Marketing Management ProjectPart 1

Group Number: A-9 Group Members:

Malvika Varma ( H12025) Prerna Singal (H12038) Rajat Sethi ( H12042) Siddhant Mathur (H12051) Uddalank Banerjee (H12058) Bertrand Fachaux

Introduction to the Tractor Industry:

The tractor industry in India has come a long way and developed over the years to become one of the largest tractor markets in the world. The country has now grown up well over 200,000 units from once just about 50,000 units in early eighties. Today industry comprises of 14 players, including 3 MNCs. The opportunities still are huge considering the low farm mechanization levels in the country, when compared to other developed economies across the world. The report walks you through the market analysis of the tractor industry followed by a keen discussion on Escorts-one of the leading tractor producers of the country. Escorts Agri Machinery (EAM) was launched in 1960. It has always been a pioneer of farm mechanization in India. The company manufactures tractor under the brand names of Escort, Farmtrac and Powertrac.

PESTEL analysis of Agri-Machinery Industry:

Political factors: These refer to government policies which can directly or indirectly affect the market profile of a company. One such example could be the various schemes the government launches in favor of or against the industry environment. Government plays a major role in technology, giving education to the farmers in the rural villages, promotion of mechanized farming to ensure high productivity in the farms. Again, to what extent the company believes in subsidizing food grains and fertilizers. Political decisions can impact on many vital areas for business ranging from the quality of the infrastructure of the economy such as the road and rail system to the health of the nation.

The political factors related to tractor industry are:

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 Therefore agriculture sector has started receiving great financial assistance from the government due to the emphasis laid on the mechanization of agriculture with a view to boost food grain production. Welfare yojnas by the government like Rashtriya Krishi Vikas Yojana and Farm produce price policy which ensure high production from the farmers. Public investment in infrastructure Policy support, production strategies, , research and extension for crop, livestock and fisheries have significantly helped to increase food production and its availability. 100% FDI policy Subsidy on agricultural loans from government Regaining Agricultural dynamism, a key goal of eleventh Five year plan, Economic Factors: These include economic growth, inflation, taxation changes, interest rates, and exchange rates. Economic change can have a major impact on a firm's behavior. The economics factors related to tractor industry are: The credit sales constitute 95% of tractor sales. Credit is extended by regional rural banks, commercial banks and state land development banks. In such a situation, a tie up with any of the banks may prove beneficial for the firm. Kisan Credit Card (KCC) scheme was introduced to provide adequate and timely support from the banking system to the farmers for their cultivation needs. Insurance: - National Agricultural Insurance Scheme (NAIS) was launched to protect the farmers against losses suffered by them due to crop failure on account of natural calamities. Huge scope for exports:- India produces the cheapest tractors in the world. There exists a tremendous scope for exports. However, comparatively cheaper import of second hand tractor from other developed countries like Germany couples with poor foreign exchange situation and poor buying capacity reduces the export of tractor from India. Less interest rate charged by banks for agricultural inputs. Rising inflation may raise wage demands and raw materials of the costs. Higher national income growth may boost demand for a firm's products:-Increased agricultural productivity and rapid industrial growth in the recent years have contributed to a significant reduction in poverty level Social factors: Changes in social trends like demographics and urbanization impact demand for a firm's products and the industry as a whole.

