This action might not be possible to undo. Are you sure you want to continue?
By Kaushik Majumdar Abhishek Khemka Sudip Kumar Das Sudipto Ghosh
Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level.
At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in. At the corporate level, it is entering a promising business outside of the scope of the existing business unit.
DIVERSIFICATION the Diversification is part of
marketing strategies defined Product/Market Ansoff matrix:
Diversification usually requires a company to acquire new skills, new techniques and new facilities.
Power plant to support their Vijayanagar steel plant (mid 1990)
JSW Energy “We want to enter all fields of energy including wind and solar.Our aim is to be in all segments such as transmission, generation and trading in the next five years. “ Senior Jindal Executive
DIVERSIFICATION AS A CORPORATE STRATEGY
companies concentrate on one business or should they be holding a portfolio of businesses? Almost 40 years back, Peter Drucker argued that Every business needs a core – an area where it leads and along with it, every business must diversify to compete in an era of fast changing markets and technologies. Today, the business environment has become much more volatile and dynamic.
DIVERSITY IN DIVERSIFICATION M i so ft cro O p e ra ti g syste m s n V i eo gam es d W e b h o sti g n E n te rp ri so ftw a re se W i ro p V e g e ta b l o i s e l Li h ti g so a p s g n M ed i leq u i m en t ca p C o m p u te r so ftw a re Related Diversification Unrelated .
manufacture. when activities related to the inputs in the business are developed. For example a newspaper company expanding by acquiring a TV station remains with media sector. occurs when a company develops beyond its present product and market whilst remaining in the same area. Horizontal diversification. For example a newspaper company acquiring a distribution outlet. Forward diversification.DIVERSITY IN DIVERSIFICATION Related diversification. market and distribute. design. It will use its present strengths by using its expertise to develop new interests in same area. Unrelated diversification is used to describe a company moving its . refers to development into activities which are concerned with a company’s output. For a company may integrate its activities to include all aspect of the value chain. Backward diversification. occurs when a company develops interests complementary to its current activities. For example a newspaper company acquiring a printing or publishing company.
For instance 1984 and 1985 NewsCorp acquired Twentieth Century Fox and six television stations of the Metromedia Broadcasting Group in the US. Take advantage of existing expertise. Provide better risk control through no longer being ADVANTAGES .Control of inputs. leading to continuity and improved quality. knowledge and resources in the company when expanding into new activities. This can arise through a combination of linkages in the value chain. These acquisition provided the company with a wider platform for consolidation of its related activities through access to studios for making films and television Programmes. Control markets by guaranteeing sales and distribution.
the metal packaging company which diversified into bearings.DISADVANTAGES May result in slowing growth in its core business Adding management costs. Diversification through acquisition May result in failure where there is a mismatch between core competencies or experiences of the acquirer and acquired businesses. This move destroyed the company Polaroid lost heavily (about $200 million) when it diversified into instant movies . While taking heart from the success of Wipro and GE. the dangers of unrelated diversification should not be underestimated Metal Box (India) Ltd.
So Apple moved its business toward digital music. This becomes more apparent when a new competitor enters with a different cost structure.WHEN TO DIVERSIFY When the profitability of a business is in secular decline. General Motors saw this in competition with Toyota Unsustainable growth formula. The market may be reaching saturation or competitors . Inherently inferior economics. a new core makes sense. Apple’s share of the market for personal computers plummeted and profitability steadily declined.
ITC .DEVELOPING A NEW CORE When the core business is under severe threat. The most successful companies proceed more systematically. Some companies go into denial and decide to defend the status quo Others try to transform their companies all at once through a big merger or by leaping into a hot new market. American Can turned Primerica. Barrick.
intensifying competition were inevitable.2 billion. it merged with Citicorp. the company changed its name to Primerica. About a year later. Forward integration by aluminum producers and backward integration by food companies eroded the company’s ability to raise prices.American Can to Primerica saga American Can initially manufactured cans/containers for the beverage industry. In an industry which used a simple technology. The can business was sold off. In 1987. Plastics emerged as an important substitute. . it started to refocus and entered the financial services business in a big way through acquisitions. In 1980. In 1997. musical records retailing and direct mail marketing. American Can diversified into paper. it acquired Salomon for $9.
