Thursday, November 6, 2008
Monday, September 29, 2008
Strong presence in India – 150 years of banking in India.
Provides the convenience of online banking to access information about various accounts and also transfer money
Strong Brand Name – worldwide presence.
Variety of services offered
ATM coverage not as good as other private banks
Services do not cater to the mass
Advertising is not aggressive
Credit card facilities not as good as other private banks
Not many branch networks
Government removing restrictions on foreign banks in 2009, would allow those banks to open shop in India. Stan C has an opportunity to increase its branches in India, and further utilize its brand image here.
Scope for more effective use of their brand name
Can start new departments like a brokerage firm
Emergence of Indian private banks
Nationalization of banks – these banks have many more branch networks than foreign banks
Some unique strategies:
To build and grow strong businesses in East and South East Asia- the Asia Pacific Region.
To enhance historical position in the Middle East and South Asia region.
To provide support in newly industrialized and emerging markets.
Capitalize on the good track record in these regions by building unique position and image among the target customer segment and being responsive to the needs and serve better than the competitors.
To concentrate operations in the activities that have direct impact on the communities of the countries; help the country and its economy and at the same time earn profit in an ethical way.
Friday, September 26, 2008
Objective of SBI: “Purposeful banking sub serving the growing and diversified financial needs of planned economic development of the country”
BRAND NAME: SBI Bank has earned a reputation in the market over the period of time(Being the oldest bank in India tracing history back to 1806)
Wide Distribution Network:
Excellent penetration in the country with more than 10000 core branches and more than 5100 branches of associate banks (subsidiaries).
Diversified Portfolio: SBI Bank has all the products under its belt, which help it to extend the relationship with existing customer.SBI Bank has umbrella of products to offer their customers, if once customer has relationship with the bank. Some Products, which SBI Bank is offering are: Retail Banking Business Banking Merchant Establishment Services (EDC Machine) Personal loans & Car loans Insurance Housing Loans
Government Owned: Government owns 60% stake in SBI. This gives SBI an edge over private banks in terms of customer security.
Low Transition Costs-SBI offers very low transition costs which attracts small customers.
The existing hierarchical management structure of the bank, although strength in some respects, is a barrier to change.
Though SBI cards are the 2nd largest player in the credit card industry, it has the highest non performing assets (NPAs) in the industry, which stand out to be at 16.28 % (Dec 2007).
Modernisation: SBI lags with respect to private players in terms of modernisation of its processes, infrastructure, centralisation, etc.
Merger of associate banks with SBI: Merger of all the associate banks (like SBH, SBM, etc) into SBI will create a mega bank which streamlines operations and unlocks value.
Planning to add 2000 branches and 3000 ATMs in 2008-2009. This will further increase its reach.
Increasing trade and business relations and a large number of expatriate populations offers a great opportunity to expand on foreign soil.
Advent of MNC banks: Large numbers of MNC banks are mushrooming in the Indian market due to the friendly policies adopted by the government. This can increase the level of competition and prove a potential threat for the market share of SBI bank.
Consumer expectations have increased many folds in last few years and the bank has not been responsive enough to meet them on time.
Private banks have started venturing into the rural and semi-urban sector, which used to be the bastion of the State Bank and other PSU banks
Employee Strike: There was an employee strike in the year 2006 which disrupted SBI’s activities. This can be repeated in the future.
Objective: “To serve as the preeminent financial advisor to companies, governments and investors from around the world.”
Market leader: Morgan Stanley also operates in 33 countries around the world with 600 offices, with an approximate employee workforce of 45,000.The company reports US$779 billion as assets under its management.
Good reputation in market: Morgan Stanley has been associated with some of the biggest corporate financings and public offerings in history, most notably the U.S. rail financing of 1939, Shell Union debenture of 1946, Jersey Standard's transaction of 1949, Apple common stock IPO of 1980, Conoco IPO of 1998 and the Google IPO in 2004.
Ability to continuously reinvent itself: Since its founding in 1935, Morgan Stanley and its people have helped redefine the meaning of financial services. The firm has continually broken new ground in advising its clients on strategic transactions, in pioneering the global expansion of finance and capital markets, and in providing new opportunities for individual and institutional investors. Morgan Stanley's growth, which parallels the history of modern finance. The firm credits itself with the first ever computer model for financial analysis.
Uncertainty about management: The company found itself in the midst of a management crisis in the late 90s that saw it lose a lot of talent and competence and ultimately saw the firing of its then CEO Philip Purcell in 2005. Since then Morgan Stanley has been undergoing a massive restructuring which also involved job cuts across several of its businesses.
Cyclical nature of business: Performance of Morgan Stanley is cyclical and dependent upon economy. As the economy is cyclical, the firm goes into a bad phase when the economy goes form peak to trough.
