid.   Ã‚  Ã‚  Ã‚  Ã‚  Skyrms’ writing goes beyond traditional game theory, and exposes some weaknesses in its application. He rejects the theory’s traditional interpretation of rational actors and actions by discovering some glaring inconsistencies. Skyrms conducted a number of experiments using one-shot prisoners’ dilemmas. The ultimatum the author introduces in the first chapter serves as a simple example of a one-shot prisoners’ dilemma. In the initial form of the example, Skyrms proposes there is a cake that must be divided between two individuals. Each individual is looking to maximize his or her utility, and therefore, wants as much of the cake as possible. However, there is a third party, or what Skryms labels a â€Å"referee.† The two individuals must determine the percentage or portion of the cake they want and summit these requests to the referee. The percentages must not exceed 100%, or the referee will consume all the cake. It is therefore not in either parties’ best interest to request a significantly large portion. Additionally, if the total of the two requests is below 100% of the cake, the referee will take the left-over portion. The two parties will then aim to maximize their portion, however the best claim that an individual submits is dependent upon the other party’s claim. There are two interacting optimization problems (Skyrms 3, 4).   Ã‚  Ã‚  Ã‚  Ã‚  An answer to the puzzle will be found in solutions that are in equilibrium. An equilibrium in informed rational self-interest, or a Nash equilibrium, is any solution to the problem whereby neither party could do better by altering its position. However, this is a general and broad definition. Further stipu... ...as formed certain signals and understandings that are critical to our prospects for cooperation and negotiation today (Skyrms 80-104).   Ã‚  Ã‚  Ã‚  Ã‚  Skyrms’ explorations in Evolution of the Social Contract are based on the premise that human beings are, in fact, inclined to behave justly. His writings do not aim to prove that individuals act justly all the time; however they assert that the disposition exists in societies. Many would take issue with Skyrms’ assertion. Firstly, justice has many interpretations. According to some, equal division of a resource is not always what justice requires. Skyrms fails to address situations where an individual may have worked harder than another for a resource, and invested more time in it. Perhaps one individual would obtain more utility from a given amount of a resource than another would. Libertarians would demand property rights, and argue that one individual might better utilize the resource than the other, creating more benefit for society. Skyrms also fails to give specific interpretations of justice and does not offer any thoughts on what ideas of jus tice, if any, are cultural universals.   Ã‚  Ã‚  Ã‚  Ã‚  

Kantian ethics Essay

Kant argued for the use of a normative ethical theory based around the idea that all men have a similar common goal; his theory was absolute (meaning one must follow a common set of rules no matter the scenario) and deontological (focused on actions themselves rather than the outcome of said actions). Kant advised the use of this theory despite it being a priori, meaning he had no observations or experience of the theory in practice. Kant believed that all men have duties which they ought to fulfil, not to gain a desired outcome or avoid a less desirable outcome, but simply because it is their duty. For example, if we can assume it is always wrong to kill people, it would be considered immoral to kill someone even if that action saved the lives of hundreds of people. Similarly, if you consider a foetus to be ‘alive’ then it would be immoral to terminate it no matter the affect it would have on the mother’s physical or mental health. Nearly everyone would find fault in the former, notably fewer for the latter, yet I would hope that the majority would still disagree. David Gauthier suggested that as morality is an agreed concept, designed so that people cannot run amok doing as they please with no consideration for others, an absolutist theory cannot function as rules are subject to interpretation. Let us briefly consider the foetus example once more, if the rule states that it is immoral to take a life, what should be considered a life? Does life start at conception or at birth, or maybe somewhere in between. For this reason, though an absolute theory should be applied to every situation, the rules do not necessarily mean the same thing for every single person. Kant said that in order to create a duty one had to pass it through three tests, the first of which being the law of nature. This law states that in order for something to become a duty it must be capable of being universalised, so everyone must be able to follow said duty ad infinitum. So, for example: ‘jump the queue’ could not become a duty as if everyone jumped the queue there