ITC has operated with considerable autonomy. Though it is a subsidiary of the UK based BAT.DIVERSITY IN INDIA A good example of an Indian company attempting to diversify and develop a new core is ITC. Among the businesses which ITC has entered in recent years are Apparel retailing and branding Ready-to-eat packaged foods Confectionery items Infotech Paper and boards Welcome Group hotel chain .
superior brand-building capabilities.T.C.INTRODUCTION ITC Limited which previously stood for ‘Imperial Tobacco Company’ one of India's foremost private sector companies. effective supply chain management and acknowledged service skills in hotel. Limited in 1974. The name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I. ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach. .
1975 – The Co. Though Imperial clearly dominated cigarette business. Late 1960’s. 1971.100 Inspiring years………………. Established by UK-based tobacco major BAT 1910. full fledged sales organization named Imperial Tobacco Company of India Limited July 1912.Indian Leaf Tobacco company(ILTC) 1925– ITC’s Packaging & Printing Business Division was set up as a strategic backward integration for ITC’s Cigarettes business. decided to reduce its dependence & so diversify.GoI pressured MNC to reduce holdings. launched its HOTEL BUSINESS which was named ‘ITCWelcome group Hotel Chola’. Though Imperial clearly dominated cigarette business. . decided to reduce its dependence & so diversify. Marine product export division 1974 –The name of the Company was changed to ITC Limited (Indian Tobacco company).
“Classmate” was launched to reach a wider student population. Scissors. Wills.‘Expressions’ 2000..ITC’s Packaging & Printing.Lifestyle Retailing business division with the Wills Sportrange of international quality relaxed wear By 2001.Cement business 1985 – Surya Nepal Pvt. 1990. to study businesses of company 2000. . India kings and Classic 2003. 1994. 1981.Consultancy from McKinsey & Co. Bhadrachalam Paperboards Limited. Ltd.ITC set up the Agri Business Division for export of agri-commodities.undisputed leader in cigarette industry with popular brands. 1977. The Division is today one of India's largest exporters.Contd….Textile industry 1979 – ITC entered the Paperboards Business by promoting. which today has become the market leader in India.Gold Flake.
Strategy of Organization to manage diversity of Portfolio Formal 3-tiered governance structure: Board of Directors : Comprising executive (3) and non-executive directors (11) Strategic supervision Corporate Management Committee : Comprising executive directors and senior managers Strategic management Divisional Chief Committee : Executive & Divisional Management Executive management .
VISION & MISSION • Vision: Sustain ITC’s position as one of India’s most valuable corporations through world class performance. creating growing value for the Indian economy and the Company’s stakeholders. delivering superior and sustainable stakeholder value. • Mission: To enhance the wealth generating capability of the enterprise in a globalizing environment. • .
ITC.Values • • • • ITC's Core Values are aimed at developing a customer-focused. WORKING FOR YOU. quality and satisfaction.always customer focused and deliver what the customer needs in terms of value. high-performance organization • • Customer Focus . WORKING FOR INDIA. • .
2. Water Positive 6years in a row.Corporate Social Responsibility Environmental 1. . supplementary education.000 hectares of dry lands and moisture-stressed areas. ITC has been Carbon Positive 3 years in a row. ITC's Watershed Development Initiative brings precious water to nearly 35.000 hectares creating an estimated 35 million person days of employment among the disadvantaged. ITC's Social and Farm Forestry initiative has greened over 80. 100% solid waste recycling Social ITC's businesses generate livelihoods for over 5 million people. integrated animal husbandry programmes. ITC's globally recognised e-Choupal initiative is the world's largest rural digital infrastructure benefiting over 4 million farming families. ITC's Sustainable Community Development initiatives include women empowerment. The first ITC Sangeet Sammelan showcasing the best in Indian classical music was held in Delhi in 1971 1. 3.
ITC Business Portfolio FMCG Cigarettes Foods Personal Care Lifestyle Retailing . Education & Stationery Matches Incense Sticks Hotels Paper & Packaging Agri Business Information Technology .
