Competitive Environment/Position of Aditya Birla Group at the Business and Corporate Levels - Essay Example

Business Strategy Report Table of Contents Table of Contents 1 Introduction 2 Aditya Birla Group’s Competitive Position at Business Level 3 Porter’s Competitive Strategies 3 Inside-Out Theory 5 Sustained Competitive Advantage Theory 6 The Aditya Birla Group’s Competitive Position at Corporate Level 6 Business Portfolio 7 Core Competencies 8 Seeking Synergies 10 Strategies for Meeting the Challenges 12 Conclusion 15 References 16 Introduction Aditya Birla Group operates as a Multinational Corporation (MNC) headquartered in Worli, Mumbai, India. Seth Shiv Narayan Birla instigated the company’s business in the year 1857, by trading cotton in Rajasthan (2Aditya Birla Management Corporation Pvt. Ltd, 2014). Consequently, in the year 1919, Ghanshyam Das Birla, who is considered as the founding father of the company, expanded its business, as he began setting up industries in various sectors such as textiles, chemicals, cement, fibre and aluminium. In the year 1969, Aditya Birla, the former chairman of the company globalised its business establishing 19 companies in other nations (1Aditya Birla Management Corporation Pvt. Ltd, 2014). Soon after the demise of Aditya Birla, his son Kumar Mangalam Birla came in charge of the company and helped the group in achieving new heights (Dun & Bradstreet Information Services India Pvt Ltd, n.d.). Presently, the company’s annual turnover amounts to USD 40 billion with a workforce of 136,000 employees who belong from diverse nations. In addition, it could be viewed that more than 50% of the company’s income flows for the overseas market. Presently, the company operates in 36 different nations and has become a powerhouse for producing metal and aluminium products. The company, in its home nation India, is one of the largest apparel brands also recognised as the largest producer and exporter of viscose filament yarn. Besides, it is one of the leading companies in life insurance policies and asset management in India. The company’s super market chain for retail trade is one of the largest in the country being the largest producer of linen fabric. Additionally, the company has become socially responsible and has gone beyond its business wherein it has taken the initiative of providing high quality education to underprivileged children along with establishing healthcare facilities in numerous villages (1Aditya Birla Management Corporation Pvt. Ltd, 2014). Correspondingly, the report intends to evaluate the competitive position of the company in relation to corporate level and business level. The report will also focus on evaluating the challenges faced by the company in the present economic situation. Likewise, certain strategic options will be provided that would help the company to meet its business challenges in the coming future and achieve a competitive advantage thereon. Aditya Birla Group’s Competitive Position at Business Level A business level strategy is an integrated set of actions used by a company to achieve competitive advantages by exploiting its fundamental capabilities in the particular product market (Wit & Meyer, 2010). In order to evaluate the competitive position of Aditya Birla Group at business level various models have been used which includes the Porter’s competitive strategies, inside out theory and sustained competitive advantage theory. Porter’s Competitive Strategies Correspondingly, a critical understanding to the subject matter reveals that Porter’s Competitive Strategies used by the company at business level includes cost leadership and product differentiation. Cost Leadership: Backward integration was used by the company in the process controlling its subsidiaries and suppliers in order to ensure that the supply of raw materials is consistent in nature that induced stability in the overall manufacturing operation of the company (Gupta & et. al., 2007). Aditya Birla Group commenced its backward integration process in the year 1954 wherein the company had established a textile-producing mill to manufacture Viscose Staple Fiber (VSF) that could be used by the company in textiles. It was viewed that the company further used backward integration to produce rayon grade wood pulp along with acidic soda that helped the company in becoming a cost leader, which in turn provided a competitive advantage to the group (Sadhu, 2012). Moreover, the company changed its business from labour intensive company to capital-intensive company that resulted in leveraging the overall strengths of the company for achieving cost leadership. Additionally, the company achieved global cost leadership in producing metal products through its subsidiary Hindalco (Birla, 2005). Accordingly, it has been viewed that the company had to face certain risks in the process of cost leadership wherein, due to the changing business trends along with frequent changes in the market scenario, the company had to continuously change its strategies and organisational goals to meet the altering business requirements (Aditya Birla Management Corporation Ltd, 2013). In addition, maintaining environmental sustainability was also a major risk being faced by the company, which increased the requirement for inventing its business operations (World Economic Forum, n.d.). Product Differentiation: Most of the raw materials for production used by the company in its production process are supplied from the overseas market, which has helped it in creating uniqueness in its offered range of products and/or services (Chiplunkar, 2001). The company has been successful in differentiating its products from the competitors along with developing value added products, which has played a huge role in providing a competitive advantage to the company. It