Asian Paints: International Business

International Business Project

Study of International Business Initiatives of a Dream Company

(Asian Paints Limited)

Submitted by:

Academic Group 38

Divya Mulanjur: PGP-12-184

Latika Sharma: PGP-12-192

Nilotpal Ray: PGP-12-198

Nirmit Shah: PGP-12-201

Tushar Srivastava: PGP-12-233

International Business: Asian Paints Limited 2013

~Acknowledgement~

We would like to take this opportunity to extend our heartfelt gratitude to the following persons

who have helped us immensely while preparing this Report:

S.P. Jain Institute of Management & Research, Mumbai:

Prof. Jiban Mukhopadhyay (Former Economic Advisor, Tata Group): For guiding us

all along the course of the report and helping us to gain access to some very enriching

literatures based on the subject which helped us immensely in formulating this Report.

Asian Paints Limited, Mumbai:

Mr. Somak Chakraborty (Manager, Supply Chain Management): For cooperating with

us across a telephonic interview on 15.02.2013, giving us various insights and facts regarding

the international expansion strategies of Asian Paints Limited. Mr. Chakraborty is an MBA

from NITIE Mumbai, in the field of Operations Management and serving the Organization

for the past four years.

Academic Group 38 (PGP-1)

20th February 2013


Table of Contents 1.0 Introduction ................................................................................................................................................ 1

1.1 Asian Paints in the International Markets ............................................................................................ 1

1.2 Domestic Leadership .............................................................................................................................. 2

1.3 Globalization Initiatives ......................................................................................................................... 4

1.4 Internationalization Strategy .................................................................................................................. 5

1.5 Segmentation of Global Markets .......................................................................................................... 7

1.6 Organizational Structure: APL Globalization ..................................................................................... 7

2.0 Critically Evaluating APL’s Expansion Strategies through IB Frameworks: ......................... 9

2.1 UPPSALA Model .................................................................................................................................... 9

2.2 OCF Framework ................................................................................................................................... 10

2.3 Functional Model .................................................................................................................................. 10

2.4 Scale, Scope, Synergy Model ................................................................................................................ 11

3.0 Impact of Financial Meltdown on Global Expansion Plans: .................................................... 12

4.0 Remedial Measures/Plan: ................................................................................................................... 14

5.0 Suggestions to take Internationalization to next level ............................................................... 15


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1.0 Introduction:

1.1 Asian Paints in the International Markets:

Asian Paints Limited (APL) was set up as a manufacturing unit in a Mumbai suburb in the year

1942. This was a time when multinational paint companies dominated the scene. APL has been

leading the Indian Paints Market since 1967 (See Table-1). In 1988, the company, along with

consultancy from Booz Allen Hamilton started restructuring its activities. This effort crafted for a

new vision: To secure a leading position (within Top 5) among all the decorative paints companies

across the world by the end of 2020 (See table 2 for 2012 Ranking of decorative paints company).

Another outcome of the restructuring initiative was a decision to embark upon the International

Markets by tapping the emerging economies.

Table 1: Asian Paints – International Timeline of Events:

Year Event

1942 A partnership concern was established for the manufacture of paints

1945 The partnership firm was changed to a company

1954 First paint plant set up in Mumbai, India

1967 APL became the market leader in the Indian Paint Industry

1978 Entered Fijian Market through a JV

1982 Entered Tonga, an island in South Pacific 1982 Went public, issues equity shares in the stock market of India.

1983 Entered Nepal 1985 Entered Solomon Islands 1993 Entered Vanuatu 1995 Entered Australia 1996 50:50 JV with US owned PPG for local manufacturing of automotive paints

1998 Introduced Colour World in India

1998 Restructuring with Booz Allen Hamilton; rediscovered merits of Fiji Entry.

1999 Entered Sultanate of Oman 1999 Acquired Delmenge Forsyth & CO. in Sri Lanka

2000 Acquired Pacific paints in Australia 2001 Acquired powder coating business of Hawcoplast in India

2002 Acquired SCIB Chemicals in Egypt 2002 Acquired Berger International and its 11 subsidiaries in Singapore

2003 Acquired Tabumans in Fiji


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Today The APL Group Operates in the following geographies:

