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W27690

JINDAL STAINLESS LTD: THWARTING COUNTERFEIT PRODUCTS

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Archit Vinod Tapar, Somraj Bhattacharjee, Jitender Kumar, and Amol S. Dhaigude wrote this case solely to provide material for class
discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may
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Copyright © 2022, Ivey Business School Foundation Version: 2022-11-30

Heading home late in the evening on July 12, 2019, Abhyuday Jindal, the 31-year-old managing director of
Jindal Stainless Limited (JSL), found that his mind was racing as he considered two meetings. One had taken
place earlier that day with representatives of some of India’s largest and most well-established distributors of
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stainless steel (SS) pipes, and the other was scheduled for first thing the next day with JSL’s sales team. He
knew that JSL’s sales team had spent the last two weeks preparing for the distributors’ meeting so they could
address distributors’ concerns and share accurate and relevant market-level information. One particular point
raised at the distributor’s meeting was of keen interest to Abhyuday: the prevalence of counterfeit goods in
the SS pipes and tubes (P&T) market. How could JSL and Abhyuday find a way to address the counterfeit
goods that were adversely impacting the company and its distributors and customers? Abhyuday planned to
get on top of this in the meeting scheduled with JSL’s sales team for the following day.
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BACKGROUND: ABOUT JINDAL STAINLESS LIMITED

Founded in 1970, JSL was based in India and was a leading manufacturer of all types of SS products,
including flat sheets and coils, special sections, pipes, and tubes. The company had a SS melt capacity of
1.1 million metric tons per annum (MTPA), an annual crude steel capacity of 1.9 million MTPA, and annual
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net sales of US $2.70 billion.1 JSL operated a state-of-the-art SS manufacturing unit in Jajpur in the state
of Odisha and generated high net earnings before interest, tax, depreciation, and amortization (EBITDA)
and revenue for its stakeholders. The company was working on further expansion, with a planned capital
expenditure of US $280 million to increase its production capacity to 3.2 million MTPA.

ABOUT THE PRODUCT

A pipe was a hollow segment with a round cross-section used to transport liquid or solid materials. Fluids,
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gas, pellets, powders, and other items were among the materials that could be transported via pipe. On the
other hand, a tube was a hollow segment which came in round, square, rectangular, and oval shapes; it was
used as a part of a pressure apparatus, for its mechanical applications, or as part of instrumentation systems.
Decorative pipes and tubes were the same as the industrial ones, except they were not used to pass any objects.

1
All dollar amounts are in US$ unless otherwise specified.

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Their uses included railings, gates, benches, furniture, door handles, decorative items (such as curtain rods

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and metal handicrafts), facades, automobiles (guards), electric vehicles, and structural and modern artwork.

AN OVERVIEW OF INDIA’S STAINLESS-STEEL PIPES AND TUBES MARKET

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The SS P&T market in India was heavily diversified and highly competitive, with many large and small
companies vying for a limited customer base. The estimated annual growth of the P&T market was over 10
to 12 per cent and was heavily dependent on a few market segments, including the architectural,
engineering, fabrication, real estate, and automotive sectors (see Exhibit 1). Most SS P&T customers
purchased products from the domestic market for direct consumption, and the products were for end-use
applications only. The market was distributed unevenly between large and small players who focused
variously on quality and cost optimization factors in order to capture and retain customers. Decorative SS

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P&T were sold with and without branding. Many P&T manufacturers established their brands based on the
quality of pipe and its finish. This practice allowed P&T manufacturers to offer branded products that set
them apart in an otherwise crowded market overpopulated with secondary products of inferior quality.

ABOUT THE COUNTERFEIT MARKET

Counterfeit products were unauthorized replicas of genuine products that bore a trademark that was
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identical to, or indistinguishable from, a trademark registered to another party and infringed on the
trademark holder’s rights.2 Counterfeiting was a major challenge for most of the leading steel manufacturers
in India.3 JSW Steel Limited (JSW), another large-scale steel manufacturer operating in India, undertook a
television campaign to address this issue.4 Counterfeiting was a problem not only for the manufacturers of
primary steel products but also for their distributors and channel partners, since it resulted in reduced
revenue for all channel members. Counterfeiting also reduced the number of quality steel products being
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supplied to end users, who then ended up with sub-par quality SS products used in their infrastructure,
engineering, and fabrication projects. JSW had adopted a two-pronged approach to address this issue.5 First,
JSW conducted raids on facilities that were sources of counterfeit products. Second, the company developed
tamper-proof, non-erasable markings for their products. This enabled JSW to easily track its original
products while mitigating possible sources of counterfeit goods.

