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BHARTI TELECOM ON AN AGGRESSIVE GROWTH PATH Telecom has been thrown open and there is healthy competition among the service providers. Competition ultimately benefits the consumer and that is the case in telecom too. A price war is on and rates are falling, almost every day. Bharati has started offering basic and cellular services. Cellular services
under the brand Airtel and basic services provider, right now. In just a couple of months Reliance Infocom and Tata Tele too will be launching their basic telecom services. Mr. K. Krishnan the CEO, operations, of Bharati, explains that Our USP is quality and since we focus on this aspect of our service, most, we wont have any problems. We are in a position to provide quality service to the customer, since we have created a new network. Connections terminate within 2 km. from the service exchanges and hence voice quality is very good. In the case of BSNL, each exchange services up to a distance of 3 km and due to this clarity can suffer. Since we have a Optic Fibre Cable (OFC) network, the problem of Network Busy is eliminated. We have plans for 26 types of value added services.
Customer complaints will be serviced immediately since we have a pool of well qualified personnel to attend to the complaints. through call centers is another of our strengths. Tatas and Reliance have announced aggressive roll out plans. Much before the two of them formally launches their services, Bharati will have its network in place. Tatas and Reliance are planning to offer their services in selected streets only. Since they will be going the wireless route, customers have to invest in new appliances and this could pose proclems for them. By the time they come in, Bharati would have signed up a number of customers. The first 24 x 7 Service support,
mover advantage is with us. We have clear plans for retaining the customers we acquire. Bharati plans to target customers who do not have a telephone connection. Mr. K. Krishnan the CEO, says, Our first customers will be from this section. It will take some time for us to wean BSNL customers. We are confident, customers currently with BSNL, will migrate to Bharati, if we provide quality service. We are looking at a 60% market share and we are pretty confident of achieving this. BSNL the incumbent national player may force a price war in the market. The Tatas are doing an aggressive pre-launch publicity, through different media. In contrast Bharati is maintaining a low profile despite launching its services as it is nor confident of being ready for a huge influx of customers, resulting from an aggressive campaign. They are going slow on advertising since they do not want to disappoint customers. In terms of absolute numbers, India is way behind China, but in terms of trajectory, it is on the same lines as China. Analysts believe that We are exactly where China was in 1997 and if you plot the trajectory we are moving up the same way, perhaps faster for India now. Chain went up to 4-5 million new phones a month. We are touching 2 million now. The fact is that china is now coming down to about 3 million now. The fact is that china is now coming down to about 3 million phones a month, while India is slowly rising to that number. India would be about 200 million phones in five years maybe and China will be 400 million, but the difference will be half and not one tenth like it is now. Bharati has also applied for licenses for new circles that will establish it as a pan India player and has its finger in almost every part of the telecom pie today: from cellular to basic telephony to international telephony and bandwidth services.
The competitive intensity in the industry has been very high. Sunil Bharati Mittal, Bharatis Chairman and Managing Director feels that some smaller companies are bound to get consolidated or just hurt if they dont get consolidated. The regulatory movements in this sector have been legendary this year to the extent that it looks horrifying if you look at it from outside India. At times the regulatory changes have been quite baffling. On the one hand theres been a lot of competitive pressure. Unified licensing has also ushered in. Mr. Mittal adds, We try to work ahead of the policy that the government lays out. Sometime we are dealt a good hand and most of the times we are dealt a bad one. And the idea is to be very nimble and flexible to adapt to the changing environment. Consider, for example, the way the government
brought in unified licenses. But we have adapted to it. We have applied for new licenses and we have converted one of our existing licenses into a unified license. We anticipated this move earlier and we are ready to fight this battle right in the marketplace. Price has never been our fighting point. We have always been keen on delivering value to the customer. In Western India, we felt we needed to kick up our operations by giving some special sops to the customer. Questions: 1. Carry out a five forces model for Bharati Telecom. 2. Does Bharati enjoy a competitive advantage in the market? Can it sustain it? Why or Why not?
