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INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR

IMTCJVOLUME : 4 NUMBER : 1 JUL-DEC 2013

IMT CASE JOURNAL

www.imtnag.ac.in

www.imtcj.ac.in

EDITORIAL

ABELLON CLEAN ENERGY LTD - CONTESTING UNCONTESTED

MARKET SPACES 1 - 18Devang Patel, Abhinava S. Singh

KRAFT FOODS IN INDIA – BRAND OREO'S MARKETING

CHALLENGES 19 - 39Venu Gopal Rao, G Radhakrishna

BLACK SWAN LIE: A QUESTION MARK ON BARCLAY HERITAGE! 40 - 54S. Yadav, Deependra Sharma

NIYAMGIRI – PEACE AND CONFLICT IN NATURAL RESOURCE

BASED DEVELOPMENT IN TRANSITION ECONOMIES 55 - 68Subhasis Ray

CONTENTS

As iterated earlier, Case study is usually built on a descriptive or

explanatory study of a case, the case being a person (as found in psychology

or medical practice), an event (as found in engineering or law practice), or

an institution (as found in governance or population studies). Over the

years, it is seen as a rigorous scientific inquiry of an occurrence or an event,

by a researcher or a practitioner, who is interested to find out not only the

content of what happened, but also the context of who-where-when it

happened and the process of how it happened. Case studies for teaching are

deliberately designed to ask the questions "how" and "why" of an event,

procedure or phenomena and builds the scope for taking a decision with an

inefficient information condition and uncertainty. To develop a case, it is

advisable that the objective for building the case is clearly etched out. If it is

a research case, the research objective needs to be the starting point. Once

the objective is in place, it becomes easier to strategize for data, link the

constructs and build the structure of the case. Once a broad structure is built,

more data, facts, figures, views, and statements can be woven in. Once the

case takes a shape, more character can be built in by numerous iterations

that link the situations with the players of the case. The case should

culminate into a point where the student is expected to take a view point and

have the conviction (either based on case facts, his/her own analysis,

linking generalized theory, or logical arguments) to stand ground. Case may

not be a comprehensive source of information for a particular situation or

event, but it is definitely a trial ground to test the decision skills or

management wisdom of the student. The four cases in this issue cover

numerous aspects of businesses and provide enough scope for the student to

test business sense.

The first case, “Abellon Clean Energy Ltd - Contesting Uncontested

Market Spaces” by Devang Patel and Abhinava S. Singh highlights the

urgent need to increase energy access globally in a sustainable manner,

during the times when natural sources that are conventional sources of

energy are depleting fast. This is compounded by the undesirable market

imbalances and global environment changes. The case builds up the

journey of Abellon Clean Energy as a sustainable resource player providing

energy through renewable resources. Certain compelling issues, such as

energy crisis, biomass energy, energy substitutes, organizational

capabilities, market and geographic conditions, are taken up in a tryst to ED

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Lbuild a sustainable model. The case highlights the company's initiative in

harnessing biomass energy using the triple bottom line approach of

environmental protection, social development and economic prosperity.

'Wealth out of waste' is given a new meaning here and eventually highlights

how alternative strategies are chosen for the 'bottom-of-the-pyramid'

population to meet the energy challenges of the future in a sustainable

manner.

The second case, “Kraft Foods in India – Brand Oreo's Marketing

Challenges” by Venu Gopal Rao and G Radhakrishna starts with the

premise that the biscuit market in India is in hyper-competition state, where

the entry of multinationals, such as Kraft is forcing indigenous players,

such as Britannia and Parle to defend. These Indian incumbents now have to

strategize actively in order to respond to the changed market competitive

conditions. Kraft has entered the market with its best selling biscuit Oreo

using the well established network of Cadbury (acquired in early 2009).

Results of this strategy is paying off when it becomes evident that Kraft has

quickly gained a 6 percent market share in the hyper-competitive Rs

40Billion premium biscuit market that has other brands such as Treat-O and

Bourbon (by Britannia), Kreams and Hide & Seek (by Parle), and Sunfeast

(by ITC). Further, analysts are of the view that Biscuits are seen by the

market as a healthy snacking option and consumer adoption is relatively

easy, allowing Kraft to take advantage of this trend. The case ends with the

view that the Indian biscuit market will be more competitive in future and

new multinational entrants will find some space to do business. However,

the challenge for Kraft (through its product Oreo) is to find a suitable

position for itself in India that is sustainable.

The third case, “Black Swan Lie: A Question Mark on Barclay Heritage!”

by S. Yadav and Deependra Sharma questions the goodwill standing of

Barclay in managing its business, its customers and the financial markets.

The case highlights a news headline in July 2012 that confirms Barclay's

payout of 290 million pounds to settle claims that came up with alleged

rigging of financial markets by Barclay. The Financial Services Authority

investigated the manipulation of Libor and Euribor interbank lending

interest rates. Barclay later admitted to the manipulation, apologized to the

stakeholders and declared a 'zero-tolerance policy' against the staff that

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Ldamaged its reputation. The case reviews the current Barclays bank Interest

Rate Rigging Scandal, its legacy, and raised the question on sanction and

control against such acts. The case also raises questions on the situation -

Who is to be blamed? Why the authorities didn't find it coming? Is it the

poor corporate social responsibility or the absence of it is the root cause?

The case works on Black Swan theory and its outcome in terms of corporate

deceit and quantum of unpredictability.

The fourth case, “Niyamgiri – Peace and Conflict in Natural Resource

Based Development in Transition Economies” by Subhasis Ray highlights

the challenges of natural resource based industries, such as mining, while

operating in developing economies like India. The case elaborates the

stakeholder perceptions around Vedanta's Niyamgiri Mining Project at

Orissa that brought international attention to the ethnic tribal groups, who

are indigenous to the Niyamgiri Mountains. The case is not only about the

conflict that arises out of displacement and rehabilitation of the population

for the sake of a Greenfield project, but is a deeper understanding to the

nuances of human capital, corporate social responsibility and industrial

development. The case chronicles the genesis of the conflict, the factors

that led to the conflict, and the efforts taken by stakeholders to intervene and

resolve the conflict. The cases ends with the lessons learnt in the process

that is typical to action studies.

All the four cases in this issue have different aspects of business to offer,

ranging from environmental sustainability, market sustainability, goodwill

sustainability and project sustainability. We greatly appreciate the efforts of

all the contributing authors, our editorial board, and our reviewers in

furthering our missionary quest towards case teaching, writing, research

and development. At IMT Nagpur, our initiative of this case journal works

within an ecosystem of Centre of Excellence for Case Study and Research.

This centre, apart from this case journal, develops field cases independently

and uploads them at global case repositories; holds an international case

conference every year in Goa; trains and mentors various management and

faculty development programs on case study.

Rajnandan Patnaik

Editor

ABELLON CLEAN ENERGY LTD- CONTESTING

UNCONTESTED MARKET SPACES1 2Devang Patel , Abhinava S. Singh

ABSTRACT

In the times of fast depleting natural sources of energy fuel, market imbalances and risks of global environment changes, there is an urgent need to increase energy access globally in a sustainable manner. This case has been contextually set under such conditions and traces the journey of Abellon CleanEnergy as an integrated sustainable energy solutions provider to contribute to clean energy generation through renewable resources. This case invites the participants to deal with macro issues like energy crisis and role of biomass energy, and micro issues like diversification, building capabilities, role of leadership, making choices, continuous learning, market challenges, sourcing, manufacturing, and marketing, expanding geographically and developing a sustainable model.

The case explores the quest of Abellon for creating space in the clean energy domain mainly through harnessing the untapped potential of biomass energy using the triple bottom line approach (environmental protection, social development and economic prosperity). It presents perspectives on how Abellon is attempting to create value innovations through wealth out of waste. It also highlights the initial challenges and options made, biomass sourcing issues, unique initiatives like poornakumbha and eco chulha, domestic and international market strategies and collective learning's emerging over a time period of 3-4 years. The case ends with Aditya Handa, founder, MD and CEO of Abellon calling in a meeting of his top executives and reflecting upon the journey of Abellon till 2010 and discussing the strategic options, alternative strategies and challenges for the future. The case also touches upon the role of senior management in creating a sustainable business model in bio energy.

The case can be used for discussions on competitive landscape, resource-based model, strategic leadership, environment analysis, firm responses, and vision and mission. Blue ocean strategy can be argued with the scope of Abellon contesting in uncontested market space or not.

Key words: Abellon, Energy, Fuel, Environment, Clean Energy

Volume 4 Number 1 ISSN : 2229 - 6743

IMT CASE JOURNAL, JUL-DEC 2013

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Introduction

In the beginning of April 2011, Mr. Aditya Handa, founder, managing director and

CEO of Abellon CleanEnergy Limited was reflecting on how Abellon would

harness the unutilized potential of biomass based energy generation. The

promoters of Abellon had a background of pharmaceutical industry and had

diversified into clean energy in 2008. Since its inception in 2008, Abellon had

focused on building capabilities like putting the right teams in place, establishing

manufacturing facilities, developing technology and research and development

capabilities guided by its philosophy to increase energy access globally in a

sustainable manner.

Aditya was excited about the way ahead and was anticipating how Abellon would

be able to leverage its capabilities to create value innovation and a long-term

sustainable business model in the clean energy domain. He was also keen on

evaluating how they would be able to scale up the business based on the foundation

that had already been created. He wanted to explore more opportunities in the clean

energy space besides meeting challenges if any.

India - Energy Scenario

In 2008, India accounted for 17.7% of the world population and was the fifth-

largest consumer of energy with 3.8% share in the global consumption. The total

commercial energy supply was dominated by coal and largely imported oil, with

the renewable energy resources contributing the least. The power-generating

capacity was insufficient to meet demand and there was a generation deficit of

approximately 10%. Constant power shortages had cost the country around 6% of

gross domestic product (GDP) in the financial year of 2007-08. To meet its power

and electricity needs, it was forecasted that India would have to double its installed

generating capacity by 2017. Ministry of Power, government of India had already

included “power for all” in its vision for the next ten years (India Renewable

Energy Status Report, 2010).

The country had around 400 million citizens without access to electricity. As per

TERI report, 2010, the per capita consumption of energy in India had risen by

42.1% from 1990 to 2008 against the world average of 9.5%. According to a report

(2012), India's energy challenges were mainly attributed to the increasing demand,

overdependence and crunch of fossil fuels, lack of access to regular supply of

energy to the larger section of the society, local and global pollution regimes, and

need for social and economic development.

For each 1% of economic growth, India needed 0.75% of additional energy. India


Abellon Clean Energy Ltd- Contesting Uncontested Market Spaces

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Devang Patel, Abhinava S. Singh

was facing a formidable challenge to build up its energy infrastructure to meet

economic and social changes. Energy requirements had risen sharply in the recent

past, and the trend was likely to continue in the future. The Government of India

had recognized that development of local, renewable resources was critical to

ensure that India was able to meet social, economic, and environmental objectives

and supported the development of renewable energy. The contribution of

renewable energy in the total power generation capacity in India in 2010 was 9.7%.

Government had recognised the importance of the biomass like coconut shells, rice

husk, coffee waste, saw dust among others as a critical input to generate renewable

energy. Sourcing, organising the continuous supply of biomass for energy

generation and establishing the inward supply chain were seen as the major

challenges.

There was a significant shortage of fuel for commercial and household level use.

Villagers were forced to use fire wood as cooking fuel. Using firewood as cooking

fuel not only caused pollution and emission of harmful gases at home but also was

found responsible for causing health related issues.

Realising the huge opportunity in the sector many firms in the country were

exploring entering the segment of biomass based power production and biomass

based fuels production. In early 2011, biomass based power producers from across

the country had come together to form a pan-India body Biomass Power

Developers Association with the objective of working together to harness the

country's estimated potential of about around 19,500 megawatts (Indian Biomass

Key Highlights, 2012). For key highlights on Biomass based power in India in

2010, see exhibit 1.

AbellonClean Energy

In 2011, Abellon employed 215 people, and had an income of US$3.2 million,

mainly from sales of solid bio fuel. It was financed through a mix of equity capital

and debt. The promoter group of AbellonClean Energy consisted of first generation

entrepreneurs who believed in the ability and willingness to create new market

spaces through achievement motivation, courage, innovation and values. The

promoters had diversified businesses mainly in pharmaceuticals, contract

research, and education. With a commitment for social, economic and

environmental contribution, the group wanted to diversify into the bio energy

space of clean energy. For further details on clean energy in India, see exhibit 2.

Its principal activity was the manufacturing and sale of bio pellets made from bio

mass which included agriculture waste, crop and sawmill residues. The initial

vision of Abellon was to partner the world's initiative to achieve energy

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independence and reduce global warming through research, development and

deployment of alternate and environment friendly sources of clean energy.

Biomass Pellets

Biomass pellets were high quality, efficient, environment friendly, and user

friendly alternative to conventional fossil fuels such as coal, lignite, natural gas and

heating oil, as well as loose biomass. They were also eco friendly, carbon neutral,

solid bio-fuels with low ash content post combustion.

Manufactured from leftover farm and forest residue, pellets were considered to a

powerful replacement to conventional solid fuels, capable of addressing a

multitude of issues including energy dependence, global warming, and larger

global social development concerns. They could also be used along with coal as co-

firing in boilers. Globally, pellets were widely utilized in the residential sector for

heating purposes. A range of heating appliances was also available in the market to

enable use of pellets.

The beginning and the Journey

In early 2008, the initial business activity started by establishing a research lab

which analysed multiple varieties of biomass. It was the positive results of the

research activity that made Abellon to venture into the manufacturing and sale of

bio pellets. Abellon believed that biomass pellets had advantages over the other

conventional fuels available. (See, exhibit 3)

Abellon defined its core purpose as wanting to increase energy access globally in a

sustainable manner. The mission was to find innovative solutions for providing

energy access by combining knowledge from diverse disciplines and aligning

efforts with local stakeholders to create economic growth and reduce poverty. The

needs were to be achieved in a manner that was environmentally and financially

sustainable, promoted energy independence and was good for local communities.

The integrated bio energy model of Abellon was developed in line with the triple

bottom line (TBL) approach. TBL emphasized benefits of environmental

protection, social development and economic prosperity (See, exhibit 4).

The organization structure at Abellon had the finance, audit, projects, technology,

human resources, and marketing & business development department heads

reporting to the CEO & managing director (See, exhibit 5).

The company wanted to work towards making India a global research hub in bio

energy through international research collaborations and development of a series

of intellectual property in the bio energy domain. Abellon had initiated the




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exploration of international potential of selling and manufacture of Biomass based

Pellets in mid 2009. Additionally it had also secured licences to set up Biomass

based power plants on Independent Power Producer bases (IPP) in the state of

Gujarat.

Abellon CleanEnergy, a for-profit company, was founded in 2008 by Aditya Handa

with the intent best captured in the following words:

“We will not do anything that is existing...we will go to do something which is not

done before.”

Initially Abellon wanted to explore all forms of bio energy (liquid bio fuels, solid

bio fuels and biogas). It was often referred to as alternative energy, green energy,

renewable energy, renewable power sources, sustainable energy, and clean energy.

Abellon assumed that bio energy was a sustainable alternative to India's growing

energy needs and their contribution would assist in nation building activities. They

foresaw largest potential for bio energy coming from power produced from

biomass. Launching biomass based bio pellets as an alternative fuel for

commercial and residential use was also seen as a big opportunity. Research

revealed that Biogas was not commercially viable while entering in to the liquid

bio fuels like ethanol and bio diesel had technology and policy-level constraints.

An initial dialogue with farmers revealed that they burnt the residual parts of their

crop like such as leaves, stems and stalks in the open fields or left it for

decomposition after harvest. It was observed that this would lead to degradation of

ambient air quality, potential regional hazards, and lead unharnessed release of

energy. It also released methane (A more potent greenhouse gas than carbon

dioxide).

A meeting of Aditya with his senior management team explored the option of

deriving learning's from experiences of the sawdust based biomass power

production at the group's pharmaceutical plant site near Ahmedabad. The idea to

set up a pilot plant to manufacture bio mass based bio pellet was born from here.

Bio pellets could then be offered as an option to power producers who were using

coal as an input. This was the time when the thermal based power plants in India

were facing acute shortages of their most important raw material, coal. The result

of the meeting was the launch of first biomass based facility in the state of Gujarat.

, Abellon commissioned its first biomass based pellet plant at Changodar an

industrial area near Ahmedabad with a projected production capacity of 60 tonnes

of biomass pellets per day (TPD) in late 2008. The company did not have any prior

exposure of sourcing biomass. The investment was around 35 million Indian




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rupees.

By the first quarter of 2009, Abellon was able to procure around 450 tonnes of

biomass and achieved a cumulative production of 150 tonnes of biomass pellets.

The first commercial dispatch to an Indian client was also done. Abellon Energy

Inc, USA was also registered in early 2009.

