Agility and ability of ITC Ltd to adapt to its external environment

Agility and ability of ITC Ltd to adapt to its external environment In this particular analyses of ITC Limited we are going to look upon the the agility and ability of its growth and how it has been sustainable over a longer period of time. ITC limited, is a multi-business portfolio headquartered in Kolkata, India by Yogesh Chander Deveshwar. It is a 100 year old company. It focuses on all round value creation to build a strong corporate governance policies and systems. It expanded its business in the following years: Presently ITC Limited is purely an independent Company In August 24, 1910 it was incorporated by Imperial Tobacco Company of India Limited and shared ancestry with Imperial Tobacco. In 1970 it was changed to India Tobacco Company Limited from Imperial Tobacco Company of India Limited. Later in 1974 it was changed to I.T.C Limited. In 1985, it introduced Surya Tobacco Company in Nepal which was renamed Surya Nepal Private Limited in August 2002. In 1972, ITC entered into Hotels business. ITC premier chain of luxury hotels is known as ITC Welcome group. In 1975, it introduced its hotel business in Chennai named Hotel Sheraton. It has entered into hotel business to have privilege to host the guests across the world .It was first one to introduce brand sustenance in the Hotel Industry. Its restaurants such as Dakshin, DumPukht and Bukhara are known world wide for its auspicious Indian cuisines from the various sectors of the country.One reason why ITC entered into hotels because it was a British company and in Indian society trend of Tobacco was looked down upon at that time. With enhancement of tourist infrastructure in Hotel business it earns high foreign currency which helped company to govern a good brand image and added a valuable amount to Indian Economy. It great infrastructure of Tourism and large scale of direct and indirect employment has added a great value to the nation. It 1979, it introduced its paperboards business named ITC Bhadrachalam Paperboards Limited which was on November, 2002 merged with Tribeni Tissues Limited (which was introduced in 1990 and was the major tissue paper supplier). It was the first supplier in packaging, therefore it has high value added position in market. In 1990 it entered with its Agri-business for the export of agri-commodities. Today it is one of the largest exporters industry .Throughout its agricultural areas in India it has developed a network in business model centers of Internet connected Kiosks, known as e-Choupal. In 2000, it Introduced Lifestyle Retailing business under brand name Wills with great International quality of relaxed sports wear for both men and women. In 2002, it expanded its range including Wills Classic Formal Wear and specific segment of mens wear brand, John Players. In 2003, with wills Club-life evening wear. In 2004, government put estoppel on Tobacco advertising which compelled ITC not to associate Wills by the brand name of Cigarettes anymore, to save it from being charged for it advertising. In 2000, it also came with its owned subsidiary business of Information Technology named, ITC Infotech India Limited. It has availability of high man power quality. In August, 2001, ITC entered into Food Industry with packaged and branded food business of ready-to-cook eatables with the brand name Kol with a premium price range. In the beginning it followed the strategy that it will trade at the places where there are less number of competition to built its brand image. Along with the food industry, it has also launched a new brand named, Kitchens of India. In that period there was a great demand for processed food because of increase in disposable income and urbanization resulted in growth opportunities. One of the reason why ITC entered into Food Industry because in 2001-02 the excise duty on budget on processed fruit and vegetables has been brought down from 16% to zero level .Later in june,2002 , to generate more revenues it launched products like staples, snacks and confectionery. In 2002, it introduced its Stationery, Gifting and Greeting products business and launched notebooks under brand name Paperkraft in the same year and futher under brand name Classmate in 2003. Further in between 2007 and 2009 Classmate came up with Childrens books, Geometry Boxes, Slam Books, Pencils and Pens. In 2008 under Paperkraft it also launched eco-friendly business papers which was the Indias 1st eco-friendly premium. In 2009 Paperkraft launched some more products targeting office segment like White Board Markers, Text liners and permanent Ink Markers. With its price strategy and good quality it has established a brand image in the mind of students. Entry to FMCG industry FMCG sector is the fastest growing segment of ITC Limited. It is well established distribution networks in the market. Proctor Gamble, Nestle and Unilever are the best example of ITC largest trading companies. It