May, 2006

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May, 2006

  1. 1. NARSEE MONJEE INSTITUTE OF MANAGEMENT & HIGHER STUDIES (Deemed University) Department of Distance Learning Course: PGDBM II, PGDMM II, PGDFM II, PGDHRM II Marks: 100 Subject: Business Strategy/Corporate Strategy Date: 17.05.2006 Time: 10.00 a.m. to 1.00 p.m. Answer any five of the following questions 1. a) Explain the purpose of a mission statement. b) Prepare a two-page typewritten mission statement for your company of your choice or for a business school. c) List five potentially vulnerable areas of a firm without a stated company mission. 2. Define the term social responsibility. Find an example of a company action that was legal but not socially responsible. Give a few Indian example of Indian Firms that have incorporated Social responsibility in their mission and vision statements. 3. What key emerging changes do you see in the global environment and What are their implications for strategy? Why do Company’s diversify? 4. Explain the relevance and the implication of Porter’s generic strategies and the five competitive forces. Can mass customization outdate his generic strategies on an industry widespread basis? 5. Why are Joint Ventures formed? Are they relevant in the current WTO regime? What are the characteristics and strategic issues involved in JV’s and why do they fail? 6. Describe the different types of co-operation strategies and illustrate each with examples. Explain the utility of the SWOT exercise. 7. Write short notes on any 3 of the following: 1.Stakeholder expectations 2.The Value Chain 3.Franchising & Licensing 4.Core competency & sustained competitive advantage 5.Vision & Mission statements Q8 Case Study Asian Paints Ltd – The Indian Giant Success
  2. 2. Asian Paints has been the number one paints company in India since 1967. Today, from being the biggest manufacturer of paints, the company is moving towards greater focus on service. By 2005, the firm wants to be known as the global coating firm, with home decoration solutions. The three thrust areas it is covering in that direction are, its brand image and identity, its product portfolio, and its packaging innovations. Before understanding its new focus, it will be a good idea to see its financial picture, which is listed in Table C12.1 Table C12.1 The Financial Picture of Asian Paints Ltd Figures Sales Operating Interest Net Profit Loans Market in profits cap crores of rupees 1998 950 131 20 68 193 1,252 1999 1,07 139 22 77 217 815 4 2000 1,31 191 20 97 174 1,705 2 2001 1,52 210 22 106 227 1,580 5 2002 1,65 238 15 115 111 2,106 6 Asian Paints is into solutions for painting homes, better than what has been done by local paint applicators. BACKGROUND OF ASIAN PAINTS Mr. Choksey, the father of Indian Paint industry, belonged to the laidback business community of India. Yet his vision was to ‘See Indian homes painted in a variety of colours from a truly Indian company.’ His mission statement read ‘To provide paints as per market demand, ensuring desired level and quality of customer (dealer) service, continued availability of the right product mix of right quality at the right time.’ With the near servile attitude of their dealers, MNCs took pride in serving metros and large cities through dealers who also supplied the products to semi-urban markets; however, they were concentrating on metros and found rural market non-existing. The business environment was hostile to the Indian paint industry, and more so to a new entrant. Suppliers of raw materials were favoring MNCs because of their money power. MNCs kept the metros satisfied with their service. The goal of Asian paints was to set up manufacturing facility for a large variety of paints. Its strategy was to build a paint company that could be a role model of outstanding performance. The divide between the poor and rich continued. The lot of farmers in Punjab, Haryana and Andhra Pradesh was improving. In the east, the youth in Bihar took to guns to combat poverty, and the local mafia started to thrive in Orissa. Generally, political
  3. 3. changes had started to take place in the 1970s. People had rejected the imposition of Emergency and the government had changed hands. The business climate, however, did not change much. Entry of new foreign companies was severely restricted through government controls. Population was growing again at around 23 per 1,000, as compulsory family planning had failed. Most citizens remained poor, with pockets of excessive wealth. Migration of workers from Bihar and Orissa to Bengal and Punjab continued. Industries in Bengal and Kerala suffered due to the Marxists’ role in labor unrest. Competitive Environment: The market for paints was stagnant. It was totally dominated by MNCs, with the Indian companies being looked down upon. MNCs had a cartel approach and had dealers with long-standing relationship in an oligopoly market. There were no entry barriers into the business as paints were low tech and low capital projects. Brand loyalty was a remnant of the Raj days. The alternative was lime based and low cost, and used by most in poverty-ridden India. In rich homes and offices, wood paneling was being increasingly used. Mr. Choksey found that to fight MNCs, he had to explore the market segment that they had neglected so far. He surveyed the market and found that semi-urban and rural markets lay completely unexplored. However, they had special needs. ‘Low cost paint in small containers.’ The segment needed a new distribution system as well. Asian Paints’ value for the customers was to build through innovative package (size), distribution, and communication. In 1970s they decided to computerize and network their 30 depots round the country, to provide proper feedback of market needs, resulting in quick response to meet the needs. They planned a new distribution structure, smaller packages, and a computerized communication network. Mr. Choksey did not have any animus towards MNCs, who had shown hostility and created entry barriers for him. Asian Paints differentiation strategy starts from market segment, distribution, and packaging. With increasing volumes in chosen segments, Asian Paints achieved economies of scale for cost leadership. With their dominant position, they diversified in product range as also market and geographic segments. 1. They diversified into manufacturing raw materials for paints. 2. Product Diversification also included industrial paints. Now, with a large market share, they have strong distribution network even in metros. Asian Paint’s strategy of quick response translates into supplying 95 per cent of the orders supply in 48 hours, which is a positive competitive advantage. Their R&D has developed new products to cater to industrial and scientific segments. The paint industry is in the growth stage in India, as construction activity has a high priority. With 27 per cent market share, they enjoy double the market share than their nearest competitor. In order to maintain this leadership position, they have drawn up the following strategy: Asian paints went for Backward Vertical Integration by getting into manufacturing raw materials for paints. Mr. Choksey’s style of functioning was informal as he kept friendly relations with the depot staff and the sales team, and could be seen having tea in some rural dealers’ shops. He started overseas operations to expend his horizons further.
  4. 4. Today, in 2005, the firm believes that the customers are more inclined towards its brand. The firm’s share price has gone up from Rs.258 in August 2000 to Rs.338 in August 2002. They have set up regional laboratories in the South Pacific and one in the Middle East, to fulfill its global commitments. With liberalized economy, more international brands are likely to enter the Indian market, as entry barriers are low in the paint industry. To keep their dominant position, Asian Paints should pursue vigorous R&D for innovative products, increase the number of depots for covering the entire country, advertise separately for each market segment, and arrange continuous market research to enhance their competitive advantage. Questions 1. What should be the communication strategy of Asian Paints to stay market leader? 2. Can Asian Paints plan a yearly advertising plan? If yes, for what benefits should the plans be made? If no, why not? Maintaining and improving brand equity for Asian Paints is the very purpose of keeping the student quality of the product. Discuss.

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