Introduction:
Activity Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure. It is developed to provide more-accurate ways of assigning the costs of indirect and support resources to activities, bushiness processes, products, services, and customers. ABC systems recognize that many organizational resources are required not for physical production of units of product but to provide a broad array of support activities that enable a variety of products and services to be produced for a diverse group of customers. The goal of ABC is not to allocate common costs to products. The goal is to measure and then price out all the resources used for activities that support the production and delivery of products and services to customers.
Concept of Activity-Based-Costing:
An organization performs activities to do its business. These activities define the kind of business you are in: a ship owner has an activity to unpack boats; an accounting firm prepares tax returns; a manufacturer produces products; a council delivers services; a university teaches students. All activities consume resources. It is the consumption of these resources that adds to overhead costs.
The basis of Activity Based Costing is: look at the activities required to produce the cost of the product or service. The activities consume resources and the cost of these can be calculated. The amount of activity required for each product and service is determined, hence the real cost can be determined.
What's what in ABC?
The activity is the work that is done.
The resource is what the activity uses to do the work e.g. people, equipment, and services. Resources cost money.
The cost of the activity depends on the quantity of resources used to accomplish the activity.
The cost driver for an activity is the factor that influences the amount of the resources that will be consumed by this activity.
Example: the activity is delivering goods. The costs of this activity include the truck drivers' wages, fuel, depreciation of the truck, insurance, etc. The quantities of the resources that will be consumed by this activity are influenced by the number of deliveries made per year. Hence the cost driver could be the number of deliveries. A cost driver is designed to allocate the delivery activity cost pool to the cost objects.
(Note: The software has the facility to enter and change the cost drivers as better information becomes available).
The activity driver measures how much of the activity is used by the cost object. Example: Product A is delivered once a month, whereas product B is delivered once a week. Products A and B require a different number of deliveries, hence the cost of the delivery activity should be assigned to each product on the basis of the number of deliveries each uses.
The cost object is whatever it is you wish to cost. It could be a product, service, process, job or customer. While traditional costing arbitrarily allocates overhead costs, ABC traces overhead costs by looking at the activities that each product and service calls upon. With ABC the products consume the activities. It is the activities that cost money. If there were no activities, no resources would be consumed. It is the activities that you do that define your business.
Why use Activity-Based-Costing?
Activity-Based-Costing is necessary for the following reasons.
* Understand TRUE profitability of your customers, products, or services
* Quantify the cost of non-value added activities such as errors and reworks
* Identify opportunities to reduce costs and/or increase efficiency
* Obtain actionable information to negotiate price increases for unprofitable clients
* Understand why profitability may be mediocre despite good strategic fundamentals
* Stratify overhead costs so they can be managed more effectively
How Does ABC Work?
The first stage in an initial ABC study is to develop a fundamental understanding of the Resources (expenditures) and Activities (work performed) of an organization. The Resources are then mapped to the Activities, thereby quantifying the cost of performing each of these Activities. These costs are traced to Cost Objects (customers, products, or services) providing tremendous insight into where an organization is making and losing money.
ABC Model:
The objective of an ABC implementation is to relate all of the costs of doing business to products, services, or customers. Developing the initial model consists of the following five steps:
1. Identify the Resources (expenditures) of an organization
2. Determine Activities (work performed) that are supported by Resources
3. Define Cost Objects (products, services, customers)
4. Develop Resource Drivers to link Resources to Activities
5. Develop Cost Drivers to link Activities to Cost Objects
These steps are discussed in greater length below.
Step 1: Identify Resources
Resources represent the expenditures of an organization. Examples include production labor, sales and marketing labor, occupancy and utilities, equipment, and supplies. These are the same costs that are represented in a traditional accounting view; unlike traditional accounting, ABC links these costs to products, customers, or services.
