Blue Star India LtdBusiness Policy - Company Strategic Analysis Submitted by: Abhishek Sehgal (46) Kavita Singh (56) Ankit Verma (59) Abhrajit Sett (140) Table of Contents Blue Star: Company Profile ........................................................................................................................... 3 Blue Star Business Portfolio .......................................................................................................................... 3 Blue Star: Largest single source of Air-conditioning Equipment ............................................................... 4 Air-Conditioner Market Analysis ............................................................................................................... 4 Blue Star Market Performance & Competitors ......................................................................................... 5 Strategic Key Decisions & Company milestones ....................................................................................... 6 SWOT Analysis............................................................................................................................................... 9 Strategic Decisions ...................................................................................................................................... 11 Porter’s Five Forces ..................................................................................................................................... 11 Firm Rivalry ......................................................................................................................................... 12 Threat of new entrants ....................................................................................................................... 12 Bargaining power of suppliers ............................................................................................................ 13 Bargaining power of buyers ................................................................................................................ 13 Critical Success Factors ........................................................................................................................... 14 Key Challenges ........................................................................................................................................ 14 Tetra Threat Framework ............................................................................................................................. 15 Threat of Imitation .............................................................................................................................. 15 Threat of Substitution ......................................................................................................................... 15 Threat of Hold Up................................................................................................................................ 15 Threat of Slack..................................................................................................................................... 16 ADDING Framework .................................................................................................................................... 16 International Presence ................................................................................................................................ 17 International Partnerships ...................................................................................................................... 18 ECO FRIENDLY ..................................................................................................................................... 18 CAGE Framework ........................................................................................................................................ 19 Strategic challenges Faced.......................................................................................................................... 19 Quality of R&D .................................................................................................................................... 19 High Number of Players ...................................................................................................................... 20 Foreign Players .................................................................................................................................... 20 Page | 2 Hitachi. Blue Star became a public limited company in 1969 with its corporate headquarters at Kasturi Buildings in Mumbai. Medical and Analytical Instruments and Special Control Valves. so as to offer superior products to the Page | 3 . With six decades of experience in providing expert cooling solutions. a network of offices in 29 cities and three modern manufacturing facilities. bottled water dispensers. Japan. Today. split and window air conditioners. Blue Star has been associated with the most prestigious corporate and commercial installations in the country. USA. Denmark. Blue Star Business Portfolio Blue Star manufactures and markets a wide range of air-conditioning and refrigeration systems and products. Central AirConditioner Commercial Refrigeration Blue Star Room Air Conditioning Hi-tech Electronic and Industrial Products Commercial Equipment Blue Star's other businesses include marketing and maintenance