Kota Fibres, Ltd.

Company Background:
Kota Fibres, Ltd. was founded in 1962 to produce nylon fiber in Kota, India. The company supplies synthetic fiber yarns to a steady franchise of small local textile weavers that produce colorful cloths for making saris. The synthetic textile competitor’s market in India was driven by price, service and credit. Kota Fibres Company has a large customer base of nearly 500 million Indian women and a relatively inelastic demand for its synthetic yarn made the Kota Fibres a profitable company with the industry’s unit growth expecting to be 15% per year. The Kota Fibres’ profit margins decreased due to increasing price competition in the market.
Production and distribution systems were experiencing challenges as well. Pundir intended to ward off thin profit margins with the implementation of policies opposing overproduction and overstocking. Such policies would require Kota to have inventory on hand even during their season of slow sales. Management had adopted a seasonal production cycle, operating at its greatest capability for only two months of the year This unfortunately generated seasonal training costs, setup costs and labor instability evident by the annual cycle of hirings and layoffs. Kota experienced further challenges with regard to transporting goods in a timely matter. Due to poor road conditions, quickly delivering yarn from Kota’s two distribution warehouses into the hands of the customer proved both dangerous and slow. Making the trip between Kota and Calcutta could take 10 to 15 days.
Kota had experienced consistent profits and in 2000 had sales growth at an annual rate of 18%.   The forecasted gross sales by December 31, 2001 were INR90.0 million. In January of 2001, after a potentially explosive incident involving Kota’s independent contractor truck drivers, a tax inspector and Mr. Mehta, the bookkeeper, where Kota was unable to pay excise tax because their bank account was overdrawn for the third time in a relatively short...