PCMRD
DR. VIKHE PATIL FOUNDATION’S
PRAVARA CENTRE FOR MANAGEMENT RESEARCH & DEVELOPMENT
Off Senapati Bapat Road
(Permanently Affiliated to University of Pune, Recognized by Govt. of Maharashtra and Approved by AICTE, New Delhi)
A compendium of Research Papers
National Seminar
on
Challenges & Strategies
for the
Indian Industry
in the Emerging
Global Economic Scenario
February 09, 10 &11, 2010
Venue:
YASHADA Auditorium,
Raj Bhavan Complex, Baner Road,
Near Sakal Nagar, Pune 411007
Keynote Speakers
:
:
:
:
Marketing Strategies :
HR Strategies
:
Padmashri Dr. Vijay Bhatkar Chairman ETH Ltd. Member ACM Fellow IEEE Fellow CSI, INAE, NASI Maharashtra Bhushan
Padmashri Dr. A. S. Pillai - Distinguished Scientist and CCRD- DRDO, CEO & MD of Brahmos Aerospace Delhi
Dr. Dinesh Paliwal - Member Secretary, AICTE New Delhi
Prof. Y. K. Alagh - Chancellor Nagaland University & Former Member Planning Commission.
Dr. Chandra Viswanathan - Sr. Vice President, Regenerative Medicine, Reliance Life Sciences
Mr. Ashutosh. Khosla - Director Marketing & Sales Piaggio Vehicles Pvt. Ltd.
Mr. Prashant Ahir - Head HR (CVBU) TATA Motors Ltd.
National Seminar
on
Challenges & Strategies
for the
Indian Industry
in the Emerging
Global Economic Scenario
February 09, 10 &11, 2010
A compendium
of
Research Papers
II
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
ABOUT THE INSTITUTE
Set-up in 1984 under the aegis of Dr. Vikhe Patil Foundation and presently led by Dr. Ashok Patil,
Pravara Centre for Management Research & Development (PCMRD) recently completed two
decades of imparting management education par excellence. PCMRD is permanently affiliated to
the Pune University and is also approved by theAICTE. PCMRD offers the MBAprogramme.
As a testimony to its constant industry interface, PCMRD is one of the only two postgraduate
institutions in Maharashtra chosen under the Young Indians Programme by the Confederation of
Indian Industry (CII).
Effective management requires decisions based on contextual analysis and insights. To stimulate the
intellects and enhance intellectual capabilities, the case method of learning is extensively used. Case
discussions are supplemented with lectures, seminars, games, role-plays, industrial visits and group
exercises.
This, coupled with a judicious mix of academic and extra- curricular activities has enabled PCMRD
to consistently deliver well-groomed managers competent enough to fulfill the corporate demands.
In constant pursuit of its vision to emerge as a leader in the field of value-centred management in
India, PCMRD's mission is to impart quality education and conduct socially relevant research in the
field of modern management while retaining traditional values.
ISBN: 978-81-909897-0-1
Published by Prof. Sunil Kumar, Director, PCMRD, Pune on behalf of Dr. Vikhe Patil Foundation's, Pravara Centre for Management Research & Development, Near Patrakar nagar,
Off Senapati Bapat Road, Pune 411016. Printed at Anupam Creations, 2/14, Marwa, 10/2A Kothrud, Pune 411029 and published at Dr. Vikhe Patil Foundation's, Pravara Centre for
Management Research & Development, Near Patrakar Nagar, Off Senapati Bapat Road, Pune 411016.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
III
OUR PATRONS
Dr. Ashok Patil
Chairman, Dr. Vikhe Patil Foundation
Education plays a fundamental role in shaping up of
individuals. As a rapidly growing Management
Institute, we strive to harness the hidden potential
through meeting the global needs of all our students .
With this intention PCMRD is striving to achieve
highest quality on the academic forefront and versatility
in approach that will meet the ever increasing demand
of students.
We emphasise on creating an environment in which
students get to explore and opportunities both in the
area of academics and industry. National level Seminar
organised on “Challenges & Strategies for the Indian
Industry in the Emerging Global Economic Scenario” is
a reflection of the same.
Prof Sunil Kumar
Director, PCMRD
To provide Knowledge, with an endeavour to empower the students to
become assets and contribute meaningfully to the nation and Society,
PCMRD has been setting high standards in the field of education and
has emerged as a premier academic institute in the field of
Management.
At PCMRD we sincerely believe in taking education to new heights
and take education beyond the four walls of the classroom and explore
our untapped potential and get the best of students and thereby prepare
them to tackle the corporate world.
It is with this intention that we organised a National Seminar on
“Challenges & Strategies for the Indian Industry in the Emerging
Global Economic Scenario”.
The main objective of seminar was to analyse the current economic situation and identify potential opportunities &
challenges. The main aim of the seminar was to get on a common platform the academia and Industry together and
thereby initiate a discussion on the contemporary issues faced by the business and economy.
I present before you this compendium, which is a rich compilation of Research work of various experts who graced
the event.
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Glimpses of National Seminar
National
NationalSeminar
Seminaron
- Challenges
Challenges&&Strategies
Strategiesfor
forthe
theIndian
IndianIndustry
Industryininthe
theEmerging
Emerging Global
GlobalEconomic
EconomicScenario
Scenario
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VI
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Resource Persons from Industry
Dr A Sivanthanu Pillai
Distinguished Scientist & Chief Controller,
Research & Development, DRDO, Ministry of
Defence, New Delhi. &
Chief Executive Officer & Managing Director,
Brahmos Aerospace, New Delhi
He was born on 15 July 1947. He graduated in Electrical
Engineering from University of Madras (1969), Advanced
Management Development Program at Harvard Business
School (1991) and obtained PhD from University of Pune
(1996).
Dr. Pillai joined Space Science
& Te c h n o l o g y C e n t r e ,
Thiruvananthapuram in 1969
and worked in Systems
Engineering of Launch
Vehicles. He assisted Dr.
Vikram Sarabhai in the
evolution of 10-year space
profile for the country. He was
a core team member of SLV3 (the first Satellite Launch
Vehicle of India) under the leadership of Dr. APJ Abdul
Kalam. In SLV3, the contribution of Dr. Pillai was in the
development of four stage rocket motors and rocket
systems. SLV-3 first stage later became the booster of Agni
missile. After the successful completion of SLV3, he was
the member of the PSLV (Polar Satellite Launch Vehicle)
study team in the evolution of PSLV mission and a senior
scientist in Aerospace Dynamics & Design Group. Later,
he became Technical Advisor to Prof Satish Dhawan,
Chairman ISRO (Indian Space Research Organization) at
its HQrs, Bangalore for Launch Vehicle Programmes.
Dr. Pillai joined Defence Research & Development
Organization (DRDO) in 1986 in the Integrated Guided
Missile Development Programme (IGMDP) at Hyderabad
under the leadership of Dr. APJ Abdul Kalam. He played a
key role, introducing innovative management systems and
made significant contributions for the development of
Agni, Prithvi, Nag, Trishul & Akash Missiles, as
Programme Director of IGMDP. He was also Associate
Director, DRDL
He was appointed as Chief Controller (Research &
Development) at DRDO HQrs at New Delhi in 1996,
responsible for missile technologies & projects, ranges
naval systems and certain international collaborations. Dr.
Pillai became Distinguished Scientist from September
1999.
Padmashree Vijay Bhatkar
Thinker and thought leader, researcher and innovator,
scientist and philosopher,
educator and educationist,
author and articulator, policy
architect and institution
builder.
Dr. Vijay Bhatkar is one of the
i n t e r n a t i o n a l l y
acknowledged scientists and
IT leaders of India. Dataquest
magazine has acclaimed Dr.
Vijay Bhatkar amongst 25 pioneers who shaped India's
celebrated IT industry (US$ 60 Billion in 1998) during the
last 25 years.
Dr. Vijay Bhatkar is best known as the architect of
PARAM upercomputers and bringing IT to the masses
through a wide range of path-breaking initiatives, such as
GIST multilingual technology, MKCL's MS-CIT
omputer literacy program and Education To Home
(ETH) initiative. He is truly an institutional builder and is
credited with the creation of several national institutions
such as C-DAC, ER&DC,Techno Park, IITMK, I2IT,
ETH Research Lab and Multiversity. He led the
development of several innovation-based products and
systems and in this process nurtured many creative minds,
enterprises and start-ups including ETH, MKCL, Divinet,
Dishnet, Multiversity, Know-IT and others. For advancing
the concept ofintegrative education through the synthesis
of science and spirituality for service of society, Dr.
Bhatkar has founded a new generation university called
Multiversity.
Dr. Vijay Bhatkar is one of the most acclaimed and
decorated scientists of India in terms of national and
international awards, fellowships of professional societies
and public recognitions including PADMASHRI &
Maharashtra Bhushan Awards, the highest recognitions of
Government of India and Government of Maharashtra,
respectively.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Dr Chandra Viswanathan
MD(Pathalogy),
Ph.D(Applied
Biology),DPB,DTM
At real life sciences, she heads
Regenerative Medicine
initiative that includes the
cord blood stem cell banking
operations, and research on
embryonal and adult stem
cells. She has the
responsibility of taking all stem cell products from bench to
the bedside.
Earlier, she was responsible for plasma fractionation
project at the RLS, from R&D to production. Plasma
products like Albumin, Immunoglobulin, Fibrin Sealants
are still enjoying good popularity at Market place. Dr
Chandra Viswanathan has been the director of transfusion
medicine at the L.T.M Medical College and Hospital and
Associate professor of pathology in the same institute for
over 20 years.
She was the director of the only blood plasma fractionation
Facility at K.E.M hospital with additional charge as chief
Coordinating officer of all Mumbai Municipal corporation
based Bllod banks for over seven years. With an experience
of almost 24 years, she has several publications in various
Scientific journals
Dr. Anil Lamba
Dr Anil Lamba is a practising chartered accountant holding
degrees in commerce and law
and a doctorate in taxation. He
is a prolific writer and has
contributed close to a
thousand articles to leading
newspapers and magazines on
topics ranging from finance to
taxation, investments and
company law.
He is also the founder director
VII
of Lamcon School of Management, a renowned business
school located at Pune, India. He has done pioneering work
in distance education and is the author of a series of audio
visual products (capable of delivery across diverse media),
on finance management, titled “figure out the world of
figures”.
Dr Lamba is a trainer of international repute. He teaches
extensively and his clients comprise several hundred large
and medium sized corporations across different countries
of the world
Ashutosh Khosla
(Director,Sales and Marketing, Piaagio)
His strength is his focus. His values as firm as his
Conviction that anything is possible. At 45,Ashutosh
khosla Director, Sales and marketing, Piaggio with his 25
years of experience in sales and marketing dimensions of
2,3 and 4 wheeler segment
believes in working on basics
rigorously to achieve bigger
targets. He joined piaggio
four years ago as a 375 crore
company. Today it stand
apart as a Rs 2000 crore
company with over 57 per
cent market share in cargo
vechile section.
Born and brought up in
chandigarh, khosla's early days in marketing and sales field
began as Escorts.There has been no looking back as his
rising career graph illustrates. A stint with hero motors
when he worked on conceptualising and engineering Hero
Puch Shakti, a move to Kinetic Engineering Limited where
he launched the Nova, Zing among others, Later he moved
to piaggio.
As a leader he believes in empowering his people to make
their own decisions. The key to success, he shares, is in
setting long term and short term goals and ensuring that
you stick to them."I never give myself a chance to say I
forgot. Once you have your goals in front of you, you are
bound to get passionate which makes your work easier”.
VIII
National Seminar on Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Schedule of National Seminar
National Seminar on Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
1
Seminar Report
PCMRD successfully conducted the 3 day National Seminar on “Challenges and Strategies for the Indian Industry in the
th
th
th
Emerging Global Economic Scenario on 09 , 10 and 11 February 2010 at Yashada, Ganeshkhind Road, Pune
The Seminar consisted of many eminent personalities from the field of science, Finance, Marketing and HR
Day 1
· The event kick started with the address by Padmashri Dr. A. S. Pillai - Distinguished Scientist and CCRDDRDO, CEO& MD of Brahmos Aerospace Delhi.
· It was a rare opportunity for all of us to have Padmashri Dr A S Pillai who shared his valuable thoughts of how
transformation of India happened through ages.
· He spoke about the available natural resources, bio diversity and human resources as an asset.
· He spoke about the available resources for Atomic Energy in India.
· These are the ones who have found opportunities and incentives lying under the recession period and have
utilized the same optimally
· And In the end we concluded by a dance form as a depiction of PCMRD's strong belief in the creating and
grooming the spirit of enterprise in every student of PCMRD
Day 2
· To initiate this discussion today we kick started the session by analyzing the Business Opportunities and
Challenges from a Marketing perspective by Mr. Ashutosh Khosla Director Marketing and Sales Piaggio
Vehicles Pvt. Ltd. - an Industry Expert.
· He spoke about various strategies that one needs to implement and factors that need to be considered to create a
competitive edge like
o PLC,
o Media explosion,
o Unique customer purchase experience,
o Innovation,
o Customization,
o Innovation
Our next speaker for the day was Dr. Chandra Viswanathan- Sr. Vice President, Regenerative medicine; Reliance Life
Sciences who addressed us all on “Regenerative Medicine- the vanguard of 21st century”.
Dr.Anil Lamba, Director Lamcon was our next speaker for the day.
He emphasized on how low interest rates all over the world are now impacting our interest rates in India.
Day3
It started with Hon'ble speaker Padmashree Mr. Vijay Bhatkar, Chairman ETH Ltd. wherein he stated that India is
already on its way to becoming a Global leader
The educational reforms that Mr. Kapil Sibal, the education minister has proposed are revolutionary and would enable us
in creating many more knowledge based individuals.
He also conceptualized the journey of India from Brain in the drain to Brain Drain, Brain Gain and Brain Chain.
The last speaker for the day was Mr. Prashant Ahir - Head HR (CVBU) TATA Motors Ltd who spoke about the role of
HR as a strategic business partner, he shared his personal experiences to illustrate how he could make a significant
difference in his organization by reducing costs and making people more productive
Paper presentations were followed by the research scholars post each speaker sessions.
2
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
From the Editor's Desk:
Education nourishes an individual and gets the best out of him and
makes him competent to face the dynamic world. At PCMRD, we
strive to provide highest quality of education and set high standards
for ourselves. The National Seminar on “Challenges & Strategies for
the Indian Industry in the Emerging Global Economic Scenario” was a
part of this effort.
I must mention our deep sense of appreciation for all the eminent
speakers for giving an excellent coverage to the facts and figures of
various sectors.
As the Seminar was conducted at a National level we had Research
papers coming in from all corners of the country and it was indeed a
challenging task to select the best amongst them. I would like to
extend my hearty thanks to Mr. Abhishek Bandodkar, who was
instrumental in quick and successful compilation of this edition.
I am very happy to inform you that the National Seminar was
successfully concluded and we present to you this compendium of
Research Papers presented by eminent experts from various fields
during the National Seminar.
Dr. Puja Bhardwaj
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Research Papers
On
“Challenges & Strategies for the
Indian Industry
in the
Emerging Global Economic Scenario”
Edited by: Dr. Puja Bhardwaj
3
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
4
Contents
Marketing
1.
Convert India brands to global brands
Prof. Shraddha Khoje, PES's Modern College of Engineering, Pune . . . . . . . . . . . . . . . . . . . . . 6
2.
A study on globalization and its effect on consumer perception of newspapers
Prof Vishwas Pendse IBMRD, Ahmednagar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.
Develop multiple applications of core products to extend product life cycle
Dr. Shubhangi Walvekar, Prof. & HOD, Modern College of Engg, MBA Dept. . . . . . . . . . . . 15
4.
Social media: (an opportunity for market promotion)
Mrs. Zeenat Khan, Instructor, JBIMS, Mumbai & Mr. P. Manjreker Professor, D.Y. Patil
Institute of Mgmt. Studies, C.B.D. Belapur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.
Challenges & strategies for the Indian industry in the emerging global
economic scenario
Manish Tayade, Student MBA II ((Production) , Vikhe Patil's IBMRD Ahmednagar. . . . . . . 23
6.
Convert “Indian Brands” into “Global Brands
Abhishek Bandodkar, Student PCMRD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Prof. Sunil Kumar, Director, PCMRD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.
Challenges and strategies of IT industry in emerging economic scenario
Ms Vishakha Bhide and Mr. Ranjan Kumar, IBMRD, Pune. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Finance
9.
Cost benefit analysis for long term investments w.r.t infrastructural projects
Mr. Aniruddha Vilas Thuse, Lecturer , MKSSS's Smt.Hiraben Nanavati Institute of
Management and Research for Women, Karvenagar, Pune . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.
Merger and acquisitions to exploit future opportunities
Asstt. Prof. Vimala Ramsinghani and Asstt. Prof. Reena Joshi Vyas Institute of Management,
Jodhpur (Rajasthan). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.
MERGERS & ACQUISITIONS (M&A) A Tale of Indian Telecom Industry
Prof. Khan M. A. Imran, Vice Principal,Dr. Rafiq Zakaria Campus, Millennium Institute of
Management, Aurangabad & Dr. Syed Azharuddin Reader, Dept of Commerce Dr. Babasaheb
Ambedkar Marathwada University, Aurangabad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
12.
5
Strategic cost management
Dr. Kalyani Srinivas C., Modern College of Engineering, MBA Department, Pune . . . . . . . . 56
13.
Strategic Compensation Management
Dr. Puja Bhardwaj, Prof. Anagha Kalay and Jatin Joshi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Human Resource
14.
Managing the top executives to face the challenges of the upturn
Ms. Sakshi Satkar, Shinu Varghese, Leena Gaidhani, Mr. Vinod Malkar, Placement Officer,
Pravara Institute of Research and Education in Natural and Social sciences (PIRENS), Institute
of Business Management and Administration (IBMA), Loni(Bk), Tal: Rahata, Dist:
Ahmednagar, Maharashtra. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.
Managerial Challenges Under Globalized Industrial Economy
Prof. Kalpana Chordia, Lecturer, PCMRD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
16.
“Positive Organizational Outcomes With Strategic HRM”
Kalpana Chordiya and M. Swati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
17.
Talent acquisition: an unstoppable global trend
Mr. Gaurav Khandelwal and Mr. Vikas S Gaundare, Lecturers, Department of Management
Studies, SSVPS BSD College of Engineering, Dhule- Maharashtra . . . . . . . . . . . . . . . . . . . . 84
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
6
Convert Indian Brands into Global Brands
Prof. Shraddha Khoje
PES's Modern College of Engineering, Pune
Introduction
India is the fastest growing free market democracy in the world.
India has the largest knowledge workforce in the world and with
more and more people moving to the higher income strata, India
is a market that the world cannot ignore. The opening up of the
Indian economy has given a level playing field for foreign brands
against Indian brands. Several multinational companies have
begun to focus their attention on Indian markets. Global brands
are threatening the existence of several Indian brands. These
brands have strong presence in the minds of the customers
globally and have performed consistently for a long time.
The current brand strategy followed by business houses in India
need a dramatic makeover. In this paper we will try and
understand the minds of the Indian consumers and try to evolve a
strategy that will closely resemble the Indian outlook. We think
that the Indian companies need to fight hard by changing the rules
of the game. It would be impossible to challenge the mighty
global brands, which have made their way to India, through
traditional advertising, market communication and branding.
The Indian companies have to respond to these challenges with
better strategies and by delivering the brand promise to the
customers.
The American Marketing Association (AMA) defines a brand as
a "name, term, sign, symbol or design, or a combination of them
intended to identify the goods and services of one seller or group
of sellers and to differentiate them from those of other sellers.
Therefore it makes sense to understand that branding is not about
getting your target market to choose you over the competition,
but it is about getting your prospects to see you as the only one
that provides a solution to their problem.
Branding can be rational or irrational. Customers buy brand not
only for the intrinsic values associated with it but also because the
brand has surprised them in the past with newer and more novel
experiences. Branding is a promise made to the customer that
will deliver values beyond expectation. Branding strategy hence
should also involve continuously communicating to the customer
of the novel experiences that he/she has had with the brand.
The proposed brand strategy can be explained by the following
framework:
Experimental Marketing
Experimental marketing gives customers an opportunity to
engage and interact with brands, products, and services in
sensory ways that provide the icing on the cake of providing
information. Personal experiences help people connect to a brand
and make intelligent and informed purchasing decisions. The
term "Experiential marketing" refers to actual customer
experiences with the brand/product/service that drive sales and
increase brand image and awareness. It's the difference between
telling people about features of a product or service and letting
them experience the benefits for themselves. When done right,
it's the most powerful tool out there to win brand loyalty.
The customers demand experiences instead of products or
services today. This creates a challenge to the organizations to
find new ways to involve the customers in the value chain so that
they themselves can decide the product features and uniqueness
that they expect from the brand. For example, Eli Lilly, one of the
largest pharmaceutical manufacturer, involved visitors on the
website to solve the issues related to the new product
development. Marketing is going through a paradigm shift.
Today's customers are more focused than their predecessors and
better informed due to a process accelerated by the internet. They
want to know more about the details of the brand. They remove
the shells and get into the core of the processes to understand the
real value of the brand. They not only want to know the quality of
the product but also the policies and practices of the organization.
The ethics, production processes and quality are taken for
granted by the customers.
This demands transparency in the systems of the organizations
and involving the customers in the process to deliver value. The
Saffola health care initiative by Marico was one such experience
delivered to the customers. The customers were allowed to come
together and discuss the major issues while Marico hired
cardiologists and other experts to brainstorm on the quality
improvements in Saffola. The results were increase in sales
substantially and definitely a better customer loyalty. The Saffola
brand enjoys a price premium of 10% over other brands and large
market share in the market today.
Siddhivinayak Temple decided to offer services of e-Puja
(Prayer) to the devotees on the website. Any one can visit the
website and book the e-Puja (Prayer) and purchase the prashad
(ceremonial sweet) online. This suggestion was implemented to
take care of devotees who could not reach the temple because of
physical disability. That's how a traditional organization decided
to deliver value to the customers by involving them into the value
chain of the business. Modern organizations have to learn to
involve the customers in a similar way to create value together.
This synergy will lead to better experiences for the customers and
better customer loyalty and financial results for the businesses.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Effective Branding
Many companies start from humble beginnings and grow
organically without any solid plans for brand development. As
these companies reach a certain point in their growth, they often
come to realize that, in order to break through to the next level,
they must proactively define their brand. Without taking this
important step, these companies risk stagnating and failing to
break through to higher brand awareness.
The development of a solid brand begins with a discovery phase,
in which the company reviews its strategic materials, conducts
consumer research, and conducts manager interviews to collect
information about what the company stands for and where it is
headed.
After the discovery phase, the company can move on to the brand
definition phase. This entails a structured set of meetings held
among a core team of senior managers from diverse functional
areas. This Brand Team reviews the findings from the discovery
phase, brainstorms elements of the new brand, and generates
commitments throughout the company to abide by the Team's
decisions.
Here are the 5 dimensions of brand definition that are essential
steps in building a successful brand:
1. Develop a vision for your brand: The vision for a brand
consists of a broad statement of what the brand aspires to be. The
vision should take a long-term perspective, in recognition of the
fact that building a powerful brand does not happen in weeks or
months. A solid brand vision defines the business in terms the
customer can understand and relate to. It must be original,
motivational and inspiring. And, the vision must get buy-in by
senior management if it is to be successfully implemented.
2. Position your brand in order to differentiate yourself from
competitors: Brands are multidimensional in that they usually
carry with them a number of images and associations in the minds
of the company and customers. However, all successful brands
have a particular focus that differentiates it from those of
competitors. A properly-positioned brand must transcend
demographics and clearly identify likely prospects. The Brand
team identifies prospects based on which needs and motivations
the brand addresses.
3. Create a personality for your brand: Ultimately, your brand
must be something with which people can identify. It has to have
its own personality, its own character. Your brand will likely
evolve over time, but its essential character should endure.
4. Articulate the benefits your brand delivers to customers: In
time your brand must come to represent a set of functional
benefits in the minds of your prospects and customers. Thus,
during brand definition your team must clearly articulate the set
of benefits - the value - that it represents to customers. It is
important to note that strong brands also carry with them a set of
emotional associations. The emotional benefits of a brand are
often supported by the functional benefits, and they form the
basis of the brand's positioning.
7
5. Define the values your brand represents: Finally, your brand
must represent a particular set of values. This is because your
target customer base is composed of human beings, and humans
are value-motivated. If you successfully articulate the values
your brand represents, you have a better chance of getting
customers to associate the values of your brand with their own
values. Value definition can create long-term bonds between
your brand and your target customers.
When your company decides it is ready to put the effort into
developing its brand it should start by undertaking the processes
of brand discovery and brand definition. Every brand definition
process, in turn, should include developing a vision, determining
effective positioning, creating a brand personality, articulating
the benefits of the brand, and defining the values that your brand
represents.
Effective branding involves working on four important
dimensions,
The functional dimension concerns the perception of benefit of
the product or service associated with the brand.
The Social Dimension concerns the ability to create
identification with the group.
The Spiritual Dimension is the perception of global or local
responsibility
The Mental Dimension is the ability to support the individual
mentally.
Airtel
The Functional Dimension-The role of the technology is to make
thing easier for the consumers. Airtel has been very successful in
simplifying the use of mobile services by modifying the
technology to suit the common users. Even the simplest of the
consumer can use the products and services.
Airtel says, "Your world of communication just got simpler."
The Social Dimension-Airtel is a recognized brand to be
associated with. I satisfy my esteem and it gives me opportunity
to be a part of the culture. It is associated with high level of social
value.
The Spiritual Dimension- "Building telecom, building
relationships." It is important to be in touch with the relatives
and dear ones but this is possible today through the mobile
communication. Airtel encourages everyone to be more involved
in building relationships and spread the happiness.
The Mental Dimension-Airtel gives me the opportunity to
"Express Myself." The message is very clear to be open and
daring to express. The expression gives me a lot of pleasure and
an opportunity to think that I am a separate individual and have
the right to communicate and express myself.
Novel Brand Strategies includes
Customers Own the BrandIt should always be kept in mind that it is the consumers who own
the brand. Take the example of Monsanto. Monsanto had the
8
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
resources and the competency to become a successful brand in
Europe, but failed to recognize how strongly consumers felt
about genetically modified organisms in the agricultural system.
No amount of scientific data and evidence could dislodge this
negative perception that people had against GM food. This
clearly shows that the value perception of consumers sees little
logic once established strongly in their minds.
How can business learn from and incorporate spirituality? By
understanding it and respecting it, we can create a better
commercial world, because we'll be incorporating not just
values, but values with true belief behind them.
Product Service
Challenges for Indian Organizations
A sale is never the ending of a transaction but the beginning of a
beautiful relationship. Lexus and Disney have become
synonymous with loyal customer services. Some customers are
treated with breakfast buffets, free lifetime car washes, etc. Lexus
was the first company to provide the customer with a replacement
car while his/her car was being serviced. These examples go to
show that the customers don't like being sold a product but like
being serviced.
The delivery of the value and experience that we talked about
depends upon the employees and the quality of the delivery of
value by them .The management of the company has the
responsibility to ensure that the brand becomes the culture of the
organization.
What customer service does is to create a positive effect on the
minds of the customer and this positive influence on the mind of
the consumer makes them more open to new ideas and reduces
their skeptism towards the brand. A new product launch can
leverage on the strength and success of the previous product and
ensure that the trust that has been created with the customer is
carried forward. The future success of a brand lies in the strategy
of involving the existing customers and making them brand
ambassadors. More specifically this involves making the
customer believe that he is getting the best service in the industry.
As Malcom Gladwell says, "The best form of marketing is not
from the marketer to the consumer but the 21st century involves
marketing from consumer to consumer."
Buzz Marketing
Branding increasingly nowadays is moving into Internet-based
applications. Online blogs and forums have reinforced the
concept of buzz marketing. The "Wow Factor" which was
previously associated with the product is increasingly taken over
by the advertisement campaign but engaging in this viral
campaign strategy has its drawbacks. The case in point is fords
viral campaign involving the sport car "Evil Twin Cat" in which
the car's sun roof decapitates the cat that is featured in the ad.
Though it cannot be debated that such a controversial ad has
helped raise a lot of brand awareness but this kind of ad can have a
negative branding effect in countries like India where animal are
worshiped and hold religious significance. Hence it's very
important to understand the culture and values that people
associate with symbols in order to involve in the right buzz
marketing.
Religious Branding
Religion is a way of life in India. Brand management has always
exploited the emotional quotient of people and in India people
treasure their religion and culture to a great extent. If religion has
the power to bind people and unify them under one common ideal
then an effective brand strategy must take into account this
powerful force which plays on the minds of the Indian
consumers.
A brand that reveals authenticity, values and humanity's drive
toward conscientiousness, offers a powerful strategic advantage
in a country like India.
This is a big change and challenge for the management as the
employees are typically associated with the products and
delivery of products in the organization. The attitude change to
delivering experience will attract a lot of resistance among the
employees. The role of human resources and all managers is to
bring about this change smoothly so that the delivery to the
customers can be ensured.
The success of the brands and organizations will be determined
by their ability to train the employees to ensure that the
differentiation is created in the experience provided to the
customers.
The 20th century business scenario created the profession of
"brand building". Branding helps in differentiation, creating
loyal customer base, insulating a product from obsolescence and
competition, helps command a premium in the market place,
reinforces trust with customers and delivers value to customer
and company alike.
An exciting brand development in the contemporary business
scene is the extension of Kingfisher a beverage brand to an
exciting airline brand, from a 'product brand' to a 'service brand'.
If the 'service airline brand Kingfisher' establishes firmly, the
multiplier effect on the brand Kingfisher will be magical! The
total brand value of Kingfisher will be literally flying high!!
Today, the Indian pharma industry is a leading light in the global
healthcare scenario. The Indian pharma industry is a well
entrenched global manufacturer and marketer of APIs,
formulations, herbal extracts and nutraceuticals.
Moreover, medical tourism and health resort industry is lending
wings to the image of India as a quality and value-for-money
service oriented healthcare destination. Healthcare products and
healthcare services together have over Rs 1 lakh crore business
potential.
The robust challenge and opportunity ahead is building global
Indian brands - brands that dominate domestically and
internationally. In fact, brands like Wockhardt and Himalaya
juxtaposed in the 'healthcare service sector' and 'pharma
manufacturing and marketing sector' have a solid opportunity to
exponentially increase brand value, a-la-Kingfisher.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Acurious desi phenomenon
Domestic pharma brand building has an odd challenge: The
Indian Patents Act, 1970, which allowed reverse engineering has
created a fragmented market with brand clutter. This has led to
rising power of retailers and stockists. In at least one Southern
Indian state (Kerala) NOC is not given to more than 25 brands of
a molecule, by the stockists association. Decades of "me-too new
introductions" has commoditized products and lent a character of
"promotional differentiation" in the field of pharma marketing
and sales. This has also led to a need for "brand variety" by a
prescriber, who also zealously guards "prescription secrecy".
The cumulative effect of the above scenario is a curious desi
phenomenon - prescriber fatigue, an obstacle to brand building,
evergreening of brands and product life cycle management.
9
petrol khatam hi nahin hota' (What should I do? The petrol never
finishes).
'2599' offer
In 2004, MUL introduced the '2599' offer under which a
consumer could buy an M-800 by paying an EMI of Rs 2,599
only, for a period of seven years. The down payment was fixed at
Rs 40,000. MUL entered into an agreement with the State Bank
of India (SBI), the largest bank in India, to promote this scheme.
With market liberalisation, increasing consumerism and the
entry of more foreign players, Indian markets are seeing
revolutionary changes. The Indian consumer is rapidly evolving
and is spoiled for choice by a host of international brands selling
their products at competitive prices.
Several factors are responsible for this curious 'desi' phenomenon
including brand clutter, commoditization of products, heavy
focus on 'new introductions' and new technological
developments.
India has been ranked as the most attractive nation for retail
investment among 30 emerging markets by the US-based global
management consulting firm A T Kearney in its entity's Global
Retail Development Index (GRDI) 2009.
Prescriber fatigue is indeed a challenge to marketers involved in
brand building and product life cycle management.
Rural Market: The Next Big Opportunity
Contrary to popular perception that liberalisation stifles the
growth of domestic manufacturers, Indian auto components
industry has evolved to compete with global companies. During
this process of evolution, the industry produced some of the
world-class component manufacturers like Sundaram Fasteners
and Bharat Forge Ltd. Not just domestic manufacturers, even
global giants like Delphi and Visteon have set up their
manufacturing bases in India. But the industry had its own
challenges in terms of meeting quality norms, sound logistics and
the like. These problems were further coupled by the fewer
number of tier1 suppliers.
IndianAutomobile Industry-Maruti Udyog Limited
MUL's M-800 was ideally suitable for Indian customers as it was
reasonably priced, fuel efficient and was sleek and easy to drive
when compared to the models then available. With the success of
its M-800, MUL soon replaced Hindustan Motors as the leader in
the passenger car market.
Despite analysts predicting that the M-800, the bread and butter
model of MUL, would be phased out, the company asserted that it
would take necessary steps to maintain its leadership position.
MUL had three compact car models -- Alto, WagonR, and Zen -competing with Hyundai Santro, Tata Indica, and Fiat Palio.
'Change Your Life' campaign
In 2003, MUL launched novel offers like "Change Your Life"
campaign and also offered vehicle insurance 'for Rupee One
only', to attract customers.
Television campaigns
In 2003, MUL came out with a toy car advertisement that became
popular for its simplicity and straightforward message. The
advertisement depicted a child playing with a toy car. When
reprimanded by his father the child replies, 'Kya karoon papa
Rural India makes up 40 per cent of India's US$ 280 billion retail
market and offers alluring opportunities for retailers. The rural
market offers great untapped potential. In 2008, the rural market
grew at an impressive rate of 25 per cent compared to the 7-10 per
cent growth rate of the urban consumer retail market. Further,
according to international consultancy firm Celent, the rural
market will grow to a potential of US$ 1.9 billion by 2015 from
the current US$ 487 million.
Today, the rural market accounts for a hefty share in most market
segments 55 per cent of LIC policies, 70 per cent of toilet soaps,
50 per cent of television, fans, bicycles, tea and wrist watches.
Also rural India is less affected by the global slowdown.
Consequently, an increasing number of marketers are targeting it
across fast moving consumer goods (FMCGs), cars, twowheelers and consumer durables.
The US$ 18.58 billion FMCG industry is expected to register a 15
per cent growth in 2010 as compared to the previous year.
Further, the industry is likely to witness a spate of acquisitions
and mergers in the year 2010. Players like Wipro will continue to
tap the rural market in the year 2010.
Most FMCG companies are now working on increasing their
distribution in smaller towns and focussing on marketing and
operations program for semi-urban and rural markets.
For instance, Godrej Consumer Products intends to increase
revenue from rural areas from 38 per cent to 55 per cent in the
next three years by increasing its distribution network
substantially. The products will reach out to 50,000 villages in the
next couple of years from the present 18,000 villages while the
number of towns covered will double from 3,300 to almost 6,500
in a year.
Similarly, GlaxoSmithKline Consumer Healthcare is not only
launching smaller packs at lower prices but is also developing
products at appropriate price points for rural consumers
10
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Brand Extensions
sized product while also building brand image.
In a bid to garner higher market share and sustain long-term
growth, FMCG companies such as Coca-Cola, Nestle, PepsiCo,
Dabur, Marico and Godrej have adopted a brand extension
strategy amid negative factors such as high inflation and the
global financial crisis.
Conclusion
Nestle launched a record number of variants in 2008 from its
Maggi Cuppa Mania, Maggi Pichkoo to Maggi Bhuna Masala.
Dabur too unveiled a pudina variant of its popular Hajmola brand
apart from extending its Gulabari skin-care range.
In terms of categories, brand extensions in personal-care,
household-care and processed foods drove growth in the FMCG
sector.
Media and Communication Channels
Word-of-mouth remains the most important influence in the
buying decision of the Indian consumera fact confirmed by 85
per cent users who participated in a recent global Nielsen Internet
survey. Among the top ten countries that attach maximum
importance to the recommendation of the fellow consumer, India
ranks fourth while Hong Kong tops the list.
BRAND is a promise made to the consumers by the company.
Brand, not only has Functional and Mental dimensions but also
Social and Spiritual dimensions. The challenge in front of Indian
organizations today is to first understand and then satisfy the
needs of the customers. The needs of the customers today are
experiences and not just the products. The Indian Organizations
have to concentrate on delivering the experiences to the
customers leading to satisfaction and association with all the
dimensions of the brand.
These experiences can be delivered by involving the customer in
the supply chain which demands improvement from the
organization in terms of training the employees and aligning the
culture to deliver value to the customers. The participation of the
customers can be ensured by using novel methods of
communication and branding. The Profit and Sustainability of
Indian Brands will depend on how efficiently and quickly the
organization can adapt to these new demands of the customers.
Packaging and Design
References:
Both packaging and design are increasingly being seen as potent
marketing tools for product differentiation and communication
with the consumer. Convenient packaging assures consumers of
the product quality and helps boost sales. The recent Asian Paints
campaign marks a new trend among advertisers, who are now
looking to attract consumers with try-vertisingor mainstream
advertising that encourages them to try the sample or smaller-
1.
Website of Dabur India Ltd.
2.
www.Maruti Udyog
3.
www.pharmabiz.com
4.
Marketing Management by Kotler and Koshi
5.
Product and brand management by
6.
www.eznierarticles.com
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
11
A Study on Globalization and its Effect on
Consumer Perception of New spapers
Prof Vishwas Pendse
BE (Production), MBA (Marketing), IBMRD Ahemadnagar
Abstract
The Indian print media “industry” according Price Water House
Coopers, recorded a growth of 16 percent in 2007 to reach an
estimated Rs.13000 cores. Within print media, newspaper
publishing constitutes more than 80 percent and this segment
grew at 17 percent. Present study aims to investigate the factors
influencing consumer purchase of newspaper and effect of
globalization on these factors.
However, globalization process is likely to take some time with
the respective governments of various countries still protecting
their domestic media industry. This is largely on account of the
politically sensitive nature of this medium. With the
liberalization process gathering momentum across the globe,
time has now for the media owners not only to confront internal
challenges and competition but also changing consumer behavior
and new forms of media such as internet and mobile news etc.
Study also investigates the strategies adopted by print media to
cope up with this challenge.
Introduction
Globalization in its basic economic sense refers to the adoption of
open and unfettered trading markets the current wave of
globalization has been driven by the new set of factors, such as,
deregulation of financial services, emergence of modern
transportation and communication technologies.
Psychological Impact of Globalization:
According to Jeffrey Arnett (2002), there are four major issues
related to identity, which develop due to globalization. The first
is the development of a bicultural identity or perhaps a hybrid
identity, which means that part of one's identity is rooted in the
local culture while another part stems from an awareness of one's
relation to the global world. Media such as television and
especially the Internet, which allows for instant communication
with any place in the world, play an important part in developing
a global identity. Yet, along with this new global identity people
continue to retain and develop their local identity for daily
interactions with their family, friends and community. Television
is arguably the most dominant gateway of globalization affecting
India today. As for women, the impact of globalization has been
interesting. On one hand, it has allowed women to become a
larger part of the workforce, with opportunities for higher pay
raising their self confidence and independence.
