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Research Compendium
Management DevelopmentInstituteGurgaon
DELPHIQUE ‘08
Emerging Business Horizons: Opportunities For Indian Companies
8| November ‘089
National Management Convention
Research Compendium
s
Table of Contents
About MDI....................................................................... 5About Delphique’08
Human Research Finance Marketing OperationsStrategyInformation Management
Credits
........................................................ 7
........................................................... 8.......................................................................... 14
....................................................................... 22...................................................................... 29
.......................................................................... 35............................................... 43
............................................................................ 49Partners.......................................................................... 51
About MDI
Management Development Institute, Gurgaon is a premier management school in
India. Having been consistently ranked among the top 5 B-Schools in the country,
today MDI envisions itself as a Global Business School featuring among the top 20
schools among the world. MDI has powerful global linkages with business schools in
North America, Europe, South East Asia, and Australia.
MDI was established in 1973 as an autonomous body by IFCI. Since its founding, the
Institute has striven to meet the needs of the business world and the aspirations of its
students and working managers.
The result is an increasingly professional training with an international focus. MDI is
strongly committed to creating, both at individual and organizational levels, cutting
edge management capability through value-based education, action-centric
research, best global practices, and value-added consulting.
Thus MDI's Mission is to prepare global leaders who create, manage and effectively
lead change across diverse organizations. MDI's focus is to sensitize graduates on
ethical issues thereby developing strength of character.
5
About Delphique
Delphique is the event where the action between the students and the corporate world on
the MDI campus is at its apex. Delphique is the annual National Management Convention
of MDI where renowned people from the industry come for some stimulating discussions
on current issues, across various business functions, with the students of MDI. The topics
span across a wide array of management issues ranging from revival of Indian debt
markets to the HR challenges being faced by the globalizing Indian companies.
Delphique's uniqueness lies in its strong research focus. Students conduct a thorough
research on the topics which are decided in consultation with the industry mentors. The
research work is carried out under the guidance of both the industry as well as the faculty
mentors. The exchange of ideas between the leaders of today and those of tomorrow and
the intense brainstorming between young minds leads to some fresh perspectives. The
team presents its work to a panel of industry speakers and the students during Delphique.
Delphique 08' was centred around the theme: Emerging business horizons: Opportunities
for Indian companies.
In the wake of global markets crashing and world economies in doldrums, the above
theme becomes quite relevant as there are several opportunities lined up for emerging
countries like India.
Continuing the tradition of constant innovation, Delphique '08 touched new heights with
Knowledge Partners across all panels, i.e. Finance, Marketing, Strategy, Operations,
Information Management and HR.
Research Topics for Delphique ’08:
• Finance: Developing Indian Debt Markets
• Human Resource: Globalizing Indian Companies - HR Challenges
• Information Management: Empowering Businesses - Innovation in IT strategies
• Marketing: Merchandising - Current practices in FMCG and what lies ahead
• Operations: Productivity or Supply Chain - Where should Indian Manufacturing firms
focus?
• Strategy: Opportunity Areas and Challenges for Indian automotive component players
given the current market trends and a vision to become a $35-40 billion industry
7
Knowledge Partner
HUMAN RESOURCES
Globalizing Indian Companies: The HR Challenges
Delphique ‘08
CMYK
HUMAN RESOURCES
Globalizing Indian Companies: The HR Challenges
Knowledge Partner
Delphique ‘08HUMAN RESOURCES
HCCB(Hindustan Coca Cola Beverages) told the
audience that talent and not the employee moves
from one country to other.
Director-HR of Transitions at HCL shared his
personal experience. He was working in ICICI
Bank before joining HCL. He was doing a project of
designing an expatriation policy for ICICI. For that
project, ICICI had hired Mercer as its consultant.
He told the audience that before sending
employees to overseas assignment, the company
should be clear of its objective i.e. why the
company is sending the employees to overseas
assignments? The company can send the
employees for the money or for the business or for
the development of that employee. When
Employee goes abroad, the main issue with them is
about their compensation. Company should also
consider hiring local talent.
PANEL SPEAKERS
Mr.Aquil Busrai – Director, Human Resources, IBM
India Ltd.
åMr. Madan Srinivasan- Director, Transitions and
Employee Engagement at HCL Technologies Ltd.
åMr. P.V. Ramanamurthy Vice President, Human
Resources ,HCCB(Hindustan Coca Cola
Beverages)
åProf. (Dr) Jyotsna Bhatnagar - PGHR Chairperson
MDI, Gurgaon
å
EXPERT OPINION
The HR Research team, through primary and
secondary information initially presented their
research which was appreciated by all the
panelists present for the discussion.
Mr. Aquil Bursai , stated that there is a total 180
degrees shift from how expatriates are treated
earlier and nowadays.
Earlier, it was more like a lottery ticket.
Expatriates were showered with home salary and
huge expatriation bonus. It was financially
lucrative. In those times, as numbers of
opportunities were very less, the tag of
“Expatriates” had altogether different weightage.
But nowadays situation is being changing
drastically.
M r. P. V. R a m a n a m u r t h y V P - H R o f
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Mr Aquil Busrai said there are basically five
important questions that are to be addressed when
talking about governance structure for expatriates.
Who decides to send? Why to send? How to select
and whom to select? And most importantly how to
communicate to employees?
In answer to next question why the employees
should be send to foreign locations rather than
hiring local, he said three main factors play
important role
It saves costs to the organization. It helps being
close to customer. Gives initial exposure to vast
talent pool back home and helps enhancing their
talent and upgrading the quality of workforce. The
most important decision is to decide how to select
employees. He opines that decision to select
should be based entirely on skill competencies and
potential rather than any Body Shop option. The
companies must learn from global best HR
practices. The companies should follow a structure
in which they define their core business
architecture, share services at global level and
outsource peripheral activities.
Mr. Madan Srinivasan from HCL technologies
was when asked to speak on governance structure
he said that gone are the days of HR being a
governance department or policing department,
supporting Mr Aquil's point he said that HR now
needs to adopt a facilitator model rather than any
governance model. He shared that these days
organizations need to follow much organized
governance model to retain employees because
the attrition is very high. He also shared some of the
engagement initiatives that are being followed in
HCL technologies to retain talent. The regular
committee meets, town hall get together and micro
site ensures that expatriates remain in close touch
with the company plans and vision. Cultural
sensitization workshops are being regularly
conducted.
Thus all the three panel' members felt that HR
needs to adopt a facilitative governance model by
aligning goals of employees to the goals of
organization and build a truly competent sensitive
global workforce.
Following this, a question was posed to the panel
regarding the competencies in an employee that
would become even more imperative in this day
and age of globalization and economic uncertainty.
In response to this, Mr Aquil Busrai stated that
what has become essential is the ability to be
resilient in the face of change and adapt to the
dynamic nature of the business world. Mr. P.V
Ramanamurthy responded saying that cross
cultural agility and the ability to think with a truly
global mindset is something that is crucial to
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success, particularly while working in a foreign
location, and he also provided a real-life example to
illustrate his belief. Mr. Madan Srinivasan entered
the discussion, stating that in his opinion, in the
near future, employees would require 3 key
competencies – the ability to be politically savvy, so
as to be capable of sensing the surrounding
environment and take appropriate decisions, the
ability to communicate bad news with sensitivity
and diplomacy and the ability to build up a feeling of
trust and transparency at the workplace.
This was followed by the concluding question from
the audience, regarding the compensation policies
that are/will be followed in the industry, as the
expatriation trend reverses, and more and more
expatriates start looking towards India for
employment. It was interesting to find out whether
this reverse brain drain would result in foreign
employees settling for pay scales that were below
those they were accustomed to in their home
countries or whether Indian companies would have
differential scales for local and foreign employees.
In response, Mr. Aquil Busrai categorically stated
that regardless of the economic situation we find
ourselves in, companies will always primarily be
interested in recruiting and retaining the best talent.
As a result, individuals with the requisite skill sets
who are able to deliver the goods, would always be
in demand, and would be able to command their
price, irrespective of their nationality.
This marked the end of a thought-provoking and
enlightening discussion with our eminent panelists
that has greatly broadened our knowledge base
with respect to the issues that globalization has
posed to Indian companies, a topic that has only
gained in relevance and importance in the current
scenario.
INTRODUCTION
The intent of the research was to have a closer look
at how the Indian companies are fare when they set
up shops abroad. The research focuses on the HR
challenges that the Globalizing Indian companies
face. Specifically speaking the objectives of the
research were
To identify key HR challenges currently
confronting globalizing Indian companies
To identify initiatives undertaken by India Inc. to
battle these challenges
å
å
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Globalizing Indian Companies: The HR Challenges
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Ericsson which has a well laid out Recruitment
Protocol. Locally it employs Employee Referral
scheme and internal postings while globally it goes
in for Regional HR offices and Regional
Consultants companies. Also, Intel has a
mechanism wherein it tries to take advantage of
local talent to help build a strong local management
team for future.
Amongst the Indian companies that we interviewed
Essar stood out in terms of having a selection
criteria to recruit employees depending on the
ability of a person to get acclimatized to the
environment as early as possible.
LEARNING AND DEVELOPMENT
Our findings suggested the inclusion of aspects
such as politics, religion, law, education, values,
attitudes, etc in the composition of an effective
Expatriate Training Program.
