From Hollywood to Bollywood

Online DVD Meets Bollywood
The entry of Quickflix Limited into the India market

MGMT 8505: International Management
MBA Trimester 2, 2011

Tina Brune 20852407

Carl Celedin 19109861

Patrick Gallagher 20805458

Christina Gravdahl 20872627

Nur Farahana Khalid 20893861

Wei Zhe Poh 20605321

Ayrin Tjoe 20727067

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EXECUTIVE SUMMARY
Quickflix Limited is an Australian online DVD-by-mail company where subscribers can
select DVDs and build a queue online through Quickflix‘s website or iPhone application and
receive them from the Australian post. The online DVD rental industry in Australia is currently
undergoing a significant change as after a number of years of intense competition, Big Pond
Movies announced a closing down of their DVD- by- mail service in July 2011. Now that
Quickflix has strengthened their position as market leader, increased paying subscribers 48
percent to 82,000 and are planning to release their new digital streaming service in August 2011,
the company is looking to expand their business internationally. This is part of their forward-
looking business strategy to increase revenue and build a regional brand in Asia-Pacific.This
report presents a case study and in-depth analysis of Quickflix Limited into the Indian market.
India is one of the most important emerging global markets with a growing 20s and 30s age
population, GDP and disposable income levels. Furthermore, with the entertainment and film
industry presence of Bollywood, many opportunities exist to engage with and reach out to Indian
consumers. Therefore, Quickflix has decided to target India‘s young professional, time poor but
technologically savvy emerging middle class through a low cost focus strategy.

The first part of this report, a case study, introduces the current online DVD rental market
in Australia and information concerning the host country India. A country analysis is performed
on India and investigates marketing and government factors, consumer purchasing behaviours,
cost factors and possible entry strategy options that are available to Quickflix. Furthermore, the
current competition, political structure and barriers to conducting business in India are explained.

The second part of the report is an analysis of the case study using international
management frameworks and models. This presents communication and negotiation methods,
different foreign entry modes and partner selection options, IHRM policies, organisational
structures and marketing recommendations to Quickflix‘s entry into the Indian market.

Strategies
 Form an international joint venture with local courier company Gati
 Enter the Indian market starting with Mumbai
 Roll-out the DVD-by-mail service in year 1 of the IJV

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Table of Contents

Executive Summary ............................................................................................................ 2

Quickflix Limited Case Study ............................................................................................ 4

Introduction ..................................................................................................................... 4

Decision Point ................................................................................................................. 7

India ................................................................................................................................ 8

Government Drivers........................................................................................................ 8

Market Drivers .............................................................................................................. 12

Competition Drivers...................................................................................................... 18

Cost Factors .................................................................................................................. 22

Entry Strategy ............................................................................................................... 27

Case Study Analysis ......................................................................................................... 28

Introduction ................................................................................................................... 29

General Business Environment ..................................................................................... 30

Market and Competition factors ................................................................................... 32

Communication and Negotiation .................................................................................. 34

Organisational Structure, Process and Strategy ............................................................ 36

Entry Strategy ............................................................................................................... 40

Ethical Issues ................................................................................................................ 46

Marketing and Segmentation ........................................................................................ 47

Current Issues Facing The Company ............................................................................ 49

Recommendations ......................................................................................................... 50

Conclusion .................................................................................................................... 51

Appendix ....................................................................................................................... 52

References ..................................................................................................................... 61

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QUICKFLIX LIMITED CASE STUDY

INTRODUCTION

History of DVD-by-mail
DVD-by-mail services were first introduced in the USA by entrepreneur Reed Hastings
in 1997. The service allows customers to rent DVDs, Blu-ray Discs and other film media online
for delivery by mail. Examples of such companies include Blockbuster Video Online, Netflix
and LoveFilm. A typical DVD-by-mail operation model can be found below:

 Customers join the rental service online and create a list of titles they wish to watch.
 The titles from the list are then put into a queue and mailed to the customer once available.
 The customer watches the films and then sends them back to the rental company.
 Customers are allowed to keep the films as long as they want, but there is a limit on the number of
films rented out at any given time.

Quickflix History
Quickflix Limited is an online DVD-by-mail company based in Perth, Australia. The company
applies a similar business model to the USA-based Netflix Inc and UK-based LoveFilm
International. It maintains a library of 500,000 DVDs and offers a choice of 44,000 DVD and
Blu-Ray titles across 400 genres from its website and iPhone application through trial and paying
subscription based rentals across Australia. Quickflix‘s network of distribution centres in
Sydney, Melbourne, Brisbane, Perth, Adelaide and Hobart handle service with delivery through
the Australian Post to the whole of Australia.

Quickflix was established in December 2003 with a simple website, a distribution centre and
small DVD library. It became publicly listed on the Australia Stock Exchange in June 2005.
DVD sales was added to its product offering in 2006, but was terminated in 2008 as a result of
the global financial crisis and declining DVD sales across the industry. During 2010, the
company achieved the market leader position in the online movie subscription market segment in
Australia with over 68,000 subscribers. This number has grown to over 82,195 at the end of the

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financial year in June 2011, representing a 48% growth from 2010 (Figure 1). Quickflix has
allocated a significant proportion of its expenditure on marketing to attract new customers. This
is expected to increase to over $5 million in 2011.

Figure 1: Quickflix trial and paying subscriber base (Quickflix 2011).

Quickflix Business Model
Quickflix has no physical retail outlet and operates exclusively online. Customer service
is also mainly provided via email or phone. Quickflix partners with Australia Post which handles
delivery of films requested by customers within one day for metropolitan customers and two
days for regional customers. The company also has a network of distribution centres across
major cities in Australia to service its customers nation-wide. Quickflix negotiates different
content rights and pricing with American and Australian movie studios and distributors for its
DVD library. Exhibit 3 in the appendix demonstrates the step by step rental process, and the
various price points and rental volume flexibility offered by Quickflix.

Quickflix‘s primary target markets are young professionals and families who spend a lot
of leisure and recreation time indoors. The company aims to provide a value proposition through
a flexible, simple, convenient and customised experience for its customers. The development of
its technology platform is crucial to deliver this experience to the customers.

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The core competencies of Quickflix‘s business are its technology platform, a
subscription-based model with different price points and monthly volume choices, web-based
queue selection system, its large DVD and Blu-Ray library and its distribution and delivery
system. Quickflix also plans to introduce its leading-edge digital streaming services to customers
in August 2011.

Australia Market
Australia is predominantly a middle-class society with an unemployment rate of 5.1%. In
2009, approximately 61% of total households had an annual disposable income of more than
US$45,000. In purchasing power parity terms, 36% of Australian households had an annual
disposable income of more than US$75,000 while 10.5% had an annual disposable income in
excess of US$150,000.

Attending the cinema is a popular social activity especially among young Australians.
The rise of technological progression and decreasing equipment prices have driven an increase of
household technological spending on items such as DVD players. It is estimated that only 16%
of Australian households did not have a DVD player in 2011 (Euromonitor, 2010c).This number
is expected to decrease to 12% in 2015 and to 11% in 2020(Euromonitor, 2010c). Consequently,
an increase in DVD sales is expected over the coming years.

Australia‘s annual A$600 million video rental market is dominated by the traditional
rental store networks with over three million annual customers. The main video rental outlets are
Video Ezy, Blockbuster, Civic Video and Network Video. Furthermore, large Australian retailers
such as, K-Mart, Target, Big W, Myer, JB Hi-Fi, Sanity and Harvey Norman are including
DVDs in their product offerings.

Internet retailing in Australia has grown by 47.4% amounting to nearly A$2.9 billion in
2009. Despite this growth, Australian household expenditure on internet retailing is still
relatively low in international terms. Currently there are four DVD-by-mail companies including
Quickflix in Australia (Table 1).

