VRIO Analysis, Porters 5 Force Model & Value Chain- Dabur India Ltd.

Submitted BySuryaneel Das- 156 Swastik Das-

159

Tinu Kalra-

165

Dabur India Ltd. Dabur India Limited is a leading Indian consumer goods company with interests in Hair Care, Oral Care, Health Care, Skin Care, Home Care and Foods. From its humble beginnings in the bylanes of Calcutta way back in 1884 as an Ayurvedic medicines company, Dabur India Ltd has come a long way today to become a leading consumer products manufacturer in India. Dabur India Ltd. is the world’s largest Ayurvedic manufacturer and Natural Health Care Company and India's fourth largest producer of FMCG.

Few facts about the company : 

Leading consumer goods company in India with a turnover of Rs. 5,283 Crore (FY12).

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2 major strategic business units (SBU) - Consumer Care Business and International Business Division (IBD)

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2 Subsidiary Group companies - Dabur International and NewU and several step down subsidiaries: Dabur Nepal Pvt Ltd (Nepal), Dabur Egypt Ltd (Egypt), Asian Consumer Care (Bangladesh), Asian Consumer Care (Pakistan), African Consumer Care (Nigeria),Naturelle LLC (Ras Al Khaimah-UAE), Weikfield International (UAE) and Jaquline Inc. (USA)

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17 ultra-modern manufacturing units spread around the globe.

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Products marketed in over 60 countries.

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Wide and deep market penetration with 50 C&F agents, more than 5000 distributors and over 3.4 million retail outlets all over India.

Master brands : Dabur - Ayurvedic healthcare products.

Vatika - Premium hair care.

Hajmola - Tasty digestives.

Réal - Fruit juices & beverages.

Fem - Fairness bleaches & skin care products

Porter’s Five Forces Model for Dabur Porter five forces model is basically a framework for industry analysis. It helps in business strategy development. It was presented by Micheal Porter. According to this framework, there are 5 forces that determine the competitiveness of a market and its attractiveness and profitability. These forces are threat of substitute products, bargaining power of buyers, bargaining power of sellers, threat of new entrants, competitive rivalry within an industry.

1) Threat of competitors 

The threat of competitors is high because there are a lot of players in the Market.

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Key players and competitors of Dabur India currently are: Eg: Himani, Baidyanath and Zandu for Dabur Chyawanprash.

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The ayurvedic platform is also being used by other players like Emami and Ayur.

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Premium personal care products face competition from international brands as well as boutique products.

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Existing players are entering new segments which will increase the competition e.g. Casper entering the vaporizer segment and Good Knight the personal spray and gel segment.

2) Threat of New Entrants

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The Company has gone a long way in popularizing and making easily available a whole range of products based on the traditional science of Ayurveda. And it has set very high standards in developing products and processes that meet stringent quality norms. So all the advantages of first mover, learning curve, brand loyalty, patents and economies of scale exist with Dabur India.

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In case of home care segment the entry barriers are low since the costs to set up manufacturing facility is not very high.

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The exit barriers are low and thereby firms can enter and exit easily.

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But the entry barriers in terms of building a national brand as well the distribution network is high. So is the exit barrier.

3) Threat of Substitute Products 

Ayurvedic Healthcare products hardly have substitutes so threat is not very significant.

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Dabur products have generally strong Herbal and Natural profile with more than 100 years of experience in Ayurveda which leads to a high product differentiation.

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Another factor where Dabur scores over its substitutes is the high switching costs for customers provided by its pricing strategy. The pricing of Dabur products is low as compared to most of the personal care and health products of other highly prevalent multinational FMCGs due to the Natural and Herbal ingredients.

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The pricing of the Dabur products is very competitive without compromising on the quality hence the relative price performance of substitutes is low as compared to Dabur.

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Substitutability is highest in Food category followed by Personal care category, where product innovation is high.

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Home grown and traditional substitutes to Home care products e.g. traditional insect repellents.

4) Threat of Buyers Bargaining Power 

Due to high consciousness of consumers in for health, the Ayurvedic and Natural products have gained more requirements but it has a strong dependency on its existing channels of distribution which makes it easy for penetration in the rural market.

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The buyer’s bargaining power is low since they cannot influence the prices to such a great deal.

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Even in case of Modern trade the buyer’s bargaining power is moderate as it generates less than 10% of FMCG sales.

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Price sensitivity is high especially in the Food and Home Care category.

5) Threat of Supplier’s Bargaining Power 

Due to its over 100 years presence Dabur does have a very strong bond with the suppliers. Dabur follows the policy of having good relations with all the people it deals with. Dabur has a huge global network of suppliers and vendors purchasing roughly 7000 items with an annual procurement bill of over Rs. 500cr. The Central Planning and Procurement Division (CPPD) are responsible for purchase operations at Dabur, acting in coordination with the production and marketing divisions.

