ITS DIVERSIFICATION STRATEGIES FOR
No member of this team endorses
Kavish of tobacco or any such
Viewers’ discretion is
Col Ajay K Raina, SM
Case Study : Vital Stats
• Vintage – Early 2005.
• Focus – Corporate Strategy
• Ingredients:– Need to diversify.
– Strategies adopted.
– Future possibilities.
• Our Approach:–
Real time benchmarking.
• Incorporated in 1910 as Imperial
• Ownership shifted from British to
Indian management team in 1974;
rechristened as India Tobacco
• Strategic diversification started in
1970s into related as well as unrelated
• Has successfully spread its business
and market risks.
The Start Point
• ITC‟s Vision and Mission statements.
• Corporate Strategy briefly touched upon:– “It is ITC‟s endeavour to continuously explore
opportunities for growth by synergising and
blending its multiple core competencies to create
new epicentres of growth”.
– YC Deveshwar, Chairman.
Change is Never Easy
- Risk of overspreading its
- Fear of losing effective
control over businesses.
- Survival of one may cost
profit of another.
“We will either become
the market leader or
• Core business – cigarette & tobacco.
– Market share of 60%.
– Revenue contribution of 78%.
– Profit margins of 40%.
• Among top five private sector
companies in India; aiming to be a global entity.
• Early 2000s – India amongst economic boom.
• Anti-tobacco campaign & regulatory restrictions.
• “Everyone still refers to us as a cigarette
company….one of the largest hotel chains,
largest print shop…..” YC Deveshwar.
• Focus on delivery of highest product quality.
• Leadership maintained through delivery of
• Innovative marketing schemes (eg festival
packs, limited edition).
• Segmentation of
• Increasing costs of
the selected ones to
Bukhara‟s popularity – Kitchens of India.
Agro products – Aashirvaad – Sunfeast.
Consumer quest for healthier snacks and food.
Innovative additions (eg orange Marie).
Exporting Mint-O-Fresh & Eclairs.
Wills and John Players- secondary advertising.
Lifestyle stores – international shopping
• Expressions, Regalia and Matrubhasha.
• AIM (120 hits) & Mangal Deep – the leaders.
• Among top with Taj & Oberai.
• ITC Sonar Bangla Sheraton,
Kolkata – one of the best by
• Logo‟s Indian connection.
• Segmentation strategy –
(hotel within the hotel).
• Restructuring of operations for
better efficiency = higher
Broadly…. (Seen it)
• At the corporate level, ITC aims
to create multiple drivers of
growth by developing a portfolio
of such businesses that best
capability with opportunities in
domestic and export markets.
• As regards Business
Strategies, all three
types have been used with
varying degrees of mix.
• Political Aspects.
2001 ban on the advertising.
Increased excise duties.
Economic reforms, de-licensing
– New technologies in agriculture,
manufacturing…. Tax incentives
on R&D and technology upgradation.
– State governments and luxury
– Focus on rural sector
• Economical Aspects
– A growing economy = A growing
portfolio of businesses… already
– Offshore businesses, especially
– Era of international tie-ups.
– Huge commercial spaces
– Corporate culture and associated
– Rising small town aspirations.
– National imperatives.
• Social Aspects
Younger demographic profile.
Increased PCI and spending power.
Lifestyle & brand consciousness.
Desire for high end international products.
Changing definition of luxury and necessity.
Leaning back on mother tongue.
Yearning for Personalised products.
Averse to smoking.
Elite among equals.
Less leisure time.
Need for innovative gifting options.
• Technological Aspects
– Farming technology under revolution.
– Innovation vis-à-vis competitive
– Acceptable substitutes to traditional
– Huge impacts on SCM started to be
– Cheap labour for high tech jobs.
• Brand Image.
• Largest selling Tobacco brand
in India; regulations.
• Illustrated ability to leverage
traditional businesses to
develop new brands (Chefs +
Cigarette =FMCG; paper+
package = Greeting cards).
• Diversification profile and track
• Distribution network.
