B7 TCI Packaging Division.docx

Global Marketing, Strategic Perspectives 2013

Global Marketing, Strategic Perspectives Case Study Analysis TCI Packaging Division 10/22/2013

Submitted to: Dr. M.R. Suresh

Submitted by: Group: B7 Siv Sagar Saha (12048) Saumya Ranjan Khatoi (12104) Gaurav D. Jhunjhunuwala (12138) Ritesh Jaiswal (12153) Samuel R Chintalapudi (12161) Sarthak Rohatgi(12182)

TCI Packaging Division

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Global Marketing, Strategic Perspectives 2013 Table of Contents 1. OVERVIEW OF THE CASE ................................................................................................ 3 2. CASE FACTS ........................................................................................................................ 3 2.1 TCI and its Growth........................................................................................................... 3 2.2 TCI’s Packaging and Printing Division ........................................................................... 3 2.3 Product Development Team ............................................................................................. 3 2.4 Production of Cashew Kernels ......................................................................................... 4 2.5 Cashew Exports from India .............................................................................................. 4 2.6 Export Marketing Channel for Cashew Kernels .............................................................. 5 2.7 Packaging of Cashew Kernels .......................................................................................... 5 2.8 Production of Tin Containers for Bulk Cashew Export Packaging ................................. 5 3. CORE ISSUES....................................................................................................................... 5 4. ANALYSIS............................................................................................................................ 6 4.1 Strategic Responses in Host Country Regulatory Environment ...................................... 6 4.2 Questions & Answers ....................................................................................................... 8 5. APPLICATION OF MODELS ............................................................................................13 5.1 A-B- C- D Framework ...................................................................................................13 5.2 Cage Framework ............................................................................................................13


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1. OVERVIEW OF THE CASE TCI Packaging Division case basically describes a situation faced by individual manager or by an organization at the strategic, functional or operational level in a global environment to cope up with the changing needs of the market. Products may be marketed worldwide without significant changes, but most companies will find that global success depends on willingness to adapt to local market requirements. To be successful in global markets, companies often need to be flexible in product offerings. Companies that overcome these international markets requirements can have global success which increases their profits and lead to more secure market positions both domestically and globally.

2. CASE FACTS 2.1 TCI and its Growth

TCI was established in 1910 as a cigarette manufacturing and marketing organization. TCI is now more than eight decades later, a 1.5 billion dollar enterprise and a multi-product, multitechnology, and multi-market group. TCI is one of the most diversified and professionally managed business houses in India and has investments in seven main businesses. These are tobacco, cigarettes, packaging and printing, hotels, seeds and edible oils, paper and board, financial services, and international trading. It has a distribution network that encompasses the entire sub-continent. The annual report for the year ending 1992-93 showed that the company had earned a profit after tax of Rs 155 crore from a gross income of Rs 3810 crore. 2.2 TCI’s Packaging and Printing Division

TCI's Packaging and Printing Division [PPD] is presently India's largest manufacturer of value added folded cartons. It meets not only the packaging needs of the cigarette division wide range of brand leaders in domestic and export markets covering industries like liquor, foods, detergents, personal products and matches. PPD's facilities have been upgraded with new computer-controlled machinery to meet international standards. PPD had technical collaboration arrangement with Box-Liquid Corporation, USA, to manufacture and market ―Wunder -Pac" Bag-in-Box [BIB] packaging system.

2.3 Product Development Team

Mr D K Sharma is the Marketing Manager of PPD and head of the new product development team. He joined TCI 14 years ago and has done Post Graduation in Management. The other members of the team are:


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Global Marketing, Strategic Perspectives 2013 

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Mr Shiva - Post-Graduate Diploma in Packaging from National Institute for Packaging, Bombay and involved in technical matters of development of packaging solution. Mr Jeyan – Engineering, involved in the development and designing of liquid fillers for major clients of PPD in soft drinks and agro-processing industries. Mr Thomas - Involved in direct relation with customers and provided the feedback from the market Mr Doss - planning and production manager

