Beacon january 2015

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ISSUE 01JANUARY 2015 1

VOLUME 03BEACON
ISSUE 01JANUARY 2015
Contents
ABOUT US
OUR TEAM
INDUSTRY ANALYSIS
COMPANY ANALYSIS
BRAND ANALYSIS
GUEST LECTURE ON PRIVATE
EQUITY: AN EVENT REPORT
CONCEPT OF THE MONTH: GE
McKINSEY MATRIX

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OUR PRESENCE
ABOUT US
VISION
The SIMCON - SIMSREE consulting club is an
initiative started in 2012 for those students in
pursuit of excellence in management consulting
and strategic management. Aimed at creating
awareness among the students about consultancy
as a discipline, the club strives to maintain strong
relations with top consultancy firms and provide
platform to craft highly skilled & competent
consultants from SIMSREE. The club is a resource
for information about consulting and a place for
students to obtain real-world consulting experience.
SIMCON provides an avenue of interaction among
faculty, students and alumni through competitions,
live projects, guest lectures, and conclaves. For
this purpose the club has also been publishing its
monthlynewsletter– BEACON (BE A CONSULTANT)
and maintains a FACEBOOK PAGE where latest
news and development in the consulting industry
are posted.
MISSION
To create awareness amongst the students
about consulting industry & its latest trends.
To maintain strong relations with top
consultancy firms.
To provide platform to craft highly skilled &
competent consultants from SIMSREE.
To provide exposure to students via
competitions, live projects, guest lectures &
conclaves.
Contributions invited:
To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We
invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a
cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your
entries to simcon.simsree@gmail.com.
Best Regards,
SIMCON - SIMSREE CONSULTING CLUB

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SANANDANDESHPANDE
NIKHILRAO
AmeyaMAHABAL
DeepeshJethwani
PRATHAMESHINDANI
SUSHILGURAV
TEJAS SHAH
OUR TEAM

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TELECOM INDUSTRY
INDUSTRY ANALYSIS

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India - the second-largest telecom market with a subscriber base of 933 million by the end of
FY14, saw the fastest growth in new mobile-phone connections with 18 million net additions
in the third quarter of 2014.
Telecommunication services is one of the prime
support services needed for rapid growth and
modernization of various sectors of the economy.
According to TRAI reports, Gross Revenue (GR) of
Telecom Service Sector for the QE Jun-14 increased
by 3.63% over the previous quarter to Rs. 62919 Crore
while Adjusted Gross Revenue (AGR) increased by
6.91% over the previous quarter to Rs. 43852 Crore.
The year-on-year (Y-O-Y) growth in GR and AGR
over the same quarter in last year has been 9.88% and
13.49% respectively.
Current Scenario
ThenumberoftelephonesubscribersinIndiaincreased
to 942.95 million at the end of Jun-14, registering a
growth of 1.07% over the previous quarter and an
year-on-year (Y-O-Y) growth of 4.41% over the same
quarter of last year. The overall teledensity in India
increased to 75.80 as on 30th June, 2014 from 75.23 as
on 31st March, 2014.
With a net addition of 10.41 million subscribers during
the quarter, total wireless subscriber base increased
from 904.51 million at the end of Mar-14 to 914.92
0
200
400
600
800
1000
Urban (in million) Rural (in million)
Jun-14Jun-13Jun-12Jun-11Jun-10
219.09452.60
298.05587.94
343.76621.76
357.61
383.18
545.48
559.77
Broadband Internet subscribers increased to 68.83
million at the end of Jun-14 from 60.87 million at the
end of Mar-14 with quarter growth of 13.07%.
Industry Landscape
Players
The market share of telecom operators of the telecom
companies reflects the fragmented nature of the
industry, with as many as 13 players. As of 30th June,
2014, Airtel led the market with 22.55% market share,
Vodafone (18.02%), Idea (14.74%), Reliance (11.67%),
BSNL (11.40%), Aircel (7.75%), and Tata (6.83%),
with the remaining share being held by other smaller
operators.
Porter’s 5 Force Analysis
1. Threat of New Entrant
Huge barriers to entry in form of large economies
Rural Urban Telecom Subscription Trend
of scale, low product differentiation, large capital
requirements, heavy switching cost to buyers, and
unfavorable government policies in form of high
license costs, spectrum usage charges, exit barriers etc.
and presence of 6-7 players in each region dissuades
new players from entering the market.
2. Threat of Substitutes
With emergence of wireless devices and other
million at the end of Jun-14, a growth of 1.15% over
the previous quarter and an year-on-year (Y-O-Y)
growth of Wireless subscribers for Jun-14 is 4.76%.
Total number of Internet subscribers has increased
to 259.14 million at the end of Jun-14 from 251.59
million at the end of Mar-14, a quarterly growth of
3.00%. Out of the total internet subscribers Wired
Internetsubscribersare18.55millionwhereasWireless
Internet subscribers are 240.60 million. Number of
technological breakthroughs, the market share
of wireline companies has dwindled. Some of the

