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DOCUMENTORY REPORT
ON
PESTEL ANALYSIS
AND
PORTER’S FIVE FORCES MODEL
ON
Indian Shipping Industry
Submitted to
Mr. JIGNESH DARJI
Presented by
Vaibhav S. Shah
M.B.A Semester – III
ROLL. NO. 09MBA47
SEPTEMBER 2010
INDIAN SHIPPING INDUSTRY
Introduction:
There are many factors which directly or indirectly affect the present day
businesses like government policies, regulations, laws, human rights,
competition, technology, international organizations, world trade bodies, child
labour, minimum wage, pollution, accidents, risks, violence, security, labour,
supplies etc. Therefore it becomes important for every business to determine
these various factors and plan their strategies accordingly to survive against all
such odds. But practically it is virtually impossible to consider all such individual
factors and therefore specific models exists like PESTEL and Porter five forces
which are applied available to determine the external and internal environments
factors affecting the shipping industry in India, the same are applied here. Overall
shipping industry in India is very large in size and volume, therefore “Container
Line” business group has been taken for discussion under this study. Container
line business involves hiring, transportation, repairs and movement of containers
by exporters, trader or agents for transportation of goods to any foreign
destination against agreed freight rates. The reason for choosing this industry as
part of study is due to enormous support being given by government of India to
promote foreign trade for the economic development.
PESTEL Analysis
⇒ Political Factors:
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Appointment of Custom House Agents:
This kind of agents positively affects the Indian shipping sector, because it
prevents the fraud and illegal entry and controls the activities of shipping
business in a particular manner.
Infrastructure Development:
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This kind of activities encourages new investors to invest in shipping while
it also gives the benefit to the existing market players by loans and other facilities,
and helps in development of sites, this factor is positively affect the industry.
With an action of anti dumping and anti subsidy measures in line with
WTO agreement, government seek to provide necessary relief and protection to
domestic companies against dumping of goods and articles at cheaper rates by
exporting companies of foreign countries. India has been a victim since long
against such unfair practices in items like import of chemicals, petrochemicals,
pharmaceuticals, textile, steel and other consumer products which were dumped
at cheaper rates than offered by Indian companies. Under these anti dumping
measures government charges an additional duty on such cheap imported
products making it equivalent to price offered by domestic market.
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This factor is negatively affects the shipping business, Because the anti
dumping and high duty will discourage the foreign player to deal in Indian market
and by this the Indian shipping market suffers a lot because of less import and
less opportunities of business in such a condition.
Promoting Exports:
This factor is positively affects the Indian Shipping Business, as the tax
saving and other benefits in SEZ is more, the foreign players are also interested
to invest in Indian Shipping Industry, which will results into the development of
Indian shipping industry. Other thing is that 100% tax benefit and other duty free
schemes encourage the domestic players to invest more and more and export as
much as possible, which will result into high growth of industry and upliftment of
sector.
Overall, from the above factors, two factors are negatively affects the
shipping industry and two are positively. But, overall all the present and upcoming
governments are interested in development of shipping industry. So, the political
factors are positively affects the shipping industry.
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⇒ Economic Factors:
Exchange Rates are required for determining custom and excise duties,
valuation of import and export goods, payment of duties etc. These rates are not
uniform and fluctuate daily in line with demand-supply factors prevailing in
international markets. With respect to shipping industry, government of India
informs public involved in shipping trade about uniform monthly exchange rates,
through monthly notification. This ensures that dealing and communication
between trade bodies and government agencies, in respect of duties and value of
goods is uniformed across all ports and across all custom houses throughout
India, instead of different rates and different value each day.
Rationalization Measures:
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Push ‘n’ Pull Factors:
This factor is also positively affects the shipping industry indirectly, as the
circulation of money getting high, the demographic pattern of people will also
change like income, purchasing power etc. which will increase the business of
shipping by more movement of goods and services for meet the high demands.
Inflation:
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Government initiated several anti-inflationary measures like exempting
duties on import of rice, wheat, pulses, edible oils to bring more imports to
country and also allowing distribution of rice and wheat to consumers through
public distribution centers (PDS). Futures trading, exports have also been
suspended for rice, wheat and onions to control increasing prices. However
inflation volatility in India was much better and stagnant compared to other
countries of world.
Inflation rate negatively affect the Indian Shipping industry, because high
rate of inflation will resulted into high prices and high rate of transfer of goods will
decrease the business of shipping.
⇒ Socio-Cultural Factors:
Quick Facts:
Indian civilization can be traced back to 3400 BC during the development
of Indus Valley Civilization. India lies to the north of the equator between 6°44'
and 35°30' north latitude and 68°7' and 97°25' east longitude. India's coast is
7,517 kilometers long which consists of 43% sandy beaches, 11% rocky coast
including cliffs, and 46% mudflats or marshy coast India has a GDP of over USD
1.367 trillion, the 11th largest in the world. It is the 4th largest in the world in
terms of purchasing power parity. Its per capita income is USD 1124, 139th in the
world. Population in India is second highest in the world. As of 2010, India’s
population is estimated to be 1.18 billion. India ranks 139th globally, under
medium human development category according to Human Development Index
(HDI). Due to significant changes in economic reforms undertaken during the
industrial revolution in 1991, India has transformed itself to one of the fastest
growing economies in world. India is also a strong member of Commonwealth of
Nations, SAARC, and WTO. India’s strong 55,000 military personnel’s are
serving in 35 UN peacekeeping operations across 4 continents.