Amongst the Internationally accepted practices,
we came across companies like GM that provides
180 hours of pre-departure language training to the
åTo identify internationally practiced expatriate HR
policies to highlight possible improvement areas
for the globalizing Indian companies
METHODOLOGY:
The methodology adopted was
(i) Literature study - Secondary Research was
done via journals like Emerald and EBSCO
(ii) Primary Research – Herein in depth semi-
structured interviews were conducted with the
management personnel of twenty Indian and
Foreign MNCs
(iii) Objective Questionnaire – This was
constructed with a view to know the Employee
Responses of one Indian and one Foreign
MNC.
FINDINGS:
RECRUITMENT
Herein the emerging trends that we saw indicated
that more often than not, decisions on expatriate
selection are usually taken by line managers who
ignore the laid-down criteria espoused by the HR
department. Preference is to draw from a restricted
pool of candidates about whom they feel confident.
Also very few companies employ criteria like
culture fit, previous global exposure, extraversion,
stress tolerance level, etc.
Amongst the internationally accepted recruitment
practices, the notable one was that of Sony
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expatriates and their families. Then there is Baxter
that provides no training at the home country. Host
country handles all training needs.
As regards the Reality Bytes, Aditya Birla Group
has Cross-culture training as a part its agenda in
ABG Group Learning centre. There's a centre by
the name of Gyanodaya through which training
needs are addressed. Further NTPC has a training
centre in Noida, PMI, where training of language
(especially Arabic), International finance and
management, etc are given.
PERFORMANCE MANAGEMENT
The focus areas that emerged herein were in
relation to subsidiary managers tending to be
assessed according to subsidiary performance.
Also, the nature of the international monetary
system and local accounting differences precludes
an accurate measurement of results. Further
Employees prefer parent-company evaluators
believing that their future career progression may
depend on how the evaluation data is utilized back
at headquarters.
The internationally accepted best practices were
visible in companies like Samsung where there is
a self-setting of the goals and then finalization by
the host country nationals. Appraisal is biannual for
manager ia l pu rposes and annua l fo r
developmental purposes. Further Baxter follows a
Matrix structure.
As regards the companies we studied, KEC
International follows a Matrix structure wherein an
employee has to report to his Functional head
(generally in India), and Administrative superior (in
foreign location). At NTPC reporting is done to ED
consulting in India and there is a contract of 3
years.
COMPENSATION
The major challenges that companies are facing
relate to maintaining a similar compensation levels
for outgoing employees by making adjustments for
Purchasing Power Parity, Inflation and Currency
Fluctuations and motivating employees to accept
relocation for foreign assignments by providing
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Globalizing Indian Companies: The HR Challenges
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place a Globility policy, a Group wide Mobility
policy, which addresses traveling, relocation of
family, support in getting jobs for spouse. KEC-
RPG provides for reimbursements for family travel
and accommodation depends on Negotiations.
Further, Hindustan Zinc makes family foreign
expense reimbursement available only to
employees serving for greater than 4 years subject
to negotiations.
REPATRIATION
Last but not the least, Repatriation poses itself to
be a big challenge, especially with Brain gain
gaining importance. However, Apart from some
make shift plans in some of the companies, not
many Indian companies that we interviewed had a
formal and clearly laid out repatriation plan.
A notable internationally accepted best practice is
that practiced by Citi Group, wherein there are
formal discussions between employees and home
country manager, days before employees foreign
assignment is about to end, to discuss employee's
new role in home country. Parameters considered
while deciding upon new role consist of experience
gained by employee on overseas assignment and
availability of roles in home country.
All in all we managed to touch upon the various
aspects that are a matter of consideration and
deserve utmost importance when an Indian
company decides to further its prospects by setting
up a shop abroad. The above, if duly addressed
would go a long way in ensuring a smooth flow of
affairs for the globalizing Indian company.
monetary and non monetary incentives to
employees.
The internationally accepted practices relate to Tax
Equalization so that the employees don't bear tax
burden due to difference in tax rates and also not
placing employees on foreign location's payroll, if
unfavorable to employees. Allowing social security
benefits to accrue was also a notable practice as in
the case of Sony Ericsson.
Amongst the Indian Companies, NTPC and KEC
provide foreign compensatory allowance of to
expatriate employees plus an allowance for home
passage. While Hindustan Zinc pays No foreign
allowance, it only adjusts differences in PPP and
inflation rate.
FAMILY RELATED
ALLOWANCES AND PERKS
Reasons such as - Nine of ten expatriate failures
family-related, unhappy spouse major reason for
early return pointed to the gravity of handling this
issue properly.
Some of the internationally accepted practices that
we came across were with regard to Education
Allowances; Insures employees' children receive
education equal to that at home,
moving and Orientation Allowances, Language &
Cultural Training, Weekend Travel Expenses
reimbursements for Employees and their families,
etc
Indian companies like Aditya Birla Group have in
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Delphique ‘08
Developing Indian Debt Markets
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FINANCE
Developing Indian Debt Markets
Any pic
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available to non-banks as Credit Information
Bureau India Limited (CIBIL) reports the defaults
only for banks. Second is the absence of any
stringent laws in India on bankruptcy enforcement
and protection. Unlike the US where Chapter 11
and other laws ensure high degree of restitution
and that too before diminution of asset value, in
India corporate default does not come in the public
domain for up to 10 years.
Transparency in disclosures, diversity for issuers
as well as investors, and liquidity dependent on
market infrastructure and intent of institutions were
identified as major criteria for development of debt
market by the panel. Mr. Jasmit Singh Chandhok
and Mr. Arun Kaul pointed out that retail investors
do not have enough incentive to invest in bond
markets where there is doubt about the pricing of
bonds, legal issues are cumbersome, and it is
difficult to withdraw money back from market. If at
PANEL SPEAKERS
åSubhomoy Bhattacharjee, Deputy Executive
Editor, The Financial Express
åJasmit Singh Chandhok, Dy. Executive Director,
Learning Arc
åMr. Arun Kaul, CGM Treasury, Punjab National
Bank
åMr. Manoj Bhalla, Treasurer, GE Capital
åSangeeta Bhatia, AGM (Finance), NTPC
EXPERT OPINION
The research on the topic 'Development of Indian
debt markets' was very well appreciated by the
panelists who suggested the presentation should
be made to the regulators to set the way forward.
The discussion began with a comparison of loans
against bonds and analyzing whether the present
system is sustainable. According to Mr. Arun Kaul,
banks would prefer to give loans rather than
investing in bonds because of the direct contact
with the client in case of loans, as compared to
communication through merchant bankers. Mr.
Arun Kaul also threw light on how PNB invests
money in bonds, highlighting that it does not invest
in private sector bonds as there is no proper
secondary market for trading. Two more problems
were identified in case of institutional investment in
corporate bonds. One, data on defaults is not
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all an exposure to bonds is required, much better
options are available to them in the form of
undervalued bank equity who in turn have their
investments in bonds of corporates. Hence, retail
investor would have to enter indirectly into this
market, which is in line with the worldwide trend of
majorly wholesale investors in bond market.
However, such an entry would be preferred as it is
likely to lower the yields in the market.
Thereafter the discussion moved on to the role of
credit rating agencies in development of bond
markets. The panel was unanimous on the view
that these agencies had failed to predict a lot of
troublesome situations in the past and hence
excessive reliance on credit rating agencies should
be avoided. In the panel's view these agencies
have good models for current situation but not the
future, and a more sophisticated analysis is
needed from their side. There was also a debate on
the business model of credit rating agencies, but an
important argument was the need to build
accountability for such bodies by bringing in
regulation.
Other major reasons for non-development of debt
markets were also discussed by the panel. In India,
size of corporate is relatively smaller and they have
access to project loans and working capital loans
such as cash credit from banks which lower their
costs of borrowing to a large extent. In this regard,
banks' operations are actually hindering the growth
of bond market in India. Institutional investors like
EPFO and LIC holding their portfolios to maturity
leaves the market in an illiquid situation and hence
price discovery is not efficient. Moreover, the
platform established by NSE is more of a reporting
platform rather than a trading platform as two way
live quotes are not available. The restriction on
foreign investment is also a major factor in this non-
development if we try to benchmark with the
markets abroad. A point noted by the panel was
that there is a large contribution of foreign
investment in development of Indian equity
markets.
Next issue discussed was that whether due to its
high dependence on Government bonds to finance
budgetary deficit, is it the Government that does
not want the development of corporate bond
market. It was concluded by the panel that the
attempt by Government is not deliberate, but it is
extra cautious to prevent scams. The demand for
Government bonds mainly comes from banks that
need it for their SLR requirements.
Some subtle issues concerning the corporate bond
market were also touched upon by the panel. While
the panel agreed when Mr. Manoj Bhalla pointed
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out that the bond, cash, and derivative market are
needed together for an integrated development,
there were apprehensions regarding allowing of
Credit Default Swaps for this development,
especially after the recent financial turmoil. It was
also concluded that for any scope of a market for
municipal bonds, these organizations first need to
put their houses in order. Mr. Arun Kaul pointed out
the need to allow short selling in corporate bond
market.
The panel was finally able to identify removal of
regulatory ambiguity, funding of stakeholders, and
improvement of corporate governance as
immediate measures in the direction of
development of corporate bond market. At the
same time, the establishment of reporting platform
and the application of uniform TDS for Corporate
and Government bonds were stated as positive
steps from the Government's side.
