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Attempt Any Four Case Study
Case 1: Zip Zap
Zoom Car Company
Zip Zap Zoom Company Ltd is into manufacturing cars in the
small car (800 cc) segment. It was set
up 15 years back and since its establishment it has seen a phenomenal growth in
both its market and profitability. Its
financial statements are shown in Exhibits 1 and 2 respectively.
The company enjoys
the confidence of its shareholders who have been rewarded with growing
dividends year after year. Last year,
the company had announced 20 per cent dividend, which was the highest in the
automobile sector. The company has never
defaulted on its loan payments and enjoys a favorable face with its lenders,
which include financial institutions, commercial banks and debenture holders.
The competition in
the car industry has increased in the past few years and the company foresees
further intensification of competition with the entry of several foreign car
manufactures many of them being market leaders in their respective countries. The small car segment especially, will
witness entry of foreign majors in the near future, with latest technology
being offered to the Indian customer.
The Zip Zap Zoom’s senior management realizes the need for large scale
investment in up gradation of technology and improvement of manufacturing
facilities to pre-empt competition.
Whereas on the one
hand, the competition in the car industry has been intensifying, on the other
hand, there has been a slowdown in the Indian economy, which has not only
reduced the demand for cars, but has also led to adoption of price cutting
strategies by various car manufactures.
The industry indicators predict that the economy is gradually slipping
into recession.
Exhibit 1 Balance sheet as
at March 31,200 x
(Amount in Rs. Crore)
Source
of Funds
Share capital 350
Reserves
and surplus 250 600
Loans
:
Debentures
(@ 14%) 50
Institutional
borrowing (@ 10%) 100
Commercial
loans (@ 12%) 250
Total
debt 400
Current
liabilities 200
1,200
Application
of Funds
Fixed
Assets
Gross
block 1,000
Less
: Depreciation 250
Net
block 750
Capital
WIP 190
Total
Fixed Assets 940
Current
assets :
Inventory
200
Sundry
debtors 40
Cash
and bank balance 10
Other
current assets 10
Total
current assets 260
-1200
Exhibit
2 Profit and Loss Account for the year ended March 31, 200x
(Amount in Rs. Crore)
Sales
revenue (80,000 units x Rs. 2,50,000) 2,000.0
Operating
expenditure :
Variable
cost :
Raw
material and manufacturing expenses 1,300.0
Variable
overheads 100.0
Total
1,400.0
Fixed
cost :
R
& D 20.0
Marketing
and advertising 25.0
Depreciation
250.0
Personnel 70.0
Total
365.0
Total operating
expenditure 1,765.0
Operating
profits (EBIT) 235.0
Financial expense :
Interest
on debentures 7.7
Interest
on institutional borrowings 11.0
Interest
on commercial loan 33.0 51.7
Earnings before tax (EBT) 183.3
Tax (@ 35%) 64.2
Earnings after tax (EAT) 119.1
Dividends 70.0
Debt redemption (sinking fund obligation)** 40.0
Contribution to
reserves and surplus 9.1
* Includes
the cost of inventory and work in process (W.P) which is dependent on demand
(sales).
** The
loans have to be retired in the next ten years and the firm redeems Rs. 40
crore every year.
The
company is faced with the problem of deciding how much to invest in up
gradation of its plans and
technology. Capital investment up to a
maximum of Rs. 100
crore is required. The
problem areas are three-fold.
- The company cannot forgo the capital investment as that could lead to reduction in its market share as technological competence in this industry is a must and customers would shift to manufactures providing latest in car technology.
- The company does not want to issue new equity shares and its retained earning are not enough for such a large investment. Thus, the only option is raising debt.
- The company wants to limit its additional debt to a level that it can service without taking undue risks. With the looming recession and uncertain market conditions, the company perceives that additional fixed obligations could become a cause of financial distress, and thus, wants to determine its additional debt capacity to meet the investment requirements.
Mr. Shortsighted, the company’s Finance Manager, is
given the task of determining the additional debt that the firm can raise. He thinks that the firm can raise Rs. 100
crore worth debt and service it even in years of recession. The company can raise debt at 15 per cent
from a financial institution. While
working out the debt capacity. Mr.
Shortsighted takes the following assumptions for the recession years.
a)
A maximum of 10 percent
reduction in sales volume will take place.
b)
A maximum of 6 percent
reduction in sales price of cars will take place.
Mr. Shorsighted prepares a projected income statement
which is representative of the recession years.
While doing so, he determines what he thinks are the “irreducible
minimum” expenditures under
recessionary conditions. For
him, risk of insolvency is the main concern while designing the capital
structure. To support his view, he
presents the income statement as shown in Exhibit 3.
Exhibit 3 projected Profit and Loss account
(Amount in Rs. Crore)
Sales
revenue (72,000 units x Rs. 2,35,000) 1,692.0
Operating
expenditure
Variable
cost :
Raw
material and manufacturing expenses 1,170.0
Variable
overheads 90.0
Total
1,260.0
Fixed
cost :
R
& D ---
Marketing
and advertising 15.0
Depreciation
187.5
Personnel
70.0
Total
272.5
Total
operating expenditure 1,532.5
EBIT 159.5
Financial expenses
:
Interest
on existing Debentures 7.0
Interest
on existing institutional borrowings 10.0
Interest
on commercial loan 30.0
Interest
on additional debt 15.0 62.0
EBT 97.5
Tax (@ 35%) 34.1
EAT 63.4
Dividends --
Debt redemption
(sinking fund obligation) 50.0*
Contribution to
reserves and surplus 13.4
 |
*
Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)
Assumptions of Mr. Shorsighted
- R & D expenditure can be done away with till the economy picks up.
- Marketing and advertising expenditure can be reduced by 40 per cent.
- Keeping in mind the investor confidence that the company enjoys, he feels that the company can forgo paying dividends in the recession period.
He goes with his worked out statement to the Director
Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to
finance the intended capital investment.
Mr. Arthashatra does not feel
comfortable with the statements and calls for the company’s financial analyst,
Mr. Longsighted.
Mr. Longsighted carefully analyses Mr. Shortsighted’s
assumptions and points out that insolvency should not be the sole criterion
while determining the debt capacity of the firm. He points out the following :
- Apart from debt servicing, there are certain expenditures like those on R & D and marketing that need to be continued to ensure the long-term health of the firm.
- Certain management policies like those relating to dividend payout, send out important signals to the investors. The Zip Zap Zoom’s management has been paying regular dividends and discontinuing this practice (even though just for the recession phase) could raise serious doubts in the investor’s mind about the health of the firm. The firm should pay at least 10 per cent dividend in the recession years.