Pay TV in Australia is delivered either through cable or satellite for a monthly
subscription fee. FOXTEL is Australia's leading subscription television provider and is
connected to over 1.63 million subscribing households through retail and wholesale distribution.

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FOXTEL commenced distributing its services on cable with 20 channels in 1995 and increased
its offering to 45 channels in 2002. The FOXTEL Digital service was launched in 2004 and
FOXTEL is now giving Australian viewers the choice of more than 200 digital channels.

Table 1: Summary of Australian Online DVD Rental companies
Company Name DVD Titles Summary
Big Pond Movies 44,000 Inception since 2003 by Telstra and have distribution network all
over Australia. Introduced the ability to buy movies online, which
can be downloaded and played on the computer for a limited amount
of time. Only service which offers a 12 month contract.
DVD Direct 10,000 Inception since 2002 operating in WA. Only service which offers
both DVD and video game rental and sales service.
WebFlicks 17,000 Inception since 2003 operating from two distribution centres.

The global entertainment market
The Global Entertainment & Media (E&M) industry has grown 2.2% in 2009 and was
valued at US$13 billion. The E&M industry is dominated by TV, print and filmed entertainment,
and the majority of revenues came from the non-digital segment. However, due to the increasing
access to Internet, broadband and smartphone, the E&M industry is expected to continue to
migrate to digital format. In 2009, digital accounted for 24% of spending and is expected to rise
to 32-33% by 2014. It is expected that, globally, in the next five years, digital technology will
progressively increase dominance.

In overall, the E&M industry in North America, EMEA (Europe, Middle East, Africa),
Asia Pacific, and Latin America will increase from $1.3 trillion in 2009 to $1.7 trillion in 2014,
growing at a compounded annual rate of 5%. Spending in Asia Pacific increased by 1.3% in
2009 and will average 6.4% compounded annually through 2014, rising to $475 billion in 2014
from $348 billion in 2009. Excluding Japan, Asia Pacific will increase at a projected 9.2%
compound annual rate during the next five years. Therefore, the global E&M market outlook is
promising.

DECISION POINT
On 5 of July 2011, Quickflix entered into an agreement with its competitor Big Pond Movies
who announced that it was shutting down its DVD-by-mail business on 30 September 2011. This

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agreement provides additional payments from BigPond Movies DVD customers transferring to
Quickflix and the BigPond Movies DVD library acquisition. Therefore, with success in the
home-market and enormous control of market share, Quikflix has started to consider
international expansion. The market of India with the size of its entertainment industry,
popularity of Bollywood in Mumbai and distribution system in place has presented an exciting
opportunity for Quickflix.

INDIA
Entering the Indian market presents both challenges and opportunities for Quickflix.
India covers an area of 3.3 million sq. Km (Exhibit 1), extending from the snow-covered
Himalayan heights to the tropical rain forests of the South, and is the seventh largest country in
the world (CIA, 2011). India is the second largest country in the world by population which
supports currently 1.18 billion people (CIA, 2011). Internet and technology are embraced by the
younger generation with a median age of just 26.2 years in the country. As one of the most
important emerging markets in the world and the opportunity to build a regional brand in Asia-
Pacific, the potential market for Quickflix is present. However, Quickflix will also face
challenges such as regulatory inefficiencies, poor infrastructure, piracy and cultural distance
between India and Australia.

GOVERNMENT DRIVERS

Political System
India is a democratic country with a federal republic government of 25 states and seven
union territories. The president of India is the head of the republic and the first commander of
chief of India‘s armed forces (UBC, 2008).The United Progressive Alliance (UPA) won the
election in 2007 with their left centred politics and nominated Smt. Pratibha Devisingh Patil as
the first female president of India.

Political and Regulation Barriers and Risk
Corruption presents one of the largest political risks to foreign investment in India.
Corruption involves government officials accepting bribes to give advantage to private
businesses to reduce regulation and accelerate legislation process (Collins et al., 2009). India
experienced a major scandal in 2010 involving 122 licenses for 85 MNCs that were under priced

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and manipulated to favour some companies. This scandal cost the Indian government US$39.33
billion (BMI, 2011).Despite the high corruption rate, anti-corruption movements have also
flourished involving thousands of anti-corruption activists (Suri, 2011).

India also ranked relatively high for its ineffective governmental processes that hinder
smooth and effective practice (Morris, 2010). For example, there were 597 infrastructure projects
facing delays in 2010 (BMI, 2011).

Another challenge is the change in government and the constant discussions and conflicts
between caste, religion, socialists, leftists and capitals which leads to the rules being changed
randomly. Though the Indian market welcomes foreign enterprises, they also have nationalistic
laws that protect India‘s local businesses (UBC, 2008).

India has recently reformed its FDI policy allowing foreign firms to invest directly in
India either on their own by setting up a branch office or wholly-owned subsidiary or as a joint
venture with an Indian partner (Ernst&Young, 2010). This reform is meant to encourage
investment and allow foreign firms to invest without prior government approval (Khan, 2011).
FDI up to 100% is allowed to proceed under the automatic route for most sectors except for retail
trading (RBI, 2010). India allows only 51% of FDI in single brand retail and no FDI is permitted
for multi-brand retail (Guruswamy et al., 2010). Exhibit 15 in the appendix provides a summary
on the level of FDI allowed in the E&M industry.

Trade Blocs
Being the leader of the developing world and the Non-Aligned Movements (NAM), India
strengthens its political and commercial ties with United States, Japan, the European Union
(EU), Iran, China, the Association of Southeast Asian Nations (ASEAN) , the South Asian
Association for Regional Cooperation (SAARC) , the World Trade Organization (WTO) and has
remain a long participant in United Nations (UN) peacekeeping operations (State, 2010).

Historical Context

When India became independent in 1947, the signs for prosperity and growth were
propitious; it had a large domestic market, a diversified natural resource base, large supplies of
skilled and semi-skilled labour, sufficient home-grown entrepreneurship, an efficient

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bureaucracy and a political leadership seemingly committed to development (Lal, 1999).
However, the next few decades were characterised by strong centralised planning, government
ownership of key industries, excessive regulation of private enterprise, trade protection and a
general ‗inward-looking‘ economical approach(Prasad, 2008). In 1991, India started to change its
economic policy by privatising government-owned firms, mobilising the labour market,
introducing automatic approval of foreign investment and lifting import restrictions on
intermediate and capital goods (Lal, 1999) .

Gross Domestic Product (GDP)

India is ranked as one of the top economies in the world in terms of purchasing power
parity (PPP) of the Gross Domestic Product (Figure 2).

Figure 2: India GDP growth rate (TradingEconomics 2011).

As you can see from Figure 2, India‘s GDP has been relatively robust over the years. The

average GDP rate from 2004 to 2010 was 8.4% with highest point of 10.1% in 2006 and lowest
point of 5.5% in 2004. GDP growth has slowed towards the end of 2008 and early 2009 due to
the global financial crisis. However, India‘s economy has recovered and GDP expanded to 7.8%
by the end of the first quarter in 2011 (TradingEconomics, 2001).Despite the robust GDP
growth, income distribution is highly unequal in India. The top 10% of the population earns 31%
of the country‘s income and the lowest 10% earns merely 3.6% (InternationalBusiness, 2011).

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Employment

Unemployment rate fell from 9.2% in 2005 to 8.6% in 2008. However, it rose again in
2009 to 9.1% due to the global financial crisis. An increase in unemployment leads to a decrease
in consumer spending, since there are no unemployment benefits that one can claim in India.
Unemployment rates were particularly high among the 25-29 years old age groups (21%) and 30-
34 year olds (17%) with these age groups representing the majority of workforce for the IT
sector. However, the economy has since recovered with as many as 230,000 jobs are estimated to
be created in 2010 in healthcare, real estate, IT, education, manufacturing and Banking, Financial
Services and Insurance (BFSI) sectors (Euromonitor, 2010c) .