2.4 Production of Cashew Kernels

Production of Cashew Kernels goes through many processes. Firstly, Cashew nuts are conditioned by sprinkling water and are kept for 24 - 72 hours after which they are sun dried or roasted. The roasting could be done either by the drum roasting method or the oil roasting method. The roasted cashew nuts are then shelled manually with wooden hammers. In this process, kernels get separated from the nuts. The kernels are then dried immediately and a process called 'borming' is done. This process helps to prevent insect attack on cashew kernels. Finally, the outer skin of the cashew kernel is peeled off manually. The production of cashew nuts in India has been highly unorganized. The cashew kernels exported from India can either be from cashew nuts produced indigenously or from cashew nuts imported from countries like Guinea, Nigeria, Ivory Coast, Indonesia, Tanzania, and Vietnam 2.5 Cashew Exports from India

Cashew kernels occupy a prime place among India's agricultural commodity exports. The total value of cashew kernels exported from India rose from Rs 258 crore in 1988 to Rs 601 crore in 1991. There are two major international markets for cashew kernels — the New York market and the London market. The graph below shows the trend of India’s export of cashew kernels in quantities and for 1992 it is only for 9 Months (Till the end of the month of September).

Export of Cashew Nuts

70

s d 60 n a s 50 u o ) h s T e 40 n n I n ( o30 T y t i 20 t n a 10 u Q

64.5

46.8 35.2 24 16.9

0 1947

1972

1978

1991

1992

Year


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Global Marketing, Strategic Perspectives 2013 2.6 Export Marketing Channel for Cashew Kernels

The buyers for the cashew kernels are mostly chain stores, especially in the US. The kernels which are sent in tin boxes of 25 Ibs capacity are repacked at the retail stores and packed in their own lot sizes with their own brand names imprinted in most of the cases. The trading part on behalf of the processors is done mostly by the agents who do forthright purchases from the processors. Thus a majority of the Indian processors do not have direct contacts with most of the channel agents on the other side of the shore. 2.7 Packaging of Cashew Kernels

The system used to pack cashew kernels for bulk exports is called the 'vitapack' system. The cashew kernels are packed with a net weight of 11.34 kgs. (25 Ibs.) Of kernels in tins weighing 1 kg. Each. In the vitapack system, the tins are kept in the fillers and cashew kernels are filled by jerk movements. These tins are weighed and tightly packed. Finally, tins are then sealed with tin lid and lead soldering. 2.8 Production of Tin Containers for Bulk Cashew Export Packaging

The tins required for packaging of cashew kernels are made either by the exporter himself in his workshop or by the sub-contractors. At present, these are procured from Virudhunagar in Tamilnadu and Quilon in Kerala. Tin plates are procured from Calcutta and are certified as leak-proof by the Export Inspection Agency [EIA] officials, either in the godown of the tin manufacturer or in the godown of the exporter.

Indian exporters are now facing pressure from the importing countries to adopt alternative packaging methods because of different reasons like lead solders contamination, Disposability etc. which leads to issue related to investment in new technology, tin manufacturer, high cost of new packs, shorter time period to adopt the new packing system etc. To overcome the problems in the tin containers and to evolve new methods of bulk packaging for cashews, the Association of Exporters and the Council for Cashew Exports and Promotion (CCEP) formed a committee and was expecting the recommendations of this committee.

3. CORE ISSUES The following are the core issues to be dealt in the case: 

Problems faced in cashew packaging

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Stake of different stakeholders in cashew packaging

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Attractiveness of the cashew packaging industry


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Marketing strategy of the new pack

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Problems in Bulk Packaging of Cashew Exports

4. ANALYSIS We have analysed the case on the basis of Strategic Responses in Host Country Regulatory Environment model and the questions that have been raised in the case. 4.1 Strategic Responses in Host Country Regulatory Environment

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Firm / Enterprise related Variables 

Firm resources, capabilities, competencies •

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TCI is a multi-product, multi-technology and multi-market group and a star trading house. TCI PPD is presently India's largest manufacturer of value added folded cartons and having its facilities have been upgraded with new computercontrolled machinery to meet international standards.

Nature of product and business


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Global Marketing, Strategic Perspectives 2013 •

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PPD's technical collaboration arrangement with Box-Liquid Corporation, USA, to manufacture and market "Wunder-Pac" Bag-in-Box [BIB] packaging. It also uses a very advanced technology called the Vitapack Systems- for bulk packaging of cashew kernels. It could meet packaging needs of other industries like liquor, foods, detergents, personal products and matches etc.

Country screening approaches

US are the main importer of TCI cashew nuts and it exports to other countries also like the Netherlands, Japan, Singapore, Australia, UK, USSR and Hong Kong. TCI is aiming at doing business in Must Win-Market. 

