Table of Contents

Introduction Escorts Limited.........................................................................1 Market Environment Analysis..........................................................................3 2.1 Introduction India.................................................................................3 2.1.1 Political.............................................................................................3 2.1.2 Economics........................................................................................4 2.1.3 Social................................................................................................4 2.1.4 Technology.......................................................................................4 2.2 Industry overview...................................................................................4

Introduction Escorts Limited Escorts Ltd was established in 1944 and has been traditionally in the business of manufacturing agriculture and machinery products for the domestic farmers. Escort started out as an agency house and franchisee for international alliances like Westinghouse MAN, AEG, Knorr Bremse etc. Escorts provided the marketing and service activities for these alliances, which saw the beginning of the development of a strong dealer network across all of India with a total of 1212 present dealers, subdealers, distributors and stockiest across India. The company currently operates in three segments, which include agricultural-machinery, railway equipment and automobile components, and construction equipment. Escorts entered the tractor business in 1960s which remains as the core business and backbone of the company, contributing more

than 80% of the company total revenue. Today, Escorts tractors are marketed under the brand names of Escort, Farmtrac, and Powertrac.

Escorts started out as a family business, as with others rivals M&M and TAFE. The company vision and culture was largely influenced by its founder, Mr.H.P Namdas philosophy which is the spirit of adventure and the ability to Think Big. It is apparent from the CEOs statement that Escorts business mission is to become a dominance force in India heavy equipment industry with the vision to expand globally to become a major international player.

However, since the government liberalization of the economy in 1991, Escorts Ltd seems to lose its competitive edge in the tractor industry. From Escorts annual reports and The Hindu business line, we can see a few declining trends in the company: 1. 2. Reduced profitability over last the few years (eventually a loss in 2007) Decline in market share. Once a market leader in early 90s, Escorts is now

lagging behind at third place with a market share at 15%, much behind M&M (39%) and TAFE (23%). 3. The company is plagued by power struggle among the sons, disagreements

among the Board of Directors and decreasing employee morale on account of recent layoffs by the company which directly impact to the productivity of the company. 4. Low spending in R&D, which average 1.1% of the total revenue

Even with its long history and all the good resources and skills inherited from its long learning curve, it seems that Escorts is fast losing its market share and is well on its way out from the market. The objective of the paper is to conduct a full review of the

market environment and a detailed analysis of the company in the attempt to diagnose the problems faced by Escorts and craft out a solution for its revival.

Market Environment Analysis 2.1 Introduction India

2nd largest population with 1.13Billion (2007) people Average GDP growth rate more than 7% since 1997 Poverty Level at 25% Illiteracy rate at 39%

2.1.1 Political India government is coalitions of political parties contending for power with the flagship of democracy. Traditional economic and social elites do not necessarily dominate the power of positions. Even though Individual rights are respected, the mere presence of various interest groups often causes the system dysfunctional.

2.1.2 Economics Indias economic upbeat due to reforms implemented since 1991 have shown positive effect. The government has loosen the foreign trade and investment policy, and set a higher limit only on key sectors like telecommunication and tariff spike in sensitive categories like agriculture. India economic has been building on agriculture, handicraft, wide range of modern industries and multitude services. About 60% of the work force is in agriculture with a contribution of 17.2% to the total GDP.

2.1.3 Social India is a multicultural society with 28 states, 7 union territories, 24 languages and 644 dialects. It has a young population with 43% of the population below 20 years old and only 10.4% above 55 years old. The current Indian workforce is estimated at 523.5 million (2008) with 6 % unemployment rate and Indian workforce is well known for their hard-work, resilient to crisis and hardship, and their entrepreneurial spirit.

2.1.4 Technology Indian has a highly skilled workforce yet with the attractiveness of low cost. India has showed its high technology competency in the recent development of space program, nuclear weapons and super-computer without any foreign assistance. Indias IT is world class. Export of human capital is Indias major asset and revenue earner and will make it a leader in the world of information technology and communication.

2.2 Industry overview The Indian tractor industry has been growing rapidly over the past few years. It has a CAGR of 10% over the last 4 decades. Tractors export is also currently at its peak with the exports growing by 41% during 2005-06. It plays an important role as agriculture

sector has a major contribution to India's GDP. Tractors came to India through imports initially and were indigenously manufactured domestically with the help of foreign collaborations. This is also partly due to the initiative of the government to boost up agriculture and agricultural machinery industry which started in 1961-62. Indian tractor industry is relatively young but now has become the largest market worldwide. There are currently 14 players in the industry with Mahindra & Mahindra being the leading player in the industry.

