critical success factors of companis2000 apr jun 31 41

8/10/2019 Critical Success Factors of Companis2000 Apr Jun 31 41

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Critical Success Factors and Effective Strategies inthe New EnvironmentA M Shah

The reduction in protectionist barriers in India

has made the Indian business environment morecompetitive. For surviving and growing in thenew scenario, Indian companies need to improvetheir competitiveness and choose effectivestrategies. This paper attempts to identify criticalsuccess factors and key strategies to be pursued

by companies. Based on questionnaire datacollected from 125 CEOs, the study spells out11 critical success factors/areas for companiesoperating in the Indian market. Whileimprovement in all these critical areas is necessaryfor strengthening the competitiveness oforganizations, a relatively greater emphasis on

one or the other depends upon the strategiespursued by an organization at a particular periodof time. This paper identifies five key strategiesfor competing successfully in the Indian market.The strategy 'good quality and low price' wasranked first in importance, followed by 'productinnovation,' 'cost leadership and differentiation,''niche-marketing,' and 'superior quality and

premium price.'

A M Sh ah is Pr of es so r and He ad at th e De pa rt me nt of

Management Studies, the University of Kashmir, Srinagar.

Introduction

With the opening up of the Indian economy, the rateof change in business environment has accelerated.The reduction in protectionist barriers has facilitatedthe entry of multinational corporations and intensi-fied competition within the country. While liberali-zation has provided opportunities to both foreign andlocal companies, foreign companies are better placedto exploit these opportunities, because, they possessan array of advantages over local companies like

superior products, better technology, seasoned mar-keting and managerial skills, and greater access tofinancial resources.

Most Indian business houses have tended to benervous about competition with multinationals andthe lack of a level playing field. A small cluster ofcompanies like Reliance Industries, Ranbaxy Labo-ratories, Sundaram Fasteners, Arvind Mills, BajajAuto, etc., however, have taken serious initiatives andhave attempted to be competitive. Many have yetto formulate their response to the changed environ-ment. They need to think through their vision, goalsand objectives, corporate culture, overall corporatestrategy, and the consequent functional strategies.There are issues relating to implementation like themobilization of key resources, organizational struc-ture, management systems and process to ensure theutilization of resources, and monitoring and controlsystems to see that the organization is moving in theright direction.

While there is a wide range of issues and actionareas, it is crucial to identify and manage criticalissues and areas for achieving competitive advantage.The effort can help organizations to construct con-sistent sets of actions or strategies to maximize their

competitive potential. In this context, however, thereis little guidance available to the struggling local firmskeen to survive and prosper in the new liberalizedand globalized Indian market. Therefore, an empiri-cal base is necessary to provide guidance to organi-zations operating in the Indian market for devisingeffective strategies for responding to changing busi-

Vol. 25, No. 2, April-June 2000 31 Vikalpa


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ness environment and staying ahead of competition.

The foregoing discussion suggests three inter-related research questions that guide the presentexploratory investigation:

What are the crucial activities which organizations need to perform continuously for re

sponding to rapidly changing business environment?

What are the key areas/factors which Indianorganizations need to focus on for improvingtheir competitiveness?

What are the most effective strategies forremaining successful in the Indian markets?

Research Setting and Methods

As Chief Executive Officers (CEOs) influence organi-zation strategy and are responsible and accountablefor the performance of the organization as a whole,

they were targeted for obtaining information for thisstudy. The sample of CEOs was drawn from BusinessToday's (September 22-October 6, 1997) list of 500India's most valuable companies in terms of marketcapitalization. The list identifies India's successfulcompanies from both the manufacturing and servicesectors.

Data were collected through a structured ques-tionnaire from the CEOs. The questionnaire was pre-tested on 20 prospective respondents from Delhi andthe neighbouring region to assess the relevance andconsistency of questions/factors in the questionnaire.

The participation of executives from different typesof organizations and access to executives were thedetermining criteria in the selection of these execu-tives. Based on the feedback, a total of 15 factorswere included in the questionnaire for rating successfactors for the companies in the Indian market.

The questionnaire consisted of two parts. PartI was designed to elicit the socio-economic back-ground of the respondents and the brief profile oftheir companies. Part II included three questions. Thefirst question was an open-ended one requesting theCEOs to list two or three critical activities/factorswhich organizations must perform for responding to

the changing Indian business environment. Whilechange upsets the balance, the objective of thisquestion was to identify crucial activities/factors formanaging change on the basis of expert opinion ofthe respondents. Some respondents identified five tosix activities/factors in response to the first question.The second question sought the respondents' viewsabout the importance of success factors listed in the

questionnaire. CEOs were asked to assess the im-portance of these factors on a five-point Likert typeresponse scale, where 1 represented 'highly impor-tant' and 5 'not at all important.' The third questionwas also an open-ended one requesting the respond-ents to identify two or three most effective strategiesfor the Indian market in order of their importance.

