Gulliver’s paradox!!!

ARINDAM CHAUDHURI’S 4 REASONS WHY YOU SHOULD CHOOSE IIPM...

Real estate prices & resistance from small retailers could stop the Reliance juggernaut

“We are not afraid of any competition,” comments Raghu Pillai, President & CEO Reliance, as he interacts with Business & Economy on the eve of the launch of the first Reliance Hypermart in Ahmedabad, Gujarat. Coming from an official at Reliance, that’s hardly a statement that could engender any element of consternation in the listener. Besides growth, nonchalance for competitors has also become a way of life for India’s most valuable company.

As far as retail is concerned, Chairman Mukesh Ambani does have reasons to celebrate. Those anticipating a brutal war happening between Reliance & Wal- Mart, have reasons to be sorely disappointed. The Bharti-Wal-Mart ship, after navigating through cumbersome rules & regulations, is marking a relatively low key debut with wholesale cash & carry operations. Meanwhile, the spectre of Reliance only gets larger, with 240 Reliance Fresh stores already set up & Reliance Digital off the mark. And with Reliance Mart, even the Pantaloons, Tatas & Birlas could find it immensely daunting to match the onslaught.

It’s interesting to note how the August 15 launch of the 165,000 square feet mall in Hyderabad has been timed with the 60th year of Indian Independence, ostensibly to herald it as another revolution, an ode to the Indian shopper, with his unique tastes & preferences. Mukesh calls it a landmark attempt from Reliance to provide an “international shopping experience to all our customers at unmatched affordability, guaranteed quality & choice of products & services.” The company plans 30 such outlets by the end of 2007 and 500 by 2010, a blistering pace compared to the incumbent Pantaloon, which has only managed 66, since inception in 2001. But the average consumer, who’s already experienced Big Bazaars, may ask, “Where’s the revolution out here?”

Maybe not the pioneer, but has that ever deterred Reliance? States Parimal Nathwani, Group President-Corporate Affairs, Reliance Retail, “Even in Infocomm time (when Mukesh had launched it), Reliance moved to the top very quickly, despite being a late entrant. We grow very fast.” With its plethora of tie-ups, Reliance is diff erentiating itself with a number of unique brands & highly competitive prices. When asked by B&E if the company would like to give a low price challenge like Wal-Mart, the otherwise exuberant Pillai comes up with a very guarded response, “We will be off erring all the products with best possible price. But we will not only fight the price game on price alone...” An insider, on condition of anonymity, revealed that the company was retailing quite a few products at below cost price to attract buyers. Trust Reliance (slated investments of Rs.250 billion in retail), to be able to afford such extravagances.

However, if Reliance has the strengths of Wal-Mart, it may face quite similar challenges. The first challenge, of course, is real estate. Pillai agrees that huge gambles have to be taken on which property to invest in. To compete on prices, Reliance would try to open up its stores away from the city, but that would turn off customers. When asked about plans for a hypermart in New Delhi, a Reliance official stated plans for one in Ghaziabad. Due to constraints of property, Reliance is not going the franchise route. But with its deep pockets & minimum policy hurdles, Reliance is in a position to take up the best of what’s available.

Furthermore, the Wal-Mart experience with bad publicity is known to all. And quite ominously, Reliance is already facing the brunt of small retailers. Reliance Fresh stores have been attacked in Kolkata & Ranchi. Even though Reliance is not ‘foreign’, it’s business model is quite similar to Wal-Mart, and small retailers now dread & despise the way Reliance is spreading its tentacles across the country. In that sense, while Reliance is symbolizing liberation for consumers, it seems to be symbolising subjugation for small retailers. While organised retail is not Reliance alone, the company could unfortunately end up becoming the most likely and visible target for angst.

States Pillai on the protests, “There will always be opposing points of view, if you see job creation opportunities, the benefits far outweigh the pitfalls. We will lose some links in the value chain. But these will be links that are not adding any value.” He also reiterates how organised retail will be around $60 billion in a span of 5-10 years, which will still be only 15-20% of the total retail space in the country. In addition, Reliance is taking the very critical step of engaging with small grocery shops in the country for B2B opportunities, an initiative which, according to Pillai, would be launched soon.

Clearly, while maintaining superior value for customers will have to remain high on the agenda, Reliance must also ensure that its initiatives to benefit the retail sector as a whole, move much beyond the realms of publicity. Indeed the threat for Reliance is not the competition, but the fear this ‘Gulliver of Indian retail’ strikes in the hearts of adversaries. Surely, it needs more friends among the ‘Liliputs’ than foes!

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Coke showers drops of joy

ARINDAM CHAUDHURI’S 4 REASONS WHY YOU SHOULD CHOOSE IIPM...

