india-challenges of doing business

8/2/2019 India-Challenges of Doing Business

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India : Challenges of doing business

Presented by:Anmol Agarwal; Shine Nair;30th October 2007.


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CASE STUDIES

Operating Strategies of doing Business in India


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Performance of an MNC can be analysed along fourdimensions

What element of this companys entry strategy helped it/prevented it fromestablishing an early leading position in the market?

How has the company managed its internal operating system on four dimensions(first three consist elements of value chain and last one is an enabling factor)

Value proposition to consumers and Innovation in product profile and valuedelivery

Value chain (sourcing, manufacturing, distribution) Managerial talent

What image does the company convey to local communities/governmentbodies? How did it create such an image?

How has the company managed to impact local regulations?

2. Entry strategy

3. Operatingsystem

4. Managingregulations/local image

a) Fundamental financial performance (profitability, growth, shareholder returns)b) Market power (distribution, product innovation) and market sharec) Recognition, both internal (share of parent revenues, profits) and external

(public, press etc)

1. Performance


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PERFORMANCE : Unilever through HLL has deliveredsuperior performance in India.

1. Financial

2. Market Power

3. Recognition

Fundamental PerformanceProfit after taxUSD million

120160

217 255307

360 384 367

261313

1997 1998 1999 2000 2001 2002 2003 2004 20062005

CAGR11%

Market PerformanceTRS, Indexed

Largest share (60%) of the domestic soap market Largest share (53%) of the domestic fairness cream

market Largest share of the domestic instant coffee market

Brand IdentityHigh recall domestic brands

Market share

The Indian operations (HLL) contributes a significant 6%of the groups global turnover and nearly 6% of net profit

Indian talent recognized within the global firm, e.g KekiDadiseth in HQ, Harish Menwani in Unilever USA

Internal

An unmatched distribution reach covering directly over a million retailers and a wide product portfolio with price- competitive products underpin its market leadership UBS Analyst

Conferred the Good Corporate Citizen Award, for the

year 2000 01

External

-

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100.00

150.00

200.00

250.00

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BSE-FMCG INDEX

HINDUSTANLEVER


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PERFORMANCE : Unilever through HLL hasdelivered superior performance in

Overall rating

Very successful

Failure

Entrenched player established in 1933; among the largest companies inIndia with revenues in excess of USD 2.5 billion

Achieved local market dominance by pursuing both organic and inorganicroutes

Description

Strong local product development: created new product category with itsfair and lovely (fairness cream) and introduced low cost detergents(Wheel) to match local competitors

Manufacturing and procurement system creates products at lowest cost:use scale, best procurement practices, outsourced manufacturing tomatch/ set local price points

Deep distribution reaches into remote villages; many local innovations inmanaging system which are being copied by Unilever Mexico and Brazil

Almost entirely Indian managerial staff have had an Indian CEO since1960s

Products across price points, but all focusing on superior valueproposition

2. Entrystrategy

3. Operatingsystem


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PERFORMANCE : Unilever through HLL hasdelivered superior performance in

Overall rating

Very successful

Failure

Seen as local company significant recruiters of talent, Indian externalface, invest/ participate in social initiatives.

Regulations do not have significant impact on business (consumerproducts); but individuals have significant goodwill with governmentsacross all levels.

No problem in making significant acquisitions (including acquiring the firstprivatised company) and subsequently making operating changes in

acquired companies, including politically sensitive worker attrition.

Description

4. Managingregulations/local image


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HLL COVERS A SERIES OF PRICE POINTS IN KEYCATEGORIES TO PROVIDE CREDIBLE CHOICE FORANY CONSUMER SEGMENT (1/2)