Overview of India newspaper and media scenario & NRS
2006 :
There are approximately 5,525 newspapers in India every major
newspaper has an internet edition and you can read an India
newspaper online. Each week, National Readership Survey
(NRS) says, the print news media reaches 242 million readers.
These enormous numbers, the survey suggests, represent a chain
of growth, driven both by expanding literacy and improved living
standards.
Four important factors could be attributed for the growth trend of
newspapers. First, the spread of television particularly news
channels. This unwittingly created a base for newspapers.
Second, the competition - between television channels for viewer
ship and between newspapers for readership and, then, between
new channels and newspapers.
Third, economic and demographic aspects to do with literacy and
lifestyles. Fourth, the wide gap in readership, between regions of
the country and male-female, urban-rural, started declining
although the differences are still glaring, constantly reminding
the potential for growth. Broadly, NRS shows that newspaper and
magazine readership have continued to grow in both urban and
rural areas of the country. During the last 5 years, the percentage
of adults who read a newspaper or magazine grew by four
percentage points, from 45 to 49. The number of adults who read
a daily overall grew by one percentage point from, reaching 42
per cent of all adults or some 260 million people. By contrast,
eveningers, popular in urban centers, showed a decline in
circulation.
The largest publications in the country, true to the findings of
earlier NRS surveys, are regional language publications, not their
more high-profile English counterparts
Literacy as measured in the NRS has risen from 69.9% to 71.1%
over the last year. One would expect this to boost the market for
the press medium.
Satellite TV has grown considerably in reach from 207 million
individuals watching in an average week in 2005 to as many as
230 million individuals in 2006 further expanding its lead over
the number of readers.
Radio reach has increased from 23% to 27% of the population
listening to any station in the average week.
Radio FM has driven this explosion in reach from 76 million
individuals listening in an average week in 2005 to as many as
119 million individuals in 2006 a 55% increase The Internet as a
medium seems to have paused on its growth trajectory As
proportions, these represent 0.9% and 1.2% of India's 12 years
plus population. However, urban India has shown faster growth
in internet reach from 2.3% to 3.4%.
12
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Reach of Mobile phones. As measured by the proportion of the
population accessing value-added-features (VAS) at least once a
week has grown from 1.1% last year to 2.7% -
2. Most of the population consider content (72%) as deciding
factor for purchase and hence need for media planers to
concentrate on content planning
If there is one overall conclusion, it is that the press medium must
watch emerging media closely. Changing lifestyles and
increasing disposable income levels has facilitated the increasing
penetration levels of the media and entertainment industry.
Recent estimates indicate that around 68.0% of total adult
population has access to the conventional forms of media.
3. About 69% of respondent's donot find considerable difference
in existing print media
Major developments post globalization
In the long term some of the major developments likely to have a
deep impact on the global media and entertainment industry
include,
·Shifting Preference for Internet-Based Content and the
Emergence of Interactive TV Proliferation of Wireless
Application Devices
· Development of Sophisticated Telecommunication
Technologies
· Faster Globalization
· Growing Popularity of Mega- Theaters, Super Stores Concept
etc
· High Degree of Consolidation in the Industry
· Increasing Digitization in the Industry
· Convergence of the Entertainment, Information and
Telecommunication Segments and
· Rapid De-regulation in the Industry
Revolutionary changes in the information technology,
communication and printing and the spiraling cost of various
inputs for publications are important factors impacting the
circulation, quality and financial viability of newspapers. To
maintain their economic stability at the present level with
expectation of growth at the reasonable rate, the newspapers have
perforce to adopt the most modern technology in communication
and printing, requiring huge investments
Research Methodology
The questionnaire used for this study is structured and non
disguisable. It focused on capturing consumer perception of
traditional media versus emerging media such as net and mobiles
For this study the total number of respondents interviewed was
300. Out of which 100 belonged to age group above 30 and the
rest below them. Majority of the respondents were students who
belonged to the age group 20 and mid twenties. The respondents
are expected to have an opinion as they must have been exposed
to one or other form of emerging media. Along with primary data
collection SWOT analysis was conducted with the help of
secondary data and first hand observation.
Data analysis
1. As already mentioned majority of respondents belong to the
age group below 30. Also about 40% of the total sample size was
women
4. 75% though consider newspaper a trustworthy source
approximately equal number (67%) treats T.V and internet as
primary source of information
5. Also interesting is the fact that most of respondents (57%)
considered mobile news and 15% consider internet as a close
substitute to newspaper
SWOTANALYSIS
New Threat
Internet search leader Google on 31.8.2007 began hosting
material produced by major world news agencies on its own web
site instead of only sending readers to other destinations. The
change affects hundreds of stories and photographsdistributed
each day by AP, AFP. It could diminish internet traffic to other
media sites where those stories and photos are also found a
development that could reduce the online ad revenue of
newspapers and broadcasters.
With convergence of communication technologies giving birth to
a host of new media services, it may soon become
“Communication & Broadcasting” sector unconcern of content
dimensions. The Increased interest in India as a potential market
for foreign investors in media sector has also caused a realization
within the country of the potential for growth of media and the
opportunities there in. It is this optimism which is driving
newspapers in India and has given a new impetus and confidence.
With market surveys becoming a yardstick as never before,
newspaper marketing, pricing, design, distribution and
promotional schemes have become strategic variables.
The coming of regional channels .
The satellite television and software (content) industries are all
set to witness a surge in demand in the coming years. Increasing
emergence of regional channels is the major growth driver
behind this likely growth. Furthermore, factors such as a decline
in the pricing of color televisions, technological Advancements
etc have resulted in a wider audience base. This has resulted in
regional advertisers clamoring for a bit of the action yet, at the
same time, newspapers were “exploiting to the full all the new
opportunities provided by the digital distribution channels to
increase their audiences”,he added. (The Times of India, New
Delhi dated June 5, 2007)
Credibility increased, but slipped as primary source
A 2007 CMS survey on “sources of information” and their
reliability has brought out that the overall credibility of
newspapers has relatively gone up. This survey however
indicated that television news has now surpassed newspapers as
“primary source” as the “most relied first source” for political
and sports news.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
STRATEGIES
Per-copy readership
Growth in readership and circulation of dailies did not keep
parity. In fact, growth in Readership has declined in the case of
leading dailies although their circulation increased, marginally or
significantly.
Spread of Publishing Centers
Prior to proliferation of news channels, “district edition”
approach in the earlier decade had given impressive results and
triggered both growth and expansion of dailies.
OPPORTUNITIES
News channels have expanded market for dailies
The States that witnessed growth of newspaper circulation and
readership in the last couple of years are the same where
television news channels have proliferated. For sure, it could be
said that TV had no significant adverse impact as apprehended,
on the levels of readership of daily newspapers in the country or
their growth, particularly of the big ones.
Competition triggered growth
Newspaper competitiveness and growth in the last couple of
years has been in those states or regions w here the scene was
dominated mostly by a single daily -- with half or more of
readership and circulation. It is these states or regions which
witnessed emergence of new dailies or and catching up of older
dailies
FDI into media
Since change in Government policy in 2002 on foreign direct
13
participation in newspapers allowing 26 percent FDI, the number
of enquires from, and deals under negotiations with foreign
investors was unprecedented Also, as the cap on foreign
syndication in Indian newspapers has been increased from 7.5 to
20 percent of total editorial content, the extent of foreign content
by way of supplements, etc
Has significantly increased since 2005. And now there is also talk
of Govt. allowing foreign news and current affairs magazines to
be printed in India despite criticism of certain sections of the
media itself and also political parties. More than a dozen closely
held family run newspaper groups either has gone or are going
public or are seeking foreign capital participation or raising
private equity.
A couple of them are exploring opportunities abroad by getting
listed in New York or London stock exchanges.
UndeterredAdvertising through newspapers
Increased advertising outlays have been one of the key factors
creating momentum in the growth of mass media which in turn is
a result of over all growth of economy.
It is this growth in advertising expenditure which will drive the
growth of Newspapers. Advertising accounts more than 65
percent of revenue of newspapers and in fact even higher in the
case of most English dailies.
Prospects
No state or corner of India could be said as saturated with
newspapers. In fact, a simple analysis of “opportunities and
challenges” for newspapers in India of a billion people reminds
that it is miles to go.
REACH OF MASS MEDIA WHERE IS THE GROWTH?
14
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
“Citizen Journalists” is a new concept being promoted by one or
two news channels since 2007. Some big English dailies have
experimented with the idea of “guest editor” by inviting a well
known expert or celebrity. In the case of newspapers the space
devoted for “Letters to Editor” and for reports on certain
disadvantaged sections or regions had come down or replaced
with SMS based opinion polls
Business Models
Despite no increase in cover price of daily newspapers, most of
them have been expanding. Earlier managements were
concerned about advertising revenue apart from readership and
circulation, now they are also concerned about “market value” in
the share market. About a dozen media houses are already listed
in the stock market and as many are expanding by raising money
from the public.
In fact, some of the leading newspapers have started “private
treaties division” to set up deals under which equity stakes could
be picked up in companies in return for promoting them through
long term advertising and publicity deals, including by way of
editorial coverage. There are already instances of “no bad news”
about companies involved in such deals.
that process to the “national endeavors”.
APPENDIXA
Questionnaire
1. Name of Respondent
2.Address
3.Age
4. Occupation
5. Which factor do you consider as influencing your decision to
purchase newspaper?
6. How would you rate newspaper as source of information as
compared to other sources namely television?
7. What would you like to see at the front page of your
newspaper?
8. How would you rate credibility of newspaper compared to
other sources namely TV?
9. What is prime purpose of your newspaper purchase?
10. Which one of the following would you consider as the nearest
substitute for your newspaper?
Conclusion
11 Do you have access to any media?
While the continued growth of newspapers in the immediate
years is not in doubt, to what extent the momentum will be kept
up after 2012 depends on several factors external and internal
and initiatives taken now. The internal factors are far more
critical. These include, first and foremost is the “Content
package” and how distinct the newspapers are going to be from
one another and in contrast to the model of news channels, the
second is how well newspapers integrate and adopt online media.
12 Do product promotions induce you to purchase products
advertised?
1.
National Readership Studies Council Press Release
The third factor is to do with priorities of newspapers in their
reach and targeting. The fourth one includes marketing strategies
as to cover price, delivery efficiencies, competitive
collaborative, initiatives and innovations in the very promotion
of news media.
2.
http://www.researchandmarkets.com/reports/4022/
3.
Press Council of India Annual Report
(April 1, 2007 - March 31, 2008)
4.
Measurement of Globalization and Its Variations Among
Countries, Regions and Over Time
Amit K. Bhandari and Almas Heshmati
5.
State of Newspaper Scene 2007 Submitted to Press
Council of India New Delhi
6.
Research Methodology, Kothari
7.
Indian Newspaper society
8.
World association of newspapers-Annual reports extract
The external factors are to do with economy which in turn
determines the flow of advertising outlays, political uncertainties
and of course Govt. policies particularly with regard to
globalization, foreign investments, etc. In the meanwhile
projections of foreign/global consulting firms continue to offer
optimistic scenario for the next couple of years. These estimates
are motivated more to prompt and facilitate investments,
synergies, mergers, acquisitions, and collaborations.
Nevertheless they should help further the interests of news media
in maximizing reach potential notwithstanding implications in
13. Do you find considerable difference in existing newspapers?
REFERENCESAND BIBLOGRAPHY
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
15
Develop Multiple Applications of Core Products
to Extend Product Life Cycle
Dr. Shubhangi Walvekar
Prof. & HOD, Modern College Of Engg, MBA Dept,Pune
The current competitive marketing environment during the new
millennium is forcing managers to understand the needs of
modern consumers and re-evaluate the changing opportunities
and threats in an evolving global marketing place. The concept of
Product Life Cycle (PLC), since its inception in the early 1950s,
gained significant recognition as a tool for effective marketing
strategy in understanding the behaviour of product on sales,
profits, 4P's of marketing and consumer approval.
The Products usually go through the following Life Cycle Stages:
According to Theodore Levitt, Product Life Cycle should be seen
as trend of sales over time that suggests different opportunities at
different phases of a product's existence. He further states that
planning for extension should begin at the prelaunch itself which
generates proactive product policy; it lays out long term plan to
infuse new life into the product at the right time with the required
degree of care and efforts.
The goal of marketer should be to alter the shape and duration of
life cycle by implementing creative marketing strategies
These are ways that sales may be given a boost. Some possible
ways businesses might extend the life cycle of their product are as
follows:
Introduce new variations of the original product, e.g. a children's
version , use a new advertising campaign, sell into new markets,
e.g. export the product to another country, introduce a new,
improved version of the product, sell through additional,
different retail outlets, modify the 'augmented product'. Services
can be added where none existed before adding free set-up and
delivery are good examples.
Market introduction stage: Costs are high, slow sales, volumes
to start, little or no competition - competitive manufacturers
watch for acceptance/segment growth /losses, demand has to be
created, customers have to be prompted to try the product, makes
no money at this stage.
Growth stage: Costs reduced due to economies of scale, sales
volume increases significantly, profitability begins to rise, public
awareness increases, competition begins to increase with a few,
new players in establishing market, and increased competition
leads to price decreases.
Mature stage: Costs are lowered as a result of production
volumes increasing and experience curve effects, sales volume
peaks and market saturation is reached, increase in competitors
entering the market, prices tend to drop due to the proliferation
of competing products, brand differentiation and feature
diversification is emphasized to maintain or increase market
share, Industrial profits go down.
Saturation and decline stage: costs become counter-optimal,
sales volume decline or stabilize prices, profitability diminishes
and profit becomes more a challenge of production/distribution
efficiency, than increased sales.
Repositioning: When products reach maturity they are well
known, however, as competing products enter the market; mature
products can begin to look old and tired. Action must then be
taken to refresh the product's image. Repositioning can create
new appeal for existing consumers or attract new consumers.
Repositioning strategies need to be used to respond to changes in
consumer tastes or market conditions, or a change in competitor
strategy. The extent of the repositioning will depend on the level
of change in tastes, lifestyles and technologies, and also on how
well competitors are doing.
'Promoting more frequent usage of the product among existing
customers.' This concept could be explained with the help of
several examples:
Proactive strategies like relationship management should be
practiced and creative strategies to reward the existing loyal
customers need to be implemented. The hard core and soft core
loyal customers should be provided incentives for their loyalty.
Reliance retail stores as well as Tata's Westside, Airlines
(Frequent Fliers Program) offer loyalty programs by awarding
certain points on every transaction.
Most of the FMCG products are available in small sachet packs to
cater to the needs of the segment at bottom of the pyramid, both in
urban and rural area. Tissue papers, both dry and wet are now
available in small packs to be used anytime, anywhere.
Tooth paste marketers emphasize the use of toothpaste after
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
every meal. Kissan jam's latest advertising campaign is targeted
at kids, to eat the jam by mixing it with dalia, “Turn it into mix
fruit delight and than watch it disappear”.
Initially ponds had only two basic products i.e. Vanishing and
Cold Cream, however understanding the competition in skin
care category it introduced an array of products like: Ponds Age
Miracle, Ponds Flawless White, Daily Cream, Daily Lotion,
Facial Foam, Foundation Powder, Lightening Mask, Under Eye
Cream, All day Oil Control Cream, Ponds Daily Face Wash
thereby successfully pushing its brand for every possible skin
care products.
The 'DuPoint' has been adept at sustaining mature products such
as Teflon and Lycra fiber. Lycra is a fiber invented by Dupoint in
1959. Since then the company is successful in generating
continuous interest by developing improved versions of it. The
product is now used in a variety of clothing, ranging from hosiery
to women's and men's fashion to cycling shorts.
After establishing Maggi Noodles as an instant staple meal for
kids it has also introduced several other allied food products
under the Maggi Flagship brand. Recently Nestlé has moved fast
to plug any flank that could be attacked by rivals. It first launched
Maggi rice noodles targeted at consumers in the east and south,
where rice for the staple meal. Next, it came out with instant
noodles in a cup which is ready to eat after pouring some hot
water in it.
This was meant for consumption on the go, including offices. It
was a product for the urban markets. The volumes might be low
but it has a wide lead over any company which might target these
categories. Now the present positioning of Nestlé's instant
noodles is to be consumed right through the day by all members
of the family, young and old. Some Maggi ads clearly show that it
is targeted at all family members.
In order to promote frequent use of their products, companies are
also resorting to indirect marketing through providing different
variety of receipes on the packages as well as supplying recipe
books on demand. Some of these companies can be identified as
Nestle - sweetened condensed milk, Amul - Milkmaid or
Mithaimate for making a variety of dessert preparations at home.
Monaco - biscuits with different toppings' as snacks food.
For developing more users or varied usage of the products among
current users, shampoo marketers are introducing a lighter
version for daily use and also emphasizing use twice rather than
using once at each wash.
Organizations introduce new uses for the product by expanding
the market. Burnol anti septic ointment is now promoted as not
only to be used for burns but as an anti septic for all occasions.
Extension strategy:
Businesses can develop the life of their product further if they use
"extension strategies". For example, Kit Kat has developed the
life of their product by offering chunky Kit Kats, Kit Kat ice
cream, white chocolate Kit Kats and so on. The result is that the
Kit Kat brand appeals to a much wider consumer group and
existing consumers are buying more Kit Kat branded snack
foods.
Cadbury Dairy Milk has been the market leader in the chocolate
category for years, holding 30% value share of the Indian
chocolate market. In the early 90's, chocolates were seen as
'meant for kids', usually. In the Mid 90's the category was redefined by shifting the focus from `just for kids' to the `kid in all
of us'. More recently, the 'Kuch Meetha Ho Jaaye' campaign
associated Cadbury Dairy Milk with celebratory occasions and
today is used extensively to express joy in a moment of
achievement / success.
Consistent in Lifebuoy's 110 plus year history has been its
championing of health through hygiene. To promote
understanding of the importance of hand washing, Lifebuoy
launched the first ever Global Hand washing Day in 2008, To
date, 70 million people in rural India along have experienced the
pioneering, Lifebuoy sponsored Health Education program the
single largest private hygiene education program in the world.
Lifebuoy has become more than just a red bar of soap today the
brand provides hygiene and health solutions for families,
including a range of bar soaps, hand wash liquids and liquid
shower gels.
One of the most recent Lifebuoy innovation addresses the
number one skin hygiene and health concern for teens: oily and
acne prone skin. Lifebuoy Clear Skin is a bar soap formulated
using radical new technology that is clinically proven to reduce
even severe acne, by 70% in 6 weeks. Regular use, twice a day is
proven to prevent and reduce the recurrence of acne.
The computer itself is a good example how a product can be used
for multiple applications. The origin of computer is from a
calculating machine which was supposed to do simple
calculations. However the whole world knows today the
applications which a Personal Computer can do.
Another case is an internet. It was developed by us army as secret
messaging system which has now become public.
The origins of the Internet reach back to the 1960s when the
United States funded research projects of its military agencies to
build robust, fault-tolerant and distributed computer networks.
This research and a period of civilian funding of a new U.S.
backbone by the National Science Foundation spawned
worldwide participation in the development of new networking
technologies and led to the commercialization of an international
network in the mid 1990s, and resulted in the following
popularization of countless applications in virtually every aspect
of modern human life. As of 2009, an estimated quarter of Earth's
population uses the services of the Internet.
Today the Internet has become part of our life which was once
upon a time a military based application.
There are several machines which were created keeping specific
functions in mind and have become universal as far as
applications are concerned. One another example would be a
photocopier. The concept was to make photo copy of the
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
document but the technology has changed the face of the product.
Today we can not only replicate the copy but also scan and email
the same, send fax (originally Facsimile) and what not. XEROX
machine from RANK has become a generic name for
photocopies and has introduced a number of additional features
with support of technology.
Maruti Udoyg caters to all segments and has a product offering at
all price points. Maruti gets 70% business from repeat buyers
who earlier had owned a Maruti car. Their pricing strategy is to
provide an option to every customer looking for up gradation in
his car. Their sole motive of having so many product offering is to
be in the consideration set of every passenger car customer in
India. Here is how every price point is covered.
Amazon.com to promote their books, magazines etc. has
extended the facility of convenience in reading any time/ any
where by introducing Original Wireless Reading Device Kindle
e-book reader, utilizing the same 3G wireless technology as
advanced cell phones; it wirelessly downloads books magazines
etc.
Several other strategies could be enumerated:
Up selling is the practice where you offer an additional product to
the customer on top of what they have already purchased from
you.
Here some of the examples: This works well in fast food
restaurants, but also works great with membership sites when
you offer them 6 or 12 months at a discount. If you have an online
business, before the prospect leaves your site, provide an extra
complimentary item for an inexpensive price. You can offer your
online customer an item that compliments what they have already
signed up for, such as a free membership site where the up sell
gives them more features.
The practice of deliberately designing products to require
replacement after a specified length of time is the objective of
forcing higher sales of the product. For example, machines might
be designed with synthetic gears and cams which wear out in a
matter of years, rather than metal ones, which generally last
decades. Singer sewing machines, and Dodge transmissions are
cases in point. Often, a high quality product will contain a single
cheap and cheesy part which, once broken, is more expensive to
replace than the newer version of the entire product.
Also, the practice of genetically designing seeds for agricultural
crops so that the resulting plants in turn produce seeds which do
not inherit or maintain all of the desirable qualities in the original
seed. Rather than reserving a portion of the crop for the next
year's planting, the farmer must purchase new seed from the
supplier.
Also, the practice of re-designing perfectly satisfactory products
so that they have different superficial features, prompts the
consumer to discard serviceable products in favor of newer ones.
Typically, the new features are driven by fashion and marketing
design, rather than by true functional requirements. In an ironic
turnaround, another example is the recent resurgence of "retro"
home appliances. Consumers are abandoning their 1970's and
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80's white plastic toasters and avocado green blenders in favor of
the same toasters and blenders repackaged in 1950's chrome and
bakelite.
Also, the practice in the software industry of designing
increasingly rich sets of functionality and user options into
popular products, but failing to provide full backward
compatibility for the data formats produced by earlier versions.
Lack of support for older data formats presents a ready market for
IT consultants in eventual legacy data migration projects which
will be required as the intellectual property and historical records
currently committed to electronic media continue to age.
In case of Watches, psychological positioning is adopted.
Watches are made from different materials, studded with
precious stones is more of fashion accessory attracting fashion /
status conscious segment.
Jaguar and Hindware Sanitary Ware are extending their product
line by offering bath spa experience at residence. Private bath
spa, to transform bath area into a luxury spa, a hydrotherapy
centre or a wholesome retreat
In this high paced world, the communication has become all the
more easy, thanks to mobile phones. With the help of
convergence technology these gadgets facilitate faster
communication. These are not just communication devices but
they serve so many different purposes also. The new age handsets
come loaded with numerous useful features which fulfill the
basic demands of calling, messaging, gaming, Internet, camera,
music player and FM radio and all. As per the growing demand,
these gadgets allow the users to store data in their favorite
devices. For data transferring, the latest mobile phones come
packed with technologies like GPRS, EDGE, Bluetooth and
USB. These high-end applications help to exchange data and files
at a very higher speed.
'Move' pain killer ointment was initially targeted at super
efficient house wives for back pain due to overexertion, now the
positioning has been extended to both the genders emphasizing
on neck and shoulder pain. Most of the ladies and especially the
housewives have the same problem and that is the back pain.
One of the most extensively researched drugs in the world, with a
110-year track record of safety and efficacy, aspirin has been lifetested by generations, Aspirin an OTC drug, known to give
immediate relief from headache is now been prescribed by
Physicians who treat adult patients with the flu often recommend
aspirin to help relieve symptoms such as headache and body pain,
sore throat and fever. Also Use aspirin daily as a medicine for
reducing chances of stroke.
Vicco Narayani, an ayurvedic cream made from herbs for quick
relief from any kind of body aches, advocates prevention by
regular use in old age to prevent joint pains Vicco Narayani does
give that extra bit of care required specially for growing people.
Massaging daily with the cream gives the joints the extra care
which people at this age normally require keeping them away
from all sorts of problem. Vicco Narayani can also be used by
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
anyone else in case of body aches and other external injuries. It
provides a warm effect which helps in easing out the pain and
giving quick relief.
The concept of selling in the passenger car industry is changing
from original sales towards lifecycle value generation,
encompassing financing, repairs & maintenance, cleaning,
provision of accessories, and so on.
Service providers like Banks are trying to get more business from
their existing customers for which they have widened their
horizon and provide variety of services like bank assurance, link
deposit schemes insurance, financial products ,pay utility bills,
file tax return and even get PAN card made for their customers.
It can be concluded that the challenge and immense opportunity
for companies, is in extending their presence in the “Customer
Experience Lifecycle” by providing value beyond the standard
company touch-points.
The customer lifecycle, from marketing and CRM perspectives,
describes a process through which the customer discovers and
evaluates the company through marketing, selects and purchases
its products or services, uses it, and maybe interacts with
customer support. If the experience throughout the customer
lifecycle was great and relevant, the cycle may repeat itself with
loyalty.
Bibliography
! Marketing Management by Philip Kotler, Kevin Lane
Keller, Abraham Koshy Mithileshwar Jha; Pearson Prentice
Hall
! Brand Management by ICFAI University Press
! Case Folio from The IUP Journal of Management Case
Studies
! Marketing Management by Philip Kotler ad Kevin Lane
Keller; Pearson Education
! Business Marketing Management: B2B by Michael D Hutt
and Thomas W Spen; Hutt & Spen
! Services Marketing by Christopher Lovelock, Jochen Wirtz
and Jayanta Chaterjee; Pearson Education
! Marketing Concepts and cases by Michael J Etzel, Bruce
Walker, William Stanton, Ajay Pandit; The McGraw-Hill
Companies
! Marketing Management Text and Cases by Tapan K Panda;
Excel Books
! http://www.campaignindia.in/news/2009/12/18/cadburydairy-milk-refreshes-its-packaging
! www.nestle.in
! www.ponds.co.in
! www.mithaimate.com
! www.viccolabs.com
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
19
Social Media : An Opportunity for Market Promotion
Mrs. Zeenat Khan, Instructor, JBIMS, Mumbai
Prof. P. Manjreker, D.Y. Patil Institute of Mgmt. Studies, C.B.D. Belapur.
India is poised to become the third largest Internet user in the
world by 2013 as predicted by forester report.. The country of
snake charmers and small retailers, has made a frog leap to put
Asia as the world's largest internet users at 704.2 million,
followed by Europe at 402.4 millions users. Though internet
penetration is far from good in India compared to developed
countries US, UK & Germany. the number of internet users in
India may far exceed the entire populations of some countries.
The reach of the internet is no doubt phenomenal, but it is far
behind that of other medium used traditionally. The net-work of
radio, telephone and television is far denser and established. In
the next five years the penetration of internet is said to double and
then it will have a wider reach than all traditional media.
If we compare the old model of business which required physical
delivery of information i.e. through books, newspapers,&
magazines and hence become a burden on the company's
resources to the new model, through the internet (digital
information), the costs of processing, storing and transporting
information is negligible, and huge data can be transferred in a
short time which is a distinct advantage.
Most of the traditional media deliver electronically, but through
digital technology these media can be delivered from numerable
sources to numerable destinations. Because of these advantages
the internet attracts a lot of marketers who wish to use it to
achieve their marketing goals.
Marketers have already launched interesting sites on the internet
which offer products ranging from travel to entertainment,
education to news. Millions of surfers get logged and spend
endless hours seeking information or entertainment. It is
therefore interesting to know, the activities internet users
indulge;
What do internet users do online
Top 10 Online Activities
% Undertaking
Search for Travel products
Job search
Search for non-travel products
Instant messaging/chatting
Check general news
Dating/Friendship
Check cricket content/score
Check sports other than cricket
Matrimonial search
English info search engine
84%
71%
68%
67%
62%
55%
53%
52%
49%
49%
All members use email by default, hence not shown separately
Source: - Indian online 2009 by Juxtconsult
It is clear from the above table that the internet has emerged as
A good resource for information, on general and personal related
issues. The table below shows the most popular sites visited:
Most Visited Sites
Websites
% Use it the most
Google
35%
Yahoo
25%
G mail
11%
Orkut
7%
Rediff
4%
Indiatimes
1%
Source: - India Online 2009 by Juxtconsult
The Indian Digital Media Market
A lot of optimism is associated with the Internet as an
advertising medium in India.
With global trends indicating continuing decline of ad spends
in the traditional media, budget spends on interactive media
continue to grow and deliver quantifiable results for the brand
advertisers. Given the surge of interest in digital advertising in
2008, many consider 2009 to be the year when digital
advertising finally gets the spotlight in the 4 billion dollar India
advertising and marketing space.
The Internet in India is still at a nascent stage with 47 million
users (India Online 2009 by Juxtconsult) and a relatively low
penetration level of 4.2% with reference to the Western world
and other smaller countries. The urban rural divide, between
the 'haves' and the 'have-nots' is hard to ignore in the Indian
context. However, access to the Internet is slowly falling into
place with declining prices that are likely to go down even
further.
Computing devices are becoming affordable, though prices
need to fall further. Mobile/handheld devices are emerging as
the 'next biggest thing' with the 3G licensing in place.
In an entertainment seeking consumer market like India, which
has multiple regional languages and scripts, it is surprising to
witness growth in Internet growth without a local language
computing environment. The development of such properties
and executions would be hard to ignore for long. There are
many positive signs and reasons created by stakeholders to
engage the 47 million Internet users, who represent the 'regular
Indian consumer' today.
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
The purpose and role of the Internet as a 'medium of effective
branding and communication' becomes clear when markets
realize that 'reaching the consumer' is inadequate without 'staying
top of mind'. And in this game, any medium which offers
'selective' targeting by creating an exciting, engaging consumer
experience at the modern day integrated marketing and
communication plan (For instance, interactive/display
advertisement of a personal grooming product for users on a
dating websites).
As it is evident from the data given below, Internet advertising
constitutes a very small part of the total advertising pie; this is
sometimes attributed to the low internet penetration which is
close to 6% (I Cube 2008). But it may be noted that the Indian
internet user base is huge in sheer numbers 6 crores which
represents an opportunity to marketers to reach them effectively.
INTERNETADVERTISING IN INDIA
interoperability, user-centered design and collaboration on the
World Wide Web. Examples of Web 2.0 include web-based
communicates, hosted services, web applications, socialnetworking sites, video-sharing, wikis, blogs, mashups and
folksonomies. A Web 2.0 site allows its users to interact with
other users or to change website content, in contrast to noninteractive websites where users are limited to the passive
viewing of information that is provided to them.
The term Web 2.0 can easily be understood with this example.
Web 1.0
Web 2.0
Double Click
--> Google AdSense
Britannica Online
--> Wikipedia
Personal
Websites
-->
Blogging
Web 2.0 means the democratization of
the internet, the content of
Domain
name
speculation
-->
Search
optimization
'web 2.0' sites is not generated by the sitesengine
owners,
but by the
Publishing
-->
Participation
users of these sites, who use the site as a platform to either,
Contentnetwork,
management
Systems
--> Wikisdating/friendship. Thus
inform,
review
or for business,
these sites are collectively called as the social media.
SOCIALMEDIA
Wikipedia describe Social Media as:
Share of Internet Advertising in The Indian Advertising Pie
1.Television - 51.4% 2.Radio - 0.9%
5. Others - 14.9%
4. Internet - 5.4 %
3.Print - 27.4%
Base : 445
Top 500 Marketers ad-spends (2008-09)
Source: - Digital Media Outlook 2009 by Webchutney
'Traditional' Internet Advertising that used banners and pop-up
ads is slowly losing its effectiveness and fails to generate the
desired results. This is because the entire landscape of internet
has changed post the proliferation of what is known as 'web 2.0'
technologies.
Marketers therefore need to re-learn the rules of the 'new' game
and adapt themselves with the new world of Web 2.0.
LIFEAFTER WEB 2.0
The term Web 2.0 suggest a new version of the World Wide Web
especially after 2003-2004. However, it does not refer to an
update to any technical specifications, but rather to cumulative
changes in the ways software developers and end-users use the
Web.
The term “Web 2.0” is commonly associated with web
applications which facilitate interactive information sharing,
Social media are media designed to be disseminated through
social interaction, created using highly accessible and scalable
publishing techniques. Social media supports the human need for
social interaction, using internet- and web-based technologies to
transform board cast media monologues (one to many) into social
media dialogues (many to many). It supports the democratization
of knowledge and information, transforming people from content
consumers into content producers. Business also refer to social
media as user-generated content (UGC) or consumer-generated
media (CGM).
Social media can be said to have three components.
Participation
Social media encourages contributions and feedback from
everyone who is interested. It blurs the line between media and
audience.
Openness
Most social media services are open to feedback and
participation. They encourage voting, comments and the sharing
of information. There are rarely any barriers to accessing and
making use to content.
Conversation
Whereas traditional media is about “broadcast” (content
transmitted or distributed to an audience one way social media is
better seen as a two-way conversation.
Community
Social media allows communities to form quickly and
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
communicate effectively. Communities share common interests,
such as a love photography, a political issue or a favourite TV
show.
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communities.
Micro blogging
Most kinds of social media thrive on their connectedness, making
use of links to other sites, resources and people.
Social networking combined with bite-sized blogging, where
small amounts of content ('updates') are distributed online and
through the mobile phone network. Twitter is the clear leader in
this field.
TYPES OF SOCIALMEDIA
SOCIALMEDIAMARKETING
Social Networks
The meaning of the term 'social media' can be derived if we
examine both of the words which constitute it. Media generally
refers to advertising and the communication of ideas or
information through publications/channels. Social implies the
interaction of individuals within a group or community.
Connectedness
Sites that connect friends and their peer networks together
spurred by user generated content of all forms. These networks
are growing by the day to become habitual platforms for people
to stay in touch. Often thought of as 'interactive address books',
big players in social networking include Hi-5, Mixi, Friendster,
Orkut, Facebook, Bebo and My Space.
Blogs.
Blogs and Bulletin Board Systems (BBS) continue to be a major
source of social media providing platforms for communities to
come together, opinions to be voiced (often anonymous) and
discussion on a range of topics. These have evolved from the
modern day form of a 'public dairy' to a 'broadcast platform' for
individuals to share their news and connect.
The personal nature of blogs continues to remain popular
particularly for entertainment and educational purpose as well as
for citizen journalism. Today bloggers have credibility as public
informers and as a result of RSS (A technology by which links to
latest posts delivered to subscribes), are highly inter-connected
and collaborative. Key enablement platforms include blogger,
blogspot, typepad and wordpress.
Content communities
These are communities which organize and share particular kinds
of content. There are a number of sites that are considered the
forefathers of 'Web 2.0' by making it easy to create, store and
share content by putting that power in the user's hands.
These entitles essentially host and store proprietary content of all
forms, and because of their richness are becoming destinations in
their own right. They also become the source of a lot content that
users are publishing back into their social networks and include
FlickR, You Tube and application developers such as slide.com.
Wikis
These Websites allow people to add content to or edit the
information on them, acting as a communal document or
database. The best-known wiki is Wikipedia the online
encyclopedia which has over 2 million English language articles.
Podcasts
Audio and video files that are available by subscription, through
services likeApple iTunes.
Forums
Forum is a common platform for online discussion, often around
specific topics and interests. Forums came about before the term
“social media” and are a powerful and popular element of online
Ta k e n t o g e t h e r, s o c i a l m e d i a s i m p l y r e f e r s t o
communication/publication platforms which are generated and
sustained by the interpersonal interaction of individuals through
the specific medium or tool.
Wikipedia has a general definition of the term :
Social Media is the democratization of information, transforming
people from content readers into content publishers. It is the shift
from a broadcast mechanism to a many-to-many model, rooted in
conversations between authors, people, and peers.
Social media uses the “wisdom of crowds” to connect
information in a collaborative manner. Social media can take
many different forms, including Internet forums, message
boards, weblogs, wikis, podcasts, pictures, and video.
SOCIAL MEDIA MARKETING HAS THREE
IMPORTANTASPECTS :
1.Creating buzz or news worthy events, videos, tweets, or even
blog entires that attract attention, and become viral in nature.
Buzz is the piece that makes social media marketing work; it
replicates a message not through purchase of An ad, but through
user to user contact.
2. Buildings ways that, fans of a brand or company can promote it
themselves in multiple online social media venus. Fan pages in
Twitter, MySpace of Facebook are exactly this.
3.It is conversational. Social media marketing is not fully
controlled by the organization, it allows for user participation and
dialogue. Potentially a badly designed social media marketing
campaign can backfire on the organization that created it. That is
the reason that social media marketing (SMM) campaigns must
fully engage and respect the users.
HOW DOES SOCIALMEDIAMARKETINGWORK
Think of Social Media Channels as Attention Funnels. People
gather together to use social media. They are usually segmented
by their choice of a community, their interests and the way they
use the social site/tool. Natural peer recommendations, editorial
links or paid advertisements on social media sites will send you
interested individuals and potential customers.
1. Face book
With 300,000 million members (as of July 2009) Face book is a
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
22
tremendously popular social networking site. Its massive reach
provides compelling opportunities to connect with customers,
both current and future, through fan pages, news feeds, groups,
and throughout the site.
2. You Tube
A well executed video with the right title and content can have
huge viral impacts for your brand, especially if your video
reaches the most viewed pages. There are also numerous other
ways to optimize your videos, but coming up with an interesting
concept and being aware of title, tagging, and thumbnall image,
should each key components of your strategy.
3. Wikipedia
Wikipedia has an active community that's quick to remove self
promotional or spammy content, but for those who have relevant,
authoritative content, it can be a great place to acquire new
visitors to your site.
4. My Space
Though rapidly losing market share to Facebook, MySpace
remains a highly trafficked social media site that can be effective
for marketing especially if it concerns music and art. In addition
to creating profiles and getting friends, connecting with groups
interested in relevant topics and using group bulletins can each be
great ways to connect with both customers and potential
customers.
5. Twitter
customers in real time, the micro-blogging service is a great way
to carry on conversation in 140 or fewer characters.
Advantages of SOCIALMEDIAMARKETING:
Social media is the next evolution in marketing. It's next after
direct mail campaigns, after TV or radio advertising, and after ads
in your newspaper. In fact, it's better than all of the above. Instead
of the one way communication of traditional advertising, social
media has made it a conversation. No longer do you have a 30
second piece to convince consumers to use your product, but now
you have a community at your disposal. Build a relationship and
convince customers to stay with you and advertise for you.
However, it's important to know that social media's true power is
not lead generation. Instead, it shines in pushing along the
“selling funnel”, i.e. SALES-customer advocacy, customer
loyalty, purchase, purchase intention.
About 450 million consumers are engaging the social media, and
when social media goes mobile the number will run into billions
hence marketers cannot ignore the size of social media.
Consumers are talking about the brands they use, seeking
recommendations on new brands everyday and every hour.
