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COVER PAGE
Title : Environmental Analysis and evaluation
of vegetable oil industry attractiveness
in India.
Subject : Strategic Management
Level / Semester : II / Jun 2010
Programme : MBA - FULL TIME
Subject Tutor : Mr. L. Surendra
Name of Student : Vivekanandan M
Student’s Registration Number : GPBL-B/F10/15
Date of Submission : Jul 26, 2010
Word Count : 1829 words
Word Limit : 2000 words
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Checklist
Students Name Vivekanandan M
Registration Number GPBL-B/F10/15
Date of submission of the Assignment 26/07/2010
Is the cover page in the correct format as indicated in the “Guidelines to writing Assignments”?
Yes
Have I done a complete spell-check of the Assignment? Yes
Have I done a complete word count for the Assignment? Yes
Does the table of contents include numbers? Yes
Are the pages numbered correctly? Yes
Are the figures numbered correctly? NA
Are the tables/charts numbered correctly? Yes
Are the captions for the tables and charts proper? Yes
Are the references/bibliography listed in the Assignment? Yes
Are the references cited correctly in the text? NA
All references material has been cited from the books & the University of Wales online library. Any other internet source
quoted is with the permission of the module tutor.
NA
Are the references in the text in the proper format as indicated in the “Guidelines to Writing Assignments”
Yes
Has the soft copy of the Assignment been enclosed? Yes
Declaration:
All material written in this assignment is my own and I have not used any material, content or information of others claiming them to be mine. Wherever materials have been used, proper citation has been done in the text. I am fully aware of the rules and regulations governing plagiarism. Should at any point of time my work be suspected/investigated and established to have been plagiarized, I am aware of the consequences. I have read the Student’s Handbook in detail. ___________________ Signature of the student Date: 26/07/2010
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TABLE OF CONTENTS PAGE No.
List of Figures 1
Introduction 2
Introduction to Environment Analysis 2
Environment Analysis for Vegetable oil industry in India 4
Introduction to Porter’s Five Force Model 6
Porter’s Five Force Analysis for Vegetable oil Industry in India 7
Conclusion 9
Bibliography 10
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LIST OF FIGURES PAGE No.
Figure 1 - External forces affecting business 2
Figure 2 - Porter’s Five Force Model – Industry Structure and
Competitive Strategy 6
Figure 3 - Market share of Solvent extrating companies in India 7
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Introduction
The purpose of this report is to analyse the industry attractiveness and industry dynamics of
Vegetable Oil Industry in India. Political, Economic, Social (demographic, cultural and
sociological) and Technological (PEST) analysis and Porter’s Five Force Analysis are done
for Vegetable Oil Industry in India.
Introduction to Environmental Analysis
Environment analysis helps business to understand the external forces that can affect the
business. External environment includes economy, society, technology, competition,
customers, supplier and competition. PEST analysis is an analysis of the external macro-
environment that affects all firms in the given industry. PEST analysis is one of the strategic
tools for understanding the impact of external environment factors like political, economic,
social and technology on the business. PEST analysis is used for strategic planning,
marketing planning and new product development. PEST analysis is specific for each
country.
Figure 1: External forces affecting business
Economic Factor:
Following are some of the economic factors, which can act as opportunity or threat for the
business.
1. Interest rates
2. Tax rates 3. Economic growth
4. Inflation 5. Exchange rates 6. Labor cost
7. Type of economy
Business
Political Factors
Economic Factors
Social Factors
Technological Factors
Customers
Suppliers
Competition
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8. Demand supply 9. Stage of industry development – emerging, growing, mature, declining
Social Factor:
Following are some of the social factors, which can act as opportunity or threat for the
business. 1. Culture
2. Population growth rate 3. Division of wealth in the society 4. Health
5. Demographics 6. Education
7. Leisure interest
Technological Factor:
Following are some of the technological factors, which can act as opportunity or threat for the business.
1. Recent technological developments 2. Rate of technological diffusion
3. Innovation
Political Factor:
Following are some of the political factors, which can act as opportunity or threat for the
business.
