Titan's STRATEGY- a view

THE WATCH INDUSTRY

The story of the watch in India goes back a long way to 1957. Pandit Jawaharlal Nehru, during his visit to Japan, received a watch as a gift inspiring him to bring watches closer home in his country. This dream became a reality in 1961 when Nehru commissioned the first watch factory in India in 1961. This was the watch division of HMT Ltd.
Citizen, the popular Japanese manufacturer, evinced interest to train select Indian people at their watch manufacturing plant in Japan. The year 1962 saw the manufacture of the first component and then began the slow but steady growth of watch manufacture in the country. The first watch model manufactured by HMT was the Janata model, which exists even today, was gifted by Pandit Nehru to the senior most employee of the company. The next 10 years saw the Indian-made watches carve a niche for themselves in the market. 15000 to 20000 mechanical watches were made every month.
Smuggling was on a rise during the 1970s and the 80s period. To counter this the watch manufacturing activities were beefed up. An assembly plant was set up and the concept of a mother plant with other units in various states was pioneered.
The early 80s was a period of technological revolution with drastic changes in tastes and preferences. The integrated chip was invented in the US and digitals were in demand and LED watches flooded the market. Japanese companies took over the manufacturing of LCD for digital watches. Quartz technology had picked up and there was a shift in focus from mechanical to quartz watches.
1987 saw the establishment of Titan watches, which was formed by the Tatas and TIDCO (Tamil Nadu Industrial Development Corporation). The Tata’s took two decisions- that they will manufacture only quartz (analog and digital) and not mechanicals, and they would set up a state of the art plant to manufacture watches in a wide variety of designs and prices.

TATA GROUP PROFILE

The Tata Group comprises 93 operating companies in seven business sectors: information systems and communications; engineering; materials; services; energy; consumer products; and chemicals. The Group was founded by Jamsetji Tata in the mid 19th century, a period when India had just set out on the road to gaining independence from British rule. Consequently, Jamsetji Tata and those who followed him aligned business opportunities with the objective of nation building. This approach remains enshrined in the Group's ethos to this day.

The Tata Group is one of India's largest and most respected business conglomerates, with revenues in 2004-05 of $17.8 billion (Rs 799,118 million), the equivalent of about 2.8 per cent of the country's GDP. Tata companies together employ some 215,000 people. The Group's 32 publicly listed enterprises — among them standout names such as Tata Steel, Tata Consultancy Services, Tata Motors and Tata Tea — have a combined market capitalisation that is the highest among Indian business houses in the private sector, and a shareholder base of over 2 million. The Tata Group has operations in more than 40 countries across six continents, and its companies export products and services to 140 nations.

The Tata family of companies shares a set of five core values: integrity, understanding, excellence, unity and responsibility. These values, which have been part of the Group's beliefs and convictions from its earliest days, continue to guide and drive the business decisions of Tata companies. The Group and its enterprises have been steadfast and distinctive in their adherence to business ethics and their commitment to corporate social responsibility. This is a legacy that has earned the Group the trust of many millions of stakeholders in a measure few business houses anywhere in the world can match.


COMPANY PROFILE OF TITAN

The industry structure prevalent in the 1980s provided a golden opportunity for the Tata, who were one of the most respected names in the Indian industry. They not only had the financial muscle to enter the watch business but also had the feel of India as a market. This led to the birth of Titan Industries Ltd. in 1984.

Titan Industries is India’s leading manufacturer of watches and jewellery and the world’s sixth largest manufacturer brand of watches. Established in 1984 as a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation, the company transformed the Indian watch market, offering quartz technology with international styling, manufactured at its state-of-the-art factory at Hosur, Tamil Nadu. In 1995, the company diversified into jewellery under the brand Tanishq.

AREAS OF BUSINESS

Titan manufactures over 7 million watches per annum and has a customer base of over 65 million. The company has manufacturing and assembly operations at Hosur, Dehradun and Himachal Pradesh.

VISION

To be Innovative, World class, Contemporary and
build India’s most desirable brands.

ACHIEVEMENTS

Titan Industries has been awarded the following:
The President of India’s Award for employing the disabled.
Friends of BIL Award for employing the handicapped.
The Titan Design team received 7 accreditations at the NID — Business World Awards, including the 'Young Design Entrepreneur of the Year'.
Titan and Tanishq were adjudged 'Most Admired Brands' as well as 'Retailer of the Year' by Images Fashion Forum.
Titan retained it ranking as the 'No 1 Brand' in the Brand Equity Survey, in the Consumer Durables category.

CORPORATE SOCIAL RESPONSIBILITY

Titan has a clearly defined policy on social responsibility. Its CSR initiatives include children’s education, employing the disabled, women's empowerment, environment management programmes and other community initiatives. The company is a signatory to the Global Compact and has been awarded the Helen Keller and Mother Teresa awards. Its Watch and Jewellery Divisions are certified under ISO 9001 :2000 quality management system standards as well as the ISO 14001 environment system standard.
LocationTitan's headquarters are located in Bangalore.
ContactGolden Enclave, Tower A, Airport Road, Bangalore 560 017, India.Phone: +91(80) 2526 8551, 5660 9000Fax: +91(80) 2527 5756Email: webmaster@titan.co.in

CORPORATE LEVEL STRATEGY

Companies that are large enough to be organized into strategic business units face the challenge of allocating resources among those units. In the early 1970's the Boston Consulting Group developed a model for managing a portfolio of different business units (or major product lines). The BCG growth-share matrix displays the various business units on a graph of the market growth rate vs. market share relative to competitors:

BCG Growth-Share Matrix

· Cash Cow - a business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units.

· Star - a business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures.

· Question Mark (or Problem Child) - a business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars is unknown.

