TCL Agam

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Tata Chemicals Limited

Submitted By:

Submitted to Agamdeep Singh

Prof.C.P.Joshi Roll No 59

PGDM-Marketing

K.J.Somaiya Institute of management studies and Research,

Mumbai.

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Business Policy Assignment

Agamdeep Singh (PG - Marketing)2

Q1) Is TCL today a dominant business corporation, related business corporation or unrelated

business corporation?

A1): Tata Chemicals Limited (TCL) is a global company which has operations in chemicals, crop

nutrition and consumer products. The company has also extended its operations into the sector like

agriculture, animal nutrition, construction, consumer products, glass, metals, pharmaceuticals, soaps

and detergents, and textiles and leather industries. Tata Chemicals has manufacturing facilities in

India, UK, USA, the Netherlands and Kenya. The company's global capacity for soda ash is around

5.5 MTPA, making it the world's second largest producer of soda ash. Tata Chemicals is also a

leading player in the consumer products and crop nutrition and agribusiness segments. The company

is a pioneer and market leader in the Indian branded iodized salt segment and India's leading producer

of nitrogenous and phosphatic fertilizers.

The strategic business units (SBUs) of TCL are

Chemicals: The company has established its base in the State-of-the-art facility at Mithapur, Gujarat

for the production of Soda Ash, Cement, Caustic Soda, Bromine and Gypsum.

Fertilizers: This SBU was established in 1994 at Babrala (Uttar Pradesh). It is the only fertilizer plant

in the country to use dual feedstock: natural gas or naphtha, or a combination of both.

Consumer Products: Tata Chemicals' consumer products business unit has two of the company's

most visible products i.e. branded salt and sodium bicarbonate. The products manufactured are salt,

crystalline salt sodium bicarbonate, cooking soda etc.

Agri Services: Tata Kisan Sansar (TKS): Kisan Sansar has been established to help the farmers in

the region where TCL manufacturing facilities are located. This helps them to create shared value.

They provide all kinds of technical inputs to the farmers in the process helping them in their new

business venture i.e. wholesaling of fresh agri products.

The presence of more number of business units which are related to each other as all of them are

dealing with Chemical formulation. Moreover in SBUs like Fertilizer and TKS we can see a common

thread chemicals excellence that links the business which is a characteristic of related business

corporation .Where as Chemicals & Consumer product are not inter linked to each other. Thus we can

conclude that model of corporate management of Tata Chemicals is some of a related business

corporation which are holding it together but at the same time they have expanded themselves to those

SBU which are not strongly related to Core Business Corporation. These changes have taken place

due to the changing external environment.

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Q2) Comment on TCLs horizontal scope .Considering 4 SBUs Soda ash, fertilizers, table salt,

and fresh products, comment on based on relevant tests? Which of these 4 SBUs you

recommend to be retained? Why?

A2) There are three tests which tell the company the extent to which the corporate strategy can aid or

undermine the business units as they compete in their respective industries. They are Better Off Test,

Best Alternative Test and Best Parent Test. The 3 test when done on Tata Chemicals the following

results was concluded:

1) Better Off Test:

This test aims at measuring the value creation due to the Common Ownership of the various entities

of the company. It also is relevant in determining if the two enterprises if brought under the same

umbrella would create more value than the value created when they are separate entities.

Competitive Advantage: TCL, by virtue of acquiring the small but significant companies has been

successful in passing the test for corporate value creation. Tata Chemicals is the second largest

producer of soda ash in the world with a global capacity of around 5.5 million tonnes per annum. It is

also one of the most experienced manufacturers of soda ash in the world and has therefore moved

ahead of its competitors like Compass Minerals, Nippon Soda, Rohm and Haas on the experience

curve. This gives Tata Chemicals a competitive advantage in terms of costs. TCL can also derive cost

benefits by cross-selling its products as many of the chemical products produced by its different SBUs

are required in the same industry. Resources such as raw salt are required for both its soda ash and

refined salt and are available in its Mithapur facility.

Risk Considerations: Diversification into various business segments leads to minimization of risks

and hence by diversifying into areas such as soda-ash, salt and fresh produce, TCL has ensured that

each of the products in the product line follow different business cycles and trends thereby

minimizing its overall business risk.

2) Best Alternative Test:

This is a tool gives a measure of appropriability of the value in the value chain by the various

stakeholders. This test explores the various different channels & routes possible to create a Win-Win

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situation for the company. This test asks whether a corporation that owns its business units outright

accomplish its aims better than the same business units coordinated in some other way.

TCL has opted for common ownership of its various businesses as it reduces the costs involved in

finding a partner as well as negotiating agreements amongst its various SBUs. With the exception of

its Fresh Produce business, all the other businesses share a similar resource base. The company has

chosen a corporate management model that tries to meet the best alternative test by investing in

resources which are largely specialized. The business also has a fairly large corporate centre which is

required to maintain coordination among its activities making this a Dominant Business Corportation.