would be no queue to jump. Though this seems sensible, it is possible that immoral acts could be universalised. For example ‘lie to people’ could be universalised even though it is a traditionally immoral act. Not only that but the rule could easily be manipulated by phrasing things differently, for instance ‘everyone called Hector Benjamin Stellyes can jump the queue’ could be universalised as it would most likely only apply to me. To counteract these faults Kant put in place a second law, the law of wills. This stated that for something to become a duty it must be desirable for the population. This rule however, also has faults. In order for a rule to satisfy an entire population (and if this theory was applied worldwide that would be nearly 7.5 billion at the time of writing) it would have to be extremely broad, leaving it open to being interpreted in drastically different ways. If the rule said that one simply had to please the majority, what happens to those who disagree? As all duties are absolute and universal, one would have to do something they disagreed with in order to be moral citizens. Kant attempts to rebuttal this with his argument that all humans still have free will, even though they should follow their duty they don’t have to; humans remain autonomous. However, some would suggest that though humans are nearly always capable of independent thought, it is human nature to be moral. A psychological study by Yale in 2013 on a number of babies that were as of yet unaffected by modern culture (they couldn’t read, speak etc.) making them almost purely instinctual showed that it is human nature to be ‘good’. If society tells you that there are a set list of moral acts, most people will conform to these acts to the best of their ability. So far, we have a set of rules and how this set of rules are constructed, so now I ask: why should anyone follow this philosophy? If we should not consider consequences when doing our duty, what reason do we have to do so? Kant believed there to be two separate reasons to perform any action: the hypothetical imperative and the categorical imperative.

A Profile of the Leasing Business in India - Free Essay Example

Sample details Pages: 16 Words: 4923 Downloads: 10 Date added: 2017/06/26 Category Business Essay Type Narrative essay Did you like this example? 25 years ago, Farouk Irani quit his high profile job in Citibank to launch his dream project: a leasing company in India. On 10th  Sept., 1973, Irani was able to convince Dr A C Muthia, Industrialist, to have the First Leasing Company of India incorporated. For several years, First Lesing Company remained the Only Leasing Company. Don’t waste time! Our writers will create an original "A Profile of the Leasing Business in India" essay for you Create order Ever since IFC, Washington decided to support Indian leasing with investment in companies in 4 metros, Indian leasing has never looked back. This was about 1980. Early eighties capital market boom found many young entrepreneurs riding the leasing wave. As it celebrates its 25th  Birthday, Indian leasing is today a central part of the financial system. On its way, it has passed through several twists and turns. Financial industry World-over has a very high beta factor: it is hyper-sensitive to changes in economic scenario. Periods of general prosperity are extremely good for the leasing industry; downturns in economic cycle cost is extremely high. That apart, financial system is invariably affected by the contagion effect: failures of a few players affect even the healthy ones. Evolution of Indian Leasing Industry Leasing activity was initiated in India in 1973. The first leasing company of India, named First Leasing Company of India Ltd. was set up in that year by Farouk Irani, with industrialist A C Muthia. For several years, this company remained the only company in the country until 20th  Century Finance Corporation was set up this was around 1980. By 1981, the trickle started and Shetty Investment and Finance, Jaybharat Credit and Investment, Motor and General Finance, and  Sundaram Finance  etc. joined the leasing game. The last three names, already involved with hire-purchase of commercial vehicles, were looking for a tax break and leasing seemed to be the ideal choice. The industry entered the third stage in the growth phase in late 1982, when numerous financial institutions and commercial banks either started leasing or announced plans to do so.  