Counterfeit P&T products had also caused significant havoc in other markets. Chinese SS manufacturers
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such as Zhejiang Guanyu Steel Tube Co., Limited faced substantial challenges in addressing quality-related
complaints due to counterfeit products in the market. Other Chinese SS companies focused on customer
education to help make the end user more aware of the benefits of using genuine materials.6

Some small P&T manufacturers might purchase cheap material from the secondary market to products, and
masquerade these counterfeits as JSL products. Any P&T manufacturer that did not use JSL’s raw material,
but marked and sold their P&T labeled as “Jindal Raw Material,” “Jindal RM,” or “Jindal 304JT” was
2
Xuemei Bian, Kai-Yu Wang, Andrew Smith, and Natalia Yannopoulou. “New Insights into Unethical Counterfeit
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Consumption,” Journal of Business Research 69, no. 10 (2016): 4249-4258.

3
IndianTelevision.com Team, “JSW Steel Leads Fight against Counterfeit Steel,” March 20, 2018, accessed June 24, 2022,
https://www.indiantelevision.com/mam/media-and-advertising/ad-campaigns/jsw-steel-leads-fight-against-counterfeit-steel-180320.
4
IndianTelevision.com Team, “JSW Steel Leads Fight against Counterfeit Steel.”
5
Business-standard.com, “JSW Steel Conducts Series of Raids Against Counterfeiters,” December 7, 2017, accessed
November 24, 2022, https://www.business-standard.com/article/pti-stories/jsw-steel-conducts-series-of-raids-against-
counterfeiters-117120500781_1.html.
6
Tubingchina.com, “How to Identify Fake Steel Pipes,” accessed September 21, 2022, https://tubingchina.com/Identify-Fake-
Steel-Pipe.htm.

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considered a counterfeit manufacturer. JSL had long faced this issue; the company estimated that over 25

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per cent of P&T sold annually in India was counterfeit, but was labeled with JSL’s branding. These
counterfeit P&T products were priced aggressively and sold at a price that was 10 to 15 per cent lower than
genuine JSL products, eating into JSL’s share of the market. Buyers in the P&T market were extremely
price conscious, so the lower prices of counterfeit products were attractive to them. JSL’s sales team
reported losing sales from regular customers due to counterfeit goods.

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Unfortunately, the end consumer could not readily distinguish pipes made from JSL’s quality raw material
from inferior counterfeit ones. The selling of such products meant a wide availability of poor-quality SS
P&T that caused dissatisfaction amongst customers and harmed the company’s brand reputation, its trade
partners, and the overall reputation of SS as a material.

JSL’S P&T DISTRIBUTION

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JSL supplied much of the raw material used to manufacture SS P&T in India and had been a market leader
for many years in the automotive, engineering, and architecture markets. The P&T market had seen significant
year-on-year growth in recent years, and distributors worked with JSL and other major brands to get the best
quality material for their customers. This had helped JSL establish a solid brand reputation in the market, and
the company was able to leverage significant goodwill and equity with its customers. JSL’s management knew
that its distributors played a critical role in reaching the end users of the products and that the company’s
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relationships with distributors needed to be nurtured for long-term profit maximization.

Over time, a few competitors entered this segment with inferior products that failed the requisite quality tests
and were deemed unfit for primary consumption. This inferior raw material was widely circulated and had
issues including lack of proper polish, cracking, and slivers. Due to these quality issues, the majority of
domestic P&T manufacturers realized the need for high quality products from trusted and dependable sources.
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With this view, JSL’s sales team, led by regional sales head Payoj Jindal, held a meeting with distributors on
July 12, 2019. Abhyuday had asked JSL’s sales manager Narendra Sandhu to handle the event, which was
used as an opportunity to interact with distributors and get their perspectives on the market.

THE MEETING WITH THE DISTRIBUTORS

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During the meeting, a few distributors approached Abhyuday to raise the significant problems they had
faced with counterfeit products in the market. Counterfeit goods sporting JSL’s brand name had been eating
into the company’s market share and causing problems for JSL’s trusted distributors. These counterfeit
goods were cheaper than genuine JSL products, and their inferior quality had significantly diluted
customers’ trust in the JSL brand. The distributors who approached Abhyuday were worried about the loss
in market share and brand equity of JSL and requested that Abhyuday act on this matter urgently. JSL’s
sales team had also flagged this problem for Abhyuday, stating that they were also getting quality-related
complaints from partners. The sales team felt it was vital to differentiate between the counterfeit products
on the market and the genuine products JSL was selling.
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JSL’s P&T products did not carry the JSL logo, which was a critical gap that had to be addressed by the
company. Abhyuday was surprised to find out that despite JSL having a well-known brand, the mother coils
used to make JSL’s P&T did not carry any clear visual indicator that they were JSL products. This was
because the mother coils and sheets that carried the original embossing of the brand only had the brand’s
markings on one corner of the sheets. Once those sheets were used to make pipes, the finished products did
not have any specific indicator of the brand. This contributed to the prevalence of counterfeit products in

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the market and led to losses for JSL. Abhyuday immediately asked Payo, Narendra, and their team to meet

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with him the next morning to further address the counterfeit issue.

