Case Statement:
Your client is a US based paper manufacturer. Their Indian business of Diapers is suffering. The CEO has consulted with you on this. You have to : (a) Suggest them whether they should exit Indian market (b) If they decide to stay what should they do to turn the things around
C: Before we start off with the case, can you tell me a bit about the company?
I: The company has a revenue of 20Bn and is in the paper industry. They were the first company to enter the Indian diaper market. However, its Indian revenue is only 100 million. The company also has been facing a 15 million loss in India.
C: Who are our competitors, and how are they faring?
I: Two major competitors have a combined market share of 85%. We have a market share of 10%, and the rest 5%, is fragmented.
C: What all products do we have?
Interviewer: We have two major types of diapers, the pant type and the tape type. Initially, we focussed only on the tape type. Then the competitors introduced the pant type, which was a major hit and successful. We also adopted this style but wasn’t very successful. The products focus mainly on young children, with very few products sold to old age people.
C: Where are they located in India ?
I : Pan India operations and manufacturing is in Pune, and they operate via distributors.
C: How is the Industry behaving ?
I: The industry is growing on a year- on- year rate of 20%
C: Do we have any other constraints in this problem ?
I: No, they have a huge business. The company doesn’t mind bleeding money for a while if they can be profitable in the long run.
C: Based on the above facts I think the company should stay in the Indian Market.
I: Are you sure, the Indian market is quite small as compared the global market and we are making a loss here.
C:Because the market for diapers in a country like India is very big and the market is continuing to grow at 20%, we should continue in the business.
I: How can the company breakeven and make it a profitable business in the future ?
C: We can look into possibilities of join ventures with existing players
I: No, the existing players are very big and wouldn’t want to enter any joint ventures, the fragmented part accounts for only 5% and that is very small. Let's just focus on the organic growth.
C:We can look into entering markets in tier 2 and tier 3 cities where the penetration for diapers is not very high.
I: Can you give a structural way of how we can do it. ?
C: We can give door to door tutorials to raise awareness about diapers and hygiene and improve our current market.
I: So our distribution channels have medical shops. They give us highest margins and a quarter of our sales happen through this. Its growing at 5-6% year on year. Our e-commerce segment has the second highest margins and has 18% growth rate(fastest). Then there is supermarkets. If you were to focus your efforts in growing one, which one would you pick.
C: We should focus on the e-commerce segment as it is growing at 3 times the rate of medical stores.
I: What do you think are the major risks associated with the e-commerce channel.
C: 1. Developing of inhouse brands by the e-commerce sites 2. E-commerce segments have heavy discounts part of which is borne by the manufacturer
I: If they want to become profitable and wants to increase their profits by 15% what should they do.
C: We can look at increasing revenues and decreasing costs.
I: Lets just focus on the cost side. Give me the major costs that would be relevant in this industry.
C: Raw materials, Logistics, Manufacturing, Outward logistics, Sales and marketing, General Administrative Expenses, Research and development.
I:What do you think is the most important cost heads here.
C: Logistics, R&D and sales and marketing. Where do we get the raw materials and how do we transport it.
I:We import it, and it comes to the Chennai port.
C: As out manufacturing plant is in Pune, it makes more sense to import it either to Mumbai or set up a new manufacturing plant closer to Chennai. Then we can look into optimising R&D. We have to introduce cost effective diapers in the rural market and have sustainable and recyclable products for the tier 1 market. We should also look into revenue leakages in R&D on non-profitable products. We can do more targeted marketing in tier 1 cities through social media marketing
I: This looks good. We can close the case now.
Background Information:
Company –In Paper business. Global revenue 20Bn. Indian Revenue 100 Mn. Facing a 15Mn loss. First diaper company to enter India
Competitor – There are two major competitors who have a combined market share of 85%. Our market share is 10%. Remaining 5% is fragmented.
Consumer – Young children (majority) and old age people (negligible)
Product – Diapers. There are two types. The pant type and the tape type. Initially there was only the tape type. Competitors introduced the pant type and were successful, we haven’t been able to make much progress in it
Case recommendations:
Short Term:
Introduce more SKUs
Create more awareness among rural and tier 2 and tier 3 cities.
Long Term:
Invest in cost effective diaper technology for ensuring more penetration into rural areas.
Develop recyclable diapers that are more sustainable