Social media is creating a platform within the internet for
exchange of views on products and services. Reaching
consumers through traditional methods of advertising could be
insufficient to reach the target, rather an integrated approach in
communication including social media would make brands
connect with a larger consumer base.
Twitter has quickly become popular platform for consumers and
advertisers alike. For brands looking to communicate with
The Key Findings:
Social networks are becoming the dominant platform for content creation and content sharing.
u Passive activities are reaching their saturation point but active participation through blogging,
uploading, and creating networks continues to grow even in highly penetrated markets.
u Content is becoming more personalized than ever with more people expressing themselves and
sharing their lives and their views online.
u Social networking sites are now the single largest source of friend networks either on or offline.
Source: Lodestar Universal McCann,The Economic Times,13 Jan.2010
u
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
23
Challenges & Strategies for the Indian Industry
Challenges and Stratergies for the Indian Industry
in the Emerging Global Economic Scenario
Mr. Manish Tayade
Student MBA II ((Production), Vikhe Patil's IBMRD, Ahmednagar
The Emerging Global Economy
Although we have come to take it for granted, virtually
everything we do is directly or indirectly involved with the
international economy. To understand how this economy affects
your life, just look around. Take five minutes and list things that
surround you in your room - shoes, clothes, stereo, furniture,
radio, TV, VCR, lamps.
Even a quick listing likely shows how truly interdependent the
global economy has become. This trend is expected to accelerate
in the coming years. The process of technological change and
innovation is bringing the world closer and closer together every
day.
Without international economic and business concepts and their
perspective, it would be hard to understand much of your daily
life. Indeed, the changes taking place right now are creating a
new global economy that will determine not only how you live,
but also the kind of work you will be doing. Most experts suggest
that you will have not one but several distinct careers in the
future, each largely shaped by the new global economy.
The global economy emerged in the post-World War II period,
from 1944 to the mid-1970s, but it has undergone a fundamental
transformation since then. Much of this change has been driven
by technological developments. Technological advances have
altered industries and careers, generating new jobs and making
others obsolete. At the same time, growing resource use has
created tensions among policy makers, producers, and
environmentalists.
Globalization: Making a World Smaller
The decades of the 1980s and 1990s brought transitions in the
political, economic, technological, and environmental arenas.
Some of these changes continue to reshape our work and non
work lives.
Globalization has made a big world smaller. Globalization
affects trade, finance, production, communications, and
technological change. When we look at a world map, we need to
think about how this global community of people and nations is
being systematically drawn closer together.
At Distributed Service Systems, a small full-service computer
company located in Reading, Pennsylvania, a technical
consultant sits at a terminal and solves assembly line production
problems at Carpenter Technology steel plants in India, China,
Mexico, and Taiwan.
Since 1980, world exports (goods leaving a country) have
increased 194 percent, and U.S. imports (goods coming into the
country) have more than tripled. Nations have found it cheaper
and more efficient to trade more with each Other than to produce
all their products at home
Indian Economy Overview
Indian Economy Overview:
The Indian Economy is consistently posting robust growth
numbers in all sectors leading to impressive growth in Indian
GDP.
The Indian economy has been stable and reliable in recent times,
while in the last few years it's experienced a positive upward
growth trend.
A consistent 8-9% growth rate has been supported by a number of
favorable economic indicators including a huge inflow of foreign
funds, growing reserves in the foreign exchange sector, both an
IT and real estate boom, and a flourishing capital market.
All of these positive changes have resulted in establishing the
Indian economy as one of the largest and fastest growing in the
world.
Recent Growth Trends in Indian Economy
For four years running, excluding 2005, the Indian economy has
produced annual growth rate of 8.8%. The growth rate of 2006
was phenomenal, when the country achieved a record 9.6%, the
highest rate attained in the last 18 years.
The structural transformation that has been adopted by the
national government in recent times has reduced growth
constraints and contributed greatly to the overall growth and
prosperity of the country. Industrial expansion in different parts
of India has also been crucial to this end.
During this period of stable growth, the performance of the
Indian service sector has been particularly significant. The
growth rate of the service sector was 11.18% in the financial year
2006, whereas the industrial sector experienced a growth rate of
10.63% in the same period.
Growth in the manufacturing sector has also complemented the
country's excellent growth momentum. The growth rate of the
manufacturing sector rose steadily from 8.98% in 2005, to 12%
in 2006. The storage and communication sector also registered a
significant growth rate of 16.64% in the same year.
Additional factors that have contributed to this robust
environment are sustained in investment and high savings rates.
As far as the percentage of gross capital formation in GDP is
concerned, there has been a significant rise from 22.8% in the
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
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fiscal year 2001, to 35.9% in the fiscal year 2006. Further, the
gross rate of savings as a proportion to GDP registered solid
growth from 23.5% to 34.8% for the same period.
The Indian Economic Survey for 2007 has set the target growth
rate of GDP to be 9% for the period from 2007-2012.
Challenges
The positive effect of the globalization of the Indian
manufacturing sector can be corroborated from the following
facts · The Indian industrial growth exceeded 10%
· Manufacturing and processing industry growth rate
exceeded 12 %
The globalization of the Indian manufacturing sector has brought
down the percentage of Indians living below poverty line from
40% to 25%. The Indian manufacturing sector is successfully
competing in the global marketplace and registering high .
Although, the process of globalization of the Indian
manufacturing sector have contributed immensely for the overall
development of the Indian economy but India is not at par with
the global standards of the manufacturing goods.
India Agrowing economy
It still suffers from some challenges like the following
Comparision of Indian economy and Chinese economy
Making an in depth study and analysis of India vs. China
economy seems to be a very hard task. Both India and China rank
among the front runners of global economy and are among the
world's most diverse nations. Both the countries were among the
most ancient civilizations and their economies are influenced by
a number of social, political, economic and other factors.
However, if we try to properly understand the various economic
and market trends and features of the countries, we can make a
comparison between Indian and Chinese economy.
Going by the basic facts, the economy of China is more
developed than that of India. While India is the 12th largest
economy in terms of the exchange rates, China occupies the third
position. Compared to the estimated $1.209 trillion GDP of India,
China has an average GDP of around $7.8 trillion. In case of per
capital GDP, India lags far behind China with just $1016
compared to $6,100 of the latter. To make a basic comparison of
India and China Economy, we need to have an idea of the
economic facts of the countries.
India
Facts
GDP
around $1.209 trillion
China
around $7.8 trillion
GDP growth
6.7%
9.1%
Per capital GDP
$1016
$6,100
Inflation
7.8 %
-1.2 %
Labor Force
523.5 million
807.7 million
Unemployment
6.8 %
4.3 %
!
Improper utilization of technology and resources
Inadequate infrastructure
!
Improper implementation of quality management
!
Undeveloped manufacturing and processing
!
Waste which occurs during the manufacturing and
processing.
India is slowly shedding its image from being an agriculture
based country to a manufacturing based country and thus the
above-mentioned bottlenecks should be immediately arrested to
ensure further growth of this industry. To ensure meeting of such
challenges in the Indian manufacturing sector India must focus
on areas like quality improvements, increased investment in
R&D.
References
!
India is one of the world's major food producers but accounts
for less than 1.5 per cent of international food trade. Food
exports in 1998 stood at US $5.8 billion whereas the world
total was US $438 billion.
Reason --This is due to nonstandard processing of Indian
food industry.
!
Indian sea food is banned by international sea food
association (US).
Reason -- Due to nonstandard water used for washing
purpose of sea food.
!
Indian mangoes were banned for about 10 years by US food
organization.
Reason nonstandard treatment at post harvesting
Strategies for Indian manufacturing and processing
industries.
Indian manufacturing and processing industry has to make some
strategies for surviving in the globalization trend
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
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To improve any organization with respect to globalization,
activities are deployed for all of the objectives, namely:
! Quality improvement (QI)
! Total employee involvement
! Process management
! Developing the process
! Minimizing the waste
! Cost effective process
In Ripening section
Indian manufacturing and processing industries is lacking behind
due to the above reasons. If we try to achieve the above then
definitely Indian manufacturing and processing industry will
have a greater share in global economy than china.
In chopping/slicing section, the mangoes are manually chopped
/sliced on the conveyor belt. After chopping, the chopped
mangoes are passed in pulper machine. Pulper machine is having
toner and brusher which take out pulp from chopped mangoes.
The conveyor belt is 40 ft long on which mangoes are sliced by
the labor on each belt there are 40 labors (20 on each side).
Conclusion
Out of 4000 kg mangoes wasted in ripening section, 2000 kg
mangoes are used in process as half cutting. Half cutting is
nothing but the half infected mangoes which can be used in the
process by removing the infected portion. The remaining 2000 kg
is of no use.
In chopping section
In this research paper I have find out the challenges faces by
Indian manufacturing and processing industries in global
scenario
! Improper utilization of technology and resources
! Inadequate infrastructure
! Improper implementation of quality management
! Undeveloped manufacturing and processing
! Waste which occurs during the manufacturing and
processing.
On one belt there are 500 kg mangoes sliced each time in 2.5
minutes (150 sec). This means that 40 labors has to cut 500 kg of
mangoes in 150 sec. but due to this limit 50 kg mangoes left
unchopped in each batch of 500 kg. These unchopped mangoes
mix with the chopped mangoes and affect the quality of mangoes
in pulper machine.
And I have also find out the strategies needs to be implemented
for meeting the challenges
In receiving section:
!
!
!
!
!
!
Quality improvement (QI)
Total employee involvement
Process management
Developing the process
Minimizing the waste
Cost effective process
Answer
Suggestion for case study
Labor practice:!
During unloading at receiving section, proper handling
should be done. Wt. of the crate is 25-30 kg. To reduce
workload and time, labors throw the crate filled of mangoes to
reach the crate at destination. But during such operation the
mangoes which are at the base of crate get damaged.
Case study
!
Though the manual sorting is done by 10 labors on each belt,
error occurs. So each time care should be taken.
We are taking this case study because jain irrigation system had
lost a contract of about 80 crores of mango pulp due to
insufficient quality standard.
!
On sorting belt labors should be provided with hand gloves to
avoid infection by hands. The nails of labors should be well
trimmed while sorting.
Jain Irrigation System, situated at jalgaon in 1962 by Shri B. H.
Jain. Jain Irrigation System is the only multinational company in
the region. Jain Irrigation has been named as one of the eight
Indian companies expected to emerge as challengers to the
World's leading companies by Standard and Poor recently in May
2007. The product of jain irrigation system is mango pulp. The
processing is carried out in following section wise manner
While giving hot water treatment, temperature should be strictly
maintained at 53- 57* c. because hot water treatment is helpful
for initiating the activities of enzyme responsible for the process
of ripening.
By following above steps we can reduce the waste during sorting
by 0.2% to 0.1%.
In Receiving section
Drain
In receiving section, mangoes are sorted out manually. But error
occurs during manual sorting. Labors sort mangoes with naked
hands which cause a major source of infection. Wt. of crate is 30
kg due to which labor throw the crate to save time and energy.
There is a drain near the crate filler. And due to bad practices by
worker the mangoes in the crate came in contact with the water
situated on the ground near the drain. This cause infection on the
mangoes. Major infection caused by bacteria and fungus so
drains should be covered with proper covers and water near drain
should be wiped out regularly. And the labor should be provided
with the wheel tray so that they can move a maximum number of
crates each crate weighing about 30 kg. In this way we can
minimize the risk of infection and at the same time we can move
maximum number of crates in time. This will help the labors in
There is a drain near the crate filler. And due to bad practices by
worker the mangoes in the crate came in contact with the water
situated on the ground near the drain. This cause infection on the
mangoes. Major infection is caused by fungus.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
26
2
their work.
In Ripening section
Alternative
In ripening section I had carried out experiment to check the
infection in presence of fungicide. I have found that by using
fungicide company can reduce the infection level of 0.8 % to 0.2
%. I had selected 2400 kg mangoes out of which only 5 kg
mangoes are infected instead of 19 kg mangoes. As I have
discussed earlier that 4000 kg of mangoes are infected by fungus,
If company use fungicide as part of there process the figure will
goes down to 1000 kg. That means we can avoid waste of 3000 kg
per day.
In chopping section by increasing 5 labors on each belt the daily
labor cost increases from Rs 28,800 to Rs 32,400 ; an increase of
Rs 3600 per day
In chopping section
By implanting semi-auto-slicing machines Cost benefit analysis
clearly shows the purchase of the semi-auto-slicing machine is
justified. The company will have profit of Rs 22,500 per month
In chopping section for unchopped mangoes we can use any one
alternative
Cost benefit analysis
Comparative Cost Benefit Analysis - Purchase of New semiauto-slicing Machine and adding total 20 labors on 4 belts.
(Costs shown are per month and amortized over five years)
Alt 2
Alt 1
Particulars
Implanting
semi- auto
Slicing M/c
Adding
5labors
Purchase of machines
(including interest and tax)
(-)
0
50,000
Installation of machine
(including screen and removal of
existing machine)
(-)
0
2000
Quality increase revenue
(calculate at 0.1 % of current error rate)
(+)
80,000
80,000
Reduced material cost
(+)
0
0
Reduced labor cost
(+)
0
0
New operator/
additional Labor cost
(salaries and overheads)
(-)
1,08,000
4000
Utilizes
(power consumption)
(-)
(-)
Insurance
Savings/Loss
0
0
1000
500
(-) 28,000
(+) 22,500
From above analysis alternative 1 which is addition of labors
show loss of Rs 28,000
While alternative 2 which is implanting semi-auto slicing m/c
show a saving of Rs 22,500
Cost benefit analysis clearly shows the purchase of the semiauto-slicing machine is justified. The machine will save your
company over 22,500 per month
Total
saving from 3 section perAltmonth
Section
1
Alt 2
Implanting semi -auto
Slicing M/c
(+) 8,40,000 / month (+) 8,40,000/ month
Adding 5 labors
From receiving and
ripening section
From chopping section (-) 28,000 / month
Total saving / month
(+) 22,500 / month
(+) 8,12,000 / month (+) 8,62,000 / month
The monthly profit is Rs 8,40,000 from receiving and ripening
section. The cost benefit analysis of chopping section shows loss
of Rs 28,000.
Therefore total saving is Rs 8,12,000 per month
Alternative II
The monthly profit is Rs 8,40,000 from receiving and ripening
section. The cost benefit analysis shows profit of Rs 22,500.
Therefore total profit is Rs 8,62,000 per month
From above two alternatives, alternative 2 is best because it give
maximum saving of 8,62,000 Rs.
Conclusion:
From above discussion we conclude that the operations which are
done manually are major source of errors. Also we need improve
the process and to eliminate the source of infection of mangoes in
whole plant.
For waste minimization and optimum yield by using fungicide
company can minimize waste in the process. Because in ripening
section maximum damage is due to fungus infection. And to
reduce that company should use fungicide and at the same time
company can get optimum yield.
Improve labor work practices and develop the process. If we
implement improved labor work practices then company can
minimize the waste. Which include delicate handling of crates,
using hand gloves during sorting, hairs covered, tremed nails etc.
This need clear observation by the supervisor of kind and manner
of working by labor. Good and improved working practices,
developing the process also leads to waste minimization.
Improving the quality
Company should concentrate on quality of the pulp. To improve
quality if it requires small scale investment then company should
do that, because by improving the quality company can increase
the reliability among the customer. Because company had lost
two big contract in the past due to unsatisfaction of customer with
the quality of mango pulp. It is also helpful to remain in the
competition.
Semi-automation of chopping process
It is also advised to set up an auto-slicing machine for unchopped
mangoes this will reduce excess labor cost and will gives
optimum saving in the form of money and labours, at the same
time it will solve the problem permanently
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
27
Convert “Indian Brands” into “Global Brands”
Mr. Abhishek Bandodkar
MBA I Year, Student, PCMRD, Pune
Abstract
In order to make Indian brands a truly powerful brand on the
world map, we need a winning marketing strategy for branding
them.
The present paper attempts to highlight the key differences
between consumer branding and what are their expectations from
the brands they consume.It also explains the benefits of what it is
to play on a global stage. The paper speaks about the current
position of Indian brands in the global scenario.
The core discussion of present paper involves the various brands
that have come to existence from the local market and what it
requires to go global. The paper also discusses why it is so
difficult to global and where is India facing a question mark in
taking a leap. The paper also deals with the fact that how some of
the global market players has been able to beat the local players in
their market by pushing and capturing the consumer to think for
the change.
Going global is not easy especially with high level of
expectations and quality and the consequences one might have to
face if the venture fails.
But opportunity present today is like never before with the world
looking up to a “Rising India” and some of the brands making a
impact and space in the global market it has come as a blessing in
disguise for other brands to rise to the occasion and make a
difference.
Introduction
We have entered into state of flux where everything is so fast and
only constant thing is change. We have entered into a digital era
where digitalization is not limited to communication and
commerce but it touches each and every sphere of our life, even it
is used for global collaboration.
In this highly new inevitable competitive environment,
government, industry leaders and business associations have
realized one thing at the right time that they cannot survive
without playing big and thinking large, because business is fast
expanding in this new world.
INDIAUNBOUND
Indian industry is on a never-before global high. But are the good
times here to stay? Shantanu Guha Ray analyses the homegrown MNC's coming of age. For two successive weeks, two
images reflected the mood of a triumphant India. A smiling Ratan
Tata, alighting after an F-16 sortie on the outskirts of Bangalore,
days after he clinched the $11 billion Corus deal. And a confident
Kumarmangalam Birla at a packed press conference, hours after
the successful $6 billion Novelis bid. There's another in the wings
to complete the troika: Suzlon's Tulsi Tanti is poised to acquire
RE power Systems AG of Germany with a premium-laced, allcash $1.3 billion deal.
If it comes through, it will be a triple whammy, marking India's
decisive break with Socialist-era insularity
Let the world buy in, let us buy out
India has not become very hot with global brand merchants. Not
yet, at any rate. No one is saying that the world will now instantly
recognize an Aditya Birla Group logo on a billboard in
Manhattan or a Tata logo in the periphery of Hyde Park. Too
many in the US and Europe, names like Reliance, Ranbaxy and
Mahindra probably do not even ring a bell. But neither, for that
matter, do other relatively new global giants like Cemex, Galanz
or Embraer.
Let's discuss Novelis. Coming out of Atlanta read 'Hotlanta', the
city synonymous with sizzling business growth it is still low in
the rankings. Its shares jumped almost 13 percent after the buyout
but it didn't make front-page news. According to CNN, even the
lowly Atlanta Journal Constitution barely took notice. But the
success, say experts, lies elsewhere. There will now be a tinge of
Indian money on every six-pack, food can and screw cap Novelis
supplies to customers across four continents. Hindalco will get
access to new technologies and a beverage container market that
kicks around 200 billion cans across the world, not to speak of
bottle closures of every conceivable type. And there lies the royal
highway to capturing the traditionally bottle-oriented Indian
market.
The new Breed of Indian Multinational does not need
Western acceptance to create History.
“It has the confidence to raise funds from international bankers,
the expertise to acquire companies and the capability to manage
large-scale business.” says economist Bibek Debroy. Grant
Thornton estimates Indian outbound deals, which were valued at
$4.3 billion in 2005, crossed the $15 billion mark in 2006. And in
2007, they could cross the $35 billion mark.
“Indian companies are high on organic growth and are going
global also because the home markets do not have the scale or the
resources to allow them to deliver the levels of shareholder value
and competitive advantage they want to achieve. Hence, they
need to tap new profit pools,” says Assocham head Anil K.
Aggarwal, adding: “The Indian MNC has one big advantage. It is
the cost edge, which is the key driving factor that helps produce
the right products for the times and ensures value for the dollar for
28
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
the global consumer.”
The experts are unanimous. Corporate India is on a roll and
Indian companies can now expect a situation somewhat similar to
what the Japanese and the Koreans faced in the 1960s and 70s
from the developed world, which summarily dismissed them as
no-hopers stories will come from a host of Indian companies, all
of them with low-cost, high-quality products and services on
offer not surprisingly, India has 21 such companies with names
like Tata Consultancy, Infosys, Wipro, Suzlon, Ranbaxy,
Hindalco, Reliance, Bharat Forge and Mahindra & Mahindra on
the list. China has 43, including Lenovo, which recently acquired
IBM's PC business, and the China National Offshore Oil
Corporation (CNOOC), which made headlines last year in its bid
to acquire the California-based Unocal.
Together, along with a few other Asian companies, these form
nearly 70 percent of the list of entities poised to become
important 21st-century multinationals, radically transforming
markets and changing trends
India wants to do Business with the World.
Read the mind of Suzlon Chairman Tulsi R. Tanti. Last
December, Fortune 500 Tanti that's his nickname told a few
friends at his home in Pune that he wanted just one-fifth of his
business to happen in India. The rest, he was convinced, would
come from the US, China, Europe and Australia. If the REpower
acquisition comes through, it will be Tanti's second in less than a
year Suzlon acquired Belgium-based gearbox manufacturer
Hansen for 465 million euros in March 2006.
The Magic of the Gen Next Indian Entrepreneur.
In India, no one had heard of Tanti till Suzlon hit the capital
markets with a Rs 1,500-crore initial public offering. Today, the
Pune-based company has a market cap of Rs 37,000 crore and
expected sales of Rs 7,000 crore for 2006-07.
India's outbound aggression is the spin-off of a still very new but
increasingly more easy-going domestic atmosphere. “India has
made significant improvements in reducing the amount of red
tape entrepreneurs' face,” says Caralee McLeish, one of the coauthors of the World Bank's 'Doing Business in South Asia 2007'
report. “It now takes, for example, 35 days to register a business
in Mumbai, compared with 71 days a year ago and 89 days in
2004. But, despite clear improvements in five out of 10 'Doing
Business' indicators, India can do much better.” According to
McLeish, if India adopted best practices, its global ranking would
go up to 79 from the current 134.
Investment bank Mape calls it the coming of age of the Indian
multinational company, a syndrome where Indian buyers have
become a force to be reckoned with in many industries such as
pharma, auto components, oil and gas.
Suddenly, no one is talking of the great Indian middle class. That
was what they did in the 1990s. “This is the time to take
advantage of low costs and widely-available natural resources to
make India the ideal exports hub. And, if you look around you,
you'll see that's what is happening across the country,” says
Debroy. “Global giants are shopping in India, so are Indian
companies abroad.”
Indian Brands have Global market potential
A study undertaken by McKenzie projected the potential in the
confectionery industry in India at over Rs 5,000 crore per annum
whereas the current turnover is around Rs 3,000 crore.
"For achieving this potential there is a need to upgrade the
technology in the confectionery industry. Presently, the industry
is not viable. The main issue before our industry is the very high
rate of excise duty, which could not be passed on to the
consumers because the products are sold in the price range of 25
paise, 50 paise and one rupee.
The reservation of the industry to the small-scale sector and
imports at much under-valued prices are allowed freely under
Open General License, seriously impacting the domestic
players," M N Rao, Secretary, Indian Confectionery
Manufacturers Association (ICMA) told Food & Beverage
News.
Rao also said that it is very important that the industry should
have reasonable margins. Unfortunately, the industry is not doing
very well because of the high excise duty.
In an interview with Food & Beverage News Stefano Pelle, VicePresident and COO, Business Unit Russia and South Asia,
Perfetti Van Melle said, "In the past, most of the Indian
confectionery companies were local players with the
unorganized units dominating the market. Entering the Indian
market in 1994, we have come a long way by becoming the
undisputed market leader in the Indian sugar confectionery
market with the widest range of products in our portfolio with the
largest distribution network.
At present the domestic market is extremely intense in
competition. The presence of multinational companies, global
leaders in confectionery, large Indian companies and small-time
manufacturers have added to the competitive spirit in the Indian
market. In this situation we look forward to strengthening our
existing brands and adding new brands to the list. We intend to
improve our existing realization, introducing high price packs
and enriching our product mix."
Indian Brands Impacting Foreign Market
"We have created some brands here in India such as Cofito, which
is being exported to Italy. Also, we are manufacturing this brand
in Vietnam. There is a potential to export Indian confectionery
brands to the global market provided the quality of the brands has
international certification of ISO 14001, HACCP, etc. Indian
manufacturers will have to equip themselves with these
certifications. We are, at present, exporting to South-East Asian
countries, Philippines, Afghanistan and Myanmar from India,"
Pelle added.
He also believes that the Indian confectionery industry has the
capabilities in respect of quality to meet the international
standards.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
29
About the export potential of Indian confectionery products in
the competitive global market, Rao says that the country is a
major producer of sugar in the world, the basic raw material of the
confectionery industry.
bid to that of Japanese companies: “perhaps the most important
ingredient in the success of Japanese companies was their ability
to think global and create entities and brands that could scale up
to global size.”
This is a very positive aspect for manufacture of confectionery
items, which could compete in the global market. To be a regular
exporter of confectionery there is need for up gradation of
technology as well as addition of new capacity to attract the
deregulation of the confectionery sector and restructuring of the
excise duty will go a long way in achieving the objectives and
create capacity for export.
The “Made in India” Brand
Where are Indian Brands on the Global Stage?
I believe its not the right time for an Indian company to explore
the potential of global market because at first these Indian
companies need to leverage and capture opportunities created
within Indian economy. Once this huge opportunity created by
burgeoning middle income group backed by increasing level of
disposable income is fulfilled, then only it makes sense to enter
global arena. That's why branding exercise is restricted to Indian
boundaries only.
Undergoing such an exercise will even help Indian companies to
study various facets of consumer behaviors, technological
expertise and scale of operations required to serve global
markets.
Hence, it's a learning curve for Indian organizations which will
help them in creating solid information base to face competition
from other global players.
Though a few brands have started making their presence felt
significantly in their respective sectors, e.g. Infosys, WIPRO in
IT sectors, but a lot more is required to be done in other sectors.
Had the survey been done on specific sectors, many Indian
organizations would have been there in study outcomes
specifically in IT and petrochemicals.
The day is not far away when Indian companies will make other
global organizations a run for their money
Can Indian Brands make it Global?
Bollywood, Bangalore, IT and ITES, Ranbaxy, Infosys, Hero
Honda, all are Indian brands with international presence. The
segment does not matter; it's the India brand that seems to be
catching on. Or is it? With leading industry players like Mukesh
Ambani, Kumar Manglam Birla and many others espousing the
notion of “Brand India” and Indian global brands leaving
footprints across segments spanning services, manufacturing,
culture and knowledge, consensus is that time has never been
more right for Indian brands to debut on a global stage.
Can Indian companies take on the challenge to build brands that
scale up to global eminence?
Charles Berley Jenarius, group CEO, Carat India says, “We do
not have a culture of creating brands. It is simply a case of lack of
imagination and ambition”. Years of closed economy led to
inefficiencies and a lack of brand building mindset, he says.
Sandeep Goyal, CEO, Dentsu India, compares the Indian global
Historically, the “Made in India” brand has been associated with
poor quality and inefficiency. Strategic use of the country of
origin is an enabler. For instance, brands out of Italy are instantly
identified with art and design making it much easier for a Bulgari
or Armani to gain global acceptance as international style czars.
Alternatively, as Professor LD Mago, IIFT points out China's low
cost, low quality image has made it difficult for Chinese brands to
gain global acceptance as being high quality, high technology
brands.
When, for instance, he went to Malaysia TV sets with the same
attributes and quality and with the same brand name sold at vastly
different prices of $ 235 and $527. The cheaper one had been
assembled in China, while the other had been assembled in
Malaysia itself. “The image of the Indian pharma industry abroad
was not very good at the time we started our expansion,” DS Brar,
CEO and MD, Ranbaxy has said. He had a tough time convincing
foreign companies to do business with an Indian company. He
recalls how a CEO of a global pharma company kept him waiting
for over 6 hours before granting an audience. That was largely
how global companies treated brands from India those days.
Today, however, when Deepak Kapoor, executive director, PWC
attended the international meet for employees, the officially
allocated time of 7 minutes for a Q&A session extended to over
35 minutes till paucity of time and waiting presenters forced
organizers to ask those asking questions to call it a day.
Fortunately, Indian brands like Hero Honda, Bajaj and Tata have
started gaining acceptance in international markets for their
quality products. Indian service sector too has started
transforming its work profile from being low quality BPOs to
high quality Knowledge Process Outrsourcing (KPO) centres.
But the Indian government can do more to promote Brand India
as a credible brand.
Distinction and Differentiation are key parameters for
creating global brands.
But Indian companies have been pushing “Mass” labour
advantage more over its “Distinct” knowledge advantage. Going
ahead, the focus needs to be more on innovation and knowledge.
Says Mr. Kapoor of PWC, “India is perceived to be better on the
innovation curve than China. We need to leverage this factor
more.”
Mr. Jenarius gives the example of Korean brand LG and
Samsung as pointers to customer focus: “LG and Samsung,
adapted to the needs of the Indian customer to emerge as market
leaders. They have beaten the domestic Indian companies like
Onida and Videocon, once market leaders, in their own markets.”
Quality is an issue as well. S.C.Sehgal, MD, Ozone Ayurvedic,
whose Nomarks brand is sold in 30 countries, points out: “The
30
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
customers in western countries are more demanding in terms of
quality. One cannot get away in international markets by
providing substandard products.”
Herbals and VLCC have announced big expansion plans and are
looking at investing anything between Rs 150-300 crore (Rs 1.5
to 3 billion) within the next three years.
India's internal environment vis-à-vis, infrastructure, regulations
and ethical practices are also impediments to making our brand
global.
Even though Shahnaz Husain admits to having lost "leader place"
in the beauty products segment in India, hers is the only Indian
company to find place in UK's Harley Street where she recently
opened the ShahnazAyurvedaAesthetic clinic.
Take the case of out IT city brand, Bangalore, or travel brand,
Incredible India. Both are struggling due to poor quality of
infrastructure in India. Most travelers to Bangalore complain of
the time consumed in traveling via the city's congested road
network. Tourists, too arrive to find infrastructure that takes the
credible out of “Incredible”.
With almost 100 overseas centers, she now plans to open a chain
of Shahnaz Forever Beautiful lifestyle shops across Britain and
with the estimated $100 million turnover a year, that shouldn't be
a very tough task. The company is in talks with three foreign
companies for further investments.
FEW IMPRINTS TO QUOTE:
Expectations from global brands
M&M Expands Overseas Business
Consumers all over the world associate global brands with three
characteristics and evaluate them on those angles while making
purchases.
MAHINDRA & MAHINDRA (M&M) has entered into a
contract with the Government of Gambia to supply tractors along
with matching implements. The company is going to set up a
satellite plant that will assemble these tractors and to offer sales
and after-sales service. It is the first commercial venture that the
tractor company has signed with anAfrican country.
The company has also expanded its tractor business in China
(acquiring 80 per cent stake in Jiangling Motors to set up
Mahindra China Tractor), set up a branch office in Australia and
launched its East European operations starting with Serbia and
Montenegro.
Expanding their automobile business on the global front, the
M&M has introduced the Scorpio range in Sri Lanka
ENERGY & POWER
Suzlon Bags Two Orders worth Rs 345 cr from Italy and Portugal
SUZLON Energy AS (SEAS), the Denmark-based international
business headquarters of wind turbine energy manufacturer
Suzlon Energy Ltd. has bagged two orders worth Rs 345 crore for
a total of 61 MW from Italy and Portugal.
The company is now all set to focus on untapped European
markets such as France and Greece for potential business, the
Chairman and Managing Director, Shri Tulsi R. Tanti, said
adding that 40 per cent of the company's revenues would come
this year from export business.
The company has signed a contract with Maestrale Green Energy
of Italy for 21 MW and has already signed a contract with
Portugal's Technologies Energeticas, SA, for 39.9 MW of wind
turbine capacity, for a wind farm project in the Penamacor region.
The orders will be delivered from the last quarter of the current
fiscal with all supplies, barring the tower, to be from India, Shri
Tanti said.
Indian beauty brands eye global markets
Beauty and India are almost synonymous. With India going
places, Indian beauty brands are also eyeing the global market
and also creating greater demand in the domestic market.
With that in mind, beauty and wellness majors Shahnaz Husain
Quality signal
Consumers watch the fierce battles transnational companies
wage over quality and are impressed by the victors. One likes
[global] brands because they usually offer more quality and
better guarantees than other products.” That perception often
serves as a rationale for global brands to charge premiums.
Global brands “are expensive, but the price is reasonable when
you think of quality,” say consumers. Consumers also believe
global companies compete by developing new products and
breakthrough technologies faster than rivals.
Global myth
Consumers look to global brands as symbols of cultural ideals.
They use brands to create an imagined global identity that they
share with like-minded people. Transnational companies
therefore compete not only to offer the highest value products but
also to deliver cultural myths with global appeal. “Global brands
make us feel like citizens of the world.
They somehow give us an identity,” say consumers. “Global
brands make you feel part of something bigger and give you a
sense of belonging,” Local brands show what we are; global
brands show what we want to be,” were some other views.”
Myths are now spun by virtually all global brands, in industries as
diverse as IT and oil.
Social responsibility
People recognize global companies wield extraordinary
influence, both positive and negative, on society's well-being.
They expect them to address social problems linked to what they
sell and how they conduct business.
Consumers vote with their checkbooks if they feel that these
companies are not acting socially responsible. “I still haven't
forgiven Shell for what they [did] with that oil rig, says a
consumer. While consumers don't demand that local companies
tackle global warming, but they expect giants like BP and Shell to
do so. People may turn a blind eye when local companies take
advantage of employees, but they won't stand for transnational
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
players like Nike and Polo adopting similar practices.
Going Global is Tough
The main reason what stops the local players from playing big in
the global market could be listed down as following:
Perceived loss of control
first cater to domestic market and then take on foreign ones. And
for our brands to create a global impact the market is already open
but do we have it in us to take the leap and go the distance still
remains a mystery unsolved.
References:
1. Research and Development Statistics: 2004-05, Department of
Science and Technology.
Existing market structures
Response of entrenched competition
2. India Brand Equity Foundation Report on “Going Global
Indian Multinationals”.
Political risk
3. Anholt Simon (2004), Nation Brands, Chiefly speaking,
Strategic Marketing, Vol.III, no.III, May-June, p.27.
No deep understanding of local markets
Cultural issues
Conclusion:
We have the potential and global perception has also started
falling in place. But do we have it in us to nurture this opportunity
and make the world our oyster to capture. It is not necessary to
4. Keith Fletcher (1995), Marketing Management and
Information Technology, Europe: Prentice Hall, second edition,
pp 138-139
FEEDBACK
T
31
he National Seminar theme “Challenges and Strategies for the
Indian industry in the Emerging Global Economic Scenario” was
very relevant.
To be honest the organization of conference and the various arrangements
(Registration Counter/Technical Sessions & other) done by the team of
PCMRD were very professional and perfect.
The email correspondence with participants was very prompt and perfect.
Besides everything the hospitality and food (especially lunch) was excellent.
Thank you,
Khan M. A. Imran
Vice Principal, Millennium Institute of Management, Aurangabad
32
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Sensory Branding
Prof. Sunil Kumar
Director PCMRD, Pune
Abstract
Branding plays a very vital role in today's competitive
environment. It has emerged as the face of any product; it is the
brand that makes the consumer connects to the product. With
market pacing up due to rapidly increasing technological
changes and providing the consumer with a wide array of
choices, it has not only become essential for the brands to be
unique to attract customers but also to retain them .
The World of Sensory Branding has emerged as a powerful tool
by which a brand can clearly distinguish itself from other brands
and position itself appropriately. The important aspect is that
Sensory Branding creates an impact in the minds of the customer
that is difficult to erase and it is this impact which makes them
“Brand Loyal” and the “Brand Royal”
Introduction
The impact of branding is quite evident especially with the fact
that the consumer today is becoming very brand conscious. The
most important issue remains to be addressed is - What makes the
brand so essential?
Brand is valuable both- the “Marketer” and the “Consumer”. The
marketer makes sure that he potrays his brand in the best possible
way to the consumer. The role that Brands play is to enable a
company's products to come out of the Brand clutter in an
increasing competitive environment.
Why do Brands matter?
Brands impact the customer in such a way that customer feels that
the brand is an integral part of them. Some customers are so brand
conscious that they demand the brand irrespective of the price at
which it is available because they start associating themselves
with the brand.
There are a large no. of advertisements and promotions and to
make things more complex for the Marketer there are a large
numbers of media outlets also that are made available to both - the
Consumers and Marketers.
advertising has to be backed up by a strong message strategy and
a sound message is the one that conveys a benefit which the
consumer can experience- which again takes us back to the realm
of competition where there is hardly any perceivable difference
between one branded product and the other !
Role that Brands play
Brands impact two players the most, it's the manufacturer and
consumer. Let us look at this situation from two different angles
and see how brands affect them.
From the Manufacturer's view point- Brands have the
following important roles to play:!
!
!
!
!
!
Means of Identification to simplify handling or tracing
Means of legally protecting unique features
Signal of quality level to satisfy customers
Means of endowing products with unique associations
Source of competitive advantage.
Source of financial returns
From the Consumer's view point- Brands have the following
important roles to play:!
!
!
!
!
!
It helps in Identifying of the source of the product
Helps in reducing the risk during a purchase process
Reduces search cost
Acts as a Promise, bond or pact with maker of the product.
Acts as a symbolic device and
It becomes a signal of quality
Marketers must therefore identify and execute creative ideas that
are
!
!
unique and
attractive
Brand-builders need something NEW!!!
World of Sensory Branding!
Breaking this cluttered environment is extremely difficult. It is
hard to pay any attention to your brand and harder still to form a
meaningful association.
Having seen how a brand can impact the consumer and the
market, one would have realized by now that it is essential that
the brand creates a lasting impact in the minds of the consumer.
When you feel any product and if your experience is good the
brand creates an attachment for the product.
To Stand Out - Brands need to be Focused and Unique
The five senses that play a vital role in branding are:
One of the ways is to have a clear positioning. But is it really
sufficient?
!
!
!
!
!
In reality, Brands need to be creative in the market to attract
attention. Another way is to argue that good advertising can
possibly provide the real solution.But we know that good
Sound
Sight
Smell
Touch &
Taste
33
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Sensory Branding Sound
We open Jars/Cans of
packaged food in full
expectation of hearing
the 'click'. It signifies
hermetically sealed
contents being opened
for the first time. Our
senses inform us of our
surroundings. They
inform and influence our entertainment and buying experiences.
Much of our understanding of our environment is informed by
our senses. In turn, our experiences inform our senses, the senses
being linked to memory.
Our senses play a major role in our experience and choices of
brands / products. Sensory branding is the idea which states that
brands should engage consumers on a variety of touch points.
Lately, “Sound” has become an important aspect for Sensory
Branding. A sound strategy in which the customers react with
feelings when music and voices are present.
Examples of Sound expressions are jingles, music and voice
Intel - The BRAND sense research revealed a 56%awareness of
the Intel tune worldwide!!
7 Up - The sound of opening your 7Up can changes your warm
sunny environment into a cool and fresh, rainy place!!!
Coke - Consider the Familiar sound of fizzing Coke being poured
into an ice-filled glass..!!!