Controversies and Lawsuits: In 2003, Morgan Stanley agreed to pay billions of dollars in order to settle its portion of various legal actions and investigations brought by Eliott Spitzer, the Attorney General of New York, the National Association of Securities Dealers (Now FINRA), the United States Securities and Exchange Commission, (SEC) and a number of state securities regulators, relating to fraud that was allegedly perpetrated upon retail investors by a dozen of the largest investment banking securities brokerage firms.
Emerging markets: Morgan Stanley is enhancing its presence in South Korea and Russia by obtaining licenses. It can use its reputation to expand rapidly in emerging markets to boost its growth.
Rise in global savings: Global saving has risen steadily over the past several decades, but contrary to widespread belief, the rise in recent years has been no faster than the expansion of world GDP. In fact, the overall global saving rate stood at 22.8% of world GDP in 2006 – basically unchanged from the 23.0% reading in 1990. At the same time, there has been an important shift in the mix of global saving – away from the rich countries of the developed world toward the poor countries of the developing world. This development, rather than overall trends in global saving, is likely to remain a critical issue for the world economy and financial markets in the years ahead.
Utilization of equity capital: Employment of Morgan Stanley’s equity capital in investment ideas would increase returns to the firm
Competition from big players: The investment banking business is flooded with high competition from big players like Citigroup Global, Goldman Sachs, Lehman Brothers, etc.
Subprime Crisis: The subprime mortgage problem has now yielded a full-blown credit squeeze on Wall Street with securities firms' stock prices at fire-sale levels. The new fire-sale buyers are the so-called sovereign wealth funds, and China's are the most prominent.
High human capital turnover: Investment banking business is highly dependent on individuals. Human Resource management is very critical in investment banking.
1. HDFC is the strongest and most venerable play on Indian mortgages over the long term. The management of the bank is termed to be one of the best in the country.
2. HDFC has differentiated itself from its peers with its diversified network and revamped distribution strategy
3. HDFC has been highly proactive in passing on the cost and benefit to customers.
4. Besides the core business, HDFC’s insurance, AMC, banking, BPO, and real estate private equity businesses are also growing at a rapid pace and the estimated value of its investments/subsidiaries explains ~30% of HDFC’s market capitalization.
1. High dependence on individual loans.
2. Major stake held by American financial groups which are under stress due to economic slowdown.
1. Fast growing insurance business in the country.
2. Untapped rural markets.
1. Loss of market share to commercial banks and HFC’s
2. Higher than expected increase in funding cost
3. Risk of fraud and NPA accretion due to increase in interest rates and fall in property prices is inherent to the mortgage business.
Brand name: earned a reputation for extending quality services.
Huge network: ICICI Bank has the highest number of linked branches in the country. The bank operates through a network of 450 BRANCHES AND over 1800 ATMs across India.
Diversified portfolio: ICICI Bank has umbrella of products to offer their customers like retail banking, Insurance, Demat services, personal loans etc.
Aggressive Marketing: ICICI Bank is known for its aggressive marketing of its products. Recent Endorsement of its product by AMITABH BAHCHAN proves the same.
Technology: ICICI bank’s technology platform has been acknowledged globally as one of the best in terms of robustness, flexibility and cost efficiency.
Salary accounts: ICICI is having an edge over other banks in case of Salary Accounts because of huge network
Poor customer service: Though most of the companies are satisfied with the products offered by ICICI bank, the poor customer support/ service is creating a lot of dissatisfaction among the customers.
Little presence outside India: ICICI Bank is having little presence Outside India, because of which companies prefer MNC Bank, mainly Citibank.
Little presence outside India: ICICI Bank is having little presence Outside India, because of which companies prefer MNC Bank, mainly Citibank.
High transaction costs: ICICI Bank charges high cost for its transactions. Customers are using only those facilities of ICICI Bank which are provided at cheaper rates (Salary Account) and for other services they are going to nationalize banks and MNCs (Foreign exchange)
Focus mainly on high end customers: The bank targets only the top bracket of clients and does not cater to the needs of small customers. Due to this reason the bank may sometimes loose good clients.
Increasing individual incomes in India.
New companies: Sectors like IT and ITES are on a boom in the Indian market context, with new companies mushrooming in the market.
Banking sectors that are planned by Indian government increase the possibility of lots of new services in banking.
Advent of MNC banks: Large numbers of MNC banks are mushrooming in the Indian market due to the friendly policies adopted by the government.
Ever improving nationalized banks: With PSU banks like SBI going all out to compete with the private banks and government giving them a free hand to do increases competition from nationalized banks as well.
- The bank started first started in 1690 and enjoys strong market penetration.
- It was the first bank to launch credit cards in UK and thus the brand has become ingrained in the psyche of the consumers. This is further reinforced with the sponsorship deal for the English Premier League.
- Robust financial performance
- Increasing online security to combat fraud. The software will provide greater protection against such fraud.
- Geographically diversified operations.
