Where is Disney vulnerable? What should it watch out for? ANSWER -

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Masters Program in Business Administration (MBA)

 Specializations :- Marketing Management

Note :- Solve any four cases

             All cases carry equal marks.

Case No 1 :- MARKETING SPOTLIGHT- NIKE

Nike hit the ground running in 1962. Originally known as Blue Ribbon Sports, the company focused on providing high-quality running shoes designed especially for athletes by athletes. Founder Philip Knight believer that high-tech shoes for runners could be manufactured at competitive prices if imported from abroad. The company’s commitment to designing innovative footwear for serious athletes helped it build a cult following among American consumers. By 1980, Nike had become the number-one athletic shoe company in the United States.

          From the start, Nike’s marketing campaigns featured winning athletes as spokespeople. The company signed on its first spokesperson, runner Steve Prefontaine, in 1973. Prefontaine’s irreverent attitude matched Nike’s spirit. Marketing campaigns featuring winning athletes made sense. Nike saw a `pyramid of influence’’ – it saw that product and brand choices are influenced by the preferences and behavior of a small percentage of top athletes. Using professional athletes in its advertising campaigns was both efficient and effective for Nike.

          In 1985, Nike signed up then-rookie guard Michael Jordan as a spokesperson. Jordan was still an up-and-comer, but he personified superior performance. Nike’s bet paid off: The Air Jordan line of basketball shoes flew off the shelves, with revenues of over $100 million in the first year alone. Jordan also helped build the psychological image of the Nike brand. Phil Knight said. ``Sports are at the heart of American culture, so a lot of emotion already exists around it. Emotions are always hard to explain, but there’s something inspirational about watching athletes push the limits of performance. You can’t explain much in 60 seconds, but when you show Michael Jordan, you don’t have to.’’

          In 1988, Nike aired its first ads in the ``Just Do It’’ ad campaign. The $20 million month-long blitz-subtly encouraging Americans to participate more actively in sports-featured 12 TV spots in all. The campaign challenged a generation of athletic enthusiasts to chase their goals; it was a natural manifestation of Nike’s attitude of self-empowerment through sports. The campaign featured celebrities and noncelebrities. One noncelebrity and featured Walt Stack, an 80-year-old long-distance nunnery, running across the Golden Gate bridge as part of his morning routine. The ``Just Do It’’ trailer appeared on the screen as the shirtless Stack ran on a chilly morning. Talking to the camera as it zoomed in, and while still running. Stack remarked, ``People ask me how I keep my teeth from chattering when it’s cold.’’ Pausing, Stack matter-of-factly replied, ‘’I leave them in my locker.’’

          As Nike began expanding overseas to Europe, it found that its American style ads were seen as too aggressive. The brand image was perceived as too fashion-oriented. Nike realized that it had to ``authenticate’’ its brand in Europe the way it had in America. That meant building credibility and relevance in European sports, especially soccer. Nike became actively involved as a sponsor of soccer youth leagues, local clubs, and national teams. Authenticity required that consumers see the product being used by athletes, especially by athletes who win. The big break came in 1994, when the Brazilian team (the only national team fro which Nike had any real sponsorships) won the World Cup. The victory led Nike to sign other winning teams, and by 2003 overseas revenues surpassed U.S. revenues for the first time. Nike also topped $10 billion in sales for the first time in the year as well.

          Today, Nike dominates the athletic footwear market. Nine of the 10 top-selling basketball shoes, for example, are Nikes. Nike introduces hundreds of shoes each year for 30 sports – averaging one new shoe style every day of the year. Swooshes abound on everything from wristwatches to golf clubs to swimming caps.

Discussion Questions

1.       What have been the key success factors for Nike?

2.       Where is Nike vulnerable? What should it watch out for?

3.       What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?

Case NO. 2

MARKETING SPOTLIGHT- DISNEY

The Walt Disney Company, a $27 billion-a-year global entertainment giant, recognizes what its customers value in the Disney brand: a fun experience and homespun entertainment based on old-fashioned family values. Disney responds to these consumer markets. Say a family goes to see a Disney movie together. They have a great time. They want to continue the experience. Disney Consumer Products, a division of the Walt Disney Company, lets them do just that through product lines aimed at specific age groups.

          Take the 2004 Home on the Range movie. In addition to the movie, Disney created an accompanying soundtrack album, a line of toys and kid’s clothing featuring the heroine, a theme park attraction, and a series of books. Similarly, Disney’s 2003 Pirates of the Caribbean had a theme park ride, merchandising program, video game, TV series, and comic books. Disney’s strategy is to build consumer segment around each of its characters, from classics like Mickey Mouse and Snow White to new hits like Kim Possible. Each brand is created for a special age group and distribution channel. Baby Mickey & Co. and Disney Babies both target infants, but the former is sold through department stores and specialty gift stores whereas the latter is a lower-priced option sold through mass-market channels. Disney’s Mickey’s Stuff for Kids targets boys and girls, while Mickey Unlimited targets teens and adults.

          On TV, the Disney Channel is the top primetime destination for kids age 6 to 14, and Playhouse Disney is Disney’s preschool programming targeting kids age 2 to 6. Other products, like Disney’s co-branded Visa card, target adults. Cardholders earn one Disney ``dollar’’ for every $ 100 charged to the card, up to the card, up to $75,000 annually, then redeem the earnings for Disney merchandise or services, including Disney’s theme parks and resorts, Disney Stores, Walt Disney Studios, and Disney stage productions. Disney is even in Home Depot, with a line of licensed kid’s room paint colors with paint swatches in the signature mouse-and-ears shape.

          Disney also has licensed food products with character brand tie-ins. For example, Disney Yo-Pals Yogurt features Winnie the Pooh and Friends. The four-ounce yogurt cups are aimed at preschoolers and have an illustrated short story under each lid that encourages reading and discovery. Keebler Disney Holiday Magic Middles are vanilla sandwich cookies that have an individual image of Mickey, Donald Duck, and Goofy imprinted in each cookie.

          The integration of all the consumer product lines can be seen with Disney’s ``Kim Possible’’ TV program. The series follows the action-adventures of a typical high school girl who, in her spare time, saves the world from evil villains. The number-one-rated cable program in its time slot has spawned a variety of merchandise offered by the seven Disney Consumer Product divisions. The merchandise includes:

• Disney Hardlines – stationery, lunchboxes, food products, room décor.
• Disney Softlines – sportswear, sleepwear, daywear, accessories.
• Disney Toys – action figures, wigglers, beanbags, plush, fashion dolls, poseables.
• Disney Publishing – diaries, junior novels, comic books.
• Walt Disney Records – Kim Possible soundtrack.
• Buena Vista Home Entertainment – DVD/video.
• Buena Vista Games – Game Boy Advance.

``The success of Kim Possible is driven by action – packed storylines which translate well into merchandise in many categories,’’ said Andy Mooney, chairman, Disney Consumer Products Worldwide. Rich Ross, president of entertainment, Disney Channel, added: ``Today’s kids want a deeper experience with their favorite television characters, like Kim Possible. This line of products extends our viewer’s experience with Kim, Rufus, Ron and other show characters, allowing (kids) to touch, see and live the Kim Possible experience.

          Walt Disney created Mickey Mouse in 1928 (Walt wanted to call his creation Mortimer until his wife convinced him Mickey Mouse was better). Disney’s first feature-length musical animation, Snow White and the Seven Dwarfs, debuted in 1973. Today, the pervasiveness of Disney product offerings is staggering – all in all, there are over 3 billion entertainment-based impressions of Mickey Mouse received by children every year. But as Walt Disney said. ``I only hope that we don’t lose sight of one thing – that it was all started by a mouse.’’

Discussion Questions

1.       What have been the key success factors for Disney?

2.       Where is Disney vulnerable? What should it watch out for?

3.       What recommendations would you make to their senior marketing executives going forward? What should it be sure to do with its marketing?

