pan parag market entry - singapore

PAN PARAG

MARKET ENTRY STRATEGY – SINGAPORE

GLOBAL BUSINESS ENVIRONMENT-1

GROUP-4:

ANKIT MALHOTRA CMM021

AVINASH SINGH CMM023

KRISHNAMURTHY SRIPATHY GLSCM046

PRAJAKTA TALATHI CMM031

RICHA SINGH CMM033

Table of Contents Pan Parag – Brief Overview ..................................................................................................................... 3

Reason for Success of Pan Parag in India ................................................................................................ 4

Critical Success Factor for Smokeless Tobacco in Industry: .................................................................... 4

Tobacco Industry in Singapore ................................................................................................................ 5

Market Data ........................................................................................................................................ 5

Legislation ........................................................................................................................................... 7

Advertising and Sponsorship .................................................................................................................. 8

Media .................................................................................................................................................. 8

Retail Point-of-Sale ............................................................................................................................. 8

Sponsorship of Sports/Music Events .................................................................................................. 8

Distribution of tobacco branded gifts (e.g. cigarette branded lighters, pens, etc.) ........................... 8

Market Entry Options in Singapore ........................................................................................................ 9

Exports ................................................................................................................................................ 9

Licensing and Franchisee .................................................................................................................... 9

Strategic Alliance: ............................................................................................................................... 9

Joint Venture: .................................................................................................................................... 10

Wholly Owned subsidiary: ................................................................................................................ 10

Recommendations ................................................................................................................................ 11

Pan Parag – Brief Overview

Pan Parag is an Indian mouth freshener. It was launched in the year 1973 by M.M.Kothari. It is a kind

of Pan Masala whose ingredients are Betel Nuts, Cardamom, Lime, Catechu and Natural perfumes. It

keeps your mouth fresh like any mint and it is highly addictive. It was initially launched in big tin

packets. But later became a huge hit when launched in smaller pouches (sachets) which were much

cheaper and lesser in quantity compared to the first launched big tin packets. +`It is available in re1,

re 1.5, re2, re3, re5 and re10 packets. It has several products and product types depending on the

customer segmentation which are

1. 2000 Pan Masala

2. Pan Parag Strong

3. Pan Parag Supreme

4. Pan Parag Premium

5. Pan Parag Extra Plus

6. Parag 9000 (Pam Masala)

7. Pan Parag Powder with Saffron

Pan Parag is the first branded product in the category of Pan Masala. It was the only pan masala

brand that was marketed in the TV. There was a huge demand for Pan Parag and the demand kept

increasing and so they had to automate the sachet packing plant to meet the demand in 1985. In

order to meet the demand they have also started giving franchisee to various organizations. They

received FMCG award of the year for 2003 and 2004.

Reason for Success of Pan Parag in India

As discussed, Pan Parag is the first branded Pan Masala in the Indian market. It used to come in tins

because of which it was not able to attract the lower income market which was its target customer.

But in 1985 when it was released in small sachets, it attracted a lot of customers because of its

cheap pricing of sachets which range from 1 rupee to 10 rupees which is 2 cents of a Singapore

dollar. As most of Indians have a habit of using Pan Masala after having meal, it was used by almost

by every Pan user in India. As it began to build a brand, it was used in marriages and all the places

which had a social gathering followed by either lunch or dinner. As a result of it, its market grew

huge and Pan Parag began to grow huge in India. There was also no competitor for this product in

industry till late 1980 s and as Pan Parag was the biggest established brand in this market and it had

the best technology in production, no competitor was able to surpass Pan Parag. It is able to offer at

least 100% dividend from the year 2004 because of its profits. The Pan Masala market in India is

assumed to be of the size 3 billion Singapore dollars.

