The Role of Strategy in Success: A

Study of Blue Star Ltd

MBA 2013-15
Section C, Group No 4

Submitted By:
Kumar Yash:

13202144

Manish Dubey:

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Joydeep Mitra:

13202141

Mohnish Priyam:

13202206

Akshansh Kumar:

13202004

Nishant Kumar Prusty:

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Ch Krishnendu Sundar Patro:

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BLUE STAR

Strategic Analysis

Company Background:
Blue Star was founded in 1943, by Mohan T Advani, an entrepreneur of exemplary vision and
drive. The Company began as a modest 3-member team engaged in reconditioning of air
conditioners and refrigerators.
Within three years, the Company secured the agency for US-based Melchoir Armstrong
Dessau's air-conditioning equipment. Shortly after, the Company was selected by Worthington,
the US leader in air-conditioning, as its India based partner - these were the first of numerous
foreign associations to follow.
An expanding Blue Star then ventured into the manufacture of ice candy machines and bottle
coolers and also began the design and execution of central air-conditioning projects then came
to manufacture of water coolers. In 1949, the proprietorship company set its sights on bigger
expansion, took on shareholders and became Blue Star Engineering Company Private Limited.
Ever since, there has been a constant and profitable growth. Blue Star diversified and took up
agencies for Material Testing Machines and Business Machines. The export arena beckoned
and the Company began exporting water coolers to Dubai, where in fact, 'Blue Star' soon
became the generic name for water coolers.
Blue Star is India's largest central air-conditioning company with an annual turnover of Rs 2800
crores, a network of 32 offices, 7 modern manufacturing facilities, over 2000 dealers and around
2500 employees.
It fulfils the air-conditioning needs of a large number of corporate, commercial and residential
customers and has also established leadership in the field of commercial refrigeration equipment
ranging from water coolers to cold storages. The Company also offers comprehensive Electrical
Contracting and Plumbing & Fire Fighting Services. Blue Star's other businesses include
marketing and maintenance of hi-tech professional electronic and industrial products.
Blue Star has business alliances with world renowned technology leaders such as Rheem, USA;
Hanbell, Taiwan; Hitachi, Japan; Midea, China; Information Security Systems, Thales, UK; E's
Inc, Japan; Carel, Italy; GREE, China and many others, to offer superior products and solutions
to customers.
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BLUE STAR

Strategic Analysis

Strategic Direction
Vision:
Blue Star will be the entrepreneurial leader in the high performance air-conditioning industry.
We will be persistent in our pursuit of customer satisfaction. Intelligent and successful ideas
will translate into customer growth, employee growth and business growth. We will be the
chosen and preferred partner for our target customers and will earn this distinction through
excellent technology coupled with highly competent field support to create the highest
productivity standards. The Blue Star brand will be synonymous with EXCELLENCE as
conveyed in each and every customer experience.
Mission:

For our customers: become the compelling supplier of choice for high performance airconditioners and equipments.

For our employees: provide exceptional opportunities and rewards for achievement.

For our industry: be the most imaginative and resourceful company in the business

Organization view of the future, sources of competitive advantages and its scope of the business
are highlighted. The obligations towards the firms stakeholders need to be addressed.
Core Values:
Blue Star is founded on five core values:

Relentless pursuit of customer satisfaction

Striving for customer satisfaction is our foremost commitment. Blue Star is customercentric in everything we do. Being a reliable partner and creating sustainable value for
our customers is vital to our success as a company.

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BLUE STAR

Strategic Analysis

Follow through on commitments

Blue Stars integrity hinges on honouring the commitments we make to our customers
and employees. They are promises by which we measure ourselves. We will do
everything in our power to accomplish a task and hold ourselves accountable to achieve
success.

Shoot high in expectations and performance.

An entrepreneurial spirit will be pervasive in everything we do. We will grow, as
individuals and as a company, by reaching for goals that initially appear to exceed our
grasp. We will hold ourselves to standards of performance that demand our best efforts.

Be a leader
Blue Star will not be constrained by the historical behaviour of any competitive
company. We will, however, leverage the collective experience of our people to build a
better company. Whatever we think are the limitations and constraints of today, we will
choose what we want to be and act to change for the betterment of our customers.

Honesty,

open

communications,

and

respect

for

people

Fostering open and direct communication among all levels of the company is critical for
maintaining respect and trust. Honesty and fair treatment should never be compromised.
Goals:

To increase market penetration through the products they are providing and hence to

increase market share.

