Assignment

On

Industrial Analysis
(FMCG Sector)

Submitted to: Dr. Ipshita Bansal Faculty WISDOM

Submitted by: Padmalini Singh(5984) Pallavi Joshi(5985) Parul(5986) Parul Jain(5987) Parul Jharar(5988) Parul Paliwal(5989) Payal Chaudhary(5898) Pinki(5990)

ACKNOWLEDGEMENT We take this opportunity to express our heartiest thanks to our mentor Dr Ipshita Bansal for assigning us such an interesting assignment and for her support and guidance through out the period. It helped us a great deal in brushing up our knowledge about the FMCG sector.

Last but not the least we are always indebted to our Dean Mr. Siddharth Shastri who has always encouraged us in our endeavors and shown confidence in us.

TABLE OF CONTENTS Sr. No. Particulars Pg. No.

1 2 3 4 5 6 7 8 9 10 11 12

Introduction Major Players of the Industry SWOT Analysis SPOT Analysis Porters Model Issue Priority Matrix TOWS Matrix Societal Level Strategy of Major Players Intellectual Property Rights Fate Analysis Conclusion Bibliography

4 5 10 11 16 19 22 27 34 40 49 50

INTRODUCTION
Fast Moving Consumer Goods (FMCG), are products that have a quick turnover, and relatively low cost. FMCG products, which are generally replaced less than once a year (e.g. kitchen appliances).

Examples of FMCG generally includes a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products and drinks, although these are often categorized separately.

Examples of FMCGs are soft drinks, tissue paper, and chocolate bars. A subset of FMCGs are Fast Moving Consumer Electronics which contain innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS Systems and Laptops which are replaced more frequently than other electronic products. White goods in FMCG refers to house hold electronic items such as Refrigerator, T.V, Music Systems etc.

Major players in FMCG sector

THE TOP 10 COMPANIES IN FMCG SECTOR
S. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. Hindustan Unilever Ltd. ITC (Indian Tobacco Company) Nestl India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care 10. . Marico Industries Companies

India is one of the largest emerging markets in FMCG sector because of Large domestic market India an extravagant spender on consumer goods Demand-supply gap Rapid urbanization, increased literacy and rising per capita income

1.Hindustan Unilever Limited;Hindustan Unilever Limited, formerly known as Hindustan Lever Ltd is India's largest FMCG company with sales of 10,000crores. Its parent company is Unilever, which holds 51.55% of the equity. It operates in seven business segments: Soaps and Detergents;

Personal Products; Beverages; Foods, including Culinary and Branded Staples; Ice Creams; Exports, and Others, including Chemicals and Agri-Products. It has leadership in Home & Personal care products and Food and Beverages.

2. ITC (Indian Tobacco Company) :ITC was set up in 1910 by the name of 'Imperial Tobacco Company of India Limited'. The company is now known as Indian Tobacco Company Ltd. ITC has its presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. ITC is a market leader in the businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports. It is gaining its market share very rapidly in the businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards & Stationery.

3.Nestl India:Nestl's relationship with India started in 1912. It started its trading with India as The Nestl Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. Nestl India is amongst India's 'Most Respected Companies' and amongst the 'Top Wealth Creators of India'.

3. Britannia Industries Ltd:The Company is in the manufacturing and selling of biscuits, bread, rusk, cakes and dairy products like cheese, butter and milk. The brand names of biscuits are:
y y y y y y

Marie Gold Treat Maska Chaska Good Day Milk Bikis Pure Magic

4.Gujarat Cooperative Milk Marketing Federation:Gujarat Cooperative Milk Marketing Federation (GCMMF) is the largest food product 6

marketing organization of India. It aims to provide good returns to the farmers and also to fulfill the requirements of consumers by giving them quality products. Amul was formed in 1946 by an apex co-operative organization, Gujarat Cooperative Milk Marketing Federation. AMUL means "priceless" in Sanskrit. Amul products are used by millions of people. Amul Butter, Amul Milk Powder, Amul Ghee, Amulspray, Amul Cheese, Amul Chocolates, Amul Shrikhand, Amul Ice cream, Nutramul, Amul Milk, and Amulya has made Amul one of the leading food brands in India. Amul products are sold at reasonable prices.

5. Dabur India Ltd:Dabur India Ltd. is the fourth largest FMCG Company in India. Dabur deals in Health care and Personal care products. Dabur India is divided into 2 major strategic business units:
y y

Consumer Care Division Consumer Health Division

6.Asian Paints India Ltd:Asian Paints was formed in 1942 in India. Asian Paints is dealing in marine and industrial coatings, automobile OEMs and refinishes, wood finishes, finish coats and an ancillary product in decorative paints. It manufactures and markets paints. Asian Paints is the largest paint company in India and the third-largest company in Asia.

7.Cadbury India Limited:Cadbury entered India in 1948 by importing chocolates.Cadbury is into the business of Chocolate Confectionary, Milk Food Drinks, and Candies. Some of Cadbury's key brands are: Chocolates
y y y y

Cadbury Dairy Milk 5 Star Perk clairs 7

Celebrations

Milk food drinks Bournvita Candy Halls.

8.Britannia Industries Ltd:The Company is in the manufacturing and selling of biscuits, bread, rusk, cakes and dairy products like cheese, butter and milk. The brand names of biscuits are:
y y y y y y

Marie Gold Treat Maska Chaska Good Day Milk Bikis Pure Magic

The Company's plants are located in Mumbai, Kolkata, Delhi, Chennai and Uttarakhand.

9.Procter & Gamble;Procter & Gamble is a US-based company. Procter & Gamble is in the manufacturing of personal care products, pet food and household cleaners.. The Procter & Gamble Company (P&G) boasts boatloads of brands. It's divided into three global units: health and well being, beauty, and household care. The company also makes pet food and water filters and produces soap operas.

10.Marico Industries Ltd;Marico was incorporated in 1990 and operates in consumer products, aesthetics services and global ayurvedic businesses. The company also markets food products and distributes third party products. Some of leading brands of Marico include Parachute, Saffola, Sweekar, Shanti Amla, Hair & Care, Revive, Mediker, Oil of Malabar and the Sil range

of processed foods. It has six factories, and sub-contract facilities for production. Marico's Products and Services in Hair care, Skin Care and Healthy Foods Parachute
o o o o o o o o o o o

Saffola Sweekar Hair & Care Nihar Shanti Mediker Revive Kaya Sundari Aromatic Fiancee HairCode.

SWOT ANALYSIS
Strengths
1. Low operational cost. 2. Presence of established distribution network in urban as well as rural areas. 3. Presence of well known brands.

Weakness
1. Low exports level. 2. Me-too products which legally mimic the labels of established brands narrow down the scope of fmcg products in rural & semi-urban market.

Opportunities
1. Untapped rural market. 2. Rising income level of consumers. 3. Large domestic market- 1 billion population. 4. Export potential. 5. High consumer good spending.

Threats
1. Removal of import restrictions resulting in replacing of domestic brands. 2. Slowdown in rural demand. 3. Tax & regulatory structure.