ICICI, prominent among financial institutions, entered the industry in 1983 giving a boost to the conce pt of leasing. Thereafter, the trickle soon developed into flood, and leasing became the new gold mine. This was also the time when the profit-performance of the two doyen companies, First Leasing and 20th Century had been made public, which contained all the fascination for many more companies to join the industry. In the meantime,  International Finance Corporation  announced its decision to open four leasing joint ventures in India. To add to the leasing boom, the Finance Ministry announced strict measures for enlistment of investment companies on stock-exchanges, which made many investment companies to turn overnight into leasing companies. As per RBIs records by 31st March, 1986, there were 339 equipment leasing companies in India whose assets leased totaled Rs. 2395.5 million. One can notice the surge in number from merely 2 in 1980 to 339 in 6 years. Subsequent swings in the leasing cycle have always been associated with the capital market whenever the c apital markets were more permissive, leasing companies have flocked the market. There has been appreciable entry of first generation entrepreneurs into leasing, and in retrospect it is possible to say that specialized leasing firms have done better than diversified industrial groups opening a leasing division. Another significant phase in the development of Indian leasing was the Dahotre Committees recommendations based on which the RBI formed guidelines on commercial bank funding to leasing companies. The growth of leasing in India has distinctively been assisted by funding from banks and financial institutions. Banks themselves were allowed to offer leasing facilities much later in 1994. However, even to date, commercial banking machinery has not been able to gear up to make any remarkable difference to the leasing scenario. The post-liberalization era has been witnessing the slow but sure increase in foreign investment into Indian leasing. Starting with GE Capitals entr y, an increasing number of foreign-owned financial firms and banks are currently engaged or interested in leasing in India. Pre 1970 1970-1995 1995-2004 Only HP companies  Automobile financing mainly for commercial vehicles  Fixed Deposit: main source of funds Entry into equipment finance through: * Leasing * Hire Purchase  Commencement of car finance  Access to Capital Markets  Funds from FDs and Banks Exit of large no. of companies: * Small Large * Indian Foreign Regulation by RBI Few companies diversified into related financial services Major Constituents of Indian Leasing Industry Lessors Specialized leasing companies: There are about 400-odd large companies which have an organizational focus on leasing, and hence, are known as leasing companies. Till recently, most of them were diversified financial houses, offering several fund-based and non-fund based financial services. However, recent SEBI rules on bifurcation of fund-based and non-fund based activities has resulted into hiving-off of merchant banking divisions of these entities. Banks and bank-subsidiaries: Till 1991, there were some ten bank subsidiaries active in leasing, and over-active in stock-investing. The latter variety was ravaged in the aftermath of the 1992 securities scam. In Feb., 1994, the RBI allowed banks to directly enter leasing. So long, only bank subsidiaries were allowed to engage in leasing operations, which was regarded by the RBI as a non-banking activity. However, the 1994 Notification saw an essential thread of similarity between financial leasing and traditional lending. Though St ate Bank of India, Canara Bank etc have set up leasing activity, it is not currently at a scale to make any difference on the leasing scenario. This is different from the rest of the World, where banks are front-runners in leasing markets. Specialized Financial institutions: There is a wide variety of financial institutions at the Central as well as the State level in India. Apart from the apex financial institutions, viz., the Industrial Development Bank of India, the Industrial Finance Corporation of India, and the ICICI, there are several financing agencies devoted to specific causes, such as sick-industries, tourism, agriculture, small industries, housing, shipping, railways, roads, power, etc. In most States too, there are multiple financing agencies for generic or focussed cause.Most of these institutions are using the lease instrument along with traditional financing instruments. Significantly, the ICICI was one of the pioneers in Indian leasing. At State level also, finan cial institutions are active in leasing business. One-off lessors : Some of the companies engaged in some other business which gives them huge taxable profits, have resorted to one-off leasing on a casual basis to defer their taxes. These people are interested only in leasing of high-depreciation items, preferably those entitled to 100% depreciation. Manufacturer-lessors: This part of the lessor-industry is in highly under-grown form in India, for simple reasons. Vendor leasing is a product of competition in the product market. As competition forces the manufacturer to add value to his sales, he finds the best way to sell the product is to sell it without the buyer having to pay for it instantly. Product markets so far for most durables were oligopolistic, and good products used to sell even otherwise at