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Limited And Pantaloons Retail India Limited Methodology
Marketing Essay
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Through this paper I wish to explore the
possibility of an alliance between two
companies in India- Orient Craft Limited and
Pantaloons Retail India Limited. With the
recent changes in regulations in India-
allowing FDI in Retail, companies would need to stay on their toes to remain competitive in the industry.
The proposed alliance is one- such step.
Orient Craft is mainly an export house with state of the art manufacturing facilities and a strong international client
base. Though it has a strong top line, the company profits are hugely dependent on the fluctuating currency rates,
as it has little domestic presence in India. Another problem hampering their growth is the amount of rejects in the
international fashion market due to changing trends and long lead time to market.
Pantaloons on the other hand have a strong local foothold in the Indian Retail Apparel market. Their problem lies
in the absence of a major supplier for some of its clothing lines and hence higher transaction costs affecting
profits. An upstream collaboration could increase their profits.
Both the companies complement each other in terms of being at different parts of the value-chain in the apparel
industry. Through this essay I wish to explore the possibility of their alliance and the impacts, if it were to happen.
A brief introduction (vision, mission, profile and success drivers) of both the companies is provided first, followed
by focussing on the areas in which they currently lack (gap analysis). Further I explore the reasons to ally (if at all)
and the advantages they would bring to each other. The essay also touches upon the scope of the alliance and the
type of alliance they can go for (suggested). Finally I end with the possible value creation through the alliance,
considerations for both the firms and the performance measurement parameters that could be put in place.
Post the essay I discuss how various alliance theories are applicable in this context and the matching of different
fits (strategic, cultural etc).
The entire work is based on personal views and for the purpose of this course only, and in no way indicate any of
the mentioned Companys perspectives. A list of references drawn from is provided at the end.
Introduction:
ORIENT CRAFT LIMITED
Company Vision
To be the most preferred embroidery products and services partner of our customers globally.
Company Mission
Establish a healthy business environment for a close and mutually beneficial relationship among the
manufacturers, exporters and importers in the process ensuring a steady growth in the foreign exchange earnings
of the country.
Company Profile
Set up in 1978, Orient Craft Limited has consistently been one of India's top garment manufacture and export
organizations. Today it stands strong with 21 facilities and a committed workforce of over 25 thousand producing
more than 100 thousand pieces of global fashion in a day. Catering to over forty fashion brands and designers like
Marc Jacobs, Diane Von Furstenberg, Polo Ralph Lauren Blue Label, Banana Republic, Michael Kors, DKNY,
Express, Tommy Hilfiger, Macy's, Monsoon, Marks & Spencer, Ann Taylor, Abercrombie and Fitch; Orient Craft
stands true to the image of being 'the name behind names.
Overview
A 200 Million US$ Organization (1000 Cr. INR)
Setup in 1978
Indias leading Garment Manufacturer cum Exporter
Employs over 25 thousand people working in 21 facilities
Producer of 100 thousand high fashion apparel pieces a day
Figure : Associated Brands
Critical Success Factors
State of the art Facilities
World Class Manufacturing Equipments
Internationally acclaimed Management Systems
Highly trained and motivated workforce
PANTALOONS RETAIL INDIA LIMITED (FUTURE GROUP)
Company Vision
Future Group shall deliver Everything, Everywhere, Everytime for Every Indian Consumer in the most profitable
manner.
Company Mission
To maintain the belief that the customers and stakeholders shall be served only by creating and executing future
scenarios in the consumption space leading to economic development
To establish as the trendsetters in evolving delivery formats, creating retail realty, making consumption affordable
for all customer segments for classes and for masses
To infuse Indian brands with confidence and renewed ambition
To be efficient, cost- conscious and committed to quality in whatever it does
To ensure that positive attitude, sincerity, humility and united determination shall be the driving force to make the
company successful
Company Profile
Pantaloon Retail is the flagship company of Future Group, Indias retail pioneer catering to the entire Indian
consumption space. Through multiple retail formats, it connects a diverse and passionate community of Indian
buyers, sellers and businesses. The collective impact on business is staggering: Around 300 million customers
walk into Pantaloon stores each year and choose products and services supplied by over 30,000 small, medium
and large entrepreneurs and manufacturers from across India. This number is set to grow.
