IIBMS QUESTION PAPER
Subject – Managerial Economics
Marks - 100
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.
CASE –
2 IT Industry: Checkered Growth
IT
industry is now considered as vital for the development of any economy.
Developing countries value the importance of this industry due to its capacity
to provide much needed export earnings and support in the development of other
industries. Especially in Indian context, this industry has assumed a
significant position in the overall economy, due to its exemplary potentials in
creating high value jobs, enhancing business efficiency and earning export
revenues. The IT revolution has brought unexpected opportunities for India,
which is emerging as an increasingly preferred location for customised software
development. Experts are estimating the global IT industry to grow to US$1.6
million over the coming six years and exports to reach Rs. 2000 billion by
2008. It is envisaged that Indian IT industry, though a very small portion of
the global IT pie, has tremendous growth prospects.
Stock Taking
The
decade of 1970 may be taken as the stage of introduction of the Indian IT
industry. The early years were marked by 75 per cent of software development
taking place overseas and the rest 25 per cent in India. Exports of Indian
software until the mid-1970s was mainly Eastern Europe, followed by US. Tata
Consultancy Services (TCS) was among the pioneers in selling its services
outside India, by working for IBM Labs in the US. The hardware segment lagged
behind its software counterpart. With instances of exports worth US$ 4 million
in 1980, the software segment of the industry has shown an uneven profile. It
was not until 1980s that vigorous and sustained growth in software exports
begun, as MNCs like Texas Instruments started to take serious interest in India
as a centre of software production. Destinations of export also underwent
changes, with US dominating the main export market with 75 per cent of the
exports. The IT Enabled Services (ITeS) segment, however, had not emerged at
this stage.
It was also during the mid to late
1980s that computer firms shifted focus from mainframe computers (the mainstay
of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed the
first ever PC at CSI, Delhi; this changed the entire industry for good. With
the entry of networking and applications like CAD/CAM, PC sales soared in
1987-88, touching 50,000 units.
From a modest growth in the mid-1980s
software exports moved up to Rs. 3.8 billion in 1991-92. Since then, it grew at
an incredible rate, up to 115 per cent in 1993. The hardware could also
register an annual growth of 40 per cent in this period, backed by a surging
demand for PCs and networking. Growth of the industry was also driven by the
emergence and rapid growth of the ITeS segment.
IT sector’s share of GDP rose
steadily in this period, rate of increase being the highest at 44.91 per cent
in 2000-01. It was in the same year that the size of the total IT market was
the biggest in the decade, at Rs. 56,592 crore. The overall IT market was also
found to increase till 2000-01. The overall IT market was also found to
increase till 2000-01, with the only exception of 1998-99. The domestic market
also showed an overall increase till 2000-01, registering a spectacular CAGR of
50.39 per cent. Aggregate output of software and services also increased in
this period, though at an uneven rate. Of approximately $1 billion worth of
sales in 1991-1992, domestic hardware sales constituted 37.2 per cent (13.4 per
cent growth over the previous year), exports of hardware 6.6 per cent.
During 2000-01 the growth in the hardware
segment was driven mainly by PCs, which contributed about 58 per cent of the
total hardware market. This period also witnessed the phenomenon of increasing
share of Tier 2 and cities in PC sales, thereby indicating PC penetration into
the hinterland. PC shipments had increased by 35 per cent every year from 1997
till 2000-01 when it reached 1.8 million PCs. The commercial PC market saw a
growth of 23.5 per cent mainly due to slashing of prices by major vendors.