· Dog - a business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share.

IN TATA

POSTION OF TATA : STAR
NO OF SBUs : 44
STRATEGY : Maintain the same position

WHY STAR?

TOTAL YARLY SALES UP 25.8 PERCENTATGE INCREASE IN EVER YEAR

CHAIRMAN MESSAGE

We should all feel proud of our achievements in 2005. It has been the best year in the history of the Tata Group — and this success has been mainly due to your personal commitment. I feel confident that in 2006 the Tata Group will see even greater growth and scale even greater heights.
The year 2006 will be a year of challenges. There will be greater competition from global companies, there will be greater pressure on costs and greater managerial challenges. This will call for your continued support and commitment to the goals we have set. I am sure that the tremendous spirit which you have always displayed and your dedication will enable us to achieve what we have set out to do. I look forward to working with you to face the challenges ahead — and to succeed! We should in the new year reinforce our quest for high quality and further improve our concern for our customers.

We must be bold in our actions. We must always lead — we must never follow!

BUSINESS LEVEL STRATEGY

SBU: TITAN

PORTER'S GENERIC STRATEGIES

If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns. A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent. The following table illustrates Porter's generic strategies:

TITAN

Titan has established leadership in India by catering to every market segment. They pursue a strategy of cost focus and differentiation focus in the country.

FOCUS STRATEGY

The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it.

COST FOCUS

A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers.

DIFFERENTIATION FOCUS

However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist.
Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even well.

FUNCTIONAL LEVEL STRATEGY


PRODUCT: WATCH


The Marketing Mix
(The 4 P's of Marketing)

The major marketing management decisions can be classified in one of the following four categories:

• Product
• Price
• Place (distribution)
• Promotion

These variables are known as the marketing mix or the 4 P's of marketing. They are the variables that marketing managers can control in order to best satisfy customers in the target market. The marketing mix is portrayed in the above diagram.

PRODUCT

The product is the physical product or service offered to the consumer. In the case of physical products, it also refers to any services or conveniences that are part of the offering.
Product decisions include aspects such as function, appearance, packaging, service, warranty, etc.

IN TITAN

Ø They are having the lot of design like, Insignia, PSI2000, Regalia etc.,
Ø They are having good appearance and packaging also.
Ø They give good after sales service.

PRICE

Pricing decisions should take into account profit margins and the probable pricing response of competitors. Pricing includes not only the list price, but also discounts, financing, and other options such as leasing.

PLACE

Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting the product to the target customers. The distribution system performs transactional, logistical, and facilitating functions.
Distribution decisions include market coverage, channel member selection, logistics, and levels of service.

PROMOTION

Promotion decisions are those related to communicating and selling to potential consumers. Since these costs can be large in proportion to the product price, a break-even analysis should be performed when making promotion decisions. It is useful to know the value of a customer in order to determine whether additional customers are worth the cost of acquiring them.
Promotion decisions involve advertising, public relations, media types, etc.

Training and development- a brief

The training and development followed by Indian companies in the private sector includes detailed methodology on mapping Individual capability against roles using the following process and providing the experiential learning to each individual on their assessments.

TRAINING PRACTICES

Ø Identifying the training needs to focusing on future efficiencies and business requirement.
Ø Familiarization program for the experienced level people with a dedicated team of professionals on a monthly basis.
Ø Comprehensive induction program for the freshers.
Ø Management development program for middle management without a formal management degree.
Ø Mandatory quality training for all employees.
Ø Technical training programs for the software professionals based on the project requirement.
Ø Orientation program for employees heading for an overseas assignment

TRAINING INSTRUMENTS

Ø Module on talent management
Ø Experiential learning
Ø Managing assessment centers and potential competency profit listing.
Ø Template construction
Ø Simulation
Ø In based, test, coaching, action learning.
Ø Peer evaluation.
Ø Individual performance on web designs
Ø Report writing
Ø Leaning and knowledge competencies
Ø Personal profit analysis, career templates
Ø Strength the weakness analysis
Ø Team tracking

TRAINING NEED ANALYSIS

The training needs are analyzed depending on the skill required, performance appraisal and managers recommendations.

Ø Skill analysis
Ø Performance appraisal
Ø Manager’s recommendation

PRIVATE SECTOR – BANKING

In the banking sector the training provides by various banks like ICICI, Karur vysya bank, gas understand the importance of training in dynamic business environment.
Ø They are concentrating much on:
Ø Communication
Ø Managing long-term relationship
Ø Selling skills

They also focused on technology, globalization, interpersonal skill and management skill like.
Ø Technology oriented training
Ø Training on globalization.
Ø Training on interpersonal skills
Ø Training on management skills
Ø Negotiation skill
Ø Conflict management
Ø Stress management

Hence, these banks are proactive, planned and continuous process as a integral part of organizational development. It seeks to import knowledge, improve skill and re-orient attitudes for individual growth and organizational effectiveness.

PRIVATE SECTOR - FMCG

In today’s competitive business scenario and era of flat organization structures, high quality performance/ contribution from every individual has become essential.
More over, the employee expects their management to play an active an active and effective role in their career planning and professional development. Some of the practice mode tools/ techniques, principles and skills related to

Ø Diagnosing and assessing performance/ behavior change needs.
Ø Developing a structured plan for performance improvement employee development or behavior change.
Ø Performance feed back and counseling coaching and mentoring.
Ø Reviewing employee progress against the improvement development plan.
Ø Employee development oriented appraisal system.
Ø Quarterly reviews and carried out through a process of close interaction between the employees and their superiors.
Ø The employee performance is objectively rated in the annual appraisal.
Ø Future training process made by the seeking feedback from superiors, subordinates, peers etc.