It was also observed that power plants generated a lot of fly ash (a residue

generated in combustion and comprises fine particles that rise in air as a by

product). The fly ash could be used to produce bricks which could be used for

construction activities.

Biomass sourcing

Abellon was working on several initial assumptions about the sourcing, storing

and processing of biomass which were proven wrong in several places. The top

management of the company believed that farmer's would readily cooperate and

sell their agricultural residues. They also assumed that sourcing process would be

hassle free. They also underestimated the space that would be required for storage.

The biomass collected appeared large and made them believe that the targets of

sourcing were difficult to achieve.

They also had to re-examine the assumptions around the estimate the impact of

climate and seasonal changes on the plant as the biomass was nearly not available

during drought-like situations and monsoon spells. This would have led to near

shutting down of the plant. Limited biomass available during monsoons was wet

and costly due to increased weight and also required additional process of drying it

up as well.

The field workers who went to collect the Biomass were not able to meet the all

farmers and were not able to maintain healthy relationships with them. Lack of

personal touch led farmers to resort to their old practices of burning the biomass. In

addition, lack of awareness amongst farmers of the benefits arising out of selling of

the biomass was also found to be a major cause of concern to Abellon. There were

instances when the farmers and the local cattle herdsmen were found to resist the

entry of field workers in the village. Their resistance was based on the belief that no

fodder will be left for their cattle if a private company from a city would collect and

take away all their biomass.

In comparison to the technology for producing bio pellets, sourcing the Biomass

was emerging as a larger challenge. The senior management strongly faced the

challenge of systemising the whole process and ensuring a continuous flow of the

Biomass inputs.




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While the senior management team were exploring to find solutions to solve the

problems faced in the sourcing of biomass, the idea of poornkumbha (A traditional

Indian mythology term which means a full pot and has auspicious relevance) and

agro forestry were born.

Poornakumbha

The poornakumbha model was a social development platform with holistic

approach to sustainable development at grass roots levels. The guiding philosophy

revolved around conceptualisation and establishment of socially relevant and

sustainable development platforms in rural areas through the principles of

entrepreneurship, ecological orientation, and Gandhian philosophy.

In keeping with its philosophy of generating value from waste, poornakumbha

partnered with rural communities to collect cotton stalk, and other leftover

agricultural residue for use in bio energy generation. It provided enhanced income

and employment opportunities, curbed emission of polluting gases and protected

the health of people.

Poornakumbha team members would meet the farmers on regular bases, conduct

awareness camps, organise gram sabhas (meetings of villagers, with farmers being

the main participants) and encourage local farmers to deposit their leftover

agricultural residue.

Poornakumbha not only looked at waste as an income and employment generating

opportunity but went beyond the wealth from waste paradigm to help rural

communities make gainful utilization of agricultural residue and other resources.

Through various activities at grassroots levels, it also aimed to increase

agricultural productivity and strengthen market linkages, enable improvement in

agricultural systems and processes through education and training of farmers, and

specially focus on development of backward tribal areas.

Some areas were also declared as a ''no burn zone'', where Abellon poornakumbha

would ensure that not a single cotton stalk would get burnt. The collection had

happened through local entrepreneurs, who were developed and trained by

Abellon. It created job and income opportunities. The success achieved by

poornakumbha had realized the opportunity to create favourable change at the

level of all three ecosystems - environmental, social and economic - and in line

with the core philosophy of Abellon to generate value-out-of-waste. By the end of

2010, poornakumbha had also partnered with villages to cultivate energy crops on

wastelands owned by the villages as agro forestry.

The senior management did not have a departmental hierarchy for poornkumbha




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and it operated as an initiative for assisting the sourcing team. Although initially

some improvements in the quantity of Biomass was achieved, not all villages were

being covered. Quality of the biomass sourced also was a major concern. There

were cases of erratic supply including some phases of no supply. The farmers were

found dumping the material near the plant site. There was a fear of hazards like fire.

Erratic non quality supply was also causing production delays and plant shut

downs.

The senior management at Abellon team felt a great need to improve the manner in

which the initiative was functioning. It was felt that radical changes were required

in the supply chain management and sourcing systems to take it ahead. The head of

the projects team had suggested a flow diagram to Aditya in a meeting convened to

discuss sourcing issues (see, exhibit 6).

Agro forestry

Research at Abellon revealed that large tracks of waste lands and saline lands lay

idle due to lack of proper technology and resources. Abellon saw this as an

opportunity for cultivation of high energy yielding crops. The idea was to grow

crops on large tracks of land for specific consumption as bio mass feedstock for the

biomass power plants. This initiative was promoted as an inclusive growth model

that involved farmers, experts and the government, leading to necessary social

change and progress. In mid 2010, Abellon initiated a mass scale agro forestry

program covering 120 acres of land in Gujarat.

International Markets

Abellon CleanEnergy Ghana

Abellon CleanEnergy Ghana was registered in early 2010. Abellon CleanEnergy

Ghana Ltd had joined hands with the UNDP (United Nations Development

Program) “Business Call to Action” (BCtA) initiative to build an Integrated

Sustainable Bioenergy model in Ghana. It would focus on the areas of waste-to-

energy conversion and forestation. It was estimated that the project would generate

local employment opportunities for around 25,000 people over the next 5 years.

Abellon CleanEnergy Italy

In mid 2010 the efforts of the international marketing team yielded results. Orders

were received from clients to whom samples were given. During the same period,

the first international dispatch was done to Italy from India. Abellon Energy Italy

S.r.l., a wholly owned subsidiary of Abellon CleanEnergy Ltd., endeavoured to

partner Italy's focus on reducing carbon emissions, and its dependence on




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neighbouring countries for power supply by developing a series of biomass-based

power projects in Italy. By the end of 2010 the company's warehousing and

bagging facilities were fully operational at three ports in Italy. The company also

actively participated in large trade shows across the world. Abellon inc USA

entered in to a strategic tie-up with Virdis Inc, Canada for saw dust based biomass

pellets.

Canadian Market

Abellon saw a huge opportunity in trading of biomass pellets globally and their

research revealed that Canada was the cheapest location to produce saw-dust based

bio pellets. A well developed logging industry and presence of large number of

saw-mills made Canada an attractive destination for bio pellet business. In middle

of 2010, 14000 tonnes wood pellets were brought in break-bulk from Canada to

Italy by Abellon. Abellon was able to charge a premium for its Canadian pellets.

The product was branded as Pelloxo initially and later on renamed as Bianca

(which meant white in Canada). Special care was taken in the packaging. The

packs showed the Canadian flag and the mountains to generate customer trust.

Domestic Market

Abellon added to the capacity of biomass based bio pellets production in mid

2010.It established its second and third Biomass based pellets manufacturing

facility in Vitthlapara and Gandhidham with production targets of 200 tonnes and

120 tonnes per day. The company envisaged similar bio mass sourcing problems

for the Vitthlapara plant. Gandhidham manufacturing facility was based on saw

dust as a major biomass input. The city of Gandhidham had an international port

and housed around 700 small units of tree log cutters.

Although the performance in the international market was found to be promising,

the top management felt that the domestic market could do better especially for

realizing the potential of biomass pellets and power. Initially, they targeted large

Indian corporate where Abellon provided truckloads of biomass pellets for free.

These corporate responded by purchasing pellets. The purchase benefited them by

claiming carbon credits (a generic term for any tradable certificate or permit

representing the right to emit one tonne of carbon dioxide or the mass of another

greenhouse gas with a carbon dioxide equivalent to one tonne of carbon dioxide).

Some companies claim monetary compensations from international agencies for

the carbon credits earned.

The association with such reputed brands gave Abellon credibility, guaranteed

year long orders, and assurance of bill payments. The volumes were high but the




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margins were wafer-thin. In other corporate at local and national level, the

company's marketing efforts yielded negative results and resistance was found.

These corporate preferred coal as a fuel over biomass based pellets and were not

interested in earning carbon credits or doing good to the environment by using a

environment friendly fuel.

Eco Chulha

A brainstorming meeting was conducted by Aditya with the project and marketing

heads to explore strategies to improve the sales of biomass pellets, domestically as

well as internationally. The concept of a community cooking stove was discussed

in the meeting. The stove could be designed for large scale cooking applications

and would use biomass pellets as a fuel. It was believed that this product would

generate higher margins on biomass pellet sales. Other options were also explored.

Abellon had no prior experience in producing such a stove.

Abellon launched a stove under the brand name of Eco Chulha (Chulha means

stove in English) at the end of 2010. It was a community cooking solution priced at

15000 Rupees. The stove would use biomass pellets as a fuel. Abellon wanted to

sell the biomass pellets in retail at a price premium in comparison to the

international markets. The pack size available was 25 kilograms. The stove would

use on an average one bag biomass pellets for a six hour use in a day. Large caterers

and restaurants were seen as potential market for the stove.

Future Outlook

Aditya had a meeting with his senior executives in the beginning of 2011. He

congratulated the team on the successful commissioning of the two new plants in

Gujarat. He wanted to discuss the future course of action for Abellon in the

meeting. After having reflected upon the journey of Abellon in the past few years,

he raised and invited discussion on issues like past performance, emerging options

and challenges, role of senior management, sustainability of Abellon's business

model and future growth opportunities (both nationally and globally).

References

1. http://www.bioenergyindia.org/TheIndianChapter.aspx surfed on 16 June

2012

2. http://wwweai.in/ref/ae/bio/khl/india_biomass_power_keyhightlights.

html, visited on 11 June 2012




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EXHIBITS

Exhibit 1: Bio Mass Power in India 2010, Key Highlights

Source:

http://www.eai.in/ref/ae/bio/khl/india_biomass_power_keyhighlights.html,

surfed on 26 May 2012

a) Total available potential: 19500 MW

b) Exploited potential (production/installed capacity): Direct Biomass 901 MW,

Cogeneration (bagasse and non-bagasse) – 1649 MW installed, Gasification: 125 MW

c) Specific government incentives:

Customs Duty Exemption/Reduction on parts of Biomass Operated Electricity Generator

Excise Duty Exemption on parts of Biomass Operated Electricity Generator

Exemption in Central Sales Tax

100 % accelerated depreciation

Income Tax Holiday for ten years

Power sector reforms have encouraged investment in grid-connected biomass projects.

d) Targeted biomass based power: 1200 MW

e) Key bottlenecks and barriers:

Feedstock supply and price security

A less concentrated form of energy, making it less efficient

f) Cost of electricity production – Rs 2.25-3.25 / kWh.




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Exhibit 2: Indian profile-Clean energy

� Source: www.pewenvironment.org

INDIA PROFILE

Finance and Investment (2011)

Total Investment $10.2 bn

Ranking among G-20 nations 6

Percentage of G-20 total 4.5%

Five Year growth rate 23%

Installed Clean energy (2011)

Total Renewable Energy Capacity 22.4GW

Wind

15.7 GW

Small-Hydro Biomass and Waste Solar

3.2 GW 3 GW 0.4 GW

Percentage of G-20 total 4.4%

Five Year Growth Rate 21%

Distribution of Investment by Sector (2005-11)

Biofuels Wind

2% 51%

Other

Renewables

15%

Solar

31%




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Exhibit 3:

A) Advantages of Biomass based Bio Pellets

a) Sustainable

Made from refined and densified left over organic residue

Sustainable and eco friendly

b) Efficient

Remarkable energy efficiency

Low moisture and low ash content

c) Clean and Economical

Significantly lower energy costs compared to other fuels

d) User Friendly

Can be used in a variety of furnaces and boiler as a substitute to coal

Compatible with multiple technologies

Can be used for heating and cooking, electricity and steam production

e) Corporate Responsibility

Enhance greener and sustainable culture

Source: Company website

B) Comparison of Biomass Pellets with Lignite and Coal

Properties Pellets Lignite Coal

Gross calorific 4200 2800 5200Value (kilocalorie/kg)

NCV (kilocalorie 3952 2668 4980/kg)

Volatile Matter 70 24 30(%)

Fixed Carbon (%) 16 29 47

Ash (%) < 10 21 14

Moisture (%) < 10 26 9

Carbon dioxide (Co Emission (ton of Co Carbon Neutral 1.78 1.662) 2

per ton of fuel)

Sulphur (%) 0.07* 1.4 0.73

Bulk Density ( kg/m ) 650 650-780 720-850

Source: Company website

13

Exhibit 4: The Triple Bottom Line Approach

Abellon's integrated bio energy model had been carefully developed in line with

the triple bottom line approach(TBL). It emphasized on benefits of environmental

protection, social development and economic prosperity. It was achieved through

the following paradigms of business:

Creating a model capable of holistically addressing larger developmental issues,

generating income and employment opportunities

Generating value and opportunities out of waste

Maintaining Food/Fodder Vs Fuel balance, harmony with existing agricultural and

land use patterns

Research and development and technology led innovation

A focus on long-term sustainability

Source: Interview with the Managing Director and company website

Exhibit 5: Abridged Organisation Structure

Source: Interview with Head Human Resources Department

CEO & MD

Marketing Finance Audit Technology HumanResources

FundRising

Project

Account




14

Exhibit 6: Bio power Value Chain

Source: Company Interviews

Exhibit 7: Future Potential of Power Generation from Biomass in India all figures are in Megawatts (MW):

Supply of power to endusers

Shreded bio mass material from the local

poornakumbha hubtransported to power or

manufacturing unit

Power generation@abellon state of art

facility

preprocessing of biomass@ the poornakumbha hub

Feedstock collected &sent to local collection

center

Sources of biomass (sawdust, agri residue, agri

waste)

ConsumersDomestic and

international markets

Biomass Type Realistic Optimistic Pessimistic

� � 2010 2014 Beyond 2010 2014 Beyond 2010 2014 Beyond -13 -20 2020 -13 -20 2020 -13 -20 2020

Agro potential 19295 20687 21743 21680 30506 38934 18172 16937 16107

Livestock 9332 9767 10470 18183 19126 20639 6994 7356 7938

Fruits 738 963 1165 764 1084 1392 498 570 627

Vegetables 1292 1481 1633 1416 2008 2578 896 960 1008

Industrial 1679 2289 2857 1878 2918 3998 1472 1722 1926Wastes

Subtotal 32337 35188 7868 43921 55642 67541 28032 27545 27606

Urban Wastes

Municipal 3992 6773 9781 4277 7818 12029 3204 4181 5057Sewage waste

Municipal Litter 397 492 574 442 622 794 362 404 436Wastes

Subtotal 4389 7225 10355 4719 8440 12823 3566 4585 5493

Grand Total 36725 42413 48223 48640 64082 80364 31598 32129 33099

Source: http://www.eai.in/ref/ae/bio/pot/biomass power potential.html, surfed on 2 June, 2012




15

Exhibit 8: Total Amount of Energy Crops or Waste Biomass Available in

Various States of India:

State Area Crop Biomass Biomass Power (KHa) Productivity Generation Surplus (Megawatt) (million (million (million Tonnes per Tonnes per Tonnes per year) year) year)

Andhra 2,540.20 3.23 8.30 1.17 150.20Pradesh

Assam 2,633.10 6.08 6.90 1.40 165.50

Bihar 5,833.10 13.82 20.44 4.29 530.30

Chhattisgarh 3,815.50 6.14 10.12 1.91 220.90

Goa 156.30 0.55 0.83 0.13 15.60

Gujarat 6,512.90 20.63 24.16 7.51 1,014.10

Haryana 4,890.20 13.52 26.16 9.80 1,261.00

Himachal 710.30 1.33 2.67 0.99 128.00Pradesh

Jammu 368.70 0.65 1.20 0.24 31.80

Jharkhand 1,299.80 1.51 2.19 0.57 66.80

Karnataka 7,277.30 38.64 23.77 6.40 843.40

Kerala 2,041.70 9.75 9.42 5.70 762.30

Madhya 9,937.00 14.17 26.50 8.03 1,065.40Pradesh

Maharashtra 15,278.00 51.34 36.80 11.80 1,585.00

Manipur 72.60 0.16 0.32 0.03 4.10

Meghalaya 0.80 0.01 0.04 0.01 1.10

Nagaland 27.10 0.09 0.15 0.03 3.10

Orissa 2,436.60 3.63 5.35 1.16 147.30

Punjab 6,693.50 27.81 46.34 21.27 2,674.60

Rajasthan 12,537.50 93.65 204.89 35.53 4,595.00

Tamil Nadu 2,454.00 24.54 15.98 6.66 863.70

U.P 12,628.20 46.80 50.42 11.73 1,477.90

Uttaranchal 66.40 0.14 0.16 0.05 6.60

West Bengal 5,575.60 21.06 23.32 2.96 368.30

105,786.4 399.25 546.41 139.35 17,982.0

Source: http://www.eai.in/ref/ae/bio/pot/biomass_power_potential.html, surfed on 2 June 2012




16

17

Exhibit 9: Top 10 in clean energy investment, 2011

Top 10 in clean energy investment, 2011 (in $ billion)*

Source: www.pewenvironment.org

Exhibit 10: Awards and Accolades

Rank Country Energy Investment

1 United States

2 China

3 Germany

4 Italy

5 Rest of EU-27

6 India

7 United Kingdom

8 Japan

9 Spain

10 Brazil

**Gigawatts

33.748.1

45.0

45.5

32.130.6

20.228.0

15.211.1

6.610.2

7.09.4

8.67.0

6.98.6

8.06.9

20102011

Award Year

Asia Responsible Entrepreneurship Award(AREA) for Green 2009Leadership for pioneering initiatives in Clean Energy Industry in India

“Circle of Light” second position at the UNFCC/CDM 2009international video contest

Asia Responsible Entrepreneurship Award(AREA) for Green November, 2010Leadership for Eco-Chulha

“Freedom”, one of the six “Best of Changing Lives” videos at the 2010UNFCC /CDM International Video Contest

First Prize, Poster Competition held at the Gujarat Science 2010Congress




Author/s Information

1. Faculty Incharge,

Xcellon School of Business

2. Associate Professor (Marketing & Strategy) ,

LJICA (MBA)-Gujarat Technical University

Award Year

Presentation at Africa Investment Forum 2010

Abellon exhibits at the Vibrant Gujarat Global Investors Summit January 20112011

Ashden Award, for successfully establishing a sustainable biomass June, 2011based pellet manufacturing model using crop waste and for the Poornkumbha initiative

Golden Peacock Eco-Innovation Award for Eco-Chulha 2011

Source: Company Website




18

KRAFT FOODS IN INDIA – BRAND OREO'S MARKETING

CHALLENGES1 2Prof. Venu Gopal Rao , Prof. G Radhakrishna

ABSTRACT

“We now focus a lot on developing markets in 4 main

categories…..biscuits, chocolate, gum and candy. We have a small set

of priority markets. India, China, Russian and Indonesia are keys to

growth in the future”, reiterated Irene Rosenfeld, Chairman & CEO,

Kraft Foods.

