23-06-2012, 03:21 PM
Accessing opportunities in apparel retail sectors in India: Porter’s diamond approach
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Abstract
Purpose – The Indian retailing industry has undergone dramatic changes because of the government’s
recent liberalization in retail sectors along with the country’s rapid economic development and emerging
consumer groups withmarket power. Despite the increasing importance of India in the globalmarket, little
is known about apparel retail sectors in India and the information available is fragmented and
under-developed. The purpose of this paper is to assess the competitiveness of the Indian apparel retail
industry and the changing market conditions since the 2006 retail trade liberalization to identify the
opportunities and challenges of operating in the Indian market.
Introduction
India has undergone considerable social and economic change in recent years, creating a
strong consumer market for foreign retailers. The Indian economy is booming, with
an average GDP growth rate of 4.5 per cent between 1997 and 2007 (UNICEF, 2010), and
is expected to be the world’s third largest economy after the USA and China by 2050
(Dadush and Stancil, 2009). When market size, growth prospects, and consumer
affluence and readiness are considered to determine the retail apparel index, India falls
within the top five countries (Kearney, 2006).
Theoretical framework
Porter’s (1990) diamond model provides an excellent framework to analyze the
competitiveness of a particular industry within a country ( Jin and Moon, 2006). The
model has been applied in a broad range of industries due to its implications for
marketers, policy makers and the government for designing long-term development of
a nation’s competitive advantage ( Jin and Moon, 2006), even for open and transitional
economies (Chobanyan and Leigh, 2006).
Porter (1990) proposes that the characteristics of the national environment influence
the competitive advantages of a nation and identifies four primary determinants that
affect competitive performance of firms: factor conditions; demand conditions; related
and supporting industries; and firm strategy, structure, and rivalry. These determinants
interact with each other to form the nation’s diamond, and interrelations between the
determinants establish national competitiveness (Grant, 1991). The government also
interacts with the four determinants by fostering or deterring the development of a
nation’s competitive advantage.
Demand conditions
Demand conditions are defined as “the nature of home demand for the industry’s
product or service” (Porter, 1990, p. 71). Composition of home demand is critical as it
regulates the response of firms towards consumer needs and wants. Nations can
expand competitive advantage when home demand is large and constantly pushes
companies to innovate and upgrade. While sophisticated home demand forces firms
towards better products and services, varying levels of sophistication in consumer
demands lead to market segmentation. We analyze the demand condition in India,
which is characterized by a swelling middle class with rising disposable income,
a youthful population, and demographic and geographic diversity in apparel demand.