Business Diversification

Recommendations for RISDM

Based on 2010 Study on Company

Business Activities

EXECUTIVE SUMMARY: -

India ranks among the top target countries for any company sourcing textiles and
apparel. Indeed, apart from China, no other country can match the size, spread,
depth, and competitiveness of the Indian textile and apparel industry. Moreover,
the global elimination of quotas has greatly enhanced the opportunities for
sourcing from India.

This report will give an overview of Diversification strategies that has been
recommended to RISDM in order to usually acquire new skills, new techniques
and new facilities.

The notion of diversification depends on the subjective interpretation of “new”

market and “new” product, which should reflect the perceptions of customers
rather than managers. Indeed, products tend to create or stimulate new markets;
new markets promote product innovation.

INTRODUCTION: -

This study of business diversification process is submitted by Idris Badri, CEO of

RISDM, on November 17, 2010 for recommending new business diversification
for the company. This research was conducted on the recommendations of our
consultants UWSB.
RISDM together with its subsidiaries engages in the manufacture, distribution, and
sale of fashion apparel for men and women. Its men’s apparel range consists of
casual and formal wear, including shirts, trousers, T-shirts, sweaters, shorts, suits,
and jackets; and women’s apparel range includes western wear tops, trousers,
skirts, jackets, and blouses. The company offers various fashionable accessories,
such as ties, socks, handkerchiefs, belts, wallets, eyewear, bags, and caps for men;
and chic belts, handbags, eyewear, and scarves for women.

OBJECTIVE OF STUDY (PROBLEM): -

“To identify potential Business for Diversification”

The strategies of diversification can include internal development of new

products or markets, acquisition of a firm, alliance with a complementary
company, licensing of new technologies, and distributing or importing a products
line manufactured by another firm. Generally, the final strategy involves a
combination of these options. This combination is determined in function of
available opportunities and consistency with the objectives and the resources of the
company.

This study is helping RISDM to identify the potential business opportunities

available in the market and profit which they can fetch out from new market
segment which they are going to enter with new or existing products.

According to Research and Analysis done by the company following areas or

products are suggested for business diversifications are as follows: -

1) Children Wear’s
2) Cosmetics
3) Footwear’s
4) Watches

In order to complement with the Apparels and Fashion Accessories business

with RISDM, we have find these market segments of Children wear’s, Cosmetics,
Footwear’s and Watches as more marketable segment in which the company can
expand their business activities by providing more promotional offers and
discounts on products and many other things which are profitable to the company.

Each of the product or market areas are predominantly dominated by many

major players in the market which are holding market share which can be very
tough for RISDM to make a mark in the market.

All the Business diversified market has been studied and analyze and
recommendations has been made.

CHILDREN WEAR’S: -

With the flurry of international kid’s wear brands coming to India, the
category currently seems to be on an upswing. Kids are spoilt for choice with busy
parents indulging them with expensive goodies, triggering a march of global kid’s
fashion brands and toy houses into the country.

International brands such as Monnalisa, the Versace of kids, Chicco,

Benetton Kids, Zara, Mothercare and Hamleys are all busy expanding their
presence and widening their product portfolio as kid stuff has become one of the
fastest growing segments in India.

There is a lot to look forward to in the kids wear market as it holds immense
potential within the country and also across the oceans. According to the ‘Global
market review of children's wear - forecasts 2012’, the top 10 global markets, the
US, the UK, France, Germany, Spain, Italy, China, India, Russia and Japan, are
expected to account for an estimated $131.5 billion in children’s apparel retail
sales by 2012. There is still a large part of the market that needs to be tapped,
which means a lot of opportunities for many players to enter the market. It is up to
individuals or organizations to realize the potential and break the myth of kids
wear being a complex category.

According to industry experts the kid’s segment account for just about 5 per
cent of the overall luxury market estimated at over $15 billion but its growing
faster than other segments and is also more profitable.“India has become more
fashion and brand-driven in the last 10 years. Parents are now settled on branded
clothing and they want a similar thing for their kids. Interestingly, in some way
kids are also representative of how upwardly mobile the parents are. And parents
do not lose the opportunity to prove both points.”  

As the market gets crowded, it’s the kids who are having the last laugh while
brands are competing for market share.