Navy Cut. Gold Flake.FMCG-Cigarettes Insignia. Capstan. India Kings. Silk Cut. Bristol and Flake 'Best Manufacturer of Cigarettes for the year 2007' . Classic. Scissors. Berkeley.
Superbrand Council. Wills LifeStyle.FMCG-Others Ashirvad Atta. Candyman. Classmate ‘Superbrand 2006‘ . Expressions. Fiama Di Wills. . Superia. Mint-o. Kitchens Of India. Sunfeast. Bingo.
ITC Windsor (Bengaluru). . ITC Kakatiya (Hyderabad).Hotels ITC Maurya (Delhi). ITC Maratha (Mumbai). ‘Bukhara’ Restaurant named as Best Indian Restaurant in the World. ITC Mughal (Agra). ITC Grand Central (Mumbai). ITC Sonar (Kolkatta).
Leaf Tobacco Innovation for India Award 2006 for ITC e-Choupal in the Social Innovations category for business organizations . Agri Exports.eChoupal.
Packaging & Paperboards Packaging & Paperboards and Specialty Paper Indian Manufacturing Excellence Gold Award 2007 and 2006 to Unit Bollaram by Frost & Sullivan .
Infotech ITC Infotech Ltd.International Association of Outsourcing Professionals . Featured amongst Top 100 Global Outsourcing Companies in the Leaders category .
000 markets & 2 million retail outlets Ø World-class state-of-the-art technology and products Investment .00.geographic & price Extensive FMCG distribution network Direct servicing of 1.10 billion in six years Ø Exciting long term growth potential Ø Ø Ø Ø .ITC’s Cigarettes Business Market leadership Powerful brands across segments Leadership in all segments .Rs.
30 . Ø Future growth depends on relative rates of growth of per capita income and moderation in taxes. Cigarettes (15% of tobacco consumption) contribute nearly 85% of Revenue to the Exchequer from tobacco sector Ø 48% of adult Indian males consume tobacco.Cigarettes: Growth potential Ø Cigarettes account for less than 15% of tobacco consumed in India. Only 10. one tenth world average.3% of adult Indian males smoke cigarettes as compared to 16% who smoke biris and 33% who use smokeless tobacco (Source: Global Adult Tobacco Survey India 2010) Ø Biri : Cigarettes ratio = 10 : 1 Ø Annual per capita adult cigarette consumption in India is appx.
3000 2500 2000 1500 s t e r a g i C f O o N 2920 Per Capita Cigarette Consumption 1886 1771 1000 500 0 A S U a n i h C 844 618 488 303 243 85 n p a J l a p e N a i d n I n t s i k a P Countries k n a L i r S §Per Capita consumption in India ~ 10% of World average h s e d l g n a B d l r o W g a r v A e 31 .
Rajasthan. Punjab.e. contraband. • Domestic illegal volumes still very strong.Cigarettes: Challenges Ø Competitive context • Competition including international majors becoming more active. Delhi. Gujarat . • VAT hikes in Maharashtra. Haryana.f. has emerged as substantive Ø Regulatory & Taxation • Pictorial Graphic warnings in place w. June 09. Along with smuggled segment.threatening the concept of the ‘Indian Common Market’ • 32 .
Hotels & Tourism 33 .
Beijing alone has as many hotel rooms as the whole of India Ø India’s luxury rooms availability lower than even smaller East Asian countries 80000 70000 60000 50000 40000 30000 20000 10000 0 HongKong Bangkok Singapore Malaysia India Source: Compendium of Tourism statistics.000 arrivals Ø Today. Vs.Hotels & Tourism industry Ø Foreign arrivals into India: 5 million appx. WTO 34 . 35 million in China • The two nations were on par 2 decades ago at 750.
000 rooms of which 5 Star category accounts for appx.growing potential for leisure tourism 35 .Indian Hotel Industry Ø Current supply – appx.000 rooms in the next 2/3 years to service projected tourist arrivals Ø Present mismatch between supply and demand expected to persist over the short term Ø As infrastructure for trade & commerce improves . 30% Ø India needs an additional 50. 110.