Critical Success Factor for Smokeless Tobacco in Industry:

1. Price – Smokeless tobacco is the cheapest form of tobacco

2. Youth and low class – The price and variety makes smokeless tobacco very popular

3. Substitute – To quit smoking people take resort of this as a substitute

4. Nicotine effect – Nicotine takes 10 seconds to reach brain, therefore pumps up the blood

levels and the person feels fresh and active

5. Addiction – As and how people experience the effects of Nicotine they get used to the high

blood rush and once the effect diminishes, they have more nicotine intakes. This daily intake

of nicotine turns into addiction

6. Loyalty – Customers are loyal and it is not easy for them to quit the habit due to lack of will

power, group dynamics, etc. The percentages of users who made a quit attempt in the past

year was very low in Bangladesh (29%), India (35%) and Thailand (22%)

7. Awareness – Lack of public awareness and incomplete knowledge about the harmful effects

of smokeless tobacco

8. Misinformation – Many people use it to cleanse teeth, as a breath freshener, for toothache,

to relieve gastric disturbances, to ease abdominal pain to relieve stress and even as an

antidote for morning sickness

9. Variety – Available in various flavors like chocolate, pan masala, variants of hukka, cigar, etc.

10. Group dynamics – a friend will ask or force other friend to taste or consume

11. Availability – Easily available and available in bulk volumes

12. Psychological effect – Mild stimulant and relaxation effects, making it appealing to students,

shift workers, and other people who may have trouble staying awake sometimes

Tobacco Industry in Singapore

Market Data

Table 1: Sales of Tobacco by Category: Volume 2007-2012

Source: (Euromonitor International, 2013)

Table 2: Sales of Tobacco by Category: Value 2007-2012


Table 3: Sales of Tobacco by Category: % Volume Growth 2007-2012


Table 4: Sales of Tobacco by Category: % Value Growth 2007-2012


Table 5: Forecast Sales of Tobacco by Category: Volume 2007-2012


Table 6: Forecast Sales of Tobacco by Category: Value 2007-2012


Table 7: Forecast Sales of Tobacco by Category: % Volume Growth 2007-2012


Table 8: Forecast Sales of Tobacco by Category: % Value Growth 2007-2012


Legislation

Singapore is well known for having one of the world’s strongest tobacco control legislative frameworks, backed by substantial government efforts towards enforcement and penalties. Leadership of tobacco control in Singapore lies with the Ministry of Health. Singapore’s national policy on tobacco control was introduced in 1986 and it identified public education, legislation, taxation, collaboration between various commercial and non-commercial sectors and community participation as key elements for its effective implementation. These elements were established in a number of measures including the total prohibition of the advertising and promotion of tobacco products, as well as strict regulations regarding the packaging of tobacco products. As an indication of how strict the tobacco control legislation in Singapore is, inbound passengers receive no duty free tobacco allowance upon landing at Singapore airport.

On 29 December 2003, Singapore signed the World Health Organization’s global tobacco control treaty, the Framework Convention for Tobacco Control (FCTC), and ratified the treaty on 14 May 2004. This committed the Government of Singapore to putting into effect a comprehensive set of legislative, economic and social measures which are intended to promote and protect public health against the adverse effects of tobacco.

Although the FCTC treaty is not legally binding, the Singaporean Government is expected to legislate some of the policies suggested in the treaty over the forecast period. By 1 March 2013, one of the specific laws which will come into force is the removal of misleading terms such as “mild” or “light” from cigarette branding and packaging, as these terms may be misconstrued by smokers who may believe them to be healthier alternatives. This may have an adverse impact on sales of mid tar cigarettes, low tar cigarettes and ultra low tar cigarettes during the forecast period.

The launch of the Blue Ribbon initiative by Health Promotion Board (HPB) in March 2012 made Singapore the first regional country to adopt the active tobacco control programme on a nationwide scale. With their efforts towards creating a smoke-free environment, several markets and food centers were awarded the Blue Ribbon with their removal of the designated smoking zones voluntarily. In a bid to achieve a smoke-free environment, HPB will continue to collaborate with more hawker centers and coffee shops. In addition, there are HPB ambassadors handing out Blue Ribbon and “I Quit” brochures to promote a smoke-free lifestyle. There is also a peer-led Youth Advolution for Health (YAH) Programme from the HPB’s Health Ambassador Network which expanded its volunteer base to 450 members. Reaching out to around 150,000 youths annually, YAH volunteers aim to encourage them to lead healthy and smoke-free lifestyles.

