business marketing

Education in India has shown a tremendous change from the traditional guru- (a teacher who dispels darkness of ignorance) shishya (student) parampara (tradition) to e-learning based education system comprising of formal and informal network of educational institutes. In India, education in schools can be of two types-formal and informal. The formal education system broadly comprises schools (often known as K12- Kindergarten to class 12th) followed by higher education. The school caters to 3-18 years age group, where as higher education institutes cater 18-22 years and above age group. The informal education segments fl anking the formal ones includes pre-schools, coaching classes, multimedia/ IT to schools and colleges (catering to both private and public institutions), vocational training and the books market. In the year 2008, the total Indian education market (formal and informal combined) was as big as $50,110 million, and expected to grow up to $ 84,858 mn by 2012, as per the research conducted by IDFC-SSKI. (See Table 1).

Table 1: The Indian Education Market (IEM)

($ m) Revenues (2008E) % share of total Revenues (2012E)

Formal IEM 40,000 80 64250

K12 20,000 40 33779

Higher Education 20,000 40 31470

Informal IEM 10,110 20 19,608

Preschool 300 0.60 1,026

Sparkle Edusolutions: Business Marketing by Sparkle Edusolutions: Business Marketing by Startup FirmsStartup Firms**

8CASE

** This case has been prepared by Ramendra Singh, Indian Institute of Management, Calcutta-India & Imran Rashid, *** . It is intended as a basis for class discussions rather than to illustrate either the correct or incorrect handling of business situations

Ramendra Singh and Imran Rashid

Case 08.indd 156Case 08.indd 156 3/6/2013 4:43:09 PM3/6/2013 4:43:09 PM

SPARKLE EDUSOLUTIONS: BUSINESS MARKETING BY STARTUP FIRMS 157

($ m) Revenues (2008E) % share of total Revenues (2012E)

Multimedia in private schools

70 0.14 459

ICT in govt schools 90 0.18 752

Coaching classes 6,400 12.77 11,194

Vocational training 1,500 2.99 3,662

Books 1,750 3.49 2,516

Total IEM 50,110 84,858

Source: IDFC-SSKI Research

Use of multimedia in schools, a constituent of informal education market, has shown remarkable increase in terms of market growth and revenue growth compared to previous years. The multimedia market in India is very competitive, and it is increasingly becoming difficult for any new entrepreneur to establish in this segment.

In this environment, an educational technology new venture started by a group of IIT engineers under the name Sparkle Edusolutions entered the market of informal education. Imran Rashid, the founder of Sparkle Edusolutions, mentioned, The key challenge with our venture is presence of the big players in the different segments of K-2. Reputed Schools do not want to go with newcomers. Another key challenge is training the teachers of tier2 and tier3 schools to understand this technology. For such kind of schools neither the school management nor the teachers want to go for any innovation in their mode of teaching.

These two issues are further making the task diffi cult for Sparkle Edusolutioins (SE henceforth), which provides supplementary educational programs for schools & educational institutions, to compete in the lucrative but competitive market.

Indian School Education SystemThere are the two main types of schools India:

Government run, and Privately owned

The government schools are working for higher literacy rate but it takes time to reach a level of satisfaction. Immensely rise in private schools show that people are much in need of quality education. Imran Rashid says, Although at this time the


CASES IN BUSINESS MARKETING158

market is dominated by private schools, yet SE is facing problems with A grade Schools not wanting to go with new entrants while B&C grade schools are not interested in our kind of products.

Mainly governments schools are in rural area and people from there can neither migrate to urban areas not afford the very high fee charged in the corporate and private schools. Therefore, it seems to be a good proposal in education sector to improve the chances for rural good education on par their urban counterparts in the village themselves. In this globalized era, when many rich and fortunate urban children are becoming technologically savvy, their rural counterparts do not know even about computers. However, government lack funds to enhance the quality of rural schools. So this problem can be resolved by public private partnership only. Imran Rashid suggests, To form the public private partnership, the private company must be established one then only it can be chosen. SE was not in a state to form public private partnership.

Indian education system in general comprises of formal and informal network of educational institutes.

Formal education system

The formal education system in India broadly comprises schools (often known as K12- Kindergarten to class 12th) and higher education (colleges, universities, institutes, and polytechnics). The school caters to 3-18 years age group, where as higher education institutes cater 18-22 years and above age group.

There are broadly four stages of school education in India, namely preprimary, primary, secondary, and senior secondary. The preprimary level is usually composed of Lower Kindergarten (LKG) and Upper Kindergarten (UKG), where primary reading and writing skills are developed. After fi nishing upper kindergarten, a child enters Class one of primary school. In the primary level, students form an idea of their own of the different subjects. Primary school (class 1-6) includes children of age six to eleven. After completing primary level, student enters into secondary school (class 7-10) and then senior secondary school (class11-12). However, there are considerable differences between the various states in terms of the organizational patters within these fi rst 10 years of schooling.

Informal education system

The informal education segments fl anking the formal ones include pre-schools, coaching classes, multimedia/ IT to schools and colleges (catering to both private and public institutions), vocational training and the books market. Formal education



in India is inadequate, so it forms platform for informal education for its backing. The K-12 education market in India is inadequate in itself, and therefore has given a large space for informal education e.g. pre schools, coaching classes, multimedia/ IT to schools, thus this informal market is known as K12 informal market.

Sparkle Edusolutions: An Overview

SE was founded in 2010 by a constellation of IITians studying at IIT-BHU Varanasi (a premier engineering college in northern India) with the motive of shaping the next generation of students. Arvind Duhan, a member of SE, mentioned At Sparkle we strive to reform school education in India. Within a very small time span SE has established a presence in different segments.

Under Imrans leadership, SE has collaborated with several reputed schools for competitive examinations like NTSE (National Talent Search Examination) & KVPY (Kishore Vaigyanik Protsahan Yojana), managing and developing web portal, and providing educational content in multimedia fl ash-based animation for better understanding of concept. Imran Rashids fi rst steps towards an entrepreneurial career started in 2009, when he started Sparkle Edusolutions with the aim of shaping the next generation of students. They began by providing study materials for competitive examinations such as NTSE/KVPY. It was Imrans idea to enter in the fi eld of multimedia, which was a very innovative way of teaching even during that time. Faced with growing competition from bigger players, small schools were not in the position to become tech savvy and effi cient, said Keshav, one of the key members of SE. He admitted that the product was not high on innovation, but did reasonably well as an application.

The K-12 market size in India is large. There are 11,30,000 government and, 1, 00,000 private schools in India. It is estimated that total size of this market is $ 20 billion. The informal K-12 education segment is contiguous to the K-12 education for their business. The business segments for SE are shown below:

SPARKLE EDUSOLUTIONS

Online coaching Spark digitalclassroom

Multimedia inprivate schools

NTSE/KVPY and Olympiads

School projects forcompetitive examinations

Complete online support for competitive examinations

Figure 1: SEs business segments



The product line of Sparkle Edusolutions consists of the following:

Multimedia classroom Online coaching School projects for competitive examinations

Sparkle Edusolutions Offerings

SE was started with the aim to prepare the students for scholarship examinations such as NTSE, KVPY, etc. SE provides books covering complete syllabus as well as teaching support material in the form of power point presentations and multimedia fl ash. SE collaborated with several reputed schools to prepare their students for such examinations. Imran Rashid mentions, This was the segment where brand name was not obstacle and so on was the results that SE got very good response in the market. SE is having edge over other competitor because of their low price of study material.

Another breakthrough was launching of their online web portal for such examinations www.sparkleforntse.com. We ensure that technology is at its peak in terms of user maturity, i.e., an amateur and a frequent user would take the same amount of time to study through our on line courses. says Imran.

In todays techno-savvy world, web is fl ourishing and dotcom industry a boon to the society. According to Imran Rashid, This segment was our next target, so with this aim we collaborated with a leading IT company, TWC, to provide quality services. We offer comprehensive website design services boasting of highly scalable designs, well thought of graphics, layouts, and search engine optimized content. SE also undertakes website hosting and provides regular website maintenance services. It is time to think beyond basic website and schools are using the web to communicate running information such as performance of students to parents. The web will be delivery model.

