Diversification Strategy in India
Abstract:
The case, "ITC's Diversification Strategy" gives an overview of ITC's diversification into related and unrelated areas in recent years.
The case presents an overview of the cigarette industry in India and gives a detailed account of the areas in which ITC has diversified.
The competition that ITC is going to face in each of the segments it has diversified into is also explored.
Issues:
Criteria of selection of new businesses and the degree of diversification involved as well as to examine the extent of synergy existing between them
Introduction
In February 2001, the Government of India (GoI) announced a ban on advertising by cigarette companies and restrictions on the sale and consumption of tobacco products.
The proposed Tobacco Products (Prohibition of Advertisement and Regulation) Bill 2001 prohibits smoking in public places and the sale of tobacco products to people under the age of 18. According to the Bill, no tobacco related business would be allowed to advertise in any type of media. Even surrogate advertising, like sponsoring sports and cultural events, by such companies was to be banned. International brands, however continued to advertise on satellite TV channels. Naturally, this put the domestic players at a disadvantage. To make matters worse, tobacco companies had already been badly affected by rising excise duties and competition from smuggled products. In fact, the number of cigarettes sold declined between 1997 and 2002, and major cigarette companies saw a decline in sales volumes.
The declining sales of cigarettes, the proposed ban on advertising, the increasing anti-tobacco campaigns and the experience in developed countries seemed to suggest that tobacco would no longer be a profitable business in the future. Consequently, ITC decided to diversify into non tobacco businesses. ITC made its first foray into a non-tobacco business long back in the 1970s, when it entered the hotel industry.
Since then the company has
The case, "ITC's Diversification Strategy" gives an overview of ITC's diversification into related and unrelated areas in recent years.
The case presents an overview of the cigarette industry in India and gives a detailed account of the areas in which ITC has diversified.
The competition that ITC is going to face in each of the segments it has diversified into is also explored.
Issues:
Criteria of selection of new businesses and the degree of diversification involved as well as to examine the extent of synergy existing between them
Introduction
In February 2001, the Government of India (GoI) announced a ban on advertising by cigarette companies and restrictions on the sale and consumption of tobacco products.
The proposed Tobacco Products (Prohibition of Advertisement and Regulation) Bill 2001 prohibits smoking in public places and the sale of tobacco products to people under the age of 18. According to the Bill, no tobacco related business would be allowed to advertise in any type of media. Even surrogate advertising, like sponsoring sports and cultural events, by such companies was to be banned. International brands, however continued to advertise on satellite TV channels. Naturally, this put the domestic players at a disadvantage. To make matters worse, tobacco companies had already been badly affected by rising excise duties and competition from smuggled products. In fact, the number of cigarettes sold declined between 1997 and 2002, and major cigarette companies saw a decline in sales volumes.
The declining sales of cigarettes, the proposed ban on advertising, the increasing anti-tobacco campaigns and the experience in developed countries seemed to suggest that tobacco would no longer be a profitable business in the future. Consequently, ITC decided to diversify into non tobacco businesses. ITC made its first foray into a non-tobacco business long back in the 1970s, when it entered the hotel industry.
Since then the company has