It was in 2001-02 that the industry
had a sharp fall in rate of growth of its share of GDP to 5.90 per cent, from
44.91 per cent in the previous year. The total IT market also showed a fall in
growth rate from 56.42 per cent in 2000-01 to a mere 16.24 per cent in the next
year, growing further at the rate of 16.25 per cent in the next year. Software
export was also affected, registering a low growth of 28.74 per cent and failed
to maintain its growth rate of 65.30 per cent in the previous year. It got
further lowered to 26.30 per cent in 2002-03. CAGR of total output of software
and services (in Rs. crore) came down to 25.61 in 2001-02 and further to 25.11
in 2002-03. The domestic market showed a steep decline in growth to 3 per cent
in 2001-02 from an outstanding 50.39 per cent in 2000-01. It could, however,
recover by growing at 4.11 per cent in the next year.
Table 1:
Indian IT Industry: 1996-97 to 2002-03
|
Year
|
A*
|
B*
|
C*
|
D*
|
E*
|
|
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
|
1.22
1.45
1.87
2.71
2.87
3.09
|
18,641
25,307
36,179
56,592
65,788
76,482
|
3,900
6,530
10,940
17,150
28,350
36,500
46,100
|
6,594
10,899
16,879
23,980
37,350
47,532
59,472
|
9,438
12,055
14,227
18,837
28,330
29,181
30,382
|
|
*A: share
of GDP of the Indian IT market, B: size of the Indian IT market (in Rs. crore),
C: software and services exports (in Rs. crore), D: size of software and
services (in Rs. crore), E: size of the domestic market (in Rs. crore)
Questions
1.
Try
to identify various stages of growth of IT industry on basis of information
given in the case and present a scenario for the future.
2.
Study
the table given. Apply trend projection method on the figures and comment on
the trend.
3.
Compute
a 3 year moving average forecast for the years 1997-98 through 2003-04.
CASE – 3
Outsourcing to India: Way to Fast Track
By almost any measure, David Galbenski’s company Contract
Counsel was a success. It was a company Galbenski and a law school buddy,
Mark Adams, started in 1993; it helps companies find lawyers on a temporary
contract basis. The growth over the past five years had been furious. Revenue
went from less than $200,000 to some $6.5 million at the end of 2003, and the
company was placing thousands of lawyers a year.
At then the revenue growth began to flatten; the company
grew just 8% in 2004 despite a robust market for legal services estimated at
about $250 billion in the United States alone. Frustrated and concerned,
Galbenski stepped back and began taking a hard look at his business. Could he
get it back on the fast track? “Most business books say that the hardest
threshold to cross is that $10 million sales mark,” he says. “I knew we
couldn’t afford to grow only 10% a year. We needed to blow right through that
number.”
For that to happen, Galbenski knew he had to expand his
customer base beyond the Midwest into large legal supermarkets such as
Boston, New York, and Washington, D.C. He also knew that in doing so, he
could run into stiff competition from larger publicly traded rivals. Contract
Counsel’s edge has always been its low price, Clients called when dealing
with large-scale litigation or complicated merger and acquisition deals,
either of which can require as many as 100 lawyers to manage the discovery
process and the piles of documents associated with it. Contract Counsel’s temps
cost about $75 an hour, roughly half of what a law firm would charge, which
allowed the company to be competitive despite its relatively small size.
Galbenski was counting on using the same strategy as he expanded into new
cities. But would that be enough to spur the hyper growth that he craved for?
At that time, Galbenski had been reading quite a bit about
the growing use of offshore employees. He knew companies like General
Electric, Microsoft and Cisco were saving bundles by setting up call and data
centers in India. Could law firms offshore their work? Galbenski’s mind raced
with possibilities. He imagined tapping into an army of discount-priced legal
minds that would mesh with his existing talent pool in the U.S. The two work
forces could collaborate over the Web and be productive on a 24-7 basis. And
the cost could be massive.
Using offshore workers was a risk, but the payoff was
potentially huge. Incidentally Galbenski and his eight-person management team
were preparing to meet for their semiannual review meeting. The purpose of
the two-day event was to decide the company’s goals for the coming year.
Driving to the meeting, Galbenski struggled to figure out exactly what he was
going to say. He was still undecided about whether to pursue an incremental
and conservative national expansion or take a big gamble on overseas
contractors.