- The company has a very small presence in the emerging markets of Asia. This can prove to be a strategic error of colossal nature. Nonetheless, this situation can also be turned into an opportunity.
- Lower profit margins. The 2 billion pound write-down in the value of risky assets, led to a fall in profit of 32%
- Low return on assets.
- Expansion into new emerging markets like India. In fact the Barclays credit card was launched in India just a few months ago.
- Acquire a company to inorganically expand its business. Barclays tried unsuccessfully to acquire ABN AMRO of Netherlands. Now it is looking at some of the financial firms in the US like Lehman and UBS.
- Buoyant asset management market
- Positive outlook for global banking industry
- With the high likelihood of Barclays acquiring another financial firm of similar size, it would face huge post-merger integration challenges. This would especially be sharp given its failed attempt to broker a deal with ABN AMRO. There would be negative perception and resistance among the employees of the potential target.
- The latest industry figures show that internet and e-commerce fraud on cards rose 45% in 2007, through skimming, data hacking or unsolicited emails or phone calls. This is a huge potential threat to Barclays in the future.
Wednesday, September 24, 2008
1. Strong and well differentiated brands with leading share positions
2. Distinctly placed products providing reach to every segment of society.
3. Consumer understanding and systems for building consumer insight
4. Integrated supply chain and well spread manufacturing units
5. Distribution structure with wide reach, high quality coverage – The launch of project “Shakti” has helped HUL to create brand awareness and extensive reach in rural India.
6. Access to Unilever global technology, capability and sharing of best practices from other Unilever companies.
7. Well placed to take advantage of growth in rural India and lower strata of the society through “Shakti”.
8. It could look at introducing products from its parent company like margarine in order to cater to changing consumer tastes and opportunities in food sector.
9. It can be a leader in exports by positioning itself as a sourcing hub for Unilever companies in various countries.
1. Price positioning in some categories allows for low price competition like Amul captured Kwality’s market.
2. Limited success in changing eating habits of people.
3. Competitors focusing on a particular product and eating up HUL’s share, like Nirma focusing on soaps and detergents.
1. Growing consumer base due to increasing income levels and new consumers from lower strata of the society
2. Untapped market in branded Ayurvedic medicines and other such consumer products.
3. Opportunity in Food sector: changing consumer tastes
4. Expansion of horizons towards more and more countries
1. Unfavourable raw material prices due to inflation, reducing profitability.
2. Heavy onslaught of competition in the core categories from emerging players like ITC will result in higher advertising expenditure
3. Spurious/counterfeit products in rural areas and small towns.
4. Reduction in real income of consumers due to high inflation.
Tuesday, September 23, 2008
Cigarettes are the main business. Introduction of VAT on cigarettes could have affected the sales. But the company managed to maintain market leadership and increase volume sales by 16 % last year
Cigarette business: Company uses a unique IT-enabled ‘Six Sigma’ based product development process. This product development process and the deep consumer insights give the company the unique understanding of positioning and brand development of its products.
Cigarette business: initiatives such as contemporary, internationalised packaging for ‘India Kings’ and ‘Gold Flake Kings’, multiple limited Edition Packs and flavour variants for ‘Classic’, etc have resulted in considerable fortification of your Company’s strong position in the premium, value-plus segment of the market.
Cigarette business : Modernization of Primary Manufacturing in Munger, introduction of sophisticated material handling systems at Bengaluru and implementation of cutting edge Norwegian technology – Cold Plasma Odour Abatement Systems – at the Bengaluru and Saharanpur primary manufacturing departments.
FMCG business: Relentless focus on providing consumers well-differentiated best-in-class products, supported by significant investments in product development, innovation, manufacturing technology and unmatched distribution infrastructure have dramatically enhanced brand equity of this business.
FMCG business: Ashirwad and Sunfeast continue to draw upon the agri sourcing strengths of e-Choupal network to gain competitive advantage by obtaining superior quality wheat at competitive costs.
Hotel and lifestyle retail business have shown strong growth because of booming Indian economy.
Cigarette business: The year ahead is fraught with extreme uncertainties, since for the first time in the history of the industry, manufacturers will not be able to position viable offers for consumers of non-filter cigarettes in view of the massive increase in excise duty rates in this segment.
Cigarette business: Harsh regulatory climate for cigarette business presents a daunting operating environment that will, undoubtedly, test the resilience of all legitimate players in the industry.
FMCG business: The year ahead presents a unique challenge to the business in the shape of an unprecedented rise in commodity prices across the board, including wheat, vegetable oil, maize and skimmed milk powder.
FMCG business: Soaring fuel prices and the need growing volumes without adversely impacting margins has been rendered extremely challenging.
Big Indian market with huge consumption capacity.