SE also provides following module-based services:

School news and articles update School events image gallery Notice board on website Result update Discussion forum Online magazine Alumni information Forms and brochure will be available Online tests and evaluation



FAQ Digital asset library Organization Calendar Media

SE e-Learning solutions turn class into a high-tech multimedia classroom where animated fl ash-based visuals are shown for better understanding and grasping of content. The lecture is distributed in accordance with the CBSE/ICSE syllabus, and consists of deep theory related to the topic followed by practice problems for better understanding. This is the most competitive segment because of the existence of established players, realizes Imran.

Spark Digital Classroom- A Technology based classroom

SE now targeted on multimedia classroom, which is new wave in the Schools. SE named their Multimedia classroom as Spark Digital Classroom. Imran said, In order to have complete world class experience we insist for a complete package our offering which includes infrastructure, hardware and software setup. The components of SEs multimedia classroom were:

White board for projection display Black/green board for teachers note Speaker for perfect digital sound clearly Teachers table along with security cup board for hardware Teachers chair Projector (min 2400 lumens) for great experience while viewing digital content. Well confi gured computer or laptop Uninterrupted power supply (UPS) system with power backup to allow classes to

run uninterrupted even in case of power failures.

Sparkle appoints a regional expert, who acts as the interface between the school and sparkle in their region. The Sparkle expert will be an equivalent to a bachelor of engineering from a well-reputed engineering college.

Overview of the Market

Multimedia Classroom Experience

As per Imran Rashid, Multimedia inside school is a new wave. If we consider the technology adoption life cycle then we can say that educational technology adoption is in the early majority in the rural area and late majority in the urban area. Early



Majority are sometimes called pragmatists, and represent the bulk of the market. They tend to buy in to new technologies only after they perceive solid references and safety measures that guard against potential failures. Securing the pragmatist buyer is the most important marketing challenge. Both urban and rural educational market has achieved this segment. As Rani Rai, the principal of Aryan International School, situated in Varanasi remarks:

Multimedia teaching is quite interesting and interactive. The 3D pictures and animation helps in better understanding of concepts. The best thing about multimedia teaching is that it is able to grab the attention of the students for much longer duration.

On the part of user end, (teacher) multimedia provides the attention grab of the class, as students pays more attention and it makes easy for the teacher to explain any critical concept using 2D/3D videos.

Multimedia teaching makes use of natural information in a creative way. Using multimedia software can create a dynamics 3D shape projection process. It increases student interests, makes them fearless and open. On a further note it is time saving as well asserted a teacher.

Undoubtedly, students will be the biggest benefi ciaries of this union of technology and education. A student of a reputed private school says, Multimedia helps us understanding certain fi gures and concepts that are diffi cult to understand in classroom. The visual part often shows working of machines that we dont learn in classroom.

However, there are certain hurdles faced by the school in installing multimedia equipment these are the extra expenses on the school budget, interest of teachers, and in the packed schedule of school hours, it becomes tough to give time to multimedia teaching. Rani Rai maintained that multimedia teaching is a powerful tool if educators use it to achieve educational effectiveness. Provision of these tools does not in itself lead to successful outcomes.

Imran explains, This is the one of the most benefi cial segment of K-12 market. So, lots of multinational companies are targeting this segment. A large chunk of the market is covered by Educomp, followed by other competitors such as, Edurite, NIIT, Mexus education, next education, and others.

Competitors

Educomp

They have covered total 26, 000 schools including government and private both. They have reported the profi t of INR221.87cr in 2010 from INR13.90CR INR 2006.



Educomp is the one of the established player in multimedia segment. Educomps multimedia class is known as smart class. The smart class is offered with a contract life of fi ve years, after which the hardware belongs to the school. Multimedia classes accommodate 60% of Educomp revenue. They are expanding worldwide and having 27 offi ces worldwide. In addition, Educomp has set up various online initiatives (such as Mathguru a mathematicshelp online programme catering to grade 6-12 students). Based on an annual subscription fee, the portal has 28,929 paying subscribers and is expected to see robust growth in near future. Educomp is further building up presence in the coaching class market with online tutoring portals called ThreeBrix and Learning Hour. Educomp has also acquired a 51% stake in AuthorGen Technologies for Rs 27m. Authorstream.com, an initiative of AuthorGen, is a web platform for connecting students and teachers. Educomp also has a 70% stake in Savvica for $2m, an e-learning company in Canada, which builds online communities around e learning. Educomp has acquired 51% stake in US-based Learning.com for $24.5m in May 2008, a premier provider of Web-delivered curriculum and assessment with more than 2m students in its portfolio.

Niit@ School

NIIT@SCHOOL is the effort of NIIT, which is among the top 25 IT companies worldwide and a trailblazer in computer aided education system. While NIIT has implemented multimedia products in 2,000 private schools until date, they have been primarily pure IT content products. NIIT is strengthening its product portfolio with newer content. Under the brand e-guru, NIIT now offers a bouquet of products such as IT Labs, MathLab and others labs (English, Science, etc), and has recently launched an interactive classroom product (an integrated product with hardware and software similar to Smart Class by Educomp Solutions). The schools can choose from the bouquet or opt for the entire product offering at Rs40-250 per student per month. While the high-yield integrated product has been implemented in 100 schools so far, it holds scale-up potential.

Erudite

It has been acquired by the Pearson Education Service and Manipal K-12, promoted by Manipal group, a leader in higher education in India. Erudite provides online tutoring, selling study material in the form of CDs, classroom coaching and multimedia classroom into schools.



Mexus Education

They provide e-learning solutions for primary and secondary school students that integrate mind maps, slideshows, animations, assessments, and fi lms to make learning interactive. Main Offi ce is located in Mumbai and mainly effective in that region only.

Next Education

Next Education is a growing, technology driven company providing e-learning content to schools. The company has primarily focused on the market of Bihar, where it sees many opportunities.

Classroom Coaching

India already has an inadequate education system, which is being further stretched due to its increasing population. So much so that a $6.4bn segment (64% of the total informal education system; next only to K-12 and HE) coaching classes have sprouted around formal education system. Coaching classroom have emerged as the prominent mode of seeking informal education in India. Market consists of providing tuitions and entrance test preparation. Market is highly fragmented and regional in nature. The major players of this segment are:

Fiitjee

FIITJEE is the leading player in coaching market in India. In fi nancial year 2011-12 FIITJEE is poised to cross a turnover of ` 2000 crores. FIITJEE provides training to school students for the prestigious IIT-JEE, NTSE, KVPY, All India Engineering Entrance Examination, Olympiads, and State Level Engineering Exams via classroom as well as distance education programs. They are having centers in almost every city in India. They are also associating with several schools for the integrated classroom programs.

Aakash Institute

They provide training for medical, engineering and school level competitive examination. Just like FIITJEE, they are also having centers in almost every city in India. Since 1988, Abash has come a long way in clutching the ocean of opportunities, which exist in Education and Training. Their 23 years of experience, more than 18,000 selections in Medical Entrance Exams., a country-wide network of over 47 centres



across India, collective annual student base of more than 25,000 classroom course students every year and above all, trust of millions of parents, has made Aakash a household name for focused and quality coaching.

Resonance

Resonance is a leading coaching institute for preparation of competitive entrance exams for Engineering and medical like IITJEE, AIEEE, AIPMT, and Scholarship/Talent hunt Exams like NTSE, KVPY & Olympiad. Apart from the classroom and distance learning, they are also going to launch e-learning programs in association with HCL- career development centers.

Career Point

They are tutorial service providers. They provide tutorial services to high school and post high school students for various competitive entrance examinations including All India Engineering Entrance Examination, IIT-JEE and All India Pre-Medical and Pre-Dental Test. The tutorial services are provided in their classroom training programmes conducted through a network of company operated and franchisee centers. As on July 31, 2010, they had 17 Company Operated Training Centers and 16 Franchisee.

Online Coaching

Online tutoring is starting to take off in a big way. Many online portals are starting to offer educational support to students that have further lead to a win-win situation for students, teachers and parents of students who are working for such portals. Imran Rashid states, Online assistance for studies is a very good initiative. It will help a student to do self-study and get online help when queries arise as compared with a coaching class where one has to study as decided by the tutor. Online tutoring in India seems to be a good proposition as Indian students are internet savvy although online tutoring can become a big distraction to kids of age 12-18 years.