TCL has always followed the Tata philosophy of jointly owning all the companies .All the companies

being acquired off late are jointly owned by the Tata group of companies. This has significantly

helped in creating and capturing the value.

3) Best Parent Test:

Best parent test basically says that the appropriate benchmark for value creation is not what would

happen without a (corporate) parent, but what the best available parent would achieve.

TCL has diversified in the segments in which its core strengths lie. The businesses acquired are to

complement its current line of businesses. The company has an impressive track record of being

among the top few players in each of its businesses. For instance, TCL is the second largest producer

of Soda ash worldwide. TCL has also performed very well in its salt business and leads the branded

salt market in India with a 37% market share.

TCL has diversified in the segments in which its core strengths lie. The businesses acquired are to

complement its current line of businesses.TCL successfully passes the test. All the SBUs of TCL are

doing great business and can create value even without the business name of Tata. They are having

the numero uno or the second best player in the market status.

The Soda-ash and Salt businesses have gained large relative market share and the market is growing

at a steady pace. Hence these two units form the cash cows for TCL. Funds from these units can be

used to fund the growth of its newest venture Khet Se, which is currently in the low relative market

share high growth quadrant and has the potential to turn into a future star.

Thus currently, the company can retain all 4 SBUs.

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Q3) Indicate and examine briefly any 3 CSI opportunity areas for TCL. Explain your strategic

rationale.

A3) Companies of late have realised the importance of corporate social responsibility and TCL is no

exception. However, the approach by the companies is often fragmented and reactive. A corporate

social responsibility (CSR) has to be a part of the overall business strategy. Also, very important here

are that the CSR activities should become self sustaining in the minimum of time. For this, the

company needs to identify a set of social issues that the company is best equipped to help resolve, and

in doing so gains a competitive benefit. Such activities can be identified by carefully studying the

Inside out linkages and outside in linkages of the company; which are the points of intersection

between a company and the society. If these intersection points are identified, then the company can

work out a value proposition that is unique for its customers, and at the same time reducing or

nullifying its footprint on the eco-system.

The various CSI initiatives taken up by Tata Chemicals Limited can be categorized under the

following heads:

y Agricultural Developmenty Education and Healthy Womens Programmesy Animal Husbandryy Rural Energyy Trainingy Watershed Developmenty Infrastructurey Relief Work

Tata Chemicals Limited is the development of the community in which it operates.

Agricultural Development: Babrala is a drought prone area and besides the area also suffers from

poor quality of land. To make matters worse the water used for irrigation contains dissolved salts

which makes the land further infertile. The opportunities for TCL can be-

1. Education provided to farmers regarding the better use of fertilizers and irrigation facilitiesnew farming techniques appropriate crop varieties, crop inputs and methods of pest

management provides the company with a market for its own products.

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2. Further the company can test market its products in the area and know the results beforelaunching the product in the market.

3. Further the company can test market its products in the area and know the results beforelaunching the product in the market.

4. In addition, the local produce is being used to enter the wholesaling of fresh agricultural produce. This diversification would help in mitigating risk from slowdown in the core

business.

5. Khet Se Initiative: provides the company an opportunity to integrate both the programs forshred value.

Education & Health: The various initiatives taken by TCL are village libraries, pulse polio

programs, First Aid Training, Help with the infrastructure set up for schools, Intensive reproductive

health and family-welfare programme. Such type of programs would result in:

1. A healthy society, which means healthy workers since the local population is employed forthe blue collared jobs which means less problems of absenteeism, loss of production etc.

2. Educated workers are a better input to TCL since they can work and learn in a better way ascompared to the uneducated workers.

Womens Programmes: The various initiatives taken up TCL are formation of self help groups and

mandals, training programme for SHGs, Handicrafts promotion and agro based produce. This helps

the workers in the following ways:

1. It helps them to supplement their income which helps them have a better standard of living. Itwould in turn result in better productivity for the company.

2. Agro based produce can provide the blue collared employees of the company with certaininputs for their products in addition to providing the local community with supplementary

income.

Animal Husbandry: The initiatives taken up by TCL are breeding bull supply, supply of sheep,

fodder development and health care of cattle. This program will also help the farmers to supplement

their income besides providing them an opportunity to sell the required inputs to the company for

production.

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Rural Energy: As an initiative to provide rural energy TCL provides the Bio gas plants as well as

solar lanterns. This is making the local community self sufficient in terms of energy requirements

which are at a premium in areas like Babrala and Mithapur.

Relief Work: By providing the relief work for the cyclone as well as earth quake shattered regions in

Gujarat, TCL ensured that it maintained a better relationship with the state government. Besides

developing a relationship with the local community.

Watershed Development: The initiatives taken up by TCL are multifold:

y Arresting ground-water decline and improving its levelsy Improving the water quality in aquifersy Stopping seawater from seeping into ground watery Enhancing the availability of ground water at specific places and times

Water is a very important resource for the overall community as well as the company as well.

What comes from the people must go back to the people many times over" this principle is an

inheritance from the founding fathers of the Tata Group.