Competition

Soaps*

8

8.4

9

9

11-11.5

10

12

14.4

19.6

18

Low Medium High

Price point Brands

Breeze Rose Lifebuoy milled Jai Lime

Breeze softand Shiny

Lux Sandal Lifebuoy Intl. Gold Rexona Sandal

Rs/unit

Price point Brands Price point Brands

Liril Rain Fresh

Hamam Lifebuoy Intl. Plus Lux Pink

Godrej No. 1

PalmoliveNaturals

Nirma Herbalina

Cinthol Lime Fresh

Dettol

* Price made comparable for 100 gm SKUs

18.4 Lux International

18.6 Savlon

24.8 Pears

20 Fair & Lovely 20.6 Moti Gulab

45 Dove 9.3 Jai Jasmine

14 Liril

13.2 Nikhar

14 Chandrika Ganga Shikakai

10.6 Ganga 20 Cinthol C Intl. DoyCare

22.4 Camay

40 Mysore Gold


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* Price made for comparable 1 Kg SKUs** Price made comparable for 500 gms SKUs

Competition

Detergents*

19

26

18

25

20

41

55

40

63

85

85

140

140

155

145

170

Low Medium High

Price Brands

Premium

Price Brands Price Brands Price Brands

Wheel Green

WheelJugmug

Wheel Active

Rin Shakti

Rin Supreme

Revel Plus Surf Multi-

Action Surf Excel Matic

Surf Liquid

Surf Excel

Nirma

Friendly Wash

HenkelMr.White

Nirma Super

Tide Areil Compact

Henko PowerPearls

Tea**

85

90

90

108

116

100

Competition

Lipton Taaza

Red Label

YellowLabel

Duncan DoubleDiamond

Red Label Tata Tea Manikchand P

Girnar Royal

Tata Tetley

49 Ariel Gain 36.6 Acme Act

100 HenkoStainChampion

62 Tiger Tea

70

74

ManikchandNirali

Tata Agni

115 Taj Mahal

190 GreenLabel

HLL COVERS A SERIES OF PRICE POINTS IN KEYCATEGORIES TO PROVIDE CREDIBLE CHOICE FORANY CONSUMER SEGMENT (2/2)Rs/unit


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P&G has not managed to create a large andsuccessful business in India

Overall rating

Entered with a JV with Godrej, which did not work due to differences inexpectations, and no clear exit route for either player

Description

2. Entry strategy

P&G focused away from India, and shifted marketing operations to Singapore.They have continued to run with expat CEOs

Unsuccessfully tried to replicate Unilevers extensive distribution model Have recently implemented its project Golden Eye' which involved consolidation

of its supply chain, lowering inventory levels, improving visibility and service Proctor & Gamble introduced premium range of products in India. Unlike

Unilever, did not look at outsourced, lower quality products to build volumes andreach.

Many of its product launches have failed to make a dent in the market Ariel has8% of market, Head & shoulders 12%

3. Operatingsystem

EVALUATION OF P&GS INDIAS PERFORMANCE ON FOUR DIMENSIONS

Small size of USD 100 mn, listed company which has some of the older brandsvery profitable; however, new brands pitched at premium end, faced with lowvolumes and high branding costs leading to losses

1. Performance

Seen as having lost out to Unilever

Commitment to India not significant, leading to shifting of marketing operationsoutside India

4. Managing

regulations/local image

Very successful

Failure


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LG has grown at an astonishing pace to become a$1 Billion company in India

1. Financial

2. Market Power

3. Recognition

Fundamental PerformanceSalesRupees million

Brand Identity Identified as a possibilities brand with

catch phrase - Expand your life High brand recognition for quality

and premium attributes

Market share

Internal External

LG CASE EXAMPLE

Market leadership position in domestic airconditioners (~30%)

Ranked as the largest CDMA handset seller in thecountry in 2002-2003

Highest market share in colour televisionscategory (~18%)

Unlisted

12504850 10560

19030 2216033150

45000

65000

95000

1997 98 99 00 02 03 04

CAGR82%

Indian manufacturing facilities are beingexpanded to serve more emerging markets (for ACs, TVs etc.)

Super Achievers Award for MD KR Kim fromCETMA for the extraordinary success of LGElectronics in a short span of six years .

