Strategic Analysis
Essay by urvash jain • August 6, 2016 • Case Study • 917 Words (4 Pages) • 1,307 Views
Strategic Analysis
Internal Rivalry
Domestic production is between 140-160 million linear metes (2000 crores) and imports 30-40 million (700 crores) mostly from China, 50% of the domestic market is organized which 10-15 large players cater.
Global Auto OEM market is as big as 3000-4000 crores.
The synthetic leather industry is a competitive market, however Mayur is competing in the high quality segment that entails high margins. Currently Mayur is producing 22.8 million linear meters, with the installation of the fifth coating line production will be 30 million linear meters per year.
Competitors
Jasch Industries (Listed) – producing electronic gauges and artificial leather, annual turnover 20 crores (8 crores leather)
Fenolplast (Listed) – producing PVC leather for automobile industry and PVC films used by pharmacy industry.
Polynova Industries (subsidiary of Lupin) – manufacturing 12 million linear meters per year. Supplying to Volkswagen, MG Rover and Ford Motors
Manish Vinyls – producing 5 million linear meters.
Suppliers bargaining power
Raw material costs accounts for 75% of sales, which include release papers, PU & PVC chemicals and knitted fabric. Mayur buys these materials from the organized sector where prices are sold at competitive prices, hence leaving very less room for bargaining.
Suppliers costs are a function of crude oil prices, synthetic leather manufacturing is highly dependent on oil prices. In the past raw material prices have gone up, apart from advanced technology it is the quality of raw materials that will improve cost efficiency.
Knitted fabric is its largest input after PU and PVC chemicals. Mayur is backward integrating, will be producing its own high quality fabric which should improve leather quality and reduce rejections.
Buyers bargaining power
50% of Mayurs revenue comes from footwear, 36% from auto OEM, 7% auto replacement.
International Auto OEM clients take time before deciding to buy, they look at product quality and production capacity. Mayur has been in talks with Mercedes and BMW for over the last three years, the deal is still yet to materialize. Auto OEM companies go through rounds and rounds of quality control tests before approving.
Long-term relations need to be maintained, not very easy for buyers to switch or find replacement. Buyers expect a certain level of quality leaving room for product differentiation and branding. Customer relationship in the OEM and footwear industry is highly dependent on the service and quality; it is not easily replaceable by pricing factors. Mayur has been maintaining good relations.
Producing PU and PVC depends a lot on weather conditions. PVC leather is majorly used in markets such as US and India, whereas PU in Europe and China.
Threat of substitutes
Three key reasons why high quality artificial leather will substitute original leather: it is not anti-animal, lower manufacturing costs, environmental friendly.
Threat of new entrants
Although capital requirements are not very high, service and distribution are key. Growth can be achieved by expanding client base. Clients look for high product quality and production capacity. First mover advantage and strong brand name ensure an artificial barrier to some extent.
Chinese PU leather is a threat, as there still exists a huge quality
...
...