Disclaimer: This is an example of a student written essay.
Click here for sample essays written by our professional writers.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UKEssays.com.

Analysing the indian writing instrument industry

Paper Type: Free Essay Subject: Marketing
Wordcount: 4183 words Published: 1st Jan 2015

Reference this

The Indian writing instrument industry has witnessed constant changes in terms of products design innovation, cost efficiencies and writing quality innovations.

The writing instruments sector can be broadly classified under 3 heads which include pens, pencils and others. The others segment include markers/highlighters, refills, nibs, sketch pens, leads and crayons.

The pen industry can be classified as under 3 heads: ball point pen, gel pen and fountain pen. However the demand for fountain pen has reduced considerably, and has become negligible.

Gel pens are becoming popular with student community. This can also be divided as per the price range of

Upto Rs.5 products

Rs.10-20 products

Above Rs. 25 (semi premium and premium product)

The new products in pen segment include value added features like better grip, smoother nibs, and ink flow, clubbing with other writing instruments etc.

Although a pen is small everyday product. However the technology used is immense specifically for premium pens which range from Rs.30 in semi premium segment to as much as Rs. 5 lakh (18-carat gold). The target market here is essentially professionals and middle and high end class.

The pen industry can be classified as under 3 heads: ball point pen, gel pen and fountain pen. A ballpoint pen is a writing instrument which consists of a precisely formed metal ball seated in a socket below a reservoir of ink. As the pen is moved along a writing surface, oil based ink is automatically delivered. Gel pens are similar to ball pen except that they use ink that is gel based. Gel pens are short in life span but smooth in writing. However the demand for fountain pen has reduced considerably, and has become negligible. Gel pens are becoming popular with student community.

The markers include white board, hilighters and permanent markers. The tips used here would be fibre based. The raw material used in making body of pens and markers include metals or polymers. The tip used can also be of different like a fibre tip made of polyster, nulon and acrylic fibres.

Gel ink pen is extremely popular with school students and is at present experiencing a higher growth rate as compared to the other categories. Fountain pens are losing popularity as because it is cumbersome to refill ink continuously and moreover there is always the risk of spillage and leakage. Hence customers perceive fountain pens as low in terms of utility & convenience as compared to alternatives available (ball pen, gel pen).

The pencils would include wooden pencils and mechanical pencils or clutch pencils. A wooden pencil is made of wood, graphite clay, brass and a mechanical pencil is made of metal or plastic, but has a pencil lead inserted.

Macro-economic Scenario

The year under review had been a tumultuous one. The first 3 months of the financial year left one clue less regarding the galloping inflation and the crude prices. This threw to winds all the pricing and market strategy we had contemplated. The second quarter saw softening of the polymer prices and a slight sense of order seemed visible. The third quarter came as a bolt out of the blue with business suddenly vanishing and liquidity evaporating. In the fourth quarter all of us were left licking the wounds inflicted by the earlier quarters and were wondering what is in store.

Get Help With Your Essay

If you need assistance with writing your essay, our professional essay writing service is here to help!

Essay Writing Service

About the Industry

The Writing Instrument Industry comprise of seven major players in the organized sector and a fragmented but sizeable unorganized sector. The total domestic industry is about Rs.3000 crs with the unorganized sector constituting 20%. The players are well entrenched in the business over many years and most of them have the best facilities to cater to the plastic pen industry.

The Writing Instrument Industry has been estimated at around Rs. 2100 crores. The Organized sector, today would account for 75% of the overall Writing instrument industry. The Industry has been witnessing an annual growth rate of around 7 -8%.

Pen as a product is close to people of all walks of life at different age and of different gender and the association of it is a lifelong one. For some with a good quality pen at finger tips actually elevates their confidence level and makes them feel good.

The pens market can be broadly divided in ball point pen and gel pen, fountain pen ahs neglible share now, ball point accounts for 72% fo the share and gell pen accounts for 28%. Gel pens are becoming increasing popular with the student community. Major international players include faber castle, uniball, The marker pen today is also increasing because of increased use by the corporate sector. Major players here are GM (Cello), Luxor, Stic. Markers include white board, cd marker or permanent marker.

