SVKMS Narsee Monjee Institute of Management StudiesAnil Surendra ModiSchool Of CommerceProject ReportStrategic ManagementINDIAN TOBBACO COMPANY

By:Group 10SYBBA-BS No.NameRoll No.

1Shivam SharmaB046

2Shraddha KakuB047

3Shreyans JainB048

4Shubham GargB049

5Siddhant AgrawalB050

Table of ContentsAcknowledgement4About the Project4A Brief background5WHY DIVERSIFY?8branded apparels etc.8Corporate level strategies9Strategy 1: ITC entered the biscuits segment9Reasons for Entering the foods segment:9There are many reasons ITC entered this market and are listed below:9Implementation of Strategy:11Post Implementation Results:126.Since the time ITC has entered in 2003, the biscuit industry has been on a steady increase in terms of volume of production (in metric tonnes as well as in Rs.) over the years as per the charts below. The annual growth rate of the biscuit industry has been at a steady average of 13-14% over the past 6 years.13Annual Production (Rs.) Annual Production (in lakh metric tonnes)13Annual Growth Rate of the Biscuit Industry14Strategy Analysis:14Strategy 2: itc launched classmate15Reasons for entering stationery:15Implementation16Key to Success19SWOT ANALYSIS20Strengths20Weakness21Opportunities21Threats21Bibliography22

AcknowledgementWe would like to express our special thanks to our teacher Ms Pallavi Rallan who gave us the golden opportunity to do this project, which also helped us in conducting a lot of research and broadening our scope of knowledge. We also appreciate the help and guidance provided to us by our friends and family, without which we would not have been able to successfully complete this project.This project has not only assisted us in increasing our knowledge but also helped us gain and improve new skills of corporate analysis techniques.

THANKING ALL OF THOSE WHO HELPED USShivam SharmaShraddha KakuShreyans JainShubham GargSiddhant AgrawalAbout the ProjectThe group had to critically analyse 2 Corporate Level Strategies executed by any Multi National Coporation.The objective of the project was to research on whether the strategy implemented by the MNCs were successful or not and the reasons behind its success or failure.

We chose the Indian Tobacco Company as our MNC and the 2 strategies that are analysed are:1) Diversification 2)

A Brief backgroundITC was incorporated on August 24, 1910 under the nameImperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, the name of the Company was changedfrom Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970and then toI.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses -Fast Moving Consumer Goodscomprising Foods, Personal Care, Cigarettes and Cigars, Branded Apparel, Education and Stationery Products, Incense Sticks and Safety Matches,Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology- the full stops in the Company's name were removed effective September 18, 2001.The Company now stands rechristened'ITC Limited,' where ITC is todayno longer an acronym or an initialized form.Range of sectors ITC operates inFMCG (Cigarettes & Non-Cigarettes)HotelsAgriculture BusinessesInformation TechnologyPaperboards & PackagingIndia Tobacco Company

ITCs Diversification

1910: ITC was incorporated on August 24

1925: Packaging and Printing: Backward Integration

1975: Entry into the Hospitality Sector - A 'Welcom' Move

1979: Paperboards & Specialty Papers - Development of a Backward Area

1985: Nepal Subsidiary - First Steps beyond National Borders

1990: Paperboards & Specialty Papers - Consolidation and Expansion

1990: Agri Business - Strengthening Farmer Linkages

2002: Education & Stationery Products - Offering the Greenest products

2000: Lifestyle Retailing - Premium Offerings

2000: Information Technology - Business Friendly Solutions

2001: Branded Packaged Foods - Delighting Millions of Households

2002: Agarbattis & Safety Matches - Supporting the Small and Cottage Sector

2005: Personal Care Products - Expert Solutions for Discerning Consumers

2010: Expanding the Tobacco Portfolio

VISION & MISSION STATEMENT

Vision:Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company's stakeholders

Mission:To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value

ITC is a private sector company with a market capitalization of US $ 45 billion and a turnover of US $ 7 billion, it is rated as one of the World's Best Big Companies, features in Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine and among India's Most Valuable Companies by Business Today. ITC ranks among India's '10 Most Valuable Companies. In a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week.