Disposable Income

Disposable income per capita in India grew by 11% from Rs36,020 in 2005 to Rs39,857
in 2009 (Euromonitor, 2010c) .The biggest growth is seen in the middle income households with
disposable income between US$10,000 and US$25,000, which constituted 5.4% of the total
households in 2009. This proportion has increased from 2.6% in 2005 (a growth of 127%). The
second highest rise can be seen in households with disposable income between US$5,000 and
US$10,000, which constituted 22.4% of the total households in 2009. This proportion has
increased from 12.9% in 2005 (a growth of 86%). The proportion of well-off households, those
with an income above US$25,000, has increased from 1.0% in 2005 to 1.5% in 2009
(Euromonitor, 2010c) .

In 2009, the highest earners were the 35-44 year olds, followed by the 25-29 year olds.
The rise in average income of the 25-29 age group can be attributed to growth of the information
technology enabled services (ITES) sector, which has created employment for people in this age
group. In addition, this age group prefers to complete their education to a Masters level and this
allows them to obtain higher salary (Euromonitor, 2010c) .

Inflation Rate

Inflation rates have increased to all-time high levels in recent years. Driven
predominantly by higher food and fuel prices, India's annual inflation rose from 1.4% in May
2009 to 10.2% in May 2010. The high inflation rate implied a significant reduction in household

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disposable income (Euromonitor, 2010c) .Forecasts for India's 2011/12 inflation are set at 7.9%,
on the back of surging oil prices globally and heightened demand side pressures
(moneycontrol.com, 2011).

Savings rate

Indians consider savings as highly important, especially for the education of their
children and for retirement support. Around a third (34%) of their monthly income goes in
various forms of savings. According to the Central Statistical Organisation (CSO) Indians are
among the largest savers in the world with a savings rate of 32.5% of GDP in 2008-2009
(Euromonitor, 2010c). Financial savings constituted around 50% of household savings in 2008-
2009. The share of bank deposits in financial savings, increased from 33% in 2000-2001 to 55%
in 2008-2009. (Euromonitor, 2010c).

MARKET DRIVERS

Social and Cultural Barriers
India has a diverse culture with several different ethnic groups with various customs and
behaviour patterns. Hindu is the main religion practiced in India but Christianity, Islam, Sikhism,
Buddhism and Jainism are also practiced. The caste system is also widely accepted within the
Indian society. The caste system is a hierarchy that places individuals from birth into distinct
categories. Social responsibility and appropriate work are assigned for individuals within the
categories (Manian, 2011). Although this type of discrimination exists, in urban India different
classes work side-by-side and foreigners are not expected to treat individuals of different classes
differently (Manian, 2011). It is not uncommon, however, for local leaders to give orders to less
superior caste employees who then follow these without question (Nehruzii).

The British colonisation of India has had a significant impact on language (Mahtani,
2006). Hindu is the most common language spoken in India, but people are often trilingual with
the mix of Hindu, local language and English. There are 18 official languages recorded in India
and more than 1600 local languages. 15 % of the population speaks English although the
language is modified to suite the Indian culture. India also has the highest illiteracy rate in the
world (which represents approximately 33.8% of its population).

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Doing business in India
Being aware of cross-cultural communication barriers is important when doing business
in India (Mahtani, 2006). The word ‗no‘ is perceived as confronting, hence negotiations can be
ambiguous (Mahtani, 2006). Messages in communication are at times misunderstood e.g.
western people might utter ‗that‘s impossible‘ meaning a challengeable task (Mahtani, 2006),
whereas the same message can be interpreted in India as an unaccomplishable task. Body
language and humour are also culture related. Body language is essential due to the implicit high
context culture of India.

It is not uncommon for business meetings to be delayed in India. Although there can be
legitimate reason for the delays, to an extent the delay is cultural related (Mahtani, 2006). It is
also essential to establish good relationships between expatriates and their host counterparts
because trust and social power is seen as important for future successful business. Due to the
legacy of the caste system, it is common to address leaders as Mr and Mrs and either first name
or second name. The formality is there to keep a distance between work and social life.
However, relationship is still prioritised before business(Nehruzii).

Business meetings can be perceived as laid back and informal. It is common to have
frequent interruptions, food during the meeting, and small talk between participants. Meetings
can therefore take more time and be perceived as ineffective, but it is part of building trust
(Nehruzii). Dress codes in India are similar to Western style, however it is important for women
not to expose too much skin (Nehruzii).

Consumer Purchasing Habits
Indian consumer expenditure grew steadily by 22.5% between 2005 and 2009 as income
levels increased. India is forecasted to become the fifth largest consumer market in the world by
2025 with an expenditure market of US$ 1.7 trillion from US$430 billion in 2009 (Euromonitor,
2010a).As can be seen in Figure 3, expenditure on DVDs and VCDs is placed fifth in the
hierarchy above categories such as eating out, accessories, home line accessories and going to
the movies and theatre (Singhal, 2009).

Spending time with family and watching TV together is highly valued as leisure activities
in India (Euromonitor, 2010b) .In cities such as Delhi, Mumbai and Kolkata, households watch

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15 hours of television per week. Women that stay at home watch in excess of 2 hours of
television daily in the afternoon, which has impact on the television broadcasting during the
afternoon. India‘s soap operas with Indian actresses, scenes and spoken in Hindu are usually
telecasted during the afternoon. Indian youths spend 98 min a day on average watching
television, 32 minutes reading news, 44 minutes reading magazines, 70 minutes surfing the
Internet and 61 minutes listening to the radio (Euromonitor, 2010a).

Figure 3: Categories of consumption in India (Singhal, 2009).

Movie rentals from mom-and-pops operations are becoming part of the past (Prasoon,
2010). A recent study conducted in cooperation with Bigflix states that the Indian DVD
consumers within 18-35 years age group prefer online rental. The main reasons for this attraction
were convenience, price, variety and privacy. Table 2 summarise the finding of the research.

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Table 2: Summary of findings on Indian Online DVD Rental consumers
Cost at which DVD are bought by the companies Rs 300
Average run by a copy 20 consumers
Cost of renting one movie Rs 15
Average numbers of movies ordered 12
Courier charges per delivery Rs 2
Cost of supplying movies per month per to costumers Rs204
Average monthly plan prescribed by costumer Rs 650
Net profit margin Rs 446

Mobile and Internet Usage
Indian consumers have a remarkable appetite for digital content. In fact, they consume an
average of 4.5 hours of it daily across offline channels such as television, DVDs, and CDs. This is
being driven by a market of 826.93 million mobile phone users with 66 percent being in the urban
areas. However, just 17 million are mobile-internet users (or less than 1percent of the total
population) but this is growing tremendously. India has 12 telecommunication firms offering
mobile phone internet access.While India is a relatively poor country, more than 70 percent of its
urban consumers already spend about $1 a month on content and services through offline,
unorganized retail channels—a market estimated to be worth more than $4 billion annually. The
average price of smart phones that deliver much richer content, including video, is falling rapidly
already nearing $125, which is significantly less than the cost of PCs. Mobile devices also are
inherently easier to operate than PCs, and the ability to access web sites with a single touch or a
voice command. The mobile Internet could deliver the personalized entertainment that Indian
consumers crave. If India‘s latent demand is unleashed, the total number of Internet users will
increase more than fivefold, to 450 million, and total digital-content consumption will double, to
as much as $9.5 billion by 2015 to $20 billion representing 184.5 million mobile internet users
(Figure 4).

