PGDM 22-24
Term 3: Business Environment
Prof. Harkant Mankad - 30th March, 2023
Max Marks: 20 Marks
Name: Aashay Rai
Reg. No:DM243001
A note to students – This is a take home examination. I have trusted your integrity
and I am sure you will not let me down. The question paper is challenging and
requires thinking through and research. If there is any collaboration among two or
more of you, I would immediately know and the consequences for such joint efforts
would be severe. Mankad.
Instructions: Question Paper to be given students on the morning by 8.00 a.m. of
Thursday 30th March 2023.
QUESTION 1 (10 Marks)
Article Chosen: Competition builds up fast for FMCG Consumers
Pg No: 13, First article at Left Top
Stiffer Competition in the sector may result in rationalization of valuation as well as some
relief to consumer. As there is intense competition in the FMCG market between FMCG
giants like HUL, ITC, Marico, Britannia, and the entry of Reliance in the FMCG can prove to
be game changer in the FMCG industry.
The Indian FMCG market is one of the largest fastest moving-growing in the world. It
encompasses a wide range of products, including food and beverages, personal care,
household care, and packaged goods. Some facts about and figures about the Indian FMCG
Market:
1. Market Size: The Indian FMCG market is estimated to be worth around USD 200
Billion in year 2022, making it the fourth largest FMCG market in the world. The
market is projected to grow at a CAGR 14.7%. between 2022 to 2025.
2. Consumption Trends: The FMCG market in India is driven by changing consumer
lifestyles and preferences, increasing urbanization, and rising disposable incomes.
Consumer are increasingly demanding products that are healthy, convenient, and
affordable, and are willing to pay a premium for quality products.
3. Market Segmentation: The Indian FMCG market is segmented into rural and urban
markets, with the rural market accounting for a significant share of the overall
market. Rural consumers tend to prefer products that are affordable, durable, and
have a longer shelf life, while urban consumers tend to prefer premium products are
healthy, natural, and organic.
4. Key Player: The Indian FMCG market is dominated by a few large players, including
Hindustan Unilever Limited (HUL), Procter & Gamble (P&G), Nestle India, Godrej
Consumer Products, Dabur, Reliance, ITC, and Marico.
5. Distribution Channels: The FMCG market in India is characterized by a complex and
fragmented distribution network, with multiple intermediaries involved in the supply
chain. However, the rise of e-commerce and direct-to-consumer models is changing
the way FMCG products are distributed and sold.
6. Challenges: Despite the growth potential of the Indian FMCG market, there are
several challenges facing players in the market, including intense competition,
changing consumer preferences, supply chain inefficiencies, and regulatory hurdles.
We can see that Reliance is proving to a game changer in the retail sector of the Indian
FMCG, its profit increased to Rs. 2400 Crore in the December quarter with a growth rate of
6.2 percent, and EBIDTA at 4,786 Cr which indicates that, more Indians are choosing to buy
from Reliance retail stores.
As there is an intense competition in the FMCG, companies are finding it challenging to
maintain profit margins, which would lead to rationalization of valuations. As companies
need to adjust their prices, costs, or other aspects of their business to remain competitive,
and this would result in changes to their stock valuations. On the other hand there is a
positive side of intense competition between FMCG companies, the consumers benefit out
of this, they get good quality products at affordable rates.
Reliance’s role in FMCG market is very important and with most of the business of reliance
including reliance retail being big Cash cow for the company it has become evitable for
reliance to acquire small and medium size players in any industry, the same goes with
reliance retail. Recently they acquired the legendary India Cola Brand Campa cola which was
popular in 1970s and 1980s for just 22 Cr. Reliance is expanding is portfolio of its products
and they are spending huge cash on research and development.
India’s Rural market is the most untapped market of the country, as two-third of India’s
population reside in the rural area. Rural FMCG market in India has several local players who
have already established a strong presence and captured a significant market share. This
makes it challenging for new entrants like reliance to enter the market and compete
effectively.
Expanding into the rural market can certainly be challenging for big FMCG brands like
Reliance, ITC, HUL, Amul, and Tata Consumer as it requires them to cater to the unique
needs and preferences of rural consumers. This can lead to an increase in inventory levels
and require the development of new product lines to meet the demands of different rural
markets.