Creating Enduring Value for India: ITC is creating Sustainable Livelihoods through a Robust Distribution Network. As a vision ITC aims to sustain the position as one of India's most valuable corporations through world-class performance, creating growing value for the Indian economy and the Company's stakeholders. As per the BSE website, ITC is one the top companies in the Sensex. Tradable Shares of ITC ended 1.65 per cent higher at Rs 395.20, and was among the top gainers for the day on BSE.Furthermore, ITC has claimed that they have been using renewable resources in fact all the hotels within their chains are been termed as green hotels, Green hotels are titled keeping in concern the sustainable use of resources as well as the contribution towards environment by these ventures. ITC is also known for being the only Company in the world, to be carbon, water and solid waste recycling positive. It is clearly visible that the company is progressing towards the Mission with a great pace.

WHY DIVERSIFY?

The Indian rural and agricultural market is 70% to other resources in India, but only 30 % of the GDP is from the agricultural sector. ITC realized that their cigarette business has a limited future for innovation and expansion. So diversification was needed in any case, to build a foothold in Indian market. FMCG being the fourth largest sector in the field which is expanding at a very fast pace and has huge potential, along with the benefit that it can be accrued by organizing the existing fragmented market accrued by market leading to concept of one stop shop, ITC decided to enter this market. Further India being one of the largest economies with the benefit of its vast market, it attracted ITC to the expand its operation in various areas of Hospitality, FMCG, Greeting cards, branded apparels etc.

ITC has had a steady growth over the past 18 years with their gross revenues rising from Rs. 5115 Crores in 1996 to Rs. 46713 Crores in 2014. Over the years the sectors ITC operates in have provided different profits to the Gross Revenue. The reliance on the tobacco sector has reduced over the years and as of 2013 the cigarettes FMCG sector contributed to only 56% of the total Gross revenue as compared to 65% in 2011. Therefore ITC is trying to de-emphasize its reliance on the Cigarettes FMCG sector and hence has been diversifying into various segments.

Corporate level strategiesThe main two corporate strategies that the conglomerate undertook were:-1. ITC entered the biscuits segment2. 2nd StrategyStrategy 1: ITC entered the biscuits segmentThe strategy that ITC adopts here is a clear one of Expansion by Diversification. It is an example of Concentric Related Diversification because previously before entering into the biscuit market, it had a strong presence in the FMCG segment. The 4 major sectors ITC operated in were:a) FMCGb) Hotelsc) Paperboards and Packing d) Agricultural Business

Reasons for Entering the foods segment:There are many reasons ITC entered this market and are listed below:1. Unbrandeda. They decided to enter the foods segment because it's a Rs 550,000 crore market in India. But only 6 per cent of it was branded and packaged. In developed markets, nearly 95 per cent of the food market is branded and packaged. So there was lot of scope for a branded player. b. The large gap between the organized and unorganized retail sector gave ITC extra incentive to push further into this diversification. The only organized retail at the time of entry was Parle and Britania and so the potential for growth was huge and the market was attractive.2. Huge scope for expansiona. In foods, biscuits was tempting. The Rs 4,000-crore Indian biscuits market has grown at 12-14 per cent year-on-year. 3. Business Synergya. ITC was already value-adding to wheat with its branded atta presence. By entering the biscuits segment, it could also improve its bottomline further.

4. Standard Productsa. Before entering the segment, ITC dug into market research. Research revealed that the category had gaps which ITC could settle into. Findings revealed that consumers wished to taste new and innovative products. That was precisely what the competition had not done in a big way.b. The biscuits industry had witnessed little innovation; Glucose was Glucose and Marie was still Marie. The company decided that this could be its biggest point of differentiation.

5. Per Capita Consumption of Biscuits

a) Since India is a developing market the potential for growth is a lot. ITC analyzed the per capita consumption of India as compared to that of other developed markets and found a huge gap that they could fill effectively with branded and packaged biscuits.

b) As India is also following western food habits, the difference in per capita consumption between the western markets and India gave ITC the necessary push to go through with their strategy.

