Asian Paints Limited

Competition & Strategy Project Report Submitted to Prof. Srinivasan R on 19th March, 2010

by Group 16, Section:D Chinmaya Kumar Sharma Gedam Santosh Gurav Shekhar Jaywant Kulpreet Singh

TABLE OF CONTENTS

Chapter 1: The Paints Industry ..................................................................................................................................................... 3 The Indian Paints Industry ............................................................................................................................................................. 3 Demand Drivers for Indian Paints Industry ............................................................................................................................ 6 Five Forces Analysis of Indian Paints Industry ...................................................................................................................... 6 Key Success Factors ........................................................................................................................................................................ 10 Chapter2: Asian Paints ................................................................................................................................................................... 11 Value chain and strategic resources ........................................................................................................................................ 11 Value chain of the Asian Paints....................................................................................................................................................... 11 PITstop 1: Raw Material Procurement ................................................................................................................................... 12 PITstop 2: Production.................................................................................................................................................................... 12 PITstop 3: Operations .................................................................................................................................................................... 12 PITstop 4: Supply chain Management .................................................................................................................................... 12 PITstop 5: Working Capital Management ............................................................................................................................. 13 PITstop 6: Distribution network ............................................................................................................................................... 14 PITstop 7: Marketing and Sales ................................................................................................................................................. 15 PITSTOP 8: Customer Services .................................................................................................................................................. 18 Generic strategy of AP ................................................................................................................................................................... 19 VRIO Framework .................................................................................................................................................................................. 19 Chapter 3: Challenges and Recommendations .................................................................................................................. 20 Challenges........................................................................................................................................................................................... 20 Criteria of evaluation of recommendations.......................................................................................................................... 23 Overcoming the Challenges: Recommendations ..................................................................................................................... 23 References ............................................................................................................................................................................................... 26

While it started off by providing good quality products in the economy ranges. and make inroads into the industrial coatings business. Asian Paints' current strategyi is to develop good brands and products for the upper end of the decorative market. Globally this ratio is almost reverse. THE INDIAN PAINTS INDUSTRY Indian paint industry is estimated to be ~8. While decorative paints in India account for almost 70% of the entire paint industry.000 crore in value termsii.2 lakh tonnes in volume terms and ~Rs. establish a strong retail presence. Paints are broadly classified into decorative paints and industrial paints. . which gives enormous growth potential for the industrial paint manufacturers.CHAPTER 1: THE PAINTS INDUSTRY Asian Paints Ltd is India’s largest and Asia’s third largest company today with a turnover of around Rs 44. The industry is dominated by organized players whose combined share is estimated at ~Rs11000 crore or ~65% of the market.04 billion in FY 08-09.17. industrial paints make up for the remaining 30%iii. Asian Paints operates in 20 countries and has 28 paint manufacturing facilities worldwide serving customers in more than 65 countries.

Asian Paints (APIL) controls more than half of the organized decorative paint market in India due to its strong brand equity. On the other hand. industrial paints are highly technology intensive and hence the segment is controlled only by the organized players such as Kansai-Nerolac Paints Ltd (KNPL) which has forged technical alliances with leading global players.Decorative paints are less technology intensive and hence unorganized players are more active in this segment. This is also one of the reasons why decorative paints in India has grown at a faster clip compared to industrial paints. wide product portfolio and pan-India distribution network. .

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DEMAND DRIVERS FOR INDIAN PAINTS INDUSTRY FIVE FORCES ANALYSIS OF INDIAN PAINTS INDUSTRY Threat of substitute products . paint is a better form of coating with protective and aesthetic qualities and hence a superior product.LOW: Lime-wash is the immediate substitute for paint. lime-wash is an inferior quality coating . whereas. However.

the threat of down-trading from paints to lime-wash. Also the Indian paint industry is dominated by a handful of strong players with well-known brands and products covering all price points. or by an existing company diversifying its products to include paints and coatings (decorative is not a technology-intensive industry). global players like BASF etc can still make an entry into this segment too. All said. The brand share of Asian Paints is still 6. which tends to favor larger companies able to generate scale economies that offset the initial capital outlay on production equipment and facilities.with no protection quality. Rivalry among existing players .MEDIUM: Indian paint industry has tremendous growth potential and decent profit margin and hence faces the threat from entry of new competitors. also. . Modest organic growth also makes it more difficult for a company to grow its own top line without impinging on its competitors. The decorative paints market can be entered into by a new company. a player established elsewhere may begin activities in this region.3% respectively. But industrial paints manufacture calls for latest technology and superior products which a new player will find a tough nut to crack. the manufacture of paints and coatings is generally a high-volume & automated process.7% and 2. Hence. Threat of entry of new competitors .4%. and deep entrenched distribution network which will help them to keep competition at bay in the short and medium term. However. Exit barriers are high with most companies highly diversified and owning substantial specialized production assets.HIGH: The paints and coatings market is fragmented. a low-end product is minimal. with that of Berger and Nerolac 2.

