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A consumer Behaviour Research

Study on ITC Premium Brands of Cigarettes

Submitted on: 2/12/2002

Submitted To:
Dr. Kumud Diwan
Faculty
EMPI Business School

Submitted By:
Koeli Chakroborty
(Roll No. 22)
Sagar Kumar Parida
(Roll No. 25)
Sourav Kapoor
(Roll No. 29)
Shirish Agarwal
(Roll No. 30)
EMPI Business School,
CSKM Educational Complex, Satbari
Mehrauli, New Delhi - 110030
ACKNOWLEDGEMENT

We wish to express our utmost gratitude to all those who have

helped me throughout the making of this project. We

acknowledge the help and guidance of Dr. Kumud Diwan, Faculty,

EMPI Business School in Conducting the project “A Consumer

Behaviour Study on ITC Premium Brands of Cigarettes.

We would like to extend any special thanks to all the faculty

members and friends who have provided me with valuable

information and support.

Kotli Chakroborty
Prachuria Sharma
Sagar Kumar Parida
Saurabh Kapoor
Shirish Agarwal
CONTENTS

ACKNOWLEDGEMENT

EXECUTIVE SUMMARY

CHAPTER I

Introduction

ITC and Introduction

Vision of the ITC

Mission of the ITC

Core Values of ITC

Radiance of ITC

Business

Major Groups Companies

Core Competence of the ITC Ltd.

Swot Analysis

Objectives

Scope

Limitations

CHAPTER 2

Research Methodology

Research Design

Data Collection Method

Sampling Plan

Sampling Procedure
OBJECTIVES

The major objectives of this research is to study the market share

of different ITC Premium Brand of Cigarettes, the reasons for

smoking, companions with whom they want to smoke, buying

habits, awareness of advertisements, effect of advertisements on

smokers psyche, to study the consumer behaviour on brand

shifting and etc.


SCOPE

The project emphasizes on the study of ITC Premium brands and

ITC acceptability. The research can be used to find out the buying

habits of the consumers.


LIMITATIONS

The main limitation was the location which was confined to South

Delhi. It is assumed that the information’s gathered from

consumer and dealers are correct.


DATA COLLECTION INSTRUMENT

A two page questionnaire was used for consumers, the question

asked were both open ended and close ended questions.

Sampling Plan

Sample size consisted of 300 respondents and five dealers.

Area of Research: South Delhi

Sampling unit consisted of all cigarettes smokers.

Field Work Plan:

The respondents were contacted on all week days. Consumers

were contacted between 5:30 to 8:30 pm, especially on

Thursdays.
CONCLUSION

From the research we can conclude that consumers mostly smoke

for relaxation (which can be used by the advertises to exploit

consumer psyche). Friend circle are the main reasons for initial

starting up for smoking. Most of the respondents like to stick to

their brand and etc.


CHAPTER – I

INTRODUCTION
ITC AN INTRODUCTION

ITC, an affiliate of BAT has a dominating 66%volume share and

76% value-share in the Indian cigarette market. Cigarette and

tobacco forms the bread and butter business of the company

accounting for 90% of turnover. Besides that ITC also has

interests in hotels, packaging and paper businesses.

The cigarette and tobacco players face increasing protests from

anti-tobacco and health organizations. Globally as well as in India,

the anti-smoking lobbying has been gaining ground. The cigarette

industry faces immense pressure with declining volumes and

increasing government regulations and taxation. Profitability of

most players has been affected. Players like ITC with a strong

brand equity and pricing power have been able to maintain

margins through price increases. The industry has received some

relief in the form of excise exemption for manufacturing in North

Eastern states, and most companies have commenced

manufacture in the region to avail of the excise exemption.

ITC has recently also ventured into a number of new businesses,

which will leverage on its existing strong brand equity. The

company has forayed into retailing business with opening up of its

apparel retail shops in Delhi. It plans to invest Rs2.5bn in these

new ventures. It also plans to enter into retail processed food


business through its hotel chains. The company is also looking at

a likely entry into the greeting cards business. It has also invested

heavily in hotel project, which are expected to be completed by

the end of this year.

In Q1 FY01, the company sales grew by 11%yoy to Rs21.4bn,

although in volume terms cigarette sales grew marginally by 2%.