According to the 2006 ACNielsen Retail Audit, ball pens forms the biggest chunk of the pen market in India and accounts for 72 percent of the total pen market followed by gel pen at 28 percent (Refer Table 1). The brand leaders in this market are Cello, GM pens and Jigneshwar.

“Pen market previously suffered from lack of organized information on the market size or market shares of various players, since most players are not listed companies and distribution was mostly limited to stationery stores,” said Anmol Sherpa, Associate Director Client Services, ACNielsen.

“The inclusion of this category in ACNielsen Retail Audit has made it the only authentic tool to ascertain the market growth and size of the writing instrument market in India which was not previously available.”

As the 2006 ACNielsen Retail Audit reveals, about 10.9 lac stores across urban India take the product in stock at present which represents a distribution growth of 23 percent within a year (April06 over July’05). The increased distribution has brought about a phenomenal growth for the pen market of 82 percent in sales. The sales peaked in the months of February and March owing to exam season and touched maximum in the last eleven months

“There is a consistent month-on-month growth in the writing instruments industry fuelled by competitive pricing and product innovation. Today, one can buy a Gel pen for rupees two and can choose from a wide variety of pens – with easy grip to water-proof ink. Sherpa added. “The positive outlook of the industry is also evident from the amount of airtime on primetime television advertisement by almost all key players in the industry.”

The ACNielsen Retail Audit Report also highlights some of the interesting findings about the various brands of pens. Although the writing instrument market is led by well known names like Cello, GM (Reynolds), Jineshwar (Montex) etc. Smaller players such as Lexi, Agni and Elkos for examples have also been able to maintain their share on a regional or select pocket level. (Refer Table 2)

The study also finds out that Marker Pens is another segment that is growing in Urban India. GM tops the list when it comes to marker pens followed by Luxor and Stic. Most segments like Whiteboard, CD Marker or Permanent Marker have shown positive month on month volume and value growth in April ’06. (Refer Table 3).

Table 1: Ball and Gel Pen – Market Break-Up (Value)

ACNielsen Retail Audit Report, April 2006

Table 2: Top Five Players – Pens (Ball & Gel)

Leaders

Ranking

1

Cello

1st

2

GM Pens

2nd

3

Jineshwar

3rd

4

Linc

4th

5

ADD

5th

ACNielsen Retail Audit Report, April 2006

Ranking based on Market share% (Units)

Table 3:Leaders in Marker pens

ACNielsen Retail Audit Report, April 2006

Highly competitive market

The Industry is highly competitive at the lower price segment due to low entry barriers. Because of simple manufacturing process for low priced pens, there are many unorganized players, which account for almost 25% of the total market size. However organized sector share is increasing because of better quality and brand building.

Most Indian Brands cater to segment upto Rs. 30, while international brands cater to semi premium and premium segment

Price push

The Industry is price sensitive and trade push plays a critical role in the low price segment. The increased distribution has brought about a growth in this market, however it is still fragmented in nature.

Advertisement and brand recall important.

However, brand recall is also critical for volumes and some brand loyalty is also visible across the price segment.

Pen occupies 80% share in the writin instrument markets and major players include Cello, Reynolds, Montex, Linc, Todays, Flair, Lexi, Agni… where cello is the market leader with about 30% share. While players in premium and semipremium pens include Luxar-parker, uniball, etc..

India is on the path of becoming a major export hub for pens where currently we export about 20% of the total production. Also the quality is beter than the Chinese pens. Currently China exports a major portion however India is slated to come into competition.

Risk and Concerns

The primary challenge the industry as a whole would be the distribution due to the fragmented retail structure in the country. Another important issue would be the Retailer power to influence customer choice which is extremely high in some areas where purchase process involvement is low.