- Mr. Shortsighted has used the accounting profits to determine the amount available each year for servicing the debt obligations. This does not give the true picture. Net cash inflows should be used to determine the amount available for servicing the debt.
- Net Cash inflows are determined by an interplay of many variables and such a simplistic view should not be taken while determining the cash flows in recession. It is not possible to accurately predict the fall in any of the factors such as sales volume, sales price, marketing expenditure and so on. Probability distribution of variation of each of the factors that affect net cash inflow should be analyzed. From this analysis, the probability distribution of variation in net cash inflow should be analysed (the net cash inflows follow a normal probability distribution). This will give a true picture of how the company’s cash flows will behave in recession conditions.
The management recognizes that the alternative suggested
by Mr. Longsighted rests on data, which are complex and require expenditure of
time and effort to obtain and interpret.
Considering the importance of capital structure design, the Finance
Director asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows
during the recession periods is taken into account.
The methodology undertaken is as follows :
(a)
Important factors that affect
cash flows (especially contraction of cash flows), like sales volume, sales
price, raw materials expenditure, and so on, are identified and the analysis is
carried out in terms of cash receipts and cash expenditures.
(b)
Each factor’s behaviour
(variation behaviour) in adverse conditions in the past is studied and future
expectations are combined with past data, to describe limits (maximum
favourable), most probable and maximum adverse) for all the factors.
(c)
Once this information is
generated for all the factors affecting the cash flows, Mr. Longsighted comes
up with a range of estimates of the cash flow in future recession periods based
on all possible combinations of the several factors. He also estimates the probability of
occurrence of each estimate of cash flow.
Assuming a normal distribution of the expected
behaviour, the mean expected
value of net cash inflow in adverse conditions came out to be Rs.
220.27 crore with standard deviation of Rs. 110 crore.
Keeping in mind the
looming recession and the uncertainty of the recession behaviour, Mr.
Arthashastra feels that the firm should factor a risk of cash inadequacy of
around 5 per cent even in the most adverse industry conditions. Thus, the firm should take up only that
amount of additional debt that it can service 95 per cent of the times, while
maintaining cash adequacy.
To maintain an
annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept
aside. Hence, the expected available net
cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore)
Question:
Analyse the debt capacity of the company.
Attempt Any Four Case Study
CASE – 1 Your Job and Your Passion—You Can Pursue
Both!
The
21st century offers many challenges to every one of us. As more firms go
global, as more economies interconnect, and as the Web blasts away boundaries
to communication, we become more informed citizens. This interconnectedness
means that the organizations you work for will require you to develop both
general and specialized knowledge—such as speaking multiple languages, using
various software applications, or understanding details of financial transactions.
You will have to develop general management skills to foster your ability to be
self-reliant and thrive in a changing market-place. And here’s the exciting
part: As you build both types of knowledge, you may be able to integrate your
growing expertise with the causes or activities you care most about. Or, your
career adventure may lead you to a new passion.
Former presidents George H. W. Bush
and Bill Clinton are well known for combining their management skills—running a
country—with their passion for helping people around the world. Together they
have raised funds to assist disaster victims, those with HIV/AIDS, and others
in need. Jake Burton turned his love of snow sports into an entire industry
when he founded Burton Snowboards. Annie Withey poured her business and
marketing knowledge into her two famous business ventures: Smartfood and
Annie’s Homegrown. Both products were the result of her passion for healthful
foods made from organic ingredients.
As you enter the workforce, you may
have no idea where your career path will lead. You may be asking yourself, “How
will I fit in?” “Where will I live?” “How much will I earn?” “Where will my
business and personal careers evolve as the world continuous to change at such
a fast pace?” If you are feeling nervous because you don’t know the answers to
these questions yet, relax. A career is a journey, not a single destination.
You may have one type of career or several. It is likely you will work for
several organisations, or you may run one or more businesses of your own.
As you ask yourself what you want to
do and where you want to be, take a few minutes to review the chapter and its
main topics. Think about your personality, what you like and dislike, what you
know and what you want to learn, what you fear and what you dream. Then try the
following exercise.
Questions
1.
Create
a three-column chart in which the first column lists nonmanagement skills you
have. Are you good at travel? Do you know how to build furniture? Are you a
whiz at sports statistics? Are you an innovative cook? Do you play video games
for hours? In the second column, list the causes or activities about which you
are passionate. These may dovetail with the first list, but they might not.
2.
Once
you have you two columns complete, draw lines between entries that seem
compatible. If you are good at building furniture, you might have also listed a
concern about families who are homeless. Remember that not all entries will
find a match—the idea is to begin finding some connections.
3.
In the
third column, generate a list of firms or organizations you know about that
reflect your interests. If you are good at building furniture, you might be
interested working for the Habitat for Humanity organization, or you might find
yourself gravitating towards a furniture retailer like Ikea or Ethan Allen. You
can do further research on organizations via Internet or business
publications.
CASE –
2 Biyani – Pioneering a Retailing
Revolution in India
“I use people as hands and legs. I
prefer to do thinking around here.”
─ Kishore Biyani, CEO & MD,
Pantaloon Retail (India) Ltd.
Kishore
Biyani (Biyani), CEO& MD of Pantaloon Retail (India) Ltd., planned to have
30 Food Bazaar outlets, 22 outlets in Big Bazaar, 21 Pantaloons outlets, and
four seamless malls under the Central logo, by the end of 2005. He also planned
to launch at least three businesses every year and had already selected music,
footwear and car accessories as his next areas of investments. He was already
the top retailer in India followed by Raghu Pillai of RPG. As of 2004, Biyani
headed a company that had a turnover of Rs 6,500 million and operated 13
Pantaloon apparel stores, 9 Big Bazaars, 13 Food Bazaars, and 3 seamless malls
(Central), one each located in Bangalore, Hyderabad, and Pune.
Biyani’s
journey from a person who looked after his family business to India’s top
retailer in 1987, when he launched Manz Wear Pvt. Ltd. The company launched one
of the first readymade trousers brands – ‘Pantaloon’ – in the country. The
company also launched its first jeans brand called ‘Bare’ in 1989. On September
20, 1991, Manz Wear Pvt. Ltd. went public and on September 25, 1992, it changed
its name to Pantaloon Fashions (India) Limited (PFIL). ‘John Miller’ was the
first formal shirt brand from PFIL.