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substitutes like IP Telephony, Email, and Instant
Messaging etc. has also reduced the volume of voice
traffic of the wireless telecom operators. However
there are no commercially viable substitutes available
as of now. Hence threat of substitutes is low.
3. Bargaining Power of Suppliers
Although it might appear that the telecom equipment
suppliers have considerable bargaining power over
telecom operators, it is not the case. Large number
of equipment manufacturers combined with enough
vendors dilute the bargaining power.
4. Bargaining Power of Customers
The low differentiation between the services provided
by the telecom operators and low cost of switching
for retail customers backed by Mobile Number
Portability has resulted in the services being treated by
customers as a commodity. Although the customers
are price takers in the market, their bargaining power
is moderate on account of the ease of switching. The
business customers will however find it difficult to
switch to alternative service provider.
5. Competitive Rivalry
The industry is highly fragmented with 15 players
such that there exists as many as five-six players in one
region. With low product and service differentiation,
lower prices and innovative services are means of
attracting new customers. This tends to drive the
margins and profits down. In addition the high
exit barriers in form of regulations and specialized
equipments has increased the overall competition.
Impact Analysis
1. 3G intra-circle roaming agreements
The Supreme Court, in December 2014, refused to
stay a telecom tribunal order that had overturned a
government ban on telecom companies sharing their
high-speed networks through intra-circle roaming
agreements they had signed in 2011. While the final
decision in this matter is pending, the 3G intra-circle
roaming agreement is legal for now.
2. TRAI’s recommendation to the government to
explore alternative options to spectrum allocation
TRAI has stated in its report that there would be a big
crisis if more spectrum is not made available before
auctions are conducted. At present there is only 184
MHz spectrum in the 900 MHz band, an amount of
spectrum currently held by operators whose licenses
are up for renewal in 2015-16, 104 MHz spectrum
available in the 1800 MHz band as a back-up as was
the case in the auctions held in February 2014. In such
a scenario, if the operators fail to win back their 900
MHz band spectrum, they will be forced to close down
their services. Even if they win it back, the exorbitant
price will prevent them from investing further in
services and network.
3. Clarity on M&A and exit procedures
The government should set out clear rules on M&A
and exit procedures including the manner in which
customers, who form one of the key stakeholders of
M&A, should move from one company to another.
The telecom carrier Bharti Airtel had entered into Rs
700 crore-deal to buy the subscribers and assets of
Loop Mobile in Feb 2014. The DoT however raised
concerns that the proposed slump sale would flout
MNP rules causing a revenue loss to the government
as the users wouldn't be paying the stipulated Rs. 19
fee to change operators. Loop also owed government
about Rs. 800 crore in form of spectrum and other
charges.With Loop’s license expiring on November
29th 2014 and no clearance coming from DoT despite
Loop agreeing to pay the porting charges for its
customers, the proposed acquisition was called off.
The failure on part of DoT and TRAI to give timely
reply to the concerned stakeholders has resulted in a
Rs. 700 crore loss to the banks.
Challenges
1. High Debt
The low penetration of telecom services and expensive
spectrum licenses requires players to take up huge

