Transcript
Blair Water Purifiers India Group 5
Objective of The Case
\u2022 To make a recommendation on mar entry and on elements of an entry strategy.
Indian Market for Home Water Filtration and Purification
\u2022 Four or five competitors in the market. \u2022 Only one or two companies in India\u20 states. \u2022 Its stage is in early growth stages. \u2022 Many Indians felt the need for impr water quality.
Target • 40 million households of middle- and uppermiddle-class households in the United States and the European Union • 4 million households who had similar values and lifestyles • 50% of our target market used boiling to make clean water • 40% of our target market used a mechanical device to improve their water quality
Traditional Method for Home Wate Purification •
Boiling -> two to five liters of water for 10
minutes, allow it to cool, and then transfer it t containers for storage (often in a refrigerator This procedure is cumbersome, time consuming, and ineffective in removing physical impurities and unpleasant odors. Before storage they will filter their boiled wat through “candle filters”. Water can become recontaminated during handling and storage.
Mechanical Methods for Home Water Filtration and Purification
• Candle Filters -> low price depend on material (plastic, porcelain or stainless steel) and easy o using. Candle filters were slow, producing 15 liters (one candle) to 45 liters (3 candles). It is needed to be removed, cleaned, and boiled for 20 minutes. Price Rs.350 to Rs.1,100. • Water Purifiers -> better than Candle Filters. There are three steps, the first removed sediments, the second objectionable odors and colors and the third harmful bacteria and viruses. Price is Rs.2,000 to Rs.7,000.
Foreign Investment in India 1. Joint working arrangement • •
Supply key purifier components License fees will be calculated by per unit basis over the item of the agreement
2. Joint venture company – –
Be partner with an existing Indian company Share 50% profit
3. Acquisition • •
Purchase an existing Indian company then expand to include the water purifier All profit will belong to us
Three Business Plans for Indian
1. Apply for market entry to the Foreign Investment Promotion Board, Secretaria for Industrial Approvals, Ministry of Industries. 2. Approval of any royalties and fees, remittances of dividends and interest by Reserve Bank of India, Ministry of Finance. 3. “Virtually guarantee” by consulting firm
Tax Rates and Average Return on Assets
• Corporate tax rates in India probably were somewhat higher than in the United State
• The average return on assets for all India corporations in recent year was almost 18%, for United States corporations was about 11%.
Blair Company, Inc.
• Established in 1975 by Eugene Blair • First product was a desalinator • In 1996, the product line included desalinators particle filters, ozonators, ion exchange resins, and purifiers. • In 1996, sales revenues was almost $400 million (annual growth average 12% for past five years), with an expected profit close to $50 million. • In 1994, water purifier was added to product line by using brand name “Delight”.
Delight Purifier
• Used a combination of technologies to remove four types of contaminants found in potable water: sediments, organic and inorganic chemicals, microbials or cysts, and objectionable tastes and odors. • This technologies to purify water to a level beyond WHO standards. • There were two models that were countertop and wallmount.
Competitors There are three major competitors. There are 2. Eureka Forbes • • • •
Joint venture company in 1982 between Electrolux (Sweden) and Forbes Cambell (india). First brand name was “Aquaguard” (used ultraviolet rays to kill bacteria and viruses) Rs.5,500 Second brand name was “PureSip” (used polyiodide resin to kill bacteria and viruses) Rs.2,000 Used 2,500 person salesforce (directly on households) to sale Aquaguard and independent dealers to sale PureSip
Competitors (con.) 1. Ion Exchange • • • •
Began operation in 1964, they use brand name was ZERO-B (Zero-Bacteria) ZERO-B purifiers used a halogenated resin technology. It helped prevent iodine deficiency diseases and permitted purified water to be stored up to eight hours without fear of recontamination Every year needs to replace the halogenated resin at a cost of Rs. 200.