To enforce good corporate governance practices.
To push their capabilities so to deal with unprecedented challenges.
To view deviation from targets as failure, discourage failure and ensure achievement of

set targets.
They should maximize employee satisfaction so that their employees provide the best

they can and also it is important for employee retention.

To provide sustainable livelihood to people in the local community and improving their
standard of living.

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BLUE STAR

Strategic Analysis

To spend higher on activity basis so to complete the project within time, ensuring that the
overall cost is within cost budget. This would lead to rapid growth for them and their

stakeholders.
To invest new ideas in experimental procedures to improve continuously.
To create wealth for investors, employees, business associates and communities where
they operate by experimenting and implementing new ideas for improving efficiencies
and maximizing the ratio of output product to input resources

The company has set very clear and justifiable goals. It doesnt reflect on the innovative plants
mission.
Objectives:

To become Indias leading engineering company with substantial competence in

revenues from 3 streams of business.
o Air conditioning
o Commercial refrigeration
o Professional electronics and industrial systems.
To become a customer focused organization, deliberately turned to deliver a world class
experience to corporate and commercial customers.
To serve customers with differentiated products expert solutions and value added
services.
To recruit and retain employees and business partners who relate to our customer
oriented, specialist or expert culture with a belief that happy employees make happy
customer.
To deliver a world class experience and ordering to corporate values constituting the 2
pillars of Blue Star way.
To win the trust and admiration of all stakeholders by shaving with them the fruits of
business success.
To be strong in having corporate social responsibility which is built on 3 pillars i.e.
o Environment production
o Energy conservation
o Community development around facilities.

The company has set significant objectives in order to achieve their goals but it lacks specific
time period in all of them.

EXTERNAL ANALYSIS
PORTERS FIVE FORCES MODEL

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BLUE STAR

Strategic Analysis

Although the Indian Consumer electronics market is highly competitive, the high growth rates
that it promises make it a good industry to enter.

THREAT OF NEW ENTRANTS

Capital Requirements and Economies of Scale:
In the case of retail stores, there is lack of good distribution network and lack of knowledge of
consumer buying patterns which calls for large investment in distribution channels and research
to improve the reach. Economies of scale is required in as there are large fixed costs associated
with setting up a manufacturing plant as there are problems of under-developed infrastructure,
erratic supply of water and electricity in many areas, a high cost of capital and continuous up
gradation of technical and managerial skills.
Supply Chain Issues:
The existence of too many intermediaries in the supply chain coupled with issues in logistics,
management of POS data, pilferage and distribution and inventory management, eats away the
profits of the retailer, making it unattractive for new entrants
Product Differentiation:
Awareness is increasing amongst Indian consumers, retailers and manufacturers are unable to
increase brand loyalty. The Indian consumer is very price sensitive and hence he keeps hoping
from one place to another, hunting for good deals. Switching costs vary amongst the electronic
categories.
Government Policy:
By encouraging manufacturing zones and improving the infrastructure, the government is
developing the entire manufacturing sector, which will help in boosting the electronics
production in India, which has traditionally been a very small slice of the overall manufacturing
segment. While the government is trying to encourage the growth of the retail and
manufacturing industries in India, there are some policies which need to be looked at. The duty
structure for electronics adds up to 30% which is a significant amount. This is mainly due to the
multiple tax structure which consists of 12% VAT, 8% excise, 4% Goods and Service Tax, 2%
Central Sales Tax and Local taxes. The FDI policy limits to 51% stake for foreign investors,
which forces foreign retailers to use franchise arrangements, and in the manufacturing sector, the
FDI is 100% favouring foreign investors.

BARGAINING POWER OF BUYERS

The general consumer (buyers) who usually purchase electronic goods from electronic retailers,
hyper marts, can easily compare prices and go for the best deals in town. Though the better
brands can command a higher price, buyers are constantly comparing prices, service quality and
product features and hence commands a moderate to high power in this industry. As brands
play an important role in the electronics market, the retailers find it difficult to integrate
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BLUE STAR

Strategic Analysis

backwards to produce their own electronic goods. Considering the market dynamics and the size
of the market, the buyers have moderate to high power in the consumer electronics industry

BARGAINING POWER OF SUPPLIERS

In the Indian electronic context, there are a large number of suppliers in the market who face
overcapacities, poor distribution, large duties, and declining margins and hence the bargaining
power for suppliers is less and competitive pricing comes into play. Product differentiation is
more and more difficult in the consumer electronics industry and the existence of cheap Chinese
suppliers also adds woes to the suppliers.

