1.  INDIA

2.  Costco’s Business Model  Costco’s Value Proposition  Review of India o Economy o Government o Infrastructure o Real Estate Cost o Real Estate Availability / Partners  Conclusion on Costco in India  Citations

3.  Factory direct purchasing, high velocity resale. o Manufactures ship containers directly to Costco consolidation depot’s. o Allocation of product to warehouse locations is fast (<= 24 hrs) o Cost reductions realized from fast inventory sales. o SKU’s on hand limited to fast-selling models, sizes and colors. o Efficient sales floor layouts – more product, less wasted space = more sales. o Customers must pay to shop at Coscto. Provides another source of revenue. Builds customer loyalty. Helps reduce shrink.

4.  Very low marketing, labor and a targeted discount model o Coupon/Sales blasts sent to a limited target audience – members only. o Reduction in marketing dollars over competitors equals lower costs for goods. o Labor costs reduced via larger volumes of stock on hand, in pallets and ready for customer distribution with low labor required. o Hours of operation limited to core shopping times and light need for overnight stocking staff. o Return policy highly favorable in the market, most goods accepted back without receipts and with extended warranty options.

5.  Gross Domestic Product (GDP) o 2010 - $4.06 trillion (5 th in the world) $3.44 Trillion in 2008 $3.67 Trillion in 2009.  Inflation o 2010 - 12% - High (206 th in the world) 10.9% in 2009  GDP Growth Rate o 10.4% (5 th in the world) 6.2% in 2008 6.8% in 2009  Foreign Reserves o $287.1 Billion (7 th in the world)  GDP Per Capita o $3,500 (262 nd in the world) $3,000 in 2008 $3,200 in 2009  Currency Stability o The Indian Rupee is trading around 43 - 49:1 USD in the last 52 weeks.

6.  Ruling Party and Leader o Pratibha Devisingh Patil – (2007 – Current) o Party: Indian National Congress  Government Stability o Democratic Nation o Harsh relations with China over allegations of munitions being traded with Pakistan and China’s oversized military footprint.  Subsidies o 14% of Indian GDP is subsidized. o Majority of Indian subsidies are oil of which 39% of subsidized kerosene is stolen.

7.  India is one of the largest importers of fossil fuels in the world.  Pearls and precious stone imports are important as a large portion of India’s revenue comes from the export of handicrafts.  These two represent 50% of all imported goods into India from 2009 to now.  Growth from 2009 - 2011 o Fuels – 20.6% o Pearls – 66.35%

8.  Indian Transport and Fuel Infrastructure o Airports – 353 (249 with paved runways) o Heliports – 40 o Pipelines Condensate/Gas – 2km Gas – 9,596km Liquid Petroleum Gas – 2,152km Oil – 7,448km Refined Products – 10,486km o Railways – 63,974km (4 th in the world) o Roadways - 3,320,410km (3 rd in the world) o Waterways – 14,500km (9 th in the world) o Merchant Marine – 324 (29 th in the world)  Air and sea import/export is generally considered to be sufficient in India. The recent thread of pirates from Somalia have reduced the efficiency of waterway capability and have added risk of shipping/freight contains being compromised.  Road and railway conditions are poor in India. Public investment has been insufficient to correct this condition and India is seeking private investments to help improve these two.  Energy infrastructure in India is sufficient for sustaining retail business operations.

9.  Indian Real Estate Cost o India-wide real estate prices have increased 21.3% in Q2 2011. o Ranked 2 nd out of 50 countries for annual growth o High Growth - Compared to 2010 by City Bhopal +46.41% Faridabad +44.74% Chennai +35.52% Bengaluru +35.29% New Delhi +33.64% o Low Growth – Compared to 2010 by City Kolkata +10.23% Surat +9.56% Jaipur +4.92%

10.  Real Estate Availability o Moderate availability due to financial situations in India. o High cost is a big detractor in Indian Real Estate Sales. o Cost of land post Indian 2001 Economic Bubble exceed that of the median home sales prices. o 65% of flats sold in Delhi and 35% of flats sold in Mumbai have sold to speculators. o Booming growth in Indian GDP may result in more availability over 2013-2015 at affordable prices. o Jones Lang LaSalle remains the largest partner for real estate sales and coverage in India.

11. We do not believe Costco should seek India as a market to move into over the course of the next 3 years. The following points highlight how we came to this decision:  Indian land prices are too high o High land prices now make moving into India in the short term less attractive. o Continued GDP growth over the next 1-2 years may help lower land prices.  Indian Inflation too high o Continued growth in Inflation would make doing business in India risky. o GDP Per Capita shows the standard of living is improving in India, however not at a rate fast enough to make India an attractive market to enter.  Indian Infrastructure is poor and threats loom o Indian road conditions would not support the Costco business model of central delivery and distribution within 24 hours. o Higher costs would be incurred by Costco by moving product slower than they do in the US, Canada and Mexico markets. o The presence of pirates from nearby Somalia makes importing of goods via sea risky.

12.  The following Web Content was used for this presentation. o The United States Central Intelligence Agency, Retrieved 10/6/2011 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html o Yahoo! Finance, Retrieved 10/6/2011 http://finance.yahoo.com/q/bc?s=USDINR=X&t=5y&l=on&z=m&q=l&c o Wikipedia, Retrieved 10/6/2011 http://en.wikipedia.org/wiki/Energy_policy_of_India http://en.wikipedia.org/wiki/Real_Estate_in_India o Global Property Guide, Retrieved 10/6/2011 http://www.globalpropertyguide.com/Asia/India o Costco Investor Relations, Retrieved 10/6/2011 http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-sec o World Trade Organization, Retrieved 10/10/2011 http://www.wto.org/english/tratop_e/tpr_e/s249_sum_e.pdf o India Department of Commerce, Retrieved 10/10/2011 http://commerce.nic.in/eidb/Icomq.asp