Overall the discussion was a healthy one which
brought out varied perspectives on what can bring
about a marked change in Indian financial system.
Queries raised by the students were aptly
answered by the panel.
INTRODUCTION
Indian Debt market: Overview
Debt Market is the market where fixed income
securities of various coupons, maturity, options
and other features are issued and traded. The
Indian debt market has two segments, viz.
Government securities market and corporate debt
market. The corporate debt market can be further
classified based on the type of issuer being a Public
Sector Undertaking (PSU) or a private company.
The Indian debt market is dominated by G-Sec
bonds with market capitalization of Rs. 13,18,419
as compared to corporate bond market
capitalisation of only Rs. 68,074 crore at end
December 2007. Hence, within the realm of
development of Indian debt markets, our research
was directed towards the development of
corporate bond market.
Characteristics of developed
debt market
For a market to be developed, presence of three
characteristics is very crucial:
Liquidity: For the market to be liquid; there is a
need for a secondary market. There has to be
enough number and type of instruments and
å
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Developing Indian Debt Markets
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roles was brought by making primary and
secondary trading a responsibility of SEBI while
repo and reverse repo of debt being a responsibility
of RBI. Also, Corporate Bonds and Securitization
Advisory Committee (CoBoSAC) was set up under
chairmanship of Dr. R.H. Patil to look into further
issues.
From the issuer's perspective, the requirements
regarding continuous disclosures by the issuers
were rationalized; there was a reduction in Shut
Period to align corporate bonds with Government
securities, a reduction in requirement of only one
credit rating agency instead of multiple ones, and
the requirement of investment grade rating of debt
instrument removed. Moreover, Structural
restrictions, such as those on maturity, put / call
option, conversion etc. were removed, corporate
debt instruments issued in de-mat form (and listed
on recognised exchanges) were made exempt
from TDS, and moderated SEBI Regulations were
issued for Issue and Listing of Debt Securities in
2008. These regulations paved the way for one
listing agreement for public and private issue
irrespective of listed or unlisted company, and
minimal disclosures for companies with listed
equity.
number of participants to have sufficient variety,
inducing fast trades in the market.
åSafety: Other than enough types of instruments
with differing characteristics which could be used
to reduce risk exposure, a key requirement for
safety is the minimization of counterparty risk.
åPresence of market maker: A market maker is
required to induce trades in the market by quoting
two-way quotes.
Other than these characteristics, other important
features for a developed market are efficiency of
the market, low transaction costs, and availability
of free public information.
Past initiatives to develop Debt
markets
The Government in February 2006 accepted
recommendations of the high level expert
committee formed under Dr. R. H. Patil. These
recommendations were implemented majorly by
February 2007. The recommendations were aimed
at improving the market conditions for all
stakeholders- from issuers to investors, changes
were brought so as to improve the market
infrastructure and regulatory environment as well.
Reporting platforms were set up by NSE, BSE, and
FIMMDA, and trading platforms from BSE and NSE
became operational. The trade settlement started
happening via exchange or bi lateral ly.
Standardization was brought for the Actual Day
Count convention for new issues. From the
regulatory viewpoint, a clear understanding of
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To make corporate bonds attractive for the
investors, the reporting of OTC and exchange
transactions was made mandatory, the tradeable
lot was reduced to Rs. 1 lakh for all investors, and
market information on secondary market trades
was made available on SEBI website for price
estimation purpose. Also, press release was made
mandatory for issuers in the case of events like
default of payment, failure to create charge on
assets, or a revision of ratings, other than issuance
of compliance reports in public domain by issuers
being made mandatory. The listing agreements of
debentures were also modified, so that ECS, Direct
Credit, NEFT, and RTGS were to be used for
interest payments & redemption, and material
modification in structure of debentures without
prior approval of stock exchange where it is listed
was restricted.
RESEARCH APPROACH
The corporate debt market has several
stakeholders and the expectations, needs, roles
and opinions of these stakeholders on this market
differ vastly. Hence, through the research an effort
was made to look at the corporate bond market
from the perspective of all the stakeholders in the
process and understand their concerns for not
participating in the corporate bond market. The first
step in the research was the reading of several
reports on development of Indian corporate bond
market published by companies like Goldman
Sachs etc., other reports by SEBI, RBI etc., in
addition to news and magazine articles.
After obtaining a basic understanding of the
present condition of the debt market and the
associated issues, a benchmarking of Indian
corporate bond market with US and European
corporate bond markets like Eurex was performed.
The relative standing of Indian corporate bond
market and the characteristics lacking in the Indian
markets were discovered.
Investors in India prefer to invest in other fixed
income securities like government bonds,
Collateralized borrowing and lending obligation
(CBLO) ,bank deposits, national savings
certificates, postal savings etc as compared to
bonds. Hence it was imperative to compare these
instruments as against corporate bonds. After
plotting the risk-return tradeoff for these
instruments vis-a-vis corporate bonds, customer
preferences in fixed income securities and their
investment needs were also determined.
Finally, to obtain the ground-level picture, opinion
was taken from all the stakeholders in the Indian
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At the same time, developed debt market provides
new fund raising avenues to the borrowers, who
otherwise raise capital through loans from banks or
equities generally. Loans in Indian currency and
equity are expensive sources of capital as
compared to issue of bonds, and hence,
companies can issue bonds to reduce their cost of
capital. Further, interest rate of loans is not
transparent; while bond prices are determined by
market forces introducing transparency in the
borrowing market. Other sources of borrowing like
ECB's are not accessible to all companies
especially SME's making corporate bonds even
more important.
Regulators prefer a sound debt market as it would
reduce the asset liability mismatch of banks. It
would reduce the strain of banking system if
corporates issue bonds instead of bank loans. This
will also infuse liquidity in the market. Development
of credit derivative market is possible only after the
development of the underlying instrument i.e bond
market.
Issues
The main reason hindering the development of
corporate bond market is the lack of liquidity. It is
just like a chicken and egg problem. Issuers do not
want to issue bonds because there are not enough
buyers in the primary and secondary market. As
issuers do not issue bonds, investors do not invest
in the market due to lack of good quality bonds.
Another problem faced by issuers is excessive
disclosures for new and successive issues.
corporate bond debt market such as the issuers,
investors, credit rating agencies, regulators and
exchange. A questionnaire was designed for each
stakeholder, through which the stakeholders were
asked to identify the reasons hindering the
development o f the market and the i r
recommendations for removing these barriers.
They were also requested to do a critique on the
recommendations put forth by the students in the
research. Through this primary research, gaps in
the proposed suggestions by various working
committees and the need of the market participants
were uncovered, which provide the justification for
slow pick-up of bond markets in spite of umpteen
development-focused initiatives and suggest
directions for new policy initiatives. The collective
perspectives of different stakeholders presented
through this research provide a holistic picture and
demarcate the reality from the blame-game being
played for long between the regulators, the issuers
and the investors for failure to develop corporate
bond market.
Payoffs of a developed debt
market
A developed debt market is preferred by the
investors, the issuers/borrowers and the regulators
of an economy alike. For investors, a developed
debt markets provides opportunities to diversify
their portfolio. During times of bearish equity
markets, corporate bonds with assured returns are
a very effective medium to mitigate risk.
At the same time, developed debt market provides
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Retail Investors are not well educated about bond
pricing and on the corporate bond market
structure. The minimum market lot size for
investing in corporate bond market is Rs. 1 lakh.
This is a huge amount in comparison to minimum
amount in equities or bank deposits. Also, the retail
investors believe that since everybody is investing
in equity markets, it must be the best option- a
testimony of a social proof phenomenon. As a
result, they are hesitant to invest in the debt
markets. Information on live trading of corporate
bonds is not freely available on the internet.
Institutional investors have no incentive to trade in
exchanges as their needs for corporate bonds is
met by the Over the counter (OTC) market. Banks
prefer to give loans as they are treated on cost
basis in the balance sheet as compared to bonds
which are valued on mark-to-market basis.
Moreover, the bankruptcy and default laws are not
very stringent in India. The investor is exposed to
credit risk and at the same time the market does not
have sufficient hedging instruments.
For the regulators, the main concern is the lack of
development in the market despite the initiatives
taken recently. Also, the investors are not aware of
the initiatives taken by the regulator or the
exchange.
Recommendations
The corporate bond market cannot develop
without increasing liquidity in the market. In every
market, the market makers are sources of
liquidity. To enable market-making, the exchange
å
or the regulator should provide incentives to
market makers. One of the incentives could be
lower transaction cost.
However, due to high bid-ask spread market
making is very expensive. Hence, repos in
corporate bond market should be introduced to
increase secondary market trading.
The current lot size of Rs. 1 lakh deters retail
investors. To tackle this, the market lot size
should be reduced to as low as Rs. 10000.
It is difficult to get free public information about
bonds. People are not aware about government
initiatives like indiabondwatch.com. it is
imperative to educate the investors especially
the retail investors.
There is no benchmark to measure the
performance of bonds. There should be a
benchmark or a index for corporate bonds similar
to the US and the European market.
The main investors in the bond market are
institutional investors. So, a bond market
managed by consortium of institutions like Eurex
bond market will give the institutions to design a
trading and settlement system as per their needs.
