THE IMPACT OF QUANTITATIVE RESTRICTIONS ON THE FMCG INDUSTRY

A Guest article by Ivan Joseph, GM-Marketing, CavinKare Limited.

Last year over 700 items were removed from the restricted list and became freely importable, albeit with customs duty. Come April 2001, another 700 items will be removed from the restricted list. There has been much discussion on this subject and the debate will continue. I will attempt to break this down into two elements - Impact on the Consumer and Impact on Business.

The Consumer will now have a much wider choice of products, most of which will be of international quality. For too long, Indian Consumers have had to put up with sub-standard products, sold at unreasonably high prices. Items of mass consumption, like personal and food products, have already become visible on shelves in several towns. What is now a trickle will soon become a deluge as the rest of the world senses the opportunity in one of the largest Consumer markets in the world.

Challenges

Indian Manufacturers / Suppliers will find that they will be competing against products which are, in many cases, vastly superior. For them to sustain their business, even in the medium term, it becomes imperative that they enhance substantially the quality of their products. This means that:

1. Research and Development expenditure will need to be scaled up. Many Indian organizations pay lip service to R&D. That will clearly need to change. While internationally, companies invest 3-4% of their turnover on R&D, in India the investment would be less than 1%.

2. Market Research will need to be given its due. Gut feel and intuition, while they have their place, need to be supplemented with professional market research to understand Consumer needs. Marketing will need to be viewed as a scientific activity. Notions like 'we can sell anything, if we think we can', should have no place.

Prices of goods will be on par with or cheaper than those prevailing in India. This has little to do with dumping, as industry sometimes claims. It has more to do with vastly superior productivity levels of labour. Is that a surprise? Indian labour is more often than not, exploited - poorly lit factories (sheds?), cramped spaces, long working hours, no facilities for toilets not to speak of recreation areas or crèches, little or no involvement in training and development, poor wages have all contributed to this. While worldwide approximately 2.5% of payroll cost is spent on education and training of employees, this aspect is not viewed with the seriousness that it deserves in India. All of this impacts productivity. Recently when some bemoaned the import of goods from one of our neighbouring countries as dumping, it was shown that the prices actually reflected the true cost of production in that country. Margins will get squeezed, some businesses will shut down. That is inevitable.

However, marketers with vision will be able to build their businesses.

Opportunities

Strong brands will survive. Several Indian companies have successfully built brands by focusing on the needs of the Indian consumer alone, unlike MNC's who prefer to standardize their offerings. These brands will continue to do well. Culture, tradition and history have shaped the way people behave and this has impacted the way they purchase goods and services. Indian brands will remain relevant. Multinationals will also look at developing products , marketing programs and brands for this market. Those who do all three will stand the best chance of success. For Indian brands to be successful however, there is one rider - product quality should match anything else on offer.

International sourcing. Strong Indian brands can take advantage of the removal of QR's by looking at sourcing products from the best suppliers in the world. With Indian brand names on these products, and international quality, the offers can be irresistible for the consumer.

Indian business has to change its mindset. Businesses have for too long been ensconced in the cosy cocoons of licenses and protectionist barriers. That comfort will no longer be available and rightly so.

To summarise therefore, removal of QR's can be a problem for those who are short-sighted. Visionary companies can however, by capitalizing on the opportunities and by focusing on R&D, Market Research and Brand Building, emerge stronger.

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