“In developed markets, we are certainly experiencing what we call

the 'new normal'. Categories that were growing at five per cent are

now moderating considerably. We certainly are seeing less of that

phenomenon in developing markets, confirmed Irene Rosenfeld,

Chairman & CEO, Kraft Foods.

On her first visit to India in November 2011, Kraft Foods' CEO Irene

Rosenfeld made these remarks responding to queries about the

company's new found direction in emerging markets as outlined in

Economic Times.

The Cadbury acquisition was aimed primarily at getting footprint in

markets such as India. Our strategy has been to focus on a few things

and do them well. It is what we call the strategy of 5-10-10; focus on 5

categories, 10 markets and 10 brands. And one of the 10 markets now

is India, which is of strategic importance, says Sanjay Khosla,

President, Developing Markets & Global Categories, Kraft Foods &

Cadbury.

Key words: Biscuit market, Kraft, Oreo, Emerging Markets, India

Introduction

The biscuit market in India is witnessing intense competition with the entry of

multinationals like Kraft and forcing existing players like Britannia and Parle to

strategize on how to respond to the changed conditions. Kraft has entered the

market with its best selling biscuit Oreo using the well established network of

Cadbury – a company it acquired in early 2009. Results of its India strategy are



19

already visible. It has garnered nearly six percent market share in the intensely

competitive Rs 4,000-crore premuim biscuit market, where it competes with

Britannia's Treat-O and Bourbon, Parle Products' Kreams and Hide & Seek, and 4

ITC's Sunfeast, among others .

Kraft Foods

Kraft is a global food and beverage company. It manufactures and markets

packaged foods and beverages in over 150 countries including the US, Canada,

Europe, Latin America, Asia Pacific, Africa, and the Middle East. The company

has nine brands with revenues exceeding $1 billion, namely: Kraft cheeses, dinners

and dressings; Oscar Mayer meats; Philadelphia cream cheese; Maxwell House

and Jacobs coffee; Nabisco and Oreo cookies; Milka chocolates; and LU biscuits.

Kraft Foods began its operations in 1903, when James L Kraft opened a wholesale

cheese business in Chicago, Illinois. In 1914, J L Kraft opened its first plant to

manufacture cheese products. Ten years later the company changed its name to

Kraft Cheese Company. Subsequently, the company went public and opened its

first European sales office in London. Kraft was purchased by the National Dairy

Products Corporation but continued to operate as a separate entity. In 1969,

National Dairy Products Corporation changed its name to Kraftco Corporation and

again to Kraft Inc in 1976. In 1980, Kraft Inc was merged to Dart Industries but

continued to operate as a separate company before being de merged in 1986. Two

years later, Kraft Inc. was acquired by Philip Morris. Philip Morris merged Kraft

Inc. with its food products division, General Foods in 1989 forming Kraft General 5Foods (Marketline) .

During the 1990s Kraft General made a series of acquisitions and expanded into

new markets in Central and Eastern Europe. Kraft General was renamed as Kraft

Foods Inc in early 1995. In 2000, Kraft Foods parent company, Philip Morris,

acquired Nabisco Holdings, a producer of cookies, crackers and snacks. The

Nabisco operations were integrated into the Kraft Foods Business. In 2001, shares

of Kraft Foods stock began trading on the New York Stock Exchange. Kraft further

expanded into international business in 2003 with the acquisition of Family

Nutrition Company, a major producer of biscuits and snack cakes in Egypt. In the

same year, Kraft Foods underwent internal restructuring forming a new global

marketing and category development group and two geography based commercial 6units – North America Commercial and International commercial (Marketline) .

1“Finding the right blend” Article in Economic Times, Nov 23, 2011.2“Finding the right blend” Article in Economic Times, Nov 23, 2011.3Ibid 4“Cadbury-Kraft focuses on Consumer Behavior Inside shops” Business Standard, Jan 26, 20125History of Kraft – Marketline, a division of Datamonitor6History of Kraft – Marketline, a division of Datamonitor


Kraft Foods In India – Brand Oreo's Marketing C hallenges

20

In the year 2006, Kraft Foods acquired the Spanish and Portuguese operations of

United Biscuits (UB) and sold its Minute Rice Brand and assets to Ebro Puleva, a

rice producer and distributor based in Spain. In the same year, Kraft Foods sold its

Fruit2O water and Veryfine juice brands and related asset to Sunny Delight

Beverages, a producer of juice based drinks in North America and Western Europe.

The company also acquired Groupe Danone's global biscuit business in 2007. This

acquisition enhanced Kraft Foods' position in the fast growing global snacks 7

segment (Marketline) .

In 2010, Kraft Foods sold its North American frozen pizza business to Nestle. In

the same year, the company announced its initial offer for Cadbury valuing each

Cadbury share at 840 pence. Kraft Foods completed the acquisition of Cadbury in 8

2009 (Marketline) .

The company has more than 50 brands. It serves supermarket chains, wholesalers,

super centers, club stores, mass merchandisers, distributors, convenience stores,

gasoline stations, drug stores, value stores, and other retail food outlets. Kraft sells

its products through distribution centers, satellite warehouses, company-operated 9

and public cold-storage facilities, depots, and other facilities (Marketline) .

Kraft reports its operating results through two commercial units: Kraft North

America and Kraft International. Kraft North America operates in the US, and 10

Canada and manages its operations by product category (Datamonitor, 2009) .

One of the most visible product categories for Kraft is in grocery which offers salad

dressings, breakfast cereals, desserts or condiments. Kraft's key brands include

Post, Jell-O, Miracle Whip, Kraft, Cool Whip and A.1. The US snacks segment

offers cookies, crackers and salted snacks. In the snacks segment, Kraft's key

brands include Oreo, Crystal Light, Garden Harvest and Ritz (Datamonitor, 11

2009) .

Kraft International is responsible for the European Union and developing markets.

The European Union segment offers snacks, beverages, grocery, convenient

meals, and cheese and dairy products. In European Union, Kraft's key brands

include Milka, Suchard, Jacobs, Gevalia, Carte Noire, Kraft, Dairylea, Sottilette,

Miracel Whip and Simmenthal canned meats. The developing market segments

include Oceania and North Asia which offers snacks, beverages, grocery,

convenient meals, and cheese. Kraft's key brands in this segment include Oreo,

Chips Ahoy!, Ritz, Club Social, Maxwell House , Maxim , Nova Brasilia, Kraft,

7Ibid 8ibid9ibid10Kraft Foods – Company History – Marketline, a division of Datamonitor11Kraft Foods – Company History – Marketline, a division of Datamonitor


Venu Gopal Rao, G Radhakrishna

21

Velveeta, Jell-O dessert toppings; Kraft peanut butter and Kraft macaroni 12

(Datamonitor Report, 2009) .

Cadbury India

Cadbury India Ltd, a subsidiary of Cadbury Schweppes Overseas Ltd is a leading

global confectionery company with a portfolio of chocolate, gum and candy

brands. The company was incorporated in the year 1948 as a private limited

company with the name Cadbury Fry (India) Pvt Ltd. The company began their

operations in India by importing chocolates. The name of the company was

changed from Cadbury Fry (India) Pvt Ltd to Cadbury India Ltd in 1950 13(Indiainfoline) .

Cadbury India exports products to Sri Lanka, Dubai, Ghana and Maldives. The

company has manufacturing facilities at Thane and Induri in Maharashtra

(Western India), Malanpur in Madhya Pradesh (Central India), Bangalore

(southern India) and Baddi in Himachal Pradesh (North India) and 4 sales offices at

Mumbai, Kolkata, New Delhi, and Chennai – four Indian metros. The Indian office

is in Mumbai.

Cadbury manufactures and sells chocolate blocks, slabs, or bars, coated wafer

biscuits, malted food, and sugar confectionery. The company operates in four

product categories - Chocolate Confectionery, Milk Food Drinks, Candy and Gum.

In the Chocolate Confectionery business, the company sells brands such as

Cadbury Dairy Milk, 5 Star, Perk, Eclairs and Celebrations. In the Milk Food

drinks segment its flagship product is Bournvita, in the medicated candy category

the company sells Halls, while in the gums category the company sells a leading 14gum called Bubbaloo (Indiainfoline) In Feb 2009, Kraft Foods took over Cadbury

Plc (UK) and along with it the operations of the Indian subsidiary as well 15

(Indiainfoline) .

Kraft's Indian Foray

16Kraft officially entered India via Cadbury India operations in 2010 (ET) . The

initial objectives were to launch its best selling brands Oreo and Tang. Kraft

considers India to be a key driver in its ambitions to be the top five food companies 17

in the world (Economic Times) . Kraft also believes that Cadbury's hold on

consumers in India is a key factor and a golden opportunity to push its products 18eventually and realize its ambitions (WSJ online) .

12Ibid 13http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/Cadbury-India-Ltd/50079314http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/Cadbury-India-Ltd/50079315http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/Cadbury-India-Ltd/50079316http://articles.economictimes.indiatimes.com/2010-01-20/news/28466189_1_kraft-foods-cadbury-s-dairy-milk-confectionery17“Kraft wants a bigger slice of our pie” Economic Times, Nov 22, 201118“ Kraft covets Cadbury Know-how in India” WSJ Online, http://online.wsj.com/article/SB125251945671896465.html



22

Before entering India, Kraft made an initial assessment. The biscuit market in India

was growing at a healthy pace of 17% per annum. Besides, India has one of the

lowest per capita consumption of biscuits (just 2 kilograms per annum) although it 19 20is the third largest producer of biscuits in the world (WSJ online, Bo ).

Cadbury's 1.8 million stores where its chocolates were sold over the last sixty years

or so were also a very important consideration for Kraft. These stores give Kraft an

immediate advantage. The synergies that can be leveraged in the chocolate and the

biscuit channel are enormous. Products can be launched in the same space and that 21

too with greater agility and speed (BS ). Kraft's CEO Rosenfeld believes that

Kraft is strong in traditional grocery channels while Cadbury is very strong in

impulse channels like convenience stores. Over and above to the advantages

already mentioned, countries like India give Kraft a foot print and an infrastructure 22through which they can put a number of other snacking products. (Time) .

Cadbury is the biggest confectioner in growth markets such as India, Mexico,

Egypt and Thailand, according to consultancy Euromonitor International, and

emerging markets provide 38% of the company's global sales, compared with

about 20% at Kraft. As a combined company it would be nearly 70% bigger than its

nearest competitor, candy giant Mars Inc., in emerging markets, according to a 23report by British bank Panmure Gordon Co. (WSJ Online) .

Kraft, which makes the Milka, Toblerone and Cote d'Or brands, has sizable

chocolate businesses in Europe and Latin America. But in reaching consumers in

overseas growth markets such as India, Cadbury provides a definite advantage: It is

deeply entrenched in British Commonwealth countries such as India, where it has 24been selling chocolate for more than 60 years. (WSJ Online) .

As soon as Kraft officially entered India in February 2010, it set out a challenge to

its subsidiary. Sales had to move from $400 million to $500 million per annum.

There was no limit on advertising budgets. The impact of the aggression has been

positive for the subsidiary. Kraft Cadbury India surpassed all expectations with a

30% sales growth in the very first year (2010). Kraft pumped in more funds as 25promised which resulted in sales growing to 40% in 2011(BT, Feb 2012) . The

26company now has a 6% market share in biscuits (Nielsen) .

The development epitomizes a new paradigm for Kraft's India foray. The relatively

relaxed atmosphere at the company which, for many decades, was synonymous

with chocolates in India, and which still holds around 70 per cent market share in

19“ Kraft covets Cadbury Know-how in India” WSJ Online, http://online.wsj.com/article/SB125251945671896465.html20Business Outlook “Going for the Dough” http://business.outlookindia.com/article.aspx?27853421“Kraft of Wooing India”, Business Standard, March 14, 201122“Kraft's Sweet Tooth - http://www.time.com/time/magazine/article/0,9171,1982298,00.html23“ Kraft covets Cadbury Know-how in India” WSJ Online, http://online.wsj.com/article/SB125251945671896465.html24“ Kraft covets Cadbury Know-how in India” WSJ Online, http://online.wsj.com/article/SB125251945671896465.html25http://businesstoday.intoday.in/story/kraft-takes-over-cadbury-india-changes/1/21920.html26“Oreo, Britannia bite into Britannia's market share” Economic Times & AC Nielsen, Dec 19, 2011



23

24

chocolates, is history. "Kraft, being an American company, is definitely more

aggressive," says Anand Kripalu (Kripalu) President, South Asia and Indo-China, 27

and Managing Director, Kraft Cadbury India (BT) .

Given in the next sections are a brief introduction about the leading biscuit

companies in India viz. Parle, Britannia and ITC which together constitute

approximately 75% of the industry output.

Parle

Parle is one of India's oldest companies in the food business. It is one of the largest

manufacturers of biscuits and confectionery in India over the last 80 years. Parle's

strongest forte happens to be the world's biggest sub category in biscuits – Glucose 28

(Company website) . It commands nearly 70% of this market with its Parle-G 29

brand. (Datamonitor, 2011) . Market share of nearly 42% in the overall biscuit

market gives Parle the power to set the pricing which competitors find it difficult to

match (see exhibit 1). Most Parle products are priced in the range of Rs.4 to Rs.6 for

100 gm packs which marketers call the bottom of the pyramid pricing. Parle is also

an active player in the premium segment of creams, cookies and crackers. Parle's

20-20 brand has built an 18 per cent share of the cookie market over three years

(2007-10). In the same period, Parle Kreams has captured one-third of the cream 30biscuit market (company website) . Despite having strong brands, Parle has not

ignored the focus on distribution. It has built an excellent marketing and

distribution network. Of the total 6.5 million retailers across the country who stock

biscuits, Parle Products have market coverage of 1.5 million. Where its presence is 31

not available the company maps them through wholesalers (BT) (See exhibit 2

Brands sold by Parle).

Britannia

Britannia also had a long history in India as a leading marketer of quality bakery

products. It started operations in India way back in 1892 in Calcutta. The

Company was incorporated in the year 1918 as a public limited company. It has

plants in Kolkata, Delhi, Chennai, Mumbai and Uttarakhand. Due to its reputation

for quality and value, the government of India retained Britannia as a supplier of 32

'service biscuits' to the Indian armed forces during World War II. (Indiainfoline) .

In the year 1954 the company installed automatic plants for manufacturing biscuits

in Calcutta and Mumbai. Baking of high quality sliced and wrapped bread

27http://businesstoday.intoday.in/story/kraft-takes-over-cadbury-india-changes/1/21920.html28http://www.parleproducts.com/about_parle/overview.php29Datamonitor Report, 201130http://www.parleproducts.com/about_parle/overview.php31http://businesstoday.intoday.in/story/biscuit-market-global-firms-want-an-indian-share/1/13884.html32http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/



25

commenced in 1965. As markets matured and consumers started looking for

variety Britannia launched a number of new biscuit brands – Elaichi Cream, Petit

Beurre, Milk Bikis with Badam, Goodday etc. The Company launched two new

specialty breads in the year 1991 - Britannia milk bread and Britannia brown bread 33

in Delhi and later extended it nationally. (Indiainfoline) .

