FMCGs: In the fast lane, globally

A Rs2,200 crore (by revenues) fast moving consumer goods (FMCG) company, Dabur India Ltd—which sells brands such as Vatika Hair Oil, Dabur Chyawanprash, Dabur Hajmola and Babool toothpaste—is usually referred to as a home-grown Indian company floated by an Indian business family. Few would know that around 14% of its turnover comes from international operations.

The company, based on the outskirts of New Delhi, is present across Europe, America, Africa, and the Far East. It has an on-ground presence—with its own manufacturing plants—in countries such as Nigeria, Egypt, Dubai, Bangladesh and Nepal. Its products are marketed in more than 50 countries.

With its global business having achieved a certain scale, Dabur—which primarily sells personal care, health care, home care and ayurvedic products—plans to acquire overseas companies. In a recent meeting with investors, the company said it has readied a $200 million (around Rs800 crore) war chest, primarily for acquisitions in global markets. “We hope to generate 17% of our total revenues from international operations by 2010,” says Duggal.

Dabur is not the only Indian FMCG company exploring opportunities in global markets. In the past two to three years, domestic firms such as Tata Tea Ltd, Marico Ltd, Dabur India Ltd, Godrej Consumer Products Ltd (GCPL), Wipro Consumer Care and Lighting (WCCL) and CavinKare Pvt. Ltd have entered various global markets through acquisitions, alliances, and their own subsidiaries.

See: Global reach (PDF)

The Indian FMCG industry’s global campaign, which started around seven years back, was led primarily by the need to fight the slowdown in the domestic market. In early 2000, with consumer finance becoming more accessible and cheaper, most consumers were seen shifting their spends to consumer durables such as televisions, refrigerators, washing machines and even automobiles. There was a decline in the demand for FMCG products. Rural demand was also hugely subdued during the period. This was reflected in the fact that the sector grew at the rate of 0.4% between 2001 and 2004.

To fight this slowdown, Indian FMCG firms began exploring markets abroad, especially those that had a substantial population of Indian origin. And the drive that started with neighbouring countries such as Bangladesh, Nepal, and the UK (because it has a huge South Asian population), has now spread to more than a dozen markets. In the past three years, Indian FMCG firms have acquired around 15 companies across markets such as Bangladesh, West Asia and South Africa.

The global drive of Indian FMCG companies is guided by a few crucial factors. One is the niche factor. These companies are focusing on niche categories to avoid competition.

“We acquired the (South African hair accessories) Kinky brand as it was a market leader in a completely unique line of business of hair braids, human hair extension, wigs and other haircare products,” says Hoshedar K. Press, executive director and president, GCPL.

The second plank of the globalization strategy of these companies is localization. The companies are customizing their mass brands to suit local needs in different markets. Marico, for instance, sells special perfumed oils in Bangladesh, while marketing hair creams and oils that have lower coconut oil content in West Asia. CavinKare sells only those of its products which offer a unique proposition in the local market. It sells shampoos and fairness creams only in Bangladesh, while marketing hair creams and oils in West Asia. “Our most popular brand, Chik shampoo, is not sold in the Gulf because the low-priced brand might not find its relevance there,” says Ramesh Viswanathan, vice-president, marketing, CavinKare.

Another factor guiding the global expansion is the presence of the Indian diaspora. For instance, one of the largest brands in Dabur’s stable, Dabur Amla Hair Oil, has been widely accepted by the Indian diaspora in West Asia. The company claims that it is now as successful a brand in this market as it is in India. “The growing base of ethnic Indians abroad provides us an emerging opportunity,” says Duggal. Agrees Viswanathan: “We have products and brands that can reach larger audiences than (in) India. So, we can easily cater to (the) ethnic Indian population.”

Globalization has helped these firms manage and innovate their product offerings by entering new categories in foreign markets, importing new brands into India and effecting new strategies based on the “reverse learnings” gleaned from the process.

Marico, for instance, first launched Parachute cream in West Asia, and the response to the product there guided its decision to introduce it in the Indian market. “Modern trade is fairly evolved in some of the markets we participate in, and there are reverse learning opportunities as well,” says Vijay Subramaniam, chief executive officer, international business group of Marico.

Godrej’s acquisition of the UK-based Keyline Brand led it to introduce the latter’s shaving gel brand, Erasmic, in the Indian market, where it already sells Godrej Shaving Cream. The company plans to launch more international brands, while exporting its own brands to markets such as South Africa, West Asia and China.

Different league

Some companies such as Tata Tea Ltd and WCCL have taken the globalization move to a different level. Tata Tea, once a commodity player in the tea business, is now a significant global player, thanks to its acquisition of Tetley in 2000. International business now contributes more than 70% of its total revenues.

The company has so far spent more than Rs2,000 crore to buy companies across the world. These acquisitions have helped it move away from the low-growth black tea segment towards herbal and green tea, segments that are becoming more popular. “Tata Tea plans to focus on high-end speciality teas and enter new beverage product categories,” says Percy Siganporia, managing director, Tata Tea. “The company will continue to make acquisitions to strengthen their portfolio.”

WCCL, a unit of technologies firm Wipro Ltd, also leveraged a foreign acquisition to good effect. Around 40% of its revenue comes from its international business; almost half of this is from the recently bought Singapore-based company, Unza Holdings Pte Ltd.

“The big advantage from foreign business is that our products get benchmarked on international parameters. We also get access to a new set of competition, and our strategy gets upgraded because of this,” says Anil Chugh, vice-president, WCCL. The company plans to enter new categories such as male grooming and skincare in India, riding on brands from Unza.

For now, home-grown companies’ overseas strategy involves both big and small purchases. But as Indian companies grow, analysts expect these companies to pursue more ready-made businesses.

“Many of these companies are sitting on huge cash flows, and these buyouts help them boost their top line significantly without much effort,” says Anand Shah, an analyst with Angel Broking Ltd, a Mumbai-based brokerage.

The acquisition strategy has worked well enough for companies to earmark a higher portion of their revenue target from foreign markets and seek more buyouts.

GPCL, which derived 25% of its Rs953 crore revenue in fiscal 2005-06 from acquisitions, is now looking for more buys that will take the share to 50% in a few years.

“It is imperative to focus on international markets to operate on a global scale and transform the company into a multinational,” says Press of GCPL. In the past two years, the company has made four acquisitions; the latest is Kinky, bought last month.

Marico, too, has been aggressively pursuing foreign acquisitions since 2005. It recently bought the consumer division of South Africa’s Enaleni Pharmaceuticals Ltd. The company is seeking to increase the 15% share of foreign markets in its earnings to 20% in the next two years.

Besides acquisitions, these companies are also setting up subsidiary units abroad. Recently, Marico set up a greenfield manufacturing facility in Egypt, while Dabur established a $4 million toothpaste manufacturing base in Nigeria.