No country in the world produces everything that is needed by humans. As a result, the early communities chose to exchange goods with each other and this trade gave birth to what is known as trade globalization. Over the years, international trade has flourished and offered many benefits to the countries that have involved themselves in such trade. Today, when one walks to the supermarket, local stores or industries, it is very easy to find products labelled they were manufactured from a country many miles away. Not only, has international trade brought foreign products to the country, but also has been the key influence on the world’s economy. For instance, an increase in the cost of labor in China affects the final consumer of the product in countries far away such as Brazil or South Africa. For this reason and the fact that trade globalization increases the efficiency of trade, many countries are taking their products to the global market. Various leaders are campaigning for the global trade and one such leader is the prime minister of India, Mr. Narendra Modi. He has been pushing for the globalization of trade and on January 2018, he took his campaign to the World Economic Forum in Davos, Switzerland, where he urged the global leaders to embrace global trade and shun protectionism. India already has started embracing international trade with the leadership of Mr. Modi and as it’s known, India produces a lot of products locally but still export a little. This document focuses on the cottonseed oil conducts PESTEL analysis of the market.
India is one of the countries in the world that grows and produces the most cotton in the world. The top 10 states that produced the most cotton between 2014 and 2015 include Gujarat, Maharashtra, Andhra Pradesh and Telangana, Haryana, Karnataka, Madhya Pradesh, Rajasthan, Punjab, Tamilnadu, and Orissa (Trending TopMost, n.d.). Unfortunately, most of the people who live in these states are still impoverished and yet they can clothe the world and produce cotton products that can bring enough to make their lives better. The reason is the fact that the Indian cotton products are exported only to a few countries and there are always politics surrounding the product. Cotton comes from a cotton ball which is a fruit of a cotton plant. When the fruit matures, it forms a soft, fluffy staple fiber that is enclosed by a protective coating together with the seeds. The seeds are crushed and used to make cooking oil and products such as soaps, emulsifiers, cosmetics, pharmaceuticals, margarine, plastics, and rubbers. The cottonseed oil is used for deep frying, substitute cocoa butter in confectionery, make creams and lotions (Radha, 2017). Linters remains of the fibers on the cotton seed after ginning; usually very short, are used to make bandages, bank notes, swabs, x-rays and cotton buds (Cotton Australia , n.d.). The uses of cotton are many and its products are continuously being used all over the world. Cotton is a product that has a huge promise to bring huge profits both to the Indian community and the government if the products, whether locally made by the villagers or produced by the huge factories are properly marketed in the global market. The main problem in India has, however, been the export of raw cotton rather than the products of cotton. The export of cottonseed oil is very low.
Cotton growth and sale of its products is influenced by various factors such a political, technological, economic, environmental, legal and social. All these directly or indirectly influences trade of cotton and its products in India and the global. They are the vital variables that influence cost and supply, and demand. Below is a complete analysis of these factors/aspects.
1. Political factors
Political stability is very important in that it helps the country in making important decisions concerning trade, enables the farmers to acquire resources necessary for farming and ensures that there are good international relationships. India has two major political parties; the Indian National Congress and Bhartiya Janata Party. The Indian National Congress has ruled for the longest period since the independence (K.C. Suri, 2016). India has never been hit by a major political instability and the environment is good for investment, however not until recently, the Indian government had very serious restrictions on foreigners investing in the cotton-related industries. There were very high duties on the importation of the equipment. This had not only scared the foreign investors, but also the local investors who would have wished to create huge industries. The government has since lowered the duties related to equipment importation and foreigners are increasingly investing in the industry.
Secondly, India had made a reservation of production to help the small-scale companies but instead of helping, this step crippled the cotton industry. It led to fragmentation of the cotton industry and reduced the competitiveness hence leading to lower production of the end products of the cotton (Development Commissioner Ministry of Micro, Small and Medium Enterprises, n.d.). The end results were the direct exportation of the raw cotton to a point where there was little for production of products such as the cotton oil. The sectors have been de-reserved and major investors can put in huge amounts of money now.
2. Economic Factors
Economic factors influence the production and sale of the cottonseed oil in India and other countries. Such factors include the per capita income, resource mobilization, national income, development of infrastructure, national resource exploitation, industrial development and capital information. In India, the cotton industry employs the largest population and it benefits most Indians with every stage of processing having high value addition. Basically, the Indian economy is driven by the cotton with the product having very many inter-stage processing from the planting to the time it reaches the stage of commercial sale around the country and internationally.
India is the second-largest exporter of the textile and cotton in the world with the total value of exports in 2015-2016 standing at $ 37.8 billion. Nearly 14% of the industrial total output being cotton products and the textile industry accounts for over 30% of the total export from India (India Brand Equity Foundation , 2017). Of the 30% of the cotton products that are exported, cottonseed oil accounts for less than 2%. These statistics indicate that the production of cottonseed oil is low and the government has not done much to market the product globally. Cotton products have very high potential and the industry provides many innovative opportunities and a huge promise of increasing the employment rate among the Indians.