å
å
å
å
å
FINANCE
FINANCE
Sponsor
20
Developing Indian Debt Markets
CMYK
Knowledge Partner
Delphique ‘08 FINANCE
List of companies where executives were contacted for primary research
21
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MARKETING
Delphique ‘08
Merchandising: Current practices in FMCG and what lies ahead
CMYK
MARKETING
Merchandising:Current practices in FMCG and what lies ahead
Any pic
Knowledge Partner
Delphique ‘08MARKETING
perceives & shops. The customer is willing to
spend more time inside a store to take back items
of his preference.
He said that before taking a decision the customer
prefers to:-
ºTouch and see the product.
ºKnow all the prices for that product across the
world.
ºShould have complete information available
regarding the features of a product.
Then the panelists gave their opinions pertaining to
some of the issues:-
What would be the differences in kind and
degree of merchandising employed according
to sector?
Mr. Vishal Mittal said that the company and retailer
should understand the difference between a
PANEL SPEAKERS
åMr. Davinder Singh- Director, New Product
Commercialization, CocaCola India
åMr.Vishal Mittal- Regional Sales Manager, ITC
åAdrain Stray- Category Management Head,
Hindustan Coca Cola Beverages Pvt Ltd.
åSai Ramana Ponugoti- Global High Frequency
Stores Innovation Center Leader At Procter &
Gamble
åPROF. A.P. ARORA –MDI Gurgaon
EXPERT OPINION
The Marketing Research team, through primary
and secondary information initially presented their
research which was appreciated by all the
panelists present for the discussion.
Professor Arora started the discussion by telling
about the drastic changes in the retailing sector
over the last few decades. The shopkeeper and
retailer were on the opposite side of the shop and
shopper could not see what was inside the shop.
He also discussed that India is very different from
most other countries as we have the highest
number of shops and also highest shop density. So
a change in retailing here can be regarded as a
revolution that has taken place. Retailing in India is
like an elephant that has become huge in size. The
major change in the retailing has come about
because of the change in the way customer
22
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customer and a consumer. A shopper or a
customer tries to look for value in a product
whereas for a consumer the experience of trying
that product is important. He added that the buyer
is different from consumer and it is important to
target the buyer through merchandising.
Mr. Singh added that a retailer needs to meet the
requirements of a customer by developing an
understanding of how the product will be
consumed. He also said that different pictures and
themes must be used for advertising and
merchandising. For example, Coca-Cola
advertises for 300 ml bottle while it sells 2L bottle
also. The reason is that it targets youth during
advertising but the buyer is often the mother who is
price conscious and prefers the larger pack.
Mr. Ponugoti said that the impact of
merchandising varies from product to product. The
impact is least on prescription products such as
medicines and 25-30% on products such as
chocolates and soft drinks. Visibility in general
helps increase sales up to 25-30%. The
effectiveness of the medium is also important.
Mediums like POSM help increase sales by about
20-30%.
He emphasized that the advertising and
merchandising may be different but the message
should be consistent. The customer should be able
to recall the advertisement on seeing the
merchandising and the two should be in line with
each other.
In case of high end retail stores, shopping
experience is very important. In a high end retail
store the customer gets to see a 3-D view of the
product whereas in a traditional store the products
are so much stacked up that a customer can get
only a 2-D view of the product.
Mr. Davinder said that Coca-Cola manages the
brand and is responsible for creating demand
through marketing activities. On the other hand,
HCCB is responsible for production, distribution
and merchandising of the product. The soft drink
industry, therefore, provides bottlers the
opportunity for merchandising and handling point
of purchase issues.
Mr. Adrian said that by providing fridge, HCCB
ensures that the consumer is more likely to drink
the soft drink now rather than carry it along. This
helps to push sales through merchandising. He
said that Coca-Cola is looking to start selling in
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stores with 'Permanent Beverage Section’.
What are the new horizons in the field of
Visual Merchandising and its execution?
Mr. Ponugoti disagreed on the use of roof for
advertising. Mr. Adrian added that the line of vision
of humans is between few feet above and below
the eye level and hence it is futile to place anything
above or below that.
Mr. Vishal said that in case of products such as
cigarettes where advertising is banned, POSM
becomes all the more important. It is the only
source of communication with the consumer.
He added that the company used merchandising
actively and aggressively for Bingo as it needed to
beat Lays, the market leader in snacks. It used rack
and rack header to display the product outside the
shop. The purpose of rack header was to highlight
the latest entries in that category.
Mr. Ponugoti added that it is important to provide
retailer with ready to display solutions such as
Gillette rack. The rack makes it convenient for the
retailer and improves display also. He also
explained how P&G pushed the sales of Whisper
by pushing it in front rack as the consumers were
shy to ask for it otherwise. Therefore, it is one
product where visibility matters a lot.
What can be the improved measures to
gauge the merchandising efficiency and
effectiveness?
Mr. Vishal said that the basic strategy for
merchandising needs to ensure the following:
åVisibility
åFreshness
åAvailability
It's the responsibility of the merchandiser to take
care of visibility and freshness.
Mr. Ponugoti added that the strategy needs to be
very simple as the merchandiser and retailers are
generally not very well educated in India. The
design and implementation needs to be very
simple and straightforward.
Mr. Davinder said that merchandise such as rack
and fridge is valued by all retailers. In case of these
products, the merchandiser and the retailer, both of
them benefit and it is easier to convince retailer for
displaying these merchandises. It is important to
convince the retailer in terms of profit/sales
increase by d isplaying the company's
merchandise.
MARKETING
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Merchandising:Current practices in FMCG and what lies ahead
CMYK
that tend to provide a great shopping experience to
the shopper.
Tier 2 or visible distribution: - These are the ones
which focus mainly on the visibility of the products.
Tier 3 or Distribution stores:- These are stores
where products are just brought from the factory in
a displayable format and kept in the stores.
At this point Mr. Vishal brought in the concept of
permanent selling unit (PSU) which is especially
used in the restrictive category. He also said that
today it is important to focus on in-store
advertisement instead of creating a new connect
with the customer as in-store advertisement could
help a customer to recall the brand. Also the
POSMs that are used for a particular product
should be consistent across all the stores and
should also be consistent with the advertisements
of the product so that a customer is able to easily
recall the product at the time of purchase.
The panelists also discussed the concepts of core
creative idea and core creative and how they are
related to the concept of merchandising.
The panelists later went on to discuss different
means of merchandising and issues related to it.
Some companies use in house merchandising
while others use third party for the same purpose.
Sometimes there are issues such that the retailer
promises to provide some space to the salesman.
However, when the merchandiser goes to the shop
the retailer disagrees. Another problem with using
internal merchandising is that it cannot be audited.
However, in case of third party merchandisers, it is
Mr. Davinder said that in order to improve
merchandising, the companies need to have a
separate team for merchandising and advertising
as the advertisers have a different way of thinking.
Coca-Cola has also implemented this strategy. He
also said that in order to improve the efficiency it
becomes important for a company to convince the
retailer that he is going to loose his sales without
the products form that company i.e. having an
upper edge over the retailer is very important for a
company to have good visibility in a store. Instead
of taking permission from the retailer for space it is
important to make him realize the value adds that
the products of that company would do to his sales.
This would help a company gain an upper edge
over its competitors.
Mr. Ponugoti added that it is more efficient to use
merchandising that lasts long as there is execution
costs associated with it. It is good to have POSM
that lasts 3-4 years compared to a few months. Mr.
Vishal however added that the purpose of POSM
varies from product to product. For a category like
biscuits ITC would prefer to have an expensive
POSM whereas for a category like Hatke Jhatke
the company may not prefer spending huge
amounts on the POSMs.
What are the new horizons in the field of
Visual Merchandising and its execution?
In answer to this question Mr. Singh said that in
today's scenario stores could be divided into three
tiers:-
Tier1 or premium stores: - These are the ones
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MARKETING
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Delphique ‘08MARKETING
difficult to take any action even if it is known that the
execution is not proper.
This marked the end of an enlightening discussion
with our eminent panelists that greatly enhanced
our knowledge with respect to the issues that
merchandising issues.
INTRODUCTION
The intent of the research was understand the
current practices that exist in the FMCG sector
especially in the unorganized sector and to study
the possible future trends related to visual
merchandising. The main objectives of the
research were:-
åTo identify pros and cons of merchandising were
discussed from the viewpoint of all stakeholders.
åTo identify key issues and concerns in
merchandising were discussed next.
å To study the performance of merchandisers and
the difficulty in tracking the implementation and
benefits of merchandising.
åTo evaluate the strengths, weaknesses and
opportunities of various FMCG companies in the
merchandising strategy.
åTo study the performance of merchandisers and
the difficulty in tracking the implementation and
benefits of merchandising.
METHODOLOGY
The methodology adopted was
(a) Literature study - Secondary Research was
done via journals and various websites.
(b) Primary Research –Primary research was done
mainly by visiting FMCG stores and gathering
data about the merchandising policies followed
by FMCG majors.
FINDINGS
STAKEHOLDERS:
The major stakeholders in merchandising are
classified as:
åCompany
åDistributor
åRetailer
åBuyer
With Respect to the company the major players
involved are the marketing division and the sales
division. The major role of the marketing division is
the designing of the communication strategy while
the main role of the sales division is designing and
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Merchandising:Current practices in FMCG and what lies ahead
CMYK
major players involved are distributor, sales force
and merchandiser. The distributor is responsible
for stocking and warehousing of merchandise. The
role of the sales force is handling the distribution
and execution of the merchandise. The
merchandisers are the third party who is the visual
experts responsible for checking out the visibility of
their products.
