assignment 3 godrej m

8/3/2019 Assignment 3 Godrej M

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GODREJ AND ITS TIE-UPS

OVERVIEW OF THE GODREJ GROUP:-

An average Indian starts the day with the use of Godrej soaps and Godrej shaving cream in

the morning, picks up clothes from a Godrej Almirah, sits on Godrej furniture in the office,

drinks coffee from the Godrej vending machines., eats Godrej food products, uses Godrej

fax/conferencing equipment for communication, puts money in Godrej safe, plugs Good Night

and goes to sleep at the end of the day. A recent estimate suggested that 400 million people

across India use at least one Godrej product every day. Godrej Group today is one of the

largest diversified industrial corporations in India. It stands in a strong position today, with

annual sales in excess of US$ 1.7 billion, a workforce of approximately 20,000, and a strong

diversified portfolio.

The Godrej Group is one of the oldest and most diversified firms in India. From a lock

making company in 1897 to a present day conglomerate the transformation has been

phenomenal. It provides us a rich insight into a company that successfully adapted to a

dynamically changing environment. Once synonymous with locks and safes today it has

presence in FMCG, consumer electronics, engineering, IT and other fields. Safely ensconced

in the protective environment of the license raj, the liberalization of 91 and the ensuing

challenges from the MNCs provided yet another stimulus for change. The company shed its

image of a closely held family business and moved from a family-owned family managed to

family-owned professionally managed organization. The movement has been gradual and

marked with a number of hindrances. This can be attributed to the organizational inertia

which tries to maintain the status quo.

The two major companies of Godrej groupGodrej & Boyce and Godrej Industries Limited,

have sea change of difference in organizational culture and focus areas. While, Godrej &

Boyce continues to focus on consumer, industrial and office equipment products, Godrej

Industries Limited is more dynamic and focuses on range of sectors including FMCG,

retailing, food, IT, real estate, etc. It gives a lot of independence to its affiliate companies and

subsidiaries in decision-making. However, the control of Godrej family exists with family

members having full control or as board members in some of the companies. The company

had other shares of troubles as well, for instance unsuccessful partnership with P&G. Despite

all the troubles, the second and third generation of Godrej families (fourth generation has


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entered the fray recently), continued to follow the vision of its founders. They diversified,

ventured into new areas, and became global. However, they never allowed majority

ownership to any of their foreign partner and survived when most of the other businesses

closed down. It relies on building well known brands, continues to expand in its own way and

not let the majority stake to be ever diluted. The company continues to achieve operational

efficiencies by continuous learning and improvement. The HR practices of the group are

considered amongst best in the country. The practices have been influenced by family

control, which considers employees as the groups biggest asset. The employee -friendly

policies have contained attrition rates and increased loyalty. The CSR practices form a part of

organizational values and are widely practiced.

The group continuous to learn from its mistakes and understands the challenges it has of

making the organization more dynamic and harnessing its vast pool of assets strong brand,

a wide network of loyal suppliers and distributors, loyal employees and resources, cherishing

the vision and values of the family.

ORGANIZATIONAL STRUCTURE:-

Godrej group of companies is one of the largest privately-held diversified industrial

corporations in India. Godrej Group comprises of more than 20 companies. Post-liberalization Godrej moved from a product division structure to Strategic Business Unit

structure (independent units) and entered into a number of alliances. This has led to

Increased interaction between cross-functional employees - can be substantiated fromthe results of the questionnaire 95% of the respondents rated the group as average

and above

Fluidity in the organizational structure - 71% of the respondents agreeing to it.


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KEY STRENGTH OF GODREJ GROUP:-

The core strength of the Godrej Group is its value system put in place by the founders and has

been nurtured all along. The strong relationships with stakeholders suppliers, dealers,

employees, customers, have established Godrej brand in the market and increased loyalty.

Some other factors nurtured on the values are as follows:

Brand namevery loyal customer base, brand associated with durability and quality(especially due to the products like steel cupboards, locks, steel furniture, safes)

National presence The group has been able to establish itself in virtually everydistrict of India through a network of dealers, distributors and branches reducing

marketing costs tremendously. The trade is nurtured meticulously using a multi-tier

approach (local/regional/national contact). The trade partnership sometimes runs into

the second generation also.

Peoplemost valuable asset Relationships nurtured with dealers and suppliers drives down traditional

marketing costs

Financial strengthability to take up large projects through internal funding Resources land, machinery, technology, competent management teams, social

goodwill

In less than a decade, the Godrej group exited from three alliances and saw

market share in all these businesses dwindle. What went wrong?