Step 2: Identify Activities
Activities represent the work performed in an organization. ABC Activities for the sales department in a typical organization might include:
Making sales calls to existing customers
Making sales calls to potential customers
Making customer service calls
Training product representatives
Evaluating products and improving product knowledge
Distributing samples
Attending trade shows and other events
Traditional accounting will often break the cost of the sales department into salaries, benefits, allocated rent, supplies, and so on. Unlike traditional accounting, which reports what the costs are (i.e. salaries, benefits, rent), ABC accounts for these costs based on what activities caused them to occur. By determining the actual activities that occur in various departments, such as accounting, customer service, and sales, it is then possible to more accurately relate these costs to customers, products, and services.
Step 3: Identify Cost Objects
ABC provides profitability by one or more cost object, usually represented by products, customers, and/or services. Cost Object profitability is utilized to identify money losing customers, to validate separate divisions or business units, or to measure the performance of individual projects, jobs, or contracts. Defining the outputs to be viewed is an important step in a successful ABC implementation.
Step 4: Determine Resource Drivers
Resource Drivers provide the link between the expenditures of an organization and the Activities performed within the organization.
For example, the total salary of a customer service representative would likely be allocated to the Activities performed based on the amount of time spent performing the Activity. If 50% of her time is spent performing the activity, taking orders for existing customers, 50% of her salary (including all costs such as benefits, taxes, and insurance) would be allocated to this Activity.
Step 5: Determine Cost Drivers
Determination of Cost Drivers completes the last stage of the model. Cost Drivers trace, or link, the cost of performing certain Activities to Cost Objects.
For example, taking orders for existing customers may be linked to specific customers based on the number of orders taken, if each order takes approximately the same amount of time. If order taking time varies based on the customer, this cost may be linked based on another driver or multiple drivers.
Conclusion:
Today, companies are using ABC/M to make better-informed decisions about pricing, what type of customers to pursue, and what products or services to offer. Activity-Based Costing determines the TRUE COST & PROFITABILITY of customers, products, and/or services. While traditional accounting may provide your business with an accurate sense of the direct costs of your products or services, indirect costs are often less accurately applied. Overhead, such as customer support or marketing costs, tend to be allocated based on arbitrary factors.
Activity-Based Costing measures the costs and profits of an organization based on the activities performed within that organization. By focusing on processes that contribute to revenues and business operations, ABC can accurately determine how each process relates back to specific products, customers, or services. This can make a big difference after considering warehouse, sales, customer service, administration and other costs that are often applied at a standard rate, if at all. With ABC you can drill into profitability and performance by almost any factor you can think of.
Friday, September 19, 2008
Sunday, September 14, 2008
Activity Based Costing-Case Study
Activity Based Costing Capabilities/Case Study
Activity Based Costing (ABC) to Improve Accuracy of Product Costing for Financial Services Firm
The Challenge:
This financial services firm had a wide variety of products. These products could have been originated by them or purchased from other financial institutions. These products had different statuses (e.g., current, delinquent, default, resale). As the industry was becoming more competitive, some national players were focusing on these products, and the government was negatively impacting rates, this financial institution needed to better understand their costs by product, status, and source to assist them with:
a) Determining strategy
b) Making purchasing decisions
c) Managing performance
The Approach:
We met with senior management to determine specifically the type of improved costing information that was needed. Employees from cost centers in two locations attended one or two workshops. In these workshops, the employees were given a brief explanation of why the company needed more accurate costing information and what was expected from them. The employees were asked to define their activities. They were asked to either do time studies or estimate what percentage of their time was spent for each activity. Then they were asked to determine how to assign these activities to the various cost objects (i.e. products, source, and status).
This information was loaded into ABC Technologies OROS activity costing package where we were able to extend the capabilities of the software to meet the clients needs by working closely with ABC Technologies.
Activity Based Costing (ABC) to Improve Accuracy of Product Costing for Financial Services Firm
The Challenge:
This financial services firm had a wide variety of products. These products could have been originated by them or purchased from other financial institutions. These products had different statuses (e.g., current, delinquent, default, resale). As the industry was becoming more competitive, some national players were focusing on these products, and the government was negatively impacting rates, this financial institution needed to better understand their costs by product, status, and source to assist them with:
a) Determining strategy
b) Making purchasing decisions
c) Managing performance
The Approach:
We met with senior management to determine specifically the type of improved costing information that was needed. Employees from cost centers in two locations attended one or two workshops. In these workshops, the employees were given a brief explanation of why the company needed more accurate costing information and what was expected from them. The employees were asked to define their activities. They were asked to either do time studies or estimate what percentage of their time was spent for each activity. Then they were asked to determine how to assign these activities to the various cost objects (i.e. products, source, and status).