The company went in for an overhaul in 1997 with a new corporate identity 'Eat

Healthy, Think Better' with a mission 'Make every third Indian a Britannia

consumer'. In the same year the company also entered the dairy products market.

In the same year Forbes Global Ranking rated Britannia as one of the leading 300 34small companies in the world. (Indiainfoline) .

Due to innovations in packaging its brands Pure Magic won the Worldstar, Asiastar 35

and Indiastar awards in 2002 . In the year 2003 the company was partly owned by

French Food Groupe Danone. Danone sold its 25.5% stake it held to the Wadia

group which now owns 51% stake and the rest is publicly traded. Britannia's sales

have grown at a compound annual rate of 22% since 2005, more than doubling 36from $317 million to $841 million as of March 2011(Forbes) .

The company has a market share of 25% behind market leader Parle. The company

was rated as the No 1 Most Trusted Food Brand in a survey conducted by AC

Nielsen ORG-MARG in the year 2007. BIL (Britannia Industries Ltd) was ranked

27th place in the list of India's Fastest Growing Large Companies by BT, a leading 37business magazine in India in June 2008(Indiainfoline) (see exhibit 3 for brands

sold by Britannia).

ITC

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco

Company of India Limited. As the Company's ownership progressively

Indianized, the name of the Company was changed from Imperial Tobacco

Company of India Limited to India Tobacco Company Limited in 1970 and then to 38

I.T.C. Limited in 1974 (ITC website) ITC ventured into packaged foods in the

year 2001 in a significant departure and to diversify its business portfolio.

According to ex ITC Foods Chief Ravi Naware, the foods business in India is a

Rs.550,000 crore opportunity in which the branded packaged foods business is just 39

6% (rediff.com) . ITC was already in the process of value-addition to wheat with

its branded atta presence. There was a lot of business synergy that was waiting to be

33http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/34http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/35Packaging Awards : http://www.worldpackaging.org/worldstar-packaging-awards/recognisedawards-2011.asp36http://www.forbes.com/sites/naazneenkarmali/2012/01/31/tough-cookie/37http://www.indiainfoline.com/Markets/Company/Background/Company-Profile/38http://www.itcportal.com/about-itc/itc-profile/history-and-evolution.aspx39ibid



26

exploited. It was one way to diversify its core and also to reduce dependence on

tobacco and related businesses. As a natural extension in the foods business, ITC

forayed into biscuits in the year 2003. The company launched biscuits under the

brand name Sunfeast. The range consists of Glucose, Marie and Cream Biscuits. In

a span of nine years, Sunfeast has well-established presence in almost all 40

categories of biscuits that it launched (Company website) .

There were other developments that made the job relatively easier for ITC.

Success in the biscuits business is possible only with a well entrenched distribution

network. Here the century old tobacco business of the company helped and the

company was able to move swiftly. The company claims to have nearly 1.8 million

outlets giving it the much required reach. ITC also invested in research and

development to launch new variants of biscuits. On the company's growth strategy,

Chittaranjan Dhar, current CEO of ITC Foods says, “We want to create new

products to fight competition. We are extending our distribution network both in

rural and urban India. Our core strategy is to offer quality products at optimum

prices. As of 2011, ITC had 14 manufacturing facilities and a market share of 8%. 41

(Bakerybazar) (see exhibit 3 for brands sold by ITC).

The Unfolding Competitive scenario

The Indian biscuit market represents a virtual kaleidoscope. Ranging from pure

vanilla glucose biscuits to expensive chocolate biscuits and digestives, the market

accepts them all. Over time, consumer segments have multiplied in number

indicating specialization and narrowing down of tastes and preferences. This is

forcing companies to develop new product variants, constantly innovate and move

up the value chain.

The biscuit market in India has evolved over time. Given relatively low entry

barriers many big and small players entered the market. Leading the market though

are brands like Parle, Britannia and ITC. In terms of value the market stood at

Rs.9830 crores in 2008-09, Rs.11,206 crores in 2009-10 and by Dec 2011 the

market stood at Rs.12,662 crores ($ 2.8 billion) as per industry estimates (BT, 42exhibit 4) . In terms of market penetration as of 2008 it stood at 60% in rural

markets and in urban markets it went up from 75% to 90%. Given this scenario, 43

experts believe there is a lot of potential for growth (BT) .

44Besides Parle and Britannia, there are smaller rivals with a regional / limited

40http://www.itcportal.com/itc-business/fmcg/foods/sunfeast.aspx41http://www.bakerybazar.com/2010/11/itc-plans-expansion-for-its-sunfeast.html42“Fortune in Cookies”, BT, April 3, 2011.43“Fortune in Cookies”, BT, April 3, 2011.44Regional here refers to the brand being strong in certain regions of the Indian subcontinent.



27

45market presence . Brands like Priyagold, Unibic, Sobisco and Cremica exist in

regional pockets and command good customer patronage and retailer loyalty. All

these brands have their own unique product, channel, pricing and communication

strategy. (See exhibit 3 in annexure for a select range of biscuits marketed by 46

leading companies) (BS) .

United Biscuits of UK, whose digestive biscuits are a big draw globally is one of

the late entrants (it entered India in 2009) and is hoping to replicate its success in

India. “We want to build this category here which presently is a measly Rs 100

crore,” says Jayant Kapre, President, United Biscuits India. As Indian biscuits

buyers experiment with flavors and textures, they're also becoming more

conscious of their health. Rather than turn away from biscuits citing all that fat,

sugar and refined flour, they are demanding healthier options, a language biscuit

companies are eager to speak. “The share is increasing with new segments like

digestive biscuits and oat cookies, which are gaining consumer interest,”.

McVitie's from United Biscuits has already staked claim to a 20% share of the

digestives biscuits market, selling an estimated 350 tonnes every month. Britannia,

with its Nutrichoice brand, and Mrs Bector's Cremica Digestive biscuits compete 47with McVitie's (BS) .

Despite a huge bottom of pyramid opportunity, industry analysts believe that the

action is actually at the top premium segment. This is where the margins are. The

biscuit market in India is a commodity-led business and has high market

penetration especially for glucose biscuits. Naturally, nobody wants to grow the

glucose biscuit segment except for players like Parle or Britannia for whom it is a 48matter of life or death,” (BO) . Mayank Shah, Group product manager, Parle is not

appreciative of those who dismiss the glucose market entirely. He avers that for

consumer's entering the biscuits market, glucose segment is the access point,

beyond which there are better formats - cookies, creams, salted, non-salted,

crackers. “While glucose is growing, premium biscuits are growing faster. For

newer players in the biscuit market, it only makes sense to tap the premium 49market,” (BO) .

Britannia Industries Ltd Parle Products and ITC are all looking to launch premium 50

offerings (BO) . While nearly 50% of the market is still in the glucose biscuits

segment, the players are increasingly looking to grow contribution from more

profitable segments — cookies, cream biscuits, crackers and niche products on the

45Limited market presence refers to a narrow product portfolio and a limited reliance on biscuits by the company. For Instance Horlicks relies more on beverages than biscuits. 46“United Biscuits – Regional Bite” August 29, 2012. http://www.business-standard.com/india/news/united-biscuits-regional-bite/434852/47“United Biscuits – Regional Bite” August 29, 2012. http://www.business-standard.com/india/news/united-biscuits-regional-bite/434852/48Business Outlook “Going for the Dough” http://business.outlookindia.com/article.aspx?27853449Ibid 50ibid



28

health platform. The actual margins lie in this category. This is the space where

most marketers would like to concentrate their energies on. Margins go up as one

move up the value chain —from about 10% for glucose and Marie to as much as

35% for creams and digestives. Indeed, even ITC, which has been around for a

while and has a formidable distribution network thanks to its tobacco business,

focuses on premium segments and simply does not depend entirely on Glucose 51(BO) .

Also forcing a shift to the premium segment is the fact that the biscuit business has

become a challenging one over the last two years, with the prices of key raw

materials — wheat, sugar and milk — doubling and the volumes dwindling. At the

lower end of the market, there is lesser scope for the players to pass on the hike and 52

protect their margins (BO) .

For global players like Kraft, the challenge is to deal with the mass segment where

volumes are large and margins low. This is a market dominated by Parle which

commands 70% of the glucose segment and is also the dominant player in creams,

with almost a third of the market. Success in the Glucose and Creams market

depends on reach. ITC, Parle and Britannia are well entrenched as far as their

distribution is concerned. ITC has 1.8 million outlets; Britannia has 3.8 million

while Parle has 1.5 million. Most of these outlets sell other brands as well 53

intensifying an already hypercompetitive market environment (BO) .

Pricing is another challenge for companies. A quick look at the product range of

established brands like Parle, Britannia and ITC will reveal that they are present in

almost all price points indicating their dependence on every segment. Not having a

presence is akin to vacating the ground for rivals. Besides plain glucose varieties

these companies are also making attempts to offer premium offerings at lower

price points in a bid to attract consumers from the lower socio economic strata.

They have introduced cookies and cream biscuits at price points as low as Rs. 3 and

Rs. 5. Regional players too are concentrating on the mass market often giving

established brands a tough competition.

Going by the nature and pace of developments, one can surmise that the biscuit

market is witnessing a significant shift in terms of emerging segments and value

definitions. There are a lot of areas where Kraft will have to focus its attention on.

Of these areas, the question that is clearly top of the mind is how to 'position Oreo'

in India.

51ibid52Ibid 53ibid



29

Kraft's Initial Strategy

"Indian consumers are seeking global products to meet their local taste profiles

and preferences." — Chandramouli Venkatesan, Director, Snacking & Strategy, 54Cadbury India (BO) .

Selling biscuits is not new for Kraft which has been in the food business for quite

some time. Selling in a country as diverse and complex as India is a different

challenge though. The timing of Kraft's India entry could not have come at a better

time. “Per capita consumption of packaged biscuits has increased from around 0.4

kg per year 10 years ago (2001) to around 2 kg per year in 2011. This is lower

compared to 2.5 kg in Southeast Asian countries and over 5.5 kg in developed

nations like the US and Europe. Hence, increase in per capita consumption 55

continues to offer significant scope for growth,” (BO) .

When it comes to pricing, Kraft has chosen not to be perceived as a brand that is not

affordable. Analysis of the market revealed a huge bottom of the market

opportunity. To attract this market Kraft launched Rs 5 pack which contains just

three cookies compared to a similarly-priced pack of glucose biscuits that contain 56

double that number (BO) . To cater to the middle and upper income classes and

compete with the premium segments of Britannia and others, Kraft has priced itself

in the Rs.15 – Rs.30 range depending on the quantity and weight.

As far as distribution is concerned, Kraft Cadbury has increased its direct reach by

25 per cent in 2011 to more than 700,000 stores and added 5,000 sub-stockists to

penetrate deeper into smaller towns. It is building refrigeration in its entire supply

chain and investing heavily in sales infrastructure like visi coolers and chocolate 57dispensers. (BT, Feb 2012) .

Like most of its rivals, bulk of Cadbury-Kraft's sales comes from traditional retail

stores. This creates a sort of imbalance given the fact that newer formats attract

consumers who buy variety and larger quantity. A lack of presence here would

mean virtually vacating an opportunity in favor of a rival brand. Secondly, in order

to succeed in the premium segment Kraft needs presence in these modern formats

and retail stores which constitute just 1% of its universe. The company is planning

to increase its presence in these formats given that packaged foods as a category 58

show greater traction in such retail outlets (Business Standard) .

Launching a new consumer brand is fraught with risks. It is observed that there is a

54“Going for the Dough” http://business.outlookindia.com/article.aspx?27853455ibid56ibid57http://businesstoday.intoday.in/story/kraft-takes-over-cadbury-india-changes/1/21920.html58“Kraft of Wooing India”, Business Standard, March 14, 2011



30

significant cost differential between marketing a product which is launched under

an existing brand compared to a product that is launched under a new-to-market

brand name. Kraft Oreo fits the second category as it is a new-to-market brand

name. An average all India launch of a new FMCG product, discounting the highly

competitive categories, can cost in the range of Rs.2-3 crore or even more. The cost 59

can treble if it's a new-to-market brand name (ET) . Companies set aside budgets

for brand launches to gain customer attention and encourage trial.

Kraft has not ignored advertising and integrated marketing activities. The launch

of Oreo biscuits was a well planned affair. The national launch was backed by

outdoor activity in six major cities – New Delhi, Mumbai, Kolkata, Chennai,

Hyderabad and Bangalore. To maximize the impact there was on ground shopper

activity to include malls, amusement parks, multiplexes, multi trade outlets to

engage with families complimented by a digital campaign, website and Face book 60

page (indiaexpert.com) .

A second part of the campaign was launched by taking the concept of Oreo

Togetherness. The idea behind this campaign was to highlight the guilt that most

fathers had of not spending quality time with their children. A bus painted with

“Oreo Togetherness” was flagged off to cover eight major cities – Mumbai,

Bangalore, Ahmedabad, Pune, Lucknow, Hyderabad, Kolkata and Mysore. People

came to know about the arrival of the special bus in their respective cities through

hoardings, advertisements in the city supplements of newspapers and through FM

radio. The bus provided the parents with a platform to bond with their children.

Parents were also encouraged to take the Oreo pledge – a promise to spend more 61time with their children (Business Standard) .

The company is not in a big rush to push its global portfolio in India and has

empowered its local team to come out with ideas specific to India. According to

Sanjay Khosla, President Developing Markets & Global Categories, Kraft Foods

& Cadbury it is important to be locally relevant and not thrust products that are

good for the USA. He says, “We are empowering local leaders (Country CEOs) to

take global concepts and adapt it locally.” In other words, the company is open to

innovation for local relevance.

The Future

Industry estimates indicate that biscuit sales have gone up and it helps that as a

59http://articles.economictimes.indiatimes.com/2012-04-01/news/31266993_1_hair-oil-brand-brand-building-

fmcg-categories60http://www.theindiaexpert.com/oreos-cookies-launched-in-india-by-kraft-via-cadbury-subsidiary61http://www.business-standard.com/india/news/cadbury-india-bonding-over-biscuits/442199/



category they already have mass acceptance. Pinakiranjan Mishra, Partner, Retail

and Consumer Practice at Ernst & Young, thinks biscuit manufacturers do not face

the sort of hurdles breakfast cereal makers did when they entered India in the

1990s. Biscuits are seen as a healthy snacking option and consumer adoption of 62

variety is relatively easy to come by (BT) . Kraft can take advantage of this trend.

"The Indian market will get more competitive and new entrants, especially MNCs,

will bring in innovation," says Vinita Bali, Britannia MD and CEO, describing the

challenges facing existing players. Britannia has launched at least 40 new products

or variants in the past year, compared with around 20 launches in 2008 and 2009.

Not to be left behind, Parle has been trying out new flavors besides looking at

regional promotional campaigns. ITC has launched at least a dozen new variants in 63

2011 and wishes to keep the pace intact (BT) . These trends reflect how the future

will unfold for Kraft and influence it to step up investments in innovations and

market development.

At the lower end of the market, things are a bit different. The entry of global majors

hasn't made any perceptible difference to smaller, regional biscuit companies.

Indeed, some, like the Rs 500-crore Surya Food & Agro, which owns the Priyagold

brand (market share - 4%), expect only good things from this development. “The

way we see it, multinationals target the niche segment of the market. That is good

news for us, since this will only result in the consumer being willing to spend

more,” says Shekhar Agarwal, Director, Surya Foods & Agro. As if to signal their

intent, regional brands—such as Bisk Farm, Anmol Biscuits and Surya Foods —

are planning capacity expansions and new launches to prepare for the expected

growth in demand. Surya Foods, for instance, is increasing capacity from 150,000

tonnes per annum (tpa) across four plants, to 175,000 tpa this year. Agarwal of 64

Priyagold is more cryptic when he says, “You will hear a lot from us.” (BO) . This

sort of a reaction to a global major's entry into India is a positive sign. It is an

indicator that many companies will invest in R&D and innovation to drive their

future strategy.

With the market getting distributed among leading brands it is natural that

companies will not enjoy leadership positions or large market share that allows

them adequate elbow room. The challenge for Oreo (Kraft) is to find a suitable

position for itself in India. Going by its initial response the company can be assured

of a positive response from consumers provided it keeps itself on its toes and

observes keenly what competitors are doing.

62http://businesstoday.intoday.in/story/biscuit-market-global-firms-want-an-indian-share/1/13884.html63ibid64http://business.outlookindia.com/printarticle.aspx?278534



31

References

1. “Finding the right blend” Article in Economic Times, Nov 23, 2011.

2. “Cadbury-Kraft focuses on Consumer Behavior Inside shops” Business

Standard, Jan 26, 2012.