PRIVATE SECTOR – IT INDUSTRIES

IT sectors in India is well known for its value system, customer service, global presence and above all for its employee empowerment, the success of every IT sector in India is because of Highly trained employees.
Many Multinational companies took upon the Indian IT sectors for the labour force and trained employees. Training provided in Indian IT sectors such as:

Ø Technical Training
Ø Team work
Ø Communication skills
Ø Managerial skills
Ø Problem discussion
o Case analysis
o Situation analysis
o Addressing real time managerial problems
Ø Flexible programme
Ø Project management
o Team builders
o Implementation consultants
o Motivators
Ø On shore training
Ø Client management training
o seminars
o Lectures
o Group discussion
Ø Leadership skills
o Motivating skills
o Problem solving
o Decision making
o Employee empowernment

PRIVATE SECTOR – STEEL INDUSTRIES

The Training and development program followed in Indian private steel industries are:

TRAINING PROGRAMME

Ø Achievement orientation
Ø Change orientation
Ø Communication
Ø Computers
Ø Conflict management
Ø Customer orientation
Ø Influencing ability
Ø Learning
Ø People development
Ø Planning and organizing skills
Ø Problem solving and decision making
Ø Project management
Ø Special initiatives
Ø Strategic thinking and management
Ø Achievement orientation
Ø Change orientation
Ø Team building


PRIVATE SECTOR – POWER SECTORS

Here in power sectors like reliance energy ltd, career are built in course of our concept of forming a team of people or individuals who are made responsible for specific functions, from concept of development to implementation, with concomitant empowernment. A formal induction programme is organized for all employees

The induction programme contains:

· Technical training
· On the job training
· Off the job training
· Class room training
· Functional training
· Managerial skill development


With the changing business environment becoming more and more dynamic, a need on a continual basis for improving domain expertise is the need of the hour. The core function of our training department is to bridge the gap between the changing requirements of the job and the abilities that individuals needs to perform these task such as self-directed leadership, self-motivated teams and self generated creativity to excel in their respective areas of performance.

FDI vs FII

THE Common Minimum Programme of the new Government at the Centre stresses Foreign Direct Investment over Foreign Institutional Investment. Its position is that "FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports and where local assets are created on a significant scale. The country needs and can easily absorb at least two to three times the present level of FDI inflows," after which the document hurries to add that "Indian industry will be given every support to become productive and competitive" and that all efforts will be made to provide a level playing field.
Cynics will no doubt point disdainfully in this connection to the Finance Minister, Mr P. Chidambaram's recent statement about the need to take a second look at the policy of foreign investors having to get the permission of their local collaborators before branching out on their own. The position of the Common Minimum Programme on FII inflows is spelt out many pages later, in the section dealing with the capital market. The FIIs, too, the CMP says, "will continue to be encouraged," but immediately thereafter goes on to state, in the very same sentence that "the vulnerability of the financial system to the flow of speculative capital will be reduced."
It is against this background that one must view Mr Chidambaram's comment about the need to take a second look at the concessional rate of capital gains tax levied on short-term gains (10 per cent) that applies to FII investments but not to those made by domestic players in the secondary market. It needs to be noted in this connection that a former Finance Minister, Mr Yashwant Singh, announced some years ago that the government knew all along that domestic investors, too, were using the Mauritius channel, but chose not to clamp down on this, presumably in the interest of ensuring a level playing field between domestic `FIIs' and FIIs that were really foreign.
Be that as it may, it is worth noting that the section in the CMP dealing with capital market opens with the statement that the government "is deeply committed, through tax and other policies, to the orderly development and functioning of capital markets that reflect the true fundamentals of the economy," before going on to talk of FIIs. Actually the latter half of this sentence is a mere platitude; it is an open secret that the one thing the capital market the world over pay little or no attention to is the `true fundamentals'. (No one I have spoken to or read has ever meaningfully discussed the relation of `fundamentals' to the stock market.)
The concern of market regulators the world over is focussed, rather, on ensuring a well-ordered market. One SEBI chairman in fact specifically stated that he was least interested in the question of whether the stock market was or was not in tune with the fundamentals. The level of share prices, he said, was not his job; his job was to avoid large and sudden fluctuations in these levels. This may have be one of the things the present Finance Minister has in mind when he speaks of `going back' to reforms.
The economic policy of the BJP-led coalition was, especially the past few years, was very much focussed on the stock market rather on the growth of productivity and on sustainable increases in GDP; apparently in an effort to indirectly boost the rate of growth of the market. A number of analysts of the US economy have pointed out that every dollar of growth in market capitalisation boosts spending by 5-7 cents. Sauce for the gander, sauce for the goose? Not really.
The estimates about the effect of the amount by which stock market increases or decreases spending relate to situations in which the market is relatively stable, and therefore might have a somewhat more limited effect in the Indian case, particularly when the stock market is on way up. It is, therefore, in our best interests to be cautious about the demand-enhancing aspects of runaway booms, rather than getting excited every time the market seems suddenly to be reaching new highs. Whenever the market seems all set to touch the skies, it is the pessimists that we ought to pay more attention to than the optimists. The point is not that a rising market is bad in itself; but rather that one needs to pay serious attention to the fall that might follow.
Pumping public sector funds to prop or push up the market is not healthy. It only heightens the risks. This logic particularly applies to situations in which market regulators seem better at `tackling' crises after they arise than at preventing them from happening.
One last thing: Foreign investments in supply-side infrastructural investments will probably look a great deal less appealing to foreign investors than we try to make them out to be. Costs are large and certain; benefits can at best be termed dubious. Things are very different in the case of direct foreign investments in fast moving goods; but in the context of a low-tariff regime, many potential investors could well look at imports as a better and safer way of getting more bang for their buck.

