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ITC Ltd.'s worldwide growth is being examined in the studies, including a review of the company's past performance, product and service offerings, market share and competitive position. Additionally, Possible strategic options open to the ITC; Reasons for locating the subsidiary in the United Kingdom; Ways of entrance and the implications that might result from these methods of entry; This British subsidiary's possible challenges with organisation and management are also addressed, and strategic guidance for the subsidiary to solve these problems is suggested. When there is about "globalisation," it means the process by which all countries on Earth are becoming more economically intertwined due to factors such as increased trade in goods and services, decreased transportation costs, increased international capital inflows, and the enormous rise in global trade in goods and services that have resulted from the liberalisation and subsequent increase in those factors mentioned above. Consumption and way of life have become more homogenised since globalisation began. Therefore, this report holds great importance as it will shed light on one of the significant FMCG giant's UK expansion and its potential opportunities, challenges and how it would choose its appropriate path to penetrate the new market with its subsidiary.
Overview of ITC
Figure 1: ITC logo
Source: (ITC Limited - Wikipedia, 2022)
ITC, one of India's biggest private sector companies, includes fast-moving consumer products, hotels, paperboard & packaging, agribusiness, and information technology. The business is one of India's most valued, with revenues of over 90,104 crores and a net profit of approximately 15,058 crores (as of 31.03.2022). Joint research by Fortune India and the Hay Group has named ITC as India's most admired company. Over the last decade, ITC's new Consumer Goods Businesses have created a varied portfolio of 25 Indian brands worldwide. ITC Foods goods are presently available in more than 50 countries. ITC, a prominent FMCG and cigarette firm, marketed its Indian food trademarks to over 50 nations when the Covid-19 pandemic ravaged the country in FY21. ITC's exports to other nations have produced more than $7 billion in foreign currency income during the last decade. As a result of this objective, ITC has developed a portfolio of 25 world-class Indian brands, all of which are owned by ITC. Consumers spend roughly '22,000 crores a year on the company's several brands.
The rationale for expansion in the United Kingdom
The fast-moving consumer goods (FMCG) sector contributes more than 14% to the overall industrial output of the UK. As customers become more aware of the advantages of organic and clean food and the benefits of veganism, the FMCG sector in the UK is seeing an increase in the number of small firms that specialise in specific niches. According to statistics from Nielsen, consumers in the UK spent roughly 4 per cent more on FMCG goods in 2016 compared to 2015, yet they only bought FMCG products at a rate that was 0.9 per cent lower.
Figure 2: leading 10 FMCG brands ranked by consumer reach in the United Kingdom (UK) in 2020
Source: (Top ten FMCG brands in the UK 2020 | Statista, 2022)
There are around 7,000 businesses that make up this industry, which has an estimated total value of £110 billion and employs more than 400,000 people. However, as the clean eating and vegan product movements continue to gather momentum, the market has experienced a rise in the number of smaller businesses catering to specific niches entering the picture. It is anticipated that the FMCG market will reach a value of USD 15,361.8 Billion by 2025, representing a compound annual growth rate (CAGR) of 5.4 per cent. Therefore, it is a natural progression for ITC ltd. to look for opportunities to expand its footprints into the UK and establish a subsidiary.
PESTEL Analysis
Political
Brexit (the UK's departure from the EU) has sparked political uncertainty and arguments over the future of the country's political stability. Some experts feel that Brexit has already caused much disruption, while others believe that it has opened up a whole new world of possibilities for the nation. The United States and many other nations throughout the globe have strong ties with the United Kingdom. It is a major world power with significant influence over global economic, cultural, military, scientific, and political concerns. It is a permanent UN member. However, its ties to autocratic countries have received much attention. Violence and criminality have also increased recently, causing great alarm among many people.
