IBE Group F14 Cable Report

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International Business

Environment Analysis of industry environment -

cable For Prof. K G. Sahadevan

IIM Lucknow

08-Oct-2012

Submitted by:-

Niraj Kumar (PGP28311)

Sandip Murmu (PGP28330)

Wamika Mimani (PGP28292)



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Table of Contents

I. List of Tables .................................................................................................................................. iii

II. List of Figures ................................................................................................................................. iiiIII. Declaration ................................................................................................................................. iv

IV. Executive Summary ..................................................................................................................... v

V. Introduction .................................................................................................................................... 1

VI. Objectives of Study ..................................................................................................................... 2

VII. Industry Analysis ......................................................................................................................... 2

Porter’s five forces Analysis ................................................................................................................ 4

VIII. Findings/ Recommendations ...................................................................................................... 7

IX. Conclusion ................................................................................................................................... 7

X. References ...................................................................................................................................... 8



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I. List of Tables

Table 1: Snapshot of expenditure in power sector ................................................................................. 3

Table 2: Consequently, expenditure on cables ....................................................................................... 4

Table 3: Profit margin of Finolex Cable over the period of 2008-2012 .................................................. 5

II. List of Figures

Figure 1: Top 15 Indian Cable producers in 2010 by revenue (US $ million) .......................................... 1

Figure 2: Demand of Precious Metal Wire and Insulated Wire and Cable in India for the period 2000

– 2011 (in US $ million) ........................................................................................................................... 6

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iv | P a g e

III. Declaration



v | P a g e

IV. Executive Summary



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V. Introduction

The cable industry in India has been growing rapidly. The industry size according to an industryreports is more than US $ 6 billion worth industry. The cable industry is a volume driven industry

with lots of quality and technical specifications. The growth on the cable industry in India is less than

5% annually as compared to CAGR rate of 12% worldwide. This is mostly due to an increase in the

foreign investments as well as transfer of technology in various dependent and related industries.

The cable industry in India is highly fragmented with more than 650 significant players. Many

of these are small-scale producers with only limited production capacity and very basic capabilities in

terms of variation in cables produced. There are very few cable-manufacturing companies, which

have revenues exceeding US $ 100 million. In the Figure 1 given below, shows the revenue of the top

15 cable-manufacturing firms in India.

J

In mature markets, the market share of major player varies between 15% - 20%. However due

to the high degree of defragmentation of industry players in India the market leader such as Finolex

accounts to only 5% of total share. There consolidation of cable industry is limited because of the

fact most of them has grown organically in India, rather than by acquisition of competitors leading to

non-emergence of any dominant groups.

The industry structure during the last decade has changed from being largely unorganised to

an organised sector. However, 30% of the market remains unorganised. Due to this, many small

players produce dubious qualities of cables, by-pass regulation norms and avoid taxes. This is also

promoted by tactics such as preferential pricing.

Figure 1: Top 15 Indian Cable producers in 2010 by revenue (US $ million)



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VI. Objectives of Study

VII. Industry Analysis

Industrial Reform 1991:

In the post independence era the focus of industrial policy was promote the industrialization

and accelerate the growth of India. In 1956, due to the scarcity of the capital the State assumed a

primary role to lead the Industrial development. In 1973, for the first time India opened up its

economy to attract investments from foreign companies. However, this was restricted to only high

priority industries. Thereafter, changes were made in the industrial policy in 1977 to promote the

small-scale industries, tiny and cottage industry. In 1980, the policy was further reformed to

increase the competitiveness of domestic market through modernization and upgradation in

technology. In the years 1985-86 the policy was reformed to make the domestic market more

suitable for international competition. As part of this focus of reducing costs and increasing quality

and productivity were made.

Prior to Industrial reform in 1991, the country was facing an eminent economic crisis. The

foreign exchange reserves were just ₹ 2400 core and the inflation was about 13.5% in India. This

caused the capital to dry up for business. Hence the industrial policy reforms 1991 was aimed at

attracting more amount of foreign investments by relaxing the licensing norms, allowing upto 51% of

foreign investments in priority sectors and freedom from the government to form technical

collaboration with the foreign industries. However, some sectors were exempted from this

liberalization up due the strategic importance of these sectors to the growths of the country. These

sectors were arms and ammunitions, nuclear energy, oil, coal, railways and some listed minerals.

Post reform impact on cable & wire industry:

Power and telecom sector along with basic infrastructure segment saw a huge growth after

liberalisation of Indian economy. Indian economy grew from $250 billion (1991) to almost $1.8

trillion (2012). This tremendous growth is possible due to all round development of Indian economy.