Lays - Lays focuses on the enormous crack of the chips- in their
TVAds
Often it is also the consumers' ability to recall scents and odors
that leads to increasing brand equity. This is what prompts
marketers for very famous companies to create what are called
the “corporate smells” to fit the “corporate logo”.
Here are a few examples to quote:
SingaporeAirlines
Asia's leading airline -Singapore airlines introduced Stefan
Floridian water (aroma designed especially for Singapore
airline).
Scent blended in the hot towels served before take-off,
kaleidoscope of smooth , comfortable memories, reflecting the
more obvious customer service and quality efforts of the
SingaporeAirlines.
Shopper's Stop
If you go to the Ladies Floor in Shoppers' Stop there is a distinct
smell that comes that makes an impact on the customer, and
attracts the customer towards the counters. As a result, the
women end up spending more time in that area.
Other Examples
Samsung, for instance, has a signature scent in its corporate
offices in New York,
High-end retailers such as De Beers Diamonds have their own
unique scents.
Automotive manufacturers spraying cars with concocted smellRolls Royce now emits a scent of “Old Rolls” from under the seat
of its new cars.
Sensory Branding Taste
A Taste strategy differentiates
a brand and offers surplus
values to customers.
Therefore the advertisements
for food are very much
focused, next to the visual
image. Taste and smell are
closely interlinked
The sound impact is so effective it feels like cracking your
television screen !!
Crispy sounding chips become the embodiment of a fresh and
tasty product !!!
Kellogs - Kellogg's has spent years experimenting with the
synergy between crunch and taste
Kellogg's has invested in the power of auditory stimuli,
Testing the crunching of cereals in Danish sound laboratories in
order to upgrade their product's
'sound quality' and link it with the
brand signature.
Sensory Branding Smell
Smell is one of the most important
of five senses. Teenagers' sense of
smell is 200% stronger than that of
adults beyond middle age. Given
the fact that the children influence
an amazing 80% of parents'
purchases, appealing to the senses
of smell becomes increasingly
important.
AFew Examples to quote:
Colgate has patented their distinct toothpaste taste.
Coffee / Tea / biscuits which is being given to customers can be
custom made in taste….
If you are a food retailer, then you can look at 1000 ways to make
your taste stay in the customer's HEAD
Sensory Branding Sight
A sight strategy requires some different look when all visual
changes are
discovered by
the viewer. Sight
is generally held
to be the most
powerful of the
34
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
human senses.
It is the sense that brand builders and marketers have traditionally
concentrated on. Shapes, sizes, colors, intended to differentiate
the product, and impart a particular emotional feel to the product.
Little blue, diamond-shaped pill becomes jewel in the
Pharmaceutical company Pfizer's crown.
In Auto industry also shapes play a vital role.In many car models
shape has become the defining feature.
Beetle, Mini and military inspired Hummer are some such
examples.
in 1915, the brief was simple.
The bottle should be distinctive enough to be recognized. The
outcome - the classic curved coke bottle which is still used in the
markets the world over, and has been posing the smash test for
almost 90 years now.
Sensory Branding - Touch
This is the only sense which has physical connection with your
product! Skin is the largest organ in the body which alerts us to a
sense of well being or pain.
One major reason online clothes shopping never took off .
General rank order of sensory importance (varies by
category )
60%
Recognize these brands …….
50%
40%
30%
Sensory
Importance
20%
10%
0%
Taste Sight Smell Sound Touch
Conclusion:
Branding plays a vital role in today's market especially when a
wide range of choice is provided to the consumer.
Other Examples
Coke
T h e
classic
example is
of Coke.
When the
c o k e
bottle was
designed
The purposeful design and deployment of interaction between
the senses, to stimulate a consumer's relationship with a brand,
and to foster a lasting emotional connection that optimizes
purchasing and brand loyalty.
There are a large no. of advertisements and promotions. Large
numbers of media outlets are now available to consumers.
Sensory branding has therefore emerged as a vital field because
when you feel with your senses, it registers in your mind
permanently and leaves a lasting impact on an individual. Be it
the taste of a particular consumable commodity or fragrance of a
particular deodorant or the sound of a mp4 player, it's the feel
good attitude which your senses experience that makes you brand
loyal towards that particular brand and it makes the consumer
come back to it again and again.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
35
Challenges & Strategies of IT Industry
In Emerging Global Scenario
Ms. Vishakha Bhide, (B.E. MBA 1st year) I B M R D
Mr. Ranjan Kumar, (B.Sc. MBA 1st year) I B M R D
Abstract
! Employess(Sep 09)
105,453 from 73 Nationalities
Globalized production of IT hardware and software led to lower
prices during the 1990s, prompting IT investment and
transformation. While IT was disruptive to businesses and
workers alike, its influence on them and their successful response
to that influence were key to higher trend productivity growth
and the associated “trifecta” of faster income growth, lower
inflation, and more employment “Globalization” refers to
quantitative and qualitative expansions in transborder flows of
activities and ideas. These include financial flows, such as the
one trillion dollars of finance capital that circulates daily or
cultural ones.
! Market Cap(Sep 09)
$27.80 Billion
! GlobaL Presences:
58 Sales Offices
The stock prices of leading Indian tech companies have been
battered in recent weeks. Investors are skittish over rising
inflation and higher interest rates that could tap the brakes on
growth globally. But there's no sign India's companies
themselves are losing strength. Software Services including
business consulting and outsourcing through ongoing processes
and frameworks.
Infosys is uniquely positioned to be your enabling partner in the
journey toward global sourcing and achieve high returns on your
IT and business process investments in global scenario.
INTRODUCTION TO INFOSYSASACASE STUDY
Challenges & Strategies for the Indian Industry in the Emerging
Global Economic Scenario is based on the
Regionalism,Liberalisation,Government policy of the particular
country. In this paper , largest IT company in India with 105,453
professionals as of Nov 9, 2009 ; Infosys Technologies Limited
is a information technology services company headquartered in
bangalore, India. It has offices in 22 countries and development
centers in India, China,Australia, UK, Canada and Japan.
According to Global Business
VISION
Infosys Technologies (China) Company Ltd. will be the best-inclass provider of business solutions to Global 2000 companies
and large North Asian corporations by leveraging the technology
and talent base of China.
MISSION
Infosys strive to be a source of pride to its employees and a
partner of choice for their clients.
An Overview
! LTM Sept 2009 Revenues /5 Year CAGR $4.57 Billion/29%
! LTM Sept 2009 Net income /5 Year CAGR$1.28 Billion/32%
57 Global Development Centres
Operating in 31 Countries
Business Model: Next Generation Business Model Combining
best of consulting & Global delivery
REASONS FOR CHOOSING INFOSYS
The audited financial statements have been taken on record by
the Board of Directors at its meeting held on April 15, 2009.
There are no Qualifications in the auditors' reports for these
periods. The information presented above is extracted from the
audited financial statements as stated. financial statements as set
out in the Accounting Standard on Consolidated Financial
Statements mandated by Rule 3 of the Companies (Accounting
Standards) Rules, 2006, the provisions of the Companies Act,
1956 and guidelines issued by the Securities and Exchange Board
of India.
The financial statements of the parent company and its
subsidiaries have been combined on a line-by-line basis by
adding the book values of like items of assets, liabilities, income
and expenses, after eliminating intra-group balances and
transactions and resulting unrealized gains / losses. The
consolidated financial statements are prepared by applying
uniform accounting policies.
36
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Strategy and approach to market
Strengths
Strategy:
Since the company is based in India its competitive advantage is
enhanced. The Indian economy, despite weak economic
indicators such as relatively high rates of inflation, has low labor
costs. The workforce has relatively high skills levels in
Information Technology. Couple these two elements together
and you have an operational basis that offers low-cost based,
highly skilled competitive advantage. Trained Indian personnel
often speak very good English and are sensitive to Western
culture, underpinned by India's colonial past.
To have superior revenue growth and margins relative to the
industry.
! Have end-to-end service capability, deep vertical penetration,
and broad geographical footprint.
! Increase revenue productivity and build long-term scalability
by creating industry specific solutions, platforms, IP etc.
Approach to market:
! Cross-selling of services
! Vertical focus to create industry specific competencies
! Investing in the business
Infosys is in a strong financial position. The business turned over
more than $4 billion in 2008. This means that it has the capital to
expand, and also the basis to leverage potential investors.
! Cross currency movement
The company has bases in 44 global development centres, most
of which are located in India, although the company has offices in
many developed and developing nations. This means not only
that Infosys is becoming a global brand but also that it has the
capability to support the global operations of multinational
clients.
Long-term challenges
Weaknesses
! Resource availability
Infosys on occasion struggles in the US markets, and has
particular problems in securing United States Federal
Government contracts in North America. Since these contracts
are highly profitable and tend to run for long periods of time,
Infosys is missing out on lucrative business. Added to this is the
fact that its competitors do well in terms of securing the same
Federal business (and one should also take into account that
many of its competitors are domiciled in the US and there could
be political pressure on the US Government to award contracts to
domestic organizations).
Challenges Faced By Infosys:
Short-term challenges
! Uncertain economic environment
! Ability to expand addressable market
! Wage inflation
! Stronger rupee
! Increase in tax rate
MAKING BRAND GLOBAL
Infosys tapping niche markets by dividing their product into
industries, BPO services, Consulting services, Engineering
Services, Products and Platforms etc.
Infosys has office across the globe: Atlanta, Bangalore, Beijing,
Bellevue, Bridgewater, Bhubaneswar, Brussels, Charlotte,
Chennai, Detroit, Frankfurt, Fremont, Hong Kong, Hyderabad,
Lake Forest, Lisle, London, Mangalore, Mauritius, Melbourne,
Milano, Mohali, Mumbai, Mysore, New Delhi, Paris, Phoenix,
Plano, Pune, Quincy, Reston, Shanghai, Sharjah, Stockholm,
Stuttgart, Sydney, Thiruvananthapuram, Tokyo, Toronto,
Utrecht, and Zurich.
SwotAnalysis of Infosys
Infosys is one of the largest businesses in India with a turnover in
excess of $4 billion in 2008. The company specializes in
Information Technology (IT) and consulting. N.R. Narayana
Murthy and six others started the company in 1981, and it is now
the largest IT Company in India with its headquarters in
Bangalore (although it was started in Pune). It employs more than
90,000 IT professionals and was famously rated 'Best Employer
in India.' It operates in a number of business sectors from banking
to retail, and its services tend to encompass end-to-end IT
solutions which includes a whole bundle of added-value
solutions from infrastructure to software engineering.
Despite being a huge IT company in relation to its Indian
competitors, Infosys is much smaller than its global competitors.
As discussed above, Infosys generated $4 billion in 2008, which
is relatively low in comparison with large global competitors
such as Hewlett-Packard ($91 billion), IBM ($91 billion), EDS
($21 billion) andAccenture ($18 billion).
It is sometimes argued that Infosys is weaker when it comes to
high-end management consultancy, since it tends to work at the
level of operational value creation. Competitors such as IBM and
Accenture tend to dominate this space.
IMPACT ON BANKING SECTOR
The business impacts of information technology
(IT),deregulation and globalisation on the structure and
profitability of the international banking industry is analysed.
Information technology creates new opportunities for the banks
in the way they organize product development, delivery and
marketing. However ,IT also allows other financial and even
non-financial organisations to start offering bank services.
Deregulation both within countries and across national
boundaries allows increased international competition between
banks, financial and non-financial organisations. Bank markets,
in general, are also becoming more international(Ref. to IEEE
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Computer Society).
! Enhance ROI
DEMOCRATICANDAUTHORITARIAN BALANCE
! 4.Global 500 and Fortune 1000 IT Spending
One of the biggest unknowns and one of the greatest concerns is
whether IT enhances or eviscerates democracy. Writers like
Toffler believe that the “Third Wave” Information Revolution
brings widened and positive potentials for citizens to be
interconnected to one another and to their government (Toffler
1980). For developing
! Trend setters for the rest of the business world
37
! Combined It spend represents 40%of global IT spending
! IT budget constitutes 2.3% of $20 trillion combined revenues
! (Source : Gartner 2007;Deutsche Bank Securities;NASSCOM)
Which things making Infosys Successful?
countries especially, where the hidden hand of corruption and
manipulation is so corrosive, some argue the Information
Revolution can make government internal processes more
transparent to the citizenry (Talero 1997).
Brand Extension
IT seems to affect democracy and bottom-up political
expressions in a variety of ways. In summary, new IT seems to:
! Brand extension is using the leverage of a well known brand
name in one category to launch a new product in a different
category.
multiply the channels through which groups can express
themselves (faxes, E-mail, etc.); evade government controls;
promote competition among different channels; encourage the
easier and cheaper creation of content which can be produced by
local or grass roots groups; and permit linkages among
geographically separated groups that may share a common
political ideal, objective, or interest.
(Ref. to Rockfeller Brothers Fund via project on World Security) .
Opportunities
At a time of recession in the global economy, it may appear that
some companies will reduce take up of services that Infosys
offers. However, in tough times clients tend to focus upon cost
reduction and outsourcing - with are strategies that Infosys offers.
So hard times could be profitable for Infosys.
There is a new and emerging market in China as the country
undergoes a huge industrial revolution. The strategic alliance
between Infosys and Schlumberger gives the IT company access
to lucrative business in the gas and oil industries.
1. Global Mega Trades
! Asia-New “center of gravity” for the world
! Brand Extension refers to the use of a successful brand name to
launch or modified product in a same broad market.
! Brand extensions are a critical growth strategy and source of
revenue for the firm. It is one of their most valuable assets.
! This is important in the Indian context where the media and
related communication costs are escalating significantly.
Abrand name can be extended in three ways:
i) Extended to other items in the same product line.
ii) Extended to items in a related product line.
iii) Extended to items in unrelated product line.
Brand extension of Infosys
a) Industries
b) Consulting services
c) Engineering services
d) BPO services
e) IT services
f) Products and Platforms etc.
Line Extension
! “Geography becomes History” with reduced
telecommunication costs
Line extension provide a convenient route for infusing new
values into an ongoing brand and gaining presence in new market
segments; extensions thus bring new incomes.
! Technology-the supreme enabler
Line extension of Infosys:-
2.Infosys Transformation Partner
A) Line Extension of Industry
! Differential access to highly educated, cost-competitive
human capital.
! Aerospace &Automotive
! Leading the next-generation Business Model and investing in
innovations and business solutions.
! Automobile
! Airline
! Reducing scalability with modular global infrastructure.
! Banking and capital market
3.Outsourcing Benefits
! Communication services
! Convert fixed costs to variable
! Consumers packaged goods
! Reduce TCO
! Discrete manufacturing
! Improve competitiveness
! Education
! Improve time-to-market
! Energy
38
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
! Health care
! Legal Services ]
! High technology
! Sales and Fulfilment
! Hospitality & Leisure
! Sourcing and Procurement Outsourcing
! Insurance
Conclusion:
! Life sciences
! Publishing
! In the word of globalisation of IT Industry, Infosys plays a role
model for earning more profit during recession. Making new
source for end-to-end service capability, deep vertical
penetration, geographical footprint etc. to overcome globalise
market challenges.
! Resources
References: -
! Retail
1. Marketing Management By Philip Kotler(12 edition)
! Studios & Networking
2. M a r k e t i n g M a n a g e m e n t B y V. S . R a m a s w a m y,
th
S.Namakumari (4 edition)
! Manufacturing
! Logistics & Distribution
! Utilities
th
B) Line Extension of Function
3. Business Strategy by ICFAI
! Business Platforms
4. www.infosys.com
! Customer Service Outsourcing
5. www.google.co.in
! Finance andAccounting
6. www.wikipedia.org
! Human Resource Outsourcing
7. Business Standard Reviews
! Knowledge Services
39
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Cost Benefit Analysis for Long Term Investments
w ith Respect to Infrastructural Projects
Prof. Aniruddha Thuse
MKSSS's Smt.Hiraben Nanavati Institute of Management and Research, Pune
! The costs and benefits considered under CBA are tangible as
well as intangible.
Abstract
Key Words:
*Strategic Finance * Financial Performance
Criteria *Social Cost Benefit Analysis.
Investment
* Investment*Returns on
An investment in Infrastructure projects is the long term
investment made by the Government.
Cost Benefit Analysis is a tool of strategic cost management
which enables organization to determine Returns on long term
investments in more efficient manner. The technique helps to
identify the costs and the benefits of the projects in detail. CBA
also considers the costs and benefits which are intangible and
uncontrollable. However the expenses and revenues which are
intangible by nature are extremely difficult to estimate, the CBA
makes this manageable through the application of sensitivity
analysis and some other tools. CBA focuses on decision making
of costs which have to be incurred on the long term investment
projects. The decision making is either 'to incur' or 'not to incur' a
particular cost in that project.
This research paper is inclusive of the following key objectives.
! It is a strategic tool of cost management which performs as a
path of getting high revenues at the low cost.
! It enables to differentiate the costs as 'necessary' and
'unnecessary'.
CBAand Cost Classification
Tangible Costs: These types of costs can be easily identified
and more or less controllable.
Intangible Costs: Which are difficult to identify and due to this
uncontrollable. E.g.,
Physical hazards arising due to flood, fire, strike, lockout etc.,
Economic risks such as competition, change in fashion, import
restrictions, higher prices of inputs etc,
Political risks such as change in Government policy, political
unrests, wars etc,
Technological risks such as change in design, knowledge and
application.
Cost Classification w.r.t Long Term Investments
1. To check the feasibility of present techniques of CBA for the
performance analysis of long term investments say investments
in infrastructure projects.
Tangible Costs
Purchase/Acquisition Cost.
2. To determine the financial performance measurement criteria
by way of Returns on long term investments, by using the CBA
technique.
Installation Cost.
3. Conceptual understanding of the concept- Social CBA
Introduction
What is CBA?
Cost Benefit Analysis (CBA) is the sophisticated technique in the
cost management. CBA is defined as, 'An analytical tool in
decision making which enables a systematic comparison to be
made between the estimated cost of undertaking of project and
the estimated value and benefits which may arise from the
operations of such a project'.
In simple words, CBA is the technique of evaluating the
expected benefits which are to be derived from the expected
costs associated to that particular project. The technique builds
up close relationship between expenditure and revenue.
About CBA
! It is a monetary assessment of the project.
! It is a comparative tool of costs and benefits.
Intangible Costs
Cost incurred due to change
in technology of operations
or change in market trend.
Maintenance Cost.
Processing Charges.
Project Valuation Cost.
Cost related to Working Capital
of investment.
Cost arises due to delay in
completion of the project.
Other costs (depending upon the
type of investment).
Five Step Model of CBA
In order to introduce CBA in the operations of the corporate, the
following procedure has to be adopted. It is called
Five Step Model of CBA
Step 1: In this step, all the costs (especially activity wise) have to
be listed and analyzed. It is a Cost Analysis.
Step 2: In this step, the activity wise Contribution in terms of
benefits (income) has to be done. It is a Contribution Analysis.
Step 3: It is essential to clarify the exact cause behind the costs
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
40
which have to be incurred. (to which we are saying 'necessary
costs'). In such a case, the questions can be asked like,
Scope of CBAin Long Term Investment
1.
To decide investment criteria.
1. Is it really essential to incur this/these cost/s?
2.
To forecast future risk and uncertainty.
2. If essential, what are the expected Benefits from the
incurring?
3.
To focus on problems like environmental and social.
4.
To determine transfer price and opportunity cost of the
project.
5.
To determine proper cost of capital and cash flows of the
project
3. If not essential and to be eliminated (to which we are saying
'unnecessary costs') would it affect the
productivity/quality/output/revenue of the project?
4. If partially essential, what would be the portion of partial?
It is called Benefit Analysis.
Step 4: The Cost Reduction Program has to be developed
specifically for the unnecessary costs, which considers the
following,
! These costs do not contribute anything in the Benefit of the
project
! These costs do not show recovery feature.
! These costs do not show output feature.
! It is called a step of Cost Reduction.
Step 5: The Profit Improvement Program has to be developed.
The supportive in this program are
About Infrastructure Projects
1.
Highly capital intensive
2.
Huge sunk costs
3.
Long operating life
Procedure and Techniques of CBA
1.
Discounted Cash Flows: In simple words, cash flows are
the estimated revenues of the investment proposal over the
expenditure (cost) to be incurred on the same. The future
cash flows are always uncertain and due to this, these cash
flows have to be estimated by considering the time value of
money which is reducing as the period passes on. The
formula for estimating the Discounted Cash Flows is,
! Sources (existing and new) which generate additional
income.,
Estimated Net Cash Flows * Present Value Factor
! Costs which are reduced in existing activities.
The Cash Outflows are more or less tangible and are estimated
easily up to certain extent. If we see the following list of Cash
Outflows, we could test their nature with subject to their
tangibility.
! It is called a step of Profit Improvement.
CBAApplication to Long Term Investment Proposals
The corporate and public sector undertakings usually go for long
term investments in the following types/areas of projects.
1. Buying of fixed assets like plant, building and machinery.
2. Buying of financial assets like bonds, debentures and shares
for longer tenure and of huge amount.
3. Undertaking of projects like road or bridge
constructions and other infrastructure projects.
4. Providing economic services like electricity, gas,
telecommunication and water.
5. Corporate combines like mergers, acquisitions etc.
6. Other programs undertaken by the corporate such as
advertisement, research and development, warehousing
chain etc. for which the long term strategic decision making
is essential.
CBA is to be applied in case of the long term investment
proposals to decide,
1.
Which would be the best alternative proposal of investment
among multiples?
2.
Which time duration or period is the best for investment?
3.
Whether to or not to invest in particular proposal?
(Cash Inflow over Cash Outflow)
Cash Outflows in Long Term Investment Proposals.
Items
Nature
Acquisition Cost
Tangible
Research and Development
Intangible
Government Expenditure
Manpower Expenditure
Expenditure on Electricity,
Water, Land etc.(for physical
assets investment)
Installation, Maintenance etc.
Tangible
Tangible
Tangible
Tangible
Benefits can be
derived by way of
Selection of proper
mode
Proper survey and
study
Subsidies and others
Hiring skilled people
Selecting proper
location
Proper supervising
Cash Inflows in Long Term Investment Proposals
Items
Nature
Physical and monetary output
Unsystematic
derived from the use of fixed assets
Disposal of fixed assets
Systematic
Returns on financial investments
Systematic in certain types
(shares, bonds etc.)
(bonds, fixed income securities
etc)
Loans and advances granted
Systematic
Receipts from Future, Forward and
Relatively Systematic
Options contracts
Net Working Capital recovered
Unsystematic
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
2. Internal Rate of Return: An ascertainment of Internal Rate of
Return (IRR) is significant in long term investment decisions.
The time value of money method may be used to ascertain IRR of
the project. In simple words, IRR is the rate at which net cash
inflows become equal to net cash outflows (expenditure =
revenue).
*Suppose, Rs.100000 are invested in a project, then what rate
equalizes Rs.100000 as cash inflow?, that rate has to be
calculated. It is IRR. It should be noted that the IRR is the trial and
error type of technique as different discounting factors have to be
tried out for its calculation. For accepting the project, the IRR
should be more than the cost of capital of the project (which has
to be calculated separately.) The IRR technique is used to prove
the efficiency of the funds invested in the project. When IRR is
equal to Cost of Capital of the project, the marginal efficiency of
it is proved
Graphical Interpretation of IRR
Periodic Cash Inflows
41
equity and preference shareholders and the company itself (in
case of retained earnings.) The earnings of all these groups are in
form of interest and dividend.
But in case of equity finance and retained earning, the exact
estimation of cost of capital is not possible as these sources may
not provide any fixed returns over a period of time. In fact, the
cost of retained earnings itself is the main determinant of cost of
equity finance.
The cost of capital indicates the risk-return relationship of the
investment. A degree of risk defines and demands the degree of
returns on the investments. The financers of the investment
always expect minimum benchmark returns on their investments.
In fact, the long term investment projects should yield more cash
inflows than the Weighted Average Cost of Capital (WACC, the
overall cost of capital of all the sources which used to finance the
project).
Risk Return Relationship in various long term investments
Investment- Rs.100000
Rs.15000
CoC
IRR
Rs.12000
Rs.25000
Rs.35000
Rs.43000
10% 12%
0
Discounting Rates (trial and error basis)
Cost of Capital:
In case of the long term investments, the term cost of capital
refers to the minimum required rate of return (RRR) from that
investment. It is the rate, the investment must earn in order to
cover the cost of funds which are financed for that investment.
Let us see an example. A company has to acquire machinery
worth Rs.500000 and for this purpose; it has taken a bank finance
of Rs.500000 @ 11% p.a. Here the company incurs Rs.55000 p.a
(11% to Rs.500000) as interest on loan borrowed. It would be the
benchmark cash inflow that the machinery must provide by way
of its output to the company.
The flow can be expressed as follows,
Bank
Firm
(Investor) (Borrower)
Machinery
(Investor)
Interest (Cash Inflow) - Interest (Cash Outflow)- Output (Cash Inflow)
Cost of Capital
Otherwise the investment in machinery should be terminated.
The firm can raise funds for its investment through various
sources of finance such as bank finance, debt finance, equity
finance, preference share capital and through internal sources
(retained earnings) also. So the cost of capital can be defined as
the minimum rate of return which is expected to be earned by
the financers of the company like bankers, debenture holders,
The above graph shows the risk return relationship in various
modes of long term investments.
1. The financial assets (shares, bonds, securities etc.) show
relatively less but systematic risk and the returns. The cost of
capital is in well control.
2. However, in case of the physical assets, the cost of capital is
high, the returns are unsystematic and due to this the risk factor
is also high.
3. The investment in Infrastructure projects takes longer
period for generating the returns. The same thing is
experienced in case of the investment in mergers and
acquisitions (corporate combines). Both these types of
investments are future oriented investments (start getting
returns in future period) and the speed of returns is slow.
4. Net Present Value (NPV): NPV can be considered as the true
measure of the profitability of investment. For accepting the
project, the NPV must show positive recovery of discounted
cash inflows over a period of time. If Rs.100000 are to be
invested in a project for a period of 5 years, then the discounted
cash inflows during that period should be more than
Rs.100000. Otherwise the project should be rejected.
The simple formula of NPV is,
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
42
NPV = Present Value of Cash Inflows (-) Net Cash Outflows
Where,Present Value of Cash Inflows = Net Cash Inflows *
Present Value Factor
charges (periodically payable for raising the funds externally.),
Mortgage costs, Insurance cost etc.
While implementing these 4 techniques in the long term
investment, one should not neglect the realistic assumptions
attached to the techniques. The implementation of Cost of
Capital, IRR and NPV can be proved accurate only after
considering following assumptions,
5. Contingencies: The investment in long term projects (say
Infrastructure projects) is based on certain assumptions. These
assumptions are mainly concerned to the cash inflows and returns
on the investment over the period. The presence of such
assumptions makes CBA application more difficult. The
contingencies have to be ascertained through proper research and
survey in order to minimize the negative variances, which may
arise in the forecasted cash inflows.
1. The investor is able to ascertain the exact cash inflows for the
future period.
2. The techniques like IRR are based on trial and error working.
3. The certainty of Cost of Capital is guaranteed. It is the same
rate to be used as the discount rate for calculating the present
value of cash inflows.
There are some other costs which are unavoidable and have to be
considered in the ascertainment of cash inflows. The costs like
taxes, depreciation and interest on loan are the key areas in this
ascertainment. These 3 costs affect the amount of forecasted cash
inflows up to great extent.
4. Working Capital Margin
The major difficulties take place in the application of CBA is due
to the contingencies. The contingencies are more in case of the
'complex' investment projects. Now days, the investments in
insurance and mutual funds show a complexity (as far as the
returns criteria is considered). Such a complexity has taken place
due to the multiple choices of portfolios.
CBAModel for Contingencies.
(-) Depreciation
Suppose Rs.500000 to be invested in a project for over a period of
7 years with uniform cash inflows of Rs.85000 p.a at expected
return @10%, then by calculation, IRR is approximately 5%
(trial and error basis)
=Profit after Depreciation before Interest and Tax (PADBIT)
Here two assumptions are,
(-) Interest on Loans
=Profit before Tax (PBT)
1. Cash inflows are forecasted on uniform basis and on aggregate
basis.
(-) Tax
2. No impact on inflation on the cash inflows.
=Profit after Tax (PAT)
If we consider the inflation factor in this example, then we take
inflationary rate at 5% (which is the standard expected rate of
inflation in India). Now the cash inflows are forecasted as
follows,
Profit before Interest and Tax (PBIT)
(+) Depreciation = Net Cash Inflows
The impact of these items on the net cash inflows can be
expressed as follows,
A
B
C
D
E
Profit
Depr.
Depr.
Interest Tax
@50%
on
Loan
50000
50000
50000
50000
3000
2500
1500
4500
11250
4500
2000
0
17875
21500
23250
22750
3000
2500
1500
4500
F
Impact of item
on Net Cash
Inflow
Net Cash
Inflows
(A-B-C-D+E)
20875
24000
24750
27250
High Interest
High
Depreciation
The long term investment projects involve some costs in case of
which the CBA application becomes very vital but at the same
time very difficult. These costs are the managed costs (the budget
of which is decided by the management of the organization)
1. Knowhow and Consultancy Charges.
2. Expenditure on special training to workers for using new
technology.
3. Preliminary and Pre-operative Expenses: These expenses
include Investigation fees, Service charges, Commitment
Years Cash
Inflows
(Rs.)
1
85000
2
85000
3
85000
4
85000
5
85000
6
85000
7
85000
Inflation
Rate
compounded
1.05
1.10
1.16
1.21
1.28
1.34
1.41
Cash Inflows
at Inflation
(Rs.)
89250
93500
98600
102850
108800
113900
119850
After considering the inflation rate, the aggregate net cash
th
inflows at the end of 7 year are Rs.726750. Here IRR would be
(after trial and error) 10%.
During the period 2008-09, India have experienced 'Cost induced
Inflation' (continues rise in price level of goods and services
without any strong reason). In such type of inflation, the input
costs are always increasing but the productivity is stagnant. The
long term capital investments (plant, machinery, land etc.) have
to be managed by considering two vital factors i.e depreciation
43
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
and cost of capital. During the inflation,
attractive commercial returns in financial sense. But the costs
incurred are always financial. The goal of such kinds of projects
is national profitability and not the commercial profitability.
1. Cost of capital increases.
2. Depreciation provides additional tax benefits.
The social CBA is termed as the technique of ascertaining the
national profitability of the projects.
Concept of Capital Rationing
When multiple projects are to be undertaken for investment, the
capital rationing process provides justification about the
allocation of funds to all these projects in such a way that the
returns on investment could be maximized. The capital rationing
can be explained as follows.
Social Cost Benefit Model for Public Sector Undertakings
Costs
Borrowings and
Interest costs for
projects
The Capital Rationing Model for different projects in one
organization
Sr.No Investments
1
2
3
Net
Cash
Outflow
(Rs. In
Crore)
Net
Cash
Inflows
IRR Cost of
Capital
NPV
(Rs.in
Crore)
%
%
(Rs.)
Ranking
Nature Benefits
Direct
Direct
Construction
Direct
Fixed Asset
Financial
Assets
Other
Innovative
Projects
Governments
contribution by
financial help
Nature
Power and other
charges
Employment can
be generated
through the
projects
Indirect
Direct
Other costs to be
incurred for pollution
control, environment
maintenance etc.
Indirect
Total
Growth and
development in
inter region
businesses
In the given example, the organization has following options for
ranking.
Indirect
1. Select only one project. (1 or 2 or 3of the above) with criteria
of,
In Social CBA, the costs and benefits are classified as direct and
indirect.
A) High NPV
The benefits in these types of investments are of two types,
B) Positive NPV
1.
Benefit to the promoter in monetary sense.
C) IRR and Cost of Capital are equal or IRR > CoC
2.
Benefit to community in real sense.
2. Select any combination of 2 projects.
The social CBA gives weightage to the indirect and hidden costs
and benefits. This is the key feature of social CBA. The costs can
be further classified clearly according to their tangibility,
significance and value.
(1 and 2, 1 and 3 and 2 and 3)
Criteria and
Combination
NPV
1 and 2
1 and 3
High
Positive
2 and 3
Negative
IRR to
Cost of
Capital
Equal
IRR >
C.o.C
IRR <
C.o.C
Ranking
Infrastructure Projects CBA
Accept II
Accept I
The cash outflows and cash inflows (categories) in infrastructure
projects are listed out as follows,
Reject
Land/area acquisition
Business/communication development
Government formalities
Employment generation
It means, the combination 1 and 3 is acceptable for investment as
it gives positive NPV, and IRR is excess to Cost of Capital. The
minimum returns are possible in inflationary situation also. To
conclude, capital rationing is a useful technique in contingencies
and in complex investment decisions.
Concept of Social Cost BenefitAnalysis (Social CBA)
The Government and public sector undertakings like
infrastructure development, transportation and irrigation are the
key areas on which the focus is given in current year's Union
Budget program. These are the long term (very long term)
investment projects. The returns on these types of investments
are to be ascertained by keeping in mind the social welfare, social
growth and social development. The commercial profitability
has second ranking. These types of projects may not offer
Land development and erection
Savings in time and transport
Natural environment damages
Pollution increase
Scope of Social CBA in Community Development in India
(with reference to Union Budget Program 2009-10)
The scope of Social CBA applied in the Government projects can
be explained as follows,
1.
The Government has planned to invest significant funds in
the infrastructure projects.
2.
The Government is looking for additional opportunities of
employment particularly in rural and semi urban areas.
3.
The current fiscal deficit is declared 6.7% to GDP and it is
proposed to reduce in subsequent years to 4%.
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
44
Scope of Social CBAin Micro Finance Institutions (MFI)
Indian MFIs are planning to raise Rs.1000 crore Debts in current
year through Non Convertible Debentures (NCD) and
Commercial Papers (CP). It would the good opportunity of
investment for Indian mutual funds and insurance companies.
The MFIs cannot collect direct savings from people so they have
to depend upon financial markets for their funding. The banks, on
the other hand, charge relatively high interest on loans to MFIs.
The NCD rates are lower (upto 11-13%) than the bank interest
rates.
Likewise the MFIs are looking for Private Equity (PI) also. Very
recently Bajaj Allianz have announced strategic investment of
Rs.50 crore in SKS MFI. So Bajaj Allianz is the first insurance
company to invest in MFIs.
References:
!
Financial Management-(Text and Cases) by Brigham and
Ehrhardt
!
Cost Management by Ravi Kishore
!
Projects by Prasanna Chandra
FEEDBACK
H
ats off to PCMRD team for conducting such a brilliant National
Seminar, right form the selection of Topic, which was on current
issues. The Planning of seminar was good especially the resource
persons right from Mr. Vijay Bhatkar to others, Specialists always prove to be
an asset in motivating the students/researchers attending the event.
I hope such events become a regular affair with PCMRD.
I on behalf of Dept. of Commerce,Dr. Babasaheb Ambedkar Marathwada
University, Aurangabad wishes you very best of luck in your furture
endeavours.
Thanking you,
Dr. Syed Azharuddin
Associate Professor, Dept of Commerce;
Dr. B A M University Aurangabad, (m) 9422214865
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
45
Merger and Acquisitions
to Exploit Future Opportunities
Prof. Vimala Ramsinghani
Prof. Reena Joshi
Vyas Institute of Management, Jodhpur (Rajasthan)
Introduction
Mergers andAcquisitions in India
Mergers and acquisitions are two broad types of restructuring
through which managers seek economies of scale, enhanced
market visibility, and other efficiencies. A merger occurs when
two companies decide to combine their assets and liabilities into
one entity, or when one company purchases another.
The process of mergers and acquisitions has gained substantial
importance in today's corporate world. This process is
extensively used for restructuring the business organizations. In
India, the concept of mergers and acquisitions was initiated by
the government bodies. Some well known financial
organizations also took the necessary initiatives to restructure the
corporate sector of India by adopting the mergers and
acquisitions policies.
The term is often used to describe a merger of equals, such as that
of Daimler-Benz and Chrysler, which was renamed
DaimlerChrysler (see case study).
The term “acquisition” simply refers to one company's purchase
of anotheras when a smaller target firm is bought and absorbed
into a larger acquiring firm.
Patterns
The worldwide M&A
market topped US$4.3
trillion and over 40,000
deals in 2007. Figure 1
depicts the growth of
M&A activity, quarter
by quarter, over the last
five years.
There are different factors that played their parts in facilitating
the mergers and acquisitions in India.
The nature and scope of
M&A activity has
changed substantially over time. In the United States, the Great
Merger Movement (1895 to 1905) was characterized by mergers
across small firms with little market share, resulting in
companies such as DuPont, Nabisco, and General Electric.
More recently, globalization has increased the market for crossborder M&As. In 2007 cross-border transactions were worth
US$2.1 trillion, up
from US$256
billion in 1996
Figure 2. Global M&A market 2007share by region.
(Source: Thomson Financial)
The Indian economic reform since 1991 has opened up a whole
lot of challenges both in the domestic and international spheres.
The increased competition in the global market has prompted the
Indian companies to go for mergers and acquisitions as an
important strategic choice. Till recent past, the incidence of
Indian entrepreneurs acquiring foreign enterprises was not so
common. The situation has undergone a sea change in the last
couple of years. Acquisition of foreign companies by the Indian
businesses has been the latest trend in the Indian corporate sector.
The immediate effects of the mergers and acquisitions have also
been diverse across the various sectors of the Indian economy.
Transnational
M&As have seen
annual increases of
as much as 300% in
China, 68% in
India, 58% in
Europe, and 21% in
Japan.1 The
regional share of
today's M&A
market is shown in
Figure 2.
1. Favorable government policies,
2. Buoyancy in economy, additional liquidity in the corporate
sector, and
3. Dynamic attitudes of the Indian entrepreneurs are the key
factors behind the changing trends of mergers and acquisitions in
India.
Mergers andAcquisitions in different sectors in India
Sector wise, large volumes of mergers and mergers and
acquisitions in India have occurred in finance, telecom, FMCG,
construction materials, automotives and metals. In 2005 finance
topped the list with 20% of total value of mergers and
acquisitions in India taking place in this sector. Telecom
accounted for 16%, while FMCG and construction materials
accounted for 13% and 10% respectively.
In the banking sector, important mergers and acquisitions in India
in recent years include the merger between IDBI (Industrial
Development bank of India) and its own subsidiary IDBI Bank.
The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian
currency).
Another important merger was that between Centurion Bank and
Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian
currency), this merger led to the creation of the Centurion Bank
46
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
of Punjab with 235 branches in different regions of India.
In the telecom sector, an increase of stakes by SingTel from 26.96
% to 32.8 % in Bharti Telecom was worth $252 million (Rs. 10.9
billion in Indian currency). In the Foods and FMCG sector a
controlling stake of Shaw Wallace and Company was acquired by
United Breweries Group owned by Vijay Mallya.
This deal was worth $371.6 million (Rs. 16.2 billion in Indian
currency). Another important one in this sector, worth $48.2
million (Rs 2.1 billion in Indian currency) was the acquisition of
90% stake in Williamson Tea Assam by McLeod Russell India In
construction materials 67 % stake in Ambuja Cement India Ltd
was acquired by Holcim, a Swiss company for $634.9 million (Rs
27.3 billion in Indian currency).