Economical
Every year, the National Living Wage tends to rise, which is highly beneficial for those living on a tight budget. Currently, the corporation tax rate on strong earnings is 19%. (PwC, 2022). As of April 1, 2023, the tax rate will rise to 25% from the current 21%. Britain's GDP is expected to reach 2.979 trillion US dollars in 2020, making it the ninth-highest in the world. The UK has the 26th-highest yearly per capita income globally, at $44,288. The epidemic of covid-19 is primarily responsible for the reduction in income and the country's position. When he delivers this week's budget address, Chancellor Rishi Sunak is anticipated to announce a £70 million investment in Northern Ireland's SME sector. Britain's Treasury said the money would be used to expand current programmes of the British Business Bank to assist small businesses in making investments and expanding their operations. There are plans to lend money to or invest in local businesses. Start-ups just getting off the ground or well-established SMEs in need of capital to expand their operations may benefit from this kind of finance. The government plans to raise the playing field for all citizens with this money. Rishi Sunak is expected to offer a £70 million increase for Northern Ireland in his next budget for 2021. Four new enterprises have sprung up as a result of this. The prime minister is expected to support the Department for Business's plans, which might include loans guaranteed by the government.
Social
The UK's population is varied despite the prevalence of social class. Companies have produced new commodities and markets for all races and beliefs. Your company can still flourish. This nation is socially mobile. People reared in poverty or low-income homes still face difficulties. Lower-income Brits may struggle to keep up with societal development. UK literacy is 99%. She's from a group of countries with high education levels. 3rd in the world's livability rankings.
Technological
Technological advancement is reducing the wealth gap throughout America. The UK might get $15 billion in 2020, a record. t ranks sixth in innovation. The UK has four top-ranked science and technology clusters. As the nation that created modern science in the 17th century and changed it in the 20th, the UK has a remarkable innovation history. Life sciences, AI, and quantum physics will all have UK roots in the next decades. Not only the automotive and aerospace sectors create innovative technology in the UK. Later this year, the UK will issue "Jet Zero Strategy." One of the world's most significant financial centers and Europe's leading VC market, with $14.9 billion projected in 2020.
Environmental
SDGs will be achieved because the UK is committed. Each Government department's scheduled activities should include the goals of the organization. Britain will be at the forefront of implementation to ensure that the SDGs are achieved. Britain worked hard to ensure that the SDGs would be a continuation of MDG-related efforts. An annual review of Britain's progress toward the 17 SDGs was released in June 2019, and it focused on how the country has been able to meet the targets so far. It will be discussed at the United Nations High-Level Political Forum in July 2019 (Mathers et al., 2019).
Legal
No regulations guide or restrict foreign direct investment (FDI) in the United Kingdom (UK). Both British and non-British citizens have equal access to the UK economy and are treated equally by the law. In the UK, workers' rights are safeguarded under the Employment Act 1996. The law guarantees some rights, such as paid maternity and paternity leave, a living wage, paid holidays, and sick leave. People are protected from discrimination under the Equality Act 2010, enacted in 2010 (Adams et al., 2019).
SWOT Analysis
Strength: With six strong and varied firms under its name, ITC's total revenue is boosted and it can grow and explore new business opportunities. A large number of ITC's products dominate the sectors in which they operate, making it a formidable brand house. It has developed a triple-bottom-line strategy that aims to improve the nation's economic, social, and environmental well-being at the same time. It has been able to take use of the company's assets to penetrate into other markets or product lines. ITC built a route for its FMCG products through the well-established distribution networks of tobacco companies. In addition, ITC used its hotel business knowledge of food and pastry items to expand into the Packaged Food category.
Weaknesses: ITC has been working hard to reduce the FMCG industry's dependence on tobacco products, and has had some success with this effort. However, tobacco products still account for more than 60 percent of the total revenue generated by FMCG sectors. However, the fact that ITC has several cigarette products in its portfolio undermines the company's corporate image. Because of the increased taxes on tobacco products, prices and income are affected.
Threats: There are several opportunities for ITC to take advantage of the growing purchasing power and improving lifestyles of Indian customers. This might help all of the company's businesses make more money. Expanding categories like Personal Hygiene and Food Processing Industry might boost revenue for ITC if it uses its distribution network in those industries.
