Airconditioner Industry in IndiaPresentation Transcript
AIRCONDITIONER INDUSTRY ANALYSIS Subject: Business StrategyIndustry: Consumer Durable(Air Conditioner) Company: Bluestar Haresh Ashar(01) Prashant Arekar(19) Narayanan Palani(09) Devina Deshmukh(02)
INDUSTRY ANALYSIS CONSUMER DURABLES • Consumer durables Sector can be classified as follows: – Consumer Electronics includes VCD/DVD, home theatre, music players, colour television, cameras, camcorders, portable audio, etc – White Goods: include dishwashers, Air Conditioners, water heaters, washing machines, refrigerators, vacuum cleaners, kitchen appliances, non-kitchen appliances, microwaves, built-in- appliances, tumble dryer, personal care products, etc. – Molded Luggage includes plastics – Clocks & Watches
AIR CONDITIONER INDUSTRY
INDUSTRY-In 2008-09, the estimated total market size for air-conditioning in India was around Rs. 10,250crores. Of this, the market for central air-conditioning, including central plants, packaged/ductedsystems and VRF systems was about Rs. 5750 crores, while the market for room air conditionerscomprised the balance Rs. 4500 crores.-The commercial air-conditioning segment catering to corporate and commercial customersamounted to around Rs. 8000 crores.-The market for commercial refrigeration equipment and systems was estimated at around Rs.2000 crores. Rs. 2,000 Crores Rs. 5,750 Central and Crores Packaged Air- Rs. 4,500 Crores conditioning Systems
PORTER’S FIVE FORCES/1 Threat of new entrants(LOW) Capital Requirements The initial investment that goes into setting a plant is considerably high as there needs to be sufficient investment in providing quality components and also in R&D to meet the changing technology. Thus there is a low threat of entry into this sector. Economies of Scale Manufacturers in HVAC industry need to build economies of scale due to high fixed costs and meet the demands. Due to this there is a low threat of entry into this sector. Customized Products In the central and packaged AC system level of customization is high and it is not possible for new player to do that customization. Due to customization, the threat of new entrants is low. Switching costs It is not easy to switch to the new players in the field due to high initial investment & also a number of collaborations & contracts exist among the players of the world who are into the same line of business. There is thus a high switching cost and thus a low threat to entry. Distribution Channels The existing players have strong distribution channels and thus difficult to match proving to be a high barrier of entry.
PORTER’S FIVE FORCES/2 Bargaining power of suppliers(HIGH) Supplier Concentration There is comparatively higher number of suppliers. So the bargaining power of suppliers is low. Importance of volume to suppliers The industry is dependent on volume sales and hence facilitates bulk buying. This reduces the bargaining power of the suppliers. Presence of substitute inputs In the current scenario there is little substitution that is possible to the raw materials that go into the manufacturing of air conditioning products. This increases the bargaining power of suppliers.
PORTER’S FIVE FORCES/3Bargaining power ofbuyers(HIGH)Quality vs PerformanceThere are large numbers of players in themarket. So quality and performance isthe most important factor while selectingthe product. It gives high bargainingpower to buyers.Backward IntegrationBackward integration to make the airconditioners means a high investmentand also expertise in the manufacturingwould be required. Bargaining powerwould be less since the probability thatthe companies would integrate backwardwould be less.
PORTER’S FIVE FORCES/4 Firm Rivalry Size of Industry The industry is not concentrated & there are large number of Indian companies and MNCs, hence there is a high degree of rivalry. Industry Growth rate As long as the entire economy is in a growth face and real estate sector is in boom there will be a huge growth in the industry Fixed Cost The manufacturers of air conditioners and refrigeration products have high fixed costs as there is heavy investment in plant and the development of new technologies thus decreasing the degree of rivalry amongst them. Product Differentiation Product differentiation is very less hence high degree of rivalry. Brand Identity / Client loyalty This plays a very important role in the market of HVAC industry. Generally it is seen once a client go for some brand he stick to the same brand in the future also.