The questionnaire was mailed to the CEOs ofBT 500 companies. Responses were received from125 CEOs, indicating a response rate of 25 per cent.The breakdown of responses by industry affiliationis reflected in Table 1.

Table 1: Breakdown of Responses by IndustryAffiliation

Industry Sectors Usable

Responses

%Responses

Consumer Durables 15 12.00

Consumer Non-durables 9 7.20

Drugs and Pharmaceuticals 16 12.80

Automobiles and Engineering 18 14.40

Auto Components 13 10.40

Textiles 11 8.80

Chemicals 7 5.60

Information Technology 5 4.00

Others 31 24.80

Total 125 100.00

The descriptive analysis suggests that the sam-pled CEOs were predominantly middle -ag ed tosenior men, with their ages ranging from 38 yearsto 58 years. The majority (72%) had been with their

present organization for over two years. They hada total work experience ranging from 15 years to 32years. Over 70 per cent of the respondents had

bachelors' degree in engineering, management, andscience. Rest had graduate/post-graduate degrees inother disciplines.

In terms of sales, the majority (48%) of thecompanies represented by their sampled CEOs hadsales below Rs 500 crore, 44 per cent had sales

between Rs 500 crore and Rs 1000 crore and 8 percent had annual sales in excess of Rs 1000 crore for

the year 1996-97. The annual profits of the saidcompanies ranged from Rs 79.40 crore to Rs 1323crore for the year 1996-97.

Results and Discussion

The entire study is organized into three sections.Section one analyses the crucial activities whichorganizations need to carry out continuously for



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responding to changing business environment. Sec-tion two discusses the critical success factors on whichorganizations need to focus on for improving theircompetitiveness. The last section presents the mosteffective strategies for remaining successful in theIndian markets.

Managing Change While responding to the open-ended question ofidentification of two or three crucial activities/factorsfor successful management of business in a changingenvironment, CEOs listed five broad categories ofactivities/factors of critical importance (Table 2).Whereas respondents named 21 activities/factors,they were grouped under the dimensions of five

broad activities/factors. For instance, five factors, viz.market knowledge, market analysis, reading marketsignals continuously, market watch, and customeranalysis reported by CEOs were grouped under therubric continuously reading and interpreting market

signals.

Table 2: Activities for Managing Change

Item % Response

Continuously Reading and Interpreting 92.80Market Signals

Determining and Analysing the Impact 87.20of Change on Business

Quickly Designing Strategies fo r 86.40

Responding to Change

Quick Decision-making 84.80

Analysing Competitors' Potential of 81.60

Responsiveness

A great majority of respondents of this study(92.80%) identified the factor continuously readingand interpreting market signals as of critical impor-tance in responding to change. It enables a companyto formulate and implement strategies faster andmore effectively than competition. Similarly, 87.20

per cent of the CEOs reported that organizationsneed to determine and analyse the impact of changeon their businesses. This is essential for knowing whatan organization needs to do to withstand change andexploit the opportunities created by change.

An overwhelming number of respondents(86.40%) reported the factor - quickly designingsuitable strategies for responding to change - as ofcrucial importance. They noted that appropriatestrategies should be selected for pursuance on the

basis of evaluation of many factors. In particular,considerations of resources, appeal of products andservices to given markets, and level of competition

and competitor reaction must be assessed. Moreover,speedy response to market changes is the key tomaintain, consolidate, and create market share.

Equally important is improving the pace andquality of decision-making. About 84 per cent of therespondents listed quick decision-making as of criticalimportance. Executives believed that quick decisionis the key differentiator between the companies whosucceed or fail. Quick decision-making helps organi-zations to adapt faster to the opportunities and threats

posed by fast-paced environment. As against this,slow decision-making can lead to late response tocustomer needs or market changes, resulting in thecompetitor surpassing. Therefore, quick decision-making is crucial for managing change and achievingsuccess.

About 81 per cent of the respondents listed thefactor analysing competitors' potential of respon-siveness - as of critical importance. This may be

because, companies cannot afford to design strategiesor take actions for responding to change withoutconsidering the potential of their competitors. Presentor potential competitors can counter the effort of acompany with vigorous and unpleasant responsesmaking its moves irrelevant. Therefore, it is impera-tive to focus on present as well as potential com-

petitors. Paying little attention to potential competi-tors might result in losing market share before onehas noticed that.

