ICI paints towards a globalization process

Harold Silva Guerra – Case Study ICI Paints

TABLE OF CONTENTS

EXECUTIVE SUMMARY

1 INTRODUCTION.................................................................................................................... 3

2 OBJECTIVES........................................................................................................................... 3

2.1 GENERAL OBJECTIVES.......................................................................................................3

2.2 SPECIFIC OBJECTIVES........................................................................................................ 3

3 DIAGNOSIS OF ICI................................................................................................................ 3

3.1 VALUE CHAIN ANALYSIS....................................................................................................6

4 PROBLEMS............................................................................................................................. 6

5 MAJOR GROWTH AREAS....................................................................................................8

5.1 DECORATIVE PAINT............................................................................................................ 8

5.2

CAN COATINGS..................................................................................................................... 8

5.3 AUTOMOTIVE OEM.............................................................................................................. 9

5.4 AUTOMOTIVE REFINISH...................................................................................................9

5.5

POWDER................................................................................................................................ 10

5.6 GENERAL INDUSTRIES......................................................................................................10

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STRATEGY............................................................................................................................ 10

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ORGANISATIONAL STRUCTURE.....................................................................................10

8 RECOMMENDATIONS........................................................................................................12

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IMPLEMENTATION............................................................................................................13

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CONCLUSIONS..................................................................................................................... 13

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11 REFERENCES....................................................................................................................... 15

12 APPENDICES........................................................................................................................ 16

ICI PAINTS TOWARDS A GLOBALISATION PROCESS

EXECUTIVE SUMMARY

It had been defined in this report that ICI in their process of globalisation must move from a regional to a global organisation. ICI must operate with a far higher degree of consistency and should achieve economies of scale not only in production, but also in areas of advertising.

However, the globalisation process has several aspects which ICI must deal with, such as brand image, training, environment responsibility, technology, innovation, quality and so on.

Yet, the proposed recommendations of this report are believed to provide a framework to enable ICI to compete more effectively around the globe.

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1. INTRODUCTION

Business has been conducted across national boundaries for centuries, during the last three decades business dealings have escalated on a global scale. Today’s market provides not only a multiplicity of goods, but goods from many places. It is not surprising if some products come from Taiwan, South Korea, Mexico, etc. Increasing competition and cost pressures are expected to further accelerate globalisation in many industries.

This assignment will cover an analysis of ICI Paints International Marketing Strategy in the paints market.

First of all, I will diagnose ICI’s current situation. After, I will identify the problems that are facing ICI, followed by an analysis of the paint segment and then I will look into future growth areas and strategies.

Secondly, the advantages and disadvantages of the new organisational structure of ICI from a regional to a global line structure will be analysed. Finally, recommendations, implementations and conclusions will be provided.

2. OBJECTIVES2.1 GENERAL OBJECTIVES

Analyse ICI’s current condition with the intention to orient the company towards a globalisation process.

2.2 SPECIFIC OBJECTIVES

a. Diagnose ICI’s current situation based on Diamond, Value Chain, SWOT and PEST analysis.

b. Identify ICI’s major growth areas.c. Identify a strategy for achieving global marketing leadership.d. Propose an organisational structure that is adequate for ICI’s transformation

process.e. Provide recommendations regarding the effective implementation of the new

organisational structure.

3. DIAGNOSIS OF ICI

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ICI was formed on December 7, 1926, by the merger of four of the largest chemical companies in the UK.

Its purpose was to create a British company capable of competing in world markets with large corporations such as DuPont in America and IG Farben in Germany, the forerunner of today’s BASF, Bayer and Hoechst companies.

In fact, ICI is ready to achieve global process because it has lived the previous stages to globalisation. ICI have all the necessary skills in heading towards the globalisation process with many important steps for this objective that we can see through this assignment. ICI has good knowledge and experience in the paint markets for example, decision-making for the right path of the company in the future, improved processes, methods and skills within it. (See appendix 1)

High technology is an important aspect that ICI must take advantage of, for instance innovation, quality and so on. In addition, ICI has good financial resources that can help to reach many objectives and strategies of the company. Furthermore, ICI has a presence in many markets without an adequate analysis of the market. In other words, the crucial aspect is that ICI must analyse the conditions of the markets for example, areas of growing, potential customers, marketing research needs, risks, etc.