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SPOT ANALYSIS
OPPORTUNITIES: 1) Rising income levels, i.e. increase in purchasing power of consumers:
The net disposable income has grown at a CAGR of 11.6% between FY00-FY08. Certain measures like the implementation of the sixth pay commission announced by the government may further trigger the disposable income in FY09, which may result in select consumers moving up the value chain. On account of a rise in the disposable income with consumers, a direct demand will be felt on the consumption of FMCG goods. A considerable part of the disposable income is spent on buying products and services. According to ASSOCHAM estimates of 2007, almost 40% of total FMCG consumers spend their total income on grocery while 8% is spent on personal care products, resulting in a potential hike in the demand for these goods.

2) Untapped rural market:

With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to the FMCG companies. Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are only a few of the FMCG majors who have been gung-ho about rural marketing. 70% of the nation's population, that means rural India can bring in the much-needed volumes and help FMCG companies to log in volume-driven growth. That should be music to FMCGs who have already hit saturation points in urban India.

3)Higher employment generation:

Employment generation was triggered by a thrust in industrial activity, which led to newer jobs in sectors like logistics, infrastructure, and other related activities. The format

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of modern trade has also enabled more employment in India. Organised retail has augured well for the FMCG sector which has thereby derived greater exposure leading to more employment. Furthermore, organised retail has also created more job opportunities without any gender bias for our teeming population. As per DIPP statistics, the food processing industry reported the highest proposed employment numbers during the period Aug 1991- Jun 2008, indicating a growth of 2.1% when compared to the previous corresponding period. Similarly, the vegetable oil & vanaspati segment and soaps, cosmetics and toiletries segment registered a growth of 3.4% and 3% respectively, during the above mentioned period.

4) Large domestic market- a population of over one billion:

The Indian FMCG industry size was estimated to be around US$ 15 bn in 2007, as per ASSOCHAM. Of this, close to US$ 8 bn was confined to the rural areas with US$ 4 bn in the urban & metro area and almost US$ 3 bn in the semi-urban area. The large young population of approximately 180 mn in the rural and semi-urban region is driving the Indian FMCG industry, with the continuous rise in their disposable income, life style, food habit etc, among others. The lifestyle of this section of the population is undergoing a rapid change on the back of rising income levels. According to ASSOCHAM, the market size of FMCG in the rural and semi-urban segment is likely to jump up by 10% and 6% respectively by 2010. Currently, almost 52% of the rural market size is captured by FMCG products and is projected to reach 57% in the next three years. This size is further expected to grow by 10% in the next three years.

5)Growing share of organised retail:

The modern trade format provides a wider visibility to the FMCG products. Organised retail has led to a boom in consumption by generating wide spread employment opportunities.

6) Presence across value chain

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Indian FMCG firms have a presence across the entire value chain of the industry, from raw material supply to final processed and packaged goods, both in the personal care products and in the food processing sector. As a result firms located in India have become more cost competitive.

7)High consumer goods spending:

Consumer expenditure on food, beverages and tobacco in India is forecasted to grow at a CAGR of 12.2% during 2007 to 2011. Rising per capita income, increased literacy and rapid urbanisation have caused rapid growth and change in demand patterns. The rising aspiration levels, increase in spending power has led to a change in the consumption pattern. Apart from the demand for basic goods, convenience and luxury goods are growing at a fast pace too. The urban population between the ages of 15 to 34 years is expected to increase from 107 m in 2001 to 138 m in 2011, an increase of 30%. This would unleash a latent demand with more money and a new mindset. With growing incomes at both the rural and the urban level, the market potential is expected to expand further

THREATS 1)Entry of foreign players and imports resulting in replacing of domestic brands: A major threat for any Indian market player is a foreign player because they usually come with strong potential of rapid growth. FDI is a major way of replacing domestic brands. And FDI pattern in Indian fmcg industry can be seen as under:y In CY08, FDI inflows in sectors like food processing; soaps, cosmetics & toilet preparations and vegetable oils & vanaspati together registered a growth of 41%. y The total FDI in the food processing industry underwent a growth of 15% in CY07. This came on the back of a robust 38% growth in the previous year. y The pattern of FDI inflow witnessed a huge variation in between the years 2004-2007 in the soaps, cosmetics and toiletries segment. From an almost 100% decline in CY06, the FDI inflow underwent a sharp growth of more than four times in CY07. 13

The vegetable oils and vanaspati segment registered a robust rise of more than two times in CY07 as against the previous year when it had recorded a more than 50% decline.

Recently, the government announced a cut of 4% in excise duty to fight the slowdown and further reduced excise duty to 8% from 10% . This announcement is likely to have a positive impact on the industry. 2) Slowdown in rural demand: Although it is said that rural market is a golden opportunity in hand of fmcg sector. But reality is that it is not growing on expected pace. It can be seen by some data, like growth rate for the period February 06-07 was 1.0% while for February07-08 it was -2.2%. and for the period feburary08-09 it was -6.1%, that shows slowdown in rural market. Along with growth rate fmcg sector is facing one more threat in rural market, it is highly unorganized. Fast moving consumer goods (FMCG), which is
dominated by a handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. And this threat for organized sector is getting reduced day by day.

3)Tax and regulatory structure: The total incidence of tax on processed products in India is as high as 40% on certain items. Considering the importance of this sector, while a few countries have kept the incidence of tax at zero %, most others have pegged it at 12% to 14%. This much level of taxation is preventing Indian players to compete with foreign players. But now seeing this global slowdown government is helping fmcg by some tax and duty reduction. Some examples of these measures are:
y y

Reduction of duty on edible oil will have a positive impact on related companies. Full exemption of excise duty on biscuits priced at 50 rupees or less per kg is positive for ITC, Britannia, and Parle.

Reduction of custom duty on food processing machinery and their parts from 7.5% to 5%.

14

Reduction of excise duty on food mixes from 16% or 8% to nil is positive for ITC.

Development of rural infrastructure is in focus, which is beneficial for FMCG companies because it is a big market for FMCGs. Better infrastructure will improve the supply chain.

Exemption of free samples and displays from the purview of FBT will be beneficial for FMCG companies because they spend huge amount of money on advertising and brand building. HLL, Dabur, ITC, and Marico will be amongst the most benefited companies. So now we can hope that this threat is getting fade away and

fmcg sector is expecting a ray of hope.

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PORTERS MODEL

Michael Porter's competitive forces model is probably one of the most often used business strategy tools and has proven its usefulness on numerous occasions. Porter's model is particularly strong in thinking outside-in. Care should therefore be taken not to underestimate or underemphasize the importance of the (existing) strengths of the organization (inside-out) when applying this five competitive forces framework of Porter. It is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces: y the Barriers to entry (how easy or difficult is it for new entrants to start to compete, which barriers do exist) y the Bargaining power of suppliers (how strong is the position of sellers, are there many or only few potential suppliers, is there a monopoly) y the Bargaining power of buyers (how strong is the position of buyers, can they work together to order large volumes) y the Rivalry among the existing players (is there a strong competition between the existing players, is one player very dominant or all equal in strength/size) y the Threat of substitutes (how easy can our product or service be substituted, especially cheaper) When we apply Porters model in FMCG sector this is what we get

Barriers to entry . Traditionally in India, companies like ITC, HLL, Colgate, Cadbury (now de-listed) and Nestle dominated the FMCG sector, with each one happy in their own segment, negligible competition and many barriers to entry in the form of high import duty. Thus, these companies were able to squeeze the customers' wallets by charging a high premium on their 16

products Huge investments in promoting brands, setting up distribution networks and intense competition, but the sector is not capital intensive. Abundant supply in metros. Distribution networks are being beefed up to penetrate the rural areas. HLL expects the FMCG market to triple in market size by FY10, which highlights the potential.

