Pertamina is an Indonesian Oil & Gas corporation that wishes to enter India & is competing against Reliance Industries Limited.
a. As a consultant you are required to recommend whether backward integration or forward integration is a superior strategy to compete against RIL in India? Which one of the alternatives would you choose to your client & why? Justify with reasons.
b. In your opinion, in case Petramina wishes to diversify into unrelated diversification, which sector in India would you consider as attractive for the company to diversify? Choose only 1 sector. Specify statistics such as Growth potential of that sector, advantages of doing business in that sector, etc.
Answers
Answer:
a) As the organization grows and expands into new organizations, changes are made to the structure and it diversifies into new markets and products. Over a period of time, there is an increase in sales revenue and product production in new companies with a simple structure. As Pertamina is entering into India, it should participate in vertical integrations to guarantee distribution channels (forward integration). In other words, the company should employ forward integration to compete with RL in India.
b) In case Petramina wishes to diversify into unrelated diversification, it should enter into the information technology (IT) sector. There are many factors that are boosting the growth of this industry like technological advancement, economic needs, and the Indian government taking beneficial decisions (digital India) and so on. Considering these factors, the information technology industry can be assumed to continue to grow for a long time. If a company wants fast-growing stocks with good upside potential, the mid-cap IT industry stocks are an amazing fit for long-term investment in India. Industry experts and NASSCOM say the Indian IT workforce will touch 30 million by 2020, becoming the highest sector employer. This will be coupled with steady increase in pay in a sector already offering a high base. The outsourcing industry too is looking towards India and is expected to be a $2.5 billion industry in the next 24 months.
Pertamina is an Indonesian Oil & Gas corporation that wishes to enter India & is competing against Reliance Industries Limited.
Explanation:
a) In this case, Pertamina should choose forward integration strategy. Image result for forward integration strategy
"Forward integration" is an enterprise strategy which includes a type of vertical integration by extending business operations to comprise "direct distribution" or "supply control" of a company's goods". An organisation that advances along the supply chain is responsible for this form of vertical integration. In essence, a corporation undertakes integration through the acquisition , merger or retention of ownership of its "business entities" that were its customers.
When the company evolves and develops into new sectors, structural changes are made and the company then diversifies into new products and new markets. Sales revenues and product development in new companies with a clear structure increases over a period of time. Since Pertamina enters India, forward integrations are needed to guarantee distribution channels (forward integration). This means that the company should seek future integration in order to succeed in India with Reliance. a This strategy is implemented by Pertamina to minimise production costs and to increase the productivity of the firm by buying supplier companies and thus, eliminating the need for the third party distribution networks and consolidate its operations.
b) Petramina must join the information technology industry (IT) & Information if it wants to diversify into unrelated diversification. There are several factors which enhance this industry's growth, including technological development , economic requirements & positive decision-making by the Indian govt's digital India vision etc. In view of these factors, the IT industry can still be expected to expand for a long time. India’s information technology and back-office sector is expected to grow. The IT & ITeS industry contributes around to 7.9 percent of India’s GDP and employs approximately 41 lakh professionals . The industry will also witness a steady increase in pay in the future
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