What does India Need - FDI or FII

FDI usually is associated with export growth. It comes only when all the criteria to set up an export industry are met. That includes, reduced taxes, favorable labor law, freedom to move money in and out of country, government assistance to acquire land, full grown infrastructure, reduced bureaucratic involvement etc. IT, BPO, Auto Parts, Pharmaceuticals, unexplored service sectors including accounting; drug testing, medical care etc are key sectors for foreign investment. Manufacturing is a brick and mortar investment. It is permanent and stays in the country for a very long time. Huge investments are needed to set this industry. It provides employment potential to semi skilled and skilled labor. On the other hand the service sector requires fewer but highly skilled workers. Both are needed in India. Conventional wisdom is that China will have an upper hand in manufacturing for a long time. If India plays its cards right India may be the hub for the service sector. Still high end manufacturing in auto parts and pharmaceuticals should be India’s target.
The FII (Foreign Institutional Investor) is monies, which chases the stocks in the market place. It is not exactly brick and mortar money, but in the long run it may translate into brick and mortar. Sudden influx of this drives the stock market up as too much money chases too little stock. In last four months an influx of about $1.5 Billion has driven the Indian stock market 20% higher.
Where FDI is a bit of a permanent nature, the FII flies away at the shortest political or economical disturbance. The late nineties economic disaster of Asian Tigers is a key example of the latter. Once this money leaves, it leaves ruined economy and ruined lives behind. Hence FII is to be welcomed with strict political and economical discipline.
China receives mainly the FDI. They do not have instruments to receive the FII i.e. laws, institutions and political and judicial framework. On the contrary, India should welcome both and work hard to retain both.
Infrastructure Renewal
To keep the Indian economy growing the infrastructure sector like power, transport, mining & metallurgy, textiles, housing, retail, social welfare, medical etc. has to be upgraded. After the Enron fiasco, it is difficult to persuade anybody in the west to take interest in any of these sectors. Hence India is left to its own devices to raise money and build this sector. Borrowing abroad supplemented with Indian resources is the only way open to India. This upgrade is needed prior or in step with the industrial and service exports sector growth. It has to be placed on a higher priority. Only recently a suggestion to use a small portion of India’s foreign reserves met with howl of protests. The protestors in the Indian Parliament did not understand the proposal. Hence the government is stuck to steam roller its proposal through the legislative process or succumb to political pressure and do nothing. The latter is not acceptable.
If India finds its own $4 Billion a year for infrastructure then foreign investors will kick in another similar portion. The resulting money will very quickly rebuild the now cumbersome infrastructure.

Indian Agricultural Economy

India has burgeoning population and a huge poverty. To reduce poverty, population growth has to be controlled (in addition to economic progress). The agricultural output at the moment barely feeds the population. The caloric intake is low as compared to the West. Production of meat and milk has to increase significantly to increase the caloric intake and improve the health of the populace. The agricultural production, which has slowed down a bit in last 3 years, has to maintain a pace well above the population growth. To maintain 4% growth in agriculture sector, capital input in form of fertilizer, power, improved seeds, storage of floodwater and transferring surplus water to deficient areas has to be increased. Monsoon vagaries will have to be overcome with water resources management.
Agricultural capital input takes about ten years to mature and give results, hence this investment is to be made today to reap benefits in the future. This capital input has to be internally generated. World Bank and other long-term lending institutions could provide some help, but most monies have to come from within. About $10 Billion a year is to be invested in this enterprise. This has priority over all other enterprises.

Hence How much FDI and FII India Needs

Economists believe that additional $20 Billion a year for next ten years will drive up GDP growth additional 2 –3% from the current level of 6.5 –8%. If these monies arrive in form of FDI, it is good for the country. If it arrives in form of FII, it is still good, but it has to be controlled. Internal resources and withdrawal from foreign reserves, trade loans, long term financing from World Bank etc. will add additional luster to the investment plans.
All the above will happen, if the planned structural changes to the Indian economy are concurrently made and country’s bureaucratic structure is made investor friendly. Other legislative changes needed to ensure the safety of investor’s money are made concurrently. The recent changes in India’s patent rules and regulation are steps in the right direction.
All in all India has to become investor friendly. It is need of the hour. Left leaning politics will not help. Opportunism in politics, which endangers the welfare of the people, is to be thoroughly discouraged.

Don’t be shy about FII

Portfolio flows reflect sound companies and a well-designed equity market

India attracts about one-fourth of the world’s portfolio flows and barely 3 per cent of the world’s FDI. Is this something to worry about?
FII inflows to India in the last six months have exceeded US $8 billion. FDI flows have been less than one third of this amount. Very often arguments are made that this is not good. Instead of having so much portfolio investment, India should have been attracting more FDI. However, contrary to this common belief, research suggests that attracting FII may be a sign of good health and attracting FDI, a sign of bad health of the economy. In contrast to the commonly held unfavorable view of FII flows, evidence suggests that countries with good institutions and markets attract more FII, while countries with poor laws and institutions attract more FDI.
FDI is problematic for foreign investors because it means bringing into a country managerial capacity and organisation. In contrast, FII is easy. Only money needs to be invested for earning returns. No effort is required to build organisational capacity for operating in that market. But if a country does not have a well-developed stock market, foreign investment has limited choices. In the well-developed markets of Europe, for instance, the share of FII in total capital flows is high. In contrast, in the countries of Africa, FDI is the dominant form of foreign investment flows. However, too many investors do not want to venture into poor countries so the total foreign private inflows are small.
In the poor countries of Africa, often the share that goes into the primary and extraction sector — such as mining and oil — is high. In rich OECD countries the share of FDI in total capital flows is low at barely 12 per cent. As countries develop, the total capital flowing to them goes up with the increase in per capita income. However, the share of FDI in it goes down. Foreigners learn to trust their markets and institutions and do not feel the need to go there physically to earn returns. That is why economists in Latin America have been getting concerned about the rise in the share of FDI in total flows. The share of portfolio investment has collapsed and this is seen to be a loss of confidence in their markets and institutions.
In the light of the above evidence, it is not surprising that the share of FII in total capital flows to China are very low. It is an indication of the bad accounting, bad corporate governance, market design problems, and the fundamental inconsistency between communism and the stock market. India should not be embarrassed about attracting portfolio flows. This in fact reflects its success in building sound companies and a well-designed equity market. It is a sign of good health.