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The number of suppliers is low for the Home Care category e.g. Certain oils are not available everywhere which increases the supplier’s bargaining power when negotiating the price with Godrej etc.

VRIO ANALYSIS OF DABUR

The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. The basic strategic process that any firm goes through begins with a vision statement, and continues on through objectives, internal & external analysis, strategic choices (both business-level and corporate-level), and strategic implementation. The firm will hope that this process results in a competitive advantage in the marketplace they operate in. VRIO falls into the internal analysis step of these procedures, but is used as a framework in evaluating just about all resources and capabilities of a firm, regardless of what phase of the strategic model it falls under. VRIO is an acronym for the four question framework you ask about a resource or capability to determine its competitive potential: the question of Value, the question of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit the resource or capability). 

The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?"

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The Question of Rarity: "Is control of the resource/capability in the hands of a relative few?"

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The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?"

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The Question of Organization: "Is the firm organized, ready, and able to exploit the resource/capability?

The VRIO Analysis of Dabur is summarised in the paragraphs given below.

Value- Dabur has been in business of Ayurvedic health care products since 1884. Dabur's Ayurvedic Specialities Division has over 260 medicines for treating a range of ailments and body conditions-from common cold to chronic paralysis. It has very less competition from other companies in this segment. Also it has been able to exploit oppurtunities in the health care segment since the

very beginning. Coming to the food division of Dabur, here also it has been to exploit and use the opportunities in the market from time to time for its own advantage.

Rarity- Definitely unlike the aleopathic segment of health care industry, the no of national level competitors in the ayurvedic segment of health care industry is very few. Thus the control of resources / capability is in the hands of a relatively few organisations.

Imitability- Since the volume of production of ayurvedic products by Dabur is very large, Dabur benefits from the economies of scale. This is difficult to imitate for smaller companies. Thus it is difficult to imitate and there will be significant cost disadvantage to other firms trying to obtain, develop or duplicate the resource/ capability. Also Dabur has a high bargaining power over both suppliers and retailers. However in the food segment, Dabur does not have this power and hence other firms can imitate Dabur’s resources/ capabilities.

Organisation- Dabur has been in the ayurvedic and health care business for more than a century. Its leadership, and organisational values are unquestionable and they have helped it to operate sustainably and profitably over a very long period of time.

Summary of VRIO, Competitive Implications, and Economic Implications for Dabur India Ltd

Valuable?

Rare?

Yes

Yes

Costly to Organized

Competitive

Imitate?

Properly?

Implications

Yes

Yes

SUSTAINED ADVANTAGE

Economic Implications

ABOVE NORMAL

VALUE CHAIN ANALYSIS OF DABUR A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources - money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits. The concept of value chains as decision support tools, was added on to the competitive strategies paradigm developed by Porter as early as 1979. In Porter's value chains, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource management, Technological Development and Infrastructure.

FIG- VALUE CHAIN ANALYSIS DIAGRAM

The value chain analysis of Dabur India Ltd can be very well understood in the following paragraphs.

PRIMARY ACTIVITIES

Inbound Logistics:  Long term contract with raw material suppliers.  Personnel at regional offices for overseeing the smooth transit of goods.  Transparency and monitoring through deployment of IT  All transactions through ERP.  Efficient storage facilities  Easy storage and retrieval.

Operations:  Semi-Automated processing capability.  Ayurveda special competence.  Apprentice Trainee Course ensuring stable source of skilled manpower.  Kaizen & TPM team; continuous drive to improve efficiencies.

Outbound Logistics:  Distributors, all across the country.  Long term contracts with transporters –higher volume of business to transporters ensures competitive price.  Regional Sales Office linked through ERP application.  Efficient security system for prevention of any kind of pilferage

Marketing and Sales:  Large network of dealers  Structured approach to understanding the requirements of individual customers- QFD’s Conducted at regular intervals.  Clear identification of product requirements, leading to development of innovative products  Quick assessment of the changing market dynamics and consumer

After Sales (Services):  Efficient collection of data from field and communication to the respective plants.  Pan India presence.

 Large network of distributors & retailers.

SECONDARY ACTIVITIES

Procurement:  E procurement initiative.  Long term relationships with a stable and loyal pool of suppliers.  Technology driven procurement –SAP and VCM.  Localized supplier base at mfg. locations –low inventory levels.Infrastructure:  Multi –Location facilities  Best in class prototype building facilities

Technology  Approximately 2% of the annual profits of the company invested in research and development.  Knowledge portal–helps employees keep abreast with the latest technologies.  Extensive prototype building and testing facilities.  Formal benchmarking process.

Human Resources:  Vast pool of technically competent managers.  Focus on development of managerial capabilities -executive training programs at premier business schools.  Career advancement schemes.