M&A activity is on the rise in the Indian IT industry with the last
couple of years having seen a few large mergers and acquisitions.
Whether it was the merger of Polaris with OrbiTech or Wipro's
acquisition of Spectramind and GE Medical Systems
Information Technology (India) or Mphasis BFL's acquisition of
a Chinese firm, mergers and acquisitions in the Indian IT industry
are here to stay and more are expected to follow in the near future.
Why do Indian IT companies opt for M&A?
The size factor
Many companies have undertaken M&A to grow in size by
adding manpower and to facilitate overall expansion. The
Polaris-OrbiTech merger saw a spurt in the merged entity's
revenues from $60 million to $125 million. The merger also
added 1,400 employees to Polaris, taking the total employee
strength to 4,000.
Similarly, for Bangalore-based vMoksha Technologies, the logic
behind the acquisition of two US-based companies, Challenger
Systems and X media, was to increase in size by widening its
customer base. Pawan Kumar, chairman and CEO of vMoksha
Technologies says, “The size of a company does matter when
interacting with customers and clients. These acquisitions added
120 people to our staff.”
The acquisition of China-based Navion software helped Mphasis
BFL increase its employee strength by 85 people and expand its
business in the region. Similarly, when software services giant
Wipro acquired BPO player Spectramind, it helped the company
expand into the BPO space.
In the same vein, Bangalore-based Mascot Systems' acquisition
of US-based eJiva and Hyderabad-based Aqua Regia enhanced
the company's value proposition and made it globally
competitive. With the acquisition of eJiva and Aqua Regia, the
total employee strength of Mascot Systems increased from 1,700
to 2,000.
To gain new customers
One likely reason behind M&A has been to gain new customers.
Polaris Software had six major customer wins after it acquired
the Intellectual Property Rights (IPR) of OrbiTech's Orbi suite
framework of banking solutions.
vMoksha also saw a rise in the number of its customers (four new
customers) due to acquisitions as it expanded considerably in the
US market and leveraged on the existing customer base. Mphasis
also added new customers in the Japanese and Chinese markets
after the acquisition of Navion.
The need for skill set enhancement
The need for skill set enhancement seems to be a major reason for
companies to merge and make new acquisitions. The PolarisOrbiTech merger helped in combining skill sets of both
companies, which in turn led to growth and expansion of the
merged entity
While Polaris Software was looking for a specialised product
suite, OrbiTech was looking forward to efficient marketing and
service support for its products. Post-merger, Polaris got the Orbi
suite framework and combined it with its service expertise to win
more customers. After the merger, Polaris has become a large,
specialised company in the banking, financial services and
insurance (BFSI) space, offering solutions, products and
transaction services. Polaris has had some recent post-merger
wins, including ABN-AMRO Bank, Kuwait Commercial Bank
and Deutsche Leasing.
Wipro acquired GE Medical Systems Information Techno-logy
(India) to leverage its specialisation in the health science domain.
The intellectual property that Wipro acquired from the medical
systems software company provided it with a platform to expand
its offerings in the Indian and the Asia-Pacific healthcare IT
market. Similarly, when Wipro acquired the global energy
practice of American Management System and the R&D
divisions of Ericsson, it acquired skilled professionals and a
strong customer base in the areas of energy consultancy and
telecom R&D.
vMoksha Technologies' acquisition of two US-based companies
helped it to increase its size, and leverage on the expertise of the
acquired companies. Says Kumar, “One of the acquired
companies is very strong in banking and we leveraged this factor
to gain some good banking customers.”
Likewise Bangalore-based Mascot Systems was benefited by the
technical expertise of eJiva and Aqua Regia, the two companies it
recently acquired. The acquisition also helped Mascot to extend
its offerings through a portfolio of complementary services,
technologies and skills.
Expand their market reach into new geographies
Many Indian companies have carried out acquisitions and
mergers to expand their reach in international markets and
to spread across different geographies.
Mphasis BFL, through its acquisition of Navion software wants
to expand its operations into the Chinese and Japanese markets.
Ravi Ramu, Mphasis BFL's group chief financial officer of says,
“The need for developing a near-shore centre for the Japanese
market triggered this acquisition. Besides this, we plan to tap the
skilled labour force in China to improve our prospects in the
region. We also plan to tap the local market at a later stage and use
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
the Chinese base as an alternative centre for our offshore services
in the region.”
Similarly, vMoksha Techn-ologies after acquiring the two USbased companies has cemented its base in the US market and
plans further expansions from here. Adds Kumar, “With the
acquisitions, we also expanded our reach in the US market
besides India. Since the majority of workforce in the acquired
companies was Indian, integration was much easier and smooth”
47
achieve economies of scale, as well as garner market share.
Mergers and acquisitions in the banking sector have the capacity
to ensure efficiency, profitability and synergy. They also help to
form and grow shareholder value.
In some cases, financially distressed banks are also subject to
takeovers or mergers in the banking sector and this kind of
merger may result in monopoly and job cuts.
As study shows due to globalization & liberalization, merger &
acquisition are very important method for the future of
companies who want to increase their market access and desire to
present itself globally.
Deregulation in the financial market, market liberalization,
economic reforms, and a number of other factors have played an
important function behind the growth of mergers and
acquisitions in the banking sector. Nevertheless, there are many
challenges that are still to be overcome through appropriate
measures.
Future perspective for banking sector
Future perspective for Pharmaceuticals
For example Mergers and acquisitions in banking sector have
become familiar in the majority of all the countries in the world.A
large number of international and domestic banks all over the
world are engaged in merger and acquisition activities. One of the
principal objectives behind the mergers and acquisitions in the
banking sector is to reap the benefits of economies of scale.
There are a number of opportunities for the major pharmaceutical
products and services providers in the Indian pharmaceutical
sector as the price controls have been relaxed and there have been
significant changes in the medicinal requirements of the Indians.
The manufacturing base in India is also strong enough to support
the major international pharmaceutical companies from the
performance perspective.
Future Perspective
With the help of mergers and acquisitions in the banking sector,
the banks can achieve significant growth in their operations and
minimize their expenses to a considerable extent. Another
important advantage behind this kind of merger is that in this
process, competition is reduced because merger eliminates
competitors from the banking industry.
Mergers and acquisitions in banking sector are forms of
horizontal merger because the merging entities are involved in
the same kind of business or commercial activities. Sometimes,
non-banking financial institutions are also merged with other
banks if they provide similar type of services.
Through mergers and acquisitions in the banking sector, the
banks look for strategic benefits in the banking sector. They also
try to enhance their customer base.
In the context of mergers and acquisitions in the banking sector, it
can be reckoned that size does matter and growth in size can be
achieved through mergers and acquisitions
quite easily. Growth achieved by taking
assistance of the mergers and acquisitions in
the banking sector may be described as
inorganic growth. Both government banks
and private sector banks are adopting
policies for mergers and acquisitions.
In many countries, global or multinational
banks are extending their operations through
mergers and acquisitions with the regional
banks in those countries. These mergers and
acquisitions are named as cross-border
mergers and acquisitions in the banking
sector or international mergers and acquisitions in the banking
sector. By doing this, global banking corporations are able to
place themselves into a dominant position in the banking sector,
This may be said as the Indian pharmaceutical market is varied as
well as economical. It is expected that in the coming years the
Indian pharmaceutical companies would be executing more
mergers and acquisitions. It is expected that the regulated
pharmaceutical markets in the United States and Europe would
be the main areas of operation.
The pharmaceutical sector offers an array of growth
opportunities. This sector has always been dynamic in nature and
the pace of change has never been as rapid as it is now. To adapt to
these changing trends, the Indian pharmaceutical and
biotechnology companies have evolved distinctive business
models to take advantage of their inherent strengths and the
"Borderless" nature of this sector. These differentiated business
models provide the pharmaceutical and biotechnology
companies' the necessary competitive edge for consolidation and
growth.
In the recent years the Indian pharmaceutical companies have
been venturing into mergers and acquisitions so that they can
gain access to the big names of the international pharmaceutical
scenario.
48
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Mergers and acquisitions can be accretive in that they increase
financial performance, or dilutive in the reverse case, where a
measure such as earnings per share (EPS) actually falls.
In implementation, M&As typically face the following critical
issues:
Incompatible corporate cultures: The cultures of the two
companies may be inconsistent, resulting in resources being
diverted away from the focal synergies.
Business as usual: The target company may allow redundant
staff and overlapping operations to continue, thwarting
efficiency.
High executive turnover: The target company may lose critical
top management team leadership. A recent study reports that
target companies lose 21% of their executives each year for at
least ten years following an acquisition (twice the turnover
experienced in nonmerged firms).
Neglect business at hand: A recent McKinsey study reported that
too many companies focus on integration and cost cutting, and
neglect the daily business at hand and customers.
Before the Merger
1. Begin by formulating a clear and convincing strategy.
Strategists must first develop a compelling and sustainable
strategy. Key questions include: What is your firm's strategy?
What role does the M&A play in this strategy? What is the vision
of the strategy of the new entity?
2. Focus on target & the deal. Prior to signing a memo of
understanding, managers should examine operational and
management issues and risks. Seek answers to the following
questions: Is this the right target? What is the compelling logic
behind this deal? What is the value? How would we
communicate this value to the board of directors and other key
stakeholders? What will our strategy be for bidding and
negotiations? How much are we willing to spend? If we are
successful, how can we accelerate integration?
3. Do your due diligence. Executives must acquire and analyze as
much information as possible about potential synergies. In
addition to managers across key functional areas in the firm,
outside experts can be brought in to help appraise answers in the
preassessment, and especially to challenge assumptions, by
asking questions such as:
Are our estimates of future growth and profitability rates
reliable? Are there aspects of the company history/culture or of
the environment (for example, legal, cultural, political,
economic) that should be taken into account?
when executives can convincingly discuss integration plans, both
internally and externally. Managers should be prepared to answer
the questions identified above, as well as: How can we prepare
our people psychologically for the deal? What value will be
created? What are the priorities for integration? What are the
primary risks? How will progress be measured? How will we
address any surprises?
After the Deal
6. Establish leadership. The new entity will require the quick
identification and buy-in of managers, especially at top and
middle levels. Ask: Who will lead the new entity? Do we have
buy-in and support from the right people?
7. Manage the culture and respect the employees of the
merged/acquired company. An atmosphere of respect and
tolerance can aid the speed and ease of integration. Executives
should formulate plans that address the following concerns: How
can we encourage the best and brightest employees to stay on in
the new entity? How can we build loyalty and buy-in?
8. Explore new growth opportunities. Long-run performance is
linked to identifying and acting on both internal and external
growth opportunities. Managers should seek out any untapped
growth opportunities in the new entity.
9. Exploit early wins. To build momentum, the new entity should
actively seek early wins and communicate these. To identify
them, consider whether there early wins in sales, knowledge
management, or the work environment.
10. Focus on the customer. To survive, firms must create value for
customers. Managers must continue to ask: Are we at risk of
losing customers? Are our salespeople informed about the new
entity? Can our salespeople get our customers excited about the
new entity?
Conclusion:
During the last two decades, the financial landscape around the
world has undergone dramatic changes following a wave of
financial liberalization, globalization and removal of restrictions
on cross-border trading activities.
Analysis
Analysis suggests that only 19% of the respondents state that they
do not believe in M&A and 81% look at it as a part of strategy or
will look at it opportunistically. M&A is definitely a key
agenda for India Inc
4. Devise a workable plan. Formulate plans that take into account
some of the following: What is our new entity's organizational
structure? Who is in charge? What products will be taken
forward? How will we manage company accounts? What IT
systems will we use?
M&A transactions are often pursued in order to acquire a larger
share of an existing market, enter new markets, eliminate
competitors, acquire expertise or assets, transfer skills, save
costs, increase efficiencies or capitalise on synergies.As
technologies mature and high rates of growth become more
difficult to achieve, many companies include acquisitions as part
of their strategies to maintain growth, augment their product
lines, obtain new technologies, and remain vital.
5. Communicate. M&A transactions tend to be viewed favorably
M&Aas a part of Business Strategy
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
No, We do not believe
in inorganic Stragegy
19%
49
Tools to Support M&A Integration at Every Level. San Francisco,
CA: Jossey-Bass, 2007.
Miller, Edwin L. Mergers and Acquisitions: A Step-by-Step
Legal and Practical Guide. Hoboken, NJ:Wiley, 2008.
Sadtler, David, David Smith, and Andrew Campbell. Smarter
Acquisitions: Ten Steps to Successful Deals. Harlow, UK:
Pearson Education, 2008.
Yes
49%
Websites:
It is Opportunistic
32%
References:
Google Scholar articlessearch on terms “mergers and
acquisitions” or “M&A”: scholar.google.com
Yahoo! Finance M&Anews: biz.yahoo.com/topic/m-a
Books:
Bruner, Robert F. Deals from Hell: M&A Lessons That Rise
Above the Ashes. Hoboken, NJ: Wiley,
2005.
Notes
1 Firstbrook, Caroline. “Transnational mergers and acquisitions:
How to beat the odds of disaster.” Journal of Business Strategy
28:1 (2007): 5356.
Galpin, Timothy J., and Mark Herndon. The Complete Guide to
Mergers and Acquisitions: Process
FEEDBACK
I
t was indeed a commendable effort by PCMRD to organise a
National Seminar on such a large and grand Scale. The
Speakers were very Knowledgeable and from varied
Backgrounds, which made every talk quite Interesting one and kept
us waiting for what is coming next.
The entire arrangement was Excellent. Right from day one the
Organisation, hospitality, food was quite apt and it was a great
pleasure for me to be a part of such a grand Seminar.
I congratulate PCMRD on successful completion of this Seminar and
look forward to many more such events from them.
-Dr A K Vashisht
Prof. University business School, Punjab University,
Chandigarh
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
50
MERGERS & ACQUISITIONS (M&A)
A Tale of Indian Telecom Industry
Prof. Khan M. A. Imran
Vice Principal, Dr. Rafiq Zakaria Campus, Millennium Institute of Management, Aurangabad &
Dr. Syed Azharuddin
Reader, Dept of Commerce,Dr. Babasaheb Ambedkar Marathwada University, Aurangabad
Abstract
Even though mergers and acquisitions (M&A) have been an
important element of corporate strategy all over the globe for
several decades, research on M&As has not been able to provide
conclusive evidence on whether they enhance efficiency or
destroy wealth. There is thus an ongoing global debate on the
effects of M&As on firms. Mergers and acquisitions have
become common in India today. However, very little appears to
be known about the long-term post-merger performance of firms
in India, and the strategic factors that affect this performance.
Our study attempts to fill this gap in knowledge about M&As in
India.
Even though mergers and acquisitions (M&A) have been an
important element of corporate strategy all over the globe for
several decades, research on M&As has not been able to provide
conclusive evidence on whether they enhance efficiency or
destroy wealth. There is thus an ongoing global debate on the
effects of M&As on firms. Mergers and acquisitions have
become common in India today. However, very little appears to
be known about the long-term post-merger performance of firms
in India, and the strategic factors that affect this performance.
Our study attempts to fill this gap in knowledge about M & As in
India.
The paper focuses on the following:
1. Scope of Merger &Acquisition,
be known about the long-term post-merger performance of firms
in India, and the strategic factors that affect this performance.
Our study attempts to fill this gap in knowledge about M&As in
India.
The phrase "Mergers & Acquisition" refers to the aspect of
corporate strategy, corporate finance and management dealing
with the buying, selling and combination of different company
that can assist, finance or help a growing company in a given
industry, grow swiftly without having to create another business
entity.
In case of a merger, two firms come together to form a new
company. The operations of both entities merge as a single
operation. Besides this, the customer and employee base also
unify, as in the case of Arcelor-Mittal, the world's largest steel
manufacturer. The company was formed in 2006 after the merger
ofArcelor with Mittal Steel.
In the case of acquisition, one company takes the ownership of
another company after paying the price for it to the owners or
shareholders of that company. The acquired company becomes
the subsidiary of the buyer company. Thus the company that
acquires, gains complete control of the firm it buys. “In case of an
acquisition, you are a big company and you are acquiring a small
company. For instance, if A buys B, then A will remain, B will
vanish. Take the case of HDFC purchasing Centurion Bank of
Punjab.
2. Mergers & Acquisitions (M&A) In Indian
Telecom Industry
3. M&A Case Studies
4. Whether M&A In Indian Telecom Were
Successful
5. When Merger And Acquisition Promise Fails To
Deliver
6. Trends in Telecom Merger andAcquisition
Introduction
Even though mergers and acquisitions (M&A) have been an
important element of corporate strategy all over the globe for
several decades, research on M&As has not been able to provide
conclusive evidence on whether they enhance efficiency or
destroy wealth. There is thus an ongoing global debate on the
effects of M&As on firms. Mergers and acquisitions have
become common in India today. However, very little appears to
Every company aspires to grow both organically and
inorganically. The M&A is considered by many as a quick way to
expand by adding new customers and more revenues and profits.
It could also emanate from the desire to enter newer geographies
that are more promising. It is important to have compelling
reasons to go in for an M&A and that it would meet the desired
results. Sometimes, a poor performance by a company could
make its promoters feel that an M&A could help them rake in
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
profits. This would be one of the worst reasons to acquire or
merge with another entity. Sometimes just to take on the
competition, one might want to go in for M&A. This strategy
might work but only if it is supported by other good reasons such
as a significant value addition to the current business.
“One should not do an acquisition only for the sake of doing it.
Every M&A should mean something. It should either bring in
new technology or new customers or footprints into new
geographies, a new market or a better team,” says Thunuguntla of
SMC Capitals. “Most M&A (98 percent of them) globally have
failed,” he adds. This is because most of them are done in haste
and without assessing proper synergies, he adds.
Scope of Merger &Acquisition
M&A has become a daily transaction now-a-days. Mergers and
acquisitions are vital part of capital market activity in
restructuring a corporation and had lately become one of the
preferential routes for expansion and consolidation. The reasons
to merge, amalgamate and acquire are diverse, ranging from
acquiring market share to restructuring the corporation to mount
up global competition. One of the largest and most complicated
parts of a business merger is the successful integration of the
enterprise networks of the merger partners. The main objective of
each firm is to gain profits. M&A has a great scope in sectors like
steel, aluminum, cement, auto, banking & finance, computer
software, pharmaceuticals, consumer durable food products,
textiles etc.
Mergers & Acquisition have become very popular throughout the
world in the recent times. This has become popular due to
globalization, liberalization, technological developments &
intensely competitive business environment. Mergers and
acquisition are a big part of corporate finance world. This process
is extensively used for restructuring the business organization. In
India, the concept of mergers and acquisition was initiated by the
government bodies. The Indian economic reform since 1991 has
opened up a whole lot of challenges both in the domestic and
international spheres. The increased competition in the global
market has prompted the Indian companies to go for mergers and
acquisitions as an important strategic choice. The trends of
mergers and acquisitions in India have changed over the years.
The immediate effects of the mergers and acquisitions have also
been diverse across the various sectors of the Indian economy.
Mergers & Acquisitions (M&A) has developed into the mainly
vital strategic element driving business growth and intensity.
Mergers and acquisitions will continue to be an ever-present
attribute of the current corporate landscape. Merger and
acquisition (M&A) hold uniformly diverse sets of people,
processes and technologies with the common aim of creating a
larger, unified organization. The organization aims to benefit
from the synergies of mixing organizations by consolidation,
rationalization and incorporation of the people, processes and
technologies of both organizations.
But the interesting point here is that upwards of 60% of these
mergers fail to deliver on share holder expectations. The
reasonable and prudent question then becomes why these
51
mergers fail to deliver on the promised or projected results.
The logical and sensible issue then becomes why these mergers
fail to deliver on the promised or projected results. The answer
often times is quite simple; it is a direct result of the
amalgamation process not being carefully thought with respect to
the indirect impacts of changing a business unit. The mindset
here is often that when companyAbuys company B that they rush
in to change all policies and procedures to more closely meet
their business model. At face value that would appear to be the
intelligent course of action however little thought is given to what
they are about to change and the implications that follow.
Mergers &Acquisitions (M&A) In Telecom
India has become a hotbed of telecom mergers and acquisitions in
the last decade. Foreign investors and telecom majors look at
India as one of the fastest growing telecom markets in the world.
Sweeping reforms introduced by successive Governments over
the last decade have dramatically changed the face of the
telecommunication industry. The mobile sector has achieved a
teledensity of 14% by July 2006 which has been aided by a
bouquet of factors like aggressive foreign investment, regulatory
support, lower tariffs and falling network cost and handset prices.
M&A have also been driven by the development of new
telecommunication technologies. The deregulation of the
industry tempts telecom firms (telcos) to provide bundled
products and services, especially with the ongoing convergence
of the telecom and cable industries. The acquisition of additional
products and services has thus become a profitable move for
telecom providers.
Although India's teledensity has improved from under 4% in
March 2001 to over 36% by the end of March 2009, we are still
way behind other developing nations. Cellular telephony has
emerged as the fastest growing segment in the Indian telecom
industry. The mobile subscriber base (GSM and CDMA
combined) has grown from under 2 m at the end of FY00 to touch
391 m at the end of March 2009 (compounded annual growth of
nearly 80% during this nine year period). Tariff reduction and
decline in handset costs has helped the segment to gain in scale.
The cellular segment is playing an important role in the industry
by making itself available in the rural and semi urban areas where
teledensity is the lowest.
As far as broadband connections (>=256 kbps) are concerned,
India currently has a subscriber base of 6.4 m, which is higher by
50% as compared to the figure in May 2008. The subscriber base
stood at 2.5 m in May 2007.
M&A CASE STUDIES
The first M&A deal in India was the sale of Mumbai licence by
Max group to Hutchison Whampoa group of Hong Kong. The
deal fetched over half a billion dollars for Max group and was
touted as a major success for Indian entrepreneur in telecom
venture. This followed a series of M&A in subsequent years as
stated hereunder. Some of the other high profile deals were
Vodaphone's acquisition of 10% equity in Bharti in 2006 for US$
1 billion, Maxis acquisition of Aircel at enterprise value of US$ 1
52
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Billion, Birla Group's acquisition of Tata's stake in Idea Cellular.
Interestingly some of the high profile investors who had sold
their stake around year 2000 are now reentering India like
Telekom Malaysia (exited India in 2000 from Kolkata licence
and recently acquired 49% stake in Spice Telecom) and Vodafone
(exited India in 2003 from RPG Cellular Chennai and recently
acquired stake in Bharti).
Similarly, valuation also suffers if the target company is not listed
and hence has lower liquidity (as in case of Idea, Hutch etc). As a
thumb rule, suggested by one economist, the differential for non
liquidity of non listed entity could be as high as 20% -25%. While
most of the GSM operators resorted to M&A in order to achieve
growth, Reliance Infocomm did not go for inorganic route and
instead rolled out a green field project. This was also due to the
fact that Reliance had adopted CDMA
technology and was able to roll out the
network at much lower cost as compared to
GSM network.
Whether M&A in Indian Telecom were
Successful
The table gives a bird's eye view of major M&Adeals in India and
the key indicators like per sub value, enterprise value etc.
The author also closely followed the sell-off, acquisition, resale
and reacquisition by Indian Promoters as a case study. In April
1998, Max group had sold its stake in Mumbai licence to
Hutchison Telecom for US$ 560 million. Somewhere along the
way Max group again picked up a small stake of 3.16% in Hutch
and resold it to Essar Group in October 2005 for US$ 147 million.
Max India has staged another comeback in Hutch by acquiring an
8.33% from Kotak Mahindra Bank for Rs. 1,019 crore in 2006.
This second return to the telecom business reflects the buoyant
conditions in telecom sector.
The valuation of state owned Bharat Sanchar Nigam Limited
(BSNL) is estimated to be US$ 30 Billion one of the highest in
India. On a global scale, China Mobile has emerged as the world's
most highly valued telco with enterprise value of US$ 131.46
billion, followed by Vodaphone at US$ 123.11 billion as on July
2006. From the table, readers can find that average valuation per
subscriber ranges from US$ 400 to US$ 550 which in turn is
based on a variety of factors including Average ARPU, type of
circle, competition in the circle, Category of operator whether
only a Mobile service provider or an integrated telecom player
(like Bharti and Reliance) etc. Valuation is generally lower in
case the acquirer takes a minority stake as against controlling
stake.
A merger to be successful should create
new capabilities, offer better value
proposition to the combined entity's
customers and above all enhance
shareholders' value. Empirical studies
prove that M&A brings with it the
advantage of synergies to the operators and
in majority of cases results in immense
increase of shareholders value. M&A in
Indian telecom industry has also benefited
other stakeholders i.e. customers, Indian
economy and society at large. M&A have
acted as catalyst to stupendous growth in
teledensity to 14% in 10 years (1995 2006), as against 2% in 48 years (19471994) of independence.
According to a study conducted by the reputed international
agency, OVUM on “The economic benefits of mobile services in
India” on behalf of Cellular Operators' Association of India, it
was found that mobile sector has generated 3.6 million jobs
directly or indirectly and the same will rise by at least 30%.
Similarly the Mobile industry contributes over Rs. 145 billion per
annum by licence fees, spectrum fees, import duties, taxes, etc.
Taking the OVUM findings on the base of 48 million subscribers
in January 2005, COAI has estimated that at a mobile subscribers
base of 200 million in 2007, the industry would contribute over
10 million jobs and over Rs. 500 billion annual revenue to the
Government. From foreign investors' perspective, they have
immensely gained from investing in India. As per recent news,
out of Hutchison's total global revenue of Rs. 13440 crores, over
45% comes from India which is no mean achievement.
Indian promoters who commenced their telecom operation on a
small scale in few circles, gained immensely on sale of their stake
to foreign investors. In fact, some of the world's largest telecom
companies, who have left India with a bitter experience a few
years ago like British Telecom, Vodaphone, France Telecom,
Telekom Malaysia, Telestra Australia are all set to return even as
minority shareholders on witnessing telecom success story.
When Merger andAcquisition Promise Fails to Deliver
Every merger, acquisition, or strategic alliance promises to create
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
value from some kind of synergy, yet statistics show that the
benefits that look so good on paper often do not materialize.
Unfortunately, many mergers and acquisitions fail to meet their
objectives, which are typically to accelerate growth, cut costs,
increase market share or take advantage of other synergies.
In simple way I can say that "Merger & Acquisition is just like a
marriage, interesting point here is that upwards of 60% of these
mergers fail to deliver on share holder expectations. But when
M&As succeed, they can lay the foundation for a company to be
the leader in its sector."
Trends in Telecom Merger andAcquisition
India's telecom regulator is unlikely to recommend any
significant changes easing the tough norms relating to mergers
and acquisitions in the sector, regardless of lobbying by phone
firms, according to a senior Telecom Regulatory Authority of
India (TRAI) official.
Trai is likely to submit its recommendations to the government by
the third or fourth week of January. The regulator will also
comment on sharing and trading of airwaves, limiting the number
of service providers in a telecom circle, auctioning of second
generation (2G) spectrum, and delinking spectrum from licences.
One big regulatory concern is that larger telecom firms may end
up buying smaller rivals based on the spectrum they hold rather
than the overall business of the target firm, said the Trai official,
who didn't want to be named because he isn't authorized to speak
to the media.
“One company should not be allowed to buy another company
based on the spectrum that they have,” he said. “The spectrum
was given to them in order to grow the sector and they should do
that before selling out. That is why things like the roll-out
obligations and lock-in for promoter equity were introduced.”
The roll-out obligations mandate that mobile phone operators
cover at least 10% of the district headquarters in their licensed
areas within the first year of receiving a licence, and 50% within
three years.
“This clause was specially implemented to the licensing
agreements with the new operators after it was felt that many
would buy the licence and then sell out for higher valuations
based on the spectrum that they are allotted without actually
creating a business,” the official said.
There is also a clause on the lock-in of promoter equity, put in by
the government to prevent so-called fly-by-night operators from
entering the country's telecom sector.
Norway-based Telenor ASA, the world's seventh largest phone
firm by customers, announced in October 2008 that it would
invest Rs6,120 crore for 60% equity in Unitech Wireless in an
all-cash, four-tranche deal, extending its reach to India, the
world's fastest growing and second-ranked mobile phone
services market by users. This was later increased to 67%.
Earlier in September last year, the second largest Arab telecom
company by market value, Emirates Telecommunications Corp.,
or Etisalat, announced that it had agreed to buy a 45% stake in
53
Swan Telecom Pvt. Ltd for cash up to $900 million (Rs4,221
crore now).
“There has been no decision as yet. But it is unlikely that we will
change much for now. Maybe some things here and there,” said a
second Trai official, who also requested anonymity because he is
not authorized to speak to the media. “A decision will be taken in
the next eight-nine days,” he said.
The department of telecommunications (DoT) committee on 2G
spectrum, chaired by Subodh Kumar, additional secretary, DoT,
had recommended in its report completed in May that 2G
spectrum should be auctioned, as is done in most countries, and
not allocated as per the subscriber-linked criteria, as is done
currently. It also recommended that telecom companies be
allowed to buy, sell and transfer spectrum for a fee.
The committee, which included representatives of the
government, Trai, telecom technology experts and industry
executives, was formed in June 2008 to resolve a number of
controversies surrounding the government's 2G spectrum
allocation policy. DoT sent the report to the telecom regulator on
7 July asking for its recommendations on the 2G spectrum report.
In earlier recommendations, Trai had suggested that in case of
windfall gains, 50% of the profit should remain locked in with the
company for use towards building infrastructure and 50% should
be directed to the licensor or DoT.
The present policy governing mergers and acquisitions for
India's telecom service operators does not allow the number of
players to go below four in any telecom operating area or circle.
In addition, the market share of any merged entity cannot cross
40% in any circle by both subscriber and revenue. Spectrum
trading and sharing is not allowed at present and crossholding
restrictions limiting the equity held by an operator in another
operator in the same circle to 10% are also applicable.
After a merger or acquisition has taken place, the combined entity
has to return the excess spectrum unless it fits the eligibility
criteria for the combined quantum of spectrum.
The three-year lock-in clause applies to the promoter and
promoter group's equity, which cannot be divested for three
years.
“Despite some of the companies that acquired licenses last year
for Rs1,651 crore and then sold stake to global companies at
substantial premiums, it does not appear to be a direct concern, as
long as the capital is locked in the business venture,” according to
a report prepared by Sachin Gupta and B. Roshan Raj, analysts
with Nomura Singapore Ltd, on Trai's ongoing consultations on
the spectrum management.
“The regulator appears to think this premium is perhaps
necessary for them to expand, and hence investment remains a
key criterion for them,” the report adds.
“We also think that the government is contemplating ways of
getting a share of the M&A (merger and acquisition) cut,
especially if deals are done at large premiums just for spectrum. It
could be in the form of capital gains tax, etc,” says the report
54
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Some highlights for the financial year 2009 are:
!
!
!
FY09 saw the continuance of strong growth for the Indian
telecom market, which witnessed a 49% Year on Year
increase in its subscriber base during the 12-month period.
At the end of March 2009, the country's total telecom
subscriber base (fixed plus mobile) stood at about 429 m.
The tele-density level stood at about 36% by the end of the
fiscal.
Growth remained robust in the GSM mobile space, with the
same growing its subscriber base by 96 m, thus contributing
to about 70% of the total incremental subscriber addition for
the entire Indian telecom market. After a strong 76% Year on
Year increase in subscriptions during FY08, the GSM
industry recorded another good performance during FY08,
growing subscriber base by 50% Year on Year to about 289
m.
During FY09, India's mobile subscriber base grew by 50%
Year on Year, from 261 m to 391 m, while the fixed
subscriber base declined by about 4%, from 39.4 m to about
37.9 m.
What will be the telecom scenario in India in 2020?
To look forward, from now on, the growth momentum in the
expansion of fixed line network is likely to be sustained. This is
the current phase of expansion developing countries are passing
through. In 2000, three out of four fixed lines were installed in
developing countries. China alone installed more fixed lines in
2000 (35 million) than the entire developed world in 1999 and
2000 .
Once fixed line market is matured, mobile will crossover fixed
line market. India is still much below the crossover point even by
the standard of the low-income countries. A mobile revolution is
in the offing in India.
The next points of crossover will be between data and voice , and
between mobile and fixed-line Internet . This is going to take
some time because this is yet to occur even in high-income
countries. The process of technical consolidation and system
integration of different competing standards in a single platform
will by itself take some time. The process of commercial
consolidation will start thereafter.
In order to guess the time frame over which such technological
and commercial cycles may run their courses in future it may be
of interest to look at the past experiences. Going by the history,
commercialization of cellular mobile telecommunication
services began in late seventies, when Japan took the lead in
1979. Many developed countries have reached saturation point
only now though developing countries are far from it. Similarly,
market for Internet in the developing countries is yet to mature
though the service commenced in late 1960s, when USA took the
lead in 1969. As rightly observed, 'But for both these innovations,
the full extent of their impact on businesses and consumers is
probably still to come. E-commerce, for instance, is still in
relative infancy and is expected to boom in coming years as “old
economy” firms re-orient their business processes around it.
Similarly, the true potential of a mobile phone, as an integrated
communications, entertainment and positioning device, is only
beginning to be realized' .
If past trend were any guide, it would be reasonable to hope that
by 2020 India would complete transition into digital switching
and transmission, VoIP, broadband and 3G. Though there would
be always a small niche market in India, which would catch up
with the cutting age of the technology, consolidation and
expansion of evolving technologies across the length and the
breadth of the country will follow with a lag.
Future vision of telecom is a vision of IT. Telecom will be the
springboard of future expansion of IT heralding in an information
society. ICT will spread among the masses and will spur
innovation, entrepreneurship and growth. An expanding
domestic market will deepen the synergy between the domestic
and the export market and strengthen India's presence in the highvalue segment of the global trade and investment. ICT benefits
will spread among all, the rich and the poor, the young and the
old, the men and the women, the organized and the unorganized
and the government and the governed.
Conclusion
Indian Government's decision to raise the foreign investment
limit to 74% is expected to spur fresh round of mergers and
takeovers in India. The sector has slimmed from more than 20
carriers to 5-6 major players in 2006 and telecom pundits believe
that a final round of consolidation to churn the number of players
is in the offing. The possibility of realignment of shareholding
structure in existing licences and entry of new investors also
cannot be ruled out. The sector thus represents humongous
opportunity waiting to be tapped by Indian and foreign
conglomerates. Critics claim telecom mergers reduce
competition and promote monopoly. In reality, these mergers are
part of a healthy competitive process and would foster innovation
and bring benefits to consumers. Finally, the success of a merger
hinges on how well the post-merged entity positions itself to
achieve cost and profit efficiencies. As Robert C Higgins of
University of Washington points out “careful valuation and
disciplined negotiation are vital to successful acquisition, but in
business as in life, it is sometimes more important to be lucky
than smart.”
There is a strong sign that 2010 could be a watershed year for
telecom with lasting and permanent changes in the market
structure and competitive landscape. This, in turn, can affect
service delivery, coverage, pace of rollout, and ultimately tariffs.
While 2009 was an excellent year in terms of addition of new
subscribers and lower tariffs, new competition was cruel on the
financial health of telecom companies.
The India Telecom 2009 saw the participation of over 300
companies from more than sixty countries. The theme for this
edition of the event was 'Telecom for inclusive growth'.
Indian telcos are joining communication majors such as
Vodafone, AT&T and France Telecom in a bid to capitalize on the
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
55
global boom in the mobile applications space. On Tuesday,
mobile operator Aircel, along with software major Infosys, will
unveil the country's first mobile application store.
3.
Greer, C. R. 2002, Strategic Human Resource Management:
n d
A General Managerial Approach, 2 edition, Pearson
Education, Singapore.
If past trend were any guide, it would be reasonable to hope that
by 2020 India would complete transition into digital switching
and transmission, VoIP, broadband and 3G. Though there would
be always a small niche market in India, which would catch up
with the cutting age of the technology, consolidation and
expansion of evolving technologies across the length and the
breadth of the country will follow with a lag.
4.
Lengnick-Hall, M.L. and C.A. Lengnick-Hall 2003, Human
Resource management In the Knowledge Economy: New
Challenges, New Roles, New Capabilities, Berrett-Koehler
Publishers, Inc., San Francisco, pp. 36-43.
5.
Roehling, M.V., M.A. Cavanaugh, L.M. Moynihan, and
W.R. Boswell 2000, "The Nature of the New Employment
Relationship: A Content Analysis of the Practitioner and
Academic Literatures", Human Resource Management, Vol.
39, no. 4, pp. 305-20.
6.
Ruta, C.D.2005, "The Application of Change Management
Theory to HR Portal Implementation in Subsidiaries of
Multinational Corporation", H uman Resource
Management, vol. 44, no. 1, pp. 35-53.
7.
Shah, K., "The Dream Nightmare", The Economic Times,
New Delhi, 10 June 2006, p.7.
8.
Tsui, A.S. and J.B. Wu 2005, "The New Employment
Relationship versus the Mutual Investment Approach:
Implications for Human Resource Management", Human
Resource Management, vol. 44, no. 2, pp. 115-21.
9.
Wilhelm, W.R. 1990, "Revitalizing the Human Resource
Management Function in a Mature, Large Corporation",
Human Resource Management, vol. 29, no. 2, pp. 129-44.
Future vision of telecom is a vision of IT. Telecom will be the
springboard of future expansion of IT heralding in an information
society. ICT will spread among the masses and will spur
innovation, entrepreneurship and growth. An expanding
domestic market will deepen the synergy between the domestic
and the export market and strengthen India's presence in the highvalue segment of the global trade and investment. ICT benefits
will spread among all, the rich and the poor, the young and the
old, the men and the women, the organized and the unorganized
and the government and the governed
References:1.
2.
Biswas, S., "Knowledge Services Sector to Generate $ 200b Economy by '20", The Economic Times, New Delhi, 12
April 2005, p. 16.
Chaudhuri, A.R., and K. Muthukumar, "The World's
Ageing, and it's an Old hand at Work All around You", The
Economic Times, New Delhi, 15 June 2004, p. 9.
56
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Strategic Cost Management
Dr. Kalyani Srinivas C.
Modern College of Engineering, MBA Department, Pune
The Strategic Importance of Cost Management
Strategic Cost Management - Cost Drivers
Business exists to create and render value to its stakeholders.
Hence, the main activities for a business organization are value
creating activities. Corporate managers are responsible for
acquiring physical and financial resources from the firm's
environment and using them to create value for the firm's
investors. Value is created when the firm earns a return on its
investment in excess of the cost of capital (Palepu, Bernard, &
Healy, 1996). Value for the firm's investors can be achieved only
by rendering value to the customers.
The two forms of cost reduction related to Shank and
Govindarajan's contention that cost drivers are of two types are:
structural cost drivers that are determined by organizational
structure and by investment decisions that define the operating
leverage of the firm, and executional cost drivers that are
determined by the efficacy and efficiency with which the strategy
is executed.
Strategic cost management - concerns and objectives
"In today's environment, nothing is constant or predictable - not
market growth, customer demand, product life cycles, the rate of
technological change, or the nature of competition".