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amounts of loan for infrastructural development and
operations. As per Capitaline, the total industry debt
as a percentage of assets is as high as 56.2%.
2. Falling Average Revenue per Users
Since the peak in 2008 of Rs. 264 per user per
month, the average revenue per user has decreased
considerably. However post 2012 when it bottomed to
Rs. 97 per user per month, the ARPU has recovered
on the back of favourable market conditions.
3. Intense competition due to highly fragmented
nature of the industry
Despite the cancellation of licenses by Supreme Court,
the number of players is still high at 15. With limited
spectrum and high number of players, the competition
is intense which has often resulted in price wars among
the players.
Opportunities
1. Virtual Network Operators (VNOs)
The objective of NTP-2012 to deliver high quality
seamless broadcasting, data, multimedia and voice
services on converged networks for enhanced service
delivery to provide superior experience to users can
be achieved through unified license. An alternative
strategy is to facilitate resale at the service level,
both wholesale and retail by introduction of virtual
operators. The present licensing regime in India
permits operators to both lay the network and provide
services. Because of technological developments,
namely, it is now possible to delink the underlying
networks from the provision of services.
2. Interconnection Usage Charges (IUC)
The design of the IUC regime needs to balance
disparate interests so that investments in network
expansion and upgradation are incentivized while at
the same time enhancing competition and consumer
interest. There is a consensus amongst economists and
regulators that interconnection prices based on cost
0
10
20
30
40
50
60
FY 14FY 13FY 12FY 11FY 10
34.8
49.5
53.3
56.2
54.8
0
50
100
150
200
250
300
FY 14FY 13FY 12FY 11FY 10FY 09FY 08
264
205
131
100 97
105
113
Total Industry debt as % of Total Assets (Source: Capitaline)
ARPU in INR per user per month (Source: TRAI)
are most likely to lead to such desirable outcomes. If
interconnection charges are set “extremely low” it will
lead to inefficient players entering the market. On the
other hand, if the interconnection charges are set “too
high” it will deter the entry of efficient players as the
existing service providers may concentrate only on
maximizing payments from other service providers.
In turn, consumers may end up paying more than they
need to.
3. Increasing Internet Penetration
India is the third largest country in terms of internet
users behind China and U.S. Indian Internet users
will surpass the number in the U.S. by the end 2015.
It is estimated that India will have around 500 million
internet users by 2018 almost twice that of users in
U.S. A PwC report expects that by end of 2015, 4G
subscriber base will touch 10-15 million driven by
affordable smartphones, competitive pricing and
superior network experience. PwC also expects the
data market to witness price war where the players
will eye for a market share with a long term goal of
retrieving the infrastructural costs.
Conclusion
The rapid strides in the telecom sector have been
facilitated by liberal policies of the Government of
India that provide easy market access for telecom
equipmentandafairregulatoryframeworkforoffering
telecom services at affordable prices. An exponentially
growing market with huge revenue potential, makes
India a lucrative market for telecom operators. With
the industry on firm footing, timely clearances from
the government, clarity in taxation, and reforms can
bring about another telecom revolution in the country.
References: IBEF, TRAI, The Hindu Business Line. Live Mint,
Financial Express, Economic Times, Business Standard.
For detailed report and all industry analysis from previous
Beacons, please visit: http://simconblog.wordpress.com

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IDEA CELLULAR
COMPANY ANALYSIS

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The third largest telecom operator by subscriber base, Idea's net profits has risen by nearly 95%
in FY14. With pan India license, the company provides GSM-based mobile telecommunications
services in 22 service areas in India and 3G services to 20 service areas.
Public holdings Kumar Mangalam Birla
Grasim Industries Ltd Hindalco Industries Ltd
Birla TMT Holdings Pvt. LtdAditya Birla Nuvo Ltd
IDEA CELLULAR SHAREHOLDING PATTERN (%)
57.72%
23.29%
7.88%
6.35%
4.75%
0.01%
Idea Cellular, popularly called as Idea is an Indian
mobile network operator company. Idea started its
operations in 1995 when it first acquired its licenses
for providing GSM-based services in Gujarat and
Maharashtra circles. Idea is pan-India integrated GSM
operator providing services of 2G, 3G and 4G and also
ISP license. It is regarded as amongst top 3 operators
in India and amongst the top 10 operators all around
the world. It has traffic of nearly 1.5 billion minutes a
day. Idea has nearly 4500 exclusive outlets and 7000
call centre seats. Idea is listed on BSE and NSE.
As of March 2014, Idea’s market share is 16.1%
and the customer base has been expanded to 136
million. Net profits of FY 13-14 have risen by nearly
95%. The company provides GSM-based mobile
telecommunications services in 22 service areas in
India and 3G services to 20 service areas. The company
has its GSM mobile service in Andhra Pradesh, Bihar-
Jharkhand, Delhi-NCR, Gujarat, Haryana, Himachal
Pradesh, Karnataka, Kerala, Madhya Pradesh-
Chhattisgarh, Maharashtra-Goa, Mumbai, Orissa,
Punjab, Rajasthan, TamilNadu-Chennai, UP-East and
UP-West telecom circle.
Shareholding Pattern
42.28% is held by the promoters of the company while
the rest 57.72% is open to public. The major promoter
holding includes Aditya Birla Nuvo with a 23.29%
of shares while the lowest holdings include that of
Mr. Kumar Mangalam Birla, chairman Idea Cellular.
The other promoters include Birla TMT Holdings,
Hindalco Industries and Grasim Industries. All the
other Promoters are a part of Aditya Bila Group of
companies.
IDEA CELLULAR'S NETWORK GROWTH

