Strategic Management

Friday, 02 September 2011

Case Analysis: Havells india

Submitted by:

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

Group V

• Electrical & Electronics Equipment supplies

Industry defined

Strategic Management © Group V

• 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

Challenges

Strategic Management © Group V

6–4

Value-creating Strategies of

Diversification: Operational and

Corporate Relatedness

Strategic Management © Group V

• 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.

Related constrained diversification

Strategic Management © Group V

• 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

Tests for diversification

Strategic Management © Group V

– 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)

Tests for diversification

Strategic Management © Group V

• 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

Tests for diversification

Strategic Management © Group V

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

Analysing the candidature for acquisition

Strategic Management © Group V

Market Factors

Market Uncertainty - 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.

Forces of Competition -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

Analysing the candidature for acquisition

Strategic Management © Group V

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.

Analysing the candidature for acquisition

Strategic Management © Group V

• 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

Reasons for acquisitions

Strategic Management © Group V