Value growth has come due to upgradation of product mix

towards a premium portfolio and price hikes undertaken after the

current year's budget. Operating profit margin has improved by

250 basis points to 18.5% and net profit increased by 25% yoy to

Rs2.4bn in Q1.
THE VISION OF ITC

Sustain ITC’s position as one of India’s most valuable corporations

through world class performance, creating growing value for the

Indian economy and the Company's stakeholders.

THE MISSION OF ITC

To enhance the wealth generating capability o the enterprise in a

globalising environment, delivering superior and sustainable

stakeholders value.
CORE VALUES OF ITC

ITC's Core Values are aimed at developing a customer-focused,

high-performance organization which creates value for all its

stakeholders:

Trusteeship

As professional managers, we are conscious that ITC has been

given to us in "trust" by all our stakeholders. We will redeem the

trust reposed in us by continuously adding value to ITC.

Customer Focus

We will always be customer focused. We will deliver what the

customer needs in terms of value, quality and satisfaction.

Respect For People

We will respect and value people and uphold humanness and

human dignity.

We will value differences in individual perspectives. We want

individuals to dream, create and experiment in pursuit of

opportunities and achieve leadership through teamwork.

Excellence

We will strive for excellence in whatever we do. We will do what is

right, do it well and win.


Innovation

We will constantly innovate and strive to better our processes,

products, services and management practices.

Ethical Corporate Citizenship

We will pursue exemplary standards of ethical behaviour. We will

at all times comply with the laws of the land.


THE RADIANCE OF ITC

The Genesis:

The story of the Imperial Tobacco Company Limited,

extraordinary though dates back long before the company came

into prominence, and it started not in India but in the USA and

UK. In 1881 James Buchanan Duke popularly known as Buck Duke

was put in charge of a factory owned family business in USA that

made Granulated Tobacco called Duke of Durham. At that stage

the competition was fierce but Buck decided he would rather go

into the making of cigarettes, than moving into the competition.

Bonsack Brothers who had made a cigarette machine claimed

that there machine once installed would reduce the cost of

manufacturing cigarettes from 80 cents per thousand to 30 cents,

Buck Duke being open to ideas installed it and in turn was ready

to pay Royalty at a discounted amount. Over the growing period

of time the company made it’s market dominance and became a

front runner in the industry.

His dynamics was such that though trade barriers existed, he

through repeated trials entered the lucrative and ever expanding

British market and capture it. He even went into takeover bidi’s

like the one he had done to purchase Ogden for a phenomenal

amount of 8,00,000 pounds in 1901.


With the advent of the American’s the leaders in the market W.D.

& H.O. Wills took the initiative to put up a substantial defence, for

this the company organized a meeting of all the thirteen major

British firms and suggested that the only way to counter such an

attack was to unite. After a series of discussions on the 10th

December, 1901 they united to form the Imperial Tobacco

Company (of Great Britain and Ireland) Limited hereafter referred

to as GB & I, with Sir William Henry Wills, later known to be Lord

Winterstroke as Chairman.

The battle enraged where on one side the Imperial tobacco

offered bonus to retailers who agreed not to display any goods

from Ogden’s or the American Tobacco Company.

Duke gave a bigger bonus and allotted a princely amount of

2,00,000 pounds a year for four years in addition to Ogden’s

entire profit during the period.

The war carried on and after sometime both the companies

realized that they were incurring losses thus mutual agreement

had to be reached as it was eating into their profits and though

Ogden’s product sale had gone up their co-related costs also had

gone up and the company was incurring heavy loss. The treaty

was signed and was decided that they will not operate in the

cross-nations and will have core competence in their own nation.

The American Tobacco Company in consideration for the transfer


of Ogden (which was a British Company at an exorbitant price) to

Imperial (GB & I) acquired substantial minority interest in this

company which entitled it to nominate three directors to the

board.

The relevance to the story is the fact that a new company British-

American Tobacco Company Limited (BAT) was set up to handle

trade outside the United Kingdom and the United States with two-

thirds of its stock owned by the American Tobacco Company and

the rest by Imperial (GB&I). Once again the obvious choice was

James Buchanan Duke for being the Chairman of the company.

BAT was registered in the United Kingdom which was to prove

providential a few years later when, in 1911, the American

Tobacco Company was finally broken up the Sherman Anti-Trust

Act of 1890.

