Case 15: Asian Paints Free Essay Example from StudyTiger

CASE 15: ASIAN PAINTS Core Issues: 1. Fall in demand expected for home building, renovations and repainting work in Indian market due to financial crisis. 2. Excess capacity due to aggressive expansion by players in the Indian paints industry during the economic boom period of 2003 – 2007.

Foreign firms entering into the Indian market also exacerbated the excess capacity. 3. Difficult choices that Asian Paints would have to make: • Whether to further rationalize its portfolio by exiting underperforming markets. 4. Asian Paints has a goal of becoming one of the top 5 decorative paints company in the world.Can it accomplish this goal through: • Acquisitions within India or by international expansion? • How else can it do to gain even greater success in the international market? • Should it focus on the Chinese market? Current Strategies: 1.

Corporate-Level Asian Paints uses the dominant-business diversification strategy. Despite being cash-rich, Asian Paints did not diversify into other businesses. Instead, it used cash to add new product categories to its portfolio of products and worked to grow these segments. (Pg 177) The Indian market accounted for 80. 6% of its sales in 2007.

2. Business LevelAsian Paint’s main focus is on decorative paints business, which accounts for about 75% of total market in India. Strongest presence in decorative paints was in wall-finish paints (emulsions, distempers and primers) Uses strong advertising and branding through the “Gattu” mascot . Internal Analysis: 1.

Accounting (Financial Ratios) [pic] 2. Finance Means of financing and risk management Means of financing for Asian Paints include debt and equity issuance. Since 2000, Asian Paints has been voted the 4th most admired company in India and had been described as the ‘bluest of the blue chips’.Asian Paints also has a large amount of reserves and surplus, Rs 8,326 million as of FY2008, so financing should not be an issue. Business Cycle The business cycle of the Paint industry is generally cyclical in nature. Paint is a durable good.

During a recession when income is falling, people are generally more likely to hold back home building, renovations and repainting plans. On the contrary, when the economy is growing, the increased demands for housing and renovations will in turn stimulate demand for paints. This shows that the paint industry has above average sensitivity to the state of the economy.Product/ Industry life cycle Paint is generally in the consolidation stage of its product life cycle. Global paint demand grew by an average of 2.

6% annually between 2004 and 2008. Total revenue grew by an average of 3. 3% annually during the same period. The market is expected to grow by 19% in value and volume over the next 5 years. Demand is strongly correlated to economic development and varied across regions. Industrial paints accounted for a large proportion of sales in developed countries (70%) while decorative paints accounted for a similar proportion in developing countries.

Competition on a global scale was rare and the global industry was highly fragmented. 3. Human Resource Management After its Berger and SCIB acquisitions, Asian Paints faced the challenge of a tremendous increase in the diversity of its workforce. Asian Paints’ first priority was to improve the operational efficiency of the acquired companies, and it had to do so without imposing itself on SCIB and Berger.

The management of Asian Paints spent the first 6 months visiting all of its subsidiaries to connect with their newly acquired employees, sharing their values and corporate issues.Asian Paints also held a Global Managers’ conference in February 2003, which was attended by senior managers and unit heads from 23 countries in order to share ideas and cultivate a sense of belonging. Asian Paints realized that the lack of knowledge sharing was a critical issue. Hence it implemented a knowledge management and information-sharing system to help tackle the problem. This system helped managers to collect and consolidate data about brands in every region and systematically registers all intellectual property, including trademarks, logos and designs.Asian Paints also began benchmarking best practices within member countries and companies.

The company also formed Lead Technology Centers and Regional Technology Centers. Lead Technology centers were expected to provide technological expertise in specific areas while Regional Technology Centers was responsible for driving regional technology development, local sourcing, manufacturing equipment and for reacting to needs. 4. Operations and Supply Chain Management Competitive Dimensions: I.

Price: Value for money. There is a product for every price-value segment. II.Quality: Offered almost 150 shades of paint against about 50 shades offered by most competitors. III.

Speed: By 2008, Asian Paints equipped its Indian sales force with the latest IT equipment, such as PDAs and laptops, so as to enable salespeople to source and provide real-time information (i. e. detailed technical data, pricing, and quotation letters) to customers. IV. Reliability: Asian Paints has an extensive network of around 14,000 dealers across India, which allowed it to have broad distribution in rural and semi-urban areas. Its supply chain management is viewed as being among the best in the country.

It is the only paint company to install supply chain and enterprise resource planning systems to connect all suppliers, dealers and regional distribution centers in India. The systems helped to reduce inventory costs and working capital requirements. Asian Paints also worked closely with dealers to improve coordination in the supply chain. The company hoped to launch consumer and dealer internet portals on the way to becoming an e-enabled enterprise. V.

Coping with Changes in demand: Concentrated its Indian Operations in relatively few locations to achieve economies of scale.In 2007, it began setting up its largest ever factory (150,000 tons capacity in the first phrase) and significantly expanded an existing factory with the aim of meeting anticipated growth in demand. Realizing the potential offered by industrial paints segment, it collaborated with leading U. S. industrial paints company PPG International (USA) and started manufacturing industrial paints.