Q8) CASE : Nestle India Limited Nestle India limited is the Indian arm of Nestle SA, which holds a 51% stake in the company. It is one of the leading branded processed food companies in the country with a large market share in products like instant coffee, weaning foods, instant foods, milk products, etc. It also has a significant share in the chocolates and other semi-processed foods market. Nestles leading brands include Cerelac, Nestum, Nescafe, Maggie, Kitkat, Munch and Milkmaid. To strengthen its presence, it has been the companys
endeavor to launch new products at a brisk pace and has been quite successful in its launches. Nestle India is the third largest FMCG company in India after Hindustan Lever and ITC. Nestle dominates the culinary (Maggie) and the hot beverages (coffee Nescafe) segments in India. It has also a significant presence in baby foods and has merged as a strong No. 2 in dairy segment (after Amul) and chocolates (after Cadburys). In each of the segments, the company has been growing through new product launches and new price point presence. In the last couple of years it has emerged as the fastest growing food FMCG company. In the past 5 year, Nestles topline and net profits have recorded a CAGR of 15% and 24% respectively. Processed food major, Nestle India, has reported and encouraging 8 % topline growth during the December quarter ended 2004. Easing of some of the commodity prices in the last quarter of 2004 and improved control over costs led to improved operating margins. Consequently, the company finished the quarter with a
significant 68 % bottomline growth YoY. The company reported over 4% revenue growth during the full year 2004. Throughout 2002 and 2003 the company remained largely untouched by the slowdown that had hit the overall branded FMCG sector. But 2004 has left much to be desired. The company has reported just over 4% growth in CY04 revenues. Its domestic sales (nearly 90% of revenues) grew by just over 5% for the full year, though the growth rate was much better at 8% during the December quarter. This, from a company that had grown its domestic business by early 12% in a slow year like 2003. The management had stated in June 2004 that domestic sales have been impacted by selective rationalization of pipeline stocks.
The December quarter performance was aided by an improvement in the companys exports business, which grew by nearly 10%. In the june quarter, exports declined by a significant 21% mainly due to the shift towards low realization bulk coffee packs exported to Russia. This has led to the company finishing with a 5% decline during the full year 2004. The company was able to somewhat stabilize margins for the full year, which had shrunk in the June quarter owing to the export blues. However, low export realizations, pipeline woes did put some pressure on margins for CY04. Material cost as a percentage of sales were higher during the year, indicating strengthening commodity prices. Gradulal phasing out of export tax benefits also put pressure. Consequent to the staid topline performance, lower other income and the pressure on operating margins, profits declined by 4% in CY04. However, if we take out the extraordinary items, then profit before tax declined by a marginal 2%. Though Nestle grew in double digits during 2003 (11% topline and over 30% bottomline growth), the first 3 quarters of 2004 have seen domestic sales grow in lower single digits. Only in the December quarter has the domestic performance
picked up. Also, export performance continues to be inconsistent owing to the shift to bulk exports of coffee. The companys exports stood at Rs. 2,571 m at the end of 2003 (11% of revenues) and continue to grow at a decent pace. But a major portion of this comprises of coffee ( around 67% of the exports were that of Nescafe instant to Russia). This constitutes a big chunk of the total exports to a single location. Historically, Russia has been a very volatile market for Nestle, and its overall performance takes a hit often due to this factor. The company has a complex supply chain management and the main issue for Nestle India is traceability. The food industry requires high standards of hygiene, quality of edible inputs and personnel. The fragmented nature of the Indian market place complicates things more. The company has the potential to expand to smaller towns and other geographies. Existing markets are not fully tapped and the company can changing in favour of the consuming class, the per capita consumption of most FMCG products is likely to grow. Nestle will have the inherent advantage of this trend. The company has the option to expand its product folio by introducing more brands which its parents are famed for like breakfast cereals, Smarties Chocolates Carnation, etc. Since manufacturing of some products is cheaper in India than in other South East Asian countries, Nestle India could become an export hub for the parent in certain product categories. The company faces immense competition from the organized as well as the unorganized sectors. Off late, to liberalize its trade and investment policies to
enable the country to better function in the globalised economy, the Indian Government has reduced the import duty of food segments thus intensifying the battle.
Trend of increased consumer spends on consumer durables resulting in lower spending on FMCG products. In the past 2-3 years, the performance of the FMCG sector has been lackluster, despite the economy growing at a decent pace. Although, off late the situation has been improving, the dependence on monsoon is very high. Rising prices of raw materials and fuels, and in turn, increasing packaging and manufacturing costs. But the companies may not be able to pass on the full burden of these onto the customers. Nestle India has strong support from its parent company, which is the worlds largest processed food and beverage company, with a presence in almost every country. The company has access to the parents hugely successful global folio of products and brands. In India, Nestle has some very strong brands like Nescafe, Maggie and Cerelac. These brands are almost generic to their product categories. The company has been continuously introducing new products for its Indian patrons on a frequent basis, thus expanding its product offerings. The food processing business in India is at a nascent stage. Currently, only about 10% of the output is processed and consumed in packaged form thus highlighting huge potential for expansion and growth. Traditionally, Indians
believe in consuming fresh stuff rather then packaged or frozen, but the trend is changing and the new fast food generation is slowly changing. Questions: i) ii) Carry out an ETOP and SAP for NESTLE Identify core competence of NESTLE.