Case NO. 3

MARKETING SPOTLIGHT- HSBC

HSBC is known as the ``world’s local bank.’’ Originally called the Hong Kong and Shanghai Banking Corporation Limited, HSBC was established in 1865 to finance the growing trade between China and the United Kingdom. HSBC is now the second-largest bank in the world, serving 100 million customers through 9,500 branches in 79 countries. The company is organized by business line (personal financial services; consumer finance; commercial banking; corporate investment banking and markets; private banking), as well as by geographic segment (Asia-Pacific, U.K./Eurozone, North America/NAFTA, South America, Middle East).

          Despite operating in 79 different countries, the bank works hard to maintain a local feel and local knowledge in each area. HSBC’s fundamental operating strategy is to remain close to its customers. As HSBC chairman Sir John Bond said in November 2003, ‘’Our position as the world’s local bank enables us to approach each country uniquely, blending local knowledge with a world-wise operating platform.’’

          For example, consider HSBC’s local marketing efforts in New York City. To prove to jaded New Yorkers that the London-based financial behemoth was ‘’the world’s local bank, ``HSBC held a ‘’New York City’s Most Knowledgeable Cabbie’’ contest. The winning cabbie gets paid to drive full-time for HSBC for the year and HSBC customers win, too. Any customer showing an HSBC bankcard, checkbook, or bank statement can get a free ride in the HSBC-branded Bankcab. The campaign demonstrates HSBC’s local knowledge. ‘’In order to make New Yorkers believe you’re local, you have to act local,’’ said Renegade Marketing Group’s CEO Drew Neisser.

          Across the world in Hong Kong, HSBC undertook a different campaign. In the region hit hard by the Severe Acute Respiratory Syndrome, (SARS) outbreak, HSBC launched a program to revitalize the local economy. HSBC’’ plowed back interest payments’’ to customers who worked in industries most affected SARS (cinemas, hotels, restaurants, and travel agencies). The program eased its customer’s financial burden. The bank also promoted Hong Kong’s commercial sector by offering discounts and rebates for customers who use an HSBC credit card when shopping and dining out, to help businesses affected by the downturn. More than 1, 5000 local merchants participated in the promotion.

          In addition to local marketing, HSBC does niche marketing. For example, it found a little-known product area that was growing at 125 percent a year: pet insurance. In December 2003 it announced that it will distribute nationwide pet insurance through its HSBC Insurance agency, making the insurance available to its depositors.

          HSBC also segments demographically. In the United States, the bank will target the immigrant population, particularly Hispanics, now that it has acquired Bital in Mexico, where many migrants to the United States deposit money.

          Overall, the bank has been consciously pulling together its worldwide businesses under a single global brand with the ‘’world’s local bank’’ slogan. The aim is to link its international size with close relationships in each of the countries in which it operates. The company spends $600 million annually on global marketing and will likely consolidate and use fewer ad agencies. HSBC will decide who gets the account by giving each agency a ‘’brand-strategy exercise.’’ Agencies will by vying for the account by improving on HSBC’s number 37 global brand ranking.

Discussion Questions

1.       What have been the key success factors for HSBC?

2.       Where is HSBC vulnerable? What should it watch out for?

3.       What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?

Case NO .4

MARKETING SPOTLIGHT- KRISPY KREME

Krispy Kreme makes 2.7 billion donuts a year. But it took more than fresh, hot donuts to earn Krispy Kreme the title of ‘’hottest brand in America’’ in 2003. Krispy Kreme’s stock price quadrupled in the three years following its IPO in 2000, and the entire chain now generates a billion dollars in annual revenues across more than 300 outlets.

          How did Krispy Kreme turn donuts into dollars? Careful brand positioning and local marketing tell the story. ‘’We have a humble brand and product,’’ says Krispy Kreme CEO Scott Livengood. ‘’It’s not flashy.’’ The company is not new – it was founded in 1937- and part of its brand image is an old-fashioned feel. The plain red, green, and white colors and retro graphics evoke the squeaky-clean Happy Days of the 1950s, as do the Formica-filled, kid-friendly shops. ‘’We want every customer experience to be associated with good times and warm memories,’’ Livengood says.

          That company’s brand image also rests on its fresh, hot donuts – a freshness that’s measured in hours. In a world of processed, prepackaged food, nothing beats a fresh, hot donut. The company’s marketing is grassroots local. Krispy Kreme has no traditional media advertising budget. Rather, local ‘’community marketing managers’’ enlist the aid of local groups and charities. For example, the company helps charities raise money by selling them donuts at half price which they can re-sell at full price. Local bake sales become a promotional tool for Krispy Kreme.

          Another tactic is giving away free donuts to TV, newspapers, and radio stations before entering a market. Krsipy Kreme scored a publicity coup in 1996 when it opened its first store in New York City. The company delivered boxes of donuts to the Today Show, garnering millions of dollars worth of national exposure for the price of a few donuts. Even the day of the IPO relied on the buzz from free Krispy Kreme donuts on the floor of the stock exchange.

          Each local outlet is an emissary for the brand, and Krispy Kreme’s signature Doughnut Theater defines the brand image. A multisensory experience, Doughnut Theater occurs several times a day at each shop. When the store flicks on its ‘’Hot Doughnuts Now’’ sign, the performance is about to begin. A large plate glass wall lets customers watch the whole process.

          The Doughnut Theater experience works on three levels. On a direct level, the performance entertains customers and draws them into the donut-making experience. On an indirect level, it shows that the products are freshly made in a clean environment. On a subliminal level, as CEO Livengood describes it, ‘’The movement of the products on the conveyor through our proofbox has this relaxing, almost mesmerizing effect. The only other thing like it is standing on the oceanfront and watching the tide come in. it has that same consistent, relaxing motion that is really positive to people.’’ People flock to the store to see wave after wave of donuts emerge hot and deliciously fresh. They happily stand in long lines around newly opened outlets to get the aroma of the donuts being made, the sight of the vanilla glaze waterfall, and the warmth of the hot donut that ‘’just melts in your mouth and tastes so good,’’ Livengood says.

          Doughnut Theater is a bit of show business that draws customers into the baking experience and makes them feel like they are a part of the process. Another aspect of show business is product placements on hit shows like. The Sopranos and Will & Grace and movies like Bruce Almighty. Finally, international expansion is fueled by celebrities like Dick Clark, Hank Aaron, and Jimmy Buffet, who clamored for Krispy Kreme franchises of their own. Krispy Kreme doesn’t just grant franchise rights to anyone.       

          Krispy Kreme makes 65 percent of its revenue selling donuts directly to the public through its 106 company-owned stores. Another 31 percent comes from selling flour mix, donut-making machines, and donut supplies to its 186 franchised stores. The final 4 percent of revenue comes from franchisee licenses and fees.

          Krispy Kreme is now expanding and selling donuts through convenience stores. Will this hurt the brand? Stan Parker, Krispy Kreme’s senior vice president of marketing, says it won’t because the company continues to emphasize freshness. It replenishes the packaged donuts daily from the local Krispy kreme store and removes any unsold packages. The donuts’ presence in convenience stores will help remind people of the taste of a fresh, hot Krispy Kreme donut, and that brings them back into a Krispy Kreme shop.

          The success of Krispy Kreme has been a wake-up call for competitor Dunkin’ Donuts, which had become complacent. The one-two punch of Krispy Kreme in donuts and Starbucks in coffee led Dunkin’ Donuts to revamp its menu and its stores, neither of which had changed in years. Rather than innovate, Dunkin’ Donuts looked at what customers were already eating elsewhere. It brought in basic products like bagels, low-fat muffins, and breakfast sandwiches. Dunkin Donuts still dwarfs Krispy Kreme in size, with 2003 revenues of $3 billion, but it must work to find new ways of creating excitement that builds customer pride, because one thing is sure: Krispy Kreme refuses to be dull.