RISDM being a Fashion house should keen to enter the market with one of
the Fashion houses to ensure maximum market penetration to get more market
share and to gain more popularity in the market.

To offer more to Kids RISDM also can provide accessories like sunglasses,
watches, footwear’s and many things more.
COSMETICS: -

Indian cosmetics market is valued at $950 million. The key growth drivers
for the cosmetics market in India are rapid urbanization, increase in disposable
incomes, and changes in people's tastes.

The cosmetics market can be segregated into talcum powder, colour

cosmetics (lip, eye, face, and nail care products), deodorants, and perfumes. The
cosmetics market has been growing at the rate of 15-20% for the last few years.
The sector has witnessed growth mainly from medium and low priced category
that accounts for 90% of the cosmetic market.

Talcum powder is one of the most popular cosmetic products in India. Its
market is valued at Rs 3.5 billions and is growing at the rate of 12% per annum. Its
penetration level is 45.4% and 25.2% in urban and rural areas respectively. Ponds
dominate talcum powder market with a market share of 70%, followed by Johnson
& Johnson with a market share of 15%.
 Colour cosmetics are the fastest growing segment, valued at $60 million.
The major products in colour cosmetics market are foundation, compacts, eye
make-up, lipsticks, nail enamels, blush-on, etc. Lipsticks and Nail Enamel account
for 65% of the Color cosmetic segment. The nail polish segment is valued at Rs.
1.25 billions followed by the lipstick market at Rs 7 millions. All the categories in
this segment are growing at around 25-30%.

Gone are the days when cosmetics were viewed as expensive and self-indulgent
items. Greater access to television, increased advertisement, growing awareness of
western world, and greater product choice and availability have resulted in
growing demand for cosmetic products.

However, the penetration level of cosmetics and toiletries product is still very low
in India. The per capita expenditure on cosmetic products in India is approximately
$0.68 cents compared to $36.65 in other Asian countries. The penetration level of
international cosmetics brand in India is also low. International brands account for
only 20% of the cosmetics market. This low level of market penetration can be
perceived as an opportunity for major players in FMCG sector.

The Indian cosmetic market that comprises skin care, hair care, colour
cosmetics, fragrances and oral care categories is primarily dominated by major
players such as Hindustan Unilever Ltd (HUL), Procter & Gamble (P& G),
Emami, Godrej, Himalaya and Dabur.

RISDM being a Fashion house should keen to enter the market with one of
the Fashion houses to ensure maximum market penetration to get more market
share and to gain more popularity in the market.
 RISDM may offer many attractive prices with the Apparels to the Women
and Men’s Sector by enlarging the market share in this segment by entering into
Joint Ventures or Mergers with any of the industry.

FOOTWEAR’S: -

India is emerging as a major footwear market with the rising awareness of

fashion in the country. The footwear market is driven by increasing disposable
income and willingness to spend on accessories among consumers. Many global
players are gradually entering the market eyeing its large potential and future scope
of profit.

The report begins with an introduction to the footwear market including the
market size and growth, volume share and the share of various categories of
footwear sold. It further shows overall import and export of footwear as well as the
segmented share for major countries. 

An analysis of the drivers explains growth factors such growth in income

and increasing fashion consciousness among consumers, increasing organized
retail space, rising international demand for leather footwear, availability of skilled
manpower and abundance of raw material. The key challenges identified include
affordability and import from China. The report identifies the key trends including
foreign brands entering the market, India emerging as the shoe manufacturing hub,
apparel brands entering the footwear market and manufacturing therapeutic shoes.

Competition section provides a snapshot of the players in the market

including information regarding their operational segments, business highlights
and financials, providing an insight into the existing competitive scenario.
 Brands which are currently ruling the market are Lee cooper, Bata, Reebok,
Nike, Adidas, and Woodlands. In order to curb market share RISDM need to have
a proper alliance with these brands in order to raise the market share of the
company.

WATCHES: -

Wrist Watches form an integral part of the personality of individuals in the

present era. Earlier seen as a luxury item, they are now witnessing a fundamental
change in perception, and are now gaining respect as an essential utility item. For
the watch industry, time seems in its favor what with the liberalization of the
Indian market coupled with the rising purchasing power of the young and
consumerist Indians.

