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Strategic Management

Name: Hemaabh Khurana Enrol. No.: 112162614 Prog: IGNOU Sem III

STRATEGIC MANAGEMENT Attempt any 2 questions. Q1 is compulsory. Each question is for 50 marks.

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Q1. ASIAN PATNTS (INDIA) LIMITEDS Case study. Questions: (a) What corporate goal has the company adopted for the next few years and with what strategies does the company propose to realize the above goal? (b) What threats is the company facing or/and might face in future? What has it done and/or what could it further do to safeguard itself from threat(s)? (c) Evaluate the new strategies of Asian Paints (India) Limited, particularly its proposed foray into ceramics. (d) What action plans has the company proposed to strengthen its product base? (e) Classify all the strategic plans or proposed strategic actions of the company for achieving growth against suitable headings, e.g., Diversification, Joint Ventures, etc.

2. Critically explain the term BCG and its importance in formulation of strategy.

3. Analyze the Following using Porters Five Forces Model: a. Airline Industry b. Dell

Q1. Overview Asian Paints Limited is a strong player in the paint manufacturing industry. It has survived a recession. It is the market leader in terms of market share and sales. Its nearest competitor is Goodless Nerolac (205.88 crores) way behind Asian Paints(401.96 crores). Its objective and corporate goal of the company is harnessing the full potential or challenges that lie ahead and retaining market leadership in the industry over the coming years. APIL has diversified into ceramics, product line

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extension, continuous modernisation and up- gradation of its technology, foreign collaborations, joint ventures etc. SWOT analysis STRENGTHS Market leader with net sales: 401.96 crores Extensive distribution network. Wide segment coverage and product line. Overseas presence through subsidiaries. Willingness to spend on technological advancements. Differential pricing strategies OPPORTUNITIES Diversification into synergistic sector of ceramics Growing demand for industrial paints Cut in excise WEAKNESS Dependence on foreign firms for technology. Pressure from unorganised sector.

THREATS Competition from unorganised sector. Competition from imports.

a) What corporate goal has the company adopted for the next few years and with what strategies does the company propose to realize the above goal? Ans. The corporate goal of the company for the next few years is to achieve the growth rate which above the industrys average growth rate of 9%-10% and to retain the leadership position in the industry. Strategies undertaken at various levels: Business Strategy Introduced their low price brand for the price sensitive customer. Expand product range by including niche products in industrial paints area. Diversification into unrelated but synergistic area of ceramics Continuous Upgradation of technology Expansion of production capacity Increasing its presence in overseas market with its various subsidiaries

Functional Strategy

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Investment of 70 crores for tiles and other market segment. For this there is a capacity of 23000 tonnes per year, which in second phase would be 50000 tonnes per year Project location would be Gujarat and Rajasthan because of its proximity to the raw materials. Foreign collaboration for technology. Marketing of ceramics will be done through utilisation of existing distribution network of paints

b) What threats is the company facing or/might face in the future? What has it done and/or what could it further do to safeguard itself from threat(s)? Ans Threats: Major threat from the unorganized sector.

The growing demand of the organization in terms of the workforce, technology and assets. Uneven pricing. Competition from imports. Solutions: Collaborations with foreign firms for modernization and up gradation of technology and assets. Entry into lower end segments in order to grab large market share. Company is focusing at increasing its market share, and working hard in order to retain it. APIL has entered into the industrial paint applications, where demand for product is still latent. Line extension Increasing overseas presence through opening subsidiaries and joint ventures.

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c) Evaluate the new strategies of Asian Paints (India) Limited, particularly its foray into ceramics. Ans. APIL has planned a Rs. 70 crore investment in the first phase.Various strategies have been formulated by Asian Paints i.e. expansion of the product range, niche products in the industrial paints area, launch of pocket friendly paint Utsav for mass market, of production capacity and continuous modernisation for the growing demand and diversification into the unrelated but synergistic area of ceramics. To maintain their dominance in the industry APIL has decided to diversify into ceramic business which is a wise move. Strong distribution system and present customer base will increase the prospects of success in this foray. Imported technology will also give the company an edge over others.

d) What action plan has the company proposed to strengthen its product base? Ans. APIL has collaborated with PPG industries, an American firm in order to strengthen its product base, and thus enjoys the use of cathode electro deposition primer (CED). The company has concluded a tie-up with Nippon Paints for original equipment paint products and with Sigma Coatings of Holland for corrosion coatings. The launch of economic paint Utsav will help company in targeting the mass market which will give better results in coming future. Its ventures in the foreign countries have been successful and the decisions to invest in Australia will make the companys base stronger in global economy.

e) Classify all the strategic plans or proposed strategic actions of the company for achieving growth against suitable headings, e.g., Diversification, Joint Ventures, etc. Ans 1. Diversification into the area of ceramics: Asian Paints India Ltd is planning to enter into the ceramics business on the lines that the new business is closely

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related to the existing line of business while stating that the company intends to keep its options open to some new line of business. 2. Foreign collaborations for technology: The Company is making continuous efforts for the expansion of production capacity and continuous modernization to keep pace with modern demand. 3. Joint Venture unit in Townsville (Australia) has helped the company to establish its foothold in international markets. 4. Subsidiaries in overseas market: The Company has and will introduces some new products in the market which would be a collaborative effort with the overseas organisations. With these ventures the company is seeking to increase its presence in the overseas markets as well. 5. Product range and line extensions where new brands such as : APIL has strengthen its Industrial base by launched powder paints, wood finishing apart from adding many new varieties into its decorative paints category.

