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Indian Tea Expansion Into Russian Market
 

Indian Tea Expansion Into Russian Market

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This presentation presents an market entry analysis and recommendations for Indian tea companies looking to expand into the growing Russian tea market.

This presentation presents an market entry analysis and recommendations for Indian tea companies looking to expand into the growing Russian tea market.

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    Indian Tea Expansion Into Russian Market Indian Tea Expansion Into Russian Market Presentation Transcript

    • Market Entry Opportunities for Indian Tea Companies in Russia Aginsky Consulting Group October 7, 2009 www.aginskyconsulting.com 1
    • Presentation Outline Who is ACG? Project Objectives and Approach Company Analysis Why go Global? Global Outlook for Tea (2007) Why Russia? Analysis of the Russian Tea Market Analysis of the Indian Tea Market October 7, 2009 www.aginskyconsulting.com 2
    • Presentation Outline Comparison of Russian and Indian Tea Markets Cost Benefit Analysis of Different Sales Channels How to go Global Approach for Selecting the Best Market Entry Strategy Case Studies How can ACG Help You? Conclusion
    • Who is ACG?  Truly international boutique firm  Focused on emerging markets, particularly economies of Russia and the CIS  Staffed with graduate-degree holders from top- tier schools (Harvard, Yale, Thunderbird, Columbia, etc.)  Customized project teams for each individual client engagement  Entrepreneurial!
    • ACG Service Offering Wide range of consulting services custom-tailored for each client  Strategic market entry  Primary and secondary research  Customer mapping and field research  Competitive landscape analysis  Comprehensive market research  Business strategy and marketing planning  Distribution and channel partnership building  Cross-cultural communication and integration  Sales and channel management  Emerging markets product/service launches
    • Project Objectives and Approach Objectives: 1) Market Entry Evaluation  Understand tea companies’ current distribution footprint  Examine acquisition best practices  Examine joint venture best practices  Examine licensing best practices 2) Russian Market Analysis  Russian business environment - Opportunities - Challenges 3) Strategic Entry Recommendation
    • Project objectives and approach Approach:  Develop best entry strategy based on tea companies’ priorities and future plans  Consider the opportunities and challenges of the Russian business environment  Examine and incorporate best practices derived from practical experiences of other firms and industry experts
    • Why go global?  To increase sales, revenues, and profits  To grow the company’s global market share  To achieve greater economies of scale  To reduce costs  To reduce risk  To establish a foothold in a promising market  To learn from a leading market  To build a global brand  To respond to competitors  To receive investment from VCs October 7, 2009 www.aginskyconsulting.com 8
    • Why go global? To increase sales, revenues, and profits  Limited or declining home market  Excess capacity Competitive advantages in new markets:  Russia: top location for global retail - A.T. Kearney 2007  70% of Russians' income is disposable vs. around 40% in the West  Lower costs and higher prices - opportunities for profit  Global consumers' tastes are converging. Easier to offer a globally standardized product October 7, 2009 www.aginskyconsulting.com 9
    • Why go global? To grow the company’s global market share  It is not enough to grow with the market. You need to grow your market share globally if you want to be a leader. To achieve greater economies of scale  Efficient operations and increased production to reduce cost per unit. October 7, 2009 www.aginskyconsulting.com 10
    • Why go global? To reduce costs  Fixed costs vs. variable costs  Labor-related vs. non-labor-related costs  Competitive advantage To reduce risk  Decreasing dependence on domestic market and any individual client minimizes overall risk profile October 7, 2009 www.aginskyconsulting.com 11
    • Why go global? To establish a foothold in a promising market  Fragmented or less competitive markets. EX.: P&G in Russia. To learn from a leading market  Participate in highly-competitive markets to improve products and marketing. EX.: Koc in Germany, the world's leading market for dishwashers, refrigerators, freezers and washing machines. To build a global brand  Build a more powerful image of your brand: global marketing exposure, more investment dollars, long-term growth. October 7, 2009 www.aginskyconsulting.com 12
    • Why go global? To respond to competitors  Domestic competition entering international markets. “Competitive response.” Eg: Tata Tea’s entry in to the U.S., China, and other global markets; J.V. Gokal’s entry in to the Russian market.  Competition coming from international players. “Offense as defence.” To receive investment from VCs  Prerequisite for venture funding: very large market. Global firms received more than twice as much funding from VCs October 7, 2009 www.aginskyconsulting.com 13
    • Global Outlook for Tea (2007)  Market size in terms of retail value: $23,323 millions  Market size in terms of retail volume: 1,765 million kg  Growth rate in terms of retail value (2006-07): 4.5%  Growth rate in terms of retail volume (2006-07): 3.5%  Per capita consumption: 0.3 kg  Average retail price: $13.2 per kg  Growth in retail price: 0.9%
    • Global Outlook for Tea (2007) Majorproducers of tea: China, India, Kenya, and Sri Lanka Major importers of tea: Russia, U.K., U.S., Pakistan and Japan
    • As seen above, from 2004 to 2007 the world supply for tea has far exceeded demand.
