Asian Paints Tapping the Global

Market

Situation
Analysis

Asian paints is the largest paint manufacturer in India 63% market

share
Set up the International Business Division under the leadership of
Jalaj Dani in 1999 and had reach in 21 countries by 2005
In 2004, for the first time the International division as a whole had
turned profitable but some of the individual markets were still in
red.
The market comprised of two categories Decorative Paints
(construction sector) and Industrial Paints (automotive sector).
Objective of IB
Immediate goal was to improve profitability through consolidation.
ROCE of global operation is less than 10% compared to 25% for
domestic operations.
Target to improve International Divisions ROCE to 15%
The companys aims to be in the top 5 Decorative Paints company

Global paint
Industry
Global demand was expected
to increase by 5% of value and
3.5% of volume by 2007.
88% of the global paint production capacity was in North
America, Western Europe and Asia.
Rapid gains were expected from emerging markets.
Latin America and Eastern Europe expected above average
growth.
India, Taiwan, and South Korea are good prospects.
North America and Western Europe would have slow growth:
Were 50% of the global market capacity in 2007.
Consolidation on demand side led to domino effect on the
supplier side.
Competition was price based and global leaders were
domestic leaders.
The market comprised of two categories: Decorative paints
(Construction Sector) and Industrial paints (automotive
sector).
CAGR of 3.5%.

Market Trends
Low interest consumer products.
Trading up to high performance and high priced.
Dealers and contractors are major influencers.
Female customers are generally the decision
makers.
There has been a shift from thinner to water based
paint.

Industry facts:
Working capital intensive.
50% of the COS comprised of cost of raw
materials
Heavy bulk product hence local production facility
required.
Price of crude based raw materials fluctuated
Hedging is the only recourse among major
industry players.

Asian Paints and its

International Business
Focused on decorative segment.
Division
Continuous innovation through customer and dealer
feedback helped to gain market share.
Streamlined internal operations through technology
implementation to reduce costs and lower working capital
costs.
Globalization strategy: Focused on emerging markets,
Localized manufacturing and entered into Joint ventures
instead of organic growth.
Regional Technology Centre to facilitate cross-pollination of
best practices within the global firm, thereby increasing
efficiency.
Lead Technology Centers which would be information

Challenges
As competition within industry was price based, thus Brand
Equity was an important source of differentiation.
Do it yourself trend was growing among developed market
Controlling at least 20% of the revenue in key market is
crucial.
Leveraging the domestic strength is important to the success
of global operations.
Managing working capital is the only home grown
competency that has been leveraged at the global level.
By 2004, IB accounted for 12% of companys consolidated
revenue.
Asian paints had followed the path of inorganic growth
because organic growth was very expensive.

Segmentation
The company divided the market into three segments:
Leadership Markets:
The Caribbean region, Bahrain, Fiji and Nepal were
identified as markets where APL was already a leader. Total
market size is $100million and APL had sales of $55million.
IB would focus on efficiencies as well as market expansions
in these subsidiaries.
Growth Markets:
They were expected to drive APLs growth globally. Market
size was $3.3 billion. APL had less than 10% market share
and Middle East region was most fruitful growing at 30%.
Turnaround Markets:
Represented market size of $575 million but it had little
significance to APL. APL was a niche player in these
regions. Australia alone represented 90% market

Marketing
Rural Marketing Initiatives since 1970.
Strategy
Distribution is one of the main focus strategy of Asian
Paints.
Advertising & Promotional Expenditure started in 1980s.
Advertising Methods- Radio, TVCs, Print, Internet, OOH,
POP, Retail Outlets, Seminars, Workshops.
Company is using different techniques such as advertising
Campaign, sales promotion, personal selling, direct
marketing and public relation to increase sales.
Online marketing for urban customer as well as Asian
paints has started customer helpline service (24x7).

Marketing Entry
In order to decide upon
which market to enter
we can use the
weighted average
method to analyze the
market competencies of
the various countries.
The weightage assigned
to the various factors of
competency is as
follows:
GDP = 40%
Market Share= 30%
Per capita Usage =
20%
Market Size = 10%
There is one
assumption made while
selecting the countries.
Only those countries
have been considered
whose GDP is greater

Should enter or not?