For responding to the changed environment,organizations should be focused upon responsiveness.In this context, it is imperative to be anticipatoryand prepare in advance. It will help to see and adaptto new opportunities and potential threats faster thancompetitors. Choosing not to imagine what changesare going to take place and what markets will looklike in future can prevent a company from being ableto respond to shifts in customer tastes, technologicalchanges, and competitors' actions, and substantialcompetitive problems will surface.

Critical Success Factors

For formulating appropriate strategies and respond-ing to the changing environment quickly and crea-

tively, organizations need to strengthen their com-petitiveness by building capabilities that provideenduring sources of competitive advantage. Thisstudy identifies 11 key areas/factors which all organi-zations must build/improve for competing success-fully in the Indian market. Table 3 indicates thatCEOs viewed these 11 factors as of critical impor-tance for the successful performance of Indian or-



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ganizations. The resultant mean importance scoresranged between 1.16 and 2.47. While the meanimportance scores were closer to the highly importantcategory in the first five factors, they were nearerto very important category in the case of other sixfactors.

Table 3: Critical Success Factors for Companiesin Indian Market

Factor Mean Importance Score Rank

Product Quality 1.16 1

Relative Product Cost 1.37 2

Good People 1.39 3

Innovativeness 1.43 4

Advanced Technology 1.45 5

Strategic Alliances 1.69 6

Market Knowledge 1.86 7

Flexibility 1.99 8

Business Reputation 2.21 9

Distribution Networks 2.28 10

Information Systems

A great majority of therespondents (94.36%) cited quality products as ofcritical importance in winning in the Indian market(Mean=1.16). They believed that quality is the basicingredient of a winning marketing strategy in thecompetitive markets and the rewards coming throughthe quality route are lasting and substantial. Quality

has immensely contributed to the success of manyIndian companies like Sundaram Fasteners andCore Healthcare. Sundaram Fasteners tookadvantage of an offer to make radiator caps forGeneral Motors (GM) and redefined its productionand quality norms on GM's terms. Ever since thefirst consignment was despatched to GM in March1993, the company has become very important forGM to meet its customer needs. The company is notonly GM's sole global supplier of metal radiatorcaps, it has also bagged the American auto giant'sBest-of-the-Best Award for 1997 for the second year'in a row. The company is also the domestic leader

in hitensible fasteners, with a 52 per cent market share.Similarly, Core Healthcare defined itself as aglobalcompany and fixed its quality norms on par with the

best in the world. In a short period of time, thecompany has become a leader in its marketsegment. Moreover, it has a significant export

business to its credit. Thus, an emphasis on bothmanufacturing processes and quality control isnecessary.

Product cost was ranked second in importance(mean=1.37). Most of the CEOs saw a future in whichtheir companies would continue to compete on the

basis of cost through continuous" productivity im-provement programmes and cost reducing strategies.Managing costs across the entire value chain wouldhelp a company to build a sustainable cost advantage.

It would enable a company to be price competitiveas well. The success of companies like Nirma andAkai indicates that a cost advantage is of criticalimportance in the Indian market.

The development and retention of an increas-ingly talented work force having commitment andmotivation is essential for the success of organizationsin any market. This explains why the third most citedfactor was good people (mean=1.39). Executives

believed that organizations need to integrate theirhuman resources with business strategies for attainingand sustaining the cutting edge. This calls for makingheavy investment in selection and training of people.McKinsey, for instance, has thrived by sticking toa simple policy: hire good people, offer them arigorous training, and then wait for clients to knockat the door (Times of India, 1997). Moreover, it iscritical to work out the key skills which an organi-zation requires to manage its business not just now,

but in the next five to ten years' time and train itsstaff or make the necessary recruitment. In fact,forward thinking organizations identify core compe-tence and train their staff in these quickly. Everyyear, Pepsi analyses each position in the companyin terms of its organizational relevance and therequired competencies to ensure it hires the best

possible people, thereby maximizing its return onrecruitment. Similarly, Modi Xerox constantly makeschanges on the basis of market factors and customerneeds. This approach helps the company to developand acquire the required competencies to plug thegaps.

Innovativeness was rated as the fourth highlyimportant factor (mean 1.43). Executives pointed outthat it is imperative for organizations to innovatecontinuously for gaining a strong foothold in theIndian markets. If an organization fails to manageinnovation, it is very likely that someone will reinvent

his business with a better idea. Therefore, thechallenge is how to manage innovation so that yourcompany is ready for the future. In this context, itis imperative for organizations to develop superiorinsights into what customers value and accordinglydevelop innovations that satisfy and delight thecustomers. Innovation is not merely a change intechnologies or processes, born in laboratories, but


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new ways or methods of doing things and born outof the firm's knowledge and experiences (Narayan,1995). According to Bijapurkar (1998), by definition,innovations are bright ideas that are so marketrelevant that they make a huge amount of money.Innovations have changed the character of many

product markets in India (For example, two-wheelers

market, colour television market, automobile market,etc.).