Discussion Questions

1.       What have been the key success factors for Krispy Kreme?

2.       Where is Krispy Kreme vulnerable? What should it watch out for?

3.       What recommendations would you make to senior marketing executives going forward? What should they be sure to do with its marketing?

Case NO. 5

MARKETING SPOTLIGHT- SOUTHWEST AIRLINES 

Southwest Airlines entered the airline industry in 1971 with little money, but lots of personality. Marketing itself as the LUV airline, the company featured a bright red heart as its first logo. In the 1970s, flight attendants in red-orange hot pants served Love Bites (peanuts) and Love Potions (drinks). With little money for advertising in the early days, Southwest relied on its outrageous antics to generate word-of-mouth advertising.

          Later ads showcased Southwest’s low fares, frequent flights, on-time arrivals, and top safety record. Throughout all the advertising, the spirit of fun pervades. For example, one TV spot showed a small bag of peanuts with the words, ‘’This is what our meals look like a Southwest Airlines…. It’s also what our fares look like.’’ Southwest used ads with humor to poke fun at itself and to convey its personality.

          Southwest’s fun spirit attracts customers and employees alike. Although Southwest doesn’t take itself seriously, it does take its work seriously. Southwest’s strategy is to be the low-cost carrier. Indeed, the strategy takes on epic proportions. An internal slogan, ‘’It’s not just a job, it’s a crusade,’’ embodies the company mission to open up the skies, to give ordinary people a chance to fly by keeping costs so low that it competes with ground transportation like cars and buses. Employees see themselves as protecting ‘’small businesses and senior citizens who count on us for low fares.’’

          Southwest can offer low fares because it streamlines operations. For example, it only flies one type of aircraft, Boeing 737s, which have all been fitted with identical flight instruments. This saves time and money by simplifying training pilots, flight attendants, and mechanics only need to know procedures for a single model of Boeing 737. Management can substitute aircraft, reschedule flight crews, or transfer mechanics quickly. The tactic also saves money through lower spare-parts inventories and better deals when acquiring new planes. Southwest also bucks the traditional hub-and-spoke system and offers only point-to-point service; it chooses to fly to smaller airports that have lower gate fees and less congestion, which speeds aircraft turnaround. Southwest’s 15- to 20- minute turnaround time (from flight landing to departure) is half the industry average, giving it better asset utilization (flying more flights and more passengers per plane per day.) The point is, if the plane and crew aren’t in the air, they aren’t making money.

          Southwest grows by entering new markets that are overpriced and underserved by current airlines. The company believes it can bring fares down by one-third to one-half whenever it enters a new market, and it grows the market a every city it serves by making flying affordable to people who previously could not afford to fly.

          Even though Southwest is a low-cost airline, it has pioneered many additional services and programs like same-day freight service, senior discounts, Fun Fares, and Fun Packs. Despite Southwest’s reputation for low fares and no-frills service, the company wins the hearts of customers. It has been ranked number one in terms of customer service, per the Department of Transportation’s rankings, for 12 years in a row, yet the average price of a flight is $87. Southwest has been ranked by Fortune magazine as America’s most admired airline since 1997, as America’s third-most-admired corporation in 2004, and as one of the top five best places to work in America. Southwest’s financial results also shine: The company has been profitable for 31 straight years. Following 911, it has been the only airline to report profits every quarter, and one of the few airlines that has had no layoffs amid a travel slump created by slow economy and the threat of terrorism.

          Although the hot pants are long gone, the LUVing spirit remains at the heart of Southwest. The company’s stock symbol on the NYSE is LUV and red hearts can be found everywhere across the company. These symbols embody the Southwest spirit of employees ‘’caring about themselves, each other and Southwest’s customers’’, states an employee booklet. ‘’Our fares can be matched; our airplanes and routes can be copied. But we pride ourselves on our customer service,’’ said Sherry Phelps, director of corporate employment. That’s why Southwest look for and hires people who generate enthusiasm. In fact, having a sense of humor is a selection criteria it uses for hiring. As one employee explained, ‘’We can train you to do any job, but we can’t give you the right spirit.’’

          Southwest is so confident of its culture and its employees that in 2004 it allowed itself to be the subject of a reality TV show called Airline. It’s not worried about competitors copying the company. ‘’What we do is very simply, but it’s not simplistic,’’ said president and COO Colleen Barrett. ‘’We really do everything with passion.’’

Discussion Questions

1.       What are the key success factors for Southwest Airlines?

2.       Where is Southwest Airlines vulnerable? What should it watch out for?

3.       What recommendations would you make to senior marketing executives       moving forward? What should they be sure to do with its marketing?

         

Case NO. 6

MARKETING SPOTLIGHT- WAL-MART  

Wal-Mart Stores, Inc., is the largest retailer in the world, with sales of $259 billion in 2003, 1.5 million employees, and 4,300 facilities. Each week, over 100 million customers visit a Wal-Mart store. Sam Walton founded the company in 1962 with a simple goal: Offer low prices to everyone. His notions of hard work and thrift continue to permeate Wal-Mart today, although he died in 1992. Employees see their jobs as a mission ‘’to lower the world’s cost of living.’’ Wall –Mart’s philosophy is to enable people of average means to buy more of the same products that were previously available only to rich folks. The company works hard at being efficient and using its buying clout to extract lower prices from suppliers, and then passes those savings on to customers.

          Wal-Mart succeeds in the competitive American retail market for several reasons. First, its low prices, vast selection, and superior service keep the customers coming in the door. But one of Wal-Mart’s biggest strengths is not even inside the store. Its unrivaled logistics ensure that it can keep prices low while keeping the right goods on the shelves. As the biggest retailer in the United States. Wal-Mart’s logistics demands are considerable. The company must coordinate with more than 85,000 suppliers, manage billions in inventory in its warehouses, and bring that inventory to its retail shelves.

          To streamline these tasks, Wal-Mart set up a ‘’hub-and-spoke’’ network of 103 massive distribution centers (DC). Strategically spaced across the country, no store location is more than a day’s drive away from a DC. Wal-Mart is known as ‘’the king of store logistics’’ for its ability to effectively manage such a vast network.

          Sam Walton was something of a visionary when it came to logistics. He had the foresight to realize, as early as the 1960s, that his goals for company growth required advanced information systems to manage high volumes of merchandise. The key to low-cost retail is knowing what goods would sell and in what quantities – ensuring that store shelves never have too much or too little of any item. In 1966, Walton hired the top graduate of an IBM school and assigned him the task of computerizing Wal-Mart’s operations. As a result of this forward-looking move, Wal-Mart grew to be the icon of just-in-time inventory control and sophisticated logistics. By 1998, Wal-Mart’s computer database was second only to the Pentagon’s in terms of capacity.

          Wal-Mart’s logistics success is astounding considering its size: Over 100 million items per day must get to the right store at the right time. To accomplish this goal, Wal-Mart developed several IT systems that work together. It all begins at the cash register or point-of-sale (POS) terminal. Every time an item is scanned, the information is relayed to headquarters via satellite data links. Using up-to-the-minute sales information, Wal-Mart’s Inventory Management System calculates the rate of sales, factors in seasonal and promotional elements, and automatically places replenishment orders to distribution centers and vendor partners.

          Wal-Mart uses its information systems for more than just logistics. Suppliers can use its voluminous POS database to analyze customers’ regional buying habits. For example, Proctor & Gamble learned that liquid Tide sells better in the North and Northeast while Tide powder sells better in the South and Southwest. P & G uses information such as this to tailor its product availability to specific local regions. This means that it delivers different Tide products to different Wal-Mart locations based on local customer preferences. Wal-Mart’s may look the same on the outside, but the company uses its information systems and logistics to customize the offerings inside each store to suit regional demand.

          Wal-Mart continues to grow. Despite already having 3,200 stores in the united States, Wal-Mart plans to add another 220-230 Super centers, 50-55 discount stores, 35-40 Sam’s Clubs, and 25-30 Neighborhood Markets in the United States alone, and an additional 130 units internationally. If Wal-Mart maintains the average growth rate of the past 10 years, it could become the world’s first trillion-dollar company.

