CASE
– 1: Where Do We Go from Here?
As one of the many seminars held to discuss
the corporate response of family-owned business to liberalisation and
globalisation, the keynote Mr Gurcharan Das concluded his speech by saying, “In
the end, I would say that the success of Indian economy would depend on how the
Indian industry and business respond to the reform process.”
As the
proceedings of the seminar progressed it became clear that there was a
difference of opinion in the perception of participants. Those who were
supporting the case for letting the family-owned businesses face competition
opined that such businesses in India
have exhibited financial acumen; its members have generally adopted an austere
life style; they have demonstrated an ability to take calculated risks, and an
ability to accumulate and manage capital. They have devised unique managerial
style and led the creation of the equity cult among Indians. Several of them
are low-cost producers.
The participants
critical of the role of family business had this is to say: “There has been a
tendency to mix up family’s intent with that of businesses managed by them.
There is a lack of focus and business strategy. Family businesses have
generally adopted a short-term approach to business causing less purposeful
investments in specially critical areas such as employee development and
product development. Customers and development of marketing skills have been
neglected.”
The valedictory
session of the Seminar attempted to bring out the issues clearly. It culminated
in an agenda for reform by the family businesses. The points highlighted in the
agenda are:
- Indian family-owned business organisations need to
professionalise management,
- they need to curtail the diversified of their business groups
and impart a sharper focus to their business activities, and
- they need to pay greater attention to the development of human
capital.
Question
Suppose you were an observer at the
seminar. During tea and lunch breaks you had an occasion to meet several people
who were skeptical and felt that the reform process was having only a
superficial impact on the corporates. Express your opinion that you form about
the issues at the seminar.
CASE
– 2 A Healthy Dose of Success
Muhammad Majeed represents a typical Indian
who has created success out of sheer hard work and commitment through his
education and expertise. At the age of 23 years, Majeed, after graduating in
pharmacy from Kerala University, went to pursue higher studies in the US. He
completed his masters and PhD in industrial chemistry. Armed with high
qualifications, he became a research pharmacist and eventually, as most
expatriate Indians do, set up his own company, Sabinsa Corporation.
Experiencing difficulties with the long-drawn drug approval process of the US
Food and Drug Administration and his own dwindling savings, Majeed focussed on
ayurvedic products based on natural extracts. He returned to India in 1991
(incidentally, the year when liberalisation started in India) and set up Sami
Chemicals and Extracts Ltd, late renamed as Sami Labs Ltd (SLL),
Bangalore.
SLL has over
three dozen products, and seven US
patents. There are 25 European and other country patents pending approval. SLL
has four manufacturing units all based in Karnataka. The sales is Rs 44.5 crore
and the profit-after-tax is Rs 5.89 crore. It has pioneered specialised
products based on Indian herbal extracts relying on the principles of ayurveda.
The major thrust is on remedies for cholesterol control, fat reduction, and
weight management. As against several Indian companies exporting raw herbs, SLL
specialises in value-addition through extractions. The result is encouraging:
SLL’s products typically fetch an export price that is more than double the
price of raw herbs.
SLL thinks of
its business as “manufacturing and selling traditional standardized extracts
and nutritional and pharmaceutical fine chemicals”. Sabinsa, its US-based
company, secures contracts from the US
companies to manufacture certain chemicals in India. Its business plans are quite
ambitious. Setting up a product management team, assisting farmers in
cultivation of pharmaceutically useful herbs, and international collaborations
for developing research-based intellectual property and its commercialisation
are some of the strategic actions on the anvil.
SLL looks
forward to being a Rs 500-crore company by 2005 when the World Trade
Organisation’s patenting regimes comes into force.
Question
How will you define the business of SLL?
Comment on the business of SLL and your opinion on the likelihood of its
success.
CASE
– 3 No Chain, No Gain
Textile industry is one of the oldest
industries in India.