The fifth highly important factor was advancedtechnology (mean 1.45). The respondents believedthat technology plays a crucial role in developingsuperior quality products. While multinationals, dueto their technological supremacy, can commanddominant positions and may drive competitors to thewall, it is imperative that the technology of a companyoperating in the Indian markets be at least on parwith that of its competitors. While Indian industryis not known for technological leadership, it may bean attractive option for companies incorporating newtechnology into their businesses to stay competitiveand win in the Indian market. In fact, some com-

panies, are fast to develop and exploit technologicalinnovations to their advantage and emerge successfuland become market leaders. For instance, certaintelevision manufacturers are constantly monitoringnew technological advancements to move into high

price orbit as they are worried about the impact ofdrop in prices. While flat-screen television representstechnological superiority, LG Electronics, Sony India,and Baron International have already launched flat-screen televisions and Panasonic and Samsung haveannounced their plans to do so. As against this, moreconservative and slow companies who do not intro-duce new technology as long as the tried and testedsolutions are able to guarantee good performance areleft behind as compared to more adaptable andresponsive companies.

The factor, strategic alliances, was ranked sixthin importance (mean=1.69). Strategic alliance has

been accepted as a powerful instrument to catalyzethe organizational forces. The range of alliances isfrom a buyer-seller arrangement to technical collabo-ration to equity stakes. Strategic alliance is an inter-firm link established through contractual agreements

like joint R&D, joint product development, long-termsourcing agreements, joint manufacturing/marketing,and shared distribution service (Yoshino and Srinivas,1995). However, it is a double-edged sword that helps

business conquer new areas of business if handledproperly and if not damages the business interest toan extent that perhaps no other tool or techniquecan (Mehta and Samanta, 1996). Most of the strategic

alliances of Indian firms with outside firms are foracquiring advanced technology. For instance, despiteits well-founded reputation for technological capabili-ties, the Tata Group has entered into a number of

joint ventures, especially in new businesses, withAT&T, IBM, and Daimler Benz. Similarly, Mahindraand Mahindra's tie -ups with Peugeot for light utility

vehicles and AVL for tractors provides it with accessto technology. The strategy of marketing alliance is

pursued by foreign companies to tap the vast cus-tomer base of Indian market. While Akai has suc-cessfully launched its colour television in the Indianmarket through its Indian ally Baron International,AIWA has now forged an alliance also with Baronfor launching its products in the Indian market.Whereas distribution network holds the key for thesuccess of marketing firms, aligning of foreign firmswith Indian firms who have established networksmakes much sense. Thus, strategic alliances may veryoften be a quick and economic route to increased

competitive capabilities. It will be invaluable inimplementing corporate dreams and plans in theyears ahead, but the need for caution and patiencecan hardly be over-emphasized (Raghunath, 1996).

Similarly, the other factors, viz., market knowl-edge, flexibility, business reputations, distributionnetworks, and information systems were viewed asvery important by the respondents. Their meanimportance score ranged from 1.86 to 2.47. Therefore,in order to improve competitiveness and achievesustainable competitive advantage, organizationsmust meticulously focus on these factors also. Thecompetitive advantage may not be durable if thesefactors/areas are not adequately developed andnurtured by the Indian companies.

Business Strategies

While a well-planned focus on all the critical factors/areas listed in Table 3 is necessary for strengtheningthe competitiveness of organizations operating in theIndian market, a relatively greater emphasis on oneset or the other depends upon the environmentalturbulence and the strategy pursued by an organi-zation at a particular period of time. In this context,Table 4 reports five broad strategies identified by

CEOs as most effective for the Indian market.

Good Quality and Low Price

This strategy was ranked first in importance. About94 per cent respondents reported that it is the mosteffective strategy to tap the vast customer potentialof India. The respondents pointed out that companiesneed to offer good quality products at a relatively



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Table 4: Effective Strategies for Companies inIndian Market

Strategy %Frequency Response

Good Quality andLow Price

118 94.40 1

Product Innovation 109 87.20 2Cost Leadership andDifferentiation

105 84.00 3

Niche Marketing 90 72.00 4

Superior Quality andPremium Price

77 61.60 5

competitive, albeit lower price than their competitors.

This is because, in the emerging competitive market,quality is the price of market entry and not acompetitive differentiator as all other competitorsmay be offering qualitative and upgraded products.