Some major players of this segment are:

TCY Online

TCY provides online coaching from K-12 to MBA, MCA, GRE, GMAT, SAT, NTSE. They have enrolled 450,000 students until now. www.TCYonline.com is one of the most used testing platforms in India. Apart from these students can download practice papers free and check their mental ability by giving an exam online. The company has



also been engaged in one-on-one Math live tutoring K-12 students in North America. The company has a tutoring experience of over 280,000 hours during this period after having trained over 2500 students. The company is also broadening its affi liate network in the US.

Vriti

This is another big name in the fi eld of online preparation. They have many partner brands in the form of content partner and distribution partner. Content partner creates online course and test series while distribution partner launch courses on their website. Vriti is a knowledge exchange targeted at bringing teachers, students, content providers and the larger community together for exam preparation. The knowledge exchange provides every brand the capability to launch its own website and paper based classroom tests for its students, providing them with the most detailed and largest assessment. Vriti caters to competitive, curriculum, job-preparation, and skill enhancement landscapes. Team Vriti is a diverse mix of IIT Alumni, with veterans from online and scalable technology solution space. Vriti has been backed by leading technology investors - Intel Capital & JAFCO Asia.

Vritis assessment engine is its a unique proposition and a state-of-the-art proprietary technology engine that offers a 360 degree gauge of a students performance. The Accelerate Engine has been vital in assessing and benefi ting almost a million students since its inception.

Ntse Gyan

Aabhigyan Educational Academy, the institute in north India imparting training for engineering and medical entrance examinations like IIT JEE / AIEEE / PMT have started an online portal for the preparation of NTSE.

K-12 e-Learning in other countries

E-Learning is gaining more and more popularity all over the world. Apart from educational sector, other companies are also using e-learning to train their employees. E-learning is one of the most important and potentially signifi cant new instructional approaches available for supporting the improvement of teaching and learning in K-12 schools. Several virtual schools (or virtual schooling services) in the UK, USA, Canada, and Japan are specifi cally designed to assist disadvantaged school-age



students. With the help of virtual schools, students can learn from any place, where there is a computer and an Internet connection. The Virtual High School (VHS) is Americas fi rst public virtual high school, a consortium of high schools offering online courses taught and designed by cooperating teachers who are accredited in their respective States.

Online classes in USA were fi rst offered during the 1997-98 year, for 30 online courses to about 500 students in 27 schools in 10 states. The Liverpool Virtual School, UKs fi rst virtual school opened in the year 1999, and is an online school that gives students from deprived areas of Liverpool, access to their own computers and e-learning packages. Yet another virtual school, Briteschool, is an online school that uses the British national curriculum to help students who want to go back into mainstream education at any time, or who wish to successfully complete the International General Certifi cate of Secondary Education (IGCSEs).

K-12 e-Learning have been implemented in almost all developed and developing countries.

SEs Marketing Strategy

Marketing strategy of SE revolves around 4Ps-Presentation, Product, Price, and Promotions.Presentation: It is the building block of all the operations. After getting the appointment from school administration that sometimes becomes a tough task, SE team visits school for their presentation in front of school administration, teachers, and students along with their parent. SE arranges talk to build interest and propagate the knowledge about multimedia education. Everyone who works in school market agrees that educators are more relational than other professionals. It makes sense that relationship selling-making a comfortable fi eld is important to sell successfully. Product: The quality of product is most important aspect for long run. SEs multimedia product consists of:

Multimedia 2D/3D content Installation of hardware and software

Script of the content is written by top academicians and used by highly skilled fl ash developer and their immense effort lead towards high-quality content for students. In order to have error free content, several round of correction took place.



Price: Budget is also one of the major concerns for school administration. SEs pricing strategy is quite fl exible depending upon the area where school is located i.e. rural or urban area. Equipments were installed as per the budget of the schools. It should not overload the school administration, so SE charges a nominal fee from students on per month basis.Promotion: SE uses print as well as electronic media for promotions. In the early stages, SE got lots of media coverage free of cost in newspaper since the founder came from a premier institution. SE also regularly organizes workshops, seminars, and different activities where students and teachers are involved.

Once the deal with any school is fi nalized, the remaining steps to be carried out are as following:

1. Singing of the contractual agreement with school and payment of advance. 2. Client service team to visit school and begin orientation program. 3. Dispatch of Performa invoice 4. Dispatch of materials for installations and implementations. 5. Process implementation team to visit schools for setting up the systems. 6. Training team to visit schools. 7. The SE team exits after initiating the system. 8. Support and development extended as agreed.

SE enters into a contract with schools for a period of 3 years to provide content, infrastructure, and training to teachers to use spark digital class. Apart from this SE provides complete support in the form of books, and animated contents for competitive examinations. Monthly fee is INR 105 per student per month. To continue it further, schools need to renew their contract with SE. After fi rst tenure, school becomes the premium customer, so students have to pay only INR 90 per month. It becomes benefi cial for both schools and SE, as there is no need to setup infrastructure further.

Moreover, to increase visibility, and generate higher revenue in the extremely competitive and cluttered education sector, SE has to employ innovative marketing solutions. SE therefore helps schools to maximize program participation and build brand equity through various activities and strategic marketing partnerships. Marketing aggressively also helps SE in building good relationship with schools, and create the platform for their other products. SE provides following marketing solutions to schools:

Brand building Promote your School in a positive way among target markets. Event management Organizing and sponsoring events that will increase

visibility.



Student acquisition Creating a data base and attract higher student enrollments Corporate planning Successful forecasting and organizing of revenue yielding

resources.

The success of the SEs marketing efforts came from the voices of the different stakeholders in the market, which showed the increasing openness of the school administrators, principles and teachers, as well as students to learning using multi-media (See Exhibit 4).

Exhibit 1: Home page of website for online preparation.

Source: Company web portal.



Exhibit 2: Print media coverage.

Source: Hindustan times newspaper.



Source: physicse learning content.

Exhibit 3: Snap shot of Spark digital classroom content.

Decision Makers (School administration)

Multimedia teaching is a powerful tool if educators use it to achieve educational effectiveness. Provision of these tools does not in itself lead to successful outcomes.

Optimal use of multimedia technology in education and its full potential will only be realized if it is adopted as an instructional tool.

Major hurdles in order to implement multimedia teaching are, installation of the infrastructure, and teacher orientation & development. Both the above have to accommodate in the tight school schedule. Not only are the above two time taking things but an added overload on the school budget.

End Users (Teachers)

Multimedia teaching makes use of natural information in a creative way. Using multimedia software can create a dynamics 3D shape projection process. It increases



student interests, makes them fearless, and open. On a further note it is time saving as well.

Schools that have realize the importance of technology and incorporated it in their curriculum. Students will be the biggest benefi ciaries of this union of technology and education.

Consumers (Students)

It helps us understanding certain fi gures and concepts that are diffi cult to understand in classroom. The visual part often shows working of machines that we dont learn in classroom.

We us multimedia teaching only when we have completed a chapter, so it is good for the revision as well.

Exhibit 4: Voices from the Stakeholders

0

INR

(bn)

200

400

600

900

1000

1200

1400

1600

1800

9631147

1356

1606

2005-06 2006-07 2007-08 2008-09

Source: Ministry of Education; World Bank.



Exhibit 5: public expenditure on edcation

0

100

200

300

400

500

600

INR

bn 300.6

2008

349.3

2009

406.7

2010

477.5

2011E

557

2012E

Source: Ministry of Education; World Bank.

Exhibit 6: coaching market size and growth

6th to 12th and tertiaryeducation (tution market)

Graduate test preparation

Post gtraduate test preparation

80%

17%3%

Source: Angel broking; CLSA; IDFC-SSKI INDIA, Indian Education Sector, January 2009.

Exhibit 7: Coaching calss market break-up.


Introduction to the Case StudyThis case study is about the evolution and development of the business-to-business (B2B) relationship between Meher Enterprises and Tamesh Institute of Management Asansol (TIMA). Meher Enterprises has been providing catering service to TIMA student hostels for more than 30 years now. Over the years, it has delivered excellent value to TIMA that has helped sustain this relationship. The case highlights the aspects of business relationships such as starting and developing relationships in B2B transactions and how a coordinative behaviour by both parties involved helps to sustain and strengthen these relationships.

