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After initial jump, Godrej faces challenge of driving steady growth

After initial jump, Godrej faces challenge of driving steady growth
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First Published: Wed, Jun 01 2011. 10 15 PM IST
Updated: Wed, Jun 01 2011. 10 15 PM IST
Mumbai: The threefold jump in Godrej Consumer Products Ltd’s revenue from international operations has a simple explanation—five of their eight international operations were acquired in the year ended March. Now the hard work begins—making these acquisitions count beyond the initial bump in sales and profit.
The company’s strategy is aimed at leveraging those areas in which it already has a competitive advantage. The company’s shopping spree hasn’t ended—on Wednesday, it announced the acquisition of a 51% stake in African hair care firm Darling Group Holdings that can be raised to 100% in three to five years.
“We believe that what we know is how to serve an emerging market consumer and having worked and operated in India at the bottom and the middle of the pyramid for 114 years we have learnt what it takes to be successful in serving emerging market consumers,” said Shashank Sinha, head of international operations, whose task it will be to bring the various businesses under a common platform and drive performance.
Godrej Consumer is looking to drive synergies in four main areas—cross pollination of brands and products, using scale in manufacturing, procurement and supply chain management to its advantage, sharing of best practices among the various companies acquired and from the diversity of people who came with these acquisitions.
“We think we can take that approach, that discipline, that expertise and transfer it across to other places where emerging market consumers are being served,” Sinha said.
The biggest task that he faces is turning the company into one that’s truly global.
“They have gone about their acquisition strategy in a smart way but for Godrej Consumer, transforming itself into a real multinational is the biggest challenge,” said Pinakiranjan Mishra, partner, retail and consumer practice, Ernst & Young.
Under Sinha, a structure has been put in place with an international centre at the corporate headquarters in Mumbai to give clarity to the international operations in terms of accountability, responsibility and focus on deriving synergies.
“Eventually, it is my responsibility to bring it all together. I have to be on the ground in all the countries we’re present in with our local businesses understanding what they do and they have somebody they can jump to as a single point of contact for their issues,” he said.
The international office will act as a nerve centre with executives carved out of a team of about a dozen specialists looking at various functions providing corporate support to the various offices spread across the globe.
The first kind of synergy will be identifying white spaces—to try and see if any of the new products it has acquired in one geography can be introduced in another one in which it has gained a presence.
For example, it’s the market leader in air fresheners in Indonesia but the Indian market hasn’t developed in this space. Or, it’s the leader in the ethnic hair colour market in South Africa but isn’t present in this space in the rest of Africa.
Godrej Consumer also identified that most emerging markets have huge untapped potential for household insecticides such as its market leading mosquito repellent brand Good Knight.
The international units represent about a third of the business, Sinha said.
“It’s a business that we’ve stitched together in a series of acquisitions which plays to our 3x3 growth strategy and we’re focused very much on consolidating them, integrating them and driving synergies,” Sinha said.
The 3x3 strategy refers to the company’s goal of being present in the continents of Asia, Africa and South America in the three core categories of home care, hair care and personal wash.
Sinha, an emerging markets specialist who earlier worked with companies such as Reckitt Benckiser in India, Argentina and Brazil, Sara Lee in South East Asia and China, and private equity buyout fund Navis Capital Partners, took over a day before the first meeting of the global top brass.
“Our focus going forward is to build a one Godrej philosophy, a team that works as an emerging market multinational team where we’ll be looking to leverage our synergies both in terms of products as well as in best practices as well as in people, in terms of processes,” he added.
Over the past year, Godrej Consumer has acquired Nigerian personal care brand Tura, Indonesian household products company Megasari, the 51% it didn’t own in joint venture Godrej Sara Lee and Argentine hair colouring and care brands Issue and Argencos to add to its international portfolio of Keyline, Kinky and Rapidol.
As competition in India intensifies, local consumer goods makers are looking for newer markets abroad to occupy spaces or categories that aren’t populated by the global multinationals.
Indian consumer goods firms have in the recent past gone on an aggressive growth path mainly through acquisitions—both overseas and local. Consumer goods, food and beverage, retail and department stores space has already recorded 45 transactions worth $210 million year to date, according to data from Dealogic. In 2010, the space had recorded a total of 122 transactions valued at $2.20 billion.
Then there is the obvious boost to the bottom line from savings derived from the larger scale of procurement and manufacturing that will allow companies to drive harder bargains.
“Some of these synergies will happen immediately, some will take the short to medium term to realize,” he said.
Still, despite the potential, challenges will remain. Geopolitical risk accompanies any company looking at various geographies while inflation is a common issue with most emerging markets.
Mishra says the integration exercise will need to infuse the agility and speed of the Indian organization into the companies abroad without changing their character completely.
“It is important to take the positives from India into their global acquisitions, but it’s also equally important for best practices from overseas to permeate here,” Mishra said.
Then there’s the matter of getting Indian managers and global staff to work well together.
“They might not always have the management bandwidth to send people overseas and even if they do, learning cultural nuances quickly while also dealing with on-ground challenges isn’t going to be easy, though the opening of the international centre is a good start,” Mishra added.
Godrej Consumer’s main challenges would be managing its cost structures given the high volatility in the commodities market, according to Anand Ramanthan, manager at advisory firm KPMG, who looks at the consumer packaged goods space.
“Other areas of integration and optimization involve looking at manufacturing integration, which is capital intensive and weeding out overlap in sales operations. It will take two years to consolidate and stabilize all these operations,” Ramanathan said.
This is something Sinha realizes, which is why prioritizing has been given importance. Every country has been tasked with identifying its three main priorities for the current fiscal that keeps the overall priority of the mother company in mind.
john.k@livemint.com
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First Published: Wed, Jun 01 2011. 10 15 PM IST