3. Social factors
Social factors, mainly affect the production and the sale of the products. Factors that are considered in this case include education, gender, age, and cultural norms. In India, the employers in the cotton industry employ local people and are not strict in the terms of education. Most of the people who are employed in the cotton-related industries have low education or no formal education. The policymakers and industrialists should, however, consider these factors, especially, to ensure that the cotton industry is improved since cotton is the backbone of India economy. Education, especially in safety and production, does not only increase the output but also the security. Besides the employees, there are the local small-scale farmers of the product that sell it to the industries. These farmers should also be considered. It is the social responsibility of both the government and the cotton industries to ensure that the local farmers of the cotton are considered since they can influence the industry. In 2015, various farmers in the state of Maharashtra committed suicide due to various reasons related to cotton. Most of the farmers were burdened with huge debts and price of the product kept falling. The trend of farmers killing themselves did not start yesterday. Suicide among the farmers in India has made headlines since the 1990s. The government has been conducting investigations to determine the cause of such high rate of suicide and came up with a solution of increasing the price of cotton (Stephenson, 2013).
4. Technological Factors
One of the aspects that can revolutionize the cotton industry is technology improvement. The Indian government has put a lot of effort in making sure the technology of the cotton industry has increased. The results are increased FDI inflow and exports. Some of the steps the government took included training people under the integrated skill development scheme. 5.3 lakh persons were trained by 2016 and about 81% of those who were trained deployed in various workstations. The government made sure there is gender equality and placed 79% of the women who were trained.
Besides training, setting up new industries and lowering the duty on the importation of equipment has also been a huge step towards technological advancement in the cotton industry. The government also undertook the project of increasing the number of production units and as per the end of 2016, 19 new textile parks had been sanctioned. These 19 units have a potential to employ over 60, 000 people and facilitate up to Rs. 300 crores. Within the existing units, the government set up 200 new units of production and with a potential of employing about 11,000 people.
The ministry of textile is also devoted to increase technology in the industry. Within the 2014-2016, the ministry implemented sanction of Common Effluent Treatment Plants (CETP). Seven CETPs were sanctioned and they have Zero Liquid Discharge (ZLD) technology. The seven cover over 3000 SME units.
The foundation of the textile and other products industry is the cotton farming and if there is no any technological advancement at the farms, increasing the technology at the processing stage will only amount to the high efficiency with the production goals still not being met. The Indian government made these considerations and implemented various policy initiatives and schemes. One such scheme is the Cotton Development Programme whose main focus is on cropping system approach. The goal is to increase production and productivity (Textile Excellence, 2016).
5. Legal and Environmental factors.
There are various legislations and policies that are related to processing and exporting cotton products in India. The laws that most influence cotton products trade include those related to industrial licensing, foreign exchange regulation, monopoly control, and factory administration. The process of converting cotton into useful products results in by-products that can be harmful to the environment. Environmental laws have therefore been put in place to regulate disposal, although the enforcement of these laws is still a huge challenge. One of the policies that have influenced the development of the cotton industry is the import policy. It has three categories; restricted, canalized and prohibited goods. Equipment imported for the purpose of processing cotton can either fall under restricted or canalized goods (Associates, 2016).
Entry Modes and Strategies
Cottonseed oil has been being sold locally for a long time but very little is traded in the global market. The Indian domestic market may be easy to penetrate but at some point, the market turns static or even starts to decline. The foreign markets, however, are still in the developing stages and the potential is very attractive. Countries are also lowering their regulatory measures and costs in order to attract foreign investors and enhance global trade. This is a very good opportunity to market cotton oil in the global market, although the process should strategically be implemented. The following strategies can be used to enter the market:
I. Testing the market should be the first step. It involves a lot of research, but one question that is very important is whether one is asking the right questions. One must ask the right questions concerning the market for the product in that particular region. The process of testing the market may be done through Google, direct collection of feedback or selling a few products. If the test is positive, then one can proceed to the other steps.
II. Look at the calendar of the target market before entry. Various countries have specific dates when they celebrate various special days. During these special days, people cook a lot and buy a lot of cooking products. Introducing the product slightly before such days will create a perfect timing for the sale and testing of the product.
III. Screen the market before introducing the product. It is important to screen the target market and consider how the product will reach the final consumer and well as if there are other types of oils that can compete with the cottonseed oil. If the product cannot meet the market requirement and is not competitive enough, modifications should make with consideration of the cost.
IV. Product launching is the fourth step after all the above steps have given a positive feedback. Launching a product involves funds and therefore a launching budget should be set aside and the focus during launching should be in the lead markets. The simultaneous launch can also be carried out such that many regions are entered at the same time.
V. The final stage involves protecting and increasing the competitive advantage. Competitors will always have the ability to copy or make their products better and therefore one must come up with a way of making his product always more competitive.
Cottonseed oil has many uses and the market for the product has not been fully exploited. Currently, the government of India is investing more in the textile industry and very little in the cottonseed oil thus very little is produced. There are very few sites on the internet that are advertising the product online meaning the product is still not common in the market hence there is a very high potential out there. The Indian government should consider the cottonseed oil production and create policies that will help the farmer produce more cotton such that there will be enough to produce a huge amount of the product