The case begins with the most recent transaction between Mr. Meher and TIMA, i.e. the negotiations over awarding the WH Mess contract to Mr. Meher. Next, the case delves into the history of the start up of the business by Mr. Meher, and his own background. The case also refl ects the perspective of TIMA on what value has Meher offered to them and why they have stuck to Meher as a catering vendor. Next, the case focuses on a few of the problems that have arisen over this long period and how and why the relationship between the two parties stood up to these tests.

The development of the relationship between TIMA and Meher Enterprises can be illustrated as a framework on the next page.

Meher Enterprises1

9CASE

1 This case has been prepared by the Ramendra Singh and Srikrishna Srinivas solely for the purpose of classroom discussion of a business situation and does not intend to highlight either effective or ineffective handling of the case situation by any company or persons. Some names, i.e. of the case characters, business entities, and the companies have been either disguised or altered to protect identities. The authors are indebted to several PGP2 students of IIM Calcutta (200911 batch) for their initial efforts in case writing.

Ramendra Singh and Srikrishna Srinivas

Disclaimer: This case has been prepared by Ramendra Singh, Indian Institute of Management, Calcutta-India & Srikrishna Srinivas, ***. It is intended as a basis for class discussions rather than to illustrate either the correct or incorrect handling of business situations


MEHER ENTERPRISES 175

MEHER ENTERPRISES

- High onenterpriseand learning- Good atbuildingpersonalrelationships- Skilled atmanaginglabour-well respected

IndividualInfluences

(None)One Man Show

OrganizationalInfluence

Coordinative

NegotiationBehaviour

- Profits- Stability

NegotiationOutcome

TIM ASANSOL

- Studentsfavor Meher- Facultyhas goodrelationshipwith Meher- Theadministrationis cooperativewith Meher

IndividualInfluences

- Favorcontinuity- tenderingprocessescan be managed

OrganizationalInfluence

Coordinative

NegotiationBehaviour

- Trust- Qualityservice

NegotiationOutcome

Long TermRelationship

Joint Outcome

In 1976, Mr. Meher started a snack shop outside the gates of TIMA. Many years later, he became the proprietor of Meher Enterprises, which now provides catering services in the Tagore Hall, Guest Mess and the Lake View Mess at TIMA. He has slowly and steadily with persistent efforts, focussing on building strong bonds with TIMA has been able to build a strong relation with TIMA. On his way, he has seen



many diffi culties, which brought him enormous experience. TIMA on the other hand realising his honesty and faith towards the organisation has helped him in many ways be it fi nancing him in dire situations or in proving him brand which has helped him expand the business and in forming ties with many reputed institutions in Asansol.

Meher now looks forward to start a private limited company and start a chain of restaurants by which he says he would be able to provide quality service to the people. Recently, he has a contract to run hostel messes at IMI in Asansol. He has been trying since long to expand his business beyond TIMA. His fi rst big step to expand his business was by entering into fi sheries business back in 1996. This was the time when he used to run all the hostel messes at TIMA. By entering into fi sheries business, his concentration on the hostel messes at TIMA faded and the managers he appointed to run the business, started taking advantage of this by misusing their authority, and fi nally taking over the hostel messes. Later he suffered losses even in the fi sheries business. This came as a shock to Meher and even now, he is not able to recover all the messes he once owned.

With plans of starting a chain of restaurants, which is the next big step towards expanding the business beyond TIMA, Meher has to be cautious not to weaken the relations with TIMA. He has already appointed managers at each of the hostel messes. Now whether to expand the business or to concentrate strengthening the ties with TIMA is the next big question for him.

BackgroundMeher Enterprises is responsible for the mess catering services in the Tata Hall, Tagore Hall and Lake View Mess within the campus of TIMA. Tata Hall is the guesthouse in the campus where sometimes students are also provided accommodation. Lake View Mess is the newest mess, which is recently started. White House (WH), Old Hostel (OH) and New Hostel (NH) are the three main hostels where students reside. Students who eat at these hostels are supposed to register at the messes a fi xed amount each month and then depending on certain food items tagged as extra, pay for the extra food they have had. There is a night canteen in each mess, which means that other than the three regular meals breakfast, lunch and dinner, students can have food items/tea in the night (11:00 pm to 4:00 am). The food items are charged extra for night canteen. The workers in the mess are not employees of the contractor, but work under the purview of the labour union and would remain workers of WH Mess even when the contractor changes. There is a student council, a student run body that takes care of hostel life and various aspects of student life at TIMA. The mess representative of each hostel is also a part of students council.



Back in 1975, there was only one hostel in TIMA, the Roman Hostel also known as Old Hostel (OH). Unlike now, it had just a normal mess where meals were served 3 times a day and there was no night canteen. Meher Enterprises started in 1976 with a small shop outside the entrance gate of TIMA. Other than the mess food, during the non-mess timings, the students had to go to the snack shop outside the gates and have snacks. The popularity of the shop among the students was so high that even the administration took notice of it. Meher was then invited to run a coffee shop inside the campus in 1978. This was the beginning of the long-term relationship of Meher Enterprises with TIMA. In 19821983, TIMA upgraded its infrastructure and a new hostel came up. The popularity of Mr. Meher was already high in TIMA. The popularity of the coffee shop run by him was even high among the faculty members. Knowing his popularity, Meher Enterprises was given the contract for this new hostel. Moreover, during this time, the existing mess workers refused to work, demanding permanent employment status, which made TIMA administration to outsource the contract.

Mr. Meher showed his astute accounting skills by pricing the contracts at a substantial level, yet at a sustainable discount rate as compared to the prevalent mess contract, which was run by the college itself. Mr. Meher was known to maintain a very pleasant relationship with administration as well as staff. With this pleasant behaviour, he built himself the reputation of integrity and astute business sense. He was often seen working in the mess, clearly showing that he would ensure every effort to ensure service. His leadership, by example lead his employees to pore in their entire effort into enterprise.

In 1984, the contract for Guest Faculty Mess also came up. His reputation convinced the faculty members and then the director at that time to help Meher Enterprises with funds and thus start the mess. He ensured every effort to focus on the quality of the service offered. The Guest Mess brought in better margins than the other, allowing Meher Enterprises to improve his service. Mr. Meher had a perfect bonding with the workers. Staff rarely ever had concerns, which were never addressed. Mr. Meher ensured every effort to groom the workers and the cooks, and made every effort to provide them with better utensils and uniforms. By 19931994, Meher had all the mess contracts under him, and Meher Enterprises was in charge of hostel mess, Guest Mess and Coffee Corner, which moved further inside. This is the time when Mr. Meher was comfortable with all the works in the messes.

Mr. Meher, led by ambition and a sense of pride in catering to a premier institute like TIMA, outlined a bold plan for his business expansion. The region offers resources, both natural and manmade to aid the fi sheries business. Fisheries and nurseries are predominantly an unorganised industry in the state, thus offering great incentive to



enter the business. Meher Enterprises thus, wanted to diversify into the fi sheries and nurseries business. Further, Mr. Meher found himself strained for time coordinating activities of the messes in the hostels, with new plans on the horizon requiring his constant attention. It was thus decided to bring in managers to supervise each of the hostel messes. To keep a closer eye on the managers, Mr. Meher got his brother more involved in the day-to-day running of the mess operations; coordinating closely with the newly appointed managers. The coffee house was moved under direct supervision of another family member.

The Guest Mess in TIMA, however, was where Meher Enterprises made most of its money. Margins here were high enough to subsidize the low margins in other messes. Mr. Meher thus decided to keep the mess under his direct supervision rather than appoint managers to take care of it. However, the managers took advantage of Meher being very busy with the fi sheries business. They started taking up the mess contracts; his brother himself took over one of the messes at lower rates. By losing the mess contracts one by one, Mr. Meher felt devastated. The coffee shop was also shut down given the low profi t margins. However, the only hope was that the Guest Mess was still in his hand and he knew that his credibility and persistent hard work to build a strong bond with TIMA would pay-off some day.

In 1998, Meher Enterprises won one of the students mess contracts. Balancing between maintaining quality and service given near-zero margins remained a constant worry for him. In 2000, Meher Enterprises walked away from the hostel mess after being fi ned ` 10,000/- for falling short on food preparations for eight students. The relationship between Meher Enterprises and TIMA faculty members could not be of much help then because he has fallen short on the core product. In 2001, he suffered substantial losses in the fi sheries business and decided to quit. Now, he was left with only the Guest Mess contract and he made all his efforts to impress the faculty members as well as the student community. His dedication in his work was outstanding.