Several business houses have their origin in this industry. In the mid-1980s,
the powerloom sector in the unorganised sector started hurting badly the
interests of the composite textile mills of the sector. Their cost structure,
with lower overheads and no duties, was less than half of that of mills for
equivalent production. While the powerlooms sold cloth as a commodity, the
mills tried to establish their products as brands. The post-liberalisation
period has seen a large number of foreign brands enter India. It is in
this scenario that the Mayur brand of Rajasthan Spinning and Weaving Mills
(RSWM) had to carve out a place for itself.
RSWM is the
flagship company of the LNJ Bhilwara group. It has been the largest producer
and trader of yarn in the country and caters to the large demands for blended
yarns and grey cloth fabric used for children’s school uniform. In 1994, the
yarn business faced a severe crunch owing to overcapacity. From 1995 onward,
RSWM became a late follower of the industry trend as other competitors already
moved up the value chain.
Textile
manufacturing is basically constituted of the processes of spinning, weaving,
processing, and marketing. More than 50 per cent of the value is concentrated
in weaving and processing. Moving up the value chain from spinning involves
large investments in machinery and labour. Graduating to marketing requires
getting closer to the customers. This is the challenge that a traditional
spinning mill like RSWM had to face if it was to sustain itself in a highly
competitive market.
At another
level, for RSWM, it was a matter of cultural transformation of the organisation
long used to a conservative, trader mentality. Imagine a company whose main
driving force, Shekhar Agarwal, Vice-Chairman and Managing Director having
little interest in watching Hindi movies signing up Sharukh Khan at a
considerable price for celebrity advertising. From the market side, it has long
been troubled with its commitment to the loyal middle-class customers as it had
to simultaneously pay attention to the upwardly mobile upper middle class
customers. Then there was the dilemma of being too many things to a wide range
of audience. RSWM wanted to have a stake in the export markets as well as keep
its share in the rural markets. It perceived itself as an efficient producer
and wished to become a flamboyant retailer. It excelled in basic textile
processing yet dreamt of attaining sophistication in in-house production of
readymade garments. And all this while it has been a late mover, losing out to
early movers such as Raymonds. No wonder it virtually landed up on the fringes
of the industry, far behind formidable competitors like Reliance, Grasim, and S. Kumar.
Question
Suggest how should RSWM manage its value
chain effectively. Should it try to imitate the market leaders? If yes, why? If
no, why not? What alternatives routes to success do you propose?
CASE
– 4 A Very Intriguing Package
It is not quite often that a positive
product feature becomes an albatross around the neck of a company. VIP
Industries had held sway for over two decades in the organised Indian luggage
market on the basis of the durability of its moulded suitcases. Obviously, the
customer perceives value-for-money in the long-lasting, reasonably-priced Alfa
brand of VIP suitcases which sells 1.5 lakh pieces a month. But this means that
having bought one suitcase the customer can do with it for several years.
Market research by the company shows that an average Indian family pulls out
the suitcase merely for outstation travel a few times a year. Hence, there is
no pressing need for continual replacement of the old luggage.
The VIP products
are made of virgin polymer as compared to the recycled grade I and II polymers
used by the unorganised sector. They are subjected to stringent stress tests
for quality control.
VIP has a
presence in a wide range of the market segments within a price spectrum of Rs
295 to Rs 6,000 apiece. It is her that the competition from the unorganised
sector hurts the company most. VIP’s economically-priced brand, Alfa is widely
imitated and sold at much lower prices. This enables the unorganised sector to
typically sell 20 times more than VIP can. The lower price threshold seems to
be Rs 225 which in nearly impossible for VIP to achieve given its cost
structure. In the Rs 1500 plus premium range, VIP has to contend with Samsonite
which is a formidable competitor.
The obvious
tactic for VIP has been to cut costs. Distribution and logistics is one area
where valiant efforts have been made at cost reduction. VIP has four factories
located in heart of India.