The benefits sought by the merchandiser are:-
åIncreased sales
åIncentives and schemes
åRelationship
åRelation and soft skills
MERCHANDISING EFFICIENCY:
The merchandising efficiency can be categorized
in to two types:-
implementing the execution strategy.
The benefits sought by a company in doing
merchandising are:-
åCommunication
åBrand Building
åRelationship building
With respect to the retailer the major players
involved are owner of the shop and the shop
worker. The shop owner is mainly concerned with
issues related to modern and traditional retailing
whereas the main role of the shop worker relates to
execution and maintenance.
The benefits sought by a retailer are:-
åMonetary benefits
åBenefits in kind
åIntangible benefits
With respect to the buyer the major players
involved are buyer, the influencer and the decision
maker. The role of the buyer is to make the final
purchase, the influencer is the one who influences
the decision of the buyer with respect to the
purchase and the decision maker decides various
parameters related to the purchase.
The benefits sought by a buyer are:-
åAids recall
åFacilitates buying process
åConvenience and utility
åWith respect distributor and merchandising the
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åCommunication efficiency
åExecution efficiency
Communication efficiency relates to visibility,
attractiveness and message delivery. Visibility can
be brought about proper POSM placement
whereas attractiveness can be brought about by a
good POSM design. A good stock placement can
ensure good message delivery.
Execution efficiency is again of two different types:-
åOperation parameters
åPost-execution parameters
The various operation parameters that are
responsible of execution efficiency are:-
åTime spent by the merchandiser in the outlet
åRelationship of the merchandiser with the sales
man
åPayment schemes and benefits given to the
retailers
åOvercoming the space constraint
FUTURE TRENDS:
Some of the future and upcoming trends in
merchandising are:-
åThe walls and glass windows in the stores may
be utilized more efficiently for merchandising.
There exist transparent windows wherein it is
possible to use the outer side of the pane for
advertising and from inside the window is just like
any other transparent window.
åThe ceilings of the stores can also be used for
advertising as that space is mostly unutilized and
can act as a good means for in-store advertising.
åThe front portion of the shelves which are mostly
left unutilized can be brought into use for
merchandising purposes.
All in all we managed to touch upon the various
aspects related to the current practices of
merchandising and also some of the future trends.
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Merchandising:Current practices in FMCG and what lies ahead
Knowledge Partner
OPERATIONS
Delphique ‘08
Productivity or Supply Chain -
Where should Indian
Manufacturing firms focus?
CMYK
OPERATIONS
“Productivity or ” - Where should Indian manufacturing firms focus more?
Supply Chain
Knowledge Partner
Delphique ‘08OPERATIONS
supply chain system especially with the vendors
which would help in having a good SCM and
increase in productivity. According to him,
productivity is impacted by structural issues and
lack of understanding about the benefits of
increased productivity. He advocated easing of
norms for global firms to invest in India. He
supported supply chain over productivity because
a better supply chain mechanism automatically
leads to a higher efficiency and higher productivity.
However, it is difficult to segregate the two. One of
the techniques to increase productivity could be
ASN i.e. advanced shipment notification. He
strongly believed in balancing short term and long
term goals.
To add dimensions from other sectors of the
manufacturing industry, Mr. Girish put up a
PANEL SPEAKERS
Mr. Venkata Reddy, Vice President, Supply Chain,
Spencer's Retail Ltd.
Mr. Gaurav Gupta, Deloitte Touche Tohmatsu India
Private Limited.
Mr. Alok Srivastava, Managing Director, APAC
Sourcing Solutions Ltd.
Ms. Venu Vashista, Department Manager,
Logistics, P&G
Mr. Girish V Aivalli, Procurement head of Cargill
India Pvt. Ltd
å
å
å
å
å
EXPERT OPINION
After the student's research team presentation of
their research findings and posed few questions in
front of the panel, the moderator, Mr. Girish V
Aivalli, took over the proceedings and moderated
the whole course of discussion between the
eminent panelists.
Mr. Venkat Reddy of Spencer's Retail spoke about
the high growth rate of Indian economy and its
huge potential because of the unmet demand.
However, one of the problems faced by India is the
scale of production. Citing his experiences at
PepsiCo India, he quoted problems of
implementing automation at a large scale.
Speaking primarily from the view of retail industry
he gave stress to concentrate initially on improving
29
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Delphique ‘08
question that retail may be a special case; but the
labour productivity plays a major role in most
sectors of the manufacturing industry.
Mr. Gaurav Gupta from Deloitte Touche Tohmatsu
India Private Limited, who also mentored the
student's panel, pushed the importance of
benchmarking. He believes that benchmarking
becomes a critical factor for improving the
productivity in the long run especially when we are
competing with global firms. According to him,
awareness about the quantum of benefits that can
be derived by benchmarking is very important. He
laid stress on high investment in technology and
automation and stated such steps very critical for
the manufacturing industry as a whole. He too
supported the fact that when we are in the initial
face of growth i.e. 5- 10 years of operations it
becomes very important to look for efficient supply
chain mechanism as a toll for reducing costs. Later
productivity plays a very important role in
generating profits.
Mr. Alok Shrivastava, MD of APAC Sourcing
Solutions and former MD Ranbaxy and Honeywell,
who has had vast international exposure,
discussed the topic from a macroscopic point of
view. He compared India and China and talked
about the special economic zones (SEZ's). Even
though India started early in constructing SEZ's, it
was only when China started constructing huge
SEZ's, India followed the suite. China focuses
more on process innovation which is very low in
some of the Indian industries like chemicals. He
quoted capital scarcity as one of the major
shortcomings of the Indian manufacturing sector.
Capital scarcity is leading to problems in
implementing automation. He advocated
government involvement in such situation. Poor
infrastructure and stringent labor laws are
practically hindering the productivity. He suggested
the use of effective BoT (Build operate transfer)
system, women empowerment and respect for the
system to increase productivity. He felt that the
organizational structure of the firms should be
more transparent so that there is better co-
ordination between the firm and their suppliers. He
believed in replenishment model rather than
forecasting and he also shared the 3C's i.e. co-
operation, communication & co-ordination for
achieving long term gain in productivity.
Ms. Venu Vashishtha shared her experiences from
P&G and focused on 2 critical factors for supply
chain management- people and better supplier
collaboration. People which involve employees,
OPERATIONS 30
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Delphique ‘08
vendors, transporters, customers etc. should
develop a positive attitude. Also, better
collaboration with people can be achieved by the
organizational design and it would result in lower
logistics cost. She said that to improve productivity
education system needs to be made strong. She
believed that employees learn in 1st year and start
contributing in consecutive years. She strongly
believed that it is not possible to isolate
manufacturing from supply chain and therefore
there is great need for collaborative measures and
participative methods between the inbound
activities i.e. manufacturing and outbound activity
i.e. the supply chain. For achieving this she
suggested using the following measures:
åTPM: Total Productivity management
åIWS: Integrated Work Systems
åCBD: Customer Business Development in place of
sales
åSBD: Suppliers Business Development
Indian Manufacturing Industry
The Indian manufacturing industry is the 4th
base amongst the emerging economies
accounting for 70% of India's exports. The
incremental capital output ratio for the industry has
improved from 0.62 to 0.59. Mckinsey global has
predicted the Indian consumer market to grow to
the world's fifth largest by 2025, thus highlighting
the bright prospects for products manufactured in
India. The manufacturing growth rate, however,
has decreased from 12.3% in 2006-07 to 8.8% in
2007-08. It is mainly due to poor infrastructure,
bureaucratic red tape, restrictive labor laws, and
outdated technology. Between 1990 and 2007,
industry's contribution to the economy has
remained stagnant, crawling from 25% to 27%.
Key issues ailing the sector
Supply Chain management:
Against a world average share of 15-20% of the
total manufacturing supply chain expenses
contributed by the logistics component, India is an
underperformer with logistics contributing to 30%
of the supply chain costs. Two major issues as
found from the research were
Poor inventory management: Currently, the total
inventory holding costs account for about 20-40%
of the inventory tied-up costs, which in turn,
account for 40% of the manufacturing GDP. This
accounts to a figure of US dollars of 1.2 to 1.6
billion. The research showed that Indian firms
particularly lack in areas like product design and on
time delivery. Also, poor inventory management
put a majority of the Indian players into a vicious
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“Productivity or ” - Where should Indian manufacturing firms focus more?
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CMYK
åCreate an information flow with business
partners
åEmploy Vendor Managed Inventory (VMI)
åDecouple the inventory from forecast
åDo inventory profiling
åReduce pilferage and improve physical handling
åClear visibility of warehousing
Productivity:
Studies have shown that a 1% increase in labour
productivity and a 1% decrease in both cost of
capital & capital intensity will lead to an increase in
annual investment growth by about 14.5%
The current position of India with respect to China
(graph shown above) in terms of manufacturing
Sector GDP in Rs at constant price per 1000
workers employed shows that both India and China
were almost comparable back in 1980s whereas
now India stands at 44.95 compared to China at
351.7524 and USA way ahead at 4783.59. Two
major issues found from research were:
Lack of on the job employee training: Low skill
levels were identified as major hindrance to
circle. Poor inventory management leads to poor
replenishment and poor supply leading to
increased inventory holdings which in turn leads to
late orders which drives up the logistics cost. This
puts Indian players into precarious situations.