However, despite these challenges, expanding into the rural market can be highly lucrative
for big brands. With more than two-thirds of India's population residing in rural areas, there
is a significant untapped market opportunity that these brands can leverage. Additionally,
with rising incomes and increasing access to technology and digital channels, rural
consumers are becoming more discerning and demanding better quality products and
services.
To overcome challenges of expanding in rural market, big brands can adopt several
strategies. Firstly, they can leverage their existing distribution network to reach rural
consumer more efficiently. For example, they can partner with local distributors or build
warehouses closer to rural areas to reduce delivery times and costs.
Secondly, big brands can invest in research and development to create products that are
tailored to the specific needs and preferences of rural consumers. This may involve
developing new product lines, modifying existing products, or offering more affordable
pricing.
The aggressive investment of companies like Reliance Retail, Amul, and Tata Consumer
Products, can prove a game changing move in the FMCG sector as the Supply chain
infrastructure of especially Amul is very efficient and it has the reach till the rural market of
the country. Reliance and Tata have acquired brands like Dunzo and Bigbasket which
operate in FMCG deliver segment, which can we beneficial for these companies to
penetrate.
With the business environment in country moving towards Make in India and Atmanirbhar
bharat, these being Indian companies with huge potential and brand value will definitely
have a inch over other companies.
Reliance and Tata consumer are both working on Direct-to-consumer model (D2C). There
are some strategies they need to consider:
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Build a strong online presence: Big brands can leverage digital channels to reach
consumers in rural areas who may not have access to physical stores. They can
create e-commerce websites, mobile apps, or social media pages to showcase their
products and enable consumers to place orders online.
Develop affordable pricing strategies: Brands can leverage the D2C model to offer
more competitive pricing to rural consumers. By eliminating intermediaries and
selling directly to consumers, they can reduce their costs and pass on the savings to
consumers.
Tailor their products to meet the needs of rural consumers: Big brands can develop
products that cater to the specific needs and preferences of rural consumers. For
example, they can create products that are more affordable, have longer shelf life, or
are better suited to local tastes and preferences.
Build a strong logistics network: To reach consumers in rural areas, big brands need
to have a robust logistics network that can handle the unique challenges of rural
distribution. This may involve partnering with local distributors, building warehouses
closer to rural areas, or investing in last-mile delivery capabilities.
Now looking at the yearly return and PE value of different FMCG companies we can observe
that except for ITC every company have a high PE ratio, which signifies that the stocks are
overpriced and are expected to go down.
A high PE (Price-to-Earnings) ratio can be both an opportunity and a threat for FMCG
companies, depending on how investors perceive it. On the one hand, a high PE ratio can
signal that investors are optimistic about the company's future earnings growth and are
willing to pay a premium for its stock. This can attract more investment and provide the
company with greater access to capital, which can be used to fund expansion and growth
initiatives.
On the other hand, a high PE ratio can also create expectations of high earnings growth that
may be difficult for the company to meet. If the company fails to meet these expectations, it
can result in a sharp drop in its stock price, leading to a loss of investor confidence and a
decline in market share.
For FMCG companies, a high growth rate of 14.2% may justify a higher PE ratio, as
investors are willing to pay a premium for companies with strong growth potential.
However, it is important for companies to maintain realistic growth projections and to
consistently meet or exceed earnings expectations to sustain investor confidence and
maintain a high stock valuation.
In summary, a high PE ratio can provide FMCG companies with greater access to capital
and attract investment, but it also creates expectations of high earnings growth that must
be met to maintain investor confidence and sustain market share.
Question 2
a. Which of the two responses is more credible and convincing to you? Why?
According to me “Essay on disadvantage and cost and penalties of globalization” is
more credible and convincing.
As it talks about the most important issue with Globalization. Firstly I believe that
businesses have now become very cruel towards their workers especially in the
manufacturing sector as there is a very big Global demand to carter, the companies
are striving for that market share. So the companies have moved the production to
the countries which have low labour cost and poor countries and there they are
exploiting the workers by getting extra work done and paying less, as they are a poor
country.