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Figure 4: Share of Internet use by channel in India Figure 5: Online Video Monthly Figures for
(Narasimhan, 2011) India (Comscore,2010)

India‘s base of 81 million internet users is the world‘s third largest and has been steadily
increasing since 2000 with a projected 100 million users by 2011. However, this figure is a
function of sheer population, not acceptance as this is just 7 percent of the total population in
2010 and 8.5% in 2011 (Figure 4), which means it is one of the lowest penetration rates in Asia.
Furthermore, only 20 percent of India‘s urban citizens are connected to the Internet. This low
rate is driven by the cost and ease of access to Internet services and infrastructure development in
rural areas of India that support broadband establishment or PC availability. In urban area,
however, households PC penetration rate has doubled between 2008 and 2010, which means 28
million people have PCs in their homes. The desirability of obtaining a PC is also rising from
35- 57% within the middle class of India (Manaktala, 2010).

India is currently experiencing a rise in online video content as a result of the increase in
internet users. 71% of the total internet audience consumes videos monthly, resulting in 1.7
billion total videos and 5 total hours per viewer (Figure 5). Most of this time is spent on
YouTube with 78% of all Indian monthly unique viewers where entertainment and multimedia
consist of the top two video categories. Furthermore, 66% of the visitors are males, which are
predominantly in the 15-34 age range, while females account for 34% with a large percentage in
the 35-44 age range (refer to Exhibit 6 for further details). The increase of internet usage has
also changed consumer pattern behaviour. Online shopping is now perceived to be more reliable
and consumer numbers are increasing (Rastogi, 2009). The e-commerce market has increased
from $227.6 billion in 2010 with projections of $395.56 billion in 2011 and $785.12 billion by
2015. However, about 75% of this comes from travel related expenses such as airline and rail

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tickets. Online Retailing comprises about 12.5% of the industry with close to 10 million online
shoppers and is growing at an estimated 30% annually.

Indian consumers choose online shopping mainly because of greater variety in products
and convenience. 46% of consumers buy less than five products annually and around 26% buy
up to ten products annually. Out of these consumers, 61 % pay for goods on delivery, whereas
26% buy and pay for the goods online and the remainder search for products online and purchase
goods in stores. The number of credit cards in India has witnessed noteworthy growth during the
recent years and this is expected to reach around 28 million by 2014, reflecting a CAGR
(compound annual growth rate) of around 13% between 2011 and 2014. However, credit card
penetration is just 2-3% in India, and many consumers are wary about the security of booking
online. Exhibit 5 presents the number of annual credit card transactions in India.

Consumers of the Indian market are used to promotional giveaways. These are often
given in conjunction with purchases of electrical appliances. They come in the form of toiletries
and snacks. Indians are also price sensitive and seek value for money (Chennai, 2005) .However,
Indian consumers are also becoming more service oriented and prefer reliable and quality goods.
Accordingly known brands and organized retail chains are seen as more accountable and have
become increasingly popular. Indians are also becoming more environmentally aware and are
therefore interested in environmental friendly services and products (Chennai, 2005) .The growth
in disposable income has shifted the consumer savings mentality to spending mentality.

Social networking is also popular in India. There are more than 29 million Facebook
users in India, and 75.9% of them are in the 18-34 age group. This is growing at 10.71%
monthly, representing a penetration of 2.51%. Mumbai alone has around 3.6 million Facebook
users representing 18.8% penetration rate (SocialBakers, 2011) .Furthermore, Indian users are
the 2nd most populous country on Linkedin with over 10 million users representing a 0.89%
penetration rate and Orkut also has over 20 million Indian users accounting for a 20.2% market
share.

Consumer Perceptions of Local and Foreign Products
India‘s entertainment and media market is booming. Indians tend to prefer Bollywood to
Hollywood movies. Bollywood movies are usually musicals with melodramatic story lines. The

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success of the movie is largely dependent on the quality of song and dance presented.
Bollywood movies are unrated and children usually watch the movies together with their
families. However, the demands for Hollywood movies, western fashion and music are also
growing. Exhibit 7 in the appendix outlines the preferred movie type, language and source by the
Indian population.

COMPETITION DRIVERS

Domestic Competition
India‘s domestic media and entertainment industry has increased by 11% to $14.5 billion
(Rs 652 billion) in 2010 with an estimated growth of 12.4% to $23.15 billion ($1.040 Rs trillion)
by 2014 (Exhibit 4). The industry, however, still continues to be dominated by traditional media
such as television, print and filmed entertainment. Furthermore, digital spending in India has not
been growing at the same pace as that internationally due to the lack of adequate digital
infrastructure . However, Internet advertising is expected to increase to Rs 15 billion by 2014
representing a 20% growth. Quickflix‘s entry into the Indian market will be impacted by direct
competitors in the home video segment and indirect competitors in television, digital streaming
and cinema from both domestic and international companies.

Home Video Segment
The home video segment in India represented revenues of Rs. 6.5 billion in 2009 and is
expected to grow to Rs. 12 billion in 2014. India is heavily affected by piracy which accounts for
600 million DVDs sold annually representing $1 billion dollars worth of revenue
(FilmIndustryNetwork.Biz, 2010). Increasing initiatives by the Government to curb piracy as
well as decreasing dependence on rental market and growing digitisation will drive the home
video market.

There are currently five major domestic competitors in the online DVD rental space in
India which include BigFlix, SeventyMM, Clixflix, Cinesprite and M (Exhibit 8). However,
unlike online DVD rental companies in other countries, Indian companies individually charge a
security deposit, registration fee and membership fee ranging from Rs. 150 to Rs. 500.
Furthermore, the business format in India comprised of both online and physical retailing with a
business model of sell-through from rental (Figure 6). Sell-through from rental accounted for

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100% of sales in 2004 and is expected it will capture 90% of the market by 2014. This will
inherently lead to sharp declines in rental spending (PWC, 2010).

Figure 6: Typical India Home Video Value Chain (PWC 2010).

Digital Streaming
The digital streaming rental segment in India started slowly in the early 2000s but in
2008 expanded with iTunes India and now has included major players Big Flix, SeventyMM,
Eros and Shemaroo. However, in India, only limited episodes of a few TV shows are streamed
online legally, but movie production houses and distributors on the other hand are slowly opting
to make full length feature films available on the Internet and their choice for distribution seems
to be YouTube (Zdnet, 2011). The cost for streaming a movie online in India ranges from $1 to
$2 (Rs. 38.2 to 68) per view, which include the content rights fee of Rs. 20 to Rs. 50 and
bandwidth and server costs.

Cinema
Watching movies is the most popular social activity across all socio-economic classes in
India and over fourteen million people attend movie sessions daily, representing about 1.4% of
the population. Driving the film industry in India has been the Bollywood genre, which is the
largest film producer in India and one of the largest centres of film production in the world.
There are 10,000 theatres in India, comprised of multiplexes and single screen theatres. The
Cinema market is dominated by two domestic major players, Big Cinemas and PVR Cinemas
and an international player, Cinepolis from Mexico (Exhibit 9).

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In the last three years there has been a decline in the industry of box office revenues by
20% from $2.3 billion in 2008 to $1.85 billion in 2010 which can be contributed to the economic
slowdown and a major strike in the multiplex industry in 2009. However, the Indian film
industry is projected to grow 12.4% over the next five years, with a focus on regional areas.

Television
The television industry in India is an integral aspect of family tradition. As a result,
television households escalated to 124 million in 2009 from 118 million in 2008, indicating a
penetration rate of 60% within the country. The industry is projected to continue to be the major
contributor to overall industry revenues and is estimated to grow at a healthy rate of 13.0%
cumulatively over the next 5 years. Subscription revenues form the biggest share of revenues for
the television industry, accounting for 62%, while the rest goes to advertisement and content
revenues. India is dominated by five cable television networks and one government owned free
to air network (Exhibit 10).

International Competition
International competition in the Indian market has also been prevalent in recent years
through a number of acquisitions and mergers as well as the presence in India from the top six
motion picture studios of 20th Century Fox, Warner Brothers, Disney, Paramount Pictures,
Universal and Sony Pictures. The US and International film industry in India had an estimated
size of Rs 3 billion ($66 million) in 2009 and is expected to increase steadily. Sony Pictures
Televisions International (SPTI), recently, acquired Channel 8, a Bengali language film channel
to mark its increase presence in the regional space. Disney has also distributed three channels
devoted to the children market in India.

