Report On Itc

REPORT ON ITC (ENVIRONMENT SCANNING)

From:Sandeep Dated: September 25, 2009

Executive Summary

ITC is one of India's biggest and best-known private sector companies. In fact it is one of the World's most high profile consumer operations. Its businesses and brands are focused almost entirely on the Indian markets, and despite being most well-known for its tobacco brands such as Gold Flake, the business is now diversifying into ITC Limited new FMCG (Fast Moving Consumer Goods) brands in a number of market sectors - including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal care, greetings cards, Information Technology, safety matches, incense sticks and stationery. Examples of its successful new FMCG products include: •

• • • •

Aashirvaad - India's most popular atta brand with over 50% market share. It is also present in spices and instant mixes. Mint-o - Mint-0 Fresh is the largest cough lozenge brand in India. Bingo! - a new introduction of finger snacks. Kitchens of India - pre-prepared foods designed by ITC's master chefs. Sunfeast - is ITC's biscuit brand (and the sub-brand is also used on some pasta products).

Type

Public (BSE:ITC)

Founded

24 August 1910 Radha Bazar Lane, Kolkata, India

Headquarters Kolkata, India

Key people

Yogesh Chander Deveshwar, Chairman K. Vaidyanath, Director, Partho Chatterjee, CFO

Industry

Tobacco, foods, hotels, stationery, greeting cards

ITC is one of India's foremost private sector Cigarettes, packaged food, companies with a market capitalization of nearly Products hotels, apparel US $ 14 billion and a turnover of over US $ 5 ▲ $5.00 billion UD (2009) billion.* ITC is rated among the World's Best Big Revenue Companies, Asia's 'Fab 50' and the World's Most Employees 25,000 (2009) Reputable Companies by Forbes magazine, among www.itcportal.com India's Most Respected Companies by Business Website World and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', 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. ITC employs over 25,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3, 53,000 shareholders

The Marketing Environment

The marketing environment surrounds and impacts upon the organization. There are three key perspectives on the marketing environment, namely the 'macroenvironment,' the 'micro-environment' and the 'internal environment'.

The micro-environment This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence. Stakeholders: As organization requires greater inward investment for growth they face increasing pressure to move from private ownership to public. However this movement unleashes the forces of shareholder pressure on the strategy of organizations. Satisfying shareholder needs may result in a change in tactics employed by an organization. The Company sees no conflict between the twin goals of shareholder value enhancement and societal value creation. The challenge lies in fashioning a corporate strategy that enables realization of these goals in a mutually reinforcing and synergistic manner. 244,65,39,845 Ordinary Shares of the Company, representing 64.79% of the Company's paid up capital, as on 11th September, 2009 are in dematerialized form. The paid-up share capital of the Company is Rs. 377, 62, 86,590 (Rs.377.63 crores) divided into 377, 62, 86,590 Ordinary Shares of the face value of Re 1/- each. Supplier: Raw materials, intermediates and the final product sourcing/distribution in widespread across the country. Few items have more than 1 supplier for the raw material e.g. filter rods can be sourced from Mumbai, Bangalore or Devas in MP. Huge supply-demand network for cigarette business, which must operate in the cost optimal way to maximize the profits. Few segments are particular to factories e.g. Kingsize. Consumer: Organisations survive on the basis of meeting the needs, wants and providing benefits for their customers. Failure to do so will result in a failed business strategy. Its businesses and brands are focused almost entirely on the Indian markets, and despite being most well-known for its tobacco brands such as Gold Flake, the business is now diversifying into new FMCG (Fast Moving Consumer Goods) brands in a number of market sectors.

The macro-environment

This includes all factors that can influence and organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology. Economic Factors: Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. India has been one of the best performers in the world economy in recent years, but rapidly rising inflation and the complexities of running the world’s biggest democracy are proving challenging. India’s economy has been one of the stars of global economics in recent years, growing 9.2% in 2007 and 9.6% in 2006. Growth had been supported by markets reforms, huge inflows of FDI, rising foreign exchange reserves, both an IT and real estate boom, and a flourishing capital market. Socio-Cultural Factors: The social and cultural influences on business vary from country to country. It is very important that such factors are considered Envisioning a larger societal purpose has always been a hallmark of ITC. Following are the factor which should be kept in mind while doing business in india: 1. India, being a multi-cultural and multi-religious society, celebrates holidays and festivals of various religions 2. India is one of the most religiously diverse nations in the world, with some of the most deeply religious societies and cultures. Religion still plays a central and definitive role in the life of most of its people. 3. The demographics of India is remarkably diverse. India's population of approximately 1.17 billion people (estimate for July, 2009) consists of approximately one-sixth of the world's population 4. India is a young country with an average age between 23-24 years. As a corporate citizen with enduring relationships in rural India, ITC has a history of collaboration with communities and government institutions to enhance farm productivity and the rural resource base. ITC’s commitments in agricultural R&D and knowledge sharing have spanned vital aspects of competitiveness – efficient farm practices, soil and water management. Technology factor: Technology is vital for competitive advantage, and is a major driver of globalization. Technology in India accounts for a substantial part of the country's GDP and export earnings while providing employment to a significant number of its tertiary sector workforce. Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could

absorb. India’s growing stature in the information age enabled it to form close ties with both the United States of America and the European Union  IT plays a very critical role in driving the ITC business strategies.  IT is an enabler of the business process to ensure business growth through efficient management of operations in the value chain.  IT creates new business process or restructure the current business process to enhance customer service availability ,efficient manufacturing / supply chain operations etc Political factors: The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. The Indian polity is increasingly seen by political observers as the problem. When populist political appeals stir the passions of the masses, government institutions appear less capable than ever before of accommodating conflicts in a society mobilized along competing ethnic and religious lines  Budget impact: Among the FMCG stocks Marico and ITC are the biggest gainers.