The US government had come to the conclusion that monopolies

such as the American Tobacco Company and Standard Oil were

against the principle of free trade and the public interest. Duke

was ordered by the US Supreme Court to dismember the monolith

he had created. Apart from disgorging some of the companies

that had been gobbled up earlier, American Tobacco also sold off

its majority shareholding in British-American Tobacco to British

investors.
Buck Duke stayed on as Chairman in order to help develop and

expand operations abroad. Amongst these in India were the

Peninsular Tobacco Company, The Indian Leaf Development

Company and the Imperial Tobacco Company of India Limited, all

of which (and several others) were to be amalgamated in the

course of time into one company, the Imperial Tobacco Company

of India Limited, later to alter its name in keeping with changing

times, first to Indian Tobacco Company Limited and then to ITC

Limited.

Strong Financial Base: Today the ITC Group has one of the

highest market capitalization in India nearing US $ 6 billion. With

a strong asset

Wider Distribution: Perhaps no other company in India has a

network as extensive as ITC. A network that consists of over

24,000 people. And one that co-ordinate supplies from dozen

manufacturing locations to over a million retail outlets spread

across 4,700 towns daily.

Global Outlook: ITC understands that in years to come the only

way to stay ahead will be by catering to global market. Thus it

has already begun working towards his objective. In past few

years it emerged as India’s largest exporter. The company has

also set up a 100% subsidiary for global trading with its


operational headquarters located in Singapore: ITC Global

Holdings Pte. Ltd. with offices in Dubai, Ho Chi Minh City, Jakarta,

London, Moscow and New Jersey. ITC’s products are designed to

meet international standards. Keeping this in mind, the company

has formed enduring business associations with a host of other

international companies: BAT, Sheraton, Pacific Seeds,

Continental Grain, Europcar, and Lotus Corp future plans of the

company include making India and ITC a major Cigarette

manufacturing base for global brands.

Consumer Focus: ITC’s products are used by millions of

consumers from every walks of life. Over the years, ITC has

invested millions in consumer research to understand the Indian

consumer and their needs. Not surprisingly then, ITC has been

able to create brand leaders in virtually every business it operates

in.
BUSINESS

4 players - ITC, Godfrey Phillips, VST (also a BAT affiliate) and

GTC. These four companies together control almost 99% of the

market. The cigarette industry faces competition mainly from the

unorganized sector 'bidi' manufacturers, who are protected from

high duties due to small-scale industry status. Affected by steep

duty hikes, the industry has been facing stagnant volume growth

in the last 2-3 years. Cigarette sales dropped by 4% in volume

terms in FY00. The 2000-01 budget also hiked excise on all types

of cigarettes by 5%.

Based on the contribution form various products, ITC’s business

can be divided into three main divisions, namely cigarettes,

tobacco and agri-products. ITC’s mainstay of earnings is

cigarettes (87%) and tobacco (3%). Agri-products business

contributes 5% of the total Rs80bn revenues, while other

businesses of hotels, paper and packaging collectively contribute

the balance 5%.

Cigarettes/ Tobacco:

Cigarettes: ITC sold 66145mn sticks in FY00 as against 67753mn

sticks in FY99. Number of sticks sold by the company has been

decreasing continuously for past 3-4 years but with increasing

focus on premium segment and passing on any hike in excise on


to the consumers has helped in increasing the sales in value

terms. ITC has a broad-based presence in all the segments of the

cigarette market. Scissors is the brand leader in volumes and

Wills Gold Flake family is the single largest consumer product

trademark in India. Of the total produce more than 70% is in the

filter cigarette category while rest is in non-filter category. The

company has also shifted 45% of its cigarette sales in form of

hinged lid packaging. During FY00 the company extended its Gold

Flake brand to other tastes and flavours. Two of its brands

namely, Checkers and Hi-Val sell more than 100mn sticks per

month in USA. Cigarette volumes declined by 2.4% yoy in FY00.

Average per unit realizations however improved during the year

by 9% yoy to Rs1049 per 1000 sticks.

Tobacco: ITC’s India Leaf Tobacco Division (ILTD) procures

tobacco directly from farmers and also through auctions/ traders.

ILTD works with the Tobacco Board to help farmers in

developmental activities. ILTD also supplies tobacco to an

associate company VST and other cigarette companies, besides

exporting. ITC is one of the leading exporters of leaf tobacco.