Globalization has completely changed the normal curve of the income distribution
between and within countries. According to a report 40% of India’s total wealth is
owned by just 1% population. With globalization richer are getting richer, poorer are
getting poorer.
If Global culture has a synonym then it “Western Culture”, Yes it is the harsh reality
of the globalization everything is now influenced by west, be it food habits, fashion,
values everything is completely Western influenced.
Globalization has raised the pollution level across the Globe and in rich countries
have contributed more to Global warming and increasing the carbon foot in the
world.
Globalization also gave rise to terrorism which has impacted the global economy
and the a few countries have definitely benefitted from this, which has impacted
the growth and economic stability of other countries.
b. If you think that ChatGPT has missed out some advantages and/or some
disadvantages of globalization, please give short explanation of these missed ones.
Answer
I will be talking about a few disadvantages that Chat Gpt missed.
First is Financial volatility, Globalization has increased the financial volatility as
capital flows through the borders, making countries vulnerable to financial crisis,
happening anywhere across globe. For example we consider the FEDERAL RESERVE
in USA is the central bank of US, so we know that FED has been constantly
increasing interest rate which is impacting the whole world as it will shorten the
supply the of dollars in the market and for the international trade mostly Dollar is
used.
It will also force other countries central banks to raise interest rate, because if don’t
the foreign capital invested in there country if will flow out and investors will invest
in a country with high interest rate. So here it is about a dominance of one currency
is impacting the whole world. This is the biggest disadvantage of the globalization.
Geopolitical tensions:
As know we live in a connected world any political issue happening anywhere is
going to impact us in a positive or negative way but it will impact. Globalization has
led to geopolitical tensions, as countries compete for resources, trade, and
influence. This can lead to conflicts and even war.
Recent example of the Russia Ukraine, when Russia invaded Ukraine in Feb 2022 the
world was just recovering from the Covid pandemic which had already impacted the
whole world, the medical facilities had collapsed in many countries & for many the
economy also collapsed. The war has impacted the whole world, starting with edible
oil prices, Ukraine is the largest exporter of Sunflower oil in the world as there is a
war going on there the prices shot up and already the world was suffering from
supply constraints, it worsened the situation, also there was Wheat shortage in the
world and everyone in the world was looking towards, so India started Exporting
wheat so the prices starting rising, then the Government stepped in banned the
export of wheat to control price in domestic market.
Second the energy prices in Europe in the month of November and December when
winter season started in Europe the demand of energy and gas suddenly went up
and due to the political disagreement between EU and Russia, Russia was not
supplying gas to Europe which impacted the economies of European countries as
energy price shot up to €420/MWh, which has impacted the European economy. So
the war between Russia and Ukraine has impacted the whole world.
c. Please give a short account of what advantages and disadvantages of globalization
you have experienced in last few years.
Advantages that I have experienced first is the information sharing, Now a days
information has become very easy in the world we can share anything with anyone
in the world within seconds which has made communication easy for the whole
world. From this people around the world have started the best practices whole for
any sort of work which is increasing there efficiency and productivity.
Disadvantages that I have experienced is the impact of Global tensions influencing
the lives of the people living in some other countries, for the fact the Covid 19 which
is believed to have started from China impacted the whole, there was global
lockdown and the virus spread across the world so fast just because of globalization
there are million of people travelling across the globe for business, or political, or
tourism purpose. So it impacted every country in the whole world.
d. Please also explain, in details, what you think, (not ChatGPT), will happen to
globalization in the remaining years of the decade of 2020s.
The next decade will most belong to China and India, both these are going to have
huge impact on globalization be it in terms of trades, defence, politics, social
responsibility. This is definitely going to help us grow more and will bring the global
super power back to Asia as it used to be in 13th-14th century. With countries like
Saudi Arabia in talks with China and Russia is a big slap on the face of USA, it’s
biggest oil supplier. The world now is very different of what it was 10 years back and
it will more different in the upcoming decade. Both the countries India and China
have the strength to be the Global superpower China is almost there but the ways
China has used is not ethical which impacted many economies like Sri Lanka,
Pakistan, Bangladesh, which is not good for us they are neighbouring countries.
So the next age mostly belongs to E-cell and AI in which China is way ahead on
many countries so mostly it is going dominate the world.