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Demographics:
India has more arable land than any other country except United States,
and largest water covered area after Canada and United States. Indian life
revolves mostly around agriculture and allied activities in small villages, where
the overwhelming majority of Indians live. As per the 2001 census, 72.2% of the
population lives in about 638,000 villages and the remaining 27.8% lives in more
than 5,100 towns and over 380 urban areas. In languages Hindi is used by over
80% of population in India followed by Muslim (13.4%), Christian (2.4%) and
Sikhs (1.3%). Muslim population in India is third largest in world after Indonesia
and Pakistan. 57% of population in India is between age group 15-59 years while
around 35% of population is below 15 years. Literacy rate in India is 64.8%
overall distributed between urban (79.9%) and rural areas (58.7%). This factor is
positively affects the shipping industry, as difference in location, demand people
will demand different things and import of it will increase the shipping business.
Cultural Trends:
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Recent Trends in 2010:
⇒ Technological Factors:
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Faster Data Processing:
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Ship Technology:
⇒ Environment Factors:
Over the decades, the depletion of ozone layer and its preservation had
been high a priority for environmentalists and developed nations. Campaigns and
initiatives are being taken globally to reduce these carbon emission levels
through technological innovations and mass education. Following are some of the
initiatives taken to control accelerating environment degradation.
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The UN’s Intergovernmental Panel on Climate Change (IPCC) believes
that global warming is largely due to increase in CO2 levels and other
greenhouse gasses which are caused by human activity all over the world.
Perhaps the most dramatic evidence of this change is that about half of the Arctic
ice has disappeared over the last 20 years. From a CO2 emissions perspective,
shipping is one of the most climate-friendly ways to transport goods with very less
amount of CO2 emissions. It is essential to make sure that ships emit low carbon
footprint, not only to help climate but also to remain competitive.
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This policy is adversely affects the shipping industry, because of heavy
and strict rules for transporting a hazardous chemicals and using of fuel in ships.
Ship Recycling:
“Alang Ship Breaking Yard” in western India is the one of the biggest
centre for ship breaking in the world, with around 50% of ships salvaged globally
is recycled here. This yard has been in controversy since recent past due to
workers living condition and adverse impact on environment. Government has
signed a memorandum of understanding (MoU) with Japan based on (PPP)
model to upgrade this shipyard to international level complied by standards of
International Maritime Organization.
⇒ Legal Factors:
Customs Act’ 1962 provide judicial and administrative powers for efficient
working of shipping industry. The act deals with appointment and functioning of
custom ports, airports and custom officers, determination of goods to be
imported/ exported, prohibition on trade on specific commodities, power of
levying and exempting goods from duties, assessments, claims, warehousing
and clearance of cargo, security, confiscation, settlement of cases etc. The list of
duties is exhaustive and not just limited to these activities. It almost covers each
and every aspect of rules and regulations required for international trade of goods
and services in India.
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powers can control the purchase/ sale price of commodity, prohibit its sale or can
order the person holding the stock of essential commodities to sale in part or in
full which may otherwise result in horse-trading or inflation in country. This
scenario was seen in India in last quarter of 2009-2010, where government has
stopped the export of rice, wheat, pulses and sugar and has started importing
more from foreign countries to fight against the rising prices in domestic market
which was leading to inflation.
As stated above this factor is positively affects the Indian shipping industry
in many ways. As this factor is helpful in earning foreign funds, and this is
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possible by transaction between two countries and most of the goods are moved
by the sea way. So, the business and profit both are increased.
This act has given secure access of information under the control of public
authorities, to citizens of India. The act has brought transparency and
accountability in working practices of public enterprises with continuous and
gradual decrease in corruption cases. Public authorities are required under the
act to reply immediately or within 30 days of receiving request from any citizen
which has forced them to computerizing all their records for fast and easy
dissemination. The act also empowers citizens to inspect the requested
information, take certified samples and copies through print or electronic mode.
Certain categories of information which are against the sovereignty or integrity of
India has been kept out of purview of this act. In the first year of the
implementation of this act government received 42,876 applications of requests
for information.
Overall all the factors more or less affects the shipping industry in both
positive and negative manner. But there is a more chance of profit because of the
positive response and favorable policies of government of India. As the Indian
government trying to develop shipping ports and interested in development of
shipping industry the political factors are positive. But as per environment
concerns the shipping industry is in controversy. Technological and legal factors
are also favorable because of liberal policies of government and technological
advancement.