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0
20
40
60
80
100
FY14FY13FY12FY11FY10
34.1
37.9
50.9
60.0
83.3
Key Financials
1. IDEA has shown a strong and robust growth in
EBITDA over the period of time. FY13-14 has
shown a growth of 38.83% while a CAGR of 25%
from 2010-14.
IDEA CELLULAR EBITDA GROWTH
0
5
10
15
20
FY14FY13FY12FY11FY10
9.5
9
7.2
10.1
19.7
NET PROFITS (in INR billion)
Particulars March 2014 March 2013
Debt to Equity Ratio 1.14 0.80
Asset Turnover Ratio 0.89 0.91
Operating Profit
Margin
27.78 23.19
Net Profit Margin 6.45 3.70
EPS 5.09 2.47
2. Net Profits have risen to INR 19.7 bn from INR
10.1 bn. The year on year change is shown by the
graph below:
3. With the wired broadband market still at the
nascent stage in India there is a plenty of growth
opportunity in this area. IDEA has consistently
increased its non-voice data services.
Key Ratios
0
1000
2000
3000
4000
5000
6000
7000
8000
Data revenue(INR mn)
Q4FY14Q3FY14Q2FY14Q1FY14Q4FY13
6
8
10
12
Data revenue as % of service revenue
3874
4617
5416
6168
6193
6.6%
7.2%
8.7%
9.5%
10.1%
INCREASING SHARE OF DATA REVENUE
Competitor Analysis
IDEA ranks number 3 in terms of subscriber base and
revenues. Major competitors of IDEA include Airtel,
Vodafone and Reliance Comm. Currently Vodafone
is the only foreign company in India in the telecom
sector. The market capital, sales turnover and net profit
of all the competitors is mentioned the table below:
Company Market Cap. Sales
Turnover
Net Profit
Bharti Airtel 137,150.80 49,918.50 6,600.20
Idea Cellular 52,608.28 26,179.47 1,689.31
Reliance
Comm.
19,927.19 11,176.00 730.00
Tata Comm. 12,141.00 4,376.40 542.43

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SWOT Analysis
Recent Market Happenings
1. Drop in Oil Prices: Power and fuel contribute
towards nearly 15% of the operator’s cost. Diesel
is used to run the towers. The recent fall in the
global oil prices and a local fall in Diesel prices
would increase the operating profits by 30-50 basis
points for the telecom sector. The offset by savings
on diesel though would not suffice the licencing
costs of the firms.
2. Mobile Internet rate hikes: A recent hike by top
companies in their mobile internet prices to lessen
the debt ridden industry. The increase has been
somewhere around 30%. IDEA has changed its 2G
data pack (1GB limit) from Rs. 155 to Rs. 175
3. SeparateChargesonVoIPdataon2Gand3G:Airtel
had started charginsg separately for VoIP data over
2G and 3G. This has been one off condition where
the operator defies the net neutrality principle of
Obama and chooses to separately charge for VoIP.
This change can trigger IDEA and Vodafone to
follow the same. VoIP is any voice sent over the
internet using 2G and 3G. This can be through
video or voice calls made by using Skype, Viber,
Google or any other application.
4. Reliance Jio entry into 4G: DoT has given Reliance
Jio Infocomm Lmt. (RJIL) clearance in 6 circles
for its 4G operations. RJIL is the only company
to acquire the spectrum during the $8 billion
auction. It can definitely give them a first movers’
advantage over here. This is a potential threat for
other telecom companies.
Recent Developments in IDEA Cellular
• Dividend payout: IDEA has given out a dividend of
Rs 0.4/ share at face value (4%). A total of Rs 1554
mn of dividend is paid in the year 2014.
• Capital Expenditure: Infrastructure costs for 2G
and 3Gsites and fibre cable transmission network
added to the capital expenditure of Rs. 46,049 mn.
It spent a Rs. 104,242 mn in spectrum auction
held in February 2014. IDEA acquired a 5 MHz
of spectrum in 900 MHz band and 60.2 MHz
spectrum in 1800 MHz band.
• Long Distance and Other Services: IDEA is making
a steady investment in fibre cables which will
help them to tap into future potential of wireless
broadband. The fibre cable transmissions have been
expanded to 82,000 kms compared to 74,000 kms
since last year.
References: IDEA Cellular, DNB, LiveMint, TelcomTalk, TRAI,
EconomicTimes
For detailed report and all company analysis from previous
Beacons, please visit: http://simconblog.wordpress.com