In 2006, with his efforts and infl uence, he was able to win the contract for the Tagore Hall but due to some complaints from students side, he moved out of the contract in 2008. He was again left with only the Guest Mess where he consistently gained popularity by his industrious work.

In January 2009, Mr. Atanu Ghosh, the proprietor of Destiny Caterers was roped in at a time when his predecessor decided to quit. Atanu as a mess contractor had great credibility and his credentials for the position were very impressive. He had earlier worked for a number of high profi le names. Thus, the decision to hire him was never seen as a questionable one and the food quality was satisfactory in the beginning. Later



on, in mid-2009, things started taking a negative turn. The quality of food started degrading because of infl ation in food prices, and the increasing number of student defaults. This was in fact a cyclic process one thing leading to another ending up in poor quality food, and very less student registrations. Later on in the last month of the academic year, i.e. February 2010 was almost like a probation period for him. The food quality did not improve but nothing much could be done, as there was no point fi ring the contractor towards the end.

The Turning PointIn June 2009, the contractor demanded an increase in basic prices citing reasons such as liquidity problems. However, this time the president and WH Mess representative thought enough was enough. Before any negotiation could happen, the contractor called a strike, which put the whole hostel into disarray. The new batches of students were to join in a weeks time and this was the worst possible time for such an event to occur.

Since the contractor by acting in haste, and not going for negotiations, had in a way annulled the contract, it was just a matter of time, that he could be replaced. Hence, the contractor was fi red. This led to the joblessness of the workers who pushed the student council hard for salaries/new jobs. They were asked to write down on paper the complaint against the old contractor but they refused for the fear of not getting the pending dues back from the contractor.

Now a new contractor was required immediately. However, the question was who could be ready to take up the ownership at such a short notice. The word spread around quickly and soon few interested parties approached. A decision had to be made at the earliest. This time around, a fi rm decision was taken that outsiders in spite of their previous work credentials cannot be relied upon for two reasons:

(a) Though they are able to produce results at other events and places like resorts, where there is huge profi tability, a hostel mess is not such an attractive proposition and hence a lack of interest starts building up.

(b) A hostel mess was also a very different proposition in the sense that here, day in, day out food had to be prepared, the customers (students in this case) remain the same, and hence a high chance of they getting bored.

Therefore, it was pre-decided that an insider would be the best for the job. But who would that be?



Possible Options

OH Mess Contractor

The OH Mess contractor was a name that would immediately come to everyones mind. OH food was very popular among the student community. Some of the advantages were:

1. The contractor was able to manage OH Mess well with absolutely no complaints. 2. He maintained a very hygienic atmosphere both in the dining area and the kitchen

area. 3. The food was very appealing and there was a lot of variety in terms of extras. 4. The contractor was young and enthusiastic and would readily lap up any idea

given by students in his hostel for a special dish, etc. 5. After negotiations he was ready to provide vegetarian food at ` 2050 and non-

vegetarian for ` 2100.

The disadvantages were:

1. Once he would be taking over WH, he would have to increase OH workers since there cannot be a differential pay scale under the same contractor.

2. There were apprehensions over his capability to handle both the hostels at the same time.

NH Mess Contractor

This option was rejected primarily because of the negative reviews given by the NH student community.

Meher Enterprises

Some of the factors, which made Meher an obvious choice, were:

1. He had immense amount of experience at TIMA (since 1976). 2. He had high level of credibility associated with him. 3. He was already managing Tata Hall Mess, convocation dinners, among other

events satisfactorily. 4. He is perceived to possess a very positive attitude, and has an optimistic approach

towards any problem.



Some of the factors that could have gone against Meher were:

1. He was not favoured highly by mess workers because of his strict attitude as they could have got some leeway with other contractors.

2. Risk of too much of interventions of worker unions if some worker is fi red by the contractor.

Other factors favouring Meher Enterprises were:

Such is the image of Meher Enterprises that TIMA administration thinks of him to be over qualifi ed for the contract of a single mess.

He was the prime choice for the contract of the new hostel coming up in the campus. The hostel offers not only regular mess but also a 24-hour cafeteria. Not only that, he puts his wholehearted effort in deciding the latest designs in kitchenware for the new kitchen.

He always believed in great service to the customers and he wanted to brand himself very well. Even though he is in the business for so many years, he used to think big and was open to new ideas.

He was highly rated by even the faculty members. Most of the faculty members and even alumni were great fans of his food.

In 2011, he got the contract for the newest hostel that is also called the Lake View Hostel. The mess started operating from 4th June 2011 and Mr. Meher is able to gel up well with the students and faculty and is now running Tagore Hall Mess, Lake View Mess and the Guest Mess successfully.

The continued business with the Guest Mess of TIMA has helped Meher expand operations to other business schools. Senior management from one of Indias leading business conglomerates were on campus for a training exercise. Impressed with Meher Enterprises service, it was given the mess contract for their business school in a nearby town. Meher Enterprises has also expanded into personal catering for social occasions.

His relationship with the TIMA faculty and the students continues to be stronger than ever. His endeavour to keep innovating, changing with time, and experimenting with new cuisines will ensure that he keeps providing TIMA value over the years to come. The interesting thing to see would be how he would be able to bring experienced workers at nominal cost and with intake of students increasing year by year, how he will maintain the quality of food taking bare minimum margins.

TIMAMeher Enterprises Relationship DevelopmentMr. Meher ensured every effort to build trust with the organisation. One of the examples shows his indomitable spirits in strengthening the bond with the faculty members



and hence with TIMA. In 1991, the fi rm was offered to cater to a private marriage party for a TIMA faculty members relative. Eager to build on his relationship with the faculty and administration of TIMA, Mr. Meher offered best of class services at a 60 per cent discount to reputed caterers. The food arrangement surpassed expectations. When called in for the fi nal payment, Mr. Meher worked down the cost saying he was able to avail materials at lower costs than expected. This sequence of events further strengthened Mr. Mehers reputation as a man of integrity and one who lays absolute stress on relationship over transaction.

Another event shows Mr. Mehers efforts in strengthening the bonds with the student community. The student community was organising the annual business school meet when a curfew was enforced due to the Babri Masjid demolition in 1991. He volunteered to manage food arrangements for the guests for all the three days the curfew lasted. The student community had then thanked him profusely for his efforts. TIMA has also helped him in tight fi nancial situations at many occasions. Such coordinating behaviour by both the parties helped groom the relationship between them.

There were other reasons why Meher enjoyed a great relationship with TIMA and with Tata Hall in particular. One major reason, according to Mr. Atanu Ray, the manager of the Tata Hall, was the clear superiority Meher had in terms of both quality and cost. The quality of the food was well appreciated by the TIMA community. In addition to the guests to TIMA campus including participants in short term managerial development courses, seminars, conferences and events the Tata Hall Mess was regularly used by some of the faculty and staff of TIMA. Due to the excellent food and service quality, the Tata Hall Mess also had a small, steady base of student customers. All these customers were generally very satisfi ed with the quality and prices. Over the years, the prices had to be increased a few times to refl ect the rising costs, however the prices were very reasonable. Meher placed a high premium on hygiene and this was considered an essential requirement for Tata Hall.

The chefs employed by Meher were all very good and experienced in various cuisines. This helped TIMA in arranging for hosting guests from academia and industry from various backgrounds and cultures on campus. Mehers style of maintaining the dining halls, use of aprons, caps and gloves by his staff gave a very professional look to his business that was appreciated by the guests.

Trust was another very important factor. There were contractors before Meher who had run away after taking advance from students and administration. This risk was not there with Meher.



Even though the Tata Hall business was not a very profi table one, Meher Enterprises continued to serve the college. Over the years, he built a very good relationship with the college. Citing one such incident, Mr. Meher remembers

The faculty members and the staff of TIMA help me a lot. They regularly suggest me new dishes that they had elsewhere. This way I kept on improving the quality and variety of the dishes. Even the alumni who come to visit the campus do ask for certain dishes and appreciate me.