But what about the impact upon the economy, of FDI versus FII? In the conventional argument, there are two reasons why FDI is preferred to portfolio investment. First, it is believed that FDI will stay in India in the event of a currency crisis and, second, it is believed that FDI has a greater impact on growth. The dominant view is that FDI is “bolted down” as it involves investment in physical plants and equipment and these are very hard to get rid of.
Studies of currency crisis usually compare the stability of FDI with that of debt, particularly short-term debt, and in comparison with short term debt, FDI has indeed been found to be more stable. But that does not mean that FDI cannot move. Latin American economist, Ricardo Hausmann, has argued that there are important mistakes that flow from problems of measurement. In a country’s balance of payments, FDI flows are defined as the increase in the equity position of a non-resident owner who holds more than 10 per cent of the shares of a firm. It also includes the loans received by a local company from the parent owner. About 20 per cent of FDI takes the form of loans from the parent company.
Moreover, since the firm is merely a set of assets that are “owned” — in other words, financed — by creditors and shareholders, we must not think of FDI as the firm and its assets. Instead, it is just one of the sources of financing for the firm. FDI is not bolted down, machines are. At the time of a crisis, the foreign company can either sell its equity or take a loan against physical assets and take money out of the country. Indeed, economists Graham Bird and Ramkishen Rajen have found that despite the bulk of capital inflows into Malaysia being FDI, there was a currency crisis.
The argument that FDI raises the growth rate of a country also finds only mixed support. FDI is not found to raise growth when it goes into the primary sector. The impact is ambiguous in the case of services. When it comes to manufacturing, cross-country evidence does suggest that FDI raises growth. But, here again, growth can remain limited to the specific industry in which the FDI went. Worse, it may even remain limited to the firms with FDI. The spillover effects of technology, management and corporate governance that is often expected to accompany FDI is not automatic. The growth impact of FDI is thus not automatic. It is only countries that have good institutions, skilled labour, openness to trade and well-developed financial markets that gain from FDI. In the absence of these, even if a country attracts FDI, its usefulness is limited.
The message for India is clear: instead of trying to increase FDI flows artificially, and restrict FII flows artificially, India must focus on improving markets, institutions and the regulatory framework to encourage investment — whether domestic or foreign. Domestic investment is largely responsible for growth in any economy. Whether foreign investment comes or not should be a side show. Policies should focus on creating a healthy well-functioning market and world-class infrastructure.

WHAT'S BETTER FOR INDIA, FDI OR FII?

Last year, foreign institutional investors pumped to India a record $8.5 billion, a figure that made India the third largest recipient of FII money in the world in 2004.In contrast, FDI flows have remained stuck in the $3-4 billion groove for the past many years. India attracts about one-fourth of the world’s portfolio flows and barely 3 per cent of the world’s FDI.
It’s just the reverse in China. FDI is in the range of $50 billion, while portfolio flows are much lower, in the range of $4-5 billion.
The question arises: why the foreigner looking at India’s stock markets is far more excited than the company looking at building factories in the country? There are, of course, differences, between FDI and the other flows. FDI is problematic for foreign investors because it means bringing into a country managerial capacity and organisation. In contrast, FII is easy. Only money needs to be invested for earning returns. No effort is required to build organisational capacity for operating in that market. But if a country does not have a well-developed stock market, foreign investment has limited choices. In the well-developed markets of Europe, for instance, the share of FII in total capital flows is high. In contrast, in the countries of Africa, FDI is the dominant form of foreign investment flows. However, too many investors do not want to venture into poor countries so the total foreign private inflows are small.
Today, it is relatively effortless for a foreign institutional investor (FII) to enter the capital market. A Sebi registration, preceded by a fairly perfunctory due diligence, is all it takes before an FII can enter the Indian stock market and commence trading.
Exit is equally simple. For FDI, however, both entry and exit are far more difficult. Even in sectors opened to FDI on paper, problems remain at the grassroots. There are innumerable clearances that need to be obtained at the state and district levels. There are also a number of practical hurdles, such as infrastructure bottlenecks, all of which make entry difficult. Exit is more complicated. Archaic labour laws, such as the Industrial Disputes Act, prohibit the closure of any company employing more than 100 workers without obtaining prior state government permission. Bankruptcy laws are convoluted and legal processes costly and long-winded.

The Common Minimum Programme of the central government stresses Foreign Direct Investment over Foreign Institutional Investment. Its position is that "FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports and where local assets are created on a significant scale. The country needs and can easily absorb at least two to three times the present level of FDI inflows," after which the document hurries to add that "Indian industry will be given every support to become productive and competitive" and that all efforts will be made to provide a level playing field.

The position of the Common Minimum Programme on FII inflows is spelt out. The FIIs, too, the CMP says, "will continue to be encouraged," but immediately thereafter goes on to state, in the very same sentence that "the vulnerability of the financial system to the flow of speculative capital will be reduced."
Very often arguments are made that this is not good. Instead of having so much portfolio investment, India should have been attracting more FDI. It’s argued that FDI boosts the investment rate directly whereas remittances and FII inflows would be transfers, only a portion of which translates into savings and investment. However, in terms of the impact on balance of payments or the interest rate, it is the totality of inflows a country is able to attract that matters, not its composition.

