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BUSINESS ENVIRONMENT
INDIAN TOBACCO COMPANY (ITC)
SUBMITTED TO: SUBMITTED BY:
Nityanand jha Divyae Patel (Sem-III)
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ITC Limited: A Case Study in Business Strategy and Sustainability, Assignments of Business Systems
it includes business environment of indian tobacco company. it include company's product range , PESTEL analysis, SWOT analysis, porter's five forces whic drive business environment of a company. the project analysis all the business environment related aspects of indian tobacco company.
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2019/2020
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BUSINESS ENVIRONMENT
INDIAN TOBACCO COMPANY (ITC)
SUBMITTED TO: SUBMITTED BY:
Nityanand jha Divyae Patel (Sem-III)
DECLARATION
The Project on “Business Environment” is do hereby submitted to the Law faculty of United World School of Law, Karnavati University. And it is purposely consecrated to the Respected Professor Nityanand Jha and honorable Dean of the faculty Mr. Nachiketa Mittal. I have tried out best not to fall into lapses of the subject matter and the language but errors the habit of creeping in inadvertently. I hope that you and my fellow classmates, friends will help me in making the project more useful.
HISTORY AND EVOLUTION
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Fast Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded Apparel, Education and Stationery Products, Incense Sticks and Safety Matches, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited,'where ‘ITC’ is today no longer an acronym or an initialised form. ITC is one of India's foremost multi-business enterprises with a market capitalisation of US $ 50 billion and Gross Sales Value^ of US $ 10 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine and as 'India's Most Admired Company' in a survey conducted by Fortune India magazine and Hay Group. ITC also features as one of world's largest sustainable value creator in the consumer goods industry in a study by the Boston Consulting Group. ITC has been listed among India's Most Valuable Companies by Business Today magazine. The Company is among India's ' Most Valuable (Company) Brands', according to a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. MULTIPLE DRIVERS OF GROWTH ITC’s aspiration to create enduring value for the nation and its stakeholders is manifest in its robust portfolio of traditional and greenfield businesses encompassing Fast Moving Consumer Goods (FMCG), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology. This diversified presence in the businesses of tomorrow is powered
by a strategy to pursue multiple drivers of growth based on its proven competencies, enterprise strengths and strong synergies between its businesses. The competitiveness of ITC’s diverse businesses rest on the strong foundations of institutional strengths derived from its deep consumer insights, cutting-edge Research & Development, differentiated product development capacity, brand-building capability, world-class manufacturing infrastructure, extensive rural linkages, efficient trade marketing and distribution network and dedicated human resources. ITC’s ability to leverage internal synergies residing across its diverse businesses lends a unique source of competitive advantage to its products and services. Within a relatively short span of time, ITC has established vital brands like Aashirvaad, Sunfeast, Fabelle, Sunbean, Dark Fantasy, Mom's Magic Bingo!, Yippee!, Candyman, mint-o, KITChens of India, Farmland, B Natural, ITC MasterChef in the Branded Foods space; Essenza Di Wills, Fiama, Vivel, Engage, Savlon, Charmis, Shower to Shower and Superia in the Personal Care products segment; Classmate and Paperkraft in Education & Stationery products; Wills Lifestyle and John Players in the Lifestyle Apparel business; Mangaldeep in Agarbattis and Aim in the Safety Matches segment. This growth has been rated by a Nielsen Report to be the fastest among the consumer goods companies operating in India. CREATING ENDURING VALUE Today, ITC is India's leading Fast Moving Consumer Goods company, the clear market leader in the Indian Paperboard and Packaging industry, a globally acknowledged pioneer in farmer empowerment through its wide-reaching Agri Business and a trailblazer in green hoteliering. ITC Infotech, a wholly-owned subsidiary, is one of India's fast-growing IT companies in the mid-tier segment. This portfolio of rapidly growing businesses considerably enhances ITC's capacity to generate growing value for the Indian economy.ITC's Agri-Business is one of India's largest exporters of agricultural products. The ITC Group’s contribution to foreign exchange earnings over the last ten years amounted to nearly US$ 6.8 billion, of which agri exports constituted 57%. The Company's 'e-Choupal' initiative has enabled Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy has already become the subject matter of a case study at Harvard Business School apart from receiving widespread global acclaim.
To enhance the wealth generating capability of the enterprise in a globalising environment, delivering superior and sustainable stakeholder value CORE VALUES
- Trusteeship
- Customer Focus
- Respect for People
- Excellence
- Innovation
- Nation Orientation A MODEST BEGINNING The Company's beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks.