. plans for other locations also being progressed.Welcome Group : • • • Welcome Hotels Fortune Hotels Welcome Heritage Ø Fastest growing hotel chain with highest operating efficiency(PBDIT/Net Income @ 40%) amongst the 3 leading chains Ø Leverages unique service proposition and international alliance with Starwood Hotels & Resorts .ITC’s Hotel Business ITC .‘Luxury Collection’ / ‘Sheraton’ Ø Capacity expansion underway at Chennai & Kolkata.
Paperboards. Paper & Packaging 37 .
80 lac MT.00.value added coated boards Ø World-class contemporary technology Ø Internationally competitive quality and cost Ø Social farm forestry in mill command area to improve access to cost effective fibre & to attain self-sufficiency • Biotech research based high yielding Clones – effectiveness tested in > 1.ITC’s Paperboards Business Ø Market leader in growth segment .000 hectares Ø Fully integrated operations with in-house pulping capacity at appx. 2. Ø It is the largest exporter of coated boards from India. 38 .
000 TPA paperboards machine underway Ø ITC’s packaging SBU -India’s largest converter of paperboard into high quality printed packaging • Leading supplier to Indian FMCG and Consumer Electronic segments • Provides superior packaging solutions to the cigarettes and new FMCG businesses 39 .ITC’s Paperboards & Packaging businesses Ø Capacity expansion projects installed – at optimum capacity utilization • 120000 TPA Pulp Mill – Machine stabilised • 100000 TPA paper machine (to support Education & Stationery business growth plans) Machine stabilized • Investment in 100.
Leaf Tobacco .Agri Businesses .Agri Commodities 40 .
Indian Leaf Tobacco industry Ø India – the third largest producer of tobacco Ø However.robust growth in export volumes with improvement in realization over the last 2 years 41 & larger opportunities for value added Ø ITC – India’s largest buyer. consumer & exporter of . processor. India’s share is only 7% in world tobacco trade Ø Upgradation of tobacco consumption from other formats to cigarettes will enable: • growing domestic base exports cigarette tobaccos Ø 6th largest leaf tobacco exporter in the world Ø Pioneering cultivation of flavourful Flue-cured. superior Burley and Oriental tobaccos in India Ø Export business .
Marine products.ITC’s Agri Commodity Business Ø Farm linkages in 14 states covering Soya. Focus on value added agri commodities Ø Unique CRM programme in commodity exports Ø Leveraging IT initiative for the transformational ‘e-Choupal’ Rural India’s largest Internet-based intervention Over 40000 villages linked through around 6500 eChoupals servicing over 3. 42 .5 million farmers Ø Distinctive sourcing capability for ITC’s Foods business . Coffee etc. Wheat. Ø ITC's Agri Business Division. one of India's largest exporters of agricultural commodities.
Future Growth & Value Capture New FMCG Initiatives 43 .
Sunfeast Pasta 44 . Bangalore 6 chosen categories: Staples – Aashirvaad Atta. mint-o Noodles: Launched ‘Sunfeast Yippee’ Noodles in Sept ’10 in Karnataka and Tamil Nadu markets Ready to Eat – Kitchens of India (Ready to Eat. Spices Biscuits – Sunfeast Salty Snacks – Potato chips.Branded Packaged Foods Ø Leverages: Unique Agri sourcing skills ITC Welcomgroup’s specialist cuisine & bakery knowledge FMCG distribution synergies ITC R&D Centre. Bridge products : Bingo! Confectionery – Candyman. Conserves & Chutneys and Frozen Foods). Aashirvaad (Instant Mixes & Cooking Pastes). Salt.
Branded Packaged Foods • Aashirvaad Atta: – Current market leader amongst national branded players. distributed & outsourced supply chain being ramped up – Targeted cost management actions shore up margins • • Number of innovative products in the pipeline leveraging the capabilities of the ITC R&D Centre 45 . leverages the e-choupal network for cost-quality optimisation and region specific offerings • • Sunfeast Biscuits: – Differentiated & innovative products. continues to build consumer franchise.