Organizations engage in value creating activities face a dynamic
environment, where they have to be on the lookout for avenues to
sustain their competitive advantage. An organization's strategic
plan allocates scarce resources to an organization's best
opportunities.
For many years, Porter's significant work has defined how
strategy has shaped the way that firms evaluate competitive
conditions and develop strategy. Competitive advantage is
gained by differentiation or cost leadership. Considering the
transient nature of differentiation, companies should focus on
cost leadership for long-term competitiveness. One of the ways
in which organizations can sustain and improve their competitive
advantage, in the current environment, is to reduce cost and
thereby maximize value rendered to their customers.
Costs are caused by many interrelated factors. Some factors are
implicit in the firm's choices about its underlying economic
structure (structural cost drivers). They include strategic choices
concerning: scale (size of investment to be made in
manufacturing, R&D, marketing areas), scope (degree of vertical
integration), experience (number of times the firm has already
done what it is doing again), technology (type of process
technologies used at each step of the firm's value chain) and
complexity (product or service line breadth). Structural cost
components can be managed (up or down), but only by changing
the fundamental economic elements of how the business
competes. Such changes are far from easy to implement. This
makes optimization very tricky.
Costs are also driven by the firm's ability to execute successfully
within its given structure (executional drivers). In particular,
executional cost drivers include work force involvement
(commitment to improvement), total quality management
(Kaizen and zero defects), capacity utilization, plant layout,
product configuration, and linkages with customers and
suppliers. Lower costs can be achieved either through
redesigning the firm's value chain, reassessing the coherence of
current activities compared with the customers' business
requirements, reconfiguring the structural business model, or
better executing within that model.
For example, the amount of stationery used by employees is more
easily modified than structural cost drivers such as size of the
factory used in production.
Strategic Cost Management - Key Concepts
Strategic cost management, a tool for competitive advantage and
value creation, does not focus on traditional cost reduction- it
entails unnecessary costs elimination. It is a deliberate decisionmaking aimed at aligning the firm's cost structure with its
strategy and optimizing the achievement of the strategy.
Alignment and optimization must cover the full value chain and
all stakeholders to ensure long run sustainable profits for the
firm. Thus strategic cost management demands that the firm
spend as little as possible to achieve the desired results, but spend
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
as much as needed to keep all key stakeholders satisfied.
What does it mean to say an organization understands its costs? It
means that the organization's managers can predict, with some
clarity, how costs will responds to management actions. In other
words, it means managers can predict how cost will change, if at
all, when they direct the organization to do something differently
than it is being done today.
Strategic cost management takes two forms: structural cost
management, which employs tools of organizational design,
product design and process design to build a cost structure that is
coherent with strategy; and executional cost management, which
employs various measurement and analysis tools (e.g., variance
analysis, analysis of cost drivers) to evaluate cost performance.
Strategic cost management is probably better understood in the
production portion value chain than in any other segment.
Strategic decisions are aimed at maintaining an organization's
alignment with its environment, while also managing internal
interdependencies. This idea of creating a link between activities,
costs, and strategic objectives can be applied to any situation in
different industries and contexts that requires a strategic
perspective of costs.
Strategic cost reduction requires a comprehensive and
disciplined approach and must produce significant result in the
short term while establishing mechanisms that ensure the result
can be sustained. Costing is not limited within the boundaries of
cost reduction and cost rationalization; rather it includes strategic
issues including capacity planning and utilization, and
investment decisions in specific geographies or technologies.
Establishing a strong foundation is essential to sustainable cost
savings. Defining operating cost drivers through a bottom-up
analysis and linking financial plans to operating plans will
provide transparency, improve accountability, and enable
measurement of cost reduction activities.
The most powerful strategic cost reduction emerges from a
strategic planning process that indicates why cost reduction is
essential to the organization's future. Then embedding cost
reduction efforts into the strategic planning process implies that
the organization has been adopting cost culture. Cost culture
echoes the extent of the permeation of cost consciousness across
the organization.
Using cost management and control processes, successful
companies often strategically position themselves during
downturns to emerge stronger after the economy recovers. For
example, Cisco expanded its presence in Asia during the region's
financial crisis as other Western companies fled, and Apple
launched the iPod during the 2001 recession.
57
considering buying a fleet of new trolleys. Under conventional
cost management, this may mean reducing the number of trolleys
ordered from 5,000 to 2,000 and ordering from a cheaper supplier
for a lower price. Strategic cost management takes into account
the fact that customers may become disgruntled with the lack of
trolleys available and the poor quality of a trolley's deviating
wheel. These customers may then decide to shop elsewhere,
making the savings counterproductive.
Is the manager of a company using refilled toner cartridge (for
use in inkjet printers) of Rs 250 each instead of new cartridge (Rs
1,100) saving cost? No! A refilled cartridge gives such a poor
impression requiring re-printing of documents again and again
(or requiring to use bold types, consuming more ink) so much so
that at least one refilling is required every month, while a new
cartridge lasts six months. So, refilling costs Rs 1,500 every six
months instead of Rs 1,100. Adding up the cost difference for
hundreds of printers in use in a big company - it means a
substantial saving if a new cartridge is used instead of refilling.
To cite another example, a company producing lightweight
suitcases used to send them by road transport. One full truckload
consisted of 500 big-sized suitcases or 750 medium-sized ones
or, 1,500 small-sized ones. So, 500 suitcases of three sizes each
required two truckloads (because 500 medium-sized suitcases
needed two-thirds of one truckload and 500 small ones needed
one-third of one truckload). Weary of reducing transport costs (as
at that time the Railway strike was continuing and so transport by
rail, though cheaper, could not be availed of) the company came
up with a novel way of loading suitcases.
One small-sized suitcase was put inside a medium-sized one and
the medium-sized suitcase was placed inside one big-sized
suitcase. Thus, one truckload was needed to transport 1,500
suitcases (that is, 500 of each variety). Instead of doubling, the
transport cost was just cut to half, and that turned out to be even
cheaper than the railway transport!
About 90 per cent of cost-reduction programmes fail to achieve
their intended goals and do not deliver long-term results. In view
of this, organizations start looking at long-term strategies that can
provide a sustained benefit. Cost Optimization, which focuses on
customer value rather than just on cost reduction is a viable
alternative. Focusing on creating a leaner and efficient
organization with processes that are business-focused and costoptimized is the way forward for organizations to meet the
challenging demands of the economy.
Characteristics of a strategic approach to cost reduction
Common innovations can save huge costs and improve
productivity and profitability to a very large extent. The other
aspect is that random cost cutting measures may result in losses in
the long run.
More efficient firms are rewarded by the market, but the key to
maximizing shareholder value is increasing the efficiency of
operations. Rather than a goal that is ultimately achieved,
continually improving operating efficiency has to become a way
of doing business. A strategic cost reduction program will
produce greater short term savings as well as longer-term gains in
efficiency. To reap benefits, firms need to approach strategic cost
reduction with the following five characteristics :
For example, a supermarket looking to reduce costs might be
1. Linked to Strategic Goals -The first step is to reexamine a
Applying Strategic Cost Management
58
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
firm's business strategy to ensure that it remains relevant to
changing market conditions. A strategic approach then carefully
aligns cost reduction initiatives with the reconfirmed strategy,
rather than relying on across-the-board reductions that could
undermine business objectives.
2. Comprehensive- Instead of focusing only on staff reductions,
strategic cost reduction analyzes the entire organization for costcutting opportunities and establishing a cost base.
3. Sustainable Cost Savings- A strategic approach increases
efficiency by rethinking both what the firm does
and how it does it and setting realistic targets.
CATEGORY
4. Phased Implementation- Initiatives include
both quick wins and longer-term measures that
are more difficult to implement but offer greater
cost savings. The firm not only needs to identify
these initiatives, it also needs to prioritize them
increasingly being used by companies as a strategic weapon.
The building blocks or essential elements of a cost reduction and
cost management and control framework include financial
management and control, procurement and supply chain,
business process execution, and performance management. The
following table summarizes some of the initiatives that can be
taken and the potential for savings in them:
CATEGORYSAMPLE INITIATIVES POTENTIALCOST
REDUCTION*
SAMPLE INITIATIVES
POTENTIAL COST
REDUCTION*
HR
_ Link compensation more closely to performanc e
5---10%
Occupancy
Costs
_ Renegotiate leases
_ Seek government incentives
5---20%
Travel &
Entertainment
_ Revise policies and procedures
_ Improve monitoring and enforcement of compliance
5---10%
5. Senior Management Commitment - An
essential component is the full commitment of
senior management, which can best be
demonstrated by appointing a prominent senior
executive to lead the effort.
Advertising &
Marketing
_ Revise policies and procedures
_ Improve monitoring of return on spend
5---10%
Tax
_Tax-efficient structuring of financing, leasing,
research & development, and corporate restructuring
NA
Outsourcing
_ Outsourcing aspects of major business processes
_ Strategic partnerships with vendors.
Up to 10%
To gain long-term competitive advantage and
increase shareholder value, firms need to make
ongoing improvements to operating efficiency
a permanent way of doing business throughout
the business cycle while being aligned with a
firm's business strategy.
Strategic
Sourcing
_ Create global procurement
_ Create uniform standards
_ Reduce number of suppliers
_ Improve monitoring of contract compliance.
15---25%
Functional
Consolidation
_ Shared-service centers to achieve economies of
scale
10---20%
Automation
_ Straight through processing
_ Billing and collection
_ Procurement
15---20%
Elimination of bottlenecks, redundancies
25---30%
Cost Management Methods
Reengineering
Cost management methods must help with the
production of new products that meet customer
demands at the lowest cost, as well as with cost reduction of
existing products by eliminating waste. Strategic cost reduction
means strategically improving efficiency. In a business
environment of increased global competition, new markets,
increasing regulation and changing demographics, successful
companies are changing their approach to cost structuring and
control. The concern for financial viability and value creation has
assumed great importance in today's business environment.
Therefore, the businesses have to think new and innovative ways
to manage their costs to remain ahead of the competition. To meet
this objective, the companies are using latest cost management
tools such as activity based management, life cycle costing, value
chain analysis, cost of quality, target costing, capacity
management, complexity management, experience effects,
overhead management, fixed cost management, benchmarking
etc that help to influence cost behavior, cost structure and then
cost level of the company to remain competitive and create more
value.
As a result of these developments, the components of an
integrated cost planning and management approach are
becoming visible. Rather than an internally focused and tactical
control system, effectively understanding and managing costs is
*Sustainable cost reduction that can be achieved by typical firms
consistent with long-term growth. Depending on their specific
circumstances, individual firms may achieve either higher or
lower cost savings than these estimates. Note: These cost
reduction estimates are not cumulative.
DESIGNING A PORTFOLIO OF COST REDUCTION
INITIATIVES
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Three common reasons why cost reduction measures fail are:
1.
Senior management focuses on transformational
opportunities to reduce costs without paying attention to the
behaviors and decision making processes that drive costs in
the first place.
59
of cost consciousness, in both bad times and good. Often, when
business picks up and expenses rise once again, and firms must
bear the cost of rehiring and retraining staff. For a viable future,
companies must think strategy, not just bottom line.
2.
Departments are directed to reduce spending by a set target.
The target is often arbitrary and reactive to market
conditions.
Strategic cost management holds that cost should not be reduced
at the expense of business strategy and that costs must be
managed for economic value, not in isolation to each other, but
always with regards to the value generated from the costs spent.
3.
Departments become personally invested in their own
budgets and rarely find waste.
References:
Changing Business Environment & Strategic Cost
Management
Companies have always been under pressure to look for
efficiencies and reduce costs, but never more so since the US slid
into recession at the end of 2007. Increasing efficiency should be
a cornerstone of corporate strategy whether the economy is
expanding or contracting, yet most firms have only focused on
cost reduction in response to the economic slowdown that began
in many countries in 2001.
Firms in sectors with declining business activity and revenues
announce deep cuts in personnel and other expense items to
reflect reduced business volumes. While needed, these volumerelated reductions don't build sustainable competitive advantage
by increasing productivity.
This approach to cost management can also lead to a loss of
customers and market share, unsustainable turnover of
experienced staff, and inefficiencies in the long term. For cost
reduction measures to work, companies must clarify the cost
drivers of the business and use that knowledge to create a culture
! Ibrahim Abd El Mageed Ali El Kelety, Towards a conceptual
framework for strategic cost management- The concept,
objectives, and instruments
! Lorenzoni, Shank, Silvi, Networked Organizations: A
Strategic Cost Management Perspective
! SUDANA I PUTU, ORGANIZATIONAL CULTURE AND
STRATEGIC COST REDUCTION [Journal].
! Business Daily , THE HINDU, Thursday, Dec 04, 2008
! Business Daily , THE HINDU, Thursday, Sep 24, 2009
! Building competitive advantage through strategic cost
reduction, DELOITTE RESEARCH
! Jeff Thomson & Jim Gurowka, STRATEGIC FINANCE,
August 2005
! Building competitive advantage through strategic cost
reduction, DELOITTE RESEARCH
! Peggy Tee, Strategic Cost Management in a Recession
60
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Strategic Compensation Management
Dr. Puja Bhardwaj, Asst. Prof., PCMRD, Pune
Prof Anagha Kalay, Lecturer, PCMRD, Pune
Jatin Joshi, MBA II Year, Student, PCMRD, Pune
Abstract
The recent slow down has put pressures on the profit margins of
companies. The companies were forced to rework their cost
structures. As compensation paid to the employees is the major
cost component, recession warranted companies to reduce the
labour cost considerably. Companies tried to sustain either
through reducing the compensation or by retrenching the
workforce altogether. Five lakh people were rendered jobless
between October to December 2008 due to the recession,
according to the latest government study (by Labour Bureau of
ministry of Labour and Employment sample size of 2,581 units
covering 20 centres across 11 states, and 8 sectors).
The situation in IT indisutry is particularly bad as they have high
operating overheads (high power budgets, 24*7 redundant
network connectivity) which puts extra burden on labour
component. Compensation structures designed in the booming
market were not able to power growth during the recession.
This pointed the way towards a redesign of the compensation
packages in the industry; the need of the hour is a flexible
package that can act as a motivation for growth and at the same
time not act as an unduly high cost in times of bad business.
Introduction
Organizations achieve their objectives through their employees.
Thus, Human Resource is the most vital resource for any
organization. It is responsible for each and every decision taken,
each and every work done and each and every result achieved and
hence it is important for every organization to manage and
motivate their employees by providing best remuneration and
compensation as per industry standards.
A lucrative
compensation serves the mission of attracting and retaining the
best talent in industry.
Compensation is the sum total of all forms of payments and
rewards provided to employees for performing tasks to achieve
organizational objectives. It is an organized practice that involves
balancing the work-employee relation by providing monetary
and non-monetary benefits to employees.
From the employer's perspective pay and rewards are important
since these affect its profitability. Compensation constitutes the
major cost of doing business, since it determines the employee
cost. Organizations also view compensation and rewards as a
means to reinforce desirable employee behavior. It is one of the
means to communicate to the employee his or her worth to the
organization which in turn aligns employee efforts with
achievement of the organizational objectives.
Compensation and rewards offered by an organization is an
important determinant of an individual's performance, his
decision to join a company, motivation to improve performance,
desire to undergo training, and desire to continue to work for the
organization. And to put it very basically, from the employee's
perspective it is a means of satisfying the needs in terms of her or
her expected standards of living. Thus, the compensation an
employee receives determines one's standard of living and
purchasing power. Employees seek to maximize their rewards to
meet their aspirations. They also expect to be compensated fairly
and rewarded for the effort, skills, knowledge etc that they
contribute towards the achievement of organizational goals.
Performance
Flexible Competence
Variable
Incentive
Leadership
Vision
Creativity
Support
Retention &
Long Term Securit y
-
Post
Retirement
Benefits
Composite
Performance
Index
Inflation
Dearness
Pay
Basic
Allowances
Basic Wage
Cost of Living
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Compensation Management
As mentioned earlier, compensation is the sum total of all forms
of payments and rewards made to employees against
achievement of organizational objectives. Compensation
management is a process of determining Compensation direct
and indirect - which is known as salary levels or structures.
Objectives of Compensation Management :
· Compete better when attracting new talent.
· Measure to retain human resources.
· Moderate the labor cost by trading off some components.
· Reduce attrition.
· Enhance performance by introducing types of Performance
based incentives to motivate for future initiatives.
· Sets standard for evaluating individual past performance and
current effectiveness.
The Equity Function :
Equity is the perception of an employee that he/she is being
treated and compensated fairly for what he/she does. A major
determinant of an employee's productivity satisfaction,
motivation, commitment, and performance on the job is the
degree of fairness (equity) and unfairness (inequity) that an
employee perceives at work in comparison to others. Thus,
while designing compensation and reward system, it is important
to understand how perception of equity and inequity are formed.
An equitable compensation and reward system must incorporate
three types of equity :
A) Internal Equity : Employees are paid according to relative
value of their jobs.
B) External Equity : Employees are paid comparable to
employees performing similar jobs in other organizations.
C) Individual Equity : Compensation based on performance
appraisal and perceived as fair when compared with what
others in similar jobs in the organization are earning.
A few pointers to be considered while administering
Compensation and salary include :
1. Pay levels (Fixed and Variable).
2. Internal pay structure / capabilities.
3. Individual pay system.
4. Payment by time.
5. Compensation structures for sales staff, managers &
professionals.
6. Fringe benefits & pay supplements.
7. Control of Compensations and salaries i.e. Market parity.
8. Equitable Compensation
Strategic Compensation Management
Compensation systems are designed keeping in minds the
strategic goals and business objectives. Compensation system is
designed on the basis of certain factors after analyzing the job
work and responsibilities.
61
Strategic compensation is determining and providing the
compensation packages to the employees that are aligned with
the business goals and objectives. In today's competitive scenario
organizations have to take special measures regarding
compensation of the employees so that the organizations retain
the valuable employees. The compensation systems have
changed from traditional ones to strategic compensation systems.
Why Strategic Compensation Management?
Developing human resources.
Retaining high potential human resources.
Align with the market / competition
Replacing human resources is a continuous process.
Broad banding merit pay increases do not address the
growing inequity in compensation levels of top performers
when they were paid below their worth at the time of hiring.
With years, the gap will still remain and may even get wider.
The solution here could be to adjust such employees in wider
pay bands alongwith the effort to reduce the gap in a couple
of years.
High rates of income tax, varied family backgrounds, different
locational advantages and disadvantages and different personal
aspirations make the Compensation structuring exercise very
complex. A common Compensation policy may not satisfy all.
Hence strategic designing of certain portions of the total
Compensation package has to be carried out.
·
·
·
·
·
Key Issues - Economic Volatility
· Market economy brings unexpected changes in the value
chain of an enterprise. The changes may make some of the
employees outdated (or unemployable) and they must
therefore be retrenched or redeployed with re-equipping.
Flexibility in a Compensation package plays a vital role
here.
· Boom time Compensations and Compensations during
recession are very sensitive issues to be tackled. It is a
common experience that volume based incentives become a
serious problem during recession, as employees expect this
kind of Compensation irrespective of the volume they
produce. In other words, the journey from boom to
recession and from recession to boom always creates
problems in handling variable Compensations.
· In times of recession, the compensation package should
address the needs at the lower levels of Maslow's pyramid;
employees can willingly take a pay cut if their basic needs
can still be met with the reduced package; the company must
assure it's employees that their loyalty will be rewarded
when the economy recovers.
· Further, with fluctuations in the Rupee value vis-à-vis Dollar
also has an impact on the profit earnings of the employer.
With rupee becoming stronger, service based companies
who earn from their clients in Dollars loose on the income.
The pay out to the employee does not affect largely as his/her
income is fixed in Rupee value. Here, the sustainable power
of the organization will help it survive in such fluctuating
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
62
times. However, small or medium-sized organizations may
get affected in such situations. An indirect impact of this
situation could be retrenchment of people who are on bench.
One solution could be to finalize the contract on project
value rather than hourly value for resources on the project.
Also, some clause on a percentage consideration of such
fluctuations can be included in the contract.
Strategic Compensation Structure - ValueAddition
Value addition concept relates the salary structures and
composition to value contributed by each employee and the
levels of initiatives taken. Higher the value addition more
flexible the salary structure should be. Here the focus is on
managing high value employees. The employees who are high
value drivers need to be handled like equal stakeholders or
partners. They drive the organization and support the owners in
achieving the desired rate of wealth appreciation. Creative,
flexible, long term and adequate structuring of Compensations
differentiate between different individuals whose performance
levels may vary. Thus, a drawback is of failure of recognizing
better performers and motivate them to retain their high
performance standards.
Historically, pay systems of many organizations were based on
the relative worth of the job. The compensation was based on
comparing the jobs to one another and assigning internal
equitable pay rates for each job. Thus, the pay rate principally
depended on the job itself rather than who is doing it. This
approach is alright where individuals have stable duties with no
frequent changes. Jobs are well defined and the individual is
expected to perform only as per the guidelines. There is no need
for “thinking” but only for “action”. Thus, the incentives and
compensation system focuses on the job and not on action.
For Example: In a manufacturing set up, the shopfloor workforce
especially unskilled employees, compensation is based on
number of units produced at the end of the period defined. This
for such employees becomes essential. The chairman of the
group can use such employees (with utmost empowerment) to
build up his empire.
essentially means working only as per the “Standard Operating
Procedures” and no “Out of Box Thinking” is required/allowed.
(A) System Based Employees
More than organization loyalty, today employees expect to be
rewarded in ways that improves their marketability. Companies
are now required to offer their workforces time bound reward
schemes. The talk is all around “Pay for the person” more than the
job and the compensation systems must revolve around this.
This approach focuses on the job or the grade or designation, but
not based on the employee who performs the job. The
compensation systems are traditional and are used over the years
based on the concept of “pay for the job”. Such systems do not
(B) Knowledge Based Employees
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Some strategies that could be suggested here :
· Identify key positions and competencies that are most
critical to achieve the organization's objectives. This helps
in setting a standard and communicating the expectations
which form a base to compensate employees. Competency
based compensation might involve expanding position,
salary bands, merit-based pay, spot bonuses, short-term
bonuses, stock options etc., in place of hierarchical
advancement.
· Instead of moving employees into bigger roles, the
organization can focus on development by providing
experiences within the current jobs such as, special projects,
task forces or other temporary assignments that promote
important skills, knowledge and behaviors. Competencies
required for futures roles are clearly communicated to hi
potentials and opportunities for development are provided.
Opportunities include temporary assignments, being a
mentor / coach to new hires, part time assignments that
enlarge current responsibilities. Apart from development of
skills and abilities, this approach helps employees align
career expectations with business needs and can change
individual's perceptions of their opportunities for growth
within the organization.
· Organizations can identify benefits typically associated with
senior positions and incorporate them into lower-level
positions.
This is called “proxy” for promotion.
Knowledge-based employees have a great scope here for
professional development in terms of increasing
responsibility, authority and visibility in the organization.
Some opportunities could be a chance to meet important
customers, participate in strategic planning sessions, make
presentations to senior management, represent the company
at professional gatherings or work on high impact projects.
· Another aspect in profit linked variable pay system is
conflicting situation wherein an executive gets bonus even if
return to the shareholders' funds is not adequate. Accounting
profit is a very vague parameter for determining managerial
performance. While determining accounting profit, only
cost of borrowed capital is deducted. Cost of shareholders'
funds managed is never taken into account nor did the
managers count cost of free reserve. EVA Based bonus or
rewards is suggested. Organizations emphasize in particular
the need to base variable compensation on performance
measured “on the long run.”
To summarize, it is a given today that to reinforce value-added
contributions from each individual through their contributions,
knowledge, competencies, capabilities an innovative
compensation plan needs to be devised.
While specific compensation plan designs will vary according to
company and industry, and be based on culture, management
style and overall objectives, the basic outcome should remain the
same- increased retention of valuable employees, and increased
satisfaction of all stakeholders.
63
For Example : Unlike the unskilled workforce in a manufacturing
set up (referred in system-based employees section above), the
focus is on skilled employees. These skilled employees are not
only supposed to produce “x” no. of units at the end of the period,
but also to contribute to the bottomline of the organization
(directly or indirectly) in terms of value addition viz., applying
world-class manufacturing techniques like Kaizen, 5 S et all
which may eliminate wastes or ensure an optimum capacity
utilization, contribution to Quality, Health, Safety or
Environment.
(C)Entrepreneurial Employees
Employees who are directly involved in entrepreneurial
activitiesbuilding an organization, proposing new ideas,
exploring how our existing technologies and services can be
applied to new customers and/or leading proposal efforts to bring
in new business.
Characteristics of Entrepreneurial Employees:
1. Pro-Active: employees who can forecast the uncertainty and
risks and take corrective actions before the actual problem sets
in. They have the capacity to deal with risk and uncertainties.
2. Initiative: taking lead in case of any issue is a trade mark of an
entrepreneurial employee. They help the organization come
out of the problem with sound decision making skills.
3. Innovative: such employees have capacity to come out with
new ideas and concepts and help organizations in
implementing such ideas.
4. High Value Drivers: they high value drivers for the company in
terms of both business and growth of the company.
5. Behavior: on behavior front they have willingness as well as
capacity to contribute towards organizational goals.
6. Leadership: they have the ability to lead the team by
motivating and rewarding them as and when desired.
7. Continuous Improvement: they have the guts to challenge the
setup if required and suggest the remedies.
Entrepreneurial Compensation: The compensation of high-value
drivers in India has touched global levels and there has been
much innovation in structuring their compensations. Since kind
of compensations fall in the high tax bracket, the structuring of
the package is more important than base pay per se.
· Employee Stock Options (ESOPs) : In addition to new
opportunities, entrepreneurial employees want to be
rewarded for their effortsthey want ownership in what they
are building. Those who contribute to the company should
own it, and ownership should be commensurate with
employee contribution and performance as much as feasible.
Fixed part is normally at the lower side, maximum
proportion is variable to the value contributed to the
company's profit and growth. Variable salary can be linked
either to the direct profits earned by the company or they can
be given the ownership rights through stock options. Stock
options can be given as the reward (bonus). It can also be
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
64
given as incentive for achieving targets or company's
objectives and goals. The goal can be bringing in a certain
level of new business, completing a contract on time and
under budget, or preparing a winning proposal for a contract.
Employees understand what is expected of them and what
goals are critical to the company. It is a powerful incentive
tool. The rationale for offering an ESOP is an assumption
that the manager will work towards ensuring that the price of
the stock rises. The senior executives generally negotiate for
ESOPs during the hiring stage.
· A retention bonus (4.5 L to 9 L) paid in advance and is for a
2-3 year period. If such employees leave before that time,
he/she has to return the allowance.
· A free residence (if the employee stays on, the organization
gifts to the employee the house that he/she is living in).
change its business plan mid-way.
Conclusion :
In order to sustain in highly dynamic economies, organizations
need to work on increasing levels of motivation and retention of
high potential employees. To achieve this, organizations need to
have strategic compensation management structures which
essentially have to revolve around a “pay for performance
culture” which is prevalent for knowledge based and
entrepreneurial employees. The same can be structured for
system-based employees as it would ensure equity and increase
in productivity thereby improving bottomlines of the
organization.
Some steps to manage a pay for performance culture could be:
·
For determining pay differentials for individuals, it is critical
to have a good & correct performance assessment. And for
doing correct performance assessment, managers should be
aware of employee's competencies, performance and
potential.
·
Post implementation of a target base pay, the senior
management should closely monitor the overall
effectiveness of the compensation strategy and conduct a
broad banding exercise for doing salary adjustments based
on annual gap analyses and budget constraints.
·
Pay special attention to newer hires as their learning curve
and contribution to the organization is highest in the initial
years of employment compared to an experienced veteran in
th
the 10 year of his/her employment. During leaner times, in
case this young employee is paid a minimal or given zero
percent salary increase, he/she will lag the market in pay.
Also if he/she is a top performer then the company's such a
practice will lead to losing of a talented employee.
·
· Benefits e.g. health insurance, vacations etc. But packaged
differently from other employees. For e.g. executive health
plans may allow the executive to charge all medical bills
with no limit specified, to the company. They may also have
complete freedom in choice of hospital or doctors.
Use solid compensation tools to determine the target pay for
each employee based on their competency, performance and
potential as assessed. This will help in determining the gap
between the current salary and target pay.
·
· Perquisites some special benefits for executives come in the
form of non-cash perquisites. They serve to retain the
executive by enhancing his/her status by means of visible
symbols.
Differentiate between top performers and non-performers
and also mediocre. Reward only top performance as it sets a
culture of “Pay for performance” and may motivate the
mediocres.
·
Check the market whether the compensation system is
competitive.
With increasing risks, both the organization and the employees
are building in safeguards for themselves. E.g. an organization
introduced a penalty clause in the employment contract that
required the candidate to pay Rs. 1 million if he / she did not join
after having committed.
·
Consider the “employee worth” and the “relative job worth”
while designing the compensation system.
References:
· Asign-on bonus, to ensure commitment.
· A joining bonus or a “golden hello” (to compensate the loss
of the existing job)
· Severance pay (if one party decides to cancel the contract, it
will pay a certain amount to the other)
· Apre-joining holiday
· They are being offered a “market premium bonus”. Such a
bonus is a small percentage of revenue paid to such
employees if the company is listed in the top 25% of the
stock market.
· Short-term incentives are designed to motivate the shortterm performance of managers and are tied to company
profitability. E.g. annual bonus
· Long-term incentives are designed to motivate executives
to stay with the organization for a longer period. These
allow executives to accumulate capital that can be encashed
only after a few years, thus resulting in retention.
They demand that a “golden parachute” clause be included in the
contract when they believe that the project is too risky, or
involves serious regulatory issues beyond the control of
management, or when there is a risk that the company may
!
Strategic Financial Management by J. P. Jhakotiya, Vikas
Publishing House Pvt. Ltd., New Delhi, 2008.
!
Strategic Human Resource Management by Tanuja
Agarwala, Oxford University Press, New Delhi.
!
Strategic Compensation: A Human Resource Management
Approach, by Joseph J. Martocchio, Pearson Education, third
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
edition, 2006.
65
0Resource%20and%20Organization%20Behavior/HROB1
12.htm
Seven Characteristics of Highly Effective Entrepreneurial
Employees by Joseph G Hadzima Jr., Boston Business
Journal.
!
http://www.citehr.com/532-compensation-strategiesimprove-employee-morale.html
!
www.entrepreneurship.org
!
!
http://payroll.naukrihub.com/compensation/
http://www.strategic-human-resource.com/compensationstrategy.html
!
http://www.indianmba.com/Faculty_Column/FC436/fc436.
html
!
!
http://www.indianmba.com/Articles_on_Management/AO
M31/aom31.html
http://www.iitk.ac.in/infocell/announce/convention/papers/
Context%20and%20Human%20Resource-07Manjunath%20V%20S,%20C%20N%20B%20Rajesh%20
Final.pdf
http://www.icmrindia.org/casestudies/catalogue/Human%2
!
!
h t t p : / / w w w. C a s e - St u d i e s - i n - B u s i n e s s Ethics/9780132424325.page
!
FEEDBACK
FEEDBACK
P
CMRD has set a great benchmark for others to follow by
organising the National Seminar of such high standard.
The National Seminar gave us as insight of the various challenges faced by
the Industry and what the experts are doing to tackle them. It was indeed
great to hear people of such high reputation share their Knowledge and
Experience under one roof and I must congratulate the institution for
taking efforts in this direction.
The \entire experience was a fabulous one and I wish them all the best for
their future endeavours.
- Dr.Liaqat Ali
Faculty Accounting and Finance Area
School of Management Studies
Punjabi University, Patiala
66
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Managing the Top Executives to Face
the Challenges of the Upturn
Ms. Sakshi Satkar, Ms. Shinu Varghese, Ms. Leena Gaidhani
Students, Institute of Business Management and Administration (IBMA), Ahmednagar
,
Prof. Vinod Malkar
Placement Officer, Pravara Institute of Research and Education in Natural and Social sciences (PIRENS),
The year gone by was completely taken over by recession the
world over. The industry had witnessed a lot of lay-off and other
measures only to retain the potential employees so that the
organization could sail properly out of the problems it is facing
currently.
constantly need to push in the fresh energy into the business for
which there is now a trend to change the CEO's every three-tofive years. This will ensure the business to survive even in the
extreme conditions since the young CEO's will put in their
creativity and freshness into the business.
But now the period of recovery has come, however India just
faced mild shock of recession. Upturn is actually upward shift in
an economic-cycle such as from recession to steady-state or
expansion. A stock market is in upturn when it changes from a
bear market to a bull market.
Two-thirds (65%) of HR professionals anticipate an upturn in
business over the next twelve months and nearly three-fifths
(57%) expect business results to be on or above targeted levels for
2010, according to research from the Hay Group. Despite this pay
and bonuses have improved with nearly four-fifths (79%) of
organizations intending to increase salaries over the next 12
months, compared to 57% that increased salaries in 2009.
Payouts will vary markedly according to industry sector- the
majority of FMCG and retail organizations plan to pay full
bonuses in 2010, while worst hit sectors, such as financial
services and manufacturing, are anticipating below target
bonuses.
What is happening now is that many companies simply don't look
like they did even a few months ago: they have been merged,
acquired, reinvented, and reborn. Redundancies have been made,
staff shuffled and reconfigured, management structures
reorganize. And in many companies where this hasn't yet
happened all this is about to happen, or Will happen within next
six months. The dark days seem to be finally over with signs of
optimism in the overall economic scenario. Across industries,
companies are gearing up for the upturn and will focus strongly
towards innovation and investment in the best people practices
All of this restructuring may be spot on for survival purposes, but
can wreak havoc on Productivity, Morale and growth. Many
companies emerging from all this turmoil expect everyone to just
get on with things, buckle down and carry on within the new
frame work. Today, there are many business commentators
talking about the economic turmoil faced by developed
countries, emerging economies and the rest of the world.
Bankruptcy and bail out plans for many multi-national and
transnational businesses are a common order of the day.
Lay-offs, cutting and slimming unwanted fat or 'right sizing' of
many companies are common in many parts of the world. This
pessimism has infected many companies, dynamic business
executives and corporate lobbyists alike. They are already
working towards facing up to these conditions of doom and
gloom. Under such portents of calamity and economic turmoil,
can one possibly suggest to anyone to prepare for an economic
“up turn”?
Managing the top executives has become a top priority since the
business situations are highly complex and require a dynamic
personality to manage the business with expertise. Thus they
While the majority of sectors are cautiously optimistic about
2010 the manufacturing and public sectors continue to face
challenging times. Public and not-for-profit organizations are
even more pessimistic, with nearly three quarters (71%) not
expecting to benefit from the upturn for more than 18 months.
Median public sector salary increases are forecast to be just 1% in
2010, In sharp contrast, 90% of retailers and 75% of fast moving
consumer goods (FMCG) companies firms expect business
performance to reach or surpass target levels this year.
Almost all FMCG companies (95%) and a majority of retailers
(92%) will provide a salary increase. Nearly three fifths (57%) of
FMCG firms that implemented pay freezes in 2009 expect to lift
them within the next six months. Short-term incentives have and
will continue to be a hot topic for the financial services sector.
Rather unsurprisingly, these are forecast to be below target by
nearly two thirds (63%) of respondents. Very few (6%)
respondents expect above target incentives, as opposed to 13% of
organizations across all sectors.
Priorities and challenges of the top CEO's during the upturn are
employee retention, succession planning and supporting and
sustaining their business' leadership. Succession planning has
assumed a greater importance these days since it would
contribute greatly to the long term growth and stability. A
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
successful business is the one that not only has a great
management and an excellent business model buy also a great
culture to hold the two together.
For e.g. back in the 1970's,American car giant Chrysler was
losing money and was bankrupt and had the Government to
provide a bailout of $1.5 million, it was its leader Lee Iacocca
who not only took the company to the No.1 position but also
repaid the loan of the Government early.
Whilst succession planning could represent the basis for a firm
having the talent assuring its future growth, strategic succession
planning could couple this aim, with retention and development
of organization's best talents. Best talents need to be engaged and
motivated before they even consider to leave. So here comes the
concept of retention and talent management. For instance the
recession had greatly affected the aviation sector. Like the
Kingfisher airlines which resorted to cost-cutting of various
measures like the lay-offs, retention policies like highlighting the
career-development opportunities to the employees,
encouraging the employees to take up the future education,
encouraging and implementing the cross-utilization helped the
organization to sail through properly thereby becoming the
market leader in the Indian sector.
67
headcount. During these times, it becomes important for
companies to invest in employees through training and
development and other initiatives to motivate them. Thus the IT
industry like all other sectors, was affected by the global
slowdown, however the measures taken by the companies will
try them to effectively gear for the upturn.
The upturn path after having been hit in the global recessionary
storm, with companies showing optimism on hiring and salary
increases. With companies starting to prepare for the upturn by
hiring, HR leaders may have to look at various creative retention
measures to retain their top talent, as a company always requires a
skillful workforce.
Service Sector
There's no doubt it's going to be another tough year for HR.
Hudson has looked into the priorities for its clients going forward
here are the key HR issues on their minds.
Management is the art of getting extraordinary results from
ordinary people Human Resources Management is also a
management function concerned with hiring, motivating, and
maintaining people in an organization. It focuses on people in the
organization the main factor in the Service Sector. The Employee
Empowerment is the key word in the service industry, the
strategies followed in Small and Medium Enterprises (SME) the
SME Top Executives recruits by selecting people with passion
and quality, because only then will the employees stay longer
with the company.the positive gains of this practices are a low
attrition rate of about 12% no industrial dispute has been reported
yet. As a CSR initiative they are running a driving school in a no
loss no profit strategy.
Talent development
Upturn brings different perspective to the fore.
Improving staff retention
There are top challenges to be confronted in the face of upturn.
While the global financial crisis helped to retain staff in 2009,
employees will be less cautious and more inclined to change jobs
during the recovery. Likewise, competitors will once again able
to afford to hire and poach. In particular, employees who were
more closely scrutinising remuneration and benefits, job security
and career advancement prospects in other companies will gladly
make the move as hiring freezes are lifted. Proactive HR
strategies must be implemented now to retain employees.
Priorities to be seen
Organizational development
Workforce engagement
Compensation and benefits
Companies have to focus on doing the right things with business
being the centrifugal force. Now, the HR trends are to ensure all
the business needs / priorities are met not by doing run of the mill
stuff, but by getting creative and innovative in the overall
approach and sustaining the intensity and momentum. Talking
about the global scenario, corporate India is on the upturn path
after having been hit in the global recessionary storm, with
companies showing optimism on hiring and salary increases.
With companies starting to prepare for the upturn by hiring, CEO
may have to look at various creative retention measures to retain
their top talent, as a company always requires a skillful
workforce. HR will have to manage challenges of hiring and
managing attrition. Getting A-level skills is not a problem during
times of recession.