01 05 E
http://images.google.com/imgres?imgurl=www.naukri.com/gpw/lgnew/images/smiley2.gif&imgrefurl=http://www.naukri.com/gpw/lgnew/top.htm&h=71&w=62&sz=2&tbnid=FO8VeZ7ecpgJ:&tbnh=66&tbnw=58&prev=/images%3Fq%3DLG%2Belectronics%2B%252B%2BIndia%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8


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LG focused on providing a superior productoffering and aligned distribution network

Overallrating

Very successful

Failure

Strong commitment: Setup operations in mid 1990s, with a clear aspirations and commitmentto making Indian operations central to groups performance

Achieved this through Rapid investments in setting world class manufacturing unit and customizing supply chain

and produced durables Creating Export base out of India

Setting up contract manufacturing capacity for its other markets once least cost plantshad been customized in India (e.g. for color TVs and air conditioners) Setting up IT outsourcing arm in India

Description

Value proposition: Focused on providing high value/price products to capture latent demand. Toachieve this

concentrated on on developing high value/price products and introducing knockdown versions

Created an aspirational brand whilst providing low cost mass products,

Supply chain: Concentrated on creating new distribution channels ( created over a 100 new branches for

rural and semi urban areas), create strong incentives for channel partners and concentrated onensuring low inventory at channels

Cut imports and concentrated on achieving high levels indigenous content to reduce costs

Hired local senior management team. Local managers buy design made critically responsible tofor the country strategy

Indiastrategy

Businesssystem

Managementsystem


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Seasonality in consumption Low volumes in

several markets Huge transportation costs

due to poor roadinfrastructure

Production strategy

Indianuances

LG strategy Set up multiple product lines,

which with minimal changescan be reconfigured for differentproducts (e.g., washingmachines in winter whenrefrigerator sales are low)

Set up India as contractmanufacturing base to ensurescale in operations (e.g., TVsand compressors)

Set up plants in better infra-structure/reachable place(e.g., Pune)

High import cost

Rapidly moved to makeproducts indigenous(e.g., compressor whichis 30 40% cost of fridgeis produced locally)

Increased indigenouscontent through localsourcing

Absence of retail network inhuge chunks of the country

Mom-pop retailers with multi-brand outlets

Limited/no brand pull

Limited/no retailer loyalty

Created over a 100 newbranches for rural and semiurban areas

Provided best incentives todistributors/retailers to switch

Ensured bundling of fastselling goods with slowmoving ones (e.g., if youwant LG TV, you have tohave LG fridges)

Sourcing Distribution

. . . and re-engineered costs and improveddistribution to complete the virtuous cycle

Improved distribution hasmeant that over 50% of LG TVsold today are bought in ruralareas, in contrast to ~15% few

years ago


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Hutch has a shown tremendous growth in 8 years

1. Financial

2. Market Power

Fundamental PerformanceSalesRupees million

Market PerformanceTRS, Indexed

Brand Identity Very high brand recognition andsignificant loyalty

Perceived as very premium offering

Market share

HUTCHISON CASE EXAMPLE

One of the top 3 player in wireless telecom inIndia with 18% market share

Unlisted

2141 3860

1873627881

40075

56078

2000

CAGR92%

2001 2002 2003 2004 2005


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Hutch expanded organically and inorganically tobecome largest GSM player in India (1/2)

Overall rating

Very successful

Failure

Strong commitment to their end state vision for Hutch India: Entered with objective ofbecoming a national mobile operator in 1991, even when only 4 metro cities (


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Cultivated Indian image, not HK ownership

Helped pool influence by forming the COAI as an industry forum, which by virtue of having most major operators as members, was able to make regulations morefavourable to industry growth. Often COAI also influenced policy decision by seeking

judicial intervention in government/regulators decisions

For several years COAI had significant influence on regulation, however over period oftime Reliance along with other state owned incumbents created own strong lobby group

Hutch expanded organically and inorganically tobecome largest GSM player in India (2/2)

Overall rating

Very successful

Failure

Description

Managingregulations/local image


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Applied forlicenses for metrocircles

Could only enterMumbai circle

Entered Delhi,Kolkata andGujarat throughacquisitions

Extendedacquisitions toHaryana,Rajasthan, UP

Picked up newlicenses forChennai,Karnataka, AP

and Tamil Nadu

Bidding forGSM licensesfor 4 metros

Maximum 2bids per circle

Licensing andlaunch of mobileservices for newcircles (20)

Maximum 2operators per circle

New telecom policy

License tostateoperators forevery circle(default 3 rd operator)