Lack of supplier collaboration: Indian supplier
collaboration at 9% overall seems pretty low
compared to 36% for USA and 33% for Germany.
Research done for different manufacturing
industries show that supplier's involvement and
customer involvement is poor in most sectors of the
industries. In automobiles, 40% respondents
indicate low level of involvement, but 60% is
equally divided in all the other 3 segments.
Demand management (64%) and order fulfillment
(54%) have higher involvement but in case of
inventory management the customer involvement
(50%) is lower. In FMCG two-third respondents
indicate low involvement for both supplier and
customer. Customer is more involved in distribution
management (60%) and product development
(64%) and no involvement in import-export. In
Consumer durables, either very low or very high
participation was observed. In Engineering, 26%
respondents indicate that there is high customer
involvement in different processes. Also the
supplier involvement was found to be low in
demand management.
Recommendations
The following recommendations were proposed
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Delphique ‘08
productivity. Findings of the research showed that
only about 15% of manufacturing firms in India
provide on-the- job training, which raises their
productivity by a 25% above those that do not
provide training. An estimated 80 million young
workers need up to 2 years of training for even
basic skills. The possible reasons for firms to not
provide training were low levels of education,
limited resources for training, imperfect information
with the employer about the benefits of training and
poaching of trained workers. The possible effects
of such deficiency were increasing business costs,
job retention rates drops, less global investment
and high relocation cost.
Inefficient work environment for the labour: India is
infamous for its stringent labor laws that very much
hamper the productivity. Some of the road blocks
are
åDisputes and strikes: According to their study”
manufacturing sector accounted for the highest
number of disputes (i.e. 63.60% of the total
industrial disputes ) with a time lost of close to
14million man-days.
åInflexible Labour Laws: Laws are again stringent
and inflexible.
åPoor incentive structure.
åLow expenditure on R&D (only 15% of total
sales)
Recommendations
Following recommendations were suggested
Enhancing employability: Rather than providing
employers, 'employability' refers to possession of
the skills, knowledge, attitudes and commercial
understanding that will enable new employee to
make productive contributions to organizational
objectives soon after commencing employment.
Therefore vocational institutes should do the
following
åModifications to existing course content in
consult with the employer. Introduce new courses
and teaching methods and expand provision of
opportunities for work experience
åEmbedding the desired skill sets within the
courses
åOffering 'stand-alone' skill courses which are
effectively 'bolted on' to traditional academic
programs
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“Productivity or ” - Where should Indian manufacturing firms focus more?
Supply Chain
CMYK
commitment, lower absenteeism and lower labour
turnover.
Collaboration with Labour Unions:
In introducing all schemes relating to productivity,
such as, system of payment by results, individual
and group incentive schemes, norms of staffing
and workload, changes in organisation and
methods, rationalization, mechanization etc.;
agreement with concerned unions must be
established.
Effective Labour Legislation:
Firms should work with Government Organizations
like FICCI to bring about labour reforms.
Distribution of Gains from Productivity:
The gains of productivity should be distributed
between shareholders, workers, consumers and
plough-back effect. The formula evolved by NPC
and Dandekar to allocate the gains of productivity
between the shareholders and others was stated.
New Institutional Arrangements:
åCreate high end manpower through collaborative
efforts: By pooling resources of a large number of
institutions a critical mass can be built and high-
end manpower can b produced in sufficient
numbers
åEmbedding the desired skill sets within the
courses
åOffering 'stand-alone' skill courses which are
effectively 'bolted on' to traditional academic
programs
New Institutional Arrangements:
åCreate high end manpower through collaborative
efforts: By pooling resources of a large number of
institutions a critical mass can be built and high-
end manpower can b produced in sufficient
numbers
åSkill development networks: For engagement of
higher education institutions with industry and
employers, sector-specific membership based
networks could be created. These networks
would also compile and collate high quality labour
market intelligence and make it generally
available to all for making informed decisions.
Labourization: (Financial Participation of Labour)
It means moving from the Master-Servant
relationship through a better deal, joint
consul ta t ion, jo in t management , auto-
management, and participation in ownership to
Worker's Ownership .It is a means of improving
motivation and productivity. It leads to greater
Delphique ‘08
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STRATEGY
Delphique ‘08
Opportunities For The Auto Component Industry
CMYK
STRATEGY
Opportunity Areas and Challenges for Indian Automotive Component Players
Knowledge Partner
Delphique ‘08STRATEGY
the discussion by emphasizing the need for
initiatives at three levels – firm, industry and
government level to ensure that ambitious targets
set for the Auto component sector are achieved. He
felt ACMA needs to play a major role to help the
government meet the expectations of the firms and
the industry as whole.
According to Mr. Gaurav Gupta unlike the ITES
sector there is no cost advantage to India in the
Auto components sector. In fact India stands at an
8-10% cost disadvantage in comparison with
competing nations like China and Thailand. This
was mainly due to the poor infrastructure mainly
roads and power supply and the high cost of
capital. Micro interventions by the government in
not just infrastructure but also areas like consumer
finance, R&D will be required to ensure the vitality
of the industry.
Mr. Deshmukh was optimistic that GOIs initiatives
PANEL SPEAKERS
Mr. Gaurav Gupta, Senior Manager, Deloitte
Mr. Puneet Kalra, Senior Principal, Monitor Group
Mr. Kiran Deshmukh, Deputy MD, Sona Koyo
Steering Systems Ltd.
Mr. D. M. Mani, General Manager (R & D), Subros
Ltd.
Prof. S N Raina, Strategy Management Area, MDI
å
å
å
å
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EXPERT OPINION
An insightful presentation by the research team
was followed by an invigorating panel discussion
which basically covered the following key points
åFurther initiatives that need to be taken at firm,
industry and government level
åPossible impact of the launch of cars like the Tata
Nano
åPreparedness of Indian Auto Component
Industry to handle the competition
åCurrent and Future trends that will impact the
Auto Component Industry
Firm, Industry and Government
level initiatives
Prof. S N Raina, the panel moderator triggered off
35
CMYK
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Delphique ‘08
like the golden quadrilateral project will make the
auto components supply chain efficient. Also the
boom in the sales of commercial vehicles due to
these initiatives would ensure high growth rates for
the auto components sales. He stressed on the
need for better infrastructure at ports and improved
connectivity between the auto clusters and ports.
Being an active member of ACMA he shed light on
some of the initiatives taken by ACMA and GOI to
promote research & innovation e.g. tie-ups with
MIT, IITs etc and establishment of NATRIP.
Mr. Puneet Kalra disagreed with the Indian concept
of auto clusters. He emphasized that mere co-
existences of companies in close proximity cannot
be termed as a cluster. According to him
government and ACMA need to ensure that factor
conditions around so called auto clusters in NCR,
Pune, Chennai improve substantially so that the
firms become more competitive. He also
expressed his concern with the high level
fragmentation in the industry with 5000 players
outside the ACMA fold.
In his view the Indian firms need to specialise in
specific component manufacturing e.g. bulbs,
reflector systems, steerings etc instead of focusing
on too many components and going forward how
they manage their supply chain will ultimately
impact their standing in the world market.
Mr. Mani felt fragmentation is not a serious concern
since major auto component players are few and
already under the aegis of ACMA. Coming from the
R&D background he said that there was an urgent
need for competency mapping and gap analysis at
at the firm and industry level to make India a
competitive destination for auto component
manufacturing.
The Nano Effect
The panel was unanimous on the positive impact of
the recent launch of “Nano” by TATA Motors.
Besides ensuring global recognition for the Indian
Auto sector especially its design and engineering
capabilities it has also had a positive rub off on the
auto component suppliers associated with the
Nano project. Under cost pressure the suppliers
had to focus on parts design, materials,
manufacturing process as well as the supply chain.
The Nano experience would definitely help them
cater to the needs of the global players more
efficiently.
Preparedness of Indian Auto
Component Industry
Prof. Raina cited an example of South Africa which
in spite of having a small domestic market for auto
STRATEGY 36
CMYK
Delphique ‘08
components has export figures comparable to that
of India because of the high levels of specialisation
that its firms had attained. He also expressed his
concerns regarding the over dependence of Indian
auto component suppliers on the US market and
the extremely low investments in R&D as
compared to major competitor like China.
Mr. Kalra agreed on this and cited the need for
identification of specific competencies of Indian
auto component industry and get disproportionate
investments directed towards developing them.
According to Mr. Gupta Indian players need to
hedge their risks and reduce their dependence on
US by tapping other markets like Europe, Asia
Pacific, Latin America and even Africa in the future.
They also need to aggressively focus on cost
reduction as well as quality improvement since
countries like China posed a serious threat.
Mr. Deshmukh too agreed that “quality” is
increasingly becoming an order qualifier rather
than order winner. He expressed his satisfaction
with the steps taken by ACMA to guide the smaller
players in scaling up their operations as well as
improving the quality standards in the industry.
Current and Future Trends
Prof. Raina raised the issue of the slowdown in
auto sales as well as vehicles usage in US and EU
and the shift towards smaller vehicles from sedans
and SUVs. He felt that such developments posed
tough challenges in the achievement of targets set
for Indian auto component industry especially the
export figures.