Discussion Questions

1.       What have been the key success factors for Wal-Mart?

2.       Where is Wal-Mart vulnerable? What should it watch out for?

3.       What recommendations would you make to senior marketing executives       going forward? What should the company be sure to do with its marketing?

Masters Program in Business Administration (MBA)

Note :- Solve any 4 Case Study

             All Case Carry equal Marks.

CASE I

A GLOBAL PLAYER?

This is one game that India has permanently lost to its arch-rival Pakistan - manufacturing and exporting sports goods. Historically, when India and Pakistan were one before 1947, Sialkot, now in Pakistan, used to be the world's largest production centre for badminton, hockey, football, volleyball, basketball, and cricket equipment. After the creation of Pakistan, Jalandhar became the second centre after Hindus in the trade migrated to India. Soon Jalandhar overtook Sialkot and till the early 1980s it remained so. However when the face of the trade began to change in the 1980s and import of quality leather and manufacturing equipment became a necessity for quality production, Pakistan wrested the initiative as India clung it its policies of discouraging imports through high duties and restrictions. As it was, the availability of labor and skills was a common factor in both Sialkot and Jalandhar, but with Sialkot having the advantage of easier entry, most of the world's top sports manufactures and procedures developed an association with local industry in Sialkot that continues even today. Ten years later, in the early 1990s, when Manmohan Singh liberalised the norms for importing equipment and raw material required for producing sports goods, it was too late as majority of the global majors had already shifted base to Sialkot.

In 1961 the late Narinder Mayor started the first large scale sports goods manufacturing unit, Mayor & Company, thereby laying the foundation of an organized industry. Even today, more than 70 percent of the industry functions in an unorganized manner. Starting with soccer balls, Mayor expanded to produce inflatable balls like volleyballs, basketballs, and rugby balls. Today his two sons Rajan & Rajesh have built it up into five companies engaged in a wide array of businesses, though sports goods remain the group's core business. While the parent trading company, Mayor & Company, remains the leading revenue-earner to the tune of Rs. 55 crore annually out of a total group turnover of Rs. 85 crore-plus, Mayor's second venture, the Indo-Australian Mayor International Limited, is spinning another Rs. 15 crore. Mayor International is a 100 per cent export-oriented unit (EOU) exclusively manufacturing and exporting golf and tennis balls.

            The product portfolio of the company comprises the following:

Inflatable Balls

·                     Soccer balls and footballs (Professional, Indoor, Match and Training, leisure toy)

·                     Volley balls, rugby balls (Volley balls and Beach Volley Balls)

·                     Australian rugby, hand balls (English League, Union and touch) (Australian rules, Australian Rugby League balls with laces)

Boxing Equipment

·                     Boxing and punching balls (Boxing and Punching Balls, Head Gear, Gloves, Punching Mitts and Kits Punching Bags & Bag Sets)

·                     Gloves

·                     Goal keeper's gloves (Football / Soccer)

·                     Boxing gloves

Cricket Equipment

·                     Worldwide distributor for Spading Cricket Bats, Balls and Protective equipment.

HOCKEY EQUIPMENT

·                 Worldwide distributor for Spading Hokey Sticks, Balls & Protective equipment

Based in Delhi, Rajan Mayor, 41 is the CMD of the group, which also comprises an IT division working on B2B and B2C solutions; Voyaguer World Travels in the tourism sector; a houseware exports division specializing in stainless steel kitchenware, ceramics, and textiles; and a high school. Younger brother Rajesh, 34, is the executive director and looks after all the divisions operating in Jalandhar. Technical director Katz Nowaskowski divides his time equally between India and Australia, where he looks after the group’s interests. “While inflatable balls are our prime competence in our core business, we are presently focusing on golf balls, for which we are the sole producers in South Asia. Out of a total Rs. 300 crore of sports goods business generated in domestic market, most of which is supplied by the unorganized players, golf balls constitute a miniscule amount and therefore we came up with a 100 per cent EOU for producing golf balls. Later the same facility was utilized with little moderation for tennis balls too,” says Nowaskowaski.

            Clarifying that the sports good industry in India only includes playing equipment and not apparels or shoes, D K Mittal, chairman of the Sports Goods Export Promotion Council and joint secretary in the Ministry of Commerce, has certified Mayor group as the number one exporter since 1993 till date, barring 1996. However, SGEPC secretary Tarun Dewan points out that being the number one exporter does not mean that Mayor is the number one brand being exported. “Actually we have tie ups Dunlop, Arnold Palmer, and Fila for manufacturing golf balls. For footballs and volleyballs we have association with Adidas, Mitre, Puma, Umbro, and Dunlop. We manufacture soccer World Cup and European Cup replicas for Adidas, which is a huge market. Only 400 balls used for actual play in the World Cup are manufactured in Europe & that too only for sentimental reason, otherwise we are capable of delivering products of the same, if not better quality. Now since we manufacture balls for them, we cannot antimonies them by producing balls of similar quality with our own brand name. Secondly, I agree that competing with such big quaint in the world market in terms of branding is a task that is well beyond our reach at the moment. However, we are trying to brand ourselves in the domestic market and that is one of the prime focus in the coming year,” says Rajan.

            Coca-Cola, Unilever, McDonald’s, American Airlines, Disney club, and other such big brands come up with huge orders at tines for golf balls with their logos for promotional schemes. However, there is no mention of the producing country since these companies do not want to show that balls they deliver in the US are being produced in Asia, “Not only is our quality good enough; labour in India is cheap enough to churn out a much less expensive product in the end. Yet, the main threat to our industry comes from countries like Taiwan and China, who have already cornered a chunk of world markets in tennis, badminton, and squash rackets. This is primarily because of two reasons – slow response to our needs in tune with the market requirements from the government and lack of infrastructure. And most importantly, tags ‘Made in China’ or ‘Made in Taiwan’ are more acceptable in the West than ‘Made in India’ or ‘Made in Pakistan’. One of the mottos of the Mayor group has been to make ‘Made in India’ an acceptable label in the West. For that we stress quality, timely delivery, and competent rates. Yet, a lot depends on perception value, which in our case is sadly on the negative side, much owing to our government’s stance over the years. Things might be improving, but the pace is very slow and as our economy drifts towards a free market scenario supinely, it might just prove to be too little too late in the end,” says Rajesh.

            Today, Mayor group is sitting pretty as its competitors, Soccer International Sakay Trades, Savi, Wasan, Cosco, Nivia and Spartan are only trying to catch up in the inflatables category. With 1.2 million dozen golf balls, Mayor is way ahead of its competitors. The company is planning to enhance its manufacturing capacity to 1.5 million dozen golf next fiscal. With approval from the world’s two top golf associations – the US PGA and RNA of Scotland, demand for its product is not a problem, the company’s senior marketing officials point out. With the markets in Mayor’s current export destinations – Europe, North America, Australia, and Nw Zealand – all set to expand in the coming years after the present slump, Mayor wants to expand its sports goods business that caters to 60 per cent of its overall exports. Though 40 per cent of exports come from house ware manufactured in Delhi and Mumbai, with export centres in the same countries for its sports goods, just about maintaining this business at its present state, and concerning entirely on sports goods is what the mayors are intent on.

            With nearly 2000 skilled workforce; quality certification from ISO 9001:2000 and ISO 14001: 2004; and having spread to more than 40 countries, Mayor and Company is obviously sitting pretty.

Questions

1.            What routes of globalization has the Mayor group chosen to go global? What other routes could it have taken?

2.            What impediments are coming in the Mayor group’s way becoming a major and active player in international business?