Marico has added 7.3% to Rs 77. ITC has surged 7% to Rs 212, after no change in excise cuts on cigarettes  Due to Govt. new conditions ITC Maurya winning the 'Best eco-friendly hotel – Special Prize' award by the Ministry of Tourism, Government of India.

The internal environment All factors that are internal to the organization are known as the 'internal environment'. They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external. As marketers we call the process of managing internal change 'internal marketing.' Men: ITC employs over 25,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3, 53,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. Money: ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 14 billion and a turnover of over US $ 5 billion. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). Machinery: ITC is using world class machinery so that they can match with demand of the market. Their most of the facilities are fully automated. Materials: ITC is using quality raw material so that they can give world class quality product to their customers. They are very selective while selecting supplier for them. Markets: Its businesses and brands are focused almost entirely on the Indian markets, and despite being most well-known for its tobacco brands such as Gold Flake, the business is now diversifying into new FMCG (Fast Moving Consumer Goods) brands in a number of market sectors - including cigarettes, hotels, paper, agriculture, packaged foods and confectionary,

branded apparel, personal care, greetings cards, Information Technology, safety matches, incense sticks and stationery.

SWOT Analysis SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues Strengths ITC leveraged it traditional businesses to develop new brands for new segments. For example, ITC used its experience of transporting and distributing tobacco products to remote and distant parts of India to the advantage of its FMCG products. ITC master chefs from its hotel chain are often asked to develop new food concepts for its FMCG business. ITC is a diversified company trading in a number of business sectors including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, branded apparel, personal care, greetings cards, Information Technology, safety matches, incense sticks and stationery. Weaknesses The company's original business was traded in tobacco. ITC stands for Imperial Tobacco Company of India Limited. It is interesting that a business that is now so involved in branding continues to use its original name, despite the negative connection of tobacco with poor health and premature death. To fund its cash guzzling FMCG start-up, the company is still dependent upon its tobacco revenues. Cigarettes account for 47 per cent of the company's turnover, and that in itself is responsible for 80% of its profits. So there is an argument that ITC's move into FMCG (Fast Moving Consumer Goods) is being subsidized by its tobacco operations. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone hold 70% of the tobacco market. Opportunities Core brands such as Aashirvaad, Mint-o, Bingo! And Sun Feast (and others) can be developed using strategies of market development, product development and marketing penetration. ITC is moving into new and emerging sectors including Information Technology, supporting business solutions.

e-Choupal is a community of practice that links rural Indian farmers using the Internet. This is an original and well thought of initiative that could be used in other sectors in many other parts of the world. It is also an ambitious project that has a goal of reaching 10 million farmers in 100,000 villages. Take a look at eChoupal here http://www.itcportal.com/agri_exports/echoupal_new.htm ITC leverages e-Choupal in a novel way. The company researched the tastes of consumers in the North, West and East of India of atta (a popular type of wheat flour), then used the network to source and create the raw materials from farmers and then blend them for consumers under purposeful brand names such as Aashirvaad Select in the Northern market, Aashirvaad MP Chakki in the Western market and Aashirvaad in the Eastern market. This concept is tremendously difficult for competitors to emulate. Chairman Yogi Deveshwar's strategic vision is to turn his Indian conglomerate into the country's premier FMCG business. Per capita consumption of personal care products in India is the lowest in the world offering an opportunity for ITC's soaps, shampoos and fragrances under their Wills brand. Threats The obvious threat is from competition, both domestic and international. The laws of economics dictate that if competitors see that there is a solid profit to be made in an emerging consumer society that ultimately new products and services will be made available. Western companies will see India as an exciting opportunity for themselves to find new market segments for their own offerings. ITC's opportunities are likely to be opportunities for other companies as well. Therefore the dynamic of competition will alter in the medium-term. Then ITC will need to decide whether being a diversified conglomerate is the most competitive strategic formation for a secure future. TC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'. Its beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000.

Strategic Rationale ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India.  Sustain multiple drivers of growth, matching internal capabilities with emerging market opportunities  Pursue World class competitiveness in all businesses and across the entire value chain  Best-in-class in terms of: 1. Internal Vitality 2. Market Standing 3. Profitability  Business model retains critical elements of value chains within ITC with other elements outsourced a. Contributing to the competitiveness of SMEs  Strategy of Organization and Governance processes geared to manage multiple businesses  Blend core competencies and leverage ITC umbrella strengths to create new avenues of Growth.  Blend multiple competencies residing within the ITC Group to create new avenues of growth  Best fit between internal capabilities and emerging market opportunities  Each segment enhances the depth and width of ITC’s FMCG distribution capability

Recommendation  Improved security for hotel guests.  Floor access control in hotels through key card system.  Precision analysis of products in Food Business.  Process optimization for product development in Food Business.  Automation of lighting controls.  Use of Solar energy for hot water generation and outside area illumination.  Installation of PNG (Piped Natural Gas) fuelled generator sets and PNG fired calendar and tumbler drier machines in hotel laundries.  Improvements to reduce heat gain/cooling losses from building envelops in hotels.  Impact of measures for reduction of energy consumption and consequent impact on the cost of production of goods.

CONCLUSION  ITC promoting their brands through advertisement campaign as well as door to door promotion.  ITC is also focusing on Retailers and Wholesalers to promote their brand.  The demand of their product in very low, because people don’t know about their brands very well.  ITC knows their strength and weakness in the personal care market, so they are applying

new concept to overcome their weaknesses.  ITC now offering more margins, exiting offers and long credit period to retailers and wholesalers.