Bargaining power of suppliers Some of the companies are integrated backwards, which reduces the supplier's clout. Manufacturing is largely outsourced Due to globalisation, the FMCG distributors in the developing countries are struggling to capture and retain their market share from the multinational companies. To attract the retailers, the distributors supply on credit and collect the amount in unequal weekly instalments. When the supply on credit becomes inevitable, the distributors have to find out ways of optimising the investment. Moreover, the investment has to be shared among the retailers depending on their demand and payment policy, to maximise the sales and minimise the balance payment..

Bargaining power of buyers In case of branded products, there is little that the consumer can influence, but intense competition within the FMCG companies results in value for money deals for consumers (e.g. buy one, get one free concept).

Rivalry between Existing Firms So often our brands are placed in situations outside of our direct control. Creating a brand that continues to convey its position in the hands of others is the true test of Strategic Brand Management within FMCG. Defining and focusing on your brand as a unique individual that requires sustenance to survive is critical to a brands ongoing success.

Competition is faced from both domestic, MNCs and also from cheaper imports, which are increasingly visible in urban markets. Price wars are a common phenomenon. 17

Players from unorganised and organized sectors continue to grab each others market shares. Highly scattered market and poor transport infrastructure limits the ability of MNCs and national players to reach out to remote rural areas and small towns. Low brand awareness enables local players to market their spurious look-alike brands. Also with entry of existing players in new segments like ITCs entry in personal care products, Daburs plans to venture into health beverages would add to the already aggressive environment resulting in high pressure on margins. FMCG companies, on their part, are doubtful of certain business models of modern retailers. For instance, most retailers such as Subhiksha and Reliance Fresh have their presence in close proximity to each other. "Organised retailers are competing for a limited density of population in a crowded market space. Hence, they have a low velocity in movement of goods and are facing payment issues," explains an executive from a leading FMCG company who has also curtailed supplies to select stores and certain retail chains. The tug of war between FMCG and retail sectors will continue as modern trade picks up in the country and we ask for better terms and conditions

Pressure from Substitute Products More selling points in the sale outlet means more shopping opportunities for continuous growth. The best part in FMCG sector is that the substitutes here are found within the sector itself so if the customers change their consumption pattern then too the effect will be on the company but the whole sector remains unaffected.

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THE ISSUE PRIORITY MATRIX

Making the very most of your opportunities
There are a lot of environmental factors capable of influencing and hence affecting the business. The feasible approach to identify the important environmental factors is to test each factor with regard to its impact on the business of the organization and the probability of such an impact. The issue priority matrix shelps in doing the same i.e. helps a strategist to identify the high priority environmental factors. The Issue Priority Matrix is a simple diagramming technique that helps you choose which activities to prioritize (and which ones you should drop) if you want to make the most of your time and opportunities.It is useful because by choosing activities intelligently, you can make the very most of your time and opportunities. However by choosing badly, you can quickly bog yourself down in low-yield, time-consuming projects that close down opportunities and stop you moving forwards

ISSUE PRIORITY MATRIX OF FMCG INDUSTRY

Our Issue Priority Matrix shows three levels of probability of occurrence of an event: high, medium, and low. On the other axis it shows the impact of this event on the business in three categories: high, medium, and low. Business is expected to remediate issues in priority order: first high; then medium; and finally low.

Impact on Business
Probability of Occurence High 2. CREDIT CRUNCH 3. ADDITION IN IMPORT
DUTY 5. INFLATION COOLING OFF

High

Medium

Low

1.RECESSION

Medium

4. RISE IN GDP AND PER

CARITA INCOME

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Low _____

1. RECESSION Despite rising input price rises and high inflation, fast-moving consumer goods FMCG companies are expected to post a strong topline growth in the second quarter of the financial year 2008-09. According to industry projections, the sector is expected to post a 15-17% topline revenue growth in the July-September quarter, riding on price hikes and higher focus on value-for-money products. Demand in the fast moving goods may get impacted if there is a prolonged liquidity crisis but as of now there is no witnessing of any dip in sales. The current financial scenario does not have an immediate relevance to the FMCG sector, as the sector is, to some extent, insulated.

2. CREDIT CRUNCH
Major fast moving consumer goods (FMCG) companies such as Godrej, Marico and Dabur have curtailed supplies to select leading modern trade retailers, following default in payments."We have curtailed supplies to those modern retailers who are not paying according to terms of the contract," confirmed Adi Godrej, chairman, Godrej Group. Marico's Chief Executive Officer (Consumer Products Business) Saugata Gupta, too, affirmed that his company was being cautious in dealings with such retailers. FMCG companies work on tight credit cycles. Due to the economic slowdown and tight credit squeeze, a few retailers are seeing their working capital cycles get stretched as they struggle with high real estate, rental prices and face a slowdown in business offtake. The working capital for retailers is normally stuck for one or two months as retailers expand their stores, buy inventories and book properties.

3. ADDITION IN IMPORT DUTY Imported finished products in the segment may get more expensive with the FM levying an additional import duty of 4%, a step that will add more cheer to the domestic FMCG sector. With the reduction in import duties on raw materials like industrial oils 20

consumed by the toilet soap industry, and plastics used in packaging becoming cheaper, the FMCG sector here is heaving a sigh of relief. 4. RISE IN GDP AND PER CAPITA INCOME The fast-moving consumer goods (FMCG) industry shares a strong correlation with the per capita income of a country. Any rise in the per capita income augurs well for the industry. Thus, the fact that the per capita income has nearly doubled in a short span of four years has elated FMCG companies. The growth trend over the last four years has shifted significantly upwards. The rapidly increasing Indian GDP and per capita GDP will lead to an accelerating growth of the Indian FMCG industry. The per capita income growth in India will further accelerate over the next five years as the momentum is extremely strong

5. INFLATION COOLING OFF With inflation finally cooling off and input costs touching a new low, indications are that prices of fast-moving consumer goods (FMCG),especially that of

soaps and detergents may come down. However, since most companies are said to be holding on to old stocks of raw material, based on forward contracts that were booked in a rising crude market, they are said to be waiting for their stocks to be replenished. There is a buzz that market leader Hindustan Unilever Ltd (HUL), with its prudent cost management strategies, might take the lead and drop prices. This is likely to take place in the next couple of weeks, or even in the new calendar year.

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TOWS MATRIX

TOWS MATRIX

Strength

Weakness

1. Low operational cost. 2. Presence of established distribution network in urban as well as rural areas. 3. Presence of well known brands.