Q4) Outline the major change in TCLs external environment since July 2008. What are the

major strategic challenges facing TCL today.

A4) The major business challenges along with TCLs response to these that TCL faces in todays

business environment are mentioned below:

Expensive costs of input: The cheapest source of making fertilizers is gas, but India today doesnt

have enough gas and more than 30% of fertilizers are being produced from naphtha and other liquid

fuels. Today naphtha is five times costlier than gas. So, Indian cost of gas is also two and half times

costlier as compared to the gas available in the Middle East. Hence Indian fertilizers are costlier than

those from the Middle East and hence are at a disadvantageous position.

Rising Crude Oil prices: As global food demand grows and fuel prices keep rising, the fertilizers

industry faces new challenges driven by new trends like environmental regulations and concerns,

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raising organic products demand and high transport costs.TCL is not alien to them and have to face

the same set of problems and issues. Besides, with crude prices hitting a 10 year high the higher

feedstock prices (for naphtha, fuel oil and gas) are likely to hit the company in the coming year too.

(Gas prices have increased by over 50% over the last twelve months.)

Imbalance of supply-demand in soda ash industry: The world soda ash industry saw significant

structural change in the 1990s, and the process is still continuing. US and Chinese production capacity

rose substantially, while a number of plants in Europe and Japan closed. As production has

outstripped demand, soda ash producers have been unable to raise prices for a number of years.

US Subprime crisis: It has affecting the demand for products in USA and its global impact. Due to

which there is sale lost in almost around the world.

Ocean Freights have gone up: Freight charges have increased due to rise in fuel cost, overhead

expenses. To overcome it of products in bulk quantity over ocean liner and transport of product byother means like railways should be sent.

Climate Change: Increasing threat of Climate Change. It has sought this as an opportunity to launch

new green products in the marketplace through product innovation. It has put also in place CSR

activities to mitigate harm caused by pollution from its manufacturing plant.

Q5) Outline your recommendation for the period 2009-12 in terms of portfolio of its business &

countries. Please give your strategic rational

A5) Recommendation:

Growth by Merger &Acquisition :

Company needs to adopt aggressive growth with a greater focus on exports and set up capacities of

global standards. Investments need to be made in the field of knowledge based chemical industry such

as specialty chemicals, intermediates for agro chemicals etc. The company needs to focus on Brand

building through aggressive promotion of exports, especially where they have core competence.

Industries need to create an online information pool to facilitate sourcing of Indian products by

customers abroad including launching of a web site.

Strategic Alliances

In order to increase market penetration and increase their presence in select segments, companies need

to enter into product specific marketing arrangements. This would benefit the Indian companies due to

synergy between the quality of products and marketing strengths of MNCs who hold registrations for

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a number of products in different countries. Indian pharmaceutical companies have followed a similar

strategy. Company could consider alliances with Middle- East countries, which have an enormous

feed stock advantage, for instance forging a long term strategic alliance between a Middle East

refinery / naphtha cracking producer and a down stream Indian producer.

Continuous Innovation

New molecules that are more effective and environment friendly are being constantly discovered by

leading multi national companies who are investing heavily into R&D which Indian companies

cannot. Due to Indias strengths in process chemistry, Indian companies have developed very efficient

and cost effective processes for manufacture of the existing molecules. The company needs to focus

on R&D to improve efficiency and reduce costs.

Contract manufacturing:

With the need for high quality of products and lower production costs, TCL companies having excess

capacities, can increase their production and establish themselves in the world markets through

contract manufacturing for companies having established markets. This would help the company to do

away with marketing expenses and provide them an opportunity to establish their strengths in quality

of products.

Leveraging its core competencies

Tata Chemicals plans to leverage this competitiveness by installing new plant Australia where TCL is

not present. The company plans to tap cost-reduction strategies in the soda ash business and

technology in the sodium bicarbonate segment, besides increasing the salt business of its new

operations.

Low Cost Focus

TCL is now in the process of expanding its operations globally, and has set itself the objective of

becoming the lowest-cost producer of soda ash in the world. There is a need to move towards cost

reduction through debt restructuring in the financial area. In the operational area, there is a need to

look for opportunities in raw material cost reduction as well as how to increase process yields as well

as reduce maintenance costs and streamline material flow.

Economies of Scale

Consolidation is required to increase competitiveness especially of scales in manufacturing,

logistics, marketing, R&D and raising finances. It is necessary to move towards consolidation to have

access to large plants and cheaper raw materials. In the area of specialty chemicals, through

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consolidation the company can gain knowledge of specific chemistry and build relationship with key

customers.

Human Resource Management

Currently in the Chemical industry employment generated to approximately one million. With the

materialization of PCPIR policy of the Government, it is presumed that this will give spurt to the

employment opportunities in the chemical sector in the country. It will generate direct and indirect

employment during construction and operational phase.

All the recommendation is given considering a short time frame of 2009-12 which will help TCL to

gain advantage in short run and get more revenues. Future strategy for the company will be to expand

to new markets.

TCL Agam

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