CASE STUDY NICHOLAS PIRAMAL In 02 when Indias homegrown pharma majors were making steady gains at fighting the multinational companies on their own turf, one major domestic company stayed away-Nicholas Piramal. But today as many Indian companies report a dip in generic revenues, the core team at the Rs. 1,321 core company is convinced that their strategy is beginning to pay off. The companys stock has appreciated 61% to Rs. 255 since January 04. The company says that by 2010 it will earn as much 50% of its estimated $1 Billion revenues from
international business. So what is the strategy that the company has followed for this, Says Ajay Piramal Chairman we decided to follow a differentiated strategy. Over the past few years this phrase become a leitmotif for Mr. Pirmal. The differentiated strategy according to him that company went into custom manufacturing. This essentially means that the company will work with the global pharma companies and manufacture products spanning the entire range-from raw materials to finished products. This strategy says that company does not want to compete with the global companies. Instead they would like to co-operate with these companies. In the past 15 months the company has announced three custom manufacturing deals. These deals are expected to be worth $13 million in FY06. Earlier this year the company acquired Rhoda Organique for a consideration of $14 Millions. The companys strategy in acquisition is to buy generic firms overseas. The idea is to use this acquisition to gain entry in to the global hospital and critical care business. This business is likely to contribute $14 this year. The company is quite convinced about its international strategy and has therefore decided it will be on the look out for a larger acquisition target in custom manufacturing business especially in Europe. The company is also making investments in R&D facilities. Last year it invested Rs. 100 crores in setting up a research facility in Mumbai. The companys strategy is to minimize risks by working on cilnically validated targets, in-licence and work with institutions in India and abroad. One lead Oncology molecule is set to go in clinical trials shortly and two more in oncology and 1 in inflammation are in pr-clinical stage. It is therefore clear that the company has a long way to go in drug discovery and development. The company is also positioning itself as a partner MNCs that intend to launch their products in the domestic market in 05. Swati Piramal says that the company is uniquely positioned for this as it has the largest dedicated field force in the country. However some things may not exactly in the way that the company wishes. It is already behind its schedule on its first custom manufacturing shipment. Also in the last five months the company has not added any more clients in this space. One industry analyst says that the companys ambitions are a bit too aggressive. According to him to scale up to a target of $ 500 million in revenues from its international business in five years is not going to be easy task.
1. What is a differentiated strategy? 2. Will Nicholas Piramal succeed in its strategy? 3. what are the risks in this strategy of the company? Suggest what kind of mitigation strategy needs to be formed by the company?
Q8) The Aditya Birla Group-Social responsibility With the vision to be premium global conglomerate with a clear focus on each business & a mission to deliver superior value to customers, shareholders, employees and society at large. The Aditya Birla Group is Indias truly multinational corporation. The group Values of Integrity, commitment, passion, seamlessness, & speedhave support the Global vision, rooted in Indian values. The Group is driven by a performance ethic pegged on value creation for its multiple stakeholders. A US$ 6.5 billion conglomerate, with a market captilisation of US$ 6.33 billion, it is anchored by an extraordinary force of 72,000 employees belonging to over 20 different nationalities. Over 30 percent of its revenues flow from its operations across the world. The Groups products and services offer distinctive customer solutions. Its 66 state-ofart manufacturing units and sectoral services span India, Thailand, Indonasia, Malaysia, Philippines, Egypt, Canada, Australia and China. A premium conglomerate, the Aditya Birla Group is a dominant player in all of the sectors in which it operates. Such as viscose staple fiber, nonferrous meals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, sponge iron, insulators and financial services. It is: :: The worlds no. 1 in viscose staple fibre. :: The worlds largest single location palm oil producer. :: Asias largest single integrated aluminium producer. :: A globally competitive, fast- growing copper producer.
