Purose of te Case

*
:
.
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_
&
g
: ~ ,

Marketing Environment Case 3
8

The idea is asimilae the releuant concept 0work and analyse in light of te following isue:
How to tck and identf opprunites and threat in the macro-environment
How to asess the imporance of demoraphic, economic, plitcal and technological factor
How to sustain, sutive and grow in the changing business milieu
OVER A CUP OF COFFEE
It 6 a bright day, and the sun rays filter in through
the window of Satsh Mehra, the Chief Operatng
Officer at Apollo Tyres. The company i one of the
leading tyre companies in India with a turover of
R 2,60 crore, 2nd largest in the country, 17th
largest in the world.. Satsh moves over to the coffee
machine to brew his third cop and turs it on. His
door opens and Kran Sinha, the Stategy Head
walk in with a woned look on his face. Satsh looks
at Kran and aks, "Why the woried look Karan,
what's bothering you now?" "Worrying me? That's
a understatement Satsh, have you seen the kind
of changes that are happening around us? It surely

i a volatle busines environment that we operate

in' replies Karan. "Why what happene?" enquire
Satsh inquisitvely. "Ther is change everhere
Sa
tish, just look at it, the economy, political
se
nario, siet changes, technolo boms, the
way the environment is changing is overhelming.
We need to do something if we need to grow and
maintain our position, otherwise we will get
devoured by these changes in the environment,"
replies Karan. "All right I hear you but you need to
relax first," quips Satish "Here let me pour you a
cup of cofee and let's discuss this matter."
Satsh pours Kran a cup of coffee and they both
take a sat in the office. Satsh notices the steaming
cup on the table which lies untouched a Kran i
too preoccupied with his thought. Satish thinks in
retospct about how vital Kran's contbuton has
been to the succes of the company in all te years
and his sincerity towards the organisation and
ponders over what Karan ha just sid ...
What Kran had just said was te. There were
a lot of changes tking pi ce in the macro
environment which no one had really paid attenton

t and Sath realied the disatous efect that this

igorce could have. The count wa encing
38 'amra_1mn C " ma~ng
temendous economic wit rising disposble
incomes and consumer expectatons opening up
ne iveb 1ent avenue for globa businB. There
was a complete paradig shift being experienced,
rminated Satsh.
"I totally see your point Kran and & really glad
that you have brought this up. Would you like some
more sugar to go with that cofee?" ''I & just fine,
thank, but would prefer more concrete action on

these isues than sugar in my coffee right now,"

replied.Kran with a hint of pun in his v
o
ice. ''Meet
me at 10 A sharP tomorow moring and we shall
set up an agenda and an acton plan to work on
this: "That suit me fine Satsh and I will see you
tomorow and let' s get cracking on this." With this
Kran leaves the office, feeling relieved.
THE MEETING
Satish hear a knock on his door and look at the
watch which just strikes 10. He smiles at the
consistent punctuality that i s Kran's tademark and
motions him to come in . ''Good moring Satsh,
are we r eady to crack thw-environment this

morning?" asks Karan. ''Yes

we are Karan, please

have a seat." Kran takes a seat and dumps volumes
of data on Satish's desk
.
Satish looks perplexed
looking at the tonnage of paper that Karan has just