Caribbean: Barbados, Jamaica, Trinidad & Tobago

Middle East: Egypt, Oman, Bahrain and UAE

Asia: Bangladesh, Nepal, Sri-Lanka and Singapore

South Pacific: Fiji, Solomon Islands, Samoa, Tonga and Vanuatu

Source: Company Files and Annual Reports

Table 2: Top 15 Global Paint Companies (2011)

Name (Country) Turnover (2011)

1. AkzoNobel (The Netherlands) $13 billion

2. PPG (USA) $10 billion

3. Henkel (Germany) $9.7 billion

4. Sherwin-Williams (USA) $6.5 billion

5. DuPont (USA) $3.8 billion

7. RPM (USA) $3.41 billion

8. Valspar (USA) $3.0 billion

9. Kansai (Japan) $2.8 billion

10. Nippon (Japan) $2.5 billion

11. Sika (Switzerland) $2.3 billion

12. Jotun (Norway) $2.0 billion

13. Asian Paints (India) $1.9 billion

14. Comex (Mexico) $1.6 billion

15. Masco (USA) $1.5 billion

Source: Coatings World (2011 Top Companies Report)

1.2 Domestic Leadership:

Continuous innovation in operations allowed APL to gain market leadership in a competitive

Indian Market which had historically witnessed two local players viz: Jenson & Nicholson and

Snowcem. APL strategized to apply innovation in the following 7 key areas. Each innovation

process applied in the domestic market was later extended to the International Market (with

increasing psychic distance) to provide a distinctive competitive advantage:

1) APL had a very structured process of collecting feedbacks right from the customer-touch-point

through dealers and dedicated sales forces. This helped them to identify gaps in the customer needs

and develop new market segments. It also helped APL to structure their pricing policies for the price

sensitive Indian customers. Tractor Emulsion (2002), Color World (2002), AP Helpline (2003), AP

Home Solutions (2005) are some examples how APL used consumer insights to build new revenue

streams.


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2) In 1971, APL in India was the first paint company to launch a mainframe computer system. In

1994, it became the first manufacturer to make use of V-SATS in the field of satellite

telecommunications technology. This helped them to improve demand forecasting, reduce inventory

and lower working capital costs. The company’s IT systems provided real time data easily accessible

to employees across the hierarchies.

3) When APL started to make its mark in the Indian Paint Industry in early 2002, it was nearly twice

the size of its nearest competitiors. The average capacity of a APL Plant was 67,000 MT, compared

to 29,000 MT of Goodlass Nerolac; 17,000 MT of ICI and 13,000 MT of Berger Paints (India)

Limited. This gave APL a head start in the Indian paints market w.r.t. operational parameters and

working capital efficiencies.

4) APL religiously invested in internal R&D which has enabled it to secure savings from efficiencies

in formulations. Regular improvements in formulation efficiencies have resulted in reduced cost of

Operations.

5) An all India distribution network of above 16,000 dealers coupled with strategically placed Plants

(Refer Table 3) gave APL the advantage of penetrating deep rural markets. 18-20% of the dealers of

APL were only selling their products exclusively.

6) As per the McKinsey 7S Framework, APL also worked rigorously upon the ‘Staffing’ criteria.

They were able to attract the best talent and retain them also. APL was known in the Indian Market

to be very good pay-masters and giving foreign location postings (Singapore, Fiji, UAE) etc.

Table 3: APL Plant Locations as of March 2011

Plant locations

Asian Paints Ltd.

Year-ended : March 2011

Location District State Product

Ankleshwar Bharuch Gujarat Maleic Acid Paints, Enamels,

Varnishes & Blacks

Phthalic Anhydride Synthetic Resins Bhandup Mumbai Maharashtra Paints, Enamels,

Varnishes & Blacks

Cuddalore Cuddalore Tamil Nadu Formaldehyde Pentaerythritol Sodium Formate Kasna Bulandshahr Uttar Pradesh Paints, Enamels,

Varnishes & Blacks


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Khandala Satara Maharashtra Paints, Enamels, Varnishes & Blacks