3. History of Kraft – Marketline, a division of Datamonitor.

4. Kraft Foods – Company History – Marketline, a division of Datamonitor

5. Cadbury India, http://www.indiainfoline.com/Markets/Company

/Background/Company-Profile/Cadbury-India-Ltd/500793

6. http://articles.economictimes.indiatimes.com/2010-01 20/news/

28466189_1_kraft-foods-cadbury-s-dairy-milk-confectionery

7. “Kraft wants a bigger slice of our pie” Economic Times, Nov 22, 2011

8. “Kraft covets Cadbury Know-how in India” WSJ Online, http://online.

wsj.com/article/ SB125251945671896465.html

9. Business Outlook “Going for the Dough”

http://business.outlookindia.com/article.aspx? 278534

10. “Kraft of Wooing India”, Business Standard, March 14, 2011

11. “Kraft's Sweet Tooth, http://www.time.com/time/magazine/article/

0,9171,1982298,00.html

12. http://businesstoday.intoday.in/story/kraft-takes-over-cadbury-india-

changes/1/21920.html

13. “Oreo, Britannia bite into Britannia's market share” Economic Times & AC

Nielsen, Dec 19, 2011

14. http://businesstoday.intoday.in/story/kraft-takes-over-cadbury-india-

changes/1/21920.html

15. http://www.parleproducts.com/about_parle/overview.php

16. Datamonitor Report, 2011

17. http://businesstoday.intoday.in/story/biscuit-market-global-firms-want-an-

indian-share/1/13884.html

18. http://www.indiainfoline.com/Markets/Company/Background/ Company-

Profile/




32

http://business.outlookindia.com/article.aspx



19. http://www.forbes.com/sites/naazneenkarmali/2012/01/31/tough-cookie/

20. http://www.itcportal.com/about-itc/itc-profile/history-and-evolution.aspx

21. http://www.itcportal.com/itc-business/fmcg/foods/sunfeast.aspx

22. http://www.bakerybazar.com/2010/11/itc-plans-expansion-for-its-

sunfeast.html

23. “Fortune in Cookies”, BT, April 3, 2011.

24. “United Biscuits – Regional Bite” August 29, 2012. http://www.business-

standard.com/india/news/united-biscuits-regional-bite/434852/

25. http://articles.economictimes.indiatimes.com/2012-04-01/news/

31266993_1_hair-oil-brand-brand-building-fmcg-categories

26. http://www.theindiaexpert.com/oreos-cookies-launched-in-india-by-kraft-

via-cadbury-subsidiary

27. http://www.business-standard.com/india/news/cadbury-india-bonding-

over-biscuits/442199/

28. http://businesstoday.intoday.in/story/biscuit-market-global-firms-want-an-

indian-share/1/13884.html

EXHIBITS

Exhibit 1:

2010-11 Share 2009-10 Share

Britannia 25 Britannia 25

Parle 40 Parle 42

ITC 8 ITC 8

Priyagold 4 Priyagold 5

Anmol 4 Anmol 4

Others 19 Others 16

100 100

65 Market shares of Key Players (Source – Industry Estimates) Bo �


33

Exhibit 2: Segment Market share (%)

Glucose 33

Marie 12

Milk 5

Creams 14

Cookies 18

Crackers 14

Health 2

Cream cracker 1

Arrowroot 1

66 Product segments - Source: Industry estimates FY 2010 – 11(BO)

Exhibit 3:

Category Parle Britannia ITC

Glucose Parle G Britannia Tiger Sunfeast Glucose

Milk Milk Shakti Britannia Milk Sunfeast Milky Magic

Salt Parle Nimkin Maska Chaska Sunfeast Snacky

Salt + Sweet Parle 50:50 Sunfeast Sweet n Salt Krack Jack

Marie Parle Marie Marie Gold / Marie Sunfeast Marie Treat Light/original/ Light orange

Choco Hide & Seek Treat

Cream Parle Kreams Orange Cream Sunfeast Butter Scotch / Orange cream

Bourbon Parle Bourbon Britannia Bourbon Sunfeast Bourbon

Butter & Parle 20:20 Special cookies Cashew

Premium Cream Kreams Pure Magic Dark Fantasy Chocofills

Digestives Nutrichoice

Source: Compiled from company websites

Brands across categories – Three leading brands




34

Exhibit 4:

Market Division by Product Category & Brand

Source: Business Outlook

Exhibit 5:

A Tough CookieParle still leads the biscuit

market, whether seen by

volume or by value.

Market shareof key playersin the biscuitindustry (byvolume)

How They Stack UpGlucose leads the biscuit categories in volume terms

14.4

39.9

2.43.9

4.4

8.5

26.5

15.2

34.1

4.1

8.3

31.9

3.92.5

CREAMS

14%

MILK5%

MARIE12%

GLUCOSE

33%

CREAMCRACKER

1%

COOKIES

18%

HEALTH

2%

CRACKERS

14% 1%ARROWROOT

Note : This is for FY10-11. Total volume is 1.96 million tonnes.

Parle Britannia ITC Surya Food

Anmol Saj Ind Others

Note : This is for FY10-11. Total market size is `14,500 crore.

Source : Industry estimates

Market shareof key playersin the biscuitindustry (byvalue)

Note : This is for FY10-11. Source : Industry estimates

67http://business.outlookindia.com/printarticle.aspx?278534

12,662

FY 09-10 FY 10-11FY 08-09

*Estimate in Dec Source : Industry Estimate

Big Mouthful

The biscuit market

(In ` cr)

Market size by Volume

9,830

11,206




35

Exhibit 6:

Fig 3 - The Oreo Biscuit banner (source: Company website)

Exhibit 7: History of Oreo (source: Company website)

1912 – Oreo is introduced, with the first Oreo rolling off the line at the Chelsea

Market bakery in Manhattan.

1913 – Oreo cookie is registered as a Nabisco trademark.

1921 – The name “Oreo Biscuit” is changed to “Oreo Sandwich.”

1923 – First advertisement showing the “twist” appears on trolley cars. Oreo

cookies now available in a self-service fiberboard package.

1928 –Oreo is exported to several Spanish-speaking countries in Central and Latin

America.

1937 – The name “Oreo Sandwich” is changed to “Oreo Crème Sandwich.”

1949 – Oreo introduced in Canada.

1952 – Cookie design modified to include the Nabisco Biscuit Company‟s

colophon emblem.

1965 – Oreo cookies packaging changes to a one-pound cardboard carton that

contains three waxed-paper wrapped “stack packs” (but are still available in the

one-pound, 11-ounce and 6 ½-ounce cellophane bags, as well as single-serve

packets).

Late 1960s – Oreo launched in Venezuela.

1974 –Oreo Double Stuf Chocolate Sandwich cookies introduced in the U.S.

1983 –Oreo cookies are supplied to approved ice cream manufacturers for use in




36

products marketed under the trade name of Oreo brand “Cookies „N Cream Ice

Cream.” Complete line of single-serve items designed to satisfy consumer

snacking needs introduced in U.S.

1985 – Oreo Mint Crème cookies introduced in U.S. for limited time. Oreo Double

Stuf cookies introduced in Canada.

1986 – Oreo Ice Cream introduced in Canada.

1987 – Oreo celebrates its 75th birthday. Oreo Big Stuf cookies introduced for a

limited time in retail market. Fudge Covered Oreo Sandwich cookies introduced in

U.S.

1988 – Oreo Baking Crumbs (for recipes) introduced in Canada.

1989 – “Father and Son” TV commercial marks the launch of the “Moments”

campaign.

1990 – Oreo Summer Fun Pack introduced in Canada and sells over 900,000

packages in just 3 weeks. White Fudge Covered Oreo cookies introduced as

holiday seasonal product in U.S.

1991 –Oreo cookies available with orange colored filling for Halloween in U.S.

Winter White Oreo (White Fudge Covered Oreo Cookies) introduced in Canada.

1992 – Mini Oreo cookies available nationwide in U.S. and first introduced in

Canada.

1993 – Oreo cookies now sold in 30 countries worldwide. Mini Oreo cookies with

red filling introduced for holiday season in U.S. Oreo Cookie Pie Crust introduced

in U.S.

1994 – Reduced Fat Oreo cookies introduced in U.S. Oreo launches in Brazil and

Iberia.

1995 – Oreo Chocolate Sandwich cookies introduced in Argentina. Holiday Oreo

cookies with red crème filling produced for Christmas holiday season in U.S. Oreo

launches in Hong Kong.

1996 – Oreo cookies introduced in China.

1998 – Oreo Global Moments Campaign launch.

1999 – In a survey conducted to mark the turn of the century, 86% of Americans

chose Oreo cookies when asked which items they would like to see continued in

the next century. Oreo ranked second behind “newspapers”. (source: Yankelovich

37




Partners, Inc.)

2000 – Oreo cookies are enjoyed by 9 out of 10 households in the US. Mini Oreo

cookies in convenient on-the-go packs introduced.

2001 – Chocolate Crème Oreo cookies and Chocolate Crème Mini Oreo cookies

introduced in U.S. Oreo Fudge Covered Mint Sandwich cookies introduced in U.S.

2002 – Double Delight Oreo cookies introduced in U.S. in Peanut Butter and

Chocolate Crème, Mint and Crème and Coffee and Crème.

2003 – Oreo puts the chocolate on the inside and two golden wafers on the outside

with the launch of “Uh-Oh!”. This product was originally intended to be an “in and

out” product but it was so popular that the brand decided to keep it.

2004 – Golden Oreo launched. Oreo Brownies introduced in Canada as

foodservice dessert. Football Oreo cookies introduced as “in and out” product in

U.S. Reduced Fat Oreo cookies are reformulated to have zero grams of trans fat per

serving.

2005 – First-ever “Oreo and Milk” jingle contest.

2006 – Oreo becomes China‟s #1- selling biscuit.

2007 – Oreo launched in Greece, Denmark, Norway and Sweden. Oreo Cakesters

launched in U.S. Snack „n Seal packaging introduced in the U.S.

2008 – Oreo launched in UK, Netherlands and Italy. Double Stuf Racing League

(DSRL) launched in U.S. First-ever global Oreo campaign launches, Global

Moments. Nabisco 100 Calorie Packs Oreo Mini Cakesters introduced in U.S.

Oreo Fudgees introduced as a limited edition.

2009 – Oreo Fun Stix and Golden Double Stuf launched. Oreo biscuits are the

subject of the world‟s largest blind taste test with 1,471 people gathering in

Madrid, Spain.

2010 – Oreo launched in Ukraine.

2011 – Oreo introduced in Poland, Germany and India.

Exhibit 8: Advertising slogans over the Years

1950 – Oh!, Oh! Oreo!

1980 – For the Kid in All of Us

1982 – America's Best Loved Cookie

38




1982 – The One and Only

1986 – Who's The Kid with the Oreo Cookie?

1990 – Oreo, The Original Twister

2004 – Milk's Favorite Cookie

Author Information

1. Dr Venu Gopal Rao,

Associate Professor,

Marketing Area, IBS Hyderabad, India.

[email protected].

2. Dr G Radhakrishna,

Associate Professor,

Marketing Area, IBS Hyderabad, India.

[email protected].

39




Libor Lie by Black Swan!

The labor interest rate rigging scandal is being called the biggest fraud in

history…….was a news clipping by Grey Hunter's USA Watchdog.com (16

July'2012)

BLACK SWAN LIE: A QUESTION MARK ON BARCLAY

HERITAGE! 1 2S. Yadav , Deependra Sharma

ABSTRACT

Barclay Interest Rate Rigging Scandal was the headline of every

news paper in July 2012 when Barclays had to pay £290m in order to

settle claims for being alleged for rigging financial markets by using

underhand tactics. Then the investigations were started by FSA

(Financial Services Authority) to look into the matter of manipulation

of Libor and Euri-bor interbank lending interest rates. Barclay's

chief executive, Bob Diamond admitted the crime and apologized,

and thereafter, came the severe threat of further investigations that

engulfed every bank that was somehow involved with Barclays. There

were talks of introducing criminal sanctions against such crimes and

at the same time, Barclays declared a "zero-tolerance policy" against

staff that damaged the bank's reputation. Within a week, there were

rumors of another financial breakdown and the banking sector was

under a perplexed state.

The authors of the current case study have undertaken an in-depth

review of the Barclays bank Interest Rate Rigging Scandal and raised

the question as to what can be the sanction against such acts. This

case has also highlighted series of scandals that Barclays has done in

the past. In the end, authors have tried to raise questions as to who is

to be blamed for the current scandal; whether authorities have been

blind towards the crime that was going under their eyes or was the

absence of corporate social responsibility the root cause.

Keywords: Banks, Barclays, Scandal, Interest Rate Rigging, LIBOR.

40



Yet another financial scam: Turn of events!

27 June'2012:

Barclays paid £290m to settle claims as there were allegations against it for

trying to rig financial markets by using underhand tactics. Barclays was also

penalized for a fine of £59.5m from UK and US Financial Services Authority

(FSA) for manipulating Libor and Euri-bor interbank lending interest rates as it

had painted a false picture of its financial health by manipulating interest rates it

had to pay to borrow money. These breaches occurred between 2005 and 2009

under the Barclays chief executive, Bob Diamond who later apologized and

waived his bonus for the year 2012 along with three other key executives.

28 June'2012:

Britain's biggest banks were under a severe threat of a criminal investigation

over the rate-rigging scandal that could cost the industry billions of pounds

because FSA started to investigate other banks like HSBC and taxpayer-

backed Royal Bank of Scotland also who was involved into the crime. At the

same time, the Treasury started to look at strengthening criminal sanctions

against those responsible for market abuse. Bob Diamond was pressurized to

step down when Serious Fraud Office investigators started unfolding the

scandal.

29 June' 2012:

The entire Banking Industry was engulfed into a nightmare when FSA made

declaration of “serious failings” in the sale of complex interest rate hedging

products to small and medium-sized businesses (SMEs). FSA entered into an

agreement with Barclays, HSBC, Lloyds and RBS that the said banks will

provide appropriate compensation wherever the mis-selling occurred. In the

middle of all this turmoil, the governor of Bank of England, Sir Mervyn King

demanded a "real change in culture", The Guardian 30 June 2012.

29June' 2012:

The government set up an independent review into the inter-bank lending rates

to consider the future operation of the Libor rate and the possibility of

introducing criminal sanctions and as a result, Bob Diamond was summoned to

appear before the Treasury Select Committee.

1 July' 2012 :

The chairman, Bob diamond of Barclays was reported to be on the brink of

41



Black Swan Lie: A Question Mark On Barclay Heritage!

stepping down and Marcus Agius, the former group chairman was about to

leave the embattled bank. Another major development was when the business

secretary, Vince Cable, backed the call for a criminal investigation into bankers

involved in the affair.

2 July 2012 :

Barclays confirmed that Agius is quitting as chairman as he commented, "Truly

sorry" for the interest rate-rigging scandal, which had dealt a "devastating

blow" to the bank's reputation. The former top accountant and serial company

director, Michael Rake was appointed as deputy chairman to oversee an audit of

the bank's business practices, the findings of which were published. Barclays

also declared a "zero-tolerance policy" against staff that damaged the bank's

reputation, and thereafter a new code of conduct was drawn up.

3 July 2012 :

Under relentless political pressure, Bob Diamond resigned. Marcus Agius's

application of resignation was rejected; rather he was appointed full-time

chairman to lead the search for a new chief executive. The former investment

banker Bill Winters, who sat on the independent commission on banking, was

being talked about as a candidate to succeed Diamond.

All this happened within a week' span and it seemed from the turn of events that

every official knew what, where and why of the wrong done and in order to

come out of it, shamelessly accepted their fault. This scandal came as a series of

lies that undermined the confidence in the financial system.

What, Why and how?

LIBOR RATE is “A key interest rate set for global transactions up to $ 800 trillion

covering credit cards, student loans, mortgages, corporate bonds derivatives. It is

the rate at which the biggest banks in the world borrow money from one another

and it is set by 16 global banks. (See Exhibit 1)

Officials at Barclays manipulated the Li-Bor rate and consequently,7 other banks

namely HSBC, Royal Bank of Scotland, Citigroup, Deutsche Bank, JPMorgan

and UBS…. (BBC News, 16 August'2012). were questioned in this crime (i.e.-

As quoted by the Times, “swaps traders often asked the Barclays employees who

submitted the rates to provide figures that would benefit the traders, instead of

submitting the rates the bank would actually pay to borrow money." Moreover,

certain traders at Barclays coordinated with other banks to alter their rates as well.

During this period, the Libor was maneuvered both upward and downward based

42



S. Yadav, Deependra Sharma

"entirely on a trader's position."

Barclays Legacy…

Barclays Bank was founded in 1690, and it is the 6th oldest bank in the world still in

existence. With operations in 50 countries and a customer base of 48 million all

over the world, Barclays plc is a British multinational banking and financial

services company headquartered in London, United Kingdom. Barclays ranked

sixth in the world in terms of assets as on 22 May 2013 and its assets were US$ 24,

20,044 as per the last audited Balance sheet of 31 December 2012 (See Exhibit 3).

