Strategic Management

Case Analysis:
Havells india

Friday, 02 September 2011

Submitted by: Group V

PGP/14/260 NITESH KUMAR GUPTA PGP/14/280 MAHTAAB KAJLA PGP/14/287 PRACHI CHAWLA
PGP/14/290 RAHUL MITTAL PGP/14/313 VINNY ARYA PGP/14/315 VISHAD DUBEY
Industry defined

• Electrical & Electronics Equipment supplies

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Challenges

• Financing is difficult considering the size of SLI

• Small size of senior management group  Not
formal M & A personnel
• Integrating the SLI managers with Indian team

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 Value-creating
Strategies of
Diversification:
Operational and
Corporate
Relatedness

6–4

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Related constrained diversification

• Operational Relatedness (High)

– Economies of scope by acquiring light & fixtures
company
– Access to distribution channels
– Access to wide marketing network for marketing
Havells’ products in Europe
• Corporate relatedness (Low)
– Product offering & R&D of both the firms is different
– Hence low transfer of core competencies &
operational know how is low.

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Tests for diversification

• The attractiveness test: overall attractive – verdict

“diversify”
– Threat of new entrants: low
• Presence of stringent international and domestic quality as
well as safety standards which are difficult to achieve
– Bargaining power of suppliers: low
• Fragmented industry and small companies
• Switching costs are low as players can purchase resistors,
capacitors etc; from other suppliers
– Bargaining power of buyers: low to moderate
• Buying decision were dependent on brand and certification
of international and domestic bodies

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Tests for diversification

– Threat of substitutes: low

• No substitutes are present
– Competitive Rivalry: high
• Competition was intense from large and established
players
– Players CG, bajaj electricals – ECDs (very high)
– L&T, simmens – Industrial switchgear
– Legrand, indoaisan – domestic switch gear
– Cable and wire – polycab, finolex, cci, universal cables (very
high)

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Tests for diversification

• The cost-benefit test: verdict “diversify”

– Cost of acquisition from valuation
– Havells believed that in the long run the cost advantage,
brand equity of Sylvania, access to EU markets would make
it a good acquisition
• The better off test: verdict “diversify”
– Positive synergies: Havells
• Increased opportunities for globalization and internal growth
• After the acquisition, Havells would have broader product offering
• Increased market capitalization
– Positive synergies: SLI
• Management saw a need for fresh capital infusion in order to
survive and grow business

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Analysing the candidature for acquisition

Resources
Human Resources - Retaining intellectual capital of Sylvania and Havells
Intangibles - World’s third largest company in lighting industry next to GE
and Phillips
- Brand visibility in more than 30 countries
Physical Resources -11 manufacturing plants in 5 countries, 22 sales & distribution
facilities in Europe, South America & middle east
Nature of Resources - Had hard(plant & equipment) resources and employees(8400)
constitutes soft resources
Extent of redundant Resources

Synergies
Reciprocal synergies - Sharing of distribution and marketing network
Modular synergies - Havells & SLI will manage most of their resources independently
and pool only results

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Analysing the candidature for acquisition

Market Factors
Market Uncertainty
Forces of Competition
- Low
Havells keeps pace with technology to produce quality products. Its
are certified &abide all safety standards. Hence customers will
continue to buy their products.
-Competition was intense from large and established players
Players CG, bajaj electricals – ECDs (very high)
L&T, simmens – Industrial switchgear
Legrand, indoaisan – domestic switch gear
Cable and wire – polycab, finolex, cci, universal cables (very high)

Collaboration Capabilities
Collaboration Capabilities
- Past experience to acquire Electrium was in vain due to its
inexperience in M&A field
- But they have now learned how to negotiate international deals
and build relationship with bankers

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Analysing the candidature for acquisition

Analysis of Factors
Factor Degree Strategy
Types of Synergies Reciprocal-Modular Acquisition-Non Equity alliance
Nature of Resources Low/Medium Acquisition
Extent of Redundant Resources low Non Equity alliances
Degree of Market Uncertainty Low/Medium Acquisition
Level of Competition High Acquisition

Recommendation: the synergy generating resources are hard mostly, combining the
resources would definitely be a plus, the degree of market uncertainty is low-Medium
because of wide dimensions of market, and the level of competition both in domestic as
well as international market is high; so it’s a good idea to go for acquisition than alliance.

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Reasons for acquisitions

• Increased market power

• Overcoming entry barriers
• Increased diversification
• Reshaping the firm’s competitive scope
• Lower risk as compared to developing new
products
• Learning and developing new capabilities

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