1. Low exports level. 2. Me-too products which legally mimic the labels of established brands narrow down the scope of fmcg products in rural & semi-urban market.

SO STRATEGIES Opportunitie 1. s Untapped rural market. 2. Rising income level of consumers . 3. Large domestic  Expand the rural market.(O1,S 1,S2)  Create new products which are efficient & for premium segment so that it can be

WO STRATEGIES  Serve value oriented consumers in mature market for selected product category.(O2,O3, O5,W1)  Aggressive low-cost advertising & continuous innovation is needed to wipe

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market- 1 billion population . 4. Export potential. 5. High consumer good spending.

better charged. (S3, 02, 05)  Establish brands should modify their products for international business.(S3, O4)

out generalization effect. (O1,W2)

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 Should focus on market share first & after catching significant share  can go for better pricing for profitability as there is lot of space.(S1,O3)  Aggressive cost effective promotional strategies should be adopted to create demand. (S3, O2)

Diversification for catering large customer group. (O3,W2)

ST STRATEGIES

WT STRATEGIES  Adopt market penetration strategy & earn through volume.( T1,W2)  Constant product innovation is required to cope with the loss of business due to imitated

Threats

1. Removal of import restrictions resulting in replacing of domestic brands. 2. Slowdown in rural demand. 3. Tax & regulatory

 Restructuring portfolio & concentrating on core brands.(T1,S3)  Nano packaging

should be adopted for rural markets to provide quality goods at lower price. (T2,S1)

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structure.

 Savings should
be generated through global purchasing & centralized supply chain.(T3,S3)

products. (T2,W2)  Leverage on cost advantage. (T 1, W1)

SO STRATEGY: (S1, O3) As there is large domestic market and large number of players in the industry, companies should first focus on grabbing the market share rather than focusing on profitability by leveraging on low operational cost of such product segment. Acquiring a significant share may help the companies to fight against the foreign players as well as new entrants and they can later upgrade their pricing structure for profitability once they hold substantial share.

WO STARETEGY: (O3, W2) Concentric diversification may help the companies to produce new products by using related technology which may not be much cost incurring strategy. As it will help to serve large customer group, even if one product looses its market share due to imitated product, company can profit by serving other product especially targeted to other customer group.

WT STRATEGY: (T1, W1) - Cheap labor and quality product & services have helped India to represent as a cost advantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. FMCG companies can leverage on this cost advantage factor to push its export business.

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ST STRATEGY: (T1, S3) To fight with the foreign players companies can restructure their portfolio through mergers and acquisitions, with the aim of becoming national leaders in a few core categories. For e.g., Marico, went on to buy its closest competitor Nihar from HUL to prevent Dabur from moving to a position of strength. Dabur itself bought the ailing Balsara brands to give meat to its ailing oral care products. Along with reshaping its portfolio, companies should focus on fewer brands where they can concentrate marketing and other resources to eliminate weaker ones. This can bring other advantage to strengthened brands that can make it more difficult for retailers to insist on price cuts.

(T3, S3) Significant reduction in custom duty rates on selected raw materials has made it cheaper cost of production as compared to purchase of the same raw material in India itself. It gives the opportunity for the Indian companies to have a global purchasing & centralized supply chain structure.

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CORPORATE SOCIAL RESPONSIBILITY

FMCG sector is no doubt registering an up trend in growth. According to CNBC, FMCG sector growth story will continue because of the positive budget. The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the economy. A well-established distribution network, intense competition between the organized and unorganized segments characterize the sector. FMCG Sector is expected to grow by over 60% by 2010. For example, Hindustan Levers Limited (HLL) has shown a healthy growth in the last quarter. An estimated double-digit growth over the next few years shows that the good times are likely to continue.

Corporate Social Responsibility in the Supply Chain

Nowadays, Corporate Social Responsibility (CSR) becomes an increasingly popular topic in the business world, due to, among others the growing awareness of a companys task as not only on profit making but also on providing benefits for the society to get a better life from the companys existence. In spite of the relative slow adoption of CSR considerations by supply chain practitioners, its concepts in the supply chain are increasing in importance. CSR continues to evolve in practice, and its reach now extends to supply chain partners including suppliers, customers and logistics providers. In FMCG industry, there is a very long and complex supply chain network, so that social responsibility of the corporation has to be able to reach the last part of the chain. To enable the development of CSR research in supply chain, research of the entire supply chain or of its individual element is necessary in various industries. The Black Soybean Program conducted by Unilever is a novel way in implementing CSR. It was actually invented when Unilever tried to source one of the essential ingredients to produce Kecap Bango sweet soy sauce directly from the farmers. Let us have look topmost players in this industry and their social activities. 1. Hindustan Unilever Ltd.

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2. 3. 4. 5.

ITC (Indian Tobacco Company) Nestl India GCMMF (AMUL) Dabur India

HUL(Hindustan Unilever Ltd.)

Sankalap A Determination to God - HUL Sankalp is a program that allows the employee to register and get associated to a cause or NGO. The back-end support was provided by indianngos.com which was responsible for checking the authenticity of its partner NGOs and for tracking the employees commitment. The programme has now gone beyond the cities to touch lives of people in the rural districts like that of Wad/ Jawahar. Here HUL Mumbai employees travelled 130 km to create awareness on hand wash and hygiene. Similarly, employees have also started involving their family members. Greening Barrens - Water Conservation and Harvesting HUL's Water Conservation and Harvesting project has two major objectives:
y

To reduce water consumption in its own operations and regenerate sub-soil water tables at its own sites through the principles of 5R - Reduce, Reuse, Recycle, Recover and Renew

To help adjacent villages to implement appropriate models of watershed development

Shakti - Changing Lives in Rural India Shakti is HUL's rural initiative, which targets small villages with population of less than 2000 people or less. It seeks to empower underprivileged rural women by providing

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income-generating opportunities, health and hygiene education through the Shakti Vani programme,and creating access to relevant information through the Shakti community portal.

Started in 2001, Shakti has already been extended to about 80,000 villages in 15 states Andhra Pradesh, Karnataka, Tamilnadu, Maharashtra, Gujarat, Madhya Pradesh, Chattisgarh, Uttar Pradesh, Rajasthan, Punjab, Haryana, West Bengal, Orissa, Bihar & Jharkhand. Lifebuoy Swasthya Chetana - Health & Hygiene Education Lifebuoy Swastya Chetna (LBSC) is a rural health and hygiene initiative which was started in 2002. LBSC was initiated in media dark villages (in UP, MP, Bihar, West Bengal, Maharashtra, Orissa) with the objective of spreading awareness about the importance of washing hands with soap.

