Asian Paints Corporate Strategy

Corporate Strategy of Asian Paints
1 IDENTIFICATION OF INDUSTRY DYNAMICS..................................................5
1.1 Industry description....................................................................................................5

1.1.1 Industry Structure- Decorative:...............................................................................6
1.1.2 Industry Structure-Industrial Paints: ......................................................................7
1.1.3 Industry Characteristics: ........................................................................................8
1.1.4 Margins and Industry Attractiveness......................................................................8
1.1.5 Decorative Paints industry: Working capital intensive ........................................11
1.2 Segmentation.............................................................................................................12
1.2.1 Price based segments in architectural paints.........................................................13
1.3 Current Scenario.......................................................................................................14

1.3.1 Market Size...........................................................................................................14
1.3.2 Growth Rates........................................................................................................14
1.3.3 Manufacturing Bases & Capacities.......................................................................15
1.3.4 Raw Materials ......................................................................................................17
1.3.5 Backward integration............................................................................................19
1.3.6 Distribution methods.............................................................................................19
1.3.7 Forward integration...............................................................................................21
1.3.8 Technology...........................................................................................................21
1.3.9 Branding................................................................................................................21
1.3.10 Duty Structure.....................................................................................................22
1.4 Porter’s Analysis.......................................................................................................22

1.4.1 Substitutes.............................................................................................................22
1.4.2 Threat of new entrants..........................................................................................22
1.4.3 Buyer’s power.......................................................................................................23
1.4.4 Supplier’s power...................................................................................................24
1.5 Global Trends............................................................................................................24
1.6 Expected growth in each segment...........................................................................27
1.7 Changes in segmentation..........................................................................................28
2 IDENTIFICATION OF COMPETITORS ...........................................................29
2.1 Main Competitors.....................................................................................................29
2.2 Identification of focus areas of competitors............................................................30
2.3 Entry of Global Players, Recent Joint Venture agreements.................................31
2.4 Important brands of competitors............................................................................32
3 KEY DRIVERS OF SUCCESS..........................................................................33
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3.1 Key drivers in past, present and future for each of the three segments..............33
3.1.1 Industrial Segment................................................................................................33
3.1.2 Urban Decorative..................................................................................................34
3.1.3 Rural Decorative Segment....................................................................................36
3.2 Other Factors............................................................................................................36

3.2.1 Branding................................................................................................................36
3.2.2 Inventory Management: .......................................................................................37
3.3 Drivers for growth of Industry................................................................................37
4 HISTORY OF ASIAN PAINTS LTD..................................................................38
4.1 The initial years.........................................................................................................38
4.2 Financing growth......................................................................................................38
4.3 Capacity expansion ..................................................................................................38
4.4 Modernization...........................................................................................................39
4.5 New Product Offerings.............................................................................................39
4.6 International Exposure.............................................................................................40
4.7 Colourworlds – A revolution in the paints industry..............................................40
5 HISTORICAL STRATEGIES ADOPTED BY ASIAN PAINTS.........................41
5.1 Market Leadership through Distribution Excellence............................................45
6 ASIAN PAINTS PERFORMANCE ANALYSIS.................................................47
6.1 Financial Performance.............................................................................................48
6.2 Market Performance................................................................................................49
6.3 Management of working capital by Asian Paints..................................................51
7 ASIAN PAINTS STRATEGY.............................................................................54
7.1 Corporate Strategy...................................................................................................54

7.1.1 Asian Paints Overall Corporate Strategy..............................................................58
7.2 Asian Paints Acquisition targets..............................................................................59

7.2.1 Possible acquisition of Snowcem..........................................................................61
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7.3 Business Strategy......................................................................................................62

7.3.1 Urban strategy.......................................................................................................62
7.3.2 Rural strategy........................................................................................................65
7.3.3 Strategy for international markets.........................................................................65
7.4 Differentiation and the role of branding.................................................................65

7.4.1 Branding................................................................................................................66
7.4.2 Classification of paint ..........................................................................................67
7.4.3 Shift in brand strategy...........................................................................................73
8 POSSIBLE FUTURE CHANGES: ....................................................................75
9 EXHIBITS...........................................................................................................78
10 BIBLIOGRAPHY.............................................................................................82
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1 Identification of Industry Dynamics
1.1 Industry description
The Indian paints industry has been valued at Rs. 43 bn. with annual consumption
of 0.6 million tons. The industry has been growing at a CAGR of 8% to 10%. The
industry can mainly be segmented into decorative and industrial paints with a rough
distribution of 70% to 30% in favor of the former. This distribution is expected to move
towards a 50:50 distribution.
The demand for decorative can be split into first time demand and demand for
repainting. The first time demand is a derived demand and the growth in the demand for
decorative paints is linked to the state of the housing sector and the government
infrastructure sector. In turn the housing and infrastructure activity is dependant upon the
state of the country’s economy. Cement and Steel are the first sectors that reflect the state
of the economy, followed by the housing and infrastructure sectors, which affects the
paints industry. Therefore, the demand for new paints follows the economic cycle with a
lag of about 12 to 18 months. Empirical evidence shows that the paint industry grows at
about 1.5 to 2 times the GDP growth rate.1
The demand for repainting is a slow growing area, since India, as of now has not
developed the culture of using paint as a fashion tool, therefore repainting is not done
very often. But, this sector does show consistent growth, though it is slow.
The demand for decorative paint is also highly seasonal, especially for the
repainting segment, the bulk of the demand being during the festivals seasons. The
peaking of demand during specific seasons has been a unique feature of the Indian paint
industry and has led to the introduction of such paints like Utsav by Asian Paints. The
marketing activity is also stepped up during the festival season.
The industrial paint segment is highly cyclical and again, it is also a derived
demand depending upon the sector that is being served. E.g. the automotive paint
segment is linked to the fate of the automobile industry that is directly linked to the state
1
From www.capitaline.com
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of the economy and reflects changes in the economy quite fast. Therefore the demand for
paint in this segment also reflects changes in the economy quite quickly.
1.1.1 Industry Structure- Decorative:

The decorative segment of the industry is hourglass shaped. There are a small number of
large players having a high market share and a large number of players in the
unorganized sector. Even though regional medium sized players exist, they do not
command a high market share.
The large players have Economies of Scale in manufacturing, large distribution
networks, centralized Marketing and Advertising departments and very high brand equity
among the consumers, which gives them a significant advantage over the mid-sized
players. Since, regional variation in demand of the product is minimal, the regional
players do not have any advantage over the big players. The unorganized sector’s market
comprises of the rural and small town segments, where they offer a viable, affordable
substitute to Proxies. The unorganized sector’s competitive advantage lies in operating in
the right willingness to pay segment of the market. The unorganized sector has a 20-30
percentage cost advantage over the established players and therefore they have a high
share in the price-sensitive rural segments. They offer low-quality paint as an ideal
substitute for the proxies and attract the value-sensitive rural customer with the
proposition.
1.1.1.1 The Advantage of the unorganized sector:

The cost advantage for the unorganized players was derived mainly from government
policies. The tax structure for the paint industry was one of the major constraints and
government policies regarding taxes led to the negative growth of the industry in the
early 90s. The government had classified the paint industry as a luxury industry and
therefore the industry attracted very high excise and import duties. These adversely
affected the organized sectors. The unorganized sectors were small industries and
therefore had to face much lower tax rates. Also, the import duties on the intermediaries
and the raw materials required for the paint industry were very high. This again hit the
organized sectors because they were the companies that were mainly importing these raw
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materials, and the unorganized sectors were using lower quality local raw materials. All
this led to the proliferation of these unorganized sector industries, and enabled them to
offer significant lower prices than the organized companies. This price differential was
crucial because the rural customer was very price sensitive and therefore bought from the
vendor offering the cheapest options.
However, in recent times, the unorganized sector has struggled to match the
offerings of the organized sector. The rationalization of the tax rates has nullified this
advantage for the unorganized sector. The excise duties have been brought down to 18%
from 40% in 1992-93 and the import duties of raw materials have been brought down to a
mean of 40.8% from 67.5% in 1993-942. This has primarily been due to the change in the
classification of the industry from a luxury industry to a protective industry. This has
minimized the cost advantage that the unorganized sectors has had on the organized
sector, though the unorganized sector shall continue to have some cost advantages from
the use of inferior quality raw materials. The other reason for the recent failure of the
unorganized sector has been changing customer preferences. The rural market has
matured and the primary factor of demand is now not only price but also quality and the
value added services provided. The organized sector has a significant advantage in this
area, and therefore the price disadvantage that they have is overcome and in fact, some
sort of advantage is built.
1.1.2 Industry Structure-Industrial Paints:

The Indian industrial market, like the global markets is dominated by a few players. This
is because there is a high technological competence required for competing in the
industrial segment and the unorganized sector do not have this competence.
The industrial segment is further sub-divided into a number of segments and since
it is a technology based industry, the competencies required to be successful in different
segments are distinctive and unique. Due to this, the market operates like a set of niches
with different players operating in different segments. Each segment is like a
monopolistic industry with one player dominating the niche. There is no head on
competition and every player has a set of independent niches to operate in. The customers
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CRISINFAC
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also have long-term contracts and customized service requirements with the industrial
paints companies.
1.1.3 Industry Characteristics:

The industry is characterized by low fixed capital requirements but high working capital
requirements. A plant for manufacturing decorative paint can be set up with low capital
requirements, though for industrial paints there would be specific technologies and higher
capital requirements. High inventory management costs is a very important reason for
working capital requirements. The wide choice offered to the consumer and the large
number of SKUs that are present increases the inventory requirements vastly.
The problem of high inventories due to high variety has been partially solved by
the introduction of tinting machines. These tinting machines postpone the process
required for generating by a large extent and shift the timing of customization to the point
of delivery, thereby reducing the inventory requirements drastically.
1.1.4 Margins and Industry Attractiveness
The margins that are being offered in the decorative and the industrial segments are
different but the differences are not very significant. The gross margins for the various
players are as follows3:
Company Gross Margins
Asian Paints 12.37%

Jenson and Nicholson 9.54%
Goodlass Nerolac 7.78%
Berger Paints 7.36%
It can be observed from the above that the margins for players that are very highly
exposed to the decorative segments are higher and as the dependence on industrial paints
increases the gross margins go down.
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Source: www.capitaline.com
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The above differences in margins may be slightly distorted by the much higher margins
of Asian Paints. The higher margins of Asian Paints are mainly because of much lower
raw material costs. The proportion of raw material costs of Asian Paints is 34% compared
to about 48% for the rest of the players.
This advantage to Asian Paints could have accrued due to two reasons:
 Better logistical management: Asian Paints has a very good supply chain structure
and the entire supply chain has been integrated through the use of IT. This could lead
to better availability and utilization of resources, less wastages and lower transaction
and coordination costs. All this would lead to lower costs for the supplier and Asian
Paints and therefore lower prices.
 Backward Integration: Asian Paints has established capacities to manufacture PAN
and PET, two raw materials that comprise about 35% of the cost of the product. This
backward integration helps reduction in the raw material cost in two ways. This
immunizes Asian Paints to the fluctuation in the prices of raw materials in the
external market. Also, the raw materials produced at the plants are transferred to
Asian Paints at cost or a low margin over cost; therefore the cost of raw materials is
much lower for Asian Paints than the costs for the other players. The prices of the raw
materials depend upon the prices of petrochemicals in the international market. The
intermediate raw material companies help insulate Asian Paints from major price
rises and pass on the price drops.
This implies that though there is a slight differential in the margins of the decorative and
industrial segment, the differential is quite small and therefore both the industries would
have similar attractiveness. It must also be kept in mind that these figures are for 2001-
2002 when the industry conditions were quite depressed. Industrial segment depends
upon the growth of the economy and the depressed conditions might have driven down
industrial margins slightly and they could be expected to bounce back.
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Therefore, financially, the attractiveness of the industrial and the decorative segments is
quite similar. Therefore the differentiation between the decorative and the industrial
segments can be dependant upon the capital intensiveness and the technology of the
segment. The manufacturing processes of the decorative segment are quite similar
throughout the industry but the processes in the industrial segment vary from market to
market, with each having its own method of manufacture. Therefore, the capital
intensiveness and the technology dependence of the industrial segment cannot be
evaluated as a whole, but each market can be evaluated separately as a wholly different
segment and its attractiveness with regard to these parameters gauged separately.
 Technological Requirements: The technology required to manufacture decorative

