ITC : Diversification
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The document details ITC's corporate and diversification strategies aimed at achieving market leadership, discussing its evolution from a tobacco company to a diversified conglomerate. It highlights the challenges and opportunities faced by ITC, such as regulatory pressures on tobacco, competition, and the need to invest in sustainable practices. Recommendations include reducing reliance on tobacco, maintaining quality standards, and leveraging existing capabilities to meet future challenges.
ITC : Diversification
- 1. & ITS DIVERSIFICATION STRATEGIES FOR MARKET LEADERSHIP
- 2. Team Members • • • • • • • Abhinav DISCLAIMER Aman Hemraj No member of this team endorses use Kavish of tobacco or any such products. Amit Paritosh Viewers’ discretion is Col Ajay K Raina, SM recommended. 2
- 3. Case Study : Vital Stats • Vintage – Early 2005. • Focus – Corporate Strategy • Ingredients:– Need to diversify. – Strategies adopted. – Future possibilities. • Our Approach:– – – – An overview. Analysis. Recommendations. Real time benchmarking. • Limitations. 3
- 4. Overview • Incorporated in 1910 as Imperial Tobacco Company. • Ownership shifted from British to Indian management team in 1974; rechristened as India Tobacco Company Limited. • Strategic diversification started in 1970s into related as well as unrelated businesses. • Has successfully spread its business and market risks. 4
- 5. The Start Point • ITC‟s Vision and Mission statements. • Corporate Strategy briefly touched upon:– “It is ITC‟s endeavour to continuously explore opportunities for growth by synergising and blending its multiple core competencies to create new epicentres of growth”. – YC Deveshwar, Chairman. 5
- 7. Change is Never Easy ANALYSTS’ VIEW - Risk of overspreading its assets. - Fear of losing effective control over businesses. - Survival of one may cost profit of another. MANAGEMENT’S STANCE “We will either become the market leader or exit” 7
- 8. Changing Ambitions • Core business – cigarette & tobacco. – Market share of 60%. – Revenue contribution of 78%. – Profit margins of 40%. • Among top five private sector companies in India; aiming to be a global entity. • Early 2000s – India amongst economic boom. • Anti-tobacco campaign & regulatory restrictions. • “Everyone still refers to us as a cigarette company….one of the largest hotel chains, largest print shop…..” YC Deveshwar. 8
- 10. FMCG-Cigarettes • Focus on delivery of highest product quality. • Leadership maintained through delivery of value. • Innovative marketing schemes (eg festival packs, limited edition). • Segmentation of consumers/ pricing. • Increasing costs of the selected ones to increase margins. 10
- 11. FMCG-Other • • • • • • • Bukhara‟s popularity – Kitchens of India. Agro products – Aashirvaad – Sunfeast. Consumer quest for healthier snacks and food. Innovative additions (eg orange Marie). Exporting Mint-O-Fresh & Eclairs. Wills and John Players- secondary advertising. Lifestyle stores – international shopping experience. • Expressions, Regalia and Matrubhasha. • AIM (120 hits) & Mangal Deep – the leaders. 11
- 12. Hotels • Among top with Taj & Oberai. • ITC Sonar Bangla Sheraton, Kolkata – one of the best by ABTA. • Logo‟s Indian connection. • Segmentation strategy – „Branded Accommodation‟ (hotel within the hotel). • Restructuring of operations for better efficiency = higher occupancy+ increased revenues. 12
- 14. Broadly…. (Seen it) • At the corporate level, ITC aims to create multiple drivers of growth by developing a portfolio of such businesses that best matches organisational capability with opportunities in domestic and export markets. • As regards Business Strategies, all three types have been used with varying degrees of mix. 14
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- 17. PEST Analysis…. • Political Aspects. – – – – Crusaders. 2001 ban on the advertising. Increased excise duties. Economic reforms, de-licensing and liberalisation. – New technologies in agriculture, manufacturing…. Tax incentives on R&D and technology upgradation. – State governments and luxury tax. – Focus on rural sector development. 17
- 18. …..PEST Analysis… • Economical Aspects – A growing economy = A growing portfolio of businesses… already seen. – Offshore businesses, especially IT industry. – Era of international tie-ups. – Huge commercial spaces available. – Corporate culture and associated needs. – Rising small town aspirations. – National imperatives. 18
- 19. …..PEST Analysis… • Social Aspects – – – – – – – – – – – – – Younger demographic profile. Increased PCI and spending power. Lifestyle & brand consciousness. Desire for high end international products. Changing definition of luxury and necessity. Health/nutrition consciousness. Leaning back on mother tongue. Yearning for Personalised products. Averse to smoking. Elite among equals. Less leisure time. Need for innovative gifting options. CSR prism. 19
- 20. …..PEST Analysis • Technological Aspects – Farming technology under revolution. – Innovation vis-à-vis competitive advantage. – Acceptable substitutes to traditional foods. – Huge impacts on SCM started to be felt. – Cheap labour for high tech jobs. 20
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- 22. Strengths • Brand Image. • Largest selling Tobacco brand in India; regulations. • Illustrated ability to leverage traditional businesses to develop new brands (Chefs + Cigarette =FMCG; paper+ package = Greeting cards). • Diversification profile and track record. • Distribution network. • Strong financial performance. • R&D. • CSR programmes and success therein. 22