Patancheru Medak Andhra Pradesh

Paints, Enamels, Varnishes & Blacks

Raigad Raigarh (MAH) Maharashtra Paints, Enamels, Varnishes & Blacks

Rohtak Rohtak Haryana Paints, Enamels, Varnishes & Blacks

Sriperumbudur Kancheepuram Tamil Nadu Paints, Enamels, Varnishes & Blacks

Source: CMIE Prowess

1.3 Globalization Initiatives:

International Business of APL comprised of 35 subsidiaries as of March 2012 (See Table 4). Four

of them were JV’s with local companies (in Samoa, Egypt, Australia and Sri Lanka). Following that,

seven more was set up by APL (in Oman, Fiji, Vanuatu, Nepal, Solomon Islands, Tonga and

Bangladesh). As a result of acquiring a stake in Berger International, a global player in paints ten

more came up in Bahrain, Barbados, Jamaica, Trinidad & Tobago, China, Malaysia, Myanmar,

Singapore, Thailand and the UAE). The following table gives the Global Subsidiaries of Asian Paints

as on March 2012:

Table 4: Global Subsidiaries of APL as on March 2012:

1. Asian Paints Industrial Coatings Ltd.

2. Asian Paints (International) Ltd.

3. Asian Paints (Nepal) Pvt. Ltd.

4. Maxbhumi Developers Ltd.

5. Multifacet Infrastructure (India) Ltd.

6. A P Coatings Ltd. [Merged]

7. Technical Instruments Mfrs. (India) Ltd. [Merged]

8. Asian Paints (Bangladesh) Ltd.

9. Asian Paints (Middle East) Llc

10. Asian Paints (Queensland) Pty. Ltd.

11. Asian Paints (S I) Ltd.

12. Asian Paints (South Pacific) Ltd.

13. Asian Paints (Tonga) Ltd.

14. Asian Paints (Vanuatu) Ltd.

15. Asian Paints (Lanka) Ltd.

16. Asian Paints (South Pacific) Holdings Ltd.

17. Berger Building Services (Singapore) Pte. Ltd.

18. Berger Contractor (Singapore) Pte. Ltd.

19. Berger International Ltd.


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20. Berger International Sdn. Bhd.

21. Berger Paints (Hong Kong) Ltd.

22. Berger Paints (Thailand) Ltd.

23. Berger Paints Bahrain W L L

24. Berger Paints Barbados Ltd.

25. Berger Paints Emirates Ltd.

26. Berger Paints Jamaica Ltd.

27. Berger Paints Singapore Pte. Ltd.

28. Berger Paints Trinidad Ltd.

29. Enterprise Paints Ltd.

30. Lewis Berger (Overseas Holdings) Ltd.

31. Nirvana Investments Pvt. Ltd.

32. Samoa Paints Ltd.

33. S C I B Chemical, S A E

34. Taubmans Paints (Fiji) Ltd.

35. Universal Paints Ltd.

Source: CMIE Prowess

It was in the mid 1970’s that the idea of entering the foreign markets first surfaced in APL.

Mr. Jalaj Dani, the then President (International) APL described this as “intellectual curiosity”. This

was to test the limits of APL, which was hugely successful in India against the competitive foreign

markets. The first move was triggered in 1978 when a group of non- resident Indians in Fiji

approached APL for creating JV with a startup paint factory in the Islands. This JV at the ratio of

51:49 required no financial outlay on part of APL. The JV built a thriving export pipeline to

neighboring Tonga and Solomon Islands. Building upon its initial success, APL established its first

overseas JV in Sri Lanka in 1999. By 2004, IB of APL accounted for 19% of the company’s

consolidated revenues.

1.4 Internationalization Strategy:

Asian Paints used the Model as follows to identify the markets across the world where it planned

to establish a footprint:

Figure 1: Model of Internationalization used by APL

APL Business

Size of Paint Market

Investment Potential

Size of Economy

Nature of

Competition


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To make the first cut, the target market had to meet three minimum parameters:

a) GDP in excess of 6% per annum.

b) Very limited competition with no multinational company (MNC) present.

c) A market which would provide APL an opportunity to be among the top three brands

within five years of entry.