The average distribution costs come to Rs 7 to Rs 8 apiece. Reduction in cost has
been attempted through distributed manufacturing by having vendors making the
product at different locations, thereby, avoiding transportation of high-volume
suitcases across long distances and reducing inventory build-up in the channel.
Severe pressure
on sales has resulted in VIP Industries offering discounts and unwittingly
entering into a disastrous price war. Promotion of a high visibility product
suffered and advertising expenditure has been ruthlessly curtailed from the
earlier Rs 11 crore to Rs 2 crore now. Its lead advertising agency is HTA.
Action on the promotion front has seen reorganisation of the brand portfolio.
Incidentally, earlier its successful and popular Kal bhi aaj bhi campaign served to reinforce its durability theme.
There are
several roadblocks that the company has to negotiate. Increase in population,
rising propensity of Indian to travel, and the insatiable thirst of customers
for state-of-the-art technological products with newer designs and innovation,
all at an affordable price are the opportunities and challenges before the
company. Introduction of new brands, Mantra and Skybags, product range of
diversification to include children’s bags and ladies’ bags, strategic alliance
with Europe’s leading luggage-maker—Delsey—are some of the steps taken by the
company.
Yet, caught in
its self spun web of past successes, VIP is today faced with an uncertain
future.
Question
How should the VIP Industries get out of
the bind that it finds itself in? Outline the contours of the marketing plans
and policies that VIP needs to formulate and implement?
CASE
– 5 Let There be Light
Traditionally, power plants, being
capital-intensive, have been set up by the public sector and state electricity
boards (SEBs) in India.
Everyone agrees today that the energy sector is the major infrastructure
bottleneck holding up economic development. A critical aspect of economic
reforms thus is the reform of the energy sector.
The Madhya
Pradesh State Electricity Board (MPSEB) is not much different from its
counterparts in other states. It faces similar problems and is opting for
identical solutions. The common elements in the power sector reforms are:
corporatisation by breaking the SEB into generation, transmission, and
distribution; financial restructuring including debt and interest payment
rescheduling; reduction of manpower; and improvements in operational
efficiency.
Public
utilities, like SEBS, have to be commercially viable in order to survive. Yet
historically, this aspect of SEB as an organisation has been sacrificed at the
altar of political expediency. The ruling party, irrespective of whether it is
the Congress at present or the Bharatiya Janata Party earlier, have made
pre-election promises of supplying free or heavily-subsidised power. Digvijay
Singh, the present chief minister of Madhya Pradesh, a populist politician
earlier, on longer sees electoral benefit in providing free electricity. “It
pays to pay” is his refrain today, whether it is healthcare or electricity.
Bold steps—bold,
as they still carry the risk of a political fallout with fiery BJP leader Uma
Bharti breathing down Digvijay’s neck or the silent schemers of his own party
working overtime behind the scenes—have been initiated to reform the energy
sector in Madhya Pradesh. MPSEB is to be divided into generation, transmission,
and distribution (T&D), and supply companies. Financial management and cash
flow management is to be improved. The retirement age of MPSEB employees has
been reduced from 60 to 58 years. Effective operational control is sought to be
exercised by metering power supply at division / district level to fix
responsibility for T & D losses and power thefts. A sustained drive is on
to identify non-paying consumers, install meters, and make them pay their bills
regularly.
MPSEB’s annual
losses are to the tune of a massive Rs 1,600 crore; total liabilities are
estimated to be Rs 20,000 crore. Undeniably, are parameters indicating the rot
that has corroded the system.
At one level,
the reform of the energy sector is a political action but at another, and
perhaps, a more fundamental level, it is a question of managing an organisation
strategically through strategic actions designed to turn around a vital public
utility.
Question
Analyse the problems of the MPSEB from the
strategic management perspective. Do you feel that the actions taken or being
contemplated are strategic in nature? Propose what else needs to be done to make
the MPSEB a viable organisation.
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