Anti-smoking legislation is likely to become stricter in Singapore over the forecast period as the government continues to penalize those who fail to obey the law, further focusing its efforts on reducing smoking prevalence on the one hand and curbing contraband in order to maintain and protect its revenues on the other.

Advertising and Sponsorship

Media

Television, Radio, Billboards, Consumer Press, Trade Press, Cinema, etc.

In Singapore there was a complete prohibition on media advertising for tobacco products since 1970. Singapore boasts one of the most comprehensive bans on cigarette advertising in Asia. All advertising and promotion of smoking, cigarettes and tobacco-related products is prohibited in Singapore under the Smoking (Control of Advertisement & Sale of Tobacco) Regulations. Advertising is prohibited in all forms, including print and broadcast media. Since the 1990s, there was also a complete ban on all tobacco sponsorship in Singapore.

Retail Point-of-Sale

Since 1993, retailers were prohibited from selling tobacco products to those aged under 18, and it was also required to prominently display signs at all points-of-sale regarding this restriction. Price discounts for the bulk purchasing of tobacco products are also prohibited.

International imagery, pricing, distribution and retail visibility are the only avenues still available for cigarette brands to compete against each other in Singapore. The complete ban on the advertising and promotion of cigarettes and other tobacco products left manufacturers and distributors with no other channels or avenues for the promotion of their brands over those of their rivals.

Sponsorship of Sports/Music Events

Tobacco players are not allowed to sponsor any sporting/music events following the changes in the Anti-Smoking Bill which were announced in July 2010.

Distribution of tobacco branded gifts (e.g. cigarette branded lighters, pens, etc.)

Since 1970, there was a ban on the distribution of paraphernalia bearing cigarette brand names being distributed as gifts.

Market Entry Options in Singapore

Let’s first take a look at the market entry strategies to get a strong base into Singapore. We will look

at the advantages and disadvantages for each, and then advice, which strategy is the best for Pan

Parag. We shall also look at other factors such as Average Living costs for Expatriates, average rent

for office space, Free Trade Zones, Social security system, Labour laws, and Taxation.

Exports

This is the easiest way to get into a market of Singapore or perhaps any other country. The company

directly exports to a domestic buyer who then further sells the product. This type of entry does not

really require a high level of investment and it is highly flexible. Though, exporting will come with its

limitations such as the control function will be less over the distribution and selling in Singapore, and

not having too much control over the target markets.

Licensing and Franchisee

Licensing and franchising agreements permit an obligatory party to produce and sell the foreign

firm’s product(s) in the markets agreed upon. The agreement thus allows the obligatory party to use

the foreign firm’s products, knowledge, and the brand name. In licensing and franchising

agreements, the vast majority of the necessary investment lies with the obligatory party. The small

benefits include a faster access to the Singapore market, and also access to other global markets

around Singapore that may include Malaysia, Vietnam, Indonesia, and Thailand.

Disadvantages:

a) Risk of opportunism

b) Licensee may become a future competitor

c) Revenues may not be adequate

d) Lack of control over franchisee’s operation

e) Cultural problems and physical proximity.

Strategic Alliance:

In a strategic alliance a foreign and the obligatory party firm agree to collaborate in the foreign

market in order to reach specific goals while remaining independent organizations i.e. there are no

equity investments. It is often aimed at attaining synergies through combined effort and can

additionally involve knowledge and technology transfer as well as shared expense and risk. Strategic

alliances require limited upfront investment. It gives autonomy, flexibility, and equal ownership.