The Decision
The next
morning Galbenski kicked off the management meeting. Galbenski laid out the
facts as he saw them. Rather than look at just the next five years of growth,
look at the next 20, he said. He cited a Forrester Research prediction that
some 79,000 legal jobs, totaling $5.8 billion in wages, would be sent
offshore by 2015. He challenged his team to be pioneers in creating a new
industry, rather than stragglers racing to catch up. His team applauded.
Returning to the office after the meeting, Galbenski announced the change in
strategy to his 20 full-timers.
Then he and his team began plotting a global action plan.
The first step was to hire a company out of Indianapolis, Analysts
International, to start compiling a list of the best legal services providers
in countries where people had comparatively strong English skills. The next
phase was vetting the companies in person. In February 2005, just three months
after the meeting in Port Huron, Galbenski found himself jetting off on a
three months trip to scout potential contractors in India, Dubai, and Sri
Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he
interviewed executives from more than a dozen companies, investigating their
day-to-day operations firsthand.
India seemed like the best bet. With more than 500 law
schools and about 200,000 law students graduating each year, it had no
shortage or attorneys. What amazed Galbenski, however, was that thanks to the
Web, lawyers in India had access to the same research tools and case
summaries as any associate in the U.S. Sure, they didn’t speak American
English. “But they were highly motivated, highly intelligent, and extremely
process-oriented,” he says. “They were also eager to tackle the kinds of
tasks that most new associated at law firms look down upon” such as poring
over and coding thousands of documents in advance of a trial. In other words,
they were perfect for the kind of document-review work he had in mind.
After a return visit to India in August 2005, Galbenski
signed a contract with two legal services companies: QuisLex, in Hyderabad,
and Manthan Services in Bangalore. Using their lawyers and paralegals,
Galbenski figured he could cut his document-review rates to $50 an hour. He
also outsourced the maintenance of the database used to store the contact
information for his thousands of contractors. In all, he spent about 12
months and $250,000 readying his newly global company. Convincing U.S. based
clients to take a chance on the new service hasn’t been easy. In November,
Galbenski lined up pilot programs with four clients (none of which are ready
to publicise their use of offshore resources). To help get the word out, he
launched a website (offshore-legal-services.com), which includes a cache of
white papers and case studies to serve as a resource guide for companies
interested in outsourcing.
Questions
1.
As
money costs will decrease due to decision to outsource human resource, some
real costs and opportunity costs may surface. What could these be?
2.
Elaborate
the external and internal economies of scale as occurring to Contract
Counsel.
3.
Can
you see some possibility of economies of scope from the information given in
the case? Discuss.
|
CASE –
4 Indian Stock Market: Does it Explain
Perfect Competition?
The stock market is one of the most
important sources for corporates to raise capital. A stock exchange provides a
market place, whether real or virtual, to facilitate the exchange of securities
between buyers and sellers. It provides a real time trading information on the
listed securities, facilitating price discovery.
Participants in the stock market
range from small individual investors to large traders, who can be based
anywhere in the world. Their orders usually end up with a professional at a
stock exchange, who executes the order. Some exchanges are physical locations
where transactions are carried out on a trading floor. The other type of
exchange is of a virtual kind, composed of a network of computers and trades
are made electronically via traders.
By design a stock exchange resembles
perfect competition. Large number of rational profit maximisers actively
competing with each other, trying to predict future market value of individual
securities comprises the main feature of any stock market. Important current
information is almost freely available to all participants. Price of individual
security is determined by market forces and reflects the effect of events that
have already occurred and are expected to occur. In the short run it is not
easy for a market player to either exit or enter; one cannot exit and enter for
few days in those stocks which are under no delivery. For example Tata Steel
was in no delivery from 29/10/07 to 02/11/07. Similarly one cannot enter or
exit on those stocks which are in upper or lower circuit for few regular
trading sessions. Therefore a player has to depend wholly on market price for
its profit maximizing output (in this case stock of securities). In the long
run players may exit the market if they are not able to earn profit, but at the
same time new investors are attracted by rise in market price.