Source: Indian Tractor Manufacturers Association,2007*

2.2.1 Tractor market: India government continues its focus on the growth of agriculture output with the Vision 2020 plan. In the Vision 2020, Government expects to reduce the workforce in agriculture from 56% to 40%, increase the agriculture average growth to 4-5% from the current 2.2% and accelerate acquisition of technology capabilities to increase the production in agriculture. Here, farm mechanization like tractor playing an important role to increasing the productivity. However, in comparison

with world average tractor of 19 units/000H, India is still far behind at 8 units/000H and over 50% of India villages have no tractors and still depend on human and animal power.

Source: Zinno Research& Consulting,2006* The tractor industry can segment into four categories based on the engine horsepower: less than 30 HP 31 to 40 HP 41 to 50 HP greater than 50 HP

From the market trend, we can analyze that 90% of the tractor demand is in 21-50HP category for agricultural purpose, and only 10% (>50HP) is for haulage purpose in

airport. The medium horse power category tractors of 31-40 HP are the most popular in the country and fastest growing segment .

Source: Indian Tractor Manufacturers Association,2007*

The tractor demand is driven by the following factors: Credit financing Influence of monsoon Modernization of farming technology Intervention of government

Detailed explanation of the above factors can be found in Appendix 1. 2.2.2 Customer

The factors influencing the purchasing decision of the consumers have been analyzed as follows: i) ii) iii) iv) v) Cost Credit Facility Performance of the tractors After sales services Viral Marketing Details explanation of the factors can be found in Appendix 2

2.2.3 Competitors The industry is controlled by a few major players. Please refer to Appendix 3 for detail market share analysis. The tractors manufacturing industry started mainly with the help of foreign collaboration with international reputable companies from USA, USSR, West Germany, Poland, and Czech Slovakia where most of the models were developed oversea. Indian companies were able to acquire the technology from foreign know-how as India major player like M&M, Escorts and TAFE were protected by the government trade policies. However, after liberalization, some of the Indian players lost their competence to foreign companies like New Holland and John Deere, except M&M, Escorts and TAFE who still dominate the market share.

A market environment analysis using Porter 5 forces model has also been conducted and is included in Appendix 4

1.

Internal Organization Analysis

After look into the marketing environment, now we shall evaluate the Escorts Ltd by using SWOT analysis. 3.1 Strengths 1. Escortss brand reputation established with 6 decades of history in tractor

industry. Products like Farmtec(34-75HP), Powertec(34-55HP) and Escort(27-35HP) are widely accepted and is the preferred brand in the market 2. Escorts has a comprehensive range of tractors with more than 45 variants

starting from 25 to 80HP. 3. Escorts has its own Escorts Institute of Farm Mechanization (EIFM) at

Bangalore. With a prime position in the market for over 50 years, it has developed a large scale of learning economies. 4. Escorts has wide network with 1212 dealers, sub dealers, distributors and

stockiests in India and subsidiaries office in USA and Poland. Escorts auto-part businesses has a global presence in 41 countries. 3.2 Weakness 1. 1.1%. Lack of focus on R & D where R&D expenditure spending average at only

2.

Slow response to the market changes where industrial analysis demonstrates a

tangible demand shift from 12-30HP category to 31-40HP category while Escorts is still focused on the former. 3. TAFE. 4. talents. 3.3 Opportunities 1. There is a huge increase in exports market due to the low-cost attractiveness of Inability to separate ownership and stewardship denies the corporate of the best No in-house credit lending facility in comparison with rivals like M&M and

Indian-made tractors, which cost only as much as a gearbox in developed countries. Moreover, Indian tractors are also gaining international acceptance because of their high standard which sees a huge opportunity for exports to various countries in Asia and Africa. The export market has seen a growth of about 41% in the year 2005-06. 2. With India 2020 Vision, the government has increase the lending credit

facilities and more private banks are now lending to farmers along with nationalized banks for purchasing farm machinery. This provides an opportunity for growth in the sales of tractors. 3. Technological innovation is inclining toward fuel-efficient tractors and tractors

that use alternate energy source. These will be the tractors of the future and a huge advantage if Escorts could acquire competency in this. 4. There is an increase awareness among the farmers for the need of farm

mechanization. Mechanized operations are preferred to eliminate drudgery and the problem of labor shortage during harvesting. 3.4 Threats

1.