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NIKE
BRAND ANALYSIS

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Founded by two visionary men who pioneered a
revolution in athletic footwear, Nike has redefined the
sportswear industry. In existence for over 40 years,
today, Nike is the largest seller of apparel, athletic
footwear, and equipment in the world. Like many
companies of that era, Nike had a humble beginning.
Nike’s Origin
With change in strategy, Knight thought it prudent
to change the name of the company. The brand Nike
was introduced in 1972 to this end under BRS. The
SWOOSH logo, a graphic design created by Caroline
Davidson in 1971 for just $35, represents the wing
of the Greek Goddess NIKE. In 1978, once the name
Nike and Swoosh became synonymous, the company
was eventually renamed to Nike.
The Innovation Curve
The company's innovation debut was in 1979 when
it introduced air cushioning technology. The shoes
featured a NASA engineer invented gas-filled plastic
membranes that could be inserted into the sole for
comfort during running. It kept up the revenue of Nike
for long. But in mid 1980s the revenue started to dip
mainly because the management did not take note of
the aerobics boom. Nike's competitors had, however,
by then developed their business in this segment.
In a bid to regain its edge Nike, in 1987, launched a new
product named Air Max. The shoes had sole with two
interdependent bags, having compressed air inside,
which helps in absorbing shocks during running and
jumping. In order to suit individual needs, Nike also
customized the product by inserting bags of different
sizes depending on the height and pressure exerted by
customers.
The marketing campaign for Air Max was supported
by TV ad having Beatles' Revolution as the soundtrack
(Beatles song was being used in a TV ad for the first
time). Riding on the success of this campaign, Nike
launched an even more empowering series of ads a
year later with the tag line Just do it. The campaign
featured Walt Stack, then 80-year old icon, running
across the Golden Gate Bridge (Click to see the first
“Just do it” commercial). Another campaign had three
advertisements featuring young sportsman Bo Jackson
who campaigned on the benefits of a new cross-
training pair of Nike shoes. (Click to see Bo Jackman
Just Do It Campaign)
Nike’s Current Portfolio
NIKE’s brand portfolio also includes several brands
developed or acquired by it. Most famous of them are:
• ‘Jordan’ – targets basketball-related products
named after basketball superstar Michael Jordan
• ‘Hurley’ – youth-focused brand targeted at action
sports like surfing, skateboarding and many more
• ‘Converse’ – a wholly owned subsidiary brand
dealing in apparel, casual sneakers, and accessories
Bill Bowerman (right) with an athlete from University of Oregon
Bill Bowerman, a nationally respected track and field
coach at the University of Oregon, was constantly
seeking ways to give his athletes a competitive
advantage. Phil Knight, a talented middle-distance
runner from Portland, had enrolled at Oregon in the
fall of 1955. In span on time, while competing for
Bowerman’s track program, they became best friends
and both shared a view that the athletes deserved better
running shoes than those available in the U.S. market
at that time. Knight earned his MBA in finance from
Stanford University after graduating from Oregon.
It was here that he wrote a paper proposing quality
running shoes be manufactured in Japan to compete
with more established German brands.
Knight made a cold-call and persuaded the
manufacturer of Tiger shoes - Onitsuka Co. in Kobe,
Japan, to make him a distributor of Tiger running
shoes in the United States. Having received the
first set of sample shoes, Knight sent several pairs
to Bowerman, hoping to make a sale. Bowerman,
instead, stunned Knight by offering to become his
partner, and to provide his design ideas to Onitsuka
Co. They established Blue Ribbon Sports by pledging
$500 each and placed their first order of 300 pairs of
shoes in January 1964. In 1966, BRS opened the first
retail store in Santa Monica, California.
After reaching $ 1 million mark in sales, the Blue
Ribbon Sports parted ways with Onitsuka Tiger, and
began to design and subcontract its own line of shoes.