However other key inputs for paints and coatings are pigments such as titanium dioxide.g.Bargaining power of customers . for e. and epoxy .MEDIUM: Crude Oil derivatives are key raw materials for paint industry and their prices move in tandem with Crude Oil. Bargaining power of suppliers . Industrial paint companies on the other hand have low bargaining power since they deal with other user industries. who are bulk buyers and hence wield high bargaining power.MEDIUM: Decorative paint companies have a better bargaining power since they deal with large number of brandconscious fragmented retail customers who have low bargaining power. OEMs.

Major players also tend to adopt strategies of identifying substitute raw materials and technologies. these can be sourced readily from several companies. the industry is moderately attractive. thereby weakening supplier power. Thus overall. as well as containers for packaging.and other resins. Generally. .

KEY SUCCESS FACTORS The KSF in the paints industry are again appreciably different for the two segments. Decoratives Segment Extensive distribution network Strong branding and marketing Wide product line High service level (continuous availability of product at retail store) Industrial Segment Technical expertise Strong research and development Customer understanding and customer relation .

weaknesses. AP went in for an open-door dealer policy this lead to rapid expansion of distribution networkiv. at the same time. distribution and channel management are most crucial factors. AP instead of going to big cities strategically decided to expand into untapped semi-urban and rural market. AP voted for nationwide marketing / distribution as compared territorial practiced by other companies. AP went slow on urban areas and concentrated on semi-urban and rural areas. Large distribution and more availability of products lead to more inventory cost but AP decided high service level. . Key differentiating strategies of AP are given below. AP went retail and bypassed the whole sale distributors. AP bypassed the bulk buyer segment and went to individual consumers of paints.CHAPTER2: ASIAN PAINTS VALUE CHAIN AND STRATEGIC RESOURCES In Paint industry. We will stand at all major pitstops and study what’s been going on and what can be done better. VALUE CHAIN OF THE ASIAN PAINTS We will now use the supply chain of AP to understand its strategic resources and their suitability.

Strategic Advantages Increases operational efficiency in the supply chain. Mumbai Ankleshwar. Haryana Capacity in kl p.000 + 50.000 80. Raw materials produced at the plants are transferred to AP at cost or a low margin over cost.000 50. Hyderabad Kasna. UP Sriperumbudur. good retailer relations. AP has plans to increase production capacity. Noida.000 100. Risks & Challenges Retailer level sales data not part of SCM module. Spare plant capacity readies you for demand spurts but at the same time is adversarial to margins. PITSTOP 4: SUPPLY CHAIN MANAGEMENT Effectiveness and operational efficiency is analyzed in term of supply chain length. Provides data for accurate sales forecasts.a 30. Improves service level to 87-90% for all SKUs thereby ensuring little loss due to stock out. AP currently operates at 87% capacity. unit and machine-by-machine basis. Using the financial statements the length of the supply chain (in days) is found out to be: . It is a trade-off the answer to which lies in an efficient distribution network and better demand forecasting which we will see how AP is implementing. Plant Bhandup. It is a profitable business in itself.PITSTOP 1: RAW MATERIAL PROCUREMENT Backward integration immunizes AP to the fluctuation in raw material prices. Chennai Rohtak. More than half the produce is sold to external clients. PITSTOP 2: PRODUCTION Production plants of AP are spread across India.000(addition) 150. It is impractical to diversify into commodities or crude oil derivatives.000 (new) PITSTOP 3: OPERATIONS AP is using i2 and SAP technology for its SCMv. This enables AP to set weekly timing requirements on a plant. Gujarat Patancheru.000 80.