License tenderedfor 4 th operatorfor circle

License for VSNL(to be the 5thoperator in every

circle)

1991 1994 2000 2001 2003

Hutch mobilefootprint

Hutchexpan-sion

Keypolicychanges

Hutch Indiaoperations arevalued at close

to $1b today

Hutchison had a long term plan for India and chose to await growth enabling

regulation

Hutch gradually established a pan India foot print

Hyundai has become one of the most profitable


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1. Financial

2. Market Power

3. Recognition

Fundamental PerformanceSalesRupees billion

1999 2000 2001 20032002

Indias second largest car manufacturer Market Share of 19% in passenger vehicles segment

from Apr - Sept 2005 Market Share in B segment 23% from Apr - Sept

2005 Clocked highest ever sales in Oct 2005 of 24,762

vehicles with the Santro and Getz accounting for 85%

Brand Identity Hyundai SantroMarket share

Indian arm designated as global hub for small cars Cumulative exports from India surpassed the 200,000

mark, the fastest rate for any Indian car manufacturer Most cost-efficient producer for small cars in Hyundai's

global network About 3% of Hyundai Motor Corp in 2004

InternalIn our view, HMCs India business is a success story, and

could become one of the most important operations for the company. - Deutsche Bank Analyst

Overall, we were quite impressed with the plant and the position HMI achieved in the Indian auto market in such a short period of time. . - Deutsche Bank Analyst

External

HYUNDAI CASE EXAMPLE

2004

Aggressive Marketing usingTop Movie Stars as brandambassadorsStrong Brand Recall as theSunshine Car and the XingTopped JD Power AsiaPacifics studies for productquality & customer satisfactionfor 2000, 2001 & 2002

Hyundai has become one of the most profitablecar makers in India within six years

ProfitsRupees billion

5.123.2 29.9 34.0

39.657.1

76.9

1999 2000 2001 20032002 2004

-0.05

-0.5

0.61.7 2.7 1.6 3.8 4.06CAGR57%

2005 2005

HYUNDAI HAS BEEN A RESOUNDING SUCCESS


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HYUNDAI HAS BEEN A RESOUNDING SUCCESSSTORY

Overall rating

Very successful

Failure

India strategy

Businesssystem

Strong commitment: Hyundai made a strong commitment to its India operations andstrategically sort to capture large market through Setting itself to take on market leader Suzuki

Entered in the small car segment; instead of bringing in sedan like other entrants Invested $650 mn upfront to create Greenfield capacity

Description

Value Proposition:

Positioned itself to provide a superior product in the B category segment, whichincluded several add on features ( e.g. More effective AC, competitive fuelefficiency, better ground clearance)

To maintain cost competitiveness; parent has backed Indian subsidiary with freeR&D and product up gradation (no royalty outflow)

Supply Chain

Built up strong nationwide distribution (no dealerships, 250 service points) Invested heavily in local vendor development (90% of input is locally sourced)

Recruited a large army of Indian middle managers; but continue to have Korean expat

as Managing Director

Management

System

A AS A SO G S CC SS


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HYUNDAI HAS BEEN A RESOUNDING SUCCESSSTORY Very successfulFailure

Hyundai worked closely with state government to get sales tax concessions Has recently been aggressively driving for policy change with respect to LPG

vehicles

RegulatorySystem

Overall rating Description

DESPITE ITS LATE ENTRY HYUNDAI CAPTURED


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0

1

2

3

4

5

6

7

8

9

0 100,000 200,000 300,000 400,000 500,000 600,000

DESPITE ITS LATE ENTRY, HYUNDAI CAPTUREDSIGNIFICANT SHARE IN THE MID SEGMENT2000-01 EXAMPLE

( ) Market share

Rapid expansion ofthe mid-segment

New entrant HyundaiSantro captures13%market share atthe expense ofMaruti Zen

Maruti Zen (12%)Hyundai Santro (13%)Daewoo Matiz (9%)Maruti Alto (5%)

Value conscious mid-segment emerging:

Mid-segment booms,repurchase cycle

shortening

Source:McKinsey analysis; Cris Infac Report

Maruti 800progressively

lossesshare to 30%

Cumulative volume (units)

P

r i c e

( R s .