* ~
brought in and ask him that what it is. Karan tells
him that he has collected data on the economic
figures for India, the various policy changes of the
new goverment and has various sureys which
capture the changing consumer buying behaviors
it impact us ? If industial growth is at 10 then
what, and if any of these are lower than forecasted
then what do we do ? Th goverment has relaxed
the cap on FI into retail and RD with s many
oter psitve plicy changes which would impact
us, but how do we make sense out of all this?" "That
is something I was hoping that you would help me
answer, Satish because I & a overwhelmed b all
this data a you seem to be,'' replies Karan. This
data crnching is going to require a lot of time and
I don't think ve \.Jould be able to do justice to it with
our current schedules especially with the Asia Pcific
review due next week. Satsh mulls over the senario
for a while and then says that it is a better idea to
hire a consultancy for one of the aspects of the
macro-environment and ak them to present their
findings with the impact on their company. Kran
seems delighted ''That is a wonderful idea; s let's
do it." They decide to allocate economic growth in
India to Boston Consulting Group (BCG) and give
a deadline of one week for the fh to present their
findings.
Afer a week BCG presents their report on the
macro-economic analysis and its impact on Apollo
Tyres which is presented in the Annexure .
THE DILEMMAS
''Have you gone through the repor yet Satsh ?" asks
Karan as he walks into Satsh 's office holding a copy
of the report hi,. '"elf
.
''Yes, I have and am impresed
with their finding
s
and analysis" replies Satish. ''S
o
am I and it is interesting to see the intensity of the
impact that these economic factors in the macro
environment have on our industy," says Kran a
he put the report on Satish's table. "I could have
never imagined the high corelaton that our indust
has -ith these economic factors, it more so
vindicate te imporance of macro environment and

scanning to surive in toay's compettve busines

milieu . We need tc tweak our stategy and maintin
a long ter1 stategic outook keeping the macro
environment odeters in mind . "

Changes in the maro envirnment ad economy

would impact business across the country and

companie like Apollo Tyres and others wil l have to
teak and adjust their stategy accordingly. The
queon arise that what i the right stategy to fully
exploit the changes. Already it i being sid and
shown in the case also how India is no longer
dependent on monsoon for exhibiting robus
economic growth (PI refer t Anneure) and sl
there i so much focus on the amount of monsoon

we receave evet year.

How should Apollo Tyres respond to these
changes? What would be the right blend of
strategising for them? If agriculture production
-
incNases ten shoul .they create and target new
rural segments to market their tyres? Currently
setices sector contributes approximately 52%
towards GOP but if t he Business Process
Outourcing (BPO) paradigm in India burst then
what wil l be the impact on this contribution of
setices towards GOP Also economic growth has a

casading effect on the macro environment where

f . .
it impacts the consumers with changes in their
disposable income, purchasing power and other
cultural changes a an outcome of ti. These are
some quetons that we a future managers would
have to address in purview of the macro
environment.
Questions
1. How do you think macro-economic analysis
has a bearing on the company's marketing
strategy?
2. How should Apollo Tyres "tweak" and
adjust its strategy to stay in step with the
incipient changes in macro environment and
economy?
3. What are the straws in the wind that could
change the future directon for Apollo Tyres?
Give examples.