AP 200809 33.91 200607 31.47 60.58 85. Low working capital in a business with price sensitive customer and volatile demand is a sizeable advantage.67 125.60 104.63 Days of Raw Material Days of WIP Days of FG Inventory Total length of Chain (days) Against Industry average of 82.04 38.85 58.90 66.92 200708 36.95 55.16 200708 46.04 200708 36.28 43.19 1. Low safety stock requirements at dealers’/retailers’ end.28 74.92 5.91 104. Short supply chain reduces inventory carrying cost for raw material and finished goods.79 114.13 7. accounts payable and accounts receivable on the performance of the firm.80 29.24 1.32 72.24 BERGER PAINTS 200809 37.5% 21 days LUB 3% 40 days .87 102.43 200607 42. Credit policy of AP is given below Name of scheme Discount Period Cash Discount 5% 1 day RPPD 3.91 99.22 3. Strategic Advantages Short supply chain takes less time to respond to spikes in demand. PITSTOP 5: WORKING CAPITAL MANAGEMENT The objective of Supply Chain working capital management is to analyze the impact of inventory.80 ICI INDIA (DULUX) 200809 20.41 55.96 60.30 5. ISWC = internal supply chain working capital AR = accounts receivable AP = Payable to the suppliers NS = Net Sales AP has very low working capital as compared to its competitors.02 200607 30.24 92.06 50.56 8.73 50.41 88.16 5.84 200607 35.25 59.92 days.6 days.69 6.74 7.24 200708 28.44 159.08 SHALIMAR PAINTS 200809 34. the length of AP’s supply chain is 66.48 6.97 1.

Improved margins. There are two types of dealers in AP’s network. Strategic advantages Low working capital leads to better cash flows (for investment in other initiatives without dependence on external financing).The incentive of discount and efficiency of the supply chain have helped to maintain the customer relationship and keep the working capital in check. product mix. and a number of other criteria. whereas the slow moving SKUs follow a route from RDC to Depots before reaching the dealer network. The fast moving SKUs are supplied by the plant directly to the Depots. Strategic advantages . Dealers are segmented based on sales volume. RDC provides stocking facilities & thereby economies of operation for the Slow moving SKUs. exclusive and common dealers. PITSTOP 6: DISTRIBUTION NETWORK AP has a 3-Tier distribution network via CFAs cutting down other intermediaries as far as possiblevi.

improves operational efficiency. Differentiating dealers also increases motivation levels of dealers to increase sales. Extensive network leads to economies of scale in distribution. Improved margins. Different supply chain for different SKUs. Risk and challenges Cost of distribution and maintaining such a large dealer network is critical for the company. medium and premium product ranges which enhance competition. AP is present in all price segments as clear from below figure. created to give an ethnic touch-has almost become synonymous with the generic product. besides publishing informative brochures for its productsviii.Having lesser intermediaries improves the cost benefit passed to the end customers and reduces holdup riskvii. PITSTOP 7: MARKETING AND SALES Company has made excellent use of the electronic and print media. . Product mix of AP and competitors is given below. All the big players have presence in all the product categories and offer economy. The company's mascot "Gattu".

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Analysis of different product categories and key differentiating factors is given below. .

Tinting machine and other services provide customized solution to the consumers. painters are also provided by AP. Through this service the company also gets in touch with the customer and gets first hand information regarding the changing taste and consumer preference before the competitors does. Surfaces. Cost & Dealer Push PITSTOP 8: CUSTOMER SERVICES AP offers end to end home solution. Shades Dealer Push High income group. Strategic Advantages Provides first hand customer experience and customer insight. Improved margins Risk & challenges Extensive network and availability of specially trained painters is costly and difficult to maintain. “AP home solutions”.Particulars Product Description Target Segment Key Influencers Premium Super-Acrylic Emulsions. Acrylic Distempers Synthetic Enamels Purchase Quality. End to end and quality of services provide basis for differentiation in the premium and niche segment. In case of Niche and Premium segment of paints like AP Royale. Cost & Availability Shades. . Middle Class and Rural Upper-Middle Class Markets Quality. Premium Enamels Up-Market Buyers & Medium Economy Plastic Emulsions. Customer care helps in attracting niche customers in big cities through WOM marketing. Oil-bound distempers.