MARKET SHARE IN AIR-CONDITIONING AND COMMERCIAL REFRIGERATION 19.54% 15.13% Blue Star 65.33% Voltas Others
MARKET SHARE IN CENTRAL AND PACKAGED AIR- CONDITIONING 31.34% Blue Star 52.31% Voltas Others 16.35%
MARKET SHARE IN ROOM AC 25%53% LG Electronics Voltas 16% Blue Star Others 6%
PORTER’S FIVE FORCES/5DEGREE OF COMPETITION•H•I•G•H
STRATEGIC GROUP WITHIN INDIAN AIRCONDITIONING INDUSTRY Category: Based on Market Segment Commercial Market and Consumer Market: Carrier,Voltas,LG,Bluestar,HitachiStrong at Commercial Market: Strong at Consumer Market:Carrier, Bluestar , Hitachi LG, Voltas Mobility Barrier: Product Customization E.g: Bluestar’s has a strong Product Standardization in Industry. Economy of scale will go down if it focus on product customizations. So B2C will be a challenge for Bluestar
• Found by Mohan T. Advani in 1943• Indias largest and most preferred air- conditioning and commercial refrigeration company with an annual turnover of Rs. 1178 crores.• It has been associated with the most prestigious corporate and commercial installations in the country.
IndustryLifeCycleA growth industry is one where first-time demand is expanding rapidly as new consumers enter the marketplace. Typically, demand takes off when consumers become familiar with the product, prices fall with the attainment of economies of scale, and distributionchannels develop.1. During an industry’s growth stage, there tends to be little rivalry. Rapid growthin demand enables companies to expand their revenues and profits without taking market share away from competitors.2. Growth industries provide opportunities for firms to expand their market share andrevenues in a relatively low rivalry situation. Firms entering at this stage avoid the highexpenses of initial product development. “The industry views that this year air conditioner sales will register 15 percent growth over last year when a total of 3.4 million units (both home air conditioner and industrial air conditioner) were sold in the country,” B. Thiagarajan, president (Air Conditioning & Refrigeration Products Group), Blue Star Ltd
Latest NEWS Blue Star Ltd. has just launched a new range of contemporary and stylish room air- conditioners for the residential segment which will be available in all the retail channels across the country. These air-conditioners, apart from modern features, offer higher energy efficiency resulting in significant power savings.
StrenghtsWeaknessOpportunityThreat/1STRENGHTS WEAKNESSES1. Manufactures open-type centrifugal 1. Not a premium brand. chillers with ozone friendly refrigerant 2. Although BLUE STAR protects it’s HCFC 123. Position in Domestic AC market but is2. Only Blue Star manufactures variable regularly losing market share. air volume systems for economic 3. Market share is low and not having localized cooling control, air handling penetration opportunity. units with dependable ratings to 4. Low qualities resulting in exports factory precision prices being non competitive.3. Air-conditioning of the largest number of synthetic fiber plants in India exceeding 25,000 Tons and 36 customers.4. Largest Industrial air-conditioning contracts in India Rs.40 crores.5. First to manufacture semi hermetic reciprocating compressors in India
StrenghtsWeaknessOpportunityThreat/2OPPORTUNITIES THREATS1. Opportunity to influence Growing 1. The increasing presence of Indian middle class in influencing their multinationals in India for decisions with regard to the products manufacturing be it Samsung, LG, offered by Blue Star through Carrier, Hitachi, thus providing an comparatively lower prices. HIGH threat to compete in the market2. Advent of Internet provides an 2. Likely to face fierce competition from excellent opportunity to reach to a domestic companies as they have well- large base of customers and cut costs. acknowledged brands, an extensive3. Confederation of Indian Industry (CII) distribution network and better has urged the government to reduce insights about the local market special excise duty (SED) on air- conditions. conditioners from 16% to 8% in the 3. Less Market Share forthcoming budget.