As on 01/11/07 total market capital
at Bombay Stock Exchange (BSE) is $1589.43 billion (source: Business Standard,
1/11/2007); out of this individual investors account for only $100bn. In spite
of the fact that individual investors exist in a very large number, their
capital base is less than 7% of total market capital; rest of capital is owned
by foreign institutional investor and domestic institutional investors (FIIs
and DIIs), which are very small in number. Average capital owned by a single
large player is huge in comparison to small investor. This situation seems to
have prompted Dr Dash of BSE to comment ‘The stock market activity is
increasingly becoming more centralised, concentrated and non competitive,
serving interest of big players only.” Table 2 shows the impact of change in
FII on National Stock Exchange movement during three different time periods.
Table 2: Impact of FIIs’ Investment
on NSE
|
Wave
|
Date
|
Nifty
close
|
Change
in Nifty Index
|
FLLS
Net Investment
(Rs.Cr.)
|
Change
in Market Capitalisation
(Rs.Cr.)
|
|
Wave 1
From
To
|
17/05/04
26/10/05
|
1388.75
2408.50
|
1019.75
|
59520
|
5,40,391
|
|
Wave 2
From
To
|
27/10/05
11/05/06
|
2352.90
3701.05
|
1348.15
|
38258
|
6,20,248
|
|
Wave 3
From
To
|
12/05/06
13/06/06
|
3650.05
2663.30
|
-986.75
|
-9709
|
-4,60,149
|
By design, an Indian Stock Market
resembles perfect competition, not as a complete description (for no markets
may satisfy all requirements of the model) but as an approximation.
Questions
1.
Is
stock market a good example of perfect competition? Discuss.
2.
Identify
the characteristics of perfect competition in the stock market setting.
3.
Can
you find some basic aspect of perfect competition which is essentially absent
in stock market?
CASE – 5 The
Indian Audio Market
The Indian audio market pyramid is
featured by the traditional radios forming its lower bulk. Besides this, there
are four other distinct segments: mono recorders (ranking second in the
pyramid), stereo recorders, midi systems (which offer the sound amplification
of a big system, but at a far lower price and expected to grow at 25% per year)
and hi-fis (minis and micros, slotted at the top end of the market).
Today the Indian audio market is
abound with energy and action as both national and international majors are
trying to excel themselves and elbow the others, ushering in new concepts, like
CD sound, digital tuners, full logic tape deck, etc. The main players in the
Indian audio market are Philips, BPL and Videocon. Of these, Philips is one of
the oldest and is considered at the leading national brands. In fact it was the
first company to introduce a range of international products such as CD radio
cassette recorder, stand alone CD players and CD mini hi-fi systems. With the
easing of the entry barriers, a number of new international players like
Panasonic, Akai, Sansui, Sony, Sharp, Goldstar, Samsung and Aiwa have also
entered the arena. This has led to a sea of changes in the industry and
resulted in an expanded market and a happier customer, who has access to the
latest international products at competitive prices. The rise in the disposable
income of the average Indian, especially the upper-income section, has opened
up new vistas for premium products and has provided a boost to companies to
launch audio systems priced as high as Rs. 50,000 and beyond.
Pricing across Segments
Super Premium Segment: This segment of the
market is largely price-insensitive, as consumers are willing to pay a premium
in order to obtain products of high quality. Sonodyne has positioned itself in
this segment by concentrating on products that are too small for large players
to operate in profitably. It has launched a range of systems priced between Rs.
30,000 to Rs. 60,000. National Panasonic has launched its super premium range
of systems by the name of Technics.
Premium Segment: Much of the price game is
taking place in this segment, in which systems are priced around Rs. 25,000.