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Targeting
Broadly, NIKE has products for people from all age-
groups:rightfromnewbornskidstoteenagers,adults
and even the old. For example, any new revolutionary
designed footwear is generally released for all age
groups. However, its core focus is on people in the age
group of 18-35 years old.By opening women’s-only
stores in California, Shanghai, etc., Nike has started
expanding its presence in the women apparel market
because of its untapped potential
Positioning
NIKE positions itself as an athletic-wear brand that
believes in an individual’s ability in being an athlete.
Differentiation
The ‘Swoosh’ logo and ‘Just Do It’ slogan directly
create a sense of brand recall for NIKE. NIKE has
differentiated itself from others by directly appealing
the inner self of an individual as some of the common
phrases people relate with NIKE are ambition,
motivation, emotion performance which are a
testimony to the brand’s equity.
Beyond Sportswear
In due course, even the hi-tech Air Max technology
was found to be inadequate to entice customers. Nike
needed something that would differentiate it in the
long run. It had to be very appealing and also at once
very distant from the core business. The focus was on
gadgets. It had less to do with shoes and more to do
with athletes. Nike's sales philosophy - if you have a
body, you are an athlete - had enticed everybody who
wanted to think of himself/herself as an athlete or
wanted to get more athletic.
Nike introduced its first mass produced gadget, Nike
+ iPod Sports Kit, in the US market in 2006. It was a
tool to measure the distance and speed of a run or a
walk and was built on a virtually flawless partnership
Nike's Mission Statement
strategy.Nikewasactuallysellingjustasmallelectronic
chip that had to be inserted in the shoe and a wireless
connection device that had to be plugged to an iPod.
All the calculation, storage, and integration was done
by the iPod. It paved the way to a truly innovative
future of the company.
An upgraded product, Nike + Sportband Kit (released
in April 2008), no longer needed an iPod and could be
connected to the computer directly to download the
results. All the products designed post release of this
kit were an enhancement of this concept. A Nike +
Sportwatch was also introduced in combination with
Nike iPod Sport Kit

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the chip.
In September 2010, Nike introduced a running app to
be used in the latest iPhones. The running app used
the phone's accelerometer and so there was no need of
a chip in the shoe. Miles ahead of its competitors with
a user community of more than six million people,
Nike products were not only dressing up the athletes
but also coaching the masses who wanted to be like
athletes. The users of Nike+ can not only store and
review their results in their computers or devices but
also analyze and share them within the community.
Through apps, the customers are now more close to
Nike. It can study them and communicate with them
conveniently. Thanks to its technology leap, Nike was
able to reduce advertising expenses by 40 per cent
without compromising on efficiency and results.
Nike’s Social Media Initiatives
In 2008, Nike created its Facebook account. Today,
Nike maintains a Facebook page for each sub-brand,
running product specific promotions, featuring events
in a particular sporting activity, and also providing
information on the latest game of endorsed athletes.
For example, a Facebook user who desires to know
more about the latest football shoes or game can turn
to Nike Football Facebook page.
Pairing up with Apple Inc. - a company known for its
innovative products, helped Nike by increasing brand
awareness and also reaching out to customers who
were still in two minds about choosing their brands
by bringing into its fold the Facebook fans of Apple.
The tie-up with Apple was Nike's realization that most
runners will use iPods or iPhones to listen to music
while jogging. Apple’s iPhones and iPods thus came
pre-installed with Nike+ app. With this, iPhone/iPod
users can map out their running route and later share
it with their Facebook friends.
Carrying forward the same strategy, Nike has separate
Twitter handles for each of its sub-brands, sport
category, countries and even cities. A key differentiator
for NIKE is an independent customer support handle
which aims to resolve customer issues at the highest
priority and thus helping promote the image of the
brand.
By numbers, Nike is ‘The most followed brand’ on
Instagram. Almost all the media Nike has uploaded on
the social media uses exotic landscapes with athletes
and a motivational taglines to inspire and connect
with their target audience. The brand’s action-oriented
image of positivity aims to instill self-confidence in
the minds of its followers.
One of the company's latest products is Nike FuelBand,
a wristband that tracks user’s wrist movement, and
calculates the amount of energy spent during a
day by predicting the activities performed and the
approximate amount of calories burned. However,
because 100 calories burned by a person who weighs
100 kg is not the same as the same amount of energy
burned by a person who weighs 50 kg, the number
of calories spent is not a robust index of energy used.
So, to create a platform where a group of people can
compare their energy spent, Nike has come up a new
index called Nike Fuel.
biggestsellingpointistheNike+FuelbandCommunity
on Facebook. The social media site is used by Nike to
motivate its users to get fit. On this page, Nike sets a
new challenge for its followers every week. It is here
that Nike Fuel comes into play. Users can compare
their accumulated Nike Fuel and comment on the
challenge, motivate each other, share their difficulties
and get suggestions on how to improve the general
level of fitness. (Click here for Nike+ YouTube video
that showcases Nike+ users’ efforts in 2014 and sets a
challenge for 2015)
References: Forbes, Complex.com, Virginia.edu, Business Today,
Nike.com, Sports.ru
For detailed analysis, please visit: http://simconblog.wordpress.
com
Nike Fuelband
0
5
10
15
20
25
Instagram Twitter Facebook
PumaAdidasNike
22.6 4.3 10.8 19.7 1.7 3.0 13.8 1.1 0.7
FollowersinMillions
Nike's Presence on Social Media