1. Political stability 2. Intellectual property protection 3. Anti-trust laws
4. Pricing regulations 5. Tax rates and incentives
6. Wage legislation 7. Trade regulation 8. Mandatory employee benefits
9. Industrial safety regulations 10. Environment regulation
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Environmental Analysis for Vegetable Oil Industry in India
Political Factor:
a) Leading to industry growth
Indian Government imposed 20% import duty on crude soya bean oil on Nov 18, 2008 to
prevent dumping of cheap crude soya bean oil from foreign markets. This will help the
domestic vegetable oil producers to produce more soya bean oil to meet the local demands.
Solvent Extractor’s Association of India (SEAI) has requested the Indian Government on Apr
22, 2010 to impose 10% import duty on crude palm oil and to increase the import duty for
refined oil, to control imports and encourage the domestic vegetable oil producers.
In 2007, Indian Government imposed ban on future trading in oil and sugar. Rapeseed
production in 2007 was down by more than 5%, which has lead to increase in mustard oil
prices.
b) Threat to industry growth
Indian Government budget 2008-2009 reduced the import duty on vegetable oil by 10% to
tame the rising inflation. This will make the domestic vegetable oil producers to reduce the
oil prices to compete with the vegetable oil imported from foreign countries.
Economic Factor:
Bio diesel requires crude oil and vegetable oil for its production. Change in crude oil market
fundamentals will have an impact on the vegetable oil. According to LMC International Ltd,
high crude oil price is reducing the demand for petroleum products, which will have an
implication on palm oil.
a) Leading to industry growth
According to Solvent Extractor’s Association of India, the demand for vegetable oil is
expected to increase by 20% from 130 lakh tonne in 2008 to 156 lakh tonne in 2010.
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b) Threat to industry growth
With the reduction in the oil seed cultivation area, vegetable oil production has declined by
over 10% during the past 3 years. On the other hand, the vegetable oil consumption in India
has increased by 18.55% during the past 3 years.
Madhya Pradesh is one of the largest producing states for vegetable oil seed in India. Rainfall
recording below 30% in 2010, has lead to lower cultivation of vegetable oil seeds.
Social Factor:
a) Leading to industry growth
With the population growth of 1.8%, the demand for vegetable oil is set to increase by 7% in
India.
During festival seasons October-November, the demand for vegetable oil increases, but the
vegetable oil prices remains the same in 2010.
b) Threat to industry growth
Maoism is a threat to the industry.
Technological Factor:
a) Leading to industry growth
New oil seed crushing machines can be used to crush different oil seeds to extract oil. Earlier,
different crushing machines were used for crushing different oil seeds.
b) Threat to industry growth
AP Organics has successfully commercialised the production of refined rice bran oil. Rice bran oil is one of the substitutes for vegetable oil.
Coconut oil is another substitute for vegetable oil, which is mainly consumed in Kerala.
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Introduction to Porter’s Five Force Model
Porter’s Five Force model deals with factors outside an industry that influence the nature of competition within the industry.
a) Degree of rivalry – Rivalry is influenced by following industry characteristics,
1. Large number of companies
2. Slow market growth 3. High fixed costs
4. High storage cost/highly perishable products Rivalry is measured in terms of the percentage of market share held by the companies
within the industry.
b) Potential entrants – There are several barriers which make potential new entrants from entering into the industry. First high capital requirement, economies of scale, access to technology and access to raw materials.
c) Suppliers – The power of the supplier refers to the ability of the suppliers to supply
raw materials at higher cost or reduced service, affecting the profitability of the company.
d) Buyers – The power of buyers refers to the ability of the industry’s customers to force the industry to reduce the price.
e) Substitutes – A product’s price elasticity is affected by substitute products. More the
number of substitutes, the demand become more elastic, as customers have many
alternatives. A close substitute product limits the price raise of the original product by the companies within the industry. The threat of substitute products pose to an
industry’s profitability depends on price to performance ratio.