    • Though, India is the second largest producer of tea in the world, the domestic consumption of tea is quite high, resulting in India’s exports being only the fourth largest.
    • Prices of Tea at different World auctions (Q3) Prices in US $ Regions 2008 2007% Change North India 2.21 1.73 27.75 South India 1.53 1.2 27.5 All India 1.99 1.58 25.95 Colombo (Sri Lanka) 3.03 2.38 27.31 Chittagang (Bangladesh) 1.61 1.15 40 Mombassa (Kenya) 2.3 1.64 40.24 Jakarta (Indonesia) 1.52 1.36 11.76 Limbe (Cameroon) 1.36 1.02 33.33 Sri Lankan tea had the highest price per kg in 2008, followed by India and Bangladesh at their respective auction houses.
    • Highest Per Capita Markets in 2007 3 2.7 2.7 2.5 2.1 2 kg 1.5 1.3 1.3 1 0.7 0.5 0.3 0 Turkey Ireland U.K. Poland Russia India Global As can be seen from the graph, the average per capita consumption of tea in Russia was 1.3 kg, which was far greater than the average per capita consumption of tea both globally (0.3 kg) and in India (0.7 kg).
    • Current statistics and trends in the Tea Industry (2008) Tea production and export statistics until Q2 (in millions of kg) India China Kenya Sri Lanka 2008 (E) 2007 2008 (E) 2007 2008 (E) 2007 2008 (E) 2007 Production 599.73 576.07 nil nil 181.69 221.52 199.6 169.82 Export 124.04 106.64 203.05 191.76 210.82 216.74 204.52 191.08
    • Current Statistics and Trends in the Tea Industry (2008)  Tight supply due to a projected decrease in Kenyan tea production. Continuation of upward trend in world tea prices. (FAO report)  FAO composite price, (a world indicator price for commodities) has increased 6.5% to US$1.95 per kg in 2007.  For the next 10 years to 2017 1. World black tea production is expected to grow at 1.9% annually to reach 3 million tons 2. World green tea production is expected to grow at 4.5% annually to reach 1.6 million tons (FAO projections)
    • Current Trends in the Tea Industry (2008)  Possibilityof an oversupply of black tea in the coming years in the global tea market (FAO)  A growing health and wellness trend boosting the sales of specialty tea varieties such as fruit/herbal tea, green tea, and other tea  Higher disposable incomes in many developing economies such as China, India, and Russia prompting a shift from unpackaged to branded and specialty tea varieties
    • Why Russia? Surging Economy  Real GDP Growth ↑ 8.1% to $1.3 trillion  The fastest growing economy in the G8 group of industrialized nations  Investors pouring money into improved storage facilities, infrastructure, and logistics  Improving financial services, rule of law, and banking infrastructure  FDI into Russia to reach $58 billion in 2008, an increase of about 16% compared to the value in 2007  “Even as the financial crisis shows no signs of abating and deleveraging continues, Russian economy will remain strong because of very low levels of public debt.” - Yuri Soloviev, CEO of VTB Capital
    • Why Russia? Wealthier Consumers  140 million consumers  Price conscious consumers but willing to pay for quality  Disposable income increasing, consumers willing to spend on brand names  Real wages ↑ 16%, increased consumer spending  Per Capita GDP reached $14,800 in 2007 (CIA World FactBook)  Consumers more health conscious than ever  Russian consumers are now the fourth biggest spenders on high end goods behind the U.S, Japan and China (Business Week)
    • Why Russia? Government  Government seeking to streamline customs and taxation regimes to attract more FDI  Supporting the E-Russia program, designed to stimulate growth of e-commerce, including B2B e- commerce  New reforms targeting bureaucracy and corruption  Government focus on expanding manufacturing base and improving infrastructure development October 7, 2009 www.aginskyconsulting.com 27
    • Why Russia? Deals in Russia 2006 - 2007  Measured by dollar volume, M&A activity in 2007 in Russia rose 61% in 2006, registering an estimated $179 billion  M&A activity equaled a robust 14% of GDP and contributed to Russia’s continued strong economic growth  2,151 M&A deals in 2006 – 2007; 146 in the food & beverage industry  249 JVs formed in 2006 – 2007; less than 10 in the food & beverage industry  Increasing middle class demanding more premium products.
    • 29 Market Overview Russian Market Overview  140 million consumers “Dollar income per capita  140 million consumers has risen by nearly 29%  2007 Real GDP Growth: 8.1% to $1.3 trillion  2007 Real GDP Growth: 8.1% to $1.3 trillion per annum [2001-2006]…,  Remains relatively dependent on oil, gas, natural faster even than in China.  Remains relatively dependent on oil, gas, natural …70% of Russians' resources resources income is disposable, vs.  Government attempting to build manufacturing  Government attempting to build manufacturing around 40% for a typical base Western consumer. "We base have 13% flat income tax,  Federal budget surplus of $72 billion  Federal budget surplus of $72 billion subsidized housing and  Sovereign credit rating; investment grade utilities, and 10% savings.  Sovereign credit rating; investment grade The rest of it is pretty  Foreign currency and gold reserves: $400 b  Foreign currency and gold reserves: $400 b much out there being spent," says Natalia Zagvozdina, a consumer- goods analyst at Moscow investment bank Renaissance Capital. Business Week 2/06