Opportunities: Global MNCs such as HUL and P&G, as well as Indian FMCG companies like as Patanjali and Dabur, compete with ITC in the FMCG market. As a result, ITC has a smaller proportion of the market. India's tobacco and cigarette sector continues to be subjected to strict government regulations and a hefty tax burden. Because of this, ITC's very profitable cigarette business is in jeopardy. Health awareness in India has led to a drop in the demand for tobacco products. Anti-smoking campaigns around the country have compounded this problem.
Porter’s five forces
THREAT OF NEW ENTRANTS
The British FMCG industry stands apart because of its low entrance and exit barriers. New entrants to the market are hampered by the industry's integrated business strategy and growing capital requirements. Competition from established brands necessitates huge expenditures to build up distribution networks and promote their brands (Mehboob, 2021).
THREAT OF SUBSTITUTES
Consumer items' demand is elastic since they are a need. There are a lot of different brands out there, many offering similar products. Price competition is rising product substitution as new companies join or strive to obtain market share. They are competing on pricing. As a result, there is a significant risk of substitutes in the FMCG sector in the UK.
BUYER BARGAINING POWER
Customer dissatisfaction and product substitution are exacerbated by the high brand loyalty associated with particular items. Because of the fierce rivalry among the FMCG firms, switching costs are minimal, and aggressive marketing methods are used. For customers, this encourages them to switch goods, which leads to better value-for-money offers.
SUPPLIER BARGAINING POWER
Most FMCG businesses are price takers since the pricing of their goods is mainly determined by the worldwide commodities market. With the help of long-term suppliers, FMCG firms may get better prices for their goods as input costs rise (Dhingra et al., 2018).
INDUSTRY COMPETITION
UK FMCG firms are now in a state of fierce competition. The business is becoming more fragmented as more multinational corporations (MNCs) shop in the United Kingdom. Advertising spending continues to rise, and marketing budgets and techniques are growing more costly and aggressive due to this growth. As a counter-competition against generic and undifferentiated store brands, stores now offer private labels at a discount to notable names (Bryceson, 2019).
Strategic Methods of Entry
The report would suggest ITC Ltd. To adopt a Transnational strategy to expand its operation into the UK. Five global strategy levers are used to determine whether an international strategy is multilocal or transnational. Each dimension's strategic possibilities range from multilocal to global (Gong et al., 2020). Lets look at each dimension's global end. These global strategy levers may assist a corporation in achieving cost savings, improved product/process quality, better consumer preference, and higher competitive power. Globalisation is crucial. Management studies a country's stand-alone appeal and how it may aid the global economy as part of its globalisation plan. Worldwide commodities. The corporation offers essential items (goods or services) with few local customisations. Even a tiny fraction of the global market may earn a significant income (Chen, 2018).
Therefore, services may be standardised. Value-added services are distributed globally. Instead of recreating each operation in several countries, it is preferable to break the value chain into smaller segments across numerous nations. Electronically imported petals are used to make a single service bouquet. Data petals may be delivered in real-time from anywhere with Internet access. Global Marketing Management adopts a global marketing strategy, but not all marketing mix elements are equal. Advertising and business design themes and execution are typically similar, with minor language differences (Bolia, 2020). Your company's market posture may change based on local competitors. Global competition changes. They are universal. Many countries do the same manoeuvre simultaneously or in sequence. In highly competitive sectors, a rival may be targeted in one nation to drain resources it planned to use in another country, or a competitor's assault on the company's position in one country may be countered by a robust marketing effort against that same competition in another country (Flew and Iosifidis, 2020). ' When establishing a global strategy, management must decide which characteristics should remain constant throughout all markets and which should be adapted to local needs, expectations, and competitive dynamics (Janoschka et al., 2020). To make these options, there must choose between standardisation and customisation, albeit services provide greater flexibility than physical products.
Cost factors include economies of scale, experience curve effects, sourcing efficiency, favourable logistics, variations in nation prices (including currency rates), and the desire to recuperate expensive product development expenses. Also, product development expenditures must be recovered. The influence of these pressures depends on fixed costs and cost-saving opportunities. Lower telecommunications, transportation, and performance costs ease access to global markets. If ITC want to reduce entry barriers, use leasing (like airlines), investor-owned facilities (like hotels) and management contracts, or franchising (like McDonald's).