a premium. With the economy decisively moving towards market orientation, competition has become inevitable, and competition brings in its wake sales-aid tools. Hence, the pot ential for vendor leasing is truly great. The Lessees Corporate customers with very high credit ratings:  These essentially look at leasing to leverage against assets which are otherwise not bankable, or for pure junk financing. Public sector undertakings:  This market has witnessed a very rate of growth in the past. With budgetary grants to the PSUs coming to a virtual halt, there is an increasing number of both centrally as well as State-owned entities which have resorted to lease financing. Mid-market companies: The mid-market companies, that is, companies with reasonably good creditworthiness but with lower public profile have resorted to lease financing basically as an alternative to bank/institutional financing, which to them is time-consuming and tedious. Consumers:  Retail funding for consumer durables was frowned-upon at one point of time, but recent bad experience with corporate financing has focused attention towards consumer durables which incidentally, is all the all-time favorite of financie rs World-over. Most of the larger companies have expressed interest in consumer funding, with ticket size going as low as Rs. 5000. Car customers:  Car leasing World-over is a very big market, and the same is true for India. So long, most car leases were plain-vanilla financial leases but one now finds few instances of value-added car lease services also being offered. Commercial vehicles:  Commercial vehicles customers have always relied upon funding by hire-purchase companies. The customer profile ranges from large fleet owners to individual truckers. Earth-moving machinery customers:  These customers have also traditionally relied upon lease financing. Their requirements are generally large each excavator costs more than Rs. 25 lacks. The income-stream is based on contracts they have at times, the income generation may be sporadic, or the need might itself be temporary. In fact, operating leases would have been ideal in this market, but they are ye t to be launched to any serious degree. Govt. depts. and authorities: One of the latest entrants in leasing markets is the Govt. itself. The Dept. of Telecommunications of the Central Govt. took the lead by floating tenders for lease finance worth about Rs. 1000 crores. In its reforms, India has limits to the extent to which it can resort to deficit financing, and leasing is easily going to appeal to the Govt. , if not for cost reasons, at least for the fact that it will not feature in national accounts as a commercial financing. As a spin-off, it might even help reducing the reported deficit, as the Govt. resorts to what is loved World-over as a tool of off-balance-sheet financing. Factors that contributed to the growth of Indian Leasing Industry With the exception of 1996-97 and 1997-98, the 1990s have generally been a good decade for Indian leasing. The average rate of growth   on compounding basis works out to 24% from 1991-92 to 1996-97. Broadly, the following factors have been responsible for the growth of Indian leasing, in no particular order: No entry barriers   any one could float a leasing entity, and even an existing company not in leasing business can write a lease purely for tax shelters. Buoyant growth in capital expenditure by companies   The post -liberalization era saw a spate of new ventures and fresh investments by existing venturers. Though primarily funded by the capital markets, these ventures relied upon leasing as a source of additional or stand-by funding. Most leasing companies, who were also merchant bankers, would have funded their clients who hired them for issue management services. Fast growth in car market:  Needless to state with facts, the growth in car leasing volume has been the highest over these years the spurt in car sales with the entry of several new models was funded largely by leasing plans. Tax motivations:  India continues to have unclear distinction between a lease that will qualify for tax purposes, and one which would not. In retrospect, this is being realized as an unfortunate legislative mistake, but the absence of any clear rules to distinguish between true leases and financing transactions, and no bars placed on deduction of lease tax breaks against non-leasing income, propelled tax-motivated lease transactions. There was a growing market in sale and leaseback transactions, which, if tested on principles of technical perfection or financial prudence, would appear to be a shame on everyones face. Optimistic capital markets:  Data would establish a clear connection between bullish stock markets and the growth in both number of leasing entities and lease volumes. Year 1994-1995 saw the peak of pr imary market activity where a company, even if a new entrant in business, could price itself on unexplainable premium and