    • Distribution in Russia • Limited geographic coverage • Well-organized: Western Russia – Moscow, St. Petersburg (large scale retail stores, shopping malls) • Rapidly developing: Southern Russia – the Volga region, Urals, Siberia, Russian Far East • Direct Marketing is very effective outside of developed distribution regions • Multiple channel options: a) Agents – not common practice b) Distributors –variety but not suitable for advertising and promotion (products from multiple suppliers) c) Branch/Representative Offices – direct contact with end-users and control over promotion and distribution d) Foreign Subsidiaries – full control of supplier over distribution
    • Private consumption and GDP
    • Foreign Direct Investment in to Russia FDI in Russia(Billion US$) 50 50 40 30.827 30 FDI in Russia(Billion 20 US$) 12.885 10 0 2005 2006 2007 October 7, 2009 www.aginskyconsulting.com 32
    • Success stories of International firms in Russia “From the business side, we have such a combination of high potential, high growth and fast change that there is no question in my mind, that this is the most dynamic and exciting place in the world to work.” Xyzard Smyth General Manager, Russia and CIS The demand for professional services is growing at a rate of up to 40% a year, fueled by a booming economy, the development of the capital market and significant changes in Russian business culture. Mike Kubena Senior Partner for Central and Eastern Europe, Russia and the CIS Russia has been a strong performer for Wrigley and now ranks in the top 5 among the 180 countries in which we do business around the world. Ralph Scozzafava VP – Worldwide, Commercial Operations Russia is an important emerging market with significant potential in the agri-food arena. Andrew Glass Head of Representation, Cargill Russia Source: American Chamber of Commerce in Russia
    • Reasons for Indian Tea Companies to enter the Russian market  Grow revenues  Lower fixed costs per unit  Higher prices + lower costs = greater margins  Mature home market and/or excess capacity  Global competition  Gain access to a distribution network  Broaden existing products portfolio  Global branding, exposure, and geographic reach  Diversify business risks October 7, 2009 www.aginskyconsulting.com 34
    • Opportunities for Indian Tea Companies in the Russian Tea Market Categories Global India Russia Market size in terms of retail value (in millions of US$) 23,323 876.4 3,266 Market size in terms of retail volume (in millions of kg) 1,765 226.04 161.44 Growth rate in terms of retail value (2006-07) 4.50% 3.50% 12% Growth rate in terms of retail volume (2006-07) 3.50% 2.60% 2.30% Per capita consumption (per kg) 0.3 0.7 1.3 Average retail price (in US$ per kg) $13.20 $3.90 $20.20 Growth rate in retail price (2006-07) 0.90% 0.90% 9.50%
    • Opportunities for Indian Tea Companies in the Russian Tea Market  Largest importer of tea in the world. The total value of Russian tea imports in 2007 was $308.97 million, which is nearly 14% of the global market.  Retail volume growth rates of 15% and 12% in black standard tea bags and black specialty tea bags respectively, in 2007.
    • Forecast of Tea Volumes in Russia by Sub-sectors: 2007-2012 Tonnes 2007 2008 2009 2010 2011 2012 Tea 161,441 164,962 168,206 171,286 174,318 177,255 Black Tea 141,450 143,382 145,098 146,741 148,351 149,892 Green Tea 17,420 18,814 20,131 21,338 22,512 23,638 Fruit/herbal Tea 2,237 2,415 2,611 2,825 2,060 3,317 Other Tea 334 351 367 381 395 409
    • Competitive Landscape Analysis of the Russian Tea Market Market shares of major players (as % of retail value) 2006 2007 Orimi Trade OOO 12.5 13.1 Ahmad Tea Fabrika OOO 13.4 13 Unilever SNG OOO 10.5 9.9 Mai Kompanya OAO 9.2 9.6 Akbar Bros Ltd 3.8 3.8 Douwe Egberts Russia 2.1 2.4 Dilmah Moscow Ltd 2.1 2.1 Moskovskaya Chaynaya Fabrika OOO 2.2 2.1 Riston Teas (Pvt) Ltd 1.8 1.8 Mlesna Ltd 1 1.1
    • Supply and Demand of Tea in India kg (in millions) Demand (consumption) Supply (production & imports) 2005 757 963 2006 771 1006 2007 786 961 2008 (estimate) 802 1000 As the global supply of tea has consistently outstripped global demand, major tea producers have been pursuing differentiated marketing strategies and focusing only on those markets that have high rates of growth. Given the dynamics of the global supply and demand for tea, understanding market needs and developing niche or specialty tea products becomes crucial for market players.