Fair & Lovely Foundation - Economic Empowerment The Fair & Lovely Foundation is HUL's initiative which aims at economic empowerment of women across India. It aims to achieve this through providing information, resources, inputs and support in the areas of education, career and enterprise. It specifically targets women from low-income groups in rural as well as urban India. Happy Homes - Special Education & Rehabilitation Under the Happy Homes initiative, HUL supports special education and rehabilitation of children with challenges. The various initiatives undertaken by HUL in this field are Asha Daan, Ankur, Kappagam and Anbagam. Yashodadham - Rebuilding Lives HUL has reconstructed a village in the Bhachau Taluka of Gujarat's Kachch district. The village, which has been named Yashodadham, was dedicated to its 1100 residents in December 2002. The residents belong to Nani Chirai village, which was completely wrecked by the devastating earthquake of January 2001. Yashodadham, spread over 25 acres, comprises 289 homes. HUL has 29

also provided a school building, an exclusive playground for children and a multipurpose community centre, includinga creche, health centre, community room and village administration office.

2. ITC
E-Choupal ITCs Agri Business Division, one of Indias largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. Social responsibility at Chirala The story of how the giant Chirala GLT plant of ITC came to be set up in 1927 in such a quaint place, there certainly is a connection, and perhaps even a lesson for some of our large companies on corporate social responsibility.The unit there has also received the ISO-14001 - for environmental management, said to be the first in world tobacco industry, and the Sword of Honour from the British Safety Council UK, for as many as six times between 1994 and 2000.

3. Nestle INDIA
Water Management Program Nestle India is committed to improving the situation and believes that the first step is to create awareness in the communities around its factories. Nestles water management program is a one of its kind effort by a corporate to create the means for providing safe drinking water to local communities and to educate children in schools to conserve this scarce resource. Other Activities include Education for students as well as teachers and parents on the importance of hygiene and cleanliness in the living environment Posters, Demonstrations are used as a medium to teach students water basics like the water cycle, ground water table, uses of water, water resources, ground water depletion

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etc. Creating awareness on the means and methods to conserve and manage water in daily living Nestle has also established several water management initiatives at the factory level Zero waste water discharge: In some of the Nestle factories, treated waste water is recovered for in-house irrigation Imparting rain water harvesting techniques for better water management at dairy farms

4. AMUL Gujarat Co-operative Milk Marketing Federation (GCMMF)

CSR-sensitive Organisational Structure AMUL is a three tier co-operative organisation. The first tier is the co-operative society at the village,of which; milk producers are voluntary members The second tier is the district co-operative that processes milk into milk products, markets locally and sells surplus to the state co-operative for national and international marketing. Third tier is the state level co-operative - the Gujarat Co-operative Milk Marketing Federation (GCMMF) responsible for national and international marketing of milk and milk products produced and sold to it. CSR-sensitive Business Philosophy The first step towards discharging the CSR is the business philosophy of the GCMMF. It is two-fold: one, to serve the interests of milk producers and second, to provide quality products to consumers as value for money.

CSR-orientation To Distributors & Retailers The GCMMF has identified the distributors and retailers are its important link in its vendor supply chain. Through surveys the GCMMF found that 90% of the distributors do not get any opportunity of exposure to latest management practices. The GCMMF has developed and trained all its distributors through Value-Mission-Strategy Workshops,

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competence building, Amul Yatra, Amul Quality Circle meetings, computerisation, and electronic commerce activities.

Earnings Of GCMMF Nurturing its primary members - the milk producers - is the first mission of the GCMMF. Discharge of this responsibility is reflected in the manner in which the GCMMF conducts its business and shares its earnings.

CSR-oriented To Staff The GCMMF hires and trains people to take advantage over its competitors. It has developed in-house modules for training and competence building to improve and up grade of their knowledge; communication skills to understand the customer, be responsive to customer requirements, and communicate clearly for trouble shooting of problems.

5. DABUR India
CSR activities: Daburs major initiatives in the Social sector include: Establishment of the Sustainable Development Society, or Sundesh, in 1993 - a non-profit organization to promote research and welfare activities in rural areas; Sundesh At Sundesh, dabur has initiated social development programmes that take a holistic approach. Integrating various aspects like health, literacy, employment and empowerment to let people take control of their lives. The most deprived and weaker sections of society including women children the illiterat the unemployed. Aims & objectives 1. To design and implement integrated rural and slum development programmes for health, education, improved nutrition and socio-economic upliftment. 2. To promote a better awareness and understanding of environmental issues.

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3. To highlight the links between basic personal and household hygiene, sanitation and health. 4. To improve access to affordable, quality health services and expand medical facilities to rural areas. 5. To introduce group vocational training programmes for building income generation skills. 6. To empower communities for better control of their lives by participating in rural development programmes.

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INTELLECTUAL PROPERTY RIGHTS IN FMCG SECTOR

Not only in FMCG sector but everyday we encounter intellectual property at every step of our life today .Intellectual property (IP) is always with us. At any given time an average person is surrounded by products that are full of IP, ranging from clothes, sunglasses, footwear, mobile phones, watches, the car we drive to the electronics we use and the artifacts that adorn our homes. What most of us perhaps don't realize is that intellectual property is everywhere in our world. India invented the Zero, without which there would have been no binary system. No computers! Counting would have been be clumsy and cumbersome! The spinning wheel is another innovation attributed to India which was introduced to Europe in the Middle Ages. Indian civilizations have protected and used herbal remedies known for their beneficial healing properties which have seen a renewed interest in the form of alternative therapies and preventative health care. What is considered the most valuable patent is the one issued to Alexander Graham Bell for his invention of the telephone. The patent was number 174,465 issued in 1876. The invention of the light bulb by Edison led to the creation of jobs for millions of people. Quite literally, without this invention we would all still be in the dark. Thomas Edison actually received 1093 patents during his life. Abraham Lincoln was the only United States President to receive a patent. He did so for his manner of buoying vessels. He was issued this patent in 1849. Probably the most famous patent was the one issued to Frederic Auguste Bartholdi for his design of the Statue of Liberty. The Statue of Liberty came to New York on June 19, 1885. It was a gift of friendship given to the United States from the people of France. It was intended to celebrate their 100 years of independence 10 years earlier. The statue is constructed of copper sheets which are assembled on a framework of steel supports. In order to be transported to America the statue was disassembled into 350 pieces and was packed in 214 crates. It was then reassembled when it arrived. Nothing like this was ever done before and most likely will never be done again. Thousands of new products of IP in the form of trademarks, designs, patents, copyrights, plant varieties and biological materials are being submitted for registration by inventors, scientists and creators everyday.

DEFINITION
There is no uniform definition of Intellectual Property. As science and technology make rapid advances, and as competition for markets becomes ever fiercer, human ingenuity is throwing up ever new ideas and newer products. Different types of IP rights like patent, copyright, trademark, design etc can protect these ideas and products.