3.            Why is ‘Made in India’ not liked in foreign markets? What can be done to erase the perception?

CASE II

ARROW AND THE APPAREL INDUSTRY

Ten years ago, Arvind Clothing Ltd., a subsidery of Arvind Brands Ltd., a member of the Ahmedabad based Lalbhai Group, signed up with the 150-year old Arrow Company, a division of Cutlet Peabody & Co. Inc., US, for licensed manufacture of  Arrow shirts in India. What this brought to India was not just another premium dress shirt brand but new manufacturing philosophy to its garment industry which combined high productivity, stringent in-line quality control, and a conducive factory ambience.

                        Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was established at Bangalore in 1993 with an investment of Rs. 18 crore. The conditions inside – with good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterizing the usual Indian apparel factory in those days. It employed a computer system for translating the designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.

                        The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3 ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could produce stain-repellant shirts based on nanotechnology.

                        The reputation of this plant has spread far and wide and now it is loaded mostly with export orders from renowed global brands such as GAR, Next, Espiri, and the like. Recently the plant was identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand of garments for the domestic market.

                        In fact, the demand pressure from global brands which want to out outscore from Arvind Brands, is so great that the company has had to set up another large for export jobs on the outskirts of Bangalore. The new unit of 75,000 sq. ft. has cost Rs. 16 crore and can turn out 8,000 to 9,000 shirts per day. The technical collaborates are the renowned C&F Italia of Italy.

                        Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine, automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam finishers which use air and steam to remove creases in the finished garment, and many others. The stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the production process in the entire factory is done through a computerized apparel production management system, which is hooked to every machine. Because of the use of such technology, this plant will need only 800 persons for a capacity which is three that of the first plant which employs 580 persons.

                        Exports of garments made for global brands fetched Arvind Brands over Rs. 60 crore in 2002, and this can double in the next few years, when the new factory goes on full stream. In fact, with the lifting of the country-wise quota regime in 2005, there will be a surge in demand for high quality garments from India and Arvind is already considering setting up two more such high tech export-oriented factories.

                        It is not just in the area of manufacture but also retailing that the arrow brand brought a wind of change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for Arrow shirts in which the functional was combined with the aesthetic. Stuffed racks and clutter were eschewed. The products were displayed in such a manner that the customer could spot their qualities from a distance. Of course, today this has become standard practice with many other brands in the country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is present in over 200 select outlets.

                        From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and jeans engineered for the middle age paunch. Arrow also tied up with the renowed Italian designer, Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring / Summer Collection 2003. The company has also announced its intention to license the Arrow brand for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods. According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail price of the Arrow brand in India is about Rs. 85 crore. He expects the turnover to cross Rs. 100 crore in the next few years, of which about 15 per cent will be from the licensed non-clothing products.

                        In 2005, Arvind Brands launched a major retail initiative fir all its brands. Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the geographical presence of its home-grown brands, such as Newport and Ruf-n-Tuf, targeting small towns across India. The company planned to increase the number of outlets where its domestic brands would be available, and draw in new customers for readymades. To improve its presence in the high – end market, the firm started negotiating with an international brand and is likely to launch the brand.

                        The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480 towns to 3000 outlets covering 800 towns.

                        For a company ranked as one of the world’s largest manufacturers of denim cloth and owners of world famous brands, the future looks bright certain for Arvind Brands Ltd.

Company Profile     

Name of the Company	:	Arvind Mills
Year of Establishments	:	1931
Promoters	:	Three brothers – Katurbhai, Narottam Bhai and Chimnabhai
Divisions	:	Arvind Mills was spilt in 1993 into three units – textiles, telecom and garments. Arvind Brands Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.
Growth Strategy	:	Arvind Mills has grown through buying – up of sick units, going global and acquisition of Germanand US brand names.

Questions

1.            Why did Arvind Mills choose globalization as major route to achieve growth when domestic market was huge?

2.            Hoe does lifting of Country-wise quota regime’ help Arvind Mills?

3.            What lessons can other Indain business learn from the experience of Arvind Mills?

CASE III

AT THE RECEIVING END ! 

Spread over 121 countries with 30,000 restaurants, and serving 46 million customers each day with the help of more than 400,000 employees, the reach of McDonald’s is amazing. It all started in 1948 when two brothers, Richard and Maurice ‘Mac’ McDonald, built several hamburger stands, with golden arches in southern California. One day a traveling salesman, Ray Kroc, came to sell milkshake mixers. The popularity of their $O. 15 hamburgers impressed him, so he bought the world franchise rights from them and spread the golden arches around the globe.

McDonald’s depends on its overseas restaurants for revenue. In fact, 60 percent of its revenues are generated outside of the United States. The key to the company’s success is its ability to standardize the formula of quality, service, cleanliness and value, and apply it everywhere.

The company, well known for its golden arches, is not the world’s largest company. Its system wide sales are only about one-fifth of Exxon Mobil or Wal-Mart stores. However, it owns one of the world’s best known brands, and the golden arches are familiar to more people than the Christian cross. This prominence, and its conquest of global markets, makes the company a focal point for inquiry and criticism.

McDonald is a frequent target of criticism by anti-globalization protesters. In France, a pipe-smoking sheep farmer named Jose Bove shot to fame by leading a campaign against the fast food chain. McDonald’s is a symbol of American trade hegemony and economic globalization. Jose Bove organized fellow sheep farmers in France, and the group led by him drove tractors to the construction site of a new McDonald’s restaurants and ransacked it. Bove was jailed for 20 days, and almost overnight an international anti-globalisation star was borne. Bove, who resembles the irrelevant French comic book hero Asterix, traveled to Seattle in 1999, as part of the French delegation to lead the protest against commercialization of food crops promoted by the WTO. Food, according to him, is too vital a part of life to be trusted to the vagaries of the world trade. In Seattle, he led a demonstration in which some ski-masked protestors transhed at McDonald’s/ As Bove explained, his movement was for small farmers against industrial farming, brought about by globalization. For them, McDonald’s was a symbol of globalization, implying the standardization of food through industrial farming. If this was allowed to go on, he said, there would no longer be need for farmers. “For us”, he declared, “McDonald’s is a symbol of what WTO and the big companies want to do with the world”. Ironically, for all of Bove’s fulminations against McDonald’s, the fast food chain counts its French operations among its most profitable in 121 countries. As employer of about 35,000 workers, in 2006, McDonald’s was also one of France’s biggest foreign employers.

Bove’s and his followers are not the only critics of McDonald’s. Leftists, anarchists, nationalists, farmers, labor unions, environmentalists, consumer advocates, protectors of animal rights, religious orders and intellectuals are equally critical of the fast food chain. For these and others, McDonald’s represents an evil America. Within hours after US bombers began to pound Afghanistan in 2001, angry Pakistanis damaged McDonald’s restaurants in Islamabad and an Indonesian mob burned an American flag.

McDonald entered India in the late 1990s. On its entry, the company encountered a unique situation.  Majority of the Indians did not eat beef but the company’s preparations contained cow’s meat nor could the company use pork as Muslims were against eating it.  This left chicken and mutton.  McDonald’s came out with ‘Maharaja Mac’, which is made from mutton and ‘McAloo Tikki Burger’ with chicken potato as the main input.  Food items were segregated into vegetarian and non-vegetarian categories.

            Though it worked for sometimes, this arrangement did not last long.  In 2001, three Indian businessmen settled in Seattle sued McDonald’s for fraudulently concealing the existence of beef in its French fries.  The company admitted its guilt of mixing miniscule quantity of beef extract in the oil. The company settled the suit for $10 million and tendered an apology too.  Further, the company pledged to label the ingredients of its food items, and to find a substitute for the beef extract used in its oil.

            McDonald’s succeeded in spreading American culture in the East Asian countries.  In Hong Kong and Taiwan, the company’s clean restrooms and kitchens set a new standard that elevated expectations throughout those countries.  In Hong Kong, children’s birthdays had traditionally gone unrecognized, but McDonald’s introduced the practice of birthday parties in its restaurants, and now such parties have become popular among the public.   A journalist set forth a ‘Golden Arches Theory of Conflict Prevention’ based on the notion that countries with McDonald’s restaurants do not go to war with each other.  A British magazine, The Economist, paints an yearly ‘Big Mac Index’ that uses the price of a Big Mac in different foreign currencies to access exchange rate distortions.