Research suggests that attracting FII may be a sign of good health and attracting FDI, a sign of bad health for the economy. In contrast to the commonly held unfavourable view of FII flows, evidence suggests that countries with good institutions and markets attract more FII, while countries with poor laws and institutions attract more FDI. In the poor countries of Africa, often the share that goes into the primary and extraction sector — such as mining and oil — is high. In rich OECD countries the share of FDI in total capital flows is low at barely 12 per cent. As countries develop, the total capital flowing to them goes up with the increase in per capita income. However, the share of FDI in it goes down. Foreigners learn to trust their markets and institutions and do not feel the need to go there physically to earn returns. That is why economists in Latin America have been getting concerned about the rise in the share of FDI in total flows. The share of portfolio investment has collapsed and this is seen to be a loss of confidence in their markets and institutions.
India should not be embarrassed about attracting portfolio flows. This in fact reflects its success in building sound companies and a well-designed equity market. It is a sign of good health.

There two basic reasons why FDI is preferred to portfolio investment. First, it is believed that FDI will stay in India in the event of a currency crisis and, second, it is believed that FDI has a greater impact on growth. FDI is considered “bolted down” as it involves investment in physical plants and equipment and these are very hard to get rid of. Studies of currency crisis usually compare the stability of FDI with that of debt, particularly short-term debt, and in comparison, FDI has been found to be more stable. But that does not mean that FDI cannot move.

Latin American economist, Ricardo Hausmann, has argued that there are important mistakes that flow from problems of measurement. In a country’s balance of payments, FDI flows are defined as the increase in the equity position of a non-resident owner who holds more than 10 per cent of the shares of a firm. It also includes the loans received by a local company from the parent owner. About 20 per cent of FDI takes the form of loans from the parent company.

Moreover, since the firm is merely a set of assets that are “owned” — in other words, financed — by creditors and shareholders, we must not think of FDI as the firm and its assets. Instead, it is just one of the sources of financing for the firm. FDI is not bolted down, machines are. At the time of a crisis, the foreign company can either sell its equity or take a loan against physical assets and take money out of the country.
Economists Graham Bird and Ramkishen Rajen have shown that despite the fact Malaysia attracts huge FDI, there was a currency crisis.
The argument that FDI raises the growth rate of a country is also not watertight. FDI is not found to raise growth when it goes into the primary sector. The impact is ambiguous in the case of services. When it comes to manufacturing, FDI raises growth. But, here again, growth can remain limited to the specific industry in which the FDI went. Worse, it may even remain limited to the firms with FDI.

The spill-over effects of technology, management and corporate governance that is often expected to accompany FDI is not automatic. The growth impact of FDI is thus not automatic. It is only countries that have good institutions, skilled labour, openness to trade and well-developed financial markets that gain from FDI. In the absence of these, even if a country attracts FDI, its usefulness is limited.

So, instead of trying to be bullish on FDI flows, and restrict FII flows artificially, India must focus on improving markets, institutions and the regulatory framework to encourage foreign investment. Policies should focus on creating a clutter-free market and world-class infrastructure.

CHALLENGING BRANDS IN CHALLENGING BUSINESS

Great companies and brands are often founded on a simple promise - and rediscovering that Compelling Truth can be the key to long term success.

The size of the business is getting engorged day by day, like wise the complexity and area of operations are also getting amplified. Through the MNCs have big pockets to invest and have the financial muscles to turnaround the sterile market into a fertile lush green. These have been warfare for a smidgen of market share. The one who creatively satisfies differentiates and glamorizes its efforts claims the “star of the market”. Thus it has been recognized as big bull or an elephant which swivels its market. There is an adage, “Big is good, Bigger is better and Biggest is best” However there is strong dearth of creative ideas in production, packaging, strategizing advertising and publicizing. The avenues for publicity and advertisement have become very snazzy, as there are all sorts of avenues being explored. Despite of creativity and hefty price been paid. The efficiency as well as efficacy is at stake. Over and above the brand recall rate brings in jolt for advertisers and the reasons are simple.

As the days go by, War has changed dramatically since On War was first published. The tank, the airplane, the machine gun and nuclear warheads have replaced traditional weaponry. Weapons may change, but warfare itself, is based on two immutable characteristics: strategy and tactics. The difference today is that the same strategic principles of war guide both military commanders and companies, whether they surge ahead into an invasion of the enemy in the battlefield or consumers and competition in the marketplace. The marketing plan of companies that stay ahead in the race have possibly added many more pages on the strengths and weaknesses of their competitors in the ruthless market place. They would ideally develop a plan of action to either exploit or defend against their competitors. With the result that more and more successful marketing campaigns will have to be planned like military campaigns in their quest for ultimate supremacy.

"Once you have got a brand image, it is the most valuable thing you can have. It gives instant value, credibility, reliability and reassurance," says Simon Anholt of brand consultancy PlaceBrands

A brand is a collection of images and ideas representing an economic producer; more specifically, it refers to the concrete symbols such as a name, slogan, and design scheme. Brand recognition and other reactions are created by the accumulation of experiences with the specific product or service, both directly relating to its use, and through the influence of advertising, design, and media commentary. A brand is a symbolic embodiment of all the information connected to a company, product or service. A brand serves to create associations and expectations among products made by a producer. Brand expert Dr Nikolaus Eberl defines a brand as "the premium which it demands as compared to similar products or services". A brand often includes an explicit logo, fonts, color schemes, symbols, which are developed to represent implicit values, ideas, and even personality.
The brand, and "branding" and brand equity have become increasingly important components of culture and the economy, now being described as "cultural accessories and personal philosophies".