Various companies have been using price as adifferentiator and a weapon to wrest market sharefrom well-entrenched market leaders. For instance,from the late 70s through the 80s, Nirma's cheap

pricing strategy enabled it to grab a considerable sliceof the market share from Hindustan Lever. WhileHindustan Lever has since fought back with low

priced products of its own (for example, Sunlightdetergent powder in 1985 and Wheel powder in1987), Nirma still enjoys the largest market share byvolume. Similarly, in April 1994, Bennett Colemanand Co. slashed down the price of its Delhi editionof the Times of India by 80 paisa. As a result, within

just five months, its circulation increased by 51 percent (Roy and Mukerjea, 1994). Moreover, thecompany forced the market leader, Hindustan Timesto drop its price to match Times of India's Rs 1.50.In the battle for market share recently (May 1999)the Times of India again dropped the price from Rs1.50 to Rs 1.00 on weekdays.

Across the country, in a wide range of productcategories, more and more companies are recognizingthat, in the battle for market place, price with goodquality is a potent weapon. In July 1996, PertectComputers Ltd. (PCL) offered a branded PC Mil-lennium 486 for Rs 23,500 only while the lowest

priced PC then was available for Rs 40,000 in India.Backed by heavy advertising, the strategy helped thecompany to increase its sales substantially and enjoythe largest market share within just three months.Moreover, it changed the market pricing logisticscompletely. While Wipro slashed the price of its Acermodel to Rs 35,000, HCL group came up with itslower than the lowest offer of Rs 19,995 for its

Busybee-486. PCL who initiated the price war lateron announced its Diwali offer - the lowest price ofRs 18,999. Similarly, in 1997, Akai challenged themight of global megabrands like Sony, Panasonic, andThomson as well as firmly entrenched local playerslike BPL, Videocon, and Onida simply on price byusing a brand that has good quality. The Baron

International, which markets Akai products, slasheddown the price of its 29-inch colour television fromRs 20,000 to Rs 10,000. In the process, BaronInternational's colour television sales grew from 2,500in 1993-94 to 4.29 lakh units in 1997-98, forcing everycompany to focus on price cutting. Consequently,in 1997, Sony India dropped the price of its flagshiptelevision set - the Trinitron - from Rs 28,000 to21,000, after lowering it to Rs 19,000 earlier.

Some multinational companies are also using thestrategy to tap the vast consumer potential of India.Domino's and McDonald's have come up with thelowest pricing structure in the world for India.

Domino sells 12 inch pizza at $ 8.99 in the US, $9.70in Hong Kong, and $9.90 in the UK, but the priceis just $3.47 in India. McDonald's has introduced ano-frills burger at Rs 12 and an ice cream at Rs 6targeting young consumers who cannot afford itsregular products. Similarly, Reebok slashed the pricesof its footwear and apparel by 25 to 30 per centin 1997 to target the lower price-points. This hascompelled Nike to rework its pricing strategy to raceahead of competition. While its most expensive pairof shoes still retails at Rs 4,999, it has now introduceda pair of basic joggers at a much more affordable

price of Rs 999.

Thus, good quality and low pricing seems ap-propriate for the Indian markets, because peopleprefer good quality products at lower prices. Keepingthis in view, Indian companies need to improve andmaintain the quality of their products at least on parwith their competitors so that customers rate themas of good quality. While good quality depends uponcustomer judgement, companies must design their

products keeping in view the quality levels estab-lished in the minds of the customers. Moreover, itis advisable to consider the consumers' payingcapacity and preferences and the price of the sub-

stitute products before fixing the price for theproducts. In fact, before setting the price, companiesmust test the price-quality relationships for their

products in various markets at different periods, andunder varied marketing circumstances. Indeed, con-sidering the large population of India, even a small

price drop would open up a vast section of themarket.


Rank


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Innovativeness

A great majority of respondents (87.20%) mentionedinnovativeness as an effective strategy for the Indianmarket. They argued that Indian companies need todevelop innovative products continuously for surviv-ing and thriving in the competitive environment.

Product-innovation strategy enables a firm either toposition itself within an attractive niche or to meeta larger proportion of customer preferences than itscompetitors. Moreover, the strategy also helps toredefine customer expectations, thereby keepingcompetitors off balance all the time, as they watchto see what the next innovation is going to be.

Product innovations have been playing a crucialrole in the success of many companies in the Indianmarket. For instance, it is changing the character ofthe two-wheelers market. While large volumes andvertical integration provide Bajaj Auto a unique cost-advantage, its competitive edge is being blunted

gradually as value is migrating to innovative products.Bajaj Auto's competitors - LML, Hero Honda, andTVS-Suzuki are scoring over it in terms of up-to-date products, both technologically and aesthetically,and are attracting more customers. In the first ninemonths of 1998-99, Bajaj Auto's net sales slipped by2 per cent and its net profits fell by 30 per centin comparison to the same period of 1997-98 (BusinessToday, March 22-April 6, 1999). Similarly, the focuson launching of innovative products has helped LGElectronics to grab a substantial market share incolour television (6.50%) washing machines (8%),microwave ovens (9%) and refrigerators (37%) in just

two years. (Business Today, April, 7-21, 1999). Forinstance, the company launched Golden Eye colourtelevisions, whose picture adjusts automatically ac-cording to external light conditions and refrigeratorswith preserve nutrition systems that keep perishablefoods nutritious.