Mode of Entry

The Mode of entry adopted by TCI is Direct Exporting which has Advantages like More control and sales push of the products etc. and Disadvantages also like less profit because of agents, high risk involved etc. 

Host Country related Variables 

Sophistication of Legal system

TCI had to face many issues because of difference in laws; mainly the issue has been faced by TCI in the field of quality because the TCI mainly concentrated on developed nations, where the quality standards were very high. 

Role of government in host country

TCI exports mostly to developed countries and it imports also cashew for further processing from other countries so, the role of host country play a major role. If, the government of host is supportive then it is advantageous for the TCI and if the country is having unfavourable business environment it is detrimental for the TCI. 

Cultural dimensions

Cultural dimensions can also affect the way a company operates in other country. Type of material used for packaging, the process adopted for the manufacturing of packs etc. can be greatly influenced by the other country culture. 

Intensity of local competition

TCI has been facing tough competition from both domestic and international players. With the entry of Brazil its business adversely affected because Brazil had the advantages of proximity, low prices, and better delivery of


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Global Marketing, Strategic Perspectives 2013 the product in proper quality and in required time in US which is the main market for TCI.

4.2 Questions & Answers Q.1 What are the problems faced by the cashew industry regarding packaging of cashews for exports?

The problems faced by the cashew industry regarding packaging of cashews for exports are as follows: 

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Lead Solder Contamination: The process of production of tins involves usage of lead solders which makes the tins leak-proof. The lead solder used for this purpose has 50 per cent lead and 50 per cent tin mixture. This concentration of lead is considered to be health hazardous. Also, fears were expressed about the lead solder getting in touch with the cashew kernels near the mouth as they were tightly packed. The increased health consciousness and awareness of lead poisoning world over had made the importers of cashews to pressurize the exporters to adopt alternative bulk packaging methods. Pest attacks in godowns: Sometimes smell of cashews attracts the rats, which in case destroys the cashews. Cashew should be packed in such a way that they should be smell proof from pest. Disposability & Shelf Space: The tins which reach the destinations of the importing countries, after being emptied, are to be stored and then scrapped. Since these tins are not collapsible, they occupy a huge floor space in storage. In some countries, the importers were asked to pay for scrapping and disposing of these tins. Recyclability: In most of the western countries, consumers are forcing the markets into becoming 'green' and more environment friendly. In fact, they have formulated guidelines for packaging and are demanding recyclable packs. Safety aspects with respect to sharp edges of Tin: Tin packaging was considered to be unsafe as the tins, when cut, have sharp edges and may injure the person handling them. Even though this problem had prevailed in the past, the importers were now keen to get rid of this problem b y having a safe pack.

Association of Exporters and Council for Cashew Exports and Promotion (CCEP) has formed a committee and certain recommendations were suggested:


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Enough strength to withstand the pressure of handling and transport as cashew are transported from factories to godowns and from godowns to port dockyard. Containers should be leak proof as cashews tend to become rancid if they are exposed to air, light, and moisture. Shelf life of the cashews to be in the range of 6 months to 1 year considering the transportation time to be nearly 2 months by ship and those cashews are sometimes traded in forward market. Resistance to pest attacks in godowns. The normal rejection level should be less than 5 per cent and Resistance to pest attacks in godowns. The cost of new packs is not more than current packs as importer are not willing to pay more than that.

Q.2 Is the cashew packaging market attractive enough?

The following are the key factors that help determine the attractiveness of the market: 

Market size

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Market growth

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Pricing trends

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Intensity of the competition

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Overall risk in the industry

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Opportunity to differentiate products and services

Based on the existing scenario it’s not attractive due to the restrictions imposed by the importers. The present situation may lead to the importers preferring other countries if the packaging method is not altered. This shows that for existing players this has become a very important issue to handle immediately. But there is Scope for the new players to come up with new packaging. That may help in getting the upper hand on existing market players. Any new breakthrough innovation could open up a new market in this arena. They have to consider the cost factor. And ensure the packaging system doesn’t exceed the cost of investment. With increasing Cashew kernel exports Cashew Packaging market is growing too. The cost benefit analysis has to be rationalized of course. Brazil has been a tough competitor in the market with rise in the Cashew kernel exports world over. There is all the more reason for new players to crop up in this market of bulk exporting for cashew packs.


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Global Marketing, Strategic Perspectives 2013 Q.3 What are the stakes of different stakeholders in cashew packaging?