ICI has the capability to develop new markets for example, joint ventures, subsidiaries, etc. Also, some segments are suitable for standardisation for example, can coatings, decorative, etc.

Actually, ICI has little economy of scale in production because it does not standardise their products as a brand globally. Moreover, ICI has its organisational structure based on geographic regions for example, ICI must standardise management and products. In other words, ICI must have a brand image, for example, Nike has a brand image of their footwear around the world. If somebody bought a pair of training shoes somewhere he/she identified Nike as a global brand of footwear or in the same case McDonalds sell hamburgers around the world as global brand. ICI’s employees from the main board to the shopfloor must have a global responsibility at all levels within the company.

ICI’s strategic production/marketing and co-ordination processes differ across the four core business areas and within countries. This strategy must be global because the right way of the company must be the same at all levels because the aim is globalisation. For example, ICI’s marketing strategies varied from one country to another.

In fact, ICI has characteristics of a multidomestic company because some products and operations adjusted to local and individual user conditions. Yet it is very important that global companies have characteristics of the multidomestic because some markets and customers demand specific attributes in the goods.

An important aspect for ICI is Research and Development because ICI can innovate their products. Actually, R & D are depending on needs of the segment or country.

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Moreover, ICI’s allocation of resources and infrastructure is in many countries, for example, 64 manufacturing plants in 29 countries. ICI must locate their plants strategically around the world in countries that offer incentives and lower risks for investments for example, in America, Mexico, Europe, Hungary, Asia-Pacific, China or Taiwan.

ICI not have any direct presence in the Japanese market. Here some products have potential and growth opportunities.Environmental legislation and environmental group pressure are some of the threats that ICI must address for future strategies and products. ICI’s long term goal in safety is to ensure that its activities do not harm anyone. Also, ICI must make good progress towards environmental objectives for example, high world standard in the construction of new plants, maintain its drive for the continuous reduction of all wastes, demonstrate improvement in the efficiency of use in its operations, aim to avoid any loss of containment and prevent any spills, etc. ICI’s competitors have resources, high levels of quality, high technology, that ICI must analyse for their future actions.

On the other hand, it is very important to analyse the competitive advantage for ICI in their target as a global company. (See appendix 2)

In fact, ICI has a high technology that must take advantage of this aspect to improve and innovate their products in the global market. Furthermore, the paint market has fierce competition among them for example, companies such as BASF, DuPont, Hoechst, PPG, etc has high technology, resources, good quality and are leaders in some segments.

ICI has experience and knowledge in the paint market. This is a crucial aspect because every step that ICI takes can be seen in the statistics or history within the company. In addition, capital is an advantage for ICI because they can invest, improve, research, etc for example, invest in more technology, improve manufacturing processes, marketing and so on. The paint market is very large and has different consumers with different needs. ICI in some countries must tailor their products in accordance with the local conditions for example, colours. An important aspect is that ICI must have criteria for choosing suppliers for example, quality of raw materials, delivered on time, close to ICI’s plants, etc.

ICI needs to examine carefully four main spheres of influence, namely political, economic, socio-cultural and technological factors (PEST) (See appendix 3). These forces must influence ICI’s global strategy around the globe. Political problems occur mainly because of political sovereignty, a country’s desire to assert its authority and political conflict either internal ones such as civil war or external troubles with another country. The Cultural traits of different countries have a profound effect on people’s lifestyle and behaviour patterns and these are reflected in the marketplace. The economic environment is an important factor that ICI should examine before it decides to enter in some markets. A growing economy stimulates business activity and offers new opportunities. As a result, a careful review of economic conditions both short and long term, is a prerequisite for a decision about entering overseas markets. The major 10 leaders in the industry shared 30% of the world paint market, which was perceived to increase with time in the following decade.