DIFFERENT TYPES OF IP
IP has been generally divided into two main categories viz.,

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(a) Industrial Property, (b) Copyright. Industrial property consists of rights relating to inventions, trademarks, industrial designs and appellation of origin. Copyright protects rights related to creation of human mind in the fields of literature, music, art and audio-visual works. The owner of copyright has rights not only in the original work, but also in creative work that is derived from the original work, e.g. its translation or adaptation or the enactment or production of a film based on the original work. Such rights relating to a copyright are called related rights. There are neighbouring rights on copyright, which protect performances of performing artists, phonograms and broadcasts. Related rights and neighbouring rights are terms used interchangeably

Magnitude of the problem of Counterfeiting and Piracy in India:

WHAT'S in a name? A lot, especially if it is a brand name. While increasing consumerism in India has led to Indian corporates spending huge sums of money for building up their brand images, it has also resulted in a burgeoning group of `entrepreneurs' leaning on this brand build-up to clutter the market with a flood of lookalike or counterfeit products. Indeed, today the fake products under popular brand names constitute an almost parallel industry estimated at Rs. 10,000 crore.. Sample some of the recent findings during an ongoing campaign against fake products by FICCI's India Brand Protection Committee (IBPC):  A recent raid by the police led to the discovery of a young `entrepreneur' who has been raking in hefty earnings from his ramshackle house in one of the by-lanes of Bhandup in Mumbai. His investment? A stove, a plastic container, supplies of white petroleum gel and, of course, several used Vaseline containers with the original wrappers. He has been passing off his concoction as Vaseline into the market for quite some time, netting a 15 per cent profit margin.  A trader in auto parts operating from Kashmiri gate area in Delhi procures unbranded auto spares from the local market, packs them into TELCO wrappers and markets them under the original brand name.  A Mumbai-based housewife during a recent visit to a general store in Ahmedabad to buy a bottle of Sunsilk black shampoo was surprised when the storeowner refused to sell her what she wanted. On closer inspection, she realised that the product was not `Sunsilk', but `Sunmilk', with the wrapper being similar to the original. 35

The storeowner was frank enough to admit that this was for the "uneducated rural consumers, who are not familiar with the Sunsilk ads on the TV."  India has a large drug manufacturing industry, which currently comprises of 250 large units, about 8000 small-scale units, including 5 central Public sector units. These units produce a complete range of formulations and bulk drugs. (Source: Asia Times online)  Fake medicines are estimated to occupy between 15 to 20 percent of the total Indian market. Not only allopathic drugs have spurious competition, but fake homeopathic drugs are also spreading in the market (Source: Tribune News Service)  Music industry is passing through difficult times; 40% of music industrys production ends being copied and distributed illegally in India. Loss of revenue to music industry is Rs 600 crores annually and film industry is of Rs 2000 crores/ year since last 3 years due to piracy.  In India 1 in 3 automotive parts are copied. Spurious car parts takes up an estimated 37% of the market in India. (Source MEMA)  The impact of counterfeiting in FMCG sector is 8-10%, hampering quality of goods as well as raising concerns about health issues  10 % of the major soft drinks sold in India are fakes & 10-30 % of cosmetics, toiletries and packaged foods are counterfeited.  A random search of registered Indian companies reveals that: y y y y There are over 60 companies starting with the word Nike; 65 companies starting with the word Rolex; 217 companies starting with the word Intel. This is not limited to multinationals and there are 136 companies beginning with the word Tata, and over 400 companies beginning with the word Reliance.

"Today the market is full of fake products ranging from salt and tea to high-end garments and shoes. No State has been spared." A recent study conducted by AC Nielsen across 30 FMCG companies has estimated that FMCG companies lose Rs 2,600 crore revenue out of the Rs 60,000 market. Another study by the FICCI's Brand Protection Committee has come out with similar findings look-alike popular FMCG brands account for five to 15 per cent of the original brand sales volumes, with as many as 20 lakh dealers involved in the marketing

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of these products. The study was conducted on selected categories such as balms, coconut hail oil, toothpastes, powders, fairness creams, detergent powders, shampoos, tea and cloth whiteners. "The study has come across 113 versions of Fair & Lovely, 128 versions of Parachute coconut hair oil, 28 variations of Sunsilk, 38 of Clinic Plus, 44 look-alikes of Vicks Vaporub, 34 variants of Amla and 26 Iodex variants. What is more, we discovered fake products in high-end departmental stores. FICCI's campaign has however yielded positive results in this regard, including significant reduction of fake products in Delhi, seizure of huge stocks of counterfeit products, packaging material and machinery, creation of a special cell within the police department in Madhya Pradesh and empowerment of two Magisterial courts in Delhi to deal specifically with Intellectual Property Rights cases. Inadequate consumer awareness has been identified as one of the reasons for this growing market for fake products.

Causes Of The Violations:

The main reason behind the proliferation of counterfeits is the huge gap between the manufacturing cost and the retail price. Also, the counterfeiters have easy access to basic manufacturing and packaging technology. Faster take off, rural penetration, and the trade being hand-in-glove with the counterfeiters helps the practitioners of illegal trade. The top management also must give attention to the issue. The companies would do better if they tried to wrest control of the counterfeits market share instead of wasting money on fighting with their competitors. There is a need to treat IPR violations as serious crime and combating the elements of organized crime in this sector. There are about 5000 reported cases of IPR violations but not a single conviction. Conviction in cases of IPR infringement would act as deterrent to the counterfeits. Unfortunately, the law enforcers are not well aware of the offences related to IPRs. There is a need to train the police and the judiciary to understand its import for businesses.

Fraud Comes in Many Forms :

Basically, every imaginable way, someone can make money by duplicating trade dress, swapping out cargoes, or altering contents etc. The commonly known fraudulent practices are:
y

Counterfeits : Low price, knock-off versions of products sold with fraudulent packaging that directly mimics the trademarks of trade dress of brand name merchandise. Gray Market or Diverted Goods : Real products sent to markets where they were not intended. A lower-priced version produced for overseas might be reimported and sold as top-priced domestic merchandise, or a large retailer might

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buy more than it can really sell to secure a low wholesale price, then resell the surplus to smaller retailers. Refills : Real, emptied packages are refilled with low-cost, low-quality, counterfeit product. Ink jet cartridges are common targets of this type of fraud.

Threats to genuine products in the marketplace take on many different forms, though to counter the counterfeiting, a whole new range of technology and service providers have come into play. The technology being used include security inks, papers, specialty adhesives, ratio frequency identification (RFID) tags, micro-taggants, and holograms. Any characteristic that can create a unique, difficult-to-forge product "signature" can be used, but they generally fall into the following categories:
y y

y y

y y y

Fluorescent Inks : Light up when exposed to ultraviolet or infrared light. Color-Changing Inks : Change color when exposed to certain stimuli.Thermochromic inks change when temperature is raised; photochromic inks change when illuminated by ultraviolet light; chemically sensitive inks change when wiped with an indicator pen or spray. Magnetic Inks : Carry information much like a tape recorder. This information can form an electronic signature. Security Papers : Incorporate features directly into the paper or boardstock. These include fluorescent fibers and other markets. The paper may have very low content of other fluorescent materials, which could mask the markers. Security Adhesives : Normal packaging adhesive tagged with authentication markets, placing them where they are concealed from would-be counterfeiters. Holograms : Somewhat difficult to copy micro-embossed, aluminized films. Micro-taggants : May have many different components, such as layers of colored plastics, DNA, or distinctive chemical elements - anything that can be detected.