ITC can be a multinational company by thinking globally and behaving locally items must be near local markets because of their nature, economies of scale, and the necessity to leverage everyone's ingenuity and skills. Changing market trends and consumer expectations may require ITC to reorganise its items in the future. ITC have not faced significant technology or market upheavals during reorganisations until lately. Despite hurdles, a transnational's structure and strategy must be continually updated to match the market.
McKinsey 7S Model
Strategy
ITC must strike a delicate balance between short-term cost reductions and retaining its fundamental competitive edge. A little more than "worth for money" is what customers get from ITC goods and services. ITC should avoid cost cuts that might lead to defective product and service performance in its quest to win more significant market share via competition on price (Adolphs and Zaharia, 2021).
Structure
The epidemic has questioned the company's structure and supply chain management. Climate change, geopolitics, and other factors may disrupt ITC's supply chain, thus it must diversify geographically. As the U.S.-China trade war deepens, reduce reliance on Chinese supply networks. It helps the company spread risks, dodge regulations, etc. ITC must concentrate on these two areas to succeed (Antràs, 2020). Teams must make judgments based on current conditions and report to headquarters more simply.
Systems
Enhance internal procedures, such as risk management and Customer Relationship Management (CRM), as well as web application optimization and data visualization throughout the firm. So that workers may engage both online and in person, the ITC has to provide a sophisticated system for "work from home" employees. In addition to enhancing productivity, it will also enhance data security and cyber safety (Bartlett and Beamish, 2018).
Style
The organizational structure of ITC dictates that ITC's management style is top to bottom. Participative management has produced an engaged and motivated workforce poised to handle future challenges (Fahad and Ali, 2020). The participative management style has produced an engaged and motivated workforce.
Staff
Retention and recruiting strategies that are benchmarked. Easing the way for new directions in the workplace. Performance-enhancing systems are best managed. An activity that promotes innovation and inclusion should be developed, given the siloed nature of certain staff functions. Incentives for stock ownership at ITC encourage employees to invest in the firm (Johnson et al., 2019).
Skills
Product content (new pReferences, healthcare trends), volume, and efficiency innovation are among the innovative techniques needed to reach Vision 2021's goal. It is clear from the objectives what ITC's primary responsibilities are and what is expected at each step. Investment in product quality innovation, volume, and efficacy are strategic priorities for the company.
Shares values
ITC Limited India First promotes an inclusive culture that values diversity. For this reason, ITC Limited India First ensures that the company's culture supports diversity and has measures to eliminate instances of prejudice within the organization. Every employee at ITC Limited India First has a function and a job that aligns with the company's basic principles (Friedberg, 2018). ITC Limited India First implies that all its actions, strategies, and strategic tactics must adhere to the company's basic principles. It is necessary for the sake of the company's reputation and the integrity of its culture.
The potential organizational and managerial problems for the subsidiary operating in the new international environment
The disparity in authority and responsibility causes ambiguity about whether the delegated power would be used to promote business objectives or participate in unwanted activities for their advantage. A thorough grasp of these troubling behaviours' underlying origins and symptoms is necessary for their mitigation (Antràs, 2020).
MNEs are now plagued by internal conflicts when the company's various organisational units (e.g., subsidiaries) build their capabilities according to distinct strategic logic and goals. Since MNE subsidiary managers want to capture value locally and meet agreed-on targets, the related dissemination of knowledge can cause issues. In contrast, corporate managers want to stimulate reverse knowledge transfer (from subsidiaries into headquarters), avoiding the creation of islands of expertise that are not conducive to synergies. By managing organisational conflicts, an ambidextrous corporation may make the structure more fluid and "open," thereby producing more significant synergies. Building an environment that encourages innovation, collaboration, openness, and communication is a critical ambidextrous capability for any business looking to attain greater adaptability (Hoogvelt, 2018). Ambidexterity is thus an essential component for assuming flexibility and, subsequently, organisational agility to develop concrete planning with a focus on strategic agility. To summarise, strategic agility relies heavily on both ambidexterity and emotional skills. Attaining SDGs in the host nations provides a range of "wicked" challenges, especially for multinational corporations (MNCs) that operate in numerous countries (Agarwal and Al Qouyatahi, 2018).
the focus is on the immorality of SDG intervention rather than the SDGs since not all nations face the same number of problems related to varying levels of societal complexity in reaching a certain SDG. Many companies have difficulty integrating their attention across the line of command, cognitive processes, and diverse business divisions. Environmental changes and occurrences trigger bottom-up processes of attention since they may endanger the company's success if no action is taken.