Exports are mainly to Latin America, South East Asia, Western

Europe and also to CIS markets. The division's performance has

got affected due to oversupply situation in the global market.

Moreover unauthorized production of tobacco has also increased


leading to excess availability. Tobacco board has recently

declared a crop holiday in the state for tobacco. The Andhra

Pradesh plant of the company at Chirala was awarded Golden

Peacock award for environmental management during FY00. The

plant has also been awarded social accountability Standard

certification from Bureau Veritas Quality International. The

company produced 24,026 tons of unmanufactured tobacco

during FY00. It contributed 3% of the total revenue during the

year.

Other Businesses:

Hotels: ITC has been investing very heavily in its hospitality

business. During FY00 the company acquired land from its

subsidiary, ITC hotels and started construction of Super Deluxe

hotel. The construction work is till in progress. The company's

construction work at its Mumbai ITC Grand Maratha project is

expected to be completed by current year. Extension at its Hotel

ITC Maurya Sheraton in Delhi is expected to open shortly. The

company's Maurya Sheraton hotel received ISO14001 certification

during the year. The hotel business contributed Rs1209mn to the

total revenue during the year as compared to that of Rs1437.5mn

in FY99.

Packaging and printing: The company has leadership position

in cigarette and liquor packaging. The company's much-talked


about acquisition of Rollatainers didn't materialize and it was

called off. The division attained Level-6 in the international

Quality rating system from an international accreditation agency.

It also got World Star award for excellence in packaging. The

exports by the division increased by 20% yoy following

technology upgradation at its manufacturing plants.

Specialty paper: ITC operates a 33000 tpa plant at Tribeni, West

Bengal, to manufacture specialty papers, mainly with the

imported wood pulp. Besides captive consumption, ITC also

exports cigarette-packaging paper to BAT subsidiaries in Africa

and Central Asia. Margins in the business have been adversely

affected with stiff price competition from domestic as well as

imported products post reduction in import duty. ITC has been

scouting for an international joint venture partner for upgrading

technology in this business. The division received certification

under ISO9001 quality standards and Gold Star award from Royal

Society for Prevention of Accidents, UK. The speciality paper

division contributed Rs1bn to the total revenues during FY00

compared to Rs880.5mn in FY99. The company produced 16355

tons of specialty paper during the year.

International business division, which is involved in handling

exports from the company, did exports of Rs3.2bn during FY00.

The division exports agri-products to various countries across the


globe. Recently the division has decided to set up e-choupals for

shrimps and coffee. These e-choupals would provide up-to-date

information regarding local and global weather and scientific

practices followed at different places to farmers. The division has

plans of setting up 300 such choupals across the country in

current year. ITC also has a infotech division, which is being

realigned to focus on e-commerce software solutions. The

company plans to hive off its Infotech division into a separate

subsidiary.

New Businesses

The company has decided to venture into a number of new and

unrelated areas. ITC has recently launched its leisure apparels

under Wills Sports brand to leverage on its Wills brand equity. The

company had also ventured into Branded Holidays business,

which is being reviewed as performance has been below

expectations.

Earnings sensitivity factors:

• Excise duty changes on cigarettes

• New product launches : Rothmans’ international brand

portfolio may be launched through ITC, as Rothmans has

withdrawn proposal for 100% subsidiary post global merger

with BAT.
• Leaf tobacco crop depends on weather conditions and has

significant impact on raw material costs.

• Export markets reduces dependence on domestic market.

Exports are also affected by the domestic crop production.

• Paper/ paperboard margins depend on international paper

and wood pulp prices as well as changes in custom duty

rates.

• Excise duty exemption in northeastern states.

• Growing grey market for foreign branded cigarettes

• Success in new business ventures

• Returns from investments in hotel business


MAJOR GROUPS COMPANIES

ITC Hotels LTd.

A premier hotel chain, catering to the international traveler. It

markets and operates 13 leading hotel properties under the

Welcomgroup banner, Welcom Heritage offers palaces and

resorts at 15 locations. Fortune Park, a subsidiary of ITC Hotels,

serves the mid-market segment.

ITC Bhadrachalam Paperboards Ltd.

India’s largest manufacturer of paper and paperboard, it has

modenrised its operations to increase market share.