VOLUME 03BEACON
GUEST LECTURE ON PRIVATE EQUITY
EVENT REPORT

VOLUME 03BEACON
On 2nd November 2014, SIMCON organized a guest
lecture by Mr. Anil Talreja, Partner at Deloitte Haskins
Sells. Mr. Talreja spoke on “Private Equity. a
Mr. Talreja started his lecture by giving the basic
idea about Private Equity. He explained in very
simple terms, how high net worth individuals and
institutions make investments and acquire ownership
in companies. a
After explaining the concept of Private Equity, Mr.
Talreja compared the Private Equity investments in
India with those in Western countries. The discussion
mainlyrevolvedaroundthePrivateEquityinvestments
in family owned businesses. He explained why family
owned businesses in India are somewhat skeptical
about the involvement of an external investor in their
business. a
Mr. Talreja then continued by explaining the structure
of Private Equity investment. Though the structure is
very complex in real life scenarios of Private Equity
investments, he kept it simple by including only
the most important blocks of the structure such
as Investors, PE House, Management Company,
Investment Company etc. a
Mr. Talreja talked briefly on Venture Capitals as well.
PE and VC are similar as they both are in the business
of buying low and selling high. But they are different
on many parameters, one of them being the target
companies. While Private Equities usually target
mature and underperforming companies, Venture
Capitals usually target startups and early stage
companies. a
Mr. Talreja then discussed about some real life case
studies such as Vodafone tax evasion issue which the
Supreme Court ruled it in favor of Vodafone. Then Sir
talked about GAAR (General anti-avoidance rules)
and stressed on the importance of its implementation
in India. a
The lecture was very engaging wherein the students
asked a lot of questions and Mr. Talreja answered
them all. The students at SIMSREE found the lecture
very beneficial. We thank Mr. Anil Talreja for taking
time out and giving this very important lecture.
Some Key Take Aways
Difference between Private Equity and Venture
Capital
Though theoretically, Venture capital is viewed as
a segment of private equity, but for the purpose of
making investment decisions, their characteristics are
sufficiently distinctive for us to treat them as separate
asset classes. These characteristics include target
companies, deal structures, risk-reward profiles, tax
benefits, minimum capital contributions, liquidity,
control vs. minority share, investor expertise, etc. a
Private equity, simply, is capital that is invested in
private companies or in a public company that is
eventually delisted because the owners want to restrict

VOLUME 03BEACON
the number and/or kinds of people who can invest in
them and avoid the regulations that public companies
have to abide by. Private equity investors tend to target
companies which may be under-performing or under-
valued, with an aim of improving their profitability and
selling them for a return on their investment (capital
gain) — or in some cases, splitting the company apart
and selling their individual assets at a profit. a
Venture investors, on the other hand, aim for early-
stage startups and expanding companies with fast-
growthpotential,withthegoalofmentoring,nurturing
and growing them as quickly as possible, then selling
them through MA deals or taking them public.
VCs expect that most of the companies they invest in
will fail, but that at least 1 investment will reap huge
returns and make the entire fund profitable. Venture
capitalists invest trifle amounts of money in dozens of
companies, so this model works for them. But it will
never work in PE, where the investment size is much
larger and the number of investments is smaller – if
even 1 company “failed,” the fund would fail. a
Family-run business' averseness to Private Equity
Indian companies which are mostly family-owned,
have been averse to selling their stake and preferring
to raise funds by borrowing from banks or going
public. Global private equity firm KKR Co LP co-
founder Henry Kravis said buying controlling stakes
in companies is really tough in emerging markets,
particularly in India because of the prevalent family-
owned business structure and its aversion to dilution
of their equity stake in the company. Secondly family-
run businesses tend to control how the business should
be run. They also are reluctant to undertake significant
restructuring of their operations, partly because they
fear this could lead to a dilution of their distinctive
culture and values. a
The PE players that operate in India deploy several
measures to meet these challenges. PE funds operating
in India, now, focus on evaluating, monitoring and
strengthening corporate governance at their portfolio
firms. a
Comparison between Private Equity and Venture
Capital
Private Equity Venture Capital
Target
industries
All industries,
usually with
established
marketplace for
the product or
service
High-growth
industries like
high-tech,
biomedical,
alternative
energy
ROI
expectation
Depends on
inherent risk of
specific firm and
industry. Target
can be 20%/year
over five years,
more likely
10%/year or less
Many failures,
some solid
returns, a few
spectacular
successes. ROI
is usually lower
compared to PE
Liquidity
horizon
6 to 10 years 4 to 7 years
Share
acquired
Controling stake
(often 100%)
Usually minority
stake in company
Funding
structure
Equity and debt Often equity
only, but can be
structured to fit
needs of both
partiesw
Investor
active?
Investors may
be passive
with respect to
management,
unless purpose
of acquisition
is to improve
company
performance
Investors
provide advice,
connections,
distribution;
monitor cash
burn; etc.

