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The parachute brigade

Marico is an Indian multinational with a difference—it is powering its overseas business by becoming a part of life in West Asia, Africa and even Bangladesh.

Anusha Subramanian        Print Edition: November 1, 2009

Marico was in a fix: its Parachute hair oil was a hit with Indians in the Gulf, but why were Arabs shunning it? Well, apparently because they preferred hair creams to oils. Word went back to headquarters in Mumbai: Send cream, not oil. The result: Parachute Advanse Hair Nourishment Cream, launched in the UAE in 2001. Since then, Marico’s sales in the region have never slowed. Better still, Marico decided to try the cream back on its home turf and launched it in 2005 as an after-shower cream, and now has 19 per cent of the hair creams and gels segment.

Little wonder that Marico today has a Rs 500-crore international business group with a footprint in West Asia and Africa, having grown its exports from just Rs 2 crore in the ’90s, when it rode the coconut oil wave to Dubai. The secrets of Marico’ success: localisation coupled with transfer of learnings, as it acquired local firms or set up its own channels and manufacturing bases.

“We could have tagged the export business along with the domestic business but it would have not got good focus. International business had to have a separate focus and be managed differently,” says Harsh Mariwala, Chairman and Managing Director, Marico, explaining the formation of the IBG, which now accounts for over one-fifth of the group’s total turnover (Rs 501 crore out of Rs 2,388 crore in 2008-09) growing at a compounded annual rate of 40 per cent.

Striking Roots For Marico, the Gulf was a good launchpad for its global forays. After the hair-creams-not-oils lesson, Marico was quick to adapt other practices. Now, Parachute cream has become the #1 player with a market share of 23 per cent in the Gulf Cooperation Council (GCC) region. The business grew out of Dubai into all the GCC countries across West Asia.

Next stop: Bangladesh, in 1995, where Marico set up a separate company (it got listed on the local bourse this September) that has grown from nothing to become the third-largest multinational after Unilever and Nestle in the FMCG space.

Marico Bangladesh Ltd (MBL), which has 74 per cent of that country’s market for branded coconut oils, replicated and localised its Indian innovations. So MBL has some world-class television commercials, distributor software with bills in Bengali, sales teams carrying PDAs that can read Bengali and a webbased monitoring portal.

Debashish Neogi, CEO, MBL, says: “After entering the Bangladesh market, we soon realised that it was not advisable to have a purely ‘India forward’ approach. So our biggest challenge was to de-link without sacrificing the best practices from India.”

“The successful cultural integration and glocal approach has helped MBL to grow exponentially,” Neogi says. MBL is the largest Indian FMCG company in Bangladesh, with a top line of Rs 275 crore for the year- ended March 31, 2009. Three-and-a-half years ago, revenues were at Rs 72 crore.

After having established its presence in Bangladesh and the GCC region, Marico forayed into the MENA or Middle East & North Africa region and South Africa through acquisitions.

In September 2006, Marico entered Egypt by acquiring Fiancee, a familyowned brand and after three months went on to acquire HairCode, along with manufacturing units. It was here that Marico acquired a unique category called gel cream. “We are experimenting with it now and prototyping the product in India,” explains Vijay Subramaniam, CEO, IBG, Marico.

In October 2007, Marico acquired the Consumer Division of South Africa’s Enaleni Pharmaceuticals Pty Ltd. for Rs 52 crore and secured three brands in the bargain—Caivil, Black Chic and Hercules. From South Africa, Marico has expanded into neighbouring Angola and Botswana.

Foundation and Empire Overall, in the last 36 months, Marico has notched up seven acquisitions, of companies as well as brands, in Bangladesh, Egypt and South Africa.

“We were keen on emerging markets because the growth rates in these markets would be higher. Even with a GDP of 5-6 per cent the growth rates would be higher,” says Chaitanya Deshpande, Head, M&A and Investor Relations, Marico.

So has this growth been largely inorganic? No, says Subramaniam, and adds: “IBG has been growing at a 5-year CAGR of 40 per cent and of this 33 per cent comes from organic growth.”

Subramaniam cites three significant shifts in Marico’s strategy as it grew. First, it went on a mergers and acquisitions spree. Second, it gave up its India-centric approach and localised its offerings. Third, in the process, it has gone from being an oil company to one with gels, creams, lotions et al. “That’s how we are moving across the curve,” he says.

The IBG gets almost 66 per cent of its business from Bangladesh, Egypt and South Africa, notes Kaustubh Pawaskar, Analyst-FMCG, at brokerage Sharekhan. “The major contribution to the international business, of approximately 36 per cent, is from Bangladesh, where the shift from loose oil to branded coconut oil has boosted growth,” he says.

In Egypt, Fiancee and HairCode command over half the post-wash haircare market. In South Africa, while Marico leads in niches, at an overall level its share would be around 10 per cent of the ethnic haircare space. According to analysts, Egypt contributes about 15 per cent to the overall growth of IBG.

“We expect the Egypt business to grow at 25 per cent in FY10 thanks to the restructuring of its distribution set-up, internal sourcing and also having its own manufacturing plants,” says Sharekhan’s Pawaskar. The overall strategy has also given the company good cash flows: Rs 185 crore in the last financial year.

Challenges: So Far So Good Every country poses its business challenges, and the key is to adapt and learn, Subramaniam says. “One needs to be adaptable and flexible to deal with ambiguity and uncertainty in these markets,” he says. “Localisation is the key.”

While business challenges remain more or less the same for most countries around the world, Milind Sarwate, Head, HR and Strategy, says Marico faced many HR challenges, not the least being its fiercely independent nature, unlike western MNCs, which are instruction-led.

“Our challenge was, how can we run overseas operations? Can we run it the way we do in India where we believe in empowerment?” says Sarwate.

As for integration, Marico has followed different models. “In Egypt, when we built a new office, we built a prayer room. Chairs in our office are placed sideways instead of facing the host, as eye-to-eye contact here is considered rude,” Sarwate says.

Today, most of Marico’s overseas operations are manned by locals, barring a few Indians like Neogi of MBL.

With the acquisitions settled, Marico now wants to take its acquired brands across markets. So, it will use Egypt and South Africa to tap neighbouring countries. “While we eventually plan to take the Egyptian brands to West Asia, we are also looking at Libya, Morocco, Sudan, Algeria to expand the business,” says Deshpande.

And Mariwala’s parachute brigade is well prepared: it has three manufacturing units in Egypt and plans to make the country its manufacturing base for the MENA region.

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