The company opened its first apparel
stores, called ‘Pantaloons’ at Kolkata in August 1997. The stores generated Rs
70 million. Biyani then realized the potential of the Indian market and started
to aggressively tap it. Accordingly, Biyani decided to expand into other
segments of retailing besides apparel. To reflect this change in focus, the
company changed its name to Pantaloon Retail (India) Limited (PRIL) in July
1999 and set itself a target of achieving Rs 10 billion in sales by June 2005.
In course of time he launched three other retail formats -- Big Bazaar, Food
Bazaar, and Central.
Biyani didn’t believe in copying
ideas from western retailers. He was critical of his peers who felt just copied
ideas form the west without making any effort to mold them to Indian
conditions. He ensured that his store formats such as Big Bazaar, Food Bazaar,
and Pantaloons were all suited to the purchasing style of Indian consumers.
Biyani was a huge risk taker and his
planning was always different from the conventional way of doing business. This
was also one of the factors that had prompted Biyani to move away from his
father’s conventional way of doing business. During the initial stages of his
success, his risk-taking attitude sometimes had the effect of turning away
financiers. The biggest risk that Biyani took was in opening Big Bazaar in
Mumbai in 2001. The company needed money to expand Big Bazaar’s operations.
However, it had profits of only Rs 40 million with a low share price at eighteen
rupees. Therefore, Biyani could not raise money through equity. In light of
this situation, Biyani took a loan of Rs 1,200 million from ICICI for launching
the operations of Big Bazaar, which increased his debt exposure. However, Big
Bazaar proved to be a resounding success with 100,000 customer visits in its
first week of operations. According to analysts, if Big Bazaar had failed,
Biyani would have landed in a severe debt crisis. The success of Big Bazaar not
only increased the company profits, it also changed the perception of
investors.
Many people criticized Biyani for not
delegating authority and Biyani himself accepted the criticism. He said, “I use
people as hands and legs. I prefer to do the thinking around here.” He
preferred taking individual decision on activities like strategic planning,
ideas for other ventures, and other important issues. It was because of this
that managers like Kush Medhora of Westside were initially apprehensive about
joining Biyani’s business. However, Biyani changed his attitude gradually with
the launch of Big Bazaar, Food Bazaar, and Central and appointed different
people for managing different business units.
Biyani believed in leading a simple
life and in being simply dressed. His vision came from his diverse reading
connected to retailing and other areas. He made it a point to visit each of his
stores across the country. He aimed to spend at least seven hours a week at the
stores. In the stores, he would stand at a corner and observe people. He also
walked on streets, met common people, and talked to local leaders to plan and
put up new products in his stores. Each of his stores was set with a weekly
target, which was reviewed every Monday. Whenever a new store was opened, the
details of its operations during the first 45 days were to be sent to him.
Sometimes, he suggested remedies to some problems. Biyani believed in extensive
advertising to make more people know about the product. His decision making was
quick and devoid of unnecessary delays. Biyani was also a good learner and
learned quickly from his mistakes. He planned to improve inventory management
through responding effectively to the demands of the customers rather than
forecasting them, as he felt that forecasting would pile up the inventory in
this dynamic market.
Questions
1.
The
tremendous success of the ‘Pantaloons’, ‘Big Bazaar’ and ‘Food Bazaar’
retailing formats, easily made PRIL the number one retailer in India by early
2004, in terms of turnover and retail area occupied by its outlets. Explain how
Biyani is further planning to consolidate his businesses.
2.
“Our
striving toward looking at the Indian market differently and strategizing with
the evolving customer helped us perform better.” What other qualities of
Kishore Biyani do you think were instrumental in making him top retailer of
India?
Note: Solve
any 4 Cases Study’s
CASE: I Enterprise
Builds On People
When
most people think of car-rental firms, the names of Hertz and Avis usually come
to mind. But in the last few years, Enterprise Rent-A-Car has overtaken both of
these industry giants, and today it stands as both the largest and the most
profitable business in the car-rental industry. In 2001, for instance, the firm
had sales in excess of $6.3 billion and employed over 50,000 people.
Jack Taylor started Enterprise in St.
Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that
strategy played a key role in the firm’s initial success. Most car-rental firms
like Hertz and Avis base most of their locations in or near airports, train
stations, and other transportation hubs. These firms see their customers as
business travellers and people who fly for vacation and then need
transportation at the end of their flight. But Enterprise went after a
different customer. It sought to rent cars to individuals whose own cars are
being repaired or who are taking a driving vacation.
The firm got its start by working
with insurance companies. A standard feature in many automobile insurance
policies is the provision of a rental car when one’s personal car has been in
an accident or has been stolen. Firms like Hertz and Avis charge relatively
high daily rates because their customers need the convenience of being near an
airport and/or they are having their expenses paid by their employer. These
rates are often higher than insurance companies are willing to pay, so
customers who these firms end up paying part of the rental bills themselves. In
addition, their locations are also often inconvenient for people seeking a
replacement car while theirs is in the shop.
But Enterprise located stores in
downtown and suburban areas, where local residents actually live. The firm also
provides local pickup and delivery service in most areas. It also negotiates
exclusive contract arrangements with local insurance agents. They get the
agent’s referral business while guaranteeing lower rates that are more in line
with what insurance covers.
In recent years, Enterprise has
started to expand its market base by pursuing a two-pronged growth strategy.
First, the firm has started opening
airport locations to compete with Hertz and Avis more directly. But their
target is still the occasional renter than the frequent business traveller.
Second, the firm also began to expand into international markets and today has
rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success
has been its human resource strategy. The firm targets a certain kind of
individual to hire; its preferred new employee is a college graduate from
bottom half of graduating class, and preferably one who was an athlete or who
was otherwise actively involved in campus social activities. The rationale for
this unusual academic standard is actually quite simple. Enterprise managers do
not believe that especially high levels of achievements are necessary to
perform well in the car-rental industry, but having a college degree nevertheless
demonstrates intelligence and motivation. In addition, since interpersonal
relations are important to its business, Enterprise wants people who were
social directors or high-ranking officers of social organisations such as
fraternities or sororities. Athletes are also desirable because of their
competitiveness.
Once hired, new employees at
Enterprise are often shocked at the performance expectations placed on them by
the firm. They generally work long, grueling hours for relatively low pay.
And all Enterprise managers are
expected to jump in and help wash or vacuum cars when a rental agency gets
backed up. All Enterprise managers must wear coordinated dress shirts and ties
and can have facial hair only when “medically necessary”. And women must wear skirts
no shorter than two inches above their knees or creased pants.