Questions :

1.         What lessons can other MNCs learn from the experience of McDonald’s?

2.         Aware of the food habits of Indians, why did McDonald’s err in mixing beef extract in the oil used for fries?

3.         How far has McDonald’s succeeded in strategizing and meeting local cultures and needs?

CASE IV

BPO-BANE OR BOON ?

Several MNCs are increasingly unbundling or vertical disintegrating their activities. Put in simple language, they have begun outsourcing (also called business process outsourcing) activities formerly performed in-house and concentrating their energies on a few functions. Outsourcing involves withdrawing from certain stages/activities and relaying on outside vendors to supply the needed products, support services, or functional activities.

Take Infosys, its 250 engineers develop IT applications for BO/FA (Bank of America). Elsewhere, Infosys staffers process home loans for green point mortgage of Novato, California. At Wipro, five radiologists interpret 30 CT scans a day for Massachusetts General Hospital.

2500 college educated men and women are buzzing at midnight at Wipro Spectramind at Delhi. They are busy processing claims for a major US insurance company and providing help-desk support for a big US Internet service provider – all at a cost upto 60 percent lower than in the US. Seven Wipro Spectramind staff with Ph.Ds in molecular biology sift through scientific research for western pharmaceutical companies.

Another activist in BPO is Evalueserve, headquartered in Bermuda and having main operations near Delhi. It also has a US subsidiary based in New York and a marketing office in Australia to cover the European market. As Alok Aggarwal (co-founder and chairman) says, his company supplies a range of value – added services to clients that include a dozen Fortune 500 companies and seven global consulting firms, besides market research and venture capital firms. Much of its work involves dealing with CEOs, CFOs, CTOs, CLOs and other so-called C-level executives.

Evalueserve provides services like patent writing, evaluation and assessment of their commercialization potential for law firms and entrepreneurs. Its market research services are aimed at top-rung financial service  firms, to which it provides analysis of investment opportunities and business plans. Another major offering is multilingual services. Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German, Japanese and Italian, among other languages. That skill set has opened market opportunities in Europe and elsewhere, especially with global corporations.

ICICI Infotech Services in Edison, New Jersey, is another BPO services provider that is offering marketing software products and diversifying into markets outside the US. The firm has been promoted by $2-billion ICICI Bank, a large financial institution in Mumbai that is listed on the New York Stock Exchange.   

In its first year after setting up shop in March 1999, ICICI Infotech spent $33 million acquiring two information technology services firms in New Jersy – Object Experts and lvory Consulting – and Command Systems in Connecticut. These acquisitions were to help ICICI Infotech hit the ground in the US with a ready book of contracts. But it soon found US companies increasingly outsourcing their requirements to offshore locations, instead of hiring foreign employees to work onsite at their offices. The company found other native modes for growth. It has started marketing its products in banking, insurance and enterprise source planning among others. It has ear------- $10 million for its next US market offensive, which would go towards R & D and back-end infrastructure support, and creating new versions of its products to comply with US market requirements. It also has a joint venture – Semantik Solutions GmbH in Berlin, Germany with the Fraunhofer Institute for Software and Systems Engineering, which is based in Berlin, Germany with the Fraunhofer Institute for Software and Systems Engineering, which is based in Berlin and Dortmund, Germany, Fraunhofer is a leading institute in applied research and development with 200 experts in software engineering and evolutionary information.

A relatively late entrant to the US market, ICICI Infotech started out with plain vanilla IT services, including operating call centers. As the market for traditional IT services started weakening around mid-2000, ICICI Infotech repositioned itself as a “Solutions” firm offering both products and services. Today, it offers bundled packages of products and services in corporate and retail banking and insurance, among other areas. The new offerings include data center and disaster recovery management and value chain management services.

ICICI Infotech’s expansion into new overseas markets has paid off. Its $50 million revenue for its latest financial year ending March 2003 has the US operations generating some $15 million, while the Middle East and Far East markets brought in another $9 million. It now boasts more than 700 customers in 30 countries, including Dow Jones,  Glaxo – Smithkline, Panasonic and American Insurance Group.

The outsourcing industry is indeed growing from strength. Though technical support and financial services have dominated India’s outsourcing industry, newer fields are emerging which are expected to boost the industry many times over.

Outsourcing of human resource services or HR BPO is emerging as big opportunity for Indian BPOs with global market in this segment estimated at $40-60 billion per annum. HR BPO comes to about 33 percent of the outsourcing revenue and India has immense potential as more than 80 percent of Fortune 1000 companies discuss offshore BPO as a way to out costs and increase productivity.

Another potential area is ITES/BPO industry. According to a NASSCOM Survey, the global ITES/BPO industry was valued at around $773 billion during 2002 and it is expected to grow at a compounded annual growth rate of nine percent during the period 2002-06. NASSCOM lists the major indicators of the high growth potential of ITES/BPO industry in India as the following :

During 2003-04, The ITES/BPO segment is estimated to have achieved a 54 percent growth in revenues as compared to the previous year. ITES exports accounted for $3.6 billion in revenues, up from $2.5 billion in 2002-03. The ITES-BPO segment also proved to be a major opportunity for job seekers, creating employment for around 74,400 additional personnel in India during 2003-04. The number of Indians working for this sector jumped to 245,500 by March 2004. By the year 2008, the segment is expected to employ over 1.1 million Indians, according to studies conducted by NASSCOM and McKinsey & Co. Market research shows that in terms of job creation, the ITES-BPO industry is growing at over 50 percent.

Legal outsourcing sector is another area India can look for Legal transcription involves conversion of interviews with clients or witnesses by lawyers into documents which can be presented in courts. It is no different from any other transcription work carried out in India. The bottom-line here is again cheap service. There is a strong reason why India can prove to be a big legal outsourcing industry.

India, like the US, is a common-law jurisdiction rooted in the British legal tradition. Indian legal training is conducted solely in English. Appellate and Supreme Court proceedings in India take place exclusively in English. Indian legal opinions are written exclusively in English. Due to the time-zone differences, night time in the US is daytime in India which means that clients get 24 hour attention, and some projects can be completed overnight. Small and mid-sized business offices can solve staff problems as the outsourced lawyers from India take on the time consuming labour intensive legal research and writing projects. Large law firms also can solve problems of overstaffing by using the on-call lawyers.

Research firms such as Forrester Research, predict that by 2015, more than 489,000 US lawyer jobs, nearly eight percent of the field, will shift abroad.

Many more new avenues are opening up for BPO services providers. Patent writing and evaluation services are markets set to boom. Some 200,000 patent applications are written in the western world annually, making for a market size of between $5 billion and $7 billion. Outsourcing patent writing service could significantly lower the cost of each patent application, now anywhere between $12,000 and $15,000 apiece – which help expand the market.                    

            Offshoring of equity research is another major growth area. Translation services are also becoming a big Indian plus. India produces some 3,000 graduates in German each year, which is more than in Switzerland.

            Though going is good, the Indian BPO services providers cannot afford to be complacent, Phillippines, Mexico and Hungary are emerging as potential offshore locations. Likely competitor is Russia, although the absence of English speaking people there holds the country back. But the dark horse could be South Africa and even China.

            BPO is based on sound economic reasons. Outsourcing helps gain cost advantage. If an activity can be performed better or more cheaply by an outside supplier, why not outsource it ? Many PC makers, for example, have shifted from in-house assembly to utilizing contract assemblers to make their PCs. CISCO outsources all productions and assembly of its routers and switching equipment to contract manufacturers that operate 37 factories, all linked via the Internet.

            Secondly, the activity (outsourced) is not crucial to the firm’s ability to gain sustainable competitive advantage and won’t hollow out its core competence, capabilities, or technical knowhow. Outsourcing of maintenance services, data processing, accounting, and other administrative support activities to companies specializing in these services has become common place. Thirdly, outsourcing reduces the company’s risk exposure to changing technology and / or changing buyer preferences.