paints is quite standard and quite simple and cheap to imitate. There are no
technological advantages for anyone in the manufacturing side of the decorative
paints segment. Comparatively, the technological requirements for each market in the
industrial segment are unique and therefore are marked by low imitability. The
uniqueness of the technological capability that a company possesses increases the
attractiveness of the industry for that particular player. Most of the Indian players do
not have any proprietary technology in the industrial segment and therefore the
markets they enter depend upon the tie-ups that they have in the international
markets.
 Capital Intensiveness: The decorative paints industry is very working capital
intensive. This point has been justified later along with the practices being followed
in the industry. The capital investment required for decorative paints is quite low with
the cost of a 1 million tpa plant being only about Rs. 12 crore. Comparatively, the
initial capital investment required depends upon the technology being used. There is
no standard template for the capacities being setup in the industrial paints segment. If
the industry is a highly capital intensive one, the expectation for revenues and
margins is bound to be high and is that is not satisfied, that industry becomes less
attractive.
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1.1.5 Decorative Paints industry: Working capital intensive
As mentioned earlier, the decorative paints industry is not fixed capital or initial
investment intensive but working capital intensive. The following points can justify this:
 The initial investments required setting up a plant for the decorative paints area is
quite low; a 1 million tpa plant can be setup for Rs. 12 crores.
 Since the variety of the paints being sold is very large, the inventories of each type of
paints being manufactured is to be kept, this leads to inventory accumulation and
therefore need for larger warehouse space. This inventory would always be a problem
and management of this inventory would create even bigger problems. What type of
inventory to keep? What product to keep in inventory? What is the optimal inventory
level? Some of these questions would always trouble the managers.
 Inventory management is even more crucial keeping in view their customer focused
marketing strategy. If a particular shade is not available, the customer would go to a
different provider since the switching costs are not very high. So, again inventory as
part of working capital gains importance.
 Highly raw material intensive: The industry is also highly raw material intensive and
50% of the raw materials are imported. The international raw material prices are
highly volatile and depend upon the prices of oil. So, to hedge this price volatility
better cash management is required and higher cash balances have to be maintained.
Also, higher raw materials inventory needs to be maintained.
 Long debt periods and Seasonal nature of demand: The industry is characterized by
long credit periods for the retailers and dealers. In normal circumstances also this
would require better receivable management. Also, more cash would be stuck in the
credit provided and as the cash to cash cycle increases, requiring better cash
management. If we throw in seasonality of demand where most of the sales occur
around the festival season, this long debt period creates a bigger problem. Since the
sales during festival time are a high percentage of the company’s sales, due to the
long debt period, a huge amount of cash is trapped in the cycle leading to higher
working capital requirements during this period of time.
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 Not just in the last point, but also in the points above that, basically more and more
cash reserves are required because the cash to cash cycle in every case is going up.
1.2 Segmentation
The paint industry can be segmented mainly on the following bases:
1. End Use classification: Under this heading, paints can be classified as decorative/
architectural paints and industrial paints. As the names suggest, decorative paints
are mainly used for household and construction purposes while industrial paints
are used as coatings for industrial products. Main types of decorative paints are
enamels, acrylic emulsions, distempers and exteriors and primary types of
industrial paints are marine paints, anti corrosive metal coatings, etc.
2. Solvent based classification: this includes paints, which use petro products or
water as the main solvent. Water based paints are gaining popularity due to their
environment friendliness.
3. Solid content: can be classified as liquid or solid (powder) paints. Powder
coatings find application mainly in the white goods industry.
On the basis of end user classification the industry is mainly divided into two segments:
1. Decorative/Architectural: This segment can again be geographically divided
into two categories, rural and urban. In India, both these segments show different
buying and decision-making characteristics and the value drivers for both the
types of customers are different. The decorative segment can be further classified
into the following:
 Emulsions: These can be used on concrete for interior or exterior application.
Product variety is greatest in this segment, but this is a higher priced segment.
 White washes and distempers: White washes are basically whiteners in glue
solutions, while distempers can be applied to interior concrete walls.
 Cement paints: Are of more use than others for exterior use.
 Enamels: These can be used on a variety of substrates like steel, wood,
concrete etc. and are preferred because they provide gloss to the substrate.
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2. Industrial
The industrial segment can be classified into the following:
 Automotive segment: This segment serves the large automobile segment.
 Powder coatings: These are used for metals that require protective coatings
 Performance coatings: These are used by engineering companies and are used
for maintenance coating.
 Coil coatings: They are applied on coils and metal rolls and have a very
specific industrial application.
 Marine coatings
1.2.1 Price based segments in architectural paints4
Particulars Premium 1st Quality Popular
Product Super-acrylic Plastic Emulsions, Oil-bound

Description Emulsions, Acrylic distempers distempers,
Premium Enamels Synthetic
enamels
Target Up-market buyers High income group, Middle class and

Segment Upper middle class Rural markets
Key Purchase Quality, Shades & Quality, Surfaces, Cost &

Influencers Dealer push Shades, Cost & Availability
Dealer push
The end user classification is the one that is the primary differentiator. The end user
classification decides not only the marketing and the customer contact part but also
the manufacturing technologies and the capital investments required. The following
points differentiate these two segments:
 The decorative segment is characterized by low fixed investments and high
working capital investments. The industrial segment on the other hand
requires huge fixed capital investments.
4
Classification derived from CRISINFAC, CRISIL’s Business Intelligence Service
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 The technology required for manufacturing of decorative paints is easily

replicable and of a relatively low cost while the technology required for
manufacturing of industrial paints is highly specialized. The technology for
industrial paints is not easily replicable and also requires high capital
investments.
 In the Indian context, success in the decorative arena depends upon non-
manufacturing and service related factors. Therefore distribution, availability,
value added services etc are more important. For the industrial arena,
technical expertise is more important. This has led to a lot of companies
participating in joint ventures for serving the industrial markets.
The methods for customer development also differ in both these markets. The
decorative segment demands heavy advertising, brand development, value added services
etc. The industrial segment requires very good quality, relationship management, direct
marketing etc.
1.3 Current Scenario
1.3.1 Market Size
The estimated size of the paint industry in India is about Rs. 5500 crores. The
organized sector occupies 70% of the market and the rest 30% is catered to by the
unorganized sector. Over the last few years, there has been a significant shift in customer
preference in favour of the players in the organized sector.
The Indian paint sector is dominated by decorative paints, which occupy about
70% of the market. The industrial paints have a meager share of 30%. This situation is
very different from that of most developed countries where the share of these two
segments is 50:50
1.3.2 Growth Rates
The demand for paints depends on the country’s economic development. In India,
the demand for decorative paints comes from two segments i.e. new building construction
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and retail demand for refurbishment. The demand for industrial paints is mainly from the
consumer durables, automobiles, shipping and engineering industries.
The growth had been sluggish (2-4% p.a.) in the late 80s and early 90s (87-92)
due to low industrial growth and steep excise duty imposed. In the period 1992-96, the
market grew at a faster face of about 12% on account of lowering of the duty structure
and the improvement in the economic condition of India. This era of high growth
extended beyond 1996 as even after a lower growth in the last couple of years due to
economic slowdown.
The growth is on two counts: Increase in price realization and the increase in the
volume consumed. As the price increase has been lower than 5% p.a., most of the growth
I due to higher consumption, which is a healthy sign.
The Indian paint sector is dominated by decorative paints, which occupy about
70% of the market. The industrial paints have a meager share of 30%. This situation is
very different from that of most developed countries where the share of these two
segments is 50:50.
The demand for decorative paints is expected to grow by 8% p.a. for each of the
next 5 years, courtesy the construction of new houses. The shortage of housing and the
tax concessions provided in the recent budgets will lead to the growth of the housing
construction and thus the paint industry. Rural areas are expected to be centres of growth
in this regard.
Due to a rapid growth in industries like consumer durables, automobiles and the
lower current base, the industrial paints segment is expected to record a higher growth.
1.3.3 Manufacturing Bases & Capacities
The plants are usually located in multiple locations so as to be near the customer. For e.g.
Asian Paints has 4 manufacturing facilities at Mumbai (Maharashtra), Ankleshwar
(Gujarat), Patancheru (Andhra Pradesh) and Kasna (Uttar Pradesh). The capacities of the
above plants are 20000 MT, 50000 MT, 50000MT and 42700 MT per annum
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respectively in March 2000. The locations of various plants for major paint companies
have been given in the exhibit 3.
The capacities for manufacture of Paints, varnishes, enamels & oils (in MT) for the top
players in the industry are as follows:
Company Mar 98 Mar 99 Mar 00 Mar 01 Mar 02

Asian Pints 118900 162700 162700 168900
Berger Paints 34920 56420 56420
Goodlass Nerolac 25847 35318 39123 39588
In the last 2-3 years, the top players have not added significant capacities.
Utilization
Paint is manufactured in a batch process and the downtime between batches is
significant. In decorative paints, lighter shades are produced in the beginning of the
month, and darker shades as the month progresses. This maintains the purity of the
shades. The equipment is rinsed quickly between the production cycles of two shades and
washed thoroughly at the end of the month. Batch sizes are however significantly lower
for industrial paints because the product variety is much wider. Also, the equipment used
in this case have to be washed thoroughly between different batches, leading to a
significant loss of downtime.
Paint is not a capital-intensive industry. Hence, it is affordable to create extra
capacity to meet seasonal demand only. This is more cost affective than building up
inventory during the lean season. The average capacity utilization of the paint industry is
65%. Low levels of plant automation in India product mix variety, batch size, batch
processing time and downtime between batches adversely affects the plant utilization
levels.
Economics of scope in industrial and decorative paints
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Theoretically a paint producer has the flexibility to shift from the production of
decorative paints to industrial paints and vice versa. The manufacturing process is very
similar and the equipment can be modified, too. However, varying batch sizes of the two
segments, different vessel sizes and additional safety precautions to be adopted in the
manufacture of industrial paints deter the paint producer from switching equipment
between the two segments of paints. However, the big players are generally present on
both sectors because the Economic cycles are different and this provides the companies
with an opportunity to de risk their operations.
1.3.4 Raw Materials

The paint industry is raw material intensive, with the raw materials accounting for about
70% of the total production costs. Approximately, 300 different types of raw materials
are used in the manufacturing process. The most critical ones are Titanium Dioxide (TiO2),
Phthalic Anhydride (PAN) and Pentaerythritol (PENTA) which constitute 30%, 20% and
15% of the total raw material cost. Besides these, organic pigments, solvents, oils and a
range of chemical additives are used in paint production. The industry imports around 30%
of its total raw material requirements, primarily titanium dioxide.
Titanium Dioxide
Titanium Dioxide is a white pigment that gives colour, consistency and durability to
paints. It exists in two forms namely rutile and anatase. Rutile is 12-15% more expensive
and is used in high value decorative paints and in industrial paints. Anatase is more
commonly used for exterior paints. Due to the high price of TiO2 (about Rs. 90000/MT
for imported rutile), transportation cost is not much of an issue. India has 7-8% of the
world’s ore deposits, mostly in Kerala, but is unable to exploit it due to power supply
problems, the lack of appropriate technology and the minimum economic size of plant
(about 50000MT/annum, costing about Rs. 1000 crores). In India, the demand for rutile
and anatase are about 40000MT/annum and 30000MT/annum respectively. The 4
existing manufacturers are currently operating at near 50% of their utilization and
meeting less than half the existing market demand primarily due to lower quality of their
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products (unable to produce finer grades). Their prices are however, not lower than the
imported products. Hence, the high imports.
Setting up a TiO2 manufacturing facility in India is currently unviable.
60% of titanium dioxide produced worldwide is used by the paints industry, which is
much more fragmented than the rutile/anatase producing industries (the top 4 players
hold about 60% of the market). Hence, there is significant supplier power.
Pthalic Anhydride
It is used for the manufacture of synthetic resins, which act as binders in paint products.
About 50% of the PAN produced is consumed by the paints industry. The top 2 players
viz. I.G. Petrochemicals and Thirumalai Chemicals account for almost 75% of the
domestic production. Asian Paints with a capacity of about 20000MT has a 7% market
share. Although India has a surplus of PAN, with 40% of production being exported, I.G.
Petrochemicals is an export-oriented unit and does not flood the Indian market. As such,
the prices are at a moderate-high level, fluctuating widely (Rs. 29000 – Rs 39000 in last 1
year) in toto with the international prices. During such time of high international prices,
Asian Paints has a significant advantage in cost of production of paints. Technology is
stable and easily available but scale advantages are large. Hence, the small paint
manufacturers are unable to go in for backward integration for captive consumption only.
Pentaerythritol
A large number of industries use this product, paints being one of them. The top 3 players
control about two-thirds of the industry. Asian Paints has a market share of 20% and uses
two-thirds of its production for its own use. The quality of Asian Paints’ produce is
higher than the other majors, resulting in a 15% higher price, of about Rs. 100,000/MT.
The fragmented consumers of Penta results in high profits for Asian paints.
Organic Pigments
They are pigments, usually in powder from, consisting of white or coloured particles and
provide the characteristic colour and opacity to the paint. It is a fragmented industry, with
more than a 100 small and medium players manufacturing a wide variety of colouring
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pigments. Thus, supplier power is low. Also, as far as the major paint manufacturers are
concerned, it makes little sense to set up facilities to manufacture organic pigments. As
far as consumption in paints go, they are a low value, high price item (about 20000MT
annually at Rs. 400,000/MT). The technology is not well developed in India. As such, a
partnership in some form with foreign firms is necessary.
1.3.5 Backward integration
Asian Paints has established capacities to manufacture PAN and PET, two raw
materials that comprise about 35% of the cost of the product. This backward integration
helps reduction in the raw material cost in two ways. This immunizes Asian Paints to the
fluctuation in the prices of raw materials in the external market. Also, the raw materials
produced at the plants are transferred to Asian Paints at cost or a low margin over cost;
therefore the cost of raw materials is much lower for Asian Paints than the costs for the
other players. The prices of the raw materials depend upon the prices of petrochemicals
in the international market. The intermediate raw material companies help insulate Asian
Paints from major price rises and pass on the price drops. The process of backward
integration also equips the company with the ability to meet sudden surges in demand
that could be created if the industry dynamics undergo a drastic change.
AP is one of the few companies to have been involved in Backward Integration.
This is fundamentally because of the need for having high capacity utilization in the
captive manufacturing plants. Even Asian Paints, for its size of operations, is able to
consume only two-thirds of its captive production. The rest 1/3rd it sold to other
manufacturers of paints. This might prove to be strategically important to AP if the
demand surges.
1.3.6 Distribution methods
The availability of a wide variety of shades and an extensive distribution network

is critical for the success of the decorative paint business. The company salespeople keep
visiting these dealers and maintain a cordial relationship. This is what prevents
international players from entering the Indian market on their own, without any tie-up
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with a local player. Although Asian Paints’ 14,500 dealers are not much more, compared
to Goodlass Nerolac’s 11,000 dealers, the quality of dealers that Asian Paints has (in
terms of financial power, customer interaction, etc) are much better than that of its
competitors. The dealers receive their supplies from the nearest of 55 company depots
which in turn are supplied by 6 regional distribution centres in India. These depots in turn
receive the goods directly from the 4 Asian Paints’ factories.
Having plants spread across the region being serviced is very important for
cheaper products like distempers but not so for emulsion paints. The high transportation
costs as a fraction of the COGS would wipe out a substantial portion of the profit margin,
otherwise (The distempers sell for about Rs. 50/litre and the exterior paints and
emulsions for Rs.150 to 200 per litre. The transportation cost from Mumbai to Kolkata is
about Rs. 1,500/kilolitre.)
The number of product-pack-shade combinations offered by a paints company is
vital for its profitability in the decorative paints market. Although temporary in nature,
Asian Paints had the first mover advantage in introducing a wide variety of colours first
through an extended shade card of 151 colours. In response to J&N’s introduction of
2500 readily available shades through tinting machines in late 1996, Asian Paints and the
other majors followed suit by offering 1000-1500 shades to their customers. However,
Asian paints gained the most as it was able to penetrate the market most with its tinting
machine so much so that most people think that Asian Paints was the pioneer. Although
the inventory carrying cost drastically comes down as only 10-15 varieties of stains need
to be stocked for mixing, an investment of about Rs. 5 lacs is required by the dealer for
such a machine. Hence, the penetration of such machines is still low, with non-existence
in rural areas.
Inventory management is critical in the paints industry. The majors normally
carry 70-90 days of sales equivalent of inventory. Among them, Goodlass Nerolac is
more efficient due to more of its sales coming from the industrial sector where lower
inventory is required (fewer varieties and more specialization).
Asian Paints was the first paints major to take a rural initiative as long back as
1989. Since then, it has built up a good dealer network in such areas, where availability
of paint is the primary concern and not the shades or the services offered. Also, small
20
pack sizes (1kg and 0.5kg) are critical as the customers often paint only one or two walls
and even if the entire room is painted, 4 litres of paint is rarely required. (1 litre of
distemper and emulsion are sufficient for painting 2 coats 100 and 150sq ft area. Asian
Paints offers the distempers in 0.5kg packs and the emulsions in 1kg pack.
1.3.7 Forward integration