So what are the incentives for
working at Enterprise? For one thing, it’s an unfortunate fact of life that
college graduates with low grades often struggle to find work. Thus, a job at
Enterprise is still better than no job at all. The firm does not hire
outsiders—every position is filled by promoting someone already inside the
company. Thus, Enterprise employees know that if they work hard and do their
best, they may very well succeed in moving higher up the corporate ladder at a
growing and successful firm.
Question:
1.
Would
Enterprise’s approach human resource management work in other industries?
2.
Does
Enterprise face any risks from its human resource strategy?
3.
Would
you want to work for Enterprise? Why or why not?
Attempt Any Four Case Study
CASE – 1 Dabur
India Limited: Growing Big and Global
Dabur is among the top five FMCG
companies in India and is positioned successfully on the specialist herbal
platform. Dabur has proven its expertise in the fields of health care, personal
care, homecare and foods.
The company was founded by Dr. S. K.
Burman in 1884 as small pharmacy in Calcutta (now Kolkata), India. And is now
led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India
Limited and the senior most representative of the Burman family in the company.
The company headquarters are in Ghaziabad, India, near the Indian capital New
Delhi, where it is registered. The company has over 12 manufacturing units in
India and abroad. The international facilities are located in Nepal, Dubai, Bangladesh,
Egypt and Nigeria.
S.K. Burman, the founder of Dabur,
was trained as a physician. His mission was to provide effective and affordable
cure for ordinary people in far-flung villages. Soon, he started preparing
natural remedies based on Ayurved for diseases such as Cholera, Plague and
Malaria. Due to his cheap and effective remedies, he became to be known as
‘Daktar’ (Indianised version of ‘doctor’). And that is how his venture Dabur
got its name—derived from Daktar Burman.
The company faces stiff competition
from many multi national and domestic companies. In the Branded and Packaged
Food and Beverages segment major companies that are active include Hindustan
Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products,
the major competitors are Baidyanath, Vicco, Jhandu, Himani and other
pharmaceutical companies.
Vision, Mission and Objectives
Vision
statement of Dabur says that the company is “dedicated to the health and well being of every household”. The
objective is to “significantly accelerate
profitable growth by providing comfort to others”. For achieving this
objective Dabur aims to:
· Focus on growing core brands across
categories, reaching out to new geographies, within and outside India, and
improve operational efficiencies by leveraging technology.
· Be the preferred company to meet the health
and personal grooming needs of target consumers with safe, efficacious, natural
solutions by synthesising deep knowledge of ayurveda and herbs with modern
science.
· Be a professionally managed employer of
choice, attracting, developing and retaining quality personnel.
· Be responsible citizens with a commitment
to environmental protection.
· Provide superior returns, relative to our
peer group, to our shareholders.
Chairman of the company
Vivek
C. Burman joined Dabur in 1954 after completing his graduation in Business
Administration from the USA. In 1986 he was appointed Managing Director of
Dabur and in 1998 he took over as Chairman of the Company.
Under Vivek Burman’s leadership,
Dabur has grown and evolved as a multi-crore business house with a diverse
product portfolio and a marketing network that traverses the whole of India and
more than 50 countries across the world. As a strong and positive leader, Vivek
C. Burman has motivated employees of Dabur to “do better than their best”—a
credo that gives Dabur its status as India’s most trusted nature-based products
company.
Leading brands
More
than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in
the product line of Dabur. List of products of the company include very
successful brands like Vatika, Anmol, Hajmola, Dabur Amla Chyawanprash, Dabur
Honey and Lal Dant Manjan with turnover of Rs.100 crores each.
Strategic positioning of Dabur Honey
as food product, lead to market leadership with over 40% market share in
branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic
medicine with over 65% market share. Dabur is a leader in herbal digestives
with 90% market share. Hajmola tablets are in command with 75% market share of
digestive tablets category. Dabur Lal Tail tops baby massage oil market with
35% of total share.
CHD (Consumer Health Division),
dealing with classical Ayurvedic medicines has more than 250 products sold
through prescription as well as over the counter. Proprietary Ayurvedic
medicines developed by Dabur include Nature Care Isabgol, Madhuvaani and
Trifgol.
However, some of the subsidiary units
of Dabur have proved to be low margin business; like Dabur Finance Limited. The
international units are also operating on low profit margin. The company also
produces several “me – too” products. At the same time the company is very
popular in the rural segment.
Questions
1.
What
is the objective of Dabur? Is it profit maximisation or growth maximisation?
Discuss.
2.
Do you
think the growth of Dabur from a small pharmacy to a large multinational
company is an indicator of the advantages of joint stock company against
proprietorship form? Elaborate.
Note: Solve any
4 Cases Study’s
CASE: I Managing the Guinness
brand in the face of consumers’ changing tastes
1997 saw the US$19 billion merger of Guinness and GrandMet to form Diageo, the
world’s largest drinks company. Guinness was the group’s top-selling beverage
after Smirnoff vodka, and the group’s third most profitable brand, with an
estimated global value of US$1.2 billion. More than 10 million glasses of the
popular stout were sold every day, predominantly in Guinness’s top markets:
respectively, the UK, Ireland, Nigeria, the USA and Cameroon.
However, the famous dark stout with the
white, creamy head was causing some strategic concerns for Diageo. In 1999, for
the first time in the 241-year of Guinness, sales fell. In early 2002 Diageo
CEO Paul Walsh announced to the group’s concerned shareholders that global
volume growth of Guinness was down 4 per cent in the last six months of 2001
and, more alarmingly, sales were also down 4 per cent in its home market,
Ireland. How should Diageo address falling sales in the centuries-old brand
shrouded in Irish mystique and tradition?
The changing face of
the Irish beer market
The Irish were very fond of beer and even
fonder of Guinness. With close to 200 litres per capita drunk each year—the
equivalent of one pint per person per day—Ireland ranked top in worldwide per
capita beer consumption, ahead of the Czech Republic and Germany.
Beer accounted for two-thirds of all alcohol
bought in Ireland in 2001. Stout led the way in volume sales and accounted for
40 per cent of all beer value sales. Guinness, first brewed in 1759 in Dublin
by Arthur Guinness, enjoyed legendary status in Ireland, a national symbol as
respected as the green, white and gold flag. It was by far the most popular
alcoholic drink in Ireland, accounting for nearly one of every two pints of
beer sold. Its nearest competitors were Budweiser and Heineken, which held 13
per cent and 12 per cent of the market respectively.