of hi-tech electronic and industrial products such as Testing Machines. The Company was initially engaged in reconditioning of refrigerators and airconditioners. Advani in 1943. Blue Star is India's largest and most preferred airconditioning and commercial refrigeration company. packaged air-conditioning systems. deep freezers and walk-in cold rooms. USA. 1178 crore crores. Sweden and many others. Electrolux.Blue Star: Company Profile Blue Star Limited (originally known as Blue Star Engineering (Bombay) Pvt Ltd) was founded by Mohan T. ice-cube machines. Kolpak. These include large central air-conditioning plants. Blue Star is India's largest central air-conditioning company with an annual turnover of Rs. The Company has business alliances with worldrenowned technology leaders such as York International. commercial refrigeration equipment such as water coolers. Data Communication products. Vestfrost. rotary screw chillers. packaged/ducted systems and VRF systems was about Rs. 5. bottle coolers and ice cubers. The commercial air-conditioning segment catering to corporate and commercial customers amounted to around Rs. never heard. the estimated total market size for air-conditioning in India was around Rs. Air-Conditioner Market Analysis Industry: In 2008-09. Room Air conditioners. 10. The commercial refrigeration segment includes a wide range of products such as cold storages.window and split air conditioners.250 crores. 4. Europe and Japan.000 Crores Rs. supermarket refrigeration equipment. 5750 crores. The market for commercial refrigeration equipment and systems was estimated at around Rs. Of this.K. HP 3000/ MPE. Baan ERP services. while the market for room air conditioners comprised the balance Rs. Never seen. Rs. satellite launch stations. etc. laboratories. factories. airports. centrifugal. The International Software Services business was spun-off into a separate company. and U. Commercial Refrigeration. bottled water dispensers. water coolers. variable air volume systems. 8000 crores. It offers the widest range of air-conditioning products . air-cooled / water-cooled packaged air conditioners. air handling units.customers. deep freezers. BSIL provides Internet/E-commerce. showrooms. hotels. Blue Star Infotech Limited (BSIL) in April 2000. Blue Star: Largest single source of Air-conditioning Equipment Blue Star is the largest single source for air-conditioning equipment in India. milk coolers. 2000 crores. offices. hospitals all over India and abroad.S. absorption. Client Server applications and Embedded Systems to clients in USA. Commercial Equipment and Professional Electronics and Industrial Products. the market for central air-conditioning. 4500 crores. yet quietly at work in homes. 2.750 Crores Rs. including central plants. reciprocating scroll.500 Crores Central and Packaged Airconditioning Systems Page | 4 . at the Santa Cruz Electronics Export Promotion Zone (SEEPZ) with offices in the U. fan coil units. This software export business was started in 1983 and is headquartered in Mumbai. The lines of business include Central Air-conditioning. 53% in air-conditioning and commercial refrigeration market.34% in this segment.13% 65.10% in this segment. Main competitor for Blue Star in central and packaged air-conditioning business is Voltas. 6000 5000 Market Size (Rs. Market of Central and packaged AC system is growing at a CAGR of 27.5% and 17. In the Room AC segment company has market share of 6% while in commercial refrigeration segment again Blue Star is market leader and it has a market share of 16.5% respectively.The air-conditioning and commercial refrigeration market in India is growing at a CAGR of 22. Crore) 4000 3000 Cooling Appliances 2000 1000 0 2004-05 2005-06 2006-07 Financial Year 2007-08 2008-09 Commercial Refrigeration System Central and Packaged AC System Blue Star Market Performance & Competitors Market share of Blue Star in India is 19. Diakin and Carrier. Hitachi. Market leader in India in this segment is LG Electronics. Company is market leader in central and packaged air-conditioning segment with the market share of 31.5%.54% 15.33% Blue Star Voltas Others Market Share in Air-conditioning and Commercial Refrigeration Page | 5 . while market of Room ACs and Commercial Refrigeration is growing at a CAGR of 19. In room AC segment approximately 20 players are there.2%. 19. Blue Star was founded in 1943. Shortly after.34% 52. the Company secured the agency for US-based Melchoir Armstrong Dessau's air-conditioning equipment.31% 16.these were the first of numerous foreign associations to follow. by Mohan T Advani. The Company began as a modest 3-member team engaged in reconditioning of air conditioners and refrigerators.31. the US leader in air-conditioning. An expanding Blue Star then ventured into the manufacture of ice candy machines and bottle coolers and also began the design and execution of central air-conditioning Page | 6 . Within three years. an entrepreneur of exemplary vision and drive. Their expertise lies across different industries and sectors and they constantly try to leverage this expertise to expand the purview of their operations in diverse industries. the Company was selected by Worthington.35% Blue Star Voltas Others Market Share in Central and Packaged Air-conditioning 25% 53% 16% LG Electronics Voltas Blue Star Others 6% Market Share in Room AC Strategic Key Decisions & Company milestones Blue