Wayamba Polymers (Pvt) Ltd, Sri Lanka1

Wayamba Polymers is a Sri Lankan company that manufacturers and markets

several sizes of water storage tanks, under the brand name WYKE. The company name,
Wayamba, comes from the region of the country where the manufacturing plant is
located. The brand name “WYKE” is a combination of the name of the company, and the
Sinhalese term for “watering hole”. Wayamba’s head office is in Mirihana, Kotte, with
the manufacturing plant about 40 km north of Columbo. Wayamba has 30 factory
employees, and 43 employees overall, and an annual turnover of Rs. 75 million in year
2000.

History of Wayamba Polymers

Wayamba Polymers was established in 1995 and began production in 1997. The
company manufactures a rotomoulded water storage tank from a polyethylene raw
material which is both ultraviolet stabilized and of food grade. The tank is made in four
sizes: 300-liter, 500-liter, 1000-liter and 2000-liter. The company has the capability of
manufacturing hot water and diesel storage tanks with the same moulds using the same
technology but different pigmentation (water tanks being white, other tanks in non-white
colors). As of early 2001 Wayamba have not produced other tanks because the domestic
market was perceived as too small to be of interest.
The inputs to the production process for water tanks are the two, rotomoulding
machines, a pulverizer, moulds for each product size, and a spray painting machine. The
equipment, chemicals, and liquid petroleum gas are all available on the world market.
The annual production capacity for water tanks using one rotomoulding machine
was 6000-7000 tanks. Working three shifts and 24 hours a day, annual capacity increases
to about 18,000 tanks of different sizes. Wayamba had purchased its first rotomoulding
machine in Europe and had attained three-shift capacity utilization by 1999. Rather than

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This case was prepared by Sujeevi Sapukotanage, Open University of Sri Lanka, and Donald N.
Thompson, York University, Toronto, as the basis for class discussion and not as an example of a proper or
improper handling of a managerial situation. Some company and industry statistics are disguised.
Financial assistance for the preparation of this case was provided by the Asian Development Bank.

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purchasing a second machine to increase capacity, Wayamba’s technicians designed and
built their own machine, and in doing so discovered they could build a rotomoulding
machine equivalent to the one they had first imported, for about half the cost of the
imported machine.
With the addition of the second rotomoulding machine and a return to single or
double shift production, sustainable annual capacity increases to 25,000 tanks, with the
possibility of higher output over short periods of time by going to three shifts. The
machines can also be utilized to produce products other than water tanks, by using
different moulds and accepting a short conversion time.
Wayamba Polymers is a privately held company, with 30 individual investors.
The Chairman is Professor L.D. Fernando, a gentleman with extensive Sri Lankan
business experience. Professor Fernando teaches in the business school at the University
of Peradeniya in Columbo, and also serves as Chairman of Northwestern Apparel (Pvt)
Ltd., a garment export company.
Wayamba began business by undertaking its own distribution of water tanks to
1,600 hardware stores and 300 other outlets in Sri Lanka. Within a year Wayamba
decided to switch to an exclusive distributor called J.V. Marketing (Pvt) Ltd., and it has
remained with J.V. The exclusive distribution contract between Wayamba and J.V.
Marketing came up for renewal in 2001 and was expected to be renewed with only minor
contractual changes.

The Market for Water Tanks

As of the beginning of 2001, the Sri Lankan market for water tanks was about
70,000 tanks per year of various sizes. Half the population of Sri Lanka was under 20
years of ago, new family formation was about 5 percent a year in 2001, and would rise to
8 percent in 2010. The number of families units was expected to increase by 75 percent
over a period of eight to ten years. Forty-six percent of Sri Lankan residences did not
have indoor running water, and this percentage was expected to be reduced to 20 percent
by the year 2010. Existing water tanks tended to be replaced every 15 to 20 years. All
these statistics implied a sustainable annual growth rate for water tanks in the Sri Lankan