• Strong financial performance.
• CSR programmes and
• Too much reliance on tobacco
• Miles to go.
• Essentially “Desi”.
• Unrelated diversifications.
• Heavy taxation prone products.
• Brand name‟s association with
• Other businesses subsidized by
• Leveraging brand equity.
• Government policies
(liberalisation) and stable
• Untapped Rural market.
• Lowest per capita FMCG
• Personal care & booming
• Synergies across businesses +
leveraging domain expertise for
growth in other sectors.
• The enviable reach and distribution
network of e-choupal.
• Taking IT business to USA; 60% in
• Competition – domestic+
• Increasingly hostile attitude
towards smoking in general.
• Government policies towards
tobacco= tax, regulations.
• Systematic threats.
• IT bubble (assumed).
Porter’s 5 Forces:
• Bargaining Power of
– Addicted customers .
– Symbolic and emotional
– Product quality not much
important to smokers.
– Low switching costs.
– Brand loyalty insignificant.
….Porter’s 5 Forces…
• Bargaining Power of Suppliers
– Many small, un-organised
– Direct access to growers by big
– Suppliers have no influence on
– No one-stop solution provider
– No constitutional protection.
– Unorganised financing; prone to
….Porter’s 5 Forces…
• Competitive Rivalry in the
– Many competing players.
– Brand loyalty in premium
– Price competition through cost
– Advertisement for cigarettes is
now prohibited in India.
– Replacement for ads – event
sponsorships and costs.
– New product launches.
– Cost of secondary promotion.
….Porter’s 5 Forces…
• Threat of Substitute Product=MEDIUM
– Two aspects.
– Sin vs Sin:• Pan.
• Beedi and Gutkha
– Buyers‟ propensity
driven by health &
….Porter’s 5 Forces
• Barriers to Entry = HIGH
– New product differentiation very difficult; huge
– Local launches can not achieve economies of
– Govt regulations.
• No fresh licenses for setting up new plants.
• No incentives permitted.
– Huge capital required to manufacture for an all India
presence. Ban on advertisements & brand identity.
• SUMMARY – High Barriers, Stiff competition,
Low powers and Medium for substitutes.
• Aimed at synergising both backward and
• Convergence of multiple core competencies.
• Value derived from diversified portfolio of
related businesses through efficient value
• Brand management + Understanding markets +
• Selection criterions:– Good likely ROI.
– Potential for future expansion.
Analysis of Strategies
• Entering into less competitive or unexplored
markets (ready to eat, staples, wafers).
• Maintaining a well-managed supply chain network.
• Innovation-Regular introduction of new products,
duly supported by R & D.
• Mix of more than one business strategies.
• Extensive advertising (biscuits, confectionary,
• Multiple drivers of growth - matching internal
capabilities with emerging market opportunities
• Pursue World class competitiveness in the entire
• Transformational strategy (e-choupal).
• Capability of organisation to manage multiple
• ITC has been trying to develop a capacity to
manage their large portfolio which will result in
a need of huge funds.
• ITC needs to maintain a proper flow of cash
and proper project budget control.
• Investing in people.
• No choice but reduce
dependence on tobacco.
• Needs to continue to
leverage upon its existing
skills and competencies.
• Good quality needs to be
maintained to back strong
• Need to formulate strategies
to meet new challenges like
• ITC‟s CSR must continue to
offset the negativity
associated with smoking.
It pays to be Competent
– A turnover of over US $ 5 billion and a market capitalization
of over US$ 18 billion.
– Total shareholder returns grew at a compound rate of over
24% per annum over the last 5 years.
– Reputed to be one of the world‟s most successfully
– Direct employment to more than 26,000people.
– e-choupal initiative is the world‟s largest rural digital
infrastructure benefiting over 4 million farmers.
– Watershed Development initiative brings water to over
46,000 hectares of dry lands and moisture-stressed areas.
– ITC‟s sustainable community development initiatives include
women‟s empowerment, supplementary education.