Star has over a period of time established itself as an expert in the field of central air-conditioning and commercial refrigeration. as its India based partner . Employee strength crossed the 1000 mark and the company went public in 1969 to become Blue Star Limited. In 1949. Ever since. Mumbai in 1983. the sons of Mohan T Advani.a collaboration with York International of USA for central air-conditioning equipment and joint ventures with Motorola and Yokogawa.and the company emerged a market leader in these focus areas. Then came associations with more global leaders .air-conditioning and refrigeration and the distribution of professional electronics equipment . To complement its air-conditioning projects and undertake turnkey industrial projects. A renewed thrust was placed on the company's core business areas . Blue Star was more than equal to the challenge and expansion continued unabated. In 1970. as it continues to be called today. Then came the manufacture of water coolers. Blue Star set up a joint venture with Al Shirawi in Dubai and went on to execute some outstanding projects in Syria. The sixties and the early seventies witnessed Blue Star continuing to expand and thrive. Blue Star next set up a software export unit at Seepz. Iraq and Saudi Arabia. an Industrial Division was set up in 1978. took over the reins of the Company. Revenues touched the Rs. reengineer those that were obsolete and forge ahead in acquiring new business competencies. after spending nearly 15 years within the Company steadily climbing up the ladder. the Oberoi Hotel in Mumbai. Ashok M Advani & Suneel M Advani. In 1984.projects. where in fact. Page | 7 . Express Towers. Blue Star diversified and took up agencies for Material Testing Machines and Business Machines. A team of dedicated professionals aided Mohan T Advani in ever furthering his vision of a profitable company dedicated to its ideals of professionalism and success. took on shareholders and became Blue Star Engineering Company Private Limited. the early seventies saw a series of prestigious projects being entrusted to Blue Star skyscrapers such as Air India Building. The nineties witnessed India entering an era of economic liberalization and an upsurge in competition as the dynamic business scenario attracted the world's most forward-looking corporations. As the Company's reputation for delivering the goods in the most challenging of air-conditioning projects grew steadily. the Company began building determinedly upon its existing overseas presence. As its Indian presence reached greater heights. the Company took up the all-India distributorship of Hewlett-Packard products. Always moving with the times and ever on the lookout for business possibilities. apart from several others. 'Blue Star' soon became the generic name for water coolers. a business relationship which continues today and has grown ever stronger through the years. 10-crore mark and staff strength doubled to exceed 2000. It was time to re-look at existing business competencies. there has been a constant and profitable growth. the proprietorship company set its sights on bigger expansion. The export arena beckoned and the Company began exporting water coolers to Dubai. In keeping with this focus. A new Corporate Vision was developed . Every employee is determined to follow this vision and keep their organization a competitive and forward-looking one."To deliver a world-class customer experience". Blue Star enjoys an enviable reputation as an ethical corporation. the export of air-conditioning products from the Dadra factory began and contract manufacturing for local and foreign brands commenced. ever mindful of its obligations towards customers. the action continued. an advanced manufacturing facility was set up at Dadra in 1997. dealers. In the following three years. the Company leveraged its leadership position to grow aggressively. Today it bears the distinction of being regarded as the best such plant India-wide. in technical collaboration with Rheem. clocking Rs 1178 crores in 2005-06. With the boom in construction activity and increased infrastructure investments.Even more than size. With the advent of the much awaited new millennium in 2000. The software unit was spun off into a separate company. 500 crore milestone in 2000 and the Rs. USA. Blue Star crossed the Rs. business partners. Blue Star Infotech Ltd.. employees and the environment in which it operates. The dealer network was strengthened and expanded to bring products within easy reach of every customer. Page | 8 . to enhance manufacturing competency. shareholders. 600 crore milestone in 2002-03. the Company nearly doubled its turnover. vertical. Only Blue Star manufactures variable air volume systems for economic localized cooling control. Air-conditioning of the largest number of synthetic fiber plants in India exceeding 25. Only Blue Star manufactures air handling units with dependable ratings to factory precision and the widest choice with single skin. double skin.40 crores. First air-conditioning company to introduce the concept of a Comfort Shop. Largest Industrial air-conditioning contracts in India . horizontal. ceiling suspended and unitary.RBI Note Mudran Private Limited: Rs. First to manufacture semi hermetic reciprocating compressors in India to international standards.000 Tons and 36 customers. Page | 9 .SWOT Analysis Strengths: Only Blue Star manufactures