- 1925: Packaging and Printing: Backward Integration
- 1975: Entry into the Hospitality Sector - A 'Welcom' Move
- 1979: Paperboards & Specialty Papers - Development of a Backward Area
- 1985: Nepal Subsidiary - First Steps beyond National Borders
- 1990: Paperboards & Specialty Papers - Consolidation and Expansion
- 1990: Agri Business - Strengthening Farmer Linkages
- 2002: Education & Stationery Products - Offering the Greenest products
- 2000: Lifestyle Retailing - Premium Offerings
- 2000: Information Technology - Business Friendly Solutions
- 2001: Branded Packaged Foods - Delighting Millions of Households
- 2002: Agarbattis & Safety Matches - Supporting the Small and Cottage Sector
- 2005: Personal Care Products - Expert Solutions for Discerning Consumers
- 2010: Expanding the Tobacco Portfolio
PESTEL ANALSIS
What are Political Factors in PESTEL Analysis? The political factors play a huge role in not only investment decision by transnational corporations but also by companies such as – ITC. Political environment and other factors not only impact the cost of doing business but also long term sustainability. Some of the political factors are – governance system, democracy & institutions, military coup chances, probability of armed conflict, law and order in market etc. Political Factors that Impact ITC Limited:
- Transition of Government and Changes in Policy – There is consistency in policy making from one government to another. Secondly governments from all parties adhere to the treaties made by the previous governments.
- Regulatory Practices - The regulatory practices are streamlined with global norms which have helped the country to improve its “ease of doing business” ranking.
- Role of Non-Government Organization, Civil Society & Protest Groups – The country has a vibrant civil society community and ITC should build bridges with them and seek out areas of co-operations. Civil society groups are influential not only in policy making but also in building a society wide narrative.
- Size of Government Budgets – both Local Governments and National Government – The government at both national level and local levels are running deficit budgets which is boosting growth in the short term but may lead to increase in inflation over medium term. The bond rating of national government is investment grade.
- International Trade & Other Treaties – The country has a good record of adhering to international treaties it has done with various global partners. The government of each
party has adhered to the treaties done by previous governments, so there is a consistency in both rule of law and regulations.
- Judiciary Independence – In the matter of commercial and business decisions, judiciary of the country is independent to a large extent. Business do face problem when the conflict is between public interest and proprietary technology similar to ruling in South Africa where government & judiciary allowed generic AIDS drug irrespective of patents of global companies.
- Segregation of Political Responsibilities between Different Government Agencies – There are numerous government agencies which reduces the risk of overwhelming pressure by one agency. But on the flip side it does increases both time and cost of doing business and getting certifications and clearances.
- Threat of Terrorist Attacks – We believe in the world of post 9/11, corporations such as ITC Bat have to live with operating under the shadow of a terrorist attack. The prudent policy should be to take insurance and other types of hedging instruments to mitigate the losses occurring because of the terrorist attacks. What are Economic Factors in PESTEL / PEST Analysis Economic factors of a country and region have a direct impact on the potential attractiveness of a given market. Some of the economic factors that ITC should evaluate both in the present market and one in which it wants to enter are – inflation rate, GDP growth rate, disposable income level etc. Economic Factors that Impact ITC Limited:
- Financial Market Structure and Availability of Capital at Reasonable Rates – The quantitative easing policy of Federal Reserve has led to liquidity flooding all across the global financial markets. ITC can borrow cheaply under such circumstances. But this strategy entails risks when interest rate will go up.
What are Social Factors in PESTEL / PEST Analysis Social factors such as demography trends, power structure in the society, women participation in workforce etc have immense impact over not only the country's economy but also on workforce talent availability and level of consumer demand. Social Factors that Impact- ITC Limited:
- Attitude towards Authority – Various cultures in different part of the world have different attitude towards authority. In Asia authority is respected while in west it is something to rebel against. ITC should carefully analyze the attitude towards authority before launching a marketing campaign for its products and services.
- Education Level in Society – Education level of the society impacts both the quality of jobs and level of income. High level of education often results in better jobs, higher income and higher spending on complex and aspirational products.
- Gender Composition in Labor Market ITC can use gender composition of labor market to understand the level of liberal nature of the society, women rights, and women’s say in matter of societal issues and consumption decisions. The gender composition of labor market is a good indicator of disposal income of household, priorities of the households, and related needs.
- Attitude towards Leisure – ITC should conduct an ethnographic research to understand both attitude towards leisure activities and choice of leisure activities. Experience economy is one of the fastest growing segments both among millennials and among baby-boomers.
- Attitude towards Savings – The culture of saving in US and China is totally different where savings rate in China is around 30% , it is well below 15% in United States. This culture of consumption and savings impact both type of consumption and magnitude of consumption.
- Level of Social Concerns & Awareness in Society – Higher level of social concerns in the society often result higher consumer activism and pressure from non-governmental organizations, & pressure groups.
- Birth Rate – Birth rate is also a good indicator of future demand. USA has avoided the European Union style stagnant economy on the back of slightly higher birth rate and higher level of immigration.
- Societal Norms and Hierarchy – What sort of hierarchy and norms are acceptable in society also influence the types and level of consumption in a society. In highly hierarchical societies the power of decision making often reside at the top What are Technological Factors in PESTEL Analysis Technology is fast disrupting business models across various industries. Some of the technology trends that are impacting the macro environment are – developments in artificial intelligence, use of machine learning and big data analytics to predict consumer behavior, growing importance of platforms over service providers etc. Technological Factors that Impact ITC Limited:
- Property Rights & Protection of Technology Oriented Assets – ITC should analyze the legal status of various property rights and intellectual property right protections that are common in US.