The major players are considering providing services also, instead of just selling
products. They are thinking of taking care of their customers’ needs right from the
selection of the paint to the completion of painting their house. This will be discussed in
detail in subsequent chapters.
1.3.8 Technology
Technology is very important for industrial paints. The Indian companies have not
invested in research and development and hence are backward in this regard. They try to
copy the offerings in the international market. Industrial paints can be classified into
various categories including automotive coatings, marine coatings, powder coatings and
coil coatings, all of which are based on different technologies which require considerable
R&D effort for developing and improving. Hence, the Indian players are not geared up to
meet the needs for industrial paints on their own.
The companies are increasingly going in for joint ventures and technical tie-ups
with foreign firms, which have access to modern technology in order to make an impact
in the industrial paints segment. These joint ventures are also very useful in getting the
Indian accounts of the global players that are currently customers of the JV partner. By
virtue of partnering with PPG Industries of USA, Asian Paints got the account of DCM
Daewoo, Hyundai Motors and GM in India. Such joint ventures are beneficial for both
the partners, the Indian partner getting access to the critical technology and the foreign
player to the distribution network and service personnel.
1.3.9 Branding
The top players have launched various brands in the market. Different brands are targeted
at various segments. For e.g. Asian Paints has Royale for the high end of the decorative
21
paint market and Utsav for the lower end. Brand building is an important deterrent for
new players wanting to enter the paint market in India.
1.3.10 Duty Structure

The excise duty on paints i.e. the finished products has remained at 16% since 1997-98.
Till the early 90s, the unorganized sector had various SOPs, which enabled them to
produce at 40% lower cost and hence play a major role in the decorative paints market.
However, in the mid 90s, the change in the duty structure brought down the cost
advantage from about 40% to 4-5%. This resulted in the increase in market share of the
players in the organized sector.
1.4 Porter’s Analysis
A Porter’s five-force analysis was done. It is given in a diagrammatic form in the

exhibit 1.
1.4.1 Substitutes
The threat of the substitues is much greater in the rural markets, where the
awareness about paints is still quite low, and it is considered as a luxury good. Either the
walls are left as such without any paint on, or substiutes like whitewash are used. This
threat is visible in the urban markets also, especially in the exterior paint segment. White
cement is one of the most preferred substitutre for the paints for exterior walls. Houses
are increasingly made with walls, constructed of bricks in such a way that the bricks act
as a natural décor. Stones are also being used in many cases.
1.4.2 Threat of new entrants
We see that the drivers for success are different in both the segments, that is
decorative and industrial. In decorative segment, distribution channel becomes most
important for a player to be a success. Thus for a new player to succeed here, entry
22
barriers are huge. That may have been one of the reasons that ICI isn’t such a big player
in Indian decorative segment. Although, the growth rate of Indian market is very
attractive, in comparison to global markets, APIL, because of it’s distibution channel, is
not all that threatened by new entrants. Even if an international player wishes to enter into
this segment, it will take him inordinately long time to establish channels which could
threated APIL. The brands of the existing players could also make it difficult for a
potential new entrant, especially if the Pull factor further increases in the industry.
The industrial segment, which gives mcuh more importance to the technology
used, and doesn’t require such huge networks, is more prone to new entrants. But the flio
side of this segment is the technology. It raises the entry barriers to forbid entry into this
segment. Also getting a foothold in the market is very difficult, as the swittching cost is
high for the customers.
1.4.3 Buyer’s power
The decorative segment is very fragmented market as most of the buyers are small
buyers. There are a huge number of buyers, all of them with small demand. Thus they
don’t have much power. They have low switching cost though, thus it might be difficult
to establish a brand loyalty though. There might be corporate customers with whom a
player may have tie-ups. In those cases the buyers do have certain power.
The consumers of paints especially in the decorative paints segment do not have
adequate knowledge about the quality, properties and perceived benefits of a particular
paint. Hence, there is a strong reliance on intermediaries like painters, contractors and
even paint dealers in making an informed decision about the type and even the brand of
paint to buy and use, thereby becoming strong influencers.
In industrial segment the buyers do have some buying power. There are fewer
buyers with huge demands. Loss of one customer would hit the company in quite
noticeable way. This can be overcome by raising switching costs. The costs can be
increased by giving the customers specialized services, like after sale services etc.
23
1.4.4 Supplier’s power
One of the main RM in the manufacture of paints is TiO2. 50% of it is imported

primarily because the quality of indigenously prepared compound is not very high. There
are very few suppliers of this material. Also the threat of backward integration into
making TiO2 is low, as the capital costs are in the tunes of 450 to 500 crores, suppliers
power further increases.
In industrial segment, technology is imperative. There are only very few
companies which pioneer in the technology, for example Du Pont, thus they command
their prices.
1.5 Global Trends
Till now we have examined the domestic market and the present scenario through which
we are getting a picture of what the future scenario can be in the Indian market. The
Indian market is expected to move towards the model of the western markets as it
matures. In the global market the share of industrial paints is 70% and that of decorative
is 30% while for the Indian market it is the other way round. The Indian industrial paints
market has just about started growing and the decorative paints market has started
maturing, so the long-term distribution of paints shall be comparable to the world
scenario now.
The global market is estimated at about $21 million tons per annum and valued at about
$60 billion5. The world market is growing at a rate of 3-4% a year, or slightly less than
the world economy and is serviced by 7,000 paint makers. This is because the market in
developed countries is quite mature and a very high level of market penetration has been
achieved and there are few areas where market expansion can take place.
5
Source: www.indiainfoline.com
24
The global market is in a very high stage of consolidation and the top players control
almost 60%5 of the total demand. A lot of mergers and takeovers have happened in the
recent past. Despite the presence of thousands of paint suppliers, the impact of mergers
and acquisitions has been dramatic. In 1980, the top 10 paint manufacturers accounted for
15% of world sales. During 1980-2000, ICI grew more than four-fold to become the
world’s largest paint manufacturer with a market share of 10%5 worldwide. Akzo Nobel
grew five times and Sherwin Williams grew three times. The level of consolidation can
be seen from the example of the DuPont takeover of Herberts. DuPont was the leader of
automotive coatings in North and South America and Herberts was the leader in the area
in Europe. DuPont planned it expansion to Europe and the executed this plan through the
takeover he Herberts to itself become the largest automotive paints manufacturer in the
world.
The market is quite differentiated and a lot of sectors and niches have been identified.
The bigger the sector or the niche, more likely industry leaders will dominate it. The
reason for this is that most of the players have now started concentrating on the only
specialized niches and they try to dominate that particular niche. Due to a high level of
consolidation, only the large players have remained in each of the markets and therefore
survival of marginal or low market share players has become tough. Therefore, even the
large global players who have a small presence in non core segments have begun hiving
off those divisions and are concentrating on the core segments and the competition in
even the core segments is only from very large competitors.
Also, in the industrial arena technology advancements started making the technologies
for manufacture more and more exclusive to the proprietary technology holders. This has
made it infeasible for other players to advance in the markets and they have either sold
out or closed shop. It is very tough for one player to dominate more than three to four
niches in the industrial segment because that would require a lot of R&D capability and
expenditure. Also, it would have to compete with highly focused companies who are just
concentrating on one or two areas and are therefore specialized in these areas. Such a
25
company would find it tough to keep up with the technological advancements in the area
and would therefore have to move towards more focus on a smaller number of niches.
The ultimate structure of the industry (the signs of which can be observed even now)
would be where a small number of highly focused global competitors compete in each
niche with each having a substantial market share.
Companies such as ICI, Kalon and Akzo Nobel have become experts and so dominate the
decorative markets, with ICI in particular choosing to quit car paint segment four years
ago to concentrate on decorative segment. It has, however, stayed in two big worldwide
industrial sectors: vehicles refinish and can coating.
This trend to concentrate on core competencies was started by Herberts in Germany in

the mid-eighties, when Hoechst, its parent company, allowed it to exit from decorative
paints, revive the former Herberts brand name and concentrate on industrial market alone.
The move astonished an industry then obsessed with volume, for Herberts immediately
dropped out of the premier league of the world’s top 10 paint manufacturers. Today, it is
back in the top 10 after building up through acquisitions and accelerated growth in
sectors where it is confident it can make the world’s top five. In powder coatings it is
world number one. It was, of course, taken over by DuPont in 1999.
ICI, now the world’s largest paint manufacturer, has led the rush for volume and
continues to do so. It has pared down its high-tech, specialized global niches to two -
vehicle refinishes and can coatings - and has developed a profitable world business since
its big leap forward in 1986, when it bought Glidden, a US giant then in the top 10. A few
months prior to this purchase, BASF, Herberts’ German rival, had bought Inmont,
another US giant, from United Technologies. Glidden specialized in can coatings, having
developed an environmentally friendly water-based lacquer for spraying the inside of
beverage cans. Inmont’s expertise was in vehicle repair paints. Both acquisitions gave
their purchasers years of corporate indigestion.
26
Meanwhile, Courtaulds sold its local UK automotive business to PPG and built on global
niche management skills acquired through its world-leading marine and protective
coatings.
Akzo, the Dutch chemical giant, has made a rapid series of acquisitions in the nineties
that have made Akzo Nobel, the largest paint manufacturer in Europe and second to ICI
in volume terms in the world. Many of these companies exchange parts of their portfolios
from time to time, to strengthen their positions in particular niches.
The emerging markets to which the paint majors are targeting are Latin America, Asia
and the Pacific regions. These markets are expected to be the thrust areas of the future
competition.
All the big names i.e. PPG, DuPont of US; ICI and Courtaulds of UK; BASF and
Herberts of Germany; Akzo Nobel of the Netherlands; Nippon and Kansai of Japan are in
India. Kansai is the parent company of Goodlass Nerolac and it owns a 65% 6 equity share
in the company.
The Indian market has also started seeing a lot of mergers and acquisitions
happening in the recent past. Asian Paints also survived a major threat of acquisition
from ICI. Even the Indian market has consolidated quite a lot and most of the minor
players in the Indian market have been taken over. The next major events could be related
to mergers or takeovers of Indian companies by major global players or takeovers of
smaller Indian companies by market leaders like Asian Paints.
1.6 Expected growth in each segment
The growth rate of the industry is expected to be about 10% CAGR in the future. The
growth rate of industrial segment now is about 10%, this is expected to accelerate and hit
6
27
12%-13% in the next few years. The reasons for this could be increased industrialization
and more importantly, the growing importance and awareness about the need for
industrial paints.
The decorative paints segment is expected to grow at a slower 7%-8% pa with the
exterior paint segment being the star with 10%-11% growth rates. Growth in the
decorative paint segment is expected to slow down even more in the future.
1.7 Changes in segmentation
The Indian markets are expected to move towards the international model of competition
and segmentation. In the decorative paints arena, there shall still be stiff competition but
the focus of competition shall move from variety to service, that has been explained in
greater detail later. The rural segments shall themselves upgrade and move towards the
equivalents to the current urban markets.
In the industrial segment, the Indian market is, as of now, not matured. This market shall
evolve to form well-defined niches. Each of these niches shall have very specific
demands and specific technology requirements, which shall ensure that only one or two
players who have the competence in the area shall dominate each niche. These niches
exist in this segment because of the switching cost of the buyers, increases with the
period of association. This is because the supplier would have acquired a significant
knowledge about the customer and this is the reason why market shall develop as an
aggregation of monopolies.
28
2 Identification of Competitors
Indian paint industry is characterized by presence of five big players, who command
62% share in decorative segment and 87.1% in the industrial segment. Various
competitors and their strategies are as below:
2.1 Main Competitors
This is the market share of the companies in both the markets. It includes the organized
and the unorganized sector also. 7
Company Industrial Market Decorative Market

APIL 14.50% 37.50%
GNPL 42.50% 10%
Berger Paints 14.20% 11.20%
ICI 7.80% 7.80%
Jenson & Nicholson 8.10% 5.50%
Others 12.90% 38%
7
all the information from CCS report on Asian Paints.
29
Industrial and Decorative Market Share
Others 38%
12.90%
Jenson & Nicholson 5.50%