Per Capita Consumption

What difficulties ITC faced before entering the biscuit market?Economies of Scale Not Easy to Achieve

Product DifferentiationRequires huge R&D

Capital Requirements High

Access to Distribution Channels Not Easy

Cost Disadvantages More

Government PolicyMore

Switching Costs Low

Implementation of Strategy:1) Innovationa) ITC launched Sunfeast with six ranges. But it was a calculated risk. ITC stuck to category favourites like Glucose, Marie and Bourbon cream.b) Along with that, it also launched innovations such as orange-flavoured Marie, Marie light and butterscotch-flavoured cream biscuits. In 2004, Sunfeast followed this up with the launch of Sunfeast Milky Magic. More recently, it also has launched the Sunfeast Snacky and Sunfeast Golden Bakes.c) Even the competition had not made things better. Between 2000 and 2005 neither Parle nor Britannia launched any major new product. Yes, Britannia did re-launch its Tiger brand in 2005.2) Distributiona) It's common knowledge, that for FMCG products, distribution channels are very important.b) Says Pravin Kulkarni, general manager, marketing, Parle Products, "For biscuits, distribution and visibility are extremely important as it's partly a impulse purchase product." And in biscuits, setting up a distribution channel is anything but easy.c) However, in this regard, Sunfeast has been fortunate: thanks to its tobacco business, ITC already had a good understanding of distribution channels.d) The company used its existing network of convenience stores -- the company's name for the hole-in-the-wall pan-beedi shops -- for Sunfeast. Not content with the existing resources, the company also looked at grocery stores and other retail formats.e) The company says the brand is now available in nearly 1.8 million outlets. Britannia claims it has a superior distribution clout with its presence in nearly 3.3 million outlets. Parle, the seasoned player itself, says it is available in 1.5 million outlets. 3) Pricing modelsa) The biscuits industry now has two clear models. Parle products plays the low price game at all varieties of biscuits from glucose to cream.b) Essentially, Parle plays a high volume, low margin game. But Britannia and Sunfeast look at a two-pronged strategy. High margins in cream variants and volumes from the Marie and Glucose segments.c) For instance, cream biscuits from both Britannia and Sunfeast cost Rs 10 for 100 grams. Parle, however, only charges Rs 5 for its cream variants. Except for Hide & Seek, all of Parle's products lie in the price range between Rs 4 and Rs 6 for 100 gram packs.d) To be fair, in Glucose and Marie, the companies have little choice. As there is little differentiation, consumers are extremely price sensitive. But these segments are important. Marie and the popular glucose varieties make up for nearly 55 per cent of the Rs 4,000 crore (Rs billion) biscuits segment -- a significant Rs 2,200 crore (Rs billion).e) Says Sunil Alagh, chairman, SKA Advisors, and former CEO of Britannia Industries, "the biscuit consumer is willing to pay more only when he sees a clearly differentiated product. Hence companies have little choice in terms of pricing." No wonder all the Glucose and Marie variants straddle price points of Rs 4-6 (for 100 grams).

Post Implementation Results:1) By 2003, They had achieved seven per cent market share in less than 3 years and even the top management admits that they could have only dreamt about such a situation.2) Importantly, industry barometer AC Nielsen has indicated that both Parle and Britannia are losing market shares. According to the AC Nielsen retail sales audit in March 2006, both Britannia and Parle have lost volumes. Britannia's shares had dropped from 35.8 per cent in 2004-05 to 30.5 per cent in May 2006 (volumes). Parle's shares had also dropped from 42.2 to 38.4 per cent in the same period.3) Even Priya Gold had seen a minor dip from 6.4 per cent to 5 per cent. ITC's Sunfeast had been a big gainer with its share increasing from 2.7 to 6.7 per cent.4) In terms of value, Britannia leads the market with 37 per cent market share, followed by Parle's 31.3 per cent and ITC's 6.3 per cent. Nevertheless, the gap is still wide. Sunfeast still has a long way to go.5) For the year ended October 31, 2013, ITC's cream biscuit market share stands at around 25% in value, according to industry sources who quoted all-India Nielsen numbers. The market share numbers for Parle Products and Britannia for the same period were under 20%

6. Since the time ITC has entered in 2003, the biscuit industry has been on a steady increase in terms of volume of production (in metric tonnes as well as in Rs.) over the years as per the charts below. The annual growth rate of the biscuit industry has been at a steady average of 13-14% over the past 6 years.