However, the spectacular economic growth of
the Irish economy since the mid-1990s had opened up the traditional drinking
market to new cultures and influences, and encouraged the travel-friendly Irish
to try other drinks. Beer and in particular stout were losing popularity
compared with wine or the recently launched RTDs (ready-to-drinks) or FABs
(flavoured alcoholic beverages), which the younger generation of drinkers
considered trendier and ‘healthier’. As a Euromonitor report explained: Younger
consumers consider dark beers and stout to be old fashioned drinks, with the perceived
stout or ale drinker being an old, slightly overweight man and thus not in tune
with image conscious youth culture.
Beer sales, which once accounted for 75 per
cent of all alcohol bought in Ireland, were expected to drop to close to 50 per
cent by 2006, while stout sales were forecast to decrease by 12 per cent
between 2002 and 2006.
Giving Guinness a
boost in its home market
With Guinness alone accounting for 37 per
cent of Diageo’s volume in the market, Guinness/UDV Ireland was one of the
first to feel the pain caused by the declining popularity of beer and in
particular stout. A Euromonitor report in February 2002 explained how the
profile of the Guinness drinker, typically men aged 21-plus, was affected: The
average age of Guinness drinkers is rising and this is bringing about the
worrying fact that the size of the Guinness target audience is falling. The
rate of decline is likely to quicken as the number of less brand loyal,
non-stout drinking younger consumers increases.
The report continued:
In Ireland, in particular, the consumer base
for Guinness is shrinking as the majority of 18 to 24 year olds consistently
reject stout as a product relevant to their generation, opting instead to
consume lager or spirits.
Effectively, one-third of young Irish men and
half of young Irish women had reportedly never tried Guinness. A Guinness
employee provided another explanation. Guinness is similar to coffee in that
when you’re young you drink it [coffee] with sugar, but when you’re older you
drink it without. It’s got a similar acquired taste and once you’re over the
initial hurdle, you’ll fall in love with it.
In an attempt to lure young drinkers to the
somewhat ‘acquired’ Guinness taste (40 per cent of the Irish population was
under the age of 24) Diageo had invested millions in developing product
innovations and brand building in Ireland’s 10,000 pubs, clubs and
supermarkets.
Product innovation
Until the mid-1990s most Guinness in Ireland
was drunk in a pint glass in the local pub. The launch of product innovations
in the form of a new cooling mechanism for draft Guinness and the ‘widget’
technology applied to cans and bottles attempted to modernize the brand’s image
and respond to increasing competition from other local and imported stouts and
lagers.
‘A perfect head’ for canned Guinness
In 1989, and at a cost of more than £10
million, Guinness developed an ingenious ‘widget’ device for its canned draft
stout sold in ‘off-trade’ outlets such as supermarkets and off-licences. The
widget, placed in the bottom of the can, released a gas that replicated the
draft effect.
Although over 90 per cent of beer in Ireland
was sold in ‘on-trade’ pubs and bars, sale of beer in the cheaper ‘off-trade’
channel were slowly gaining in importance. The Guinness brand manager at the
time, John O’Keeffe, explained how home drinkers could now enjoy a smoother,
creamier head similar to the one obtained in a pub thanks to the new widget
technology:
When the can is opened, the pressure causes
the nitrogen to be released as the widget moves through the beer, creating the
classic draft Guinness surge.
Nearly 10 years later, in 1997, the ‘floating
widget’ was introduced, which improved the effectiveness of the device.
A colder pint
In 1997 Guinness Draft Extra Cold was
launched in Ireland. An additional chilled tap system could be added to the
standard barrel in pubs, allowing the Guinness to be served at 4ºC rather than
the normal 6ºC. By serving Guinness at a cooler temperature, Guinness/UDV hoped
to mute the bitter taste of the stout and make it more palatable for younger
adults, who were increasingly accustomed to drinking chilled lager,
particularly in the summer
A cooler image for
Guinness
In October 1999 the widget technology was
applied to long-stemmed bottles of Guinness. The launch was supported by a US$2
million TV and outdoor board campaign. The packaging—with a clear, shiny
plastic wrap, designed to look like a pint complete with creamy head—was quite
a departure from the traditional Guinness look.
The objective was to reposition Guinness
alongside certain similarly packaged lagers and RTDs and offer younger adults a
more fashionable way to drink Guinness: straight from the bottle. It also gave
Guinness easier access to the growing number of clubs and bars that were less
likely to serve traditional draft Guinness easier access to the growing number
of clubs and bars that were less likely to serve traditional draft Guinness,
which could be kept for only six to eight weeks and took two minutes to pour.
The RTDs, by contrast, had a shelf-life of more than a year and were drunk
straight from the bottle.
However, financial analyst remained sceptical
about the Guinness product innovations, which had no significant positive
impact on sales or profitability:
The last news about the success of the
recently introduced innovations suggests that they have not had a notably
material impact on Guinness brand performance.
Brand building
Euromonitor estimates that, in 2000, Diageo
invested between US$230 and US$250 million worldwide in Guinness advertising
and promotions. However, with a cost-cutting objective, the company reduced
marketing expenses in both Ireland and the UK up to 10 per cent in 2001 and the
number of global Guinness agencies from six to two.
Nevertheless, Guinness remained one of the
most advertised brands in Ireland. It was the leading cinema advertiser and, in
terms of advertising, was second only to the national telecoms provider,
Eircom. Guinness was also heavily promoted at leading sporting and music
events, in particular those that were popular with the younger age groups.
The ultimate tribute to the brand was the
opening of the new Guinness Storehouse in Dublin in late 2000, a sort of Mecca
for all Guinness fans. The Storehouse was also a fashionable visitor centre
with an art gallery and restaurants, and regularly hosted evening events. The
company’s design brief highlighted another key objective:
To use an ultramodern facility to breathe
life into an ageing brand, to reconnect an old company with young (sceptical)
customers.
As the Storehouse’s design firm’s director,
Ralph Ardill, explained:
Guinness Storehouse had become the top
tourist destination in Ireland, attracting more than half a million people and
hosting 45,000 people for special events and training.
The Storehouse also had training facilities
for Guinness’s bartenders and 3000 Irish employees. The quality of the Guinness
pint remained a high priority for the company, which not only developed
pub-like classrooms at the Storehouse but also employed teams of draft
technicians to teach barmen how to pour a proper pint. The process involved two
steps—the pour and the top-up—and took a total of 119.5 seconds. Barmen also
needed to learn how to check that the pressure gauges were properly set and
that the proportion of nitrogen to carbon dioxide in the gas was correct.