Indian industrial sector grew by leaps and bound such as telecom sector, which was almost non-

existent before 1991, but post 1991 private players were allowed to enter in telecom market.

Similarly, in power sector was also not opened for private player but in early 2000 this sector wasalso opened for private player.

In 11th

five-year plan, Indian government’s plan was to add 78,000 MW capacity and in 12th

five year

plan, 100,000 MV capacity of power generation is planned. The transmission and distribution areas

will see more planned investment in coming years. More growth is expected in the area of higher

Voltage lines. Electrification of more than a lakh villages which do not presently have any electricity,

are being planned that means expanding distribution network. The distribution segment is expected

to increase to approx. $ 105 billion in the next 5 years, which will increase demands for Medium

Voltage and Low Voltage cables from utilities. After growth in power generation and transmission,

the growth of urban population is likely to contribute to increase demand for cable & wireinstallations.



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The rate of growth of urbanization is astonishing. As per a recent report, by next two

decades over 600 million people will live in cities, which is nearly twice the population of the United

States. Also the number of cities with population of 1 million plus will be 68 up from 42 at present.

By comparison, Europe has 35 such cities. In the medium to low-voltage power cable segment, thegrowth is led by the growth in the industrial, real estate construction sectors.

Telecom sector boom and increase demand for internet connectivity led the demand of optics fibre

and common cable for installation of basic infrastructure of telecom.

Growth outlook of cable industry:

Favourable forces for the attractiveness & performances of industry:

Cables & wires are the basic infrastructure for housing, telecom, information technology,

cables are the backbone of these industries. Growing economy create demand that served

by these industry and caters to the high growth, such as increased demand for residential

property through easy availability of housing loans. Government is encouraging setting in

development of IT parks and development centres which led to formation of many STIP Park

(Software technology & Information Park) and also current boom in IT led by private sector

IT firm this sector expected to grow. The demand for cabling and LAN cables is growing in

commercial and TV - coaxial cables in intelligent building network management. These all

factors would drive demand for cables Major sales of cables & wires comes from the

following sectors: - New Industry setup (Green field or expansion), Housing and constructionof call centres, IT complexes, shopping malls, multiplexes, etc.

New Industrial setup are coming in the form of Industrial plants and administrative buildings

with other electrical and control equipment and machinery that would require power and

control cables. This would drive demand for power cables in industrial sector. Expansion in

industrial sector has been picking up on the back of high GDP growth rate and with revival in

economy.

Power is a major input of social development for our society, along with its importance in

the expanding the country’s economy, it plays a major role in the common man’s life andhas a direct impact on the quality of life. It has been estimated that in the long term the

power requirement are expected to grow.

Table 1: Snapshot of expenditure in power sector

Estimated Capex(Rs in billion)

FY 10-17

Generation 8,533

T & D 5,006

Transmission 2,821.40

Distribution 2,184.70



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Total 13,539

Table 2: Consequently, expenditure on cables

Estimated Capex (Rs in billion)FY 10-17

Generation 256

T & D 1,251

Transmission 705

Distribution 546

Total 1,507

Unfavourable forces for the attractiveness & performances of industry:

Indian wire & cable industry is not looking so promising partially due to highly price sensitive

business and in turn quality standard also get affected, which in turn made this industry to

remunerative business. Cable business is also suffering from fluctuating raw material prices.

Major raw material Copper & aluminium’s prices have stalled the growth of cable industry.

Copper is one of the major raw material used in cable industry, more than 60% of copper

produced worldwide are consumed by wire & Cable industry. There has been continuous

rise in copper prices in last couple of years as the demand increased, mainly due to demand

in china & other developing countries but the supply grew with a comparatively slower pace

and created a demand-supply mismatch that raised the prices to news high.

Due to recent slowdown in Indian economy, industrial growth slowed down and many

infrastructure projects got delayed or stalled and it also led to delayed expansion of many

big industrial projects all of this affected cable & wire industry severely.

Port er’s five forces Analysis

The five-force analysis model developed by Michael E. Porter is one of the most commonly

used framework to analyze the competitive nature of the business environment. These five forcesdetermine the long-run attractiveness / profitability of the market. This framework is used in this

report to analyze and understand the competitive nature of the wire and cable industry in India.