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Q3. Analyze the Following using Porters Five Forces Model: a. Airline Industry b. Dell Ans. Michael Porter states that a corporation must keep a check on the competition within its industry. The level of intensity can be measured by basic competitive forces. He developed Five Forces model in 1979 to analyze the economic and market forces that will ultimately influence an industrys profit potential. Those Five Forces are: Threat of New entrants Bargaining power of Suppliers Bargaining Power of Buyers Threat of Substitute products or services Degree of Rivalry among existing competitors

With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations. It works by looking at the strength of five important forces that affect competition:

Supplier Power: The power of suppliers to drive up the prices of your inputs.

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Buyer Power: The power of your customers to drive down your prices. Competitive Rivalry: The strength of competition in the industry. The Threat of Substitution: The extent to which different products and services can be used in place of your own. The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down).

By thinking about how each force affects you, and by identifying the strength and direction of each force, you can quickly assess the strength of your position and your ability to make a sustained profit in the industry.

Airline Industry

The airline industry around the world consists of many successful major players. In India it consists of one government player i.e. Air India and five private players i.e. Jet airways, Spice jet, Indigo, Kingfisher and Pawan Hans Helicopter service. In recent times, there has been turbulence in the airline sector due to Devaluation of Indian rupee, increasing fuel costs, decreasing subsidies, introduction of carbon tax by EU adding to the misery of the airlines and offering heavy discounts almost at break even or below to tackle intense competition.

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The price sensitive customer and the myopic vision of the corporate leaders to assess or foresee the dynamic future resulted in a shake out and depression in the industry. Except Indigo airlines all other players have faltered and stumbled. Kingfisher is even on the verge of bankruptcy. The airline industry can be separated into four categories by the U.S. Department of Transportation (DOT):

International National Cargo business Regional

Airport capacity, route structures, technology and costs to lease or buy the physical aircraft are significant in the airline industry. Other large issues are: Weather - Weather is variable and unpredictable. Extreme heat, cold, fog and snow can shut down airports and cancel flights, which costs airline money. Fuel Cost - According to the Air Transportation Association (ATA), fuel is an airline's second largest expense. Fuel makes up a significant portion of an airline's total costs, although efficiency among different carriers can vary widely. Short haul airlines typically get lower fuel efficiency because take-offs and landings consume high amounts of jet fuel. Labour - According to the ATA, labour is the an airline's No.1 cost; airlines must pay pilots, flight attendants, baggage handlers, dispatchers, customer service and others.

Porters Five Forces & Analysis

Industry rivalry- The rivalry in the airline industry is intense and at its zenith in the current scenario. There are several airlines operating on the same destinations around the world. They are competing aggressively through offering different services, lowfares, frequent flyer membership privileges and other benefits competing to gobble a sufficient chunk in the industry. Highly competitive industries generally earn low returns because the cost of competition is high. This is resulting in a fiasco in the current situation in India. Threat from substitution-There is no perfect substitute to international long haul flights considering the time factor and convenience. Marine transportation is there but is no real threat to it. For domestic travel the threats are several like railways and road

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transportation .Cost of travel is a major barrier forcing consumers to think of other available options. International carriers have a very less or no threat regarding other options. With the advancement in technology and increasing access to internet, requirement for travelling has reduced. With social networking sites and video conferencing coming into the arena, the barrier of distance has faded substantially. Thus, leading to fewer air travels. Threat of potential entrants- Airline industry requires huge capital investment. The airline industry is saturated. It is difficult for a newcomer to sustain itself in such a high cost and expensive industry where brand name plays an important role in consumer behaviour. The cost of buying and leasing aircrafts, safety and security measures, customer service and manpower makes it a costly affair. The likeliness of another airlines being formed, will depend so much on the barrier to entry and the lucrativeness of the business. Currently the airline business in India is not at all lucrative but the flow of foreign direct investment is likely on the cards which can turn the tables for the industry and revive it. Bargaining Power of the Buyers-Customers bargaining power in the airline industry is quite high. The cost involved with switching airplanes is decreasing as customers can access internet easily to compare and buy air tickets online nowadays. However, on International routes there are less options of bargain. Some company have small number of customers which purchase a high volume of the products. Taking the example of Malaysian Helicopter Services (MHS) who has customer like SHELL and PETRONAS, will acknowledge the power these two buyers have. They can dictate what type of helicopter to operate and the price of the tickets not otherwise. Bargaining Power of the Suppliers-The airline suppliers consist mainly of aircraft manufacturers, airports and fuel companies. Aircraft manufacturers for commercial purpose are limited as far as Boeing and Airbus. Other manufacturers are also present like Gulfstream; Bomb raider etc. but are not preferred. Dassault is another company but is more into manufacturing of fighter jets. Thus, there isnt any cut throat competition among them which has left less opportunity for bargaining for the industry and also, the likelihood of a supplier integrating vertically is rare therefore is a threat for the industry. Some airlines operate using a single type of aircraft, for example Boeing. Then the seller will have greater power over the airline and less power if its otherwise.