walk out with pride. Access to public deposits:  Most leasing companies in India have relied, some heavily, on retail public funds in the form of deposits. Most of these deposits were raised for a 1 year tenure, and on promise of high rates of interest, at times even more than the regulated rate (which was lifted in 1996 to be reintroduced in 1998). A generally go-go business environment: At the backdrop of all this was a general euphoria created by liberalisation and the economic policies of Dr. Manmohan Singh. Present industry order Only few major players exist SREI International Finance Sundaram Finance Cholamandalam Finance Mahindra Mahindra GE Capital Shriram Finance Tata Finance Countrywide Finance Citicorp NBFCs on strong turf NBFCs are today an Integral Part of Indian Financial System showing improving health: Increase in resource profile Significant decline in NPA Substantial improvement in brand image Improvement in profitability margins Maturing industry in which financially managerially weak companies already weeded out . Surviving companies are large corporate with good brand image. NBFCs enjoys a Niche position in the financial sector due to: Better Customer service Innovative flexible financing options Continuously reducing NPAs Healthy Capitalisation Innovative resource mobilisation Focused Operation Products/Customers/Geography Formation of Finance Industry Development Council a Self Regulatory Organisation for NBFCs. Challenges before the Industry The current problems of Indian leasing could be listed as follows, again without any order of listing: Asset-liability mismatch:  Most non-banking finance companies in India had relied extensively on public deposits -this was not a new development, as the RBI itself was constantly encouraging and supporting the deposit-raising activities of NBFCs. If the resulting asset-liability mismatch, to everybodys agreement, is the surest culprit of all NBFC woes today, it must have been a sudden realization, because over all these years, each Governor of the RBI has passed laudatory remarks on the deposit-mobilization by NBFCs knowing fully well that most of these deposits were 1-year deposits while the deployment of funds was mostly for longer tenures. It is only the contagion created by the CRB-effect that most NBFCs have realized that they were sitting on gun-powder all these years. The sudden brakes put by the RBI have only worsened the mismatch. Generally-bad economic envir onment:  Over past couple of years, the economy itself has done pretty badly. The demand for capital equipment has been at one of the lowest ebbs. Automobile sales have come down, corporates have found themselves in a general cash crunch resulting into sticky loans. Poor and premature credit decisions in the past:  Most NBFCs have learnt a very hard way to distinguish between a good credit prospect and a bad credit prospect. When a credit decision goes wrong, it is trite that in retrospect, it invariably seems to be the silliest mistake that ever could have been made, but what Indian leasing companies have suffered are certainly problems of infancy. Credit decisions were based on a pure financial view, with asset quality taking a back-seat. Tax-based credits:  In most of the cases of frauds or hopelessly-wrong credit decisions, there has been a tax motive responsible for the transaction. India has something which many other countries do not- a 100% first y ear depreciation on several assets. Apparently, the list of such assets is limited and the underlying fiscal rationale quite holy and sound certain energy saving devices, pollution control devices etc qualify for such allowance. But that being the law, it is left to the ingenuity of our extremely competent tax consultants to widen the range with innovative ideas of exploiting these entries in the depreciation schedule. Thus, there have been cases where domestic electric meters have been claimed as energy saving devices, and the captive water softenizer in a hotel has been claimed as water pollution control device ! As leasing companies were trying to exploit these entries, a series of fraudsters was successful in exploiting, to the hilt, the propensity of leasing companies to surpass all caution and all lending prudence to do one such transaction to manage its taxes, and thus, false papers for non-existing wind mills and never-existing bio-gas plants were fabricated to lure leasing companies into losing the whole of their money, to save the part that would have gone as government taxes ! Extraneous problems frauds, closures and regulation:  As they say, it does not rain, it pours. Several problems joined together for leasing companies the public antipathy created by the CRB episode and subsequent failures of some good and several bad NBFCs, regulation by the RBI requiring massive amount of provisions to be created for assets that were non-performing, etc. It certainly was not a good year to face all these