Barclay's runs under universal banking system and its business are divided into two

clusters, namely:

a.) Corporate and Investment Banking and Wealth and Investment

Management: This cluster comprises three business units: Corporate

banking; Investment banking; and Wealth and Investment management.

b.) Retail and Business Banking: This cluster comprises four business units:

Africa Retail and Business Banking; Barclaycard (credit card) and loan

provision); Europe Retail and Business Banking; and UK Retail and

Business Banking.

Barclays is a constituent of FTSE 100 index and is listed on the Loan Stock

Exchange with a market capitalization of 58 billion as on August 2013.

Growth with vigor: Series of mergers and acquisitions!

John Freame and Thomas Gould gave birth to Barclays when they started trading

as goldsmith bankers in Lombard Street, London in 1690 and 'Black Spread Eagle'

became the sign of bank's visual identity in 1728.

From 1776 to 1785 it was called "Barclay, Bevan and Bening" and later when

another partner, John Tritton, who had married a Barclay, was admitted, and it

began to be called "Barclay, Bevan, Barclay and Tritton". In 1896 the firm got

converted into a joint-stock bank under the banner of Barclays and Co. uniting

several banks in London and the English provinces, like Backhouse’s Bank of

Darlington and Gurney’s Bank of Norwich.

Between 1905 and 1916, Barclays started acquiring small English banks in order to

further broaden its network. In 1918, it amalgamated with the London, Provincial

and South Western Bank and in 1919 it acquired the British Linen Bank.

Acquisitions did not end here. In 1924, Barclays had planned the takeover of

National Bank of Kingston but could not materialize and abandoned it mere three

days before finalization. In 1965, Barclays established a US affiliate, Barclays

43




Bank of California in San Francisco.

In 1966 the first credit card was launched in the UK as Barclaycard and in 1967, it

deployed the world's first cash machine in Enfield, north London. It planned

another merger in 1969 with Martins Bank and Lloyds Bank which was blocked by

the Monopolies and Mergers Commission. In 1975, Barclays acquired Mercantile

Credit Company after the secondary banking crash. In 1980, Barclays American

Corporation was formed when Barclays Bank International took over American

Credit Corporation and ventured into commercial credit business. In 1982,

Barclays was credited to become the first bank to re-open branches on Saturday. In

1983, Barclays Bank and Barclays Bank International merged and were called

Barclays Bank PLC. In 1986 Barclays has to sell off its South African business

operating under the Barclays National Bank after its name got involved in

supporting apartheid. In the same year, it took advantage of the “Big Bang*” on the

London Stock Exchange and bought de Zoete & Bevan and Wedd Durlacher

(formally Wedd Jefferson) and formed BZW.

Barclays has also been credited with the introduction of the first debit card named

Connect card in 1987. In 1988, Barclays sold Barclays Bank of California, the

17th-largest bank in California measured by assets, to Wells Fargo for US$125

million. In 1996 BZW merged with Wells Fargo Nikko Investment Advisors

(WFNIA) and formed Barclays Global Investors. In 1988, BZW business was

broken up and sold to Credit Suisse First Boston and Barclays retained the debt

business under the name Barclays Capital. In 1999, Barclays launched an internet

service called Barclays.net which was later acquired by British telecom in 2001. In

the same year, Barclays closed 171 rural branches in the UK and started to call

itself "THE BIG BANK" but later on there were many embarrassing PR stunts

that gave it a low profile. In 2003 there were two major acquisitions: one was the

acquisition of Juniper Bank from CIBC, an American credit card company and

named it as "Barclays Bank Delaware". Another acquisition was of Banco

Zaragozano, the 11th largest Spanish bank.

In 2004, Barclays ventured into the sponsorship of the Premier League. Next year

in 2005, it shifted its headquarters from Lombard Street in the City of London to

One Churchill Place in Canary Wharf and then in the same year it took over 54%

stake in Absa Group Limited which was the Africa's largest retail bank at a price of

£2.6bn. In 2006, it purchased the HomEq Servicing Corporation for US$469

million in cash from Wachovia Corp. and in the same year it acquired the financial

website compare the loan.

44



[*Note: Big Bang (1986): A phase of sudden deregulation and change of rules of financial markets including measures abolition of fixed commission charges while trading in the markets and a move from open-outcry to electronic screen based trading leading to the increase in market activity.]

The speed breaker…

In 2007 Barclays had to abandon its plans of merger with ABN AMRO, the largest

bank in the Netherlands due to inadequate support by ABN shareholders. Barclays

had to sell its 3.1% stake to China Development Bank and a 3% stake to Temasek

Holdings, the investment arm of the Singaporean government. Same year,

Barclays Personal Investment Management closed their operations in

Peterborough and to Glasgow, laying off nearly 900 members of staff. Situation

grew so severe that they were forced to borrow £1.6 billion (US$3.2 billion) from

the Bank of England sterling standby facility. This was opted as a last-resort when

Barclays was unable to settle their debts to other banks at the end of daily trading.

There were rumors of liquidity crunch at Barclays, as Barclays planned to borrow

loan as there was technical problem with their computerized settlement network.

But the officials at Barclays denied the news and said that there were no liquidity

issues in the U.K markets. Barclays itself is flush with liquidity. As a result of

“Information asymmetry”, on 9 November 2007, Barclays shares dropped 9% and

were temporarily suspended for a short period of time as there were rumors of a

£4.8 billion (US$10 billion) exposure to bad debts in the US. Again a Barclay's

spokesman denied the rumors. Bank announced write-downs of £1 billion

(US$1.9 billion). Tier I capital ratio of Barclays Bank grew very weak, so in July

2008, it announced non-traditional rights issue to the existing shareholders to the

extent of £4.5 billion but unfortunately, only 19% of shareholders took up their

rights.

In 2008, Barclays bought Goldfish which was the credit card brand for US$70

million and gained 1.7 million customers, and US$3.9 billion in receivables. It

bought a controlling stake in the Russian retail bank Expo-bank for US$745

million. Same year, it commenced operations in Pakistan with initial funding of

US$100 million. By the end of 2008, it decided of buying the investment and

trading division of a United States financial conglomerate, Lehman Brothers that

had filed for bankruptcy! It also acquired the New York headquarters building of

Lehman Brothers. Same year, it revised the deal and declared to acquire the core

business of Lehman Brothers along with the responsibility of 9,000 former

employees. The bargain struck at US$1.35 billion (£700 million). There was a

seven hour hearing under the judge James Pack at bankruptcy court, New York, at

the end of which this transaction was approved.

In 2009, Barclays sold Barclays Global Investors to Black Rock. As per the report

of the Reuters, the British Government planned to inject US$69 billion into three

banks including Barclays, which might seek over £7 billion. But this offer was

rejected by Barclays and decided to raise fresh capital of £6.5 billion which would

45




be raised by cancellation of dividend (£2 billion) and rest through private investors

(£4.5 billion). Another report revealed that in 2008, Barclays received billions of

dollars from its insurance arrangements with AIG, including US$8.5bn from

funds provided by the United States to bail out AIG.

Same year, Barclays sold its Global Investors Unit, which included its exchange

traded fund business, iShares, to Blackrock for US$13.5bn and bought Standard

Life Bank plc. Again, in 2009, Barclays decided to migrate a range of card

portfolios to the FIRST DATA, a global technology provider of information

commerce. Soon after this, it announced a bonus of more than £2 billion.

In March 2012, the trading names of Barclays Capital, Barclays Wealth and

Barclays Corporate were each changed to simply "Barclays", as part of an effort to

simplify the operations of the company and to promote greater integration between

its divisions.

Controversies embedded in history

The 2012 “Interest rate gigging scandal” has been rated as the biggest crime in

financial world. But it was not the only one controversy with which Barclays has

been surmounted. After a closer look into the past, there were several instances

revealed that highlighted a series of scandals:

During the period of 1980s, Barclays was known as 'Boerclaysbank', due to its

continued involvement in South Africa during the apartheid regime. But there was

a student boycott of the bank which led to a drop in its share of the UK student

market from 27 per cent to 15 per cent by the time it pulled out in 1986. Barclays

was also under legal proceedings which are being heard at Second Circuit Court of

Appeals at New York. It has been alleged for indirectly supporting the apartheid

Government in South Africa during the period 1970s to 1980s.

Barclays had been a financial supporter of the President Robert Mugabe's

government in Zimbabwe form a very long time. It gave £30m loan to help sustain

land reforms, but Mugabe's Government seized white-owned farmland and drove

more than 100,000 black workers from their homes. The opponents have marked

this incident as a 'disgrace' and an 'insult' to the millions who have suffered human

rights abuse.

In March 2009, Barclays was alleged with the violation of international anti-

money laundering laws. Equatorial Guinean President Teodoro Obiang’s son,

Teodorin Obiang had an account with the Paris branch of Barclays who siphoned

oil revenues from government funds. This mis- happening was reported by Global

Witness, an NGO in 2004.

46




Another report by the Wall Street Journal (2000) stated that major banks which

were entrusted with the faith of the millions of people were involved in helping the

Alavi Foundation, Bank Melli, the Iranian government by circumventing US laws

banning financial transactions with certain states. These major players stripped

information from out of wire transfers and concealed the source of funds. Names

which emerged in this scandal were Credit Suisse, Lloyds Banking Group, and

Barclays topped the list again. The outcome was that Barclays was penalized with

a fine of US$298 million!

It was astonishing for all when despite the subprime mortgage crisis in the US,

Barclays Capital made a profit of £2.3bn and Bob Diamond, who was the head of

Barclays Capital, was set to receive a £14.8m bonus in 2008.

There was a news clipping in the Guardian in 2009: "The deals start with tax and

then commercial purpose is added to them." In response to it, there was an

injunction against The Guardian by Barclays as the website leaked some of the

confidential documents concerning SCM i.e., Barclays' structured capital markets

division. This division had taken more than £11bn of loans to create hundreds of

millions of pounds of tax benefits, via "an elaborate circuit of Cayman Islands

companies, US partnerships and Luxembourg subsidiaries". Another whistle

blower was when several days later it was revealed that the SCM transactions had

produced between £900m and £1bn in tax avoidance in one year.

In 2011, Barclays had to pay US$24 million to settle a lawsuit on behalf of Del

Monte shareholders and also had to give up $ 22 million as fee which it was

supposed to receive from Del Monte. It was a Delaware Chancery Court decision

in which it was proved that Barclays failed to disclose conflicts of interest to its

client in connection with Del Monte's buyout, which was led by KKR.

During the last six months of 2011, Barclays had the maximum number of

complaints as far as 11,524 out of which majority complaints were about the bank's

sales of Payment protection insurance (PPI).

2012 was a bad year for Barclays as it had to pay back £500 million in tax (earlier

avoided) in February'2012. There were accusations by HMRC (Majesty's

Revenue and Customs) on Barclays for designing two schemes with the sole

purpose of avoiding tax. One scheme helped it avoid tax in context to buy back of

its own IOUs (I owe you). Another tax avoidance scheme involved investment

funds and an attempt to secure 'repayment' from the Exchequer of tax that has not

been paid.

47




Aftermath

Barclays had been showing an impressive growth and had an excellent

performance record since its birth in 1690. So big was the stature of the bank that it

was considered as “too big to fail”. But when the story of interest rate rigging

unfolded in July'2012 in the media. It was soon evident that the malpractices had

begun in the previous years and were rooted in the company's desperate attempts to

make short term gains at the expense of shareholder's interests.

While the legal proceedings continued and the company struggled to get back on

the tracks, the credibility of the bank has completely shattered. Companies like

Barclays have proved beyond doubt that unethical business practices could not be

covered forever behind glitzy corporate offices and mega marketing campaigns.

However, this fact perhaps is of little consequence when seen in the backdrop of the

billions of dollars that were lost in these scandals. On top of all, there will be big

fees which will be paid to defend lawsuits. Derivative contracts will become void

because rigged interest rates were based on dishonest interbank lending rates.

Barclays also tried to manipulate “Toxic Mortgage backed securities” to look

solvent (FASB 2009 “mark to myth” instead of “mark to market”) as required by

IFRS.

Prime Minister David Cameron announced a full parliamentary inquiry of the

banking sector following the Barclays rate-rigging furor. He told the House of

Commons the manipulation of the Libor interest rates had been a "scandal". The

review will run alongside a narrower inquiry specifically into the Libor market.

The Serious Fraud Office is considering whether to bring criminal charges against

the accused. In addition, Barclays will conduct its own "root and branch review"

after receiving a fine of £290m ($450m) over the Libor affair. Mr. Cameron said the

full parliamentary committee of inquiry would be headed by the chairman of the

Treasury Committee, Andrew Tyrie. "This committee will be able to take evidence

under oath, it will have full access to papers and officials and ministers including

ministers and special advisers from the last government," he said. Mr Cameron

said the review should ensure the UK had the "toughest and most transparent rules

of any major financial sector". He added: "Bankers who have acted improperly

should be punished," and it was important to learn the lessons of the affair. But

Labour leader Ed Miliband said the review did not go far enough, calling instead

for an inquiry which was independent of bankers and politicians.

After the uncovering of this interest-rate rigging scandal, investigations have

started to discover other examples of rate-fixing in multiple countries leading to

enquiries into a wide range of indices that have hitherto been believed to be set by

48




“the market”. This would cover the ways in which the prices for natural gas, crude

oil, metals, wheat, etc are calculated.

The after effects of the current scandal are very dangerous. The banks involved are

surrounded legally on Libor rate rigging so severely that some of them are already

saying that financial damage is going to be so hard to calculate in exact terms.

There is a fear in the minds of all concerned that this scandal will drag down the

banks like an oversized boat anchor in a thousand feet of deep blue sea. This

damage may not be felt immediately, but it exists and will continue for years to

come until the next financial collapse!

References

1. “Preliminary Result 2011”.

http://group.barclays.com/cs/Satelite?blobcol=urldata&blobheader=

application%2Fpdf&blobheadernamel= Content-Disposition&blobh

eadername2=MDT-UTF8&blobkey=id&blobtable=MungoBlobs&blobwhe

re=1231941646568&ssbinary=true. Retrieved24March2012.

2. Espiner, Tom (27 January 2010), “Barclays axes 422 UK tech jobs | Business

of IT | ZDNet UK”. ZDnet .co.uk. http://www.zdnet.co.uk/news/business-of-

it/2012/01/13/barclays-axes-422-uk-tech-jobs-40094815/. Retried 2

February 2012.

3. "Barclays.com - Keyfacts". Group.barclays.com. Group.barclays.com. 5

August 2011. http://group.barclays.com/About-us/Barclays-at-a-glance/Key-

facts. Retrieved 2 February 2012.

4. “World's 50 biggest banks 2011”. Global Finance. 7 September 2011.

http://www.gfmag.com/tools/best-banks/11382-worlds-50-biggest-banks-

2011.html#axzz1tLR12YMk. Retrieved 28 April 2012.

5. “FTSE All-Share Index Ranking”. stockchallenge.co.uk.http://www.stock

challenge.co.uk/ftse.php . Retrieved 26 December 2011.

6. “Company History” . Barclays Newsroom: Business History. Barclays.

http://www.aboutbarclays.co.uk/content/detail.asp? NewsAreaID=138

Retrieved 30 January 2007. See also: Barclays: The Business of Banking,

1690–1996 by Margaret Ackrill and Leslie Hannah; Cambridge UP, 2001

ISBN 0-521-79035-2.

7. “Company History”. Barclays.lk. Barclays.

49




http://www.aboutbarclays.co.uk/content/detail.asp?NewsAreaID=138.

Retrieved 11 May 2008.

8. Investors chronicle and stock exchange gazette 10: p. 922. 5 December 1969.

9. “Insert card here”. CIO Magazine. July 1988.

http://books.google.co.uk/books?id=3AQAAAAAMBAJ&pg=PA32&dq=

Barclays+world's+first+atm&hl=en&sa=X&ei= NQqkT8uDLMyu8QOO2I

SICQ&ved=0CEAQ6AEwAQ#v=onepage&q=Barclays%20world's%20fir

st%20atm&f=false. Retrieved 4 May 2012.

10. “The man who invented the cash machine”. BBC News. 25 June 2007.

http://news.bbc.co.uk/1/hi/6230194.stm. Retrieved 4 May 2012.

11. Reid, Margaret (1982). The secondary banking crisis, 1973-75: its causes and

course. Macmillan. p. 128. ISBN

12. “Barclays plc”. Funding Universe.

http://www.fundinguniverse.com/company-histories/Barclays-plc-

Company-History.html. Retrieved 28 March 2009.

13. “Abstract - SAS-Space”. Sas-space.sas.ac.uk.

http://sas-space.sas.ac.uk/2762/. Retrieved 28 June 2012.

14. Lerego, Michael (1996). Law of Bank Payments. FT Law & Tax. p. 472.ISBN

0-7520-0037-3, 978075000374.