:: The worlds third largest producer of insulators. :: Globally, the fifth largest producer of carbon black. :: The worlds eight largest producer of cement, and the largest in a single geography. :: Indias premier branded garments player. :: Among Indias most energy efficient privet sector fertilizer plants. :: Indias second largest producer of viscous filament yarn. :: The no. 2 privet sector insurance company, and the fourth largest asset management company in India. The group has also made successful forays into the IT and BPO sectors. Beyond business A value based, caring corporate citizen, the Aditya Birla Group inherently believes in the trusteeship concept of management. Part of the Groups value systems. As early as he 1940s, the founding father Shri G.D. Birla espoused the trusteeship concept of management. Simply stated, this entails that the wealth that one generates and holds is to be held as in a trust for our multiple stakeholders. With regard to CSR, this means investing part of the profits beyond businss, for the larger good of society. While carrying forward this philosophy, his grandson, Aditya Birla weaved in the concept of sustainable livelihood, which transcended cheque book philanthropy. In his view, it was unwise to keep on giving endlessly. Instead, felt that channelising resources to ensure that people have the wherewithal to make both ends meet would be more productive. He would say, Give a hungry man fish for a day, he will eat it and the next day, he will be hungry again. Instead if you tought him how to fish, he would be able to feed himself and his family for a life time. Taking these practices forward, the chairman Mr. Kumar Mangalam Birla instutionalised the concept of bottom line accountability represented by
economic success, environmental responsibility and social commitment. In holistic way thus, the interest of all the stakeholders have been textured into our Groups fabric. The footprint of their social work today straddles over 3,700 villages, reaching out more than 2 million people annually. Their community work is a way of telling the people among whom we operate that We Care. The strategy The projects are carried out under the aegis of the Aditya Birla Centre for Community Initiative and Rural Development, led by Mrs. Rajashre Birla. The Centre provides the strategic direction, and the thrust areas for the work ensuring performance management as well. The focus is on the all-round development of the communities around our plants located mostly in distant rural areas and tribal belts. All the Group companies-Grasim, Indian Rayon, Indo gulf and Ultra tech have Rural Development Cells which are the implementation bodies. Projects are planned after a participatory need assessment of the communities around the plants. Each project has a one-year and a three-year rolling plan, with milestones and measurable targets. The objective is to phase out their presence over a period of time and hand over the reins of further development to the people. This also enables to widen the reach. Along with internal performance assessment mechanism, the projects are audited by reputed external agencies, who measures it on quantitative parameters, helping the company gauge the effectiveness and providing excellent inputs. The company says that our partners in development are government bodies, district authorities, village panchayats and the end beneficiariesthe villagers. The Government has, in their 5-year plans, special funds earmarked for human development and we recourse to many of these. At the same time, we network and collaborated with like-minded bilateral and unilateral agencies to share ideas, draw from each others experiences, and ensure that efforts are not duplicated. At another level, this provides a platform for advocacy. Some of the agencies we have collaborated with are UNFPA, SIFSA, CARE India, Habitat for Humanity International, Unicef and the world Bank. Questions:
Discuss various aspects of RESOURCE Allocation, Leadership style, Corporate culture, Values, Social Responsibilities & Ethics highlighted in the case. Case Study - answer the questions given at the end of the case. "The Rise of NOKIA . The cellular telephone industry is one of the great growth stories of the 1990s. The number of cellular subscribers has been increasing rapidly. Three companies currently dominate the global market for cellular equipment (cell phones, base station equipments and digital switches) Motorola, Nokia and Ericsson. Of the three the dramatic rise of Nokia is perhaps most surprising. Nokia's roots are in Finland, not normally a country that jumps to mind when we talk about leading edge technology. Back in 1980s, Nokia was a rambling Finish Conglomerate with activities that embraced tire manufacturing, paper production, consumer electronics and telecommunication equipment. Today it is a focused $10 billion telecommunication equipment manufacturer with a global reach second only to that of Motorola and with sales and earnings that are growing in excess of 30% per annum. How has this former conglomerate emerged to take a global leadership in the cellular equipment industry? Much of the answer lies in the history, geography and political economy of Finland. The story starts in 1981, when the Nordic nations got together to create the world's first international cellular network. Sparingly populated and inhospitably cold, they had good reasons to become pioneers. It would have cost far too much to lay down a traditional wire line telephone service. Yet the same features, that made it difficult, make telecommunications all the more valuable there. People driving through Arctic winter and owners of remote northern houses need a telephone to summon help if things go wrong. As a result Sweden, Norway and Finland became the first nations in the world to take cellular communications. Seriously. They found, for example, that while it cost up to $800 per subscriber to bring a traditional wire line service to remote locations in the far north, the same locations could be linked by cellular service for only $500 per person. As
a result, in 1994, 12% of the people in Scandinavia owned cell phones as compared to 6% in USA.
