Blair Water Purifiers IndiaGroup 5 Objective of The Case • To make a recommendation on market entry and on elements of an entry strategy. Indian Market for Home Water Filtration and Purification • Four or five competitors in the market. • Only one or two companies in India’s 25 states. • Its stage is in early growth stages. • Many Indians felt the need for improved water quality. Target • 40 million households of middle- and uppermiddle-class households in the United States and the European Union • 4 million households who had similar values and lifestyles • 50% of our target market used boiling to make clean water • 40% of our target market used a mechanical device to improve their water quality Traditional Method for Home Water Purification • Boiling -> two to five liters of water for 10 minutes, allow it to cool, and then transfer it to containers for storage (often in a refrigerator) This procedure is cumbersome, time consuming, and ineffective in removing physical impurities and unpleasant odors. Before storage they will filter their boiled water through “candle filters”. Water can become recontaminated during handling and storage. Mechanical Methods for Home Water Filtration and Purification • Candle Filters -> low price depend on material (plastic, porcelain or stainless steel) and easy of using. Candle filters were slow, producing 15 liters (one candle) to 45 liters (3 candles). It is needed to be removed, cleaned, and boiled for 20 minutes. Price Rs.350 to Rs.1,100. • Water Purifiers -> better than Candle Filters. There are three steps, the first removed sediments, the second objectionable odors and colors and the third harmful bacteria and viruses. Price is Rs.2,000 to Rs.7,000. Foreign Investment in India 1. Joint working arrangement • • Supply key purifier components License fees will be calculated by per unit basis over the item of the agreement Be partner with an existing Indian company Share 50% profit Purchase an existing Indian company then expand to include the water purifier All profit will belong to us 2. Joint venture company – – • • 3. Acquisition Three Business Plans for Indian 1. Apply for market entry to the Foreign Investment Promotion Board, Secretariat for Industrial Approvals, Ministry of Industries. 2. Approval of any royalties and fees, remittances of dividends and interest by Reserve Bank of India, Ministry of Finance. 3. “Virtually guarantee” by consulting firm. Tax Rates and Average Return on Assets • Corporate tax rates in India probably were somewhat higher than in the United States • The average return on assets for all Indian corporations in recent year was almost 18%, for United States corporations was about 11%. Blair Company, Inc. • Established in 1975 by Eugene Blair • First product was a desalinator • In 1996, the product line included desalinators, particle filters, ozonators, ion exchange resins, and purifiers. • In 1996, sales revenues was almost $400 million (annual growth average 12% for past five years), with an expected profit close to $50 million. • In 1994, water purifier was added to product line by using brand name “Delight”. Delight Purifier • Used a combination of technologies to remove four types of contaminants found in potable water: sediments, organic and inorganic chemicals, microbials or cysts, and objectionable tastes and odors. • This technologies to purify water to a level beyond WHO standards. • There were two models that were countertop and wallmount. Competitors There are three major competitors. There are 2. Eureka Forbes • • • • Joint venture company in 1982 between Electrolux (Sweden) and Forbes Cambell (india). First brand name was “Aquaguard” (used ultraviolet rays to kill bacteria and viruses) Rs.5,500 Second brand name was “PureSip” (used polyiodide resin to kill bacteria and viruses) Rs.2,000 Used 2,500 person salesforce (directly on households) to sale Aquaguard and independent dealers to sale PureSip Competitors (con.) 1. Ion Exchange • • • Began operation in 1964, they use brand name was ZERO-B (Zero-Bacteria) ZERO-B purifiers used a halogenated resin technology. It helped prevent iodine deficiency diseases and permitted purified water to be stored up to eight hours without fear of recontamination Every year needs to replace the halogenated resin at a cost of Rs. 200. • Competitors (con.) 1. Singer • • Might be a