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Overcapacity and rising costs, especially in raw materials needed to support high technology industrial coatings, and increasingly tight antipolution laws existed in the industry. The environmental aspect is very important for the future. Every company has to find ways to produce environmentally friendly products both to avoid problems with environmental groups and to gain competitive advantage. The technology aspect is crucial to the industry.

3.1 VALUE CHAIN ANALYSIS

A Value Chain Analysis is crucial because we can analyse the physical resources for the company and the way in which ICI can be configured and co-ordinated in the most profitable and effective manner to achieve a competitive advantage (See appendices 4 and 5).

The first aspect is that ICI must centralise its support activities namely, procurement, human resources and technology. In other words, ICI should establish a procurement network around the globe co-ordinated from the head office where proper organising and planning of procurement can be made, achieving a high degree of control.

Centres of excellence can be established in key locations around the world, for example, England in Europe, Taiwan in Asia and USA in America. It is important that these centres of excellence have communication links by means of an information systems network for example, transfer ideas and knowledge for innovations within the company.

With regard to the primary activities, the most important aspects are as follows:a. ICI must define distribution policies and availability of the products around the

world for example, time deliver, transportation, etc.b. ICI must standardise their products to achieve economies of scale.c. Locate plants strategically around the worldd. ICI must improve their commercial method at all products for example, in fact,

has problems in automotive OEM.e. Strategic alliances, joint ventures, etc must be achieved for entry to markets in the

world, and to obtain global leadership.f. The marketing function can be on a more global basis, particularly assisted by the

standardisation process.g. Creation of a brand image around the world.h. After sales service.

4. PROBLEMS

ICI Paints has many specific problems per each segment. Also, each segment has different qualities that arise making the problems more difficult but controllable. The competition are at all segments, it is an important factor that ICI must analyse per sector. The problems facing ICI and its needs are as follows:a. Decorative Little economy of scale Paint formulation must adjust to local conditions Trading under different names

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The wholesaling structure and retailing industry as well as the role of the DIY market varied from one country to another.

Many competitors in each country

b. Can Coating Reduced profitability Need for reduction of managers Competition problems posed from superstoresCustomers operate to a global level that demand: insured quality, flexibility,

simplifications and narrower technology range Need to serve customers anywhere with quality products and service Need to take advantage of the customer concentration. Difficulty in price setting

because their concentration.

c. Automotive OEM ICI position was technically good but commercially weak Due to service requirements, customers preferred paint suppliers that were both

local and global, at their doorsteps. Customer base largely globally operating, with big bargaining power and

technologically demanding Good R&D but poor implementation of the techniques Technical spin-offs to other paint segments: refinish sector and domestic

appliance industry ICI has weak presence in Europe which is the biggest market ICI had a very narrow geographic base in this segment and lacked platform for

major expansion.

c. Automotive Refinish Need for global coverage Lack of experience Many applications Steadily gaining market share (substitute)Customers: small paints shops, automobile manufacturers who need quick and

frequent deliveries

d. General Industrial Paint Segment Need for more research and development More Information Technology Undefined organisation No regular global strategy 75% relying on company’s other business Not compete consistently throughout the world and select local pockets of

excellence.

e. Development of Global Brands Need to lead strategy from the centre Maximise resources in key functional areas Decorative global Dulux US division Glidden

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5. MAJOR GROWTH AREAS

To identify the major growth areas for ICI we analysed their segments. (See appendix 6)

5.1 DECORATIVE PAINT

In fact, ICI marketed its different brands of decorative paint in The UK, Australia, New Zealand and a few other Asian markets as Dulux, France as Valentine, Germany as Ducolux and in The US as Glidden Spred. All of them do not have an image of the company. In other words, ICI do not have a standardised decorative paint segment in these markets as only product and global brand. Moreover, ICI must identify customer needs in each country due to preferences that differ from country by country such as colours, do-it yourself (DIY) and so on. The latter in Latin American countries do not like because the custom of the people is that the customer has somebody who paints or decorates their houses, rooms, etc. The launch of do-it yourself in these countries must be step by step or create an aggressive marketing program which will educate the potential customer towards do-it yourself. On the contrary, in countries like The UK, The US or European countries the trend towards do-it yourself is high owing to the behaviour and preferences of the potential customers.