ITC is moving into new and emerging sectors including Information Technology, supporting business solutions.
e- choupal is a well thought of initiative taken by ITC which can also be used in other sectors in many other parts of the world. ITC leverages the concept of e-choupal in a novel way. The company researched the tastes of consumers in the northern, western and eastern India of atta, and then used the network to source and create the raw materials from farmers and then blend them for consumers under purposeful brand names. This concept is quite difficult for competitors to emulate.
The obvious threat is from competition both domestic as well as international. ITC’s opportunities are likely to be opportunities for other companies as well. Therefore the dynamic of competition will alter in the medium term. Western companies might see India as an exciting opportunity for themselves to find new market segments for their own offerings.
The company is more or less still dependant on its tobacco revenues to fund up its cash guzzling FMCG start up. Cigarettes account for about 47 percent of the company’s turnover. The increasing tax on cigarettes and the growing concern of people regarding the health hazards being caused by smoking can eat up most of the profits of the company.
Diversification: Product diversification with about 300 products. The diverse product mix includes personal and beauty items, household products, health and wellness, Baby and family and pet care and nutrition.
Research and development: P&G invests 3 - 4 % of Net outside Sales in research and development (R&D). This amount easily exceeds their leading competitors, among consumer products companies. They also have more Ph.D.s working in labs around the world than the combined science and engineering faculty at Harvard, MIT and Berkeley.
Innovation: In fiscal year 2004-05, P&G was granted 27,000 patents globally. P&G has produced a number of new products like diapers; shampoo and conditioner in one; toothpaste that prevents osteoporosis. Its diversified product mix helps in connecting technology across categories and brings innovation to the product.
Fat profit margins: P&G announced net sales for the April - June quarter to $21.3 billion, the growth of 10%. This is the seventh year and 24th consecutive quarter in which P&G delivered top-line growth above the company's targets.
Strong brands: P&G has 13 Billion-Dollar Sales Brands such as: Always, Ariel, Bounty, Charmin, Crest, Downy/Lenor, Folgers, Iams, Pampers, Pantene, Pringle's and Tide. The total sales of these thirteen ‘billion dollar brands’ taken together, would make a Fortune 100 company in itself.
Brand building: Advertisement expenditure of P&G is twice than the next company on the list of companies which spend highly on advertising. Their idea of promoting product during weekday daytime slots when mostly housewives would be available helped in building the brand in a big way.
Wide distribution network: P&G markets its products in 160 countries with manufacturing capacities in 40 countries.
Leading market position: P&G is the world's largest consumer products company. P&G is the global leader in all its 5 broad business segments.
Non-profitable products: Running products which may not be profitable but still had to do it because of keeping up with the market presence strategy. Few such products are Crest as toothpaste, Always hygiene pads, Dawn dishwashing bar.
Inadequate quality control: With large number of product profile, the quality control of all the products has deteriorated. In September 2006, P&G suspended sales of the cosmetics in China after they were found by the authorities to contain the banned substances, chromium and neodymium. The case of Rely tampon also establishes this fact.
· Mass appeal products at premium price: Some mass appeal products like Pringles are priced very high as compared to its competitor’s products.
Developing markets: The economies of China and India are growing at a very fast pace. The company currently competes in only about 10 of its top 25 categories in most developing countries. This provides P&G with an opportunity to enhance its market share as well as expand its presence in other categories.
Growing bottled water market: Bottled water is a fast-growing segment in the world’s food and beverage market owing to increasing health concerns. In May 2007, P&G launched PUR Flavor Options, a product that allows consumers to choose flavored or unflavored water from their home water filter. P&G could leverage its position in the bottled water segment to capitalize on the growing demand for packaged and flavored water.
Growing healthcare industry in the US: There is a growing opportunity for disinfectant manufacturers in the healthcare industry in the US. The aging US population would lead to increased healthcare spending in the US. P&G is well positioned in the prescription drugs and healthcare segments and can leverage this trend to boost both its revenues and market share.
· Changing consumer preference: With the consumer preferences and choices, P&G because of its huge R&D base and Connect + Develop program is well placed to come up with new and innovative products that may suit the customer needs.
New regulations: Due to increasing public pressure, the US Food and Drug Administration (FDA) are expected to impose stringent quality norms on cosmetic products. New regulations may delay launch of new products and result in higher product development expenditure. These regulations may impose new liabilities or increase operating expenses, either of which could result in a decline in profitability.
Competition from local low cost players: P&G faces competition from local, low-cost manufacturers in developing countries.
Customer concentration: A significant portion of the revenues from the sale of products is derived from a few customers. Sales to Wal-Mart Stores, Inc. represent approximately 15% of its total revenue in 2007. The company gets more than billions of dollars from seven retail customers. The loss of any of these customers will lead to a sharp decline in its revenues.
Diversification: Nestle has a wide product portfolio encompassing baby foods and dairy products, chocolates and breakfast cereals and food seasoning.
Joint ventures: Nestle holds joint ventures with leading businesses like Coca Cola, General Mills and L'Oreal which allow it to access their technical knowledge to further develop its own brand.