would be worth mentioning that the product differentiation strategy used by the company is quite tough for its competitors to imitate, as it has been successful in creating a distinct identity for the products developed (3Aditya Birla Management Corporation Pvt. Ltd, 2014). In relation to the risks of differentiation faced by the company, it can be revealed that aligning the employee’s interests along with the business interests was a noteworthy obstacle for the company (Krishnan, 2005). Similarly, the company faced risks in meeting the customers’ demand along with adopting technological changes (Fernando, 2011). Inside-Out Theory Aditya Birla Group has identified its capabilities and has accordingly created business opportunities, which cannot be matched with any other MNC. In the year 1995, the company had invested USD 1.5 billion on various sectors such as textiles, carbon black, aluminium, cement, palm oil refinery and other sectors. This was the stage when the company identified its capabilities, which resulted in various business opportunities in these sectors. Presently, the company has emerged as a leading player being recognised as one of the largest companies in Asia. Notably, the company has identified its capabilities in palm oil refinery due to which it has been able to adapt to the changing business environment, obtaining distinctive resources (Aditya Birla Group, 2013). Sustained Competitive Advantage Theory This theory is based upon the assumption that a company, in order to achieve a competitive advantage, must develop its resources that are based upon four aspects, which include valuable, rare, imperfectly imitable and substitutability. In relation to Aditya Birla Group, it has been witnessed that the company has been able to achieve competitive advantages by developing the capability of its resources. The human resource strategy used by the company has also helped in effectively managing the entire work force, which has further contributed towards its competitive advantages. The company has also been able to develop valuable products through using its resources effectively, due to which, the company has become the largest manufacturer of VSF in the world. Moreover, the company is also recognised as the largest producer of carbon black worldwide, which has helped it in yielding better competitive advantages (Aditya Birla Group, 2013). The Aditya Birla Group’s Competitive Position at Corporate Level A corporate level strategy is the overall strategy established by the top-level management of a company that is diversified in nature. This strategy is mainly focused towards integrating and coordinating the multidimensional strategies of various departments or subsidiary units to maintain a competitive position in the market (Wit & Meyer, 2010). With reference to the strategic positioning of Aditya Birla Company, it can be apparently observed that the company, in its corporate level strategy, has used business portfolio, core competencies and seeking synergies. Business Portfolio The business portfolio of Aditya Birla Group is quite wide, as it has expanded its business operations in aluminium manufacturing, insurance, communications, finance and numerous other sectors. This in turn has created a better competitive position for the company in the global market besides facilitating its overall revenue. The MNC is presently functioning with more than 40 domestic and international companies, which operate under Grasim, Aditya Biral Nuvo, Hindalco and Idea Cellular. It is worth mentioning that the company has been able to develop a balanced portfolio in its business, which has created a better competitive position for the company in both manufacturing and service sectors (Aditya Birla Group, 2013). This strategy has been highly used by the company as a corporate level strategy, due to which, the company has been continuously focusing on developing new products to maintain its competitive positioning in the global market. The company has used its Research and Development (R&D) department as an effective tool to launch new products in the market that would reward the company with huge market share (Aditya Birla Group, 2013). Illustratively, it can be observed that Aditya Birla Yarn adopted a three-phase strategy in its product development process wherein the initial step involved exploring the potential of each and every market, following by creating a partnership with exclusive fibre suppliers and segregating the product developed from other competitors through a systematic procedure. The company has also intensified the use of technological and innovation aspects in its product development strategies that has further helped it in creating new business opportunities for the company (4Aditya Birla Management Corporation Pvt. Ltd, 2014). However, there are certain challenges faced by the business units of the company in its new product development strategy. These challenges include increased volatility of the customers demand in the global market, due to which, it is quite uncertain that the new product developed would meet the expectations of the global customers. The company has also been facing fierce competition from its competitors, wherein it has been quite financially risky for the company to maintain low cost for the products developed (3Aditya Birla Management Corporation Pvt. Ltd, 2014). Core Competencies Aditya Birla Group, in its corporate level strategy, has used diversification and horizontal integration as the two major forms of its core competencies. Diversification: Aditya Birla Group is regarded as one of the biggest diversified multinationals in the present era (Som, 2007). The company diversified its business by establishing 61 manufacturing units in 14 different nations wherein its business expanded in various areas