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market of 10-15 percent per year, over the next decade. That growth rate increases by
half if the war was to end soon, and foreign reconstruction funding becomes available.
Most water tanks in Sri Lanka were sold through hardware stores, with a few
other channels such as builders supply stores and street markets. Purchasers of tanks
were contractors, plumbers, and individual homeowners or occupants performing
renovations on leased premises.
The size of tank sold was suggestive of its final use.
• 500-liter tanks were the standard for use in most homes;
• 1000-liter tanks were used for larger homes or small industrial locations;
• 2000-liter tanks were generally purchased for industrial use;
• 300-liter tanks were used by small shops and cafes, by (generally low income)
owners of very small homes, or were used as a second, spare tank for larger
homes and businesses.
The WYKE water tanks were about 12% larger than their stated capacity, and were
larger than competitor’s offerings of the same “standard” size, but this fact was only
discovered by Wayamba after their moulds had been in use for some time. The
distributor, J.V. Marketing, thought that the market would only be confused if WYKE
now began to advertise a non-conventional size like “560 liters”.
Wayamba offers a 10-year guarantee on its tanks, and its competitors generally offer
a 5-year guarantee. A few tanks are returned to retailers and replaced by the retailer and
then by the supplier. Almost all returns result from improper installation rather than
product failure.
Buyer price sensitivity is very high for all four tank sizes, because WYKE tanks are
seen by many buyers as interchangeable with competitors. The greatest price sensitivity
is likely for the smallest tank, 300-liters, because buyers tend to be more aggressive
bargainers with hardware retailers, and for the largest tank, 2000-liters, because buyers
are contractors, are frequent purchasers, and are well informed as to competitive prices.
Wayamba offers the same markup percentage to hardware stores on each size, and
assumes the hardware merchant will negotiate final price as required
Retail (list) prices of water tanks range from Rs 3600 for the 300-liter tank to Rs
14,400 for the 2000-liter tank. Hardware retail margins are about 17 percent of selling

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price, and most hardware retailers are willing to negotiate a price discount of about 5
percent, leaving them a margin of 12 percent of selling price.
The value-to-weight ratio for water tanks is low, which means that transportation cost
becomes an important component of selling price for the product. Normally this means
that the effective selling radius around the factory would be constrained. For example the
500-liter (110 gallon) tank weighs 17 kg (38 pounds), is 3 feet in diameter and 4 feet in
height; the 2000-liter (440 gallon) tank weighs 60 kg (132 pounds), is 4 feet in diameter
and 5 feet in height.
However the distributor, who carries all transportation costs from factory-gate to
distributor warehouse to retailer, practices single-zone pricing throughout Sri Lanka. This
means that the distributor charges the same delivered price to all dealers in the country –
they absorb the additional transportation costs for sales in Anuradhapura as opposed to
sales in Kandy.

Competitors in the Sri Lanka Market

As of March 2001 there were three other significant competitors in the Sri Lankan
market for water tanks, and a fourth company poised to enter the market. The major
company was Richard Peiris and Company, with a 40 percent market share for water
tanks. Richard Peiris manufacture and distribute a wide range of products through their
own sales outlets – rubber pipes and tubes, rubber tiles, and a broad line of household
rubber products. Peiris also use a distributor to sell to hardware stores. There is some
resentment by hardware store owners that Peiris both supplies them and competes with
them on the retail level, but no other supplier seems to have been able to capitalize on this
resentment by displacing Peiris hardware accounts. One reason may be that Peiris acts as
supplier of a broad range of products, and hardware stores don’t want to alienate the
company. Peiris may also have the ability to pressure hardware stores to stock and sell
Peiris items such as water tanks as a condition of obtaining other Peiris products, or of
receiving extended credit terms on the full Peiris line.
Wayamba is the second largest competitor in the water tank market, with the
WYKE brand having about a 30 percent market share.

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 The third largest company is Chemical Industries Columbo (CIC) with about a
15% market share. CIC is a subsidiary of a parent company called Solco, which is
headquartered in Australia. CIC distributes the Dulux line of high quality paints, and a
range of chemicals and fertilizers. The range of products gives CIC distributors ready
access to hardware stores and other outlets. CIC uses several distributors, each of which
has non-overlapping exclusive geographic territories.
The fourth producer of water tanks is Neil Marine, with a 15% market share. Neil
Marine has a broad product range and sells to hardware and non-hardware outlets through
its own wholly owned distributor. Most water tanks found piled high in open-air markets
on the Columbo waterfront are of Neil Marine origin.
The poised new entrant is a company called S-Lon, a subsidiary of an Indian
conglomerate called the Maharaja Organization. The Maharaja Organization has been
active in Sri Lanka for many years, and S-Lon is expected to enter the water tank market
in mid-2001. The real danger to Wayamba from their entry is that Maharaja have a well
established market position in polyvinyl chloride pipes, sold through hardware stores, and
their distributors have the potential to leverage availability of this product, or prices or
credit terms, to influence hardware retailers to stock additional Maharaja product lines
such as S-Lon’s water tanks.
A potential entry threat comes from existing distributors. Were one of the
existing water tank manufacturers to discontinue using its distributor, that distributor
would seek a replacement product to fill out their product line. One way to obtain a
replacement product would be to contract with an existing producer for supply of a
privately branded water tank. Another option would be to enter the manufacturing side,
given that the machinery, moulds, raw material and engineering expertise can be readily
obtained on world markets.