TOWS Strategic Alternatives Matrix External Opportunities External Threats (O) (T) 1. Reach to a large base of customers 1.Domestic Competition 2. Special excise duty (SED) on air-conditioners 2.Foreign Players(Hitachi, LG etc) from 16% to 8% in the forthcoming budget.Internal Strengths SO ST(S) "Maxi-Maxi" Strategy "Maxi-Mini" Strategy1. open-type centrifugal chillers Strategies that use strengths to maximize Strategies that use strengths to minimize2. Synthetic fiber plants in India exceeding opportunities. threats.25,000 Tons and 36 customers. •Open-type centrifugal chillers -Reach to a large •Effective use of fiber plants to increase base of customers productivity and decrease the power of competitors in commercial marketInternal Weaknesses (W) WO WT1.Less Market Share "Mini-Maxi" Strategy "Mini-Mini" Strategy2.Not a premium brand Strategies that minimize weaknesses by taking Strategies that minimize weaknesses and avoid3. Low qualities resulting in exports prices advantage of opportunities. threats.being non competitive. •Reach to a large base of customers –Reach to top •Strong distribution channel and large level as ‘Premium Brand’ and increase market customer base to compete with Carriers. LG share. and other competitors
PESTPolitical Legal•The green trend is taking off in a big way •Backed by the environmentalin the asia pacific. Protection agency (epa),•Global warming continues to remain a The US government and 190 countriesmajor factor propelling market demand, world-wide, january 1 marked theespecially in the residential segment. beginning of the phase out of hydrochloroflurocarbons.Economic Technical•Growing affluent middle class The us department of energy’s nationalpopulation,robust economic growth renewable energy laboratory hascoupled with the booming retail sector invented a new air conditioning processwill ensure that the expectation of a 25- with the potential of using 50 percent to30 percent growth in 2011 is a reality for 90 percent less energy than today’s top-this segment. of-the-line units.
VALUE CHAIN(MOVED UP) The company has moved up in the value chain by offering system integration, apart from distributing products like analytical instruments, medical electronics, data communication products, material testing, and measuring instruments from global manufacturers.
COMMERCIAL MARKET VS CONSUMER MARKET/1 Consumer market Commercial marketPros: Pros:•The residential segment, growing at 20% • Industry:25%annual growth rateannually, comprises 4.5 LAKH UNITS • Low marginWHEREIN WINDOW acs ACCOUNT FOR • Consumer market companies like lg1.5 lakh units and the split ac segment for are not interested in commercialabout 3 lakh units market•Huge market • No:1 player:bluestar•With over 350 exclusive distributors andseveral multi brand dealers,carriers is Cons:leading the market in india • Carrier is a strong playerCons: • High competition•Price cut•Heavy competition
COMMERCIAL MARKET VS CONSUMER MARKET/2 Consumer Market Commercial Market ( Strategy: Price Cut) (Strategy: Volume)1. LG Voted Indias Most 1. The commercial air conditioning Trusted Consumer Durable Brand comprises of the ductable split ACs to2. Voltas India Ltd. became the first large sized chillers. This segment player in the air-conditioner market to comprises of retail chains, MNCs, offer consumers an air-conditioner in IT/ITeS sectors, BPOs, call centres, the Rs 10,000 price range. institutes, malls, etc.3. While the key players in the popular 2. The market is of around Rs 3,600 segment of the air-conditioner market crores! are LG, Voltas, Carrier, and Samsung, 3. Blue star which has recorded sales of the premium segment is dominated around 1.5 lakh units of window and by Japanese brands such as Hitachi, split ACs in the fiscal ended March 09 Daikin, and National. is expecting a growth of around 10-15 per cent in this fiscal.
INTERNAL ANALYSISKey Resources of Blue Star:• State of the art manufacturing facilities located at Thane, Bharuch, Dadra, Himachal and Wada• Technical manpower –recruit and retain employees and business partners who relate to customer- oriented, specialist culture of the company• Extensive use of IT to enhance productivity and product development capabilities• Strategic partnerships with York- to manufacture its own chillers• Tie up with Rheem for technical support for building world class manufacturing unit at Dadra• Long term arrangements with key suppliers e.g. blue star sources its Switchgears from Siemens• Compressors from Danfoss of Netherlands• Robust R&D facilities for continuous up gradation• Consultants from various industries are also hired for specific industrial design projectsCapabilities:• Technical, engineering and contracting expertise –Competitive edge• Blue Star M & E designs, engineers & executes central air-conditioning cooling solutions• Expertise in creation of contemporary designs, project management skills & efficient service• Strong expertise in Green Building projects- establishment intended to reduce operating costs like energy and water• Use of energy efficient & eco-friendly equipment thereby reducing energy consumption• Use of non toxic, recycled and environmentally friendly materials for construction• Efficient use of water and water recycling• Effective controls and building management systems