Mr. Gaurav Gupta felt that the current economic
slowdown as well as the declining auto sales in the
global markets presented a tremendous
opportunity for India since there will be increased
pressure on global players to outsource the auto
component manufacturing in order to cut costs.
According to Mr. Deshmukh India is fast emerging
as the hub for small cars so any shift towards small
cars in the global auto market is a welcome change
for us. He also felt that the export earnings of Indian
auto component sector would get a boost with the
increase in the manufacturing and export of small
cars from India by players like Maruti Suzuki,
Hyundai, Renault-Nissan, GM etc.
Mr. Gaurav Gupta added that India's emergence as
the small car hub would also mean that Indian
players get a bigger chunk of the auto components
after market which offers higher margins for the
manufacturers.
The OEMs need the Tier 1 suppliers to be situated
Knowledge Partner
STRATEGY37
STRATEGY
Opportunity Areas and Challenges for Indian Automotive Component Players
CMYK
Industry has emerged as one of India’s fastest
growing manufacturing sectors, growing at a
CAGR of around 27.2% in value terms between
2002-03 and 2007-08. But the Industry is highly
fragmented with around 5,000 companies in the
un-organized sector, accounting for 23% of the
market contributing primarily to the replacement
market. The rest of the market is comprised of
around 400 players contributing to OE, Exports and
replacement market.
The Indian Auto component industry caters to most
of the product segments as shown in the adjoining
figure:
near shore and Tier 1 business extensively
involves technology, R&D and large scale
investments. With improvements in the supply
chain and increasing cost pressures on OEMs and
Tier 1 suppliers there will be increased activity in
the Tier 2 and 3 businesses.
The increasing concerns over environmental
degradation and the subsequent emergence of
stringent emission norms would lead to increased
pressures on auto component manufacturers to
innovate according to Mr. Mani. The weight of the
vehicle has a direct relation to the emissions so
alternative materials like plastics would be
increasingly used to cut down the weight of the auto
parts. These pressures would also help improve
the design and engineering capabilities of the auto
component manufacturers as has been already
observed in case of suppliers of Nano.
The Research
Introduction - Indian Automotive
Component Industry
Indian Automotive Components sector is an
interesting sector to study in the current economic
context especially because this sectors future
depends on the demand derived from the
Automobile industry. In developed economies like
US the demand for automobiles has tapered off
after decades of fast paced growth, in fact negative
growth is being reported for many categories of
vehicles. The Indian Automotive Component
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Demand Drivers – Industry
Composition
The Indian automotive component industry is
driven by the domestic automotive industry and the
export demand from the global automotive
industry.
In the past, the domestic OEM demand and the
replacement market have been the predominant
force behind the growth of the automobile
component industry. Supply to the OEMs
constitutes the major share of the Indian auto
component market, at 59% of the total market
followed by the replacement market. But since the
Intensifying competition and reduced margins in
the developed countries have forced automakers
across the globe to look for low cost destinations,
going forward this mix is expected to change
significantly with exports growing at a faster rate
than the domestic OEM demand and constituting
about 53% of the total market.
Auto Components – OEM
Demand
The domestic OEM demand will continue to be a
growth driver for the Indian auto component
industry. With the automotive market expecting a
robust growth over the next 5 years, automotive
component demand from the OEM is expected to
grow in tandem at a 7% CAGR till 2015 to $14
billion.
The growth in OEM demand is expected to be
fueled by a greater number of global OEM's setting
Knowledge Partner
STRATEGY39
STRATEGY
Opportunity Areas and Challenges for Indian Automotive Component Players
CMYK
Auto Components – Export
Demand
The Indian auto component industry derived
approximately $4 billion in sales from the export
market and has grown at a CAGR of 40% in the last
five years. Going forward the demand from the
export market is expected to be the biggest growth
driver for the Indian auto component industry. It is
estimated to reach $20-25 billion by 2016. The
market composition of exports over the last decade
has changed significantly. Currently, India exports
75% of components to OEM/Tier 1 markets and the
remaining to the aftermarket players.
Value of Indian Automotive
Component Industry – 2016
Based on these drivers of demand of the Indian
Auto Component Industry, the industry is projected
to reach a value of $ 35- 40 billion by 2016 as
depicted in the graph above.
up base in India and launching of new vehicle
models by existing OEMs. Passenger Cars and
Utility Vehicle segments are the largest consumers
of OEM Auto components and given their rapid
growth rate till 2015, it is expected this segment
would continue to remain the largest customer.
Auto Components – Domestic
Replacement Market
The Indian replacement market currently
constitutes 22% of the Indian Automotive
Component Industry and is currently estimated to
be about $4 billion. It is expected to grow at a
CAGR of 5% till 2015 to reach over $5 billion.
The average spend on replacement parts per
vehicle is estimated to decrease across all vehicle
segments due to advances in technology and
reliability of original parts leading to slow growth in
this segment. And as shown in the graphs, the
electrical and equipment components would be the
fastest growing product categories largely due to
the increase in electrical parts in vehicles and due
to high wear and tear.
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Outsourcing Trends to Low Cost
Countries
The Global auto component industry is currently
$1.2 trillion and is expected to grow to $1.65 trillion
by 2016. It is estimated that by 2016, $700 Billion
would be outsourced from LCCs
India's export potential is derived by analyzing its
competitiveness across the following parameters
in relation to other countries: How India's Industrial
and Technology conditions would rank in relation to
other S.E Asian Outsourcing destinations.
Compared to other Asian automotive component
manufacturers India's superiority clearly lies in its
Engineering, Design and Quality capabilities.
Global Automotive Industry –
Supply Chain Trends
Traditionally OEM’s retained the profile of
undertaking majority of the assembly, design,
i nnova t i ons and p roduc t i on o f ma jo r
components/units of a vehicle, the rising costs
within the industry are pushing them to transfer
these responsibilities to their Tier 1/2 suppliers. To
meet the demand of the OEM’s, auto component
suppliers are increasingly moving up the value
chain, graduating from component specialist to
system and module assemblers. Exemplifying this
feature is the growth in supplier value addition,
from 65% in 2002 to 78% in 2015, within the
manufacturing process. An emerging trend in this
regard is the changing roles and responsibilities of
various suppliers across the spectrum of the value
chain.
Global Automotive Industry –
Technological Trends
Another emerging trend within the automotive
industry, is the changing technological and
innovative environment, impacting both OEM’s
and suppliers.
Other International Trends
åShift in consumer preferences from large vehicles
to smaller cars due to rising fuel prices
åShift towards “greener”, more fuel-efficient
vehicles leading to changes in technology e.g.
hybrid cars, Alternative fuels etc
åEscalating raw material prices – impact on quality
of raw materials and profit margins e.g.
Increasing steel prices may result in the use of
alternative metals like Aluminium
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STRATEGY
Opportunity Areas and Challenges for Indian Automotive Component Players
CMYK
Recommendations
In order to ensure that the Indian Auto Component
Sector manages to achieve the projected growth
based on its study the research panel recommends
that focussed actions need to be taken at three
levels i.e. Firm, Industry (by industry associations
like ACMA) and Government level.
Firm Level
åIncreased investments in R&D
åStrong focus on Product Development
åImprove the engineering and manufacturing
technology being used for production
åIncrease the use of Information Technology as a
business enabler
Industry Level
åInitiate benchmarking initiatives with respect to
the global auto component majors
åFacilitate consolidation of smaller players
åRegular competitiveness evaluation
åEvaluate the educational requirements for the
manpower and collaborate with universities and
industrial training institutions
Government Level
åFocus on improvement of infrastructure
åFacilitate development of automotive clusters
åEnhance the availability of capital
åIncreased competition – along with relatively slow
growth and high costs in mature markets –
prompting automakers and their suppliers to
increase presence in emerging countries like
Brazil, Russia, India and China
åNew alliances and partnerships around
innovation and technology and also car buying
attributes changing from basic to enhanced
features
åThe impact of WTO and FTA's to encourage trade
of auto components between countries at
favourable prices
I n d i a n A u t o C o m p o n e n t
Industry – Competitiveness
Drivers
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This means that companies need to access talent
wherever it is available. Hence the need for UC
becomes all the more important.
The panel also reasoned that revenues from server
sales have not reduced with the advent of
virtualization. This is because even though
demand for servers has gone down, demand has
grown for servers with large computing power
which can be sold at a higher price. The panel also
believed that companies are moving away from
traditional 'hardware silos' (physical servers) to a
pool of resources concept, in which resources can
be assigned when required and returned to the
pool when their work is over.
The panel believed that virtualization caused
complications in management of infrastructure as
with a heavy virtual server sprawl, it becomes
difficult to monitor each machine separately. The
panel believed that with the ease of deployment,
PANEL SPEAKERS
Mr. Aloke Baidya, Account Technology Specialist -
Central Govt. and Healthcare of Microsoft
Mr. Baba Varansi, Head, Department of Innovation
of CSC India Pvt. Ltd.
Mr. Vaidya Nathan, Global Innovation Leader of
Cognizant
Mr. Vikas Sidana, Business Development Engineer
(ESS) of HP
Mr. Mahadeo Jaiswal, Professor, MDI Gurgaon
å
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å
EXPERT OPINION
The research team presented their findings on key
challenge areas for foreign companies and brought
out several actionable items for the panel to
discuss and opine upon. One of the most important
question was the need for innovation in IT
industries. The panel was of the opinion that any
barriers and constraints can be acceptable until
they become obstacles to growth. Then the need to
challenge the status quo arises. When this need
arises, innovation is needed.
