Case study:

INDIAN PAINT INDUSTRY:- Introduction: The Indian paint industry is highly fragmented into private and organized sectors. The organized sector accounts for about 60% of the total market while the unorganized sector (comprising about 3500 players) account for the rest. The unorganized sector is eligible for certain advantages that include exemption from excise duties and reservation in certain sectors of paints. However, as a result of Government decisions resulting in a fall in excise duties (40% to 16%) in recent times, the unorganized sector is fast losing its edge over the organized sector. In order to succeed in this industry, the companies need to have a strong brand image, wide range of shades, well-spread distribution network and efficient working capital management. In the organized sector, leading players, namely Asian Paints, Goodlass Nerolac, Berger Paints, ICI India, Jenson & Nicholson and Shalimar Paints together represent 70% of the market share. Asian Paints steals the limelight in the decorative paint sector with the largest product range. Segments in Paint Industry :- The Indian paint industry primarily comprises of 2 segments: decorative or building paint segment and industrial protective paints segment. Paint Industry is essentially a low margin, raw material intensive and high asset turnover business.The decorative paint sector provides a wide range of products that include acrylic, i.e., resin-based and oil-bound distempers, enamels and plastic emulsions. The main end users of decorative paints are building construction industries. Demand for decorative paint reaches its high during the festive season and declines during April-June as a result of which demand is cyclical in nature. Snowcem India is the market leader in cement paints segment, while Asian Paint has the reputation of adopting innovative marketing strategies in the decorative paint segment. The decorative paint segment is essentially price sensitive, caters to the premium, medium as well as low price segments. Demand for decorative paints could be either primary, e.g., construction activity, or dependent on purchasing power of consumers. Industrial paints are more technology intensive than decorative paints, and include automotive paints (60% of industrial paint market), marine paints, machinery and equipment coatings and powder coatings. The main end users of industrial paints are the automotive, consumer durables and engineering industries. Some paint manufacturers offer their products at a premium on account of product differentiation and brand value. Goodlass Nerolac dominates the industrial paint sector with an excellent client base such as Maruti Udyog, Bajaj Auto and other Indian auto OEMs. The big five - Goodlass Nerolac, Asian Paints, Berger Paints, ICI and Jenson Nicholson dominate the market. Effect of Government Policy:-Under the 2009-2010 budgets, the exemption limits for interest payments towards housing loans has been raised from Rs. 200.000 to Rs. 300.000. This is likely to give a fillip to the growth in the construction sector and thereby increase the demand for paints. Moreover, dividend tax has been slashed from 20% last year to 10% at present.From the case study and general concepts understanding answer and explain the following questions in detail:

Q1. Evaluate the industry for its attractiveness for the new players keeping in mind the entry and exit barriers?

Q2. What strategy should the major players in the decorative segment adopt to increase the volume?