The uncertain future
of the Guinness brand in Ireland
Despite Guinness/DUV’s attempt to appeal to
the younger generation of drinkers and boost its fading image, rumours
persisted in Ireland about the brand future. The country’s leading and
respected newspaper, the Irish times, reported in an article in July 2001:
The uncertainty over its future all adds to
the air of crisis that is building around Guinness Ireland Group four months
ago…The review is not complete and the assumption is that there is more bad
news to come.
In the pubs across Ireland, the traditional
Guinness drinkers looked on anxiously as the younger generation drank Bacardi
Breezers, Smirnoff Ices or Californian wines. Could the goliath Guinness
survive another two centuries? Was the preference for these new drinks just a
fad or fashion, or did Diageo need to seriously reconsider how it marketed
Guinness?
A quick solution?
In late February 2002, Diageo CEO Paul Walsh
revealed that the company was testing technology to cut the waiting time for a
pint of Guinness from 1 minute 59 seconds to 15-25 seconds. Ultrasound could
release bubbles in the stout and form the head instantly, making a pint of
Guinness that would be indistinguishable from one produced by the slower,
traditional method.
‘A two-minute pour is not relevant to our
customers today,’ Walsh said. A Guinness spokeswoman continued, ‘We have got to
move with the times and the brand must evolve. We must take all the opportunities
that we can. In outlets where it is really busy, if you walk in after nine
o’clock in the evening there will be a cloth over the Guinness pump because it
takes longer to pour than other drinks. Aware that some consumers might not be
attracted by the innovation, she added ‘It wouldn’t be put everywhere—only
where people want a quick pint with no effect on the quality.’
Although still being tested, the ‘quick-pour
pint’ was a popular topic of conversation in Dublin pubs, among barmen and
customers alike. There were rumours that it would be introduced in Britain
only; others thought it would be released worldwide.
Some market commentators viewed the
quick-pour pint as an innovative way to appeal to the younger, less patient
segment in which Guinness had under-performed. Others feared that the young
would be unconvinced by the introduction, and loyal customers would be turned
off by what they characterized as a ‘marketing u-turn’.
Question:
1.
From
a marketing perspective, what has Guinness done to ensure its longevity?
2.
How
would you characterize the Guinness brand?
3.
What
could Guinness do to attract younger drinkers? And to retain its older loyal
customer base? Can both be done at the same time?
Note:
Solve any 4 Cases
CASE: I Pushing Paper Can Be Fun
A
large city government was putting on a number of seminars for managers of
various departments throughout the city. At one of these sessions the topic
discussed was motivation—how to motivate public servants to do a good job. The
plight of a police captain became the central focus of the discussion:
I’ve got a real problem with my
officers. They come on the force as young, inexperienced rookies, and we send
them out on the street, either in cars or on a beat. They seem to like the
contact they have with the public, the action involved in crime prevention, and
the apprehension of criminals. They also like helping people out at fires,
accidents, and other emergencies.
The problem occurs when they get back
to the station. They hate to do the paperwork, and because they dislike it, the
job is frequently put off or done inadequately. This lack of attention hurts us
later on when we get to court. We need clear, factual reports. They must be
highly detailed and unambiguous. As soon as one part of a report is shown to be
inadequate or incorrect, the rest of the report is suspect. Poor reporting
probably causes us to lose more cases than any other factor.
I just don’t know how to motivate
them to do a better job. We’re in a budget crunch, and I have absolutely no
financial rewards at my disposal. In fact, we’ll probably have to lay some
people off in the near future. It’s hard for me to make the job interesting and
challenging because it isn’t-it’s boring, routine paperwork, and there isn’t
much you can do about it.
Finally, I can’t say to them that
their promotions will hinge on the excellence of their paperwork. First at all,
they know it’s not true. If their performance is adequate, most are more likely
to get promoted just by staying on the force a certain number of years than for
some specific outstanding act. Second, they were trained to do the job they do
out in the streets, not to fill out forms. All through their careers the
arrests and interventions are what get noticed.
Some people have suggested a number
of things, like using conviction records as a performance criterion. However,
we know that’s not fair—too many other things are involved. Bad paperwork increases the chance that you lose in court,
but good paperwork doesn’t necessarily mean you’ll win. We tried setting up the
team competitions based on the excellence of the reports, but the officers
caught on to that pretty quickly. No one was getting any type of reward for
winning the competition, and they figured why should they bust a gut when there
was on payoff.
I just don’t know what to do.
Question:
1.
What performance problems is the captain trying to correct?
2.
Use the MARS model of individual behavior and performance to
diagnose the possible causes of the unacceptable behavior.
3.
Has the captain considered all possible solutions to the
problem? If not, what else might be done?
Note:
Solve any 8 Question out of 10.
1. “All
quantitative techniques have hardly any real-life applications.” Do you agree
with the statement? Discuss
2. A
company makes two kinds of leather belts. Belt A is a high quality belt, and
belt B is of lower quality. The respective profits are Rs 20 and Rs 15 per
belt. Each belt of type A requires twice as much time as belt of type B, and if
all belts were of type B, the company could make 1,000 per day. The supply of
leather is sufficient for only 800 belts per day (both A and B combined). Belt
A requires a fancy buckle, and only 400 per day are available. There are only
700 buckles a day available for belt B. What should be the daily production of
each type of belts to maximize profit. Use simplex method.
3. How
can you formulate an assignment problem as a standard linear programming
problem? Illustrate.
4. The
following are the timing in regard to two jobs J1 and J2, each of which
requires to be processed on two machines A and B in the order ‘A following B’.
In what sequence should they be performed so that the total processing time
involved is the least? Also obtain the time involved.
Job Time (Hours)
_______________________________________
Machine
A Machine B
J1 6 8
J2 7 3
Use
graphical method.
5. What
function does inventory perform? State the two basic inventory decisions
management must take as they attempt to accomplish the functions of inventory
just described by you.
6. A
truck owner finds from his past experience that the maintenance costs are Rs
200 for the first year and then increase by Rs 2,000 every year. The cost of
the truck type A is Rs 9,000. Determine the best age at which to replace the
truck. If the optimum replacement is followed, what will be the average yearly
cost of owning and operating the truck? Truck type B costs Rs 10,000. Annual
operating costs are Rs 400 for the first year and then increase by Rs 800 every
year. The truck owner has now the truck type A which is one year old. Should it
be replaced with B Type, and if so, when?
7. What
are the major comparative characteristics of the PERT model and the CPM model?
What are their limitations, if any? Discuss.
