Indian Tobacco Company was incorporated on August 24, 1910. It was initially known as Imperial Tobacco Company of India limited. Later the name of the Company was altered from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 & later then it was changed to I.T.C. Limited in 1974. In September 18, 2001 all the full stops in Company’s name were removed & know it is ‘ITC limited’.
AREA OF DIVERSIFICATION:
ITC has been a leader in the tobacco business in India since 1910, but it realizes that remaining with a single business is not a noble thought to survive in the competitive era, moreover the company was threatened of the anti-tobacco campaign. Therefore the company decided to enter into IT with ITC InfoTech, foods via Kitchens of India, greeting cards through Expressions and lifestyle retailing through Wills Sport. The revenues drawn by each of these is at least Rs.250 crores by 2005.
ITC is a rich company with a liquidity of Rs.8816 million in the cigarette business, even though the company understood & decide the need of diversification. ITC diversified product mix to increase its brand image & to reduce its dependency on tobacco related products. It has entered into the hospitality service industry in 1975 & become a major player in hotels services also; it consists of 70 hotels across India. It’s FMCG (fast moving consumer goods) business is on growth curve. It competes with Infosys & Wipro by making heavy investments in October 2000 to strengthen its IT (information technology) segment. Though the ITC group is building its image as an ideal corporate citizen & as a company that takes its social responsibility seriously, still it earns 80% revenues from selling cigarettes & other tobacco related products. The major areas of diversification are:
FMCG is the fastest growing sector today. ITC’s planned intent to secure long-term growth by diversifies pool of competencies to emerging opportunities in the FMCG sector. Over the last few years, ITC has scaled its presence in FMCG businesses comprising Branded Packaged Foods, Lifestyle Retailing, Education & Stationery products, Personal Care products, Safety Matches & Incense Sticks (Agarbatti) with Segment Revenues growing at an compound annual growth rate 38% during last five years. The strengths of the company –
Deep customer insights
wide distribution network
Continue to grow the new FMCG businesses. Company focus on quality, innovation, world-class R&D, & an efficient supply chain will continue its leadership in the Indian FMCG industry.
DIFFERENT BRANDS OF ITC IN FMCG SECTOR:
Cigarettes: ITC is market leader in cigarettes in India. Its wide range of brands includes Insignia, India kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol, & Flake.
Food: different brands in food are Ashirvad Atta, Kitchens Of India, Mint-o, Sunfeast, Candyman, & Bingo
Lifestyle retailing: Wills Lifestyle, John Players, & Signature offers a wide range of apparels, fashion accessories, fragrances, bath & body care products, shampoos & shower gels.
Education & stationery: ITC enter education and stationery business with brand named Paperkraft in 2002; and later expand with its Classmate brand in 2003.
Safety Matches: Safety matches include popular brands like i Kno, Mangaldeep, Aim, Aim Mega and Aim Metro.
Incense sticks: As part of ITC’s business in the FMCG sector, the Company enter in Agarbattis (Mangaldeep) sourced from small-scale and cottage units in 2003.
REASONS FOR DIVERSIFICATIONS:
As only 15% share of consumption of tobacco, cigarettes contribute more than 85% tax revenues to Indian government from tobacco sector. Taxes realised from tobacco consumed in cigarette form are 35 times higher from other forms of tobacco products. High taxation has led to increase in tax collection but tax-evaded cigarettes account for more than 8% of Indian market. Non-uniform tax prevailing between States have led to trade diversion compromising the industry’s ability to service effectively & also resulted in sub-optimisation of cigarette tax revenues to the State Exchequers. So ITC also intent to create multiple drivers of growth by investing in business of world-class manufacturing, branding, packaging, agri-sourcing, hospitality, marketing & distribution. In FMCG sector, ITC’s products like branded & packaged Foods, Personal care, Education & Scholastic products, Apparel & Lifestyle products are fast gaining market share.
The government of India announced a ban on advertisement on the sell and consumption of tobacco & its products cigarette, leads to-
â€¢Decrease in sale of products.
â€¢Increase in excise duties which decrease the profitability of the company.
â€¢The ITC share price fell by 10% on the NSE as the judgement was made by the government on banning of advertisement.
â€¢Its corporate strategy aimed at creating multiple avenues of growth based on its core competency.
â€¢With this strategy it entered into lifestyle retailing, greeting cards and gifts and branded packaged foods.
â€¢A McKinsey report showed that food and clothing were the fastest growing industry in India.
â€¢The company aimed at generating 40% of its total revenue from such diversified business and improving its brand image.
All these above mentioned reasons provoked the company to take a serious look to enter in new businesses to survive in the competitive market.
Economies of scale and scope
Synergies can be realized.
Spreading the firm’s unutilized organizational resources can help the company to create value in other areas.
Create value by Leveraging skills across the different businesses.
Internal capital market.
Cash which is generated from some businesses can be used to make profitable investments to expand its size.
External finance which is taken outside may be more costly due to transaction costs, monitoring costs, etc.
Responding to current issues such as inflation, different changes have taken place in policies governing India’s agricultural sector. This impact the risk & profitability of ITC’s e-Choupal operations. Policies that distort markets (eg. Export bans, subsidies) or impose restrictions on smooth operations (eg. Stock controls, prohibition of futures) have adverse impact on companies engaged in the agri-sector. Agricultural Produce Marketing Act (APMC Act) enables direct transaction between the farmers & the agri- businesses is another area of concern. ITC fund the agri-business to develop India’s rural sector.
Leverage upon its existing skills and competencies. Strong branding capabilities backed by good quality. ITC’s strong distribution capabilities and a strong brand name is a useful asset. Using its agri sourcing network to source raw materials for its biscuits and atta businesses.
ITC’s diversified status originates from its corporate strategy which aimed at creating growth on its time-tested core competencies: unmatched distribution reach, its superior brand-building capabilities, its effective supply chain management, & acknowledged service skills in hotelier. Over time, the new strategic forays into business are expected to renerate a significant share of these emergent high-growth markets in India.
New brands are developed for new segments as ITCleveraged it traditional businesses. For example, ITC used its experience gained by transporting and distributing tobacco products to various remote and distant parts of India to the advantage of its FMCG products.
ITC master cooks from its hotel chain are often asked to develop new food concepts for its FMCG business so as to add new products in their chain.
ITC is a company which is diversified in trading of number of businesses, sectors including cigarettes, hotels, paper, agriculture, packaged foods and confectionary, greetings cards, Information Technology, branded apparel, personal care, safety matches, incense sticks and stationery.
The negative connection of tobacco is with the health and premature death of numbers of people every year.
The company is still dependent upon its tobacco revenues as it generates highest revenues. Cigarettes account for 47 per cent of the company’s turnover, and that in itself is responsible for 80% of its profits so it is main source of income of the company.
Core brands such as Aashirvaad, Mint-o, Bingo, & Sun Feast can be developed further by using strategies of market development, pricing strategies, product development and marketing penetration.
ITC is moving in new and developing sectors which include Information Technology (IT), supporting business & to expand its market.
The threat is from competition, both domestic as well as international. The laws of economics says that if competitors see that there is a huge profit can be made in an emerging consumer society the new products and services will be ultimately made available to earn large profit.
ITC take initiative to greened 1,07,000 hectares, which create 48 million persons-days of employment.
Its Watershed development helps in bringing water to 54,000 hectares of dry lands & moisture-stressed areas.
ITC provides employment to 5 million people to generate their livelihood.
ITC provides direct employment to 29,000 people.
About 31% of total energy consumed by ITC is from renewable sources.
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