MEASURES TAKEN:
The opening up of the Indian economy coupled with growing competition and indeed growing consumer awareness, would collectively help to check the dangers of counterfeiting, spurious and pirated products etc. However, to combat the dangers of the piracy or counterfeiting of products etc, we have to learn much more from the experiences and technological developments of others in this field. The industry should co-opt the consumer in the fight to curb piracy. The consumers could serve as the largest police force for genuine manufacturers and brand protectors. It is imperative for the industry to mount a campaign to educate the public on the danger of copyright theft. Every industry in India must set about proactively in protecting their brands. There is need to form associations covering the entire industry. The music industry has successfully done so. The industry should appoint its own investigators who would fill the vacuum in the enforcement process. Hindustan Lever Ltd. had already appointed trademark investigators all across India.

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A total integrated solution approach should be used in the new paradigm, which would include customer education, technological innovation, and a stricter enforcement regime. Firms need to invest in technology to make copying difficult. However, the fact remains that as long as there are good brands, there will be fakes. It is a good sign that the Indian industry is coming together on a platform to fight the pirates. Yet until the consumers, who are the real owners and patrons of brands, are co-opted in the anti-counterfeiting drive, industry is not going to see much success.

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FATE ANALYSIS (FMCG-CONSUMER CARE)

1. Design and Manufacturing
1. Low Capital Intensity - Most product categories in FMCG require relatively minor investment in plan and machinery and other fixed assets. Also, the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis. 2. Technology - Basic technology for manufacturing is easily available. Also, technology for most products has been fairly stable. Modifications and improvements rarely change the basic process. 3. Third-party Manufacturing - Manufacturing of products by third party vendors is quite common. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning; (2) flexibility in controlling labor costs; and (3) logistics - sometimes its essential to get certain products manufactured near the market.

2. Marketing and Distribution

Marketing function is sacrosanct in case of FMCG companies. Major features of the marketing function include the following: 1. High Initial Launch Cost - New products require a large front-ended investment in product development, market research, test marketing and launch. Creating awareness and develop franchise for a new brand requires enormous initial expenditure on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories. 2. Limited Mass Media Options - The challenge associated with the launch and/or brand-building initiatives is that few no mass media options. TV reaches 67% of urban consumers and 35% of rural consumers. Alternatives like wall paintings,

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theatres, video vehicles, special packaging and consumer promotions become an expensive but required activity associated with a successful FMCG. 3. Huge Distribution Network - India is home to six million retail outlets, including 2 million in 5,160 towns and four million in 627,000 villages. Super markets virtually do not exist in India. This makes logistics particularly for new players extremely difficult. It also makes new product launches difficult since retailers are reluctant to allocate resources and time to slow moving products. Critical factors for success are the ability to build, develop, and maintain a robust distribution network. A general assessment of this would lead to the conclusion that FMCG is not a Structurally Attractive Industry to Enter. Entry barriers are high due the nightmare logistics associated with distributing a FMCG and the limited mass media options available to build a brand. Likewise, the intensity of competition from branded and unbranded goods and the power of retailers make the FMCG a structurally unattractive industry in which to enter and difficult industry in which to remain a competitive player.

Blue-print for the Future

To offer a blue-print for an industry which is one of the most dynamic and demanding is like scheduling events for the days to come. One thing in common between this two would always be the risk of uncertainty involved is very high. Any draft on these topics would certainly always involve issues like distributions, channel-conflict, optimizing operations (supply chain) and if not the last, rural marketing. This blueprint will delve 4 basic concepts and why it could be of major reckoning in the future. These are: 1. Excellence in operations - through Value Chain De-Virtualization 2. Rural marketing 3. Distributions

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4. Brand managers to Business managers 1. Excellence in operations - Value Chain De-Verticalisation Excellence in Operations remains an illusion for most FMCG companies. This will be remaining as long as they stay confined within the organizational structures and mindsets associated with today's vertically integrated business model. According to a McKinsey report based on problems and opportunities relating to operational excellence, the study comes out with the following findings: -

1. Operations issues get neglected from top-management two main business processes of customer management and consumer management. It suggests that Operations issues get a lot less than 20% of the Executive Committee's agenda time. To compound the problem, only around 10% of top executives in FMCG companies have direct personal experience in Operations. It is hardly surprising; therefore, that the commitment to drive radical change may not be as strong in Operations as it is in the other two business processes. 2. Most of the top quartile talent is siphoned for handling marketing or finance functions. Operations functions are short of management talent. High potential generalists often find FMCG Operations too internally focused and too technical. At the other end of the scale, senior Operations experts are often attracted to other industries - such as electronics, automotive or engineering - where Operations is both more highly regarded and more highly rewarded. These problems are not new. What is new is that a potential solution - the combination of organizational separation and value chain de-verticalisation. De-verticalisation Multinational FMCG companies that are able to achieve organizational separation - and functionally organized national companies -

This effectively means outsourcing your supply chain activities to a third party. Typically this will involve selling the existing Operations assets and activities, including

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procurement, manufacturing, primary distribution, and process R&D, to a financial buyer, a third party manufacturer or a joint venture with other FMCG companies. In essence, this leaves an 'asset light' FMCG company and an 'asset heavy' supply company. How will it create value? From the perspective of the FMCG Company, the supply company of its will now be in a position to address the above-mentioned operational issues. A strongly incentivised management team often directly accountable to the capital markets - will be better able to attract and motivate talented operations managers, focus 100% of its attention on Operations issues and build operational skills. And operational excellence will translate directly into bottom-line impact.

Thus de-verticalisation allows the management of the FMCG company to focus entirely on customer and consumer management - the main engines of growth - while sharing in progressive Operations cost improvements through either an equity stake or 'open book' supply contracts. From the financial perspective this would also help the FMCG Company get a quantum leap in return on capital employed. Industry examples A few FMCG companies have already outsourced manufacturing to some degree including Sara Lee, Nike and several beverage companies - or begun establishing themselves as specialized players. But compared to industries like automotive and electronics, where much of the industry value chain has already changed owners, FMCG is some way behind. One reason has been a lack of willing buyers of Operations assets. However, there certainly is a trend at present and a visible scope in the future wherein private equity firms, raw material suppliers and specialist manufacturers, constrained by growth in their traditional markets, are now actively exploring the FMCG deverticalisation opportunity.

One big challenge remains in managing the interfaces between the two companies - for example, product development, forecasting and order processing. However, the lesson from multinationals that have successfully implemented organizational separation - and 43

those that already make extensive use of co-packers or third party logistics providers - is that this challenge is far less daunting than it may at first appear. E-enablement technologies aid to disaggregate the value chain without losing the connectivity between its component parts. About the new product development process - that can be addressed by retaining a pilot plant in-house" 2. Rural marketing Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, ColgatePalmolive and Britannia Industries are only a few of the FMCG majors who have been gung-ho about rural marketing.

70% of the nation's population, that means rural India can bring in the much-needed volumes and help FMCG companies to log in volume-driven growth. That should be music to FMCGs who have already hit saturation points in urban India Not just rural population is numerically large, it is growing richer by the day.