The panel was also of the view that the tough
environment created complicated situations and
were cause for companies to rethink their
strategies. The panel also believed that India as a
country is moving from a situation of labour
arbitrage, which was once caused due to
outsourcing but is now considered a hygiene factor,
to a situation of intellectual arbitrage.
43
Empowering Businesses:Innovation In IT Strategies
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Given below are some of the commonly expected
deliverables of IT strategies in businesses today:
1) TCO of Technology
Between 1996 and 2006, the total cost of
ownership for servers worldwide rose from US$98
billion to more than US$250 billion. The rising costs
are projected to continue and are being driven, first
and foremost, by server management and
administration costs. The secondary driver behind
rising ownership costs for servers is the cost of
power and cooling for data centers. Often the
power consumed by the cooling systems is the
same as that consumed by the servers
themselves. Apart from all this, there is the issue of
finding floor space for data centers and that too
adds to the cost. So with the cost of electricity and
personnel rising, CIOs clearly have their work cut
out for them when it comes to containing costs.
2) Business Agility And Speed
Agility is defined as the ability to respond rapidly to
events that occur in business. Speed is defined as
the ability to execute operational and strategic
objectives. In a Mckinsey Global survey among
corporations in 2006, 90% respondents said agility
is very important to business and about 86% said
the same about Speed. To be agile and speedy,
Business decisions have to be in a matter of
minutes and hours rather than days and weeks.
Thus there is a high need to be more nimble and
flexible. These requirements are direct
expectations from IT departments of today.
virtual servers are created at a rapid rate and there
is a need for unified infrastructure management
and the need for some industry standards to be set.
The panel believed that UC is a major enabler as it
allowed people to communicate via different
mediums, e.g. to answer emails via phone, thereby
creating an anywhere office. However the panel did
believe that there must be some form of encryption
to ensure secure communication across different
devices.
Panel believed that demand for new data centre's
constitute 50% of the total IT budget. The panel
also believed the need to create Next Generation
Data Centre (NGDC). NGDC is software which can
be used as a service in which SME's can borrow
server and other resources from a host. This also
includes cloud computing.
The panel believed that convincing the customer
on ROI of emerging technologies is a long sales
process in which the client is studied in detail and a
technology suited for its purpose is identified.
Finally ,the panel was of the opinion that
companies have to use IT strategies to create a
unique value proposition, deep business insights
and think in terms of value provided to the
organization rather than just a functional
component.
Key Deliverables Of IT
strategies
Businesses have certain expectations and goals
when implementing any kind of IT strategy.
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Data Centre Virtualization
According to Moore's Law computing power
doubles every 18 months. While there are some
computing applications with an insatiable appetite
for computational resources (gaming, modern
desktop applications and high throughput server
applications, to name a few), there are many
applications whose computational demands have
not increased at the same rate as computing
hardware. It is not uncommon to see server
utilization figures of less than 10 percent per
physical server for these types of applications.
Light weight web serving, DNS, VPN solutions, and
low throughput databases are all examples of
computing workloads that do not place inordinate
demands on modern server hardware. It seems
somewhat wasteful to buy a new machine and use
so little of it. Using old machines isn't such a great
solution, either, as they are often unreliable (and
difficult to get spare parts for), have high power
requirements, and take up a lot of space.
Virtualization allows much more efficient utilization
of underlying hardware by combining several of
these workloads on one server, while still allowing
the workloads to be isolated from one another as if
they were running on physically separate
computers. The servers continue to work
independently as if working on native hardware.
This is called virtualization. It achieves this by
forming a layer between the physical hardware and
the operating system, creating a number of virtual
instances of the operating system. This means that
each machine can be used to create several virtual
servers, all running different applications.
3) Employee Productivity
Working in office cubicles leads to morale problems
as workers begin to feel confined in semi-private
"nests" with little contact with the outside world.
When worker morale is low, productivity also tends
to suffer. There are other causes that affect
employee productivity such as increasing
depression, rising competition and poor work life
balance. Productivity in the US is a meager 1
percent. It was the IT and communication
revolution in 90s' that had caused the productivity
levels to go up to 3%.
4) Green IT
Corporations are growing more and more
environment conscious and are always on the
lookout for technologies that are environment
friendly. Corporations are looking out for ways to
reduce their carbon footprint and any IT strategy
which does this will be adapted by corporations
rapidly.
Based on these four factors, the group shortlisted
several new and upcoming IT strategies such as
web-oriented architecture, social networking,
cloud computing, vir tual izat ion, unif ied
communication, etc. From these, the group chose
two strategies which the group believes will be very
popular among organizations in the near future,
given the fact that we are going through extremely
difficult times. These two IT strategies are data
center virtualization and unified communication.
45
Empowering Businesses:Innovation In IT Strategies
INFORMATION MANAGEMENT
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Business Benefits of Virtualization
1. CAPEX Benefits
o Reducing Capital Spend on IT Hardware
o According to a Forrester Research “The
State of Enterprise Infrastructure in
Europe 2006”, nearly one-third of the total
IT budget is spent on enterprise hardware
and maintenance that includes servers,
PCs, and networking. In this component of
Enterprise Hardware Spend, the share of
Servers is as high as 25%.
o Server Hardware Consolidation ratios of
8:1 to 12:1 can be easily achieved leading
to 70 – 80% CAPEX savings.
o Server utilization is normally 10% and
maximum goes up to 30%. So it makes
financial prudence to run the non critical
There are different domains of virtualization that
come under the broad category of data centre
virtualization namely
Server virtualization
Out of all three of the different types of virtualization
discussed in this article, server virtualization is the
type of virtualization most are familiar with. When
people say "virtualization", they are usually
referring to server virtualization.
Storage virtualization
Storage Virtualization is the pooling of physical
storage from multiple network storage devices into
what appears to be a single storage device that is
managed from a central console. Storage
virtualization is commonly used in a storage area
network ( ). The management of storage
devices can be tedious and time-consuming.
Storage virtualization helps the storage
administrator perform the tasks of backup,
archiving, and recovery more easily, and in less
time, by disguising the actual complexity of the
SAN.
Network virtualization
Network virtualization is a method of combining the
available resources in a network by splitting up the
available into s, each of which is
independent from the others, and each of which
can be assigned (or reassigned) to a particular
server or device in real time. Each channel is
independently secured. Every subscriber has
shared access to all the resources on the network
from a single computer.
SAN
bandwidth channel
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previous virtual machine state
o A virtual server can be deployed in
minutes, adding flexibility and speeding
your time to market – It could take upto
four weeks to deploy a standalone
server including time to order , build it ,
test it and install the applications
o H i g h e r a v a i l a b i l i t y a n d l e s s
maintenance, to keep your business up
and running
o Reducing carbon footprint
o Improved IT Infrastructure Scalability
o Increased Reliability through reduced
downtime and faster disaster recovery
Unified Communication
Today's business leaders understand they must
respond rapidly to changing developments to
meet customer demands and improve
profitability. Business communications have
become more complex, and despite investments
in technology, such as instant messaging and
mobile devices, companies still have difficulties
contacting key decision-makers in a timely
manner. To maintain a competitive edge and
grow profitably, companies need to respond more
quickly to their employees and customers and
must avoid communication obstructions.
Gartner defines UC products (equipment,
software and services) as those that enhance
individual, workgroup and organizational
servers requirements on the same server
so that server utilisation goes up to 60 –
70%.
o Reducing Space Requirements
o Software Licensing Costs
o Reducing cooling requirements
o Immediate Realization of benefits
2. OPEX Benefits
o Reducing Power Costs – Due to both
hardware and cooling systems
o For every $1 spent on new server spend,
$0.50 is spent on energy to power and cool
it
o Reducing Administrative Manpower
Requirement
o Reduced Downtime (Disaster Recovery)
3. Strategic Benefits
o Increased agility
o Difficult upgrades and migrations can be
attempted, tested and rolled back to a
47
CMYK
2. Increased Employee productivity
3. Reduced travel expenses
4. Time savings
o Easier messaging management
o Easier accessibility
o Greater co-worker accessibility
productivity by enabling and facilitating the control,
management, integration and use of multiple
enterprise communication methods. According to
Gartner, UC products achieve this through the
convergence and integration of communication
channels (that is, media), networks, systems and
business applications, as well as through the
consolidation of the controls over them. UC
products may be made up of a stand-alone product
suite or may be a portfolio of integrated
applications and platforms.
Figure 3: Unified Communications
Business Benefits Of UC
1. Increased Business agility
o Real time collaborative decision making
o Speedily resolve customer Issues
o Increased incidence of 'First time resolution'
for customers
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Credits
Event Secretary
Puneet Babail
Senior Core Team
Dr. Sangam SinghSaurabh GoenkaKamal ChopraVanita TharejaNitin ChawlaSonam ChopraPriyanka GulatiRuchie ChaudharyAnubhav JainRahul BansalAvni Mehta
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Research Team
Finance
Junior Research Team
Senior Research Team
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Panel
Senior Research Team
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Human Resources
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Credits(Continued)
Information Management Panel
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Marketing Panel
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Operations Panel
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