THE DISCUSSION WITH THE SALES TEAM

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Abhyuday and JSL’s sales team needed to brainstorm solutions to the distributors’ issues, and Abhyuday
wanted a plan of action as soon as possible. The next day, after exchanging greetings, Abhyuday shared
about his conversations with distributors and the worries they faced. Looking at Payoj and Narendra with
hope, he started this conversation:

Payoj: You look a bit worried. What’s the matter?

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Abhyuday: It’s about the distributors’ meeting yesterday. My conversations with the distributors
raised some serious concerns. A few partners are worried about the prevalence of
counterfeit products in the market and the problems they cause. It negatively affects
trust in JSL, our brand image, and our market share. Counterfeit products are impacting
our bottom line now and will continue to in the long run. If we don’t act fast, we might
end up losing some significant business. I’ve been thinking about solutions, but I need
your insights. How can we solve this serious issue?
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Payoj: Yes, we’ve already started seeing the harmful impacts of counterfeit products and have
already lost market share to small-time counterfeiters putting the “Jindal” brand name
on poor quality products. Their price points are much lower than market prices, which
eats away at our margins.
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Narendra: Payoj and I have brainstormed some options and that we think are worth considering:
1. We could create a dedicated company-sponsored distribution channel—but the
cost-benefit analysis of this could be very high.
2. We need to begin legal recourse to address the counterfeiting, including sending
notices and orders to show cause to counterfeiters. This step would take time and
requires patience.
3. Depending on the scale of counterfeiters’ operations, we could take more
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aggressive legal action by financially penalizing them. We would need to involve

local administration and jointly file a first information report with local police for
to begin intervention. This type of action could lead to huge incremental costs,
including handling costs, administrative overheads, and lost sales. These costs
would need to be covered by penalty clauses and indemnities. Beyond the financial
aspect, there are issues in managing the negative impact counterfeit goods have on
our sales processes. Sales executives and managers would have to spend time
interacting with local authorities, which would take time that could have been used
to focus on improving sales.
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Abhyuday: These are all good suggestions, but they will take too long to show results. We need to
do something more impactful—and the sooner the better. . . Tell me, which distributors
still want to do business with us and stand out in the market for having high quality
products? Would they be interested in co-branding?

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Narendra: This option makes a lot of sense! We have received several inquiries from distributors

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that are keen to work with us. To go ahead with a co-branding initiative, we need to put
a systematic standard operating procedure in place to work with the JSL’s distributors
to fight counterfeit products.

Abhyuday: Last I heard, most of our distributors were reluctant to come on board and get involved

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with us. What made them change their minds?

Payoj: Over the last few months, the market landscape has changed. JSL’s distributors want to
distinguish themselves from their local competitors and assure customers of a quality
product by having the JSL brand marked on their SS pipes. We could sign a
memorandum of understanding [MoU] for a co-branding initiative. The initiative would
empower over 142 P&T manufacturers [the decorative market segment, including JSL
and Jindal Stainless Steelway Ltd., a subsidiary of JSL] as MoU partners and allow them

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to use a standard JSL seal on the decorative P&T they manufacture.

Abhyuday: Sounds great. But how do we plan to turn around market performance based on this
initiative? What numbers are we envisioning?

Payoj: The estimated annual growth of the P&T segment is 10 to 12 per cent. JSL’s market
share is expected to increase by seven per cent after phase 1 [FY 19-20] of the co-
branding campaign. Our company’s current market share was around 44 to 50 per cent,
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and our target market share for fiscal year 2020-21 is 60 per cent.

Abhyuday: These numbers are steep, but the ideas are worth thinking about. We need to do more
work before we can move this forward. Let’s meet again tomorrow once we have a plan
in place and find out what can be done next.
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THE WAY FORWARD

Abhyuday had to decide how to address the challenges discussed during the distributors’ meeting and his
subsequent meeting with the sales team. What should the strategy be to address the issues faced by JSL’s
distributors? How could JSL ensure the number of counterfeit products in the market was reduced? Could co-
branding be a solution, and if it was, how could JSL ensure a co-branding program’s success? Would this
solution be sustainable and effective, considering the varied business interests of the groups involved? How
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could the JSL team address the concerns of distributors who might be reluctant to join a co-branding initiative?

These questions needed to be addressed urgently.

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EXHIBIT 1: SEGMENTATION OF MARKET SHARE FOR STAINLESS STEEL PIPES AND TUBES

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Segment Market Share of SS P&T
Consumption (%)
Architecture (railings and gates) 22
Furniture 16
Decorative items 28

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Auto and EV 18
Structural and artwork 8
Facades 8

Source: Prepared by the case authors based on company documents.

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copyright. Permissions@hbsp.harvard.edu or 617.783.7860