This information was loaded into ABC Technologies OROS activity costing package where we were able to extend the capabilities of the software to meet the clients needs by working closely with ABC Technologies.
Kaizen
Kaizen
Kaizen (改善, Japanese for "improvement") is a Japanese philosophy that focuses on continuous improvement throughout all aspects of life. When applied to the workplace, Kaizen activities continually improve all functions of a business, from manufacturing to management and from the CEO to the assembly line workers.[1] By improving standardized activities and processes, Kaizen aims to eliminate waste (see Lean manufacturing). Kaizen was first implemented in several Japanese businesses during the country's recovery after World War II, including Toyota, and has since spread to businesses throughout the world.[2]
Contents:-
1 Introduction
2 Translation
3 History
4 Implementation
Introduction
Kaizen is a daily activity, the purpose of which goes beyond simple productivity improvement. It is also a process that, when done correctly, humanizes the workplace, eliminates overly hard work ("muri"), and teaches people how to perform experiments on their work using the scientific method and how to learn to spot and eliminate waste in business processes.
To be most effective kaizen must operate with three[citation needed] principles in place:
consider the process and the results (not results-only) so that actions to achieve effects are surfaced; systemic thinking of the whole process and not just that immediately in view (i.e. big picture, not solely the narrow view) in order to avoid creating problems elsewhere in the process; and
a learning, non-judgmental, non-blaming (because blaming is wasteful) approach and intent will allow the re-examination of the assumptions that resulted in the current process.
People at all levels of an organization can participate in kaizen, from the CEO down, as well as external stakeholders when applicable. The format for kaizen can be individual, suggestion system, small group, or large group. At Toyota, it is usually a local improvement within a workstation or local area and involves a small group in improving their own work environment and productivity. This group is often guided through the kaizen process by a line supervisor; sometimes this is the line supervisor's key role.
While kaizen (at Toyota) usually delivers small improvements, the culture of continual aligned small improvements and standardization yields large results in the form of compound productivity improvement. Hence the English usage of "kaizen" can be: "continuous improvement" or "continual improvement."
This philosophy differs from the "command-and-control" improvement programs of the mid-twentieth century. Kaizen methodology includes making changes and monitoring results, then adjusting. Large-scale pre-planning and extensive project scheduling are replaced by smaller experiments, which can be rapidly adapted as new improvements are suggested.
Translation:
This section does not cite any references or sources.Please help improve this section by adding citations to reliable sources. Unverifiable material may be challenged and removed. (March 2008)
The original kanji characters for this word are: 改 善
In Japanese this is pronounced "kaizen".
改 ("kai") means "change" or "the action to correct".
善 ("zen") means "good".
In Chinese this is pronounced "gai shan":
改善 ("gǎi shàn") means "change for the better" or "improve".
改 ("gǎi") means "change" or "the action to correct".
善 ("shàn") means "good" or "benefit". "Benefit" is more related to the Taoist or Buddhist philosophy, which gives the definition as the action that 'benefits' the society but not one particular individual (i.e., multilateral improvement). In other words, one cannot benefit at another's expense. The quality of benefit that is involved here should be sustained forever, in other words the "shan" is an act that truly benefits others.
History
In Japan, after World War II, American occupation forces brought in American experts in statistical control methods and who were familiar with the War Department's Training Within Industry (TWI) training programs to restore the nation. TWI programs included Job Instruction (standard work) and Job Methods (process improvement). In conjunction with the Shewhart cycle taught by W. Edwards Deming, and other statistics-based methods taught by Joseph M. Juran, these became the basis of the kaizen revolution in Japan that took place in the 1950s.[3]
Implementation
The Toyota Production System is known for kaizen, where all line personnel are expected to stop their moving production line in case of any abnormality and, along with their supervisor, suggest an improvement to resolve the abnormality which may initiate a kaizen.