With leadership in such staunch middle class icons as locks, cupboards and, until recently,

refrigerators, the Rs 3,400-crore Godrej group built itself a big reputation in India. But there

was one reputation it could have done withoutits history with joint ventures.

In the nineties, the group ventured into three high-profile tie-ups with major US corporations.

By January 2001, it had parted ways with all three.

Here is a brief history:-

1st

TIE UP:- In August 1996, Godrej Soaps called off its three-year-old, 50:50 manufacturing

and marketing alliance for toilet soaps with fast moving consumer goods (FMCG) giant

Procter & Gamble (P&G).


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2nd

TIE UP:- In October 2000, Godrej called off its 49:51 deal with US foods major

Pillsbury. Formed in 1996, the venture was to distribute the products of Godrej Foods which

included brands like Jumpin fruit drinks and edible oils like Cooklite and Godrej.

3rd TIE UP:- In January, 2001 Godrej parted ways with engineering-to-financial services

giant GE. The 40:60 venture, formed in 1992, in which Godrej had a majority stake, was for

manufacturing and marketing of refrigerators and washing machines.

At first glance, it seems as though Godrej ended up on the wrong end of the alliance business.

At one level, however, this is not entirely trueat least in financial terms.

Adi Godrej, chairman, Godrej group, is candid on this point. Many of the alliances were,

undoubtedly, formed to improve our companies financial base.

Did that happen? In terms of profit and turnover its hard to judge. Before 1993, no Godrej

company was listed on the stock markets. But Adi Godrej points to the P&G tie-up as an

example of how the group gained.

Pre-alliance, Godrej Soaps had a net worth of Rs 50 crore. Godrej says that just prior to the

de-merger in April 2001 (Godrej Soaps has been de-merged as Godrej Industries and Godrej

Consumer Products), his soaps portfolio had a net worth of Rs 350 crore.

Analysts estimate that Godrej received Rs 65 crore for transferring its distribution network to

the alliance with P&G. When the two companies split, in accordance with the divorce clause,

P&G paid Godrej another Rs 40 crore.

Another alliance in which Godrej raked in the moolah was the Godrej-Sara Lee venture. The

company had bought Transelektra, makers of GoodKnight and Hit insect repellants, from the

maverick entrepreneur R Mohan for Rs 120 crore. Later, 40 per cent of the company was sold

to Sara Lee for Rs 300 crore.

Of course there were instances when Godrej paid a price. The Godrej-GE venture was one

such instance. The total investment in this venture was Rs 120 crore, of which Godrej and

Boyce had a 60 per cent holding or Rs 72 crore while GE invested the remaining Rs 48 crore.

According to industry sources, when JV wound up, GEs stake was bought over by Godrej

for Rs 30 crore. Consider also the Pillsbury case where, according to an industry observer,

Godrej is believed to have lost close to Rs 30-35 crore due to the lopsided distribution set-


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up of the venture.

Industry sources say that the losses were primarily due to the negligence of Godrejs brands

non-collection of dues, damage to brand equity due to old products being available in the

marketin the joint venture.

But the financial losses and gains pale into insignificance when compared to the long-term

damage inflicted to the Godrej equity in the market.

In the P&G alliancefor Godrej soapsflagship brand Cinthol lost considerable market

share, and popular, low-end brands like Ganga were hit badly.

The Godrej-GE case was no different. Before the alliance, Godrej was the market leader in

the refrigerator business. Today, it is number three.

In the Godrej-Pillsbury alliance, Godrejs successful fruit drink Jumpins share was

shrinking, while the market share of the edible oil brands of Godrej Foods remained stagnant

and refused to grow.

So what went wrong?

The Strategist pieces together a story that, in many ways, could provide a working blueprint

of why alliances can fail.

The Uncontrollables:-

Alliances with multinationals may bring gains in terms of best practices and so on, but they

also run the risk of being hit by restructuring and re-organisation that periodically convulse

global corporations. This is what happened in the case of all the three joint ventures.

Consider the Godrej-P&G deal. In 1996, three years after the joint venture had been struck,

P&GS Cincinnati headquarters took a centralised decision to focus on four core areas of

operationlaundry, hair-care, paper products and pharmaceuticals.

Toilet soaps were excluded, which meant Godrejs power brands like Cinthol, Ganga and

smaller ones like Evita, Crowning Glory, No. 1 and the rest were all out in the cold.