The social factors related to tractor industry are Family segregation: - Nuclear families lead to land fragmentation and every farmer farmers with his particular small land holding will need to buy a tractor. There is an increase in awareness among the farmers for the need of farm mechanization and credit facilities from financial institutions. Demand for tractors was well maintained even during a draught period as there is more and more need for tilling due to depletion of moisture and repeated cultivation of land Multiple cropping practices: - More and more farmers are opting for multiple cropping these days. Naturally, the essence of tractors is increasing. Labour shortage during harvesting also increases the use of tractor Technological factor: New technologies help in creating new products and new processes. Technology often leads to innovation which translates into reduced costs and improved quality. These developments are beneficial to consumers and organizations providing the products. Sometimes, though, technology reduces the life cycle of products. The technological factors pertaining to the tractor industry are Continuous innovation in technology faster, cheaper or better ways of doing things Development of renewable energy. A recent trend of mechanized farming due to high food grains demand has led to the inevitability of tractors. Animal power leads to drudgery and delay and is very labor intensive. Mechanized operations are preferred to eliminate dependence on labor. Accelerated acquisition of technology capabilities to raise productivity in agriculture. Environmental factors: Weather and climate constitute these factors. Farming especially is very sensitive to changes in temperature. The major climate changes occur due to global warming, green-house effect, acid rain etc. As environmental awareness is increasing, firms are giving due consideration to this factor. The growing need to protect the environment is having an impact on many industries, and environmentally friendly products and processes are affecting demand patterns and creating business opportunities. The environmental factors influencing the tractor industry are When there are strong monsoons, banks increase lending which leads to farming of commodity, increased money availability and hence catapulted tractor demand. Irrigation facilities reduce reliance on monsoon and allow for quick yielding varieties of food-grain. This, in turn, reduces the cropping cycle to 3-4 months instead of the traditional 5-6 months. As a result of reduced cropping cycle, deep tilling is required which, in turn, translates into higher demand for tractors.
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Legal factors: The legal environments wherein the firms operate are governed by the legal factors. Globalization has played a major role in causing changes in the legal factors of the developed countries to percolate to firms in others countries. Legal changes have a twofold effect on the firms costs on the production side, if new systems or procedures have to be developed and on the demand side, in case the law affects the likelihood of the customers buying the product. Some legal factors identified for the tractor industry are: Irrigation reforms have been introduced in various states. We have seen in the earlier factor how increased irrigation translates into increased demand for tractors. Various reforms passed for factors affecting agriculture, such as fertilizers, soil & water conservation, crop protection etc. have a direct impact on the firms revenues. The agricultural policy that is in place and the likely changes possible. Collaboration with government which shapes policy issues.

Opportunities and Threats

There are numerous opportunities available for tractor industry and it has remained strong even in FY12 even when the automotive industry has experienced slackening demand on account of rising inflation, hardening interest rates and increasing fuel prices. Tractor Penetration in Indian Farm Households

Government Support for Agriculture & Rural Development: Agriculture employs over 50% of the

domestic workforce and remains a key focus area for the GoI. In order to ensure self-sufficiency in food grain production in the backdrop of a rising population, state agencies have assumed a greater

role as facilitators of technology adoption. GoI has consistently increased its budget outlay for agriculture and allied activities and also increased its allocations for schemes like Rashtriya Krishi Vikas Yojana (RYVY) to boost farm output and improve labour productivity. In conjunction, subsidies on fertilizers, electricity and diesel have also supported rural prosperity, and favorably influenced the demand-side drivers of farm mechanisation. Over the short term, increase in spending towards agriculture could be affected by lack of fiscal flexibility available with the government. However, over the long term, the rural sector should continue to see large investments towards overall infrastructure development and improved accessibility of various farm mechanisation tools such as tractors and power tillers.

Increase in Credit Availability: RBI has put a mandate on the commercial banks that they must

meet a target of 18% of their net banking credit for agricultural sector. Moreover growth is increased by non-banking finance companies. Apart from increase in the magnitude of credit availability, the sector has also benefited from introduction of innovative credit delivery schemes such as the Kisan Credit Cards (KCC).

 Increase in Exports: Indian tractors are cheapest in the world. It costs as much as a gear box costs in

a developed country. Indian tractors are gaining international acceptance because of their standard.While Nepal, Bangladesh, Sri Lanka and the United States remain major export destinations, the expanding footprint of Indian tractor manufacturers in African and new South-East Asian markets is expected to drive export growth over the medium-to-long term. Export to neighbouring countries such as Thailand, Malaysia and Indonesia is also supported by the Asian Free Trade Agreement, giving way to falling duty structure among member countries.

Other Drivers Contributing to Industry Growth

But this industry is acclimatized with various threats too some of which are as follows:
Dependency on Monsoon: The growth of tractor industry is heavily dependent on agriculture which

in turn is dependent on type of monsoon. Good monsoon leads to an increase in agriculture GDP and hence gives a boost to tractor sales. Scanty monsoon leads to a dip in tractor sales.
Threat of Foreign Players: There is no cap on the FDI in this sector hence the foreign players do not

need a JV with a domestic company to enter this sector. For instance players like John Deere and New Holland pose a threat to current players with their technological superiority.
Farm Land Fragmentation: Generally the indian farm industry has a peculiar characteristic that it is

highly fragmented and of small size due to which the farmers do not hold a chunk of land enough to use agricultural machinery like tractor on their land.
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The strengths of Escorts Tractors are as follows: The company's ability to introduce new products in the market and to generate sales from those new products is a major strength. The reason being that this is very essential for any company, for its survival in the long run. The company has a Large and effective distribution channel. The company sufficient financial resources to invest in this sector. The company has established its brand name in other countries of the world (41) as well which is biggest strength of a company to extend and diversify the business The weaknesses surrounding the company are as follows: The company is highly dependent on the rural sector of Indian. The technology is low in comparison to the foreign players.