Marketing and Promotional Strategies
Quickflix must recognize the most suitable and effective ways of marketing and
promoting itself to Indian consumers, if it was going to set up its online DVD operations and
service in India. They need to position themselves as an affordable low cost product offering an
extensive library of titles, guaranteed and speedy delivery and a high-quality and reliable
technology platform. Furthermore, the Indian consumers are also very interested in ease of
access and the complete user experience, which is reflected in the fact that a majority of online
DVD companies have established either physical stores or drop boxes to complement their

Page 20


website service. These stores and drop boxes are located in high traffic areas such as malls and
are concentrated in larger cities such as Mumbai, Delhi, and Bangalore which can act as a
vehicle to increase the company‘s brand awareness and some even offer free trial promotions.

A traditional marketing strategy has been around the bundling of services including
rental, sell-through and the availability of up to 15,000 titles of international and Indian
languages. Another marketing channel has been the use of 3rd party logistic services for delivery
which provides a highly visible presence and promotion of the company and its website through
their vehicles and even some rickshaws throughout each of the cities. Furthermore, the websites
of online DVD companies in India in conjunction with its digital streaming services have been
adapted to act as a platform for increasing brand awareness and technology expertise by offering
the ability to watch upcoming movie trailers thus driving traffic. The emergence of social media
has also been an integral medium for marketing and promotions through contests and branding
and banner advertising on Facebook, Orkut and Linkedin (Exhibit 11). BigFlix has expanded its
presence on Facebook with 34,710 Facebook fans representing 3.26% growth and even have
included an application for users to download to add movies to their queues. Furthermore,
SeventyMM has 17,360 Facebook fans and have been running 25% off sales and 75% off rentals
mobile coupons to fans who ―like‖ their page in cooperation with Mastercard and the Mumbai
Indians of the India Premier League.

In India, advertising is still controlled by the three main mediums of television, print and
outdoor advertising. Although the popularity of these three mediums in India is extremely high,
the prices are very expensive. Star India charges RS 90,000 to 450,000 for a 10 second television
advertising spot and during the recent Cricket World Cup rates increased to as much as 1.7
million rupees for a 10 second spot. However, both SeventyMM and BigFlix have continued to
invest in majority television advertising with numerous campaigns. BigFlix even received some
recognition for their very successful campaign titled ―Don‘t kill blockbusters. Choose original
DVDs over pirated ones‖, which was complemented with television and print advertising.
Furthermore, Online DVD companies have also been using local television and print to launch
new products and services at hotels and clubs through celebrity endorsements. Lastly, internet
marketing has been increasing due to its cost-effective and tracking metrics where MovieMart
has focused solely on search engine marketing through Google India.

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COST FACTORS

Setting up a Business
India is ranked 134 out of 183 economies in the ease of doing business with Singapore
being the top ranked nation (IFC, 2011). Setting up a business in India is very challenging and
difficult due to their long delays in legal formalities and procedures (Exhibit 12).

Despite the poor rank, starting up a business in India has improved recently due to the
computerisation method introduced by the government. It takes an average 29 days to start a
business and only 12 initial procedures are required with cost as low as USD 560 (IFC, 2011).
However, the estimate excludes procedures of dealing with permits, registering property, trading
across borders, enforcing a contract, getting electricity, employing workers and closing a
business. These activities can take years for foreign firms to complete. However, average total
costs that foreign firm can spend is limited up to USD 4000 (IFC, 2011).

Location Factors
India stands apart from the rest of Asia, surrounded by mountains and the sea, which
gives the country a distinct geographical entity (India.gov.in, 2011). Well-plugged information
can easily be found in localized business areas such as New Delhi , Mumbai , Chennai ,
Ahmedabad , Bangalore and Calcutta (Buyusa.gov, 2011) . In addition to these cities, there are
30 other cities in India with a population of more than 1 million people. Each of them has its own
unique advantages and drawbacks.

Relative cost of real estate is rising fast across India with Mumbai ranked as the 4th most
expensive market in terms of office space rentals in the world and New Delhi the 11th (ET,
2010) . Occupancy cost per square feet in Mumbai is USD130.41 annually, while that of New
Delhi is USD 101.21. However, rents have started to stabilize slowly since 2010.

Distribution System
Distribution systems in India involve many intermediaries between companies and retail
customers. Multiple channels and multiple layers are common; although each layer may be
relatively inexpensive, the cumulative costs can be substantial (Bhalla et al., 2007). This system
is designed to isolate foreign companies from end-customers and their changing preferences.

Page 22


India‘s retail sector also ranks among the lowest in terms of organised distribution system in the
world1 (EconomyWatch, 2011).

Availability of Labour Law and Labour Costs
With a rapidly growing middle-class, demand for education is high among all levels
(Kumar, 2010). Despite India‘s high illiteracy rate, there are currently over 100,000 Indian
foreign students studying abroad in the USA (Euromonitor, 2010b).Hence there is an abundance
of law, engineering, management, and science graduates available for foreign businesses in
India. With the recent downturn in the United States, more English speaking foreign students are
returning to India to complete their studies.

While many foreign companies are initially attracted to India because of the low labour
costs, low health workers‘ compensation and other insurance costs, the basic yearly salaries in
India differ with regards to their position and job nature. The salary of a managerial position can
go as high as USD 225,000 or as low as USD 5,500 per year (CCI, 2011) . According to the CCI
database, a marketing and sales person earns as high as USD 110,000 basic salary a year and can
go as low as USD 2,200 a year for junior levels, whereas the minimum average salary of
administrative job is about USD 2,000 per annum but an executive salary could earn USD
10,000 a year.

Expatriate and Repatriation Cost and Training
Expatriates in India are among the highest paid globally, and many expats receive
relocation packages, including monthly complimentary rent housing up to Rs 600,000
(Hattaway, 2011). However, cost of living in India can be relatively high particularly in Mumbai
and New Delhi due to the high property prices.

Expats residing in India must pay income tax, which is calculated on a progressive scale.
There is no tax on salaries less than Rs 160,000 per year; 10% on an amount earned between Rs

1
Distribution in the retail sector especially is measured by the reach of its products to people and implies
the dispersion among the organised and unorganised stores ECONOMYWATCH. 2011. Retail Distribution in India
[Online]. Economy Watch. Available: http://www.economywatch.com/business-and-economy/retail-distribution-
india.html [Accessed 6th July 2011 2011].. Retail store is nominated as organised only when it features more than
10 employees.

Page 23


160,000 and Rs 300,000; 20% on an amount earned between Rs 314,000 and Rs 500,000 and
30% on an amount earned above Rs 500,000 (Hattaway, 2011).

Infrastructure: Power, Telecommunication and Transport
India‘s power generation is estimated to be around 174.3 GW, with the private sector
contributing around 21% of the capacity. Even with increases in the last few years, power
generation has not kept pace with the growth in demand, which has resulted in power shortages
throughout the country. Hence most factories and offices require backup power in the form of
diesel-fired generators and batteries (IFC, 2011). In addition, the costs of setting up an electricity
connection in a newly constructed building may reach up to Rs 200,000. The Indian Minister of
Power, however, has set a goal to deliver ―Power for All by 2012‖ (Powermin, 2011).

Currently, almost half of the population does not have access to electricity (Euromonitor,
2010b).

Within a population of 1.18 billion people, India represents the world‘s largest
technology, communications and media market. Since the liberalisation of the
telecommunications market in the early 1990s, the national incumbent (BSNL) still controls 75%
of the Indian fixed-line market. Fixed-line telephones connection is still one of the lowest in the
world at 18.8% in 2009. This has grown from 13% in 2004, largely due to the increase in
consumers‘ incomes and strong economic growth. Internet connection is relatively expensive in
India and only 2.8% of Indian households had a broadband connection in 2009 (Exhibit 13). The
government, however, has set out a policy to connect India‘s rural population to the digital
network, along with its district offices. It is forecasted that more than 15% Indian households
will have access to Broadband connection by 2017 (Exhibit 14).