ITC Filtrona Ltd.

A joint venture with Filtrona International Ltd., UK, which makes

available in India the latest cigarette filter technology including

technically advanced multiple filters.

International Travel House Ltd.

One of the India’s leading travel and tour agencies, offering

services for business and leisure travelers throughout India. Has

set up a golf resort of international standards through its

subsidiary, Landbase.

Surya Tobacco Company (p) Ltd.


ITC’s joint venture project in Nepal is the country’s largest private

sector corporation with brand leaders in every segment.


CORE COMPETENCE OF ITC LTD.

Cigarettes & Tobaccos

Tobacco, grown in India for over four centuries, contribute

significantly to the well being of the country. From marginal

growing Tobacco on unirrigated, small land holdings to the

retailers in remote corners of India, over 26 million people benefit

from their direct or indirect association with the Tobacco Industry.

Tobacco uses jus t0.3% or arable land to yield 1% of agriculture

value and nearly 4% of India’s agri-exports.

ITC Ltd. is a multi-dimensional corporate entity. ITC has achieved

leadership in its core business i.e. Tobacco & Cigarettes,

Cigarettes alone contribute 85% of total revenue contribution.

REVENUE FROM CIGARETTES

Others
15%

Cigarettes
85%
LEADING CIGARETTE BRANDS OF MAJOR PLAYERS

ITC VST GPI GTC


Major Filter brands
Premium India King Kingston Rothmans Chancellor
Classic, State Legend Jaisalmer Harvard,
Express555, Craven
Benson & Burton Chesterfield Dunhill,
Hedges , Marlboro Cartier
Medium Wills Charms Four Square Panama
Mini Filter,
King
Navy Cut King, Gold Red & Baton
Premium, White
Charms
Viginia
Filter
Popular Gold Flake Charminar Red & Panama
Gold Filter White Filter Filter
Bristol, Commando,
Capstain Originals
Major non filter brands
Upper Scissors Charminar Red & Flair, Style
Gold White
Lower Hero Charminar, Cavenders Panama
Charms
Standard

MARKET SHARE OF MAJOR PLAYERS

Volumes Sales Of Major Players


Volume in

mn sticks FY97 FY98 FY99

ITC 68126 68137 67753

VST 13403 13942 12873

GPI 12962 13100 12797

GTC 7538 12924 8367

Market shares of major players by volume

In % FY97 FY98 FY99

ITC 66.1 65.0 65.9

VST 13.0 13.3 12.5

GPI 12.6 12.5 12.5

GTC 7.3 8.2 8.1

Others 1.0 1.0 1.0

Market Shares Of Major Players By Value

In % FY97 FY98 FY99

ITC 74.7 75.2 76.4

VST 8.1 8.1 7.4

GPI 12.2 12.0 11.4

GTC 4.3 4.2 4.3


ITC CIGARETTES

Product – Mix Length and Depth

KSFT RSFT PLAINS LONGS MICROS

75 mm & 70-74 60-69 60-69 0-59 mm

above mm mm mm

India Kings Gold Flake Wills Filter Capstan

PR Std.

20 HL 10 HL 20 HL 10SS

State Express Capstan 10 HL

555 FT

SPL FTK-20 HL 20 HL

LTS FTK-20 HL 10 SS

Wills Classic Wills flake

20 HL 10 SS

10 HL

Wills Classic

Menthol

20 HL

Wills Classic

Ultra Mild

20 HL

10 HL

Benson&Hedge
s

SPL FTK-20 HL

LTS FTK 20 HL

Wills natural

lights

20 HL

10 HL

Gold flake FTK

20 HL

10 HL

LTS-Lights/FTK-Filer Kings/HL-Hinge & Leaf / SS – Slip & Slide.


SWOT ANALYSIS

It is a important for a company to analyse the current marketing

situation and identify the major Strengths, Weakness,

Opportunities and Threats. This helps the company to know its

inner strengths and competitive socio-economic condition

prevailing in the market because business cannot be run in an

isolation condition, if further makes them to review their strategy

and accordingly plan for the objective keeping in mind their

financial position.

Strengths/Weaknesses: It is Internal analysis of the company.

Strengths of ITC Ltd.

• Market leader in Cigarette Industry.

• Excellent Brand awareness and Quality Image

• Strong Sales network to achieve Intensive Marketing.