GENERIC STRATEGY OF AP AP offers an array of product for all customers and as we have seen at almost all the pitstops. it seeks to provide differentiation and thus improve its margins. its distribution network and branding are the most important and defining resources for AP and hence has been analyzed in the VRIO framework. therefore it’s a broad differentiator.92 days. VRIO FRAMEWORK Among all the resources that we have identified as a part of AP’s value chain. . Rare Strongest distribution network with Supply Chain length of 66. Valuable Largest distribution network amongst competitorsix which gives faster access to larger market and economies of scale. Imitable Building extensive pan India distribution network (including the intransigent rural areas) is not imitable in short to medium term.6 days. as compared to industry average of 82. SCM initiatives can be imitated. Such brand takes years of quality products and services coupled with incisive marketing efforts to create. It is by far the most recognized and wanted brand in the Indian paints story and this contributes majorly to its dominance in the decoratives. AP is the only player in the market with such strong branding capabilities.

new entrants like Nippon Paints and Kaamdhenu Paints have entered the markets with competitively priced productsx. Rampant Duplicity This is an issue more limited to North and Central India but is assuming larger proportions at an alarming rate. We spoke to AP distributors in Gurgaon and Ghaziabad to realize that Kaamdhenu is a serious threat now. Minuscule holding in industrial paints and coatings segment With rapid infrastructure development and proliferation of industries in India. Examples of such schemes would be organizing trips to Turkey etc for dealers with turnover exceeding one crore annually! Similarly. KNPL has more than 60% in automotive and more than 90% share in OEM manufacturersxii. The creation of brand takes place at different levels including the retailers who vouch for the products. CHAPTER 3: CHALLENGES AND RECOMMENDATIONS CHALLENGES AP today. a retailer based out of Chennai even went to the extent of saying that there are an increasingly large number of customers who are asking for Dulux emulsions as their first choice and hence he has brought back ICI into his racks. Several instances of duplicate production have been identified at premises nearby AP’s depots or distributors.xiii This issue needs to be tackled as it results in a twofold loss: first. however. better discounts might give brand a competition. Risk Small and fragmented dealers pose low hold up risk. In the decorative segment. the industrial segment is expected to expand at a fast ratexi. Dulux emulsion is increasing its hold of AP customers. despite or because of. Sometimes. Overall holdup risk is medium. retailers have been found complaining about the inaccurate/untimely accounting practices of AP. loss in credibility due to inferior-quality (fake) ‘AP’ being used by customers. This might be a result of slack and can go worse of not controlled. brand isn’t the decider. being the market leader by a sizeable margin is face-to-face with several challenges.technology is. their bargaining power is increasing rapidly. In the industrials. second. in form of revenue loss.Non-substitutable No close substitute for vast pan India distribution network. In fact. They are enlisted below: Segment Squeeze At the lower end of the paints segment. with its high margins for retailers and other favorably designed schemes. Bigger dealers are incentivized appropriately. Hold-up by large dealers . at the top end of the spectrum. there is no effective substitute to the brand although low price. Becoming a focused very-high margin player might be envisaged as a substitute. but current paints industry clime in India doesn’t back this strategy.

This introduces an unnecessary middleman in the system in the form of the large dealer several of whom have even been found running their own ‘distribution’ systems on TATA Ace for all smaller dealers of the region! Erratic movements in raw material prices Crude-based derivatives are important raw materials in paint manufacturing. The company offers greater discounts to the larger dealers due to their larger order sizes. 2 crores) often pose a serious hold-up risk to the company. most of the commodities have seen an upturn in prices. small dealers are found to be procuring stocks from these larger dealers due to their large discounts. thus a sudden rebound in prices could affect profitability which has improved in line with demand recovery in the first half of FY10. . Very often. which were already affected by slowdown in demand.Large dealers (with annual turnover exceeding Rs. Unprecedented risexiv in their prices last year had made a significant dent on the profit margins of all paint companies. these dealers often offer more discounts to the small dealer than the company would have offered him. Though off their peak in 2008.

