Prepared by G. Gururajan

Presentation date : 26th April’ 2013

Topic : Growth Strategy – Case study

• An organization substantially broadens the scope of one or more of its business in terms of their respective customer group, customer functions and alternative technologies to improve its overall performance.

• Strategy aimed at winning larger market share, even at the expense of short-term earnings. Four broad growth strategies types are

• Acquisition

• Merger

• Joint Venture

• Strategic Alliance.

Growth Strategy - Definition

• Acquisition is also known as a takeover, is buying of one company by another company.

• Acquisition is a deal when one company takes over another company and buyer becomes sole proprietor.

• In legal terms, the target company ceases to survive. The buyer swallows the company and the buyer's stock continues to be traded.

Acquisition

• Gain Market share

• Enter new markets

• Acquire technology

• Strategic objective

• Utilization of surplus funds

Need for Acquisition

Acquisition – Case study

acquired

• In 1992 Hutchison Whampoa and its pure business partner

established a company that was awarded a license to

provide the mobile services in Mumbai

• In 2004, Hutchison Whampoa has acquired six mobile

telecommunication operator providing the services in 13 of

India’s 23 telecom circle in 2006.

• By acquiring the BPL cellular services in 2006, the numbers

have increased to 16 out of 23 circles in India.

• Hutchison held 67% of stake and remaining 33% was with

Essar limited and thus it was named as “Hutchison Essar

India Limited”

• Hutch was often praised for their award winning Ads

Facts - Hutch

• Operations - 1992

• Circles – 16 circles + license for 6 circles

• Revenue - $ 1282 million

• EBIDTA - $ 413 million (Earning before interest, depreciation, tax & amortization)

• Operating profit - $ 313 million

• Subscriber base – 29.2 million

• ARPU - Rs. 340.15 (Average Revenue Per User)

Revenue

• In the year 2008, Vodafone acquired the Hutch stake Hutchison Essar for US$ 11.1 billion.

• It was fourth largest of the year 2007

Vodafone – Hutch deal

Why take over

• Vodafone want to expand their business in Asian markets.

• India had the 2nd largest market for mobile.

• Growth rate of Indian mobile market was 6 million subscriber per month.

• Increases vodafone’s presence in higher growth emerging markets

• Hutch wanted to quit Indian operations to finance their other country operations.

• Hutch – Essar mutual distrust

• Growth of ARPU was relatively less compare the global market even though the it was increasing trend.

Why Hutch want to sell

In merger two firms, agree to move ahead and exist as a single new company. Merger can be,

• merger of equals : both companies are of equal sizes.• merger of unequal's : large company merge with smaller one

Voluntary process : consent of both companies. Name of new merged entity is usually a combination of both parent companies.

Types of Merger :

Horizontal Merger Vertical Merger Concentric Merger Conglomerate Merger

Mergers

Merger – Case study

Since more no. of private

players entered Aviation

sector, there was a need

for consolidation

Low cost carriers

Low cost carriers

Low cost carriers

High cost carriers

High cost carriers

High cost carriers

• E-ticketing

• Cut on the Complementary service

• No separate staff

• Outsourcing of ground operations

• Saving operating cost, landing cost & sales tax

• Sale of food inside the aircraft

• Selling Advertisement

• Differential ticket pricing

• Non refundable tickets

• No bulk discounts

• Paid initial training to staff

Facts – Air Deccan (Low cost service)

• Carved a niche for itself in a short span of time

• Only airline offering premium 1rst class service on domestic routes

• Modeled on the lines of US carrier Jet Blue

• Targets Sec A and socio-economic classes.

• Great in-flight experience

- Personal valet assistance in luggage handling at airport

- Personalized in-flight entertainment system

- Fashion models as flight attendants

- Designer flight interiors

-Extendable footrests

-3course gourmet cuisine

Facts - Kingfisher

• Ever Increasing Cost

• Compromise on quality hits the brand

• Unviable pricing

• Competition

• Cash crunch

• Leveraging management and HR

Motivation for merger

• Increasing costs• Difficulty in maintaining brand image• Competition from low-cost airlines• Competition from International Airlines• Routes network• License to fly internationally

• A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They share revenues, expenses and assets.

• It is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns.

• Joint venture is a separate business entity.

– Participants continue as separate firms

– May be organized as partnership, corporation, or any other form of business

– Formal long-term contract of 8 to 12 years duration

Joint Venture

Maruti Suzuki Joint venture

• Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor Corporation (SMC), Japan, is a leading manufacturer of passenger vehicles in India, contributing to about 45% of the total industry sales in India.

• The Company, formerly known as Maruti Udyog Limited, was incorporated as a joint venture (JV) between the Government of India and Suzuki Motor Corporation on 24th February, 1981. Its first car, the Maruti 800, was rolled out of the Gurgaonfacility on 14th December, 1983.

• The largest automobile manufacture in South Asia founded in 1981

• Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan.

• The success of JV led Suzuki to increase the equity from 26% to 40% in 1987, 50% in 1992 and further to 56.2 in 2011.

• As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog.

• During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported.

• Revenue – US$ 3.5 billion (2009)

• In all, over six million Maruti cars are on Indian roads since the first car was rolled out on December 14, 1983.

Facts – Maruti Suzuki

• Suzuki Motor corporation, the parent company is a global leader in mini & compact cars for 3 decades.

• Suzuki is technical superior, light weight diesel engine and fuel efficient.

• Nearly 75,000 employees were directly employed by Maruti Suzuki and its partners

Benefits of JV - Maruti

Benefits of JV - Suzuki• Larger Indian market

• Monopolistic trade in Indian automobile industry.

• Availability of resources.

• Market entry -A strategic alliance can ease entry into a

foreign market.

• Share risk & expenses -firms involved can share risks. Eg: In

early 1990’s film manufacturers Kodak and Fuji joined with

camera manufacturers Nikon, Canon, and Minolta to create

cameras and film for an "Advanced Photo System.

Strategic Alliance

• Virgin Group

– one of the world's most recognized and respected brands

• Tata Tele Services Ltd. (TTSL)

– one of India’s leading private telecom service providers

– offers integrated telecom solutions under the TATA Indicombrand

– uses the latest CDMA technology for its wireless network

• Virgin Mobile India - Virgin-TTSL Strategic alliance:

– a ‘brand franchise’ agreement with TTSL

• Target

– break even in 3 years, at a subscriber base of 5mn

Strategic Alliance – Virgin Mobile & TTSL