Buyer Behavior for Water Tanks

Most Sri Lankan hardware stores carry two or three brands of water tanks. So the
first challenge facing Wayamba or other suppliers is to get distribution in as many
hardware outlets as possible. Most buyers do not shop multiple hardware outlets, but

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deal with an outlet with which they have had satisfactory products and negotiated prices
in the past.
About half of buyers know which brand they are looking for, usually because of
previous favorable experience with the brand, and they will purchase the same brand if its
price is competitive with whichever another brand is carried by the retailer.
Some buyers will simply purchase the lowest price water tank available (or the
one for which they can negotiate the lowest price). About a quarter of buyers will ask the
retailer for advice on which brand of tank to purchase. Given that all the water tanks on
the market perform well, J.V. Distributing thinks that hardware dealers will then simply
recommend the tank on which they make the highest margin (and high margin may mean
having obtained the longest credit terms from the distributor). So, a substantial portion of
the market, perhaps as much as half, is price-and-credit-term driven.

The Role of the Independent Distributor

One of the keys to the future success of Wayamba and other suppliers in the water
container business in Sri Lanka is going to be the role and activities of their distributors.
Independent distributors fill the gap between manufacturers and industrial users or
resellers, replicating those functions that would be performed by a manufacturer’s sales
force.
The independent distributor typically represents more than one manufacturer,
sometimes as many as 50, and thus can amortize the cost of a distributor sales call and of
product delivery over small-volume sales of many different products, in a way that most
manufacturer’s sales representatives could not do.
The distributor’s representative also develops a close understanding of each
customer. Hardware stores purchase from many distributors of building materials, and
resell to a variety of buyers with very different individual needs.
The independent distributor may carry out many more functions than calling on
dealers, taking orders, and delivering the product. Independent distributors may offer
technical support and retailer training, provide technical material for the dealer to
distribute, and assist the dealer with product displays. Currently Wayamba’s own

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technical employees do some training of plumbers and contractors as to correct
installation procedures. J.V. Marketing does not take part in this training process as yet.
The distributor may also be responsible for advertising the product, either alone or
on a shared basis with the supplier. J.V. Marketing generally share the cost of advertising
the WYKE brand on the basis of the distributor contributing a predetermined number of
rupees per unit sold.
The distributor is responsible for determining which retailers carry the WYK
brand, because the distributor determines who does and does not receive trade credit. The
distributor evaluates the credit-worthiness of the hardware dealer, extends credit, and
collects outstanding amounts. The function of judging credit-worthiness of hardware
dealers is important; the least credit-worthy dealer may be the one most anxious to order,
because other representatives or companies won’t extend credit to him.
The distributor may also collect and provide market intelligence to the supplier.
How should Wayamba allocate its marketing budget? Are hardware dealers more
responsive to lower prices, higher discounts from list price, or advertising of the
manufacturer’s brand name? Most distributors, if asked, will say “do more of each”, but
if J.V. Marketing is doing a good job, it will be able to suggest where increased
advertising may be more valuable (for example in trade publications, aimed at installers
of larger sized tanks), or where larger discounts may be more valuable (for example in
sale of the smallest tanks to lower income buyers who are not brand-sensitive).
The distributor may enter into an agreement with the supplier, guaranteeing a
minimum monthly unit purchase, and thus simplifying production planning and inventory
control for the supplier.
Sometimes a supplier may prefer to have multiple distributors, or different
distributors for different product lines or channels of distribution, because of concern
about the financial risk inherent in relying on a sole distributor. This is discussed below
as “the distributor payment problem”.

The Distributor Payment Problem

Every credit sale through a channel of distribution in Sri Lanka carries a risk. In
western countries, typical sales terms from a manufacturer to a distributor would be

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2/10/net 30, 2% thereafter, which means that the distributor can take a 2% discount from
invoice price if the invoice is paid in full within 10 days. The distributor pays the invoice
amount if paid between 10 and 30 days, and pays a 2% per month penalty, calculated
daily, if payment is made past 30 days.
These terms assume a bank prime rate of 5-6%, and a lending rate to companies
of 8-9%. Taking a 2% saving for paying 20 days early is equivalent to a [2% x 18] 36%
per annum saving on interest, and few western companies would pass that up.
However in 2001, because of the war, a government deficit the previous year of
10 percent of gross domestic product and a 15 percent inflation rate, Sri Lankan
government short term debt carried a 21 percent interest rate, prime company borrowing
was 23 percent, and smaller companies paid borrowing rates in the mid to high 20 percent
range if they could borrow at all. Most distributors and retailers thus were forced to rely
on trade credit rather than bank credit, and delaying the payment of trade invoices as long
as possible developed both as an art form and a means of business survival.
Wayamba sold water tanks to J.V. Marketing on terms that a third of the invoice
price was payable in 60 days, a third in 75 days, and a third in 90 days. J.V. Marketing
(and most other distributors) gives hardware retailers 60-day credit terms, which the
retailer typically attempted to stretch to 90 days or over.
This arrangement protects Wayamba from default by its hardware retailers, but
makes them dependent on J.V. Marketing collecting its bills, and remaining solvent. A
general economic decline in Sri Lanka, triggered by increased military spending or by a
recession in export markets such as the United States and Western Europe, would reduce
consumer spending and might make hardware retailers unable to meet their obligations to
the distributor and the distributor in turn unable to meet its obligations to Wayamba.
Wayamba may be at risk at any point in time for an amount of one-sixth its annual
turnover, or the equivalent of three to four years profit.
Wayamba has few solutions to this problem. If it attempts to create and sell
through its own sales force, it simply takes on retailer debt as a direct obligation. If it
sells through several regional distributors, it multiplies its own distributor coordination
costs, decreases the incentive for any one of its distributors, and still does not decrease
the risk that arises from a general economic recession. Its only real solution is to