Influencing consumer decisions: With its innovative and attractive advertising campaigns Nestle is able to influence customer's buying decisions.
Established brand across the globe: With an employee base of over 200,000, annual revenues of more than $120 billion and a presence in more than a 100 countries, Nestle brings with it a strong brand name and knowledge of different markets all over the world.
Negative effects on the brand image: The investigations into the controversial advertising campaign that promoted infant milk products over breastfeeding and the usage of slave labor for its plants in African countries continue even today and Nestlé’s brand name has been negatively affected due to the media campaigns covering this issue.
Storage and transportation problems: Because the Indian food industry is not developed enough to handle complex storage and transport requirements, Nestle has a difficult job of providing product quality at centers far off from the manufacturing base.
Complex supply chain management: Nestle has a complex supply chain management and the main issue for Nestle India is its traceability.
Growing middle class: The growing middle class and the high percentage of youth population provides an excellent opportunity for Nestle to use its existing range of kiosks in malls and educational institutes to build a loyal brand following.
Urbanization and nuclear families: With the Indian society moving towards a more urban and nuclear family society, Nestle has huge market for its products like Maggi and Dahi and other milk products.
· Low labour costs in developing countries: Since manufacturing of some products is cheaper in India than in other South East Asian countries, Nestle India could become an export hub for the parent in certain product categories.
Cost of raw materials: Inflation rising at the pace that it is puts a strain on Nestle for buying its raw materials like food grains and yet maintaining its margins.
Indians perception towards fresh foods: Indians believe in eating fresh foods instead of ready to eat products, which provide a major hurdle in the marketing of Nestle products across the country.
Exports to a single location: The company’s exports stood at Rs 2,571 m at the end of 2003 (11% of revenues) and continue to grow at a decent pace. But a major portion of this comprises of Coffee (around 67% of the exports were that of Nescafe instant to Russia). This constitutes a big chunk of the total exports to a single location. Historically, Russia has been a very volatile market for Nestle, and its overall performance takes a hit often due to this factor.
Liberalization of trade and investment policies: Nestle faces immense competition from the organized as well as the unorganized sectors. Off late, to liberalize its trade and investment policies to enable the country to better function in the globalised economy, the Indian Government has reduced the import duty of food segments thus intensifying the battle.
Monday, August 11, 2008
What is the way out if you are the manager of this new airline? Remember you do not have enough cash, since it isn’t Kingfisher with Vijay Mallya’s backing.
Alex, the plant manager had been appointed to make the plant profitable from its dire strait 6 months ago. He has now been given the ultimatum to show results in 3 months. Alex is worried on how he would perform the task and is not sure of what his exact requirements and goals are. The top management has done little to provide any direction and has only been communicating ‘Fear’ of loss of jobs if profitability is not achieved.
Alex is having problems understanding the problems in the plant and is not able to figure out why the plant is losing money. To his surprise he finds the introduction of new technology (robots) has done little to improve efficiency and productivity in the plant.
Luckily he comes across his old physics professor, Jonah who is now a consultant. He advises Alex to clearly define his goal and get 3 measurements that would help him achieve that goal. Alex identifies the 3 measurements as ROI, Net profits and Cash flow which would in turn help the plant to achieve its ultimate goal of making money. Jonah advices that to enable the plant to make money Alex should be able to balance 3 critical areas simultaneously: reducing inventory, reducing operating expense and increase throughput. Alex does extensive research on the functioning of the plant and takes concrete steps to identify bottlenecks and thereafter maximize the use of the bottlenecks to eventually eliminate them. He communicates his new vision to the plant employees and works in coordination with them to reduce inventory.
In the end, the plant dramatically improves efficiency, increases net profits and also attracts new clients. Alex convinces the managements that implementing the method of Theory Of Constraints is indeed better than the traditional cost accounting method.
This book is a great read for budding managers and it emphasizes the importance of inventory, bottlenecks, communication, etc. It gives a good account of manager’s personal and professional life and the emphasis given to performance and clarity of thought at all times.
Wednesday, August 6, 2008
Source : Paul Friga
Wednesday, July 2, 2008
The authors, W. Chan Kim and Renée Mauborgne have made a real contribution to advancing the thinking on business strategy, and they have this with a style which does not even make this book a rather dull strategy book. They offer a set of practical frameworks and models that lucidly explains what appears to be fairly obvious points, but are in reality profound insights and breakthrough contributions.
The Blue Ocean strategy is all about avoiding head-to-head competition. Because established markets in the developed world are saturated, head-to-head competition cannot bring attractive returns. At first read, it is so easy to understand and so intuitively obvious, that one is left wondering why everyone doesn’t adopt this approach. By the end of the book, you are left thinking if anyone is able to adopt this approach on a systematic basis. For to do so requires a broad set of multi-disciplinary skills as well as fresh thinking about even the most mundane and pedestrian options. It requires both discipline and inspiration.