But with the upturn, there is going to be a great demand for Alevel talent. This naturally leads to the other challenge, which is
attrition. With every company stretching to pull in top quality
talent, organizations will be put to test when it comes to retaining
their staff. The improved hiring outlook is also as a result of
companies reducing their dependence on the U.S by expanding in
newer geographies and within India, thus increasing overall
According to the Hudson report, 22% of respondents expect that
talent development will take precedence as HR's first priority
moving into 2010. Improvement of talent development strategies
and delivery will be key to leveraging the available talent as
effectively as possible, especially for success-critical positions.
Mercer adds that developing high-potential talents for the future
should also be high on HR's agenda. Being one of the top
executive talent challenges faced by companies in Asia,
leadership development initiatives must be stepped up in order to
avoid talent shortages at the most crucial levels.
Employers should ensure future leaders are given access to future
development and learning opportunities to accelerate their skills
development. They must also gain a better understanding of the
skills, competencies and behaviours that will be required of
leaders in their organisational culture, and assess the gap between
these needs and existing talents.
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Compensation and benefits
are emerging, particularly in areas of work-life balance.
The economic downturn has changed the way HR approaches
compensation and benefits. According to Hudson, 2010 will be a
year of realigning total rewards programmes to meet corporate
objectives. Research from Talent2 suggests adjusting salary and
rewards packages will be half the battle for HR professionals in
the upcoming year. Finding creative and cost-effective ways of
combining tangible and non-tangible rewards will also be a major
challenge.
If resignations become more frequent, HR must structure its exit
interview process to find out why people are leaving, and what it
can to do retain current and future employees. Feedback should
not just address HR's initiatives - leaders should also be assessed
on their roles in motivating employees.
Employers will benefit from paying particular attention to using
compensation as a retention and motivational tool, or leveraging
non-financial rewards to keep employees better engaged.
Hudson says HR departments will be exploring more effective
ways of communicating benefit plans that offer individual
flexibility and build appreciation, trust and commitment.
Not only will HR have to be more innovative in this key area in
2010; they will also have to take a more individualised approach
to rewards and recognition schemes. Incentive programmes
should target all employees rather than just sales personnel who
have traditionally been the focus of such initiatives. Out-of-thebox thinking will be crucial in 2010 as companies strive to choose
rewards which are relevant and motivational.
Organisations which make it a priority to build customised
compensation and benefits programmes are in good company.
According to Mercer's 2009 Employee Benefits Choice survey,
near-100 percent of Singapore companies believe providing
employees with a choice in the benefits that they receive is
crucial for responding to diverse workforce needs and values.
Employers also acknowledged the importance of implementing
employee choice programmes in order to remain competitive in
the marketplace.
Employee Engagement
If there is a lesson to be learned from past recessions, it's the
erosion of employee commitment in organizations. Cost-cutting
measures and other effects from the economic downturn have
impacted levels of trust and loyalty in employees. Many are
feeling stressed and nervous. The upturn will see some of an
organization's best and brightest workers leaving to join
competitors if their employers don't take immediate steps to
motivate and retain them.
Hudson says 14 % of respondents to one of its recent surveys
expect employee engagement and re-engagement to be linked
closely with staff retention next year. The HR challenges lie in
reconnecting with the mood of the workforce, rebuilding trust
and collaboration, and driving continuous and transparent
communication.
A great emphasis should be placed on measuring employee
engagement levels within organisations. Employee surveys, for
example, will be very useful in highlighting where HR is
succeeding and which areas can be improved. HR should know
its key talent segments and find out what they value. Mercer
consultants say employers might be surprised at new trends that
Besides feedback, HR can be proactive with its retention efforts.
Change management programmes must adequately address
employee needs. Paying special attention to career development
opportunities will send a message to employees that their growth
in the organization is encouraged and valued. Leaders must be
deployed and equipped at all levels to inspire employees to work
towards a common goal in order to minimise distractions and
increase productivity.
Cost control
Cost control will be a corporate-wide priority in 2010, but there
will be added pressure on HR to manage budgets through process
and policy standardisation. HR must consider cost-efficient
solutions in areas such as compensation and benefits and training
programmes.
But if forecasts show an upturn is on the way, why will cost
control still be a challenge? Talent reminds employers that
recovery in 2010 will not be so drastic that employers no longer
have the challenge of dealing with budget constraints.
Organizations will not restore budgets and head counts to
anything near pre-crisis levels as they want to maintain
continuous efforts to be as distanced from the effects of the
economic downturn as possible.
In multinationals particularly, the mantra “do more with less” has
trickled from headquarter offices in the US and Europe to Asia,
despite this region faring relatively better in the crisis. But
economic uncertainty is not an excuse to ignore the backbone of
any business: the people.
According to the ECA International 2009 Assignment Benefits
Survey, HR is under significant pressure to reduce costs for
international assignments. Two-thirds of participants reported
that they intend to review various facets of their benefits policy in
the upcoming year. However, employers are also struggling to
find a balance between cost management and finding the right
talent to post overseas. These conflicting requirements will be a
major HR consideration in 2010.
Mercer consultants suggest looking for measures to contain
costs. Organisations can leverage economies of scale from
regional frameworks on executive pay, employee health and
benefit programmes, and training and development. Meanwhile
Hudson consultants predict that some HR departments will go
through restructuring themsleves. They may opt to outsource
more non-essential activities, they told HRM.
Perceptions of HR
Experts found it difficult to rank something so subjective and
multilayered, but most agreed that this is an issue HR must
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
address. HR has been one of the most vilified departments in
many organisations this year, and its efforts to limit attrition were
largely underestimated. Not only does HR have to improve its
image in the eyes of employees, it has to strengthen ties with
other business departments.
Research from Talent2 shows HR is still seen as a back-office,
transactional and operational function in Singapore and much of
Asia. Buy-in from senior management is often hard to come by as
well. Yet, high expectations await HR.
In a recent Hudson Report, 12% of survey respondents said a
dominating priority would be ensuring HR strategy is the
cornerstone of the overall corporate strategy. HR departments
must examine their effectiveness and the way they deliver
services to ensure it becomes a high-performing function moving
into 2010.
Suggestions for improvement vary according to consultants.
Some suggest HR outsourcing as an important solution. It
enables HR to decrease its administrative burdens and practice a
more direct approach to business needs. Others believe leaders
should work to give a stronger definition to HR roles in the
organization so they are more aligned with business
requirements.
Employers and employees agree that 2009 was a year of inequity
69
whether in terms of salary cuts compared to rising costs of living,
or overtime hours versus leisure time. Achieving Work-Life
Balance shifted from the check-list to the wish-list in 2009, but it
is likely to be solidly back on the agenda in 2010. The fact that
experts are moving it to 2010's HR challenges list is both good
and bad news. It is heartening that work-life balance will become
a priority, and that HR may be better equipped to give employees
that much-needed break. However, like each of the top five
challenges facing HR professionals in 2010, it indicates HR will
certainly have its work cut out for it.
Actions to be taken now
Watson Wyatt says next year is going to be just as challenging as
the last; but HR can ease the burden by putting some strategies
into play immediately.
! Refine and communicate your employee value proposition
! Strengthen communication at all levels of the organization
! Be clear with employees about what is expected of them and
how they are doing
! Get performance-based reviews right
! Focus on retaining high-performers
! Tune-up the HR function to deliver
! Take advantage of “engageable moments”
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
Managerial Challenges under
Globalized Industrial Economy
Prof. Kalpana Lodha-Chordiya
Lecturer, PCMRD, Pune
During the post-New Economic Policy (NEP) period, our
country has undergone an ocean changes in the process of
industrialization and economic development. This phenomenal
industrial growth has brought India to a prominent position
amongst the industrially advanced countries in the world. During
this period the most important phenomenon has been a speedy
diminution of public sector enterprises in industrial and
commercial fields. Though the growth of private sector had been
equally impressive, on the eve of the new millennium, the basic
policies of industrial development were formulated through the
various Industry Policy Resolutions, which envisaged that public
sector enterprises will achieve the commanding heights of the
economy only to some extent; and private sector will continue to
develop in number of areas.
Both sectors will function as to complement each other. As per
the New Economic Policy, the major thrust is on privatization and
disinvestment by the government. In order to have effective
industrial development the resources consisting of land, labour,
capital and entrepreneurship skills with the government
protection in cohesive cultural is the need of a globalize
economy. Truly speaking, an extreme example the Taliban is not
fit for the industrial development as compared to India. , since it
India has ample chances of growth due to comfortable peaceful
cultural heritages besides amply available resources. However,
the mere availability of the physical resources is not sufficient
panacea to get the boost in the industrial activities.
There is a need for skilled technicians and managerial personnel
who can harness the available factors of production for the
development of the industrial enterprises by using the cultural
advantages. Indians in the new economic wave partially
disturbed by the recessionary epidemic are eager to fight and
prepare to conquer the global challenges with the help of host of
duly trained technicians consisting of managerial, engineering
and supportive skills.
Indian experience provides a suspension bridge between highly
developed countries and developing countries in the world and
between primary production and marketing of advanced goods
and services, keeping in view its high sophistication.
Simultaneously, the technological advancement in the country
during the post New Economic Policy period has been equally
phenomenal, particularly in the areas of oil refining,
petrochemicals, drugs, pharmaceuticals, basic chemicals,
fertilizers, engineering, heavy machine building, heavy
power generating equipment etc.
In the same way, in the post NEP period, the professional
managerial growth and development has been spectacular. A
number of management institutes have been set up in the country.
There is today undoubtedly a need for professionalization in
every activity of management. Professional managers are now
running a vast number of enterprises in the private sector. The
silent but effective revolution in favor of professional
management is being witnessed and this is likely to catch further
momentum in the next decade and thereafter. The success of
industrialization is considerably dependent on managerial
performance.
In the words of Prof. Peter Drucker1, “Resources are developed
by managers and are allocated by managers, and managers are
responsible for their productivity. It is above all, productivity,
which is the first mission of management and its first
responsibility. The management task today focuses increasingly
the management task of tomorrow and is significantly centered
on the productivity of resources”. It is the management's task:i. To make human resources productive by proper and adequate
training;
ii. To make effective use of capital resources for productive
purposes, and
iii. To obtain beneficial results for society allocating resources
where they are most needed.
The first responsibility of industrial entrepreneurs is to manage
their business enterprises efficiently and profitably. Success in
this role is necessary, but is not the end of their ultimate objective.
They have a tremendous responsibility towards the society and
the people of this country, in the form of providing better
employment opportunities by establishing new units and
expansion of the existing ones; by providing quality products and
services which are most cost and effective & ultimately will help
the weaker section of our community to improve their standard of
living. The surpluses generated by the industries needs to be
utilized for the ultimate benefit of the people of this country.
It is against this background that we need to review the
management perspective in 2009-10 and thereafter to assess to
what extent the future management will be able to fulfill its wider
objectives. It is recognized that this is not an easy task but at the
same time it is within the reach of the industrial managers in the
next decade and thereafter. Some of the important aspects, which
deserve consideration at this juncture, are mentioned ahead:
·
Hike in Petroleum Products by Gulf Countries
Consequent to a steep rise in oil prices during the period 2000
onward, there was a period of widespread economic turbulence
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
and a rift was created between the oil producing countries and the
oil consuming countries. Our economy also received an
economic setback because the increased oil prices caused a
severe strain on our foreign exchange resources and it became
a Herculean task to increase the exports commensurate with the
increased burden of imports of crude oil and petroleum products.
But for the remittances received from the Indian nationals
working abroad, our foreign exchange position would have been
too critical. The continuous increase in oil prices since 1973-74
has caused a major impact on our future economic and industrial
development. This trend of increase in oil prices is persisting and
it is difficult to comprehend its impact on our industry in the next
decade.(2009-19)
Foreign Exchange For Importing Crude Oil
Oil not only continues to be a major source of energy, but an
essential item of our day-to-day life. In our country, large
quantities of kerosene is required by millions of people for
cooking and lighting; diesel is used for road and rail movement
and naphtha and furnace oil as industrial feedstock. The
consumption of oil is increasing and its availability is becoming
more and more difficult.
Finding a suitable substitute is perhaps the biggest challenge to
the industrial planners all over the world in the next decade. The
problem is too acute for our economy because of power cuts and
slow rail consumption, knowing fully well that diesel availability
is restrictive. The new (2009) Government, under the leadership
of Dr. Manmohan Singh (?) Or any other (?) may make
recommendations as to how to resolve this difficult situation. The
Government may also like to consider the feasibility of
increasing the exports to match the increased demands of foreign
exchange for importing crude oil and petroleum products.
Advancement in Technology
The entrepreneurs during the new millennium will be required to
develop new technology in the production of items of mass
consumption at low costs so that we are able to provide the basic
needs of life to a fairly large number of our people. Presently, our
efforts in the development of new technology have been
encouraging and we are less reliant on imported technology. If
we do not make high-speed progress in the same, we will be
frustrating the hope and confidence of millions of people of
this country.
Population:
Another important phenomenon particularly relevant to our
country is the increase in population. Broadly, the annual
increase in the population is about 2 crores people, which is
more or less equal to the population of Australia. If this growth is
not checked well in time it would not be a surprise, if in the next
20 years the population of our country may touch the mark of 140
crore people. During the post-independence period efforts were
being made to provide housing, better health services, education
and basic amenities of life to our people, but the population
explosion continues to make our task much more difficult. At
present, the number of unemployed or under-employed is
71
estimated at about 37% in the population. It is not going to be an
easy task to provide jobs in the next one or two decades,
commensurate with the increase in population.
Unemployment
The truth is that we are increasing in numbers far more rapidly
than our capacity to generate new jobs. No matter what efforts we
undertake to combat unemployment, the dilemma will continue
to be with us in the next decade and beyond and in a large, more
pronounced way than at present. The pressure on industrial and
commercial organizations to provide employment for more and
more people will continue.
The pressures and agitations for higher wages from the organized
sector which represents less than 10 percent of the population of
the country are mounting and when the management succumbs to
such demands, its impact is all the more severe on the rest of the
population as well as on the national economy.
i. So far as the future economic and industrial development of our
country is concerned, the next decade will mark an increased
growth of our industries in the private sector and it will
continue to be in a position of commanding heights of the
economy. Private enterprises will increase due to a variety of
reasons, primary being the large requirements of the capital,
which cannot be invested by the government involved in war
preparation against Pakistan or in drought/flood or in
political instabilities..
ii. With respect to the development of the private industries, the
continued assistance by the public financial institutions will
gradually increase public ownership. It is not necessary for this
research paper to go into the impact of the convertibility clause in
regard to the loans advanced by public financial institutions but it
would suffice to say that in the next decade and thereafter, not
only the dominance of institutional finance will continue to
increase in the industrial field, but public participation in
management will also continue to increase. The public
participation will be in various forms such as public financial
institutions appointing Directors on the Board etc. A number of
other measures have already been initiated by the State in this
direction. The impact of all these will be greater reliance on
professional management and thereby a larger responsibility on
the managers in industry to keep the industrial apparatus in
perfect condition so as to make available increased production by
the optimum utilization of the resources available. More and
more opportunities for the development of professional
managers and use of modern techniques of management will
have to be created in the next decade and thereafter, to meet this
challenge. Great consciousness has to be developed by providing
more and more opportunities for training of workers, operators
and management staff, so as to ensure optimum utilization of the
available resources for the ultimate benefit of our people.
iii. The advent of instant communications (MIS)
(Radio, telephone, telex, and computers) has made a major
impact on the management practices in industry and will
continue to make that impact in the next decade. The
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
management cannot manage its industry in isolation, but will
have to be guided by the development of technology and
managerial practices in the world around. It is even recognized
that social, political and economic developments of other
countries in the world are likely to have a considerable influence
on the formulation of our economic and industrial policies. As a
result of the instant communications, the world is witnessing a
change in the habits of the people, their mode of living etc.,
which has a major impact on the future industrial development of
a country. We have witnessed this change in a big way in our
country the change in the social life and habits of our people. For
example, every man living in a rural area now aspires to have a
pakka house, a radio, transistor, dresses made of synthetic fibers,
electricity and essential electric appliances such as a fan, stove,
refrigerator etc. These changes have a major impact on the
demands for the products and on future industrialization.
Entrepreneurs will have to keep these aspects very much in view
while formulating their new investment proposals whether in the
small, medium or large sector.
iv. It is now worthwhile to refer to another area of importance and
that is the “Management Authority” in the next decade. From
the available data one has a reason to conclude that it is gradually
increasing by the government action (disinvestment policies,
industrial de-licensing, elastic regulation of prices and wages or
Company Law provisions, etc.). Government intervention in
our country is on decrease and there are no signs of its reversal in
the next decade. Lately, the power of our trade unions has
decreased by their disassociation with political parties etc., and
they have verified their power that they are not in a position to
prevent production, prevent implementation of new plans and
schemes if their demands are not met. In this background, the task
of the managers in industry in the next decade is indeed very
challenging.
carefully for the good future of the company
Talent management is a professional term that gained popularity
in the late 1990s. Companies that are engaged in talent
management (human capital management) are strategic and
deliberate in how they source, attract, select, train, develop,
promote, and move employees through the organization
“TALENT MANAGEMENT” refers to “Keeping People Who
Keep You in Business” Talent, however, cannot be taught. As
someone said, “you can teach a turkey to climb a tree, but it is
easier to hire a squirrel”. According to Branham, 75 % of the
senior executives admit that employee retention is a major
concern today, the obvious reason being the 'increasing rate of
turnover'.
Achieving 0% percent turnover is neither realistic nor desirable.
One major reason why people leave their organization is because
of the organization's failure to bring about a correlation between
pay and performance. The organization no longer wants to just
hire to hire, in fact they are striving to find the right people, bring
them into the organization and retain their services.
Talent Management v/s Traditional HRApproach
Traditional HR systems approach people development from the
perspective of developing competencies in the organization. This
can actually be a risk-prone approach, especially for companies
operating in fast evolving industries, since competencies become
redundant with time and new competencies need to be
developed. Thus, over time, the entire approach to development
of people might be rendered obsolete calling for rethinking the
entire development initiative.
Talent management on the other hand focuses on enhancing the
potential of people by developing capacities. Capacities are the
basic DNA of an organization and also of individual potential. In
fact, the following appropriately describes the role of talent
management:
Above are some fundamental challenges for India but at the same
time India and the rest world is going through the economic cycle
phase of recession. In that, India including the world faced D
different types challenges .It was the testing period of employers
as well as for the employees. There are
different observations based on that during Point of Departure
the downturn period and when India is Translating organizational
coming out of it. The way HR manger vision into goals and mapping
behaved (on behalf of the Organization) the required level of
and competencies
during the recession, his attitude and capacities
to achieve goals
strategies he applied were different and
now he has to change his strategies. One of
the important strategies he has to apply to
get back all the cream layer from the Assessment of talent to
market (in the earlier period he remove).
profile the level of capacities
The different strategies related to the
talent management he has to apply
which is the master key for him. In
recession he was the king but now…….?
For that he has to apply all the talent
management very skillfully and
and set of
competencies possessed
within the organization
Gap analysis and identification
of development path
N
A
Navigation
Point of Arrival
Aligning individual values
and vision with organizationa
Clear understanding of the
varied roles within the
organization and appreciation
of the value-addition from self
and others leading to building
a culture of trust, sharing and
team orientation
l
values and vision
Enhancing capacities to learn,
think relate and
act through development
initiatives
Individual growth to meet and
accept varied, incremental
and transformational roles in
an overall scenario of
acknowledged need for change
Helping individuals
realize their full
potential through
learning and development
Developed individuals
enabling breakthrough
performance
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
The talent management is developing the following intrinsic
(Basic) human
Capacities:
1. Capacity to learn (measured as learning quotient LQ)
2. Capacity to think (measured as conceptual quotient CQ)
3. Capacity to relate (measured as relationship quotient RQ)
4. Capacity to act (measured as action quotient
AQ)
The individual's values help in discriminating amongst
alternatives and act as the bedrock for decisions. They act as
multipliers in enhancing the individual's capacities, a sigma of
which reflects the individual's true talent
Thus:
(LQ + CQ + RQ +AQ) X Values = Talent
Organizations provide individuals the opportunity and space for
physically manifesting their talent into performance for
achieving individual and organizational vision. Talent manifests
into performance as follows:
Talent
+
Vision/Mission/Strategy
+
Skills & Competencies
+
Role & structure
+
Opportunity
+
Encouragement & Recognition
+
Training & Development
+
Coaching
+
Action Plan & Goals
+
Resources Performance Management
System Performance
Thus the domain of talent management focuses not only on
development of Individual's intrinsic capacities, but also on
culture building and change management to provide the other
elements listed above for manifestation of talent into
performance
right person to the right job is an acknowledged need in
organizations. But one of the toughest challenges in selection
often overlooked is matching the right candidate to his immediate
boss. What makes that goal particularly tough is when the boss
does not have a clue? What kind of candidate would work well
with him? Working with various tools, we can design and
customize assessment exercises and materials.
3. Retaining Talent: Reducing Turnover and Aligning Talent
with Organization Goals
4. Developing Talent: Challenging Your People with Executive
Coaching and Leadership Development Programs.
5. Career Development / Career Management
6. Leadership Development
7. Transitioning Talent: Creating Goodwill through Career
Transition Programs
Organizations need to have a vision and a well defined strategy
on hiring for the future. India has become the outsourcing capital
of the world and this has created its own set of HR challenges.
India's biggest problem is that, qualified graduates are becoming
scarce. Despite the large population, the supply of engineers
cannot keep up with the sharply increased demand as India has
started coming out of the Downturn .In such a condition
following are the objectives we have to focus in connection to the
above fundamental challenges faced by India .
OBJECTIVES
· To identify various upcoming challenges of talent management
· To establish upcoming trends in talent management.
· To identify the ways to retain the best talent while on the verge of
downturn
Upcoming Challenges:
With help of some Global Recruitment Market Report: 2009 we
can analyze key trends and market forecast.
Year
Countries
Employment
JAN 2009
US (22.7%)
76000 declined in jobs
JAN 2009
Canada (7.2%) 129000
UK(1.3%)
France
Indian Service Sector Contributed 56% To The GDP in
2008-09
Talent Management as a Strategic Approach: talent
management as a strategic approach to managing human capital
throughout the career cycle:. In an organization, Talent
Management “A conscious, deliberate approach undertaken to
attract, develop and retain people with the aptitude and abilities
to meet current and future organizational need”
The economic downturn: Coping strategies
1. Attracting Talent: Creating Assessment and Selection
Strategies and Processes
The current economic situation
2. Matching the Right Candidate to the Boss: Matching the
! Demand plummeted;
! Markets became unstable,
! Credit dried up.
! The future looked murky and unpredictable
Consumer debts in some countries like the US and UK remains
too high Unemployment still rising, and consumers won't
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
74
spend until they feel safe in their jobs
in 1982.
The current economic outlook
By the last quarter of 2009 and 2010, growth returns to most of
the world. Asia, Africa and parts of Latin America will begin to
grow quite briskly
In the advanced economies, unemployment may increase until
mid-2010 and may not reach pre-crisis levels until 2013;
financing will be difficult but inflation should stay low.
India, China leading Asia out of global downturn (GDP
Rates)
Decline -
4. The global economic calamity and recession, worst hit
has been for the outsourcing industry
Offshore Outsourcing Challenges In 2009
The year 2008-09 has not been very good for businesses. With the
global economic calamity and recession, worst hit has been for
the outsourcing industry. But the trouble doesn't end here. In fact,
the offshore outsourcing industry has many other challenges
staring at face. Here are some of them.
Other Current challenges
Company Scandals - Satyam
Happened and question the ethics of
debacle(Disaster)
Indian outsourcing companies.
Obama and American Policies
Anti-outsourcing views; proposed the
Countries
GDP rate
US
4%
companies that outsource their work
Japan
8%
The Indian outsourcing industry is
A Asia excluding China, India
n a
and Indonesia,
7%
removal of tax benefits for
to offshore continents.
faced with the huge challenge to
overcome on this regards.
Indian Politics and Uncertainty
Till the period of uncertainty is there,
there will only be a skeptical attitude
towards the outsourcing industry.
Advanced economies are projected to expand sluggishly through
much of 2010, with unemployment continuing to rise until
later in the year, with annual growth in 2010 projected to be
about 1.25%, following a contraction of 3.5% in 2009.
In emerging economies, with rebound driven by China, India,
and a number of other emerging Asian economies, real GDP
growth is forecast to reach almost 5 % in 2010, up from
1.75% in 2009
Other Outsourcing Hubs
Also pressure of increasing competition like is other emerging
outsourcing centers like Philippines, China etc…. Though
Philippines is poor and lacks political stability, it is heavily
banking on outsourcing to bring in revenue.
Some Indian M&A
The Great Recession of 2007-09
JK Tyres acquires Mexican firm Tornel
The global economy is now in the process of gradually
recovering from the most severe financial shock and the worst
economic downturn since the Great Depression of the
1930s.Since the 1960s this has been the first year in which global
real GDP has actually declined
Biocon to buy US firm for $400 mn: Report
Asia has been less impacted; more specifically growth in China
and India has remained impressive although down slightly from
the very rapid levels of a few years ago. The growth in these
economies is especially important from an humanitarian point of
view since they are so large with over a third of the world's
population and since they contain over a half of the world's poor.
Tata makes offer to acquire Brazilian ore miner AVG
GMR to acquire 50% of SA coal firm for Rs 620 cr
SIRO buys out German clinical R&D firm
M&M set to buy Belgian gear-maker for $475 mn
Tatas to buy stake in Italian auto designer Pininfarina
Dr. Reddy's Acquires BASF's Pharmaceutical Contract
Manufacturing Business and Related Facility at
Shreveport in the US
· poverty has increased by 90 million
Essar acquires US based mobile payment company,
· unemployment by 50 million
Obopay Inc
In the last 60 years the global economy has only experienced four
significant recessions, these were in; 1975, 1982, 1991 and 2009.
Of these four global recessions, 2009 has been the worst in terms
of the
UAEs Etisalat eyes Stake in Spice Telecom
1.
Decline in GDP,
Bharti Airtel eyes South African MTN
2.
Industrial production,
3. And investment the current recession has been about
twice as great as that of the second worst, which occurred
http://economictimes.indiatimes.com/...ow/2996913.cms
3i Infotech buys US co Regulus for $80 mn
http://economictimes.indiatimes.com/...ow/2996904.cms
In case of such a different types of problems HR department
should always be keen because HR still has to prove every time
that they are an integral part of the organization that they are
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
working as a shield for the organization. HR has to handle very
delicate issues to sustain itself in the market. Every time they
have to be careful while applying different strategies. And this is
a testing period for the HR department that how they handle the
situations when they are coming out of downturn (but not
completely and); how they handle the talent management.
Again it's not easy to cope up when there is a M&A. A lot of
issues regarding nurturing of employees is a challenge. (issues
related to managerial ,financial as well as very important issue of
personnel ) A model would be the Mahnidra group when it took
over Satyam.
STRATEGIES FOR MANAGING HUMAN RESOURCE
IN M&A: As a Part of Talent Management
I. Communication
During mergers and acquisitions, employees are often kept in the
dark about the sale of the corporation. This can lead to a distorted
or misrepresented picture of the acquisition's ramifications and to
counterproductive activities by employees, who may be anxious
about possible job losses. By involving people at all levels of the
organization, the merging companies are encouraging
widespread acceptance of the merger process and reducing
feelings of insecurity.
II. Retaining Key People
Pay and reward strategies can also play an important role in
management's retention strategy but they need to be addressed
early on in the merger process and should not only focus on senior
executive pay, but also on the remuneration of employees at all
levels of the organization
III. Try to Establish a Common Culture
Create a win-win situation for both organizations, since it will
result in a corporate culture with which both sides can identify
75
HDFC Bank; vCustomer corporation are concerned about
organizational culture .Average 92 hours of Training on
behavioral and skill enhancement training every quarter they
gives.
Provide Individual Counseling
Individual counseling on personal adjustment and stress coping
strategies can assist the employees to 'solve the problems
associated with merger stress; recommend, demonstrate and
initiate coping with merger stress strategies; or improve the
employee's mastery'
Most of all the strategies are followed by Mahindra & Mahindra
in the form of-that from the very beginning like the day new
employees joins, he picked from his house in Mahindra Scorpio
and welcomed with a rose.1st impression comprises of a
feedback from every employee on the 7th 30th 90th &180 day
from the date of his joining. The company is driven by the core
purpose of Indians are second to none in the world'
From the above overall scenario we can say following are the
current challenges for the HR from that he has find out the way.
Concluding it can be said Today's Top 10 TalentManagement Challenges are
1. Attracting and retaining enough employees at all levels to
meet the needs of organic and inorganic growth
2. Creating a value proposition that appeals to multiple
generations: most companies are struggling to create an
employee experience that appeals to individuals with
diverse needs, preferences and assumptions The stores have
a high percentage of Gen Y employees, while corporate
roles and leadership ranks are primarily made up of Gen
X'ers and Boomers.
3. Developing a robust leadership pipeline
Conducting a cultural audit is a useful way of obtaining useful
information about the two companies'
4. Rounding out the capabilities of hires who lack the
breadth of necessary for global leadership
This is handled in a very good manner by Sataym & manhindra.
5. Transferring key knowledge and relationships
For Employee Branding Mahindra also got the award in 2009
6. Stemming the exodus of Gen X'ers from corporate life
IV. Training and Development
7. Redesigning talent management practices to attract and
retain Gen Y's
Training and development should be provided to senior and
middle management and should focus on all aspects of the
merger process.
8. Creating a workplace that is open to Boomers in their
"second careers
Training should focus on the implications of the merger for the
company, its effects on employees at all levels of the organization
9. Overcoming a "norm" of short tenure and frequent
movement.
Tata's are expert in this field, McDonald's places emphasis on the
training and development of its employees. They aim to provide
career opportunities for people to achieve their potential , Indian
Oil Corporation belives that there should be T& D form the
starting point when employee enter into the organsiation.
10. Enlisting executives who don't appreciate the challenge
V. Try to Eliminate the Them-Us Syndrome
Try to eradicate any arrogance on the part of their personnel to
ensure that acquired employees do not feel inferior and
'conquered.'
Business and HR strategies to be integrated well, it is apparent
that the top management, business heads and HR professionals
need to work closely with each other.
There are five ways in which HR professionals can enhance
their ability to contribute to this integration process.
1.
HR professionals must spend more time and effort
understanding the business environment and the key
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
76
strategic issues faced by the company:
To be mentally prepared for all possibilities, to be able to
give a clear picture of changes to fellow employees, and to
look ahead and foresee changes on the horizon that could
involve changes in HR policies and practices, understanding
the business environment ; the key strategic issues faced by
the company on a continuing basis is essential.
2.
3. HR professionals must move towards taking an
integrated look at the
people in the organisation,
bridging the gap between HR and IR (Industrial
Relations) by employee branding which done in a very
good manner by different companies like…Wipro,
Infoysis.
5.
It is tried by vCustomer Corporation in the form of “it
provides outlet for creative writers; monthly magazines
gives a whole new meaning to free speech, when
employees express their opinion on various topics. There
are groups like vRiders, the bikers and vlive …etc every
quarter through which they can display their talent at
various cultural vents which make it more open to know
different potential talents hidden in them.
HR professionals must get more involved in the nittygritty's of the business, i.e., in operational details and
issues:
Better understanding of operational concerns will also help
HR professionals play a more useful role in training and
development, transcending behavioral training programmes
and “leadership”. This is particularly important in an era
when domain knowledge and technical expertise are
becoming more important. Specially this care is taken by
Tata Group well, also by P&G
4.
6. Diversity of Talents and Personalities & Deep
Immersion:
HR professionals must see themselves as knowledge
workers and facilitators of knowledge flows within the
organisation: .
7. Horizontal Growth Paths: Productive growth path is
horizontal and ,progressive organizations have created
lateral paths that allow people to broaden their skills and
knowledge within their disciplines and jobs.
Companies like IBM, Intel have instituted technical mastery
programs to allow individual contributors and specialists to
develop their knowledge and learning and to be paid and
recognized for it.
From the above we can say if HR manger change his polices
on behalf of the organization considering the future ( to
nurture and minimize the attrition rate of good knowledge
capital ) i.e considering that the recession will over by the end
of 2013 throughout the world and apply the following 8
(Eight) Principles for success definitely make the path of
human capital as well of the Organization will be smoother.
i.
Accurate diagnosis is the first step in effective development
Documentation and sharing of such knowledge helps
organizations do this effectively. Performance appraisal
processes and incentive systems need to reflect the
importance of this activity.
ii. Ensure development is tied to where our business is going
now and in the future.
HR professionals need to change from a support
paradigm to a value creation paradigm
iv. Prioritize potential
SEVEN TALENT MANAGEMENT PRACTICES:
With lot of determination and skillful execution of seven key
practices, any organization can create motivating workplace.
iii. Development talent needs to represent a balance between
fixing weaknesses and leveraging strengths.
v.
Effective development requires a blend of activities
including mentoring, classroom learning, coaching, job
assignments, action learning etc..
vi. Don't underestimate the role of management support
1. Job Stretch and Mobility: Talented people need to be
constantly challenged and stretched whatever may be
job defined narrowly. Allow them to take risks, try new
things though they fail or …etc. This strategy is followed
by the Reliance Group.The employees are expected to
show their talent
vii. Creating learning tension will maximize your return
2. Mentoring Not Just Managing: Only transferring of
knowledge mechanically is not important but it is also
important to guide at each step by one to one quality
conversation which now a days done by the different
software companies
“He looks forward to the next decade. He shall be managing
under more difficult conditions than ever before and more will be
expected from him. That is a challenge he should welcome, since
he has chosen to be managers not caretakers. He alone can meet
the expectations of ordinary people in the next decade, by
providing them with the goods and services they want, by
enabling them to find the satisfaction at work they are looking for
and by helping them to tackle community problems. What he will
require above all in the years ahead is the confidence to meet that
challenge to the full”.
3. Freedom and Motivation:
SAP Labs India ltd provides flexi time. Compassion leave
is available to employees in case of bereavement .500
employees are member of SAPPORT CSR initiative
5. Teaching and Coaching
viii. Developing others becomes a measurable management
performance objective.
The role of Industrial entrepreneurs in globalization may be
summarizing in the following words:
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
77
Positive Organizational Outcomes
With Strategic HRM
Prof. Kalpana Lodha- Chordiya, Lecturer, PCMRD, Pune
Prof. M. Swati, Soft Skill Trainer, PCMRD, Pune
The Global Picture
Today's leaders must assume the responsibility for creating new
models of management systems because many of the
assumptions on which management practices were based are
now becoming obsolete. The global picture when it comes to
business is that the world is indeed becoming a smaller place.
More and more companies are operating across geographic and
cultural boundaries. While most have adapted to the global
reality in their operations, many are lagging behind in developing
the human resource policies, structures, and services that support
globalization.
The human resource function faced many challenges during the
globalization process, including creating a global mind-set
within the HR group, creating practices that will be consistently
applied in different locations/offices while also maintaining the
various local cultures and practices, and communicating a
consistent corporate culture across the entire organization. To
meet these challenges, organizations need to consider the HR
function not as just an administrative service but as a
strategic business partner.
The changes in the present industrial scenario have necessitated
changes in the structure and functioning of an organization.
Organizations have been focusing on radical changes in the
structure resulting in the flatter and leaner organization. These
changes with the increased emphasis on the knowledge
management have resulted in the significant shifts in the working
environment and HR policies pursued by the organization. The
primary focus of the human resource management is to match the
job profile with the skill set off the people, in order to achieve the
organization goal.
The business environment is dynamic, and the cause of
yesterday's success may be the cause of tomorrow's failure.
Foreign competition and the need to trade more effectively
overseas have forced most corporations and government to
become increasingly culturally sensitive and globally minded.
Rapid technological changes have transformed the time
dimension of competition.
Speed and quality in addressing the needs of worldwide
customers greatly influences who the next winning businesses
are going to be. The flow of technological know-how around the
world is also much quicker than in any other previous era. New
powerful global competitors are emerging in countries
previously on the periphery of global economic activities.
The human resources department should develop and implement
both business and people strategies. This type of partnership is
necessary if an organization wants to change potentially
inaccurate perceptions of HR and reiterate the HR function's
purpose and importance throughout its global environment.
Organizations will also discover that HR can be priceless in
facilitating the development of a unifying corporate culture
and finding and cultivating much needed leadership talent
around the world. The process of globalizing resources, both
human and otherwise, is challenging for any company.
Organizations should realize that their global HR function can
help them utilize their existing human talent from across multiple
geographic and cultural boundaries. International organizations
need to assist and incorporate their HR function to meet the
challenges they face if they want to create a truly global
workforce.
Functions such as operations, sales, and marketing have
generally made great progress in adapting to the global reality.
However, the HR function has typically lagged behind in
developing policies and structures that support globalization.
The top challenges HR faces in the globalization process include:
NEW TRENDS IN HRM
HRM places great emphasis on a number of responsibilities and
functions such as relocation, orientation and translation services
to help employees adapt to a new and different environment
outside their own country.
Selection of employees:
Requires careful evaluation of the personal characteristics of the
candidate .
At the same time HR manager has to remember that this is the
base on which some percentage of the attrition or turnover rate
depends. We are now coming out of a slowdown & it's like a
rejuvenating phase of the industry. In this the HR manager has to
be very careful as the other part of the world still has to come out
of the recession. As per the data this recovery will continue in
different parts of the world till 2013.The HR manager will play a
crucial role in selecting people who will be easy to nurture and
are more productive.
Changed Employee Expectations:
Again there is a difference in the thought process of different
generations (Gen.X: Gen.Y….etc.) that he has to keep in mind.
Employees demand empowerment and expect equality with the
management. Previous notions on managerial authority are
giving way to employee influence & involvement along with
mechanisms for upward communication and due process.
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
If we look at the workers' unions of Otis, Hindustan Lever, ICI,
TOMCO,
Blue Star, Webel Electro, and Central Bank. They have rewritten
their agenda to include quality and better customer service. So
every time there is a need to redraw the profile of the worker and
discover new methods of training, hiring, remunerating and
motivating employees.
Outsourcing HR Activities: The trends towards outsourcing
have been caused by several strategic and operational motives.
HR departments are divesting themselves from mundane
activities to focus more on strategic role. Outsourcing has also
been used to help reduce bureaucracy and to encourage a more
responsive culture by introducing external market forces into the
firm through the biding process. It is a big challenge before the
HR manager to prove that his/her department is as important as
any other functions in the organization.
their number of management grades, elimination of layers, &
redrawing reporting lines within their organization. ITC, HLL,
Godrej & Boyce, RPG Enterprises, Raymond Woollen Mills,
Shaw Wallace, Ballarpur Industries, Compton & Greaves are
some of the companies that are doing so.
Changes are required particularly during the time of
Acquisitions and Mergers also during the bad weather of the
firm. This is a paramount need to keep people working
effectively and efficiently. Here there are main issues like
financial, managerial as well as two different organizational
cultures etc .These are done according to the changing character
of competition, as major companies operate through complex
web of strategic alliances of varying degrees of permanence.
Changing Workforce Dynamics: Frequent, physical relocation
is required. The increasing number of dual-career professionals
limits individual flexibility in accepting such assignments and
may hinder number of dual-career professionals limits individual
flexibility in accepting such assignments and may hinder
organizational flexibility in acquiring and developing talent.