generates tough competition between the organized and unorganized segments. It targeted to the large market with the lower pricing strategy .It is a single-step buying process with shorter sales cycle. Hence, with quick shelf turnover it generates more profit with less financial investment. In the past decades it has generated a strong growth due to: Employment opportunity to the people at every sector. Urbanization, Altered Lifestyle, Liberalization and increase in disposable incomes. Current plan ITC Limited is popular for its Tobacco brands like India Kings, Insignia, Silk cut, Gold Flake, Capstan, Scissors, Berkeley, Classic, Flake, Navy cut, Flake and Bristol. Today approximately 5 million foreign arrivals visit India compared to 35 million in China. In rural areas it is planning to increase its penetration and farmer services. This year there will be 12% inflation in the food sector of ITC Limited and the cost of raw material will rise by 15-20%, which will adversely affect the FMCG industry. Consumers will purchase comparatively less, then they usually purchase. This will directly hit the growth of the company. LONG TERM SUSTAINABILITY ITC has evolved to a multi-business corporate enterprise from a single product company. Through its innovative strategies it synergizes long term shareholder value growth, which is also enhancing the capital of the society. For example E-Choupal through its sustainable agricultural practices has raised the income of rural areas and enhanced the farm productivity. The company believes in integrating larger societal goals in their business sectors, which will ensure societal benefits are more impacted and scalable. Moreover in future it will build stronger foundations for the sustainability of the company. Due to its sustainable business practices which will likely to lend additional source of competitiveness to ITC in society. Also it invested in training of human resources , intensive skilled development and inculcating a spirit of responsible citizenship among the people. This all will support the company to built a corporation for tomorrow. Strength The ITC companies is one of the Indias biggest private sector companies which is rapidly gaining market share into Cigarettes Leaf Tobacco, Hotels, Paperboards Specialty Papers, Information Technology, Packaging, Packaged Foods Confectionery ,Agri-business , Personal Care, Education Stationery, Safety Matches, Lifestyle Retailing and other FMCG ( Fast Moving Consumer Goods ) products like Mint-O fresh, Sunfeast , Kitchen of India , Bingo! and Aashirvaad .In Indian economy it is the fourth largest sector. It is directly serving nearly to 85000 markets and two million retail outlets. It has a tremendous control over the entrepreneurial energies of management which facilitate change in management, prevent misuse of power. Its turnover is about $6 billion and over $22 billion market capitalization and employs over 26,000 people at more than 60 locations across India. For its growth it is developing a world class portfolio. It provides low cost operations and trading over large domest ic market. Not only that ITC limited in its each business sector it nurture top management team and ensure to be internationally competitive. The Master-chef of ITC is often asked to develop new food concept which help to come over the weakness of the company. It has attracted more customers. Moreover, it is also developing internationally competitive agricultural business by empowering the independent small farmer. Weakness ITC, despite of having a brand name in market, it adversely affecting the health of poor class and responsible for the premature death of the people. This is because 47% turnover is generated from Cigarettes Industry. Moreover 80% profit is also received from Cigarettes Industry. To raise its fund in FMCG sectors the company still depended on the revenues come from Imperial Tobacco Industry. Opportunity ITC Limited has spread everywhere, according to the need of the consumers. It is moving into new and emerging sectors like IT (Information Technology) .With its excellent market strategy it has a strong hold in its each market segment. Its research on the taste of the consumers in East, West and North India and then uses the network to create raw materials for the consumers. For example: The result on research of Atta (which is a popular wheat flour), which is now known for various brand name like Aashirvaad in Eastern market, Aashirwaad MP Chakki in Western market and Aashirwaad Select in the Northern market. ITC personal care products, per capita consumption is the lowest in the world which is offering an opportunity for ITCs Shampoos, Soaps and Fragrances under its brand Wills. ITC is aggressively pursuing opportunities in providing IT solutions like business process outsourcing and e-enabled services in its owned subsidiary company named, ITC InfoTech India Limited. In 2003, when it introduced biscuits with Sunfeast