You are on page 1of 10

ELECTROSTEEL IN INDIA

During 1990s India achieved growth rate above 5%


It had adopted policies to protect local industry which made
difficult for MNCs to do business here
In 1991, the government started liberalization program that
aimed at reducing these barriers
Electrosteel has been producing pipe since 1965
Overall production reached 231,000 for DIP and CIP generating
revenues of US$124 million and contributing to cash reserves of
about US$50 million
Export sales went from 30,000 tonnes to 25,000 tonnes in 2001

On 30th June 2001, CEO of Electrosteel Castings, Anil Das received a call
regarding their decision to invest in Vietnam
The company was planning out for the international expansion
Narrowed down the options either to new marketing office or a new
manufacturing facility
Two attractive locations- Vietnam(Southeast Asia) or France(Europe)
Approached CMC to assess the locations at Vietnam
Urgency for the decision increased when Mr.Das realised that foreign
competitors were also investigating on the similar lines for the
expansion in India

DOMESTIC DEMAND FOR DIP


Demand

The domestic market was spread across 28 different states in India, with the state level
governments being the primary buyers to improve infrastructure.

The manufacturing and delivery of iron pipe was undertaken only after the governments had
placed a firm order.

The peak buying period tended to occur in the first quarter of the calendar, coinciding with
the state and central government fiscal year end.

Competition

Electrosteel was a well-established brand in INDIA and maintained an extensive local network of
agents and a team of sales professionals.

In 2001,new domestic competitors had started manufacturing but zinc coating and cement lining
had proven difficult to duplicate.

Skilled employees were difficult to recruit.

Global Opportunities

The marketers in Asia were rapidly expanding, as many developing countries


moving aggressively to develop their infrastructure.

Much of the funding came from Asian Development banks and OECD.

A number of developing countries such as Singapore, Vietnam did not have local
manufacturers of DIP and were forced to import.

National and Local governments are the largest buyer of Electrosteel products for the
development of infrastructure needs such as water and sewage.

CIP was low cost product and favored by developing countries.

DIP had been increasingly used in developed market, because the metal pipe was less
brittle, and during subsequent use, the enhanced ductility reduced breakage and leakage.

DIP also faced competion from other material such as PVC,abestos,mild steel and many other.

DIP and CIP manufacturing plant was located in calcutta.

German technical knowledge and consultant work was critical to starting the plant.

The plant had recently been accredited with ISO 9002 Certification and the product was licensed
to carry the british standard Institution Kietmark.

Q1. What are the key success factors for Electrosteel? Is international
Expansion a good idea?

The key success factors for Electrosteel are:

Electrosteel had been Indias largest manufacture of DIP & CIP for over four
decades. Electrosteel was a well established brand in India & maintained an
extensive local network of agents and a team of sales professionals.

The company was listed on the stock exchange in Mumbai & Calcutta.

India had adopted policies that protected local industry, and combined with
both a complicated government bureaucracy, complex duties, and convoluted
tax structures made it difficult for multinationals to conduct business.

Given its long history in the domestic market, local protectionism for the steel
industry had fostered Electrosteels growth

Electrosteel could be transformed from a domestic supplier into a strong international


competitor. Electrosteel exported small quantities to the customer in the Middle East,
including Syria, Lebanon, Kuwait, Oman, Ethiopia and Qatar. The branch sales offices in
Singapore and Lebanon, served these market.
Skilled employees were difficult to hire for other company as Electrosteel employees were
very loyal and reluctant to join this new startup.
Electrosteel had recently been accredited with ISO 9002 certification and the product was
licensed to carry British standard institution (BSI) Kitemark, an important, international
product certification widely recognized by customer.
The domestic market was spread across 28 different states in India, with the state-level
government being the primary buyers to improve infrastructure. This market of dip had
been growing at between 5 to 10 percent annually over the last 4 years as international
agencies increased funding for water supply project in India.

Q.2 What is your evaluation of the opportunities to expand either in Vietnam or France? How
do the alternatives compare (Include marketing, operational and financial considerations)

Vietnam

Operational

Financial

Marketing
Consideratio
ns

France

Problems: Water & Sewage Problem,


Transportation Facilities Lacking, No
Proper Infrastructure
Opportunities: Transportation Cost
will be saved, will be considered as
local.

Problems: Labor cost was 10 times


that of India or Vietnam, Language
barrier for managers.

Opportunities:
o Saving of 10% of market price by
avoiding transportation from India
o A premium of 15% on water
projects by international agencies.

Problems: Increase in cost (by 90%)


just considering extra labor cost.

o First Mover Advantage


o Sale office cost $120,000/year
o Not much additional marketing
effort required as no competition

o Sales office cost $400,000/year

Operational
Operational

Opportunities: Overall Price premium


of 12% over international prices.

o Highly Competitive but could gain


niche market for itself.

Q.3 As Das, what is your recommendation going forward?


How would you implement your plan?

As Das I would recommend to have a finishing line in Vietnam and a


casting investment in Kardah plant in India. Thus the demand for
Vietnam market can be matched up with the finishing line and thus
savings are there and if there is increase in local demand it can be
catered with the increase in casting investment in India.

Investment in Vietnam would help cater the needs of international


market of this region. And for few years the market is established and
then having casting line Vietnam can be weighed.