    • Forecast of Tea Volumes by Sub-sectors: 2007-2012 Tonnes 2007 2008 2009 2010 2011 2012 Tea 226,045 231,273 235,790 239,745 243,099 245,822 Black Tea 222,724 227,769 232,111 235,900 239,101 241,683 Green Tea 3,321 3,504 3,679 3,845 3,999 4,139
    • Competitive landscape analysis of the major players in the Indian Tea market Market shares of Major Players (as % of Retail Value) 2006 2007 Hindustan Unilever Ltd N/A 32 Tata Tea Ltd 22.5 23.8 Duncans Industries Ltd 6.6 6.5 Tea player Ltd 2.9 2.9 Goodricke Group Ltd 1.7 1.6 Golden Tips Tea Co Pvt Ltd 1.4 1.4 Gimar Food and Beverages Pvt Ltd 1.3 1.3 Twinings Pvt Ltd 0.8 1 Jay Shree Tea & Industries Ltd 0.9 0.9 Gopaldhara Tea Co Pvt Ltd 0.7 0.7
    • Listed below are the selling prices for various sales options Price per Kg (2007) Auction price $1.62 Export price $2.45 Retail price in India $3.90 Retail price in Russia $20.20
    • Cost Benefit Analysis of the Different Sales Channels Auction Export Local sale to retailer Sale to Russian distributor Sale to Russian retailer cost (E) $1.25 cost (E) $1.25 cost (E) $1.25 cost (E) $1.25 cost $1.25 revenue* $1.62 revenue* $2.45 revenues (E) $2.90 revenues (E) $7 revenue (E) $10.5 profit $0.37 marketing (E) $0.25 trade promotions(E) $0.25 import duty* $1 import duty* $1 profit $0.95 other promotions(E) $0.25 shipping charges** $0.01 shipping charges** $0.01 profit $1.15 middlemen expenses (E) $1 middlemen expenses (E) $1 trade promotions (E) $0.25 trade promotions (E) $0.25 profit $3.49 other promotions(E) $0.25 profit $6.74 Estimate * from Russian tea customs ** from freight carriers
    • How to go global? New market entry strategies (Risk vs. control)  Low involvement  Medium involvement  High involvement October 7, 2009 www.aginskyconsulting.com 46
    • Risk vs. Control Level of involvement, marketing control, risk High  Entering a new market= Production and sales start-up situation: Direct sales no sales, no marketing, Local acquisitions no knowledge of the JV market. Representative office or branch or sales office  Low intensity modes of Franchising entry minimize risk and control. More financial Piggybacking involvement gives more Licensing marketing control. Export through trading Low companies and distributors October 7, 2009 www.aginskyconsulting.com 47
    • Low involvement  Export through trading companies and distributors Low They understand the market, have built-in distribution channels. PROS: for companies with little international experience. CONS: no commitment from distributor to your products.  Licensing Distinctive and legally protected asset. Strong innovation. PROS: low involvement, legal protection. CONS: low control; creates local competitors; plagiarism.  Piggybacking Taking advantage of a particular and temporary situation. High PROS: use somebody else’s experience; short-term effectiveness. CONS: high medium-term risks, dependence on one client. October 7, 2009 www.aginskyconsulting.com 48
    • Medium involvement Low  Franchising Increasingly able to adapt to different markets. EX.: McDonald's, YUM PROS: low costs, brand recognition, wide exposure. CONS: not suitable for all businesses; difficult to adapt the brand to local tastes.  Representative office or branch or sales office Represent and promote the company in the foreign market.  Joint Venture PROS: Foreign partner’s relationships with, and experience of, the local authorities, suppliers and consumers. Reducing the risk of High the foreign partner competing. CONS: Knowledge of legal issues and people. October 7, 2009 www.aginskyconsulting.com 49