In 2001, it acquired the powder-coatings business of Hawcoplast for US$4. 7million to become the third-largest player in this fast growing segment. VI. Flexibility and new product introduction speed:Introduce paints in convenient and easy-to-use small packets, which helped it to penetrate deep into rural areas. Introduce 3 or 5 new products every year.

Other Product Specific Criteria: VII. Technical collaboration and Support: Installed computerized tinting systems under its “Color World” program in 2,500 dealer outlets in India in 2002. These systems enabled customers to have a much wider choice of shades. By 2008, Asian Paints equipped its Indian sales force with the latest IT equipment, such as PDAs and laptops, so as to enable salespeople to source and provide real-time information (i. e.

etailed technical data, pricing, and quotation letters) to customers. VIII. After-Sales Support: ?? IX. Environmental Impact: 2006, National Energy Conservation Award X. Social Responsibility: Asian Paints was recognized by local and foreign agencies for the high safety standards in its manufacturing paints.

In 2006, for the second year in succession, four of its plants were awarded the British Safety Council Sword of Honour – the pinnacle of achievement in safety management systems. It also received the Corporate Governance Award for Best Corporate Social Responsibility Practice, conferred by the Business for Social Responsibility. . Organizational Design Consider employees and customers. A conference was held to share ideas and cultivate a sense of belonging Decentralized decisions - empowers employees and reward entrepreneurial action Transparent company committed to growth, good governance and generating consistently greater shareholder value 6.

Risk Management Despite being cash-rich, Asian Paints did not diversify into other business. Used cash to add new product categories and worked to grow these segments Operating internationally to export its products, meet 2 key purposes:Gain a window on new geographic markets before following up with direct investment Supplying overseas affiliates with critical raw material 7. Product Development Generic Production Process The production process for decorative paints was relatively simple compared to that of industrial paints. Raw materials such as pigments, resins, and extenders were mixed according to a predetermined formula and dispersed in a medium such as oil or solvent (i.

e. alcohol, ether, or ketone). Additives and solvents were added to give the desired color and volume. The equipment required for this process did not require heavy capital outlay.Although the manufacturing process for decorative paints was not especially technologically intensive, it posed substantial procurement and logistics difficulties, since about 300 different materials (60% of total costs) were required to manufacture a typical premium decorative paint.

The manufacturing process for making industrial paints was more complex and capital-intensive machinery and processes were required. Looking into the strategy of other top companies in the paint industry: Current top 5 companies in the world (2008) 1. AkzonNobel (The Netherlands) – revenue from both decorative and industrial paint segments, presence in China . Henkel (Germany) 3. PPG (USA) – focused on industrial paint segments 4.

Sherwin-Williams (USA) – focused on decorative paint segments 5. Dupont (USA) – focused on industrial paint segments, presence in China 19. Asian Paints (India) How they did it: Most leading firms were highly diversified and gained their market positions by leveraging their strong presence in upstream activities and their competencies in related technologies. (BASF and DuPont in chemicals). Operations were widely spread, having as many as 60 countries (AkzoNobel).

Asian Paints should focus on their decorative paints to maintain its competitive edge Should there be globalization, there is a need for highly localized marketing. Although few firms compete on a global scale, Asian Paints could take the first mover advantage to be one of the top decorative paints company in the world. Within India Paint Industry GNPL was the second largest player in the overall paint market in India, behind Asian Paints. GNPL was also the market leader in the industrial paint segment.

(Should Asian Paints look into industrial paint to ensure it stays as top player before GNPL catches up? )Berger is aggressively acquiring in the domestic market while looking for international opportunities, and is expected to become the number two player in the decorative paint company in the country. (What must Asian Paints do to remain on top? ) Suggest for acquisition within India to remain on top in the country. With strong branding in the country, it allows Asian Paint to expand globally as a trusted brand for their quality products. PROS and CONS of acquisitions within India PROS Expansion of market share in India, increase revenue CONS Need for a unified icon and branding upon expanding globally Capital requiredWould all this help Asian Paints become one of the top 5 decorative paint companies? Are there other methods other than acquisitions within India? - Product diversification Target Market - Individuals (not likely due to price sensitive behaviours but considered quality of product as important) - Paint Contractors (bigger purchases for exterior paints) - Corporate purchasers (large purchases and purchase made dependable on cost and quality) Whether to further rationalize its portfolio by exiting underperforming markets. How much savings would there be? Will it cause an impact on other markets? Potential in Chinese market Expected investment? - Expected revenue? - What are the core products? Decorative paints (to do what they sell best) - How to market the products? Need for translation and marketing efforts to be adjusted.

Implement Knowledge Management and Information Sharing System; ‘Lead Tech Center’ and Regional Tech Center’ (Sustainable CC) HR Management Held a ‘Global Management Conference’ to share ideas and cultivate sense of belonging, organization-wide (Capability) General Administration Second year in succession, 4 of its plant were awarded ‘British Safety Council Sword of Honor’; Pinnacle of achievement in safety management systems. (Capability)

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