Some demographic changes in the workforce having their own
implications to the HR managers are:
Managing Diversity: This is getting to be a very important issue
because of: Increase in the number of young workers in the workforce, increase in the number of women joining the work-force,
increase in the proportion of ethnic minorities in the total workforce, increase in mobility of work-force, international careers &
expatriates are becoming common, international experience as a
pre-requisite for career progression to many top-level
managerial positions. Organizations that can manage diversity
better tend to be more flexible because they have broadened their
policies are more open-minded, have less standardized operating
methods and have developed skills in dealing with resistance to
change.
(i) Increasing number of working mothers,
CHALLENGES OF HRM IN INDIAN IT INDUSTRY:
(ii)Asteady decline of blue-collar employees who are giving way
to white-collar employees, and
The Indian IT industry poses a unsolved challenge to HR
professionals-from recruitment to detainment, compensation to
career planning and from technological obsolescence .
(iii) Increasing awareness & education among workers.
Eg. Wipro cares about dual career couple. They give more
preference to working women.
Balancing Work-life: Balancing work & life assumes relevance
when both husband and wife are employed. Challenges of a of a
working housewife / mother are more than a working husband,
thus balancing it is becoming a major challenge for the HR
manager. So a program that aims at balancing work-life is
required and is supposed to include: Childcare at or near the
workplace, Job Sharing, Care for sick children and employees,
On-site summer camp. Training supervisors to respond to work
and family needs of employees, Flexible work scheduling, Sick
leave policies, Variety of errands from dry cleaning, dropping
children at schools, and many more like these.
Making HR activities ethical:
Hiring ethically strong employees is only the beginning.
The need to ensure ethical conduct of employees is increased a lot
with the passage of time. The Hr manager needs to carefully
screen applications for jobs, weed out those who are prone to
indulge in misdemeanors and hire those who can build a value
driven organization.
Organizational Restructuring: Peter Drucker prophesies in his
book(The New Realities) that many big companies are reducing
Labour turnover.
This problem can be tackled with the use of HR planning which
in itself is a challenging task in IT industry. As the maximum
turnover rate in the IT industry is approximately 59%.
Determining the strength required for the near future is a very
complex problem in an IT company. The deciding factor is the
company's perceived ability to bag projects both locally and
internationally. The problem here is that until the companies
have sufficient right staff-mix, it cannot clinch a project. But
unless there is a project, it cannot attract and retain people. With
the advent of MNC's it may be noted that job prospects are
gearing up. The multinationals are offering fantastic pay packets
and working environments to their employees
Eg: TCS offers a consulting-led, integrated portfolio of IT and
IT-enabled services delivered through its unique Global Network
Delivery Mode, recognized as the benchmark of excellence in
software development. TCS has over 120,000 of the world's best
trained IT consultants in 42 countries, with an annual sale of $5.7
billion (fiscal year ending 31 March, 2008)
TCS has also won many awards in different fields as
! TCS tops the Data Quest DQTop20 list of IT Services
providers in India for 2008
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
! TCS ranked among Top 25 in Business Week's 2007
Information Technology 100
! TCS awarded top position in 2007 "Global Services" 100 'Top
10 Best Performing IT Services
TCS is the world's first organization to achieve an enterprisewide Maturity Level 5 on CMMI® and P-CMM® based on
SCAMPISM, the most rigorous assessment methodology. TCS
Integrated Quality Management System (iQMS™) integrates
processes, people, and technology maturity through various
established frameworks and practices, including IEEE, ISO
9001: 2000, CMMi, SW-CMM, P-CMM, and Six-Sigma.
This shows that it is lays much emphasis on quality control.
CHALLENGES IN TCS
1) TO MAINTAIN WORKFORCE DIVERSITY
The future success of any organizations relies on the ability to
manage a diverse body of talent that can bring innovative ideas,
perspectives and views to their work. The challenge and
problems faced of workplace diversity can be turned into a
strategic organizational advantage. In Modern Human Resource
Management if an organization is able to capitalize on this
melting pot of diverse talents. With the mixture of talents of
diverse cultural backgrounds, genders, ages and lifestyles, an
organization can respond to business opportunities more rapidly
and creatively, especially in the global arena (Cox, 1993), which
must be one of the most important organizational goals to be
attained. More importantly, if the organizational environment
does not support diversity broadly, one risks losing talent to
competitors Since TCS has offices in more than 40 countries, the
challenge for HRM is to maintain the proper ratio between
foreign and Indian origin employees.
2) THE MANAGEMENT OFWORKPLACE DIVERSITY
In order to effectively manage workplace diversity, Cox (1993)
suggests that a HR
Manager needs to change from an ethnocentric view ("our way is
the best way") to a culturally relative perspective ("let's take the
best of a variety of ways"). This shift in philosophy has to be
ingrained in the managerial framework of the HR Manager in
his/her planning, organizing, leading and controlling of
organizational resources.
TCS deals with this challenge by conducting mentoring
programs.
3) LARGE WORKFORCE
There is a big challenge of maintaining large work force
consisting of 1.3 Lac employees in for TCS.
4) MANAGING EIS
As information is the basis of decision-making in an
organization, there lies a great need for effective managerial
control. A good control system would ensure the communication
of the right information at the right time and relayed to the right
people to take prompt actions.
79
When managing an Executive Information System, a HR
manager must first find out exactly what information decisionmakers would like to have available in the field of human
resource management, and then to include it in the EIS. This is
because having people simply use an EIS that lacks critical
information is of no value-add to the organization. In addition,
the manager must ensure that the use of information technology
has to be brought into alignment with strategic business goals.
5) CONTROLAND MEASURE RESULTS
A HR Manager must conduct regular organizational assessments
on issues like pay, benefits, work environment, management and
promotional opportunities to assess the progress over the long
term. There is also a need to develop appropriate measuring tools
to measure the impact of diversity initiatives at the organization
through organization wide feedback surveys and other methods.
Without proper control and evaluation, some of these diversity
initiatives may just fizzle.
6) LEADINGTHE TALK
A HR Manager needs to advocate a diverse workforce by making
diversity evident at all organizational levels. Otherwise, some
employees will quickly conclude that there is no future for them
in the company.
As the HR Manager, it is pertinent to show respect for diversity
issues and promote clear and positive responses to them. He/She
must also show a high level of commitment and be able to resolve
issues of workplace diversity in an ethical and responsible
manner.
7) HOW TO KEEP THE SAME LEVEL OF
RECRUITEMENT EVEN IN
RECESSION
The biggest challenge for HR is to maintain the company
reputation, which it gained over a period by recruiting a large
number of new employees every year.
8) HOW TOABSORBALLRECRUITEES
Though there are recruitments on a large scale, they do not have
enough projects to absorb all the new recruited employees. In
order to tackle this situation, they are calling the new recruited
employees in small batches rather than 2-3 large groups.
9) HOW TO MAKE MORE PROFIT WITH SAME
REVENUE
As per Economic times, TCS is planning to decrease the variable
pay of executives by 10-15% and keeping the gross same for
middle management and developers.
10) HOW TO MOTIVATE EMPLOYEE
The development of an appropriate organizational reward system
is probably one of the strongest motivational factors. This can
influence both job satisfaction and employee motivation. The
reward system affects job satisfaction by making the employee
more comfortable and contented. Motivational factors in an
organizational context include working environment, job as a
result of the rewards received. The reward system influences
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
motivation primarily through the perceived value of the rewards
and their contingency on performance (Hickins, 1998).
The challenge which HR is facing is that how to motivate
employee without any significant salary hike or promotion.
BIRLASOFTAND THEIR HRM PROBLEMS
Birlasoft is a leading provider of information technology services
in both onshore and offshore models to Fortune 1000 as well as
mid-sized organizations in banking, financial services,
insurance, retail, healthcare, manufacturing and independent
software vendors sectors. Birlasoft services include application
development, support & maintenance, enterprise application
implementation, integration, infrastructure management and
quality
Birlasoft's robust delivery processes embrace digitized project
management methodologies, embedded within proven practices
of Six Sigma, SEI CMMi Level 5 on a continuous Representation
and secure services framework with BS7799. The Noida centers
of the company have been recently assessed at PCMM Level 3
for its HR practices. Headquartered at Noida, India, Birlasoft has
4,000+ employees across US, UK, Germany, Netherlands, Czech
Republic, Malaysia,Australia, Singapore and India.
Birlasoft is part of the global $1.4 billion CK Birla Group which
traces its roots back to over 150 years and has diversified interests
ranging from automobiles, cement, paper, software etc. to
hospitals, schools and colleges as part of its philanthropic work.
The company is a joint venture of CK Birla Group of India and
Computer Horizons Corporation (CHC) of USA. It is leading
Information Technology Company with offices world-wide. It
offers high class solutions and offshore services to its clients that
include companies like AT & T, P&O Containers, Merrill Lynch,
ICL, Oracle Corporation, Ford, IBM, Network Managers, Shawn
Ice, SaudiAramco, DDA, NEI, BMBHRC, ET &T, CDAC.
In the year 1999 it was rated as the third fastest growing software
companies of India by the magazine named Dataquest of India.
CHALLENGES IN BIRLASOFT
1. Communication
Focusing on establishing effective communication throughout
the organization and to ensure that Birlasoftians have the skills
and avenues to share information and coordinate activities
effectively.
2. Performance Management
Driving the organization's and its members' progress by
establishing objectives related to committed work against which
performance can be measured, ascertain capability development
assistance required to continuously enhance performance.
3. Competency Development
This starts with identification of requisite competencies at the
organization level which are ultimately dependent on
competencies that are needed to be identified, built or enhanced
in the individual Birla softian. Also constantly enhancing the
capability of Birlasoftians to perform assigned tasks. This
responsibility in turn uplinks to the organizations capability
building.
4. Training and Development
To ensure that the identified competency requirements are built
through a systematic and focused approach.
5. Compensation
To provide all individuals with remuneration and benefits based
on theircontribution and value to the organization in a fair and
transparent manner. Competitiveness of the compensation
offered in comparison with the prevailing
6. Career Development
To ensure that individuals are provided opportunities to develop
their competencies that enable them to achieve professional and
personal career objectives within the organization's goals.
7. Participatory Culture
A myopic outlook of utilizing talents of people only in the
delivery of assigned duties has two broad undesirable effects: It
prevents people from developing as well rounded professionals;
and it denies the organization the readily available multitalented
internal resource pool that could potentially contribute to most of
the challenges and opportunities facing the organization.
Building a participatory culture enables availability of avenues to
harness/give exposure to employees' full capability by
involvement in making decisions and solving problems that
affect the performance of business activities
CHALLENGES OF HRM IN INDIAN TOBACCO
INDUSTRY:
Large companies can afford to keep surplus staff and keep them
engaged in internal projects or training programs. However,
employees deeply resent transfers from one project to another as
it adversely affects their career planning and prospects.
Unexpected employee turnover and overseas deputation may aid
further strain on the HR department.
Notwithstanding the complexity of the problem, it has to be
tackled to enable the HR department to plan its recruitment
campaign, at least 3 months in advance. The marketing
department has to play a vital role here. It must forecast the
technologies in demand .
INDIAN TOBACCO COMPANY (ITC) AND THEIR HRM
PROBLEMS
Company Profile
ITC is one of India's foremost private sector companies with a
market capitalization of over US $ 13 billion and a turnover of US
$ 3.5 billion. Rated among the World's Best Big Companies by
Forbes magazine and among India's Most Respected Companies
by BusinessWorld, ITC ranks third in pre-tax
profit among India's private sector corporations. ITC has a
diversified presence in Cigarettes, Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business, Packaged Foods &
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81
Confectionery,Information Technology, Branded Apparel,
Greeting Cards, Safety Matches and other FMCG products.
CHALLENGES FACEDAT ITC BYTHE HR MANAGER
History
Attrition is the gradual reduction of a workforce by employees'
leaving and not being replaced rather than by their being laid.
Reducing attrition rate has been a challenge for HR Managers
since many years. Tobacco industry was not much affected by the
problem of attrition, but due to stringency in government policies
this problem became a prominent challenge for HR Managers of
this industry.
ITC was incorporated on August 24, 1910 under the name of
'Imperial Tobacco Company of India Limited. Though the first
six decades of the Company's existence were primarily devoted
to the growth and consolidation of the Cigarettes and Leaf
Tobacco businesses ITC's Packaging & Printing Business
Division, was set up in 1925 as a strategic backward integration
for ITC's Cigarettes business In 1975 the Company launched its
Hotels business with the acquisition of a hotel in Chennai which
was rechristened 'ITC-Welcomgroup Hotel Chola'.
Products
CIGARETTES
Wills, Insignia, India Kings, Gold Flake, Navy Cut, Scissors,
Capstan, Berkeley, Bristol, Flake.
FOODS
Ready to eat foods, staples, confectionery and snacks.
LIFESTYLE RETAILING
Wills Classic work wear, Wills Clublife evening wear, Wills
sports wear.
GREETING, GIFTINGAND STATIONARY
Expressions greeting cards, autograph books, slam books, party
invitations, pop up & mini books, Expressions Regalia
(collection of premium greeting cards & social cause cards and
desk calendars)
Market Share
ITC has captured a market share of 8%.
In confectionery, ITC has built up a 17% share of mint candies
and 24% of hard-boiled candiesReady-to-eat Sunfeast Pasta
Treat has clocked 6% of the branded noodles.
Challenges in Modern Human Resource Management
Indian tobacco act's amendment 2003.
CigarettesAct is passed with first statutory health warning, 1975
States like Delhi, Goa and a few more had created their own
tobacco control laws .
Kerala High Court and Supreme Court give momentous
decisions in favor of tobacco control policies.
Prevention and Control of Pollution Act included smoking in the
definition of air pollution, Motor Vehicles Act of 1988 made it
illegal to smoke in a public vehicle and Cables Television
Network Amendment Act of 2000 prohibited the transmission of
tobacco commercials on cable TV across the country.
The Cigarettes and other Tobacco Products (Prohibition of
Advertisement and Regulation of Trade and Commerce,
Production, Supply and Distribution) Act, 2003 (COTPA), a
comprehensive tobacco control legislation, comes into force on
1st May 2004. India ratified FCTC on 5th February 2004.
1. ATTRITION
The same is the case with HR Manager of ITC, due to stringency
in government policies the sales went down and the profits
declined. In order to maintain the profit levels employees were
pressurized and thereby adding to the attrition rate. Now, HR
Managers are working hard to reduce this increasing attrition
rate.
2. RECRUITMENTAND TRAINING
As the employees are leaving the organization due to increased
work pressures, it has become mandatory for the HR Manager to
recruit new employees. And in this liquidity crunch they are
spending on the recruitment and training of the new recruits.
3. RETENTION
Retention is a process of continued possession. Retaining an
employee without giving any fringe benefits is more difficult in
the current scenario when each and every organization is
suffering from liquidity crunch. It is very difficult for an
organization to give tangible or intangible benefits. The HR
Manager of ITC also is moving in the same boat. He is also facing
difficulties in retaining the old employees, as he is not able to
motivate them and with the increased pressure the attrition is
increasing.
The Challenges of Workplace Diversity
Workplace Diversity
According to Thomas (1992), dimensions of workplace diversity
include, but are not limited to: age, ethnicity, ancestry, gender,
physical abilities/qualities, race, sexual orientation, educational
background, geographic location, income, marital status,
military experience, religious beliefs, parental status, and work
experience.
The future success of any organizations relies on the ability to
manage a diverse body of talent that can bring innovative ideas,
perspectives and views to their work. The challenge and
problems faced by workplace diversity can be turned into a
strategic organizational asset if an organization is able to
capitalize on this melting pot of diverse talents.
With the mixture of talents of diverse cultural backgrounds,
genders, ages and lifestyles, an organization can respond to
business opportunities more rapidly and creatively, especially in
the global arena (Cox, 1993), which must be one of the important
organizational goals to be attained. More importantly, if the
organizational environment does not support diversity broadly,
one risks losing talent to competitors.
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
This is especially true for multinational companies (MNCs) who
have operations on a global scale and employ people of different
countries, ethical and cultural backgrounds. Thus, a HR manager
needs to be mindful and may employ a 'Think Global, Act Local'
approach in most circumstances. The challenge of workplace
diversity is also prevalent amongst Singapore's Small and
Medium Enterprises (SMEs). With a population of only four
million people and the nation's strive towards high technology
and knowledge-based economy; foreign talents are lured to share
their expertise in these areas.
employ diverse talents to understand the various niches of the
market. For example, when China was opening up its markets
and exporting their products globally in the late 1980s, the
Chinese companies (such as China's electronic giants Haier)
were seeking the marketing expertise of Singaporeans. This is
because Singapore's marketing talents were able to understand
the local China markets relatively well (almost 75% of
Singaporeans are of Chinese descent) and as well as being
attuned to the markets in the West due to Singapore's open
economic policies and English language abilities. (Toh, R, 1993)
Thus, many local HR managers have to undergo cultural-based
Human Resource Management training to further their abilities
to motivate a group of professional that are highly qualified but
culturally diverse. Furthermore, the HR professional must assure
the local professionals that these foreign talents are not a threat to
their career advancement (Toh, 1993). In many ways, the
effectiveness of workplace diversity management is dependent
on the skilful balancing act of the HR manager.
With this trend in place, a HR Manager must be able to organize
the pool of diverse talents strategically for the organization. He
/She must consider how a diverse workforce can enable the
company to attain new markets and other organizational goals in
order to harness the full potential of workplace diversity.
One of the main reasons for ineffective workplace diversity
management is the
Predisposition to pigeonhole employees, placing them in a
different silo based on their diversity profile (Thomas, 1992).
In the real world, diversity cannot be easily categorized and
those organizations that respond to human complexity by
leveraging the talents of a broad workforce will be the most
effective in growing their businesses and their customer base.
As suggested by Thomas (1992) and Cox (1993), there are
several best practices that a HR manager can adopt in ensuring
effective management of workplace diversity in order to attain
organizational goals.
They are:
Planning a Mentoring Program:
One of the best ways to handle workplace diversity issues is
through initiating a Diversity Mentoring Program. This could
necessitate involving different departmental managers in a
mentoring program to coach and provide feedback to employees
who are different from them.
In order for the program to run successfully, it is wise to provide
practical training for these managers or seek help from
consultants and experts in this field. Usually, such a program will
encourage organization's members to air their opinions and learn
how to resolve conflicts due to their diversity.
More importantly, the purpose of a Diversity Mentoring Program
seeks to encourage members to move beyond their own cultural
frame of reference to recognize and take full advantage of the
productivity potential inherent in a diverse population.
Organizing Talents Strategically:
Many companies are now realizing the advantages of a diverse
workplace. As more and more companies are going global in
their market expansions either physically or virtually (for
example, E-commerce-related companies), there is a necessity to
An organization that sees the existence of a diverse workforce as
an organizational asset rather than a liability would indirectly
help the organization to positively take in its stride some of the
less positive aspects of workforce diversity.
Control and Measure Results:
A HR Manager must conduct regular organizational assessments
on issues like pay, benefits, work environment, management and
promotional opportunities to assess the progress over the long
term. There is also a need to develop appropriate measuring tools
to measure the impact of diversity initiatives at the organization
through organization-wide feedback surveys and other methods.
Without proper control and evaluation, some of these diversity
initiatives may just fizzle out, without resolving any real
problems that may surface due to workplace diversity.
MotivationalApproaches
Workplace motivation can be defined as the influence that makes
us do things to achieve organizational goals: this is a result of our
individual needs being satisfied (or met) so that we are motivated
to complete organizational tasks effectively. As these needs vary
from person to person, an organization must be able to utilize
different motivational tools to encourage their employees to put
in the required effort and increase productivity for the company.
Why do we need motivated employees? The answer is survival
(Smith, 1994). In our changing workplace and competitive
market environments, motivated employees and their
contributions are the necessary currency for an organization's
survival and success. Motivational factors in an organizational
context include working environment, job characteristics, and
appropriate organizational reward system.
The development of an appropriate organizational reward system
is probably one of the strongest motivational factors. This can
influence both job satisfaction and employee motivation. The
reward system affects job satisfaction by making the employee
more comfortable and contented as a result of the rewards
received. The reward system influences motivation primarily
through the perceived value of the rewards and their contingency
on performance (Hickins, 1998).
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
To be effective, an organizational reward system should be based
on sound understanding of the motivation of people at work.
Some popular methods of reward systems are :
Gain-sharing:
Gain-sharing programs generally refer to incentive plans that
involve employees in a common effort to improve organizational
performance, and are based on the concept that the resulting
incremental economic gains are shared among employees and
the company.
Managing Gain-sharing
In order for a gain-sharing program that meets the minimum
requirements for success to be in place, Paulsen (1991) and
Boyett (1988) have suggested a few pointers in the effective
management of a gain-sharing program. They are as follows:
A HR manager must ensure that the people who will be
participating in the plan are influencing the performance
measured by the gain-sharing formula in a significant way by
bringing in changes in their day-to-day behavior. The main idea
of the gain sharing is to motivate members to increase
productivity through their behavioral changes and working
attitudes. If the increase in the performance measurement was
due to external factors, then it would have defeated the purpose of
having a gain-sharing program.
An effective manager must ensure that the gain-sharing targets
are challenging but legitimate and attainable. In addition, the
targets should be specific and challenging but reasonable and
justifiable given the historical performance, the business strategy
and the competitive environment. If the gain-sharing participants
perceive the target as impossibility and are not motivated at all,
the whole program will be a disaster.
A manager must provide useful feedback as guidance to the gainsharing participants concerning how they need to change their
behavior(s) to realize gain-sharing payouts the feedback should
be regular, objective and clearly based on the members'
performance in relation to the gain-sharing target.
83
A manager must have an effective mechanism in place to allow
gain-sharing participants to initiate changes in work procedures
and methods and/or requesting new or additional resources such
as new technology to improve performance and realize gains.
Though a manager must have a tight control of company's
resources, reasonable and justifiable requests for additional
resources and/or changes in work methods from gain-sharing
participants should be considered.
Managing EIS
As information is the basis of decision-making in an
organization, there is a great need for effective managerial
control. A good control system would ensure the communication
of the right information at the right time and relayed to the right
people to take prompt actions.
When managing an Executive Information System, a HR
manager must first find out exactly what information decisionmakers would like to have available in the field of human
resource management, and then to include it in the EIS. This is
because having people simply use an EIS that lacks critical
information is of no value-add to the organization. In addition,
the manager must ensure that the use of information technology
has to be brought into alignment with strategic business goals
(Laudon, K and Laudon, J, 2003).
Conclusion
The role of the HR manager must parallel the needs of the
changing organization. Successful organizations are becoming
more adaptable, resilient, quick to change directions, and
customer-centered. Within this environment, the HR
professional must learn how to manage effectively through
planning, organizing, leading and controlling the human
resource and be knowledgeable of emerging trends in training
and employee development.
Finally a very well thought of strategy needs to be applied to
emerge a winner out of the meltdown and not become embroiled
and wedged in regressive trends.
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84
Talent Acquisition: An Unstoppable Global Trend
Prof. Vikas S. Gaundare
Prof. Gaurav R. Khandelwal
Lecturers, Department of Management Studies,
SSVPS BSD College of Engineering, Dhule- Maharashtra
ABSTRACT:
Today the whole world can be called as a World of Youth and this
is the main advantage for organizations to pour fresh blood in the
veins of their management. But another side of this coin which
commands attention toward the fact that major workforce at
present is expected to retire due to age factor. It is found that over
the next 10 years, the demand for talented people will far exceed
the availability of skilled workers - at all levels, and in all
industries. So the companies are in race to gain talent from the
labor market as it also has its roots in explosive business growth
and widespread hijacking of talent from other industries. Today
each organization has its Eagle eye over the scarce available
talent; it results in 'The war for Talent' to which we know as
'Talent Acquisition'. With the magnificent edges of global
economy Talent Acquisition concept not just includes traditional
efforts to recruit, develop and retain high performers but also it
needs new strategies to acquire new talent with specialized
knowledge and integrated career planning programs within and
beyond the organization. It seems to favor gentle push which
requires mentality and opportunity to manifest. This paper has its
focus on the matters like Origin of Talent Acquisition, Scarcity of
Talented Youth, Recruitment & Talent Acquisition and a
Strategic view behind the this concept of TalentAcquisition.
Key Words: Talent War, Recruitment, Talent Retention and
Talent Poaching etc.
INTRODUCTION:
In today's era of global edge each and every entrepreneur want
better resources than his competitors so that he can grow more
than them. And fact is that they are ready to acquire those
resources from their competitor also. Though the population of
the world is exploding every organization is facing the problem
of getting new talented people who can pour fresh blood in their
veins. So due to scarcity of such adequate talent in the market
there is start of “War of Talent” and every employer want to win it
by making the world as “Employment Seller's Market”. When we
think about the effects, we should never ignore further conditions
which caused them:
· It is estimated that at least 1/3 of business failures are due to
poor hiring decisions and inability to attract and retain the
right talent.
· The average cost of replacing a manager or professional is
1.5 to 3 times salary.
· The cost of working around an under-performer can run as
high as six figures
· The cost of consistently failing to attract and retain good
talent including declining productivity, morale, culture and
reputation - is inestimable.
· Each vacant position costs your organization Rs. 60,000 on
average. For some management positions, it can easily run
into six figures.
From this we can said that the Talent is very essential for the
survival of organizations in competitive edge of current market.
Most corporate officers say that the biggest constraint to pursuing
growth opportunities is 'Talent'. Every one has an eagle eye over
the available scare talent in the market and trying to acquire it
before the others. So the question can be arisen, what is mean the
term TalentAcquisition?
M I N D S E T S O F P E O P L E A B O U T TA L E N T
ACQUISITION:
Let's see, what is the mindset of people about "Talent
Acquisition"?
Old Mindset about People:
A. Avague notion that "People are our Most ImportantAsset"
B. HR is responsible for people Management
C. We have a two-day Success Planning Exercise Once a year
D. I work with the people I inherit.
New Talent Mindset
A. A deep conviction that Talent Leads to Better Corporate
Performance
B. All Managers Are Accountable for strengthening their talent
Pool
C. Talent Managers is a central Part of How we run the company
D. I take bold actions to build the talent pool I need
ORIGIN OFTHE CONCEPT:
First and foremost, 'Talent Acquisition' forms a part of a much
broader strategic approach in the corporate quest to gain and
sustain a competitive advantage in today's marketplace. Other
aspects include talent development, retention and transition,
these are primarily inward facing, whilst the former is outward
looking. The core concept of talent acquisition is to get away
from the 'fill in the box' thinking to one that is more pro-active
and much closer to building the skill sets required to achieve
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
85
business success. Traditionally, a recruitment need occurs when
an individual either leaves or is promoted to another function.
This makes it easy to predict that specific openings will occur at a
pre-determined period in time.
That's when panic can set in, especially if no suitable internal
solution is found, a situation that is becoming known as - "under
the bus syndrome". Strong relationship building or networking
skills are important here. The key to success in talent acquisition
is the unique way that you are able to tap into the 'top performers'
who are not really looking for another job. They never read the
traditional job ads or go to the job boards on the Internet.
Encouraging your own 'star' players to identify other outside top
performers is an extremely powerful tool that is being used more
and more. Corporations are offering a wide range of rewards in
order to get these names and then act on them.
In the most enlightened cases of Strategic Talent Acquisition,
clients will recruit today for positions that do not even exist today
but are expected to become available in the future.
“Talent Acquisition is a powerful tool for managing all the subprocesses involved in finding, attracting, and eventually hiring
highly talented individuals who will integrate smoothly and
productively into your company”.
There are various aspects require for Talent Acquisition. Money
is of course essential in the talent acquisition quest, but it's not the
only element. Many corporations are using traditional job
classification and job grading systems in order to remain
competitive in the 'cash compensation' side. Being able to mould
an opportunity and make it exciting will also attract top
performers. Benefits and perks are at the fore here with long-term
incentives such as stock options, being widely used. The
work/life concept will also have an impact, a lot of corporations
talk about this element but not many have fully embraced it.
Others look at it from an investment banker perspective and view
potential 'top performers' as they would any targeted acquisition,
some people are even thinking of attributing P/E ratio values to
top talent. Just think for one moment at that analogy, the talent
marketplace becomes the equivalent of the NASDAQ or Dow
Jones and the attractiveness of top talent will vary according to
their performance relative to peers and the value added they can
bring.
Perhaps in the future you will see talent 'indexes' being used. That
will prove to be more and more essential in giving corporations a
leading edge and competitive advantage over others. If you have
it you will be one of the survivors, if not then a 'market correction'
may be soon be coming your way.
Then a question can arise in one's mind that Are Recruitment and
Acquisition of Talent same?
"RECRUITMENT" Vs "TALENTACQUISITION":
The easy part of the answer is to define "Recruiting". It is nothing
more than filling open positions. It is an entirely tactical event.
The more complex part of the answer is the definition of Strategic
Talent Acquisition. “Strategic Talent Acquisition takes a longterm view of not only filling positions today, but also using the
candidates that come out of a recruiting campaign as a means
to fill similar positions in the future.”
These future positions may be identifiable today by looking at the
succession management plan, or by analyzing the history of
attrition for certain positions.
Taking the long term strategic approach to talent acquisition has a
huge impact on how an approach is made to a candidate. If the
approach is purely tactical in nature, all we ask of the prospective
candidate is "are you qualified and interested?"
However, if the approach is more strategic in nature, the intent of
the call is to go much further, and the conversation becomes more
relationship building. The candidate has an opportunity to
explain his/her future career aspirations, and the recruiter gathers
enough information to determine if there is a potential fit in the
client organization. If during a strategic recruiting call the
candidate declares that they are both qualified and interested,
then the tactical nature of the call has been automatically
fulfilled. If, however, the candidate lacks sufficient experience,
or the timing for a career move is not propitious, then they
become candidates for the future, and all the recruiter has to do is
keep in touch until either they become available, or a position
with the client organization opens up.
Most of the money spent on Strategic Talent Acquisition would
have been spent in a tactical recruiting mandate anyway. The only
additional cost is in collecting data on high-potential candidates
and then keeping in touch with them until hire is made. The
additional cost becomes insignificant compared to the value of
hiring top competitive talent over time.
Strategic Talent Acquisition allows us access to a pool of
competitive talent that would otherwise have been missed or
even worse, ignored. Clearly the business case for acquiring
talent strategically is far more compelling than simply paying to
fill positions today. What we are doing is adding a small
incremental effort, in exchange for a huge potential reward.
Also some people have killer's view behind this is that they think
if they acquire talent in market though they don't need it today but
the competitor should not get it before them.
IMPORTANCE OF TALENT RETENTION FOR
ORGANIZATIONS:
Today is the question is that do all academic institutions are able
to provide those talented and fully equipped candidates from
them which companies require? The answer is now days all
academic institutions are trying to give all those require
knowledge and practical exposure for their students so that they
can contribute their talent to the growth of the organizations in
which they will get acquire. Many institutions are giving
emphasis on soft skills along with practical and theoretical
knowledge. Academic/professional qualifications though are
certainly important, but what differentiates and is more relevant
for the individual's success and also probably what organizations
look for are candidates with higher degree of soft skills.
Though the academic orientation is changing for the better, the
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National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
industry still faces a shortage of the right talent. In fact, we can
say that more than 40 per cent of the management's time is
allotted directly or indirectly to talent acquisition, harnessing and
retention. This issue is not limited to any specific industry or
country but probably is across the industry and global. So, while
this situation has lead to an ardent task of retention of the right
talent for organizations, needless to mention, the right talent
would also command a premium. It is also a fact that
remuneration is not the only factor for retention, and that one
could use other tools too. Retention elements are the ones who are
accepted and appreciated by their customers, whether internal or
external. Employees having the right values and service culture
would be always scoring over others, because job skills can be
acquired and imparted but as mentioned earlier soft skills are
more relevant and differentiate people.
caliber of talent you will have on your team and take deliberate
action to strengthen that group. Develop a discerning "nose" for
talent, and make clear-eyed, insightful assessments of the
performance and potential of each person. Are they capable of
taking this particular job where it needs to go? What are their
greatest strengths and what holds them back from being more
effective?
There are various analytical as well as database working tools
available today. A well designed and implemented performance
appraisal system, potential vs. performance analysis, mentoring
systems, succession planning, challenging projects and
performance based reward system, etc are few of the most
effective and successfully employed tools by various
organizations. Generally, it has been observed that the high value
talent/performers are very sensitive towards a performance based
reward system in the organization. They look forward to be
differentiated and treated differently from the rest of the
employees and rightly so. Companies need to work on these
systems, to be able to retain such talent. And it is not just
retention, but also the spread of these high performers across the
organization that companies need to look at. HPHPs (High
Potential High Performers), as one would call them, should
ideally be spread throughout the organization at all levels.
· Face up to the difficult task of dealing with low performers.
Tell them unambiguously that their performance is not good
enough, and tell them exactly what they need to do to
improve. Encourage and help them to improve.
One thing organizations should never forget is that everything
changes, and so will the talent list of your organization, hence the
talent review activity has to be done regularly to ensure that no
one lives on past laurels and that consistent performance is the
most important factor for organizational and individual success
ASTRATEGIC VIEW BEHIND TALENTACQUISITION:
Historically organizations have not treated the recruitment
process as one of strategic importance, but latterly many are now
waking up to the reality that the world has changed dramatically.
No more can the organization pick and choose between several
great candidates for one position. Several changes in our
connected world have tipped the scales in favor of the highly
talented individual looking for a new opportunity. Also with the
new wireless technologies like internet, it is very easy to apply
and get better job opportunities for HPHPs. So if we want to
acquire such HPHPs in your organization then we have to make a
prior strategy for it and this view behind the Talent Acquisition
given a StrategicAspect to it.
Here the tentative Strategies are suggested by us for Talent
Acquisition:
Strengthen Your Own Direct Reports: Becoming a great talent
manager starts in your own back yard. Set high standards for the
· Tell your people, in a straightforward way, how they are
performing and what you perceive as their greatest strengths
and weaknesses.
· Give the strong performers new challenges, greater
responsibilities and the tasks they are most passionate about.
Accelerate their development and do everything you can to
keep them delighted and energized.
· While developing the people you already have, hunt for new
talent to bring into your group. Look for high-potential
people deep within your organization to promote.
Do everything you can to make your unit a magnet for highly
talented people. Give people exciting challenges and lots of room
to spread their wings. Help them grow their skills and body of
experience. Be a demanding boss who sets high aspirations, but
also one who engenders trust and helps others shine.
Establish a talent Standard: If you are a leader of a large
organization, you also have to extend your influence to the talent
pool. Start by setting the gold standard for talent for your
organization. Identify and articulate the characteristics and
caliber of leaders that the organization should have. You model
this every day through the quality of the people you hire, the
quality of people you chose to keep in the company and standards
you judge people against. But you should also explicitly
communicate the type and caliber of managers you want to have
in your organization.
Weave development into your organization: Emphasis must
be on the development of your people. Everyone in your
organization - even if he/she cannot be a superstar - can push the
limits of what they can. Mentoring is a powerful tool to help you
weaving development in your organization. A mentor should
offer encouragement and believe in the ability of the individual to
achieve great things.
Influence People Decisions Far Down your Organization:
Defining the standard for leadership talent isn't enough, though.
Leaders who manage talent well get directly involved in the
hiring, promotion and firing decisions for many people as they
p o s s i b l y
c a n .
This doesn't mean that you necessarily make all the decisions on
people two or three levels below you. But you should influence
them by making sure that the talent standard is being used
objectively and by contributing your judgment in a meaningful
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
way. When a vacancy is being filled, add or remove candidates
from the slate, interview the finalists, voice your opinion and then
in most cases, let the immediate boss make the decision.
Hold Managers Accountable for the strength of their Talent
Pools: Each unit- be it Account Dept., Product Division,
Customer Service Division, Sales Force- Should set three to six
Specific talent strengthening objectives for the coming year.
These objectives should be negotiated between the unit manager
and the next-higher executive. Assessing how well a manager
delivers against those objectives will require judgment and
ongoing discussions about how effectively the talent pool is
being built. Unfortunately, these conversations are not nor taking
place in any systematic, comprehensive, probing way in most
companies today.
Talent Poaching: Poaching is not wrong and it is not unethical as
well. It only shows some loop holes in the retention strategies of
the company whose employees are being poached. If I identify a
talent of my requirement in your company and if I can afford that
talent in terms of Compensation and growth then I have every
right to poach the same. Poaching talent is the practice of
proactively targeting and hiring top talent away from a
competitor or top firm, with the specific intention of:
Damaging your competitors' ability to achieve their strategic
objectives. The approach is not new and has been deployed
around the world for ages, particularly in sports and now used in
business.
Software Tools for Talent Acquisition: Today with new
technological changes all things get easy to carry out. As same it
is beneficial for the term Talent Acquisition. Now to save the time
of organizations over the hunt for new talent in market the
software for Talent Acquisition is becoming popular. Talent
acquisition software helps you streamline the entire recruiting
process and dramatically reduce your overall recruiting costs. In
a single online location, managers and recruiters can create and
post requisitions, search the talent acquisition pool, screen
applicants, perform background checks, and select the best
candidates for the job at hand.
Among the many options provided by talent acquisition
software, your recruiting team can now:
Create and edit job requisitions online.
Track and manage open requisitions from their desktops.
87
Schedule interviews and enter interview results online.
Consolidate billing and track recruitment costs.
Rapidly scan all references pertaining to a given candidate.
Talent acquisition software enables unsolicited candidates who
want to change jobs to advertise their intentions within minutes
of making their decision and receive inquiries about their
talents within hours. Talent acquisition solves a true business
problem: ready availability of work capability or in other
terms, the labor force, and most important, quality of the new
labor force.
CONCLUSION:
In this paper we have seen that if organizations want to survive
in today's Competitive Edge of markets then they have to get
Talented People. And as available talent in the market is scarce
the issue of 'The war for Talent' i.e. Talent Acquisition has been
raised. This concept is different from the concept of mere
Recruitment and it has its own views. At last from this paper we
can conclude that to meet the new emerging challenges before
business every organization not only must have to adopt some
strategies to retain their own talented and high performers but
also acquire new talent from others. Also as being unstoppable
global trend the concept of Talent Acquisition will retain its
need in labor market only the aspects and strategies may differ.
REFERENCES:
1.
Discussion with managers of different organizations.
2.
Hiring the Best: A Manager's Guide to Effective
Interviewing by Martin Yate
3.
Recruiting Excellence:An Insider's Guide to Sourcing Top
Talent; by Jeff Grout, Sarah Perrin
4.
http://www.bpoindia.org/research/talent-acquisition-bigchallenge.shtml
5.
http://www.taleo.com/research/g-talent-acquisition22.php
6.
http://www.csscorp.com/microsites/singapore/
services/talent-acquisition.php
7.
h t t p : / / w w w. m b a m a t c h . c o m / K n o w l e d g e _ B a s e /
Talent_Mgt/ta.htm
National Seminar - Challenges & Strategies for the Indian Industry in the Emerging Global Economic Scenario
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