The Globalization Strategy of APL focused on the following verticals:

The paint industry in the developed world had become mature, as evidenced by market

concentration, high entry barriers and flatness of growth in demand. On the contrary, emerging

markets in the Asia-Pacific Region, Latin America and Eastern Europe were growing. These markets

exhibited low-per-capita paint consumption, ensuring APL’s own long term growth. Additionally:

Emerging Markets had supply chain and distribution models similar to India.

JV/Buying out a potentially threatening competitor is easier in the emerging markets.

No single MNC had a presence across all emerging markets.

APL’s focus on localized manufacturing was in line with the nature of the global paint’s industry.

Asian Paints had a manufacturing plant in each overseas market with products calibrated to meet

local consumer needs.

JV’s ensured ready-made platforms of distribution, brands and plant capacity. Organic

growth was costly. In Egypt, by acquiring SCIB Chemicals, Asian paints paid onlt $5.33

Million in comparison to a greenfield venture cost of $8.9 Million.

JV with Berger International in 2002 for $12.9 Million gave APL straight access to 11

countries in addition to savings of an estimated amount of about $24 Million in comparison

to a similar greenfield investing. The JV with Berger was very synergistic because both APL

and Berger operated out of emerging economies and had the same business DNA.

In Bangladesh, APL set up a $2.22 Million greenfield plant due to the lack of a proper

acquire.

A Focus on Emerging Markets:

Localized Manufacturing:

Growth through Joint Ventures:


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1.5 Segmentation of Global Markets:

After the acquisition of Berger International, APL extended its presence in more than 70 countries.

IB Division of APL categorized these markets into three segments:

Leadership Markets

Growth Markets

Turnaround Markets

Table 5: Market Segmentation by APL

Segment Countries Characteristics

Leadership Markets Caribbean Region Bahrain Fiji Nepal

1. APL already a leader. 2. Combined market size approxly $100million. 3. Combined sales approxly $55million. 4. Per capita consumption close to market average. 5. Focus on market penetration and expansion.

Growth Markets Thailand Malaysia China Middle East UAE Bangladesh Sri Lanka

1. Possibility of future growth. 2. Total size of markets approxly $3.3 billion. 3. APL typically has a near 10% share in each of these markets. 4. China operations was a bottleneck due to barriers in distribution.

Turnaround Markets

Oman Australia

1. Thrust these markets to get profitability of APL on track, not growth. 2. Combined size represented $575 million of opportunity. 3. APL is still a niche player in these markets. 4. Near to breaking even with their investments so far, but competitive stance was still challenging.

1.5 Organizational Structure: APL Globalization

APL’s International Business Division was based on a three spike approach: global, regional and

local (See Figure 2). Expertise leveraged at the global level pertained to branding, material sourcing,

business generation, new product development, balance sheet management, risk management and

talent management. This was done because these areas required a common agenda, cutting across

subsidiaries. At a regional level, synergies were sought in deploying resources through logistics,

manufacturing, marketing, technology, HR etc. These resources were region specific with common

characteristics across markets in a region. At the local level, there was decentralized decision making.

This was done to ensure that decision catered to the local needs rather than the global needs.


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Figure 2: International Business-Organizational Structure and Ownership Pattern

Source: Company Files

Asian Paints Limited

Asian Paints

International (100%)

Asian Paints Industrial

Coatings (100%)

Asian Paints Nepal

(51%)

Asian Paints Mauritius

(100%)

Technical Instrumental

(100%)

Pentasia Investment

(100%)

Berger and its

subsidiaries

(50.1%)

SCIB Egypt

(60%)

APL Sri Lanka

(98%)

APL Bangladesh

(71%)

APL Oman

(49%)

APL South Pacific (51%)

APL Tonga (51%)

APL Solomon Islands

(75%)

APL Vanuatu (100%)

APL Queensland (100%)


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2.0 Critically Evaluating APL’s Expansion Strategies through IB Frameworks:

1. UPPSALA Model

1. The UPPSALA model states that additional market commitments are made in small

incremental steps: choosing additional geographic markets with small Psychic distances:

combined with choosing entry modes with few additional risks.