Recommendations for the subsidiary on how to deal with the mentioned challenges
Strategic agility requires the capacity to perceive stakeholders (customers, suppliers, technology partners, investors) as significant resources for corporate growth. When looking for local partners, it is essential to look for both flexible and persistent organisations, mainly if the proposed relationship is exploitative (using current market possibilities) and explorative (creating new market chances). In order to improve a subsidiary's response to local stakeholders, MNEs must provide the autonomy granted by the parent company. A subsidiary may be free to respond to external stimuli. However, the HQ and TMT must maintain a certain level of consistency for credibility (the CEO's reputation is related to a particular strategy) and therefore keep their attentional viewpoint (Jover and Díaz-Parra, 2020). A subsidiary can have its distinct viewpoints, which are evident in ITC situation in that cannot expand firm outside ITC initial location. Because of this, the HQ may take more drastic, long-term action, while the subsidiary may want to take more minor, more gradual actions to achieve its goals.
It is not necessary to alter one's approach in response to shifting challenges; instead, one might focus on learning about environmental shifts while they are still seen as possibilities rather than threats. A low-risk strategy is frequently advised here. Experimentation: Exploration and progressive activity may assist in alleviating the internal tensions that more radical activities may elicit. Senior management may need to be more ambidextrous to keep the strategic push going while also investigating other routes or "pivots," as it were. It may be possible to encourage such ambidexterity by creating channels of communication that allow for the exploration and discussion of alternate strategy courses without putting the credibility of the company's senior management at risk. Suppose ITC pay attention to critical strategic concerns at more regular intervals. In that case, ITC may retain the variety of viewpoints and views that result from it while keeping the strategic repertory on track.
The company also needs to be informed of the rules and laws that govern the market. Expansion plans may be put on hold if a country's compliance rules are not met, which might also lead to higher expenditures back home. Dealing with the new market's taxes, regulations, and tariffs will be difficult. It should not be an issue as long as ITC adopts a calm, methodical approach and ensures that ITC or someone working for ITC understands precisely what they are doing before starting the project.
Do your homework and know exactly what to do before ITC starts. Ticking the correct box is the total of most tax and legal obligations, so before ITC expands, check the correct box. Rushing into international growth without appropriate preparation is the worst thing ITC can do. If ITC does not run across unexpected competition risk of overstocking or understocking essential items and maybe spending more than ITC intended. Having a well-thought-out strategy and thorough research can help ITC prevent unpleasant shocks in the future.
Conclusion and Recommendations
It is concluded that Ticking the correct box is the total of most tax and legal obligations, so before ITC expands, check the correct box. Rushing into international growth without appropriate preparation is the worst thing ITC can do. If ITC does not run across unexpected competition risk overstocking or understocking essential items and maybe spending more than ITC intended. Having a well-thought-out strategy and thorough research can help ITC prevent unpleasant shocks in the future. Because of increasing global overcapacity, the subsidiary responded faster than the headquarters to new external stimuli inside its business sector. Since the headquarters relied on second-hand information for business-level stimulation, it fell behind the subsidiary in terms of responsiveness. The informal multinational network has risks. Leaders may overlook the time constraint. Everyone may be so involved with their social life elsewhere—the exciting training program, the well-run course, the next significant conference—that complacency sets in. Some of ITC's successful units have had this problem. Sometimes it is necessary to modify things entirely (like Unilever did) or partially (as ITC did with the changes in the ITC foods business). Also, the CEO's influence over significant reorganizations is limited. Therefore a transnational strategy to enter into the UK would be the appropriate choice for ITC.
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