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Similarly. Foresite and most significantly AP Home Services (APHS). AP should come up with more attractive schemes for smaller dealers so as to incentivize them to target for those deals through direct procurements from the company rather than bigger dealers. It is also an effective way of dealing with the lower end competitors like Kaamdhenu. due to both space and capital constraints the dealers get ‘locked-in’ with whichever company’s tinting machine they buy earlier. premium industrials like automobile paints etc that are already a part of AP’s portfolio should be continued with and focused on. relative expertise of AP in executing all the recommendations is a precondition. However. 2) Expand dealers network AP should expand its small-dealers network to tackle the increasing power and clout of the large dealers. the dealers’ network should be taken slow in areas fraught with duplicity. AP should not aggressively get into the industrial paints segment which is a low margins business. Nippon which are providing tinting machine complementary with stock orders. Colour NEXT. we recommend launching the service in all A1. Thus. However. A and B1 cities in India in the next 1215 months. In the course of this report. 3) Brand-building measures The fact today in the market is that all competitors of AP incentivize different players like dealers. through different initiatives like Color Worldxv. Simultaneously. being an AP dealer is still a more ‘profitable’ enterprise than being a Nerolac dealer because of the higher ROI AP provides due to a much higher turnover. In fact. This is inherently a more profitable exercise than selling paints. the more the sales gets diversified from the larger dealers to the smaller ones. painters. AP should also roll out home décor and interior decoration consultancy services to keep track of the changing needs and demands of customers before it becomes a mass aspiration. More the number of small dealers in an area. 2) The recommendation should not dilute the high-margin strategy of AP. the recommendations have been weighted: 1) The recommendation should be in line with AP’s strengths. the signature store Colors with AP. Hence. However. Till now APHS has been rolled out in just 13 citiesxvi and it has already been availed of more than 55. Besides. OVERCOMING THE CHALLENGES: RECOMMENDATIONS 1) Painting Products to Painting Services AP has relatively successfully tried to make paints a services business rather than a products business. More often than not.000 times! As a first step.CRITERIA OF EVALUATION OF RECOMMENDATIONS On the basis of following criteria. the . we have discovered AP’s extensive efforts to improve the margins of its business and also saw how its strongest resources are streamlined towards this objective. AP has tried to transform paints from being a products business to a services business. One of the ways of doing so is trying to introduce its tinting machine as soon as possible in the dealer’s premises. consumers more than AP does.

it is strongly recommended that AP should hold painter meets so that more and more painters and their recommendations can be secured as early as possible. thus. From AP side. improperly incentivized painters mostly recommend other brand.consumers have faith in the strong brand that AP has built over the years. We recommend holding more ‘painter meets’ as these not just incentivize painters through different gifts like T-Shirts or toolpacks but also educate them towards usage of more exclusive products like Royale PLAY. An example of a consumer of Nippon paints expressing his dissatisfactionxvii over Nippon’s complaints-redressal on a public forum has been pasted below. AP should set a firm standard whereby each customer complaint is resolved within 7 working days. it makes sense to diversify into raw material production also from the point of view that it in itself can comprise a sizeable business interest. This is another measure which will help improve margins and decrease hold-up risks. In fact. we recommend that AP backward integrates into the production of the raw materials. Keeping in view the future growth potential of the paints industry in India. Painters feel the need to be trained and ‘connected’ to the company. 4) Backward integrate To immunizing itself against the fluctuating raw material prices. AP has already done it for Phthalic Anhydride and . several companies introduce ‘money-back’ coupons inside each canister of paint bought so as to monetarily incentivize the painters.

Pentaerythritol and sells one-half of the production of these to customerxviii. Such a step can be taken for compounds which have to be manufactured from commodities. . Goes without saying that backwardintegrating into commodities or petroleum-based products makes no sense.

in/complaints/nippon-paint-c169252.equitymaster.slideshare.html xvi http://www.com/industry/paints/200012_paint_overview.com/news/view_news.com/doc/6655788/ASIAN-Paints-Distrbn vii http://www.monarchpaints.asianpaints.com/essays/Asian-Paints-Place-Marketing-Mix/198660 viii http://www.REFERENCES Asian Paints Annual Report FY09 CMIE iii KNPL FY09 annual report iv http://www.html xi http://www.scribd.com/2008/07/25/crude-oil-prices-are-about-demand-and-supply/ xv http://www.scribd.com/doc/24673549/Asian-Paints-Ltd i ii .domain-b.cfm?id=BCEED484-E215-FD23-35511206EB01CBC1 vi http://www.html ix http://www.com/article/duplicate-asian-paints-plant-unearthed-in-haryana/154559.aspx xvii http://www.wordpress.com/colour_world.shtml xiv http://mostlyeconomics.com/asian-paints.com/homesolutions/faqs.indiahousing.oppapers.html xviii http://www.consumercomplaints.com/research-it/sector-info/paint/ xii http://www.i2.scribd.com/doc/6655788/ASIAN-Paints-Distrbn v http://www.business-standard.net/guest395c348/demand-analysis-of-asian-paints-emulsions-presentation x http://www.com/india/news/kansai-nerolac-paints-records-net-salesfor-fy-20082009/356711/ xiii http://www.merinews.

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