Annual Production (Rs.) Annual Production (in lakh metric tonnes)

Annual Growth Rate of the Biscuit Industry

Strategy Analysis:The high-end cream biscuit market is even more organized. Sunfeast was launched at the right time when the organized market was expanding. This helped the brand to expand rapidly in a market, which was for years dominated by Britannia and Parle.Biscuits are the biggest contributor to ITC Foods top line and premium segments. The chief executive of the diversified conglomerate's food business says plans are afoot to link its mammoth back-end support, the e-choupal network, for biscuits, as well. Currently, it is restricted to the atta brand, Aashirvaad, but will soon extend it to biscuits.

Strategy 2: itc launched classmateITCmade its entry to the education and stationery business with its Paperkraft brand in the premium segment in 2002; and later expanded into the popular segment with its Classmate brand in 2003.Classmate is the lead provider of all student stationery needs. ITC launched its Classmate brand in 2003 with the notebooks category. Subsequently, Classmate added new products to its portfolio which now consists of pens, pencils, mechanical pencils and geometry boxes, erasers and sharpeners.

Reasons for entering stationery:1) Scope for an organised player:a) Notebooks were not known as brands, it was more like mujhe ek sau page ki notebook chahiye. ITC identified an opportunity in this segment and worked very hard on the brand and product proposition. Today in the operating segments in notebook, they have a more than 50% share. That makes them by far the largest player. b) In 2003, ITC saw another opportunity. Notebooks was a Rs 5,000-crore (Rs 50 billion) category growing at 9-10 per cent every year. Importantly, there were huge visible gaps in the market. The organised segment accounted for less than 10 per cent of the notebooks market. There were only a couple of players with a pan-India presence: the Mumbai-based Navneet and Nightingale, owned by the Sivakasi, Tamil Nadu-based Srinivas Fine Arts.

2) High Growth Rate:a) If you look at the stationery products market in India, it is growing at over 10%. 3) Young market:a) With half of indias population comprising youth, ITC sensed the need for an organized player in the stationery sector.4) Increasing number of quality conscious people:a) ITC analysed that earlier, price was a major factor. However, the consumer now is very discerning and quality-conscious. They are willing to pay the price for a quality product. Even in rural or semi-urban areas, the customer is quite keen to have a quality product. Therefore the company launched Classmate, a brand of note-books, under its umbrella brand Expressions PaperKraft, catering to the mass and high-end segment.5) CSRa) Classmate notebooks were launched with the initiative of contributing Re. 1 towards the education of poor children from every 4 notebooks it soldb) Increasing literacy levels in country means increasing demand for stationery.