One of the critical options in innovation strategyis whether to seek major breakthrough improvementsor smaller incremental innovations. Although theinfluence of radical innovations is more pervasive and

profound, given the size and growth potential of theIndian market, most of the successful companies

operating in the Indian market use incrementalinnovations. This is because it is faster and cheaper.These companies have been continuously introducinginnovative products with specific benefits for custom-ers and emerging successful. For instance, three ofIndia's leading consumer product marketers -Hindustan Lever, Proctor and Gamble, and Colgate-Palmolive have achieved market penetration through

continued innovation by linking the health of con-sumers with their research findings and technologicaladvances. During 1995 and 1996, they launched aseries of new shampoo brands as well as repositionedold ones to peg each to a distinctive benefit. Theygenerated constant excitement through new launchesas much to keep users' interest in the product alive

as to deflect attention from rival brands. Conse-quently, they gained faster sales and injected growthinto a rather moribund shampoo market. The sham-

poo market after creeping up at an average rate of6 per cent per annum between 1992 and 1994 andclimbing to 9.55 per cent in 1995, suddenly racedup to 18.77 per cent in 1996 (Business Today, Sep-tember 7-21, 1997).

Notwithstanding the fact that success is far fromassured for every innovator, it appears that competi-tive advantage will go to the firm that is a repeatinnovator. Repeat innovations help a company to

maintain its leadership even in turbulent industry,which is under constant assault. However, for gainingsustainable competitive advantage, an organizationneeds to develop superior innovative products withunique features or attributes that translate into benefitsfor the customer. This gives the customer a reasonto buy and not only the existing users buy more ofit, even non-users could be made to shift to these

products. Therefore, Indian companies should con-sciously demonstrate a strong orientation to exploreideas, experiment, and foster growth. They shouldencourage innovative activities and create an envi-ronment in which such efforts would be accepted and

rewarded.

Cost Leadership and Differentiation

The two generic strategies identified by Porter (1985)are cost leadership and differentiation. While costleadership is usually aimed at attracting a broadmarket base so that the small per-unit profit marginsare off-set by large number of unit sales, a perfectdifferentiation strategy enables the firm command a

premium price.

Though Porter advocates that companies shouldconcentrate on one strategy or the other to avoid

a situation where they fall between the two stoolsand follow neither strategy successfully, 84 per centof the respondents mentioned that a combination oftwo strategies is needed for succeeding in the Indianmarkets. In fact, many companies operating in theIndian markets are using both strategies together.They draw relevant elements from both price anddifferentiation routes and forge unique strategies to



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suit their unique situational designs and relativeposition in the industry. For instance, in 1990, ClubbInternational entered the soft luggage manufacturingmarket, because the market leader VIP Industries hada near monopoly in the hard luggage segment, andmanufacturing hard luggage was both capital andtechnology intensive. The Clubb International con-

centrated on quality to satisfy the customers, keptprices about 15 per cent below VIP's, and createda dealer driven demand in the market. Consequently,the company's product has become a major brandin the highly competitive Rs 150 crore soft luggagemarket and its turnover has jumped ten-fold fromRs 24 lakh in 1990-91 to Rs 250 crore in 1996-97(Business Today, February 22-March 6, 1998).

Similarly, Ranbaxy is pursuing cost and productdifferentiation at the same time by developing bulksupplier capabilities and investing in niche strengthslike product engineering. While some of its domestic

rivals are fixated on basic research, Ranbaxy isdifferentiating itself by designing Novel Drug Deliv-ery Systems an unconventional way of adminis-tering a drug such as helper compounds or polymerimplants. It makes differentiation easier to achievethan developing innovative new drugs would and isalso cheaper and quicker. The unique differentiationin Bajaj Auto's products comes from continuous focuson tight control over component costs, quality im-

provement, and reducing cycle time. Each task inthe company has to be evaluated on the basis of three

parameters cost, quality, and time. Consequently,the company is able to produce good quality as well

as the cheapest scooters that many can buy in Asia.Vardhman's products are acknowledged to be thecountry's best and its differentiation lies in its abilityto produce high quality yarn at low costs. Companieslike Hindustan Lever (in toothpaste and shampoo),Colgate-Palmolive (in shampoo), Arvind Mills (indenim) and many others use a combination of twostrategies for attracting and maintaining customersfor longer periods.