- Transparency & Digital Drive – ITC can use digitalization of various processes to overcome corruption in the local economy.
- Intellectual Property Rights and Patents Protection – Before entering new market ITC should focus on the environment for intellectual property rights.
- Environmental Regulation Impacting Absolute Cost Advantage Dynamics in the Industry.
- Influence of Climate Change – How climate change will impact ITC business model and supply chain. For example if the supply chain is not flexible it can lead to bottlenecks if shipments from one part of the world are delayed because of sudden climate shift.
- Recycle Policies – What are the recycle policies in prospective market and how ITC can adhere to those policies.
- Level of Consumer Activism Regarding Environmental Concerns – ITC needs to know the level of consumer activism regarding environmental concerns is. It will help ITC in both developing environmentally friendly products and thwarting PR stumble blocks.
- Influence and Effectiveness of Environmental Agencies – The role of environment standards enforcement agencies is critical in safeguarding norms. But often in emerging countries these agencies delay the process as a tactic to extract bribes. ITC should be aware of presence of such practices in a country.
- Corporate Social Responsibilities Culture – Are ITC present CSR efforts applicable in the new market or does it needs to have new initiative to cater to the prospective market. What are Legal Factors in PESTEL Analysis Legal factors often govern – conditions to enter the market, laws to operate in the market, and procedure to resolve any dispute with other stakeholders. If the legal system is not strong then ITC Bat can face numerous challenges – from consumer petitions to shakedowns from authorities. Legal Factors that Impact ITC Limited:
- Data Protection Laws – ITC needs to assess what are the data laws in the country and what it needs to do to comply with them. For example most of EU countries now want the EU citizen data to be saved in EU countries only.
- Consumer Protection Laws – ITC needs to know what are the consumer laws, what is the rate of enforcement, what is the attitude of authorities towards consumer protection laws, and what is the role activist groups in enforcement of consumer protection laws.
- Securities Law – What are the securities law in the country and what are the conditions to list the company on national or regional stock exchange.
- Intellectual Property Rights Protection – ITC should assess the level of protection that intellectual property rights get under the legal system of the country.
- Independence of Judiciary and Relative Influence of Government – The judiciary independence often reflect both strength and credibility of the institutions in the country.
- Business Laws – Before entering into new market – ITC has to assess what are the business laws and how they are different from home market.
- Transparency in Judiciary System & Processes – Transparency is essential for fair and consistent decision making. If the process is consistent and transparent then ITC can plan ahead with greater conviction.
Association with Tobacco Products affects the image: ITC has made a lot of efforts to improve its corporate image but the fact that ITC has many tobacco products in its portfolio impacts its corporate image An increase in Tax on Tobacco affects revenue: Due to the increase in taxation on tobacco products, the prices and hence revenues get affected. OPPORTUNITY Strategic Acquisitions: ITC should continue making the strategic acquisition like they have done in the past by acquiring Savlon from Johnson & Johnson and B Natural from Balan natural Foods. Keeping in mind that the product fits into the existing distribution network, ITC can look to increase its portfolio of products and expand its Non-Tobacco FMCG business and thereby strengthening the base of revenue. Growth in Purchasing power and improving lifestyle: ITC should tap on the increasing purchasing power and improving the lifestyle of customers in India. This could help in increasing revenue for all its businesses. Growing Personal Hygiene as well as Food processing Industry in India: ITC should utilise its distribution channel in Personal Hygiene and Food Processing Industry to capitalise on the growth in the categories and hence increase revenue. Tap opportunities created in the Rural Market: The growing rural market in India and other emerging nations create huge opportunities to improve the bottom-line of the company. THREAT Intensifying Competition in FMCG businesses: ITC faces intense competition in its FMCG business from large MNCs like HUL and P&G and Indian FMCGs like Patanjali and Dabur. This limits the market share for ITC. Strict Regulations and Increasing Taxation in Cigarette Business: The Tobacco and Cigarette Industry in India continue to be targeted by strict government regulations and taxation system. This possesses a threat to the highly profitable Cigarette business of ITC. Increasing awareness on health: There has been an increase in the health consciousness which has resulted in the decrease in demand for tobacco products in India. Also, anti-smoking campaigns throughout the country affect the sales of cigarettes.
PORTER’S FIVES FORCES
To determine industry attractiveness and long-run industry profitability of the Indian FMCG Industry, we chose to apply the Porter’s five forces in our analysis. Porter’s five forces are: (1) Barriers to Entry and exit, (2) Threat of substitutes, (3) Buyer bargaining power, (4) Supplier bargaining power, and (5) Industry Competition. 1. Barriers to Entry and exit : The Indian FMCG Industry is characterized with modest entry and exit barriers. Integrated business model and increasing capital requirement in the industry restrict new entrants. Huge investments in setting up distribution networks and promoting brands and competition from established companies.
2. Threat of substitutes : Being an essential commodity the demand for consumer products is elastic. Multiple brands positioned with narrow product differentiation. Companies entering a category /trying to gain market share compete on pricing which increases products substitution. Hence, threat of substitute is high in the industry.