INTENSITY OF RIVALRY AMONGST EXISTING PLAYERS

There are few key players in the consumer electronic market, but as they are part of big Indian
business groups, they have a lot of muscle power and hence the intensity of rivalry can be placed
at a mid level. Though factors such as high transport and storage costs, lack of differentiation,
large investments, and low switching costs tend to intensify the rivalry, the fact that the market is
only at the nascent stage with promises of high growth rates of 16% coupled with the diverse
needs of customer groups, and an untapped rural market; the existing players seem to be
enjoying a relatively low rivalry.

THREAT OF SUBSTITUTES
The threat of substitutes for the manufacturers of these electronic goods is medium to high
unlike the case of white goods. As new technology enters the market at increasing pace, the
manufacturers and retailers need to understand the consumer needs.

Internal Analysis
STRENGTHS
Market Share
In Central Air-conditioning (30 tons and above)
This market has remained stagnant since past three years. Margins from this segment are as low
as 7-8%, which makes it less attractive compared to others. Leading players in this segment are
shifting their focus towards the faster growing segment-Room ACs. Blue Star is market leader.
In Ducted System (5-20 tons)
This is a segment, which lies in-between central and room ACs. These are packaged air
conditioners (PAC), fitted with scroll compressors, which are more reliable because it has only
three moving parts within the compressor, compared to 15 moving parts otherwise. And more
importantly it ensures saving of energy cost to the consumer. Companies such as Blue star, who
are leaders in central ACs are now vouching on about 50% future revenues from packaged air
conditioners.
In Mini Split Air-conditioners (1-3 tons)
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BLUE STAR

Strategic Analysis

The unitary products would include the window ACs and the mini-splits (without ducts).
These ACs are ideal for rooms with low heat loads. They are available in the capacity range of
0.5 TR to 3 TR. The room AC sector caters to residential premises, offices and small
establishments. Overall growth rate in this segment is about 15%. Split ACs are so named
because the unit is 'split' into two parts. The compressor and the condenser forming an outdoor
unit and the cooling coil remaining as an indoor unit. Split units can be with cooling solutions.
The value proposition for the new campaign is cooling solutions to help your business do
better". Blue Star is planning to widen its reach for its recently launched 'Help line Campaign'
to many markets in India which will promote its toll-free number 1600-2222-00 to address
common customer queries. It includes queries such as what capacity of AC to buy, whether to
buy a window or a split AC among other things. Besides, it will also provide an SMS option
for cell phone numbers. For the purpose, the company has set up a centralized call centre at
Thane in Mumbai.
Largest Single Source of Air conditioning Equipment
Blue Star is the largest single source for air-conditioning equipment in India. It offers the widest
range of air-conditioning products - window and split air conditioners, air-cooled/ water-cooled
packaged air conditioners, centrifugal, absorption, reciprocating scroll, rotary screw chillers,
variable air volume systems, fan coil units, air handling units, etc. If Blue Star were to be
defined it would be put in the following way: Never seen, never heard, yet quietly at work in
homes, hotels, offices, factories, showrooms, airports, laboratories, satellite launch stations,
hospitals all over India and abroad. That's Blue Star air-conditioning.
WEAKNESSES

Considered as premium brand so middle class people think it is unaffordable.

Although BLUE STAR protects its Position in Domestic AC market but is regularly losing
market share.
Market penetration is still very low.
Low qualities resulting in exports prices being non competitive.
OPPORTUNITIES

Confederation of Indian Industry (CII) has urged the government to reduce special excise
duty (SED) on air-conditioners from 16% to 8% in the forthcoming budget.
Opportunity to influence Growing Indian middle class in influencing their decisions with
regard to the products offered by Blue Star through comparatively lower prices.
Advent of Internet provides an excellent opportunity to reach to a large base of
customers and cut costs.
The increasing presence of multinationals in India for manufacturing be it
Samsung, LG, Carrier, Hitachi, thus providing an opportunity for upgrading the quality
of manufacture in the country.