Tuesday, March 25, 2008
Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products.
Despite being the third largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country
The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco.
MAJOR PLAYERS IN INDIA
In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.
ITC Limited (ITC) is one of India's foremost private sector companies. ITC has a diversified presence in cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, branded apparel, packaged foods and confectionery, greeting cards and other products. The company is headquartered in Kolkata, India. For the fiscal year ended March 2006 ITC Limited generated revenues of $2,914 million.
GODFREY PHILIPS INDIA LTD:
Godfrey Phillips India Ltd is one of India’s leading cigarette manufacturers. The company’s brands include Red and White, Four Square, Jaisalmer, Cavanders, Tipper and Prince. One of Godfrey Phillips major stakeholders is Philip Morris. It is headquartered in Delhi, India. In the fiscal year ended March 2006, Godfrey Phillips reported sales (net of excise) of $169 million, a 22% increase on the previous fiscal year.
VAZIR SULTAN TOBACCO COMPANY:
Vazir Sultan Tobacco Company is more commonly known as VST Industries and has collaboration with the BAT Group UK. The company manufactures and distributes cigarettes under the brands names of Charms, Charminar, and Gold. The company is headquartered in Hyderabad, India .
MARKET OVERVIEW & GOVERNMENTREGULATIONS
The Indian tobacco market generated total revenues of $9.9 billion in 2007, this representing a compound annual growth rate (CAGR) of 6.6% for the five-year period spanning 2003-2007.
The cigarette industry is expected to grow at a modest rate only of around 1 to 2% or less as a result of the government policies, growing public awareness against the product and the ever increasing tax levies. India's per capita consumption of tobacco is less than half of the global average of 0.8 kg to 1.8 kg (incidentally, China's is around 2.62 kg). The number of tobacco smokers in India is placed at 250 mn. Cigarettes, although an urban phenomenon, have steadily penetrated into the rural areas.
The Indian excise tariff on cigarettes is higher than the rates prevailing in other countries. High excise duties have resulted in the expansion of the cheaper non-cigarette tobacco segment. The government has made legislative interventions to curtail the use of tobacco products. It has prohibited sale of tobacco products within a distance of 100 metres of schools, educational institutions, hospitals and medical institutions and smoking in public places. It has also banned all forms of tobacco advertising and insists on statutory warning on all packages of tobacco products, as being injurious to health in a manner which makes it prominent and effective.
Organized cigarette sales in the country are declining but the tobacco consumption is rising. Cigarette sales in the organized sector declined by 4% between 1996-97 and 2001-02. Lately it is growing at around 1.5% to 2% a year. But contraband trade in cigarettes is said to be rising at a substantially high rate. Contraband's entry into the market is routed through Nepal and Bangladesh. Mumbai alone accounts for nearly half of all contraband cigarettes into the country.
The Indian tobacco market grew by 1.1% in 2006 to reach a volume of 99.1 billion sticks. The compound annual growth rate of the market volume in the period 2002-2006 was 2.6%.
ITC is the leading companies in the Indian tobacco market, holding a 72% share of the market's volume. Godfrey Philips accounts for a further 12% of the market's volume.
· Entered the Indian market in the year 1994 amidst very stringent telecom policies
· Current market share of about 79%
· In 2006-2007, had 1,300 outlets in 400 cities in India
· Plans to have 2,000 outlets in 700 cities by 2010
· Chosen as 'the most respected consumer durables company' in India by the weekly magazine Business World in 2004
The reasons for Nokia's stupendous success in India include amazing branding, a focused marketing exercise and distribution strength, among others. If we try to recall a few things about Nokia, the things that come up to the mind are:
· Made for India campaign – with TVCs of Nokia 1100 tied to a truck
· Human Technology campaign – easy to use, association to emotions, curvy
· Har jeb mein rang – inspiring people to have a colour mobile handset
· Hindi text and SMS, talking alarm etc.
All these features reinforce the ‘customer oriented’ aspect of the company. Many of these features are tailor made for the Indian market and have been achieved after in depth research. Better understanding of the Indian consumer has given the company an edge over its competitors like Motorola which focused on cutting edge technology but in turn lost out on user-friendliness.
Focusing on the mobile phone market, establishing crucial distribution partnerships, making early investments in manufacturing and brand-building, and developing innovative product features are the basic reasons for the success of Nokia.
No wonder Nokia jumped into 4th position of Brand Equity’s survey of the most trusted brands in India in 2007:
As part of its distribution strategy, Nokia has ensured that it has a presence in all 2,000 cities and towns that have cellular coverage. Nokia's distribution network of over 30,000 outlets is roughly double that of its rivals, according to industry sources.
In partnership with HCL, Nokia has introduced phones at all price points, right from the mass market entry-level phones to the mid-market colour and camera phones and also the high-end exclusive phones. Nokia has very wide range of models enabling more than one choice of handset for every price point.