India has the fastest growing market for mobile phones. Household possession of mobile
phones was 18.4% in 2009. There was a good GSM network coverage of about 70% of the
country in 2010 with a current 3G network being planned for the near future (BBC, 2010).
However the plan costs approximately US$1.0 billion to implement, which will be a major issue
for 3G operators in India.

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Financial Institutions and Foreign Exchange Restrictions
The banking sector has experienced extensive reforms since the 1990s. This has resulted
in more competition, although the public sector still dominates. Other types of entities in this
sector include the private sector and foreign banks (Chakrabarti et al., 2008). The rupee is freely
allowed to be exchanged on the trade market by foreign companies. In addition, any foreign
capital invested in India is allowed to expatriated, along with any profits or dividends, provided
any taxes have been paid.

Availability of Energy Resources
India suffers from a shortage of domestic fossil fuels required to meet the energy
demands. Fossil fuels provide up to 65% of the energy output required to meet energy demand.
The Ministry of Power estimates that by 2020, over half of fossil fuels required to meet energy
demand will have to be imported. Coal, oil and gas supplies are slowly diminishing. The
government is looking to renewable and nuclear energy to continue to meet the growing demand
of a burgeoning population.

Accounting and Legal System
The accounting and legal systems in India are well established, albeit slow-moving
(2009). The system is based on British law and legal system. India has a written constitution
and is based on common law with individual and property rights. The major laws affecting
foreign investment are the Foreign Exchange Management Act 1992; the Companies Act of 1956
and the Competition Act of 2002 (Rathinasamy et al., 2003).

India has strong labour laws that make it difficult for an employer to arbitrarily remove
and mobilise employees. They also varies with different states , territories and districts (Carver,
2010). Other laws include protections of intellectual property rights, anti-trust regulation,
Negotiable Instruments Act 1881, the Sale of Goods Act 1930 and the Arbitration and
Conciliation Act 1996. This varied and complex nature of business investment, accounting and
tax laws ensures a tough time is in store for any new foreign business in India.

The accounting standards in India are developed and issued by the Institute of Chartered
Accountants of India (ICAI). The government has proposed a move to accept the International
Financial Reporting Standards (IFRS) over the next few years which will be an advantage for

Page 25


foreign companies moving into India. The ICAI may even allow foreign companies to issue
yearly reports based on these international standards even before it becomes mandatory to do so.

India‘s entertainment law includes the copyright law of 1957 which says that copyright is
a right granted under law to creators of literacy, dramatic, musical and artistic works and
producers of cinematograph films and sound recording in respect of their creation. Copyright
ensures certain minimum safeguards of the rights of authors over their creation thereby
protecting and rewarding creativity (Copyright.gov.in, 2009).The creation of ―rental right‖ in the
act in 1994 for copies of films , sound recordings and computer software was one major
improvement (LexisNexis, 2009) . The 1994 Amendment stated that the copyright owner would
have the exclusive right to control the resale and/or hire of a copy of a film or sound recording
even after its first sale (EBC, 2010) . This has prevented the development of a legitimate second-
hand market in films without the consent of copyright owners and disallowed the recognition of
the first sale doctrine. In 2000, the information technology act was amended which provides that
if any person without permission of the owner or any other person who is in charge of a
computer, computer system or computer network shall be liable to pay damages by way of
compensation to the person so affected for the following: If they engage in the business of
downloads, copies or extracts any data, computer data base or information from such computer,
computer system or computer network including information or data held or stored in any
removable storage medium (Copyright.gov.in, 2009).However , India has not yet enacted
legislation on protecting technological measures and digital rights management information that
conform with the Internet treaties (LexisNexis, 2009).

Taxation Issues
The corporate income tax effective rate for domestic firms is 30% while the profits of
branches in India of foreign companies are taxed at 40%. 7.5% surcharge also applies to
domestic companies and 2.5% for foreign companies if income exceeds Rs 10 million (Deloitte,
2011). Companies incorporated in India (any setup other than a branch) even with 100% foreign
ownership, are considered domestic companies under the Indian laws.

However, the Export-Import Policy of 1992 provides substantial tax incentives for
investments in export. Major exporters are allowed to operate bank accounts abroad to facilitate
trade. Companies that sell in the Indian market as well as international markets may deduct

Page 26


export earnings from their tax liabilities. Exporters and other foreign exchange earners have been
permitted to retain 25% of their foreign exchange earnings in foreign currency. For 100% Export
Oriented Units and units in Export Processing Zones, Electronic Hardware Technology Parks,
retention up to 50% is allowed (Outsource2India, 2011).

The government is attempting to implement a uniform value-added tax across states ; the
system is currently plagued with differential tax rates for various states leading to increased costs
and complexities in establishing an effective distribution network (Bhalla et al., 2007).

Availability of domestic capital market to local and foreign business
Doing Business in India 2011 has ranked India 32 out of 184 in ―Getting Credit‖. A fully
functioning and well regulated banking sector exists for local and foreign companies alike to
obtain credit from the domestic market. The credit market is robust with a wide range of
financial institutions to choose from. The capital markets are run by the Securities and Exchange
Board of India (SEBI) and now rank as some of the most mature markets in the world.

ENTRY STRATEGY
One of the most critical decisions associated with a firm‘s international strategy is the choice
of foreign entry mode. Many factors will affect the foreign market entry choice including the
cultural, legal, political and economic environments. In addition, host-country market size and
market potential will also contribute to the method of foreign market entry. There are numerous
modes of entry to a foreign market for a firm; however they are not all mutually exclusive. In
any market (or country), one firm could avail itself of more than one entry mode. Different
modes suit different firms at different times and in different markets. However, the main factors
that decide which mode of foreign entry is chosen are ‗degree of control‘ and ‗resource
commitment‘. For Quickflix, there appears to be only three options available under the current
market conditions.

1. Establishing a wholly owned subsidiary in one or several of the major markets in India
(for example Mumbai, Chennai, Delhi);
2. Entering into a joint venture (JV) with a local distribution agent;
3. Not to enter the Indian domestic market at this stage.

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CASE STUDY ANALYSIS

Strategy – Structure – People - Performance

General Business Environment Market and Competition Factors
• PESTLE • Porter’s 5 Forces
• Hofstede Cultural Dimensions

Entry Strategy
Ethics • Joint Venture with Local
• Corruption Partner:
• Location of Entry: Mumbai
• Negotiation Process

Organisational Structure People
• Porter’s Generic Strategies • 5 Model Factor I-HRM
• Porter’s Value Chain • MBI Model

Performance

Figure 7: Strategy-Structure-People-Performance (Ganganahalli,, 2011)

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INTRODUCTION
This part of our report consists of an analysis of the case study presented in Part A. This
section identifies the critical issues faced by Quickflix‘s entry into the Indian market, and uses
appropriate theoretical concepts and international management models to evaluate the
international strategies and processes applicable to Quickflix.

Our analysis is based on a modified version of the ―Strategy-Structure-People-
Performance‖ framework, developed by Michael Porter (Ganganahalli, 2011). Each section of
this framework ties in together to deliver our conclusion and recommendations.

A summary of the recommendations are made (both short term and long term) at the end
of this section, in addition to a conclusion regarding the method of entry into this market.

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GENERAL BUSINESS ENVIRONMENT
There are many factors that can influence a company when entering a new market in a
foreign country. The PESTL analysis framework is developed to capture these elements in
political, economical, technological and legal aspects (Table 3). The PESTL analysis is very
useful for Quickflix in strategic planning, marketing, research and development (Kotler, 1998).