Implementation1) Expansion of its product portfolio:a) Following its stellar performance in the greeting cards business ITC laid special thrust on the stationery market and made a move towards expanding its product portfolio. The company launched Classmate, a brand of note-books, under its umbrella brand Expressions PaperKraft, catering to the mass and high-end segment.2) Wide range:a) The Classmate range, which stands for quality and dependability, is available in more than 300 variants and comes in hard as well as soft covers. Besides, it is available in different rule formats - single, double, square as well as unrule format. The entire range has cover designs that have graphic visuals ranging from birds, flowers, animals, sports, space, transport and monuments.3) Innovation:a) ITC focused on the design elements of notebooks: each Classmate notebook has a theme on the cover and related information inside.For instance, if the cover has a photograph of a ship, the inside front cover has information about ships. Then, the last two pages of the notebook have trivia and the back cover highlights the corporate social responsibility initiatives of the company (Re 1 from each notebook sold is set aside for the cause of underprivileged children).4) Appealing product range:a) The company has laid great emphasis on designs and features that would truly appeal to the target consumers, evoking interest leading to trial and joy of experiencing the product. The inside of the cover page has a small write up on each of the cover visual. The last two pages are totally devoted to trivia on various subjects adding fun to learning.5) High quality:a) The uniqueness of the product in terms of paper is the usage of 60 GSM paper as compared to 54 - 58 GSM used by various competitions. The other features of the paper can be attributed to the smoothness, whiteness and opacity.6) Eco-friendly paper:a) The use of eco-friendly paper bleached without elemental chlorine is the first chlorine-free stationery product in the country and the young generation would feel proud to be associated with environment friendly stationery. ITC is the manufacturer of Indias first Ozone-treated environment friendly Elemental Chlorine Free (ECF) pulp, paper and paperboard.7) Pricing:a) The Classmate range is priced between Rs 10 - Rs 40. The pricing is very competitive and is in sync with market expectations. ITC would be distributing its Classmate stationery products through stationery outlets as well as greeting cards outlets that stock stationery products.8) Carrying forward the knowledge of FMCG sector:a) ITC blends its knowledge of image processing, printing and conversion garnered from Packaging & Printing Business with its brand building and trade marketing & distribution strengths resident in its FMCG business to offer superior value products to consumers.9) Promotional strategy:a) A man's signature is perhaps one of the most impressive portrayals of his identity. We have all toiled hard, as a child, to get that signature worthy of the person we aspire to be. Keeping this proposition in mind,ITChas launched a campaign for itsClassmaterange of pens.b) "Classmate as a brand recognises that an individual is born unique. Therefore, it is crucial to recognise, nurture and celebrate this uniqueness. They reflected this in their advertisement relating to pens.c) ITC will bank on cross-promotions with its notebooks, as range enjoys a 18-20 per cent market share of the Rs 3,000-3,500-crore market. But in writing instruments, it has had only two per cent owing to its late entry. At the moment, its focus is on brand creation and communication. This reflects on its budget allocation too. Of the Rs 35-50 crore advertising budget, a lion's chunk is being spent on consumer connect.d) ITC identified that the age when children first start using pens is significant for them. The permission to use pens in schools, as against the pencils they had used so far, is a sort of a rite-of-passage for the child, a sign of empowerment. Which is why they try to imitate the first grown-up habit they can imagine - carve out a unique signature for themselves. This the basis which their TV commercials revolve around.e) ITC plans to extend the campaign to different media. It will be using the social medium extensively to increase the outreach. There will also be school contact engagement programmes and on-ground contact. It also plans to release these creatives on the back-covers of its notebook range, by way of cross-promotion.f) In 2003, the year of Classmate's launch, it introduced the Young Author competition for students across schools in India, who were in the 9th to 12th grade. In the third edition of the Classmate Young Author competition, for which the awards were given away in March 2006, there were close to 40,000 participants from the top 15 cities. Note that ITC is tapping only the top 4,000 schools in the country.10) Cost efficiency:a) ITC outsourced the final production to 20 satellite manufacturing plants across the country. These plants are supplied with paper from ITC's plant at Bhadrachalam, in Andhra Pradesh. To keep a check on transportation costs, Das says the company tries to manufacture and sell within the same area.

Post Implementation1) "When the company got into the stationery business way back in 2003, there was a lot of scepticism, but today we are market leaders in the branded notebooks category," says Chand Das, chief executive, education and stationery products business at ITC.2) Today in the operating segments in notebook, ITC has a more than 50% share. That makes them by far the largest player. They outsell their closest competitor 1:2 and they outsell their second closest competitor 1:5. 3) The company's rise to the Rs 1,000-crore mark took a little over 10 years, which according to Das is the fastest in the history of the stationery business in India. Companies such as Navneet, for instance, despite being around since 1956, have a turnover of less than Rs 1,000 crore. 4) ITC's stationery business, which sells notebooks under the Classmate brand name, brought in earnings of Rs 40 crore (Rs 400 million) in 2005-06.5) ITCplayed a major role in getting consumers to think brands while buying a commoditised category like notebooks.6) The organized market for notebooks is around Rs 4,000 crore, where ITC's Classmate is the market leader with a 20 per cent share. The other national brand, Navneet, is a distant second with 7 per cent share. The rest of the market is controlled by a host of regional brands.7) Almost 85 per cent of the classmate's revenue comes from notebook sales, while the rest is from other stationery products such as pens and art stationery.8) ITC started Classmate around six years ago when the market was highly commoditized and fragmented. Classmate has recorded a CAGR of 70% over this period. They are in the process of enlarging their basket of offerings. 9) Classmate is India's No. 1 Notebook brand. Its range of more than 300 variants is custom made to take care of varying needs in notebooks, long books, practical books, drawing books & reminder pads segments. These notebooks reach more than 90,000 outlets across the country.