The cycle of kaizen activity can be defined as:
standardize an operation →
measure the standardized operation (find cycle time and amount of in-process inventory) →
gauge measurements against requirements →
innovate to meet requirements and increase productivity →
standardize the new, improved operations →
Continue cycle ad infinitum.
This is also known as the Shewhart cycle, Deming cycle, or PDCA.
Masaaki Imai made the term famous in his book, Kaizen: The Key to Japan's Competitive Success.
Apart from business applications of the method, both Anthony Robbins and Robert Maurer have popularized the kaizen principles into personal development principles. The basis of Robbins' CANI (Constant and Never-Ending Improvement) method in kaizen is discussed in his Lessons in Mastery series.
In their book The Toyota Way Fieldbook, Brijesh Rawat from NIFT Delhi, Jeffrey Liker and David Meier discuss the Kaizen Blitz and Kaizen Burst (elsewhere also called Kaizen Event) approaches to Continuous Improvement. Brijesh did many experiments in the system and calculated detailed results to enhance improved and refined process at Bareilly to heal the sick industries in his city (Bareilly). A Kaizen Blitz, or rapid improvement, is a focused activity on a particular process or activity. The basic concept is to identify and quickly remove waste. Another approach is that of Kaizen Burst, this is a specific point Kaizen activity on a particular process in the Value Stream.[4]
EMERGING SECTORS IN INDIAN ECONOMY
EMERGING SECTORS IN INDIAN ECONOMY
1. Manufacturing Sector
• The government has recently set up a National Manufacturing Competitiveness
Council
• Progressive reduction in taxes and tariffs, India emerging as a manufacturing
hub
• Manufacturing exports from India likely to grow to USD 300 billion in 2015 from
USD 48 billion in 2003
2. Food processing
• India is the world’s largest producer of tea, sugarcane and milk
• Processing industry is nascent but is growing rapidly
• FDI of 100% permitted except in special cases, capital goods can be
imported freely
• All profits from exports are free of corporate tax and minimum alternate tax
3..Textiles
• The second largest textile industry in the world
• Textiles account for 14% of India’s industrial production and 27% of export
earnings
• National Textile Policy aims to take up the textile and apparel exports from
USD 11 billion in 2004 to USD 50 billion in 2010The Indian Telecom Sector
India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies (CRISIL, www.ibef.com).
Indian telecom sector has undergone a major process of transformation through significant policy reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for private sector and were later followed by National Telecom Policy (NTP) in 1994 and NTP'1999.
Historically, the telecom network in India was owned and managed by the Government considering it to be a natural monopoly and strategic service, best under state's control. However, in 1990's, examples of telecom revolution in many other countries, which resulted in better quality of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up of telecom services sector for the private sector.
4. Healthcare
India's healthcare sector has been growing rapidly and estimated to be worth US$ 40 billion by 2012, according to Price water house Coopers in its report, 'Healthcare in India: Emerging market report 2007'. Revenues from the healthcare sector account for 5.2 per cent of the GDP, making it the third largest growth segment in India.
The sector's growth will be driven by the country's growing middle class, which can afford quality healthcare. Over 150 million Indians have annual incomes of more than US$ 1,000, and many who work in the business services sector earn as much as US$ 20,000 a year. Today at least 50 million Indians can afford to buy Western medicines-a market only 20 per cent smaller than that of the UK.
The growing purchasing power of Indian patients is revealed in the increased business of air ambulance services. Around 365 airlifting worth several millions of rupees happen in Delhi in a year on average.
If the economy continues to grow faster than the economies of the developed world, and the literacy rate keeps rising, much of western and southern India will be middle class by 2020.
To meet this demand, the country needs US$ 50 billion annually for the next 20 years, says a CII study. India needs to add 2 million beds to the existing 1.1 million by 2027, and requires immediate investments of US$ 82 billion.
Funds in the sector have been largely private. In fact, it is believed that the private sector provides 60 per cent of all outpatient care in India and as much as 40 per cent of all in-patient care. It is estimated that nearly 70 per cent of all hospitals and 40 per cent of hospital beds in the country are in the private sector, says PWC.
