Financial Times

Business model based on outsourcing
Indian FMCG company takes on the giants in Sri Lanka
By Feizal Samath
Move over Unilevers and Hemas, two of Sri Lanka's biggest FMCGs - there's a new kid on the block! "I want to conquer the world," says C.K. Ranganathan, Chairman and Managing Director of Tamil Nadu-based CavinKare, perhaps Unilever India's biggest competitor in the deodorant, shampoo and fairness cream sector. In Colombo last week for meetings with local distributors, 45-year old Ranganathan plans to help set up a manufacturing facility in Sri Lanka within a year that would not only meet the demand here but also in South India and Pakistan.

From an (Indian) Rs 15,000 investment in 1991, CavinKare has become a billion-rupee organisation in the shampoo and cosmetic industry with its success based on a simple business model - outsourcing. The company has never owned a production facility and relies on outsourcing, as Ranganathan simply didn't have the money to own a factory.

The gamble has paid strong dividends with outsourcing of production in most of the biggest FMCGs being the name of the game now. Unilevers outsources, so does Reckitt & Colman and many other outstanding firms. The company has been selling its range of brands - Chik, Nyle, Meera, Fairever, Indica and Spinz - since 1995 here but began active marketing only 3-4 years with East West Marketing as its local distributor.

While Unilever sells through 100,000 outlets across Sri Lanka, CavinKare markets through 40,000 sales points. "Our business model is based on providing what the consumer wants with constant change to consumer tastes.

The focus is on research and development … not production which we leave to others. Our product formulation differs from country to country based on preferences," he said. Ranganathan is now keen to set up an outsourcing production facility in Sri Lanka not only to feed constant demand here but also to market to Pakistan and South India.

Why South India when you probably have an outsourced facility there? "Because the Free Trade Agreement between Sri Lanka and India provides us concessions which make it cheaper to produce here and export to India," he said.

There is one problem however that CavinKare has been unable to overcome - the initial investment requirement to set up base in Sri Lanka. Under BOI rules, the minimum investment for a production facility is $50,000 while for anything else is $1 million. CavinKare belongs to the second category as the production facility would essentially be a local company.

"That investment is too high and we are looking at options. Nevertheless if we don't have a choice we will still set up our own facility within a year because Pakistan is an attractive market for us," he said.

Ranganathan employs his skills in marketing, distribution and R & D. "This makes sense as we have less headaches. Everything is outsourced including cleaning the office," he said. CavinKare now has 8-9 large outsourced facilities compared to 100, many years and most produce exclusively for the rapidly growing Indian multinational.

The enterprising entrepreneur is setting his sights on a global brand in 5-7 years. "I want to be global, " he says.

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