Lot of people who have stayed in Tata Hall even for a day or two, like professors from other management institutes, disciples of Sri Sri Ravishankar, seem to be impressed by the quality of the food provided by Meher Enterprises.

However, there have been some major and minor issues in the past between Meher and TIMA, but each time the two parties have been able to reach a compromise. One such issue was regarding the payment of wages and provident fund according to the government set rules.

Meher was not complying with the minimum wage rules and defi ed the unions. He used to pay his workers lower than minimum wage but give them meals twice a day. According to him, this was an adequate compensation. The unions tried to ban Meher, but they could not hurt him as he had a strong presence in the local area. The administration understood Mehers side of the issue. They did not want to let Meher go despite the pressure from the unions. It was decided that Meher will comply with the minimum wage requirements and in return, the administration will allow him to raise the charges. The contract was also modifi ed to make a license of catering necessary to bid for mess contract thus creating an entry barrier for some of the other parties. The value that Meher was providing TIMA was clearly greater than the extra charges that they had to pay.

Tendering ProcessThe administration of TIMA invited fresh tenders for the Tata Hall Mess every year. Thus, every year there was an open bidding process to award the Tata Hall Mess contract. Bids from competing parties were evaluated based on vendor reputation, and quoted prices. However, Meher won the bid every time, because of his excellent record of accomplishment and high popularity, he enjoyed among the staff and students. The administration often went out of its way to ensure that the relationship with Meher continued uninterrupted in the Tata Hall Mess. Exhibit 9.1 shows the balance sheet and Exhibit 9.2 shows the salary sheet of Tata Hall Mess workers.



Student CommunityStudent community at TIMA plays a lead role in judging the performance of the contractors. Student opinion is a key component of decisions made in the campus. The reputation and credibility that Mr. Meher builds with the organisation is incomplete to an extent, if some levels of trust and comfort are not maintained with the students. It is the student council which is responsible for selecting the contractor. The student councils president negotiates with the contractors to follow the West Bengal minimum wages criteria while providing wages to the employees and provide PF, etc. Every contract is signed on per annum basis. Initially, the contracts are signed on a two months probation period. If everything goes well, it is extended for next ten months. Mr. Meher has put in assiduous efforts to ensure his relation with student community and hence with TIMA. Annexure 9.1 shows the contract details of Tagore Hall Mess.

Recruitment and TrainingThe workers are selected personally by Mr. Meher based on their experience and competency. The training of the employees takes place at the Tata Hall. Tata Hall being the Guest Mess, everything, from tea to meals has to be served on time and hence the workers there have to be prudent in their work. Initially, the new employees are trained under the old employees of the Tata Hall and then they are given permanent status. It is believed that once they are trained to work in Tata Hall, they are capable of working in any mess. Once they are comfortable, workers then are sent to the messes where there is shortage of employees. The permanent status given to the employees is not compulsory. This is only to ensure that the workers are satisfi ed and they work to their maximum capabilities.

Meher Enterprises Businesses Outside TIMAMr. Meher has been working since long to expand the business beyond TIMA. He has been successful to some extent to win contracts in some of the prestigious institutions based on his reputation in TIMA. He got contract for a mess at IMI when Mr. Talukdar was impressed by his work and dedication and called Meher to his offi ce to offer the mess contract. Mr. Talukdar, the Executive Director of Finance at IMI, Asansol saw his work when he visited TIMA during an annual business meet. Initially, Meher



started taking up catering services at marriage functions and now he is running mess contracts at IMI and Asansol Business School (ABS). Though mess at IMI is running successfully with good profi t margins, mess at ABS is running with bare minimum margins. He now looks forward to get mess contracts from ESI hospital in Kolkata where there is a good scope of business with the strength being 360 students. Exhibit 9.3 shows the current contracts under Meher Enterprises and Exhibit 9.4 shows the estimated annual profi t share of each contract.

Future PlansShould Meher Enterprises focus on catering to other colleges? Meher Enterprises already has contracts for two business schools in addition to TIMA. Could Meher Enterprises leverage experience of the last 32 years to negotiate better contracts with other colleges in and around the region? Will strong positive feedback and a good personal relationship with TIMA work in favour of Meher Enterprises against other bigger and more reputed competitors would be another interesting thing to see.

Mr. Meher aspires to form a private limited company and start a chain of restaurants initially starting in the major cities in India. For this, he would like to join some of his close friends. He is also in search of people whom he can trust and whom he can join in his company to expand the business. He believes that by starting the chain he can provide quality service to people by making use of the enormous experience he has gathered over all these years. He is now looking into the legal aspects and the trusted partners to start the company. An interesting thing to see would be from where he pools out the money to start the private limited company and how he will be able to coordinate his work to excel in the business and not disturb his ties with TIMA. Moreover, if he starts the company, his successor, who would take care of the business after him is still a big question in his mind.

His future plans also include setting up of an old age home. He fi nds himself becoming old and plans to setup an old age home where he can stay and supervise all the activities. Moreover, he fi nds much profi t margin in this business. For this, he plans to buy a land near the railway station and build an old age home. He already owns a small piece of land near a temple for this purpose, but the temple association wants him to sell the land to them, as they want the land to be in the temple premises. Will he be able to manage the old age home and the catering service at TIMA?



Exhibit 9.1 Balance Sheet for Tata Hall Mess

LIABILITIES ASSETS

As per last account: 1,154,161.58

Add. Net Profi t: 550,315.38 1,704,476.96

Less: Drawing 292,000.00

1,412,476.96

Secured loan: 671,700.09

(SBI JOKA BRANCH)

Current Liabilities

Sundry creditors: 75,200.00

P.F & E.S.I contribution: 183,986.00

TOTAL: ` 2,343,363.05

Fixed assets: 597,335.65Current assets:Closing stock: 1,048,445.00Sundry debtors: 508,834.00T.D.S: 103,188.00Cash in hand: 85,550.40Computation of Income tax:Net profi t during the year:550,315.00Tax on ` 550,315.00: 63,095.00Education @ 2%: 11,006.00H. Education @ 1%: 5503.00

` 69,704.00

Exhibit 9.2 A Monthly Salary Sheet of Tata Hall Workers

Worker Name

Days Worked

Daily Wages

Basic Pay

Over time

Over Time Amt.

Gross Salary

E.S.I P.F Total Net Salary

W1 27 193 5211 11 2123 7334 129 880 1009 7453W2 26 193 5018 11 2123 7141 125 857 982 1823W3 23 193 4439 4 772 5211 91 625 716 5927W4 26 193 5018 3 579 5657 99 679 778 6435W5 24.5 193 4729 4.5 869 5598 98 672 770 6368W6 21 193 4053 6 1158 5211 91 625 716 5927W7 21 193 4053 8 1544 5597 98 671 769 6366W8 25 193 4025 0 000 4025 70 483 553 4578W9 15 193 2895 5 965 3860 54 463 533 4413

W10 25 193 4825 6 1158 5983 105 718 823 6806W11 26 193 5018 3 579 5597 98 672 770 6367W12 24 193 4632 3 579 5211 92 625 717 5928W13 25 193 4825 5 965 5790 101 695 798 6518W14 16.5 193 3185 8 1544 4729 83 568 651 5380W15 25 193 4825 12 2316 7141 125 855 980 8121W16 24 193 4632 7 1351 5583 98 670 768 6351W17 18 193 3474 8 1544 5018 88 602 690 5708

Manager 7000 7000 123 840 963 7963



Exhibit 9.3 Current Mess Contracts Held By Meher Enterprises

Mess Name Institute Capacity

Tata Hall TIMA 225

Tagore Hall TIMA 150

Lake View TIMA 380

IMI Mess IMI Asansol 250

ABS Mess ABS 350

Exhibit 9.4 Estimated Annual Profi t Share of Catering Contracts with Meher Enterprises

ABS MESS2%

IMI MESS14%

LAKE VIEW28%

TATA HALL35%

TAGORE HALL21%

Annexure 9.1 Tagore Hall Mess Contract

This contract is between Tagore Hall Mess Committee and M/s Meher Enterprises to operate Tagore Hall Mess affecting from 21st June, 2011, for a period of 1 year, subject to renewal. The terms and conditions of the contract are:

Scope of Work:

1. To manage the operation of Tagore Hall Mess and serve high quality food to the students by deploying the required personnel.