Investments
The opportunities presented by the healthcare sector have made it a major draw for potential investors. The healthcare sector attracted US$ 379 million in 2006 - 6.3 per cent of the total private equity (PE) investment of US$ 5.93 billion. The PE deals that the sector attracted in 2006 were as large as inputs into the automotive sector.
Medical care services provider Apollo Hospitals group will invest about US$ 235.69 million in the next 18 months to set up 15 hospitals in tier-II and tier-III cities in India.
The Indian government plans to invest US$ 177.22 million across the golden quadrilateral (GQ) project, to develop nearly 140 trauma care centres on the 6,500 km long north-south and east-west corridors.
Competitor Fortis Healthcare Ltd will add 28 hospitals to its 12-hospital chain by 2012.
George Soros's fund Quantum and BlueRidge bought 10 per cent in Fortis Healthcare.
Manipal Health Systems raised over US$ 20 million equity from IDFC Private Equity Fund.
Bangalore-based HealthCare Global Enterprises raised over US$ 10 million in equity from IDFC. Metropolis Health Services, a diagnostic chain, raised over US$ 8 million in equity from ICICI Venture. Investment firms Apax Partners, IFC and Trinity Capital have invested over US$ 200 million in hospital firms.
5. Tourism
India’s tourism industry is experiencing a strong period of growth, driven by the burgeoning Indian middle class, growth in high spending foreign tourists, and coordinated government campaigns to promote ‘Incredible India’.
The tourism industry in India is substantial and vibrant, and the country is fast becoming a major global destination. India’s travel and tourism industry is one of them most profitable industries in the country, and also credited with contributing a substantial amount of foreign exchange. This is illustrated by the fact that during 2006, four million tourists visited India and spent US $8.9 billion.
Several reasons are cited for the growth and prosperity of India’s travel and tourism industry. Economic growth has added millions annually to the ranks of India’s middle class, a group that is driving domestic tourism growth. Disposable income in India has grown by 10.11% annually from 2001-2006, and much of that is being spent on travel. Thanks in part to its booming IT and outsourcing industry a growing number of business trips are made by foreigners to India, who will often add a weekend break or longer holiday to their trip. Foreign tourists spend more in India than almost any other country worldwide. Tourist arrivals are projected to increase by over 22% per year through till 2010, with a 33% increase in foreign exchange earnings recorded in 2004. The Tourism Ministry has also played an important role in the development of the industry, initiating advertising campaigns such as the “Incredible India” campaign, which promoted India’s culture and tourist attractions in a fresh and memorable way. The campaign helped create a colorful image of India in the minds of consumers all over the world, and has directly led to an increase in the interest among tourists. The tourism industry has helped growth in other sectors as diverse as horticulture, handicrafts, agriculture, construction and even poultry.Both directly and indirectly, increased tourism in India has created jobs in a variety of related sectors. The numbers tell the story: almost 20 million people are now working in the India’s tourism industry.
6. Entertainment
The last decade has seen the Indian entertainment industry grow exponentially. The key drivers for this have been technology and the government’s recognition of the importance of the sector. The stage is now set for further evolution with a trend towards convergence, adding a new dimension to entertainment. The industry is expected to grow at a CAGR of 27 per cent.
• Revenues are projected to increase to US$ 10 billion in 2005 from 3 billion in 2002.
India is one of the most media-exposed countries when compared to its Asian counterparts due to its size and consequently a large consumer base.
Films
• The Indian film industry is largest in the world in terms of number of movies produced. India produces 800-900 movies every year in 52 languages and provides direct and indirect employment to 5 million people.
• #9; The film Sector is one of the oldest industry in India. The first commercially successful film was made in 1913. The exports of Indian films in the last few years have seen a dramatic upward swing with the export earning for the year 2001-02 being in the region of Rs. 9 billion.
• The Government of India has accorded industry status to the film industry and FIs are formulating funding mechanisms for financing films. Recently some major film projects have received funding from FIs and banks.