The Industry
Degree of Rivalry
No. of competitors
Product differentiation
Potential Entrants
Economies of Scale
Brand Identity
Switching costs
Government policies
Suppliers
Supplier concentration
Number of buyers
Switching costs
Substitute raw materials
Thread of forward
integration
Buyers
Buyer concentration
Number of suppliers
Switching costs
Substitute products
Threat of backward
integration
Substitutes
Functional similarity
Price performance trend
Product identity
Figure 2: Porter’s Five Force Model – Industry Structure and Competitive Strategy
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Porter’s five force model helps in understanding the dynamics of an industry, considering the following factors,
a. Competitors
b. New entrants c. Industry’s ability to raise capital d. Ease of entry into industry
e. Effect of forward and backward integration f. Trends in volume, cost and profit compared with other industry
Porter’s Five Force Analysis for Vegetable Oil Industry in India
Degree of Rivalry
Following are the major solvent extracting companies in India,
1. Ruchi Soya 2. KS Oils
3. Gokul Refoils 4. Sanwaria Agro 5. Agro Tech Foods
6. Murli 7. Guj Amb Exports
8. Anik Industries 9. Raj Oil Mills 10. AVT Natural
Figure 3: Market share of Solvent extrating companies in India
Ruchisoya products include soyabean oil and vanaspati. KS oils products include mustard oil
and de-oiled cakes. Gokul Refoils products include refined oil, de-oiled cakes and vanaspati.
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Sanwaria Agro products include refined oil and de-oild cakes. Agro Tech Foods product include refined oil.
Indian vegetable oil is growing at compounded annual growth rate (CARG) of 90%. Profit
margin of vegetable oil producing companies is less than 5%. Ruchi Soya acquired Palmtech India Ltd, a palm oil producer, Gemini Edibles and Fats India
KS Oils acquired oil refinery at Haldi Port for Rs: 125 crores. KS oils also acquired palm plantations in Indonesia and Malaysia.
Palm Tech was merged with Mac Oil Palm, a holding company of Ruchi Soya.
New Entrants
On Jul 2009, Jaiprakash Associates has entered the vegetable oil industry in India, with an investment of Rs: 80 crores and plans to make a turnover of Rs: 400 crores by FY2012.
On Feb 2010, Emami has entered vegetable oil industry by launching soyabean, sun flower, mustard, palmolein products and plans to make a turnover of Rs: 300 crores in the first year
of operation.
Substitutes
Following are some of the substitutes for vegetable oil,
1. Applesauce – Applesauce is one of the substitutes for vegetable oil. Applesauce is low fat. Applesauce is used for preparing cakes, breads and cookies.
2. Coconut Oil – Coconut oil is another substitute for vegetable oil, mainly used in
Kerala. Coconut oil is heat stable, so it can be used for cooking and frying. Coconut oil is used for preparing fried snacks like – chips.
3. Melted margarine / Melted butter – Melted margarine and melted butter act as good substitute for vegetable oil and gives rich taste to food. Melted margarine
and melted butter are used for preparing cookies.
4. Prune puree – Prune puree is also a good substitute for vegetable oil. Any fruit
puree can be used for baking food.
5. Mayonnaise – Mayonnaise is a substitute for vegetable oil. Mayonnaise is used for preparing French fries, potato wedges.
Buyers
The buyers of vegetable oil are institutions, house hold, industrial buyers, food processors, restaurants.
Ruchi Soya and KS Oils have done forward integration by creating a brand for the produced
oil and selling the same through retail distribution network.
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Suppliers
The raw materials required for vegetable oil industry are mustard seeds, soya bean seed, crude oil processed, oil cakes and sun flower seed.
Ruchi Soya and KS Oils has done backward integration by acquiring huge land for cultivating oil seeds to be used in the crushing units. This will ensure constant supply of raw
materials for their crushing units.
Summary of Porter’s Five Force Analysis
Force Effect on the Industry Reason
Degree of Rivalry Favourable Increasing demand for
vegetable oil
New Entrants No Effect Low profit margin and high capital cost
Substitutes No Effect -
Buyer Favourable Oil is essential for
human
Supplier Unfavourable Limited availability of seeds from farmers
Conclusion
Because of low profit margin, high capital investment and limited availability of seeds, it becomes not attractive for new entrants. Market for vegetable oil is growing at 90% (CARG), which will increase the competition among the companies within the vegetable oil industry to
retain and increase their market share.
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Bibliography
1. Philip Kotler, Kevin Lane Keller, Abraham Koshy and Mithileshwar Jha, Marketing
Management – A South Asian Perspective, 13th Edition
2. O.C. Ferrel, Michael D. Hartline, Strategic Marketing
3. Subhash C. Jain, Marketing : Planning and Strategy, 7th Edition
4. Vithala R Rao, Joel H Steckel, Analysis for Strategic Marketing
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