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Strategic Management

Case Analysis:
Havells india

Friday, 02 September 2011

Submitted by:
PGP/14/260 NITESH KUMAR GUPTA PGP/14/290 RAHUL MITTAL PGP/14/280 MAHTAAB KAJLA PGP/14/313 VINNY ARYA

Group V
PGP/14/287 PRACHI CHAWLA PGP/14/315 VISHAD DUBEY

Industry defined

Electrical & Electronics Equipment supplies

Strategic Management

Group V

Challenges

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

Strategic Management

Group V

Value-creating Strategies of Diversification: Operational and Corporate Relatedness


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Strategic Management

Group V

Related constrained diversification

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.

Strategic Management

Group V

Tests for diversification

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

Strategic Management

Group V

Tests for diversification

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)

Strategic Management

Group V

Tests for diversification

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

Strategic Management

Group V

Analysing the candidature for acquisition

Resources Human Resources Intangibles - Retaining intellectual capital of Sylvania and Havells - Worlds third largest company in lighting industry next to GE and Phillips - Brand visibility in more than 30 countries -11 manufacturing plants in 5 countries, 22 sales & distribution facilities in Europe, South America & middle east - Had hard(plant & equipment) resources and employees(8400) constitutes soft resources

Physical Resources Nature of Resources Extent of redundant Resources

Synergies
Reciprocal synergies Modular synergies - Sharing of distribution and marketing network - Havells & SLI will manage most of their resources independently and pool only results
Strategic Management Group V

Analysing the candidature for acquisition

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. -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)

Forces of Competition

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

Strategic Management

Group V

Analysing the candidature for acquisition

Analysis of Factors

Factor
Types of Synergies Nature of Resources Extent of Redundant Resources Degree of Market Uncertainty Level of Competition

Degree
Reciprocal-Modular Low/Medium low Low/Medium High

Strategy
Acquisition-Non Equity alliance Acquisition Non Equity alliances Acquisition 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 its a good idea to go for acquisition than alliance.

Strategic Management

Group V

Reasons for acquisitions

Increased market power Overcoming entry barriers Increased diversification Reshaping the firms competitive scope Lower risk as compared to developing new products Learning and developing new capabilities

Strategic Management

Group V

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