Nokia as a long time telecom equipment manufacturer was well positioned to take advantage of this development. Other factors also helped Nokia. In Finland there has never been a national monopoly. Instead there . had been 50 odd telephone service providers, whose elected boards set prices 'by referendum (which results in lower prices.) This army of 50 telephone providers has never allowed Nokia to take anything for granted. The finish customer always buys from the lowest cost supplier, whether it was Nokia, Motorola, Ericsson or anyone else. Nokia has responded to this competitive pressure very well while driving down costs relentlessly and being always at the cutting edge of technology. Nokia is snapping at the heels of the number one firm in cellular equipment - Motorola. In digital cellular technology-supposed to be the wave of the future - it is Nokia and Motorola, which is the tech leader. The Scandinavian countries have started switching to digital cellular technology five years before the rest of the world. Nokia has now the lowest cost structure for any cellular equipment in the world. The result is that it is more profitable than Motorola. Answer the following questions: a) What are the reasons for Nokia's success? b) What is the strategy adopted by Nokia? c) Suggest a suitable strategy for Motorola.
Case ; In 1962, Sam Walton & his brother opened the first Wal-Mart store in Rogers' (Arkansas), USA; & generateq $ 1 million in sales in the first year itself. In a span of 5 years it notched up sales of $ 12.6 million. . In 1969, Wal-Mart was incorporated as a company under the name WalMart Stores Inc. Since then, the company has grown multifold to be ranked as # I in the Fortune's 500 list in 2002. It is the world's largest retailer and has spread in foreign markets too. Wal-Mart has been facing stiff competition from K-mart, Tesco, Target etc. and realising its inability to compete alone has globally entered into tie-ups with various local firms in the foreign markets. By 2003, Wal-Mart was the largest retailer in Mexico, Argentina, Canada, Puerto Rico & amongst the top 3 in U.K. It followed the joint Venture, Acquisition or Greenfield ,operations route to achieve this 'status. "However, all was not rosy for Wal-Mart. With its excessive focus on cost, it earned a reputation for being not a good employer. It also earned bad name for pressurising suppliers beyond limits. Wal-Mart's German strategy was floundering. It could not make any significant impact on the retail industry & was running into losses. In 2006, Wal-Mart ventured into the Indian market as a JV partner of Bharati, the Indian Telecom giant. Riding on the euphoria' of over 9% GDP growth rate, booming stock markets, rising disposable incomes, changing lifestyles, of the IT, ITES led industries, and a general feel-good
feeling India has caught the attention of many local & global firms. With organised retail amounting to a meagre 2% of retail industry, analysts believe that sky is the limit for retail. However, there remain certain grey areas. Real estate prices are skyrocketing every day. The national government has slapped taxes on lending of commercial space. Being critically supported by the left parties, the Central Government cannot afford to overlook their opposition to organised retail in general & foreign firms in particular. The Indian consumer is notoriously, hard to satisfy and is both very traditional and global in outlook at the same time.
Other organised players like Tatas, Reliance, lTC, Godrej, etc. are also sprucing up their efforts to attract the Indian custom,er. Some are even occupying the 'every day-low prices' positioning right away. Social concerns about the impact of organised retail on traditional stores, small shops, farmers, suppliers, commodity prices & the society at large are increasing. The voices are getting shriller by the day. Bharati, is believed to have entered into the tie-up with Wal-Mart on an equal footing & Wal-Mart has to extend its expertise in the supply-chain management domain and Bharati is to take care of the front end. It is not very clear whether the Wal-Mart brand name will be used. Questions: l) Carry out an ETOP for the Bharati:- Wal-Mart joint venture. 2) Do you think Wal-Mart will succeed in India? Why or Why not?
CASE -DoCoMo's Acquisition of Tata Tele Services (TTSL). Recently, Japan's largest mobile operator NTT DoCoMo has announced the acquisition of a 26% stake in Tata Tele Services (TTSL), the Tata group's telecom arm which offers CDMA - based service, for 2.7 billion dollars (nearly 12,770 crore ). This marks the entry of the Japanese giant in to the world's fastest-growing telecom mar.!