H u n

d r e

d T h o u s a n

d )


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d t d thi b d l i g l t


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. . . and supported this by developing lower costsupply chain practices

Production strategy

Hyundai

strategy

Leveraged existing capitalassets

Did not invest in gold platedfactory relocated moth-balled factory in Canada toChennai

Set up India asmanufacturing base toensure scale in operations

Significant investment in localsuppliers for wide variety of

sensitive parts Enhance existing auto-

component capability inChennai (Hyundai-Achieve100 ppm program)

Invested in local suppliers(e.g., India Pistons, Lucas-TVS) in product refinement,manufacturing qualityimprovement and costreduction

Clear localisation plan (e.g.,80%+ localisation achievedin 2-3 years)

Developed extensivedealer network and

ensured availability ofspare parts at low costwidely across the country

Sourcing Distribution and service

Toyota also seems to be getting the virtuous cycle


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Toyota also seems to be getting the virtuous cycleright

Careful study of the marketrevealed that MUV segmentwas large but current localofferings were not of very highquality

Localised the Kijang, launchedat more than 10% pricepremium

Quality was significantlysuperior, captured leading MUVsegment position, and is a top 5player overall

Lower lifetime ownership cost(low repairs, high mileage)

Large distributionchain, often in ruralareas to meet MUVdemand

Created significantbrand awareness forToyota throughoutIndia

Significant investment ofmanagerial efforts in supplierup gradation indigenisation

component significant Manufacturing facility built to

scale leveraging global baseby exporting transmissionsystems (160,000 p.a.) andbuilt up vehicles toneighbouring countries

Superior value atparticular price

Widedistribu-

tion

Optimizedsupplychain

GM on the other hand missed key steps in the


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GM, on the other hand, missed key steps in thevirtuous cycle

Most mid market offerings (OpelCorsa, Swing) performed poorlydue to inferior lifetime ownershipeconomies - low fuel efficiencyand high spares cost

Upper end product,(Opel Astra) good but

unchanged for 8-10 years

Premium offeringmakes distributionlimited to top 10metros cannot tapfull demand potential

Low volumes affectedability to indigenise tolower costs

Small capacity plantmakes Indian foraystructurally unviable

Write-offs ofover USD 100million

Significantstrategicrelook

Superior value atparticular price

Widedistribu-

tion

Optimizedsupplychain

Pepsi localized products and practices to become


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Strong commitments: During early 90s Pepsi worldwide identified India and China askey focus geographical regions for the group. The group was therefore as a wholecommitted to creating strong opportunity in India

Entered India as a JV with State Govt. (Punjab) to ensure compliance with existingregulations

Pepsi localized products and practices to becomemarket leaders (1/2)

Overallrating

Very successfulFailure

Description

Indiastrategy

Value proposition: Strong brand building

Focussed approach to building a local brand through Adopting initially a local brand name (Lehar Pepsi) Sponsors local events, (cricket), adopting local slogans (e.g., Yeh dil mange

more, Yeh hai right choice baby, endorsement by local film/sports icon (Sachin,Shahrukh , etc.)

Leader in pricing: Initially launched Pepsi at 2/3 local competitors price Subsequently launched 500 ml/1lt. variants at lower rates resulting in overall

industry price cut subsequently Multi-product strategy: diversified revenue streams by focus on snack foods (Lays,

Cheetos, etc.) and restaurants (Pizza Hut)

Businesssystem

Pepsi localized products and practices to become


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Pepsi localized products and practices to becomemarket leaders (2/2)

Overallrating

Very successfulFailure

Description

Supply chain Innovations the supply chain by

Third party transportation Takes up stakes in bottling units Indegenousation of ingredients (e.g., developed caffeine produces locally)

Businesssystem(Contd.)

Internally experimented with Expat CEO, however quickly realised the need for astrong Indian management team and set up one

Manage-mentsystem

Ensured regulatory support by working with powerful stakeholders

Setup agri-processing unit in Punjab, investment that to get permission forbeverage unit Ensured subsequent relaxation of initial stringent operating conditions by ensuring

relevance to local economy (e.g., 65,000 direct/indirect jobs, etc.)

Regu-

lations

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