            Fourthly, BPO streamlines company operations in ways that improve organizational flexibility, cut cycle time, speedup decision making and reduce coordination costs. Finally, outsourcing allows a company to concentrate on its crore business and do what it does best. Are Indian companies listening? If they listen, BPO is a boon them and not a bane.

Questions

1.         Which of the theories of International trade can help Indian services providers gain competitive edge over their competitors?

2.         Pick up some Indian services providers. With the help of Michael Porter’s diamond, analyze their strengths and weaknesses as active players in BPO.

3.         Compare this case with the case given at the beginning of this chapter. What similarities and dissimilarities do you notice? Your analysis should be based on the theories explained in this chapter.

CASE V

THE SAGA CONTINUES

It was the talk of the town in Bangalore during the late 1970s and early 1980s. The plant was coming up on the Bangalore – Yelahanka Road, about 20 km from the city. Everything the people over three did became a folklore. The buildings were huge with wonderful architecture, beautifully built with wide roads and huge spaces. Should a situation demand, the entire plant could be dismantled, bundled up, loaded into trucks and ferried to other places. Lighting inside the building had to be seen to be believed. Interiors had to be seen to be believed. Washrooms, stores, reception, canteen, healthcare, had to be seen to be believed. It had never happened elsewhere. It was amazing, the boss was not addressed as Sir, he was called Mr. ---- and so ! The yellow painted buses on the city roads made a delightful sight. Legends were fold about the two gentlemen who founded the company.

An interesting story is told about how one of the surviving founders (Larsen who lived till 2003) visited the Bangalore plant once a year, he stayed in a hotel on his own, hired his own cab, went to the plant and greeted every employee, from the top brass down to the last person in the hierarchy. Story is also told about how, on one such visit Larsen went to the reception and asked for permission to enter the plant. Not knowing who he was, the young lass in reception room made him wait for half-an-hour. By luck, someone recognized him.

A budding author captured all these and many more in his first book, which became a big hit with all the teachers and students in different colleges buying and reading it.

If cannot be anything other than L & T, the huge engineering and construction multi-plant organization, founded in 1938 by two Danish engineers, Henning Holck – Larsen and Soren Kristin Toubro.

Henning Holck – Larsen and Soren Kristin Toubro, school – mates in Denmark, would not have dreamt, as they were learning about India in history classes that they would, one day, create history in that land. In 1938, the two friends decided to forgo the comforts of working in Europe and started their own operation in India. All they had was a dream. And the courage to dare. Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office at a time! Today, L & T is one of India’s biggest and best known industrial organizations with reputation for technological excellence, high quality of products and services and strong customer orientation.

As on today, L & T is a 62 business conglomerate with turnover of Rs. 18,363 crore (2006-07), with the script commanding Rs. 2400 in the bourses.

No, L & T is not sitting pretty. It want to hit Rs. 30,000 crore turnover mark by 2010 and is busy restructuring, sniffing new pastures, grooming new talent and projecting the new company credo – “It’s all about Imagineering.” With the sole idea of creating several MNCs within, with footprints across nations, L & T is shedding the old economy and embracing the emergent opportunities and challenges.

Stagnant Revenues and Low Margins

Not everything went the L & T way.

In the late nineties, the macro environment was ----- inspiring with stagnant revenues and low margins, and L & T’s core strength, its engineers, were being constantly weaned away by the fast-growing software sector. So, the general comment around the bourses was about the credibility of the company, ‘L & T is a, good company but its stock price, for some reason or the other, is fixed at the Rs. 140-210 band. So the company had to change by keeping its core intact. As s senior executive remarks. “L & T was perceived to be un –sexy and we had to create a new buzz around the campuses.” The metamorphosis must echo through a whimper, not a bang. Even before the company divested its cement business in 2003, which accounted for 25% of its total sales, there were years of incremental and low visibility organizational moves towards a new L & T.

At a 52-week high of Rs. 2400, the L & T scrip today looks dapper, a far cry from the nineties when the stock price was in a state of flux. Much of the change started as a ripple way back in 1999 when Naik took over as the CEO. He visited employees at all levels across the organization and asked them what it took to transform the company. The insights were mapped and implemented. “None of our employees thought that we build shareholder value. They thought we build monuments,” the chairman reminisces. The focus on people became stronger and formed the basis of restructuring. It became the first old economy company to provide stock options to its employees.

When Naik came to the helm, he set upon himself a 90 – day transformational agenda. Portfolios were reviewed and a vision clearly chalked out. He drew up a simple, brief, “ L & T has to be a multinational company and it has to deliver shareholder value at any cost. At the end of 90 days, between July 22 and July 24, 1999, the company launched Project Blue Chip, which essentially fast – tracked projects. The moot point was to complete all projects by February of the new millennium. Strategy formation teams were formed, portfolios reviewed and structures were optimized. Young leadership was brought to the fore and the business streamlining process kicked in.

Hiving off from 1999-2001, L & T went about debottle- necking its cement plants. They were modernized and capitalized were raised from 12 million tones to 16 million tones annually, with minimum costs. The mantra really was to grow the business and then divest it as cement fell in the non-core category.

So, in September 2003, L & T sold its cement business to the Aditya Birla Group, which resulted in the company’s Economic Value Add (EVA), an important indicator of the financial health of the company, swinging from a negative Rs.350-crore to a positive Rs.50-crore immediately. The move also enabled L&T to reduce its debt-equity ratio from 1:1 to 0.2:1. Analysts took a positive view of the demerger, and re-rated L&T as AAA from AA+ in 2004. From then on, began L&T’s transformation into a lean and mean machine. In 2004, the company envisaged a growth curve for the next five years. This marked the beginning of Project Lakshya, which was centered around people, operations, capabilities and new ventures. The company set out with over 300 initiatives in hand, and also placed a rigorous risk management system. For instance, any project above Rs. 1,000-crore needed the signature of the chairman. Project Lakshya is known for targeting and selecting the right projects.

By now, the Indian economy had started witnessing unprecedented boom and despite divesting the cement business, the L&T turnover scaled the Rs. 10,000 crore mark. Alongside, the lucrative Middle East market was booming and L&T forayed into six countries in the Gulf with joint ventures. “The idea was to develop a mini L&T in the region,” observes a senior company executive. The company also set up manufacturing facilities in China to leverage the cost structure. Exports in 2007 constituted 18% of net sales. With soaring revenues and operating margins, L&T started benchmarking itself with the best in the world. Suddenly, the notion of an Indian MNC became a reality.

L&T has big plans to foray into new businesses. The new businesses are:

Ship-building: L&T is getting into ship-building by building a world-class facility, and already has a small shipyard in Hazira. Will build complex ocean going ships for the first time in India.

Power equipment: It is getting into power equipment in a big way. A JV with Mitsubishi for super critical boilers, formed another with Toshiba for turbines on the way.

Financial services: L&T is rapidly increasing its presence in infrastructure finance. It is also planning to come up with a $1 billion infrastructure fund.

Railways: A new area, L&T aims to be an end-to-end solutions provider for the railways, from track-laying to signaling to transmission, and others.

The global economic meltdown has hit L&T also, but lightly. Its order book at Rs. 71,650cr has not grown as expected. Delay in finalization of several government projects as well as the slowdown in the overseas markets are the key reasons for the lax in order inflow. The company, however, has maintained its forecast of a 25 percent growth in its order book for the fiscal 2010.

L&T’s, IT and financial subsidiaries too witnessed lackluster performance with profits remaining stagnant.

L&T’s focus areas in future would be the Middle East and China in view of the booming infrastructure market there.

Thus, for an institution that has grown to legendary proportions, there cannot and must not be an ‘end’. Unlike other stories, the L&T saga continues.