2. All the vessels and the necessary utensils are to be provided by the Contractor. 3. All products used in food preparation should be of premium quality and BIS/ISI/

FPO, etc. certifi ed. Vegetables, cheese (paneer), fi sh & chicken/mutton should be fresh and properly dressed.



4. The breakfast would be served from 7:45 AM to 10:45 AM, lunch from 1:00 PM to 3:00 PM, tea, coffee with snacks from 5:00 PM to 6:30 PM and dinner from 8:00 PM to 10:00 PM.

5. Food has to be prepared as per the menu decided after due consultation between the contractor and the Mess Secretary.

6. Apart from the above, there has to be la carte of food being made available too. The students can then choose what they want to eat. Students, who choose la carte item, will need to bear an extra cost, which shall be clearly displayed.

7. The cost of la carte dishes will be decided in agreement with the Mess Secretary and will be priced reasonably. No ready-made item can be sold above the MRP.

8. Only those students who are a resident of Tagore Hall, Annexe Hostel or NH Hostel are permitted to register in the Tagore Hall Mess.

9. For students registered in Tagore Hall Mess, mess charges on monthly basis should be collected by the Mess Committee in advance. The Contractor shall maintain a register and confi rm the order for la carte (extra) items by getting the students signature. These charges will be collected through the monthly mess bill.

10. For non-registered students, the canteen will be operated on a pay as you eat basis. The Contractor shall collect cash for such orders and the Mess Committee will not be responsible for collection of the same.

11. The monthly registration charges for the package that includes breakfast, lunch, evening snacks and dinner will cost ` 2050/- for Vegetarian and ` 2150/- for Non-vegetarian.

12. The monthly mess bill will be handed over to the Mess Secretary in the last week of every month (billing cycle being 25th to 25th of consecutive months). This bill will include the package cost and extra ( la carte) charges.

Terms and Conditions:

1. The Contractor shall maintain duty register indicating the names and addresses of the persons engaged by him and other relevant records and produce them for inspection as and when required. Such a register should be periodically certifi ed by mess representative.

2. Persons employed by the Contractor shall not be below 20 years of age or above the age of 50 years, except for the position of Head Cook/Manager.

3. The personnel deployed by the Contractor shall be the employees of the Contr actor and not of Tagore Hall Mess Committee and the Contractor shall solely be responsible for such employees, pay the minimum wages stipulated by the



State Government and abide by the prevailing social security and other labour laws, etc.

4. The Contractor should have proper registration for food/health license, labour license, ESI, PF, Pan Card, IT Clearance, etc. under Contract Labour Act/Rules.

5. The Contractors staff shall not use the bathroom, common room and any other facilities, which are meant for the students.

6. The Contractor will provide salaries, uniforms and other expenses of his staff. 7. The Contractor shall be solely responsible for the conduct and behaviour of the

personnel deployed by him. In case the work or any conduct of any of the personnel deployed by him is found unsatisfactory or the misbehaviour/misconduct of his staff is noticed, the Mess Committee will have the right to issue orders to the Contractor to remove such persons forthwith and the Contractor shall provide replacement without any extra cost and compensation in a timely manner.

8. The Contractor should get the antecedents of the persons deployed by him verifi ed through the Police and the verifi cation reports be made available to the Mess Committee.

9. The Contractor shall be liable for losses due to theft or otherwise if manifestly due to his personnel and the value of the materials so lost/damaged shall be made good by the Contractor without prejudice to any other course of action that may be taken by the Mess Committee, if such loss/damage is proved in the opinion of the Mess Committee.

10. The Contractor indemnifi es and keep indemnifi ed the Mess Committee from all claims, demand proceeds, arising during tenure of Contractor, or thereafter.

11. The Mess Committee bears the right to inspect the canteen area and for disservice/improper hygiene, etc. to impose penalty. It is further clarifi ed that the Contractor will be directly under the control of the Mess Committee for all the purposes. Any party (Mess Committee or Contractor) in the condition of discontinuing the mess catering service will have to inform the other party at least one month in advance.

12. However, in case of breach of contract on part of the Contractor, the Mess Committee reserves the right to terminate the Contract with immediate effect after imposing a penalty on the Contractor, up to a maximum of 10 per cent of the contract value.

13. The Contractor will have to deposit a refundable security amount of ` 20,000/- to the Tagore Hall Mess Committee on the day of signing the contract.



14. There will be a probation period for fi rst 2 months from 20th June 2010 to 20th August 2011.

The Contractor will have to abide by the provisions contained in the labour laws and rule as applicable in the State of West Bengal, viz. Payment of Wages Act, Minimum Wages Act, Contract Labour (Regulation and Abolition) Act, Employees Provident Fund and Miscellaneous Provision Act, Payment of Bonus Act, Employees State Insurance Act, etc. and rules made thereunder along with the notifi cations and orders issued from time to time by the authority/Government of West Bengal, Statutory deductions of Sales Tax/VAT and Income Tax will be made at source against such payments as per rule.


Introduction to the Case: Nature of B2B SupplierBuyer Relationships in the Logistics IndustryThe relation of suppliers with their purchasing fi rms is a matter of contention. Even after several years of relationship, the element of the relationship appears to show a mix of transactional and relational elements. Considering a time-based approach of the relationship from the buying fi rms perspective in this case, we notice that the buying fi rm wants to renew contracts annually. While from the suppliers point of view, this is a long-term relationship. There may be two main outcomes if two parties have different negotiation behaviour:

1. If the parties use different negotiation behaviour in the short term (i.e. one uses competitive and the other uses cooperative behaviour, no long-term relationship will develop.

2. If the parties use different negotiation behaviour in the long term (i.e. one party is in a position to use command behaviour), a long-term association rather than a relationship will occur.

This forms the background of the case study on Prime Logistics Limited, which is a supplier of logistics services to a large metal mining fi rm Super Resources Limited.

Prime Transport Limited: Exploring Long-Term Relationships in Logistics Industry Logistics Industry1

10CASE

1 This case has been prepared by the Ramendra Singh and Rohit Ghosh solely for the purpose of classroom discussion of a business situation and does not intend to highlight either effective or ineffective handling of the case situation by any company or persons. Some names, i.e. of the case characters, business entities, and the companies have been either disguised or altered to protect identities. The authors are indebted to several PGP2 students of IIM Calcutta (2009-2011 batch) for their initial efforts in case writing.

Ramendra Singh and Rohit Ghosh



Suresh Aggrawal, Executive Director of Prime Transport, was sitting back at his offi ce late into the night. Tomorrow he has got a presentation, followed by a meeting scheduled with Mr. S. D. Bajaj, Logistics Head (East), for extending Primes logistics services to the Super Aluminum Co. Ltd. located in Orissa. For the past 20 years, Super has outsourced its inland (production site bound) logistics for its zinc venture (Super Resources Pvt. Ltd.) to two 3PL logistics fi rm on an annual contract basis, and Prime Transport was one of them.

The problem is that, till date, operations in and around Orissa has been carried out by hiring trailers and trucks from spot markets. To provide Super with proper logistics services would mean having a permanent set-up there that would in turn require taking a huge fi nancial loan. However, that option can spell trouble for Suresh if Super does not renew the contract after a year or two. Then it could be a huge burden to the transport companys balance sheet to pay off the loan. However, having such an illustrious name as Super in their client list would pave the way for future contracts with other mega power players in India. Even their dream of establishing themselves as transnational logistics powerhouse would not be then far away. Moreover, having Super as one of the long-term customer would mean a fi xed amount of revenue being generated every fi scal year.

However, the hitch lies even if Super is looking to hedge a long-term deal as that also has its consequences. As Super holds the command in the relationship, it would be looking to gain maximum customer value out of the relationship, driving down the price line for maximum profi tability. Therefore, it is a tough decision that Suresh has to contemplatewhether diverting a majority of his resources to the project would be a good idea.

Prime Transport Limited Of all the services that a transportation company can provide to its customers, the most important one is the peace of mind. With this exact motto in his mind, Mr. Rakesh Aggrawal started out 27 years ago from a single-roomed offi ce Prime Transport Ltd. in 1979 in Mumbai. Almost single handedly, he soon set up four branches, with project transportation as the core business activity. The fi rst project, a sugar plant for Walchandnagar Industries Ltd. for Nepal, was a great success. One success after another set the way for Prime Transport to become one of the most widely recognized names in and around Mumbai.