• Brands for all the market segments i.e. largest range of

Cigarettes.

• Mechanise manufacturing plants in the factories.

• State-of-the-at equipment for Research and Development.

Weaknesses

• More interacting brands in one segment.


• Price fluctuation is quite frequent.

Opportunities / Threats ITC Ltd: External or competitive

analysis. It helps company to understand the operating Socio-

Economic conditions and competitors business operation

strategy.

Opportunities:

• Global base.

• Consumer awareness towards quality cigarettes.

• A big middle-class market in India to trap. Access to

International market is easy due to removal of Tariff

barriers

Threats

• From Gutkha, Pan masala and other chewing tabacco

products.

• Grey market popularity

• Government policies regarding – excise duty and Taxes

• Anti-smoking movement, gaining momentum.


MAIN OBJECTIVES

1. To study the market share of

different ITC Premium Brand Cigarette.

2. To study the importance that

Cigarette smokes attach to various attributes (Taste,

Relaxation, Aroma etc.) while buying.

3. To study the change in brand

loyalty in response to price, quality, availability etc.

4. To study the effectiveness of

advertisements of a brand in terms of its ability to attract

consumes loyal to other brands.

Supplementary Objectives

1. To study the reason for starting

smoking.

2. To study he buying behaviour of

consumer.

3. To know the role of reference

groups while smoking.


Research Methodology

The method used during the research was random sampling.

Smokers while smoking were interviewed by the means of

questionnaires.

Data Collection Method

Primary Data: Primary Data was collected through questionnaire

(Respondents were interviewed by questionnaires).

Secondary Data: Secondary data were collected from sources

like Websites, Magazines etc.


SCOPE

The project entails the study of ITC premium Cigarette market in

Delhi and to understand the consumer behaviour of the smokers.

The sample size was 300 respondents and to visit 4 high end

gathering 6 place and meeting 5 dealers total.


LIMITATION

1. The product was limited for a period

of twenty days.

2. The study was confined to South

Delhi.

3. It is assumed that customers and

dealers have given a precise and correct information.


CHAPTER 2

RESEARCH METHODOLOGY
RESEARCH METHODOLOGY

Research Design

The Research Design used was exploratory in nature the

experience survey was used, whereby a sample of people

smoking cigarette were interviewed by means of a questionnaire.

The respondents were contacted by means of random sampling

design.

Data Collection Method

Primary Data: Primary data was collected by means of survey

method by administering a secrete questionnaire (schedule) for

consumers smoking cigarette.

Secondary Data: Secondary data was collected from the following

sources:

1. Websites

2. Magazines

Business Today

Business World

(A & M (Old Editions)


DATA COLLECTION INSTRUMENT

1. The Data Collection instrument used was a two page

questionnaire

2. The questions asked were both open and questions and

close and questions.

Sampling Plan

(a) Sampling Unit

The sampling unit consisted of all cigarette smokers, premium

cigarette smokers in particular.

(b) Sample Size

The sample consist 300 consumers and 5 dealers.

Sampling Procedure

The sampling procedure used was random sampling cluster (area)

samples were selected out of total population of South Delhi.

Fieldwork Plan:

Respondents were contacted on all week days. Consumers could

only be contacted in evening between 5:30 pm to 8:30 pm.

Dealers could only be contacted in the morning between 11:30


am and 2 pm on Thursday and in the evening depending on the

availability of the respondents.

CHAPTER 3

FINDINGS AND ANALYSIS


GRAPH
Chapter – 4

CONCLUSION AND RECOMMENDATION


CONCLUSION

• Advertisement does not have much impact on the non

smoker to start smoking.

• Friend circle is the main reason behind starting smoking.

• % of cigarette smokers smoke for relaxation % of cigarette

smokes smoke for time pass and % smoke for style, aroma and

taste.

• Most

• Most of the respondents like to stick to their brand and the

respondents who want to change will change for quality and

availability.

Recommendation

• Availability of favourite brand is important for brand loyal

cigarette smokers because of non availability, the may try

another brand. So, physical distribution and deliver on time at

various outlets are very important.

• Advertising strategy must emphasise on relaxation rather

than emphasizing on fun.


BIBLIOGRAPHY

www.itccorporate.com

www.indiainfoline.com

Business World

Business Today

Economic Times