1
4

: Te Report for Apollo Tyes

Methodology
The methoolo adopte is to identif factors and parmeters imprtve to drng economic growth in the
count and identf which one out of this impact the t indus by conducng sttstcal corelatons.
After the slecton of final factors an econometc moel ha been developed i the C which tae the
various economic parameters as an input and gives an insight into the demand for tyre in the varied segment
viz. total tyre, bus and tuck tyre, pasenger car tyre, light commercial vehicle ( LCV) tyre, tactor tyre, etc. The
research conducted for the case has been sourced from various secondat source, Goverment of India,
Respectve ministes, IBEF CII, Automotve Tyre Manufacturers Asociaton (AT), etc. Various statstcal
test like F-statistic, R-square and Independent R-square have been perfotted to vindicate the accuracy of
the model.
The Indian Tyre Industry
The tyre industry is an R 13,00 crore indust. The fortune of this indust depends on the agricultural and
industrial performance of the economy, the tansportation needs and the producton of vehicles. While the
tyre indust is mainly dominated by the organised sector, the unorganised sector holds sway in bicycle tyres.
Ever since the first Indian tyre company, Dunlop Rubber Company (India) was incororated in 1926, the tyre
industry has grown rapidly and today it is a R. 13,00 crore indusb. India has 2 .61 Jakh villages, connected
by 6231akh Kms of metalled roads and 9.8llakh Kms of unmetalled roads. These villages are linked to small
towns and cites. There i a daily traffic of over 4.12 lakh tcks, 1.27 lakh buses, 7.23 lakh cars, and
thousands of taxis, two-wheeler, three-wheelers, tactors and animal -drawn vehicles on Indian roads.
There exists a vast potental for the tyre industt in India. The fortune of the tyre indusb depends on the
agricultural and industial performance of the economy, the tansportation needs and the producton of
vehicles. Hence, this is a ver sensitve indust, which has to adapt itelf to a highly volatle environment.
While the tyre indust is mainly dominated by the organised sector, the unorganised sector holds sway in
bicycle tyres. The major players in the organised tyre sgment consist of MRF Apollo Tyres, Ceat and JK
Industries, which account for 6 per cent of the organised tyre market. The other key player include Modi
Rubber, Kesoram Industies and Goodyear India, with 11 per cent, 7 per cent and 6 per sent share rctvely.
Dunlop, Falcon, Tyre Corporaton o India Limited (lIL), 1S-Srichakra, Meto Tyr a Balkshna Tyres
are some of the other players in the indust. r the largest tyre manufacturer in the count, has stq1g
brand equity. While it rles supreme in the indust, other player have created niche markets of their own.-
To sum up, the tyre indust is highly raw-material intensive, with raw material cost accountng for 70 per
cent of the cost of proucton. Fortunately for the indust, the rbber and carbon black prices have taken a
beatng recenty, which means lower cost for the tyre indust. The eport-import plic allows fee import of
all types of new tyre and tubes. However, import of reteaded tyr, either for us or for reclamation of
rbber is resticted. Tis has led to usd tyres being smuggled into the count under the label of ne tyres.
Te Indian Economy
The Indian economy has made great stide in the years since independence. In 1947 the count was por
and shattered by the violence and economic and physical disrpton involved in the partton from Pakistan.
The economy had stagnated since the late nineteenth centut, and indusal development had been tine
tn n"a& th ;ra a a market for Britsh manufacturers. India embarked on O srie of economic refots
*

SECOH i : M vr0mt
The rfor prO ha had sme yer beneci efect on the Indian economy, including higher groth
5
rate, lowe infaton, a significnt increa in foreign invent

*

Rea GOP wa 6.8% in 198-9, up fm 5% in te
.
197-98 f year. The far reaching economic

refors undertken since 191 have unlehed the growth potental of the Indian economy . A sries of
"Second Generaton refors" ae at deregulatng the count and stmulatng foreign investent have

moved India firly into the font tk of the rapidly growing Aia Pcific region .
. Relationship between Transport and Economy
There i a stong relatonship beteen economic development and tanspr demand. Economic growth
irt plies both an increa in G rt and more mobility, resultng in an increase in passenger tansport .
Apar from the relatonship beteen income, on the one hand, and proucton and consumpton, on the
other, other development (e.g . change in the scale ancorsope of proucton and reallocaton of producton
from a global sale) infuence tnspor demand. The tanspr system helps to make the economy tck . Good
tansport i needed to get people to work and many jobs are baed on etensive tavel. Transport i also a
-:jor contibutor to the economy in it own right. Road transport, vehic!:'anufacturing and related industies
alone employ a major chunk of the populaton. Goo tansportaton i vitl to the movement of goods and
serices and thus has a direct impact -on economic growth and prouctivity . Thus if the transportaton
requirement of the count are affected by the economic growth, it has a direct impact on the demand for
tyres as tyres fon a major component of the tanspor requirement of the count and both are not mutually
exclusive. Thus economic growth increases tanspor requirement which ultimately impact and increases
the demand for tyres.
Demand for Tyres .
.

The demand for tyres comes from three segment original equipment (OE) maker, replacement and
exports where the replacement market is the primar driver of demand, followed by the OE segment. Export
account for les than 10 per cent of the total demand. As with any other auto-ancillar product, realisation
and profitability in the OE segment i relatvely lower compared to the replacement market. The demand
from the OE segment depends on automobile proucton, while the flow of demand from the replacement
market hinges on the automobile output in the recent past. The OE segment i a major surce of demand in

the pasenger car market, followed by the two-wheeler and tactor segment. In the pasenger car market. the
OE segment account for about 6 per cent of the total demand, while in the two-wheeler and tractor sgment,
it contbuton i about 50 per cent. .
The demand for tyre has been derived from the annual te producton data for all the tyre manufactures
in India a shown below. The table below gives the figures for the tyre demand1 from the year 196 to 20 .
The figures are in lacs nos .