Among the more recent initiatives taken by the company to build up its brand further are things like using Shah Rukh Khan as brand ambassador. This is the first time something like this has been done for a brand that has all along talked leadership and technology. "He has a pan-India appeal and in smaller markets, a huge connect. We took a calculated shot on SRK helping us explode the rural market for us." as the Nokia management points out. Educating the rural masses about usage of various applications in Nokia handset is being done through Nokia vans. Also a new initiative of using Nokia handsets as substitutes of STD – PCOs in villages is being tried out.
Nokia's media planning tries to ensure that targeted category consumers get to see the ads meant for them, through a selection of different channel clusters. For entry level, they target a Doordarshan sponsorship on one-day cricket. For N95 they target Discovery, English movie channel and news channels.
Beyond advertising, Nokia is trying to create more touch points through its concept stores, already opened across several major metros and cities, and a showcasing of its higher end products via malls and road shows.
On the basis of observed facts and the past record, the SWOT of Nokia can be drawn in general something like:
Nokia Brand worth – a qualitative attempt
If we try to find out the brand worth of Nokia using the framework of Interbrand Brand Strength Formula, the probable radar of the Nokia as under different attributes comes out to be something like
The allotment of figures is basically qualitative and not absolutely correct. However, the thought behind it is basically based on observations and secondary data and tends more towards a relative scale.
Leadership is basically a brand’s ability to influence its market and be a dominant force with a strong market share such that it can set price points, command distribution and resist competitive invasions. Nokia scores high on most of these although competitive invasions are always possible in a technology and innovation driven industry.
Stability is basically sustainability of a brand based on customer loyalty and past record. Again Nokia scores high on these fronts.
The brand’s trading environment in terms of growth prospects, volatility and barriers to entry basically explains the ‘market’. The growth prospects of Indian mobile handset market are very encouraging and with and barriers to entry are high basically because of many big brands already in the market.
Geographic spread of Nokia is high as observed in outlets and service centers and ‘trend’ which basically explains the brand’s ability to remain contemporary and relevant to customer is also decent. This again is diminished by highly technologically intensive industry.
Support, which is the amount and consistency of marketing and communication activities in case of Nokia, has been very coherent. The TVCs have been very effective and brand equity is very high. The brand also enjoys high ‘protection’ by law for its legal titles.
The basic drivers for success of Nokia in India have been its adaptation backed by strong skills and experience it gained in China. The various campaigns like human technology made for India etc which actually got reflected in the product, promotion and the pricing and together with a sound distribution system have been the reasons for its success. These actually resulted in building up a great brand Nokia which almost every Indian considers to be his trusted and understanding friend.
Wednesday, March 19, 2008
Name: Rashmi Gupta
Designation: Senior Project Manager
Company: CSC, Noida
Experience: 11 years
The new start ups in IT sector should first of all do the market study. As the current market is saturating and declining. Thus to survive in this sector requires lots of cost cutting at the employees end as well as the location. The company has to adopt low cost strategy. The employer should search for the location where the cost of the land and setting up the infrastructure does not cost too much. They should locate the industry in small cities to avail the location benefit. The employees should be the people who don’t expect hefty pay packages. Nowadays IT companies are also picking up the BCom and BSc degree holders also to cut the money spent on salaries. The new start ups should also employ people from the BSc Physics and BCA graduates at the entry level and should train them in the language required for the project. The project manager should be some experienced person who has worked in some big IT industry so that he can handle the intricacies of the project. The projects bagged should be international as well as domestic. The emphasis should be on capturing the domestic market as well because of the declining dollar value.
What is the best strategy that a company should follow in IT in today’s competitive world?
The IT sector is really down nowadays so the company should focus on building strong bond with the customers. They should emphasize on long term relationship with the customers. They should leverage the existing relationships for new projects. The relationship should be built on trust and quality. They should make their customers believe that the amount they are paying for the project is really value for money. They will get the quality deliveries on time.
What do you think the companies nowadays really follow the concept of core competencies?
In the IT industry the companies generally venture into their own field of expertise that is in their core competency. For example CSC core competency is support. CSC major projects are of support which makes it among the top consulting companies in IT. The BPO companies generally venture into in this field if they have core competency in customer relationship. Moreover it is really appropriate for a company to enter the market with their core competency to succeed in this competitive world.
Do you feel that long term strategies can be made in the IT Company in today’s dynamic world?
Today’s world is really dynamic. The IT sector was on such a boom. The Indian GDP was increasing because of boom in outsourcing Information technology and IT-enabled services. The death of this industry is far from anyone's horizon. But the market is dying slowly because of rising wages. So long term strategy is very difficult to make. The strategy has to keep changing according to the market.
Being a manager, now how would you analyze the case and help P&G out?
HDFC Bank is India's second largest having an average Return on Asset of 1.4%.