Furthermore, ICI must provide a good product at affordable prices in all segments. Also, it must provide for different tastes and for different customers.

On the other hand, ICI has done market research in Turkey, Italy and Columbus (Ohio), this survey reveals that the woman determines when a surface is to be painted and determines the colour. At the same time the husband selects the brand based on prices and technique. ICI must prepare a marketing program towards the husbands and wives at the same time and link them to choose ICI brand as first option.

Besides this, ICI must adapt their products to local use conditions for instance, climate, prevailing surfaces, building materials, etc. The former is very important because many regions need different kinds of decorative paints due to climate factors for example; countries with high temperatures need a different composition and preferences of the colour vary from country to country.

5.2 CAN COATINGS

Can coatings is a segment that needs standardisation urgently because its clients operate in world bases and need to be supplied anywhere with similar products and service.

The key aspect in this segment is that customers need their goods to have a consistent taste for globally marketed products. Also, coatings products must be developed for each application and depended on the particular food or beverage as well as on the

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type of metal or aluminium container used. Moreover, ICI must differentiate this segment through its own research and create a competitive advantage in comparison with their main competitors such as BASF, Midland and Valspar.

ICI must apply an expansion strategy to get more market share, the key points are as follows: Expand the market to Asia that would increase its market share from 28% to 40%.

A new production facility was planned for Taiwan Can coatings must be separated from the larger group of general industry coatings

and concentrated under one group leadership Glidden technology must be expanded to other markets for example, Asia-Pacific,

Europe, Latin America. Moreover, R & D must be improved in order to approach the markets efficiently

5.3 AUTOMOTIVE OEM

This segment illustrates that global strategies for instance, standardisation of the product, management and marketing, would create for ICI the opportunity to allocate its goods where its clients are located and answer precisely to its customer requirements and neutralise its commercial weaknesses.

ICI has a high potential to achievement in this market. It is necessary for ICI to define how to cover Japan and Europe, both markets are profitable. The US is already covered but the joint venture with DuPont did not have good prospective because it is relatively weak in Europe.

In this segment ICI has a high technology that is one of the demands of this market. ICI needs to reorient its operations to customers because they are located anywhere and require assistance at all times. ICI must improve its commercial weaknesses in this segment in order to enhance company performance.

Furthermore, ICI must locate their factories close to automotive companies because they prefer suppliers located at their doorsteps.

This product requires that ICI research which specifications are preferred and the needs of automotive companies such as BMW, Rover, Toyota, Ford, Audi, etc. In other words, the automotive market is quite unstable because all of those companies launched their cars with new and exotic colours assuming that potential customer would like a modern and different appearance in their cars.

5.4 AUTOMOTIVE REFINISH

ICI has a high potential with possibilities to lead this market and gain an important profit. Also, ICI has technology and knowledge that constitute a competitive advantage.

Customer orientation is required for this segment. Moreover, distribution needs emphasis because customers in small paint shops need availability of the product at all times with special conditions and quantities.

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On the other hand, this product must combine basic colours and shades with solvents to obtain a correct colour match. Also, ICI must launch different kinds of colour to obtain a competitive advantage in comparison with its competitors. The latter is essential for ICI’s image in this segment because this market is unstable due to preferences of the customer changing in terms of the fashion.

5.5 POWDER

As the market share tends to be highly competitive, commitment to research and development are necessary in order to create competitive advantages. ICI can work forward to maintain its leadership in the US and improve its market share in Europe.

This segment needs high technology and is vulnerable with continuo development. Technology is one of ICI’s strengths that would allow the company to take advantages of its competitors.

Moreover, this segment must be developed in many applications for example, ICI must create necessities with families, young people, companies, etc. The latter ICI would establish a marketing program with many applications within the houses, factories, shops, etc.

5.6 GENERAL INDUSTRIAL

ICI did not compete consistently throughout the world and had only selected local pockets of excellence. In this order, it would better that the company concentrates its efforts only in the products that give profit and are consistently present in the market.