2. Thus four different models of entering an international market were identified, where the

successive stages represent higher degrees of international involvement/ market

commitment.

a) No regular export (sporadic export)

b) Export via independent representatives (export modes)

c) Establishment of foreign sales subsidiary

d) Foreign production/manufacturing units.

Figure 3: Market Parameters driving decision making

The company should embark on its internalization strategies in the following three phases:

1) Phase 1 (green): The countries in this region represent the leadership markets where the

company is a leader and the per capita consumption is close to the market average in the

developed countries. Penetration led growth thus seems difficult and growth by acquisition

seemed to be an option.

2) Phase 2 (orange): The countries in this region represent growth markets where APL’s

current share is less than 10% share of the individual markets but the regions were the

fastest growing regions.

3) Phase 3 (Red): The countries in this region represent the turn-around markets where

profitability is a big concern and not growth. If successful in turning the corner, the two

markets could impact the overall margins at IB.


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Commitment

Market

Sporadic

Export

Regular

export

Export

through

Agents

License

or

Franchise

Sales

Office

Joint

Venture

Mfg/Sales/Subsidary

Caibbean

Region

Bahrain

Fiji

Nepal

Solomon

Island

Vanuatu

Thailand

Malaysia

Egypt

UAE

Bangladesh

Sri Lanka

China

Australia

Oman

Figure 4: Stages of Internationalization as per the UPSALLA model

2. OCF framework

The OCF framework can be depicted using the table below:

STAGES I II III IV

Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign

Ownership × × × ×

Control × × × ×

Facilities × × × ×

As per the OCF framework, the operations of company in various countries are in the following

stages:

Increasing commitment

Increasing Internationalization

Increasing geographic diversification


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Stage 1 Stage 2 Stage 3 Stage 4

Indian Operations Bahrain, Barbados,

Jamaica, Trinidad and

Tobago, China,

Malaysia, Myanmar,

Singapore, Thailand,

UAE, Australia

Nepal, Solomon Islands,

Tonga, Vanuatua,

Bangladesh, Oman

3. Functional Model

The functional model explains the evolution of a global company:

Stages R & D Engg. Mfgr. Mktg Sales Service

Export

Direct sales x

Mfgr. Co. x x x

Full Co. x x x x x x

Global Co. x x x x x x

x= overseas market

As of 2012, the company is in stage of full company in Caribbean region (Barbados, Jamaica, and

Trinidad and Tobago), the Middle east region (Egypt, Bahrain, UAE, Oman), the South Asia region

(China, Malaysia, Myanmar, Singapore, Thailand) and South Pacific region (Australia, Fiji, Tonga,

Solomon Islands and Samoa).

4. Scale-Scope-Synergy Model

The scale-scope-synergy model has three phases of operation:

1. Initial Entry

2. Local market Expansion

3. Global Rationalization


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The structure of Asian Paints was such designed to leverage expertise at the global level, synergize

operations at the regional level and empower decisions at the local level. To leverage expertise at the

global level pertains to branding, material sourcing, business generation, new product development,

and risk and talent management. Such areas require a common agenda which cuts across all

subsidiaries. Synergies are sought at the regional level by deploying resources such as technology,

logistics, marketing and HR. These resources should be region specific with similar characteristics

across markets in a region. At local level, the decisions pertaining to execution in particular should

be de centralized. The purpose is to ensure that decisions taken at the local level is consistent with

local needs.

3.0 Impact of recent financial meltdown and the continuing recession/ slowdown in some

developed countries on the global expansion plans:

On January 28, 2013, Asian Paints reported Q3 2013 results for FY 2013, which surpassed the

expectations by analysts. For the consolidated company, revenue and net profit increased by 19%

and 31% y-o-y, respectively for the quarter. The high growth was driven by the demand during the

festive season starting from and continuing after Diwali. The industry faces seasonal demands where

the demand for decorative paints increases during period of January to June. The two main factors

are: fall in input prices including the prices for titanium dioxide, company’s pricing power which

is led by the strong brand loyalty.

This suggests that Asian Paints’ profitability is majorly governed by the input prices where the prices

of crude oil and foreign exchange rates play a major role. Hence, Asia Paints is exposed to the

dynamics in the external environment.