The bank has emerged as the second largest player in the retail arena (after ICICI Bank). With a growing branch network and expanding retail market, the bank has attained extensive expertise in the retail market. At end-Dec.’07, HDFC Bank’s retail loans constituted 53% of its loan book.
The corporate portfolio is more biased towards highly rated companies and the SME supply chains.
HDFC bank has been unable to add to its branch network over the past one year on account of non receipt of branch licenses from the RBI.
HDFC Bank’s share of low cost deposits stands at 51% as of December 2007, which is the most enviable feature vis-à-vis peers.
HDFC Bank’s asset quality (net NPAs at 0.4% of total advances) is very healthy.
Corporate - 47%
Retail - 53%
Deposit break - up
Term - 49%
Current - 26%
Saving - 25%
Centurion Bank of Punjab – a brief profile
CBoP is a fast growing new generation private sector bank.
CBoP has a strong and experienced management team. The management has demonstrated a marked capability to integrate diverse organizations by successfully merging Bank of Punjab with itself. It had recently acquired Lord Krishna Bank, integration of which with CBoP operations is currently underway.
The bank follows a retail focused strategy with SME as a strong second engine.
The fee income share, at 40% as of December 2007and emanating from third party distribution of financial products, wealth management and foreign exchange business, is one of the best in the industry.
CBoP has an average CASA of 25% – a function of an improving but yet underutilized network franchise. A latent significant operating leverage continues to be the key attraction of the bank.
Corporate - 40%
Retail - 60%
Deposit break - up
Term - 75%
CASA (Current Account & Saving Account) - 25%
While the swap ratio of 1:29 for HDFC-CBOP merger turned out to be more favourable for HDFC Bank than expected by the market, the merger appears to be long-term positive on market cap to branch basis.
The market cap to branch ratio of HDFC Bank is Rs.721m where the same for CBOP is Rs. 238m. Hence, HDFC Bank has been able to buy the franchisee of CBOP at almost one-third of what the market is currently giving to its own franchisee.
If HDFC Bank manages to improve the productivity of these branches to even half the levels of HDFC Bank branches, the merger will become positive in longer term.
It is expected that HDFC Bank will take a one-time charge of ~Rs3.5bn – to be netted off against reserves – in order to clean up CBoP’s balance sheet at the time of the merger and to account for the merger related expenses. While the merger would be EPS dilutive for HDFC Bank in the interim, more clarity is required in terms of the initial write-off the entity would have to take.
The bank has been valued at 4.7x FY08E BV. Given the fact that the profitability ratios of CBoP are quite low, this looks an expensive proposition for HDFC in the short run. Thus the deal is a profitable deal for CBoP who in all probabilities would have sold out to a foreign player past 2009.
Positives from the Merger
HDFC will get an access to 394 branches of CBoP and an increased presence in southern and northern states. At present, 170 of CBoP’s branches lie in the North, concentrated in the National Capital Region (NCR, 55), Punjab (78), Haryana (28); 150 of its branches are situated in the South, mainly in Kerala (91). The merger would provide the HDFC Bank with greater access to the North (Punjab and Haryana) as well as the South (particularly Kerala), thereby strengthening its presence in those regions.
Apart from the strong retail focus of both the banks, CBoP’s strong SME relationships will complement HDFC bias towards highly rated corporates thus expanding HDFC’s base.
The merger will result in the creation of India’s 7th largest bank, just behind public giants like Bank of Baroda, Bank of India.
An important gain for HDFC Bank is induction of a strong and capable management team with extensive industry experience and proven capabilities.
Post Merger Scenario
Retail segment will continue to be the main focus for the combined entity and would be the crucial growth driver.
Post merger of HDFC-CBOP, HDFC’s stake in HDFC Bank is projected to fall to 18.7% (including ESOPs allotment). However, HDFC Bank is expected to issue 26.3 m shares to HDFC on preferential basis, which will enable HDFC to maintain its stake of 23.28% post merger. Hence, HDFC is expected to infuse around Rs.39bn to HDFC bank to maintain its current ownership.
Due to an influx of 394 branches from CBoP, there will be a significant increase in the number of branches for HDFC. There is significant scope for improvement in utilization of the branch network, as branch/ employee productivity is still way below that for the peer group. As the combined entity leverages the CBoP’s branch network, the opex to average asset will continue to trend down. The opex to average asset is expected to decline from 3.4% in FY08 to 3.28% in FY10.
CBoP currently has a weaker asset profile with net NPAs of 1.6% as against 0.4% for HDFC Bank. Going forward, HDFC Bank (combined entity) would aim to maintain its NPA profile at these levels, which would require a charge of ~Rs2bn. In addition, it is expected that HDFC Bank would provide for another Rs1.5bn towards any potential NPAs.
Enam Securities Research
SBICap Securities Research
Anand Rathi Securities Private Ltd Research