True, this was an unforeseen global decision, but it had an impact on the joint venture in

India. By the time the venture ended, most of the Godrej toilet soap brands suffered.


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In December 1992, Godrej Soaps premier brand Cinthols share of the premium segment

was 17.3 per cent. By December 1993, it had dropped to 15.2 per cent.

In the corresponding period, another Godrej brand Marvels share dropped from 4.1 per cent

to 2.6 per cent.

Or look at Pillsbury, part of the food (Pillsbury, Burger King) and spirits (Smirnoff, Malibu,

Baileys) major Grand Metropolitan. In 1997, GrandMet merged with another spirits major

Guinness (Johnnie Walker, Gordons), to form Diageo headquartered in London.

Later, in July 2000, Diageo, with a substantial liquor portfolio, announced its strategic intent

to focus on growing its beverage and alcohol business: it combined its foods company

Pillsbury with General Mills, one of the worlds leading consumer food companies. So

Pillsbury went through several bouts of global restructuring in the five years of its joint

venture with Godrej.

Though Adi Godrej maintains that these frequent changes in structure did not affect the joint

venture very much, he does admit that Pillsbury, as a company, was not as focused.

The lack of focus eventually showed up in the joint ventures performance. In the second

quarter of the fiscal 2000-2001, Godrej Foods reported a loss of Rs 8.59 crore compared witha net profit of Rs 90.18 lakh in the same period the previous year.

Moreover, Godrejs fruit juice brand Jumpin had been consistently losing market share from

35 per cent in 1996 to about 12 per cent at present. The market shares of its refined sunflower

oil market share was stagnating at 12 per cent.

Godrej-GE suffered a similar fate. In 1999, General Electric Corporations decision to focus

on markets where the GE consumer brand franchise for appliances was strong did little for

the joint venture.

The axe fell on India, in GE Indias bid to follow chief executive Jack Welchs dictum of

getting out of markets where it was neither number one or two.

Though Godrej was a market leader in the business, Adi Godrej explains that GEs decision

was taken on a continental basis. And since GE was not number one or number two in the

Asian market, the Indian joint venture lost out.


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But the point is, that even this alliance did little to further Godrejs cause. Godrejs share in

the segment declined from 26 per cent in 1998 to 12 per cent in 2000.

The balance of power:-

All this suggests that roles and responsibilities have to be clear-cut so that the cultural issues

dont overwhelm operational efficiency.

In hindsight, Godrej says, If you get into such a joint venture in which the Indian partner,

who does not understand the business, insists that the control should be in his hands, it would

be foolhardy. Again, in a joint venture in which the down-to-earth knowledge of Indian

business is very important and the multinational, who has never dealt with India before,

wants to manage it, then it would again be foolhardy.

In the case of P&G and Pillsbury, the ventures were managed by the multinationals, while in

the GE alliance, Godrej called the shots.

But this didnt necessarily promote harmonious relations, and it was particularly evident in

Godrej-GE, one of the rare instances where the multinational had entered a joint venture with

a minority stake.

Ex-employees testify that, It was basic issue of clash of management control: GE wanted a

larger stake and control of the company, as is their policy worldwide, and Godrej wanted to

retain control.

Problems started from day one and, eventually, the fact that GE brands could not be

piggybacked on Godrej products sealed the decision to part ways. Besides GE did not even

really introduce its products into the Indian market.

An ex-employee says, GE had agreed to a 40 per cent initial shareholding in the alliance,

perhaps anticipating an increase of their shareholding to 100 per cent later. Any multinational

would not bring in its core products unless it owns the company. So possibly they were

waiting for the shareholding to increase. In the meantime they could use the Godrej

distribution network to get a leg in.

Straightforward power struggles were one aspect of the management spectrum. At the other

end was operating styles. Senior executives who were with Godrej emphasise that

multinational managers took a lot of time to understand the Indian economy, the labour


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relations and, of course, the consumer.

Godrej himself cautions, Things can go out of hand if you have a novice in charge of the

oint venture managed by the multinational.

If company sources are to be believed this is an area where the alliance with P&G failed.

Take the key area of distribution which was handled by P&G and Pillsbury in their respective

oint ventures.

According to an ex-employee, Godrej soaps had a distribution network of 3,000 clearing and

forwarding agents. Later, a P&G taskforce under the name of Operation Golden Eye decided

that the Indian operations would need only 17 large distributors.