Consider this statistics from a National Council of Applied Research (NCAER) survey: lower income group is expected to shrink from over 60 percent (1996) to 20 per cent by 2007 and the higher income group is expected to rise by more than 100 per cent. Value-volume trade-off Rural marketing could open the doors of paradise, but the path is paved with thorns. One major limitation here is this: most FMCG players just do not have the critical size for going all out for rural marketing. That is why most FMCG players are expected to concentrate both on rural and urban marketing: focus on urban markets for value and focus on rural markets for volumes. One result-oriented marketing strategy here is this: offer value-additions to existing lines to lure the urban consumer and alongside offer the rural consumer wide-ranging choices within a single product category in a bid to generate high volumes. 44

What should the FMCG players do now? They should not only price their products competitively, but also offer their rural prospects maximum value for money spent. Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way out for Indian FMCG players: put in place an aggressive cost structure that would enable them to offer low-price and value-for-money products. But then, FMCG is a low-margin business with a high cost of raw materials. Consider the case of Marico: its material cost works out to a high of 59 per cent on sales. Therein lays the rural marketing paradox.

However, customer-centric and market-savvy FMCG companies have always chased prospects when they perceive there is a latent demand. For instance, Hindustan Lever's Rin, Surf and Lux are available even in India's most obscure villages.

Hindustan Lever had given shape to its rural strategy a few years ago when it perceived that its urban market was shrinking due to an industrial slowdown. Its Operation Bharat that focused on personal care products made the most out of surging rural incomes.

The result was there for all to see. The company has been able to clock in double-digit profits every three years and log in double-digit revenues every four years. Britannia with its Tiger brand of biscuits and Colgate-Palmolive with its low-priced and convenientlypackaged products designed for the rural masses have been other pioneers in rural marketing. 3. Distribution One of the age-old problems that FMCG has been facing not only in India but globally is that of distribution. Integrating operations with your distributors and channel partners is a Herculean task. Few ways to reduce pain involved in this link: y

Reducing supply chain costs by reducing intermediaries - Organized retail chains have set up systems for inventory management and quick servicing, thereby offering the opportunity for a company/supplier to reduce distribution cost by

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reducing intermediaries such as wholesalers/distributors and supplying directly to the warehouse of retail chain.
y

Increasing sales by driving channel width - The relative share of grocers to FMCG sales has dropped from over 50% in the early 90's to 35% in the late 90's. On the other hand the contribution of chemist outlets and paan outlets has been increasing. This has been a result of both SKU's (sachets) and hardware (mini dispensers) being specifically designed to facilitate entry to these outlets and increase consumer interface.

4. Brand Managers To Business Managers Tough market situations and a more aware and savvier demanding consumer have necessitated that yesterday's Brand Managers be transformed into Business Managers who understand consumers and can innovate and be flexible to move with the consumer. Developing strong consumer insight basically requires one to: a) Align oneself to the challenge, in terms of correctly identifying the key issues and objectives. b) Leverage all that one knows and understands from available sources. c) Immerse oneself in the consumer's life space. d) Connect this insight to a usable platform/ idea. e) Executing it in a format that solves the challenge he started with. The above four are by no means an exhaustive list of new and radical approaches which organization are re-inventing or discovering. Its no denying that the FMCG space will be for time to come, remain a glamorous sector, but also be testimony to new innovations and excellence through-out the value-chain. A spate of new product launches, new schemes, brand extensions and new marketing initiatives across companies indicate that only the fittest ideas survive "Only the Paranoid Survive ", the famous line by Andy Grove seems relevant to this space.

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Indian FMCG Sector Trends

1. Focus on Health Companies are widening their health food portfolio to cash in on the rich, urban, health conscious Indian. In recent we have seen flurry of products in this segment. Have a look of some of them: 1.1) Probiotic Ice Creams 1.2) Butter Lite (Nutralite) 1.3) Lays (40% less saturated fats) Snack Smart 1.4) Low Calorie Sweetners

2. Impact of Inflation: The expenditure of FMCG in the consumer's wallet is coming down year on year. This is leading to low sensitivity with price increases. Almost a decade back people use to downtrade from expensive brands to value for money ones. But now the trend is changing. Consumer are not switching to cheaper substitutes. Rather companies have come with lower quantity SKUs and make consumers switch from higher to lower SKUs and not from premium to popular brands (like Dove to Lux International). Just to give you an example, Henkel instead of increasing the price of their HenkEl detergent from Rs. 46 to Rs. 50, they have launched a new SKU of 400gms for Rs. 40. During the time of inflation, people shift to sachets of their brands. Sales numbers of FMCG companies are quite robust. FMCG spend now comprises a smaller share of consumers wallet 3. Micro Segmentation/ Niches: Its interesting and funny to see that companies are not leaving any opportunity to micro segment the market. I can forsee that we are here to see further segments in different categories. Here are some examples: Age a) Junior Horlicks b) Junior Chyawanprash c) Pepsodent Barbie for Kids/ Colgate Strawberry Sex a) Womens Horlicks

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b) Male fairness cream 4. Low value SKUs - Sachetization: You name the category it has a sachet !! We all know that it all started in 1980's with shampoos. Here is a small list of sachets: 4.1) Butter (Munna Pack) 4.2) Noodles (Chotu Maggi) 4.3) Ketchup (Pichko) 5. Jet Age Consumer Products: Because of changing lifestyles, busy jobs etc marketers are coming up with Jet Age consumer products. Ready to Eat a) Corn Flakes/ Oats b) Pastas Ready to Drink a) Energy Drinks b) Non-Cola Drinks (Juices) Ready to Cook a) Cut Vegetables b) Soups c) Paranthas/ Rotis 7. Under-penetrated Growth Categories: Barring few main mainstream categories as mentioned above, there are number of FMCG categories with low penetration and are expected to grow by 20% during 2008-2009. Have a look of that list: 7.1) Mens grooming products 7.2) Skin care & Cosmetics 7.4) Anti-aging solution

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Conclusion
In last few years, we have seen large number of companies expanding their portfolio into other categories, which is leading to fragmentation of market. This will lead to cut throat competition from regional/ national companies, giving the ultimate benefit to the consumers. In this environment, only the innovators will survive. Focus will be the key to profitability. Companies developing products targeting niche segments, by addressing specific needs The modern retail format will slowly occupy a bigger share. This will lead to change in shopping behavior and growth in FMCG sector Undoubtedly, all this is good for the consumers, who can now choose a variety of products, from a number of companies, at different price points.

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Bibliography
1. Strategic Management by Azhar Kazmi 2. www.fmcgmarketers.com

3. www.financialexpress.com/news/fast-moving-changes-in-fmcg 4. www.economictimes.indiatimes.com/News/News-By-IndustryConsProducts/articlelist 5. www.moneycontrol.com/india/news/news/fmcg-cos-expect-prices-to-comedown 6. http://fmcg-marketing.blogspot.com/2007/11/porters-five-forces-model.html 7. http://www.google.co.in/search?hl=en&q=porter+model+of+fmcg&btnG=Goog le+Search&meta= 8. http://www.euromonitor.com/Corporate_Social_Responsibility_%28and_the_F MCG_Market_Response%29 9. http://www.hul.coulditbeu.in/U_pages/U_CSR_initiatives.aspx 10. http://www.itcportal.com/

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