including financial services, textiles, banking, chemicals, cement, oil refining and yarn among others (Sauder School of Business, 1995). In fact, the company used unrelated diversification strategies that resulted in providing a competitive position to the company along with the ability to enter into new markets (Scribd Inc., 2014). Subsequently, through diversification, the company was able to maintain the required standards of quality for its products that in turn helped in improving its brand image and provided a competitive advantage to the corporate entity (Sadhu, 2012). Diversification strategy also posed huge risks for the company wherein it was exposed to global risks, as the approach of diversification used by the company was quite complex in nature and involved many legal as well as political boundaries (Sadhu, 2012). Horizontal Integration: Aditya Birla Group has been using horizontal integration as a corporate level strategy, due to which, it is considered as a “global horizontally integrated company”. Accordingly, it can be revealed that the company using this strategy was successfully been able to adapt to changing business situations in the global market (Chandra & et. al., 2011). Through horizontal integration, the company has been able to add new products in its present product line, which in turn has helped in catering the changing needs of customers. For instance, Hindalco, which is a subsidiary unit of Aditya Birla Group, has undertaken horizontal integration in both copper and aluminium industries, which has further enhanced its market presence along with exposing the potential of diverse markets (6Aditya Birla Management Corporation Pvt. Ltd, 2014). In addition, the company has undertaken horizontal integration for producing caustic soda, which is a key material for manufacturing VSF. Thus, with the effective use of horizontal integration strategy, the company has been able to establish a competitive positioning in the global market (5Aditya Birla Management Corporation Pvt. Ltd, 2014). Nevertheless, the company faces challenges in coordinating the product that has been newly launched into the market, as it is quite difficult to manage new products in a newer market. Moreover, the risk of unfamiliarity among customers for the new product has also risen, due to which, it has been challenging the company to achieve a greater percentage of market share (Kaul, n.d.). Seeking Synergies Aditya Birla Group, in its corporate level strategy, has been focused on collaboration through strategic alliance along mergers and acquisitions with various companies that has helped the company create a competitive position for its global business. Strategic Alliance: Aditya Birla Group has entered into strategic alliance with many companies from the past few years. This strategy has played an important role for the company in its overall achievements in the global market. For instance, the Group entered into a strategic alliance with a Canadian insurance company named as Sun Life Assurance Company in its endeavours. This strategic included a Memoranda of Understanding (MOU) between both the companies, which helped the alliance to create a broad array of financial services in the Indian market. The strategically allied company was named as Birla Sun Life, which has become a huge success as it has established a “dedicated distribution system”, which has immensely helped in improving its asset management (Sun Life Assurance Company of Canada, 1998). Similarly, in its recent ventures, Aditya Birla Minacs IT Services Limited, which is a subsidiary company of Aditya Birla Nuvo, entered into a strategic alliance with a Bahrain based consulting company, Capitalianz W.L.L.. According to the experts, the strategic alliance is expected to help Minacs in developing its capabilities along with technology to meet the distinctive requirements of various companies in the Middle Eastern market (India PRwire, 2014). Aditya Birla Group has also entered into a strategic alliance with the American software company, Lawson Software, in order to provide consultancy services and software solutions to various companies in the US market (The Hindu, 2000). Nevertheless, irrespective of its wide exposure in the international market, the company had to face certain challenges in its strategic alliance business strategy wherein effective integration between two companies proved as quite problematic (Paul, 2008). Lack of coordination along with cultural clash had been few of the challenges faced by the company when implementing its strategic alliance. Moreover, due to shared risks, there was a huge pressure for the company to avoid the risk of failure in the overseas market (Elmuti & Kathawala, 2001). Mergers & Acquisitions (M&A): M&A also has been a business level strategy used by the company to enter into the overseas market. In the year 2011, Aditya Birla Group, through its subsidiary Indigold Carbon, acquired a US based named as Columbian Chemicals (Armoks Interactive, 2011). This merger was intended towards the production of chemical products that is used in tyres. Post completion, the merger was found to have significantly helped the Group in becoming one of the largest producers of carbon black worldwide, as the overall production capacity of the merged company became two folds (European Union, 2011). Likewise, in the year 2012, the Group acquired another US company, Terrace Bay Pulp Mill that was a strategic move for producing better quality pulp to attain global leadership. This merger resulted in enhancing the efficiency level of its entire value chain wherein the company changed its value chain from plantation to pulp and simultaneously it changed from pulp to fibre (India Infoline Ltd, 2012). In addition, Hindalco Industries, which is a subsidiary of Aditya