8.10%
ICI 7.80%
7.80%
Berger Paints 11.20%

14.20%
GNPL 10%
42.50%
APIL 37.50%
14.50%
Industrial Market Decorative Market
The market share of the leading paint companies (the competitors to AP), keeping only
organized sector in mind, are as given below. This includes both the industrial and the
decorative segments.
Market Share (FY 99)

Asian Paints 41%
Goodlass Nerolac 21%
ICI 15%
Berger Paints 13%
J&N 6%
Shalimar 4%
2.2 Identification of focus areas of competitors
30
Focus strategies of the various competitors were studied. This would help APIL in
determining its future course of action.
APIL: Focus solely on architectural paints and complete the vacant slots in product
range. Gain market share in the auto OEM segment through the joint venture.
GNPL: Provide paint shop management services to sell solutions rather than products.
BPIL: Increase the focus on southern markets of India.
ICI: Increase capacities to strengthen presence in fast growing architectural segments.
JNIL: Leverage on joint ventures for growth in the industrial paint segment.
SPIL: Consolidate position in architectural paints.
SNIL: Consolidate position in the re-painting exterior paints market.
RPL: Increase presence to cover all segments of architectural paints.
Consolidate position in the re-painting exterior paints market
2.3 Entry of Global Players, Recent Joint Venture agreements
Company Collaborator Purpose

Asian • Nippon Paints Pre treatment chemicals, Coil & Powder
Paints • PPG Industries coating
• Sigma Coatings Automotive paints

High performance coating
• BASF
Can coating
GNP • Kansai Paints Auto & Industrial coating

• Nihon Tokushu Auto coating
Berger • Herberts Auto coating
• Valspar Corp. Heavy duty coating
• Teodur Powder coating

J&N • Tikkurila Decoratives
• Herberts Auto refinish
• Chugoku Marine
Rajdoot • Becker Coil coating
31
Shalimar • Salphi Marine coating

• W.R.Grace Can Coating & metal packaging
ICI India • ICI Auto refinish
2.4 Important brands of competitors
Brands in the market in decorative segment
Premium category ( emulsions)
ICI  Duette, Dulux, Weather Shield and Dulux Velvet Touch.

APL  Royale
Berger Paints Luxol Silk
Medium segments ( enamels)
ICI Dulux
APL Apcolite
Shalimar Superlac
Berger Rangoli, Vinyl and Luxol.
Popular segment ( distempers)

ICI Farco, Supercote and Maxilite.
APL Utsav, Tractor.
Berger Butterfly
GNP Goody
Shalimar Diamond
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3 Key drivers of success
3.1 Key drivers in past, present and future for each of the three
segments
The key drivers for success in the three segments Industrial, Decorative urban and
Decorative Rural are fundamentally different. Even within the segments, the drivers have
changed over time. The Industrial segment has been driven by technological innovation
and performance while the decorative segment has been driven by variety and service.
The following table gives the most important drivers for success for each of the segments
at different points of time.
Key Drivers for Success
Segments Past Current Future

Relationship, R&D,
Quality- Niche
Industrial Assurance Technology Development
Urban- Service, Design
DecorativeVariety Total Package etc
Rural- Concept
Decorative itself Distribution/Pricing Choice
3.1.1 Industrial Segment
In the pre-liberalization era the Indian Industrial market was relatively underdeveloped
technologically. The Indian companies did not have the technological know-how to
develop specific products for specific industry requirements. The Indian companies,
operating in a protected environment, invested very minimal amounts on R&D and
offered very basic paints to the customers. During this period, the differentiation among
the products on the basis of their performance was minimum and the quality (reliability
33
and long-lasting nature) of the paint and the assurance provided by the manufacturer were
the most important factors for choosing a particular supplier.
In the early nineties, with the opening up of the Indian markets, a large number of
foreign players entered the Indian industry. These players did not have either the
branding or established dealer networks of the leading Indian Paint companies, as a result
of which they could not compete immediately in the decorative segment. However, these
companies, armed with the experience of having served mature industrial markets around
the world were equipped with the technology to deliver specialist products to the Indian
Industrial segment. These companies entered into a large number of Joint Venture
agreements with the existing Indian players and vastly raised the bar for service in the
Industrial segment. Technological superiority and product delivery on specific attributes
sought by the industry became the drivers for attracting customers in the industry.
The industrial segment in India is still in the growth stage and the penetration
levels are significantly lower compared to developed countries. Differentiation based on
technology can be expected to be the key driver for success till the market matures.
However, in the future, Paint companies can be expected to focus on micro segments and
Niches within the industrial segment and develop expertise in these. Joint R&D spending
by industry and the paint manufacturer and development of long term relationship
between the buyer and the paints companies could be some emerging trends in these
markets. Worldwide, the big paint companies have focused on minor niches for
themselves and emerged as dominant players in these niches. The mature industrial
segment can be compared to an industry with a large number of small monopolies (a
version of oligopolistic competition).
3.1.2 Urban Decorative

In the past, the number of shades that could be offered to a consumer was the key driver
for success. The “mera wala yellow” and the “chocolaty brownie yellowy” campaigns
bear testimony to this fact. The paint manufacturers tried to distinguish themselves on the
34
basis of the choice they could provide to the consumers. In a previously low-involvement
category, the paint manufacturers tried to introduce emotional appeal among consumers
to increase the “Pull” factor for their products. “Choice” became a very important factor
among consumers for choice of paints. This was also the period that companies started
realizing that branding could play a very important role in affecting consumer decisions
and this increased the net ad spend in the industry. This was coupled with making with
the consumers more informed about the paints in general. This move was intended to
reduce the effect of the painters as opinion leaders, and make the consumer real “decision
maker”.
In the mid 90s the tinting machines were introduced, which increased the choice
available to consumers exponentially. The mixers, which were generally present in the
retailers outlets gave the consumers the choice to choose from up to 2000 shades. This
removed “Choice” and “Variety” as differentiating factors amongst competitors. The
consumers in the urban market became more service-sensitive than price-sensitive.
Surround
Product
Core
Product
Intangible elements
Reliability
Tangible elements
Responsiveness
Quality
Assurance
Product features
Empathy
Technology
Durability
Empathy
The Intangible elements played a more important role in decision-making than the
tangible elements.
In the future, when the urban decorative segment further saturates, the peripherals
can be expected to play a more and more important role in influencing decision-making
35
especially as the number of differentiators based on product features is very low in this
segment. Already, some of the Paint companies have gone into providing Total solutions,
i.e., providing services for the consumer right from Product selection to annual
maintenance. In the urban segment, the interior designer and architect act as very strong
influencers in deciding on the paint to be used. Bearing this mind, a large number of the
paint companies are setting up designing and interior decoration subsidiaries in an effort
to play an increasing part in the decision making process.
3.1.3 Rural Decorative Segment

The rural segment has been consistently following the Urban segment with a time
lag. Till the early 90s, paints in the rural market were looked upon as a luxury item. It
was only after the establishment of a very wide rural distribution network by the major
Paint companies (Asian paints in particular) that the rural penetration began to increase.
As compared to the urban segment, the rural segment is extremely price-sensitive and
therefore price is a very important determinant for gaining market space in the rural
market. The rural markets also exhibit a high level of seasonal fluctuations in demands
and the availability of paints during the peak season is a crucial factor for success.
Therefore, the distribution network of the companies is the most important driver for the
companies for succeeding in the rural markets. In the future, as the distribution system
becomes more entrenched in the rural psyche, factors like the variety offered and choice
available could become the drivers for market penetration.
3.2 Other Factors
Apart from these sector specific drivers of success, there are some factors influencing
success that are common across sectors. They are
3.2.1 Branding
Branding plays a very important role in creating a sustainable competitive

advantage for companies, especially in the decorative segment. Even though it is a fairly
low-involvement category, the stress placed on assurance and reliability implies that
branding would have a very important role to play in this industry. This coupled with the
36
fact that the companies started emphasizing on the emotional side of the purchase, made
brand all the more important. Slogans like, “mera wala green” became the catchwords. In
the future, when the distribution strength fails to provide a competitive advantage and
after the entire span of the country has been reached, the companies would have to resort
to creating a “pull” for their products as the “push” strategy fails to give advantage. As
the market matures, more segmentation would take place and paint would become less of
a “commodity”, which would necessitate branding. Even in the industrial segment, as the
companies try to gain expertise and dominance over specific niches, branding could help
them create an identity in these niches.
3.2.2 Inventory Management:
As the market moves towards more customization and greater choice to customers, the
management of inventory along all layers of the supply chain becomes more and more
crucial. In a progressively expanding market, capacity utilization of various
manufacturing plants could also be very important. Even though inventory management
and operational efficiency cannot be instruments providing sustainable competitive
advantage, the introduction of foreign players could put pressure on the existing
companies to improve their operational efficiencies.
3.3 Drivers for growth of Industry

Paints are still considered as luxury goods in many parts of India, and therefore, the
total consumption of paints in India is a function of the net disposable income of the
country, which in turn is dependent on the performance of the Economy. In such a
scenario, the crucial demand drivers in the paint industry are macroeconomic factors
such as a good agricultural and industrial growth, good overall economic growth,
performance of the related industries like construction, automobiles, white goods,
capital goods and heavy industries, increase in consumer income and consumer buying
capacity and impetus given to the housing sector by improved availability of housing
finance
37
4 History of Asian Paints Ltd.
4.1 The initial years

Asian paints was started in 1945 under the registered name of ‘Asian Oil and Paint
Company Pvt. Ltd.’ It went public in the year 1973. Since the early years of its
incorporation, the company has played an active role in expanding its product offerings,
bringing about technological innovation, and expanding its distribution network to
include small towns. Its financial strategy to plough back its earnings instead of
distributing large dividends helped it to grow at a rapid pace. The company was renamed
‘Asian Paints (India) Pvt. Ltd.’ in 1974 and got listed on the stock exchange in 1982.
4.2 Financing growth

Since 1960, the company has been issuing bonus shares at regular intervals to signify its
growth in earnings and to gain shareholder confidence. In the 1980s, Asian Paints
resorted to raising both debt (in the form of debentures) and equity to fuel its growth
plans. The fresh equity shares were preferentially offered to the employees and business
associates of the firm in order that they strive harder for the company’s well being. The
debt raised was long term (8-10 years) with the repayment starting after about 5 years
enabled the company to push for growth instead of worrying about repayment
immediately. Also, the debenture redemption was done in installments so as not to
suddenly strap the company for cash.
4.3 Capacity expansion

In 1985 Asian Paints started its third Indian plant for the manufacture of paints and
enamels in Patancheru, near Hyderabad, taking advantage of tax benefits for setting up a
unit in a backward area. In a similar fashion, a fourth plant with a higher capacity was
established in Uttar Pradesh
Pentasia Chemicals Ltd. (PCL) was jointly set up with Tamil Nadu Industrial
Development Corporation (TIDCO) for the manufacture of pentaerythritol and sodium
formate in 1987. In the 1990s, PCL first became a subsidiary of Asian paints and was
later merged into it.
38
In 1994 the Company envisaged a grand plan to expand the existing capacities for
manufacturing paints and enamels to 50,000 tonnes/annum at its plants in Ankleshwar,
Kasna and Patancheru.
A fifth manufacturing facility was set up in Ratnagiri, Maharashtra in1996.
4.4 Modernization
Timely modernization has been a key to the company’s superior performance. Its
Bhandup plant being the largest and among the most sophisticated factory in the paints
industry, besides being vertically integrated and producing a wide products variety of
products is a clear indication. To achieve maximum capacity utilization, adequate
attention has been paid to streamlining the process, planning the layout of machinery and
selective addition of new capacity to minimize the bottleneck at any particular stage and
replacement of old and rusty equipment.
The Company imported the ‘Van Heyden’ low energy process from a German company,
along with other technical knowledge for the production of pthalic anhydride, an
important ingredient in the paint industry in the late 1980s.
In 1992, Asian Paints entered into a technical collaboration with Nippon Paints of Japan,
wherein the latter provided technical know-how for producing powder coatings and coil
coatings. Subsequently, adequate manufacturing facilities were set up at its Kasna plant.
4.5 New Product Offerings

As part of its effort to provide solutions in areas going hand in hand with decorative
paints, Asian Paints launched the NC range of wood finishes, Asian wall putty and ACE
exterior emulsion in 1998 and the ‘Opal’ brand of polyurethane wood finish in 2000.
To wrest away market share from local competitors who were selling lime-based paints,
Asian paints launched ‘Utsav’ enamel (in essence a distemper) in 2001 at the lower entry
level
39
4.6 International Exposure

The company decided to make its presence felt outside India in 1990. It set up a
subsidiary each in Fiji and Tonga, in partnership (almost 50:50) with local players. Asian
paints provided the technical know-how. Similar joint ventures were also set-up in Nepal
and the Pacific Island of Vanuatu. By 1995, joint ventures had been established in
Queensland (Australia and Mauritius, too. In 1999, the joint ventures had a strong hold in
the markets they were operating in and were turning in a good performance.
Asian Paints further expanded into Sri Lanka in 1999 and Australia in 2000 through the
acquisition route. It expanded to Oman in 2000.
Australia, an anomaly?
The technological innovation in Australia is not up to developed country standards and
the main entry deterrent is distribution network and understanding of the consumer.
Asian Paints gained these competencies through the acquisition process and has
competencies in taking them further. It would be very beneficial for its foray into the
Asia-Pacific market, which along with South America is the fastest growing with a lot of
potential. Besides, many international majors have already taken steps to make their
presence felt in South America.
4.7 Colourworlds – A revolution in the paints industry

