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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

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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

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Value-creating Strategies of Diversification: Operational and Corporate Relatedness
6–4

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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.

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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

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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)

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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

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Analysing the candidature for acquisition

Resources Human Resources Intangibles - Retaining intellectual capital of Sylvania and Havells - World’s 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
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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

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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 it’s a good idea to go for acquisition than alliance.

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Reasons for acquisitions

• • • • •

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

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