The Un-organized sector and the organized sector shall co-exist and it is difficult to combat the issue of the unorganized sector as because the barriers to entry in the writing instrument industry are low. However, it has been observed that Sec A and B customer prefer national brands, while the unorganized sector caters to the lower strata of people, who are more price conscious.

Chinese Pens also seem to be gaining popularity however, since the Indian pens are more competitive than the Chinese pens – both in terms of quality as well as price. As a matter of fact, the Indian pens are gaining increasing popularity even in overseas markets in recent years.

Global Markets

Global Market for Writing and Marking Instruments (Source: Report by Global Industry Analysts, Inc, March 2008)

Global pens/markers market is estimated at USD 12.3 billion for 2007.

Worldwide sales of Writing and Marking Instruments are projected to reach USD18.3 billion by 2010.

Global writing and marking instruments market is growing at healthy compounded annual rates in the developing economies such as the Middle and Far East,Asia- Pacific, Africa, and South America.

The market growth could be attributed to rapid increase in population, literacy levels and rising demand for good quality writing gear in these economies.

Asia Pacific is poised to emerge as the fastest growing region over the period 2000-2010, registering a CAGR of 5.3%.

Ballpoint pens market in the US is expected to be worth $3.36 billion by 2010

Newell Rubbermaid, BiC and Pilot dominate the global writing and marking instruments market, though regional players command leadership in select niche markets.

While BiC continues to dominate the ballpoint pen market worldwide, the company is also well positioned in the mechanical pencils category.

U.S Market (source: Business Trend Analysts)

The U.S. Market for Writing Instruments and Art Supplies was estimated to be at $3.1 billion and was expected to grow at an average growth rate of 5.5 percent each year from 2001, reaching just under $5 billion by 2011.

Pens:

The largest segment of the writing instruments industry is by far the market for pens which rose by 8 percent in 2002 to more than $1.2 billion. And by 3.1 percent in 2003 to $1.28 billion. Pens are expected to continue to grow in popularity, producing more than $2.05 billion by 2011.

This segment includes ballpoint and roller ball pens in addition to gel pens and executive type pens including calligraphy and fountain.

According to BTA, new products in the pen segment include many value added pens that contain extra features such as special grips. Some manufacturers have begun to bundle ballpoint pens with other writing instruments.

Pens with built- in or multiple features are also popular with combination pen/ pencil/ stylus, pen/pencil, and even pen/screwdriver rising in popularity.

Pens also continue to be popular in the promotional products industry.

The second largest writing instrument segment is the “Marker” market, which includes all types of markers and highlighters.

The marker segment of the writing instruments industry grew from $563 million in 2002 to $581 million in 2003.BTA expects the market to continue to grow the four percent annually to more than $812 million in 2011.

At the third position is the market for pencils, including mechanical pencils. The market for pencils is expected to increase at an average growth rate of 6.3 percent from 2001 to 2011. This would allow the pencil segment to overtake markers and account for more than $929 million in sales by 2011.

Desk Sets

Desk sets arc typically defined as a grouping of a pen or pencil with each other or with any other desk accessory including a letter opener or stylus to name a few. Traditional pen/pencil sets are popular among the school, gift and promotional markets and range from a few dollars to thousands of dollars depending on the manufacturer and type of product.

In 2001, the market for desk sets was a little over $21.1 million. Growth in 2003 was only 1.4 percent to $21.4 million, but 2003 estimates showed an increase of 4.2 percent, pushing the desk set segment of writing instruments to more than $22.3 million. By 2011, desk sets will account for a projected $303 million

China Market

With a huge supplier base of 3,000 makers employing 150,000 workers, mainland Chinas writing instrument industry is a dominant force in the global pen-and-pencil industry.

The countrys annual output runs to billions of units each year. In 2003, it produced 23.17 billion pieces, of which 57 percent was exported. The China Writing Instrument Association forecasts the growth trend to continue, with output expected to increase by 25 percent in 2004 and by 21 percent in 2005.