problems together. Opportunities for the Industry Huge leasing opportunity Large Potential Outstanding lease hire purchase assets around Rs 20,000 crores Large variety of user segment High growth potential in Vehicle Finance Commercial Transportation Govt. support, Diverse products Personal Transportation Wide Variety, Low finance costs, Increasing Propensity for credit purchase, Huge used car finance market New Products Dealer Finance, Working Capital Finance, Personal Loans Low lease penetration ratio Around 1.5% as a % of Gross Domestic Capital Formation Very low in sectors like equipment infrastructure Substantial upside possible Expansion Opportunity Huge infrastructure spending in next 5yrs (apprx Rs 3,60,000 crores) Steadily rising disposable income Generating huge demand for consumer goods With growth ingredients in place Global opportunities Cross-Border Leases allowed Substantially reduced dependence on public deposits as a source of fund Out of a total asset base of Rs 40,050 crores, public deposits account for Rs 5,850 crores as against NOF Rs 4,500 crores . Comparatively Low Default Rate Particularly in consumer loans and vehicles financing as compared to many other markets Future Strategy Segmentation and positioning: Firms try to attain growth in numbers by unfocused diversification, but soon realise that diversified presence creates organisational pressures which are difficult to cope with. This leads to a trend towards consolidation and focused growth. Leasing firms of yesteryears were everything: money market players, merchant bankers and discount houses. Gradually, both regulators and industry participants have realised that clearer roles are necessary for stability. Cross-border competition: Cross-border competition will come in two forms: direct cross-border transactions, and cross-border investments in lease transactions. It is estimated that the second variety of transactions will gain momentum before the first. A number of global leasing giants have already occupied their positions in India. Capital account convertibility measures will precipitate the process. The impact of foreign investments will be greater consolidation activity at home. Emergence of vendor leasing: There are so many merits in vendor-based leasing that it is surprising that it has not made its debut in India still. For the asset vendor, a leasing plan is a sales-aid, and for the lessor, it is easy access to a vast market, with equipment support from the vendor. In 1997-98 and after, many lessors will be forced to leave general equipment leasing market and line up with suppliers of equipment. Vendor leasing in time to come will be a very significant part of the leasing market. Asset-based funding: True asset-based funding is an extension of the vendor lease market. The two generally go together to develop into operating leasing. Full scale operating leasing, that is, leases will in-built cancellation options, will take quite some time to develop in India, but features of operating leases will be introduced once vendor tie-ups take place End of tax-based leasing: This author has consistently opined against tax-based leasing, and that advice has so far fa llen flat because most of the leasing in the past was triggered by tax motives, sometimes greedy tax motives. Spate of income-tax problems in the past has made some leasing companies wiser, but there will be more of such problems when the disputed questions reach appellate levels. In the opinion of the author,  the leasing industry must take the matter across to the Central Board of Direct Taxes and get a set of guidelines on true leases.  Not having any guidelines leaves too many things to the discretion of the tax officer which does not provide a safe harbor to the transactions. A Profile of Factoring Services: A Concept Note Introduction Factoring service in India is of recent origin. It owes its genesis to the recommendations of the Kalyanasundaram Study Group appointed by the RBI in 1989. Pursuant to the acceptance of these recommendations, the RBI issued guidelines for factoring services in 1990. The first factoring company SBI Factors and Commercial Ltd (SBI FACS) started operation in April 1991. How old is the concept of factor? Factoring has been in existence long before ago during the reign   of Mesopotamian King Hammurabi . Then it gets extended to 14th  century during British Rule specially in textiles industries ,but it gained its importance in 1905 from Canada ,especially in American colonies .Now it is no more concentrated in America but have widespread to other countries also .  At that time factoring was used as a mode of advancing funds to the seller, before they  received the payment from the buyer for the raw materials they sold.   