1996
l997
1998
1999
2000
2001
2002
2003

200

'278.9
129765

310.9
370.48
414.13
424.71
435.14
515.85
546.9

t 1.66
9 17 . 8
18.1
. .
: 1
.
9. 1
.
7.
198
11.08
23.52
28.4
32.71
>urte PutO0c rc PmDMM Pm

1)62

.e. rs A
#
19.79-
W
78.35
87. 93
86.12
&.74
98.63
108.21
N# <

.. 32.6

38.13
41.8
45l71
60.54
68.13
74.81
85.4
99.59

22.37
19.89
19.77
21.47
24
23.15
22.55

24.2
24.05

Industria

0.95
0 . 66
1.43
1.37
1.72
2.19
2.14
3.09
2.95

42

Macr Ftn

Te f chon to monitor and quant te macr envirnment dgiven bow. Te facor encompss
t itcal, Economic,

and Tehnica Movement i India and d hyte t have an impact

on te tre indust i India.








GDP
GDPPe
Monsoon
lnfatlon

HBhwy .

Ros 1
Vehicles
FI
Crude 011
Sensex (FII)

AI - Ac Prcton Index
Fo sn
P Ino of Indua Pructon
I
Wa

Rte

Industal Index

Emplormnt
Svin1s
Population

Macr Envirnment & Macro Economic Overiew

Thi section lists the historical movement of the chosen macro environment factors for about a decade lng
cognizance of the development of the same post liberaliston in India

|W Jb

7.3
1997 9702 7.8

199 1016S9S 9 .

Y
.
10748 6;5
14836 6.1 .
201 I CS92 4.4
202 12673) s.

203 1318321 . 4

20 1424507 8.
8.8 103 51.1 :f8.42
f02

199.+

s;a ro 15,5

1926
+
H 6 1 1 6.7 ..

23.1
1 9.37'

6.7 9
1, 1
W
.
4. :ti 1 ,:Jhfj'.1.
1.8 103
7.1 . 8
W

1657

(13
1 5.5
17.
20.8
1 9.'
W
212:S
t. 174 1' 9
211

9.2
P
. a 9 2
7.2 6133
.
"13.1 - S38S

4.7 241

4 5181
3.8 67
4.3 81-S2
4.1 539

s.s 16S2

W

27S.
27.41
28.4S
21."
1.
27.6

279

2n.os
27.01
93
W
W
100

IOF4
1027

1037

lOSS
W
1073
1 Srce: EcooiSurey LIndi 20S1 Cculate by Wng te m a IOfo te }199S and ten Upsing te grm rte
on te futre y ear giing us a relte pfve o te GOP pr cai on a base o IO Sre: Indi Meteoooicl
Departent Monson meure in tens o prcentge were U goverment m set a benchmr mnon al avere O0at
| and releaes monso fcures in percent tens by ting conince Oti bnchmars Sorce:. Ministl mAriculure,
Indi. Aricultre Prouco Index is a inde o aicural prouctn (o % crps, including planttions) wit bae
trennium endinc |98 ( -2= 0. The agriculurl outut is measure trouch tis index wit diferent wiht beinc cien t vaos
types mcros.' Source: Cnfederatio o Indin Indust (CII)' Srce: Census mIndia 204

. . .

as

+
19
1 3.
19 3.5
199 .49.6
& 52
201 52
O 57.7
203 58.1
Z b
. .

- .
' +
_ . _ @

_, .

a - . .
1Zb

Z
239.7
2416.1
246.7
2.].]
248].]
26l.l
337
591
W3
62210
6532
113.0
120
1@
133.0
142.0
149.0
153.0
162.0
173.0
J
12
.41

.6.
6.25
0
bLLN Mrkmgmmmt

-
_ um8DF
+w
,; -te
.
- Ia#z '
~
In te

, :/

.
_ " . -.

a 04V6f( SerIcet
^ I . @ .