6. STRATEGY

For ICI to operate efficiently and to be a global company requires a Global Product Line Orientation that involves the following strategies:

Standardisation of management, marketing and production operations. ICI must create a world production in scale for all of their products. Production is crucial for ICI to be more competitive in all markets. The marketing program must be the same in all countries but with some differences in countries with special characteristics such as religion, cultural differences, etc.

Standardisation of the brand. ICI must drive towards a global brand for example, the customers identify the ICI brand as a product with many specifications, in the case of decorative, the customers can identify with ICI as a decorative brand all over the world.

Re-orient ICI’s activities to customer satisfaction and quality products. Understand and anticipate customer needs and then will respond rapidly with innovative solutions.

Re-organisation of its management structure from regional to globally territory centred.

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7. ORGANISATIONAL STRUCTURE

The main strategy of ICI to operate efficiently and to be a global company requires a global product line orientation.

According to the strategy, the new organisational structure for ICI is Product Organisation, this structure is divided in three dimensions. The first one place the CEO, the second one, include areas at the operational level for example, Finance, Marketing, Human Resources, Manufacturing, Planning and Research, and the third contain the divisions by segments that are co-ordinated by marketing vice-president. (See appendix 7)(Jain S. 1990.P671). This organisational structure is very useful for ICI because their products are not highly differentiated. In other words, ICI’s products do not have a brand name image around the world.

This structure assigns worldwide responsibility to product group executives at the line management level. The co-ordination of activities in a geographical area is handled through specialists at the corporate staff level. As shown in appendix 3, emphasis is placed on the product line rather on geographic differentials.

Each product division becomes a profit centre and profit responsibility rests firmly with the divisional head. Decentralisation is an essential element of product structure and local managers generally have far greater opportunities for decision-making. Moreover, managers in charge of each major function will have the authority to think and act globally.

Based on Gilligan and Hird (1989) the decentralisation that underlie this system has a variety of advantages, but particularly in the ways in which the levels of motivation of divisional staff tends to be high and that product addition and deletion decisions can often be made relatively easily. New products can be added and old ones dropped with only marginal effect on overall operations.

The disadvantages of product organisation are, by way of contrast, relatively limited and manageable, and stem from the possible problems of co-ordination across products divisions, and the way in which minor products areas may be overlooked in certain parts of the world. Products divisions must constantly be kept in check by top management. Also, division heads, promoted to headquarters, are likely to be biased in favour of their former product area.

Other advantages and disadvantages of product organisation are as follows: (Douglas 1995 P511)Advantages:a. Global product organisation would enhance ICI’s ability to serve a customer base

on a global basis.b. Cost-benefit of standardising ICI’s products will be notorious with reduction of

manufacturer plants and strategic location of ones, creation of supplier networks around the globe. Production in scale and so on.

c. Chance to transfer knowledge and experience from one market to another.

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Disadvantages:a. The company might lose its sensibility to local market conditions, which in many

cases creates competitive advantages from competitors.b. Government pressures as a consequence of reduction of manufacturer plants that

would create unemployment.

On the other hand, ICI must sell their products around the world through distributors, agencies, joint ventures and so on. The most important point is that with this organisational structure ICI can have a brand image all over the world.

ICI can sell their products in many countries around the world and divided into 5 groups: The Americas United Kingdom Continental Europe Asia – Pacific Other Countries

8. RECOMMENDATIONS

As a result of this report the following can be recommended: First of all, ICI must create an individual brand name around the world. The key

point is that when some customer world-wide purchases ICI products they will identify this brand as a company of chemicals for example, decorative.

ICI must move from a regional to a global organisation. ICI must operate with a far higher degree of consistency and in this way should achieve far greater economies of scale not only in its production, but also in such areas as advertising.

ICI must locate their plants strategically in countries offering incentives for investment, facilities for delivering goods, facilities for their suppliers, lower risk (political and economical), lower wages, etc.

Innovation is crucial to be competitive that ICI must apply to all products. The company must set out to deliver to customers the right science with the right processes at the right price. Also, it must be seen to provide a quality of service that must be the best in the market.