    • High involvement Low  Local acquisitions Acquire locally-oriented brands to cover more market segments. Other resources: distribution assets. EX.: Coca-Cola in Japan. P&G in Russia.  Direct sales EX.: Any retail business  Production and sales High October 7, 2009 www.aginskyconsulting.com 50
    • Level of INVOLVEMENT, RISK and MARKETING CONTROL Production and sales High Direct sales Local acquisitions JV Representative office or branch or sales office Franchising Piggybacking Licensing Export through trading companies and distributors COST-SAVING STRATEGIES Low Own outsourced facility Outsourcing production or service to third party October 7, 2009 www.aginskyconsulting.com 51
    • Approach for selecting the best market entry strategy  Identify market segment opportunities  Due diligence through local partners and experienced consultants  Focus on long-term benefits  Connect with other successful foreign firms in the market  Budget plan, entry marketing and promotion
    • Approach for Selecting the Best Market Entry Strategy High • Analyze the four market entry dimensions (marketing, finance, market environment, and strategic Exte nt of In vestm en t a nd R isk flexibility) • Receive client’s feedback on six sub-categories (control, profitability, market penetration, customer feedback, financial risk, cash required) and order them using a weighed average • Assume a long-term presence and planning horizon Low Low Degree of Ownership and Control High
    • Strategy Selection Criteria
    • Evaluating the Different Market Entry Strategies  Establishing a Subsidiary a) Subsidiary best practices b) Case studies  Establishing a Joint Venture a) Joint-venture best practices b) Case studies  Establish Licensing Agreements a) Licensing best practices b) Case studies
    • Establishing a Subsidiary  Advantages of a subsidiary 1. 100% of control and profits 2. Access to new customers and markets 3. Expanded control over value chain elements 4. Company maintains corporate goals, strategic vision and culture  Subsidiary best practices 1. Thorough due diligence on potential partners 2. Know and understand Russian business practices 3. Must have a strategic fit with the Russian company to move forward with minimal friction 4. Focus on cross-cultural integration in post-deal environment
    • Case Study on Unilever & Inmarko Acquisition: Unilever has signed a deal to buy 100% of Inmarko, leader of Russian ice-cream market, which has 16.2% share of the market. -April,2008 Unilever Inmarko •Unilever has been operating in Russia since 1992 and now •Founded in 1991 isis the largest ice cream business in •Unilever has been operating in Russia since 1992 and now •Founded in 1991 the largest ice cream business in has over 2,000 employees central and Eastern Europe. has over 2,000 employees central and Eastern Europe. •Four factories in the Russian Federation (Moscow, Tula, and •Turnover approximately €115 in 2007 •Four factories in the Russian Federation (Moscow, Tula, and •Turnover approximately €115 in 2007 two sites in St-Petersburg,). 16.2% share of the market two sites in St-Petersburg,). 16.2% share of the market •• The total volume of Unilever's investments in the Russian The total volume of Unilever's investments in the Russian 33 factories (Novosibirsk, Omsk and Tula) factories (Novosibirsk, Omsk and Tula) economy isis over $600 million economy over $600 million •Capacity:50,000 tones of ice cream per year •Capacity:50,000 tones of ice cream per year •Over 4,500 employees •Over 4,500 employees Source:www.unilever.com