QUESTIONS

1.        Having a strong presence in India, what drives L&T to think of emerging a strong MNC ?

2.        What challenges lies ahead of L&T ? How does it prepare to cope with them ?

3.        Will the L&T Saga continue ?

CASE VI

THE ABB PBS JOINT VENTURE IN OPERATION

ABB Prvni Brnenska Strojirna Brno, Ltd. (ABB-PBS), Czechoslovakia was a joint venture in which ABB has a 67 per cent stake and PBS a.s. has a 33 per cent stake. This PBS share was determined nominally by the value of the land, plant and equipment, employees, and goodwill, ABB contributed cash and specified technologies and assumed some of the debt of PBS. The new company started operations on April 15, 1993.

            Business for the joint venture in its first two full years was good in most aspects. Orders received in 1994, the first full year of the joint venture's operation, were higher than ever in the history of PBS. Orders received in 1995 were 2¹/₂ times those in 1994. The company was profitable in 1995 and ahead of 1994s results with a rate of return on assets of 2.3 per cent and a rate of return on sales of 4.5 per cent.

            The 1995 results showed substantial progress towards meeting the joint venture's strategic goals adopted in 1994 as part of a five-year plan. One of the goals was that exports should account for half of the total orders by 1999. (Exports had accounted for more than a quarter of the PBS business before 1989, but most of this business disappeared when the Soviet Union collapsed), In 1995 exports increased as a share of total orders to 28 per cent up from 16 per cent the year before.

            The external service business, organized and functioning as a separate business for the first time in 1995, did not meet expectations. It accounted for five per cent of all orders and revenues in 1995, below the 10 per cent goal set for it. The retrofitting business, which was expected to be a major part of the service business, was disappointing for ABB-PBS, partly because many other small companies began to provide this service in 1994, including some started by former PBS employees who took their knowledge of PBS-built power plants with them. However, ABB-PBS managers hoped that as the company introduced new technologies, these former employees would gradually lose their ability to perform these services, and the retrofit and repair service business would return to ABB-PBS.

            ABB-PBS dominated the Czech boiler business with 70 per cent of the Czech market in 1995, but managers expected this share to go down in the future as new domestic and foreign competitors emerged. Furthermore, the west European boiler market was actually declining because environmental laws caused a surge of retrofitting to occur in the mid-1980s, leaving less business in the 1990s. Accordingly ABB-PBS boiler orders were flat in 1995.

            Top managers at ABB-PBS regarded business results to date as respectable, but they were not satisfied with the company's performance. Cash flow was not as good as expected. Cost reduction had to go further. "The more we succeed, the more we see our shortcomings", said one official.

Restructuring

            The first round of restructuring was largely completed in 1995, the last year of the three-year restructuring plan. Plant logistics, information systems, and other physical capital improvements were in place. The restructing included :

·               Renovating and reconstructing workshops and engineering facilities

·               Achieving ISO 9001 for all four ABB-PBS divisions (awarded in 1995)

·               Transfer of technology from ABB (this was an ongoing project)

·               Installation of an information system

·               Management training, especially in total quality assurance and English language

·               Implementing a project management approach.

            A notable achievement of importance of top management in 1995 was a 50 per cent increase in labour productivity, measured as value added per payroll crown. However, in the future ABB-PBS expected its wage rates to go up faster than west European wage rates (Czech wages were increasing about 15 per cent per year) so it would be difficult to maintain the ABB-PBS unit cost advantage over west European unit cost.

The  Technology Role for ABB-PBS

The joint venture was expected from the beginning to play an important role in technology development for part of ABB's power generation business worldwide. PBS a.s. had engineering capability in coal-fired steam boilers, and that capability was expected to be especially useful to ABB as more countries became concerned about air quality. (When asked if PBS really did have leading technology here, a boiler engineering manager remarked, "Of course we do. We burn so much dirty coal in this country, we have to have better technology").

However, the envisioned technology leadership role for ABB-PBS had not been realised by mid-1996. Richard Kuba, the ABB-PBS managing director, realised the slowness with which the technology role was being fulfilled, and he offered his interpretation of events :

"ABB did not promise to make the joint venture its steam technology leader. The main point we wanted to achieve in the joint venture agreement was for ABB-PBS to be recognised as a full-fledged company, not just a factory. We were slowed down on our technology plans because we had a problem keeping our good, young engineers. The annual employee turnover rate for companies in the Czech Republic is 15 or 20 per cent, and the unemployment rate is zero. Our engineers have many other good entrepreneurial opportunities. Now we've begun to stabilise our engineering workforce. The restructuring helped. We have better equipment and a clean and safer work environment. We also had another problem which is a good problem to have. The domestic power plant business turned out to be better than we expected, so just meeting the needs of our regular customers forced some postponement of new technology initiatives."

ABB-PBS had benefited technologically from its relationship with ABB. One example was the development of a new steam turbine line. This project was a cooperative effort among ABB-PBS and two other ABB companies, one in Sweden and one in Germany. Nevertheless, technology transfer was not the most important early benefit of ABB relationship. Rather, one of the most important gains was the opportunity to benchmark the joint venture's performance against other established western ABB companies on variables such as productivity, inventory, and receivables.

Questions

1.        Where does the joint venture meet the needs of both the partners? Where does it fall short?

2.        Why had ABB-PBS failed to realized its technology leadership?

3.        What lessons one can draw from this incident for better management of technology transfers?

CASE VII

PERU

Peru is located on the west coast South America. It is the third largest nation of the continent (after Brazil and Argentina), and covers almost 500,000 square miles (about 14 per cent of the size of the United States). The land has enormous contrasts, with a desert (drier than the Sahara), the towering snow-capped Andes mountains, sparking grass-covered plateaus, and thick rain forests. Peru has approximately 27 million people, of which about 20 per cent live in Lima, the capital. More Indians (one half of the population) live in Peru than in any other country in the western hemisphere. The ancestors of Peru’s Indians were the famous Incas, who built a great empire. The rest of the population is mixed and a small percentage is white. The economy depends heavily on agriculture, fishing, mining, and services. GDP is approximately $115 billion and per capita income in recent years has been around $4, 300. In recent years the economy has gained some relative and multinationals are now beginning to consider investing in the country.

            One of these potential investors is a large New York based that is considering a $25 million loan to the owner of a Peruvian fishing fleet. The owner wants to refurbish the fleet and add one more ship.

            During the 1970s, the Peruvian government nationalized a number of industries and factories and began running them for the profit of the state. In most cases, these state-run ventures became disasters. In the late 1970s, the fishing fleet owner was given back his ships and allowed to operate his business as before. Since then, he has managed to remain profitable, but the biggest problem is that his ships are getting old and he needs and influx of capital to make repairs and add new technology. As he explained it to the New York banker: “Fishing is no longer just an art. There is a great deal of technology involved. And to keep costs low and be competitive on the world market, you have to have the latest equipment for both locating as well as catching and then loading and unloading the fish.”

            Having reviewed the fleet owner’s operation, the large multinational bank believers that the loan is justified. The financial institution is concerned, however, that the Peruvian government might step in during the next couple of years and again take over the business. If this were to happen it might take and additional decade for the loan to be repaid. If the government were to allow the fleet owner to operate the fleet the way he has over the last decade, the loan could be repaid within seven years.

            Right now, the bank is deciding on the specific terms of the agreement. Once these have been worked out, either a loan officer will fly down to Lima and close the deal or the owner will be asked to come to New York for the signing. Whichever approach is used, the bank realizes that final adjustments in the agreement will have to be made on the spot. Therefore, if the bank sends a representative to Lima, the individual will have to have the authority to commit the bank to specific terms. These final matters should be worked out within the next ten days.

Questions

1.            What are some current issues facing Peru? What is the climate for doing business in Peru today?

2.           What type of political risks does this fishing company need to evaluate? Identify and describe them.

3.             What types of integrative and protective and defensive techniques can the bank use?

4.             Would the bank be better off negotiating the loan in New York or in Lima? Why?