Compendium

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

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Knowledge Partner

HUMAN RESOURCES

Globalizing Indian Companies: The HR Challenges

Delphique ‘08

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HUMAN RESOURCES


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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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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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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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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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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

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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

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Delphique ‘08 MARKETING

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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Knowledge Partner


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

24


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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Delphique ‘08 MARKETING 25

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MARKETING

Knowledge Partner


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

26


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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Delphique ‘08 MARKETING 27

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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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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

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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

CMYK

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

Knowledge Partner

OPERATIONS

OPERATIONS31


Supply Chain

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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OPERATIONS 32

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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

Knowledge Partner

OPERATIONS

OPERATIONS33


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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OPERATIONS 34

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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

å

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

Knowledge Partner

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

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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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STRATEGY 38

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Delphique ‘08

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

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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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STRATEGY 40

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Delphique ‘08

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

Knowledge Partner

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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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STRATEGY 42

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INFORMATION MANAGEMENT

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Empowering Businesses:Innovation in IT Strategies

CMYK

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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

å

å

å

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


CMYK

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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INFORMATION MANAGEMENT 44

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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



CMYK

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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http://searchNetworking.techtarget.com/sDefinition/0,,sid7_gci211634,00.html

http://searchDataCenter.techtarget.com/sDefinition/0,,sid80_gci211770,00.html

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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

Junior Core TeamRavi RanjanSharath RaoNipun JainShruti NischalGaurav VermaRohit Kumar SinghRajkunwar SinghShreya Praajya PandeyNidhi GroverVishal TekriwalKartik KrishnamoorthyRidhima khoranaJuhi Lalchandani

Research Team

Finance

Junior Research Team

Senior Research Team


Panel


Tanuj MukhijaDepesh KashyapGaurav ParikhNikhil AgarwalRajandeep SinghSamyak Jasani

Abhishek JainAmey KulkarniDeepak GuptaSureet GoyalSudhanshu Garg

Human Resources

Vivek RathiAditya GoyalAbhishekAchina SharmaSneha ShaliniHeena Prazapati

Namita GuptaPriyanka AgarwalNandan NerurkarKiera Carvalho

Credits(Continued)

Information Management Panel


Shrikant VishwanathanArnab DuttaAmitesh BajadSaurabh BhatiaLokesh Jetty


RVRK Abhishek SharmaSiddharth MallyaVarun Malik

Marketing Panel


Charuta AmbardekarSaurabh JainDrishti YadavSwati DalalPrateek AgarwalAnkit Taparia


Reeti BhatiaParag RahejaMayank AgrawalAnkur MathurAshwin PV

Operations Panel


Viraj MehtaArnab De Shaveta Goyal Gopal Kapoor Manish Maheshwari Manisha Patel


Vaibhav Agarwal Arpit Pandya Akshat Gupta

Strategy Panel


Arun GaneshAnkit GargRam SharmaMonil ChhedaVaibhav MohanMayur Soni


Hitesh ParikhAnurag RPurav Nikhil Parekh

Partners

Associate Sponsor

Knowledge Partners

Logistics Partner

Co-Sponsors

Media Partners

Management Development Institute, Gurgaonwww.mdi.ac.in

DELPHIQUE ‘08

www.mdi-delphique.com

National Management Convention

Compendium

Business

Transcript of Compendium