- 23. Weaknesses • Too much reliance on tobacco revenues. • Miles to go. • Essentially “Desi”. • Unrelated diversifications. • Heavy taxation prone products. • Brand name‟s association with tobacco. • Other businesses subsidized by tobacco segment. 23
- 24. Opportunities…. • Leveraging brand equity. • Government policies (liberalisation) and stable economy. • Untapped Rural market. • Lowest per capita FMCG consumption. • Personal care & booming incomes. • Synergies across businesses + leveraging domain expertise for growth in other sectors. 24
- 25. ……Opportunities • The enviable reach and distribution network of e-choupal. • Taking IT business to USA; 60% in Europe. 25
- 26. Threats • Competition – domestic+ international. • Increasingly hostile attitude towards smoking in general. • Government policies towards tobacco= tax, regulations. • Systematic threats. • IT bubble (assumed). 26
- 28. Porter’s 5 Forces: Cigarettes… • Bargaining Power of Buyers=LOW – Addicted customers . – Symbolic and emotional values. – Product quality not much important to smokers. – Low switching costs. – Brand loyalty insignificant. 28
- 29. ….Porter’s 5 Forces… • Bargaining Power of Suppliers = LOW – Many small, un-organised suppliers available. – Direct access to growers by big companies. – Suppliers have no influence on consumers. – No one-stop solution provider vis-à-vis variety. – No constitutional protection. – Unorganised financing; prone to exploitation. 29
- 30. ….Porter’s 5 Forces… • Competitive Rivalry in the Industry=HIGH – Many competing players. – Brand loyalty in premium segments. – Price competition through cost efficiency. – Advertisement for cigarettes is now prohibited in India. – Replacement for ads – event sponsorships and costs. – New product launches. – Cost of secondary promotion. 30
- 31. ….Porter’s 5 Forces… • Threat of Substitute Product=MEDIUM – Two aspects. – Sin vs Sin:• Pan. • Beedi and Gutkha – Buyers‟ propensity driven by health & costs • • • • e-cigarettes Herbal Cigarettes. Nicotine patch. Pills. 31
- 32. ….Porter’s 5 Forces • Barriers to Entry = HIGH – New product differentiation very difficult; huge variety available. – Local launches can not achieve economies of scale. – Govt regulations. • No fresh licenses for setting up new plants. • No incentives permitted. – Huge capital required to manufacture for an all India presence. Ban on advertisements & brand identity. • SUMMARY – High Barriers, Stiff competition, Low powers and Medium for substitutes. 32
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- 34. Assumed Data G R O W T H •Agro Business •Hotels •Paperboards & Packaging •FMCG-others •Hotels •FMCG•Cigarettes •ITC Infotech MARKET SHARE 34
- 35. The Net Outcome YoY Growth : 2001 80.00% 72% AWARDS : 2004 • Forbes –World‟s Leading companies list. 70.00% 60.00% 50.00% 37% 40.00% 35.60% 30.00% 20.00% 10.00% 8.30% 10.60% 14.20% • World Business Award. • Enterprise Business 15.90% Transformation Award 0.00% Gross Net Opg Opg FMCG Hotel EBT Sales Sales Margin Profit Margin 35
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- 38. Broad Diversification Strategies • Aimed at synergising both backward and forward integration. • Convergence of multiple core competencies. • Value derived from diversified portfolio of related businesses through efficient value chains. • Brand management + Understanding markets + Consumer tastes. • Selection criterions:– Good likely ROI. – Potential for future expansion. 38
- 39. Analysis of Strategies • Entering into less competitive or unexplored markets (ready to eat, staples, wafers). • Maintaining a well-managed supply chain network. • Innovation-Regular introduction of new products, duly supported by R & D. • Mix of more than one business strategies. • Extensive advertising (biscuits, confectionary, wafers) • Multiple drivers of growth - matching internal capabilities with emerging market opportunities • Pursue World class competitiveness in the entire value chain • Transformational strategy (e-choupal). 39
- 40. Challenges for Strategies • Capability of organisation to manage multiple businesses indefinitely. • ITC has been trying to develop a capacity to manage their large portfolio which will result in a need of huge funds. • ITC needs to maintain a proper flow of cash and proper project budget control. • Investing in people. 40
- 41. Recommendations • No choice but reduce dependence on tobacco. • Needs to continue to leverage upon its existing skills and competencies. • Good quality needs to be maintained to back strong brand capabilities. • Need to formulate strategies to meet new challenges like FDI. • ITC‟s CSR must continue to offset the negativity associated with smoking. 41
- 42. Reality Check : Beyond CS 42
- 43. It pays to be Competent – A turnover of over US $ 5 billion and a market capitalization of over US$ 18 billion. – Total shareholder returns grew at a compound rate of over 24% per annum over the last 5 years. – Reputed to be one of the world‟s most successfully diversified companies. – Direct employment to more than 26,000people. – e-choupal initiative is the world‟s largest rural digital infrastructure benefiting over 4 million farmers. – Watershed Development initiative brings water to over 46,000 hectares of dry lands and moisture-stressed areas. – ITC‟s sustainable community development initiatives include women‟s empowerment, supplementary education. 43
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