War in Peace

In war, you win by outwitting, outflanking and overpowering the enemy. The territory you take is representative of your ability to do these things. And marketing today is no different. It clearly involves conflict between corporations and achieving success by outwitting, outflanking and overtaking your competitor’s market and a manager’s ability in penetrating his competitor’s market share is representative of his prowess in adapting to a General’s mould.

The Principles of Defensive Warfare

There are three basic types of defensive marketing warfare, and it is critical for a market leader to follow defensive strategies properly.

Rule #1: Only the market leader should consider playing defense.
Rule #2: The best defensive strategy is the courage to attack yourself.
Rule #3: Strong competitive moves should always be blocked.

Remember, companies don’t create leaders – customers do and it is imperativefor leading companies to keep that position in the minds of the consumers as long as possible. Remember, the human mind is innocent and digests what is properly communicated to them, and if a company also has the first mover advantage, then it is nearly impossible to displace. A fact that researches in 1923 suggested 25 different leaders in various categories and after 70 years 22 of those brands remained as leaders in those categories suggests what the human mind is capable of. In US, General Motors is perceived as the complete leader and the most innovative in the automotive sector. Great! But did you know that the last invention by General Motors was in 1939 for the hydramatic automatic transmission written by John DeLorean in his book On a Clear Day You Can See General Motors. Ford Motors pioneered in practically every major new market while Chrysler produced the significant technical innovation, such as power brakes, power steering, electric window and the alternator.
But who gets the credit for engineering excellence? General Motors, of course. General Motors has been a master of the Defensive warfare Strategy 3, that is blocking competitive moves from competitors. Placing as a leader plays a pivotal part in defensive strategy as the famous experiment by social psychologist Dr Solomon E Asch of the University of Pennsylvania showed that many people are willing to go against the evidence of their own senses in order to go along with the majority.

Defending Their Turf: The Indian Auto Sector

Maruti Udyog Limited is iconic in this country. Not only has the auto major positioned itself unerringly in the line of attack but has also shown remarkable audacity of attacking its own throne. It is quite astounding that Maruti has four mega success brands in the A segment – the Maruti 800, Alto, Wagon R and the Zen. This bravery to attack itself not only gives Maruti great reputation but is also an obvious reason to continue being a market leader for years.

And let me remind you once again that such imposing strategies position you as an evergreen leader in the minds of the customers. During the lethal price war in the small car segment, when Hyundai with its Santro launched a severe attack on the country’s biggest carmaker, Maruti, the latter not only managed to consolidate its position vis-a-vis the Zen, against whom Santro was pitted, but also struck back by launching the Alto and the Wagon R in the same segment.

The result has been a resounding accomplishment with each of these brands in the A category. Though Hyundai continues to try, Maruti has been successful in blocking most of the great competitive moves from the Korean automotive giant. From the customer’s viewpoint, Maruti is still number one in terms of economy and value for money. Another brave leader’s move in the automotive sector is that of Honda. Despite the astonishing success of the old Honda City, the company went ahead, innovated and attacked itself with the new look City. This one with very different looks, a less powered engine but with a lower price tag. The move has been the greatest strategic success in the C segment of the Indian automotive industry’s history, effectively blocking moves from the GM’s Optra, Maruti’s Baleno and Hyundai’s Accent and the Accent Viva. Such strategic courage is what determines the leaders and not any heroic moves.As George C Scott, the greatest military strategist of all time, says: “Now I want you to remember that no bastard ever won a war by dying for his country, he won it by making the other poor dumb bastard die for his country.”

Let us be more precise and take you through this defensive warfare by discussing strategies of few companies in India which have established their preeminence over the years. The triumphant saga that comes into my mind is that of the country’s biggest carmaker who have successfully imbibed all the warfare strategies – Maruti Udyog Limited.

Defining the Market Warrior

No heroes, no heroic moves, but pure strategies of Maruti Udyog Limited determine its success. The general of the organization with his men devised good strategies and the artillery and the rank commanders in the marketing and sales departments implemented them religiously. The leaders in the market – whether Maruti, Honda, Colgate, Hindustan Lever Limited or any other giant – do not believe in springing surprises but displaying strategic winning moves. They not only give adequate warning before implementation, but also conquer indiscriminately and continuously.

In Mein Kamph, a book that sold some 10 million copies, Adolph Hitler told England and France exactly what he intended to do, and a decade later he did just that. Leaders respect their values and stick to them. He who knows others is wise. He who knows himself is enlightened. He who conquers others has physical strength. He who conquers himself is strong.

Another brilliant case of defensive warfare strategy is the success of oral care company, Colgate, in India. For a long time Colgate has been ruling the Indian oral care industry. Colgate has a 51% share in the oral care segment. Its flagship brand, Colgate Dental Cream (CDC), is the largest selling toothpaste brand in the Indian market with a 39% market share. The company re-launched the Colgate Dental Cream brand in 2001 with a new positioning.

Two new brands – Colgate Herbal, targeted at traditional consumers who seek natural ingredients, and Colgate Cibaca Top, a brand catering to the economy segment – were successfully launched during the year. Colgate has followed brilliant defensive warfare flanking strategy by launching its brands in every price segment. Additionally, its marketing focus has been on selective brands such as Colgate Dental Cream, Cibaca Top and Colgate Herbal, which have been driving growth. Its great quality of flanking and blocking competitive moves from Hindustan lever Limited’s Pepsodent and Close-Up sets Colgate as a leader in the oral care industry. Colgate also does not indulge in any heroics, instead following pure competitive defensive strategy. It would have been unintelligent of Colgate to fight a freshness war with Close-Up as Hindustan lever had already positioned the freshness concept into people’s minds. Colgate’s consolidation strategy with Colgate Dental Cream and other flanking defensive strategies are crucial in its accomplishment chronicle. So let us look at the strategies and tactics that the market monarch aspirants should look at in establishing their supremacy and position themselves as the cream of the crop.