15. Carrington, Mark; Langguth, Philip; Steiner, Thomas (1997). The banking

revolution: salvation or slaughter? : how technology is creating winners and

losers. Financial Times Pitman. p. 119. ISBN 0-273-63055-5,

9780273630555.

16. “Wells Fargo to Buy Barclays in California”. The New York Times. 16 January

1988. http://www.nytimes.com/1988/01/16/business/company-news-wells-

fargo-to-buy-barclays-in california.html. Retrieved 4 May 2012.

17. “Mardi Gra bomber jailed”. BBC News. 14 April 1999.

http://news.bbc.co.uk/1/hi/uk/318913.stm. Retrieved 18 April 2011.

18. “Barclays may well soon buy Wells Fargo Nikko”. New York Times. 19 June

1995. Retrieved 18 April 2011.

19. “Revealed: what Credit Suisse really thinks about BZW”. Retrieved 18 April

50




2011.

20. Internet Archive Wayback Machine”. Web.archive.org.

http://web.archive.org/web/*/http://www.barclays.net.Retrieved 18 April

2011.

21. “Barclays buys rival Woolwich”. BBC News. 11 August 2000.

http://news.bbc.co.uk/1/hi/business/875639.stm. Retrieved 18 April 2011.

22. “Everything is big at Barclays: the chairman's pay has quadrupled just as 171

branches are closing”. The Independent (UK). 31 March 2000.

http://www.independent.co.uk/news/business/news/everythings-big-at-

barclays-the-chairmans-pay-has-quadrupled-just-as-171-branches-are-

closing-722358.html. Retrieved 18 April 2011.

23. Timmons, Heather (19 August 2004). “Barclays pays $293 million for US

credit card issuer”. New York Times.

http://query.nytimes.com/gst/fullpage.html?res=9D0CE0D7113FF93AA25

75BC0A9629C8B63&n=Top/News/Business/Companies/Barclays%20P.L.

C. Retrieved 18 April 2011.

24. Timmons, Heather (9 May 2003). “Barclays agrees to buy Spanish bank in

cash deal”. New York Times (SPAIN).

http://query.nytimes.com/gst/fullpage.html?res=9E01E2DF173FF93AA357

56C0A9659C8B63. Retrieved 18 April 2011.

25. “Barclays secures FA Premier League sponsorship”. Sportbusiness.com.

http://www.sportbusiness.com/news/160512/barclays-secures-fa-premier-

league-sponsorship. Retrieved 18 April 2011

51




EXHIBITS

EXHIBIT 1: How libor rate was manipulated?

LIBOR is an indicative average interest rate at which a selection of banks (the

panel banks) are prepared to lend one another unsecured funds on the London

money market. It is calculated for 15 different maturities and for 10 different

currencies. The official LIBOR interest rates (BBA LIBOR) are announced once a

day at around 11:45 a.m. London time by Thomson Reuters on behalf of the British

Bankers' Association (BBA). The rates may only be published by partners of the

BBA. LIBOR attempts to benchmark in order to calculate the prices of financial

instruments like Interest Rate Swaps, options etc

Banks communicated amongst themselves and leaked the interest rates that they

were quoting.

52




EXHIBIT 2: Risk Adjusted Capital Ratios for the world's top 100 rated banks

Source : www.standardsandpoors.com/Ratingsdirect

53

Tier Operating Capital Impact RAC ratio RAC ratio 1 Company and Risk of A+ as of as of Current Current Rank Country Institution Long-Term earnings position B on 2009/2010 2010/2011 RAC RAC ratio ICR SACP (A) (B) SACP § * ratio as of date

� 1 U.S Bank of A bbb+ Adequate Moderate (1) 5.6 7.2 8.6 06/30/2012 America Corp.

2 U.S JP Morgan A+ a Adequate Moderate 0 6.4 6.4 5.6 06/30/2012 Chase & Co.

3 China Industrial and A bbb Adequate Moderate (1) 6.7 6.5 6.7 12/31/2011 Commercial Bank of China Ltd.

4 U.S. HSBC AA- a- Adequate Strong 1 6.8 7.6 7.4 12/31/2011 Holdings PLC

5 U.S. Citigroup Inc. A bbb Adequate Moderate (1) 5.7 6.7 7.2 06/30/2012

6 China China A bbb- Moderate Moderate (2) 6.4 6.9 6.8 12/31/2011 Construction Bank Corp.

7 Japan Mitsubishi A+ a+ Adequate Adequate 0 6.3 6.3 6.6 03/31/2012 UFJ Financial Group Inc.

8 U.S. Wells Fargo AA- a+ Adequate Strong 1 6.7 7.8 7.7 06/30/2012 & Co.

9 China Bank of A bbb- Moderate Moderate (2) 6.8 6.7 6.8 12/31/2011 China Ltd.

10 France BNP Paribas A+ a Moderate Strong 0 5.8 5.5 5.7 12/31/2011

11 U.K. The Royal A bbb Adequate Moderate (1) 7.1 5.4 6.4 12/31/2011 Bank of Scotland PLC

12 France Credit Agricole A a- Moderate Adequate (1) 5.7 5.1 5.1 12/31/2011 S.A.

13 Spain Banco BBB a- Moderate Very 1 6.7 5.8 5.1 12/31/2011 Santander S.A. Strong

14 U.K. Barclays A+ a- Adequate Adequate 0 6.9 6.8 7.4 12/31/2011 bank PLC

15 Japan Mizuho A+ a- Moderate Adequate (1) 4.2 5.2 5.1 03/31/2012 Financial Group Inc.




EXHIBIT 3: Performance ranking on the basis of Total Assets of Barclays Plc.

pre and post 'Interest Rate Rigging Scandal'.

Author Information

1. Gitarattan international Business School,

[email protected]

2. ABS, Amity University,

Gurgaon, [email protected]

54

Rank

Current Previous

1 1

2 2

3 3

4 6

5 4

6 5

7 8

8 11

9 7

10 10

Bank Assets + or - Capital Balance US$m (local cur) US$m Sheet

� Deutsche Bank AG , Frankfurt am *2,655,839 -7.01% 3,141.08 31.12.12 Main , Germany

BNP Paribas *2,517,210 -2.95% 35,256.70 31.12.12� SA , Paris , France

Industrial & Commercial Bank *2,458,597 15.00% 55,454.17 31.12.11 of China Limited, Beijing , China

Crédit Agricole SA , Montrouge, *2,431,518 6.89% 9,890.46 31.12.12� France

Barclays Bank

PLC , London, *2,420,044 -4.65% 23,529.22 31.12.12 UK

JAPAN POST BANK Co Ltd, 2,362,977 1.23% 42,234.83 31.03.12 Tokyo , Japan

China Construction Bank Corporation, *2,242,254 13.77% 40,119.87 31.12.12 Beijing , China

Agricultural Bank of China Limited, *2,125.352 13.42% 52,120.48 31.12.12 Beijing , China

The Royal Bank of Scotland plc, *2,084,860 -10.36% 44,795.40 31.12.12 Edinburgh , UK

Bank of China Limited , Beijing, *2,034,889 7.19% 44,795.40 31.12.12 China




55

NIYAMGIRI – PEACE AND CONFLICT IN NATURAL

RESOURCE BASED DEVELOPMENT

IN TRANSITION ECONOMIES1Subhasis Ray

Introduction

This case study focuses on the conflict between the $ 8 billion, UK based mining

giant Vedanta Resources Plc., (Vedanta) and a slowly vanishing tribe, the Dongria

Kondhs (DK) in the Niyamgiri hills in the east Indian state of Orissa. Vedanta's

application to mine the hills for bauxite was first cleared, in principle, both by the

state and the central government of India. The case of the Dongria Kondhs

numbering around 8000, (some reports state that about 1500 Kondhs would be

directly affected due to Vedanta's operation) but unique in their ethnographic

identity, slowly gained momentum internationally. The fact that a tribal group

could be facing extinction due to development and industrial colonization brought

different stakeholders together and intensified the conflict. The conflict, however,

was not merely about conserving unique human identities and practices but also

about an ecosystem that was deeply spiritual. For the Kondhs, Niyamgiri was just

not a hill, but a living god, providing sustenance and protecting them against

calamities. International pressure groups intensified the protest against the project

ABSTRACT

This case highlights the challenges of natural resource based

industries, like mining, while operating in developing economies like

India. It elaborates stakeholder perceptions around Vedanta's

Niyamgiri Mining Project at Orissa that brought international

attention to the issue of Dongria Kondhs, ethnic tribal groups staying

at the Niyamgiri mountains. The conflict is not only about

industrialization in poor states like Odisha but also understanding

the nuances of human capital, corporate social responsibility and a

holistic approach to development.

Key Words: Mining, CSR, Development, Natural Resources,

Greenfield Projects.



56

and many shareholders voiced their dissent, forcing the Indian government to take

a re-look and finally scrapping the project and bringing an end to the increasing

conflict. The peace is temporary as Vedanta has gone to court but the conflict is

indicative of the things to come both in Orissa and elsewhere in India. Niyamgiri

has become a critical milestone in mapping industry-society conflict in transition

economies like India, which is balancing its aspirations of double digit economic

growth with a human development index (HDI) ranking of 134, down from 119 in

2010. This case chronicles the genesis of the conflict, factors that led to it, efforts

by stakeholders to intervene and resolve the conflict and the lessons learnt in the

process.

Background

Vedanta

London based Vedanta Resources Plc is a global mining giant. Its operations are

spread across Australia, Armenia, India and Zambia. In India, it works through its

subsidiary Sterlite Industries (http://sterlite-industries.com/), engaged in mining

copper, zinc, aluminium among others, commanding 20%, 40% and 75%

respectively. Vedanta is also developing power plants and in talks to acquire the

assets of oil and gas major Cairn's operation in India. The company is listed in the

FTSE100 Index as a leading company of the world.

Orissa

Orissa, located in the eastern part of India, remained one of the poorest among the

28 Indian states in 2011. Its large natural resource deposit in coal, iron ore and

bauxite attracted investments but did not translate to prosperity for the state.

Droughts and natural disasters like super cyclones (1998) played their role in

blocking the progress of the state. The poverty and lack of infrastructure did not

make it easy for industries to set up factories or plants in Orissa. Apart from

Vedanta, the case of POSCO steel of South Korea deserves mention. POSCO's

plan to set up India's largest integrated steel plant in Orissa was mired in

controversies related to displacement of people and could not start for six years

after the Memorandum of Understanding was signed in 2005. (Exhibit 1)

Niyamgiri and the Dongria Kondhs

“…..he gives us everything. That is why we worship him'

The Niyamgiri hills (Niyam means rule or law and giri means mountain) was rich

in bio diversity, a source of 300 species of plants, including 50 medicinal herbs. In

1998, The Ministry of Environment and Forest ( MoEF) designated it as a wildlife



Niyamgiri – Peace And Conflict In Natural Resource Based Development In Transition Economies

57

sanctuary. In 2004, government of Orissa declared Niyamgiri as an elephant

reserve. It was a source of sustenance for the people living around the mountain.

Two large rivers, Nagavali and Vamsadhara depended on water flow from the hills

and the hydrological system provided livelihood to thousands of people.

There were around 8000 Dongria Kondhs, ( Dongria means 'hill dwelling') who

have lived in Orissa for generations. Bauxite reserve, in a way, was crucial for the

survival of the DKs as bauxite's water retaining properties, ensured water supply.

Salt and oil/fuel were the only things they needed from the outside world. Around

20% of the DK population lived around the proposed project site. It was considered

the home of the 'Niyam Raja' (the law god). They revered the mountain as their

king and god, made regular offerings to him and considered it to be a living spirit,

sustaining them for centuries. In terms of education, medical facilities and

infrastructure the tribals could be considered among the poorest in India. They

were accorded the status of 'primitive tribal group' and 'scheduled tribe' by the

Indian government. Most people made their living from basic farming, fishing and

hunting. They feared complete disruption and destruction of their habitat,

livelihood and culture due to Vedanta's operations.

To put up a united front and organize the protest, the DKs formed the Niyamgiri

Surakhya Samiti ( NSS, means Niyamgiri Protection Committee). The committee

and many such groups got wide political affiliations from local politicians. As the

conflict intensified many outsiders from India and abroad visited Niyamgiri. The

DKs reported unsatisfactory experiences with visitors, journalists and maintained

limited access to outsiders in the later stages of the conflict.

As Vedanta, continued its refining operations, there were reports of drinking water

pollution and pollution related diseases like TB, that were never seen before in the

region. DKs alleged that ash from existing refining operations deposited on trees

and reduced the crop output. Large scale deforestation also meant women

travelling further to collect firewood, affecting their life and work.

The NSS decided to fight VAL as a last option, fearing that, in such case, they will

be termed Maoist and eliminated by the police force. The term Maoist was loosely

used to denote violent, leftist political groups, supposedly following the ideals of

the Chinese leader Mao Tse Dzong. The groups were active in the resource rich and

highly underdeveloped belts in south, central and eastern India. The identification

of the Maoists as the representative of the exploited and its extension to the DKs

showed how local conflicts take national hues and give legitimacy to other

ideologies working in the same area. The Maoists were considered as a serious

threat to India's internal security and Orissa was one of the key bases of the group.



Subhasis Ray

58

At a macro level, the state's, particularly Orissa's, response to the Niyamgiri issue

strengthened Maoist claim of extreme under development and exploitation of

India's ethnic groups in the name of industrialization and development. Many

Vedanta specific campaign groups like 'Foil Vedanta' emerged during the conflict.

Chronology and key milestones of the conflict

'If mining is permitted in Niyamgiri, two of India's strongest constitutional

guarantees will be overturned: the right of a 'primitive' tribal group to their

territorial integrity and to decide on their path of development and the right to

religious practices and beliefs (Article 25)

In 2002, Vedanta approached communities in Lanjigarh, informing them of their

decision to build a factory. It applied for a license the next year. India's Ministry of

Environment and Forests (MoEF) gave the company clearance for building a

refinery. The Lanjigarh refinery clearance itself was controversial with allegations

that the company concealed the fact that forest land would be used for mining in the

project. The Forest Conservation Act was stringent in India and projects like this

required separate clearance. The refinery's disposal of waste, caustic soda, was

damaging crop yields and affecting human health. Protests against mining project

reopened protests against this running refinery and a plan to increase its capacity

six times.

The company signed a Memorandum of Understanding (MoU) with Orissa Mining

Corporation (OMC), giving the latter the responsibility to supply bauxite for the

refinery. This joint venture later applied to MoEF for clearance to mine Niyamgiri

for bauxite. This proposal is at the core of the conflict discussed in this case. The

bauxite supply currently comes from the adjacent state of Chhattisgarh. Mining

bauxite in Niyamgiri will help the company to optimize its supply chain, reduce the

cost of operations and develop viable alternative sources. It got a 'in-principle' or

first stage clearance from India's Ministry of Environment and Forests ( MoEF) in

September 2004. A Centrally Empowered Committee (CEC), was appointed to

look at this application as well as protests from stakeholders against the clearance.

One of the reports by the CEC charged the company for using goons, police and

local administration for intimidating the illiterate DKs .The project was in a

drought prone area and the committee feared that any water related activity could

be detrimental in the long run.

In 2008, the Supreme Court allowed Vedanta to continue mining in Niyamgiri,

provided the project is executed by Sterlite ( a Vedanta group company) in

collaboration with a state agency and invest five percent of its profit or USD 2

million (which ever is more) for the development of the community. The MoEF




59

also gave its final clearance to start mining: two types of clearances are given by

MoEF for industrial projects like mines and dams.: environmental clearance and

clearance for diversion of forests, if the project is proposed on forest land. Both

clearances require environmental impact assessment and consultation with the

affected people.

Following the clearance, Orissa Pollution Control Board found a number of

violations at the refinery site. Many NGOs lodged protest against this clearance.

The MoEF constituted a three member team to look at the charges against Vedanta.

The committee submitted its report in February, 2010. It found gross violations of

the Forest (Conservation) Act, 1980. The report pointed out that, though there was

no habitation in the mining area, the whole activity (roads, vehicles, mining, water

usage) will completely disrupt the DKs way of living and livelihood. India's

“Scheduled Tribes and other traditional forest Forest Dwellers Act” ensured that

“the habitat of forest dwelling scheduled tribes and other traditional forest dwellers

is preserved from any form of destructive practices affecting their cultural and

natural heritage” (Frontline). The report observed that “disruption of the habitat

and the way of life of this PTG cannot be remediated nor compensated, and may

lead to the destruction of the DK” ( Frontline).