Product Portfolio
Escorts introduced farm mechanization in India in the 50s by developing agricultural solutions. The company aims develop products and services in order to increase productivity and living standards in rural India. Escorts is now becoming a whole Farm Solution provider instead of being a tractor manufacturer. Innovation, improvement and effectiveness are the keys to suit market and customer demands. The product portfolio of Escorts meets a large demand and answers to different issues depending on the farmer priorities and needs such as productivity, economics, usage or specialized applications.
TRACTORS

CROP SOLUTIONS

LUBRICANTS

ENGINE & GENSETS

FARMTRAC World class premium tractor - from 34 to 75 HP POWERTRAC Utility and Value-for-money tractors - from 24 to 55 HP ESCORT Economy tractors unbeatable advantages - from 27 to 35 HP

The launch of tractors fitted with 4 - Cylinder engines that are around 15% more fuel efficient than most other tractors in the market The 'Escorts Jai Kisan Series' are news products which suit new and varied needs of farmers. It offers more options, infrastructures and specialized solutions. This serie is available in the FARMTRAC line of tractors. There are five new categories :

ValueMaxx LoadMaxx AgMaxx InfraMaxx SuperMaxx

basic agricultural purposes haulage-based applications specialized Agri-applications specialized in infrastructure-based applications all types of agriculture

Here are the excellence departments of Escorts:

Manufacturing Knowledge Management Quality Assurance

Information Technology

Sales & Marketing

Human Resources Finance

Materials Management

Escorts AMG has one subsidiary in Poland and is available in 41 countries. There is finally in Bangalore a developing and repair center: The Escorts Training & Development Centre (ETDC). In this place, all the stakeholders and customers are invited to work together to meet the objective of increasing productivity and improving rural life in India.

THE TARGET SEGMENT OF ESCORTS GROUP (AGRI-MACHINERY DIVISION)

Escorts manufactures tractors under the name of Escort, Farmtrac and Powertrac . Although demand of tractors in India is directed by farmers disposable incomes, cropping pattern, real price of tractor, monsoons and availability of irrigation and credit, the target segment includes mainly the farmers of Punjab, Haryana and Rajasthan. The tractors of the Escort group mainly aim at high growth sector of agri machinery. The new models, Farmtrac 6060 and Farmtrac 6065 are Indias first Executive tractors with inline fuel injection pump.

At Escorts Agri- Machinery, the catalytic robust change was brought about by two large customer centric initiatives Introduction of New Products and variants that were commensurable with changing and emerging

applications & end usage and The shift of Escorts from being a standalone tractor manufacturer to being a complete 'Farm

Solution' provider.

These tractors are available in 60 hp and 65 hpt. These tractors are meticulously designed to cater to the robust needs of new age Indian farmers who are progressive, who are smart and educated and also have an entrepreneurial bent of mind .It is these farmers who cultivate large acres of land and raise more crops every year and hence these tractors with latest four wheel drive technology are aimed to help earn and save more.

TRACTOR BRANDS OF ESCORTS AND TARGET SEGMENTS

FARMTRAK - sugarcane and potato farmers .
single double ,tripple axle trailer users.

ESCORT-Poor Farmers in need of Diesel economy

POWERTRACVillage farm Constructors

COMPETITOR ANALYSIS OF ESCORTS GROUP

70.00% 60.00% 50.00% 57.60% 44.90%

41.60% 30.40% 26.50% 29% 23.50% 18% 12.90% 7.20% 1.10% 0.90%0 0.00% 0.50% Escort 21-30hp 31-40hp LT-JD 41-50hp 10.50% 9.50% 0.00% 0% Sonalika <50hp 3.70% 4.60% 2% 2.60% HMT 7% 2% Others 8%

40.00% 37.20% 30.00% 20.00% 10.00% 0.00% M&M TAFE 18.70%

Indias tractor industry is dominated by 6 major players (about 90% share)

which are M & M, TAFE,

Escorts, Eicher , HMT , Punjab Tractors Limited. Mahindra and Mahindra continues to dominate the industry with close to 30 per cent share. Mahindra and Mahindra has a strong presence in western and southern markets consisting of Gujrat , Andrapradesh, Tamilnadu , Karnataka. It has presence across 25 HP, 35 HP and 45 HP. Most of the MNC ventures in India are taking place in 75 HP to 80 HP range. Escorts group is third highest in the 21-30 HP group with a market share of about 18% .Escorts group is fourth highest among indian tractor manufacturers in the 31-40 HP range.

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