ITC's Diversification Strategy


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Case Details:

Case Code : BSTR040
Case Length : 18 Pages
Period : 1994 - 2002
Organization : ITC
Pub Date : 2002
Teaching Note :Not Available
Countries : India
Industry : Varied

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS

Background Note

ITC was established by UK-based tobacco major BAT. It initially set up the Peninsular Tobacco Company (Peninsular), a cigarette manufacturing, tobacco procurement and processing unit. In 1910, it set up a full-fledged sales organization named the Imperial Tobacco Company of India Limited (Imperial). To cope with increasing demand, BAT set up another cigarette manufacturing unit (in Bangalore) in 1912.

To procure the necessary raw material (tobacco leaf), a new company, called the Indian Leaf Tobacco Company (ILTC), was incorporated in July 1912. By 1919, BAT had transferred its holdings in the Peninsular and ILTC to Imperial. Following this, Imperial replaced Peninsular as BAT's main subsidiary in India. By the late 1960s, the GoI began putting pressure on multinational companies to reduce their holdings. Imperial divested its equity in 1969 through a public offer, which raised the shareholdings of Indian individual and institutional investors from 6.6% to 26%. After this, the holdings of Indian financial institutions were 38% and the foreign collaborator held 36%. Though Imperial clearly dominated the cigarette business, it soon realized that making only a single product, especially one that was considered injurious to health, could become a problem...

ITC's Recent Diversifications

ITC has been constantly making efforts to de-emphasize its tobacco business. Its corporate strategy aimed at creating multiple avenues of growth based on its core competencies.

In line with this strategy, ITC's diverse strengths were being leveraged across three product groups - Lifestyle Retailing, Greeting Cards & Gifts and Branded Packaged Foods. The company aimed at generating 40 percent of its total revenues from such diversified businesses. To achieve this, it planned to invest around Rs. 26 billion to Rs. 28 billion in various ventures by 2006. Analysts felt that ITC's diversification, especially into areas such as branded garments, aimed at improving its brand image, which, in turn, may help it grow its core business.

Wills Lifestyle


In 2000, ITC extended one of its most valuable cigarette brands, Wills, to fashion retailing. The product was called Wills Sport (Refer Exhibit IV)...

Excerpts Contd... >>

 

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