Critical Success Factors
First Mover Advantage: Pantaloon was the first mover in the organized retail sector in India. Due to first mover
Pantaloon has deep penetration and a wide range of products and formats
Location Advantage : Pantaloon enjoys location advantage as it has captured prime locations in Metros and Tier-
1 cities due to it being the first mover
Private labels: 15- 20 % of its revenues come from its total sales of its own apparels and accessories & this also
enabled the organization to distinguish itself from its competitors
Strong Distribution & Logistic Network-Maintains a timely generated receipt of order, which optimizes the stores
ability to merchandise and reduce the transportation cost. Company owns its own fleet of 31 trucks which assists
in transporting and delivering a number of merchandises
Economies of Scope: Pantaloon operates in various lines of businesses enabling it to cross sell their products
across formats. This also helps in cost reduction in inbound logistics and outbound logistics
Exclusive Partnerships: Pantaloon has formed key exclusive partnerships with number of popular names. This
has enabled Pantaloons to sell wide range of products across its stores.
Gap Analysis
Orient Craft
Increasing need of brand recognition/ awareness: Orient Craft Limited needs to work on its brand equity so as to
make the brand well known and easily recognizable. Brand awareness is crucial to differentiating the product from
other similar products and competitors.
Increasing revenues from international market: Although the company is doing good in terms of exports, but there
is always a scope of improvement in international as well as in foreign markets. This is because of the overall
increasing demand at global level.
Less penetration in the domestic market: As per research, the level of penetration in the domestic market is
very less. So, the company can get into alliances or work on its internal capabilities to plug this gap.
Achieving advantages of scale, scope and speed: the company is low on
innovations so it can work on increasing its efficiency. For this, it may go for alliances
or develop its internal capabilities.
Better risk management: Fluctuations in the foreign exchange rates can hamper the
profitability of the company to a large extent. Hence increasing the domestic
portfolio would provide an offset against the risk and provide stable earnings.
No Market feedback/ Consumer Requirement Analysis: Being mainly an export
company Orient Craft has certain limitations in terms of gaining consumer insights
and feedback. A domestic alliance would solve this problem as they would be in sync with the market being close
to the sale touch points.
Dealing better with market unpredictability: Fashion trends change more frequently in the international market
compared to the Indian market. The alliance would considerably reduce its export rejects and increase profitability
Low on innovation: The company has traditionally been low on innovation producing similar goods since a long
time. Alliance with a major domestic brand would provide it with resources and insights into the local market and
increase innovation within the company.
Pantaloons
Manufacturing Capabilities: Pantaloons sources its products from various suppliers. Even for the in-house brands
Pantaloons India lack state of the art manufacturing facilities. Alliance with a manufacturing firm would help it
complete the value chain.
Product Offering Range: Despite a wide network of stores across major cities and towns in India, Pantaloons has
a narrow product offering compared to competitors.
Reach in Tier 2 towns: Pantaloons Retail India Limited is present mainly in Metros and Tier 1 cities across India.
Its reach is limited and doesnt cater to tier 2 towns and smaller areas.
Operational Inefficiencies: Sourcing from various suppliers has decreased the operational efficiencies of
Pantaloons and increased the transaction costs. Allying with one major buyer would help in achieving better
profitability and reliability
REASONS FOR ALLIANCE
Orient Craft
Strong business brand name: Tying up with a brand like Pantaloon India would provide Orient Craft the brand
recognition it needs in order to differentiate itself from the competition. Having produced quality products all
through a strong brand name would considerably increase the value of the company.
Scalability: The company is into expansion mode. Having a large domestic buyer would reduce the operational
and handling costs and provide economies of scale.
Efficiency in value chain: Pantaloons India being the major buy for the home furnishing segment, Orient Craft can
develop a dedicated logistics chain for Pantaloons. Large order sizes and continuous flow of goods to the various
geographies would enhance efficiency in the value chain from procuring to delivery.