Asian Paints took this marketing initiative in 1998. Till then the concept of a one-stop
colour shop for paints was unknown in India. Aided by advanced computer software,
paints could be mixed in varying proportions to satisfy even the fussiest of customers by
providing them the exact colour and shade of the decorative paint they required. The 350
colourworlds that it set up turned in an encouraging response.
To further its image of being customer centric, Asian Paints even opened an exclusive
showroom in Mumbai.
40
5 Historical strategies adopted by Asian Paints
Opportunities
Competencies
Aspirations
The success of a firm is a function of the Opportunities available in the market,

the competencies the firm has and/or can develop and the ability of the firm to create a
competitive advantage from its resources and competencies. The strategy adopted by a
firm is the conceptual framework that the firm has designed to achieve this objective by
creating a link between the three factors determining success.
When Asian Paints entered the market, it was dominated by foreign companies
and their big wholesale distributors. These foreign companies appointed a few trusted
traders as their wholesale distributors and made the business their monopoly. The
management of this distribution was shoddy to say the least. These traders enjoyed
virtually unlimited credit and made payments once in the year, at Diwali time8. Further
the focus was only on urban market, with no inclination or compulsion to enter into semi-
urban and rural area or to improve their distribution infrastructure. They shut down the
doors on any possible new entrant. Thus it was virtually impossible for a new player to
enter into the market as the distribution network was totally lacking.
When AP tried to make the foray into this business, they had to tackle two issues,
to find a distribution channel and to find a market. They didn’t have any competence to
take head-on with the players on their distribution network and in their playing space.
8
Marketing management, by VS Ramasawmy. 2nd edition
41
AP short-circuited the established network, bypassed the bulk order segment, and
went directly to the individual consumer. This was highly counter-intuitive, as bulk order
was the major segment and any company needed a portion of it for sheer survival. Also
AP sensed this was not the future growth segment. This was the momentous decision
made by AP, which affected all other decisions made by AP. Since they were servicing
the customers directly, they had to necessarily keep a wide product range. This resulted
because of the divergence of the multitude of consumers whereas in bulk business it was
possible to service the market with limited products. This move helped AP in the long
run, which will be explained in subsequent pages.
As stated earlier, all the big players were vying for a share of pie of urban market.
AP decided to distance itself from the prevailing urban orientated marketing. This
decision was taken due to two reasons. One, AP sensed a huge potential in hitherto
untapped rural markets and two, major companies and their distributors weren’t
providing them any openings in the urban segment. AP targeted semi-urban and rural
markets, which implied that they had to expand their distribution channel further. Further
they decided to limit themselves to the decorative segment, as neither was there a market
for industrial segment, nor did they have any competency in that area, which is
technology.
Now due to the above reasons, and some strategic decisions (which stemmed
from the fact that AP decided to go to the end consumers directly), it will be shown how
AP’s legendary distribution network came to existence.
This was the genesis of the strategy of AP, which even continues today. The
decorative paints industry was an industry that was not technology driven, and therefore
product based differentiation was not possible in this industry. Since the competitive
advantage was not product-based, it was likely to be shortlived. Historically AP has been
adopting a strategy that involved adopting measures that gave them a series of short-term
competitive advantages. On every occasion in which Asian Paints advantage ran out, they
further raised the standards of the industry by adopting measures that increased the cost
of doing business for the other competitors. Being the market leader, they could afford to
make these changes to the market that forced other competitors into increasing the
hygiene factors of doing business. All the changes that Asian Paints introduced in the
42
market were driven by their consumer focus and market orientation. But the
operationalising of all these strategies was strongly rooted on the logistical efficiency of
the company.
For example, in the 70s Asian Paints discovered that customers needed smaller
pack sizes for their smaller requirements. Introducing smaller pack sizes for all their
product offerings would increase the number of SKUs exponentially, thereby creating
enormous problems in inventory management. But the Asian Paints Supply-Chain
management system was robust enough to make this change and AP began to offer a
wider range of SKUs to its customers at little additional costs. This forced the
competitors also to come out with different pack sizes and this raised their cost of doing
business. The short-term edge that AP achieved through this move was the competitive
advantage during this period.
Logistical Efficiency as a backbone for providing competitive advantage: Asian

Paints established a series of depots all across the country to set up their own distribution
network. They were the ones who introduced the retailer as a channel for selling Paints.
They brought in customer-focus into the industry and were the first ones to modify their
offering to suit customer needs. This increased the number of SKUs that they had to offer
per brand. This increased the inventory costs and caused a conflict to be created between
costs and service levels. In spite of its large number of SKUs, Asian Paints managed a
very high service level (85%) compared to the industry average (50-60%). Detailed
Analysis of AP’s log man strategy gives us the following as the reasons for their success
in inventory vs. service management.
• A strong commitment to distribution cost control without compromising the
service level: While following a totally customer-oriented strategy, AP did not
forget the Cost angle. Firstly, Asian Paints was very careful not to invest large
amounts of money for the sake of increasing sales. This is because, AP had to
stick to its targets in Sales volumes and Profits. Secondly, AP’s marketing
philosophy demanded that the final prices of its paints were always kept
reasonably low to suit the Indian consumer’s ability to pay. Te Company could
not attempt to transfer the distribution costs to its consumers. Thirdly, growing
43
volume of business meant growing investment in distribution infrastructure. AP

had to find the resources for this and therefore couldn’t afford to have high
distribution expenses.
• Affective Inventory Management: Effective Inventory management in fact is the
single most important component of AP’s distribution/cost control strategy. This
was all the more crucial to AP due to its wider range of product offering. AP’s
average inventory level equals only 28 days sales while the industry average was
51 days. This provided a 45% cost savings advantage in inventory costs to AP
compared to its competitors. In spite of having tight inventory management
schedules, AP was able to maintain high service levels due to its strong
distribution and transport networks.
• Effective control of credit outstanding: The fallout of having a large distribution
network is the problem of large credit outstandings. So, an effective credit
management strategy was crucial to AP’s working capital management. AP
stipulated that every one of its dealers should pay for the supplies within a
specified time norm. The company offered them attractive incentive schemes to
induce them to comply with its stipulations.
o A special discount of 3.5% to be passed on at the end of the year, provided
each and every payment throughout the year was made within the
stipulated time norms. This is refereed to as the discount for perfection in
payments
o A cash discount of 5% for all outright cash purchases. The cash discount
was given whenever payments were received within 24 hours of the
supply/invoice.
The scheme became a grand success. AP’s credit outstandings always stood
below 25 day while the outstandings of competitors were mostly in the range of
40 days.
• Total computerization of the physical distribution and the credit control system:
Effective computerization of the distribution system, inventory control and
control of credit outstanding is the other factor that helped AP to control
44
distribution costs without lowering service level. A totally computerized and a

totally integrated distribution system was evolved by the company beginning from
1976. Computerization of sales and inventory data and the use of rational
distribution models helped the company increase its service levels by 10% with
no increase in the overall level of inventory carried. Computerization also
enabled AP to process recent sales data for the 100 fastest moving SKUs. This
analysis was used to project sales of specific products, which helped plan
production, raw material purchases and advance stocking.
5.1 Market Leadership through Distribution Excellence.

AP achieved an enviable leadership position in marketing through the distribution
route. Though, AP concentrated on all the marketing functions, it was the mastering of
the distribution network that gave AP its distinct competitive advantage.
AP took the route of bypassing the bulk-order segment and introduced retailing
into the Paints industry to change the entire Industry dynamics and occupy leadership
position. AP had also decided to target the rural and semiurban areas initially as they
could not compete in the urban segment. To sustain its advantage and to serve this
particular target segment, AP had to build an extensive distribution network. Developing
such a distribution network had two far-reaching consequences.
1. They could not serve this market with single centralized distribution network.
Thus they opted for a decentralized distribution network serviced through
depots, located all over India. This set the base for AP to make whole India as
their market.
2. They decided to go retail and have an open door policy. This was the time
when AP’s distribution network started taking a shape, and they went for
channel management in a big way. This network was far bigger than
distributor-dependent network. While other companies were playing with just
a handful of distributors, AP was managing a channel of more than 6500
dealers in 80s itself.
45
As stated earlier, with the strengthening of the supply chain, AP decided to serve
whole India as their market. This step placed heaviest demand on their distribution side.
Thus they developed a nationwide network of depots/stock points. As a logical corollary
to it, they had to develop a national marketing organizational structure (exhibit 4). This
gave them two specific advantages.
• They had a distinct competitive advantage over the smaller regional players in the
industry who tried to spot niches and occupy them. AP was very efficient in
spotting the gaps in the market and defended its market leadership position very
well.
• Having a strong dealer network gave AP the necessary qualification to compete
against the big players in the urban areas.
Strategy Adopted: AP’s strategy focused on the aspect of obtaining short-term

competitive advantages by increasing the Cost of doing business for the competitors. The
strategy was based on collecting of consumer insights that gave AP the knowledge of the
changing value-drivers in the industry. Based on these insights, AP decided its Marketing
moves and acquired the competencies to help it leverage this understanding. Thus, the
strategy adopted by AP was driven by
1. Strong Customer Focus
2. High Operational Efficiency to enable it to offer the features demanded by the
customers.
With its strong customer orientation, AP has been able to spot the change in the
value-drivers among the customers and has been able to consistently vary its internal
processes to deliver on the most-important criteria sought by the consumer.
Urban Strategy:
In the urban segment, the key benefit sought by the customer kept changing over a
period of time. In the initial phases, when the economy was still supply driven, The
availability and reach of the paints were the most important criteria for purchase among
46
the consumers. It was during this period that AP developed the retailer network and
changed the industry pattern from making Bulk sales to making retail sales.
After a period of time, the distribution-retailer network of all the big players were
well established and product availability ceased to be an issue. During this period, the
consumer’s purchase decision was driven by variety. To meet this demand from the
consumer, AP further increased its number of SKUs and offered a wider range of
products to the consumers. Its fully integrated and computerized supply chain enabled it
to do this at little additional cost. AP ran ad campaigns focusing on the ability to provide
variety and choice offered became the platform of competition in the industry. However,
with the explosion of the number of shades offered (and more recently, the introduction
of tinting machines), variety has stopped functioning as a differentiating factor.
To be added later on
6 Asian Paints Performance Analysis
The performance of a company can be analyzed in mainly two ways, the financial
performance of the company, and the market performance of the company
The financial performance is the performance that is related to the financial soundness,
the cash flows and the creation of wealth for shareholders.
The market performance is the performance of the company related to the market
position, the market shares, the expected future growth etc.
Asian Paints is India's largest manufacturer of paints selling around

200,000 MT/KL of paint in the FY ended March 2002. It is the leader in this
industry for over three decades, controlling 44 per cent of the Indian
paint market. It ranks among the top 15 decorative coatings companies in
the world. Asian Paints has been recognized as the `Fourth Most Admired
47
Company' across industries in India through a survey carried out by `The

Economic Times` in association with ORG-Marg.
6.1 Financial Performance
1. APIL’s’s net sales increased at a CAGR of approximately 16.2% during the

period between 1997-98 and 1999-2000 derived primarily on account of 17.7%
increase in the volume off take in paints. The average realizations however
declined by 1.7%. The increase in turnover coupled with higher income from
other related activities led to a CAGR of 16.4% in the operating income. During
2000-01, paint volumes grew by 11.8%, while unit realizations registered a
marginal increase of 0.6%. Paints volumes grew strongly during the year
primarily on account of higher sales of exterior paints, where APIL has emerged
as the market leader.9
2. APIL’s’s net sales are expected to increase from Rs. 12.5 bn. in 2000-01 to Rs.
14.9 bn. In 2002-03, primarily driven by strong growth in exterior paint sales
coupled with initiative to expand the overall paint market through color tinting
machines, new products launches & direct customer services.
3. The earnings of APIL are at a higher percentage than the industry average. This is
because of their higher exposure to the decorative paints segment. Also, since
there is some degree of backward integration, the company has some
immunization from cost fluctuations. Also, though the margins from the
traditional decorative segments are falling, the company shall be able to maintain
its higher operating profit ratio due to higher exposure to exterior paints. Exterior
paints is still a nascent industry in India and therefore is a high growth, high
earnings industry. But, now since they are still penetrating the high volume but
highly cost sensitive rural market, their margins still have some downward
pressure. With the prices of key raw materials expected to remain stable over the
9
Data taken from CRISINFAC, service from CRISIL
48
next two years coupled with improved cost control following the implementation
of the SCM & ERP systems, operating margins are expected to increase over the
next two years to touch 16.6% in 2002-03.9
4. PBDIT at Rs2.38bn was 13.4% higher than the previous year. PBIDT margin
registered a 70basis point improvement from 17.4% to 18.1%.10 The margin
improvement was despite three price decreases undertaken during the year to pass
on the benefit of soft raw material prices to the consumer Though the overall
growth rates for the industry have reduced the profit margins of APIL have not
come down. This is also because of it superior management of its costs. Due to
the introduction of the point of sales mixing machines, the inventory costs have
reduced and greater production efficiencies have resulted. Also, APIL has
integrated its supply chain with the use of IT. This has led to better
responsiveness to demand changes and also better inventory and production
management.
5. The debt/equity of the company is only about 0.55, which indicates low exposure
to debt. This is again because of their strategy of having higher exposure to the
decorative paints segment. The capital requirements of the decorative segment are
not very large, and therefore not much debt is required. The exposure to debt
could be increased in the future due to their increasing presence in industrial
segments which shall demand higher and more specialized capital investments.
Also, they shall have to invest in the newer technology tinting machines in their
‘ColorWorld’ stores. This could increase debt, but not significantly since the
expense on tinting machines is not very high.
6.2 Market Performance
1. Asian Paints has consistently maintained a majority market share in the decorative
paints segment. The market share of APIL has consistently remained around the
10
Data from www.indiainfoline.com
49
range of 37% to 43% in decorative segments. Even after the entry of

multinationals, APIL has been able to defend its turf well and maintain a majority
market share.
Decorative Industrial
Market Share (FY 2000) 11
Asian Paints 38% 15%

