MEMO

To

Deepankar Agarwal

Partner,

Ajanta Packaging

From

Piyush Tripathi

Executive Assistant,

Ajanta Packaging

25th April 2013

Sub:- Regarding the situation of the glass industry and business of Ajanta Packaging

SITUATIONAL ANALYSIS

In the year 2010, the global packaging industry was US$500 billion. According to the world
packaging organization, it grew at a CAGR of 3.1% for ten years. Simultaneously, the Indian
packaging industry of US$14 billion had grown at 15%. Within the Indian packaging
industry, 80% of the market share was of rigid packaging- which involved glass bottles, metal
cans, and others. And 20% of the market share was for flexible packaging materials. Over the
past few years, Ajanta Packaging had worked on improving the efficiency of supply chain
and logistics, diversification of products, improving quality, and providing customized
service to the market. But the company faced adversities in the form of market competition,
availability of cheaper alternatives, global recession, technological advancements, changing
consumer behavior, and consumption pattern. The sales of Ajanta Packaging increased from
US$ 61million to US$ 102million during 2008-2012 (an increase of 67.2%). The total
income saw an increase of 71.04% from US$ 63.2 to US$ 108.1 during 2008-12. The total
expenses of the company grew from US$ 37.9million to US$ 82.2 million during the same
period (an increase of 116.8%). On the other hand, the net profits of the company increased
only by 2.3% from US$ 25.3 million to US$ 25.9 million during the same period.

To understand the competitiveness in the market and the stagnant profitability of the
company, we will analyze the situation using Porter’s framework.

THREAT OF NEW ENTRANTS IN THE INDUSTRY (LOW)

The possibility of new entrants in the glass industry is relatively low because most of the
sectors like pharmaceuticals, FMCG, and IMFL have started using alternatives to the glass
bottle. Ajanta does not face any stiff competition within the glass industry. The customer
segment of Ajanta is loyal, and the company can continue enjoying the niche position
because of the cost-effective and time-bound customized service they provide to the
customers.

INDUSTRY RIVALRY (HIGH)

The market size of the glass industry is shrinking rapidly. The consumers are shifting from
glass bottles to other alternatives. These alternatives have a competitive advantage over glass
bottles because they provide extra benefits against environmental factors like moisture, heat,
and chemical reactions. In addition to this, they are also cost-effective. Due to the increase in
industry competition, Ajanta Packaging’s operating costs have increased, and the profit
margins have declined.

THREAT OF SUBSTITUTE PRODUCT (HIGH)

Soft drinks, Pharmaceuticals, and FMCGs started shifting to other mediums of packaging like
PET bottles, aluminum cans, and tetra-paks. Tetra-paks provided better reliability, protection,
and cost-advantage over the glass packaging. According to Mr. Sridhar, MD of John
Distilleries, it cost Rs. 2.35 to pack in tetra paks instead of Rs.4 for glass bottles. A similar
kind of threat is being faced by glass bottles in other sectors also.

POWER OF SUPPLIERS (LOW)

Ajanta packaging enjoys a niche position in the glass industry. Professional expertise,
flexibility, and time-bound delivery built a competitive advantage of Ajanta packaging over
other companies in the market. All these factors enabled Ajanta to have a high bargain power
with the suppliers.
POWER OF BUYERS (HIGH)

With the change in consumer behavior and consumer demands, increased need to find cost-
effective solutions, and deliver high quality and reliable products, the expectations raised.

PROBLEM STATEMENT

What should be the strategy of Ajanta Packaging to increase profitability? Should the
company look to expand into other packaging industries or continue working in the glass
industry?

Total words of Main Body (563)