Increased presence in domestic market: Being mainly an exporter of garments Orient Craft has little recognition in
the domestic market. An alliance with Pantaloons would give it the required credibility to cater to other domestic
buyers in the future. Also this provides them an opportunity to learn the intricacies of the Indian market.
Better demand forecasting: Being close to the domestic market would lead to better demand forecasting.
This would lead to reduced wastages and rejects and hence higher overall profitability.
Proper planning for hedging the risk of market uncertainty: The risk associated with
international currency fluctuations is not present in a domestic alliance. Orient Craft
can be assured of a steady income through Pantaloons and mitigate the risk to its
company bottom line.
Market feedback/ Consumer Requirement Analysis: Catering to the Indian market
along with Pantaloons India, Orient Craft can have better idea of the customer
requirements. The reach of Pantaloon enables it to sense changes in the consumer
needs and this could be easily relayed to Orient Craft.
Economies of scale: Having one major buyer for the home furnishing segment would allow Orient Craft to leverage
the economies of scale. This would cover everything from procurement to manufacturing, vendor management,
distribution, order booking and fulfilment etc
Pantaloons
Operational benefits: Demand supply mismatch would be avoided and operations would be smoothened as a
single supplier will be there.
Scale benefits: By having such an alliance, economies of scale would be leveraged.
Increase bargaining power: Since PRIL is suggested to take a considerable stake of Orient Crafts products cost
benefits will be derived by single supplier sourcing.
Customized products: PRIL will have better commanding power over the customization of products post the
alliance.
Increasing product quality and uniformity: By procuring from a single supplier uniformity will be there and also
product quality would improve given the export quality production measures of Orient Craft Ltd.
Net Gap Fulfilment Table
Critical Success Factors
Pantaloons
Orient Crafts
State of art Manufacturing
Width of product offering
Marketing
Goodwill among customers
Logistic and Supply chain capabilities
Location and Reach :Tier 1 Cities
Scope of Alliance
Orient Craft
Geographical Scope
Pantaloon has access to more than 15 million square feet of prime spaces in Indias largest cities. This gives the
company key competitive advantage. The companys strategy of focusing on the top eight cities (includes four
metros and other cities such as Ahmadabad, Pune, Hyderabad and Bangalore) would help it garner larger
revenues, and hence, higher market share. These top 8 cities account for around 75% of the total organized retail
market in top 34 cities in India, and therefore, provide tremendous opportunities. Around 70-75% of Pantaloons
existing space is in these cities; the company also plans to expand the same over the next few years. Pantaloon
India also has plans of opening retail outlets in tier 2 and tier 3 cities which have latent demands and great
potential. They have also further strengthened their presence in metro cities. Considering the fact that Pantaloon
India is very strong in geographical reach in India in Indian retail sector, an alliance of Orient Craft Ltd. and
Pantaloon India makes sense with respect to the distribution strength.
Functional Scope
Efficiency in operations through economies of scale: As mentioned in the need for alliance there would be huge
economies of scale due to the alliance. Having one major buyer in the home furnishing segment would allow
Orient Craft to combine resources. This would cover everything from procurement to manufacturing, vendor
management, distribution, order booking and fulfilment etc.
B2B branding (marketing): Tying up with Pantaloons gives Orient Craft a strong domestic brand name. This
would help it in getting clients in the future as well as increase its present credibility.
Financing expansion needs: Being in the expansion mode Orient Craft requires
financing for its capacity building. An alliance with Pantaloons gives it access to a
loan at a lower interest rate and hence allowing it to set up additional plant and
equipments with relative ease.
Pantaloons
Orient Craft makes premium quality home furnishing products. These could be sold
at PRIL outlets like HomeTown and help in increasing the scope of products sold at
PRIL.
Operational collaboration: The goal is to reduce transaction costs by reducing the number of suppliers and
extracting benefits of economies of scale.
Customisation of products: Pantaloons Retail India Ltd. will also look to get benefits of customized products which
will add to the exclusivity of the products being offered.
Supply chain collaboration: The nature of the industry is cyclical with high demands during the festive seasons,
supply chain collaboration to ease existing inventory problems through coordination of procurement with demand.
