Hmi Case
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The Cosmopolitan, Hearsts most successful magazine entered India and China almost at the same time, 1996 in India and 1998 in China. Both countries were experiencing a monumental growing as a result of an increasing number of the middle class who has craving as well as the affordability for luxury goods. The market entrances were not immune from challenges, because both governments desire for strong control of publishing industry. Despite of all those similarities, the investment in China and in India had shown different dynamics. By analyzing cases in two countries, the following differences might be key drivers leading to the divided paths.
Equity Ownership
Though both India and China government desire for strong control of publishing industry, the India government took extra steps by totally banning foreign ownership from 1995 to 2002 and limiting foreign holdings till 2007. Even nowadays, editorial and management control remain in Indians hands. The foreign owners are burdened by the government with a lengthy cumbersome clearance process for new publishing arrangements. Hearst has no equity ownership for Indian Cosmopolitan. The license agreement with the local publisher provided Hearst 10% of net revenues from circulations and advertising revenue. The control environment for the publishing industry in China is relatively more liberal. After economy reform in 1978, China government laid down the red carpet for foreign investor by loosening up regulations and lowering taxation. The regulations allowed the foreign ownership of magazines up to 50%. The government also approved multiple new entrants with less stringent standards. Hearst ultimately owned 20% of the entity publishing China Cosmopolitan, which Hearst in term received 20% of net profit in addition to its royalty payments. As a simple mathematics, the large equity ownership enabled Hearst to share more revenue in China than in India.
Advertise Spending
From Exhibit 1.1, we can see the total advertise spending in India was approximately $2.9 billion in 2006, 102% increase from 1997, among which only 5.5% was contributed by the print magazines. During the same period of time, Chinas advertise spending had a phenomenal increase of 1,218.5%, from $3.7 billion to $48.5 billion. In addition, from Exhibit 1.2, it shows that even though the percentage of pages as advertisements are almost same between India Cosmo and China Cosmo, 50% vs. 45.5%, due to the significantly high monthly circulations in China (approximately 7 times of India monthly circulation) and full-color advertisement rate (approximately 10 times of India rate), China Trends/Cosmopolitan is more profitable without any doubt. In 2007, Cosmopolitan China had 13.7% of the total “Ladys Magazines” groups advertising pages and 17.7% of the revenue, ranking 1st among all 16 publications in China for women. Obviously, Cosmopolitan India didnt enjoy the same victory. The high advertise spending drives the high revenue in publishing industry.
Cover price
Due to the continuous challenges in negotiation with Indian licensee on pricing, the cover prices were lower in India compared to other international markets. From Exhibit 1.2, it shows that the cover price in 2006 was $1.70 in India vs. $2.92 in China. Further comparing the Exhibit 2 and Exhibit 3, we could see the net profit margins (=Net Income / Sales) were significantly lower in India during the same period time from year 2003 to 2007. See table below. The low pricing resulted in less profit in India.
Net Profit Margin
China
45.40%
45.01%
42.62%
31.20%
27.10%
India
-4.51%
2.94%
16.43%
6.84%
13.17%
The success of China Cosmopolitan definitely became a role model for other international markets, especially for India which is at the similar economy developing stage, has similar strong government control and rising middle class. Some success factors might not be applicable, such as high advertise spending in