In cashew packaging interest of different stakeholders are on the line. The stake of priority stakeholders has been explained below: 

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Exporter: Importer has made a demand for different type of packaging within a short period of time (next financial year). Developing different type of packaging system within a short time and at the same cost as importer are not willing to pay much created problems for the exporter. Importer are having options of importing from different countries it creates additional pressure on exporter. If, the exporter are not able to cope with demand of importer they may lose their business which has been already declining because of different restrictions from foreign countries. Tin Manufacture: Tin manufactures are one of the stakeholders which will be severely affected by the importer demand. As most of the manufacturer are small scale the new method may require considerable amount of investment which they are not able to finance. New packaging can destroy their almost completely. Government: Cashew kernels occupy a prime place among India’s agricultural commodity exports. Although, figures show that India's exports of cashew kernels were increasing, the share of Indian exports in the total world exports showed a declining trend. It will have an impact on the revenues earned and foreign exchange reserves. Importers: They have the maximum say in the entire value chain. They impose restrictions and norms/standards to be followed world-wide to achieve best quality cashew products. New packaging system is beneficial from them as they are getting better quality at the same rate. Marketing Channel Agents: These are the stakeholders who bridge the gap between the producer and the consumer. The trading part on behalf of the processors is done mostly by the agents who do forthright purchases from the processors, either based on future contracts (20 to 30 per cent of the cases) or go in for one time spot transactions or both (in most of the cases). The commission is what incentivizes their action. Greater value addition by processing and packaging of cashew kernels calls for better commission. Producers: There has been a rise in imports for cashews as compared to indigenous production for India. This is so because the market is largely unorganised. The switching cost is not much as incentives are too low in this industry.


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Packaging Industry: Packaging Industry has tried different mechanisms to overcome the issues posed by the importing nations of Cashew kernels. The following types of method has been evaluated by the industry: •

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Kovak Packaging: Their packaging method involves packing cashew kernels in an aluminium foil pack (non-recyclable) which is closed on three sides and has an opening on one side. Widely used by Brazil cashew exporters, it is found to withstand the wear and tear of small distances, viz. between Brazil and USA. CAM Company’s Packaging: This Company has tried to produce a new type of bulk pack through its packaging production unit. Cashew exporters have been using composite cans for small consumer packs up to 1 kg. These carts are made of hard cardboards which are glued after rolling them into required shape. The top and the bottom of the can is made of tin sheets. The cost of such cans when extended to bulk packaging of cashews is considered to be very high. However, only minor modifications are required in the existing packaging system. TCI's Bag-in-Box Flexi Packs: In this packaging, a flexi pack made of aluminium foils and HDPE (High Density Poly Ethylene) of four layers is used as a container. The sprout could be made to protrude outside the box. The outer carton could be made with a handle also. Results have been encouraging with 25 lbs. flexi packs in the testing stage. The team is also trying to develop a bulk pack which could hold 50 lbs., in a single pack. New packs were tested by sending one full container load of cashews to Japan through TCI’s Agri Business division. Few problems still persist around percentage of broken and split components and susceptibility to rat infestation. On the plus side, new packs could be offered at a lower cost than the tin containers. The expected changes to be made in the vitapack system to accommodate this new pack were also minimal.

Q.4 What should be the marketing strategy for their new pack?

TCI can implement 4P’s to know the feasibility of the BIB (Bag- in- Box). The implementation of 4P’s as a marketing strategy by TCI are as follows: 

Product: The BIB(Bag-in-Box) is a made from Aluminium and HDPE (High-density poly ethylene)and the salient features of BIB are Convenient to use, Hygienic, Tamper proof. The expected changes to be made in the vita pack system to accommodate this new pack were also minimal.


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Global Marketing, Strategic Perspectives 2013 The advantages of HDPE are: •

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Virtually maintenance free Impervious to insects Will not crack or split Does not contaminate ground or soil High abrasion resistance Splinter free Does not contain harmful chemicals Attractive appearance

Price: The BIB (Bag-in-Box) packaging is Lower cost than tin containers and its very Cost effective one more advantage of HDPE is Durable and Recycled Plastic, it needs Minimal changes to be made from Vita pack system. Promotion: TCI have to get EIA (Export inspection Agency) certification. TCI will show the Association of Cashew Exporters and CCPE (Council for Cashew Exports and Promotion) the Cost advantages of this new pack. By explaining how it is addressing the Importers standards it can create awareness of its usage. Place: The location is selected where the exports of cashews are take place like US, Netherland, UK etc. and potential markets should also be taken into considerations.