In addition to this, Asian Paints is receptive to the recent financial crisis and the continuing

downturn present across the globe which is explained as below:


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Figure 5: Global Effect of Financial Crisis 2008-09

• There was a collapse in economic growth in USA, Europe and Japan which witnessed recessionary effects

• There was a steep downfall in commodity prices with downturn in activities

Areas serverely hit by the recession

• There was a slowdown in demand in both export as well as domestic market

• Majorly hit sectors were servies, including IT, due to protectionary measures in the developed world

• Fiscal and trade deficits were widening and there was a huge depreciation in INR

Effect on India

• Bahrain, UAE and Oman were witnessing pressure on government budgets with significant decrease in iol prices

• There was also a rapid decline in constructin and real estate industries

GCC countires

• Witnesses a domestic unrest with inflation hovering around 10%

• In addition, there was the problem of declining revenues from tourism

Egypt

• Barbados, Trinidiad and Jamaica were witnessing a drag in tourism and financial services industries

Carribean

• The region was reeling under a challening environment

South East Asia & South Pacific

Figure 6: Effect of Recession on Global Markets of APL


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In 2008, the profitability of the company was hit by various tax write backs and losses from disposal

of group’s stake in its Australian subsidiary. Internationally, the focus of the company was to grow

top-line and maintain the level of profitability, for which the company had planned to expand

capacity globally. Due to the sudden financial crisis of 2008-09, the company couldn’t follow the

expansion plans in all the foreign markets.

4.0 Remedial Measures/Plan:

To tackle the global recession, the company had employed the means of capacity expansion in

countries which were less affected by the downturn. The company also followed the strategy to

continuously review the portfolio of global companies, so that it sold off the stakes in various loss-

making joint ventures in countries like Australia and started identifying the countries less hit by the

recession including Middle East and South Asia explained by the following:

Table 6: Identifying less hit regions due to Global Recession 2008-09

Continuing the strategy of global consolidation, the company also divested operations in Honk

Kong, Malaysia and China in the following years. Hence, as a remedial measure, the company

should follow the strategy of global strategy identifying the high growth markets given by the

following Table 7:

Table 7: Identifying High Growth Markets

Revenue growth (%) 2008 2009 2010 2011 2012 2013E 2014E 2015E

Caribbean -1.4 8.7 -1.4 -2.6 9.6 20 12 12

Middle East 22.6 45.6 15.5 -4 12.1 30 15 20

Asia 17.2 28.6 -9.2 20 31 20 32 32

South Pacific -24.5 13.2 16.3 4 20.8 30 20 20

Total 12.2 28.5 33.4 -18.8 15.7 25.1 19 22


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5.0 Suggestions to take the company’s global businesses to the next level:

The company should ride high in its areas of strengths which are strong distribution network and

adaptability to changing trends. In relation to the latter, the company should upgrade its product

portfolio to contain emulsions and branded paints which should be led by the innovation and

efficient operations.

The company should leverage on its competitive advantage as given below (Table 8):

Table 8: Benchmarking with Competitors

Conclusion:

There is a revival in construction industry post-recession, as well as resurgence of the

automotive and consumer durable sector. This will lead to an increase in demand of paint led by the

domestic and global automotive players. The segment with highest potential growth and hence the

target for focus will be powder coatings and high performance coatings which will add to the top

line growth of various paint manufacturers. In order to tap this growth, Asian Paints should focus

on improving efficiency of supply chain and distribution mechanism in India, in conjunction with

aggressive promotion. These steps should be replicated in the global operating locations to expand,

increase profitability and compete against other global players who also have various plans of

capacity expansions in their pipeline.

Adaptability

to changing

trends

Strong

distribution

network


References:

1. Company Annual Report.

2. Asian Paints Website.

3. Media Reports from Public Domain.

4. Capitaline Database (SPJIMR)

5. CMIE Prowess Database (SPJIMR)

6. Richard Ivey HBS Case 906M58 on Asian Paints Business Strategy by R. Chandrashekhar.

7. Richard Iver HBS Case 906M58 on Asian paints IB Division by R. Chandrasekhar.

8. India Brand Equity Foundation (IBEF) Analysis and Report.

9. Ambit Capital Research Reports.

Documents

Asian Paints: International Business