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Analysis of Porter’s Five Forces for Indian Shipping
Industry
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ATTRACTIVENESS FOR SHIPPING INDUSTRIES
(Analysis of Container Line Business)
FIVE FORCES ATTRACTIVENESS
1. Threat of New Entrant is High Industry attractiveness is High.
INTERPRETATION
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are foreign players or in other words are multinational companies having their
business arm extended in India. Even if we take the examples of biggest
companies like Maersk and APL we will see that it had taken more than 100
years for these companies to establish themselves today at this top level. While
there can be threat from existing companies to expand into new sectors which
would lessen the share of company operating in that region. For i.e. Maersk is
generally operating in every part of the world, in certain regions it may be the only
player operating in that case its profit margins from those operations would be
enormous. However this profit can be severely affected if APL or MSC introduce
their service in those regions, or the situation can be vice versa. If there are any
new potential companies who would intend to jump into this sector with huge
capital than other factors like licensing, government rules, regulations, policies
are all secondary.
Factors Threat of New Entrance Attractiveness
High Moderat Low
e
Capital Requirement High
From the above table I conclude that as the capital requirement is high but
the profit margin is also high, so the attraction is high. Opportunity of expansion in
new sector is moderate but the profit in present sector is high, so, attractiveness
is high. Economies of scale is less because all market players are operating at
their highest level, switching cost for buyer is high because of less experience of
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different players will increase the attractiveness. Government restriction is less.
So, the attractiveness is high.
⇒ Threat of Substitution
More number of market players are available but they all are dealing in different
prices, performance and quality will increase the attractiveness of shipping
sector. As the switching cost is high, customer stick to their present seller will
increase attractiveness. Cost factor is less important because all players are play
a role of defender in market will moderate the attractiveness.
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⇒ Supplier Power
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There are other supplies like stevedoring, loading/ unloading of containers
from vessel, movement of containers to CFS (container freight station) and
vessel towing which are provided by port authorized suppliers and companies
don’t have to arrange separately. Port authority charges fixed amount towards
these handling from shipping lines and shipping lines charges the same from
customers after adding their profit margin.
⇒ Buyer Power:
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Buyer is one the strongest factor in shipping line business. Buyers may be
in form of importer or exporter, clearing agent, freight forwarder or manufacturer
of goods. Sometimes manufacturer himself acts as an exporter or importer, if not
than trader acts on behalf of manufacturer of goods.
Container line business in India is based on two core factors viz price and
quality of service. Price refers to freight rate at which one container is decided by
shipping company to transport from one place to another. Due to much
competition in this sector and limited number of operators, bargaining power of
buyer has increased in relation to freight price. For i.e. almost all shipping lines
have service to Jebel Ali (an important transit hub) from India and customer are
sure to get very competitive rate for this location from market. For such locations
customer are virtually like king but when it comes to transporting cargo to far
Europe or America than this power is transferred to companies operating in those
regions. Therefore companies like Maersk, APL and MSC strategize their
businesses in such a way to get maximum profits from service to odd or far
reaching areas and make normal profits from operation to common areas like
Jebel Ali.
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and import/ export businesses in India, many agents acting as freight forwarders
have came up in market to share the profit in form of commission. These agents
earn commission by way of collecting excess freight from exporter than charged
by shipping lines. It is relatively easy for shipping lines to entertain these agents
as they bring big lot of containers from different small exporters which would be
difficult if shipping company approaches those 10 different exporters for business
instead of only one agent.
Factors Threat of Buyers bargaining Attractiveness
High Moderate Low
Number of Customers High
Price and Quality of Services Moderate
Switching Costs High
Buyers information and High
Awareness
Buyers ability to demand High
Concessions while Purchasing
Freight Forwarders and Clearing Low
Agents
More number of customers will increase the overall attractiveness of the shipping
industry. But the more or less same prices and same quality will moderate the
attractiveness. Switching cost for buyer is low because of more number of market
players is higher the attractiveness. As the perfect competition situation prevail in
market will provide all kind of information easily, so, the seller will know the profile
of buyer and their demand will increase the attractiveness. Buyers ability to
demand Concessions while Purchasing is high because the seller in threaten of
loosing customer will affects the action of seller. But on the other hand high
switching cost for buyer will increase the attractiveness of shipping industry.
⇒ Competitive Rivalry
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Competitors Fresh Moves Low
Conclusion
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References
⇒ Census of India 2001,www.censusindia.gov.in
⇒ Ministry of Shipping, Government of India www.shipping.nic.in
⇒ Marine Environment, www.imo.org
⇒ National Portal of India, http://india.gov.in
⇒ Infrastructure, Government of India, http://infrastructure.gov.in/port.htm
⇒ Indian Ports Association, http://ipa.nic.in
⇒ Special Economic Zones in India, Government of India,
http://sezindia.nic.in
⇒ CLT propeller Design, SISTEMAR,
http://www.sistemar.com/CLTpropellers/desing.html
⇒ Directorate General of Shipping, http://www.dgshipping.com
⇒ Legislative Department, India Code, http://indiacode.nic.in
⇒ Income Tax Department, Government of India,
http://www.incometaxindia.gov.in
⇒ Ministry of Finance, Government of India, http://finmin.nic.in
⇒ Indian Custom EDI System, http://ices.nic.in/Ices/home.aspx
⇒ Reserve Bank of India, http://www.rbi.org.in
⇒ http://www.bignerds.com
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