With all the new technologies at its disposal, TCI needs to test its latest product in the lead markets like U.K./Western Europe and America to find out the imminent success or failure before full-fledged commercial production for next season beyond just 4P’s . The strategy should also focus into the following areas: 

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Cultural and regional implications of packaging and labelling should be kept in mind to avoid any problems in unexpected ways. Labelling must help consumers understand and buy better products by conveying rudimentary instructions for their usage. The package colour and text have to be integrated into the company’s promotional strategy and therefore may be subject to specific tailoring that differs from one country to another. TCI can get rid of the existing tin cans by exporting to low volume and low standard markets like Africa, South East Asia, West Asia etc. PPD itself can become a company solely focused on packaging. Therefore it can focus more into R&D and cater to packaging of various agro and other products and can caters its own marketing needs.


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Global Marketing, Strategic Perspectives 2013 5. APPLICATION OF MODELS

TCI can apply the models which can help it in formulating its policies. TCI can apply the following models for better implementation of its strategies regarding Packaging and exporting of cashew nuts: 5.1 A-B- C- D Framework 

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Access: Importers of our product have got access to the product from various other countries like Brazil and Kenya. But, still India is the largest exporter of Cashew Kernels so it is easy for them to access it through India. Buying behaviour: Buyers are mostly chain stores. Until the arrival of Brazil in market, India was the major exporter of Cashew Kernels, but after the arrival of Brazil, buying behaviour changed on the basis of prices, proximity of exporter and delivery of proper quality product. Consumption characteristics: The factors that drives consumption pattern are: Price of Cashew Hygiene Safety to consumer •

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Disposal: The tins which reach the destinations of the importing countries, after being emptied, are to be stored and then scrapped. Since these tins are not collapsible, they occupy a huge floor space in storage. In some countries, the importers are asked to pay for scrapping and disposing of these tins. Hence, disposing the imported tins caused a huge problem. Environmental concerns necessitate the recyclability of packing material used.

5.2 Cage Framework

The CAGE Distance Framework identifies Cultural, Administrative, Geographic and Economic differences or distances between countries that companies should address when crafting international strategies. TCI should adopt CAGE model to understand different markets in which it is dealing: 

USA & INDIA •

Cultural distance: Lesser language barrier as English is known to both the

countries •

Admi ni str ative di stance: No common currency but the problem is less as US

Dollar is an international currency


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Geographic distance: Differences in the climate do exist between both the

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countries and both the countries are far from ea ch other USA is one of the developed countries of the world with Economi c distance: GDP of 14.08 trillion USD where as India has GDP of 3.91 trillion USD.

NETHERLANDS & INDIA •

Cul tur al distance: No language barrier as English is known by almost all of the

Dutch population

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Admi ni str ative distance: No common currency

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countries and both the countries are far from ea ch other GDP of Netherlands is 772.2 billion USD. Economi c distance:

JAPAN & INDIA •

Cul tur al distance: Language and Religion followed are different in both countries

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Admi ni str ative distance: Lack of common currency

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countries and both the countries are far from ea ch other GDP of Japan is 5.96 trillion USD. Economi c distance:

UK & INDIA •

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Cul tur al distance: Language barrier is very less as English is known to both the

countries. Followers of Indian religions (Hinduism, Sikhism, Muslims, and Jainism) are in good numbers in UK Admi ni str ative distance: Lack of common currency Geographic distance: Differences in the climate do exist between both the countries and both the countries are far from ea ch other UK is one of the developed countries of the world with GDP Economi c distance: of 2.4 trillion USD where as India has GDP of 3.91 trillion USD.

MALAYSIA & INDIA •

Cul tur al distance: No Language barrier

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Admi ni str ative distance: Federal government, cordial political association, fixed

currency •

Both the countries are not very far from each other. Both Geographi c di stance:

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the countries share similar climate GDP of Malaysia is 303.5 billion USD. It is a developing Economi c distance: country with a relatively stable economy.


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AUSTRALIA & INDIA •

Cul tur al distance: No Language barrier

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Admi ni str ative distance: Shared democratic ideals

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countries and both the countries are far from ea ch other GDP of Australia is 1.51 trillion USD. Economi c distance:


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B7 TCI Packaging Division.docx

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