The technology skills throughout ICI must benefit the businesses. A centre of excellence must be created in which the businesses direct and control the application of science, manufacturing and engineering skills.

ICI must invest in growth markets in which it has a strong position. Moreover, ICI’s aim is to have all its businesses in such positions and it must do this by concentrating efforts on the best quality growth opportunities around the globe.

ICI must create a way of working that releases the energy and talents of everyone in the company. Also, employees must know what is expected of them, freedom to take initiatives, etc.

ICI’s products must be designed with responsible care for the environment and apply its standards with total consistency around the world.

ICI must identify profitable markets niches around the globe. Consequently, identify new potential business and customers.

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ICI’s world-wide operations must be co-ordinated and integrated by an information network system.

ICI must invest in their employees for example, conferences, training programmes, etc about globalisation of the market and the implications and changes within the company.

After sales service is an important aspect for ICI because it must be able to respond quickly and effectively to customer needs.

ICI must do strategic alliances, joint ventures, etc with companies around the world. The aim is to cover and entry in many countries.

ICI in some cases must tailor their products to local conditions due to cultural differences, religion, etc.

9. IMPLEMENTATION

The ways in which recommendations must be addressed are as follows: ICI must identify global market segments with similar needs, behaviour and

values across country borders. Also, ICI’s target is toward speciality niche markets owing to the strong competition

Investment in training of the employees for example, conferences, seminars, etc that help them to adapt toward globalisation.

Attract employees and high executives with experience, vision and leadership. Maintain a multi-domestic approach to markets in order to satisfy specific market

needs and requirements. Implement an environmental policy within the company and take responsibility of

it. Maximise resources and synergy between business operations and locations. Also,

share knowledge, technology, resources and transfer skills across markets. ICI must create worldwide networks operations. The latter is to serve ICI’s

customers with consistent products, price and service around the world for example, ICI’s homepage in Internet.

Leaders must be responsible for developing strategies in a global market dimension.

Strategies would be to develop at corporate level Develop products to satisfy the needs of customers within the different segments. Develop R & D Develop a blended marketing mix to create customer satisfaction. It is to produce

products that customer want, price them correctly, place them accurately and developing promotional plans (Jobber 1998)

10. CONCLUSIONS

As a result of this report we can conclude the following:ICI must standardise their products around the world because they have to achieve far greater economies of scale for instance, in production, marketing, etc.

Furthermore, the creation of a brand name image around the globe is a crucial aspect in the globalisation process because customers would identify ICI’s products as a company of chemicals.

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ICI must focus attention for responsible care for the environment and must apply its standards with total consistency all over the world.

Moreover, ICI must analyse which products are stars, cash flow, question marks and dogs around the world.

The launch of do-it-yourself in countries such as Latin America must be analysed because the behaviour of the consumers using these kinds of products is quite different in comparison with Europe or North America.

Research and Development is crucial to innovate product and create ICI’s products differentiation within the market. Also, it identifies needs of the customers and potential growth markets.

Finally, we can undoubtedly conclude that the globalisation process with appropriate strategies analysed in this report would greatly benefit ICI by vastly increasing efficiency and market share resulting in a rise in production and profits.

11. REFERENCES

Douglas S & Craig S (1995) Global Marketing Strategy. First edition. McGraw Hill

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Gilligan C & Hird M (1989) International Marketing: Strategy and Management. Second edition. Routledge.

Jain S (1990) International Marketing Management. Third edition. PWS-KENT Publishing company.

Jobbber D (1998) Principles and Practice of Marketing. Second edition. McGraw Hill.

INTERNET REFERENCES

General Information.The Internet.Http//www.ici.com

General Information.The Internet.Http//www.icipaints.com.my

12. APPENDICES

1. SWOT ANALYSIS

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2. DYNAMIC DIAMOND3. CRITERIA FOR PEST ANALYSIS4. PRESENT VALUE CHAIN5. FUTURE VALUE CHAIN6. SEGMENTS CHARACTERISTICS7. NEW ORGANISATIONAL STRUCTURE FOR ICI

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ICI paints towards a globalization process