8. Describe
the steps involved in the process of decision making.
9. A
person plays a game in which he gains Rs 20 with a probability of 0.4 or loses
Rs 10 with a probability of 0.6. He has an amount of Rs 20 with him and plays
the game repeatedly until he loses all the amount he has or adds Rs 30 or Rs 40
to the initial amount. Draw up a transition probability matrix of him.
10. “Simulation
is typically the process of carrying out sampling experiments on the models of
the system rather than the system itself.” Elucidate this statement by taking
some examples.
ATTEMPT ONLY FOUR CASE STUDY
CASE – 1
Great West
States (GWS) is a railroad company operating in the Western
United States . Juanita Salazar is risk manager of GWS. At the
direction of the company’s chief executive officer, she is searching for ways
to handle the company’s risks in a more economical way. The CEO stressed the
Juanita should consider not only pure risks but also financial risks. Juanita
discovered that a significant financial risk facing the organization is a
commodity price risk—the risk of a significant increase in the price of fuel
oil for the company’s locomotives. A review of the company’s income and expense
statement showed that last year about 16 percent of its expenses were fuel oil.
Juanita was also asked to determine whether the installation of a
new sprinkler system at the corporate headquarters building would be justified.
The cost of the project would by $40,000. She estimates the project would
provide an after-tax net cash flow of $25,000 per year for three years, with the
first of these cash flows coming one year from today.
GWS is considering expanding its routes to include Colorado ,
New Mexico , Texas ,
and Oklahoma
Y = 2.31 +
0.22X
With the expansion, GWS trains will travel an estimated 640,000
miles next year.
a.
With regard to the fuel oil
prices risk:
(1) Discuss how Juanita could use futures contracts to hedge the price risk.
(2) Discuss how a double-trigger, integrated risk management plan could be employed.
(1) Discuss how Juanita could use futures contracts to hedge the price risk.
(2) Discuss how a double-trigger, integrated risk management plan could be employed.
b.
What is the net present value
(NPV) of the sprinkler system project, assuming the rate of return required by
GWS investors is 10 percent?
c.
How many derailments should
Juanita expect next year, assuming the regression results are reliable and GWS
goes ahead with the expansion plan?
Attempt
Only 4 Case Study
CASE – 1 MANAGING HINDUSTAN UNILEVER STRATEGICALLY
Unilever
is one of the world’s oldest multinational companies. Its origin goes back to
the 19th century when a group of companies operating independently,
produced soaps and margarine. In 1930, the companies merged to form Unilever
that diversified into food products in 1940s. Through the next five decades, it
emerged as a major fast-moving consumer goods (FMCG) multinational operating in
several businesses. In 2004, the Unilever 2010 strategic plan was put into
action with the mission to ‘bring vitality to life’ and ‘to meet everyday needs
for nutrition, hygiene and personal care with brands that help people feel
good, look good, and get more out of life’. The corporate strategy is of
focusing on bore businesses of food, home care and personal care. Unilever
operates in more than 100 countries, has a turnover of € 39.6 billion and net
profit of € 3.685 billion in 2006 and derives 41 per cent of its income from
the developing and emerging economies around the world. It has 179,000
employees and is a culturally-diverse organisation with its top management
coming from 24 nations. Internationalisation is based on the principle of local
roots with global scale aimed at becoming a ‘multi-local multinational’.
The genesis of Hindustan Unilever
(HUL) in India, goes back to 1888 when Unilever exported Sunlight soap to
India. Three Indian, subsidiaries came into existence in the period 1931-1935
that merged to form Hindustan Lever in 1956. Mergers and acquisitions of Lipton
(1972), Brooke Bond (1984), Ponds (1986), TOMCO (1993), Lakme (1998) and Modern
Foods (2002) have resulted in an organisation that is a conglomerate of several
businesses that have been continually restructured over the years.
HUL is one of the largest FMCG
company in India with total sales of Rs. 12,295 crore and net profit of
1855crore in 2006. There are over 15000 employees, including more than 1300
managers. The present corporate strategy of HUL is to focus on core businesses.
These core businesses are in home and personal care and food. There are 20
different consumer categories in these two businesses. For instance, home and
personal care is made up of personal wash, laundry, skin care, hair care, oral
care, deodorants, colour cosmetics and ayurvedic
personal and health care, while food businesses have tea, coffee, ice creams
and processed food brands. Apart from the two product divisions, there are
separate departments for specialty exports and new ventures.
Strategic management at HUL is the
responsibility of the board of directors headed by a chairman. There are five
independent and five whole-time directors. The operational management is looked
after by a management committee comprising of Vice Chairman, CEO and managing director
and executive directors of the two business divisions and functional areas. The
divisions have a lot of autonomy with dedicated assets and resources. A
divisional committee having the executive director and heads of functions of
sales, commercial and manufacturing looks after the business level
decision-making. The functional-level management is the responsibility of the
functional head. For instance, a marketing manager has a team of brand managers
looking after the individual brands. Besides the decentralised divisional
structure, HUL has centralised some functions such as finance, human resource
management, research, technology, information technology and corporate and
legal affairs.
Unilever globally and HUL nationally,
operate in the highly competitive FMCG markets. The consumer markets for FMCG
products are finicky: it’s difficult to create customers and much more
difficult to retain them. Price is often the central concern in a consumer
purchase decision requiring producers to be on continual guard against cost
increases. Sales and distribution are critical functions organisationally. HUL
operates in such a milieu. It has strong competitors such as the multinationals
Procter & Gamble, Nivea or L’Oreal and formidable local companies such as,
Amul, Nirma or the Tata
FMCG companies to contend with.
Rivals have copied HUL’s strategies and tactics, especially in the area of
marketing and distribution. Its innovations such as new style packaging or
distribution through women entrepreneurs are much valued but also copied
relentlessly, hurting its competitive advantage.
HUL is identified closely with India.
There is a ring of truth to its vision statement: ‘to earn the love and respect
of India by making a real difference to every Indian’. It has an impeccable
record in corporate social responsibility. There is an element of nostalgia
associated with brands like Lifebuoy (introduced in 1895) and Dalda (1937) for
senior citizens in India. Consequently Indians have always perceived HUL as an
Indian company rather than a multinational. HUL has attempted to align its
strategies in the past to the special needs of Indian business environment. Be
it marketing or human resource management, HUL has experimented with new ideas
suited to the local context. For instance, HUL is known for its capabilities in
rural marketing, effective distribution systems and human resource development.