The problem with attack is that it takes time. An attacker in a military campaign not only tends to sacrifice surprise but also wastes time in bringing the forces into action. Because of the logistics problem, it can be days or weeks before the full force of an attack is felt by the defender – time that can be enormously useful to the defender. In a marketing attack, transportation is usually not a problem, the bottleneck is the communication. Getting the leadership message across millions of customers can take months or years, but it is definitely worth your bucks to keep trying.

Principles of Offensive Warfare

Where absolute superiority is not attainable, you must produce a relative one at the decisive point by making skillful use of what you have – Karl Von Clausewitz

There is no such thing as a good marketing strategy in the abstract. Good strategy is bad and bad strategy is good, depending on who is going to use it. In fact, offensive strategy is very much like defensive strategy, just that the usage is entirely the opposite. Numbers 2 and 3 should ideally follow the offensive strategy only if they think they can match up with the leader. Like the defensive warfare strategies, offensive warfare also has three prime strategies or rules.

Rule #1: The main consideration is the strength of leader.
Rule #2: Find a weakness in the leader’s strength and attack at that point.
Rule #3: Launch the attack on as narrow a front as possible.

The psychological effect of an attack far outweighs any material damage inflicted. Whether the outcome of a battle is victory or defeat is more important than the casualty roll. “We knew that we played a part in that time-honored aims of military tactics – making the enemy feel so insecure that he leaves the field. That, after all, is the object of all military maneuvers, whether they are attempts to outflank or direct frontal attacks. Sometimes soldiers and generals kid themselves with arguments about wars of attrition that the basic principle of war is to destroy the enemy. But they are wrong, for it is when a feeling of insecurity corrodes the morale of the enemy that the battle is almost won.” Attacking does not merely consist of assaulting walled cities or striking at. An army in full battle armor; it must include the art of assailing the enemy’s mental equilibrium

Premeditated Offensives or Chance Encounters?

Remember the only place where success comes before work is in the dictionary. So keep working hard towards success and finally conquering the leader.

A relentless frontal attack strategy is what Coca-Cola in India continually launches against its customary rival Pepsi. Of course, Coke in India attacks Pepsi because not only can it match up with Pepsi, which still is the market leader in India, but also gives it a severe psychological trouble with its dominant flanking brand, Thums Up. According to statistics, Thums Up is the number 2 brand in the Indian soft drink industry, third being Coke itself. Coke’s inexorable attack on Pepsi on the too sweet taste of the latter (Offensive Principle 2: Find a weakness in the leader’s strength and attack at that point), also creates a huge psychosomatic incongruity. Coke being world wide superior to Pepsi is trying to create a battlefield positioning where the ultimate supremacy of the cola war in India goes to Coca-Cola.

Coke has realised that this battle for consumer positioning is extremely important in the emotionally charged Indian market and that’s what supremacy is all about. The attack is also strategic on the cola front, with stronger taste appeal in both the brands being made the premeditated focus. Only time can tell whether or not Coca-Cola India’s ruthless attack on Pepsi will pay dividends or Pepsi would continue to find favour in the consumers’ mind.

Hindustan Lever is another giant in the offensive warfare strategy following all the principles to the hilt. When one looks at India’s top FMCG company’s tactics in the toothpaste category, one can observe it as a great strategic offensive movement. Understanding the fact that it was extremely difficult to de-position Colgate from the consumer mindset, HLL’s move of intelligent positioning of Close-Up’s freshness through a narrow frontal attack enriched their decision.

Not just that, now a great frontal attack on Colgate’s health values has also been launched by their flanker brand Pepsodent. Though Colgate still remains the market leader, Hindustan Lever Limited has managed to infuse fear in their minds with increasing market share and consumer fidelity.

Korean car major Hyundai also did a great job when it attacked Maruti’s reign, pitching the Santro against Maruti’s ever popular Zen. They challenged Zen’s mileage and value for money factor with the narrowest frontal attack. They simply concentrated on Santro being just as economical but with better technology. The result has been a resounding success with Santro sales at an incline.

Elsewhere in the world, car rental firm Avis attacks Hertz with pure brilliance of offensive strategies. Hertz being the number one, at times, falters with packed counters resulting in sometimes faulty servicing and, therefore, consumer dissatisfaction. Avis masterminded a great attack on this weakness of Hertz. Avis talked of being perfect because of the number two tag. It’s important for Avis to maintain the best standards, cleanest cars, great customer satisfaction and, most importantly, a hassle free less packed counter for convenience of car rentals (attack on the leader’s strength). The result was an enormous success, both with the consumer and also in infusing fear in the competitor.

Thus, the similarity between war and marketing here is that both tend to attack the enemy’s strategy and create anarchy in the rival camp. The strongest survive and the weakest die. There is a doubling of the total output of goods and services in the advanced societies about every 15 years. This means that by the time an individual reaches old age, he will be surrounded by a society producing 32 times as much as when he was born. Such frontal attacks play on the inherent trait of impermanence – the transience – that penetrates our consciousness, radically affecting the way we relate to other people, to things, to the entire universe of ideas, art and values. If acceleration is a new social phenomenon, transience is its psychological counterpart. Companies must focus on long term war strategies if they want to craft their leadership in the minds of the consumers in this chokehold era of product as well as advertising explosion.

The toughest thing about success is that you've got to keep on being a success…