The growth of the tractor industry is heavily dependent on the growth of the

agriculture. The sales dip significantly in the years when the monsoon fails. 2. Loosen foreign investment policy by government eliminates the need for

foreign players to joint-venture with Indian companies as was the case in the past. Moreover, foreign players like John Deere and New Holland who are planning to enter or have entered the Indian market have technological superiority which poses a threat the Indian players. 3. One of major characteristics of Indian farm lands is that they are heavily

fragmented and are relatively small size. The farmers do not hold sizeable chunk of land to use agriculture machinery.

4.

Marketing Strategies for Escorts Ltd

Summarize the above by using strategic thrust alternative, the strategy for Ecsorts Ltd will look something like that:
Marke t

Existing

New/Related

Existing

Product

New/Related

4.1 4.1.1

Recommendations Existing products in Existing markets With the current facility and capabilities, Escorts should realign its focus on 21-40HP to 31-40HP to meet the changes in consumer demand. Industry analysis demonstrates a tangible demand shift from 21-30HP category to 31-40HP category while Escorts is still focusing on the former. Marketing efforts, including viral marketing strategy, should be accordingly re-directed towards the 31-40HP category to prevent decline in market position. In general, India farmer is relatively poor, cost is the priority criteria on purchase decision. Thus if Escorts were to penetrate and regain the market

share, they should consider produce low-cost tractor or reduce its production cost. 4.1.2 Existing Products in New Markets With the increase in export trends for tractor which is as high as 41% in 2006, Escorts should try to expand its presence to some developing country like Asia/Africa with its existing products. Escorts can consider using its auto business division network (with presence in 41coutries) to leverage the synergies between the tractors and auto parts business unit on a much large scale. Escort also can consider penetrating its tractor into construction and mining industries in these foreign countries. 4.1.3 New Products in Existing Markets Escorts current product portfolio ranges from 21-55HP and may wish to consider extending into niche market of 10-15HP with low cost which is very suitable for small scale farmer in India. Consolidation is the current trend in tractor industry, where organic growth alone is not sufficient to maintain market position. Industry leader, Mahindra has taken a majority stake in Punjab tractor, while industry follower TAFE has acquired Eicher tractor to strength their market position. Escorts should consider acquiring small, niche players in 10-15HP category to widen its product portfolio while increasing its market share. 4.1.4 New products in New Markets Developed countries like US and Europe have already started the trend in using better performance, environment friendly tractor. Escort current capabilities in this area is far lacking behind. Although it may be too early for Escorts to expose itself to such new products, with the focus towards

environmental-friendly taking center stage globally, Escorts should focus on its R& D in Green tractor for its future market expansion. 4.2 Others recommendation to be consider 1. Escorts should consider separating its ownership and stewardship as the family

power struggle among the family members is always in the news in India Business Media. With the separation, Escorts could hire professional talents from the industries which can help to protect the interests of all stakeholders. 2. Instill and implement HRM strategies to craft out the company mission and

vision clearly with organized company structure together with an efficient performance evaluation and reward system. 3. Escorts should consider developing an in-house credit facilities to drive up the

demands for its products, at the sometime reduce the reliance on external financial institution.

5.

Future Environmental Changes

There are several potential changes which will arise within the marketing environment in 5-10 years time which need to be taken into consideration: 1. New players especially foreign investors are entering into the market will

increase the market competition which we can see from market trends. 2. Potential shifting demand to higher power tractor (>50HP) in big agriculture

corporation in future. 3. The loosening of the import policies by government which open the opportunity

to import used- tractor.

In order for Escorts to sustain/increase its market position, there is a need to prepare a strong business strategic plan to prevent the impacts of the future changes in marketing environment: 1. R & D play an important role in tractor industry, to gain a sustainable

competitive in this industry, the company needs to be technologically superior to its competitors. Escorts should increase it R&D expenditure from its current of 1.1% of total sales revenue. If Escorts is unable to deliver innovative products, it should consider entering into strategic alliances with international firms to stay ahead of its competitors. 2. Although the current 31-40HP tractor is a high demand segment, a country like

India with the average GDP growth rate at more than 7%, farmers may collaborate to achieve a scale of economies and will tend to demand higher power tractors like 7080HP. Escorts should not neglect the higher power tractor segment, and should focus its future development in this product ranges to cater for future market changes. 3. With the changing import policy by the government, Escorts should consider

opening a new business division to focus on the used-tractor market. With its current network, used-tractor can be seen as a potential substitute, which enables Escorts to widen its products portfolio and prevent the existing customers from switching to other second-hand tractor dealers.