    • Unilever & Inmarko “Unilever will keep Inmarko’s Odintsovo production facility “Unilever will keep Inmarko’s managers and invest in its brands, Unilever acquired Odintsovo production facility managers and invest in its brands, supply chain and advertising” supply chain and advertising” PRODUCTION & DISTRIBUTION Herman Verstraeten, Herman Verstraeten, General Director for Russia General Director for Russia Inmarko production plant What are they key factors played aa What are they key factors played role in this acquisition? role in this acquisition? “Proper due diligence, investment “Proper due diligence, investment banker, advisors on the ground, local banker, advisors on the ground, local team ”” team Advice: “key is to quickly integrate Advice: “key is to quickly integrate the business” the business” Interview :Oscar Lanner Interview :Oscar Lanner Inmarko warehouse Unilever M&A Unilever M&A “Unilever's experience and resources will provide significant impetus for Inmarko's brands." “Unilever's experience and resources will provide significant impetus for Inmarko's brands." Dmitry Dokin Dmitry Dokin Inmarko Chairman Inmarko Chairman Source: just-food.com/article.aspx?ID=101120 www.inmarko.ru
    • Establishing a Joint Venture  Advantages of a Joint Venture 1. Provides access to government contacts and existing distribution network 2. Provides local help minimizing problems associated with bureaucracy and corruption 3. Sharing of profits and risks 4. Pooling of resources 5. Time-to-market advantages  Joint Venture Best Practices 1. Establishing a JV in Russia demands meticulous planning and sustained commitment 2. Thoroughly explore whether a potential partner shares your priorities and expectations 3. Conduct due diligence as much as possible on partner before committing 4. Spend time and get to know the partner
    • Case Study on JV CCL-Kontur Joint Venture: CCL-Kontur March 2008 The Deal: CCL Industries paid Cdn$16 million to acquire a 50% stake in the assets of two label businesses owned by Ilgar Mamedov CCL Industries CCL-Kontur •Canadian (Toronto) packaging and •Canadian (Toronto) packaging and label firm •Kontur owned by Ilgar Mamedov, •Kontur owned by Ilgar Mamedov, label firm •Pressure sensitive, shrink-sleeve and Entrepreneur Entrepreneur •Pressure sensitive, shrink-sleeve and in-mould labels for food and beverage •Two State-of-the-Art facilities: •Two State-of-the-Art facilities: in-mould labels for food and beverage firms Kontur Plus (Moscow) Kontur Plus (Moscow) firms •Operates 51 production facilities in N. Asterix (St. Petersburg) Asterix (St. Petersburg) •Operates 51 production facilities in N. America, Europe, Latin America and •These two businesses generated •These two businesses generated America, Europe, Latin America and Asia Cdn$26 million in sales in 2007 Cdn$26 million in sales in 2007 Asia •Customers include Heineken, Coca- •Customers include Heineken, Coca- Cola, Knorr Cola, Knorr
    • CCL Industries & Ilgar Mamedov "Russia is another important step in establishing aaglobal footprint for our "Russia is another important step in establishing global footprint for our company." company." --Donald Lang, CEO, CCL Donald Lang, CEO, CCL "We have known Mr. Mamedov and his management team for some time and "We have known Mr. Mamedov and his management team for some time and have high regard for them and their knowledge of both the Russian label have high regard for them and their knowledge of both the Russian label industry and the business climate of the country in general. We consider them industry and the business climate of the country in general. We consider them excellent partners to introduce CCL label products and technologies into one of excellent partners to introduce CCL label products and technologies into one of the fastest growing markets in the world." the fastest growing markets in the world." --Geoffrey Martin, president and chief operating officer of CCL Geoffrey Martin, president and chief operating officer of CCL