Even the foreign players ensure that the pricing is competitive. Entry barriers
of yester years compelled the demand by this segment to be partially met by the
grey market. With the opening up of the market, the premium segment is
witnessing a rapid growth and is currently estimated to be worth Rs. 30 crores.
Growth of this segment is also being driven by consumers who want to upgrade
their old music systems. Another major stimulating factor is the plethora of
financing options available, bringing more and more consumers to the market.
Philips
has understood the Indian listener well enough to dictate the basic principles
of segmentation. It projects its products as high quality at medium price. In
fact, Philips had successfully spotted an opportunity in the wide price gap
between portable cassette players and hi-fi systems and pioneered the concept of
a midi system (a three-in-one containing radio, tape deck and amplifier in one
unit). Philips has also realised that there is a section of the rich consumer
which values not just power but also clarity and is willing to pay for it. The
pricing strategy of Philips was to make the most of its image as a technology
leader. To this end, it used non-price variables by launching of a range of
state of art machines like the FW series, and CD players. Moreover, it came up
with the punch line in its advertisements as, “We Invent For You”.
BPL stands second only to Philips in
the audio market and focuses on technology as its USP. Its kingpin in the
marketing mix is its high technology superior quality product. It is thus at
being the product-quality leader. BPL’s proposition of fidelity is translated
in its punchline for its audio systems as, ‘e-fi your imagination’ (d-fi stands
for digital fidelity). The company follows a market skimming strategy. When a
new product was launched, it was placed in the top end of the market, and
priced accordingly. The company offers a range of products in all price
segments in the market without discounting the brand.
Another major player, Videocon, has
managed to price its products lower even in the premium segment. The success of
the Powerhouse (a 160 watt midi launched by Philips in 1990) had prompted
Videocon to launch the Select Sound range of midi stereo systems at a slightly
lower price. At the premium end, Videocon is making efforts to upgrade its
image to being “quality-driven” by associating itself with the internationally
reputed brand name of Sansui from Japan, and following a perceived value
pricing method.
Sony is another brand which is
positioning itself as a premium product and charges a higher price for the
superior quality of sound it offers. Unlike indulging into price wars, Sony’s
ad-campaigns project the message that nothing can beat Sony in the quality and
intensity of sound. National Panasonic is another player that has three
products in the top end of the market, priced in the Rs. 21,000 to Rs. 32,000
range.
Monos and Stereos: Videocon has 21% share I
the overall audio market, but has been a major player only in personal stereos
and two-in-ones. Its history is written with instances where it has offered
products of similar quality, but at much lower prices than its competitors. In
fact, Videocon launched the Sansui brand of products with a view to transform
its image from that of being a manufacturer of cheap products to that of being
a company that primes quality, and also to obtain a share of the hi-fi segment.
Sansui is being positioned as a premium brand, targeting the higher middle,
upper income groups and also the sensitive middle class Indian consumer.
The objective of Philips in this
segment is to achieve higher sales volumes and hence its strategy is to expand
its range and have a product in every segment of the market. The pricing method
used by Philips in this segment is providing value for money.
National Panasonic offers products in
the lower end of the market, apart from the top of the range. In fact, it
reduced the price of one of its small two-in-ones from Rs. 3,500 to Rs. 2,400,
with the logic that a forte in the lower end of the market would help in
building brand reliability across a wider customer base. The company is also
guided by the logic that operating in the price sensitive region of the market
will help it reach optimum levels of efficiency. Panasonic has also entered the
market for midis.
These apart, there also exists a
sector in the Indian audio industry, with powerful regional brands in mono and
stereo segments, having a market share of 59% in mono recorders and 36% in
stereo recorders. This sector has a strong influence on price performance.
Questions
1.
What
major pricing strategies have been discussed in the case? How effective these
strategies have been in ensuring success of the company?
2.
Is
perceived value pricing the dominant strategy of major players?
3.
Which
products have reached maturity stage in audio industry? Do you think that
product bundling can be effectively used for promoting sale of these products?