in the market, they were following Britannia, but with their excellent strategy they got hold on the market. Though they manufacture those products which were there in the market, but with such flavours which were never heard in past. Threat ITC has also faced many problems in its Tobacco business such as: Government has banned advertising of its products, Increased excise duty rates of cigarettes, Smoking in public places was also banned. This has increased the sales and position of foreign brands in Indian market. Also, it has compelled ITC to introduce with new business plans. When there is a cut- throat competition in the market, and the situation where they find possibility of profit could be made then: Either they reduce the cost of its products, or sometimes it also produces low quality products at low price, in order to make maximum profit out of it. Or they produce new products and services in the market, to maintain the same relation with their consumers. Due to ban on Cigarettes in India by government has adversely affected the manufacturing and sales of company. This has given opportunity to foreign brands to strengthen its roots in India. Pearl group from Israel, which is an international company is likely to open hotels in India. This will leads to tough competition in the Indian market, which will adversely affect the growth of ITC Hotels. In future this will adversely affect the tourism of ITC Hotels. Moreover, Domestic players are increasing their operations with state of the art of the infrastructure which will adversely affect the reputation of the ITC Limited. Therefore, it has to bring new technologies to remain in the market competition. Political Factors affecting ITC Limited ITC through its Experience, Goodwill and Brand Image created a good networking in market which helped it to bargain with government to modify their regulations. Ban on ITC limited cigarettes, FDI in Cigarettes and no smoking at public places has reduced the purchasing of Cigarettes which affected the manufacturing and sales of ITC Cigarettes business. In September 2004, Government of India put a ban on tobacco advertising. This has increased the sales of foreign brands as they were free to advertise their brands in India. It has compelled ITC not to associate Wills by the brand name of Cigarettes anymore, to save it from being charged for it advertising. Smoking in public places cause harm to the environment as well as the smokers and the people around. It influences teenagers to start smoking at an early age. Therefore in October, 2008, Government decided to put a ban on smoking at public places. It has affected the manufacturing and sales of ITC. In February, 2010 Indian government has taken step to ban foreign direct investment in Tobacco, which shattered the plans of BAT (British American Tobaccos), Japan Tobacco and Altria Group. This has closed the doors for Japans Tobacco Industry to make investments in Indian markets. ITC did not react on the matter because it owes 3/4th of the market share and ban on Tobacco ultimately benefited to its Sales. Economical Factor affecting ITC Limited ITC focus on the purchasing power of the consumer and the market condition created by the Competitor in terms of price, therefore it has maintained a great pricing strategy with an economical pricing range of products. This has created a tough competition in the market. The major competitors of ITC in the FMCG sector are Procter Gamble (PG) and HUL. To remain connected with lower and regular income earning people it sells products in small size packaged with the lower price like Minto fresh, Sunfeast Biscuits. ( What more required ) Sales of Cigarette (in Crores) Years Sales 96-97 102.2 97-98 104.2 98-99 102.2 99-00 98.43 00-01 97.8 01-02 87.8 This shows that there was continuous reduction in the sales of Cigarettes, because of the following reasons: Rise in excise duties. Increasing anti-tobacco campaigns Ban on Advertising. Moreover, ITC had a tough competition with many international brands in the overseas markets. To give them a tough competition it generated high quality, value-priced cigarettes. Socio Economical Factor affecting ITC Limited ITC is an earning source for 5 million people. Due to its goodwill in Cigarettes its brand signifies quality in the minds of the consumers. Because of single minded focus on value creation for its customers, it has built a leadership position through significant investment in quality, product design, manufacturing technology, new innovations, marketing and distribution. In this way it has made availability for long-term market standing. Such a strategic focus on customers has paid handsome dividends in return to ITC. Indian food market is Monopolistic Competitive market where there is large number of sellers in the market. Each firm sells Differentiated products which are close substitutes to one another. Major competitors of ITC Food Industry are Haldirams, Gits , Ethnic Kitchens , MTR and Priyafoods. When ITC introduced Bingo! there was only one player to give a tough competition, i.e. Frito Lay. This strategy has helped ITC to establish its business at a faster pace. Moreover, ITC Bingo is more diversified in flavors then Frito lay in Chips, Biscuits and other Ready to Eat Eatables. This has benefited ITC to be more demanding then its competitor and attract more customers at the same time. Technological Factor affecting ITC Limited IT is diversified into many field . It has made a boom in the market with its Technology (specify properly) of Boost production in the market. Recently, in July 2010 it has launched Classmate Mechanical Pencils also known as Classmate Da Vinci in the field of business of Education and Stationery. To bring advancement in the agri-based Industry, ITC has introduced E-Choupal which directly link rural farmers through Internet which ha brought advancement in agricultural and aquaculture products like Wheat, Soybeans, Prawns and Coffee. With the introduction of Computers and Internet access in the country in the areas of agriculture farmers can now easily negotiate with the sales of their production with ITC Limited. This enables them to carry good farming practices and keep themselves update of the change in mandi prices. The Value Chain This value chain ensures business growth through its efficient value chain. It has restructured the current business process which enhanced the efficient manufacturing or supply chain operations and its customer service availability. Also, with its electric procurement system ITC had enjoyed the cost advantages over its competitors. ITC has realized that to remain in the market competition of food industry, it has to keep innovating new products .Hence, it always keep on bringing new flavors in Biscuits, Wafers and other Ready to Eat and Kitchen of India products. Environmental Factor affecting ITC Limited ITC Limited has made a policy that under its control; they will not employ any person below the age of 18 years in any of its industrial operation. The company as a responsible corporate citizen has decided not to play with the future of children and committed to the protection and welfare of the children below 18 years of age. Due to this ITC has made a reputation in the market. It has earned respect from the general public. Moreover, it will generate more educated labour in the company which will help to produce better output. India is a competitive player in FMCG products due to diverse agro-climatic conditions , it has a strong availability of raw material, which gives advantage to industries in the production process. Legal Factor affecting ITC Limited ITC Legal Aspects for International Trade are the services provided by the institutions and legal experts from the several countries. These are managed through Geneva offices of ITC. Its main objective is to access international trade law with better understanding and resolve disputes. In April, 2003 anti-tobacco law was emerged to review control on tobacco in India affected to the sales of the company. Because of the smoke and tobacco law, the company production was affected. To combat this problem, the company started putting more emphasis on the packaging. It emphasized on the statutory warning and directed all the sellers not to sell the product below 18 years. Future Plan FMCG Sector is expected to grow by 60% in 2010. According to the 2008 estimation there was a rise in the income of the rural areas which has boosted the purchasing power of the people at countryside. In 2010-2011 under Sales Tax Act stock transfers are exempted from levy of tax, due to which stock transfer would be subject to tax under GST system at full rate. It will affect the sales turnover for a minimum of 2.5 times of stock transfers any FMCG sector. In all the ITC products due to the per capita consumption, it is likely to change the mind-set of the consumers. Hence, in the coming years there are possibilities consumers will purchase branded products which will automatically increase the growth of ITC. Following are some future strategies: They will hardly make any investments in cigarettes, because in future there are less possibility of its growth, due to bans on it by Government of India. Also they will use other business sector to provide high visibility of ITC. They will make new ventures in agri-business to expand its business, because likely in future there are possibilities that they could earn more profit in agri-business compared to other sectors. The reason is by their E-Choupal technology they are spreading their roots in rural areas. In FMCG sector, they will introduce low fat chips which will attract more customers towards its brand. CONCLUSION Since, ITC Limited was established in 1910, it has adapted the external environment and has proved to be the most profitable company in the India. Still today after its completion of 100 years it has very good brand image in the market.