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Conglomerate Diversification - ITC, Strategy formulation, 2013

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Information about Conglomerate Diversification - ITC, Strategy formulation, 2013
Education

Published on March 12, 2014

Author: NehaKumar09

Source: slideshare.net

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Presented by: Neha Kumar (A029) Rashi Kapur (A039) Sonal Rajadhyax (A050) Tarannoom Rahmani (A053) Yuvraj Tandon (A059) NMIMS, PT-MBA, 2nd Year, 2013

 A growth strategy in which a company seeks to develop by adding totally unrelated products and markets to its existing business Examples:

 ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. The Company now stands rechristened ‘ITC Limited’  Market capitalisation of US $ 45 billion  Turnover of US $ 7 billion  Operates in: FMCG, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology  The only enterprise in the world, of comparable dimensions to be carbon-positive, water- positive, and solid waste recycling positive

•Politically active unions •MNCs urged to liquidate equity with a cap of 40% •Multiparty coalitions causing political uncertainty •Rural job program launched in 2006 •Reduced economic control & opened economy to imports •Govt. Approved 51% FDI provided company engaged in single branding Political •Favoured capital goods, increased black market •Not competent enough for international level •Foreign investment discouraged •India’s rapid GDP growth led to increase in spending power •Increase income 56% demand for FMCG product from rural sector Economic •88 % of rural population below poverty line •Rural access hampered by poor – road ,rail & telecommunication links •Requirement of combination of low wage & relatively high skilled labour Social Technologica l Competitive • National and International players interested in same markets • Profits to be made from India, an emerging economy • IT sector growth rapid • Internet usage access to rural sector • Increased mediums to information available on the ITC provided web portal • Limited mediums available to promote brand building

Bargaining power of suppliers – Low 1. Small qty of inputs 2. Small scale & unorganised suppliers 3. Less control over smokers Bargaining power of buyers – Low 1. Addiction 2. Symbolic & emotional values attached with it. 3. Blind taste, low differentiation 4. Low switching cost in terms of price Threat of New Entrants – Low 1. Tough product differentiation 2. Access to distribution channel is tough 3. High capital requirement 4. No economies of scale for local launch 5. Government policies Threat of substitutes – Low 1. Failure for Herbal cigarettes 2. Nicotine patch – low popularity and usage Competitive Rivalry – High 1. Many players 2. Price competition 3. Advertisement prohibited 4. Replacement for ads – event & sponsorships and sales promotions 5. All making new product launches

Bargaining power of suppliers – Low 1. Large no. of suppliers in the country 2. Cost of switching suppliers is low 3. Prices of substitutes are low Bargaining power of buyers – High 1. Low switching cost 2. Buyers are numerous and fragmented. 3. Retailers able to negotiate price with the Company Threat of New Entrants – Medium 1. increasing capital requirement - Huge investments in setting up distribution networks and promoting brands 2.competition from established companies 3. Customer switching costs are low Threat of substitutes – High Numerous substitutes available Competitive Rivalry – High 1. Multiple choices for consumer 2. Switching cost negligible hence making it competitive

Bargaining power of suppliers – Low 1. Large no. of suppliers 2. Few players indispensable to the suppliers. 3. Switching suppliers is feasible & inexpensive Bargaining power of buyers – Moderate 1. Numerous buyers hence losing one customer doesn’t matter 2. Switching cost is low Threat of New Entrants – Low to moderate 1. Branding plays a very important role. 2. Economies of scale is also a huge factor. 3. High exit barriers Threat of substitutes – Low Competitive Rivalry – High Low switching costs allows consumers to change their choice anytime

ITC P&G Sr. No. Factors Weight Rating Weight ed score Weight Rating Weight ed score 1 R&D expn 0.15 4 0.6 0.15 3 0.45 2 Product innovation 0.1 2 0.2 0.1 4 0.4 3 Revenue 0.15 3 0.45 0.15 1 0.15 4 Brand awareness 0.2 4 0.8 0.2 1 0.2 5 Attrition rate (top manageme nt) 0.3 3 0.9 0.3 1 0.3 6 Export 0.1 2 0.2 0.1 2 0.2 TOTAL 1.0 3.15 1.0 1.7