• Many large production houses are embracing a corporate structure and there is a trend towards adopting a professional approach in producing and marketing films in India and overseas.
Television
• Television is a leading entertainment medium accounting for the largest slice of the urban India’s media consumption pie (72% of total media consumption).
• Television software is also expected to grow in India as technology is affordable and manpower cost is low.
• The Government of India has liberalised the uplinking policy to allow India to develop as a centre for broadcasting.
• There has been a reduction in the rate of basic custom duties on the import of certain specified equipment for setting up an earth station for broadcasting.
Opportunities
Opportunities for this sector exist across multiple categories of the entertainment industry.
• Film distribution is turning out to be a lucrative business.
• Television software content development is expected to experience healthy growth in the coming years.
• The radio industry is witnessing several private FM channels being launched in many Indian cities.
1. Manufacturing Sector
• The government has recently set up a National Manufacturing Competitiveness
Council
• Progressive reduction in taxes and tariffs, India emerging as a manufacturing
hub
• Manufacturing exports from India likely to grow to USD 300 billion in 2015 from
USD 48 billion in 2003
2. Food processing
• India is the world’s largest producer of tea, sugarcane and milk
• Processing industry is nascent but is growing rapidly
• FDI of 100% permitted except in special cases, capital goods can be
imported freely
• All profits from exports are free of corporate tax and minimum alternate tax
3..Textiles
• The second largest textile industry in the world
• Textiles account for 14% of India’s industrial production and 27% of export
earnings
• National Textile Policy aims to take up the textile and apparel exports from
USD 11 billion in 2004 to USD 50 billion in 2010The Indian Telecom Sector
India is the fourth largest telecom market in Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies (CRISIL, www.ibef.com).
Indian telecom sector has undergone a major process of transformation through significant policy reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for private sector and were later followed by National Telecom Policy (NTP) in 1994 and NTP'1999.
Historically, the telecom network in India was owned and managed by the Government considering it to be a natural monopoly and strategic service, best under state's control. However, in 1990's, examples of telecom revolution in many other countries, which resulted in better quality of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up of telecom services sector for the private sector.
4. Healthcare
India's healthcare sector has been growing rapidly and estimated to be worth US$ 40 billion by 2012, according to Price water house Coopers in its report, 'Healthcare in India: Emerging market report 2007'. Revenues from the healthcare sector account for 5.2 per cent of the GDP, making it the third largest growth segment in India.
The sector's growth will be driven by the country's growing middle class, which can afford quality healthcare. Over 150 million Indians have annual incomes of more than US$ 1,000, and many who work in the business services sector earn as much as US$ 20,000 a year. Today at least 50 million Indians can afford to buy Western medicines-a market only 20 per cent smaller than that of the UK.
The growing purchasing power of Indian patients is revealed in the increased business of air ambulance services. Around 365 airlifting worth several millions of rupees happen in Delhi in a year on average.
If the economy continues to grow faster than the economies of the developed world, and the literacy rate keeps rising, much of western and southern India will be middle class by 2020.
To meet this demand, the country needs US$ 50 billion annually for the next 20 years, says a CII study. India needs to add 2 million beds to the existing 1.1 million by 2027, and requires immediate investments of US$ 82 billion.
Funds in the sector have been largely private. In fact, it is believed that the private sector provides 60 per cent of all outpatient care in India and as much as 40 per cent of all in-patient care. It is estimated that nearly 70 per cent of all hospitals and 40 per cent of hospital beds in the country are in the private sector, says PWC.
Investments
The opportunities presented by the healthcare sector have made it a major draw for potential investors. The healthcare sector attracted US$ 379 million in 2006 - 6.3 per cent of the total private equity (PE) investment of US$ 5.93 billion. The PE deals that the sector attracted in 2006 were as large as inputs into the automotive sector.
Medical care services provider Apollo Hospitals group will invest about US$ 235.69 million in the next 18 months to set up 15 hospitals in tier-II and tier-III cities in India.
The Indian government plans to invest US$ 177.22 million across the golden quadrilateral (GQ) project, to develop nearly 140 trauma care centres on the 6,500 km long north-south and east-west corridors.