Production of writing instruments is largely centered in Zhejiang province, situated on mainland Chinas southeastern coast. Zhejiang accounts for 70 percent of mainland China’s total output and about 59 percent of exports. Other production areas include Shanghai Guangdong, Jiangsu and Shandong.

Although most makers in mainland China produce a variety of writing instruments, ballpoint pens account for the bulk of both output and exports. In 2003, ballpoint pen exports totaled 5.5 billion units worth US$254 million. The product showed early signs of growth in the first four months of 2004, with export value at US$93.7 million, an increase of 32 percent over exports of US$71 million in the same period of the previous year.

In addition to ballpoint pens and gel pens, the range of products in mainland China includes multifunction pens, mechanical and non-mechanical pencils, fountain and India-ink pens, highlighters and markers, watercolor and roller, tip pens, and refills, tips and leads.

Gel pens are a fast-growing category, exhibiting 30 percent growth in 2003. A large number of respondents to a Global Sources survey ranked the product as the most promising export item after ballpoint pens within the next 12 months.

Most products from mainland China fall into the low-end to midrange categories. High-end products, while available, are not as widely produced in mainland China as in Taiwan, which has an edge in this market. Taiwan, whose exports amount to only about 20 percent of mainland Chinas, focuses more on midrange to high-end ballpoint pens, mechanical and non-pencils, roller tip pens, gel pens, fountain pens, novelty or promotional pens, as well as pen parts.

Most writing instrument makers prefer to source tips and ink abroad, as the quality of locally made materials is not yet suitable for export items. However, a few suppliers have plans of producing their own inks and tips. Plastic and metal are mostly sourced locally.

Since the production of writing instruments is largely an OEM business, most makers reinvest only a small percentage of revenues — an average of 5 percent — for product research and development.

Major M&A Deal

BIC Group, the stationery, lighters and razors business, has agreed to acquire a 40 per cent stake in Cello Pens, the Cello Group’s writing instruments business, for €124 million (£117 million) in cash.

The deal will be funded through debt and gives BIC a call option to increase its stake to 55 per cent at a price based on Cello Pens’ future performance.

Cello Pens is India’s largest manufacturer and distributor of writing instruments, with 37 per cent market share and a presence in Africa, the Middle East and Asia.

The 40 per cent stake gives BIC access to the fast-growing Indian market, which is in line with its expansionist ambitions of developing its business in new regions and strengthening its position in emerging markets.

Bruno Bich, BIC chariman, said: “One of the reasons for the success of BIC’s strategy since the beginning has been to build an international presence. India is one of the largest and fastest-growing markets in the world. This partnership with the number-one Indian writing instruments company is a tremendous opportunity. It will reinforce the long-term prospects for both BIC and Cello Pens and generate value for our shareholders.”

Find Out How UKEssays.com Can Help You!

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

View our services

Demand Growth

India has emerged as the best manufacturer of tips and inks- two crucial component of the pen. This has resulted in new exotic varieties of Direct fill pens (i.e. use and throw) being introduced in the market. In turn this has affected the domestic industry where the price points of Rs.2, 3 and 5 has been squeezed by the direct fill market which is currently estimated at Rs.2000 crores. This will in turn see the market players reworking market strategy.

In short exciting action is expected ahead in this industry

In Rs. Cr

FY 2004

FY 2005

FY 2006

FY 2007

FY 2008

Total Production in Bn

1789.798

1954.123

2235.542

2432.41

2634.993

Import

43.8623

75.2442

97.8619

138.6568

190.3779

Exports

333.6599

329.3676

433.4036

491.067

475.3705

Net Market Size

1500

1700

1900

2080

2350

The industry has been growing at CAGR of 11.88% for FY 2004-2008, reaching a market size of INR 23.5 Bn in FY 2008. It increased by 13% YOY in FY 2008. The reason for this growth was increased demand from both schools and college students and corporate sector.

It has huge exports market and exports about 20% of the production. Currently China exports a major chunk but industry experts claim that India is likely to be a strong competition because of better quality.