We can conclude that :
The company should expand in Bahrain, Nepal, Bangladesh,
China, Malaysia, Sri Lanka and Thailand. On the other hand,
the company should withdraw its operations from Australia
owing as market is already saturated.
In Australia the three largest players have a captive hold on
the market with 75% market share and Asian paints have a
very low presence
Also the profitability in Oman is too low and the market
potential is very challenging and therefore a very low growth
opportunity.
The per capita consumption in India is still very low and the
market is projected grow at 13% to 15% in the next decade.
Asian Paints enjoys strong brand equity in India
However, the company cannot be dependent on the Indian
market alone. It makes sense for the company to leverage its
competencies in other emerging market.

Q1 Does global expansion detract the

company from its local market?
The main aim of Asian Paints is to stick to the core values of the
company, ensuring product quality and improving on the same. Since
APL is already present globally in 21 countries, it has to decide
whether being present globally is adding positively to the companys
bottom line or not.
Going by past data, APL has been fairly successful in international
markets ventures and contributes to up to 18% of its revenue. One
major success is SCIB in Egypt where it is among the top 5 paint
companies. Profit has also been continuously increasing on both year
on year basis as well as taking 2002 as base. Thus, we see that APL
was able to sustain its profitability in the domestic market.
As given in Exhibit 3a, we can see that, since 2002 till 2005, APL has
consecutively made more profits from its domestic + international
operations rather than that from domestic operations alone.

As given in Exhibit 3a, we can see that, since 2002 till 2005,
APL has consecutively made more profits from its domestic +
international operations rather than that from domestic
operations alone.

PAT
%
increas
e
IB

2005
2004
2003
2002
Consolidate
consolidate
Consolidate
consolidat
d
APL d
APL d
APL ed
APL
38.6
32.8
31.5
25.6
38.73
6
32.33
8
30.93
6
23.52
9

20% 18%
0.07

5%
4%
-0.55

32% 23%
-0.63

Also from Exhibit 3b

EBIT

GROWT
H

CAPITA
L

ROCE

2003
2004
2005
INDIA
IB
INDIA
IB
INDIA
IB
61.89
2.52
64.79
7.18
72.37

142

5%

39.16

44%

144.74

6%

185%

38.11

45%

12%

31%

152.74

19%

9.4

57.78

47%

16%

Asian Paint Ltd. Main aim was to ensure product quality and
improving on the same. It has been decently successful in its
international ventures, which contribute almost 18% of the
revenue of the firm. In Egypt it is among the top 5 companies in
the world. From the table above, it can be seen that the PAT of APL
in the domestic market has been increasing year on year from
2002 to 2005, thus it can be seen that international expansion has
not affected domestic operations at all. Also, if we see the
consolidated PAT from 2002 to 2005, it has been increasing year
on year.
ROCE for APL from Indian operation has been consistent which
averages around 45%. IB ROCE has shown increase from 2003 to
2004 but has decreased in 2005. But data clearly suggests that
APL is close to its target ROCE in global markets.

Thus, the international operations did not detract the company

from its domestic operations. It continued to maintained
profitability as well expenditure in proportion to revenue increase.

Q2 Evaluate the course of action adopted

by the company in different markets.

APL had devised certain criteria on the basis of which it made

investments in a particular foreign country
A market that has enough growth opportunities for APL that it can
become one of the top 3 in 5 years of entry
A market that does not offer very intense competition with MNCs
The market has a GDP growth in excess of 6%
If we consider the 3rd objective, we see that APL can only enter
China. Thus a weighted approach would have to be used to
determine which markets to enter.
APL used a matrix strategy based on 4 parameters (GDP, market
size, per capita usage, market share)
Assigning weights to each parameter. Let GDP have 20 %, Market
size by volume and value have 10% each , per capita usage have
20% and market share have 40 % weights.

APL had classified the markets into three segments leadership

market, growth market and turnaround market.
Leadership Market These are markets where APL is already a
leader. So they would focus on market efficiencies in these
subsidiaries. Eg - Caribbean region, Bahrain, Fiji and Nepal. The
combined market share was $100 million and APL had combined
sales of $55 million. Assumed penetration level doubled in near
future, growth potential is moderate.
Growth Market These are markets which are expected to drive
the growth of APL because they have very less market share in
these regions. Eg - markets in South East Asia (Thailand and
Malaysia), the Middle East (Egypt and UAE) and South Asia
(Bangladesh and Sri Lanka). The total size of this category was
about $3.3 billion. APL typically held less than 10% share in this
category.
Turnaround These are markets which are of very less
significance. APL is a niche player in these regions. Eg - Oman and
Australia