THREATS
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BLUE STAR

Strategic Analysis

Likely to face fierce competition from domestic companies as they have well
acknowledged brands, an extensive distribution network and better insights about the
local market conditions.
Increased threat from cheaper imports, especially from China
MNC's like Samsung, Carrier, LG and Voltas are continuously raising their share while
Blue Star despite of increasing sales is losing its market share.
MARKETING STRATEGIES

Product Awareness
Advertising is the main tool in the hands of the company so as to make the
consumers aware regarding the different products available in the market.
Above all Advertising is a good business.
Advertising is the marketing force, which helps in mass selling and distribution.
The company gives their advertisements through
Road side hoardings, banners & signboards
Newspapers like 'Times of India', Hindustan Times', 'DNA'
Magazines like 'India Today', 'Business Outlook', etc.
It is about to begin with TV Advertisements
Consumers come across advertisements for their brands everywhere -television, print,
posters, Internet and through sponsorships and goodwill campaigns. With the changing face
and speed of communication today, the company is focused on using media specific to
audiences.

Strong Dealer Network

The Company has got a strong dealer network all over India and the products are available in
each town and area.

Credit Facilities & Discounts to dealers

Dealers, retailers, sub-dealers are also vital to be due to be given due importance. It is also
necessary to understand the dealers, retailers, and sub-dealers because they are one of the
important people who can push the sales of the company. It was found that dealers mainly
want that the company should give them credit facilities and discounts. BLUE STAR is the
overall winner in its category. And according to them the dealers are also the controller of
the sales to some extent. One of the important information is that most of the dealers ask the
customers to wait and assure him the delivery if the particular brand is not available.

Customer Care
It was found that the company more or less analyses what customers are looking for and then
incorporate those features in their products. The company provides quick & efficient after
sales services.
The service mission of BLUE STAR is to become the most customer-oriented company in the
country, by building a proactive service organization that continuously strives to create customer
satisfaction, by internalizing the best practices of customer relationships management.
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BLUE STAR

Strategic Analysis

Strategic importance

Fig 1: Capability Mapping of Blue Star 1990

Strategic importance

Fig 2: Capability Mapping of HM 2014

Key Opportunities:
Some of the strategies adopted by Blue Star Company which prove to be key opportunities for
the company of having a competitive advantage above all the companies in the Air conditioning
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BLUE STAR

Strategic Analysis

1. International partnership- As it offer the most advanced air conditioning technologies,

blue star has entered into several technological collaboration with York international,
USA and Climatrol, Italy for the manufacture of air- conditioning equipment- centrifugal
chillers, reciprocating chillers, screw chillers, air handling units.
2. Innovative technology- Blue star at the threshold of VRF technology. the technology
called (variable refrigerant flue or VRF) invented by Diakin of Japan is now being
developed in India. Blue star, which currently imports and sell VRF units in India plans
to manufacture its own VRF ACs this year and will position its products competitively
against imported ones.
3. Using investment as its major strategies- Blue star sets aside Rs. 8 crore campaign.
Out of total Rs. 601 crore, Blue Star Limited central air conditioning and commercial
refrigeration- in this year has marked a total investment of Rs. 8 crore on a new
campaign for this summer. The main objective behind the move is to show case Blue
Star's strength in providing cooling solutions. The value proposition for the new
campaign is cooling solutions to help your business do better.
4. Building customers relationships- Blue star company is widening its reach by recently
launching Help line campaign to many markets in India which will promote its toll
free number. The objective is to clear the queries of customer and stay close to them so
as to extract the information about the product generating feedback and having good
after sales service.
5. Strong dealership hold- The Company has a strong dealer network all over India and
the products are available in each town and area.
6. Expanding Business- Blue Star recently executed 4 major projects to set up cargo
handling refrigerated facilities at Bangalore, Pune, Hyderabad and Chennai.

Key Challenges:
Blue Star management is working on its business environment.
1. The overhang of tough macros continues to plague the company as its order intake is like
to plunge or sharp 25% during the current fiscal.
2. Air conditioner margins continued to bear the brunt of high competitive intensity and
increased input cost, so there is more pain in store before gain and expect to turn around
to yield results 2015.

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BLUE STAR

Strategic Analysis

3. Any major slow down in capex spending in India and in economy activity with respect to
infrastructure creation in India is like to dry incremental order intex for its EMP division.
4. The profitability of its cooling product division is vulnerable to rise in input cost increase
in Chinese imports, excess capacity and increase competitive intensity.

