DIVERSIFICATIONS - ESSAR GROUP

DEEPAK. S
Enrol. No. : R600210014
Marketing Management
Assignment -1
INTRODUCTION

The Essar Group is a multinational conglomerate headquartered at Mumbai, India.

Essar started as a construction company and later diversified into manufacturing, services
and retail sectors where potential for growth was evident. The Essar Group is a leading
player in the sectors of Steel, Oil and Gas, Power, Communications, Shipping Ports &
Logistics, Construction and Minerals. Essar operates in more than 20 countries across five
continents with revenues of about USD 15 billion.

Essar invests significantly in the latest technology to drive forward and backward integration
in its businesses, and on leveraging synergies between these businesses. Essar Global
Limited is a diversified business corporation with assets in the manufacturing and services
sectors of Steel, Oil and Gas, Power, Communications, Shipping Ports and Logistics and
Construction. Essar has been expanding in every field wherever there’s a sign of immense
potential for growth. The various sectors where Essar has got itself diversified can be
explained as follows.

i) STEEL
Essar Steel is one of India’s largest exporters of flat products exporting to every growing
market globally. Essar has its strategic business units in India, Canada, USA, the Middle
East and Asia. Their seamless integration right from the excavation of raw material to
finished products has been their major strategic advantage. Essar has a high level of
forward and backward integration. For example, in India, Essar has its Iron ore
beneficiation plant in Bailadilla from where the iron ore slurry ids pumped to
pelletization plant at Visakhapatnam which in turn supplies the necessary raw materials
for the steel plant at Hazira and other similar plants to manufacture the steel products.
Essar Steel is the first steel company which distributes its steel products through its own
end user distribution chain “Essar Hypermart”. Essar Hypermart has many of its retail
outlets throughout the country to cater to all enterprises. Similarly Essar has many
other plants acquired around the globe to cater to all the global clients. Essar uses its
shipping sector to give logistics support for the products they manufacture and supply
to all global clients.

ii) OIL & GAS

Essar Oil has acquired rights for exploration in oil rich proven hydrocarbon blocks
around the globe. Essar oil has its SBUs in Kenya, India, Madagascar, Africa, Vietnam
and Nigeria. Crude oil is transported from the source using Essar’s Shipping sector to
the refining units across the globe. Essar has used its construction unit to build up all
the state-of-the-art business units across the globe which has helped them to use their
own resources effectively. Essar Oil produces different products like LPG, Naphtha, light
diesel oil, Aviation Turbine Fuel and kerosene which are in turn distributed to the end
customers through their retail outlets across India and other parts of globe too. Vertical
 integration is evident in this oil sector of Essar where concentric products are produced
and distributed.

iii) REFINERY
Essar has the most advanced and the state-of-the-art refining units in Kenya and India
which are seamlessly integrated with its own power plant, shipping, port and terminal
facilities owned by Essar group. Refining units have terminal facilities which include rail
car and truck loading facilities and a Single Point Mooring which can handle vessels up
to 350,000 dead weight tonnage and dispatch capacity of 14 million tonnes.

iv) COMMUNICATIONS & IT ENABLED SERVICES

Essar Communication holdings Ltd in joint venture with Vodafone Group is one of
India’s largest cellular service companies. IT enables services are taken care by Aegis
brand which is again a part of Essar Group. Essar Group operates four business
segments in telecom, telecom retail, telecom infrastructure and IT enables services.
Through either mergers or acquisitions, Essar has been able to integrate all these four
segments to benefit each other in terms of profit and technology. In this Essar Telecom
Infrastructure has been able to provide telecom tower to its cellular service unit which
in turn is integrated with its own IT enabled service unit “Aegis” to provide all IT support
for the telecom sector. Telecom retail stores like The MobileStore Limited provide
telecom devices. This shows the horizontal diversification of the telecom services of
Essar.

v) LOGISTICS AND SHIPPING

Essar’s logistics business provides end-to-end logistics support from ships to ports,
lighterage services, intra-plant logistics and dispatch of finished products. Essar’s
logistics unit provides complete Supply chain management services to other clients and
its own units in oil and gas, steel and power generation industries. Essar has its own
port terminals to support storage, handling and shipping of its own products and some
of these terminals are at Vadinar, Salaya and Hazira in Gujarat.

vi) PROJECTS & CONSTRUCTION

Essar Constructions and Infrastructure Development Units has helped to cater to the
needs of outside clients and also to the other strategic business units of Essar in
developing the latest state-of-the-art infrastructure projects sectors like Steel, Oil &
Gas, Petroleum exploration, refineries, port and shipping. Integration of services given
by project units with other units has helped to eliminate the cost that would have
incurred by approaching third party service providers. Control over the happenings of
the projects was also possible due to this integration.
 From the above discussions, it can be seen that Essar Group has diversified itself in
many sectors like Oil & Gas, Refinery, Communications, IT Services, Logistics & Shipping,
Constructions, Infrastructure, Telecom Retailing & services, etc. This shows the
conglomerate nature of Essar Group globally. Essar has also efficiently utilised backward
integration or diversification in exploring and producing raw materials for its own use and
distributing its finished products either through its own retail outlets or franchisee outlets to
the end users which constitutes of the forward integration. For example in Essar Steel,
Concentric diversification is seen in producing different grades of steel for different client
needs. Horizontal diversification can be seen in producing certain products that have been
the by-products of the same production process but at different stage of it. Then these by-
products are processed to yield different other products catering to different or same clients
through the same channel.

On a broader sense, Essar Group is conglomerate in nature and has been able to integrate
all its units to cater to its own needs as well outside clients too. Horizontal and concentric
diversifications can also be seen when a particular strategic business unit is focussed.
External Diversifications like mergers and acquisitions has also helped to develop
management, financial, technological synergies and so for grabbing the opportunity
wherever the potential for growth is evident. Both forward and backward integration has
helped Essar Group and its subsidiaries to eliminate the middlemen. Thus Essar Group’s
conglomerate nature has helped to reap profit and expand its growth in every field.