Industry_and_strategy_analysis_of_kohino.docx

Industry & Strategy Analysis Of Kohinoor Chemical Company (Bangladesh) Limited

Submitted By:

Submitted To:

Sohel Ahamed ID: B-110203011 BBA (6th Batch) Group No.: 06

Roushanara Islam Assistant Professor Department of Finance Jagannath University

Date of Submission: 28th October 2015

Industry of the company: Cosmetics & Toiletries In the old days, when people went to abroad, they were given shopping lists that contained a whole range of toiletries: soaps, shampoos, conditioners, face washes, creams, etc. In those days the local toiletries market was not advanced enough to meet all the demands of the people. But in the last decade things have changed drastically for the toiletries industry in Bangladesh. Kohinoor Chemical Company (Bangladesh) Limited (KCCL) is popularly known by its legendary beauty product under the brand "Tibet". For more than half a century Tibet has made its mark in the hearts of millions. They are the pioneer amongst the soap, cosmetics and toiletries manufacturing industries of Bangladesh, producing highly value-added products with quality in the center of focus. They care for the customers and are determined to count extra mileage to meet their daily needs. KCCL believes that it is the quality that has kept Tibet going and growing for 55 years. KCCL produce every product that you need to feel noticed for your standout freshness.

Porter’s five forces analysis: Porter five forces analysis is a framework to analyze the level of competition within an industry and business strategy development. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of an Industry. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. This analysis is associated with its principal innovator Michael E. Porter of Harvard University.

Profitability Analysis of KCCL (Tibet Detergent) based on Porter’s five factor model:  Rivalry Among Existing Firms: In toiletries industry the rivalry among existing firm is too high. Though the industry is still growing, the competition among the market leader is notable. The market leaders are competing to sustain and broaden their market share in the industry. Key market player and their products are mentioned in the following table. Kohinoor Chemical Company (Bangladesh) Ltd. Unilever (BD) Ltd.

Tibet Detergent Powder Fast Wash Detergent Powder Wheel Lemon Power Rin Power White

Square Toiletries Ltd. Keya cosmetics Ltd. Millat Chemical Co., Ltd

Chaka Washing Powder Keya Lemon Detergent Powder Millat Detergent Powder

The switching cost between brands is very low here. This is also responsible for the extreme competition.

 Threat of New Entrants: Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. There is already around 90 cosmetics & toiletries company exist in Bangladesh and the number is still counting. As these products are categorized as Fast Moving Consumer Goods (FMCG), different companies are looking forward to invest in this industry. These makes the industry much more competitive.  Threat of Substitute Products: Threat of substitute products is also high in the detergent industry. Laundry Soap is a perfect substitute of Detergent. Cost of using Laundry Soap is not higher than Detergent. There’s a large number of laundry soap brand in the market. Wheel Laundry soap from Unilever, Chaka Ball Soap from Square, Keya Laundry Soap from Keya Cosmetics is mentionable. KCCL also have laundry soap in the market. Tibet Laundry Soap, Tibet Ball Soap & Tibet 570 are their laundry soap brand. Among these brands “Tibet 570” is KCCL’s blockbuster product which is ruling the laundry soap market around 50 years.  Bargaining Power of Buyers: Toiletries are normally marketed through company’s own distribution channel. Final consumer don’t have much more influence on market. But the retailers do have! They can pressurize the company to reduce price and can influence buyer to switch to a brand from another.  Bargaining Power of Suppliers: Major portion of raw materials are imported from abroad. Thus the suppliers have a great influence on the industry. Switching cost between suppliers is relatively high in this industry as the suppliers are from foreign countries. Finding a new supplier is also difficult and risky.

The most critical factor for the profitability of the industry: I think, “Bargaining Power of Suppliers” is the most critical factor for the profitability of the industry. As raw materials are imported from abroad, the suppliers have great influence on the industry. The price of raw materials are determined by the suppliers solely. Changes in the price of raw materials impacts drastically on the price of the finished products. Exchange rates, import tariff, import quota also have influence on the raw materials price.

Is the industry capable of retaining the profit it makes? Yes! The industry is capable of retaining the profit it makes. The market size of the industry is around 1000 Crore and it is expanding day by day. The sustainability of the profit of the industry is almost proven. Companies in the industry are going for diversification. They are introducing new product line. Different toiletries industries are exporting their products in foreign markets. They are concentrating to find new sources of raw materials, introducing ayurvedic cosmetics. Different firms are trying to produce some raw materials locally. For example, Palm cultivation have been started a few years ago which is a major ingredients of soap. All of these efforts will help to retain the profitability of the industry.