Based on the report by the three membered committee, headed by N C Saxena, the

MoEF rejected Vedanta's mining project in August 2010 stating that “there have

been serious violations of environment protection acts and….. there is no emotion,

no pol i t ics , no pre judice” involved in the dec is ion to ban i t s

operations.(http://articles.economictimes.indiatimes.com/2010-08-24/news/27

607955_1_niyamgiri-hills-orissa-mining-corporation-mining-site). The decision

was welcomed by the civil society groups. Some felt that the conflict “reflected the

government's failure to devise an effective policy for millions of forest dwelling

tribes in central and eastern India.” (ibid). The conflict showed how habitat and

livelihood of ethnic communities are endangered by development in transition

economies. On the other hand, the government's move was a first of its kind,

showing its acknowledgment of the challenges of a double digit growth.

The Orissa state government, a part of the Vedanta JV (with OMC) however

continued to parley for a rethink. The chief minister met India's Prime Minister Dr.

Manmohan Singh to discuss this project. The central government, however, kept

the option of appealing open for Vedanta. As VAL appealed against the

government ban, reactions poured in from other stakeholders. The local

community groups continued their protests. International NGOs like Survival

staged protests during Vedanta's AGM in London and leading actor Michael Palin

expressed concern. Back Home, members of the N C Saxena Committee felt that



Subhasis Ray

60

future approval to the mining project will have serious consequences for the

security and well being of the entire country. The DKs protested by blocking roads

and protest actions. 7000 of them staged a march to Vedanta refinery in Lanjigarh

in January, 2009, followed by 10,000 people forming a human chain around

Niyamgiri. In May, 2011, NSS and Lok Sangram Manch (LSM), another local

protest group carried out a six day padayatra (walk) to create awareness of the

Vedanta issue, alleging that the company and the Orissa state government are

colluding to ensure that the scrapped mining project is revived. They wanted VAL

to close down their running refinery at Lanjigarh and rehabilitate all the project

displaced people.

Shareholder actions

As the conflict over VAL's operation in Orissa intensified, NGOs and civil society

groups working in the area worked with certain section of VAL shareholders to put

pressure on the management. In 2007, the Norwegian Pension Fund, sold Vedanta

shares worth $13.2 million owing to alleged environmental and human rights

violations by VAL. It examined four Vedanta companies in India- Sterlite

Industries, Madras Aluminium Company, Bharat Aluminium Company and

Vedanta Alumina. Following the report from the MoEF committee, Church of

England, a prominent shareholder, sold pound 3.8 million share citing Vedanta's

lack of “. Other institutional investors like Aviva Investors were sympathetic

towards NGO claims and engaged in dialogue with Amnesty International, one of

the leading NGOs fighting for the cause of the DKs. Joseph Rowntree Charitable

Trust, Marlborough Ethical Fund, Millfield House Foundation also protested

against the project and sold off their shares. In 2008, Martin Currie, a Scottish

investment group sold its stake worth 2.3 million pound in Vedanta. A total of $ 40

million was disinvested from Vedanta during the course of this conflict.

NGOs

International NGOs like Survival International, ActionAid and Amnesty

International waged long campaigns to highlight the plight and the danger DKs

faced, mobilizing support both at the grass roots as well as the international level.

They held dialogues with leading shareholders, apprising them of the situation and

pleading them to voice their views. To make their points, they took a young DK, to

Vedanta's annual meeting in London. Novel forms of protest took the conflict to a

different level. As the case shows later, such sustained campaigns, paid off, with

many leading stakeholders, openly criticizing the project. Celebrities like Bianca

Jagger, Joanna Lumley and Michael Palin lent their support, increasing the

pressure on Vedanta to call off the project. Their efforts were supplemented by




61

documentaries (by, for example, Survival International), data driven reports

(Amnesty), capacity building among the community and facilitating field

coverage for leading media. One could say that without the active involvement of

international NGOs and their pressure building tactics, this conflict would not

have surfaced, survived and been resolved. Amnesty for example wanted the

Indian government 'to establish a clear and transparent process that seeks the free,

prior and informed consent of any indigenous communities who may be affected

by such projects, and respect their decision, in accordance with national and

international law” Other protesters included BankTrack, the London Mining

Network etc.

Activists continued their anti-Vedanta stance during its annual general meeting in

July 2011, concerned with the company's decision to legally fight the ban on its

mining project. Survivor International's high profile supporter, actor Michael Palin

was at the forefront of the protests held in London. Palin also visited the DKs

earlier.

Vedanta's version

“Our effort is to bring the poor tribal people into the mainstream”, reiterates

Mukesh Kumar, COO, VAL. Throughout this intensifying conflict, Vedanta

maintained it had done nothing to violate the existing laws and standards. It

claimed that NGOs like Survival International and Amnesty International based

their reports on outdated documents. All mines and deposits in Orissa belonged to

Orissa Mining Corporation and private mining companies enter into agreement

with OMC for procurement on a long term basis. Vedanta did the same, in 2004,

holding 74 per cent of the equity. The company maintained that, as per the Orissa

Government's statement in the state Assembly, the proposed mining area had no

habitation and hence, questions of displacement did not arise. The Chief Operating

Officer (COO), Dr. Mukesh Kumar said that bauxite, located close to the surface,

made the land around Niyamgiri 'neither crop nor inhabitant-friendly.

Vedanta continued a large scale CSR effort throughout the conflict and protest.

Following the Supreme Court's approval for mining in 2008, a special purpose

vehicle (SPV) was formed. The Orissa government, Orissa Mining Corporation

and Sterlite industries were members of this foundation, named Lanjigarh Project

Area development Foundation. The district administrative head was appointed

chairman. A corpus of USD 3.5 million was earmarked for the health, education

and infrastructure for the DKs. It invested heavily in education in Lanjigarh.

Simultaneously, it invested in rural electrification. Critics claimed many such

projects to be extensions of existing government schemes. Vedanta published its



Subhasis Ray

62

first sustainability report, received ISO 14000 certification for its environmental

performance. They brought our public relations videos like 'Walking Hand in Hand

with the Dongrias”

The company did not give up its effort to push the mining project through. It

reiterated the fact that it was the obligation of the government of Orissa to provide

bauxite to VAL as per the agreement and pointed to the fact that it is the

responsibility of the majority stakeholder Orissa Mining Corporation (OMC) On

the DKs, the company pointed out to the abject poverty and prejudices of the DKs.

Many DKs refused to take medicines, keeping them on the top of their huts and

offering them to gods. The COO wondered, “Can we allow such blind faith in our

citizens?”

As the government stopped its expansion plan, the company opted for a two

pronged approach: it appealed to the Supreme Court, the highest court of the

country and also started looking for alternative bauxite mines from the Orissa

government. The pointed to Orissa's obligation to supply it with bauxite. Pavan

Kaushik, one of Vedanta spokesperson felt the whole affair showed “a lack of

understanding of the processes in such an industry.” The company claimed to have

invested approx. $2.5 billion in Lanjigarh.

The Government

'We cannot undermine the import of mining…..and at the same time could not but

condon the illegalities and violations committed by the industry”, says Finance

Minister Prafulla Ghadei.

Mining constituted an important part of Orissa's fiscal health. It was also in the

news for business - politics nexus and illegal mining. Mining accounted for more

than 20 percent of the state's revenue. The principle chief conservator of forests

(PCCF) PN Padhi said that “The mineral map of Orisa overlaps its forest map and

…this cant however be the reason to stop developmental projects blindly.” (ibid).

He claimed that only 0.28 percent of Orissa's forest was used for mining. The

governments' role continued to change from one phase of the conflict to the other.

The Orissa state government played a pro investment and pro- VAL role, claiming

that no legal violation took place ever. The central government, controlled by the

Congress party (and opposing BJD, the ruling party in Orissa) took a pro-

community stance with the Union Minsiter stating that “If they manage to get the

clearance, Niyamgiri will be destroyed forever.” ( The Frontline)

Nature of stakeholder involvement

The stakeholder engaged with the company through different modes- legal,




63

societal and large scale international awareness campaigns. The protests were

peaceful and democratic, though violent protests were seen in other cases in Orissa

involving companies like Tata Steel and Posco. The local media gave extensive

coverage. The leading political parties of Orissa were mostly silent on the issue or

took a pro-Vedanta stance while the ruling party at the centre came out in defense of

the DKs. More than any other case, the role of the judiciary, was questioned many

times during this conflict. The fact that the Supreme Court gave conditional

clearance to the project in 2008 ( in spite of a negative view expressed by the

Centrally empowered Committee (CEC) surprised many and it became the reason

for Vedanta's appeal once the government shot down its proposal in 2010. Some

activists alleged a state-corporate-judiciary nexus across several industrial

projects in Orissa.

Results

The community and supporting NGOs did achieve their objective of halting

Vedanta's ambitions to mine Niyamgiri for bauxite. Rule of law was questioned in

relation to the earlier clearance and later revisited to stop mining. Affected groups

could achieve their objectives through large scale media campaigns. They were

successful in raising awareness of international institutional investors. The Indian

government was forced to look at the case, because of the international sensation it

created. The committee formed by the government could find most charges to be

valid, showing the quality of groundwork done by community and NGOs. The

achievement could be short lived, as discussed above.

One of the unintended consequences of the conflict was retrenchment of around

5000 workers who were hired for the mining project. It also revealed that many

labor related documents in the existing refinery operations were also not properly

maintained. More serious was the conflict brought about by consumerist culture.

Industrialization created a different worldview among many indigenous

communities and some of the consequent conflicts were deep rooted. Initial flow of

money brought new products like motor cycles and TVs to the villages, creating

need for fuel and electricity, two things scarce in the community:

“The company promised us a developed way of life with electricity and such

things, but now have to pay for the electricity and we don't have any money”,

published in The Guardian, 12 October. The conflict saw introduction of new age

amenities like cell phones in the hand of the primitive people- one of their ways to

communicate their protest and views to the outside world. The conflicts created by

desire for a 'good' life may have ruined the DKs forever. Only time can tell.



Subhasis Ray

64

Lessons learnt

Exploitation of natural resources in transition economies like India led to conflict

involving tribals, activists, the common man, regulatory authorities and private

corporations. The conflict has multiple dimensions: India's need to grow,

vulnerability of ethnic groups, protection of unique bio diversity and an evolving

regulatory framework in the context of volatile political fields. The fact that India's

mineral resources lay in areas of extreme under development, intensified the

magnitude of the conflict. The belief system of many animist tribals lends to this a

fragile mosaic of issues that are beyond the domain of political economy. In the last

few years, India has seen unprecedented grassroot protest against land acquisition

for industry. One of the core issues in such conflicts is the vulnerability of the

displaced. DKs of Niyamgiri is no exception: 'We don't know how to adapt and

survive and our way of living is not available in the cities. We will be extinct.'

Anti corporate conflicts like that in Niyamgiri brought together many similar

groups on a common platform. Affected groups organized around a committee and

often required/asked for political support and intervention to get their voices heard.

Many initial outside interventions went wrong, making the DKs wary of outsiders.

The Vedanta issue brought forward communist groups, Loka Shakti Abhijan, anti-

Posco groups ( Posco Pratiridh Sangram Samiti), anti Arcelor group ( Mittal

Birodhi Manch), anti Tata grups (Naraj Tata Prakalp Birodhi Sangram Manch)

together. Along with these specific protest groups, there were other groups

working on general theme like project based displacement (Bisthapan Birodhi Jana

Mancha), loss of livelihood (Jeevan Jivika Sangram Mancha), urban slums

(Bhubaneswar Basti Surakshya Manch), Niyamgiri Surakhshya Sangram Juba

bahini and others. So, conflicts like Niyamgiri often become the foci of a larger

struggle and conversation between have and have- nots in the society.

The conflict raised certain issues in relation to development. First involves the

extent of inclusiveness of the growth process. Rejection of mining meant rejection

of the resultant benefits like health and education. Considering the fact that

government services have failed to reach this pocket in 60 years, there is a chance

that DKs will continue to live in their current state in future. This issue becomes

poignant given the different world view of the DKs and their happiness with the

present state of things. Do they know what they are refusing and does the state and

the market have any role or responsibility in making them aware? It is also relevant

to debate on who the central player in this debate should be. In the case of

Niyamgiri, the community and the NGOs could form a critical mass and change

the direction. Clearly, the community alone is ignorant and powerless in the face of

large corporations and investment hungry state governments and regulators just do




65

not have the mechanism to understand and implement their own laws. Also, India's

growth needs are closely tied to natural resources like bauxite. From the

corporations view point, it looks mandatory to obtain social license to operate

through Corporate Social Responsibility. Legal compliance may no longer be

enough to operate in developing countries. These issues run in parallel to India's

economic ambitions. The future of this conflict and fragile peace depend on the

answers to these issues. . India will need to find the right model between economic

and social equity and find it fast. Such a model will require collective

conversations around national, corporate and individual choices. Conflicts like the

one seen in Niyamgiri, call for a holistic, broad-based need for policy development

for the coexistence of growth, peace and harmony.

References

1. Battle for Survival , Frontline, Mahim Pratap Singh

Vol:27 Iss:12 URL:

http://www.flonnet.com/fl2712/stories/20100618271203700.htm

2. Vedanta resources http://en.wikipedia.org/wiki/Vedanta_Resources

3. http://www.survivalinternational.org/films/mine

4. http://revolutionaryfrontlines.wordpress.com/2010/07/27/protest-

against-vedanta-over-india-mine-project/#more-6019

5. http://www.hindustantimes.com/business-news/CorporateNews/

Vedanta-ready-to-exit-Niyamgiri-hills/Article1-588244.aspx

6. http://revolutionaryfrontlines.wordpress.com/2010/08/24/indian-

government- re jec t ion-of-vedanta-bauxi te-mine-a-%E2%

80%9Clandmark -victory%E2%80%9D-for-indigenous-rights/#more-

6977

7. Don't Mine us out of Existence: Bauxite Mine and refinery devastate lives in

India. Amnesty International report published February 2010.

8. http://articles.economictimes.indiatimes.com/2010-08-24/news/276

07955_1_niyamgiri-hills-orissa-mining-corporation-mining-site

9. http://www.guardian.co.uk/business/2010/aug/24/vedanta-mining-

industry-india

10. http://articles.timesofindia.indiatimes.com/2010-08-28/india-busness



Subhasis Ray

66

/28306883_1_bauxite-niyamgiri-orissa-s-kalahandi

11. http://www.hindustantimes.com/News-Feed/GautamChikermane/7-

questions-on-Vedanta-Niyamgiri-and-economic-development

/Article1-593564.aspx

12. http://revolutionaryfrontlines.wordpress.com/2010/09/07/clampdown-

on-vedantas-illegal-expansion-of-alumina-refinery/#more-7558

13. http://www.hindu.com/2011/05/18/stories/2011051858570300..htm

14. http://m.economictimes.com/Vedanta-Resources-faces-protests-at-

London-AGM-over-Niyamgiri-mine-in-Orissa/PDAET/articleshow

/9373677.cms

15. http://www.thehindubusinessline.com/todays-paper/tp-corporate/

article1001530.ece

16. http://sanhati.com/literature/1040/

EXHIBIT

Exhibit 1: Orissa

(Source:http://www.guardian.co.uk/business/2009/oct/12/vedanta-versus-

the-villagers accessed )




67

Exhibit 2: Timeline of Conflict

2002: Vedanta approaches communities in Langigarh, informing them of

their decision to build a factory

2003; Applies for environmental clearance

2004, September: MoEF awards clearance for refinery

2004: Vedanta gets in-principle permission to mine for bauxite

2004: VAL signs MoU with state government owned Orissa Mining

Corporation; forms joint venture

2005: Central Empowered Committee of India' Supreme Court reports

many violations

2007; MoEF gives in –principle approval of mining project

2007: Norwegian pension fund, a shareholder, sells of shares worth $13.2

million owing to alleged environmental and human rights violations by

VAL

August, 2008: Supreme Court gives permission to start mining, diverting

forest land, only in collaboration with state agencies

2008: Orissa Pollution Control Board finds violation of norms by Vedanta

2009, April; the environment ministry gives environmental clearance for

mining

2009, may; clearance challenged by Dks with the help of NGOs.

2009: MoEF constitutes 3 member team to investigate allegations regarding

violation of Forest Conservation Act, 1980

2010, Feb: team submits reports- highlighting gross violation of Forest

Conservation Act and forest Rights Act.

2010, Feb: Church of England withdraws pound 3.8 million share citing

lack of “respect or human rights and local communities

2010, August: Indian Ministry of Environment and Forest accepts the NC

Saxena committee report, rejects the mine project and stops refinery



Subhasis Ray

expansion plan

2010, October: Orissa Mining corporation appeals against the Minstry's

order

2011, march: Orissa Mining Corporation, vedanta's JV partner, appeals to

Supreme Court for speedy hearing of its appeal

2011, April; Supreme Court asks MoEF why Vedanta will not be allowed to

go ahead with its mining plans

2011, July: Mining project gets environmental clearcne for the second time,

with new conditions. Forest diversion issue still awaits a final decision.

2011, August: Vedanta says it will start mining only after securing

clearances from the government

Author Information

1. Associate Professor,

Xavier Institute of Management Bhubaneswar,

[email protected]




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