Sector Specific - FMCG
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FMCG (consumer) sector (Updated - 10 Jan 2010)
The past couple of years have seen some Indian FMCG companies like Godrej Consumer Products Ltd (GCPL), Marico and Wipro’s FMCG division scouting for acquisitions either for brands or companies outside India — especially in emerging markets in the Middle-East, South-East Asia and Africa.
GCPL has expanded itself inorganically through a series of international acquisitions and joint ventures. It acquired the UK-based FMCG company Keyline Brands in 2005 and South African company Rapidol in 2006. It acquired South African hair care business Kinky in 2008. It bought over the remaining 50% stake in its joint venture with Swedish company SCA Hygiene Products. It is now reported to be close to acquiring Indonesian household products company Megasari.
Marico, the Rs 2,500-crore company, has made brand acquisitions in Bangladesh, Egypt and South Africa. The company’s Malaysian subsidiary has now acquired a hair styling brand from Colgate-Palmolive to increase its presence in the RM 150 million hair styling market in Malaysia. Wipro’s FMCG division acquired Singaporean personal care products company Unza in 2007. It recently acquired the Yardley brand internationally.
So, why are these mid-sized players aggressively shopping for brands and companies abroad? One common thing among all these companies is that all are mid-sized and hungry for growth. While the India consumption growth story still remains intact for most of them, growing organically will take a long time for these companies. Moreover, the domestic market offers limited acquisition targets.
Against this, the other emerging markets in West Asia, Africa and South-East Asia offer attractive opportunity for growth, a variety of unexplored categories and suitable targets for acquisition. Categories like personal care, hair care and hygiene products have attracted the interest of Indian FMCG players. Emerging markets offer growth rates similar to (and in some cases higher) than that of the Indian market. Plus, there are no great technology barriers while acquiring FMCG businesses.
However, there is a flip side to it as well. While venturing abroad, these companies, which traditionally have functioned in the domestic market, are faced with challenges like forex volatility, varying economic conditions and consumption patterns in the foreign markets and initial set-up and brand building costs. Inorganic growth, thus, also comes at a cost.
However, if the past performance of these Indian FMCG companies is any indicator, this strategy of achieving inorganic growth abroad is likely to pay off. Most of these companies like GCPL and Marico have outperformed other FMCG biggies.
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