A good 7 years later in the year 1986 joined Mr. Suresh Aggrawal. A livewire that he is, it was under his leadership that Prime Transport gained prominence all over India. In the past 20 years, he has succeeded in converting Prime into a modern and


PRIME TRANSPORT LIMITED: EXPLORING LONG-TERM RELATIONSHIPS IN LOGISTICS INDUSTRY RELATIONSHIPS 193

vibrant transportation and logistics company worthy of success in todays fast paced world. Currently, the Managing Director of Prime Transport, he is actively involved in marketing, team building, and providing a clear future course for the company. Today, it is a ` 1200 million organization providing effi cient, cost-effective, innovative, and tailor-made solutions to a discerning list of clientele in India and across the globe. At present, it employs over 250 employees. These employees are professionals from every sector of the industry and their combined strength brings a wealth of expertise.

Indian Transportation and Logistics Industry Healthy economic growth in India since 2000 has been increasingly supported by robust industrial growth. One of the relatively lesser known but signifi cant sectors that supports almost all industrial activities is the logistics sector, which is also witnessing this growth as a follow through. The ` 4000 billion Indian logistics industry, growing at an average rate of 20% annually, is driven by robust economic growth, rising export and import, government infrastructure investment and logistics outsourcing. Logistics cost accounts for nearly 13% of GDP, higher than that in the United States (10%), Europe (11%) and Japan (10%). The US$58 million Indian 3PL (third party logistics) industry caters to around 55% of Indian companies that outsource logistic services such as supply chain management and warehousing. Indias outsourcing of 3PL is expected to grow into a US$90 million business by 2012.The annual size of Indias multimodal transportation segment is around 3 million containers, which is still considered nascent with an attractive potential. The Indian road and rail industry grew by 10.8% in 2010 to reach a value of $90.9 billion. In 2015, the Indian road and rail industry is forecast to reach $137.3 billion, an increase of 51% since 2010. The Indian road and rail industry grew by 9.2% in 2010 to reach a volume of 1689.3 billion FTKs. Road freight is the largest segment of the road and rail industry in India, accounting for 84% of the industrys total value (also see Annexure 1 ).

So Why This Sudden Boom in the Logistics Sector?

Competition is prevalent in every industry and companies try to fi nd a source that gives it a competitive advantage over its competitors. Earlier this competitive advantage used to with cost or product differentiation. Differentiation to the end consumer is diffi cult through variations and value adds in the product itself. Companies often try to differentiate themselves from each other using pricing methods (bulk discounts) or superior service in logistics. Logistics is a source of competitiveness in the industry as the demand can be uncertain sometimes and lead times are low. Many companies have used logistics to gain an advantage over others, such as Wal-Mart using VMI, Toyota using JIT and so on.



A factor that has contributed to the growth is the production cost. It involves two aspects: the cost of raw materials and the cost of converting the raw materials into the fi nished product, this being affected by local factors such as energy and labour costs where the production site is located. Let us take an example of zinc production in India to examine how reduction in production cost is crucial in gaining edge over other fi rms. Typically, in 2008, the cost of production of zinc was $1462/ton, raw materials accounting for $827/ton and conversion $635/ton. Therefore, we fi nd that the cost of producing zinc involves the operational cost up to 40%, and during 2008, the prices were skirting around this level (lower than the total cost or at par with it) in most of the metal exchanges. It is evident that even 1% reduction in cost is very signifi cant for a company involved in the production of zinc.

Other than the production costs, transportation costs can further increase the total costs. Therefore, decision pertaining to outsourcing logistics function becomes crucial. Outsourcing logistics to a 3PL logistics service provider means that the company will not require owning fl eet, especially when the fi rm needs specialized transportation. 3PL reinforces supply chain management, widens market share, reduces conventional logistics costs, and makes it possible for companies to expand into new markets, decreasing logistics challenges. The need for quick service has catalyzed the growth of Indias US$1.6 billion express service cargo industry, growing at a 2025% and expected to more than double by 2012. Moreover, globalization has prompted Indian companies to integrate their supply chains with international markets, thus increasing the demand for relevant logistics services.

The reason for road transport to gain prominence compared to other modes such as railways and shipment is the greater coverage that occurs compared to other modes of transport. Moreover, it brings higher fl exibility in terms of door-to-door delivery, giving it an edge despite higher effective cost and lower risk of handling loss due to lesser loading and unloading of good. Other reasons for this growth can be attributed to the opportunities for growth it provided for someone starting from scratch as Suresh did 27 years ago. This industry is considered attractive as it is not capital intensive, does not require considerable working capital and generates a reasonable return on employed capital.

Industry Structure and Nature of CompetitionIn a natural outcome of the benefi ts and the easy returns available from the industry, it is obvious that there would be numerous players in the market, leading to a fragmented market structure. It is estimated that while outsourced logistics accounts for 54% of total logistics spending in India, organized players have only 10% of the


PRIME TRANSPORT LIMITED: EXPLORING LONG-TERM RELATIONSHIPS IN LOGISTICS INDUSTRY RELATIONSHIPS 195

total pie. In road transportation, which accounts for the biggest portion (36%) of logistics spending, 74% of operators are small-time players owning a single vehicle. In outsourced warehousing, 92% of players are from the unorganized sector. Two-thirds of the total trucks are owned and operated by transporters with fl eets smaller than fi ve trucks. The result is intense competition, low freight rates and thin profi tability.

The entry of global logistics players in India is helping local companies benchmark with global standards that is making it tougher for the local players. Lack of adequate infrastructure and complex taxation and regulations are other major problems. Movement of cargo on roads has several loopholes; for example, national highways constitute only 2% of Indias road network, but they handle more than 40% of road freight traffi c. This inevitably leads to traffi c congestion. With the increased spending by the government in building and maintaining national highways and the completion of the golden quadrilateral which is expected to connect the far-fl ung regions of the country and reduce the transit time, the overall effi ciency of road transportation is expected to improve considerably.

Is the Industry Organized and Where Will It Go from Here?

An organized structure in this industry holds the key to overcoming the hurdles mentioned above and it is the approach to surviving in this highly competitive industry. An organized structure implies an own fl eet of vehicles and properly trained professionals working in respective teams and handling different profi les.

Most companies outsourcing logistics to 3PL players have cargoes of varying shapes and sizes, which need trailers of different capacities. Other than the above-mentioned general cargoes, there are also ODCs (over dimensional consignments), defi ned as the cargoes that are extremely large in dimension and used in megaprojects, such as construction, turbines and mills, and have to be transported by road to the project site. ODC is transported by long trailers (typically double decks). Based on the different types of cargoes, companies go for different kinds of contracts. In the annual contracts, the shipment usually involves goods of standardized specifi cations. These goods having fi xed dimension and weight (such as 3.5T) are carried in tempos, open trucks, and so on. Vehicles are mobilized in advance in case of standard (annual) contracts. On the other hand, ODC shipment involves variable contracts where rates are decided by different dimensions and weights. In this case, enquiries are sent to 5 to 8 major transporters who quote their prices based on availability of fl eet, market conditions (demand), and the size of shipment. The demand fl uctuates in these cases and is usually higher at the end of the fi nancial year. A higher demand means lesser availability of vehicles, leading to a higher price. This is where owning a fl eet provides



the edge over the small-time operators because the latter borrow from spot markets and hence are unable to procure these services. Moreover, during peak demand seasons when there is a fall in the supply of trucks, self-owned fl eet results in huge profi t.

An organized structure also help get rid of middlemen or intermediaries. The unique ownership profi le in the industry has created middlemen who act as liaison agents. Small trucking operators do not have the geographical reach to tap business on a continuous basis and hence are forced to rely on these middlemen. In the case of general freight where the small operators dominate, it is observed that intermediaries play a crucial role in both price fi xation and allocation of quantum of movement. An organized transportation would not depend on middlemen to facilitate contracts with fi rms as they have enough geographical reach to tap these fi rms. Hence, they decide their price and quantum movement on their own merit. Another important advantage of setting up an organized structure is that it opens up avenues for expansion. Most of the small-time operators are restricted to in their respective regions due to the unavailability of intermediaries and lack of proper invento

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