VOLUME 03BEACON
CONCEPT OF THE MONTH
GE McKinsey Matrix

VOLUME 03BEACON
The GE-McKinsey matrix (also known as the GE
multi-factor portfolio matrix or the Directional Policy
matrix) is essentially a framework used to plan the
portfolio of a business/organization. It was formulated
by McKinsey for General Electric in the 1970s; hence
the name. It helps decide: a
• New products that an organization should add
(portfolio expansion)
• New businesses/markets an organization should
invest in
Hence, it finds extensive use by Product Managers
Brand Marketers to devise future plans to help them
understand where to invest their cash.
Organizations internally have Strategic Business
Units which function as separate entities based on
the segment of products they are working on. We
plot Strategic Business Units (SBUs) or products on
the McKinsey matrix as circles of varying centers and
radii (as shown on page 22); which are supposed to
convey the below information:
• Size of the circle is an indicator of the market size
• Pie-chart representation is an indicator of the
market share
• An additional arrow added on the circle could be
an indicator of the expected future level of the circle
How does the McKinsey matrix help in
making strategic decisions for a business?
There are three ways in which you can allocate/modify
the resource allocations to a Strategic Business Unit:
• GROW (Increase investment in)
1. Strong Business Units in Attractive industries
2. Average Business Units in Attractive industries
3. Strong Business Units in Average industries
• HOLD (Continue investment in)
1. Strong Business Units in Attractive industries
2. Average Business Units in Attractive industries
3. Strong Business Units in Average industries
• HARVEST (Reduce investment in/liquidate if
required)
1. Weak SBUs in Unattractive industries
2. Average SBUs in Unattractive industries
3. Weak SBUs in Average industries
Is the GE-McKinsey matrix better than the
BCG matrix?
• The GE-McKinsey matrix uses market/industry
attractiveness (a broader concept dependent on
multiple factors – market growth rate being just
one of the factors) to measure if it is worth entering
a particular market; against solely using market
growth rate which is a skewed indicator as used by
the BCG matrix.
• TheGE-McKinseymatrixusesBusiness/Competitive
strength (a broader concept which includes market
share as one of its concepts along with many more)
to understand how a strategic business unit can deal
with its competition; against solely using market
share which is a skewed indicator as used by the
BCG matrix.
• Lastly, the GE-McKinsey matrix is a 3x3 matrix
The GE McKinsey Matrix

VOLUME 03BEACON
allowing higher level of adding details for
categorization – High, Medium Low; against a
2x2 BCG matrix which categorizes it parameters
directly as High or Low.
As Market Attractiveness Business strength are
broader concepts as compared to market growth rate
market share respectively, let us understand the
factors they rely on and get impacted by.
Factors affecting Market
Attractiveness
Factors affecting
Business Strength of a
SBU
Market size growth
rate
Market share market
share growth
Profitability Customer retention/
loyalty
Barriers to entry Quality-oriented culture
Changes in demand Production capacity
Segmentation
Differentiation of
product
Strength of distribution
chain
Trends in pricing Cost Profit Margins
compared to competitors
Rivalry from
competition
Available assets
Financial resources
Macro-environmental
factors (PEST Analysis)
Brand value
Having seem some of the distinct advantages of the
GE-McKinsey matrix over the BCG matrix, it’s also
important to understand that categorization of SBUs
as required by the GE-McKinsey matrix isn’t an easy
job and thus it takes longer to construct than a BCG
matrix. Also, it fails to take care of is the dynamic
relationship between SBUs. For example, it is possible
that a high-scoring SBU may in turn be dependent on
a low-scoring SBU and hence it would be important to
retain and increase investments in both.
References: McKinsey, QuickMBA, ChangingMinds

Beacon january 2015

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