Export-Import

India has been a net exporter for writing instruments, where the net exports stood at INR 2.27 Bn for FY 2008.

The exports have been growing at a CAGR of 9.25% where it stood INR 4.75 Bn in FY 2008. However exports reduced in FY 2008 from INR 4.91 Bn in FY 2007, because of reduced exports of felt tipped, markers and other porous pens. Also exports were less for high value pens.

Demand Drivers

The de-reservation of the sector has opened up exciting possibilities. International players are taking keen interest and India is emerging as the international hub for manufacturing pens. Thus BIC of USA has entered India with their investment in CELLO and many are likely to follow suit.

This development will see huge investments flowing into the industry and a wave of modernization and expansion will be undertaken by all the players. The industry has seen a trend over the last year of Indian customers migrating towards the higher price points, perhaps a result of the growth in our economy and more people with higher disposable incomes.

While there was the welcome news of the dereservation of pens, which hitherto was under SSI, the rise in crude oil prices and the consequent spiraling effect on the polymer prices presented a daunting task to the industry. The economy did grow as projected but signs of a slow down was evident due to a variety of factors such as steep rise in inflation, upward trend of interest cost and the widening of the current account, trade and fiscal deficit which in turn impacted the rupee. The allocation of 19% of the 11th plan budget for education will eventually have a visible effect on the industry.

The strong enquiries from the export market and serious interest of the global OEM players for shifting manufacturing base to India all indicated that the industry is poised for a period of exponential growth but the domestic market challenges continue due to increase in polymer prices with the industry not being able to pass on all the cost to the consumer.

The Indian industry is slowly looking at upgrading manufacturing set up to move towards a completely automated scenario more in line with international set ups post dereservation of the industry. The increase in polymer prices have almost wiped out the unorganized sector and has presented the industry an opportunity to move in to that space and tap a substantial share of the Rs.650Cr market that was being catered to by them.

There is a consistent month-on-month growth in the writing instruments industry fuelled by competitive pricing and product innovation. Today, one can buy a Gel pen for rupees two and can choose from a wide variety of pens – with easy grip to water-proof ink. Sherpa added. “The positive outlook of the industry is also evident from the amount of airtime on primetime television advertisement by almost all key players in the industry.

The Economic Slowdown would not have a significant impact on the Writing Instrument industry in general. At present the focus is on the mass segment, which is unaffected by the slowdown. The demand for writing instruments and other stationery items is growing in the backdrop of fast expansion in the economy as also the literacy rate touching 64.84 per cent.

Besides, emergence of business process outsourcing and IT firms is adding to the demand growth. The IT boom and automoation have not slowed down the market for pens. There is a boom in the pen segment as majority of school children use it. This is high growth market for us

The influx of modern retail formats (organized retail) in the country is expected to catalyze acceleration of growth in Writing Instruments, where consumer interaction with the products at the point of purchase is reasonably high. Penetration of modern retail formats is still low, which however is expected to increase rapidly over the next few years.

India’s per capita income increased from Rs.11,672 in 2003-4 to Rs.24,321 in 2007-8. The rising disposable income levels in India make it most exciting market offering good potential for the category. The median age of the Indian population is under 25 years – the highest user for the writing instruments. Further new opportunities are emerging on account of :

Favourable demographic mix – Indian population is expected to get younger in short to medium term.

Increased literacy levels.

Rise of Indian middle class.

Expansion of working population.

New retail formats.

Vast untapped rural market

Unexploited territories in overseas market

However, the opportunities may attract new players in the Industry due to low entry barrier and can intensify competition and put pressure on the margins. The upward fluctuation in the raw material prices also affects the profitability of the Industry.

The other opportunity has come from the growing economic strength of the 300 mn strong Indian middle class whose purchasing power is increasing by leaps and bounds. The sharp increase in the disposable income and the sharp spike in the savings rate is expected to have multiplier effect and exponential growth is expected in most of the sectors of the economy in the next few years.

VALUATIONS

 

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: