Environmental and Organizational Analysis of Balkrishna Industries Company

In the circle of life the ideas resolve by connecting compatible minds; extending the path of progress; building communities i.e., changing destinations. Giving meaning to their philosophy of “Being together and growing together” and making everything happen at Balkrishna Industries (BKT).

Balkrishna Industries manufactures off-highway tires OEM (Original Equipment Manufacturer) used in specialist segments like consisting of Agriculture, Industrial, Construction, Earthmoving, Mining, Port, Lawn and Garden and All-Terrain Vehicle Tires (ATVs) etc. BKT has its manufacturing plants in Aurangabad, Chopanki, Dombivali and Bhuj. In addition to its massive structure, from its highly trained or motivated workforce and from cutting edge technology, BKT has implemented a highly evolved work order, as well as management system for all its plants.

With a total annual gain of more than 610 million dollars and a composite rate of growth of 35% over a decade, BKT is the only centralized company that satisfies all the requirements related to tyres and reinforces the confidence of customers with their storage units that maintain upto 2000 additional units to those required. The coverage of its clientele covers 120 countries which is why BKT is the world leader in the manufacture of all terrain tyres.

Balkrishna Industries predominantly caters to the replacement market in North America and Europe. Its North America office is located in Akron, Ohio with one warehouse in Wando, South Carolina. About 80 percent of Balkrishna Industries business in the United States is in the farm market. The growth rate in “Off-Highway Tires Segment” is ranging between 4-5%. The industry is witnessing positive moment for couple of years.

Environmental Analysis

Environmental analysis is a strategic tool which helps you identify the all the internal and external elements , which can affect the organization’s performance. The analysis helps align strategies with the firm’s environment.

The analysis is also known as PESTLE or PEST, depending on how many environmental factors are included. This method takes a big picture or birds view approach, which means that it looks at the project in a wider context. This enables project teams to anticipate changes and include these changes into their planning instead of being surprised by them.

Pestle Analysis

Political factors

The tyre industry in India has had to grapple with raw material price volatility, rupee appreciation and cheap Chinese imports. In this connection, some of the recent initiatives by the government to facilitate the growth of the sector include:

• No WTO bound rates for Tyres and Tubes
• No restrictions on the import of all raw materials required for tyre manufacture except carbon black, which has been placed in the restricted list
• Increasing thrust on development of road infrastructure

Economic factors

India’s inflation rate has been decreasing since 2010. India’s economy, however, has been doing quite well with its GDP steadily increasing. But for the past five years it has been steady. This allows the manufacturing company’s like BKT to maintain its equipments, raw material costs and other input costs along with a budget plan for the next year.

In terms of net sales growth and highest profit margins, Balkrishna Industries is far ahead from other players with the profit margin defined as 10.55% (average of 5 years) in the industry as it operates in the Off Road Tyres (OTR), a niche segment.

Also, the BKT Industries depends majorly on the agricultural sectors for its sales. The agricultural sector in the US is vast and the requirement is also high. In this case, currency plays a key role. Devaluation of currency of a country has an immediate impact on the companies involved in imports. BKT Industries import Natural Rubber from other countries as its the primary raw material for the tyres and therefore, this increases the production costs.

Social factors

BKT derives 80% of its revenue from the replacement market, OEMs account for 14%. The company is a leading supplier to OEMs like Volvo, John Deere, CNH, Class, BOMAG, SAME, Ferrari, among others. Also, many global tyre makers sell BKT’s tyres under their brand, a proof to the company’s superior

products and strengthens confidence in BKT. The company has developed a strong global network comprising 200 distributors across 120 countries to cater to the wide replacement market. Moreover, the replacement cycle for agriculture tyres is around two-three years while that for mining and construction is around 9 to 12 months. Margins in the replacement market are around 3-5% higher compared to OEM and also lend stability to growth in turbulent times.

Technology factors

BKT tires are entirely manufactured in India at our their three main production sites. Their R&D division deals with anything related to the technical product development: from designing a new tire to developing new compounds to improve product performance as well as implementing always more efficient production processes. They invest around 3.5% of their annual sales into R&D.

Customer satisfaction and their research processes are the key factors for a rise in the standards and making BKT products always more reliable, more competitive and highly technological. As part of their research and development analysis, they design, develop and produce 60-80 new tyres every year. BKT’s excelling technological progress has been recognized by the Indian government through the Department of Scientific & Industrial Research (DSIR) and the Department of Science & Technology (DST).

Legal factors

The Indian tyre industries are requesting the Indian Government to allow duty free carbon black which is one of the primary raw materials for the manufacture of any kind of tyres. The US Department of Commerce on March 7th, 2017 revised the countervailing duty (CVD) for off-road tyre import from India to 4.94 percent from 5.06 percent. However, the CVD against the biggest player in the segment, Balkrishna Industries was left unchanged at 5.36 percent. Only 5-7 percent of the company’s exports to the US are subject to the CVD, and there is not much risk of an upward revision. CVD, an import tax imposed on certain goods in order to prevent dumping or counter export subsidies, is subject to annual review by the department of commerce for next 5 years.

Environmental factors

Both the regard for nature and the utilization of sustainable power sources are fundamental qualities for BKT. Every one of their locales work in full consistence with natural guidelines. In accordance with their pledge to control the effects getting from the current generation forms. Furthermore, all BKT tires are fabricated in consistence with the European Directive REACH managing and controlling the utilization of synthetic compounds.

Their decision of practicing environmental safety has been perceived by the Indian government. All things considered, they have received the National Energy Conservation Award being given in order to recognize consistent effort to protect the environment.

SWOT Analysis

This is also a strategic analytical tool for assessing strengths and weaknesses of a business, analyzing opportunities available to the business, as well as, threats faced by the business. It can be used at organizational levels and also personal levels too.

The strengths and weaknesses of the organization are internal, i.e. the understanding and manipulation of their strengths and weaknesses. Opportunities and threats on the other hand, are external, i.e, organizations can only react to these factors but do not have the tools to influence them.

Strengths

BKT is ranked as the top fifth manufacturers when it comes to Off-Highway Tire (OHT) market in India. They have an extensive market lined up with over 2300 products.

They have a wide and comprehensive product portfolio and a deep understanding of the OHT market which has led to a large base of Stock Keeping Units( SKUs) to meet the diverse needs and applications.

They have successfully scripted a sales network across 120 countries around the globe. Balkrishna Industries predominantly caters to the replacement market in North America and Europe.

The industrial segment of the company has always adapted and updated to the technological advancements and never observed any wild fluctuations in demand for its products.

In order to make sure that there are no interruptions with the supply of raw materials, the company set up a Carbon black plant at Bhuj, Gujarat.

They have a strong CSR policy which ensures the promotion of education, health, rural development and help society when in need.

Weaknesses

The company functions in a sector which is primarily known as “large varieties- low volume” segment that requires large amounts of investment and also needs a large workforce. Hence, any new initiative is costly for the economy.

The rise of the crude oil prices directly affects the prices of the raw materials necessary for the manufacture as well as production purposes.

Almost 30 percent of the company’s revenue is generated through a product category which is cyclical in nature and therefore, the company is exposed to market risk.

Opportunities

The company has an incremental opportunity to develop “Earth Moving Tyres” by expanding its base into its various sub-segments like agricultural, industrial, construction, mining, winter and solid tyres.

The company is also foraying into the two-wheeler tyre market as part of a diversification process. They have already introduced two products- Pilot and Raftar and will partner with the vehicle manufacturers as the production scales up.

Threats

Like any other company, BKT is also exposed to various threats like competition from small players, retention of employees, labour unrest, increase in the raw material prices and other input costs etc.

Fluctuation in raw materials - The company’s major raw material is Natural Rubber, which is an agricultural produce and also its prices fluctuate significantly. In order to minimize such risks, the company enters into contract and also stocks large quantities. Since most of the raw materials are imported, the company is exposed to foreign currency risks too.

Labour Relations - The company’s manufacturing process is that of batch processing, it requires lot of skilled as well as unskilled workers and maintaining such a huge workforce is a big challenge. In order to mitigate this risk, the Company follows good HR policies to promote the welfare, safety of its workmen and improve the work environment.

Retention of skilled manpower - Like other players in the industry, BKT is also exposed to this risk, more particularly when there is shortage of skilled manpower in the industry.

Currency fluctuation - The company revenues are mainly generated through exports. They also import a lot of their raw materials and capital equipments. Moreover, all its borrowings are in foreign currency and it is therefore exposed to risks due to currency fluctuations.