Table 3: PESTL Analysis

Political
 Stable democratic politic environment
 Corruption is one of the largest risk factors for investors – High corruption rate
 Anti-corruption movements
 Governmental bureaucracy
 Random change of rules and regulations
 100% FDI allowed to proceed in entertainment industry.
 Considered the leader of developing world
 Trade blocs such as NAM , EU , ASEAN , SAARC , WTO and UN
 Long delays in legal business procedures to set up a business in India are common
 On average, 29 days and 12 procedures are required to start business
 Business areas are New Delhi, Mumbai, Chennai, Ahmedabad, Bangalore and Calcutta

Economical
 2nd largest country in the world - population supports 1.18 billion people
 One of the top economies in the world in terms of purchasing power of gross domestic
product
 India‘s GDP expanded to 7.8% by the end of the first quarter in 2011. The average GDP rate
from 2004 to 2010 was 8.4%
 Disposable income per capita is growing, especially in the middle income households
 Rise in average income of 25-29 age group attributed to growth of the information technology
enabled services (ITES) sector
 Inflation rate rose from 1.4% in May 2009 to 10.2% in May 2010
 34% of monthly income in various savings
 The corporate income tax effective rate for domestic firms is 30%
 The profits of branches in India of foreign companies are taxed at 40%
 High unemployment rates among the age group of 25-29 and 30-34 representing IT workforce
 India is among the largest savers in the world with savings rate of household savings in 2008-
2009

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Social and Cultural
 7th largest country in the world, covers an area of 3.3 million sq. km
 Population median age is 26.2 years
 Diverse culture with different ethnic groups
 Language barrier: Most common language spoken is Hindu, though 15% speak English
 India has the highest illiterate rate in world
 Working environment is highly hierarchal due to the cast system where Indian leaders
delegate and demand without being questioned. Foreigners are not to treat individuals in low
rank cast differently.
 The word ―No‖ is perceived as confronting
 Delay in business meetings is not uncommon
 Important to establish relationship with business counterparts before business is conducted
 Trust and social power is important
 Important to address leaders as Mr and Mrs and either first name or second name
 Laid back and informal business meetings are not uncommon
 Young generation embraces internet and technology
 High valued leisure activities in India are spending time with family and watching TV
together
 High penetration rate among younger generations who rely on Internet
 Real estate in the major cities in India is very expensive and cost of living is high
 There is tension between Pakistan and India over the territorial claim of Kashmir, which
periodically cause outbreak of violence
 There exist longstanding history of violence and breach of human right initiated by the Armed
Forces of India
 ―Quick‖ in Hindi language means any area of the body that is highly sensitive to pain (PMA,
2011).

Technological and Legal
 Power shortages are common
 Half of the population has no access to electricity
 World‘s largest technology, communications and media market
 Fixed line telephone communication is one of the lowest in the world at 18.8% in 2009 but
increasing
 Expensive cost of internet connection
 Fastest growing market for mobile phones
 Micro level transportation systems
 Low level of infrastructure projects
 Will adopt the International Financial Reporting Standards (IFRS) over the next few years
 Retail sector is the most disorganised distribution system in the world
 India has British law and legal system based on common law with individual and property
rights.
 India has stringent labour laws
 Intellectual Property and Content Rights create barriers to entry for foreign companies
 Low labour cost
 India has the highest paid expatriates globally

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MARKET AND COMPETITION FACTORS

Industry Attractiveness
Two things determine your company‘s profitability, namely, the industry in which it
competes and its strategic position in the industry. Strategists need to understand and cope with
competition which includes their view on the five competitive forces that shape the strategy of
rivalry, customers, substitute products, potential entrants and suppliers (Figure 1). Quickflix‘s
entry into India will be impacted by a number of factors including internet penetration, reliable
transport and distribution systems, IP rights and protection, consumer demand and purchase
behaviour (Table 1).

Figure 8: Porter‘s 5 Forces (Porter, 1987)

Table 4: Porter’s 5 Forces (modified by author)

Industry Rivalry Threat Level
 Fierce competition from Online DVD companies in India from two big High
players, Big Flix and SeventyMM
 Numerous small companies operating similar business models Medium
 Growing entertainment industry and home video segment in India Medium

 Increase in media content competitors such as television, retail DVD and High

illegal downloads

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Supplier Power Threat Level
 Reliance on third party packaging, distribution networks and courier services High
 Reliability of payment processing companies and systems Medium
 Control of movie studios and production companies whom control DVD High
release dates, and content rights with different pricing structures
 Internet hosting companies and platforms Low

Buyer Power Threat Level
 Fluctuations in customer demand influenced by release date, celebrity High
appeal, different types of genres, award winners and language formats
 Low switching costs for end users due to numerous competitors High
 Increase of disposable income levels for middle-class people Medium

 Increase in population of 11.1% and 20% for people in their 20s and 30s High

respectively
 Consumer purchasing behaviour of DVD expenditure among all consumer Low

categories
 Low credit card penetration levels for consumers Medium

Threat of New Entrants Threat Level
 Content and Distribution License from film studios and production High
companies
 DVD retailers such as MoserBaer, Eros and Shemaroo moving into the
online DVD market Medium
 Major corruption and bureaucratic red tape to start a business (12 licenses
and 29 days)
 Issues with internet capabilities, technology and bandwidth storage Medium
 Infrastructure (transport, electricity and utilities) in place
 Intellectual Property protection for technology platform and content rights
for DVD library Medium
 Reliability and location issues of distribution and delivery systems and
logistics High

 Complementary products such as television sets and DVD players are
Medium
required for use

Page 33


Threat of Substitutes Threat Level
 Leisure and entertainment alternatives at home such as internet browsing, Medium
digital streaming, books, magazines, video games, radio and television
 Recreational alternatives away from home such as movie theatres, theme Low
parks, sporting events , music concerts, live theatre , restaurants and bars
 New entertainment and media content options (iPad, Google+) Low

COMMUNICATION AND NEGOTIATION
Communication

Cultural distance influences social and business interactions. Therefore, Quickflix needs
to manage these cultural differences in order to avoid miscommunication and other unintended
consequences. Hofstede‘s (1993) cultural dimensions have been used in the analysis to highlight
the different cultural behaviours between Australia and India (Figure 9). As can be seen,
Australia and India differs widely on power distance, long term orientation and individualism.
Quickflix needs to understand the implication of these underlying characteristics when running
its operation in India.

PDI: Power Distance
IDV: Individualism Australia & India Cultural Dimension
MAS: Masculinity
UAI: Uncertainty Avoidance
LTO: Long Term Orientation Australia India
90

77

61 61
56
51
41 39
36
31

PDI IDV MAS UAI LTO

Figure 9: Australia & India Cultural Dimension (Hofstede, 2009)
.
As Indians are a highly collectivist culture, they are generally group-oriented. Asserting
individual preference is seen less important than maintaining harmony even in a business

Page 34


context. Consequently, a direct ‗no‘ answer is never given and open disagreement should be
avoided (Katz, 2008). Building relationships is also important prior to the start of any business
discussions. Due to the difference in long term orientation, Indians will expect commitment to a
longer term business relationship than Australian. In a high power distance culture such as India,
status distinction is highly valued. Hence addressing the appropriate professional or academic
title is very important (Katz, 2008). Status difference can also be observed in daily conversation
between subordinates and supervisors.

Negotiation

Table 5 lists the following aspects of cross-border negotiations with potential Indian joint
venture partners that need to be considered.

Table 5: Aspects of Cross-Border Negotiations for Indian market

Negotiation Aspect Description and Application to India
Attitudes and Styles Negotiations tend to follow formal procedures but
atmosphere tend to be relaxed (Metcalf et al, 2006).

Negotiation style tends to be competitive, but in
overall Indians value long term relationships and seek
for win-win solutions.