Strength MANAGEMENT PRODUCT LINE MARKETING PERSONNEL MANUFACTURING R & D CONSUMER BASE COMPETITIVE TECHNOLOGY ECONOMY Weakness MANAGEMENT PRODUCT LINE MARKETING PERSONNEL MANUFACTURING R & D CONSUMER BASE COMPETITIVE TECHNOLOGY ECONOMY Opportunities MARKET DEVELOPMENT – FMCG LEVERAGING IT BETTER – e-CHOUPAL MARKET PENETRATION – TIER 2 and 3 CITIES Threats COMPETITION – NATIONAL/INTERNA TIONAL OPENING OF ECONOMY TO FOREIGN PLAYERS EMPLOYEE ATTRITION

Strengths Weaknesses WeaknessesStrengths Opportunities ThreatsOpportunities Threats • Market Expansion • Promotion • Awareness • Strategic Alliances with international players • Emphasize on Personal Care • Affordability • Diversification

Key Internal Factors Weight Rating Weighted score Strengths 1. Distribution channel 0.12 3 0.36 2. R&D 0.1 4 0.4 3. Attrition rate 0.08 3 0.24 4. Quality 0.1 3 0.3 5. Eco friendly measures 0.06 2 0.12 6. Knowledge about the market 0.05 2 0.1 7. Oldest player in the industry 0.05 3 0.15 8. Product innovation 0.1 3 0.3 9. Brand awareness 0.09 2 0.18 Weakness 1. Dependence of tobacco products 0.08 4 0.32 2. Limited product lines 0.1 3 0.3 3. Less efforts to enter into coconut oil industry 0.07 2 0.14 Total 1 2.9

Key External Factors Weight Rating Weighted score Opportunities 1. Increase in disposal income 0.1 3 0.3 2. Government concentration on food sector 0.08 4 0.32 3. Government exemption 0.1 4 0.4 4. Untapped markets in the rural sector 0.12 3 0.36 5. Rural people becoming more brand conscious 0.08 3 0.24 Threats 1. Rise in inflation 0.07 5 0.35 2. Government allowance of FDI 0.09 4 0.36 3. Switching cost for suppliers 0.06 3 0.18 4. Government supporting small scale industries 0.07 2 0.14 5. Emergence of many local players as competitors 0.11 3 0.33 6. Number of substitutes is very high 0.12 2 0.24 Total 1 3.22

Stars Question Marks Cash Cows Dogs

Market Penetration Product Development Market Development Diversification Products NewExisting NewExisting Markets

Cigarettes Packaging & printing Hotels FMCG IT

ITC Hotels - Luxury Collection 5 hotels in Dubai Luxury hotel in Colombo Welcom Hotels Fortune Hotels Welcom Heritage ITC One', 'Towers' and the 'Executive Club' Welcom Cuisine - Over 100 owned and managed properties in 67 destinations - ITC Hotels : Luxury collection -WelcomHotels -Fortune Hotels -WelcomHeritage -Revenues inc by 20% in yr ending march ‘13

 Net Profit up 21.5%  Net revenue growth of 15.2% year on year  Non-cigarette FMCG segment • registers a healthy revenue growth of 15.7% • their losses are lower by 33%, • foods bringing in 60% of those revenues, • 15% market share Vs 36% of HUL  Agri Business records a growth of 8.5%  Paperboards, Paper & Packaging Segment Revenue up 11.7%  Hotels Business continues to be impacted by the weak macroeconomic environment and a spurt in room additions in key markets.

Shareholder value creation *2009 – 2010 Includes special Centenary dividend of ` 5.50 per share

 ITC’s reliance on the cigarette division is still large – 40% of revenues and 80% of profit contributor  Increased regulatory clamps and taxes levied on the tobacco industry has led ITC to foray into different markets  Some investments have paid of well, some have provided modest results  ITC can prove to be a major player in the FMCG market in the coming years, because of strong distribution channels and by ensuring a strong product mix

 Further investment into ITC Infotech to expand its range of operations  Possible collaboration with the Govt. w.r.t agricultural initiatives  Investments in more R&D w.r.t the FMCG market  Expand market base – urban and rural  Implement backward integration in the agricultural sector to ensure products pass from farmer to the end consumer reducing prices of its FMCG products

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