Indian watches market was for long dominated by public sector

organizations like Hindustan Machine Tools Ltd. (HMT) and Allwyn (also famous
for its refrigerators once upon a time!), and has now left the pioneers far behind or
nowhere in market by private sector enterprises like Titan, Sonata, Ajanta and
Timex along with foreign entities jostling for display space in the smallest of shops
selling these products.

The market stood to witness intensive competition between foreign and

Indian manufacturers like Timex, Titan, Movado, Longines, Rado, Rolex,
Fréderique Constant, Mont Blanc, Swatch, and many others. Many watch makers
have made significant inroads in the industry and others are in the process of
establishing themselves, currently.
 Besides this, buyers are extremely choosy about the brand and type of wrist
watches they wear. Being extremely brand conscious, their tastes have evolved
over the years and have gone beyond the realms of durability to choose in terms of
aesthetics and elegance. Thus it is a buyers market with multitude of designs that
have entered and flooded the market place.

The size of the watch market currently is estimated to be around 40 to 45

million pieces annually. The organized sector alone contributes up to 30 percent of
this figure, and the rest of the demand is being met by the unorganized grey sector.
This data is significant indeed in view of the socio economic distribution of the
Indian populace. More than 58 percent of the population is under twenty five and
more than 80 percent of the population is below 45 years of age.

By the available data RISDM has the opportunity to penetrate the Market by
entering the market through their own brands that is RISDM watch series or have a
Joint Venture with any brands to regulate sales and market share.

RISK INVOLVED: -

Diversification is the riskiest and requires the most careful investigation.

Going into an unknown market with an unfamiliar product offering means a lack of
experience in the new skills and techniques required. Therefore, the company puts
itself in a great uncertainty. Moreover, diversification might necessitate significant
expanding of human and financial resources, which may detracts focus,
commitment and sustained investments in the core industries. Therefore the firm
should choose this option only when the current product or current market
orientation does not offer further opportunities for growth.
In order to measure the chances of success, different tests can be done:

 The attractiveness test: the industry that has been chosen has to be either
attractive or capable of being made attractive.
 The cost-of-entry test: the cost of entry must not capitalize all future profits.
 The better-off test: the new unit must either gain competitive advantage from
its link with the corporation or vice versa.

Because of the high risks explained above, many companies attempting to

diversify have led to failure. However, there are a few good examples of successful
diversification.

RECOMMENDATIONS: -

There are two dimensions for diversification,

1) The first one relates to the nature of the strategic objective: - diversification
may be defensive or offensive.

Defensive reasons may be spreading the risk of market contraction, or being

forced to diversify when current product or current market orientation seems
to provide no further opportunities for growth. Offensive reasons may be
conquering new positions, taking opportunities that promise greater
profitability than expansion opportunities, or using retained cash that
exceeds total expansion needs.

2) The second dimension involves the expected outcomes of diversification: -

 Management may expect great economic value (growth, profitability) or first
and foremost great coherence and complementary to their current activities
(exploitation of know-how, more efficient use of available resources and
capacities). In addition, company may also explore diversification just to get
a valuable comparison between this strategy and expansion.

CONCLUSION: -

By examining the detailed report on business diversification I would like to

conclude that:

1) RISDM should identify their market in which they have to divest their
business. In order to get full potential of the market or available resources
RISDM have to investigate their business partners or new ventures which
they wanted to enter.
2) The market or products which have been selected for entry in the new
market is already established in the market by big brands player and having
a good market share in the market.
3) RISDM needs to investigate the feasibility and profitability of the market in
which they are opting to enter to ensure the business diversification is not a
failure and this would not add any bad impression to company’s image and
brand.
4) As the company having a wide reach in the market through their prozone
and promart all over the country the penetration in the market with new
 products and new market segments will not involve much cost but entering
into new market and new products the company has to invest heavily in
machineries, Human resource and production as to sustain the quality which
competitors are providing.
5) In order to penetrate the market and to earn a maximum out of People,
Company has to choose the appropriate method to enter in the market either
by Joint Venture, Mergers and acquisitions or by his own Brand name
RISDM.