But with industrial revolution factoring concept have changed as a  mode of giving credit .The concept got revolutionized during 80s with the growth of banking sector .And now the concept is gaining importance day by day because of the added advantages the corporate gained from factoring. It is generally a well defined arrangement where financial institution engaged in factoring business provides an array of services like rec ording, collecting, controlling and protecting the book debts for its clients including the purchase of his bills receivable. Why account receivable is an important part to handle with? Company  generally give credit to customers for payment in order to increase sales .If customers pays in time then the company tries to provide more and more services to that customers .But if any customers dont make payment even after the end of credit period then this is a matter of concern for the company .More and more delay causes account receivable to increase further and so the debtors list also increases. This becomes a very hard situation to handle with. Especially if the corporate is a huge one, then to maintain accounts receivable becomes a headache for the company .So to avoid this, factoring is an ideal solution. Seller sell all its accounts receivable to factor and obtain cash in turn which it would have received after . So firm dont have to experience unnecessarily cash crunch situation. So in brief in process of factoring 3 parties are involved viz Seller Factor Buyer .But in return seller has to pay factor charges to factor for the services rende red to seller by factor. Types of Factoring 1. Recourse Factoring Client bear all the risk, factor is not liable for any debts .Factor is not responsible for collecting debts from customers. So, recourse factoring is cheaper than non recourse. 2.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Non Recourse Factoring Factor bear all the risk besides providing services of collection of bad debts. 3.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Advance Factoring Factor advances to the client for the amount of receivable purchased. 4.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Maturity Factoring Factor provides dual services collection as well as insurance against debts. 5.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Bank Participation Factoring Bank provides advances not against the full receivables purchased but against a part of the receivable. 6.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Disclosed Factoring Name of the factor is disclosed in the invoices raised by the supplier. 7.  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  International Factoring -  Factoring services against export sales. Factoring Mechanism  Steps involved in Domestic factoring: There are 3 parties involved viz seller (client), buyer (customers) and the intermediary -factor . 1.  The customers buys goods from client and in return client gives invoice to customers. 2.  The client now assigns/send invoice to factor. 3.  Checking the invoice, the factor make prepayment advance of 80 %/90 % to client. 4.  Factor sends statement of payment to customers. 5.  Customers make full payment to factor. 6.  Finally upon receipt of full payment from customers, factors make the balance payment to client.  In International factoring 4 parties are involved -client ,customers, overseas correspondent and factor Steps: Customers places orders to client. Client fixes prepayment limit with factor. Client delivers goods to customers . Client sends a copy of invoices to factor . Factors sends another copy of invoice to the overseas correspondent Based on the invoice, factor makes prepayment advances upto 80 %/90 % to client. Customer make payment to overseas correspondent.   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   8.Overseas Correspondant make this payment to factor.   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   9 Finally after receiving the full amount factor make the balance 20 % payment to client . FORFAITING Under this mode of export finance, then exporter forfaits his rights to the future receivables and the forfaiter loses recourse to the exporter in the event of non-payment by the importer. Difference between Factoring and Forfaiting Factoring Forfaiting Suitable for ongoing open account sales, not backed by LC or accepted bills or exchange. Oriented towards single transactions backed by LC or bank guarantee. Usually provides financing for short-term credit period of upto 180 days. 2. Financing is usually for medium to long-term credit periods from 180 days upto 7 years though shorterm credit of 30-180 days is also available for large transactions. Requires a continuous arrangements between factor and client, whereby all sales are routed through the factor. 3. Seller need not route or commit other business to the forfaiter. Deals are concluded transaction-wise. Factor assumes responsibility for collection, helps client to reduce his own overheads. 4. Forfaiters responsibility extends to collection of forfeited debt only. Existing financing lines remains unaffected. 