suitable partner to manufacture and distribute the Delight purifier The product contained nine stages (removed sediments, heavy metals, bad tastes, odors, and colors, killed bacteria and viruses, fungi, and nematodes) Life of flow rate at 3.8 liters per minute was at 40,000 liters (4.4years for 25 liters per day), but slower liters per minute was 70,000 liters (7.6 years for 25 liters per day). They described their product as “state of the art”. Singer was a well-known and respected brand name in India • • • Competitors (con.) • • • • • The Delta -> carbon copy of Aquaguard. Alfa Water Purifiers Symphony’s Spectrum The Sam Group -> “Water Doctor” purifier Batliboi Other Information • Sales volume of ZERO-B and Singer was around 60,000 units in 1996. • Sales volume of Aquaguards and PureSips was 190,000 units. • More than 100 Indian companies made and marketed candle filters. • All of purifier sales came from large urban areas and only ten to fifteen percent of the entire Indian population could be reached. Recommendations 1. Strategic focus on rural or smaller urban areas would not be wise, at least at the start. 2. Cost of skilled labor in India was around Rs.20 to Rs.25. 3. Blair Company should find an Indian partner. Place [distribution channel] • • • Eureka Forbes – – – – – – – 2,500 persons sales force Independent dealers Door-to-door sales force Consumer advertising 3,000 independent dealers 210 owned showrooms 400 salesmen Ion Exchange Singer Product & Price Feature Price Remove Sedimentation Remove Heavy metal Remove Odor Remove color Kill Bacteria & Viruses Fungi neriatodes Remove bad taste Volume Flow rate Life time Maintenance Cost Require electricity Delight 4,400 5,900 √ √ √ √ √ √ √ √ 2 liters fastest n/a n/a √ Battery, too high standard Singer 4,000 √ √ √ √ √ √ √ √ n/a 3.8 liters/min 40,000 liters, 70,000 liters n/a n/a ZERO-B 2,000 √ X √ √ √ X X √ 20 liters n/a 1 yr (filter) Rs.200/yr X PureSip 5,500 √ X √ (Weak) √ √ X X X n/a n/a n/a n/a X Aquaguard 2,000 √ √ √ (Weak) √ √ X X X n/a n/a n/a n/a √ stored safely Additional Feature n/a Iodine n/a Promotion • TV advertising – Eureka, Ion Exchange, Singer • Newspaper advertising – Eureka, Singer • Outdoor and transit advertising – Singer • Magazine – Eureka Calculation • Licensing – Capital cost of production facilities and equipment = $30,000 – Cost of office facilities and equipment = $5,000 – Annual fixed cost ranged between $15,000 - $40,000 – Average royalty = Rs.300 – Total cost (min) = $30,000 + $5,000 + $15,000 = $50,000 – Total cost (max) = $30,000 + $5,000 + $40,000 = $75,000 – Exchange rate is 1$ = Rs.35 – B/E (min) = ($50,000 x 35) ÷ 300 = 5,834 units – B/E (max) = ($75,000 x 35) ÷ 300 = 8,750 units Calculation (con.) • Joint Venture – Four regions [110,000 units] Skimming dealer saleforce Rs.8,000,000 Rs.14,000,000 Rs.500/unit 16,000 units 28,000 units 25.45% dealer Rs.8,000,000 Rs.7,000,000 Rs.300/unit 26,667 units 23,334 units 21.21% Penetrate saleforce Rs.8,000,000 Rs.14,000,000 Rs.200/unit 40,000 units 70,000 units 63.64% Initial inv. fixed cost Contri. B/E inv. B/E contri. % market Rs.8,000,000 Rs.7,000,000 Rs.650/unit 12,308 units 10,770 units 9.79% Calculation (con.) • Joint Venture – Two regions [55,000 units] Skimming dealer saleforce Rs.4,000,000 Rs.7,200,000 Rs.500/unit 8,000 units 14,400 units 26.18% dealer Rs.4,000,000 Rs.4,000,000 Rs.300/unit 13,334 units 13,334 units 24.24% Rs.4,000,000 Rs.4,000,000 Rs.650/unit 6,154 units 6,154 units 11.19% Penetrate saleforce Rs.4,000,000 Rs.7,200,000 Rs.200/unit 20,000 units 36,000 units 65.45% Initial inv. fixed cost Contri. B/E inv. B/E contri. % market Calculation (con.) • Joint Venture – National market [430,000 units] Skimming dealer saleforce Rs.30,000,000 Rs.88,000,000 Rs.500/unit 60,000 units 176,000 units 40.93% dealer Rs.30,000,000 Rs.40,000,000 Rs.300/unit 100,000 units 133,333 units 31% Penetrate saleforce Rs.30,000,000 Rs.88,000,000 Rs.200/unit 150,000 units 440,000 units 102.3% Initial inv. fixed cost Rs.40,000,000 Rs.650/unit Contri. B/E inv. 41,154 units B/E contri. 61,539 units % market 14.31% Rs.30,000,000 Pros & Cons • Licensing pros - Low risk - Low cost - No need to study India's culture cons - Cannot control - Lose image Pros & Cons (con.) • Joint venture & Acquisition pros - Controlable - High cost - High risk - Low return - Long-term payback period cons