Thus, cost leadership and differentiation appearsto be most appropriate for markets characterized byfierce competition. However, the company that

produces the best combination of the two strategieswould achieve success. In other words, how effec-tively does a company manage its costs and howsharply it differentiates from its rivals will determineits success. This calls for following the practices thathelp to control costs and selecting and sustaining thefactors that promote sharp differentiation at the sametime.

Niche Marketing

Another important strategy for the Indian market isniche marketing (72% responses). It is a low profileentry strategy which an organization pursues to avoidhead to head competition with major players in themarket at the entry stage. Here, a firm tries to findout one or more market-segments or geographic areaswhich are profitable and "safe for launching its

product. In these segments, the major competitorsare either not present or their presence is insignifi-cant. The strategy revolves around serving specificsegments more effectively than competitors. It servesas a base for obtaining experience and expertise fora company which can then be used to expand toother segments and possibly the entire market.

Some of the successful companies base theirsuccess on this strategy. For instance, in 1986, ArvindMills realized that, new entrants, in the form of low-investment powerlooms, were snatching business

away from it and the company changed its strategicfocus for surviving competition. It focused on exportstrategy to differentiate itself from its closest rivals.Arvind Mills exports 65 per cent of its product -denim - while its rivals sell largely in the domesticmarket. This niche-based approach helped the com-

pany to become the world's third biggest denimsupplier after Cone Mills and Swift Mills of the US.Similarly, Apollo Tyres focused on heavy vehicle tyresegment only, while other tyre companies like MRF,Ceat, and JK Industries have built product rangescovering all tyre segments. This strategy helpedApollo to become India's largest manufacturer of

truck tyres. Between 1992 and 1997, the company'ssales accelerated from Rs 500 crore to Rs 1414 crore,with its profits increasing from Rs 23 crore to Rs42 crore (Business Today, January 7-February 6, 1998).

The emphasis on niche markets and valueaddition has helped Bharat Forge (Kalyani Group)to achieve great success. For instance, Bharat Forgewith its relentless focus on heavier forgings, hasemerged as the largest player in the area, andcommands a 70 per cent share of the domesticmarket. Moreover, the company is India's largestexporter of forgings and crankshafts. The companyalso has a near monopoly in front-axle beams whichit supplies to Mitsubishi and TELCO. With a growinginterest in natural herbal medicines which are re-garded safe, slow, and long-term acting, well known

producers of herbal drugs (Dabur, Amrutanjan,Hamdard, and Vicco) are focusing on herbal productsegment largely. In the textile sector, JK group

preferred to concentrate on premium quality market



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segment only instead of dealing in all kinds ofvarieties of textiles as was the practice of most ofthe textile producers and was successful in achievingleadership position with its Raymond brand ofsuiting. Century Textiles opted for focus strategy anddealt only with cotton textiles and developed com-

petence in it.

Thus, niche marketing strategy is critical tosecuring differentiation in a competitive market. Itmay be suitable and useful not only to new andsmaller companies but also to smaller divisions oflarger companies or strategic business units that arenot able to achieve major success in their industries.In fact, niche-based approach is typically a starting

point for most companies. It gives the firm the abilityto test out its products and services, to iron outdistribution and logistical issues, and to developspecific markets in near monopoly conditions.However, this strategy may be irrelevant for com-

panies launching a revolutionary product.

Superior Quality and Premium Price

The strategy superior quality and premium price- was cited as an effective strategy for the Indianmarkets by 61.60 per cent of the CEOs. Theseexecutives believed that high quality product puts acompany on a different competitive plane than itscounterparts and also makes a wider range of strategicoptions accessible. Attaining high quality creates thecapability for a company to pursue premium pricestrategy.

Many companies are pursuing this strategy inthe Indian markets and emerging successful. Forinstance, while focusing on the top-end customersegment of feminine hygiene market, P&G launchedits well known international brand Whisper in theIndian market in 1989. Despite being priced at a

premium of 25.50 per cent over the products fromits rival Johnson and Johnson, Whisper becamethe segment leader and currently commands 46 percent of the Rs 150 crore feminine hygiene productsmarket (Business Today, June 7-21, 1999). Spurred bythe success, the company has decided to stick to thisstrategy and caters only to the top-end customer

segment in select urban markets (for e.g. Ariel,Camay, Pantene, etc.). Similarly, LG Electronicswhich entered the Indian market in 1997, has beenconcentrating on the high end of all the productsegments it has entered. In less than two years, thecompany has notched up substantial market shares

6.50 per cent of the Rs 4500 crore colour televisionmarket and 8 per cent of washing machines, 9 per

cent of microwave ovens, and 37 per cent of the highend refrigerator markets (Business Today, April 7-21,1999). Kellogg India is also focusing on high qualityand premium price strategy. The company is sellingits products cornflakes at a premium of 27 percent over its main competitor Mohun's cornflakes.In spite of this, the company has established the

product and gained substantial market share - 66per cent by volume, 80 per cent by value.