Competitors (con.) 1. Singer •
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Might be a suitable partner to manufacture and distribute the Delight purifier The product contained nine stages (removed sediments, heavy metals, bad tastes, odors, and colors, killed bacteria and viruses, fungi, and nematodes) Life of flow rate at 3.8 liters per minute was at 40,000 liters (4.4years for 25 liters per day), but slower liters per minute was 70,000 liters (7.6 year for 25 liters per day). They described their product as “state of the art”. Singer was a well-known and respected brand name in India
Competitors (con.) • • • • •
The Delta -> carbon copy of Aquaguard. Alfa Water Purifiers Symphony’s Spectrum The Sam Group -> “Water Doctor” purifie Batliboi
Other Information
• Sales volume of ZERO-B and Singer was around 60,000 units in 1996. • Sales volume of Aquaguards and PureSips was 190,000 units. • More than 100 Indian companies made and marketed candle filters. • All of purifier sales came from large urban areas and only ten to fifteen percent of the entire Indian population could be reached.
Recommendations
1. Strategic focus on rural or smaller urba areas would not be wise, at least at the start. 2. Cost of skilled labor in India was around Rs.20 to Rs.25. 3. Blair Company should find an Indian partner.
Place [distribution channel] • • •
– – – – – – –
Eureka Forbes 2,500 persons sales force Independent dealers
Ion Exchange Door-to-door sales force Consumer advertising
Singer 3,000 independent dealers 210 owned showrooms 400 salesmen
Promotion • TV advertising
– Eureka, Ion Exchange, Singer
• Newspaper advertising – Eureka, Singer
• Outdoor and transit advertising – Singer
• Magazine – Eureka
Calculation • Licensing
– Capital cost of production facilities and equipment = $30,000 – Cost of office facilities and equipment = $5,000 – Annual fixed cost ranged between $15,000 - $40,000 – Average royalty = Rs.300 – Total cost (min) = $30,000 + $5,000 + $15,000 = $50,000 – Total cost (max) = $30,000 + $5,000 + $40,000 = $75,000 – Exchange rate is 1$ = Rs.35 – B/E (min) = ($50,000 x 35) ÷ 300 = 5,834 units – B/E (max) = ($75,000 x 35) ÷ 300 = 8,750 units
Calculation (con.) • Joint Venture
– Four regions [110,000 units] Skimming dealer
Initial inv. Rs.8,000,000 fixed cost Rs.7,000,000 Contri. Rs.650/unit B/E inv. 12,308 units B/E contri. 10,770 units % market 9.79%
saleforce
Penetrate dealer
saleforce
Rs.8,000,000
Rs.8,000,000
Rs.8,000,000
Rs.14,000,000
Rs.7,000,000
Rs.14,000,000
Rs.500/unit
Rs.300/unit
Rs.200/unit
16,000 units
26,667 units
40,000 units
28,000 units
23,334 units
70,000 units
25.45%
21.21%
63.64%
Calculation (con.) • Joint Venture
– Two regions [55,000 units] Skimming dealer
Initial inv. Rs.4,000,000 fixed cost Rs.4,000,000 Contri. Rs.650/unit B/E inv. 6,154 units B/E contri. 6,154 units % market 11.19%
saleforce
Penetrate dealer
saleforce
Rs.4,000,000 Rs.4,000,000 Rs.4,000,000 Rs.7,200,000 Rs.4,000,000 Rs.7,200,000 Rs.500/unit
Rs.300/unit
Rs.200/unit
8,000 units
13,334 units
20,000 units
14,400 units
13,334 units
36,000 units
26.18%
24.24%
65.45%
Calculation (con.) • Joint Venture
– National market [430,000 units] Skimming dealer
saleforce
Penetrate dealer
saleforce
Rs.30,000,000 Rs.30,000,000
Rs.30,000,000
Rs.30,000,000
Rs.88,000,000
Rs.40,000,000
Rs.88,000,000
Rs.500/unit
Rs.300/unit
Rs.200/unit
60,000 units
100,000 units
150,000 units
176,000 units
133,333 units
440,000 units
Initial inv. fixed cost Rs.40,000,000 Rs.650/unit Contri. B/E inv. 41,154 units B/E contri.61,539 units % market 14.31%
40.93%
31%
102.3%
Pros & Cons • Licensing pros
cons
- Low risk
- Cannot control
- Low cost
- Lose image
- No need to study India's culture
Pros & Cons (con.) • Joint venture & Acquisition pros
- Controlable
cons
- High cost - High risk - Low return - Long-term payback period