@_ .^. @ ! -
._ . .- o f * 1 _ .

_ * J

' - ;
_

~

. -..
JJ9
317261
35217
379
1
4909
532274
6229
62176
21931
219

J
W

385
41929
4384
27

Z
22
21
20
Z

J
]0.4

30.
lOB
] 1.8
]0
14.8
4]
4]
%
%
47
47.2
47.2
>
51.2
Source: Ministr of Road, Trnsport & Highwys' Surce: Ministr mCommerce and Industry. The lndeA U Industrial Production
(liP) index coprises of S4l items of wich 478 fll in te manuacturing sector, in mining and one in electricity. The data for liP has
been nO nalied wit Okn@ base vlue for year 1995 (I 09.1 dividd each by 1995 value &multipied by I '"Source: Resere Bank
of India India Brad Equi Foundtion (IBEF)
Based on the findings and corelatons conducted the final factor selected for the development of th1
econometic moel are: Year (Time), GOP Absolute,.Infaton, Road Length, Inde of Industial Proucto1
(liP), Serice Sector Contbuton and Populaton. GOP per capita was rejected since absolute GOP anc
populaton take account of GOP per capita. Monsoon agriculture were rejected as the correlations ar
negatve and the count is no longer dependent on monsoon a the year Z-recorded GDP growth rat4
of b.D (highest ever) with lowest recorded rainfall of only b. Natonal highway not selected as it is t
subset of road length. Wages, Employment, PLR, FOI and Sensex were rejected due to low correlaton:
though FOI exhibit tepid corelation with Fll.
conometrm mode
The model wa developed to detenine the demand of .res in India based on the changes in the variou
macro and economic environment parameter. The moel calculates the demand of tres under variou
segment like Bus Trck, Pasenger Car, Ught Commerial Vehicle, Tractor and total tre demand by takin
an input of the various economic parameter, and derive the demand based on the changes in any of thes
seven variable thus giving a robust insight into how the change in these macro-environment and economi
variables impact the tyre indust a a whole and how Apollo Tyrs Ltd. can formulate or goad their strategy
by tking conizance of the se. The moel has been made by applying multple linear reesion and
statstcal tet are included later in the L to vindicate the moel.

. = =

- ~ .;

---- @

Te rsion equaton de f t moel and which d usd to get te demand d a follow:
Tot Tyr D0d
Bus & Truc Tyre
Pssenger Car Tyre
Light Commercial
Vehicle (LC) Tyre
Tractor Tyre

*-
-*
# -
--
3237.69-13186 e + O.OD (Aoute) Crr + I 0.2 7nfad coerin
Y
+ `
.
absolu be=IO + 0.83*Lg O R (os K) + 1.96*11P + 2.34*Population
(mdlion) + 30@0l*CoUibon O Sere Stor e + 32537.70 (+/- 8.95)
5626 . -8375-2 . 91* Ye + O.(GO P R (Asolute) Crore + - 1.42* + 0.04*Length O
Roads (Tous Km) + 0.98*11P + 0.20*Populailon (million) + 3.58* Serices Cntribution +
5626.49 ( +/- 2.82)
. 9239.426567+4.73* Yer + O.O*GO Rel (Asolute) Crores + -O.SO*Infation + -O.OJ*Length

O Roads (Tous K) + 1.48*11P + -0.2 4*Po lation (million) + -0 .49* Serices Contribution
+ -9239.43 ( +/- 1.64)

- 1 0847.0 18630+5.48* Year + O.OO*GO P Real (Absolute) Crores + -0.36*1nfation +

O.OS*Length O Roads (Thous Kms) + -0.84*11P + O. I S*Population (million) + I.IS*Serices
Contribution + -I 0847.02 (+/- 0.59)
-
7 102.60 1366-3.67* Yer + O.O*GO P Real (Absolute) Crores + -0.37*1nfation + 0.07*Length

O Roads (Tous Kms) + 0.55* 1 1P + 0.0 I*Population (million) 10.92*Serices Contribution

+ 7102.60 (+/- 1.20)
l

. . . . . . .

.