Birla Group, acquired Novelis headquartered in Atlanta, US. This acquisition made Hindalco a global leader in aluminium rolled products along with attaining a larger market share in the US. Additionally, the company became the largest manufacturer of copper in the Indian market and the primary aluminium manufacturing company in the entire Asian region (Srivastava & Gupta, n.d.). Overall, it was considered that M&A strategy used by Aditya Birla Group created a competitive position for the company in the competitive US market. Aditya Birla Group, in its acquisition process has faced significant challenges in maintaining its business sustainability. Reducing the emission of Greenhouse Gas (GHG) in its production process of carbon black has also been quite challenging, due to which, the company has been taking a major leap towards the reduction of its carbon emission by 22% within 2020. In addition, meeting the quality requirements in its production process along with maintaining environmental sustainability has posed major challenges for the company (Birla Carbon, 2013). Strategies for Meeting the Challenges From the aforementioned study, it is apparently identifiable that the company has been facing immense challenges in its global business operations because of which, it is considered that certain strategies must be used by the company in its multidimensional business functions. Aditya Birla Group hence must focus on creating a balance between the consumption of resources and production of final products. Moreover, the company must use there pillars of sustainable development to meet the challenges of environmental sustainability and maintain long-term sustenance in the global market. These pillars include the environment, the society and the economy, which is also referred as the triple bottom line (Baharin & et. al., 2012). As it has been viewed that the company has been facing challenges in aligning the employees interests with the overall business interests due to which, it is considered that a strategic plan must be developed to align the interests of both the parties. This plan will therefore include communicating the organisational goal to the employees and accordingly, specifying their functions to meet the business objectives. Initiating a tracking mechanism within the company should also be included in the strategic plan that will help in measuring the progress of goals along with individual employee’s achievement. In addition, augmented transparency must be created within the organisation that would create visibility of interests between both the parties and create an alignment subsequently (Albuijan & Liu, n.d.). Likewise, the company has been facing challenges of integration in its strategic alliance owing to which it is considered that a mutual agreement must be created amid both the allying companies that would help in integrating their business goals with greater efficiency. Furthermore, joint planning must be undertaken by the company in its strategic alliance that would help in meeting the challenges of coordination being faced by the company, as it would induce a better relationship (The Warren Company, 2002). All the strategic options provided above are intended to meet the challenges being faced by the company in the business level. In this regard, the strategic options for meeting the challenges in corporate level should include inducing organisational agility that would help in meeting the challenge of customer’s volatility. The company must also be driven towards technology that would further result in meeting the volatile requirements of the global customers. In addition, the company must optimise its core manufacturing processes that would help the company in maintaining low cost for its products along with high quality assurance (Wit & Meyer, 2010). It is also considered that knowledge sharing process must be integrated within the company that would help developing the employee’s capability along with the overall organisational capability to meet the challenges of changing business requirements (Economist Intelligence Unit Limited, 2009). In relation to the challenges of diversification being faced by Adyta Birla Group, it is suggestible that the company must use a simplistic approach for its diversification process that would reduce the level of risks in the global market. Moreover, the company, before diversifying its range of products, must identify the actual requirements of the customers and accordingly, develop the products. This in turn would increase the possibility of success for the company in its new product launch. Similarly, the company, in its horizontal integration strategy, has been facing certain challenges related to coordination among business units, due to which, the risk of integration has emerged as a major factor for the company. Thus, it is considered that the company must use the local resources for undertaking the business operations in the integrated business units. Transfer of knowledge between two integrated companies is also an effective way to coordinate the overall business activities (Andersson & Forsgren, n.d.). Conclusion Aditya Birla Group, in the current phenomenon, is regarded as a leading manufacturer in numerous industrial sectors, as it has been successful in attaining a competitive advantage within the global market, with the assistance of its strong leadership strategies and business as well as corporate level initiatives. The main reason behind the company’s success has been the strategies adopted by it in both the corporate and business levels. In relation to the corporate level strategy, it has been viewed that the company has been using the strategy of new product development, diversification and horizontal integration. 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