STRATEGIC MANAGEMENT-II

Case: Breaking the commodity barrier

Submitted to: Dr. V.S. Pai

Submitted by: Group3 Manu Gupta (47) Shaik Jilani (80) Vijeta Deuskar (99)

1Q. what are the most important factors that are affecting the future of industrial gases now? What is HGILs position on each of these factors? What needs to be done?
IMMINENT ENTRY OF GLOBAL GAS MAJORS As government has allowed FDI in the gas sector, numbers of transnational are now eyeing the Indian market. E.g. AGS of Sweden, Nippon gas of Japan, Pristine AIR of Germany etc In the case we can see the impact of global player as HGIL has just lost a bid worth 1200cr to the hand of pristine air (Global gas major), which has been in the country for less than 6 months. CURRENTLY HGIL IS SUBSIDIARY OF HOOPER INC.(CONNECTICUT BASED) COMPANY WITH 51% STAKE OF THE PARENT COMPANY. Because of the fact that HGIL has been able to make a turnaround and is showing profits and progress, Hooper inc is keen on raising its stake in HGIL from 51 to 74%, this will help HGIL to get additional capital and in turn can invest to introduce new products and improve its distribution network. CHANGING DEMAND PARADIGM (NITROGEN: OXYGEN) In developed economies NITROGEN: OXYGEN RATIO stands at 80:20, in India however the ratio is reverse but in future it is bound to change. Thus, the reversal of the Nitrogen: Oxygen ratio in favour of nitrogen could also be an area of consideration; the expertise of Hooper Inc(PARENT COMPANY IMPACT). can be easily utilised in this context. It will help the Indian company to produce nitrogen cost-effectively through state-of-the-art technology. Apart from the existing applications, HGIL should interact with user-industries to establish the process parameters, and develop indigenous applications to facilitate the adoption of gas-based technologies.

CHANGING BUSINESS PARADIGM Though HGIL has the largest share of merchant segment yet, Managing Director Harpreet Duggal and his team should not lose sight of the changing business paradigm. The merchant segment should be best left to the small-time operators, who have the advantage of being close to the customer. Even if the merchant segment offers better sales realisations--it would be more than offset by the attendant costs--the company should, gradually, reduce its presence in the low end of the market, which is characterised by the sales of loose cylinders. A close watch on the Total

Delivered Cost (TDC) is crucial to the profitability of the gas business. Since freight is a major cost component, proximity to the customer is an important factor in reducing the TDC. This along with technology is one of the reasons why there is a gradual shift in the industrial gases market towards tonnage plants. Customers so far have been procuring gases through cylinders or small pipeline while large companies has set up captive capacities. today, many customers are sourcing gases through Build, Own, Operate route.(BOO) HGIL as recently as 2 months before has secured an order from swadeshi steels limited to set up 1300 TDP plant at Bhillai on a BOO basis. This approach helps HGIL to cut TDC. Therefore HGIL is doing no wrong in securing BOO based orders. HGIL needs to recheck the viability of plants which are at far off places from their customer base.

Focusing on customer by providing value services

As a product, Industrial gas cant be differentiated Thus it becomes important for the gas provider to differentiate the mode of service, the quality of service by designing tailor made and customer specific packages. HGIL is thinking in the right direction to follow its parent company by providing gas solutions to chemicals, petrochemicals and refining sectors which have huge potential in India. As steel industry is going through a lean patch a little shift in focus is needed more towards refineries.

Q2.Given the SWOT for the firm, how should Mr. Duggal develop a business strategy to fulfill the two-fold mandate given to him? (Each point in the SWOT statement needs to be addressed in your analysis)
BUSINESS STRATEGY is to consolidate leadership by accessing HOOPER INCS technology and strengthening its own R&D efforts and to differentiate ourselves from the competitors on the basis of value added services

HGIL should concentrate on improving its presence in the high-margin segments. To do so, it must focus on the target customer. The national market for industrial gases could be split into 4 geographical zones. Bulk users in sectors like petrochemicals, steel, chemicals, electronics, smelting, and food-processing can be identified by their prime locations. Since gasgeneration is a non-core business for these user-industries, they would be reluctant to invest capital in such activities.

Considering that one of the strengths of HGIL is large pool of scientific talent, HGIL need to leverage upon this and try to cater to the needs of increasing user segments by providing tailor made services as per the different requirements of each segment. HGIL enjoys credibility in the eyes of the customer as it is a more than 50 year old company and has become a brand in Indian market. New products launched by HGIL will definitely catch the eye of customer. As huge cost of transportation is a weakness for HGIL because of setting up of plants at unviable locations like Guwahati and Kanpur there is a need for HGIL to reconsider its decision or close them down. At the same time HGIL also should look at financial viability of each of their 16 plants HGIL has experience in the past that investing in the technology reduces the fixed cost in terms of lower power consumption. Therefore HGIL needs to continuously upgrade themselves to the state of the art technology so as to remain cost effective. As wage costs even today is 11 percent of total sales it still constitutes a large share and therefore an effort should be made to bring it down to the acceptable level of 8 percent. It can be done by reintroducing VRS. HGIL needs to keep its focus on its core business of Industrial and medical gases, they need to develop different products and different markets in their core business. Selling off welding seems to be in right direction. HGIL should focus on its quality parameters and by providing value based solutions to the customers in order to overcome the competition of low-cost operators.

Thank you