open-type centrifugal chillers with ozone friendly refrigerant HCFC 123. Page | 10 . Increased threat from cheaper imports. to provide technological support to develop new products and upgrade existing ones. Opportunities Confederation of Indian Industry (CII) has urged the government to reduce special excise duty (SED) on air-conditioners from 16% to 8% in the forthcoming budget. LG and Voltas are continuously raising their share while Blue Star despite of increasing sales is losing its market share. Willis Carrier Engineering Center. LG. Although BLUE STAR protects its Position in Domestic AC market but is regularly losing market share. Advent of Internet provides an excellent opportunity to reach to a large base of customers and cut costs. an extensive distribution network and better insights about the local market conditions. Carrier. The increasing presence of multinationals in India for manufacturing be it Samsung. Weaknesses Considered as premium brand so middle class people think it is unaffordable. It has successfully introduced finance schemes that have taken air-conditioners out of the luxury category and made it affordable for the homebuyer. thus providing an opportunity for upgrading the quality of manufacture in the country. Low qualities resulting in exports prices being non competitive. Opportunity to influence Growing Indian middle class in influencing their decisions with regard to the products offered by Blue Star through comparatively lower prices. It has a strong setup. Hitachi. Carrier. Threats: Likely to face fierce competition from domestic companies as they have well.acknowledged brands. Market penetration is still very low. especially from China MNC’s like Samsung. Express Towers. as its India based partner Blue Star diversified and took up agencies for Material Testing Machines and Business Machines In 1970 Company took up the all-India distributorship of Hewlett-Packard products. the US leader in airconditioning. to enhance manufacturing competency & open a state of art plant in Dadra in 1997 Software unit was spun off into a separate company. Porter’s Five Forces Bargaining Power of Suppliers Threat of New Entrants Degree of Competition: High Threat of Substitutes: Bargaining Power of Buyers Page | 11 .Strategic Decisions Within 3 years of inception Company was selected by Worthington. a business relationship which continues today Prestigious projects being entrusted to Blue Star ."To deliver a world-class customer experience". USA. Blue Star InfoTech Ltd in year 2000 A new Corporate Vision was developed . Oberoi Hotel in Mumbai Blue Star set up a joint venture with Al Shirawi in Dubai and went on to execute some outstanding projects in Syria. Iraq and Saudi Arabia Air-conditioning and refrigeration and the distribution of professional electronics equipment .and the company emerged a market leader in these focus areas Technical collaboration with Rheem.skyscrapers such as Air India Building. hence there is a high degree of rivalry. Switching costs It is not easy to switch to the new players in the field due to high initial investment & also a number of collaborations & contracts exist among the players of the world who are into the same line of business. Economies of Scale Manufacturers in HVAC industry need to build economies of scale due to high fixed costs and meet the demands. Threat of new entrants Capital Requirements The initial investment that goes into setting a plant is considerably high as there needs to be sufficient investment in providing quality components and also in R&D to meet the changing technology.Firm Rivalry Size of Industry The industry is not concentrated & there are large number of Indian companies and MNCs. Due to customization. Product Differentiation Product differentiation is very less hence high degree of rivalry. Page | 12 . There is thus a high switching cost and thus a low threat to entry. Due to this there is a low threat of entry into this sector. Industry Growth rate As long as the entire economy is in a growth face and real estate sector is in boom there will be a huge growth in the industry Fixed Cost The manufacturers of air conditioners and refrigeration products have high fixed costs as there is heavy investment in plant and the development of new technologies thus decreasing the degree of rivalry amongst them. Brand Identity / Client loyalty This plays a very important role in the market of HVAC industry. Generally it is seen once a client go for some brand he stick to the same brand in the future also. Customized Products In the central and packaged AC system level of customization is high and it is not possible for new player to do that customization. the threat of new entrants is low. Thus there is a low threat of entry into this sector. Presence of substitute inputs In the current scenario there is little substitution that is possible to the raw materials that go into the manufacturing of air conditioning products.Distribution Channels The existing players have strong distribution channels and thus are thus difficult to match proving to be a high barrier of entry. Bargaining power of buyers Quality vs Performance There are large numbers of players in the market. This reduces the bargaining power of the suppliers. So the bargaining power of suppliers is low. Bargaining power of suppliers Supplier Concentration There is comparatively higher number of suppliers. Page | 