CASE 15: ASIAN PAINTS
1. Fall in demand expected for home building, renovations and repainting work in Indian market due to financial crisis.
2. Excess capacity due to aggressive expansion by players in the Indian paints industry during the economic boom period of 2003 – 2007. Foreign firms entering into the Indian market also exacerbated the excess capacity.
3. Difficult choices that Asian Paints would have to make:
• Whether to further rationalize its portfolio by exiting underperforming markets.
4. Asian Paints has a goal of becoming one of the top 5 decorative paints company in the world. Can it accomplish this goal through:
• Acquisitions within India or by international expansion?
• How else can it do to gain even greater success in the international market?
• Should it focus on the Chinese market?
Asian Paints uses the dominant-business diversification strategy. Despite being cash-rich, Asian Paints did not diversify into other businesses. Instead, it used cash to add new product categories to its portfolio of products and worked to grow these segments. (Pg 177) The Indian market accounted for 80.6% of its sales in 2007.
2. Business Level
Asian Paint’s main focus is on decorative paints business, which accounts for about 75% of total market in India. Strongest presence in decorative paints was in wall-finish paints (emulsions, distempers and primers)
Uses strong advertising and branding through the “Gattu” mascot
1. Accounting (Financial Ratios)
Means of financing and risk management
Means of financing for Asian Paints include debt and equity issuance. Since 2000, Asian Paints has been voted the 4th most admired company in India and had been described as the ‘bluest of the blue chips’. Asian Paints also has a large amount of reserves and surplus, Rs 8,326 million as of FY2008, so financing should not be an issue.
The business cycle of the Paint industry is generally cyclical in nature. Paint is a durable good. During a recession when income is falling, people are generally more likely to hold back home building, renovations and repainting plans. On the contrary, when the economy is growing, the increased demands for housing and renovations will in turn stimulate demand for paints. This shows that the paint industry has above average sensitivity to the state of the economy.
Product/ Industry life cycle
Paint is generally in the consolidation stage of its product life cycle. Global paint demand grew by an average of 2.6% annually between 2004 and 2008. Total revenue grew by an average of 3.3% annually during the same period. The market is expected to grow by 19% in value and volume over the next 5 years. Demand is strongly correlated to economic development and varied across regions. Industrial paints accounted for a large proportion of sales in developed countries (70%) while decorative paints accounted for a similar proportion in developing countries. Competition on a global scale was rare and the global industry was highly fragmented.
3. Human Resource Management
After its Berger and SCIB acquisitions, Asian Paints faced the challenge of a tremendous increase in the diversity of its workforce. Asian Paints’ first priority was to improve the operational efficiency of the acquired companies, and it had to do so without imposing itself on SCIB and Berger. The management of Asian Paints spent the first 6 months visiting all of its subsidiaries to connect with their newly acquired employees, sharing their values and corporate issues.
Asian Paints also held a Global Managers’ conference in February 2003, which was attended by senior managers and unit heads from 23 countries in order to share ideas and cultivate a sense of belonging.
Asian Paints realized that the lack of knowledge sharing was a critical issue....
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