These five forces are as follows:

Threats of New Entrants: According to Microeconomics theory, any profitable industry will attract

newer firms, which will reduce the profitability of all the firms. If the number of new entrants is not

limited by certain measures then the profitability of the industry will tend to be zero. The industry

will be attractive only if the threat of new entrants is low. The threats from new entrants can be

reduced by having entry barriers. In the cable industry, the entry barrier is low, because of which the

threat of new entrants is very high. This is the reason the cable industry has more than 650 players



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in the market, lower market shares and no consolidation. The factors because of which are sources

of entry barrier are as follows:

I. Economics of Scale: The wire and cable industry is a volume-driven industry.

However advantage economics of the scale cannot be achieved because even big

manufacture such as Finolex Cable, which is the third largest producer representabout 5% of the market share. Due to presence of large no. of small-scale producer

the price of products are very competitive and the profit margin is very less. Table 3,

provides the profits margin of Finolex cables which varies from 4%-6%.

Table 3: Profit margin of Finolex Cable over the period of 2008-2012

Finolex Cable

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

Total Income 2,034.87 2,088.35 1,630.85 1,214.69 1,437.14

Reported NetProfit 98.19 86.78 57.63 -35.49 88.92

Reported NetProfit %

5% 4% 4% -3% 6%

II. Product Differentiation: Since in the wire and cable industry the product are

standardized and very little customization is possible very little product

differentiation can be offered to customers. Hence, the threats from new entrants

are high.

III. Capital Requirements: Cable industry in India has large no. of small-scale firms,

which produces basic qualities of wire, which are less capital intensive. However,

with the increase in electrification of villages a huge demands for power cables exits.The demands of optical wires increase with the growth of telecomm industry. Also,

Figure 2, given below show a rise in demand in precious metal wire and insulated

wire and cable. Hence, we see that there will be sufficient requirement of CAPEX to

built these capabilities to manufacture special wires. Hence, the capital requirement

in cable industry is moderate.



Page | 6

Figure 2: Demand of Precious Metal Wire and Insulated Wire and Cable in India for the period

2000 – 2011 (in US $ million)

IV. Switching Costs: There is almost no customization of products & services in cable

industry therefore almost any switching cost for customer.

V. Access to Distribution Channel: Building of distribution channels for new entrants

using existing channels will be difficult due to presence of existing firms. In addition,

the cost of build of new channel will equally difficult. Hence, this can be used to

restrict the new entrants in the market.

VI. Regulatory Barriers: Post liberalization (1991) the regulatory norms have been

relaxed to a great deal and hence it easier for new entrants to enter the market.

Overall, considering the above-mentioned factors we can conclude the threats from new entrants is

relatively high in cable industry in India.

Bargaining power of buyers: Factors affecting bargaining power of buyers in the cable industry

are as follows:

I. Concentration & Consolidation of buyers: Major buyers for cable industry are

telecommunications & industrial sector. There are fairly large number of buyers

exist in both of these kind of sector so there are not much of bargaining power of

buyers.

II. Product differentiation: These products have less differentiation and more

standardisation therefore no player has the advantage of differentiated products.

III. Importance of product quality: Wire and cable products have standard industry

specification, there is not much that you can add value above than minimum

specification required because usually customers are generally don’t see much value

in this products so cable & wire products are highly price sensitive rather than

quality sensitive.

IV. Switching cost: There is almost no customisation of products & services in cable

industry therefore almost no switching cost for buyers.

India, 88.3

% of Globe,5.36%

5.00%

5.10%

5.20%

5.30%

5.40%

5.50%

5.60%

0

10

20

30

40

50

60

70

80

90

100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

D e m a d ( i n U S $ m i l l i o n )





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X. References

1. “Prospects for the Indian Cable Market”, International Cable Maker Federation News (2007),

http://www.icf.at/en/5834/indian_cable_industry.html (accessed February 1, 2013).

2. Piggott,M. , “Who are the top cable makers in India?”, Integer Research ( August 18, 2011),

http://www.integer-research.com/2011/wire-cable/news/indian-cablemakers-revenues-

2010/ /(accessed February 1, 2013).

3. “Wire and cable industry”, Times of India (May 7, 2012),

http://articles.timesofindia.indiatimes.com/2012-05-07/news/31609911_1_cables-industry-

status-cement-industry (accessed February 3, 2013).

4. Kotler,P. Keller,K.L. Koshy,A. and Jha,M. , “Competitive Forces”, Marketing Management

13e, Pearson Education, New Delhi, 226-227.

5. Dess,G.G. Lumpkin,G.T. and Eisner,A.B. , “Porter’s Five_Forces Model of Industry

Competition”, Strategic Management 3e, Tata McGraw Hill Education, New Delhi, 58-66.6. “Finolex Cables – Profit & loss account”, MoneyControl.com ,

http://www.moneycontrol.com/financials/finolexcables/profit-loss/FC01#FC01 (accessed

February 5, 2013).

7. Philip,M.P. “The 2006-2011 World Outlook for Precious Metal Wire and Insulated wire and

Cable”, ICON Group International, Inc. (2005).

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