Advantages:

a. Creates networks that are attractive to large customers

b. Increases market share and reduces competition

c. Opens the door to new funding opportunities

d. Improves efficiency, productivity, and financial stability

Disadvantages:

a. Fear that collaboration will lead to future mergers or takeover

b. Resistance to change

c. Legal liability

d. Distrust of ownership and control issues

Joint Venture:

In a joint venture, foreign firm and the obligatory party in a specific customer segment agree to

share activities. This collaboration can for instance take place through a subsidiary owned equally by

both parties. Such an agreement would in most cases involve a substantial investment from the

foreign firm although not as much as an acquisition.

Advantages:

a. Creation of synergy

b. Higher rate of return and more control over operations

c. Access to distribution network

d. sharing of risks with a venture partner

Disadvantages:

a. Lack of control

b. Poor integration and co-operation

c. Imbalance in assets or investments bought in by different partners

Wholly Owned subsidiary:

A wholly owned subsidiary can either be obtained in a foreign market by acquiring an entire firm or

part of a firm in the target market or it can be started as a green field venture; that is building

production and/or distribution facilities from scratch in the target market. Since all costs associated

with this sort of entry mode lies upon the entrant, this is naturally the one which requires the largest

upfront investment. In case of a green field investment, the entrant cannot rely on other party’s

knowledge on the foreign market. A major advantage to a wholly owned subsidiary is that the

entrant will retain full control of the venture.

Advantages:

a. Reduce the risk of losing control over core competencies

b. Full control over operations in the foreign country

c. It gives the host company a free control to make the kind of subsidiary it wants to

Disadvantages:

a. They are risky

b. Slower to establish.

Recommendation

1. Market data shows that total tobacco industry in Singapore has grown by 6.2% CAGR from 2007-

2012.But the in last few years the sale of tobacco has gone down .The forecast report shows 2.1%

de growth CAGR which totals to 10.2% de growth from 2012-2017.So the market figures are not

very favorable. But forecast is just estimation & past performance of tobacco is descent in

Singapore. So I will recommend the slow & incremental entry for pan Parag in Singapore market.

2. Since we are looking for an incremental entry they should first open a sales office in Singapore.

This office will first make people of Singapore to taste the product & make them familiar with it.

Once the people in Singapore become familiar with the product the company will make entry by

WHOLLY OWNED SUBSIDIARY. This can be started through GREEN FIELD VENTURE. All the cost

will be taken as expense by Pan Parag, but once set up it will have full ownership of the subsidiary.

Pan Parag will retain full control of the venture, and that is the biggest advantage over other

market entry level strategies such as Franchisee, Joint Venture, and a strategic alliance. With this

measure it will reduce the risk of losing control over its core competencies. It will also have

control over the operations and distributions in the foreign country. This will be slower in

nature, but we also need to adhere to the fact that we will grow in an incremental manner

in Singapore.

3. Now another uphill task is to spread awareness about the product in Singapore. Since the

promotion of tobacco product through Television advertising & print media is banned in Singapore

we need to use the some other mode of promotion. So to start with , following ways can be used

by sales team to promote the product:

Free samples in bars & night clubs

Free samples in restaurants

Display in retails chains i.e. 7*11,NTUC,Cheers

Word of mouth advertising

Different colored packaging

4. Once the way of promotion has been decided the next task is to find out the specific areas to start

with the promotion. So company should target areas which have higher concentration of Bars,

Night clubs, restaurants etc. So to start the sales team must focus on areas such as Clarke Quay,

Arab Street, and little India. Business place like Business development center(raffles place,&

Marina Bay) & International business park where intake of tobacco is high

5. Now once all these promotional process were conducted for 2 month, people got the feel & taste

of the products, sales people can collect the feedback from people & track the movement of

product on different retail chains in Singapore. Taking the report in Consideration Company can

establish the further distribution channels & enter the market through WHOLLY OWNED

SUBSIDIARY.

6. Now product has developed its identity in the market the company should increase the visibility

of product by making it available at all possible site which are currently selling tobacco products.