Valuations & Recommendation:

Infrastructure & healthcare developments in India are expected to bring new orders for BSL,
however there should be a significant slowdown in order inflows, considering the current macro
scenario. Outlook for Cooling Products segment is negative in the coming quarters but situation
is expected to start stabilising by H2FY10 with improvement in economic condition due to
governments fiscal & monetary initiatives. Segment 3, i.e. Professional Electronics & Industrial
systems, with its business model and diversification among large spectrum of sectors is expected
to maintain its margins, though the revenue growth for the segment may be subdued in FY10 as
it is directly related to the countrys GDP growth.

Growth & Margins for different segments

Revenue Growth (%)
SEGMEN
H1FY0 H2FY09 FY10 FY11
T
9
E
E
E
Electro
Mechanica 26.1
12.0
12.0
25.0
l Projects
Cooling
32.0
(6.0)
8.0
15.0
Products
Prof
Electronics
9.1
20.0
12.0
20.0
and
Ind.
Systems
Table 1: Source - Company & PINC Research

PBIT Margins (%)

H1FY0 H2FY09
9
E

FY10
E

FY11
E

11.4

9.6

10.0

10.5

12.2

10.5

10.6

11.0

20.3

20.0

20.0

20.0

Economic Scenario: Credit crunch and negative sentiments will force companies to go slower
on new investments. MEP/HVAC players role in a project start with a lag of 9-12 months from
the inception of the same. In a scenario where companies are facing liquidity issues and going
slow on capex, there can be a dip in order inflow for HVAC/ MEP players in H1FY10.
Geographical Risk: Blue Star is mostly concentrated in India. The company is exposed to
geographical risk due to non-diversification. Any negative development in the Indian economy
due to the bleak outlook across the globe will hit all the segments of the company.
Raw material prices vs. Client demand: Most of the orders were booked in FY08 & H1FY09
when raw material prices were at their peak and moving further northward. Sharp decline in
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BLUE STAR

Strategic Analysis

commodity prices can lead to bargain for decreasing the order price, which can ultimately shrink
the order book size for the company, consequently reducing earnings for the company.
Deferring consumption: Gloomy macroeconomic scenario has led to a slowdown in retail
consumption and spending resulting in lower demand for consumer goods. Despite softening
raw material prices and lower excise duty which should reduce prices, the business is not
expected to recover until the sentiment improves.
Working Capital Management: High inventory level due to lower sales of cooling products
and credit problem in the market will lead to increase in working capital cycle impacting
earnings.

Some other recommendations:

In the coming years competition will intensify more, so companies will have to fight hard to
woo the customers. Crucial role facilitates price control. In other words, lower down its cost of
production.
1.

Company should improve there after sales service & should go for warranties for long
durations.

2.

Company should also come up with the new schemes for the customers. This will help in
attracting more and more prospects.

3.

It was found that most customers owning ACs were interested in an exchange offer. So,
company can also consider exchange offer scheme to beef up its sales.

4.

Electronic media has a very effective reach in each and every potential household, but
Blue Star is not using this media. So Blue Star should stress on electronic media to beef
up its sales.

5.

The Advertisement should be such that customer develops an emotional attachment with
the product.

6.

Company should come out with 0% Finance Scheme. Due to this scheme more and more
prospects will enter into the customer base of Blue Star.

7.

The product must be available at most of the places keeping in mind that the distribution
cost should remain less.

Last but not the least the company should introduce their consumer electronics products, such as
Television and washing machines.
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BLUE STAR

Strategic Analysis

Conclusion:
Blue Star is the largest single source for air-conditioning equipment in India. It is India's largest
and most preferred air-conditioning and commercial refrigeration company. Through its strategic
long-term tie-ups with key and critical auxiliary manufacturers, Blue Star provides its customers
many benefits. The brands vision is to deliver excitement to the consumers, by providing
comfort at its best. It has complete control over core components & technology. The company
has strong potential to grow & that through greater innovations. In addition to corporate sector
the company has the option to step into the local households by understanding their psychology.
Blue Star is India's largest central air-conditioning company. In short it can be said that the
company is still growing by making constant efforts

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BLUE STAR

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Strategic Analysis

BLUE STAR

Strategic Analysis

Exhibit 1

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