INTERNAL ANALYSISGreen building project: (continue)• Minimal disturbance to landscape and site condition• Excellent indoor environment quality for human safety and comfort• Use of renewable energy• Energy efficient designs of HVAC Systems• Well formulated installation methods for professional management of project sites• All products are designed on the energy-efficiency platform, and offer a host of advanced features- including tandem scroll technology, hiper and hisen packaged airconditioners and more recently the screw chillers and VRF systems.• Provides indoor air quality management services-fresh air management, energy recovery ventilators, duct cleaning, UVC emitters and air balancing and leakage detection• With well established in house R&D for new product development and an integrated manufacturing set-up to deliver high quality products in a short lead time• Wide expertise in domestic and international markets, they are well set to offer contract manufacturing• Offer products to meet new market requirements right from conceptualization to delivery of large volumes in the brands specified
STRATEGYFunctional Level Strategy:• Manufacturing Strategy:• Eco-friendly products• Extensive use of R& D in manufacturing products• Customer-oriented products• Continuous up gradation of skills of operators• Strong network of suppliersMarketing Strategy• Product awareness through newspaper ads, magazines etc• Strong dealer network all over India• Credit facilities & Discounts to dealers• Customer care – after sales service• Pull strategyHuman resource Strategy• Skilled manpower – largest pool of qualified & trained air-conditioning & refrigeration engineers• Training & development of operators
STRATEGYInformation Management Strategy: Extensive use of IT for product & productivity enhancement Tie-ups with reputed technical institutions like IIT, Mumbai for individual project execution Tie-ups with reputed companies for knowledge sharingR & D Strategy: Product Innovation:- provide differentiated products & expert solutions Process improvement:- o Technological Leader :- as market leaders blue star sets standards for products, practices & services
STRATEGY• Business Level Strategy:• Cost Leadership: Strategic Sourcing : -Lean manufacturing: Production efforts aimed at reduction of wastages -R & D: Use of extensive R&D for energy efficient product development -Innovation: Offer innovated products to customers• Dual Competitive Strategy : Differentiation: -Technology -Customers• Intellectual Property Rights: TRIPS(Trade Related Aspects of the Intellectual properties Agreement) The Indian Copyright Act 1957 was amended in 1999, The Patent Act 1970 was amended in 1999 & 2003, Trade Mark Act 1999, The Design Act 2000
KEY SUCCESS FACTORS
TETRA THREAT FRAMEWORK
TETRA/1Threat of Imitation Threat of Substitution• Threat of imitation is high for Blue •Threat of substitution is almost nil for Star. There are number of players company. in the market like •Most of the people now shifting to air Hitachi, Voltas, LG etc. conditioners from the conventional• They can easily imitate what Blue cooling products like fan, coolers etc. Star has done by using the reverse •Leapfrogging is the way out opted by engineering. Blue star as by this it looks to respond to• They can also recruit existing Blue the threat of substitution; it involves Star employee and can easily copy trying to oust substitute threat by the new developments in Blue looking for a performance improvement Star products. and/or value innovation that promises• Upgradation of technology is one even better performance . This is one way by which threat of imitation field where Blue star has been has been reduced by Blue star. consistent and has been successful to They have upgraded the avoid competition by constantly technology in the long run and renovating especially in the institutional have been doing so to keep the domain of AC selling. imitators at bay.
TETRA/2Threat of Hold Up Threat of Slack• Holdup threatens to divert the This refers to the difference between the potentialsustained added value to buyers, and values available to the company and how much ofsuppliers. it is the company able to capture. This happens• Blue star has had a hold up problem when the company has been consistently makingwhen the suppliers of a big order at excess profits or has done so presently. The way toInfosys as the suppliers were not co- respond and eliminate this slack is to ensureoperating with the management. optimum utilisation of resources.• Even if the company can protect its Blue Star is continuously making huge investmentsadded value from the threats of in state-of-art technologies in manufacturing, IT etcimitation and substitution, the ability of all with the overall objective of being more efficientits owners to appropriate the added and scaling up the production to meet the highervalue cannot be taken for granted. levels of energy requirements of the country.• Long term contracting, building The problem of slack is not imminent in Blue star asmutual dependence and developingtrust were the most important factors the firm is not performing as per the competitivethat helped Blue star to counter the standards of the industry and has been making lessthreat of hold up. profit.
ADDING FRAMEWORK• Ghemawat provides a framework —the ADDING Value Scorecard—to help companies assess whether a particular strategic move makes sense. In other words, will it add value to the business both locally and globally. The acronym stands for – Adding volume, or growth; – Decreasing costs; – Differentiating or increasing willingness—to—pay; – Improving industry attractiveness or bargaining power; – Normalizing (or optimizing) risk; – and Generating and deploying knowledge (and other resources and capabilities.