Goodlass Nerolac 14% 40%
ICI 8% 9%
Berger Paints 9% 10%
J&N 5% 8%
Shalimar 6% 8%
Others 20% N/A
2. In the industrial segment, APIL lags quite a long way behind Goodlass Nerolac.
APIL has entered the automotive paint segment through a 50:50 joint venture with
PPG Ltd. The joint venture ranks No 2 in this market. Goodlass Nerolac is the
leader here, primarily because of its tie-up with carmaker Maruti. Recently, they
acquired Hawcoplast Chemicals, a powder coatings manufacturer. This will help
them make inroads into the industrial paints market, where powder coatings are
gaining favor thanks to their relative eco- friendliness (compared to solvent-based
paints). Hawcoplast also has a technology tie-up with a Europe based company,
which shall help APIL gain the required technology. The acquisition has
catapulted Asian Paints to amongst the top 3 powder coating manufacturers in
India. Basically, APIL is trying to broad base its market in India, so that in the
future if it is threatened by a large MNC it would have sufficient dominant
markets to resort to. Also, it is trying to pre-empt the entry of such MNCs. APIL
also realizes that the growth rates of decorative segments are reducing and the
11
Data from domain-B industrial reports, www.domain-b.com
50
overall proportion of the decorative segment in the total market is also going
down, so if it has to maintain its dominant position it has to enter the industrial
paints market.
3. Interestingly, Asian Paints could lay claim to being one of the few Indian
multinationals, a rarity given that they are not in a knowledge sector like
software or pharma. They already have nine units outside India and sell to
more than 20 countries. Though these are largely developing nations with small
markets, paint demand growth is likely to be higher than GDP (as in India).
Moreover, Asian Paints is well placed to leverage its experience in the cost-
sensitive Indian markets to get ahead of other MNCs. This is in keeping with their
strategy of growth with geographical expansion. Since the opportunities of
geographical expansion are limited in India, APIL is trying to expand in foreign
markets.
6.3 Management of working capital by Asian Paints
Asian Paints is one of the best managers of working capital in the industry, and they have
been using a lot of innovative methods to either reduce their dependence on working
capital by attacking the very parameters that make it important or better managing
working capital by being more efficient in handling the components of working capital.
Since management of working capital is so crucial, the following have been the initiatives
of Asian Paints to reduce their dependence on working capital or improve management:
 Factors to reduce dependence:

o Introduction of tinting machines: The tinting machines that have been introduced
through ‘Colorworld’ have helped reduce working capital by reducing
inventories. Now, inventories of only a few shades have to be maintained since
the wastage and understocking problems are vastly reduced. Each shade will be
produced as required and therefore each shade will be produced only as much as
is required, leading to much lower requirement of safety stock. The problems in
inventory due to variety are also solved as the result. ‘Colorworld’ has decreased
51
the importance of working capital management as a success factor because the

problems caused due to working capital intensiveness are being diminished.
o Integration of the supply chain: The supply chain of Asian Paints has been
integrated with the use if IT. This again leads to a reduction in inventory as the
responsiveness is much higher and the company can produce closer to the actual
demand and forecast demand more accurately. This has led to lower requirements
for safety stock and has also reduced chances of over or under stocking. Also, due
to the integration of the supply chain the coordination costs for managing
receivables have gone down and therefore receivable can be managed with more
efficiency. Also, since the orders are placed much closer to the demand, the risk
for the dealer is also lower and therefore there are lower chances of default.
 Management of working capital:
o Low debt: Asian Paints has a low D/E ratio of 0.5212 and this has led to lower
interest costs and therefore better and higher cash flows. Asian Paints is also in
the process of reducing its debt further, which shall further improve the cash
position.
o Lower debt periods: The cash to cash cycle of Asian Paints is not very good
mainly because of low payables and low period of payables payments while their
credit period for their debtors is much higher. They are trying to reduce this
problem by reducing the credit period to the dealers to a certain extent. They
could cite the advantages being offered by IT integration and Colorworld to
induce dealers to pay early. Also, schemes offered for early payers should help
them reduce their cash to cash cycle and improve working capital management.
Their recent drive towards providing value added services to end customers is being
motivated by reasons other than working capital management but it also helps in reducing
the dependence on working capital and leads to better working capital management
because:
12
52
 Made to order: Since the orders are directly taken from the customer, the paints shall
be made to order and therefore there is no risk of over or underproduction for such
orders. This drastically reduces the inventory problem.
 Lower risk of default: The exposure per customer in the direct to consumer market is
much lower. This reduces the risk of default as defaulting of one customer does not
lead to major losses. Also, Asian Paints could evaluate the customer before the
transaction. For the customer, too, the purchase of paints would not be such a high
value transaction that he would find it tough to pay for it, while the exposure and risk
while supplying to dealers is higher.
53
7 Asian paints strategy
7.1 Corporate Strategy
Currently Asian Paints is the market shaper in the decorative segment with a large market
share (53%) and is second in the Industrial segment with a share of 16% behind Goodlass
Nerolac who have a share of 40%. Historically, Asian Paints has focused on the
decorative segment while simultaneously trying to maintain a significant presence in the
industrial segment. Asian Paints stated corporate aim is to establish itself as one of the
top 5 decorative players in the world. Asian Paints future strategy would be in alignment
with their past strategies. Asian Paints would be focusing on growing at a high rate in the
decorative segment while trying to establish itself in significant niches in the Industrial
segment.
Growth in any industry can be achieved through one of three different routes.
a) Expanding the consumer Base (Market Penetration oriented): This strategy is used
when the industry is in the nascent stages and the market for the product needs to
be developed. This is a period during which the early entrants into the market are
involved in “Concept Selling” thereby trying to develop a market for their
product.
b) Increasing the individual company’s market (Market Share oriented): When the
industry comes out of the growth phase and as competition increases, the
positions in the market for the different players becomes similar to a zero-sum
game and growth can be got only at the expense of the competitors. Product
differentiation becomes the key parameter of competition during this period.
c) Increasing Consumer-Consumption: After the market gets stabilized with a few
established players, consumer loyalties get built up and the switching costs
increase. The market shares of the different companies stabilizes around a mean
range. This is a phase when the industry players look to increasing per-capita
consumption for fueling growth. During this period companies launch newer,
improved versions of their products, thereby trying to fuel growth by “Up-
54
gradation”. Companies involved in the product manufacturing start playing a role

in offering product related services, thereby trying to increase consumption.
Companies move higher up this hierarchy as the market matures. The cost of growth
of each of these approaches progressively increases. This is the reason that most
companies resort to geographical expansion once the market matures, rather than trying
to increase per capita consumption. (For e.g. Coke’s entry into India was a move to
expand its market geographically as increasing its volumes in the mature market of USA
would have proved very costly.)
Asian Paints has also taken this route of geographic expansion to increase its
market share in the global market. Geographic expansion into similar markets also gives
the player an added advantage of the learning curve effect as market changes can be more
easily predicted with the help of knowledge acquired from experience in previous
markets. This knowledge of developing markets could be AP’s significant advantage over
the other global majors in the fight for global market space among the developing
markets.
In its quest for global geographical expansion, AP has chosen both the organic
and Inorganic routes for expansion; AP has grown both by expanding its own markets
and by acquiring newer players. AP has set itself a target of achieving two thirds of its
growth organically and a third from acquisitions. AP has chosen the acquisitions route
because entering into new markets, establishing their own presence and distribution
networks, understanding the consumer mindset and running a business could be a time
consuming proposition.
Asian Paints can adopt two approaches to fuel its growth strategy in the
decorative segment via acquisitions.
1. The first approach would be to use Acquisitions as a means to providing

incremental growth. This would be the case when the acquisition is small and the
55
acquisition has been motivated by the need to enter into the market rather than a
strategic reason to capture synergies and leverage their size.
2. The second approach would involve attempting to change the industry dynamics
drastically by acquiring all the bigger players of the industry. The fallout of this
would be that Asian Paints would get the necessary freedom to develop and grow
the Paints market of India without pressures from the competition. Historically,
Asian Paints has had both customer focus and competition focus. The pressure
brought about by the competition could have been the reason for the inability of
AP to bring about a high degree of consumer discrimination. If Asian Paints were
to acquire the remaining big players of the Industry, Asian Paints would enjoy
monopoly power in the industry and it could then attempt to capture the entire
consumer surplus by bringing about price discrimination among various customer
segments. This method could be attractive if the benefits accruing out of utilizing
monopoly power outweigh the costs involved in acquiring those players.
In the current scenario, the other existing big players are GN, ICI and Berger. Among
these GN and ICI are parts of global giants who themselves are also capable of
playing out the same strategy. Infact, in 1997, ICI had made a takeover bid for Asian
Paints that was foiled only by an intervention from the government of India. Under
these circumstances, the resistance to a takeover bid by these players is likely to be
very high and this would increase the takeover costs exponentially. (Especially
because both of these players are also capable of using monopoly power if they
acquire a majority share in the market). Moreover, due to the Indian market still being
in the growth stages and the Indian consumer still having a low ability to pay due to
the prevailing economic conditions (developing economy), the extent to which
monopoly power can be used is also low. (The extent of utilization of monopoly
power would be a inverse function of the price elasticity of demand and this
monopoly power could be low in the Indian scenario, if the market is price-sensitive).
Due to these factors mentioned above, the acquisition approach entailing acquiring of
the other big players of the Indian industry seems to be both infeasible and not
beneficial and therefore, not likely to happen.
56
So, it can be concluded that AP’s acquisitions would be to bring about incremental
growth in its market share in the industry. AP would embark on an acquisition based
growth strategy in both India and abroad.
AP’s foreign acquisition strategy would be driven by the acquired company’s

presence in the market and the entry it can provide for Asian Paints in the new market.
AP should look to acquire players that have a healthy market position and are poised for
growth in their home market.
AP’s domestic acquisition strategy would be driven by the acquired company’s

ability to provide a distinctive competency in a segment in which AP is not so strong.
AP’s attempted acquisition of Snowcem is based on this premise. Snowcem has a
significant presence in the exterior paints market, a fast growing segment in which AP
has little competency.
In the industrial segment, AP’s strategy should be to acquire competencies in

some specific promising niches, either through acquisitions or Joint Ventures. The
industrial segment is largely comprised of a large number of niches in which companies
exist as near monopolies. Of the different sub segments in the industrial segment,
automotive paints is the biggest. AP has had a long-standing tie-up with PPG, which is
the global leader in Automotive Paints. With the help of this tie-up AP has acquired the
automotive client accounts of Hyundai, Ford etc.
AP should also look to acquire domestic players operating in the industrial

segment if they are operating in an attractive segment and have the requisite technology.
AP’s recent acquisition of Haucoplast was also motivated by this. Haucoplast has the
requisite technology to compete in the white goods segment of the industrial segment
which is one of the fastest growing subsegments of the sector.
Asian Paint’s Acquisition strategies are discussed in greater detail in the next
chapter.
57
7.1.1 Asian Paints Overall Corporate Strategy
New Develop
Discover
Exploit new markets by

Build new
creating products
competencies
/services
to create the future
by leveraging
existing competencies
Market
differently
Opportunities
Defend Deepen
Defend existing Build