13 . Bargaining power would be less since the probability that the companies would integrate backward would be less. Importance of volume to suppliers The industry is dependent on volume sales and hence facilitates bulk buying. It gives high bargaining power to buyers. So quality and performance is the most important factor while selecting the product. Backward Integration Backward integration to make the air conditioners means a high investment and also expertise in the manufacturing would be required. This increases the bargaining power of suppliers. •This includes facilities such as pre cooling. to be effectively harnessed.000 crores •India has great potential for the production and distribution of perishable agricultural commodities including fruits and vegetables.Critical Success Factors High growth •India is witnessing big growth in segments such as infrastructure. controlled atmosphere storages. power. Based on plans announced by several players. controlled and modified atmosphere cold storages. pack houses. Page | 14 . •There are more than 20 players in the market in this industry and they are killing the market share of Blue Star.38. ripening chambers. Foreign Players •Now number of foreign players has entered in the Indian market. the cumulative non-residential air-conditioning opportunity over the next 5 years is estimated to be around Rs. reefer vans. telecom and hospitality and large IT/ITES companies are continuae with their aggressive expansion plans Retail Boom Distribution of perishable agricultural output Cold Chain Infrastructure •Retail sector is also in boom in India. refrigerated containers. It is observed that real estate/IT companies of foreign origin prefer foreign companies over Indian companies. retail cabinets and mobile refrigerated units Key Challenges Quality of R&D High Number of Players •With most of the multination companies entering into Indian market most of the quality people are going to those companies as they are paying high salaries. Though revenue of Blue Star is increasing but marketing share of company is decreasing from last couple of years. healthcare. This potential needs a modern cold chain infrastructure including conventional. This is one field where Blue star has been consistent and has been successful to avoid competition by constantly renovating especially in the institutional domain of AC selling. There are number of players in the market like Hitachi. Threat of Substitution Threat of substitution is almost nil for company. Most of the people now shifting to air conditioners from the conventional cooling products like fan. Even if the company can protect its added value from the threats of imitation and substitution. They have upgraded the technology in the long run and have been doing so to keep the imitators at bay. it involves trying to oust substitute threat by looking for a performance improvement and/or value innovation that promises even better performance . LG etc. Page | 15 . Upgradation of technology is one way by which threat of imitation has been reduced by Blue star. Voltas. Leapfrogging is the way out opted by Blue star as by this it looks to respond to the threat of substitution. Blue star has had a hold up problem when the suppliers of a big order at Infosys as the suppliers were not co-operating with the management. the ability of its owners to appropriate the added value cannot be taken for granted.Tetra Threat Framework Threat of Imitation Added value Threat of Substitution Appropriated value Threat of slack Threat of holdup Threat of Imitation Threat of imitation is high for Blue Star. suppliers and complementors. Threat of Hold Up Holdup threatens to divert the sustained added value to buyers. They can easily imitate what Blue Star has done by using the reverse engineering. They can also recruit existing Blue Star employee and can easily copy the new developments in Blue Star products. coolers etc. Decreasing costs. ADDING Framework Ghemawat provides a framework —the ADDING Value Scorecard—to help companies assess whether a particular strategic move makes sense. will it add value to the business both locally and globally. Blue Star is continuously making huge investments in state-of-art technologies in manufacturing. or growth. In other words. The problem of slack is not imminent in Blue star as the firm is not performing as per the competitive standards of the industry and has been making less profit. The acronym stands for Adding volume. Long term contracting. The way to respond and eliminate this slack is to ensure optimum utilisation of resources. commercial and hospitality sectors. This happens when the company has been consistently making excess profits or has done so presently. and Generating and deploying knowledge (and other resources and capabilities. Normalizing (or optimizing) risk. Levers of Value Addition Adding Value DC’s Attempts/Achievements It is India’s largest central air-conditioning company that caters to the industrial. building mutual dependence and developing trust were the most important factors that helped Blue star to counter the threat of hold up. Improving industry attractiveness or bargaining power. IT etc all with the overall objective of being more efficient and scaling up the production to meet the higher levels of energy requirements of the country. Threat of Slack This refers to the difference between the potential values available to the company and how much of it is the company able to capture. Differentiating or increasing willingness—to—pay. The extensive use of IT to enhance productivity and product development capabilities has helped Blue star decrease cost in manufacturing Better PUF Installation and Brazing technology used in ACs than competitors With the increase in the number of malls and Page | 16 Decreasing Cost Differentiating/Increasing willingness-to-pay Improving Industry attractiveness/ . Thales e-Security Ltd. the University. 