Consumer feedback and trend analysis: Consumer feedback and trend analysis will allow PRIL and Orient Craft
Ltd. to collaborate and rationalise their product portfolio so that focus can be made on products exhibiting high
growth prospects in future.
Type of Alliance
Non-Equity Alliance
The proposed alliance should be a non-equity alliance because none of the business related synergies require
any investment of any kind by the partners. Also the company PRIL already has a cash crunch (This being the
prime reason for it to sell off its prime brand Pantaloons to ABG Nuvo)
Buyer-Supplier Alliance
Shared Risk: Investment Risk,
Shared Resources: Market Information, Demographic and Forecasting details.
Shared Rewards: Operational Cost Benefits, Scale Benefits
Value Creation post Alliance
Figure : Value Creation Post Alliance
Considerations
Orient Craft Limited
Demand Security: Strategic alliance with Pantaloon retail will avoid order rejection for Orient Craft as Pantaloon
will bear the responsibility of selling those products. In past Orient Craft has been losing money on rejected
orders.
Expansion Needs: Orient Craft need financial need in expanding production volume and partnering with
Pantaloon retail will provide much needed capital for Orient Craft.
Demand Predictability: Export orders are highly unpredictable which increases inventory cost for Orient Craft.
Partnering with Pantaloon retail will provide better demand predictability and in turn lower inventory carrying cost
for Orient Craft.
Access to Domestic Market: Orient Craft has no significant presence in domestic market hence partnering with
Pantaloon will provide strategic presence & better visibility in domestic market.
Market Feedback: Alliance with Pantaloon will provide market feedback to Orient Craft which in turn can improve
the quality of Orient Craft products brining higher margins for the company in future.
Pantaloons Retail India Ltd.
Reliable Supply: Strategic alliance with Orient Craft will provide consistent & reliable supply of superior quality
home furnishing products.
Hold up Cost: Transaction cost of supplying products from different suppliers can result in potential hold up cost
which can be minimized through strategic alliance with Orient Craft.
Customized Products: Orient craft can provide customized home furnishing products to Pantaloon Retail which
will help it in getting desired quality products on short delivery period.
Reduction in Number of supplier: Managing orders from multiple suppliers involve significant co ordination
cost since orders from different locations need to be collected at one point to meet the demand. Partnering
with Orient Craft will provide significant cost savings to Pantaloon Retail.
International standard quality products: Pantaloon can expect good quality products
from Orient Craft through this alliance since Orient Craft has been dealing with
international retailers in past which are known for stringent quality standards.
Performance Measurement Parameters
Fluid exchange of information
Exchange of information about production costs
Exchange of information about plans, programs and schedules
Transparent negotiations
Helping each other in implementing programs of inventory management (e.g. just-in-time)
Problem-solving approach rather than mutual conflict
Mutual trust and commitment
Flexibility to make adjustments when difficult situations unfold
New product and process development
Sharing of investments, responsibilities and efforts
Sharing the burden and the outcomes of joint initiatives
Discussion
The alliance proposed fits into the theoretical perspectives studied through the course.
The companies can chose to get into an explorative alliance with high interaction between the firms to utilize
synergies and create something new. However the level of trust and information sharing required is high. It can be
termed a strategic alliance with resource configuration (co-specialization in tacit resources) and task coordination
(strong mutual trust for long term exchange). The alliance would serve to achieve all the motives of a strategic
alliance i.e. - reduce transaction cost (one big supplier leading to lesser coordination), improve market position
(more branding for Orient, greater product range for Pantaloons) and enhanced learning (especially for Orient
Craft as they gain knowledge of the domestic market through Pantaloons)
The alliance can be looked as reasonable due to the presence of both external and internal strategic drivers.
External drivers could be high market uncertainty, global and technological changes. Internal drivers are the
learning and synergy gained from the alliance.
Various theories like Transaction Cost Economics and Increasing Return Theory justify the proposed alliance if
implemented in a proper manner. Also there is Transaction Value by joint value maximisation due to inter-firm
learning and mutual trust.
Both the companies having their base in India and catering to the apparel industry have a cultural fit as well.
However some considerations and performance checks have to be put in place as discussed.
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