But with the alliance, P&G had to stick with Godrejs distribution network which, according

to one source, was large and weighty.

P&G came into India with the intention of having a typical Indian distribution set-up and

Godrej fit the bill because of its large distribution network.

But when P&Gs global headquarters decided to reduce the number of distributors worldwide

and focus only on large distributors, the Indian operations had no option but to comply with

the global decision.

Not surprisingly, to reduce the number of distributors in India from 3,000 to 17 was difficult;

predictably, it didnt work. As the ex-employee put it, There was no win-win situation in the

alliance any more.

Says another industry observer who was closely associated with the company, Their strategy

was very different from ours. He points to their advertising as a case in point. Multinational

advertising strategies were based on the consumer-pull concept the product should be so

good that it attracts the consumer, while the Indian market was an ardent worshipper of the

consumer-push concept.

This is a basic mismatch as different kinds of distribution set -ups would be required for both

push and pull functions.

Yet, the pull function is what multinationals like P&G used for products like Vicks. In a pull

function, only large distributors are appointed by the company and the distributor, in turn,


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employs a sales force that sells the brand on the image created by P&Gs marketing and

advertising departments.

And so it was with the soaps joint venture. Multinational managers had hoped to substitute

the sales function with large doses of marketing.

This would eliminate the need for a huge sales force and the product would generate demand

on the basis of its own image. With Vicks and so on, the consumer-pull set-up had been in

place for years.

This was, however, not the case with Godrejs products where, as an observer pointed out,

company salesmen in India would go right up to the retailer for functions varying from

booking orders and collecting payments.

ecision-making process:-

Another reason where the ventures hit a roadblock was the alarmingly slow rate of decision-

making by the MNCs who had to refer to their international headquarters for any approval.

Says a senior Godrej manager: For most decisions, multinationals would go only by the

books. Sometimes their rules and regulations were irrelevant and outdated.

Though ex-employees claim that some of these alliances took only around four months to

fructify, Godrej says that they took around six to eight months to materialise. In family-run

businesses decision-making tends to be quicker, so the long-drawn process made the Godrej

impatient.

If you prolong negotiations too long then nobody is interested, says Godrej. People dont

have the time. I would say that is the problem.

All the same, former employees suggest that this impatience in signing ventures ultimately

led to their undoing since vital issues were not clarified.

For instance, former employees describe the joint venture with Pillsbury as lopsided and

heavily in favour of the multinational.

They point out that Godrej Foods, which had transferred its distribution network along with

the distribution rights for four of its popular brands Jumpin, Cooklite, Shakti and Godrej

lost more money on the distribution process than they gained from the sales of their


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products in the joint venture.

This was due to a poorly structured set-up under which the distribution costs incurred by the

oint venture were to be shared by the partners in a fixed ratio.

For instance, on every carton of Godrej Jumpin sold by the joint venture, Godrej Foods lost

Rs 6 to Rs 10. Analysts say that the estimated loss of Rs 30 crore to Rs 35 crore to Godrej

was primarily due to the non-collection of dues, and the damage to brand equity due to old

products being available in the market.

An industry source gives a different perspective to the Pillsbury venture. With Godrej

Pillsbury, it was always understood that it would never be a long haul. In any case when

Godrej got into it they knew they would make a quick exit.

The alliance was scheduled to make losses for seven years given the fact that any foods

business has a long gestation period. But others say that Adi Godrej got into it because he felt

that it would be the right way to re-strategise his Godrej Foods portfolio which had been

making losses for quite some time.

But Godrej claims that he did make some gains from his three failed alliances. He speaks at

length of how the joint ventures have helped his group.

Many of the processes that we follow today in sales and operations planning, market

research, advertising development and measurement techniques, human resources

development, new product formulations have been adopted from P&G. That has been very

useful.

He claims that these practices have been put to use at not just the erstwhile Godrej Soaps but

in other group companies as well. The group has also apparently adopted a host of GEs HRD

practices throughout the group.

Despite the bad experience, Godrej hasnt turned joint venture-shy. How would he do

things differently this time around? Dont say if, he snaps. We are bound to enter into new

oint ventures.

The approach this time, he says, wouldnt be very different but he vows to put a greater

emphasis on brand protection. He also stresses on the importance of having better divorce


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clauses than in the past. Joint ventures are a part of our sail forward, he concludes.

Having already navigated the stormy sea of failure, hes probably betting on smooth sailing

the next time round.

assignment 3 godrej m

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