Conclusion

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The competition among the existing rivals is high. Differentiation is low. Substitutes are available but there is no perfect substitute available. There are a lot of entry barriers for a new player like low margins, huge capital investment, huge retrenchment cost etc. Bargaining power of buyers is high and due to few suppliers the bargaining power of suppliers is also high. Helicopter major Sirloksky has also entered the luxury segment. Private and small jet maker ATR is also supplying for corporates and the riches but is still at a nascent stage.

Dell

Dell Computer Corporation was incorporated in October 1987. It is a computer systems company and a provider of computing products and services. Its primary product offerings include enterprise systems, notebook computers and desktop computer systems. The Dell line of high-performance computer systems includes Power Edge servers, Power App server appliances, Power Vault storage products, Power Connect networking products, Dell Precision workstations, Latitude and Inspiron notebook computers, and Opti Plex, Dimension and Smart Step desktop computers. The Company provides targeted services for consulting, deployment and support, as well as an extensive selection of peripheral hardware, including hand-held products, and computing software. The Company conducts operations worldwide through wholly

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owned subsidiaries. Sales outside the United States accounted for approximately 35% of the Company's revenues.

Porters Five Forces & Analysis

Industry rivalry- Industry rivalry is high among the players. Due to advancement of technology and effective supply chain of the players there are low margins leading to price war among the players. There is decreasing in profitability due to increasing costs. Differentiation is low and the switching cost is less unless its an Apple product. Dell still have loyal customer base and has a competitive market share from other competitors.

Threat from substitution- Dell has a strong presence in the PCs and Laptop market. Apple Computer and notebooks are a major threat but high price and lack of software support hinders consumer from switching to Apple systems. Sony, Samsung and Hp are not far behind and are making news through their new and advanced launches. Threat form substitutes is high since the products from dell are essentially similar to those of competitors. Tablet market is going to get stronger and pose a potential threat but it is too early to infer anything.

Threat of potential entrants- There is low product differentiation. Other than brand name there is no barrier to entry. No legal or governmental barriers are present. Decreasing profitability shows that there is a threat of new entrants. The computer industry is highly competitive because of the high degree of commodization i.e. uniformity and availability of technology and little scope of differentiation of the products resulting in little customer switching cost that enables any of the vendor of computer parts or a new player to develop assembling capabilities.

Bargaining Power of the Buyers- Bargaining power of buyers is moderate. The market is highly price sensitive. There are a lot of substitutes available thus reliability and customer service become important factors. Dells products are very reliable and customer service is outstanding. These two factors help Dell to create certain brand royalty. If the prices are raised too high, customers will not hesitate to switch. But there are a large number and a wide variety of customers form corporate to individual

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customers for desktop to laptop PCs as well as for storage servers and printers that the players can target

Bargaining Power of the Suppliers- Dells suppliers does not have a high level of bargaining power since Dell dictates the terms and schedules of delivery. Besides in an industry that is characterized by innumerable suppliers, who are not in cartel. There are a large number of suppliers for components like hardware, keyboards, etc. China has flooded the market with low cost products. But on the software side, the major input i.e. the processor chip of the computer is monopolized. 1. Microsoft standard for all PCs 2. Intel standard for most PCs AMD processor is present but is not favored by most of the companies. The efforts put by the company also reap less than expected results due to high switching cost. Conclusion Dell entered a market which is highly fragmented and produces a commodity that is nearly un- differentiable and customer switching cost is low. Players are highly aggressive and evolve different selling strategies. Threat from substitutes is high however; dell has been able to sell at lower margins since it saves margins charged by wholesale and retail traders. The relative price and the performance determine customer preferences and Dell has taken advantage of the market preferences. Dells USP of direct selling and build to order has given it a unique position in the industry, enabling it to rise to the top of the competition in two decades despite a new entrant.

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References & Bibliography

www.economictimes.com www.afaqs.com http://www.managementstudyguide.com/porter-fiveforces.htm http://www.zainbooks.com/books/management/strategic-management.html http://www.netmba.com/strategy/porter.htm http://www.economywatch.com/world-industries/airline/ http://www.dell.co.in/ http://www.referenceforbusiness.com/management/Sc-Str/Strategic-PlanningTools.htm