markets complement
by strengthening ary/
existing new competencies
Existing competencies to fortify position
in existing markets
Existing Distinctive Competencies New
For any firm operating in a market,, there are four generic strategies open to it. They are
depicted in the above diagram. Here it will be analyzed where is AP playing in which
market, and how are they doing it.
Defend: this is the rural and the urban market in which AP is playing. They are a target
to many global companies, which are playing in Indian market via Indian arm of their
operations like ICI has Berger, Kansai has JN.
Deepen: this is the industrial segment of Indian paint industry where AP has a weak
presence. They have a presence in automotive segment but rank a poor second. They
need to form alliances with foreign players to enter into this segment. They can also look
for tie-ups with the company, which have tie-ups with those companies whose daughter
arm is operating in India, to lock the account. Their move of taking over Haucoplast is
one step in this direction. Their tie-up with PPG has given them a good presence in
automotive segment, capturing clients like Santro, GM, Ford etc.
58
Discover: this forms the basis of fast growth. AP has identified opportunities abroad in
developing countries similar to India. To enter into these countries they adopted the
process of acquisition.
Develop: till now paint industry has been a product-oriented industry. There maybe a
huge potential in the service side of it. AP has taken some initiative in this direction by
introducing color-world. Also they have started providing service in painting and interior
decoration. They are trying to disintermediate the chain and become a part of it. They can
take it to new dimensions by acquiring the whole chain and becoming full service
provider. Providing a painter is removal of pain element, but they need to see whether
value-adding services are possible. These can be as integrated to provide an umbrella
service. This can span whole gamut, right from approaching a customer (permission
marketing), to suggesting the correct shade keeping in mind various factors, to providing
painters. But the most important part of it would be constant reminders to the customers
to repaint, or upgrade.
7.2 Asian Paints Acquisition targets
Asian Paints could choose to go the Mergers and acquisitions route to either extend its
presence to the markets in which it is not present now or to capture market share from
these companies and make its position at the top of the decorative paints segment more
secure.
The Indian market has witnessed a lot of takeovers and acquisitions in the recent past.
Asian Paints itself has acquired Hawcoplast in the powder coatings segment; Berger
Paints has acquitted Rajdoot paints etc. Asian Paints had to face a takeover bid by ICI
(India) which itself is a subsidiary of ICI Plc worldwide. A lot of the companies existing
in India are subsidiaries of the major global companies. Goodlass Nerolac, the leader in
the industrial segment and second to Asian Paints in the decorative segment is also a
subsidiary of Kansai Paints, Japan.
59
India is an important market for most of these companies to expand into and therefore
these subsidiaries have been setup here. Also, most of these subsidiaries are focused on
the same segments in India as their global parents are focused on a global scale.
Therefore, none of these subsidiaries are in the non-focus areas of their global parents
therefore these subsidiaries are basically a method of method of market expansion and
entry for the global players into the Indian market.
For, Asian Paints, it would be really difficult to takeover the Indian arms of global majors
because these Indian arms are subsidiaries of the global players and they are looking to
establish a presence in India through these companies and they would definitely not be
looking to hive them off.
That does leave a few companies that Asian Paints could target for takeover. Again, these
takeovers could mainly be aimed at consolidating and increasing their market presence
and garnering a even larger share of the market share in India. Another reason for these
takeovers could be to enter into area that Asian Paint has been unable to capture so far
and establish itself in this arena.
Targets could include a company like Berger Paints (subsidiary of the UB group) for
consolidating market position or a company like Snowcem for entering and capturing the
exterior paints market and also consolidating its position its position in the market as a
more integrated solution provider for a customers needs.
Companies where Asian Paints is looking to acquire only because it wants to acquire the
market share of the company, Asian Paints should be careful because these companies
would come with a lot of areas which might not be the core areas of Asian Paints, which
it might have to hive off later. Also, it might not be worth buying a company that has a
marginal market share.
60
Let us evaluate Snowcem as a potential takeover target mainly because of two reasons,
entry into newer relate markets and a lot of hype about the recent plans of Asian Paints to
acquire Snowcem.
7.2.1 Possible acquisition of Snowcem
In the decorative range of paints Asian Paints is the market leader and has its presence in
almost all the segments. One of the major areas in which it does not have a presence is
the exterior cements paint area. The exterior paints market is expected to be the high
growth area for atleast five years into the future. This is the area that Asian Paints has
entered now with its exterior emulsions. Snowcem is the market leader in this area with a
market share of 26% in the cement paints and 50%13 share of the textured finish area.
If Asian Paints decides to takeover Snowcem, it would provide Asian Paints with
leadership in the total decorative segments market including the exterior paints market in
its portfolio. It could also look at upgrading the customers from Snowcem’s cement
paints to the more advanced exterior emulsions that it has begun offering.
The acquisition of Snowcem would also fit nicely into its strategy of providing value
added services, as they would be able to provide a complete solution for any customer,
which approaches them. The customer need not go to any other dealer of any other
company to get any part of his house painted. This would be a major advantage that
Asian Paints could later leverage and use to improve market position.
For the financial year 1999-2000 the company earned a net profit of Rs14.93 crore
on a turnover of Rs153.15 crore. Its net worth stood at Rs70.29 crore while
its total asset is valued at Rs185.68 crore.13
Asian Paints has a Debt/Equity ratio of 0.52, which is low debt, and a very healthy ratio.
It is also in the process of retiring debt, which shall improve the D/E ratio even further. It
is also a company that has shown a healthy growth in the past and is expected to do well
13
61
in the future. It is considered to be a blue chip company and has a very good financial
performance. All this would enable it to easily raise additional capital if required. The
company might be wary of raising additional debt because the increased interest
payments would stretch its working capital. Working capital management is one of the
crucial financial functions of paint companies and problems with cash flow, due to
additional interest payments, could cause unwanted problems in other areas. But the
company could easily raise equity if required and fund its acquisition through such an
equity issue. Any cash that is excess or not required for efficient working capital
management could be used. In fact, an executive of Asian Paints mentioned that the
company was trying to improve its cash position so that it could fund such acquisitions.
The takeover of Hawcoplast was initiated after such improvement in the cash position.
7.3 Business Strategy
The business strategy of AP has been on the basis of acquiring a series of short-
term competitive advantages by adopting measures that raised the Cost of doing business
for all its competitors by raising the hygiene factor in the business. So far, Asian Paints
has been using its distribution strength and logistical efficiency to attain this advantage.
The advantage obtained by leveraging on distribution strength is short-lived and
ultimately imitable. Moreover, AP has established such an extensive network that getting
incremental advantage out of improving the distribution network could be very difficult.
The next logical step for AP to look for to gain competitive advantage would be through
either channel control or through occupying mind space. AP should try to increase the
window of competitive advantage by using Marketing as a tool to acquiring competitive
advantage. Some of the industry characteristics could be used to gain insights about the
competitive scope of Asian Paints.
7.3.1 Urban strategy

The industry is characterized by the presence of intermediaries who have a very high
influencing power on the purchase decisions of the consumer, especially in the urban
areas. Asian Paints strategy for acquiring higher product demand could be three pronged.
62
1. Use these intermediaries for initiating demand: The intermediaries (the painters,
contractors, designers, decorators etc.) could be used as a marketing arm of the
company. They could acts as spokespersons of the company and promote the
company’s products to the customers. Some of the bigger contractors could be
paid a commission for bagging contracts that involve purchase of Asian Paints.
2. Occupy part of the intermediary space and try to sideline other intermediaries:
Asian Paints should open a service arm, which would provide the services
provided by the existing intermediaries in the market. For operationalising this
strategy, AP could select a few of the existing intermediaries, give them the tag of
Asian Paints service wing, and follow a franchisee model of operations. Being
present in different seditions of the value delivery system and having a strong
brand equity in the Paints market would give AP the credibility to operate a strong
service arm. The service based strategy of AP could have two different
approaches
a. AP could become a service provider with the aim of providing a
supporting arm to the Products business. In this case, the fundamental aim
of the service sector would be to remove the transaction costs of the end-
consumer by providing all the aspects of painting in a bundled fashion.
The service sector could be set up as a loss making venture with its
fundamental function being bringing in more customers for the product. In
this case, AP’s main business would be in the manufacturing business and
the service sector would act as marketing arm for this. The ideal analogy
to this kind of service would be the financing services arm of motorbike
manufacturers of the country. All the financing services are, in
themselves, loss-making, but by offering credit they remove the
transaction costs of the consumers, thereby increasing product demand.
(Or)
b. AP could change the industry dynamics totally by providing value added
services as an intermediary player. The company could play the role of
interior decorator and paints consultant and help the consumer in
designing and painting his house. In this scenario, AP would be changing
63
the business from being a product based one to a service based industry
and would be appropriating value through the services it provides.
The first approach would entail creating a service arm that can cater to a large
market, whereas the second one would necessitate the creation of a well-
qualified service arm which is capable of providing value-added services. AP
can follow both these approaches and cater to different market segments. The
value-addition services arm would cater to the premium end of the market
who have a very high willingness to pay and the other bundling services arm
would cater to the demands of the masses.
3. AP could try to reduce the power of the intermediary by increasing the Pull for
the product. The role of the influencer could be drastically reduced by increasing
the power of the end-consumer. AP can also try to increase end-consumer power
by removing information asymmetry between customer and manufacturer. AP can
achieve this by establishing a strong brand name for its brands. The possible
utility of branding in this segment has been analyzed as presented in the next
chapter.
AP has actually been taking efforts along all the three above mentioned lines to gain
competitive advantage. AP has started a service arm and is attempting to do
Permission marketing; which essentially means that a marketing team contacts
individual homes and offers specific Painting solutions to them free of cost. AP ‘s
Colourworld is also an effort in the direction of providing value-added services. AP’s
helpline is a tool designed to reduce information asymmetry and therefore increase
end customer power.
Parallel execution of strategies suggested in 2 and 3 could lead to a situation of

eventual disintermediation in the industry. Simultaneously occupying intermediary
space and reducing intermediary power could ultimately lead to a situation when the
intermediary providing service gets integrated with the parent company operations
64
and the other intermediaries get totally eliminated, thereby removing an entire layer
in the value-chain. (Similar to the Dell model of operations).
7.3.2 Rural strategy

The above-mentioned strategies can be used for the urban segment. The dynamics of
the rural segment are slightly different and different strategies need to be adopted for
these. The rural segment is not mature enough to appreciate service related offerings
and therefore the strategy should be product related. The basic strategy that has to be
adopted in the rural segment is one of customer up gradation. The penetration of the
rural segment has been achieved by offering a basic product well tailored to match the
low willingness to pay of the rural consumer.
After basic penetration levels of the category have been achieved and the traditionally
used proxies eliminated, the rural consumer can be offered a “higher ” range of
products with a view to up grading the consumers. The highly value sensitive rural
consumer is likely to react positively to product offerings that provide a good cost
benefit equation, even if the products are costlier.
7.3.3 Strategy for international markets

For the newly acquired global companies, utilization of the learning curve effect and the
knowledge base from having functioned in a developing country would be the most
crucial factor for growth. AP can hasten the process of market growth and maturity in
these regions by leveraging on its experience and launching newer products at a faster
rate.
7.4 Differentiation and the role of branding
AP realized that the market was evolving into a pull-oriented market. Thus they
embarked on two different strategies in 80s, one for rural, the other for urban markets. In
rural market they mostly sold the concept of the paint, while the urban market, which had
already evolved, was becoming more variety conscious with additional benefits. It was a
typical case of Product Life Cycle (PLC), which operates at 3 levels
65
 Product level
 Product sub category level
 Brand level
In my context, paint is at the product level. There is low product familiarity thus concept
selling is required. That is exactly what AP doing in rural markets, and what it did in
early 70s when they focused their attention on removing the perception of luxury item
from paint. In sub category level, paint can be classified as interior, external, emulsion,
distemper etc. The urban market had matured to this extent by late 90s when the premium
segment of plastic paint started making inroads. When a market is sufficiently matured, it
starts differentiating, and then the brands play an important role. This is the current and
future strategy of AP, with a few additional concepts. In this chapter I will discuss those
issues.
7.4.1 Branding
It is imperative to define a brand before moving into the strategy of AP. A brand is a
name, term, symbol or design, or a combination of them, which is intended to signify the
goods or services of a seller or group of sellers and to differentiate them from those of
competitors.
There are three basic broad strategic routes open to any company to meet competition in
a market place; they are given in the diagram.
Niche market is ruled out for the big players, as far as decorative segment is
concerned. They are national players, and it would not be economically viable for them to
play in the niche markets. Rather that was AP’s initial strategy when they started making
serious inroads in the paint industry. They kept a very close watch over their distribution
network so that no local player could identify gap in the offering, and carve a niche for
itself.
Their overall strategy has always been to keep the cost under tight control. But
they never fought in the market with price. Rather they raised the cost of doing business
for the competitors and kept the cost constant. This was a unique feature of their strategy.
66
7.4.2 Classification of paint

Let us take a close look at the differentiating strategy. Differentiation can be based on
product, channel and promotion. “Product”, however, lends the maximum scope for
differentiation. Here I should be careful to point out that a product can be a brand also.
Thus in those cases when the product attributes are same in a product category, then the
intangibles play an important role. This is where branding becomes important.
Broad Cost
Differentiator
Leader
Competitive
advantage
Niche
Narrow
Cost Features
Strategic Advantage
(Tangible +
Intangible)
To understand the importance of brands in paint industry, it would be useful to analyze

the following factors:
 Understand the type of industry paint is
 The consumer purchase pattern for paint
 The benefits sought by the consumer
For this purpose a few frameworks are provided below.
67
Whether the brands play any role in a product category, it will depend on the
priority of the benefits, which the consumer seeks. In India, market is divided into rural
and urban. in rural market, concept for the paint has been sold, but the people there still
look for the basic offering. Some of those are a medium to cover the walls, reliability, etc.
Any brand, which has been with the concerned market for an extended period of time,
with a good basic offering, can make inroads in such a market. AP scored heavily here
because of their earlier decision of going to the rural market, and thus reaped first mover
advantage, where reliability and assurance is synonymous with AP and AP’s brand
mascot, “GATTU” lovingly referred to as “ chhota bachcha”. In urban market people
look more than basic offering. They also look for a look and feel with the paint. Thus the
phrase, one buys shade and not colour. Also function/role of a brand in paint market is
optimization of choice, sign of high quality performance, and the power of the
manufacturer’s brand become quite important14.
How much brands play a role also depends on the stage of the industry. When the
market is germinating, the basic offering is most important, like paint industry in India in
50s. When it starts taking a definition, then the variety starts playing a role, and people
look for particular offering that suits their needs. This is the time when brands can be
used to establish the link between those needs and the product benefits. If these links can
be built at this stage, it helps the firms in the next stage, when the differentiation starts
occurring. The brands become most important at this stage, as the market is highly
fragmented and one needs to differentiate oneself on the basis of intangibles.
14
Strategic brand management by J N Kapferner, page number 31
68
Decreasing importance of Corporate Strategy of Asian Paints
the brands
High
Paints
Cost of
purchase
It Low
will be important to see at which stage of the decision making process does the
brand play a role. When Low
the cost of buying goods is high,
Understanding which is
of product true in the case ofHigh
features
paints as one buys it in bulk to paint the whole establishment and it is infrequent
purchase. Brands play an important role in this case to bring that brand to the
Increasing importance of the brands
consideration set, but not necessarily result in the purchase. This is the case with the
paints. Whereas if the soap industry is analyzed, it is apparent owing to the low cost of
purchase and the frequency of purchase, brands can result in direct purchase. Similarly if
the product benefits can be easily discerned, then the role of brands goes low. By the
term, understanding of Product features, I imply that the consumer can form the link
between observable product attributes/features and the benefits sought. As it has been
stated earlier, paint industry is not a product driven, as the basic offering is the same
across the players. Thus the switching cost for a consumer would be zero to shift between
the brands. It would be like buying any rice (belonging to a particular category) as it is
quite easy to see and understand the quality of rice. That is not the case with paints.
Therefore brands play an important role, as the benefits are more emotional than the
physical.
69
Decreasing importance of
the brands
High
Paints
Cost of
purchase
A logical
Lowparameter, which comes out of above matrix is the trialability. The fact that
Low
people have very high switching cost if trialability Trialability High
is low makes branding very important
in these categories. In the case of paints, trialability is low thus brands would play a
major role. As trialability is the parameter that helps the evaluation process of the
Increasing importance of the brands
consumer, it is the crucial link that could bring a product from the consideration set to the
purchase set. Trialability reduces the asymmetry of information between the product
features and consumers and therefore aids evaluation. Since trialability in the paints
industry is very low, firms have tried to find a suitable substitute for this to remove
information asymmetry. To counter this, firms resorted to aid of computers. AP
introduced color-world. The introductions of service centers, colorworlds, computer
simulation centers are all efforts in this direction. AP has realized that due to the inherent
brand value and proposition, the brand is well entrenched in the minds of the consumer
ad is therefore present in the consideration set. But since the cost of purchase is high, the
value of brand in making the switch from consideration set to purchase set is low. AP’s
efforts have been to increase information dissemination and aid this process.
70
Decreasing importance of
the brands
High
Paints
Involvement
Low
As it is typical of any durable
Low industry, where frequency
Frequencyof of
thepurchase
purchase is low, and the High
involvement is high it is the case with paints. Brands would be useful to get the attention
in consumer’s consideration set, but the actual purchase
Decreasing wouldofnot
importance thetake place. But if
brands
brands could be supplemented with information, then the brands can affect the purchase
step of the buying decision process.
Keeping all the points in mind, it was a good decision taken by AP to brand their
products. It can be said here that AP also had the advantage of “path dependence.” As it
went to the rural and semi-urban areas early, they already had a presence in the
consumer’s mindset there. Thus they had to back their basic product offering with the
appropriate emotional benefits, and bundle those in a brand. They could always talk
about trust and reliance, which are very in the priority list of the customers. They were so
successful in their endeavor of using the brand that people had instant recall of tractor
brand, even though they had no idea about AP.
In more developed urban market, they used the power of information. By setting
up Helpline, highly informative website and introducing the concept of color-world, they
facilitated the knowledge dissemination. Thus they helped the more sophisticated
71
customers to take a conscious decision. This was also the segment where they bundled
more emotional benefits. This was the reason why “mera waala pink” ad campaign was
run. They indicated that they have any and every shade, which a person may want,
indicating a very high reliability. Each brand was so successful that people had instant
recall of particular brand like Apcolyte, Utsav, Apex etc.
There were two problems with this brand strategy of AP.

