Answer to Question #123369 in Management for ka

Question

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.

Answer 1

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.