CORPORATE STRATEGY

ASSIGNMENT
By
Amrit Rath
FMS-MBA-2020-22-011

BASED ON PORTER'S 6 FORCES MODEL, ANALYZE ANY ONE FMCG COMPANY,

EXPLAINING EACH OF THE FORCES WITH APPROPRIATE EXAMPLES IN THE CONTEXT OF
THE COMPANY OF YOUR CHOICE.

I have chosen the “ITC LIMITED” FMCG company.

The Porter’s 6 forces model explaining about this company:

• Rivalry among competitors/competition
• Threats of New entrants
• Bargaining power of Buyers
• Bargaining power of Suppliers
• Threats of substitute products
• Complementary products

Rivalry among competitors/competition:

• ITC's top competitors include Hindustan Unilever, Tata, Nestle and Dabur.
• Competitive advantage therefore is derived from anticipating the future and
encouraging strategic thinking capabilities in the organisation.
• Many competing players.
• Price competition continues.
• Banned on advertisements for cigarettes.
• ITC Limited holds the major market share.
• The Rivalry among competitors shows the number of competitors that give tough
competition to the ITC Limited. High rivalry shows ITC Limited can face strong pressure
from the rival firms.

The Rivalry among competitors will be low for ITC Limited if:

• There are only a limited number of players in the market

• The industry is growing at a fast rate
• There is a clear market leader
 • The products are highly differentiated and each market player targets different sub-
segments.
• The economic/psychological switching costs for consumers are high.

ITC Limited can tackle the rivalry among competitors:

• ITC Limited should focus on the implicit needs and expectations of its customers to
strengthen the differentiation basis.
• It should raise switching costs by developing long-term customer relationships.

Threats of New Entrants:

• ITC Limited India First will face the low threat of new entrants if existing regulatory
framework imposes certain challenges to the new firms interested to enter in the
market. In this case, new players will be required to fulfil strict, time-consuming
regulatory requirements, which may discourage some players from entering the
market.
• New entrants will be discouraged if access to the distribution channels is restricted.
• New product differentiation is tough.
• Access to distribution channels.
• Capital requirements is very high.
• Can’t use Economies of scale.
• High taxes.
ITC limited can tackle the threat of new entrants:
• It can develop brand loyalty and will raise psychological switching costs.
• It can develop long term contractual relationships with distributors.

Bargaining power of buyers:

• Degree of dependency is very high.

• Smoking has a lot of symbolic and emotional values attached to it.
• Product quality is not important to smokers.

Factors that increase the bargaining power of buyers:

 • A more concentrated customer base increases their bargaining power against ITC
Limited India.
• Low switching costs (economic and psychological) also increase the buyers’ bargaining
power.

Some factors that decrease the bargaining power of buyers -

• lower customer concentration

ITC Limited can tackle the bargaining power of buyers:

• They can increase and diversify their customer base.

• It can be done by producing new products, targeting new segments.

Bargaining power of suppliers:

• Input required but in small amount.
• Direct access to distribution channels.

Bargaining power of suppliers will be low for ITC Limited if:

• Suppliers are not concentrated

• Switching costs are low
• Product lacks differentiation

Bargaining power of suppliers will be high for ITC Limited if:

• When suppliers are few and demand for their offered product is high, it strengthens
the suppliers’ position against ITC Limited.
• Other factors that increase the suppliers’ bargaining power include-high product
differentiation offered by suppliers.

ITC Limited can tackle this bargaining power of suppliers-

• ITC Limited India First can strengthen its position against suppliers by decreasing the
dependency on one or a few suppliers.
Threat of Substitute products:

• Herbal cigarettes and nicotine patch have failed.

• Nicotine gums have also failed.
• Electronic cigarettes have almost failed.

The Threat of Substitute Products increases when:

• Substitute product offers the same or even superior quality and performance as
offered by ITC Limited India First’s product.

ITC limited can tackle the threat of substitute of products:

• ITC Limited India First can reduce the Threat of Substitute Products or services by
clearly emphasising how its offered product/service is better than the available
substitutes.

Complementary Products:

As part of ITC's business strategy of creating multiple drivers of growth in the FMCG sector,
the Company commenced marketing Agarbattis (Incense Sticks) sourced from small-scale
and cottage units in 2003.

This Business leverages the core strengths of ITC in nation-wide distribution and marketing,
brand building, supply chain management, manufacture of high quality paperboards and the
creation of innovative packaging solutions to offer Indian consumers high quality Agarbattis
& Dhoop.

These core strengths aided ITC in becoming the No. 1 Dhoop player in the country. With its
participation in the business, ITC aims to enhance the competitiveness of the small-scale
and cottage units through its complementary R&D based product development and
strengths in trade marketing and distribution.

HOW DOES A MERGER/ACQUISITION/TAKEOVER IMPACT THE COMPANY IN

TERMS OF THIS MODEL?

ITC Ltd, is open to acquisitions as it looks to grow in the FMCG space. The conglomerate is
also engaging with and investing in start-ups.
Diversified business entity ITC Ltd. on Friday said it is considering merger of its three wholly-
owned subsidiaries - Sunrise Foods, Hobbits International Foods and Sunrise Sheet rah -
with itself.

the acquisition of Sunrise Food, engaged primarily in the business of spices, will help it to
augment its portfolio in the segment, where it has already presence with its brand
Aashirvaad. Consequent to it, Sunrise and its two arms - Sunrise Sheetgrah and Hobbits
International Foods - also became wholly-owned subsidiaries of ITC.

WHICH FORCES ARE LIKELY TO BE MOST IMPACTED?

Out of Porter’s six forces, four forces are likely to be most impacted in ITC Limited.
Those are –
• Threats of new entrant
• Bargaining power of suppliers
• Bargaining power of Buyers
• Threats of Substitute Products

WHAT IS THE STRATEGIC ADVANTAGE THAT CAN BE GAINED FROM THIS

EXERCISE?

• The six forces model is a strategic business tool that helps businesses evaluate the
competitiveness and attractiveness of a market.
• It provides a view or outlook by analysing six key areas of business activity and
competitive forces that shape any industry.
• When examining your market, the first action you need to take is to establish who
your competition actually is.
• When fresh competition enters your market, this can have the ability to change your
position and have an effect on your profits
• don’t forget to research how many suppliers are available for you to choose from, as
well as how expensive it would be for you to switch to another supplier if needed.
• you need to consider how many buyers there are in your market and what it would
cost them to switch to another supplier.