‘Wills Sport’ relaxed wear and ‘Wills Clublife’ evening wear • Designer association with leading Indian designers – ‘Wills Signature’ line • Strong distribution network in place for the mid-market brand ‘John Players’ availability in 225 Exclusive Branded outlets.a Ø Up market product range available in exclusive Wills Lifestyle stores (67) and multi-branded outlets/ large format retail stores across the country • Premium segment comprising the ‘Classic’ range of formal wear.Lifestyle Retailing Ø Leverages trade mark and services expertise of hotels Ø Relaxed wear market growth > 20% p. 200 multi branded outlets and departmental stores • Wills Lifestyle rated amongst the top 5 Luxury brands in the country (Global Luxury Survey conducted by TIME Magazine) 46 .
Enthusiastic customer response based on green credentials. Scholastic products launched • Branded Copier Paper ‘Paperkraft’ footprint being enhanced. Forward linkages with new paper capacity (already commissioned). Ø Comprehensive portfolio approach with new variant/category launches 47 . Ø An emerging (currently Rs 9000 cr stationery) market in India .Education & Stationery Products Business Ø Leverages print and paper know-how. Offers opportunity for branding Ø Robust distribution network in place to scale up the Stationery business significantly • ‘Classmate’ brand already the most widely distributed brand in India. govt. spending on education Mostly commoditized.growth driven by increasing cross-cultural exposure.
1250 crores p. for 24 billion match boxes Ø Mass market moving from 0. Ship.00. Ø ITC markets its brands with value added products across each price point • Support SMEs with complementary marketing strengths Ø ‘AIM’ – India’s largest selling Safety Matches brand Ø Successful acquisition of WIMCO Ltd.50 p price point to Re 1.a. Cheetah Fight etc.Safety Matches Ø Current industry consumer spend estimated at Rs. Ø 48 . by Russell Credit • Key brands: Homelites.
900 crores p. Ø ITC markets its brands with value added products across each price point ‘Mangaldeep’ : second largest national brand in the country Support cottage sector with complementary marketing strengths Provides livelihood opportunities to more than 8000 under privileged women 49 .Incense sticks (Agarbattis) Ø Current industry consumer spend estimated at over Rs.a.
gaining customer acceptance Ø Supported by investments in brands – celebrity endorsements Ø Investments being made in Research & Development and strategic tax incentivized manufacturing sites 50 . Hair Care (Shampoos. Ø Product portfolio enlarged with the launch of Fairness cream – Vivel Active Fair Ø Portfolio approach straddling all consumer segments with 4 umbrella brands: Essenza Di Wills (Prestige) Fiama Di Wills (Premium) Vivel Di Wills and Vivel (Mid) Superia (Popular) Ø Products well received in the market.a.) Ø ITC presence established in Body Wash (Soaps. conditioner).Personal Care Products Ø Current market size estimated at over Rs. shower gels). 29000 crores (growing at 12% p.
Elephant that can dance A full spectrum added value only when the activities are joined and connected .
A robust corporate strategy • • • • Core competencies Distribution reach Superior brand building Effective supply chain management – 6 million retail outlets – Directly services more than 2 million of these retail outlets • Acknowledged skills .
Performance Track Record Snapshot Rs crores Rs Crs Source: itcportal.com .
Source: itcportal.com .
Source: itcportal.com .
672 Total 100% 26.2009/10: Segment Segment Cigarettes Gross Revenue 66% 17.260 PBT 4.465 100% - (89) -1% 6.711 30% 12.457 20% 1.234 Total 110% 28.589 217 436 684 5.com . 10% Income/Expenditure 2.938 82% (350) -6% 4.719 14% 4.926 76% 4% 7% 11% 99% - Rs crores Capital Employed 2.862 Papers 12% 3.717 38% 2.642 Total FMCG 80% 20.932 Less Other Revenue.580 13% 3.925 Hotels 3% 911 Agri Business 15% 3.015 100% Source: itcportal.283 Others 14% 3.988 24% 1.
Cigarettes ITC InfoTech .BCG Matrix FMCG foods/others Agri Business Hotels Paperboards & packing FMCG .
Paperboards & Packaging investment opportunity of upto Rs.000 crores in the next 7 to 10 years . 6. • Paper. • investment opportunity for ITC of upto Rs.Businesses for Tomorrow • In FMCG sector expected to triple in size to over Rs 3.55.000 crores. 9.000 crores over the next 7 to 10 years. 8. investment opportunity upto Rs.000 crores by 2018.
THANK YOU .
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.