1. They had introduced many brands, which had good recall but independently. That
is, AP as a brand name had no value. A good parallel that could be drawn here is
with Madura garments here. They have most prominent brands under their
portfolio in readymade wear, but almost no brand equity as Madura garments.
Earlier AP had adopted Product Brand Strategy where a particular name is given to one
and only one product with an exclusive brand positioning.
72
7.4.3 Shift in brand strategy
1.1.1.1.1.1.1.1 Company X
Brand B Brand C
Brand A
Product A Product B Product C
Positioning A Positioning B Positioning C
There are various advantages of product brand policy like allows freedom to operate in
many markets, without producing dissonance in other markets, freedom to move to new
markets, failure of one brand doesn’t affect other brands and so on and so forth.
The flip side is this is a costly policy as one cannot draw from the parent brand. Thus
each product launch is like a new product. This policy makes sense where the market is
growing at a rapid pace enabling quick return on investments. When the markets start
saturating, this advantage disappears. This could be the reason why AP is slowly moving
towards Source Brand Strategy.
73
1.1.1.1.1.1.1.2 Parent Brand
Personal brand Brand A Brand B Brand C

names
Specific
communication Promise A Promise B Promise C
Products
Products A Products B Products C
This strategy is the one, which is conceptualized by the authors of this report. All the
moves taken by AP indicate towards this direction. It benefits a company in such a way
that there is a two-tiered sense15 of difference and depth. Parent brand offers its
significance and identity, modified and enriched by the daughter brand to attract a
specific customer segment. This limits the scope in a sense that the core, spirit and
identity of the parent brand should be very respectable. AP seems to be moving in this
direction with giving the same colored logo to all the packs, and prefixing the product
range with Asian Paints.
2. Gattu was used as a brand mascot to increase the brand recall. Mascots make lots
of sense in a country like India where illiteracy — or multiple languages — is still
a big issue. Gattu was first dreamed up when the company was still small and
struggling against large British companies like Imperial Chemicals. This
mischievous, aggressive, very Indian urchin made a lot of sense then, attacking
the large foreign players.
It came as a shock to the marketing world when AP announced that Gattu is going to be
“terminated.” The reasons cited were many and far, mainly from the so called elite of
15
Strategic brand management by J N Kapferner, page number 201
74
advertising coterie. In the words of Mr. Shombit Sengupta, founder of Shining Brand
Consulting, “I have never found any relation between the high technology oriented
quality of painting in today’s world and Gattu of Asian Paints, rather a conflicting image
of a naughty boy and a serious value-driven paint company”. PM Murty, president,
decoratives, gave a more rational reason. According to him, “Gattu didn’t really fit with
the company’s new visual identity.”
The stance taken by the authors is of caution. Gattu was invented to take the global
players head on, when the company was a fledgling. But today, when AP is itself the
dominant player, after dislodging those foreign players, Gattu makes less sense. Also Mr.
PM Murty is right in claiming that the mascot can add little in its attempts to be a more
up-market, market leading player.
There is a negative side to it, which is worth mentioning here. Gattu was one of the
driving forces in penetrating rural markets, and even today AP derives a large sales
turnover from this market. On talking with some of the field personnel, one thing came
out very clearly. All of them were pretty apprehensive about the negative effect this
removal will have. Company responded to this by saying that Gattu wouldn’t be totally
removed in an abrupt manner. But that it was going to be “phased out”, slowly and
steadily. I think that the brand equity for Gattu is huge, and company might be taking a
big risk by eliminating it. What future has in store for them remains to be seen.
8 Possible Future Changes:

Right now, the industrial segment is characterized by a lot of joint ventures. There basic
reason for the happening of these joint ventures has been the change in the customer
demands. In the past, the Indian industrial paint segment was very underdeveloped and
the players were not very discerning about the type of paint that was put on their products
or on their machinery. With the maturing of the markets the industrial segments began
demanding paints that were most suited for the type of products that they were producing
75
or using. These types of specialized paints required much better technology than was
being used at the time.
The tie-ups and JVs began forming soon after this change in demand patterns because the
Indian players realized that they did not have the technological competency to develop
the paints that were being demanded.
Around this time, the large multinational players started looking at India as their next
destination for market expansion. The same market maturity that created the need for
technology for the established Indian players could have been the signal for the global
players to enter the Indian market. But these global players were not aware of the Indian
market conditions and did not have the understanding of the demand patterns of the
market. To enter the market they needed this market understanding, therefore they were
looking for setting up JVs with Indian players in India.
Sustainability of Joint Ventures = fn (Complementarity of competencies, Transferability

of competencies)
At the time when the joint ventures were formed the competencies that the players had
were complementary i.e. the foreign players had the technology and the Indian players
had the market understanding. But the sustainability of these ventures is not very high
because, the transferability of competencies is also high. After a period of existence in the
market, the foreign players shall start understanding the Indian market and he shall no
longer feel the need to partner with the local player. On the other side, depending upon
the tie up, the transfer of technological competencies shall also happen in the direction of
the Indian partner. There shall come a time when the partners shall no longer feel the
need for each other and this could lead to any of the following three consequences:
• Break up of the JV: Both the players could decide that they do not want to
continue with the Joint venture and that they could survive on their own in the
marketplace. The disadvantage of this action is that from being partners, the two
companies might become competitors with similar technologies and market
76
understanding. But there is a chance of this happening if one of the players feels
that it has been able to transfer the competencies of the JV partner to itself
effectively and the partner has not been able to garner all the competencies that
the second partner had and it is confident that it would be able to get a majority
market share even if it has to compete with its erstwhile partner.
• Take over of the company of take over of the JV: This is a more likely scenario.
The global players who are entering in the market are entering with a view of long
term market presence. Therefore, a situation where they have to break off with the
Indian partner and compete with it would not suit them too much because then
they would have to almost start from scratch and set up the business though they
would have gained the competencies they had lacked. The more preferred way for
the global partners would be to ensure that it gets adequate market understanding
and then take over either the Joint venture or take over the company. The reverse
takeover where the Indian partner takes over the JV partner is not very likely
because the global companies coming to India are much larger than the Indian
partners. In Indian cases, similarly, the chances of Asian Paints getting taken over
through a JV are quite small though the possibility does exist.
77
9 Exhibits
Exhibit 1:
Porter’s five-force model
Substitutes
White cement
Whitewash
Brick structure
Stone structure
Buyers
Existing rivals Suppliers
Fragmented market for decorative,
Berger TiO2 being imported. Few suppliers,
thus low power.
GN thus high power.
Low switching cost
ICI Availability of substitutes for RM
Industrial paints, corporates have
JNPL low, thus high bargaining power
high power.
Threat of new entrants

Growth rate much higher than global, thus
global players maybe interested.
Huge potential to increase per capita
consumption. Thus latent need.
Companies can erode into APIL’s industrial
market by forming more JVs
78
Exhibit 2:
Distribution channel
Factory
Fast moving categories/shades Slow moving
Branches/Depots (48) Regional Distribution Center
Stock Points
(found at larger branches -- same function as branches)
Dealer retailer (12,000 - 14,000)
Retailers (rural)
79
Exhibit 3
Plant Locations
Company West India North India South India East India
Asian Paints Mumbai Kasna Patancheru

Ankleshwar
Goodlass Nerolac Mumbai Kanpur Chennai
Ahmedabad
Berger Paints Vithal Pondicherry Howrah
ICI Thane Balanagar Rishra
Jenson & Nicholson Panvel Bulandshahar N 24 Parganas
80
Exhibit 4
Organization structure
Asian Paints
CEO
VP, Finance & VP, Sales & VP, Corp.

VP, HR VP, SCM VP, Systems
Control Marketing Strategy
General Sales General Mktg

Manager Manager
Regional Group Brand

Manager Manager
Area Sales Brand

Manager Manager
Sales Management
Supervisor Trainee
T.S.I
81
10 Bibliography
10.1.1.1 Websites
www.indiainfoline.com
www.domain-b.com
www.chemb.com
www.asianpaints.com
www.ppg.com
www.EconomicTimes.com
www.thehindubusinessline.com
www.businessworld.com
www.paintstore.com/pwc/mkit/survey.html
and other websites that provide publicly available knowledge
Databases
Crisinfac – CRISIL’s Industry Intelligence Database

IBID – News Clippings Databse
Capitaline – Financial and Research Reports on Companies
Books
Marketing management, by VS Ramasawmy. 2nd edition

Strategic brand management by J N Kapferner
Building Strong Brands by David Aaker
Valuation: Measuring and Managing the Value of Companies by Kopeland, Koller and
Murrin
82

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Asian Paints Corporate Strategy

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Corporate Strategy of Asian Paints

Corporate Strategy of Asian Paints

1 IDENTIFICATION OF INDUSTRY DYNAMICS..................................................5

1.1 Industry description....................................................................................................5

1.3 Current Scenario.......................................................................................................14

1.4 Porter’s Analysis.......................................................................................................22

1.5 Global Trends............................................................................................................24

1.6 Expected growth in each segment...........................................................................27

1.7 Changes in segmentation..........................................................................................28

2 IDENTIFICATION OF COMPETITORS ...........................................................29

2.1 Main Competitors.....................................................................................................29

2.2 Identification of focus areas of competitors............................................................30

2.3 Entry of Global Players, Recent Joint Venture agreements.................................31

2.4 Important brands of competitors............................................................................32

3 KEY DRIVERS OF SUCCESS..........................................................................33

3.2 Other Factors............................................................................................................36

3.3 Drivers for growth of Industry................................................................................37

4 HISTORY OF ASIAN PAINTS LTD..................................................................38

4.1 The initial years.........................................................................................................38

4.2 Financing growth......................................................................................................38

4.3 Capacity expansion ..................................................................................................38

4.5 New Product Offerings.............................................................................................39

4.6 International Exposure.............................................................................................40

4.7 Colourworlds – A revolution in the paints industry..............................................40

5 HISTORICAL STRATEGIES ADOPTED BY ASIAN PAINTS.........................41

5.1 Market Leadership through Distribution Excellence............................................45

6 ASIAN PAINTS PERFORMANCE ANALYSIS.................................................47

6.1 Financial Performance.............................................................................................48

6.2 Market Performance................................................................................................49

6.3 Management of working capital by Asian Paints..................................................51

7 ASIAN PAINTS STRATEGY.............................................................................54

7.1 Corporate Strategy...................................................................................................54

7.2 Asian Paints Acquisition targets..............................................................................59

7.3 Business Strategy......................................................................................................62

7.4 Differentiation and the role of branding.................................................................65

8 POSSIBLE FUTURE CHANGES: ....................................................................75

1 Identification of Industry Dynamics

1.1 Industry description

1.1.1 Industry Structure- Decorative:

1.1.1.1 The Advantage of the unorganized sector:

1.1.2 Industry Structure-Industrial Paints:

1.1.3 Industry Characteristics:

1.1.4 Margins and Industry Attractiveness

Company Gross Margins

Asian Paints 12.37%

 Technological Requirements: The technology required to manufacture decorative

1.1.5 Decorative Paints industry: Working capital intensive

Product Super-acrylic Plastic Emulsions, Oil-bound

Target Up-market buyers High income group, Middle class and

Key Purchase Quality, Shades & Quality, Surfaces, Cost &

 The technology required for manufacturing of decorative paints is easily

1.3 Current Scenario

1.3.1 Market Size

1.3.3 Manufacturing Bases & Capacities

Company Mar 98 Mar 99 Mar 00 Mar 01 Mar 02

Economics of scope in industrial and decorative paints

1.3.4 Raw Materials

1.3.5 Backward integration

1.3.6 Distribution methods

The availability of a wide variety of shades and an extensive distribution network

1.3.7 Forward integration

1.3.10 Duty Structure

1.4 Porter’s Analysis

A Porter’s five-force analysis was done. It is given in a diagrammatic form in the