In fact, there is a large and growing segmentof consumers in the Indian market which are qualityconscious and want high quality products and serviceseven at higher price. Based on research on thedemographic and the dynamics of the Indian market

place of the future, the National Council of AppliedEconomic Research (NCAER) observes that the veryrich class of Indian consumers is expected to witnessa four-fold increase between 1994-95 and 2006-07from 0.57 crore people to 2.90 crore people (BusinessToday, April 7-21, 1997). The study shows that thisclass will purchase the most expensive consumerdurables and consumer non-durables. Therefore, thestrategy of superior quality and premium price is mostsuitable for this segment of the market. In particular,it would be most appropriate in a new productcategory or when a company develops a revolution-ary product made of advanced technology. However,in order to maintain quality leadership in thissegment, a company must continually upgrade its

products or service offerings to prevent customersfrom switching to rival offerings.

Despite the fact that superior quality product

producers are able to charge premium price, theycan also adopt the low-margin-high-volume strategyto attract mass market. While low-margin-high-vol-ume strategy needs quality at least on par withcompetitors, for pursuing superior quality and pre-mium price strategy, a company must offer exclusivityin return for the higher price. However, usuallysuperior quality producers use both strategies. First,they mop up the premium end of the market withhigh prices and when its potential exhausts orcompetitors emerge, they reduce the price of their

products for reaching out to more people. Forinstance, Titan Industries, Akai India, Sony India,

Timex Watches and many others are now progres-sively lowering the prices of their products to reachinto segments that they had priced themselves out.While premium positioning was not giving volumesto Titan Industries because of slow growth, it ex-

panded into lower price segments in 1997 to capturea bigger market share. The strategy has worked well

because the company's financial performance in



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19.98-99 reflects an 18 per cent increase in volume,a 9 per cent rise in income, and a 16 per cent surgein Titan's net profits (Business Today, July 7-21, 1999).

Conclusion

The purpose of this study was to identify the crucialactivities which organizations should perform for

responding to the changing environment success-fully, explore the factors/areas, which needs to befocused by organizations for improving their com-

petitiveness, and describe the most effective strategiesfor the Indian market.

The results reveal that organizations must focuson five activities/factors continuously for successfulmanagement of their businesses in the changingenvironment. These are; continuously reading andinterpreting market signals; determining and analys-ing the impact of change on businesses; analysingcompetitors' potential of responsiveness; quickly

designing strategies for responding to change, andquick decision-making. About 81 per cent to 92 percent of the CEOs in our sample listed these activitiesas of critical importance. Therefore, focusing on theseactivities/factors will help organizations to recognize

prevailing conditions and understand the currents ofchange and respond to it more effectively. However,for responding to the changing environment quicklyand creatively, Indian organizations need to improvetheir competitiveness. In this context, this studyidentified 11 key areas/factors which all organizationsmust build/improve for competing successfully in theIndian market (Table 3). The CEOs viewed these

factors as of critical importance for the successfulperformance of Indian organizations, with meanimportance score ranging from 1.16 to 2.47.'

Similarly, in order to survive and thrive in aturbulent competitive environment, organizations mustdesign and implement strategies that allow them to

withstand change and quickly take advantage ofopportunities. The selection of an appropriate strat-egy allows the firm to serve its buyers better thanothers do and to achieve a competitive advantagewhich facilitates long-term viability. Although appro-

priate strategies may differ from market to market,this study identifies five most effective strategies for

the Indian market. The strategy 'good quality andlow price' was ranked first in order of importance,followed by product innovation, cost leadership anddifferentiation, niche marketing, and superior-qualityand premium price strategies.

It is interesting to note that despite the Porterianimportance of choosing between cost leadership anddifferentiation, companies which are successful ac-tually use a combination of the two for competingin the Indian market. They focus on the practicesthat help to control costs and attempt to grow andsustain the factors that promote sharp differentiation.

The pursuance of this combination strategy assumesadded significance in India because, besides compe-tition, affordability is the highest barrier for amarketer looking for larger market share. Since Indiahas a vast customer base, even a small price dropwould open up a vast section of the market andtranslate into a viable market volume for companiesto invest. However, it is imperative for companiesto clearly define/redefine their market segments foroperation. They must decide whether to operate inthe entire market or choose specific segment(s).

Thus, in their pursuit of excellence, Indiancompanies must examine their current strategies,diagnose their strengths, and chart a course of actionto meet emerging market place challenges. The moreeffectively they understand their environment and therules of success, the greater the chance that they willchoose right strategies and prosper by staying aheadof competition.



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