Sometimes a soft drink is more than just a fizzy, sugared liquid. Sometimes it symbolises an exhilarating lifestyle or, at times, a more humane & community-engaged face of the organisation. At least, that’s how the fizzy drink maker Coca Cola wants to market itself now. Getting more fizz out of the bottle, the soft drink major has recently unleashed a brand new corporate campaign – ‘Little Drops of Joy’ – for India. Put together by Prasoon Joshi headed McCann–Erickson, the campaign ropes in emotions of denizens of this country to strengthen Coke’s position in India. The new corporate logo & communication primarily highlights the fact that Coca-Cola has been a part of every day life of its consumers and the company is going gung ho with a 360-degree communication initiative for this campaign. Further, to put a stymie against the environmental related issues & unhealthy factors, the fizzy drink maker also cashed in the particular platform to unleash its ‘5-Pillar’ strategy that stands for Portfolio, People, Planet, Partners & Performance. The strategy includes initiatives such as Coca-Cola’s plan to build an equipment testing facility at Hyderabad to ensure their commitment towards quality. The company also plans to make its product portfolio exclusively customised for India. The emphasis would now be on local tastes with a pinch of health to it.

India plays a major role in the scheme of things for both Coca-Cola & its arch rival PepsiCo. And in an effort to show its further commitment for this country and ante up its ammunition to tap the immense opportunities available, the company would also be shelling out $250 million over a period of next three years to create bottling capacities for new product offerings, along with value creation for all its business partners. Hope these little drops of joy turn out to be big for Coke.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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A+ve ‘follow on’?

IIPM PUBLICATION

It depends on the primary market

According to CLSA Asia-Pacific, Indian firms may raise a jaw dropping $18-20 billion through equity issues in the rest of 2007. After a series of fl op issues, the maddening response to the recently concluded public issues of Vishal Mega Mart, ICICI & DLF, prove that investors have decided to go all the way. The kind of treatment these public issues will get on listing will surely set the tone for the upcoming July IPOs viz Omaxe, HDIL, Purvankar Projects et al.

With some big companies lined up to tap capital markets, some even for the second time, investors are betting to win big-time. But investors should fi rst weigh the options and then should take a call accordingly; blindly joining the bandwagon will perhaps lead nowhere. A point in case is Spice Telecom (which is coming with an IPO to raise Rs.6.32 million), whose listing – though much hyped to the retail investor – has been rejected by NSE as the company’s accumulated losses exceeded its net worth!

Nevertheless, 2007 will see the Indian equity boom reaching new highs and breaching all records. The only potential threat is a possible interest rate or CRR hike by RBI in the forthcoming monetary policy on July 31. But with inflation seemingly controlled, such a move seems quite improbable.

B&E research: Gyanendra K.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Huff Puff

IIPM MANAGEMENT INSTITUTE

Lalu Prasad Yadav emerges as a transformational CEO by launching strategic initiatives that are fashioning Indian Railways as a 21st century corporation...

There would have been snide sniggers last year if someone had the temerity to suggest that Railway Minister Lalu Prasad Yadav of Bihar fame would emerge as one of the hottest CEOs of India Inc.. Yet, the rambunctious Yadav is transforming Indian Railways into a consumer-oriented company that’s pursuing all kinds of corporate strategies and relentlessly chasing profits

So there was this newspaper that once ran a photograph of Lalu standing with a herd of buff aloes; with a caption that mentioned, “Lalu, third from left !” And there lies the wonder of Lalu Prasad Yadav, the politician and now Union Minister for Railways; a man whose branding has always traditionally hovered around buff aloes and dairy products. But now, with his valiant transformation attempts on the Indian Railways, Lalu Prasad will perhaps be now known as a true blue, no holds barred Chief Executive Officer; and perhaps one, which India Inc. would look up to... Well, one day... And as we said, perhaps.

Laying down his corporate vision as he presented the Railway Budget to the Parliament, Lalu Yadav stated: “The general perception so far has been that Railways’ finances cannot be improved without increasing second class passenger fares. But my approach is entirely different. In my view, improvements can only be brought about by raising the quality of services, reducing unit costs and sharing the resultant gain with customers. Therefore, instead of following the beaten path, we decided to tread a new one.” The Railways will never be the same again. What exactly has the colourful Minister done to make analysts drool over the transformation of Indian Railways from a government department to a 21st century corporation that understands and executes strategy with precision? Lalu Yadav seems to have mastered two management precepts: The Railways needs to increase long term profitability; and the Railways needs to increase market share. Most of the bold and innovative initiatives unleashed by Yadav revolve around these two goals. Even more important, while previous CEOs (Railway Ministers) have relied on populist schemes for passengers, this CEO has actually focused on the less glamorous freight business to refashion the future of Indian Railways.

An overwhelmingly dominant player in the Indian freight business once upon a time, Indian Railways has been steadily losing market share to rival operators. From a huge 80% of the freight market in 1947, the Indian Railways has nosedived to about 20%, with road transport operators and companies taking the business away from Railways. This year, Lalu has initiated never before seen competitive strategies to battle competition; and our man Lalu doesn’t seem interested in taking prisoners.

Railways will now offer a loyalty discount to consumers who transport more goods on freight trains; given the fact that almost 80% of Railways’ revenues are contributed by freight. There will also be big differentials between peak and off season rates with off season discounts of up to 30%. Most significantly, private companies are being encouraged to invest capital in an ‘own your wagon’ scheme. These investors will get preferential treatment for freight movements. No wonder, India Inc is lavishing praise on Yadav! Says Amit Mitra, Secretary General, FICCI: “I think it is a very forward looking & market oriented budget. I would say even pragmatic budget,” pointing to Lalu’s initiative of allowing private firms to run container trains under the Indian Railways.