    • Case Study on JV- United Food Technologies Joint Venture: United Food Technologies 2002 The Deal: Joint Venture between J.V.Gokal and Avalon group to build a 12,000-tonne tea packing facility in the town of Serpukhov near Moscow J.V.Gokal & Co Avalon Group •Indian based conglomerate with group •Indian based conglomerate with group companies active in tea, sugar, power, companies active in tea, sugar, power, •Privately owned, Russian •Privately owned, Russian investments, and real-estate. investments, and real-estate. investment group investment group •One of India’s largest tea exporters, •One of India’s largest tea exporters, •Diversifies interests in projects •Diversifies interests in projects annual shipments greater than $13 annual shipments greater than $13 across Property Development, across Property Development, million million Contract Logistics, FMCG Contract Logistics, FMCG •Strong network in all tea growing •Strong network in all tea growing Distribution & Brand Management, Distribution & Brand Management, regions including own presence in India, regions including own presence in India, and Industrial Production and Industrial Production Sri Lanka and China Sri Lanka and China •Leading joint venture partner for •Leading joint venture partner for •Major markets- Russia and Kazakhstan. •Major markets- Russia and Kazakhstan. international corporations international corporations Rapidly expanding in the Far East, Rapidly expanding in the Far East, Africa, Europe, and North America Africa, Europe, and North America
    • J.V.Gokal and Avalon Group “Tie-up between Russian company Avalon and Indian company J.V. Gokal in recent years “Tie-up between Russian company Avalon and Indian company J.V. Gokal in recent years has expanded to become one of Russia’s top six tea producers." has expanded to become one of Russia’s top six tea producers." --Ramaz Chanturia, ,Head, Roschaikofe (Association of Russian tea and coffee companies) Ramaz Chanturia Head, Roschaikofe (Association of Russian tea and coffee companies) "The investment within Tea Processing and Packaging is realized through the project "The investment within Tea Processing and Packaging is realized through the project “Unifoods” in the form of an operational joint venture plant between Avalon Group and “Unifoods” in the form of an operational joint venture plant between Avalon Group and J.V.Gokal from India. This project was founded in 2000 with the investment into aa“brown J.V.Gokal from India. This project was founded in 2000 with the investment into “brown field” site in Serpuhov, Moscow Region and it’s redevelopment into one of the top 55tea field” site in Serpuhov, Moscow Region and it’s redevelopment into one of the top tea processing plants in Russia and establishing itself as aabenchmark investment case study processing plants in Russia and establishing itself as benchmark investment case study for the tea industry." for the tea industry." Tea Processing and Packaging --Avalon Group Avalon Group
    • Establishing a Licensing Agreement  Advantages of a Licensing Agreement 1. Avoids risks 2. Related to investments in physical assets of the firm (equipment) 3. Gain and develop valuable experience in marketing sphere 4. Allows licensees to establish long-term relationship with licensors 5. Advantageous for the newly internationalized company, because the need for research of target market is decreased 6. Encourage the licensee to support the product in the host country  Licensing Best Practices 1. Evaluate the abilities and creditability of the licensee 2. Contract must includes all rights, obligations, lawsuits-as detailed as possible 3. The company scale of the licensee should be comparable to that of licensor.
