Fast moving consumer goods is considered to be the fastest growing segment in India which is expected to grow from $37 billion (2013) to $49 billion (2016) (WHAT’S IN STORE FOR INDIA’S FMCG MARKET?, 2014). After experiencing decline in growth, FMCG sector is again looking bright. The introduction of sachet packs has increased penetration of products in the market as lower income people started using the products; also the middle class is growing rapidly in India. People have more disposable income now than before, they are willing to up trade and improve their life style.
India was initially a closed economy, there were numerous restrictions and laws imposed for foreign companies in order to carry out business there, the reason is the mistrust because British also came as traders and then occupied whole of India, making them slaves for more than a century. Also there are extremists who are in opposition to FDIs; this is how they shut down Wal-Mart. But as the time passed, government realized that they have slowed down growth by imposing such restriction so they started opening up. Since these firms have huge reserves they also force governments to pass laws in their favor against promise of financial back up. Large MNCs are found to have blackmailed their way through many governmental charges and penalties.
The lifting of trade restrictions and import duties actually provided customers with greater number of products to choose from and enhanced competition which led to lower prices, hence decrease in inflation and improvement in quality of products provided to gain greater market share this also helped in pushing up productivity and thus increase in exports. Domestic market was protected through tariffs as all the import duties were not lifted; it was lifted from items where market was already established, however where market was still developing duties were still levied upon. This will also enable foreign companies present in India to import stuff from abroad and sell it in India and make more efficient use of their extensive distribution network on the other hand it also provides opportunities to local suppliers and distributors to offer their services to companies who do not exist in India but want to sell their products here. Now that companies could import from anywhere, there will be more options for them to look for suppliers in the world and source the best amongst them in terms of price and quality (Paul, 2008).
The social implication of advent and progress of FMCG industry is positive as people’s life style will improve. All FMCG products are more hygienic and healthy than lose products offered on streets and this definitely means low mortality ratio in future as more and more people will start consuming these packaged goods. Apart from this, it is the fourth biggest sector in India which contributes about 2.5% to GDP and creates employment for thousands of young graduates each year. This sector is dominated by MNCs and these companies invest millions of dollars each year to improve the living conditions of poor in India, for example Hindustan Unilever Limited started a “Project Shakti” in rural areas of India in order to empower women there to earn some money for themselves and for their families. In developing countries like India not all the poverty eradication, education and other developments projects can be taken by government. So any initiative by these firms is a huge help.
The technology part comes easy to this sector as the manufacturing setup required for these kinds of products is not as high tech as other industries plus it can be outsourced through a third party contract which is very common in this industry. Initial setup cost is a little high that’s why not all the starters can think of entering in this market plus it is owned by giants like Unilever and P&G who make it difficult for other companies to survive through their strategic moves. The distribution setup is difficult to establish with reliable links and this is where new entrants fail most. They make the product but cannot make it available to all the markets at the same time.
These FMCG manufacture products from raw materials that are grown in the fields and are result of agricultural activities in the region, therefore they are careful in protecting and preserving the environment. Some of the efforts include setting up of green houses, use of herbal waste, supporting rag pickers, establishing green buildings and procedures that are green, minimize consumption of clean and fresh water. The constraint on energy is reduced by using alternative sources of energy like herbal waste. (Gulati, 2015). Government also has made some anti dumping laws which prohibits manufacturing facilities to contaminate any clean source of water flow.
Legal / Law
Government replaced various indirect taxes imposed on FMCG with a more direct approach, i.e. GST. This will help in lowering prices as all the taxes imposed increase the cost of production and producer passes it on to consumer. They cannot underpay agricultural sector for profit maximization, also they cannot fool customers in any way by claiming something for their product which it is incapable of doing in actual. The law also forbids FMCG industry to artificially increase prices by making a product scarce. The law for marketing products states that one company cannot mock product of another company by explicitly taking its name or showing its picture. But the most important law that authorities miss is consumer privacy protection rights. These firms tend to find out contact details of their consumers and potential ones and then spam them through every channel.
Gulati, D. N. (2015). ENTERPRISE RISK MANAGEMENT IN FMCGSECTOR. International Journal of Science, Technology & Management , 8.
Paul, J. (2008). Removal of quantitative controls in India:case of FMCG sectorin India. In P. Rameshan, WTO, India and Emerging areas of Trade (pp. 219-227). New Delhi: Excel Books.
WHAT’S IN STORE FOR INDIA’S FMCG MARKET? (2014, November 25). Retrieved December 11, 2015, from Nielson: http://www.nielsen.com/in/en/insights/reports/2014/whats-in-store-for-indias-fmcg-market.html