Key to Success1) Getting the entire product proposition right in terms of :a) need gap, b) consumption, c) usage and behaviour in the category, d) research on whether the current products in the category are failing consumers. e) paper quality and binding quality; f) responsible marketing to children ensuring that the brand proposition resonates with children and is important for their future. 2) Its range of more than 300 variants is custom made to take care of varying needs in notebooks, long books, practical books, drawing books & reminder pads segments. These notebooks reach more than 90,000 outlets across the country.3) Meticulous understanding of consumer needs helped creating a relevant and comprehensive portfolio satisfying the needs of different sets of consumers.4) Paperkraft Business paper and the papers used in Classmate and Paperkraft notebooks are superior in quality and environment-friendly. 5) Other offerings available in education and Stationery range are safe and certified non-toxic, specially designed for children.6) Choosing Soha Ali Khan and Yuvraj Singh as the brand ambassadors- youth icons.7) ITC also had the advantage of sharing infrastructure with its food and cigarette business - the group has 19 branch offices across India. These offices became a nodal point for sales and distribution of notebooks.Enabling them to hit the market fastest.

SWOT ANALYSISStrengths1) Managing diverse business. ITC has 105 subsidiaries connected with its various operations.2) Wealth of local knowledge & international expertise helps it to be globally competitive.3) High quality standard products & services4) Excellent export earnings.5) Highly professional management.6) Excellent distribution network.7) Excellent brand making capability helping it to diversify it into Retailing, IT & Hotel segments8) Agro-export segment showing excellent growth of 28 % & earning Rs. 4 billion foreign exchange.9) A lasting impression by catchy ads.10) ITC ltd is one of the most liquid scripts in the capital market. With domestic institutions having a considerable stake this is likely to improve liquidity in De-mat trading.11) Good returns by way of dividend per share every year. In 31.3.2002 the dividend declared is 13.50 Rs per share12) The lifestyle retailing segment has won acclaim & moving towards higher sales.13) The expression greeting card is widening its base all over India & it is available at most retail shops.14) Steady increase in the return on capital employed.15) Sophisticated research & development facilities.

Weakness1) Diversification into various lines in which it does not have much knowledge would be very risky proposition.2) High competition from established brands which has resulted in reduction in profit margins.3) Steep increase in cigarette taxes has adversely affected the revenue earned.4) Due to high price of cigarette, consumers are switching to other cheaper forms of tobacco.5) Its hotel industry has still not created a big share in the market size.

Opportunities1) Big untapped market available. For cigarettes, hotels, it, retail garment, packaging & agricultural products.2) High growth potential could be achieved.3) Good source of revenue & foreign exchange available by way of exports of agricultural products, hotels & cigarettes.4) Its competitors dont have the financial banking like it so it can take advantage of this.5) Proper publicity of the hotels would increase its brand image & revenue.

Threats1) Negative publicity for smoking could affect its cigarette segment.2) Government is under huge pressure from public organizations for banning tobacco products which could affect it adversely.3) High competition from established brands.4) Competition from unbranded products.5) Due to terrorist attacks the tourism industry has taken a back seat which would affect the hotel segment.6) Poor monsoon leads to poor agricultural growth which would affect the agro-exports.

Bibliography 1) www.itcportal.com2) http://www.indiainfoline.com/3) http://www.impactonnet.com/4) http://www.business-standard.com/5) http://en.wikipedia.org/

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