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diversify its product base and source of revenue, preferably to export markets but
certainly away from its current sole distributor.

Other Production Options for Wayamba

There are literally thousands of products that can be produced with technology
similar to that currently used by Wayamba. For a sampling, the reader should access the
Rubbermaid, U.S.A. website at www.rubbermaid.com, (or you may browse the web for
new products) which offers a description of 1100 products under 15 categories of
industrial and household products. The Rubbermaid web site allows the viewer to insert
their own product list, and have Rubbermaid show them which products are already
manufactured by the company. The Rubbermaid site also contains a number of “real
life” stories as to product use and durability.
Ideal export products for Wayamba would be those that are stackable, for
example wheeled, mobile trash containers. Stackability minimizes transport space and
shipping cost.

Strategic Options Facing Wayamba in 2001

So, in March of 2001, Professor Fernando, in his role as Chairman, has to make a
major strategic decision. Wayamba Polymers has become a successful manufacturing
and distribution business, with an innovative production staff (witness the crafting of the
second rotomoulding machine). It is selling to a steadily growing market, but one which
has three other suppliers with similar production competencies, and which have some
marketing advantages stemming from broader product lines. There is the likelihood of at
least one new market entrant, which might constrain and perhaps reduce WYKE’s current
market share and sales.
Professor Fernando also faces the real possibility that Sri Lanka is entering into a
period of moderate recession, driven by the continuing cost of the war, high budget
deficits, continued high interest rates, a falling value of the rupee, and a possible
recession in Sri Lanka’s major overseas markets. (as of 2021/22 consider the situation
based on Covid 19 pandemic and its consequences on Sri Lankan economy).

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 Professor Fernando does have the resources and support of his shareholders to launch
one and perhaps more than one, strategic initiative. The obvious alternatives are as
follows:
1. Diversify the product range using existing technology. At one extreme Wayamba
could undertake the manufacture of larger items such as stackable carts, freestanding
portable toilets, or street-corner garbage containers. At the other extreme are literally
thousands of smaller goods as exemplified by the Rubbermaid catalogue.
2. Explore possible export markets for the product. Export markets permit
Wayamba to be paid in dollars, and to diversity its revenue sources across different
economies and multiple distributors. One possibility is markets such as the United Arab
Emirates, Oman, Kuwait, and Saudi Arabia, which have wealthy populations and
westernized tastes, and which are geographically proximate, at least on an Asia Pacific
scale. Another possibility is the major markets of the European Union, whose own
manufacturing costs are sufficiently high that Sri Lankan goods could be price
competitive.
3. Explore the potential for producing and exporting rotomoulding machines. If
Wayamba really can produce these at half the cost of imported European machines, there
should be a ready market throughout the Persian Gulf and South Asia. Wayamba would
prefer to export machines, because any machine sold in-country might be used to
compete in the Sri Lankan market.
4. Focus on strategic alliances with foreign companies, particularly in western
Europe. Alliances could be of one several kinds. One might be a long-term contract for
one or more Wayamba products, such that the company could invest in production
capacity and shipping facilities to fill the orders. A second would be licensed technology
and product ideas that would let Wayamba leverage their low-cost production facilities.
5. A final alternative would be that of status quo, to find ways for Wayamba to
maximize profit from existing operations. Such a solution would probably focus on
improving current distribution and financing arrangements.

Analyze the above alternatives. What do you recommend? Give justifications.

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Annexure:
The brands of polymer based water tanks available in the Sri Lankan market today.
Neil marine
Arpico Hybrid, Arpico plastishells
S-lon pe+
Damro water tanks
Anton Max, Dolphin Max

Solco brand water tanks were acquired by PE+ Ltd the water tanks brand manufactured
under Maharaja Group

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