Plastered across two walls of Ardeshir B Godrej's office is a sepia-tinted world map. It was probably made by Dutch cartographers in the early 17th century and used by sailors for maritime trade. "As you can see, their geography was not perfect," remarks the 63-year-old chairman of the Godrej group.
It's not difficult to see why the head of India's foremost business group is watching his office space so carefully. His fast moving consumer goods enterprise, the Rs 562-crore (Rs 5.62 billion) Godrej Consumer Products Limited, has taken its first step in the global business arena.
In October 2005, GCPL snapped up the Middlesex-based Keyline Brands in a £15.75 million (Rs 130 crore) deal, paying a part {Rs 40 crore (Rs 400 million)} from internal accruals and the rest through debt.
After the acquisition, the ambition. Says GCPL CEO Hoshedar Press, "In five years, we want at least 50 per cent of our revenues to be earned from businesses outside India." Keyline Brands, which has a personal care range that complements Godrej's (hair colour, talcum powder, shaving cream), is expected to lead the Godrej brands into malls and mom-and-pop stores in markets like the UK.
Global attraction
Why is GCPL looking at the West? Simple: the market overseas is far bigger. For instance, the size of the hair colour market in India is just around Rs 500 crore (Rs 5 billion) at present. In the UK, the market is five times bigger.
And hair colours as a category is special for GCPL. It contributes 35 per cent of GCPL's revenues and 65 per cent of profits. Keyline's hair colour brands are not as big, but then they are not the attraction: the distribution channel is.
According to GCPL sources, enhanced distribution is an important reason behind the acquisition. Keyline has established relationships with supermarket chains such as Sainsbury, Tesco and Boots.
Before the acquisition, GCPL had to depend on just one distributor to put brands such as FairGlow soap and Cinthol on UK shop shelves. Points out Godrej, "Supermarkets have long-term relationships with local companies. Without this, it is difficult to penetrate markets such as the UK."
International trade secrets
GCPL stands to learn a great deal from its Keyline acquisition. The first lesson is in dealing with modern trade. Says Press, "We will learn how to do business with supermarkets - the levels of discounts to offer, what to expect in return in terms of shelf space...."
GCPL also hopes to pick up important insights on planning and meeting global delivery schedules, apart from developing skill sets to introduce new products internationally.
Consultants agree that there is a lot to learn abroad. Arvind Mahajan, partner, IBM, Business Consulting Services, agrees that doing business abroad requires a different mindset. He says, "Unlike in India, distribution is not fragmented overseas. Manufacturers deal with fewer retailers. So it requires different skill sets."
Observes Vikram Bhalla, director, The Boston Consulting Group, "Probably the best part of the deal will be the experience gained from working with organised retail. While hardly 5 per cent of the FMCG offtake in India happens through this channel, the share of sales through organised retail chains is growing rapidly."
To hone its skills, GCPL plans to send executives abroad to train and bring home the best practices. This also means that GCPL gains an opportunity to catch up with the multinational competition (Hindustan Lever, Procter & Gamble), when organised retail takes off in India. "Our MNC peers are familiar with these practices since they are all over the world. But for us it's going to be a whole new learning process," says Press.
Brand barter
Godrej claims its huge brand equity in India will spill over to create brand pull among the British Afro-Asian population. "It's a universe of five million affluent people, the idea being to cash in on the equity of the brand," says Godrej.
GCPL is hoping to cash in on the current craze for "ethnic Indian" by introducing sandalwood and ayurvedic variants of Godrej No. 1 in British supermarkets. And it believes there will be enough takers for the hair care range: powders will be positioned at the lower end and creams at the higher end.
Explains Press, "There is a large Indian population in the UK and people continue to migrate. So, we can also sell hair colour products, especially the black and brown shades that are better suited for Indian hair."
IBM's Mahajan hints at the challenges. He says, "Getting access to supermarkets is fine, but GCPL will need to have fast-moving products, since performance is measured on a weekly basis."
But the Keyline deal isn't just about India-UK traffic: Godrej also plans to introduce Keyline brands in India in a few months. That won't be easy. Granted, Indian customers are familiar with two brands from the Keyline portfolio - Erasmic shaving products and Cuticura talcum powder. But the rights for marketing Cuticura in India is with a south India-based group. "If the Medimix group is willing to sell the rights for Cuticura and the price is right, we're willing to buy," says Godrej.
For now, GCPL will launch the Erasmic range for men - shaving cream and after-shave lotions. Other products will follow later. Says Godrej, "It doesn't matter if some of the brands are unknown: we can always push them."
Made in India
At present Keyline outsources about half of its manufacturing to various units in the UK. GCPL's manufacturing costs, points out Press, are "30-40 per cent lower than those in the UK." Given these cost advantages, GCPL proposes to shift some of Keyline's production to its Vikhroli, Mumbai plant.
The capacity utilisation for products like soap and powder hair colour is already near 100 per cent. By March 2007, GCPL will up capacity for soap by 50,000 tonnes and powder hair colour by 500 tonnes a year, providing it the flexibility to make Keyline products.
Balancing act
Integration will remain a challenge. "The idea seems to be all right," says BCG's Bhalla. "But our experience is that the values and synergies do not get transferred with ease. What they need to do is to set financial targets and then chase those numbers."
More important to IBM's Mahajan is the HR factor. "They need to retain the talent that they have acquired." That's critical, agrees Press. Keyline employees need to be there to ensure continuity and to help the GCPL team learn the ropes.
The pluses of the Keyline acquisition are clear, says Godrej. "Keyline will add 15-20 per cent to GCPL's sales of Rs 562 crore (Rs 5.62 billion) in FY05 and around 5-8 per cent to the bottomline of Rs 86 crore (Rs 860 million), even after accounting for interest costs."
Still, he accepts it's not going to be an easy course and is counting on daughter Tanya Dubash to navigate. Perhaps Dubash will help rechart the map in her father's office.
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