Case Analysis: Ingersoll-Rand (India) Ltd: The Air Compressors Business at Crossroads

Submitted By: Section X, Group 5

Introduction:
The case talks about Ingresoll-Rand(India) Ltd. which is manufacturer of wide range of
equipments catering to diverse industries and the problems it is facing due to increased
competition in marketing space which is lowering their margins and hurting them badly.
Background of Ingersoll-Rand Ltd.:
Ingersoll Rand Inc..U.S.A. is the parent company which was established in 1871 and its product
range comprises of industrial and commercial equipment and components most of which are
ranked as one or two in their respective markets. The company serves four global growth market
segments: Security and Safety, Infrastructure, Industrial Productivity and Climate Control.
Ingresoll Rand (India)Pvt. Ltd. was established in 1921 at Kolkata, West Bengal. The Company
was primarily a trading organization when it commenced its manufacturing activities at Naroda,
Ahmedabad in Gujarat to manufacture reciprocating compressors. The company went public in
1977 and in 1978 commissioned its second production unit at Bangalore to manufacture hole
hammer drills, blast hole water-well drills, hard held light drills, carset bits, heavy duty blast
hole drills. In 1990s IRL expanded its capacity and in early 2000s it achieved the position of
being significant exporter of engineered goods from India. IRL serves its customers in two major
markets- Industrial Productivity and Infrastructure Development.
Key problems identified in the case:
Sanjay Mehta, senior sales executive IR India Ltd, on communicating to his executive VP, Anand
Ranganathan about the letter of intent he received from Deccan Textiles Ltd, communicating
their interest in purchasing a Centac Centrifugal Air Compressor for their manufacturing facility
was shocked when he came to know that his company was not interested in selling the machine
to Deccan textiles.
Sanjay had worked hard to finalize the deal. He had spent months holding a series of discussions
with Deccan's purchase head, maintenance manager, chief of engineering department and the
joint President. His hard work paid off when Deccan gave the letter of intent to IR instead of
other suppliers who offered the similar product at a price around 10% lower than that of IR. This
was the deal IR had been looking forward to as earlier it was not able to finalize a deal with
Deccan on any instance. The deal was finalized at Rs. 93 lakhs.
Problem arose when Anand, the executive VP thought that the deal was not worth because at the
price Sanjay quoted, the company would make only 2-3 % profit, which he thought was too less
for such a deal. Anand felt that for a world class high value product, this discounted price was

not justified. The problem was that there was a stiff competition in the air compressor segment
which was driving prices low. Another major problem was that the economy was suffering a
slow down with very sluggish sales. This also resulted in the prices to fall as the supply was
more than the demand. This led to a tiff between the marketing & sales department and the
higher management. The higher management wanted more margin on their products, whereas the
marketing guys had to give abnormal discounts just to make the deal. The marketing department
knew that if they did not give such discounts, there would be no sales at all. The higher
management was of the view that if such deals continued, IR would pretty soon make losses. The
marketing department had already lost many orders while showing price rigidity, and they knew
that lowering the price was the only solution. Both the departments agreed that the buyers are
making maximum gains in this competition between suppliers. Still the marketing department
thought that making sales with such margins was better than making no sales at all.
The higher management was banking on the use of latest technology, quality of compressors,
reliability and the number of features they offered. But the marketing department knew that
customer's principal purchase criterion was prices and were reluctant on paying for features.
Coming back to the deal between IR and Deccan, Deccan was known for its aggressive buying,
demanding highest quality at lowest prices. It was also learned that the purchase department was
under immense pressure for cost cutting.
Hence the key problems facing the company are:
1) To meet the demands of the customers with best quality products at a lower price and staying
profitable at the same time.
2) To compete with new companies on lower priced products to gain critical clients and capture the
market share.
3) To achieve high exports amidst high competition from china, worsening macroeconomic
condition in India and depreciating currency.
4) To avoid the price war scenario in the compressor market which might lead to lower profits for all
the players thereby hurting them in the long run.

Recommendations:
The team suggests the following recommendations for the company:
1. To stay competitive in the market, IR should lower the price of the products and at the
same time offer less additional features which do not add value to the customer.
2. To reduce the overall cost of the product, IR should try to reduce the use of costly
imported products and maximize the use of domestic products.