Competitor Fortis Healthcare Ltd will add 28 hospitals to its 12-hospital chain by 2012.
George Soros's fund Quantum and BlueRidge bought 10 per cent in Fortis Healthcare.
Manipal Health Systems raised over US$ 20 million equity from IDFC Private Equity Fund.
Bangalore-based HealthCare Global Enterprises raised over US$ 10 million in equity from IDFC. Metropolis Health Services, a diagnostic chain, raised over US$ 8 million in equity from ICICI Venture. Investment firms Apax Partners, IFC and Trinity Capital have invested over US$ 200 million in hospital firms.
5. Tourism
India’s tourism industry is experiencing a strong period of growth, driven by the burgeoning Indian middle class, growth in high spending foreign tourists, and coordinated government campaigns to promote ‘Incredible India’.
The tourism industry in India is substantial and vibrant, and the country is fast becoming a major global destination. India’s travel and tourism industry is one of them most profitable industries in the country, and also credited with contributing a substantial amount of foreign exchange. This is illustrated by the fact that during 2006, four million tourists visited India and spent US $8.9 billion.
Several reasons are cited for the growth and prosperity of India’s travel and tourism industry. Economic growth has added millions annually to the ranks of India’s middle class, a group that is driving domestic tourism growth. Disposable income in India has grown by 10.11% annually from 2001-2006, and much of that is being spent on travel. Thanks in part to its booming IT and outsourcing industry a growing number of business trips are made by foreigners to India, who will often add a weekend break or longer holiday to their trip. Foreign tourists spend more in India than almost any other country worldwide. Tourist arrivals are projected to increase by over 22% per year through till 2010, with a 33% increase in foreign exchange earnings recorded in 2004. The Tourism Ministry has also played an important role in the development of the industry, initiating advertising campaigns such as the “Incredible India” campaign, which promoted India’s culture and tourist attractions in a fresh and memorable way. The campaign helped create a colorful image of India in the minds of consumers all over the world, and has directly led to an increase in the interest among tourists. The tourism industry has helped growth in other sectors as diverse as horticulture, handicrafts, agriculture, construction and even poultry.Both directly and indirectly, increased tourism in India has created jobs in a variety of related sectors. The numbers tell the story: almost 20 million people are now working in the India’s tourism industry.
6. Entertainment
The last decade has seen the Indian entertainment industry grow exponentially. The key drivers for this have been technology and the government’s recognition of the importance of the sector. The stage is now set for further evolution with a trend towards convergence, adding a new dimension to entertainment. The industry is expected to grow at a CAGR of 27 per cent.
• Revenues are projected to increase to US$ 10 billion in 2005 from 3 billion in 2002.
India is one of the most media-exposed countries when compared to its Asian counterparts due to its size and consequently a large consumer base.
Films
• The Indian film industry is largest in the world in terms of number of movies produced. India produces 800-900 movies every year in 52 languages and provides direct and indirect employment to 5 million people.
• #9; The film Sector is one of the oldest industry in India. The first commercially successful film was made in 1913. The exports of Indian films in the last few years have seen a dramatic upward swing with the export earning for the year 2001-02 being in the region of Rs. 9 billion.
• The Government of India has accorded industry status to the film industry and FIs are formulating funding mechanisms for financing films. Recently some major film projects have received funding from FIs and banks.
• Many large production houses are embracing a corporate structure and there is a trend towards adopting a professional approach in producing and marketing films in India and overseas.
Television
• Television is a leading entertainment medium accounting for the largest slice of the urban India’s media consumption pie (72% of total media consumption).
• Television software is also expected to grow in India as technology is affordable and manpower cost is low.
• The Government of India has liberalised the uplinking policy to allow India to develop as a centre for broadcasting.
• There has been a reduction in the rate of basic custom duties on the import of certain specified equipment for setting up an earth station for broadcasting.
Opportunities
Opportunities for this sector exist across multiple categories of the entertainment industry.
• Film distribution is turning out to be a lucrative business.
• Television software content development is expected to experience healthy growth in the coming years.
• The radio industry is witnessing several private FM channels being launched in many Indian cities.
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