But this focus on India seems to be changing. This might indicate a change in
the strategic posture as well as recognition that Indian markets have matured
to the extent that they can be dealt with by the global strategies of Unilever.
At the corporate level, it could also be an attempt to leverage global scale
while retaining local responsiveness to some extent.
In line with the shift in corporate
strategy, the focus of strategic decision-making seems to have moved from the
subsidiary to the headquarters. Unilever has formulated a new global
realignment under which it will develop brands and streamline product offerings
across the world and the subsidiaries will sell the products. Other subtle
indications of the shift of decision-making authority could be the appointment
of a British CEO after nearly forty years during which there were Indian CEOs,
the changed focus on a limited number of international brands rather than a
large range of local brands developed over the years and the name-change from
Hindustan Lever to Hindustan Unilever.
The shift in the strategic
decision-making power from the subsidiary to headquarters could however, prove
to be double-edged sword. An example could be of HUL adopting Unilever’s global
strategy of focussing on a limited number of products, called the 30 power
brands in 2002. That seemed a perfectly sensible strategic decision aimed at
focusing managerial attention to a limited set of high-potential products. But
one consequence of that was the HUL’s strong position in the niche soap and
detergent markets suffering owing to neglect and the competitors were quick to
take advantage of the opportunity. Then there are the statistics to deal with:
HUL has nearly 80 per cent of sales and 85 per cent of net profits from the
home and personal care businesses. Globally, Unilever derives half its revenues
from food business. HUL does not have a strong position in the food business in
India though the food processing industry remains quite attractive both in
terms of local consumption as well as export markets. HUL’s own strategy of
offering low-price, competitive products may also suffer at the cost of
Unilever’s emphasis on premium priced, high end products sold through modern
outlets.
There are some dark clouds on the
horizon. HUL’s latest financials are not satisfactory. Net profit is down,
sales are sluggish, input costs have been rising and new food products introduced
in the market have yet to pick up. All this while, in one market segment after
another, a competitor pushes ahead. In a company of such a big size and
over-powering presence, these might still be minor events developments in a
long history that needs to be taken in stride. But, pessimistically, they could
also be pointers to what may come.
Questions:
1.
State
the strategy of Hindustan Unilever in your own words.
2.
At
what different levels is strategy formulated in HUL?
3.
Comment
on the strategic decision-making at HUL.
4.
Give
your opinion on whether the shift in strategic decision-making from India to
Unilever’s headquarters could prove to be advantageous to HUL or not.
ATTEMPT ANY FOUR CASE
STUDY
CASE I - A CASE OF
ALPHA TELENET LIMITED
Alpha Telecom Ltd., a part of Alpha Group was
established in 1976 by its visionary Chairman and Managing Director, A. S. Verma. The company started with manufacturing of
Electronic Push Button Telephones (EPBT) and Cordless phones in 1985 in Allahabad
Till 1994, fixed telephone services were provided by Department
of Telecommunications (DoT) which had a monopoly in this business. This was regarded as
self-defeating because DoT was a
regulator as well as a competitor. With increasing pressure for privatisation, the government agreed to give license to private operators. Finally in December 1996, the
bill of privatisation of fixed telephone services was passed. The New Telecom Policy (NTP) with its targets for
improving tele-density was an ambitious policy. The NTP planned to achieve a tele-density (number of telephones
per 100 people) of 7 by the year 2005 and 15 by the year 2010, which translated into 130 mn lines. The policy also planned an investment
of Rs. 4000 billion by the year 2010. The above factors combined with the fact that
the domestic long distance telephony was open to private players, led to
considerable demand for the company's products. But to get the tenders from Ministry of Telecommunication,
Government of India, a license fee was to be paid over a period of 15 years and
the viability of telecom projects was also affected by the guidelines that
required private operators to earmark at least 10% of their telephone lines for villages. The operating
companies did not like the idea of
having to pay for the maintenance of lines that might not be used most of the times. The license fee of Maharashtra
state was minimum at Rs.643 crores. Thus, Alpha Telenet, a pioneer in every field wanted to avail this
opportunity and started the survey for extending the services in Pune. Their
marketing survey team provided the statistics of existing customers of DoT, the
waiting list of DoT, potential of users for successive years and so on.
Alpha
Telenet Ltd. (ATL) decided to start their fixed line telephone operations in technical collaboration with Telecom Italia at Pune in Maharashtra . Initially, they received permission for
installing their exchanges covering 0.5 km. of radius which was too small with
respect to the cost involved and thus difficult to achieve lucrative returns.
After struggling for a year, they finally got permission to set up exchanges
covering 1 km. of radius. They set up their exchanges in potential areas in the
city. Another problem was that the consumer's mindset fixated was with DoT and
they were not ready to accept the services of Alpha Telenet Ltd. This was due
to opposite tariff rates for household consumers. Consumers did not rely on ATL as they were private players. ATL initially
had attracted the customers from the areas where the waiting line for DoT
connections was high. Further, they had provided the connections with wireless
CDMA receivers for only Rs. 3000 (movable within the area of 5 km radius)
though its actual cost was Rs.15,000. The connection between exchanges by optical
fibre ensured high quality of voice and data transmission, which was later to
be shifted to the conventional copper wires for consumer connections. The
company made the connection using Ring Topology stay connected even in case of
line disturbances.
They also
installed a Submarine Optical Fibre Cable to Singapore India
In 1997, Alpha Telenet Ltd. obtained a license for providing
fixed-line services in Maharashtra state circle and formed a joint venture with Behrin Telecom, Alpha BT, for providing VSAT services. On June 4, 1998
they started the first private fixed-line services launched in Pune in the Maharashtra circle and thereby ending fixed-:-line
services monopoly of DoT (now TSNL). Alpha entered into a license agreement
with DoT in 2002 to provide international long distance services in India Delhi
With the
start of basic telephony services in the .state of Maharashtra ,
residents of the area and others felt a great sense of breaking away from the
old and traditional government monopoly. The kind of ill-treatment of customers
and also the red-tapism and bureaucracy which prevailed earlier, was about to
end. It was observed that no private telecom company wanted to start their
operations in less profitable areas like Bihar
and other eastern states .
. The tariff plans of the TSNL and Alpha
Telenet Ltd. were opposite to each other. TSNLS tariff structure was upwards
i.e., price per unit increase with number of
calls and vice versa for Alpha Telenet. This was the beginning of the entry of
private players in the sector.
1 . Give a critical analysis of the
privatisation of telecom sector in India
2.
Highlight the secrets of success of Alpha
Telenet Ltd. in terms of technological advancements and service~ provided.