Negotiation Pace As India is highly collectivist and power distance,
Quickflix can expect a slow negotiation pace as
decisions are made by the consensus of senior ranking
officials. In addition, there is a strong preference to
develop relationships first before getting into serious
business discussions (Katz, 2008).

Consequently, Quickflix needs to take this into
account during negotiation and a initiate negotiation
process as early as possible in anticipation of the slow
negotiation pace.

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Bargaining The bargaining stage in a negotiation process can be
extensive and price can moved more than 40% from
initial offer to final agreement (Metcalf et al, 2006).
However, overly aggressive bargaining style should be
avoided as it may affect trust.

Decision Making When making decisions, Indian businesspeople tend to
consider personal feeling and emotions (Katz 2008,
Metcalf et al 2006). Therefore, arguments based on
emotional appeals are more convincing than factual
based appeals.

Agreements and Contracts It is important to note that signed contracts may not be
honoured on time, deadlines are viewed as important
but delays can still be expected. Flexibility to change
the condition of the contract is also expected.

ORGANISATIONAL STRUCTURE, PROCESS AND STRATEGY

Organisational Structure
The design of the organisational structure for the JV was based on Porter‘s value chain. The
value chain provides a systematic way to divide the firm into its discrete activities, and thus can
be used to examine how the activities in the firm are and how it could be grouped. Table 6
demonstrates the activities within the value chain in the proposed JV. From the activities
illustrated in Table 6, Figure 10 describes the proposed organisational structure for the JV. The
organisational structure in the JV is grouped into activities under organizational units such as
Marketing, Technology, Services, Finance and Administration which would be directly reporting
to the Chief Executive for the Indian market.

Page 36

Table 6: Value Chain for Quickflix in India

Firm
See figure 10 for detailed organisational structure
Infrastructure
 Software  Expats  Expats  Local full time &
Human Resource
developers –  Local full time &  Locals part time workers
Expat & Locals part time workers
Management  Training &
Development
 Website design  Information  Online payment  Customer
for the India System System Database
Technology
market development  Customer  Customer call
Development  Inventory Control demand centre support
System Indicators System

Margin
 Computer  Computer  Transportation  Media Agency  Call Centre
Hardware and Services Services Services Services
Procurement Software  DVD Suppliers /
Publishers
Inbound Logistics Operations Outbound Marketing & Sales Service
 Website Logistics  Advertising  Customer Service
maintenance  Warehousing  Promotions Representative
 Orders processing  Strategic
 Product Alliances
distribution  Customer
preference search
engine
Notes:

1. Inbound Logistics: Activities associated with receiving, storing and disseminating inputs to the products.
2. Operations: Activities associated with transforming inputs into the final product form.
3. Outbound Logistics: Activities associated with collecting, storing and physically distributing the product to buyers.
4. Marketing and Sales: Activities associated with providing a means by which buyers can purchase the product.
5. Service: Activities associated with providing service to enhance or maintain the value of the product.

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Figure 10: The Proposed Global Geographic Organisational Structure – Quickflix.

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Human Resource Management

Staffing for the JV is an important component in the strategy implementation process. It
is expected that Quickflix will be required to send a few of its Australian based managers to
assist with the business in India. It is important that the selection of expatriates is performed
carefully whereby the potential issues for expats in India taken into consideration. Table 7
illustrates the 5-factor model used to highlight the potential issues for Expats in India.

Table 7: 5 Factor model of I-HRM (Reid 1999)
Factor Potential Issues for Expats in India
Home Company  Appropriate compensation rewarded to international managers
 Lack of in-country support or discrimination to international managers at
different levels
 No future career planning and policies in place for repatriation back into home
country
Local Company & Job  The adaptability of managers to two different organisational cultures resulted
from the JV
 International managers who have gone ―native‖
Expatriate Executive  The selection process should be based on international experience and
willingness to relocate.
 The possibility of experiencing culture shock
Spouse & Family  International managers who have spouses with dual careers and schooling
children
 High cost of living particularly main business areas
 Lack of time and preparation during the relocation process
Country & City Issues  Exposure to government corruptions
 Local violence (the rich and poor gap in the second largest population in the
world behind China)
 Low language barrier (15% of the population speaks English)

International Managers must understand the different cultural perspective and maintain
communication with employees to manage the culture gap. Language in India where only 15%
of the population speaks English can potentially be a huge barrier for managers who wish to
communicate with local employees. Therefore, the MBI model described in Figure 11 shows that
selectively choosing an international manager with cross cultural skills and the appropriate
leadership skills is essential.

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Figure 11: The MBI Model (Lane et al.,2006)

ENTRY STRATEGY

Entry Mode
The decision on the mode of foreign entry is a significant strategic choice for international firms.
The choice of entry modes depends on the required involvement, risk factors, cost and the
returns of investment. Table 8 shows a summary of the five main entry modes into foreign
markets for international firms. Quickflix needs to take into account these factors when making a
decision on how to enter the online DVD rental market in India.

Table 8: Characteristics of Entry Mode

Degree of Systemic Dissemination Resource Cost Returns
Type of Entry Mode Control/ Risk Risk Commitment
Involvement
Moderate Low Low Low Low Low
Export
Low Low High Low Low Low
Licensing

Low Low High Low Low Low
Franchising

Moderate Moderate Moderate Moderate Moderate Moderate
Joint Venture

Wholly Owned High High Low High High High
Subsidiary
Source: Adapted from Phatak et al (2009)

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Quickflix will be mainly looking for an entry mode with medium to high control and
medium to high returns, resulting in international joint venture (IJV) and wholly-owned
subsidiaries (WOS) as the preferred entry mode. Table 9 presents an analysis of the suggested
two entry modes for Quickflix to consider in India.

Table 9: Entry modes advantages and disadvantages

Entry Strategy Advantages Disadvantages

 Loss of control
International Joint  Market Entry
 Issues of goal congruency
Venture (IJV)  Provides local knowledge and
 Takes time to build the right relationship
connections
 Different cultures and managements can result in
 Transfer of technology resources
poor integration
 Joint Product Development
 Potential problems of mistrust over proprietary
 Risk and Reward sharing
technology
 Partner can get around government
regulations and legislation
 Increased difficulty of operating in India without
Wholly-owned  Complex and costly, but gives full
local partner and no contacts
subsidiary control to the firm
 Contains high risk due to the costs of
 Provides the most potential to provide
establishing a new business in a new country.
above average return
 Integrating two organisations can be quite
 Offers the fastest and the largest initial
difficult due to different organization cultures,
international expansion of any foreign
control system, and relationships
entry mode
 Takes much time due to the need of starting new
 Method to achieve greater market operations and distribution networks,
power.

The IJV is an opportunity to take Quickflix‘s existing product into the new foreign market
(Figure 12) where risk and reward sharing is present. Therefore, the decision for Quickflix is to
enter into an international joint venture with a local partner in India. Furthermore, this entry
mode is less costly and risky than a WOS and offers the advantages to gain the local knowledge
and connections from a partner, whom in return can gain a transfer of technology resources from
Quickflix.

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Figure 12: Motives for International Joint Venture Formation
New Markets

To take existing products to To diversify into a
foreign markets new business
Existing Markets

To strengthen the To bring foreign products to
existing business local markets

Existing Products New Products

Source: Beamish, P (2008), Modified by Author

Partner Selection

Successful IJV‘s emphasizes on building relationships, creating a mutual understanding and
share values and having a long-term vision and commitment. Therefore, the selection of an IJV
partner who brings complementary operation skills and resources, which a venture requires for
its competitive success, is of paramount importance (Geringer and Hebert, 1991). Quickflix has
identified the following potential business partners for an international joint venture in India:

 International motion picture studio and distributor
 Local motion picture studio and distributor
 Local online DVD company
 Established ‗brick and mortar‘ rental store
 Local courier and delivery service

Table 10 summarizes an analysis of Quickflix potential business partners.

Page 42

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