Levers of Value Addition DC’s Attempts/AchievementsAdding Value It is India’s largest central air-conditioning company that caters to the industrial, commercial and hospitality sectors.Decreasing Cost The extensive use of IT to enhance productivity and product development capabilities has helped Blue star decrease cost in manufacturingDifferentiating/Increasing willingness-to-pay Better PUF Installation and Brazing technology used in ACs than competitorsImproving Industry attractiveness/ bargaining power With the increase in the number of malls and other real estate cropping up and better technology and customisation options being offered by Blue star they have decreased the bargaining power of buyersNormalizing Risk They have a Risk Management framework under which all internal and external risks across the various business functions are identified, assessed and acted upon by risk ownersGenerating and updating resources Blue Star has business alliances with world renowned technology leaders such as Rheem Mfg Co, USA; Hitachi, Japan; Eaton - Williams, UK; Thales e-Security Ltd., UK; Jeol, Japan and many others, to offer superior products and solutions to customers.
CAGE FrameworkCAGE Cultural Administrative Geographical EconomicalMalaysia Being within AMDB ensured bids Advantage being Real estate Asia not a for turnkey projects. within ASEAN region company AMDB huge difference ensured sharing of resourcesUAE / Middle East Being within Local distributors act All US/European Easy to export Asia not a as the face of the MNCs have presence. material and huge difference company for deliver domain negotiation with expertise from government India.
3TESTSAttractiveness Test: As long as the entire economy is in a growth face and real estate sector is in boom there will be a huge growth in the industryCost of Entry Test: Manufacturers in HVAC industry need to build economies of scale due to high fixed costs and meet the demands. Due to this there is a low threat of entry into this sector. Cost of entry > Expected returnsBetter Off Test: Established Synthetic fiber plants in India exceeding 25,000 Tons and 36 customers.• Strong Retail Channel across India
THE GLOBALIZATION OF PRODUCTION AND MARKETS• Blue Stars five modern manufacturing facilities coupled with a robust product development team and a significant contribution from the original equipment manufacturers and export market has given Blue Star a cutting edge in manufacturing.International Partnerships:• In its quest to offer the most advanced air-conditioning technologies, Blue Star has entered into several technical collaborations with York International, USA, Rheem Manufacturing Co., USA and Climatrol, Italy for the manufacture of air-conditioning equipment - centrifugal chillers, reciprocating chillers, screw chillers, air handling units. And collaboration with York Tempmaster, for variable air volume systems.Blue Star M & E Engineering Snd. Bhd. Blue Star – Middle East- Malaysia• A joint venture formed in 1993 • Presence since 1976 throughbetween Arab-Malaysian Development collaborating with local group ofBhd. (AMDB) and Blue Star Limited of engineers and distributors.India, •Based in Dubai, Bluestar caters to• Focuses on taking care of the demands in UAE, Qatar, Bahrain, OmanHeating, Ventilation, Airconditioning and Kuwait.and Refrigeration (HVACR) installation • Mainly focused on HVAC contracts.business in Malaysia.
NATIONAL COMPETITIVE ADVANTAGE• Factor endowments: Basic factors: 1. Manufactures open-type centrifugal chillers with ozone friendly refrigerant HCFC 123. 2. Only Blue Star manufactures variable air volume systems for economic localized cooling control, air handling units with dependable ratings to factory precision Advanced factors: Established Synthetic fiber plants in India exceeding 25,000 Tons and 36 customers.• Local demand conditions: 1. The industry views that this year air conditioner sales will register 15 percent growth over last year when a total of 3.4 million units (both home air conditioner and industrial air conditioner) were sold in the country• Related and supporting industries: Consumer Market- Air conditioner• Strategy, structure, and rivalry: The industry is not concentrated & there are large number of Indian companies and MNCs, hence there is a high degree of rivalry. Bluestar experience a vigorous domestic rivalry look for ways to improve efficiency, which in turn makes them better international competitors.
RECOMMENDATIONS• Target B2B and Expand the Market Share• Increase the green building capabilities• Reduce pollution from construction activities by controlling soil erosion, water way sedimentation and airborne dust generation.• Provide dedicated spaces for proper collection, storage and disposal of recyclable materials and ensure recycling.• Due to Domestic rivalry Bluestar has to innovate, improve quality, reduce costs, and invest in upgrading advanced factors