5. Separate charges are applied for financing collection administration credit protection and provision of information. Single discount charges is applied which depend on guaranteeing bank and country risk, credit period involved and currency of debt. Only additional charges is commitment fee, if firm commitment is required prior to draw down during delivery period. Service is available for domestic and export receivables. 6. Usually available for export receivables only denominated in any freely convertible currency. Financing can be with or without recourse; the credit protection collection and administration services may also be provided without financing. 7. It is always without recourse and essentially a financing product. Changing Scenario of Factoring Business in India SBI Factors purchases the 91 % stake in   Global Trade Finance to gain a market share of around 75 % in factoring business by April 2008. HSBC is going to provide factoring business for SMEs Specially in Mumbai, New Delhi, Kolkata, Pune, Bangalore and Chennai.SME with turnover of more than 5 crore can avail the facility of factoring from HSBC.   HSBC ties up with New India Assurance for credit risk insurance.   With  the increasing demand for factoring services, foreign players such as Development Bank of Singapore (DBS) and GE Capital have shown their keen interst to   getting into the factoring business in India. Both DBS and GE Capital have global exposure in the factoring business.   Many global players in the field of banking(Standard Chartered Bank, Citi Bank ,etc ) are coming forward to India to carry on factoring business in SME segment since the scope for financing large corporates is reaching saturation point.Âà ‚  SME sector plays a major role in Indias present export performance, contributing to 45-50% of the Indian exports. Global Trade Finance has dedicated most of its facilities to the SME sector.   With the growth of factoring business ,credit insurance is also getting edge day by day today specially for the global factors who are operating in India .   According to Factors Chain International, the observer of all factoring companies, India with just eight companies clocked a total turnover of  Rs.  19,860.5 crore in 2006 way below Japans  Rs.  4,15,789.1 crore Taiwans  Rs.  2,23,152. 6 crore and Chinas  Rs.  7,97,77.1 crore in Asia. The Indian factoring market has grown by 176 per cent from  Rs.7,196.7 crore to  Rs.  19,860.5 crore between 2002 and 2006. Global leaders are the UK, France and Italy Challenges faced by global   factors operating in India Indian Market is attractive ,but to get into it is not so easy for foreign markets There are various reasons for this: Factoring is a new concept which is not widely known among Indian business community .  Because of the banks failure to educate potential customers on its benefits. Debt recovery is very slow in India as compared to other developed countries .Comparision of duration of debt recovery case resolution in (calendar days).India 1420 days where as on Average OECD 351 days.   Huge competition from Indian banks in this field . Increased interest rates  impact sales either through increased financing costs or through reduced sales. Foreign  factors faces lot of risk through a higher cost of capital and increased business risk as the credit risk of customers increases. And   the ideal solution is credit insurance .(  Because of credit insurance with Atradius   ,Global Trade Finances turnover grew 121% in its 2007 fiscal year and its total market share grew to 25% from 20% including a 70.4% share of export factoring and a 62.7% share of import factoring.) But   credit insurance is a newer concept in India .Where as ECGC started only   export credit insurance in 1957 . In India assignment of debt is a very complicated process and involves stamp duty .Stamp duty varies from state to state  in India . As a result the process becomes expensive by nature. No clear laws exist in India regarding transfer/assignment of debt,bankruptcy ,debt recovery etc  as in other countries ,so foreign operators have to face lots of problems . Also proper information access is very slow in India. NBFC operating as factors is a difficult proposition in India as compared to banking sector as there is no protection under Debt Recovery Tribunal or securitization act . Conclusion  At the end it is to be concluded that factoring is now gaining its importance in India slowly with the increase in customers access to benefits of factoring. Indias future in factoring business seems to be luring on the facts obtained regarding the fast growth of 174 % in only 4 years .So for factoring to be successful in India government regulation/ policies need to be modified further   so that more and more private players can come forward to start up their factoring business in India .Customer awareness about benefits of factoring is to be increased further to fight back the global leaders in factoring business .