Another move is the construction of dedicated freight corridors that will connect the eastern and western seaboards of India. Lalu is investing Rs.220 billion in these corridors which, once completed, will drastically reduce the time to distance ratio, giving Railways a strategic edge over road transport.

The quest for increased market shares – and to fight low cost air carriers – can be seen even in the passenger segment. Though questionable on being a pro-rich move rather than being pro-poor, Lalu has ensured an 18% drop in the price of AC-2 tier tickets, while AC-3 tier prices have dropped by 10%. Perhaps to counter criticism, Lalu has also launched the Garib Rath, an economy train service connecting major Indian cities. The AC- 3 tier prices in these trains will be 25% lower than other trains. Analysts clearly seem to share Lalu’s optimism that this will lead to improved market shares.

So much for market shares! CEO Lalu has also been paying a lot of attention to the bottom lines in the past one year. Last year, the Railways increased by 4 to 8 tonnes the load carried by each wagon. An increase of just one tonne per wagon translates into 10 million tones more of freight carried without an extra penny increase in costs. As in business process re-engineering, Lalu has managed to increase freight loading capacity by 100 million tonnes without spending any money and generating an additional Rs.50 billion in revenues. Not surprisingly, this has been largely responsible for the organisation declaring a surplus of more than Rs.110 billion in fiscal 2005- 06, despite a substantial increase in input prices of diesel and electricity. The prospects for the fiscal year 2006- 07 look even brighter still.

That’s because the capacity of each wagon is being increased from 64 tonnes to 70 tonnes this year. In a few years’ time, Lalu plans to increase that to 80 tonnes per wagon. By that time, Lalu hopes to have completed the dedicated freight corridors linking east and west, which will dramatically reduce travel time for long distance freight trains, and thus sustaining increased profitability.

While the freight business will deliver the big bucks, Yadav has taken smart steps to reduce losses even in the passenger segment. The most important of these is the decision to increase the number of coaches in long distance trains to about 24 (from 16 coaches at most). The addition of these coaches will enable waitlisted passengers to travel, adding Rs.2 billion to the kitty. Yet another innovative measure is the optional upgrading of normal passengers into the AC class when seats in AC class go vacant, giving another similar Rs.2 billion. CEO Yadav also kick-started a scheme where services like catering will be auctioned through bidding. This has resulted in a 56% revenue increase in this segment to Rs.13 billion in 2005-06.

Yet, there is the last frontier that CEO Lalu has to cross. The Railways owns the largest amount of real estate in the country. If Lalu can find a way to leverage this real estate strategically, this rustic politician can join the pantheon of corporate visionaries. Clearly, Lalu Yadav and Railways are on a roll. All that it has taken is to borrow some simple and fundamental principles of modern corporate management and transplant them into his organization. No wonder, an obsolete and effete government department is being transformed into a charged up and aggressive corporation, without the huff s & the puff s of the past. Indian Railways is alive; and the buff alo king leads!

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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The New Age Dabur

IIPM PUBLICATION

The restructuring of the Dabur Group is truly unique, since the core business is now being run by non-family professionals; while the Burmans have given up executive positions in the core company to take charge of the new growth businesses. While talking about such a strategic management restructuring, V. C. Burman, Chairman, Dabur India told B&E, “It was in response to the changing dynamics of business... the family has a trusteeship role to follow, both for perpetuating the family business and in preserving & growing the business.” Amit Burman, who has taken charge of Dabur Foods told B&E, “New, high growth businesses require entrepreneurial zeal and are better suited to members of the family.”

The restructuring exercise did wonders for Dabur as they ventured into new areas through acquisitions and went on a massive expansion spree. States Duggal, “Inorganic or acquisition is a key strategy for growth at Dabur India. The growth can come both from the domestic as well as international markets. But one must look at strategic fit of the target in order to add value to the company.” For instance, Dabur’s acquisition of Balsara (a homegrown herbal company) for Rs.1.43 billion in January 2005 fitted very well with Dabur’s core competency of herbal flank. Rajan Varma, CFO, Dabur India told B&E, “Balsara on a standalone basis contributed 19% of total turnover (of last year).” And in FY06 Balsara’s home products recorded revenues of Rs.1,685 million, a growth of 42% over last year.

The period 2002-06 is heralded to be the most crucial for Dabur. At a time when the FMCG sector as a whole was experiencing sluggish growth and FICCI’s FMCG survey claiming that in FY06, the sector will grow at a miniscule 2%. The survey also pointed out that only segments that will stand out are food & personal care. Realising the potential of the two segments, the FMCG players in the country started to strengthen their portfolio with these two cash cows. Dabur was not an exceptional too! So on March 29, 2006, Dabur unveiled its Vision 2010, wherein by 2010 the main focus areas will be expansion, acquisition and a product portfolio comprising of food & personal care products.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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