    • Case Study on Licensing- Kirin Europe & NWD Licensing: North Winds Distribution Ltd. 2007 The Deal: The production of KIRIN ICHIBAN for the Russian market will entrusted by NWD to Ivan Taranov Breweries in Karliningrad, which is a subsidiary of Heineken Russia. North Winds Distribution & Ivan Taranov Breweries Kirin Europe •$450 million net income in 2006 •North Winds Distribution Ltd. Is part •North Winds Distribution Ltd. Is part International sales focus on lager and of the Ivan Taranov Breweries (5% of of the Ivan Taranov Breweries (5% of Ichiban Russian beer market share) Russian beer market share) •Brewed at plants around the world ••Heineken bought the ITB group for Heineken bought the ITB group for (USA, Taiwan, Germany, Australia, $560 million in 2005 $560 million in 2005 China and Philippines) ••ITB had three breweries in ITB had three breweries in •Aiming to generate 30% of sales and Kaliningard, Novotroitsk and Kaliningard, Novotroitsk and operating income from overseas Khabarovsk Khabarovsk operations in 2015
    • 66 Licensing Goals: Kirin Europe•• Improve cost competitiveness GmBH (Germany) Improve product freshness • Expand sales of Kirin brand products in Russia, where there is double-digital growth in order to improve product freshness •In 1992, Kirin Japan signed aa •In 1992, Kirin Japan signed Kirin Europe production and licensing agreement production and licensing agreement with Charles Wells Ltd., which is Contract with Charles Wells Ltd., which is based in UK based in UK North Winds Distribution •In 1993, started to produce, •In 1993, started to produce, brewing and packaging in UK brewing and packaging in UK North Winds Ivan Taranruv Distribution Breweries •In 2006, licensed with North Wind •In 2006, licensed with North Wind Company (A subsidiary of Distribution Ltd, to brew and Distribution Ltd, to brew and Marketing, Distribution Heineken Russia) package Kirin Ichiban in Russia package Kirin Ichiban in Russia Brewing from 2006 66
    • How can ACG help you?  Geographic specialization in the Russia/CIS market.  Provide new market entry assistance including product launches, service launches, facilities outsourcing, labor outsourcing, investments and divestitures assistance and global M&A.  Help with market research, feasibility studies, strategy development, and business planning.  Help you to procure the two most crucial resources in new market entry namely lack of physical capital (PP&E, cash, hard assets, etc) and human capital (relevant managerial expertise).  Help you to overcome language and cultural barriers through cross-cultural communication and integration. October 7, 2009 www.aginskyconsulting.com 67
    • Conclusion  The time for cooperation between India and Russia has never been better  Plenty of resources on both sides to be taken advantage of  Have a clear strategy and an end result in mind  Know the process and requirements for getting to that end result  Rely on experts who can “bridge” the needs and wants of all parties internationally October 7, 2009 www.aginskyconsulting.com 68
    • For a copy of this presentation please contact us directly. Thank you AGINSKY CONSULTING GROUP, LLC. WEB: www.aginskyconsulting.com EMAIL: info@aginskyconsulting.com TEL: 503-546-4049 October 7, 2009 www.aginskyconsulting.com 69