269-room Ritz Carlton Hotel. Sarawak. Kuala Lumpur. from Indonesia in the East to Libya in the West.21-storey Bangunan AMDB. Eaton . Blue Star has set up a joint venture in Malaysia with Arab Malaysian Development Berhad (AMDB). Johor Baru. Hitachi. Kuching. Nilai. Japan and many others. AMCORP Trade Centre. 275-room Castle Inn Hotel cum Office. 35-storey Menara Dion. assessed and acted upon by risk owners Blue Star has business alliances with world renowned technology leaders such as Rheem Mfg Co. Selangor Darul Ehsan. Railway and Radio and TV Page | 17 . The joint venture company has executed large turnkey Central Airconditioning Contracts . Petaling Jaya. International Presence Blue Star's air-conditioning expertise extends beyond Indian horizons. 22-storey Menara Pelita. UK. USA. 340-room Hilton Hotel. to offer superior products and solutions to customers. Seremban. Japan. Selangor Darul Ehsan and Summit Centre Shopping Complex. 18-storey Tower A and Tower B AMCORP Trade Centre. Kuala Lumpur. Kuala Lumpur.Williams.bargaining power Normalizing Risk Generating and updating resources other real estate cropping up and better technology and customisation options being offered by Blue star they have decreased the bargaining power of buyers They have a Risk Management framework under which all internal and external risks across the various business functions are identified. Johor Darul Takzim. Kuala Lumpur. Arab-Malaysian SGB factory. Negeri Sembilan. Some of the most notable are: Syria's Presidential Palaces Complex at Damascus. Nageri Semibilan Darul Khusus. UK. Kuala Lumpur.. And the list of projects completed abroad is too long to be enumerated. Petaling Jaya Selangor Darul Ehsan. 364-room Vistana Hotel. 420-room Hotel. 48-storey Plaza MBF. Blue Star has competed with other European companies on International terrain and satisfied demanding foreign consultants. Jeol. Geological Survey. USA. which use water as refrigerant. ECO FRIENDLY Blue Star has made significant progress towards minimizing and even eliminating the environmental hazards resulting from CFCs in certain refrigerants used for cooling. As a matter of fact. reciprocating chillers. And collaboration with York Tempmaster.T. Russia. Italy for the manufacture of air-conditioning equipment . USA. air handling units. The Company actively promotes wider use of large refrigeration systems using ammonia as the refrigerant. Kuala Lumpur. International Partnerships In its quest to offer the most advanced air-conditioning technologies. Saudi Arabia and Hotel Krom. for variable air volume systems. which is more friendly to the environment than the older R-12.centrifugal chillers. U. Rheem Manufacturing Co. the State Bank of Mauritius.. the safe refrigerant replacing CFC-11.Establishments at Baghdad. Blue Star has already introduced 'ozone friendly' centrifugal chillers using HCFC-123. Bandung. Blue Star also markets absorption chillers. Blue Star is one of the few companies selected in India for funding by "The Multilateral Fund for the implementation of the “MONTREAL PROTOCOL”. All Blue Star reciprocating chillers already use HCFC-22 refrigerant. screw chillers. USA and Climatrol. Henrick Hotel. Blue Star is a member of the International Institute of Ammonia Refrigeration.S. the Kewalram Indonesia P. Page | 18 . Blue Star has entered into several technical collaborations with York International. In fact. Strategic challenges Faced Quality of R&D With most of the multination companies entering into Indian market most of the quality people are going to those companies as they are paying high salaries. have Easy export material to and deliver domain expertise from India. Because of this Blue Star in not getting quality people for their R&D and hence facing challenge in doing the quality of R&D work in India. Page | 19 . for Advantage being within Real estate company AMDB ensured sharing resources of ASEAN region UAE / Middle East Being within Asia not a huge difference Local distributors act as the face of company negotiation with government the for All US/European MNCs presence.CAGE Framework CAGE Cultural Administrative Geographical Economical Malaysia Being within Asia not a huge difference AMDB ensured bids turnkey projects. Page | 20 .High Number of Players There are more than 20 players in the market in this industry and they are killing the market share of Blue Star. Foreign Players Now number of foreign players has entered in the Indian market. It is observed that real estate/IT companies of foreign origin prefer foreign companies over Indian companies. Means though infrastructure development is happening in India but most of the foreign players are getting benefited from that as domestic companies do not discriminate while giving order to particular company. Though revenue of Blue Star is increasing but marketing share of company is decreasing from last couple of years.